Monday, Aug 20, 2007
The top sources of extra stimulus to the world economy during the past two years have been the US, Spain (yes, Spain, the bubble king) and Britain, in that order. All three are debt addicts, running out of credit.
TELEGRAPH UK: Bernanke fears economy will hit a brick wall
Watch Japan, still top creditor by far. Growth slumped to 0.1pc in the second quarter. Retail prices have fallen five months in a row. The yen has snapped back 9pc against the euro and sterling this month, as funds playing the yen "carry trade" unwind speculative positions. The deflationary vice may now tighten hard.The total carry trade - where hedge funds to housewives chase yield across the world, much of it borrowed at near-zero rates in Tokyo - is now $1,200bn. It has been the super-fuel for the global asset boom. We had a taste of reversal last week. Liquidation pummelled New Zealand, South Africa, Brazil, Turkey, Iceland and indeed sterling. If and when rates come down in the West, yen reversal may accelerate and cause further havoc. Rate cuts may prove self-defeating at first
4 Comments
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1. Orwell said...
debt leverage is frightening.
Says it all really...
2. stillthinking said...
If the US government expands the kinds of assets it buys, and they are going down in value, surely they will end up with a loss on a subsequent sale. Also, can the US provide enough liquidity to buy enough to stop the sales?
Is this some kind of threat to the stock market? As in, if you keep selling I will buy with recently printed dollars which I will keep on doing, so whatever the sale value you get will be inflated to your real loss, while I hold the assets. Basically threatening to devalue their own currency. If they can do this fine, but presumably if enough people don't believe this will stop the sales they will keep sellling so transfer the assets to the fed that are unwanted because of defaults, and use the printed cash to inflate any asset classes that are considered safe?
So why is the dollar more valuable against sterling recently? Only because our situation is relatively worse?
???????????
3. Winnie said...
It is to do with the yen carry trade drying up.
4. sold 2 rent 1 said...
"The top sources of extra stimulus to the world economy during the past two years have been the US, Spain (yes, Spain, the bubble king) and Britain, in that order. All three are debt addicts, running out of credit."
stillthinking,
It looks like a death spiral. The gov. prints more money to buy debt causing the USD to fall, which triggers more selling.