Tuesday, February 10, 2004

Printing A Global Bubble

Is it just me or are there more and more people chiming in on this very same story? You know this isn't just the direct currency intervention money involved, it is the inter-nation banking and market multiplycation mechanics of this currency addition through the reserve requirements' laws of each nation's banking system. And, if you do a check around the world, you may find many nations big banks running reserves of less than the very dangerous levels of 1%!

Printing a global bubble
By Ian Campbell

Globalization is a misunderstood concept. It is a target for demonstrators, seen as a way in which the rich world and big companies exploit the poor world. But globalization is an old phenomenon, even if the term is new. Merchants have been traveling for thousands of years and bringing new products, new services, new ideas to countries that are unfamiliar with them and building fresh industries as they do.

In one particular regard, however, the world probably is much more globalized than ever before: in the flow of capital around the globe. This is by no means a new phenomenon either but improved communications have caused it to grow. One clear and very important example at present is that about half the huge fiscal deficit being run by U.S. President George W. Bush is being financed by Asian countries, in particular Japan, but also China.

These flows of capital have consequences, important ones, and, given the current behavior of the U.S. government and U.S. Federal Reserve and that of other governments and central banks around the world, extremely dangerous ones.

To illustrate what is going on, let us begin with a news headline that took your correspondent's eye this week: "Treasuries Barely Blink at Refunding Bill." The U.S. government had announced its intention to borrow $56 billion as part of its quarterly refunding plan. That is a lot of new debt to put into the market. It ought to make investors, the government's creditors, wary. But the news did not drive down Treasury prices. Why? ...Link

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