More currency and trade - G20

From weekend G20 meeting, now it's head-on between developed world (largely US and Euro zone) and emerging markets.

Tim Geithner:
“The IMF must strengthen its surveillance of exchange-rate policies and reserve accumulation practices,” he told the IMF’s ministerial steering committee. “[E]xcess reserve accumulation on a global scale is leading to serious distortions in the international monetary and financial system, and is inhibiting the international adjustment process.”

Zhou Xiaochuan:
"The continuation of extremely low interest rates and unconventional monetary policies by major reserve currency issuers have created stark challenges for emerging market countries in the conduct of monetary policy,” he said.

“The Fund’s current surveillance framework, which focuses on exchange rate policies, effectively leaves developed countries outside the Fund’s oversight.”

Currency is politics.  Since Bretton Wood, the US government perfected it... unfortunately when you are using it for too many times, others will eventually be fed up.

My bet is neither side will back off on its position.

More currency and trade

Douglas A. Irwin, the Professor at Dartmouth College write a piece on Wallstreet Jounal:

Goodbye, Free Trade?

High tariffs and currency wars cost us big in the 1930s. We can avoid making the same mistakes again.

 http://online.wsj.com/article/SB10001424052748704696304575538573595009754.html

On infation, he wrote
"The great concern is that an expansionary monetary policy will lead to uncontrolled inflation, destroying faith in the dollar. Similar sentiments were expressed in the 1930s by advocates of "sound money" who opposed going off the gold standard. Such fears may be justified in ordinary times of full employment, but when there is considerable slack in the economy and unemployment remains high, monetary policy can help to raise output before it leads to higher prices."

Sure enough that's the solution Feb is seeking.  However before the US finally raises output the rest of the world may have been inflated to the moon.

Related stories:
Brazil doubled tax on currency transaction - a "Tobin tax" and other currencies Korea/India/Philippines/Indonesia/Thailand/Japan
http://www.bloomberg.com/news/2010-10-05/currency-controls-tighten-as-korea-audits-banks-brazil-doubles-bond-tax.html

The government printing press

Financial times has in the past week a few articles talking about "currency war"

http://www.ft.com/cms/s/0/da5dfb94-d30a-11df-9ae9-00144feabdc0.html
and see other related links.

Financial investors since 2 years ago have entered a roller-coaster ride and up until today had at least both the down and up phase... thrilling and pleasant to some... there are more tricks to come, definitely... let's pray not to fall out of the chair.

This time round, though, anyone who observed market closely may have to agree that ever since the play got out of control of the free-wheeling American (more precisely Wall Street) capitalist, central bankers have taken over the driving seat.  As central bankers cranking up their printing presses and getting set for the competition, the only way for the financial markets is up, up, and up...

I am still appalled at how far the central bankers are willing to go to fight to make their own endorsed green/yellow/whatever color paper worth less by the day...

Anyway, the ride is far from over so sit tight and enjoy it.  Anyway, as of Fri 8Oct:

Gold - 1340
USDJPY - 82
UST 10-yr 2.4%
Emerging market stock index - back to climax, wah hoo! (with the exception of China A share market which is also crawling back)
Commodities, food, and property - you know
Inflation - I feel steamingly hot here... but sadly the one owns the largest printing press is missing the action
Bond - hope you didn't buy the Mexico century bond... 100 years is a looong time... fund managers are telling me to stretch the tenor.  I've already stretched it to cover at least 2 cycles of future crisis
Currency - where most actions are happening.  keep eyes open wide

9 Oct 10