September 15, 2010
CURRENCY MANIPULATORS
Twenty-five years ago the USA forced Japan to appreciate its currency in order to correct its own bad books by fixing (temporarily) America's current account deficit. The Plaza Accord of 1985 led to rampant speculation in the Yen and a financial crisis and depression from which the Japanese have yet to recover. From the sidelines, having secured the return of Hong Kong and its capital, Beijing watched and learned.
Since the dotcom bubble popped and jobless recoveries, booms, and busts have America stalled, certain political factions believe that if Uncle Sam can force a similar appreciation of the Yuan on Beijing the American Dream can be saved. Chief among the politicians is Chuck Schumer (D-NY) and his chorus of taxpayer funded think tank reports and leading talking heads. One of the biggest proponents of the China tariff clique is Nobel Prize winning economist Paul Krugman. Krugman used his NY Times column again today to call for tariffs on Chinese goods deciding that one lesson from the Great Depression - the Smoot-Hawley Act - is not worth heeding.
I've written many posts and Sinomania! Show episodes on the futility of trying to force Beijing's hand on Yuan. Do a search here and on the Sinomania! website and you'll come up with the same conclusion. America cannot fix its problems by manipulating international forex markets. Beijing unlike Japan is not America's satellite and cannot be told what to do and is not afraid of Washington. And the biggest reason why people like Krugman and Schumer know that the issue is just hot air is not the "threat" of a "nuke option" - Beijing selling its holdings of US Treasury securities - but because the average American mired in a deep recession can't afford to pay two and three times for all the stuff they buy from WalMart, Target, IKEA, and everywhere else!
Further the accusation that Beijing manipulates the Chinese currency is complete hypocrisy when Washington and Tokyo both do the same. Just yesterday Tokyo intervened in forex markets for the first time in years to stop Yen appreciating. And Washington deliberately devalues the dollar (what W called the "strong dollar" policy) to support American exports and reduce the value of its debts.
Labels: currencies, financial crisis, forex, free trade, japan, schumer, yuan
February 12, 2010
World Markets Slide: Blame China
The consenus view of mainstream media today is that worldwide stocks and futures markets sank in reaction to the Chinese central bank raising its reserve requirement a half a percentage point. But contrary to what most reports claim the increased requirement for banks in China was not a surprise. Further an increase in the People's Bank of China benchmark interest rate, a much more important change, is expected sometime this year possibly in the second half as long as the Chinese economy continues strong growth. Money managers already factored in these increases in their predictions and analyst advice sometime ago.
More likely world markets reacted to news from the EU that its anemic recovery is faltering. Official statistics from the EU show that 4th Quarter 2009 GDP barely increased 0.1% and industrial production fell almost -2%. Add the ongoing sovereign debt problems in Greece and other EU members and surely world markets are more rattled by events in the EU than anything happening in China.....
More likely world markets reacted to news from the EU that its anemic recovery is faltering. Official statistics from the EU show that 4th Quarter 2009 GDP barely increased 0.1% and industrial production fell almost -2%. Add the ongoing sovereign debt problems in Greece and other EU members and surely world markets are more rattled by events in the EU than anything happening in China.....
Labels: banking, financial crisis, global economy, stock market
December 16, 2008
World Bank's Zoellick: China Must Maintain Growth
Speaking to a crowd of reporters in Beijing, World Bank President Robert Zoellick (former Deputy Secretary of State and Trade Representative in the Bush administration) praised China's efforts to stabilize its economy and said the most important thing China can do in 2009 ("a very difficult year for world economy") is maintain growth. Zoellick is meeting with Chinese officials pressing for continued reform and opening markets.
Labels: financial crisis, free trade, new world order, panic of 2008
December 15, 2008
As Economy Slows China Speeds Financial Reforms
A noted Chinese economist forecasts economic growth declining in China to the third quarter of 2009.
Over the weekend China's all-powerful State Council released a series of reform measures to the country's financial system.
The headline grabber is an increase of M2 money supply of 17% next year but more important are some rule changes that could boost the Shanghai and ShenZhen stock markets:
New futures in steel and grain
A big push for corporate bonds particularly of companies in infrastructure building and supply. For example, insurance companies are encouraged to invest in such bonds and banks will be allowed to buy and sell bonds offfered on the exchanges.
Creation of Real Estate Investment Trusts (REIT) on a trial basis.
And further reform of the Yuan including trade settlement in Yuan with neighboring countries.
Morgan Stanley in Hong Kong believes the actions taken to date by Beijing will be enough to keep China out of recession but plenty of risks remain.
Labels: financial crisis, money, panic of 2008, yuan
December 05, 2008
Paulson In Beijing: US-China Relations "Vital"
BEIJING - In closing remarks today at the 5th session of the US-China Strategic Economic Dialogue, out-going Treasury Secretary Paulson said "the U.S. – China economic relationship will continue to be vital to the health of our two economies and the global economy" and generally praised the cooperative efforts to date between the USA and China to stabilize the global economy in the midst of the Panic of '08.
Several measures were unveiled including a $20 billion committment for each nation's export/import banks to extend credit to worthy importers.
The Strategic Economic Dialogue was started by Presidents Bush and Jiang. It has already lasted through China's presidential transition. Will it survive under President Obama?
Labels: exports, financial crisis, panic of 2008, paulson, strategic dialogue
November 17, 2008
Pure Vanilla
The much anticipated G20 Summit in Washington, DC, resulted in the following reassurance from the G7 nations plus BRIC and other "emerging" economies:
"We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems."
In the words of one participant the gathering was "plain vanilla" and intended - like the opulent showy setting in Washington's monumental old Pension Building - to give the illusion that the world's political elite are united in responding to the Panic of '08.
Meanwhile most of the world's reserve currency, the dollar, is held outside the "Western" world while the latter still controls the old global institutions of the past - the IMF and the UN.
Labels: dollar, financial crisis, panic of 2008, un
Chinese Airlines May Get Bailout
An anonymous source at China Southern Airlines confirmed to the Shanghai Securities News that the company was seeking a cash injection from China's central government. Unconfirmed reports are that Air China and China Eastern are also seeking a bailout from Beijing. China Eastern has grounded 10% of its fleet as Chinese cut back severely on air travel.
Labels: aircraft, financial crisis, panic of 2008
November 14, 2008
Will China Switch to Gold?
The Hong Kong Standard asserts that China may up its gold reserves to close the gap with the US. Beijing's offical gold reserves are a mere 7% of Uncle Sam's hoard. Beijing has moved to diversify its foreign exchange reserves (world's biggest) into other currencies but China's reserves are still mainly denominated in the dollar and used to buy mostly USA Treasury debt. Given the admitted lack of transparency now in Washington's financial picture thanks to Wall Street corruption, it would not be a surpise if Beijing began to move away more quickly from the dollar. Noble winning economist Robert Mundell who advises the Chinese government was overhead at a confab saying that Beijing should buy IMF gold holdings. China may announce its readiness to support IMF's balance sheet at the G20 summit this weekend. Would gaining IMF gold be part of any financial assistance?
In Sao Paulo this week China's Central Bank chief Zhou Xiaochuan hinted that China may allow the Yuan to depreciate in order to do whatever it takes to support Chinese exports. Meanwhile Canada is ready to pressure China to appreciate the Yuan at the G20 summit. Interesting times...
Labels: financial crisis, gold, panic of 2008
October 24, 2008
ASEAN + 3 Beats G20
Meeting in Beijing the 7th Asia-Europe summit pledges to coordinate response to the global financial crisis. In November the prime ministers of China, S.Korea, and Japan, will join ASEAN representatives in Manila ahead of USA President George Bush's G20 summit.
Will the ASEAN plus 3 lay the groundwork for an eventual pan Asian currency? And will it be in the Dollar or Euro zone or a new zone around Renminbi + Yen?
Labels: financial crisis, panic of 2008
October 10, 2008
G7 Puffery Won't Fix Financial Mess
Speaking on Italian televison, the Finance Minister of Italy said the current proposal being discussed by the G7 emergency summit in Washington changes nothing and Italy won't sign on.
The Panic of '08 is not isolated to the Atlantic Alliance. Washington and New York big wigs need to put down their worn out copies of Churchill's memoirs, stop listening to Henry Kissinger, and bring China to the table. It is apparent that Europe cannot operate as a group. France is busy courting Russia, Germany embittered, and Italy in a tantrum. The EU can't function as one.
Carlos Slim Helu, alternately the richest man in the world, asks why China isn't buying up American assets. Many others are calling for coordination with China on the global financial meltdown. Here's a good summary.
Labels: financial crisis, money, panic of 2008
October 09, 2008
"Canada is not China"
So says a former Fed official as the USA seeks well-capitalized banks to clean up Wall Street's big financial mess. Of course that comment simply means that Congress won't balk if Canada banks start buying up American assets. Of course, Canada is not China financially either. Unlike Canada, China is sitting on a the world's largest collection of dollar bills and American debt. As the current election cycle is showing, bigotry and ignorance of the world beyond the United States' coastlines may sell politically but it continues to do serious damage to the now short-term prospects for American citizens.
In a related note, the remainder of the BRIC countries (Brazil, China, India) will attend Treasury Secretary Paulson's emergency G7 and later G20 summit starting tomorrow. Russia is already regular member. Will we see a new Bretton Woods emerge? We'll find out Saturday when the meeting is supposed to make an announcement.
Labels: BRIC, china, financial crisis, paulson
October 08, 2008
Is Bretton Woods II Dead?
The coordinated rate cuts by central banks around the globe today included China. The faded G7 powers and their corporate and state-owned (BBC, for example) press still view the so-called "subprime," "credit," "liquidity," financial crisis as an Atlantic Alliance issue. Nothing could be further from the truth. China is at the core of the financial system as much as the USA since they both depend on the "Bretton Woods II" regime of financing trade deficit with borrowed dollars. For years the USA has agreed with China that 'you buy our goods, we buy your debt.' That system is now unravelling.
A week ago the President of France Nicholas Sarkozy said "Laissez-faire is finished." He joined the call first made last year by outgoing German Chancellor Gerhard Schroeder for a G7 summit to fix the world's financial mess.
But what we really need is a Bretton Woods III conference where the USA, the EU, and China sit down and hammer out what the world's financial future will be. Certainly rich holders of dollars such as Japan, Russia, and financial centers of the Middle East should be there too as important participants.
If the future will be multipolar balanced by the dollar, the Euro, the Yen, Renminbi (Yuan), and Gold, as famous gloomsayer Mark Faber forecasts, then we need to get together now to craft a new system.
Labels: bretton woods ii, dollar, financial crisis, foreign exchange, gold, yuan
October 06, 2008
World Needs A New G-3
With the exception of the fire-breathing wing of the American Republican Party most observors of the current scene agree that the global influence of the USA is finally beginning to wane. Events of the Panic of '08 show that the world really contains 3 superpowers specifically the USA, the EU, and China. An interesting analysis of where we are and where we very soon need to go is provided by one Parag Khanna in Der Spiegel. Two key grafs:
"As stealthy, globalized escalations continue among the great powers undeterred by global governance norms, the potential for conflict grows: resource competition in the Caspian and South China seas, terrorism with nuclear weapons, an attack in the Gulf of Aden or the Straits of Malacca. The uncertain alignments of lesser but still substantial powers such as Russia, Japan, and India could also cause escalation. Furthermore, America's foreign lenders could pull the plug to undermine its grand strategy, sparking economic turmoil, political acrimony, and military tension. War brings profit to the military-industrial complex and is always supported by the large patriotic camps on all sides. Yet the notion of a Sino-US rivalry to lead the world is also premature and simplistic for in the event of their conflict, Europe would be the winner as capital would flee to its sanctuaries. "
"Yet at present the term "international community" is little more than a euphemism for Western dominance. The West can expect no allegiance to a Western order masquerading as representative of global values decreed without global input. America has called on China to be a "responsible stakeholder" in the global system, but because it is implicitly an American order China is naturally resistant to it. China will not exercise its enormous economic weight in the interests of antiquated and unrepresentative clubs like the G-8 that will not even let it in. Similarly, much as the efficacy of the UN Security Council today depends on the United States, the same is becoming true of China, which can also bribe the rotating Security Council members to vote its way. Without a new division of labor, Western institutions will diminish with America's power, leaving only classic geopolitical competition without even the veneer of diplomatic coordination. "
Labels: financial crisis, g3, new world order, panic of 2008
September 29, 2008
China to USA: A fish doesn’t stink from the tail
The 2008 summer session of the World Economic Forum has concluded in Tianjin, China, with harsh words from China bank regulator Liu Mingkang who criticized the US financial industry for getting the world into the current credit and liquidity mess. The oft quoted and widely respected Chairman of Morgan Stanley Asia, Stephen Roach, said the "The US will have its version of Japan’s lost decade" now.
The consenus appears to be that economic growth will come soley from Asia in the years ahead with all eyes on China primarily.
Labels: bubble, credit crunch, financial crisis, world economic forum
September 25, 2008
Hong Kong Financial Virus Erupts
While Washingon and New York scramble to avoid a repeat of October '87 or even '29 on Wall Street, the Hong Kong rumour mill is in full gear and could yet trigger a massive slide.
Yesterday, rumours circulated that Bank of East Asia was failing and an old style bank run was on with photos and headlines splashed acrossed world media. Today, the South China Morning Post reported that Beijing's bank regulator (China Banking Regulatory Commission) told domestic banks to stop lending to US financial institutions, a report denied by the agency. If American politicians don't declare victory soon I expect the Hong Kong viral panic may wield its own special damage.
Labels: banking, financial crisis, hong kong, panic of 2008
September 24, 2008
China May Say NO to Derivatives
According to an "exclusive" at Bloomberg, Beijing is reconsidering whether to introduce derivatives and further liberalize China's financial sector. Hank Paulson's supreme reputation is seriously tarnished and that has diminished his still considerable guanxi with the State Council. I predict China will turn more to Europe now as its primary model.
Labels: china, derivatives, financial crisis, paulson
July 21, 2008
Learn From Subprime Says Paulson
Meeting with BusinessWeek magazine editors US Treasury Secretary Paulson told of a recent exchange with his Beijing buddies:
Vice-Premier Wang Qishan (his Chinese counterpart in the US-China Strategic Economic Dialogue) said to Paulson recently, “We’ve been listening a lot to you and now we find out our teacher has problems.” Paulson said he responded, “Learn from us and you can avoid some of the mistakes.”
Teacher has problems, indeed.
hat tip to John M at Calculated Risk blog
Labels: credit crunch, financial crisis, paulson, sed, strategic dialogue, subprime
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