Foreign investers withdrawing cash...QUESTION ONLY so don't get excitedgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Someone on a thread made a comment about foreigh investors. I am wondering what would happen if these people decided to take money out of the US banks since they are already seeing what is happening in other countries. Would this not cause the collaspe of the banks?
-- Linda A. (email@example.com), January 14, 1999
A great analogy I read last night on the Kairos (Firmage) website compared our global economy to a herd of elephants on a tightwire. Y2K or not, we live in times of increasing global economic volatility.
-- Other Lisa (LisaWard2@aol.com), January 14, 1999.
We are long overdue for a serious depression (not just a recession). It probably has already started in Asia. Y2K could be the trigger.
If you really want to know the ways of the world -- the relationships between politics, religion, and economics, I strongly recommend "the Great Reckoning" by James Dale Davidson and Lord Wm. Rees-Mogg.
Probably also good, but I haven't yet got to it, is their latest, "The Sovereign Individual."
-- seer (firstname.lastname@example.org), January 14, 1999.
The percentage of money which is held by foreigners in U.S. banks, I would think, is quite small in comparison to what they actually hold in U.S. equities (fueling the irrational, manic, and absurb p/e multiples, book values, and market caps of net/tech stocks for example) as well as the Bond markets. The amount the Japanese alone hold of our Treasuries is staggering. And who can blame them when their own long bond yields about 1%. The spread has been 300 to 500 basis points at the long end. If they decide to pull out, which has been widely discussed and even anticipated by the bears, we all may be surprised at where the bottom ends up being. Also consider that the U.S. dollar is the reserve currecny of choice for much of the world. It has been said that there are more $100 bills circulating in Russia than here at home. So too does leverage through derivatives play an increasingly important role, and the subsequent "unwinding" of these positions, regardless of who is holding them. Just some other things to consider.
-- Rob Michaels (email@example.com), January 14, 1999.
"The percentage of money which is held by foreigners in U.S. banks, I would think, is quite small in comparison to what they actually hold in U.S. equities"
I'm learning quick about these issues and I can see why the Fed is so nervous. I'm surprised the Japanese haven't started dumping these equities already. They must have a deal with the Fed but I can't see how they can hold out much longer.
If you want an preview of whats to come just look at Brazil.
-- Michael Taylor (firstname.lastname@example.org), January 14, 1999.
It is not so much that they have a deal with each other as they act together many times and always consult with the other central banks, which are also acting in concert with the World Bank and IMF. This is basically called monetary policy, but what it amounts to is collusion. If private businesses did the same thing they would be put in jail. Must be nice to make your own set of rules, and act with inpunity.
-- Rob Michaels (email@example.com), January 14, 1999.
Posted this on another thread, I can't find, so re-post here. (The links from this SJMN breaking news source "disappear" so fast that they always rate a "full" post). Despite Japan's tottering economic situation, investors are moving money into Japan "on loan" because the interest rates offered are higher than elsewhere. The bubble could be propped up a while longer, or not.
Posted at 9:30 p.m. PST Friday, January 8, 1999
Falling dollar is mystery in soaring economy
New York Times News Service
WASHINGTON -- Even while the stock market hits new highs, a crucial indicator of foreign confidence in the U.S. government and its economy -- the dollar -- has been falling. No one can agree why.
By all the normal measures, it should not be happening. The U.S. economy remains remarkably strong -- President Clinton on Friday was hailing the longest peacetime economic expansion in the 20th century. The huge federal budget deficit that once was blamed for undercutting the dollar has turned into a surplus that is estimated to hit $76 billion this year. Inflation is practically nonexistent.
Yet investors are flocking to the Japanese yen. The dollar has fallen nearly 25 percent against the yen since August even as every indicator suggests Japan will remain the basket case of the world's major economies in 1999.
Last summer the dollar was trading around 145 yen, and many U.S. officials feared it would rise to 160, to the enormous detriment of U.S. exporters. Instead, it was trading around 120 yen by mid-December and bounced around 110 yen this week. What has changed in the fundamentals that are supposed to govern currencies over the long term? Very little.
The dollar did better against European currencies, but it is nonetheless down about 6 percent over the same period against the German mark.
So what is causing all this? It depends on who you ask, and where they live. In the United States, some say the cause is the swelling trade deficit. Others say it is the enthusiasm for the euro, the single currency that was introduced this week by 11 European nations. Even though the euro has fallen slightly against the dollar, it seems to be clearly on the way to establishing itself as the world's No. 2 currency. Still others say the dollar's decline is a byproduct of Japan's latest act of financial desperation, an unexpected increase in interest rates that appears to be drawing investors back to Japan, even if many fear the higher rates will further slow Japan's economy.
Ask foreigners, though, and many say the answer is being beamed around the globe 24 hours a day: the impeachment trial of Clinton. ``It's what I hear from friends and clients all over the world,'' said Sung Won Sohn, the chief economist at Norwest Corp. ``They see the chief executive of the world's greatest power going on trial and equate it to what would happen if that was occurring in their own country. And they conclude, rightly or wrongly, that the U.S. will not be able to provide leadership if things get dicey again.''
Just this week, HSBC Securities, part of the HongKong & Shanghai Bank group, warned investors in a report to keep an eye on ``political stability'' in Washington. It notes that the market calculus is that Clinton will stay in office -- but of course the market calculus is based on the conventional wisdom blaring from television sets. And the conventional wisdom has been notably wrong at almost every major turn in the last year of handicapping the Washington scandal.
``The quick fix is not likely to be so quick,'' HSBC concluded, ``and the odds could change as well.''
To many Americans, an impeachment explanation for the dollar's troubles seems outright ridiculous. But the fact of the matter, says Robert Hormats, the vice chairman of Goldman, Sachs & Co., is that ``there is no wholly rational explanation for this.''
As always when currencies lurch in one direction or another, the effects are complex and unpredictable. Some of the decline may simply be a feeling that the sharp rise in the dollar over the previous couple of years had gone too far. American farmers, steelmakers and some big manufacturers have been complaining for over a year that a strong dollar, combined with the collapse of most Asian economies, was killing their business abroad and undermining their efforts to compete with cheap imports. For them, a weakening of the dollar is welcome news -- and it perhaps partly explains the stock market's recent surge.
Friday the dollar settled at 110.93 yen, down from 111.04 Thursday. It was up slightly against the euro, which fell to $1.15540 from $1.16700.
Still, no one seems to be celebrating at the U.S. Treasury. There, sharp fluctuations in currencies are viewed as one of the volatile fuels that have fired 18 months of global instability. The countries that linked their currencies to the dollar -- chiefly Thailand and South Korea -- could not sustain the connection as the dollar strengthened, making their products less and less competitive abroad.
Just because a rising dollar was bad news in 1997, though, it doesn't follow that a weakening dollar is necessarily good news in 1999. The world has changed a lot since then.
More than ever, the ground zero of the world's economic troubles is Japan. A bad year for Japan could mean a bad year for the rest of Asia, because there will be no engine of regional growth. And the strengthening of the yen is grim news for Japan's exports -- the best hope Japan has of limping back to growth by the end of this year.
So in a strange way, the Clinton administration finds itself as worried about what a weak dollar means for Japan as what it means for America.
``We're in this odd position,'' one senior administration official said this week. ``What looks like good news for us could in fact turn out to be pretty troublesome for the world.''
The unresolved question is whether the fall of the dollar and the rise of the yen says more about what investors around the world are thinking about America, or what they are thinking about Japan.
Sung noted that ``America is saving less and less, and that is leading to some pessimism, and it doesn't look like the current account will be turning around soon.'' The current account is the broadest measure of financial flows.
Also, the talk of declining profits later this year clearly has many investors around the world spooked. These factors, combined with the political uncertainties of impeachment, create nervousness about the champion economy of the 1990s.
But perhaps the more mystifying change of perception concerns Japan.
The country's economic outlook is hardly improved; the best prognosis calls for1999 to be a lot like 1998. But in one of those oddities that has peppered the Asian financial crisis, interest rates in Japan, which have been at rock bottom, are going up. And that may be luring money back into the country.
The rates are going up because the Japanese government is issuing bonds with unaccustomed abandon, to finance a growing deficit as it tries to stimulate the economy. The higher rates -- combined with the cuts in American rates several months ago -- have narrowed the previously huge gap between Treasury bonds and Japan's offerings.
More surprising, Japanese officials seem to be encouraging the rising yen. Earlier this week Eisuke Sakakibara, the Finance Ministry official once known as Yen for his ability to move the markets (an ability that has waned), referred to the U.S. stock market as ``bubble-like.'' Sakakibara has expressed that view many times before, making the argument that the United States today looks like Japan in 1989.
But perhaps Japan's top motivation for tolerating a high yen, no matter the damage it does, is political. The embrace of the euro confirmed a Japanese nightmare -- that years of weakness have undermined the yen's role as the world's second currency. So Japan's politicians, led by Prime Minister Keizo Obuchi, are circling the globe this week talking about a currency triumvirate -- the dollar, the euro, the yen. To make that stick, there needs to be a strong yen, not a weak one.
-- Diane J. Squire (firstname.lastname@example.org), January 14, 1999.
I would say the main problem is not dollars that foreign investors have in US banks- it's dollar-denominated equities (Treasury debt, bonds, stocks etc) that they hold. With "new" currencies (the Euro, the gold dinar, a gold-backed yen etc) showing up or being proposed, the dollar as a reserve currency looks less and less attractive all over the world. What I think you should be watching for is the dumping of dollar-denominated debt by the Japanese, Germans and Chinese. When this starts (note I didn't say IF this starts) the jig will well and truly be up. Your dollars (either digital or the green folding kind) will suffer too, though how much purchasing power you'll loose and how soon that will happen provide hours of fascinating speculation. The vehicle that this specter will arrive in (inflation, deflation, stagflation) is also subject to a great deal of disagreement.
Please note that this will happen regardless of whether y2k is a bump in the road or a disaster. So make your preparations wisely and hang on to your stash and your new mindset even if 1/1/2000 is a walkover.
-- nemo... (email@example.com), January 14, 1999.
FYI the USA owes more to the rest of the world than any other country on earth. Mostly they owe it to Japan.
What would happen if (say) the Japanese started wholesale conversion of their dollars into yen? Simple supply and demand. There would be more dollars available, and less yen, so the yen/dollar exchange rate would change (making the yen stronger and the dollar weeaker, probably dramatically so).
It's the knock-on effects of this that you worry about. A weak dollar would cause inflation in the USA, because consumer goods made abroad would cost more dollars. A stronger yen would make the Japanese economy go from bad to worse, because USA customers would no longer be able to buy the goods they make. And if this happened in days rather than years, the disruptive effects of the sudden changes would cause crashes, bankrupcies, bank runs, and general chaos all over the world. For some idea, look at the smaller asian countries whose currencies collapsed last year, or read some history. Last time this sort of thing happened world-wide was called the Great Depression (in the 1930s in the USA; hit the rest of the world a bit earlier).
It's in no country's interest to see this happen (except perhaps Iraq's or North Korea's). However, there's a limit to what the central bankers and politicians can do and we may be getting very close to the point where they lose control. Y2K is an obvious trigger, though Brazil (current news) may suffice!
There again, it's another thing where nobody really knows. (Maybe a few central bankers do, but they never tell in public). Money is paper today, not gold; this gives extra degrees of freedom that never existed before. Opinions vary as to whether this is good or bad (don't ask me, I know I don't know!)
-- Nigel Arnot (firstname.lastname@example.org), January 15, 1999.
"Money is paper today, not gold; this gives extra degrees of freedom that never existed before."
I'm no expert either Nigel but in many repects money is actually digital now, not paper, if you see what I mean. Which makes y2k all the more interesting - Bankers and the Global Elite have never been so worried.
Two digits. One mechanism. The smallest mistake.
"The conveniences and comforts of humanity in general will be linked up by one mechanism, which will produce comforts and conveniences beyond human imagination. But the smallest mistake will bring the whole mechanism to a certain collapse. In this way the end of the world will be brought about."
Pir-o-Murshid Inayat Khan, 1922 (Sufi Prophet)
-- Andy (2000EOD@prodigy.net), January 16, 1999.
I read The Great Reckoning. Written in 1991 and you'd swear they were talking about the present situation of the world. It's almost scary!
-- Dave (email@example.com), January 16, 1999.
"... in many repects money is actually digital now, not paper, if you see what I mean. Which makes y2k all the more interesting - Bankers and the Global Elite have never been so worried. "
Andy: Yes, money is mostly digital now, but it can be coverted into currency. This a great threat to the banking system since, as you know, there is no where near enough money in physical cash to even cover deposits. The "answer" to this is to eliminate cash. If everyone is forced to use electronic money, there can be no runs on the banks. Look to history to see what happened during a previous time when there was another, but different, threat:
In the 1920's (and all thourghout the history of the U.S. beforehand, gold and/or silver were backing our dollar - In other words, paper dollars were a claim on a specified amount of precious metal, unlike today. This cuased a great amount of problems as a result of the Fed printing more than two times the amount of paper dollars than it had in gold and silver in reserve. Sound Familiar? This was also a threat, and was dealt with by dropping the link of precious metals to our fiat currency, so that it could be inflated at will. Today the threat is not enough physical cash, and this too the powers that be want to eliminate. To my mind, the only questions are when and how.
-- Rob Michaels (firstname.lastname@example.org), January 16, 1999.
"Today the threat is not enough physical cash, and this too the powers that be want to eliminate. To my mind, the only questions are when and how."
Having worked for VISA for over five years Rob I have a fair idea of what can be done (I was on the Chip Card project as well as being a Coverage programmer on the realtime systems (primarily assembler.))
My contention is that the Banking computer infrastructure is extremely susceptible to cross contamination of corrupt data which could shut down the world banking system if the theories play out.
I really don't see how electronic banking can be brought in by the NWO if the infrastructure collapses.
Any wild assed guesses???
Today the threat is not enough physical cash, and this too the powers that be want to eliminate. To my mind, the only questions are when and how.
-- Andy (2000EOD@prodigy.net), January 16, 1999.
Andy: I agree that the computer infrastructure is extremely susceptible and can bring down the banking system (as well as most everything else). My point was that they want to eliminate the threat of bank runs as a result of the dearth of cash. They have wanted to do this for some time now, but Y2K is getting in the way, as well as the unpopularity of the recent "smart" money card attempts.
Should Y2K actually bring it down, whatever replaces what we have now, and eventually something has to, will most likely take into consideration this elimination that I speak of. If the infrastructure collapses then who knows how long it will take for a replacement to be put in place, or what form it will take.
OTOH, should Y2K not bring things down, they will still want to eliminate the threat which currently exists regarding cash and potential bank runs. An interesting question arises if you buy that Y2K will bring the system down, and that is: Will the people accept any kind of electronic money, after the bad taste from Y2K failures? One last point; there is potentially a difference between what the powers that be want to do, and what they will be able to do. Regardless, they are hell bent on eliminating any threat to the system.
-- Rob Michaels (email@example.com), January 16, 1999.