Foreigners signaling more moves out of dollar

[qcomer]

To put things in the right context, 33% decline in dollar (real inflation) hasn’t resulted in actual inflation as China/Japan tied their currency to dollar, thus keeping prices of most everyday items under check. Curency markets are extremely volatile though and dollar may bounce back. For 3 months, it had been going up against all currencies but the GDP numbers changed the picture and reversed trend. I was hoping a Dems victory may help dollar by bringing hopes of govt spending under check.

What impact will a sharp dollar decline have on housing markets in the US? I consider 35% in 4 years to be pretty steep for a major currency. What effect did it have on the markets in the last 4 years (if any)?

[powayseller]

qcomer, I have no clue. We should post this question on Roubini’s blog.

[powayseller]

On Brad Setser’s blog, (colleague of Roubini) I read yesterday that PBoC chief Zhou told Reuters that
““All central banks are trying to diversify,” he told Reuters on the sidelines of a European Central Bank conference in Frankfurt. “We have had a very clear diversification plan for several years.”

In the blog comment section, Michael Hampton notes that Zhou’s comment came on the heels of his Financial Sense article about the plans of Chinese bankers. He believes they have a plan to replace the US consumer (who is dwindling anyway due to the busting housing market) with African and Asian consumers.

China’s leaders are very educated, often engineers, and they are in power for more than 4 years, so they are not limited by short term results. They are well aware of the declining US consumer, and have plans to deal with it.

Hampton points out that the US blockage of the UNOCAAL deal almost caused a retaliatory move, but it was a wake-up call that to the Chinese, that their dollar holdings had limited use, and could not be used to buy assets. I also believe that, along with the Dubai ports deal block, was very bad for the long term dollar.

The plan is to get closer to Africa, trading investment in Africa with natural resources, keep close energy trading ties with Iran, and to appreciate the most powerful new consumer: the Chinese consumer, who is gaining 20% – 30% annually in spending power. “Their spending, together with that from African countries, and a still-rising number of customers in the Middle East and India, would allow China to keep growing, even as it lost a big share of exports to America.”

“the time had come to start selling those excess dollar reserves, and reinvesting the money in commodities, something China could use. And the time to do it was before others countries and speculative players like hedge funds caught on and started buying, and pushed the price up. The recent drop in oil, and other commodities, engineered as a prelude to the US elections, had provided a wonderful buying opportunity. Now was the time to strike.”

Then, right after Hampton published this article, Zhou made the Reuters comment. This is a wake-up call.

[powayseller]

More from Hampton’s article, “Surely, if the dollar was losing its value, the Middle East would want to see a higher dollar oil price, to maintain the spending power of those dollars. ”

Do you think that the dollar’s 33% drop in the last few yaers caused the rise in oil prices during that time?

It may not have a 1-1 correlation, since oil is affected by traders and geopolitical risk, and the Katrina hurricane, but in general, when the dollar continues falling, oil producing nations will raise their prices so they don’t lose purchasing power, and our recession will be exacerbated.

I think someone ought to start a new thread about possible diversification techniques. Those of us on piggington, who are aware of the looming problem, have no excuse to be caught blindsided. At least we should have some discussion, and then it is up to each of us whether we profit or lose from this transition.

In related news, the european yield curve briefly inverted yesterday by one basis point, and the UK and US yield curves are fully inverted. Japan’s manufacturing and capital spending orders are down. The recession is starting to rear its head in other places.

[bsrsharma]

And now this. Just when we need it most!

————————————————————–
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml

China threatens ‘nuclear option’ of dollar sales

By Ambrose Evans-Pritchard
Last Updated: 1:48am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China’s “nuclear option” in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing’s foreign reserves should be used as a “bargaining chip” in talks with the US.

“Of course, China doesn’t want any undesirable phenomenon in the global financial order,” he added……………….
———————————————————–

[bsrsharma]

And now this. Just when we need it most!

————————————————————–
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml

China threatens ‘nuclear option’ of dollar sales

By Ambrose Evans-Pritchard
Last Updated: 1:48am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China’s “nuclear option” in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing’s foreign reserves should be used as a “bargaining chip” in talks with the US.

“Of course, China doesn’t want any undesirable phenomenon in the global financial order,” he added……………….
———————————————————–

[bsrsharma]

And now this. Just when we need it most!

————————————————————–
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml

China threatens ‘nuclear option’ of dollar sales

By Ambrose Evans-Pritchard
Last Updated: 1:48am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China’s “nuclear option” in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing’s foreign reserves should be used as a “bargaining chip” in talks with the US.

“Of course, China doesn’t want any undesirable phenomenon in the global financial order,” he added……………….
———————————————————–

[kewp]

I think someone ought to start a new thread about possible diversification techniques. Those of us on piggington, who are aware of the looming problem, have no excuse to be caught blindsided. At least we should have some discussion, and then it is up to each of us whether we profit or lose from this transition.

Read “Crashproof” by the (oft quoted here) Peter Schiff. Great book.

My personal take is that there are three bubbles in the process of deflating, real estate, stock market and institutionalized debt. The trick is reduce your exposure to these where you can.

If you have equity, this means liquidating your assets *now* and going global. Sell any property you have and get out of the market. Invest in foreign currency baskets, commodity funds, energy trusts, gold and other tangible stuff. If you have a 401k and the option, move as much of it to the above as you can.

If you are in debt, like me, get rid of it as fast as you can before interest rates/min payments go up. Get your credit score and do what you can to improve it. Its possible to play games by moving cash overseas and banking on debt deflation, but thats too risky for me.

If you are employed in any sector directly in the bubble areas, or retail, consider getting a job with a company/industry that global exposure.

Good luck and godspeed folks!

[kewp]

I think someone ought to start a new thread about possible diversification techniques. Those of us on piggington, who are aware of the looming problem, have no excuse to be caught blindsided. At least we should have some discussion, and then it is up to each of us whether we profit or lose from this transition.

Read “Crashproof” by the (oft quoted here) Peter Schiff. Great book.

My personal take is that there are three bubbles in the process of deflating, real estate, stock market and institutionalized debt. The trick is reduce your exposure to these where you can.

If you have equity, this means liquidating your assets *now* and going global. Sell any property you have and get out of the market. Invest in foreign currency baskets, commodity funds, energy trusts, gold and other tangible stuff. If you have a 401k and the option, move as much of it to the above as you can.

If you are in debt, like me, get rid of it as fast as you can before interest rates/min payments go up. Get your credit score and do what you can to improve it. Its possible to play games by moving cash overseas and banking on debt deflation, but thats too risky for me.

If you are employed in any sector directly in the bubble areas, or retail, consider getting a job with a company/industry that global exposure.

Good luck and godspeed folks!

[kewp]

I think someone ought to start a new thread about possible diversification techniques. Those of us on piggington, who are aware of the looming problem, have no excuse to be caught blindsided. At least we should have some discussion, and then it is up to each of us whether we profit or lose from this transition.

Read “Crashproof” by the (oft quoted here) Peter Schiff. Great book.

My personal take is that there are three bubbles in the process of deflating, real estate, stock market and institutionalized debt. The trick is reduce your exposure to these where you can.

If you have equity, this means liquidating your assets *now* and going global. Sell any property you have and get out of the market. Invest in foreign currency baskets, commodity funds, energy trusts, gold and other tangible stuff. If you have a 401k and the option, move as much of it to the above as you can.

If you are in debt, like me, get rid of it as fast as you can before interest rates/min payments go up. Get your credit score and do what you can to improve it. Its possible to play games by moving cash overseas and banking on debt deflation, but thats too risky for me.

If you are employed in any sector directly in the bubble areas, or retail, consider getting a job with a company/industry that global exposure.

Good luck and godspeed folks!

[bsrsharma]

American Gangster’s Wad of Euros Signals U.S. Decline

`It may be our currency, but it’s your problem” was Treasury Secretary John Connally’s taunt when the U.S. unhooked the dollar from the gold standard in 1971, unilaterally rewriting the rules of world business in America’s favor.

Now the world is taunting back. Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar’s fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency is on the losing side.

After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.

“What we’re seeing is a very broad rebalancing of economic and political power in the world,” says Jeffrey Garten, a Yale School of Business professor who was the Commerce Department’s undersecretary for international trade in the Clinton administration. “The scales are moving, and they’re moving quite fast.”

The dollar blues have migrated from the halls of central banks to images of rap musicians.

In a video for the movie “American Gangster,” hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn’t legal tender. The euro gained against the dollar today as European economic growth in the third quarter accelerated more than forecast. ……….

http://www.bloomberg.com/apps/news?pid=20601109&sid=azto7U.TmGX0&refer=exclusive

[bsrsharma]

American Gangster’s Wad of Euros Signals U.S. Decline

`It may be our currency, but it’s your problem” was Treasury Secretary John Connally’s taunt when the U.S. unhooked the dollar from the gold standard in 1971, unilaterally rewriting the rules of world business in America’s favor.

Now the world is taunting back. Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar’s fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency is on the losing side.

After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.

“What we’re seeing is a very broad rebalancing of economic and political power in the world,” says Jeffrey Garten, a Yale School of Business professor who was the Commerce Department’s undersecretary for international trade in the Clinton administration. “The scales are moving, and they’re moving quite fast.”

The dollar blues have migrated from the halls of central banks to images of rap musicians.

In a video for the movie “American Gangster,” hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn’t legal tender. The euro gained against the dollar today as European economic growth in the third quarter accelerated more than forecast. ……….

http://www.bloomberg.com/apps/news?pid=20601109&sid=azto7U.TmGX0&refer=exclusive

[bsrsharma]

American Gangster’s Wad of Euros Signals U.S. Decline

`It may be our currency, but it’s your problem” was Treasury Secretary John Connally’s taunt when the U.S. unhooked the dollar from the gold standard in 1971, unilaterally rewriting the rules of world business in America’s favor.

Now the world is taunting back. Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar’s fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency is on the losing side.

After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.

“What we’re seeing is a very broad rebalancing of economic and political power in the world,” says Jeffrey Garten, a Yale School of Business professor who was the Commerce Department’s undersecretary for international trade in the Clinton administration. “The scales are moving, and they’re moving quite fast.”

The dollar blues have migrated from the halls of central banks to images of rap musicians.

In a video for the movie “American Gangster,” hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn’t legal tender. The euro gained against the dollar today as European economic growth in the third quarter accelerated more than forecast. ……….

http://www.bloomberg.com/apps/news?pid=20601109&sid=azto7U.TmGX0&refer=exclusive

[bsrsharma]

American Gangster’s Wad of Euros Signals U.S. Decline

`It may be our currency, but it’s your problem” was Treasury Secretary John Connally’s taunt when the U.S. unhooked the dollar from the gold standard in 1971, unilaterally rewriting the rules of world business in America’s favor.

Now the world is taunting back. Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar’s fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency is on the losing side.

After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.

“What we’re seeing is a very broad rebalancing of economic and political power in the world,” says Jeffrey Garten, a Yale School of Business professor who was the Commerce Department’s undersecretary for international trade in the Clinton administration. “The scales are moving, and they’re moving quite fast.”

The dollar blues have migrated from the halls of central banks to images of rap musicians.

In a video for the movie “American Gangster,” hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn’t legal tender. The euro gained against the dollar today as European economic growth in the third quarter accelerated more than forecast. ……….

http://www.bloomberg.com/apps/news?pid=20601109&sid=azto7U.TmGX0&refer=exclusive

[bsrsharma]

American Gangster’s Wad of Euros Signals U.S. Decline

`It may be our currency, but it’s your problem” was Treasury Secretary John Connally’s taunt when the U.S. unhooked the dollar from the gold standard in 1971, unilaterally rewriting the rules of world business in America’s favor.

Now the world is taunting back. Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar’s fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency is on the losing side.

After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.

“What we’re seeing is a very broad rebalancing of economic and political power in the world,” says Jeffrey Garten, a Yale School of Business professor who was the Commerce Department’s undersecretary for international trade in the Clinton administration. “The scales are moving, and they’re moving quite fast.”

The dollar blues have migrated from the halls of central banks to images of rap musicians.

In a video for the movie “American Gangster,” hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn’t legal tender. The euro gained against the dollar today as European economic growth in the third quarter accelerated more than forecast. ……….

http://www.bloomberg.com/apps/news?pid=20601109&sid=azto7U.TmGX0&refer=exclusive

[Author]

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