naked capitalism

k says:

Brad Setser has a somewhat relevant post on his blog, and I put up a “politically incorrect” statement there, hopefully it won’t be deleted.

Brad Setser, “Where is my swap line? And will the diffusion of financial power Balkanize the global response to a broadening crisis?”

http://blogs.cfr.org/setser/2008/10/18/where-is-my-swap-line-and-will-the-diffusion-of-financial-power-balkanize-the-global-response-to-the-broadening-crises/

a says:

So this seems to be the situation: an ever widening list of countries who are guaranteeing their deposits, forced to do so because others have and their banking systems would be at risk if they didn’t. This will appease the mind of the public, until the next leg down, which (presumably?) will be country default.

Richard Kline says:

I found Setser’s post very interesting, and tried to comment over his way, but his comment box ate my verbiage (as it seems to half the time). His post may be the very first discussion of the inputs to what how ‘Bretton Woods III’ will be. China would be well advised to use some of its dollar surplus to set up swap lines with Korea; that would take geopolitical vision, though, and the Chinese have been very cautious, perhaps wisely, perhaps not. If they do use their surplus it would have to be case by case though. Zardari just got turned down flat, and understandably: no one in their right mind would put cold hard cash anywhere near him and his lot. Russia is too big for China to make whole through currency flows, and owes more in euros anyway. China might be able to work dollar funding for individual firms or industries in Russia though, and interesting situation.

It seems to me that the US and the EU are looking to come up with linked float of their currencies backed by mutual swaps, and then to use that ‘cartlidge’ to set terms for ‘Bretton Woods III’ based on who has access to dollars to unwind dollar-denominated debt without blowing up. Dubya and Sarko just butted heads at Camp David regarding who was going to be the boss of that operation. I’ll bet Sarko now knows what the rest of us know: Dubya is stone useless, and nothing will move forward until term limits pry the First Dweeb from office.

That leaves Russia, China, and the Oelo-gopolies out of the inner ring. They would be nuts, to me, to turn to the IMF; far better to come to mutual terms amongst themselves if they can as an emergent bloc, but that would take radical thinking. Probably take a year or two to get something like that rolling it it takes off at all. We’ll see.

k says:

Matt,

What I read on some Chinese internet forum is that China will guarantee the solvency of major Pakistani commercial banks, thus prevent a system-wide meltdown in Pakistan. Possible means includes equity injection through large state-owned banks. And no, they won’t hand cash directly to “Mr. Ten Percent” or anyone close to him. Don’t know if the information is accurate or up-to-date, but here it is.

And frankly, I find it hard to believe the article in NYT. The whole page is full of quotes from “Western officials.” Sounds fishy to me.

anon-b says:

Matt,

The link will be directed to a post in Chinese, you read Chinese?

http://www.wforum.com/newspool/articles/headline/127010.html

Matt Dubuque says:

Thanks anon-b-

I don’t, but I have a good friend who can translate it.

Matt