[OPE-L:7201] Re: Re: Re: NYTimes.com Article: The Muscle-Bound Dollar May Now Be an Achilles' Heel

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Fri May 17 2002 - 01:22:55 EDT

re 7200

>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 
>being unwound at once as the dollar devalues. The total level of 
>derivative positions worldwide now exceeds six times the annual GDP 
>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.

I suppose there is some connection between your attempts to study the 
tools of complexity analysis and your ability to see the complexity 
of the real economy!

Yet I must ask: why would a devaluation affect the ability to deliver 
the dollars since these commitments are probably written in dollars? 
It's not like the US is  Thailand with debts in dollars and revenue 
and money creation powers in another currency (baht)?

Yet perhaps the Japanese central bank is threatening to dump US 
T-bills if the US manipulates the currency markets to devalue the 
dollar to the yen? This could lead to a liquidity crisis just as the 
US govt begins to issue debt again?

It could be that Treasury Secretary O'Neil knows that the US cannot 
offer anything to China and Japan to entice (or coerce) them to enter 
into a new Plaza like Accord (despite appearances, the US may indeed 
not have political hegemony to keep the imperialist countries united 
under its dominance-- another period of Kautskyan super imperialism 
may be coming to an end!). The Chinese and Japanese states will 
simply not stop dumping their currencies in order to ward off an 
upward revaluation of their currencies? No cooperation will be 
forthcoming this time around...

At any rate, O'Neill may not want undermine his own credibility by 
attempting to do something ( a controlled devaluation of the dollar) 
which he cannot see to its end.  It is not an ideological belief in 
markets but the limits to hegemonic political power that is driving 
O'Neill's hands-off stance?

And without a controlled devaluation the dollar may at some point 
begin that violent free fall that Fred has been warning about for at 
least 3 years now.

All the best, Rakesh

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