Posts Tagged ‘russia’

January 25th, 2011

1 Comment

2011…..695 days to go.

Greetings earthlings……i was wondering how to kick off 2011 but was a bit stumped. I mean what’s new? Same old, same old. So i had a look back at my first post of 2010 and figured I’d say the same thing again but maybe add some colour this time. So here was my conclusion a year ago:

When I look back over the last decade and forward to the next, it seems as if the same themes will recur:

- Financialisation of Economies: Can we remove the yoke of derivative financial instruments from the real economy?

- Technology: Will social media enable the development of a networked based economy?

- Global Politics: Can we move to a multi-polar world without the necessity of the United Nations as a de facto world government?

- Climate change: How do we manage the change in our climate and the resulting shifts in population and its attendant baggage?”

So we saw the Fed continue to print new money and hand it to the banks so they could pay out decent bonuses again. All that new cash managed to pump up the stock markets to new highs and generate hot money flows into commodities and emerging markets thus creating quite nicely the set up for new bubbles. What could the Fed have done? Just directly credited the bank accounts of every citizen thus boosting bank deposits and giving people money to actually spend into the economy or pay down debt.

Oh well, maybe next time.

2010 has seen China flex its international muscles and appear more focused on international relations. And of course Vladimir Putin has been flexing his too but that’s more for Russian domestic consumption. But clearly there’s been an acknowledged shift in influence with the BRIC countries all putting their hands up. Europe has been a huge mess with Auntie Angela having to clear up after the  big party. 2011 will see more shifts as power moves from the USA and spreads all over the globe. I guess it doesn’t help when you national debt is $14trln and rising (great site by the way). How this all plays out will be very interesting but I imagine we will see another crisis within the US insurance market and more derivative catastrophes. There will be huge write offs and if someone owes you a lot of money you may be collecting thin air…..that’s the problem with land…you can’t take it away.

And 2010 was officially rather hot. Well tied with 2005 and 1998. Weather was quite unpleasant all around and the severe flooding in Pakistan, China and now Australia and Brazil. Don’t mention the big freeze in the US and Europe. There’s no answer to this really. Either we bite the bullet now and take action or we’ll just have to adapt and buy a Sealegs amphibious boat (dec: I am a shareholder in Sealegs).

So I think really it’s more of the same for 2011. It’s going to be a year of adjustment before the big one in 2012. We have an election here in NZ in November which might be interesting if we can get financial reform into the debate. Maybe all the politicians should have to watch this film and then discuss (more on this in my next post). Buckle up!

July 24th, 2009

Leave a comment

Chimerica: $ Dis-Ease rumbles on

To the joy of conspiracy theorists everywhere, the new “United Future World Currency” coin was presented at the recent G8 summit in Italy. So far though its just a piece of alloy metal but hey value is in the eye of the holder.

As usual it was the Russian President, Dimitry Medvedev, giving the $ a good roasting and moving the debate forward to the minting process. But really how far advanced is this process and how serious are they? More to the point what would a global currency unit look like?

To answer the first question is simple: I have no idea. At the political level it is mere grandstanding usually for the domestic audience. Sometimes it’s easy to forget that most politicians have little understanding of how the global financial system works (no different from anyone else!) but back in the offices of Treasuries and Central Banks it may be a different story.Though I was struck by the recent bizarre questioning of Bernanke over the issue of $ currency swaps with central banks. It’s a classic.

I do think though that the Eurasian block are serious about making this move. Each step is a step closer to creating a multipolar currency whether its based on the Special Drawing Rights (SDRs), a Commodity Backed Currency (CBC) or an Energy Backed Currency (EBCU). Even the Amero could be a consideration.

But the key outcome will be whether we move from a Fiat based system to a hard currency system. That would make a major change in the structure to the global system perhaps taking us back to Keynes’s suggestion, the Bancor. If we stay with a Fiat system then we simply exchange one piece of paper for another.A hard backed system would certainly restore some much needed reality to the meaning and value.

What’s clear is that the US has become a fiscal disaster and holders of paper issued by the US have said enough is enough: your paper is not “as good as gold“.

July 6th, 2009

Leave a comment

$ Watch: BRICs get down to business in Yekaterinburg

Yekaterinburg could well be a name to remember much like Maastricht, Yalta, Bretton Woods and other places that carry major political history on the back of their relative obscurity. A few weeks ago the big 4 players, Brazil, Russia, China and India, met to in Yekaterinburg to discuss the vexed issue of the $, US assets and US global financial dominance.

As I’ve discussed before there is a major shift underway in the way the global market is structured. Not just in terms of currencies but also trade and influence. The BRICs have a powerful case to make: 40% of global currency reserves and almost half the world’s population (though Russia’s population is declining, a somewhat serious issue).

There is a strong feeling that the US has acted recklessly overt he last 30 years in flooding the world with $ and creating huge imbalances which have caused such chaos in global markets. So whilst there is always plenty of posturing and grandstanding, especially from the Russians, there is a real case for the US to answer:

- Global trade imbalances.

- Cowboy capitalism.

- Turbo boosted monetary expansion.

- Instability in global financial markets.

It’s also interesting that the meeting of the SCO (Shanghai Cooperation Organization) was held at the same tim and the US was not invited even though it wanted to attend. There is a strong argument that there is no real alternative to the $ but that doesn’t excuse the facts. One dominant currency has not helped create a stable system. It has simply allowed to issuer to experience huge profits from seigniorage and wield extraordinary political and economic power.

And can we really take the rating agencies seriously? They are all US based organisations. Ultimately whether the $ loses influence or not depends on the alternatives. I still believe a commodity backed currency is a likely development, given the nations involved.

At the same time the development of local currencies will help create a more stable and complex system. For now though expect more talk about a $ alternative and expect it to be driven by the BRIC crew starting with the upcoming G8 summit in Italy.

June 3rd, 2009

Leave a comment

$ out of favour as reality sinks in

It’s been nearly 9 months since the $ started to show signs of meltdown fever. Except the meltdown was the rush to buy $ as a hedge against collapsing markets and disappearing credit lines.

In the last few months we have seen markets bottom and even recover some poise, aided and abetted by the action of nearly last resort, quantitative easing. There was nothing left in the toolbox really.

So far so good in some respects. The S+P has rallied 37% off its lows…….mind you its lows were 57% down from the highs and the index still stands 42% off the highs of the last few years. Not that the numbers really matter. The main news is that markets are functioning…still.

And the $ balloon has finally burst with QE signaling a chance to sell the $ without worrying what the equity markets were doing. The Kiwi$ has rallied 32% from its March low even outpacing the hammered Pound, up 21% from its low of $1.35.

Markets can do very strange things. Even whilst the $ was rallying to extreme highs against all currencies, no one really wanted to own it. Now people really really don’t want to own it.

This is all very well but this type of volatility is impossible to manage. How can any investment manager talk about average returns of 10% a year when markets are moving at this rate. How can any business hedge currency risk when currencies are moving like this.

The bigger problem for the US is trying to stop the snowball effect that may happen if markets really decide to dump the $. The noises coming from China may be regarded as monetary brinksmanship but with Russia, looking very wolflike these days, nibbling in behind, it’s becoming a more serious issue.

There’s a lot of politics involved in this but the positioning is clear: the US is weak not just economically but militarily. The exhausting foray into Iraq has stretched the US war machine as well as seriously impacting on its reputation. Historically the ability to create coin or currency was usually backed up by military power. One of the first actions by invading nations was to replace the local currency with its own.

This makes currency both a political and economic issue. So whilst there is unlikely to be any immediate change in the $ role as global reserve currency, there is no doubt that the dance of change is underway.

The short term problem for China is its huge ownership of US bonds and other paper. So they wouldn’t be happy with a complete collapse right now but it seems like less money will be staying in $ and more will be finding a new home whilst they work out how a new global currency system might operate.

But with GM falling apart and US unemployment rising to severe levels, concerns over the health of the $ will only continue to mount.

About

"I’m a Londoner who moved to Christchurch, New Zealand in 2002. After studying economics and finance at Manchester University and a couple of years of backpacking, I ended up working in the financial markets in London. I traded the global financial markets on behalf of investment banks for 11 years. Since moving to NZ, I have been an angel investor, budget advisor, director, trustee, mentor and business consultant. I'm currently a Councillor at Christchurch City Council and a Trustee of the Volunteer Army Foundation and the Christchurch Arts Festival Trust. I write about the intersection of economic, social and environmental issues."

Follow me on

 

Twitter

Blog archives