Category Archives: Global

Thailand decided to impose restrictions

The government of Thailand decided to impose restrictions on any currency sales of $20,000 or more, unless the purpose of the sale is for trade.
Setting trading limits killed their trust with the markets in one move. Now they have to go back and start building trust again, and it will never be the same. Contrast this to Lula in Brazil, who was just named the best president in history or some such silly thing. The didn’t trust him on day one, now the markets love him.

Japanese market

The Japanese market took forever to bottom. Our S&L scandal was lightening fast comparatively and it still took a while. For a market to hit bottom, you have to flush out all the sellers and the Japanese, perhaps for cultural reasons, don’t like taking losses, so they hung on and didn’t bankrupt the banks nor the property owners in a large way. That cleansing, is far more likely here than there.

Global banks

Can you be a global bank with no Chinese operations? Today, yes. Tomorrow, ???. So take a shot or two at getting in. It’s a risky business but they probably think they have to try, at least the conventional wisdom says you have to try. Time will tell, as the conventional wisdom used to say you needed to be an internet business. Disney put money into Go.com and Time Warner ate the sour AOL apple. Thinking about the internet changed, quickly. China has a LONG way to go to have a market like ours, so only time will tell if now is the right time, and if Citigroup and others made the right deal.

Lack of transparency

Let’s look at Corporations in China. They have a horrible situation because what disclosure they do have isn’t correct or audited. They simply write down what they want. How can anyone price that? Isn’t the key to market efficiency having an idea about the value of the product, in this case, stocks? The lack of transparency, much like Ackerloff showed with his work in information asymmetry and used cars pricing being lower due to the buyer not knowing if it was a lemon or not, stocks would all fall in value if we couldn’t trust the foundation upon which the price was built. What if companies just made up the numbers? They could get away with it for years if there was no audit process, no disclosure requirements. Once we found that to be the case, who would buy a stock? Confidence would be lost and that is all that holds the markets together.

If China floated their currency

If China floated their currency, trade would be more balanced as we would be paying more for their goods and so we would look elsewhere. Their exports would fall along with their economy. Our prices would be higher, leaving us with less goods for more money and our economy would stall. So we are stuck. We need a slow revaluing over time so we avoid a potentially disastrous shock for both countries. But that’s off the topic.

Strict inflation targets

Some central banks, such as those in Canada, Britain, Sweden, Australia, and New Zealand, operate monetary policy by setting strict inflation targets.  The thinking is that it is very difficult to hit monetary growth targets and, even then, to know how changes in the money supply will impact the economy.  So central banks should continually adjust monetary growth to hit a desired inflation rate. There is some good logic to this trial-and-error approach, given the imprecision of monetary policy in practice.