Dear,
While I’m writing this post, the main concern of the economic world is a political agreement; will politicians raise the US debt ceiling or will they force the government default?
http://www.bbc.co.uk/news/business-24511283
I don’t think we’re going to see a US default this week, because nobody is interested in bursting the US debt bubble yet. But that’s not the question. The question is; can US politicians prevent the default, just by increasing the leverage?
Of course not, according to www.usdebtclock.org, the US national debt is approximately 17 trillion USD (148.000 USD per taxpayer), and more important, US interest payments in 2013 will be 2.8 trillion USD (24.000 USD per taxpayer).
What the debt levels are showing us is the exhaustion of an economic model based in wasting capital, and increasing the debt ceiling means buying time while we build the new model based on efficient capital management. At this point, it’s very recommendable to read last June's speech of Mr. Jaime Caruana, General Manager of the Bank for International Settlements.
http://www.bis.org/speeches/sp130623.htm?ql=1
But are the economic elites actually making the most of borrowed time?; what concrete actions are being taken towards the new paradigm?
Just an example; while everybody is looking at Washington, hoping for an agreement between democrats and republicans, much more important decisions are taken at the other side of the world.
http://www.reuters.com/article/2013/10/10/us-ecb-china-swap-idUSBRE9990A220131010
US dollar has been a key player on the economic model that western world has enjoyed since the Great Depression and the end of the Second World War, and since then, it has become the international trade and reserve currency.
But the end of the model comes in parallel with the fall of the preponderance of the US currency; as investors become concern about the solvency of the FED, a new multilateral model shows up.
Since the starting of the Financial Crisis on 2008, FED balance sheet has grown from 1 to 3.5 trillion USD (1 trillion in MBS’s). What’s the risk and capital consumption associated to this exposure?
http://blogs.wsj.com/economics/2013/09/17/a-look-inside-the-feds-balance-sheet-16/tab/interactive/
While the European Central Bank and the People's Bank of China make movements, addressed to replace the USD in their trade relationships, they’re also building the foundation of a new international currency system.
European and Chinese central banks are building a stability framework for Forex risk limitation on their bilateral trade (by the way, reducing capital consumption), and implicitly, limiting trade unbalances to sustainable levels.
Once again, we’re moving from a financial system based in volume, to a financial system based in efficient capital management.
The new currency system was already recommended by the International Monetary Fund in 2010 in order of assuring world’s financial stability.
http://www.imf.org/external/np/pp/eng/2010/041310.pdf
Financial stability is the key; growing by wasting capital and injecting liquidity, with no collateral support, will be visibly unsustainable very soon, and it will painfully give birth to the new model.
Signs are already there, but we prefer to believe that everything is a political game, and the agreement between the Tea Party and the Obama administration will solve our problems.
Sometimes reality is so hard that we prefer dreaming, till somebody else wakes us up.
Looking forward to read your opinions.
Kindest Regards,
Ferran.
While I’m writing this post, the main concern of the economic world is a political agreement; will politicians raise the US debt ceiling or will they force the government default?
http://www.bbc.co.uk/news/business-24511283
I don’t think we’re going to see a US default this week, because nobody is interested in bursting the US debt bubble yet. But that’s not the question. The question is; can US politicians prevent the default, just by increasing the leverage?
Of course not, according to www.usdebtclock.org, the US national debt is approximately 17 trillion USD (148.000 USD per taxpayer), and more important, US interest payments in 2013 will be 2.8 trillion USD (24.000 USD per taxpayer).
What the debt levels are showing us is the exhaustion of an economic model based in wasting capital, and increasing the debt ceiling means buying time while we build the new model based on efficient capital management. At this point, it’s very recommendable to read last June's speech of Mr. Jaime Caruana, General Manager of the Bank for International Settlements.
http://www.bis.org/speeches/sp130623.htm?ql=1
But are the economic elites actually making the most of borrowed time?; what concrete actions are being taken towards the new paradigm?
Just an example; while everybody is looking at Washington, hoping for an agreement between democrats and republicans, much more important decisions are taken at the other side of the world.
http://www.reuters.com/article/2013/10/10/us-ecb-china-swap-idUSBRE9990A220131010
US dollar has been a key player on the economic model that western world has enjoyed since the Great Depression and the end of the Second World War, and since then, it has become the international trade and reserve currency.
But the end of the model comes in parallel with the fall of the preponderance of the US currency; as investors become concern about the solvency of the FED, a new multilateral model shows up.
Since the starting of the Financial Crisis on 2008, FED balance sheet has grown from 1 to 3.5 trillion USD (1 trillion in MBS’s). What’s the risk and capital consumption associated to this exposure?
http://blogs.wsj.com/economics/2013/09/17/a-look-inside-the-feds-balance-sheet-16/tab/interactive/
While the European Central Bank and the People's Bank of China make movements, addressed to replace the USD in their trade relationships, they’re also building the foundation of a new international currency system.
European and Chinese central banks are building a stability framework for Forex risk limitation on their bilateral trade (by the way, reducing capital consumption), and implicitly, limiting trade unbalances to sustainable levels.
Once again, we’re moving from a financial system based in volume, to a financial system based in efficient capital management.
The new currency system was already recommended by the International Monetary Fund in 2010 in order of assuring world’s financial stability.
http://www.imf.org/external/np/pp/eng/2010/041310.pdf
Financial stability is the key; growing by wasting capital and injecting liquidity, with no collateral support, will be visibly unsustainable very soon, and it will painfully give birth to the new model.
Signs are already there, but we prefer to believe that everything is a political game, and the agreement between the Tea Party and the Obama administration will solve our problems.
Sometimes reality is so hard that we prefer dreaming, till somebody else wakes us up.
Looking forward to read your opinions.
Kindest Regards,
Ferran.
No comments:
Post a Comment