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U.S. dollar starts the big slide against major currencies

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    Tim Fernholz:


    November 6, 2009 -- Like a cold front on the weather map, everyone saw it coming. But that didn't mean that we weren't caught without our coats on today when U.S. unemployment broke into double digits: 10.2% of the American labour force is now without a job. Most forecasts weren't expecting this sort of heavy weather until early next year, but a shrinking overall workforce – probably caused by discouraged workers dropping out of the hunt for new jobs – drove up the unemployment percentage. After last week's news of growth in the U.S. economy for the first time in nearly a year, what gives? The truth is, it's hard to say. Economists aren't exactly sure why the labor market is lagging despite the growth. One theory is that, with productivity still increasing – it increased at an astonishing 9.5 percent last quarter -- employers still don't need to hire new workers to keep up with the expansion. Others wonder if employers are still concerned that this growth is still temporary – they may need to see another strong growth quarter before they commit to rehiring. It's still unclear what industry will drive the next American economy, despite hopes that a new green energy industry or revitalized manufacturing can begin the expansion. There are a few good signs in the report: The actual drop in jobs, 190,000, is lower than in previous months, suggesting once again the problem is moderating, but still not going away. Economists traditionally look for temporary employment as a sign that employers are beginning the hiring process (typically, firms bring on temp workers and, as the economy stabilizes, bring on permanent workers). Since July, more and more temporary workers have been hired, with 44,000 brought on board in October. That doesn't change the fact that the United States is looking at 26-year high in unemployment, with an amazing 17.5 percent of workers negatively affected, whether they are directly unemployed, discouraged from finding new work after being out of a job for months and months, or forced to work part-time instead of full-time. While the President signed an extension of unemployment benefits and the home-buyer tax credit yesterday, the first policy merely ameliorates the recession and the second is more of a boondoggle for the housing market than anything else. Especially with Democrats seeing electoral losses in governors' races in New Jersey and Virginia on Tuesday, it's time for more to be done on the jobs front. It's increasingly clear that the stimulus act from last February was both too small and poorly designed (though it was responsible for most of last quarter's growth). Observers – like me – who call for more federal aid to drastically cut state budgets, a jobs tax credit and even targeted investments in future industries may sound like broken records, but this jobs report should be all the impetus that congress and the White House need to try a different tune. Like an early frost, double-digit unemployment wasn't expected to come so early, and if it affects consumer confidence, it could kill the oft-mocked 'green shoots' of recovery. Let's hope policymakers are smart enough to start taking precautions for the winter ahead.

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    November 6, 2009 -- Barack Obama admitted today that the rise in U.S. unemployment above 10% last month was "sobering" as fears grew that the worst jobless figures for 26 years would push the world's biggest economy back into recession. At the end of his toughest week since entering the White House in January, the president said he was looking at extra spending on infrastructure and tax cuts for business to safeguard America's fledgling recovery. The poor economic news from the U.S. sent shudders through financial markets, with gold prices reaching a record high of just over $1,100 an ounce, crude oil dropping by $2 a barrel and the dollar under pressure on the foreign exchanges. Obama said the jobless figures underscored the challenges ahead for the American economy, which emerged from its deepest post-war downturn in the third quarter of the year.

    Despite the massive U.S. budget deficit, the president promised to provide a fresh package of fiscal measures to boost growth. The Federal Reserve pledged this week to keep monetary policy loose for "an extended period". Monthly figures from the U.S. department of labour revealed that employers cut a higher-than-expected 190,000 jobs in October, with the falls spread across the economy. Among the worst-hit sectors were construction, where employers cut 62,000 jobs in October, and manufacturing, where 61,000 positions disappeared. Retail lost 40,000 jobs and in the leisure industry, payrolls were reduced by 37,000. But education, health and professional services showed an increase in employment. The unemployment rate – which stood at 6.6% last October – increased from September's 9.8% to 10.2%, reaching its highest level since April 1983, a period when the Federal Reserve was using high interest rates to squeeze out inflation.

    Wall Street forecasters had expected job losses of closer to 175,000 and were hoping that the percentage rate of unemployment would remain in single figures. Nigel Gault, chief US economist at IHS Global Insight, described the unemployment rate as a "horrible number". "People were hoping there would be an upside surprise to this," said Gault. "What's happened is it's come out worse, so that's caught them on the wrong foot. They were leaning one way, and it's gone the other. Remember, we had a huge run-up in the market yesterday, a lot of optimism. So this throws a bit of cold water on that." David Resler, senior economist at Nomura Securities in New York, described the double-digit jobless rate as "really quite disheartening" and said he did not foresee any move by the Federal Reserve to raise interest rates for some time: "We don't see the Fed doing anything before the early part of 2011, and this simply reinforces that point."

    October was the 22nd consecutive month of job cuts in the U.S. economy. The ongoing loss of employment comes despite a $775 billion (£468 billion) economic stimulus package by Obama in an attempt to kick-start activity, including the creation of work through public projects. Scott Paul, executive director of the Alliance for American Manufacturing, said: "No end is in sight for rising unemployment, which is grim news for American workers. Manufacturing must be the jobs engine that drives us out of the recession, but Washington is sitting on its hands while China and our other competitors in Asia and Europe invest heavily in clean energy and revitalising their industrial sectors. We will consign an entire generation of young Americans to a declining standard of living unless we fight for new jobs. That means investing in infrastructure, balancing trade, leveraging tax dollars to create jobs in America, reinvesting in education, research and development, and freeing up capital for businesses."

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    Sonia Lyes :


    Lundi 26 Octobre 2009 -- Il y a un an, alors que tous les pays du monde s’inquiétaient ouvertement de l’impact de la crise économique mondiale sur leurs économies, notre gouvernement affirmait que l’Algérie était à l’abri des difficultés. Avant de se réveiller brutalement au début de l’été dernier, avec une série de mesures introduites dans la loi de finances complémentaire (LFC) 2009, destinées à freiner les importations et limiter la baisse des réserves de change. Le même scénario est en train de se répéter avec la baisse du dollar. Alors que les gouvernements européens et asiatiques s’inquiètent depuis quelques jours des conséquences du déclin du billet vert qui a franchi, lundi 26 octobre, la barre des 1,50 dollars pour un euro, le gouvernement algérien continue d’ignorer l’impact de cette situation sur l’économie nationale. Dimanche, au cours d’une réunion avec la Commission des finances de l'Assemblée populaire nationale (APN), Karim Djoudi n’a, à aucun moment évoqué le sujet du dollar faible. Il s’est contenté de réciter les indicateurs macro-économiques, considérés à tort depuis quelques années comme des preuves de la bonne santé de l’économie nationale. Pourtant, l’Algérie a de sérieuses raisons de s’inquiéter de la faiblesse du billet vert. Si les Européens et les Asiatiques s’inquiètent pour le préjudice causé par un dollar faible à leurs exportations, les conséquences pour l’Algérie concernent les importations et le pouvoir d’achat de l’Etat. La situation est en effet la suivante : l’Algérie, qui exporte presque uniquement du pétrole et du gaz, facture ses ventes en dollar. Mais la majorité de ses importations, notamment des produits alimentaires et des services, proviennent d’Europe ou et elles sont facturées en euro. Selon des économistes interrogés par TSA, cette situation présente au moins trois risques pour l’économie nationale : une fonte rapide des réserves de change, une forte hausse de l’inflation et l’apparition d’une dépression. Avec la chute du dollar, les recettes en devises baissent mécaniquement. L’inflation, même si elle est artificiellement contenue en interne grâce aux subventions gouvernementales, augmente fortement à l’extérieur. Et en l’absence d’un plan de relance de la production nationale conjuguée à une politique de réduction des importations, la consommation pourrait baisser durablement. La situation économique du pays deviendrait alors difficilement gérable. Et les mesures prises visant surtout à réduire les importations pour freiner les sorties de devises risquent de s’avérer rapidement inefficaces.

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    TOKYO, October 7, 2009 (KUNA) -- The US dollar fell to a 10-month low in the lower 88 yen range on Wednesday in Tokyo, a day after Britain's Independent newspaper reported that Arab states were in talks to end the use of the dollar for oil trading. The greenback briefly touched JPY 88.08, its lowest level since December 18 in Tokyo. At 6:30 p.m. (0930 GMT), the dollar traded at JPY 88.20-22 versus Tuesday's 5 p.m. quotes of JPY 88.78-88 in New York and JPY 89.26-28 in Tokyo. The euro was quoted at USD 1.4724-4726 and JPY 129.88-92 at 6:30 p.m. against USD 1.4718-4728 and JPY 130.70-80 in New York and USD 1.4718-4720 and JPY 131.38-42 in Tokyo late Tuesday. A stronger yen hurts Japanese exporters by making their products more expensive abroad. Japanese Finance Minister Hirohisa Fujii said Wednesday that the government is "calmly" monitoring the currency market, suggesting no intervention is needed at this stage. "However, if the foreign exchange moves abnormally, we would take appropriate steps," Fujii told a press conference. The minister also said the yen's rise against dollar is attributed to the dollar's weakness that has been stemmed from low interest rates in the U.S., rather than the yen's appreciation.

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    October 6, 2009 -- The price of gold has hit an all-time high amid reports that Gulf states are considering dropping the dollar for oil transactions. The value hit 1,043 dollars an ounce, beating the previous record high of 1,032.70 in March 2008 when the U.S. investment bank Bear Stearns began its demise. Crude oil prices also moved higher as the dollar weakened. The soaring value of gold follows a report in the Independent newspaper that claimed Arab states had held secret talks with China, Russia and France in which they debated whether to stop using the greenback for oil trading. The newspaper said gold could be used as an temporary replacement for the dollar. The report was denied by Saudi Arabia’s central bank and a Kuwaiti minister. Even so, the aftershocks rippled through the currency and bullion markets.

    "Such a step, although dismissed almost immediately by Saudi Arabia, Russia, the UAE and Algeria, obviously weakens the dollar, which should be supportive for oil prices - in dollar terms that is," PVM oil market analyst Tamas Varga told AFP. Barclays Capital precious metals analyst Suki Cooper said: "The dollar weakness appears to be related to ... (reported) secret talks about oil being priced in a basket of currencies including gold rather than the dollar, which has added to concerns about the future role of the dollar in international financial markets." Commerzbank described the Independent's report as "completely nonsensical". The paper said the dollar would be replaced by a "basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council (GCC), including Saudi Arabia, Abu Dhabi, Kuwait and Qatar". Any such move would be threaten the dollar's role as the world's premier currency and would have the potential to seriously damage the U.S. economy.

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    ISTANBUL, October 6, 2009 (Reuters) -- Algeria's finance minister said on Tuesday that there was no need to replace the U.S. dollar as the currency used for oil trade. "Oil producing countries need to stabilize revenues but ... I don't see a need for oil trade to be denominated differently. But we are at the IMF conference where all sorts of subjects are raised and discussed," Algerian Finance Minister Karim Djoudi told Reuters.

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  • Guest 123
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    October 6, 2009 -- Last autumn's global financial crisis set off an economic earthquake. And we are still feeling the tremors. The latest sign of the ground shifting beneath our feet is our report today of plans by Gulf states, China, Russia, France and Japan to end their practice of conducting oil deals in U.S. dollars, switching instead to a diverse basket of currencies. It is not hard to see the motivation for oil exporters to move away from the dollar. The value of the U.S. currency has fallen sharply since last year's meltdown. And fears are growing, in the light of a spiralling U.S. government deficit, that a further depreciation is likely. They do not want to sell their wares in return for a currency with an uncertain future.

    It is also easy to see why China would like a world trading system that is underpinned by other currencies as well as the dollar. For the past decade Beijing has been recycling the proceeds of its giant national trade surplus into purchases of U.S. government bonds and other dollar-denominated assets. China too stands to make a significant loss if the value of the dollar falls. For China, however, the timing is much more sensitive. Beijing needs to reduce its dollar holdings, but if it does so too quickly it will bring about the very devaluation it fears. This explains why Chinese officials appear to want this transition to take place gradually over the next decade.

    But the significance of this development goes much further. Since the end of the Second World War the dollar has been the bedrock of world trade. The pre-eminence of the American currency flowed naturally from the economic dominance of the U.S. Virtually everyone traded with America so it made sense to use their currency. But the U.S. is not the dominant power that it once was. The financial crisis has left it hobbled with significant government and household debts and sharply reduced prospects for growth. Developing nations such as China, Brazil and India, on the other hand, have weathered the economic storm significantly better. So while this latest proposal is born of financial calculation, it is also a reflection of a new economic world order.

    We should not be sentimental for the dollar. It makes economic sense for world trade to be conducted in a variety of currencies. Relying on one only has the advantage of clarity, but it also creates instability if the economy that underpins it faces uncertain prospects. Yet we need to understand that exchange rate volatility is a symptom, rather than a cause, of what truly ails the world economy. The biggest driver of global economic instability in recent years has been the determination of China to boost its export sector at all costs. Beijing's persistently large trade surpluses and manipulation to prevent its own currency from appreciating have effectively forced Western nations into running persistently large trade deficits. It was this pressure that blew up various asset bubbles that burst with such disastrous effect last year. A gradual move away from the dollar makes sense. But without a commitment from world governments – both in the rich and developing world – to reduce these destabilising global trade imbalances we will enter an uncertain new era; and one that could yet make us pine for the days of the dominant greenback.

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    Robert Fisk:


    October 6, 2009 -- In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars. The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

    The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the U.S. over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

    This sounds like a dangerous prediction of a future economic war between the U.S. and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the U.S. because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

    The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

    Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East. China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the U.S. until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for U.S .interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

    Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on U.S monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

    Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency. The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the U.S. dollar."

    Chinese financial sources believe President Barack Obama is too busy fixing the U.S. economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018. The U.S. discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets. "These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

    Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.

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    September 28, 2009 -- America must brace itself for the dollar to be usurped as the world's reserve currency as U.S. dominance wanes in the wake of the financial crisis, World Bank president Robert Zoellick warns today. Speaking ahead of the World Bank/IMF annual meetings in Istanbul, Zoellick said that it was time for a "responsible globalisation", in which decision-making is more fairly shared between the old economic powers and fast-growing developing countries such as China and India. Ever since the post-war Bretton Woods agreement, which cemented the dollar's ascendancy over sterling, Americans have been able to rely on borrowing cheaply from the rest of the world as governments banked on the dollar as a safe bet. But Zoellick said the greenback's status could now be under threat from the growing strength of the Chinese renminbi and the euro. "The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency. Looking forward, there will increasingly be other options to the dollar," Zoellick told an audience at Johns Hopkins University in Washington . From now on, he said, confidence in the U.S. currency - and its economy - would have to be earned. "The future for the United States will depend on whether and how it will address large deficits, recover without inflation that could undermine its credit and currency, and overhaul its financial system." Zoellick's comments came as Beijing launched the first renminbi-denominated bond available to outside investors, as it gradually makes its currency more exchangeable on international markets. "I expect China will inevitably be drawn outward," he said. "Over 10 to 20 years, the renminbi will evolve into a force in financial markets." Several countries, including China and Russia, have repeatedly raised what they see as the problem of excessive dollar hegemony.

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    Mardi 28 Juillet 2009 -- L'euro progressait encore hier après avoir touché un plus haut taux depuis près de deux mois face au dollar, dans les échanges européens, avec une reprise attendue de l'économie, et dans l'attente de nouveaux indicateurs économiques. L'euro s'échangeait à 1,4268 dollar contre 1,4206 vendredi après avoir atteint un nouveau taux plus haut depuis le 3 juin dernier à 1,4298 dollar et progressait également face à la monnaie japonaise à 135,73 yens contre 134,74 yens.

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    January 8, 2009 — Barack Obama, the U.S. president-elect, has warned that the struggling U.S. economy could be in recession for years unless politicians agree a massive economic stimulus plan.

    Obama, who takes office on January 20, has pledged to change U.S. economic policy, and is set to introduce a new stimulus plan containing tax cuts and public spending that could total almost $800 billion.

    "If nothing is done, this recession could linger for years. The unemployment rate could reach double digits," he said at a speech in Virginia on Thursday.

    A new government report released on Thursday showed that the number of people continuing to claim jobless benefits jumped unexpectedly last week by 101,000 to 4.61 million, the highest level since November 1982.

    In addition to tax cuts for families and businesses, the plan would pay for construction and repair of roads and schools and provide aid to U.S. cities and states, Obama said.

    Obama has previously said he was considering a plan in the range of $775 billion, though he has suggested the final cost could exceed that.

    He gave no precise figure in Thursday's speech although Obama listed $1,000 tax cuts for middle-class families as one element of the package.

    Wall Street warning

    The U.S. president-elect also once again promised tougher regulations on Wall Street traders.

    "No longer can we allow Wall Street wrongdoers to slip through regulatory cracks. No longer can we allow special interests to put their thumbs on the economic scales," he said.

    Wall Street firms have come under renewed scrutiny after the global financial crisis rocked world markets last year.

    The crisis hit a U.S. economy already struggling in the wake of the subprime mortgage crisis, which occured after millions of Americans were granted high-interest mortgages they were unable to repay.

    A report on Wednesday showed the fiscal deficit for 2009 would triple to around $1.2 trillion, even before taking into account the cost of the stimulus package.

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