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More Abandonment of The Dollar


Got be getting to feel like an orphan (hat tip Bonddad, who has some nice charts you should see):

Vietnam is planning to cut its purchases of US Treasuries and other dollar bonds, raising fears that Asian central banks with control over two thirds of the world's foreign reserves may soon join the flight from US assets.

The Saigon Times said this morning that the State Bank of Vietnam was abandoning the attempt to hold down the Vietnamese currency through heavy purchases of dollars. The policy is causing the economy to overheat, driving up inflation to 8.8pc.

Vietnam, which has mid-sized reserves of $40bn, is seen as weather vane for the bigger Asian powers.

Together they hold $3,575bn of foreign reserves, over 65pc of the world's total. China leads with $1,340bn, but South Korea, Taiwan, Singapore, and even Thailand all built up massive holdings.

I tend to suspect that Numerian is right that the dollar's slide, short term, is near the end. And yet the fact that more and more governments are abandoning thier dollar pegs bodes ill for its long term health and suggests that if it doesn't reverse soon it could crumple and lose a lot of value very fast. Bernanke's playing with fire and other government's are letting him know, in effect, that they don't approve of him lower the prime.

I would add that the line about inflation is very important - you buy dollars by printing your own currency and that inevitably finds its way back into your own economy as inflation. This is concealed in China because large parts of the country have almost no inflation, but there are other areas where things like real-estate are inflating at nearly 20% a year (which is why Chinese play the stock market so much, there's no point in putting it in the bank.) Average them out, and inflation looks okay - but in the functional coastal areas it really isn't.

US policies aren't just inflationary at home, they're inflationary in much Asia (except, apparently, in Japan, which would love some of that inflation action.)


Ian Welsh October 4, 2007 - 7:06am
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China's in the game too

http://www.atimes.com/atimes/China_Business/IJ02Cb01.html

Petronius October 4, 2007 - 4:34pm
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Maybe a new 6.6 billion last week alone

has something to do with it.

Here.

The first in line to get these new funds is always the ruling elite class. This serves to dilute the buying power of those actually working for a living and producing something and cements control of those in power. So in the end people ask, why bother working? And look for that job doing nothing and making lots of money.

I did inhale.

Don October 5, 2007 - 7:45am
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US employment outlook brightens huh?


US employment outlook brightens

The US created more jobs last month than expected while revised figures showed the labour market was stronger in August than first thought.

The US Labor Department said the economy added 110,000 new jobs in September, higher than the 100,000 figure predicted by economists.

And rather than shedding 4,000 jobs in August as initially estimated, 89,000 new jobs were actually created.

Jobs data is seen as a key indicator of the health of the US economy.

Construction weakness

Had August's initial estimate been confirmed it would have suggested a sharp slowdown in the economy since the economy has not shed jobs on a monthly basis for four years.

In fact, the government revised upwards non-farm payroll figures for each of the past two months.

For July, it now says 93,000 jobs were created as opposed to the 68,000 first estimated.

Concerns about the strength of the labour market was one of the factors behind the Federal Reserve's decision to cut interest rates by a half point last month.

The dramatic move followed the turbulence in global financial markets triggered by the slump in the US housing market.

Economists said the figures were better than expected but pointed out that the overall unemployment rate had risen to 4.7%, the highest for more than a year.

Also, there was a net loss in jobs in construction and manufacturing sectors.

"On balance, it was quite encouraging," said Michael Metz, chief investment strategist at Opppenheimer & Co.

"However, looking at it on a sixth-month basis we still have a problem with very, very slow job creation. To me it does not signal any great strength in the economy."

In reality, the US economy has to create about 100,000 jobs a month to replace those lost through retirement and natural attrition.

Tina October 5, 2007 - 8:45am
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"In reality, the US economy

"In reality, the US economy has to create about 100,000 jobs a month to replace those lost through retirement and natural attrition."

The replacement number is about 150K. This is just a lie.

Ian Welsh October 5, 2007 - 10:01am
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