Category Archives: Currencies

"Currency crisis is gathering storm"

Ed Harrison sent us a link to his latest post, and it’s a doozy. Most of us in the US who are financially-minded have been sufficiently caught up with the three ring circus of market turmoil, seemingly-a-new-trick-every-day Fed and Treasury interventions, and continuing financial firm implosions that we haven’t looked up much to see what […]

Managing Down "Bretton Woods" Expectations

Hyperbole has become a mainstay of discourse in the US. The upcoming financial summit set for November 15 in Washington DC is being wrapped in the Bretton Woods brand, when it appears to be a different sort of beast. As a Wall Street Journal story reminds us, Bretton Woods was a three week session among […]

China Launches Salvo Against Dollar Hegemony (Updated)

We have seen reports on various China-focused blogs and even in the US media that China is increasingly chafing over the US dominance in financial affairs, and is particularly unhappy about the role of the dollar. Consider this quote from an August New York Times article: Victor Shih, a specialist in Chinese central banking at […]

Is Another Emerging Markets Crisis in Motion?

We mentioned earlier, focusing on a comment made in Brad Setser’s post “Where is My Swap Line?” that emerging economies had not internalized the lessons of the 1997 Asian crisis as much as was widely believed. Their central banks if anything overreacted, keeping their currencies cheap against the dollar and amassing large foreign currency reserves […]

Bretton Woods 2, R.I.P.

A wide range of commentators, including your humble blogger, have worried about the clearly untenable system known as global imbalances, or more formally, Bretton Woods 2. That was the tacit arrangement under which the US ran significant current account deficits which were financed by large purchases of Treasuries and more recently, Agency securities by foreign […]

Currency Bets Gone Bad Hit Companies in Developing Economies

Even though the dollar seems destined for a considerable fall (depreciating the currency is part of the “reflate” remedy that Bernanke is putting into action), it is all too easy to forget John Maynard Kenyes’ dictum, “The market can stay irrational longer than you can stay solvent.” But in this case, the lesson may be […]

Emerging Markets Banks Hoist on Foreign Borrowing Petard

A colorful and informative article by John Dizard in the Financial Times on how emerging markets may not have dodged foreign currency exposure risk despite their central banks having very large foreign exchange reserves. It turns out their banks and major companies weren’t so prudent. Dizard raises a second issue here, one that was discussed […]

South Korea Guarantees $100 Billion in Bank Debt

South Korea announced a series of drastic measures intended to halt a run on its currency. From Bloomberg: South Korea will guarantee as much as $100 billion in bank debts and supply lenders with dollars to stabilize the financial markets. The government will also provide tax benefits for long-term equity and bond investors, while the […]

Renminbi to Fall Next Year?

One of the trades that looked like a no-brainer was betting on continued appreciation of the Chinese renminbi. In fact, so strong was the confidence in this outlook that China suffered from large-scale hot currency inflows (as recounted ably by Brad Setser) despite the official obstacles. A top investment bank in China is now forecasting […]

"Fed Leads Unprecedented Push by Central Banks to Flood Market With Dollars"

The reader/investor who sent the link to this Bloomberg story provided the comments below. Not he does not resort to capital letters casually: THIS IS HARD TO BELIEVE. THOSE CB’S DON’T HAVE UNLIMITED $’S, SO IF TRUE, THEY WILL BE BORROWING THEM FROM THE FED VIA AN EXTENSION OF FED SWAP LINES, THE FOMC HAS […]

Initial Vote of Confidence in EU Announcement: Euro Rallies

Although it is way too early to be certain, the foreign exchange markets appear to be responding positively to the plans to shore up the banking system announced by EU leaders earlier today. Since many European banks funded some of their balance sheets in dollars, a fall in the dollar would also offer some direct […]

A Glimpse Into the Abyss

I must confess a certain fondness for the apocalyptic sort of financial writer, provided they don’t lose anchoring with reality and fall into the tinfoil hat category. Nouriel Roubini is the case example of an economist who favors a baroque, melodramatic style, and despite sounding more than a tad unhinged at points, he has proven […]

Hypo Bank Rescue Fails, Threatening Lehman Scale Bankruptcy, Future of Euro

Hypo Real Estate, Germany’s second largest real estate lender, teeters on the verge of collapse. The bank has a €400 billion balance sheet, which would make for a failure of a similar scale to Lehman’s (Hypo’s footings are roughly $550 billion, while Lehman’s were $660 billion as of its last balance sheet date). Even though […]

"Asia Needs Deal to Prevent Panic Selling of U.S. Debt"

It has been conventional wisdom that China, Japan, and other countries that run trade surpluses with the US, which means they fund our overconsumption by buying assets like US Treauries, would never restrict the flow of credit to us because it would lower their exports and hurt their growth. We’ve long been leery of the […]

Quelle Surprise! Traders Say Dollar May Be "Crushed" By Bailout Plan

Our mantra of late has been that the serial bailout plans from the Treasury and Fed will undermine the US’s AAA rating and exact a considerable toll on the dollar. Indeed, Liam Halligan tells us in the Telegraph today that “Default by the US government is no longer unthinkable.” Bloomberg reports that this view is […]