BRIC+ News & comments

Discussion in 'Business & Economics' started by Billy T, Aug 10, 2008.

  1. joepistole Deacon Blues Valued Senior Member

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    Europeans refused to give Greece an extension. It looks pretty dire. Tsipras's attempt to play the Russia and Chinese cards went over with a dull thud. Tsipras's latest stunt, the call for a referendum on July 5, was the straw that broke the camel's back. Europe wasn't impressed with Greek threats and as a result Greece has now been excluded from the Eurogroup of finance ministers. Can the European Central Bank (ECB) be far behind?

    It sounds like a full-scale run on Greek banks is now in process. Greeks are waiting in long lines to withdraw their money and ATMs are running out of cash. The question now is will Greek banks be able to open on Monday? And as I wrote previously, I don't think Greek leaders have a Plan B. So if they plan to exit the Euro and if the European Central Bank cuts them off, they had better get one real quick. Greece will need to implement capital controls in order to keep its banks open.

    http://www.reuters.com/article/2015/06/27/us-eurozone-greece-idUSKBN0P40EO20150627

    http://www.wsj.com/articles/greeks-...m-announcement-1435410126?mod=trending_now_10

    http://www.nbcnews.com/news/world/g...form-atms-pm-seeks-referendum-bailout-n383006

    http://uk.reuters.com/article/2015/06/27/uk-eurozone-greece-idUKKBN0P40FR20150627
     
    Last edited: Jun 27, 2015
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  3. joepistole Deacon Blues Valued Senior Member

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    ECB has capped its emergency funding of Greek banks. Greek banks may not be able to open tomorrow. Greeks thought it was bad before, they will now see how bad things can get when their banks stop working.
     
    Last edited: Jun 28, 2015
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  5. joepistole Deacon Blues Valued Senior Member

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  7. joepistole Deacon Blues Valued Senior Member

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    Well Greek banks and the Greek stock exchange will not open this week, and maybe not even next week or the weeks that follow. Greece simply doesn't have enough cash. Retirees have been repeatedly promised their pension money and have been repeatedly denied their pension money. I suspect the $67 daily withdrawal limit is more generous than can be afforded by the Greek state and is on the longer term (meaning more than a few weeks) sustainable. Greece is running out of money.

    Banks don't have the money they need to give depositors, much less make loans. So banks are not lending. Payrolls are not being paid. Businesses are closing because people are not buying. Tourism (almost 20% of Greek GDP) is beginning to dry up. And there are commodity shortages, people are waiting in line not only for cash but for gasoline as well. All of this will get worse in the coming weeks no matter what Greece does or doesn't do. Can soup lines be far behind? Even if a new government is elected, it will take time for a government to form and settle with the Eurogroup. It will take a long time to restore the confidence in the Greek government which is necessary for economic development. Greece is hosed, no matter what happens. The only question now is for how long. What Greece does in the coming week will answer that question.

    If Greece decides go bring back its own currency, who besides locals, will take it? Greece is heavily dependent on foreign goods. Oil accounts for 30% of its imports. If Greece has no foreign currency, it cannot buy the foreign goods it needs (e.g. oil). Who will loan Greece money, Russia, China? I think anyone would be a fool, other than the Eurogroup, to loan Greece money at this point. No matter what happens Greece is screwed. It's only a question now of how bad and for how long.

    The best course is to reconcile its differences with the Eurogroup. I think the Greek government has legitimate grievances. However, the manner it has gone about expressing those grievances and remedying its situation has been just flat-out stupid. Tsipras (Greek Prime Minister) is a stupid arrogant fool, and the people of Greece will pay the price for his arrogance and stupidity. That is unfortunate. On the other hand, it could be this is exactly what Tsipras wants. Perhaps he wanted to create a fascist state, perhaps that is and has been his end state goal all along? The economic and social chaos created by a devastated economy would render it much easier to create a fascist state. That seems to be the route Tsipras is taking.
     
    Last edited: Jun 30, 2015
  8. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    I'm in USA for some weeks. Not active much now; but note, this thread does not include Greece's problems and there are at least two threads focused on Greece.
     
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  9. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    * Quite probably a rail line from coastal Brazil to the Pacific Ocean, lowering the cost and delay of China/Brazil trade.
    Also quite likely in late October's every decade review, the IMF will make, the Chinese RMB, part of the "Special Drawing" funds. China is the world's greatest exporter, world's greatest importer, and by PPP measures the world's greatest economy. The IMF can no longer avoid doing this, despite US's control of it.
     
    Last edited: Jul 12, 2015
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  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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  11. joepistole Deacon Blues Valued Senior Member

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    Well just because China wants to have its currency become a special drawing rights currency, it doesn't mean it will happen and as previously noted PPP is a fictionalized GDP based on hypothetical trades and assumptions whereas GDP is based on real data and real trades.

    http://www.bloomberg.com/news/artic...s-yuan-to-be-the-world-s-5th-reserve-currency

    Two, this issue is subject to a vote by member nations and the US doesn't have a majority of the vote. But the US certainly does have significant influence over the IMF. Contrary to your assertion, the IMF can most certainly choose to not include the Renminbi in the SDR breadbasket and it may very well do so.

    The "freely traded" requirement remains an issue for China and will likely be one of the reasons the IMF may use to not include it in the SDR breadbasket. So the inclusion of the Renminbi in the IMF SDR breadbasket is far from certain. Personally, I think it would be a boneheaded move to do so for a variety of reasons.

    http://www.reuters.com/article/2015/01/26/imf-yuan-idUSL6N0V239720150126
     
  12. CptBork Valued Senior Member

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    I wouldn't call it a trade advantage, given that it means Chinese consumers are forced to pay an artificially high price for imported goods, and their exporters are forced to accept artificially low prices. I see it more as China shooting themselves in the foot and causing problematic distortions for everyone else's economy in the process. The real trade advantage, if any, is that China's trade partners don't hold it to the same labour and environmental standards as they do with their own domestic industries, and again the average Chinese citizen suffers more than anyone else from such policies.

    Now, as I've been saying for many years, China is maxing out the US market for unreliable low-quality slave-made trash, and its recent economic slowdown and stock market crash are both symptoms of an economic model built on corruption, oppression and a whole lot of fail.

    http://www.reuters.com/article/2015/07/28/us-china-markets-idUSKCN0Q207920150728

    China's decade of 10% growth rates was a "miracle" engineered in the stock rooms of Walmart, Nike, and counterfeit Gucci producers, not the opium room on Mao Zedong's "People's Luxury Yacht".

    I feel sorry for all those presently invested in the Chinese stock markets, especially ordinary Chinese investors who were coerced into buying in by their own government. Government efforts to prop up their markets are failing miserably, and can only possibly succeed if they're willing to accept catastrophic public debt instead. Hardly anyone should want to invest in a fascist dictatorship where the government cares more about the number on some index rather than the underlying wellbeing of the nation, just because said government knows this number is key to bamboozling the general population, so authorities can continue sending their chubby kids to fancy British schools originally built for European royals.

    All the same, now would be as ideal a time as ever for the US and its allies to inform China's government that they can either begin democratic reforms, stop hacking the US and respect their neighbours' borders, or else they can f--- right off with their slave labour and go sell their crap goods somewhere else.
     
    Last edited: Jul 28, 2015
  13. joepistole Deacon Blues Valued Senior Member

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    True enough, but seen through the eyes of outsiders, it is an unfair trade advantage but it certainly has costs associated with it for the Chinese consumer including inflation. China has and has had for some years now some very significant problems domestically. That's why I resisted the herd and not invested in China. China lacks transparency and that makes me nervous. I cannot abide by China's lack of transparency and penchant for corruption. I think folks are gambling rather than investing in China.
     
  14. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    The IMF will decide in late October whether or not to include the RMB as part of the special drawing rights, SDR. Thus one could discount all of the above, if it had a Chinese origin, but the report came out of London.
     
  15. joepistole Deacon Blues Valued Senior Member

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    China has lobbied long and hard for inclusion. There is no doubt China wants its currency included, and wants it desperately. However, given China's economy is imploding and China is resorting to and using some very autocratic heavy handed measures to prop up its collapsing markets and it has had limited success at best, I seriously doubt it will happen.

    http://mobile.reuters.com/article/idUSL2N0ZT16D20150713
     
    Last edited: Aug 9, 2015
  16. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    More at the link, including the hardships more than 20,000 job seekers endured after moving to Itaboraí, and damage done to Brazil's credit rating, and the probably enduring recession, this world's largest (~3 billion dollars in bribes involving only Petrobras) corruption scheme has caused.

    In addition other large companies, played the same corrupt game. Quoting from the NYT article:
    "another bribery boondoggle, this one involving Eletrobras, the country’s largest power utility company, has recently emerged. Once again, prosecutors are charging that insiders took cash to award padded construction contracts, this time to build a $4.4 billion nuclear power plant."

    Fortunately Brazil seems to be changing. Already quite a few of the guilty are "eating their pizza" in jail. Watch the news from Brazil on late 16 or 17 August. - After about 30 million Brazilians march in the streets to demand impeachment of Dilma, now the president and high officer in Pertobras when these payments were made. (As of yet, not proven to have known but only to have misused corporate "election contributions" - strongest legal grounds for her impeachment.) Dilma's approval rating is only 8% now, yet she won a fair election less than two years ago prior to this corruption being widely known.
     
    Last edited: Aug 9, 2015
  17. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    IMO, this is just one more step to help get the RMB as part of the IMF's SDR in late October 2015.
     
  18. joepistole Deacon Blues Valued Senior Member

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    If you think things are bad for Brazil now, just wait until the US begins raising interest rates. When the US begins raising interest rates that sucking sound you hear will be capital fleeing BRIC countries for the US. For many years now BRIC countries and under developed countries have benefited from cheap US interest rates. Lagarde (managing IMF director) has cautioned Fed Chairman Yellen about the adverse impact a US rate increase will have on BRIC and smaller countries.
     
  19. joepistole Deacon Blues Valued Senior Member

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    China has been jumping through all kinds of hoops to avoid a currency devaluation, because it would jeopardize its chances of becoming a SDR currency. This devaluation trounces the aura of stability China has been desperately trying to create around its currency. Given just a few days ago the IMF issued a report recommending inclusion of the China's Yuan be delayed a year, I don't share your opinion. While European states would love to begin trading China's Yuan, inclusion just doesn't make sense and it brings significant risks should it be included in the SDR currency breadbasket. China still suffers from transparency issues, not to mention stability issues, and its currency is still not freely traded. China's move to devalue its currency is a mixed bag. This is a huge currency devaluation. It shatters the aura of stability China has attempted to create and foster in order to gain acceptance of its currency. So I think inclusion remains very much in doubt. Japan and the US do not favor inclusion and they alone account for almost a quarter of the IMF voting power and there is no other country with more voting power, not Germany, not France, or the UK.

    http://www.cnbc.com/2015/08/04/
     
  20. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    This < 2% devaluation, the greatest in more than a decade, is less than the one day changes in ALL the currency values you named (or the US) in the prior decade.

    Why do those larger devaluation not also "shatters their aura of stability" ? Investing in yuan five or so years ago when more than 8 were required to buy a dollar, would have been a smart move as now only about 6 are required to buy a dollar. IE on a multi-year time scale the Yuan has been APPRECIATING. Thus a <2% devaluation is not even a significant correction of the long term appreciation.

    This small correcion had to come as even before it did China's annual global trade was 4.2 trillion dollars - largest of all nations. Now Chinese will not be able to import as much (and will export more) so not much change in their total trade. The main effect will be Chinese "buying more Chinese made" as the CCP strives to get to more of a domestic consumption driven economy. That is also why the CCP has allowed real (purchasing power) salaries to grow by double digits annually for several years now. In contrast the real salaries of most "Joe Americans" have been stagnate or shrinking during the last decade or so as part-time or Big Mac jobs replaced factory jobs.
     
    Last edited: Aug 11, 2015
  21. joepistole Deacon Blues Valued Senior Member

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    Unfortunately BillyT for sinophile like you, a 2% one day devaluation is huge in the currency market. Currencies just don't trade that way. Daily changes are usually small fractions of a percent.

    If you think China is stable, you haven't been paying attention.

    Additionally, you cannot rationally compare a currency whose value is fixed by government fiat with one which is not. The fact that China has by fiat increased the value of its currency isn't really relevant.
     
    Last edited: Aug 11, 2015
  22. joepistole Deacon Blues Valued Senior Member

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  23. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    And there may be more to come because, China has changed the way it sets the center of the + or - 2% wide variation band of the exchange rate.

    For years China's exchange rate was the most stable of all, as the CCP just set the center point of the 2% wide trading band and all over the world, including the IMF, there was a demand (or a wish) for China to let the market, not the CCP set the exchange rate.
    Well they got their wish now. "Be careful what you wish for - you might get it" - That applies now in spades.

    As I understand it the next day's center of the 2% band will move down, if the prior day's exchange was below the center of the that day's band. (The max it could be below the center is 1%.) I.e. more devaluation (or appreciation) will occur AS THE MARKET PLACE WISHES ! But China does not want wild changes (nor should anyone), so the max one day will be 2%
    (1% down from where exchange closed the prior day, which itself could be 1% below the center of that prior day, as 1 + 1 = 2)

    For example if the exchange rate at end of day is at the down limit of 1% then the center of the band for tomorrow will be 1% lower than it was today.
    Likewise if the exchange rate at end of day is at the up the limit of 1% then the center of the band for tomorrow will be 1% higher than it was today.

    IE: The IMF, Joepistole, and most every body else got their wish granted, but only a max of 1% change (in either direction, as determined by THE MARKET PLACE)
     
    Last edited: Aug 12, 2015

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