Monday, May 14, 2007


- David Malpass on Global Liquidity Conditions. Rich Karlgaard, who writes Forbes' Digital Rules blog, quotes Bear Stearns chief economist David Malpass on global liquidity conditions:

Globally, the impact of plentiful liquidity is reaching a crescendo, with stocks high, spreads narrow, growth strong, land prices booming and central banks flooded with dollars. We note the sharp contrast with 2001, when a shortage of dollar liquidity (strong and strengthening dollar, high real interest rates, low central bank dollar reserves, falling gold and commodity prices, rapidly shrinking U.S. profits) all spelled weakness.

- Steen Jakobsen on China & the New Bretton Woods. Saxo Bank's fund manager Steen Jakobsen tours Asia and realizes how vitally important the New Bretton Woods proposition is to China:

The rule of controlled peg, or Breton Woods II, as many prefer to call it inflates assets as the locals banks get FLOATED with domestic currencies which then goes into stock markets, fixed income, land and consumption through low rates, leverage debts ... The risk though being PBOC could be forced to move. The inflation numbers created some stir, and there is desperate needs deflate some of the bubble, but the Chinese have learned their lessons from the Japanese in the 1980s. Japan accepted to let their currency to go stronger and ever since they have been in deflation!

- Chris Dialynas on ... the New Bretton Woods. PIMCO's Chris Dialynas discusses the New Bretton Woods arrangement in the context of the firm's upcoming "secular forum":

The common presumption is that Bretton Woods II is in every country’s mutual interest to keep the globalization game going. But as this arrangement grows, it becomes more complicated and makes more people nervous ... From the U.S. standpoint, a revaluation is an obligation under Bretton Woods II, since it could help cure some of the imbalances or at least keep them from growing too large. But China has been very reluctant to let its currency appreciate significantly.

- Slow investment growth & global interest rates. Strong global liquidity growth increases the supply of loanable resources in the credit market. But other factors must be at work to explain the low level of long-term interest rates globally. Harvard University economist Ken Rogoff recently suggested that low levels of investment are a natural consequence of emerging economies' weak governance standards. This Financial Times article makes a similar point about investment (or the lack thereof) in oil-exporting countries:

Resource nationalism, which is limiting access for international oil companies, and the national oil companies’ failure to reinvest profits in production, are limiting outlay required to replace existing resources, which are being substantially depleted ... Robin West, chairman of PFC Energy said: "The concern is not that the world is running out of oil, but rather it is running out of oil production capacity". The PFC study shows political factors are limiting capacity increases in Mexico, Venezuela, Iran, Iraq, Kuwait and Russia.

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