Asian financing of the US economy to keep it afloat as its largest export market is “the biggest aid programme of all time”, and Europe is paying the price, writes Martin Wolf in today’s Financial Times.
As is been widely known, Asian central banks – notably in Japan, China, and Taiwan – have been massively buying US Treasuries and other securities to keep their own currencies and American interest rates relatively low, and US demand for their exports correspondingly high. Any significant falloff in their dollar-denominated purchases would provoke a free fall in the weakening US currency, a spike in US interest rates, and a probable recession – or worse – in the American economy. Wolf reflects the divergent European interest in decrying as “protectionism” the refusal of the Asian central banks to let FX markets reprice their “artificially undervalued” low currencies upward. The euro ’s sharp rise against the US and Asian currencies has badly dented European exports and growth. He dismisses the recent Boca Raton call by G-7 finance ministers – three of them from Europe – for more Asian exchange rate “flexibility” as “sound and fury, signifying nothing” in view of the tacit agreement between the Asian central banks and the US to govern their trade relationship through what Wolf regards as a de facto system of partially fixed exchange rates. FT (sub-only) article available on www.supportingfacts.com Sorry for any cross-posting.
