Sunday, May 22, 2016

The Race To The Bottom:
"We Are Becoming Convinced That 
The System Won't Stabilize"
"Central bank distortions have exacerbated these movements, making investor interest more one-sided and leading one market after another to exhibit more bubble-like tendencies, rising exponentially and then falling back abruptly. As such, managers are struggling to justify their fees, while the sellside wonders whether it is really worth the continuing commitment to market-making in the face of increased capital requirements and legal and back-office overheads. Both are under severe pressure to cut costs .. This points to an overall picture which is considerably more precarious than we think many investors (and central bankers) imagine, and one where seemingly extraneous influences – like China even for non-exporters, oil even for non-consumers, or hedge fund performance even for non-hedge funds – take on a disproportionate importance. Constraints on financial leverage do not just lead to liquidity settling at a lower level; they risk sparking a cycle of ever-diminishing liquidity. Banks exiting markets do not just lead to increased opportunities for the rest; they lead to a diminished pie for all. And a world of diminished credit growth may not simply stabilize at a lower level of nominal GDP; it is likely to need continued prodding so as not to consume itself in a destructive race to the bottom."
- Citi's Matt King
LINK HERE to the essay

1 comment:

Anonymous said...

China Quietly Prepares Golden Alternative to Dollar System

China, as current chair of the G-20 group of nations, called on France to organize a very special conference in Paris. The fact such a conference would even take place in an OECD country is a sign of how weakened the hegemony of the US-dominated Dollar System has become.

On March 31 in Paris a special meeting, named “Nanjing II,” was held. People’s Bank of China Governor, Zhou Xiaochuan, was there and made a major presentation on, among other points, broader use of the IMF special basket of five major world currencies, the Special Drawing Rights or SDR’s. The invited were a very select few. The list included German Finance Minister Wolfgang Schaeuble, UK Chancellor of the Exchequer George Osborne, IMF Managing Director Christine Lagarde discussed the world’s financial architecture together with China. Apparently and significantly, there was no senior US official present.

On the Paris talks, Bloomberg reported: “China wants a much more closely managed system, where private-sector decisions can be managed by governments,” said Edwin Truman, a former Federal Reserve and US Treasury official. “The French have always favored international monetary reform, so they’re natural allies to the Chinese on this issue.”

A China Youth Daily journalist present in Paris noted, “Zhou Xiaochuan pointed out that the international monetary and financial system is currently undergoing structural adjustment, the world economy is facing many challenges…” According to the journalist Zhou went on to declare that China’s aim as current President of the G20 talks is to “promote the wider use of the SDR.”

For most of us, that sounds about as exciting as watching Johnson grass grow in the Texas plains. However, behind that seemingly minor technical move, as is becoming clearer by the day, is a grand Chinese strategy, if it succeeds or not, a grand strategy to displace the dominating role of the US dollar as world central bank reserve currency. China and others want an end to the tyranny of a broken dollar system that finances endless wars on other peoples’ borrowed money with no need to ever pay it back. The strategy is to end the domination of the dollar as the currency for most world trade in goods and services. That’s no small beer.

Despite the wreck of the US economy and the astronomical $19 trillion public debt of Washington, the dollar still makes up 64% of all central bank reserves. The largest holder of US debt is the Peoples Republic of China, with Japan a close second. As long as the dollar is “king currency,” Washington can run endless budget deficits knowing well that countries like China have no serious alternative to invest its foreign currency trade profits but in US Government or government-guaranteed debt. In effect, as I have pointed out, that has meant that China has de facto financed the military actions of Washington that act to go against Chinese or Russian sovereign interests, to finance countless US State Department Color Revolutions from Tibet to Hong Kong, from Libya to Ukraine, to finance ISIS in the Middle East and on and on and on…

Multi-currency world
http://journal-neo.org/2016/05/18/china-quietly-prepares-golden-alternative-to-dollar-system/