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U.S. dollar starts the big slide against major currencies

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  • October 9, 2008 -- The weakening greenback is changing the way countries hold their foreign reserves as they move away from holding US-denominated foreign reserves to a mix of reserve currencies, audience at the Discover Europe 2008 panel discussion was told.

    Over the next two decades, foreign reserves would no longer be dominated by one single reserve currency but three to four foreign reserve currencies, of which two would be Asian currencies, Klaus Regling, senior adviser with the European Commission, said at the event yesterday, held at the National University of Singapore.

    But that does not mean that these countries will totally decouple from the US economy, he added.

    'It means that other economies will be less dependent on the United States but it does not mean they will be immune or decouple from the US,' Mr Regling said. 'The US, which now has a share of one-quarter of the world's GDP, will continue to have a very high share.'

    The US financial and economic fallout is eroding the dollar as a store of value.

    JPMorgan Chase head of Asia forex research Claudio Piron noted that China and India have been trimming their US dollar-peg link.

    The US dollar peg, which stood at 100 per cent in 2000 for both Chinese yuan and Indian rupee, now stands at 90 per cent as a proportion of currency basket peg, he said.

    Though euro has achieved much monetary stability and grown in its role as a reserve currency, it is unlikely to become the next single dominant reserve currency, Mr Regling said, citing incumbency advantages and inertia that favour the continued use of the US dollar.

    According to Deutsche Bank Research, the euro/US dollar segment was the most frequently traded currency pair accounting for 28 per cent of the global forex turnover in 2007. Over 47 per cent of initial offerings of international bonds were issued in euro compared with just 35 per cent in US dollar in 2007.

    But so far, the euro and Asian currencies have weakened as the financial crisis brewed in the US and Europe, threatening to deepen further.

    Mr Piron said he expects the US dollar to remain firm for the next three to six months until the financial crisis is over. He is 'neutral' to 'slightly underweight' on Asian currencies in the short term.

    'At the moment, cyclically Asian currencies will probably be weak for the next two quarters but we certainly expect currencies to appreciate a bit in the second half of next year,' he added.

    He also expects commodity currencies to remain highly volatile as commodity prices stay corrected during the economic downturn, and advises that investors stay on the sidelines.

    Comment


    • America needs to do one or all of the following:

      -- File for insolvency
      -- Ask lender countries to write off the loans
      -- Sell its land, mineral wealth to creditor countries
      -- Sell & Transfer industries to creditors
      -- Create wars and sell armaments, war planes, submarines, war ships

      I think they will do the last item.

      Comment


      • Or, they could tighten their belts, and cut back their military spending and use the money saved there to restore some sanity to their financial system. But I think Sania is right.

        Comment


        • U.S. Federal Reserve: Central Banks To Provide Unlimited Dollar Funds

          Washington, D.C. (AHN) - The U.S. Federal Reserve said early Monday that major central banks have decided to provide unlimited liquidity to unfreeze credit markets amid rising concerns on the fate of the region's financial systems.

          The Frankfurt-based ECB, the Bank of England and the Swiss central bank will conduct U.S. dollar auctions at seven days, 28 days and 84 days maturities at a fixed interest rate, according to the Washington-based Fed.

          "Funds will be provided at a fixed interest rate, set in advance of each operation. Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction," the Fed said in a statement on Monday.

          Other central banks in the joint action include the Bank of Japan, which had not participated to reduce its key lending rate during the last concerted effort last week.

          "The Bank of Japan will be considering the introduction of similar measures," the statement said.

          The decision follows the meeting between the leaders from 15 euro nations in Paris Sunday to formulate a concerted response to the global financial turmoil.

          Under the current agreement, the Fed said it will increase the sizes of the reciprocal currency arrangements (also called swap lines) between the U.S. regulator and other central banks to accommodate whatever quantity of U.S. dollar funding is demanded.

          "Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets," the Fed said.

          The Federal Open Market Committee has authorized the arrangements between the world's largest central banks to be valid through April 30, 2009.

          Comment


          • Here's one take on the dollar crisis, but, thanks to the above post of Bent_Bladi, it is already outdated. Nevertheless, it provides interesting perspective:

            " As Americans save nothing, where are the Feds going to get the money? Is the Fed going to print it and destroy the dollar and credit rating of the United States? Because the nations whose vaults are full of dollars and U.S. debt – China, Japan, Saudi Arabia, the Gulf Arabs – are reluctant to lend us more. Sovereign wealth funds that plunged billions into U.S. banks have already been burned.

            Uncle Sam's Visa card is about to be stamped "Canceled."

            The budget is going to have to go under the knife. But what gets cut?

            Social Security and Medicare are surely exempt. Seniors have already taken a huge hit in their 401(k)s. And as the Democrats are crafting another $150 billion stimulus package for the working poor and middle class, Medicaid and food stamps are untouchable. Interest on the debt cannot be cut. It is going up. Will a Democratic Congress slash unemployment benefits, welfare, education, student loans, veterans benefits – in a recession?

            No way. Yet, that is almost the entire U.S. budget – except for defense, the wars in Afghanistan and Iraq, and foreign aid. And this is where the ax will eventually fall.

            It is the American Empire that is going to be liquidated."

            Liquidating the Empire - by Pat Buchanan

            Comment


            • The answer to the critical question:

              "Is the Fed going to print it and destroy the dollar and credit rating of the United States? "

              has been given:

              "U.S. Federal Reserve: Central Banks To Provide Unlimited Dollar Funds"

              The only question is, who is going to lose out when the tidal wave of cheap dollars loses its value? Whose collateral is at stake?

              Comment



              • Reversing its steep decline from the previous week, Wall Street rebounded like a bungee jumper Monday, soaring more than 11 percent as major governments moved to commit trillions of dollars into plans to stabilize the ailing global banking system and unlock credit markets.

                The Dow Jones industrial average rose a record 936.42 points to 9,387.61, up 11.1 percent, and was outperformed by the 11.8 percent gain for the technology-heavy Nasdaq and the 11.6 percent rise for the broad Standard & Poor's 500. All of those gains were among the largest percentage jumps for the indexes in their history, and the biggest in more than 70 years for the Dow and the S&P (the Nasdaq, which did not exist until 1971, posted a bigger one-day gain in 2001).

                Stock prices soared as the Bush administration summoned executives from leading banks to discuss the federal government's $700 billion plan to shore up the financial system and get loans moving again. Meanwhile, European governments have signaled plans to put more than $2 trillion on the line to protect their own banks.

                "This is a big problem, but it's a problem with a solution that is being pursued," said Meir Statman, a professor of finance at Santa Clara University. Statman, an expert on behavioral finance, said investors' sense of relief has been accentuated by the emotional roller coaster in recent days. "People are literally losing sleep over this, but the world is not coming to an end."

                Statman predicted that Wall Street will "rattle around" in the coming days. "You can see that the joys become exaggerated and the panic becomes exaggerated. On Friday we had exuberance and panic on the same day, with panic winning out in the end."

                Several analysts cautioned, however, that Wall Street's dramatic gain, while heartening, was itself a sign of the market's volatility and provided no guarantee that markets had bottomed out. Although hope is rising that government action would prevent an economic calamity, the prevailing outlook is for a profound recession characterized by rising unemployment and reduced consumer spending heading into the holiday season.

                Much of Wall Street expected a rebound Monday after eight days of steep losses, analysts said, but Monday's rise surprised even the most optimistic traders. The Dow's jump far surpassed the previous one-day record of 499.19 points, or 4.93 percent, set during the dot-com boom. The Dow recovered about 40 percent of the blue-chip index's losses during the previous eight trading days.

                The markets had tumbled as bank-to-bank lending came to a standstill, threatening the short-term lending that is critical to day-to-day commerce. As governments groped for a rescue plan, many investors yanked cash out of the market.

                A weekend of reflection, however, had many investors searching for buying opportunities. Several major Silicon Valley companies, their market value hammered in recent weeks, enjoyed up arrows. Sun Microsystems stood out with a 19.6 percent gain, while Google rose 14.8 percent and Apple 13.9 percent.

                But many valley firms are reassessing their business projections. Rackable Systems Chief Executive Mark Barrenechea on Monday cited "this abrupt financial and economic deterioration" in lowering its fiscal outlook. "The swift decline of the economy caused a demonstrable slowdown in corporate purchasing as we entered September," the server and storage products maker's CEO explained.

                Wall Street figures to remain volatile in the coming days, analysts said, but hopes were lifted for a return to at least a modicum of stability even though back-and-forth movement is expected in the coming days. With the U.S. bond markets and banks closed Monday for Columbus Day, analysts said it was difficult for investors to determine how credit markets would react to the moves by major governments to take investment stakes in banks, including Washington's rescue plan for U.S. banks.

                "I think we had enough negatives last week that if the government steps in we could have a pretty nice run. Is it off to the races? No, I don't think so. We have a lot of stuff to work through," said Denis Amato, chief investment officer at Ancora Advisors.

                Amato and other analysts said the market appeared encouraged when the Bush administration said it is moving quickly to implement its $700 billion rescue program, even though many aspects of the stabilization plan remain fuzzy.

                But some Wall Street analysts expressed doubt that the worst was over. "We're not through the woods," said Jim King, chief investment officer at National Penn Investors Trust. "We think there is collateral damage from this debacle." An increase in unemployment and reduced spending, he said, could hurt retailers and take stocks lower.

                *****************

                wow, seriously what the heck

                Comment


                • Originally posted by Proteus View Post
                  Here's one take on the dollar crisis, but, thanks to the above post of Bent_Bladi, it is already outdated. Nevertheless, it provides interesting perspective:

                  " As Americans save nothing, where are the Feds going to get the money? Is the Fed going to print it and destroy the dollar and credit rating of the United States? Because the nations whose vaults are full of dollars and U.S. debt – China, Japan, Saudi Arabia, the Gulf Arabs – are reluctant to lend us more. Sovereign wealth funds that plunged billions into U.S. banks have already been burned.

                  Uncle Sam's Visa card is about to be stamped "Canceled."

                  The budget is going to have to go under the knife. But what gets cut?

                  Social Security and Medicare are surely exempt. Seniors have already taken a huge hit in their 401(k)s. And as the Democrats are crafting another $150 billion stimulus package for the working poor and middle class, Medicaid and food stamps are untouchable. Interest on the debt cannot be cut. It is going up. Will a Democratic Congress slash unemployment benefits, welfare, education, student loans, veterans benefits – in a recession?

                  No way. Yet, that is almost the entire U.S. budget – except for defense, the wars in Afghanistan and Iraq, and foreign aid. And this is where the ax will eventually fall.

                  It is the American Empire that is going to be liquidated."

                  Liquidating the Empire - by Pat Buchanan

                  umm... wow. that's pretty freaky
                  It seems as if one fails to conceive
                  The meaning my name strives to achieve

                  To a biological form you cannot relate-
                  Because a reproductive cell is a gamete not gamate!

                  It means to unite, -to become consolidated
                  So without me in a.com, is there hope we'd be amalgamated?

                  Comment


                  • yeah, my whole life for the next ten years is gonna depend on student loans =S

                    Comment


                    • What is the real reason..?

                      Blame Bin Laden..? Engineered by him..?

                      I think otherwise.

                      It is a deliberately and patiently engineered financial coup by the best brains in the US,
                      to bring down the crude oil prices from the dizzy heights.
                      To bring down the demand for commoditites.
                      Otherwise why Alan Greenspan and Ben Bernanke have been sitting silently
                      watching the system crumbling ???

                      To throw water into the voracious fire of Americans comsumption,
                      which resulted in the accumulation of American national debt into unthinkable trillions.

                      Now how to pay back this loan of trillions.to the countries that saved and lent to America??

                      What is the magic way..??

                      Bring down the value dollar, voila.., all the savings of the world in dollars vanishes like
                      the spirit out of Alladin's magic lamp.

                      Price of gold trebles.

                      Pay the creditor nations in one third of gold.
                      And get rid of the debt.

                      Grand Plan.. No..?

                      Comment



                      • October 17, 2008 -- Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40.4bn), a substantial proportion of which is expected to be paid in bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

                        Staff at six banks including Goldman Sachs and Citigroup will pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted widespread criticism. The government cash has been poured in on the condition that excessive executive pay will be curbed.

                        Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased today when Germany's Deutsche Bank said many of its leading traders would join chief executive Josef Ackermann in waiving millions of euro in annual payouts.

                        The sums that continue to be spent by Wall Street firms on payroll, payoffs and - most controversially - bonuses appear to bear no relation to the heavy losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year; Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.

                        At one point last week Morgan Stanley's $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

                        In the first nine months of the year Citigroup, which employs thousands of staff in the UK, accrued $25.9bn for salaries and bonuses, an increase on the previous year of 4%. Earlier this week the bank accepted a $25bn investment by the US government as part of its bail-out plan.

                        At Goldman Sachs the figure was $11.4bn, Morgan Stanley $10.73bn, JP MorganChase $6.53bn and Merrill Lynch $11.7bn. At Merrill, which was on the point of going bust last month before being taken over by Bank of America, the amount accrued in the last quarter grew 76% to $3.49bn. At Morgan Stanley, the amount put aside for staff compensation also grew in the last quarter to the end of September by 3% to $3.7bn.

                        Days before it collapsed into bankruptcy protection a month ago Lehman Brothers revealed $6.12bn of staff pay plans in its corporate filings. These payouts, the bank insisted, were justified despite net revenue collapsing from $14.9bn to a net outgoing of $64m. None of the banks the Guardian contacted wished to comment on the record about their pay plans.

                        Behind the scenes, one source said: "For a normal person the salaries are very high and the bonuses seem even higher. But in this world you get a top bonus for top performance, a medium bonus for mediocre performance and a much smaller bonus if you don't do so well."

                        Many critics of the investment banking model have questioned why firms continues to siphon off billions of dollars of bank earnings into annual bonus pools rather than using the funds to shore up the capital position of the crisis-stricken institutions. One banking source said: "That's a fair enough question - and it may well be that by the end of the year the banks start review the situation."

                        Much of the anger about investment banking bonuses has focused on boardroom executives such as former Lehman boss Dick Fuld, who was paid $485m in salary, bonuses and options between 2000 and 2007. Last year Merrill Lynch chairman Stan O'Neal retired after announcing losses of $8bn, taking a final pay deal worth $161m. Citigroup boss Chuck Prince left last year with a $38m in bonuses, shares and options after multibillion-dollar write-downs.

                        In Britain, Bob Diamond, Barclays president, is one of the few investment bankers whose pay is made public. Last year he received a salary of £250,000, but his total pay, including bonuses, reached £36m.

                        One London-based banking source, who worked for a US bank, said many in the City were expecting star traders to see little reduction in their bonuses.

                        "The real 'rain-makers' will not notice an impact. It will be the more middle-ranking people who will be really hit."

                        Comment


                        • Comment


                          • U.S. dollar starts the big slide against major currencies


                            KUALA LUMPUR, October 20, 2008 -- Islamic banking has largely escaped the fallout from the global financial crisis, thanks to rules that forbid the sort of risky business that is felling mainstream institutions.

                            But experts say that because of its heavy reliance on property investments and private equity, the booming 1.0 trillion dollar global industry could be hit if the turmoil worsens and real assets start to crumble.

                            "In the current financial turmoil, it is interesting to note that Islamic financing may have prevented a majority of the mess created by the conventional banking and financial institutions," Kuwait Finance House said in a report.

                            "The outlook for Islamic financing is bright and will likely take the lead in terms of providing funding for major projects as the conventional banking system reevaluates its business model."

                            The rules of Islamic banking and finance - which incorporate principles of sharia or Islamic law - read like a how-to guide on avoiding the kind of disaster that is currently gripping world markets.

                            Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling, so highly complex instruments such as derivatives and other creative accounting practices are banned.

                            Transactions must be backed by real assets - not shady repackaged subprime mortgages - and because risk is shared between the bank and the depositor there is an incentive for the institutions to ensure the deal is sound.

                            Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.

                            "Islamic banking has, thus far, remained positive, despite the current challenging global financial environment," said Zeti Akhtar Aziz, the central bank governor of Malaysia, which is Southeast Asia's leader in Islamic banking.

                            Zeti said this month that because of the slowing global economy, plans for Islamic "sukuk" bonds had been postponed or scrapped by companies including Kuwait's Abyaar Real Estate Development Co. and Malaysia's Perisai Petroleum.

                            And Jennifer Chang, a partner at Pricewaterhouse Coopers in the Malaysian capital Kuala Lumpur, said that given the extent of the global crisis, Islamic banks may suffer damage despite their strong position.

                            "Islamic banks, especially in the Middle East, got heavily into private equity and real estate investments, and a lot of loans may be backed by properties. So if the property market goes down, there will be an impact," she said.

                            "If a borrower is not able to pay then the bank will foreclose and the question is -- can you sell the property in the market and at what value? These are issues which all banks can face."

                            There have been calls for the conventional banking industry to take a leaf out of the book of Islamic finance, which also shuns investments in gaming, alcohol and pornography in favour of ethical investments.

                            Influential Sunni cleric Sheikh Yusuf al-Qaradawi earlier this month called on Muslims to take advantage of the turmoil to build an economic system compatible with Islamic principles.

                            "The collapse of the capitalist system based on usury and paper and not on goods traded on the market is proof that it is in crisis and shows that Islamic economic philosophy is holding up," said the Egyptian-born, Qatar-based cleric.

                            In recent years the sector has broken out of its niche and been embraced by mainstream banks. As well as basic bank deposits and investment accounts, it has expanded into areas including equity funds, bonds and Islamic hedge funds.

                            Abhishek Kumar, a senior research analyst at Financial Insights, a company under market research and analysis firm International Data Corp (IDC), said recent events may further boost the sector.

                            "More and more institutions will be interested in providing Islamic services to diversify their risk portfolio," he said, while warning that in the current financial storm there were no absolutely safe harbours.

                            "We're not really sure what the real extent of the impact is, and whether we've passed the worst of it or not, But the extent is not going to be as bad as in the mainstream sector," he said.

                            Comment


                            • Comment




                              • Tyrannosourrus Debt
                                It seems as if one fails to conceive
                                The meaning my name strives to achieve

                                To a biological form you cannot relate-
                                Because a reproductive cell is a gamete not gamate!

                                It means to unite, -to become consolidated
                                So without me in a.com, is there hope we'd be amalgamated?

                                Comment

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