terça-feira, junho 07, 2005
Ah, a economia, o dólar!
The dollar's descent is a logical outgrowth of America's massive current account deficit. The only problem is that it hasn't fallen nearly enough to make a dent in the US external imbalance.
During the 80s, America's current account deficit peaked out at 3,4% of GDP and the broad dollar index fell nearly 30% over the three-year period, 1985-88. With the US current account deficit at about 6,5% in 1Q05, today's current account problem is easily twice as bad as it was back in the 1980s but the US currency has fallen by less than half as much as it did back then.
On that simple basis, alone, the dollar has plenty more to go on the downside.
But the dollar can't solve America's trade and current account problem: excess imports, which are, in turn, an outgrowth of excess US domestic demand.
In March 2005, US imports were fully 54% larger than exports: there is no politically acceptable dollar adjustment that would eliminate America's excess import problem.
The only effective way to temper an import overhang of this magnitude lies in a real interest rate upward adjustment that would squeeze excess consumption out of the system.
A decidedly pro-growth and market-friendly Fed is unlikely to have much of an appetite for monetary tightening. Moreover, the combined impacts of a global growth shortfall and further declines in commodity prices point to a likely compression in the inflationary premium embedded at the long end of the yield curve.
Thus, further dollar depreciation is a logical outgrowth of such a benign climate in the bond market.
Stephen Roach (edited)
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During the 80s, America's current account deficit peaked out at 3,4% of GDP and the broad dollar index fell nearly 30% over the three-year period, 1985-88. With the US current account deficit at about 6,5% in 1Q05, today's current account problem is easily twice as bad as it was back in the 1980s but the US currency has fallen by less than half as much as it did back then.
On that simple basis, alone, the dollar has plenty more to go on the downside.
But the dollar can't solve America's trade and current account problem: excess imports, which are, in turn, an outgrowth of excess US domestic demand.
In March 2005, US imports were fully 54% larger than exports: there is no politically acceptable dollar adjustment that would eliminate America's excess import problem.
The only effective way to temper an import overhang of this magnitude lies in a real interest rate upward adjustment that would squeeze excess consumption out of the system.
A decidedly pro-growth and market-friendly Fed is unlikely to have much of an appetite for monetary tightening. Moreover, the combined impacts of a global growth shortfall and further declines in commodity prices point to a likely compression in the inflationary premium embedded at the long end of the yield curve.
Thus, further dollar depreciation is a logical outgrowth of such a benign climate in the bond market.
Stephen Roach (edited)
