Analysis: G20 Proximity Talks Needed to Avert FX War

Analysis: G20 Proximity Talks Needed to Avert FX War

www.reuters.com

(Reuters) - Careful calibration of a U.S. dollar devaluation looks to be the only way to avert the sort of currency war flagged by Brazil and others, leaving G20 powers the unenviable task of agreeing some control of the process.

The top world economies, shaken by three years of financial turmoil, are scrambling to cap or weaken their currencies in a fight over fragile global demand for exports -- prompting retaliatory capital curbs and damaging trade rows.

(visit the link for the full news article)


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Afghanistan: The Modern Silk Road

Is this when the bubble is finally going to burst!? The next G20 summit is within weeks and they are going to take action no matter what, it is just a case of who is going to get the best deal. America, UK and Japan are due to start more quantitive easing, the gold markets are being inflated at a ridiculous level, the IMF has just but the roadblocks on hte British hosuing market, THIS CANNOT SUSTAIN.

This is all part of a plan, and it is a repeat of History. Reindhart has predicted this for years now, the economy is a continuous labour problem, and if you loo kat Afghanistan and the Asian banks as I have encouraged people to do in my Afghanistan thread, it is very plain to see. Pager two of this article is listed below, and I will quote some highlights from the article in another post.

I hope people really start to take note of this now, the ATS boards have been swamped with rubbish lately and people are taking their eyes of the ball. This WILL effect you, the better you prepare for it, the better your chances will be. Some of us will even benefit from this, if you take very close not of what is happening.

www.reuters.com
(visit the link for the full news article)

Faced with fiscal exhaustion, hostile electorates and booming China's refusal to allow a rapid rise of the yuan, the U.S., Japan and possibly Britain seem set on another bout of money printing to reboot their ailing economies and weaken their currencies.

Fast-growing developing countries with flexible exchange rates are caught in the crossfire and are reacting fast, leading to Brazil on Monday to double taxes on foreign inflows and South Korea on Tuesday to threaten curbs on currency trading.

France, which takes G20's rotating chair next month, has denied weekend reports of "secret negotiations" with China. But it's clear that patience in the status quo is running out.

"To avoid the damaging consequences of continued unilateral action ... a core group of major economies needs to agree urgently on a multilateral and coordinated package of policy measures," Charles Dallara, director of banking group the Institute for International Finance, said on Monday.

U.S. trade threats against China over the yuan showed the "counterproductive nature of unilateral policy," Dallara said in an open letter to the International Monetary Fund's annual meeting.

"There is competitive devaluation going on," said Johnson, a former director at billionaire George Soros' fund management firm and former economist at the U.S. Senate Banking Committee.

David Shairp, strategist at JPMorgan Asset Management, reckons the move to emerging currencies could now accelerate.

According to fund tracker EPFR, emerging market bond fund inflows, with local currency mandates taking more than half, have soared to almost $40 billion so far this year from less than $700 million in the first nine months of 2009.

Net flows to emerging market equities in the third quarter, at more than $30 billion, were some 50 percent up on the first six months of the year. And year-to-date inflows of almost $50 billion compare to a net exit from developed equity funds of almost $79 billion and an outflow of half a trillion from western cash funds.

The speed and stability of these portfolio streams may be a legitimate concern, but longer-term flows play the same tune.

ThomsonReuters data shows emerging market mergers and acquisitions this year, at $480 billion, were up 63 percent on the same period of 2009. Crucially, this is not "hot" money.

"No one is sleeping on the job," Brazil's finance minister, Guido Mantega, said on Monday. "We risk having a trade war and that's the worry. (But) it is preferable that we take coordinated measures instead of isolated measures."

Welcome from the Republic of Korea

The Republic of Korea is honored to chair the Group of Twenty in 2010.

The G20 was established in 1999, in the wake of the 1997 Asian Financial Crisis, to bring together major advanced and emerging economies to stabilize the global financial market.
Since its inception, the G20 has held annual Finance Ministers and Central Bank Governors' Meetings and discussed measures to promote the financial stability of the world and to achieve a sustainable economic growth and development.

To tackle the financial and economic crisis that spread across the globe in 2008, the G20 members were called upon to further strengthen international cooperation. Accordingly, the G20 Summits have been held in Washington in 2008, and in London and Pittsburgh in 2009.

The concerted and decisive actions of the G20, with its balanced membership of developed and developing countries, helped the world deal effectively with the current financial and economic crisis. The G20 has already delivered a number of significant and concrete outcomes. It committed to implement the unprecedented and most coordinated expansionary macroeconomic policies, including the fiscal expansion of US$5 trillion and the unconventional monetary policy instruments; significantly enhance the financial regulations, notably by the establishment of the Financial Stability Board(FSB); and substantially strengthen the International Financial Institutions(IFIs), including the expansion of resources and the improvement of precautionary lending facilities of the IFIs.

Reflecting on these achievements and recognizing that more needs to be done to ensure a strong, sustained and balanced global recovery, the G20 Leaders at Pittsburgh Summit designated the G20 as the premier forum for international economic cooperation. In 2010, the June Summit will be held in Canada, and the November Summit will be held in the Republic of Korea.

Building on past achievements and close cooperation among members, the G20 will double its efforts in 2010 to help the world make a successful transition from global recovery to stronger, more sustainable and balanced growth. We look forward to working closely with our Troika colleagues, the UK and France, and drawing on valuable experiences of other G20 members. The Republic of Korea will spare no effort to ensure success in 2010.

Why Korea? To escape the protesters? People need to keep a very close eye on the markets around the summit, and take special note on the Asian Development Bank which is docuemented extensively in the following thread:

Afghanistan: The Real Reason the Troops are There

I'm not very good with economics so what would a devaluation of developed western currencies mean?

S+F

reply to post by Misoir


THanks for your honest reply, my answer would be that I am not very good with economics either. I am using this as a means of discussion to see if we can understand what exactly it does mean.

The ideolgy I have begun to swing with with regards to economics is that it is one big, continuous labour problem. All the things that are classed as bringing us prosperity ride on the back of cheap labour and a high currency value.

I take the G20 report as shifting that balance and re-distributing it to start the cycle again, which means bye bye prosperity for us, and a lot more for them.... whoever wins the currency war. Thanks for keeping this topic alive, I hope people ahve some good input on this.

reply to post by carlitomoore


I have been trying to educate myself with the Austrian School of Economics and the Austrian Business Cycle. I seriously recommend if you want to learn about the current crisis its a good place to start. It might answer some questions in regards to this thread too.

Austrian Business Cycle Theory and Global Crisis
Austrian Business Cycle Theory: A Brief Explanation
Austrian School

Originally posted by carlitomoore


Is this when the bubble is finally going to burst!? The next G20 summit is within weeks and they are going to take action no matter what, it is just a case of who is going to get the best deal. America, UK and Japan are due to start more quantitive easing, the gold markets are being inflated at a ridiculous level, the IMF has just but the roadblocks on hte British hosuing market, THIS CANNOT SUSTAIN.

I'm so tired of this argument "THIS CANNOT SUSTAIN!" What a load of BS... anyone who has ever said this has been wrong.... Just because you are not creative enough to understand what can and can't sustain doesn't mean you are qualified to determine that which is doomed.

Believe me, we can sustain a LOT of BS ...

Believe me, when stuff ever does completely and utterly collapse... you won't see it coming.

Thief in the night and all that...

reply to post by Misoir


I have just browsed through your links and I would say a couple of years ago I would have taken them as gospel, big words and numbers in the form of a 'model' seem solid at first glance.

But there is a fundemental flaw with these models, they rarely take into account emotions and primal urges.

The crisis we are experiencing today in my opinion is the result of greed. It is a result of credit default swaps, derivative trading, hedge funds and the availability of the 'put' options. People who take part in these activites know ALL the models out there, but they choose not to adhere to them, as they can predict their gains using them, but know if they circumvent them they can make a whole lot more.

The global financial crisis was not unexpected, these people knew it was going to happen for decades, they just rode the waves until they crashed on the beach, and the 'pretended to fail'. No-one failed, it was orchestrated.

People warned the central banks what was going to happen, and what did they do? They relaxed the rules and accelerated the process.

Anyways, I have been doing a lot of complaining here lately about different threads, and this is has been posted in the Breaking Alternative news section with regards to the G20 in Korea and the debasement which is going to happen. Anyone any ideas on this?

I would suggest you think about making a thread on financial models and we can argue the case for/against. That would make for a great discussion!

Again thanks for your interest in this, I see it as a major world event and think it deserves attention.

reply to post by HunkaHunka


I suppose it depends on what call 'sustainable'. I don't think the global markets are going to collapse, but there is going to be a paradigm shift from Developed Nations to Devloping Nations as that is what would be best for the Global market.

Politics is a front for economics, and economics allways come first. Our nations have had our time, now it is someone elses, which is what the article illustrates.

I am not qualified in anything (well except from enginnering and some project management), but I think that this needs discussing as a real possibility. This is what the G20 was created for, to make thesemajor financial decisions which effect each and everyone of us.

You seemed quite aggressive there. Anger kills creativity man!

Currency dispute is a proxy for America's frustration that China is effectively the world leader. I've read the memos and briefs from the recent IMF meetings, especially from the British officials, and America demanded unity against the Chinese currency stance.

Also, the United States demanded Europe give up political control of the IMF to allow Asian economies to have more influence. Politely, the world declined, on both accounts to support the American position.

They'll be no FX war.

Flagged.

I read an article a couple of months ago about protection measures implemented by the US against Europe in order to protect the US economy. The author was making a comparison between the current situation and the Great Depression in which (I believe) the US implemented trade barriers against Canada. The article went on discussing the disastrous consequences for the US economy as well the domino effect it created.

Now we're gonna have a currency war and US is gonna lose it. China is not going to 'loosen' the Yuan as it would create enormous social unrest (due to lower economic growth).

reply to post by infinite


This is all true... I don't understand your post though, unless your saying that there will be no war because people have already decided and there is nothing to fight over!?

Infinite I have read many of your posts on economics among others. What do you see coming out of the next G20? Anything?

Originally posted by carlitomoore
reply to post by infinite

 

This is all true... I don't understand your post though, unless your saying that there will be no war because people have already decided and there is nothing to fight over!?

It is the United States trying to get global criticism on China, to apply pressure on her economy. Yes, the EU is critical but refuses to give public condemnations. They'll be no war because hardly no one is backing the American position.

After all, isn't the new British government becoming the protagonists in establishing new free deals for the European Union? All the emerging markets are willing to do business with Europeans due to our more "friendly" approach to their currencies.

Infinite I have read many of your posts on economics among others. What do you see coming out of the next G20? Anything?

Continuation of the reforms of the IMF - to give it more of a central bank structure and authority. No doubt, I do envision a UN economic forum or council being constructed. Global regulatory system and possible talks over a new global reserve currency - which the Chinese, French and Russian would like.

In other areas, a European Union free trade deal with India. This is what I am currently hearing.

reply to post by infinite


Thanks infinite.

I am struggling to see how the American people will jsut accept what is happening however, especially with all the protesting that is happening in Europe at the minute.

I will revisit this thread closer to the G20 I think, or post any developments.

Courtesy of 12Voltz, I will add the link he found, as it is an update to what I posted about within a few days.
It ties in the IMF which infinite was talking about:

World on Verge of Currency War

The Federal Opposition says the world could be on the verge of a trade war if tensions over currency exchange rates are not resolved soon. World finance leaders have finished two days of talks at the International Monetary Fund, but the issue of currency reform remains unresolved. The Australian dollar has soared in value against a weakening US dollar, and looks set to achieve parity or even bypass the greenback. The Opposition's acting Treasury spokesman, Andrew Robb, says some countries are deliberately devaluing their currencies, which could prompt other countries to retaliate.

"All of these major countries around the world that have got huge debt problems are artificially devaluing their currencies. And what we're seeing is the start of a currency war and that has very serious consequences if it's allowed to continue," he said.

Here is a good video illustrating what the currency war is about:



The US & NATO blocks want more free trade, but everyone else wants capital control. Watch this video if you want to try and make sense of what is happening out there at the minute.

reply to post by carlitomoore


Did you read the reports of China purchasing Greek and other troubled Eurozone nations debt? The Chinese are going to literally underwrite the Eurozone because they wish to diversify their foreign reserves to a more Euro bias.

The Americans don't like it. It will have significant implications on the US economy.

Majority of the emerging markets are interested in access to the European Union market, the largest trading bloc in the world.

reply to post by carlitomoore


Thanks for sharing this very interesting video. I agree with all he says except for his opinion on free trade zones. I cannot see how this would hurt. In fact, it has proven to be very beneficial here in the EU. Like infinite mentioned, there are now talks of a free-trade agreement with India and only days ago the EU and South Korea signed a similar agreement.

I would like to share a post of mine from a couple of months ago, relevant to this topic:

It has become a habit, reading about the downfall of the Euro in the daily newspaper. After years of appreciation against the Dollar the Euro has now began to fall rapidly, even though economic indicators are not all that bad. They say it is Greece that made the Euro waver, which is to some extent true, but is the fear that caused this volatility well-grounded?

The Greek economy only accounts for approximately 2,5% of the entire Eurozone economy. Therefore, one would wonder why the Greek woes have affected the Euro's stability so badly. Among the reasons is speculation, more specifically naked short selling, which in very simple terms works as follows:

Quick refresher on how short selling works. Shorts borrow a share, sell it immediately, then if the bet pays off they later buy it back at a lower price, pocket the difference and return the share to the person they borrowed it from.

Naked short selling is when an investor essentially shorts a stock that he hasn’t actually borrowed. During the worst of the financial crisis some corporate executives blamed the tactic for their companies’ plunging stock prices. In the U.S., regulators put new temporary rules in place to curb the practice in the fall of 2008. That rule was made permanent in July 2009.

Why is a naked CDS different from a naked short sale of bonds and stocks?

Buying a credit default swap in effect buys insurance against the risk of a default by either a company or country. This is essentially a short sale, since the holder profits from the contract if the entity does default. Even before that happens, the CDS holder benefits if the outlook for the entity deteriorates, because the insurance premium for that default risk will rise and the holder can profit by selling the insurance and closing out their trade.

Some investors holding debt issued by an entity buy credit insurance to protect their portfolios from such a risk, but most buying comes from investors who simply want to express a negative bet. As such, buying credit protection without owning any of the entity’s debt is a “naked” short bet. source

This explains why large hedge-funds benefit from negative news about their ''victim''. Greece is solely responsible for the weak economic condition it is in, which made them a suitable target for hedge-funds, which opened a large-scale attack on the country and the Euro, which almost caused Greece to collapse only barely averted by the EU and IMF's bail-out package.

I've often wondered why credit ratings haven't downgraded the credit ratings of the US, Japan and the UK. After all, they are not in a situation that is much better than that of Greece or Portugal for that matter. Moody's has merely threatened to downgrade the credit ratings of the UK and US while they actually did do it to smaller economies such as Greece and Spain. Do you wonder where Japan on this graph is? They are literally off the chart with enormous debt and a huge deficit.



Yet, they remain to have a triple A credit status. How, on earth is that possible? If they would downgrade the credit status of, for instance, Japan, they would never ever be able to pay off their debts and that would effectively usher in their bankruptcy. There is no need to discuss the sequel of their collapse. For the very same reason, they cannot downgrade the status of the US and to a lesser extent that of the UK. This confirms that credit rating agencies are market manipulators.

As a result, countries like Italy and Spain are made to face the consequences of their poor economic performance while others that perform as bad are deliberately protected. So we have credit rating agencies and hedge funds, which are among the important factors determining the destiny of a country. If you are on their cross hairs, you are unlucky.

The mainstream media is another important factor. As explained previously, they are used as a tool to worsen the financial woes in a certain country by increasing volatility through stirring up the market sentiment.

Especially the British and US press are guilty of deliberate rousing. This is a good example from ABC NEWS EU Turns to 'Nuclear Option' to Halt Euro Speculation

Until a couple of weeks ago, the EU had no need yet to create money out of thin air until it had no other options left than doing so with its aid package of 1 trillion Euro. The British and US economy are having a big time feasting on this news. The Eurzone is using the nuclear option is what they say... but what they fail to mention is that the US has been doing this already for twelve months with approximately $1500 billion a year and the UK does the same with $200 billion / year. They are deliberately putting the focus on Europe and hence vastly contribute to the man-made creation of the Euro crisis while keeping their own countries remain into the shadows, because if you consider the severity of the financial woes in the US and UK, it would have made more sense if we would have had a Dollar or Sterling crisis. Until a couple of months ago that was the case. The fears of a Dollar collapse where greater than ever, until they found themselves a perfect target of distraction from their own financial problems: Greece.

What they did is exactly similar to what the press did to Toyota. They have exaggerated the news so badly that no American wants to buy a Toyota anymore, whereas their recalls where not out of the ordinary. Every car manufacturer has recalls. It comes as no surprise that the traditional US car brands recently announced that they are heading into the right direction and are growing healthy again, partly at the expense of Toyota, thanks to the media hype.

Who is next? Hungary, but eventually reality will meet the Dollar as well. The financial woes in the US are bigger than ever before, the importance on a global level of its economy is known, making it only a matter of time for the Dollar to continue its downfall.

The Dirty Game Called Economic Warfare

reply to post by infinite


I can remember hearing that when Greece started selling all their bonds at discounted rates beacause htey were forced to in order to be given a lifeline, that France then underhanded them all by buying more than what was previously agreed.

Don't know if you heard anything of the sort?

I am still curious what is to come of all the PIIGS and Dubai World... they all defaulted and then we didn't here of anything again and it all seems peachy... did someone buy it all up? Or are all the toxic assets still floating around in the markets?

Things that big cannot simply dissapear, can they!?