I've read several articles lately that mention the possibility of March 16 being a "tipping point". This is a term given to an event or events that mark a significant point in time where, in hindsight, it becomes apparent that things will no longer be what they were.
Here's one of them from Morgan Stanley's Stephen Roach.
Tipping points are a great concept, but virtually impossible to identify ahead of time -- let alone when they are occurring. It is only with the great luxury of hindsight that we can look back and know that the proverbial bell has rung. In my view, March 16, 2005 could end up in the running as a possible tipping point for America. Suddenly, the US has taken on a very different aura in an increasingly unbalanced world: The confluence of a record current account deficit, a disaster from General Motors, and yet another new high for oil prices all speak of an increasingly precarious role for the global hegemon. World financial markets have barely begun to sniff that out.
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But the message from overseas is that this game is just about over. One by one, Asian central banks -- America's financiers at the margin -- have dropped the not-so-subtle hint that they are saturated with dollar-denominated assets. From Korea and Japan to China and India -- not to dismiss Malaysia, Hong Kong, and Singapore -- there is a growing protest to massive dollar overweights in official reserve portfolios. The standard American response borders on arrogance: "What choice do they have?" The presumption is that the US has externally driven Asian economies over a barrel -- unwilling to accept a deterioration in export competitiveness that currency appreciation might bring. This misses a key cost-benefit tradeoff -- weighing the hit to exports against the fiscal cost of a portfolio loss on holdings of dollar-denominated assets. The bigger the build-up of dollar reserves, the more this tradeoff is likely to tip toward dollar diversification -- spelling the end of America's cut-rate foreign financing.
