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US, China Agree to Broaden Strategic Dialogue, Clinton Says

by Indira A.R. Lakshmanan and Eugene Tang

Feb 22 (Bloomberg) — Clinton thanked China for its continued purchases of U.S. Treasury notes, demand for which is needed to pay for Obama’s $787 billion stimulus plan.

No it isn’t. It will be a very different world when our leaders somehow come to realize how the monetary system works.

Yang said China, the world’s largest holder of Treasuries, will invest its almost $2 trillion in foreign-currency reserves based on the principles of ensuring liquidity and protecting value.

‘Appreciate Greatly’

“I appreciate greatly the Chinese government’s continuing confidence in U.S. Treasuries,” Clinton said. “I think that’s a well-grounded confidence.”

At an earlier meeting, State Councilor Dai Bingguo told Clinton that she looked “younger and more beautiful” than she appears on television.

Chuckling heartily, Clinton said, “Well, we will get along very well.”

Glad to see the US not saying anything negative about China’s new export subsidies announced last week.

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A once in a lifetime opportunity to increase the US standard of living squandered.

Increasing domestic demand unilaterally and letting the rest of the world grow via net exports to the US is in our best interest.

Clinton begins Asia trip, calls for Global Economic Cooperation

by Indira A.R. Lakshmanan

Feb 16 (Bloomberg) — Secretary of State Hillary Clinton kicked off the start of a weeklong trip to East Asia by calling for more cooperation from the region in alleviating the worldwide recession.

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How about:

‘Conduct ongoing fiscal adjustments to support domestic demand at full employment levels?’

Not quite, but moving in that direction.

They would all rather export than sell their output internally.

Pacific Rim Leaders Vow Further ‘Extraordinary’ Steps on Crisis

By Shamim Adam and Bill Faries

Nov. 23- Leaders of Pacific Rim nations promised to work together on further “extraordinary” steps to combat the global economic crisis and pledged to refrain from erecting new barriers to trade and investment.

Leaders of the 21-nation Asia-Pacific Economic Cooperation group, which includes the U.S., China and Japan and accounts for half of world output, also called for improved corporate governance and backed efforts to thaw frozen credit markets.

“We have already taken urgent and extraordinary steps to stabilize our financial sectors and strengthen economic growth and promote investment and consumption,” the group said in a statement during its meeting in Lima, Peru. “We will continue to take such steps, and work closely, in a coordinated and comprehensive manner, to implement future actions.”

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(email exchange)

Yes! And it’s deep- Hungarian homeowners borrowed yen to buy their homes, for just one example.

And with Japan an importer of all its crude, lower prices make yen that much harder to get, much like USD. And maybe even more so.

>   
>   On Fri, Oct 24, 2008 at 9:17 AM, James wrote:
>   
>   Liquidation of Yen carry trades also in full force…..
>   

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Thailand Proposes Asia Pool $350 Billion for Crisis

Not a good sign that they think they need that much in USD. Looks like they are too strung out on USDs.

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Looks like our loss is going to be their gain due to our leaders being in this way over their heads.

Highlights

Premier: China’s steady growth can help

Oct 6. (China Daily) Maintaining “steady and fast” growth is the largest contribution China can make to help the world overcome the current financial crisis stemming from the United States, Premier Wen Jiabao said Sunday.

“It will be the biggest contribution to the world for a huge country with 1.3 billion people to maintain steady and fast growth in the long term,” Wen said during an inspection to the Guangxi Zhuang autonomous region.

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This happens all the time with fixed exchange rates and currency boards.

The only way for banks to get ‘real’ (convertible) $HK for their depositors is to buy them from the monetary authority with $US. That usually means banks have to borrow $US to meet withdrawals of $HK, and most banks won’t have $US lines of more than a relatively small percentage of their deposits. With a strict currency board arrangement the monetary authority isn’t allowed to lend (convertible) $HK or its $US reserves, though in HK they sometimes do. But even those reserves are finite, and way smaller than total bank liabilities.

Historically the result has been a deflationary mess, with GDP dropping double digits, high unemployment, bank failures, and collapsing property and other asset prices.

At the macro level, the only way the island can get the $US it needs to buy $HK from the monetary authority is to net export (or sell assets for $US). The value of the $HK can’t go down (the monetary authority has more than enough $US reserves to buy back all the real $HK it’s sold), so the way costs of production go down is via local deflation due to the collapse in aggregate demand until prices are low enough to drive the needed exports.

Hopefully nothing comes of it this time around. But it hasn’t been that kind of year…

Hong Kong Savers Fret as Bank East Asia Fights Rumors

by Kelvin Wong and Theresa Tang

Sept. 25 (Bloomberg) For the first time since the Asian financial crisis more than a decade ago, Hong Kong has faced a bank run.

Hundreds of depositors lined up at the city’s third-largest lender Bank of East Asia Ltd. yesterday as the bank hit out at “malicious rumors,” and Chairman David Li rushed back to Hong Kong from the U.S. to reassure clients and investors. The city’s central bank jumped to BEA’s defense and police said they’re investigating phone text messages questioning its health.

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(an email exchange)

A few of things:

First, the rising wages in the 70’s led to bracket creep that put the budget in surplus in 1979 and resulted in a severe recession soon after.

This time around it is unlikely the inflation takes much of a dent out of the deficit so it’s more likely demand will be sustained to support prices. And, at least so far, Congress has acted to sustain demand and support prices with the latest fiscal package and more seemingly on the way.

Second, last time around the oil producers for the most part didn’t spend all that much of their new found revenues and thereby drained demand from the US economy. This time around they seem to be spending on infrastructure at a rate sufficient to drive our exports and keep gdp muddling through.

Third, I recall it was maybe the deregulation of nat gas that freed up a cheap substitute for electric utilities and unleashed a massive supply response as nat gas was substituted for crude at the elect power producers. After 1980 opec cut production by something like 15 million bpd to hold prices above 30 until they could cut no more without capping all their wells and the price tumbled to about 10 where it stood for a long time. This time around that kind of excess supply is nowhere in sight.

>
>   On Thu, Jun 12, 2008 at 11:59 PM, Russell wrote:
>
>   Stephan Roach is chairman of Morgan Stanley Asia, and pens
>   this missive for the FT, in which he contextualizes why the
>   Fed’s options are limited:
>
>   ”Fears of 1970s-style stagflation are back in the air. Global
>   bond markets are growing ever more nervous over this possibility,
>   and US and European central bankers are talking increasingly
>   tough about the perils of mounting inflation.
>
>   Yet today’s stagflation risks are very different from those that
>   wreaked such havoc 35 years ago. Unlike in that earlier period,
>   wages in the developed economies have been delinked from prices.
>   That all but eliminates the automatic indexation features of the
>   once dreaded wage-price spiral – perhaps the most insidious
>   feature of the “great inflation” of the 1970s. Moreover, as the
>   stunning surge of the US unemployment rate in May suggests,
>   slowing economic growth in the industrial economies is likely to
>   open up further slack in labour markets, thereby putting downward
>   cyclical pressure on wages over the next couple of years.
>
>   But there is a new threat to global inflation that was not present
>   in the 1970s. It is arising from the developing world, especially in
>   Asia, where price pressures are lurching out of control. For
>   developing Asia as a whole, consumer price index inflation hit 7.5
>   per cent in April 2008, close to a 9½-year high and more than double
>   the 3.6 per cent pace of a year ago. Sure, a good portion of the recent
>   acceleration in pricing is a result of food and energy – critically
>   important components of household budgets in poorer countries and
>   yet items that many analysts mistakenly remove to get a cleaner read
>   on underlying inflation. But even the residual, or “core”, inflation rate
>   in developing Asia surged to 3.8 per cent in April, more than double
>   the 1.8 per cent pace of a year ago…”
>
>

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(an interoffice email)

>
> On Mon, Jun 9, 2008 at 5:05 AM, Sean wrote:
>
> Today Korea announced a plan to spend $10bb to counter the effects of
> rising oil prices. The $100bb will include tax rebates and subsidizing
> power providers. This is with GDP growing at 5.8% ( although expected
> to slow to the mid 4% range and CPI at 4.9% - the package is expected
> to add 0.2% to GDP.
>
> There is no political will in Asia to avoid measures that sustain demand
> for energy related products - subsidy cuts have been very small and the
> outcry loud enough to prevent further meaningful cuts. Inflation is
> ripping in Asia, the second round effects are unavoidable and its going
> to be imported to the US.
>
>

Thanks, looks like Japan cpi break evens have a long way to go!

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