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CiteOne. Yes, Virginia, exchange rates do matter …
Japan’s trade surplus is rising. Its current account surplus should be rising even more, as its interest income should be increasing too. The MoF is getting a bit more on its US portfolio. And Japanese housewives investing in Australian and New Zealand bonds get a bit of carry as well …
What of Korea, an Asian economy that has allowed its currency to appreciate significantly against the dollar, yen and yuan? It now has a current account deficit.
There is a bigger point. On a global level, it seems pretty clear that Asia’s current account surplus is still rising. China’s surplus is growing fast. Japan’s is growing a bit more slowly. That suggests that the fall in the oil exporters’ surplus may be offset by a rise in Asia’s surplus, not a fall in the US deficit. Something to watch.
Two. Someone is betting on the revaluation of the Kuwaiti dinar
Kuwait’s reserves exploded in March, presumably because a surge in capital inflows led to a surge in intervention. Some in the Gulf aren’t so keen on these “speculative” inflows, but in this case, speculation is doing nothing more than putting pressure on the Gulf to correct an obvious misalignment. The Gulf is booming, the US is slumping – and the Gulf’s link to the dollar leads to imported inflation. Rather than importing macroeconomic stability from a dollar peg, the Gulf is importing a lot of things it doesn’t need.
Three. China’s hidden foreign exchange reserves remain large …
Anthony Chan of Alliance Bernstein (hat tip Rachel Ziemba) estimates that the Chinese banks ended 2006 with $42b offshore from their IPOs. It also estimated that China has done about $50b in swaps with the banks (we know China did around $14b in late 2005 from the IMF, and I wouldn’t be surprised by another $50b in 2006). Central Huijin also holds $60b in foreign assets, if not a bit more, as part of the bank recapitalization process. Sum it up, and the Chinese banking system ended 2006 with roughly $150b in dollars (I assume these are mostly held in dollars, but that is an assumption). And these are dollars that didn’t come from domestic dollar deposits or credit lines from the international banking system.
All these dollars either belong in some sense to the central bank (the swaps, Huijin) or will belong to the central bank the moment they are allowed to come onshore (the IPO proceeds). Some of those dollars showed up on the PBoC’s balance sheet in q1, but there are still some dollars offshore that likely will want to come onshore …
Four. Everyone now wants a government investment corporation …
China. Russia. Taiwan. Japan (maybe). Makes sense too. China, Russia and Japan are all way overweight debt in their respective portfolios, and since they all have more reserves than they need, they don’t need to hold safe, liquid assets. Moreover, Treasuries in some sense aren’t a “safe” asset – the US government won’t default, but the dollar could slide. Shifting from Treasuries to equities offers a bit of protection. Big US firms have foreign revenues, the US government doesn’t. There is a bit of implicit diversification. And right now there is a big gap between the US portfolios of countries that have investment funds (Norway, Singapore) and those that don’t (China, Russia).
This shift may have a smaller impact on the equity market than many expect – I suspect that private equity funds and the international banking system have been rather good at transforming central bank demand for debt into demand for equities over the past few years. Central banks put dollars on deposit in London, the banks buy leveraged loans, and private equity shops by “public” equities to take firms private. When the PBoC buys Agency bonds from a US pension fund which then shifts some of its portfolio toward “alternatives” the net result is more or less the same.
It might by contrast have a bit of an impact on the debt market.
Right now though, central bank reserves are rising far more rapidly than countries have been able to set up investment funds. Total central bank demand for debt (US and European debt) is still growing strongly.
Five. Some things don't change. Brazil is still intervening in the currency market.
Brazil's reserves continue to increase this week. They were up $0.6-0.7b on Monday. And the central bank bought more dollars in the market on Tuesday and Wednesday. Those purchases should show up in the data later this week (there is — I gather – a bit of a lag between BCB intervention and an increase in Brazil's reserves, since it takes a while for everything to clear).
I wonder when Brazil will start to contemplate and investment fund. Brazil's reserves are mostly in depreciating dollars and it too will soon have more than it really needs.
From Stephen Roach, Chief Economist Morgan Stanley
http://www.morganstanley.com/views/gef/archive/2007/20070423-Mon.html
“My take on global imbalances is that they are much more an outgrowth of saving-investment disequilibria than currency misalignments. America’s gaping current account deficit didn’t just appear out of thin air. It is an unmistakable outgrowth of an extraordinary deficiency of domestic US saving – a net national saving rate that plunged to a record low of just 2% of GDP over the past three years. Lacking in national saving, the US, with its penchant for strong growth, had no choice other than to import foreign saving from abroad – and run massive current account and trade deficits to attract the foreign capital.
The prospects for global rebalancing should be more dependent on a shift in the mix of global saving rather than on a realignment of the world’s relative price structure through currency adjustments. This is especially the case in the United States, whose record current account deficit easily qualifies as the major imbalance of an unbalanced world. To the extent I’m right and America’s external gap is directly traceable to an extraordinary saving anomaly, it should hardly be surprising that a tidal wave of US wealth creation has encouraged a substitution of asset-based saving for income-based saving. How else can you explain a record 71% consumption share of US GDP juxtaposed against an income-based personal saving rate that has now been in negative territory for two years in a row for the first time since the early 1930s? Or, how else can you explain record household debt service burdens in a low interest rate climate? To me, this all hinges on America’s love affair with the culture of the Asset Economy. To the extent that the wealth effects of the US housing boom have depressed income-based domestic saving, America’s gaping current account deficit emerges as a key by-product of an asset-dependent real economy. That has led me to conclude that the US current account adjustment will eventually have to be driven more by corrections in asset markets than by realignments in foreign exchange markets. “
Global rebalancing can’t occur without a US current account adjustment.
From Stephen Roach, Chief Economist Morgan Stanley
http://www.morganstanley.com/views/gef/archive/2007/20070423-Mon.html
” As I see it, it will take the negative wealth effects of a post-housing bubble shakeout to trigger the sustainable saving and current account responses that global rebalancing requires. Contrary to widespread perception, the dollar is a bit player in all this. If, however, US consumers remain unflinching, imports will remain excessive and any cyclical tendency toward global rebalancing will quickly be short-circuited. A lasting global rebalancing cannot occur unless the excesses of the Asset Economy are finally unwound. “
but there’s a shortage of assets
…until every payment stream around the world is securitised!
DC — I have a lot of respect for Dr. Roach, but on this, i strongly disagree with him. MArtin Wolf has argued, i think convincingly, that China’s savings surplus stems from policy actions designed to restrain domestic demand growth in a context where exports are contributing strongly to growth. Morris Goldstein makes a similar argument. normally one would expect an investment boom to generate a current account deficit, not a super-large current account surplus …
and on the uS side the financial flows generated by countries that have pegs or heavily managed XRs provide the financing needed to sustain low savings — you cannot have one (low savings) w/o the other (large inflows at low rates). the US fiscal deficit has fallen significantly over the past few years, so it isn’t the contributor it once was … and the us household deficit seems to me to be partially induced by china and oil related inflows. Those inflows create an asset shortage, and lead to low rates/ high valuations/ easy credit and a host of other things.
China State Council approves $7 bln Large Passenger Aircraft development project
http://www.forbes.com/entrepreneurs/2007/04/25/boeing-airbus-china-ent-manage-cx_kw_0425whartonaircraft.html
” On Feb. 26, China’s Premier Wen Jiabao hosted a meeting of the Standing Committee of the State Council, during which the special working group on the large aircraft program presented its feasibility report. The program was given the green light to proceed. The State Council believes that to manufacture large aircrafts is a major strategic decision made by the central government of China and a long-cherished aspiration of the Chinese people as well.
For China, its decision to go ahead with this project is based on its 50 years of experience in aircraft manufacturing. China has established a fairly complete aviation industry system with integrated R&D and manufacturing bases for mainframe, aeroengine and airborne equipment. China’s R&D capability is almost as high as that of the U.S., EU and Russia, and the country has already been a supplier of major components for both Boeing and Airbus. “
Re: the Roach view
I like Stephen Roach’s writing, but his timing hasn’t been the greatest (unless perhaps you measure timing in decades – not completely invalid). He’s been pounding the table with the perils of the ‘asset economy’ for a few years now. He says most recently ” From the start, my take on global imbalances is that they are much more an outgrowth of saving-investment disequilibria than currency misalignments.” The first point seems more like a tautology to me – if you’re spending your way into a current account deficit, you’re saving less than would be the case with a current account in balance. So I don’t get the trade-off between the two points.
But the second point on exchange rates seems debatable (as evident in this blog), regarding the sensitivity of imbalances to exchange rates and central bank policies. On the other hand, I have difficulties with a bias either way in terms of causation. It’s easy to rationalize how capital inflows at pegged exchange rates and low interest rates help sustain the financing of imports, but more difficult I think to rationalize the same capital inflows as the root cause of such expenditures. I think these are two slightly (or greatly) different ideas. It still takes both sides to make the trade, whether you approach it from the expenditure side (imports) or the savings side (forgoing domestic savings and relying on capital inflows).
Roach doesn’t really specify the nature of the non-exchange rate adjustment that would begin to correct the imbalances, except that it would likely be related to a reversal of the wealth effect and a reversal of the consumption consequence. Consumers, including retiring boomers, would get scared back into an income saving mode, particularly if housing wealth flat lines for a few years. Perhaps debt service burdens would be part of this as well – sort of consistent with the growth in the current account income deficit as well. And a recession or a growth recession would certainly be corrective.
My personal view is that there are a variety of shock types that, along with gradual exchange rate adjustment, should eventually do the trick. If they happen quickly enough, they may well preempt the requirement for more abrupt exchange rate adjustment.
In any event, it looks like Roach will have to wait for the outcome of his forecast from the vantage point of new responsibilities.
I suppose it would be churlish to point out that the inaccuracy of Roach’s “timing” has resulted in his “promotion” to be Morgan Stanley’s chief backslapper and palmgreaser in Asia, and hence his removal from the Chief Economist role….
Churlish, maybe a tad, but realistic. I alluded to this in my final sentence. He was already spending a huge amount of time in Asia. And I can’t bring myself to tears over his paycheck in either Morgan Stanley job (but that’s just me).
US Federal Reserve masterful at exporting the pain of falling dollars and failing policies
http://www.prudentbear.com/articles/show/2002
” The U.S. has been adept at transferring the short term costs of trade and savings shortfalls. This occurs because our external assets are held in other nations’ local currencies. Our liabilities, endlessly growing, are in US Dollars. Pain is being felt in the Gulf States, East Asia and Europe. Oil exporters earn devalued dollars in currencies linked to the greenback. East Asia sits atop a scandalously underperforming Everest of dollar reserves absorbing ever more at a rising pace. China now possesses $1.2 Trillion in reserves on the back of increases of $137billion in 1Q2007. Russia has just announced plans to invest and diversify its growing reserve holdings. Europe faces export difficulties, a likely decline in American tourism and decreased cost competitiveness as the dollar falls and money seeking return pushes up the Euro. The greenback has given up a trade weighted 30% of its value since 2002. This is not the market efficiency enhancing specialization that Adam Smith and David Ricardo espoused! “
- US Federal Reserve masterful at exporting the pain of falling dollars and failing policies -
The U.S. may have disproportionate influence in determining the most popular currency of invoice. But it doesn’t set prices for imports, and it doesn’t determine the exchange rate policy of foreign central banks. Foreign exporters and foreign central banks have the primary responsibility for the consequences of choosing to trade and choosing to accumulate reserves within the system as currently configured.
I can hardly criticize others for getting their timing wrong … kind of the pot calling the kettle black given some things i co-wrote in 04. I stand by the dollar call, but the disruptive adjustment in interst rate scenario hasn’t materialized.
I think I got the trend (rising US demand for central bank financing) more or less right (it fell in 05, but the HIA played a role — so it wasn’t just the shift in interest rate differentials). But I never expected EM central banks would add $1 trillion to their reserves in a quarter, and voluntarily finance the US without conditions …
But as the fall in the US fiscal deficit was matched by a rise in the household deficit — and as both the GCC and China adopted policies that pushed up their external surplus (GCC = $ peg, spending restraint — now disappearing – in the face of a positive oil shock; China = lending and investment curbs, no distribution of rising business profits, resistance to RMB appreciation against a basket), it seems more and more to me that there is something to argument that bernanke made (seconded by wolf) that the US deficit is partially induced by the availablility of financing. right now, absent the growing central bank credit, there is little doubt in my mind the $ would be weaker, int. rates higher and the US would be forced to do a bit more adjustment.
DC — East Asia voluntary has imported a lot of dollar denominated claims (taking the currency risk) despite plenty of warnings about the associated risk (including from yours truly, but also from folks with much more credibility like the imf) as a result of currency policies that most Asian economies insist on maintaining as a result of their own sovereign decision. The Asian central banks seem to dislike criticism of their policies (see the PBoC vice-governor’s remarks at the IMF spring meetings) far more than financial losses.
I don’t think the Fed has exported the pain so much as a lot of central banks have decided that importing financial losses on their dollar holdings (and the risk of future financial losses) is better than the alternative. The funny thing about the United States exorbitant (financial) privilege is that it is largely the result of policy decisions others have taken and held to even as the US has pursued policies that over time one might expect would have eroded its privilege.
It’s not just the Fed. The Treasury has been trying to wean China off the money Beijing has straightjacketed itself into sending Washington’s way for how many years now?
The funny thing about Stephen Roach is that there were many good points littered among the bombast, propaganda and almost puritan attitude towards the United States’ savings transgressions. If you were willing. In my time following Roach, he’s seen a dizzying array of bubbles.
Ultimately, its about the exchange rates. They need to be more flexible. As Brad has noted previously, the euro’s strength against the yuan is very telling and worrying. But I think Asia has convinced other emerging markets that the virtues of reserve build-up outweigh the costs, be it sterilization or the resulting banking system liquidity. Does that mean the ultimate troubles stem not from the USD, but from a breakdown of how these emerging markets and maybe even Beijing handles the challenges of intervention.
[ Brad ]
The funny thing about the United States exorbitant (financial) privilege is that it is largely the result of policy decisions others have taken and held to even as the US has pursued policies that over time one might expect would have eroded its privilege.
Dave – Reply
As the dollar is the key reserve currency in world trade and finance, the US dollar intermediates between the various currency blocs of the world. Everyone accepts US dollars because only dollars can buy oil. This phenomenon is known as US dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in only dollars. Through US military power projection prowess in the Middle East Gulf Arab states, the oil backed US Dollar hegemony regime is maintained. Former Iraq President Saddam Hussein switched Iraqi oil exports into a Euro currency regime, and we all know what happened to him. Under military order from President Bush, Iraqi oil exports were switched back into only US Dollars. US dollar hegemony was introduced by Clinton Administration Treasury Secretary Robert Rubin to finance the US trade deficit with its capital account surplus to deliver borrowed prosperity to the US through a global debt bubble fed by the US Federal Reserve’s dollar printing frenzy.
Gee Dave, I could have sworn that oil and other commodities were priced in dollars (your so-called ‘dollar hegemony’) BEFORE January 1995, when Rubin took office. I know that Rubin comes from Goldman, and I know that Goldman is all-powerful and in league with Opus Dei, the Illuminati, and the Pentavirate to run the world, but I wasn’t aware that their sinister powers extended to travelling backwards in time to ensure that global commodity pricing conventions were established decades ago to facilitate US overconsumption in the current millennium.
Dave,
The question you never answer….why don’t the Chinese buy euros if they are not happy with US dollars? The ambition of the Europeans (well the French anyway) is to rival the US not just in currencies, but also in planes, satellite navigation systems, internet browsers etc. So why don’t the Chinese give them some business. I don’t understand it myself. Go ahead, answer the question, make my day!
Macroman,
If oil wasn’t a motivation for the US invasion of Iraq, why not just leave now since Saddam Hussein is dead. And where are those supposed Iraqi “Weapons of Mass Destruction”? Did the secular regime under Saddam Hussein, where women enjoyed more rights than anywhere else in the Middle East, really have ties to fundamentalist Bin Laden in Afghanistan? Not one of the 911 hijackers were Iraqi nationals, but could the US invasion of Iraq have something to do with the fact that Iraqi oil reserves are the second largest in the world. Perhaps the next time a Saudi national commits a terrorist act on the US, the US can declare war on Venezuela. Both VP Cheney and Bush are both from the oil industry and perfectly knew the stakes involved for US global hegemony.
Bob Rubin can be accused of many things, but not of fostering a great “debt” bubble. His Treasury (especially later on) paid down a fair amount of debt. That may have helped free up funds for an equity bubble, but that is a different story!
As for needing dollars to buy oil — Iran is trying to change that, and i rather suspect Russia will accept euros in payment as well. and given how easy it is to trade euros for dollars (or vice versa), i don’t think you need to hold many dollars to buy oil (transactional balances are small) or hold many dollars if you sell your oil for dollars. Three oil exporters (Russia, Norway and Iran)are known to have a low $ share in their portfolio, and ADIA and KIA may not have a huge $ share either. Europe imports a lot of oil and doesn’t hold a lot of dollar reserves. The theory just doesn’t quite work.
Tmcghee — yes, difficulties managing the domestic consequences of rapid reserve growth are the most likely breaking point. Right now it seems to me that the emerging world is in the midst of a rather significant credit boom (fueled by partial sterilization), moderated by the growing required reserves/ forced sterilization bill purchases in China/ India (with india it is all an upfront reserve requirement). the cost of carry on sterilized central bank reserves is also now negative for Thailand, Korea (I think), India and Brazil. Russia may have a negative carry cost too, but i need to check.
How does any of that tie in with your allegation that Robert Rubin created ‘US dollar hegemony?’
DC — Isn’t the real question why China decided to finance “W and Vice’s” little adventure in the Middle East?
RebelEconomist,
The IMF estimates that the PBoC reserves consist of 70% dollars, and the remaining 30% mostly in Euros with some yen exposure. The PBoC has somewhere between 250-300 billion Euros which is not an insignificant amount. The PBoC Central Bank Governor has also made it perfectly clear that they are not happy with the excessive US dollar position, and they will further diversify reserves under the state-owned investment company into natural resources, gold, international equities, technology acquisition, and other tangible assets.
[ Brad ]
Bob Rubin can be accused of many things, but not of fostering a great “debt” bubble.
Dave Chiang – Reply
Two decades ago, I don’t think anyone including Robert Rubin could have forseen the inevitable results from the US Dollar hegemony regime. Up until 1989, the US was a creditor nation. But chronic current account and fiscal deficits since then have given the United States the largest net liabilities in world history. US Dollar hegemony has fed a massive debt bubble in mortgage finance under the US Treasury’s strong dollar policy.
Dave, would that be the same strong dollar policy that repeatedly urges China, the largest purchaser of US debt, to allow the dollar to weaken?
Macroman,
The US wants only the Chinese yuan to revalue so an across the board devaluation of US Dollar hegemony can be avoided. Other nations especially India and Mexico would not be required to make an equilvalent currency revaluation. Why should the Chinese agree to castrate their own economy? China would become even less competitive in labor intensive industries that are already losing significant marketshare to India, Vietnam, Mexico, and Cambodia.
If the Chinese were to revalue, would the US government permit global oil sales to be denominated in Chinese yuan. Clearly not. Therefore the Chinese are somewhat justified in maintaining the current policy of building foreign exchange reserves for the purchase of strategic commodities that remain priced only in US Dollars. The Washington Consensus cannot have it both ways; demanding US Dollar hegemony but also demanding that the Chinese castrate their exports by significantly revaluating their currency.
Dr. Setser -
A question regarding the possible effect of dollar depreciation on the liability mix of the U.S. external position:
At a macro level, dollars flow from U.S. bank accounts to foreign bank accounts in the process of paying for the current account deficit. Dollars then flow back (through official or private channels) to pay for U.S. external liabilities. It happens that most of the dollars are currently flowing back through foreign central bank purchases and reserve accumulation.
In a dollar crisis, one possibility is that U.S. dollar bank balances could be passed around the FX market, with a dearth of private or public commitment to invest in riskier dollar assets, given the shock effect of depreciation. This might happen in conjunction with central banks backing off on pegs and/or rates of reserve accumulation. Such a pattern, if it occurred, could show up as an increase in the bank component of U.S. external liabilities. Such a short-term reaction in a crisis seems at odds with the longer-term strategic thrust of central banks toward diversifying the investment range for dollar holdings. But the pace of strategic development is in a race against dollar deployment pressures that are building more quickly in the short term. Such a reaction also seems counterintuitive in the sense that bank deposits might be preferred over, say, U.S. treasuries.
Still, it seems possible that a tipping point could be reached where, as U.S. current account deficits accumulate, and as the availability of preferred investments becomes stretched, and as the capacity of central banks becomes strained, increasing dollar amounts might suddenly start to recycle as capital inflows to banks (U.S. external bank liabilities). This would be consistent with a view that the macro funding issue regarding imbalances is not exactly the availability of capital inflows to finance the deficit, but more the pricing and the configuration of such flows, including interest rates, FX rates, and the range of instruments, including bank liabilities. After all, at the macro level, the default capital inflow is the bank inflow, determined at the time when payment is made for an import. Indeed, the default capital inflow, at least, must be forthcoming. So technically, availability of required external inflows is not really an issue once availability of internal finance as necessary is secured. Given this basic role of banks in facilitating commercial and investment transactions, it seems possible that current account excesses might eventually become trapped in the banking system, in such a crisis environment. My question is whether you would look for any such telltale signs in the composition of the U.S. external position, given limits to the foreign appetite for U.S. investment assets.
Given that China refuses to make the yuan convertible, Venny or Iran selling oil demominated in CNY is a nonstarter. You can’t blame the US for that.
If the Chinese did make the yuan convertible and Iran chose to sell oil to Chinas denominated in yuan, are you seriously suggesting that the US would pursue all means necessary to stop it? If so, why have we not already read about the US invasion of Iran for Tehran’s temerity in pricing oil in euros?
The US strong dollar policy is a myth- The Bush administration has not lifted finger one to put in place policies that would strengthen the dollar, and the only comments on directional preference it has made have favoured a wekaer dollar. So you can file it in the same folder as the conspiracy of “dollar hegemony” perpetrated by time travelling Treasury secretaries who wish to flood the world with worthless debt, and with Chinese resolutions to rebalance its economy: complete B.S.
“DC — Isn’t the real question why China decided to finance “W and Vice’s” little adventure in the Middle East?”
The answer to this seems twofold:
1. Middle East adventures preclude much in the way of Far East adventures.
2. Export volumes have enabled the rise of China as a significant regional industrial power, which buys it a whole lot of regional political influence.
*IF* this really is a driver of Chinese economic policy, it follows that they’ll try to stick with it until the US debt creation machine cycles past consumers, through corporates, and into government.
Macroman,
I wouldn’t call the 3,000 dead and 25,000 seriously wounded US soldiers, complete BS. The Iraq war is an obvious attempt to extend US military hegemony over the Middle East, associated with the oil backed US Dollar hegemony over the global economy. For the Washington Consensus elites, the human sacrifice and economic price of the Iraqi conflict must be worth the prize. I always thought terrorist Bin Laden was in Afghanistan; why then are 150,000 soldiers patrolling the Iraqi oil fields?
Estragon,
Prior to the 911 terrorist attack, the top Chinese leadership was well aware that prominent Neo-conservatives in the Bush Adminstration had China in their target sights. With the majority of US Strategic Nuclear missiles redeployed targeting Chinese cities, Defense Secretary Rumsfeld referred to the Chinese as a “strategic threat” to the United States in testimony to Congress. The rising level of hostility eventually led to the EP-3 spy plane crisis on Hainan island. The ultimate goal of Neo-con think tanks PNAC and AEI continues to be the regime change of the Chinese government. In that respect, the tragic events of the terrorist attack on 911 represented a window of opportunity for the Chinese to further concentrate on the development of their economy while the US was distracted by Middle East events. In any case, since the Chinese don’t retain long range military projection capability, what could the Chinese have done other than diplomatically protest the US invasion of Iraq.
I would agree that military casualties in Iraq are BS. Ergo, I would prefer that China, among others, would quit monetizing the US government budget deficit and subsidizing the war.
The world would be a much more sensible place if borrowing rates for the past five years had been set by the private, rather than the public, sector.
jkh –
agree that a falloff in securities purchases (notably debt) = sign of trouble. note that the growth in total foreign purchases of us debt has semi-stalled, with the composition shifting toward the official sector (if you believe the survey data — there is a gap between the survey and the tic).
there also has been a buildup of $ in the int. banking system (new bis data should be out) but that buildup is coming from central banks $ holdings (at least in part). i cannot see the banks taking the currency risk outright — i.e. if someone deposits funds in $ they are willing to lend to the us in $. but they aren’t willing to take in euros and lend in $ unless they can hedge the fx risk.
hope that answers your question.
the british imperialists were engaged on the north west frontier – india (pakistan)/
afghanistan region. it is just a central square on the geopolitical chessboard, and was so long before oil was significant. geopolitics is about everything – never about one thing.
as for oil always being quoted/traded in dollars, that’s what the congenital optimists say. the pessimists are saying that russia is quietly organising iran and other oil/gas producers, and their customers, to enter into stabilising long term bilateral agreements and avoiding spot markets altogether.
U.S. firms in China plan to expand and are more profitable despite worries over restrictive policies, a survey says.
China’s national social-security fund says it is reducing exposure to the nation’s soaring stock market, the latest sign that professional money managers are uneasy about its lofty levels.
China to Take Steps to Curb Growth
China warned that it must act to keep its economy from overheating and said it will take a multipronged approach rather than rely on just one policy tool.
China must better coordinate trade, foreign investment, foreign-exchange, monetary, fiscal, industrial and investment policies in addressing external imbalances, the State Administration of Foreign Exchange said.
And the National Development and Reform Commission, an agency under the State Council, China’s cabinet, said China must take steps to prevent the economy from overheating, including cutting export incentives and limiting energy-intensive industrial expansion.
The remarks add to increasing expectations that policies will soon be introduced to cool growth… The comments also come just a few weeks before Vice Premier Wu Yi flies to the U.S. for the Strategic Economic Dialogue between both countries.
Keep in mind Governments stats typically overstate “real” US Economic growth, the US Economy has in reality entered a “de facto” recession. – Dave C.
Economic Growth in First Quarter Slows to 1.3 Percent, Its Weakest Pace in Four Years
http://biz.yahoo.com/ap/070427/economy.html?.v=14
WASHINGTON (AP) — Economic growth slowed to a near crawl of 1.3 percent in the first three months of 2007, the worst performance in four years. The main culprit: the housing slump.
The fresh reading on gross domestic product, released by the Commerce Department on Friday, was even weaker than the 2.5 percent growth rate logged in the final three months of last year. The new figures underscored just how much momentum the economy has been losing as it copes with the strain of the troubled housing market, which has made some businesses more cautious in their spending.