In this issue:

Economic Tensions Top Agenda at G-8, Says City of London Insider

Foreign Investors Set To Pull Out of Wall Street as Dollar Dives

U.S./U.K. Home Prices To Drop 'Dramatically'

China's Yuan To Become Asian Regional Currency as Dollar Fades?

Did Dollar Rebound Due to Japanese Intervention?

Globalization Faces Backlash, Says Robert Rubin

Finance Infrastructure, Ibero-America Tells G-8

Venezuelan Business, Manufacturing Collapse


From Volume 2, Issue Number 22 of Electronic Intelligence Weekly, Published June 3, 2003

World Economic News

Economic Tensions Top Agenda at G-8, Says City of London Insider

"Who blinks first?" is the big question in the economic policy tensions between Washington and continental Europe, and these tensions will be a key factor in the upcoming Group of Eight meeting in Evian, France, stated a City of London insider May 27, before the G-8 meeting began.

He told EIR: "The American government is fostering the decline of the dollar, and, by doing so, is seeking to export deflation to Europe, by a devaluation of the American currency. American policymakers think that driving the dollar down 'worked' in the 1970s and 1980s, so they think they can 'successfully' do it again."

"By doing so," the source added, "they think they can cripple the Eurozone economy, by making exports more difficult, and thereby undermine Europe. Perhaps this is a geopolitical strategy, also, to punish France, Germany, and others, for not supporting the Iraq war, but, of course, the Americans don't openly speak about this."

The London source emphasized: "So now, the question becomes, 'Who blinks first?' The Europeans can obviously counterattack, by running out of the dollar, destroying the currency and the American markets. But the Americans believe that the Eurozone countries can not stand the pain of a further weakening of the European economies, so that Europe will cave in. I am sure, that all of this defines a key dimension of the policy battles at the G-8 gathering."

The source was hesitant to comment on LaRouche's view, that the dollar collapse, first and foremost, is a systemic matter, indicating the next phase in global systemic collapse.

Foreign Investors Set To Pull Out of Wall Street as Dollar Dives

Foreign investors are considering a pullout from Wall Street stocks, the New York Post warned May 25, as the result of the 17% fall in the value of the U.S. dollar over the past six months. Offshore investors owned 15% of U.S. stocks at the end of 2002, for a total Wall Street investment of $1.35 trillion. "The problem is that these investors are going to see their returns fall in local currency terms as the dollar declines," Bernie Schaeffer, of Schaeffer Investment Research told the Post. "Even if the stock prices go up in U.S. dollars, they could still be left with losses in euros. At what point will they say, 'Hey, that's enough pain,' and just pack up and leave?" An unnamed institutional London investor added, "There's so much uncertainty about the U.S. economy right now, and when you add that to what the dollar is doing, well, maybe it's time for me to bring some money home."

U.S./U.K. Home Prices To Drop 'Dramatically'

Soaring house prices in the United States, Britain, Spain, the Netherlands, Ireland, and Australia have generated a "property-price bubble," the Economist—echoing EIR—cautioned in an e-mailed release May 29, based on data going back to 1975. These "seriously overvalued" house prices will fall "dramatically," in the next few years, with consequences "far nastier than the stock market burst," warned Pam Woodall, economics editor at the Economist.

China's Yuan To Become Asian Regional Currency as Dollar Fades?

China's currency could become Asian regional currency as dollar's importance shrinks, moots the Wall Street Journal May 28. The yuan (or renminbi), increasingly used in commercial transactions in Hong Kong and along China's borders with Southeast Asia, could play a regional role akin to that of the euro, the article argues, as the U.S. dollar becomes less important in an area dominated by trade links with China.

An article in the New York Post May 29 also reports that Asian central banks have called a meeting for next month to discuss whether or not to dump their dollar holdings. The dollar holdings of the Asians (presumably including China) constitute 90% of the world's dollar reserves, the Post item says.

Did Dollar Rebound Due to Japanese Intervention?

One day after hitting a record low of $1.1932 per euro, the dollar rose May 28 to $1.1765 per euro, even as the European currency hit an all-time high against the yen. Many traders believe it was a short-term rebound, and that the dollar will continue to fall, due to the U.S. budget and current-account deficits. There were reports of large Japanese account buying of dollars above the 118-yen mark (in order to keep the yen low to spark a mythical export-led recovery), driving the dollar up to 118.65 yen from 117.21 on May 27. The Bank of Japan has purchased an estimated $20-30 billion of dollars since May 8, after buying an average of $7 billion per month for the first four months of the year.

Globalization Faces Backlash, Says Robert Rubin

Globalization is facing "a much greater backlash than expected," asserted former U.S. Treasury Secretary Robert Rubin, in the Wall Street Journal May 29. The future of globalization is in doubt, reports the Journal, as world leaders face concerns about the fall in the value of the U.S. dollar, and its effects on the rest of the world's collapsing economies, which will be discussed at the G-8 economic summit in Evian, France. "There was a tendency in the '90s to feel that globalization would very likely continue," said Rubin, who served under President Clinton. "But there is obviously a much greater backlash than expected, and more uncertainty about it moving forward."

Finance Infrastructure, Ibero-America Tells G-8

Financing Ibero-American infrastructure should be a key agenda item at the Group of Eight meeting in Evian, France, the Presidents of Brazil and Mexico told the Financial Times May 28. Luiz Inacio Lula da Silva and Vicente Fox were interviewed, separately, by the FT, each emphasizing that they had been designated by last week's Rio Group meeting in Peru, "to speak for the region with one voice," as they prepare to attend the upcoming G-8 meeting.

As a key priority for that meeting's agenda, both stressed the absolute necessity of obtaining financing for Ibero-American development projects. "As to the mandate," Fox said, "the fundamental theme is the flow of financing for infrastructure...." Lula said that he will propose setting up two investment funds: one for financing Ibero-American integration; and the other to combat global hunger. "There are no roads, bridges, planes. How can you have integration with countries as impoverished as they are? Sometimes our countries are separated by a river 150 meters wide, and all that is required is a bridge to join them." As for the anti-famine fund, Lula suggests that a multilateral agency manage it, and that industrialized nations contribute to it, in proportion to their military spending.

Both Mexico and Brazil intend to push for permanent membership on the UN Security Council, as well as ongoing participation in G-8 meetings. As Fox told the FT, Mexico is "the world's ninth largest economy, and [participation in G-8 meetings] would be only natural and logical."

Venezuelan Business, Manufacturing Collapse

Nearly 2,000 Venezuelan businesses shut down during the first quarter of 2003, the result of a 29% contraction of the economy. According to Lope Mendoza, president of the Venezuelan Confederation of Industry (Conindustria), the country's profound economic depression led to the closing of 1,950 businesses and a 35.1% decline in manufacturing production. Should the government continue to use its exchange-control policy as a political weapon, Mendoza warned, manufacturing could drop by 25% for the whole year. Between 1999 and 2002, five thousand businesses have closed their doors, 40% of which are in industry. Chamber of Commerce president Jorge Botti reports that business outside the industrial sector declined by 33.5% during the first quarter, with a 50% drop in sales.

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