US ECONOMIC OUTLOOK from FOMC y LAS CAMARAS DE COMERCIO
NOTA MIA SOBRE EL CONTEXTO POLITICO EN QUE SE DA EL QE 2
(HAZ, Nov 6 2010)
LA DERECHA ESTA DIVIDIDA Y EN LAS TINIEBLAS
El FOMC (Federal Open Market Committee) el comite de los grandes empresarios de EU es el eje del Banco Central llamado aqui Federal Reserve Bank y este organismo tiene tanta autonomia –posee su propia agenda dentro del Federal- como lo tiene el Pentagono. El eje del FOMC son las Camaras de Comercio. Son estos los duenios del pais y los que controlan la economia de la nacion. Ellos son los que trazan los planes y elaboran las cartas a seguir, Obama solo es el cartero de estos. Bernake y Geichner son los capataces o ejecutivos con derecho a voz y voto, pero quienes Mandan son los del FOMC y detras de este comite, las Camaras de Comercio del pais ( banqueros incluidos).
Este reporte que aqui transcribo fue muy criticado arriba, en las cupulas del poder financiero, al pueblo se lo mantuvo desinformado sobre quienes son estos personajes, que intereses representan y como financian por igual a democratas y republicanos. Acompanio una de las criticas a este reporte. Veran Uds que arriba tambien se cuecen abas, que estan tan divididos y tan en las tinieblas como los de abajo. Sin duda , la debacle politica avanza conforme avanza la debacle economica.
Solo en un punto hay coherencia en la derecha: el temor al socialism de los de abajo (socialism que aun no asoma pero que no tardara en aparecer) mientras practican el otro socialism, la socializacion de sus perdidas, me refiero a los efectos de la crisis que crearon. Obama hizo possible esa socializacion de las perdidas con los programs de salvataje a los bancos.
Hoy ya no es solo la banca interna la que esta en crisis, toda la banca mundial ha sido infestada por las maniobras sucias de los bancos Americanos. Entiendo que la banca mundial a traves del Bank of International Settlements BIS presiono a la Banca Americana a que asuma su responsabilidad en la limpieza del toxic waste con la que infestaron las cuentas bancarias del mundo. De aqui viene el QE #2 que como bien dijo un financista “este sunami de dollars es diferente al del 2008, con este no busca solo dar salida a los problemas de liquidez interna, se trata ahora de salvar la banca mundial de la insolvencia internacional.
En eso estamos y Geichner lo sugirio claro: las “booming economies” de paises en desarrollo son los que van a pagar los platos rotos.
En los EE.UU. los politicos de derecha exigen mas para sus amos, empezando por renovarles la evasion de impuestos por 10 anios mas a los que tienen ingresos mayores de 250 mil USD al anio. A ellos no les interesa la nacion, ni le tienen miedo al pueblo. La derecha siempre pedira mas y su reconquista del poder empieza en la caida de Obama y en la instalacion del neo-nazismo a nivel mundial.
Para ellos lo unico que hizo Obama fue tratar de evitar que estalle la explosion social interna y de eso no hay que preocuparse porque ya sobran soldados para cuidar la seguridad interna. Para la derecha la Guerra comercial y monetaria se gana destruyendo el poder militar de China y Rusia. Al nivel interno la derecha no tiene otro programa que no sea el de privatizar totalmente la salud, la educacion, el seguro social. Sin embargo al gran capital no le interesan estos negocios. Los banqueros confian en la inversion fuera del pais -con el QE 2- va a ser la solucion. Pero estan divididos y son ya dos los que discrepan dentro del FOMC y muchos mas los que dentro de las Camaras de Comercio y otros inversionistas fuera los que consideran que este QE 2 va a ser el final del dollar como moneda de comercio mundial. Es claro que el Fed Reserve Bank esta dividido y que las camaras de comercio tambien lo estan. Obama tiene que crear alli base social propia.
OBAMA EN EL CIRCO
Su plan debe evitar que caiga el dollar y se desate la inflacion descontrolada. Sobre todo tiene que ser radical y avanzar mas en lo poco que se hizo en trabajo, salud y educacion. Su mejor defensa es el ataque, y eso empieza por no hacerle juego al guerrerismo de Bush ni santificar el falso liberalism de las “bad apples” empresariales. Obama tiene que rectificar y profundizar las reformas inconclusas, empezando por detener los foreclosures y sancionando a quienes fraguaron esta crisis. Tiene que sacar las tropas de Iraq y Afghanistan, negociar convenios de inversion empresarial en Cuba y poner fin al bloqueo y sobre todo poner limities a la especulacion nosiva del QE por los especuladores que ya infestaron la banca mundial con sus “derivative scam” y quieren hacer lo mismo en el sur y con los BRIC. Obama tiene que facilitar la investigacion independiente del atentado terrorista de Sep 11 e impulsar sanction a quienes violaron derechos basicos del individuo (empezando por el Habeas Corpus) y otros consagrados en la constitucion del Estado. Clinton tambien perdio el mid-term pero fue reelecto. El pueblo tiene que sentir que el asume responsabilidad por la derrota en las elecciones recientes rectificando su politica, pero no en favor de la derecha sino en favor del pueblo. Solo si el pueblo siente que Obama puede salvar la nacion y no con palabras sino con hechos, el pueblo votara por el. Por eso es importante que deslinde con la derecha empezando por exigir sanction a quienes crearon la crisis en la que estamos inmersos. Si Obama no denuncia los planes de los neo-fascistas pierde y no solo el, pierde la nacion y el mundo.
LOS DEL FOMC Y LAS CAMARAS DE COMERCIO
Entre los duenios del poder economico en el pais hay dos personajes que estan en desacuerdo con el QE que se adopto por mayoria (4-1) . El mas destacado disidente fue Thomas Hoenig, al parecer simpatizante del Tea Party. Luego se sumo a la critica del QE II Charles Plosser, el Pdte del FOMC (Federal Open Market Committee) el organism del Fed que decidio el QE. Leamos la critica de Michael Shedlock al informe de Plosser. Shedlock un inversor y “advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com /) empieza reproduciendo parte de un informe de Bloomberg y luego reproduce parte del reporte que present abajo, lo referido a inflation.
Leamos a ambos, el economic oulook de Plosser y la critica de Shedlock a Hoenig y Plosse para darnos una idea del contexto economico en el que se da QE y para saber de donde vendria la critica interna si este plan de recuperacion falla, como varios inversionistas lo aseguran.
ECONOMIC OUTLOOK
http://www.philadelphiafed.org/publications/speeches/plosser/2010/09-29-10_vineland-chamber-of-commerce.pdf
Presented to The Greater Vineland Chamber of Commerce Vineland, NJ
September 29, 2010
Charles I. Plosser
President and CEO Federal Reserve Bank of Philadelphia
The views expressed today are my own and not necessarily
those of the Federal Reserve System or the FOMC
Introduction
Thank you, David Kotok, Bob DeSanto, and Dawn Hunter for inviting me to speak this
afternoon at the Greater Vineland Chamber of Commerce. I know David is proud of this
part of South Jersey, and with this warm reception and turnout, I understand better why he feels that way. Today, I would like to offer my perspectives on the economic
recovery in the U.S. and in the region, and the challenges that monetary policymakers
face in this economic environment. Before continuing, I should note that my views are
my own and not necessarily those of the Federal Reserve Board or my colleagues on the
Federal Open Market Committee.
My basic message is this: I believe we are in the midst of an economic recovery – a
modest one, but a recovery nonetheless. Over the last few months, we have
experienced something like the summer doldrums. The tail winds that helped propel
the economy earlier in the year have waned. Yet such a slowdown is not unusual in the
early phases of recovery, and we should not overreact to data that can be volatile and may be revised over time. My assessment of the recent data leads me to expect that the recovery will continue at a moderate pace over the next several quarters.
That the pace of the recovery is modest is disappointing but not that surprising. We are emerging from one of the worst economic and financial crises in 70 years. Economists have been saying for over a year now that this recovery would be a modest one and that it would be a long climb out of a very deep hole. And as we are all painfully aware, the economy continues to face some real challenges. Most troubling is the unemployment rate, which remains high at 9.6 percent. Still, despite a downgrade in the outlook for the second half of this year, I expect we will avoid slipping back into recession. And with continued economic recovery, we will gradually return to healthier labor markets.
Overview of the Federal Reserve System
Before I elaborate on my views of the outlook, let me offer some background on the
Federal Reserve. The financial crisis and the resulting regulatory reform have put the Fed in the spotlight. Yet many people still find our nation’s central bank a mystery.
Congress created the Federal Reserve System in 1913 with 12 individual Reserve Banks
rooted on Main Streets throughout our nation and overseen by a Board of Governors in
Washington, D.C. Ours is a uniquely American form of a central bank, with checks and
balances to protect and serve an economically and geographically diverse nation. As the central bank, the Fed is charged by Congress with providing the nation with a stable currency and supporting economic growth and employment. It seeks to achieve these objectives by influencing the cost and availability of credit through its decisions about interest rates and the supply of money. These decisions are the primary responsibility of the FOMC — the Federal Open Market Committee — the group within the Fed charged with setting monetary policy. The Fed also seeks to promote financial stability by providing oversight of key parts of the banking and payment systems and providing liquidity in times of crises.
The Fed has a unique public/private structure that operates independently within
government, but not independent of it. The seven-member Board of Governors,
appointed by the President and confirmed by the Senate, represents the public sector.1
The 12 regional Reserves Banks, each independently chartered with their nine-member
boards of directors drawn from citizens in their respective Districts, represent the
private sector.2
This structure imposes accountability while avoiding centralized governmental control of banking and monetary policy.
This structure also ensures that a diverse range of views is present in policy discussions and helps keep monetary policy decisions independent from short-term political pressures. The independence of monetary policy decision-making from the day-to-day political fray is an important governance principle. Good governance calls for a healthy degree of separation between policymakers who are responsible for spending the money and those policymakers responsible for printing it. History and economic theory teach us that it is far too tempting for governments to print money as a substitute for facing the hard choices of cutting spending or increasing taxes. The temptation is
1 As of September 27, 2010, there are four Governors serving, with three more nominees awaiting Senate confirmation.
2 Under the Dodd-Frank Act, only the six nonbank directors on each board may vote to recommend a Reserve Bank president, subject to the approval of the Board of Governors in Washington, D.C. particularly acute in times when governments are running large budget deficits. The consequences of using the printing press to finance government spending are almost always bad – higher inflation, higher interest rates, a weaker currency, and often more economic instability. Congress also chose to insulate monetary policymaking from short-term political pressures by making the Fed self-funding. That is, it receives no government appropriations from Congress. In fact, the System turns over any excess earnings above the cost of its operations to the U.S. Treasury. In 2009, this amounted to about $46 billion.
The individual Reserve Banks play an integral role in their region’s economies. For
example, the Philadelphia Fed provides currency and other basic payment services to
banks and depository institutions in eastern Pennsylvania, southern New Jersey, and
Delaware. We support community development activities. We help the U.S. Treasury
manage its cash balances. We also supervise numerous banks and bank holding
companies in our District under delegated authority of the Board of Governors.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 made many
changes to the regulatory landscape. Under this new legislation, the Fed will continue to supervise many banks, a responsibility it shares with the OCC (Office of the Comptroller of the Currency), the FDIC (Federal Deposit Insurance Corporation), and state banking regulators. The Fed will also continue to be the sole supervisor of bank holding companies and now has the added responsibility of supervising thrift holding companies.
Here in the Third District, this means that the Philadelphia Fed will soon supervise 38 thrift holding companies in addition to retaining supervision of more than 100 bank holding companies and 22 state-chartered member banks. As bank supervisors, we also will retain a role in consumer protection compliance for firms with less than $10 billion in assets. But the act requires the Board of Governors to transfer its responsibility for rule-making and enforcement for the largest banks and nonbanks to a new, independent Consumer Financial Protection Bureau.
Dodd-Frank is a massively complex piece of legislation, and many details remain to be
worked out in the rule-writing underway to implement the act. It is also highly likely there will be many unintended consequences. It is too early to assess all of its ramifications or whether it can achieve all of the lofty goals that people have assigned to it. Only time will tell.
ECONOMIC OUTLOOK
Now, let me turn to the national and regional economic outlook. As I suggested at the
start of my remarks, I believe our nation’s economic recovery continues on a sustainable path, with moderate growth and subdued inflation. All of us would like to see faster improvement in the job market. But the recession was very deep. Unfortunately, it will take some time to regain the ground the economy has lost. However, I believe the outlook remains positive.
The recovery officially began in June 2009 and is now in its second year. Yet, after
averaging almost 3½ percent over the first three quarters of the recovery, growth
slowed in the second quarter of this year to an estimated 1.6 percent.
Our monthly Philadelphia Fed Business Outlook Survey indicates that manufacturing
activity weakened over the summer, and in August, the general activity index turned
negative for the first time since July 2009. The September value increased but remained negative, just under zero. We should not read too much into monthly movements. The current activity index has, after all, dipped below zero in the midst of expansions before, notably in 2002 and 2003 as we were coming out of the last recession. On the national level, manufacturing continues to expand. However, the data suggest that the pace of activity remained sluggish over the course of the summer.
We saw the same kind of mixed signals in our quarterly South Jersey Business Survey.
Overall, economic conditions have improved slightly in recent months, but many firms
reported declines in employment.
And while firms responding to both our Business Outlook Survey and our South Jersey
Business Survey remain optimistic about economic prospects six months from now, they
are less optimistic than they were earlier this year.
Three temporary factors contributed to this slowdown. First, the temporary homebuyer
tax credits pulled homes sales forward into the spring and so what followed in the
summer was a dramatic decline in home sales. Second, the U.S. Census Bureau hired
hundreds of thousands of temporary workers but let them go in the latter part of the
summer, which distorted the employment picture. Third, the sovereign debt crisis in
Europe damaged the fragile confidence of financial markets. The lingering effects of
these factors all contributed to our summer doldrums.
In reaction to the recent data, many forecasters have scaled back their growth forecast for the second half of the year. Yet they have made relatively minor changes in their outlook for 2011 and beyond. So, despite the media alarm, these professional forecasters see a soft patch in the economy but a relatively small probability of slipping back into recession. Still, the pace of this recovery is slow relative to recoveries after other deep recessions – resembling instead the so-called jobless recoveries of 2001 and the early 1990s.
I know many in your community feel the pains of high unemployment. Vineland,
Atlantic City, and Ocean City share the unfortunate distinction of having the highest
unemployment rates in our region. Vineland’s unemployment rate is 13.5 percent,
significantly higher than the 9.6 percent rate in both New Jersey and the nation.
Changes in the unemployment rate, however, are typically lagging indicators of
economic activity. The reality is that businesses must be comfortable that the recovery will continue before they start hiring in earnest. I also hear from many business leaders that tax and regulatory uncertainty has dampened both their confidence and hiring plans. These concerns can be particularly detrimental to growth at this point in the cycle.
But other factors are also contributing to a tepid recovery. We entered this recession with an economy over-invested in residential housing and to a lesser degree commercial construction. We were also over-invested in the financial sector. In addition, many financial institutions and households were over-leveraged.
So when home prices collapsed, there was severe damage to household wealth. The
typical response to such a decline in wealth is that households consume less and save
more to strengthen their balance sheets. Given the oversupply of homes and the
decline in home prices, it is unlikely that home values will provide a significant boost to household wealth any time soon. This suggests that consumption growth will remain modest compared to past recoveries and savings will be higher. Ultimately, the higher savings and investment will benefit the economy, even though the short-term adjustments are painful.
I also believe that construction activity will be a much smaller share of the economy
going forward compared to the real estate boom years. Other sectors that are closely
related to the residential construction industry, such as mortgage brokers, may also
need to shrink. As a share of total employment, these sectors will likely be smaller than they were before the recession. So many workers in these sectors will likely need to find jobs in other industries. Such adjustments are painful for workers and their families and they take time.
Other structural factors may also be weighing on the labor market and retarding the
return to full employment. During this downturn, companies shed workers at an
unusually rapid pace. Yet, companies also increased productivity, enabling them to
produce more goods and services with fewer, but more highly skilled workers. As
activity picks up, companies are likely to look for more highly skilled, perhaps specialized workers. This means there may be a skill mismatch between job opportunities and the current pool of the unemployed. This skill gap may further explain the sluggish job growth.
Some of the unemployed, who may have the skills to find a job in another state, may
not be able to move because they cannot afford to take the financial losses associated with selling their current home. This limitation in geographic mobility is consistent with the observation that unemployment rates are typically above the national average in states where home prices have fallen the most.
Certainly not all of the 9.6 percent unemployment rate can be explained by these
painful structural adjustments, but these factors do suggest that it will likely take some time for the labor market to heal.
Can monetary policy help speed up such adjustments? It may be tempting to think so,
but monetary policy is not a magic elixir that can solve every economic ill. Doctors must diagnose the disease correctly if they are to prescribe the correct medicine. Otherwise, they could do the patient more harm than good.
While the Fed’s actions can help encourage spending and borrowing, monetary policy is
not designed to fine tune employment nor can it solve the sorts of geographic, sectoral, or skill mismatches I have just discussed. The Fed has already reduced the federal funds rate to near zero and provided $1.7 trillion in added liquidity by buying mortgagebacked securities and agency debt. And recall that while we were dropping the federal funds rate by 5 percentage points to near zero, monetary policy was unable to stop the rise in the unemployment rate from 5 to 10 percent. This suggests that very precise management of unemployment rates over the short- term is simply not something for which monetary policy is particularly well suited.
Thus, it is difficult, in my view, to see how additional asset purchases by the Fed, even if they move interest rates on long-term bonds down by 10 or 20 basis points, will have much impact on the near-term outlook for employment. Sending a signal that monetary policymakers are taking actions in an attempt to directly affect the near-term path of the unemployment rate, and then for those actions to have no demonstrable effects, would hurt the Fed’s credibility and possibly erode the effectiveness of our future actions to ensure price stability. It also risks leading the public to believe that the Fed is seeking to monetize the deficit and make it more difficult to return to normal policy when the time comes.
Inflation and Monetary Policy
On the inflation front, recent data indicate some deceleration, which has led some
observers to voice concerns about sustained deflation – that is, a prolonged decline in the level of prices. In my view, inflation will remain subdued in the near term, but I do not see a significant risk of sustained deflation. I anticipate that inflation expectations will remain relatively stable and core inflation will run in the 1 to 1-1/2 percent range this year and accelerate toward 2 percent in 2011.
Inflation in this range is not a problem – indeed, low inflation is desirable. Most people forget, or are too young to know, that from 1953 to 1965, the average inflation rate measured by the consumer price index (CPI) was just 1.3 percent. For the last 15 years, Switzerland’s average inflation rate has been less than 1 percent. In neither of these episodes did low inflation lead to economic stagnation or fears of deflation.
So I am not particularly concerned about low inflation per se, and brief periods of lower than desired inflation or even deflation are unlikely to materially affect economic outcomes. Yet it is important that monetary policymakers remain vigilant to ensure that neither disinflationary trends nor inflationary trends lead to an unanchoring of inflation expectations, which would undermine the return to price stability in the medium to long run. The stability of those expectations requires the public to believe that the Fed will act to keep inflation stable as the recovery continues.
Were deflationary expectations to materialize – and let me repeat, I do not see much
risk of this – I would support appropriate steps to raise expectations of inflation,
including, perhaps, aggressive asset purchases coupled with clear communication that
our goal is to combat deflationary expectations. But for such a strategy to be successful,the public must believe that the Fed can and will act to combat those expectations.
The Fed must be credible. Protecting that credibility is why, based on my current outlook, I do not support further asset purchases of any size at this time. As I said earlier, asset purchases in our current economic environment can do little if anything to speed up the return to full employment. But if the public believes that they can and is disappointed,it may have less confidence that the Fed will act to raise inflationary expectations if needed. Because I see little gain at this point, and some costs, I would prefer not to engage in further asset purchases at this time.
Similarly, if the economic recovery unfolds as I expect, the Fed will need to begin
normalizing monetary policy from its current very accommodative stance. That will
mean selling assets to shrink the Fed’s balance sheet and raising the level of short-term interest rates. The challenge for the Fed is recognizing the proper timing to ensure that the economy remains on a sustainable path toward price stability and full employment.
Conclusion
To conclude, after the worst financial and economic crisis that most of us have ever
experienced, a slow but sustainable economic recovery is now underway in our region
and in the nation. While the near-term outlook has softened a bit, I expect growth in
the national economy to be around 3 to 3½ percent over the next two years, with
stronger business spending on equipment and software, moderate growth of consumer
spending, and gradual improvement in household balance sheets.
The unemployment rate continues to be one of the biggest challenges our economy
faces. Although unemployment will begin to decline gradually, it will take some time for it to return to its long-run level. As the economy strengthens and firms become
convinced that the recovery is sustainable, hiring will pick up over the rest of this year and in 2011. But it may take even longer to address the sectoral, geographic, and skill imbalances that seem to plague the labor markets.
I expect inflation to remain subdued. As long as inflation expectations remain well
anchored, I see little risk of a period of sustained deflation. Over time, I see the Fed conducting policy in a prudent fashion so that inflation gradually stabilizes in the 1.5 to 2.0 percent range.
This has been a painful episode in our nation’s economic history, and many policy
challenges remain to be faced. Yet, I believe that, over time, our economy can and will
return to an environment of sustainable growth and low and stable inflation.
==========================
LOS CRITICOS DE HOENIG Y PLOSSER
“Open Dissent at the Fed: Thomas Hoenig Attends Tea Party”. By: Michael Shedlock , September 30, 2010.
http://seekingalpha.com/article/227712-open-dissent-at-the-fed-charles-plosser-philly-fed-opposes-qe2-thomas-hoenig-kansas-city-attends-tea-party
An open battle exists at the Fed concerning Bernanke's second round of Quantitative Easing (QE2).
Thomas Hoenig Attends Tea Party
Bloomberg reports Fed Dissenter Hoenig Wages Lonely Campaign Against Easy Credit
Thomas M. Hoenig, dressed in a gray suit, white shirt with French cuffs, and baby-blue tie, faces an edgy crowd of 150 people in a hotel meeting room in suburban Lenexa, Kan. A large “Kansas City Tea Party” banner covers a table at the door. Attendees wear anti-tax stickers on their lapels. This is not an after-dinner speech for which most central bankers would volunteer.
Hoenig smiles at his audience and begins: “This is a support-the-Fed rally, right?”
Dead silence. Then the room erupts in laughter. Disarmed, the Tea Partiers listen politely as Hoenig defends the Federal Reserve as an indispensible institution, even if at the moment, he says, it happens to be heading in the wrong direction.
And, by the way, if it were up to him (though it’s not, really) he would break up the biggest Wall Street banks.
This is Tom Hoenig’s moment, and it’s a strange one. In Washington, he is the burr in Fed Chairman Bernanke’s saddle: the rogue heartland banker who keeps dissenting alone -- for the sixth straight time on Sept. 21 -- to protest the Fed’s rock- bottom interest-rate policy. Hoenig warns that the Bernanke majority is setting the country up for an as-yet-unknown asset bubble: the next dot-com or subprime craze. He can’t tell yet where the boom-and-bust will materialize, but he can feel it coming, like a Missouri wheat farmer senses in his bones the storm that’s just over the horizon.
In abundant speeches and articles, Hoenig has condemned the political influence of the financial elite. “We’ve had a Treasury Secretary from Goldman Sachs under a Democratic President and a Treasury Secretary from Goldman Sachs under a Republican President. The outcomes were not good,” Hoenig says while being driven to a luncheon talk at an affordable housing conference in Topeka, Kan.
Hoenig harbors powerful misgivings over not dissenting more often and more forcefully during the Greenspan years. “He regrets going along with the votes when Alan Greenspan was chairman to get rates so low and keeping them so low so long,” says his friend Fisher.
There is much more in the article, including a discussion of the open debate between Krugman and Hoenig.
Philadelphia Fed president Charles Plosser joins Thomas Hoenig
Please consider Economic Outlook, Charles I. Plosser's speech to The Greater Vineland Chamber of Commerce September 29, 2010.
[[Aqui se reproduce el texto de Plosser que presente arriba]]
There is much to blast Plosser for. For starters, Quantitative Easing does not work as noted in Sure Thing?!
Moreover, inflation targeting is pure idiocy. For some explanations as to why please see Fallacy of Inflation Targeting. For further discussion, please see Does Inflation Targeting Make Any Sense?
Finally, it is perfectly clear that Plosser does not even know what inflation is. Yet, even if one did think inflation was about prices, the idea that the Fed can control prices in a global economy is sheer lunacy.
Nonetheless, it is interesting to see multiple dissents regarding Fed policy. Hopefully that dissent continues to mount.
Notas
1. Bloomberg reports Fed Dissenter Hoenig Wages Lonely Campaign Against Easy Credit.
http://www.bloomberg.com/news/2010-09-24/fed-dissenter-hoenig-s-campaign-against-easy-credit-has-roots-in-prairie.html
By Hugo Lindgren in New York hlindgren@bloomberg.net
============================
Extractos from Bloomberg reports: their view on Hoenig:
“Harsh Critic: While persisting in this lonely campaign for the end to ultra-easy credit, Hoenig has also been a harsh critic of Wall Street excess (an issue on which he and Krugman mostly agree). In abundant speeches and articles, Hoenig has condemned the political influence of the financial elite. “We’ve had a Treasury Secretary from Goldman Sachs under a Democratic President and a Treasury Secretary from Goldman Sachs under a Republican President. The outcomes were not good,” Hoenig said.
“Easy Credit: “What I took from that,” says Hoenig, “was that it followed a period of very easy credit. It followed a period when people felt prices could only go up.” Feel-good rates, in other words, led to excessive leverage and crisis. “I find it very interesting today,” Hoenig continues, “how many people don’t remember the late 1970s-early 1980s.”
Under the leadership of then-Chairman Alan Greenspan, the Fed drove rates down in response to the dot-com crash of 2000 and the recession that followed. Hoenig had a turn as a voting member of the FOMC in 2001 and dissented twice that year from rate-lowering moves, even after the September 11 terrorist attacks exacerbated the economic slowdown. Greenspan and Bernanke, who assumed the Fed chairmanship in 2006, have insisted that easy-credit policies during the early 2000s didn’t contribute to the housing bubble and Wall Street crisis. Hoenig disagrees. “The low rates in that era accommodated too much borrowing, too much leverage, too much risk-taking,” he says.
“Modest Recovery: His argument, in brief: Despite continuing high unemployment, a modest recovery is actually under way. Personal income and expenditures are up in 2010, if only slightly. Businesses are slowly adding back jobs, more than 700,000 so far this year. But the Fed has consistently maintained that near- zero interest rates are here indefinitely. “In trying to use policy as a cure-all,” he said in a speech to the Chamber of Commerce in Lincoln, Neb., on Aug. 13, “we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long.”
This is a minority view within the economics fraternity. Most experts are fixated on persistently high unemployment and the danger of the country slipping back into recession. In a column in The New York Times on Aug. 12 entitled “Paralysis at the Fed,” Krugman asserted that Bernanke “is being political, unwilling to engage in open confrontation with other Fed officials -- especially those regional Fed presidents who fear inflation, even with deflation the clear and present danger.”
“Financial Legislation: When community banks stumble, he adds, they are allowed to fail. When Wall Street collapsed, it got a heroic rescue. “I would break them up,”
Hoenig says of Citigroup Inc., JPMorgan Chase & Co., and Bank of America Corp. “They’re too big. They have too much political influence. When they get in trouble again, the temptation to rescue them because they are ‘too big to fail’ will be very strong.” The financial reform legislation enacted in July wasn’t tough enough; he would have liked to see the Glass-Steagall Act’s separation of commercial and investment banking revived, along with the imposition of strict capital requirements on the banks by Congress.
Despite his dissent on monetary policy, Hoenig argues that a strong central bank is vital. At the Tea Party dinner in Lenexa, he says: “I know many of you believe in ‘End the Fed.’” That’s your prerogative, he continues. But “you better have something else in mind” as a replacement. He gives a quick and chilling history lesson of U.S. financial panics before the Fed system was created in 1913.”
“Some Not Convinced: Some in the audience are not convinced. A bearded man approaches Hoenig after the talk and suggests that the Fed is part of a conspiracy “to collapse the United States” and establish a “one-world financial system.”
Hoenig wearily shakes his head. This is his third public event of the day, and it is 9 p.m. “Sir, I know times are tough,” the central banker says, “but why in the world would we do that?”
===================
domingo, 7 de noviembre de 2010
viernes, 5 de noviembre de 2010
New $600B Fed Stimulus Fuels Fears of US Currency War
M Hudson in DEMOCRACY NOW FRIDAY NOV 5-10New $600B Fed Stimulus Fuels Fears of US Currency War
The Federal Reserve will pump $600 billion more into the US economy and keep interest rates at historical low levels. The short-term impact of the Fed’s move, known as quantitative easing, has been a jump in stock prices across the globe. Many nations, however, have accused the United States of waging a currency war by devaluing the dollar. We speak to former Wall Street economist and University of Missouri professor Michael Hudson. "The object of warfare is to take over a country’s land, raw materials and assets, and grab them," Hudson says. "In the past, that used to be done militarily by invading them. But today you can do it financially simply by creating credit, which is what the Federal Reserve has done."
http://www.democracynow.org/2010/11/5/new_600b_fed_stimulus_fuels_fears
JUAN GONZALEZ:
President Obama is leaving today for a ten-day visit to Asia, with scheduled stops in India, Indonesia, South Korea and Japan. In South Korea, Obama will attend the G20 meeting, where US monetary policy is expected to be high on the agenda.
On Wednesday, the Federal Reserve said it will pump $600 billion more into the US economy and keep interest rates at historically low levels. The short-term impact of the Fed’s move, known as quantitative easing, has been a jump in stock prices across the globe, but many nations have accused the US of waging a currency war by devaluing the dollar. Brazil’s president-elect Dilma Rousseff said, quote, "The last time there was a series of competitive devaluations, it ended in World War II."
China has accused the US of uncontrolled money printing. By devaluing the dollar, the Fed is cheapening the price of US exports and making foreign imports more expensive. In addition, the low interest rates are encouraging US corporations to make massive investments overseas, cheaply buying up foreign real estate, natural resources and stock.
AMY GOODMAN:
Our next guest, Michael Hudson, says finance has become a new form of warfare. Michael Hudson is Distinguished Research Professor at University of Missouri, Kansas City. A former Wall Street economist, he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire.
Michael Hudson, welcome to Democracy Now!
MICHAEL HUDSON: Thank you.
AMY GOODMAN: Why warfare?
MICHAEL HUDSON:
Well, the object of warfare is to take over a country’s land, raw materials and assets, and grab them. And in the past, that used to be done militarily by invading them. But today you can do it financially simply by creating credit, which is what the Federal Reserve has done. It’s created $600 billion. It hasn’t gone into the economy. The head of the Fed is known as "Helicopter Ben" because he talks about dropping money into the economy. But if you see helicopters, they’re probably not your friends. Don’t go out and wait for them to drop the money, because the money is all going electronically into the banks. And the Fed has said, we want to give the banks so much money that they will lend it out so you can begin to bid up prices on real estate again and pull the banks out of the real estate negative equity that it’s in. So the purpose, according to the Fed, is to raise the price of real estate, to inflate asset prices. But that’s not happening. The actual banks have lent less today than they did in 2007. So the money is going abroad. And it’s going abroad not really to buy foreign companies so much, but to speculate in currency.
Now, the Fed and the Congress, two weeks ago, said, "We want China to raise its currency by 20 percent." This would create billions and billions of dollars of bonanza for Wall Street banks, and it would enable them to earn their way out of debt by essentially looting the China central bank, the Brazilian central bank, the Turkish central bank and the other central banks, because you can now borrow money in America at one percent. So you’d put down, let’s say, a billion dollars of your own—a million dollars of your own money, borrow $99 million of the bank’s money—that’s $100 million. You would buy Chinese currency, RMB, for $100 million. You then say, "Raise your currency by 20 percent," which is what the Fed has asked them to do. That means that your million dollars now has turned into a $20 million gain, because $100 million is now worth $120 million. You’ve made a 200 percent profit. And for Wall Street, they deal in billions, not millions. And so, this would enable the banks to make up their money by buying out, essentially, foreign currency. They’re doing the same in Australia. It’s currency gamble.
JUAN GONZALEZ:
Well, and meanwhile, the impact, because obviously this decision was made the day after the elections at the Fed meeting, they saw what the political landscape was. There wasn’t going to be any kind of stimulus coming from Congress, so they had to come up with a stimulus for Wall Street the day after the elections. But the impact on the American people of maintaining these historically low interest rates—you know, as we were talking earlier before the show, if you have a little bit of money in a savings account right now, you’re getting virtually no interest. So you’re, in essence, being pressured to end up going into the stock market to be able to get any kind of return on your money—those who still have savings. The same thing with the pension funds. What’s happening to the American people as a result of this same kind of policy?
MICHAEL HUDSON:
Well, if they have money to put in pension funds or savings, they’re only able to get about one percent, if they keep it safe. Otherwise, they’re taking a risk in the stock market. But the key is not simply lowering interest rates. The idea is to flood the economy with credit so the banks will lend out more debt. And if the Fed’s policy works, then housing prices are going to go back up so high that most consumers are going to have to pay 40 percent of their income for housing. They’re going to have to pay more money for credit card debt. The purpose is to help the banks make money at the expense of the economy. It’s not to help the economy at all. That’s the really important thing. When they say the economy, they mean—the Fed means its constituency: the banks. And the banks’ product is debt. And that’s what they’re trying to produce.
AMY GOODMAN:
Is this inflationary?
MICHAEL HUDSON: It will inflate asset prices. It won’t inflate consumer prices. It’s actually deflationary for consumer prices, because if you’re an American consumer and you spend 40 percent of your income for housing, 15 percent for debt service to the bank, 11 percent goes out in your FICA wage withholding, and about ten to 15 percent in actual income taxes, that means that the average American has maybe one-third or a quarter of their salary to actually spend on goods and services. So they have to spend so much on debt service and finance and insurance and real estate that there’s no money to buy goods and services, so that’s why so many stores are closing throughout the cities on the big shopping streets. It’s deflationary for the economy, inflationary for the people who have wealth, inflationary for the banks. And it’s the banks really at the expense of the economy.
JUAN GONZALEZ:
But there is the reality now that the world has changed dramatically over the last thirty or forty years, and you have now this sort of new independent force on the world scene, even in finance, which is the countries like China, Brazil and other countries of the third world that are, in essence, standing up on some of these issues. What’s happening in terms of their reaction?
MICHAEL HUDSON:
The world is dividing into two currency blocs. And over the last few months, China has gone to Turkey, Malaysia, Thailand, and said, "We want to avoid using the dollar altogether." They’re treating it like a pariah currency. They’re saying, "Well, let’s make a currency swap. We’ll give you our Chinese RMB, you give us your currency, the baht, and we’ll do our trade in our own currency. We are isolating the dollar, so that people are not going to use the dollar anymore." That’s why the dollar is plunging on world foreign exchange markets. The whole world that America created after World War II of open markets is now closing off. And it’s closing off, really, because the United States is trying to rescue the real estate market from all the junk mortgages, all the crooked loans, all of the financial fraud, instead of just letting the fraud go and throwing the guys in jail like other economists have suggested.
AMY GOODMAN:
I want to play a comment from the Nobel Prize-winning economist Joseph Stiglitz. We interviewed him recently. He was talking about the Federal Reserve and its attempt to inject liquidity into the US economy.
JOSEPH STIGLITZ:
So the money isn’t going into the American economy. The lending is actually below what it was in 2007. In a globalized economy, the money is looking for the best place to go. And where is it finding it? In the emerging markets. So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of "beggar thy neighbor" policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar. The flood of liquidity abroad is trying to push the exchange rates abroad. And they say—they’re saying, "We can’t allow that."
AMY GOODMAN:
That’s economist Joe Stiglitz. Professor Hudson, your response?
MICHAEL HUDSON:
That was, I think, the best interview on your show that Professor Stiglitz has ever done. Last Saturday, I was in Germany at an economic meeting, and we were discussing this very interview there. And what they’re pointing out is that in Europe, in Germany and all of Europe, it’s illegal for the central bank to finance government debt. All of Europe is being subjected to austerity now because of the way in which their constitution is written. So they’re saying, "Wait a minute. When we run a deficit, we have to raise interest rates and impose austerity. And in the United States, they are doing just the opposite. They’re lowering interest rates to buy us out."
And the interview of Professor Stiglitz here was quite right. America is doing all of this. The Fed is doing this to cover up the huge fraud that he talks about. He’s right. These people should be in jail, and you shouldn’t bail them out. You’re keeping the debt that was run out by the junk mortgages and the fraudulent lending, you’re keeping that in place, pricing American labor out of the market, and making it impossible for America to earn its way out of debt. So, in Europe, they’re saying, "How can America ever repay these dollar debts that they’re running up?" They can’t repay, and that’s why the euro is going up against America. And that’s why they say, "We want to now talk to the BRIC countries, to China, to the third world, and move into a currency area with them and just isolate the dollar, so they can’t do the kind of financial warfare that they’ve been engaging in.
JUAN GONZALEZ:
Well, in terms of how countries can respond, one of the things that obviously a lot of the Asian countries did during the financial crisis in late 1990s was currency controls—in essence, trying to prevent foreign capital from either leaving or entering the country. Is that something that you envision something this country is beginning to do?
MICHAEL HUDSON:
Yes, there is only one country that did that, and that was Malaysia under Prime Minister Tun Mohamad Mahathir. He would not sell the domestic currency to the foreign speculators, so George Soros and the others who sold the currency short, hoping that the central bank would use all of its money just to defend its currency and then be emptied out, they couldn’t cover their position, so they were squeezed. But countries like Korea, where the meetings, the G20 meetings, are this week—the IMF went and said, "You owe money you can’t pay. George Soros has raided you. You have to sell Americans your electric companies. You have to sell Americans your car companies." And this was a grab that, in the past, in past centuries, there would have had to be a military invasion to take over. And now they’re doing it financially. And they’re angry over there.
AMY GOODMAN:
You were advising Kucinich when he was running for president.
MICHAEL HUDSON: Yes.
AMY GOODMAN:
What is—overall, what do you think President Obama should do, and what do you think he did wrong, since people say it’s the economy that took him down in the elections?
MICHAEL HUDSON:
He has always represented Wall Street’s interest. The deal he—his protector in the Senate was Joe Lieberman and part of the Democratic Leadership Council. And during the last presidential campaign, he won because he said he was for change. And Dennis Kucinich kept saying, "Here is the change in the law that I’ve recommended." He said exactly what he would do. Mr. Obama never said what he would do. And it’s obviously the case that he saw that the public wanted change. If you want to get elected, you say that you’re for change.
But what he’s turned into is the third Bush-Cheney administration. He’s reappointed the worst of the Bush people, like Tim Geithner as the Treasury secretary. He’s kept on the most right-wing of the Clinton people as his economic advisers. He is essentially in Wall Street’s pocket. And that’s not changed at all. And that’s why so many people were so disappointed. They believed that he was going to be for change, and he’s a good speaker, but he had no intention of doing the change at all, as we now see.
And he still has not come out and said that America needs anything except more debt, more bailouts for the banks. People were angry because the banks were bailed out. And now the Republicans will say he didn’t give them enough. They’re angry because he didn’t give Wall Street enough and cut taxes enough on the rich. That’s not why people are angry. They’re angry because he gave money to the rich, the exact opposite. So, I guess you could say Mr. Obama and Mr. Kucinich are at opposite ends of the political spectrum.
AMY GOODMAN:
What should he do right now?
MICHAEL HUDSON:
What he should do is, essentially, bring the debts down to the ability to pay. He had promised that he was going to renegotiate mortgages to the current value of housing. That would mean writing down housing by about 30 percent, so it could be affordable again. But he hasn’t done that. In the government, he has prevented the state attorney generals from prosecuting financial fraud and from forcing the banks to renegotiate the mortgages down to what American consumers can afford. And Mr. Obama has blocked this. And so, all fifty—
JUAN GONZALEZ:
And also what the real value of many of those properties are.
MICHAEL HUDSON:
The market—either the market price or the rental price. So, essentially, people would pay for the—to own a house pretty much what you’d pay to rent. That’s the definition of equilibrium in economics. But right now they’re paying much more on their mortgage than they could go and rent an apartment for, and they can’t afford it. People are out of work. And the result is that there is a debt squeeze. And so, that’s why I said this is deflationary, not inflationary. What should be inflated are American wages, American living standards, tangible investment. Instead, what’s inflated is debt and the financial sector at the expense of the production and consumption.
JUAN GONZALEZ:
And what do you expect to happen at the G20 meeting that’s coming up now?
MICHAEL HUDSON: The same thing that happened two weeks ago: absolutely nothing. They will all agree that the soup was very good, that the food was nice, and that they will have further discussions. But America will not get any of what it’s asking for from them, because they’re going to say, "Look, we’re not going to let you create electronic keyboard credit and buy out our real estate and our industry and empty out our bank reserves like you did in the 1997 Asia crisis." That’s never going to happen again, and the world is going to begin splitting into two currency blocs: the BRIC bloc and the dollar bloc.
AMY GOODMAN:
We’re going to have to leave it there, Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, distinguished research professor of economics at University of Missouri, Kansas City, author of Super Imperialism: The Economic Strategy of American Empire.
The Federal Reserve will pump $600 billion more into the US economy and keep interest rates at historical low levels. The short-term impact of the Fed’s move, known as quantitative easing, has been a jump in stock prices across the globe. Many nations, however, have accused the United States of waging a currency war by devaluing the dollar. We speak to former Wall Street economist and University of Missouri professor Michael Hudson. "The object of warfare is to take over a country’s land, raw materials and assets, and grab them," Hudson says. "In the past, that used to be done militarily by invading them. But today you can do it financially simply by creating credit, which is what the Federal Reserve has done."
http://www.democracynow.org/2010/11/5/new_600b_fed_stimulus_fuels_fears
JUAN GONZALEZ:
President Obama is leaving today for a ten-day visit to Asia, with scheduled stops in India, Indonesia, South Korea and Japan. In South Korea, Obama will attend the G20 meeting, where US monetary policy is expected to be high on the agenda.
On Wednesday, the Federal Reserve said it will pump $600 billion more into the US economy and keep interest rates at historically low levels. The short-term impact of the Fed’s move, known as quantitative easing, has been a jump in stock prices across the globe, but many nations have accused the US of waging a currency war by devaluing the dollar. Brazil’s president-elect Dilma Rousseff said, quote, "The last time there was a series of competitive devaluations, it ended in World War II."
China has accused the US of uncontrolled money printing. By devaluing the dollar, the Fed is cheapening the price of US exports and making foreign imports more expensive. In addition, the low interest rates are encouraging US corporations to make massive investments overseas, cheaply buying up foreign real estate, natural resources and stock.
AMY GOODMAN:
Our next guest, Michael Hudson, says finance has become a new form of warfare. Michael Hudson is Distinguished Research Professor at University of Missouri, Kansas City. A former Wall Street economist, he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire.
Michael Hudson, welcome to Democracy Now!
MICHAEL HUDSON: Thank you.
AMY GOODMAN: Why warfare?
MICHAEL HUDSON:
Well, the object of warfare is to take over a country’s land, raw materials and assets, and grab them. And in the past, that used to be done militarily by invading them. But today you can do it financially simply by creating credit, which is what the Federal Reserve has done. It’s created $600 billion. It hasn’t gone into the economy. The head of the Fed is known as "Helicopter Ben" because he talks about dropping money into the economy. But if you see helicopters, they’re probably not your friends. Don’t go out and wait for them to drop the money, because the money is all going electronically into the banks. And the Fed has said, we want to give the banks so much money that they will lend it out so you can begin to bid up prices on real estate again and pull the banks out of the real estate negative equity that it’s in. So the purpose, according to the Fed, is to raise the price of real estate, to inflate asset prices. But that’s not happening. The actual banks have lent less today than they did in 2007. So the money is going abroad. And it’s going abroad not really to buy foreign companies so much, but to speculate in currency.
Now, the Fed and the Congress, two weeks ago, said, "We want China to raise its currency by 20 percent." This would create billions and billions of dollars of bonanza for Wall Street banks, and it would enable them to earn their way out of debt by essentially looting the China central bank, the Brazilian central bank, the Turkish central bank and the other central banks, because you can now borrow money in America at one percent. So you’d put down, let’s say, a billion dollars of your own—a million dollars of your own money, borrow $99 million of the bank’s money—that’s $100 million. You would buy Chinese currency, RMB, for $100 million. You then say, "Raise your currency by 20 percent," which is what the Fed has asked them to do. That means that your million dollars now has turned into a $20 million gain, because $100 million is now worth $120 million. You’ve made a 200 percent profit. And for Wall Street, they deal in billions, not millions. And so, this would enable the banks to make up their money by buying out, essentially, foreign currency. They’re doing the same in Australia. It’s currency gamble.
JUAN GONZALEZ:
Well, and meanwhile, the impact, because obviously this decision was made the day after the elections at the Fed meeting, they saw what the political landscape was. There wasn’t going to be any kind of stimulus coming from Congress, so they had to come up with a stimulus for Wall Street the day after the elections. But the impact on the American people of maintaining these historically low interest rates—you know, as we were talking earlier before the show, if you have a little bit of money in a savings account right now, you’re getting virtually no interest. So you’re, in essence, being pressured to end up going into the stock market to be able to get any kind of return on your money—those who still have savings. The same thing with the pension funds. What’s happening to the American people as a result of this same kind of policy?
MICHAEL HUDSON:
Well, if they have money to put in pension funds or savings, they’re only able to get about one percent, if they keep it safe. Otherwise, they’re taking a risk in the stock market. But the key is not simply lowering interest rates. The idea is to flood the economy with credit so the banks will lend out more debt. And if the Fed’s policy works, then housing prices are going to go back up so high that most consumers are going to have to pay 40 percent of their income for housing. They’re going to have to pay more money for credit card debt. The purpose is to help the banks make money at the expense of the economy. It’s not to help the economy at all. That’s the really important thing. When they say the economy, they mean—the Fed means its constituency: the banks. And the banks’ product is debt. And that’s what they’re trying to produce.
AMY GOODMAN:
Is this inflationary?
MICHAEL HUDSON: It will inflate asset prices. It won’t inflate consumer prices. It’s actually deflationary for consumer prices, because if you’re an American consumer and you spend 40 percent of your income for housing, 15 percent for debt service to the bank, 11 percent goes out in your FICA wage withholding, and about ten to 15 percent in actual income taxes, that means that the average American has maybe one-third or a quarter of their salary to actually spend on goods and services. So they have to spend so much on debt service and finance and insurance and real estate that there’s no money to buy goods and services, so that’s why so many stores are closing throughout the cities on the big shopping streets. It’s deflationary for the economy, inflationary for the people who have wealth, inflationary for the banks. And it’s the banks really at the expense of the economy.
JUAN GONZALEZ:
But there is the reality now that the world has changed dramatically over the last thirty or forty years, and you have now this sort of new independent force on the world scene, even in finance, which is the countries like China, Brazil and other countries of the third world that are, in essence, standing up on some of these issues. What’s happening in terms of their reaction?
MICHAEL HUDSON:
The world is dividing into two currency blocs. And over the last few months, China has gone to Turkey, Malaysia, Thailand, and said, "We want to avoid using the dollar altogether." They’re treating it like a pariah currency. They’re saying, "Well, let’s make a currency swap. We’ll give you our Chinese RMB, you give us your currency, the baht, and we’ll do our trade in our own currency. We are isolating the dollar, so that people are not going to use the dollar anymore." That’s why the dollar is plunging on world foreign exchange markets. The whole world that America created after World War II of open markets is now closing off. And it’s closing off, really, because the United States is trying to rescue the real estate market from all the junk mortgages, all the crooked loans, all of the financial fraud, instead of just letting the fraud go and throwing the guys in jail like other economists have suggested.
AMY GOODMAN:
I want to play a comment from the Nobel Prize-winning economist Joseph Stiglitz. We interviewed him recently. He was talking about the Federal Reserve and its attempt to inject liquidity into the US economy.
JOSEPH STIGLITZ:
So the money isn’t going into the American economy. The lending is actually below what it was in 2007. In a globalized economy, the money is looking for the best place to go. And where is it finding it? In the emerging markets. So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of "beggar thy neighbor" policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar. The flood of liquidity abroad is trying to push the exchange rates abroad. And they say—they’re saying, "We can’t allow that."
AMY GOODMAN:
That’s economist Joe Stiglitz. Professor Hudson, your response?
MICHAEL HUDSON:
That was, I think, the best interview on your show that Professor Stiglitz has ever done. Last Saturday, I was in Germany at an economic meeting, and we were discussing this very interview there. And what they’re pointing out is that in Europe, in Germany and all of Europe, it’s illegal for the central bank to finance government debt. All of Europe is being subjected to austerity now because of the way in which their constitution is written. So they’re saying, "Wait a minute. When we run a deficit, we have to raise interest rates and impose austerity. And in the United States, they are doing just the opposite. They’re lowering interest rates to buy us out."
And the interview of Professor Stiglitz here was quite right. America is doing all of this. The Fed is doing this to cover up the huge fraud that he talks about. He’s right. These people should be in jail, and you shouldn’t bail them out. You’re keeping the debt that was run out by the junk mortgages and the fraudulent lending, you’re keeping that in place, pricing American labor out of the market, and making it impossible for America to earn its way out of debt. So, in Europe, they’re saying, "How can America ever repay these dollar debts that they’re running up?" They can’t repay, and that’s why the euro is going up against America. And that’s why they say, "We want to now talk to the BRIC countries, to China, to the third world, and move into a currency area with them and just isolate the dollar, so they can’t do the kind of financial warfare that they’ve been engaging in.
JUAN GONZALEZ:
Well, in terms of how countries can respond, one of the things that obviously a lot of the Asian countries did during the financial crisis in late 1990s was currency controls—in essence, trying to prevent foreign capital from either leaving or entering the country. Is that something that you envision something this country is beginning to do?
MICHAEL HUDSON:
Yes, there is only one country that did that, and that was Malaysia under Prime Minister Tun Mohamad Mahathir. He would not sell the domestic currency to the foreign speculators, so George Soros and the others who sold the currency short, hoping that the central bank would use all of its money just to defend its currency and then be emptied out, they couldn’t cover their position, so they were squeezed. But countries like Korea, where the meetings, the G20 meetings, are this week—the IMF went and said, "You owe money you can’t pay. George Soros has raided you. You have to sell Americans your electric companies. You have to sell Americans your car companies." And this was a grab that, in the past, in past centuries, there would have had to be a military invasion to take over. And now they’re doing it financially. And they’re angry over there.
AMY GOODMAN:
You were advising Kucinich when he was running for president.
MICHAEL HUDSON: Yes.
AMY GOODMAN:
What is—overall, what do you think President Obama should do, and what do you think he did wrong, since people say it’s the economy that took him down in the elections?
MICHAEL HUDSON:
He has always represented Wall Street’s interest. The deal he—his protector in the Senate was Joe Lieberman and part of the Democratic Leadership Council. And during the last presidential campaign, he won because he said he was for change. And Dennis Kucinich kept saying, "Here is the change in the law that I’ve recommended." He said exactly what he would do. Mr. Obama never said what he would do. And it’s obviously the case that he saw that the public wanted change. If you want to get elected, you say that you’re for change.
But what he’s turned into is the third Bush-Cheney administration. He’s reappointed the worst of the Bush people, like Tim Geithner as the Treasury secretary. He’s kept on the most right-wing of the Clinton people as his economic advisers. He is essentially in Wall Street’s pocket. And that’s not changed at all. And that’s why so many people were so disappointed. They believed that he was going to be for change, and he’s a good speaker, but he had no intention of doing the change at all, as we now see.
And he still has not come out and said that America needs anything except more debt, more bailouts for the banks. People were angry because the banks were bailed out. And now the Republicans will say he didn’t give them enough. They’re angry because he didn’t give Wall Street enough and cut taxes enough on the rich. That’s not why people are angry. They’re angry because he gave money to the rich, the exact opposite. So, I guess you could say Mr. Obama and Mr. Kucinich are at opposite ends of the political spectrum.
AMY GOODMAN:
What should he do right now?
MICHAEL HUDSON:
What he should do is, essentially, bring the debts down to the ability to pay. He had promised that he was going to renegotiate mortgages to the current value of housing. That would mean writing down housing by about 30 percent, so it could be affordable again. But he hasn’t done that. In the government, he has prevented the state attorney generals from prosecuting financial fraud and from forcing the banks to renegotiate the mortgages down to what American consumers can afford. And Mr. Obama has blocked this. And so, all fifty—
JUAN GONZALEZ:
And also what the real value of many of those properties are.
MICHAEL HUDSON:
The market—either the market price or the rental price. So, essentially, people would pay for the—to own a house pretty much what you’d pay to rent. That’s the definition of equilibrium in economics. But right now they’re paying much more on their mortgage than they could go and rent an apartment for, and they can’t afford it. People are out of work. And the result is that there is a debt squeeze. And so, that’s why I said this is deflationary, not inflationary. What should be inflated are American wages, American living standards, tangible investment. Instead, what’s inflated is debt and the financial sector at the expense of the production and consumption.
JUAN GONZALEZ:
And what do you expect to happen at the G20 meeting that’s coming up now?
MICHAEL HUDSON: The same thing that happened two weeks ago: absolutely nothing. They will all agree that the soup was very good, that the food was nice, and that they will have further discussions. But America will not get any of what it’s asking for from them, because they’re going to say, "Look, we’re not going to let you create electronic keyboard credit and buy out our real estate and our industry and empty out our bank reserves like you did in the 1997 Asia crisis." That’s never going to happen again, and the world is going to begin splitting into two currency blocs: the BRIC bloc and the dollar bloc.
AMY GOODMAN:
We’re going to have to leave it there, Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, distinguished research professor of economics at University of Missouri, Kansas City, author of Super Imperialism: The Economic Strategy of American Empire.
jueves, 4 de noviembre de 2010
Hudson speculates on QE
Speculating on Quantitative Currency Wars
November 2, 2010
By Michael Hudson
http://michael-hudson.com/2010/11/speculating-on-quantitive-currency-wars/
An Interview with Dr. Michael Hudson
October 21, 2010
Interviewer: Tulip’s Eric Janszen
(E): Welcome Michael Hudson to iTulip again. Thanks for joining us.
Hudson (H): Thank you, Eric.
E: So we’ve had discussions in the past about China’s response to America’s escalation of the currency wars. Yesterday they made a bold move, raising their interest rates and also imposing an export embargo on an important industrial commodity, rare earth metals.
H: Let’s talk about the latter first. I think China finally caught on to the fact that it was pricing its rare earth minerals at the uneconomic low-cost margin of extraction, not taking into account the environmental clean up costs or the replacement costs for these basically irreplaceable rare metals. They pointed out that these exports rightly should be priced at the high-cost margin, which of course is the basis of Ricardian rent theory. So they’re conforming to basic Western price theory and practice. America sells its military technology for what the market will bear. If the Pentagon would sell its new missile and bomb technology at the physical cost of production – CDs with the blueprints – then China would not have to pay the high price of buying this information from Israeli espionage agencies.
E: That’s not likely to happen, because last time I checked, the Pentagon has China on top of their list of places to worry about.
H: The thought that China would wage a war or pose any military threat to the United States is crazy. The national security approach holds that any industrial capability is potentially military, and hence is a threat. What China has reason to worry about is that there are crazy people in the Pentagon and Congress who are get ill-tempered at America’s loss of industrial power and “blame the foreigner.”
China-bashers are encouraging the Pentagon to create problems in the China Sea. And China has every reason to fear that U.S. military adventurism may take a violent turn or be accident-prone. That is what countries do when they blame foreigners for problems that they themselves caused. The Obama administration is mishandling the economy as badly as the Bush administration did, so you can expect the “blame the foreigner” reaction to take a military dimension. The xenophobic idea is that China is taking away American jobs, not that America’s pro-financial policies are responsible for de-industrializing the economy and shrinking domestic markets and employment here.
E: Isn’t there another possible explanation more consistent with the past U.S. policy of raising the spectre of the fearsome Soviet Union’s military capacity, which really was just a way to ensure that one of our greatest exports, weapons, would continue to flow?
H: That’s true. I think that just yesterday India promised a huge new fighter aircraft purchase. America has been pressuring India, saying “Look, we’re running a big trade deficit with you, so you have to balance it by buying what we can export.” Prime Minister Singh is yielding, agreeing to buy 125 fighter jets. What does India need these for?
E: We just had some pretty juicy deals with the Saudis, too. I think these deals are bigger than the entire stimulus program that Obama recently discussed.
H: Yes, this is bizarre, but what else can America export these days? Prices for these exports are so high that other countries are beginning to compete. Unfortunately, it’s an economically useless competition – overhead, not capital formation.
E: We could speculate that one of the motivations for cutting off rare earth metals is there’s a lot of difficulty in making a lot of these weapons without that stuff. So maybe China doesn’t want to participate.
H: I was in Beijing last year and they pointed out that the United States has numerous rare earth deposits. One of the biggest is owned by Molycorp – the old Molybdenum Corporation. Another mining company sold all its equipment, lock, stock and barrel to the Chinese. So the United States is not mining many rare earth metals now, because China has undersold the market so drastically – and so uneconomically. In any case, these rare earths are available in many places, only at a higher price.
The military simply will bid up prices to their replacement cost, which is what Japan is paying to buy old computers, telephones and other used equipment to refine the rare earth content from them.
Suppose China charges a few thousand dollars a pound for its rare earths, instead of six or seven dollars a pound. At this price I think that the Pentagon can able to get all it needs, so higher prices are not going to stop the U.S. military threat.
E: That’s a good point. The price rise probably is going to spur a fair amount of speculation in U.S. production of rare earth metals.
H: It’s hard to speculate. I think the main company that was mining China’s rare earth deposits was a Hong Kong or Taiwanese company. The government should take control of most such monopolies and price their output at the marginal replacement cost, as textbooks describe. China was nearly giving away these metals without taking into account either their replacement costs or environmental clean-up costs.
It pointed out that these were among the dirtiest metals to mine, and local opposition has arisen to protest the environmental problems they caused.
E: The second move by the Chinese was their quarter-point rate hike. This seems to be a paradoxical response to the accusation that they’re overvaluing their currency. Certainly you’d expect such a move to increase the yuan’s exchange rate.
H: That’s right. I can understand why they would raise the rate in order to slow the rise in bank credit and housing prices. I would rather use a tax approach to this. Joesph Stiglitz had a good report today [October 19, 2010] in The Guardian on why tax policy rather than financial policy should be used. China will have to impose capital controls to prevent interest-rate arbitrage from flowing into its currency out of the dollar
E: Exactly.
H: And what Prof. Stiglitz said on Democracy Now is even sharper [1]:
“[Fed] lending is actually below what it was in 2007. In a globalized economy, the money is looking for the best place to go. And where is it finding it? In the emerging markets.
“So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of “beggar thy neighbor” policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar. The flood of liquidity abroad is trying to push the exchange rates abroad. And they say—they’re saying, ‘We can’t allow that.’”
So the important question is how China can respond except by imposing capital controls? And how can Brazil or other countries avoid such controls in the face of the Federal Reserve’s “quantitative easing” that actually is financial aggression?
E: The interest-rate rise appears to be a doubling down on China’s assertion that they’re not underpricing their currency.
H: What is pushing up the renminbi’s exchange rate is largely capital flight out of the dollar, not trade. I don’t think they’d raise their interest rate just for public relations or psychological purposes. I think their main concern is to hold down price rises for real estate and slow the stock market. Any economy in this position would probably raise its interest rate. But given the international effects, I don’t see how China is going to withstand yet more demand for its currency as speculators and other foreigners try to buy yuan-denominated assets.
There’s going to be a lot more renminbi flowing into the Central Bank – which already got $2.6 trillion in reserves. What can China do with these reserves, when the United States is taking a nationalistic position by saying, “We’re not going to let you buy U.S. companies. You have to let us buy your companies but we’re not going to let you buy Unocal or refineries or anything that we consider important.” Canada now is under nationalist and even overtly racist pressure not to let the Chinese buy their Potash mining company in Saskatchewan.
E: Almost every government that has allowed property prices to rise so steadily (Japan in the 1980s, the U.S. in the early 2000s) seems to think that they can end these distortions with merely marginal measures such as rate hikes. Alan Greenspan said throughout the dotcom bubble, “Raise the rates, raise the rates.” But it takes quite a bit to finally drive speculators out of the market. This usually happens quite suddenly. That’s the lesson that was learned in 1999-2000, and again in 2006. Do you think that the Chinese will experience a similar kind of effect?
H: I think everything happens by a phase change, not in smooth marginal movements. You go from one phase to another. Things may be marginal within each phase, but there is something like turning an on/off switch from one phase to the next. That’s as true for China as it has been for any other economy. I’m sure they must realize this, but I’m not sure just what they have in mind, except maybe an attempt to show up the U.S. in preparation for the G20 meeting in Seoul next month.
E: I think that’s right. There’s obviously a lot of pushing and shoving verbally before the IMF meeting two weekends ago, and then we’ve got the G20 coming up in November. A lot of this is probably a combination of posturing and sending messages to bolster the positions of the various players.
H: My experience is that China’s position in the current situation is defensive, not offensive. It’s trying to figure out a way to defend its stability. It’s saying: “We’re not going to destabilize our economy in order for you (Europe and the U.S.) to take measures that you claim will stabilize your economy, but actually is making your economy worse and worse.” In other words, “we’re not going to give in to your fantasies, we’re going to live in the real world.”
E: So in a way, what Chinese policy makers are doing is explaining back to the Bernanke set, “You don’t really have an inflation problem. It doesn’t make any sense with $25 silver and $1300 gold. What the United States really has is a debt-deflation problem. That’s a political problem, and you guys have got to deal with it without flooding us with your money.”
H: That’s exactly correct. The U.S. economy is all loaned up. So when the Federal Reserve provides more liquidity to the banks, they are not going to lend to real estate that already has one-third of homes in negative equity. Obviously, the only thing banks are going to do is to try to work their way out of debt is by lending abroad—by speculating in the carry trade, just as Japan’s banks did.
E: Sure. And countries from Brazil to China – any economy on the receiving end of all this liquidity – will have to defend themselves against this “quantitative easing.”
H: That’s right.
E: What is the end game here? On one side of the equation we have rising commodity prices, and on the other side we have falling bond yields. I think if you went to the average portfolio manager five years ago and told him, “Five years from now silver will be five times the price it is today and the yield on ten-year Treasury bonds will be around 4.5%,”they’d probably have thought you were crazy.
H: There’s no way that you can project past trends to see where the intersection point is today, because we’re in a quandary. The U.S. economy has reached a wall of indebtedness. It can’t take on more debt. A choice has to be made: Either write down the debts to the ability to pay, or flood the market with enough credit to keep the debt bubble growing. That’s ultimately going to make it even harder for the economy as a whole to work its way out of debt. So I don’t see what can happen, except more breaks in the chain of payments.
We’re now living under what James Galbraith calls the Predatory State,” a government taken over by the financial interests. They say, “We want all the debt to be paid, regardless of the effect on the economy as a whole. And we also want all of our financial gambles and CDOs to be made whole, even if it shrinks the economy. We don’t care if you have to scale back pensions and Social Security, or reduce wages by 20% and lower living standards. We want to get paid.” And they’re telling politicians, “Don’t forget that we’re the guys who are paying for your Congressional and Senate campaigns. We expect you to do what we tell you to do, or else we’ll back someone else.”
So basically, the financial sector is saying to the economy, “Drop dead!”
E: Isn’t it even worse? Paul Krugman wrote in his New York Times op-ed yesterday [October 18, 2010] comparing U.S. deflation to that of Japan. This is one of the favorite arguments for advocates of printing more money and increasing federal deficits further. They claim that we’re making the same mistake that Japan did, by not being “aggressive enough” with fiscal stimulus.
H: On another plane we’re doing the opposite of what brought on Japan’s bubble crisis. The Basel II agreement in 1988 ruled that banks needed much higher capital reserves to bring them up to the new European standard. As a result of their weak position after World War II, Japanese banks had been operating for half a century on much lower capital. All of the sudden, the Basel Agreement forced these banks to stop lending and rebuild their capital base. In conjunction with high interest rates (which the Americans insisted upon) and upward revaluation of the yen, this killed Japan’s economy. So Japan’s giving in to American financial demands destroyed it.
By contrast today, instead of lowering bank liquidity the U.S. Federal Reserve is pushing liquidity into the financial system. This enables banks to increase their loans, on the theory that America can borrow its way out of debt – which is crazy, of course. So Bernanke and Krugman are drawing a false parallel.
E: I agree completely. The US was never slow on the gas pedal as the Bank of Japan was. We never did fall into a liquidity trap that some members of the Feds are claiming we are in today. The way I see it is that these arguments for continuing to borrow – to use your phrase, to move debt from private to public accounts by the Fed’s cash-for-trash swaps and bailouts.
Comparing our opportunity to Japan’s, isn’t our sovereign credit risk much higher than Japan’s in terms of per capita GDP growth, structural balance-of-payments deficit, history of default and history of inflation?
H: The financial credit risk is really a political question of national policy. In the last few weeks China has negotiated currency swaps with Russia, Turkey and Brazil. The aim is to prevent losses on these swaps. There’s a mutual guarantee that a central bank of a currency that loses value will reimburse the central bank that’s holding its currency so that the latter will not suffer a loss as denominated in its own currency.
I suspect that all the United States would have to do (at least in the short run) would be to make the same deal so that foreign countries would not take a loss on their dollar holdings. Instead, America is saying bluntly: “In order for us to solve our economic problem at no cost to ourselves, you must take a loss. We are going to solve our problem at your expense. If you don’t like it, you had better arm yourselves (preferably by buying our own weapons exports) because we’re going to do things our way. What are you going to do about it?”
E: Yes.
H: Imagine what effect this is creating abroad! Other countries have gone along with U.S. policy so far, because there was some mutual gain, at least in the U.S. market for foreign countries’ exports. But now that U.S. consumers have little left to spend on goods and services (because they have to spend so much on debt service and housing), America has little to offer any more. So foreign countries are moving away. I was told two weeks before Turkey made the currency-swap agreement with China that they decided that America is going to be on the losing side, and they wanted to go with the winners – that is, with the growing economies, not those that are sinking into debt deflation.
The United States is playing as if other countries are still going to automatically obey it. The only ground for believing this is that other countries are looking at the United States as a “madman.” It certainly looks as if people like Ben Bernanke are even nuttier than Alan Greenspan. They’re disappointed with Obama, whom they see more as a continuation of Dick Cheney than of George Bush. He’s turned over the shop to the Rubinomics gang of financial predators.
E: You’re in Germany. What’s the general feeling there about US economic policies?
H: There is resentment against Angela Merkel and her government for following American policy and not realizing that the world has changed from what it used to be. There is still high unemployment here, almost 20%. The economy is not doing well, and German exports – like other European exports – are being hurt by the euro’s rise while the U.S. Fed continues to pursue low interest rates to increase the capitalization rate of its real estate and corporate income – which has the side effect of lowering its exchange rate. So Europe is bearing the brunt of American financial aggression. There is a feeling that Merkel is turning as much into Obama’s poodle as Blair was Bush’s poodle. And her French friend Sarkozy is not popular here either.
E: Regarding the currency swap agreements between China and other countries to avoid the downside of holding dollars and doing trade in them, is this a gradualist approach?
H: It’s an either/or approach. Foreign central banks know that holding dollars is like buying an asset that is going down in price. Nobody wants to do that, because they will have to show a loss on their books, which are kept in their own currency. Most central bankers expect China’s currency to rise, just like the yen rose after 1985. They naturally would rather hold a rising currency asset than a depreciating one.
E: Speaking of which, one of the major changes in the global market over this year is that central banks have become net buyers of gold. Earlier this week the central bank of South Korea announced that they’re beginning to diversify out of dollars. Do you see this as part of the process that I call decommissioning the dollar as a reserve currency?
H: Certainly. The United States, Germany and France hold half of their foreign reserves in gold. Korea has only 0.2% of its international reserves in gold. So it’s saying, in effect: “Wait a minute. There’s some hypocrisy going on here. You’re telling us to hold dollars, but you’re holding gold. We’ve decided to do as you do, not as you say.” The corollary is to spell this out: “We don’t know what the future global monetary system is going to be. But it looks like the United States is expecting a gold-based system. Otherwise, let the U.S. Treasury sell off its gold stock.”
Korea’s may have been discussed its gold purchase with other countries. Its act says, in effect: “We’re hosting the G20 meetings next month. Why doesn’t America hold down the price of gold by putting its money where it’s mouth is, and announce that it’s going to sell the gold in Fort Knox?” Other countries might well say, “By the way, can you give us back the gold we’re holding in the New York Federal Reserve? Now that we don’t have to worry about World War II any more, we’d like to hold our own gold.” There is a growing feeling that the U.S. Government is acting on behalf of financial thieves, and that this theft is causing unemployment in Europe and other countries.
E: So this leads to my final question: Clearly the world needs a new global monetary system. This has been obvious for a while. My sense is that for most governments around the world, the final straw has been the financial crisis that we’ve imposed on everybody. So the question is, in the past such agreements were reached with at least one dominant power (that would be us) holding most of the cards and dictating the arrangements. This time around, that’s not really an option any more. But it’s not clear just where the leadership is. So is there any precedent for a multilateral agreement among countries for a new international currency regime?
H: I think this mischaracterizes the issue. There never was a multilateral currency system. There was the US dictating to the rest of the world, as you point out. It used an internationalist rhetoric for nationalistic financial and trade purposes. That’s what my Super Imperialism was all about.
E: Yes, that’s what I mean. That is what we always had before.
H: The United States said to other countries: “We’ll never join a multinational system in which other countries can set our policy. We insist on veto power – or the power to simply ignore your recommendations. And for your part, you must do what we say, or we’ll do to you what we did to Iraq or Afghanistan. So get out of our way!”
I think that other countries have given up hope of a multi-lateral system in which the United States will cooperate. So they’re creating a parallel system, namely as the BRIC countries have done. They’re saying, “We’re going to avoid using the dollar altogether.” And the dollar’s own financial managers are turning it into nearly a pariah currency. This is what I wrote about in the Financial Times yesterday: the U.S. refusal to cooperate with other countries, above all its double standard insisting that other countries must turn their foreign-exchange surpluses over to the U.S. Treasury to promote U.S. financial markets at their expense – and the demand that any country running a trade surplus with America spend the money on U.S. arms – is so abhorrent that other countries are proceeding to create an alternative global financial system of settling trade and balance-of-payments transactions without the United States.
So what will emerge is a new multi-lateral financial system after all. But there will be two financial systems: one centered on the BRIC countries with strong trade balances and currency values, another system centered on the U.S. dollar. Europe is likely to be left out, and may become an economic backwater, because so much of its politics are run by U.S. aficionados. So I see a dual world monetary system and a dual world trade system operating under a different set of trade and financial rules.
U.S. diplomats no doubt will call this socialism. Other countries can reply, “What we’re doing is just what the French Physiocrats, Adam Smith, John Stuart Mill and the other major classical free-marketers wanted: no free lunch. If we’re socialists, what are you guys? We’re too polite to use the word, but it was used in World War II.”
E: On that note we’ll wrap it up. We appreciate your thoughts on this. It’s certainly going to be an interesting meeting coming up next month among the G20, and we’ll see what comes out of it.
H: Have a glance at the article I wrote in the Financial Times [October 19, 2010].
E: Will do.
H: I think that spelled out a lot of the logic of what I’ve just been talking about.
E: Very good. Thank you very much Michael. Appreciate your time.
H: It’s always good to talk to you.
Footnote
[1] Nobel Laureate Joseph Stiglitz: “Foreclosure Moratorium, Government Stimulus Needed to Revive US Economy,”
Democracy Now, Oct. 21, 2010
November 2, 2010
By Michael Hudson
http://michael-hudson.com/2010/11/speculating-on-quantitive-currency-wars/
An Interview with Dr. Michael Hudson
October 21, 2010
Interviewer: Tulip’s Eric Janszen
(E): Welcome Michael Hudson to iTulip again. Thanks for joining us.
Hudson (H): Thank you, Eric.
E: So we’ve had discussions in the past about China’s response to America’s escalation of the currency wars. Yesterday they made a bold move, raising their interest rates and also imposing an export embargo on an important industrial commodity, rare earth metals.
H: Let’s talk about the latter first. I think China finally caught on to the fact that it was pricing its rare earth minerals at the uneconomic low-cost margin of extraction, not taking into account the environmental clean up costs or the replacement costs for these basically irreplaceable rare metals. They pointed out that these exports rightly should be priced at the high-cost margin, which of course is the basis of Ricardian rent theory. So they’re conforming to basic Western price theory and practice. America sells its military technology for what the market will bear. If the Pentagon would sell its new missile and bomb technology at the physical cost of production – CDs with the blueprints – then China would not have to pay the high price of buying this information from Israeli espionage agencies.
E: That’s not likely to happen, because last time I checked, the Pentagon has China on top of their list of places to worry about.
H: The thought that China would wage a war or pose any military threat to the United States is crazy. The national security approach holds that any industrial capability is potentially military, and hence is a threat. What China has reason to worry about is that there are crazy people in the Pentagon and Congress who are get ill-tempered at America’s loss of industrial power and “blame the foreigner.”
China-bashers are encouraging the Pentagon to create problems in the China Sea. And China has every reason to fear that U.S. military adventurism may take a violent turn or be accident-prone. That is what countries do when they blame foreigners for problems that they themselves caused. The Obama administration is mishandling the economy as badly as the Bush administration did, so you can expect the “blame the foreigner” reaction to take a military dimension. The xenophobic idea is that China is taking away American jobs, not that America’s pro-financial policies are responsible for de-industrializing the economy and shrinking domestic markets and employment here.
E: Isn’t there another possible explanation more consistent with the past U.S. policy of raising the spectre of the fearsome Soviet Union’s military capacity, which really was just a way to ensure that one of our greatest exports, weapons, would continue to flow?
H: That’s true. I think that just yesterday India promised a huge new fighter aircraft purchase. America has been pressuring India, saying “Look, we’re running a big trade deficit with you, so you have to balance it by buying what we can export.” Prime Minister Singh is yielding, agreeing to buy 125 fighter jets. What does India need these for?
E: We just had some pretty juicy deals with the Saudis, too. I think these deals are bigger than the entire stimulus program that Obama recently discussed.
H: Yes, this is bizarre, but what else can America export these days? Prices for these exports are so high that other countries are beginning to compete. Unfortunately, it’s an economically useless competition – overhead, not capital formation.
E: We could speculate that one of the motivations for cutting off rare earth metals is there’s a lot of difficulty in making a lot of these weapons without that stuff. So maybe China doesn’t want to participate.
H: I was in Beijing last year and they pointed out that the United States has numerous rare earth deposits. One of the biggest is owned by Molycorp – the old Molybdenum Corporation. Another mining company sold all its equipment, lock, stock and barrel to the Chinese. So the United States is not mining many rare earth metals now, because China has undersold the market so drastically – and so uneconomically. In any case, these rare earths are available in many places, only at a higher price.
The military simply will bid up prices to their replacement cost, which is what Japan is paying to buy old computers, telephones and other used equipment to refine the rare earth content from them.
Suppose China charges a few thousand dollars a pound for its rare earths, instead of six or seven dollars a pound. At this price I think that the Pentagon can able to get all it needs, so higher prices are not going to stop the U.S. military threat.
E: That’s a good point. The price rise probably is going to spur a fair amount of speculation in U.S. production of rare earth metals.
H: It’s hard to speculate. I think the main company that was mining China’s rare earth deposits was a Hong Kong or Taiwanese company. The government should take control of most such monopolies and price their output at the marginal replacement cost, as textbooks describe. China was nearly giving away these metals without taking into account either their replacement costs or environmental clean-up costs.
It pointed out that these were among the dirtiest metals to mine, and local opposition has arisen to protest the environmental problems they caused.
E: The second move by the Chinese was their quarter-point rate hike. This seems to be a paradoxical response to the accusation that they’re overvaluing their currency. Certainly you’d expect such a move to increase the yuan’s exchange rate.
H: That’s right. I can understand why they would raise the rate in order to slow the rise in bank credit and housing prices. I would rather use a tax approach to this. Joesph Stiglitz had a good report today [October 19, 2010] in The Guardian on why tax policy rather than financial policy should be used. China will have to impose capital controls to prevent interest-rate arbitrage from flowing into its currency out of the dollar
E: Exactly.
H: And what Prof. Stiglitz said on Democracy Now is even sharper [1]:
“[Fed] lending is actually below what it was in 2007. In a globalized economy, the money is looking for the best place to go. And where is it finding it? In the emerging markets.
“So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of “beggar thy neighbor” policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar. The flood of liquidity abroad is trying to push the exchange rates abroad. And they say—they’re saying, ‘We can’t allow that.’”
So the important question is how China can respond except by imposing capital controls? And how can Brazil or other countries avoid such controls in the face of the Federal Reserve’s “quantitative easing” that actually is financial aggression?
E: The interest-rate rise appears to be a doubling down on China’s assertion that they’re not underpricing their currency.
H: What is pushing up the renminbi’s exchange rate is largely capital flight out of the dollar, not trade. I don’t think they’d raise their interest rate just for public relations or psychological purposes. I think their main concern is to hold down price rises for real estate and slow the stock market. Any economy in this position would probably raise its interest rate. But given the international effects, I don’t see how China is going to withstand yet more demand for its currency as speculators and other foreigners try to buy yuan-denominated assets.
There’s going to be a lot more renminbi flowing into the Central Bank – which already got $2.6 trillion in reserves. What can China do with these reserves, when the United States is taking a nationalistic position by saying, “We’re not going to let you buy U.S. companies. You have to let us buy your companies but we’re not going to let you buy Unocal or refineries or anything that we consider important.” Canada now is under nationalist and even overtly racist pressure not to let the Chinese buy their Potash mining company in Saskatchewan.
E: Almost every government that has allowed property prices to rise so steadily (Japan in the 1980s, the U.S. in the early 2000s) seems to think that they can end these distortions with merely marginal measures such as rate hikes. Alan Greenspan said throughout the dotcom bubble, “Raise the rates, raise the rates.” But it takes quite a bit to finally drive speculators out of the market. This usually happens quite suddenly. That’s the lesson that was learned in 1999-2000, and again in 2006. Do you think that the Chinese will experience a similar kind of effect?
H: I think everything happens by a phase change, not in smooth marginal movements. You go from one phase to another. Things may be marginal within each phase, but there is something like turning an on/off switch from one phase to the next. That’s as true for China as it has been for any other economy. I’m sure they must realize this, but I’m not sure just what they have in mind, except maybe an attempt to show up the U.S. in preparation for the G20 meeting in Seoul next month.
E: I think that’s right. There’s obviously a lot of pushing and shoving verbally before the IMF meeting two weekends ago, and then we’ve got the G20 coming up in November. A lot of this is probably a combination of posturing and sending messages to bolster the positions of the various players.
H: My experience is that China’s position in the current situation is defensive, not offensive. It’s trying to figure out a way to defend its stability. It’s saying: “We’re not going to destabilize our economy in order for you (Europe and the U.S.) to take measures that you claim will stabilize your economy, but actually is making your economy worse and worse.” In other words, “we’re not going to give in to your fantasies, we’re going to live in the real world.”
E: So in a way, what Chinese policy makers are doing is explaining back to the Bernanke set, “You don’t really have an inflation problem. It doesn’t make any sense with $25 silver and $1300 gold. What the United States really has is a debt-deflation problem. That’s a political problem, and you guys have got to deal with it without flooding us with your money.”
H: That’s exactly correct. The U.S. economy is all loaned up. So when the Federal Reserve provides more liquidity to the banks, they are not going to lend to real estate that already has one-third of homes in negative equity. Obviously, the only thing banks are going to do is to try to work their way out of debt is by lending abroad—by speculating in the carry trade, just as Japan’s banks did.
E: Sure. And countries from Brazil to China – any economy on the receiving end of all this liquidity – will have to defend themselves against this “quantitative easing.”
H: That’s right.
E: What is the end game here? On one side of the equation we have rising commodity prices, and on the other side we have falling bond yields. I think if you went to the average portfolio manager five years ago and told him, “Five years from now silver will be five times the price it is today and the yield on ten-year Treasury bonds will be around 4.5%,”they’d probably have thought you were crazy.
H: There’s no way that you can project past trends to see where the intersection point is today, because we’re in a quandary. The U.S. economy has reached a wall of indebtedness. It can’t take on more debt. A choice has to be made: Either write down the debts to the ability to pay, or flood the market with enough credit to keep the debt bubble growing. That’s ultimately going to make it even harder for the economy as a whole to work its way out of debt. So I don’t see what can happen, except more breaks in the chain of payments.
We’re now living under what James Galbraith calls the Predatory State,” a government taken over by the financial interests. They say, “We want all the debt to be paid, regardless of the effect on the economy as a whole. And we also want all of our financial gambles and CDOs to be made whole, even if it shrinks the economy. We don’t care if you have to scale back pensions and Social Security, or reduce wages by 20% and lower living standards. We want to get paid.” And they’re telling politicians, “Don’t forget that we’re the guys who are paying for your Congressional and Senate campaigns. We expect you to do what we tell you to do, or else we’ll back someone else.”
So basically, the financial sector is saying to the economy, “Drop dead!”
E: Isn’t it even worse? Paul Krugman wrote in his New York Times op-ed yesterday [October 18, 2010] comparing U.S. deflation to that of Japan. This is one of the favorite arguments for advocates of printing more money and increasing federal deficits further. They claim that we’re making the same mistake that Japan did, by not being “aggressive enough” with fiscal stimulus.
H: On another plane we’re doing the opposite of what brought on Japan’s bubble crisis. The Basel II agreement in 1988 ruled that banks needed much higher capital reserves to bring them up to the new European standard. As a result of their weak position after World War II, Japanese banks had been operating for half a century on much lower capital. All of the sudden, the Basel Agreement forced these banks to stop lending and rebuild their capital base. In conjunction with high interest rates (which the Americans insisted upon) and upward revaluation of the yen, this killed Japan’s economy. So Japan’s giving in to American financial demands destroyed it.
By contrast today, instead of lowering bank liquidity the U.S. Federal Reserve is pushing liquidity into the financial system. This enables banks to increase their loans, on the theory that America can borrow its way out of debt – which is crazy, of course. So Bernanke and Krugman are drawing a false parallel.
E: I agree completely. The US was never slow on the gas pedal as the Bank of Japan was. We never did fall into a liquidity trap that some members of the Feds are claiming we are in today. The way I see it is that these arguments for continuing to borrow – to use your phrase, to move debt from private to public accounts by the Fed’s cash-for-trash swaps and bailouts.
Comparing our opportunity to Japan’s, isn’t our sovereign credit risk much higher than Japan’s in terms of per capita GDP growth, structural balance-of-payments deficit, history of default and history of inflation?
H: The financial credit risk is really a political question of national policy. In the last few weeks China has negotiated currency swaps with Russia, Turkey and Brazil. The aim is to prevent losses on these swaps. There’s a mutual guarantee that a central bank of a currency that loses value will reimburse the central bank that’s holding its currency so that the latter will not suffer a loss as denominated in its own currency.
I suspect that all the United States would have to do (at least in the short run) would be to make the same deal so that foreign countries would not take a loss on their dollar holdings. Instead, America is saying bluntly: “In order for us to solve our economic problem at no cost to ourselves, you must take a loss. We are going to solve our problem at your expense. If you don’t like it, you had better arm yourselves (preferably by buying our own weapons exports) because we’re going to do things our way. What are you going to do about it?”
E: Yes.
H: Imagine what effect this is creating abroad! Other countries have gone along with U.S. policy so far, because there was some mutual gain, at least in the U.S. market for foreign countries’ exports. But now that U.S. consumers have little left to spend on goods and services (because they have to spend so much on debt service and housing), America has little to offer any more. So foreign countries are moving away. I was told two weeks before Turkey made the currency-swap agreement with China that they decided that America is going to be on the losing side, and they wanted to go with the winners – that is, with the growing economies, not those that are sinking into debt deflation.
The United States is playing as if other countries are still going to automatically obey it. The only ground for believing this is that other countries are looking at the United States as a “madman.” It certainly looks as if people like Ben Bernanke are even nuttier than Alan Greenspan. They’re disappointed with Obama, whom they see more as a continuation of Dick Cheney than of George Bush. He’s turned over the shop to the Rubinomics gang of financial predators.
E: You’re in Germany. What’s the general feeling there about US economic policies?
H: There is resentment against Angela Merkel and her government for following American policy and not realizing that the world has changed from what it used to be. There is still high unemployment here, almost 20%. The economy is not doing well, and German exports – like other European exports – are being hurt by the euro’s rise while the U.S. Fed continues to pursue low interest rates to increase the capitalization rate of its real estate and corporate income – which has the side effect of lowering its exchange rate. So Europe is bearing the brunt of American financial aggression. There is a feeling that Merkel is turning as much into Obama’s poodle as Blair was Bush’s poodle. And her French friend Sarkozy is not popular here either.
E: Regarding the currency swap agreements between China and other countries to avoid the downside of holding dollars and doing trade in them, is this a gradualist approach?
H: It’s an either/or approach. Foreign central banks know that holding dollars is like buying an asset that is going down in price. Nobody wants to do that, because they will have to show a loss on their books, which are kept in their own currency. Most central bankers expect China’s currency to rise, just like the yen rose after 1985. They naturally would rather hold a rising currency asset than a depreciating one.
E: Speaking of which, one of the major changes in the global market over this year is that central banks have become net buyers of gold. Earlier this week the central bank of South Korea announced that they’re beginning to diversify out of dollars. Do you see this as part of the process that I call decommissioning the dollar as a reserve currency?
H: Certainly. The United States, Germany and France hold half of their foreign reserves in gold. Korea has only 0.2% of its international reserves in gold. So it’s saying, in effect: “Wait a minute. There’s some hypocrisy going on here. You’re telling us to hold dollars, but you’re holding gold. We’ve decided to do as you do, not as you say.” The corollary is to spell this out: “We don’t know what the future global monetary system is going to be. But it looks like the United States is expecting a gold-based system. Otherwise, let the U.S. Treasury sell off its gold stock.”
Korea’s may have been discussed its gold purchase with other countries. Its act says, in effect: “We’re hosting the G20 meetings next month. Why doesn’t America hold down the price of gold by putting its money where it’s mouth is, and announce that it’s going to sell the gold in Fort Knox?” Other countries might well say, “By the way, can you give us back the gold we’re holding in the New York Federal Reserve? Now that we don’t have to worry about World War II any more, we’d like to hold our own gold.” There is a growing feeling that the U.S. Government is acting on behalf of financial thieves, and that this theft is causing unemployment in Europe and other countries.
E: So this leads to my final question: Clearly the world needs a new global monetary system. This has been obvious for a while. My sense is that for most governments around the world, the final straw has been the financial crisis that we’ve imposed on everybody. So the question is, in the past such agreements were reached with at least one dominant power (that would be us) holding most of the cards and dictating the arrangements. This time around, that’s not really an option any more. But it’s not clear just where the leadership is. So is there any precedent for a multilateral agreement among countries for a new international currency regime?
H: I think this mischaracterizes the issue. There never was a multilateral currency system. There was the US dictating to the rest of the world, as you point out. It used an internationalist rhetoric for nationalistic financial and trade purposes. That’s what my Super Imperialism was all about.
E: Yes, that’s what I mean. That is what we always had before.
H: The United States said to other countries: “We’ll never join a multinational system in which other countries can set our policy. We insist on veto power – or the power to simply ignore your recommendations. And for your part, you must do what we say, or we’ll do to you what we did to Iraq or Afghanistan. So get out of our way!”
I think that other countries have given up hope of a multi-lateral system in which the United States will cooperate. So they’re creating a parallel system, namely as the BRIC countries have done. They’re saying, “We’re going to avoid using the dollar altogether.” And the dollar’s own financial managers are turning it into nearly a pariah currency. This is what I wrote about in the Financial Times yesterday: the U.S. refusal to cooperate with other countries, above all its double standard insisting that other countries must turn their foreign-exchange surpluses over to the U.S. Treasury to promote U.S. financial markets at their expense – and the demand that any country running a trade surplus with America spend the money on U.S. arms – is so abhorrent that other countries are proceeding to create an alternative global financial system of settling trade and balance-of-payments transactions without the United States.
So what will emerge is a new multi-lateral financial system after all. But there will be two financial systems: one centered on the BRIC countries with strong trade balances and currency values, another system centered on the U.S. dollar. Europe is likely to be left out, and may become an economic backwater, because so much of its politics are run by U.S. aficionados. So I see a dual world monetary system and a dual world trade system operating under a different set of trade and financial rules.
U.S. diplomats no doubt will call this socialism. Other countries can reply, “What we’re doing is just what the French Physiocrats, Adam Smith, John Stuart Mill and the other major classical free-marketers wanted: no free lunch. If we’re socialists, what are you guys? We’re too polite to use the word, but it was used in World War II.”
E: On that note we’ll wrap it up. We appreciate your thoughts on this. It’s certainly going to be an interesting meeting coming up next month among the G20, and we’ll see what comes out of it.
H: Have a glance at the article I wrote in the Financial Times [October 19, 2010].
E: Will do.
H: I think that spelled out a lot of the logic of what I’ve just been talking about.
E: Very good. Thank you very much Michael. Appreciate your time.
H: It’s always good to talk to you.
Footnote
[1] Nobel Laureate Joseph Stiglitz: “Foreclosure Moratorium, Government Stimulus Needed to Revive US Economy,”
Democracy Now, Oct. 21, 2010
Que opinan los especuladores del QE?
What to Expect From QE II
By David Moenning , October 28, 2010
http://seekingalpha.com/article/232970-what-to-expect-from-qe-ii#comments_header
Nearly everyone in the game expects Ben Bernanke's gang to announce another round of quantitative easing (defined as the direct purchase of bonds) at the conclusion of the November 3rd FOMC meeting.
What we should expect from the program?
First,
the expectations in the markets are for the FOMC to announce the commencement of a bond buying program that will total somewhere in the vicinity of $300 billion to $500 billion by the end of January. Anything short of $500 billion could be viewed as a disappointment to traders.
Second,
we would expect the Fed to say that they will assess the situation at the end of January and decide from meeting to meeting whether “additional accommodation” is needed.
Third,
“So, what’s the plan? We expect to see the FOMC make purchases of bonds in the 2-year to 10-year range. The goal is to push longer-term interest rates lower in the hope that investors will stop hoarding short-term bonds and take more risks by moving out the yield curve, take on more credit risk, and investing in equities and/or real estate.”
Fourth, risk of inflation?.
“Recently, we’ve heard Ben Bernanke utter words that most of us thought we’d never hear – that inflation is too low. Thus, another intention of QE II is to put a little inflation back into the mix. The idea here is that some inflation would help the real estate and stock market, which, in turn, would help homeowners repair their balance sheets.”
Fifth, opposition?.
What their arguments? a. that QE is an unproven instrument; b that the problems in the economy (structural unemployment, taxes, regulation, healthcare costs) cannot be rectified by the Fed or monetary policy; c. that the idea of “a little inflation” is akin to being “a little pregnant.”
Sixth, Counter argument?.
This is a horse of a different color: a. “the goal of this round of quantitative easing is very different than what we saw the Fed implement during the credit crisis (2008). The first round of QE was aimed at stabilizing the credit markets and adding liquidity. Recall that the credit markets were almost completely frozen at the end of 2008, thus the Fed’s goal was to thaw things out by coming in and being a buyer.
b. this time around the goal is completely different. In short, the QE II is about economics and not about bank lending. As Bernanke pointed out in Jackson Hole, this effort is about forcing investors to take more risk [in the short term] and stop hoarding cash.
Seventh. Will it work?
We won’t know the real answer for quite some time. However, by pushing longer-term interest rates down, mortgage rates and bank lending rates should come down as well.
d. Risks?.
They are already apparent as the markets have largely priced in the launch of QE II. We’ve seen the US dollar tumble, commodity prices rise, and interest rates fall. The fear is that QE II will create more inflation than intended and potentially cause excessive buying in the commodity and emerging equity markets.
e. Good intentions?.
Bernake’s intention is “avoiding the kind of deflation that plagued this country during the 1930’s and the downward spiral seen in Japan over the past 20 years. Thus, Bernanke & Co. would seem to welcome a rise in inflation now and assume that they can worry about any “unintended consequences” of the QE II later”.
See original doct in http://seekingalpha.com/article/232970-what-to-expect-from-qe-ii#comments_header
About the author: David Moenning is a the proprietor of TopStockPortfolios.com. In addition to providing free and subscription-based portfolios on TSP, Dave is a full-time money manager and the President and Chief Investment Strategist of a Chicago-based SEC Registered Investment Advisory firm.
Related article:
“Pimco sells US Treasuries ahead of QE2”. 14 Oct 2010 .-
http://www.telegraph.co.uk/finance/economics/8063303/Pimco-sells-US-Treasuries-ahead-of-QE2.html.
The Federal Reserve bought $300 billion of Treasuries last year under the QE policy 1 and is expected to buy another round. Pimco, manager of the world’s largest bond fund, is selling US Treasuries in the expectation that a fresh helping of economic stimulus from the Federal Reserve will have little impact. He worries over record-low Treasury yields that has seen in the demand for US bonds in decline as investors seek for higher returns in commodities and equities.
Anticipation of more Fed stimulus to boost the world's biggest economy pushed the dollar to a 10-month low against a basket of currencies and the gold price to a new all-time high of $1,380.32 an ounce. Crude oil and grains also rose.
"There is practically no interest rate, so everyone is rushing into commodities and the stock market,"
Pimco believes developed economies will suffer slow growth and below average returns and is focusing on sovereign debt in emerging markets, such as India and China. //
“Even if the QE [quantitative easing] process is large and rates decline further, in our view we’re approaching the end of the bond market rally,” Mr Hodge said. //
If the Fed announces a QE program after the next meeting, how might the markets react? I suspect the Treasury market would sell off on the view that it was better to have travelled than arrived .. they are not likely to resist taking profits."
He said QE is likely to be seen as positive for economic growth and corporate earnings, which would benefit shares.
"Valuations have swung so far in favour of equities that, even with some rise in bond yields, the valuations are still likely to favour them strategically as the asset of choice - even if it led to higher yields on bonds," he said.
As for gold, he said: "The bubble will continue to inflate but [soon is going to get the top, it reads so in the original doct] who is going to call the top."
================
“Fed Easing to Keep Dollar Weak Next Month” said John Taylor, founder of FX Concepts LLC, the world’s biggest foreign exchange hedge fund.
By Allison Bennett and Erik Schatzker - Oct 28, 2010.
http://www.bloomberg.com/news/2010-10-28/fed-easing-to-keep-dollar-weak-through-november-fx-concepts-taylor-says.html
The dollar declined 0.8 percent to $1.3879 per euro. “The dollar will be weak, probably through the month of November, as we get a feel for the program,” Taylor said. The U.S. currency has tumbled 8.7 percent against its European counterpart since Aug. 27 when Fed chairman Ben S. Bernanke pledged in a speech in Jackson Hole, Wyoming to safeguard the economic recovery through the purchase of Treasuries.
“As soon as the Jackson Hole issue, the QE2 issue came out, you sell the dollar,” Taylor said. “The best measure of when to stop selling the dollar is when the QE2 effort is matched by problems in Europe or problems in China.”
==============
Next:
Can Foreign Governments Take Advantage of QE2? October 15, 2010 By Michael James McDonald. http://seekingalpha.com/article/230188-can-foreign-governments-take-advantage-of-qe2
Can Foreign Governments Take Advantage of QE2?
October 15, 2010
By Michael James McDonald.
http://seekingalpha.com/article/230188-can-foreign-governments-take-advantage-of-qe2
There is one story of the many epic encounters that Cornelius Vanderbilt had with Daniel Drew and Jay Gould in the late 1800's that I always found funny. It's about one price war they had in their continuing competition to be "top dog" in cattle shipments. Both sides owned railroads. Alternatively, each reduced cattle shipment prices from ten cents a head, to four cents, to two cents and finally, Vanderbilt went to zero, expecting that would be it and put their railroad out of business. However, he suddenly learned that Jay Gould had purchased every head of cattle he could find, making a small fortune shipping them all to Chicago at Vanderbilt’s expense.
Does QE2 make a similar type financial joke in the T-bond & currency markets possible?
The primary way foreign governments maintain a trade advantage is to buy U.S treasury bonds. This keeps their currency trade advantage by preventing a dollar decline since these purchases act like American exports offsetting our imports of their goods. This accumulation of treasuries begins to show up in the yearly US government report called the "International Investment Position", a section of which is shown below.
click to enlarge abrir la pagina web arriba para ver el cuadro
It shows foreigners now own over 21 trillion dollars of American assets. Of this (shown in red) foreign governments own 3.59 trillion in treasury issues and foreign individuals another .826 trillion. Here’s the rub. Nothing comes for free. While purchasing these bonds allowed them to maintain a low exchange rate and export a lot of stuff; it only forestalls the inevitable. As soon as they try to reclaim this back into their own currency, it works against them in two ways.
First, selling American bonds works just the opposite as purchasing them; now it lowers the dollar, shrinking the bond portfolio's valuation in the home currency. Second, selling large positions in treasury bonds also drops the intrinsic price of the bonds since there are few buyers. The effect of both bond and dollar price declines could cause combined losses of 40% to 50% on their 3.59 trillion dollars. It also hurts their trade. This pain has to come someday; it's inevitable and the longer it's put off the bigger the pain will be. But maybe QE2 allows them a "once in a lifetime" opportunity to do it all now at minimal loss (and pain).
Is QE2 creating unseen consequences and financial opportunities for others (like Vanderbilt)?
First, QE2 gives them a buyer for the bonds and also someone who wants to support the price – the US government, who is simply printing money to purchase bonds. Second, before they sell, they can purchase OTC currency options (financial derivatives shown in blue) to guarantee a good exchange rate from someone who doesn’t know their intentions. Which means they could convert the dollar proceeds into Yuan or Yen or whatever, at a rate better than the market would give them since if they tried to use the currency markets their size alone would push conversion prices against them. Instead of losing from 40% to 50% it might be reduced from 10% to 15%.
If this is both possible and feasible and they end up trying to do it, expect a very large price drop in the dollar from QE2. The counterparty to the currency options (probably a large international bank) is the one who would create and stomach the big currency losses that the foreign country passed to them.
Not long ago the Fed's actions could be made in isolation. I think very soon they will realise that what they can now do depends more on global factors than the state of the Amercian economy.
By David Moenning , October 28, 2010
http://seekingalpha.com/article/232970-what-to-expect-from-qe-ii#comments_header
Nearly everyone in the game expects Ben Bernanke's gang to announce another round of quantitative easing (defined as the direct purchase of bonds) at the conclusion of the November 3rd FOMC meeting.
What we should expect from the program?
First,
the expectations in the markets are for the FOMC to announce the commencement of a bond buying program that will total somewhere in the vicinity of $300 billion to $500 billion by the end of January. Anything short of $500 billion could be viewed as a disappointment to traders.
Second,
we would expect the Fed to say that they will assess the situation at the end of January and decide from meeting to meeting whether “additional accommodation” is needed.
Third,
“So, what’s the plan? We expect to see the FOMC make purchases of bonds in the 2-year to 10-year range. The goal is to push longer-term interest rates lower in the hope that investors will stop hoarding short-term bonds and take more risks by moving out the yield curve, take on more credit risk, and investing in equities and/or real estate.”
Fourth, risk of inflation?.
“Recently, we’ve heard Ben Bernanke utter words that most of us thought we’d never hear – that inflation is too low. Thus, another intention of QE II is to put a little inflation back into the mix. The idea here is that some inflation would help the real estate and stock market, which, in turn, would help homeowners repair their balance sheets.”
Fifth, opposition?.
What their arguments? a. that QE is an unproven instrument; b that the problems in the economy (structural unemployment, taxes, regulation, healthcare costs) cannot be rectified by the Fed or monetary policy; c. that the idea of “a little inflation” is akin to being “a little pregnant.”
Sixth, Counter argument?.
This is a horse of a different color: a. “the goal of this round of quantitative easing is very different than what we saw the Fed implement during the credit crisis (2008). The first round of QE was aimed at stabilizing the credit markets and adding liquidity. Recall that the credit markets were almost completely frozen at the end of 2008, thus the Fed’s goal was to thaw things out by coming in and being a buyer.
b. this time around the goal is completely different. In short, the QE II is about economics and not about bank lending. As Bernanke pointed out in Jackson Hole, this effort is about forcing investors to take more risk [in the short term] and stop hoarding cash.
Seventh. Will it work?
We won’t know the real answer for quite some time. However, by pushing longer-term interest rates down, mortgage rates and bank lending rates should come down as well.
d. Risks?.
They are already apparent as the markets have largely priced in the launch of QE II. We’ve seen the US dollar tumble, commodity prices rise, and interest rates fall. The fear is that QE II will create more inflation than intended and potentially cause excessive buying in the commodity and emerging equity markets.
e. Good intentions?.
Bernake’s intention is “avoiding the kind of deflation that plagued this country during the 1930’s and the downward spiral seen in Japan over the past 20 years. Thus, Bernanke & Co. would seem to welcome a rise in inflation now and assume that they can worry about any “unintended consequences” of the QE II later”.
See original doct in http://seekingalpha.com/article/232970-what-to-expect-from-qe-ii#comments_header
About the author: David Moenning is a the proprietor of TopStockPortfolios.com. In addition to providing free and subscription-based portfolios on TSP, Dave is a full-time money manager and the President and Chief Investment Strategist of a Chicago-based SEC Registered Investment Advisory firm.
Related article:
“Pimco sells US Treasuries ahead of QE2”. 14 Oct 2010 .-
http://www.telegraph.co.uk/finance/economics/8063303/Pimco-sells-US-Treasuries-ahead-of-QE2.html.
The Federal Reserve bought $300 billion of Treasuries last year under the QE policy 1 and is expected to buy another round. Pimco, manager of the world’s largest bond fund, is selling US Treasuries in the expectation that a fresh helping of economic stimulus from the Federal Reserve will have little impact. He worries over record-low Treasury yields that has seen in the demand for US bonds in decline as investors seek for higher returns in commodities and equities.
Anticipation of more Fed stimulus to boost the world's biggest economy pushed the dollar to a 10-month low against a basket of currencies and the gold price to a new all-time high of $1,380.32 an ounce. Crude oil and grains also rose.
"There is practically no interest rate, so everyone is rushing into commodities and the stock market,"
Pimco believes developed economies will suffer slow growth and below average returns and is focusing on sovereign debt in emerging markets, such as India and China. //
“Even if the QE [quantitative easing] process is large and rates decline further, in our view we’re approaching the end of the bond market rally,” Mr Hodge said. //
If the Fed announces a QE program after the next meeting, how might the markets react? I suspect the Treasury market would sell off on the view that it was better to have travelled than arrived .. they are not likely to resist taking profits."
He said QE is likely to be seen as positive for economic growth and corporate earnings, which would benefit shares.
"Valuations have swung so far in favour of equities that, even with some rise in bond yields, the valuations are still likely to favour them strategically as the asset of choice - even if it led to higher yields on bonds," he said.
As for gold, he said: "The bubble will continue to inflate but [soon is going to get the top, it reads so in the original doct] who is going to call the top."
================
“Fed Easing to Keep Dollar Weak Next Month” said John Taylor, founder of FX Concepts LLC, the world’s biggest foreign exchange hedge fund.
By Allison Bennett and Erik Schatzker - Oct 28, 2010.
http://www.bloomberg.com/news/2010-10-28/fed-easing-to-keep-dollar-weak-through-november-fx-concepts-taylor-says.html
The dollar declined 0.8 percent to $1.3879 per euro. “The dollar will be weak, probably through the month of November, as we get a feel for the program,” Taylor said. The U.S. currency has tumbled 8.7 percent against its European counterpart since Aug. 27 when Fed chairman Ben S. Bernanke pledged in a speech in Jackson Hole, Wyoming to safeguard the economic recovery through the purchase of Treasuries.
“As soon as the Jackson Hole issue, the QE2 issue came out, you sell the dollar,” Taylor said. “The best measure of when to stop selling the dollar is when the QE2 effort is matched by problems in Europe or problems in China.”
==============
Next:
Can Foreign Governments Take Advantage of QE2? October 15, 2010 By Michael James McDonald. http://seekingalpha.com/article/230188-can-foreign-governments-take-advantage-of-qe2
Can Foreign Governments Take Advantage of QE2?
October 15, 2010
By Michael James McDonald.
http://seekingalpha.com/article/230188-can-foreign-governments-take-advantage-of-qe2
There is one story of the many epic encounters that Cornelius Vanderbilt had with Daniel Drew and Jay Gould in the late 1800's that I always found funny. It's about one price war they had in their continuing competition to be "top dog" in cattle shipments. Both sides owned railroads. Alternatively, each reduced cattle shipment prices from ten cents a head, to four cents, to two cents and finally, Vanderbilt went to zero, expecting that would be it and put their railroad out of business. However, he suddenly learned that Jay Gould had purchased every head of cattle he could find, making a small fortune shipping them all to Chicago at Vanderbilt’s expense.
Does QE2 make a similar type financial joke in the T-bond & currency markets possible?
The primary way foreign governments maintain a trade advantage is to buy U.S treasury bonds. This keeps their currency trade advantage by preventing a dollar decline since these purchases act like American exports offsetting our imports of their goods. This accumulation of treasuries begins to show up in the yearly US government report called the "International Investment Position", a section of which is shown below.
click to enlarge abrir la pagina web arriba para ver el cuadro
It shows foreigners now own over 21 trillion dollars of American assets. Of this (shown in red) foreign governments own 3.59 trillion in treasury issues and foreign individuals another .826 trillion. Here’s the rub. Nothing comes for free. While purchasing these bonds allowed them to maintain a low exchange rate and export a lot of stuff; it only forestalls the inevitable. As soon as they try to reclaim this back into their own currency, it works against them in two ways.
First, selling American bonds works just the opposite as purchasing them; now it lowers the dollar, shrinking the bond portfolio's valuation in the home currency. Second, selling large positions in treasury bonds also drops the intrinsic price of the bonds since there are few buyers. The effect of both bond and dollar price declines could cause combined losses of 40% to 50% on their 3.59 trillion dollars. It also hurts their trade. This pain has to come someday; it's inevitable and the longer it's put off the bigger the pain will be. But maybe QE2 allows them a "once in a lifetime" opportunity to do it all now at minimal loss (and pain).
Is QE2 creating unseen consequences and financial opportunities for others (like Vanderbilt)?
First, QE2 gives them a buyer for the bonds and also someone who wants to support the price – the US government, who is simply printing money to purchase bonds. Second, before they sell, they can purchase OTC currency options (financial derivatives shown in blue) to guarantee a good exchange rate from someone who doesn’t know their intentions. Which means they could convert the dollar proceeds into Yuan or Yen or whatever, at a rate better than the market would give them since if they tried to use the currency markets their size alone would push conversion prices against them. Instead of losing from 40% to 50% it might be reduced from 10% to 15%.
If this is both possible and feasible and they end up trying to do it, expect a very large price drop in the dollar from QE2. The counterparty to the currency options (probably a large international bank) is the one who would create and stomach the big currency losses that the foreign country passed to them.
Not long ago the Fed's actions could be made in isolation. I think very soon they will realise that what they can now do depends more on global factors than the state of the Amercian economy.
Que opinan los especuladores de los QE de Obama
Que opinan los grandes especuladores de los QE de Obama?
Fed Easing May Mean 20% Dollar Drop. By Bill GrossAuthor: William H Gross
Published by Reuters: Monday, 1 Nov 2010
http://www.cnbc.com/id/39957072
The dollar is in danger of losing 20 percent of its value over the next few years if the Federal Reserve continues unconventional monetary easing, Bill Gross, the manager of the world's largest mutual fund, said on Monday. "I think a 20 percent decline in the dollar is possible," Gross said, adding the pace of the currency's decline was also an important consideration for investors.
"When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory—that is a debasement of the dollar in terms of the supply of dollars on a global basis," Gross told Reuters in an interview at his PIMCO headquarters.
The Fed will probably begin a new round of monetary easing this week (“This will likely happen at the conclusion of the Fed's two-day meeting that ends on Wednesday.
But emotions are running high on both sides of the debate, and the amounts have varied from a high of $500 billion, on average, to lower amounts”
(http://www.cnbc.com/id/39947742/) by announcing a plan to buy at least $500 billion of long-term securities, what investors and traders refer to as QE II, according to a Reuters poll of primary dealers.
"QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices," Gross added.
To a certain extent, that is what the Treasury Department and Fed "in combination" want, said Gross, who runs the $252 billion Total Return Fund and oversees more than $1.1 trillion as co-chief investment officer.
"The fundamental problem here is that our labor and developed economy labor relative to developing economy labor is so mismatched—China can do it so much more cheaply," he said.
Many Americans believe that the Chinese government is manipulating its currency and in effect stealing away American jobs and throwing the U.S. in an ever-deepening trade deficit.
But Gross said this is a byproduct of a globalized economy.
"It is a globalized economy of our own doing for the past 20-30 years. We encouraged all of this, but it is coming back to haunt us. To the extent that Chinese labor, Vietnamese labor, Brazilian labor, Mexican labor, wherever it is coming from that labor is outcompeting us and holding down our economy," he said.
Gross added: "One of the ways to get even, so to speak, or to get the balance, is to debase your currency faster than anybody else can. It's a shock because the dollar is the reserve currency. But to the extent that that is a necessary condition for rebalancing the global economy over time, then that is where we are headed."
"Other countries and citizens are willing to work for less and willing to work harder—and we forgot the magic formula somewhere along the way," Gross said.
In that regard, Americans should be investing a lot more overseas than they are to find growth as the U.S. remains in a slowish-growth environment, he said.
"Pension funds and Americans, in general, have a problem because their liabilities are dollar-denominated. It's probably worth the risk of getting out of dollars and getting into emerging countries and going where the growth is. All of which entails risk relative to the home country. But there's probably a bigger risk in simply staying comfortably within the confines of dollar-based investments."
==========================
RELATED LINK
1. How a Weak Dollar is Good
2. Will QE2 Work?
3. The World's Biggest Debtor Nations
----------------------------------------------------
1. How a Weak Dollar is Good
Cramer: How a Weak Dollar Is Good for US Companies.
Published: Friday, 29 Oct 2010.
By: Drew Sandholm.
http://www.cnbc.com/id/39913666.
"This is our time," said Cramer on news that the dollar was down against the yen on Friday.
Cramer said a weak dollar will help the US "crush" global competitors, including and especially Japan. As the yen continues to climb, he thinks Japanese companies will lose out to "cheaper" American businesses. On a higher yen, the "Mad Money" host recommends owning construction machinery company Caterpillar because it will be less expensive than its Japanese rivals. He said the same is true of pharmaceutical companies and the like.
US companies have recognized that the money is currently in emerging markets around the world and have done a great job at investing in those areas, Cramer said. Those investments have helped them to beat on earnings, despite low growth found in the US. With the dollar down against the yen, Cramer thinks US companies will win even more business in those profitable emerging markets.
2. Will QE2 Work?
Chadwick: QEII – Will it Work? I Have My Doubts.
Published: Monday, 1 Nov 2010.
By: Patricia Chadwick. http://www.cnbc.com/id/39952558
The new buzzwords – Quantitative Easing – have been added to the alphabet soup of remedies for our still ailing economy. The quick fix “QE” recipe consists of the Fed buying bonds and flooding the economy with the proceeds in the hope that more money will inspire the recipients to spend the dough and thus get the economy off its rump.
But will this round of quantitative easing achieve the desired result?
First, the problem with our economy at this time is one of demand – there is not enough final demand for goods and services. The consumer, the primary driver of demand, is a wary buyer these days and for good reason. Unemployment is high and seems to be stuck there. That does not inspire confidence in spending even if one has a job, particularly with all the headline news about Governments – Federal, state and local – needing to cut back spending, which means laying off employees or foregoing projects.
Secondly, consumers are still engaged in the process of trying to pay down their own already too high levels of debt.
While the numbers show some good progress on that score, both with regard to credit card debt and mortgage refinancing that is taking advantage of the lowest rates in half a century, consumers’ balance sheets are still far from secure.
So who will be the beneficiaries of this impending QE?
It seems to me that first and foremost it will benefit the big banks and financial institutions, including hedge funds, which have already benefitted handsomely for two years under the easy money policy of the Federal Reserve. For the lending institutions, the wider the spread between their borrowing costs and the interest rate they can charge on loans, the more profitable they are. Admittedly, many of the large banks still need desperately to continue to improve their own balance sheets, and if that were the only objective of the Fed, QEII would be a good idea.
As for the hedge funds, there is no dearth of nearly free money for them to leverage into gargantuan profits. But that provides little stimulus for the economy as a whole.
There is nothing inherently wrong with either banks or hedge funds benefitting from QEII, but that won’t bring the consumer into the business of spending, which must take place in order to goose this slack economy.
The stock market will likely respond favorably to QEII. In fact, one might argue it has already discounted some of the incremental money that will flood the system. One might argue, too, that is good for the consumer, and it certainly will help rebuild the devastated 401(k) plans of many working Americans. But unlike the era of the 1990s when consumers spent freely as they watched the assessed value of their house and the market value of their retirement accounts rise, this time I believe consumers will be careful not to return to their old spending ways. Instead they will take heart from any improvement in the value of their assets and will safeguard their nest egg.
Unfortunately for consumers, the easy money will have little if any positive impact on the usurious rates on their credit card debt. Despite the law passed earlier this year which provides some new protections, it does nothing to lower existing rates for past debt, rates that in many cases are well over 20%. That is a serious impediment to growth, because existing credit card debt is an economic millstone around consumers’ necks.
QEII will allow large corporations, which undeniably comprise the healthiest sector of our economy, to finance long term projects at very favorable rates. This is good news as it will add to productivity and corporate earnings. But it will do nothing to stimulate consumer demand or add to jobs.
The banks remain tightfisted in lending to small businesses. Until and unless the money spigot opens up to that all-important sector of the economy, the sector that in fact creates the large majority of new jobs, QE II will not spark growth.
Here’s a heretical notion: if the Fed really wants to stimulate consumer spending, why not simply put the money in the hands of consumers with the proviso that they pay down their own debt? That way the consumer would be in a position to buy ‘stuff’ again, to begin once more to consume. I am not really advocating that tactic, but among poor and poorer choices, this one would have a greater impact on demand than will the impending flood of new money.
3. The World's Biggest Debtor Nations
The World's Biggest Debtor Nations. By Paul Toscano, http://www.cnbc.com/id/30308959
Throughout the financial crisis, many national economies have looked to their government and foreign lenders for financial support, which translates to increased spending, borrowing and in most cases, growing national debt.
Deficit spending, government debt and private sector borrowing are the norm in most western countries, but due in part to the financial crisis, some nations and economies are in considerably worse debt positions than others.
External debt is a measure of a nation's foreign liabilities, capital plus interest that the government and institutions within a nation's borders must eventually pay. This number not only includes government debt, but also debt owed by corporations and individuals to entities outside their home country.
So, how does the US debt position compare to that of other countries? A useful measure of a country's debt position is by comparing gross external debt to GDP. By comparing a country's debt to what it produces, this ratio can be used to help determine the likelihood that a country will be able to repay its debt. // This report takes a look at the world's 75 largest economies to see which ones have the highest external debt to GDP ratio, calculated using the most recent numbers from the World Bank. We've listed the top twenty here.
Since the first time this report was published in April 2009, the debt situations of many countries have become of increasingly influential in the markets. In many European nations, these debt levels have caused international organizations and bond investors to put pressure on governments to cut public debt through austerity measures and additional reductions in spending. So, what are the world's biggest debtor nations? Click ahead to find out. By Paul Toscano Updated 30 Sept 2010
Countries Overloaded By Debt. Reed more in http:www.cnbc.com/id/30308959
Source: External Debt information from The World Bank, GDP information from the CIA World Factbook.
Fed Easing May Mean 20% Dollar Drop. By Bill GrossAuthor: William H Gross
Published by Reuters: Monday, 1 Nov 2010
http://www.cnbc.com/id/39957072
The dollar is in danger of losing 20 percent of its value over the next few years if the Federal Reserve continues unconventional monetary easing, Bill Gross, the manager of the world's largest mutual fund, said on Monday. "I think a 20 percent decline in the dollar is possible," Gross said, adding the pace of the currency's decline was also an important consideration for investors.
"When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory—that is a debasement of the dollar in terms of the supply of dollars on a global basis," Gross told Reuters in an interview at his PIMCO headquarters.
The Fed will probably begin a new round of monetary easing this week (“This will likely happen at the conclusion of the Fed's two-day meeting that ends on Wednesday.
But emotions are running high on both sides of the debate, and the amounts have varied from a high of $500 billion, on average, to lower amounts”
(http://www.cnbc.com/id/39947742/) by announcing a plan to buy at least $500 billion of long-term securities, what investors and traders refer to as QE II, according to a Reuters poll of primary dealers.
"QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices," Gross added.
To a certain extent, that is what the Treasury Department and Fed "in combination" want, said Gross, who runs the $252 billion Total Return Fund and oversees more than $1.1 trillion as co-chief investment officer.
"The fundamental problem here is that our labor and developed economy labor relative to developing economy labor is so mismatched—China can do it so much more cheaply," he said.
Many Americans believe that the Chinese government is manipulating its currency and in effect stealing away American jobs and throwing the U.S. in an ever-deepening trade deficit.
But Gross said this is a byproduct of a globalized economy.
"It is a globalized economy of our own doing for the past 20-30 years. We encouraged all of this, but it is coming back to haunt us. To the extent that Chinese labor, Vietnamese labor, Brazilian labor, Mexican labor, wherever it is coming from that labor is outcompeting us and holding down our economy," he said.
Gross added: "One of the ways to get even, so to speak, or to get the balance, is to debase your currency faster than anybody else can. It's a shock because the dollar is the reserve currency. But to the extent that that is a necessary condition for rebalancing the global economy over time, then that is where we are headed."
"Other countries and citizens are willing to work for less and willing to work harder—and we forgot the magic formula somewhere along the way," Gross said.
In that regard, Americans should be investing a lot more overseas than they are to find growth as the U.S. remains in a slowish-growth environment, he said.
"Pension funds and Americans, in general, have a problem because their liabilities are dollar-denominated. It's probably worth the risk of getting out of dollars and getting into emerging countries and going where the growth is. All of which entails risk relative to the home country. But there's probably a bigger risk in simply staying comfortably within the confines of dollar-based investments."
==========================
RELATED LINK
1. How a Weak Dollar is Good
2. Will QE2 Work?
3. The World's Biggest Debtor Nations
----------------------------------------------------
1. How a Weak Dollar is Good
Cramer: How a Weak Dollar Is Good for US Companies.
Published: Friday, 29 Oct 2010.
By: Drew Sandholm.
http://www.cnbc.com/id/39913666.
"This is our time," said Cramer on news that the dollar was down against the yen on Friday.
Cramer said a weak dollar will help the US "crush" global competitors, including and especially Japan. As the yen continues to climb, he thinks Japanese companies will lose out to "cheaper" American businesses. On a higher yen, the "Mad Money" host recommends owning construction machinery company Caterpillar because it will be less expensive than its Japanese rivals. He said the same is true of pharmaceutical companies and the like.
US companies have recognized that the money is currently in emerging markets around the world and have done a great job at investing in those areas, Cramer said. Those investments have helped them to beat on earnings, despite low growth found in the US. With the dollar down against the yen, Cramer thinks US companies will win even more business in those profitable emerging markets.
2. Will QE2 Work?
Chadwick: QEII – Will it Work? I Have My Doubts.
Published: Monday, 1 Nov 2010.
By: Patricia Chadwick. http://www.cnbc.com/id/39952558
The new buzzwords – Quantitative Easing – have been added to the alphabet soup of remedies for our still ailing economy. The quick fix “QE” recipe consists of the Fed buying bonds and flooding the economy with the proceeds in the hope that more money will inspire the recipients to spend the dough and thus get the economy off its rump.
But will this round of quantitative easing achieve the desired result?
First, the problem with our economy at this time is one of demand – there is not enough final demand for goods and services. The consumer, the primary driver of demand, is a wary buyer these days and for good reason. Unemployment is high and seems to be stuck there. That does not inspire confidence in spending even if one has a job, particularly with all the headline news about Governments – Federal, state and local – needing to cut back spending, which means laying off employees or foregoing projects.
Secondly, consumers are still engaged in the process of trying to pay down their own already too high levels of debt.
While the numbers show some good progress on that score, both with regard to credit card debt and mortgage refinancing that is taking advantage of the lowest rates in half a century, consumers’ balance sheets are still far from secure.
So who will be the beneficiaries of this impending QE?
It seems to me that first and foremost it will benefit the big banks and financial institutions, including hedge funds, which have already benefitted handsomely for two years under the easy money policy of the Federal Reserve. For the lending institutions, the wider the spread between their borrowing costs and the interest rate they can charge on loans, the more profitable they are. Admittedly, many of the large banks still need desperately to continue to improve their own balance sheets, and if that were the only objective of the Fed, QEII would be a good idea.
As for the hedge funds, there is no dearth of nearly free money for them to leverage into gargantuan profits. But that provides little stimulus for the economy as a whole.
There is nothing inherently wrong with either banks or hedge funds benefitting from QEII, but that won’t bring the consumer into the business of spending, which must take place in order to goose this slack economy.
The stock market will likely respond favorably to QEII. In fact, one might argue it has already discounted some of the incremental money that will flood the system. One might argue, too, that is good for the consumer, and it certainly will help rebuild the devastated 401(k) plans of many working Americans. But unlike the era of the 1990s when consumers spent freely as they watched the assessed value of their house and the market value of their retirement accounts rise, this time I believe consumers will be careful not to return to their old spending ways. Instead they will take heart from any improvement in the value of their assets and will safeguard their nest egg.
Unfortunately for consumers, the easy money will have little if any positive impact on the usurious rates on their credit card debt. Despite the law passed earlier this year which provides some new protections, it does nothing to lower existing rates for past debt, rates that in many cases are well over 20%. That is a serious impediment to growth, because existing credit card debt is an economic millstone around consumers’ necks.
QEII will allow large corporations, which undeniably comprise the healthiest sector of our economy, to finance long term projects at very favorable rates. This is good news as it will add to productivity and corporate earnings. But it will do nothing to stimulate consumer demand or add to jobs.
The banks remain tightfisted in lending to small businesses. Until and unless the money spigot opens up to that all-important sector of the economy, the sector that in fact creates the large majority of new jobs, QE II will not spark growth.
Here’s a heretical notion: if the Fed really wants to stimulate consumer spending, why not simply put the money in the hands of consumers with the proviso that they pay down their own debt? That way the consumer would be in a position to buy ‘stuff’ again, to begin once more to consume. I am not really advocating that tactic, but among poor and poorer choices, this one would have a greater impact on demand than will the impending flood of new money.
3. The World's Biggest Debtor Nations
The World's Biggest Debtor Nations. By Paul Toscano, http://www.cnbc.com/id/30308959
Throughout the financial crisis, many national economies have looked to their government and foreign lenders for financial support, which translates to increased spending, borrowing and in most cases, growing national debt.
Deficit spending, government debt and private sector borrowing are the norm in most western countries, but due in part to the financial crisis, some nations and economies are in considerably worse debt positions than others.
External debt is a measure of a nation's foreign liabilities, capital plus interest that the government and institutions within a nation's borders must eventually pay. This number not only includes government debt, but also debt owed by corporations and individuals to entities outside their home country.
So, how does the US debt position compare to that of other countries? A useful measure of a country's debt position is by comparing gross external debt to GDP. By comparing a country's debt to what it produces, this ratio can be used to help determine the likelihood that a country will be able to repay its debt. // This report takes a look at the world's 75 largest economies to see which ones have the highest external debt to GDP ratio, calculated using the most recent numbers from the World Bank. We've listed the top twenty here.
Since the first time this report was published in April 2009, the debt situations of many countries have become of increasingly influential in the markets. In many European nations, these debt levels have caused international organizations and bond investors to put pressure on governments to cut public debt through austerity measures and additional reductions in spending. So, what are the world's biggest debtor nations? Click ahead to find out. By Paul Toscano Updated 30 Sept 2010
Countries Overloaded By Debt. Reed more in http:www.cnbc.com/id/30308959
Source: External Debt information from The World Bank, GDP information from the CIA World Factbook.
miércoles, 3 de noviembre de 2010
SUNAMIS FINANCIEROS: DEL QE I al QE II
SUNAMIS FINANCIEROS: DEL QE I al QE II:
El por qué? Como ocurrieron? y Que hacer?
Articulo de Matthias Chang traducido y comentado por Hugo Adan
Articulo original en:
http://futurefastforward.com/malaysia-updates/4290-by-matthias-chang
Por Matthias Chang. 03 de octubre 2010
Lo que viene es un extracto del art de Chang “Demasiado grandes para quebrar: La Banca Mundial se derrumbará”. El titulo y lo que esta braques [[notas]] me pertenecen.
SUNAMIS FINANCIEROS: DEL QE I al QE II
El por qué? Como ocurrieron? y Que hacer?
Matthias Chang
Voy a explicarlo en términos sencillos y paso a paso.
1) Todos los bancos globales estaban cubiertos de pies a cabeza por activos tóxicos (resultado del fraude o compra-venta de hipotecas basura). Las evaluaciones AAA que respaldaron los seguros para hipotecas ocultaron la BASURA toxica que contenían [[1}Resultado de ello, China creo su propio sistema de evaluación, el Dagong International Credit Rating Company y declaro a los bancos USA son insolventes, sin denunciar el fraude]]. Pero en los balances de los bancos y en la banca avalada por el Fed para dar validez a los seguros de hipotecas (conocidas como AIG), se declaró que esas hipotecas valían TRILLONES de US $ dólares. [[2}Fue con las Sub-prime y sus hipotecas basura que se infesto a la Banca mundial]]
2) El colapso de Lehman Brothers y las AIG mostraron al publico esa horrible verdad. Que la banca mundial estaba infectada y tenía ya un pasivo en Trillones de US$ dólares [[}3. deudas producto del fraude de la Banca privada de los EU en complicidad con el Fed]]. Desde entonces fue la banca mundial la que devino insolvente. Fue entonces que los bancos centrales de todo el mundo conspiraron y acordaron NO revelar el total de pasivos de los bancos globales, ya que ello causaría la quiebra de estos bancos, como ocurrió en el caso de Northern Rock en el UK.
3) Una propuesta sesgada fue ideada por el FED, dirigido por Ben Bernanke, [[4}Uso aquí el termino “propuesta sesgada” para indicar que los rescates de los Bancos centrales a la Banca privada y el QE 2 resultaron de acuerdos secretos de Banqueros del mundo. De forma que el QE 2 no fue idea original de BB, yo creo que el fue obligado por Europeos, Chinos, Japoneses y otros que compraron T-bonds a asumir responsabilidad por el danio causado, de lo contrario abandonaban el dollar, como lo pedían China y Rusia, quienes desde el 2008 empezaron a vender los bonos del Tesoro de EU]] para ayudar a los bancos mundiales a descargar -en forma sistemática y en etapas- los activos tóxicos a fin de permitir que los bancos cumplan las exigencias requerida de RESERVA FRACCIONAL estipulada por el sistema bancario mundial a fin de continuar con sus negocio bancarios. Esta es la esencia de los planes de rescate (bailouts) de la Banca Mundial por los bancos centrales. [[5.Según el economista Matias Chang la banca mundial signatoria del Bank of International Setllements BIS, esta obligada a mantener una fracción de su capital en reserva –Fractional Reserve- para cubrir riesgos relacionados con sus obligaciones financieras. Tal suma asciendo a un 8% del total del capital del banco, según acuerdo de 1988. Con la manipulación del concepto riesgo por los banqueros fue posible el montaje del fraude de las hipotecas en las que esta envuelto el Federal que avalaba dos bancos para garantizar los seguros de riesgo y según el Fed las deudas incurridos por un Estado soberano son de riego zero. Para determinar que tipo de valores dispone un banco y que tipo de inversión realizan (cual es menos o mas riesgosa), se crearon agencias especiales, las “rating agencies” tales como Moodys, S&P, Fitch, etc. Estas clasifican los valores que dispone el banco y las operaciones que realizan y otorgan 3 As a los bancos con buen capital y que cumplen con mantener la reserva fraccional y realizan inversiones seguras o de zero riesgo. Ninguna A se otorga a quienes hacen lo inverso o ponen en riesgo los ahorros y derechos del prestatario o inversionista. El Ponzi frame no esta permitido, pero es lo que hacen los bancos cuando sus riesgos de préstamo o inversión van mas alla del 8% del capital total. Los “rating agencies” NO debieran dar ninguna A bancos que están en default (que no mantienen el “fractional reserve”, o que adeudan o que incumplen obligaciones financieras con operaciones de alto riesgo, mas alla del 8% del capital total). Y lo hicieron. Para eludir sus obligaciones de ley se crearon las sub-primes que –como los sub-contratos que eluden derechos de los trabajadores- tienen el propósito de violar los limites del riesgo financiero y burlar a inversores y ahorristas. Las sub-primes son empresas especuladoras que, con la complicidad de los bancos y del Gbno- compraron hipotecas en default, o mejor aun, deuda extranjera vencida, y las vendieron como de zero riesgo. Y eas que se trata de deuda de estados soberanos con los que NO hay riesgo de acuerdo al BIS (“sovereign risk” equivale a decir que no hay riesgo con “sovereign defauls”) porque son las riquezas de la nación las que quedan hipotecadas cuando se compra deuda extranjera. Ademas, es legal –de acuerdo al BIS- practicar los “swaps per debt” o el transferir riquezas de la nación a cambio de deuda vencida. Los swaps per debt ocurrieron en Peru el 2001-2, la compra-venta de deuda ocurrio recientemente en Grecia y el mayor fraude financiero de la historia contemporanea fue la venta de “hipotecas basura” que infesto la banca mundial. Ver al respecto http://futurefastforward.com/images/stories/featurearticles/BISTRO.pdf )
4) Esta propuesta sesgada fue llevada a cabo por la flexibilización cuantitativa del FED (QE), lo que no es otra cosa que la compra de activos tóxicos (fraude) de los bancos de EU. El FED creó "el dinero de la nada" y hoy utiliza ese "dinero" para comprar los activos tóxicos en cash y según lo que aparece en los libros de los bancos, a pesar de que esas hipotecas falsamente aseguradas eran basura toxica o que como máximo valían diez centavos de dólar. Ahora, es el FED quien está infectado y "cargando" los activos tóxicos que antes estaban en manos de la banca mundial. Pero estos bancos no pueden declarar, denunciar y/o reconocer esta situación. Por tanto, todos son parte de una farsa financiera. [[5}me pregunto si este fraude de la Banca Mundial esta ya transfiriendo sus costos a los países emergentes del BRIC lo que seria una forma de socializar sus deudas o perdidas como acostumbran]]
5) Si usamos lógica simple, veremos que tal practica debía haber terminado con una banca mundial inflada con dinero en efectivo para prestar a consumidores y empresas financieras desesperadas de cash. Pero ocurrio que el dinero no fue prestado a ellos. Dónde está el dinero?
6) Retorno al FED como reservas, y desde que el FED compró trillones de dólares en basura tóxica, el "dinero" (se trataba simplemente de transferencias en los libros del Fed) que la banca mundial obtuvo con los rescates financieros fue destinado a cubrir sus "excesos en el uso de las reservas". Fue una forma inapropiada de llamar la operacion, ya que se creo la ilusión de que los bancos disponían de mucha liquidez y que de acuerdo a las reglas del sistema de reserva fraccional podrían disponer de trillones de dólares para préstamos. Pero no lo hicieron. ¿Por qué?
7) Porque la banca mundial aún tiene miles de millones de US dólares que son basura toxica en sus balances. Todavía están insolventes según las normativas de “reserva fraccional”. El público no debe ser informado de la violación a leyes internas de la Banca porque eso daría lugar a una quiebra masiva de todos los bancos mundiales!
8) Bernanke, el Tesorero de los EE.UU. y los bancos centrales mundiales estaban rezando y esperando que con el tiempo (estimarón seria de 12 a 18 meses) el mercado de la vivienda se recuperaría y precios de los activos se recuperarían hasta los niveles de antes de la crisis. .
Me explico: Supongamos que una casa se vendió por 500.000 US dólares. Que el prestatario obtuvo una hipoteca de 450.000 US dólares o más. Que la casa tiene ahora un valor de US$ 200,000 o menos. Multiplique esto por los millones de casas vendidas entre el 2000 y 2008, y usted podrá apreciar la magnitud del agujero negro en los recursos financieros. No hay manera alguna de que los bancos globales puedan salir de este lío gigantesco. Y tampoco hay manera de que el Fed y los banqueros centrales mundiales -a través de los QE [[}6.Quantitative Easy en ingles, lo que en español se podría traducir como “cantidades flexibles para compensar el robo de especuladores judeo-americanos y su venta mundial de hipotecas fraudulentas. Al respecto lease el artículos del economista Michael Hudson: “The Monster. How a gang of predatory lenders and Wall Street Bankers fleeeced america and Spawned a Global Crisis”. Abrir la web: http://futurefastforward.com/feature-articles, mas exacto: http://futurefastforward.com/feature-articles/4405-by-michael-w-hudson-market-oracle, Ud va a sorprenderse de las muchas verdades que oculta la prensa corporativa de US y EU]] pueda seguir comprando estos desechos tóxicos sin mostrar sus manos culpables y exponer la mentira de que estos bancos son solventes.
Es mi opinión para compensar el daño tendrían que emitirse 20 US trillions of dólares como mínimo. Ni el FED o ningún banquero central se atrevería a "crear tal cantidad de dinero de la nada" [[}7. De la nada significa fabricar dólares con maquina de la Reserva Federal y/o con una computadora para transferirlos]] sin despertar las sospechas y / o pánico de acreedores [naciones] soberanas, inversores y depositantes. Eso seria tan bueno como declarar oficialmente que todos los bancos están en quiebra.
9) Pero no hay otra solución en el corto y mediano plazo, salvo otro ataque de “flexibilización cuantitativa”, el QE II. Teniendo en cuenta la advertencia anterior, el QE II no puede superar el importe del anterior QE sin abrir la proverbial caja de Pandora.
10) Pero también es un hecho que el FED se embarcará en el QE II, ya que bajo el sistema bancario de reservas fraccionarias, si el FED no compra adicional desecho tóxico, los bancos globales (para enfrentar la avalancha de desahucios por hipotecas no pagadas) no tendrían dollars para cumplir con el requisito de “reserva fraccional”.
11) También se recordará que el FED cuando la crisis estaba en cenit, anunció que se pagará intereses sobre el llamado "exceso de reservas" de los bancos globales, lo que permite a estos bancos "ganar" el interés. Así que lo que tenemos es un juego-ficcion de magos que consiste en mover dineros del bolsillo derecho al izquierdo tan rápido como el click de un ratón de computadora. El FED crea el dinero, lo utiliza para comprar activos tóxicos, y el mismo dinero se devuelve a la reserva Federal para que los bancos del mundo ganen intereses. En esta ficción del QE, los bancos parecieran disponer de muchísimo dinero en efectivo que les permite ganar intereses. No es de extrañar que estos bancos hayan declarado ganancias récord.
[[8. Habia que crear la imagen de solvencia bancaria cuando en realidad los QE solo sirvieron para cubrir –a medias- los defitits que dejo el fraude de las hipotecas sub-prime. No fue mucho lo que realmente se invirtió de los QE en inversión productiva y generación de trabajo, si se compara eso con ele total de lo invertido en el salvataje de los banca en crisis. Se creo el simulacro “solvencia bancaria” hasta el escandalo, me refiero a las altas comisiones que se distribuyeron entre si los CEOs o altos funcionarios, por el trabajito de limpiar la porquería que ellos ayudaron a crear con los sub-primes. Por que este simulacro salio al publico? La intención fue crear buen ambiente pro-sobornos para el posterior QE con el que se intentara vender el resto de la basura toxica –esta vez como bonos del tesoro de EU bien respaldados- entre los banqueros de países en desarrollo, includios los altos funciónarios de las Bancas estatales. Estos recibirán -como los CEOs del norte- jugosas comisiones o sobornos por invertir esos bonos en la compra de deuda, stock, y otros valores de altos beneficios en el mercado mundial. Se avecina este saqueo descarado de riquezas nacionales de países en desarrollo con el proyecto QE#2. Se entiende ahora el por que del escandalo de los altos extra-sueldos que se repartieron los altos funcionarios de la Banca de EU. En Grecia algunos corruptos de la banca estatal mordieron el anzuelo y arruinaron su país. Se espera que lo mismo ocurra cuando se desplaze los bonos del tesoro de EU en el resto del mundo. Se sabe que el QE #2 esta anunciado para el miércoles 3 de Nov,, después de las elecciones en EU. Las embajadas de EU están encargadas de agilizar los sobornos del caso en los países clientes del imperio]]
12) La banca global lograra deshacerse de algunos de sus desechos tóxicos pagando por ello su valor completo y sin costo alguno [9 solo fabricando dollars], solo pagara por la descarga de los desechos tóxicos a través del pago de intereses. Además, algunos de los "fondos" son utilizados por estos bancos para comprar bonos del Tesoro de EE.UU. (que también pagan intereses) lo que que a su vez permite que el Tesoro de los EE.UU. pueda continuar su gastos y su déficit. ESTOS RESCATES or QE SON EL ROBO DEL SIGLO.
Ahora que usted entiende completamente esta ESTAFA, queda por ver cómo EL FED se saldrá con suya en la ronda de flexibilización cuantitativa #2 (QE II).
Obviamente, el FED y los demás bancos centrales esperan que con el tiempo los precios de los activos se recupere y se re-aprecie sus valores a como fue antes de la crisis. Esa es pura fantasía. El QE II fracasara como fracaso el QE I en su intento de salvar a los bancos.
El paciente está en cuidados intensivos y desde cualquier punto de vista tiene ya el cerebro muerto, aunque el corazón sigue bombeando, aunque débilmente. Los bancos “demasiado grandes para fracasar” no podran ser rescatado y se debe permitir se los liquide. Será doloroso, pero es necesario antes de que haya mejoría transitoria. [han hecho mucho dano] Este es un hecho real.
Advertencia: Cuando la mierda llegue hasta el ventilador del techo, en algún momento a principios de 2011 al menos, habrá una quiebra masiva de la banca mundial.
QUE HACER
Espero que la Reserva Federal y otros bancos centrales se adelantan a ese evento y hagan lo siguiente:
1) No permitir retiros en efectivo de los bancos más allá de una cierta cantidad, digamos 1.000 USD (dólares) por día;
2) No permitir transaciones en efectivo hasta un monto determinado, por ejemplo 10.000 USD para determinadas transaciones;
3) Transacciones (o inversiones) en metales como oro y plata deben ser limitadas;
4) En el peor de los escenarios, se debe confiscar las minas de oro como sucedió en la Segunda Guerra Mundial.
5) La imposición de controles de capital, etc;
6) Legislaciones que obligue a la mayoría de transacciones comerciales diarias a usar el débito y / o tarjetas de crédito;
7) Legislación que declare delito penal a las contravenciones de los anterior.
Solución:
Mantener un saldo bancario suficiente para poder cumplir con las imposiciones potenciales de arriba. Iniciar la diversificación de activos financieros fuera de los activos en dólares. Tener divisas en cantidades suficientes en aquellas jurisdicciones donde las imposiciones previstas anteriormente, sean menos probable de aplicarse.
CONCLUSIÓN
Habrá un tsunami financiero (segunda ronda de QE ) del tamaño que el mundo nunca ha visto.
Luego la banca mundial se derrumbara! Esté listo!.
--------------------------------------
Matthias Chang es asesor economista n de Ec.Institutions varias. Fue Primer Ministro de Malasia durante la crisis de Oriente 1998-9 y diseñador principal de la lucha contra-ataque a las grandes Corporaciones Financieras que crearon la crisis.
El por qué? Como ocurrieron? y Que hacer?
Articulo de Matthias Chang traducido y comentado por Hugo Adan
Articulo original en:
http://futurefastforward.com/malaysia-updates/4290-by-matthias-chang
Por Matthias Chang. 03 de octubre 2010
Lo que viene es un extracto del art de Chang “Demasiado grandes para quebrar: La Banca Mundial se derrumbará”. El titulo y lo que esta braques [[notas]] me pertenecen.
SUNAMIS FINANCIEROS: DEL QE I al QE II
El por qué? Como ocurrieron? y Que hacer?
Matthias Chang
Voy a explicarlo en términos sencillos y paso a paso.
1) Todos los bancos globales estaban cubiertos de pies a cabeza por activos tóxicos (resultado del fraude o compra-venta de hipotecas basura). Las evaluaciones AAA que respaldaron los seguros para hipotecas ocultaron la BASURA toxica que contenían [[1}Resultado de ello, China creo su propio sistema de evaluación, el Dagong International Credit Rating Company y declaro a los bancos USA son insolventes, sin denunciar el fraude]]. Pero en los balances de los bancos y en la banca avalada por el Fed para dar validez a los seguros de hipotecas (conocidas como AIG), se declaró que esas hipotecas valían TRILLONES de US $ dólares. [[2}Fue con las Sub-prime y sus hipotecas basura que se infesto a la Banca mundial]]
2) El colapso de Lehman Brothers y las AIG mostraron al publico esa horrible verdad. Que la banca mundial estaba infectada y tenía ya un pasivo en Trillones de US$ dólares [[}3. deudas producto del fraude de la Banca privada de los EU en complicidad con el Fed]]. Desde entonces fue la banca mundial la que devino insolvente. Fue entonces que los bancos centrales de todo el mundo conspiraron y acordaron NO revelar el total de pasivos de los bancos globales, ya que ello causaría la quiebra de estos bancos, como ocurrió en el caso de Northern Rock en el UK.
3) Una propuesta sesgada fue ideada por el FED, dirigido por Ben Bernanke, [[4}Uso aquí el termino “propuesta sesgada” para indicar que los rescates de los Bancos centrales a la Banca privada y el QE 2 resultaron de acuerdos secretos de Banqueros del mundo. De forma que el QE 2 no fue idea original de BB, yo creo que el fue obligado por Europeos, Chinos, Japoneses y otros que compraron T-bonds a asumir responsabilidad por el danio causado, de lo contrario abandonaban el dollar, como lo pedían China y Rusia, quienes desde el 2008 empezaron a vender los bonos del Tesoro de EU]] para ayudar a los bancos mundiales a descargar -en forma sistemática y en etapas- los activos tóxicos a fin de permitir que los bancos cumplan las exigencias requerida de RESERVA FRACCIONAL estipulada por el sistema bancario mundial a fin de continuar con sus negocio bancarios. Esta es la esencia de los planes de rescate (bailouts) de la Banca Mundial por los bancos centrales. [[5.Según el economista Matias Chang la banca mundial signatoria del Bank of International Setllements BIS, esta obligada a mantener una fracción de su capital en reserva –Fractional Reserve- para cubrir riesgos relacionados con sus obligaciones financieras. Tal suma asciendo a un 8% del total del capital del banco, según acuerdo de 1988. Con la manipulación del concepto riesgo por los banqueros fue posible el montaje del fraude de las hipotecas en las que esta envuelto el Federal que avalaba dos bancos para garantizar los seguros de riesgo y según el Fed las deudas incurridos por un Estado soberano son de riego zero. Para determinar que tipo de valores dispone un banco y que tipo de inversión realizan (cual es menos o mas riesgosa), se crearon agencias especiales, las “rating agencies” tales como Moodys, S&P, Fitch, etc. Estas clasifican los valores que dispone el banco y las operaciones que realizan y otorgan 3 As a los bancos con buen capital y que cumplen con mantener la reserva fraccional y realizan inversiones seguras o de zero riesgo. Ninguna A se otorga a quienes hacen lo inverso o ponen en riesgo los ahorros y derechos del prestatario o inversionista. El Ponzi frame no esta permitido, pero es lo que hacen los bancos cuando sus riesgos de préstamo o inversión van mas alla del 8% del capital total. Los “rating agencies” NO debieran dar ninguna A bancos que están en default (que no mantienen el “fractional reserve”, o que adeudan o que incumplen obligaciones financieras con operaciones de alto riesgo, mas alla del 8% del capital total). Y lo hicieron. Para eludir sus obligaciones de ley se crearon las sub-primes que –como los sub-contratos que eluden derechos de los trabajadores- tienen el propósito de violar los limites del riesgo financiero y burlar a inversores y ahorristas. Las sub-primes son empresas especuladoras que, con la complicidad de los bancos y del Gbno- compraron hipotecas en default, o mejor aun, deuda extranjera vencida, y las vendieron como de zero riesgo. Y eas que se trata de deuda de estados soberanos con los que NO hay riesgo de acuerdo al BIS (“sovereign risk” equivale a decir que no hay riesgo con “sovereign defauls”) porque son las riquezas de la nación las que quedan hipotecadas cuando se compra deuda extranjera. Ademas, es legal –de acuerdo al BIS- practicar los “swaps per debt” o el transferir riquezas de la nación a cambio de deuda vencida. Los swaps per debt ocurrieron en Peru el 2001-2, la compra-venta de deuda ocurrio recientemente en Grecia y el mayor fraude financiero de la historia contemporanea fue la venta de “hipotecas basura” que infesto la banca mundial. Ver al respecto http://futurefastforward.com/images/stories/featurearticles/BISTRO.pdf )
4) Esta propuesta sesgada fue llevada a cabo por la flexibilización cuantitativa del FED (QE), lo que no es otra cosa que la compra de activos tóxicos (fraude) de los bancos de EU. El FED creó "el dinero de la nada" y hoy utiliza ese "dinero" para comprar los activos tóxicos en cash y según lo que aparece en los libros de los bancos, a pesar de que esas hipotecas falsamente aseguradas eran basura toxica o que como máximo valían diez centavos de dólar. Ahora, es el FED quien está infectado y "cargando" los activos tóxicos que antes estaban en manos de la banca mundial. Pero estos bancos no pueden declarar, denunciar y/o reconocer esta situación. Por tanto, todos son parte de una farsa financiera. [[5}me pregunto si este fraude de la Banca Mundial esta ya transfiriendo sus costos a los países emergentes del BRIC lo que seria una forma de socializar sus deudas o perdidas como acostumbran]]
5) Si usamos lógica simple, veremos que tal practica debía haber terminado con una banca mundial inflada con dinero en efectivo para prestar a consumidores y empresas financieras desesperadas de cash. Pero ocurrio que el dinero no fue prestado a ellos. Dónde está el dinero?
6) Retorno al FED como reservas, y desde que el FED compró trillones de dólares en basura tóxica, el "dinero" (se trataba simplemente de transferencias en los libros del Fed) que la banca mundial obtuvo con los rescates financieros fue destinado a cubrir sus "excesos en el uso de las reservas". Fue una forma inapropiada de llamar la operacion, ya que se creo la ilusión de que los bancos disponían de mucha liquidez y que de acuerdo a las reglas del sistema de reserva fraccional podrían disponer de trillones de dólares para préstamos. Pero no lo hicieron. ¿Por qué?
7) Porque la banca mundial aún tiene miles de millones de US dólares que son basura toxica en sus balances. Todavía están insolventes según las normativas de “reserva fraccional”. El público no debe ser informado de la violación a leyes internas de la Banca porque eso daría lugar a una quiebra masiva de todos los bancos mundiales!
8) Bernanke, el Tesorero de los EE.UU. y los bancos centrales mundiales estaban rezando y esperando que con el tiempo (estimarón seria de 12 a 18 meses) el mercado de la vivienda se recuperaría y precios de los activos se recuperarían hasta los niveles de antes de la crisis. .
Me explico: Supongamos que una casa se vendió por 500.000 US dólares. Que el prestatario obtuvo una hipoteca de 450.000 US dólares o más. Que la casa tiene ahora un valor de US$ 200,000 o menos. Multiplique esto por los millones de casas vendidas entre el 2000 y 2008, y usted podrá apreciar la magnitud del agujero negro en los recursos financieros. No hay manera alguna de que los bancos globales puedan salir de este lío gigantesco. Y tampoco hay manera de que el Fed y los banqueros centrales mundiales -a través de los QE [[}6.Quantitative Easy en ingles, lo que en español se podría traducir como “cantidades flexibles para compensar el robo de especuladores judeo-americanos y su venta mundial de hipotecas fraudulentas. Al respecto lease el artículos del economista Michael Hudson: “The Monster. How a gang of predatory lenders and Wall Street Bankers fleeeced america and Spawned a Global Crisis”. Abrir la web: http://futurefastforward.com/feature-articles, mas exacto: http://futurefastforward.com/feature-articles/4405-by-michael-w-hudson-market-oracle, Ud va a sorprenderse de las muchas verdades que oculta la prensa corporativa de US y EU]] pueda seguir comprando estos desechos tóxicos sin mostrar sus manos culpables y exponer la mentira de que estos bancos son solventes.
Es mi opinión para compensar el daño tendrían que emitirse 20 US trillions of dólares como mínimo. Ni el FED o ningún banquero central se atrevería a "crear tal cantidad de dinero de la nada" [[}7. De la nada significa fabricar dólares con maquina de la Reserva Federal y/o con una computadora para transferirlos]] sin despertar las sospechas y / o pánico de acreedores [naciones] soberanas, inversores y depositantes. Eso seria tan bueno como declarar oficialmente que todos los bancos están en quiebra.
9) Pero no hay otra solución en el corto y mediano plazo, salvo otro ataque de “flexibilización cuantitativa”, el QE II. Teniendo en cuenta la advertencia anterior, el QE II no puede superar el importe del anterior QE sin abrir la proverbial caja de Pandora.
10) Pero también es un hecho que el FED se embarcará en el QE II, ya que bajo el sistema bancario de reservas fraccionarias, si el FED no compra adicional desecho tóxico, los bancos globales (para enfrentar la avalancha de desahucios por hipotecas no pagadas) no tendrían dollars para cumplir con el requisito de “reserva fraccional”.
11) También se recordará que el FED cuando la crisis estaba en cenit, anunció que se pagará intereses sobre el llamado "exceso de reservas" de los bancos globales, lo que permite a estos bancos "ganar" el interés. Así que lo que tenemos es un juego-ficcion de magos que consiste en mover dineros del bolsillo derecho al izquierdo tan rápido como el click de un ratón de computadora. El FED crea el dinero, lo utiliza para comprar activos tóxicos, y el mismo dinero se devuelve a la reserva Federal para que los bancos del mundo ganen intereses. En esta ficción del QE, los bancos parecieran disponer de muchísimo dinero en efectivo que les permite ganar intereses. No es de extrañar que estos bancos hayan declarado ganancias récord.
[[8. Habia que crear la imagen de solvencia bancaria cuando en realidad los QE solo sirvieron para cubrir –a medias- los defitits que dejo el fraude de las hipotecas sub-prime. No fue mucho lo que realmente se invirtió de los QE en inversión productiva y generación de trabajo, si se compara eso con ele total de lo invertido en el salvataje de los banca en crisis. Se creo el simulacro “solvencia bancaria” hasta el escandalo, me refiero a las altas comisiones que se distribuyeron entre si los CEOs o altos funcionarios, por el trabajito de limpiar la porquería que ellos ayudaron a crear con los sub-primes. Por que este simulacro salio al publico? La intención fue crear buen ambiente pro-sobornos para el posterior QE con el que se intentara vender el resto de la basura toxica –esta vez como bonos del tesoro de EU bien respaldados- entre los banqueros de países en desarrollo, includios los altos funciónarios de las Bancas estatales. Estos recibirán -como los CEOs del norte- jugosas comisiones o sobornos por invertir esos bonos en la compra de deuda, stock, y otros valores de altos beneficios en el mercado mundial. Se avecina este saqueo descarado de riquezas nacionales de países en desarrollo con el proyecto QE#2. Se entiende ahora el por que del escandalo de los altos extra-sueldos que se repartieron los altos funcionarios de la Banca de EU. En Grecia algunos corruptos de la banca estatal mordieron el anzuelo y arruinaron su país. Se espera que lo mismo ocurra cuando se desplaze los bonos del tesoro de EU en el resto del mundo. Se sabe que el QE #2 esta anunciado para el miércoles 3 de Nov,, después de las elecciones en EU. Las embajadas de EU están encargadas de agilizar los sobornos del caso en los países clientes del imperio]]
12) La banca global lograra deshacerse de algunos de sus desechos tóxicos pagando por ello su valor completo y sin costo alguno [9 solo fabricando dollars], solo pagara por la descarga de los desechos tóxicos a través del pago de intereses. Además, algunos de los "fondos" son utilizados por estos bancos para comprar bonos del Tesoro de EE.UU. (que también pagan intereses) lo que que a su vez permite que el Tesoro de los EE.UU. pueda continuar su gastos y su déficit. ESTOS RESCATES or QE SON EL ROBO DEL SIGLO.
Ahora que usted entiende completamente esta ESTAFA, queda por ver cómo EL FED se saldrá con suya en la ronda de flexibilización cuantitativa #2 (QE II).
Obviamente, el FED y los demás bancos centrales esperan que con el tiempo los precios de los activos se recupere y se re-aprecie sus valores a como fue antes de la crisis. Esa es pura fantasía. El QE II fracasara como fracaso el QE I en su intento de salvar a los bancos.
El paciente está en cuidados intensivos y desde cualquier punto de vista tiene ya el cerebro muerto, aunque el corazón sigue bombeando, aunque débilmente. Los bancos “demasiado grandes para fracasar” no podran ser rescatado y se debe permitir se los liquide. Será doloroso, pero es necesario antes de que haya mejoría transitoria. [han hecho mucho dano] Este es un hecho real.
Advertencia: Cuando la mierda llegue hasta el ventilador del techo, en algún momento a principios de 2011 al menos, habrá una quiebra masiva de la banca mundial.
QUE HACER
Espero que la Reserva Federal y otros bancos centrales se adelantan a ese evento y hagan lo siguiente:
1) No permitir retiros en efectivo de los bancos más allá de una cierta cantidad, digamos 1.000 USD (dólares) por día;
2) No permitir transaciones en efectivo hasta un monto determinado, por ejemplo 10.000 USD para determinadas transaciones;
3) Transacciones (o inversiones) en metales como oro y plata deben ser limitadas;
4) En el peor de los escenarios, se debe confiscar las minas de oro como sucedió en la Segunda Guerra Mundial.
5) La imposición de controles de capital, etc;
6) Legislaciones que obligue a la mayoría de transacciones comerciales diarias a usar el débito y / o tarjetas de crédito;
7) Legislación que declare delito penal a las contravenciones de los anterior.
Solución:
Mantener un saldo bancario suficiente para poder cumplir con las imposiciones potenciales de arriba. Iniciar la diversificación de activos financieros fuera de los activos en dólares. Tener divisas en cantidades suficientes en aquellas jurisdicciones donde las imposiciones previstas anteriormente, sean menos probable de aplicarse.
CONCLUSIÓN
Habrá un tsunami financiero (segunda ronda de QE ) del tamaño que el mundo nunca ha visto.
Luego la banca mundial se derrumbara! Esté listo!.
--------------------------------------
Matthias Chang es asesor economista n de Ec.Institutions varias. Fue Primer Ministro de Malasia durante la crisis de Oriente 1998-9 y diseñador principal de la lucha contra-ataque a las grandes Corporaciones Financieras que crearon la crisis.
Suscribirse a:
Entradas (Atom)