You are here
Eric Fry: The Monetary Cold War
Greenspan Cements Market View
That U.S. Wants Weaker Dollar
By Jamie McGeever and John Parry
Reuters
Friday, November 19, 2004
http://www.reuters.com/financeQuoteCompanyNewsArticle.jhtml?
duid=mtfh77222_2004-11-19_17-21-51_n19414898_newsml
NEW YORK -- If financial markets felt any lingering
doubt that U.S. policymakers want the dollar to
depreciate, Federal Reserve Chairman Alan
Greenspan blew it out of the water on Friday,
analysts say.
The Fed chief told a conference in Frankfurt the
U.S. current account deficit cannot widen at its
current pace indefinitely and that, given the size
of the trade deficit, foreign demand for U.S.
securities will wane at some point.
"It seems persuasive that, given the size of the
U.S. current account deficit, a diminished appetite
for adding to dollar balances must occur at some
point," Greenspan said.
"This situation suggests that international investors
will eventually adjust their accumulation of dollar
assets or ... seek higher dollar returns to offset
concentration risk, elevating the cost of financing
of the U.S. current account deficit and rendering
it increasingly less tenable," the U.S. central
bank head warned in a speech.
Increasing domestic savings and cutting the budget
deficit are key to correcting the massive U.S.
external deficits, he said. But it was his remarks on
the current account gap and foreign demand for U.S.
assets that currency dealers seized on.
Although Greenspan has highlighted these concerns
before, and he did not specifically mention the dollar
or exchange rates in his Frankfurt speech, analysts
say the implication is clear: a weaker dollar is
needed to help correct the deficits and U.S.
policymakers won't stand in its way.
"Greenspan has said most of these things before,
when he has had his back against the wall in Q
& A (question and answer) sessions, but these
are prepared remarks," said Greg Anderson, senior
foreign exchange strategist with ABN AMRO bank
in Chicago.
"It makes it clear that U.S. policymakers do not
want to stand in the way of market adjustment
that leads to a lower dollar. This really lays it out.
It makes it clear that all of the policymakers in
the U.S. are on the same page about it,"
Anderson added.
Jason Bonanca, director of foreign exchange
research at Credit Suisse Firs Boston in New
York, agreed. "It's a helluva speech. It's
remarkable. In the short term, I think what he's
calling for here is a weaker dollar, even though
he's tightening (monetary policy). I think this is
a watershed."
Currency markets immediately sold the dollar,
pushing it to fresh 4-1/2-year lows against the
yen and near-nine-year lows against the Swiss
franc.
Stocks and bonds also fell sharply, reflecting the
reaction across asset markets to Greenspan's
concerns about foreign funding of U.S. deficits.
The U.S. current account deficit, now at an
annualized $664 billion, is sustainable only as
long as foreign governments and investors keep
buying U.S. financial assets. If this demand
wanes, interest rates will back up and the dollar
will fall.
The U.S. Treasury is in charge of dollar policy
while the Fed, which is independent of the
government, handles monetary policy and normally
refrains from commenting on the dollar.
Treasury Secretary John Snow and other officials
have said repeatedly recently that the U.S. favors
a "strong dollar" whose exchange rate should be
set by flexible, free markets.
Currency market participants generally ignore the
first part of that mantra as official inaction in the
face of an ever-weakening dollar suggests they
are empty words.
Therefore, the implication is that the emphasis on
flexibility and free markets suggests U.S. officials
won't step in to arrest the currency's fall.
"I think it's clear, given the language Snow is using
while the dollar's falling, that the (Bush)
administration tacitly approves of a weaker dollar,"
said Todd Elmer, currency strategist at Barclays
Capital in New York.
Snow's response to European complaints that the
strong euro threatens euro zone exports has been
to ignore the currency issue and urge faster growth
and domestic demand in the area.
A Treasury official said last Friday that global
financial markets, including foreign exchanges, are
operating in an "orderly" fashion, indicating that
U.S. authorities are not concerned with the pace
of the dollar's decline.
Andreas Mann, a senior currency trader at
Commerzbank in New York, said this attitude
of benign neglect could only encourage more
dollar selling.
"They've said enough by not saying anything.
They've given the market the green light for a
weaker dollar," Mann said.
----------------------------------------------------
To subscribe to GATA's dispatches, send an e-mail to:
gata-subscribe@yahoogroups.com
To unsubscribe, send an e-mail to:
gata-unsubscribe@yahoogroups.com
----------------------------------------------------
RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
Free sites:
http://www.cbs.marketwatch.com
http://www.capitalupdates.com/
http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kuik.com/KH/KH.html
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)
http://www.resourceinvestor.com/
Subscription sites:
http://www.lemetropolecafe.com/
http://www.investmentindicators.com/
http://www.interventionalanalysis.com
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS
Blanchard & Co. Inc.
909 Poydras St., Suite 1900
New Orleans, Louisiana 70112
888-413-4653
http://www.blanchardonline.com
Centennial Precious Metals
3033 East 1st Ave., Suite 403
Denver, Colorado 80206
www.USAGold.com
Michael Kosares, Proprietor
US (800) 869-5115
Canada 1-800-294-9462
European Union 00-800-2760-2760
Australia 0011-800-2760-2760
cpm@usagold.com
Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
www.ColoradoGold.com
Don Stott, Proprietor
1-888-786-8822
Gold@gwe.net
El Dorado Discount Gold
Box 11296
Glendale, Arizona 85316
http://www.eldoradogold.net
Harvey Gordin, President
Office: 623-434-3322
Mobile: 602-228-8203
harvey@eldoradogold.net
Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
http://www.gloomdoom.com
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889
gwestgaard@investmentrarities.com
Kitco
178 West Service Road
Champlain, N.Y. 12919
Toll Free:1-877-775-4826
Fax: 518-298-3457
and
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Canada
Toll-free:1-800-363-7053
Fax: 514-875-6484
http://www.kitco.com
Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
www.certifiedcoins.com
Ed Lee, Proprietor
1-800-835-6000
leecoins@aol.com
Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
http://www.milesfranklin.com
Contacts: David Schectman,
Andy Schectman, and Bob Sichel
Missouri Coin Co.
11742 Manchester Road
St. Louis, MO 63131-4614
info@mocoin.com
314-965-9797
1-800-280-9797
http://www.mocoin.com
Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877
Metalguys@aol.com
Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
http://www.swissamerica.com
Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
FiGoldstein@swissamerica.com
----------------------------------------------------
HOW TO HELP GATA
If you benefit from GATA's dispatches, please
consider making a financial contribution to
GATA. We welcome contributions as follows.
By check:
Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary/Treasurer
7 Villa Louisa Road
Manchester, CT 06043-7541
USA
By credit card (MasterCard, Visa, and
Discover) over the Internet:
http://www.gata.org/creditcard.html
By GoldMoney:
http://www.GoldMoney.com
Gold Anti-Trust Action Committee Inc.
Holding number 50-08-58-L
Donors of $750 or more will, upon request,
be sent a print of Alain Despert's colorful
painting symbolizing our cause, titled "GATA."
GATA is a civil rights and educational
organization under the U.S. Internal Revenue
Code and contributions to it are tax-deductible
in the United States.
