The global markets are reacting positively to the US close of last night- HSI is solidly up, it opened higher and never looked back, the speculators did not even check the resolve of HK authorities. I think they would like to sell at a high point and try to take market lower, but when you have a deep pocketed Governments ready to play ball the game becomes a little difficult, now it even playing field, making money will be real fun the HK authorities are now defending the peg much better as their hands are not tied behind their backs by short sellers in the equity market. Interventionist approaches helped the icon of OECD economies like France, Germany decision to have this ECU going now had it not been for this inconvertibility we would have by now seen Chinese devaluation..
One hand we have seen that hedge funds have a claming affect on the countries but on the other they undoubtedly magnify the problems disproportionately, I still think that no developing country in the world with an open account convertibility can fend off these speculators if they descend on it. Brazil with 67 billion $ of reserves has committed 10-15 billion $ just to fend off any impending attack, reserves are finite quantity a 20 to 1 leverage gives the potential to dislodge even the most strongest of wills or economies. IMF would need to take some lessons from China, it had the most vulnerable currency but speculators were unable to dislodge it only because their was an indirect proxy to short Yuan but not a direct route. The problem that these hedge funds see a global deflation is due to economic slowdown as a result of massive transfer of resources from developing nations back into the coffers of hedge funds. Draining the reserves of developing world under pretext of open economies is a policy which cannot be continued, at the end of the day these bail out packages are underwritten by IMF, but the question is the net transfers out of the developing world, the Russian situation is a clear example that ruthless speculation may lead to further debt moratorium's moreover the very hedge funds who anticipated the developing countries to play by the book are now caught up in huge losses as the betted on the wrong side.
One can argue that what is the point here they take risk and get duly rewarded my point is that in the process in calculable damage is done to the country whose currency comes under speculation, to get back on track billions are required as immediate fusion and social costs are alarmingly high. Some how we would need to see that if global interactivity has to continue their need to be a cooling period where interactivity may proceed without these turbulent movement, it is strange that a strong global economic cycle is now being threatened by fears of deflation, their is no rational thinking behind all this, falling Oil prices depicted as one example of deflation, but will not these falling oil prices help overall consumption and better buying levels leading to higher demand in the developing world. Economists now realize that specter of inflation is always better than no-inflation, imagine what use to be below 5% employment sure
sign of inflationary pressures is now dismissed and focus is placed on commodity prices even wage inflation which constitutes 70% of inflationary pressure is being disregarded. I think we have this global slowdown in demand as result of draining of lot of productive funds out of the systems under pretext of free market and open markets, the net transfer of resources from the developing world to OECD hedge funds would in no way helpful to global demand. It will lead to depressing these demands however as I highlighted last night how much of the global buying power lies outside US or OECD countries, judging by concentration of GDP with riches, the net transfer of resources will not lead to deflation as the rich world owns most of the wealth anyway and contribution of the developing world is far too low to affect the OECD juggernauts. |
