Forum Archive Index - August 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

Derek,

 

A good article!

 

I have always been interested in currencies, interest rates and the inflow/outflow of capital.

 

My article of 18 Dec. refers to some of the ways foreigners used to indirectly prop up the US dollar.

 

The problem was that this Dollar has been the only game in town for a long time! But...at some stage, it will sag.

 

Sofar, the Euro has been a lame currency. It was not able ' to take up the slack'. That is unfortunate as the US could do with a lower dollar at some stage but perhaps not now: They are trying to keep inflation down as well.

 

Lowering US interest rates still further could see the US dollar decline and foreigners may decide to take out some of their money and look for an alternative haven, where the ( Currency + interest income ), are superior.

 

The ANZ presentation of 21 June, mentioned that the $A was low vs the USD, but as your writer shows, it is not the only country with a lower valued currency.

 

Countries have preferred to competitively devalue, rather than raising interest rates. 

 

The US has little choice: If the outflow of capital were to become too high, then it may be forced to increase interest rates, instead.

 

That would increase inflation and shortcut the time needed to recover. And we all know that the relative high price of oil will not accommodate a recovery!

 

Gerry