Comments on: Official flows now make up the majority of gross flows to the US http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/ Thu, 14 Oct 2010 13:09:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: mandrewa http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114708 mandrewa Tue, 07 Oct 2008 21:19:23 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114708 Darn it. In the above, I was responding to obey's comment. <i>I’ve never quite understood the argument that the the official inflows of easy money are somehow to ‘blame’ for the current crisis, at least insofar as this is to imply that the Chinese and Oil state funds did (and continue to) do something morally reprehensible. Easy money was provided and the US financial system seriously misallocated those funds.</i> Darn it. In the above, I was responding to obey’s comment.

I’ve never quite understood the argument that the the official inflows of easy money
are somehow to ‘blame’ for the current crisis, at least insofar as this is to imply that
the Chinese and Oil state funds did (and continue to) do something morally reprehensible.
Easy money was provided and the US financial system seriously misallocated those funds.

]]> By: mandrewa http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114707 mandrewa Tue, 07 Oct 2008 21:18:05 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114707 The "invisible hand" is a machine. It works, when it works, thru feedback. Without the vast flow of money from China, the oil states, Japan, and to a lessor extent others, the U.S. economy would have been getting the signal that it was uncompetitive as real income dropped or the rate at which it increased dropped. All across the board at a basic level people would be getting the message that they were doing something wrong. That's the message we needed because we have been losing jobs, businesses, and factories to China and others. If we had been getting that message, painful as it was, people would have, of course, responded. Instead the vast flows of money into the U.S. sends the false signal that we've been doing just fine. To the extent we've adapted to new circumstances, it's simply been to become dependent on that flow of money in. Let me try to count the ways the people of the United States have lost in this arrangement. 1. All the jobs, businesses, and factories that would not have been lost if one our most basic feedback loops hadn't been screwed up. 2. Time to adapt. 3. Independence. China is in a position to collapse the U.S. economy at will by pulling funds out or even more simply by not continuing to send more money over. 4. Decentralization. The massive flow of money in has financed an expansion of the federal government. Many supposedly private companies are either mostly or completely dependent on the government for income. The “invisible hand” is a machine. It works, when it works, thru feedback.
Without the vast flow of money from China, the oil states, Japan, and to a
lessor extent others, the U.S. economy would have been getting the signal
that it was uncompetitive as real income dropped or the rate at which it
increased dropped. All across the board at a basic level people would be
getting the message that they were doing something wrong.

That’s the message we needed because we have been losing jobs, businesses,
and factories to China and others. If we had been getting that message, painful as it
was, people would have, of course, responded.

Instead the vast flows of money into the U.S. sends the false signal that we’ve
been doing just fine. To the extent we’ve adapted to new circumstances, it’s
simply been to become dependent on that flow of money in.

Let me try to count the ways the people of the United States have lost in this
arrangement.

1. All the jobs, businesses, and factories that would not have been lost if one
our most basic feedback loops hadn’t been screwed up.

2. Time to adapt.

3. Independence. China is in a position to collapse the U.S. economy at will by
pulling funds out or even more simply by not continuing to send more money over.

4. Decentralization. The massive flow of money in has financed an expansion of the
federal government. Many supposedly private companies are either mostly or
completely dependent on the government for income.

]]> By: Dave C.. http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114606 Dave C.. Mon, 06 Oct 2008 17:01:49 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114606 Why is it somehow "morally reprehensible" for the China PBoC or foreign pension fund to buy US Treasury bonds? I personally own over $300K in conservative US Treasury bonds in my 401K so now even I am considered a criminal too. The CNBC pundits are always griping that the China PBoC didn't invest their hard-earned capital with US Investment banks into subprime CDOs and other exotic derivatives. When the subprime crisis exploded, the CNBC pundits repeatedly broadcast that the Chinese were left with trillions of dollars in worthless paper. Just wishing it were so doesn't make it true... LOL. Why is it somehow “morally reprehensible” for the China PBoC or foreign pension fund to buy US Treasury bonds? I personally own over $300K in conservative US Treasury bonds in my 401K so now even I am considered a criminal too. The CNBC pundits are always griping that the China PBoC didn’t invest their hard-earned capital with US Investment banks into subprime CDOs and other exotic derivatives. When the subprime crisis exploded, the CNBC pundits repeatedly broadcast that the Chinese were left with trillions of dollars in worthless paper. Just wishing it were so doesn’t make it true… LOL.

]]> By: irate_rake http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114605 irate_rake Mon, 06 Oct 2008 16:58:59 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114605 Those tax-haven holders of treasuries are OPEC nations... Those tax-haven holders of treasuries are OPEC nations…

]]> By: Cedric Regula http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114603 Cedric Regula Mon, 06 Oct 2008 15:37:51 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114603 Also wondering if we will get a Fed rate cut before or after lunchtime? Should we start an informal poll? Also wondering if we will get a Fed rate cut before or after lunchtime?

Should we start an informal poll?

]]> By: Cedric Regula http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114600 Cedric Regula Mon, 06 Oct 2008 15:20:29 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114600 Yes, wasn't 2007 the year F&F sold a trillion in mortgage paper before going insolvent? Shame on The Economist for not mentioning that. Also on hedge funds and tax havens, I recall the last time I read tic data, which was quite some time ago, Caymen Island seemed to alternate with Britain for the 3rd $ 4th position as largest holder of treasuries. Was curious if that is still the case? But size still matters. Yes, wasn’t 2007 the year F&F sold a trillion in mortgage paper before going insolvent? Shame on The Economist for not mentioning that.

Also on hedge funds and tax havens, I recall the last time I read tic data, which was quite some time ago, Caymen Island seemed to alternate with Britain for the 3rd $ 4th position as largest holder of treasuries.

Was curious if that is still the case?

But size still matters.

]]> By: obey http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114598 obey Mon, 06 Oct 2008 15:10:47 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114598 "The one thing that the US financial sector truly excelled at over the last four years was the production of illiquid and opaque securities." - I've never quite understood the argument that the the official inflows of easy money are somehow to 'blame' for the current crisis, at least insofar as this is to imply that the Chinese and Oil state funds did (and continue to) do something morally reprehensible. Easy money was provided and the US financial system seriously misallocated those funds. When manna falls from heaven and you blow it all at the casino, don't blame God... “The one thing that the US financial sector truly excelled at over the last four years was the production of illiquid and opaque securities.”

- I’ve never quite understood the argument that the the official inflows of easy money are somehow to ‘blame’ for the current crisis, at least insofar as this is to imply that the Chinese and Oil state funds did (and continue to) do something morally reprehensible. Easy money was provided and the US financial system seriously misallocated those funds. When manna falls from heaven and you blow it all at the casino, don’t blame God…

]]> By: charlie http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114596 charlie Mon, 06 Oct 2008 15:04:44 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114596 Dave, As long as China maintains a peg to the USD, they have no choice but to buy US debt. The USD they buy in forex has to be recycled back into the us economy or else their pegging won't work. If they decide to stop their pegging, then and only then does the US have to worry about them asking for higher interest rates on their loans. Also, foreign central banks willingness to accept whatever interest rates the US had to offer had way more to do with low mortgage rates than anything the FED did. That's why when the fed raised rates from 2% to 5.25%, it had no effect on mortgage rates. Dave,
As long as China maintains a peg to the USD, they have no choice but to buy US debt. The USD they buy in forex has to be recycled back into the us economy or else their pegging won’t work.

If they decide to stop their pegging, then and only then does the US have to worry about them asking for higher interest rates on their loans.

Also, foreign central banks willingness to accept whatever interest rates the US had to offer had way more to do with low mortgage rates than anything the FED did. That’s why when the fed raised rates from 2% to 5.25%, it had no effect on mortgage rates.

]]> By: Dave C.. http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114591 Dave C.. Mon, 06 Oct 2008 13:46:50 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114591 Quote of the Day by French President Nicolas Sarkozy: A global summit is required "as soon as possible" to implement "a real and complete reform of the international financial system." He said "all actors" must be supervised, including credit-rating firms and hedge funds. Executive-pay systems must also be reviewed, he said. "We want a new world to come out of this," Sarkozy said. "We want to set up the basis for a capitalism of entrepreneurs, not speculators." Quote of the Day by French President Nicolas Sarkozy:

A global summit is required “as soon as possible” to implement “a real and complete reform of the international financial system.” He said “all actors” must be supervised, including credit-rating firms and hedge funds. Executive-pay systems must also be reviewed, he said.

“We want a new world to come out of this,” Sarkozy said. “We want to set up the basis for a capitalism of entrepreneurs, not speculators.”

]]> By: Dave C.. http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114590 Dave C.. Mon, 06 Oct 2008 13:45:02 +0000 http://blogs.cfr.org/setser/2008/10/06/official-flows-now-make-up-the-majority-of-gross-flows-to-the-us/#comment-114590 Absurdly negative "real" interest rates by the Federal Reserve along with lax regulation is entirely responsible for the financial bubble fiasco. Interest rates will need to be raised to attract foreign capital. It's just the medicine the doctor would order. http://www.usatoday.com/money/econom…-bailout_N.htm Chinese and other Asian investors — governments, banks, firms and individuals — will be reluctant to finance the Treasury bailout plan without higher interest rates as a sweetener. For now, Europe’s top-rated bonds look like a better bargain: “U.S. bill and bond yields will have to go up to attract Asian buyers,” Lo says. He sees yields on the benchmark 10-year Treasury bond rising to 4.3% from less than 3.7% now. “Whatever the U.S. is trying to issue would have to be relatively more attractive than what the rest of the world is offering,” agrees Joanne Hon, head of Asia research for Thomson Reuters. And a Thomson Reuters survey of 100 market analysts in August — before Wall Street melted down and Treasury announced its rescue plan — was already predicting that 10-year Treasury yields would rise to 4.5% over the next year. Absurdly negative “real” interest rates by the Federal Reserve along with lax regulation is entirely responsible for the financial bubble fiasco. Interest rates will need to be raised to attract foreign capital. It’s just the medicine the doctor would order.

http://www.usatoday.com/money/econom…-bailout_N.htm

Chinese and other Asian investors — governments, banks, firms and individuals — will be reluctant to finance the Treasury bailout plan without higher interest rates as a sweetener. For now, Europe’s top-rated bonds look like a better bargain: “U.S. bill and bond yields will have to go up to attract Asian buyers,” Lo says. He sees yields on the benchmark 10-year Treasury bond rising to 4.3% from less than 3.7% now.

“Whatever the U.S. is trying to issue would have to be relatively more attractive than what the rest of the world is offering,” agrees Joanne Hon, head of Asia research for Thomson Reuters. And a Thomson Reuters survey of 100 market analysts in August — before Wall Street melted down and Treasury announced its rescue plan — was already predicting that 10-year Treasury yields would rise to 4.5% over the next year.

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