Central banks are buying — not selling – dollars.
Central banks are not selling dollars. Some analysts tend to put a bit too much emphasis on changes in the dollar’s share of global reserves – and a bit too little emphasis on the increase in total dollar holdings.
Parmy Olson of Forbes, for example, focuses on the small fall the dollar’s share of global reserves in q4 of 2006 rather than the change in the stock, arguing that a change in the dollar's share of global reserves is evidence that central banks are selling dollars.
“The International Monetary Fund recently showed that the world's currency reserve holders have indeed been selling dollar assets. In the fourth quarter of last year, the dollar's share of the $3.5 trillion in global reserves fell to 64.2%, from 64.6%, as central banks opted for more euros and British pounds.”
Alas, the IMF’s data actually shows the opposite: central banks added to their dollar assets in q4. The total stock of reserves among those countries that report detailed data to the IMF increased by around $180b, to $3307b. The dollar's share slid a bit, but total dollar holdings among those central banks that report data to the IMF increased by $85b in q4. The IMF's data shows holdings of $2076b in q3 and around $2162.5 in q4.
And that total doesn’t include any increase in China's dollar holdings. China is among the countries that do not report data to the IMF (see the charts I prepared for the Peterson Institute’s China conference). If the likely increase in its dollar holdings is added in, central banks added far more than $85b to their dollar holdings in q4.
I am nit-picking because this, in my view, is an important issue.
The big story over the past year in my view has been the rise in the pace of reserve accumulation and the increase in the share of the US deficits financed by central banks, not small changes in the dollar's share of total reserves.
Net central bank purchases of dollars almost certainly reached a record high The IMF’s data is pretty clear on this point.
Between q2 2006 and q2 2007, those central banks that report the currency composition of their reserves to the IMF added $367.6b to their dollar reserves. Countries that do not report detailed data to the IMF added another $496b to their reserves, and it is a safe bet that a lot of that increase was used to buy dollar-denominated assets. That $496b increase in reserves is also a bit of understatement as well – as it doesn’t include a roughly $50b increase in the non-reserve foreign assets of the Saudi Monetary Agency.
Suffice to say that central banks have been big net buyers of dollars.
Analysis of China’s portfolio sometimes suffers from a similar problem.
Too much attention is paid to the data the US Treasury reports on China’s holdings of Treasuries, even though we know that China has shifted its purchases toward Agencies – and have good reason to think that some of the Treasuries that the US data suggests have been sold to buyers in the UK actually have been sold to the PboC and other central banks.
But I won’t wallow around in the data mud for any longer.
Setting the point about central bank “dollar sales” at a time of record "dollar purchases" aside, the Olson article – which draws heavily on Stephen Jen’s recent work on Sovereign Wealth Funds – is quite interesting.
Jen believes that the shift toward Sovereign Wealth Funds implies a shift in official flows toward Asia and emerging economies – and a shift away from both the US and Europe. I suspect Jen is right. Sovereign wealth funds aren’t restricted to classic reserve assets and Asian equities are a lot more attractive than Asian bonds. Most sovereign wealth funds have signaled that they are looking to increase their exposure to emerging Asia.
That though begs another question. While sovereign wealth funds want to invest in Asia and emerging markets (and particularly in Asian emerging markets), both Asia and the world’s emerging markets run current account surpluses. They don’t need the money. The US by contrast does. If the shift from reserves to sovereign wealth funds means a shift from financing the US to financing emerging Asia, both the US and a host of Asian economies need to adjust. Otherwise, one country’s sovereign wealth fund will just end up adding to another country’s reserves.
And – as Andrew Osborn and Joanna Slater of the Wall Street Journal highlighted in an excellent frontpage article on Wednesday — most emerging economies already are attracting more funds than they feel like they can manage. Neither India or Thailand exactly wants more inflows — or even more reserves.
Not now. Not when they already have more than enough trouble managing all the funds coming into their economies. One solution would be more currency appreciation. But Osborn and Slater note that countries are afraid to appreciate faster than China.
[according to Raghuram Rajan, a finance professor at the University of Chicago and a former IMF official.] "In general people are worried about losing their competitive edge…especially if demand from the U.S. slows down and you're fighting one another for the crumbs”
The situation is complicated by China keeping a tight rein on its yuan, through restrictions on capital flows and massive government buying of dollars. Countries that compete with China for exports are reluctant to let their currencies strengthen rapidly.
As a result, a host of countries are looking for ways to reduce the pace of their reserves growth – whether by liberalizing controls on outflows, by tightening controls on inflows, or by setting up sovereign wealth funds to take some assets off the central banks books.
All this helps, but it doesn’t really solve the core issue. So long as the emerging world resists the kind of currency appreciation that would eliminate its current account surplus, someone in the emerging world has to finance the US and Europe.
Not every emerging economy can set up a sovereign wealth fund that just invests in other emerging economies. Not if Bretton Woods 2 is going to last. More on this later.
When you have a government of incompetence, stifled regulation, and a financial market corrupted, it only can allow for impending economic convulsions. The “FIRE” industries, finance, insurance and RE are all that is left in the distorted US bubble economy resulting from years of gross monetary mismanagement by the Federal Reserve. A recession in the US Economy that will reduce Global Economic imbalances is long overdue.
It looks a lot like the rapid growth in money supply (MZM) from the Fed is going primarily into monetary inflation. There’s little effect on real productivity in the USA. As a result, commodities and precious metals are spiralling higher.
It is clearly obvious to central bankers in other countries that the US Gov’t and the Fed are NOT addressing the real structural problems that are affecting the economy.
Pete, CA
SWF diversification is a war on dark matter losses. Central banks that recycle inflows from SWFs will exacerbate dark matter imbalances.
Federal Reserve should be abolished for Gross Monetary and Regulatory Mismanagement of the US Economy. – DC
Roots of credit crisis laid at Fed’s door
Regulatory minimalism allowed risky practices to flourish, expert says
http://www.marketwatch.com/news/story/roots-credit-crisis-found-feds/story.aspx?guid=%7B7920B361%2D26CD%2D4241%2D9797%2D72E182F13FE6%7D
Tom Schlesinger, the founder and executive director of the Financial Markets Center, a think tank that has followed the Federal Reserve closely for the past decade, believes the blame for the crisis falls squarely on the Fed and accuses the central bank of “regulatory foot-dragging” that has harmed the public.
Schlesinger maintains the Fed’s prevailing regulatory philosophy has shifted from that of 20 or 25 years ago, which in essence was “here is the line between right and wrong, don’t cross it,” to a current underlying policy that “anything and everything that might be called financial innovation ought to be embraced.”
“…The corruption in China’s banks hasn’t scared off investors enthralled by an economy that grew by 10.9 percent in the first half of 2006. In the past 15 months, they’ve poured about $37 billion into Bank of China, China Construction Bank and Industrial & Commercial Bank of China, the biggest lender, through direct investments and stock purchases, according to Bloomberg data.
“Western investors want to be at the party, but there’s a real risk,” said Donald Straszheim, former chief economist at Merrill Lynch who now leads China activities as vice chairman at Roth Capital Partners, an investment bank in Newport Beach, California. “They don’t fully comprehend what they’re buying into. They’re buying into a mess, a system where loans are doled out with little regard for risk and reward, with a regulatory structure that doesn’t look anything like what they’re used to.”
…Last year, fraud and other irregularities in China’s financial institutions amounted to $95.9 billion, a 31 percent increase over 2004, according to the China Banking Regulatory Commission. The government disciplined 6,826 people, including 325 senior executives. Some 1,205 institutions were punished for fraud and other illegal activities. “One can legitimately question whether these banks will behave like commercial enterprises, when the government remains the largest shareholder,” said David Marshall, managing director of Fitch Ratings in Hong Kong…” http://www.iht.com/articles/2006/08/01/bloomberg/sxfraud.php
A major difference between China and the U.S. is that corruption while serious isn’t sanctioned by the PBoC Central Bank and Treasury Dept of the Chinese government. Many Chinese bank managers caught with stealing a million dollars in China end up with a bullet in their head. By contrast, the US Treasury Paulson leading the den of thieves is condoning a Super SIV banking bailout fund in an obvious attempt to prevent price discovery and marking to market of trillions of dollars in worthless subprime derivatives.
A super-duper bad-loan bailout scam
Call it Super SIV Mae. Wall Street’s pals in the Treasury Department want to ride to the rescue with a new entity of entitlement, the ’structured investment vehicle.’
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/ASuperDuperBadLoanBailoutPlan.aspx
Wall Street and the Treasury Department appear determined to do whatever it takes so that we have absolutely no price discovery on any mortgage-related assets that may have gone bad — thereby giving a pass to the folks who’ve made obscene amounts of money conceiving and marketing them. Whether you call this crony capitalism or socialism, the worst of it is what we have become.
Europe is crying about the strong dollar and anyone who says that’s not true is full of it. After all, the assets, anything priced in dollars in the country are being devalued/revalued together with the currency. I think they are sweating quite a bit out there.
Suffice to say that central banks have been big net buyers of dollars.
Ok, granted. The question is, how much longer can they continue to sterilize those dollars? I think Bretton Woods 2 will come to an end when they find that they *cannot* buy more dollars without destabilizing their own economies.
lyle — that is the key question. there are growing signs of difficulty, but it is hard to assess whether they indicate the system has been stretched past its limits.
I dare say the dollar must not go lower than this as it is a DISASTER RIGHT NOW. The dollar is not going down because everything is fine. The dollar is being devalued
because things are BAD. Bad government, bad economic conditions, bad socio economic conditions. Yes, let them try to sustain the sick currency because it really shouldn’t go much painfully lower than it is right now.
“A recession in the US Economy that will reduce Global Economic imbalances is long overdue.”
So, the U.S. can’t win for losing? Should America just pack it in? Central banks are selling dollars? America is screwed! Central banks aren’t selling, but aren’t buying as many as before! Oh man, America is screwed! Central banks are actually buying dollars in large amounts? Well, in that case America is screwed!
(China is awesome, though.)
“Corruption in China’s ruling Communist Party could ultimately result in political and economic destabilization within the country according to a new report … written by Carnegie Endowment Senior Associate Minxin Pei…”
http://jurist.law.pitt.edu/jurist_search.php?q=china+corruption
“…Though the Chinese government has more than 1,200 laws, rules, and directives against corruption, implementation is spotty and ineffective. The odds of a corrupt official going to jail are less than three percent, making corruption a high-return, low-risk activity. Even low-level officials have the opportunity to amass an illicit fortune of tens of millions of yuan…” http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=19628&prog=zch
even after central bank purchasing dollars, dollar is declining. they believe that the fall can be orderly so that they can grow till they flourish the domestic economy.
but for how long? may be another five years before too much dollars flood the world
because of debt problems in the US
Hi Brad,
How is the new job?
Good post, especially this.
That though begs another question. While sovereign wealth funds want to invest in Asia and emerging markets (and particularly in Asian emerging markets), both Asia and the world’s emerging markets run current account surpluses. They don’t need the money. The US by contrast does.
In general I am very symphatetic to Jen and his work but I don’t see how SWFs will mean that US won’t get any financing. Clearly, the point should rather be something along the lines that SWFs will provide LIQUIDITY by the buckets and obviously some of this will go into Asia and perhaps also other asset classes government bonds. But like I have argued before, if someone decides to pull the plug on the US the money needs to flow elsewhere. Now, I do think that there is some reason to this claim in the sense that in stead of talking about de-coupling we should rather be talking about re-coupling in the sense that many of the big emerging markets will pull forward the train to a greater extent. Examples here would include Turkey, India, and perhaps also Brazil. China of course is a different story entirely as I have a pretty hard time seeing how China can become a net recipient of capital, at least in the short term.
I agree with you here that most of the Asian countries won’t simply be able to suck up all that capital and it is in this light perhaps that we should view the SWFs. I mean, I would go so far as to say that when a country sets up a SWF it is because they have a serious problem finding yield on their capital stock. At the end of the day this always was a an issue of the imbalances and what the h’ll the surplus nations can do with all that liquidity.
Ok, keep on plugging away. I was also of course surprised to see the latest data from the US but in general I really do not see how the fundamentals have changed in the sense that someone still has to run the deficits. One final niggle. I would like to qualify the general position on Europe. The Eurozone has a small external surplus (on aggregate!!) whereas EU27 has a deficit. Now, a lot of the inflows are consequently going to Eastern Europe where the situation is rather wobbly at the moment so at the end of the day not even Europe might be able to absorb all that liquidity.
Claus
Doesn’t look like Central Banks are buying too many US dollars today. Foreign investors aren’t as stupid as Paulson and Bernanke think.
Record Euro high at 1.4319
http://finance.yahoo.com/currency
Record Oil price at $90.10
http://money.cnn.com/data/commodities/index.html
Record Gold price at $771
http://money.cnn.com/data/commodities/index.html
Investor Jim Rogers on Fed manipulation of US markets
http://www.reuters.com/article/newsOne/idUSL2474133320071024?sp=true
“Many parts of US industry are actually in a state worse than recession. If it were not for (Federal Reserve Chairman Ben) Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is.”
Here is story that should warm the hearts of Washington Consensus protectionists. – DC
China’s CNOOC not interested in developing US Gulf oil leases
http://www.reuters.com/article/marketsNews/idUKN2324958020071023?rpc=44
WASHINGTON, Oct 23 (Reuters) – Top Chinese oil and gas producer China National Offshore Oil Corp (0883.HK: Quote, Profile, Research) (CEO.N: Quote, Profile, Research) has no plans to bid on future drilling leases in the Gulf of Mexico that are offered by the U.S. government, a top company official said on Tuesday.
CNOOC ran into U.S. political opposition when it tried to buy American-based Unocal in 2005 for $18.5 billion, a bid that ultimately failed.
Hua said CNOOC was more interested in developing oil reserves in Africa and Asia. CNOOC is already doing business in Nigeria, Kenya and Equatorial Guinea.
Brad, Claus -
The question is never IF the US deficits will be funded, but HOW.
Again, I am sceptical of these ideas that the new SWFs will switch out of the dollar, especially when they come from currency strategists. Each SWF is subordinate to its government’s exchange rate policy, and their purpose is to make holding the implied currency mix more viable by cutting exposure to conventional bonds.
Clearly the pace of intervention is causing internal problems for China, but as long as the Chinese people save and the Chinese government trusts the Americans to not deliberately debase the dollar to cheat their creditors, a more modest pace of dollar buying can continue until the Americans are reduced to sharecroppers. Since America has a lot of assets to sell, this process can be sustained for years more. A powerful driver of China’s rise is nationalism, and no doubt humbling America would give the Chinese satisfaction that would compensate for some currency losses.
i think we currently know how the deficit is funded — the quick answer is by central banks. the core question is whether SWFs — which almost certainly will have a lower $ target than most central banks — imply less funding and more pessure to adjust (i.e. lower official flows = a smaller deficit) or if they dump a ton of money into small markets and induce private money to flow out of those markets into the us ..
or if SWFs dump money into small markets and induce central banks to buy more — and thus the game continue much as before.
Rebel Economist — US nationalism is also powerful, and while the US still has lots of assets left to sell, it may not necessarily be willing to sell them.
To play back then, the HOW is a combination of:
a) Less direct SWF funding of the US (compared to their central banks)
b) More SWF funding of small markets, with some knock-on central bank funding of the US
c) More SWF funding of small markets, with some knock-on private funding of the US
d) Some adjustment of the US deficit
There’s no reason why the result won’t include all of these elements to varying degrees.
all are possible; the precise mix though seems interesting — at least to someone like me with an interest in both official flows and global adjustment. an alternative to all four such possibilities is that SWFs end up investing heavily in them major markets, and composition of official demand for us assets shifts.
May be the WSJ has the answer in the bushist way:
“In an ambitious bid to cripple Iran’s military-industrial complex, the Bush administration imposed a sweeping array of new sanctions against banks, companies, officials and agencies affiliated with the country’s weapons programs and support for foreign armed forces.
U.S. officials are making their strongest efforts to date to depict Iran as a rogue nation on a war footing, stirring up trouble in Iraq, Lebanon, Afghanistan and the Palestinian territories with a well-organized bureaucracy which funds terrorism, distributes weapons, and conducts advanced weapons research.
The Treasury and State departments are announcing the new measures jointly today in a well-coordinated public relations effort.”
Just nukes and forget unbalances!
As the other Brad, DeLong post today;
http://delong.typepad.com/sdj/2007/10/bush-fired-larr.html
“IMPEACH GEORGE W. BUSH!! IMPEACH HIM NOW!!!”
I think the current trend we see is a gradual diversification out of USD. And key word is gradual.
I do not think that any of the main USD holders, be it debt, currency or asset, are dying/hoping/wishing for a major/sudden/deep USD collapse or a US recession.
However, should there be an unexpected/sudden/massive unwind I guess the money managers like any other investors will rush for the tightening exit. That might spark the doomsday like we seen in Aug07 or Jun06. Most rational fund manger is bearish and cautious at least, but not all would like a doomsday. (At least from those whom i know of and spoke to, I cant find one who is 100% Bullish.)
And so, the most likely scenario I think would be a slow movement of USD denominated funds moving from the state coffers to these SWFs to financial instituitions around the world. Ratio wise perhaps we might be seeing a gradually increasing proportion being assigned to the Emerging or non USD denominated classes.
Chinese change in US holdings from USTs Long Terms to Short Terms (US BIlls or Agencies), I beieve, are showing their need and appetite for flexibility. I think we might see more of such strategies being implemented by the other sovereigns. Perhaps not with the Japanese but maybe AXJ.
Such flows compound the problems from a growing resistance by the emerging to their appreciating currencies. However, looking at it from an optimistic angle, these emerging can benefit from foreign inflows into areas of longer term commitments i.e infrastructure,education,health. And such themes i think fits into that of a relatively more conservative soverign wealth fund.
As long as these gradual changes can take place without severe disruptions, the World can therefore be insulated from any big repercussions that might arise from a single or localised source. That would be a win-win situation. I think.
Am I being too optimistic?
Although the Chinese acquisition is for a South African bank, I’m sure the US media will spin the story as another global security threat. – DC
China ICBC to pay 5.5 bln dlrs for stake in South African bank
http://www.sinodaily.com/2006/071025112122.k47q7bwg.html
The Industrial and Commercial Bank of China said Thursday it had agreed to pay about 5.5 billion dollars for 20 percent in South Africa’s Standard Bank in one of the largest Chinese acquisitions ever.
“We will become the top shareholder in the bank,” ICBC, China’s largest lender, said in a statement. “The two sides will develop their strategic cooperation in a broad area.”
The announcement comes at a time of growing focus on China’s role in Africa, and on its financial muscle underpinned by the world’s largest foreign exchange reserves of more than 1.4 trillion dollars.
Talking about Sovereign ?s:
http://www.tomdispatch.com/post/174853/jack_miles_baghdad_to_bush_you_have_14_months
Endgame for Iraqi Oil?
The Sovereignty Showdown in Iraq
Time will tell, but not too much time. The eerie silence of the Bush administration about oil grows all the more deafening as the price of crude climbs toward $100 a barrel. Blood for oil may never have been a good deal, but so much blood for no oil at all may seem a far worse one.
Jack Miles is senior fellow for religious affairs with the Pacific Council on International Policy and professor of English and religious studies at the University of California, Irvine. He is the author of the Pulitzer Prize-winning God: A Biography, among other works.
“Nearly everyone is brainwashed to see the world through economic and political filters. As we sink into depression — both individual and economic — brought on by increasing population, pollution, and decreasing energy and natural resources, most people will blame politicians, the Federal Reserve, and “evil” foreign governments for our woes. So we should start recognizing our personal, national and global financial monsters.
It appears the United States is succumbing to what all governments have been tempted to do over time: run the money printing presses overtime to pay for wars, debts, and corporate welfare. In anticipation of completely worthless money, we ought to at least design it in colors and shapes to make origami and something to do, since most of us will be out of work (you can start practicing at members.cox.net/crandall11/money).
The subprime market is just the first tremblor bursting out of the ground to suck the life-blood out of your bank account and “disappear” your job.”
http://www.culturechange.org/cms/index.php?option=com_content&task=view&id=126&Itemid=1
Saudi Arabia holds key to oil and dollar link
Adam Robison and Edward Morse, Financial Times
After a generation on the sidelines, the US dollar has re-emerged as a central issue in the pricing of oil. Since the credit crunch in August, when the dollar has gone down, oil has gone up, by an average ratio of more than 5 to 1. Since August 21, the greenback has declined 4 per cent versus the euro; West Texas Intermediate crude, the global oil benchmark, meanwhile, is up 25 per cent.
Why are commodities traders fixated on the dollar? Like other oil market puzzles, the answer may lie in Saudi Arabia.
With a booming economy and inflation ticking higher, some speculators worry that Riyadh will de-peg its currency from the dollar. And they see such a step as having the effect of re-pricing oil in euros and yen.
That’s because if Saudi Arabia de-pegs and does nothing else, it will be sitting on two rapidly depreciating assets: $20,000bn in oil reserves and $800bn in US dollar reserves.
But if it were to diversify its currency reserves or oil pricing regime, then it is almost certain that the dollar would weaken. As a result, oil prices in dollar terms would have to jump to keep oil demand growth from Asia in check. For speculators with this mindset, oil at almost any price looks cheap, especially when the market is pricing in another dollar-weakening Fed cut this month.
Adam Robison is an energy research analyst at Lehman Brothers. This piece was co-authored by Edward Morse, chief energy economist.
Mr. Chiang is known as Flotsam, on the China Daily board. He’s been crying the same game, for years, one would think he’d tire of it.
Brad – do you agree with the following? I can understand the effect from reserve diversification, but does repricing of oil in Euros or yen really imply the dollar should weaken?
” That’s because if Saudi Arabia de-pegs and does nothing else, it will be sitting on two rapidly depreciating assets: $20,000bn in oil reserves and $800bn in US dollar reserves.
But if it were to diversify its currency reserves or oil pricing regime, then it is almost certain that the dollar would weaken. As a result, oil prices in dollar terms would have to jump to keep oil demand growth from Asia in check. “
The dollar is deteriorating because the financial world CANNOT SUSTAIN THE MASSIVE DEBT/DEFICIT GENERATED BY N IRRESPONSIBLE GOVERNMENT. The consequence is currently and will continue to be STAGFLATION.
Some posters on this board have attacked me for my “politically incorrect” views. But in all honestly, does anyone really believe the Federal Reserve’s statistics on inflation anymore. Is inflation “not any problem” as Ben Bernanke and Hank Paulson claim on an almost a daily basis so that interest rates can be lowered in order to bailout reckless Wall Street banks and Hedge Funds. What Bernanke claims is “core” inflation is a statistical mirage; in fact,”real” inflation including food and energy prices for the typical American family is soaring at double digit rates. How much longer can the Federal Reserve and their mainstream media cronies think they can Bamboozle the public and foreign investors? Is Ben Bernanke going to continue to sit on his fat ass and do absolutely nothing to contain potential hyperinflation?
Crude rallies past $92 to new record
http://www.marketwatch.com/news/story/oil-moves-past-92-hit/story.aspx?guid=%7B4E6A17FD%2D901F%2D4891%2DADBA%2DA8C067B745A2%7D&siteid=yhoof
LONDON (MarketWatch) — Oil futures rallied to a new record high on Friday, with worries about U.S. inventories and Middle Eastern tensions combining to send the benchmark energy contract past $92 a barrel.
Brad, first thank you for your posts. They are truly enjoyable reading as are the comments. The macro view of the world economy is interesting.
Although this post may not be exactly on the subject it is an observation as to the confidence in the dollar at ground level. I moved to Costa Rica from the US over two years ago and employ a person to work on my land. At the beginning, his strong preference was to receive USD instead of the local currency, the Colon. In the past year, Costa Rica began to decouple the Colon from the USD and as a result, the USD no longer appreciated against the Colon. However, my person no longer is willing to accept dollars for his pay – he would rather wait a few days to receive Colons than to hold dollars. While the impact on the global economy is insignificant by itself, the observation is that the loss of confidence in the USD (and US?) has permeated to a single decision by a farm worker in Costa Rica. Likewise, my preference has shifted to Colons and Euros.
There is no moral to this story – just an indication as to the depth of the loss in confidence in the US currency.
Brad-
I think now is the time we’ll start seeing more SWF buying of US firms and hence the US and the dollar will continue to receive investment. It appears we are following the UK where everything is for sale. This is a logical outcome to massive pools of dollars that are depreciating. Possibly, also, for less than credit worthy borrowers who will not be able to refinance with anyone else.
There you have it. Some officials spoke in CNBC that there is no inflation (depend where you look at, i am sure JumboJet Ben is looking at the same spot). They are fine with current dollar decline (i am sure JumboJet Ben and Treasury Paul will be fine with current and FUTURE dollar decline or acceleration of dollar decline). There you have it, rate cut to the bone 0%, start with 100bp rate cut in comming FOMC meeting. Don’t bet against dovish FED and dovish spin from all government officials.
“How much longer can the Federal Reserve and their mainstream media cronies think they can Bamboozle the public and foreign investors? Is Ben Bernanke going to continue to sit on his fat ass and do absolutely nothing to contain potential hyperinflation? ”
Absolutely, dovish FED will continue no inflation spin. No only, he will not do anything to contain potential hyperinflation. he will cut rate to encourage growth of everything except dollar. There is reason why FED is called super dove, that is they embrace inflation not fighting inflation. It is time to give up on hope that FED will change around fighting inflation.
To Foreign Investors holding US Dollars,
In protest of Helicopter Bernanke’s deliberate policy of devaluating and inflating away the monetary value of the US Dollar, I strongly advise any foreign investor to immediately dump their holding of US Dollars. Any already incurred losses from US Dollar devaluation will significantly worsen under the grossly irresponsible monetary policies of the Federal Reserve and US Treasury Department. There is absolutely no prospect for any long term rebound in the US Dollar with massive US deficits stretching to the horizon. Plus if you are infuriated with the Bush Administration’s Neo-colonial military policy of conquest and plunder of Iraqi oil – the world’s 2nd largest conventional oil reserves, dumping the US Dollar will only make it more financially difficult to finance what can best be described as a war crime against humanity with over 1 million dead Iraqi citizens and over 2 million refugees.
How other view the US shenanigans, a view from across the pond:
…”As the Bank of England warned, the Super-Siv should not be used to prop up fictitious valuations.
“It stinks, as does the Treasury’s sponsorship of the scheme. It seems designed to prevent price discovery.”" says Bernard Connolly, global strategist for Banque AIG.
Connolly says it resembles the slippery practices at the start of the Bear Stearns debacle, when creditors quickly abandoned attempts to force CDO sales by the Bear Stearns hedge funds as soon as they realized that prices were collapsing – exposing the awful truth that hundreds of billions were falsely valued on books.
Nauseating though Paulson’s MLEV — `Master Liquidity Enhancement Conduit’ – may be, it probably has to be done.
Connolly says the Fed-led pack of central banks have made such a mess of capitalism by blowing credit bubbles (with low rates in the late 1990s and 2003-2006) that they now have no alternative other than to relaunch the “Ponzi Scheme”, or risk depression.
This will have political consequences, of course. “The looming threat on the horizon, or just over it, is that the socialization of risk will be accompanied, in many countries, by the socialization of wealth,” he said.
Indeed. The investors now baying for bail-outs had better be careful what they wish for. Democracy will have its way of making them pay. One recalls the 98pc tax rate on dividends in Britain in the late 1970s. Haircut now, or haircut later.
In any case, the Paulson Super-Siv has failed to calm the horses. “This rescue has back-fired. The central banks don’t want anything to do with it. There is a fear that the big four US banks are trying to hide their debts,” said Hans Redeker, currency chief at BNP Paribas.
The DOW is down 500 points or so since peaking in early October, and it looks wobbly.
Even so, equities have not begun to reflect the reality that the 2006-2007 credit bubble has popped and cannot be easily reflated at a time of stubborn, lingering inflation. Spare me the mantra that the “fundamentals” are sound. Credit is the ultimate fundamental.
Woe betide Wall Street if the Fed fails to slash rates dramatically over the Winter, starting on October 31.
Woe betide the dollar if it does.”
Posted by Ambrose Evans-Pritchard on 25 Oct 2007 at 12:36
And Hank Paulson is travelling to China in December to lecture the Chinese on the importance of “unregulated financial markets”, and opening the Chinese financial markets to the same US crony capitalism. Under the Super SIV bailout scam, using the US Department of Treasury authority to prevent price discovery and marking to market of subprime mortgage securities by major US Money Center Banks is dishonest, immoral, and criminal.
And Stephen Schwarzman’s 3 million dollar birthday party. THE HELL WITH WALL STREET. They are ruining the world with their greed and incompetence . A financial market system that doesn’t care about the currency. HOW PAINFULLY PATHETIC. That’s because they all have their houses abroad just in case the streets start burning.
Never in the history of the world such a situation. Jim Rogers is right sell and get out.
LOL,
Treasury Secretary Paulson trashes the Chinese, praises India
http://money.cnn.com/2007/10/26/magazines/fortune/easton_treasury.fortune/index.htm
The biased US media echoing the Washington Consensus loves to praise democratic India and bash socialist Chinese. Anyone who has visited both countries knows otherwise. Infrastructure even in remote regions of China is today light years ahead of India. Whereas starvation is no longer a serious problem in China, over 70% of Indian children face malnutrition and illiteracy. By contrast, even in remote Tibet province, over 95% of children are literate with highways and telecommunications reaching every village today. While India does excel in technology services, it only employs a very small sliver of highly educated workers. Indian society is highly fractured with its caste and religious divisions integrated into its cultural values. LOL to Hank Paulson and the Bush Administration if they think India will be economically powerful enough to challenge China’s Industrial, Technological, and Military firepower. Please inform Hank Paulson not to even bother travel to China in December.
Mr Chiang
It is not that you are politically incorrect but rather entirely impolite and rather boring. Droning, on and on, and not adressing those issues which fit squarely withing your contrived agenda makes you a small annoyance. At least you are somewhat more respectful than on the China Daily board, “Flotsam” “Jetsam”.
An unemployed software programmer from the UK, psychologically damaged from some obviously rude natives, with far too much time on their hands. Rather would we talk of the blocks upon blocks of high-end housing in coastal China sitting empty, asset price imbalances in country, and the mass wasteful expropriation of Chinese peasant savings to encourage stability in a mostly unstable Chinese future. Or should we talk about the growth of inter-Asian trade, mostly a factor of MNC supply chains for export to the West.
As Brad said previously nationalism will/can/could work both ways.
Blame a government and institutions that I myself am not particularly fond of, but do try to moderate the ugly banter.
Turkish central bank for a very long period used to print Turkish Lira to cover expenses. The consequences are deprecation for the Turkish Lira, higher inflation and higher interest rates for the long term bonds. Higher interest rates may also mean recession not sustainable growth. I have never though US FED would do the same thing sometime, and would drop Dollars from the helicopter.