Ambrose Pritchard of the Telegraph is reporting this morning:
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."
I’m not certain I know what an "economic war" looks like, but I have a feeling I don’t want to see one.
Sarkozy is just polishing both the rock and the hard place for Benny & the Feds.
By the way, Reuters reported that “Federal Reserve Board Governor Frederic Mishkin said that monetary policy is not responsible for creating financial crises.”
(Mishkin:) “These crises that develop have nothing to do with ‘monetary policy’, but rather with financial innovation where markets sometimes make ‘mistakes’.”
Hmmmm… Maybe Cramer IS right in saying the Feds don’t have a clue. (-,
NotSoFunnyMoney:
I was a student at Brigham Young University back in the early ’80s. They had a dress code rule for women that said that women couldn’t wear jeans, but could wear “feminine cut slacks out of denim material.” It was a policy that ended up being dropped, as no one had a clue what was the difference between womens jeans, and “feminine cut slacks.”
For the life of me, I fail to see the difference between ‘monetary policy’ and ‘financial innovation’- other than where one choses to lay the blame. Call it what they want, when our grandkids study this time period in history class, if the textbooks are honest, they are going to talk about the mistakes made by the Fed.