Moon of Alabama Brecht quote
Back to Main

November 19, 2004
Greenspan Attacks US Dollar

In a brains off approach to the US Dollar the worst Fed Chairman ever today ambushed his currency.

"It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point," Greenspan said. "But when, through what channels and from what level of the dollar? Regrettably, no answer to those questions is convincing,"
…
Reducing the U.S. federal budget deficit, Greenspan said, would be an important action to boost U.S. savings.

Greenspans remarks followed negative US Dollar remarks by Treasury Secretary Snow earlier this week.  Gold closed at $446.40/ounce today.

My opinion on the last weeks Dollar and tax plan news is not yet written out. So for now just one comment I stumbled across and find to contain a grain of truth:

This has nothing to do with sound economic policy. No, it is pure petty payback to Europe. Bush wants to strangle their recovery and growth. He will galdly let the dollar fall, and fall and fall, and consequences be damn, as long a those who didn’t support him are ruined. So what if a couple of our "allies" get hurt in the process? This is just pure spite. Bush is famous for it and at some point the world is going to have to start calling a spade a spade. Bush is playing economic warfare. I doubt if he even cares what happens to the United States or what his dollar and economic policies call down upon the rest of us, or the world. He and his wealthy friends and loyal administration minions and supporters will be protected. The rest of us can rot.

Posted by b on November 19, 2004 at 20:50 UTC | Permalink
Comments

There’s a lot of denial around.
analysts says that the dollar may continue its downwards spiral and then go on to predict that it may fall all the way to … 1.35, or even… 1.40 some time next year (4% or 8% lower than now). Weeew, scary…
No, freefall means freefall. Expect 1.80 or 2$/€.
Snow wants it, Greenspan allows it and maybe, as b suggests, everybody (European included) still thinks that it will hurt the Europeans more than the Americans.
Well, it won’t. US will be hurt by rising interest rates, by rising oil prices, by rising import prices and, initially at least, widening further the trade deficit (US imports are double US exports; before the fall of the $ has an effect on trade patterns, it’s going to make more expensive the big pie – imports – while making the small one – exports cheaper).
Europe trades with the rest of the world even less than the US now, around 10% of its trade and a smaller bit in dollars. Its oil will get cheaper (or at least won’t increase), and its exports are not so price sensitive – don’t forget that Germany is stll the biggest exporter in the world despite its supposedly record high production costs; you don’t buy a BMW because it’s cheaper than a Lexus.
The European economy is well-balanced in terms of trade and balance of payments, the housing bubble (except possibly in a couple of countries) does not exist or is no so sensitive to interest rates, its internal demand is not so volatile and will keep on supporting steady if slow growth, and its Central Bank still remembers how to fight inflation (and the market knows it).
Expect more gnashing of teeth, but be prepared to be pleasantly surprised. Don’t forget that the common wisdom about all economic matters comes from NY and London, two places well known for their tenderness for continental “old” Europe. Don’t believe all of it.

Posted by: Jérôme | Nov 19 2004 21:37 utc | 1

That pleasant surprise you’re talking about is for Europe, yes?
To repeat an earlier question – where do we invest in Euros if we are small bore investors?

Posted by: Citizen | Nov 19 2004 21:56 utc | 2

So, is this to be it then, ‘Stagflation on Steroids’?
Guess that’s what happens when your Fed Chairman and Treasury Secretary are ‘Currency Girliemen’….

Posted by: RossK | Nov 19 2004 22:01 utc | 3

Citizen
just buy Euro cash.
Stocks will probably fall as traders mostly follow whatever happens on Wall Street (the fall won’t be as bas as in the US, but it will be bad nonetheless). Bonds will go down as interest rates go up.
Otherwise, everbank is touted everywhere on the web when this theme is brought up…

Posted by: Jérôme | Nov 19 2004 22:04 utc | 4

Dollar’s fall is not something new. It’s the third time that the Americans try to gain through devaluation. The other two soft dollar periods were 1973-80 and 1985-95.
This time things are a little bit different, why:
1) American deficits are really enormous and it is difficult to see a solution. If the American economy grows fast, the trade deficit widens, like the past two years, so the dollar will go down. If the American economy doesn’t grow fast, why to hold dollars?
2)Euro is a serious competitor to the dollar as reserve currency.
3) Cold war is over. Japan and Germany aren’t afraid that the Soviets will eat them alive, if there is a crash in the American economy.
4)If geopolitical tensions intensify, the dollar will be even more lucklustre.
I believe that eventually the ECB will join forces with the Asian Central Banks to stabilise the dollar. But I am not sure that they can stop a vote of no confidence by the global capitalists to the American economy. Keep an eye on the chinese diaspora. They will run first for the exit.

Posted by: Greco | Nov 19 2004 22:12 utc | 5

Sorry, wrote something silly – Europe’s external trade is only 10% of its GDP.

Posted by: Jérôme | Nov 19 2004 22:25 utc | 6

You mean american exits Greco?
If so, might be interesting for us up here in Canada…our little currency seems to be stuck in no man’s land between the two trenches.

Posted by: RossK | Nov 19 2004 22:27 utc | 7

Commodities oil/dollar/euro
Was this the Russian payback for the Iraq invasion?

Posted by: Cloned Poster | Nov 19 2004 22:40 utc | 8

Keep an eye on the chinese diaspora. They will run first for the exit.
There was a WSJ article – they are already running – , parts copied here

…From black marketers to anxious grandmothers, Chinese have become disenchanted with the dollar. The selling has posed problems for Beijing as it tries to keep the yuan pegged to the dollar, adding to pressure China is getting from its trading partners to revalue its currency.
The selling also signals a startling shift that may have damaging implications for the dollar down the line: Many Chinese view the yuan, also called the renminbi, as the safer currency to hold.
“The U.S. dollar is weakening! The renminbi is the hard currency now!” shouts a 40-year old man after pulling $10,000 out of U.S.-dollar-denominated stocks and plunking the sum into yuan deposits. “It’s the best choice,” he says.

Another big difference to the other periods of Dollar devaluation, which were controlled, is the fact that there was a consesus and deal between the Central Banks at that time. The deal include significant tax raises in the US to curb the deficit. Reagan delivered on the deal. Bush doesnt´t intend to do such a deal at all.

Posted by: b | Nov 19 2004 22:42 utc | 9

Glad this was about international economics/currency.
Thought at first B was having problems unwinding a currency speculation and directed his wrath at Greenspan.

Posted by: FlashHarry | Nov 19 2004 22:46 utc | 10

RossK
run for the exits= sell dollars
Basically the Americans play chicken with the Europeans, Japanese and Chinese. The dollar must decline, but you have to support it, otherwise it will crash and you will suffer with us. Devaluation but not high interest rates.
We ‘ll see what happens in the end.

Posted by: Greco | Nov 19 2004 22:51 utc | 11

thanks Greco–
In way over my head on this discussion.

Posted by: RossK | Nov 19 2004 22:55 utc | 12

Citizen- you can buy Euro traveler’s checks, which are safer than holding cash. A local credit union sells them without charging any fee to people who have an account there. Call around locally to find out who in your area sells them and if they charge fees.
Make sure you put the traveler’s checks somewhere separate from their receipt with the check numbers on them in case you lose them…the receipts make it possible for you to get reimbursed.

Posted by: fauxreal | Nov 20 2004 0:01 utc | 13

I won’t say that Europe will be just fine, it’ll be a bit tough, but compared to the US, I have no doubt it will fare better comparatively.
I really can’t believe Bush or Greenspan would actually want a 2$/€. This is just pure suicide. It would mean that foreigners can come and buy up the whole country overnight. And of course, it’s suicidal when OPEC is already pissed off at Bush; a freefall of the dollar would be a blatant provocation, and if the dollar gets to 0.5 Euro, it’ll be a matter of days before OPEC shifts to Euro. Not to mention that a 50% devaluation always ends up hurting your country.
Beside, the ECB has traditionally followed the Deutsche Bank tradition of having a strong currency – something I tend to agree with, even if sometimes it may be more profitable to rig the game by devaluating a bit.
Europe will fare better, if only because they don’t consume as much oil per capita, and oil prices will barely change in Euro, but will skyrocket in Dollars. Europe is smaller with denser cities than the US, and people still use trains from time to time when travelling moderately long distances. Even if oil is more expensive, Europeans can adapt faster than Americans with an even sharper rise of oil prices. A 2$/1€ would paralyse an important part of the US economy.
Then you have to take into account the fact that the pound is basically tied to dollar, and is falling as well. If the British economy is hit more nastily than the Eurozone, expect the Brit leadership to be keener to dropping the £ and joining the € bandwagon. When this happens, the fate of petrodollar will be sealed, and the fate of the dollar as well.
So, all in all, I don’t really think Greenspan would greenlight such a massive freefall, though I don’t think he can avoid the 1.40. But unless he’s certifiably insane, he can’t wish to go beyond 1.50.

Posted by: Clueless Joe | Nov 20 2004 0:35 utc | 14

Oh, Jérôme’s insight about Yukos meltdown would be interesting, if he has any idea what’s really going on.
From what I can guess (a very uninformed guess), I’d risk to assume that Putin is glad that Bush has been reelected, because it means braindead economic policies will continue. That means that oil prices will keep increasing, which literally means billions more for Russia, every year. With the killing Russian oil is making, he may well assume he don’t really need anymore the huge foreign investment of the past. Even more, if the bulk of profits go to the state, it means a comparatively decreasing power for the private power of capitalist oligarchs. It makes sense, since I’ve come to the conclusion Putin is basically on a mission to restore a strong state power in Russia, his stomping on regional governors being akin to Czar Ivan’s stomping of the boyars. I wouldn’t be surprised if actually he fancied himself to be the heir to Ivan, Peter the Great and Lenin/Stalin, people who took a weakened backwards fragmented Russia and tried to make a major power out of it. And this time, he already has his own oprichnina/preobrazhensky/NKVD, the FSB.

Posted by: Clueless Joe | Nov 20 2004 0:49 utc | 15

CJ
Jerome cannot comment on a fix that Putin said “enough was enough”.
methinks

Posted by: Cloned Poster | Nov 20 2004 0:55 utc | 16

Thanks for the investing advice Jerome and fauxreal. Simple is good.

Posted by: Citizen | Nov 20 2004 7:17 utc | 17

Another interesting development. My guess is, other European Companies will soon follow these considerations.
It’s closing U.S. bell for some German companies

Add another entry to the list of how Americans and Europeans are parting ways. Several German companies, who rushed to list their shares in the United States during the bull market of the late 1990s, are now seriously thinking about abandoning the market.
…
The Germans are disenchanted by the United States as a source of capital, and offended by what they view as oppressive new regulations adopted in the wake of Enron and other corporate scandals.
…
“They feel they can raise money just as cheaply outside the U.S.,” said Alastair Ross Goobey, the chairman of the International Corporate Governance Network. “Why would you expose yourself to much greater regulation, and much more personal risk when you don’t have to?”
…
The trouble, the Germans have discovered, is that getting out of the United States is as daunting as getting in. The U.S. Securities and Exchange Commission imposes strict rules before it will “deregister” any publicly listed company, thus freeing it from disclosure requirements. German executives contend the United States should ease the rules for foreign companies because European regulators make it comparatively easy for Americans to withdraw from their markets.
…
That step is relatively simple. The bigger trick will be to deregister itself. Under Securities and Exchange Commission rules, the company can only do so if it proves it has fewer than 300 shareholders residing in the United States. Dielmann said he hoped most American investors would sell their shares after they stopped trading, which would reduce the number to below 300.
“As a small company, we can do it,” he said. “For a big company like Siemens, the rules may make it impossible.”

Posted by: Fran | Nov 20 2004 8:41 utc | 18

Another factor is that since retail oil prices in the EU are largely tax we can adjust to raised oil prices by dropping taxes if we have to. I’m assuming this is true accross the EU. I could be wrong.

Posted by: Colman | Nov 20 2004 16:41 utc | 19

@Colman – and then with less tax revenue what do we drop on the spending side?

Posted by: b | Nov 20 2004 17:28 utc | 20

but as libération reports today the business of herion is good – that afghanistan is the principal exporter of heroin in europe & growing incrementally
i haven’t your expertise in economics but understand in the period of junk bonds of milliken – boesky & their criminal gang
leverages – the enoprmous problems of luquidity of people like murdoch, black, tnt, robert maxwell – was also a time of convergence of the banks nugan hand, bcci, saving & loans fraud & great merging of different forms of capital – most of some illegal origin
this moment encapsulated in the criminal conspiracy of guilleo andreotti, sindona, calvi & toto riina & the selling of the italian republic
have always presumed murdoch & friends followed an iverted mafia economic principle recounted in the work the economist gambetti – that from ‘orthodox’ business absorbs, incorporates & transforms capital with more clearly criminal origins
dissapointed today that libération devotes plenty of space to the opening of MOMA as if art itself was capable of cleaning the blood from the hands of those who have too much already
still steel

Posted by: remembereringgiap | Nov 20 2004 18:40 utc | 21

Payback to Europe? I don’t think it’s that severe, at least not in Greenspan’s case. Keep in mind he’s now getting attacked by rightists for “disloyalty” and “bad timing”. Well, when’s a good time to point out the emperor (both economy and president) is wearing no clothes? Maybe he’s doing a favour by forcing some reality on Shrub.
As for Bush and Snow, well, they think it’s all someone else’s problem, and the US can grow out of its problems like the French government in the early 80s, probably with similar results. A new “dash for growth”! Or to put it in American terms, neo-voodoo economics.

Posted by: Harrow | Nov 20 2004 21:28 utc | 22

Back to Main