The Way of Hell?

Posted March 26, 2009

The Japanese yen fell again as news of the economy shows conditions worsening. The South Korean won has been the worst performing currency in Asia so far this year, but strengthened against the dollar as the US dollar weakened overall this month.


Global government representatives are getting more vocal in their criticism of the US policy to spend its way out of a recession.  There are signs the US economy may be coming back to life as new mortgage applications rose and the stock market seems to be stabilising.  But the Czech Republic Prime Minister proclaimed the US economic recovery plan is the way of hell.

In the UK, there were unflattering comparisons made in Parliament between the UK policy of quantitative easing and the US plan for the same.  As many analysts like to point out – you can’t spend your way out of a recession.  It has been tried several times in the past in Japan and the US and many other countries.  Spending was meant to end the global Great Depression that began in 1929 and the Japanese depression of 1999, but it didn’t.

Who said that those who don’t learn history are doomed to repeat it?  The US Treasury Secretary Timothy Geithner told the Council on Foreign Relations that the Chinese call for a new global international currency was a possibility and the US dollar tumbled within 10 minutes by 1.3%.  Then Geithner said he predicted the US currency would remain the world’s reserve currency and the dollar value quickly recovered. 

The important overriding point to remember through all of this is the fact the global market is concerned about the value of the US dollar and the ability of the US to manage its debt.  Printing money as fast as the printing presses can run creates new problems such as a devalued currency and inflation. 

Yesterday, the US dollar strengthened against the Japanese yen to 97.72 yen per dollar.  The dollar weakened when paired with the euro at $1.3616 US dollar per euro.  The US dollar weakened against the Australian ($70.11 US cents) and the New Zealand dollar (57.03 US cents). 

The Australian dollar rose upon reports from the Reserve Bank of Australia that the country will not experience high risk from the subprime mortgage crisis.

The Japanese yen fell for the second day in a row as the government indicates a deepening recession.  The Tankan Index fell and Japanese exports have fallen by 49.4%.  The yen fell to 133.04 yen per euro.  The yen actually weakened against all 16 major global currencies on 25-March-2009.  The yen has weakened by 7.8% against the US dollar so far this year.

In another part of the world, the Korean won managed to strengthen to a two-month high against the US dollar.  The won has been the worst performing currency in Asia this calendar year.  The won strengthened to 1,341.40 won per US dollar.  The increase is due more to the fact the US dollar has been devaluing the past week and not due to strength in the South Korean economy.  In fact there are concerns South Korean banks won’t be able to meet its foreign debt requirements. 

The UK pound fell against the US dollar to 1.4578 pence per dollar.  The UK economy is still sliding which is one reason the UK Prime Minister was dealt harsh words during yesterday’s Parliamentary session.  He was accused of continuing to pump money into the markets when there are clear signs it is not working.  The UK is experiencing the worst recession in the Euro-Zone.

Time will tell if the stimulus programs, bailout funds, and the US toxic asset removal plan will work to finally bottom out the recession.  Unfortunately it could go either way right now because the glimmers of hope in the US economy are based on increasing confidence in plans that could fail to work.