Monday, April 11, 2011

Nobel-Prize Economist Calling For Global Reserve Currency

The world economy needs a new global reserve currency to help prevent trade imbalances that are reflected in the national debt of the U.S., said Nobel-prize winning economist Joseph Stiglitz.

A “global system” is needed to replace the dollar as a reserve currency and help avoid a weakening of U.S. credit quality, said Stiglitz, a professor at Columbia University in New York. The dollar fell to an almost 15-month low against the euro last week, and the U.S. trade deficit widened more than forecast in January to the highest level in seven months.

“By taking off the burden of any single country, we don’t have to have trade deficits,” Stiglitz said in an interview in Bretton Woods, New Hampshire. “Things would be much worse if it were not the case that Europe was having even more of a problem, but winning a negative beauty pageant is not the way to create a strong economy.”

President Barack Obama and congressional leaders negotiated a last-minute deal two nights ago to avert a government shutdown. Within weeks, the government may be forced to increase the $14.3 trillion federal debt ceiling to ensure the U.S. will meet its financial obligations.

The benchmark 10-year Treasury note yield was at 3.58 percent on April 8, below the average of 7 percent since 1980.

The ratio of general government debt, including state and local governments, to gross domestic product is projected to climb to 100 percent in 2012, the most of any country with an AAA ranking, Fitch Ratings said last week.

‘Extremely Low’

Even so, “the likelihood of the U.S. government failing to honor its financial obligations and in particular make due and full payments on U.S. Treasury securities is extremely low,” Fitch said in a statement.

To finance its budget deficits, the U.S. sells bonds to overseas investors and governments, boosting the dollar reserves of those nations. Overseas holdings of dollar reserves rose to $3.14 trillion in the fourth quarter of last year, according to International Monetary Fund figures.

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