Word: dollarize
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Heading abroad from the U.S. this summer? Consider packing a few extra dollars. Since early March, the greenback has fallen 11% against the euro and 17% against Britain's pound as investors who had sought out the dollar as a safe haven during the worst of the crisis now head for riskier assets. Throw in concerns over the U.S.'s spiraling deficit and calls from China for an alternative reserve currency, and "the likelihood is the dollar's going to remain under pressure," says Simon Derrick, head of currency research at Bank of New York Mellon in London...
That's a reversal from the recent uptick. Traditionally a safe bet amid economic mayhem, the dollar climbed about 25% against the euro in the eight months to March this year; the unattractiveness of rival currencies only made it more appealing. But, says Derrick, "that drive seems to be shifting substantially." Sure, a hint of bleak economic data can still goose the greenback - the prospect of poor U.S. payroll figures for June, set for release Thursday, has helped boost the currency in recent days - but optimism in other assets is on the rise. Global equity markets, in particular those...
Also weighing on the dollar: investor concerns that to balance a budget deficit expected to swell this fiscal year to $1.85 trillion - equal to 13% of the country's GDP, a level not seen since World War II - the Federal Reserve could simply resort to printing more money, further flooding the markets with dollars. While the central bank said on June 24 that it had no plans to expand its purchase of government or mortgage bonds beyond the $1.2 trillion earmarked for the purpose in March, not everyone is convinced. "There is always the nagging concern that if this...
Bottom line: the dollar faces a longer-term challenge, and the big players know it. Echoing a call made by Zhou Xiaochuan, its governor, in March, China's central bank advocated a new global reserve currency in its annual financial-stability report released last Friday. Raising concerns of a move away from the dollar as the world's reserve, the proposal for a "super-sovereign" coin nudged down the greenback vs. a host of major currencies. That may have been a tad more impact than Zhou was seeking: with something like two-thirds of China's roughly $2 trillion...
While homeowners celebrated, city, county and school district officials sat in stunned disbelief. There were predictions of drastic cuts to education and social services. But the ax did not fall as Sacramento, flush with a multibillion-dollar surplus, bailed out local governments and the schools. But the state rescue was accompanied by a loss of local control. As a result of Proposition 13, school districts, county governments and cities were forced to compete with state priorities for a slice of the state budget...