Posts Tagged ‘Central Banks’

China’s Fix Could Break Things

Monday, August 17th, 2015

Imagine if free markets were allowed to be free.

Of course, in today’s world, they’re not.  Central bankers and government agencies have taken control.  Not knowing what to do with it hasn’t stopped them. 

China is the latest case in point.  We recently suggested that investors worry about China, not about Greece, although for a tiny country Greece gives everyone plenty to worry about.  But China should be the center of everyone’s attention, given its attempt to fix its falling stock market and boost imports by devaluing the yuan.China

While it’s impossible to guess the intentions of China’s rulers – and they’re not about to share them – the 1.9% devaluation announced last week smacks of desperation.  China’s stock market has been swooning this summer and its exports are down by 8.3% (much larger than the expected 1.5% decrease), which is not good for future growth.

In addition, The Wall Street Journal noted, “Pockets of manufacturing have been especially hard hit, as reflected in sluggish electricity use and falling rail cargo. Especially scary is the prospect of deflation; producer prices were down 5.4% from a year ago.”

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Bet You Can’t Count to a Quadrillion

Monday, May 18th, 2015

When someone uses “quadrillion” in a headline, you know you’re in for a bit of an alarmist rant. We’re talking 1,000,000,000,000,000, which, stated another way, is a thousand million million.  Or a million billion.  Or a thousand trillion.

Stated in dollars, that’s more than the debt racked up by the federal government since President Obama took office.  Way more.  It’s even way more than the Federal Reserve Board spent buying bonds when it was in QE mode. Chart 1

So when Bill Holter of Global Research wrote an article with the headline, “Derivatives are a $1 Quadrillion ‘Ticking Time Bomb,’ ” it caught our attention.

So did the series of charts he included, which showed movements in the government bond market that were double-black-diamond steep, even without moguls.

We’re talking government bonds here, not junk bonds, not commodities, not emerging market stocks.  Government bonds are Nebraska – flat and predictable.  During volatile times, they’re the bunny slope, not a double-black diamond.

So what’s up with the volatility?

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It’s Only Money

Friday, September 26th, 2014

“Money often costs too much.”                                                                               Ralph Waldo Emerson

It really does all come down to money.

Money decides the outcome of wars and elections.  It ensures that we are properly fed and clothed.  It buys us an education and pays for all of our material needs.  And it may not be able to buy happiness, but it does have a dramatic impact on that vague thing that’s often referred to as “quality of life.”

All of us, if we’re being honest, would rather have more of it than less of it.

But the value of money is variable.  The currency of one country continuously fluctuates in value relative to the currency of every other country – and those fluctuations can have a dramatic economic impact.

A Stronger Dollar

You’d think countries would be striving to make their currencies stronger, but in recent years, we’ve had “currency wars” as competing countries have tried to weaken their currencies to increase demand for their imported goods.

DollarThe United States has criticized China for its currency manipulation, but in the meantime, the Federal Reserve Board’s easy money policies have deliberately weakened the dollar.

Now, though, as other countries’ currencies have become weaker, the dollar has strengthened.  In fact, the dollar reached a four-year high this week against a basket of major currencies, as The Wall Street Journal reported, “amid mounting expectations the Federal Reserve will raise interest rates next year while its counterparts in Europe and Japan consider further measures to raise inflation and spur growth.”

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Sprinkling the Fairy Dust of Illusory Riches

Thursday, July 3rd, 2014

When the Bank for International Settlements (BIS) calls central bank market rigging “the fairy dust of illusory riches,” it’s time to pay attention.

The BIS is the central banks’ central bank.  Its role is “to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.”

To provide the statement with some context, and to alert you about what else you can expect from central banks moving forward, we provide a summary of other key points made in this year’s BIS annual report, which is appropriately titled, “In Search of a New Compass.”Compass

First, there’s recognition that easy money policy has gone far enough.  That’s self-evident, but of special interest when you consider the source.  BIS notes that despite a pickup in economic growth, the world economy “has not shaken off its dependence on monetary stimulus.  Monetary policy is still struggling to normalize after so many years of extraordinary accommodation.”

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