Russia-China Proposals; “Rebalancing” Global Currency Reserves: Why the U.S. Can’t Take Anything for Granted Re: the Dollar

~~By InsightAnalytical-GRL

Nothing like tuning into Turner Classic Movies to find the 1936 film “Things to Come,” a version of the H.G. Wells’ novel about a post-World War collapse of Western civilization and rebuilding efforts through that year.

Not very cheery…and neither is the following…

We touched on Timothy Geithner’s “slip” about the dollar, but this article for yesterday’s Guardian details how the proposal China has put forth for a new role for the IMF (International Monetary Fund) is gaining ground.  And the RIA Novosti news outlet (government run), is reporting that Russia wants a conference that will remove the dollar as the world’s reserve currency.

From The Guardian:

Thursday 26 March 2009 14.42 GMT

Global currency flies with push from Russia and slip from Timothy Geithner

The dollar drops back as China’s proposal for an IMF alternative gains ground

Russia plans to hold an international conference to discuss the creation of a global currency to replace the dollar.

According to the RIA news agency, Andrei Denisov, Russia’s first deputy foreign minister, said: “This proposal is aimed at a practical realisation of the idea about a new global accounting unit or a new global currency. It is a question that should be discussed to create a consensus.”

Denisov’s comments came only hours after the US treasury secretary, Timothy Geithner, shocked the markets by saying Washington was open to the idea, though he later qualified his remarks.

The debate about a global reserve currency run by the International Monetary Fund was sparked by a proposal from China this week.

snip

China’s bold proposal has been made before by independent economists, but it has until now met with resistance from the US and other countries with large dollar holdings. Zhou has acknowledged that such a shift could take a long time.

Zhou says it could “take a long time” but if you heard Peter Schiff last night on the Jerry Doyle show, you would have heard him say that China alone can do the job.  They’ve already expressed doubts about U.S. Treasury bonds and we reported a couple of days ago that they are not going to be purchasing any more.

Just yesterday a talking head on FOX’s Shepherd Smith show predicted that the dollar wouldn’t be replaced as the world’s currency at the G-20 meeting, but the agenda of that meeting on April 1-2 sounds an awful lot like what’s coming out of China and Russia.  See our prior posts for details (below).

We also covered the Steve Clemons’/New America Foundation-sponsored Economic Policy Symposium held yesterday in D.C. which featured Laura Tyson and George Soros. Unfortunately, every browser I tried crashed repeatedly as I tried to listen and also when I tied to click through the link below to see the agenda.

I guess we have to be satisfied for now with a summary of sorts by someone I know nothing about, a certain Douglas Rediker,  which was posted yesterday after the forum was over. But I still would love to be able to read/listen to whatever is on the site, without it crashing!

Here’s an excerpt from Rediker’s short post…I suggest reading the whole thing because it has some hard numbers of interest. He takes a different view than Schiff does on what China can do or will do, but the warning is clear (my bolding):

http://www.thewashingtonnote.com/archives/2009/03/rebalancing_glo/

Rebalancing Global Currency Reserves

Thursday, Mar 26 2009, 2:05PM

At this morning’s superb economic event at the New America Foundation and in testimony before the Senate Foreign Relations Committee yesterday, there was a lot of discussion about China’s recent proposal to consider a move away from the US dollar and towards the use of a new “super-sovereign reserve currency.” The intention according to China’s central bank governor, Zhou Xiaochuan, would be to ultimately “create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.”

SNIP

…The short term risk is not that China is about to dump its dollar holdings. Rather, it is the trading floors and fund managers around the world, whose job it is to be ahead of the curve, who may well start to re-weight their holdings on the marginally increased probability that this re-weighting might actually occur in the future. As the numbers above suggest, even a relatively small shift could represent a meaningful shift of capital and resulting impact on the dollar’s value.

There are, of course, multiple forces at work in foreign exchange markets and, among the sure-fire ways to lose money in this world are: 1) to play currency markets and 2) to bet against the US and the US dollar. Nevertheless, the fact that this is now likely to be a discussion topic on the agenda for the London Summit, suggests that the US should not take for granted that the US dollar will retain its current role in the world forever. Currencies are traditionally viewed as a reflection of a country’s economic strength. The US cannot lose sight of the crucial role that the “exorbitant privilege” to print the world’s currency provides and do what it can to ensure that this privilege is not lost. We can’t take anything for granted.

Feeling better now? I’m not…

***

Related Posts:

The Scanner–International Edition, March 24, 2009: Say Goodbye to the Dollar? China, Russia Proposing a New World Currency for “Non-Credit” Based Economies, Echo G-20 Agenda of Expanding IMF; China Will “Consider” Buying IMF Bonds; 10th China Develpment Forum Underway (UPDATE 1X–Geithner Supports China Proposal??)

The Scanner-Politics: March 25, 2009 (G-20; Glenn Beck’s “The One Thing” Segment on the Dollar [Video]; “The Big Takeover”; Al Gore Releasing New Book on Election Day 11/3/2009; Augie the Dog Sends a Deposit to the U.S. Treasury)

A Reminder: Live Streaming of the First “Bernard L. Schwartz Economic Policy Symposium” Today (3/26) With a Rather Interesting Group & Agenda (To End “Fumbling” on Economic Policy)

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15 Responses

  1. I think it’s time to start making a whole lot of noise about Congress. They have been slamming through whatever they want, regardless of what we the people are telling them our wishes are. And Obama telling us that he wouldn’t accept Geithner’s resignation sits about as well as Pelosi saying impeaching Bush was “off the table”.

    • I called Sen. Udall’s office a couple of days ago and got a tape and had to leave a message…which I did, on a couple of topics and questioned him on his serving his constients. Added that the budget was a disgrace and he was, too, for going along with this sham.

  2. Just tried to click through “economic event” in the excerpt….and it’s still crashing!!!

  3. China won’t be buying any more Treasury Bonds, for a while at least, because the yield is too low. Not enough bang for the buck. The Federal Reserve has been buying Treasury Bonds like a drunken sailor for a reason. To keep the yield low. They don’t want China to buy any more bonds, IMO. China has too great a strangle hold on America as it is. Bernake and Geithner don’t want the people of America to buy bonds right now, another reason for keeping the yield low.

    It is my opinion, and many people will differ with me on this, that Geithner and Bernanke want Americans to invest in stocks to help bolster Wall Street and the banks, and to buy, buy, buy durable goods to help move the economy along.

    The plan being that if the banks are strengthened and do what they have been given all this bail-out money to do, they will lend more freely to make it possible for the people to buy these durable goods; cars, washing machines, refrigerators, household furnityure, etc.
    If they free up the money needed by business to continue producing these goods, there might be a slim chance that this thing could turn around. But if the banks continue to put the bail-out money where they have been putting it, it will be the same old same old.

    It stands to reason that Americans won’t buy Treasury Bonds with such a low yield, especially when they have so little faith in their government.

    IA, I clicked on the link above (economic event) I couldn’t get a clear audio, either. The video is very clear, but I can’t read lips yet. Do yopu think this was done for a purpose, or just faulty recording? I’m going to try to get a printed copy of the meeting If I can.

    Important to note: “The Honorable Laura Tyson holds the Chair in Global Management and Public Policy, at the Haas School of Business at the U of C at Berkley.”
    Haas being Richard Haas, the President of The Council on Foreign Relations (CFR).

    I will point you to an article, (that I was saving with other reasearch for a possible Post), that I think you will want to read. It’s a short article but it is very informative.

    http://www.crossroad.to/Quotes/globalism/2008/trends.htm

    Enjoy

  4. One group of stores I’ve noted that are going out of business throughout California are the huge furniture stores. In the areas where the huge sub-divisions are being hit with foreclosures — many of the furniture stores are closed or closing.

    According to one article I’ve read the majority of the foreclosures are in California and the Southwest.

    It is somewhat ironic that these huge sub-divisions are also in desert areas — I mean where the h*** is the water coming from to support the huge developments?

    The Ancient Indians populations also had booming populations in the Southwest and then the never ending droughts lead to the out-migration.

    What happens when the water runs out — when the wells dry and the rivers no longer run?

  5. New Mexico has one of the lowest foreclosure rates in the country; in fact, we’ve weathered the storm just fine on that score here. Most of us live in very modest homes–the big shots in the fancy homes can’t sell theirs!

    • Well that is good to know.

      I wonder why the article targeted the Southwest has having the highest foreclosures? Unless — the person who wrote the article doesn’t know that New Mexico is part of the southwest??

      I agree most homes in New Mexico I’ve seen so far are modest — very few of the McMansions. Yes I was just speaking with a long time NM resident and he said that in some of the sub-divisions with the huge homes — there is a very high vacancy rate. He said that the rapid growth in Albuquerque began about 10 years ago.

      Nevada ranks #1 (in foreclusures), Arizona ranks #3, California ranks #2

      My state, Washington ranks #26 — I thought it might be higher. There are lots of McMansions.

      A quick search yields this: Nevada, California, Arizona — are the top states with foreclosures — with Nevada and Arizona being the “southwest” — and then forgetting that New Mexico is also considered the “southwest”. hump — insulting NM!! New Mexico ranks 33rd.

      source: http://renovationmortgage.wordpress.com/2008/06/03/us-foreclosure-activity-increases-23-percent-in-first-quarter/

  6. America will need a new currency before Geithner and the politicians are finished expanding the debt and destroying the dollar but the solution is a gold backed currency free of government manipulation. The Campaign to Cancel the Washington National Debt by 12/21/2012 through constitutional amendment begins. See our facebook page at http://www.facebook.com/group.php?gid=67594690498&ref=ts

    We are also planning to have a booth at FreedomFest 2009, the world’s largest gathering of free minds! July 9–11 http://www.freedomfest.com in Las Vegas. Ron

  7. NWR,

    From what I understand, the rates in Nevada alone would skew the results of NM. Throw in AZ and SoCAl and NM could be #50 and the region would still be rated highly. Las Vegas alone spent over 10 years as the “fastest growing city”; what goes up, must come down. Throw in the populations of those states, and you start to see why the statistics show the SW as the worst hit area.

  8. China may not be in the market for any more Treasury Bonds because of the low yield, or the fear that the large investment they already have in the notes is losing their vallue. But this hasn’t prevented their continued buying and leasing of US real estate.

    The Vantone Industrial Co., Ltd, a Chinese Real Estate group has just become the first commercial tenant of the still under construction skyscraper to replace the twin towers destroyed on 9/11.

    They have taken a 20 year lease on the top floors of the 70 floor building to begin when the building is completed. It is projected to be completed in 2013.

    The floors 64 through 69 will be known as the China Center. Wonder what the 70th floor pent-house will be used for? Any guesses?

    Vantone Industrial provided the Port Authority with a $10 million dollar letter of credit. What goes on here?
    No more Treasury Notes, but a real estate co. establishing itself in the new trade center. This is indeed food for thought. Know thine enemy. Our intelligence people had better be on hand constantly while that 70th floor is under construction, and after, IMO.

    Our government notes aren’t so valuable right now, but the soil of the United States is still coveted by many. What better way to keep your ears peeled than to set up shop on the top floors of the tallest building in the city.

    costar.com/News/Article.aspx?…&ref=1&src=rss

  9. I’ve been doing trades for in the area of 7 years up til now and I am constantly watching for beneficial blogs and articles. This one truly rings a bell with me and I’m thinking about reproducing it on my own blog. Will you have any objection?

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