--- Marvin Gandall <marvgandall at videotron.ca> wrote: "All of the central banks want to see a slow and orderly rebalancing of currencies in order to encourage debt-strapped US consumers to pull back and Chinese and other savers to consume more"
Thank you for the more balanced view. By "rebalancing of currencies" I assume that means devaluing some of the dollar's competitors. Wouldnt that make foreign products cheaper, and hence more attractive to "debt-strapped" consumers?
BobW
> Bob W wrote:
>
> > With China threatening to dump some of its
> treasury
> > holdings (if the US continues to talk about human
> > rights issues, or barriers against certain Chinese
> > products),it seems more likely that rates will
> > increase, in order to attract new foreign lenders.
> ===============================
> Could be.
>
> However, China has been gradually diversifying out
> of the dollar for some
> time now, as have other Asian, Middle Eastern, and
> European central banks,
> but not nearly in such volume or at such a pace as
> to sent interest rates
> soaring and choke off US and global growth.
>
> As exporters, they have to buy dollars in order to
> maintain a favourable
> exchange rate against it, and they've accumulated
> large stashes of USD
> reserves as a result - about $700 billion in
> China's case - which are
> vulnerable to dollar depreciation. In fact, the USD
> has already lost nearly
> a third of its value over the past five years
> against a basket of the
> world's major currencies (mostly the euro) so it
> isn't as if we are at the
> beginning of the devaluation process or that it has
> been provoking any great
> alarm.
>
> All of the central banks want to see a slow and
> orderly rebalancing of
> currencies in order to encourage debt-strapped US
> consumers to pull back and
> Chinese and other savers to consume more. US
> Treasury officials haven't made
> a secret of the fact that they would welcome China
> spending somewhat less of
> its foreign earnings on Treasuries and more on
> boosting purchasing power at
> home to absorb more US exports.
>
> Naturally, there is always the danger of sudden
> collapse if investors
> abruptly lose confidence in the dollar for any
> reason. Maybe it will be
> triggered by a US crash precipitated by the
> unwinding of the housing bubble,
> but while foreign investors are worried about
> possible hidden exposure of
> their own banks and funds to the seized-up MBS
> market, they haven't as yet
> shown any signs of abandoning the the dollar. On the
> contrary, during the
> latest round of jitters, they seem up to now to have
> moved more strongly
> into Treasuries in a "flight to quality".
>
>
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