[OPE] Greenback woes

Reclogging the US credit system
Caitlin Long, capital markets chief at Morgan Stanley
FT November 11 2009

"The US financial system faces a daunting challenge in the next five years:
$4,200bn of debt that is largely of speculative quality comes due in the
commercial real estate and non-investment grade debt markets. At best, this
wall of maturing US debt will strain credit capacity. At worst, it will
prolong the credit crunch and restrain economic growth. (...) The biggest
risk to refinancing capacity for this wall of maturing debt, though, is the
Fed raising interest rates to control inflationary pressures and dollar
depreciation, if necessary. Higher interest rates would preclude marginal
borrowers from qualifying for refinancing, regardless of whether credit
capacity exists. (...) The tighter the credit capacity, the more industries
will bifurcate into the "haves" and "have nots" based on access to capital.
The longer the credit crunch lasts, the more pressure the Fed will be under
to support the credit system. And the more the Fed decides to do so by
printing money or moving interest rates even lower, the greater the pressure
on the dollar's value."

"Clifford Bennett, Sydney-based foreign exchange analyst with Herston
Economics, says there already appears to be ''covert intervention'' by
central banks supporting the greenback. ''It would not surprise me if the
European Central Bank, and perhaps others'' have been quietly buying US
dollars to prevent a faster fall, he said. Against the euro, the value of
the US dollar has weakened to 61.36 euro cents from 71.26 euro cents in the
past three months, making European exports less competitive on global
markets - particularly in Asia where many countries including China peg
their currencies to the US dollar. Mr Bennett said there is a risk of
''overt" coordinated intervention by the ECB, Bank of England, Bank of Japan
and the US Federal Reserve, if the US dollar slides too quickly against the
euro."
http://www.smh.com.au/business/between-parity-and-a-hard-place-20091113-idpm.html

"The recent financial crisis has strikingly illustrated the
interconnectedness that characterises the global financial system." -
Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB.
http://www.ecb.int/press/key/date/2009/html/sp091112.en.html

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Received on Fri Nov 13 00:28:40 2009