[FoRK] oil producers shun dollar
Ian Andrew Bell <
hello at ianbell.com
> on >
Tue Dec 12 15:53:12 PST 2006
Thank God Bush is convening a three-day summit to plan the war in
Iraq three years after embarking upon it. At any rate, that's old
news, kids. That giant sucking sound is the decline of relevance of
the U.S. and the air deflating its sustained-growth economy, taking
much of the rest of the world with it. Does Emperor George play the
The Fall of the Mighty Dollar
By Christian Reiermann
Is an end of an era looming in the foreign exchange markets? The
dollar has been depreciating against the euro for weeks. Currency
experts and the German government don't yet see this as cause for
alarm. The US currency's role as a lead currency isn't as important
as it used to be, they say.
Worried about the dollar: The guardian of the euro, European Central
Bank President Jean-Claude Trichet.
Like most central bankers, Jean-Claude Trichet, the president of the
European Central Bank (ECB), has a penchant for cryptic comments.
Injecting a certain degree of incomprehensibility is a signal to the
professionals that he's competent. And when it comes to laymen,
industry jargon has the desired effect of generating the necessary
Last Thursday the public was treated to yet another example of
Trichet's convoluted speaking style. A number of risks, the ECB
president said, could jeopardize a generally favorable economic
outlook in the euro zone. They included, according to Trichet,
"concerns regarding possible uncontrolled developments triggered by
global economic imbalances."
What Europe's most powerful protector of the currency was actually
saying was this: The gradual decline of the dollar in the foreign
currency markets in recent weeks could pose a threat to the economy.
What Trichet was also trying to broadcast is that the ECB has
recognized and is aware of the threat.
Nevertheless, the European Central Bank in Frankfurt again increased
its key interest rate on Thursday by a quarter percentage point to
3.5 percent, which makes the euro more attractive to international
investors. The central bankers had no choice but to take the step,
having already announced their intentions weeks ago.
Experts have been predicting for some time that the dollar would
eventually go into a nosedive, and now that time seems to have come.
The US currency has lost five percent of its value against the euro
since late October, and 13 percent since the beginning of the year.
The euro is currently fluctuating around a value of $1.33, which is
only 3 cents away from its all-time high in 2004. And yet Trichet's
counterpart Ben Bernanke, the chairman of the US Federal Reserve, has
done nothing but look on as the dollar plunges.
A sea change appears to be taking place on the international
financial markets. For years, global capital flowed in only one
direction, with $2 billion going into the United States every day.
Investors viewed the world's largest economy not only as a bastion of
stability, but also as a place that promised the best deals, the most
lucrative returns and the highest growth rates.
The Americans, for their part, welcomed foreign investment. For them,
it was almost a tradition to save very little and spend more than
they earned -- essentially achieving affluence on credit. Foreigners
financed the Americans' almost obsessive consumer spending, which
spurred worldwide economic growth for years.
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Because the US government was unable to fall back on the savings of
its citizens, it too was forced to finance its budget deficit with
foreign capital. Both consumer spending and the federal deficit kept
the dollar high, because the rest of the world was practically
scrambling to invest in the United States.
This phase seems to have come to an end, at least for the time being.
"There are fundamental weaknesses in the American economy. This could
not continue in the long term," says Alfred Steinherr, chief
economist at the German Institute for Economic Research (DIW).
Investors pulling out
Investors worldwide are becoming sceptical and starting to pull their
money out of the United States. They have realized that a people and
a country cannot live beyond their means in the long term. The US
dollar's exchange rate is starting to crumble as a result of this
The depreciation is causing growing concern about what will happen to
the global economy if the United States loses its role as an engine
of growth. If German cars, machinery and services become more
expensive, will the German economic recovery end before it has really
The German government isn't worried yet, at least not officially.
Nevertheless, experts in the finance and economics ministries have
been keeping a close eye on developments. Although they continue to
believe that the changes still fall within the scope of long-term
averages, they don't rule out that the situation could worsen.
They believe that a first critical threshold for the competitiveness
of the German economy will be reached at an exchange rate of about
$1.36 per euro, and that Germany could see major difficulties at
rates in the neighborhood of $1.50. If there is turbulence in the
foreign currency markets, the government in Berlin will find itself
in an especially challenging position. In early 2007, Germany will
assume the chairmanship of the so-called G8 group of seven major
industrialized nations plus Russia.
The G8 has repeatedly engaged in crisis management to deal with
problems in the international financial system. It did so in the
1980s, when the combined forces of the G8 were needed to put a stop
to the soaring dollar. It stepped in with equal verve a few years to
forestall a decline in the American currency with the so-called
There are two principal causes behind the most recent development.
Both have to do with the fact that Europe is becoming more attractive
for international investors compared to the United States. On the one
hand, interest rates in Europe and the United States are moving in
opposite directions. "The ECB will continue to raise its key rates
next year, whereas interest rates appear to have peaked in the USA,"
says Joachim Scheide, an expert on the economy at the Global Economic
Institute (IFW) in the northern German city of Kiel. This means that
financial investments denominated in euros are yielding higher
interest and are in greater demand internationally, which in turn
leads to a rise in the euro.
The prospects for growth are also shifting. The US economy is cooling
off. The government recently lowered its 3.3 percent growth forecast
for 2007. If Americans consume less as a result of a decline in
foreign capital investment, the United States could even face a
prolonged period of more modest growth.
On 12-Dec-06, at 7:50 AM, Eugen Leitl wrote:
> Oil producers shun dollar
> By Haig Simonian in Zurich and Javier Blas and Carola Hoyos in London
More information about the FoRK