Tampa Prep 2009-2010 Impact Defense File
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- AT: Dollar Dump
AT: Dollar DeclineAny decline in the dollar is small and self-correcting. Trevor Williams, 1/15/2008. Lloyds TSB Financial Markets. “Macroeconomic themes for 2008: another strong performance by emerging economies,” FX Street Economics Weekly, http://www.fxstreet.com/fundamental/analysis-reports/economics-weekly/2008-01-15.html. Economic growth to be strong once again… Despite the doubling of oil prices and the credit crisis, global economic growth last year was above the long run average for a fifth year in succession. It was also clear that though growth in the main economies held up very well, this strong outcome was primarily due to the emerging markets, in particular China, India and Russia. But growth was also strong in all of the major oil exporters and commodity exporters of metals and minerals. There are few signs from these economies in recent months that the pace of growth is yet slackening. Oil prices remain high and demand for commodities from the emerging market giants (in terms of population) of China and India is still strong. However, we project that higher interest rates in many of the emerging market economies and currency appreciation over the past year - and likely to persist into this year - will slow down growth in 2008 compared with 2007. ...led by emerging markets... But with oil prices still high and commodity prices in general still strong, emerging market growth will remain broad based and not confined to the largest developing economies. Continued growth in the emerging economies will also help growth in the developed economies to stabilise at or near trend rates this year. This means growth for the UK of 2.3% and for the eurozone 2%. For the US, growth is likely to remain below trend, at some 2%, as a result of the fallout from an extremely overvalued housing market slowing down and the bursting of the credit market bubble. This should be seen as good news in the medium term as the US has been consuming too much and saving too little in recent years, which meant that it was running an ever larger external deficit that threatened the stability of the global economy. A weaker currency will help to rebalance the global economy and make growth more sustainable in the years' ahead. With continued weakness in the US dollar likely this year, we look for faster export growth and sharply lower interest rates to spur economic recovery in the second half of 2008. However, once growth starts to recover, and it is clear that interest rates have peaked, the US$ could well reverse some of its decline. Weak dollar is self-correcting. N. Gregory Mankiw, 12/23/2007. Professor of economics at Harvard, and he wrote my econ textbook last semester. “How to Avoid Recession? Let the Fed Work,” New York Times, http://www.nytimes.com/2007/12/23/business/23view.html?ref=business. By making United States bonds less attractive to world investors, lower interest rates from a monetary expansion also weaken the dollar in currency markets. A depreciation of the currency is not in itself to be feared. Treasury secretaries often repeat the mantra of favoring a strong dollar, but these pronouncements are based more on public relations than hard-headed analysis. A weak currency is a problem if it results from investors losing confidence in an economy. The most damaging cases are the episodes of sudden capital flight, as occurred in Mexico in 1994 and several Asian countries in 1997. This outcome is unlikely for the fundamentally sound American economy, but fear of it is one reason that Treasury secretaries maintain public fealty to a strong dollar. But if a weakened currency comes about because the central bank is trying to stimulate a lackluster economy, the story is very different. In that case, depreciation is not a malady but just what the doctor ordered. A weaker currency makes domestic goods more competitive in world markets, promoting exports and bolstering the economy. The dollar’s falling value is one reason exports of goods and services have grown more than 10 percent in the past year.
Last month, China announced it was investing $3 billion of its dollar reserves in Blackstone Group LP, manager of the second-largest buyout fund, to boost its returns. What if China were to shoot itself in the foot and dump its entire Treasury portfolio in one fell swoop? “It just so happens we have a real-world example of what it would mean, according to Bianco. The Bank of Japan bought $244 billion of Treasuries in the 12 months ended August 2004. During that time, U.S. long-term interest rates rose and the dollar fell versus the yen. “By April 2006, the BOJ was a net seller of U.S. Treasuries (on a 12-month basis) to the tune of $26 billion, a swing of $270 billion. U.S. interest rates fell during that period while the dollar rose. “‘The BOJ bought a quarter-trillion dollars of Treasuries and then abruptly stopped and no one noticed,’ Bianco says. AT: Dollar DumpNo risk of dollar dump- China diversifies its holdings within US companies cuz nobody wants to buy T-bills. Money Week 7 (“Why investors fear a China Treasury dump” http://www.moneyweek.com/investments/why-investors-fear-a-china-treasury-dump.aspx) Greenspan says there is nothing to fear: “Former Federal Reserve chairman dismisses fear of China dumping U.S. Treasuries”: “There is little reason to fear a wholesale pullout by China from U.S. government bonds, former Federal Reserve Chairman Alan Greenspan said Tuesday. “While expressing concerns about China's runaway growth rate and what he described as overvalued stocks, Greenspan played down the prospect that Chinese authorities would sell Treasuries in earnest, forcing a sharp spike in U.S. interest rates. “Asked at a commercial real estate conference if investors should be worried about this oft-cited concern, Greenspan said: ‘I wouldn't be, no.’ “Still, Greenspan said the reason such a withdrawal was unlikely was that China would not have anyone to sell the securities to… “Greenspan said that a global liquidity boom, which he traced back to the end of the Cold War, would not go on forever. “‘Enjoy it while it lasts,’ he told the audience. “Now a private-sector consultant, following more than 18 years at the U.S. central bank, Greenspan reiterated his prediction that China's latest growth spurt had come too far, too fast. “‘We cannot continue this rate of growth in China and the Third World. This cannot continue indefinitely,’ Greenspan said in a speech. ‘Some of these price-earnings ratios are discounting nirvana.’” Now, there's a comfort... China won't sell them because 'China would not have anyone to sell the securities to.' So instead of accumulating more Treasuries, China is plowing U.S. dollars into inflated U.S. stocks, agencies (tied to horrendous fundamentals in the U.S. housing market), junk bonds, and other garbage. No dollar dump-China has nobody else to buy from. Financial Times 9 (5/24, “China stuck in ‘dollar trap’” http://www.ft.com/cms/s/0/5b47c8f8-488c-11de-8870-00144feabdc0.html?ftcamp=rss&nclick_check=1) China’s official foreign exchange manager is still buying record amounts of US government bonds, in spite of Beijing’s increasingly vocal fear of a dollar collapse, according to officials and analysts. Senior Chinese officials, including Wen Jiabao, the premier, have repeatedly signalled concern that US policies could lead to a collapse in the dollar and global inflation. But Chinese and western officials in Beijing said China was caught in a “dollar trap” and has little choice but to keep pouring the bulk of its growing reserves into the US Treasury, which remains the only market big enough and liquid enough to support its huge purchases. In March alone, China’s direct holdings of US Treasury securities rose $23.7bn to reach a new record of $768bn, according to preliminary US data, allowing China to retain its title as the biggest creditor of the US government. Directory: files -> documents documents -> North Mankato Taylor Library documents -> In the Red and Brown Water documents -> - documents -> I. Disaster Summary Sheet II. Tropical Cyclones documents -> Cbp and Trade Automated Interface Requirements Appendix: pga december 22, 2015 documents -> Ace abi catair customs and Trade Automated Interface Requirements documents -> Ace abi catair customs and Trade Automated Interface Requirements documents -> Mobile audio/video recording systems documents -> Cartographic Concepts for Realizing a Location Based umts service documents -> 1/ Background Statistics Human development index rank Download 2.71 Mb. Share with your friends:
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