Friday, November 26, 2004

More on the falling Dollar

Stephen Roach, chief economist at Morgan Stanley is figured prominently in today's NY Times Op Ed section:

In this blame game, it's always the other guy. Yet global imbalances are a shared responsibility. America is guilty of excess consumption, whereas the rest of the world suffers from insufficient consumption. Consumer demand in the United States grew at an average of 3.9 percent (in real terms) from 1995 to 2003, nearly double the 2.2 percent average elsewhere in the industrial world.

Meanwhile, Americans fail to save enough - whereas the rest of the world saves too much. American consumers have borrowed against the future by squandering their savings. The personal savings rate was just 0.2 percent of disposable personal income in September - down from 7.7 percent as recently as 1992. Moreover, large federal budget deficits mean the government's savings rate is negative.


Now frankly, I think much of the world should be consuming more- but that's the needy portion of the world that comes to mind...


Asia Times (dollar bears to the extreme) have articles here and here on this:

Dr Jiang Ruiping, director of international economics at the China Foreign Affairs University, pointed out the following as a warning to the US in an article titled "Crisis looms due to weaker dollar" in the China Daily newspaper:
Since China holds huge amounts of dollar-denominated foreign-exchange reserves, the authorities should consider taking prompt measures to ward off possible risks.
Given the deteriorating relations between the US and the Arab world, quite a few Middle Eastern oil-exporting countries have begun to increase the proportion of euro in international settlements. Russia is reportedly going to follow suit.
About two-thirds of the reserve [Chinese] is dominated by the dollar. As the dollar goes down, China will suffer great financial losses.
The low earning rate of US treasury bonds, only 2% - much lower than investment in domestic projects - could cost China's capital dearly ... If the bubble bursts, China will suffer serious losses.
To ward off foreign-exchange risks, China needs to readjust the current foreign-exchange holding structure, increasing the proportion of euro in its forex reserves.
Considering the improving Sino-Japanese trade relations, more yen may also become an option.
China could also encourage its enterprises to "go global" to weaken its dependence on US treasury bonds.
Using US assets to increase the strategic resource reserves, such as oil reserves, could be another alternative.




And gold hit a 16 year high today:


"Many gold companies are unlikely to receive the full benefit for the higher U.S. dollar-gold price due to the appreciation of their currencies, such as the Canadian dollar, Australian dollar and South African rand," the Barclays Capital note said.

The rise in the rand, moreover, reflected the broader debate about the extent of the dollar's decline, which many banks have attributed to the size of the deficit in the United States current account, the broadest measure of American trade. ...


In South Africa, Trevor Manuel, the finance minister, seemed to rule out action to slow the rise of the rand, saying: "The problem is not the rand. The problem is the dollar."

The remark echoed a similar argument among some analysts in London. "It's an overall dollar problem, and I think the worrying problem for the dollar is that most people are coming around to this point of view," said Tony Norfield, the head of foreign exchange strategy at ABN Amro.

"The chance of intervention from the European Central Bank is pretty close to zero and we don't see any grounds for Japanese intervention," Mr. Norfield said. "The onus is really on the American side."





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