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ASEAN ANALYSIS  Asean Affairs  19 October 2010

Weak dollar not a passing fancy

By  David Swartzentruber
AseanAffairs     19 October 2010

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Since August 27 the U.S. dollar has declined more than 7 percent .

In view of its economic situation, with slower growth and unemployment near 10 percent , the quickest way to recovery for the U.S. is to boost exports, thereby increasing employment.

A number of companies, including Caterpillar and Deere & Co. have indicated the weaker dollar have boosted their earnings. The weaker dollar has also lifted the Dow Jones Industrial Average above 11,000 for the first time since May.

Experts say the weak dollar will make Americans shift from buying imported goods to domestically produced services.

The long-term risk is that if the weak dollar continues unabated, it may stimulate the cost of living and investors may avoid U.S. debt.

The policy should come as no surprise as President Barack Obama said in his January State of the Union address that U.S. jobs depend on raising exports.

The companies experiencing the quickest impact are farm and heavy equipment manufacturers, Caterpillar and Deere & Co.

This economic trend may come to a head when U. S. Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke meet the Group of 20 (G-20) developed and emerging countries October 22 and 23 in South Korea to develop an agenda for a Seoul summit of leaders next month.

Geithner has upped his rhetoric this month over the limited gains of the yuan. He said on October 6, “It is very important to see more progress by the major emerging countries to more flexible, more market-oriented exchange-rate systems.”

China, India, Japan and South Korea are the Asian countries in the G-20, with Indonesia being the only Asean representative. The European Union is the 20th member.

What this means for export-dependent Asean countries is that a “quick fix” for the effects of the weak dollar won’t work and a long-term approach is needed.


By
Paul A. Ebeling, Jnr

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