U.S. has plundered world wealth with dlr -China paper

There is muchI have omitted in my coverage of the current fiscal crisis. A regular reader here would know I'd seen a disaster about to implode way before the standard economists did.

But the role of U$ dollar hegemony in the whole mix has often gone begging in the standard analyses one can read !!

It's important to understand THAT if you want the whole picture, eh?

China's underwriting of the U$ dollar has important consequences.

I think there are two schools of thought in China:
Those who go along with Hankie Poo and those who do NOT.

Here's an emerging Chinese view that is getting coverage - FINALLY in the bleeding lamestream media.

Veeger

BEIJING, Oct 24 (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.

The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.

A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.

Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.

"The grim reality has led people, amidst the panic, to realise that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.

"The U.S. dollar is losing people's confidence. The world, acting democratically and lawfully through a global financial organisation, urgently needs to change the international monetary system based on U.S. global economic leadership and U.S. dollar dominance," he wrote.

Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.

A two-day Asia-Europe Meeting (ASEM) of 27 EU member states and 16 Asian countries was set to open on Friday. Though few analysts expect much in the way of concrete agreements, Shi said it could prove momentous.

"How can Europe and Asia grasp each other's hands and together confront the once-in-a-century global financial crisis sparked by the U.S.; how can they construct a new equitable and safe international financial order?" he said.

"The world is waiting for this Asian-European meeting to achieve big results in financial cooperation." (Reporting by Simon Rabinovitch; Editing by Ken Wills)

Has the moment come to replace the US dollar?

Has the moment come to replace the US dollar?

By Kenneth Rogoff
The Daily Star

As the world's financial leaders meet in Washington this month at the World Bank -International Monetary Fund annual meeting, perhaps they should be glad there is no clear alternative to the dollar as the global currency standard. If the euro were fully ready for primetime, we might well be seeing its dollar exchange rate jump to over 2.00, and not just to 1.65 or 1.70, as it seems poised to do anyway. You can't treat your customers as badly as the United States has done lately if they can go elsewhere.

Over the past six years, the value of the trade-weighted dollar has fallen by more than a quarter, as the US has continued to rack up historically unprecedented trade deficits. With a soft economy, a badly compromised financial system, and serious concerns about rising inflation, the long-term dollar trend is downward, however the current crisis ends. And it is not over.

The Federal Reserve's bailout of the financial system is unlikely to stand up unless banks find fresh capital, and lots of it. Ultra-rich sovereign wealth funds have the cash to rescue US banks. But they are unlikely to want to do so at this point, even if the US political system allowed it. Instead, as the credit crunch and housing price decline continue, an epic mortgage bailout appears increasingly likely, possibly costing US taxpayers $1 trillion or more. The problem is that after so many years of miserable returns on dollar assets, will global investors really be willing to absorb another $1 trillion in US debt at anything near current interest rates and exchange rates?

US debt hardly looks like a bargain right now, even without the sinking dollar. Far-flung military misadventures continue to stretch the country's fiscal resources, with costs potentially running into many trillions of dollars, according to a recent study by Joseph Stiglitz and Linda Bilmes.

Next year will almost certainly see a massive rise in US corporate defaults, even though many firms entered the recession with relatively strong balance sheets. State and municipal finances are in even worse shape. With tax revenues collapsing due to falling home prices and incomes, dozens of US municipalities could well go into receivership, as New York City did in the 1970s. US municipal bonds are already trading at huge risk premiums, and the first big government default hasn't even hit yet.

Of course, if the dollar were to fall off its perch as the world's dominant currency any time soon, the euro would be the only serious alternative. The yuan may well supplant the dollar in the second half of this century. But China's draconian capital controls and massive financial repression currently disqualify it from anchoring the global economic system.

Fortunately for the dollar, the euro, too, seems to have its problems. European banks remain balkanized, with a patchwork of national regulators seeking to promote their own champions. European governments' debt may all be denominated in euro, but German and Italian debt are hardly the same thing, so the government euro-bond market lacks the depth and liquidity of the US Treasury bill market.

Moreover, international investors can buy and sell real estate far more easily in the US than in most of Europe. And the absence of a Europe-wide fiscal policy creates significant uncertainty about how the European Central Bank would finance itself if it suddenly faced large losses on junk bank debt after a big bailout.

But the euro does have growing strengths. At current market exchange rates, the European Union is now larger economically than the US. New central and eastern European members are bringing enormous dynamism and flexibility. At the same time, the European Central Bank has gained considerable credibility from its handling of the global credit crisis. Indeed, if the euro zone can persuade Great Britain to become a full-fledged member, thereby acquiring one of the world's two premier financial centers (London), the euro might start to look like a viable alternative to the dollar.

In 1971, as the dollar collapsed towards the end of the post-World War II fixed exchange-rate system, US Treasury Secretary John Connally famously told his foreign counterparts that "the dollar is our currency, but your problem." And the dollar's exalted global status has survived ever since, despite many episodes of neglect and abuse.

World currency standards have enormous inertia. The British pound only forfeited its role to the US dollar after more than 50 years of industrial decline and two world wars. But it could happen a lot faster this time. As central bankers and finance ministers ponder how to intervene to prop up the dollar, they should also start thinking about what to do when the time comes to pull the plug.

Kenneth Rogoff is a professor of economics and public policy at Harvard University, and was formerly chief economist at the International Monetary Fund.

Chinese TV: Dump the Dollar And you think that the US financial house is NOT about to fall! Here it comes, folks! Watch the Japanese news too.

Source: CNBC

Chinese lunchtime television on Friday gave ordinary people a basic tip on how to play the currency markets:

sell the dollar!

A state news program, quoting unnamed "wealth management experts," told residents with dollar accounts on the mainland to convert their holdings into yuan or a range of other foreign currencies, including the pound and the euro.

The prospect of ordinary Chinese ditching the dollar should be less alarming than reports that have roiled global markets of Beijing diversifying its official foreign exchange reserves.

Whereas China's official reserves of more than $1.4 trillion are the world's biggest, private foreign currency deposits in China are a fraction that size: $162.1 billion at the end of October, according to People's Bank of China.

The central bank did not give a currency breakdown of these deposits.

Three Solutions to Dollar Weakness

The state news program, which did not quote any government official, said people were getting squeezed because the pace of yuan appreciation against the dollar was greater than the interest rate earned domestically on dollar accounts.

Analysts expect the yuan to rise anywhere from 5 to 7 percent annually against the dollar, while domestic dollar accounts earn depositors just 3 percent a year.

The program proposed three solutions.

"Selling dollar for yuan as soon as possible may be a safe approach,"

the news program said, adding the yuan could then be used to invest in domestic mutual funds.

"Secondly, you can change the dollar into strengthening currencies,"

it continued.


"Currently, the U.S. dollar is falling against the euro , the British pound , the Australian dollar and the Canadian dollar , and you can change the dollar into these currencies for deposits."

The third recommended strategy was to

invest the dollars abroad,

in search of higher yields, by buying into Qualified Domestic Institutional Investor (QDII) products offered by Chinese banks and fund managers.