The Dollar, Yuan and Crown

Europe seems now to be doing worse in the economic crisis and the Euro does not appear to be an option.

In the long-term the risk of inflation in the U.S. - and the world - is significant. The printing press for banknotes is going on rapidly in most economies and the question is whether governments and national banks are able to slow down when they see the first signs of an upturn in the economy. I do not think so.

After a week in China it is obvious to me that the Chinese leadership, which through its large balance of payments surplus finances the U.S. incentive policy, fears that the U.S. will be in trouble in regards to their huge debt to China due to inflation. The risk is obvious. But China is trapped. If they stop financing the U.S, the main demand for Chinese goods will disappear. If they begin to diversify their foreign exchange portfolio and sell the dollar, it affects China more than the U.S.

The fact that China has increased its gold reserve strongly suggests that the country is making some attempt to protect themselves, but the possibilities are small.

Paul Krugman clarifies this here

For the Swedish crown, some concerns is that it is a small currency, and hence not liquid, and that the Swedish banks serious problems in the east keep the value down. In the short term, we should probably not expect a change.

1930's is back - really?
The most common cliché in economic feedback is that we have not experienced such a downturn in the economy since the 1930s. It is true when we look at how drastically the growth is declining. Nobody knows what will happen in the upcoming year. Sure, we can draw a parallel to the 1930s with an impoverished middle class and the risk of political extremism.

But there are still some who buy ordinary apartments for millions of SEK in Stockholm, those who go to all the newly opened restaurants in Rio, and those who buy expensive drinks at the Lower East Side. Unemployment in industrial countries is heading towards 8-9 per cent - which is worrying - but not the depressions 30 percent. In market economies, there are no lines. Welfare systems may be proved insufficient, but they have so far kept away hunger and starvation diseases.

What we are talking about now is a negative GDP development of five percent - after several years of growth. Even if Sweden would dive into a living standard at the year of 2002 level, few believed that the early 2000s were years of mass poverty.