woensdag, december 27, 2006

Will the dollar capitulate in 2007 ? door Anatoly GOREV in RIA Novosti, 27 december 2007.

The year 2006 has been very unlucky for the U.S. dollar. In mid-December, the American currency hit a 20-month low against the euro.

The dollar's supporters were all the more disappointed because they expected different things from this year, which began quite optimistically.

In late 2005 and early 2006, the euro seemed to have lost all of its advantages against the dollar and began falling. Its decline was encouraged by accelerated economic growth in the United States and the Federal Reserve's move to increase interest rates. Many analysts started predicting that the unlucky period for the dollar would end in 2006. The dollar's slump to $1.33 per one euro by mid-December is unlikely to live up to the hopes and optimistic forecasts expressed at the beginning of this year.

Perhaps, it is these lost illusions that are making analysts of leading investment banks voice rather pessimistic forecasts for 2007. Currency experts maintain that the dollar's dynamics will still be influenced by the same factors, notably the economic growth pace in the U.S. and the EU, changes in interest rates in developed economies, and, of course, energy prices, which, despite a certain decline, still remain high enough to put pressure on the dollar.

Experts differ only in their estimates of how far the dollar may drop. Some say that it will fluctuate between $1.35 and $1.40 per one euro, while others predict far less pleasant figures for dollar owners, such as $1.50 or even $1.70 per one euro. Even more optimistic analysts do not fully rule out the possibility of a dollar apocalypse. "Given the risks associated with the dollar, investors who have put their money into dollar-denominated bonds might want to diversify their investment," said David Brown, chief economist at Bear Stearns, a leading U.S. bank. "Does that mean that the euro could rise to $1.40 or $1.50, or will it demonstrate only a "frying-pan jump" [a short-term leap followed by a return to the previous position]? We are inclined to believe the latter. We hate the very thought that the dollar is close to capitulating and that this capitulation, given the weakness of the American currency and the persistent pressure on it, may result in a collapse."

Remarkably, experts, prompted by the moves of oil-exporting countries, began discussing the possibility of the dollar's collapse earlier this year. The International Settlement Bank, which analyzes information from developed countries' central banks, announced in December that the share of dollar reserves in Russia and OPEC countries had fallen from 67% to 65%, while the euro's share had gone up from 20% to 22%. Given the net size of the reserves, a decline of two percentage points may seem insignificant, but analysts believe that oil exporting countries' decision to reshuffle their currency baskets is a signal to investors. The latter remember only too well what happened in 2003, when the same countries reduced the dollar's share of their reserves for the first time in many years: the euro soared immediately, reaching a new all-time high against the dollar.

So the outlook for the U.S. currency, given the country's not-very-fast economic growth and unfavorable external factors, is not too impressive. In Russia, it's the dollar's prospects are no better than in the rest of the world, experts say. Perhaps they are even worse. 2006 brought a decline in the dollar, but a triumph for the ruble: the exchange rate is already less than 26 rubles per $1. Next year, it may fall to 25 rubles. Unless the Russian Central Bank supports the U.S. currency or something happens to drastically change the situation on foreign markets (such as a plunge in oil prices), the rate may fall even lower.

The dollar's prospects for 2007 may be partially determined by the behavior of Russian borrowers and Russian banks. The former increasingly often prefer to take out loans in dollars because they are cheaper to service, since the U.S. currency is falling and the ruble is strengthening. Banks have responded to this demand by increasing interest rates for these loans. As a result, the average interest rate for short-term dollar loans reached 13.6% in October, according to the Central Bank. This is the highest level in the last few years. Experts say that such a high rate was seen only after the 1998 financial crisis. At that time banks wanted to protect themselves against non-payment, while now they are hedging against currency risks, primarily those posed by the U.S. dollar.

Bron:RIA Novosti

zaterdag, december 09, 2006

Verslag kongres Eurorus te Lebbeke, Vlaanderen, 9 december 2006.

Ga naar
Project Eurosiberia 2.0 voor het verslag van het Eurorus kongres, 2 december 2006 te Lebbeke, Vlaanderen. Met fotoreportage en videotoespraak.

zondag, december 03, 2006

The Bear Sets a Trap: Europe Creates Dependency on Russia door Richard RAHN op BrusselsJournal.com, 3 december 2006.

Have you noticed New York residents do not fear a cutoff of their natural gas supplies because of a potential political or economic dispute with Texas? But envision a scenario where the State of Texas owned all of the natural gas in that state and the distribution network to other states, and where the governor of Texas decided to ignore pre-existing contracts in order to force New Yorkers to pay more for their gas since they were totally dependent on the Texas monopoly.

Fortunately, in the U.S., the above scenario could not play out because: there are many private suppliers of gas in the State of Texas; the pipelines that carry the gas to New York are privately owned and separate from the gas producers; and, most importantly, the state and federal courts enforce the rule of law and protect pre-existing contracts.

But now another question: Would you agree to have a major and critical portion of your gas supplies controlled by a monopoly state producer that also controls the pipelines and has at times ignored or reneged on existing contracts? If you are a prudent person, you would probably respond by saying, “No way.”

Unfortunately for the Europeans, a number of their governments are cementing a relationship with Vladimir Putin’s Russia which, in effect, will make them hostages of the Russian bear. Russia already accounts for 26% of Europe’s gas imports. It accounts for 44% of Germany’s gas imports, 60% of Poland’s, 63% of Austria’s, and 100% of Finland’s. Russia is now building a new gas pipeline from Russia through the Gulf of Finland and down through the Baltic Sea directly to Germany, bypassing the existing pipelines that go through Ukraine, Belarus and Poland. As European natural gas sources are depleted, Europe will depend increasingly upon Russia.

If Russia were truly a free market democracy that practices the rule of law, with many private Russian gas producers competing for Europe’s consumers, there would be little cause for concern. Americans do not worry about being dependent on Canada for a significant portion of their oil imports, because most of it is provided by private companies and democratic Canada maintains the rule of law.

Russia, however, is a very different story. President Putin has refused to ratify the treaty that would require Russia to open its gas pipelines to third parties and end the monopoly supply position of Russia's state-owned Gazprom. Poland and Lithuania are the only European countries insisting that Russia sign the agreement (to which Russia committed itself in 1994) as a condition to expanding European-Russian trade. The Poles and the Lithuanians are likely to be forced to acquiesce to their larger European neighbors who tend to only think about short-run gains rather than long-term consequences.

Russia has already shown itself an unreliable energy supplier, despite its claims to the contrary. As recently as last winter Russia cut off gas shipments to Ukraine, and Ukraine responded by siphoning off gas destined for the European Union.

Despite the West’s hope that Russia would continue evolving into a true free-market democracy under the rule of law, any objective viewer can easily see the drift backward.

Critics of the Putin regime have a continuing, uncanny ability to get murdered. According to the London Times, “Britain’s intelligence agencies claimed that the poisoning of the Russian dissident Alexander Litvinenko bore the hallmarks of a state-sponsored assassination.” This seems a reasonable conclusion, in part, because the typical killer does not poison his victims with radioactive polonium-210.

Many Russian journalists who were critics of Mr. Putin, such as Anna Politkovskaya and the editor of Forbes’ Russian edition Paul Klebnikov, have recently been gunned down in “unsolved” murders.

The number of elective offices has been systematically reduced under Mr. Putin, and Russia is slowly moving back to an almost one-party state (this time without communist ideology). Key sectors of the economy, such as oil and gas, are in effect being renationalized. Many foreign companies find that what they had thought were binding contracts are suddenly being opened to “renegotiation.”

Last week, it was announced that Gazprom was buying Russia’s most popular newspaper, Komsomolskaya Pravda. The Putin government has brought most of the electronic and print media under the control of state companies or Kremlin-dependent businessmen.

Mr. Putin is smart. He realizes the European leaders are weak, and merely the implicit threat to cut gas supplies will be enough to have them do much of his bidding. He is also aided by those in the West who rationalize his behavior, much as the New York Times’ Walter Duranty became Josef Stalin’s cheerleader in the 1930s.

An insightful Brit noted that “Blair would love to see the Litvinenko murder investigation just disappear because now that Tony announced he is leaving he needs a job and Putin might help.” After all, Mr. Putin (through Gazprom) did hire former German Chancellor Gerhard Schroeder for several million dollars.

This piece was originally published in The Washington Times on December 1, 2006.

Bron: The Brussels Journal