The Entire World is Facing a Currency Crisis

EUROPE:

European Union financial leaders say they are ready to do whatever they have to do to save the euro but they are not willing to add to the already existing bailout fund. Germany has defeated every attempt to expand the rescue mechanism in place for fiscally troubled countries. Other country leaders wonder if the rescue fund would weather a collapse of Portugal and Spain, currently on the closely watched list. In the meantime, Moody’s has downgraded Hungary’s credit rating putting the Hungarians at odds with the European Union and the International Monetary Fund. Some circles report that Germany is considering abandoning the euro altogether.

Ireland is attempting to enforce a personal income tax on 2.2 million workers who historically have paid no taxes. This is causing severe political unrest in Ireland. Observers have said that the euro as a currency is a mess and will continue to be throughout 2011.

All of these financial worries come in the midst of an economic slowdown throughout Europe. Unemployment is rising, tax revenues are diminished, all of which is linked to the slowdown. Pressure to cut public spending is building as the government debt grows. Central governments in many European countries are being cut drastically.

UNITED STATES:

The financial woes of the United States are well known and the quantitative easing or bond buying program announced by Ben Bernanke to purchase up to $600 billion of bonds through next summer only makes foreign investors wary of a weaker dollar if that is accomplished.

President Barack Obama says that there is “broad agreement” on global economic policy between the G20 nations but there are other leaders that fear that the conflict between China and the United States may threaten global growth.

While Washington officials maintain that the Chinese currency is held artificially low (which allows Chinese exporters an unfair trade advantage and allows China to accumulate huge amounts of foreign reserves) China argues that it has a commitment to reform its currency values but is waiting for global economic stability before making any significant adjustments.

MIDDLE EAST:

Thomas Erdbrink reported in The Washington Post that new sanctions against Iran implemented by the United Arab Emirates have led to a sharp drop in the value of Iran’s currency, the rial. This is causing confusion in Iran’s markets and has resulted in a loss in trading value against both the dollar and the euro. The situation has become so tense that no foreign currency is being sold by currency exchanges. Even the gold merchants have closed their doors.

ASIA:

The dollar has fallen to a 15 year low against the Chinese Yuan and a record low against the Swiss franc. Officials in Asia were warning against an expected flood of foreign currencies as America moves ahead with its $600 billion asset purchase plan. Already Asian currencies are enjoying new trading positions. The Thai baht is up 11%, the Korean won is up 6% and the Philippine peso is up 8%. A major oil refiner in the Philippines just issued a bond yielding 7%, and this rate of return compared to the puny near zero rates of United States Treasuries is very attractive to foreign bond buyers.

Inflation fears abound in many countries, especially those who have a negative trade balance and are forced to import most consumer goods, food, and other staples. Experts believe that the extension of the Bush tax cuts by the Obama administration and recently approved by Congress may be positive in the short term but will do nothing to help the poor fiscal situation with budget deficits of about 10% expected in each of the next two years. Even Moody’s is warning that it may have to downgrade the United States’ AAA credit rating. This scares many of our trading partners.

Meanwhile, gold is enjoying a rapid rise in value as countries keep interest rates low in order to stimulate their economies and central banks are buying gold as a hedge against the unknown.

It is still a world-wide concern. The eight hundred pound gorilla is still the United States. In this currency scenario, the gorilla is walking a very fine tight rope and the fall could be fatal.