Willem Buiter: Massive Dollar Collapse.

Willem Hendrik Buiter

Chief Economist Citigroup

Chair London School of Economics.

Founding member of Monetary Policy Committee.

Former Bank of England Policymaker.

According to Mr. Buiter

1. The long held assumption that US government bonds are a safe haven will soon be overturned.

2. Exodus of foreign cash from US Securities.

3. Reigniting fear of currency prospect.

4. Question marks over Obama's mooted plans for a Keynesian style increase in public spending to pull US out of economic trouble.

Writing on his blog, Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."

He said that the dollar had been kept elevated in recent years by what some called "dark matter" or "American alpha" - an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.

"The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."

He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.