Free-floating currencies feel pain from dollar: FT

[oldhat]

Timber?

http://news.ft.com/cms/s/2de6146a-4c78-11d9-835a-00000e2511c8.html

Free-floating currencies feel pain from dollar
By Steve Johnson
Published: December 12 2004 20:11 | Last updated: December 12 2004 20:11

The pain that sharp currency movements can inflict on countries with free-floating currencies was graphically illustrated in figures last week. Australia, Canada, the UK and New Zealand have been hit by fall-out from their currencies' appreciation against the US dollar. Economists scaled down expectations of interest rate rises as a result.

Tony Norfield at ABN Amro said: "Everyone agrees the US has to adjust . . . and that will put a burden on everyone else. We have seen the first wave of that burden . . . this week."

A number of currencies are up sharply against the dollar, with the greenback weighed down by worries over the US fiscal and current account deficits and concerns that foreign central banks may diversify foreign exchange reserves out of the falling dollar.

Sterling has risen 24.1 per cent against the greenback since January 2002, with the dollars of Australia, Canada and New Zealand appreciating by 32.4, 23 and 41.1 per cent respectively. The euro has risen 33.2 per cent, threatening the eurozone's export-led recovery.

With Asian countries such as China, South Korea, India and Japan running dollar pegs or intervening to limit currency appreciation, nations with free-floating currencies have lost competitiveness against some of the world's largest exporters.

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[ClintonTyree]

1. The Bushies...................

CAN't have a stronger dollar or their entire house of cards falls apart. If interest rates start rising we won't even be able to pay the interest payments on the national debt. Of course I think that's their plan anyway, to bankrupt the country and start over. Starting over without all of those nasty "entitlements" that so many of the people in this country rely on that is. It will all be "faith based: then. Which means people will starve and die in record numbers because many of those in charge of the "faith" are just as corrupt as the Bushies.
Great place, America.

[RDANGELO]

2. I have thought about that too.

Could they really be stupid enough to run up all that debt. I know there are plenty of ignorant, delusional,ditto- heads in congress, but there must be some people in the administration who are telling them they are crazy for doing this.
So they cause an intentional economic crises and blame it all on terrorism. Then they could dismantle the so called welfare state, initiate a draft and maybe expand the war in the middle east. All in the name of fighting terrorism.

[BonjourUSA]

5. If China, Japan... sell their dollars, you're in deep shit and us with you

because we'll have to buy them for avoiding a worlwide mess. But, The US is the first client of China and it has no interest to do that for the moment.

[Art_from_Ark]

8. Japan is not going to sell dollars

at least, the Japanese government is not going to be dumping its $770+ billion holdings in Treasuries anytime soon. In fact, it appears that the Japanese government is "lending" Treasuries to Japanese banks, which in turn sell them to investors who can make a couple of percent in interest, which is 2% more than what they would be making with the money in yen accounts. Some banks offer a system in which the investor takes no loss of principal if the yen goes up by as much as 9/dollar-- only a corresponding loss of interest. When the investor cashes in, the bank merely sells the bond back to the Japanese government for a commission, or sells it to another investor. In the meantime, the Japanese government gets a little interest, the investor gets a little interest, and the bank gets a commission.

[MissMarple]

3. Do you think they really believe the tax cut policy will really work?

It's like they keep pinning their hopes on it. Some odd point about the Laffer Curve is not something to build an economic policy on. Either that or they are hoping for anarchy.

[oldhat]

4. They want the federal government to fail.

"Starve the beast."

[VegasWolf]

6. Hell no! It's just another version of "trickle down theory" and we

saw how well that worked!

[AndyTiedye]

7. When There's a Trickle Down, The Toilet Upstairs is Overflowing