Low Wage Pay Gains

[Henry C.K. Liu]

We will do well not to overestimate the weakness of American financial prowess.
The daily turnover of foreign exchange trading in world markets, mostly in London
and New York, exceeds US$1.5 trillion, not counting derivatives, forwards and
futures.  The trade is mostly dollar based.
One of the reason Japan, despite its preeminent creditor status, is not really a
800 lb gorilla, is that it cannot sell its US Treasuries holdings without paying
more penalty than America.
Also, a point often overlooked, is that because of the exclusive role of the US
dollar as basic currency in world trade and finance, the Fed together with the
Treasury, has enormous power in setting interest rate globally.  The Fed may not
have to raise US rates to defend the dollar.  It has the option of pushing down
non-US rates selectively by buying or selling foreign currency.

The problem with the euro is that it is now an alternative currency only in
concept.  There are not enough euros to really threaten the US dollar.  Any
central banker who will put his reserves in equal distribution between euros,
yens and dollars will not hold his job by the end of the week.  Same with
corporate CFOs.

The size advantage of the dollar market is going to be around for at least a
decade, and maybe for the foreseeable future.

Henry

Dennis R Redmond wrote:


> On Sat, 6 Feb 1999, Doug Henwood wrote:
>
> > >Don't you think Greenspan will have to raise interest rates to protect the
> > >dollar? If there's a run on the dollar, the whole jig is up.
> >
> > That's the 64 billion euro question, isn't it?
>
> If the Federal Reserve flow-of-funds data is correct, it's now a roughly
> 800 billion euro question (US debt to the EU) and counting. Compound
> interest sure is a bear, eh?
>
> -- Dennis