Brad Setser

Follow the Money

Cross border flows, with a bit of macroeconomics

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Better late than never …

by Brad Setser
December 23, 2008

A lot happened this year. And an awful lot happened in the last few months, even setting the US Presidential election aside.

— The US experienced its worst financial crisis since the Depression. The Fed dramatically expanded its balance sheet, becoming the world’s lender of last resort and the United States’ lender of almost every resort.
— Capital flows to the emerging world reversed. Inflows turned to outflows.
— High carry currencies tumbled. So did the pound. The dollar rallied even as the US financial system teetered on the edge of collapse, then slid as the Fed cut rates to zero.
— Global trade, and I would guess global economic activity, started to contract. Just look at fall in Japan’s exports in November …
— Oil prices fell. A lot. Several oil-exporters that were on top of the world with oil at $145 are now looking at serious financial trouble.

It consequently isn’t a surprise that America started to think about the holiday festivities a bit later than usual. That isn’t just a conjecture either. My colleagues at the CFR’s Geoeconomics Center compared Google searches for “Santa” to Google searches for “foreclosures.” It turns out that Santa overlook foreclosures a bit later than normal. And it took even longer for Santa to overtake foreclosures in those parts of the country where home prices have gone down the most. Do look at the chart.

Never fear. The housing grinch didn’t quite steal Christmas. Santa eventually won out, even in those parts of the US with the biggest fall in home prices.

To celebrate, I’ll be taking a few days off.

Happy Holidays to all. And, if it fits, Merry Christmas.


  • Posted by London Banker

    Merry Christmas, Brad! Enjoy your holiday from blogging. 2009 promises to be at least as interesting as 2008.

  • Posted by Ying

    Merry Christmas to all!

  • Posted by World Development

    Merry Christmas!

  • Posted by a

    Merry Christmas and a belated Fabulous Festivus to everyone!

  • Posted by Manc Trader

    Merry Christmas to you and your family Brad.

  • Posted by tyaresun

    Happy holidays. Merry Christmas. Brad, thank you for this wonderful blog, I have learned a lot.

  • Posted by RebelEconomist

    Merry Christmas from merry olde England!

  • Posted by gillies

    happy christmas from county tipperary, ireland. thankyou for your patient moderation of this blogsite.

    i leave you with a headline from today’s irish papers –


    – and a prosperous new year !

  • Posted by don

    Merry Christmas to all.

  • Posted by kaan

    Happy Holidays to all

  • Posted by Roc

    Great site, Brad. Thanks for all the great writing this year.

  • Posted by Ying

    China to begin yuan-settlement trials
    By Wang Xu (China Daily)
    Updated: 2008-12-25 07:31
    Comments(1) PrintMail

    The yuan will be used in transactions with neighboring trade partners as part of a pilot project – in what could be the first step on the road to making it an international currency.

    The yuan will be allowed to be used for settlement between the Pearl and Yangtze river delta regions and the special administrative regions of Hong Kong and Macao, the State Council, or the Cabinet, said in a statement yesterday.

    The Guangxi Zhuang autonomous region and Yunnan province will be allowed to use the yuan to settle trade payments with ASEAN (Association of Southeast Asian Nations) members.

    Related readings:
    Little cheer for China’s Christmas exports amid global crisis
    Chinese shares fall 1.76% amid weak sentiment
    Ministry issues warning on overseas job agents
    Forex reserves drop for first time since 2003
    The pilot program was announced with a raft of other measures designed to help bolster the nation’s export sector. The State Council did not give details of how and when the currency project would start.

    “The move will mitigate the risk of exchange rate fluctuations for Chinese exporters and their trade partners,” said Zhao Xijun, finance professor at Renmin University of China.

    The lion’s share of China’s foreign trade is currently settled in US dollars or the euro. But many analysts predict the greenback might depreciate substantially in the coming years because of the ailing US economy.

    Earlier this month, Zhou Xiaochuan, governor of the central bank, said in Hong Kong that settlements using the US dollar would cause problems if the dollar’s value fluctuates drastically.

    The mainland’s trade with Hong Kong, Macao and ASEAN nations has been rising rapidly over the past years to reach $402.7 billion last year, or 20 percent of the mainland’s total trade volume.

    “The move will also increase the yuan’s acceptance in Asia, which will help it become an international currency in the long run,” said Zhao.

    The yuan’s acceptance has been rising in recent years, thanks to the nation’s economic prowess and its $1.9 trillion reserves of foreign exchange. Over the past year, there has been a growing advocacy at home to make the yuan a global currency, since the weakening of the greenback has caused hefty losses to China’s forex reserves.

    But the government has been cautious about moving in that direction, which would also require the yuan to be freely convertible. Analysts say it will take time for policymakers to make the shift as they try to maintain the stability of the currency regime.

    The government has made a series of moves in recent months to expand the use of the yuan beyond its borders, which some say would benefit its slowing export sector.

    The mainland signed a currency swap deal with Hong Kong on Nov 20. Earlier this year, the government also gave the go-ahead to let Chinese banks issue yuan-denominated bonds in Hong Kong.

  • Posted by bsetser

    Many thanks for all the x-mas/ holiday greetings

  • Posted by Judy Yeo

    what a year, hope next year brings interesting but upbest news (no one ever said hope was necessarily rational)

    have a great festive season people!

    greetings from a rainy/sunny/gloomy part of asia

  • Posted by Judy Yeo

    oh boy, meant “upbeat” and that was without alcohol

  • Posted by Pallj

    Thanks for the blog. It still is the best place to go try make sense of what’s happening in world Economics.

    Have a happy new year!


  • Posted by Charles

    Belated holiday wishes, Brad.

    Thanks for a great site.