Tag Archives: currency

IMF Says Japanese Banks’ Bond Holdings Risk Financial Stability.

IMF would not come out saying that Japan’s bond are going to tumble if it did not have a reason to. Would it? The deflationary spiral is soon going to become a whirlpool that sucks that land of the rising sun into the Pacific ocean. The only question remains of when it will happen and what repercussions will the financial collapse in Japan have on the rest of the world financial system.

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.

G7’s Sheeple Distraction in IQALUIT, Canada, while Central Bankers Meet Secretly in Australia.

We don’t know what the Central Bankers will be discussing during their secret two day meeting in Australia, but what we know is that you don’t hold a well publicized G7 economic ministers meeting at the same time for no reason. If the CBs need a distraction that means that something is very grave and serious is going on. Whether we are on the verge of a new panic and financial crisis or something else, but it cant be good. Perhaps the sovereign debt issues in Europe are on the verge of causing a big monetary implosion and stock markets collapse.

Conquer the crash: Bernanke defeats deflation.

At last, the news reports are now fully brimming with optimism and proclaiming victory after victory on the economic front. Despite the fact that the private (and total) credit in the US economy has been and is still contracting at unprecedented multitrillion dollar annual rate, which is deflation by definition in credit based monetary system, the Bloomberg news declares nevertheless that the honorable manager of the privately owned Federal Reserve, Ben Bernanke, has already defeated deflation. Oh say, can you see …

Mother of all carry trades will lead to inevitable deflationary bust.

For now the privately owned US Federal Reserve’s efforts to reflate the financial markets are sending a flood of liquidity into speculative asset bubble blowing by the speculators. Nearly every asset class is seeing its price being bid up with cheaply borrowed US dollars. At some point an asset bubble always bursts when an event or a perception driven change of heart causes investors to unwind their speculative positions. As the article below explains, when this happens we’ll witness a huge deflationary bust which may wipe out many speculators. Will it wipe out the Central Banks is another good question that only time will be able to answer.

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.

Is China betting on deflation in US?

China is reportedly loading up on US treasuries in the face of weakening dollar. This means they are quite happy to collect low interest payments on their massive holdings of US Treasuries for years to come and are not concerned about dollars weakening at the same time. This sound deflationary to me.

Credit crisis: What comes next?

As the ongoing debt crisis continues, we have transitioned from Stage One, the initial Wall Street impact of debt-deleveraging, to Stage Two, the Main Street impact, and are now well into Stage Three, the coordinated Fiscal and Monetary response to the debt crisis. The question, then, is what comes next?

The Fed’s Real leash (Credit is not Currency, part II).

The dollar holders of the world have voted that they want to draw about $1 in cash for every $40 in their checking accounts. So if the fed creates credits more than about 40 times faster than it can run its physical printing presses, at some point, some one is going to walk into a bank, try to make a withdrawal . . . and be denied, due to lack of currency on hand.