The recent rise of the euro against the dollar, the first wave since the
euro's introduction, is the result of an EU version of the Plaza Accord
on the yen, albeit without a formal accord. The strategic purpose is to
reduce the euro to the status of the yen, as a subordinated currency of
the dollar and the dollar system. The real effect of the Plaza Accord
was to shift the support of the dollar, and the pain associated with it,
from New York to Tokyo. What is happening to the euro now is far from
being the beginning of the demise of the dollar. It is the beginning of
the reduction of the euro into a subservient currency to the dollar. It
is a strategy to make the EU a structural supporter of a rising dollar
in the long run. It is the equivalent of the Romans' brilliant strategy
in making a dissident Jew a Christian god, to pre-empt the domination of
Judaism over the Roman empire. By allowing a trade surplus denominated
in dollars to be accumulated by non-dollar economy, such as yen, euro,
yuan, the cost of support the value of the dollar is then shifted to
these non-dollar economies, which manifest in low wages and weak
domestic consumption in these economies.

The anti-dollar crowd has nothing to celebrate.

Henry

Hudsonmi@... wrote:
>
> THE DOLLAR VS THE EURO
> There has been a lot of talk about OPEC and a number of other countries
> diversifying their foreign exchange reserves by shifting from dollars to
> euros.
> In some quarters this has been viewed as a move to "bring down the
> American Empire." Moving out of the dollar, it is claimed, would stop
> America's free ride.
> Well, not exactly yet!
> On Thursday at the Forecasters Club I spoke with David Hale, who writes
> often for the Financial Times on international affairs and is quite well
> connected with U.S. officials. He told me that he expects the euro to be
> forced up to $1.40 against the dollar this year. The expectation, he
> explained to the group, was that Europe and Asia would finance 60
> percent of the U.S. domestic budget deficit this year, as a result of
> the balance-of-payments deficit ending up in the hands of foreign
> central banks - mainly Asia and Europe - and placed in U.S. Treasury bonds.
> Suppose that OPEC, Venezuela and some Islamic countries move out of the
> dollar into euros. This will put further upward pressure on the euro's
> exchange rate against the dollar. The main pressure would be felt by
> Germany, which went into the European monetary system with an overvalued
> d-mark as a result of its merger with East Germany (which David likened
> to a leveraged buyout at too high a price for the entity being
> acquired). The pressure will be for Germany either to undertake
> structural reform (i.e., anti-labor, even Thatcherite market reforms,
> winding down of pension, social security, health and other public
> services) or - and this thought must have U.S. diplomatic strategists
> chuckling - forcing Germany to withdraw from the European monetary union.
> So the currency diversification move, ostensibly threatening the
> dollar's free ride in the long run, would help break up its number one
> nemesis these days, the European monetary union, in the short run.
> The political issue is whether Germany will continue to subsidize
> Ireland, whose currency is undervalued. (Note: now that sterling is
> falling, it will make it easier for it to join the Euro without
> experiencing German-type problems later on.)
> Many of the opponents of America's free ride keep looking for instant
> victories without thinking tactically.
> Michael Hudson
>
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