Comments on: Just about everyone’s trade balance with China is deteriorating http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/ Wed, 07 Jan 2009 22:00:26 +0000 http://wordpress.org/?v=2.6.1 By: MrBill http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97142 MrBill Wed, 20 Jun 2007 04:03:08 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97142 RE SWFs & China (amoung others). There is no doubt that Malaysia's Negara was in fact using its privileged access to other CBs in the 90s to actively speculate in foreign exchange. And it took large punts. That is until other CBs stopped sharing info with them, and a few strategic bets went historically wrong against Negara. I think the final loss was close to $17 billion, but I have no links, sorry. I can only imagine what damage these SWFs could do given their size now compared to in the 90s? RE SWFs & China (amoung others). There is no doubt that Malaysia’s Negara was in fact using its privileged access to other CBs in the 90s to actively speculate in foreign exchange. And it took large punts. That is until other CBs stopped sharing info with them, and a few strategic bets went historically wrong against Negara. I think the final loss was close to $17 billion, but I have no links, sorry. I can only imagine what damage these SWFs could do given their size now compared to in the 90s?

]]> By: Movie Guy http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97141 Movie Guy Mon, 18 Jun 2007 21:16:16 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97141 Brad, I didn't have to read further than the title (though I did, of course). I just smiled. Yes, the situation is moving right along as some of us projected a few years ago. Dave Stanley (DOR) could fill in some of the remaining blanks... Economic Hydrology Theory (EHT) really did work as predicted. And I posted it on your fine blog in 2002 or 2003. I still have the original document. You're to be respected for keeping up with all that is happening. Wait until China ramps up sufficiently on high technology and R&D internal feed to suck up chunks of those global markets. That's the next leap. All the best, Brad. Movie Guy Brad,

I didn’t have to read further than the title (though I did, of course). I just smiled.

Yes, the situation is moving right along as some of us projected a few years ago. Dave Stanley (DOR) could fill in some of the remaining blanks…

Economic Hydrology Theory (EHT) really did work as predicted. And I posted it on your fine blog in 2002 or 2003. I still have the original document.

You’re to be respected for keeping up with all that is happening.

Wait until China ramps up sufficiently on high technology and R&D internal feed to suck up chunks of those global markets. That’s the next leap.

All the best, Brad.

Movie Guy

]]> By: Guest http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97140 Guest Mon, 18 Jun 2007 13:44:19 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97140 "Orders from Middle East countries potentially worth more than USD40 billion are on the agenda at the Paris Air Show this week, setting the stage for a ramping up of competition between US and European aerospace companies. "With oil prices surging from USD50 to around USD70 a barrel this year, the Gulf oil states now have cash to fund defence modernisation and they want to spend this money quickly,"..." http://www.janes.com/defence/air_forces/news/jdw/jdw070618_1_n.shtml “Orders from Middle East countries potentially worth more than USD40 billion are on the agenda at the Paris Air Show this week, setting the stage for a ramping up of competition between US and European aerospace companies. “With oil prices surging from USD50 to around USD70 a barrel this year, the Gulf oil states now have cash to fund defence modernisation and they want to spend this money quickly,”…” http://www.janes.com/defence/air_forces/news/jdw/jdw070618_1_n.shtml

]]> By: Guest http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97139 Guest Mon, 18 Jun 2007 13:15:44 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97139 "NUCLEAR SUBMARINES, Heavy Battle Tanks, Fighter Jets and Aircraft Carriers... For three decades and more, Russia has been, and today still is, India's largest trading partner..." http://www.india-defence.com/reports-3319 "...President Luiz Inácio Lula da Silva... visiting India in an effort to quadruple trade to $10 billion and talking of a special partnership... Apparently, China is a problematic trading partner for Brazil... Chinese investment rolled in far more slowly than anticipated, while cheap goods flooded the domestic market..." ttp://www.iht.com/articles/2007/06/17/business/sxpesek.php “NUCLEAR SUBMARINES, Heavy Battle Tanks, Fighter Jets and Aircraft Carriers… For three decades and more, Russia has been, and today still is, India’s largest trading partner…” http://www.india-defence.com/reports-3319

“…President Luiz Inácio Lula da Silva… visiting India in an effort to quadruple trade to $10 billion and talking of a special partnership… Apparently, China is a problematic trading partner for Brazil… Chinese investment rolled in far more slowly than anticipated, while cheap goods flooded the domestic market…” ttp://www.iht.com/articles/2007/06/17/business/sxpesek.php

]]> By: psh http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97138 psh Mon, 18 Jun 2007 12:40:08 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97138 Everyone's trade balance is deteriorating? No wonder Wassenaar has gone <A HREF="http://www.latimes.com/business/la-fi-china16jun16,0,5358944.story?coll=la-tot-business">tts up</A>. In these new competitive dual-use markets, all that sovereign capital will be very helpful in extracting technology-transfer concessions. When China gets a toehold in those industries it won't be long till the Podunk Police Department can afford its own ballistic missile defense system. Everyone’s trade balance is deteriorating? No wonder Wassenaar has gone tts up. In these new competitive dual-use markets, all that sovereign capital will be very helpful in extracting technology-transfer concessions. When China gets a toehold in those industries it won’t be long till the Podunk Police Department can afford its own ballistic missile defense system.

]]> By: jkh http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97137 jkh Mon, 18 Jun 2007 12:21:13 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97137 In a world of comprehensive trade and capital flows, one might ask what is so special about the intersection of government intervention and the equity markets. It's a slippery slope from FX intervention to current account surpluses and then to gluttonous reserves and finally to shortages of investment opportunities. But if a country and its central bank navigate this slope, then why not then take a flyer off the big ramp into the stratosphere of equity returns? The same dimensions of government and equities arise in the case of public pension systems. The Canada Pension Plan, which invests vigorously in equities (including private equity), is one model that warrants study in terms of its effective separation of investment policy from current government policy. This is done through constitutionally written safeguards. (It is a model that should be studied much more closely by those now looking at the US Social Security System as a macro investment alternative to the individual account idea). This sort of structure might be considered as well for reserve investment organizations. But perhaps a more crucial aspect lies in the distinction between foreign exchange reserves and public pension funds per se. The policy thrust for outsized foreign exchange reserves seems more opaque and potentially sinister at the macro level, than the relatively clear objective of meeting minimum standard, micro actuarial liabilities, citizen by citizen (libertarian oriented folk might still have a problem with the latter). Consider the difference between an actuarial liability profile for a pension plan, and the same in the case of foreign exchange reserves (i.e. when do we think we are going to use all this dough to start buying ‘stuff' rather than investments?) Conflict of interest risks associated with equity involvement might be addressed, but there are overarching risks associated with the purpose of the money. The asset-liability management problem and the asset mix problem dominate the equity selection problem, just as they would in any investment organization. And they probably complicate potential conflicts. Unfortunately, this horse (analogy switch), without its equity apparel, left the barn some time ago. In a world of comprehensive trade and capital flows, one might ask what is so special about the intersection of government intervention and the equity markets. It’s a slippery slope from FX intervention to current account surpluses and then to gluttonous reserves and finally to shortages of investment opportunities. But if a country and its central bank navigate this slope, then why not then take a flyer off the big ramp into the stratosphere of equity returns?

The same dimensions of government and equities arise in the case of public pension systems. The Canada Pension Plan, which invests vigorously in equities (including private equity), is one model that warrants study in terms of its effective separation of investment policy from current government policy. This is done through constitutionally written safeguards. (It is a model that should be studied much more closely by those now looking at the US Social Security System as a macro investment alternative to the individual account idea). This sort of structure might be considered as well for reserve investment organizations.

But perhaps a more crucial aspect lies in the distinction between foreign exchange reserves and public pension funds per se. The policy thrust for outsized foreign exchange reserves seems more opaque and potentially sinister at the macro level, than the relatively clear objective of meeting minimum standard, micro actuarial liabilities, citizen by citizen (libertarian oriented folk might still have a problem with the latter). Consider the difference between an actuarial liability profile for a pension plan, and the same in the case of foreign exchange reserves (i.e. when do we think we are going to use all this dough to start buying ‘stuff’ rather than investments?)

Conflict of interest risks associated with equity involvement might be addressed, but there are overarching risks associated with the purpose of the money. The asset-liability management problem and the asset mix problem dominate the equity selection problem, just as they would in any investment organization. And they probably complicate potential conflicts. Unfortunately, this horse (analogy switch), without its equity apparel, left the barn some time ago.

]]> By: Cassandra http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97136 Cassandra Mon, 18 Jun 2007 11:28:42 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97136 JSP - I was merely saying that IF an official govt organization - the BoJ - was willing to step in and buy USD for Yen in virtually unlimited size to change the course of the market for the benefit of Japanese export Co's (and its own P&L account) and hold it as "a trade", ostensibly because they <i>could</i>, we should be skeptical of claims that SWFs are <i>by definition</i> benign. I personally may trust the Norwegians implicitly for their political sobriety and honestness (and work on the mid-east Oslo accords), but they are I believe unusual in this regard and the exception. And of course there the east Asian authorities , and Bank Negara - the <a href="http://images.google.com/imgres?imgurl=http://www.premier.net/~cspedale/opus/images/bill2.jpg&imgrefurl=http://www.premier.net/~cspedale/opus/images.html&h=620&w=640&sz=60&hl=en&start=3&um=1&tbnid=1HoR9GR2gu0gFM:&tbnh=133&tbnw=137&prev=/images%3Fq%3Dbill%2Bthe%2Bcat%26svnum%3D10%26um%3D1%26hl%3Den%26client%3Dfirefox-a%26rls%3Dorg.mozilla:en-US:official">"Bill The Cat"</a> of Central Banking. IF the intentions of the SWFs are benign, the surplus nation sugardaddy's should have no problem signing up to a charter to defines what they can and cannot do with their hordes (including dollups to delegated managers). THAT would be stabilizing. JSP - I was merely saying that IF an official govt organization - the BoJ - was willing to step in and buy USD for Yen in virtually unlimited size to change the course of the market for the benefit of Japanese export Co’s (and its own P&L account) and hold it as “a trade”, ostensibly because they could, we should be skeptical of claims that SWFs are by definition benign. I personally may trust the Norwegians implicitly for their political sobriety and honestness (and work on the mid-east Oslo accords), but they are I believe unusual in this regard and the exception. And of course there the east Asian authorities , and Bank Negara - the “Bill The Cat” of Central Banking. IF the intentions of the SWFs are benign, the surplus nation sugardaddy’s should have no problem signing up to a charter to defines what they can and cannot do with their hordes (including dollups to delegated managers). THAT would be stabilizing.

]]> By: Guest http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97135 Guest Mon, 18 Jun 2007 11:07:19 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97135 <a href="http://online.wsj.com/article/SB118218688541739321.html">The IMF adopted</a> new currency policies that will identify countries that manipulate their currencies in ways that give them an edge in foreign trade. <a href="http://online.wsj.com/article/SB118218848665639340.html">China's banking regulator</a> said it will punish eight domestic banks for improper oversight of loans that allowed two state firms to funnel money into the country's red-hot stock market and property investments. The IMF adopted new currency policies that will identify countries that manipulate their currencies in ways that give them an edge in foreign trade.

China’s banking regulator said it will punish eight domestic banks for improper oversight of loans that allowed two state firms to funnel money into the country’s red-hot stock market and property investments.

]]> By: JSP http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97134 JSP Mon, 18 Jun 2007 11:01:58 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97134 Cassandra: Please do elaborate, and share more info for those who do not know the details, on your point: "Recent experience with Dr Sakikibara's massive "raid" on dollar shorts, and the huge profits therefrom should give policymakers urgent cause for nailing down some code of conduct before SAFE of ADIA engineers some similar market operation for parochial benefit at the expense of creating systemic volatility." Cassandra: Please do elaborate, and share more info for those who do not know the details, on your point: “Recent experience with Dr Sakikibara’s massive “raid” on dollar shorts, and the huge profits therefrom should give policymakers urgent cause for nailing down some code of conduct before SAFE of ADIA engineers some similar market operation for parochial benefit at the expense of creating systemic volatility.”

]]> By: Guest http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97133 Guest Mon, 18 Jun 2007 10:49:24 +0000 http://blogs.cfr.org/setser/2007/06/18/just-about-everyone-s-trade-balance-with-china-is-deteriorating/#comment-97133 re: "If China could push the euro-surplus high enough, then it could diversify its reserves in a natural way." i'm intrigued... so if BWII evolves into 'BWIII', w/ dual (dueling) global reserve currencies and europe cranking up its nascent (mortgage?) debt machine to feed the beast, what does that entail? re: “If China could push the euro-surplus high enough, then it could diversify its reserves in a natural way.”

i’m intrigued… so if BWII evolves into ‘BWIII’, w/ dual (dueling) global reserve currencies and europe cranking up its nascent (mortgage?) debt machine to feed the beast, what does that entail?

]]>