World News (Mon 29th. Aug ‘ 11)

Here is a rough transcription of the presentation for people who are hard of hearing. Apologies for the lack of grammar, I am working to improve the automated transcriptions -
Hello you ready for another week let’s go. The Telegraph and an article with a caption under Christine the gardens face Christine Lingard called for substantial and mandatory recapitalisation to bolster European banks balance sheet in a remarkably gloomy assessment of the world economy Ms Lingard warned that urgent action is required to stave off the threat of global recession and another credit crisis new article we read the sounding a stark warning to stronger European countries such as Britain prepare and Germany the new IMF chief said we could easily see the further spread of economic weakness to core countries and even more debilitating liquidity crisis to reduce these risks she called for substantial and mandatory recapitalisation to bolster European banks balance sheets which will be key to cutting is the chains of contagion Ms Legato was speaking at the US Federal reserve’s annual forum at Jackson hole said the recapitalisation should first be financed through private channels but can also be sourced from Europe wide bailout fund so the EF SF or ESM that it is now goodbye banks right later in the article rumours have swept the markets in recent weeks causing a number of high-profile banks to deny that they have liquidity problems the French bank associate Asia know I’ll was forced to issue a statement saying order on market rumours where I’m through as a classic of it all rumours are and who doesn’t matter what they are their own and all after it led a pack of French banks with plunging share prices East Yorkshire price plunges it’s harder to do and offering to sell more shares however despite Missoula guards concerns only nine banks failed the European banking authorities ECB’s stress tests in July which meant they only had to raise €2.5 billion in total so when she was finance minister she was probably part of the only tickle our influence that stole the stress tests to be taking the easy on the hand and make it look good so that’ll gives the word confidence is a banking system confidence just does not cut it any more to of the United States of America reduction will cut chart about real Jean D be and the blue red greeny purple colours are personal consumption expenditures PCT personal consumption 70% of GDP grows private domestic investment companies buying new factory net exports of goods and services that the balance between exports and imports government consumption expenditures and gross investment obvious what Mattis and the dotted blue line is the real GDP with see it falling down in the great recession coming back up but 4% GDP that could push Don it would be very nice and it hasn’t dropped down and what Doug Short pointing out in this chart more than anything is the blue which is the personal consumption expenditures on the last quarter is a mere sliver and US GDP will go nowhere as long as personal consumption is a mere sliver moving onto Project syndicate where Stephen Roach writes an article called one number says it all he writes from Newhaven and the number is 0.2% to you when I that’s a sliver it is the average annualised growth of US consumer spending over the past 14/4 calculated inflation-adjusted terms from the first quarter of 2008 to the second quarter of 2011 never before in the post-World War II error have American consumers been so weak for so long this one number in capsule a much of what is wrong today in the US and the global economy he writes his article and we get to this at the end instead of what he’d written earlier the US needs and menu of policies tailored to the needs and pressures bearing down on American consumers some possibilities are debt for giving us to speed up the deleveraging process creating savings policies that restore financial security to crisis battered Americans and of course jobs and the income they generate the US economy as well as the global economy cannot get back on its feet without the American consumer it’s time to look beyond ideology on the left as well is on the right frame the policy debate with that key consideration in mind that all something from me here that go against the US economy as well as the global economy cannot get back on its feet without the American consumer this is fact the can we see the absolute dangerous trap this is what is proposed here then is to get the American consumer consuming again which will be good for American GDP and world GDP the can we not see house stupid this is the have died after pointing out you know I mean it’s it’s like running a business and relying on one client or your one major client has your major customer because of that major customer goes away or just doesn’t come into your shop for a while but that is the world economy relying on the American consumer so the idea is to get the American consumer consuming again can’t be right right back in the United States and the whole idea of the last well that this chart goes back to our 1990 that this is MBA purchase application mortgage applications and we can see it went up in the upper as the world tried to pour money into the United States to keep the American consumer going the Americans consumer consuming and consumed on housing and ran that up but now it running down the lid down to levels of 1996 now Gillian Tet writing the financial times Julie and Julia contextually intact in any murder mystery it pays to watch the boring grey man or woman in the corner quiet unobtrusive characters can be deadly so to in finance four years ago the giant US money market funds seemed some of the dullest actors on the global financial scene but in 2007 they quietly helped to spark the crisis in the mortgage-backed securities world when they silently stopped rolling over bonds then in 2008 they furtively wielded the knife again pooling funds from some American banks and the repo purchase markets more about that one day I hope now that shadow ones again as my colleague Stan McCrum Tallis Dimas and Jennifer queues of reported in recent weeks these funds have been quietly backing away from European banks either refusing to rollover loans or slashing mature trees of the funds that they do provide Fitch for example recently calculated that the largest US money market funds cut their exposure in absolute terms by $30 billion in July even before the latest turmoil peanuts you say seeks America is rich a lot of this money is pension money and it’s slopping around the world and it’s these money flows that are causing all the problems money is turning up in the wrong places later we get from Suki Mann being quoted but it’s worth watching that those money market funds what those money market funds do next for one thing in their antics tend to have a powerful impact on market psychology particularly given folk market memories of 2008 secondly this quiet exodus has reminded US and European investors alike of something that policymakers have hitherto tended to downplay namely the rather surprising degree to which Eurozone banks depend on short term financing and what not Northern rock off right at the start of this crisis and really was the main weak point in the all the Wall Street banks now we come to money that is not peanuts Morgan Stanley for example calculates that of the eight freely in Euro funding that is currently in place for the largest 91 Eurozone banks and 58% needs to be rolled over in the next two years more startling still some 47% of this funding is less than a year in duration much of that is in euros €8 trillion needs to be rolled over 60% of that so that’s what I even half trillion in the next two years who’s going to roll that 5 1/2 trillion will the money be in the right place at right time end of the world part one by John moulding we have this is so quite into the article it’s worth reading the whole thing he always is worth reading we have a fundamentally different economic scenario than at any time in the past 66 years why then should we accept the same expect the same outcome every indicator employment GDP ISM sentiment etc is far below its average result two years after the official end of the recession that should speak volumes talking about United States so why does the CBO are criminal budget office something congressional because Congress is making projections for future deficits based on what appeared to be warm mildly optimistic assumptions that means future deficits are likely to be worse than expected if we enter a recession as I expect then revenues will be down as unemployment will be up and profits down and expenses will go up that don’t mean you missed deficit reduction currently being negotiated by the gang of 12 will disappear in a cloud of smoke and maze of mirrors this will mean that more pain in the terms of future spending cuts and/or tax increases will be needed I know a fair number of congressional staffers read this letter so pay attention hear your bosses need to be given a heads up they they know full well if we are in for a slow growth muddle through decade then the private projection the deficit projections by the CBO are dismally off get the spreadsheets factor in slower growth and higher unemployment and to recessions by the end of the decade typical for the aftermath the banking debt crisis and see what those deficit projections look like I think that’s a fair warning but it won’t make any difference at all to the CBO and other governmental project and projectors they will project optimistic views and even moulding here if we are in for a slow growth muddle through decade I think that is a big ask because if America doesn’t get spending again that the whole world economy has got itself in the state where the Americans need to spend 25 years that taken to get this this system in place where everything is predicated on Americans spending and if they don’t spend the rest of the world falls apart and then because now it is a global economy that it is now all locked altogether it will be global recession after global recession knocking back to America out the world I think it could be very very optimistic to get away with slow growth muddle through decade factor that it CBO a good week.

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  • snedmeister1

    Evening Nick.

    Banks are teetering on the edge once more, yet here we are in the UK, with house prices on the up again…!!!

    http://www.express.co.uk/posts/view/267480/Housing-market-bounces-back/

    Now, I would normally see this as a positive, but knowing how fragile things are in banking and the economy in general, the 10% fixed rate mortgage in the link I have posted seems like more of a hinderance than a positive…

    There will no doubt be many people jumping in, with mummy and daddy’s savings to put down as a deposit, only
    to find it isn’t rising interest rates that get them, but a lack of consistent employment ( if the world slows down )…!!

    This house price jump just feels a bit too fast for the circumstances, doesn’t it..??

    • http://overthepeak.com/wordpress/ Mystic

      “BRITAIN’S property market has roared back to life with a triple dose of
      good news – rising prices, record low loan rates and mortgages at their
      most affordable for 12 years.”
      ……….Shows either, that it was written by a cretin, or it is written for a cretin~!

      Question:  Why do people not say things like – “Good news……..the price of cars is rising”~?

      I would take the deal if it meant paying less than renting.
      Why not……Default on a mortgage, or not pay the rent……….there will not be much difference worth talking of, `come the revolution`~!

      • Ray

        Don’t you know that property prices always rise after a period of rioting? If that sounds absurd that’s because it is exactly that; but there is good news, because their lies are now so absurd that they can no longer be sustained even in the short run.

      • Stevo

        Suggests every Dail Mail reader is a property owner.

    • http://overthepeak.com/wordpress/ Mystic

      Oh yes….and I sick of seeing that same fucking photo in UK housing articles~!

    • http://overthepeak.com/wordpress/ Mystic

      I am very worried tonight Sned.
      I feel that governments and central banks are massing for a big defensive attack.
      I think we are going to see really big holograms of paper tigers floated about in the next few weeks.
      The intention is to scare the markets (when the big dicks swing back into place after their hols)……It does not take much imagination to see that the freshly tanned dicks are not going to be much impressed~!

      It is at times like these (big shows by Gov / CB’s) that the market can find weak spots….stab at it until it is defended………stab some more, until the Gov / CB egos are prompted into making a `matter of principle` of the wound and then the market sees the blood and comes in for feeding frenzy.

      …..and things like that. 

      • snedmeister1

        Yes, things are developing, and there are signals that the old lessons have not been learnt….

        But, I wouldn’t worry too much Nick… ( you seem uncertain tonight..?? )…

        You have an advantaged position, you are debt free ( I think? ), and own a property with a good
        life balance, and have a nice portion of land for you and Mrs Mystic to enjoy….
         
        There are many who will not be as well protected, and everyone will be affected, just some more than others…

        I look at it this way, if I’m losing sleep, then it’s time to reduce my risk, or reassess….

        Currently I am looking at buying a little piece of my own English land ( only a small piece though ), 
         installing a wood burner in my home, and selling the little flat which I lived in before moving in with
        misses Sned… ( although there isn’t much equity in it.!! )…

        Maybe the showdown between banks and Gov’ts is here…??? Maybe not quite yet…???

        I plan to batten down the hatches, and ride it out…. What else can I do…???
        Or anyone else for that matter…???

        Trust me, you will be fine…. You’re intelligent enough to get by and adapt….

        I think we can be sure that first, growth is not happening, and second, the people of the UK don’t know the
        dangers ahead….

        Fortunately, you do…..

        • http://overthepeak.com/wordpress/ Mystic

          Just to say…..I am not worried for me (the last time I was worried for me, was when Northern Rock went all funny…….and that got me thinking.)

          • snedmeister1

            Good, I thought you were going all wobbly on us for a second…!!! :)

          • snedmeister1

            Good, I thought you were going all wobbly on us for a second…!!! :)

      • CSArichardo

        Fighting the unknown, unknowns is tough.  Clearly you need a better drug plan !  

    • Motamouse

       Evenin Sned.

      I’m sure the editor of the daily express is heading for a nervous breakdown. I make a point everyday of reading all the headlines on the news racks.

      The express has been making me chuckle   “Pensions woe billion wiped of shares”, “Pensions joy! as shares recover losses”  “Pensions woe millions face reduced pensions”    “Housing joy as prices rise fastest in years!”    “Joy for millions as rates fall to record low “   “Housing gloom as new mortagaes hit record low” ……..

      Up down, up down, valium all around.

      • snedmeister1

        Evening Mota,

        To be perfectly honest, I don’t read that paper very often…

        The title caught my eye while filling up with diesel…. But maybe they are no more confused than the average
        Joe…!!!

        Lets hope that their facts are wrong, because if they aren’t, there are going to be a few more dreams shattered
        in the coming years…. A jump in prices like that, in these “slow growth” times is bad news…..

        Anyway, how has the bank holiday treated you so far Mota…?? Nice knowing you don’t have to get up for work
        again tomorrow isn’t it…??!!!

        • Motamouse

           You know what, thats really funny :)

        • Motamouse

          Good day to you Sned,

          I’d like to expand on the Daily Mail headlines. The Express headlines i
          find mildly amusing, the Daily Mails i don’t, as i can see the seeds of
          fascism in the headline .

          I regularly give money to down and outs and sometimes i stop and chat to
          them. When you speak to them you find out that they receive no benefits
          from the state because the have no fixed address. They get no dole money , no housing benefit, no council tax benefits, they get nothing. To get in a good shepard overnight cost between £9 and £19 a night depending on where you are ( and £9 extra if you have a dog?) So their aim for the day is to ‘scrounge’ enough money for the Shepard , a packet of fags, a bit of food and some a bottle of White Lighting because, hey, i would not want to face that existence sober either.

          A lot of middle class families are ‘at present’ are enjoying a £300,£400,£500 £600 a month (some, more), mortgage benefit which is being financed directly by savers(especially those on a tracker). Hence negative real rates ( yes it has to come from someone?)
          A lot of these same families are also receiving up to and in excess of £180 a week in family tax credits and £20-£80 a week child allowance
          So in total they are ‘scrounging’ approximately £1100 – £1600 a month in direct benefits, from both public and private sources.

          You see appearances can be deceptive. The next time you see a designer clad person walking past a down and out shouting “get a job you scrounger” just stop and consider who may actually be the biggest scrounger!

           So you see attempting to label people as scroungers is really not a good idea.

          I sincerely hope the editor of the Daily Mail has a very large mortgage on a tracker so i can then walk past and put a couple of my US dollars in his hat and say. ” it’s ok, you’re not as big a scrounger as you once were”

          • Motamouse

             Forgot to add. The D&O’s cannot get a job because they have no fixed address. No employer will hire anyone with no fixed address.

            • snedmeister1

              A lot of what you say makes good sense here Mota.

              It’s all about pre conceived perceptions and stereo types I guess….

              While I would hate to be in a position of homelessness, and poverty, without going too deep into
              the past I would add that many are there from their own doing…

              Now this sounds really harsh, and may irritate a few, but although I have never been homeless, I
              have known several characters from my youth who inadvertently drifted into unsavoury pastimes….

              These ( and I am talking several people here ) all had good homes and prospects ( no worse than others ).
              They threw it away and ended up in jail, then homeless, then jail, then homeless…..
              ( most jails now will find accomadation for you when you leave jail, but not where you want it probably ).

              No doubt, if I saw them now, they would claim to want a better life if it was awarded at a click of a
              finger, but to actively pursue a more appropriate path..??? 
              The ones I refer to can’t be bothered….
              Now they are stuck in the loop… Too much effort to change, and life”s crap, so self medicate etc etc….  

              There are obviously many who are there for no fault of their own, but unfortunately, I have seen a
              bit of an insight when it comes to homelessness in my city, and although I would never wish it
              on anybody, the few I refer to have had ample chances to change…

              Their families have given them many opportunities to straighten out, but they don’t last long before
              they end up mixing with the same old crowds and faces….

              Homelessness is sometimes a symptom of other problems ( although not always )…
              If the root cause is addressed, the symptom disappears…
              The obstacle is, that many don’t/ can’t face the root cause is themselves/ choices…

              I would like to finish by saying, this was not a post to provoke a response from anyone reading, but more
              of a sample of my thoughts, from what was going to be a small post growing into a bit of a story..!!!

              Good day to you too Mota..!! :)

              • Motamouse

                 I don’t think you’re being harsh Sned as not all are worthy causes.Like you say there are many pathways to homelessness, some are there because they want to be, some are not. My personal take on speaking to them is that quite a few have mental health issuses.

                Having said all this im not a hippy or anything. I just take exception to newspaper editors attempting to place targets on peoples backs.

                • snedmeister1

                  “Having said all this im not a hippy or anything” -LOL-

                  I have an image in my mind of Mickey mouse with long hair…!!!

                  My last post was a bit long winded, so to sum up….
                  If people have problems because they are homeless, fine, we should try and help…. 
                  If people end up homeless due to their personal problems, giving them a home won’t solve their problems….

                  Good talking to you Mota, at last we have some common ground…!!! :)

      • Motamouse

        Mind you it is better than the Daily Mail. i think todays was” War on Benefit Scroungers” or something like that.

        Which scroungers are they on about? The ones that work at one of the 750,000 Quangos, where Lord or Lady so and so get £100,000 a year for one day a week. Or maybe they meant the Credit Default Swap pass the parcel scroungers, taking big fat commisions on deals they know they cannot possible cover come D day. These commision ‘earnings’ then having to be found retrospectively by the tax payer.

        Both are nothing more than a glorified benefit systems for the upper classes and what nice benefits they are too.

    • Windcutter

      Bloomberg from a report by Hometrack reckon the Bloody British House Price has

      “U.K. house prices fell for a fourth month in August and demand for homes may weaken further this year, property researcher Hometrack Ltd. said”

      Believe what and whom you may, but rising house prices is NOT the answer to the ailments in the economy. But IS seen as the way of getting re-elected again.

      http://www.bloomberg.com/news/2011-08-28/u-k-house-prices-fell-for-fourth-straight-month-in-august-hometrack-says.html

      • Motamouse

         Hi, Wind.   The Land Registry is best for UK house prices. No one can fiddle these figures.

        http://www.landregistry.gov.uk/

        • Windcutter

          Thanks, that’s seems like a decent link.

          On the whole I am fed up with the intense focus given to UK property prices.

          I can find no positive aspect of rising property prices, and associated rents, both residential and commercial. I could go on at some length about this. But I won’t, except to say that the extraction of equity in property to fritter away on cars, holidays, Spanish villas and purchasing “buy to let” places should be banned by law.

          For the vast majority a house should be regarded as somewhere to live and not as an income stream.

          • Motamouse

             Completely agree. Understanding that a home is somewhere to live is it’s greatest value.

      • snedmeister1

        Maybe you mis-understood what I was saying…???

        I was actually saying that house prices rising is a bad thing, if there is no foundation in the economy…

        House prices rising should be because of rising incomes, but as the politicians see rising house prices
        in the good times boosting confidence in the consumer through the feel good factor, they think
        that making the tail wag the dog ( propping up house prices ) will cause a kind of feedback loop, causing the dog to spin in circles ( people chasing the appreciation in house prices ), happily chasing his own tail….

        ( Lets hope that this little doggy doesn’t start chasing his tail, because if he manages to actually bite it,
        it will hurt…!!! ).

        • Motamouse

           Well said Sned….;-)

        • Stevo

          With little building taking place and increasing immigration, and students shuffling around the country for no good reason, the buy to let market is still ramping up property prices. 

  • Ray

    Forget all that is being said. They’re all full of it! The undeniable fact is
    that real income is going negative both in the US and Europe in a major way.
    That is the very definition of negative overall productivity, the exact opposite of growth. And it’s occurring despite
    layoffs and cutbacks, which normally tend to cause higher net productivity, at least in the productive sectors. What
    that means is that the forces tending towards negative productivity are very strong, so much so that they’re easily offsetting any gains and then some. One can view the cutbacks as desperate measures to prevent productivity collapse. This isn’t deflation, and it’s not exactly even a depression, I call it a repressive contraction teetering on the edge of conflict-driven collapse.

    • snedmeister1

      Lets hope we never get to “conflict-driven”………!!

      • Ray

         Too late, I see three major conflicts already under way:
        1) A generational war in mostly western countries where the young tell the older establishment what they can do with their plan of perpetual enslavement.
        2) Currency wars, especially between the dollar and the euro. The dollar will probably succeed in taking down the euro, but it’s far from clear whether the winner will be the dollar or some other currency.
        3) Regional internal wars in phony countries drawn up by European colonialists in the 20 century, which will probably end up redrawing the maps of those countries.

        • snedmeister1

          Yes, I suppose you are right Ray.

          They are all conflicts…. For an analogy, I will compare them to individual scuffles in a night club….
          First, lets not hope it turns into a bar brawl where everyone is fighting everyone else…!!!

          If it does escalate into a free for all, we better lock the doors, to stop it spilling onto the streets…!!!

  • Jantje

    It promises to be exciting times ahead. I do not understand people to watch the television. The economic story is far more entertaining, with the gold up- and downswings and the bailouts, and the failing banks.

    • snedmeister1

      Are you mad…?? … You obviously haven’t seen X-Factor…!!!

      *o*

      Or better still “Britain’s got talent”…!!! :) :)

      Real programs the UK can be proud of….!!! -LOL-

    • Guest

      so you’re saying people are mad for watching something they find entertaining rather than focusing on all the doom and gloom? 

      • http://overthepeak.com/wordpress/ Mystic

        Mad…is probably not the right word, but `sheep` maybe pertinent.

        It is a very modern idea that we can just enjoy ourselves and let others get on with governing us.
        I think cheap oil made that a reasonable way to go (because they could not go far wrong), but that is now over and everyone needs everyone else to think about what can be done to save civilization.

        • Guest

          What do you mean by everybody needs everybody else to think about what can be done and why do we need to save civilisation? 

          • http://overthepeak.com/wordpress/ Mystic

            If the people don’t do any thinking, then the thinking will be done for them by politicians and the folk that can influence them.

            I have no faith in the `intrinsic niceness` of people, but have faith in the intrinsic niceness of some people.
            The non-nice should have a wail of a time `come the revolution`, but the nice ones are not going to like it one bit….
            (and the animals~!).

      • Jantje

        i do not say they are mad. I do not understand, that is something different. I see more new things, changing things in the present economic period. Say 5 years ago, the economic part was much less interesting, because it was just “boom, boom, boom”. I think people are missing out by not seeing how much fun one can have, or call it excitement, or adrenalin rush, when following the economic and political news.

        • Guest

          Sorry – I think I must have seen the word “mad” in Sned’s reply – which was directly below your comment at the time I posted my reply – and got it mixed up.

          I doubt many people would class the current economic or political news as “fun” though. For many people all the doom and gloom would only add to their mounting anxieties about the future.

  • James

    markets are a lie…everything is untrue….talk to the hand…..
    http://www.youtube.com/watch?v=kb3tfk8dxvU

    • Motamouse

       Thats a nice bit of deficit spending going on there.

    • James

      Greek Banks merger a sigh of relief for today…..albeit a mandatory-ish one….

      The wheels of overthepeak, are getting oiled…:)

  • CSArichardo

    In the US fiscal stimulus is clearly required.  As the world global currency why would an even bigger deficit all of a sudden matter for the US except that it makes good politics to talk about cutting government deficits (since everyone else is deleveraging so why not the government too) when in fact government needs to spend even bigger deficits during this balance sheet recession.

    What is needed and will occur in the US eventually is a new government funded energy infrastructure build out, some personal tax deductions for the middle class (consumer stimulus),  some tax increases for those with million dollar incomes (MMT to keep the value of the US dollar from dropping too much), continued welfare/food stamp and unemployment benefit extensions to prevent riots on the streets, etc.  That should help things along until the deleveraging comes closer to an end.

    In Europe they need to print and handout some money to all nations.  This is not Eurobond issues but direct Euro allocations to each nation, much like IMF SDR allocations.   

      

    • snedmeister1

      Interesting views Richard,

      I have been thinking lately about similar scenarios, If they stop deficit spending, they will reduce the amount of Dollars flowing in their economy…. As they are NO1 consumer, by a long way, any reduction in Dollars
      circulating will cause the global economy to slow down…. 
      They will literally export a global slow down…. ( IMO anyway ).

      With respect to Europe, if the rest of the world picks up ( unlikely I know ) and trades with them AND
      they sort out the PIIGS…. Oh what am I saying… The Eurozone is shafted in it’s current form…!!!

      Question for you Richard, if the amount of Dollars in the world shrinks, how will this affect the SDR allocations
      and ratios etc…???

      • CSArichardo

        The SDR is made up of four floating currencies.  If there are fewer  US$ I guess that would make them worth more within the basket everyelse being equal ?  Hence you would simply expect the SDR exchange rate to improve for the US$, but I might have that wrong.  This is pretty complicated stuff, because the US$ is not like the other currencies in the basket because it is the global reserve currency today,  Countries, companies and people who borrow from other countries, companies and people need to pay off those loans in the currency of the loan.  Since many of these loans are in US$ there will always be a demand for them until the loans start being made in SDRs or currencies other than the US$.  Not sure if I answered your question sned?.

        • snedmeister1

          I understand the demand for Dollars is always high, not least because commodities are still traded in
          Dollars

          But what I was getting at, was if the amount of Dollars held as reserves for Brazil ( just an example )
          does not increase ( because the US consumer stops buying ), but Brazil keeps exporting to the other three
          currency areas, thus increasing the amount of Euros/ Yen/ Pounds,
          does this mean that they have to try and compete for Dollars to hold a given ratio..??

          It’s late so I am not explaining very well I know, and maybe mis understanding how SDR’s work….

          Basically, does the ratio of Dollars, Yen and Euros and Pounds have to stay the same for each country,
          ie 10% pounds, 15%Euro, 15% Yen, 60% Dollar for example, or can a country hold 100% Yen reserves
          to back their SDR allocation….???

          Or am I mis understanding how these SDR allocations work…??

          Thanks R

          • Windcutter

            Hey Sned, I think you are off the mark with the SDR’s.

            The SDR is a token, not really a currency, its price is determined based on the EUR, USD, GBP and JPY daily by the IMF here

            http://www.imf.org/external/np/fin/data/rms_sdrv.aspx

            It came into being with Bretton Woods, but once that collapsed the SDR did not really had much of a function except as a unit of account by the IMF. I suppose it was their baby and they did not want to kill it.

            In 2009 they ramped up the number of allocated SDR’s and printed them out into the world, I believe this can be regarded as QE at the international level, as the SDR’s can be turned into one of the four currencies by a “volunteer” process, ie, not totally liquid, by selling them to a willing buyer.

            IMO I don’t think that the SDR’s will become significant. Particularly as the States holds the reigns. In spite of all the problems that being the printer of the world’s reserve currency holds, they are outweighed by the huge advantages. Maybe in 2015 the base mix of currencies might be changed to include the CNY, but only of the CNY is freely floating by that time.

            And four years is a loooong time in this financial crisis saga. A whole lotta things can change by then.

            More here

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

            and from the horse’s mouth

            http://www.imf.org/external/np/exr/facts/sdr.htm

            http://www.imf.org/external/np/exr/faq/sdrallocfaqs.htm#q3

            So, in spite of the odd article, I think we are stuck with the USD for the next few years, with maybe an increasing use of currency swaps to facilitate trade without settling in USD’s.

            • snedmeister1

              Thanks Windy, I will give all this a read today at some point…

              I had a feeling I was going wrong somewhere….:)

              I keep seeing Richardo’s posts, and keep meaning to research the SDR, but everything else seems
              more pressing at the moment….

              Thanks again.

            • snedmeister1

              Thanks Windy, I will give all this a read today at some point…

              I had a feeling I was going wrong somewhere….:)

              I keep seeing Richardo’s posts, and keep meaning to research the SDR, but everything else seems
              more pressing at the moment….

              Thanks again.

          • CSArichardo

            A country can hold whatever real currencies they want and need for trade.  That is why the US$ is held by so many in their foreign reserves.  Those reserves are different than country reserves held at the IMF.    What the Chinese would like is a convertability mechanism to exchange those $US reserves for SDRs (and hence all 4 currencies) at the IMF.  This is currently not possible, because the SDR is really still just transitioning to global fiat status and such rules are not yet in place.   I will attempt a post sometime in the future on this.

  • Jaypotterjr

    Dude, it’s so easy to make decisions that hurt everyone when you got yours.

  • Bigcollapso

    Growth is necessary to maintain stability of an exponential monetary system.
    Production in the physical economy is necessary to make money work at all.
    They have created too much money and other instruments against the physical economy. They must back away some of these promises against the physical world, or there will be hyperinflation. One more “stimulus” and it’s probably over.
    I don’t know why people want more “stimulus”. The Government has no wealth, only fiat money. More fiat money just creates more debt. I don’t understand why people want more debt. Idiots inflating and creating debt is why we are collapsing.

    • http://overthepeak.com/wordpress/ Mystic

      The first line is probably correct and after that………..pub chatter~!

  • Windcutter

    Globalisation and the US contribution to world GDP.

    Let’s start here

    http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

    “Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed. The vast majority of goods and services sold in the United States is produced here. In 2010, imports were about 16% of U.S. GDP. Imports from China amounted to 2.5% of GDP”

    Hmm, well let’s go to Wiki and check out the GDP’s.

    http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

    The US runs about 25% of the world GDP. The SF FED reckons 16% of that represents imports. This results in a humongous 4% of the global GDP is created by the US from imports. 

    Why Is the effect of a reduction in US GDP such a huge deal? Is it maybe a bit overstated?

    If the US has a 10% slowdown, something that would send Bernanke racing to the control panel, then the world’s GDP will be reduced by 2.5%. But most of that reduction is in the “relatively closed economy” of the States, and only 0.4% will be reduction in exports from other countries.

    If India and China, or rather the wider Asiatic region continue to grow internally, and here there is still real growth potential (not illusory house price inflation and financial services ‘wealth creation’ or should that be more ‘wealth destruction/extraction’?) then the US can go into its Great Depression.

    When Lagarde goes off on her “Global Issues”, why do I feel that she is rather addressing the parlous state of the maxed out on debt US and European economies? There are no politically palatable real solutions to the huge issues involved, only fudge-making and wormcan-kicking to keep the monstrous bollock rolling down the road just a wee bit further, 

    “Oh God, please just another year, then I’m OK. Just not on my watch, anything but that”

    Call to Merv/the Bernank/

    “Come on guys, just a bit more cash, that’s all we need”

    The Chinese are upping the banking reserve ratio to around 20%. Surely a reasonable basis for sound banking, if, indeed, the current model can be considered sound. Actually the model is probably sound, but the bailouts and political support have ripped out the foundations. The Swedes sorted out their crisis by nationalising the bastards and firing the culprits.
    That should have been done already.

    Oh well, I’m having a ramble through the bushes today.

    So to finish off, here are the words from Trichet, yep, its all about long term growth.

    Achieving maximum long-term growth
    Speech by Jean-Claude Trichet, President of the ECBat the Jackson Hole Economic Symposium

    http://www.ecb.int/press/key/date/2011/html/sp110827.en.html

    And here’s a summary
    “Blah blah blah blah blah policy blah blah structural blah blah reform blah imbalance blah blah more policy blah work hard to maintain momentum”
    Naturally a few references were thrown in to frighten the unwashed out of the discussion for example “Harrod-Domar” and “Solovian”, hitherto words that did not feature in my vocabulary, possibly due to my “comprehensive school education”, but can now be brought out into my daily conversations to give me the aura of SUPERIOR INTELLIGENCE.But here’s an interesting sentence.”Since the introduction of the single currency in 1999, the euro area has experienced a per-capita growth rate that, at around 1% a year, is comparable to that in the United States (1.1%)”.So on the back of all the debt creation the end result was 1% per-capita growth rate? Jeeze, that was money well spent, wannit?

    • http://overthepeak.com/wordpress/ Mystic

      I think one thing to note, would be that a US$ is worth about a US$ in the US, but is worth a whole lot more in other places.
      As in – a trade amount of 1 billion US$ would be a lot of money for an emerging economy.

      • Windcutter

        This is to a certain extent taken into account using the GDP comparison based on PPP

        http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

        rather than the nominal GDP based on only exchange rates.

        http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

        Using the PPP derived figures the GDP of India and China together almost equals the US at 14 trillion.

        If I have got my brain correctly around all these figures (by no way a certainty), then a drop of imports by the US of just 0.4% (taking my example above where the US GDP drops by 10%) would only require an equivalent increase of that 0.4% in the domestic consumption of China and India to compensate. This China could manage  by allowing some of the huge forex reserves to filter into the country through a bit less sterilisation, putting more money into the hands of the Chinese and allowing the currency to appreciate.

        The point I am trying to make is that the upcoming depression in the US (can anybody see a way to stop it?) will not necessarily lead to the global depression that Lagarde is indicating. The world has marched on in the last twenty years, and we are IMO, now at the juncture where the consumer in Asia will be taking up the slack from the over-indebted consumer in the west.

        If this crisis had occurred 20 years ago, it would have IMO been devastating for the global economy. But it didn’t and the preconditions for it to happen were not present anyway.

        The PPP factors are determined by the World Bank

        http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/ICPEXT/0,,contentMDK:22390991~pagePK:60002244~piPK:62002388~theSitePK:270065,00.html

        • snedmeister1

          Had a little look at SDR’s Windy….

          The links were quite helpful, thanks…

          Had my head firmly rammed up my arse didn’t I…!!! -LOL-

          • Windcutter

            I have had to painfully extract my head from that orifice many times……

            And will quite probably have to do so again.

            But I’d rather have do that than to never venture an opinion. And at least on the internet it is all more or less anonymous.

            • snedmeister1

              And, now I know….

              It is surely better, as you say, to have an opinion and be wrong but learn from it….:)

              Thanks again for the links.

        • http://overthepeak.com/wordpress/ Mystic

          The consumers of the `emerging markets` will not make up the lost consumption of the West.
          It would have been a multi-decade transition. 
          If the West slows down buying…..the emerging peoples will slow down consuming (as many of them will be out of a job).

          • Windcutter

            Hello again!

            I think on this issue we are going to differ until the changes  are more evident. I live in Asia and am amazed at just how fast the “emerging peoples” are taking the baton and running with it. The multi-decade transition began a decade ago. And I don’t believe the transition will take multi-decades. We have begun a century of massive change.

            The barriers to setting up small businesses are so much smaller and money rotates around in the local community rather than get sucked up into the government and banks. By necessity the people are resourceful and prepared to work long hours, many with their own small businesses serving the local community. No spongers and minorities to be pandered to.

            The price of techno-goods is plummeting due to production developments and the sheer volume of sales. This puts the LCD TV’s, computers, mobile phones and all that stuff easily into the affordable range.

            And to cap it all, the whole Asian region is run by the Chinese, who have a very long term (talking generations) perspective. The west has the “maximise the millisecond” profit mentality.

            Who do you think is going to win?

            • Fillo20002000

              There is a big difference between eastern and western mentality, speaking from mine point of view I don’t wont to live so that i could work i wont to work so that i can live.

              I am feeling disgust by  those Asian mammals that are working 15  or more hours a day.  

            • http://overthepeak.com/wordpress/ Mystic

              I don’t think either is going to win.
              `………….` will stop ‘em both / all~!

              Only China and India are really growing PPP wise, so we can say what will stop them~?
              Dozens of things could stop China………….and India.

              I am very sorry that I cannot be more practical with my comment replies, but I `feel` that there is not a snowball’s chance in hades that the East will get very far.

        • http://overthepeak.com/wordpress/ Mystic

          Hello again.  (I left my last answer in a break from splitting wood……and am in for another break……..having thought about it a bit more)

          I think that if we discuss the question again in 5 or 10 years, it will be something like this -
          You say…..”Ah yes, but if `………..` hadn’t happened, I would have been right.
          and I say……”Ah yes, but although I didn’t know what `………..` was exactly; I knew there had to be a `…………..`.

          So let me be clear – There will be a `……………`~! 

    • http://overthepeak.com/wordpress/ Mystic

      I think one thing to note, would be that a US$ is worth about a US$ in the US, but is worth a whole lot more in other places.
      As in – a trade amount of 1 billion US$ would be a lot of money for an emerging economy.