Tuesday, November 27, 2007

Is this why M3 in the US is exploding at 18pc

Dollar Displaces Yen, Franc as Carry Trade Favorite

"Using the dollar to pay for purchases of currencies with higher yields is proving to be the most profitable trade in the foreign-exchange market."

Posted by sold 2 rent 1 @ 08:36 AM (856 views)
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3 thoughts on “Is this why M3 in the US is exploding at 18pc

  • The US$, once the world’s reserve currency, is rapidy becoming the world’s joke currency. American Empire and Neo-con extremism RIP.

    Interesting, in the midst of the lobby-driven madness that is the Americal Presidential Campaign, there is an oasis of sanity:

    Ron Paul

    http://www.ronpaul2008.com/

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  • The one thing that has puzzled me recently is why the US money supply has rocketed to 18pc and the UK has gone down to 10pc.

    As the world housing markets roll over there are less new loans and existing loans default rates are increasing. This leads to the money supply to fall.
    In the case of the US, the hedge funds have replaced the homeowners as the main driver of new debt money.

    The big question is, when GBP falls next year, will the hedge funds start borrowing massively in pounds and create a UK carry trade.

    And looking further into 2009, when the euro starts falling as well, will we see massive borrowing on all developed countries currencies to buy emerging economies assets/currencies. This could cause emerging stock markets to have a final blow-off bubble phase by 2009/2010.

    Wage and price inflation has taken off in the emerging world. They will have to ramp up IRs to control this inflation. These higher IRs will be the target for all this newly created debt money.

    We could be looking at one gigantic carry trade between the developed and emerging world where debt and asset bubbles spiral out of control. The end result could be catastrophic with the destruction of the whole financial system.

    Remember banks have to keep lending more money to keep the system from breaking down. The ponzi scheme only has 2 years left. MAX.

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  • The Gulf states are meeting on 4th December to discuss monetary policy, notably whether or not to keep the dollar peg. Kuwait abandoned the dollar peg for a basket of currencies, recently, and other countries may follow suit. (ref: Economist website)

    This may take the form of a partial revaluation of the currencies or the adoption of a basket of currencies. This will not go well for the US, but the gulf states are suffering inflation as all their purchases from Europe now cost more.

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