U.S. Mortgages Still Worry Foreign Markets

Lack Of Investor Confidence Leads To Weak Dollar, Higher Prices In U.S.

(CBS/AP)  Asian markets fell sharply Monday after Wall Street declined at the end of last week on renewed concerns about U.S. mortgage problems. European markets, however, were mixed in early morning trade.

"Basically, the subprime loan issue still drags on, and there is no prospect of what can end the problem," said Shinichi Ichikawa, chief strategist at Credit Suisse of the falls in Asian markets.

Major banks warned last week of further losses in their debt portfolios, raising investor concerns that the credit market slump isn't abating.

The weak dollar is wreaking havoc on investor confidence and the impact is just beginning to be felt in many ways, reports CBS News business correspondent Anthony Mason.

The dollar, once the gold standard of currencies, is falling hard and fast around the world. At about $1.46, the euro is up nearly 12 percent against the greenback. The yen is trading at about 110 per dollar, an 18-month high, and for the first time since 1976, the Canadian dollar has risen over 20 percent in value against the U.S. dollar at $1.06.

On Friday, the Dow Jones Industrial Average tumbled more than 220 points, ending down 4 percent for the week. The S&P 500 lost 21 points - a 4 percent drop - and the Nasdaq closed off 68 points, a 6½ percent plunge.

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The culprit? Mason reports experts point to rising oil and gasoline prices, the slumping housing market, concerns that foreign investors will dump their dollar-holdings and speculation that the federal reserve could cut interest rates for the third time this year.

"Until we get a better handle on the total of the overall exposure, and sort of see this play out ... I still think it's going to be a bit of a dark hole as far as the financials go," said Art Hogan, a stock analyst at Jefferies & Co.

Even pop culture has taken notice: International supermodel Gisele Bündchen said she wants to be paid in anything but the dollar. She later admitted it was only a joke.

The question remains how much this will impact consumer confidence as we head into the holiday shopping season.

Even the Fed refuses to speculate when things will get better.

"Economists are extremely bad at predicting turning points," said Federal Reserve chairman Ben Bernanke.

"What does this mean to the American consumer?" asked CBS News Early Show co-anchor Harry Smith.

"When you look at the dollar and you think 'it looks the same to me.' But if you even thought about taking a European vacation, maybe going to the Eiffel Tower for the first time, you priced it out and gagged, because what you pay $10 for here, it's $15 or $20 over there," says Mason.

"Not all of us are thinking of going to Europe, let's face it, but this even affects gas prices. Oil, for example, is priced in dollars. So when oil goes up to $100, it looks really expensive to us. For Europeans, it's a lot cheaper, so they can buy more.

"Go to a department store in New York right now and you're likely to be elbowed aside by a stampede of Europeans who are here on a feeding frenzy because everything looks so cheap," reports Mason. "That same thing applies to oil. The same people that can buy everything here because it looks cheap buy oil because it looks cheap."

"For the U.S. economy, the risk of recession is increasing toward the next year amid the lingering subprime loan problems," which, combined with higher oil prices, prompted players to sell the dollar, Ichikawa said.

And if foreigners start dumping the U.S. dollar, it would plummet and that would raise prices for everything for us in the world and create great inflation, warns Mason.

[johnstossel]

It''s a shame that a few greedy- *** bankers can ***-up our whole economy!!!

[feelfree1]

"U.S. Mortgages Still Worry Foreign Markets"

Don''t jump the gun!

The worst of the housing market collapse is yet to come!

[AgentGGG]

A falling dollar on the upside will attract foreign investment, who can buy US assets at favorable prices. So for example, international banks may view the subprime situation and the falling housing market as additional incentives to underwrite US mortgage loans. This can become a win-win situation for all and the alarmist tone in this article is unfounded.

What is unfortunate, is that we have outsources so much of our production capacity, that the falling dollar does not help us. Even if firms have priced their entire value chain in dollars, including all their Asian transaction, at some point the Asian partners will balk and be forced to readjust. Thus by outsourcing, we lose the ability to profit from the falling dollar.