The demise of the US dollar.
Posted 22 April 2003 - 02:22 PM
pinch on tech and industrial markets. It is now much cheaper to
buy similar technology or heavy mashinery from countries like
china. Well infact many businesses prefer office space in china,
and are shifting all their main business operations to main land
china, one heavy casulty in this regard is Japan. Suffering from
bad debts and lack to attract investors in a shrinking economy,
japan needs to face the fact that China is a great economical power on the rise, and they need to adjust economic policies in
order to accomodate new change.
Posted 23 April 2003 - 09:33 AM
Dollar Slides, European Stocks Flat Tue April 22, 2003 06:26 AM ET By Simon Johnson
LONDON (Reuters) - Worries over corporate earnings hit the dollar on Tuesday but left European stocks flat after slides in Asian bourses and on Wall Street.
Bond yields dipped slightly as investors' stance remained broadly negative on the global economy but gold was weaker and oil prices steady ahead of an OPEC meeting later this week.
The dollar hit a one month low against the euro and lost more than one percent against the Swiss franc as investors fretted about the prospects for post-war U.S. economy.
"The outlook for the U.S. economy is not good, we had terrible data last week, and people are nervous ahead of U.S. data later this week," said Jesper Dannesboe, chief foreign exchange strategist at Dresdner Kleinwort Wasserstein.
The dollar was down around three quarters of one percent against the euro at $1.0961, its lowest since early March.
U.S. stocks ended Monday slightly down despite solid earnings reports. The Dow Jones industrial average slipped 0.1 percent to end at 8,328.9 and the broader Standard & Poor's 500 Index fell 0.18 percent to 892.01.
European investors returned from a four-day holiday on Tuesday to a get a sharp reminder of the poor environment for corporates. German semiconductor group Infineon, posted worse than expected net losses in the second quarter and British security firm Chubb issued a profit warning.
Last week the FTSE Eurotop gained two percent and briefly hit its highest level since January as the end of the war in Iraq steadied investors' nerves.
But now that uncertainty over Iraq has lifted, focus has shifted to worries about the state of the global economy and the outlook for corporate earnings.
"There is nothing good to point at. The only positive thing you could say about the last three months is things got a lot cheaper," said Chris Johns, global strategist at ABN Amro.
The index was up 0.19 percent at 6:15 a.m. EDT after falls in Asia where the global economy and worries about Severe Acute Respiratory Syndrome or SARS weighed.
In Hong Kong blue-chip stocks slipped after China shortened its week-long May holiday in an attempt to prevent the spread of SARS. Japanese stocks fell on worries about the economy.
The Nikkei 225 Index dropped 2.2 percent on the day closing at 7,790.46 -- barely above a 20-year closing low hit last Monday.
BONDS, GOLD, OIL
The gloomy news for stocks helped bonds.
Yields on two year euro zone government bonds were down six basis points while 10-year yields slipped nearly four basis points.
"We didn't see (bond) charts updating for a few minutes into the open and it looks like thin flows just now," said a trader in Dublin. "Equities will be the reference point for the session."
Gold was flat at $333.0/ 334.00 from its New York close of $333.20/333.90.
Brent Crude for June slipped eight cents a barrel to $25.80 after rising 83 cents on Thursday on expectations OPEC will move to cap oil supplies when it meets later this week.
Posted 23 April 2003 - 07:09 PM
Rupiah defies Indonesia's gravity By Gary LaMoshi
DENPASAR, Bali - One of the world's great mysteries, right up there with how Jiang Zemin's hair stayed black for all those years, is that amazing strength of the Indonesian rupiah on foreign-currency markets, defying the gravity of Indonesia's economic situation. As someone who earns other currencies but often spends rupiah, I pay close attention to these market fluctuations. If I can't profit from them, at least I try to understand them, though I find either goal elusive.
Since Indonesian legislators drove president Abdurrahman Wahid from office in July 2001, the rupiah's US dollar exchange rate has strengthened by more than 20 percent from 11,000 to the 8,670 it touched on Monday, a one-year high. That rise mirrors the drop in the value of the US dollar against the euro in recent months, but the resemblance doesn't explain the phenomenon.
Other Southeast Asian currencies haven't appreciated the way the rupiah has in the wake of the greenback's weakness. Those currencies remain in their established post-financial-crisis trading zones, while the rupiah is still far stronger than its usual benchmark of 10,000.
Before the regional economic collapse of 1997, 2-5 was the rough reference point for US dollar exchange rates in Southeast Asia: 2.5 Malaysian ringgit to the dollar, 25 Thai baht, 25 Philippine pesos, 2,500 rupiah. The crisis changed multiple for the first three currencies to 4-0 (Malaysia lowered its number with currency controls, and the Philippines pushed its above 50 when it ousted president Joseph Estrada for Gloria Macapagal-Arroyo), so you needed 1.6 times as many local units to buy the same number of dollars. By contrast, the rupiah went to 10,000, meaning you needed four times as many for the same number of dollars. From that perspective, the rupiah has merely been closing a wide value gap with the currencies of its neighbors that, at least in the case of Philippines, don't stand that far above Indonesia on the political economy hit parade.
Over the past two years, one of the best investments on the planet would have been converting your dollars to rupiah and putting them in the bank in Jakarta. You would have earned about 13 percent on the bank deposit, plus the 21 percent currency appreciation. Of course, that investment requires faith - not just faith in the rupiah but faith in an Indonesian bank, and that gets to the fundamental reason I find the stronger rupiah tough to understand.
Posted 24 April 2003 - 09:48 PM
Fact, the 1213 Charta took place, the king gave his possessions to the Pope.
Fact, the 1215 Charta took place, the king granted rights and lands to the Barons, with the Pope signing off on the Charta.
Fact, a couple of months later the Pope declared the 1215 Magna Charta null and void.
Fact, the king started businesses (trusts), called Virginia and Carolina in America.
Fact, these American Charters were non-revocable trusts.
Fact, the king claimed all lands in America settled by his subjects as his as a matter of Conquest.
Fact, the king by way of the Charters possessed allodial ownership of this land.
Fact, by way of the Charters the king retained for himself and all his heirs and successors 30 percent of all gold, silver and copper, to be sent to him annually.
Fact, our forefathers declared themselves subjects of the king.
Fact, the king had lawful title to this land, our forefathers could not claim what they never owned.
Fact, the Revolutionary War was over taxation, not subjection to the king.
Fact, the king ceded the land above ground in the 1783 Peace Treaty to the States.
Fact, the king did not cede the gold, silver and copper to the States.
Fact, the king could not cede the minerals to the States
because of parties not yet born, and successors yet to serve future kings of England, as a result of the Trust he created.
Fact, the inhabitants were not granted anything by the king.
Fact, since the king retained the mineral rights to America, no man, free or otherwise had allodial title to his land, he was a mere tenant.
Fact, the king allowed the inhabitants of the States to believe they were free, just as with the British people in the 1215 Charta and the 1689 Declaration of Rights.
Fact, for a short period of time, eleven years to be exact, the inhabitants of the Colonies/States were declared to be freeman.
Fact, freeman status ended with the passage of the 1787 Constitution, because all State inhabitants were now declared by their representatives to be citizens, subject to the laws of the U.S. government.
Fact, the States ceded their grants of land and most of their sovereignty to the 1787 Constitution and U.S. government.
Fact, the king knew a central government was going to be created by the States when he signed the 1783 Peace Treaty.
Fact, by the creation of the 1787 Constitution a Republic was created.
Fact, the Republic in no way was a hindrance to the king in regaining his land, via taxation and banking.
Fact, the 1787 Constitution created a 10-mile square district, not subject to the restraints of the 1787 Constitution.
Fact, in 1789 the Judiciary Act was passed by Congress, which established courts of law, compatible with England, so contracts and business would continue with England.
Fact, in 1791 Washington who once said "no" to being the king, and also said he did not want independence from the king, allowed the office of President to become a monarchy, outside of the 1787 Constitution, when he declared he was dividing the States into district States.
Fact, the district States are subject to the President, this has never been changed.
Fact, 1791 the Bank of the United States was allowed to be chartered by Washington.
Fact, the Bank was financed by the British Board of Trade, that was controlled by the Pope and Rothschild cabal.
Fact, in 1811 when Congress refused to re-charter the Bank, England declared war on the United States.
Fact, in 1810 the Thirteenth Amendment was proposed, which would have effectively removed the king's power of reclaiming his land from the American people, by removing the possibility of lawyers/esquires running and obtaining office in the United States government.
Fact, the War of 1812 took place, the main objective was the burning of our documents in Washington and increasing the debt of the U.S., so the Bank would have to be re-chartered.
Fact, the Jay Treaty of 1792 took place giving away much of what was won in the 1783 Peace Treaty.
Fact, in 1816 the second Bank of the United States was chartered.
Fact, in 1836 President Jackson refused to allow the Bank to be re-chartered, an assassination attempt was then made on his life.
Fact, since the king was denied the taxation through his bank, Congress passed the Act of 1845, his emissaries and loyal subjects, the Judiciary (lawyers/esquires) confirmed the Act of 1845 with the Insular cases, allowing admiralty law to come on land, granting Congress and the President even more power.
Fact, England began using propaganda through the news media concerning the slaves in the South, when the king was the biggest slave trader in the world.
Fact, the Civil War ended the 1787 Constitution, first by Sine Die (no lawful Congress) second, by passage of the Fourteenth Amendment.
Fact, the Southern States were granted a full pardon by Presidents Lincoln and Johnson.
Fact, the Southern States retook their seats in Congress.
Fact, the reseated Southern States voted on the Thirteenth Amendment in Congress and it was ratified by the Southern States.
Fact, the Northern States re-declared war against the Southern States, because they would not ratify the Fourteenth Amendment.
Fact, a permanent state of Emergency was declared and martial law put in place by the unlawful passage of the Reconstruction Acts.
Fact, lawful State governments were removed by an unlawful Military occupation, by direction of an unlawful Congress.
Fact, puppet governments were put into place by the unlawful Military Occupying Commanders, by direction of the unlawful Congress.
Fact, the puppet governments of the Southern States ratified the Fourteenth Amendment.
Fact, the 1787 Constitution by the unlawful passage of the Fourteenth Amendment was forever dead.
Fact, with the king again in control, the bankers began the rape of America.
Fact, in 1869 one year after the passage of the Fourteenth Amendment, Gould and Fisk cornered the Gold market for the bankers, with the help of President Grant, which was known as black Friday.
Fact, in 1873 Congress removed the silver coin from the market, that same year the crash of 1873 began and lasted for three years.
Fact, in 1900 Congress passed the Gold Standard Act and created a gold reserve of one hundred and fifty billion dollars, and allowed the bankers to sell bonds to maintain this gold level.
Fact, in 1907, just seven years later the stock market crashed.
Fact, because of this crash, two death blows occured in 1913, the Sixteenth Amendment is passed, and the Federal Reserve Act is passed.
Fact, the Federal Reserve Act was written in England at the Bank of England by New York and English Bankers.
Fact, the Federal Reserve is a direct descendant of England's Exchequer, which comes from William the Conquerer and his taxation via the doomsday book.
Fact, the doomsday book of William the Conquerer is the county recorder's office today.
Fact, World War one increased the national debt, and saw the passage of the War Powers Act in 1917.
Fact, the true United States Independent Treasury created in 1846 that dealt in specie, was abolished by the act of 1920, thereby allowing the private Federal reserve board to control the money of America as the fiscal agent of the United States.
Fact, between 1913 and 1929 the Bankers and the Congress enter into gold guaranteed contracts totaling three hundred billion dollars when only three percent of that amount of gold existed in the World.
Fact, the New York bankers, via fraudulent acts, transfer huge amounts of gold to the Bank of England by 1929, along with the debt of the U.S., bringing about the stock market crash of 1929.
Fact, in 1933 the American people are declared enemies of the bankers and the Conquest and transference of America is complete.
Fact, in 1933 because of the United States Corporation's insolvency, the United States is forced to reorganize and implement the social and financial programs mandated by the Bankers of New York and England.
Fact, in 1933 the king's holding and ownership of America's gold via the Bankers is complete, and America's death is insured by the acceptance of fiat money, Federal Reserve Notes.
Fact, after 1933 the king's collection of taxes increases, along with increased power given to the IRS, his collection arm.
Fact, World War II increases the debt even further, which demands more taxes on the backs of Americans, now that they are co- sureties for the debt as defined by the Federal Insurance Contribution Act of 1934.
Fact, now that the enslavement of America is complete, the enslavement of the world was begun by the ratification of the U.N. Charter in 1945.
Fact, the United States had to turn over 8 billion in gold to join the United Nations just 12 years after there was not enough gold in this Country, and it was declared having gold was a crime.
Fact, the Korean and Vietnam wars explode the debt heaped on the backs of the American people.
Here we are, I have given you just some of the historical facts contained in my research papers. Because they are a matter of history and/or Congressional Record, they cannot be rebutted, I have done the leg work and have given the sources in my research papers. Those that are ignorant of history are doomed to repeat it.
Fact, the Bank was financed by the British Board of Trade, that was controlled by the Pope and Rothschild cabal.
Fact, the true United States Independent Treasury created in 1846 that dealt in specie, was abolished by the act of 1920, thereby allowing the private Federal reserve board to control the money of America as the fiscal agent of the United States.
Posted 24 April 2003 - 09:51 PM
In Response To: FACTS YOU SHOULD KNOW TO SHATTER THE ILLUSIONS! (tenavision)
WHY THE POPE OWNS AMERIKA!
In response that the Anglo-Saxon common law was left out of the Informer's question, is as follows, and I do not answer for him, but this is in addition to his response.
Britain was first invaded in 55 BC. by Julius Caesar, then again in 54 BC. In 63 AD. Joseph of Arimathea was sent by the Pope in Rome to try and establish the Catholic Church in Britain. In 77 AD. Britain was taken over through conquest by Rome. The Imperial governor Julius Agricola was put in place to rule over Rome's new territory. Britain was as of 77 AD. subject to Rome, with Roman law.
In 407 AD. Emperor Constantine III withdrew the Roman troops from Britain leaving a political vacuum. The Celts (Irish), and the Vikings (Scandinavians) saw an opening to obtain land. In 410 AD. Britain won its independence from Rome, when the Goths ransacked Rome.
In 446 AD. the British government sought help to defeat the invading arms of the northern countries. Rome was unable to send troops because it was defending itself from Attila the Hun. So Rome offered mercenaries to aid Britain, Britain hired these barbaric mercenaries which were from northern Germany, they as you know are called Saxons.
In 450 AD. the Saxon barbarians began to massacre the Britons and take their land, in this manner they occupied the country of Britain. The Saxons were pagans, some believed the Druid religion, others worshiped the same gods Rome worshiped, mercury and Venus, etc. etc.
The long and short of it is the Saxons were not responsible for a Common law by themselves. They were not Christians and did not support Cannon or ecclesiastical law, and their law was influenced greatly by Roman law. The major difference was the Saxon king called himself king of the English, and William the Conqueror called himself king of England, meaning, William the Conqueror claimed he owned the land and the Saxon king made no such claims. Under Saxon law citizen meant freeman, and under Roman law,
continuing in England in 1066 under William Conqueror, citizen meant subject. Under both systems you were forced to pay taxes to support the government. A tax payer is always a subject, so under William the Conqueror, he left no doubt as to your status, the Saxon kings were more subtle, the outcome is the same. Taxation and the subjection it confirms, is not always a bad thing. It depends on the government. Case in point, those that are Christians, are subject to Jesus Christ and are taxed 10% to support His government.
Look at what happened at Runnymede with the Magna Charta, the Barons thought they were gaining freedom, by the king granting them rights under the Charta. However, if they had stopped to read the 1213 Charta, wherein the king granted and ceded the Pope all of his lands, they would have known the king could not grant the rights without the blessing of the Pope. Did not the Pope sign off on the Charta of 1215, as a party to the Contract? Ask yourself this, did the granted rights end their tax obligations to the king, or the Pope? No. So is the granting of rights a problem or hinderance to the money lenders? No. Did the 1215 Charta in anyway overturn the obligations of the 1213 Charta? No, and they could not. Here is another reason.
Guess what America, and the rest of the free world, that claim their rights come from the Magna Charta, which was ratified by Pope Innocent III and of course the king under duress on June 15, 1215, on August 24, 1215, Pope Innocent III Declared that the Magna Charta was null and void, [(Geary) 49.3 August 24, 1215 parliamentary origins in England, Internet Medieval Source Book.]
I just found this, I do not have a copy of the above declaration at this time, it has been copyrighted, the book will have to be purchased, if it is still available. I won't speculate as to why it is kept in copyright and not released to the public as most other medieval documents have been.
To continue, Edward I, in 1297 was forced to re-declare the 1215 Magna Charta, because the Pope forbade his monks and bishops etc. etc., to pay taxes to the king, so the king began to tax the Barons again, and they drew their swords. King Edward's action holds less weight than that of his predecessor king John, because as of August 24, 1215 the Charta was an invalid document. Not to mention the issue I raised earlier concerning debt obligations of a previous Charter could not be voided.
The Pope by his confirmation of the Magna Charta was jerking the chains of the Barons, so to speak. As I said in earlier papers, there was no way the Pope would give up what was granted/ceded to him in the 1213 Charter. The Magna Charta could not void an earlier Charter which contained a debt obligation between parties, without all parties agreeing. Since the parties of the 1213 Charter would continue to be born, it was an unrevocable trust.
As example, read the 1689 Declaration of Rights, which became law. Did it, or could it overturn any financial obligations under previous Charters? No. Read the third section of the 1689 Declaration of Rights. It says if any provision of the Declaration comes into conflict with earlier Charters, the Declaration will be as if it were never written. If you do not have a copy of all the above cited material let the Informer or I know and we can supply you with the relevant material.
Do you see how not only Americans, but the entire world have been conned into thinking we are free? Every time the king has been challenged, the king grants rights to the combatants and they go home saying "WE WON," however nothing changed, because the king retained his power to tax, through previous Charters and new tax obligations created by accepting the king's benefits.
Another example, the Declaration of Independence and the war of Independence that followed, is no different than any other time in the history in challenging the king. The king said, OK, I will grant my created Corporations, the states, Independence and allow them to establish their own governments. But wait the governors retained the power granted by the king and the council of state. The states then consolidated their corporate Charters under one Charter, called the U.S. Constitution. Could the tax obligations of previous Charters be removed by our Declaration of Independence, or a war which did not remove the control of the king, which is obvious since in the peace Treaty of Paris he was
granting us land? No.
No where in the 1783 Paris peace treaty will you find granted rights to the inhabitants of the states. No where in the treaty will you find where the taxes of gold, silver and copper (mineral rights) were ceded to the states. So much for allodial title in the states, freeman status and allodial title are synonymous, you can't have one without the other. Since the king did not cede all of his corporate enterprise he retained his taxation and the subjection of those that enjoy his benefits.
"YIELDlNG AND PAYING yearly, to us, our heirs and Successors, for the same, the yearly Rent of Twenty Marks of Lawful money of England, at the Feast of All Saints, yearly, forever, The First payment thereof to begin and be made on the Feast of All Saints which shall be in the year of Our Lord One thousand six hundred Sixty and five; AND also, the fourth part of all Gold and Silver Ore which, with the limits aforesaid, shall, from time to time, happen to be found."
(Feast of All Saints occurred November 1 of each year.) The Carolina Charter, 1663
"SAVING always, the Faith, Allegiance, and Sovereign Dominion due to us, our heirs and Successors, for the same; and Saving also, the right, title, and interest of all and every our Subjects of the English Nation which are now Planted within the Limits bounds aforesaid, if any be;..." The Carolina Charter, 1663
"KNOW YE, that We, of our further grace, certain knowledge, and mere motion, HAVE thought fit to Erect the same Tract of Ground, Country, and Island into a Province, and, out of the fullness of our Royal power and Prerogative, WE Do, for us, our heirs and Successors, Erect, Incorporate, and Ordain the same into a province, and do call it the Province of CAROLINA, and so from henceforth will have it called..." The Carolina Charter, 1663
Nothing has changed, the parties of interest still rule. It is our pitiful lack of knowledge and understanding of history, which causes us to hang our hats (Independence) on documents that maintain and did not change our subjection. Does this sound familiar to what has happened to the blacks. They assumed, since they were made citizens and given more rights, that they were now free. As you know a 14th Amendment citizen is subject to its creator, who granted their rights, the corporation and the trusties, subject to the contracting parties, the Crown and the Pope. Maybe, now you know why history repeats itself, it has the same authors.
James Montgomery Sui Juris Servant of Jesus Christ
Posted 26 April 2003 - 09:49 AM
Posted By: somtum
I'm posting this as a public service. I have lots of other pressing things to do with my time.
People and families have been loosing a lot of their hard-earned assets in the stock markets for well over than a year. They are desperate to regain some of their losses. They may have regained some during the recent rally in the stock market. This includes such things as money market funds.
NOW IS THE TIME to 'take some profit.' Acting on wishful thinking will eat them alive. They must, for the good of themselves and their families, carefully attend to RISK CONTROL and PRESERVATION OF WHAT THEY HAVE.
I actually think they should get out of the markets at this time and put half their money in gold coins or bullion. (Put any money they don't need for the next six months.) But that would sound crazy to them.
But at least (this would sound less crazy.) take one-half or one third out of the stock markets. This is simply being NOT DRIVEN BY GREED OR DESPERATION and protecting their family. I know it's really hard. I know exactly what they are thinking and feeling. THEY MUST USE REASON.
What they see on TV or hear from their stock broker or read from financial analysts is not reasonable. Just consider their record (everyone forgets the next day almost, it seems.)
This writer treads softly. He is very reasonable and documents his statements. He has a terrific record of success.
'It seems to me that the bulls are bucking long-term valuation and short-term sentiment cycles conspiring against them right now and purely gambling. They desperately hope to win, but they are playing a dangerous game trading against history and probability. The markets will not be mocked.
'The bears, on the other hand, ought to win on form because they are cognizant of the grand strategic picture and aren't trapped in short-term stock-market myopia and mania. The bears are betting with history and probability these days and will almost certainly win in the end.
'Which trend do you think is more important? A 6-week-old 15% S&P 500 rally or a 37-month-old -40% S&P 500 primary Great Bear downtrend?'
('Bulls' think stock valuations will increase. 'Bears' think they will decrease. )
Print the article and give it to a relevant friend, co-worker or neighbor.
There's the water. Please drink. (No insult intended!)
Posted 28 April 2003 - 07:22 PM
INTERVIEW WITH RICHARD DUNCAN ON THE DOLLAR CRISIS: CAUSES CONSEQUENCES CURES
Question 1: Your new book was recently released by J. Wiley & Sons. In the book you argue that the current International monetary system is in danger of collapse. Could you explain why you believe the present international trade system is a danger to all of us?
Answer: It is the imbalances in the international trade system rather than the system itself that poses the danger. The United States' Current Account deficit is now $60 million AN HOUR! It increased 28% in 2002 to half a trillion dollars, an amount roughly equivalent to 5% of US GDP. This unprecedented trade imbalance has created extraordinary disequilibrium in the global economy. The countries that build up large stockpiles of international reserves due to large current account or financial account surpluses-such as Japan in the 1980, the Asia Crisis countries in the 1990s and China today-develop bubble economies. When those bubbles pop, as they inevitably do, they leave behind banking crises and excess capacity. The governments of those countries must then go deeply into debt to bail out the depositors of the failed banks. At the same time, the excess capacity in the economy results in deflation. Economic bubbles and systemic banking crises can be expected to reoccur and deflationary pressure can be expected to persist so long as the US Current Account deficits continue to flood the world with dollar liquidity.
Question 2: In your book you write that the current system is neither good for the countries who export goods to the U.S. nor ultimately to the U.S. How can a system that has brought such growth to so much of the world be bad?
Answer: Ultimately, the imbalances in the system are harmful to the United States' trading partners and to the United States itself. The countries with overall balance of payments surpluses are destabilized through the rise and collapse of economic bubbles. Ironically, the US current account deficits also helped fuel the New Paradigm Bubble in the United States. The surplus nations earn their surpluses in US Dollars. They must either invest those dollars in US dollar denominated assets or else convert the dollars into their own currencies. If they convert such large amounts of dollars into their own currencies, those currencies would appreciate sharply, putting an end to their trade surpluses and perhaps driving their economies into recession. Consequently, they park their surpluses in US dollar denominated assets instead. By investing their dollar surpluses in US dollar assets, the trading partners of the United States helped fuel the stock market bubble, facilitated the incredible misallocation of corporate capital, and, by acquiring Fannie Mae debt, contributed to the dangerous rise in US property prices.
The imbalances in the current international monetary system are also bad because they are unsustainable. The United States cannot continue going into debt to the rest of the world at the rate of $1 million a minute indefinitely. The net indebtedness of the US to the rest of the world is already approximately $3 trillion or 30% of US GDP:and its now growing at roughly 5% of GPD per annum. The economies of most of the United States' major trading partners have grown dependent on exporting much more to the US than the US imports from them. When the United States current account imbalance returns to equilibrium, and it eventually must, the era of export led growth will come to end and the world will find itself without an engine of economic growth.
Question 3: I should note here that you are an economist and have worked in the past for the International Monetary Fund including working as a consultant for the international Fund in Thailand and later at the World Bank. Can you tell us a little about your background and how you came to the conclusion that the current international trade system is so flawed?
Answer: Since 1986 I have worked in Asia as a securities analyst for international brokerage firms. From 1990 to 1996, I was based in Bangkok, heading up a large team of research analysts. We analyzed and wrote research reports on most of the listed Thai companies, as well as most of the major industries and the overall economy. In the early 1990s, the Thai economy really was experiencing something of an economic miracle. The fundamentals and growth prospects of the companies were very solid. By mid-1993, however, that was no longer the case. The companies had borrowed too much and investors too much. It was difficult to see how they would be able to generate enough revenue to repay their debt. I turned bearish on Thailand by the end of that year, but the bubble economy continued to expand:for four more years! I wanted to understand what was happening and why. I began reading the economic classics: Keynes, Schumpeter, Friedman and Rostow. By the time the bubble finally popped in mid-1997, I thought I had pieced it together. I had the fortunate opportunity to work as a consultant for the IMF in Thailand for three weeks in May of 1998 and then went to work for the World Bank in Washington later that year. While I was there, I believe I was able to put the rest of the pieces of the puzzle together. So, in short, it was the economic bubble in Thailand that taught me about the flaws in the international monetary systems.
Question 4: In the book, you discuss Japan's economy and Thailand's experience with the Asian Financial Crisis of 1997 and onward. You also write in Chapter 6 and Chapter 8 and elsewhere that 'China has a bubble economy just waiting to pop.' Can you explain this statement and why you feel China which currently has one of the highest GDP growth rates of any country is so in danger?
Answer: Yes, China has a bubble economy. Economic bubbles are caused by excessive credit creation. In China, the loan growth of the commercial banks has amounted to approximately 15% per annum for almost 15 years. To extend loans, banks must have deposits. Much of the deposits the Chinese banks have extended as loans were earned when Chinese businesses exported their goods to the United States. In 2001, China's surplus with the US was equal to 7% of China's GDP. China's GDP growth that year was 8%. Without its trade surplus with the US, China's economy would have grown at a much slower pace-if at all-both because the exporter's profits would have been much worse and also because the banks would not have had enough deposits to allow them to expand lending so rapidly. There are a number of problems with this economic model. First, a very large percentage of the credit extended by the Chinese banks cannot be repaid: estimates of non-performing loans in the banking system range from 25% to 50% of all loans. Next, credit expansion in China has already been so excessive that the supply of goods exceeds the purchasing power of the public by a considerable margin. Consequently, prices are falling and China is experiencing deflation despite its rapid economic growth. Finally, China cannot depend on maintaining such large trade surpluses with the US for very many more years. The origins of China's rapid growth-credit creation and trade surpluses-are both unhealthy and unsustainable.
Question 5: Many U.S. politicians have explained to the public that the U.S. current account deficit is caused by the desire of foreign investors to buy U.S. assets to take advantage of perceived lesser financial risk in the U.S. Do you agree with these statements and if not, why not?
Answer: It is true that the US Financial Account Surplus must be equal to the US Current Account Deficit. However, there is no 'Chicken or the Egg' riddle here. It is very obvious which comes first. American consumers buy foreign goods because they are cheaper than goods made in the United States. Foreign goods are cheaper because the wage rates in developing countries are as low as $4 per day. Developing countries have far less money to buy expensive US goods. That is clearly the cause of the US current account deficit. Once the Unites States' trading partners have their surplus earnings they must invest them in US dollar denominated assets or convert them into their own currencies causing them to appreciate. If they are to avoid causing their currencies to appreciate, they must invest their dollar earnings in the US. They certainly don't do it because they believe NASDAQ shares can only go up or because they have strong faith in US accounting standards. Those who argue that the finance account surplus causes the current account deficit must be able to explain how capital inflows into the US compel Americans to buy so many foreign-made goods.
oh more more
Posted 02 May 2003 - 11:50 PM
Loonie breaks through 70-cent barrier By MARIAN STINSON
MONEY MARKETS REPORTER; With a report from Canadian Press
The Canadian dollar surged above 70 cents (U.S.) yesterday for the first time in five years as the U.S. dollar plunged and the weaker American economy drove investors to seek higher interest rates in Canada.
The Canadian dollar ended the day at 70.44 cents, up 0.68 cents from Wednesday for a gain of 1.4 cents this week alone. Yesterday's close was the highest since April 6, 1998.
The U.S. currency, in turn, was whacked by a dismal manufacturing report that cast doubt over a postwar bounce-back in the American economy.
"It's clear the Canadian dollar is on a tear," said Andy Busch, global foreign-exchange strategist with BMO Nesbitt Burns Inc. in Chicago.
Comments on Tuesday from David Dodge, Governor of the Bank of Canada, that the rise in the dollar reflects the stronger state of the domestic economy relative to the United States helped spark dollar buying yesterday, he said.
"It was like a green light to buy Canada," Mr. Busch said. "Say something like that and it goes nuts."
The comment followed an economic report Wednesday showing Canadian growth in February of 0.2 per cent, which was close to expectations, and suggests the economy could expand at an annual rate of 3 per cent in the first quarter of this year, well above the 1.6 per cent expected in the United States.
The sharp rise in the currency means there are winners and losers, with Canada's tourism sector and exporters both taking a hit at a time when they are already under pressure.
Demand in the United States, Canada's largest market, "is extremely anemic" because of the sluggish economy, Marc L?vesque, senior economist at Toronto-Dominion Bank said.
However, "I wouldn't be overly alarmed," he added.
Mr. L?vesque said exporters did extremely well in the 1990s when the dollar was above 70 cents.
The currency has risen at a time when Toronto's tourism and hospitality sectors have been damaged by the outbreak of severe acute respiratory syndrome. That is not good timing, he added.
Appreciation in the currency means falling costs of imported goods. Because about 80 per cent of Canada's machinery and equipment is imported, the higher dollar means "the cost of staying productive decreases for Canadian companies," said Craig Wright, chief economist at Royal Bank of Canada.
Deputy Prime Minister and Finance Minister John Manley said yesterday he is more concerned about the effect of the sluggish U.S. economy on Canada than the sharp rise in the Canadian dollar.
"Our overall economic performance remains quite good, on the basis of a fairly strong domestic economy thus far," Mr. Manley said. "We're more concerned with seeing the U.S. get back on track than any other factor right now -- that will inevitably begin to affect our overall performance."
Since the beginning of the year, the dollar has risen 11 per cent against its U.S. counterpart. The growing gap between interest rates in the two countries is helping to lure investors to Canada. The spread between the yield on Canadian and U.S. three-month treasury bills is 210 basis points, up from 205 a month ago. (A basis point is 1/100th of a percentage point.)
"In this environment of a weaker U.S. dollar, Canada's positive outlook is getting recognized," Mr. Wright said. "Canada's economy is the envy of the G7 [Group of Seven leading industrialized] countries, with impressive employment gains and we are one of the few countries in the world paying down debt."
Canada also has a large current-account surplus, in sharp contrast to the record deficit in the United States; the outlook for commodity prices is good; and Canadian interest rates are rising, while U.S. rates are falling, he added.
The rise in the dollar is long overdue, Mr. Wright said, and should continue to 73 cents by the end of this year and 75 cents at the end of 2004. "Higher is a safe bet."
The loonie started climbing early Tuesday after the World Health Organization lifted its travel advisory about Toronto, allowing the currency to rise by one-quarter of a cent. It briefly touched 69 cents last week before the travel alert was issued.
The Institute for Supply Management issued more bad news about the U.S. economy yesterday as its index of manufacturing activity shrank for the second consecutive month in April. That contributed to a growing view among financial-market players that the U.S. Federal Reserve Board will trim rates again in the months ahead. In November, the Fed cut its key federal funds rate by half a percentage point to a four-decade low of 1.25 per cent.
"The Fed is well known to focus on ISM," said Sherry Cooper, chief economist at BMO Nesbitt Burns.
The ISM index showed employment cutbacks accelerating and orders and production well below the break-even point, even though much of the survey reflected prewar conditions.
"If it were not for the prewar aspect to the survey, an easing bias would be a slam dunk, so stay tuned for [today's] employment report," Ms. Cooper said.
The April U.S. labour market report being released this morning is expected to show job losses of 50,000 to 75,000 last month, said David Ebata, managing analyst in Boston with Thomson IFR, following rises in initial jobless claims.
So far this year the U.S. economy has shed 262,000 jobs, on top of the 220,000 lost last year. Meanwhile, Canada has created 67,000 jobs this year in addition to 561,000 in 2002.
"Recent purchasing managers' reports [from the U.S.] show that corporations are not ready to spend now that the war is over, so we have to fall back on the consumer for help," Mr. Ebata said.
The Fed is likely to hold interest rates steady next Tuesday, but the market is looking for a shift in bias toward easing in the months ahead, possibly at the end of June, he added.
The U.S. dollar also fell to a four-year low against the euro yesterday, reaching $1.1224 from $1.1184 on Wednesday.
? 2003 Bell Globemedia Interactive Inc. All Rights Reserved.
Posted 05 May 2003 - 09:29 PM
The Exchange Stabilization Fund vs. Oil Producing nations (and others) who really don't want to hold onto U.S. dollars as an investment these days. Maybe they would rather have euros; maybe they would rather have gold or diamonds . . .
That's oversimplifying. But not much.
Chartwise on the blow-by-blow chart, up is the ESF. Down is some of the many sellers of USDs flooding the 'market' and thus lowering the perceived value of the USD. Do not bet on the ESF.
The chart measures the USD against a basket of weighed currencies. It's the generally accepted standard of measuring the value of the USD on the world market. It was at its high of around 120 a year ago. It is headed for 80, maybe 70 by the end of the year. Economists don't know that.
'Common establishment reasoning pronounces in almost holy and somber tones that as that currency depreciates 10 percent in the revaluation process, the Current Account deficit will reverse and improve by 1 percent of GDP.
'They (the establishment wizards . . . ) assume that the US dollar, by depreciating 20%, would be in a process of [reversing] the Current Account Deficit by 2% and therefore the value of the dollar would improve internationally.
'Well, just as the annual meeting of clairvoyants was called off due to unforeseen circumstances, not only is the US Current Account not showing any sign of improvement . . .'
(Quote from jsmineset.com)
Posted 05 May 2003 - 09:30 PM
DOUBLE TAXED AND ROBBED IN MARCH
QUOTE Magazine The Netherlands May Edition
GOLD ! How a Bank conspiracy ruins the world economy !
(Translation from Dutch into English)
The time to buy gold is when blood is in the streets, Nathan Rotchild once said. With crashing equity markets, the WTC changed into Ground Zero and an army crossing the desert, those words seems to have a certain prophecy value. For the first time in 20 years, the price of gold increased by 35%. But gold investors (so called Gold bugs) aren't satisfied yet. The WTC disaster and the Iraq war is only background noise. The price of gold should have been much higher already years ago they say, with or without war ! ..........
The so called gold bugs are convinced of a so called conspiracy of big Bullion Banks, the FED and Central Banks to suppress the price of Gold.
The recent run-up in the price of Gold may be the first signs that the suppression scheme is not much longer to maintain. The price of Gold will explode, gold bugs say, and could very well bring down a few big investment banks. The official Gold community speaks of 'the lunatic fringe' but more and more well respected people in the Gold industry endorse their claims. John Embry (manager of the Royal Bank of Canada)said : 'Everyone with a IQ higher than a Grapefruit have to admit that they have a point !" ...........
The first organization which spoke about a so called 'gold-cartel' was the Gold Anti Trust Action Committee (GATA)which was founded early 1999 by former future trader Bill Murphy. Together with Gold analyst and Lawyer Reginald Howe GATA filed a law-suit against the FED, Bullion Banks such as Goldman Sachs, JPMorgan, Deutsche Bank, CITY Bank, and the Bank for International Settlements and the US Treasury !
........... Due to the fact that Central Banks have no obligation to report their total amount of leased/swapped Gold it is difficult to calculate the exact figure of leased gold. The problem is Murphy says to Insight Magazine, that most of the Gold which has been leased cannot be returned to the vaults of the Banks simply due to the fact that it is gone ! It's hanging around the necks of Indian woman. Also due to the supply/demand deficit it will be impossible to cover the big short positions in Gold without an exploding price of Gold. JPMorgan and other Bullion Banks are a disaster waiting to happen........ It's just not worth it to spend a single word on those guys (GATA) Hennie Rijnbeek says. He sounds irritated. Hennie Rijnbeek works as a Gold dealer for the Rabobank in London and doesn't believe at all in a so called conspiracy. London is the centre of the Gold Industry and this whole thing is just a non-issue for all people which I'm working with. The whole idea is complete nonsense. Leasing gold does not differ from the currency markets, just profit from the ups and downs. There is not a single Bank which doesn't do that ! My own risk-management would chop my head if I told them there was a conspiracy in this market. According to Rijnbeek, GATA is just a science fiction club and their supporters are rebels........
Hommelberg rejects this thesis that Central Banks want higher prices of Gold as Rijnbeek stated. Hommelberg quotes Greenspan when he said in 1998 before the House of Banking Committee :
"Central Banks stand ready to lease Gold in increasing quantities should the price rise". Greenspan admitted hereby that Central Banks were capping the price of Gold.........
We already witnessed an increase of nearly 40% in the price of Gold since 1999 and nothing happened yet ! If GATA is correct, why didn't anything happen by now ?"
Willem Middelkoop sees the end of the Gold Cartel nearby due to the fact that the price of Gold is rising rapidly over the last two years. Desperate attempts to keep the price of Gold beneath the $330 level failed. It's a dead end street Middelkoop says due to the continuous increasing demand. Middelkoop is a TV reporter for RTL-Z and invests in Gold. He says it's really shocking that the official Gold community doesn't take notice of what GATA has to say. So called Gold experts who refuse to deal with GATA's claims didn't study the market well. There is plenty of circumstantial evidence, 100% proof can't be found but there certainly is a smoking gun. GATA made several requests to discuss their claims with anyone in the Gold industry, anywhere, any-time, but none of the official agencies dares to debate GATA. GATA opponents aren't able to disprove GATA's claims. The Fact that the IMF permits Central Banks to report leased Gold as being reserve assets and lies about it is very smelly Middelkoop says. I'm convinced that GATA's claims will come true. It won't be the first time in History that such a conspiracy turned out to be true.
Middelkoop quotes Greenspan : " No Bank is too big to fail"
I think he mentioned JPMorgan. Nothing to worry about as long as you own Gold and Silver
Check out our update around 1pm today @ http://www.moneyfiles.org
Posted 06 May 2003 - 01:20 PM
THE AXIOMS OF ECONOMIC DYING
In Response To: WHEN DEATH SET IN (Rosalinda)
3. The axioms of economic dying
The process we have summarized so far, may be conceptualized in terms of the kind of notion we otherwise associate with a mathematical-physical, functional description of an unfolding process. That is to say, that the determination of whether the conjecturable space-ship was qualified to succeed in its planned voyage, or was foredoomed, by its defects or navigation, to fail, was probably already knowable from the beginning of that venture. In the same sense, whether the U.S. economy would collapse, or not, as a result of continuing the 1960s policies associated with John J. McCloy, was fully knowable in advance.
What happened to the U.S. under the post-Carter years, 1982-1998, has become a parody of what happened to France after Britain's Duke of Wellington, in 1815, restored the Bourbons in defeated France: the ultra-decadent France depicted by Honor? de Balzac. The dionysiac rage of Carter's late 1970s, was superseded by the dionysiac rage rooted in the passion of the boundless pure and simple, Yahoo-style greed, of the type characteristic of Garn-St Germain, Kemp-Roth, Michael Milken, junk bonds, "Contract with America," and derivatives.
THAT WAS THE 3RD SECTION OF THE OCTOBER 1998 ESSAY BY LAROUCHE
Posted 07 May 2003 - 12:14 AM
Fed Keeps Rates Steady, but Door Open - 05-06-2003
Federal Reserve policymakers on Tuesday kept U.S. interest rates steady at 1961 lows but warned of a possible "unwelcome substantial fall in inflation," saying this meant the economy was in danger of weakness ahead.
Analysts said the Fed evidently sees multiple threats to the expansion but has chosen to wait and see, at least for now, whether an acceleration in activity takes hold without new stimulus from lower credit costs.
"They decided to go to an easing bias because there are two risks: first, possible deflation is a real concern. And second, the economic data we've seen so far have been much weaker than expected, especially in manufacturing and the labor market," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis
After the Fed decision, Treasury prices rose on hopes it meant more rate cuts ahead. Stocks ended in positive territory, up 56.79 points at 8,588.36 while the high tech-laden Nasdaq composite index added 19.67 points to end at 1,523.71.
But the dollar was hit hard. The euro rose as high as $1.1453 against the dollar, according to Reuters data, setting a new 4-year high for the second consecutive session, in the belief that potentially lower U.S. rates would make dollar-denominated assets less appealing to investors.
[[and the usual confidence]] "I continue to believe that the economy is positioned to expand at a noticeably better pace than it has during the past year, though the timing and the extent of that remains uncertain," Greenspan said. Those words were echoed in the post-meeting statement.
Posted 07 May 2003 - 12:14 AM
24 minutes ago
WASHINGTON (Reuters) - White House budget director Mitch Daniels announced his resignation on Tuesday, rounding out a reshuffling of President Bush 's top economic advisers.
......... No reason was given for his departure, though administration officials said Daniels was considering running for governor in Indiana in 2004........... His departure follows the resignation earlier this year of Glenn Hubbard, chairman of the White House Council of Economic Advisers. In December, Bush pushed out Treasury Secretary Paul O'Neill, White House economic aide Lawrence Lindsey and Securities and Exchange Commission Chairman Harvey Pitt.
Posted 07 May 2003 - 10:54 AM
NEW YORK - The dollar fell hard Tuesday, with the euro leaping above $1.14 for the first time since January 1999, after the Federal Reserve flagged deflation as a possible risk on the U.S. horizon.
After the Federal Open Market Committee's announcement, the dollar stumbled quickly, with the euro shattering resistance around $1.1395. The dollar also hit a four-year low against the Swiss franc, a five-and-half-year low versus the Canadian dollar and three-year lows against the Australian dollar. It also touched two-month troughs versus the yen and sterling.
In a decision that was widely anticipated, the Fed left interest rates unchanged, noting that in the wake of the war in Iraq oil prices have fallen and consumer confidence increased - strengthening debt and equity markets - which should help foster an improving economic climate over time.
But, in a move that surprised many on Wall Street, the Fed said "over the same period, the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level."
With the persistent lack of pricing power weighing on business capital spending and investment, analysts said the Fed's decision was more an insurance policy against Japan-style deflation than an indication of an imminent interest rate cut.
The statement was viewed negatively by a foreign exchange market already intent on pushing the dollar down. Having traded around $1.1350 for much of the New York day, the euro leaped above $1.14 for the first time since January 1999, hitting a high of $1.1451, sharply higher than $1.279 late Monday.
The euro's relentless move higher has surprised traders. The currency has jumped about 2 percent this week alone and is up a remarkable 4 percent since the beginning of last week. The euro has gained roughly 8.5 percent since Jan. 1.
In late New York trading, the euro was quoted at $1.1417, up from $1.1280 late Monday.
In late New York trading, the dollar was quoted at 117.67 yen, down from 118.63 yen late Monday.
The dollar was quoted at 1.3252 Swiss francs, down from 1.3423, and 1.3942 Canadian dollars, down from 1.4113. The British pound rose to $1.6167 from $1.6065.
Posted 07 May 2003 - 04:22 PM
Jim Sinclair: Tan Range Resources ('Mr Gold')
MINEWEB: What is it telling us, this? What is the market telling us?
JIM SINCLAIR: Well, it's basically telling us that those that have been the major buyers of the US dollar over the past six years, basically Islamic Asia, and the great success of the sales policy, salesmen in fact, of the dollar reserve standard, which now is internationalised everywhere - that we basically have overstuffed the central banks around the world and the dollar has become a non-performing asset, because the depreciation of the dollar is orders of magnitude larger than the present interest being earned on US treasury instruments by central banks. So, if the central banks were to continue their policy of sale of a non-performing asset, which for 22 years was gold, now they would be in fact holding the gold and selling the dollars. Well that's not happening yet. But the potential is there, as the dollar continues to decline, the loss being accumulated by dollar-holders is certainly an increment for disinvestment. However, the dollar weakness we see now is primarily out of the Mid-East, primarily out of Saudi interest, where the US has had a major divorce in the last week, if you've been watching the news concerning the withdrawal of military bases from Saudi Arabia, to be relocated - guess where? - in Iraq.
MINEWEB: And the implications of that for the house of Saud?
JIM SINCLAIR: Implications can be seen right in the marketplace. We have the Exchange Stabilisation Fund, which is run by the President and by the Secretary of the Treasury, which was established in 1934 by $40m in gold back then, and has the obligation and the legal right to participate in markets, primarily in the market for the dollar, to create a somewhat stable environment. But recently, from 99.20 down, each time they've entered the market to stabilise, they've run right into tremendous amounts of dollars for sale. And that had a distinct effect on the gold price, as I said before, because of the fact that gold and the dollar are your primary reserve assets held by central banks. And a great shift right now is to say gold is a non-functioning asset, [indistinct] a possible statement while unfortunately now the dollar is the primary non-performing asset of world central banks. And at the same time the apparent lack of an ability to find weapons of mass destruction certainly has brought a great deal of thinking in the oil-producing Mid-Eastern nations - that the purpose of the Iraq campaign might not have been weapons of mass destruction. And the conduct of the Iraq people also strains people's belief - in the purpose of that campaign being to give freedom to people who don't seem to be able to function under freedom. So the net result of that is to have caused a great deal of increasing hostility, in a financial sense, between the oil-producing nations in the Mid-East and the US, which is now being fought in a different battleground, the battleground of the marketplace for the US dollar. And that's always been that way, with all the argumentation that you could do, with all the supply-demand factors that you might review. Unfortunately, the dollar and gold are very clearly lock-step in the inverse relationship, because of the outrageous success the World Bank and the IMF have had in selling the concept of a worldwide dollar-reserve standard, and the tremendous amount of dollars. And the primary consumers of dollars, and therefore US Treasury instruments, has been just those people that we've so significantly alienated in the last few months. There's a court case :
JIM SINCLAIR: There are other reasons too. There's a court case here in the US naming certain members of the Saudi royal family as allegedly having supported the 9/11 situation financially. Now that's allegedly. But it's just the wrong time when it's being prosecuted by an attorney of very high standing in Washington DC. There's a lot of things we're doing all at one time to cause the major dollar-holders to, let's say, be much less obligated to take a loss holding US dollars. So a major divorce has just taken place between the United States and Saudi Arabia at the same time as we've taken a military stand and, after the military stand, having a difficult time sustaining the reasons why we were there.
MINEWEB: I guess it's the old thing of demand and supply, and what you're saying is that those who were responsible for much of the demand for the US dollar in the past are, for new reasons, now responsible for much of the supply. But when you have a look around - just to elaborate on your view on how the IMF and the World Bank has done such a successful selling job - if you look at the central banks around the world, they have, for decades, been selling gold and holding dollars. Our own Reserve Bank in South Africa has got virtually no gold and plenty of dollars as its major asset, which seems a strange thing from a gold-producing country. Are you getting any indication that that might reverse?
JIM SINCLAIR: I don't think that that would reverse just yet. The dollar has, for those that are technically orientated, four head-and-shoulder neckline breaks. Now the only two other entities that had the same circumstances would be Enron and General Electric. So let's take a company of good standing, General Electric. It still lost 50% of its price structure in that because of that. The US dollar, right now, having just come through its fourth neckline, has a price objective of 0.72 on the USDX. And in all probability it will find that level.
MINEWEB: What is that? You've mentioned that a few times, USDX, what exactly is that?
JIM SINCLAIR: The US dollar index, trade- weighted index. Just picking something by which you would value or look at it. So the USDX is very popular here in the continent as a way of looking at the dollar in trades. So it's had a high of approximately 122, recently dropped to a support level at 99.20 where you could clearly see the Exchange Stabilisation Fund very active in supporting. Got filled at 99.20. Dropped this morning through the next very important level of 96.5, 97.5 as if it didn't even exist. The Exchange Stabilisation Fund entered then approximately 38 minutes ago, and even that rally now is starting to fade. So gold, seeing this, is taking its lead. Central banks at this point are being strained by the loss they have in the dollar. But the dollars, as of yet, are not embarrassed enough to find themselves making a shift. In the 70s, when this happened, and it happened to less of a degree than it has now, the central banks did shift, becoming, from being sellers of gold, as we well remember - the IMF in our monthly transactions central banks also selling - to buyers. So there's a good probability that somewhere along the line of this experience some central banks will shift. But different from you and I and those that are listening, central bankers don't have to make a profit. They have to make a politic. And if we required the central bankers to be profitable in their transactions, we would do away with the central banking system. So the answer is no, profit isn't going to drive them, but embarrassment will in time.
MINEWEB: Jim, it's quite interesting, last night we had Bobby Godsell, the chief executive of AngloGold in our studio, imploring that the South African Reserve Bank start investing in gold rather than its obsession with having our assets of this country in US dollars - and I guess if you get more of that kind of pressure from people like him and others in this country and others around the world, we could indeed see the central banks listening to what the marketplace is suggesting they should be doing.
JIM SINCLAIR: Well the market, the weakness of the US dollar is in all probability going to bring gold back into the system in a most unique way. And the unique way that it's going to occur is a revitalised, modernised, gold-cover clause, whose proper name is the Federal Reserve Gold Certificate Ratio, but tied this time to M3, and probably some time in 2004, if the dollar does go to 72, you can almost be assured that gold will go back into the system, not in the form of convertibility but for the simplicity of creating a firmer dollar at that time, tied to monetary aggregate growth, in order to get a successful election and market rally and general equities some time in June of 2004. So, in a very perverse way, gold will stop the gold price from rising and the dollar from falling, but most likely at higher levels than we see now.
MINEWEB: Well that's the point. If the dollar were to go down to this weighted average basis of 72, where is the gold price likely to settle?
JIM SINCLAIR: At that level, the $400 would be behind us, but $500 would not be breached. If gold was to go over $529 it would move out of the norm of a bull market into a runaway, and as a result of that disqualify itself due to volatility.
Posted 08 May 2003 - 09:44 AM
The US now owes France and Germany no favours. It may not be openly vindictive but it is not going to help them
By Hamish McRae
04 May 2003
The dollar is going to get weaker. What then? To say the dollar's present slide has some way further to go is hardly controversial, for it is the mainstream view of the financial markets. Whether this will turn out to be right or not is, of course, another matter, but let's assume for the time being that it is so. A typical profile for this decline, at least against the euro, is shown in the first graph above. This suggests that the fall of the dollar will carry it beyond its ?1.15 (80p) level at the beginning of 1999, when the euro was launched, to something like ?1.25 by the middle of next year.
If that turns out to be right - and once financial markets get their teeth into an idea, they tend to push it onwards for a long time - there will be a string of consequences for the rest of the world.
First, and most obviously, a super-competitive dollar will be bad news for the eurozone. It may also be bad-ish news for the UK, though that depends on the extent to which sterling can maintain a mid-Atlantic status, moving some of the way with the dollar but not all.
For the eurozone, and particularly for Germany, the situation would be very grave. The fringe eurozone countries could still manage to maintain growth. This is partly because several of them (such as Ireland and Spain) entered the eurozone with an undervalued currency and partly because they can generate domestic growth. But Germany (and to a lesser extent France and Italy) find it hard to boost domestic demand, leaving them open to price competition in export markets. Last year, the only part of the German economy that delivered growth was exports - domestic demand actually fell - so a more competitive dollar would be serious indeed.
But this is only a first order effect. There is every likelihood that this will be another year when US demand rises faster than European or Japanese demand. The likely result of that is the US current account deficit, far from narrowing, may actually widen further. HSBC estimates that it might reach 6 per cent of GDP (see next graph). Were that to happen there would be a danger of the slide becoming very serious indeed. I don't think you need to predict a crisis of confidence in the entire US economy to be aware that it would lead to global trade disruption.
When the dollar rose to unsustainable levels in 1985 and world trade was threatened, such fears led to the Plaza Pact, so-called because it was signed at the Plaza Hotel in New York, between the G5 nations (as they were in those days). Their main central banks agreed to intervene to curb the rise. But it would be hard today to assemble a similar coalition of those willing to support the dollar, were it to fall too low. For a start, global economic co-operation is going to be harder in the wake of the Iraq bust-up. And in any case it would suit the US administration, whatever it might say, to have a more competitive currency. Fears of inflation have given way to fears of deflation. While it is far too early to think in terms of a series of competitive devaluations, as took place in the 1930s, the fact remains that in a period of slow global growth, it helps to be able to corner a few more exports by being able to undercut competitors.
Remember that the general concern about devaluation - that it leads to imported inflation - becomes much less significant in a time of global price stability, even deflation. Meanwhile, the already low inflation in Germany (third graph) could quickly slip into deflation.
This leads to a more general concern. International co-operation is going to be much tougher to orchestrate in the coming months. Self-interest would suggest that we should all continue with the multilateral approach that has governed international trade and payments since the Second World War. But that has been sustained by mutual concessions.
The US now owes France and Germany no favours and while I cannot see it being openly vindictive in its trading relations, it is not going to help countries that have behaved in this way. There will be an economic price to pay; it is na?ve to think otherwise. The weaker dollar has to be seen in this context.
So what will happen to sterling? The problem there is that the whole debate is stalled until the result of the Treasury's five tests are published. Assuming they produce a "not yet" verdict, the markets will have to decide whether sterling is fundamentally part of the dollar bloc or the euro bloc. Past performance suggests that it tends to be halfway between, sometimes siding with one, sometimes with the other. On balance over the past two decades it probably has inclined a bit more towards the dollar, but in recent months we have been closer to the euro. A "not yet" decision would push us back towards the dollar.
If this is right you could see quite a weak pound against the euro. We would go back to having holidays in Florida because it was cheaper than Spain. The Eurostar trains to Paris would be even emptier than they are now. Our exports to Europe would become much more competitive and there would start to be European opposition to sterling joining the euro.
Currencies overshoot. In a rational world they would move in much narrower bands and we would create ways of resisting their wilder fluctuations. But we do not live in a rational world. I personally do not think the dollar fall will get out of hand but if it were to fall to ?1.25 or beyond, it would do grave damage to the European recovery. And I do not see the Americans worrying much about that.
Posted 08 May 2003 - 09:44 AM
Europe's obsession with defeating inflation may have left it unable to cope with the legacy of the Nineties boom
06 May 2003
Looking forward to your summer holiday? Going back to that gite in the south of France that you enjoyed so much last year? Or perhaps to that hotel in Italy where you spent many a relaxing hour sipping martinis by the pool? Well, think again.
There may be no physical impediment to your heading off to sunnier climes but you may, nevertheless, bump into a major financial constraint. Compared with last year, your holiday is going to be a whole lot more expensive. Sterling has fallen by about 10 per cent against the euro. So, make sure you pour yourself a stiff drink when your post-holiday credit card bill drops on the mat. You could be in for a bit of a shock.
From an economic point of view, movements in currencies produce both winners and losers. British manufacturers may be looking at latest developments with some degree of relish. Having failed to deliver any decent productivity gains in recent years, they now stand to be bailed out by a good old-fashioned sterling decline. British workers looking forward to a nice rest after a stressful year in the office will find themselves having to pay top dollar - or should it be top euro? - for their sojourns in the sunny south of Europe.
On the other hand, Europeans will find holidays in Britain relatively cheap. Just imagine the typical French conversation: "Ma cherie, we could have our usual holiday in Biarritz but I am a little bored with it. Maybe this year we should try Margate for a change. I hear the British have a fashionable line in knotted headgear and apparently prices have come down a long way."
Perhaps I'm letting my imagination run away with me. Nevertheless, for policy makers, currency movements matter. John Butler and David Bloom, my colleagues at HSBC, last week gave warning that sterling could fall a lot further over the next 18 months, driven down by a loss of UK growth momentum, a deteriorating fiscal outlook and, of course, wobbles in the housing market.
Falling house prices provide a particularly strong case for a weaker currency: if growth is to be maintained but consumers are unwilling to spend in the light of falling house prices the most obvious way to keep things going is to switch the source of growth away from consumer spending towards exports. Of course, policy makers don't always voluntarily choose to go down this route but even when they don't, the market can force the decision upon them. Think back, for example, to sterling's departure from the Exchange Rate Mechanism (ERM) back in 1992.
But this week I'm more interested in things from a continental European perspective. Two or three years ago, everyone knew why the euro was so weak. It was a sign of economic failure within Europe. Growth had stagnated, some countries appeared to be on the verge of recession, unemployment was persistently high and governments imposed far too many restrictions on the ability of markets to reach efficient outcomes. The US, however, was able to flourish and although there were suspicions about New Labour's predilection for red tape Britain was also able to outperform.
Yet now these arguments somehow don't stack up particularly well. Although the eurozone's underperformance against the US economy has continued over the last couple of years, this has not prevented an extraordinary recovery in the euro's fortunes against the dollar. Moreover, the eurozone has also underperformed the UK yet sterling now appears to be in trouble. Relative growth rates are clearly not the only factors that influence currency performance.
The euro's strength reflects two key factors. First, a lot of Europeans were, in effect, ripped off in the late 1990s. They bought a bunch of US assets that proved a lot less valuable than they seemed to be at the time. It's a modern-day version of Japan's decision to buy the Rockefeller Centre at the end of the 1980s. Europeans are now being a lot more careful with their money, preferring to invest in nice, safe but potentially boring, domestic government bonds. The fewer the capital outflows from Europe, the stronger the euro. Second, the US may welcome a weaker dollar, given the absence of secure domestic recovery. However, because of the fixed currency regimes against the dollar that prevail in other parts of the world, a weak dollar policy ultimately becomes a strong euro policy.
In other words, the euro's strength has nothing whatsoever to do with economic growth. Far from it. Europeans are worse off as a result of their misguided investments in the US. European companies are worse off because they borrowed too much in the late 1990s and are no longer capable of snapping up a US company at a supposedly bargain price. Net result: the euro goes up because European capital stays at home.
The last time this sort of thing happened was in Japan at the beginning of the 1990s. The Japanese yen rose strongly in the first half of the 1990s despite the weakness of the Japanese economy and the persistent declines in Japanese asset prices. The yen went up because the Japanese either had to repatriate their capital - to shore up flagging domestic balance sheets - or because they were no longer sure that they were capable of making wise investments abroad. And the more they thought this, the more the view was confirmed: after all, a rising yen meant further losses on holdings of overseas assets, giving an added incentive for the Japanese to keep their money at home.
Ultimately, of course, the yen's strength contributed to Japan's depression. So the eurozone needs to take heed. What should the policy makers do? Well, it might be useful to avoid some of the mistakes that Japan made at the beginning of the 1990s. The Japanese were too slow in cutting interest rates. They were too slow in loosening fiscal policy. They were too slow to recognise that they had severe balance sheet problems within the private sector.
Knowing this, the eurozone could follow a few obvious steps. Step 1: cut interest rates aggressively. There's no point hanging around waiting for the currency appreciation effects to come through because by that stage the damage will have been done. The European Central Bank could, if it wanted to, follow exactly this policy at its meeting this week. Step 2: loosen fiscal policy aggressively and make it clear that fiscal and monetary policy, if need be, will be co-ordinated to enable money to be printed and circulated in the economy. Step 3: ensure that you have strong lender of last resort facilities and clear ideas of how to restructure company balance sheets in the event of a persistent problem with excess debt.
Three steps to economic heaven? Perhaps, but as our French couple sit on their Margate deckchairs looking out to sea, they may glance up and see a squadron of flying pigs overhead. Europe's obsession with the defeat of inflation may have left it with a policy framework that is simply unable to cope with the legacy of the 1990s boom. Europe's dalliance with the American Dream has given it a stock of overseas assets that has left domestic companies and investors with overstretched balance sheets. A rise in the exchange rate should, theoretically, force policy makers into action. But, trussed up with an overly aggressive inflation target and manacled by a Stability Pact designed for a different era, the euro's strength may leave parts of the eurozone - particularly Germany - in even worse shape.
Stephen King is managing director of economics at HSBC.
Posted 08 May 2003 - 09:56 AM
There's a saying once a gambler, always a gambler ?
JPM had sprawled its businesses through luring customers into highly sepculative derivatives. And many are saying this company will fall because of abuse of this practice.
Now, JPM has come up with yet another derivative of sort. when will they learn..?
Reuters, JP Morgan has emerging market default swap index
Wednesday May 7, 2:29 pm ET
NEW YORK, May 7 (Reuters) - J.P. Morgan Securities, the investment banking arm of J.P. Morgan Chase (NYSE:JPM - News), said it launched this week an index tracking the performance of emerging market credit in the booming credit derivatives market.
The index, called the EMDI (Emerging Market Derivative Index), follows the credit default swap spreads on 19 of the 31 countries in J.P. Morgan's widely followed index of emerging market sovereign bond spreads over benchmark U.S. Treasuries.
Credit default swaps are derivative contracts that allow users to buy and sell protection against a company or country failing to make good on its debt.
Default swaps provide an easier means of expressing a negative view on a credit because of the difficulty of short-selling a sovereign bond. For that reason a marketer at J.P. Morgan said trading activity in the derivatives index could surpass that in its cash index.
The booming credit derivatives market, which more than doubled in size last year to $2.2 trillion, has had an increasing influence on underlying cash securities.
J.P. Morgan said in a research report that the new EMDI index stood at 435 basis points on the first day of trade on Tuesday, 43 basis points higher than a subindex of its cash-based EMBI.
The countries in the EMDI include most of the biggest emerging market bond issuers, with the biggest index weighting going to Mexico, Russia, Brazil, Malaysia and South Korea respectively.
The EMDI is a five-year contract -- the most widely traded in default swaps -- with a maturity of May 2008 and will trade on a price basis as opposed to a spread. J.P. Morgan said it hopes to have bid-offer spreads of one full point or less.
For now the contract trades as a straight default swap. But later this year J.P. Morgan expects to issue a "funded" version of the index that essentially allows investors like mutual funds and pensions unable to use derivatives to get comparable exposure to the index.
Posted 08 May 2003 - 10:01 AM
Out of all the incredible financial developments of the 1990s, one of the most important fundamental structural changes in the nature of the operation and interaction of the global financial system was the literal explosion of the use of derivatives.
Derivatives are often highly complex financial instruments that "derive" their value from some other underlying asset. As the use of these instruments evolved and advanced to a stunning degree in the 1990s, an intriguing bifurcation of opinion on the merits of the hybrid instruments developed. Among the Wall Street power players and aggressive private speculators, derivatives were seen as a wonderful financial innovation that would lead to highly customizable risk management and a huge new profit stream for Wall Street.
Outside of the financial halls of power, however, derivatives began to acquire a reputation of being staggeringly risky financial instruments that could turn sour in a heartbeat and devour the financial wizards who created them like hungry sharks. Like the young sorcerer's apprentice in Walt Disney's classic 1940 masterpiece "Fantasia", a general public perception of derivatives gradually evolved that perceived the growth of derivatives as a dangerous experiment being recklessly played out in the financial world. Like the sorcerer's apprentice dabbling in powerful magic when the master was not around to manage the unleashed forces, derivatives creation was increasingly seen by the average investor as being hazardous attempts to harness enormous financial tides and forces that were simply too big and too complex to be decisively tamed.
A string of massive derivatives debacles in the 1990s helped buttress this negative popular perception of derivatives and provided strong support for the "derivatives are very dangerous" side of the great derivatives debate.
Long and detailed explination of the DM! JPM had 26 trillion worth of exposure.
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