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Losing Faith in the Dollar

October 7th, 2009

dollarThe once mighty dollar is in trouble—if, that is, you heed the gripes from overseas. The Washington Post warns that the dollar’s role as the world’s reserve currency is indeed in jeopardy as “a growing international chorus” calls for its replacement, “a move that would end the greenback’s six decades of global dominance.” The biggest critics are the emerging economies, China, Brazil, India, and Russia, who grumble the dollar is too weak to be the standard of international trade. A growing number of economists, too, are now speaking of when not if the dollar will lose its standing as the global currency. “The U.S. dollar is headed for also-ran status, and it will continue to lose its value against many other currencies and assets,” Miller Tabak an equity strategist tells the Post. “The rest of the world wants the U.S. dollar to lose influence, but no one wants it to be abrupt, as it’s in no one’s interest. An evolutionary process is what is wanted.”

You could see how unloved the dollar was in Tuesday’s trading, the New York Times points out. “Investors clamored to buy pretty much anything on Tuesday—as long as it was not the dollar,” the newspaper wrote, noting the greenback is in the midst of a seven-month decline against major global currencies like the yen and euro. And, with a weak dollar, the I-word is once again popping up. “There’s still a worry about the dollar. There’s a latent worry about inflation,” James Steel, a commodities analyst at HSBC told the NYT. Ah, but there could be a plan to save the dollar. Yep, it involves jacking up interest rates, and that’s just what Kansas City Fed President Thomas Hoenig suggested could be just around the corner. Hoenig’s comments—that interest-rates hikes could come “sooner rather than later”—sent the dollar climbing on Wednesday morning in early trading, Bloomberg reports.

The Obama Administration is mulling an economic stimulus plan last tried during the Jimmy Carter years. According to the NYT, there is growing bipartisan support for dishing out tax breaks to companies that create jobs among “Washington officials grappling with the highest unemployment in a generation.” The newspaper notes that some economic heavyweights would support such a plan, including Nobel laureate Edmund S. Phelps, Dani Rodrik of Harvard, and former Labor Secretary Robert Reich. But the real important group to win over is Congress, and already there are signs of support. “There is a lot of traction for this kind of idea,” Rep. Eric Cantor of Virginia, the Republican whip, told the NYT. “If the White House will take the lead on this, I’m fairly positive it would be welcomed in a bipartisan fashion.”

Let the global e-book wars begin. Amazon has announced a new international version of its popular Kindle “electronic reading device” (while also shaving $40 off the price of its U.S. version) that “can wirelessly download books both in the United States as well as in more than 100 other countries,” reports the New York Times. There’s long been talk of a global Kindle, but launch plans were bogged down by protracted negotiations with a host of international wireless service providers. To get around this, Amazon has linked up with AT&T, which has partner networks in 100 countries around the globe, the Guardian reports. That just leaves the growing array of international e-reader device makers, including Philips, Sony, and China Mobile, to compete with. Still on the e-book theme and another New York Times story that highlights a growing problem for Google that all its programmers, lawyers, and lobbyists can’t make disappear: “A broad array of authors, academics, librarians and public interest groups are fighting the company’s plan to create a huge digital library and bookstore. Their complaints reached the ears of regulators at the Justice Department, which last month helped derail the plan by asking a court to reject the class-action settlement that spawned it,” writes the NYT.

First the Olympics, now the biggest global IPO this year: What more can Brazil hope for? Yesterday Banco Santander announced it has raised 14.1 billion reals ($8.1 billion) by selling new shares to expand its Brazilian operations. It’s the biggest IPO in Brazil’s history and will fund expansion in a nation where “Brazilians are seeking loans in droves—buying cars and homes and funding business expansions as the economy charges forward after being hit lightly by the global meltdown,” Business Week reports.

Finally, hedge-fund managers everywhere can take comfort in a new endorsement for their line of work from an unlikely source—the Church of England. According to the Financial Times, church commissioners—”the custodians of its ancient wealth,” the newspaper explains—have written a letter to the House of Lords saying they have “‘serious concerns’ about new plans from the European Union to regulate hedge funds.” Such a clampdown, the letter reads, “will significantly restrict our ability to generate funds to pursue our charitable missions and thus reduce our impact for public good.”

By matthew.yeomans

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