Perspectives on the global economic changes

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panduranghari
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Re: Perspectives on the global economic changes

Postby panduranghari » 22 Mar 2015 04:05

Gyan wrote:Is it possible that USA-UK combine are encouraging anarchy in Ukraine and Iraq to protect the safe haven status of Dollar?


Ask yourself a very important question- does the strength of US come from its Army or from the continued GLOBAL use of US dollar as the reserve currency?

For arguments sake, if you suggest it's the US army, then the counter would be how can USA afford to fund 200billion dollar annual expense of its army?

Who gives USA 200billion dollars to fund its war machine?

USA is spending 2.5 billion dollars every day and in return they are gaining 2.1 billion dollars. These are 2011 figures. It's much worse today than it was then. Then where are the 200billion dollars coming from?

The world needs USD to lubricate trade. Because there was no alternative until 1999, the world tolerated this privilege. That is not the case any more. Even if USA wishes to starts another war, it won't succeed in winning it. Because what underpins its military strength is the continued use of dollar as the international trade settlement medium.


Theo_Fidel

Re: Perspectives on the global economic changes

Postby Theo_Fidel » 22 Mar 2015 08:50

panduranghari wrote:Ask yourself a very important question- does the strength of US come from its Army or from the continued GLOBAL use of US dollar as the reserve currency?


Neither, the strength of USA comes from the competitive nature of the population and ability to channel it to productive efforts.

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Re: Perspectives on the global economic changes

Postby Adrija » 22 Mar 2015 09:38

Agree with Theo_Fidel avare..........the US dominance is simply a byproduct of the fact that it is the world's single largest market both in terms of consumption and innovation.....rest is all incidental

The day some other country replaces the US on those two (related) fronts will the USD be replaced as the world's reserve currency....aint happenin' anytime soon Sah....

having said that, the decreasing social mobility one witnesses in the US poses probably the single most long term threat to US innovation capacity and hence its continued dominance....the good thing is that it's all internal, and the bad thing is that it's all internal.....the US has historically needed a visible external threat to rally around and course correct

IMHO of course.....my 2 cents and all that

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Re: Perspectives on the global economic changes

Postby johneeG » 22 Mar 2015 10:02

Adrija wrote:Agree with Theo_Fidel avare..........the US dominance is simply a byproduct of the fact that it is the world's single largest market both in terms of consumption and innovation.....rest is all incidental

The day some other country replaces the US on those two (related) fronts will the USD be replaced as the world's reserve currency....aint happenin' anytime soon Sah....

having said that, the decreasing social mobility one witnesses in the US poses probably the single most long term threat to US innovation capacity and hence its continued dominance....the good thing is that it's all internal, and the bad thing is that it's all internal.....the US has historically needed a visible external threat to rally around and course correct

IMHO of course.....my 2 cents and all that


Innovation & Technology needs lot of Research and Development which needs lot of initial Funding i.e. money. Only few of those technologies may actually become profitable.
Markets need buying power i.e. money.

So, it is dollar which gives US the ability to fund its R&D and gives buying power to its markets.

Dollar seems to have become the reigning currency after WW 2 because it was backed by gold at that time. Just before WW 2, US had severe gold crunch and gold was confiscated from the ordinary people by US govt. But, after WW 2, US was able to back its currency with Gold. So, most probably US came upon huge gold piles during WW2. In 1970s, US decoupled its currency from Gold. So, that means, US had spent its gold by 1970s. From that time, US has managed to keep dollar strong by forcing oil to be sold only in dollars.

Bhaarath and China should be on top due to populations. Both demand and supply are driven by populations. If any other country is on top, then it means that they are indirectly or directly exploiting Bhaarath and China.

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Re: Perspectives on the global economic changes

Postby panduranghari » 22 Mar 2015 12:39

Theo_Fidel wrote:
panduranghari wrote:Ask yourself a very important question- does the strength of US come from its Army or from the continued GLOBAL use of US dollar as the reserve currency?


Neither, the strength of USA comes from the competitive nature of the population and ability to channel it to productive efforts.


What underpins the competitive nature of its population? Or a better question will be - has the competitive nature of its population derived any benefit from the 'exorbitant privilege'?
A follow up question (which Adrija saar can answer too)- if US population was that competitive then why is it that they are unwilling to manufacture in-house, under cutting the Chinese? What gives the USA the ability to still outsource the manufacturing and still be considered competitive?

I ask another relevant question- if John Exter's inverse pyramid is flawed (the thrust of your arguments is essentially US dollar is indestructible and not subject to the natural laws), then why is USD not considered a Giffen Good? If US dollar was a Giffen good, then why was it over sold between 1971 and 1980?

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Re: Perspectives on the global economic changes

Postby panduranghari » 22 Mar 2015 13:03



Good stuff. As usual the general suspects in the US administration will ignore this. Either way it does not matter. USD is almost dead anyway.

Claiming, as I am, that the United State is broke, that official government debt is economically meaningless, that the use of federal debt by Congress and the Congressional Budget Office and other parts of the government to guide fiscal policy is deeply misguided, and that fiscal gap accounting over the infinite horizon is the only meaningfully way to assess a country’s fiscal condition could readily be dismissed as the strong views of an extreme economist.
Unfortunately, that’s not the case. At http://www.theinformact.org, over 1200 of our nation’s economists have endorsed The Inform Act – a bipartisan bill that requires the Congressional Budget Office, the Office of Management and Budget, and the General Accountability Office to do both fiscal gap and generational accounting on an ongoing basis. The list of economists includes a Who’s Who of the profession. Each of the top 25 economics departments is well represented on the list. What’s more, 17 Nobel Laureates in Economics have endorsed The Inform Act. In addition to economist, the site records endorsements from former top government officials like former Secretary of Treasury, former Secretary of State, former Director of the Office of Management and Budget, and former Secretary of Commerce, George Shultz. The other remarkable aspect of this list is its inclusion of economists from both ends of the political spectrum.
The fact that essentially the entire economics profession is publicly and very strongly endorsing fiscal gap accounting should not be taken lightly as, unfortunately, has been the case to date by the CBO, OMB, and GAO. These agencies shouldn’t need an act of Congress to start forming meaningful measures of our country’s fiscal position and the dangers it holds for our children............


Conclusion -- The Emperor’s New Clothes
Make no mistake, the standard measure of fiscal excess and generational policy – the government’s debt – is, economically speaking, content-free. Thus we find ourselves, quite frankly, in Hans Christian Anderson’s story of the Emperor’s New Clothes with his chief tailors comprising the CBO, OMB, GAO, the IMF, the World Bank, and the OECD.
In Anderson’s story, convincing the King that he was, in fact, naked proved an impossible task. Indeed, at the end of the story when a young child shouts that the King, who is leading a parade to celebrate his new clothes, is naked, the crowd stops cheering and starts murmuring. But then, as the King ignores the child and continues his promenade, the crowd starts cheering once again.
Distinguished members of the Senate Budget Committee, you are, by analogy, the crowd in this story. You can continue to steer America’s fiscal policy using a metric – the federal debt – that the economics profession, whether on the left, right, or in the center, is saying, loud and clear, is a number in search of a concept. Or you can organize passage of The Inform Act and also take the painful steps needed to eliminate our nation’s massive fiscal gap.

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Re: Perspectives on the global economic changes

Postby Adrija » 22 Mar 2015 19:40

Or a better question will be - has the competitive nature of its population derived any benefit from the 'exorbitant privilege'?
A follow up question (which Adrija saar can answer too)- if US population was that competitive then why is it that they are unwilling to manufacture in-house, under cutting the Chinese? What gives the USA the ability to still outsource the manufacturing and still be considered competitive?


Panduranghariji, the US actually manufactures a lot- it is the world's second largest manufacturing economy actually even now....largest if you don't place too much store by the Chinese madarssa math

The value add per worker is in fact the highest in the US.....which is why they continue to be globally competitive in manufacturing. The sectors which they dominate are mostly hi-tech, both in consumer and industrial goods, whereas the Chinese mostly dominate the lower end of the VA scale (textiles, low end toys, etc). They leverage this massive value add to drive their services economy as well as the overall consumption engine, which ensures that US remains numero uno....

Let's rely on the Chinese stats for a minute to keep the narrative simpler. They started in the lower end, and used that to hoard capital which is now funding their rise up the technology ladder, by a combination of domestic protection + investments + copying. Witness the rise of Huawei and now ZTE and SIMC.....nothing new here, they are following the exact same template (yes, including the industrial piracy) which the US did vs the then prevailing industrial superpower which we now call the Held Emirates of Britain

The question is will they succeed? Past history teaches us that in addition to capital accumulation (which the Chinese have done successfully), the other two requirements traditionally have been innovation + protected market

The combination of all the three explains the success (or failure) of all developed nations including the Italian, then the Spanish, then the French, then UK, and now US. What changed is evidenced by the rise of Japan and Korea- rather than having a protected domestic market, they leveraged their access to the US as a "home market", and then China leveraged foreign capital (FDI) in addition to the "US home market"

So China's rise has been driven by basically labour arbitrage largely, relying on access to FDI and access to US market. They have used these two to accumulate capital, which they are now pouring into "champion industries" to drive up the value chain. Can they succeed? I don't know. BUT, innovation - the third missing ingredient- has till now been a individual driven thing (innovate, make money, become rich) and has never happened in command and control society.

does that mean it can "NEVER" happen in such societies? I frankly don't know......but if human nature is any indication, the odds for China becoming an innovation engine to challenge the US in being the global top dog are remote....

MY two cents and all

Theo_Fidel

Re: Perspectives on the global economic changes

Postby Theo_Fidel » 22 Mar 2015 21:13

Pandu saar,

Ultimately chinese society will have to compete with american society and as Adrija says it is not clear even the chinese can out compete the usa population. Even now USA manufacturing is streets ahead in terms of productivity and still rising. USA will fail when internal productivity stops rising. If USA productivity stagnates or declines USA dollar strength will disappear like smoke puff....

One thing people often miss is that after China and India the country with the largest population is.... ...the USA. At the very highest levels of government there is a clear consensus that USA needs bigger population to compete with China & India, hence strong immigration continues despite the wackos at the borders. They skim off the cream of China & India. When China skims off the cream of USA and India we will have a competition on our hands... ..ultimately India too will have to find a way to skim the cream off China & USA...

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Re: Perspectives on the global economic changes

Postby panduranghari » 23 Mar 2015 01:04

Thank you Both for your replies.

Theo saar, you hit a very significantly critical point about technology prowess vis-à-vis ability to attract the talent into the country.

Chinese can/cannot compete with USA. That is NOT the moot point. They are competent to do that. They have the will power. However, can they do that on their own? Perhaps not. They need external talent to achieve parity or to surpass the USA.

Now how can they do that?
1. Pay high wages (money motivates some, though its not the best motivator in the long term)
2. Provide a very good standard of living (most people want the basic necessities without struggle)
3. Provide the opportunity to work on the most cutting edge technology

It does not matter how they do it, even if they are successful in doing what they set out to do. What we have to understand is how has the USA until now succeeded in achieving a leap in their technological achievements. What is the underlying reason that such a leap was made possible. I am not taking away the enterprise shown by people in the US but there is more than what meets the eye.

Marx classified society as the labour class and the bourgeois elite. He always believed the elite class has exploited the labour class. The elite had all the money and hence had the ability to control the event outcome. We see this attitude pervasive amongst doomsters today and many who support 'occupy wall street' movement. They believe the rich banksters are screwing the ordinary citizens by privatising profits and socialising the losses.

The two classes are not the Labour and the Capital, the rich and the poor, the proletariat and the bourgeoisie, or the workers and the elite. The two classes are the Debtors and the Savers. "The easy money camp" and "the hard money camp". History reveals the story of these two groups, over and over and over again. Always one is in power, and always the other one desires the power.

1. Debtors - "The easy money camp" likes to spend (and redistribute) money it did not earn, either by borrowing it, taxing the savers for it, or printing it. They like easy money because it is always and everywhere constantly inflating, easing the repayment of their debts.

2. Savers - "The hard money camp" likes to live within their means and save any excess for the future. They prefer hard money (or in some cases "harder" money) because it protects their savings and forces the debtors to work off their debts.

In 1789, the French Revolution, "the hard money camp" had been in power since 1720 when easy money collapsed, and starting in 1789 "the easy money camp" killed "the hard money camp" and took back the power. This is the way "the easy money camp", the Debtors, usually take power... by revolting against the hard repayment of their spending habits.

Only nine years later, 1797, easy money collapsed once again and a new French monetary system based upon gold was again reinstated. This is the way "the hard money camp", the Savers, almost always regain control: when the easy money collapses. On very rare occasions and only under highly favourable circumstances (like moving to a new continent!), "the hard money crowd" takes control by physically separating from "easy money" and declaring independence from the Debtors. And you get The American Revolution and the great American constitution which MANDATES hard money.

So just to repeat for clarity: Hard money regimes almost always end in bloodshed, when the easy money camp slaughters the hard money camp to avoid hard repayment terms. And easy money regimes almost always end in financial suffering when the easy money collapses. Here are a few more examples of "easy money collapses"...
link

Angola (1991-1999)
Argentina (1975-1991, 2001)
Austria (1921-1922)
Belarus (1994-2002)
Bolivia (1984-1986)
Brazil (1986-1994)
Bosnia-Herzegovina (1993)
Bulgaria (1991-1997)
Chile (1971-1973)
China (1939-1950)
Free City of Danzig (1923)
Ecuador (2000)
England (1560)
Greece (1944-1953)
Georgia (1995)
Germany (1923-1924, 1945-1948)
Greece (1944-1953)
Hungary (1922-1927, 1944-1946)
Israel (1979-1985)
Japan (1944-1948)
Krajina (1993)
Madagascar (2004)
Mexico (1993)
Mongolian Empire (13th and 14th Century AD)
Nicaragua (1987-1990)
Persian Empire (1294)
Peru (1984-1990)
Poland (1922-1924, 1990-1993)
Romania (2000-2005)
Ancient Rome (~270AD)
Russia (1921-1922, 1992-1994)
Taiwan (late-1940's)
Turkey (1990's)
Ukraine (1993-1995)
United States (1812-1814, 1861-1865)
Vietnam (1981-1988)
Yap (late 1800's)
Yugoslavia (1989-1994)
Zaire (1989-1996)
Zimbabwe (1999 - present)

So Marx had it backwards. It is always the debtors 'rich' who exploit savers 'poor'.

Why are debtors considered 'rich' and why are savers considered 'poor'?

The popular "Marxian" view of perpetual class struggle is as follows: The wealthy live the good life consuming as much as they want on the backs of the indebted poor who must slave away producing just enough to stay alive, plus some surplus for the wealthy to consume.
But is this reality?

I think not. This brings us to the essence of the argument.
West has had a good standard of life which attracted global talent. If you had the talent, you could go to USA and make big. It was called American exceptionalism - the American way of life (if you wish). The problem was this was the mask hiding the underlying reality. You cannot perpetually have a very high standard of living for 15% of humanity living in the west. As many in the USA are living in the tent cities or when there are anti immigrant protests, one has to understand why the people are protesting. They are protesting because they believe the uncontrolled immigration has lead to them loosing the American way of life. They do not see why this has happened.

For a poor person stuck in the third world, as its called condescendingly, America represents the life of milk and honey. And when he moves there are sees he is working just as hard as he was working when in his home country, but is being paid better, he encourages his family and friends to do the same. The home country complains about brain drain and those who rule with iron fist close their borders.

Americans may own the intellectual property of the goods produced but by and large they are produced overseas. Let us not look just at high end tech stuff. My brother who has worked from everyone from Qualcomm to TI on the VLSI tech has lamented how Chinese are copying everything. Though technologically backward, they are producing cheap stuff which with time will improve. He knows it will. So he is now learning Mandarin and is moving in the next 6 months to China to live and work. I am sorry to digress. But its important to understand the reverse brain drain effect. What has worked for USA in the last 100 years is not working anymore. And there is a very big reason for this.

The highly indebted Westerners ( which obviously includes USA) have a much higher living standard and luxurious rate of consumption than the net-producers of the world. And who are the net producers? The so called third and fourth world who is effectively using USD to transact in and sometimes even save in as USD acts like a harder currency to their local currency. Those supporting the American lifestyle are not indebted to Americans—it's the other way around. Like that credit (debt) (US dollar) is demanded by the debtors, not forced upon them. And that banks, whose job it is to extend credit (aka easy money), are actually in the easy money camp along with the debtors. America ergo the west has exploited the Triffins dilemma to their advantage. But the terminal phase is here. I have written a very long post on this. see here

Today we are living the end of the longest stretch of time in which "the easy money camp" has been in power both politically and monetarily. For a century now they have been easing our money more and more(read inflating). This has helped the US technology leap immensely. Just think about it. Silicon Valley wants to invest in new tech. Globally, many people with means hold dollars as savings. They are willing to invest their money to gain a return on their money. They are advised by the large banks (either American or JV with Americans) to invest in silicon valley. The capital inflow is huge. Not many areas elsewhere are that lucky. Silicon valley emerged and the dollar inflows made it huge.

This latest push for central control and massive deficit spending by the "easy money camp" is simply the blow-off phase right before the long awaited collapse. And when easy money collapses, the transition is always financially painful but not necessarily bloody like the French Revolution, which was the end of the "hard money camp".

Hope I have conveyed a different perspective. If not, then I need to re write the whole thing.

.........


Now, what happens during ALL periods in history, whether "the hard money camp" is in charge or "the easy money camp" are running things... is a transfer of wealth. This is important! Because when the easy money guys are in power the transfer of wealth happens slowly and gradually, and wealth flows from the Savers to the Debtors. But when "easy money" collapses - and it ALWAYS collapses - there is a very RAPID transfer of wealth in the other direction, from the Debtors back to the Savers.

We have been living in a "easy money regime" for so long now, the delineation of the two camps is somewhat obscured. There are many many people who consider themselves investors or speculators or stock pickers. In reality they are Savers who are not saving in the right things.
Today you need to be proactive if you want to get on the receiving end of this "blow back" transfer of wealth. You need to actively choose which camp you are in. And to do that, you need to recognize the two camps, or classes. Remember, this is a "class struggle". It always was.

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Re: Perspectives on the global economic changes

Postby Neshant » 23 Mar 2015 06:48

Capital controls are slowly being implemented in the US.

Banking goons need to keep your capital while they device new & ingenious ways of stealing from it.

Get at least some of your cash outta the bank and under a mattress.

_______________
Justice Department Rolls Out An Early Form Of Capital Controls In America

http://www.zerohedge.com/news/2015-03-2 ... ls-america

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Re: Perspectives on the global economic changes

Postby Neshant » 23 Mar 2015 11:56



Interesting interview with Janet Tavakoli on the extent to which banker cronyism has infested the US govt.

Frightening really if you think of it.

India really needs to avoid the rise of scam "industries" like banking which produce nothing and live as parasites off the backs of those who do produce.

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Re: Perspectives on the global economic changes

Postby JE Menon » 23 Mar 2015 19:01

Interesting surname that, "Tavakoli"... Pure Iranian roots.

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Re: Perspectives on the global economic changes

Postby chanakyaa » 24 Mar 2015 01:00

China-US relations, microscope or telescope?
A few months before the announced visit of President Xi Jinping to the United States, Chinese Foreign Minister showed optimism, not without foundation. At a recent press conference room of the annual session of the National People's Congress, the Chinese Foreign Minister Wang Yi was confident evoking the state visit that should do the Chinese President to the next fall, a visit that should "reinvigorate" the relationship between the two major world powers.

He acknowledged that differences naturally subsist between the two countries, but that these differences should not prevent progress their relations on the basis of a well defined line: non-conflict, non-confrontation, mutual respect. "But we should not exaggerate the problems through a microscope and we should instead use a telescope to look to the future." Moreover, this visit will not be the only chance meeting between Barack Obama and Xi Jinping. There should be three or four.

With Europe, the United States did not experience particular difficulty. With NATO, they ensure mastery and most European States are staunch allies for them. With Russia, relations are different. And as the United States has not waived remain the first superpower of the world, they are ready for anything - including support for the war in Ukraine - to prevent Russia to become a great power. But it is as if the United States had accepted the political weight of China in Asia.

Against Russia, they brandish the ideals of democracy and human rights. Against China, they recognize the difference of the historical and cultural traditions. In their struggle against radical Islam, they stress their differences with Russia. They abstain vis-à-vis China, which, however, share the views of Russia on the subject. Why?

First, because they know that their interest lies in keeping good relations between the two largest economies of the world. Secondly, because in Asia, they know that maintaining their influence can not be without the cooperation with China. Without doubt they seek to strengthen their ties with several countries in the region. Moreover, this year, President Obama will receive the Japanese Prime Minister, the Head of State of South Korea and Indonesian President. But they do not dispute the right of China to regional economic cooperation, the free movement of its vessels in the waters of its environment.

In short, the United States made their position Henry Kissinger: rather than getting bogged down in endless conflicts, better get along with China and share with her power in Asia.

By Philippe Barret

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Re: Perspectives on the global economic changes

Postby chanakyaa » 24 Mar 2015 06:33

Yesterday, I had the yoo-rekha moment

I looked at the following articles and asked myself a question, what creative schemes bank$ters could possibly be cooking up next?

Capital Controls Are a Useful Policy Tool

Banning Cash

France steps up monitoring of cash payments

Still something was missing, then I read following article that connected the final daut.

A Centralized Digital Fiat Currency made by Eye-BM

Yes, that is correct. Cash in the form of paper currency as we know it, could very soon see dinosaurs extinction moment. We may either be allowed to carry very small amounts of paper currency or outright illegal to carry any paper or coins. Very soon, our checking account at the bank will be represented by units of digital currency that can not be converted to paper. All the existing paper currency will be required to be tendered at your local bank for digital currency. I know it sounds far fetched, but it is very likely. I'm sure CBs are happy, since the threat of bank run can be totally eliminated. Scary part is that each transaction will be tracked and known.

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Re: Perspectives on the global economic changes

Postby panduranghari » 24 Mar 2015 15:04

Good news.

link

d in 1937 the equity markets were the financial be-all and end-all; today they are dwarfed by the debt markets, which are, in turn, dwarfed by the derivatives markets.
The total value of all global equities was around $70 trillion in June last year, according to the World Federation of Exchanges; meanwhile, the notional value of all outstanding derivatives contracts was more than $690  trillion. It is worth noting that the vast majority (around four-fifths) of all existing derivatives contracts are based on interest rates.
The derivatives market is the not the vast roulette table of popular perception. These financial instruments are essentially insurance policies - they are designed to protect the holder from adverse price movements.
If you are worried about (to pick some unlikely examples) a strong euro, or expensive oil, or rising interest rates, you can buy a contract that pays out if your fears are realised. Managed well, the gain from the derivative should offset the loss from the underlying price movement.
Nevertheless, the arguments employed by the derivatives industry sometimes sound similar to those employed by the pro-gun lobby: derivatives aren’t dangerous, it’s the people using them that you need to worry about.
That’s not hugely reassuring.
What could go wrong? Let’s say that US interest rates do rise sooner and faster than the market expects. That means bond prices, which always move in the opposite direction to yields, will plummet. US Treasury bonds are like a mountain guide to which most other global securities are roped - if they fall, they take everything else with them.
Who will get hurt? Everyone. But it’ll likely be the world’s banks, where even little mistakes can create big problems, that suffer the most pain. The European Banking Authority estimates that the average large European lender still has 27 times more assets than it does equity. This means that if the stuff on their balance sheets (including bonds and other securities priced off Treasury yields) turns out to be worth just 3.7pc less than was assumed, it will be time to order in the pizzas for late night discussions about bail-outs.
Barclays has predicted that if the yields on 10-year Treasury bonds reverted back to their historical average it would wipe nearly a fifth off the tangible book value of European banks.
Yes, a fifth. This is what is meant by interest rate risk. It’s big and it’s real and the banks know all about it. Their answer is to hedge the risk with interest rate derivatives. It’s one of the reasons why there are so many of these contracts in existence. So that’s all OK then.
Just one question though: who have they bought those derivatives from? Why, other banks of course. This creates what is known as counterparty risk. Bank A sells insurance to Bank B. But then Bank A gets into financial difficulties (a significant deterioration in their creditworthiness would be enough) and suddenly Bank B isn’t as well protected as it thought it was.
Indeed, Bank A might start struggling precisely because of the insurance it has sold to Bank B. What if it can’t honour the contract? This creates a potential Catch-22 situation: the derivatives work as long as they’re not needed; calling them into action renders them useless.
This is precisely the kind of thing that occurred during the credit crunch - banks stopped trusting each other. New rules introduced since then require banks to actively manage their counterparty risk. In other words, banks are being asked to hedge their hedges. Are you starting to feel uneasy yet?

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Re: Perspectives on the global economic changes

Postby Neshant » 24 Mar 2015 20:32

JE Menon wrote:Interesting surname that, "Tavakoli"... Pure Iranian roots.


Her (now divorced) husbands last name.

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Re: Perspectives on the global economic changes

Postby svinayak » 24 Mar 2015 20:45

udaym wrote:
Still something was missing, then I read following article that connected the final daut.

A Centralized Digital Fiat Currency made by Eye-BM

Yes, that is correct. Cash in the form of paper currency as we know it, could very soon see dinosaurs extinction moment. We may either be allowed to carry very small amounts of paper currency or outright illegal to carry any paper or coins. Very soon, our checking account at the bank will be represented by units of digital currency that can not be converted to paper. All the existing paper currency will be required to be tendered at your local bank for digital currency. I know it sounds far fetched, but it is very likely. I'm sure CBs are happy, since the threat of bank run can be totally eliminated. Scary part is that each transaction will be tracked and known.

My local desi Gold shop owner told this few years ago. He comes from three generation of GOld trading and tells stories about how Gold was controlled during the Morarji Desai times.
He said they will eliminate the cash and promote cards which will store digital currency. So the entire currency trading may be shut off or outside the speculation market and may be allowed in a small way.

This delinking will help them to delink $ from Gold price which is their target. But this will still require dollar confidence and confidence in stability of the US economy and confidence in Fed policy. To maintain this confidence may be a bigger problem

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Re: Perspectives on the global economic changes

Postby Neshant » 24 Mar 2015 21:04

udaym wrote:Cash in the form of paper currency as we know it, could very soon see dinosaurs extinction moment. We may either be allowed to carry very small amounts of paper currency or outright illegal to carry any paper or coins. Very soon, our checking account at the bank will be represented by units of digital currency that can not be converted to paper. I'm sure CBs are happy, since the threat of bank run can be totally eliminated. Scary part is that each transaction will be tracked and known.


I've wondered if a call went out tomorrow saying physical cash would be rendered worthless within 1 month and to deposit all notes into a bank, what would most people do. It would be obvious that the intention was to steal peoples wealth electronically.

The only protection would be to buy up a hoard of silver and gold coins for trade in the black market before this noose is put in place. Definitely don't keep it in a bank locker or in some supposedly secure vault run by a corporation overseas. Easy target for confiscation.

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Re: Perspectives on the global economic changes

Postby svinayak » 24 Mar 2015 21:46

They will use different means to achieve this.

They will slowly de circulate few bills at a time to reduce the small notes. They will introduce cards to replace these small bills.
For gold hoarding they will keep the price of gold going down which will discourage people from using as a alternate

All these are temporary as long as they can use the MSM media and still give the illusion that the Fed policy and confidence in US economy is sound.
Last edited by svinayak on 24 Mar 2015 21:51, edited 1 time in total.

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Re: Perspectives on the global economic changes

Postby svinayak » 24 Mar 2015 21:49

As long as they can still sustain the illusion the confidence can be managed.

The Global Expansion Of Debt Has Increased Systemic Risks

['']These are the basic dynamics of the entire global economy: interest rates have been pushed to near-zero to punish savers and encourage expansion of debt-based consumption. But this inevitably leads to a reduction in disposable income and current consumption, as debt brings forward both consumption and income.

Once the borrowers have maxed out their borrowing power, there is no more expansion of debt or additional debt-based consumption. This is known as debt saturation: flooding the financial sector with more credit no longer boosts borrowing or brings consumption forward.

Those who brought their consumption forward can no longer add to present consumption, as their future income is already spoken for.

That’s where the global economy finds itself today

http://charleshughsmith.blogspot.com/20 ... speed.html?
-------------
[..]Economic growth has, one again, been driven in large part by dramatic increases in debt in recent years. Debt can be a good strategy to propel growth further, but when we start issuing debt just to finance the debt, we reach the point when we’re squeezed the last bit of juice out of a week-old lemon.

Now, I’m not just pointing fingers at the U.S. government, though they certainly haven’t set a good example. U.S. businesses and corporations are to blame for this mess, too.[..]

http://davidstockmanscontracorner.com/6 ... rosperity/

--------

ZEROHEDGE

[..]The US did precisely this in the fourth quarter of 2014, issuing over $1 trillion in new debt simply to pay back old debt that was coming due

This is how the bond market becomes a bubble. Between 2000 and today, the global bond market has nearly TRIPLED in size. Today, it’s north of $100 trillion in size. And it’s backstopping over $555 trillion in derivatives trades.

There is literally no easy fix to any of this. The pain will be severe. And so everyone in charge of the important decisions (the political elite, the big banks, and the Central Banks) will push this as far as it can possibly go before taking the inevitable hit.



The fact that Central banks are now openly cutting interest rates to NEGATIVE should tell you how far along we are in terms of funding problems (at these rates, bond holders are PAYING the Government for the right to own bonds). From a baseball analogy we’re in the late 8th, possibly early 9th inning. When the game ends, the entire mess will collapse. And it will make 2008 look like a joke.

http://www.zerohedge.com/news/2015-03-2 ... ate-bubble

Falling Interest Causes Falling Wages

Posted by Keith Weiner
http://www.acting-man.com/?p=36462

--------
It would not be impossible to prove with sufficient repetition and a psychological understanding of the people concerned that a square is in fact a circle. They are mere words, and words can be molded until they clothe ideas and disguise.
― Joseph Goebbels, Reich Minister of Propaganda 1933-45

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Re: Perspectives on the global economic changes

Postby chanakyaa » 27 Mar 2015 03:23

Good intentions onlee

China has no aim to recreate Bretton Woods

The establishment of the Asian Infrastructure Investment Bank (AIIB) has been depicted by a few overseas media outlets as if China is building its own version of the Bretton Woods system.

The bank is not yet in operation, and it will take time for people to come to grips with its purpose. However, overblown hype from foreign media claiming that China is seeking financial hegemony could create preconceived notions for people who are not familiar with it.

The Bretton Woods system refers to the international financial order that prevailed in the post-WWII era. It is also perceived as a triumph of dollar hegemony and gave birth to the World Bank (WB) and the International Monetary Fund (IMF) as its two representative global organizations.

The system held until 1971, when the US ended the convertibility of the dollar to gold. But the dollar had already become the bedrock of the international monetary system, and it remains so today.

Some foreign observers claim that the AIIB is the beginning of the Chinese yuan's hegemony. What they are actually trying to imply is that "China is another US."

This kind of statement is nonsensical, which uses historical experience to fool readers. It is divorced from the truth and shows no common sense and doesn't stand up to any scrutiny.

Through the Bretton Woods system, the US was able to wield supreme influence over its allies which had been severely battered during the war. China today is in a totally different position.

Founding the AIIB is only a China-led initiative. Over 30 countries from Europe and Asia have so far applied to join, some of which even have territorial disputes or political divergences with China. They are not courting Beijing, or pushing yuan hegemony. What they are pursuing is the win-win principle of cooperation.

The AIIB will not confront the WB or IMF, nor will it turn the current international monetary order upside down. The spirit of the AIIB is diversity and justice.

International relationships are entering an era of democracy that means pursuing hegemony is a wrong path whether one is an existing power or a rising power.

China always maintains a low profile when it comes to showing the strength of our nation. Moreover, the Chinese media resists the hype over describing China as "number one" or a "superpower."

Chinese people would like to see that most of our economic and political resources can be used for the country's domestic construction.

We support our government to pursue equal rights for development in the international arena, but we don't support pursuit of hegemony.

The Bretton Woods system is a product of the old days. The new global trends created the AIIB and there is no room to look back to the old days of one currency's hegemony.

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Re: Perspectives on the global economic changes

Postby panduranghari » 28 Mar 2015 14:39

Sounds like Hindi Chini Bhai Bhai BS. Pointless discussing AIIB as its based on Bretton Woods ideals. It has no future. Some one should remind the Chinese how spectacularly Shanghai Gold Exchange failed.

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Re: Perspectives on the global economic changes

Postby prahaar » 28 Mar 2015 15:19

Can someone please explain how a negative borrowing rate work? Currently monthly EURIBOR is negative, consequently, as a consumer, one needs to pay lower interest rate than the margin added by the bank. But for the bank (if it can borrow at EURIBOR rate from central bank), would it actually get money in lieu of its borrowed funds? Sounds illogical, so asking. Thanks.

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Re: Perspectives on the global economic changes

Postby nandakumar » 28 Mar 2015 15:44

prahaar wrote:Can someone please explain how a negative borrowing rate work? Currently monthly EURIBOR is negative, consequently, as a consumer, one needs to pay lower interest rate than the margin added by the bank. But for the bank (if it can borrow at EURIBOR rate from central bank), would it actually get money in lieu of its borrowed funds? Sounds illogical, so asking. Thanks.

The negative rate means that if you borrow Rs 100 for whatever duration usually overnight but typically for very short duration you return something less than Rs 100. If the annualised interest rate is a minus 365% (this is vastly exaggerated but for ease of calculation) and you borrow Rs 100 for overnight (return the money before close of banking hours the next day) then you need pay back only Rs 99. Yes, you do get to keep a portion of the money borrowed. You are right. It does seem illogical but until very recently economists were of the view that interest rates cannot go below zero. So you are in good company, as indeed we all are now.

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Re: Perspectives on the global economic changes

Postby panduranghari » 28 Mar 2015 16:49

svinayak wrote:They will use different means to achieve this.

They will slowly de circulate few bills at a time to reduce the small notes. They will introduce cards to replace these small bills.
For gold hoarding they will keep the price of gold going down which will discourage people from using as a alternate

All these are temporary as long as they can use the MSM media and still give the illusion that the Fed policy and confidence in US economy is sound.


FOFOA wrote:What is a deflationist? It is one who looks very closely at the present structure of everything, the laws, the rules, the regulations, what is supposed to happen, who should fail, etc… but ignores the political (collective) will that backs it all up. The same political will that always changes the rules to suit its needs as surely as the sun rises. And it is this political will that makes dollar hyperinflation a certainty this time around.

It is beyond frustrating to watch all the bailouts of banks at a time like this. They should be allowed to fail! Right? But this ugly sight is only a symptom of the real problem. And it was never even a choice. As FOA warned 12 years ago, these bailouts were always baked into the cake. They are a mandatory function of the political will that backs the entire system. This is the main element that all of the deflationists miss.

Unlike FOA, the deflationists never saw the bailouts or the QE coming, and they refuse to believe that it will keep on coming as long as ANYTHING keeps failing. States, pension funds, large companies, foreign entities, whatever. It's all gonna be papered over. And the choice to stop bidding on dollars rests solely in the hands of those with large stockpiles of physical gold.

Once they stop bidding for dollars with their gold, the goose is cooked.

First of all I would like to clear up probably the most common misconception about hyperinflation. What most people believe is that massive printing of base money (new cash) leads to hyperinflation. No, it's the other way around. Hyperinflation leads to the massive printing of base money (new cash).

Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government's reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

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Re: Perspectives on the global economic changes

Postby chanakyaa » 28 Mar 2015 18:12

prahaar wrote:Can someone please explain how a negative borrowing rate work? Currently monthly EURIBOR is negative, consequently, as a consumer, one needs to pay lower interest rate than the margin added by the bank. But for the bank (if it can borrow at EURIBOR rate from central bank), would it actually get money in lieu of its borrowed funds? Sounds illogical, so asking. Thanks.


(ECB) Following article is from 2014, but relevant to your question..
Life below zero: Learning about negative interest rates

It is a pleasure to be here with you tonight. The Money Market Contact Group plays a key role in informing the ECB's decision making process. As a tribute to your collective foresight, I would like to recall that in your meeting on 25 June 2012, you were among the first to discuss the operational consequences of lowering the ECB's Deposit Facility Rate (DFR) to zero or below zero. This will be the topic of my remarks tonight [2].

A few months ago, on 5 June, the ECB lowered the main refinancing rate to 0.15%, the marginal lending rate to 0.40%, and – maybe most noteworthy – the Deposit Facility Rate to minus 0.10%. Last week, on 4 September, these rates were cut to 0.05%, 0.30% and -0.20% respectively, and it was stated that the lower bound had now been reached. The ECB also decided in June to remunerate current account balances in excess of the minimum reserve requirements at the deposit facility rate as opposed to zero as was the case previously. With these measures, we entered practically uncharted territory.

When Gregory Mankiw in 2009 stated in the New York Times that “it may be time […] to go negative”, he revived an idea that may seem odd at first. If lowering interest rates stimulates the economy and policy rates are already very low or even zero, then why not keep cutting rates and have negative interest rates? The idea of negative rates, that is, lending 100 and getting back say 95, may seem absurd “but remember this: Early mathematicians thought the idea of a negative number was absurd [too]“. [3]
....

So where do we stand in the euro area? I would like to answer this question today by addressing the following points:

What does it mean to have one of our policy rates, the deposit facility rate, below zero?
Why did we go negative?
What are in principle the benefits and costs of such a move?
And, with the benefit of some hindsight since June, what is the initial assessment?

To begin with, it is important to point out that the deposit facility rate has a specific, narrow meaning: under a negative DFR, banks that have more funds in their account with the ECB than what they need to fulfil their reserve requirement lose some money. Suppose, for instance, that a bank has €100 million of excess reserves continuously for one year, then at an interest rate of -0.20% it receives back € 99.8 million, so the cost of depositing funds with the ECB for a full year is € 200,000.

Why do banks accept such a cost of depositing excess reserves with the central bank? The answer is that the alternatives to depositing excess reserves are also costly. In fact, the cost of using alternatives to central bank deposits determines to what extent the rate on excess reserves can go negative in practice.

Banks (and end user) can always choose to hold physical currency instead of electronic money in their accounts with the ECB. Since physical currency has a zero nominal rate of return, there is what I would call an “economic lower bound” for the rate on excess reserves. It is difficult to identify but it is not zero because the effective rate of return on currency is negative. One does not even need to impose a demurrage rate or regular stamping on banknotes, as Irving Fischer has proposed based on Gesell’s ideas [5]. There is a cost of storing, holding, and more importantly, using physical currency [6]. This involves the cost of renting, maintaining and securing storage facilities such as vaults as well as the cost of shipping currency around in a safe and timely manner. A recent ECB study estimated the private cost of cash payments to be 1.1% of GDP on average in the participating countries. [7] The unit social cost was estimated at 2.3 cents per euro of transaction. This is substantially higher than the unit social cost of a credit transfer or other non-cash means of payments per euro of transaction. Because the overnight unsecured money market alone currently involves hundreds of banks with an aggregate transaction volume of around € 40-50 billion every day, replicating this scale of transacting with physical money would be a formidable and costly task, both privately and socially.

I would not go as far as Kenneth Rogoff and conclude that having only electronic money, by pushing down the economic lower bound, would recreate room for manoeuvre for central banks in a protractedly low inflation environment. [8] The ECB is committed to bringing euro area inflation back at a level below but close to 2%, in line with its mandate.

But what is then the rationale for a negative rate on the deposit facility? Why impose a cost on banks’ excess reserves?

One should view the negative rate in the context of the ECB’s aim to provide further monetary policy accommodation inter alia by lowering policy rates without impairing market intermediation. [9] There are a number of reasons why it is desirable to keep a certain distance between the main refinancing and the deposit rates. The relative difference between the cost of borrowing from the ECB and the benefit of depositing with the ECB determines the incentive to lend in the interbank market. Having an active interbank market is important to obtain price signals about the transmission of policy rates into the economy. It is also important to reduce bank excessive reliance on central bank money, which has been a key factor of resilience in the post-crisis environment.

In the words of Michael Woodford, “the demand for [overnight funds] is a function of the location of the overnight rate relative to the lending rate and the deposit rate, but independent of the absolute level of any of these interest rates.” [10]

To see the role of the relative difference, consider the following thought experiment. For the sake of the argument, let me abstract from credit risk in the overnight market and assume that there is enough eligible collateral to borrow from the ECB. Hence, there would be no material difference between very short-term secured and unsecured borrowing and lending. Banks with excess reserves would only lend in the interbank market at a rate that is above the deposit rate. Banks with a shortage of reserves would only borrow in the interbank market at a rate that is below the main refinancing rate. Suppose now the main refinancing rate is equal to the deposit rate. Then there is no rate at which trade is possible. Hence, it is important to keep a spread between the main refinancing and the deposit rate in order to support market activity.

Another benefit of lowering the deposit rate together with the main refinancing rate is that in the current situation with excess liquidity, short-term interest rates such as EONIA track the deposit rate more closely than the main refinancing rate. [11] The banking system as a whole has excess liquidity, which currently stands at around € 130 billion. When the excess liquidity increases, rates fall since less must be borrowed in the interbank market (the demand curve shifts down). In order to make sure that the monetary policy accommodation is passed on to the interbank market under fixed-rate full allotment and excess liquidity, it is therefore not enough to lower just the main refinancing rate. In fact, the deposit rate may be the most important policy rate of a central bank in an environment of excess liquidity.

The decision to lower rates, which was accompanied by a number of other measures to stimulate credit to the economy such as “targeted” long-term operations (to induce banks to lend more to the real sector) and an announcement of purchases of asset-backed securities and covered bonds based on claims on the euro area real economy, is also fully in line with the ECB’s forward guidance. Forward guidance implies that interest rates remain at present or lower levels for an extended period of time conditional on an assessment of the economic outlook.

Following the June decision, the lower policy rates were transmitted well to the money market and, in line with forward guidance, market uncertainty about the expected path of policy rates fell. EONIA forwards curves flattened and shifted down (Slide 2). In addition, the volatility of EONIA rates as well as the option-implied volatility of short-term interest rates dropped. The lower policy rates were also transmitted to longer maturities and to market segments other than the unsecured money market. EURIBOR rates and rates implied by EURIBOR futures fell after the June decision and again after the September decision (Slide 3 and 4). Unsecured money market interest rates are now negative for a maturity of up two weeks. Besides, the General Collateral (GC) pooling repo curve as well as yields on euro area Treasury bills and notes have further adjusted.

The EONIA has regularly been set in negative territory since 28 August together with stable trading volumes (the average daily EONIA volume from January to June 2014 was € 26.1 billion and was € 28.9 billion since June) (Slide 5) and homogenous transmission to closely substitutable market segments, such as GC pooling repo, are evidence that a large fraction of unsecured money market transactions can take place at negative rates without hampering market functioning. This reflects an effective and well-coordinated preparation of market participants since the ECB first mentioned the possibility of bringing the DFR below zero.

The fact that money market trading volumes did not fall (they actually rose) is remarkable given the fears some observers had expressed, informed by the Japanese experience of the 1990s, on the potential impact on market functioning of a negative DFR and of very low policy rates more generally.

Will the transmission of lower short-term rates to a lower cost of credit for the real economy be as smooth? While bank lending rates have come down in the past in line with lower policy rates, there is a limit to how cheap bank lending can be. The mark-up that banks add to the cost of obtaining funding from the central bank compensates for credit risk, term premia and the cost of originating, screening and monitoring loans. The need for such compensation does not necessarily fall when policy rates are lowered. If anything, a central bank lowers rates when the economy needs stimulus, which is precisely when it is difficult for banks to find good loan making opportunities. It remains to be seen whether and to what extent the recent monetary policy accommodation translates into cheaper bank lending. [12]

Another concern with lowering rates is that it may contribute to the instability of the financial sector. While this can be a valid concern, in practice, a causal chain is difficult to establish. Do low rates really lead to instability (e.g., though an excess search for yield) or are rates low because there has been instability in the financial system and the economy is in need of stimulus? [13] That said, reducing excessive risk aversion in financial markets has been a welcome (side) effect of central bank policies during the crisis. The question is whether risk-taking in the financial sector has now already gone too far, contributing to growing financial imbalances, frothy asset price valuations and too loose credit standards. Irrespective of the answer to this question, given the low inflation environment, it is clear that monetary policy cannot currently assume the role of addressing such concerns for the euro area. It is therefore the task of macro-prudential policies to deal with potential financial imbalances. The supervisory set-up in Europe has undergone significant improvements that will help to ensure the soundness of the financial system. As we enter an extended period of low interest rates, we must stand ready to use to their full extent the new macro-prudential instruments that the national competent authorities and the ECB are now entrusted with.

An important aspect of lowering policy rates was that it also reaffirmed our forward guidance and helped to clarify the ECB’s commitment to ensure that the monetary policy stance remains appropriate to the needs of the euro area economy. This is reflected in the EONIA-OIS curve being now flat and in negative territory for a maturity of up to three years, reflecting market expectations of negative EONIA fixings well into 2017 (Slide 6 ), and in a widening gap between the expected path of US and euro area interest rates. (Slide 7).

A negative deposit rate can, however, also have adverse consequences. For a start, it imposes a cost on banks with excess reserves and could therefore reduce their profitability. Note, however, that this applies to any reduction of the deposit rate and not just to those that make the rate negative. For sure, lower bank profitability could hamper economic recovery, especially in times when banks have to deleverage owning to stricter regulation and enhanced market scrutiny. But whether bank profitability really falls when policy rates are lowered depends more generally on the slope of the yield curve (as banks’ funding costs may also fall), on banks' investment policies (as there is scope for them to diversify their cash investment both along the curve and across the credit universe) and on factors driving non-interest income. [14] More fundamentally, banks are profitable in a healthy economy where households and companies strive to finance their projects, which is what our accommodative monetary policy aims to achieve in the first place.

In fact, both ensuring a smooth transmission of our low policy rates to the cost of credit to the economy and supporting the profitability of banks will ultimately depend on whether economic policies at the euro area and at the country level are successful in putting euro area economies back on a path of strong and stable growth, by mobilising both supply-side and, where available, demand-side instruments. A prudent, well-capitalised banking system is needed in any case, and the ECB’s Comprehensive Assessment together with the start of the Single Supervisory Mechanism are key in this respect.

In order to avoid the cost of excess reserves, banks may also, decide to borrow less from the ECB. This would reduce excess liquidity in the banking system and put upward pressure on interest rates in the interbank and bond market, which could counteract the reduction of policy rates. But this is not what we have seen so far.

Despite the discussion on the adverse consequences of a negative deposit rate, there was no significant impact on the functioning of money markets. I already mentioned the smooth transmission of rates and the stable trading volume in EONIA. Similarly, the level of excess liquidity or the amount of deposits with the ECB (Slide 8) has been largely unaffected.

However, one possible reason for the stable level of the money market function could be the declining, but still existing fragmentation of the money markets. While a lot has been achieved, for example TARGET2 imbalances have fallen by nearly half since their peak in mid-2012 (at € 572bn on 3 September, € 541bn below their peak level reached in July 2012), market fragmentation in the euro area is still present. [15]

If banks with excess reserves are predominately highly profitable banks located in non-stressed countries, then a potential adverse effect on bank profitability may be less of a concern from the financial stability perspective. Similarly, if banks have good reason to borrow from the ECB, for instance when other sources of funding are not available, and if those banks that borrow are not necessarily the same as those that deposit with the ECB, then excess liquidity in the banking system may not fall.

What about the impact of negative rates on market fragmentation in the euro area? Evidence from actual money market transactions shows that fragmentation still significantly hampers the smooth transmission of lower rates across the euro area. Banks located in non-stressed countries can now borrow in the overnight unsecured market at negative rates. Rates for borrowers located in stressed countries are mostly positive and the distribution of rates is wide, ranging from slightly negative to slightly above the main refinancing rate.

That said, there is some evidence that lower rates have reduced fragmentation in secured markets. The search for yield in the low rate environment has increased the demand for higher yielding, but still safe products such as repo or sovereign bonds, including those of non-core countries. [16] The higher demand has pushed down and thus compressed interest rates in secured markets.

Let me conclude. Given the theoretical arguments for and against lowering some policy rates into negative territory, and given the practical experience so far, what is the verdict? Or, coming back to the opinions on Gesell: should he be considered a prophet or monetary crank?

While the final verdict is certainly still out, based on the presented evidence so far, it seems fair to say that the lowering of policy rates, with the deposit rate moving into negative territory, has provided an appropriate monetary policy stimulus to the euro area economy, comforted the forward guidance of the ECB, and contributed to some reduction in market fragmentation, without having an adverse impact on the functioning of money markets.
...

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Re: Perspectives on the global economic changes

Postby chanakyaa » 28 Mar 2015 18:17

And, this supplementing to earlier post on "Life below zero: Learning about negative interest rates"

Cash is not a convenient store of value

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Re: Perspectives on the global economic changes

Postby Austin » 29 Mar 2015 10:42

Brazil's economy grew 0.1% in 2014

Brazil, the world's seventh largest economy, narrowly avoided contracting in 2014 with a growth rate of just 0.1% for the year.


The economy had been growing at a fast pace for the past decade but has slowed considerably in the past four years.

The slowdown is a result of low commodity prices, sluggish global growth and low investor confidence.

Under new Finance Minister Joaquim Levy, the country has moved from stimulus to austerity.

From 2011 until last year, Brazil's government had been trying to stimulate the economy by offering labour tax breaks, subsidising petrol and lowering the price of electricity.

Mr Levy has reined in government spending and raised taxes in order to balance government finances.

As a result, analysts predict 2015 is likely to be a difficult year for the country.

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Re: Perspectives on the global economic changes

Postby prahaar » 30 Mar 2015 01:13

Thanks for the pointers Nandakumarji and Udaymji. Apparently, in the modern economy, money has become a utility like electricity. A bank which stores excess reserves pays a fee, while based on my earlier studies, CRR and such were difficult parameters to meet for banks. The money problem as learnt in Bharat has gone upside down in Europe. Confounding situation.

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Re: Perspectives on the global economic changes

Postby Austin » 31 Mar 2015 23:09

Peter Schiff would loose his reputation if there is no QE 4 :D


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Re: Perspectives on the global economic changes

Postby Austin » 31 Mar 2015 23:32

Gold, QE & The Economic & Financial Disasters Wrought by Central Banks - Max Keiser


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Re: Perspectives on the global economic changes

Postby Austin » 01 Apr 2015 19:46

China’s yuan ‘not ready’ to join IMF basket of currencies, says US

The United States feels China’s yuan does not yet meet the standards for inclusion in the International Monetary Fund’s basket of global currencies, Treasury Secretary Jack Lew said on Tuesday.

He also said Washington was “ready to welcome” the China-led Asian Infrastructure Investment Bank, backing off from tougher early resistance to the new development institution.

The yuan’s inclusion in the basket, which defines the value of the IMF’s reserve assets, would add to China’s global status while encouraging more central banks to hold the currency.

Currently the basket includes the dollar, the yen, the euro and the pound, and the IMF is reviewing the composition of the basket this year.

Officials at the international lender look for a currency to be used heavily in international trade as well as freely convertible. Lew said that China had more work to do.

“While further liberalisation and reform are needed for the [yuan] to meet this standard, we encourage the process of completing these necessary reforms,” Lew said in a speech at the Asia Society Northern California in San Francisco.

The yuan is already the world’s fifth most-used currency in trade and Beijing has made almost weekly strides this year in introducing the infrastructure needed to float it freely on global capital markets.

Lew, who was returning from a trip to Beijing where he met with Chinese officials, repeated the US view that China appears to have stopped intervening to weaken its currency.

But he said the true test of whether China had shifted policy would come when market pressure increased for the yuan to strengthen.

“We expect China to continue to refrain from intervention across different market conditions,” he said.


Lew also said that the China-led Asian Infrastructure Investment Bank needed to “share the international community’s strong commitment to genuine multilateral governance and decision making and ever-improving lending standards and safeguards”, according to his prepared speech.

China and 20 other countries signed a memorandum of understanding to establish the Beijing-headquartered bank in October.

Washington, worried about a China-dominated lending institution cutting into the work of the World Bank and Asian Development Bank, where the US is the leading voice, at first sought to persuade its allies to hold off from joining the banks.


Lew said Washington stood ready to welcome the China-led development bank as long as it complemented existing institutions and adopted high governance standards.

“I was encouraged by my conversations in Beijing in which China’s leaders made clear that they aspire to meet high standards and welcome partnership,” Lew said.

In a wide-ranging speech that touched on trade, regulations and international finance, Lew also warned China against blocking foreign technologies, saying this could damage Sino-US relations.

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Re: Perspectives on the global economic changes

Postby Austin » 01 Apr 2015 19:48

What really qualifies the Yen and Pound to be considered as reserve currency basket in the IMF ?

China economy is much bigger than Japanese and UK and so is its trading base.

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Re: Perspectives on the global economic changes

Postby svinayak » 01 Apr 2015 21:17

Austin wrote:What really qualifies the Yen and Pound to be considered as reserve currency basket in the IMF ?

China economy is much bigger than Japanese and UK and so is its trading base.


China allows limited foreign players in the China trading market. The total amount is around $300m
China currency trading is not transparent and China central Bank policy is completely a state controlled entity
China is a military controlled country and Chinese people prefer military controlled rule. Chinese media and Chinese market information is also controlled by the same ruling military regime.
How can Yuan be considered as reserve currency basket in the IMF

Austin
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Re: Perspectives on the global economic changes

Postby Austin » 01 Apr 2015 21:27

Chinas Trading Base and Reserve status alone would grantee Renminbi as Reserve Currency.

And when was democracy and fair banking rule or disciplined economic rule ever because a criteria for reserve currency.

After all the US congress blocks any reforms to IMF that gives BRICS greater say in IMF

And if it doesnt then the World has any way the option to not use it even if IMF has it in reserve status ...its not like UK Pound or Japanese Yen enjoy much greater reserve currency status.

Looks more like an attempt by US to say I rule IMF so its my way
Last edited by Austin on 01 Apr 2015 21:29, edited 1 time in total.


panduranghari
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Re: Perspectives on the global economic changes

Postby panduranghari » 01 Apr 2015 22:41

Austin wrote:What really qualifies the Yen and Pound to be considered as reserve currency basket in the IMF ?

China economy is much bigger than Japanese and UK and so is its trading base.


Overhang of bretton woods.

Just like USD is destined to go into toilet, yen and pound will follow suit.

SwamyG
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Re: Perspectives on the global economic changes

Postby SwamyG » 02 Apr 2015 07:42

in his trademark style Gurumurthy predicts the collapse of Western Market system, and predicts Indian style of markets that adheres to the concept of dharma will prevail. He narrates the genesis of Communism its Christian background and posits that both Capitalism and Communism are two sides of the same coin.




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