Whenever you hear talk about governments getting rid of their dollars, you know we’re close to a bottom in the dollar. You won’t find worse traders than governments!

For example, do you remember when gold was below $300 an ounce earlier this decade, and all the European governments made a pact to sell their gold? The European governments all sold their gold at the bottom of its bear market. They wish they hadn’t sold now.

What do we hear today? The OPEC countries and some Asian countries are talking about selling their US$ reserves or dropping their “pegs” to the dollar. To me, this talk of governments selling is like government selling of gold; it tells me we’re much closer to a bottom than a top in the dollar.

Yaser

If the US does not want this inflow, then why don’t they issue less treasury bonds or buy back the old ones?

I’ve always wondered why so many people could not see the reason behind the Western countries’ almost manic desire to have China raise the value of the yuan.

Whatever criticism one may have towards the chinese government, monetary management is certainly not one of them. They have masterfully insulated their currency from the great world banks’ (soon to be joined by 3-4 Chinese banks) manipulations.
Remember how a few years ago there were so many articles in the Western press about the imminent collapse of the Chinese banking system because they carried so much debt? As long as China was exporting like they were and its economy was growing like it was, I, personally, did not see the problem. It was simply a transitionary process. Plus the fact that the government had enough cash on hand to help them on the way to healthy operations.

The large Western banks, just like the large Chinese banks, do not operate in a vacuum. They are often the tools used by governments to obtain certain results. The World Bank, and some of its clones, is nothing more or less than Western powers’ attempt to control the rest of the world economically and to make it march to their dictates. Have you ever heard, or read, about a country becoming rich by submitting to World Bank rules? Usually, it has been quite the opposite.

China realized, after the last major monetary crisis, that it was imperative that it insulate its currency, to whatever degree possible, from the Western ones, primarily the dollar. By the way, pegging the value of your currency to the dollar does not appear to be much of an insulationist policy. However, in the short run it is brilliant.

So, now we have, for a while already, been seeing the pathetic spectacle of Western countries crying that the value of China’s currency is too low and that it needs to be valued upwards. Have you often heard such a ridiculous argument? I can not remember the Western block using it very often for their own currencies. Except, of course, when it politically and economically benefitted them and it was to the detriment of less economically powerful countries.
In essence, Westerners want to be given the economic tools to dominate China, to control it, to make sure the economic roles will not be reversed. One way to control is to have a currency’s value determined by friendly banks and their agents (Forex people).

They are scared stiff that power, in every way, will shift to the East and, for right now, China in particular. After all, when Eastern countries start to climb the wealth ladder, in all probability this means that Western populations will have to make do with less. That is, if you believe that earth’s resources are limited.

And when governments get scared they will go to extraordinary lengths to protect their interests. The results are usually conflict.

“…Funds and fund managers that don’t share their results weren’t considered for the ranking. The large funds for which we lacked sufficient data included Citigroup Alternative Investments LLC, DE Shaw & Co., Farallon Capital Management LLC and SAC Capital Advisors LLC. Our list of best-paid managers came from a universe of 620 individuals who run about 2,000 U.S. and non-U.S. hedge funds with assets of at least $100 million…” http://www.bloomberg.com/apps/news?pid=20601109&sid=a4hrcYrY655M&refer=home

“Investment funds from the Middle East and Asia have invested an estimated $37bn in shares of western financial companies this year…” http://ftalphaville.ft.com/blog/2007/11/28/9217/mideast-asian-swfs-put-37bn-in-financials/

“…oil dropping $10 has contributed to a breathtaking turnaround in equities, bonds, and the greenback… This weekend, everyone will be eyeing what the UAE does on their currency to see if they reval or de-peg. Market continues to buy Euros on dips on the belief that a de-peg will bring a torrent of Euro buying from the Middle East…” http://www.bmocm.com/publications/fxcom/busch/

The City of London’s tumble

At the start of this decade, the financial sector–banking and securities, insurance and specialist services like shipbroking–made up 5.5% of national output; by 2004 that share had jumped to 8.3%. Over the same period manufacturing dwindled from 17.9% to 14.1%. The financial sector’s expansion has continued apace: by 2006 it made up 9.4% of the economy, according to provisional official estimates.

(…)

The recent City-led expansion of finance in Britain has meant that a sector worth almost a tenth of the economy has been responsible for 30% of overall GDP growth over the past three years.

(…)

In the past decade Britain’s financial sector has contributed about 30% of all corporation-tax revenues. For all the attention devoted to how some escape their fair share of taxes, the taxman has also reaped handsome returns from the City’s high fliers, who make up many of the top 1% of earners contributing 22% of income-tax receipts. The fiscal dividend has been vital in paying for Labour’s big public-spending increases.

(…)

It has come to seem, for many people, a sort of laboratory in which a rawer, less-cohesive Britain is emerging; a crowded, hustling place of vaulting earnings for the rich and of widening income disparities, which drains talent and wealth from the rest of the country.

Despite these fears, those who cheer as the City falters, will be wrong. The gains from London’s position as a global financial hub, a source of envy to other countries, outweigh the losses. Every economy needs an engine-room: better one manned by bankers than none at all.

MM: Is it that rosy? Aren’t they preparing a hard-landing?

Brad, in your general posts about europe, is The City inside euro-zone or dollar-zone, playing cards with sterling, of course?

In ordinary countries, a woman is pregnant or it’s not.

Any light about UK’s pregnancy? Or she goes Tony Blair-style to the wall, with one leg in USA and the other in europe, leg open to to the world?

Thanks.