Another global financial crisis in the offing
Dr Jassim Taqui
Monday, May 02, 2011 - Islamabad—Another serious global financial crisis is in the offing as a result of US printing of dollars on massive scale. According to the latest statistics, the Obama administration doubled the money supply in a little more than two years, leading to the decline of the dollar. Against a basket of five major currencies, the US dollar fell sharply and now is at its weakest since July 2008. This is a phenomenon which has not been seen since 1979. The step caused gold to jump another 2 per cent while inflation spiked to 6.5 per cent. Ironically, the American political elite refuse to discuss this issue despite dismay and anger across the world.
Ostensibly, the Obama administration is opting for a dangerous short-cut to the domestic economic crisis by getting “ easy money” through printing dollars. This policy is driven by the false belief that a weak dollar will improve the US balance of trade. It only erodes the value of the dollar, increased the prices and created inflation.
Since interest rates are low in the United States, the excess dollars have been flowing overseas seeking higher returns. That has transformed the American economic crisis to every country dealing with dollars. It caused inflation in food and oil, which are traded in dollars. That is why some countries are raising interest rates and restricting inflows of currency.
The difference in interest rates between dollars and other currencies naturally causes investors seeking returns to sell dollars and buy other currencies with higher interest rates. This further depresses the value of the dollar.
Economists believe that the reckless printing of dollars, the bedrock of the world’s reserve currency, is aimed at weakening the currency to boost US exports and lower the value of America’s external debt, which has surged to a record $ 13.6 trillion dollars. The policy is currently hotly debated by America’s creditors and trading partners who fear an imminent financial crisis.
Recently, the Urinated States has ceased to dominate the world economy. It has run up record trade deficits and enormous foreign debt. China and other countries hold trillions of dollars in their foreign exchange reserves. With Obama printing trillions of dollars to stimulate the US economy, China fears that the dollar- and China’s own reserves- will crash. As a result China is allowing more trade to be conducted in yuan, a first step toward making it a global currency. At a meeting of developing countries recently held in China the leaders called for a broad-based international reserve currency system providing stability and certainty other than the dollar. This clearly shows a universal mistrust of Washington’s economic leadership and US economic credibility.
The fallout is very serious for the global economy. If America were allowed to default on its national debt for even one day or two, it could trigger a bond market collapse, a spike in global interest rates, and financial fiasco of the worst kind. The global fallout could very well throw the world back to recession.
Ostensibly, the Obama administration is opting for a dangerous short-cut to the domestic economic crisis by getting “ easy money” through printing dollars. This policy is driven by the false belief that a weak dollar will improve the US balance of trade. It only erodes the value of the dollar, increased the prices and created inflation.
Since interest rates are low in the United States, the excess dollars have been flowing overseas seeking higher returns. That has transformed the American economic crisis to every country dealing with dollars. It caused inflation in food and oil, which are traded in dollars. That is why some countries are raising interest rates and restricting inflows of currency.
The difference in interest rates between dollars and other currencies naturally causes investors seeking returns to sell dollars and buy other currencies with higher interest rates. This further depresses the value of the dollar.
Economists believe that the reckless printing of dollars, the bedrock of the world’s reserve currency, is aimed at weakening the currency to boost US exports and lower the value of America’s external debt, which has surged to a record $ 13.6 trillion dollars. The policy is currently hotly debated by America’s creditors and trading partners who fear an imminent financial crisis.
Recently, the Urinated States has ceased to dominate the world economy. It has run up record trade deficits and enormous foreign debt. China and other countries hold trillions of dollars in their foreign exchange reserves. With Obama printing trillions of dollars to stimulate the US economy, China fears that the dollar- and China’s own reserves- will crash. As a result China is allowing more trade to be conducted in yuan, a first step toward making it a global currency. At a meeting of developing countries recently held in China the leaders called for a broad-based international reserve currency system providing stability and certainty other than the dollar. This clearly shows a universal mistrust of Washington’s economic leadership and US economic credibility.
The fallout is very serious for the global economy. If America were allowed to default on its national debt for even one day or two, it could trigger a bond market collapse, a spike in global interest rates, and financial fiasco of the worst kind. The global fallout could very well throw the world back to recession.
Advertisement
Epaper
Advertise Here
Comments