Bharat Rakshak

Suraj wrote:Gas prices are over a dollar cheaper in the bay area. Seems like a local refinery output issue.

California gas is subject to especially high local taxes and fees (which add on about 70¢ per gallon), and state rules require that only special low-pollution blends of fuel are used. As a result, California gas stations can only get fuel from a select few refineries. And when demand increases quickly or there are production issues that slow the local supply, California gas prices—which are high compared to the rest of the country to begin with—hit the roof.

"If the RMB (renminbi) were determined to be a freely usable currency, it would play a more central role in the Fund's financial operations going forward, and it would qualify for inclusion in the SDR basket," the report said.

ramana wrote:The UK based LIBOR manipulator was sentenced yesterday.

Austin wrote:IMF like World Bank is a Western led cartel to expect they would any way let Rinminbi be part of its currency basket is just a fallacy , If tomorrow RMB is free floating or fully convertable they would figure out some other reason like improve your human rights or make your economy more Phree and why it cant be part of currency basket ,

Even basket economy cases like British Pound an Japanese Yen are part of SDR basket.

China should just do whats its been doing which is go for larger currency swapping and keep increasing its gold reserves.

Excpecting the current institutions like WB/IMF to be fair to any country like BRICS or others let alone China is asking for too much , if there were not to be true we wouldnt be seeing BRICS bank or AIIB

The prospect that the US Federal Reserve will start exiting zero policy rates later this year has fueled growing fear of renewed volatility in emerging economies’ currency, bond, and stock markets. The concern is understandable: When the Fed signaled in 2013 that the end of its quantitative-easing (QE) policy was forthcoming, the resulting “taper tantrum” sent shock waves through many emerging countries’ financial markets and economies.

Indeed, rising interest rates in the United States and the ensuing likely rise in the value of the dollar could, it is feared, wreak havoc among emerging markets’ governments, financial institutions, corporations, and even households. Because all have borrowed trillions of dollars in the last few years, they will now face an increase in the real local-currency value of these debts, while rising US rates will push emerging markets’ domestic interest rates higher, thus increasing debt-service costs further.

But, although the prospect of the Fed raising interest rates is likely to create significant turbulence in emerging countries’ financial markets, the risk of outright crises and distress is more limited. For starters, whereas the 2013 taper tantrum caught markets by surprise, the Fed’s intention to hike rates this year, clearly stated over many months, will not. Moreover, the Fed is likely to start raising rates later and more slowly than in previous cycles, responding gradually to signs that US economic growth is robust enough to sustain higher borrowing costs. This stronger growth will benefit emerging markets that export goods and services to the US.
Another reason not to panic is that, compared to 2013, when policy rates were low in many fragile emerging economies, central banks already have tightened their monetary policy significantly. With policy rates at or close to double-digit levels in many of those economies, the authorities are not behind the curve the way they were in 2013. Loose fiscal and credit policies have been tightened as well, reducing large current-account and fiscal deficits. And, compared to 2013, when currencies, equities, commodity, and bond prices were too high, a correction has already occurred in most emerging markets, limiting the need for further major adjustment when the Fed moves.

Above all, most emerging markets are financially more sound today than they were a decade or two ago, when financial fragilities led to currency, banking, and sovereign-debt crises. Most now have flexible exchange rates, which leave them less vulnerable to a disruptive collapse of currency pegs, as well as ample reserves to shield them against a run on their currencies, government debt, and bank deposits. Most also have a relatively smaller share of dollar debt relative to local-currency debt than they did a decade ago, which will limit the increase in their debt burden when the currency depreciates. Their financial systems are typically more sound as well, with more capital and liquidity than when they experienced banking crises. And, with a few exceptions, most do not suffer from solvency problems; although private and public debts have been rising rapidly in recent years, they have done so from relatively low levels.

In fact, serious financial problems in several emerging economies – particularly oil and commodity producers exposed to the slowdown in China – are unrelated to what the Fed does. Brazil, which will experience recession and high inflation this year, complained when the Fed launched QE and then when it stopped QE. Its problems are mostly self-inflicted – the result of loose monetary, fiscal, and credit policies, all of which must now be tightened, during President Dilma Roussef’s first administration.

Russia’s troubles, too, do not reflect the impact of Fed policies. Its economy is suffering as a result of the fall in oil prices and international sanctions imposed following its invasion of Ukraine – a war that will now force Ukraine to restructure its foreign debt, which the war, severe recession, and currency depreciation have rendered unsustainable.

Likewise, Venezuela was running large fiscal deficits and tolerating high inflation even when oil prices were above $100 a barrel; at current prices, it may have to default on its public debt, unless China decides to bail out the country. Similarly, some of the economic and financial stresses faced by South Africa, Argentina, and Turkey are the result of poor policies and domestic political uncertainties, not Fed action.

In short, the Fed’s exit from zero policy rates will cause serious problems for those emerging market economies that have large internal and external borrowing needs, large stocks of dollar-denominated debt, and macroeconomic and policy fragilities. China’s economic slowdown, together with the end of the commodity super-cycle, will create additional headwinds for emerging economies, most of which have not implemented the structural reforms needed to boost their potential growth.

But, again, these problems are self-inflicted, and many emerging economies do have stronger macro and structural fundamentals, which will give them greater resilience when the Fed starts hiking rates. When it does, some will suffer more than others; but, with a few exceptions lacking systemic importance, widespread distress and crises need not occur.

TSJones wrote:you seem to be upset that a controlled convertibility, semi transparent currency like the renminbi was not accepted for a global basket of currencies. How come Austin? do you think they are deserving of it? the pound and the yen are convertible with no nationalistic restrictions. I am shocked that you think the renminbi is better than them.

Nobody pays

As the economy continued its descent, the government simply couldn't collect enough tax revenue to finance its operations.

One reason for that is that a lot of the remaining companies with a presence on the island barely had to pay any taxes.

Microsoft, for example, packages and ships its products from Puerto Rico. Thanks to what the government considered business-friendly policies, it enjoyed a 1.02% tax rate in 2011.

"And it isn't just Microsoft," Newedge's McDonald said.

"It's dozens of companies."

It's also hard to tax a significant percentage of the population's income, because many Puerto Ricans work in the underground economy.

"While the underground economy is difficult to measure accurately, estimates of its size are on the order of 23 percent" of gross national product, the New York Fed said in its report. "The magnitude of this sector suggests that a relatively large fraction of economic activity in Puerto Rico is unrecorded and not currently subject to either income or sales taxes."

And investors loved it

None of the above stopped investors from rushing in to buy Puerto Rico's bonds. Why? High yields in a low-interest-rate environment and another tax break — three of them to be precise. Puerto Rico's bonds are exempt of local, federal, and state income taxes.

"It was politically favorable for the Commonwealth because they were able to do these things [like issuing bonds] and not put the burden on the residents," David Fernandez, a public finance lawyer at Buchanan, Ingersoll & Rooney, told Business Insider recently. "They kept doing it and doing it and the market kept buying and buying. Who wouldn't do that?"

The result of that, though, was that Puerto Rico started racking up debt it had no hope of paying off.

Like the Germans

There's support for that in Congress, too.

"The Republicans are like the Germans," McDonald said, referring to Germany's hard-line stance on Greek austerity as Greece goes through its own debt crisis.

That may not be the best way to go in this situation, according to the New York Fed's report.

"In an environment where income is not growing, government austerity measures to address fiscal deficits can potentially weaken the economy further in the short run — through, for example, layoffs of public employees or increases in taxes," it said.

"Fiscal policies to put debt levels on a more sustainable path in Puerto Rico will need to limit potentially adverse effects on an already weak economy."

For now, it's unclear what will happen next. The government seems to be carefully choosing which of its agencies will have to default.
Sweet at Fox Rothschild described the way the government let its first entity default as "strategic."

He said: "I do think that a facilitated restructuring of the debt on a level that allows the government to stretch things out, the kind of thing you might see in a bankruptcy without going through bankruptcy, is where this thing needs to go and it's where the government is trying to go."

The government is trying to ensure that Puerto Ricans continue to receive government services, that intelligent workers stay on the island, and that employment holds up. Investors, meanwhile, would rather force austerity.

Those two things look incompatible, and the crunch point could be just around the corner.

"We don't know specifically when the cash starts to hit the bone," McDonald said. "But I would say between now and November 1."

That's how fast all of this is going down. Very, very fast.

TSJones wrote:After all of that I still think China's economy is a mile wide and an inch deep.

Its not about convertibility etc , even Russian Rouble is fully convertible but its not part of IMF basket.

TSJones wrote:again, please cite example of unfairness of the IMF given the historic levels of funding by the primary countries included in the IMF global basket of currencies.

Specifically, the reforms would have doubled the IMF’s quota to $720 billion, and shifted six percentage points of total quota to developing countries. Under the reforms, China would become the third largest quota-holder at the Fund (second only to the U.S. and Japan), and Brazil, Russia, and India would become top-ten quota-holders as well. Under the reform, U.S. voting power will decrease slightly but would still maintain its veto. In addition, in reforming the Fund’s Articles of Agreement, the change moves two of the 24 IMF directorships from European to developing countries.

While emerging powers have remained patient over the past year, discontent has begun to spread among those who would stand to benefit most from the changes. The situation is particularly bizarre because a further round of IMF quota reforms is already under discussion and due for completion in early 2014.

When a country joins the IMF, it is assigned an initial quota in the same range as the quotas of existing members of broadly comparable economic size and characteristics. The IMF uses a quota formula to help assess a member’s relative position.
The current quota formula is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent). For this purpose, GDP is measured through a blend of GDP—based on market exchange rates (weight of 60 percent)—and on PPP exchange rates (40 percent). The formula also includes a “compression factor” that reduces the dispersion in calculated quota shares across members.

China is under growing pressure to further stimulate its economy after disappointing data over the weekend showed another heavy fall in factory-gate prices and a surprise slump in exports

To get a sense of how robust demand is for U.S. Treasuries, consider that China has reduced its holdings by about $180 billion and the market barely reacted.Benchmark 10-year yields fell 0.6 percentage point even though the largest foreign holder of U.S. debt pared its stake between March 2014 and May of this year, based on the most recent data available from the Treasury Department. That’s not the doomsday scenario portrayed by those who said the size of the holdings -- which peaked at $1.65 trillion in 2014 -- would leave the U.S. vulnerable to China’s whims.
Instead, other sources of demand are filling the void. Regulations designed to prevent another financial crisis have caused banks and similar firms to stockpile highly rated assets. Also, mutual funds have been scooping up government debt, flush with cash from savers who are wary of stocks and want an alternative to bank deposits that pay almost nothing. It all adds up to a market in fine fettle as the Federal Reserve moves closer to raising interest rates as soon as next month.
“China may be stepping away, but there is such a deep and broad buyer base for Treasuries, particularly when you have times of uncertainty,” Brandon Swensen, the co-head of U.S. fixed-income at RBC Global Asset Management, which oversees $35 billion, said from Minneapolis.
Voracious AppetiteAmerica has relied on foreign buyers as the Treasury market swelled to $12.7 trillion in order to finance stimulus that helped pull the economy out of recession and bail out the banking system. Overseas investors and official institutions hold $6.13 trillion of Treasuries, up from about $2 trillion in 2006, government data show.China was a particularly voracious participant, boosting its holdings from less than $350 billion as its economy boomed and the nation bought dollars to keep the yuan from soaring.Now, the Asian nation is stepping back as it raises money to support flagging growth and a crumbling stock market, and allows its currency to trade more freely. The latest update of Treasury data and estimates by strategists suggest that China controls $1.47 trillion of Treasuries. That includes about $200 billion held through Belgium, which Nomura Holdings Inc. says is home to Chinese custodial accounts.
The Treasury market overcame turbulence sparked by China in early 2009, just as the U.S. was ramping up borrowing and as the Fed was about to expand the supply of dollars as part of its stimulus efforts. At that time, then Chinese Premier Wen Jiabao said his country was “worried” about its investment in U.S. debt and wanted assurances the value of its holdings would be protected.
China’s pullback from U.S. securities is “far less ominous for the prospects for the Treasury market than some sensationalists might think,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It’s the macro and policy stories that give you the big overall level of rates, it’s not flows.”U.S. commercial banks have increased their stakes in Treasuries and debt from federal agencies by almost $300 billion since March 2014 to over $2.1 trillion, Fed data show.
The category of buyers at Treasury auctions classified as indirect bidders, which include foreign investors and mutual funds, won a record 55 percent of the $1.2 trillion of notes and bonds sold this year, up from 43 percent in 2014.Funds bought 42 percent of the debt, up from 35 percent last year, while overseas investors increased their allotment to 19 percent from 16 percent, the data show.
Global Disinflation
Slowing growth in China, where domestic debt is swelling and stock markets are becoming more volatile, is causing the kind of turmoil that fuels investor demand for safe assets such as Treasuries.
It may also slow the pace of inflation, according to William O’Donnell, head U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut.Unlike “China’s central bank, global investors want to buy,” said Toshifumi Sugimoto, the Tokyo-based chief investment officer at Capital Asset Management Co., which has $300 million in assets. “Investors like pension funds or life insurance companies or institutional investors, they want a higher yield with a high rating. U.S. Treasuries are very attractive now.”That depth of demand may stand the market in good stead as the Fed moves closer to raising interest rates.“I don’t see an egregious back-up” in yields happening, said Gemma Wright-Casparius, who manages about $50 billion in Treasuries at Valley Forge, Pennsylvania-based Vanguard Group Inc. “It’s a deep liquid market, it’s a safe haven and it’s a high-yielding asset right now.”

TSJones wrote:Belgium is a front for the Mid-East oil states.

Neshant wrote:

TSJones wrote:Belgium is a front for the Mid-East oil states.

Somehow I doubt that.

The South American country, which is trying to stave off a bond default in the wake of oil’s swoon, had 68 percent of its international reserves in bullion as of August, according to the World Gold Council. That’s a big worry because the price of the precious metal has tumbled 15 percent from this year’s high in January as the global slump in commodities deepened.
The decline threatens to erode reserves the cash-strapped country relies on to pay its foreign debt. Venezuela, which gets more than 95 percent of its export revenue from oil, will see its hoard plunge by $1 billion if bullion prices don’t rebound, said Alejandro Arreaza, an analyst at Barclays Plc.
“Obviously, it’s the worst of both worlds,” he said.

How low can it go?
Russia, which Moody’s Analytics estimates entered a recession in the first quarter, may be in for a rough ride. Gross domestic product shrank 4.6 percent from a year earlier in the second quarter, the most since 2009, after a 2.2 percent slump in the previous three months, the Federal Statistics Service said on Monday, citing preliminary data. Capital Economics Ltd. sees a downturn that will trough with a 6.3 percent plunge in the third quarter, while HSBC Holdings Plc predicts this year’s worst performance from October to December.
A steeper drop would run counter to assertions by government officials that last quarter marked “the lowest point” for Russia, with growth set to resume late this year or at the start of 2016. What’s setting the economy back is a renewed slide in commodity prices that saw crude drop to a six-month low last week, hammering the ruble and shaking a country that relies on oil and gas for about half of its budget revenue.

Debt/GDP

Austin wrote: China has ZERO chance of getting Reserve Currency Status and there should be no illusion there has very little to do with economy and has much to do with how the Economic Structure ATM is dominated with Western Banks and Institutions

somnath wrote:"Reserve currency" status isnt something that is "given" by anyone. Typically, a currency with perceived store of value, convertibility and wide acceptance in the financial markets would be adopted as reserve currency. USD checks all the boxes. CNY doesnt really check any one fully. They are trying, but its a tough call, because there are costs of being a reserve currency that a typical emerging market doesnt want to bear (and China still is one).

a_bharat wrote:According to the video Neshant posted, the total US debt (not just that of US Govt) is about 370% of US GDP. No country with debt above 260% was ever able to payback debts. The US' solution to their debt problem has been to keep increasing the Total-debt/GDP ratio and this has been working for them so far on the strength of dollar.

BTW, what is the total-debt (govt, corporate, public)/GDP ratio for India?

Neshant wrote:

TSJones wrote:Belgium is a front for the Mid-East oil states.

Somehow I doubt that.

udaym wrote:
Any data to back up the claims? Why is mid-east oil going through Belgium? Why is China going through Belgium? What is it that they are they can do thru Belgium that they couldn't do before?