Wednesday, Oct 22, 2008
Sovereign wealth funds are funny money too
FT: Insight: Shattered illusions of liquidity
Sovereign wealth funds are not real, unleveraged liquid cash ready and waiting to be mobilised to support assets around the world. They are hit by deterioration of US credit quality and by problems in the US financial sector and are just a part of the self-referential global financial system that created candyfloss money - lots of it spun out of a limited amount of real money which eventually collapses back on itself. The abundance and liquidity of sovereign funds and central banks is an illusion created by excessive debt and leverage and as the world deleverages we pull back the curtain and see smoke and mirrors.
Posted by icarus @ 06:44 PM (661 views) Add Comment
8 Comments
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1. submedia said...
Great post. Thanks. We are seeing huge deleveraging across the world. Where do we go now? i have no idea!
2. planning4acrash said...
Problem, reaction, solution. Just look at documents from the elite. Read carol Quigley's Tragedy and Hope. We see convergence of national currencies, creation of regional currency on the way to open one world governance/tyranny. Carol was Clinton's mentor
3. jack c said...
2 things here (1) very interesting article (2) @P4AC - off topic but have you read The Traveller by John Tewlve Hawks?
4. mountain goat said...
Interesting read but still leaves me with lots of questions. The point made is that currently for China and others the US treasuries they own are basically an investment they can't afford to liquidate. However, if the world's and their own economies slow a lot then they may decide they need to sell this investment anyway to pay for their own stimulous. What effect would that have on the dollar, on commodities, on China?
5. drewster said...
Mountain Goat, I think you're right. China "can't afford to liquidate", in the same way that a jobless homeowner in negative equity "can't afford" to sell their home. At some stage China may need the money for some reason (perhaps for a banking bailout of its own) and thus be forced to liquidate.
6. icarus said...
p4ac - 'Carol was Clinton's mentor'. Isn't a US president part of the elite (or a puppet of the elite if you prefer), so wouldn't Clinton's being a student of Quigley be a negative rather than a positive from your point of view? Anyway jack c is right - it's off-topic since the article makes fairly specific points, little to do with nwo.
7. last_days_of_disco said...
The deflation monster looms again. The problem is that deflation is caused by perception, not by printing money or failing to print enough money.
In a world where most of the money is governed by the *price* of things instead of their *value* the amount of money available is
based on the price of assets that can be used as collateral on loans. Loans are the chief money creating mechanism in the economy, not the printing press (via fractional reserve banking). When loans dissappear, money does. That is why I keep saying that deflation has already happened.
And when you look at the scale of the de-leveraging that is underway, you realize that the system is heading for a terrible crunch.
I am not happy about this and I am livid at the absolutely pathetic lack of foresight shown by our current government.
The current liquidity injections are a drop in the ocean compared to the debt out there and once that realization sinks in, people are going to refuse to loan money that will never be repaid and hence break the printing press. Governments can only go so far before their populations rebel (we are still a way away from that, so you can expect more bail outs). We have just begun to enter the credit crunch as the UK and we have already used a mountain of funny money to just keep the financial system from completely imploding.
Whoa, getting depressed again, think some happy thoughts now for a while.
8. Kruador said...
ldod@7: if the loan system completely collapses - with banks not willing to even lend to the government - then government will have to come up with a way to print more money. Frankly I don't know why they're avoiding just generating numbers in a computer.
While according to conventional theory it would have infinite seignorage, in practice there wouldn't be any as people would not hoard unspent money - bits are not collectible in that sense. When money is just numbers on a balance sheet, you can't withdraw it. If treated as 'the carry trade on money' seignorage is only the difference between what money was 'worth' when it was 'returned' to the creator (i.e. paid in taxes) from when it was created: basically just the rate of inflation (or deflation).