Outside View: Outlook earkens for economy
U.N. committee calls for dumping dollar
United Nations, N.Y. (UPI) Jul 1, 2010 -
A U.N. committee is the latest advocate of dumping the U.S. dollar in favor of a replacement currency though it doesn't say -- or know -- which to turn to.
The dollar has been challenged as a global currency for a variety of reasons -- from populist grandstanding to polarized political critics of the United States seeking to go separate ways.
Former Iraqi President Saddam Hussein opposed the dollar's use for the oil trade and Iran, before the eurozone crisis, wanted the dollar replaced by the European common currency for hydrocarbon transactions.
The latest clamor for displacing the dollar as a global currency rose after the 2008 economic downturn which, the U.N. committee said, showed the U.S. currency was ill-equipped to defend international trade.
The U.N. Department of Economic and Social Affairs, in a report, called the dollar an unreliable international currency that should be replaced by a more stable system.
"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the report said.
Countries with massive dollar reserves have seen their funds undervalued as a result of the dollar's troubles and impacted adversely on their import trade.
The report cited support for a standardized international system for liquidity transfer that would remove dependence on storing up reserves in a particular currency. Instead, it backed special drawing rights made up of a basket of currencies.
Under an existing system, the value of special drawing rights is determined by the International Monetary Fund. The IMF also can made adjustments in currency rates in response to market fluctuations.
The United Nations says it supports the initiatives and hopes that finding alternatives to the dollar will help sustain the international trade and financial systems and allow less-developed countries to participate more fully into the global economy.
Getting "back on track" will require significant reforms in global economic governance and new thinking to put the world on a more sustainable path of development, said the report.
"This year's report looks at the prospects for post-crisis global development and concludes that a major rebalancing of the global economy is needed to make it sustainable," said Rob Vos, the director of the development policy and analysis division of the Department of Economic and Social Affairs.
"To that end, it argues for much more effective mechanisms of global economic governance, requiring a major overhaul of the existing ones," he told reporters at the launch of the report.
Vos said many of the global crises in recent years, including fuel and food crises, were caused to a large extent by systemic failures in the global economy and weaknesses in the mechanisms for global governance.
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by Peter Morici
College Park, Md. Jul 1, 2010
Friday, forecasters expect the U.S. Labor Department to report the economy shed about 110,000 jobs in June and unemployment rose to 9.8 percent.
Economists expect the private sector created about 110,000 jobs but that government employment dropped twice that amount, as many temporary census jobs disappeared.
Twelve months into recovery from such a deep recession, this is a terrible performance. The economy must add 13 million private-sector jobs by the end of 2013 to bring unemployment down to 6 percent and U.S. President Barack Obama's policies aren't creating conditions for businesses to hire.
Certainly, Obama inherited a mess -- unemployment stood at 7.7 percent in January 2009; however, since then jobless ranks swelled 3 million and many others have quit looking altogether.
Massive bailouts for Wall Street banks, $787 billion in stimulus spending, healthcare reforms touted as jobs creating and financial regulatory overhaul have disappointed.
Much stimulus money was squandered. Large grants to build green buildings don't generate many new jobs except for a few architects, summer research grants for professors are even less effective and subsidies for windmills and solar panels created lots of jobs in China.
Beijing requires most green energy projects to be sourced domestically. Without similar U.S. regulations, capacity and jobs to build solar panels and windmills locate in China.
The consequences of the undervalued yuan and Chinese protectionism have been brought to Obama's attention ad nauseum, yet he continues President George W. Bush's policy of quiet diplomacy and no significant results.
Wall Street banks received Troubled Asset Relief Program and Federal Reserve assistance to improve balance sheets and recapitalize securities and derivatives trading, which generated record bonuses for 2009.
Meanwhile, Wall Street banks balked at re-establishing credit for regional banks, which remain burdened by too many toxic assets. Consequently, 230 regional banks have failed, and small- and medium-sized businesses cannot get adequate credit.
Financial reform legislation will little curtail big bank trading or require large financial institutions to open credit markets again to regional banks and reforms will further tighten Wall Street's choke hold on credit.
The nation's 25 largest banks' share of deposits has risen to 59 percent and the House-Senate bank reform deal, when announced, caused a 3 percent increase in share prices for J.P. Morgan, Goldman Sachs and Morgan Stanley. Big companies, which offshore jobs, will have easy access to credit, but small- and medium-sized businesses, which create most jobs in America, will remain starved for credit.
Obama's healthcare reforms are pushing up health insurance premiums, compelling large companies to take capital charges and raising labor costs -- all deter businesses from hiring.
The specter of proposed new energy taxes and limits on oil and gas development has similar effects.
Businesses need customers and capital to invest and create jobs and private demand growing at less than 2 percent a year and troubles at regional banks remain huge problems.
The trade deficit -- in particular, imports of oil and the imbalance with China -- cuts a huge hole in demand for U.S. goods and services. Without addressing oil and China, other efforts to create jobs will prove futile.
Detroit has the technology to build much more efficient gasoline-powered vehicles now and a shift in national policy to rapidly build these would reduce oil imports and create many jobs.
China's undervalued currency that makes its products artificially cheap and deceivingly competitive on U.S. store shelves and its promise of new flexibility on the yuan hasn't translated into meaningful revaluation.
Instead of complimenting China for its hollow promises, Obama should implement comprehensive policies to counter Chinese abuses of free trade. That would begin with a tax on dollar-yuan conversions to raise prices of Chinese imports to their true cost to the U.S. economy.
Remaining TARP funds should be used to create a Savings and Loan Crisis-era Resolution Trust that could relieve regional banks of troubled loans, earn a profit for taxpayers and give small- and medium-sized businesses adequate bank credit again.
Those initiatives would disappoint Ivy League intellectuals and New York bankers advising the White House but it is high time Obama addressed the world as he finds it, not as he believes it should be.
(Peter Morici is a professor at the Smith School of Business, University of Maryland, and former chief economist at the U.S. International Trade Commission.)
(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)
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China's manufacturing activity slows in June
Beijing (AFP) July 1, 2010
Manufacturing activity in China slowed in June, official and independent surveys showed Thursday, suggesting that government efforts to cool the fast-growing economy are working.
The HSBC China Manufacturing PMI, or purchasing managers index, fell to 50.4 last month from 52.7 in May, the bank said.
A reading above 50 means the sector is expanding, while below 50 indicates an overall decl ... read more
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