[lit-ideas] Re: When Money Disappears...only to reappear later

  • From: Teemu Pyyluoma <teme17@xxxxxxxxx>
  • To: lit-ideas@xxxxxxxxxxxxx
  • Date: Tue, 11 Apr 2006 00:34:26 -0700 (PDT)

Simon, with the exception of few Americans and quite a
few more Chinese, everyone including the FED agrees
that dollar needs to go down, so I don't think there
is a conspiracy. Financial Times reports: "The wider
issue of global imbalances, in which dollar
depreciation, against Asian currencies at least, is
viewed as part of the solution to the burgeoning US
external deficit, is even seen as returning to the
agenda of the G7 when it meets in Washington later
this month... Mr Nordvig also sees signs that China,
South Korea, Taiwan and Singapore are intervening less
in the markets to weaken their currencies, reducing
the flow of funds that need to be recycled into dollar
assets. Similarly the issue of central bank reserve
diversification from the dollar to the euro has
returned after a long hibernation."

As for oil being priced in Euros or some other
currency, in a way it already is. Oil market is
complex and hardly free, both the OPEC cartel and
taxation (in Europe at least) play a significant role,
but still the price is affected by what the market
will bear. Continental Europe buys in Euros, Brits in
Pounds, Japanese in Yens, and part of the rise in the
price of an oil barrel in USD is due to the dollar in
general depreciating against these currencies over the
last few years.

Still, pricing oil in Euros might be a good idea in
general. For Middle-East trade on the whole, Euro is
the most important currency. Also in the current
beggar thy neighbor situation (similarities to 1920's
are scary) paying for their oil in Euros should help
convince Asians, and Chinese in particular that their
currencies need to go up against both USD and the
Euro. There are some signs that China basically wants
to trade their trade surplus with USA to one with EU,
and EU will not tolerate that.

If we had working trans-Atlantic co-ordination, EU and
USA would basically tell Chinese to let their currency
revalue and let the domestic consumer economy grow,
that is have the Chinese themselves buy more of the
stuff they are making. And if that increases pressure
to move to actual working democracy, all the better.
As Martin Wolf put it, surely a developing nation like
China can find better use for $800 billion than to
park it in US treasuries which will yield negative
interest given that USD will inevitably depreciate
against RMB at some point.

Then again if we had working trans-Atlantic
co-ordination, a whole lot of things would be better.

Helsinki, Finland

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