We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
Filling in the zero's after no comments for six and a half hours on this thread.
I'm glad I was all over Europe in the 1970's.
I'm equally glad I'll be living full time in Montana in 2 years and 8 months.
Sippy worried about education.
Some dame on Driscoll lamenting Europe's demise.
Folks, the party is over here as well ... we're just marking time.
Here's a scenario I recently ran across that has a high probability of reaching fruition.
Lower Interest Rates, Then Recession
Ben Bernanke and the Fed Board of Governors are stuck. If they lower rates then they will crack the critical support level for the US Dollar Index, which appears sacred at about 80. And if they raise rates, then it will put Wall Street into a tail spin and possibly plunge the economy into depression. In the short term, the Fed will likely yield to political pressure and continue to lower interest rates. But this will be to the detriment of foreign investment, and inevitably to the value of the US Dollar on the FOREX. So I doubt that the Fed will drop the prime interest rate more than 80 basis points (0.8%), including the recent 50 basis point (0.5%) drop. Any further drop could precipitate a full scale dollar panic--a global flight from the US Dollar. After moving within this narrow range of motion, Bernanke, et al will be truly struck--inextricably stuck. Starving for liquidity, the economy will plunge into a deep recession. This recession could last 2 to 5 years. The stock market will decline at least 20% and corporate layoffs will be be even larger than in recent recessions. Hmmm...
China has us by the short hairs. An Oxford Assessment .
ESTIMATING THE CURRENCY COMPOSITION OF CHINA’S
BRAD SETSER1 | MAY 2007
The precise composition of China’s reserve portfolio is a state secret. Market estimates
of the dollar share of China’s portfolio vary widely. UBS (Mohi-Uddin), Deutsche Bank
(Nystedt and Chadha) and Morgan Stanley (Jen) have all estimated that China holds
around 60% of its reserves in dollars. Others – including Richard McGregor of the
Financial Times and Stephen Green of Standard Chartered– have suggested that China
holds around 75% of its reserves in dollars.
This note will argue, based on the data in the US survey of foreign portfolio investment
in the US, that:
• China likely increased the dollar share of its reserves from around 65% to around
80% between early 2000 and mid-2003. The low initial dollar share and
subsequent rise is consistent with the anecdotal evidence. A Chinese reserve
manager supposedly made a large bet on the euro in 1999 – a bet that was
• China likely reversed course between June 2003 and June 2004, reducing the
dollar share of its portfolio from above 80% to 70-75%. The fall in China’s
dollar share during this period is consistent with the actions of other emerging
economies at this time. The IMF’s COFER data indicates that those emerging
economies who report data to the IMF reduced the dollar’s share of their rising
reserve portfolio in late 2003 and early 2004.
• China seems to have maintained a 70-75% dollar share of its very rapidly growing
reserves between June 2004 and June 2006. China may have raised the dollar’s
share of its reserves ever so slightly from mid 2004 to mid 2005 and then reduced
the dollar’s share of its reserves from mid 2005 to mid 2006, but any changes
during this period were very small – the overarching story is that China
maintained a relatively high and fairly constant dollar share.
• The resulting Chinese purchases of US debt were quite large. From mid-2004 to
mid-2005 (a period marked by substantial net capital inflows to China in
anticipation of China’s revaluation), China bought about $165b of long-term US
debt and increased its short-term holdings by around $22b. From mid-2005 to
mid-2006 (a period marked by a fall off in net capital inflows but a rise in China’s
current account surplus), China bought $193b of long-term US debt while
reducing its short-term debt holdings by about $23b. China bought a bit less
than $90b of Treasuries in both periods. Agencies accounted for most of the
1 RGE Monitor/Global Economic Governance Programme, University College, Oxford.
If they ever decide to drop the US dollar as their reserve currency...dig a deep hole and jump in.