I noticed that the US buck hit a new low today – 1 US dollar = 1.17 Canadian.
I thought I’d reprint some choice snippets from this article from
http://www.taipeitimes.com/News/edit/archives/2004/11/25/2003212489 just in case anyone else cares. I imagine you probably won’t. Unless you’re Warren. This one’s for you.
US dollar has to go it alone
By Larry Elliot
THE GUARDIAN , LONDON
Thursday, Nov 25, 2004,Page 9
US President George W. Bush’s foreign policy is simple: don’t mess with America. The same, it appears, applies to economic policy. Last Friday, the dollar fell sharply against the euro.
Eurozone policymakers are growing increasingly alarmed about the fall in the value of the dollar, since it threatens to choke off exports — the one area of growth in the 12-nation single currency zone. They would like nothing more than to wade into the foreign exchanges in concert with the Fed and the central banks of Asia to put a floor under the greenback, but they know that Washington has no interest in such a move.
Joaquin Almunia, Europe’s monetary affairs commissioner, said last week: “The more the euro rises, the more voices will start asking for intervention. It has to be a coordinated effort, but it seems that our friends across the Atlantic aren’t interested.”
That sums things up rather nicely. There are two reasons why the Bush administration is not willing to play ball with the Europeans.
The first is that it sees a lower dollar as inevitable, given that the US current account deficit is running at $50 billion-plus a month. A lower dollar makes US exports cheaper and imports dearer.
“The truth is that the US fiscal and monetary excesses, which have been essential to keeping the global economy afloat in recent years, are no longer tolerated in the foreign exchange markets,” he said. “The status quo is not an option. The only question is how the pain of adjustment will be apportioned.”
The second reason is that the Bush administration has neither forgotten nor forgiven France and Germany for the stance they adopted over Iraq. French President Jacques Chirac and German Chancellor Gerhard Schroder weren’t interested in helping the US to topple former Iraqi president Saddam Hussein, and now it’s payback time. If the European economies are suffering as a result of the weak dollar, why should the US care? What’s happening in the currency markets is simply American unilateralism in a different guise.
Washington may have another reason — apart from getting its own back — for allowing the Europeans to suffer. The US is desperate for the Chinese to revalue the yuan, but has so far utterly failed to get Beijing to agree to abandon its dollar peg. The Chinese, for political as well as economic reasons, are determined to resist American pressure.
Europe – the French, in particular – have influence in China. As one analyst noted last week, China has never been censured by the United Nations security council — even over the massacre in Tiananmen Square — because Paris has always vetoed any such moves. France, so the theory goes, might have more success in persuading the Chinese to revalue than the Americans have had.
Washington, in other words, is relying on a soft landing for the dollar. History shows, however, that there is a better than even chance of this process ending in a full-scale crisis, as it did in the mid 1980s, when the weakness of the dollar culminated in the stock market crash of 1987.
The US is happy to go it alone for now, since this is the forex equivalent of the quick push to Baghdad. Life is likely to get tougher later — and when it does, multilateralism will have its attractions.