Wednesday :: Nov 17, 2004

A Dollar's Worth Of Economic Advice


by pessimist

As I have written over the last few days, the dollar is driving a new wedge between former allies. As the dollar sinks in relative value, other economies are adversely affected. In the past, such actions would lead to war, but since our warmonger is all tied up chasing Mullahs in the Mountains and Mosul Muslims, I'm sure that the affected economies are eager not to have to mobilize - they can accomplish their goals without their militaries.

Dollar drops to new all-time low against euro

The U.S. dollar dropped to a new all-time low against the euro Wednesday as the European currency rose to $1.3047 amid deep skepticism over Washington's commitment to a "strong dollar" policy.

Persistent worries over high oil prices and the U.S. trade and budget deficits have pushed the dollar to new depths against the 12-nation euro in recent weeks.

Last Wednesday, it rose above $1.30 for the first time since its launch in 1999, spiking up to $1.3007 prompting European politicians to voice concern that the rally could hurt the continent's export-driven recovery.

Not that Bu$hCo gives a flying filbert!

UPDATED More on this topic appended to this post.

Treasury Secretary John Snow made some claims that there were no changes in Bu$h (mis)Administration support for a strong dollar, but ...

Many analysts believe the administration has decided to voice support for a strong dollar to avoid rattling currency markets, but to refrain from intervening to halt the dollar's fall since a weaker dollar will help lower the U.S. trade deficit by helping American exports. "There is no single event that set off this movement today," said Dorothea Huttanus, an economist at DZ Bank in Frankfurt. She cited persistent doubts over the health of the U.S. economy and added that "doubts about the strong dollar policy won't go away" despite Snow's statements.

"The financial community doesn't believe him any more," Huttanus said.

This is a sign that foreign investors are losing confidence in the US economy, something that could prompt dumping of dollars for other currencies. It could lead to further weak Treasury bond sales - something that brings Bu$hCo to a halting screetch rather quickly.

Major Old European leaders expressed their concerns:

Last Monday, French Finance Minister Nicolas Sarkozy warned that market concern over the U.S. budget deficit is weakening the dollar and urged action. "The U.S. must cut its budget deficit: this is an unanimous message from Europe and the International Monetary Fund which we're sending to our American friends," he said.

German Chancellor Gerhard Schroeder also struck a note of concern Tuesday. "Everyone is concerned about the euro-dollar rate and the effect this has on exports," he said.

And what are the plans of the US government?

Snow said he planned to use meetings Saturday and Sunday in Berlin of the Group of 20 major industrial and developing nations, and discussions Thursday with finance ministers from Poland, Hungary, Slovakia and the Czech Republic, to promote stronger economic growth.

This is interesting! I note no major European economy represented at these Thursday talks. Just how much economic growth are the nations of Central Europe prepared to suffer at the hands of Bu$hCo when their bigger economic brothers aren't too pleased with the results they've gotten?

This is something I'll be watching.

UPDATE

Be careful what you wish for

For a doctor in economics who was taught by two Nobel Prize winners, John Snow appears to display a weak grasp on the fundamentals of the science.

When asked this morning, as United States Treasury Secretary, why Washington is adhering to a strong dollar policy, he could answer only: "Because that's our policy."

An inquiry of whether America secretly supported the currency's decline was met thus: "No one has ever devalued their way to prosperity."

The markets were unconvinced, sending the dollar lower. For Mr Snow was wrong or, at least, disingenuous. While devaluations rarely accompany economic success, they are often a symptom rather than a cause of crisis

The trouble is, of course, where Mr Snow's comments have left the euro at a record high - and hopes of a revival in the eurozone economy - at a new low. So no surprises that some of the region's biggest shots have taken aim at the weakening dollar. "It would not be desirable that the appreciation of the euro should continue, still less that it should accelerate," Guy Quaden, a member of the European Central Bank's governing council, said.

Wolfgang Clement, the German Economy Minister, said: "I assume the ECB will act if it deems necessary." Jacques Chirac, the French President, added: "I am a bit concerned about the downward tendency of the dollar."

If that sounds tame, consider it in the costume drama terms of central banking diction. And recall the attack by Jean-Claude Trichet, the ECB president, on the "brutal" moves in the currency markets that's wrong-side-of-the-watershed language for makers of monetary policy.

"... There's battle lines bein' drawn, ..."


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pessimist :: 5:53 AM :: Comments (6) :: Digg It!