dollar versus euro prospects - was the armageddon thread

From: Paul Cockshott (wpc@DCS.GLA.AC.UK)
Date: Thu Nov 25 2004 - 06:31:53 EST


>The continuing us trade deficit increases the chances of
>this unless the gains to be had in interest can outweigh the
>capital loss of holding dollar assets.

But that chance has been increasing for decades now. Why now have
things gone pass the return point?
I think that the rapid decline in the dollar in the
last year is actually something new

>  Hence Roach's remarks
>about the federal reserve having to raise rates.
>Without that the ability of the US govt to fund its current
>account deficit will be in peril.

As I related in my post, the dollar, qua world money, has props that
the euro and the yen do not.

I am not convinced even on your own grounds that this
is true, the gold and foreign exchange reserves backing
the euro through its participant states are considerably
greater than for the dollar, and with much smaller
outstanding liabilities - check the IMF figures at
he links Jurrian posted earlier.
France and Germany each individually have higher foreign
exchange reserves than the US. Euro is backed by
reserves of E 300 Billion or so, the dollar by
reserves of $85 billion dollars which is a 5 to
one advantage to the Euro at present.

The Euro zone is also running a net balance of payments
surplus of around E 70 billion per annum.

The treaty obligations on participant states also
makes it much harder for them to run significant budget
deficits than the US govt which is unencumbered by such

These obligations are almost certainly deflationary and
are depressing growth in the Euro zone, but from the
standpoint of ensuring the value of the currency they
are much more significant than a disputable wish by
the chairman of the Fed to shadow gold - which as
Allin has shown he has signally failed to do even
if he is assumed to have wanted to do so.

It is worth noting that in some ways the result that
Alllin found was to be expected simply on staticstical
grounds in that a small bundle of commodities will
have much more noise in its price movements than
a large bundle such as that used to calculate the CPI

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