Comments on: Central Bank Blues

By: Doug

Doug — Fri, 26 Nov 2004 14:20:47 +0000

re Morgan Stanley economist: I can’t think of any time over the last eight years when Roach hasn’t been a major bear. He was bearish even as the dotcome bubble was inflating and everyone else was getting rich being bullish. Two and a half years is a long time to be wrong in financial markets.

The euro will have to rise nearly to $1.50 to meet the former D-mark high against the greenback. We may get there, but even that may not be disastrous. Since 1986 (which begins to approximate the long term), the dollar-euro exchange rate (based on D-mark exchange rate pre-2002) has varied from $0.65 per euro to $1.45 per euro.

I’m not saying a crisis is out of the question, but the trading relationship and the economies in question have weathered quite substantial changes in the exchange rate over time. There’s a high hurdle to get over in explaining why this time is different.

By: Matthew

Matthew — Thu, 25 Nov 2004 22:14:52 +0000

Indeed, one assumes the impact is if people think it might be the start of a similar move by China, the little Chinas, or Japan. Russia’s forex reserves just aren’t that large on their own.

I don’t know the composition of European government debt, but thinking about it does rather raise the nice prospect that it’s Italian government debt that would become the world’s preferred reserve asset. Who’d have though it?!

By: Stephen Newton

Stephen Newton — Thu, 25 Nov 2004 21:37:32 +0000

Even more significant is China’s warning to the US that it must put its house in order (front page of the FT) and remarks reported in the Boston Herald from Morgan Stanley’s chief economist that the US is haeding for economic armageddon.

Nobody wants the dollar to crash, because everyone has huge dollar reserves (the value of which they’d like to retain). However, nobody belives the dollar’s a good investment either. So everyone’s trying to divest of dollars on the quiet. And that makes the euro ever stronger.

The dollar really could crash and within a few short months oil could be priced in euro. That’s no small thing.

By: Oliver

Oliver — Thu, 25 Nov 2004 21:22:12 +0000

Does Russia have an interest in its major trade partners’ economies crashing?
I think not. This threat is a tool of bargaining and won’t be used if both sides keep a minimum of calm. Calm pragmatist is a very accurate description of Vladimir Putin.