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COMMENTARY for all articles by
Gordon T Long
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CURRENCY WARS: Debase, Default, Deny!
 In
September 2008 the US came to a fork in the road. The Public Policy
decision to not seize the banks, to not place them in bankruptcy court
with the government acting as the Debtor-in-Possession (DIP), to not split
them up by selling off the assets to successful and solvent entities, set
the world on the path to global currency wars.
By lowering interest rates and effectively guaranteeing a weak dollar, the
US ignited an almost riskless global US$ Carry Trade and triggered an
uncontrolled Currency War with the mercantilist, export driven Asian
economies. We are now debasing the US dollar with reckless spending and
money printing with the policies of Quantitative Easing (QE) I and the
expectations of QE II. Both are nothing more than effectively defaulting
on our obligations to sound money policy and a �strong US$�. Meanwhile
with a straight face we deny that this is our intention.
Though prior to the 2008 financial crisis our largest banks had become
casino like speculators with public money lacking in fiduciary
responsibility, our elected officials bailed them out. Our leadership
placed America and the world unknowingly (knowingly?) on a preordained
destructive path because it was politically expedient and the easiest way
out of a difficult predicament. By kicking the can down the road our
political leadership, like the banks, avoided their fiduciary
responsibility. Similar to a parent wanting to be liked and a friend to
their children they avoided the difficult discipline that is required at
certain critical moments in life. The discipline to make America swallow a
needed pill. The discipline to ask Americans to accept a period of intense
adjustment. A period that by now would be starting to show signs of
success versus the abyss we now find ourselves staring into. A future
that is now massively worse and with potentially fatal pain still to come.
READ MORE |
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CURRENCY WARS: Misguided Economic Policy
 The
critical issues in America stem from minimally a blatantly ineffective
public policy, but overridingly a failed and destructive Economic
Policy. These policy errors are directly responsible for the opening
salvos of the Currency War clouds now looming overhead.
Don�t be fooled for a minute. The issue of Yuan devaluation is a political
distraction from the real issue � a failure
of US policy leadership. In my
opinion the US Fiscal and Monetary policies are misguided. They are wrong!
I wrote a 66 page thesis paper entitled �Extend
& Pretend� in the fall of 2009 detailing why the proposed Keynesian
policy direction was flawed and why it would fail. I additionally authored
a
full series of articles from January through August in a broadly
published series entitled �Extend & Pretend� detailing the predicted
failures as they unfolded. Don�t let anyone tell you that what has
happened was not fully predictable!
Now after the charade of Extend & Pretend has run out of momentum and more
money printing is again required through Quantitative Easing (we predicted
QE II was inevitable in
March), the responsible US politicos have cleverly ignited the markets
with QE II money printing euphoria in the run-up to the mid-term
elections. Craftily they are taking political camouflage behind an
�undervalued Yuan� as the culprit for US problems. Remember, patriotism is
the last bastion of scoundres
READ MORE
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Last Update:
11/05/2021 10:55 AM
SCHEDULE: 1st Pass: 5:30AM EST, 2nd Pass: 8:00 AM, 3rd Pass 10:30
AM. Last Pass 5:30 PM
Complete Legend to the Right, Top Items below.
Articles with
highlights, graphics and any pertinent analysis found below.
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1
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1-SOVEREIGN DEBT |
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2-EU BANKING CRISIS |
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3-BOND BUBBLE |
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4-STATE &
LOCAL GOVERNMENT |
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5-CENTRAL & EASTERN EUROPE |
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6-BANKING CRISIS II |
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7-RISK REVERSAL |
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8-COMMERCIAL REAL ESTATE |
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9-RESIDENTIAL REAL ESTATE -
PHASE II |
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10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
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11-PENSION CRISIS |
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12-CHRONIC
UNEMPLOYMENT |
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13-GOVERNMENT BACKSTOP
INSUR. |
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14-CORPORATE
BANKRUPTCY |
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TODAY'S TIPPING POINTS UPDATE |
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RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
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Click to Enlarge
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11-04-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISREAL
KOREA
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1-
SOVEREIGN DEBT & CREDIT CRISIS |
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4- STATE
& LOCAL GOVERNMENT |
|
5-
CENTRAL & EASTERN EUROPE |
US regulators warned on new bank legislation
FT
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8-
COMMERCIAL REAL ESTATE |
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9-RESIDENTIAL REAL ESTATE - PHASE II |
American dream fades for more as homeownership falls
CNN
PDF File
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10- EXPIRATION FINANCIAL CRISIS PROGRAM
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11- PENSION & ENTITLEMENTS CRISIS
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`Invalid' Forms by Supposed Billionaires Skew U.S. Wage Figures
BL
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13- GOVERNMENT BACKSTOP INSURANCE |
Freddie Mac Posts ENORMOUS Loss, Wants $100 Million In Aid
HP
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14- CORPORATE BANKRUPTCIES |
China's Yuan Settlements Jump 160% as Nokia Shuns Dollars BL
| �Doing business with China is much easier now. In the past, we
have faced problems when there was a sudden movement in the U.S.
dollar...� |
China allows Hong Kong to invest in mainland stocks AFP
The latest move to give its currency a greater global role.
China Construction Bank to raise $9.2 billion AFP
Hong Kong luxury real estate prices rise above 1997 peak Telegraph
Hong Kong Land Sale May Get 60% Above Bid That Sparked Auction BL
The government has accelerated land auctions to damp home prices...
Export upgrade urged to counter US probes China Daily
Could a US-China trade war take down the world economy? Guardian
China gets oil from Russian pipeline Shanghai Times
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19- PUBLIC POLICY MISCUES |
US MID TERM ELECTIONS
Obama's Window for Change May Close With Republican Win
BL
We've voted. What's next for the economy?
El-Erian
The economic consequences of gridlock Salmon
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
24-RETAIL SALES
26-GLOBAL OUTPUT GAP
31-FOOD PRICE PRESSURES
32-US STOCK
MARKET VALUATIONS
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
------------
Quantitative Easing Is Just Devaluation Rubin
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It's not domestic spending that the Fed really hopes to
stimulate by printing more money, but, rather, exports.
While the Fed's zero interest rate policy has yet to lever
much in the way of a domestic spending rebound, no one can
doubt its ability to drop the value of its currency.
With the US Treasury depleted and interest rates
already at zero, that's about all that's left in the
policy tool kit. Lurking behind the Fed's official
concerns for deflation lies its real agenda--the old
standby, the "beggar thy neighbor" policy of trying to
export your unemployment to your trading partners via a
falling currency.
It's understandable that a country with nearly a ten
per cent jobless rate and a budget deficit roughly a
matching proportion of its GDP should want to export its
unemployment abroad. What's puzzling is why the rest of
the world still wants to hold its money as a reserve
currency.
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A Refresher Before Fed's Announcement of Second Round of
Quantitative Easing NTrust
QE2: Will the Fed's Actions Match its Rhetoric? M.Stanley
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The economic impact of the change in financial
conditions is highly uncertain; the fractures in the
monetary policy transmission mechanism probably mean that
QE won't yield much bang for buck. For example, Meyer and
Bomfim at Macroeconomic Advisers in September estimated
that a US$2 trillion asset purchase program might:
1) lower Treasury yields by 50bp;
2) increase GDP growth by 0.3pp in 2011 and 0.4pp
in 2012; and
3) lower the unemployment rate by 0.3pp by the end of
2011 and 0.5pp by the end of 2012.
However, they admit that these may be "high-end
estimates" because they don't take into account the unique
nature of the current credit environment and the potential
blockage of some of the normal transmission channels.
Thus, one could argue that several trillion in asset
purchases is needed, as suggested by our prior analysis.
We would add that uncertainty about the fate of expiring
tax cuts - if it persists - may negate some of the impact
of QE2.
Beyond its direct impact on the domestic economy,
however, QE2 may indirectly promote faster US growth
through a less-recognized, international channel: The
Fed's actions are strengthening currencies abroad and
forcing policymakers to choose whether to accept currency
strength, adopt easier policies, or implement capital
controls. Many central banks in both EM and DM economies
(e.g., Australia, Canada, Korea) are accepting currency
strength and/or choosing easier policies to resolve this
�trilemma', or impossible trinity.
As our colleagues Alan Taylor, Manoj Pradhan and
Joachim Fels noted recently, "while the policy responses
have been diverse, the net effect is a further loosening
of the domestic monetary policy stance in many emerging
market economies (except China), which should amplify the
effects of the US monetary easing, and a depreciation of
the US dollar that should support US exports and global
rebalancing". At the same time, such pressures do risk
fanning currency tensions or even triggering protectionist
measures, which would be extremely negative for global
markets and the global economy. That's all the more reason
for the Fed to be clear about its goals this week.
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Institutional failure week Reuters Saft
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"Rather
than a great moderation, the past 15 years have been a
great misallocation, and one which the Fed seems
determined to extend and politicians unable to end."
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The Fed's Big Gamble: Here's What Could Go Wrong AP
QE2 is risky and should be limited Feldstein
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The Federal Reserve�s
proposed policy of quantitative easing is a dangerous
gamble with only a small potential upside benefit and
substantial risks of creating asset bubbles that could
destabilise the global economy. Although the US economy is
weak and the outlook uncertain, QE is not the right
remedy.
Ahead, when the US economy does begin to grow, the
increased cash on banks� balance sheets will make the
Fed�s exit strategy harder. It was previously �cautiously
optimistic� it would be able to contain the inflationary
pressures that could be unleashed by banks with a trillion
dollars of excess reserves. This will be harder if the
amount of excess reserves is doubled. This could lead to
much higher interest rates to restrain demand or to an
unwanted rise in inflation
Why is the Fed doing this? It is of course worried by
the weakness of the US recovery. Fiscal policy is
sidelined by the deficits projected for the years ahead.
Traditional monetary policy has already done what it can:
short-term interest rates are close to zero, commercial
banks hold a trillion dollars of excess reserves, and the
money supply is growing more rapidly than nominal gross
domestic product. But the Fed leadership does not want to
be seen to be idle when the economy is in trouble.
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Since short-term interest rates are already near zero,
some economists advocate QE to reduce the real interest
rate by raising inflation temporarily while holding the
nominal interest rate unchanged. A 4 per cent expected
rate of inflation for the next few years would turn a 1
per cent nominal interest rate into a real rate of minus 3
per cent, thereby stimulating interest-sensitive spending.
But doing that would jeopardise the credibility of the
Fed�s long-term inflation strategy.
Mr Bernanke�s argument for QE is based on the
�portfolio balance� theory which stresses that, when the
Fed buys bonds, investors increase their demand for other
assets, particularly equities, raising their price and
increasing household wealth and spending. Equity prices
have already risen by 10 per cent since Mr Bernanke
discussed this approach. But how much further will equity
prices rise and what will that do to GDP?
Neither theory nor past experience can answer the first
question. Much of the share price increase induced by QE
may already have occurred based on expectations. An
optimistic guess would be another 10 per cent. Since
households have about $7,000bn in equities, that would
imply a wealth gain of $700bn, raising consumer spending
by about one-quarter of one per cent of GDP, a welcome but
trivially small effect on incomes and employment.
The other ways in which QE would raise GDP are also
small. A 20-basis-point reduction in mortgage rates would
have little effect on homebuying at a time when house
prices are again falling. The increase in banks� liquidity
would do nothing since banks already have massive excess
reserves. Big corporations are sitting on vast amounts of
cash. Small businesses that are not spending because they
cannot get credit will not be helped, because the banks on
which they depend have a shortage of capital.
The truth is there is little more that the Fed can do
to raise economic activity. What is required is action by
the president and Congress: to help homeowners with
negative equity and businesses that cannot get credit, to
remove the threat of higher tax rates, and reduce the
out-year fiscal deficits. Any QE should be limited and
temporary
|
Bernanke Bond Buying May Risk Rise in Prices Similar to 2004
BL
|
GENERAL INTEREST
Ten
years of bearishness Bear�s Lair
Deja vu, all over again? Hulbert
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
G20 MEETING
Sarkozy to meet Hu as France takes G20 lead FT
CURRENCY WARS
Australia, India fight Fed with 'quantitative tightening' Pritchard
|
The long-awaited moment of "triple parity" seems imminent. The
Swiss franc is already worth more than a greenback, and the
Canadian dollar is seemingly poised to break through as well. The
surging "Aussie" - widely seen as a play on the China growth story
and used by traders as a proxy for the Chinese yuan - captures the
shift in the world's economic centre of gravity to the Pacific
region. The currency was worth half a US dollar just nine years
ago.
|
U.S. presses G20 for trade targets AFP
|
The United States is lobbying other Group of 20 economic powers
to introduce firm targets to redress global trade imbalances, a
Treasury official said Tuesday.
"We are pushing for concrete guidelines that would provide a
basis for countries to commit to, and provide a basis for
effective monitoring by the IMF (International Monetary Fund), the
official told reports, on the condition of anonymity.
Treasury Secretary Timothy Geithner had proposed at a G20
finance chiefs meeting in South Korea last month that the G20
members assign a specific limit for their current account surplus
or deficit -- four percent of gross domestic product (GDP).
The idea was met with opposition from several members of the
G20 industrialized and emerging-market economies.
The US Treasury official, who did not mention the four percent
target, said the US was optimistic of winning support for the
proposal at the G20 summit in Seoul on November 11-12.
"We are hoping that at the G20 meeting in Seoul we'll be able
to reach broad agreement on a framework for indicative guidelines
for current account imbalances, that would provide a useful
framework for discussion and analysis of these issues going
forward," he said.
"But it is a process, it's not that we expect to achieve a
certain language at a specific date. The key objective is to have
a strong language by the time we get to the G20 meeting."
He said the US and China, the world's two largest economies,
were making efforts to rebalance their current accounts, the
difference between a nation's total exports of goods, services and
transfers, and its total imports of them.
The US has a current account deficit of 3.2 percent of GDP,
while China has a surplus of 4.7 percent.
"Many of the actions China has been taking in recent years to
build up social safety nets, infrastructure, are consistent with
this shift in strategic orientation. I think they understand the
need to contain their current account surplus, and they have made
a broad undertaking in their own strategic considerations," he
said.
The official noted the US has "two important commitments."
"One is to make sure that we have a
vigorous, healthy economy, that contributes to the durable
recovery of the global economy. And secondly, we are committed to
raising our savings rate over time, and containing our own current
account deficit."
|
QE2 of Fed Will Inflict Heavy Forex Loss on Asian Central Banks Taiwan
Economic News
An internal report of a domestic financial holding company
notes that Asian central banks have been adjusting the portfolio
of their forex reserves� assets recently, reducing U.S.-dollar
assets while increasing euro-denominated ones.
To lessen
their loss from U.S.-dollar assets, some Asian central banks have
also been buying large amounts of gold or non-U.S. dollar bonds,
such as the increased holding of Japanese bonds by People`s Bank
of China.
Outstanding amount of forex-reserves held by
Greater China, South Korea, and Japan now stands at US$4.3
trillion, at least 50% of which in the form of U.S. assets
(including deposits and bonds). For every 1% depreciation of the
U.S. dollar, their central banks would incur staggering forex loss
of US$21.5 billion.
The Central Bank of China (CBC) in Taiwan
estimated that it would suffer NT$10.5 billion of forex loss for
every one NT$1 of appreciation in the NT dollar`s exchange rate
against the U.S. dollar. The CBC now has US$400 billion of forex
reserves under its custody. |
Foreign reserves approaching $300 billion Korea Times
Q3 EARNINGS
MARKET &
GOLD MANIPULATION
AUDIO / VIDEO
QUOTE OF THE WEEK
It�s easy
being a humorist when you�ve got the whole government working for
you.
� Will
Rogers
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Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.ont>
� Copyright 2010 Gordon T Long. The information
herein was obtained from sources which Mr. Long believes reliable, but he
does not guarantee its accuracy. None of the information, advertisements,
website links, or any opinions expressed constitutes a solicitation of the
purchase or sale of any securities or commodities. Please note that Mr.
Long may already have invested or may from time to time invest in
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Long does not intend to disclose the extent of any current holdings or
future transactions with respect to any particular security. You should
consider this possibility before investing in any security based upon
statements and information contained in any report, post, comment or
recommendation you receive from him.
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4-STATE & LOCAL
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10-EXPIRATION FINANCIAL
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11-PENSION CRISIS |
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12-CHRONIC
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13-GOVERNMENT BACKSTOP
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14-CORPORATE
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17-CHINA BUBBLE |
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18-INTEREST PAYMENTS |
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19-US PUBLIC POLICY MISCUES |
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34-S$ RESERVE CURRENCY |
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36-NATURAL DISASTER |
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