Toothless stress tests and SAFE dollar losses

9 Responses to Toothless stress tests and SAFE dollar losses

1. Chris | July 7, 2010 at 2:36 am |

   The Key quote from the Chinese Finance minister is: “****Unless there’s a war*** or a crisis, the central bank won’t convert foreign-exchange reserves massively back into yuan”

   …my thinking is that this implies that there’s going to be a crisis or a war. One scenario: China invades Taiwan (war), then US declares war on China, briefly, China dumps the dollar, and the US & China then agree that China can have Taiwan if the US can tear up all the Treasury bonds China bought.

2. Matt Smyth | July 6, 2010 at 10:10 pm |

   haha

   Is China getting its talking points from Tim Giethner ?

   like wtf ?

3. frances snoot | July 6, 2010 at 2:02 pm |

   “Second, in the event of disorderly adjustment-cum-global recession, we propose the establishment of a countercyclical Fund facility that sustains the aggregate demand in developing and emerging countries directly or indirectly affected by the slowdown in world economic activity (lower exports) and/or the increase in their foreign debt obligations (higher interest rates). The facility would cover export revenue loss and increased foreign debt service due to an exogenous rise in interest rates.”

   That bear repeating: looks like somebody ‘saw it coming’; indeed, planned its coming.

4. frances snoot | July 6, 2010 at 2:00 pm |

   http://in.reuters.com/article/idINIndia-48865020100527

   “One possibility is to propose a new allocation of SDR’s,” Batista told Reuters during a visit to Brasilia. “This would give an injection of international liquidity.”

   http://www.imf.org/external/np/cm/2010/042210.htm

   11. Ministers noted that the crisis has brought to the fore discussions on the reform of the international monetary and reserve system and an enhanced role of SDRs. They noted that the recent general SDR allocation was a valuable means to boost global liquidity and the reserve assets of emerging markets and developing countries. Ministers requested the IMF to continue to explore options to improve the international monetary system including through a greater role for SDRs. Ministers called for regular allocations of SDR as needed.

   Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development CommuniquéApril 22, 2010

   http://www.g24.org/buab0306.pdf

   “First, we argue that in order to reduce the risk of a disorderly adjustment-cum- global recession it is necessary to seek increased policy coordination among the entire G-20; this would call for the realignment of exchange rates accompanied by fiscal measures to gradually shift demand from deficit to surplus countries. In order to bring about such a coordinated outcome, the Fund would have to adopt a proactive, preemptive policy stance, going beyond the policy of identifying
   sources of imbalances, monitoring the performance of countries and acting only after a crisis has developed.

   Second, in the event of disorderly adjustment-cum-global recession, we propose the establishment of a countercyclical Fund facility that sustains the aggregate demand in developing and emerging countries directly or indirectly affected by the slowdown in world economic activity (lower exports) and/or the increase in their foreign debt obligations (higher interest rates). The facility would cover export revenue loss and increased foreign debt service due to an exogenous rise in interest rates.”

   Austerity measures and the move to the flexible yuan are part and parcel of the ‘rebalance’ of the global financial community prior to institution of the multilateral governance.

   Growth will happen according to the pattern set by our G20 puppet masters: low growth in the US/EU balanced by accelerating growth in the emergent (BRIC) economies as described by El-Erian as the ‘new normal’:

   http://www.businessweek.com/news/2010-06-15/el-erian-says-sovereign-wealth-funds-to-gain-from-new-normal-.html

   http://www.bloomberg.com/news/2010-06-24/gross-vows-this-time-different-with-el-erian-leading-push-in-global-stocks.html

   The new normal is a move away from western economic dominance to a multilateral system of exchange with growth maintained by a global aggregate governing agency intrinsic to the exorbitant privilege of those with privy access to the sdr/index/unit.

   It is not a ‘spiel’ of mine: it is the reality of allowing criminal monetary authority full and free dominion.

5. frances snoot | July 6, 2010 at 1:40 pm |

   China — which alone holds more than a quarter of world reserves – and other developing countries remain anxious of the scale of their collective $4 trillion exposure to US fiscal and monetary probity.

   But with euro angst a new backdrop, more finance chiefs from the world’s top 20 economies – meeting in South Korea this week – may think beyond even the dual-currency setup.

   Supra-National Reserve Asset
   Just over a year ago, China’s central bank chief Zhou Xiaochuan put the case for developing the SDR — currently only 4 per cent of world stockpiles – as a reserve asset and advocated inclusion of its yuan in the basket, a five-yearly review of which is due later in 2010.

   A month after Zhou’s paper, and after a gap of 30 years, the unit was revived as a tool to ease the financial raging crisis and the IMF transferred an allocation of $250 billion in SDRs to all members based on their quotas at the Fund.

   Paulo Nogueira Batista, who represents Brazil and eight other countries at the IMF board, told Reuters last week this could be used again in a fresh bout of stress.

   One advantage of the SDR is that, as an IOU, it need not be realized unless the reserves themselves have to be spent. Given much of the buildup of reserves has been far in excess of what would be required in any emergency, use of the SDR as an asset could have a less distorting impact on capital flows than requiring the creation of more and more dollar and euro assets.

   Its big disadvantage, at least for the 43 reserve managers polled by Central Banking Publications late last year, is that issuance requires political agreement and liquidity is questionable due to a lack of use in the private sector.

   Independent analysts reckon the dollar’s primary status should not nor could not vanish over a few years. But many see gradual development of the SDR alongside the existing world currencies as desirable over the decade ahead.

   One proposal this week from the World Economic Forum’s year-long Global Redesign programme was to make SDR allocations on a regular basis in amounts to satisfy on-going demand for official reserves. It suggested $200 billion per year.

   A report led by think tank Chatham House in March detailed measures to expand SDR usage, including an independent IMF body to decide on new issuance; creation of an IMF substitution account where countries can swap constituent currencies for SDRs; and encouragement of private use by allowing SDR securities and settlement systems to be created.

   02 Jun 2010

   Supra-National SDR Reserves Plan Gains Momentum

   http://www.businessworld.in/bw/2010_06_02_SupraNational_SDR_Reserves_Plan_Gains_Momentum.html

6. frances snoot | July 6, 2010 at 1:30 pm |

   “Out: “Currency manipulation.” In 2007, the IMF was supposedly given responsibility for surveillance over members’ exchange rates, which the United States believed meant telling China that the value of its currency was lower than it should be. The phrase “unfair currency manipulation” has had official status in U.S. law for 20 years and in the IMF Articles of Agreement for longer, despite its protectionist ring. In practice, the supposed injunction on surplus countries to revalue upward has almost never been enforced—in contrast to the pressure on deficit countries to devalue. Some would say it is time to rectify the asymmetry (Goldstein and Lardy, 2009). My view is that it is time to recognize two realities: first, it is normally not possible to identify with confidence the correct value of a currency—still less its “fair” value—and second, creditors are, and will always be, in a stronger position than debtors. It is time to retire the language of unfair currency manipulation.
   U.S. legislators have argued that the Chinese renminbi is undervalued and that increased flexibility in China’s currency regime would be beneficial. These are both reasonable propositions. Politicians have overestimated their importance, however. Continued demands that China stop intervening in the foreign exchange market to keep the renminbi fixed against the dollar could be counterproductive.
   In 2007, China moved further in the direction that outsiders had demanded: abandoning the dollar peg and effectively placing a substantial weight on the euro. But in the spring of 2008, China jettisoned the 2007 policy and returned to a dollar target. The reversion evidently was a response to Chinese exporters, who complained they had lost competitiveness in 2007, when the euro appreciated against the dollar. The expectation in 2008 was that the reversal would help Chinese export competitiveness at the expense of the United States. But the euro (surprisingly) depreciated against the dollar in 2008. Had China kept the 2007 policy instead of switching back to the dollar peg, the value of the renminbi would be lower today, not higher. Dollar-based producers would be at a greater competitive disadvantage.
   The fundamental question, however, is longer term. The United States is dependent on China to fund its deficits. Although the U.S. current account deficit is now down by half, domestic debt is still rising alarmingly. If China and other Asian and commodity-exporting countries were to stop buying U.S. treasury bills, the result would be a fall in the value of the dollar together with a sharp increase in U.S. interest rates. U.S. legislators should be careful what they ask for, because they might get it.”

   http://www.imf.org/external/pubs/ft/fandd/2009/09/frankel.htm

7. Mother Earth | July 6, 2010 at 10:05 am |

   LOL, a dutch newspaper was lambasting these test as a PR stunt unlike the one in the US that was creating a clean slate situation.. We are dominated by idiots under the control of psychos

8. Mongo | July 6, 2010 at 9:58 am |

   @Stacy, now its fixed, thank you!

9. Mongo | July 6, 2010 at 9:54 am |

   Good morning y’all!

   @Stacy, First link refers to the topic of second link, thus both links go to same article at Bloomberg