Posted on 06/24/2002 4:47:36 PM PDT by WakeUpChristian
Dollar hits new two-year euro lowThe euro is now approaching parity with the dollar
The slide in the value of the dollar has accelerated, with the US currency plumbing new lows despite central bank intervention.
The euro has traded at more than $0.98 for the first time since February 2000, extending a rally that has seen it gain almost 9% against the US currency this year.
I do have great confidence our economy is going to go forward - we're going to be fine
US Treasury Secretary Paul O'Neill Earlier in the day, the Bank of Japan intervened in the markets to help prop up the dollar, which has hit a series of lows against all major currencies in recent weeks.
The dollar blipped higher against the yen in Tokyo trading, but started to fall again after European markets opened.
The tumbling dollar has already stirred fears in export-dependent Japan, and is likely to raise the economic stakes ahead of the G8 meeting of rich countries in Canada this week.
Calls for action
The dollar is reckoned likely to ease further.
The US Federal Reserve is set to decide on interest rates on Wednesday, and is expected to leave them unchanged.
The dollar can expect no help from Alan Greenspan
Persistently weak US stock markets show no sign of a durable recovery, prompting investors to switch yet more cash into European and Asian markets.
"Rising public deficits, a ballooning current account deficit, lagging investment and a consumer sector suddenly looking shaky indicates that foreign accounts might not only be unwilling to allocate additional funds to the US, but might also consider liquidating assets," said Hans Redeker, global head of foreign exchange strategy at BNP Paribas.
In the meantime, there is growing pressure on world leaders for concerted efforts to prop up the dollar.
The G8 summit could in theory be a venue for such joint intervention, as it has in the past.
Weak will
But the political will for concerted intervention may not be universal: the US is not absolutely in favour of a strong dollar, and Europe has enjoyed the recent unaccustomed strength of the euro.
European Commission economic and monetary affairs spokesman Gerassimos Thomas said the euro's rise had been widely expected.
"This year and last year we insisted that the euro was undervalued and that the rate of exchange was not in line with economic developments in the eurozone."
Speaking on US television on Sunday, Treasury Secretary Paul O'Neill said he was unconcerned.
"The market decides what the right number is... I do have great confidence our economy is going to go forward.
"We're going to be fine."
It's a cyclical macroeconomic adjustment, but it has major ramifications. There are winners and losers on every side of the equation.
At a consumer level, that cheap European vacation just got a lot more expensive, and it's going to cause a temporary dip in the market as foreign investors get out of dollar-denominated stocks.
But it heats up a lagging economy and sets the stage for a substantial growth spurt that we will see in about a year.
You must be drinking.
The EU is made up of socialist countries with double digit unemployment.
The State of Texas is more of an economic superpower than the entire EU.
It's not as if you print more greenbacks. Money is created primarily through the banking system using the discount rate. Most of this essentially is electronic.
But the bottom line principle involved is supply and demand for the dollar as the unit for international debt settlement. If you create more of them, demand drops. Less, it rises.
There are other factors which affect the demand for dollars, but this is the easiest for our government to control.
It's interesting, but not surprising, that Japan's central bank (the equivalent to our Fed), tried to intervene in the market today. The last thing Japan wants is for our imports to become more expensive. They want a strong dollar. Too bad.
You can only do it so much before it has extremely negative consequences. Oil is priced internationally, for example, in US dollars. Make them worth too much less, and oil will be priced in Euros, sending a tremendous shock through our economy as gasoline prices soar to unprecedented levels.
There are other things. We import rubber and have no domestic substitute. Wanna make tires cost $5000 apiece? Not likely.
This has to be handled gradually and with great care. We pay Alan Greenspan the big bucks for a reason.
Not neccesarily. The market forces don't recognize an increase in the money supply immediately. Typically, production increases to meet the new demand without a resulting price increase. It's only when it's clear that more dollars are chasing the supply of goods that can be produced that inflation occurs.
If you manage it very carefully, i.e., slowly, you can increase the overall economic output without raising prices.
Yeah, right. We rank just behind Nicaragua in sales of passenger planes and software. Our movie theaters are flooded with films from Bangladesh.
All right. I'll bite. Which nation, First, Second, or Third World, has a better legal system?
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