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Foreign Exchange

Is it time to fold on Asia's US gamble?

Asia's leaders are playing a dangerous game of poker with the US, accumulating dollar reserves even as the US currency falls. Excess liquidity is driving stock markets in Asia and threatens to inflate bubbles while economic restructuring is patchy. The game cannot continue indefinitely: the end could be ugly. Chris Leahy reports.

THE STAKES ARE higher than ever before for a seat at the table for Asian economies exporting to the US. And each month they get higher still. The rules of the game require Asian countries collectively to finance the US to the tune of roughly $1 billion a day. In exchange, the US buys all the manufactured goods that Asia's factories can produce.

There are perhaps a dozen Asian players around the table, all paying the US to purchase the same basic goods. When the exporters sell the dollars they receive from the US, Asian governments eagerly buy them, selling their local currency in exchange. That keeps their exchange rates low and the US in the game so that the next hand can be dealt.

"The Asians are working their butts off to make Nike shoes for $10 which Nike sells for $50 in US malls," says Marc Faber, managing director of Marc Faber Limited, an economist and self-avowed contrarian. "They then purchase dollars that are produced on a printing press."

That printing press had churned out a staggering $490 billion in IOUs by the end of 2003, a sum that is forecast to jump perhaps as high as $600 billion in 2004.

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