China Calls To Replace Dollar With World Currency

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China’s central bank has reiterated its call for a new reserve currency to replace the US dollar.

The report from the People’s Bank of China PBOC said a “super-sovereign” currency should take its place.

Central bank chief Zhou Xiaochuan has loudly led calls for the dollar to be replaced during the financial crisis.

The bank report called for more regulation of the countries that issue currencies that underpin the global financial system.

“An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis,” the Chinese central bank said.

The dollar fell after the report was released. The US currency dropped 1% against the euro to $1.4088, and declined 0.8% versus the British pound to $1.6848.

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Russia - World Needs New Reserve Currency

Russian President Dmitry Medvedev said Tuesday the world needs new reserve currencies.

Medvedev told a regional summit that the creation of new reserve currencies in addition to the dollar is needed to stabilize global finances.

Medvedev has made the proposal before. It reflects both the Kremlin’s push for greater international clout and a concern shared by other countries that soaring U.S. budget deficits could spur inflation and weaken the dollar.

Airing it at a summit meeting underlined the challenge to U.S. clout.

Medvedev spoke at a summit of the Shanghai Cooperation Organization, which includes China and four Central Asian nations.

Later Tuesday he hosts a summit of the BRIC group of leading emerging economies — Brazil, Russia, India and China.

The Kremlin’s top economic adviser said Russia may put part of its currency reserves in bonds issued by Brazil, China and India.

Arkady Dvorkovich said Russia could make the move if the other three nations reciprocate. Brazil, Russia, India and China are the members of the BRIC group of leading emerging economies.

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U.S. Inflation to Approach Zimbabwe Level

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.

“There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.”

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Brazil and China Eye Plan To Axe The Dollar

Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.

An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.

“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”

Henrique Meirelles and Zhou Xiaochuan, governors of the two countries’ central banks, were expected to meet soon to discuss the matter, the official said.

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If China Loses Faith, The Dollar Will Collapse

Emerging economies such as China and Russia are calling for alternatives to the dollar as a reserve currency. The trigger is the US Federal Reserve’s policy of expanding the money supply to prop up the banking system and its over-indebted households. Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing dollars massively, which would eventually trigger high inflation or even hyperinflation and cause great damage to countries that hold dollar assets in their foreign exchange reserves.

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World Economy In Severe Recession, IMF Says

The International Monetary Fund on Wednesday slashed growth forecasts for every major country and urged governments to take forceful action to ensure the world economy’s recovery from a severe recession.

In its latest World Economic Outlook, the IMF said the global economy would likely contract 1.3 percent this year in the deepest post-World War Two recession by far.

Growth is set to re-emerge at a sluggish 1.9 percent next year but the pick-up depends on aggressive measures to repair a poorly functioning financial system.

“The longer this goes on, the longer and the deeper will be the recession,” IMF chief economist Olivier Blanchard told a news conference.

Just three months ago, the IMF had projected global growth of 0.5 percent, although last month it warned of a deep recession.

The Washington-based institution said it revised its forecasts downward because financial markets appear likely to take longer to stabilize than it had thought earlier.

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Is The US Russia?

Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point.

“In its depth and suddenness,” argues Prof Johnson, “the US economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets.” The similarity is evident: large inflows of foreign capital; torrid credit growth; excessive leverage; bubbles in asset prices, particularly property; and, finally, asset-price collapses and financial catastrophe.

“But,” adds Prof Johnson, “there’s a deeper and more disturbing similarity: elite business interests – financiers, in the case of the US – played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.” Moreover, “the great wealth that the financial sector created and concentrated gave bankers enormous political weight.”

Now, argues Prof Johnson, the weight of the financial sector is preventing resolution of the crisis. Banks “do not want to recognise the full extent of their losses, because that would likely expose them as insolvent … This behaviour is corrosive: unhealthy banks either do not lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and, as it does, bank assets themselves continue to deteriorate – creating a highly destructive cycle.”

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Communities Print Currency

A small but growing number of cash-strapped communities are printing their own money. Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses.

The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.

Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.

Ed Collom, a University of Southern Maine sociologist who has studied local currencies, says they encourage people to buy locally. Merchants, hurting because customers have cut back on spending, benefit as consumers spend the local cash.

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Unemployment - 13 Million Jobless

Unemployment zoomed to 8.5 percent last month, the highest in a quarter-century, as employers axed 663,000 more workers and pushed the nation’s jobless ranks past 13 million. The hard times were only expected to get harder — a painful 10 percent jobless rate before long.

The current rate would be even higher — 15.6 percent — if it included laid-off workers who have given up looking for new jobs or have had to settle for part-time work because they can’t do any better. That’s the highest on record for that number in figures that go back to 1994.
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UK Prime Minister Gordon Brown Says World Is Already In A Depression

Gordon Brown described the global economic downturn as a depression for the first time yesterday during a furious Commons clash with David Cameron.

The Prime Minister’s remark came as he told MPs that countries “should agree as a world on a monetary and fiscal stimulus that will take the world out of depression”.

His use of the D word was not picked up at the time by Mr Cameron, who was using a series of questions to embarrass Mr Brown over his “British jobs for British workers” slogan that has been used by strikers in the foreign labour dispute.

Downing Street officials later moved swiftly to say that he had not intended to refer to the word depression but had slipped up. They suggested that he meant “recession”.

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Is The US Heading For A Depression?

This drop was led by a 22% drop in spending on durable goods like automobiles and washing machines.

The decline in motor vehicle production was so great that it alone contributed 2% to the fall in GDP.

Businesses hit

Businesses as well as consumers have been hit hard by the slowdown.

Exports, which had helped boost GDP earlier in the year, fell sharply, by 19.7%, as foreign markets for US products were hit by their own recessions.

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Bloody Monday: U.S. Cut 50,000 Jobs In One Day

From drugs to computer chips, top companies announced Monday that they are laying off nearly 50,000 employees as a reeling economy took a heavy toll on the already strained job market.

Monday’s efforts to downsize companies included layoffs and buyouts across the economic spectrum, and top economists predict that the job picture will worsen as the year goes on. The departures also come as negotiations continue in Washington, D.C., on the size and shape of an economic stimulus package — a priority for President Barack Obama, in office for barely a week.

Caterpillar, the world’s largest manufacturer of construction equipment, announced that its fourth-quarter profit dropped 32 percent, a symptom of the worldwide economic slowdown. Because of the drop, the company will eliminate 20,000 jobs, about 18 percent of its work force, through layoffs and buyouts, Caterpillar announced.

Drugmaker Pfizer, which announced it will acquire rival Wyeth for $68 billion, said it will cut about 8,000 jobs from its current work force. Once the companies are merged, another 15 percent of the work force, nearly 19,000 jobs, could be eliminated, Pfizer spokesman Ray Kerins said in a telephone interview.

Home Depot, the nation’s largest home-improvement retailer, announced it will cut about 2 percent of its work force, or 7,000 jobs. It said it will eliminate about four dozen stores, including all of its specialty Expo Design Center stores.

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Britain On The Edge of National Bankruptcy?

They don’t know what they’re doing, do they? With every step taken by the Government as it tries frantically to prop up the British banking system, this central truth becomes ever more obvious.

Yesterday marked a new low for all involved, even by the standards of this crisis. Britons woke to news of the enormity of the fresh horrors in store. Despite all the sophistry and outdated boom-era terminology from experts, I think a far greater number of people than is imagined grasp at root what is happening here.

The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.

The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.

This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, travelling to the City to give speeches praising their “financial innovation”.

Does the Prime Minister realise the likely implications when the country joins the dots? He has never been wild on shouldering blame, so I doubt it. But Brown is a historian. He should know that when a nation has put all its chips on red and the ball lands on black, the person who made the call is responsible. Neville Chamberlain discovered this in May 1940 with the German invasion of France.

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Dick Morris On The Obama Presidency

2009-2010 will rank with 1913-14, 1933-36, 1964-65 and 1981-82 as years that will permanently change our government, politics and lives. Just as the stars were aligned for Wilson, Roosevelt, Johnson and Reagan, they are aligned for Obama. Simply put, we enter his administration as free-enterprise, market-dominated, laissez-faire America. We will shortly become like Germany, France, the United Kingdom, or Sweden — a socialist democracy in which the government dominates the economy, determines private-sector priorities and offers a vastly expanded range of services to many more people at much higher taxes.

Obama will accomplish his agenda of “reform” under the rubric of “recovery.” Using the electoral mandate bestowed on a Democratic Congress by restless voters and the economic power given his administration by terrified Americans, he will change our country fundamentally in the name of lifting the depression. His stimulus packages won’t do much to shorten the downturn — although they will make it less painful — but they will do a great deal to change our nation.

In implementing his agenda, Barack Obama will emulate the example of Franklin D. Roosevelt. Not the liberal mythology of the New Deal, but the actuality of what it accomplished. When FDR took office, he was enormously successful in averting a total collapse of the banking system and the economy. But his New Deal measures only succeeded in lowering the unemployment rate from 23 percent in 1933, when he took office, to 13 percent in the summer of 1937. It never went lower. And his policies of over-regulation generated such business uncertainty that they triggered a second-term recession. Unemployment in 1938 rose to 17 percent and, in 1940, on the verge of the war-driven recovery, stood at 15 percent. These data and the real story of Hoover’s and Roosevelt’s missteps, uncolored by ideology, are available in The Forgotten Man by Amity Shlaes, copyright 2007.

via TheHill.com .

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