Tuesday, December 17, 2013

Foreign Treasury Holdings and Pettis

In the last reported month Foreign Treasury holdings have gone from 5652.9 to 5653.5 or up only 0.6 billion. Over the last 8 reported months it has gone from 5691.1 to 5653.5 or down 37.6 billion.

If you look at the last 5 reported months China has gone from 1297.3 to 1304.5 but last month it was 1293.8.   So last month you could say they were slightly down for 4 months and this is slightly up for 5 months.   But China has since said it is No Longer in China’s Interest to Increase Reserves.

Michael Pettis says that  If foreigners buy fewer USD assets, the US trade deficit must decline.  From this Pettis says that "China Won’t Sell Our Bonds Anytime Soon".   Since they have stopped buying bonds, and the US still has a $40 billion per month trade deficit, I think Pettis overlooked something.   Seems to me that foreigners can buy up other assets besides bonds.   They could be buying land and stocks for example.

I would certainly rather buy US land or US companies or gold than US bonds, given the rate of money creation.    It would seem I am not the only one.   This is a list of famous US brands now owned by foreigners
  1. Budweiser, now owned by Anheuser-Busch InBev N.V., which is based in Leuven, Belgium
  2. Alka-Seltzer, now owned by German company Bayer Schering Pharma AG
  3. Ben & Jerrys, now owned by British-Dutch Unilever
  4. AMC theaters, now owned by the Chinese
  5. 7-Eleven, now owned by the Japanese company, Seven & I Holdings
  6. Woman’s Day Magazine, now owned by the French company, Hachette Filipacchi M├ędias, S.A
  7. Purina, now owned by the Swiss company, Nestle
  8. Gerber, now owned by the Swiss pharmaceutical giant, Novartis
  9. Firestone, now owned by the Japanese Bridgestone Corporation
  10. Citgo, now owned by the government of Venezuela
  11. French’s Mustard, now owned by Reckitt Benckiser, a British conglomerate
  12. Frigidaire, now owned by Sweden’s AB Electrolux
  13. The Plaza Hotel in New York City, now owned by Israeli billionaire Yitzhak Tshuva’s El-Ad Group
  14. Trader Joes, now owned by German billionaires Karl and Theo Albrecht
  15. Dial soap, now owned by Henkel KGaA, based in Dusseldorf, Germany
  16. Sunglass Hut, now owned by Italian eyewear seller Luxottica Group

Monday, December 16, 2013

Past Hyperinflation in France vs Current Hyperinflation in Venezuela

It is interesting to look at articles about past hyperinflation in France and how similar these are to current articles about hyperinflation in Venezuela

In both cases the government deficit was being financed with new money and that was the true cause of the hyperinflation.   In both cases the government blamed shop keepers for rising prices.  In both cases shops were basically robbed with government approval.   In both cases shops had to shut down as they could not operate at the prices they were allowed to charge.

Even in the days of the Internet, the average person just does not understand hyperinflation.

Sunday, December 15, 2013

List of 590+ Dead Currencies

This list of 590+ dead currencies is interesting.   I think there are nearly 150 listed as "hyperinflation".   I expect that many of the others listed as "war" would count as hyperinflation if we used a 26% yearly rate as the cutoff.   When a war is going poorly the currency usually is going poorly as well.  So while it is reasonable to list war as the reason the currency died, the currency probably hit the 26% inflation mark before it died.

Note that ounces of pure silver or ounces of pure gold will never completely fail to have value.

Wednesday, December 11, 2013

How the US Dollar Will Fail?

Bernanke made new money but kept most of it in the Fed by paying interest on excess bank reserves.   If you imagine a big black box around both the Federal Government and the Federal Reserve, then to everyone outside this box there is no difference between interest on government debt and interest on excess reserves.   So really excess reserves are like government debt as far as the impact on the economy, inflation, and risk of hyperinflation.

It looks like a Yellen led Fed wants to reduce the interest rate paid on excess reserves.   Interest rates have been rising, so to provide enough incentive for banks to leave money as excess reserves the Fed would have to raise the interest they pay.  Instead they are talking of lowering the interest rate they pay.

Looks to me like a good bet for how things fail is that the Fed does not keep rates on excess reserves competitive, so that money comes flooding out into the real economy. 

Of course, the Japanese Yen failing and then the UK and US following is another good bet.