$this->bbcode_second_pass_quote('jimmydean', 'G')uys as a side newbie question what protections are there against other nation governments simply printing currency and buying $USD? With China's huge trade surplus printing a few more $billion Yuan and using it to buy treasuries would go almost unnoticed? By doing so they devalue their own currency but due to fixed conversion rates on the Yuan they are still laughing?
PeakOil is You
The Carry Trade
Re: The Carry Trade
by DantesPeak » Thu 25 Aug 2005, 23:53:55
Actually, since the IMF system under which all countries participate, actually forbids a linking of a currency to a set good - such as gold - there is no formal restriction on the printing of fiat money.
There are informal restrictions, such as market forces and awareness, and sometimes, like the US just requested from China, it asks other countries to adjust their currency or monetary policy. The G-7 meetings are one important way to synchronize policies.
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Re: The Carry Trade
by MonteQuest » Fri 26 Aug 2005, 01:13:15
$this->bbcode_second_pass_quote('jimmydean', 'G')uys as a side newbie question what protections are there against other nation governments simply printing currency and buying $USD? With China's huge trade surplus printing a few more $billion Yuan and using it to buy treasuries would go almost unnoticed? By doing so they devalue their own currency but due to fixed conversion rates on the Yuan they are still laughing?
The only thing that allows us to inflate our money supply like we do is the dollar hegemony. We are the world's reserve currency.
Imagine this: You are deep in debt and have very little money in the bank. But every day you write a check to cover your expenses. Your checks are worthless but they keep buying stuff because those checks you write never reach the bank. You have an agreement with the oil merchants (OPEC) that they will accept only your checks as payment for one thing everyone wants, and must have—oil.
This means everyone must hoard your checks so they can buy the oil they need. Since they have to keep a stock of your checks, they use them to buy other stuff too. You write a check to buy a TV, the TV shop owner swaps your check for oil, that seller buys some vegetables at the fruit shop, the produce man passes it on to buy bread, the baker buys some flour with it, and on it goes, round and round—but never back to the bank where it would bounce. You have generated a huge debt on your books, but so long as your checks never reach the bank, you don't have to pay. In effect, you have received your TV for free!
This is the position the U.S.A. has enjoyed for 30 years—it has been getting a free world trade ride for all that time. It has been receiving a huge subsidy from everyone else in the world. And as our debt grew, we printed more dollars (wrote more checks) to keep trading.
Pretty slick deal, eh? Any questions as why we didn't want Iraq to sell their oil in euros? Or why the Iranian oil bourse coming soon is a bug up the US's arse?
A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
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Re: The Carry Trade
by jimmydean » Fri 26 Aug 2005, 01:33:08
$this->bbcode_second_pass_quote('MonteQuest', '
')The only thing that allows us to inflate our money supply like we do is the dollar hegemony. We are the world's reserve currency.
Imagine this: You are deep in debt and have very little money in the bank. But every day you write a check to cover your expenses. Your checks are worthless but they keep buying stuff because those checks you write never reach the bank. You have an agreement with the oil merchants (OPEC) that they will accept only your checks as payment for one thing everyone wants, and must have—oil.
This means everyone must hoard your checks so they can buy the oil they need. Since they have to keep a stock of your checks, they use them to buy other stuff too. You write a check to buy a TV, the TV shop owner swaps your check for oil, that seller buys some vegetables at the fruit shop, the produce man passes it on to buy bread, the baker buys some flour with it, and on it goes, round and round—but never back to the bank where it would bounce. You have generated a huge debt on your books, but so long as your checks never reach the bank, you don't have to pay. In effect, you have received your TV for free!
This is the position the U.S.A. has enjoyed for 30 years—it has been getting a free world trade ride for all that time. It has been receiving a huge subsidy from everyone else in the world. And as our debt grew, we printed more dollars (wrote more checks) to keep trading.
Pretty slick deal, eh? Any questions as why we didn't want Iraq to sell their oil in euros? Or why the Iranian oil bourse coming soon is a bug up the US's arse?
')The only thing that allows us to inflate our money supply like we do is the dollar hegemony. We are the world's reserve currency.
Imagine this: You are deep in debt and have very little money in the bank. But every day you write a check to cover your expenses. Your checks are worthless but they keep buying stuff because those checks you write never reach the bank. You have an agreement with the oil merchants (OPEC) that they will accept only your checks as payment for one thing everyone wants, and must have—oil.
This means everyone must hoard your checks so they can buy the oil they need. Since they have to keep a stock of your checks, they use them to buy other stuff too. You write a check to buy a TV, the TV shop owner swaps your check for oil, that seller buys some vegetables at the fruit shop, the produce man passes it on to buy bread, the baker buys some flour with it, and on it goes, round and round—but never back to the bank where it would bounce. You have generated a huge debt on your books, but so long as your checks never reach the bank, you don't have to pay. In effect, you have received your TV for free!
This is the position the U.S.A. has enjoyed for 30 years—it has been getting a free world trade ride for all that time. It has been receiving a huge subsidy from everyone else in the world. And as our debt grew, we printed more dollars (wrote more checks) to keep trading.
Pretty slick deal, eh? Any questions as why we didn't want Iraq to sell their oil in euros? Or why the Iranian oil bourse coming soon is a bug up the US's arse?
In effect we are IOU'ing everything. The sorcery of FED print, foreigners buying our debt (belief in repay/security), individuals financing/spending beyond income levels (belief that income will improve) is keeping this cycle going.
I wonder if the FED has masterminded this (for a plan yet unseen) OR the foreign powers are gaining control since we owe them so much. As stated on other threads if foreigners start redeeming our debt the economy is going to fall apart (cycle ends). We are left with a crippled economy while foreign nations are left with real assets, cheap labour and can still continue in some form.
So what prevents the Chinese government from printing Yuan and buying treasuries further increasing our liability, short-term keeping their currency low but long-term they have a lever against us?
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Re: The Carry Trade
by neo » Fri 26 Aug 2005, 04:06:32
$this->bbcode_second_pass_quote('MonteQuest', '
')Ah, you missed the point of this thread altogether. The carry trade. You can borrow short term from Japan at almost zero interest and buy long-term bonds in the US at 4.18%. Pocket the difference.
')Ah, you missed the point of this thread altogether. The carry trade. You can borrow short term from Japan at almost zero interest and buy long-term bonds in the US at 4.18%. Pocket the difference.
I heard somebody did this in 90s and made millions of dollars. US interest was like 7-8% back then while the Japanese had 1% interest for loan. It's like a sure bet; I wonder why not everybody is doing that.
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