Secret moves launched by China, Russia, Japan, France, Arab States to end the Dollar

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Sarkozy and Hu bury hatchet in Beijing talks

By Nadege Puljak (AFP) – 2 days ago



BEIJING — France and China Wednesday pledged to draw a line under past tensions over Tibet and breathe new life into their relationship by working together on issues from global monetary policy to Iran.

President Nicolas Sarkozy and his host Hu Jintao made the comments following talks in Beijing that signalled they had moved past the Tibet row, which peaked when Sarkozy met the Dalai Lama, Tibet's exiled spiritual leader, in 2008.

"President Sarkozy's visit to China has opened a new page in Sino-French relations," Hu said in a joint media appearance with the French leader.

"We should hold close consultations and strengthen political coordination on the reform of the international monetary system" climate change and other major issues, state television quoted Hu saying in their closed-door talks.

The French leader, making his second state visit to China, told journalists the pair had held "in-depth discussions about the Iranian crisis and the G20" and also said the two sides would work together on global monetary reform.

The West has sought Chinese support for tough action on Tehran over its nuclear programme, which some suspect is a cover to develop atomic weapons, and the issue had been expected to be high on Sarkozy's agenda.

Beijing has been reluctant to punish Iran, a major trading partner and source of oil, but US Vice President Joe Biden said last week China would back new sanctions, predicting they could be agreed within days.

Sarkozy pledged France would work with China -- which has sought greater say for developing countries in world financial affairs -- for a new multi-polar system when it assumes the rotating leadership of the G20 from November.

"We are going to prepare the French presidency of the G20 well in advance by thinking about a new multi-polar monetary order," he told reporters in the Great Hall of the People.

"I believe there can be no resumption of economic growth without global stability, and global stability is not possible without the greater involvement of China" on the international stage, Sarkozy said.

He refrained from adding to pressure on China over the value of its currency, which critics including the United States say is kept artificially low to boost Chinese exports at the expense of those from other countries.

"France's belief is that it is totally unproductive to make accusations against one another. It is far more intelligent to prepare the necessary evolution of the monetary system in the 21st century," he said.
"We are going to think and work together."

Relations nose-dived in March 2008, just four months after Sarkozy's first state trip to China, when he expressed shock at the security crackdown in the Chinese-ruled region after protests there led to deadly violence.

A month later, the Chinese leadership was incensed when pro-Tibetan demonstrators booed and jostled the Olympic flame as it was carried through Paris on its way to the Beijing Games.

Tensions peaked with Sarkozy's December 2008 audience with the Dalai Lama -- whom Beijing accuses of seeking independence for his Tibetan homeland -- before easing when Sarkozy met Hu at a G20 summit last year.

Sarkozy and his wife, Carla Bruni-Sarkozy, began the three-day visit on Wednesday with a brief stop in the ancient capital of Xi'an, where the couple visited the city's terracotta warriors.

The French leader, whose delegation includes several senior ministers, will also meet Premier Wen Jiabao in Beijing before heading to Shanghai on Friday for the start of the World Expo, where he will inaugurate the French pavilion.

The French president will mix politics with sightseeing during the trip, with scheduled visits to the Great Wall, the Ming Tombs and the Forbidden City.

Agreements on education and a plan to support small businesses are to be signed during the visit, according to French officials.

Hu is scheduled to make a state visit to France later this year.

Copyright © 2010 AFP. All rights reserved. More »

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China ready to say goodbye to dollar

Sun, 07 Mar 2010 10:09:55 GMT

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Zhou Xiaochuan, governor of the People's Bank of China

The head of China's Central Bank has declared that the country is ready to end pegging its currency in dollars, but said that any changes would be gradual.

Zhou Xiaochuan, governor of the People's Bank of China, described the decision as a "temporary" response to the global financial crisis, but gave no timescale for any change in policy.

"If we are to exit from irregular policies and return to ordinary economic policies, we must be extremely prudent about our choice of timing," Zhou said. "This also includes the [yuan] exchange rate policy."

His comments come as the US administration accuses China of artificially keeping the value of the country's yuan low.

"China and its currency policies are impeding the rebalancing [of the global economy] that's necessary," President Obama had told Bloomberg last month.

"My goal over the course of the next year is for China to recognize that it is also in their interest to allow their currency to appreciate because, frankly, they have got a potentially overheating economy," Obama said.

MGH/MMA

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Exchange rate reform to proceed, says bank - China Ends US Dollar Peg

Source: Xinhua | 2010-6-20

THE People's Bank of China, the nation's central bank, has decided to further reform the yuan exchange rate regime to make the Chinese currency more flexible, a spokesman said yesterday.

The decision was made in view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the spokesman said.

In further proceeding with the reform, continued emphasis would be placed on reflecting market supply and demand with reference to a basket of currencies.

The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market, according to the spokesman.

He said China's external trade is becoming more balanced.

The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010.

"With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist," the spokesman said.

The central bank will further enable the market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve macroeconomic and financial stability in China, the spokesman said.

China has moved into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies since July 1, 2005.

The spokesman said the RMB exchange rate regime reform has been making steady progress since 2005, producing the anticipated results and playing a positive role.

When the current round of international financial crisis was at its worst, the exchange rate of a number of sovereign currencies to the US dollar depreciated by varying margins.

"The stability of the RMB exchange rate has played an important role in mitigating the impact of the crisis, contributing significantly to Asian and global recovery, and demonstrating China's efforts in promoting global rebalancing," the spokesman said.

The gradual recovery of the global economy and upturn of the Chinese economy has become more solid with enhanced economic stability.

It is desirable to further reform the RMB exchange rate regime and increase the RMB exchange rate flexibility, said the spokesman.

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Saudis hoard twice as much gold as thought

By Javier Blas in London

Published: June 20 2010 21:06 | Last updated: June 20 2010 21:06

Saudi Arabia, the world’s fourth-largest holder of foreign exchange reserves, is sitting on more than twice as much gold as previously thought, according to new estimates that point to the revival of bullion as part of emerging economies’ official reserves.

The changes in Riyadh’s reserves were revealed by the World Gold Council, the industry-backed body which regularly tracks official bullion holdings. According to the WGC, the Saudi Arabian Monetary Agency, the central bank, has gold reserves of 322.9 tonnes, more than double the 143 tonnes it had previously reported.

The central bank said in a footnote of its latest quarterly report that “gold data have been modified from first quarter 2008 as a result of the adjustment of the Sama’s gold accounts”.

Sama did not respond on Sunday to calls seeking further comment.

Analysts said the rise in official gold holdings probably represented an accounting shift rather than fresh purchases. One possibility is that a large fraction of the country’s gold was not considered until now part of the official reserves.

But without an official explanation, analysts were keeping options open. At current prices, the extra gold in Saudi Arabia’s official reserves amounts to $7bn (€5.6bn, £4.7bn).

The revelation could fuel gold’s rally as it is a further sign that central banks are keen on gold, after two decades of selling their bullion. Gold prices hit a nominal record high above $1,260 a troy ounce on Friday. Adjusted for inflation, however, bullion is still a long way from its all-time high of more than $2,300 in 1980.

The WGC revelation about Riyadh’s gold holdings comes just a year after China surprised the bullion market when it revealed its gold holdings were more than 1,000 tonnes, almost double what it had reported for years.

Analysts believe that central banks could be net buyers of gold this year for the first time in nearly two decades. India bought 200 tonnes of gold from the International Monetary Fund earlier this year, while Russia and others are purchasing bullion from domestic miners on a regular basis, official data show. European central banks, after more than a decade of hefty disposals, have all but stopped selling.

Riyadh is now the 16th largest gold holder, ahead of countries such as the UK and Spain. The US is the world’s largest bullion holder with 8,133.5 tonnes.

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Russia urges creation of new international monetary control system

Topic: G20 and G8 summits in Canada


Participants at the G8 summit

03:42 27/06/2010
© REUTERS/ CHRIS WATTIE

Russia called on the participants at the G8 summit to consider the creation of a new international monetary control system, which could help prevent further crises, an aide to Russian President Dmitry Medvedev said.

Arkady Dvorkovich told journalists on Saturday that the introduction of additional reserve currencies would be the best measure that could assure global financial stability. Another possible step is increasing the role of Special Drawing Rights, a "quasi currency," which the International Monetary Fund allocates to nations allowing them to increase their foreign exchange reserves without money being borrowed or lent.

Besides this, Dvorkovich said, nations should discuss their monetary policies with each other. Such consultations could "increase the stability of the international currency system" and become a "serious element" of a new financial control system, he said.

According to Dvorkovich, French president Nicolas Sarkozy said during the talks that countries should prevent attacks on national currencies, but made no concrete proposals.

The Russian president's aid said the issue would be raised during the G20 summit in Toronto on Sunday.

HUNTSVILLE (CANADA), June 27 (RIA Novosti)

[American Patriot]

Ah HA! That one-world currency!

The "Credit".

It was in ALL the science fiction books back in the day....

Welcome to the 21st Century, 1984, Big Brother, Foundation Trilogy and the Fall of the Roman Empire - all wrapped into one.

Bet Obama jumps on this one.

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Dollar has failed to safeguard value: U.N. report

11:36am EDT

UNITED NATIONS (Reuters) - A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the U.N. World Economic and Social Survey 2010 said.

The report says that developing countries have been hit by the loss of value of the U.S. dollar in recent years.

"Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s," it said.

The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency," the U.N. report said.

It said a new reserve system "must not be based on a single currency or even multiple national currencies but, instead, should permit the emission of international liquidity (such as SDRs) to create a more stable global financial system."

"Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development," it said.

Nobel Prize winner Joseph Stiglitz, who previously chaired a U.N. expert commission that considered ways of overhauling the global financial system, is among the economists who have advocated the creation of a new reserve currency system, possibly based on SDRs.

(Reporting by Louis Charbonneau; Editing by Padraic Cassidy)

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Dollar should be replaced as international standard, U.N. report says

By Gabriella Casanas and Mick B. Krever, CNN
June 29, 2010 7:14 p.m. EDTJune 29, 2010 7:14 p.m. EDTJune 29, 2010 7:14 p.m. EDT


Under proposed system, countries would not have to buy up foreign currencies, as China has done with U.S. dollar.

STORY HIGHLIGHTS

• U.S. "dollar has proved not to be a stable store of value," report says
• Dollar under increasing scrutiny since U.S. entered recession
• U.N. report supports proposal to create standardized international system
• Under proposal, countries would no long have to buy up foreign currencies

RELATED TOPICS

• Economic Issues
• International Monetary Fund
• Asia

New York (CNN) -- The dollar is an unreliable international currency and should be replaced by a more stable system, the United Nations Department of Economic and Social Affairs said in a report released Tuesday.

The use of the dollar for international trade came under increasing scrutiny when the U.S. economy fell into recession. "The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the report said.

Many countries, in Asia in particular, have been building up massive dollar reserves. As a result, those countries' currencies have become undervalued, decreasing their ability to import goods from abroad.

The World Economic and Social Survey 2010 is supporting a proposal long advocated by the International Monetary Fund to create a standardized international system for liquidity transfer.

Under this proposed system, countries would no longer have to buy up foreign currencies, as China has long done with the U.S. dollar. Rather, they would accumulate the right to claim foreign currencies, or special drawing rights, or SDRs, rather than the currencies themselves.

The special drawing rights would be backed by a basket of currencies, which would make them less susceptible to volatility in any one currency. And because the value of a special drawing right is defined by the IMF, changes in the value of any one currency could be adjusted for.

These initiatives, supported by U.N. Secretary-general Ban Ki-moon, are meant to help sustain the international trade and financial systems that will allow less-developed countries to participate and integrate into the global economy.

In addition to the proposed reforms regarding international currency, the survey also offered guidance on increasing social well-being.
The survey said that "the number of the poor in the world living on less than $1.25 a day decreased from 1.8 billion in 1990 to 1.4 billion in 2005, but nearly all of this reduction was concentrated in China."

The number of poor increased in sub-Saharan Africa and South Asia over the same period. Income inequalities within countries have increased since the early 1980s with few exceptions, the report said.

"There's too little aid being provided, it's too fragmented, and it's too volatile in terms of the resources that are flowing to countries," said Rob Vos, director of the development policy and analysis division of the U.N.
The survey projects that by 2050 the population will be at 9 billion, with 85 percent living in developing countries, and the global economy will have to sustain a system that will allow for "decent living."

By 2050, one of every four people living in a developed country and one in every seven in countries now being developed will be over age 65. The fast ageing of the population will call for proper pension and health care systems that are sustainable.

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"The United Nations Declares War On The U.S. Dollar And Publicly Calls For The Establishment Of A New World Currency"



Are you ready for a world currency? If the United Nations has anything to say about it, that is exactly what we are all going to have shoved down our throats. A new United Nations report released on Tuesday essentially declares war on the U.S. dollar and publicly calls on the nations of the world to abandon it as the global reserve currency. This new report entitled "The U.N. World Economic and Social Survey 2010" is one of the most blatant attempts yet that we have seen from a major international organization to move us in the direction of a world currency. For years it was denial after denial after denial that a global currency was being considered. Of course we knew all along by reading their policy papers that the eventual goal of the globalists was indeed to move us over to a global currency. Finally, in just the past year, the International Monetary Fund's special drawing rights (SDRs) were promoted by the G20 as "an international reserve asset" that could be used as a unit of payment for IMF loans. SDRs are currently made up of a basket of various currencies from around the world, but now there are much bigger plans for the SDRs.

According to the new U.N. report, the U.S. dollar should be abandoned in favor of a new world currency based on these SDRs....

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency."

So why abandon the U.S. dollar? Well, the U.N. report says that we must abandon it because it has not been "stable" enough....

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency."

But of course it has not been stable!

It is the very same globalists that are pushing for this new world currency that have been behind the destruction of not only the U.S. dollar but all paper currencies around the world.

In fact, there are many who are speculating that the recession that the world economy is now being "pushed" into is actually a contrived crisis which is designed to pave the way for the grand solution that the globalists have wanted all along.

So exactly what is that grand solution?

During a speech back in May, IMF chief Dominique Strauss-Kahn called for the introduction of a global currency backed by a global central bank which would act as the "lender of last resort" in the event of a severe economic crisis.

That is what the globalists have always wanted - a global currency and a global central bank that we all pay taxes to.

Right now the world is not likely to go for it, but if the upcoming recession (or depression) is deep enough, then the would might just be willing to accept a global currency and a global central bank.

You see, it is the exact same problem/reaction/solution paradigm that the globalists have used time after time after time to get their way.

Even now, globalist organizations are lining up their proposals for global taxes that they wish to impose on all of us as we recently described on one of our sister sites....

*The World Health Organization recently announced that it is ready to impose global taxes on all of us. The World Health Organization says that it needs a lot more money and that it has some creative ideas for how to get it. Two of their main ideas for "raising revenue" are a global tax on Internet use and a global tax on paying bills online. These taxes would go directly to the World Health Organization.

*The IMF is actually calling for two new global taxes. One would be an international deposit insurance tax, and the other would be a tax on the profits of financial institutions worldwide. The IMF says that the funds would be used by them to prevent another major financial crisis.

So are you ready for a world currency and a world central bank that you will pay your world taxes to?

Malaysian economist Jomo Kwame Sundaram, the U.N. assistant secretary general for economic development, admitted during a news conference that "there's going to be resistance" to the idea of a world currency.

You think?

Oh, did they expect that we were just going to hand over our national sovereignty to them without any resistance whatsoever?

It is bad enough to have the Federal Reserve (a privately-owned central bank controlled by international bankers) controlling our currency right now.

If we ever allow the globalists to institute a global currency, a global central bank and global taxes then you can kiss our freedom and our national sovereignty goodbye.

But do you see any coverage of this on any of the big news channels?

Of course not.

The vast majority of the American people have no idea this is going on.

They are too busy catching up on the latest celebrity gossip and lining up to watch the new "Twilight" movie.

Our founding fathers are not here to stand up for our liberty and freedom, so it is up to you and I.

We must get the word out about the plan for a global currency and a global central bank before it is too late.
http://endoftheamericandream.com/arc...world-currency

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China favours euros over greenback as Bernanke shifts course

August 16, 2010 - 7:24AM

While Foreign Currencies Fall! Find Out How You Could Profit Handsomely

China, whose $US2.45 trillion in foreign-exchange reserves are the world's largest, is turning bullish on Europe and Japan at the expense of the US.

The nation has been buying "quite a lot" of Europe's bonds, said Yu Yongding, a former adviser to the People's Bank of China who was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2. Japan's Ministry of Finance said Aug. 9 that China bought 1.73 trillion yen ($US20 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years.

"Diversification should be a basic principle," Yu said in an interview, adding that a "top-level Chinese central banker" told him to convey to European policy makers China's confidence in the region's economy and currency. "We didn't sell any European bonds or assets, instead we bought quite a lot."

China's position may make it harder for the greenback to rebound after falling as much as 10 per cent from this year's peak in June as measured by the trade-weighted US Dollar Index. The Asian nation cut its holdings of US government debt by $US72.2 billion, or 7.7 per cent, through May from last year's record of $US939.9 billion in July 2009, according to the Treasury Department, which releases fresh data today.

US Concerns

Concern that the US economy may be faltering was underscored by the Federal Reserve on August 10. The central bank, led by Chairman Ben S. Bernanke, said it will reinvest principal payments on its mortgage holdings into Treasury notes to prevent money from being drained out of the financial system, its first expansion of measures to spur growth in more than a year.

"The pace of economic recovery is likely to be more modest in the near term than had been anticipated," the Federal Open Market Committee said in a statement after meeting in Washington. "The Committee will keep constant the Federal Reserve's holdings of securities at their current level."

Asian central banks holding some 60 per cent of the world's foreign-exchange reserves are turning away from the dollar. Concerned by weaker US growth and the Treasury's record borrowing, they are also switching toward euro assets to safeguard reserves, driving gains in the 16-nation currency. South Korea, Malaysia and India reduced their holdings of Treasury securities, US government data show.

Cutting Treasuries

The allocations to dollars in official foreign-exchange reserves declined in the first three months of the year, to 61.5 per cent from 62.2 per cent in the final quarter of 2009, the International Monetary Fund said June 30.

The yen's share stood at 3.1 per cent, up from 3.0 per cent, The euro's was 27.2 per cent, little changed from 27.3 per cent, even after the currency tumbled 5.7 per cent versus the dollar during the first quarter on speculation that nations including Greece would struggle to rein in budget deficits.

"Short of concerns of a default, the investor community in terms of big reserve managers will probably be forced to invest in the euro zone," said Dwyfor Evans, a strategist in Hong Kong at State Street Global Markets LLC, part of State Street Corp. which has $US19 trillion under custody and $US1.8 trillion under management. "They can't be putting all of their eggs in one basket, which is U.S. Treasuries."

The Dollar Index's 5.2 per cent drop in July, the biggest monthly decline in more than a year, failed to dissuade most foreign-exchange forecasters from predicting the greenback will gain against the euro and yen by December.

Dollar Forecasts

The US currency will climb 3.7 per cent to $US1.23 versus the euro by the end of December and 6.7 per cent to 92 yen, based on median estimates of strategists and economists in Bloomberg surveys.

Economists forecast US growth will be 3 per cent this year, compared with 1.2 per cent for the region sharing the euro and 3.4 per cent for Japan.

"There's no sign of panic or urgency from the Fed and that supports our view that this is a temporary soft patch and the US economy will fight its way through," said Gareth Berry, a Singapore-based currency strategist at UBS AG, the world's second-largest foreign-exchange trading firm. UBS forecasts the dollar will rise to $US1.15 per euro and 95 yen in three months.

Slowing purchases of Treasuries by Asian nations haven't hindered President Barack Obama's ability to finance a projected record budget deficit of $US1.6 trillion in the year ending September 30. Investor demand for the safest investments compressed yields on benchmark 10-year Treasury notes to a 16-month low of 2.67 per cent on Aug. 13, even after the US's publicly traded debt swelled to $US8.18 trillion in July.

'Concrete Steps'

US mutual funds, households and banks in May boosted their share of America's debt to 50.2 per cent, the first time domestic investors owned more Treasuries than foreign holders since the start of the financial crisis in August 2007.

Chinese Premier Wen Jiabao urged the US in March to take "concrete steps" to reassure investors about the safety of dollar assets. The nation, which is the largest overseas holder of Treasuries, trimmed its stockpile of US debt in May to $US867.7 billion, from $US900.2 billion in April and a record $US939.9 billion in July 2009.

Increases to its holdings made between June 2008 and June 2009 amid the global financial crisis were mostly in short-term debt, signaling a "lack of confidence" in the US ability to reduce its debt, UBS said in a research note dated August 9.

'Confidence' in Europe

"China has confidence in Europe's economy, in the euro, and the euro area," Yu said. A member of the state-backed Chinese Academy of Social Sciences, Yu was selected by the official China Daily to question Treasury secretary Timothy F. Geithner during his June 2009 visit to Beijing about risks that the US's budget deficit would undermine the value of its debt.

Chinese purchases of Europe's bonds come in the wake of measures taken by European policy makers to allay concern that a sovereign-debt crisis could threaten the single-currency union. In May, they announced a loan package worth as much as 750 billion euros ($US957 billion) to backstop euro-area governments.

That month foreign investors were net buyers of euro-zone debt as the 16-nation currency plummeted by the most since January 2009.

Foreigners purchased 37.4 billion euro worth of bonds and notes after buying 49.7 billion euro in April, the latest data from the European Central Bank show.

China's concern is mirrored by neighboring central banks that are building up foreign-exchange reserves as they sell local currencies to maintain the competiveness of exporters, according to Faros Trading LLC, which conducts currency transactions on behalf of hedge funds and institutional clients.

Indonesia, Thailand

Indonesia's central bank and Thailand's prime minister said in the past month they are watching the performance of their nation's currencies amid speculation gains may curb exports. Taiwan's dollar has depreciated in the final minutes of trading on most days in the past four months as policy makers bought dollars, according to traders familiar with the central bank's operations who declined to be identified. Exports account for about two-thirds of Taiwan's gross domestic product.

"Asian central banks, other than China, don't want to be caught holding all of the dollars when China is rapidly diversifying," said Brad Bechtel, a Connecticut-based managing director with Faros Trading. "When sentiment shifts and people start getting very bearish on the euro again, beware central banks might be aggressively buying euros on the other side."

The yen has climbed 7.9 per cent against the dollar this year. China bought a net 456.4 billion yen of Japanese debt in June, after purchasing 735.2 billion yen in May, which was the largest in records dating from 2005, according to Japan's Ministry of Finance data.

"China's policy of steady and relatively rapid accumulation of foreign-exchange reserves means they have to be invested somewhere," said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. "It is easy to imagine that given the low yields in the US and the debt crisis in Europe, China is now willing to invest more of these reserves in the yen."

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China surpasses Japan as world's No. 2 economy

By Tomoko A. Hosaka
Monday, August 16, 2010; A10

TOKYO -- Japan lost its place to China as the world's No. 2 economy in the second quarter, as receding global growth sapped momentum and stunted a shaky recovery.

Gross domestic product grew at an annualized rate of 0.4 percent, the government said Monday, far below expectations of 2.3 percent growth in a Kyodo news agency survey.

The figures underscore China's emergence as an economic power that is changing everything from the global balance of military and financial power to how cars are designed. It is already the biggest exporter, auto buyer and steel producer, and its worldwide influence is growing.

China has surpassed Japan in quarterly GDP figures before, but its passing of Japan in the second quarter is likely to mark the period in which the lead became insurmountable.

China's economy will almost certainly be bigger than Japan's at the end of 2010 because of the big difference in each country's growth rates.

China's economy is growing about 10 percent a year; Japan's is forecast to grow 3 percent this year.

Japan's nominal GDP, which is not adjusted for price and seasonal variations, was worth $1.286 trillion in the April-to-June quarter, compared with $1.335 trillion for China. The figures are converted into dollars based on an average exchange rate for the quarter.

Japan has held the No. 2 spot, after the United States, since 1968, when it overtook West Germany. From the ashes of World War II, the country rose to become a global manufacturing and financial powerhouse. But its "economic miracle" turned into a huge real estate bubble in the 1980s before imploding in 1991.

What followed next a decade of stagnant growth and economic malaise, from which the country never really recovered. Prime Minister Naoto Kan now faces a long list of daunting problems: a rapidly aging and shrinking population, persistently weak domestic demand, deflation, a strong yen and slowing growth in key export markets.

In contrast, China's growth has been spectacular, its voracious appetite fueling demand for resources, machinery and products from the developing world as well as rich economies such as Japan and Australia.

China is Japan's top trading partner and has been key in Japan's recovery from the global recession.

Japan's people still are among the world's richest, with a per- capita income of $37,800 last year, compared with China's $3,600. So are Americans at $42,240, their economy still by far the biggest.

"We should be concerned about per capita GDP," said Kyohei Morita, chief economist at Barclays Capital in Tokyo. China overtaking Japan "is just symbolic," he said. "It's nothing more than that." On a quarterly basis, Japan's GDP -- or the total value of the nation's goods and services -- grew 0.1 percent from the January-March period, the Cabinet Office said.

Consumer spending, which accounts for about 60 percent of GDP, was flat from the previous quarter, the figures showed. Capital spending by companies rose 0.5 percent, while public investment fell 3.4 percent.

"We are now seeing a pause of growth, especially on the domestic side," said Masamichi Adachi, senior economist at JPMorgan Securities Japan.

The outlook for this third is uncertain. Private consumption appears to be solid so far, helped in part by unusually hot weather, Adachi said. But a cooling global economy is dampening exports and production.

A stronger yen, which hit a 15-year high against the dollar last week, also poses a major risk for the country's export-driven economy. Yen appreciation reduces the value of repatriated profits for companies such as Toyota and Sony and makes their products more expensive abroad.

The currency worries led Finance Minister Yoshihiko Noda to say last week that he is closely monitoring foreign exchange rates. Bank of Japan Gov. Masaaki Shirakawa released a similar statement to try to calm markets.

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Cavuto: Euro Tops Dollar in Beijing Now

By Neil Cavuto
Published August 16, 2010
| FOXBusiness

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Now that we've got the silver, who needs your copper?

Here's the deal.

A penny for your ... Fears.

Because don't look now, but I think China fears holding too many of our pennies.

China is now the second biggest economy on earth and guess which currency is the country's second favorite?

Our dollar.

The euro the currency tops for Beijing now.

Yu Yongding dinging the dollar at a big money conference. The former Bank of China big wig insists it's nothing personal, just business. And I guess not much good long-term business to be gained being solely married to our dollar, so "euro we go," or at least "they go."

And all this on the very same day we heard officially what we've long taken as a given, at least anecdotally ... Japan's latest weak GDP figures have pushed it to third among economic giants.

So China, with nearly two and a half trillion bucks in foreign exchange reserves is exchanging a lot of dollars for a lot of "anything but" dollars.
Yong-ding says it's just about being prudent and diversifying.
But i am telling you, the implications for the us couldn't be more terrifying.

Here's why...We are piling up debt faster than me ice cream at a dairy queen closeout sale.

And we have comfortably believed the Chinese would happily buy that debt.

After all, we figured, where else would they go?

Today they just told us.

And to add insult to financial injury, they're lecturing us now about getting our spending act together.

Get ready.

This is gonna get bad.

ALERT Pt2 dollar collapse imminent

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China Doubles Korea Bond Holdings as Asia Switches From Dollar

By Frances Yoon - Aug 18, 2010 12:57 AM CT


Play Video

Aug. 17 (Bloomberg) -- Kenneth Lieberthal, a senior fellow at the Brookings Institute, a Washington policy group, talks about the outlook for China's economy and the mainland's holdings of U.S. Treasuries. China cut its holdings of Treasury notes and bonds by the most ever, raising speculation the plunge in U.S. yields that sent two-year rates to a record low has made government securities too expensive for some investors. Lieberthal talks with Bloomberg's Rishaad Salamat from Washington. (Source: Bloomberg)

China more than doubled South Korean debt holdings this year, spurring the notes’ longest rally in more than three years, as policy makers shifted part of the world’s largest foreign-exchange reserves out of dollars.

Korean Treasury bonds held by Chinese investors rose 111 percent to 3.99 trillion won ($3.4 billion) in the first half of the year, data from the Seoul-based Financial Supervisory Service show. China should allocate some reserves to “financial assets in major Asian economies,” Ding Zhijie, a former adviser to China’s sovereign wealth fund, said in an Aug. 16 interview.

“The significance of both the dollar and euro has declined because of the global financial crisis and the European debt crisis, while the role of some emerging-market currencies rose,” said Ding, dean of finance at Beijing’s University of International Business and Economics.

China’s holdings of Treasuries fell 6 percent in the first half to $843.7 billion, Department of Treasury data released this week show, making it harder for President Barack Obama to finance record debt sales to sustain the U.S. economic expansion. Societe Generale SA predicts Chinese KTB purchases, which accounted for 19 percent of foreign inflows in the first half compared with 10 percent last year, will spur further gains.

“At this rate China may buy about 4 trillion won of KTBs by year-end, and that’s a big deal,” said Christian Carrillo, the Tokyo-based head of fixed-income strategy at SocGen, France’s second-biggest bank. “That will be bullish for the market. It’ll create a severe demand-supply imbalance in the KTBs, pushing yields to fall even more aggressively.”
Bond Returns

China’s holdings of South Korean notes account for little more than 0.1 percent of its $2.45 trillion reserves. The increase in the first six months compares with $20.1 billion pumped into Japanese debt.

KTBs have handed investors a 5.6 percent return this year in dollar terms, delivering a profit every month, according to an index compiled by HSBC Holdings Plc. The advance marks the best winning streak since March 2007. U.S. Treasuries have gained 7.9 percent, according to the Bank of America Merrill Lynch U.S. Treasury Master Index.

Diversification should be the “basic principle” of reserve management, Yu Yongding, a former adviser to the People’s Bank of China, said in an interview this month. Allocations to dollars in official reserves fell in the first three months, to 61.5 percent from 62.2 percent in the final quarter of 2009, the International Monetary Fund said June 30.

‘Safe Haven’

The value of KTBs owned by China totaled 1.87 trillion won on Dec. 31, up from 79.6 billion at the end of 2008, FSS data show. Foreigners’ total holdings increased by 18.6 trillion won in 2009 and climbed 11.3 trillion to 67.8 trillion in the first half. That’s equivalent to 6.3 percent of South Korea’s outstanding government debt.

“The number of long-term investors who view Korean bonds as a new safe haven has increased,” Kim Jung Kwan, director of the Ministry of Strategy and Finance’s government bond policy division, said in an interview last month. “Korean bonds are attractive in yields and liquidity, as well as for diversification purposes.”

South Korea’s benchmark three-year bonds reversed earlier losses, with yields reaching a two-month low of 3.72 percent as of 2:38 p.m. in Seoul, while the rate on similar-maturity U.S. debt was 0.77 percent. The three-year KTB futures contract rose 18 ticks to 111.53. Dollar-denominated returns may be boosted by gains in the won, which will strengthen 3 percent to 1,140 versus the greenback by the end of the year, according to the median estimate of 20 analysts surveyed by Bloomberg.

“Higher yields offered by KTBs and potential won appreciation would offer an attractive alternative to U.S. Treasuries for China,” said Matthew Huang, a Singapore-based fixed-income analyst at Barclays Capital Plc. “Their total holdings are a drop in the pond relative to their total reserves.”

[vector7]

China Buys Euros as Fear of World Depression Grows

[Translate]
Webster G. Tarpley
TARPLEY.net
August 25, 2010

The US Treasury has just announced that China’s official holdings of U.S. Treasury securities declined by about $30 billion between April and May of this year, from about $900 billion to some $868 billion. According to the US authorities, this means that Chinese holdings of US government paper are now at the lowest level in the past year. A 2% to 3% decline in a month does not qualify as massive dumping, but simply means that China is in the process of diversification. It is also very likely that China has more U.S. Treasury bonds than this official count would indicate, quite possibly through proxy purchases via Hong Kong and other places.

With the sales of existing homes in the United States falling by 27% this morning, together with disastrous statistics regarding unemployment and foreclosures, it ought to be obvious that the US economy is in depression. Even experts interviewed on CNBC are beginning to wake up to this obvious fact.

World Bond Bubble

On August 24, the Treasury’s two-year note reached its highest price in recorded history, meaning that the yield was at a record low. The entire world is piling into short-term U.S. Treasury paper, and many buyers cannot get enough. This makes a mockery out of the right wing reactionary refrain that the US equals Greece and soon will be unable to borrow. If, according to the crackpot Austrian theory, markets know things that individual humans cannot know, then surely the market is signaling a great desire for Treasury bills and Treasury notes at the short end. The main reason for this demand is of course fear and panic – coming from the growing awareness that the world is indeed experiencing the second wave of a world economic depression of colossal proportions.

There is now a large-scale international bond bubble involving, among others, US treasuries and German Bunds. Since the flash crash of May 6, many investors have fled the stock markets entirely. It is still too soon to sound the alarm on deflation ahead, but deflation has now appeared over the horizon as a concrete possibility – partly because so many major financial players are now convinced that deflation is the wave of the future. If this were to come about, it would mean a depression looking much more like 1929-1933 than the relatively more mild situation we have experienced over the last two years.

The depression may be taking a turn toward something far more excruciating for the masses of the population. One by-product of that would be vastly decreased popular gullibility for the anti-government recipes of the libertarian Austrian school, which are tailored for those who have money, and which have very little appeal to people who are unemployed, homeless, and starving.

Also on August 24, the Japanese yen hit a 15-year high compared to the dollar, and a nine-year high compared to the euro. This kind of currency championship is a Pyrrhic victory which nobody wants, since it means the Japanese exports are in the process of being strangled. This is true currency chaos and world depression at the same time, pointing once again towards the urgent need to restore the fixed rate system of Bretton Woods, which was destroyed 39 years ago this month by Nixon and Kissinger, urged on by Milton Friedman and other snake oil economists.

For the past year, the main thrust of the London and New York financial centers has been the effort to export the Depression into Europe by means of a speculative attack on the government bonds of Greece, Spain, Portugal, and some other countries, all designed to provoke a panicked flight out of the euro, which would in turn allow the Anglo-Americans to loot and asset strip the accumulated wealth of the old continent. This was not a market event, but it orchestrated strategic attack, inspired by such figures as Soros, Einhorn, and Paulson. During July and the first half of August, it became apparent that this Blitzkrieg as originally planned had failed to reach its objectives. But the Anglo-Americans, one-trick ponies as always, maybe persisting in the assault.

China Blocks US-UK Attack On Euro

The Anglo-American hedge fund attack, as we have documented here, employed credit default swaps as the primary weapon against Greek, Portuguese, and Spanish government bonds. The failure of London and New York to induce a panic flight out of the euro during the May-June timeframe was partly results of the German self-defense measures, involving bans on naked credit default swaps and bans on naked shorting of German equities. In addition to this, Chinese support for the euro has played a decisive role.

There is every indication that the Chinese made a decision not to allow the destruction of the euro during the late spring and early summer.

That decision was technical, commercial, and political at the same time.

The technical part was the China sought to re-balance the basket of currencies it uses to maintain the international stability of the renminbi.

As the euro looms larger in Chinese trade, purchases of euros and Eurobonds are in order. It is also worth pointing out that the Chinese have not delivered on their promise to radically raise the international value of the renminbi, as hysterically demanded by Tiny Tim Geithner and others.

The commercial and political sides of Chinese support for the euro were reflected in the June visit of the Chinese vice prime minister to Greece, notably to the port of Piraeus. This Chinese envoy signed more than a dozen important economic cooperation deals, including shipping and shipbuilding, telecom, and container ports.

The deputy Greek finance minister, Theodoros Pangalos, was quoted as saying: “The Chinese want a gateway into Europe. They are not like these Wall Street [blankety-blanks], pushing financial investments on paper. The Chinese deal in real things, in merchandise. And they will help the real economy in Greece.”¹

The emphasis on the production of tangible physical commodities by the Chinese, in contrast to Wall Street’s reliance on a mass of toxic and kited derivatives, points to the real basis of Chinese economic ascendancy.

If the Chinese are wise, they will not go overboard with short-term greed, but rather be ready for generous concessions to the Greek labor movement, so as to get the unions on their side. In any case, these euro-denominated Greek purchases are one obvious reason why Beijing is holding fewer greenbacks and more euros.

Will Hungary, Ireland, or Budget Austerity Sink The Euro?

The Anglo Americans are still beside themselves with rage and consternation over the fact that their original attack on the euro has not worked. But since about the middle of August, the euro has fallen from over $1.30 to about $1.26 or thereabouts. Part of this is due to the decline of the New York Stock market, given the long-standing dollar-Dow trade-off. Another negative factor for the euro is doubtless the cruel and stupid deflationary policies introduced by many EU governments in a craven attempt to ward off further speculative attacks.

In a depression, government spending is the main thing that supports the entire economy, so cutting the government budget is a recipe for economic disaster, as some EU countries are now being reminded. Another factor is simply the month of August, when Catholic Europe, including France, Italy, Spain, and Bavaria, tends to shut down.

Where Will The Next Panic Break Out?

The world is now in a time of mixed signals and cross-currents. The forces of depression, in the form of $1.5 quadrillion of toxic and kited derivatives, are most emphatically still lurking, and since they have not been shredded, canceled, deleted, outlawed or abrogated, they will soon find a way to explode once again. Serious financial observers are now waiting to see where the next currency or banking panic will come.

Over the last day or two, there have been reports of heavy selling of the Hungarian forint, which is inside the EU but not part of Euroland.

Late on August 24, Standard & Poor’s announced a major downgrade of Irish debt, switching to a negative outlook. If the panic comes in Hungary or Ireland, then the euro could indeed go down. CNBC traders, in response to the question of how to make money off the crisis of the Hungarian currency, immediately replied that the way to do that was to short the stocks of Austrian banks, who hold much Hungarian debt.

From here, the crisis would move on to Germany, and soon the entire continent would be back in the soup. The British pound sterling also has massive vulnerabilities to being the next monetary unit to crash.

But the most likely victim remains Wall Street itself. A glance at the stock chart of Bank of America over the past three months shows what any technical analyst would regard as a very ugly picture. There are rumblings that Citibank may be heading towards liquidity trouble in September and October.

For those who like to read the tea leaves, CNBC’s Jim Cramer today responded to a question about Citigroup by emphatically declaiming “Stick with Citi,” and “Stick with Pandit.” Citigroup, he affirmed, remained his “favorite speculation.” For contrarians who have learned something over the past two years, this may already be enough to head for the hills. In any case, if the banking panic breaks out in New York, then the dollar may turn out to be the victim.

Bernanke and QE2

Today also brought the publication of the August 10 minutes of the Federal Reserve’s Open Market Committee. These minutes reveal a serious split in the management committee of the US financier oligarchy.

Bernanke and his majority are afraid of deflation, and want a new round of quantitative easing – already dubbed QE2 by the Street. But there is also a significant Austro-monetarist reactionary minority who regard inflation as the greater evil, and to whom a deflationary crash would not be unwelcome, as libertarian rantings over many decades have made plain. These tensions may well be on display at the Federal Reserve’s annual conference at Jackson Hole, Wyoming at the end of this week.

Another CNBC analyst has ventured to predict a ragged decline of the Dow to about 5,000 over the months ahead. If that begins to happen, then the danger of deflation will be enhanced, and in such a scenario the dollar would actually tend to increase in value compared to other currencies.

On the other hand, Helicopter Ben Bernanke’s trademark is his strategy for flooding the system with bailouts and other liquidity if deflation looms. Bernanke is the captain of that ship of fools known as the QE2.

The one certainty is that there is no recovery, and that the second wave of a world economic depression dominates the world.

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CHINA: Rumors Spread That Central Bank Head Has Defected

STRATFOR | Aug. 30, 2010, 11:29 AM | 3,216 | 7



Rumors have circulated in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou.

Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China.

STRATFOR has received no confirmation of the rumor, and reports by state-run Chinese media appeared to send strong indications that Zhou is in no trouble at the moment. However, the release of this rumor and its dispersion throughout the public is significant, particularly as the Communist Party of China (CPC) is preparing for a leadership transition in 2012.

Chinese state-run media and official government websites have run several high-profile reports about Zhou, which should be seen as an attempt to refute the rumors.

The PBC website published two articles on its homepage reporting on Zhou’s meeting with visiting Japanese Financial Services Minister Shozaburo Jimi during the third China-Japan high-level economic dialogue as well as a meeting with an Italian delegation.

Xinhua news agency reported that Zhou told the PBC Party Committee Enlargement meeting on Aug. 30 it should “continue to implement justice and strengthen legislative work in the financial system.” Prior to this news, Zhou appeared at the 2nd annual conference of the heads of the Chinese, Japanese and Korean central banks held on Aug. 3, and his most recent public appearance was Aug. 10 for China’s Financial System Anti-corruption Construction Exhibition.

Zhou is known to have lofty political ambitions and is believed to be a close ally to former Chinese President Jiang Zemin, as well as a core figure for Jiang’s “Shanghai Gang.” There has been no shortage of rumors about Zhou’s possible dismissal in the past five years, as he is believed to be associated with several high-level financial scandals.

For example, Zhou was rumored to be under “shuanggui,” a form of house arrest administered by the CPC, during the massive crackdown of Shanghai Party Secretary Chen Liangyu in 2006, which was perceived in the country as a crackdown of the Shanghai Gang and part of Hu’s effort to consolidate power ahead of the 2007 power transition.

There was also a rumor that he might have been detained following the investigation and arrest of Wang Yi, the vice governor of the China Development Bank, along with several other officials in the financial circle.

Currently, several financial scandals are still under investigation, and it is likely that Zhou, as PBC governor and one of the most powerful economic players in the country, could be associated with some cases.

Therefore, whether or not the rumor is true at this time, the leaking of this news is very likely to be associated with a power struggle within the Communist Party’s economic hierarchy.

[American Patriot]

I posted that in a separate thread under "China". lol

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China's New Declaration

The Chinese government says his nation does not plan to buy any more US treasuries and that is not the only change Beijing has planned.

30 Aug 2010 10:30 AM

In most years something very memorable occurs at the Australian Leadership Retreat on Hayman Island. Last year the Chinese were stopped from attending because China discovered that the then Prime Minister Kevin Rudd would be in attendance. Rudd had fallen out with the Chinese leadership (Building bridges with China, September 1 2009).

In 2010 Rudd was not there and the Chinese came in force and some of their messages are still ringing in my ears.

By far the most dramatic was the declaration that China did not plan to buy any more US treasury securities or bonds. The person who made the statement does not make that decision, but he is closely connected to the China hierarchy. He explained that the $US2.5 trillion of China’s foreign reserves held in US dollars was burdensome because it limited the flexibility of monetary policy and any appreciation of the Chinese currency would cause loss. China would therefore not be a buyer of US dollars but would not sell. China would look to diversify its holdings and was a buyer of European and Japanese government bonds as well as other currencies.

A statement along those lines in more normal times would have seen the Hayman phones running hot to sell US dollars.

But at the moment the US dollar, as the world currency, is gaining considerable support from the Middle East and other areas. In addition China is looking to increase imports and to reduce its surpluses. But longer-term when the main supporter of a particular asset says that they will withdraw their continued support, the value of the asset will fall. If China follows through on the Hayman declaration it is not good long-term news for the US currency.

But the Chinese also had some special messages for Australia. In particular, the rise in iron ore prices has had a huge impact on China and so China wants long term contracts with price stability, which will protect Australia if there is a price fall.

The problem for Australia is, of course, that if we accepted a lower price now, would we really be insulated against a fall in later years?

The Chinese said at Hayman that Australia would be insulated, but in the light of the Stern Hu affair there is limited trust. Companies like Rio Tinto and BHP want to maximise current gains and BHP, in particular is pressing for market pricing – the reverse of what China seeks. The Chinese repeated that they wanted a long-term trade agreement with Australia and obviously the price of iron ore would be part of it.

Although Australia has approved the vast majority of Chinese proposals to invest in Australia, there is clearly a belief in China that we take an unrealistically tough view of Chinese investment.

We have always been proud of our democratic institutions but China took the Australian election as an example of the shortcoming in the Western democratic system. While emphasising that they did not want to be critical, they pointed to the cost of the system and the difficulty for governments in taking a long-term view. The message was clear – do not criticise the Chinese system.

It was also clear that there were some underlying difficulties in the Chinese economy. While China had sufficient land to feed the population there were problems with the supply of water, while those living in rural areas were paid at rates equal to about one third of those that were working in the cities.

It seems that China wants to cut unoccupied apartment prices by about 10 to 15 per cent and to achieve this the government developers to sell their stocks. China is undertaking all sorts of measures to force these dwellings onto the market at prices that buyers can afford. And this is one of the factors behind the fluctuations in the Shanghai composite index.

If China does reduce its housing prices, the Australian housing market will emerge as one of the few developed countries where house prices have not been corrected as part of the global financial crisis.

Meanwhile, the days of China growth rates approaching 10 per cent have gone. It creates just too many problems. We are going to see growth rates of around or a little below 9 per cent in the a years ahead. Eight per cent seems to be a floor.

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Gold hits record high near $1,278



AFP/File – The price of gold struck an all-time high above 1,278 dollars on Thursday as investors sought safety …

• Play Video Economy Video:Geithner sharpens China criticism Reuters
• Play Video Economy Video:Geithner Grilled Over ChinaCNBC

– Thu Sep 16, 7:55 am ET

LONDON (AFP) – The price of gold struck an all-time high close to 1,278 dollars an ounce in trading here on Thursday.

Gold hit a record 1,277.90 dollars an ounce at 12:30 pm (1130 GMT) on the London Bullion Market.

It had already reached an all-time high above of almost 1,275 dollars on Tuesday, breaking June's record of 1,265 dollars, as investors sought safety amid an uncertain economic outlook.

Gold is seen as a safe haven investment and also a hedge against inflation.

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Brazil ready to retaliate for US move in ‘currency war’

By John Paul Rathbone in London and Jonathan Wheatley in São Paulo
Published: November 4 2010 18:28 | Last updated: November 4 2010 18:28

Brazil, the country that fired the gun on the so-called “currency wars”, is girding itself for further battle.

Brazilian officials from the president down have slammed the Federal Reserve’s decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures.

EDITOR’S CHOICE
beyondbrics: Emerging markets blog - Aug-09
In depth: Currency wars - Oct-26
The currency wars explained - Oct-20
Thailand thrives in currency squalls - Nov-03
Opinion: Brazil must explain what it wants - Nov-01

“It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.”

At a joint press conference with president-elect Dilma Rousseff, outgoing president Luiz Inácio Lula da Silva said on Wednesday he would travel to the G20 summit in Seoul with Ms Rousseff, ready to take “all the necessary measures to not allow our currency to become overvalued” and to “fight for Brazil’s interests”. “They’ll have to face two of us this time!” he said.

Ms Rousseff added: “The last time there was a series of competitive devaluations. . . it ended in world war two.”

Brazil has been an early casualty in the currency wars, as the real has risen by 39 per cent against the dollar since the start of 2009, prompting fears it will hollow out Brazil’s industrial base by making manufactured exports uncompetitive. Data released on Thursday showed September industrial output was 2 per cent lower than in March.

“Brazilian industry is well and truly stuck in a rut, due in part to the recent strength of the real,” Capital Economics, a London-based research firm, said in a note to clients on Thursday.

“[The Fed’s decision] is cause for concern. These are policies that impoverish those around them and end up prompting retaliatory measures,” Brazil’s foreign trade secretary, Welber Barral, said separately.

With local benchmark interest rates at 10.75 per cent – the G20’s highest after stripping out 5 per cent inflation – international capital has flooded into Brazil. To curb that, the country has imposed a 6 per cent tax on bond inflows, but with limited effect so far.

Emerging market fund managers say the tax, paid on point of entry, has had some impact on short-term bond investors – but not on long bonds held to maturity which, after netting off the tax, still provide a yield of about 11 per cent.

“That’s higher than you can get anywhere else, especially for an investment- grade credit,” said Kieran Curtis, emerging markets fund manager at Aviva investors, which has £1.3bn under management.

Economists agree that one reason why Brazilian interest rates are so high is loose fiscal policy. Federal government spending has grown by 18 per cent this year. Ms Rousseff has pledged to trim government spending, although there are doubts that she will be able to push through cuts.

Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

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New World Currency To Replace The Dollar Would Slay The Gold Bull Market

Nov. 10 2010 - 5:36 pm | 8,735 views | 0 recommendations | 2 comments
By ROBERT LENZNER

Beware of bankers meeting on weekends


QE2 will be followed by QE3 until we see “the end of the U.S. dollar standard,” a leading gold enthusiast and emerging markets expert, declared yesterday. No one can predict the timing, but the signal to sell all your gold will be an emergency economic meeting to create a new global currency, says Asia-based investment analyst Christopher Wood, who has been recommending gold as an investment since 2002.

Wood is on record as predicting that gold will sell over $3,000 an ounce some day. His portfolio allocation for U.S. pension funds includes 25% gold bullion and 15% gold mining shares.

Another signal that gold is in danger of big price slippage is when Ben Bernanke raises interest rates by 1/4 of 1%, but he sees no reasonable chance that would happen anytime in the near future– and certainly not unless there is inflationary growth in the U.S. economy.

“The biggest beneficiary of QE2 will be the Asian emerging markets,” says Christopher Wood, emerging markets analyst at CLSA. “Investors must be overweight these Asian markets,” because that’s where Bernanke’s buying of Treasuries will end up. Or investors can buy U.S. multinationals with major operations in the emerging markets.”

Wood says the stock market in China sells at the same market multiple as the U.S., and he believes Chinese banks and insurance stocks are especially cheap right now and due for a move. His biggest weighting is in India. Wood’s Asian portfolio of 25 stocks has gained 671% in value since late 2002, compared to the MSCI index, which has risen 217%.

Wood’s portfolio picks have turned in an annual return rate of 28.9%.

Wood told a small group of journalists he did not believe that QE2 would work and that it will lead on to QE3, just as QE1 led to QE2. Because of expected weakness in the dollar, Wood recommended buying strong Asian currencies like the Singapore dollar, his favorite. He flatly predicted the Singapore dollar would rise in relationship to the dollar. One way to play Singapore is to own high dividend yielding stocks there, or to get a slice via the iShares MSCI Singapore ETF that trades under “EWS.”

He believes the economy will continue to be soft because of the foreclosure troubles facing the housing industry. Housing can’t recover until there is a clearing of all the homes in trouble, and this possibility is being held up by all the legal snafus and litigation. He also predicted that Portugal “would blow up” and believes the French banking industry faces an enormous problem in the $495 billion of loans they have outstanding with Greece, Ireland, Portugal and Spain.

[Ryan Ruck]

China, Russia Quit Dollar On Bilateral Trade

November 24, 2010

China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday in St. Petersburg.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

"That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries," he said.

Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.

The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communiqu. Details of the documents have yet to be released.

Putin said one of the pacts between the two countries is about the purchase of two nuclear reactors from Russia by China's Tianwan nuclear power plant, the most advanced nuclear power complex in China.

Putin has called for boosting sales of natural resources - Russia's main export - to China, but price has proven to be a sticking point.

Russian Deputy Prime Minister Igor Sechin, who holds sway over Russia's energy sector, said following a meeting with Chinese representatives that Moscow and Beijing are unlikely to agree on the price of Russian gas supplies to China before the middle of next year.

Russia is looking for China to pay prices similar to those Russian gas giant Gazprom charges its European customers, but Beijing wants a discount. The two sides were about $100 per 1,000 cubic meters apart, according to Chinese officials last week.

Wen's trip follows Russian President Dmitry Medvedev's three-day visit to China in September, during which he and President Hu Jintao launched a cross-border pipeline linking the world's biggest energy producer with the largest energy consumer.

Wen said at the press conference that the partnership between Beijing and Moscow has "reached an unprecedented level" and pledged the two countries will "never become each other's enemy".

Over the past year, "our strategic cooperative partnership endured strenuous tests and reached an unprecedented level," Wen said, adding the two nations are now more confident and determined to defend their mutual interests.

"China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power," he said.

"The modernization of China will not affect other countries' interests, while a solid and strong Sino-Russian relationship is in line with the fundamental interests of both countries."

Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a "fair and reasonable new order" in international politics and the economy.

Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.

Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.

He left St. Petersburg for Moscow late on Tuesday and is set to meet with Russian President Dmitry Medvedev on Wednesday.