Mish's Global Economic Trend Analysis |
Posted: 13 Oct 2014 10:53 PM PDT Support for UKIP (United Kingdom Independence Party) hit a record high 25% following recent elections that gave UKIP its first ever seat in the British parliament. Still that's one seat out of 650. Is UKIP anything Cameron's Tory party or Labour need fear? In case you don't already know, the answer can be found in Poll: Support for UKIP Hits Record High. Support for the anti-EU UK Independence Party hit a record high of 25%, an opinion poll showed yesterday (12 October), days after it won its first elected seat in Britain's parliament at the expense of Prime Minister David Cameron's party.Interesting Labour Response Miliband responds to voter sentiment shifting to the right, with an even stronger shift to the left. He seeks to splinter UKIP from the Cameron's Tory party, hoping to win the next election. Indeed, Cameron now warns British citizens that a vote for UKIP is a vote for Labour. Who's Bluffing Whom? The Daily Mail reports 'Go to bed with Farage, wake up with Miliband,' Cameron jokes in warning that a vote for UKIP will hand power to Labour. Mr Cameron insisted that a vote for UKIP would only make a Labour government more likely.Cameron Clearly a Liar "Here's a thought: On 7th May you could go to bed with Nigel Farage, and wake up with Ed Miliband. I don't know about you but not one bit of that works for me," said Cameron. Here's the equally valid alternative thought: If you vote for Cameron, you will wind up in bed with Ed Miliband and Labour. So by all means, "let's be clear". Cameron is clearly a liar. Who Do You Trust? Cameron asks, "When it comes to Britain's future, who do you trust? Labour – the party of something-for-nothing, and human wrongs under the banner of human rights, or the Conservatives – who believe in something for something, and reward for hard work?" That is not only a false choice, but a blatantly obvious one at that. Is there not a third party with 25% popular support? Cameron could easily win reelection if he would put the EU referendum on the ballot right now. But he won't. Why? Because Cameron is a fake conservative, clueless about the real meaning of the word. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
End of U.S. Dollar Hegemony - Not Posted: 13 Oct 2014 11:38 AM PDT Is the end of US dollar hegemony at hand? Inquiring minds may be asking that question given China's Zhou Says Some Countries Using Yuan in Reserves. Some countries are already using the Chinese yuan in their foreign-currency reserves without announcing it publicly, central bank governor Zhou Xiaochuan said.Over the course of the past decade there has been countless articles on the end of US dollar supremacy, the crash of the dollar, and the rise of the Yuan and Ruble. Recent Examples
Prime Petrodollar Nonsense The most ludicrous of the above articles is by Clive Maund on Kitco. It's a perfect example of misguided, overblown, petrodollar hype. The central thesis of these articles is
The starting thesis that it takes dollars to buy oil is wrong. As I have pointed out for at least a decade, it does not take dollars to buy oil any more than it takes dollars to buy gold. Gold is priced in dollars. But you can walk into any coin store in the UK and buy gold with British Pounds; You can walk into any coin store in China and buy gold in Renminbi (yuan); And you can walk into any coin store in France and buy gold with euros. Oil is priced in dollars. So what? Currencies are fungible. Even if one did need dollars to buy oil (they don't), the pound, Swiss francs, euros, and every other major currency on the planet can instantaneously be exchanged for any other currency at will. That holds true at both the front and back end. Thus, there is no need for Saudi Arabia (or any other oil exporter) to demand euros, or francs, or whatever, when the exporters can instantaneously convert to whatever freely traded currency they want. Regardless of the pricing unit, one does not need to stockpile dollars to buy oil. If oil was priced in euros across the board right now, it would not make a damn bit of difference. Questions for Yuan Lovers Please note that in spite of all the yuan reserve currency hype, one currency that is not freely convertible is the Yuan. When will China have the biggest, most open bond market in the world? Next year? A decade? three decades? I ask these questions because until China has the biggest, most open bond market, a freely floating currency, and it eliminates currency controls, there is no chance the Yuan will supplant the dollar. And what about political freedoms and global trust? Will a centrally planned undemocratic economy like China ever get that trust? Petrodollar Silliness Way Back I talked about the silliness of the petrodollar thesis as early as 2005. (See Oil Priced in Euros. Would it matter?) In 2009, we saw Ridiculous Hype Over Secret Oil Meetings. For discussion of another truly ridiculous idea, please consider Countdown To Dollar Implosion Madness in which the dollar was supposed to collapse in favor of a "Super Sovereign Currency" demanded by China. Such stories have continued at an endless pace for over a decade. I bring this all up because of an interesting email from Michael Pettis at China Financial Markets. Pettis on Chinese Reform, Currency, and Interest Rate Deregulation In his email, Pettis writes about China's reform, China's banking solvency, currency controls, and other topics related to possibility the yuan will become the next reserve currency. From Michael Pettis (emphasis mine)... Recent rumors that Zhou Xiaochuan will retire as governor of the PBoC should not be interpreted as an indication that Beijing has changed its mind about the urgency of reform. Given Zhou's age, it was unlikely that he would remain in his seat for very long, and in fact if these rumors are true, they may simply reflect recognition by Beijing that as the reforms are implemented, conditions are likely to become tougher. Replacing Zhou at a later date would then be more damaging then replacing him now.Hype vs. Reality For all the hype, the Yuan trades as actively as the Mexican Peso. Yes, this will change, s.l.o.w.l.y. Right now, the US Has ...
Trade Math By the way, it's important to note that foreign governments accumulate US dollars as a function of math. For example, the US runs a trade deficit with China. China must accumulate US dollars (or US dollar assets such as US treasuries). Those who argue otherwise, do not understand the trade mechanics. Sure, there will be more trading in currencies other than the dollar over time. But the idea that the yuan will soon rein supreme is complete silliness. All Things End All things come to an end, including US dollar supremacy. Yet, don't expect a miraculous rise of the yuan or anything related to the seriously misguided petrodollar and petroyuan theories. As Pettis points out "China has a rigid, unsophisticated, and largely insolvent financial system with vague delineations between what is and what isn't implicitly guaranteed by local governments or by Beijing." Currency Crisis Awaits China is indeed "largely insolvent" to phrase things politely. But, it's not just China. The entire global financial system is insolvent. A global currency crisis can start anywhere, at any time. Three likely places to look are the euro, the yen, and the yuan. In baseball parlance, Euroland is the batter's box and Japan is on deck. If a global currency crisis does start soon, then gold, the much maligned US dollar, and US treasuries will likely be the beneficiaries, not the illiquid yuan. Precisely what the next currency system will look like is unknown. But if the system changes in a major way, neither the yuan nor the US dollar will be at the heart of it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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