Article

2005-01-24 Home Front: Economy

Central banks shift reserves away from US

Archived material is restricted to Rantburg regulars and members. If you need access email fred.pruitt=at=gmail.com with your nick to be added to the members list. There is no charge to join Rantburg as a member.

Posted by anonymous2u 2005-01-24 2:11:59 PM|| || Front Page|| [3 views since 2007-05-07] Top

#1 Article: Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administrationâs difficulties in financing its ballooning current account deficit.

I don't think these guys understand. A current account deficit comes from imports that are priced too low in dollar terms - meaning US demand is high for foreign goods, and exports that are priced too high in foreign currency terms, meaning foreign demand is low for US goods. When the dollar weakens, that helps to resolve current account deficits by lowering American demand for the now-more-expensive foreign goods and raising foreign demand for the now-cheaper US goods.

Posted by Zhang Fei 2005-01-24 2:41:17 PM|| [http://timurileng.blogspot.com] 2005-01-24 2:41:17 PM|| Front Page Top

#2 The issue is the long-term debt we've taken on and whether there is sufficient savings or other capital within the US to finance it, if the foreign banks don't.

Shorter term, this is an income issue for the central banks: More than 90 per cent of central bank reserve managers said that the income from reserve management was "important" or "very important".

In the two years since a similar survey was conducted, reserve managers had begun to seek higher returns for the money under management.

For these managers, dollar assets have become less attractive because the fall in the dollar since 2002 has reduced the yield they received and, in some cases, has led to negative real returns. With their economies in trouble, for the most part, they can't afford to lose income from their reserves.

Posted by true nuff 2005-01-24 2:53:34 PM|| 2005-01-24 2:53:34 PM|| Front Page Top

#3 They do indeed understand, but I agree that this is a bullshit issue so long as the japanese and the chinese and koreans do not shift massive funds out of Treasuries, which is unlikely. The issue is that the bond markets have been mispricing euro-denominated debt for years, on the low side.

The majority thought eurozone money and debt markets were as attractive a destination for investment as the US.

"Attractive" depends of course on the price. Is eBay attractive at 100x earnings? Of course not? At 40x earnings? Maybe. It depends on the price, and the bond markets have been systematically overvaluing US debt and undervaluing eurodebt for years. This will not last forever, and presents a nice arbitrage opportunity that smart fund managers like Bill Gross of PIMCO picked up on two years ago. This is a matter of bond arbitrage, not a US-vs-Europe fundamanetal competitiveness issue.

BFD.

Posted by lex 2005-01-24 3:05:59 PM|| 2005-01-24 3:05:59 PM|| Front Page Top

#4 lex: They do indeed understand, but I agree that this is a bullshit issue so long as the japanese and the chinese and koreans do not shift massive funds out of Treasuries, which is unlikely.

Even if they do, I don't see a long-term dislocation, although leveraged players will get creamed. During the Long Term Capital imbroglio, Russian debt went through the floor. It has recovered considerably since - yields on benchmark Russian sovereign (government) dollar bonds due 2030 plunged to about 8.1 in July 2004 from 17.4 percent in March 2001. We're not Russia. I don't see US long bond yields going to 7%, let alone 8%.

There's an asset base of 34 trillion dollars available to finance the federal budget deficit. If yields become more attractive (i.e. rise), domestic (and foreign) investors will jump in. There's no shortage of capital - it's just that an overabundance of it has led yields to plunge.

Will a rise in yields trigger Armageddon? I doubt it - Volcker pushed yields to double-digit levels without triggering it.

Posted by Zhang Fei 2005-01-24 3:18:28 PM|| [http://timurileng.blogspot.com] 2005-01-24 3:18:28 PM|| Front Page Top

#5 The dollar was also undermined by a report from Central Banking Publications, which showed that of 65 central banks surveyed, 39 increased exposure to the euro in their forex reserves between September and December, while 29 cut their exposure to dollars.

Breaking news.... a little bit of surfing across the FT's various reports on this survey of central bank managers indicates that it's bullshit. Under the rubric of "lex" (not me), another FT article notes halfway through that:

More importantly, a third of those who responded said they would raise the proportion of non-dollar currencies in 2005. The survey did not include Japan or China, the countries with the largest forex reserves

In other words, the FT blares headlines in several places that "70% of Central Bank Fund Managers" are reducing dollar holdings and buries the fact that this survey did not even include the central banks that between them hold more than half of US Treasuries!

What's going on? Partly this is simply the traditional pessimism and caution of the British banker mentality-- glass half full. But I suspect there's also an effort to snipe at Bush. Note that this other article describes several "event risks", including not just the Iraqi elections but "Bush's inauguration speech"!

Do they really mean to argue that Bush has the same effect on the markets as terrorist attacks?

Add the FT to the list of shameless MSM spinners

Posted by lex 2005-01-24 3:25:58 PM|| 2005-01-24 3:25:58 PM|| Front Page Top

#6 lex: Add the FT to the list of shameless MSM spinners

FT has been this way for a while. They've been spinning American decline for decades.

Posted by Zhang Fei 2005-01-24 3:32:06 PM|| [http://timurileng.blogspot.com] 2005-01-24 3:32:06 PM|| Front Page Top

#7 I see the falling dollar as an intentional, guided policy to both slap Europe and settle down China, who had figured out how to use the strong dollar to boost their economies at the expense of the US. Not only does this force Europe to cut expenses, read "welfare", but it makes the Chinese economy cool *naturally*, instead of violently bursting its bubble and crash all of the Asian markets. Neither Europe or China had the will to take the measures neccessary on their own, so Bush is using the invisible hand to both clear the new path and make it the unavoidable choice.

Posted by Anonymoose 2005-01-24 5:24:30 PM|| 2005-01-24 5:24:30 PM|| Front Page Top

#8 No anti-Americanism like that of the bitter English Tory snob

Posted by lex 2005-01-24 7:40:10 PM|| 2005-01-24 7:40:10 PM|| Front Page Top

00:50 Hupoluck Elmaitle6376
00:46 Croth Hupesing4131
00:46 Croth Hupesing4131
00:45 Tholuck Hupeanter3756
00:45 Tholuck Hupeanter3756
23:44 BH
23:36 Frank G
23:28 trailing wife
23:28 OldSpook
23:27 BH
23:12 OldSpook
23:09 OldSpook
23:05 Teddy Kennedy
23:03 OldSpook
23:01 Frank G
23:00 OldSpook
23:00 trailing wife
22:51 trailing wife
22:51 Senator Barbara Boxer
22:50 Frank G
22:48 Frank G
22:48 Senator Barbara Boxer
22:47 Frank G
22:40 badanov