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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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From: Elroy Jetson	11/17/2004 7:52:40 AM
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Snow: Market Will Find Value for U.S. Dollar San Jose Mercury News -- Jane Wardell -- Associated Press mercurynews.com LONDON - The United States remains committed to letting the market find the value for the ailing dollar, U.S. Treasury Secretary John Snow said Wednesday as the euro hit an all-time high against the dollar. High oil prices and the U.S. trade and budget deficits have sent the greenback sliding against the currency of the 12 European nations. On Wednesday, the euro rose to $1.3035, its highest level against the dollar since its launch in 1999. Snow avoided any direct comment on the dollar's value. "The question was, why do I support a strong dollar policy? The answer is because it is our policy. -- Look it doesn't even fall apart when I use this twenty dollar bill to clean the mud off my shoes. It's both strong and absorbent," Snow told reporters in London. "We believe in open, competitive currency markets. We think the world functions best with free trade and free capital flows. Nobody has ever devalued their way to prosperity -- but we're trying to be the first to do it." Many analysts believe the U.S. government has voiced support for a strong dollar to avoid rattling currency markets but has no desire to brake its fall since a weaker dollar will help lower the U.S. trade deficit. Snow also said China's announcement last month that it was raising two key interest rates for the first time in more than nine years represented the latest example of efforts by the Chinese to move toward "a more systematic management of monetary policy." "I believe that these actions represent significant steps consistent with China's move to a flexible and market-based exchange rate," Snow said in an address to the Royal Institute of International Affairs in London. For more than a year, the Bush administration has pressed China to stop linking its currency at a fixed rate to the dollar, which American manufacturers contend has resulted in the Chinese currency being undervalued by as much as 40 percent. That, in turn, gives Chinese products a tremendous competitive advantage against American goods. The Chinese have said they want to move to a more flexible currency system but must carry out financial reforms first. They have given no timetable for when they believe they will be ready to allow their currency to be set by market forces. Snow called U.S. efforts to change China's currency policy one of three major initiatives the administration is pursuing to lower the record U.S. current account trade deficit. The other two elements are to boost the U.S. savings rate and to encourage stronger economic growth in other major industrial countries. . Snow said he planned to promote stronger economic growth during meetings in Berlin this weekend with the Group of 20 major industrial and developing nations and in discussions Thursday with finance ministers from Poland, Hungary, Slovakia and the Czech Republic. .

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