The euro will hold

MarketWatch:
"... The most vulnerable countries like Greece and Spain indeed confront a mounting debt burden, which will likely lead to more ratings downgrades and more market sell-offs. The path to fiscal health will require painful, unpopular reforms.
But, most analysts agree that the European Union will, if necessary, bail out its members and never let a country's fiscal situation deteriorate to the point of sovereign default. Those rescue expectations continue even as terms of euro entry explicitly forbids such moves. See story on the EMU fudge.
"If you think Greece is going to default, you should sell all the bonds of Spanish and Italian and Portuguese companies, because you think the euro will fall apart," said Philip Gisdakis, credit strategist at UniCredit. "And that is something that I think is completely exaggerated."
"There is a lot of misunderstanding in the market about the importance of Europe and the euro-zone on a political level," he said. "Europe is a question of warranties. They are going to support countries like Greece and Ireland."
The members of the European Union -- which is both a political and an economic alliance -- are closely interconnected and have too much to lose if one of them defaults.
That is especially true for those 16 countries which share the euro as their common currency. See story on playing the crisis..."
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Dollar rally - euro bust

Dec. 18 (Bloomberg) -- The dollar extended its biggest weekly rally versus the euro since January, limiting gains in commodities and U.S. equities, as traders abandoned bearish bets on the U.S. currency. Treasury 10-year notes fell.

The Dollar Index climbed for a fourth day as the U.S. currency strengthened against all 16 of its most-traded peers. Crude rose 1.2 percent after Iranian forces entered Iraq and occupied an oil well. Most U.S. stocks rose as better-than- estimated profit at Oracle Corp. and forecasts from Research In Motion Ltd. offset declines in consumer companies.
The dollar breached $1.43 against the euro for the first time in three months as the European Central Bank raised its estimate for writedowns in the nations that use the single currency by 13 percent.

Sovereign debt crisis

Yahoo Finance asks: "Is Sovereign Debt the New Subprime?
That’s a question many on Wall Street are asking as 2009 comes to a close. Just as many subprime borrowers were unable to make their mortgage payments in 2007 and 2008, investors now fear certain nations will be unable to pay their debts in the year ahead.
Rising mortgage defaults and credit card delinquencies put many banks on the brink of bankruptcy in 2008, sending the global economy into a tailspin. But sovereign debt defaults are potentially even more catastrophic as they can lead to geopolitical instability, societal unrest and even war. And there will also be economic ramifications for investors worldwide, putting America’s (and the globe’s) fragile recovery at great risk.
To varying degrees, Greece, Spain, Ukraine, Austria, Latvia, Mexico are just a handful of the nations viewed at risk of defaulting. Meanwhile, Dubai only just avoided a similar fate thanks to a $10 billion bailout from their oil-rich neighbor Abu Dhabi.
So, who else out there could rattle our constantly more interconnected world? Here's a look at where the trouble spots could be:
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Bad company

Moneynews 
Analyst: Greece, Ireland May Leave Euro

Fri, 11 Dec 2009 05:03 PM

By: Dan Weil

The economic crises in Greece and Ireland may necessitate financial bailouts or even an exit from the euro for these countries, according to Standard Bank analyst Steve Barrow.
“Countries like Ireland and Greece may not be able to grow out of the current crisis,” Barrow, head of G-10 currency strategy for the bank, told Bloomberg.
“With interest-rate cuts, exchange-rate depreciation and significant fiscal support all off limits for these countries, bailouts or even pullouts from EMU (European Monetary Union) may happen next year.”

O real sobrevalorizado provaca dor da cabeza

Dec. 7 (Bloomberg) -- ... A positive growth outlook, vast natural resources, developed capital markets and attractive interest rates have induced foreign capital to flood into Brazil. That, in turn, has caused the local currency to soar... Overvalued exchange rates will pose a challenge for many emerging economies. That’s inevitable when governments worldwide continue to pump liquidity into capital markets and investors who face near-zero interest rates at home seek higher returns elsewhere.
Nowhere is this more evident than Brazil. Latin America’s largest economy received a record $59 billion in foreign direct, equity and fixed-income investments during the first 10 months of this year, according to the nation’s central bank. The inflows help explain why the Brazilian real has gained about 34 percent against the U.S. dollar this year, more than all major currencies Bloomberg tracks....
Critics of a strong real once were limited to the directors of Brazil’s large exporters, especially those hurt by Chinese competitors. Now their concern has spread to the finance ministry, the national development bank, the central bank and the headquarters of the candidates for next year’s presidential election...--
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US central bank monetization

Requiem for the dollar

Writes James Grant:
"Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? --
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Productivity spike

WASHINGTON (AP) -- Productivity surged in the third quarter by the largest amount in six years while labor costs fell. While that indicates inflation is remaining under control, it also signals that workers' wages are getting squeezed, raising doubts about the durability of the economic recovery.

A triple whammy for China

Nov. 26 (Bloomberg) -- China’s foreign-exchange reserves face a “triple whammy” as inflation, oversupply and the “inevitable” decline of the dollar threaten to erode the value of its holdings of U.S. Treasuries, said Yu Yongding, a former adviser to the Chinese central bank.
China needs to divert its trade and investment surpluses away from U.S. debt if it is unable to reduce them, Yu, a member of the central bank’s monetary policy committee from 2004 to 2006, said in a speech in Melbourne last night. The nation, with the world’s largest foreign-exchange reserves of $2.3 trillion, is the U.S.’s biggest creditor, holding $798.9 billion of Treasuries as of September.
“Capital losses -- let alone obtaining decent returns -- seem inevitable,” said Yu, a member of the Chinese Academy of Social Sciences. “There is no question whatsoever that the U.S. dollar will go south, which started in April 2002 and, after a short interval, restarted in March 2009.” --

Dubai fallout

Nov. 27 (Bloomberg) -- Dubai’s debt woes may worsen to become a “major sovereign default” that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.

European business confidence

Nov. 27 (Bloomberg) -- European confidence in the economic outlook improved in November to the highest since the collapse of Lehman Brothers Holdings Inc., suggesting the recovery in the 16-member euro region is gathering strength.
An index of executive and consumer sentiment rose for an eighth straight month to 88.8 from 86.1 in October, the European Commission in Brussels said today. That was the highest since September 2008 and above the 88 projected by economists, according to the median of 27 forecasts in a Bloomberg survey..--

Yen high -- dollar low

Nov. 27 (Bloomberg) -- The yen strengthened to a 14-year high against the dollar, climbing past 85 to the greenback and prompting speculation Japan will intervene to halt gains in the currency that are threatening the nation’s export-led recovery.

Dollar continues its slide

November 26, 2009 NEW YORK (AP) - The safe-haven dollar slid to a 15-month low against the euro, was within striking distance of 14-year lows versus the yen and dipped below parity against the Swiss franc Wednesday as markets absorbed the Federal Reserve's indication that interest rates will remain at super-low levels for a while and it was not overly concerned by the U.S. currency's decline.
Against a basket of six currencies including the euro, yen and franc, the dollar fell as low as 74.245, its weakest point since August 2008 and its steepest one-day drop since July 31, said Joseph Trevisani, chief market analyst at FXSolutions.
The 16-nation euro climbed as high as $1.5142 Wednesday, its strongest level since August 2008. In late New York trading, it read $1.5139 from $1.4975 late Tuesday. --

The Demise of the Dollar

I began to worry about a coming dollar disaster and the implication of a global monetary collapse seven years ago. Before 2002 I was a dollar bull. I thought the US had the nerve, courage, energy and wisdom to repair the failing the system. However, over the past years I had to become more and more bearish. The one main factor which has held back an earlier dollar collapse has been the inherent weakness of the euro area and a wide-spread -- largely irrational -- mental aversion against gold. Both blocks are about to recede, the mental block against gold and the prevailing prejudices against the euro in London and New York. Now, we are entering the more dramatic phase of a global drama.
How will it end? The outcome depends as much on economics as on politics. Yet as of now there is no-one in sight who could serve as the savior of the US dollar. Worse: Ben Bernanke and Barack Obama, so it seems, are competing in their respective roles as gravediggers of the US dollar.