Category Archives: Currencies

"Carry trade threatens a deflationary global collapse"

Warning: this post is only for those with sound constitutions. Tim Lee, head of a financial economics consultancy, tells us in a Financial Times article what a carry trade unwind will look like (answer: very nasty) and what it would take to prevent it (the Japanese have to allow a high enough level of inflation […]

"Perils of Inflation Targeting"

We’ve been skeptical of inflation targeting, no doubt as a result of seeing Paul Volcker use monetary targets very effectively. Witness the proof of the pudding, namely, asset bubbles, deteriorating credit quality, and increasing inflation (at least in overall CPI, although core CPI is better behaved). But serious economists have only started looking into this […]

"BIS warns of Great Depression dangers from credit spree"

Ooh, when it rains, it pours. First Bear, now this. However, readers of this blog will know we have been posting for some time on rampant liquidity, inadequate risk premia, lax lending, and overvalued assets every where you look. We thank Michael Panzner of Financial Armageddon for pointing out this story from the UK’s Telegraph. […]

Marc Faber on Liquidity, Leverage, and Bubbles

Marc Faber, who likes a colorful turn of phrase, has a sobering piece in the Financial Times, “Market insight: Beware the driving forces behind surging asset prices.” He looks at the symptom of pervasive asset bubbles (at least until US housing started unravelling) and traces it back to rapid money supply growth, which produced the […]

Martin Wolf on the Brave New World of Finance

Martin Wolf has an excellent story today in the Financial Times, “Unfettered finance is fast reshaping the global economy,” in which he describes the change from “managerial capitalism” to “global financial capitalism.” Wolf takes pains to avoid taking sides on whether this development is a good thing or a bad thing, but one senses that […]

The Financial Times Warns the US Against Getting Tough with the Chinese

This is one of those days when there is quite a lot of good material, so forgive me for being brief. The Financial Times, on its editorial page, issued a warning to the US about getting chippy with the Chinese about the value of its currency. It did not stress some of the reasons argued […]

Tokyo Retail Investors Out Carry-Trading the Pros

A Bloomberg story tells us that Japanese retail investors are undermining the forecasts (and worse, trades) of large investment banks. The banks think the yen is seriously undervalued. Unfortunately, when it appreciates, retail investors buy more assets in countries that offer more yield, which leads them to sell yen, keeping the currency in its place. […]

"The Asian Crisis After Ten Years"

Below is an excellent post by Barry Eichengreen, Professor of Economics and Political Science at UC Berkeley, at the new blog VoxEU. The post posits that the biggest risk to Asia is an asset crash, and looks at America’s experience during its industrializing phase to see what lessons might be learned. He determines that whether […]

Be Careful What You Ask For: Yuan Edition

The US has spent considerable time and energy hectoring the Chinese about the artificially low value of its currency (although there is considerable disagreement among experts as to how undervalued it really is). The notion that the currency is the chief culprit has become so fixed in the public imagination that Congress is determined to […]

The Beginning of the End?

For quite some time, we have written about indifference to risk, unjustifiable asset prices in many markets, and high levels of liquidity all as different aspects of what John Authers called “overvalued credit” meaning overly bullish (more accurately speculative) conditions in debt markets which fuelled overheated conditions in asset classes that could be financed (and […]

Indian Outsourcer Beefing Up in Mexico for Cost Reasons

Bloomberg tells us, “India’s Tata Consultancy Plans to Hire 5,000 Workers in Mexico.” The rise of the rupee is making India less attractive for outsourcing. This development begs a couple of questions. First, will US companies have to go through disruption and risk as they chase cheaper labor to various countries as currency relationships change? […]

Rates Are Rising….

We are late to this excellent post by Barry Ritholtz (which also reminds us of the consistency of Business Week covers as a counterindicator; this example is from February 2007). And I’ve wanted to say something about rates creeping up, but I got beaten to the punch (although we have made the currency-realted observations, #5 […]

Foreigners Buying the US: Should We Worry?

Mark Thoma quotes a Washington Post op-ed piece by Daniel Gross that gets worried about the current and prospective level of foreign ownership of US businesses: …In countries that are resource-rich or export powerhouses, governments and government-controlled entities have amassed huge pools of capital. A report issued last month by Morgan Stanley economist Stephen Jen […]

Jim Grant on the Not-So-Rosy Future of the Dollar Hegemony

For those who don’t know about him, Jim Grant of Grant’s Interest Rate Observer has been a long standing and highly regarded advocate of probity, common sense, and historical memory. Of course, that means he is completely out of fashion. But Grant has a loyal following and even those who differ with his skeptical outlook […]