Financial Crisis

[teletiger]

Latvian bond failure begins

http://v2.ftalphaville.ft.com/blog/2009/06...ins/?source=rss

churchill I have been wondering why there hasn't been so much updated media coverage ( Eastern European

economies ) unless I have been missing them but then this evening as I was checking the latest

about the ongoing MP's expenses row I found this in the Telegraph

about Russia, Ukraine, and the EU states of Eastern Europe. There are also 178 comments

from readers after the article which predictably show a wide spectrum of responses

Failure to save East Europe will lead to worldwide meltdown

http://www.telegraph.co.uk/finance/comment...e-meltdown.html

I particularly liked this piece of reserved rhetoric.

"Wow! Isn't Globalisation awesome?!? Yeah, let's break down all barriers (i.e. safety valves and fire-proof doors) and let greed run amok...bend over and grab your ankles, people, because the international bankers have a major hard-on and want to stick it to us again!

Some of the earlier posters above are correct, fractional reserve banking is an ABOMINATION and has led us, along with "central banks", down this road to ruin. Here in the USSA, the Federal Reserve is the biggest scam ever concocted to fleece the poor suckers, er, I mean citizens...treacherey, treason, grand larceny, why, it's a near perfect system in ensuring the death of a nation's vitality and sovereignty!

ABOLISH the Federal Reserve and every other "central bank!! ABOLISH the IMF and World Bank!! Hang the international financiers from trees and beat them with lead pipes until OUR money falls back out, then take these satanic scum, pluck out there eyeballs with corkscrews, set their hair on fire, horse-whip them raw, then roll them in salt and vinegar, and grind their genitals off with rocks...and, of course, confiscate all of their ill-gotten assets...all to serve as a stark message to those who may want to take their place in the world of international thievery."

Regards.

[flying]

This thread is 98 pages long, so lets ask one question.

Is the financial crisis over? Short reply's only

My answer is no, much worse to come, complete meltdown still possible

Would very much enjoy an end

But I see no signs of that here

If the recession is ending it is due to the depression getting ready to begin.

Depression being when GDP = -10%

http://www.bea.gov/newsreleases/national/g...newsrelease.htm

[MJP]

They say you should never answer a question with a question, but that is another thread in the word games section..........

So why would one think it is over/not over

Debt (post war super boom debt bubble way higher than 1929 as a proportion of GDP)

Collapsing asset values (ignore current bull trap)

Insolvency rates

Unemployment rising fastest ever

Political instability (UK)

Trade deficit

Structural problems such as pensions short falls, government spending out of control

Don't make anything, no one to sell to if we did

Lending not re-starting

Biflation

Dollar collapse

Brown

Balls

[MJP]

Latvian bond failure begins

http://v2.ftalphaville.ft.com/blog/2009/06...ins/?source=rss

churchill I have been wondering why there hasn't been so much updated media coverage ( Eastern European

economies ) unless I have been missing them but then this evening as I was checking the latest

about the ongoing MP's expenses row I found this in the Telegraph

about Russia, Ukraine, and the EU states of Eastern Europe. There are also 178 comments

from readers after the article which predictably show a wide spectrum of responses

Failure to save East Europe will lead to worldwide meltdown

http://www.telegraph.co.uk/finance/comment...e-meltdown.html

I particularly liked this piece of reserved rhetoric.

"Wow! Isn't Globalisation awesome?!? Yeah, let's break down all barriers (i.e. safety valves and fire-proof doors) and let greed run amok...bend over and grab your ankles, people, because the international bankers have a major hard-on and want to stick it to us again!

Some of the earlier posters above are correct, fractional reserve banking is an ABOMINATION and has led us, along with "central banks", down this road to ruin. Here in the USSA, the Federal Reserve is the biggest scam ever concocted to fleece the poor suckers, er, I mean citizens...treacherey, treason, grand larceny, why, it's a near perfect system in ensuring the death of a nation's vitality and sovereignty!

ABOLISH the Federal Reserve and every other "central bank!! ABOLISH the IMF and World Bank!! Hang the international financiers from trees and beat them with lead pipes until OUR money falls back out, then take these satanic scum, pluck out there eyeballs with corkscrews, set their hair on fire, horse-whip them raw, then roll them in salt and vinegar, and grind their genitals off with rocks...and, of course, confiscate all of their ill-gotten assets...all to serve as a stark message to those who may want to take their place in the world of international thievery."

Regards.

You really need to put a bit more passion into your posts.

[AlexLah]

But the Telegraph article is from Feb and now only Latvia reported to have problems selling some bonds?

Where is the impending implosion of all the other countries like Ireland, Spain, Greece and such?

Where did the alleged 6 Trillion from the US go, did that money exist or was it just a promise/digital entry that needs to be coughed up by future tax payers in the form of funny printed pieces of paper?

What do we know? Just like CA telling they have a budget deficit, does that mean that the piggybank they had reserved for certain spending is now empty and they cannot take from the other piggybank as that money was not reserved for that purpose but instead used to buy assets?

Look up: CAFR

[flying]

ABOLISH the Federal Reserve and every other "central bank!! ABOLISH the IMF and World Bank!! Hang the international financiers from trees and beat them with lead pipes until OUR money falls back out, then take these satanic scum, pluck out there eyeballs with corkscrews, set their hair on fire, horse-whip them raw, then roll them in salt and vinegar, and grind their genitals off with rocks...and, of course, confiscate all of their ill-gotten assets...all to serve as a stark message to those who may want to take their place in the world of international thievery."

Regards.

Good Start!

[AlexLah]

I think I mentioned this a long time ago. It is all a big scam.

Go here and read: http://cafr1.com

There is no spoon!

[churchill]

Latvian debt crisis shakes Eastern Europe

The central bank has been burning reserves to defend the lat in Europe’s Exchange Rate Mechanism, but markets doubt whether Latvia has the political will to carry through draconian cuts in spending – or whether such a policy even makes sense at this stage.

Tremors hit bank shares in Stockholm and triggered a sharp fall in Sweden’s krona. Swedbank, SEB and other Swedish banks have $75bn of exposure to the Baltic states, and face cliff-edge losses if the pegs snap.

Latvia may be a small country but it has vast repercussions for the region,” said Bartosz Pawlowski, of BNP Paribas. “If the currency breaks in Latvia, it is likely to break in Estonia and Lithuania as well, and perhaps Bulgaria, with effects on other countries like Romania.”

Fresh turbulence in the ex-Communist bloc would rattle West European banks, which have €1.3 trillion of exposure to the region. “We haven’t yet seen the full extent of the crisis in the East European banking system. Defaults are creeping higher,” he said.

The G20 deal in April to triple the IMF’s fire-fighting fund to $750bn has reduced the risk of a currency conflagration, but while

the larger reserves will buy time, it does not change the fact that some countries have taken on too much debt.

Latvia’s premier Valdis Dombrovskis warned against a devaluation “quick fix” but may have fuelled the flames further by admitting that the lat is overvalued by a third.

“If we’re talking of devaluation, it definitely won’t be less than 15pc. It’ll most likely be 30pc. Real incomes will shrink very fast. The immediate shock will affect absolutely everyone and everything,” he said.

Latvia faces a calamitous hangover after blazing the trail of euro, Swiss franc, and yen mortgages. Fitch Ratings says foreign debt maturing in 2009 is equal to 320pc of foreign reserves.

The finance ministry expects GDP to contract 18pc this year. House prices have fallen 50pc , the world’s most spectacular crash. A third of the country’s teachers are being fired and public salaries will be slashed by up to 35pc to meet bail-out terms imposed by the IMF and the European Commission. The policy risks a deflation spiral that defeats its own purpose.

“The level of adjustment is too extreme and it is testing the social and political fabric of the country,” said Tim Ash, from the Royal Bank of Scotland. “You have to ask whether they are sacrificing the Latvian economy to protect Swedish banks. It would be better to devalue now and clear the air.”

Mr Ash said Latvia had crossed the Rubicon this week when the justice minister called for a debate on the peg and key adviser Bengt Dennis, ex-governor of Sweden’s Riksbank, said the only question about devaluation now was “how it will be carried out”.

Days earlier the Riksbank said it was boosting foreign reserves by $13bn, clearly a precaution in the face of Baltic risk. Swedish officials seem to have accepted that nothing is to be gained from prolonging the Baltic agony. SEB said it faces equal losses either way, slowly under the peg or short and sharp through devaluation.

Leaks suggest that the IMF favours devaluation, the normal cure for countries that overheat. It was overruled by the European Commission, deeming retreat from the ERM peg to be a threat to Europe’s fixed-exchange orthodoxy.

Mr Ash said the crisis was playing out much like the final days of the Russia debacle in 1998 and the end of Turkey’s crawling peg in 2001, with momentum building until a critical point of no return.

http://www.telegraph.co.uk/finance/finance...ern-Europe.html

[midas]

The calls are getting louder and more frequent

"There's been a lot of talk out of Russia about a new global currency, and that's contributing toward this latest bout of dollar weakness," said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world's largest currency trader. "These latest comments are just adding to the general dollar weakness we've seen recently."

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

[Abrak]

Latvian bond failure begins

http://v2.ftalphaville.ft.com/blog/2009/06...ins/?source=rss

Yes it looks to be game over for Latvia.

Look what has happened to interest rates since the bond failure.

http://zerohedge.blogspot.com/2009/06/latv...rrency-and.html

The overnight deposit rate doubled to 24%. Now about half of Latvian debt is in Lat and half in Eur. So with interest rates at this level either an economy contracting 20% (and where property prices have halved) totally disintegrates and then it devalues in which case all debts go bad or it simply devalues in which case there is some hope for Lat debt and Eur debt goes bad. Noticeably 5 year credit default swaps on Lat debt only went up 10 bps to 638bps presumably on the basis that there would be a devaluation.

Now Latvia is a very small country but it was IMF policy to maintain the peg and this looks to have gone badly wrong. So there is a clear risk that this will be just the start of the unravelling of Eastern Europe where most countries have equally horrendous fundamentals.

If so this presents major problems for a number of European countries such as Austria. Sweden and Switzerland that basically own the banking systems there.

This problem may be far greater than the US mortgage crisis - property prices have fallen as far and debts are in an appreciating currency.

According to one economic blog...

European Commission officials have estimated that "impaired assets" may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the 'trading book' total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.

In addition, so-called 'available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion."

Luckily this is one game the UK banks avoided, not due to inherent intelligence, simply because they didnt have Euro balance sheets.

[12DrinkMore]

Here's a simple enough analogy.

http://www.bfi-capital.com/mountainvision/...view=e4da3b7fbb

A Layman´s Understanding of the Bailouts

This was sent to us by one of our clients. Just think of Freddie and Fanny MAC and the subprime mortgage foreclosure debacle. This is an excellent analogy and easily understandable explanation of derivative markets.

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi´s "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi´s bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers´ freedom from immediate payment demands Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi´s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi´s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank´s corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don´t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation´s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi´s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi´s bar had granted her generous payment extensions and had invested their firms´ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion Dollar, no-strings-attached cash infusion from the government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers.

Now, do you understand?

[12DrinkMore]

This thread is 98 pages long, so lets ask one question.

Is the financial crisis over? Short reply's only

My answer is no, much worse to come, complete meltdown still possible

So another question, how many more pages before the financial crisis is over?

[Abrak]

Here's a simple enough analogy.

http://www.bfi-capital.com/mountainvision/...view=e4da3b7fbb

A Layman´s Understanding of the Bailouts

This was sent to us by one of our clients. Just think of Freddie and Fanny MAC and the subprime mortgage foreclosure debacle. This is an excellent analogy and easily understandable explanation of derivative markets.

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi´s "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi´s bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers´ freedom from immediate payment demands Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi´s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi´s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank´s corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don´t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation´s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi´s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi´s bar had granted her generous payment extensions and had invested their firms´ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion Dollar, no-strings-attached cash infusion from the government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers.

Now, do you understand?

While I like the analogy it is missing something.

You see Heidi is a bit of an entrepreneur at heart and when things are going well she decides to expand and soon has a large chain of Heidi bars based on the same model. In the mean time lots of Heidi clones are doing the same thing so that property prices are going through the roof. And with all this investment and consumption going on the economy is growing so well - in fact the big concern is that Heidi keeps putting up her prices. This goes on for a remarkably long time because even the unemployed alcoholic can afford to pay his bills when he owns a home - he simply remortgages it. The problem was that it really did need more and more unemployed alcoholics (sorry I mean property developers) and ever increasing amounts of debt to keep the Ponzi scheme going. And when it all comes tumbling down I guess the only good news is that there are bound to be some more unemployed alcoholics.

You see taxing your middle class, employed, non-drinkers doesnt work to bailout the game because the more you tax them the less they will spend. The whole point of the analogy is that the demand wasnt real in the first place in that people were spending money they didnt have and then other people were investing on the back of this demand and that investment created a false sense of wealth through asset prices that lead to more non-real demand (to the extent that much of the rise was temporary.) So creating US$1.8trn deficits to replace this demand is a fairly fruitless exercise because at the end of the day the unemployed

alcoholic simply cant afford to drink.

[12DrinkMore]

At least the Irish are doing sensible and logical things to get themselves out of the mess. Well, at least I can see how this could lead to a recovery.

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

The government is cutting public employee wages and hiking taxes to reassure continental neighbors that the country won’t need a bailout like Iceland, its neighbor to the north

As the guy said, it's going to be a terrible couple of years; but with these measures they will hopefully come out of it stronger.

Can't say that about the UK, lowest interest rates since the world began, billions of bailouts and 125,000 billion crispy new Pounds, an ever expanding public disservice, the government in disarray with Brown hanging on to prolong the agony.

[Abrak]

At least the Irish are doing sensible and logical things to get themselves out of the mess. Well, at least I can see how this could lead to a recovery.

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

The government is cutting public employee wages and hiking taxes to reassure continental neighbors that the country won’t need a bailout like Iceland, its neighbor to the north

As the guy said, it's going to be a terrible couple of years; but with these measures they will hopefully come out of it stronger.

Can't say that about the UK, lowest interest rates since the world began, billions of bailouts and 125,000 billion crispy new Pounds, an ever expanding public disservice, the government in disarray with Brown hanging on to prolong the agony.

I dont know whether Irish policy is right or wrong. (It may well prove to only exacerbate the deflationary spiral they are already in.)

The usual economists answer to this problem is 'assume you dont have this problem'.

Perhaps it is better put by Professor Krugman.

http://krugman.blogs.nytimes.com/2009/04/1...-celtic-tigers/

Namely 'lets just hope we havent f**ked things up as badly as Ireland'.

It is Ben Bernanke's view that printing huge amounts of money with the likely effect of hyperinflation is definitely better than a deflationary spiral and that is why he is known as Helicopter Ben - I dont think anyone of us was alive along enough to really argue.

[Naam]

interesting questions and opinion based answers:

Questioning the Dollar

In the near-term, the stars are aligned against the US dollar. Sentiment is decidedly negative. If the news stream is good, we are told investors are less risk averse and do not need the dollar’s security. If the news stream is poor, we are told the US is in horrific shape and the budget deficit and Fed’s balance sheet will swell even more.

It is difficult to see what will break this psychology in the coming weeks. The euro could rise toward $1.4600-$1.4800, with sterling headed toward the mid-$1.60s. The dollar also looks poised to fall into the low JPY90 or high JPY80s.

Yet despite the likelihood of these near-term dollar losses, we are reluctant to substantially alter our more constructive medium term outlook. It may be helpful to put our views in the context of questions often asked.

Question 1: How can you offer a constructive view of the dollar when the US government is acting like it has an unlimited checking account and the Federal Reserve is abetting them by rapidly expanding its balance sheet?

The aggressiveness of the US policy response needs to be understood within the current financial and economic crisis, which is of historic proportions. A strong policy response is important and it can make a difference in the magnitude and duration of a crisis. The strong policy response from government officials and the dramatic liquidation of inventories should help the US economy find steadier footing in the coming quarters. The sooner the US economy begins to expand; the sooner the government and Federal Reserve can withdraw or otherwise unwind some of their emergency measures.

Question 2: But the cost of that policy course will be inflation and won’t that debase the dollar?

Inflation could be a problem in the future, but the immediate risk is just the opposite. Policy makers and many economists believe that undesirably low inflation or outright deflation pose a greater risk as the de-leveraging process continues.

Question 3: The Fed is creating reserves (money) and the government is spending hundreds of billions of dollars. Why won’t that fuel inflation?

The answer lies in how you understand inflation and in some way pits the monetarists against the Keynesians. To the extent that quantitative easing expands the Fed’s balance sheet and high power money, some monetarists will worry about inflation. The Keynesians, on the other hand, are not as worried about inflation because of the low levels of capacity utilization and rising levels of unemployment.

Question 4: Then isn’t stagflation possible as in the economy remains in the doldrums and we have a dramatic increase in inflation?

US core inflation has been remarkably steady. Over the past 120 months, the prices of core personal consumption expenditures have increased at a year-over-year average rate of 1.8% and over the past 24 months, it has averaged 1.81%. This measure of inflation, often cited as the Fed’s preferred, though not sole, gauge, has averaged 1.9% over the past year, and 1.78% over the past six months. The most recent data in March stood at 1.8%. If anything there has been some easing of core inflation pressures. The average monthly increase in the first quarter of this year was the lowest since the third quarter of 2007.

This is not simply backward looking. The point here is that there is no compelling sign that price pressures ought to be the main concern of policy makers. One can also look at inflation expectations, for which there are many different measures. The Fed and the ECB both cite the 5-year/5-year forward, which looks at market based instruments to uncover expectations for inflation not in the next five years, but for the five years after that, to offer a cleaner view of inflation expectations. The US measure stands around 2.45%. However, in Europe this measure picks up greater inflation expectations, with France, the proxy for the euro zone, standing at almost 3.10%, and the UK just below 4%.

Question 5: What then do you make of Bill Gross’s point that the dollar and US assets suffer amid concerns that the US sovereign debt rating could be downgraded in the future?

With all due respect to the famed investor, this assertion seems an unlikely narrative to explain the recent price action. Consider that recently a former Comptroller of the Currency wrote an op-ed piece which threatened that the US could eventually lose its triple-A rating if it did not quickly get its fiscal house in order. Since that op-ed appeared, Japan’s foreign currency debt rating was cut and the outlook for Great Britain’s debt was cut to negative from stable. According to IMF figures, the US government’s debt-to-GDP was just above 60% going into this year. When S&P expressed its concern over the UK’s debt outlook, it indicated that one of its considerations was that the UK’s debt was approaching 100% of GDP. Roughly speaking, the US budget deficit for both this year and next will be little more than 20% of GDP, bringing the debt-to-GDP ratio to around 80%.

The point is not that this is good, but rather that many other countries are in worse situations. According to IMF data, last year Japan’s debt-to-GDP was almost 200%, while Italy’s was 104%. Germany entered this year with a debt-to-GDP ratio of 76.4% and France was at 65%. Moreover, Gross’s claim seems incongruous with the fact that in the face of an actual change in the outlook for UK debt, sterling fully recovered from the initial sell-off and managed to make new highs against the dollar; and we are to believe this was on the distant prospect of a US downgrade.

One would not know by the rhetoric, but the risk of default by the United States, judged by the cost of a 5-year credit default swap, has fallen by nearly 40-50% this year. Even as the budget, bailout, and Fed’s bond purchases expanded, default risk remains lower than for almost every other country. However, there have been some unusual anomalies, like the time recently when the cost of insurance for one or a few individual companies was lower than for the US government.

Question 6: Surely you have to agree that with numerous central banks diversifying their reserves, the official supply of dollars will undermine it?

The demise of the dollar as the numeraire for the world economy is greatly exaggerated. The most authoritative data from the IMF suggests that until the last part of 2008, central banks as a whole were accumulating reserves. For two-thirds of the world’s reserves for which the composition is reported, central banks held more dollars than ever before. In the last quarter of 2008, the IMF data shows an overall reduction of reserves, which appeared to be a function of valuation and, ironically, intervention to slow the dollar’s rise. Federal Reserve custody holdings for foreign central banks rose roughly $94 billion in the final quarter of 2008, almost $80 billion in the first quarter of 2009, and have risen by more than $100 billion thus far in the second quarter.

US Treasury data is unequivocal: China increased its Treasury holdings by more than a third in the second half of 2008, has continued to increase holdings this year, and currently holds more Treasuries than ever before. No country has a monopoly on politicians whose declaratory and operational policies differ. Most recently, both Saudi Arabia and Bahrain reaffirmed a commitment to their dollar-peg currency regimes. South Korean and Russian officials have stated that they have no intentions to sell Treasuries. Ten years into the great experiment of our time, monetary union without political union in Europe, and the single currency is roughly the size of its constituent parts (ECU, the German mark and French franc), as a reserve currency.

By the ECB’s own figures a little more than 50% of the euro-zone’s exports are invoiced in euros. Likely the smaller half is mostly dollars, with a little sterling and yen thrown in the mix. The yen, backed by the world’s second largest economy, has a small and, in recent years, diminishing share of world reserves. Only about a quarter of its imports and a little more than a third of its exports are invoiced in yen. The recent buzz about China and Brazil using their own currencies for bilateral trade was largely a market/media generated story with little official encouragement and of course, no action.

Question 7: Don’t US policy makers really want a weaker dollar as a stealth form of default and to boost exports?

In testimony on May 21st, US Treasury Secretary Geithner specifically said he is committed to policies that sustain confidence in a strong dollar and US economy. Compare that with the Swiss National Bank, which has committed itself to preventing the appreciation of the Swiss franc to resist deflationary forces. Yet thus far in the second quarter the Swiss franc has appreciated by more than 4% against the US dollar. Since Geithner’s confirmation hearings were he quoted campaign rhetoric about the Chinese currency, there simply is no evidence that the Obama Administration is seeking a weaker US dollar overtly or covertly. Of all the challenges the US economy faces, the dollar’s exchange rate is not one of them.

[cloudhopper]

interesting questions and opinion based answers:

Who is supplying these answers? Sounds like a US government policy wonk.

[midas]

interesting questions and opinion based answers:

Who is supplying these answers? Sounds like a US government policy wonk.

" The sooner the US economy begins to expand " .........another " wet dream "

[flying]

Question 1: How can you offer a constructive view of the dollar when the US government is acting like it has an unlimited checking account and the Federal Reserve is abetting them by rapidly expanding its balance sheet?

The aggressiveness of the US policy response needs to be understood within the current financial and economic crisis, which is of historic proportions. A strong policy response is important and it can make a difference in the magnitude and duration of a crisis. The strong policy response from government officials and the dramatic liquidation of inventories should help the US economy find steadier footing in the coming quarters. The sooner the US economy begins to expand; the sooner the government and Federal Reserve can withdraw or otherwise unwind some of their emergency measures.

I agree with the Question

But I do not understand this answer at all.

Yes it is historic proportions & they should know since they created it.

The strong policy response from government officials and the dramatic liquidation of inventories should help the US economy find steadier footing in the coming quarters.

What does that mean exactly? Liquidating what inventory?

The sooner the US economy begins to expand

How are they proposing this by diluting our dollars value? Looking at where the new dollars has gone how has this helped expand our economy at all?

the sooner the government and Federal Reserve can withdraw or otherwise unwind some of their emergency measures.

They put this last as if their saying they need the economy to expand/grow...before they can help us ?? Or are they somehow implying they will then remove these new dollars? They have already said they have no limit of time to repay it. They have said even if the banks gave it back it is held for other uses not destroyed or returned to the taxpayers.

I would like to understand this article more...seriously

Can anyone explain how the TARP so far has done anything to expand the economy? Or is this like the Unemployment figures? ie: It would have been even worse if we didn't step in....Is that what they mean?

Edited June 5, 2009 by flying

[AlexLah]

The source, ahum...........

[flying]

The source, ahum.

No .....

http://www.realclearmarkets.com/articles/Q...%2520052209.pdf

Edited June 5, 2009 by flying

[BlackJack]

for every action there is an equal and opposite reaction

ie print trillions of dollars - owe trillions of dollars

sell, lease gold you do not have - ?????

simple

the financial crisis is NOT over - period

[AlexLah]

Fly, Mr. Chandler seems highly knowledgeable when looking at his credentials and I found it very funny to see his name as the publisher and then a picture of Cramer next to it.

There are just some vague answers and it seems like they want to give the impression that there really is not such a big problem as other countries are in much worser shape. Stuff like that, sorry no time to go through the whole list, maybe laters.

[flying]

I wonder why that link did not work?

http://www.realclearmarkets.com

it was a pdf

Edited June 5, 2009 by flying

[midas]

At last maybe there is a chance with a criminal lawsuit to pin down Barney Frank as well

because something doesnt seem right about this guy ?

Mortgage Pioneer Accused Of Fraud

Former Countrywide CEO Sued by SEC Over Risky Lending

The Securities and Exchange Commission yesterday charged former Countrywide chief Angelo R. Mozilo,

who ran the nation's largest subprime mortgage lender, with fraud, making him the most prominent executive

accused of illegality in connection with the financial crisis.

http://www.washingtonpost.com/wp-dyn/conte...9060402945.html

The connection with Barney Frank

And this week, House Financial Services Committee Chairman Barney Frank (D-MA) stated he has no plans

to hold even a single oversight hearing to look into special "VIP" housing perks that Countrywide gave powerful

congressional Democrats at the same time it was hiking mortgage rates on American families.

Edited June 5, 2009 by midas

[cloudhopper]

Here's a well-reasoned viewpoint IMO. How it all goes down still depends on what states choose to do with their currencies and armies.

http://www.oftwominds.com/blogjune09/depression06-09.html

[BlackJack]

At last maybe there is a chance with a criminal lawsuit to pin down Barney Frank as well

because something doesnt seem right about this guy ?

Mortgage Pioneer Accused Of Fraud

Former Countrywide CEO Sued by SEC Over Risky Lending

The Securities and Exchange Commission yesterday charged former Countrywide chief Angelo R. Mozilo,

who ran the nation's largest subprime mortgage lender, with fraud, making him the most prominent executive

accused of illegality in connection with the financial crisis.

http://www.washingtonpost.com/wp-dyn/conte...9060402945.html

The connection with Barney Frank

And this week, House Financial Services Committee Chairman Barney Frank (D-MA) stated he has no plans

to hold even a single oversight hearing to look into special "VIP" housing perks that Countrywide gave powerful

congressional Democrats at the same time it was hiking mortgage rates on American families.

it aint over until the fat lady sings

[flying]

it aint over until the fat lady sings

Nancy Pelosi?

[midas]

Here's a well-reasoned viewpoint IMO. How it all goes down still depends on what states choose to do with their currencies and armies.

http://www.oftwominds.com/blogjune09/depression06-09.html

CH really this says it all doesnt it..............?

[Naam]

interesting questions and opinion based answers:

Who is supplying these answers? Sounds like a US government policy wonk.

a couple of my bank's anals.