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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (79343)	9/9/2011 10:16:29 AM
From: Cogito Ergo Sum	Read Replies (1) \| Respond to of 217549

will be much less the safe haven if US does not turn... cracks showing... Housing driven by foreign investors (OK also by demographic shift to condo living which is not so bad except for strain on often 100 year old infrastructure...), job increases in public sector... net net jobs maybe rolling over.. trend to early to call.. Canada debt to GDP not healthy... oil exports tied to US... we pay world price and export at WTI price... everything not so rosy.. Ontario election next month ... 1/3 of population almost... and more dough being used to buy votes... OK safe for now :o) but still depends ultimately on US or getting off US teat... both not looking promising at present... I guess grass is less green looking out LOL

To: TobagoJack who wrote (79343)	9/9/2011 11:27:00 AM
From: elmatador	1 Recommendation Respond to of 217549

Do not short any country with 'effective protection against sudden capital stops' What will it take to convince emerging markets to halt reserve growth? Jul 23rd 2010 Emerging markets require effective protection against sudden capital stops Guillermo Calvo our guest wrote on Jul 24th 2010, 16:42 GMT EMERGING markets cannot print international reserve currencies (dollars, for short) but they live in a world in which external debt and international trade prices are denominated in dollars. Therefore, if there is a global liquidity crunch, like now and during the 1998 Russian crisis, it helps to be well-stocked with international reserves in order to alleviate the crunch. Ongoing research with Alejandro Izquierdo (IDB) and Rudy Loo-Kung (Columbia) shows that the probability of suffering a Sudden Stop (of capital inflows)—a salient feature of major crises in emerging markets—and the severity of the ensuing recession, go down with the level of international reserves. Employing these results, we find that it is not obvious that emerging markets are over-accumulating international reserves. Another, more casual, piece of evidence favouring reserve accumulation is that, during the subprime crisis, sizable international reserves allowed Latin America to increase its current account deficit, ensuring no major output collapse and rapid recovery (in contrast, during the Russian crisis the current account deficit went down to zero on impact, and recovery took several years in coming). International reserve accumulation has also cyclical components. To illustrate, after the Lehman episode, capital flows surged back again towards emerging markets. This gave further incentives for reserve accumulation for at least two reasons: (1) as shown in the empirical research cited above, the probability of Sudden Stop rises with the size of dollar debts against domestic banks, which tends to increase with capital inflows; therefore, a surge of capital inflows increases the economy's vulnerability to financial crisis, which, as noted, reserve accumulation helps to reduce; (2) if the exchange rate is free to float, capital inflows could result in large transitory currency appreciation (overshooting), distorting economic activity; thus, policymakers have incentives to intervene in the foreign exchange market to put a floor on the exchange rate, accumulating international reserves. Point (2) is sometimes interpreted as an attempt to artificially prop up exports' competitiveness (neo-mercantilism), and China is given as an example. The systemic implications of this strategy are undesirable, but neo-mercantilism still makes sense for individual countries in the midst of global recession. The solution of this problem has to be systemic and involve global policy coordination, possibly contemplating transfers to the weakest links in the system. The fact that reserve accumulation in emerging markets is a sensible policy, does not imply that it is the best financial arrangement for protecting those economies from liquidity crunch. The IMF, prompted by the G20, has created the Flexible Credit Line, FCL, to that effect. Subject to pre-qualification, a country can draw on its FCL with no strings attached. Therefore, the FCL is equivalent to holding international reserves, and it is supposed to be a cheaper alternative. A similar instrument is the US Fed Currency Swap that was extended to Brazil, Korea and other emerging markets. A difficulty with these alternative arrangements is that the sums are still tiny in relation to the stock of international reserves held by emerging markets, and even if access to these credit lines could be assured in the short run, there is no commitment beyond the next few months. Moreover, access to these credit lines depends on decisions that are made by outsiders, who may take advantage of their clout to twist the arms of domestic politicians. These difficulties are not likely to go away until contingent credit lines are more sizable, permanent and independent of political manipulation. One major concern is that access to dollar liquidity (through international reserves or credit lines) may give incentives for the private sector to increase its exposure to liquidity crunch in the expectation that the public sector will bail them out (moral hazard). Casual observation suggests that this is already happening. Therefore, it is imperative that governments keep a close eye on private sector risk management, with special attention to banks' balance sheets. Korea is already implementing policies that put limits on banks' dollar debts, for example.