The Gulf seems determined to let everyone take a punt on a December revaluation
Note: This is Brad Setser, Not Michael Pettis
The heads GCC countries will meet in early December. They are expected to announce that the launch date of their currency union will be delayed – and presumably will discuss whether or not to continue to peg to the dollar in the interim.
I understand the need for the Gulf countries to try reach consensus so they can move together, but I am not sure that countries with open capital markets can announce that they are considering a revaluation on a fixed data without effectively being forced to revalue. Bloomberg:
“Six Gulf Arab states will discuss a proposal next month to revalue their currencies, Abdul Rahman al- Attiyah, the secretary general of the Gulf Cooperation Council, said today.”
Even a small 2% revaluation in early December produces a roughly 24% annual return on holding GCC currencies over the next month. That is kind of tempting. GCC interest rates have fallen, cutting into the return, but not enough to make such a bet unattractive. See Simon Derrick of the Bank of New York
After all, the GCC currencies offer a one-way bet. They either will revalue, shift to a basket (likely with a small revaluation) or do nothing. They won’t devalue.
The Saudis insist that they aren’t about to change (Central bank governor al-Sayari denied any plans to change, and Finance minister Ibrahim al-Assaf said that there is `no plan to use a basket of currencies for the Saudi riyal and we do not have a plan to revalue''). But they almost have to say that if they do not plan on changing their policy right now. The sequence of updates of the initial Bloomberg story suggests the official denials followed the initial indication from a source familiar with Saudi monetary policy that a proposal to change the peg had indeed been put on the table.
The UAE rather clearly is ready to move to a basket, but doesn’t want to do so unilaterally. Qatar may be in the same position.
One of the reasons I took interest in the GCC countries is that they present a textbook case of real exchange adjustment coming from inflation if it is not allowed to come through a nominal appreciation. Throw in a textbook case where the right monetary policy for one part of a de facto monetary and currency union (the US, facing a meaningful risk of a recession/ credit crunch) is clearly wrong for another part of the monetary union (The Gulf, now flush with petrodollars that increasingly are being spent and invested at home).
They also present a textbook case of the link between the exchange rate – which directly influences the trade balance – and the savings and investment balance.
Those who argue that exchange rate moves have no impact usually point to the fact that the current account deficit is equal to the gap between savings and investment, so unless changes in the exchange rate impact the savings and investment balance, they won’t change the current account. I generally don’t think the links are all that difficult to find – and in the case of Saudi Arabia, they are quite obvious.
Just listen to the head of Saudi Arabia’s central bank. To curb inflation, he argues the Saudi government needs to cut its spending. Al-Sayari in the FT:
The inflationary pressures, however, are likely to provoke a slowdown in government spending. Mr Sayari made no secret that he would like spending to be "programmed".
"We need to strike a balance between maintaining job creation and economic growth and containing inflation. It shouldn't necessarily be 1 per cent, we will accept some inflation, but we don't want it to go out of hand."
Even when oil revenues are rather high. Nothing like pumping oil out at $2 a barrel (perhaps a bit more counting new production) and selling it for something more than $80 a barrel (counting the discount on Arab heavy …)
Cutting spending in the face of soaring revenue would push up the fiscal surplus, push up government savings and push up the current account surplus.
And it would reduce pressure for both real and nominal appreciation of the riyal.
On the other hand, there isn’t really a good reason for Saudi Arabia to be salting away all the oil windfall right now. Not after a rise in the long-term price of oil has dramatically increased the Saudis wealth as well as their current revenue. Rather than adding to their stock of financial assets even as the value of their underground oil reserves soars, the Saudis really ought to be finding ways (a dividend check from Saudi Aramco to all Saudi citizens not just the Saudi Treasury?) to distribute the oil revenue widely …
But they cannot do so if they want to limit inflationary pressures and continue to peg to the depreciating dollar.
UPDATE: This Thompson financial article offers a nice summary of what various investment banks are saying about the Gulf as well as some preliminary analysis of what changes in the currency composition of the Gulf's reserves might be implied by a shift away from a pure dollar peg. I would note that some Gulf investment funds likely already are reasonably diversified, though they are likely still overweight the dollar relative to the United States share of the import basket and underweight Asia relative to Asia's share of their imports. The Gulf's central banks, by contrast, seem to be very dollar heavy — and they likely have added quite significantly to their reserves to defend the peg. I would be very interested to know how much the UAE's central bank reserves have increased since the end of q2 …
Russia suffers from a similiar problem - petrodollars + inflation. immense inflation - 10% officialy. Ruble has to be revalued sharply, imho
Unokai — I agree.
And what about the Saudi people, the masses? Does any of this vast, incredible wealth trickle down to them? You would think they would have incomes per capita equal to the best in Europe. Do they? I haven’t checked but I suspect far from it. Meanwhile on UK news sites we are told of the extravagant, obscene waste of money by upper class Arabs all over Europe. I don’t have the link at hand, but might be able to find it. It concerns a rich Arab whose spending was revealed when he got into legal difficulties in the UK.
If the entire oil windfall was broadly distributed, per capita income in S. Arabia would be quite high. Tho with 10 mbd to 20 million the ratio is not as good as in Abu Dhabi or Kuwait (and increasingly Qatar counting gas), with more like 2 mbd to less than a million native born inhabitants with a claim on the oil. Norway actually has more oil production per capita than the saudis (There is a chart on all this in my peterson institute brief).
Of course, the oil revenue isn’t all distributed, and what is distributed isn’t distributed equally. Hence my proposal to let the riyal appreciate and start paying out a dividend to all saudis rather than just stashing it away in a few accounts …
bsetser: On the other hand, there isn’t really a good reason for Saudi Arabia to be salting away all the oil windfall right now.
There is. The Saudi oil fields are likely to be exhausted within a generation or two, and right now the Saudis are trying to get the money invested so that they can live off the dividends indefinitely once the oil runs out.
Guest: And what about the Saudi people, the masses? Does any of this vast, incredible wealth trickle down to them?
Saudi has done a much better job of making sure that the wealth trickles down to Saudi citizens than a lot of other countries, and one advantage that it has is that there aren’t that many Saudi citizens. One problem that Saudi has is that while oil reserves are going down, the population is going up.
2fish — read the wapo article i linked too (on $2 a barrel oil). I am not sure i believe it, but it suggests that saudi oil isn’t about to run out, or for that matter, peak. S. Arabia is in better shape than Norway, or for that matter Russia.
Moreover, as saudi oil production falls, prices (and thus revenues) should rise — barring a big technological change. I think there is a solid case — given the increase in wealth in the ground and increase in wealth above ground - that more of saudi’s current revenue stream can support current consumption/ investment.
and re: “Saudi has done a much better job of making sure that the wealth trickles down to Saudi citizens than a lot of other countries” … I would want to see the evidence
I am no expert, but that certainly isn’t my perception. Compare the current distribution with a dividend equal to 75% of the economic profit of the oil sent to every Saudi citizen.
Correct me if I am wrong - the main problem is that the Saudi’s collect dollars, convert them in Riyals and then spend them domestically for various projects and that leads to domestic money growth.
Why then don’t they take some of those dollars and buy goods and services denominated in non-riyals from the US, Europe, and China? Last I remembered that Saudi’s needed to boost electrical generation. Well they could certainly set up some impressive concentrated solar thermal farms. They could probably pluck away some top teachers from the US and Europe so to develop the future generation’s human capital. Even though such spending wouldn’t trickle down to the Saudi masses as wage income in the short-term, it would over the long-term trickle down as higher productivity and a diversified energy portfolio.
I marvel that 2fish knows that Arabia has done “a much better job” at trickle down economics that mnay other states. The CIA fact book has no info for the Gini index in Arabia, nor the poverty level. It does say that unemployment ranges between 13 and 25% (the latter probably closer to the truth). That hardly makes one think the wealth is being divided very equally. Obviously the Arabian government doesn’t collect info on income distribution either because it doesn’t care about it or would be embarrassed if the facts were known.
http://news.bbc.co.uk/2/hi/americas/7101050.stm
Ahmadinejad calls the $ “a worthless piece of paper.” But Arabia expresses fear that if oil were sold for other currencies the dollar could collapse and obviously since the Saudi tyranny/dictatorship rests upon the US guarantee of its existence it fears angering the US. In short it is willing to accept “worthless pieces of paper” as long as the oligarchy stays in power.
I would like to share my view on Russia and its currency
The rouble has already appreciated heavily during the last years, maybe not nominal but in real terms it has definitely been one of the most appreciating currencies out there.
Furthermore I’m not sure whether Russia should revalue its currency furthermore,if it comes to population and consumtion Russia is not Saudi Arabia or Quatar its imports are rising fast, really fast. I guess (haven’t calculated that) Russia’s trade surplus would turn into a deficit with oil prices around 40 $ (http://www.rbcnews.com/free/20071109171250.shtml). Russia’s finance ministry projects a trade deficit in 2009, with oil prices around 55 bucks)
I’m not quite sure, whether the current inflation surge is due to high oil prices, I think it is more about excessive fiscal spending before elections(wages and pension rising about 25% nominal and 12% in real terms y.o.y.) and the energy and food price surge on world markets (gas costs as much as in US), which has not much to do with an undervalued ruble.
Brad,
Are you concerned about the GCC nation states shifting to a basket? If so, why?
It makes sense to me, but then again I would have made the move a few years ago.
How do I link to your Peterson Institute brief?
[Happy Thanksgivings if I'm out of pocket between now and then. Sherry and I are busy moving to the mountains of north Georgia. We've had it with the flatlands traffic, continual construction, and all that goes with it. Northern Atlanta is still cooking with 93 octane development. No major slowdown is evident yet in that area.]
When will the round of baskets reach a peak? And, as I asked last week, what happens then?
Best,
MG
BTW, I seriously doubt that Saudi Arabia will be curtailing any major weapon systems’ procurement actions. My sources suggest otherwise. Guess we’ll see who is right on this one…
Is it the imminent end for US Dollar Hegemony Empire? If OPEC adopts the Euro, the US Dollar will definitely collapse. The US military will intervene before that ever happens. Saddam Hussein switched to the Euro and we all know what happened to him. The estimated 10-11 trillion value of Iraqi oil reserves has everything to do with the continued US occupation of that nation. Immediately after the US military occupation of Iraq, under the direct orders of President Bush, the Iraqi Energy Ministry announced that oil exports would be denominated in US Dollars and only US Dollars. The invasion of Iraq was meant to solidify US Dollar hegemony backed by the Gulf Arab and Iraqi energy reserves. Everyone in the world needs oil especially China, and since oil is denominated in only US Dollars, everyone accepts the dollar. No wonder, VP Cheney has been so blasé stating repeatedly, “Budget and trade deficits don’t matter”. - Dave C.
OPEC Interested in Non-Dollar Currency
http://biz.yahoo.com/ap/071118/opec.html
RIYADH, Saudi Arabia (AP) — Iranian President Mahmoud Ahmadinejad said Sunday that OPEC’s members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a “worthless piece of paper.”
“They get our oil and give us a worthless piece of paper,” Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed U.S. President George W. Bush’s policies for the decline of the dollar and its negative effect on other countries.
“All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency,” Ahmadinejad said. “Some said producing countries should designate a single hard currency aside from the U.S. dollar … to form the basis of our oil trade.”
Venezuelan President Hugo Chavez echoed this sentiment Sunday on the sidelines of the summit, saying “the empire of the dollar has to end.”
“Don’t you see how the dollar has been in free-fall without a parachute?” Chavez said, calling the euro a better option.
Venezuelan President Hugo Chavez echoed this sentiment Sunday on the sidelines of the summit, saying “the empire of the dollar has to end.”
Movie Guy — I am not worried by a shift to a basket (or better yet a revaluation and then a basket peg). It might put a bit more pressure on the dollar, but that strikes me as part of the adjustment process. I would be more worried if the Gulf didn’t change and the underlying imbalance got worse.
But i acknowledge the risk that the world is close to some kind of tipping point where the big dollar holders all decide that they have had enough (see Willem Buiter’s blog on ft.com) which might prove disruptive. on the other hand, if china has decided to reign in lending rather than revalue, they will have to eat more dollars …
The link to my policy brief can be found in my Thursday post on the gulf, or on the peterson institute’s home page
If the US dollar hegemony collapses and with it US imperialism, Israel may rue the day that it tied its future to US militarism. Suddenly its hitman and protector goes wobbly in the knees. Bad, bad.
You referred to fiscal sterilization in your paper. I presume this circumvents the problem of central bank sterilization. Doesn’t a decision to spend dollars instead introduce that problem?
Guest — yes, spending is the opposite of fiscal sterilization. the government spends in local currency (or sponsors investment in local currency). To fund the spending it converts export proceeds into local currency, increasing the money supply (much like a capital inflow) in the absence of central bank sterilization.
Conformist,
just look at the rising reserves of russian CB:
http://cbr.ru/print.asp?file=/statistics/credit_statistics/inter_res_07.htm
the fastest rate of growth in EMs excluding Brasil. and these reserves are evidently useless - for example the public debt of Russia is a mere fraction of its reserves, a tiny $47 bln.
Russia’s trade surplus is one of the strongest in the world now. growing import is a problem, but its largely due to low base effect. and do you really believe in oil prices around 40 $?:)
And about pensions. Do you now what is the average pension in Russia? I think you don’t. Its 3500 rubles, around 150 $. The latest pension rising was a 300 r addition, around 12 $! And in this condition of absolute poverty goverment is still printing new rubles to buy huge sums of petrodollars just to prevent the revaluation of ruble! the reserves grown from 300 bln at the beginning of the year to 455 bln now (population of Russia is one tenth of China). and what is the hell the purpose of it? just to help USA to sustain its currency value? inflation is immense and it is not caused by government spending, which is rather modest - we have a stable budget surplus for several years.
yes, food and energy prices are rising everythere, but this process is definitely connected with the falling dollar. russia must decouple from it.
>food and energy prices are rising everywhere
>this process is definitely connected with the falling dollar.
Agreed. 100%.
The lengths all the countries in the world are going to right now just to keep it afloat would be impressive, if they weren’t so tragic.
But why?
Unokai,
to make it clear, I think inflation in Russia is more a microeconomic phenomenon, than a macroeconomic, it is more about monopolistic and oligopolistic markets and poor government control over them, as you said above government spending is relatively modest, though it has incresed before elections, but budget is still based on an oil price of 35$(Urals). As long as budget is based on oil prices around 35$ and oil companies’ profits are taxed away it doesn’t really matter for the economy and inflation whether oil prices are 100$ or let’s say 1000$, because none of this money trickle down into real economy. But of course it matters for the currency, balance of payments becomes strongly positive and currency should go up, but there are two problems to be considered, is the price surge in oil temporarily and would russian producers survive import substitution?
Russia’s government thinks the price surge is temporarily and I support this view and yes I think oil prices around 40-50$(Urals) are realistic and could happen again. If it comes to russian producers, productivity and competitiveness are still relatively low, thus a faster appreciating rouble would harm them and lead to a stronger import substitution, watch out for other EE countries(Poland, Chech), they appreciated their currencies really fast, this will definitely hit their economies.
Conformist,
can you see the difference between HYPOTHETIC trade surplus deterioration IF the oil prices fall and REAL inflation that hurts allmost everyone in Russia now? Russia must fight inflation just now, because its really too high, the only way it can do it is to revaluate.
As for the causes of inflation I partially agree with your arguments. But I think you underestimate the impact of petrodollars. CB is buying dollars and flood the economy with newly printed rubles - it is clear that this policy is creating inflation, maybe adding to some microeconomic effects, monoplistic tariffs and so on.
I think your comparison of Russia and EE countries is a little bit simplistic - Russia is very different from EE countries, it has a huge amount of natural resources, of which Europe is dependent now - oil, natural gas, etc. and this dependence will only rise. EE countries have nothing. Compare their trade balances (and debts) and russian. Their currencies are victims of carry-traders and will devaluate, I think. It is almost sure for Hungary and Latvia, for example.
The GCC brings us back to the fixed/floating debate. However many of the above readers pass judgement on the region without knowing some of it is issues. Despite high oil prices distributional issues are still a concern within the region. However, it is easy to ignore the massive developmental needs of a young population. The Gulf countries are still developing and are primarly dependent on oil with one or two exception. The positive aspect of this oil price high is the domestic investment of the petrodollars. Unlike the 1970s, substantial investments in infrastructure are taking place within the region. A well informed view of the region is required before one can make assumptions about standards of living.
The issue of inflation within the region is a two way effect, obvious to anyone with some knowledge of economics. The first is the oil price driven government spending and its windfalls on the rest of the economy. Consumer spending carries momentum within the region. The second factor is the weak US dollar ofcourse. Most of these countries trade in the green back, especially Saudi Arabia with the US as a major trading partner. Thus it is not suprising to see the reluctance to move away from the dollar peg into a basket. Kuwait intially had a basket before adopting the dollar peg for the monetary union preparations. It is also noteworthy to mention the credibility issue riding on the exchange rate peg. For the past few decades the dollar peg has acted as an important nominal anchor, swithcing to a basket of currencies may have credibility issues. Thus central banks within the region are less likely to advise such an action.
It is more likely the GCC will continue the peg despite the obvious economic sense to adopt a basket of currencies for its six currencies and the unified currency.
Russia is one of the strongest BRIC, but we have to admit that “Russia” is mostly Moscow, how much people are living there right now ? 17 millions 20 millions ? Money is coming really fast from the macro inflows faster than micro activity can handle, this cash machine favours a lot of import goods so Russia is a good globalization engine and this engine will not
stop even if the USA decelerate. Inflation through energy cost favours decoupling, Russia is the typical decoupling winner.
And at last, decoupling or not there is a win/win scenario for some countries Russia is one of it.
At the crux of global economic instability is the reserve currency status and overabundance of fiat printed US Dollars. The Federal Reserve has printed 1 trillion dollars in the past couple months that the world simply cannot absorb. Estimated broad M-3 money supply is now running at an 18 percent annualized rate. - Dave C.
Chinese Prime Minister says that Massive US Dollar Foreign Reserves Put China Under Pressure
http://www.bloomberg.com/apps/news?pid=20601080&sid=a_TsOkcLmLpM&refer=asia
Nov. 19 (Bloomberg) — China’s “massive” foreign-currency reserves were placing its government under unprecedented policy pressure, Premier Wen Jiabao said.
“We now have $1.4 trillion in foreign exchange reserves, and I tell my foreign friends I have never been under more pressure,” Wen said today in a speech at the National University of Singapore.
The flood of cash from overseas is making it harder for the government to cool inflation, which rebounded to a decade-high of 6.5 percent in October.
The People’s Bank of China has raised its benchmark interest rate five times this year and earlier this month ordered lenders to set aside 13.5 percent of their deposits as reserves, the highest proportion since at least 1987.
Wen said the government would also take steps to improve China’s stock market regulation, including a crackdown on corporate misbehavior and better education for Chinese investors.
“Only by doing these things can we ensure healthy growth in China’s stock market,” he said.
What do you think accounts for the flurry of statements and retractions from a variety of GCC officials? do you think it reflects real divergence/a hint of debate behind the scenes or attempts to force other countries hands ahead of this december meeting. It seems like the statements especially the trajectory from bloomberg/reuters etc seem likely to only increase the one way bets on GCC currency revaluation. or to make the payoff seem that much higher for bettors - even if the timing is unknown
Having lived in KSA for nearly 10 years I can assure you that Suadi’s get a pretty good ride. Free education, medical, welfare is very high, any jobs they care to show up for are theirs by right. I wouldnt believe any unemployment figures out of KSA because many Saudi’s are not employable by western standards but get a monthly stipend anyway. Their economy is very broad, especially outside the oil sector and well developed enough for full employment.
The Saudi’s are bedevilled with a simple problem- too many dollars and not enough to spend it on internally. However,one should understand and never forget, the Al-Sauds are sitting in their palaces thanks to the benevolent protection of the US. That is why you simply won’t hear the royal family advocating dropping the dollar peg. It would strain relations with the US enormously and they know that withdrawal of US protection (internally and externally) jeopordizes their hold on power so the situation is scarcely bad enough for that kind of action.Saudi Arabia is a family business.
Certainly they will seek to diversify their SWF holdings.
“Is it the imminent end for US Dollar Hegemony Empire? If OPEC adopts the Euro, the US Dollar will definitely collapse. The US military will intervene before that ever happens. Saddam Hussein switched to the Euro and we all know what happened to him.”
I don’t have to read more than a sentence or two to know when it’s David C blowing his smoke again. I’m glad to see that, increasingly, hardly anyone gives it even a derisive sniff.
anonymous with experience in Saudi –
re: Saudi imports from the US. They are higher than the rest of the Gulf. But if memory serves, they are still about 20% of Saudi imports (v say 5% in some gulf countries / Russia) and thus still lower than Saudi imports from Asia/ Europe.
re: nominal anchor. the problem is that the dollar isn’t serving that function well anymore. Look at the rise in inflation/ negative real rates in most GCC countries that peg to the dollar. rather than importing monetary stabiltiy, the gulf is importing monetary instability as the rise in oil prices calls for a real appreciation and they are importing a nominal depreciation (v most of the world).
re: straining relations with the US. The US treasury insists that it has not encouraged the Saudis to peg to the $/ maintain their assets in $ (see the foreign currency report). I am not sure what the rest of the US government thinks. but I do suspect the link between the dollar and the us alliance may be stronger on the saudi side than on the US side.
finally, to the extent that the need to avoid inflationary real appreciation constrains the al-Saud’s ability to distribute the oil windfall/ make the kind of investments in Saudi Arabia that are visible in the UAE, I can see how it would hurt the long-term interests of the family business. budget cuts amid soaring oil prices are kind of hard to explain … but they are the only anti-inflationary policy tool available right now.
Rachel — it seems like the UAE’s need for internal consultation (including among the various emirates that make up the UAE) and the GCC’s desire to at least try to coordinate and move together means that any policy change will be signaled well in advance and thus provide ample opportunities for speculation …
there all sorts of stories indicating a big big rise in dhirham deposits …
The Al-Saud’s are pragmatic bunch, they have to be. They live in a pretty unstable neighbourhood with enormous wealth at stake.One facet of the current Pakistan shambles playing out is the presence of the millions of Pakistani guestworkers residing in Saudi.The Al-Saud’s can’t be looking at that instability just accross the water with with only a sanguine stare. Not when there are nukes within reach. My premise being that events unfolding throughout the Gulf area (Iraq, Iran, Pakistan, Afghanistan) all go to raise the level of unease in the Saudi Royal family.This is hardly the right time for the Al- Sauds to alienate their most important strategic partner by ditching his currency. And, with respect, anyone who believes the utterances coming from the USTreasury these days …. well lets just say I wouldnt trade on those utterances except in the contra.
my feeling is that pressures are building in the global system, and that their resolution will surprise many of the contributors to this blog.
last week i read things between the lines of the saudi statement - rightly or wrongly i sense that they issued a sotto voce warning to america, that o p e c might break up. if the dollar devalues further, (for example because of further stimulation from interest rate cuts), a break could occur between chavez, who longs to kick america in the most painful place possible, and the saudi princes, who cannot afford to. at $100 / barrel oil would breach a level that would give impetus to an o p e c break with the dollar.
rachel asks : “What do you think accounts for the flurry of statements and retractions from a variety of GCC officials? do you think it reflects real divergence/a hint of debate behind the scenes or attempts to force other countries hands ahead of this december meeting ?”
i say yes, they want to force bernanke’s hand. they want bernanke to face up to the inevitability of recession and bankruptcies - if that is what is keeping him back from raising interest rates to levels needed to firm up the dollar.
further devaluation of the dollar could also cause pain and dissension among the euro countries. the euro, too, can break apart in a crisis. is there a $1.50 psychological level ?
bernanke has the dollar in a shallow dive. if he pulls hard back on the interest rate joystick, the dollar firms up, oil price falls, gold eases off, but the ground is cut from under the highly leveraged sub prime speculators. so is he for wall street, or for america ?
some mlitary people wouldn’t care. they would like to see oil back at $40 and the smile wiped off putin’s face, not to mention chavez’s. (the military don’t get laid off in a recession.)
in the end the ‘worthless dollar’ -(silly phrase)- has to bounce back, when the suffering chinese, arabs, and others, reach the end of their tether, and say so.
bernanke’s choice is a simple one. do you want to be the world’s reserve currency, or don’t you ? your present course is opening up tectonic fault lines in o p e c , in europe, in china - your allies. it is giving great comfort and sustenance to russia, venezuela, and others who do not wish your country well.
brad thinks that the story ends when no one is willing to add to dollar reserves any more. i think that it ends differently. a warning is given. a strong dollar policy is implemented, and the peggers revalue against the floaters.
gillies — interesting as usual. I still don’t quite see why it is in the United States interest to raise us rates to defend the $ at the cost of a US recession, not when US creditors voluntarily have opted to hold fixed rate $ debt and thus the creditor not the debtor stand to lose from $ depreciation …
could you spell out what you mean by the peggers revaluing against the floaters …
Appreciate the response, Brad.
” Bernanke has the dollar in a shallow dive. if he pulls hard back on the interest rate joystick, the dollar firms up, oil price falls, gold eases off, but the ground is cut from under the highly leveraged sub prime speculators. so is he for wall street, or for america ? ”
Beautiful, Gilles!!!
Outstanding!!!
Made me think of the helicopters in Apocalypse Now.
(Was Bernanke in that movie? What music is he playing now?)
nice discussion; thanks to all who participated.
Hey you were quoted in the Economist - good job. “Countdown to lift-off” (Currencies and oil)