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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: Lucretius who started this subject	6/17/2002 8:06:54 PM
From: Box-By-The-Riviera™	Read Replies (1) of 436258

lewis with a very interesting dollar read: The G7 meeting this weekend was a yawn except for the fact that the finance ministers made no mention of the dollar’s recent fall. In fact, even the usual “we continue to monitor foreign exchange markets closely” was not stated in the official communiqué, as is the normal practice. Recall that Japan has been intervening repeatedly over the last couple weeks to prop up the dollar. It would appear that Japan might be on its own in this endeavor, not that the US could anything about it if they disagreed with the dollar’s fall anyway. It seems to be a little known fact that the Fed has no foreign currency reserves (that’s what happens when you run massive trade deficits every year) with which to defend the dollar if indeed they wanted to. Ever since the world converted from a gold standard to a fiat currency system back in the 1970s, the dollar has always held the status of world’s “reserve currency”, due to the US being the largest single market as well as the chief military power. Consequently, intervention has never been an issue except when the US wanted to push the dollar down. However, the emergence of the euro changes that game somewhat. After its economic unification, the EU economy is actually larger than that of the US. Now, we know G7 currencies are “managed.” Thus the lack of any mention of the dollar at this weekend’s meeting is rather interesting. When asked about this, Treasury Secretary O’Neil responded that the US’s strong dollar policy had not changed. However, EU Economic and Monetary Affairs Commissioner Solbes responded that a strong euro was good for the EU and that a stronger euro was welcomed. A strong dollar policy and a strong euro policy are mutually exclusive. You can’t have both. It will be most interesting indeed to see how currencies trade over the next several days as it appears the G7 has given a silent “green light” to a further depreciation of the dollar, which the US may or may not have agreed to willingly.

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