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Tags: Taylor | Europe | US | Recession

FX Concepts’ John Taylor: European Crisis to Cause U.S. Recession

Friday, 15 June 2012 07:27 AM EDT

The European debt crisis will drag the U.S. into recession, resulting in the election victory for Mitt Romney as president and leading the dollar to strengthen, according to John Taylor of FX Concepts LLC.

“The dollar is really strong in a recession,” Taylor, founder and chairman of currency-hedge fund FX Concepts, said at the Bloomberg Asset Management Summit in Boston.

“If Romney is elected, everybody will say ‘oh my god, here’s a tight-fisted Republican’ and the dollar will be strong.” 

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

There is “absolutely no way out” of a recession, given the European situation, and the resulting level of unemployment will propel the Republican Romney to victory, said Taylor, who identified himself as a partisan Democrat. Taylor predicted that an unemployment rate above 9 percent will clinch the victory for Romney. The rate was 8.2 percent in May.

If global economic woes end up being too systemic and structural for central bank stimulus agreements to repair, a different fix may be needed, said Eric Upin of Makena Capital Management LLC. The implementation of such a solution could inspire growth and make other investable currencies more appealing, depreciating the dollar, he said.

“When you add up all the problems, they’re so great that something more substantial is required to get us through this problem than just muddling through,” Upin, chief investment officer at Makena Capital, said at summit. “If that occurs, then we’ll probably see more normalization across the different currencies and probably a slight weakening of the dollar.”

Yuan Forecast

China’s yuan may also appreciate during times of financial turmoil, according to Markus Schomer, who helps oversee $83 billion as chief economist at PineBridge Investments LLC in New York.

“As long as they allow their currency to appreciate, they alleviate the political pressure enough,” Schomer said at the summit, while adding “I don’t see them going to a freely floating yuan any time in the future.”

Taylor said China’s unwillingness to let the yuan float will make it unable to survive changes sought by the nation’s population as its economy matures.

“China will be brought down by the Internet,” Taylor said. “They just can’t stand the openness of this, and the political system will not be able to survive.”

The yuan declined 0.02 percent to 6.3703 per dollar in Shanghai, according to China Foreign Exchange Trade System. The central bank set its reference rate 0.13 percent stronger at 6.3191.

China’s reluctance to accept a floating exchange rate is not unique, Marc Chandler, New York-based global head of currency strategy at Brown Brothers Harriman & Co., said at the summit.

“Asia never accepted floating exchange rates,” Chandler said. “China is very typical of most countries in the world that don’t fully embrace them.”

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

© Copyright 2023 Bloomberg News. All rights reserved.

Friday, 15 June 2012 07:27 AM
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