I was introduced as being from RGE monitor for one, when the CFR is now paying me.

Your eyebrows shoot up when Erin said this. It’s absolutely hilarious.

(1) You must use rates-of-change with these figures, not absolutes, (2) & ignore the seasonally mal-adjusted data, (3) & the Board of Governor’s figure is tripe. And yes, short-term and long-term movements in the greenback’s exchange rate can be predicted using legal reserve data.

Higher interest rates could signal (1) an increased demand for loan-funds, (2) a more restrictive monetary policy, (3) faltering liquidity or solvency, or (4) some combination of these.

In the present situation, lower oil prices will cause an increase in the demand for non-petroleum products, thus stimulating most sectors of the economy. We should expect, therefore, higher levels of business activity, increased demand for loan-funds and moderately higher interest rates. Why moderately higher? Mainly because of the upcoming reductions in inflation expectations (2nd qtr 2009) — I think Greenspan may finally be right about the bottom in housing.

There are 3 basic elements comprising long-term interest rates: a “pure” rate; a risk rate; and an inflation premium. The current significant inflation premiums will subside only after the trend rate of inflation falls, or inflation’s lag ends, or probably in the 2nd qtr time frame.

Deficits obviously generate a net increase in the demand for loan-funds; the larger the deficit, the greater the demand. That doesn’t necessarily mean interest rates will be higher. But if they are not higher, the only other conclusion is that the deficits are keeping interest rates higher than they would be in the absence of the deficit.

While current deficits increase the demand for loan-funds, the expectation of higher rates of inflation (e.g., recent inflation indices), and larger deficits, decreases the present supply of loan-funds Lenders, as a group, will not lend long-term except at rates that will compensate for the expected rates of inflation. The, deficit financing impacts on the supply side (as well as the demand side) are pushing interest rates up or retarding their fall.

With the treasury’s debt management needs in refinancing a debt in excess of 9+ trillion dollars and the new financing required by the deficits, the demand for loan-funds is increasing long-term and short-term interest rate levels. Expanding interest rate differentials will temporarily keep the dollar over-valued.

And with the constant roll-over of some of the long-term debt, it becomes obvious that the burden of higher interest rates will be compounded. The burden becomes a function of the major portion of the debt, not just the current deficits. The burden, in fact, becomes exponential. In other words, if the trend is not stopped, the debt inevitably has to be repudiated.

We can expect that the net result will be more federal underwriting of private sector credit – more “state capitalism”. Due to the condition of our economy, our country will be forced into an increasingly totalitarian mold.

Know very well that it China is far from a rigid, unified top down system. So, instead of having one trade union, we have a sort of federation of unions, all selling labor and usually not via the centre. They all want to be (seen to) maximize the product of jobs and wages. I said it was a caricature. Now the federation that encapsulates the unions also runs the central union pension fund, with gigantic reserves. No doubt the union boses overseeing the pension fund will make decisions that re not motivated by pure investment orthodoxy.. Hence investing in the “firm” that controls demand for output, Uncle Sam Inc, despite its poor expected returns. Anyway, it was meant to be a caricature.

I said “appear to act” as said before I have no idea of politicians’ true intentions and would consider it unprofessional if a politician was so undisciplined as to reveal how his signaling relates to his true preferences (sorry, according to political correctness my politician should have ben she..) being revealing might get him elected once ( unlikely) but make real work very difficult.

http://www.cnbc.com/id/15840232?video=828600426

As for the botched bio and data, well, this is CNBC. They want pretty graphics and spirited debate ending in a hearty endorsement all around of crony capitalism. They couldn’t care less about accuracy.

Well, they *could* care less, but then they’d be FOX.

You did terrific.

But it is very hard for the central government to intervene at the local level. Part of the reason that the Chinese economy basically works is that different functions are separated at different levels of government, and the bureaucratic difficulties of issuing orders between levels of government gives you a system in which the central government can’t easily control local production decisions. It would be difficult for the central government to directly control output. It would be completely impossible for the central government to control output quietly, as tons of orders would have to be issued, and there would be a lot of screaming.

The difficulty in controlling local governments by administrative means is why the Communist Party was interested in markets in the first place.

Huizer: It is is all part of an anarchic world where some governments appear to act as agents for a consumer dominated public (the democracies) and others as agents for an (power, wealth, intellect) elite.

A large part of democracy involves giving consumers the illusion of choice whereas at the same time restricting actual choice. If the political and economic elites of the United States agreed on doing something (say invade Iraq) it doesn’t matter what the consumers believe. On the other hand, mass action creates something of a tie-breaker when the elites are divided.

The same tends to be true with the Chinese government. The Chinese government does have a much worse human rights record than the United States, but as far as how much power the man on the street *really* has, I don’t think that the average person in China has that much less influence on Chinese government policy than the average person in the United States. Ultimately both the US and Chinese governments want to keep the population happy with “bread and circuses.”

Part of the reason that US efforts at building sustainable democracies have been such a disaster is that they are based on how Americans would like the US to work rather than how it actually does work.

larger sale of dollars matters more, because the larger purchase of dollars merely offsets a “natural” inflow – the Euro inflow by contrast is not “natural”

(1) USD/EUR means nothing; no one with credibility has tried to move the rate structurally. The only official action that might affect short term rates (changes in nominal interest differential, widening, should have boosted the EUR) was in fact followed by weakening. Arguabaly, perhaps with the US being more in a deflationary mood, real interests may be closer together, but I am not so sure what inflation measure to use here, the standards for CPI and GDP deflator differ between US and EU. Also, US trade deficit is improving, Eurozone worsening. But that has never had much impact. Long term rates are not official, and if they are, they are determined by foreign sovereign wealth, as we all seem to agree.. So, I would say, it is highly speculative but not quire random.

2. The flattening of the CNY trajectory may have something to do with the weaker EUR/USD. The Chinese government is interventionist; Many exporters are foreign-controlled (ownership, JV or contract ) and have a de facto “labor purchasing” relaionship with “china”, principally at the local level. That gives a portion of Chinese policy making the rationality of a trade union (a bit of a caricature). “China” is also a very large international investor with, again an unusual rationality. Perhaps a bit like the pension fund of a union: like for instance sometimes more inclined to support firms financially (buying their securities) when no one else will, to prevent the firm going out of business, going elsewhere, being restructured or acquired. Usually eminently stupid, but all kinds of things can happen under information asymmetry. By appreciating only a little against an appreciating USD (in trade weighted terms, China now keeps the official Europeans happy, without hurting its European clients too much. As China faces no external financial constraints, it can basically do as pleases as long s it does not get into trade political trouble. This is all part of an anarchic world where some governments appear to act as agents for a consumer dominated public (the democracies) and others as agents for an (power, wealth, intellect) elite. All the while the consumer dominated ones have to keep a watchful eye at elitist challenges, and vice versa.

Ideally, the Chinese people should have US-style government for a while, and vice versa. That would make us economists very happy, I guess.

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Jim Rogers has been sounding the alarm on this issue for quite some time.