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2004-02-27
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The week in economics: Frank currency exchanges
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from the Financial Times. Economics isnât everything but it underlies a lot of what we track here on Rantburg ...
The currency capers continued this week with some international big hitters highlighting the effects of the dollarâs weakness on some of the worldâs biggest economies. But itâs not just the euro and the pound rising -- positive figures from around the globe this week showed the green shoots of recovery are growing taller.
Bitte Bush
The dollarâs weakness is becoming so painful for Europe that Gerhard Schröder, the German chancellor, said he would raise the issue with George W. Bush, the US president. Mr Schröder told the Financial Times the euro-dollar exchange rate was "not satisfactory". He stopped short of calling for any joint intervention to stabilise it, but said Europe and the US shared a "common responsibility" for the world economy.
Nightmare on Kaiserstrasse
This came after a report that the European Central Bank was ready to cut interest rates and co-operate with the Bank of Japan to stem the rise in the euro, the European Central Bank is about to blink in its staring contest with Bush & the Fed which led to fresh selling of the single currency. Strategists said the report, which coincided with talk of possible US rate rises, gave the market "a hell of a fright".
Japanese intervention gets thumbs up
The currency debate received some additional firepower when Horst Kohler, managing director of the International Monetary Fund, said Japan was right to intervene massively in the foreign exchange markets. In remarks that are likely to intensify debate on Tokyoâs unprecedented and controversial levels of foreign exchange intervention, Mr Kohler said: "It is pragmatic and helps stabilise the financial system and battle deflation." Last year, Japan spent about $185bn - about twice its trade surplus and three times the previous record - to prop up the dollar and arrest the yenâs appreciation. In effect, Japan has been disgorging massive profits they reaped in the 80s. Financial cycles can be decades long and often, the current leadership really isnât responsible for either the good or the bad of the moment.
Britain moves up a gear
The global recovery became further entrenched this week when revisions showed British GDP grew by 2.3 per cent last year, not 2.1 per cent as previously estimated. Buoyant consumer spending propelled growth in the worldâs fourth largest economy to the highest level in three years and beyond the governmentâs expectations. The gathering momentum made the Treasuryâs 3-3.5 per cent growth forecast for this year - widely suspected of being too optimistic - more achievable.
Asian expansion
Among the raft of good news from Asia this week, it emerged that the IMF was revising its forecast for Hong Kongâs 2004 GDP growth in view of the improving global economy, increased spending by tourists from mainland China China will be one of the most important players in the 21st century, economically and otherwise and a recovery in consumer confidence.
Although the new forecast will not be announced until April, the IMFâs upbeat assessment mirrors growing optimism about Hong Kongâs economy. The present forecast, made in December, is for growth of 4.5-5 per cent.
Meanwhile Chinaâs booming economy helped push Japanâs trade surplus up almost five-fold last month compared with January 2003, underscoring the role of strong regional growth in boosting Japanâs economic recovery. Japanâs strong export growth is powering a broadening economic pick-up by stimulating business investment, as consumer spending has also begun to improve. In the past quarter this helped lift Japanâs annualised GDP growth rate to 7 per cent.
And Malaysiaâs gross domestic product expanded by 5.2 per cent last year, making it the third fastest growing economy in south-east Asia after Thailand and Vietnam. The growth rate exceeded a government forecast of 4.5 per cent but was in line with market expectations. It was the economyâs best performance since 2000.
Greenspan turns up the volume
But in the US, Alan Greenspan, chairman of the Federal Reserve, ratcheted up his warning about rising budget deficits in the US, saying that substantial cuts in future spending must be planned soon. heâs right about that. The situation now is not the same as during the Reagan years & itâs a major mistake to think that things will play out the same with our deficits as they did with his In congressional testimony, Mr Greenspan said reforms that cut spending on Social Security and Medicare were needed. Referring to a recent study by the non-partisan Congressional budget office, the Fed chairman said: "The budget scenarios considered by the CBO in its December assessment of the long-term budget outlook offer a vivid and sobering illustration of the challenges we face." His warning about deficits and his suggestion of cutting programmes such as Social Security and Medicare have been used by Democrats and Republicans.
Globalisation discontent
An urgent rethink of globalisation is needed if the world is not to risk sliding into further insecurity and conflict, said the 26-member World Commission on the Social Dimension of Globalisation, set up by the International Labour Organisation in 2001. Globalisation had created wealth for a privileged few but many others had suffered growing exclusion and deprivation, it said. "There are deep-seated and persistent imbalances in the current workings of the global economy, which are ethically unacceptable and politically unsustainable. Wealth is being created, but too many countries and people are not sharing in its benefits." The imbalances arenât new, but shared awareness in the age of the Internet is, which changes the cultural equation dramatically. So too is the nature of trade between regions, with finished goods rather than commodities coming from poorer nations now.Caught by commodities
Further underlining the gap between the worldâs rich and poor, a United Nations study this week said most African countries are boxed into a commodity trap that condemns them to poverty and indebtedness. The UN Conference on Trade and Development (Unctad) said sub-Saharan Africaâs dependence on commodities whose prices are in long-term decline had impeded savings and investment, set back development and led to persistently high levels of debt. It called for new international commodity initiatives to set the continent on a sustainable growth path.
The problem, of course, is that sub-Saharan Africa is stuck at the commodities stage and will be for a long time. The infrastructure, education and political frameworks just arenât in place to bring in industry, nor have the Africans moved(in many cases) beyond tribal culture to a more urban and law-based model.
It wonât add up
Finally, in a rare burst of cheerleading for mathematicians, a British government-sponsored inquiry this week warned of dire economic consequences if a shortage in maths experts continues.
Secondary school exams offer employers and universities no guarantee of mathematical ability, Professor Adrian Smith said,adding that businesses in need of qualified employees could not trust school exam grades as a measure of maths attainment.
Maths graduates, who are in short supply across the economy, should be paid higher salaries to choose a teaching career, he suggested, and undergraduate mathematicians could be employed in schools to supplement the specialists. Weâve lost a generation here in the US too .... when I was hiring techies, I was appalled at the number of people who lacked basic math and science skills. We are behind and slipping rapidly - if we donât get serious about insisting our kids be educated in these topics, weâd better start boning up on Mandarin language courses. The attitude among Chinese-based groups is that math can be learned by anyone who does the work. They expect skills and they get them. Same attitude at West Point, by the way - EVERY cadet must take at a minimum a sequence of courses in one of the engineering areas. Noone is let off the hook because "math is hard".
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Posted by rkb 2004-02-27 9:07:25 AM||
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Posted by 11A5S 2004-2-27 6:22:22 PM||
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Posted by tu3031 2004-2-27 7:24:10 PM||
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