the visible hand

it is the theory which decides what can be observed – einstein

Archive for June, 2010

China currency peg ends…

Posted by ecoshift on June 21, 2010

Chinese Yuan Strengthens as Peg Ends – TheStreet
By Joe Manimbo 06/21/10

The U.S. dollar started the week mostly steady against its European rivals, though the buck tumbled against its risk-sensitive counterparts in Australia, New Zealand and Canada, following China’s weekend decision to allow its currency to strengthen.

Since July 2008, China had essentially tethered the yuan to the U.S. dollar to help protect the world’s third-largest economy from the global financial crisis. The move Saturday by the People’s Bank of China, the nation’s central bank, boosted investor appetite for riskier assets on the notion a freer Chinese currency might stimulate global economic activity.

Consequently, the greenback fell to 5-week lows against Aussie, kiwi and Canadian dollars. Earlier overnight, the U.S. currency neared a one-month low against the euro, though the buck pared some of its previous losses at the onset of the North American session.

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Wall Street looks to China for new growth – Jun. 21, 2010
By David Ellis, staff writerJune 21, 2010: 11:04 AM ET

NEW YORK (CNNMoney.com) — Where are the real opportunities for growth on Wall Street? Try China.
The biggest financial firms haven’t tried to hide their ongoing ambitions to grow in the world’s fastest-growing economy.

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Soros: Act II of the Crisis

Posted by ecoshift on June 10, 2010

Act II of the Crisis
By Zoe Schneeweiss and Andrew MacAskill

June 10 (Bloomberg) — Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession.

“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”

Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.

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double dip?

Posted by ecoshift on June 8, 2010

Lower prices could mean deflation and double-dip recession
Jun. 8, 2010 NEW YORK (CNNMoney.com)

Lumber prices are sinking. And while that might make a trip to Home Depot cheaper, it’s also a sign that the global economic recovery and the U.S. housing rebound are in danger of stalling.

Only a few months ago, inflation was the main worry of many economists. But falling prices for the raw materials of many industries, including lumber, have set off deflation warning bells for some economists, who worry that they could signal another global economic downturn.

Prices for framing lumber have tumbled 21% from their peak only five weeks ago, according to figures from the National Association of Home Builders. Prices are also falling for a wide variety of other industrial materials in recent weeks.

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decoupling revisited?

Posted by ecoshift on June 8, 2010

Can the BRIC move their focus to building domestic demand? Do they have a choice?

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China’s Exports May Become Costlier as Wages Rise – NYTimes.com

“Coastal factories are increasing hourly payments to workers. Local governments are raising minimum wage standards. And if China allows its currency, the renminbi, to appreciate against the United States dollar later this year, as many economists are predicting, the relative cost of manufacturing in China will almost certainly rise. “

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Economist’s View: “Can Emerging Markets Save the World Economy?
Michael Spence and Mohamed El-Erian:

…emerging economies, once considered much more vulnerable, have been remarkably resilient. With growth returning to pre-2008 breakout levels, the performance of China, India, and Brazil is an important engine of expansion for today’s global economy. …

So it is important to know whether this breakout growth phase is sustainable. The answer comes in two parts. One depends on emerging economies’ ability to manage their own success; the other relates to the extent to which the global economy can accommodate this success. The answer to the first question is reassuring; the answer to the second is not.

While still able to exploit the scope for catch-up growth, emerging economies must undertake continuous, rapid, and at times difficult structural change, along with a parallel process of reform and institution building. In recent years, the systemically important countries have established an impressive track record of adapting pragmatically and flexibly. This is likely to continue.

…Emerging economies’ ability to provide the growth lubrication that facilitates adjustment in industrial countries is also a function of the latter countries’ willingness to accommodate tectonic shifts in the operation and governance of the global economy.

Mark Thoma comments:

The political problem will, I think, take care of itself. As the developing countries grow and gain economic power, and they will whether developed economies like it or not, the political and institutional power will follow. The old institutions will either change with the shifting global economy, or be replaced by new ones. I don’t think developed economies will have any choice except to “accommodate tectonic shifts in the operation and governance of the global economy.” For one, corporations of today do not have traditional national boundaries, and the globalization of production cannot be easily reversed. We can make it hard, or we can accept the inevitable. Other countries are starting to grow up, and we will have to begin treating them like adults. That means, among other things, giving them a seat at the big table.

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