Mon, Jan 31, 2005 page11

• Gates, and others, bet against the US dollar

  GOING DOWN The US budget and trade deficits are going to send the greenback even lower without an unlikely change of policy by the George W. Bush administration

  • BLOOMBERG
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  Bill Gates, whose net worth of US$46.6 billion makes him the world's richest person, is betting against the US dollar.

  "I'm short the dollar," Gates, chairman of Microsoft Corp, told Charlie Rose in an interview late yesterday at the World Economic Forum in Davos, Switzerland. "The ol' dollar, it's gonna go down." Gates's concern that widening US budget and trade deficits are undermining the US dollar was echoed in Davos by policymakers including European Central Bank President Jean-Claude Trichet and German Chancellor Gerhard Schroeder.

  The US dollar fell 21 percent against a basket of six major currencies from the start of 2002 to the end of last year. The trade deficit swelled to a record US$609.3 billion last year and total US government debt rose 8.7 percent to US$7.62 trillion in the past 12 months.

  "It is a bit scary," Gates said. "We're in uncharted territory when the world's reserve currency has so much outstanding debt."

  A week before Group of Seven officials meet to discuss currency policy, Trichet repeated the ECB's concern over the US dollar's drop to record lows against the 12-nation euro currency.

  The euro rose as high as US$1.3666 per US dollar on Dec. 30. The US currency last traded at US$1.3038 per euro yesterday in New York. A stronger euro reduces the competitiveness of European exports and crimps growth among the nations sharing the currency.

  "The governing council of the ECB has repeated a very, very short sentence, namely that the sharp moves upward of the euro were unwelcome and that we thought they were counterproductive from the economic growth perspective," Trichet said at a Davos panel discussion today.

  The last meeting of G-7 finance ministers in Washington in October said that exchange rates should reflect economic fundamentals and that excess volatility in currencies is "undesirable." US growth reached a five-year high of 4.4 percent in 2004, outpacing Europe for the 11th time in 12 years. The euro region probably grew 2.1 percent, according to European Commission estimates.

  US President George W. Bush is pledging to clamp down on spending to halve the budget deficit -- US$427 billion in the 12 months through Sept. 30 -- during his second term. The administration releases its fiscal 2006 budget on Feb. 7.

  The US budget shortfall is "the No. 1 risk, disregarding geopolitical risks" to the global economy, German Deputy Finance Minister Caio Koch-Weser said in a Jan. 27 interview in Davos. He urged Bush to present a "credible" plan for getting the deficit under control.

  Chinese central bank adviser Yu Yongding (於永定) said in Davos the US government should do more to tackle its record current- account deficit and ease pressure on China to loosen its currency's peg to the US dollar.

  "The US should take the lead in putting its own house in order," Yu said. "It's the root cause" of global imbalances.

  "China will make its contribution, but the world should not put disproportionate pressure" on the country.

  US policymakers, including Trade Representative Robert Zoellick, defended Bush's deficit-reduction plans and blamed the US trade gap on sluggish growth in Europe and Japan, which reduces foreign demand for American goods.

  "One has to get the budget deficit down, but the question is how do you do it," Zoellick said today on the same panel with Trichet. "It's at least our view that you want to do it by slowing the growth of spending."

  Gates reflected the views of his friend Warren Buffett, the billionaire investor who has bet against the US dollar since 2002.

  Buffett said last week that the US trade gap will probably further weaken the currency.

  "Unless we have a major change in trade policies, I don't see how the dollar avoids going down," Buffett said in an interview with CNBC on Jan. 19.

  Gates in December joined the board of Berkshire Hathaway Inc., the investment company that Buffett runs. Forbes magazine's list of billionaires ranks Gates, 49, No. 1. Buffett, 74, is second, with more than US$30 billion. Almost all of it is in Berkshire stock.

  Gates described China as a potential "change agent" for the next two decades. "It's phenomenal," Gates said. "It's a brand new form of capitalism." Gates's US$27 billion foundation in September received approval from China's foreign-currency regulator to invest as much as US$100 million in the nation's yuan shares and bonds.
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