Perspectives on the global economic changes

[TSJones]

People tend to get currency and things such as loans and letters of credit, sovereign debt(government issued bonds and notes) and corporate debt all mixed up.

They will parrot such mindless stats like total debt of a nation's economy, etc. and then act like it could all come crashing down regardless of the sector involved. They treat derivatives the same way.

Economists go to great lengths to distinguish the different forms of liquid assets with definitions and measurements there of, M1, M2, M3, etc.

True, it's all money so to speak, but it has different volatility.

Your darn check book is a form of money for crying out loud. Your signature means something legally until proven otherwise.

What is your M3?

DEFINITION of 'M3' A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets.
M3 Definition | Investopedia
www.investopedia.com/terms/m/m3.aspInvestopedia

[TSJones]

ah, some entity-to-be-named-later is going to support a gold standard?

Very well, I avidly look forward to this occurrence.

ah, if it's just tradition, just unload your entire gold stock of 8000 tons onto the open market, and let Indians gobble it all up. It's a win-win. You'll send the dollar soaring and lower our CAD.

there is currently no need to send the dollar "soaring".

the gold in us federal depositories was mostly accumulated decades ago when we were on a gold standard.

come back when you understand economics better.

[RoyG]

DEFINITION of 'M3' A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets.
M3 Definition | Investopedia
http://www.investopedia.com/terms/m/m3.aspInvestopedia

Gora Sahib, I am asking about YOUR M3 figures? Inglis is your first language, not mine. Plijj show BRFites the number! Why are you beating around the bush? We are all curious to know.

[RoyG]

there is currently no need to send the dollar "soaring".

the gold in us federal depositories was mostly accumulated decades ago when we were on a gold standard.

come back when you understand economics better.

Haha, why no need? The entire point of your existence is to give the nations of the world the green so they can buy oil. Keep the faith!

So again, I ask, if gold is irrelevant in your Keynesian credit inflation model and you have supreme faith in your NYMEX, why not just give it to us?

Why do you keep sidestepping all the questions? You're King American. I'm a mere descendant of Ham.

[TSJones]

DEFINITION of 'M3' A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets.
M3 Definition | Investopedia
http://www.investopedia.com/terms/m/m3.aspInvestopedia

Gora Sahib, I am asking about YOUR M3 figures? Inglis is your first language, not mine. Plijj show BRFites the number! Why are you beating around the bush? We are all curious to know.

according to one source about 17 trillion. what's your point about m3? spit it out, desh von mises.

http://www.shadowstats.com/charts/monet ... ney-supply

or maybe I should start chanting "Jai Guru Deva" to you?

[RoyG]

according to one source about 17 trillion. what's your point about m3? spit it out, desh von mises.

http://www.shadowstats.com/charts/monet ... ney-supply

or maybe I should start chanting "Jai Guru Deva" to you?

Where is the official figure? You are very close to proving my point Sahib.

[panduranghari]

Not gold standard in the traditional sense. Simply put, for foreign transactions you need to peg to something to determine the fiat value. Gold parked in the vault is convenient simply because all major central banks have some quantity of it. Central Banks will start with the 1 ounce to 1 paper note and simply make the quantity of notes in circulation reflective. If the gov decides to print more than the gold stock, that's completely fine.

The point I'm trying to make is, we're going to reach a stage where the dollar peg will be no longer sustainable and OPEC will move away from it. Gold is simply the next best thing because its a common denominator of all major central banks.

Too deflationary. Politicians will be forced by the sheeple to print more. Its always the same situation.

BTW read this http://www.amazon.com/The-Leading-Indic ... 1451651228 to udnerstand economic numbers.

[Austin]

[JayS]

Mango man question to Gurus..

Why Chinese action of devaluating currency is seen a positive step towards making it more free-market-friendly currency (less govt control)? I do not quite understand. Wasn't RMB actually significantly undervalued already?? And if this is correct then shouldn't it be going up against the dollar from free-market variation POV (Also growing demand for yuan should drive its price up actually)?? Then devaluation is actually against this notion. How PRC's step to devalue RMB is a step towards making it free-floating currency??

What am I missing?

[member_26147]

Mango man question to Gurus..

Why Chinese action of devaluating currency is seen a positive step towards making it more free-market-friendly currency (less govt control)? I do not quite understand. Wasn't RMB actually significantly undervalued already?? And if this is correct then shouldn't it be going up against the dollar from free-market variation POV (Also growing demand for yuan should drive its price up actually)?? Then devaluation is actually against this notion. How PRC's step to devalue RMB is a step towards making it free-floating currency??

What am I missing?

You're not missing anything. China has been brow-beaten to submission after they were riding high trying to show the world that their stockmarket and economy is now free from government intervention after creating ghost cities and malls. The US won this round of currency war.

[Altair]

BREAKING: WTI crude falls below $40 per barrel for the first time since 2009

[chola]

Market is a taking a beating today because of Chin. They've finally arrived. The PRC numbers are creating panic from Japan to India to Europe to the US (in that order this morning.)

[chola]

Mango man question to Gurus..

Why Chinese action of devaluating currency is seen a positive step towards making it more free-market-friendly currency (less govt control)? I do not quite understand. Wasn't RMB actually significantly undervalued already?? And if this is correct then shouldn't it be going up against the dollar from free-market variation POV (Also growing demand for yuan should drive its price up actually)?? Then devaluation is actually against this notion. How PRC's step to devalue RMB is a step towards making it free-floating currency??

What am I missing?

You're not missing anything. China has been brow-beaten to submission after they were riding high trying to show the world that their stockmarket and economy is now free from government intervention after creating ghost cities and malls. The US won this round of currency war.

Not true at all, the US wants the Chinis to continue their support of the the high Yuan.

Think of it this way, the Yuan had risen around 40% against both the Euro and the Yen in the last five years. It had risen 45% against the rupee.

The only currency the Yuan had not risen against was the US dollar. So while the Euros and Nips were eating the Lizard's lunch on exports. Unkil was not. But at least it was stable. With the deval, it means the US is now being undercut by all three of the other core economic poles.

Besides lowering competition against US exports, there is a lot of other reasons why the US supports a high Yuan. A high Yuan would mean more Chinis can afford imports. If you haven't notice, the largest export market for US cars, airplanes and Hollywood flicks is China. Geo-strategically, a high Yuan would also make the chinis drain their forex stash weakening them as a competitor.

That's the reason they've dangled IMF and US funds memberships to the chinis is to get them to support a high Yuan that actually drew down their reserves. The chini devaluation changed everything. It signaled that they are no longer spending to support the Yuan and that they are entering the currency wars that had already started with the Yen and the Euro. Both of which had hurt the US. The saving grace until the chini devaluation had been the high Yuan.

[chola]

The biggest reason why Wall Street (and Tokyo and London and Frankfurt) had reacted the way it did today was because the chinis are a dominant consumption pole.

Forget the talk about the PRC being a slave labor sweatshop (which it is by Western definitions,) the main reason the Fortune 500 take notice of China is its market. The bourses are moved by money and the potential of money. And money comes from sales and consumption.

In sales, China consumes like no other nation in the world and that includes the US. It is neck and neck with the US over consumer goods (it leads the US in buying cars but second to the US in the Box office, etc.) But it is way ahead of the US in consuming raw material and commodities.

The drop in the Yuan signals that the PRC reducing the ability of its people to consume. It also signals a government trying to export its way out of trouble. Both bad signs. Well at least for the developed economies and the resources providers like Australia and Brazil.

But not necessarily bad for Bharat. Cheaper commodities should be to our advantage. The only issue is capital. A full chini meltdown can suck the emerging market dry of funds once panic takes hold and more dangerous, it can crush currencies. The job of the RBI is to keep the Rupee stable while the likes of the rinngit and baht are collapsing all around us.

[Austin]

10 Currencies That May Follow Tenge in Tumble Triggered by China

http://www.bloomberg.com/news/articles/ ... d-by-china

[svinayak]

In sales, China consumes like no other nation in the world and that includes the US. It is neck and neck with the US over consumer goods (it leads the US in buying cars but second to the US in the Box office, etc.) But it is way ahead of the US in consuming raw material and commodities.

Lot of these are govt consumption and not consumer consumption. It is a controlled consumption.

The drop in the Yuan signals that the PRC reducing the ability of its people to consume. It also signals a government trying to export its way out of trouble. Both bad signs. Well at least for the developed economies and the resources providers like Australia and Brazil.

But not necessarily bad for Bharat. Cheaper commodities should be to our advantage. The only issue is capital. A full chini meltdown can suck the emerging market dry of funds once panic takes hold and more dangerous, it can crush currencies. The job of the RBI is to keep the Rupee stable while the likes of the rinngit and baht are collapsing all around us.

Yuan signal is a complex one. With global trading entering a competitive phase and markets shifting from one pole to other this signal will change the dynamics which China can control over near future. Control the trend is the key to domination

[chanakyaa]

Mango man question to Gurus..

Why Chinese action of devaluating currency is seen a positive step towards making it more free-market-friendly currency (less govt control)? I do not quite understand. Wasn't RMB actually significantly undervalued already?? And if this is correct then shouldn't it be going up against the dollar from free-market variation POV (Also growing demand for yuan should drive its price up actually)?? Then devaluation is actually against this notion. How PRC's step to devalue RMB is a step towards making it free-floating currency??

What am I missing?

Nileshji, two clarification questions for you. Can you point me to a non-western article that explains why Chinese devaluation is considered, in your words, "more free-market-friendly".

And, second, which country do you believe has "free market"? If you have a name, I'll greatly appreciate your definition of "free".

My questions above have some sarcastic underdone, because weystern press, for decades, has created an impression that their markets are "free" (not sure what that means) and others are not.

[JayS]

Nileshji, two clarification questions for you. Can you point me to a non-western article that explains why Chinese devaluation is considered, in your words, "more free-market-friendly".

And, second, which country do you believe has "free market"? If you have a name, I'll greatly appreciate your definition of "free".

My questions above have some sarcastic underdone, because weystern press, for decades, has created an impression that their markets are "free" (not sure what that means) and others are not.

Well, now we are getting into the realm of hypocrisy of the Capitalist World with those questions. Lets just put that aside. I very much mean by the standard meaning of those terms in real world i.e. as free a market as it can get in real world and not a true idealistic free market. I totally agree to your point that nothing is really free. Only who controls is what defers. But I would rather steer clear of this debate.

What I am not able to understand is why western press wants to portray (if they are doing it for some hidden purpose) action of PRC as a step towards free floating yuan. How does it makes yuan's case stronger for being SDR currency?? I can't see how the devaluation is good for anyone, especially for the western world.

Economics is not my area of expertise. I take interest in it for many reasons, but I am not an expert like many other here. That's why I came here asking this question, hoping I will get some answers. So far I had been just lurking around here. So I would say, pray, explain your take on this matter. It would help in my understanding.

[svinayak]

Will Low Oil Prices, China Force Saudi Arabia To Ditch Its Dollar Peg?

Opec unity cracks as disgruntled members call for meeting to stem oil slump

Oil could drop into the $20s: Kilduff

Fracking is winning

[chanakyaa]

Why China Devalued the Yuan

Taking a look at this chart of the Dollar/Yuan exchange rate, you can understand why the Chinese government took the action that it did. The chart is denominated in yuan to dollars. The more yuan per dollar, the weaker the yuan and the stronger the dollar; the fewer yuan per dollar, the stronger the yuan and the weaker the dollar. You can see that the yuan has been continuously strengthening over the past ten years. Remember that as a currency strengthens, exports from that country become more expensive. A good that cost 100 yuan back in 2005 would mean a dollar cost of a little over $12. A 100-yuan good today would cost over $16. That’s why the Chinese government originally tried to keep the yuan pegged to the dollar, so as not to make the exports it relied upon for economic growth more expensive abroad. But after much pressure from the US and other Western countries, the government depegged the yuan, allowing it to trade in a narrow band and appreciate against the dollar.



Remember the dynamic that was going on, too. Chinese firms would export to the United States. US importers would pay Chinese firms in dollars. Those dollars would come back to China, where the exporters wanted to change them into yuan. Now what to do with all those dollars? Well, the Chinese government used them to purchase US Treasury bonds. Of course, the US wanted to take advantage of this, so the Federal Reserve created even more money out of thin air, increasing the money supply, with more and more of those dollars going overseas to purchase Chinese goods. And then the Chinese government would soak up more of the US government’s debt. Cheap goods and our debt is covered? That’s a win-win in any government’s book.

Take a look at the chart of the M2 money supply, the broadest money supply measure the Fed still publishes.



As the M2 money supply increases (devaluing the dollar), it seems that the yuan strengthens against the dollar. If you look at the actual data behind these charts, there’s a -0.91 correlation between M2 and the yuan/dollar exchange rate over the past 10 years. If you strip out the new pegging period from mid-2008 to mid-2010, there’s a -0.96 correlation from mid-2005 to mid-2008, and a -0.85 correlation from mid-2010 to today, which rises again to -0.96 if you remove the data from the interventionist period beginning in early 2014. Yes, correlation doesn’t equal causation, but these numbers aren’t mere coincidence. The US government wanted to take full advantage of the dollar’s position as the world’s reserve currency, exporting dollars to China in exchange for cheap consumer goods, while simultaneously making US exports of capital-intensive goods to China cheaper.

Any American reactions to China’s devaluation moves must be seen as hypocritical. Just as the US government took advantage of the Bretton Woods system to print more dollars than it had gold, it has engaged in a similar beggar-thy-neighbor policy with respect to China, exporting devaluing dollars to China in exchange for Chinese-made goods. It is perfectly understandable that China would rather not have its monetary policy guided by decisions made in Washington. All the hand-wringing in Washington is just for show. American politicians wanted to enjoy the benefits of inflation, getting something for nothing, and they don’t want it to stop. So they try to paint China as the bad guy for reacting to loose American monetary policy. It goes without saying that none of this would be an issue if we could just get government out of the money creation business. But that’s a story for another day.

[Neshant]

OPEC is failing in their attempt to put frackers into bankruptcy with low oil prices.

Like an anti-biotic resistant bacteria, the frackers are hanging on tooth & nail cutting their expenses to the bone to stay in business - hoping for that eventual price rise in oil.

By the end of this price-supply war, OPEC will have destroyed its own monopoly over fossil energy production when it dawns on the world that oil & gas frackers are here to stay.

[panduranghari]

[Austin]

OPEC is failing in their attempt to put frackers into bankruptcy with low oil prices.

Like an anti-biotic resistant bacteria, the frackers are hanging on tooth & nail cutting their expenses to the bone to stay in business - hoping for that eventual price rise in oil.
By the end of this price-supply war, OPEC will have destroyed its own monopoly over fossil energy production when it dawns on the world that oil & gas frackers are here to stay.

Fracking was a loss making industry even when Oil Price was at $100 , they simply grew on Cheap Credit and it was not good business but it was good for USA and other associated industry.

http://www.alternet.org/economy/97-frac ... oil-prices

Now if Oil Remains sub $50 for the next 2-3 years then these shale industry who have to repay their loans would be in big trouble .....It more like Slow Death for Shale Industry ... Shale cant get effecient compared to conventional Oil which can varry between $3 to $15 while for Shale they still have to be at $60 to make it profitable

The environmental issues of Shale are gradually being realised and I read few states in US has banned Shale

[Neshant]

Break even price for oil fracking is about $50 to $55.

Nobody would be fracking if the cost of production was $100 or anywhere near there.

OPEC oil producers other than Saudi Arabia which need high oil prices to fund their national budgets (since they produce nothing else) are hurting as much as US frackers. All of OPEC will have forfeited over 800 billion to 1 Trillion in revenues with this price war.

Get ready for a frack counter-attack.

The survey also found that 43 percent see a break-even price for the U.S. shale industry of $45 to $55 per barrel, well below where many expect prices in the next couple of months.

[chanakyaa]

Fracking is winning

Fracking as a technological advance to optimize oil extraction definitely deserve thumbs up, but sustainable availability of oil from fracking as an alternative to OPEC is a propaganda that has been very successfully promoted by the wyestern media for the last 12-16 months to bring down the price of oil, as an economic stimulus, as if QEs were not enough. For starters, here is the global demand of oil the International Energy Agency (approx. $95 million barrel/day)

World Oil Demand

World Oil Supply/day: 95 mb/d (million barrel/day)
Value of Oil/day at $100: $9.5bn
Value of Oil/day at $40: $3.8bn
Difference: $5.7bn
OPEC's share of World's Oil Supply: 40% (approx.)
What is OPEC leaving on table: $5.7bn * 40% = $2.28bn (per freaking day)

Do we want to subscribe to the narrative that OPEC at 40% market share is so concerned about "threat" from the shale oil that it does not want to *reduce* its daily production and leave $2.28bn of revenue "per freaking day" on the table? Is shale so strong that Saudi's are irrelevant in the Oil market?

Changes in Saudi Arabia crude oil production can affect oil prices

[JE Menon]

The problem is that most (maybe all) OPEC countries have budgeted for a $100+ oil price. With the exception of a handful (UAE, Kuwait, Qatar and the like) - the rest simply cannot afford to take a hit on the price to this level, not for several years on end, and not without having socioeconomic impact, which means of course political repercussions. In the Middle East, it means even more complications than the clusterf*ck it already is. None of this is disadvantageoous to the oil importers.

Oil from fracking producers will always be on standby to kick in the minute OPEC thinks of getting its head together and reducing production to increase price, which means OPEC has effectively lost its price modulating capacity; what it is now terrified of losing, in addition, is its market share. This is why there is total disagreement among the member states, and the bloc is disintegrating - because no one wants to be the one to lose market share to another OPEC member (or to anybody else, for that matter).

It is, therefore, essentially a question of whether the frackers can hold on and keep producing at least at some positive margin, and whether both their R&D and production capacity can outpace and outlast the ability of OPEC producers to keep pumping out oil at low prices and bear the attendant socioeconomic implications. My sense from general reading, and some indicators, is that the frackers can keep going at least for a couple of years at these prices. And it is also clear that, even if the frackers go out of operation, they can come right back in once the price goes up. It does not look like OPEC is ever going to get back their ability to modulate the price in the way they used to.

Only massive catastrophe can at this point take oil back to previous levels ...

[Austin]

OPEC oil producers other than Saudi Arabia which need high oil prices to fund their national budgets (since they produce nothing else) are hurting as much as US frackers. All of OPEC will have forfeited over 800 billion to 1 Trillion in revenues with this price war.

Why $20 Oil Won’t Happen


The problem with fracking is not just the high break even price compared to conventional oil but also the reserves available , EIA has cut down shale oil reserves and the environmental impact is also being felt ..... Shale as business was always in loss even in good time no company ever made profit out of shale , they just got good becauuse of cheap credit.

https://www.rt.com/business/249529-us-shale-eia-report/
http://www.theguardian.com/environment/ ... cking-myth

Now when Oil price are low and they have to repay their loans is when the real thing will begin to show up , its a waiting game.

[ashashi]

What is this chart supposed to convey?

I see a nice bull trend with corrections along the way, a natural phenomenon.

[panduranghari]

^ Nothing that is of consequence to bulls.

[Austin]

http://money.cnn.com/

Breaking News
Investors brace for brutal day in markets: Dow stock futures fall more than 700 points. Nasdaq futures fall 5%.

[panduranghari]

Pedro da Costa ‏@pdacosta 19 minutes ago

Having avidly made the case for aggressive central bank action, Wall Street now bemoans the fallout of aggressive central bank action.

[chola]

Dow futures are down 700. Primed for a bloodbath on Wall Street. All this while the US economy had been doing okay. All because some communist ch1nks refused to support their bingo parlour market and let it free fall. Who would have thought they wouldn't intervene and intervene decisively?

[Austin]

Can some one tell me what happens if Chinese Central Bank decides to devaluate Yuan say 10-15 % ?

Will it lead to currency war or along those lines ? Will we be forced to go for similar devaluation ?

[Altair]

Dow Jones down 1000 points!!

[Altair]

Austin
Exactly same thought caught me but Raghu Rajan clarified we will use the 850$ Billion forex to cover the risk. But we never know. Chinese will loose pension money tomorrow so more blood tomorrow. I expect Nifty below 7000 very soon.

[Austin]

You mean $350 Billion Forex we have ( not 850 ) ? What would be their motivation to devalue currency ?

[chola]

You mean $350 Billion Forex we have ( not 850 ) ? What would be their motivation to devalue currency ?

We're not an export economy so RBI won't devalue. In fact, it needs to keep the rupee high enough so that we can benefit from the drop in oil and commodity prices. If the rupee falls faster than energy, the RBI will be forced to defend the rupee with the forex stash.

The trick is to keep the rupee as high as possible without drawing down your forex to a dangerous level. In the 1998 Asian crisis, Thailand and even South Korea got into a state where their currencies fell below the inflation rate of energy and they depleted their forex accounts trying to stabilize their currencies.

The "good" thing about the current crisis is that energy is also free falling. We just need to keep the rupee from falling faster.

[ArmenT]

From CNN
World Markets plunge as China stocks crash

World stocks and oil prices plunged Monday as a global selloff accelerated on fears about the health of China's huge economy.

China stocks crashed and all Asian markets suffered major losses. Europe's markets were bleeding heavily by late afternoon -- down between 5% and 7% -- after Wall Street was crushed at the open.

Worries that the world's second biggest economy is stumbling also trashed commodities. Oil slumped more than 4% to a new six-year low below $39 a barrel.

[Austin]

Greenspan: Higher Interest Rates Are Inbred in Human Nature (Video)

Check Greenspan Interview in the video link

[Altair]

Yes, It is 350 B$ I was typing from mobile then
We have got USD 380 billion to play with," Rajan told a banking summit

MUMBAI: Amid bloodbath in stock and currency markets, RBI head Raghuram Rajan today tried to allay fears saying the country has strong macroeconomic fundamentals and sufficient forex reserves to contain volatility while he also hinted at a rate cut if inflation remains low.

"I just want to indicate that we have plenty of reserves which was USD 355 billion (at the last count), plus USD 25 billion that exist because some of our forward sales. We have got USD 380 billion to play with," Rajan told a banking summit on a day when the rupee plunged below 66.60 and the market tanked 4 per cent, its worst single-day fall in seven years.

"I wish to reassure the markets that our macroeconomic factors are under control as the economy is in much better position relative to many other economies," Rajan told the IBA-Ficci organised banking summit Fibac.