Posted on 01/24/2005 9:39:05 AM PST by JFK_Lib
Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit.
In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US.
The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $1,700bn, took part and the results showed a marked change in attitude over the past two years.
Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the US has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650bn in 2004.
At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003.
(Excerpt) Read more at news.ft.com ...
Next is for the dumpage of US$ to accelerate.
The only question remaining is, 'Will there be a panic sell off?'
Lets cross our fingers and pray that there is not.
Wag the dog?
I think the underlying problem is that so few investers and brokers really understand the basics of capitalism.
They think if they can turn a profit from reselling a stock then things are working fine enough.
And they do not consider nor are concerned with underlying rot in our monetary system and the huge debt that will lower our credit value.
These people think that there cannot be a run on the US$ because it has not happened in their life times.
Our nations economy is, at the micro-level, in the hands of morons.
Why then is the 10 year bond trading at 4.14%?
It would be interesting to think about how a revalued yuan would play out in China and elsewhere. In some ways it's almost the mirror image of the overvalued SE Asian currencies in 1997.
Here's comes stagflation again.
As long as the Chinese keep buying our securities to back up the Yuan, we're in good shape. Or, our politicians and fellow citizens can simply demand less spending.
"Why then is the 10 year bond trading at 4.14%?"
Fears of slower growth overtaking the fears written about in the article.
The title of the article is very misleading. it is big difference of giving the impression that central banks are going crazy after the Euro (which will stop to exist in 15 years) and dumping the US dollar the currency of the most powerful economy in the world.
NB: EU GDP of 2004 decline from an anemic 1.8% to more anemic 1.6%. On the other hand the US GDP grew by an average of 4%.
Borrowing money play a big portion in helping us to buy stuff and hence keep the economy running.
Stagnent money is what kill the economies. Look at the EU and you know what I am talking about.
Hate to tell ya, but it was bound to happen. Going off the gold standard was just the beginning. It just took longer than expected. The banks will grow flusher with all the coming foreclosures? Just wait until China and Japan pull the rug out from under us!
I am not an economist, obviously, but just because we are seeing a slow gradual change in central bank policies, it seems to me anyway, should not cause us to expect immediate effects in the market.
There are integral forces and derivitive forces in any dynamic system. And the latter trails the former by a large margin.
When you turn the electrical power off to a pot of boiling water, the boiling does not immediately stop, but continues to get hotter as the residual heat from the electrical coil continues to heat the pot and the water in it.
The power to the coil is an integral force while the temperature of the pot is derivitive from that.
Thus the pot continues to heat the water inside even if the electrical power is no longer providing more ehat to the coils.
That is why those expert investers that look for integral trends continue to accumulate financial resources even as others around them lose theirs. The Buffets of the world know how to stay ahead of the herd and make their money off the herd's predictable movements.
While we wage a War on Terror, an economic war is being waged upon us. EU, China, Russia, Oil States are willing allies in the fight against us.
Very confusing analogy, I do not know how this relates to the subject in a clear way.
Many people do not understand the huge power we have by importing other countries product and consume it. If we stop importing their products they will go into starvation.
The power of the consumer is the most important factor to have a strong economy, and the consumer is always right.
The amount of credit the US government creates by selling bonds is an integral force, as are our trade deficit and the amount of total debt in our economy (gov and private).
If we oversupply US$ to drive government spending, then we will see the US$ go down in value.
In moderation this can be a good thing as it makes our exports more sellable and is part of a sort of self-correcting system of trade deficits causing devaluation which kicks up exports.
But it can also cause a panic if the deficits continue over a long time. If a panic is created, then the dollar collapses in value as people sell it for anything they can get and salvage some of their wealth that is held in US$.
The demand on the US$ is like the temperature of the pot in that it is delayed over time, following the rise and fall of US$ supplies.
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