China foreign debt rises to $442 billion
Debt worldwide is rising and will continue until the economy stabilizes and confidence is restored. One item that would help this process is letting market forces choose winners and losers so that the right people prosper and the correct lessons are set. Currently, people can not plan for the future because of the jeopardy that the rules will continue to drastically change and they could be hurt by their decisions. Once piece of evidence is the rush to U.S. treasuries even when your getting a negative return on your money in this environment.
News:
China’s foreign debt grew at a slower pace in the third quarter, the country’s foreign exchange regulator said on Friday, reflecting a slowdown in investment from abroad amid the weaker global economy.
China’s foreign debt reached $442.0 billion (300 billion pounds) at the end of September, up 3.4 percent from $427.4 billion at the end of June, the State Administration of Foreign Exchange (SAFE) said on Friday.
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With quantitative easing under way, where is M3?
Well it would be nice to see what this number would be at if they still published it? Many other people has reconstructed data sets that try and emulate the old statistic. From all they I have read, the M3 measure of the money supply would be in double digits. That does not say much for inflation when the business cycle picks up again. At the time of this writing, the Dow Jones Industrial Index lost 7.7% today alone.
I believe people are losing confidence in the system and the information they keep being told. We are bailing out bad institutions with good money and in turn, reducing the confidence in our currency with their bad assets which should of never been made whole. Why do I have to accept $24,000+ in debt to people who got greedy and wanted to raise their relative advantage higher?
Why are we saving a system that has created more wealth disparity than wealth itself? I thought we are suppose to have life, liberty and the pursuit of happiness protected and not oppressed? You can see it in all the currently writings by our press and government. It is all about getting the credit (debt) flowing and not actually address the problem of deficit spending, incentification of profit over job creation & raising of living standard which is what drives consumption in the first place. We actually encourage companies to send job overseas to make products for consumption in the U.S.
Who are we actually benefiting in that situation, I would say the shareholders to the determent of our people. I am not advocating stepping away from free markets with prudent regulation at all, but I am saying that we should take into effect what the costs and benefits are by focusing on consumption and not production. We need to address the real problems and make a system that give equal opportunity to all its people. From their a person can and will choose their path in life.
News:
With quantitative easing under way, money supply is going to become an increasingly important gauge.
Morgan Stanley notes the measure will be a key indicator of when ‘QE’ actually starts to kick in. Before adopting QE, all excess reserves created by the Fed were being hoarded by banks. Rather than increasing, the so-called money multiplier (the link between the Fed’s balance sheet and the money supply) had actually plummeted. The only other time this has happened is during the Great Depression, say Morgan Stanley. But there is reason to be optimistic.
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The World Tires of U.S. Dollar Hegemony
Here is a nice article that explains the dramatic rise in the U.S. Dollar and the USDX currency basket. The yen has been quite strong in the last few weeks while the carry-trade unwinds. At the time of this writing, the USDX was at 85.88. This is a decline from 86.32, which was the top of this last rally. Now that presidential elections are done and we have had a 900 point drop in the DJIA, this is not a good sign but fits my prediction of the calm until the elections. We will see more declines and that will mount more pressure on congress to do more bailouts. The Big 3 automakers were meeting with Nancy Pelosi to beg for $50-100 billion more in emergency loans or they will go bust. Be safe.
Commentary:
What explains the paradox of the dollar’s sharp rise in value against other currencies (except the Japanese yen) despite disproportionate U.S. exposure to the worst financial crisis since the Great Depression?
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U.S. Dollar drops most since 1985 before Fed’s decision on rates
You should not be surprised at this action in the currency markets. With the 50-75 basis points cut coming later this afternoon, logically it should be dollar negative with the easing of credit. We have also had some serious money printing to bailout almost every type of institution under the sun.
Long-term, we have two distinct paths that will be taken. We will raise interest rates and protect the dollar and suck the major excess of liquidity from the economy. Or, we will continue easing and keeping interest rates at this historically low levels, that will lead to massive inflation down the road when the economy picks up.
News:
The dollar fell the most since 1985 against the currencies of six major U.S. trading partners as economists forecast that the Federal Reserve will cut the target lending rate by a half-percentage point today.
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Yen rises on bets carry trade to evaporate on economic turmoil
As the the carry-trade(borrow yen to purchase higher yielding assets) unwinds, the Yen has been strengthing at a profound level. According to Bloomberg, the Yen is trading at a 13-year high against the U.S. dollar. Near the bottom of this article, it mentions the Aussie Central Bank(ACB) has been conducting open market operations to purchase the Aussie Dollar to give it support after it has dropped over 30% in past months.
Article:
The yen rose to the strongest level versus the euro since May 2002 and traded near a 13-year high against the dollar as global economic turmoil encouraged investors to sell higher-yielding assets funded in Japan.
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Yen posts biggest advance in decade as carry-trade evaporates
The yen rose against the euro and posted its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
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US dollar set to be major casualty of bad bank asset bailout
What could you mean? You mean when we issue our currency without limits that this will actually be dollar negative? You darn right it is, smart money can read and they know what this means long term. What we are proposing to do is prop up prices on assets that should be much lower and setting precedent that even if you get yourself stuck with billions or trillions of bad assets we the taxpayers are here to purchase them from you at a higher price and then give you cold hard cash so you can go about lending more credit and not solving the problem or trying to bring price levels to a place where it doesn’t effect the low and middle class citizens to an extent where they will be burdened the most and are really not going to get any upside from it other than maybe seeing our debt retired from the $700 billion we loaned which in comparison is a drop in the bucketed compared to a $10 trillion dollar plus public debt and $1 trillion dollar annual federal budget. I still believe we should protect and reform our currency and let the free market run its course and purge the excess leverage.
News Piece:
Whether or not tomorrow’s accounts of today’s turmoil prove David Owen of Dresdner Kleinwort right; whether or not this is the beginning of the end of the dollar’s pre-eminence in the world’s central banks and foreign exchanges, the economic landscape has undoubtedly changed forever.
The US taxpayer bail-out of America’s banking sector is an event whose significance will reverberate for many years. What it means for free markets, for the way Western economies are run, for the prosperity of the world economy, must remain to be seen.
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