http://www.bloomberg.com/news/2012-...-quality-assets-shrink-42-after-stimulus.html
The dollar is proving scarce, even after the Federal Reserve flooded the financial system with an extra $2.3 trillion, as the amount of the highest-quality assets available worldwide shrinks.
From last year’s low on July 27, the greenback has risen against all 16 of its major peers. Intercontinental Exchange Inc.’s Dollar Index surged 12 percent, higher now than when the Fed began creating dollars to buy bonds under its extraordinary stimulus measures at the end of 2008.
International investors and financial institutions that are required to own only the highest quality assets to meet investment guidelines or new regulations are finding fewer options beyond dollar-denominated assets. The U.S. is one of only five major economies with credit-default swaps on their debt trading at less than 100 basis points, meaning they are viewed as almost risk free. A year ago, eight Group-of-10 nations fit that category, data compiled by Bloomberg show.
“The pool of high-rated assets has been shrinking, not just in the euro zone but elsewhere as well,” Ian Stannard, Morgan Stanley’s head of Europe currency strategy, said in a May 22 telephone interview. “With the core of Europe shrinking, and the available assets for reserve purposes shrinking, it makes the euro zone less attractive.” .....
Looks like the Fed is working and the sky is not falling.
Japan and China to start direct currency trading on Friday
Business May. 29, 2012 - 02:35PM JST ( 9 )
TOKYO —
Japan and China will start direct currency trading this week, Tokyo said Tuesday, the first time Beijing has let a major unit other than the dollar swap with the yuan.
The move, which will scrap the greenback as an intermediary unit, comes as China introduces measures as part of a long-term goal of internationalizing its currency to rival the dollar.
The two-way trade will also be allowed to move in a wider range than the narrow band at which the dollar and yuan change hands, Dow Jones Newswires and the Nikkei business daily reported.
China will set a daily rate based on dealer quotes with trade allowed to move within a 3% band above or below that rate, the reports said, compared with a 1% band fixed to yuan-dollar trading.
The Chinese central bank earlier Tuesday introduced a rate of 7.9480 yuan for every 100 yen, Dow Jones said.
However, there will be no fixed rates in Tokyo trade with the currencies trading freely, according to the same media reports which provided no further details.
The yen does trade freely against other major currencies on global foreign-exchange markets, including the greenback, with the dollar buying 79.50 yen in Asian afternoon trade on Tuesday.
“From June 1, the yen-yuan exchange rate will be constantly indicated in both markets, facilitating full-fledged direct exchange trading,” Finance Minister Jun Azumi told a regular press briefing.
By not using the dollar as an intermediate currency “we can lower transaction costs and reduce settlement risks at financial institutions as well as making both nations’ currencies more useful”, he added.
The announcement comes as China introduces measures as part of a long-term goal of internationalizing the yuan to rival the dollar as the world’s benchmark currency.
Beijing’s tightly managed currency policy has triggered huge trade deficits in the United States, which accuses China of artificially undervaluing the yuan to boost exports, and has been a long-running source of friction between the world’s two largest economies.
On Tuesday, Beijing described yuan-yen trade as an “important step” in “strengthening cooperation between China and Japan in developing financial markets and mutually promoting direct trading between the two currencies based on market principle.”
China overtook Japan to become the world’s second-largest economy in 2010, and the neighbors are forging closer business ties despite frequent diplomatic spats over territorial claims and lingering historical animosities.
China is Japan’s largest trading partner, but about 60% of their mutual trade is denominated in U.S. dollars.
In March, Japan said it had won approval from Beijing to buy Chinese government bonds for the first time—Beijing does not allow investors to freely purchase its debt, requiring official approval instead.
Tokyo said it got the green light to buy Chinese government bond issues worth about 65 billion yuan ($10.25 billion), a relatively small amount that was seen as largely symbolic.
The economic powerhouses have also agreed to promote the use of their currencies in bilateral transactions—such as yuan-denominated foreign direct investment by Japanese companies in China—to reduce foreign exchange risks.
The yen, meanwhile, hit historic highs against the dollar last year, denting exporters whose products become less competitive overseas when the currency strengthens.
Japanese finance officials have vowed to step into foreign-exchange markets again to tame the value of the unit, which is increasingly seen as a safe-haven currency as the euro takes a hit owing to worries about the debt-hit eurozone.
© 2012 AFP
The Fed just needs to work for 'we the people', and not a handful of wall street people.
Right and the Fed is indestructible. It can do no wrong and nothing will ever happen to it. LOL.'The shit wont hit the fan' because the Fed is designed to protect American interests.
Your right it exports inflation to third world countries making it harder for the poor to eat. Proud to be an American?The Fed may be bad for the rest of the world, but its pretty obvious there is no alternative currency.
Since we are at war with "weapons" then it's reasonable to assume someone will retaliate appropriately, no?The Fed is one of our most effective 'weapons'.
We still had a sliver of credibility then. Not anymore. There is no more recourse now once you lose credibility. The world put their faith in our fiat and now we are using it to monetize our sovereign debt. No more credibility.The world was forced to follow our system after world war two, they were given a chance to jump ship with 'Nixon Shock'. They didnt jump ship, so they are just as fucked as everyone else would be.
Fantastical wishful thinking. Typical Keynesian circular logic showing a complete lack of understanding between the Fed and WallStreet.The Fed just needs to work for 'we the people', and not a handful of wall street people.
The markets in Europe are melting down as well as the EUR. Investors are fleeing into USD, Treasuries, and German Bunds.Looks like the Fed is working and the sky is not falling.
Who claimed pride? Happy to be in the situtaion vs the alternative, absolutelyYour right it exports inflation to third world countries making it harder for the poor to eat. Proud to be an American?
There is ZERO MSM talking about how the Fed fucks third world and developing countries (read: Brazil). They may have one guest who wrote a book, but they certainly are not pushing the realities we both obviously agree on.There is always an alternative and the market will/is find(ing) it. Just because we are the "cleanest dirty shirt" or "best looking house in the worse neighborhood" or whatever catchy nonsense phrase the MSM uses to describe a situation where all developed countries are finished, doesn't mean the market won't find another alternative. It always eventually finds the best option. And there is nothing the Fed, whom you ascribe god like powers too, can do about it.
They have sticks and stones, we have thermonuclear weapons. We have 'infected' them, they cant 'kill' us without seriously harming themselves. China is the only one who could do it, but they would sacrifice their entire middle class, and it could cause such civil unrest the country could fracture.Since we are at war with "weapons" then it's reasonable to assume someone will retaliate appropriately, no?
Happy enough to still support it even though you know it's wrong. Just so long as the destructive policies don't effect you personally right?Who claimed pride? Happy to be in the situtaion vs the alternative, absolutely
Why anyone would give any credence to the MSM is beyond me. This is common (economic) sense. Relying on MSM outlets to think for you isn't good.There is ZERO MSM talking about how the Fed fucks third world and developing countries (read: Brazil).
The World needs a new Louvre Accord Business InsiderWho is responsible for the commodity and food inflation? Chairman Ben Bernanke denies that it is the Fed. Of course, the cause of inflation is hard enough to prove in a domestic economy, much less from the monetary policy followed by a central bank in a different country.
...........
So, let’s not fool ourselves. The unrest in the Middle East has a lot to do with food and commodity prices, and Fed QE policies may have a lot to do with those prices.
The Latest American Export: Inflation Wall Street JournalThe US dollar, as the world’s reserve currency, has a very important role in the exchange of value between nations. It is currently estimated that 70% of all global trade is transacted in US Dollars. It is the volatility in the value of the US dollar compared to its trading partners, which is driving fears of a global trade war.
The FX rates between nations are bouncing up and down based on global macro market dynamics. The price of most commodities is skyrocketing, with the grains regularly limiting up currently. The US is continuing to see an increase in food exports, as US Farmers book nominal historic prices.
The exporting of inflation to third world nations is now causing catastrophic results in nations historically ran by autocrats with strong ties to the United States foreign policy. The events in Tunisia and Egypt have unleashed a rising tide of anti-Americanism in the region.
If the current administration is intentionally destabilizing dictators & autocrats, the region should expect the policies of the Federal Reserve to continue. The current course of action by the Federal Reserve is directly feeding the populous revolutions with public anger at rising food costs.
The invisible hand of the market is directly pulling the strings of the people rioting. This will continue until the Federal Reserve decides that it has inflicted enough inflation on the globe. This is economic war, even if professors of Government are unaware of the implications of their actions.
And just wait for QE3, QE4, QEn.........The world saw a surge in the dollar prices of primary commodity prices in 1971-73 following the Nixon shock of 1971 when the U.S. abandoned the gold standard. There was also a commodity price surge during the Greenspan-Bernanke shock of 2003-04, when the federal-funds rate was reduced to an unprecedented low of 1% followed by a falling dollar.
Now we have what one might call the Bernanke shock. The Fed has set U.S. short-term interest rates at essentially zero since September 2008, followed in 2010 by quantitative easing to drive down long-term rates. Predictably, primary commodity prices in 2009-10 surged. In 2010 alone, all items in the Economist's dollar commodity price index rose 33.5%, while the industrial raw materials component soared a remarkable 37.4.%.
Nothing last forever which means never shouldn't be part of your lexicon.Again, there is no other options, and there never will be (as long as Russia and China are deemed more corrupt than the USA).
I just don't understand how you can think this will go on indefinitely and end well for us or anyone else.The Fed will continue to manipulate world markets for the benefit of the USA. According to that article, they have been doing a better job of it than the other 15 competing currencies.
And sometimes in war everyone ends up killing themselves. With the scale of economic warfare underway right now there will be no winners.They have sticks and stones, we have thermonuclear weapons. We have 'infected' them, they cant 'kill' us without seriously harming themselves.
Rigged games never end well. Especially when the suckers end up with nothing and have nothing to lose.Moral high ground it is not, but the Fed pretty much has rigged the game for the USA and world wide capitalism.