The worse the dollar does, the more dollars central banks want …
Rumors of the dollar’s demise as a reserve currency have been greatly exaggerated.
The hard data here is pretty clear, at least if you look a bit beyond the (too) easy to calculate data on the dollar’s share of total reserves. Central bank demand for dollars has NOT waned over the past couple of years. Indeed, 2007 was been marked by a remarkable acceleration in total reserve growth and, I suspect, with a commensurate acceleration in the pace of increase in central banks’ dollar holdings.
The worse the dollar does, the more dollars central banks seem to want.
The easiest explanation for the negative correlation between the the dollar’s value (against say the Euro) the global increase in dollar reserves?
Central banks aren’t building up dollar reserves because they want dollars. They are building up dollar reserves because they don’t want their currencies to appreciate against the dollar. The dollar’s fall against the euro and the growth in emerging economies dollar reserves are thus both manifestations of the same basic trend — a lack of private demand for dollars, relative to the US current account deficit, and the resulting pressure for the dollar to fall.
My calculations are based on the IMF’s COFER data, augmented by data showing the increase in the Saudi Monetary Agency’s non-reserve foreign assets (from SAMA’s statistical bulletin).
Of course, a lot of countries don’t report detailed data on the currency composition of their reserves to the IMF. My global estimates are based on an estimate the increase in their dollar reserves - as the following chart shows.
I assume that the countries that do not report are more or less acting like the countries that do report.
China is clearly the biggest country that doesn’t report, so any estimate of the global total requires making an implicit assumption about its behavior. I effectively assume that it holds a higher share of its reserves in dollars than the countries that do report - and that it has held the dollar share of its reserves constant since mid-2004 (the analysis supporting this assumption can be found in this paper). The Gulf countries are the other large group of countries that almost certainly doesn’t report detailed data to the IMF — and I suspect they too have a high share of their reserves in dollars.
Consequently, I am assuming that their dollar reserve growth has tracked their overall reserve growth.
Incidentally, a record increase in central bank holdings of dollars is consistent with a bit of diversification. The overall pace of global reserve growth is so strong that central banks are buying more of everything.
Indeed, the end 2007 data released by the large southeast Asian central banks — Malaysia, Singapore and Thailand — contains a hint of diversification. Both Malaysia and Thailand increased the share of their reserves held in currencies that are not part of the SDR basket, i.e. currencies other than the dollar, euro, yen and pound. They collectively increased their holdings of currencies other than the dollar, euro yen and pound by $15.6b in 2007, bringing their total holdings of non-traditional reserve currencies to about $37.1b. But their overall reserve growth was so rapid that they still added $51.1b to their holdings of currencies in the SDR basket. Their dollar holdings still rose substantially.
The IMF COFER data used in this analysis only goes through the end of September.
What of q4? Suffice to say that the data I track with Christian Menegatti of RGE doesn’t suggest any slowdown in global reserve growth in q4.
The last chart shows the quarterly data, not a rolling four quarter sum. But it is pretty clear that adding q4 2007 into any rolling sum won’t lead to any reduction in the pace of reserve growth. 2007 global reserve growth is sure to set a new record.
And 2008? Well, the early data for January suggests that global reserve growth remains very, very strong. India, Singapore, Malaysia and Thailand combined to add over $30b to their reserves (counting the increase in Thailand’s forward book). Japan chalked in another $20b, though its total was inflated by the impact of falling long-term rates on its long-term dollar portfolio (Japan marks its bond portfolio to market). Brazil is still intervening as well.
Then throw in China. Or really through in China’s reserves, the CIC and the state banks, as not all of China’s foreign exchange is now showing up at the central bank.
Then add in the oil exporters …
There is a reason why the Fed’s custodial holdings rose so strongly in January.
The scale of the increase in emerging market government assets right now is truly mind-blowing.
And if they didn’t continue to buy dollars? The full consequences of that move might tear economic boat lose from its moorings. Or, to switch metaphors, the central banks are putting their fingers in the leaky dike.
The more the central banks sustain the dollar, the greater its plunge if they stop. Frankly, I think at this point they are frightened. Damned if they do; damned if they don’t. They have played the peg far too long. Now, the consequences of stopping are scary.
Stormy, I’m not so sure they have an explicit exit strategy nor am I convinced one will ever be forthcoming. There can also hypothetically be adjustment through inflation differential, which might be what they’ve relied on all along.
However, the whole accelerating rate of purchase, the accelerating rate at which inflation has been increasing, and the effects of the first round of that inflation — this has all happened awfully quickly. I don’t know if it’s going to work out very well.
All this intervention clearly has Anglo-Saxon finance frothing at the mouth in anticipation right now. Inefficiencies equal profit, especially when a portion of the rescue package is directly targeting you.
What are foreign Central banks to do but support the US Dollar? Hong Kong may be a part of China, but 95% of import and exports are denominated in US Dollars. That is why the Hong Kong dollar is pegged to the US Dollar and not the Chinese yuan to ensure monetary stability. Since Hong Kong doesn’t have much of a manufacturing base left, and is mostly a trans-shipment hub for East Asia, what would happen to Hong Kong’s economy if the US Dollar collapsed overnight. Someday in the future, perhaps a decade or two from now, the Chinese yuan, when it is fully convertible on both the trade and capital accounts, will replace the US Dollar as East Asia’s primary reserve currency, but that day hasn’t arrived yet.
Clearly, CBs buying dollars are managing their float. There may be, however, another factor at play here: to wit, there’s simply nowhere else for them to go. Foreign reserve growth is so strong that the world’s running out of allowable reserve currency assets. Presumably, buying non-reserve currency assets, as the Asian banks have done, entails substantive changes to the CBs’ charters and/or by-laws. SWFs circumvent the need for changes to charters and by-laws but they’re essentially CB foreign exchange reserves in search of a broader asset base than reserve currency govies. Some might call this diversification but others might call it expansion which is, I suspect, how the central bankers who set up the SWFs see it. They may also see that owning more than 60% of one government’s outstanding marketable debt disables that central bank’s monetary policy (e.g., Greenspan’s conundrum) and are loathe to think what might happen if one day they own more than 60% of all reserve currency governments’ outstanding debt. And, at current reserve growth rates, that day isn’t that far into the future. I mean, isn’t one subprime/securitization/ratings/monoline crisis bad enough?
Well they have to support dollar at all cost since overcapacity at most countries will make them inevitable to support the dollar. Time will come when cost of suppoting the dollar will overwhwlm the cost of inflation in home countries and then they will depeg their currency. Its very unfortunate that DC is not accepting china is more vulnerable thaqn HK. He wants to support china at all cost in his postings but it’s better to him that china is part of world he understands and be very biased towards chinese communist govt. Capitalism does not understand communist or any other thing but profit as intention.
No part is immune from US led slowdown atleast financial slowdown. keysenian economics is good as long as there is no resource scarcity. Can anyone apply resource scarcity to keysenian economics. Only time will tell? humans are meant to walk on earth not to fly else their wings will will be cut off.
It applies to everyone. Neither export led or import substituted will help only balanced economy will thrive. Let world accept this concept and create a better world for everyone.
Your graphs are getting better all the time, and help tell the story.
can you just do non-dolllar [sic] reserve growth? and what if you plotted total reserve growth to global nominal gdp _without_ converting to dollars; then compare it to real gdp in gold/SPRs/PPP or any other “alternative” SVU (standard value unit).
“…Notably, on average, for the 47 developed and emerging markets comprising the MSCI All Country World ex-US Index, US ownership of foreign equities has increased from 10% of market capitalisation in 1994 to 24% by the end of 2006…” http://www.ft.com/cms/s/0/234aaafe-da4e-11dc-9bb9-0000779fd2ac.html
Hedge Fund Assets Pushing $2.8T http://www.emii.com/Article.aspx?ArticleID=1865574&LS=EMS162586
[The worse the dollar does, the more dollars central banks seem to want.]
The more dollars they must have, purchasing-power wise.
Anyway, it is clear the dollar’s position is due in large measure to the political and military hegemony the US enjoys. Even if it is true that this hegemony is, to a large extent, tied to the economic power of the US — which it probably is — it will not change so soon, as there is no other nation yet capable and willing to fill that role.
“…China alone accounted for $21 billion in remittances from U.S.-based friends and relatives in 2005, the most recent year for which data are available…” http://www.businessweek.com/investor/content/aug2007/pi20070828_486831.htm
By the way what consumer society does the world prefer ?
A consumer society that spends like no tomorrow and doesn’t distinguish production location and is conditioned to accept made in the USA as low quality with planned obsolescence as well as seeking low prices along with the desire to consume compulsively and conspicuously regardless of income ? All trading partners prefer the U.S. consumer therefore wish to sustain the $$$ no ands ifs or buts about it.
Brad - any relation to announcement that IMF I think is planning to sell many tonnes of its gold reserves in the spring?
The link to the IMF is very indirect. Tons of reserves in the emerging world = less need for borrowed reserves, and thus less need to borrow from the IMF. No IMF borrowing = No IMF income. Selling the gold is a response to the need for the IMF to find new ways to raise funds. The cash would generate some interest income.
Not sure I see the “no where else to go” argument. One alternative would be to allow more currency appreciation and thus reduce the need for intervention. that in some deep sense means allowing more cash into the domestic economy of the emerging economies now intervening. And while CBs are a big chunk of parts of the Treasury market, they have a way to go before they constitute the same share of the broad Agency MBS market — and I would assume, the eurozone gov. bond market.
I’ll try to do a non-dollar reserve growth chart, and perhaps some charts showing EM reserve growth v EM nominal GDP (If I can find a good IMF times series).
Guest wrote “its very unfortunate that DC is not accepting china is more vulnerable thaqn HK. He wants to support china at all cost in his postings but it’s better to him that china is part of world he understands and be very biased towards chinese communist govt. Capitalism does not understand communist or any other thing but profit as intention.”
You’re still reading DC’s posts? You must be new around here. I can recommend a great book called “Mao:The Untold Story” by Jung Chang. I always knew Mao was a thug and a mass murderer, but I had no idea what a thoroughly despicable human being he was.
“Its very unfortunate that DC is not accepting china is more vulnerable than HK.” - Guest
China’s Economy is reliant 2% of GDP from import/export to the US Economy. If your household income dropped 2% over a year, would that place your personal financial situation into a economic crisis?
You can shove your BS that the China is communist and thus destined to collapse. The US Economy is in recession and the Chinese economic growth hasn’t collapsed. As long as China remains a sovereign independent nation that isn’t a stooge puppet state taking orders from the Washington Consensus, the Chinese will always be denigrated by the US mainstream media for any reason.
In the “Project for a New American Century” and AEI think tanks in Washington, the manifesto signed by both Clinton and Bush Administration government officials proclaiming an US Global Hegemony foreign policy agenda is well understood to the Chinese, Russians, Indians, Brazilians, Venzuelans, Iranians, etc. The US mainstream media populated by PNAC and AEI member supporters should be ashamed of themselves for promoting the carpet bombing of Yugoslavia and the invasion of Iraq under the BS guises of genocide and Weapons of Mass Destruction, respectively.
Brad: Isn’t the IMF selling gold simply another way to continue dollar hegemony (nail the gold hoarders) ?
How much gold will be dumped ? Could this backfire, and turn out to simply be a great buy opportunity for central banks, the Saudis and CIC ?
SDR, oops — from the IMF no less — which brings up another aspect of the “no where else to go” argument, in the absence of a ‘better’ SVU or way of ‘keeping track’; like there’s no reason per se why one (USD or anything else) is necessary, altho we (like the IMF) presumably find it more convenient living in the nominal world without having to _reduce_ everything to real terms…
Don’t look now;
De-coupling is a reality…China Economic Boom counters waning demand from the US for the Japanese Economy
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5xaod508IZ8&refer=worldwide
Net exports — or the difference between exports and imports — contributed 0.4 percentage point to growth. Exports rose 2.9 percent from the previous quarter, as record sales to Asia countered waning demand from the U.S.
Sales at Toyota Motor Corp. and Canon Inc., the country’s biggest makers of cars and cameras, rose in the three months to Dec. 31 as demand from emerging markets increased.
“The U.S. still matters but there’s a more balanced source of demand than there was 10 years ago,” Cohen said. “That’s a reason not to be too pessimistic about Japan.”
Mao created a China that freed itself from foreign control, including the control the US hoped to have over it after WWII via its puppet Chiang. That freedom is what finally led to the rise of China today from being a colonial victim to the new world colossus. So thug or not, China owes him above all for what it is today. Stalin was also a thug but he drove out the Nazis and his army defeated them almost single handedly (the US and the UK armies came late to things); Hitler was defeated on the Eastern Front first and the US and UK just mopped up on the Western later.
I hereby invoke Godwin’s Law.
Dr. Setser: You might want to run a simple bivariate correlation between the EUR/USD rate and the rate of USD reserve accumulation. It should be interesting.
“European companies are increasingly being forced to turn to the dollar markets to raise funding as the credit crunch makes it almost impossible for them to launch deals in the euro-denominated market… “The main explanation is very simply due to there being more investors in the US… The market is much deeper there.” http://www.ft.com/cms/s/0/3fc8e5f8-daa1-11dc-9bb9-0000779fd2ac.html
Brad, with the way BW2 is evolving (CB +SWF = dollar standard loss + global asset gain), neutralizing dollar depreciation; it seems likely that it will be the US that will have to “cry uncle”.
Dave chiang would you stop blatantly lying about that 2% number. I have exposed numbers to your face in other threads and I still wait for answer.
The best you could say is only 2points of China’s yearly growth is related to increase in the level of its exports. That may make sense.
But on the overall 43% of chinese economy is industry. More than 50% of industrial products are exported and the US are the direct destination of 21% of those exports. THey are probably the indirect destination (through hongkong japan korea etc.) of 30% of the exports. So that’s 7% of the economy. Europe about same size.
And please note that this is just the direct impact of falling sales to US and Europe. Of course many services in CHina are sold to industrial companies, industrial workers, same for food.
As for your boasting about the chinese economy being self reliant, just let time pass. Brad just posted that chinese exports seem to be rising a bit less. The idea that you can be exporting 40% of your GDP and investing 50% of your GDP and not be reliant on world’s growth is just preposterous. And the fact that China is still partially communist is completely unrelated to this plain common sense thing : You can not be selling and lending abroad in massive amounts and NOT be reliant on the strength of the world economy.
How can you be boasting about exports in china rising less than before ? Are you that stupid ? This is just what we ve been telling you : Once the importers economy falls, the chinese economy falls.
The debt bubble and its related housing boom, stock market boom and commodity boom are global phenomenoms. Their explosion are going to be felt every where. Including china.
However since Chinas has turned to be the ultimate lender, and the main manufacturing center, it will take the strongest hits.
df - may be a few understand this, but the problem will be not in China, if US goes into recession. China is selling cheap goods to US. If your household income goes down, you tend to switch to cheaper goods, which happen to be chineese. I am Russian myself and we have seen this during our depression in 90ies - cheap foreign stuff from turkey and china drove out virtally everything from the market.
“Dave chiang would you stop blatantly lying about that 2% number.” - DF
For the record, Brad Setser agrees with my trade statistic. The 2-3% of GDP statistic that I quote is direct China-US trade, not Chinese trade with the entire world. Over 50% of China’s trade is to other developing nations, some of those products are no doubt re-exported to the United States and Europe. But now that the US Economy is in a serious recession or worse, has the Chinese Economy imploded as US Economist pundits predicted?
Do you see the future?
GE Corporation to focus on sales to developing world
http://www.nytimes.com/2008/02/14/business/worldbusiness/14global.html?ref=worldbusiness
“…Globalisation, which initially pushed prices lower, has swung into reverse. Soaring demand in the emerging world fuels higher food and energy costs… feed into higher wages in places such as China (inflation is at a 10-year high)…” http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/12/ccinv112.xml
“…The problem for Russia is that U.S. authorities are reacting as if they are facing a deep and even dangerous recession…” http://www.moscowtimes.ru/stories/2008/02/13/006.html
Since DVD players sold in the US are region coded, I purchased through Amazon on-line retailer, a DVD that is multi-region of the world that plays any DVD. The Toshiba DVD player was manufactured in China for the Russian market (ie, the user manuals and box are in Russian). The multi-region Toshiba DVD players are exported to Russia and then re-exported back to the United States. Any item can be shipped from anywhere in the world.
there are a thousand and one ways of parsing the Chinese data.
US imports from China are $322 (US data, 2007); Chinese data shows a smaller number b/c they show a lot of exports to HK which are then shipped on to the US. The US attributes this to China, not HK. That is around 2% of US GDP, or 10% of China’s GDP. Take your best estimate of the share of local v imported content in these exports — I would guess roughly 50%, but that is a pure guess. That would imply exports to the US are around 5% of China’s GDP. In 2007, China offset slower growth in its exports to the US with stronger growth in exports to the rest of the world; it isn’t clear it can do so in 2008. that either means slower growth or — if domestic demand picks up — faster growth. net exports have contributed between 2-3% to China’s growth in 2005, 2006 and 2007. they are unlikely to contribute as much in 08.
Back to reserves — I am not sure why the $ slide means you need to hold more $. if you want to preserve your international purchasing power, the easiest option is to shift from dollars to a stronger currency, not buy more dollars. Of course, the time to have switched into euros was likely in 2005, when the euro was at 1.20 — or even better back in 2002 or early 2003. at 1.45 (or more) there is a risk the euro won’t hold its purchasing power from its current level.
Brad, what’s your take on china retail sales stats?
My BB tells me they have been growing at 60% annual nominal terms in USD at the year end. Are they a good indicator of domestic demand in china?
And if one tries to evaluate impact on commodities - should we look into market rates or PPP stats?
“…Korean, Taiwanese, Japanese, vintage American and European porn on DVD is usually as easy as a running to the corner shop for a couple bottles of Tsing Tao and some sesame chips. Quietly, however, in mid-March Baidu, the monster NASDAQ-listed portal… launched a US$15 million Japanese version called Baidu.jp. With its server based in Japan, it allows users from China to access pages otherwise banned by Beijing…” http://www.asiasentinel.com/index.php?option=com_content&task=view&id=444&Itemid=34
“I am not sure why the $ slide means you need to hold more $. if you want to preserve your international purchasing power, the easiest option is to shift from dollars to a stronger currency, not buy more dollars.”
Brad, ME or at least Saudi A, to me, seems more of a quid pro quo. US supports ruling powers if oil exporter keeps pegs to limit energy inflation volatility and support dollar confidence.
China’s seems to be a straight up mercantilist policy that will make sure it’s the low cost manufacturer with each country it trades with. Isn’t it holding more euro’s now that trade with EU has taken off?
hmmm –my copy of the economists puts the number at more like 20% y/y in RMB terms, and even with a 7% change in the rmb/ $ I don’t see how you get 60% y/y
http://www.economist.com/finance/displaystory.cfm?story_id=10688833
the debate, mentioned in the economist — is to what extent the increase in sales is a real phenomenon and to what extent the rise in nominal sales reflects a rise in inflation. retail sales are also sales of goods in the urban areas, so the WB has argued in the past that it tends to overstate overall consumption growth. directinoally, though it is likely picking up — as one woudl expect if real deposit rates are negative and there is a large wealth effect from the equity market.
http://www.moscowtimes.ru/stories/2008/02/13/006.html
The U.S. authorities are reacting as if they are facing a deep and even dangerous recession. Perhaps they are, but in an effort to mitigate the downside risks, they are flooding the world with liquidity. From a U.S. perspective, this may make sense to offset the perceived tightening of credit criteria and rising risk aversion among banks, but for the rest of the world, which uses the dollar as its main reserve currency, this only stokes the flames of inflation. It does so because many countries from Russia to China to the Middle East and Latin America have generally found it convenient to anchor their own currencies to the dollar’s credibility and stability. They were hoping that the hard-won, anti-inflationary credentials of the Federal Reserve would rub off on them.
Now the situation has become perverse. Instead of helping to cure the patient, this countercyclical policy worsens global inflation.
Iran to launch Euro denominated oil and gas exchange on Feb 27
http://en.rian.ru/world/20080213/99134070.html
The Fed, the US Treasury, the White House, AIPAC, Big Oil and Saudi Arabia all to varying degrees would like to see this Iran Bourse strangled in its cradle.
the more dollars are lent, the more dollars are borrowed. the more dollars are spent, the more dollars are earned. as currencies are debased, some people save more dollars, but with a not too different purchasing power in the things that matter - energy, food, commodities. others attempt to save by making mortgage payments against rapidly rising property prices - which makes great sense - until it doesn’t. exponential industrial and economic growth, in a finite world, runs out of road, sometime - maybe this time. capitalism is a self-correcting system, whether played by multinational corporations, democratically elected governments, communist cliques, or greed crazed individuals. self correcting, and the correction is now. the slump is a global dental appointment. the united states is just the biggest kid in the waiting room, that’s all.
nurse bernanke says it won’t hurt. nurse bernanke says we can reschedule the appointment. i prefer the old fashioned dentists like doctor volcker - pass the pliers and get on with the job.
look at the japanese, ( not supposed to be mentioned on this site ?), still got most of their teeth - don’t ask which ones are rotten though . . .
.
Brad, i do not read economist any more, prefer to look at the data myself. To much propaganda there lately. While it is true that retail sales were up 20% in CNY for the year, in the second half 07 growth in China retail sales was exponential, at least tripple of long term trend. While the data exibits clearly upward bias in second half of the year it has never been so pronounced. . And dollar was falling from a cliff against yuan in december, but PBOC stopped it in January. So 30% figure in nominall dollars looks questionable. On 60% - my bad, i did not recognized that data is not deflated. If the sales are indeed in accelerating uptrend 30% nominal USD is clearly understated.
The economist graph came from my friends over at the beijing office of the WB. It is solid!
gillies — japan is mentioned on this site, though tis true that recently i have been spending more time on china and oil and that is reflected in the posts
Three cheers for China’s ‘economic miracle’
http://www.spiked-online.com/index.php?/site/boxarticle/3660
Each week, the West’s charge sheet against China grows longer and more vehement (1). Today, the West suffers from an unprecedented crisis of legitimacy and unprecedented doubts about the benefits of growth. And it is this collapse of belief in progress, even along capitalist lines, that has made China’s apparently unswerving commitment to growth a nightmare in the Western imagination.
We are seeing the rise, in political and commentary circles in the West, of a one-sided diatribe addressed to the Chinese masses. This is imperialist arrogance. China’s physical problems with pollution are real enough; but a hatred for man and his works, both in China and back here, now pollutes the Western intellect. China’s steps forward should be welcomed by all those who believe in progress.
Stephen Jen is particularly amusing on IMF gold mobilization:
The sharp rise in gold prices in recent months has pushed up the value of one of the IMF’s assets from US$23 billion in 2002 to US$92 billion now.
Having most of the assets yielding no investment return does not seem to make a lot of sense.
Obviously Mr. Jen has his own very interesting definition of investment return. bsetser, I’m curious - what are the special qualities of (as you put it) “interest income?”
It strikes me as perfectly sensible that if the IMF needs to sell assets to meet its payroll every month, it should do exactly that. On the other hand, I can think of other reasons why the IMF might want to exchange 400T of Au for “AAA rated securities” - few of which have much to do with meeting payroll. There is clearly a shortage of sellers in the one market, and a shortage of buyers in the other. Could it serve the public interest to relieve this imbalance? I’m sure it could.
Whatever the explanation may be, I’m sure it’s being presented to Senator Reid (D-NV) as we speak. Congress has blocked IMF gold sales before, and paying the salaries of international economists does not exactly have the political Midas touch to it. Unless of course there is some other story.
The global savings glut seems likely to continue. U.S. private borrowing may slow, but the government seems intent on taking up the slack. Asian economies are following export-led growth strategies through undervalued currencies. Consumption in oil exporters will lag the tremendous growth in their income for awhile. If the excess saving in Asia and oil exporting countries continues, and if the U.S. government takes measures to keep up U.S. spending, then unsustainable U.S. current account deficits will continue. I don’t see Asian lenders changing their policies, even if U.S. government debt starts to look shaky, because I think their policies are not aimed at accumulating wealth, but rather at supporting their economies. If present trends continue, though, there will eventually be some very painful adjustements.
gillies - I like your post. I too would prefer Dr. Volker.
There you have it exports to US are 5% on top of this you have exports to europe; exports to others exporters to the west, investment in export sector, and indirect spilling on the rest of the economy/
Now nobody said the chinese economy would fall first. THe chinese economy will fall once there are no foreign markets for its products. That is not the case yet.
There is no outcry on China. China has shoot itself in the foot by subsidizing its exports of manufactured products, just like the west has shoot itself in the foot by subsidizing exports of agricultural products and allowing financial deregulation.
We all let the global debt bubble happen.
All this has a cost, it will be felt.
It s too late for Dr Volker. On top of it has any of you noticed that monetary agregates started to really rise faster than GDP just after Volker ?
The main causes have been hitting on labor, deregulating the finance industry (both moves pushing up borrowing and lending) and opening borders to all trades, especially capital movements.
Free capital movement outside of borders is suicidal for any democracy, it turns it in plutocracy in no time.
Anyway the least painful solution now is keynes Medecine (Bernanke update). BUt if we want to prevent the next global debt bubble, the one coming in 70 years or so, we have to strongly regulate the debt/GDP ratio, put caps on the amount of private lending that can happen on any given years, REGULATE the finance industry.
Passing the printing press mop can help clean the mess, but it takes time, there are risks of inondation and it s better to keep the house clean all time by not eating junkfood everywhere all the time.
But isn’t twofish a prime example of a Chinese national pricing CDOs for Wall Street rather than contributing to “the new world colossus?”
“But isn’t twofish a prime example of a Chinese national pricing CDOs for Wall Street rather than contributing to “the new world colossus?”"
Twofish is a second-generation Chinese American, not your typical “Chinese national”.
modlbug — it is politically impossible to meet the IMF’s payroll by selling assets. It is politically possible to meet payroll out of interest income. and this actually might not be a bad time to sell a bit of mold …
I can’t argue with any of that! I only wish it was more often put so forthrightly.
The main problem with CB mold sales is that the less mold the CBs have, the harder it is for them for them to (a) restore the mold standard in an orderly and sane way, and (b) defend against the market’s attempts to restore the mold standard in a disorderly and insane way. (Look at the freakin’ platinum market!) Once Volckerian high-rate chemotherapy is off the table, those 30,000 tons are all the ammo you have. Use them wisely, young padwan.
This is a sociological argument that moldbug might appreciate: can you attribute to the US what you can to mold, viz. magical mold properties? In other words, to the extent that the US — writ large — ‘invented’ nuclear war/power, space exploration/strike/surveillance and the microprocessor/(mobile)internet, there appears to be a dearth in ‘miraculous’ achievements in the rest of the world… and that’s not even including jazz, rock’n'roll, rap and the Hollywood star system — the Dream Factory
Therefore, given the dearth in miracles, why not convert USD into hope bucks?
Cheers!
[...] reserves when the dollar is under pressure than when the dollar is rising (graphs and data here, and here). There is a bit of noise — the price of oil matters, and oil rose in 2005 along [...]