From: Paul Cockshott (wpc@DCS.GLA.AC.UK)
Date: Thu Nov 25 2004 - 06:31:53 EST
> >The continuing us trade deficit increases the chances of >this unless the gains to be had in interest can outweigh the >capital loss of holding dollar assets. But that chance has been increasing for decades now. Why now have things gone pass the return point? -------------------- I think that the rapid decline in the dollar in the last year is actually something new -------------------- > Hence Roach's remarks >about the federal reserve having to raise rates. > >Without that the ability of the US govt to fund its current >account deficit will be in peril. As I related in my post, the dollar, qua world money, has props that the euro and the yen do not. ------------------------ I am not convinced even on your own grounds that this is true, the gold and foreign exchange reserves backing the euro through its participant states are considerably greater than for the dollar, and with much smaller outstanding liabilities - check the IMF figures at he links Jurrian posted earlier. France and Germany each individually have higher foreign exchange reserves than the US. Euro is backed by reserves of E 300 Billion or so, the dollar by reserves of $85 billion dollars which is a 5 to one advantage to the Euro at present. The Euro zone is also running a net balance of payments surplus of around E 70 billion per annum. The treaty obligations on participant states also makes it much harder for them to run significant budget deficits than the US govt which is unencumbered by such obligations. These obligations are almost certainly deflationary and are depressing growth in the Euro zone, but from the standpoint of ensuring the value of the currency they are much more significant than a disputable wish by the chairman of the Fed to shadow gold - which as Allin has shown he has signally failed to do even if he is assumed to have wanted to do so. It is worth noting that in some ways the result that Alllin found was to be expected simply on staticstical grounds in that a small bundle of commodities will have much more noise in its price movements than a large bundle such as that used to calculate the CPI
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