Friday, November 16, 2007

Bye bye bucky

"The dollar blues have migrated from the halls of central banks to images of rap musicians. In a video for the movie ``American Gangster,'' hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn't legal tender" Bloomberg
David Seaton's News Links
The decline of the dollar is a complex phenomenon. We say 'complex' because the
phenomenon consists of many aspects, some primary and some secondary that interact simultaneously with each other.. These aspects can be objective data called "fundamentals" or the intuitive perceptions which play so great a part in the crowd behavior of markets Adding to the complexity, the secondary aspects can morph into primary and vice versa, taking turns in the lead like a grupetto of eschapé cyclists in the Tour de France.

The declining dollar in its turn is a secondary aspect of the general, perceived, decline of the USA. Again, this perceived decline is another fluid mixture of objective data and intuitive perception in which America's lost prestige, to which we give the portmanteau name, "Bush" brings down the dollar and the falling dollar objectively rooted in US debt adds to the loss of prestige... ad infinitum or ad nauseum (your pick).

Taking apart this complexity and fully understanding this crisis, is perhaps impossible while it is ongoing and will probably have to be left to a figure of posterity which I have tentatively named, "future Chinese historians". DS

American Gangster's Wad of Euros Signals U.S. Decline - Bloomberg
Abstract: Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar's fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency is on the losing side. After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.(...) The dollar blues have migrated from the halls of central banks to images of rap musicians. In a video for the movie ``American Gangster,'' hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn't legal tender.(...) Like the British pound, its predecessor as the world currency, the dollar has fallen victim to widening burdens overseas and economic stresses at home. The slippage began in 1971 when President Richard Nixon, in a stopgap move to cope with the inflationary financing of the Vietnam War, halted the exchange of dollars for gold. Since then, currency markets have ebbed and flowed. High Federal Reserve interest rates and a flood of Japanese capital to finance Ronald Reagan's deficits bred the ``superdollar'' of the mid-1980s. The Internet-led productivity boom lured investment to the U.S. in the late 1990s. The most recent period reflects a world awash in other options.(...) Buoyed by the fastest growth of any major economy and putting tight limits on the appreciation of its exchange rate, China has piled up the world's biggest stash of foreign currencies, worth $1.4 trillion at the end of September. Cash-rich governments are discovering the profit motive, adding to pressure on the dollar as they comb the world's markets for investments that pay more than the current 4.25 percent return on 10-year U.S. Treasury bonds. Economists at Merrill Lynch & Co. estimate as much as $1.2 trillion in dollar holdings will shift to other currencies in the next five years. A warning by Cheng Siwei, vice chairman of the National People's Congress, that China will invest in stronger currencies triggered a recent stampede out of the dollar. China doesn't have to dump dollars to depress the U.S. currency, economists at UBS AG say. Accumulating them at a slower pace will have the same effect.(...) ``There is a loss of confidence in both the dollar and the U.S.,'' said Riordan Roett, a professor at Johns Hopkins University in Baltimore. ``It may only reflect the widespread dismay with the Bush administration, but it is obvious that the next administration, of either party, will have a steep uphill struggle.'' READ IT ALL

1 comment:

Anonymous said...

I am one of the few that sees good things ahead for the US in the long term Ok so the dollar might collapse, and things will get very bad for a while. Then the cheapness of the US market will bring in investors from overseas, places like Detroit could see a resurgence in their fortunes if they became cost competitive again.
The US should fix this point ow, to prepare for the days in the future. That means spending on the kind of education for kids that could work in these future industries.

A few thousand jobs on Wall St disappearing because the US fincancial institutions no longer have any power is not an alarming concept.

The world does not stand still, and the US$ cannot remain the only reserve currency in the world when the post WW2 structural global changes are finally fully developed.
EU integration is complete, the Euro represents that. Asian economies are finally developed enough to carry some weight, China must however develop its own consumer economy if the US is ever to be really threatened.

The places to really give us cause to think are Russia and its need not roll back its institutional changes, a return to state owned and operated everything would be a disaster for any US opponants.
Then Africa is going to be the place where Liberal must focus their efforts to deliver the promise of the last 100 years.
Proper democracies, and a social programme that can enrich Africans and unify them like the EU, even entry of some African countries into the EU. Proper infrastrure investment, free secular education for its children. The destruction of these backward looking conservatives that blame their countires woes on history and refuse to permit the rise and rule of an educated liberal middle class.