All down with the buck

Global leaders must find a way to unravel lop-sided trade and investment flows or risk a slump in the U.S. dollar that would create havoc for the world economy.

An international agreement along the lines of the 1985 Plaza Accord "on a bigger scale" is needed to unwind the imbalances that have resulted in the U.S. current account deficit swelling to a record $805 billion and surpluses in China, the rest of Asia and Europe.

A disorderly unwinding would play havoc not only with the U.S. but with the world economy. What the world needs right now is something like the Plaza Accord but on a bigger scale.

A slump in the dollar could prompt U.S. policy makers to raise U.S. interest rates, causing a decline in house prices to accelerate and curbing consumption among the heavily-indebted consumers who represent 70% of the world's biggest economy. A subsequent slide in corporate investment would have a "chilling" effect on the global economy.

The 1985 Plaza Accord precipitated an appreciation in the yen that eventually led to an asset bubble in Japan that burst in the early 1990s, leading to a 15-year period of lackluster growth during which the world's 2nd-largest economy had 3 recessions.

Japan took most of the brunt of the Plaza Accord, obviously any such agreement needs to be a lot more sophisticated than that.

Countries including China, Brazil, Mexico, India, Saudi Arabia, some of the wolrd biggest economies, should join the group of countries to come to an agreement, which currently has the countries members of the G-8 as participants.

Economic growth: What the game's about

OPEC has steadfastly refused to set a formal price target, but is on alert for any signals that oil's slide could be prolonged by fundamental market imbalances or by an economic slowdown.

U.S. industrial output fell last month for the first time since January, providing fresh evidence of a cooling economy.

"We are following (U.S. economic growth) with a lot of attention, because this element is critical for petroleum demand in the next few years,"

Algerian Oil Minister Chakib Khelil

But there is a chance for the prices to stay above $50 in the coming years. No new risks to supply emerged over the weekend.

China urged Iran to be more flexible about its atomic work after a week of European Union talks left officials upbeat that a row between Tehran and the West could be resolved.

Weather concerns were also on the backburner, with the fourth storm of the Atlantic hurricane season - Helene - churning over the open seas but posing no immediate threat to land, U.S. forecasters said.