Hello Ork, << currency markets dwarf the size of the hedge fund industry>>
Yes, this point is not in doubt. I tend to think of the currency, equity, and bond markets as large pools of gasoline, and hedge funds as thousands of flickering matches or flaming torches, all looking for something to set ablaze.
<<… our trade and budget deficits aren't getting any smaller. there are a lot of foreigners holding our paper that s/b happy to sell it to short-covering hedge funds …>>
I also think this, and live it, but I am kept awake by consciousness of one detail …
The private offshore person is justifiably suspicious of the USD. Its guardians, in response to domestic political pressure and ignorance, seem intent on issuing vast liquidity to counteract “deflation” of assets that is leveraged on debt, and is happy if foreigners sell down the currency so as to improve the terms of trade. If the foreigners refuse to sell down the dollar, they will simply get diluted down in any case, along with everybody within the borders of USA.
This, after all, is how a global empire is supposed to work. In other words, everybody holding one USD has a vote in the longevity of the USD Empire, but each vote is useless in the singularity.
The private offshore person, at least the ones who are aware, have slowed his accumulation of USD. However, some accumulation is unavoidable, because business is largely conducted in USD.
The swing factor has been the Central Banks, especially of Japan, China, Taiwan, Hong Kong, Singapore, India, …
The supposedly independent Central Banks, especially the ones cited above, are political animals to the last one, are charged with trying to keep the currency purchasing value stable. In reality, the Central Banks answer to their respective governments, and the political party that controls each government.
The governments all want to see domestic stability, i.e. happily employed population, slow but steady dilution of debt, and inward foreign direct/portfolio investments, etc, so on and so forth, ad infinitum, ad nauseum, and the again.
So, the Central Banks had been following the Empire’s FED and issuing liquidity.
One one side of the Pond of Peace, the USA sees inexpensive goods and plentiful money to borrow. On the other side of the same pond, China sees manufacturing employment, Japan/Taiwan sees trade surplus, India sees service employment, Korea sees a bit of everything, Thailand/Malaysia sees tourists, Indonesia/Australia sees resource buyers, Philippines (as usual) sees nothing in particular except outflow of workers, and every country sees a property bubble.
This, again, is how a global Empire is supposed to work, by design.
KyrosL noted Message 20134224 <<The prices we are paying here for Chinese goods are ridiculously cheap. I can't see how some of these prices can even cover the transportation and material costs …
To which I respond, by direct observation and by indirect mathematical logic, “the transportation costs are being covered, along with insurance, raw materials, labour, handling, financing, R&D, and most important of all, PROFIT”.
The stuff one can buy in the USA costs even less over here, in the aggregate, and a lot of money is collecting in tropical locations, siphoned there by armies of corporate services companies outsourcing vast amounts of re-invoicing work, using the latest US designed microprocessor chips resting on Taiwan engineered circuit boards produced in Chinese factories, controlled by the latest US software written in India.
This is why a simple exchange rate shift of the USD vs other currencies cannot save American manufacturing. The only sure approach that can save ‘American’ manufacturing is if (a) the manufacturing foci shifts, and (b) the on-shore manufacturing fully incorporate offshore resources, else Lake Woebegone waits.
KyrosL also notes, and rightly so, that <<To me it seems like a gigantic transfer of Chinese savings to American consumers>>.
But this is only partially correct.
To the Chinese, it looks like returning to America the money that originated in America, funneled to China via trade, and obtaining in return know-how, technology, customer patronage, employment, investments, and the funds to add incrementally to natural resources.
To the Japanese, it was looking good as well for whatever their reasons are … mainly to do with the need for survival, selling to the US, making in Japan, China, and everywhere else.
KyrosL asked a question, <<What happens when the free money spigot from Chinese banks to Chinese producers is turned off?>>
To which the logical answer would be, ‘the Chinese spigot to Chinese producers will not be turned off. The gush will be modulated, so that frictions from activities will not be too hot.
We must remember that China has hundreds of millions of folks to put to productive work, and they in turn have 300 years of pent-up demand to satisfy.
KyrosL made a passing observation, <<Greenspan's money printing pales in comparison>> , and the correct answer must be that “no country in the entire history of the whole world has issued as much money as Greensputin has in the time he has been FED chairman, and in China’s case, the as yet unborn baby has only begin to grow, nourished by the calcium and minerals, vitamins, and the protein siphoned from elsewhere".
Take the US Federal debt, it had peaked at 1 trillion USD sometime in 1990, after 200 years of growing, and then increased by 3.5 trillion since then.
China’s govt debt would be lost in the decimal point in comparison.
Taking total government obligations SHORT FALL, the US stands at 51+ trillion. The Chinese government wouldn’t know how to write a number that big.
We will not speak about private debt. The exercise would be futile.
So, where is all this printing all around the Pacific leading us?
Global fiat money inflation, and the result will be not that different from all cases of fiat money inflation.
Keep gold, and buy more when cheaper, along with platinum, silver, uranium, oil, oil sands, gas, coal, copper, iron, nickel, tin, and consider ocean frontage land on warm islands.
And look for productive activities around you that can be embraced, and then gut the core of the operation, relocate same to China or India, and engage a re-invoice service in Hong Kong.
I do not believe the Script has not changed. Not even an iota.
Chugs, Jay |
