Friday, 5 November 2010

The Age of the Dollar Is Drawing to a Close

THE DAILY TELEGRAPH: Currency competition is the only way to fix the world economy, says Jeremy Warner.

Dollar hegemony was itself a major cause of both the imbalances and the crisis. Photo: The Daily Telegraph

Right from the start of the financial crisis, it was apparent that one of its biggest long-term casualties would be the mighty dollar, and with it, very possibly, American economic hegemony. The process would take time – possibly a decade or more – but the starting gun had been fired.

At next week's meeting in Seoul of the G20's leaders, there will be no last rites – this hopelessly unwieldy exercise in global government wouldn't recognise a corpse if stood before it in a coffin – but it seems clear that this tragedy is already approaching its denouement.

To understand why, you have to go back to the origins of the credit crunch, which lay in the giant trade and capital imbalances that have long ruled the world economy. Over the past 20 years, the globe has become divided in highly dangerous ways into surplus and deficit nations: those that produced a surplus of goods and savings, and those that borrowed the savings to buy the goods.

It's a strange, Alice in Wonderland world that sees one of the planet's richest economies borrowing from one of the poorest to pay for goods way beyond the reach of the people actually producing them. But that process, in effect, came to define the relationship between America and China. The resulting credit-fuelled glut in productive capacity was almost bound to end in a corrective global recession, even without the unsustainable real-estate bubble that the excess of savings also produced. And sure enough, that's exactly what happened.

When politicians see a problem, especially one on this scale, they feel obliged to regulate it. But so far, they've been unable to make headway. This is mainly because the surplus nations are jealous defenders of their essentially mercantilist economic models. Exporting to the deficit nations has served them well, and they are reluctant to change. >>> Jeremy Warner | Friday, November 05, 2010

THE DAILY TELEGRAPH: Doubts grow over wisdom of Ben Bernanke 'super-put': The early verdict is in on the US Federal Reserve's $600bn of fresh money through quantitative easing. Yields on 30-year Treasury bonds jumped 20 basis points to 4.07pc. >>> Ambrose Evans-Pritchard, International Business Editor | Thursday, November 04, 2010