IEF told countries to stop propping their currencies?

[TrogL]

I heard something like this on the CBC tonight.

Near as I could figure out, countries were told that over-regulating their currencies was a Bad Thing for the global economy and that they should stop doing that (by stopping buying greenbacks) and let their currencies float to their natural levels.

This, of course, portends problems for the greenback, and to a lesser extent, the loonie. The Chinese seemed to be the brunt of this advice.

What am I talking about?

[TrogL]

1. Perhaps it has something to do with this

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=102&topic_id=128035

[TreasonousBastard]

2. Playing around with currency values...

is always a bad thing and rarely ends well. Gives speculators too many windows to cause trouble, and too often there are reactions to currency changes that negate whatever the change was supposed to do.

China is a special problem, though. They are pegging the yuan pretty low relative to the dollar to keep selling us cheap stuff. Washington is pushing them to value it up, but everyone else in the world is telling them to keep it where it is.

Here's the Chinese dilemma-- they sell us vast amounts of stuff, but don't buy squat from us. Most of their imports are Russian or European. Or oil. They also have a real problem with bad bank loans that are based on receipts from the stuff they sell to us. The bank loans are real funnymoney, and are enough out there to bring the entire Chinese economy down if there are defaults. There will be massive defaults if their exports to us drop, or if the currency is revaluated so they get less yuan for the dollar.

Similar problems have happened in Korea and Japan, and they were barely manageable. If China collapses, it's all over.

[TrogL]

3. seems to be a competition

as to who will collapse first

http://money.cnn.com/2003/09/23/commentary/bidask/bidask/index.htm

they're saying the greenback is due to take a beating.

[rapier]

4. notes

I think you mean IMF. Which is the International Monetary Fund. They did issue a paper last Friday concerning the value of the dollar. I'm not sure they talked about countries interveneing in the markets to prop the dollar. Perhaps they did. On this topic there is one big dog, Japan. Japan has purchased $98 billion in dollars on the foreign exchange markets this year. (I'll hedge that and say I think this calander year. Perhaps over the last 12 months. Whatever. It is huge)

The big story here came Sunday. The G-7, which is the Group of Seven, the largest world economies, had a meeting. At the end of the meeting they said it would be best to let the currency markets act on their own, without Japaneese style intervention.

This is a huge thing. The IMF has little influence in these things. The G 7 represents the governments of these countries and anything they agree upon and make a public statement about reflects a poltical reality. With this statement they are making a public admission of the aburdity of the situation that now exists. The US is running gigantic trade and budet deficits. Under any other circumstance this would be death to a nations currency. Routinely the US has heaped scorn upon any nation which has similar trade and budget inbalances. It has not panned out that way for the dollar for all sorts of reasons having ultimately to do with politics and power, and the fact that we run the game. That being the worlds financial system thru Wall St.

I will stress again. This is a gigantic deal. Possibly momentous.

Here is a link to this topic. Ignore that the source is Wall St. The author is a heretic. How he keeps his job I cannot say. He does not hew to the party line.



http://www.morganstanley.com/GEFdata/digests/20030922-mon.html