This Greek Tragedy Has A Lesson That Thailand Must Heed

[Abrak]

Absolute nonsense thread.

What are the forex reserves relative to GDP?

What is the current account surplus relative to GDP?

What is the fiscal deficit relative to GDP?

I would have thought that people would conclude that if certain countries have massive deficits that is bankrupting them there must equally be countries with massive surpluses that are financing them. The bigger question Thailand should ask is why they are using their massive surpluses to finance countries that are increasingly insolvent.

BTW if the debate is about over sterilization of capital inflows I am sure you will find me in full agreement.

Edited July 27, 2011 by Abrak

[monty1412]

On salient difference I see is that Thailand's debt is secure debt underpinned by solid and real investment whereas allot of the the European economies debt that has come back to bite them was underwritten by nefarious investments which all got exposed in the GFC. This is why even months before Wall Street had its meltdown place like Iceland and Greece were judged to be in OK shape. They had allot of investments in funds that were rated by Moody's and S&P as AAA and on paper looked good.. however when the wheels came off ,the investments were realised as junk.

What amazed me was the ratings agencies that had declared mortgagee bonds in USA to be AAA then defended themselves by saying " it was only our opinion" Meanwhile the investment houses like Goldman Sachs were running numbers on the bonds actually failing.

In layman's terms you can equate Greece's main woes to say an individual borrowing $1M against a house valued at $3M only to find out a few short months later that the house is actually really worth $10. Of course all other issues relative to Greece economy/ tax system etc as per the notes in this thread are relevant and contributory causes however main point is that Thailand had its scare moment in the Asian Currency crunch and since then monetary investment has been pretty solid as it pertains to the type of investments.

In a funny way if you subscribe to for MY head man Mahathair ( sp ???) who openly blamed George Soros for the Currency crunch 10+ years ago then he ( george) probably should be knighted or awarded the golden sash of som tam or whatever the appropriate accolade as the Asian Currency crunch set in place a much more solid underpinned investment and debt regime in many SEA countries which has now seen them in pretty good shape compared to USA and Europe.

the only way USA can get out of its current woes is to print money / devalue the dollar and run a high inflationary economy. However which politician is going to risk suicide by doing this. Hang onto your hats as USD is going down .... already Aussie dollar at record highs against USD and Aussie Dollar now far more tied and dependant on China RMB simply due to the immense trading position it has with China. If China keeps its growth rates high and costs low then AUD will continue to climb against USD.

Read a report yesterday where it stated that AUD could be at 1.50 to USD by end of year.

[Abrak]

My point was merely one of accounting. If there are countries with too large deficits then there must equally be countries with too large surpluses.

So rather than concluding that Thai surpluses should perhaps be increased to avoid Greek deficits, perhaps one should argue that Thailand should not use their surpluses to finance say US deficits with large holdings of depreciating USTs.

And if countries with large surpluses take Greek deficits as a sign they should increase their surpluses they will by definition only increase the deficits of other countries. As the world has yet to work out how to trade with other planets current accounts must balance.

Incidentally while we are on the subject, balance of payments for each individual country must balance so that all the surpluses that Thailand creates goes to subsidize the deficits of countries with a deficit. And ultimately all you are doing is lending money to people to buy goods off you.

Edited July 28, 2011 by Abrak

[monty1412]

My point was merely one of accounting. If there are countries with too large deficits then there must equally be countries with too large surpluses.

So rather than concluding that Thai surpluses should perhaps be increased to avoid Greek deficits, perhaps one should argue that Thailand should not use their surpluses to finance say US deficits with large holdings of depreciating USTs.

And if countries with large surpluses take Greek deficits as a sign they should increase their surpluses they will by definition only increase the deficits of other countries. As the world has yet to work out how to trade with other planets current accounts must balance.

Incidentally while we are on the subject, balance of payments for each individual country must balance so that all the surpluses that Thailand creates goes to subsidize the deficits of countries with a deficit. And ultimately all you are doing is lending money to people to buy goods off you.

Abrak its an interesting point you make.

My take on this is that if we think of money as being a discrete amount i.e there is only X trillion dollars in the world and if some have then some don't then we are thinking the wrong way.

Think of it like gold.... their is far more ownership of gold bullion than there is actually gold bullion in the reserves.. when you buy bullion and elect to store it at a central reserve they don't actually count out a few bars and put your name on it.. not meaning to be simplistically offensive with this by the way.

Same deal with money. Iceland invests in mortgage bonds and leveraged them up... only trouble was they were invested in at premium price.. this premium $ amount exist only in cyberspace so to speak as its constantly rolled off by the investment fund that Iceland bought off... just like there are not the gold bars in the locker even though you have a certificate that says you own x of them.

Point is to imply that one countries loss is anothers gain is not correct as the cyberspace monies all evaporate into their real morphology of " nothing" when the whole house of cards comes tumbling down. So who wins.. answer pretty much as you say the countries that haven't invested in these type of instruments but they only win because they don't lose big time like Greece/ Iceland have. And is a win a real win when your surplus goes to countries to finance purchases from you ? This is again another form of cyberspace money play except if its legitimate product and services then it drives sustainability in a economical sense within the country. If you want a better example of this you can go no further than China.. billions invested in African and south Pacific countries.. why they invest and help economies they get the bridge, the freeway, the new handling terminal contracts , the supply agreements for various good s and services... these prizes are then like old seafarers bring him spices from the east are taken back to China and drive export growth via local China industry.

Im absolutely positive of one thing.. those that say they understand fully macro economics are but the biggest liars of all.

[Abrak]

My point was merely one of accounting. If there are countries with too large deficits then there must equally be countries with too large surpluses.

So rather than concluding that Thai surpluses should perhaps be increased to avoid Greek deficits, perhaps one should argue that Thailand should not use their surpluses to finance say US deficits with large holdings of depreciating USTs.

And if countries with large surpluses take Greek deficits as a sign they should increase their surpluses they will by definition only increase the deficits of other countries. As the world has yet to work out how to trade with other planets current accounts must balance.

Incidentally while we are on the subject, balance of payments for each individual country must balance so that all the surpluses that Thailand creates goes to subsidize the deficits of countries with a deficit. And ultimately all you are doing is lending money to people to buy goods off you.

Abrak its an interesting point you make.

My take on this is that if we think of money as being a discrete amount i.e there is only X trillion dollars in the world and if some have then some don't then we are thinking the wrong way.

Think of it like gold.... their is far more ownership of gold bullion than there is actually gold bullion in the reserves.. when you buy bullion and elect to store it at a central reserve they don't actually count out a few bars and put your name on it.. not meaning to be simplistically offensive with this by the way.

Same deal with money. Iceland invests in mortgage bonds and leveraged them up... only trouble was they were invested in at premium price.. this premium $ amount exist only in cyberspace so to speak as its constantly rolled off by the investment fund that Iceland bought off... just like there are not the gold bars in the locker even though you have a certificate that says you own x of them.

Point is to imply that one countries loss is anothers gain is not correct as the cyberspace monies all evaporate into their real morphology of " nothing" when the whole house of cards comes tumbling down. So who wins.. answer pretty much as you say the countries that haven't invested in these type of instruments but they only win because they don't lose big time like Greece/ Iceland have. And is a win a real win when your surplus goes to countries to finance purchases from you ? This is again another form of cyberspace money play except if its legitimate product and services then it drives sustainability in a economical sense within the country. If you want a better example of this you can go no further than China.. billions invested in African and south Pacific countries.. why they invest and help economies they get the bridge, the freeway, the new handling terminal contracts , the supply agreements for various good s and services... these prizes are then like old seafarers bring him spices from the east are taken back to China and drive export growth via local China industry.

Im absolutely positive of one thing.. those that say they understand fully macro economics are but the biggest liars of all.

It is a rather long post but if you getting to the point that the Greeks will invent the 'squadma' which happily satisfy both the domestic economy and the external economy (who will for time consider the 'squadma' as the new euro currency) you are probably along the right lines. Somehow (without knowing much) I think that becoming the second almost/quasi/sortof currency will sort of work out not as bad as the shit hits the fan until you need a new fan scenario.