About two years ago I had a talk with a friend of mine, that works as asset strategist in a major investment bank, about the fact that China only holds about 1/3 of the world’s circulating stock of US dollars.
The fact is particularly relevant considering the possibility that China, like other asian rapidly growing countries, might have an impact on devaluating the USD by selling their dollar stocks. Deciding the speed of the sale in facts they could cause a dramatic downfall of the USD or otherwise maintain its worth or fight FEDR strategies.
So what has actually happened in the last 24 months?
The FEDR has artificially and hideously (for the masses) devaluated the USD. Many people blame Benake of being a fearful sheep following and not anticipating the market. Personally I have never believed the possibility that people in such high level position might have worse quality information or worse advisors than me or than any other financial analysts (especially in between those blaming Ben), then I have always believed that Bernake’s hidden devaluation of the dollar wasn’t a short sighted or fearful strategy but rather the opposite: it was a way to anticipate ”something”.
Anticipate what then?
If the goal was to sterilize the possibility for the reborn asian tigers to treat the value of USD then, Ben has achieved the goal. The way he did it was anticipating a devaluation, by controlling it and by largely hiding it to the markets that had suffered some steep falls.
But the actual mean wasn’t the value of the USD itself, the mean was to make it impossible for the asian tigers to devaluate the USD further more, so basically to make it impossible for them to sell their stocks.
The FEDR has achieved this by forcing investments onto commodities, namely oil, raw materials, metals and food, that has put a clamp around the neck of the tigers…
The situation now is that China, India, Vietnam, Korea, Japan and Taiwan absolutely cannot devaluate the dollar otherwise they would simply fall into mass starvation.
The increaded cost of oil, fuels and foods is still bearable in the US and EU both because these are richer countries and because the weitght of taxes on these commodities is high and gives the local governs the possibility to adjust, under extreme conditions, the final costs to the consumers. Possibility that is not given, or to a much lower extents, to the rapidly growing countries where the only thing the governments can do is to artificially fire up domestic inflation (by increasing further more the cost of certain commodities) to cool down the growth and domestic consumption.
Under this point of view, even the dramatic fall in the US housing market is nothing else than a healthy adjustment of over-priced assets. The behaviour of the FEDR confirms, somehow crazily, this point of view. Bear Stern went belly down because of the asset backed products that weren’t actually backed anymore, but the FEDR allowed an extraordinary (now ordinary) 30MLN lending to JP Morgan Chase to buy BS. Which at the end is a recognizement of the fact that assets were over-priced. Like also the great Patrick points out.
About one year ago the question was :”Will Japan sacrifice the Yen to save the dollar?”
The answer is that Ben Bernake, the “fearful”, didn’t even gave the choice to the paper tigers… and never before the nickname of “paper tigers” was more ironic… being all the chaos basically caused by “paper money” onto which the asian currencies are based.
Asia’s growth in now seriously treated by inflation, but it is not a in-house inflation nor a salary-growth caused inflation, it is a new type of inflation that is caused by the growth of the cost of oil and grain resulting into a growth of the cost of production and living. And more clearly than in the past, this inflation is actually entirely caused by the BCs’ policies, and in particular, by having pushed speculation over commodities they have caused an inflation typical of pre-war conditions that is not strictly a stagflation nor a traditional inflation either.
Doesn’t help at all knowing that the few investment banks that knew where and when to invest in commodities are the same investment banks that own the FEDR, and is of no help either knowing that these banks are of a specific type, model, tradition and religion.
Yet the economical conditions are extremely similar to those of Germany of the 20s’. I believe that in the next 12 months we will see if the war in Iran will economically needed and if it will be fired before or after the next US president.
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[...] Finance, Economy-Business News, Stock Market wrote an interesting post today onHere’s a quick excerptBen not so fearful June 5, 2008 at 9:43 am · Filed under economy, finance, system About two years ago I had a talk with a friend of mine, that works as asset strategist in a major investment bank, about the fact that China only holds about 1/3 of the world’s circulating stock of US dollars. The fact is particularly relevant considering the possibility that China, like other asian rapidly growing countries, might have an impact on devaluating the USD by selling their dollar stocks. Deciding [...]
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