Quotulatiousness

June 21, 2010

China’s latest currency move

Filed under: China, Economics, USA — Tags: , , , , — Nicholas @ 10:31

The always entertaining Monty has a few thoughts that are worth considering:

BNP Paribas forecasts parity (and below!) for the poor, unloved Euro. The Euro is like the easy girl in every town: popular enough when she was young and cute, but now that she’s looking like nine miles of bad road, no one wants to be seen with her or has a kind word to say about her.

After insisting for months that they weren’t keeping the Yuan artificially devalued via the dollar-peg, the Chinese lift the peg, shout Squirrel!, and run away.

Meanwhile, a floating Yuan may not work out quite the way the US thinks it will. This happens to be my view — I think the export-driven Chinese economy is a lot weaker than they’re letting on (or may even realize themselves), and they have severe internal economic problems that the authoritarian government has been papering over for years. There will be a huge banking crisis in China at some point when the huge numbers of bad loans come to light — they can’t hide them forever. Further, the recent labor troubles in China may be only the leading edge of a big wave.

Of course, if you’ve been following Quotulatiousness for any time, you’ll know that I’m fully in agreement with Monty about the Chinese economy. In the long term, I’m quite hopeful about China and their ongoing liberalization and modernization, but in the short- to medium-term I think there are many problems that need to be resolved and that will cause a great deal of upheaval and disturbance.

Remember that even with the best good will in the world, China’s economy is still moving painfully from state-run to private enterprise, and the most common stop on that road is crony capitalism (that’s like capitalism without the rule of law but with private armies). The good news is that a greater proportion of the economy is adjusting to free(r) markets, but there’s still lots of zombie corporate entities set up and run by various branches of the government . . . and the army.

In the latest move, the exchange rate change may not be the panacea that too many American politicians are hoping for:

China’s decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street’s most closely followed economists, said Saturday.

China said Saturday it would gradually make the yuan more flexible after pegging it to the dollar for nearly two years, a move that the U.S. government and others around the world have long been calling for.

It won’t fix the underlying trade issues, even if the yuan moves in the “desired” direction, as the problem is much more rooted in American policy than in Chinese currency rates. As long as the American government insists on increasing the debt load, piling on additional regulatory regimes, and directly interfering in corporate decisions, the longer the economy will be unsettled. Stability is a key condition for economic recovery, yet the American government demonstrates a knee-jerk reaction against stability for every opportunity that arises.

Oh, and if you think the US banking system has bad loan issues, wait for the other shoe to drop:

China’s banking regulator warned Tuesday that the nation’s banking system faces risks from bad loans, particularly among those made to local governments and to the real-estate sector.

In its 2009 annual report, the China Banking Regulatory Commission urged banks to use cause and scientific risk analysis in their lending, and warned of dangers to the sector, both from lending in the past year and from development in the future.

June 16, 2010

Monty explains it all for you

Filed under: Economics, Europe, France, Humour — Tags: , , , , — Nicholas @ 12:02

Financial worries? Fiscal imbalance? Debt woes? No problem! Monty has the answers (well, answers to some questions, even if they’re not the ones you’re interested in):

And the good news just keeps coming! Slumping cattle and lean-hogs futures may have bottomed out. Screw gold, man; I’m buying swine! (Monty, The Wasteland Bacon Baron. It has a nice ring to it. The potentate of pork! The sultan of swine! The High Lord of ham! The chitlin Chieftain!)

I’m not sure whether this is good news or not: Cramer calls yesterday’s big gain a sucker’s rally and advises people to get out. My rule of thumb is to treat anything Cramer says as the ravings of a lunatic. I consider him a shill and a buffoon. And yet . . . is this a Strange New Respect I’m feeling? Or just the dying embers of that burrito I ate for lunch yesterday?

French financial group AXA experiences a blinding glimpse of the obvious and exclaims, “Ze Euro eez doomed!”. Zut alors! (And no, I don’t know why French guys would be speaking English with a French accent instead of French.)

Spain and Portugal submit their austerity plans to the ECB and IMF. Plans include selling shoelaces at the airport, dancing for nickels, graft, corruption, and murder-for-hire. The ECB and IMF remain skeptical, and suggest that Portugal and Spain might want to look into selling the family silver or something.

And if all of that isn’t enough to get you assembling your Financial Apocalypse Survival kit, how about this?

More bond issues are being denominated in Canadian Loonies and Swiss Francs as investor skittishness regarding the Euro spreads. When investors choose something called the “Loonie” over your currency because it just sounds more stable somehow, dude, you got problems.

June 9, 2010

Confused by international finance? Monty can help

Filed under: Economics, Europe, France, Germany, Government, USA — Tags: , , — Nicholas @ 11:35

If you’re finding the up-then-down-then-under-the-table performance of your investments unfathomable, you’re probably wondering who can explain it all in a way that makes perfect sense and allows you to figure out the best way to handle your personal finances. If you find such a savant, let me know.

For the “real” story about why the markets are doing an imitation of an unstable personality on conflicting medication, here’s Monty’s “Wednesday Financial Briefing”:

Nicholas Sarkozy and Angela Merkel are still waging war against “the speculators” who had the temerity to point out that Euorpean finances were a God Damn mess. A spokesmen for the holders of European sovereign bonds warned the leaders that they were “teasing the gorilla in the monkey-house”. Sarkozy was heard to say that he farted in their general direction and that their fathers smelt of elderberries. Chancellor Merkel only muttered darkly, “I will break you!”

Interbank loans at Spanish banks are drying up. This tightens credit and leads to busted bond auctions. “Fitch can kiss my ass!”, said an unnamed source at Banco Santander who blames the problems on Fitch’s recent downgrade of Spanish debt. Just to show how not-broke they are, Santander bought back their stake in their Mexican unit from Bank of America for $2.5 billion. When asked if this was a wise move given their weak balance-sheet, a Santander representative lowered his trousers and mooned the press-pool.

US debt will climb to 19.6 trillion by 2015, according to a Treasury report to Congress. Tim Geithner assured everyone that, in true Keynesian fashion, every dollar of debt translates directly into GDP growth. Somehow. When pressed on the issue, Mr. Geithner began to cry and had to be excused to the lavatory to pull himself together.

June 8, 2010

Are we ready for “a serious debate about returning to the gold standard”?

Filed under: Cancon, Economics, Government — Tags: , , , , — Nicholas @ 13:02

The more I read of Maxime Bernier’s thoughts, the more I wonder how long it’ll be before he’s drummed out of Stephen Harper’s party: he’s far too sensible. Here, for example, he outlines what it is that central banks do to your money, and why it’s a bad deal for ordinary Canadians:

All this guessing about setting rates has nothing to do with capitalism and free markets; it has more to do with central planning and government control of the money supply. In a monetary free market, the interest rate would be determined by the demand for credit and the supply of savings, just like any other price in the economy.

Government control over money has serious consequences that few people seem to be aware of.

One of them is that central banks are continually increasing the quantity of money that is circulating in the economy. In Canada for example, if we use the strictest definition of money supply, it has increased by 6 to 14% annually during the past dozen years. The situation is about the same everywhere.

The effects of constantly creating new money out of thin air have been a debasement of our money and a dramatic increase in prices. The reason why overall prices go up is not because businesses are greedy, or because wages go up, or because the price of oil goes up. Ultimately, only the central bank is responsible for creating the conditions for prices to rise by printing more and more money.

With all this, it’s surprising that he has (so far) managed to stay in the Conservative party, which doesn’t appear to actually believe in anything much anymore . . . other than the need to stay in power.

Update, 9 June: His speech (from which the article linked above was drawn) gets positive reviews.

June 2, 2010

Tweet of the day

Filed under: Economics, Humour, Media — Tags: , , — Nicholas @ 13:50

IMAO_ (Frank J. Fleming): You can’t watch “It’s a Wonderful Life” these days without thinking how much sense Mr. Potter is making about irresponsible lending.

April 29, 2010

All the Senate’s a stage, and Goldman Sachs merely a player

Filed under: Economics, Politics, USA — Tags: , , , — Nicholas @ 07:19

Although in this case, it’s the Senators as walking shadows, poor players that strut and fret their hour upon the stage and then (if we’re lucky) are heard no more. Megan McArdle isn’t impressed:

The statements from the Senators make it clear that they are not holding this hearing in order to find out what happened; that’s the SEC’s job. They’re holding this hearing in order to be televised yelling at investment bankers. Claire McCaskill’s rant was particularly irrelevant to the actual question at hand, but all of them are mostly trying to express outrage, not make any coherent assessment of the strengths of the SEC’s case.

March 29, 2010

Americans to lose privacy in offshore banking

Filed under: Economics, Government, Liberty, USA — Tags: , , , — Nicholas @ 09:27

Of course, the headline assumes that they had any such privilege in the past . . .

Samuel Taliaferro is disturbed by provisions in a new law which will extend US government intervention into foreign bank business:

The name of the bill is the Hiring Incentives to Restore Employment Act (H.R. 2487) commonly known as the HIRE Act. This is the jobs incentive bill that was signed by the President on March 18th amid little fanfare.

Relatively small by Washington standards (“just” an $18 billion stimulus package) the bill was drafted to provide incentives to employers to hire more people but contains some very disturbing language concerning the ownership and transference of money to any overseas account. The truly galling part of the bill is that it attempts to require “foreign financial and non-financial institutions to withhold 30% of payments made to such institutions by U.S. individuals unless such institutions agree to disclose the identity of such individuals and report on the bank transactions”. Think about this — the U.S. government is attempting to strong arm foreign financial and non-financial institutions (think banks and law firms) to either withhold 30% of the transactions in a U.S. individual’s account (and presumably remit this to the U.S. Treasury) or disclose the account details to the U.S.. The language of the bill addresses both bank accounts and any foreign trusts (ie- Private Interest Foundations).

In other words, the US government is afraid more Americans are going to be worried about the security of their money and will look to offshore institutions to preserve their savings. The government is moving pre-emptively to deter that flow of money away from their direct control. You’d almost think they didn’t trust their own citizenry.

February 16, 2010

The (looming) Greek default

Filed under: Economics, Europe, Greece — Tags: , , — Nicholas @ 12:56

Tim Cavanaugh dispenses with the careful-to-avoid-blaming-anyone information being peddled by most reporters:

If you ever start thinking no place could suck harder than the good ol’ U.S.A., just look to the glory that is Greece. The Greek government is responding to its self-inflicted debt crisis by doing just about every single thing wrong.

That might not be clear from most of the media coverage. To comprehend any of the popular descriptions of Greece’s public debt problem, you need to be a yes man as mindless as the guy whose job it is to keep saying “Certainly, Socrates… You’re quite right, Socrates…” in the Platonic dialogues.

The New York Times blames the investment banks that held a gun to the crowned heads of Europe and forced governments to take on more debt. The Guardian says it was deregulation and privatization of state enterprises that caused public spending to, um, increase? (Just go with it.) Greek tax collectors say the problem is that tax collectors need to be paid more. And because he knows that being able to print your own money always encourages fiscal responsibility, Paul Krugman says it’s because Greece went off the drachma too soon. (That problem may be working itself out faster than anybody planned.)

But the beauty of Greece’s looming default is that it is a totally straightforward story of uncontrolled public spending and the determination of governments to run up impossible debts. In this case, as the above Times article spells out, those debts were run up in duplicitous ways that in fact violated the public debt rules of the EU from which Greece is now trying to get a bailout. Your worst nightmare of a wastrel American politician — call him Barack Schwarzenegger — would have a hard time mismanaging state finances this badly. Since getting on the euro in 2001, the Greek government has apparently been fudging its budget statistics, a practice countenanced by both conservative and socialist governments. To its credit, the current government kicked the current crisis into high gear when it released a deficit-to-GDP number of 12.7 percent — double the previously announced figure, and by far the highest in Europe.

Read the whole link-laden thing.

February 3, 2010

Paul Volcker praises Canadian banking system

Filed under: Cancon, Economics, USA — Tags: , , , — Nicholas @ 08:50

Expect this to continue to be the story of the week in Canadian newspapers:

Paul Volcker, the former U.S. Federal Reserve Board chairman who’s now a key economic advisor to the White House, told U.S. lawmakers Tuesday they ought to learn from Canada’s banking system as they seek to overhaul rules governing the biggest U.S. banks.

Speaking at a hearing to tout his proposal to rein in risky investing activities by large U.S. commercial banks, Mr. Volcker said the life’s work of Canadian banks is retail banking: “That’s no longer true of great big American banks.”

With just five or six banks dominating the industry, Canada’s banks benefit from having less competition, Mr. Volcker said. “It’s a stable oligopoly.”

There’s a mixed blessing in that: fewer banks means less competition, so there’s less need for banks to compete for customers in meaningful ways. Look at the feeding frenzy once banks were allowed to buy trust companies . . . partly because trust companies were more actively competing for business. Having a “stable oligopoly” has benefits, but consumers have fewer choices on where to bank, and banks have far less pressure to lower fees or increase services.

Here’s what Americans may find the most unexpected part of the story:

Canada’s banking system also has been shielded by the fact that it has less government interference in its mortgage market, unlike in the United States, where banks have been pressured by the government to make low-cost loans to the economically disadvantaged, he said.

Mr. Volcker’s endorsement of Canada’s banking system — the only Group of Seven nation that didn’t need taxpayers to bail out its banks — came two days after The New York Times published a piece by Nobel Prize-winning economist and columnist Paul Krugman that said the United States should emulate Canada’s financial regulatory regime.

Unfortunately, the wrong lesson is likely to be drawn from this: much of the reason Canada’s banks didn’t need to be bailed out was the much lower political interference in their lending policies. Instead, US politicians are likely to insist on even more political interference to achieve the “right” result.

January 21, 2010

Obama’s move to throttle the big banks

Filed under: Economics, Government, Law, USA — Tags: , , — Nicholas @ 13:18

Megan McArdle takes a first look at the Obama administration’s new initiative to control the big banks:

The administration’s new proposal has two core pieces, both of which are at least somewhat novel. First, banks that have access to the discount window will not be able to trade for their own account. That means no prop trading desk. No owning hedge funds or private equity funds. No investments of any kind to make profits for your shareholders. Financial institutions can make profits by servicing clients, or they can make profits by investing for their own book. But they can’t do both.

Senior administration officials I spoke to made it clear that this would not include market making activity, which the administration views as something you do for your clients. But while that may partially reassure banks, that seems to mean that market makers — i.e. Goldman Sachs — are very definitely included. That impression was reinforced by the way Indeed, if they pass this thing, they should probably call it the Hey Goldman Sachs! You’re Not Going to Be So Profitable Any More Act of 2010.

December 14, 2009

This is interesting . . .

Filed under: Economics, Law — Tags: , , — Nicholas @ 09:24

Charles Stross links to this story:

Drug money saved banks in global crisis, claims UN advisor
Drugs and crime chief says $352bn in criminal proceeds was effectively laundered by financial institutions

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

This will raise questions about crime’s influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. “In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor,” he said.

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