Broad Oak: your emotional support animal

Thursday, August 28, 2008

The New World Order

I said earlier this week that rich and powerful foreign investors will call the tune now, and London Banker relays a threat from the Chinese re Fannie and Freddie. Unlike the domestic citizen and taxpayer, these people absolutely will not be stiffed.

Which is why we will get high interest rates, to prevent robbery-by-inflation. Which is why cash may remain on its throne for quite a while yet.

The question remains, which currency? One says the yen, another coughs and says "Euro." Wish I knew.

9 comments:

CityUnslicker said...

if the dollar rises my gold position is screwed, so I hope you are wrong...

SACKERSON said...

I would think the Chinese and other creditors are more concerned that the dollar should not fall too much, at least in relation to their own currencies, and that US Treasuries (and investments in Fannie and Freddie) will pay sufficient interest to compensate for holding them.

NMMM.NU said...

the Yen can not absorb the demand, so will be no Yen. I believe the EUR can absorb the demand but people who knows more than me say - it can absorb eighter.

>>> CityUnslicker
>>> if the dollar rises my gold position is screwed

at least gold is real thing.

John East said...

Bernanke wouldn't allow Fannie and Freddie to fail anyway, at least as far as the bond and preferred holders are concerned, so I don't think there was ever any prospect of the Chinese being stiffed. In any restructuring, holders of the common shares will of course be wiped out, but that doesn't matter because its only people like you and me and our pension funds who will be affected.

I don't see this situation necessitating rate hikes either. As long as the dollar collapses in an orderly way (which I expect to resume after the elections, not before) I think the US and China will accept the situation, but as a desperate gold bug, I would think this wouldn't I.

NMMM.NU said...

Chinese want cheap dollar because of exports.

Saudies dont care. Schiff say they inflate massively but I believe he is not right, because their oil profit is in USD, so - inflation raise, profit raise - things are quite stable measured in Oil.

SACKERSON said...

John, Nikolay, thank you. N, don't the Chinese want to keep the RMB low to protect their exports to the US?

John, "Naked Capitalism" (htp: Alice) has discussed the degree of the implied drop in the dollar, depending on the flexibility of US labour etc:

"Looking at the implied change in GDP (first column) and considering the flexible case, we see that the change in the relative sizes of the different economies under the flexible case is quite modest. The US as a share of the world economy falls by just 4.5% while Japan's rises by 3.3%. The inflexible case, however, requires a much more radical realignment in the relative size of the major economies. The US declines by nearly 30% relative to the world while Japan grows by over 26%. (Combining the numbers, the adjustment would require over a 50% devaluation of the US dollar in terms of the Japanese yen)."

(http://www.nakedcapitalism.com/2008/08/what-global-rebalancing-aka-end-of.html)

What that implies for the pound, I don't know. But I can't think the Chinese would let the US pull a Harold Wilson without getting something back in return.

John East said...

Perhaps, as a little something in return, they'll settle for Taiwan?

Richard Havers said...

It's a Masonic plot.....

SACKERSON said...

John: Louisiana?

Hi, Richard! Are the Masons anything more than a drinking club these days?