● Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System
By Barry Eichengreen
Summary via publisher, Oxford University Press
For more than half a century, the U.S. dollar has been not just America’s currency but the world’s. It is used globally by importers, exporters, investors, governments and central banks alike… This dependence on dollars, by banks, corporations and governments around the world, is a source of strength for the United States. It is, as a critic of U.S. policies once put it, America’s “exorbitant privilege.” However, recent events have raised concerns that this soon may be a privilege lost. Among these have been the effects of the financial crisis and the Great Recession: high unemployment, record federal deficits, and financial distress. In addition there is the rise of challengers like the euro and China’s renminbi. Some say that the dollar may soon cease to be the world’s standard currency–which would depress American living standards and weaken the country’s international influence.
In Exorbitant Privilege, one of our foremost economists, Barry Eichengreen, traces the rise of the dollar to international prominence over the course of the 20th century. He shows how the greenback dominated internationally in the second half of the century for the same reasons–and in the same way–that the United States dominated the global economy. But now, with the rise of China, India, Brazil and other emerging economies, America no longer towers over the global economy. It follows, Eichengreen argues, that the dollar will not be as dominant. But this does not mean that the coming changes will necessarily be sudden and dire–or that the dollar is doomed to lose its international status.
LABOR DEPT REPORTS MODEST JOB GROWTH FOR DECEMBER
Private-sector payrolls increased in December—the 12th consecutive monthly gain, the Labor Department reports. The trend is certainly favorable, although the details are disappointing. That’s partly because the net rise in job creation in corporate America was well below the increase implied by ADP’s estimate for December. Foiled again.
Nonfarm private payrolls increased by a net 113,000 last month. That’s up from November’s revised 79,000 gain, but the pace is still weak by historical standards and far below what economists say is required to put the economy on a sustainable growth path that delivers more than simply keeping the next recession at bay.
WHEN WILL JOB GROWTH END THE HOUSING SLUMP?
The labor market and housing are two of the biggest headwinds still hobbling the economy. Job growth, at least, seems to be picking up, as ADP’s latest estimate of payrolls suggests. The case for optimism faces a higher hurdle with housing, however, a sector where the suffering rolls on.
JOBLESS CLAIMS ROSE LAST WEEK, BUT THE TREND IS STILL FAVORABLE
New filings for jobless benefits jumped by 18,000 to 409,000 on a seasonally adjusted basis in the final week of 2010, according to this morning’s Labor Department update. That’s a bit of a disappointment after last week’s news that initial claims dipped below 400,000 for first time since the summer of 2008. But it’s hardly time to throw in the towel on expecting better days ahead for the labor market.
MACRO SURVEILLANCE FOR THURSDAY: 1.6.2011
Predictions for 2011 by BlackRock’s Bob Doll
● U.S. stocks will record 3rd straight year of double-digit gains
● US Real GDP Will Hit All Time High in ’11, Marking Economy’s Transition from Recovery to Expansion
“Our expected gains for the equity markets for 2011 are not much different from what we expected for 2010,” he said. “What’s different for 2011 is that market risk will be more to the upside than was the case in 2010.”
The possible upside factors include an acceleration in jobs gains, a surprise in real GDP, earnings exceeding expectations as occurred in 2010, and Washington D.C. beginning to address the nation’s fundamental debt and budget problems. On the other hand, Doll’s “what can go wrong?” list includes the possibility of credit problems resurfacing (including US housing, sovereign nations, and state and local governments), commodities price increases causing profit margin pressure, inflation fears, a greater than expected rise in interest rates, undue emerging markets tightening to curb asset bubbles, and
currency and capital flow concerns leading to protectionist trade wars.
Blackrock, Jan 5
US Economic and Interest Rate Outlook, January 2011
With regard to 2010 real GDP growth, we now expect Q4/Q4 growth of 2.9% vs. 2.3% in the November forecast Based on Q4 forecast. 2010 available data, real GDP appears to be coming in at an annual rate of 3.6% rather than the 1.9% we were projecting in November. In addition, the Commerce Department revised up Q3:2010 real GDP growth from 2.0% to 2.6%.
Northern Trust, January 2011
2010’s STOCK MARKET WINNERS… AND LOSERS
It was a very good year in 2010 for individual stock markets around the globe. Most of the world’s exchanges ended the year at higher levels. Of the 40 bourses in the Russell Global Index, only five suffered a loss.
ADP: DECEMBER PAYROLLS SURGE
The economy created a net 297,000 jobs in the private sector last month, according to the ADP National Employment Report. That’s the largest monthly gain in the 10-year history for this series. The relatively large increase suggests that Friday’s employment report from the U.S. Bureau of Labor Statistics will bring equally encouraging news.
DO LABOR COSTS DRIVE INFLATION?
Discussions over what’s in store for the economy and the markets inevitably turn to inflation. That’s a bit odd, considering that there’s none to speak of at the moment, at least according to official yardsticks. Consumer price inflation is rising at about 1% a year, according to the U.S. Labor Department, or near the lowest pace in decades.
RESEARCH REVIEW: THE GREAT RECESSION
The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents
Karl Aiginger/May 2010/Economics-ejournal.org
The aim of this paper is to investigate whether the drop in economic activity in the recent crisis1 has been as large as in the Great Depression of the nineteen thirties…The data show that the drop in activity has definitely been smaller in the recent crisis. The crisis had however the potential to become as severe as the Great Depression…In the recent crisis economic policy reacted expeditiously, prudently, and to a surprising extent coordinated at an international level.
WHAT A YEAR…WHAT A DECADE!
It was a very good year—no doubt about it. The capital and commodity markets delivered strong gains in 2010. It was nearly a clean sweep, in fact, with prices rising across the board among the major asset classes. But it was also a volatile year. The handsome gains for the past 12 months masks the turmoil that roiled the markets at times. As a result, attempts at trading in pursuit of market-beating returns was a treacherous game. As usual, those who succeeded came at the expense of those who failed. Meantime, a broadly defined, passively weighted mix of everything dispensed middling performance.