The yen is up again, and superficially, it looks like a repeat of a predictable sequence: risk perceptions rise, investors start to shed risk, carry trades unwind, yen rallies, everyone calms down, the yen falls and the carry trade resumes. Since the Japanese love a cheap yen and domestic investors are well conditioned to buy […]
Read more...Forgive us, we are going to be a bit terse tonight. Turns out we got a wee case of food poisoning (likely culprit: shellfish). On the mend, but also behind schedule on various fronts. Bloomberg reports that China’s trade deficit has hit an all time high of $262.7 billion. So much for the idea that […]
Read more...Ray Dalio, founder and chief investment officer of Bridgewater Associates, is no doubt far from alone in being someone whose opinion is solicited by the Fed. Nevertheless, in an interview in today’s Financial Times, he takes a position diametrically opposed to conventional wisdom. He argues that the remedy for our current economic, particularly credit, woes, […]
Read more...Many commentators see the euro as the logical successor to the dollar as the reserve currency. Yet the Financial Times’ Lex column points out that most currency unions fail. However, the dollar is the product of of that very type of arrangement. Nevertheless, the piece serves as an important reminder against blindly assuming current trends […]
Read more...I’m a bit late to the somewhat sensationalistic piece, “Fatwa Against the Dollar” by Ambrose Evans-Pritchard at the Telegraph. The reason I say “somewhat” is that the underlying issue that Evans-Pritchard points to, namely, dollar-peg-induced inflation in our trading partners, is real and becoming more acute. And Evans-Pritchard emphasizes an aspect that gets insufficient play […]
Read more...Brad Setser does his usual thorough job of parsing the latest (October) Treasury International Capital report. On a quick reading, the release is quite a relief. Capital inflows in the last few months had been insufficient to offset our ongoing current account deficits (worse, in August, capital inflows were negative, a real stunner). That’s reversed […]
Read more...MarketWatch, among others, tells us today that the current account deficit fell in the third quarter to 5.1% of GDP, down from 5.5% in the second quarter. That’s unquestionable progress. However, as the article also points out in a rather anodyne fashion, “Few economists believe a current account deficit of 5% of GDP is sustainable.” […]
Read more...Menzie Chinn has an intriguing post on Econbrowser that I hope I can do justice. Chinn is a serious analyst of currency price formation and continues to look at the question of the prospects for the dollar. In looking at the value of a currency, there is quite a lot of artwork in deciding how […]
Read more...Although dollar concerns have retreated for the moment, given its rally against the euro, yen, and yuan, the problem of a weak and potentially weakening greenback is far from resolved. What I found intriguing was the pessimistic underpinnings of a solid “analysis” article by Chris Giles in the Financial Times, “Adjustment or affliction? Why the […]
Read more...The Economist put “The Panic About the Dollar” on its cover, which led to a speedy and lengthy analysis by Brad Setser who along with Menzie Chin are probably the most active and best informed bloggers on the currency beat. Although the Economist isn’t what it used to be, the two pieces (the leader and […]
Read more...John Dizard of the Financial Times thinks foreign exchange restricitons will soon be upon us. Those who function in the real economy find it hard to live the with exchange rate uncertainty and volatility, but Dizard reminds us that efforts to dampen it down will help speculators. Dizard also provides an off-topic human interest story […]
Read more...Wolfgang Munchau has a very good editorial comment which discusses the latest Treasury International Capital report (see here for another, more detailed treatment). He focuses on the net purchases of long-term securities and concludes that the sharp drop this year, which is very unfavorable to the dollar, is a sea change, not a mere short-term […]
Read more...Another negative for the dollar: it is starting to displace the yen as the funding currency for the carry trade. As most readers probably know, the carry trade is when one borrows in one market that offers low borrowing costs and invest in one with high yields. It is easy money, but comes with the […]
Read more...Readers are likely familiar with the general premise that trade deficits, like the one the US has been running for a very long time, need to be matched by surpluses in the capital account, meaning in colloquial terms that our trade deficits are funded by foreign investment of various sorts, be it in Treasury securities, […]
Read more...China is suffering from rising inflation, as well as a runaway stock market bubble, both side effects of its rapidly growing foreign exchange reserves. But rather than raise interest rates, which would rein in price growth but also increase the price of the yuan, the Chinese are instead engaging in extreme measures to combat domestic […]
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