The Sax Angle

China Sees Conspiracy in Global Reserve Currency

Posted on 18. Apr, 2011 by Carlos Alexandre.

The topic of a reserve currency to replace the dollar never gets old, and the logic behind it is a bit fuzzy. First and foremost, why is the dollar the reserve currency of choice? Does America threaten to bombard any country that chooses to keep its reserves in euros, yen, Swiss francs, or gold, instead of adorable Benjamin Franklins? Let’s look at the landscape first.

The Financial Times published the article “The best alternative to a new global currency,” authored by Joseph Stiglitz, a recipient of the Nobel Prize in Economics in 2001. Mr. Stiglitz points out some issues, as follows:

Further, when crises occur in many countries simultaneously, as happened, for instance, during the 1998 east Asian crisis, IMF lending could be totally financed by new SDR issues in unlimited amounts. If and when the world economy recovered or boomed, SDR issues could then cease, or even be reabsorbed. Thus the IMF would have a greater role in creating official liquidity, in a way that curbed both recessionary and inflationary trends at different times.

Wait a second! New SDR issues in unlimited amounts? But isn’t the SDR designed to be a reserve quasi-currency that is created from members’ “existing” cash reserves? Or could the IMF become the official global money-printing machine that would save the globe from its missteps? Read the rest of the article here>>>

China Is Not a Bubble: It’s the Hindenburg

Posted on 08. Apr, 2011 by Carlos Alexandre.

China is often admired as an economic miracle, especially since the government has been able to balance, thus far, a Communist/Socialist political infrastructure while operating a semi-capitalist “free” market. But as a side effect of a global economic slow down, and considering bits of information that filter out of an extremely well controlled society, China’s economic power is beginning to be questioned. The often mentioned Chinese “housing bubble” appears in the headlines from time to time, despite a lack of understanding of what exactly is taking place.

In the United States and Europe, citizens understand what happened, and why the housing market came crashing down: Runaway prices, fueled by extremely low rates, and a lack of banking oversight. The fallout from the excesses of the past are still with us, and as Reuters pointed out on March 16, U.S. “Housing starts posted their biggest decline in 27 years in February while building permits dropped to their lowest level on record, suggesting the beleaguered real estate sector has yet to rebound from its deepest slump in modern history.” That is in fact an expected development that has many still in denial, and that highlights the damage caused by the housing mania and how there is no quick fix in sight. Today’s U.S. New Home Sales registered the lowest point on record, with a drop of 16.9% to 250,000 units, according to Marketwatch... Read the rest of the article here>>>