Dollar Swap Agreements Are Only A Temporary Fix ... A Tough Global Monetary Authority Will Surely Arise
Friday, 31. October 2008, 05:04:00
Jeffrey Garten expressed the vision of a global monetary authority in 2001.
Jeffrey E. Garten, while the dean of the Yale School of Management, on July 18, 2001, wrote in his NY Times article Free Trade Has to Be Managed, the genesis construct calling for a Global Monetary Authority, a GMA: "The forces that have increased flows of money, goods, services and information around the globe and helped create growth are now working to make the economic downturn deeper and more widespread.
Few mechanisms now exist to manage globalization. Cooperation among governments is increasing, but it is still uneven. We live in a world economy, but we lack institutions that could stabilize and regulate this economy.
President Bush and the other G-7 leaders have to decide whether they have the foresight to construct new systems that can regulate commerce across borders as well as act to moderate a worldwide recession".
In September 2008 Mr. Garten specifically called for a Global Monetary Authority.
On September 25, 2008, in Financial Times article, he wrote We Need A New Global Monetary Authority
In late October 2008, Australia Central Banker Guy Debelle states that US Federal Reserve Dollar Swap Agreements provide global financial stability and liquidity
Business Spectator presents the October 31, 2008 Reuters article RBA's Debelle Says Signs US Dollar Swaps Are Easing Liquidity Pressure which reports: "Top Australian policy maker on Friday said there were signs the Federal Reserve's massive expansion of US dollar swaps with other central banks seems to be working to ease liquidity pressures in global markets.
In a speech to a risk management conference, Reserve Bank of Australia, RBA, Assistant Governor Guy Debelle also said the domestic money market had proven resilient to the global crisis, thanks in part to an expansion of the central bank's liquidity operations.
Debelle, who heads the RBA's financial markets unit, said the Fed's expansion of US dollar swap agreements with an expanding range of other central banks seemed to be helping.
"Overall, it appears this has had some success with conditions in the US dollar swap markets improving over the last few weeks, and the cost of US dollar funding declining to more normal rates," he said.
The Fed established a dollar swap agreement with the RBA last year, essentially lending it US dollars that it can then lend out in return for collateral denominated in Australian dollars.
Just this week the Fed established $30 billion of swap lines with central banks in Brazil, South Korea, Singapore and Mexico, bringing the number of lines to 14.
Ten of the swap lines now amount to $255 billion, while those with the European Central Bank, the Bank of England, Bank of Japan and the Swiss National Bank are technically unlimited.
This sea of dollars seems to be meeting safe-haven demand for the currency across the world, helping pull down the three-month London interbank rate to 3.19 per cent on Thursday, from a ruinously high 4.82 per cent earlier this month.
Debelle said the RBA's expansion of its own domestic market operations had proved effective in meeting the demand for cash. It has widened the pool of eligible collateral for its repurchase agreements, extended the maturity of its lending and offered term deposits to commercial banks.
"In particular, the fact that the Bank has for a long time, dealt daily with a wide range of counterparties across a wide range of maturities has allowed us to respond quickly and flexibly," he said.
"Nevertheless, the Bank is continually reviewing all aspects of the operating framework to ensure that it is consistent with the evolving nature of the domestic financial market."
Will Dollar Swap Agreements lay the foundation and confidence for a Global Monetary Authority?
As evidenced by a pull down the three-month London interbank rate to 3.19 per cent on Thursday, from a ruinously high 4.82 per cent earlier this month, Dollar Swap Agreements are working to some degree.
The goal of a Global Monetary Authority is liquidity and stability, this is currently being provided by Dollar Swap Agreements, but the massive Dollar Swap Agreements are only part of the reason why the three month London interbank rate fell some. The other reason is that there has been profit taking on the unwinding of yen carry trade, better termed the euro carry trade, which is the EUR/JPY, which had fallen to the lowest level since 2003.
Stockcharts.com shows retracement in the yen carry trade ... FXE:FXY Daily ... FXE:FXY weekly
Cyclopip in BabyPips October 30, 2008 article Cross-Eyeing: EUR/JPY - Trade Adjustment shows the profit taking retracement in the chart of the EURJPY ... Retracement of the EURJPY
I think the effect of dollar swap agreements will be short lived. I expect a global financial breakdown is coming regardless of the US Central Bank dollar swap agreements.
My belief is that the 0.5% funded Bank of Japan currency traders will continue to short sell a number of currencies, and especially short sell the EUR/JPY, which will cause continued disinvestment globally. Interest rate differentials between central banks, as well as the indebtedness of emerging markets like the former soviet union nations of Ukraine, Hungary and Romania, traded by GUR, to the Austrians traded by EWO, will assure that stocks and currencies will continue to sell off with abandon. As I read, the Gaius Marius article CDS Funding Disaster, I can understand why the Fed has been aggressively pushing dollar swap lines and why it was so eager to "loan" AIG money. I look at the charts in Trader Tim Knight article Is It Back?, and concur that the markets are likely to fall lower again beginning tomorrow October 31, 2008.
Eventually a tough global monetary authority will arise.
Gold is the investment safe haven for those believe that the US Dollar has peaked in value and who want to be independent from a future Global Monetary Authority
Was a high been established in the US Dollar on October 27, 2008 at 86.75? Only time will tell! ... $USD Weekly ... $USD Daily
Jesse reports that Dubai runs out of gold.
The weekly chart of gold reads $738.50 ... $GOLD
Jesse shows that gold having hit $730 is likely to head higher.
Yes, gold is back to the $730 region of a year ago as is seen in the Kitco Alf Field Point of Recognition article of Oct 29 2007.
Is $730, strong support for gold? Tommorrow October 31, will likely tell.
I like to follow the five day Yahoo Finance chart of the EUR/JPY, USD/JPY, UUP, GLD, and RJI.
It's an ideal time to invest in gold: I recommend that one buy gold and put it far, far away from the current financial system, safe and sound in a guarded vault, like BullionVault and GoldMoney, with an account personally at streetTracks Gold Trust, and in physical possession of gold coins.
Jeffrey E. Garten, while the dean of the Yale School of Management, on July 18, 2001, wrote in his NY Times article Free Trade Has to Be Managed, the genesis construct calling for a Global Monetary Authority, a GMA: "The forces that have increased flows of money, goods, services and information around the globe and helped create growth are now working to make the economic downturn deeper and more widespread.
Few mechanisms now exist to manage globalization. Cooperation among governments is increasing, but it is still uneven. We live in a world economy, but we lack institutions that could stabilize and regulate this economy.
President Bush and the other G-7 leaders have to decide whether they have the foresight to construct new systems that can regulate commerce across borders as well as act to moderate a worldwide recession".
In September 2008 Mr. Garten specifically called for a Global Monetary Authority.
On September 25, 2008, in Financial Times article, he wrote We Need A New Global Monetary Authority
In late October 2008, Australia Central Banker Guy Debelle states that US Federal Reserve Dollar Swap Agreements provide global financial stability and liquidity
Business Spectator presents the October 31, 2008 Reuters article RBA's Debelle Says Signs US Dollar Swaps Are Easing Liquidity Pressure which reports: "Top Australian policy maker on Friday said there were signs the Federal Reserve's massive expansion of US dollar swaps with other central banks seems to be working to ease liquidity pressures in global markets.
In a speech to a risk management conference, Reserve Bank of Australia, RBA, Assistant Governor Guy Debelle also said the domestic money market had proven resilient to the global crisis, thanks in part to an expansion of the central bank's liquidity operations.
Debelle, who heads the RBA's financial markets unit, said the Fed's expansion of US dollar swap agreements with an expanding range of other central banks seemed to be helping.
"Overall, it appears this has had some success with conditions in the US dollar swap markets improving over the last few weeks, and the cost of US dollar funding declining to more normal rates," he said.
The Fed established a dollar swap agreement with the RBA last year, essentially lending it US dollars that it can then lend out in return for collateral denominated in Australian dollars.
Just this week the Fed established $30 billion of swap lines with central banks in Brazil, South Korea, Singapore and Mexico, bringing the number of lines to 14.
Ten of the swap lines now amount to $255 billion, while those with the European Central Bank, the Bank of England, Bank of Japan and the Swiss National Bank are technically unlimited.
This sea of dollars seems to be meeting safe-haven demand for the currency across the world, helping pull down the three-month London interbank rate to 3.19 per cent on Thursday, from a ruinously high 4.82 per cent earlier this month.
Debelle said the RBA's expansion of its own domestic market operations had proved effective in meeting the demand for cash. It has widened the pool of eligible collateral for its repurchase agreements, extended the maturity of its lending and offered term deposits to commercial banks.
"In particular, the fact that the Bank has for a long time, dealt daily with a wide range of counterparties across a wide range of maturities has allowed us to respond quickly and flexibly," he said.
"Nevertheless, the Bank is continually reviewing all aspects of the operating framework to ensure that it is consistent with the evolving nature of the domestic financial market."
Will Dollar Swap Agreements lay the foundation and confidence for a Global Monetary Authority?
As evidenced by a pull down the three-month London interbank rate to 3.19 per cent on Thursday, from a ruinously high 4.82 per cent earlier this month, Dollar Swap Agreements are working to some degree.
The goal of a Global Monetary Authority is liquidity and stability, this is currently being provided by Dollar Swap Agreements, but the massive Dollar Swap Agreements are only part of the reason why the three month London interbank rate fell some. The other reason is that there has been profit taking on the unwinding of yen carry trade, better termed the euro carry trade, which is the EUR/JPY, which had fallen to the lowest level since 2003.
Stockcharts.com shows retracement in the yen carry trade ... FXE:FXY Daily ... FXE:FXY weekly
Cyclopip in BabyPips October 30, 2008 article Cross-Eyeing: EUR/JPY - Trade Adjustment shows the profit taking retracement in the chart of the EURJPY ... Retracement of the EURJPY
I think the effect of dollar swap agreements will be short lived. I expect a global financial breakdown is coming regardless of the US Central Bank dollar swap agreements.
My belief is that the 0.5% funded Bank of Japan currency traders will continue to short sell a number of currencies, and especially short sell the EUR/JPY, which will cause continued disinvestment globally. Interest rate differentials between central banks, as well as the indebtedness of emerging markets like the former soviet union nations of Ukraine, Hungary and Romania, traded by GUR, to the Austrians traded by EWO, will assure that stocks and currencies will continue to sell off with abandon. As I read, the Gaius Marius article CDS Funding Disaster, I can understand why the Fed has been aggressively pushing dollar swap lines and why it was so eager to "loan" AIG money. I look at the charts in Trader Tim Knight article Is It Back?, and concur that the markets are likely to fall lower again beginning tomorrow October 31, 2008.
Eventually a tough global monetary authority will arise.
Gold is the investment safe haven for those believe that the US Dollar has peaked in value and who want to be independent from a future Global Monetary Authority
Was a high been established in the US Dollar on October 27, 2008 at 86.75? Only time will tell! ... $USD Weekly ... $USD Daily
Jesse reports that Dubai runs out of gold.
The weekly chart of gold reads $738.50 ... $GOLD
Jesse shows that gold having hit $730 is likely to head higher.
Yes, gold is back to the $730 region of a year ago as is seen in the Kitco Alf Field Point of Recognition article of Oct 29 2007.
Is $730, strong support for gold? Tommorrow October 31, will likely tell.
I like to follow the five day Yahoo Finance chart of the EUR/JPY, USD/JPY, UUP, GLD, and RJI.
It's an ideal time to invest in gold: I recommend that one buy gold and put it far, far away from the current financial system, safe and sound in a guarded vault, like BullionVault and GoldMoney, with an account personally at streetTracks Gold Trust, and in physical possession of gold coins.
WIDGETIZE