Vinny’s Blog

…continued from Currency Review II. Please read this one first if you haven’t read it before.

Last post (currency review II) I made was about ( you guessed it…)currencies . I was able to scrub information from the net about most major currencies. It has been a month since then and it’s time for a followup.  Followup is required, also because I posted that article just before G20 meeting. In that meeting currencies were to be discussed and they were, G20 members did talk about them…so it’s time now to know what was discussed and where it is, a month after G20 meeting. There is a good reason why things are  highlighted in red. In case your brain can’t feel the heat in the words here…red color might help….(..I think…). Other than that I don’t know how to draw your attention to the seriousness of the situation.

–Before the G20 meeting.

March 30…just before the G20 meeting.

“The U.S. is no longer in a position to dictate that the world does it according to the way we’ve done it,” Volcker, head of Obama’s Economic Recovery Advisory Board, told a March 6 conference at New York University.

China’s Zhou underscored that point in an article published by the People’s Bank of China March 26 that criticized western economic policies and recommended regulators be allowed to “act boldly and expeditiously without having to go through a lengthy or even painful approval process.”

“China has to be listened to,” says Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “What they are trying to do is exert maximum influence on the design of the new global financial architecture.”

Revamp

In addition, central banks and regulators are signed up to a revamp of the so-called Basel II bank-capital standards after a 2003 rewrite was never fully applied in the U.S., leaving European banks to compete under different rules.

G-20 countries are also spurring accounting-standard setters to speed up the work of narrowing differences so investors can compare financial statements around the world. < remember Enron, Worldcom, Fannie Mae, Freddie Mac, it was all creative accounting subprime CDOs, CLOs whatever else is out there…values of these papers all creative accounting all started in the US.>

Any agreement at the G-20 would hand leaders a way of papering over other policy differences. European governments have resisted a U.S. push for more stimulus spending. The World Bank says most G-20 members have taken actions that restrict trade, even after pledging to avoid protectionism.

A fresh split emerged last week as China proposed the creation of a new international reserve currency, only to run into immediate U.S. opposition. <surprise, surprise one of the only valuable things produced in the USA is it’s currency question is did they (China) succeed or US ? find out later in this article… >

On regulation, at least, “there’s definitely a unified framework forming now,” says Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London.

“Whether it works will only be known when the next crisis hits.”

click here to read full article

..Let us look at some other articles for more clues before G20 meeting.

China pitches for new financial order March-4th-2009.
China on Wednesday strongly pitched for reform of global financial institutions and establishment of a new financial order with Beijing and New Delhi playing a greater role in the decision-making process of these bodies. Chinese Ambassador Zhang Yan said both the countries should work together to press the developed countries to bear their responsibility and prevent them from shifting the burden on to developing countries. < watch the language here, not just oppose but press the US to make sure they don’t inflate away their problems this time by de-valuing the USD, that is what it means…I think…>

He said India and China should enhance cooperation in the economic field and join hands in ensuring reform of the international financial system to meet challenges posed by the economic downturn.

But it seems India was already on this agenda already as early as in November of 2008 way before their meeting with Chinese which took place in March of 2009..(see date of the article above)

India, Belgium boost ties, call for new financial order
Wednesday,05 November 2008, 02:50 hrs
New Delhi: India and Belgium Tuesday called for evolving a new global financial architecture even as they sought to add more muscle to their burgeoning economic ties.

Prime Minister Manmohan Singh held talks with Belgium’s King Albert II, who is currently on a 10-day visit to India, on a wide range of bilateral and global issues, including the intensification of economic ties and the India-EU relationship.
“A change is needed in the global financial system, with the International Monetary Fund reinventing itself in light of the current financial turmoil that is rocking the world markets,” said Commerce and Industry Minister Kamal Nath in his address to a seminar on ‘India and Belgium - Partners in a Globalised World’.

–Then comes G20 meeting..so what happened in that meeting ?

The G20 moves the world a step closer to a global currency
The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity.

By Ambrose Evans-Pritchard Last Updated: 3:45PM BST 07 Apr 2009

A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order.

“We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,” it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.

<…remember that question…..from an article above….

A fresh split emerged last week as China proposed the creation of a new international reserve currency, only to run into immediate U.S. opposition. The question is did they (China) succeed or US ? find out later in this article…
Did you get an answer ?…read ahead….>

In effect, the G20 leaders have activated the IMF’s power to create money and begin global “quantitative easing”. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.

It has been a good summit for the IMF. Its fighting fund for crises is to be tripled overnight to $750bn. This is real money.

Gordon Brown said it took 15 years for the world to grasp the nettle after Great Crash in 1929. “This time I think people will agree that it has been different,” he said.

President Barack Obama was less dramatic. “I think we did OK,” he said. Bretton Woods in 1944 was a simpler affair. “Just Roosevelt and Churchill sitting in a room with a brandy, that’s an easy negotiation, but that’s not the world we live in.”

< I think he is referring to Chinese here, negotiations with Chinese & Russians and probably others have not been so easy on this topic.>

The Russians had hoped their idea to develop SDRs as a full reserve currency to challenge the dollar would make its way on to the agenda, but at least they got a foot in the door.

There is now a world currency in waiting. In time, SDRs are likely evolve into a parking place for the foreign holdings of central banks, led by the People’s Bank of China. Beijing’s moves this week to offer $95bn in yuan currency swaps to developing economies show how fast China aims to break dollar dependence. < notice the difference here ? There is now a world currency in waiting..humm..new currency that does not sound like USD or does it ? led by the People’s Bank of China… what’s up with that ? US is not a leader any more ? and that currency swap China has agreed to …how fast China aims to break dollar dependence, well that does not sound like they are in love with $$ any more or does it ?>

The key phrase is “new rules aimed at avoiding excessive leverage and forcing banks to put more money aside during good times.”

…..extreme debt leverage: it was the banks – up to 30 times in the US and nearer 60 times for some in Europe that used off-books “conduits” to increase their bets. The market process itself is sorting this out in any case – brutally – forcing banks to wind down their leverage. The problem right now is that this is happening too fast. < now I am not a pundit and don’t know all mumbo jumbo of financial engineering but a little that I do understand is when de-leveraging is taking place, exactly opposite of leveraging what pushed the stock market higher…it can’t push the stock market higher again…it’s exactly the opposite force and so the recent stock market rally from my point of view is bear market rally..which American media would like you to believe in as a BULL MARKET RALLY….but then again it’s my useless opinion and you need not agree with it. >

–So that was G20…here comes the UN adviser who was also at G20.

Currency basket can replace US dollar, says UN advisor
By Fu Jing (China Daily), Updated: 2009-04-03 07:39

A UN advisor has suggested that a basket of currencies - including a regional currency in Asia - could replace the US dollar in shaping the global financial system.

“I think China should play a cooperative role with Japan, South Korea and other Asian countries to introduce a regional currency while the world is trying to replace the old reserve currency system,” Jeffrey Sachs, special advisor to UN Secretary General Ban Ki-moon, told China Daily on Wednesday.

He said China’s central bank governor Zhou Xiaochuan has come up with an innovative idea to introduce a global currency in an effort to redefine the rigid global financial regime, which has undergone no major change since World War II.

“However, I think the US dollar, British pound, euro and a regional currency in Asia can shape a basket of global reserve currencies with their own special drawing rights,” said Sachs, who is with the UN delegation attending the G20 summit.

Any doubts about what happened to USD at G20 ? is your mind as numb as mine is at this point ? Do you think China was in love with USD and Bollywood was singing love songs of USD at G20 ? –OR–

Do you think it was Chinese fireworks show and Indians, Russians and a lot of Europeans were audience to that show ? while a smart brain like your searches for those very tough to find answers….(..to tell you the truth mine is numb..after reading what I wrote above….)

Anyway….let us proceed….so what have Chinese done since..that meeting….it turns out a whole lot….if you read my previous article on Currencies (…currency review II..) you may have noticed the points I made in that article about Chinese actions in currency market…here are those points again…I will only continue on those points here….

…from previous article…

These are  the targets that China wants to achieve regarding currencies as I understand it…..

1. Not support Dollars/US Debt. anymore.
2. Asking IMF to be a world bank and issue new ( world ) currency and
3. In case both ( 1 & 2) fails convert their own currency as world currency and increase it’s value
4. Gather support for everything they are doing - applicable to all 3 of their goals listed on the top.

–So let us go over them once again…one by one….just like we did in currency review II article before…

1. Not support Dollars/US Debt. anymore. & 2. Asking IMF to be a world bank and issue new ( world ) currency and

Are you kidding me…do I need to ask you to go back and re-read all that happened at G20 meeting again. Did it sound like China was in love with USD and Bollywood was singing love songs of USD at G20 ? Did you fail to notice Russians at G20 ? or did you not hear what the Europeans said at G20 ?

..Anyway…here comes fresh warning from Chinese and suddenly they like more investment in Europe…(..Euro…). That leaves US and UK aside.

China seeks oversight of reserve currency issuers
China sovereign wealth fund plans more investments in Europe: report
By Lisa Twaronite, MarketWatch
Last update: 11:59 p.m. EDT April 19, 2009

SAN FRANCISCO (MarketWatch) — Chinese Premier Wen Jiabao called for more surveillance of countries that issue major reserve currencies, according to published reports Saturday Wen did not specify the United States in his remarks at the Boao Forum for Asia in China’s Hainan Province. But Chinese officials have recently expressed their concern about their country’s investments in dollar-denominated assets. < Let me remind you that this is the second time Chinese have shown their concern on this topic..first time they did this was back in March….check out the headlines below…from March. >

China worried about safety of U.S. debt
Premier Wen says China’s large stake in U.S. Treasurys could lose value from massive U.S. deficit spending.
March 13, 2009: 7:00 AM ET

BEIJING (Reuters) — Premier Wen Jiabao held out the prospect of extra stimulus spending if needed to hit China’s 8% growth goal this year and called on Washington to ease worries Beijing has about the safety of its vast U.S. assets.

In his annual news conference ending the nine-day session of China’s ceremonial parliament, Wen on Friday reaffirmed China’s commitment to keeping the yuan broadly steady and noted that the currency, far from having depreciated, had been rising in value.

Wen, who fielded questions for well over two hours, said the 8% growth target was a measure of his government’s confidence and a reflection of its commitment to keep raising living standards. But he said the task was not easy.

3. In case both ( 1 & 2) fails convert their own currency as world currency and increase it’s value.

Last time I wrote a review on this there wasn’t much data available on it. But now there is and here are some definite indications as to what is going on in regards to Yuan’s value and it’s relationship with USD.

Dollar Optimism Drops to One-Year Low as Fed Dilutes Currency
By Ye Xie

April 15 (Bloomberg) — Expectations for a weaker dollar increased to the highest level in a year after the Federal Reserve diluted the currency to lift the economy out of a recession, a survey of Bloomberg users showed.

One USD trades less than 7 yuan
Updated: 2008-04-10 10:57

The strengthening of China’s currency, yuan, has made an epoch mark on Thursday, as the yuan against the US dollar exchange rate officially broke the 7:1 threshold.

The People’s Bank of China, the central bank, set the medium parity trading rate of the yuan against the greenback at 6.9920:1, the first time the rate surpassed the 7:1 benchmark, since China’s central government phased out its old exchange regime in July 2005.

Yuan Rises to One-Month High on Reference Rate, Gold Reserves
By John Liu

April 24 (Bloomberg) — China’s yuan climbed to a one-month high after the People’s Bank of China set the strongest reference rate since November, bolstering confidence the government won’t seek depreciation to aid exporters.

The central bank fixed the central parity rate higher for a third day as ICE’s Dollar Index, a gauge of strength in the greenback, dropped to its lowest in more than a week. Goldman Sachs Group Inc., CLSA Asia-Pacific Markets and Morgan Stanley have all raised economic growth forecasts for China this week on signs a 4 trillion yuan ($586 billion) stimulus package is working. The nation’s gold reserves rose by 76 percent since 2003, the State Administration of Foreign Exchange said today.

And they have confirmed that the trend will continue..

China to continue reform of exchange rate process
(Xinhua)  Updated: 2009-04-16 18:10
China said Thursday it had taken note of a US report stating that the Chinese government did not manipulate the exchange rate of the yuan.
“We will continue reform of the renminbi exchange rate mechanism,” Foreign Ministry spokeswoman Jiang Yu told a regular press conference. She was responding to a question concerning the US statement.

The US government said Wednesday that no major trading partner had been found to be manipulating its exchange rate to gain an unfair trade advantage.
Treasury Secretary Timothy Geithner made the remarks in a statement accompanying the release of the department’s semi-annual “Report to Congress on International Economic and Exchange Rate Policies.”

The report came after Geithner was reported to have said, during his Senate confirmation hearings earlier this year, that US President Barack Obama believed China was manipulating its currency.

And then keeping everybody in dark all these years China in a sudden news break declared they have horded a lot of Gold.

China confirms talk by unveiling big pot of gold
…China is the world’s largest gold producer and does not permit exports of gold ingots, only jewellery, leaving plentiful supplies for the domestic market..China produced 282 tonnes of gold last year, meaning the state bought around one quarter of domestic production, assuming 454 tonnes increase in state purchases were spread out over the six years since China last reported a change in its holdings.

Hu said China recently reported the change in its gold holdings to the International Monetary Fund and would include the latest change in central bank reports and balance of payment statistics.

Gold market participants said the news signalled likely further buying by China.
“The comments indicate that China will buy more gold as reserve to improve its foreign reserve portfolio. This is a trend,” said Yao Haiqiao, president of Longgold Asset Management.

Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tonnes. “It’s not a matter of a few hundred, or 1,000 tonnes. China should hold more because of its new international status, and because of the financial crisis,” he said.
“The financial crisis means the U.S. dollar value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage.”

The European Central Bank recommends its member banks hold 15 percent of their reserves in gold, but among Asian nations the percentage is far smaller, said Albert Cheng, World Gold Council managing director for the far east.

And right here those who have their ultimate faith in US and in USD will argue that if all of this is true why USD is so high in value..and..worry not I have that covered and just as a caution to you..there is something very devastating towards the end of this post that you must pay attention to

Anyway I am not going to post what I think about strength of USD but I will get you that answer from someone who knows absolutely best about currencies Mr. George Soros….when George Soros talks currencies, people listen….so read carefully…

Soros: Dollar’s Strength a Measure of System’s “Sickness”; Euro Will Remain Viable
Posted Apr 07, 2009 09:28am EDT by Aaron

Task in Investing, Newsmakers, Recession George Soros is a man of many skills. The billionaire has been very successful as an author, philanthropist, and as a force in liberal politics.

Problem is he knows exactly what is going to happen with USD and UK pound but he is not telling in this video interview….none the less he has declared the EURO will survive and will hold.

There is a video interview of Mr. Soros on the web page please click here to launch it

And this is the shortage of USD Mr. Soros is talking about…(..I think..)

Europe’s banks face a $2 trillion dollar shortage
By Ambrose Evans-Pritchard
Last Updated: 11:41AM GMT 05 Mar 2009
The BIS said European and British banks have relied on an “unstable” source of funding, borrowing in their local currencies to finance “long positions in US dollars”. Much of this has to be rolled over in short-term debt markets.

“The build-up of large net US dollar positions exposed these banks to funding risk, or the risk that their funding positions could not be rolled over,” said the BIS.

The report, entitled “US dollar shortage in global banking”, helps explain why there has been such a frantic scramble for dollars each time the credit crisis takes a turn for the worse. Many investors have been wrong-footed by the powerful rally in the dollar against almost all currencies, except the yen.
The BIS said the total “funding gap” in dollars was around $2.2 trillion at the peak, when money market liabilities are included. This had fallen to around $2 trillion by the time of the Lehman Brothers collapse. The data is collected with a lag but it appears that there are still huge dollar liabilities to be covered.

Here is a chart that explains it better…

Here is link to BIS report from where I got this chart…

..And though Mr. Soros said he can’t talk about USD he did talk about USD in a separate interview….(..sort of…) so pay attention..and you may find the clue that you were looking for.

Americans Were “Living in a Fool’s Paradise” That’s Gone Forever, Soros Says
Posted Apr 09, 2009 09:24am EDT by Aaron Task

Americans were “living in a fool’s paradise” based on the “false promise” of the “market magic,” and the idea debt-fueled consumption was a sustainable and legitimate economic policy, the billionaire speculator says.

Again there is a video of Mr. Soros on this topic click here to launch

Now besides what Mr. Soros said let us look at what Chinese are doing to get away from USD.

The effect is same on China as it would be on you. Let me give you a simple example and it would make this case clear for you..if you find out price of Gas/Petrol will rise tomorrow what will you do today…? you will rush and buy as much gas/petrol as much you can today..before the price goes up…well, price of gas does not go up..price of currency goes down. So what will China do if they know price of USD is going to go down..they will buy as much as possible of everything they can, while they can before the price of currency USD goes down….clear ? and that exactly is what they are doing…

Deals Help China Expand Sway in Latin America
By SIMON ROMERO and ALEXEI BARRIONUEVO
Published: April 15, 2009

CARACAS, Venezuela — As Washington tries to rebuild its strained relationships in Latin America, China is stepping in vigorously, offering countries across the region large amounts of money while they struggle with sharply slowing economies, a plunge in commodity prices and restricted access to credit.
In recent weeks, China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil’s national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come.

A ‘Copper Standard’ for the world’s currency system?
Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.
By Ambrose Evans-Pritchard
Last Updated: 2:41PM BST 16 Apr 2009

And look how fast they are spending what they collected over 30 years…..

Winners and losers from China’s $586 billion boost
By Nick Godt, MarketWatch
“For starters, China must of course finance its plan, which could mean it will have to either sell its holdings of U.S. Treasury and agency securities or slow its rate of accumulation in these securities,” Crescenzi wrote in a note.
China holds roughly $1 trillion of U.S. securities, including $541 billion of U.S. Treasurys and $200 billion in agency securities, according to Miller Tabak.
Massive selling of those securities, at a time when the U.S. government is already expected to issue large amounts of debt to finance its own economic stimulus measures, could further raise borrowing costs, such as mortgage rates, which are benchmarked to bond yields.

– China’s 586 billion boost…continue…
The most remarkable aspect of the Chinese stimulus plan is its enormous size. Despite the massive publicity surrounding its formidable growth rate, the Chinese economy is still ‘only’ one-fifth the size of America’s. Relative to its economy, China’s stimulus package would be the equivalent of a $3 trillion package in America.

Let us recap…

So may be now the common myth that is held by people so far that USD is supported by Chinese is probably melting away…and I think it might be clear that USD is strong not because of Chinese but mostly due to it’s requirement in Euro region. How much money (USD) China is spending those news articles are spread all over the net if I start to post all of them I think I will land up writing a book..so I have given examples of only a few important ones.

They have found a perfect time to spend their collected USD a.) when credit crisis is in full force every country that needs USD will be forced to come to terms with Chinese as they are the only cash rich country.

b) Chinese are cashing in their USD while the value is still high…odds couldn’t be better than these.

c ) and providing business to countries suffering during credit crisis they are developing better friendship with those countries..which is an un-intended good result they are getting out of it.

China offers funding, loan credits to Southeast Asia
By Chris Oliver, MarketWatch
Last update: 11:20 p.m. EDT April 12, 2009
HONG KONG (MarketWatch) — In an apparent move to extend its influence, China will create a $10 billion infrastructure fund and extend $15 billion in credits to Southeast Asian nations as part of a general aid package to help its regional neighbors ride out the financial crisis. <Since when did China became so charitable, they have been in that area with same neighbors for past 1000s of years but only now that they have found it’s important to help them out. This will get rid of $$ and win friends.>
Chinese Foreign Minister Yang Jiechi announced the plan Sunday through a report from the state-run Xinhua News Agency, saying the “investment cooperation fund” would support infrastructure, energy and resources, and information and communications projects.

If you still don’t believe they are spending their dollars and getting rid of them as fast as they can..may be this will really open your eyes….

China has ‘canceled US credit card’: lawmaker

Still don’t believe it...

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