Wednesday, November 10, 2010

And yet...

...given weak economies in the G20, this behavior is entirely rational from a political/order standpoint. China in particular is perfectly content to let the U.S. devalue given the dollar currency peg currently in place.

Alan Greenspan, former chairman of the U.S. Federal Reserve, said the U.S. is pursuing a policy of weakening the dollar that risks increasing trade protectionism when combined with China’s effort to suppress the renminbi.

“The suppression of the renminbi and the recent weakening of the dollar are, of necessity, producing firming exchange rates in the rest of the world,” Greenspan wrote in a column in the Financial Times today.

The ratio of global exports to gross domestic product, which recovered following the financial crisis, was again slowing in the third quarter, Greenspan said. Protectionism would accelerate that slump, he said.

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