Crashing mediums of exchange [Archive]

cyu

30th September 2012, 13:03

The following article has a right-wing angle, but includes some economic concepts that I think are solid and worth reviewing. It also partly illustrates how the current regime in the US is able to dominate the world - a strong dollar means those in charge can basically buy up any country - including their enemies. In order to fight the hegemony of any power, be it the US or any other regime, it would be in the interest of those they oppress to make that currency come crashing down.

http://www.examiner.com/article/dollar-no-longer-primary-oil-currency-as-china-begins-to-sell-oil-using-yuan

For the first time since Henry Kissenger forged a trade agreement with the Royal house of Saud to sell oil using only U.S. dollars, China announced its intention to bypass the dollar and began selling using their own currency.

The ramifications could very well be the catalyst that brings down the dollar as the global reserve currency. the Russian Federation agreed to sell oil to China in any and all amounts they desired.

"Crude oil is the standard currency of the world. Not the Yen, not the Pound, not the Dollar. More money is transferred around the world in crude oil than in any other product. And Russia will not sell or trade this crude oil to China using the American dollar."

Once the majority of the world begins to bypass the dollar, and purchase oil in other currencies, then the full weight of our debt and diminished manufacturing structure will come crashing down.

Lynx

30th September 2012, 14:58

The article does not specify what Russia will accept in exchange for the oil. If it is yuan, which remains pegged to the US dollar, then the effect will be negligible.

If China is ready to let the yuan float, then this would have balance of trade implications.

Globally, this deal is not large enough to affect the USD position as reserve currency.

Workers-Control-Over-Prod

2nd October 2012, 05:55

What you have to remember with arguments from right-wingers like these, is that it really does not matter *that much*, or rather, it is highly contested as to how negatively various deals like this, affect the currency's standing. The dollar is based on nothing anymore, it is a "FIAT" currency that makes the whole national economy representative of the dollar. Oil plays a part of course, is a big market with a lot of leverage, but be careful when you hear the Republican-types cry about oil, because the Republican party in particular is representative of the US oil bourgeoisie.

That said, this development could slightly tarnish the US Dollar's standing in the opinion of Capitalists, but claiming it will lose its world reserve status anytime soon is fear mongering in my opinion because the US still has the largest military and a national economy of 15 Trillion out of the 65 Trillion dollar world GDP.

Workers-Control-Over-Prod

2nd October 2012, 05:57

Btw., you're thread caught my eye because I have just recently been reading Austin Murphy's reports on how neo-liberalism has been causing huge "BOP" Currency Crises through its aggressive free market, liberalising drive.

cyu

30th December 2012, 19:38

The best mathematicians and snake-oil salesmen money can buy

http://www.zerohedge.com/news/2012-12-24/1000x-systemic-leverage-600-trillion-derivatives-backed-600-billion-collateral

We explained previously how gross is irrelevant... until it is, until there is a breach in the chain and suddenly all net becomes gross (as in the case of the Lehman bankruptcy), such as during a financial crisis, i.e., the only time when gross derivative exposure becomes material. But a bigger question is what is the actual collateral backing this gargantuan market which is about 10 times greater than the world's combined GDP.

From the IMF:
The notional value of OTC contracts is about $600 trillion, but while much cited, that number overstates the still very sizable risks. Assuming a collateral reuse rate between 2.5-3.0, the dedicated collateral is some $600 - $700 billion. Some counterparties are often not required to post collateral.

And there it is: they don't have to post any collateral to the virtually unlimited derivatives they are allowed to create out of thin air.

banks are making a total mockery out of such preemptive attempts to safeguard the system, such as the Basel III proposal, which will be delayed again and again, until, hopefully, everyone forgets all about them.

the entire world, which has now become one defacto AIG Financial Products subsidiary, and is spewing derivatives left and right, may have to scramble just a bit to procure some of this $599 trillion in actual collateral, once collateral chains start breaking. the only value created by financial innovation is layering of derivatives upon derivatives, serving merely to prod banker bonuses to all time highs.

Prof. Oblivion

31st December 2012, 00:12

I don't know, I don't think you can really compare the bankruptcy of Lehman to the "derivatives market" as a whole. In fact I think it's rather silly and irrelevant to discuss the "leverage" of "derivatives" simply because of the fact that the term is about as abstract as "financial securities".

I understand the problem with leverage, but adding up the total leverage in the economy is an irrelevant endeavor simply because of the fact that total leverage does not mean total exposure, as the entire derivatives market will never completely collapse at once. That notional value will never become real because of it. Also, many institutions use leveraging in their hedging as well, which would also be counted in this amount.

Also, even if we take leverage out of the equation, there are still problems. Granted, the majority of wealth destruction is in leveraged transactions, simply because that's where the most money is, and certainly needs to be addressed, but if we look at the housing bubble itself we can see that while there was a massive amount of explosive material - leverage - the detonation mechanism is ultimately what set it off, in this case the housing bubble bursting.

MBS were improperly rated so highly precisely because they are collateralized. Should a homeowner default on their mortgage, the bank can simply foreclose on the home and sell it, thus guaranteeing the perpetuation of cash flow into the pockets of MBS investors. This thinking was based on the belief that the housing market would never significantly decline, some even believing it would keep on growing at the same pace or greater. Thus the level of exposure was never recognized, or never addressed in banks, because prevailing thinking at the time saw such an event as simply unrealistic. And when it was recognized I don't think it was recognized as such; many analysts probably saw the lower tranches coming in and saw how strained the securitization market was that it was going for these lower tranches, but never saw such a massive recession, bordering on depression, coming.

But that's the thing with economic bubbles; nobody has the entire picture, nobody has full responsibility. Everyone plays their own little part.

Anyways, where was I? Oh, yeah, there isn't anything inherently wrong with MBS per se, based on the original reasoning behind the creation of the product in the first place. In fact, MBS still exist and will continue to do so.

But I suppose my point is that collateralization isn't necessarily a solution, and can in fact cause more problems than it solves. Similarly, leverage isn't necessarily a problem; there is no problem with me purchasing an option chain, for example, which is leverage. The entire problem is much more nuanced than "leverage is bad; collateralization is good".

Also, banker bonuses are on steep declines. :)

ckaihatsu

31st December 2012, 02:08

But that's the thing with economic bubbles; nobody has the entire picture, nobody has full responsibility. Everyone plays their own little part.

On a side note I'll say that we're mostly conventionally conditioned, and may have a blind spot regarding how this thing *really* works -- at any given point in time (in this current economic era of fictitious capital creation) wouldn't there *somewhere* be a bubble inflating somewhere, perhaps one that's blatantly overvalued and only getting moreso -- ?

And perhaps it's none other than The Fed that even *indicates ahead-of-time* which industry is to be bubble-ized. (It's to be housing again, incidentally, by this yardstick.)

Sure the problem is systematic and so requires a *systematic* solution -- class war. On the individual level, though, we all are like marionettes whenever we want to actually enjoy the gains of the world or participate at all in it, in the given prevailing capitalist scheme.

Prof. Oblivion

31st December 2012, 02:21

cyu

5th January 2013, 02:08

the entire derivatives market will never completely collapse at once.

Well, there has never been a run on every single bank in the world at the same time either, but a run on a single bank still leads to the collapse of that bank =]

the majority of wealth destruction

Depends on your definition of "wealth" - I would argue it is in fact not wealth destruction, but rather merely the destruction of the illusion of wealth (ie. numbers on computers). Real wealth destruction would be, for example, if you burned down everyone's houses or let food rot.

collateralization isn't necessarily a solution

Well, given that anarchists not only encourage the seizing of the means of production, but also the taking of finished goods if they are necessary for the poor to survive, then not only would the prices of existing stocks be moot, but the existing prices of commodities would be moot as well.

From http://cjyu.wordpress.com/article/capital-flight-gcybcajus7dp-5/

Wealth is not to be found in currency, in the so-called “precious” metals, in paintings by long-dead painters. None of those are needed to survive. Wealth is found in food, in warmth, in health care, and in the things necessary to produce them. All the land is still yours. All the labor is still yours. Even factory equipment remains, despite the flight of “capital” – that is, the loss of things that represent wealth, but are not wealth themselves.

Prof. Oblivion

5th January 2013, 02:46

Well, there has never been a run on every single bank in the world at the same time either, but a run on a single bank still leads to the collapse of that bank =]

I don't see what bank runs have to do with anything. My point was that all of that leverage can't be lumped together because it doesn't make sense. If two sides leverage an option, for example, there's a winner and a loser. Yes, the loser will lose, but the winner will win. Adding up both of their leverage is meaningless because both of them, by definition, can't fail in the transaction.

That's essentially what this article did: it added up all leverage, then compared it to all real assets. That's great, but all leverage is meaningless because it depends on where that leverage is and how it is being invested in comparison to other leveraged transactions.

cyu

5th January 2013, 07:03

Vladimir Innit Lenin

5th January 2013, 10:42

That depends on how you define bubble I suppose. There are always capital flows in and out of various industries. I think however that economic bubbles require to a certain extent a turning on its head of fundamental investing principles, of exponentially increasing capital inflows, leading to price-driving activities (i.e. disproportionately high demand leading to massive capital inflow leading to price increases, cyclically continuing until it bursts).

How are you defining 'fundamental investing principles'? That seems to point to some idea of there being 'normal' market conditions punctuated by crises, which i'm not sure holds true, at least according to Marxist theory. Capitalism is inherently unstable, lurching through periodic crises but also many day-to-day, week-to-week corrections and failures.

In the case of housing this was spurred by, among other things, a desire to find a replacement for treasury bonds, easy access to home loans, home prices increasing disproportionally relative to the market as a whole, the improper rating of MBS and related product based on historic data and, of course, mass capital inflow, mostly in the form of leverage. The system generates its own momentum.

Probably also important to add ehre that not only were MBSs improperly rated, but that this led to more mortgages being awarded than ever before, with associated consequences related to initial debt, restructuring of debt, defaults on debt, house price shocks and so on.

Prof. Oblivion

5th January 2013, 14:23

When your bank account says you have $1000, it's more like a promise that they will give you $1000 when you demand it. The same with everyone's accounts. However, if everyone withdraws at the same time, the bank doesn't have enough money to cover all the withdraws at the same time. Promises can't help but be broken - you don't get any money, and the bank goes broke.

Similarly let's say I promise to deliver you 500 bushels of wheat in September, and you pay me today for that promise. Come September, let's say I'm unable to get my hands on 500 bushels of wheat. What then? Even if I go bankrupt, I still can't deliver. Who is the winner in this transaction?

I know what a bank run is. I still don't see what it has to do with anything in this thread.

How are you defining 'fundamental investing principles'? That seems to point to some idea of there being 'normal' market conditions punctuated by crises, which i'm not sure holds true, at least according to Marxist theory. Capitalism is inherently unstable, lurching through periodic crises but also many day-to-day, week-to-week corrections and failures.

Investment institutions normally take positions and cover their exposure using various methods to prevent large losses in the event of bad performance. Normally, this would involve some type of hedging, which actually is what we saw throughout many banks in the last crisis - the accusation that they were providing investments to their customers which "they knew were bad" is exactly what exposure management is all about, and why risk departments took out policies to "bet against" their investments.

I'm sure some banks knew they were providing "bad product" but the question arising from that is whether they withheld information from investors or whether investors were the ones that chose not to look into it. My guess is that the banks provided info on MBS product that was wrong, based on the provided credit ratings, and that's all that the investors looked at. 99% of investors simply review the investment rating and don't dig into the guts of an investment as complex as MBS. Willful ignorance in the face of strong returns is a very strong indicator that something is not right (see Madoff investors on this). But this is another story of course.

The argument that "banks were pushing product they knew were bad, and also betting against them at the same time" simplifies a very complex process. Those "betting against" the investments were probably in risk management departments and trying to hedge their investments to manage exposure and prevent loss. This department has a different goal than that which provides product to investors and so to say "the bank did xyz" is missing the massive division and breakdown or intentional prevention of communication within the organization.

Banks which did not hedge against downside risk were those that were hit the hardest. Lehman Brothers, for example, not only did not manage their exposure properly but also were leveraged at a very high level, meaning that a very small amount of downside movement could (and did) wipe out their entire market capitalization.

Yes, you are correct that Marxian economics shows how unstable capitalism is, but I am speaking from an institutional and individual standpoint when I say "fundamental investing principles" and not a systemic one. See Graham's The Intelligent Investor for a very basic primer on these fundamentals. Managing downside risk is obviously one of those fundamentals.

And there is no such thing as "normal market conditions". Every day is different.

Probably also important to add ehre that not only were MBSs improperly rated, but that this led to more mortgages being awarded than ever before, with associated consequences related to initial debt, restructuring of debt, defaults on debt, house price shocks and so on.

Yes, I discussed this above.

Vladimir Innit Lenin

5th January 2013, 14:33

Investment institutions normally take positions and cover their exposure using various methods to prevent large losses in the event of bad performance. Normally, this would involve some type of hedging, which actually is what we saw throughout many banks in the last crisis - the accusation that they were providing investments to their customers which "they knew were bad" is exactly what exposure management is all about, and why risk departments took out policies to "bet against" their investments.

Indeed. The problem being that they weren't really betting against 'their' investments in the end, but on essentially what were investments bundled up and passed around like a hot poker between the banks. By 07/08, I genuinely don't think anybody handling the trading of these bundles of mortgage-backed securities, or the credit default swaps that amounted to the risk-hedging of these securities, had any idea what was inside the bundles of goods traded.

I'm sure some banks knew they were providing "bad product" but the question arising from that is whether they withheld information from investors or whether investors were the ones that chose not to look into it. My guess is that the banks provided info on MBS product that was wrong, based on the provided credit ratings, and that's all that the investors looked at. 99% of investors simply review the investment rating and don't dig into the guts of an investment as complex as MBS. Willful ignorance in the face of strong returns is a very strong indicator that something is not right (see Madoff investors on this). But this is another story of course.

I can't speak totally for sub-prime, but I was working on the trading floor in 07 and 08, and in terms of 'prime' mortgages of the level just above that of sub-prime, investors were fully informed. Indeed, it was part of said company's business model to build in a 20% default rate to any future expectations of returns. 20%!!! And this was for a level higher than sub-prime!

The argument that "banks were pushing product they knew were bad, and also betting against them at the same time" simplifies a very complex process. Those "betting against" the investments were probably in risk management departments and trying to hedge their investments to manage exposure and prevent loss. This department has a different goal than that which provides product to investors and so to say "the bank did xyz" is missing the massive division and breakdown or intentional prevention of communication within the organization.

You're probably right. Although in my experience, I would also add that the risk departments seemed to be in tow to the complex algorithms that form part of the huge swathe of bullshit that rules the investment markets.

Yes, you are correct that Marxian economics shows how unstable capitalism is, but I am speaking from an institutional and individual standpoint when I say "fundamental investing principles" and not a systemic one. See Graham's The Intelligent Investor for a very basic primer on these fundamentals. Managing downside risk is obviously one of those fundamentals.

I would argue that, to a greater or lesser extent, the difference between investing on 'trends' and investing on 'fundamentals' is illusory and somewhat bogus, given the questionable calculations (such as P/E ratios, profits dressed up by accounting procedures and that the share price in no way is an accurate reflection of the true worth of a company's stock) involved in calculating and analysing stock prices and so on.

cyu

5th January 2013, 16:01

The argument that "banks were pushing product they knew were bad, and also betting against them at the same time" simplifies a very complex process.

Be careful there or it will sound to me like you're in the business of making excuses for capitalists. It's not like the example below is anything rare - what cave have you been living in?

http://www.stltoday.com/business/local/why-sherry-hunt-blew-the-whistle-at-citimortgage/article_6fd9a0f6-5e3d-11e1-b5f2-0019bb30f31a.html

Hunt didn’t create the “defects” in mortgage applications. It was her job to find them — red flags for bad loans. the executive wanted her to stop doing her job and let the bank make bad loans that would be guaranteed by the federal government.

“The message was clear to me,” Hunt recalled. “I was threatened.”

Hunt tried to persuade Citi management to root out fraud. all that failed

At first, Hunt didn’t blame Citi. “As I found things against the HUD rules and reported them to management, nothing happened, even after more follow-ups.”

Part of the decision was self interest — she wanted to separate herself from illegal activity.

Normal lying on political websites is nothing of course. However, if large donors pay politicians for a certain foreign policy, and the government starts pressuring CIA agents to implement that policy, you have a similar situation. Although in the CIA's case, the activity tends to be much more sordid. What if an agent is ordered to assassinate someone or overthrow a democracy? Do they just politely decline? Would that be considered "separating yourself from illegal activity"?

Prof. Oblivion

5th January 2013, 18:44

Indeed. The problem being that they weren't really betting against 'their' investments in the end, but on essentially what were investments bundled up and passed around like a hot poker between the banks. By 07/08, I genuinely don't think anybody handling the trading of these bundles of mortgage-backed securities, or the credit default swaps that amounted to the risk-hedging of these securities, had any idea what was inside the bundles of goods traded.

I can't speak totally for sub-prime, but I was working on the trading floor in 07 and 08, and in terms of 'prime' mortgages of the level just above that of sub-prime, investors were fully informed. Indeed, it was part of said company's business model to build in a 20% default rate to any future expectations of returns. 20%!!! And this was for a level higher than sub-prime!

I would argue that these two statements are contradictory, but they're actually correct when put in context. Some people had no idea what were in these securities and didn't care. Others were privy to a certain level of default from their own individual position but were not aware of the scale of the bubble. In other words, traders who were made privy to the 20% default rate were not aware of the entire picture outside of their job.

You're probably right. Although in my experience, I would also add that the risk departments seemed to be in tow to the complex algorithms that form part of the huge swathe of bullshit that rules the investment markets.

I've never had any contact with any sort of risk management stuff but you very well could be correct. What I'm arguing against is the fact that leftists seem to want to paint this as "the bankers doing xyz" which obfuscates the complexity of the whole thing. This is a great example: risk could have been complicit in fraud but you don't hear leftists argue that because they just make abstract propagandistic statements and are seemingly unconcerned with actual analysis and what actually happened.

Be careful there or it will sound to me like you're in the business of making excuses for capitalists.

I know arguing that the prevailing conspiratorial narrative is simplistic and ultimately unrealistic because of this will get me some flak. I've already been accused of being a capitalist on this forum. I think my analysis is more in line with Marxian thought because it actually looks at what happened and treats the problem as systemic rather than having a conspiratorial bent about abstract, monolithic entities conspiring to steal everyone's money.

It's not like the example below is anything rare - what cave have you been living in?

http://www.stltoday.com/business/local/why-sherry-hunt-blew-the-whistle-at-citimortgage/article_6fd9a0f6-5e3d-11e1-b5f2-0019bb30f31a.html

Hunt didn’t create the “defects” in mortgage applications. It was her job to find them — red flags for bad loans. the executive wanted her to stop doing her job and let the bank make bad loans that would be guaranteed by the federal government.

“The message was clear to me,” Hunt recalled. “I was threatened.”

Hunt tried to persuade Citi management to root out fraud. all that failed

At first, Hunt didn’t blame Citi. “As I found things against the HUD rules and reported them to management, nothing happened, even after more follow-ups.”

Part of the decision was self interest — she wanted to separate herself from illegal activity.

Normal lying on political websites is nothing of course. However, if large donors pay politicians for a certain foreign policy, and the government starts pressuring CIA agents to implement that policy, you have a similar situation. Although in the CIA's case, the activity tends to be much more sordid. What if an agent is ordered to assassinate someone or overthrow a democracy? Do they just politely decline? Would that be considered "separating yourself from illegal activity"?

I don't understand your point. I never denied that fraud occurred. I'm arguing that the bubble wasn't caused by fraud, and that it was merely one of many factors that created the developments which allowed the bubble to grow and burst.

Even if zero fraud occurred, the fact that NINA loans existed blatantly show that the problem still existed and is deeper than individuals or institutions acting in their own capacity (fraudulently or otherwise).

Vladimir Innit Lenin

5th January 2013, 18:52

I generally agree with you, Bill Cosby, but try not to paint all leftists as conspirators. Some of us are of the same, systemic analysis, type of mind as you! :)

Prof. Oblivion

5th January 2013, 19:01

Yeah I guess I'm guilty of what I'm criticizing, to an extent, haha.

cyu

12th January 2013, 21:10

I'm arguing that the bubble wasn't caused by fraud

Depends who you ask. Even some right-wingers would tell you that all fractional reserve banking is fraud. Leftists might even tell you that the concept of property itself is fraud.

I've already been accused of being a capitalist on this forum.

If it quacks like a duck and walks like a duck, sometimes it is a duck.

Let me ask you this: what would you say to leftists that actively work to crash the mediums of exchange and stock markets in their countries, in order to replace them with an economic system that is not under the control of the wealthy?

Would you say you are against such actions? If so, I would suggest you spend more time in the Opposing Ideologies section. Would you say you would need more time to understand the consequences of these actions? If so, I would suggest you spend more time in the Learning section.

Would you believe your 401K account makes you better off with the current capitalist control structure in place, and you would sooner see poor people die from lack of health care than risk losing 30% of your 401K? If so, well, obviously we both know you would never say you believed this, even if you did

Vladimir Innit Lenin

12th January 2013, 23:49

Would you say you are against such actions? If so, I would suggest you spend more time in the Opposing Ideologies section. Would you say you would need more time to understand the consequences of these actions? If so, I would suggest you spend more time in the Learning section.

I'm against such actions. The financial economy and the real economy are so inter-twined that crashing the financial markets on purpose - if that were possible, which I don't think it is - would cause an unholy amount of pain to working people.

Also, it's not up to you whether somebody posts here, in Learning or in OI, so please don't suggest such things to other users.

Prof. Oblivion

13th January 2013, 04:58

Let me ask you this: what would you say to leftists that actively work to crash the mediums of exchange and stock markets in their countriesLeftists can't do this (nor have I ever heard of any trying), so it's pointless to pose such a question. You seem to conclude that when I correct you when you are wrong, that this means I must be "defending" capitalists. That is a problem with your ego and not my beliefs.

cyu

20th January 2013, 17:40

Leftists can't do this

You don't actually know enough about economics if you think this is impossible.

Mediums of exchange (whether paper currency or "precious" metals) only have value so long as the people of an economy conduct their trade in it. If the working people of a country stopped accepting any medium of exchange as payment, then that "money" would become as worthless as any other piece of paper or rock.

Let's say the working people of America stopped accepting dollars as payment for any goods and services. Let's say they started using a new currency "rallods" instead. You might argue there would still be some conversion rate between dollars and rallods - in effect, it would just be like the introduction of a new currency in the foreign exchange market, and the value of the dollar wouldn't crash.

However, if working people only kept their money in "rallods" and immediately converted any holdings of dollars they had into rallods, what would happen? The amount of dollars floating around the market would shoot up - a massive supply increase affecting the ratio of dollars to actual goods and services - leaving the dollar ever more worthless as more people start dumping dollars - with "value" now being held in "rallods". Of course, real value originates from what working people are willing to accept as payment.

As for the stock market, it too is easy to crash, assuming leftist politics succeed.

Employees merely have to take control of their own workplaces. Since the value of stocks depends on the ability to control corporations, once employees have control, the "control" implied by a stock certificate evaporates. The "value" formerly implied by the stock price now rests in the hands of the employees themselves, since they now control their own destinies.

The financial economy and the real economy are so inter-twined that crashing the financial markets on purpose - if that were possible, which I don't think it is - would cause an unholy amount of pain to working people.

Depends what you replace it with. For example, I could say, let's kick out all politicians and replace them with fascists - and that would indeed cause an unholy amount of pain to everyone. However, I'm sure you'd agree that if they were replaced by people friendlier to leftists, people would be better off.

The same is true of crashing stock markets. If employees seize control of their companies, the stock market is definitely going to crash - it's just a side effect of stocks no longer having their stated purpose. However, would you oppose seizing the means of production simply because it would crash the stock market?

As for replacing the medium of exchange - what we currently have is a wealthy class with vast amounts of economic power - and part of that power (besides resource ownership) derives from them holding more money than everyone else. If you replaced the medium of exchange (which would almost surely crash the old medium of exchange), then that removes another plank from the economic structure that gives capitalists undue power.

See also http://cjyu.wordpress.com/article/demand-is-not-measured-in-units-of-gcybcajus7dp-4/

cyu

13th April 2013, 19:20

http://everything2.com/user/gate/writeups/Strong+dollar+policy

"Poor little Chinnu lives on one dollar a day"

Cost of Living

If the cost of living in one place is $100 / month, those with the same amount of money will be able to buy more than those who live in places where the cost of living is $1000 / month. $3 a day pretty much guarantees that you'll be homeless in Manhattan.

Getting High

What is interesting is that the more rich people in your neighborhood, the higher the cost of living. The simple fact that the rich can spend more than everyone else means there will be more cash running around chasing the goods that you also want to buy. This raises the local cost of living.

Enabling Domination

This isn't to say that people in Third World countries are much better off than we believe, even if their $3 can go further than a homeless New Yorker's $3. Why aren't they better off?

A strong dollar means those with the most dollars (perhaps the US government or perhaps not) have a lot of purchasing power around the world, especially in those Third World countries. This allows them to buy up the natural resources to produce American weapons instead of local goods, for wealthy corporations to easily bribe any government official they want, to hire the media to push propaganda in any direction they choose, and to make high quality weapons available only to those backed by the wealthy.

cyu

13th April 2013, 19:21

Along with BRICS making recent news again, thought this was also interesting.

http://www.cnn.com/2013/04/04/world/asia/australia-gillard-china-trip/

Gillard is expected to secure a major currency conversion deal with her nation's number one trading partner. Currently, Chinese and Australian companies must use the U.S. dollar as an intermediary for trade.

In 2011-12, China was again Australia's largest two-way trading partner for goods and services. China takes one quarter of Australian exports, much of it in raw materials.

the Australian dollar would become directly convertible to Chinese yuan, overcoming the need to first convert to U.S. dollars. This would remove expensive exchange rate issues

ckaihatsu

13th April 2013, 20:18

[T]he Australian dollar would become directly convertible to Chinese yuan, overcoming the need to first convert to U.S. dollars. This would remove expensive exchange rate issues

So that means the U.S. should be invading Australia any day now, right -- ??

It did it to Iraq, after all....

In 2000, Iraq converted all its oil transactions under the Oil for Food program to euros.[2] When U.S. invaded Iraq in 2003, it returned oil sales from the euro to the USD.[3]

The Government of the Islamic Republic of Iran takes this theory as fact. As retaliation to this policy seen as neoimperialism, Iran has made an effort to create its own Iranian Oil Bourse which started selling oil in Gold, Euros, Dollars, and Japanese Yen. In mid-2006 Venezuela indicated support of Iran's decision to offer global oil trade in the euro currency.[4]

http://en.wikipedia.org/wiki/Petrodollar_warfare

cyu

14th April 2013, 04:55

Reminds me of http://www.huppi.com/kangaroo/CIAtimeline.html

1975
Australia — The CIA helps topple the democratically elected, left-leaning government of Prime Minister Edward Whitlam. The CIA does this by giving an ultimatum to its Governor-General, John Kerr. Kerr, a longtime CIA collaborator, exercises his constitutional right to dissolve the Whitlam government. The Governor-General is a largely ceremonial position appointed by the Queen; the Prime Minister is democratically elected. The use of this archaic and never-used law stuns the nation.

cyu

5th February 2014, 02:11

Capitalists are shivering in their wingtips

http://www.talkmarkets.com/content/news/the-stock-market-in-japan-is-collapsing?post=40264

Most Americans simply do not realize that our financial markets are highly manipulated and distorted by the central banks, and the trillions of dollars of "hot money" that the Fed has poured into the global financial system has infected virtually every financial market on Earth

I’d be lying if I said that I wasn’t worried about the way things are going. Frankly, I’m truly scared for myself, my family and the nation. I have the sinking feeling that the stock market is on the edge of a crash.

all the talk about an improving economy is just wishes and hopes.

I’ve been writing about the stock market for over 60 years and I can’t remember a time when I was so filled with foreboding regarding what lies ahead. What scares me the most in this current situation is that I see no clear island of safety.

cyu

14th February 2014, 18:42

http://www.forextv.com/forex-news-story/forex-dollar-collapse-now-third-worst-in-over-a-decade

With Thursday’s close, the Dow Jones FXCM Dollar Index (ticker = USDollar) has dropped for 9 consecutive trading days. We have only seen this level of consistent bearish pressure for the benchmark twice before in the index’s history.

cyu

14th February 2014, 18:51

Running out of bandaids to plug all the leaks in capitalism

http://www.talkmarkets.com/content/economics--politics/20-signs-that-the-global-economic-crisis-is-starting-to-catch-fire?post=40520

Over the past few years, the Federal Reserve and other global central banks have inflated an unprecedented financial bubble with their reckless money printing. Much of this "hot money" poured into emerging markets all over the world. But now that the Federal Reserve has begun "tapering" quantitative easing, investors are taking this as a sign that the party is ending. Money is being pulled out of emerging markets all over the globe at a staggering pace, and this is creating a tremendous amount of financial instability.

cyu

14th February 2014, 19:18

http://www.zerohedge.com/news/2014-02-14/investor-uncertainty-spikes-11-year-high

The percentage of investors who describe themselves as "neutral" is at its highest in over 11 years as a 5% retracement in stocks has bulls running for the hills and individual investors extremely uncertain once again.

"everyone is sitting in the middle of the canoe waiting for something to happen."

cyu

4th March 2014, 22:55

http://www.reuters.com/article/2014/03/04/us-ukraine-crisis-glazyev-idUSBREA230DS20140304

A Kremlin aide was quoted saying that if the United States were to impose sanctions on Russia over Ukraine, Moscow might be forced to drop the dollar as a reserve currency and refuse to pay off any loans to U.S. banks.

Sergei Glazyev, often used by authorities to stake out a hardline stance, was cited as saying Moscow could recommend that all holders of U.S. treasuries sell them if Washington freezes the U.S.. accounts of Russian businesses and individuals.

"we will have to declare the impossibility of returning those loans which were given to Russian institutions by U.S. banks"

"We will have to move into other currencies, create our own settlement system."

"We have excellent trade and economic relations with our partners in the east and south and we will find a way to reduce to nothing our financial dependence on the United States"

cyu

14th March 2014, 22:39

http://www.zerohedge.com/news/2014-03-14/it-begins-past-week-foreigners-sell-record-amount-over-100-billion-treasurys-held-fe

A month ago we reported that China had just dumped the second-largest amount of US Treasurys in history.

for the week ended March 12, Treasurys held in custody by the Fed dropped to $2.855 trillion: a drop of $104.5 billion. This was the biggest drop of Treasurys held by the Fed on record, i.e., foreigners were really busy selling.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/03/Custody%20Holdings_1_0.jpg

cyu

18th March 2014, 15:54

http://www.bbc.com/news/business-26609548

When Fannie Mae and Freddie Mac started to become unglued, The Chinese were the biggest external investor holding Fannie and Freddie securities, so the Chinese were very, very concerned.

the Chinese government owned $1.7tn of mortgage-backed bonds issued by Fannie Mae and Freddie Mac, and it was deeply concerned it would incur huge losses on these bonds.

I was talking to them [Chinese ministers and officials] regularly because I didn't want them to dump the securities on the market and precipitate a bigger crisis.

the Chinese had received a message from the Russians which was, 'Hey let's join together and sell Fannie and Freddie securities on the market.' The Chinese weren't going to do that but again, it just, it just drove home to me how vulnerable I felt until we had put Fannie and Freddie into conservatorship

cyu

21st March 2014, 20:18

http://www.zerohedge.com/news/2014-03-21/petrodollar-alert-isolated-west-putin-prepares-announce-holy-grail-gas-deal-china

If it was the intent of the West to bring Russia and China together in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are "going according to plan."

Russia is preparing the announcement of the "Holy Grail" energy deal with none other than China. One which would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar.

Gazprom hopes to pump natural gas to China via the first pipeline between the world's largest producer of conventional gas to the largest consumer.

add bilateral trade denominated in either Rubles or Renminbi, add Iran, Iraq, India, and soon the Saudis (China's largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

China overtook Germany as Russia's biggest buyer of crude oil this year. China is very interested in investing in infrastructure, energy and commodities in Russia, and a decline in business with the West could force Moscow to drop some of its reservations about Chinese investment in strategic industries.

if pushing Russia into the embrace of the world's most populous nation was not enough, there is also the second most populated country in the world. relations are friendly due to a strategic partnership dating to the Soviet era.

while the biggest geopolitical tectonic shift since the cold war accelerates, the west monetizes its debt, revels in the paper wealth created from an all time high manipulated stock market, blames the weather for every disappointing economic data point, and every single person is transfixed with finding a missing airplane.

cyu

26th March 2014, 05:56

http://www.zerohedge.com/news/2014-03-25/first-russia-locks-china-holy-grail-gas-deal-now-rosneft-prepares-mega-deal-india

Rosneft, the world's top listed oil producer by output, may join forces with Indian state-run Oil and Natural Gas Corp to supply oil to India over the long term.

will payment for crude and LNG be made in Rubles or Rupees? it certainly won't be in dollars.

Russia is aggressively cementing the next, biggest (certainly in terms of population and natural resources), and most important New Normal geopolitical Eurasian axis: China - Russia - India.

the head of Indian conglomerate Reliance Industries also met and discussed potential cooperation in developing Russia's offshore resources.

Sechin also discussed potential shipments of Russia's East Siberia-Pacific Ocean (ESPO) oil blend to India's biggest refiner Indian Oil Corporation (IOC.NS)

cyu

26th March 2014, 06:31

Besides the political alignment, indicative of hastening sea change in world economic structure?

http://www.blacklistednews.com/BRICSrejects_sanctions_against_Russia_over_Ukraine/33993/0/0/0/Y/M.html

The group of five major emerging national economies known as the BRICS has rejected the Western sanctions against Russia and the “hostile language” being directed at the country over the crisis in Ukraine.

“The escalation of hostile language, sanctions and counter-sanctions, and force does not contribute to a sustainable and peaceful solution, according to international law, including the principles and purposes of the United Nations Charter,” foreign ministers of the BRICS countries – Brazil, Russia, India, China and South Africa – said in a statement issued on Monday.

ckaihatsu

27th March 2014, 16:42

Neoliberalism and the Decline of Democracy

http://www.socialistproject.ca/bullet/958.php

cyu

2nd April 2014, 23:01

http://www.zerohedge.com/news/2014-04-02/whither-petrodollar-russia-iran-announce-20-billion-oil-goods-deal

JPM will light the fuse that takes away Russia's choice whether or not to depart the petrodollar voluntarily, and makes it a compulsory outcome, which incidentally will merely accelerate the formalization of the Eurasian axis of China, Russia and India.

Russia seems perfectly happy to telegraph that it is just as willing to use barter and other "regional" currencies, as it is to use the US Dollar, hardly the intended outcome of the western blockade, which appears to have just backfired and further impacted the status of the Petrodollar.

Iran and Russia have made progress towards an oil-for-goods deal sources said would be worth up to $20 billion, which would enable Tehran to boost vital energy exports.

Moscow and Tehran were discussing a deal that would see Moscow buy up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.

cyu

4th April 2014, 22:27

http://www.zerohedge.com/news/2014-04-04/us-threatens-russia-sanctions-over-petrodollar-busting-deal

it appears the US is starting to get very concerned about its almighty Petrodollar

* U.S. HAS WARNED RUSSIA, IRAN AGAINST POSSIBLE OIL BARTER DEAL
* U.S. SAYS ANY SUCH DEAL WOULD TRIGGER SANCTIONS
* U.S. HAS CONVEYED CONCERNS TO IRANIAN GOVT THROUGH ALL CHANNELS

The existence of “petrodollars” is one of the pillars of America's economic might because it creates a significant external demand for American currency, allowing the US to accumulate enormous debts without defaulting.

the “sanctions war” between Washington and Moscow gave an impetus to the long-awaited scheme to launch the petroruble and switch all Russian energy exports away from the US currency.

“I've spoken to Gazprom, to Rosneft and Rosoboronexport management and they don't mind switching their exports to rubles. They only need a mechanism to do that”

Judging by the statement made by the speaker of Russia's upper house of parliament, it is safe to assume that no resources will be spared to create such a mechanism.

Rosneft has recently signed a series of big contracts for oil exports to China and is close to signing a “jumbo deal” with Indian companies. In both deals, there are no US dollars involved.

The White House and the russophobes in the Senate are livid and are trying to block the transaction.

The Russian retaliation will surely be unpleasant for Washington, but what happens if other oil producers and consumers decide to follow the example set by Russia? During the last month, China opened two centers to process yuan-denominated trade flows, one in London and one in Frankfurt.

cyu

7th April 2014, 22:30

http://glblgeopolitics.wordpress.com/2014/04/07/central-banks-investment-in-yuan-puts-currency-nearer-reserve-status/

at least 12 central banks had invested in yuan assets without declaring they had done so.

The US dollar is still the world’s most widely held reserve currency, accounting for nearly 33 per cent of global holdings. That ratio has been declining since 2000, when 55 per cent of the world’s reserves were in dollars.

Among the 23 central banks known to have yuan holdings, 11 are from Asian markets: Australia, Hong Kong, Indonesia, Japan, South Korea, Macau, Malaysia, Nepal, Pakistan, Singapore and Thailand.

The rest are five from Europe – Austria, Belarus, Norway, France and Lithuania – and seven from South America or Africa – Bolivia, Chile, Ghana, Kenya, Nigeria, South Africa and Tanzania.

cyu

11th April 2014, 21:37

Some dubious stuff in there, but interesting bits from http://www.zerohedge.com/news/2014-04-10/paul-craig-roberts-dilemma-world-war-or-end-dollar

Other countries are no longer willing to tolerate Washington’s abuse of the world dollar standard. Washington uses the dollar-based international payments system to inflict damage on the economies of countries that resist Washington’s political hegemony.

Russia and China are disconnecting their international trade from the dollar. Henceforth, Russia will conduct its trade, including the sale of oil and natural gas to Europe, in rubles and in the currencies of its BRICS partners.

This means a big drop in the demand for US dollars and a corresponding drop in the dollar’s exchange value.

Washington’s reckless coup in Ukraine and threat of sanctions against Russia have pushed its NATO puppet states onto dangerous ground. Washington misjudged the reaction in Ukraine to its overthrow of the elected democratic government and imposition of a stooge government. Washington’s stooge government in Kiev has threatened to put the protests down with violence. Washington claims that the protests are organized by Russia, but no one believes Washington, not even its Ukrainian stooges.

A member of the right-wing, neo-Nazi Fatherland Party in the Kiev parliament has called for shooting the protesters dead.

Within the EU, growing economic inequality among the countries, high unemployment, and stringent economic austerity imposed on poorer members have produced enormous strains. Europeans are in no mood to bear the brunt of a Washington-orchestrated conflict with Russia.

Across many fronts, Washington is emerging in the world’s eye as duplicitous, untrustworthy, and totally corrupt. Washington is reduced to threats and bribes and increasingly presents as a bully.

One of two things is likely: Either the US dollar will be abandoned and collapse in value, thus ending Washington’s superpower status and Washington’s threat to world peace, or Washington will lead its puppets into military conflict with Russia and China. The outcome of such a war would be far more devastating than the collapse of the US dollar.

cyu

11th April 2014, 21:50

http://www.zerohedge.com/news/2014-04-10/gazprom-prepares-symbolic-bond-issue-chinese-yuan

1.Gazprom delivering gas to China.
2.China Gazprom paying in Yuan (convertible into Rubles)
3.Gazprom funding itself increasingly in Yuan.
4.Russia buying Chinese goods and services in Yuan (convertible into Rubles)

all of this with the US banker cartel completely disintermediated courtesy of the glaring absence of the USD in any of the above listed steps, or as some may call it: from the Petrodollar to the Gas-o-yuan (something 40 central banks have already figured out... just not the Fed).

cyu

15th April 2014, 19:33

Good if it helps delegitimize the current imperialist structure, but it's likely there will come a day when anti-capitalists will have to delegitimize this one as well.

http://rbth.com/business/2014/04/14/brics_countries_to_set_up_their_own_imf_35891.html

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015.

The BRICS countries are setting up a Development Bank as an alternative to the World Bank in order to grant loans for projects that are beneficial not for the U.S. or the EU, but for developing countries.

The purpose of the bank is to primarily finance external rather than internal projects.

it would be in BRICS' interest to give a loan to an African country for a hydropower development program, where BRICS countries could supply their equipment or act as the main contractor.

If the loan is provided by the IMF, the equipment will be supplied by western countries that control its operations.

A large part of the fund goes toward saving the euro and the national currencies of developed countries. Given that governance of the IMF is in the hands of western powers, there is little hope for assistance from the IMF in case of an emergency.

The currency reserve pool will also help the BRICS countries to gradually establish cooperation without the use of the dollar

cyu

27th April 2014, 00:19

http://www.zerohedge.com/news/2014-04-25/furious-russia-downgraded-just-above-junk-sp-proposes-scorched-earth-retaliation-aga

Sergei Glazyev proposed 15 measures to protect country’s economy if sanctions applied:

•Russia should withdraw all assets, accounts in dollars, euros from NATO countries to neutral ones
•Russia should start selling NATO member sovereign bonds before Russia's foreign-currency accounts are frozen
•Central bank should reduce dollar assets, sell sovereign bonds of countries that support sanctions
•Russia should limit commercial banks' FX assets to prevent speculation on ruble, capital outflows
•Central bank should increase money supply so that state cos., banks may refinance foreign loans
•Russia should use national currencies in trade with customs Union members, other non-dollar, non-euro partners

In other words, a full-blown scorched earth campaign by Russia.

Granted, Russian holdings of US Treasurys are not that substantial, and western financial linkages to Russia are not life-threatening, but if Russia were to take the baton, and other BRIC countries follow suit, then Obama's life is about to become a living nightmare. Especially, if that most important BRIC member - China - does any of the many things it can do to indicate if, in this brand new Cold War, it is with or against the US...

cyu

16th May 2014, 23:15

http://www.zerohedge.com/news/2014-05-15/russia-dumps-20-its-treasury-holdings-mystery-belgium-buyer-adds-another-whopping-40

Russia indeed dumped a record $26 billion, or some 20% of all of its holdings, bringing its post-March total to just over $100 billion - the lowest since the Lehman crisis.

the country that has quietly and quite rapidly become the third largest holder of US paper: Belgium. Or rather, "Belgium" because it is quite clear that it is not the country of Begium who is engaging in this unprecedented buying spree of US paper, but some account acting through Belgian custody.

of the total $60 billion increase in foreign Treasury holdings, "Belgium" accounted for two thirds, most likely doing the purchases under the guise of a "private", unofficial account

cyu

20th May 2014, 14:59

http://www.zerohedge.com/news/2014-05-20/china-signs-non-dollar-settlement-deal-russias-largest-bank

VTB - among Russia's largest banks - has signed a deal with Bank of China to pay each other in domestic currencies, bypassing the need for US Dollars for "investment banking, inter-bank lending, trade finance and capital-markets transactions."

The timeline of imperialism:

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/01/20120103_JPM_reserve_0.png

cyu

1st June 2014, 03:03

Russia and China took a step toward undercutting the domination of the U.S. dollar as the international reserve currency when Russia’s second biggest financial institution signed a deal with the Bank of China to bypass the dollar and pay each other in domestic currencies.

Demand for the dollar, which has served as a reserve currency in international transactions, has allowed the U.S. to borrow almost unlimited cash and spend well beyond its means, which some say has afforded the United States an outsize influence on world affairs.

the BRICS countries — Brazil, Russia, India, China and South Africa, a bloc of the world’s five major emerging economies — have sought to diminish their dependence on the dollar as a means of reshaping the world financial and geopolitical order.

Breaking the dominance of the U.S. dollar in international trade between the BRICS is something that the group has been talking about for some time. The Ukraine crisis and the threats voiced by the U.S. administration may well provide the catalyst for that to start happening.

http://america.aljazeera.com/articles/2014/5/20/russia-china-bankdeal.html

cyu

19th June 2014, 00:29

http://www.zerohedge.com/news/2014-06-18/putin-advisor-proposes-anti-dollar-alliance-halt-us-foreign-aggression

Glazyev outlined a plan for "undermining the economic strength of the US" in order to force Washington to stop the civil war in Ukraine. Glazyev believes that the only way of making the US give up its plans on starting a new cold war is to crash the dollar system.

Glazyev proposes the creation of a "broad anti-dollar alliance" of countries willing and able to drop the dollar from their international trade. Members of the alliance would refrain from keeping the currency reserves in dollar-denominated instruments. Glazyev advocates treating positions in dollar-denominated instruments like holdings of junk securities and believes that regulators should require full collateralization of such holdings. An anti-dollar coalition would be the first step that can help stop the US' aggression.

cyu

26th June 2014, 22:30

http://www.zerohedge.com/news/2014-06-26/gazprom-ready-drop-dollar-settle-china-contracts-yuan-or-rubles

Gazprom's CFO Andrey Kruglov uttered the magic words (via Bloomberg):

•GAZPROM READY TO SETTLE CHINA CONTRACTS IN YUAN OR RUBLES

Gazprom is in talks on a Hong Kong listing and is weighing the issuance of Yuan bonds. Gazprom is also considering selling bonds in Singapore dollars.

PBOC Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin led a meeting held yesterday and today. The meeting discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance and financial supervision sectors.

cyu

5th July 2014, 05:55

http://www.zerohedge.com/news/2014-07-04/punishing-france-us-just-accelerated-demise-dollar-0

as a result of the US multi-billion dollar fine on BNP (http://en.wikipedia.org/wiki/BNP_Paribas), none other than the governor of the French National Bank and member of the ECB's governing board, said this stunner:

BNP CASE WILL ENCOURAGE ‘DIVERSIFICATION’ FROM DOLLAR

increased legal risks from the application of U.S. rules to all dollar transactions around the world will encourage a diversification from the dollar. A movement to diversify the currencies used in international trade is inevitable. Trade between Europe and China does not need to use the dollar and may be read and fully paid in euros or renminbi. Walking towards a multipolar world is the natural monetary policy, since there are several major economic and monetary powerful ensembles. We must not forget that it took decades after the United States became the world's largest economy for the dollar to replace the British pound as the first international currency. But the phenomenon of U.S. rules expanding to all USD-denominated transactions around the world can have an accelerating effect.

an attempt to punish France for proceeding with the delivery of the Mistral amphibious warship to Russia, the US "punishes" BNP with a failed attempt at blackmail. Said blackmail attempt backfires horribly when as a result, the head of the French central bank makes it clear that not only is the US Dollar's reserve currency status not sacrosanct, but "the world" will now actively seek to avoid USD-transactions in order to escape the tentacle of global "pax Americana."

in "punishing" France for dealing with Russia, the US merely accelerated the gravitation of France toward a multi-polar and away from the greenback.

exeexe

5th July 2014, 06:02

One thing i dont get, is why does it matters if i sell oil/bananas/banana oil? in kr or in euroes or in dollars etc? How can one group of people benefit from that?

Loony Le Fist

5th July 2014, 07:15

One thing i dont get, is why does it matters if i sell oil/bananas/banana oil? in kr or in euroes or in dollars etc? How can one group of people benefit from that?

Any differential in price can be resolved into a profit. So if the price of oil is different in either EUR, USD, or CHD it presents an opportunity upon which capitalists can generate profit. Marx truly could not have foreseen capitalism in it's purest and most disgusting form--well maybe he did. You can either buy oil to sell at the higher price, or you can borrow oil at the lower price, sell it at the higher price, pay back your loan, and pocket the difference. It's just the typical capitalist games that are played with our money every day. Tricks that impose inflationary costs on the poor, of course.

cyu

5th July 2014, 07:55

If people expect to use a lot of "gl0d" to buy stuff in the future, then they may store a lot of "gl0d" under their mattress or in their bank. As a result, this removes "gl0d" from circulation. If you have the power to generate "gl0d" - whether through the printing press, loans, or mining - then your economy basically acts like a counterfeiter - calling forth money out of thin air, buying stuff around the world, while everyone else acts like your slave.

exeexe

5th July 2014, 17:40

But due to inflation and capitalism, then inflation in a stable capitalist economy should be at around 2-3%. This means, due to an increase in prices, that your currency will lose purchase power if you just hide them under the mattress or in the bank (but less in the bank). Also if you had invested them it should be easy to generate more purchase power compared to what you lose if you hide them away.

The thing is as long as the inflation is at 2-3% you are not printing currency out of thin air, because its backed up by the economy. Its only when the reason for printing a currency is that the inflation takes too much out of the purchase power that you are printing currency out of the thin air, thus your currency becomes useless because then its not backed up by the economy. Which is the underlaying premise for hyperinflation.

exeexe

5th July 2014, 18:15

I found a quote saying:

In my opinion it is functionally impossible in the long run for the US to actually default on its sovereign debt (as in it is impossible for the US to miss an interest or principal payment) because the debt is denominated in USD and the government can simply print dollars and pay off its obligations. Practically speaking, creditors may find their assets erode in value via inflation if the US simply prints a lot of dollars. Basically, in the status quo, for a credit event to occur with US sovereign debt, the US must intentionally default, as opposed to being forced into default by the inability to pay.

It explains some things i think

cyu

5th July 2014, 23:28

Every bank loan is in fact "printing" money out of thin air.

Maynard, Karl, Ayn, and Alan each have 100 g.p. (that's gold pieces for you non-dungeons&dragons economists). Maynard and Karl put their gold in First Bank, while Ayn and Alan put their gold in National Bank. First Bank has 200 g.p. and can now give a 50 g.p. loan to Alan. Alan now has 150 g.p. in his bank account. When Maynard and Karl check their bank accounts, they still say 100 g.p. each. National Bank now has 250 g.p. and makes a 100 g.p. loan to Maynard, who (according to his bank) now has 200 g.p. in his bank account. Back and forth it goes. Money magically appears without a single paper bill being printed.

This is why when loans unwind - when creditors start calling in all their debts - everything starts crashing.

exeexe

6th July 2014, 01:06

First as a bank you dont loan out gold pieces. You sign a contract saying that you have agreed to a loan which gives an obligation to Maynard and Alan. Then a bank doesn't automatically grant people a loan. They look at your financial situation and judge if you will be able to pay back the loan together with the interest.
Well thats what they should do anyway. The crisis in 2008ish came about because the banks issued subprime mortgage loans, which means their financial situation was not good enough to pay back the loans.

Say your situation continued for another 2 years. The loans was payed back with an interest rate of 8%.

Then Maynard would had payed 116,64 g.p. and Alan would had payed 58,32 g.p.
The bank would had earned 24,96 g.p. on those two loans. The loans get backed up by the economy.

What happens when Maynard and Alan cant pay their obligation? Then the bank lost 150 g.p. So the bank doesnt print money out of the thin air. If they really had indeed printed money out of the thin air then the bank would not lose on such defaulted loans. (and vice versa Alan and Maynard would had been 150 g.p. richer)

Edit:
Well to make sure the bank wouldnt lose any money they would ask Maynard and Alan to mortgage an item. So if the loan defaulted the bank would get to own that item. Then the bank would sell that item and get most of their money back. But what can happen and what happened in 2008 was that the mortgage was on peoples houses, and the market value of houses was dropping hard in 2008ish so the banks lost a lot of money on their risky endeavor.

exeexe

6th July 2014, 02:01

But yes what can happen if everyone claimed their money from the banks in USA. First the federal reserve would probably cancel the rule which concerns fractional reserve banking. But the banks would still need cash in order to generate money and be able to sustain. So what they would need is a one time inflow of money. The state would proberbly raise taxes to 70% and give a one time gift of money to the banks so they could function again. The state would then lower the taxes to normal levels again and the federal reserve would apply the rule which concerns fractional reserve banking.

cyu

6th July 2014, 02:42

The very fact that bank runs are even possible just points to an inherent structural weakness in the capitalist financial system. They do try to rely on general ignorance to make people believe the capitalist banking structure is stable, when in fact it is not.

Even the attempt to justify the value of money by claiming government can force you to pay taxes using that money isn't really a very good justification for the value of that money. People could just as easily "store" their wealth in some other form, and only convert to the local currency on tax day - while at all other times, hold no local currency at all - which would be the equivalent of mass dumping of that currency into the market.

So what really upholds the value of the local currency is merely capitalist fraud and propaganda. It's rather like the Emperor's New Clothes - if everybody claims something is valuable, even when it's not, then it in fact has "value" derived from the fraud.

exeexe

6th July 2014, 03:48

People could just as easily "store" their wealth in some other form, and only convert to the local currency on tax day - while at all other times, hold no local currency at all - which would be the equivalent of mass dumping of that currency into the market.

This would only work if you were a capitalist or owning your own business. As a worker, the capitalist will tell the government how much you earn and from that piece of information the state will tell you how much you will have to pay in taxes.

The very fact that bank runs are even possible just points to an inherent structural weakness in the capitalist financial system.
Ofcourse. Even a capitalist system without bankings would contain inherent structural weakness.

cyu

6th July 2014, 04:28

As a worker, the capitalist will tell the government how much you earn and from that piece of information the state will tell you how much you will have to pay in taxes.

I'm not sure you understand. Let's say you have a tax bill of $4000 due in April next year. That doesn't mean you have to have either $4000 under your mattress or in your bank. It just means you have to have $4000 on one day in April. On every other day in the year, you can convert that $4000 to anything else - whether it's barrels of oil, bushels of wheat, farmland, tractors, ammunition, or whatever. And on tax day, you simply exchange just enough to pay off the $4000 tax bill, and for the rest of the year, you never have to deal in dollars.

If the rest of the working class did this, it is basically the equivalent of the entire working class dumping their dollars into the world currency market.

cyu

6th July 2014, 05:00

http://www.zerohedge.com/news/2014-07-05/ceo-one-worlds-largest-energy-major-sees-no-reason-petrodollar

Having alienated the Germans over NSA-eavesdropping, 'boomerang'd the Russians into de-dollarization, tariffed and quantitatively eased China into diversification, and finally 'punished' France into discussing the dollar's demise; it appears no lessor person than the CEO of Total (the world's 13th biggest oil producer and Europe's 2nd largest), believes "There is no reason to pay for oil in dollars."

"There is no reason to pay for oil in dollars," he said. He said the fact that oil prices are quoted in dollars per barrel did not mean that payments actually had to be made in that currency.

So even a major beneficiary of the status quo appears to see the end in sight for the Petrodollar.

countries like China are already dumping the greenback in trade with particular nations. It is utterly foolish to assume this trend is somehow “random” rather than deliberate. Foreign countries would not be initiating the process of a dollar dump today if they did not mean to follow through with it tomorrow.

exeexe

6th July 2014, 16:37

I'm not sure you understand. Let's say you have a tax bill of $4000 due in April next year. That doesn't mean you have to have either $4000 under your mattress or in your bank. It just means you have to have $4000 on one day in April. On every other day in the year, you can convert that $4000 to anything else - whether it's barrels of oil, bushels of wheat, farmland, tractors, ammunition, or whatever. And on tax day, you simply exchange just enough to pay off the $4000 tax bill, and for the rest of the year, you never have to deal in dollars.

If the rest of the working class did this, it is basically the equivalent of the entire working class dumping their dollars into the world currency market.
I dont think you understand how the system works. If you dont pay what the state think you should pay they have a couple of tools at their disposal.
If you are a worker they can take a part of your wage before you even get to see your wage. This works for most workers where payment is done electronically and most capitalists will adhere to this system.

On top of that they can physically go to your location and confiscate your possessions then sell them on the market and get their dollars that way.

Edit: Now i think i know what you mean. You want to have a barter economy. Well good luck explaining that to the capitalist class because this is not a matter for the working class.

cyu

6th July 2014, 19:19

You want to have a barter economy.

It could be barter - depending on what you mean by barter. For example, if you backed a currency with barrels of oil, then bought and sold stuff based on numbers of barrels of oil, is that still a barter economy?

From http://www.revleft.com/vb/violence-venezuela-heavy-t186979/index8.html

For countries who do a lot of trade in oil, they could just abandon the "middle-man" currency, and conduct trade directly in oil - for example, if you want to import 5000 shipments of wheat, offer them a certain number of barrels of oil - if your partner doesn't actually want to use the oil, just write it down on a ledger - if your partner is really after construction equipment, they can get it from another country that can then "withdraw" the oil you've "saved" for them on the ledger.

exeexe

14th July 2014, 12:46

Every bank loan is in fact "printing" money out of thin air.

Ok so i was thinking what would happen if people did this. Go to the bank you have, say 1 million $ in cash, then you create a plan that shows you want to start up a potentially lucrative business. Then you persuade the bank to let you burrow say 5 million$. Then you go to some fucked up place (there are plenty of fucked up places on this planet) and never pay the bank anything back?

You would thus have acquired 4 million $ legally.
In short, if the banks can do it, so can we..

cyu

14th July 2014, 14:44

http://www.theguardian.com/world/2014/apr/20/spain-robin-hood-banks-capitalism-enric-duran

Duran took out 68 commercial and personal loans from 39 banks. He farmed the money out to social activists. "I saw that on one side, these social movements were building alternatives but that they lacked resources and communication capacities."

"I filled out a few credit applications with my real details. They denied me, but I just wanted to get a feel for what they were asking for."

From there, the former coach began to weave an intricate web of accounts, payments and transfers. "I was learning constantly." he discovered how to make the system work, applying for loans under the name of a false television production company.

facing up to eight years in prison, he decided to flee rather than stand trial. "I don't recognise its authority," he said.

"The people who believe that banks don't work, they think that I don't owe anything. I've already done my work," he said. "But there is a part of a population that is not in agreement with us and I think I should respond to that."

exeexe

14th July 2014, 15:54

sry didnt see you asked me a question long time ago:

It could be barter - depending on what you mean by barter. For example, if you backed a currency with barrels of oil, then bought and sold stuff based on numbers of barrels of oil, is that still a barter economy?

Yes.
1. A barrel of oil is a product you can consume
2. I also think the barrel of oil must change physical position so its not just numbers on a screen

cyu

15th July 2014, 06:18

http://www.zerohedge.com/news/2014-07-14/anti-dollar-alliance-prepares-launch-brics-bank

at this week's BRICS Summit Brazil and Russia signed bilateral accords on air defense, gas and education

The leaders who will be present (not so many big fans of the US there)...

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140714_bric1.jpg

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015.

Economists warn the IMF's legitimacy is at stake, and they say U.S. standing abroad is being eroded.

If the current trend continues, soon the dollar will be abandoned by most of the significant global economies and it will be kicked out of the global trade finance. Washington's bullying will make even former American allies choose the anti-dollar alliance instead of the existing dollar-based monetary system. The point of no return for the dollar may be much closer than it is generally thought. In fact, the greenback may have already past its point of no return on its way to irrelevance.

Loony Le Fist

15th July 2014, 08:49

http://www.zerohedge.com/news/2014-07-14/anti-dollar-alliance-prepares-launch-brics-bank

at this week's BRICS Summit Brazil and Russia signed bilateral accords on air defense, gas and education

The leaders who will be present (not so many big fans of the US there)...

[image of leaders]

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015.

Economists warn the IMF's legitimacy is at stake, and they say U.S. standing abroad is being eroded.

If the current trend continues, soon the dollar will be abandoned by most of the significant global economies and it will be kicked out of the global trade finance. Washington's bullying will make even former American allies choose the anti-dollar alliance instead of the existing dollar-based monetary system. The point of no return for the dollar may be much closer than it is generally thought. In fact, the greenback may have already past its point of no return on its way to irrelevance.

What a fascinating development. I'd say US hegemony has a credible threat. I am concerned over how this will play out politically. Will it have the effect of increased peace from reduced imperialism and US aggression (i.e. the giant goes to sleep for a while)? Will reactionary voices be granted greater legitimacy and will things get worse? Will the lack of ability to engage enemies abroad from economic troubles cause the state to look within for scapegoats?

cyu

15th July 2014, 17:13

cyu

15th July 2014, 23:46

http://www.zerohedge.com/news/2014-07-15/brics-announce-100-billion-reserve-bypass-fed-developed-world-central-banks

"We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness."

this is part of "a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies."

"when you see this happen, you’ll know it’s game over for the dollar.... I give it 2-3 years."

BRICS MINISTERS SIGN DEVELOPMENT BANK AGREEMENT

the BRICS are effectively disintermediating themselves from a Fed and other "developed world" central-bank dominated world and will provide their own funding.

the role of the dollar in such a world is, well, nil.

Goodbye visions of an SDR-world currency. As for the USD...

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07/burning-dollar.jpg

cyu

16th July 2014, 00:11

ckaihatsu

16th July 2014, 04:49

By the way, if the dollar starts crashing tomorrow, and all your savings are in dollars, and you're wondering what to do with it before it becomes worthless or nearly worthless, spend it on gardening supplies and any means of production that you can actually use (whatever you have skills or vocational training for) - enough weapons for protection wouldn't be a bad idea either, but kind of depends on how much violence you're expecting... This is assuming you don't yet have the power to simply seize the means of production from the capitalists, and have to resort to purchasing it.

Future revolutionary conditions are unknowable, sure, but too much of the collective political psyche is currently being monopolized by the pessimistic *apocalyptic*-type of fictional future reality, while anything that even faintly smacks of utopian is fashionably dismissed out-of-hand as too 'Smurf'-y.

I guess it's obvious I'm expecting more of actually seizing the means of production.

cyu

10th August 2014, 15:26

http://www.zerohedge.com/news/2014-08-09/when-money-runs-out-so-does-empire

Dollar primacy lets America cover its chronic current account and fiscal deficits by issuing more of its own currency – precisely how Washington has funded its hard power projection for over half a century.

all empires end when they are defeated by a more vigorous empire… or when their financing runs out.

America is increasingly viewed as a hegemon in relative decline. for Gulf Arab states long reliant on Washington as their ultimate security guarantor, this makes closer ties to Beijing an imperative strategic hedge. For Russia, deteriorating relations with the United States impel deeper cooperation with China, against what both Moscow and Beijing consider a declining, yet still dangerously flailing and over-reactive, America.

if Beijing and Moscow – the world’s largest energy importer and producer respectively – drop dollar energy pricing, America’s reserve currency status could unravel.

Krasnyymir

10th August 2014, 20:47

Would you believe your 401K account makes you better off with the current capitalist control structure in place, and you would sooner see poor people die from lack of health care than risk losing 30% of your 401K?

That's a rather odd premise...
Why would poor people getting healthcare cost him 30% of his 401K? And conversely, why would poor people gain healthcare from him losing on his 401K.

Healthcare isn't really something you can just throw money at, to make everything better. Even in countries with a single payer system, or in socialist countries healthcare still has to be rationed, because of its nature. It's just rationed with waitinglists (time) rather than money, as in the US.

Krasnyymir

10th August 2014, 20:56

Ok so i was thinking what would happen if people did this. Go to the bank you have, say 1 million $ in cash, then you create a plan that shows you want to start up a potentially lucrative business. Then you persuade the bank to let you burrow say 5 million$. Then you go to some fucked up place (there are plenty of fucked up places on this planet) and never pay the bank anything back?

You would thus have acquired 4 million $ legally.
In short, if the banks can do it, so can we..

Unfortunately, any "fucked up place" that's lawless enough so neither bank nor the government will come after you for fraud, probably isn't a place where you'll want to stay for very long.

cyu

10th August 2014, 21:00

healthcare still has to be rationed

Human labor is rationed. You could have 90% of health care workers working on Botox for the 1%, or not. You could have 90% of students studying engineering to build mansions and yachts for the 1%, or not. You could have 90% of workers thinking up ways to help the rich guard their money, or not.

Krasnyymir

10th August 2014, 21:01

As an anarchist, I'd have to say reduction in any one entity's power (especially when that power is being abused) is a good thing. Instead of supporting the lesser of two evils, if you can get them to waste resources fighting amongst themselves, then that's just "divide and conquer" applied in the opposite direction ;) None of those are good enough goals in themselves though - either you can co-opt one or all sides to work for the poor, or you find ways to help the poor while they are distracted fighting each other.

I don't see the real revolutionary potential here. On a long enough timescale, any imperialist power will decline and see a competing power rise instead.

As long as the current system is still in place, US imperial power will just be replaced by another imperial power. In this case most likely China.

Why would that be any better? Or anything to look forward to? If anything, Chinese culture is even more reactionary than the US. For example in terms of feminism, racism or queer rights.

cyu

10th August 2014, 21:04

There's nothing about China that makes it a good replacement for the US.

However, the same tactics used by China to replace the dollar, could just as easily be used by the working class to replace money issued by the ruling class.

cyu

21st August 2014, 22:16

Leaving out some of their baseless and ridiculous attempts to merely install a different set of capitalists, but leaving in the interesting analysis:

http://www.worldcrunch.com/eyes-on-the-u.s./are-the-dollar-039-s-global-currency-days-numbered-/dollar-bnp-paribas-sanctions-currency-world-power-francois-hollande/c5s16753/

the U.S. Federal Reserve backed a Justice Department and New York district court decision to punish the French bank BNP Paribas for violating U.S. sanctions on Iran, Sudan and Cuba. Besides fining the French bank almost $9 billion, the U.S. also suspended approval of its dollar transactions.

Hollande believes that the United States has gone too far in politicizing the dollar, and favors putting the topic on the G20 agenda. To punish those who violate U.S. economic sanctions exploits the fact that the dollar is an inevitable part of international transactions. It is one of the few subjects on which France, Germany and Russia publicly agree.

if the rich kid doesn't want his buddies to play with his new football, they will eventually look for another one.

cyu

27th August 2014, 21:24

http://www.zerohedge.com/news/2014-08-27/gazprom-begins-accepting-payment-oil-ruble-yuan

Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan.

Last week, Russia began to ship oil from the Novoportovskoye field to Europe by sea. the payment for these shipments will be received in rubles.

the change in currency was made because of the Western sanctions against Russia.

the US which managed to Plaxico itself by pushing Russia to transact away from the US Dollar, in the process showing the world it can be done, and slamming the first nail in the petrodollar's coffin.

both Russia and China have shown not on that it can be done, but it is done.

http://peakoil.com/publicpolicy/90-of-gazprom-clients-have-de-dollarized-will-transact-in-euro-renminbi

90% Of Gazprom Clients Have “De-Dollarized”

The so-called Plan B is already partially worked out.

the further the west antagonizes Russia, and the more economic sanctions it lobs at it, the more Russia will be forced away from a USD-denominated trading system and into one which faces China and India.

RedMaterialist

28th August 2014, 05:51

http://www.zerohedge.com/news/2014-08-27/gazprom-begins-accepting-payment-oil-ruble-yuan

Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan.

Last week, Russia began to ship oil from the Novoportovskoye field to Europe by sea. the payment for these shipments will be received in rubles.

the change in currency was made because of the Western sanctions against Russia.

And western European governments must sell euros or dollars to buy the rubles to pay for the oil. Or go through three or four different currencies to get the rubles. And Europe won't make these transactions public out of fear of U.S. retaliation, thus creating a huge black market for rubles.

But this will only drive up the value of the ruble making Russian oil more expensive.

Is there really such a thing anymore as a world currency? Dozens of different currencies can be traded instantaneously by computer programs. Capitalism has turned national currencies into a world trading system.

cyu

28th August 2014, 10:54

What matters to leftists isn't really the value of the ruble or how much oil they can sell.

One, a collapse in the value of the dollar means the American regime is less able to fund its military - which means less propping up of pro-capitalist dictatorships around the world.

Two, ultimately it would be better for the working class of every nation to be able to have more economic power. As long as currencies controlled by capitalists are "highly valued" then capitalists will have more economic power - on the other hand, if the value of their currencies collapse, then the working class will gain in economic power - especially if it is their own currencies rising - which also means the working class can get easier access to weapons.

cyu

18th September 2014, 00:42

Moves to watch if you want the working class to abandon any currencies controlled by capitalists. Ultimately it is the working class that produces goods - if all capitalists control is bits of paper and numbers on computers, in reality, they don't really control anything.

http://www.zerohedge.com/news/2014-09-17/guest-post-us-eu-russia-sanctions-puzzle

for Russia’s “isolation”, companies are barred from the US dollar and the euro. Russia does not need more US dollars and euro.

Moscow is fast advancing the use of national currencies with other trade partners.

Russia can sell its abundant energy resources in any currency apart from US dollars and euro. Russia can buy all the clothing it needs from Asia and South America. On the electronics and high-tech front, most of it is made in China anyway.

cyu

21st October 2014, 14:36

it appears no lessor person than the CEO of Total (the world's 13th biggest oil producer and Europe's 2nd largest), believes "There is no reason to pay for oil in dollars."

http://www.zerohedge.com/news/2014-10-20/anti-petrodollar-ceo-french-energy-giant-total-dies-freak-plane-crash-moscow

the CEO of Total, Christophe de Margerie, was killed in a business jet crash at Vnukovo Airport in Moscow after the aircraft hit a snow-plough

cyu

7th November 2014, 23:06

Try to bite too many people and eventually they start biting back...

http://www.zerohedge.com/news/2014-11-07/putin-signs-secret-pact-crush-nato

the Shanghai Cooperation Organization (SCO), consisting of six member states: Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan.

two of the nations clamoring for inclusion loom large in geopolitics: India and Pakistan. And waiting in the wings is yet another major player—Iran.

Among the priorities he’s laid out for the Russian chairmanship are: beefing up the role of the SCO in providing regional security; launching major multilateral economic projects; enhancing cultural and humanitarian ties between member nations; and designing comprehensive approaches to current global problems.

Putin is taking a leadership role in the creation of an international alliance among four of the ten most populous countries on the planet—its combined population constitutes over 40% of the world’s total, just short of 3 billion people. It encompasses the two fastest-growing global economies. Adding Iran means its members would control over half of all natural gas reserves.

the SCO could not only rival NATO, it could fashion a new financial structure that directly competes with the IMF and World Bank. The New Development Bank (FKA the BRICS Bank), created this past summer in Brazil, was a first step in that direction. And that could lead to the dethroning of the US dollar as the world’s reserve currency.

I believe that this is Putin’s ultimate aim: to stage an assault on the dollar that brings the US down to the level of just one ordinary nation among many.

cyu

30th March 2015, 14:48

http://www.zerohedge.com/news/2015-03-29/risks-are-very-high-swiss-billionaire-warns-global-financial-markets-have-never-been

The current cycle is very unusual, because never before have we seen authorities, central banks in particular, intervening on such a large scale and pumping so much money into global financial markets. Hence, global financial markets are more distorted than ever before and accordingly, the risks are very high.

If you're printing money and it's all going into the pockets of a tiny fraction of the population, it makes prices ever more distorted. Whatever the rich want, becomes ever higher in price (since they can now afford to spend more than ever). As a result, the productive capacity of the economy becomes ever more skewed towards producing for the rich - eventually leading to mass scarcity for the poor and civil unrest. If the trend does not stop, then eventually what the richest person spends on one painting, will be more than what the bottom 80% spends on food - and it will get worse from there.

What will stop the trend? Well, violent revolution is one method, which the wealthy obviously want to avoid. However, with the rule-by-the-rich system that the wealthy have set up over the decades, the trend is basically impossible to stop by legal means. Even if the wealthy want to tone down their own system, it's basically too late - their own system will work against them. They pushed the snowball down the hill, and at the bottom is either revolution or economic armageddon.

Billionaires care mainly about protecting their own wealth. But when the system they've set up to protect their wealth is barreling toward its own self-destruction, well, I'd be worried too if I were in their shoes.

cyu

12th April 2015, 16:21

Interesting article on the Bank of International Settlements http://www.zerohedge.com/news/2015-04-11/meet-secretive-group-runs-world

In addition to those who were present at the Sunday evening dinner, Monday’s meeting will include representatives from, for example, Indonesia, Poland, South Africa, Spain, and Turkey. Governors from fifteen smaller countries, such as Hungary, Israel, and New Zealand are allowed to sit in as observers, but do not usually speak. Governors from the third tier of member banks, such as Macedonia and Slovakia, are not allowed to attend. Instead they must forage for scraps of information at coffee and meal breaks.

Seems rather amusing that here we are in the 21st century, and central banks around the world are still grappling with fundamental economic issues like the nature of money. So I have to ask myself how is it that we can advance so far in medicine and electronics (even nuclear engineering), yet lag so far behind on basic economic knowledge? The best answer I've come up with so far is that most sciences are allowed to have a flat and open structure, economic ideas have to be much more tightly controlled, because they affect how society is governed, and therefore is something that scares the ruling class the most. The downside of this tight control is that there is so much left intentionally obscure and unexplored - the result is that instead of a flourishing crop of ideas that push the entire field forward, we get anemic advancement along very narrow lines.

Yes the ruling class tends towards sociopathy as they gain power, but it's not like they wouldn't fix the financial crisis if they could just do it with a snap of their fingers. The reasons they don't fix it isn't just that they're callous, but they're incompetent as well, due in large part to the lack of meaningful advancement in economic understanding.

cyu

17th April 2015, 00:47

http://www.bloomberg.com/news/articles/2015-04-10/citi-economist-says-it-might-be-time-to-abolish-cash

as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.

Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction?

Cash therefore gives people an easy and effective way of avoiding negative nominal rates.

Yep, another sign that after all these centuries after Adam Smith, leading "economists" still barely understand the nature of money or "intrinsic value" - in the end, these computer and paper shenanigans will get them nowhere. The future belongs to those using the means of production to produce things they themselves consume (not things consumed by absentee landlords or distant "rich countries"), because that's where the value is.

ckaihatsu

17th April 2015, 01:07

ckaihatsu

17th April 2015, 02:16

Buiter is aware that his idea may be somewhat controversial, so he goes to the effort of listing the disadvantages of abolishing cash.

2. Currency use remains high among the poor and some older people. (Buiter suggests that keeping low-denomination cash in circulation — nothing larger than $5 — might solve this.)

Let them live in condos!

x D

http://en.wikipedia.org/wiki/Let_them_eat_cake

ckaihatsu

17th April 2015, 03:14

Looks like you got your wish, cyu -- now people are just going to pass around bits of colored paper in exchange for others to do stuff for them, out of some sense of courtesy or perhaps nostalgia....

x D

ckaihatsu

19th April 2015, 19:42

[LaborTech] Power shift in America as Wall Street bows to Silicon Valley?

Power shift in America as Wall Street bows to Silicon Valley?

http://www.theguardian.com/commentisfree/2015/apr/19/wall-street-courting-silicon-valley-new-shift-in-power

http://i.guim.co.uk/static/w-300/h--/q-95/sys-images/Guardian/Pix/pictures/2014/3/13/1394733751120/WillHutton.png
Will Hutton

Ingenuity and energy abound in tech companies, but they are trapped within traditional financial power structures

http://i.guim.co.uk/static/w-620/h--/q-95/sys-images/Guardian/Pix/pictures/2015/4/18/1429368174200/Old-Street-roundabout-aka-007.jpg
Old Street roundabout in London, also known as Silicon Roundabout as it is at the centre of many tech startups. Photograph:

Jeff Blackler / Rex Features
Saturday 18 April 2015 19.03 EDTLast modified on Saturday 18 April 2015 19.05 EDT

American capitalism is in the midst of a remarkable transformation. For decades, Wall Street has been the beating heart of the American system. Its great investment banks have driven the financialisation of the globe. It has become a byword for extravagant salaries, amoral deal-making and, infamously, nearly precipitating its own collapse.

The financial “masters of the universe” have made money from money on a scale never before witnessed, their values and priorities cascading over the US and the west. The ambitious graduates from the great American law and business schools have unquestioningly put a Wall Street career as their number one objective. US finance rules, or ruled, supreme. But the rise and rise of Silicon Valley and the second industrial revolution it represents has launched a challenge to the old order. It is becoming ever more obvious that digitisation, the internet and the supercomputer are reinventing the entire industrial, financial and business landscape in a process that is only just beginning.

Fortunes can be made not only from the fees and charges of buying and selling financial assets. They can also be made from building companies that, by deploying these new technologies, turn the world on its head – often for the better – and do some real good. Better Facebook, Apple and Microsoft than Goldman Sachs.

Silicon Valley entrepreneurs have never trusted or liked Wall Street and its values very much. They always knew they needed its money. But from the beginning they have been anxious not to cede control of their precious startups too soon – if ever. They don’t want to become pawns in Wall Street deals, enriching east coast bankers and relegating their passion for innovation to the priority to hit absurdly demanding short-term financial targets. Almost all the great west coast hi-tech giants – from Google to Linked In – have ensured that, while Wall Street can buy their shares, it can’t buy the accompanying controlling votes. Control stays with the founders, whose privileged shares often have 10 times the voting rights of the ordinary shares offered to Wall Street.

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It’s a ploy that works. Indeed, it has become so successful that west coast hi-tech companies are now big and rich enough to be able to choose Wall Street expertise on their own terms. In the last few weeks, Google has hired Ruth Porat, the finance chief at Morgan Stanley, to become its chief financial officer with a total pay package of a mindblowing $70m. Last year, Goldman Sach’s Anthony Noto filled the same role at Twitter for a cool $64m. Power is shifting from Wall Street to California – from finance to the world of innovation, which as Google’s chair Eric Schmidt says, at least does some real good in return for the pay.

Meanwhile, JP Morgan has even developed a financial product it calls Stay Private Longer; essentially the bank payrolls the hi-tech company while it stays private and builds its business on a promise the bank will one day be repaid if and when the company ever issues shares on Wall Street. If banks want some of the Silicon Valley action, increasingly they have to do it on the valley’s terms. The numbers of law and business school graduates from Harvard and Stanford leaving to work in technology companies is nearly the same as those choosing finance; on current trends, the crossover will be reached within two years.

It is a rebalancing of a power relationship between finance and business. Part of this is hard-headed calculus of where money can be made. In a low interest rate environment, the overcrowded hedge fund world is finding it ever harder to make good returns – and banks, in part through regulation and in part through their own necessary newfound caution, are not the money-spinning, high-risk takers they once were. Hi-tech companies are where the financial action is. But that is also because a second industrial revolution is genuinely happening. From machine learning to the printing of synthetic human tissue, human capability is being transformed. Small wonder investors are excited.

There are echoes of this in Britain. In Cambridge, more than 53,000 people work in hi-tech companies whose aggregate turnover is £13bn. Oxford boasts the densest concentration of life-science startups outside the US. London bustles with hi-tech life. Bristol is at the centre of so-called Silicon Gorge. Ingenuity and energy abound, but they are trapped within traditional financial power structures. British startups have none of the protections in the US. Indeed, there is a disheartening string of great startups now in American hands, US banks doing here what can’t be done at home. For example, too many of Cambridge’s vibrant companies, including Autonomy and CSR, are no longer in their British founders’ hands.

There are responses. Fund manager Neil Woodford has set up the Woodford Patient Capital Trust to invest in British high technology startups. The Big Innovation Centre (declaration: I am chair) is well advanced with its entrepreneurial finance hub that will allow entrepreneurs to better value their technology in order to get improved and faster deals from financiers. There is the government’s Business Bank and loan programme for startups. Change is afoot.

But it needs to be part of something bigger, a national awareness that there is a great prize to be secured. There needs to be an insistence on action and a recognition that, without it, the UK is drifting into a world of mega-trade deficits that can’t be financed, low productivity and a desperate lack of opportunity. The general election campaign could be brought alive by politicians vying with each other in their ambition to build the next generation of great hi-tech British companies as a national imperative.

The Tory manifesto would have been a very thin document if it had not been able to commit to a continuation of Vince Cable’s industrial and science policy as if it were the Tories’ own. Tories, you are reminded, are not natural challengers of finance and its mores. Labour is prepared to go further, challenging and recasting financial power with some innovative ideas and creative new institutions.

But Ed Miliband could transform his relationship with business if he could say his purpose is both to create a new class of British hi-tech companies and high-wage jobs, and also a generation of seriously rich, hi-tech entrepreneurs on the American model. This is about enfranchising capitalists both to make fortunes from daring and to do good. It would electrify the campaign. It could even win him the election.

ckaihatsu

19th April 2015, 19:49

And...

G.U.T.S.U.C., Individualism - Tribalism

http://s6.postimg.org/izeyfeh9t/150403_2_Individualism_Tribalism_aoi_36_tiff_x.jpg (http://postimg.org/image/680s8w7hp/full/)

[1] History, Macro Micro -- Precision

http://s6.postimg.org/nmlxvtqlt/1_History_Macro_Micro_Precision.jpg (http://postimg.org/image/zbpxjshkd/full/)

cyu

20th April 2015, 02:47

In the distant past, the ruling class might have dreamed of extravagant tombs and palaces. Later, some switched to other types of vanity projects, like establishing universities or libraries. With the quickening pace of technology, some are now dreaming of the future, and they want it now, so they start pouring money into the tech industry, whether the ideas are half-baked or not, hoping we'll all be living in a real sci-fi future before they die. But like all attempts by the ruling class to decide how people make a living, the very fact that they control the economy means less people are producing for the poor, so abject poverty never goes away, and is in fact the price that must be paid for the ruling class to have an economy that dances to their frivolous whims.

cyu

29th April 2015, 13:29

The real fear is not what would happen if Greece stops using the Euro, but what would happen if Third World nations stop using Western currencies. Would there still be a difference between "developed" and "undeveloped" nations? Would people still be spending $10,000 on a watch?

cyu

4th May 2015, 21:16

Only tangentially, not directly, about crashing mediums of exchange but I see some of the angst about too much saving / not enough buying as rooted in "economists" not actually understanding the nature of wealth - thinking it resides in money, rather in things produced by the working class (like food, clothing, and shelter).

If they believe wealth resides in money, then too much saving of money results in a low "velocity of money" and greater unemployment, since nobody buys what producers are producing. Then the result is poverty for the producers.

On the other hand, if wealth resides in food, clothing, and shelter, then "too much saving" of wealth just means you have a lot of extra food, clothing, and shelter to spare - which means you have less to worry about.

Why the divergence in definitions of wealth? I would say it happened in the distant past. If money (ie. gold) used to be backed by grain, then saving money and saving food meant the same thing - on the one hand, you had more gold - on the other hand, since gold is backed by grain, you also had more grain.

The divergence happened when gold was no longer backed by grain. This then eventually led to stuff like backing paper with gold, but the break had already happened. Food (or other products of real use) were taken out of the equation, and the result was that "extra saving" no longer means anything substantive.

The reason this is tangential to crashing mediums of exchange is that if new money were introduced that was once again backed by grain (or clothing and shelter), or if economies began to abandon the current system of vapor-currency (by switching to other methods of economic organization, like gift economies, or whatever), then the side effect would be the crashing of the currencies widely used in the previous century.

cyu

4th June 2015, 21:12

ckaihatsu

4th June 2015, 21:36

http://www.zerohedge.com/news/2015-06-04/bojs-kuroda-believes-he-should-fly-says-bankers-should-think-happy-thoughts

Seems Hans Christian Andersen never ceases to impress me in just how wise he was when writing The Emperor's New Clothes.

When the only thing allowing an "advanced" economy to exploit "undeveloped" economies, is smoke and mirrors, you know your economics profession is suffering from endemic corruption.

[K]uroda is detached from reality in terms of recognizing that the BoJ’s policies (and Abenomics more generally) have failed to stoke inflation expectations [...]

So can we take this to mean that Japan, after stagnating for so long, is about to go junk-bond -- ?

cyu

4th June 2015, 21:51

ckaihatsu

4th June 2015, 22:17

I'd say Japan is sort of the canary in the coal mine. What happened to Japan a decade ago is happening in Western economies now, and as long as the same ideology permeates the "advanced" economies, what happens to Japan now will be what Western economies are in for in the near future.

Fair enough -- if it's the case that Japan is about to go supernova then that means the shit is really going to hit the fan, a la circa-2000, and the global bourgeoisie is going to have to pull a *large* rabbit out of their ass, something akin to 9-11...(!)

cyu

12th June 2015, 17:20

http://www.zerohedge.com/news/2015-06-12/greece-refuses-blink-eu-says-noncompliance-not-option

commentary from UniCredit's Erik Nielsen:
“I really don’t believe they have either the political or technical capability of starting their own currency. Money needs to be a commodity of trust, and I don’t think they have the trust in the population.”

There are two kinds of trust: justified, and unjustified. Counterfeit money is an example of unjustified trust, but it can still be used as money as long as the fraud is successful. One method of maintaining unjustified trust is through media control. If the mass media tries to convince the population that they should trust quantitative easing, then the more authoritarian that society, the more likely the mass media will succeed.

While some might say government also needs trust to succeed, military dictatorships can function without trust. The population is simply forced to work with the dictatorship because they have the military might to squash all alternatives. Similarly, if counterfeiters are able to raise an army large enough to defeat the "official" army, then the counterfeit money becomes the new official currency. It is just a battle for supremacy by rival gangs - and the winning gang is crowned "government".

If the ruling class controls both the mass media (ideas) and the military (military might), then their currency can function through a combination of both unjustified trust and violent force.

cyu

30th June 2015, 21:29

And what might precipitate such a “run on the shadow banks”? ...Should that moment occur, a cold rather than a hot shower may be an investor’s reward and the view will be something less that “gorgeous”. So what to do? Hold an appropriate amount of cash so that panic selling for you is off the table.

http://www.zerohedge.com/news/2015-06-30/gross-says-hold-cash-prepare-nightmare-panic-selling

If it is a chess game between the working class and the "owning" class, there is a counter for every possible move by the "owning" class. If they increase their cash holdings, the working class (or "undeveloped" economies) can either switch to using their own currency or stop conducting trade in cash. If the "owning" class diverts their wealth into stock holdings, the working class can simply assume control of the means of production. If the "owning" class attempts to hoard commodities, they'll still need the working class to stand guard over their hoard - which means the working class always has effective control over commodities. If the "owning" class panics into "precious" metals, the working class can simply treat it as another instance of replacing the common currency.

The real question is, if every possible move of the "owning" class can be countered by the working class, what type of capitalist would be willing to go down with the ship, despite the inevitable checkmate?

http://depressiond.org/sociopath-sociopathic-personality-disorder/
"Rushes to danger... reckless, impulsive, excited by threat to life."

cyu

16th July 2015, 23:44

If the general public loses faith in paper money and dumps it in favor of hard assets the dollar would collapse. However, it is not clear why people would wake up one morning and decide to panic.

http://www.zerohedge.com/news/2015-07-16/bofa-confused-why-people-would-wake-one-morning-and-decide-panic

By "panic", they just mean "do something we don't want you to do". Of course, some people will act out of irrational fear, which would be a correct definition of panic. And they would be correct that this doesn't just come out of nowhere. Panic follows something else: intentional, rational action.

The real question is, for whom would dumping the currencies of "wealthy" nations be considered "rational"? Anybody who doesn't have a lot of that currency, whether Third World nations, or the working class in First World nations. A crash in the value of currency mostly held by others (ie. rich capitalists) means the poor gain in relative economic power. Thus bringing about a crash in these currencies would be rational to them. And one method of intentionally doing so, would be to dump those currencies, in order to buy up the means of production (which the they can then use themselves to produce for themselves). Of course, the recommended leftist action is simply to conquer the means of production rather than buy it up (which would crash the stock market) - however, if industrial conquest isn't convenient, they might as well dump the currency to buy it up (which would crash the currency).

So what would follow such intentional and rational action? Panic among the capitalist class of course - the lagging indicator of anti-capitalist revolution.

cyu

23rd July 2015, 00:44

Peter Schiff: Currencies Depend On Faith, Gold Doesn't

http://www.zerohedge.com/news/2015-07-22/peter-schiff-currencies-depend-faith-gold-doesnt

If the Republicans are bad, you should vote for Democrats, right? Gold relies on the faith that other people are willing to accept it as money. If they don't, then it's still just a rock.

It's funny that when the investment class wants you to buy X, it's because they have a lot of X to sell you. When they want to buy X, it's in their interest to talk down the value of X so that it is cheaper for them to buy. In other words, most of what they say about the value of things, are lies.

cyu

24th July 2015, 00:18

If there's a mass sell-off of all stocks, bonds, commodities, etc, what does it really mean? The investment class currently believes that cash is a safer "investment" than the other investments. However...

if every possible move of the "owning" class can be countered by the working class

...not even cash is safe - nothing is safe. What is safe for capitalists, is in fact to throw their hat in with the working class. When everything capitalists traditionally believed to be "good stores of wealth" are considered to be overvalued by the working class (or easily taken by the working class), there's nothing to sustain their value. It's all going to crash, no matter where you push your claims of ownership. It would in fact be rational, even for the investment class, to join where the real economic security is - among those who use the means of production to produce real things.

cyu

26th July 2015, 03:39

The AIIB and BRICS banks might make a lot of loans back and forth, to blow up an independent bubble of their own, but ultimately in the end, it just comes down to which political jurisdiction has the most amount of real means of production under their control. However, if the working class is not easy to control in those jurisdictions, then those economic spheres will never be as stable as where the working class is not disgruntled and ready to strike - in other words, where you don't need to force the working class to use the means of production, because the working class already controls the means of production.

ckaihatsu

26th July 2015, 04:10

The AIIB

So much for the Atlanticists' "special relationship"...(!)

In early March 2015, the United Kingdom's Chancellor of the Exchequer, George Osborne, announced that the UK had decided to apply to join the Bank, becoming the first major Western country to do so. The announcement was criticised by the U.S. Obama Administration. A US government official told Financial Times, "We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power." The official further stated that the British decision was taken after "no consultation with the US."[24] In response, the UK indicated that the subject had been discussed between Chancellor Osborne and US Treasury Secretary Jack Lew for several months preceding the decision. It was further stated that joining the bank as a founding member would allow the UK to influence the development of the institution. By encouraging Chinese investments in the next generations of nuclear power plants, Osborne announced that "the City of London would become the base for the first clearing house for the yuan outside Asia."[25]

https://en.wikipedia.org/wiki/Asian_Infrastructure_Investment_Bank

cyu

25th November 2015, 01:01

Seems money has two functions - one is as a convenient medium of exchange. This is what is generally publicized as one of the reasons we have money.

Another is not mentioned so much - it is a tool used by the rich to control the poor, while hiding just how much power the rich have in society. When most people think of power, they think about political office, or control over the media. They usually don't think about the power exercised when you pay someone to do something. Using money to control someone's behavior is a direct exercise of power. The greater the gap between rich and poor, the more control the rich have over what people do on a day-to-day basis.

cyu

25th March 2016, 23:07

I see the internet age as breaking down national borders - the sense of nation will disappear, as will unity in mediums of exchange. At first, there may be smatterings of places attempting to use their own mediums of exchange, as well as cross-border use of other new mediums of exchange, but if leftist decentralization runs rampant, then eventually there will no longer be any central authorities to enforce use of resources, property claims, or mediums of exchange, leading (possibly inevitably) to gift economies.

cyu

18th April 2016, 02:16

Personally I think backing money with gold is useless, but what really gives China economic power is it's manufacturing power, and that's what makes the yuan not insignificant.

https://www.superstation95.com/index.php/world/1152

In a shocking move likely to crush the US economy overnight, China is refusing to make its new gold-backed Yuan, convertible from or to US Dollars. The new Yuan will be introduced next Tuesday, April 19.

When this new currency is issued, countries that have been forced to use US Dollars for decades, and have had to keep billions of dollars in their foreign currency reserves, will be free to dump those dollars. But they won't be able to dump them to China for the new gold-backed, Yuan!

What China fears is that many countries around the world will want to trade their reserve US dollars for the new Yuan, leaving China with mountains of worthless US dollars. China already has several trillion in US dollar reserves and does not want or need more.

cyu

18th April 2016, 05:08

backing money with gold is useless, but what really gives China economic power is its manufacturing power, and that's what makes the yuan not insignificant.

It's part of the capitalist's con really. Those with any real understanding of economics, know that gold isn't a valid way to back a currency. But on the other hand, if they "admit" that manufacturing power is what really makes a currency strong, it comes dangerously close to the so-called labor theory of value. Capitalists never want to admit that their wealth is based in the working class, so they attempt to promote gold as the source of their wealth. China is attempting to have it both ways - both basing their currency on the real strength of their manufacturing power, while on the other hand, pulling the capitalist-scam that their wealth is based in gold.

ckaihatsu

29th April 2016, 21:03

http://www.wsws.org/en/articles/2016/04/26/chin-a26.html

World Socialist Web Site
wsws.org

China debt levels reach record high
By Nick Beams
26 April 2016

Chinese debt levels have risen to a record 237 percent of gross domestic product, according to a report published in the Financial Times over the weekend, prompting warnings that the country could be heading for a Lehman-style financial crisis or a protracted period of low growth like that which has afflicted Japan over the past two decades.

The report said that total debt in China, including both foreign and domestic borrowing, had climbed to $25 trillion as a result of a rapid expansion of borrowing since the eruption of the global financial crisis in 2008–2009. In 2008, Chinese debt stood at 148 percent of GDP.

When the crisis erupted, leading to a contraction of world trade in the first months of 2009 at a faster rate than in the initial period of the 1930s Depression, the Chinese export model of economic growth collapsed, leading to the loss of 23 million jobs. The government responded with a stimulus package of half a trillion dollars and a massive expansion of credit to state-owned corporations and local government authorities. The credit expansion has been estimated to be the equivalent of the entire US financial system.

The expectation of the Chinese authorities was that the world economy would experience a recovery after the crisis and exports would resume their previous path. But nearly eight years after the financial crisis, the world economy continues to stagnate. Most significantly, world trade, which prior to the crisis grew at a faster rate than global GDP, is now running at a level below growth.

Since 2013, Chinese government and financial authorities, recognising that the expansion of infrastructure investment—especially in property—is inherently unsustainable, have been trying to effect a “rebalancing” of the economy away from capital intensive development and towards consumption and the expansion of services.

Growth rates have fallen from their previous levels of around 10 percent, lowering the government’s official target for economic expansion to between 6.5 percent and 7.0 percent. But even this lower level is proving difficult to sustain.

Economic turbulence in the last half of 2015, flowing from the stock market crisis in August and slowing growth, prompted fears of a “hard landing,” leading the government to reopen the credit spigots to sustain the economy. The first quarter 2016 estimate of growth was 6.7 percent, in line with government projections but nevertheless the lowest rate since the depths of the financial crisis. That result was achieved only through a major expansion of credit.

The Financial Times reported that according to central bank data and its own calculations, new borrowing increased by 6.2 trillion renminbi in the first quarter of this year, the biggest-ever increase over a three-month period, and more than 50 percent higher than the same period last year. The China chief economist at BNP Paribas, Chen Xingdong, said the first quarter GDP result was achieved only through the expansion of industrial production, fixed-asset investment, and what he called an “astonishing” increase in construction start-ups. At the same time, growth in the service sector, which is supposed to provide the basis for a “rebalanced” Chinese economy, slowed.

There is a divergence of opinion among economists and financial analysts as to how the Chinese debt problems will play out. Some warn that it will end in a “Lehman-style” crisis, with bank failures and a collapse in credit. According to Jonathan Anderson of the Emerging Advisors Group, whose remarks were cited in another Financial Times article over the weekend, the banks are relying on the sale of high-yielding products rather than deposits to finance credit—a formula that led to the 2008 collapse of the US banks Bear Stearns and, later in the year, Lehman Brothers.

“At the current rate of expansion” he wrote recently, “it is only a matter of time before some banks find themselves unable to fund all their assets safely. At that point, a financial crisis is likely.”

Global hedge fund investor George Soros has compared the Chinese economy to the situation that prevailed in the US before the collapse of 2008. Others maintain that China’s central bank will keep pumping money into the financial system in order to ward off a collapse, but this will lead only to Japanese-style stagnation.

Whatever the immediate outcome, the mounting debt crisis has far-reaching implications for the global economy as a whole, with a large number of economies, ranging from Australia and Brazil to the economies in Southeast Asia, Africa and Latin America, highly dependent on continued Chinese economic growth.

In a report issued earlier this year, Ha Jiming, an investment strategist with Goldman Sachs, noted: “Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth.”

In its recent Global Financial Stability Report, the International Monetary Fund drew attention to the rising debt problems. It estimated that more than 15 percent of total commercial lending in China was “potentially at risk,” meaning that banks faced a loss of 4.9 trillion renminbi, an amount equivalent to 7 percent of GDP. Others estimate that the stock of non-performing loans may be even higher.

The organisation’s World Economic Outlook report, prepared for its spring round of meetings earlier this month, pointed to substantial and rising “spillover” effects on advanced economies from the Chinese financial system.

It is not clear what impact the growing concerns over Chinese debt levels will have in the short-term. But other short-term potential sources of instability are looming.

The Bank of Japan will meet on Thursday amid growing pressure for a further easing of its monetary policy, after it initiated negative interest rates at the end of January. While the central bank insisted that the lowering of the value of yen was not an official aim of the new regime—governments and central banks maintain an official fiction that they do not target the value of their own currency, lest they be accused of engaging in a currency war—the Bank of Japan and the government had hoped that the yen would fall.

Instead, in the three months since negative rates were introduced, the value of the yen has been rising, increasing the deflationary pressures on the Japanese economy and making it harder for Japanese companies to compete in global markets.

The official position of Bank of Japan Governor Haruhiko Kuroda is that the monetary policy is working. However, he put forward a similar position in the lead-up to the surprise introduction of negative interest rates at the end of January.

Much will depend on what the US Federal Reserve decides to do at its meeting on Wednesday. If it points to an interest rate rise in June, this will likely lead to a rise in the US dollar and a fall in the yen. However, if it pushes future interest rate rises further out, the dollar will tend to fall, putting more upward pressure on the yen—an outcome that could produce another surprise announcement from the Bank of Japan.

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