Opinion

The Great Debate

Global rebalancing to weaken dollar, quietly

– Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own –forex

Twenty-four years ago, major nations called for depreciation of the dollar to rebalance the global economy. Now, as another effort at rebalancing looms, the dollar will again bear the brunt — though officials will try to ensure its fall is less dramatic this time.

That’s the implication of President Barack Obama’s announcement this week that he will push world leaders for a new global “framework” in which the United States would cut its huge trade and budget deficits.

Agreeing on this framework would be politically difficult, since it would require policy changes by many countries — China, for example, would probably have to rein in its explosive export-led growth.

But as the euro’s climb to a new one-year high versus the dollar this morning shows, markets are starting to think the rebalancing process may start as soon as this week’s Pittsburgh summit of leaders from the Group of 20 nations.

Don’t cry for the dollar, yet

agnes1– Agnes T. Crane is a Reuters columnist. The views expressed are her own –

It looks bad for the dollar, but looks can be deceiving.

Its sharp decline in the last week has pushed the euro to its highest level in a year and reignited fears that there’s only one place for the dollar to go, and that’s down.

Rhetoric from influential investors like Warren Buffett as well as big foreign buyers of U.S. debt like China and Russia has fed that sense of doom.

from The Great Debate UK:

G8 signals end to dollar supremacy

john_kemp- John Kemp is a Reuters columnist. The views expressed are his own. -

Reports that China has asked for a discussion about reserve currencies at next week's expanded Group of Eight summit in Italy has added to confusion about whether the country wants to dethrone the dollar from its status as the world's sole reserve currency. But the very fact the issue has been pushed onto the agenda suggests that a fundamental shift is underway.

Given the U.S. government's enormous borrowing requirements over the next decade to cover the bank bailout, fiscal stimulus and deficits in Social Security and Medicare, the dollar's reserve status depends on emerging markets' continued willingness to accumulate U.S. liabilities rather than switching to other stores of value, such as the euro or the IMF's Special Drawing Right (SDR).

As the largest buyer of U.S. Treasury securities, China can break the dollar's reserve currency status any time it wants. But it would risk large losses on the stock of U.S. debt that it has bought already. The resulting unstable stability is the foreign exchange version of the Cold War stalemate based on "mutually assured destruction".

World stuck with the dollar, more’s the pity

jimsaftcolumn5– James Saft is a Reuters columnist. The opinions expressed are his own –

The dollar is, and will remain, the U.S.’s currency and its own and everyone else’s problem.

The idea of creating a global currency, as espoused by China earlier this week, is interesting, has a certain amount of merit and is simply not going to happen any time soon.

Dollar demise much exaggerated

John Kemp Great Debate– John Kemp is a Reuters columnist. The opinions expressed are his own –

Perhaps the most surprising development over the last three months has been the surging value of the currency at the heart of the crisis. It is almost as if investors have responded to a fire alarm by running towards the source of the fire.

From a recent low on July 15, the U.S. dollar’s trade-weighted value has risen 19 percent. The dollar has been broadly stable against China’s yuan (+1 percent) while posting massive gains against the Swiss franc (+20 percent), the euro (+26 percent), the British pound (+35 percent) and the Australian dollar (+52 percent). Only against Japan’s yen has the currency slipped marginally (-6 percent).

Ten commandments for the first 30 days in office

juan-enriquezJuan Enriquez is managing director of Excel Medical Ventures and the author of “As The Future Catches You.” Any opinions expressed are his own.

There are two ways of viewing this debt crisis. One is that it is simply a temporary dislocation in the credit markets and a liquidity problem. The second is that it is a crisis triggered by subprime lending, accentuated because most people still can’t afford their houses, and compounded because almost every bad loan was highly leveraged. If it is the second type of crisis, one should remember: if trapped in a ditch full of debt, quit digging.

We are piling debt on debt. U.S. consumers are tapped out. Net household savings have gone negative. Corporate debt, particularly derivatives exposure, has reached truly dangerous levels. (Outstanding derivatives exceed $655 trillion. The U.S. economy is around $13 trillion). Government indebtedness is also approaching levels that exceed even those reached in the Depression and World War II. Add these three sources of debt together and the U.S. already owes almost four times its GDP. Now we are adding trillions in bailouts and face rocket-fueled mandatory spending programs. These trends may end up being fatal if we do not act. Right now.

Is the buck back?

diana-furchtgott-roth1Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed here are her own.

“The Buck is Back,” proclaimed a Wall Street Journal headline on Tuesday. But even if it is, and that’s a big if, a strong currency is a mixed blessing.

True, in spite of the financial crisis, over the past six weeks the dollar has strengthened substantially against the euro and the British pound, although Wednesday’s half percentage point Federal Reserve rate cut caused the dollar to slip. But the dollar has lost value relative to the Japanese yen.

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