Value of the dollar

houtiger · Apr 26, 2009

26 Apr 2009

Unless this capital is forthcoming, a clutch of countries will prove unable to roll over their debts at a bearable cost. Those that cannot print money to tide them through, either because they no longer have a national currency (Ireland, Club Med), or because they borrowed abroad (East Europe), run the biggest risk of default.

Traders already whisper that some governments are buying their own debt through proxies at bond auctions to keep up illusions – not to be confused with transparent buying by central banks under quantitative easing. This cannot continue for long.

Commerzbank said every European bond auction is turning into an "event risk". Britain too finds itself some way down the AAA pecking order as it tries to sell £220bn of Gilts this year to irascible investors, astonished by 5pc deficits into the middle of the next decade.

US hedge fund Hayman Advisers is betting on the biggest wave of state bankruptcies and restructurings since 1934. The worst profiles are almost all in Europe – the epicentre of leverage, and denial. As the IMF said last week, Europe's banks have written down 17pc of their losses – American banks have swallowed half.

"We have spent a good part of six months combing through the world's sovereign balance sheets to understand how much leverage we are dealing with. The results are shocking," said Hayman's Kyle Bass.

It looked easy for Western governments during the credit bubble, when China, Russia, emerging Asia, and petro-powers were accumulating $1.3 trillion a year in reserves, recycling this wealth back into US Treasuries and agency debt, or European bonds.
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http://www.telegraph.co.uk

The worldwide crisis continues. With China growth slowing, they don't have the trade surplus nor attendant currency surplus to buy our (everyone's) debt. Who's going to buy the debt? Our own govt. Federal Reserve said last month it will buy $300 billion of long term treasury bonds over six months. I agree with the article, this can't go on forever. When the game is up, interest rates will rise to attract buyers, and existing bonds will fall in value. You will not want to be in long term govt. bond funds, or any bond funds IMO. They will fall a little or fall a lot. See the first sentence, can't roll their debt over at BEARABLE COST.

When rates rise, there is usually a cash flow into our country so folks can take advantage of the higher yield. That strengthens the dollar which can dampen inflation. These relationships hold under a set of assumptions, mainly that all currencies playing in the game are "reasonably stable". What happens if they are all "somewhat unstable"? I don't know. But I don't have an easy feeling about it...

If you want to shake in your boots, go look at these headlines:http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/

Germany bracing for civil unrest, already happening in France, Swiss tipping to deflation (bad), a possible world currency run by the IMF. My head feels like Linda Blair in the Exorcist! (if you're old enough to know what I'm talking about).

saltyone · Apr 26, 2009

Wow. If you have a few minutes, scroll down and read the comments.

The capital well is running dry and some economies will wither - Telegraph

End the welfare state seems to be the only 'solution'. The notion that people can expect the state to provide them with a home, food, medical care and a public sector employee to manage their 'benefits' is what got us into this hole.

As they say, when you find yourself in a hole the proper thing is to stop digging. The parasite economy is just going to have to adjust to a new reality. A 'bad back' does not entitle its possesor to a lifetime of watching TV on the couch.
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You are obsessed by the USA and yet you write selectively. The US banks are according to Money Week magazine 60% liable for the Ukraine's debts. You ignore the fact that many commentators like Bob Hoye think that the US bank stress tests being done by Geithner will not disclose their true dire financial state. If you read Professor Weisse he shows how the US banks have managed to post recent 'questionable positive financial' results. The US has unfunded liabilities for Medicare and Social Security of over $60trillion. Payouts on SS have just started and will now rise rapidly. The US age profile is only about five years younger than Europes'. The US has only in the last year reached a savings rate of about 5%, prior to that it was negative for the first time since the Great Depression. In many countries in Europe there is a high savings rate which makes funding govt debt easier. The US has massive Budget and Current account deficits unlike some countries in Europe. You ignore financial institutions like Fannie Mae, Freddie Mac and GE financial arm as they do not fit in with your arguements, eventhough these have massive debts and liabilities. You ignore the fact that the US needs to borrow about $5billion every day just to fund its debts.

This is NOT an anti US rant, it is just a wish that you could be more unbiased in your writing. I actually agree that the US is more likely to come out of this depression sooner than Europe. However, I also think that it will be a deeply changed and poorer country as well.
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Value of the dollar

houtiger Founding Member

saltyone So Mote It Be

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