Mon 2010-08-23 11:04 EDT

Hussman Funds - Weekly Market Comment: Why Quantitative Easing is Likely to Trigger a Collapse of the U.S. Dollar - August 23, 2010

John P. Hussman, Ph.D.

A week ago, the Federal Reserve initiated a new program of "quantitative easing" (QE), with the Fed purchasing U.S. Treasury securities and paying for those securities by creating billions of dollars in new monetary base. Treasury bond prices surged on the action. With the U.S. economy predictably weakening, this second round of quantitative easing appears likely to continue. Unfortunately, the unintended side effect of this policy shift is likely to be an abrupt collapse in the foreign exchange value of the U.S. dollar...

2010; August 23; Collapse; Hussman Funds; likely; Quantitative Easing; triggered; U.S. dollar; weekly market comments.

Credit Writedowns Thu 2010-08-05 20:20 EDT

Do Deficits Matter? Foreign Lending to the Treasury

L. Randall Wray

...a US current account deficit will be reflected in foreign accumulation of US Treasuries, held mostly by foreign central banks...While this is usually presented as foreign ``lending'' to ``finance'' the US budget deficit, one could just as well see the US current account deficit as the source of foreign current account surpluses that can be accumulated as treasuries...most public discussion ignores the fact that the Chinese desire to run a trade surplus with the US is linked to its desire to accumulate dollar assets...all of the following are linked...the willingness of Chinese to produce for export, the willingness of China to accumulate dollar-denominated assets, the shortfall of Chinese domestic demand that allows China to run a trade surplus, the willingness of Americans to buy foreign products, the (relatively) high level of US aggregate demand that results in a trade deficit, and the factors that result in a US government budget deficit...I am not arguing that the current situation will go on forever, although I do believe it will persist much longer than most commentators presume...there are strong incentives against the sort of simple, abrupt, and dramatic shifts often posited as likely scenarios...I expect that the complexity as well as the linkages among balance sheets ensure that transitions will be moderate and slow...

credit writedowns; deficits matter; foreign lending; Treasury.

naked capitalism Mon 2010-03-29 13:48 EDT

Thinking the Unthinkable: What if China Devalues the Renminbi?

Marshall Auerback

Conventional wisdom holds that the Chinese are due (as in overdue) for a revaluation of their currency, the renminbi...We question whether a revaluation is the right answer for them, and more important, whether the Chinese themselves see a revaluation as a plus. The government has engineered an enormous increase in money and credit in the past year. In fact, it seems to be as great as 5 years' growth in credit in the previous Chinese bubble. The increase in money and credit is so great and so abrupt that you tend to get a high inflation quite quickly even if there are under utilised resources. Add to this the fact that China simultaneously is providing massive fiscal stimulus...Inflation can take off and thereby begin to ERODE the competitiveness of Chinese exports. Nouriel Roubini pointed out this issue in 2007: if China didn't revalue, inflation would do the trick regardless. A continued high rate of inflation relative to its trade partners would push up the price of goods in home currency terms, which in turn translates into higher export prices. This might be the real reason why China is so reticent to revalue its currency. The Americans might go crazy if the Chinese devalued, but if the inflation is high enough, they might have to do it, as it will severely erode their terms of trade and cause their tradeables sector to collapse.

China Devalue; naked capitalism; renminbi; Think; unthinkable.

Wed 2009-02-11 00:00 EST

Hussman Funds - Weekly Market Comment: Market Action Abruptly Signals Renewed Caution - January 19, 2009

2009; Hussman Funds; January 19; Market Action Abruptly Signals Renewed Caution; weekly market comments.