Comments on: A new club of creditors …

By: Gcs

Gcs — Tue, 18 Jul 2006 07:13:54 +0000

that club of oiler and east asian
trade surplus creditors
oughta become
a club of big spenders

a club spending their surpluses
on the building
of lots and lots
of productive
real and new stuff

not just buying whats
already out there

not just
providing liquidity
for asset markets
that
hardly “require”
these oafs direct participation
to function smoothly

their portfolio and property buys
just raise asset prices
if that induces real investment
fine
but
it surely doesn’t do it
as much as directly
making the real investment itself does

By: MrBill

MrBill — Mon, 17 Jul 2006 22:58:53 +0000

“”jm — you basically are right. Suppose there is an influx of Chinese money into Brazil. Brazil has a current account surplus, it doesn’t need the money. It either has to accept a series of changes in basic financial variables — higher exchange rate, lower int. rates, etc — that induce a current account deficit by lowering savings/ raising investment. Or it has to add to its reserves/ use the inflow to finance the purchase of foreign assest by private Brazilians. Those reserves don’t have to flow to the US, but they have to flow somewhere — and that region faces the same set of choices Brazil does.”"

Or they invest the money into needed infrastructure projects that eliminate economic bottlenecks and help the economy grow faster. It is hard to imagine ‘a have-have not country’, where many slum dwellers do not have access to clean water and sanitation NOT being able to employ investment with a positive ROI, and if I am not mistaken access to clean water & sanitation is high on the Millenium Project Goals, so there is little controversy that these projects do have positive multiplier effects? Roads, ports and eletricity grids would also reduce regional differences I am sure, so perhaps finding worthwhile investments is not the problem, but how to design and allocate private FDI versus governments running budget deficits to fund infrastructure projects themselves?

By: gillies

gillies — Mon, 17 Jul 2006 14:50:44 +0000

a country that has had enough of the dollar accumulating game need not necessarily rush for the back exits – it can take enough steps in the direction of the front door to attract attentiion, and then say to its fellow creditors – ‘unless a joint policy is agreed on regulating u s future direction i am prepared to leave, without giving further notice.’ in the prisoners’ dilemma the prisoners are held incommunicado. that is not the case here. the creditors can talk, covertly or openly. u s unilateralism has created unlikely bedfellows geopolitically – so why not geofinancially ?

By: Barkley Rosser

Barkley Rosser — Mon, 17 Jul 2006 12:27:50 +0000

Kotlikoff has been getting his rocks off for a long time on “the generational conflict.” It is his personal bread and butter. Brad S. is right that there are problems in the medical financing system generally, but there is no crisis in social security. The projections saying there is are based on very pessimistic assumptions, such as US growth falling to half its current rate soon and staying there. Under considerably worse conditions than we have seen, the social security trust fund continues to run a surplus forever. Everyone should keep this in mind when we hear hysterics like Kotlikoff selling their phoney baloney.

By: bsetser

bsetser — Mon, 17 Jul 2006 06:12:21 +0000

jm — you basically are right. Suppose there is an influx of Chinese money into Brazil. Brazil has a current account surplus, it doesn’t need the money. It either has to accept a series of changes in basic financial variables — higher exchange rate, lower int. rates, etc — that induce a current account deficit by lowering savings/ raising investment. Or it has to add to its reserves/ use the inflow to finance the purchase of foreign assest by private Brazilians. Those reserves don’t have to flow to the US, but they have to flow somewhere — and that region faces the same set of choices Brazil does. Right now the country most willing to allow an expansion of its current account deficit in the face of such inflows is the US. Europe has used inflows from the emerging world’s central banks, in aggregate, to buy foreign assest — whether in the US or back in the emerging world.

By: Guest

Guest — Mon, 17 Jul 2006 06:00:12 +0000

“…The world’s major central banks — namely those in the US, Europe, Japan, and China — all face serious constraints that limit their scope for action. …China does not even pretend to have a politically independent central bank. Governor Zhou Xiaochuan is one of China’s leading macro thinkers, but he is very much beholden to China’s political leadership — namely the State Council — in setting monetary policy. Such constraints on the People’s Bank of China are largely an outgrowth of the relatively limited progress China has made on the road to banking reform. With China’s banking system still highly fragmented — its four major banks had a combined total of over 75,000 local branches as of year-end 2004 — policy traction by the PBOC would be limited even if the central bank were operating independently of Chinese political considerations. The autonomy of local branches — a major force behind the micro dynamic of China’s runaway investment boom — only complicates the problem. Nor is there a willingness on the part of the Chinese leadership to turn the screws on monetary policy in order to rein in the excesses of this overheated economy. The 27 bp increase in lending rates in late April, together with the mid-June announcement of a 50 bp increase in bank reserve requirements, has done nothing to slow an ever-frothy lending cycle…”

http://www.morganstanley.com/GEFdata/digests/20060714-fri.html#anchor0

By: Guest

Guest — Mon, 17 Jul 2006 05:49:10 +0000

re: “current republican controlled governments”

It would be interesting to hear a bit more about what the Democrats would, or plan to do, or at least what “decent government” would look like and how it would operate. I’m hearing everything you are saying, but if the republicans are in full control, they might be expected to do something about their approval ratings.

Not so sure what is meant by saying the world’s reserve currency, USDs, all have to come back to the ‘U.S.’ somehow. Might some of the USD money bins be in the tax havens, ibanks, tncs?

By: jm

jm — Mon, 17 Jul 2006 05:34:58 +0000

“Geust” writes far above, “Cannot they use the dollars to buy up hard assets in Latin America, in Asia, in Australia, in Europe?”

But then what do the Latin Americans / Asians / Australians / Europeans do with the dollars they got?

Perhaps I’m wrong — Brad, please correct me if I am — but I believe it’s fundamental, right down at or near the “accounting identity” level, that the current account has to balance somehow, if not by trade, then by foreign lending or buying of assets. In the end, the dollars have to come back to the US somehow — unless a Scrooge McDuck somewhere decides to demand payment in specie and build a huge “money bin” to hold it.

By: Guest

Guest — Mon, 17 Jul 2006 05:26:29 +0000

Might be interesting to see comparisons with other nations, including Russia, Saudi Arabia, China, if only to get a better sense of who the most influential savers, investors and consumers are:

“… Much of the pressure to raise interest rates came from households, according to Dr Schultz… But a study by the Dai-ichi Life Research Institute suggests only the rich and the elderly will really benefit from this very small rise… Japan used to be a nation of savers, but now one in four people here has no savings at all. And 12% of households hold more than half of all the money kept in savings and deposits…” http://news.bbc.co.uk/2/hi/business/5179586.stm

By: Charlie

Charlie — Mon, 17 Jul 2006 05:24:52 +0000

The US CAD cannot continue on it’s current trajectory. Something will have to eventually give. The only way for this to correct, IMO, is for the USD to substantially drop in value relative to asian currencies. The only long term way for the dollar to maintain value is for the US to substantially reduce it’s deficits and the only way the US can substantially reduce it’s deficits is for the USD to drop. I don’t see any way the USD can maintain it’s current value relative to other currencies.

Dependence on oil is another thing that must give. Eventually, supply and demand models will make the price of oil too high to continue using it as it currently being used. New technologies that use alternative sustainable sources of energy will need to be developed and implemented.

These two things are perfectly clear to me. The sooner we start working on a solution, the better.

The biggest obstacle is the current republican controlled governments. The republicans took control and they’ve been acting as if they had a mandate to do whatever they wanted. The patriot act allows the president to sidestep whatever bothersome laws he wants in the name of national security. Fast tracking construction projects allows governements to skip over bothersome things like environmental analysis when building things like highways. Who cares if there’s a better way to build something that keeps our water clean or keeps our rivers from flooding and causing levee breakages. They don’t want to hear it. They want to start building as quickly as they can without thinking things through. These same irrational people don’t think deficits matter and the solution to our oil problem is to secure the persian gulf and drill for oil, regardless of the environmental impact. They believe things are fine the way they are. I guess if you’re like Dick Cheney and you’re looking at maybe 5 more years of life, tops, deficits really don’t matter.

Until we get a decent government in place, none of our current problems will be solved. They don’t want to listen to reason.