[OPE-L:7200] Re: Re: NYTimes.com Article: The Muscle-Bound Dollar May Now Be an Achilles' Heel

From: Steve Keen (s.keen@uws.edu.au)
Date: Thu May 16 2002 - 22:30:20 EDT

This article ignores the side of the US economy that has done very well out of the high dollar--basically what Joan Robinson would have 
described as the "rentier class", the speculators and hedge funds who have received enormous capital inflows to finance leveraged and 
derivative positions on American paper capital.

I expect the fear that the US administration has about a devaluation of the dollar relates to the impact of all these speculative positions 
being unwound at once as the dollar devalues. The total level of derivative positions worldwide now exceeds six times the annual GDP of 
the USA, and the threat of a liquidity crisis, with counterparties not being able to deliver on their commitments when the dollar slides, and 
thus defaulting and collapsing as did LTCM in 1998, is very real.


> Well Brenner seems to have been correct to focus on the politics of 
> currency--see article below.
> With the development of the capital markets since the Plaza 
> agreement, do govts still have the power through coordinated action 
> to engineer a controlled devaluation of the dollar?
> And given China's and Japan's own heavy debt problems, will they 
> cooperate with the US Treasury in the devaluation of the dollar as 
> Japan did in the Plaza agreement?
> If it is so clear that the US needs a devaluation of the dollar and 
> that an upward revaluation of the Euro will mitigate inflationary 
> pressure and allow the European Central Bank to pursue growth 
> accomodative monetary policy,  why is Treasury Secretary O'Neill so 
> reluctant to intervene in the currency markets? Don't US businesses 
> need foreign markets and protection at home?
>   Or is there some reason that a strong dollar helps some, perhaps the 
> most powerful, US-based businesses--for example, if one has a 
> technological monopoly then a weak dollar only results in the US 
> giving away what others cannot produce, as the rightwingers at the 
> American Spectator would put it.
> If the US competes in foreign countries through sales from 
> subsidiaries, doesn't a strong dollar give US based businesses a 
> competitive advantage while tariffs and subsidies can be used to 
> protect American business at home? At any rate, why does O'Neill seem 
> so reluctant to intervene in the currency markets as his predecessors 
> in the 80s did?

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