Where's The Us$ Heading To ?

[johnnyk]

Interesting article about the dollar's dive (from Counterpunch.org). Read the note about the author at the end. He may know what he is talking about.

Dollar's Fall Collapses the American Empire; Bring Those 737 Overseas Military Bases Home!

By PAUL CRAIG ROBERTS

The US dollar is still officially the world's reserve currency, but it cannot purchase the services of Brazilian super model Gisele Bundchen. Gisele required the $30 million she earned during the first half of this year to be paid in euros.

Gisele is not alone in her forecast of the dollar's fate. The First Post (UK) reports that Jim Rogers, a former partner of billionaire George Soros, is selling his home and all possessions in order to convert all his wealth into Chinese yuan.

Meanwhile, American economists continue to preach that offshoring is good for the US economy and that Bush's war spending is keeping the economy going. The practitioners of supply and demand have yet to figure out that the dollar's supply is sinking the dollar's price and along with it American power.

The macho super patriots who support the Bush regime still haven't caught on that US superpower status rests on the dollar being the reserve currency, not on a military unable to occupy Baghdad. If the dollar were not the world currency, the US would have to earn enough foreign currencies to pay for its 737 oversees bases, an impossibility considering America's $800 billion trade deficit.

When the dollar ceases to be the reserve currency, foreigners will cease to finance the US trade and budget deficits, and the American Empire along with its wars will disappear overnight. Perhaps Bush will be able to get a World Bank loan, or maybe one from the "Chavez bank," to bring the troops home from Iraq and Afghanistan.

Foreign leaders, observing that offshoring and war are accelerating America's relative economic decline, no longer treat the US with the deference to which Washington is accustomed. Ecuador's president, Rafael Correa, recently refused Washington's demand to renew the lease on the Manta air base in Ecuador. He told Washington that the US could have a base in Ecuador if Ecuador could have a military base in the US.

When Venezuelan president Hugo Chavez addressed the UN, he crossed himself as he stood at the podium. Referring to President Bush, Chavez said, "Yesterday the devil came here, and it smells of sulfur still today." Bush, said Chavez, was standing "right here, talking as if he owned the world."

In his state of the nation message last year, Russian president Vladimir Putin said that Bush's blathering about democracy was nothing but a cloak for the pursuit of American self-interests at the expense of other peoples. "We are aware what is going on in the world. Comrade wolf knows whom to eat, and he eats without listening, and he's clearly not going to listen to anyone." In May 2007, Putin criticized the neocon regime in Washington for "disrespect for human life" and "claims to global exclusiveness, just as it was in the time of the Third Reich."

Even America's British allies regard President Bush as a threat to world peace and the second most dangerous man alive. Bush is edged out in polls by Osama bin Laden, but is regarded as more dangerous than Iran's demonized president and North Korea's Kim Jong-il.

President Bush has achieved his dismal world standing despite spending $1.6 billion of hard-pressed Americans' tax money on public relations between 2003 and 2006.

Clearly, America's leader and America's currency are poorly regarded. Is there a solution?

Perhaps the answer lies in those 737 overseas bases. If those bases were brought home and shared among the 50 states, each state would gain 15 new military bases.

Imagine what this would mean: The end of the housing slump. A reduction in the trade deficit.

And the end of the war on terror.

Who would dare attack a country with 15 new military bases in every state in addition to the existing ones? Wherever a terrorist turned, he would find himself surrounded by soldiers.

All of the dollars currently spent abroad to support 737 overseas bases would be spent at home. Income for foreigners would become income for Americans, and the trade deficit would shrink.

The impact of the 737 military base payrolls on the US economy would end the housing crisis and bring back the 140,000 highly paid financial services jobs, the loss of which this year has cost the US $42 billion in consumer income. Foreclosures and bankruptcies would plummet.

If this isn't enough to turn the dollar around, President Bush's pledge not to appoint an Attorney General if Michael Mukasey is not confirmed offers more promise. If the Democrats will defeat Mukasey's nomination, there are other superfluous cabinet departments that can be closed down in addition to the US Department of Torture and Indefinite Detention.

The American empire is being unwound on the battlefields of Iraq and Afghanistan. The year is two months from being over, but already in 2007, despite the touted "surge," deaths of US soldiers are the highest of any year of the war.

The Taliban are the ones who are surging. They have taken control of a third district in Western Afghanistan. Turkey and the Kurds are on the verge of turning northern Iraq into a new war zone, another demonstration of American impotence.

Bush's wars have endangered America's puppet regimes. Bush's Pakistani puppet, Musharraf, is fighting for his life. By resorting to "emergency rule" and oppressive measures, Musharraf has intensified his opposition. When Musharraf falls, thanks to Bush, the Islamists will have nukes.

American generals used to say that the wars Bush started in the Middle East would take 10 years to win. On Oct. 31 General John Abizaid, former commander of US forces in the Middle East, put paid to that optimistic forecast. Speaking at Carnegie Mellon University, Gen. Abizaid said it would be 50 years before US troops can leave the Middle East.

There is no possibility of the US remaining in the Middle East for a half century. The dollar and US power are already on their last legs, unbeknownst to Democratic leaders Pelosi and Reid who are preparing yet another blank check for Bush's latest request for $200 billion in supplementary war funding.

There isn't any money with which to fund Bush's lost war. It will have to be borrowed from China.

The Romans brought on their own demise, but it took them centuries. Bush has finished America in a mere 7 years.

Even as Gisele throws off the dollar's hegemony, Brazil, Venezuela, Ecuador, Bolivia, Argentina, Uruguay, Paraguay, and Columbia are declaring independence of the IMF and World Bank, instruments of US financial hegemony, by creating their own development bank, thus bringing to an end US suzerainty over South America.

An empire that has lost its backyard is finished.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration.

He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review.

He is coauthor of The Tyranny of Good Intentions.

[LaoPo]

Although we are flooded with financial news about the Dollar every single day and I'm sceptical at most news, I think this article is important enough because of the impact $ 100/Barrel of Oil could have on the US & World economy:

I assume $100/barrel is the spot market rate but how much of the total volume of oil traded is bought through the spot market?

As far as I understand it a lot of oil (for example oil that the US buys from Saudi Aramco) is sold on long term contracts at prices way below the spot market rate so $100/barrel will not have as much impact as being portrayed by the news.

Maybe I'm wrong though so it would be nice to hear from somebody in this business.

You have a point here.

The problem is that the long term contracts are probably not published by any of the large Oil Giants so we have not much else to focus on than prices on the spot markets which are daily front page news.

Remember ENRON....?

LaoPo

[johnnyk]

$100 oil is a headline grabber but adjusted for inflation the original OPEC hikes in the 1970s and early 80s were actually more expensive, so I'm told.

Certainly the first OPEC hike from $2 to about $18 was a real kick in the 'nads.

[ray23]

Well I remember that time frame amd my famous statement that if gas ever went to a dollar I would ride a bicycle, I lied I also remember odd and even license plate days to buy gas, the demise of the muscle car. You know somehow we survived.

You know maybe this guy has the right idea, if we shut everything else down. Someone else could be the bad guy. Russia may be right we should have learned from thier entry into Afghanastan.

Fifty years I seriously doubt it, they have been at this for over a thousand years now, with short breaks of peace to regroup and do it agian. I did a short stint in Kuwait about three years ago. A country that we actually succesfully rescued. You would think that we would be welcome, Not the case at all. This is a unique region one that will more then likley be at war, no matter what is going on.

As I recall America was an isolationist country prior to World War one. Our soldiers actually had to use broomsticks to play war to get ready for that one. Recently a Brit made it very clear to me all though America was a help in WW II it showed up late for the party. Even some fifty years later we have no Peace treaty in Korea. Vietnam I don't know a Vet that is proud of the outcome although they have every right to be proud of thier individual actions. As a Vet it doesn't bother me that we left, it bothers me about the people we left that trusted us. Most probably dont realize this but Vietnam didn't start as an unpopular war. It became that after years of fighting and losses, for some place that we shouldn't have been in the first place, sound familiar?

Are these these things right or wrong that is way beyond my understanding, but I do know this the possiblity of not going to Vietnam could very well mean that those of us in Thailand today could be living in a Communist country. Don't think so research the history here. This region has been at war for many many years. Today people are flocking to Vietnam, was it the right thing I have no idea. But then I enjoy my visits to Laos.

Outsourcing our industries a big mistake another way for a few to become even more wealthy at the cost of the average American. That one I do say was arrogance and greed on the part of a few. Who is really paying for the sub prime mess, is it the few greedy ones or is it everyone.

South America who developed thier oil, where are they today. Anyone want to bet that we are still sending financial aid to those contries. Maybe they should be sending some to us.

So I agree time for America to step back bring it assests home and take care of Americans.

But do any of you believe that another country won't step up when that happens, will it be China or Russia. Or will it be the Islamist. That's OK then the world can condem us for not doing anything again.

But the dollar will stengthen and that would be OK by me.

The war is a big enough folly, but how about borrowing money to fund other countries who condem us. Now that is the ultimate act of stupidity in my mind.

Ok I'm off my soap box, hopefully to never get back on it again.

So what going on with the dollar

One year and counting

Edited November 13, 2007 by ray23

[ray23]

As I have said before what happening with the dollar is no accident. Will it backfire, well China has done very well while keeping it's currency low.

Currency Controls Return as Central Banks Fight Gains (Update4)

By Gavin Finch and Ye Xie

Nov. 12 (Bloomberg) -- Central banks from Bogota to Mumbai are imposing foreign-exchange curbs to take control of their soaring currencies from traders dumping the dollar.

In Colombia, international investors buying stocks and bonds must leave a 40 percent deposit at Banco de la Republica for six months. The Reserve Bank of India created a bureaucratic thicket to curb speculation by foreign money managers. The Bank of Korea is investigating trading of currency forward contracts to limit gains in the won, now at a 10-year high.

Instead of using currency reserves or interest rates to influence foreign exchange markets, central banks and finance ministries are setting up obstacles to keep the falling dollar from threatening company profits and economic growth. The U.S. currency slumped 10 percent this year against its biggest trading partners, the steepest decline since 2003, while Treasury Secretary Henry Paulson has reiterated that the U.S. supports a ``strong'' dollar.

``Central banks are struggling to find new ways to intervene against their currencies and some of the proposals simply can't work,'' said Mirza Baig, an analyst in Singapore at Deutsche Bank AG, the world's biggest currency trader. Some plans are ``truly bizarre,'' he wrote in a report.

The U.S. hasn't attempted to stop the decline as the worst housing slump in 16 years forced the Federal Reserve to lower interest rates. The dollar has weakened 19 percent against the Canadian currency this year to a record 90.58 cents, and fell 18 percent versus Brazil's real.

The euro strengthened 1.2 percent last week and reached an all-time high of $1.4752 on Nov. 9. It traded at $1.4573 today as of 1 p.m. in London. The yen rose 3.6 percent last week, and it touched 109.15 per dollar today, the highest since May 2006.

`More Violent Correction'

An index tracking the dollar against seven major trading partners dropped to 71.11 on Nov. 2, the lowest ever, a week after the Fed reduced its target rate for overnight loans between banks by a quarter-percentage point to an 18-month low of 4.5 percent.

Stephen Jen, head of currency research at Morgan Stanley in London, said on Nov. 2 that the dollar's slide threatens to turn into a ``more violent correction'' that may require joint intervention by the U.S., European Union and Japan. The dollar will trade at $1.51 per euro by year-end, Jen said on Nov. 8.

The extent of the dollar's slump reminds some traders of 1973, when former President Richard Nixon's Treasury Secretary John Connally abandoned the Gold standard while the U.S. was in recession and inflation exceeded 10 percent. The dollar lost 40 percent against the yen in the next five years.

Since 2002, the U.S. currency has fallen 40 percent against the Canadian dollar, 33 percent versus the euro and weakened 24 percent compared with the British pound.

Exports Increase

There's little evidence this year's decline is hurting the economy. Gross domestic product increased 3.9 percent in the third quarter, the highest since March 2006, the Commerce Department said on Oct. 31. The annual inflation rate was 2.8 percent in September, the Labor Department reported on Oct. 17.

The U.S. trade deficit unexpectedly narrowed 0.6 percent in September to $56.5 billion, as exports increased 1.1 percent, the Commerce Department said Nov. 9.

The pain is being felt elsewhere. U.S. sales for Hyundai Motor Co., South Korea's third-biggest exporter, may decline for the first time in nine years with the won the ``No. 1 obstacle,'' Vice Chairman Kim Dong Jin said in an interview last month. The won's 3 percent gain in the past year helped send Hyundai's shares down 9 percent.

Profit Squeeze

Infosys Technologies Ltd., India's second-largest software exporter, cut its full-year earnings forecast on Oct. 11, blaming the rupee's 13 percent rise. The shares fell 24 percent this year.

India may miss its $160 billion target for exports in the year through March 31 as local goods become more expensive abroad, Commerce Secretary G.K. Pillai said on Oct. 8.

Munich-based Bayerische Motoren Werke AG, the world's biggest manufacturer of luxury cars, and Paris-based Hermes SCA, the maker of Kelly and Birkin handbags, blamed the currency market for disappointing profits.

European Central Bank President Jean-Claude Trichet said Nov. 8 that the decline in the dollar has been ``brutal,'' while Canadian Finance Minister Jim Flaherty said he's ``concerned'' by the surge in his currency. French President Nicolas Sarkozy told a joint session of the U.S. Congress on Nov. 7 that the Bush administration must stem the dollar's plunge or risk a trade war.

In a Corner

``The weaker dollar causes central banks to look at foreign inflows differently,'' Robert Fullem, vice president of U.S. corporate-currency sales at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The market is pushing the central banks into corners. I don't have faith in them. They may have to push the envelope further.''

Trading on Colombia's stock exchange fell 27 percent to an average 80 billion pesos ($39 million) a day as the Finance Ministry struggled to control the dollar's 10 percent decline.

The Finance Ministry imposed controls on short-term capital in May by requiring foreign buyers of stocks and bonds to deposit 40 percent of their purchases with the central bank for six months. If the peso weakens, investors won't be able to pull out until the period has expired unless they pay a fee of as much as 9.4 percent of the investment.

`New Mechanisms'

``New mechanisms need to be considered because the exchange rate is affecting us a lot,'' Colombian President Alvaro Uribe said in a May 9 speech in Medellin.

``It's absolutely frustrating,'' said Urban Larson, who co- manages about $500 million for F&C Investments in Boston. ``The currency control is keeping foreign investors on the sideline. It's unfortunate because there are a lot of attractive stocks in Colombia and the economy is quite good.''

Overseas investors have bought $18.8 billion of stocks and bonds in India this year, double the previous record in 2005. The increase ``is building bubbles'' in the country's stock market and real estate, Finance Minister Palaniappan Chidambaram said last month.

To curb speculative flows, regulators in Mumbai adopted measures in October to bar some funds from investing in Indian equities and imposed investment caps and deposit requirements.

Foreign companies licensed to invest in India can only issue participatory notes, or offshore derivatives linked to local stocks, backed by 40 percent of the shares they hold. They were barred from selling notes backed by other derivatives, contracts whose values are derived from other assets.

Indian Restrictions

Trading on India's Sensitive Index was suspended and $120 billion of its market value was wiped out in a minute on Oct. 17, when the regulator proposed the measures.

The Bank of Korea and the Financial Supervisory Service said Oct. 23 that they will study forward currency transactions by exporters and financial companies. Companies use forward contracts to lock in exchange rates at a future date, helping fuel gains in the currency.

``We need to find out the cause of excessive forward sales,'' said Park Shin Young, an economist at the Bank of Korea. Interbank transactions jumped to $850 million a day in the third quarter, up 35 percent from the previous three months, central bank data show.

Policy makers told parliament in October that they will probably lose more than $1 billion for a third year because dollars purchased to stop the won's advance earn less interest than the bonds sold to control money supply.

``Central banks are trying noninterest rate methods to stabilize growth and capital flows,'' said Bank of Tokyo- Mitsubishi's Fullem. ``It's something extraordinary. They haven't used these venues for a long time. It's sort of the last resort the central banks would like to tap.''

To contact the reporters on this story: Gavin Finch in London at [email protected] ; Ye Xie in New York at [email protected]

Last Updated: November 12, 2007 08:02 EST

[TonyLeung]

I am undecided. Before, it seemed very likely the government would lower interest rates to help the banks but at this point that might be like throwing inflatable rafts to the sinking Titanic. If the FED feels it isn't enough, they may let the markets play their course and a recession might be unavoidable. I don't think anyone knows just how bad it is going to be, and the markets have gotten very pessimistic.

GS says it is limiting its exposure in Emerging Markets.

[Naam]

I agree, the Yen is trading very well. I understand the carry trade and the argument that at some point it gets unwound and that trillions of Yen must be repatriated. The affect if which should put constant upward pressure on the Yen bid. Is that the only argument for Yen? It's certainly not paying depositors anything and the Japanese economy isn't exactly heating up is it? I'd be very grateful for any illumination.

i don't think "repatriated" is the correct expression as those JP¥ used in carry trades never "left" the country. but those who borrowed the "commodity" Yen to use the interest differential have to buy when it's pay back time and that drives the exchange rate. i still remember USD/JP¥ swings of +-20% spring/summer 1995 in the aftermath of the tequila crisis (when BingoBongo went to kindergarten)

[johnnyk]

ray23 said, ...Outsourcing our industries a big mistake another way for a few to become even more wealthy at the cost of the average American.

Here is a collection of quotes asembled from a couple of separate articles written by Paul Craig Roberts over the past 2 years on Counterpunch.org

As large and troublesome as this cost is, it pales in comparison to the damage the war has done to the value of the dollar and its role as reserve currency. Since 2001, the Euro has risen 60 percent against the dollar.

This means much more to Americans than the higher cost of a European vacation and status symbol German cars. The US dollar is losing its reserve currency role when the Euro, the currency of a nonexistent country--Europe--becomes so much more desirable than the dollar that it rises 60 percent in value.

The Euro is a monetary unit that has run far ahead of the political entity whose currency it is. Europe still consists of separate sovereign states, and many of them are unhappy with the Euro. Yet, since 2001 people throughout the world have been shifting from dollars to Euros.

It is not normal for people to flee from the reserve currency. It only happens when people believe it cannot continue to fill that role.

The US dollar is under double assault. One assault is from the offshoring of American jobs, which turns US GDP into foreign GDP and worsens the US trade deficit. It is not possible to achieve a trade balance when the production of goods and services for the US market is being moved offshore by US corporations

US imports of goods and services rise each time a US factory moves offshore or a US job is outsourced. Goods and services produced offshore by US corporations for US customers count as imports and worsen the trade deficit. The US cannot reduce its trade deficit by increasing sales to China of goods made by US firms in China. As Charles McMillion, president of MBG Information Services, concisely summarizes: "Outsourcing is export substitution."

Currency markets cannot correct the undervalued Chinese currency, because China does not permit its currency to be traded and there are insufficient stocks of Chinese currency in foreign hands with which to form a currency market.

Sooner or later the peg will come to an end--perhaps when China fulfills its WTO obligation to let its currency float. When the peg ends, it will deliver a severe shock to US living standards. Suddenly, Chinese manufactured goods--including advanced technology products--on which the US is now dependent will cost much more. Overnight, shopping at Wal-Mart will be like shopping in high-end department stores.

"Free trade" and "globalization" are the guises behind which class war is being conducted against the middle class by both political parties.

Patrick J. (Pat) Buchanan, a three-time contender for the presidential nomination, put it well when he wrote that NAFTA and the various so-called trade agreements were never trade deals. The agreements were enabling acts that enabled U.S. corporations to dump their American workers, avoid Social Security taxes, health care and pensions, and move their factories offshore to locations where labor is cheap.

The offshore outsourcing of American jobs has nothing to do with free trade based on comparative advantage. Offshoring is labor arbitrage. First world capital and technology are not seeking comparative advantage at home in order to compete abroad. They are seeking absolute advantage abroad in cheap labor.

Two recent developments made possible the supremacy of absolute over comparative advantage: the high speed Internet and the collapse of world socialism, which opened China's and India's vast under-utilized labor resources to first world capital.

In times past, first world workers had nothing to fear from cheap labor abroad. Americans worked with superior capital, technology and business organization. This made Americans far more productive than Indians and Chinese, and, as it was not possible for U.S. firms to substitute cheaper foreign labor for U.S. labor, American jobs and living standards were not threatened by low wages abroad or by the products that these low wages produced.

The advent of offshoring has made it possible for U.S. firms using first world capital and technology to produce goods and services for the U.S. market with foreign labor. The result is to separate Americans' incomes from the production of the goods and services that they consume. This new development, often called "globalization," allows cheap foreign labor to work with the same capital, technology and business know-how as U.S. workers. The foreign workers are now as productive as Americans, with the difference being that the large excess supply of labor that overhangs labor markets in China and India keeps wages in these countries low. Labor that is equally productive but paid a fraction of the wage is a magnet for Western capital and technology.

Although a new development, offshoring is destroying entire industries, occupations and communities in the United States. The devastation of U.S. manufacturing employment was waved away with promises that a "new economy" based on high-tech knowledge jobs would take its place. Education and retraining were touted as the answer.

In testimony before the U.S.-China Commission, I explained that offshoring is the replacement of U.S. labor with foreign labor in U.S. production functions over a wide range of tradable goods and services. (Tradable goods and services are those that can be exported or that are competitive with imports. Nontradable goods and services are those that only have domestic markets and no import competition. For example, barbers and dentists offer nontradable services. Examples of nontradable goods are perishable, locally produced fruits and vegetables and specially fabricated parts of local machine shops.) As the production of most tradable goods and services can be moved offshore, there are no replacement occupations for which to train except in domestic "hands on" services such as barbers, manicurists, and hospital orderlies. No country benefits from trading its professional jobs, such as engineering, for domestic service jobs.

During the past five years (January 01 - January 06), the information sector of the U.S. economy lost 644,000 jobs, or 17.4 per cent of its work force. Computer systems design and related work lost 105,000 jobs, or 8.5 per cent of its work force. Clearly, jobs offshoring is not creating jobs in computers and information technology. Indeed, jobs offshoring is not even creating jobs in related fields.

U.S. manufacturing lost 2.9 million jobs, almost 17 per cent of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.

The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a "supereconomy" that is "the envy of the world." In five years, communications equipment lost 42 per cent of its work force. Semiconductors and electronic components lost 37 per cent of its work force . The work force in computers and electronic products declined 30 per cent. Electrical equipment and appliances lost 25 per cent of its employees. The work force in motor vehicles and parts declined 12 per cent. Furniture and related products lost 17 per cent of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43 per cent. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15 per cent.

For the five-year period, U.S. job growth was limited to four areas: education and health services, state and local government, leisure and hospitality, and financial services. There was no U.S. job growth outside these four areas of domestic nontradable services.

All of the occupations with the largest projected employment growth (in terms of the number of jobs) over the next decade are in nontradable domestic services. The top ten sources of the most jobs in "superpower" America are: retail salespersons, registered nurses, postsecondary teachers, customer service representatives, janitors and cleaners, waiters and waitresses, food preparation (includes fast food), home health aides, nursing aides, orderlies and attendants, general and operations managers. Note that none of this projected employment growth will contribute one nickel toward producing goods and services that could be exported to help close the huge U.S. trade deficit. Note, also, that few of these job classifications require a college education.

The prognosis is not good...

Edited November 13, 2007 by johnnyk

[cclub75]

what do you mean by "refusing this fact"? take a look at the asian currencies, then you realize that they have appreciated vs. the Dollar. best example is Thai Baht.

I'm surprised you ask...

Thailand : even the BOT itself aknowledges that they massively intervene on the market to curb the appreciation of the THB.

Consequences : reserves, net forward positions are exploding. See here.

Japan : again, how would you define the zero rate policy and the little game of the BOJ ("i'm going to increase my rates... oh sorry no, maybe next time") ? In perfect collusion with the gvt (who modified the calculation of the Consummer Price Index by the way, so the BOJ could say "we still have a deflation, we can't increase")

China : again, is it necessary to explain... ? Their inflation explodes (+6.5 in october, most in a decade), because they are printing RMB like crazy to neutralize the mountains of USD they are receiving, but they are doing whatever they can to avoid to increase their interest rates...

Speak about massive imbalances !

So yes, I think we could say that asian countries are "refusing" the fact that their currency have to increase versus USD, by using a lot of differents techniques.

Of course it might change, with an accelerated pace.

My point was : we can surely point our finger to the US and critize their own imbalances. But we should not forget that many other countries are culprits too.

Each country would like to have :

-a weak currency to boost its exports

-a strong currency to cushion commodities prices (oil...)

-no inflation

-no debt

-very low interest rates to boost economy

-high real estate prices (good for the economy)

-but affordable housing for people

etc. etc.

It's a total and global mess. A global "Alice in Wonderland".

[JimsKnight]

I think the 'spend now, pay later' mentality has a lot to answer for as well.

All this jazz about interest rates being bad, I say bring on the higher interest rates! My savings get better each time they go higher

People in the US and UK need to learn to save money rather than just waste it using absurdly low interest rates.

The US needs to get back to saving money in the banks which helps the economy more.

Look at London, its an investment capital thanks to the high interest rates.

[sonicdragon]

I agree, the Yen is trading very well. I understand the carry trade and the argument that at some point it gets unwound and that trillions of Yen must be repatriated. The affect if which should put constant upward pressure on the Yen bid. Is that the only argument for Yen? It's certainly not paying depositors anything and the Japanese economy isn't exactly heating up is it? I'd be very grateful for any illumination.

i don't think "repatriated" is the correct expression as those JP¥ used in carry trades never "left" the country. but those who borrowed the "commodity" Yen to use the interest differential have to buy when it's pay back time and that drives the exchange rate. i still remember USD/JP¥ swings of +-20% spring/summer 1995 in the aftermath of the tequila crisis (when BingoBongo went to kindergarten)

"repatriated", with regards to the yen, is usually the word used to describe the phonomenon of buying yen before the fiscal year-end and half year-end (March and Sep) by japanese multinationals who are bringing their foreign-earned profits home.

[disgruntled]

I put 5,000 into the stock market in the US via Ameritrade last November. I just wanted to play around to see how online trading worked. I bought quite a few cheap stocks including Ford which I thought might move in a positive direction. last month I got rid of some then bought a few more cheapies. In one year my 5k became 7,800. This was because of only one stock I picked which happened to go up ridiculously. Anyways like I said a put some of the monety from the sale back into another set of small stocks and over the course of about 25 days have lost 600 dollars so I am down to 7,200. Every trade on Ameritrade costs only 10 dollars. All my stocks are going down right now except one. I could sell out and sit on the sidelines to preserve what little I made or I could keep my stocks and hope for th best. Either way I won't gain or lose much money. So what the heck should I do, sell what few stocks I have now? The sale of all my stocks would probably cost 100 bucks then I would be able to sit back for a few months or I could stay in and possibly see half the value of my money go. I guess I probably should sell if profit is important. Why am i so hesitant to do so? Should I get out now and keep my change? Yikes!? Someday I hope to be as wealthy as Warren Buffet. Ha Ha.

By the way, the stock which di me well was EXM, a shipping stock. Last year it was worth 12 dollars then it went up and up to 84 I believe. I got spooked and sold it at 76. Now its worth 40-something.

Nothing is simple anymore.

[LaoPo]

I put 5,000 into the stock market in the US via Ameritrade last November. I just wanted to play around to see how online trading worked. I bought quite a few cheap stocks including Ford which I thought might move in a positive direction. last month I got rid of some then bought a few more cheapies. In one year my 5k became 7,800. This was because of only one stock I picked which happened to go up ridiculously. Anyways like I said a put some of the monety from the sale back into another set of small stocks and over the course of about 25 days have lost 600 dollars so I am down to 7,200. Every trade on Ameritrade costs only 10 dollars. All my stocks are going down right now except one. I could sell out and sit on the sidelines to preserve what little I made or I could keep my stocks and hope for th best. Either way I won't gain or lose much money. So what the heck should I do, sell what few stocks I have now? The sale of all my stocks would probably cost 100 bucks then I would be able to sit back for a few months or I could stay in and possibly see half the value of my money go. I guess I probably should sell if profit is important. Why am i so hesitant to do so? Should I get out now and keep my change? Yikes!? Someday I hope to be as wealthy as Warren Buffet. Ha Ha.

By the way, the stock which di me well was EXM, a shipping stock. Last year it was worth 12 dollars then it went up and up to 84 I believe. I got spooked and sold it at 76. Now its worth 40-something.

Nothing is simple anymore.

Yes, get out and keep the 'change' You did very well and don't cross the railroad when the train is approaching...

All signs are RED.

Lots of opportunities will come your way, once the train has passed. It'll take a while though. But better than to lose your 'change'.

LaoPo

[lannarebirth]

what do you mean by "refusing this fact"? take a look at the asian currencies, then you realize that they have appreciated vs. the Dollar. best example is Thai Baht.

I'm surprised you ask...

Thailand : even the BOT itself aknowledges that they massively intervene on the market to curb the appreciation of the THB.

Consequences : reserves, net forward positions are exploding. See here.

Japan : again, how would you define the zero rate policy and the little game of the BOJ ("i'm going to increase my rates... oh sorry no, maybe next time") ? In perfect collusion with the gvt (who modified the calculation of the Consummer Price Index by the way, so the BOJ could say "we still have a deflation, we can't increase")

China : again, is it necessary to explain... ? Their inflation explodes (+6.5 in october, most in a decade), because they are printing RMB like crazy to neutralize the mountains of USD they are receiving, but they are doing whatever they can to avoid to increase their interest rates...

Speak about massive imbalances !

So yes, I think we could say that asian countries are "refusing" the fact that their currency have to increase versus USD, by using a lot of differents techniques.

Of course it might change, with an accelerated pace.

My point was : we can surely point our finger to the US and critize their own imbalances. But we should not forget that many other countries are culprits too.

Each country would like to have :

-a weak currency to boost its exports

-a strong currency to cushion commodities prices (oil...)

-no inflation

-no debt

-very low interest rates to boost economy

-high real estate prices (good for the economy)

-but affordable housing for people

etc. etc.

It's a total and global mess. A global "Alice in Wonderland".

I think a lot of people believe (and maybe rightly so) that asian central banks do these interventions to weaken their currency against the dollar. Or at least slow it's growth. I believe (maybe wrongly) that their only onterest is weakening their own currency relative to other asian countries. That's one way they can maintain a competitive advatage. Trying to alter the value of the USD is like trying to hold back the tide. Virtually impossible.

[LaoPo]

! A very interesting read !

What's sinking the dollar?

Fortune's Geoff Colvin takes a closer look at the greenback's spiraling decline.

November 13 2007: 9:12 AM EST

(Fortune Magazine) -- Things do tend to go to hel_l all at once, so maybe it should be no surprise that the dollar tanked as the subprime mess was getting rapidly worse and stock markets were whipsawing, mostly downward.

The dollar's fate is especially worrisome because of its historic role as the world's reserve currency and its obvious importance to the world's largest economy. In today's interconnected global markets the dollar's movements are part cause, part effect -- but on net it's hard to see the dollar getting much stronger anytime soon.

The forces behind the dollar's weakening have been building for years but didn't have much effect until recently.

Most fundamentally, we Americans have been living beyond our means, buying more from the rest of the world than the world buys from us (that's the trade deficit); to do that, we have to give foreigners claims on our assets in the form of government bonds and corporate bonds, or sometimes the assets themselves.

A country as rich as America can do that for a long time, but eventually the world ends up holding more dollars than there is dollar-denominated stuff they want to buy, so they start offloading dollars. They also worry that any country with loads of debt -- even the U.S. -- may be tempted to inflate its currency, and that fear reduces its value.

Since the U.S. has been running huge trade deficits the past several years -- about $700 billion this year -- the stage has long been set for the dollar to drop. What shoved it over the edge was the subprime mess and worries about a U.S. economic downturn. If the economy looks to be slowing down, investors bail out of U.S. assets and turn to investments that must be bought with other currencies. When the Fed tries to perk up the economy by cutting interest rates, as it has done twice recently, it makes the dollar even less attractive because investors can get better rates in other currencies, such as the euro.

The Wall Street money machine breaks down

What makes investors really nervous is that the trend could become self-reinforcing. A Chinese government official sparked a particularly sharp selloff of the dollar when he said his government would be moving its reserves out of weak currencies and into strong ones -- goodbye, dollar; hello, euro. Since China holds more than $1 trillion, its actions could move markets, pushing the dollar down further, prompting dollar holders to shift out of it further, and so on.

Even if we avoid that scenario, more dollar weakness is probably ahead, at least relative to China's yuan and other currencies of developing nations. As Alan Greenspan points out, when their living standards are rising faster than ours, their currencies will probably appreciate vs. ours. Remember, he says, that the Japanese yen was once 300 to the dollar and eventually strengthened to below 100 (it's now around 113). The trend continues: In just the past year the dollar has weakened 13% vs. the Indian rupee and 11% vs. the Colombian peso, for example.

By the way, Warren Buffett told us all this would happen. In mid 2002, for the first time in his life, he began buying foreign currencies, thus betting against the dollar. He explained his reasons most extensively in a Fortune article he wrote (Nov. 10, 2003). The main factor he cited, the trade deficit, is much worse now. For a year or two after the article, his bet seemed to be a loser. But now, as usual, he looks prescient.

http://money.cnn.com/magazines/fortune/for...32904/index.htm

LaoPo

[Sourdough Al]

Right now American's have their head in the sand about everything and are only interested in whatever crap the media feeds to them. American's don't seem to question much or be that interested in the world outside themselves.

However the average Joe would much rather talk about - and knows more about - their favourite baseball or football team.

The other day I was in a travel forum where an American person was complaining that her bus tour in UK went up by $1,000 USD this year. She said how come in the British and Aussie brochures it didn't go up anywhere near as much. I said to her, 2 years ago the USD was buying nearly 60 pence now today it is buying only 48 pence, that is a 20% depreciation. Your tours and anything else you buy from UK has to go up 20% to compensate for this, she still didn't think it was the cause. The first step to solving a problem is to admit you actually have one.

Please don't lump all of us together. I would agree that many (or maybe most) Americans have their heads in the sand and do not care about anything outside of their own petty interests, BUT there are many of us who do care, do stay informed, do think critically, and are very concerned as to where the US is headed.

[rken]

The way they have always made money is by the rise and fall of the value of things, whether it me money, stocks or property. Remember when Japan was buying heavy in real estate in the US the values rose and the bubble burst and who won. This pattern repeats over and over with gold, housing and the dollar. Recently Europeans invested heavily in US realestate and paid the price. Gold has been on a tare and prices are up and everyone is buying. Same thing happened I think it was the late 70s and many people lost a lot of money. A little bit of news from a big wig and every body runs in that direction exactly where they want you to run. Out of the dollar and into the Euro or Yuan. Be careful, I wouldn't bet against the US or the Dollar. Run little sheep run.

[JimsKnight]

Maybe this is gonna be like the tortoise and hare story!;

You know the dollar is really slow and getting its big green ass whooped by the all the yellow rabbits but they get really complacent and sleep just before the finish.

Well that big ol' tortoise just creeps on past 'em and wins the day!

I think the $ can rally its not over til its over!

[longway]

Maybe this is gonna be like the tortoise and hare story!;

You know the dollar is really slow and getting its big green ass whooped by the all the yellow rabbits but they get really complacent and sleep just before the finish.

Well that big ol' tortoise just creeps on past 'em and wins the day!

I think the $ can rally its not over til its over!

its a race that the yellow rabbits dont want to win...

[LaoPo]

The 'basket' of strong currencies I was referring to earlier* is coming sooner than we all expected:

http://www.thaivisa.com/forum/index.php?sh...t&p=1643718

U.A.E. May Peg to Currency Basket, Al-Suwaidi Says

Nov. 15 (Bloomberg) -- The United Arab Emirates may end the dirham's 30-year-old peg to the dollar and link it instead to a basket of currencies, central bank Governor Sultan Bin Nasser al- Suwaidi said.

The falling dollar will trigger a ``review'' of the U.A.E.'s dollar peg, al-Suwaidi said in an interview in Gwacheon, South Korea today, signaling for the first time that the U.A.E. may drop the dirham's link to the U.S. currency in the near future.

A switch by the U.A.E. would follow Kuwait, which ended the fixed exchange rate for the dinar in May. The dollar has fallen 10 percent against euro this year, making imports for the Gulf Arab states more expensive and helping push inflation in the U.A.E. to the second-highest in the region.

``Today's comments reinforce our view the dirham is the currency most likely to move away from its dollar peg following Kuwait's move earlier this year,'' said Caroline Grady, an economist at Deutsche Bank AG in London, in an interview. ``Although the U.A.E. has said it doesn't intend to unilaterally abandon the dollar-peg, we don't rule out a move without the rest of the Gulf Cooperation Council.''

Al-Suwaidi has previously said any move away from the dollar peg would be in unison with its GCC neighbors, including Saudi Arabia and Qatar. Heads of state from the six-nation council will meet Dec. 3-4 in Qatar to discuss monetary policy and regional security.

Forward contracts to buy dirhams in one year jumped the most in at least 10 years to 3.57 per dollar, a record, and a 2.8 percent premium over the spot price, according to data compiled by Bloomberg.

Record Dollar Low

The dollar slid to a record low of $1.4752 against the euro on Nov. 9, and it has fallen versus 15 of the 16 most actively traded currencies tracked by Bloomberg in the past 10 1/2 months.

``It's not my prediction but everybody is expecting that the U.S. dollar will go down further,'' al-Suwaidi said today. ``It will trigger a review.''

The plan is ``not to drop the dollar-peg but maybe to reduce it to a basket which will consist of more dollars, but not totally 100 percent,'' he said.

Moving to a basket of currencies would end the dirham's peg to the dollar that began in 1978 and was formalized in 1997.

Kuwait dropped the dinar's peg to the dollar in May, citing inflationary pressure from the weak dollar. The dinar has risen 4.5 percent versus the U.S. currency since then.

Gulf Arab states include the U.A.E and Saudi Arabia, which together earn more than $1.2 billion a day from oil sales. A move away from the dollar may see the countries' sovereign wealth funds, which hold an estimated $2 trillion, diversify their holdings.

The GCC is an economic and political grouping of Saudi Arabia, the U.A.E., Kuwait, Qatar, Oman and Bahrain. They all peg their currencies to the dollar, apart from Kuwait, which switched to a basket of currencies in May.

Qatar, Oman, Bahrain and Saudi Arabia have all said repeatedly they have no plans to change their exchange rate policies.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Who's next ?

LaoPo

[LaoPo]

Dollar hits record low

Euro hits $ 1,485

http://today.reuters.com/news/articleinves...AL-WRAPUP-9.XML

Dollar May Extend Loss Versus Euro on Rate-Cut Speculation

Nov. 21 (Bloomberg) -- The dollar may extend its biggest loss in almost two years against the euro on speculation the Federal Reserve needs to keep cutting borrowing costs to prevent the world's largest economy from slipping into recession.

Reports today are forecast to show an index regarding the U.S. economic outlook fell in October while consumer confidence sank to a two-year low this month. The dollar weakened to a record low against the euro and Swiss franc after the Fed cut its 2008 growth forecast yesterday.

``The trend of a weakening dollar will continue,'' said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world's largest currency trading bank. ``If the Fed doesn't cut rates next month, the risk of a recession will rise considerably.''

The dollar traded at $1.4841 per euro and 109.97 yen at 7 a.m. in Tokyo. The U.S. currency touched $1.4852 yesterday, the cheapest level since the 13-nation currency started trading in January 1999. The U.S. currency fell 1.2 percent yesterday, the biggest decline since Jan. 23, 2006. The dollar also reached an all-time low of 1.1055 against the Swiss franc. The euro bought 163.16 yen.

The dollar will decline to $1.50 per euro by the end of the year, according to Boyton. Europe's single currency will trade at $1.45 by year-end, according to the median forecast of 43 analysts and brokerages surveyed by Bloomberg News.

Fed Cuts Forecast

The Fed cut its 2008 growth forecast to between 1.8 percent and 2.5 percent, from 2.5 percent to 2.75 percent. Policy makers said in the minutes of their Oct. 31 meeting yesterday that they are concerned about credit-market losses, even as they described the interest-rate cut as a ``close call.''

The central bank reduced the target rate for overnight loans between banks to 4.5 percent last month, after a 50-basis- point reduction in September. The odds of the Fed cutting rates a quarter-percentage point to 4.25 percent on Dec. 11 are 84 percent, up from 72 percent a month ago.

The New York-based Conference Board's index of leading U.S. economic indicators probably fell 0.3 percent in October, after a 0.3 percent gain a month earlier, according to a Bloomberg News survey.

The Reuters/University of Michigan's final consumer sentiment index for November probably fell to 75, from 80.9 at the end of October, a separate survey showed. Both reports are scheduled for release at 10 a.m. New York time.

``There are lots of forces working against the dollar,'' said Robert Fullem, vice president of U.S. corporate currency sales at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The market sentiment toward the dollar is very negative. You are going to see further declines in the dollar.''

Dollar Drops

Currencies in New Zealand, the U.K., South Africa and Norway gained yesterday as the prospect of lower rates in the U.S. enticed investors away from dollar-denominated assets. The dollar also fell on speculation a group of six Arab nations will end their fixed exchange rates to the U.S. currency.

The U.S. dollar has declined against all 16 most-actively traded currencies except Mexico's peso this year as the Fed cut interest rates twice to help revive economic growth amid the worst housing market slump in 16 years, and as companies reported losses on securities tied to U.S. subprime mortgages.

The dollar has lost 11 percent against the euro, 7.6 percent versus the yen and 9.2 percent against the franc over the same period.

``The trend of dollar weakness has momentum,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. ``I won't be surprised if euro dollar trades'' at $1.50 per euro by mid-December.

Over the past five years, the dollar has tumbled 50 percent against Brazil's real, 38 percent against the Canadian dollar and 32 percent against the euro, prompting European Central Bank President Jean-Claude Trichet to say this week that ``disorderly'' currency moves are ``undesirable.''

http://www.bloomberg.com/apps/news?pid=206...&refer=news

LaoPo

Edited November 20, 2007 by LaoPo

[sonicdragon]

To the chartists: what do you make of this:

Dollar Poised for Drop to `Final' Support, Bank of America Says (from bloomberg)...

highlights:

The Dollar Index, which gauges the value of the dollar against six major currencies, including the euro and yen, may reach the "final" technical support level of 73.92

...

The 73.92 level is derived from a 30-year trend line tracking the lows of the Dollar Index, according to Sharma. 'There are few significant support levels left,' he said.

...

Full story:

http://www.bloomberg.com/apps/news?pid=206..._currency_rates

I don't know much about technical analysis, but I have a healthy respect for it, so I look forward to comments from our resident technicians. The implication seems to be a freefall if we go through this level ? Also, as I recall 80 was a major support level for a long time. Does that mean it would be a resistance point in the event of a rally ?

[lannarebirth]

I'm on my way out the door, but "support" may be a misnomer, as it doesn't have any price support, as it's never been this low. They may be talking about a fibonacci extension, or an Eliot Wave pattern. Will look later.

[ray23]

A recesion will happen nothing new about every ten years it happens. No matter what the fed does, America will have another recession. So how will destroying the currency help.?

Sometimes in my life I have over exteneded my budget, the answer wasn't in obtaining more credit, the answer was belt tightening, paying off bills and get cash back into the budget. I know it' a bigger budget, but isn't that the real answer?

Dropping rates now is only a stop gap measure. There are dues to be paid and they will be paid only question is when.

The answer to subprime isn't giving the banks more money, it's in adjusting the returns and limiting the loss. Sometimes in life 50% is better then 0%. Ya some big investors won't make some money for awhile, well they were not crying when they were doing very well. If you rode out the good years you know that it won't last forever. The answer is in reducing the payments on these loans, allowing the individuals a chance to keep the property. Not forclosing on propertires that you will be stuck with as no one can buy.

But then what the heck do I know. I only know about my budget, which has already been destroyed by factors I had no control in. Around my place we spend less, that is the only answer for us.

[gzu88bv]

Full story:

http://www.bloomberg.com/apps/news?pid=206..._currency_rates

If the FED is going to do what is forcasted in above article then we might rather see the 69-70 area in the

Dollar Index

[chinthee]

How about this for shock and awe:

Goldman Sachs: Indian/Chinese Institutions Could Buy American Banks

I never thought I would see this in my lifetime but emerging market financial institutions from India or China may be able to buy out American banks due to the fallout from mortgage crisis, according to the latest Goldman Sachs (GS) report. The report says:

Further, we would not be surprised to see the first acquisition of a major US broker or commercial bank by an emerging market institution. While most US brokers and some US banks have broadened their geographic presence over the past decade, none has developed a truly robust Chinese or Indian offering. With these economies growing at multiples of the US, we would not be surprised to see a larger international bank attempt to gain access to the US financial services community through acquisition.

Add to the mortgage crisis, the rapid decline in value of US dollar against these currencies and the growth rates of these economies - the scenario begins to look much more plausible. It's a matter of when and not if.

Goldman Sachs

[samran]

How about this for shock and awe:

Goldman Sachs: Indian/Chinese Institutions Could Buy American Banks

I never thought I would see this in my lifetime but emerging market financial institutions from India or China may be able to buy out American banks due to the fallout from mortgage crisis, according to the latest Goldman Sachs (GS) report. The report says:

Further, we would not be surprised to see the first acquisition of a major US broker or commercial bank by an emerging market institution. While most US brokers and some US banks have broadened their geographic presence over the past decade, none has developed a truly robust Chinese or Indian offering. With these economies growing at multiples of the US, we would not be surprised to see a larger international bank attempt to gain access to the US financial services community through acquisition.

Add to the mortgage crisis, the rapid decline in value of US dollar against these currencies and the growth rates of these economies - the scenario begins to look much more plausible. It's a matter of when and not if.

Goldman Sachs

I kind of remember reading similar things about the Japanese taking over the world back in the late 1980's and through to the mid 1990's. And where are we today?

No doubt, there will be some Americans will let the cashed up Chinese buy whatever asset at an inflated price, wait 5 years for the Chinese economy bubble to burst a bit, and then walk back in and buy back what they used to own at half the price.

[sonicdragon]

How about this for shock and awe:

Goldman Sachs: Indian/Chinese Institutions Could Buy American Banks

I never thought I would see this in my lifetime but emerging market financial institutions from India or China may be able to buy out American banks due to the fallout from mortgage crisis, according to the latest Goldman Sachs (GS) report. The report says:

Further, we would not be surprised to see the first acquisition of a major US broker or commercial bank by an emerging market institution. While most US brokers and some US banks have broadened their geographic presence over the past decade, none has developed a truly robust Chinese or Indian offering. With these economies growing at multiples of the US, we would not be surprised to see a larger international bank attempt to gain access to the US financial services community through acquisition.

Add to the mortgage crisis, the rapid decline in value of US dollar against these currencies and the growth rates of these economies - the scenario begins to look much more plausible. It's a matter of when and not if.

Goldman Sachs

And probably sooner rather than later.

[LaoPo]

How about this for shock and awe:

Goldman Sachs: Indian/Chinese Institutions Could Buy American Banks

I never thought I would see this in my lifetime but emerging market financial institutions from India or China may be able to buy out American banks due to the fallout from mortgage crisis, according to the latest Goldman Sachs (GS) report. The report says:

Further, we would not be surprised to see the first acquisition of a major US broker or commercial bank by an emerging market institution. While most US brokers and some US banks have broadened their geographic presence over the past decade, none has developed a truly robust Chinese or Indian offering. With these economies growing at multiples of the US, we would not be surprised to see a larger international bank attempt to gain access to the US financial services community through acquisition.

Add to the mortgage crisis, the rapid decline in value of US dollar against these currencies and the growth rates of these economies - the scenario begins to look much more plausible. It's a matter of when and not if.

Goldman Sachs

I kind of remember reading similar things about the Japanese taking over the world back in the late 1980's and through to the mid 1990's. And where are we today?

No doubt, there will be some Americans will let the cashed up Chinese buy whatever asset at an inflated price, wait 5 years for the Chinese economy bubble to burst a bit, and then walk back in and buy back what they used to own at half the price.

The point is that some western countries need to shake up their own economy, finances and spending...

The 'Japan' situation back in the '80's can't be compared with what's going on right now. Back than it was peanuts in comparison with today.

The situation in your last sentence is not a likely scenario. The Chinese, if they buy a company or bank, will never buy (or sell again) on a short term like 5 or 10 years.

They ALWAYS invest and think: long term.

LaoPo

[sonicdragon]

How about this for shock and awe:

Goldman Sachs: Indian/Chinese Institutions Could Buy American Banks

I never thought I would see this in my lifetime but emerging market financial institutions from India or China may be able to buy out American banks due to the fallout from mortgage crisis, according to the latest Goldman Sachs (GS) report. The report says:

Further, we would not be surprised to see the first acquisition of a major US broker or commercial bank by an emerging market institution. While most US brokers and some US banks have broadened their geographic presence over the past decade, none has developed a truly robust Chinese or Indian offering. With these economies growing at multiples of the US, we would not be surprised to see a larger international bank attempt to gain access to the US financial services community through acquisition.

Add to the mortgage crisis, the rapid decline in value of US dollar against these currencies and the growth rates of these economies - the scenario begins to look much more plausible. It's a matter of when and not if.

Goldman Sachs

I kind of remember reading similar things about the Japanese taking over the world back in the late 1980's and through to the mid 1990's. And where are we today?

No doubt, there will be some Americans will let the cashed up Chinese buy whatever asset at an inflated price, wait 5 years for the Chinese economy bubble to burst a bit, and then walk back in and buy back what they used to own at half the price.

The point is that some western countries need to shake up their own economy, finances and spending...

The 'Japan' situation back in the '80's can't be compared with what's going on right now. Back than it was peanuts in comparison with today.

The situation in your last sentence is not a likely scenario. The Chinese, if they buy a company or bank, will never buy (or sell again) on a short term like 5 or 10 years.

They ALWAYS invest and think: long term.

LaoPo

I agree. The situations are much more different than they are similar. Other than the issues of sheer scale mentioned by LaoPo, for one thing, the respective stages of development of china and japan are very different (generalising and oversimplifying china is now at a stage similar to japan in the 60s not the 80s); and so are their respective models of economic policy.

Still, it's an interesting comparison