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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Real Man who wrote (18026)	3/1/2009 7:47:03 PM
From: Hawkmoon	2 Recommendations Read Replies (2) \| Respond to of 71463

USD trade, with 80% of the global savings financing Ask yourself this question. Why was it that the US was considered the best place to obtain sufficient yields for those profits? Why couldn't they find similar, or higher yielding investments within their own countries? They apparently did find investments in emerging markets in Europe and Latin America (Spanish banks primarily) but those investments are now crumbling before their eyes as currency devaluations take hold (particularly in E. Europe). The answer, IMO, is that they financed their investments in E. Europe with revenues from US CDOs and RMBS assets, leveraging those proceeds into investments in emerging markets. But suddenly those US assets become suspect and the house of cards begins to crumble with their other ones. It's like the rug being pulled out from under their feet. This, IMO, is why the AIG (unsavory as it might be) bailout was so necessary. As I understand it from my readings, AIG was heavily exposed to writing protection on European debt. bloomberg.com Accounting Rules AIG’s view on valuing its swaps with European banks turns on an interpretation of accounting rules involving risk transfer. Lewis said the insurer normally marks the value of the assets underlying swaps to market levels since it is taking some risk in the transactions. The swaps with the European banks are different because they didn’t insure against losses, he said. Instead, they were bought to take advantage of European accounting rules that allow the banks to use the swaps to reduce the capital they’re required to set aside as loss reserves. The swaps are kept in place only until new accounting rules, known as Basel II, are phased in. Those rules eliminate the ability of financial institutions to reduce the capital they need to set aside by buying swaps. Once the rules kick in, Lewis said the swaps will be terminated. bloomberg.com Thus, the rescue of AIG was more for the sake of saving the European banks than our own, IMO (not to say there weren't consequences to our financial system). But it's pretty clear that the Europeans were relying up CDS swaps with AIG in order to reduce their capital commitment and permit them to invest in emerging markets. US current account deficit. It is still there. Any country but the USA would long be in Iceland mode by now. I'll wage, outside of oil, we're going to see the current account deficit continue to contract as US Consumers remain on a buying strike. That's BAD for those economies that relied upon selling to the American market. To sum it up, for years the Asian, European, and lesser extent, Latin markets have been involved in "Manufacturer Financing" in order to keep their factories churning. Hawk