The lesson of the Greek crisis: Every government cheats and no one wants to know
Greece cheated on its national accounts in 2009. And that led to a budget crisis in 2010.
But that’s not the important part of the story.
What makes this a crisis not just for Greece, and the euro and the European Union is that everyone—from the Greek government and its accountants to the financial officials of the European Union to the experts at international watch dog agencies such as the Organization for Economic Cooperation and Development–knew it.
And knew it for at least a decade.
Makes you wonder what other countries are cheating on their accounts. Or maybe better phrase the question as “Is anyone not cheating?” We all know that the United States does. But so does China that much admired model—at the moment anyway—of economic management. Even the Canadians—yes, the Canadians!—cheat.
The consensus view is that the world’s books are in pretty bad shape. But the consensus view has a long history of ignoring problems until they bite it. Hard.
We’re anywhere from a few years to two decades (closer to the former I think) from feeling those teeth close in on our posterior. (Especially if the economic recovery is going to be as profitless as I now expect http://jubakpicks.com/2010/01/19/get-your-portfolio-ready-for-the-profitless-global-economic-recovery/) If we want to save anything from those chompers, it’s time to face a bit of reality.
Building a house to with stand a 50-mile-an-hour Nor’easter doesn’t make much sense if you live in tornado alley.
If everyone cheats, it’s more than time to look at some of the lies.
If not now, Wen? Still no signs that China is planning a quick appreciation of its currency agains the dollar
In trying to read the tea leaves of China’s economic and monetary politics, you have to pay as much attention to the Who as to the What of any official statement.
So while it’s significant that anyone in the Chinese government is making noises about China abandoning the renminbi/U.S. dollar peg that’s been in effect since July 2008, it’s just as important to note that the statement came from the governor of the People’s Bank of China and not from Chinese premier Wen Jiabao.
In a March 6 press conference Zhou, the head of China’s central bank, called the policy of keeping the Chinese currency pegged at 6.83 to the dollar a special policy aimed at helping China weather the global economic crisis. By pegging the renminbi to the dollar Chinese exports gained a price advantage over competitors as the dollar dropped in value during the crisis.
That certainly implies that Beijing will drop the peg once the global crisis is over.
In contrast Wen did not bring up the renminbi/dollar peg in his state of China speech to the National People’s Congress on March 5. The premier’s most recent comments came in December when he said only that “We will not yield to any pressure of any form forcing us to appreciate.”
There’s a brief window after the National People’s Congress ends and before China’s president Hu Jintao visits Washington in April for China to end the peg without seeming to make the move in response to U.S. pressure. The consensus among economists and China watchers, though, is that mid-2010 is more likely.
Global politics aside, China has increasingly good reasons to end the peg.
Want to see the U.S. dollar’s future? Watch the fall of the pound
Short-term politics trump long-term economics. That’s the message in the beating administered to the pound yesterday.
The implications for the United States are rather depressing.
The pound got killed yesterday (March 1), falling almost four cents against the U.S. dollar and dropping below the $1.50 level that has provided major support.
The reason? New polls that show that the Conservative Party lead in the next election, expected in May, has just about evaporated and that the country faces the real prospect of a hung parliament with no party in an overall majority.
The financial markets had been willing to cut the pound some slack despite a big current budget deficit and an economy where growth lags both the euro economies of the continent and the United States because of the belief that a Conservative Party victory would result in immediate spending cuts. But that relative optimism is in short supply now that the currently ruling Labor Party is within 2 percentage points in the polls. Experienced election observers say that the electoral system in the United Kingdom could well leave the Conservatives short of a majority even if the party wins the election,
The price of 10-year government bonds, called gilts, has not only plunged but is now trading below comparable Italian and Spanish 10-year bonds.
The yield on 10-year gilts is now 0.976 percentage points above the yield on the benchmark German 10-year bonds, called bunds.
That’s not especially surprising given that the German budget and economy are both in better shape than their U.K. counterparts.
But the rout in the pound has pushed the yield premium on gilts above the 0.827 percentage point premium on Italian 10-year bonds and the 0.725 percentage point premium on Spanish 10-year bonds.
China sells short-term Treasuries but buys long-term U.S. bonds
China sold U.S. Treasuries in December.
At a record pace. (Well, records for this do only go back to 2000 but still…)
The country sold a net $34.2 billion in Treasuries in the month. That brought China’s holdings of Treasuries to a mere $755.4 billion. That’s down from a peak of $801.5 billion in May 2009.
The decline removed China from its position as the No. 1 holder of U.S. Treasury debt. Japan resumed that position as an increase of 1.5% in December moved its holdings of Treasuries to $768.8 billion.
The net decline of $34.2 billion in China’s Treasury portfolio didn’t exactly show that China is abandoning the U.S. dollar, however.
Euro rally a one day wonder? (Maybe three?)
Today’s rally in oil and other commodities that pushed the entire stock market higher was built on a weak dollar and a stronger Euro.
Right now this looks like just a euro bounce. A one (or at most a few days) wonder.
The Euro is still well below its 200-day moving average, which indicates that the trend for that currency still points down.
But the Euro has tumbled so far and so fast that technical indicators are pointing to the strong possibility of a short-term rally.
