Posted on 11/07/2007 7:10:15 PM PST by DeaconBenjamin
French president warns US it cannot allow currency to collapse as Europe suffers from euro's rise.
The French president, Nicolas Sarkozy, has warned the United States Congress that the US risks triggering "economic war" if it attempts to devalue its way out of trouble by allowing a relentless slide in the dollar.
The stunning remarks came as the greenback plunged to a record low of $1.4731 against the euro, causing a chorus of angry protests from industrial leaders in France and Italy. The dollar breached $2.10 against sterling for the first time since the early Thatcher years in 1981. On Wall Street the Dow tumbled 246.40 to 13,414.50.
Mr Sarkozy spared no sensitivities as he launched into a full-blown attack on the Bush Administration. "The dollar cannot remain solely the problem of others. If we are not careful, monetary disarray could morph into economic war. We would all be its victims," he said.
"Those who admire the nation that has built the world's greatest economy and has never ceased trying to persuade the world of the advantages of free trade expect her to be the first to promote fair exchange rates."
Stephen Jen, an analyst at Morgan Stanley, said the dollar fall had become alarming. "This has been driven so far by Middle Eastern and Asian central banks, but there is a risk that hedge funds will start to join in, and they can be very powerful," he said.
"The most dangerous threat is that the yen will snap back and destroy the 'carry trade' before anybody has a chance to unwind positions."
The $1,200bn (£570bn) yen carry trade has been a huge source of liquidity for asset markets. A sudden reversal could cause a shock to the world system, as in 1998.
The dollar's dive came after comments by Cheng Siwei, vice-chair of China's Congress, suggesting that Beijing would switch more of its $1,340bn reserves away from US bonds. "The euro is rising and the dollar is weakening, and we can achieve a better match of the two," he said.
Simon Derrick, a strategist at Bank of New York Mellon, said it appeared to be a slip of the tongue: "The last thing the Chinese need now is a rapidly falling dollar. Their inflation is already running at 6.2pc." Mr Derrick said the world was on the cusp of a full-blown currency crisis. "The Fed is caught between a rock and hard place. It can't keep rates high enough to fight inflation because of the sub-prime crisis."
Mr Sarkozy's comments came after the French luxury goods group LVMH said it was moving production to India. Airbus stands to lose €100m in profits for every one cent rise in the euro, a loss of €1.2bn since August.
Luca di Montezemolo, head of Italy's business federation, said the high euro was having "devastating effects". Even German companies are starting to suffer. Manufacturing orders dropped 2.5pc in September.
Mr Sarkozy's words were undoubtedly directed at the European Central Bank before today's interest rate meeting. A German-led group of bank governors is pressing for a rate rise before inflation gets out of hand. Any such move would set off a political storm in Europe.
An interesting calculation.
All the EC central bank has to do is to lower its’ interest rate several hundred bases point.
This would at least halt the slide.
“A German-led group of bank governors is pressing for a rate rise before inflation gets out of hand.”
see that’s the problem
Yeah. That'll teach that rascaly dollar to fall.
Apparently we're supposed to just snap our fingers and make it go up again?
Did I miss something ? Nowhere is there reference to President Bush by Sarkozy. Is this just more propaganda by the always predictable Telegraph ?
Great news for the world's airlines: Boeing is having a sale!
That will teach them to peg the Yuan.
In other words, it’s not a Yuan way street?
I think in short run, a falling dollar is not problematic given our macroeconomical situation. I do believe there is a floor.
The thing that concerns me is whether this dollar dumping is a prelude to something really bad.
Is that a joke? They already manufacture in the US so its not like they're solely exposed to the rising Euro.
And this, is also a joke? If that's the case, then why is Airbus STILL relying so heavily on discounts to win orders (see British Airways/A380 rumors of >50% discounts) when they should be shoring up profits instead?
Not to mention, cause the $ to go even lower.
Telegraph reporter gets it wrong — many financial publications show every 10 cent rise = €100m loss, not one cent rise.
ALL of Europe and Canada — with combined losses in the 100s of billions due to weak dollar! As for the US, in the short term, it is helping. look at break down in last GDP report. The US GDP growth almost doubled just because of improved US exports...also, balance of payments deficit dropped big time.
US Aircraft manufacturers rejoice! Business will be booming here, with Boeing/Spirit, Learjet, Bombardier, Cessna and the like.
They make up their losses with volume?
Are these estimated annual losses? Monthly losses? Enquiring minds wonder.
Bombadier is not Canadian?
just what we need is a democrap u.s. congress and president
to enact new smoot-hawley tariffs.
/s
It’s pitiful that the French president has to say what our President doesn’t seem to see.
But apparently making a (fairly unsuccessful) effort to bail out crooks in the mortgage industry is more important to our Republican “leadership” than is saving the American economy as a whole. At least these days everyone has credit and debit cards; no one will have to carry literal wheelbarrows of cash to buy groceries.
Not quite sure although I believe they have a plant here, although you may be correct.
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