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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 6, 2009 at 9:10 AM

A secret plot to topple the dollar? The markets seem to believe it

Top of the News: Back in the ’80s, Treasury officials would try to “talk down” the value of the dollar in an effort to boost American exports. Now the talk is coming from international journalists and if it’s grounded in reality, it represents the beginning of a monumental shift.

Robert Fisk of the Independent reports that Arab states, along with China and Russia, have begun a “secret” effort to stop trading oil in dollars, instead using a market basket of other currencies. “This sounds like a dangerous prediction of a future economic war between the U.S. and China over Middle East oil – yet again turning the region’s conflicts into a battle for great power supremacy,” he writes.

It could mean trouble much sooner. Undermining the dollar as the currency of oil would be a major blow to its status as international reserve currency — and suddenly American deficits and the expansionary policies of the Fed would bring profound consequences. They would swamp any benefit to exports.

Not for nothing did gold hit a record today as the dollar fell. On the other hand, when the crash happened, global capital still rushed to the safety of the dollar and Treasuries. The question is, how long will this lucky trend persist in a rapidly changing world that includes an overstretched and weakened United States?

As the story evolves this morning, central banks are denying the “plot.” And with their big dollar holdings, central banks in China and elsewhere have much to lose. But the underlying stresses on the dollar are significant enough that some in the market don’t buy the denials.

Wednesday update: The Daily Beast reports on an economist’s view that the weaker dollar is part of “Obama’s secret plan” to create new jobs. Do you buy this? If so, it’s risky given the underlying stresses and weaknesses of the economy.

The Back Story: Talent and brainpower will make a key difference in which metros recover fastest in the great reset. Another survey finds the Northwest well positioned. Both Seattle (No. 7) and Portland (No. 9) come in among the top 10 of America’s Smartest Cities on the Daily Beast.

The report looks at such measures as college attainment, non-fiction book sales, higher education and political engagement. “While the Seattle area has relatively few educational institutions, this city devours nonfiction at a rate near the very top nationally.” Too bad for a mystery writer like me.

The bottom of the list: Fresno, Las Vegas, San Antonio, Louisville. At the top: Raleigh-Durham.

Today’s Econ Haiku:

Boeing and delay

This time it’s a jumbo one

Can’t get off Scott free

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