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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (35559)	8/18/2005 9:29:32 PM
From: mishedlo	Respond to of 116555

Hussman Annual Report hussman.net Here's an excerpt where he looks at currency/macro stuff: <<On the basis of interest rates and price levels across countries, my impression is that the euro is slightly overvalued relative to the U.S. dollar, while Asian currencies such as the Japanese yen and Chinese yuan are substantially undervalued. However, the euro has already surrendered a good portion of the overvaluation it achieved last year, and with the U.S. dollar having recently enjoyed strong gains on a trade-weighted basis, my impression that remaining valuation differences are not sufficient to prevent a substantial deterioration in the value of the dollar versus the currencies of our trading partners. Weakness in the U.S. dollar could be expected to exert substantial pressure on import prices, and upward pressure on inflation more generally. Also, to the extent that oil prices are globally quoted in U.S. dollars, depreciation would have the effect of cheapening oil to our trading partners, increasing demand imbalances, and creating further upward pressure on energy prices. It is generally true that a weakening currency is accompanied by both rising inflation and depressed economic activity (i.e. stagflation), which has the effect of reducing real interest rates to very low levels. Unfortunately, relative strength in the U.S. dollar is not what created the profound U.S. current account deficit, and weakness in the dollar (or what is the same, a revaluation of other currencies such as the Chinese yuan), is not likely to trigger substantial adjustment. The deep current account deficit owes far more to low savings rates and profligate fiscal policy in the U.S. than to unfair currency policies abroad. Before pushing for a further revaluation of the yuan, U.S. policy makers would be well advised to reduce the U.S. fiscal deficit so that we are not so heavily dependent on foreign capital inflows to finance U.S. economic activity. Unless that happens, a substantial further revaluation of the yuan, and a dollar crisis more generally, will do more to stifle growth in U.S. gross domestic investment than any single policy move that Congress could contemplate.>>