Dollar under pressure from all sides

Amazing how little of this we hear from the corporate press.

<clips>

LONDON : It was open season on the dollar with the US unit losing ground against the euro, yen and pound as dealers questioned the ability of central bankers to stem a general dollar sell-off.

Sterling in particular headed towards 11-year bests against the American currency after the release of better than expected figures for British fourth quarter economic growth.

The single European currency rose Friday to 1.2764 dollars from 1.2717 late on Thursday in New York.

The dollar fell to 105.88 yen against 106.01.

"The dollar weakness story is likely to dominate again ... with the euro-dollar erring towards 1.28 dollars," said Canadian Imperial Bank of Commerce analyst Audrey Childe-Freeman.

<http://www.channelnewsasia.com/stories/afp_world_business/view/67657/1/.html>

the moment they took office. If the post is correct from a couple weeks ago, OPEC is considering switching to they euro. They apparently are under pressure to do something because of the Iraq war fiasco.

This might come back to bite them in the ass.

n/t

<clips>

What happens when two bubbles collide? Do they both burst, or do they coalesce and become an even bigger bubble - which will eventually burst even more spectacularly? That is the question posed by the growth figures from both the US and China, whose growth rates are tied in ways that neither seems to want to admit too loudly.

Even before this week's figures on China's explosive 9.1 percent growth in 2003, which many commentators thought actually understated the reality, the United Nations' annual economic report had identified the People's Republic of China as the locomotive for growth in Asia (with a nod to India), and added that the US with its 4 percent growth rate will do the same job for the industrialized world. But once again, the question must be asked - will these two Chinese and US engines run in the same direction indefinitely, or will they begin to diverge? Indeed, even more scarily, will they have a head-on collision and involve the world economy in the mother of all train-wrecks?

The problems have been noted. The UN report cited "the rapid rising weight of China in the world economy and its role in the present recovery," but it also warned that UN economists see a need for the US to reduce its government deficit. That echoed the very trenchant International Monetary Fund (IMF) report that described the deficit as "perilous" in the long run, posing "significant risks" to the rest of the world. IMF economists also cautioned that one should add to the short term a US$500 billion deficit that the US administration is running, a further US$47 trillion in unfunded long-term commitments for US Social Security and the federally funded Medicare health program for the elderly and indigent. And the IMF pointed out that there were additional liabilities from cash-strapped local governments, forced to borrow to compensate for federal cutbacks.

On the American trade deficit, the IMF also warned ominously, "The United States is on course to increase its net external liabilities to around 40 percent of its GDP within the next few years - an unprecedented level of external debt for a large industrial country." The report suggested that this situation would push the dollar even further down.

http://www.atimes.com/atimes/Global_Economy/FA23Dj01.html

<clips>

Argentina retained the confidence of international investors almost to the end of the 1990s. Analysts shrugged off its large budget and trade deficits; business-friendly, free-market policies would, they insisted, allow the country to grow out of that. But when confidence collapsed, that optimism proved foolish. Argentina, once a showpiece for the new world order, quickly became a byword for economic catastrophe.

So what? Those of us who have suggested that the irresponsibility of recent American policy may produce a similar disaster have been dismissed as shrill, even hysterical. But few would describe Robert Rubin, the legendary former US Treasury secretary, as hysterical - and Mr Rubin has formally joined the coalition of the shrill.

In a paper presented last weekend at the meeting of the American Economic Association, Rubin and his co-authors argue the US is running very large budget and trade deficits. Official projections that this deficit will decline over time are not based on "credible assumptions". Realistic projections show a huge build-up of debt over the next decade, which will accelerate once the baby boomers retire in large numbers.

All of this is conventional stuff, if anathema to US Administration apologists, who insist, in defiance of the facts, that they have a "plan" to cut the deficit in half. What's new is what Rubin and his co-authors say about the consequences. Rather than focusing on the gradual harm inflicted by deficits, they highlight the potential for catastrophe.

http://www.smh.com.au/articles/2004/01/09/1073437470446.html