Feldstein: Panic Should Be Over Dollar, Not Euro

Friday, 12 Mar 2010 11:47 AM

By Dan Weil

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
The euro’s recent drop to a 10-month low against the dollar won’t last, says Harvard economist Martin Feldstein.

The former chairman of President Reagan’s Council of Economic Advisers says that the euro’s decline is an overreaction to Greece’s debt crisis.

And the dollar will ultimately suffer from the exploding U.S. budget and current account deficit, he says.

“The euro is weakening despite their better trade balance,” Feldstein told Bloomberg.

“This is a kind of an irrational or panic selling where people are just saying, ‘I don’t know what is going on, I am just going to step to the sidelines and not leave money in euros.’”

The euro’s drop is an overreaction, he says. “After all, Germany is not at risk. France is not at risk.”

The euro, which recently hit a nearly 10-month low at $1.3436, traded at midday Friday at about $1.3757.

Europe doesn’t have to worry about attracting foreign money to finance its debt, unlike the U.S., Feldstein notes.

“If I wanted to be nervous about the future of a currency over the next, say, five years, there is more reason to worry given the size of the U.S. budget deficits and given the size, even more importantly, of our trade and current account deficits,” he said.

Not everyone sees it this way.

Hedge fund legend George Soros says the euro is in grave danger thanks to the flawed construction of the euro zone.

“If member countries cannot take the next steps forward, the euro may fall apart,” he wrote in the Financial Times.

Meanwhile, Standard & Poor's said this week that the U.S. dollar is still the most important world currency, but added that rising levels of U.S. debt and dependence on foreigners to finance much of pose risks to the currency's primacy.

Without a credible plan to rein in fiscal spending, the agency said external creditors could reduce dollar holdings, which could put pressure on the United States' 'AAA' credit rating, which keeps government borrowing costs low, Reuters reported.

For now, the credit ratings agency said the size of the U.S. economy — the world's largest — and the depth of its financial markets mean the dollar will continue to dominate global trade and foreign exchange transactions.

Those advantages helped the dollar retain its top status despite the financial crisis of 2008-09, which began in the United States, S&P said in the report.

The agency also said the dollar's role is an important factor supporting the United States' AAA credit rating — the highest investment-grade rating.

The main risk to the dollar's status comes from the growing amount of U.S. government debt, S&P said, particularly the share held by foreign central banks and sovereign wealth funds.

It also said widening U.S. fiscal deficits were a risk, adding "without a medium-term fiscal consolidation plan that the market views as credible, external creditors could reduce their dollar holdings, especially if they conclude that euro zone members are adopting stronger macroeconomic policies."

© 2014 Moneynews. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

LA Wants to Pay Voters to Vote

Sunday, 21 Sep 2014 09:07 AM

Pay for voters to vote is being floated. The supposed problem for which the "pay the voters" idea purports to be a solut . . .

Obama Needs Congress to Approve This War

Thursday, 18 Sep 2014 08:50 AM

Today's issue is not whether to declare war but only whether the president should even seek congressional authorization  . . .

Scotland Heads for Epic Vote

Monday, 15 Sep 2014 08:03 AM

There are economic reasons for and (mostly) against Scotland disassociating from the queen's realm. This issue, however, . . .

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved