World economy talk

[Negus]

japan having a high savings rate?

is household savings rate different to savings rate?

living here in japan, i'm under the impression that the japanese spend a lot. They are obsessively brand conscious.

savings rate in selected countries:
http://perotcharts.com/2008/05/house...ted-countries/

http://econ365.files.wordpress.com/2...vings-rate.pdf

http://www.econ.umn.edu/macro/2004/japan301.pdf

now i'm confused

[uls]

Negus,

the article posted above is kinda old na judging by the figures

(China holds way more than $160B in US securities)

malaki na ang binaba ng savings rate ng mga Hapon

pero even if they are spending, they are not spending enough

the Japanese economy is too dependent on export earnings

Japanese domestic demand can no way fill the vacuum created by the drop in foreign demand

[Negus]

understood.

I should have saved the government handout then . We're in really deep S#!t.

[tidus1203]

Handouts almost always never work. Because once the handout is spent what next?

[uls]

back to dollar earning and saving countries like Japan, China, S. Korea, Singapore, Middle East oil exporters

when an exporting country makes it big, it would earn a lot of dollars

they would have a huge supply of dollars in their economy, causing their own currency to strengthen

if you are an exporter, you don't want a strong currency

so to keep your currency from appreciating, you have to reduce the supply of dollars flooding your economy and increase the supply of your own currency

so you print more of your own currency to buy the dollars that's all over the place

then you hire a bunch of people to manage the dollars

yehey! you got yourself a sovereign wealth fund! (wala tayo nyan )

the managers then decide where to invest those dollars... like US treasuries, equities etc

---

i keep getting the feeling there's something wrong with a reserve currency owned by 1 country

the owner of the reserve currency can abuse its status

it's way too advantageous for 1 country, and causes instability in other countries

well... what do i know?

[badsekktor]

^^ i agree that the reserve currency should never be owned by one country alone.... IMO it should be something like the Euro.

[tidus1203]

*badsektor

The Euro is the currency of the Eurozone which are the EU countries that use the Euro. There are still some EU countries most notably Britain and Sweeden that still use their local currencies the Pound and Krona respectively...

The Euro just like the USD is just a currency of one economic block. Remember the EU united so that they can compete as one economic block, more specifically so they can compete better against the US. So in that sense, the Euro is also not a good replacement for a reserve currency since its also controlled by one economic block which is in Europe. I think what China wants a true real international reserve currency accepted for trade worldwide.

[tidus1203]

Interesting read on China's thoughts on the issue of reserve currency, the USD, and the global financial crisis. They are really getting bold these days. I am (on a personal level) a huge believer that China will become the next global superpower. It might be a bi-polar world kinda like the Cold War era where there were two superpowers but I am more inclined to the idea of China replacing the US. And this crisis is a major back breaker to the US and its credibility. They might be the top dog right now, but I did remember the UK was top dog in the 19th century and where are they now? Down to mediocrity...

http://finance.yahoo.com/news/China-...-14774658.html

[uls]

Yep

China has a lot of weight now

[uls]

great video about the toxic asset plan

the video explains how Geithner's plan works

after the explanations, the guy describes how the banks can game the US govt/Fed

A bank can create a separate entity and provide it capital

the entity will act as a private investor

As the toxic asset plan goes --- the Treasury will match the entity's capital, and the Fed will lend money

the entity will then buy the toxic assets from the bank

so basically, the bank will be buying the assets from itself

the USG/Fed (taxpayer) taking the loss

[ame="http://www.youtube.com/watch?v=n-arbfLTCtI"]YouTube - Geithner Plan II[/ame]

[uls]

this is one of the best articles i've read about the crisis

suprisingly, it's not from any finance website

it's from Rolling Stone

i'm posting the link of the print version para 1 page lang

http://www.rollingstone.com/politics...takeover/print

[uls]

Obama to GM CEO Rick Wagoner: You're Fired!

GM CEO Forced Out as US Readies Autos Aid
http://www.cnbc.com/id/29946309

General Motors Chairman and CEO Rick Wagoner is stepping down as head of the embattled automaker CNBC has learned Sunday.

Wagoner's resignation comes as the company awaits president Barack Obama's reports on efforts to save GM and Chrysler.

It is unclear if Wagoner's resignation is one of the stipulations for the federal government to lend billions more to GM. But sources close to the talks say tough conditions will be attached to any future aid.

GM CEO resigns at Obama's behest
http://www.politico.com/news/stories/0309/20625.html

The Obama administration asked Rick Wagoner, the chairman and CEO of General Motors, to step down and he agreed, a White House official said.

On Monday, President Barack Obama is to unveil his plans for the auto industry, including a response to a request for additional funds by GM and Chrysler. The plan is based on recommendations from the Presidential Task Force on the Auto Industry, headed by the Treasury Department.

i was expecting GM to file bankruptcy before end of March

but bankruptcy is a scary word... it's equivalent to a death sentence

so the USG will do things that resemble a bankruptcy takeover

but will not call it a bankruptcy

[tidus1203]

Whatever. GM should have dies in the first place and should have not been bailed out in the first place.

[uls]

wala e

bailout nation

[tidus1203]

In the end the free markets always get its way. If people don't like to buy GM cars no matter how the government tries to make it survive it won't survive and just continue to drain money like the zombie that it is. The dead should be dead and should not be made undead!

[uls]

Diba we were talking about how the creation of money (paper and/or electronic) will eventually cause inflation

for now kasi, the money creation is being offset by massive wealth destruction (deleveraging, defaults) so there's almost zero inflation

but eventually, the amount money being created will overwhelm the wealth being destroyed

then we will have inflation

Inflation looms over deflation risk
http://www.ft.com/cms/s/0/8499eb84-1...44feabdc0.html

There's no inflation yet

Money is being hoarded by banks.

Monetarists concede that central banks are printing money in vast amounts to stimulate their economies. This will not lead to inflation, they say. The newly minted cash is not being lent out but stored in bank vaults. The “money multiplier”, to use the technical term, has collapsed. It is no secret why this is happening. Households and businesses are over-stretched and fearful about the future. As a result, they are borrowing less and saving more. As long as such fears persist, according to monetarist logic, the Federal Reserve can carry on printing money with impunity.

The govts and central banks are scared to death of deflation

so they will fight deflation with every weapon they got

the public's confidence in their fiat currency will fade coz of the debasing of their currency by the authorities

that would force people out of safe haven cash and into higher yielding assets

The aim of the central bank’s policy of quantitative easing is to dispel the threat of deflation and get people to borrow and spend more. The “unconventional measures” being undertaken by central banks around the world are novel and unproven. If the authorities overreact to the spectre of deflation and print more money than is necessary, inflation expectations might suddenly pick up. The continued hoarding of money depends on people believing that a fiat currency, such as the US dollar, will remain a store of value in future. If this confidence dissipates due to excessive measures by the Fed, then cash would be considered a hot potato. The velocity of circulation would rise and inflation surge.

Now, this is why China is so concerned

The USG is on a spending spree.

Trillions and trillions of dollars worth of USG debt paper is being issued by the US treasury

The USG is going into way too much debt

But the concern isnt that the USG would default on its debt

the US can't default on its debt coz it owns the USD. it can just create USD to pay any debt that comes due

but the creation of more new fiat money devalues the fiat money that already exists

That's exactly what China is so concerned about

Inflation expectations might also shift if the markets lose confidence in the state of the public finances. Washington is set to produce a deficit this year of $1,800bn (£1,237bn, €1,325bn). The cost of bailing out Wall Street runs to several thousand billion dollars more. Meanwhile, the Fed has promised to expand its balance sheet by more than $2,000bn. Governments that issue debt in their own currencies and control their monetary printing presses do not tend to go bust. Rather, the sovereign default takes place covertly through a depreciation of the currency.

If market participants come to suspect the US government faces insuperable financial burdens and that the Fed is losing its political independence, inflation expectations are liable to change rapidly. Clearly, this issue is a concern to China’s leaders who, having acquired an enormous mountain of Treasury bonds in their foreign exchange reserves, are aware that Americans might seek at some stage to inflate away their foreign obligations.

[uls]

That's the extraordinary privilege you get when you own the reserve currency

You can issue debt in your own currency, and create money to pay the debt

unlike, say, the Philippines

we can borrow USD from outside

but when it's time to pay, we have to come up with dollars to pay

our govt collects taxes in pesos, then has to buy dollars to pay the lenders

what if we run out of dollars?

what if our exports fall? and our OFWs send less dollars home?

The US doesnt have to worry about running out of dollars

it owns the printing press

[tidus1203]

That is the summarized version of this one year and 2 months old thread... INFLATION! INFLATION! DEBASEMENT! DEBASEMENT! The deliberate debasement of the currency to make the debt smaller in REAL TERMS. That's what the USG is planning to do, the USG has no money so how can it pay its debt?

[uls]

as i type this, US stock futures are Elmo (Elmo red, Kermit green )

http://www.bloomberg.com/markets/stocks/futures.html

concern over future of automakers

GM, Chrysler are ever closer to bankruptcy

why don't they just get it overwith

may suspense pa e

hehe

[uls]

S&P500

Elmo