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Friday, January 13, 2006

Comments

Edward Hugh

I like Paul DeGrauwe's work on the euro and on monetarism and its weaknesses, but I simply do not buy this.

"Yet I do think that the cumulated force of increasing US current account deficits and debts will be overwhelming, bringing down the dollar."

As you point out, he belies his own argument here. If everything is herding, then why not just be silent? Simply because there are underlying explanations, there are mechanisms, even if we don't fully understand them, and even if we can't forecast with any precision.

So I will give mine. The dollar will not decline sharply in 2006. It is a hard call, but, on balance, I expect the euro to nudge down during 2006. The principal factors here will be the interest rate and growth differential in the US.

Global growth will be a touch slower than in 2006.

Germany and Japan will not have sustained, internal-demand driven, recoveries.

Japan will not 'break-lose-decsively from the chains of deflation.

China and India will continue to grow pretty much as they are.

Turkey will continue to be the principal growth tiger in the EU orbit.

Ireland and Spain will continue to have property bubbles.

The US will grow a tad more slowly in 2006. It will not enter recession. The CA deficit problem may well grow.

There will be time enough to forecast 2007 when we have had time to see just how near the mark our 2006 forecasts are.

Incidentally, my call on Germany is already looking good:

http://news.ft.com/cms/s/a9cafd30-835d-11da-9017-0000779e2340.html

Jeff D.

Exactly what I've always said about "ANALysts" - They simply make stuff up to explain what's happened.....

<<<"The analyst, who does not know more about the fundamental value of the dollar than the unsuspecting buyer, invents stories. Thus, when the dollar goes up, the analyst goes on a search for variables that move in the right direction and that can be linked to the rising dollar, carefully eliminating from the analysis all the other fundamental variables that move in the wrong direction. And so we are told that the strength of the dollar last year was due to interest-rate differentials in favor of the dollar. The further widening of the current-account deficit, which in a previous analysis got center stage, is carefully dropped from the new analysis.">>>>

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