The Bernank Hit With A BRIC

Well, in a little heralded meeting the BRIC Countries (Brazil, Russia, India, China; though with a new addition of South Africa… but I guess BRICSA didnt’ sound catchy so they’ve not changed the name) all met and discussed dumping the US Dollar.

For trade between them, they are planning to use each others currencies and they are proposing the use of SDRs (Special Drawing Rights) for interbank exchanges instead of the US Dollar. They also want to rejigger what currencies go into the basket that makes up the IMF (International Monetary Fund) SDRs. (No doubt dumping some dollars and adding some of their currencies).

http://www.reuters.com/article/2009/03/23/us-emerging-dollar-sb-idUSTRE52M5UZ20090323

Falling greenback fuels BRIC dollar reserve rethink

By Sebastian Tong and Peter Apps – Analysis
LONDON | Mon Mar 23, 2009 3:00pm EDT
(Reuters) – A push by the world’s leading emerging economies to dislodge the dollar as the dominant global reserve currency appears to be gaining momentum even as a weakening greenback adds further urgency to the discussion.

China on Monday added its voice to a growing international chorus seeking the replacement of the dollar as the main reserve currency, urging for an overhaul of the global monetary system to allow for wider use of Special Drawing Rights (SDRs) allocated by the International Monetary Fund (IMF).

Chinese central bank chief Zhou Xiaochuan said the SDRs, created by the IMF as international reserve assets in 1965, could be used as a super-sovereign reserve currency, eventually displacing the dollar.

His comments come a week after Russia said it would put forward a proposal for the creation of a new reserve currency issued by international financial institutions at the G20 meeting in April.

Russia said it had the broad support of its fellow BRIC countries — Brazil, India and China — as well as South Korea and South Africa for its proposal.

The push underscores growing concerns among emerging-market leaders about the long-term value of the dollar.

Hindustani Times has a similar article (though their page has a lot of ads and heavy script page weight):

http://www.hindustantimes.com/BRICS-challenges-dollar-dominance/Article1-685336.aspx

Ouch! That’s gotta hurt! When India is saying your currency is crummy, you have a problem. The only thing worse would be if the Russian Ruble (that we used to all the Russian Rubble) were stronger too…

http://www.themoscowtimes.com/news/article/brics-rails-at-financial-status-quo/435083.html

President Dmitry Medvedev and other BRICS leaders called for sweeping reforms of international financial mechanisms, hinted at displacing the U.S. dollar as the world’s major trade currency and condemned the NATO bombing of Libya at a summit of leading emerging economies in China on Thursday, but there were few actions to match the words.

Speaking at the summit of Brazil, Russia, India, China and South Africa in Sanya, China, Medvedev said he and his Chinese counterpart Hu Jintao had “agreed to intensify work on the eastern and western gas supply routes before the end of the year” during a bilateral meeting earlier in the day.

“We are talking about this year, I mean the basic conditions for approval. Naturally, the deliveries will begin later,” he told reporters, adding that, although each side would push its own business interests in price negotiations, positions had generally moved closer.

China is a growing foreign policy priority for Russia. It is the world’s biggest energy consumer and became Russia’s main trading partner last year.

Medvedev promised during a visit to Beijing in September to supply China with all the gas it needs for economic development.

In 2009, China extended a $25 billion preferential-rate loan to Rosneft and Transneft in exchange for a 20-year oil supply contract.

Medvedev will go on an extended visit to China, following the BRICS meeting, with an appearance at China’s Boao Forum and a visit to Hong Kong on Saturday.

Although the BRICS forum had criticized the world’s reliance on the U.S. dollar, Medvedev played down speculation that the five countries might adopt the Chinese yuan as a trade currency.

“Of course, the Chinese economy is huge, and in this sense the role of the yuan is growing, but we haven’t made any special decisions regarding the yuan, nor are they being discussed,” he told reporters.

Earlier Thursday, the five countries signed a memorandum on cooperation among their national financial development institutions that paves the way for the countries to grant one another loans in their national currencies.

So, not just the yuan, that’s how I’d read it…

All five are currently members of the UN Security Council.

In this spirit, the five issued a joint statement calling for an overhaul of the international financial system and reform of the International Monetary Fund, criticizing dependence on traditional reserve currencies like the U.S. dollar and condemning NATO-led air strikes against Libya.

“This is not a format where countries decide things; it is much more about showing the emergence of new structures as opposed to old organizations,” said Fyodor Lukyanov, editor-in-chief of Russia in Global Affairs.

This is going to be a problem…

The reason this matters is that many $Billions to $Trillions of US Currency are held in banks around the world as “international reserves”. They had to give us stuff to get those dollars, that they then could not spend here to buy up our country as they needed to be held as “reserves”. If the dollar gets dropped or even reduced as a reserve currency, they can then send those dollars to the US Treasury and ask for something with real value in exchange. (Be it gold, Euros, whatever) If the Treasury balks, they could just buy things like coal mines and sea ports with the dollars directly ( oh, wait, China is already doing that..) and dump the dollars into circulation without the Treasury getting first crack at absorbing them.

The bottom line is that it can crash a currency and / or trigger massive inflation.

One hopes “The Bernank” is listening…

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Political Current Events and tagged , , , , , . Bookmark the permalink.

20 Responses to The Bernank Hit With A BRIC

  1. Sera says:

    SDR is to protect borrowers or lenders?

    On a funny note, I thought that you might want to see this:

    http://flowingdata.com/2011/04/14/sorting-algorithms-demonstrated-with-hungarian-folk-dance/

  2. Ian W says:

    Unfortunately, people do not realize how fragile the current US economy is. It would only take something relatively minor to trigger inflation that would overwhelm the capability of the ‘Fed’. There would be NO recovery from such a crash you cannot regain the position of world reserve currency once the world has moved on. The current crop of politicians in the US and their placemen in agencies, appear to be intentionally driving the economy straight toward a cliff

  3. pascvaks says:

    It’s called the Big ‘Bama’ Blan in some circles. The only way to remake The World (aka the USofA) in your own image is to first destroy it and then rebuild from scratch in the image of the Ol’ Soviet Union. Has anyone else been getting itchy lately?

  4. pyromancer76 says:

    Seems like the BRIC (+SA) has a brain. Who would want this currency in the shape it’s in?
    We must raise interest rates (part of “inflation”, no? I remember 16%; my father charged me the going rate for a loan to get a business started — usury anyone?) so people will begin saving again, inflation is already upon us anyway; the housing market debacle needs to be cleared away.

    Someone on the blogs I read wrote that we need to get our economy fixed so house prices will rise again and people can invest in the market. The stated fear was that house prices would depreciate 25%. Sorry, we will be fortunate if 25% is all that house prices fall — to a more natural level given the population to buy them. Unless we find many more Chinese, Indian, Russian, and Brazilian names on the deeds. Our demographic bubble, the baby boomers, are past their house buying days; they also paid inflated prices — and gave down-payment money — so their children could own a (inflated-price) house, too. Lovely couple next door to me, getting married next month. I think on the other side, too, but not clear. Nice new neighbors. Most of the children did not “do it” solely on their own salaries.

    We must accept the pain, something like President Reagan brought on at the beginning of the 1980s. (But we better not have anyone like a Bush as VP). And I am not and have never been a Republican. I simply value the republic and its representative democracy.

    Been there, done that. Lost 25% of value of house; it took a long time for value to recover. U.S. housing value maintained at that lower level and did not fall further, in my memory, because many of the names on deeds had a Chinese (Hong Kong, esp) or Spanish surname (those who used the opportunity offered at the time). (M-in-law worked with 2nd generation Mexicans who lived carefully, saved, and went from field-hand father to their own “respectable” white-collar jobs paying ok. All bought houses; children achieved M.A. — business –and Ph.D. — biology — and are doing well.)

    We were fortunate because we bought at the beginning of that bubble. We had to bid, but prices skyrocketted and then fell 25%. We came out ok. Unfortunately, a bubble was reconstituted by easy money, fraud in the lending industry, and the baby boomers, plus their children, buying luxuriously. No more bubble to recreate with Americans.

    Back to freedom of opportunity; that is our only hope. And we have an abundance of natural resources to back it up. We cannot let those resources be bought up by “foreigners” — although foreign investment has always fueled American growth and development, from the 19th century on.

    I charge Chiefio and his excellent cohorts to continue to explain these cold, hard facts — facts that can set us free — to Americans. But try to hold the pessimism, if possible. Remember what the mid-20th C generation of Americans went through — a Great Depression and then a World War. I think the future appeared much darker then. I also believe that our current President is appearing to more and more Americans like the biggest Affirmative Action Baby of all time, which he is. He had absolutely no resume, no experience, to take on the “most important job in the world.” I think most Americans want some proven ability in office; not words from a teleprompter and playtime for himself and his family.

    And don’t forget “work” — E.M., you have outlined the plan beautifully — required for anyone healthy, even if old, who receives any government money, including “block grants” to states. That means all those retirees or soon-to-be’s who used to expect their SS check as a clear right. How about 8- or 10-hours per week. Yes, we “saved” our money with the government (isn’t that a joke), but we also needed to save on our own, too. The government (if it has any money — whoops, money is what the essay is about) will fund us until our death. Since our savings might not last that long, we can perform some work in return for government “security”. Now that would take a new department of the government, wouldn’t it?! But all these “voluntarily” working Americans could mean the elimination of many other departments — education first, then HHS, then…..

  5. Chuckles says:

    E.M.
    SA is not a new addition, been there in the thick of it ever since the BRICS (the S is SA) grouping started getting cordial.
    Essentially the same bunch who told the west to get stitched at Copenhagen and later climate angst fests.

    In a similar vein, I noticed these appearing in the last couple of days. Very don’t like

    http://www.bbc.co.uk/news/business-13090135

    http://imarketnews.com/node/29203

    http://www.bloomberg.com/news/2011-03-02/gold-buying-in-china-totals-200-tons-so-far-this-year-ubs-says.html

    The cluelessness of the BBC reporter is remarkable, and that food inflation number is scary.

    Do not be alarmed. Be very, very frightened, to quote D. Adams.

    It’s also not the only thing the BRICS are talking about –

    http://www.theregister.co.uk/2011/04/15/brics_bypass_europe/

  6. Cold Lynx says:

    It is very simple.
    BRIC Countries have a population of about 10 times US population.
    That is why the world economy change focus in all aspects.
    US dollar is only one example.

  7. oldtimer says:

    This idea (of replacing the US$) was floated by a leading Chinese official last year. It should come as no surprise. The China-US financial relationship is very unstable. China already holds too many US Treasuries for its comfort. It needs to deal with countries whose debt:GDP ratios are sub 40% (like the emerging and developing markets) not over 100% like the G7 countries.

    The US “empire” is in inexorable decline as a consequence of its unsustainable debt burden – just like the Spanish Hapsburgs in the 16thC, the French monarchy in the 18thC, the Ottoman Turks in the 19thC and the British Empire in the 20thC. Better get used to the idea. You have had the boom. Now comes the bust. The problem is that the ruling elites find it very difficult to come to terms with their reduced circumstances. No doubt the Chinese have worked all this out for themselves. No doubt also, it will take a few years to play out but play out it will.

  8. George says:

    Part of (actually, the major part of) why we have been the global reserve currency really has to do with the world situation in 1945.

    We were the only major industrial nation on the planet that hadn’t been blown to smithereens by war.

    If anyone on the planet wanted farm equipment, industrial equipment, electronics equipment, etc. It came from the US. Same with raw materials. If you wanted coal or iron (or even finished steel) or fertilizer or oil … you bought it from the US.

    We *skated* on that for quite a while. Then an interesting thing began to happen in the 1980’s. The US is no longer the world’s largest oil exporter, mines are beginning to open in Brazil. Asia and Europe are starting to increase their production of finished steel and with that the production of trains, planes, and automobiles.

    The US, beginning in the 1980’s, is no longer the “go to economy” for everything. Part of what is causing so much angst in people is their expectation that the situation in the 1950’s and 1960’s was somehow “normal”. It wasn’t.

    We are seeing the development of a global economy that is much different than anything we have seen since the industrial revolution.

    During the industrial revolution we saw a change in power from the traders to the producers. That was mainly because there were really so few producers. The British Empire and its former members were basically the world’s industrial power. The English speaking world was the economic power house.

    Now what we are seeing is a spreading of industrial production more globally with less power centered in a few locations. This will result in the demise of “the producer” nations and a rise of “the trader” nations. Once the world industrial capacity is more evenly spread, it will be the countries that move items between markets and have lower barriers to trade that will rise to the top.

  9. Jason Calley says:

    George, you make some really good points. Global access to high tech changes almost everything. The just-starting production of small scale fabricators (“3D printers”) combined with the development of efficient small scale microwave smelters will continue the trend to decentralized production. If we only had GOOD small scale, decentralized energy production, we would be looking even better. Lacking some new energy production technology, if only we had GOOD (and cheap) ultra-capacitors. It may become cheaper to ship charged capacitors around the world than to ship the oil and burn it locally. Heck, just recycle your old supertanker into a super capacitor carrier. Burn the coal in Australia, generate the electricity, charge the ship. Sail the ship to China, dock it, plug it into the grid. Lather, rinse, repeat.

  10. As everything in economics is about “expectancies”, it will all depend on your political expectancies in 2012 (….it is not a Mayan calendar BTW) :-)
    Thus it is up to you to choose….

  11. Sera says:

    ” The real story is that, over the past two years, China’s money supply has exploded by over 50%, as a way of boosting GDP through a massive lending binge. One of the contributing factors to this story is China’s maintenance of its exchange rate peg with the dollar, which requires China to continually inject more and more domestic currency into its economy in order to accumulate excess dollars as reserves.”

    http://chovanec.wordpress.com/2011/04/15/china-inflation-hits-new-high/

  12. Pingback: Must…get…rid..of…browser…tabs…. « The end of civilization

  13. E.M.Smith says:

    @SERA:

    The SDR was cooked up the last time we went through this kind of thing. “In the beginning” nations settled up their accounts in gold or silver (thus the boatloads of gold on the bottom of the ocean as storms don’t care what you have in the hold). As this “had risks”, they started to just do bookkeeping entries and only “settle up” the net after a year or so. (That has it’s own risks as kings come and go…)

    Eventually some “hard asset backed” currencies were deemed OK. Especially the British Pound (the “reserve currency” before the US Dollar). If a boatload of currency sank, they could just reprint it. That held up until George Sorros made his first $Billions by “busting the pound”.

    Along the way, it was decided that a basket of different currencies (and some gold) would be a better idea and if everyone put some in the basket, then they could just trade ‘shares of the basket’ between countries. Thus, the SDR. ( It’s a long story about who put in how much of what and who gets what voting rights at the IMF in exchange, but the short from is that the ‘traditional economic powers’ did and get both in large part. Now the “new guys” want a piece of the action.)

    So the bottom line is that it was originally a way to help the debtor avoid the risk of loss of gold at sea, but turned into a way to help the lender avoid currency risk (as things turned from gold to currencies).

    Now it’s largely a way to manipulate various countries into doing what the IMF wants and with some minor currency protection aspects (though realistically they could get that through the futures market instead).

    LOVE that “intercultural computing education” video. Who knew? Now I want to see them demonstrate the “binary search / sort” ;-)

    @Ian W:

    George Sorros made his first $Billions betting against the British Pound as a reserve currency. He bet that their socialist polices could not be paid for… Now he’s supporting the rapid expansion of socialist policies in the USA and advocating against the US $ position as the reserve currency.

    I want to see his private book of trade on the US $.

    Think about it. A lot.

    I have to go right now, back later…

  14. E.M.Smith says:

    @Chuckles:

    Most of the time I’ve seen it as BRIC, but sometimes BRICS, always sort of wondered… but not enough to ‘dig in’… thanks!

    BTW, that China inflation is a direct result of The Bernank and his policies and they are directed at this result in China.

    The whole idea is that if we inflate the currency, they take the inflation (as we are ‘wage limited’ based on their merchantilist buy down on wages via being pegged to the dollar). Yes, it’s not perfect, so some things like food and oil we DO see inflating. But our wages, no.

    So when The Fed and friends talk about “no inflation” in the core of the economy of wages and prodution; now you know why they are “not worried”. It is, by design.

    The whole idea is to make it so painful for China to hold the peg that they de-peg. So far, it’s barely working (they have drifted the peg a bit). My take on it is that they intend to continue that kind of policy (bugger the dollar to bugger China more) until China lets go of the peg.

    Basically, it’s jumping off the roof and seeing who pulls a parachute first, but they have to be convinced YOU are not going to pull so they will let go of you and use theirs. Oh, and you hope there is enough time after that point to stop your decent before the splat at the bottom… But
    “Hope is not a strategy. -E.M.Smith”

    Personally, I’d just put up tariffs on their goods equal to my assessment of their underpricing of their currency. But the “trend” these days it toward “tariffs are evil” so we’ve put that tool away in the shed out back…

    In short, it’s an attempt to cure merchantilist behaviour by China without telling them to stop it and without being in their face with a tariff. I think it’s a lousy way to do it as it buggers everyone else holding dollars too, but there are other reasons they want that outcome as well. (I.e. dump the debt while paying ever dollar of it…)

    Clever people these central bankers… perhaps too clever.

    @Ian W:

    See Pascvacks comment. To quote a Microsoft web site when I was looking up a bug in their product: “This behaviour is by design.”

    IMHO, they know what they are doing and are seaking the outcomes we are seeing.

    @Pyromancer76:

    Housing is about 30% to 50% overpriced. EITHER all the home prices have to drop (thus causing a load of strategic bankruptcies and defaults and bailouts) OR the currency has to be buggered enough to inflate the nominal price to match the overpriced level. And we are getting devalution of the currency…. oh… “The behaviour is by design”…

    So they are “fixing the housing debacle”. In an underhanded back door kind of way…

    That The Fed then cites unchanged housing prices as part of the “no inflation” mantra just means they are going to continue to do this “blowing air into the deflating bubble” until housing prices DO show some rise. That this means a real inflation in everything ELSE is not their concern.

    So instead of creating economic growth to stimulate demand to raise the price; they are devaluating the dollar to validate the prices already paid.

    Unfortunately “most Americans” want whatever the last ad on the TV told them to want. Offer them “free government money, ‘Obama Money’, and they will vote for it. THAT is why we had Senators appointed by the states. Changing that to direct election was a very horrid mistake.

    Democracy is not stable and it has it’s evils. That is why we are SUPPOSED to have a Republic…

    @Cold Lynx:

    Also a majority of the land mass and a large load of the better resources.

    @oldtimer:

    Exactly true. I’d only add that the Chinese were partly buying treasuries as a way to recycle dollars while keeping the dollar peg. If they turned the dollars into yuan to pay folks internally, that would either drive the yuan up relative to the dollar or cause yuan inflation. Just “hand them back for a promise” and that doesn’t happen.

    All this comes down to a Merchantilist “Cat Fight” between the Chinese and US governments. China is trying to game the system, and we’re just doing a bit of Aikido now that they are up to their eyeballs in our debt by taking back all that “excess” value they took from us via merchantilsm; via inflating the debt away and giving them inflation. In some ways, I rather admire the finess of it. (Then I look at the collateral damage…)

    @George:

    Interesting thesis… but is it not also just as possible that we will simply have a repeat of the move from “old producers” to “new producers” as from the British Empire to the USA, but now from the USA to BRIC?

    There are no more “trader nations”, there are trader companies spread over all nations.

    @Jason Calley:

    And watch out for Really Big Saltwater Waves:

    ZZXAPPPT! (kerBOOM)

    @Adolfo:

    If only it were. But part of the “game” IMHO is the Procter and Gamble Shelf Space game. They don’t really care which of you their brands you buy, they just want to assure they products take all the shelf space.

    So go ahead, you can choose the Progressive Right Wing or the Progressive Left Wing brand…

    Don’t think so? How a a good Republican, what would their reputation be? From the wiki, and remember that in this context “liberal” means “ASoLiberal or Progressive” not the ClassiLiberal / Libertarian:

    http://en.wikipedia.org/wiki/Nixon

    Noam Chomsky remarked that, in many respects, Nixon was “the last liberal president.” Indeed, Nixon believed in using government wisely to benefit all and supported the idea of practical liberalism.

    So go ahead, choose the Red Box or the Blue Box. It all comes from the same factory with the same managers in charge…

    Things to get rid of? Just about everything in the “Nixon Legacy”:

    Nixon initiated the Environmental Decade by signing the National Environmental Policy Act, the Clean Air Act of 1970 and the Federal Water Pollution Control Act amendments of 1972, as well as establishing many government agencies. These included the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and the Council on Environmental Quality. The Clean Air Act was noted as one of the most significant pieces of environmental legislation ever signed.

    In 1971, Nixon proposed the creation of four new government departments superseding the current structure: departments organized for the goal of efficient and effective public service as opposed to the thematic bases of Commerce, Labor, Transportation, Agriculture, et al. Departments including the State, Treasury, Defense, and Justice would remain under this proposal. He reorganized the Post Office Department from a cabinet department to a government-owned corporation: the U.S. Postal Service.

    On June 17, 1971, Nixon formally declared the U.S. War on Drugs.

    On October 30, 1972 Nixon signed into law the Social Security Amendments of 1972 which included the creation of the Supplemental Security Income Program, a Federal Welfare Program still in existence today.

    Nixon cut billions of dollars in federal spending and expanded the power of the Office of Management and Budget. He established the Consumer Product Safety Commission in 1972 and supported the Legacy of parks program, which transferred ownership of federally owned land to the states, resulting in the establishment of state parks and beaches, recreational areas, and environmental education centers.

    Think it’s gotten any better? How about that “Baby Bush” expansion of the Government Drug Program….

    So no, it isn’t up to me, and no, my vote will not change anything but the color of the ink on the box.

    But non-vote actions might.

  15. Ian W says:

    “George Sorros made his first $Billions betting against the British Pound as a reserve currency. He bet that their socialist polices could not be paid for… Now he’s supporting the rapid expansion of socialist policies in the USA and advocating against the US $ position as the reserve currency.

    I want to see his private book of trade on the US $.

    Think about it. A lot.”

    I was in UK when the Conservative government was forced out of what was then called the ‘snake’ – a basket of currencies in the European Exchange rate Mechanism that together were the European Currency Unit. If you wan to dig into how it all transpired and look for parallels there is a good blow-by-blow account at:
    http://olesiafx.com/economics/day-200604-17.html

  16. E.M.Smith says:

    Thanks, I’ll read it with relish (probably some time tomorrow, though)

  17. pyromancer76 says:

    @ianw Thanks for the link to the Soros material. My belief is that our financial bust was created at just the time when it looked like McCain might win (don’t know how given his non-campaign with the exception of Gov Palin). Again, IMHO, Soros used American sense of fairness and pride at the incorporation of African-Americans in all aspects of economy and life and the necessity of expansion of representative democracy to all against us. The best of the above has kept our country on its path to “greatness” as a human experiment in achievement and inclusiveness. Soros’ ill-gotten gains along with the radical left and hating African-Americans, used the worst of the above against us — our fraudulent Affirmative Action nonsense, African American resentment, envy, and desire for revenge propagated since at least the 1920s, and the “equality” aspect of the American experiment that has been part of our creative destruction from the beginning (easily transformed into the “socialism shiny-thing” if opportunity is lacking). The race today, it seems to me, is to create an army of government-dependent Americans before we wake up to the impending disaster.

    @E.M. If you have time, take a look at strata-sphere.com for a positive interpretation of the recent political changes beginning at the state level. Success in Wisconsin, that socialist bastion, stands out because of the failure of everything the marxists (Dems, totalitarian union elites) threw at the state for victory. Of course, it has to hold, it has to last, but Wisconsin is not alone. I would be grateful for your opinion.

    My belief is: show “them” freedom of opportunity and there will be no barriers to a new era of development. But the old one (20th C American exceptionalism based on oil, mostly free trade that now faces mercantilist powers, and the corporation as a “person”) must come to an end. I don’t suggest that oil is not still central, but it will share the limelight as a generator of amazing possibilities.

    Re AGW. I think that the education Americans (citizens of other countries) are getting about geological history, paleogeology, climate history, our current glacial period (that includes our short Holocene interglacial), our travel through the Milky Way and its influence on climate can be used very positively. How? By helping us understand how puny human effects are on this Earth (not to minimize real pollution or over-development). The emaciated, bony fingers of marxist totalitarian utopianism then can be, digit-by-digit, pried loose from the throats of the living. I think, I hope, we are on our way. Your explaining “there is no shortage of stuff” is essential knowledge on this transformed path. “Out of debt” must be accompanied by “freedom (exhilaration) of opportunity.” Then the pain is bearable.

    Thanks for all you do day-by-day, post-by-post.

  18. oldtimer says:

    I agree with you that the USA and China are in a game of ultra high stakes poker over their relative currency valuations. Over time I expect the renminbi to appreciate against the US$ (and the £). I have some cash in a China Fund (a Fidelity fund managed by Bolton – a successful UK fund manager). Aside from the obvious political risk, I think his analysis of the sources of economic growth in China and the best places to invest is correct. In addition I think that the currency play helps reinforce the investment. Definitely worth a punt.

  19. Gene Nemetz says:

    4:31 minute YouTube video of Jim Rogers talking about Bernanke’s money printing,

  20. W^L+ says:

    One thing no politician (other than Bush Jr) has been honest about is the looming Social Security bust. Left-wing proposals to raise SS taxes cannot prevent it (they might potentially delay it, at the price of making an even bigger mess).

    Since the 1930s, the tax has been collected. We hear talk about a “trust fund” and people think of it as though the money was held in a separate bank account somewhere. The truth is, government trust funds are accounting entries wherein we pretend to segregate some money from the general fund. The reality is, when you run large deficits, trust fund moneys help hide that by reducing the amount of outside borrowing that is needed.

    This was another factor in the good times of the 1950s – 1970s. Government could expand far beyond its tax revenues (partly by hiding much of the borrowing with the Social Security fund). In the view of Keynesians, this stimulus helped to promote economic growth.

    The price of that is that sometime in the future, someone will expect to use that trust fund money, which means (in our case) raising taxes so the general fund can repay some of its “borrowings”. The government will need to live way below its means for many years, something which will not happen as things stand now. A whole lot of baby boomers are expecting that money to be there when they reach the retirement age. A whole lot of baby boomers will be disappointed when the government is unable or unwilling to raise taxes enough to give them a livable retirement (nor will the government be willing and able to cut its spending to produce the required surpluses). Meanwhile, a whole lot of younger people will be angry at elevated taxes they are paying to subsidize the elderly, and foreign debt-holders are almost guaranteed to see near-Zimbabwe-level hyperinflation.

    Economic games with China will ultimately prove futile, IMO. But failing to deal with Social Security right now, while some of us can change our financial strategies may ultimately prove disasterous.

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