This might seem like a currency special edition. The dollar fell after China hinted at renminbi appreciation. The People’s Bank of China said foreign exchange policy would take into account “capital flows and major currency movements”, a pointed reference to US dollar weakness and the large speculative inflows of capital that China is receiving. Those speculative inflows are a growing concern for many emerging markets, whose currencies are rising quickly: Taiwan, Russia, Brazil, Thailand and Chile are all planning how best to slow the influx of capital.
Dollar reserves have been going out of fashion over the past few months, and now two IMF economists have called for diversification away from the greenback. This will make Geithner’s (widely mocked) ‘commitment’ to a strong dollar even harder to achieve. But American leaders can’t deviate from the script, or markets will interpret that as a change in policy.
China is planning an $11.7bn bond issue to help recapitalise state-owned financial institutions. Perhaps its own SWF could help with the purchase. In a bizarre rerun of Brewster’s Millions, CIC must spend its money by the end of the year – wisely – in order to qualify for up to $200bn more from foreign reserves. With all this money sloshing about, the World Bank president’s fears of bubbles in Asia look justified.
Once, money was made of gold. Then the value of money was based on gold. Where are we now? Quite some way down the road, as this chart shows. Apparently the entire value of all gold ever mined is not worth even half the money the US has pumped into companies via stimulus packages in the past year. So money has been flowing into equities and into the precious metal. But which is stronger? Gold, by a long way.
The US could be facing 12 – 13 per cent unemployment. David Rosenberg argues that, even assuming an end to redundancies, there is a buffer equivalent to almost 11 million people that can be used up before one person has to be rehired. The buffer comprises newly-created temporary positions, part time workers and increased worker productivity.
The poor in poor countries are worse off, as rich countries look likely to drop commitments on aid and hunger. The poor in rich countries aren’t doing well either, stuck in a poverty trap (chart). But it is the middle classes that are resorting to theft, apparently, in the interests of keeping up appearances.