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Monday, June 14, 2010

Still Reading

Right now I am catching up on my Bank for International Settlements stuff.

Here's the main page - the quarterly review was just released. There is quite an interesting article on China's savings rate.

At the end of May BIS released a working paper about assessing global risk. This is worth while, because it discusses some of what we didn't know: There is a heavy focus on currency swaps and maturity mismatches. On page 14 there are some very interesting currency position graphs.

Another useful tool is the joint project to build a database of total external debt positions. You can select the country at top and hit Go, and you'll see not just government debt but monetary authority, banks and other sector external debt. Not all countries report data.

PS: All of which is highly relevant because of the Eurobank position. Unless a bank has a very unobfuscated balance sheet and relatively low leverage, any non-CB/non-government funding they get is going to be short-term, which magnifies duration risks. This is not a pretty picture. Also see this CR post on bank exposure to the current default risks.


I'm not going to be able to read everything, but the article on China's savings rate was interesting (at least, as I speed-read it).

Off topic, but your comment about watching the prelude to WW3 keeps haunting me. I think now we're able to dimly see the outlines of such a thing. I was hopeful that the Middle East and Europe would be quiescent, but it's pretty clear that Turkey is going to be spoiling for a fight in about 5 to 7 years. Their objective is a new empire, this time with oil revenue; If these dreams are not dealt a firm blow in the next couple of years, this will bring them into conflict with the U.S. one way or another. Russia and Iran are the wild cards here.

Asia is harder to call. Everything depends on China's course, whether it collapses and makes itself ripe pickings for somebody else (maybe Japan or Russia), or busts out as the primary belligerent and antagonist toward the U.S. Either way, this theater is going to be the first space war, fought for the high ground over the vast expanses of the Pacific.

Energy and space are the themes. The U.S. will get involved to prevent a new alliance from forming that could control the whole of Eurasia. I'll go out on a limb and say seven years is the approximate countdown, based on China's economic and demographic situation, and on Turkey's current trajectory. I'm sure this can be headed off by a firm hand from the U.S., but I doubt that's forthcoming.
I don't know. I am sure China will not collapse. We have to hope China finds a way forward without armed conflict.

As for Turkey, Lord knows. The IMF "rescue" left deep wounds there.

But I looked at treasury yields today, and my first, intuitive reaction was "WAR".
Shouldn't that be "deflation, then hyperinflation, then WAR!"?
According to Treasury, the one month closed at 2 basis points 0.02% yield. The 3 mo closed at 7 bps. The 6 month at 15 bps. Higher maturities tended to gain. Everyone's moving money short.

You're looking at one hell of a mess.
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