Gamesmith94134: Two model for Europe 12-29-2011

I think what Mr. Hans-Werner Sinn meant was the outflow were the collateral damage attributed by the Rogue Trader who bidden on the 1.6 instead of 1.3 to a dollar; the hedge fund managers like FM and Goldman Sacks and the fall of Dexia bank and others. Furthermore, the outflow to the Dow Jones was not accidental either at the slow down on the American economy, the stock boomed for sake of the monopoly or ‘get me out of Eurobonds’ made it obvious is upon everyone else guesses, or its disposition is part of the deleverage that Euro is pegged to dollar to promote another delusion of growth scenario. The recent sale on the Italian and Spanish bond held at 7%; and inflation rate edged higher from 2% to 3.4% in America; so, I suspect the Europe is not any lower on the account of the deleverage, rather than the shortage of resources and the questionable status in the Strait of Hermuz. Besides, the next four months in rolling over of the $900 billion Euro bonds may not be sold again at 7%, even with the direct periphery of the loans from Fed, even at the 500 basis points to exchange or 0.25% loan available to the local banks.

“MUNICH – Interest rates for public debt within the eurozone have spread once again, just as they did before the introduction of the euro. Balance-of-payment disparities are steadily increasing. The sovereign-debt crisis is eating its way from the periphery to the core, and the exodus of capital is accelerating.”

So, the question is clear for the safety net could be for the $650 net foreign wealth, if the interest rate is being sacrificed to sustain the unity of the Eurobonds? Or, how much is American banker is willing to abstain to bankruptcy if the present 8-15% for the Euros will escalate in the coming three-year-term of the Eurobonds and the exchange rate must sustain at a profitable level after being deleverage?

Far as the data indicated the unemployment and housing are merely improved the sentiment to the holiday seasons, or Fed is playing with the exchange rate again. And, the yuan went 4% over the year and inflation rate held at 6.5%, China must made its domestic growth program to ease the tension on the manufacturing slowdown. I am not sure how the debtor nations can use its austerity program to sustain the level of certainty for repayment on the next coming restructuring of the debts.

Shuffling of the 2.7 trillion with lesser growth is hard to do, even if, the investors and banker would turn into rogue trader to hold the line on the exchange rate. However, the inflation rate would certainly change one’s mind quickly if the change of status quo to commodities goods or outbreak of war in Middle East is eminent.

Perhaps, it is time to choose how the next round for the global finance and the sovereignty debts if Euro stands even it is contagious. There is no escape for most financials if Euro collapses; but EU must sustain a firewall like to create its EU zone policy as well to stop further spread of inequity and insecurity if the Bael II is not working with its banks, or breakup of the north and south under the pressure of the fiscal unity. Then we may consider the financials are separated by the disgusted investors as each develops their doors in shutting of trades by its partners by continents other than EU; if the exchange rate or interest rate becomes irrelevant. So, sovereignty debts must be traded under the scrutiny of sovereignties not bankers since they, the citizens of sovereignty, must repay them. And, capital financing should not be the part of the sovereignty debt that shared with the lower rate; it demands its proof of performance and consequence and not just politicians for promoting propagandas like ClubMed or Green industries, that they plays double jeopardy on WTO.

Personally, I refer the multi-speed, multi-currencies approaches in various zones that each enjoy their own responsibility for building up their equities; and shared retirement with their assets they earned by leaving the exchange rate and interest rate to the achievement and performance of the states, and not to bankers even for Central banks. Finally, there is no right choice of the model as available, but each must accept the alternatives in changing the model we definitely needed to meet globalization of the finance.

May the Buddha bless you?

Gamesmith94134: The Exchange-Rate Delusion

Since 92, Emerging nations looked to the consumer of the world like America, and Europe for fueling their industries, the dominant currencies as in Euro-dollars as the leverage to propel growth. In the turn to 2001, the developed nations started to yield their growth by shifting their labor forces off source to the emerging nations because the cost of labor was cheaper and they saw the emerging nations had fully developed in technical and administrative skills in handling production; so, the developed nation like America, and EU can concentrate on R&D, and kept on shifting the manufacturing to emerging nations to cut labor cost. As the imbalance of the payment in trade showed on the developed nations; there is cut of R&D after the displacement of funds shown when deficits advanced. Then, the deficit expanded.

Perhaps, there is an ideology of balance of payment through monetarism that the rise of the currencies from the emerging market nations would balance the trade deficits if the Euro-dollar can maintain itself at a deflationary level in lesser compensation of interest rate; then, the inflationary EM nation’s currencies can continue in a falling position in creating the balance of payment in cutting deficits. However, the formula of such exchange rate was interrupted by the displacement of investments that transferred to surpluses of the EM nations, as the deficits are even deepened and the cutting on the private or government programs of the developed nations made the situation worsen. The strength of one’s currencies is no longer under the sovereignty’s control when the surpluses are pooled in to the EM nations when austerity program are introduced to the defaulting nations like PIIGS, who suffered in devaluation that cause deflation. At the same time the deleverage of the currencies like Euro, the surpluses from the EM nations used its surplus in hoarding that they can sustain the equivalent exchange to their local currencies, then, we are having the high rate exchange of Euro even after their default.

Perhaps, when we look into the displacement of investment that the deficit created instead of the change of the exchange rate; or the behavior of the surpluses and interest rate payment of the bonds are used against deflation and inflation. It was not the exchange rate that took the effects after the imbalance, but how it was the control of the exchange rate when it intervene the sovereignty finance like investments or bonds after the effects of inflation or deflation. There is less of the solution of the imbalance of sovereignty payment on bond or development for growth at present since there is lesser of growth and domestic unease arises. I think Mr. Zsolt is right on the attitude of Homeostasis in healing the nations either inflation or deflation hits.

I personally suggested the multi-speed, and multi-currencies in maintaining the sanity of the financial system; and Euro-dollar may not be the only international reserves only that counts; because they certainly lost count of themselves. Then, Zone must be developed to monitor the flow of currencies and its rates to exchange that participating in the throw weight including the deficits and displacement of investment of the surpluses. In time, we can really control the interest rates to compensate when inflation or deflation would take their effects even assistance to growth and not just valuation to shift in order to maintain gain or loss. In final, I think the exchange rate must apply to the ambience of zone not forsake of profit or loss, and its performance counts not by the value of the currencies it converts. We must give the Sovereignty Bonds another attitude too, if we can use promotion on coupons for import/export to maintain the domestic sanity and privatization of the state owned projects to advance growth that guarantee the balance of payments either domestic or foreign.

I wish there is a better solution that can prompt to success in solving the default without changing the present, but the use of peseta in Spain inspire me most for another alternative to change.

May the Buddha bless you?

