Category Archives: Forex

Currency composition of FX reserves of world’s central banks.

Here you can find a useful graph of the currency composition of FX reserves for the 114 reporting countries’ central banks.

The Marginal Productivity of Debt.

The key to understanding the problem is the marginal productivity of debt, a concept curiously missing from the vocabulary of mainstream economics. Keynesians take comfort in the fact that total debt as a percentage of total GDP is safely below 100 in the United States while it is 100 and perhaps even more in some other countries. However, the significant ratio to watch is additional debt to additional GDP, or the amount of GDP contributed by the creation of $1 in new debt. It is this ratio that determines the quality of debt. Indeed, the higher the ratio, the more successful entrepreneurs are in increasing productivity, which is the only valid justification for going into debt in the first place.

Sovereign Defaults Coming in Second Stage of the Financial Crisis.

The first stage of the deflationary debt unwind resulted in massive consumer and corporate defaults, particularly in the financial sector. This sector being one and the same as the governments that it controls, the state has thrown all the resources that it had and did not have (pulled them out of thin air) in order to save its Banking sponsors. While it has given the Banks the respite and saved many of them for now from going belly up, it did not solve a thing. The bad debts have simply been transfered to the Central Banks’ balance sheets that are expected to be later transferred to the taxpayers of each and every country. Whatever was not transfered was hidden by suspension of the mark-to-market accounting rules. Thus, the deflation that is not seen has not gone a way, but has been simply hidden.

The Lowdown on Deflation.

Deflation is the contraction (reduction) of money and credit. It occurs when the economic system is carrying too much debt to be supported by the level of income generated by economic activity. It occurs because too much debt has been incurred to create unproductive assets that don’t generate income. Deflation is a corrective process, it’s simply the market (you and I) not being able to service debt, so we must forfeit.

In a snub to ECB’s denial of deflation European Prices Fall 0.6%.

The question is now when will the European Central Bank finally admit that there is deflation in Eurozone?

EU Finances Are Looking Grim. Deflation will not be denied.

As the clowns in European fiancial elite circles are still trying to figure out whether or not they are in deflation, the big D is now solidly in charge of the region. As private credit is collapsing the Euro-zone governments and Central Banks are desperately trying to reinflate by pumping up the public debt and using the proceeds for spending. Yet the reflation is finding itself oddly overpowered by the deflationary wind blowing against it. Sooner or later this public debt bubble, and a huge one, will reach its maximum size and start letting the hot air out. When that happens, there will be nobody to guarantee the sovereign debts. The longer the deflation is delayed, the stronger it will be.

Swiss supply prices drop highlights deflation risk.

Swiss supply prices posted their steepest decline in 23 years in June, highlighting once again the risk of a deflationary spiral of falling prices and declining demand in the Alpine economy.
The steep price drop will also keep the Swiss National Bank on its toes in its fight against deflation, which include interventions to stem a rise in the Swiss franc, economists said.

Europe digs its economic grave while the ECB answers to no one.

You cannot have an economic growth without natural population growth. We can’t seriously believe that by importing millions upon millions of culturally and economically incongruous third world laborers and their families European economy can somehow continue to grow. Those folks are not big spenders, and more often then not, they subtract from an economy more than they add due to their overwhelming propensity to depend on public assistance.

Sweden’s Central Bank Has Gone Mad. Will Charge Banks 0.25% for Deposits.

The minutes from the Executive Board’s monetary policy discussion will be published on 16 July. The decision on the repo rate will apply with effect from Wednesday, 8 July. The deposit rate is at the same time cut to -0.25 per cent and the lending rate to 0.75 per cent.

Switzerland’s central bank SNB is fighting to prevent deflation. Debases the Swiss Franc.

Switzerland’s currency policy ties in with a monetary policy that aims to prevent deflation from becoming worse. The SNB has almost trebled the monetary base in the past year. But the money isn’t being put to use.