Jobs Lost Hit 5 Million With Rigged Currencies: Cutting Research

Photographer: Kiyoshi Ota/Bloomberg

More than 20 nations have increased reserves of currencies such as the dollar by an average of almost $1 trillion a year, economists C. Fred Bergsten and Joseph E. Gagnon said in a report published last month. Close

More than 20 nations have increased reserves of currencies such as the dollar by an... Read More

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Photographer: Kiyoshi Ota/Bloomberg

More than 20 nations have increased reserves of currencies such as the dollar by an average of almost $1 trillion a year, economists C. Fred Bergsten and Joseph E. Gagnon said in a report published last month.

Exchange-rate manipulation by countries from China to Denmark has cost the U.S. as many as five million jobs in recent years, according to the Peterson Institute for International Economics.

More than 20 nations have increased reserves of currencies such as the dollar by an average of almost $1 trillion a year, economists C. Fred Bergsten and Joseph E. Gagnon said in a report published last month.

By buying foreign currencies, countries reduce the value of their own and make their products cheaper on international markets. That squeezes out foreign competitors and pushes up trade deficits elsewhere, prompting job losses. The biggest loser is the U.S., where the trade and current account deficits have been $200 billion to $500 billion larger each year as a result, costing between one million and five million jobs, the economists’ calculations show.

“Half or more of excess U.S. unemployment -- the extent to which current joblessness exceeds the full employment level -- is attributable to currency manipulation by foreign governments,” Bergsten and Gagnon wrote.

Among the 22 nations Bergsten and Gagnon deem currency manipulators, which they say account for almost a third of global output, are China, Denmark, Japan, Norway, Russia, Israel and Switzerland. Of these, China is the biggest intervener, amassing about $3.3 trillion of reserves by the end of 2011.

Bergsten and Gagnon asked Federal Reserve staff to simulate the effects of a 10 percent decline in the trade-weighted value of the U.S. dollar beginning in the first quarter of this year. Their calculations suggest that would boost gross domestic product by 1.5 percent in two to three years and raise employment by nearly 2 million jobs as the current account deficit declines by almost 1 percent of GDP.

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The central banks of Norway and Sweden proved to be more successful than New Zealand’s in shaping investor expectations of short-term interest rates.

That’s according a study published in December by the Federal Reserve Bank of St. Louis, which studied the effectiveness of central banks giving guidance to financial markets about the likely path of borrowing costs.

Such a practice, introduced by New Zealand as early as 1997, is in vogue at the moment. The Fed last month tied the bank’s rate outlook to unemployment and inflation goals. The central bank had previously said it would keep rates “exceptionally low” through the middle of 2015.

The report, by Daniel L. Thornton of the St. Louis Fed and Utrecht University’s Clemens J.M. Kool, found evidence that official rate outlooks improved market participants’ ability to predict short-term rates. There was no sign long-term yields were easier to forecast.

The writers also found a reduction in the variation of private economists’ rate forecasts after a central bank begins providing guidance. The economists said their evidence suggested Norway and Sweden were more successful than New Zealand in improving forecasting ability.

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Governments face the risk of more sophisticated forms of protectionism that move beyond traditional trade barriers.

Foreign direct investment and offshore sourcing are among the international business activities that may be subjected to what Oxford Analytica, a U.K.-based research group, called “global protectionism” in a Dec. 14 report.

The U.S., Canada and Germany are among those to have begun restricting foreign takeovers and introducing powers to probe foreign state-owned investors. Brazil has reviewed eligibility criteria for investing in agriculture and there have been calls in Europe to evaluate overseas investment on strategic grounds.

The result is greater corporate uncertainty, particularly with regard to entering new markets, the report said.

“Its geographical incidence is broader than that of trade protectionism and its targets are increasingly business from large emerging markets,” said the report. “National governments will become increasingly assertive in their dealings with business.”

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The euro area may be poised to benefit from a quantitative easing in the form of bond purchases. The twist is it could be Japan’s government doing the buying.

“What the market does not seem to be pricing at present are Japanese foreign bond buying plans to weaken the yen, which could exert a significant downward impact on Bund yields,” Christoph Rieger, head of fixed-rate strategy at Commerzbank AG (CBK) in Frankfurt, said in a Dec. 6 report.

The Liberal Democratic Party led by Shinzo Abe secured a landslide victory in last month’s lower-house election on a platform that included establishing a fund to buy sovereign debt. Takatoshi Ito, a former finance ministry official and a possible contender to become central-bank governor, said in a Dec. 6 interview that the Bank of Japan (8301) “can and should buy foreign bonds.”

Rieger says the bonds of Germany and Europe’s rescue funds could be “prime targets” for the buying given their high ratings, although he warned that Japan could face criticism from other governments.

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The more technology you have, the less it makes you happy.

So say fellows at the Brookings Institution in Washington, who found technology is positive for well-being in general yet gives diminishing marginal returns to those who have a lot of access to it.

“We also find some signs of increased stress and anger, including among cohorts for whom access to the new technologies is relatively new and for those who gain new access to financial services via mobile banking,” Carol Graham and Milena Nikolova said in their report, published last month.

That meshes with previous studies of so-called frustrated achievers, who sometimes resent economic change and development even as they benefit from them.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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