From: "chris wright" <cwright-AT-21stcentury.net>
Subject: Re: AUT: Not Oil, But Dollars vs. Euros  ??
Date: Sun, 30 Mar 2003 00:32:34 -0600


Thanks Harald.

This is an interesting piece, but I wonder about a few things.  After all,
the author nowhere discusses the basis of the stability, flexibility, etc.
of the dollar.  Is it reasonable to say that the valuation of oil in dollars
is part of this and more to the point, a very important part of this
strength?  Every industrialized and industrializing country needs massive
quantities of oil and that means dollars with which to buy that oil, so does
the possibility of a multi-currency valuation of oil threaten the need for
US dollars and therefore some of its strengths which Hanke seems so cheery
about?

Cheers,
Chris

ps  To help this along, would people like me to put the Alfred Bonano
article on the list?  Or I can send it to those who are interested to read,
as it seems relevant to developing th discussion of money in a
non-economistic, non-capital centric way.

> >
>
> I thought this was somewhat relevant. The Cato Institute btw advocates
> free trade, and and have been strongly opposed to the Iraq war.
>
>
>
> No Greenback Crash
>
> by Steve H. Hanke
>
> November 11, 2002
>
> Steve H. Hanke is a professor of applied economics at The Johns Hopkins
> University in Baltimore and a senior fellow at the Cato Institute in
> Washington, D.C.
>
> A weaker dollar? Don't count on it. Look for the buck to appreciate
against
> foreign currencies, especially theeuro. Demand for the dollar is always
> robust.
>
> The dollar's exchange rate is just another market price. It freely adjusts
> to buyers' and sellers' expectations about conditions here and abroad. The
> euro has climbed from 86 cents in January to parity this summer and now
> hovers around 98 cents. The yen also has improved, moving from 134 yen to
> the dollar then to 124 now.
>
> Some people say the Bush Administration should abandon its "hands off"
> policy and intervene in foreign exchange markets to push the dollar down
> further, by around 10% to 20%. C. Fred Bergsten, director of the Institute
> for International Economics, and other Washington cognoscenti want this
U.S.
> intervention so our goods will be more affordable abroad. And imports will
> be more expensive. This would serve to boost U.S. manufacturing exports
and
> the domestic economy. Yet the chief reason they campaign for a measured
U.S.
> buck-weakening program is to "correct" our growing external deficit and
> avoid a dollar crash and financial market chaos.
>
> The cognoscenti fear a dizzying dollar slide when they see the wide U.S.
> current account deficit-- the difference between the value of the goods
and
> services the U.S. sells abroad and what the U.S. purchases from
foreigners.
> (The trade deficit, which you also hear about, focuses on just the goods.)
> This year the current account deficit will hit $480 billion, or 4.6% of
GDP.
> Roughly 67% of the U.S. deficit is with Asian countries, 16.5% with
western
> European countries and 15.3% with Canada and Mexico. Luckily the U.S. can
> cover this gap because it attracts vast amounts of overseas investments in
> our stocks and bonds. If that money goes away, the worriers warn, the
dollar
> crashes.
>
> Well, no Washington intervention is going to happen. First, Treasury
> Secretary Paul O'Neill is steadfast in opposing such a move. Second, we
> don't need one. The dollar is going to strengthen on its own, so why get
all
> excited?
>
> I know, I know, the dollar has been weakening this year. Last summer
experts
> were expecting the euro, then at a buck even, to go to $1.10 by year-end,
> but the euro has had a tough time returning to even last summer's level.
>
> It turns out that the U.S. current account deficit has been easier to
> finance than pessimists think. During 2002's first half the current
account
> deficit was $242 billion. In addition to that, there was a net outflow
from
> the U.S. of $42 billion to purchase foreign businesses. These outflows
were
> offset in large part by the healthy $167 billion that foreigners spent to
> purchase our stocks and bonds. They also held on to greenbacks, stashing
> them in dollar bank accounts. For example, Chinese businesses have been
> accumulating dollar deposits at a rate of $1.2 billion per month this
year.
> Foreign central banks financed the remainder of our external deficit by
also
> piling up dollar reserves.
>
> Asian central banks in particular have been aggressive collectors of
dollar
> reserves. That's important with Asia accounting for the largest share of
the
> U.S. deficit. The Asian central banks have already added $76 billion in
> dollars to their war chests this year and by year-end that number will
> approach $100 billion, or 21% of the U.S. current account deficit.
>
> The notion that foreigners will turn away from the dollar and U.S. markets
> is farfetched. The dollar has unique attractions. It is the world's key
> currency and the only true international money. Thanks to the dollar's
> stability, liquidity and low transaction costs, the U.S. has an edge in
> attracting capital inflows to finance the current account deficit. The
U.S.
> has a virtually unlimited line of credit into the world's savings pool.
And
> this will not change, despite fretting over American wars, accounting
> scandals and earnings slumps.
>
> The large crop of willing Asian dollar buyers often has a special link to
> the dollar. Asian countries have a fear of floating. Many of them link
their
> currencies de facto to the greenback. Accordingly, you can count on their
> central banks to keep accumulating dollar reserves if that is what's
> required to keep their currencies "competitive."
>
> So the dollar isn't going to fall precipitously or even at all. Against
the
> much-touted euro, the greenback will appreciate modestly over the next
year.
> The only things that could throw off my projection for the near term are
the
> risks and uncertainties that accompany war. After all, foreign
> private-portfolio investments in the U.S. ebb and flow with the emotional
> current, no easy factor to predict. It's no wonder currencies have a nasty
> habit of making fools out of forecasters.
>
> This article originally appeared on Forbes.com on November 11, 2002.
>
>
>
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