By menacingly embracing America first policy and inflating America's nationalism in a thoroughly misplaced fashion, he has engendered trade and currency wars with China and the rest of the world ..
America's economic illness stems from its ridiculous low savings and this macroeconomic imbalance, investment exceeding domestic saving spiller over into trade and current account deficits resulting in more unemployment at home .His tirade agaisnt foreign labour as if they are stealing away the American jobs is also devoid of economic logic.Tarrifs do not save jobs as it relocates labour and raises costs which eventually affects competitiveness..
For long the excessive absorption of the US was masked by captive capital flows and the critical ability to attract them at low interest rate.
But the post covid financial and economic scenario suggest that Europe , Japan and China are now better placed and the reliance on risky dollar will no longer be relished .The talk of digital currency and china's new found enthusiasm to undermine the dollar hegemony are the pointers for a new international monetary order..The dollar will have a secular tendency to decline inorder to correct its distorted exchange value which was not allowed to be corrected earlier.This was the familiar dollar dilemma stemming from its key currency status and the fear of currency appreciation of the surplus countries like China.
The US has been operating with the twin prices namely interest rate and exchange rate which It did not deserve but enjoyed and that only excesprated the US problem.The US enjoyed it because others allowed it.
Now the million dollar question is whether or not gold will continue to dance without interference ? Clearly revealing that market has lost faith in the risky dollar.
Will China make efforts to make its currency popular.?will Euro be an ALTERNATIVE?
Gold is not money now but just a commodity and yet it becomes super money whenever dollar is in deep trouble.
The happening today is only the old story repeated with more sophistication with a prayer for treating the US as any other ordinary country..
How to handle the huge dollar asets beld by foreign central banks ?They will not afford to sink the dollar ship by just abandoning it as everyone will lose..The best way now is allow the dollar to fall and meanwhile convert the dollars into some other assets..But someone has to hold those unwanted dollars.The US by exporting can accept them.But does it have the capacity to do so ? Will others allow?
The tricky issue is all the debts are in US dollars..The US can simply print and pay them.if that happens who will own them and hold it for long?
The dollar as transaction currncy, reserve currency and invoicing currency is suspect now.No solution is in immediate sight ..
America has to tighten the belt and pay the price as other countries have done .
But as a rich nation but poor by the criteria of ballooning debt, weak growth , incredibly weak fiscal, more unemployment and expected inflation and inflationary expectations leading to rise in interest rate and so on will not that easily forgo the continuing residual key currency advantages.who will break the ice? what ever might be the outcome post covid world economy can't go on with greater asymmetric benefits among countries.world is trapped not by corana but also by greater viruses like irresponsible global leadership and rightist tilt in politics and policy which has ignored the vital questions like inequality and rising economic deprivation for many.The predicament of dollar and it's existential dilemma now can't be separated from these.Labour mobility is threatened now and for the first time capital movements will be also tested by the health of the economy both general health and economic health.
2 comments:
Well said
Thank you
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