Dollars Cause A New Round Of Global Economic And Financial Risks

By Jerri Lily

Global volatility in the other major currencies, higher commodity prices and a weaker dollar are closely related. There are signs that the weak dollar is prompting a new round of global economic and financial instability. In addition to adversely affect the global economic recovery, the weak dollar has caused a global exchange rate fluctuations and asset price bubble, and would endanger the stability of global financial markets.

National Day holiday period, the Bank of Japan announced the implementation of the zero interest rate policy, designed to prevent the further appreciation of the yen and the economic downturn. Affected by the quantitative easing policy, Europe, America and Japan and other major stock market rose significantly. In addition, the international price of gold rose to near $ 1,350, the international oil price chart over 84 U.S. dollars, copper and other base metals prices have been higher. Concern is that this series with the current market volatility are closely related to the weakening dollar. There are signs that the weak dollar is prompting a new round of global economic and financial instability.

The reason why such talk, because the United States believes that pursuing a weak dollar policy will create opportunities to revitalize the U.S. economy as the dollar depreciated at least for the elimination of the current huge U.S. trade deficit miracles. But the continued dollar weakness, but also the global economic instability will have a great impact.

Indeed, the major U.S. economic data, poor performance since the summer. For example, recently announced the U.S. unemployment rate in September was 9.6% (flat and August), revised second quarter economic growth was only 1.6%. The United States has that led to the current high unemployment and weak economic growth is mainly due to “trade deficit more than expected.” Thus, the United States has reason to believe that pressure from major trading partners by the general appreciation of the currency can be achieved reducing the trade deficit, increase employment in trade rebalancing objectives, so as to promote employment and economic recovery in the domestic power.

However, the current world economic recovery step with Europe and Japan, where weak economic growth in major developed countries, while Asia, Latin America and Africa, economic growth is relatively strong. In the absence of domestic demand driven growth, the United States and other developed countries try to stimulate economic growth through exports, major trading partners put pressure on currency appreciation or depreciation of the currency by default, the result will inevitably affect other countries, export growth, ultimately leading to the global economy slow down the recovery process.

In addition, depreciation of the dollar will inevitably lead to the U.S. dollar as currency-denominated oil and other commodity prices rising rapidly, increasing production costs and the global commodity inflation pressures rising, the global economy will adversely affect growth. For example, the recent U.S. unemployment rate and lower than expected payrolls data, indicating the economic recovery remains fragile, while the Fed will increase the market launch of “quantitative easing” monetary policy, strong expectations, leading to weak dollar. Thus, stimulation of the recent international price of gold, copper and other international oil prices and rising commodity prices. Among them, the international price of gold rose to about $ 1,350, the international oil price rose to $ 82.84, copper and other commodity prices have also higher. Meanwhile, the weak dollar, is bound to make excess liquidity into other countries and increase appreciation of their currencies and monetary expansion pressure, and increased its imported inflationary pressures.

So to talk about the dollar continue to weaken, the process is affecting the global economic recovery, the current global economic growth poses a big uncertainty or adverse effects.

In addition to causes of the current global economic instability, the weak dollar will lead to other major global volatility in currency exchange rates and asset prices lead to other countries facing rapid expansion of the bubble market risk.

This is because the Fed plans to stimulate the economy and re-start “quantitative easing” policy, given the current federal funds interest rate at 0% -0.25% range, the implementation of “quantitative easing” monetary policy will inevitably lead to the dollar to new lows. But in the world dollar standard system, the weak dollar will lead to other major currencies volatility. For example, the current dollar exchange rate was 82.07 yen (record 15 year high), the euro exchange rate was 1.39 against the U.S. dollar, U.S. dollar against other major currencies follow the dollar exchange rate index fell 0.1% to $ 77.33. This shows that the dollar is being or has other major currencies led to dramatic fluctuations.

As the current global economic recovery process varies, resulting in macro-world countries to develop their own policy, especially the lack of coordination of monetary policy, which triggered the current worldwide wave of competitive devaluations, which would likely provoke a new currency war and endanger the stability of global financial markets.

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