Barack Obama, president of the US, met Hu Jintao, president of the People’s Republic of China, for a private meeting on Tuesday. The agenda was long, covering the world economy, climate change and non-proliferation of nuclear weapons. The last two are the most important, over the long run. But the first is the most urgent. If we do not achieve a healthy global economic recovery, hope of a co-operative relationship is likely to prove vain. Yet such a recovery is far from ensured. Worse, some of what is now happening – particularly China’s decision to depreciate the renminbi along with the dollar – makes healthy recovery less likely. Read more
By Paul De Grauwe
The recent decline of the dollar against major currencies such as the euro and the Japanese yen has been spectacular. Even more spectacular, but often forgotten, is the long run decline of the dollar against the major currencies in the world. Since 1960 the dollar lost two thirds of its value against the Japanese yen, the Swiss franc and the German mark (since 1999 the euro).
The long-term decline of the dollar appears to be quite surprising especially considering that at least since the early 1990s the US has been seen to produce superior economic results, ie a higher productivity growth than most of Europe and Japan with more or less the same rates of inflation. Yet despite the appearance of superior economic performance the dollar has gone on losing value against currencies of countries deemed to have an inferior economic system. Where does this paradox come from? Read more
“A crisis is a strange way to celebrate an anniversary.” This is the wry judgment of Erik Berglöf, chief economist of the European Bank for Reconstruction and Development.* Yet a crisis is what we see in countries that began the march from communism two decades ago. So, has capitalism failed, as communism did? In a word, “no”. Some transition countries are in crisis; transition is not. The same judgment applies elsewhere: capitalist countries are in crisis; capitalism itself is not. But reform is necessary. The great virtue of liberal democracies and market economies is their ability to reform and adapt. They have shown these qualities before. They must do so once again. Read more