Friday, November 23, 2007

[Latest Global Dollar Liquidity measure: +14.1% annual growth rate; latest Endogenous Liquidity Index: -35.2%]

Liquidity @ Financial Times; good point by Brad Setser.

[1] Liquidity @ Financial Times. (a) The US dollar, according to economist David Hale, has both a flow and a stock problem: the US would like to keep its reserve currency status intact, yet it calls for a "significant revaluation of the Chinese currency in spite of its role in funding the US budget deficit"; (b) Ralph Atkins quotes former German finance minister Hans Eichel: "The euro could become a reserve currency with equal status to the dollar". But the now the chickens have come home to roost, and many in Europe appear to entertain second thoughts about their ambitions for the euro. This is certainly not the case of former Bundesbank economist Ottmar Issing: "As a central bank, the currency is your baby. And if it is so widely appreciated, it is an expression of credibility and trust in the future stability of the currency". Between early 2002 and the second quarter of 2007, the euro's share of foreign exchange reserves rose from 19.7% to 25.6%, according to IMF data. [David Hale: "Where the dollar’s decline is taking the world", Financial Times][Ralph Atkins: "Dollar safe from challenge of the euro", Financial Times]

[2] Liquidity @ Financial Times. (c) The dollar is killing us! The FT's leading headline, another dollar-related story, features this comment by Tom Enders, CEO of Airbus: "The dollar has passed the pain barrier. This is life-threatening. We need to question our business model. This is no longer sustainable"; (d) Gillian Tett revisits a well-known dichotomy: while liquidity is booming in parts of the world (read: petrodollars), it is all but collapsing in Western financial markets. (Funding v. market liquidity, anyone?). Her conclusion: "... it is one thing to expect Gulf investors to grab the odd chunk of a bank; it is quite another to hope they will bail out, say, the corporate leveraged market or subprime world. And that second scenario, I suspect, is still a dream too far. So, for the moment, we are doomed to remain in a schizophrenic financial world - where cash gluts co-exist with liquidity droughts".
[Peggy Hollinger: "Low dollar ‘threatens the life’ of Airbus", Financial Times] [Gillian Tett: "Gulf liquidity offers glimmer of hope", Financial Times]

[3] Brad Setser: Good point! Brad Setser analyzes the rencent statement on the dollar by Chinese premier Wen Jiabao: "I have a feeling that the current (unrealized) mark-to-market losses on China's investment in Blackstone drew attention to the broader financial risks that China is taking by holding so many foreign assets". Excellent point! [Brad Setser: "A little too late", RGE]

1 comment:

LoboGris de Lothlórien said...

The US exports threaten by chinese currency devaluation, the devaluation of the dollar threaten its condition of reserve currency, the european exports threaten by dollar devaluation...

It's seems that globalization and connectivity are narrowing more and more the margin of states to interfere in the monetary systems and at the same time to protect its production from the foreign competition.

A new global economy is raising, a global market that is pulling down the last state barriers.