Dollar's slide and PPP

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Some market analysts are observing, with some validity, the the dollar
if falling against the wrong currency - the euro - when view as a
movement to help the US economy, particularly US exports.  To begin
with, my views is that pushing the dollar down does not have much to do
with boostinng US exports.  IT has more to do with stabilizing domestic
deflation in the US by export it to the EU.

Then there is another issue of the myth of fixed exchang rates. Several
major currencies in Asia are pegged to the dollar, namely, China and
Hong Kong, amd Malaysia, others are loosely pegs, such as Singapore,
Thailand, and Indonesia, otheres are free floating with open government
intervention toward fx targets, such as the Japanese yen, with its
target rate of 120 to the dollar. Economist know that the nominal
exchange value of a currency can be misleading when the purchasing price
parity widens between two economies.  The nominal GDP for the US is $10
trillon against China's $1 trillion.  But PPP adjusted GDP for China is
$4 trillion.  The official exchange rate between China's yuan  and the
US dollar is 8.28 to one.  But while the US is still experience a slight
inflation of about 1%, China's had experienced deflation of about 1%
annually since 1997 and has continued even after the dollar began to
fall since 2002.  In trade weighted terms, the Chinese yuan is actually
depreciating against the dollar.


Henry C.K. Liu