Yale Professor Jeffrey Garten has long argued that letting the dollar fall will do little to remedy America’s chronic balance of payments deficit. In a recent Newsweek article that picks up on themes he presented in a 2004 New York Times op-ed, namely, that America is so addicted to imports that a big fall in […]
Read more...George Magnus, the UBS economist who popularized the term “Minsky moment,” has a thoughtful comment, “The credit crisis: why it is still too early to relax,” in today’s Financial Times. The article expresses doubts about the beliefs that undergird the current optimism in the financial markets, namely that the credit crisis is pretty much over, […]
Read more...A very good post by Menzie Chin at Ecnobrowser explores the meaning of an expression often used by regulators, traders, and the media, the strength (or weakness) of a currency. Chin tells us (and I hope I am not oversimplifying a lucid explanation) that it really signifies two things. The first meaning is the value […]
Read more...In an interview published in today’s Financial Times, soon-to-retire IMF managing director Rodrigo Rato declares the dollar to be undervalued. Now we have noted that some technically minded traders see the dollar as oversold at current levels. But “oversold” is not the same thing as “undervalued.” Oversold suggests that there will be a near-term rebound, […]
Read more...The Financial Times notes in a story today,”Credit squeeze pushes ECB to peg rates,” that the European Central Bank refrained from its inclination to increase rates to combat increasing inflation. One has to wonder whether the failure to increase rates is out of the recognition that a hike would put more downward pressure on the […]
Read more...In a further blow to the dollar’s standing, Vietnam and Qatar both announced that they are cutting their holdings of dollar assets. Note that this isn’t merely “diversifying away from the dollar” which could be accomplished by effectively reducing ongoing dollar purchases (both run trade surpluses which oblige them to buy dollars) via exchanging them, […]
Read more...Although I’m not keen about the dollar’s prospects over the next 2-3 years, a Bloomberg story says that it appears to be oversold relative to the euro. However, this view is based on technical analysis, which some dismiss as a close cousin to astrology. From Bloomberg: The euro’s record-setting rally may not extend through the […]
Read more...It seems peculiar indeed that a sea change in the world economy, namely, the decline of the international funds flow generally called “global imbalances,” has gotten so little attention. “Global imbalances” refers to capital flows from high savings countries such as China, Taiwan and Japan, funding current account deficits (meaning consumption) in the US. They […]
Read more...Like our own Fed governors in the run up to the FOMC meeting that produced a 50 basis point Fed funds rate cut, so too have European Central Bank been sending mixed signals on domestic versus international priorities in their interest rate policies. But their actions are the mirror image of ours. For them, member […]
Read more...The Fed’s unexpectedly large cut to the discount rate said loud and clear that its priority is domestic growth, not preserving the value of the depreciating dollar. Yet as we have pointed out, the dollar’s status is a tremendous asset for the US, not to be squandered. It gives us the ability to borrow in […]
Read more...Do you remember “Whip Inflation Now,” Gerald Forf’s program to reduce inflation by exhorting consumers to spend less? WIN buttons, part of a public awareness campaign, quickly came to symbolize the cluelessness of the Ford Administration. The Chinese are about to learn Ford’s lesson the hard way. Rampaging domestic inflation has led the government to […]
Read more...The Treasury department has been struggling to persuade China to let the yuan appreciate (the Chinese now engage in a dirty float in place of their former hard peg). Congress has threatened to impose trade sanctions if the Chinese do not let their currency float. However, the Chinese do not take kindly to threats, and […]
Read more...Bloomberg reports that Goldman’s big hedge fund, Global Alpha, which took a beating along with other quantitatively oriented traders, was down 22.5% in August. Even among quant funds, this was lackluster performance. James Simons’ Renaissance Technologies recouped the 8.7% loss it suffered at the beginning of the month. But here comes the juicy bit: of […]
Read more...Martin Wolf, the Financial Times’ highly regarded chief economics editor, has a particularly sobering article today, “Challenge of rescuing world economy,” and Wolf is a serious sort to begin with. Wolf uses a couple of less widely discussed presentations from the Fed’s conference at Jackson Hole as his point of departure. He contrasts one by […]
Read more...Economist Thomas Palley has a very interesting post today on our current economic conundrum, and he traces the problems to blind faith in globalization rather than permissive monetary policy or out of control financial innovation. Palley starts from an earlier point than most do, noting that our recent expansion has been unbalanced. He sees the […]
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