The Debts of the Lenders: America's Pacific Allies Part 2

I haven't been posting as much b/c of a busier academic life. Bar preparation is a pain the ass. Anyway, I was perusing the newswire late last night and came across this story:

NEW YORK, Jun 12, 2009 (Xinhua via COMTEX) --

The dollar rebounded against major currencies on Friday after Japanese Finance Minister Kaoru Yosano said Japan is confident in U.S. debt.

Yosano was reported as saying in an interview that Japan has complete trust in the fact that the
U.S. views its strong-dollar policy as fundamental. "So our trust in U.S. treasuries is absolutely unshakable," he said. [emphasis my own]

The minister also said Japan has complete faith in U.S. economic and fiscal policy and the U.S. dollar's position as the world's reserve currency isn't under threat.

Yosano's comments boosted market confidence in U.S. debt, sending the dollar higher. In the previous sessions, the dollar has been under pressure from reports that some major holders of U.S. debt, such as Brazil and Russia, indicated interest in alternatives to dollar holdings.
A weak economic report for the euro zone also helped the dollar rising against European currencies. Industrial production in the euro area fell by 1.9 percent in April from March, according to Eurostat, the statistic agency of the European Union. It was much larger than a loss of 0.4 percent expected by analysts.

The euro bought 1.4010 dollars in late New York trading compared with 1.4126 dollars it bought late Thursday. The pound fell to 1.6450 dollars from 1.6589 dollars.
The dollar rose to 1.1184 Canadian dollars from 1.0980 Canadian dollars, and rose to 1.0793 Swiss francs from 1.0697 Swiss francs. It rose to 98.24 Japanese yen from 97.52 Japanese yen.

Copyright 2009 XINHUA NEWS AGENCY

This story isn't that surprising. I wrote about potential Japanese involvement earlier in the month:

http://debtsofanation.blogspot.com/2009/06/
debts-of-lenders-americas-pacific.html

Market commenters have got it backwards. Instead of harping on the inescapable "dollar trap" that China has tied itself to w/the US, they should take a cue from real-politik analysts who have long pounded the table about the "other Asia." While the 21st century may indeed be the Chinese Century, her rise to power will not come unchallenged. DC diplomats should do more to re-invigorate historic ties w/China's neighbors instead of rushing to placate the commissars in Beijing about the safety of their American investments.

To be fair, this is not a simple task. Since these ties were formed in the formative years of the Cold War, they harken back to an era when terms such as "containment", "listening stations", and "Red China" were used to refer to the Pacific region. The Obama administration will have to forge a delicate balance of power that is accomodating to all parties involved. In some ways, this is a more complex task than before.

During the Cold War, these governments were single party entities that governed state and trade in an iron fist. However, the current situation is a bit more complex. The ruthless right wing states (Taiwan's KMT, S. Korea's General Park, and even Indonesia's Sukarno) of the past have been supplanted by nascent - yet vibrant - multi party systems (democracy is perhaps too strong of a label to use here).

The Debts of the Spenders: USDA Forecast Wrap-Up

USDA Lowers US Corn Production Forecast For 2009-10

U.S. farmers will be producing less corn for the 2009-10 marketing year than was predicted just a month ago due to lower yield prospects, the U.S. Department of Agriculture said Wednesday.
“Corn production for 2009-10 is projected at 11.9 billion bushels, down 155 million from last month’s projection,” the USDA said in its June edition of the monthly World Agricultural Supply and Demand Estimates report.

The USDA on Wednesday lowered its forecast for the average corn yield to 153.4 bushels per acre, down from the May prediction of 155.4 bushels per acre.

USDA Lowers US 2009-10 Winter Wheat Production Forecast

The U.S. Department of Agriculture on Wednesday lowered its forecast for U.S. winter wheat production to 1.49 billion bushels, pushing total 2009-10 marketing year wheat supplies down to 2.8 billion bushels, a 10-million-bushel drop from last month’s forecast. The new winter wheat forecast is “down less than 1% from the May 1 forecast and 20% below 2008,” the the USDA said in its Crop Production report. “Based on June 1 conditions, the U.S. yield is forecast at 43.9 bushels per acre, down 0.3 bushels from last month and 3.3 bushels less than last year.”

USDA Raises 2008-09 US Soybean Export Forecast On China Sales

U.S. soybean exports to China in the 2008-09 marketing year are stronger than expected, pushing the overall U.S. export forecast by 10 million bushels to a recordlevel of 1.25 billion bushels, the U.S. Department of Agriculture said Wednesday.

Competition from Argentine exports, meanwhile, is weaker than expected, the USDA said in its monthly World Agricultural Supply and Demand Estimates report. “Projected soybean exports for Argentina for 2008-09 are reduced 2 million [metric] tons to 5.4 million, the lowest in nine years,” the USDA said in the report released Wednesday.

It’s not just a lack of competition that’s benefitting U.S. exports, though. China will be buying more soybeans than expected for the 2008-09 marketing year, the USDA said. China’s total 2008-09 imports are now forecast to total 38.8 million tons. That’s up from last month’s forecast of 37.5 million tons.

Source: CME News for Tomorrow

The Debts of the Lenders: Bond Vigilantes Migrate To Russia Part 2

I first wrote about this back in late May.

http://debtsofanation.blogspot.com/2009/05/
debts-of-spenders-bond-vigilantes.html

Now look what happened today. In the greater scheme of things, the BRIC (Brazil, Russia, India, China) nations have revolted against the G7 cartel. Instead of pursuing business the old fashioned way, they have opted instead to channel more fund flows into alternate "currency" SDR currency w/the IMF (see March and February posts).

MOSCOW (Dow Jones)--Russia's central bank said Wednesday it plans to reduce the proportion of foreign exchange reserves it invests in U.S. Treasury bonds as Moscow continues to bemoan the dollar's status as a global reserve currency.

"We plan to cut the share of U.S. Treasuries since the window of opportunity to work with other instruments is opening," Deputy central bank Chairman Alexei Ulyukayev told Russia's State Duma, or lower house of parliament, according to a report by the Interfax news agency.

Russia holds around $400 billion in gold and foreign exchange reserves, the world's third-biggest stash behind China and Japan.

The central banker's remarks pressured the dollar in Wednesday currency markets. Shortly after publication, the euro rose to $1.4140 from around $1.4100, and the British pound climbed to the day's high of $1.6473.

Ulyukayev said reserves are just over 30%-invested in U.S. Treasuries at present. He didn't specify by how much that figure would fall.

Ulyukayev said Russia would shift some into bonds issued by the International Monetary Fund and deposits at commercial banks.

The Debts of the Lenders: What China Can Learn From India to Improve Domestic Consumption

Both nations have large rural populations. However, instead of brutalizing their peasantry into the labor camps of Shenzhen and other sweatshop zones, Chinese leaders can encourage them to increase domestic consumption.

Higher consumption is critical if the Lender states are to re-balance their flow of funds in order to encourage US export growth. While this runs contrary to standard Beijing policy, the time seems ripe to encourage such a shift in thinking.

WSJ(6/10) The Infomercial Comes To Life In India

(From THE WALL STREET JOURNAL) By Eric Bellman

BENIPUR VILLAGE, India -- Advertisers in India can't rely on TV, radio or even newspapers to reach the country's 700 million rural consumers. So they use Sandeep Sharma.

On dirt roads across the subcontinent, the former wedding singer cracks jokes, gives demonstrations and stages game shows to spread global consumerism, one village at a time.
He is one of thousands of traveling performers who bring the world's biggest brands to audiences of a handful in the remotest reaches of the nation. He offers free Castrol oil changes for tractors. He dishes out bowls of Nestle noodles in village schools. He pushes Unilever soaps and creams. He promotes tooth powder and condoms.

"Stick to the countryside if you want to be successful," the 34-year-old says, beaming after a recent performance before a small crowd of villagers in stifling heat. "When we arrive, the whole village comes out."

It's a good time to be a traveling salesman in India, relatively speaking. Insulated from the worst of the global recession, India's rural consumers are spending as never before. International brands -- eager for ways to offset contracting markets elsewhere -- are sending out armies of salesmen like Mr. Sharma. Overall advertising spending climbed about 10% in India last year. Rural advertising grew at more than four times that rate.

The standard procedure for Mr. Sharma starts with kowtowing to village elders in order to get permission to set up his mobile stage and to try to find out who in the village has money. He then rouses the villagers. He used to walk around with a megaphone announcing the show, but dogs chased him. Now he drives around in his truck with the music turned up or hands out candy to children, asking them to bring out their neighbors.

The Debts of the Spenders: Boomers Apologize For Destroying Nation

One of the most selfish generations in history is starting to do a round of apologies. And these are not just small Joe Blows either but influential politicians and industry leaders. Unfortunately, these words sound like meaningless platitudes to those of my age.

If they really felt sorry, they can start leaving their jobs early and let the next generation of recent college graduates (such as yours truly) take over. The unemployment rate is soaring but is further obscured by lack of jobs for new graduates which are not counted in government statistics. In fact, Generation X and Y are going to get their revenge against employers in a few years when the demographic crunch forces hiring managers to pick up labor. And it will be a classical case of supply vs. demand.

Emphasis my own.

WSJ(6/10) Boomers To This Year's Grads: We Are Really Sorry

(From THE WALL STREET JOURNAL) By Douglas Belkin

In 1969, baby boomers took podiums at college graduations around the country and pledged to redefine the world in their image.

Forty years later, they have, and now they are apologizing for it. Their collective advice for the class of 2009: Don't be like us.

Indiana Gov. Mitch Daniels, 60 years old, told the graduating class of Butler University last month that boomers have been "self-absorbed, self-indulgent and all too often just plain selfish."

New York Times columnist Thomas Friedman, 55, told Grinnell College graduates in Iowa that his was "the grasshopper generation, eating through just about everything like hungry locusts."

And Colorado Sen. Michael Bennet, at 44 barely a boomer himself, told seniors at Colorado College that the national creed of one generation standing on the shoulders of the next was at risk "because our generation has not been faithful enough to our grandparents' example."

But their apologies fell flat with some students, who wondered why the speakers weren't urging their fellow boomers to do more to clean up the mess they created.

"They have been pretty selfish, but they're still going to be around," said Ben Slaton, a Butler graduate. "They need to do their part."

The speeches, which were tailored to their audience of early 20-somethings, understandably dwelled on what younger people could do to help fix the country's problems. And no matter what this year's crop of speakers said, they were likely to encounter skepticism from students entering the worst job market in decades.

In his address at Colorado College, Sen. Bennet, a Democrat, used three figures to make his point about boomers' failures. Since the beginning of the decade, annual median family income in the U.S. declined by $300; health-care costs climbed by 80%; and the cost of higher education jumped 60%.

"We have limited the potential of future generations by burdening them with our poor choices and our unwillingness to make tough ones," Mr. Bennet said.

That theme echoed around the country. At Texas Tech University, CBS "60 Minutes" correspondent Scott Pelley, 51, told graduates: "I know you're looking up here at my generation and you're thinking, 'Great, thanks, just when it was our turn, you broke it." Speaking at the Boston College commencement last month, documentary filmmaker Ken Burns compared the divisiveness of this era with the Civil War period. In an interview, he said the boomers' tragedy was to "squander the legacy handed to them by the generation from World War II."

Julie Meador, who just graduated from the University of Kentucky and listened to the speaker at her commencement apologize for the financial mess her class is inheriting, said she isn't thinking about saving the world just yet. The 21-year-old marketing major is earning $7.50 an hour as a part-time sales associate at the Gap while looking for a position that allows her to put her degree to use.

"Right now what I'm thinking about most is finding a good job," she said. "My plate is pretty full."


(END) Dow Jones Newswires
06-09-09 1856ET

The Debts of the Spenders: Forex Traders Believe G8 Plans to Do Nothing This Weekend

Slow and steady is the way to go. China is not happy but there is not much they can do about the situation except wait. Behind the scenes though, as I have said, the Chinese continue to extend bilateral trading agreements with other nations - particularly key commodity producers - in an effort to diversify their dollar holdings.

NEW YORK (Dow Jones)--Group of Eight finance ministers want the dollar to stabilize against the euro, but they will do little besides barking about it at the weekend's meeting in Italy.

Currency analysts don't expect any substantial change from the last version of the G8 final communique, a closely watched document whose wording is carefully, but rarely, changed to reflect shifting concerns. However, that is not to say that the dollar's recent fall isn't a top concern for the finance ministers converging June 12-13 from the U.S., U.K., Germany, Italy, France, Canada, Japan and Russia.

In essence, leaders will likely continue to call for currency values to reflect economic fundamentals - which, analysts are quick to add, are uncertain and volatile in the first place. As a result, the conference probably won't have an immediate impact on currency markets.

The U.S. unit recently fell to its lowest level this year against the euro, a concern for U.S. debtors like China, which the U.S. government is increasingly relying on to finance stimulus efforts.

Treasury Secretary Timothy Geithner met with Chinese leaders just last month to assure them - and the rest of the world - that a strong dollar is in the U.S.'s best interest. He kowtowed to China's growing status as a world power, suggesting China should be invited to meetings such as the G8.

"We are committed to reforming the international system, and our interests are best served by giving China a stake in that process," he said.

Still, China isn't entirely convinced.

"We heard across the board - in private - substantial, continuing and rising concern" about the dollar, Rep. Mark Kirk, R-Ill., said Monday after a trip to China that included talks with government officials and central bank chief Zhou Xiaochuan.
"It's clear that China would like to diversify from its dollar investments," Kirk said.

The rising value of the euro also causes discomfort to the euro zone, whose largest nations - Germany and France - rely on exports to drive their economies.
Behind closed doors, U.S. and U.K. authorities may push their European counterparts to do more, including aggressive monetary easing. Other euro-zone members like Greece, Ireland and Spain would be on board as their economies are under great pressure from the European Central Bank refusing to drop its key rate below 1.0% thus far.

Out in the open, though, interest rates and currencies won't be at the top of the G8 agenda.

The Debts of the Lenders: Chinese Learn Stimulus Package Is Not Free

WSJA(6/10) China Stimulus Plan Has Hidden Costs

(From THE WALL STREET JOURNAL ASIA) By Andrew Batson

BEIJING -- The cost of China's stimulus program is turning out to be much larger than official figures indicate, raising the stakes for the government's attempt to restart high growth through massive borrowing.

The spending spree has helped steady China's economy while other major nations remained mired in the global downturn. It is one of the largest stimulus programs adopted by any government in the world -- yet China plans to hold its budget deficit to just 3% of gross domestic product this year. That's about where the U.S hopes its deficit can end up in a few years after it scales back its stimulus spending.

In fact, China's formal budget is paying for only about a quarter of the two-year, four trillion yuan ($585 billion) investment program. Stimulus projects typically get fast approval and a partial financial contribution from the central government, with local authorities left to come up with the majority of the funds. But they don't have much money, as China's tax system channels most revenue to Beijing. The result over the past few months has been an explosion in local government debt -- liabilities that have the indirect support of Beijing but don't appear on its books.

"There is no such thing as a free stimulus package. There is a huge amount of unreported government debt, and we're adding to it now clearly," said Stephen Green, an economist for Standard Chartered in Shanghai.