Wiki-wiki CW2013 update from an allegorical cave

WSJ (paid): China to Keep Zhou as Its Top Banker

This is good news, I think. Everyone benefits from stability and experience on the tiller of Chinese monetary policy, while the currency war of 2013 plays out on the world stage.

WSJ (paid): Money Managers Shorting Gold in Record Numbers

This is interesting and counterintuitive from my POV. Wouln’t one go long on gold prior to a currency war? Doesn’t excess M1 always leads to inflation? Isn’t gold classic safe harbor during uncertainty ?

WSJ also reports gold futures are at a 7-month low, reflecting investor confidence in 2013 markets. That means I’m in a contrarian position. Well, nothing new there.

The Japanese stock market is up sharply year over year. The Nikkei 225 closed at 11,238.75 yesterday, near its 52-week high, and up from a 52-week low of 8238.96.

The yen has been devalued tremendously over the same period (93.5 per USD as of Feb 13, down from 77.4 a year prior, according to the Economist).

Japanese M1 devaluation is working locally. If they proceed to QE, I see a kerfuffle. Chinese sanguinity will be helpful.

As a side note, why is QE still considered unconventional? When someone keeps doing something, isn’t that by definition a new (or at least emergent) convention?

These are quick thoughts. I’ll update more as news develops over the weekend. I do think it’s interesting that the G20 announcement was timed into last weekend and all the main analysis concluded by Sunday. I don’t think that was coincidence.

Gotta go make dinner for the kids. Family bingo night at school!

ACC

:-) So glad somebody reads my blog

(From the Wall Street Journal, paid)

Fed Officials Feared Easy Money Could Jolt Markets

http://online.wsj.com/article/SB10001424127887324048904578316313307859482.html?mod=rss_mobile_uber_feed_europe

(The same topic and Fed meeting explored for free through an in-depth article at the New York Times)

http://www.nytimes.com/2013/02/21/business/economy/fed-meeting-shows-divisions-on-policy-course.html?_r=0

Update… I’ll put links here as they come up in the news. If I find them useful, maybe you will too.

http://www.cnbc.com/id/100476177

Quick definitions of QE, from a couple of places…

http://en.m.wikipedia.org/wiki/Quantitative_easing

http://economics.about.com/od/monetary-policy/a/Quantitative-Easing.htm

http://www.investopedia.com/terms/q/quantitative-easing.asp#axzz2LUSrYPZC

Red Herring II…Japanese Finance Ministry Proceeds as Planned

Taro Aso makes public statement

This is interesting. Japanese Finance Minister Taro Aso responds to the G20 communiqué issued yesterday.

He opens by admitting that the communiqué was confusing and ambiguous.
He communicates that Japanese policymakers are assuming it’s a green light.
He states quite clearly that quantitative easing will continue as a matter of Japanese policy.
He reiterates that QE is meant only to impact domestic markets, and then analogizes BOJ to both the Federal Reserve and European Central Bank. (Either the first clause is true or the second one is).
There is also an incoherent report on Mr. Aso’s hopes when the next BOJ governor is nominated. You have to read it to believe it.

Hunch: the G20 communiqué is just a cover while everybody scrambles behind the scenes to figure out how to satisfy China. See nearby posts for recent Russian flyovers of Guam and the northern islands of Japan. Check under “red herring” and look for the official Chinese statement that they are ok with Japanese QE. I’ll bet it’s a while coming.

Heads Up – Red Herring in Currency War of 2013

Reuters reports G7 and G20 agreement to not engage in a currency war

This is a quick post. It will be reported worldwide today and tomorrow that G7 and G20 nations have agreed to not engage in a currency war.

Read these articles carefully. About 4/5 of the way down the one I’ve provided from Reuters, you will see that the United States and Japan have both expressly claimed the right to print money a la QE, under the cover of domestic monetary management policy.

Solely domestic monetary management in a worldwide currency is a non-sequitur.

For those asserting that a currency war is a non-event (I posted a link to an article from Mr. Paul Krugman along those lines elsewhere in this blog), I offer the observation that such a position misses the fact that players on the world stage don’t perceive this to be a non-event. They felt strongly enough about the topic to convene a meeting of world finance ministers over the weekend and issue this carefully veiled statement.

Any cause for hostile national actions outside of the monetary sphere makes a currency war relevant enough.

Responding to Charles Krauthammer’s Well Written “In Defense of Obama’s Drone War” NRO February 14, 2013

Mr. Krauthammer makes a cogent argument for the legality of drone strikes as put forward by the current administration.

http://www.nationalreview.com/articles/340747/defense-obama-s-drone-war-charles-krauthammer

Let me open by saying that I find Mr. Krauthammer’s logic sound. However, as a citizen, I think we may be at risk of losing sight of the bigger picture of American foreign policy because we’re concentrating on the topic of American drone policy.

Mr. Krauthammer’s argument is that association in Al Qaeda affiliated organizations is sufficient grounds for pre-emptive killing, under the rules of war.

Granted, Al Qaeda did, at one time, exist as an organization with a base of operations and a leader who could be understood to be speaking for members when declaring war on the United States. Andrew McCarthy has written elsewhere, along with many others, regarding the legal meaning of such a declaration when made by a non-state actor. Suffice to say that for these purposes, Osama bin Laden’s self-declared intent and ability to carry out acts of hostility was sufficient in my mind for a decade of pre-emptive action by the United States.

Now, the most important leader of that organization is verifiably dead. The host government (the Taliban) of the country which sheltered him and his organization has been driven into exile. The rest of the leadership of the organization, “Al Qaeda,” as it existed at the time of its most effective attack (September 11, 2001) is gone.

When someone means to murder me or mine, I genuinely appreciate when the US government preemptively intervenes. At the same time, it’s not clear to me that every armed individual in the Muslim world who finds inspiration in the words of a dead man, or who adopts a variegated organizational moniker as their own, specifically means harm to me or mine.

Meanwhile, America needs the world. We need Americans and American businesses to be welcomed abroad. We need to be inviting well-meaning foreigners and foreign business to our shores. That kind of interconnectedness lifts everyone; it also requires trust and benefits from warmth.

It is clear to me that an endless global shadow war conducted by Americans, for any reason, is deleterious to ongoing foreign policy needs. Drones hovering over the world is going to engender neither the warmth nor trust so essential to American interests over the long haul.

Experience shows well enough that violence begets violence, and endless war benefits no one. Angry cowed foreigners do not make for warm welcomes, and neutered embarrassed governments make poor allies.

To the degree that someone wants to make a public declaration or privately engage in actions that really will result in murder and mayhem, I’m in support of preemptive action by the only forces that can realistically make that happen. At the same time, it seems to me that the forest of American foreign policy interests really is at risk of being hijacked by the narrow tree of drone policy.

Focusing unduly on a name chosen by an organization that is effectively wiped out (at least as it stood at the time it kicked off the war with the U.S.) puts our nation at risk of misunderstanding the very real threats which do exist and need to be dealt with, sometimes forcefully. We can be smarter than that.

Meanwhile, we need to be more focused on good governance, healthy humans and a generally improving quality of life at home and around the world. Helping our neighbors around the world (without drones, gunpowder, missiles or explosives of kind!) constitutes a better foreign policy for us all.

Open-ended commitments to assassination as a policy, whenever and wherever it takes us, without the antiseptic of sunshine to keep the system at least comprehensible to the rest of the world, runs counter to our needs as a nation, now and in the long-term. Let’s find a better way to get this done.

Well played – China wins the currency war of 2013

A poem from a simple mind…

China will beat Japan in the open sea,
Resulting in a new regional stability,
Expanding monetary influence,
Cementing trade alliances,

While,

Russia gets a pass,
Shinzo Abe gets heat,
The United States gets beat,
And power balances shift East.

(My apologies)

Okay, so it’s a long story and it goes way back:

The thing to remember is that the United States has been engaged in monetary devaluation as a policy since 1997.

That money bubble is what caused the Internet equities bubble; later it flowed into housing.

We accelerated devaluation after September 11, 2001 and during the housing crash of 2008. Both were honorable reasons, but we never turn the spigot down; we only ever turned it up.

We are now buying our own bonds at $85 billion per month with no support from increasing American production. This is official policy and will continue until the unemployment rate (at 7.9%) drops to 6.5%.

http://www.google.com/search?q=currency+wars&aq=0&oq=Currency+war&sourceid=chrome-mobile&ie=UTF-8″

http://mobile.reuters.com/article/idUSBRE90T0TF20130130?irpc=932

http://mobile.reuters.com/article/idUSBRE88901C20130212?irpc=932

I think everyone knows that China has a lot of United States debt. What most people don’t know is that net Chinese increase in holdings has been zero or close to it over the last two years.

The United States treasury sends well over 60% of its new debt to the Federal Reserve. When “strong demand” is reported on a treasury sale, that’s from the Federal Reserve.

Meanwhile, Japan and China are making moves over islands that, frankly, won’t make sense as a shooting-matter to the average American taxpayer. This is important because Japan is about to start devaluing their currency. Call it the next shot in the “currency war of 2013.”

I think Japan will be alone on the world stage when the plane or planes go down; China will be considered the victor in that dispute.

I can’t see the US coming to their aid when Japanese lives are not threatened. That seems like our current strategic direction, and I’m not commenting on that, just pointing it out.

Nationalistic fervor is on on the rise in both countries, and the islands are remote. China’s going to say that Japan’s devaluation of the yen was a warlike gesture, and that those islands belonged to the Chinese anyway.

Now, you’ve got to ask yourself, where’s the cheese?

Well, the cheese for China is a sudden and meaningful expansion of regional authority.

So, now Russia has a problem. If China decides to shoot down a Japanese plane or two, they just might decide to go for Siberia as well. They’ve got the population and the need, and the Russians have neither. So the Russians send a signal to the Chinese that they are not on Japan’s side, and hope the enemy of thine enemy might be persuaded to concentrate on one thing at a time.

http://m.aljazeera.com/story/2013281549823216

Meanwhile, the United States gets a lukewarm reception from Vietnam during Leon Panetta’s June 2012 visit, and is in the process of doing who-knows-what about the American military ship stranded on a Philippine reef with no explanation, in a world heritage site which we had no permission to transgress, for an embarrassingly long period of time.

http://m.aljazeera.com/story/201312915262481902

There’s more, but I think you get the idea.

Now, if it all goes down like this, that’s one thing. What really scares me is that there might be some nationalistic set of Americans who see a great opportunity to get rid of a humongous chunk of American debt, through ostensibly standing by an ally.

What if some vocal minority (or majority) of the American populace that wants to side with Japan and repudiate the Chinese-held American debt gets airplay? Suddenly the term “full faith and credit” has a whole new meaning.

Even a serious movement that direction could turn a regional spat into a worldwide conflagration. Unfortunately, I think there are Americans who might advocate such a move.

So, well played, China. Bo Xilai is suddenly off the radar. The Japanese, whose brutality the Chinese (and the rest of that region) have not forgotten, get their comeuppance. The party has at least a two-year window to solidify control within the newly modified structure.

At one-stroke, Chinese regional influence is expanded. Japan is isolated. The United States is effectively neutered on the world stage. And all the while, Americans are busy fighting about gay marriage. Sheesh.

My apologies for any typos or hard-to-read stuff. I’m using a mobile platform while trying to barbecue chicken for dinner.

Worth Reading if Interested in Middle East Politics

This is a very comprehensible explanation of dynamics underlying the struggle for political primacy in the Islamic world.

It is internally focused to that world, and recognizes the United States and European powers as helping to shape the narrative space while not really being central to outcome.

The author crafts a plea to the silent majority; the citizens and residents of the nations in turmoil in W Africa and the Middle East especially.

Let’s hope he’s successful.

http://aje.me/12qwPEz – Share via Al Jazeera for iPhone