Best of the Week
Most Popular
1.Election Forecast 2015 - Opinion Polls Trending Towards Conservative Outright Win - Nadeem_Walayat
2.UK Solar Eclipse - End Time Sign, Judgement Day, Doomsday! - Nadeem_Walayat
3.Gold And Silver - When Will Precious Metals Rally? Not In 2015 - Michael_Noonan
4.Preparing for the Next Stocks Bear Market - Forecast 2015-2016 - Gary_Savage
5.Is a Stock Market Crash Imminent? - David Eifrig
6.Gold Price Slumps as US Dollar Soars, What's Next? - Nadeem_Walayat
7.US Dollar Forex Pairs and Gold Chartology - Rambus_Chartology
8.Election Forecast 2015: The Day Labour Lost the General Election - Nadeem_Walayat
9.The ECB Should End QE Next Month - EconMatters
10.Silver Price Poised to Surge - Zeal_LLC
Last 5 days
Stock Market About Ready to Crash! - 29th Mar 15
Reflections in a Golden Eye - Gold Market Rejection, Repatriation and Redemption - 28th Mar 15
Stock Market Inflection Point - 28th Mar 15
Gold And Silver - What Moved Price? Bab el-Mandeb And Uranus Square Pluto. What?! - 28th Mar 15
Stock Market Investment Parachutes; Do You Have Yours? - 28th Mar 15
Peak Gold Misunderstanding, is Gold About to Run Out? - 28th Mar 15
Deflation Watch: Key U.S. Economic Measures Turn South - 27th Mar 15
The Hard-Earned Truth About Recreational Real Estate - 27th Mar 15
Bitcoin Price Still in Important Territory - 27th Mar 15
Stocks Bear Market Conditions - Index Market Range Warning - 27th Mar 15
BEA Leaves Q4 2014 U.S. GDP Growth Essentially Unchanged at 2.22% - 27th Mar 15
Brazil Economy Victim of Vulgar Keynesianism - 27th Mar 15
Gold to Fuel Silver Price Upleg - 27th Mar 15
Gold and Silver Stocks Will Rise Again! - 27th Mar 15
Risk of ‘World War’ between NATO and Russia on Ukraine as Yemen Bombed - 27th Mar 15
FOMC Minutes Turned The Gold Tide - 27th Mar 15
Sheffield Hallam Election Battle 2015 - Lib Dems Go to War Whilst Labour Sleeps - 27th Mar 15
Gold Effect On Mining & Shale Wasteland - 27th Mar 15
How Stock Investors Should Play the 2016 Presidential Race - 26th Mar 15
MidEast Energy Alert: Why the Crisis in Yemen Could Get Ugly Very Fast - 26th Mar 15
Stock Market Downward Spiral of Dumbness - 26th Mar 15
The Monetary Approach Reigns Supreme - 26th Mar 15
Stock Market Large Gap Down, Despite the Algos' Push Back - 26th Mar 15
Crude Oil Surges, Gold price Spikes as Middle East Tensions Escalate - 26th Mar 15
The U.S. Housing Market Recovery Is Fabricated Optimism - 26th Mar 15
Why Yemen Is The Next Saudi-Iranian Battleground - 26th Mar 15
The Crude Oil Price Crash and China Economic Slow Down - 26th Mar 15
Global Financial Markets Are More Distorted Than Ever Before - 26th Mar 15
One More Stock Market Rally and Then a Huge Drop Expected - 26th Mar 15
Danger Will Robinson - Stock Market Crash Warning - 25th Mar 15
Learn the Basics of Corrective Elliott Waves - 25th Mar 15
Why CNBC Is Hazardous to Your Financial Health! - 25th Mar 15
Will Your Retirement Accounts Survive The Coming Tax Code "Revolution"? - 25th Mar 15
US Dollar - Americas Phoenix - 25th Mar 15
California’s Epic Drought: Only One Year of Water Left! - 25th Mar 15
What’s Wrong With Silver? - 25th Mar 15
SPX Futures Appear Weak. WTIC and Gold May Be at Max Retracement - 25th Mar 15
We’re at the Dawn of a “New Energy Age” - 25th Mar 15
A Very Weak U.S. Economic Recovery - 25th Mar 15
Zero UK CPI Inflation Rate Prompts Deflation Danger Propaganda For Fresh Money Printing - 25th Mar 15
Stock Market NYSE Hi-Lo Index Aggressive Sell Signal - 24th Mar 15
Palladium Commodity Price Forecast - 24th Mar 15
Bitcoin Price Gearing Up for a Fall - 24th Mar 15
Safety Deposit Boxes In UK Being Closed By ‏HSBC – Not Closing Gold Vaults - 24th Mar 15
Japan Short Term Gains And Long Term Disaster - 24th Mar 15
China's Fragile Evolution - 24th Mar 15
David Cameron Announces Resignation Even Before Being Re-elected, Handing Labour 6 Seats - 24th Mar 15
City of London's Ownership of American Colonies - 24th Mar 15
Stock Market Reversal May Have Begun - 24th Mar 15
Casey Gathers Top Gold Experts to Share Secrets for Making Money in Any Market - 24th Mar 15
Thoughts on The Current Crude Oil Market - 24th Mar 15
U.S. Economy Still on Life Support - What Your Governments Hiding From You... - 24th Mar 15
UK Election Forecast 2015 - Budget Bribes Fail, SNP Insurgency Catastrophe - Video - 24th Mar 15
Is Stock Market Minor Top Taking Hold? - 23rd Mar 15
Greece and EU Running Out of Time as Bank Runs Intensify - 23rd Mar 15
Stock Market Slightly Negative Expectations Following Last Week's Rally - 23rd Mar 15
This Rising Interest Rates Play Could Make You a Quick 55% - 23rd Mar 15
Platinum Commodity Price False Break Low - 23rd Mar 15
The Real Reason The American Dream is Unraveling - 23rd Mar 15
Election Forecast 2015 - Budget Bribes Fail to Impress Voters, Tory's Lose Seats in Opinion Polls - 23rd Mar 15
Silver Price Reliance During U.S. Dollar Rally - 23rd Mar 15
Gold Price Outlook Dramatic Improvement Following US Dollar Topping Action - 23rd Mar 15
Wall Street Doesn't Want You to Do This - 22nd Mar 15
The "Natural Interest Rate" Is Always Positive and Cannot Be Negative - 22nd Mar 15
Exploring The Gold Market: The Fed, The Charts. The COTS and GLD - 22nd Mar 15
Stocks Bull Market Continues - 22nd Mar 15
Gold And Silver - China's AIIB Spells U.s. Dollar Demise, Not Clear For Precious Metals - 22nd Mar 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy Still on Life Support

Theory of Central Banking Rapidly Falling Apart

Currencies / Central Banks May 14, 2010 - 11:53 AM GMT

By: Mike_Shedlock

Currencies

Best Financial Markets Analysis ArticleCentral banks are about to learn the global economy is not Alice's Restaurant.

In case you don't know the tune, here is the crucial line: "You can get anything you want at Alice's Restaurant"

Anything you want, seems to be the attitude of central banks. The problem is, it is virtually impossible for every central bank to get what it wants at the same time, when they all want the same thing, cheaper currency relative to each other to stimulate jobs and exports.


Here are a few examples to help explain what I mean.

UK at Mercy of Demand in EU

Please consider U.K. Trade Deficit Widened in March on Import Jump

The U.K. trade deficit widened in March as imports jumped the most in six months, led by demand for goods from cars to engineering equipment.

The Bank of England is counting on a weak pound to boost exports and support economic growth it helped manufacturing jump the most since 2002 last month. The sovereign debt crisis in Europe has darkened the outlook for U.K. exporters at a time when domestic demand may come under pressure from measures to tackle the public finances.

“With a fiscal squeeze looming, and set to have knock-on effects on consumer incomes, we think that the onus is still on the external sector to keep the recovery going,” Vicky Redwood, an economist at Capital Economics Ltd. and a former Bank of England official, said in a note. “Recent events in the euro zone -- the U.K.’s biggest trading partner -- clearly cast a shadow over the longer-term prospects for U.K. exporters.”

The U.K.’s trade deficit with the European Union widened to 3.4 billion pounds in March, a three-month high, from 2.9 billion pounds in February. Bank of England Governor Mervyn King yesterday cautioned that the U.K. economy remains vulnerable to the fiscal crisis in the euro area, its biggest trading partner.

King said that rebalancing the U.K. economy after the deepest recession on record relied on “a prosperous European economy.”

“We’re seeing a big, big increase in manufacturing,” Alan Clarke, an economist at BNP Paribas in London, said in a phone interview before the report. “It may be that at long last we have an improvement in external demand or are reaping the benefit of a weaker sterling. We’re at the mercy of demand in the euro zone.”

China’s Trade Surplus Shrinks 87%

Inquiring minds note China’s April Trade Surplus Shrinks 87% on Imports

China’s trade surplus shrank 87 percent in April from a year earlier as imports grew faster than exports because of stimulus-driven domestic demand.

A 79 percent decline in the trade surplus in the first four months of 2010 from a year earlier may ease pressure for gains in the yuan and support Premier Wen Jiabao’s argument that the currency isn’t undervalued. The sovereign-debt crisis in Europe that today prompted a loan package of almost $1 trillion to help nations under attack from speculators may also encourage Chinese officials to delay ending the yuan’s peg to the dollar.

Yuan gains would be “a disaster,” Song Zimin, an executive in the import and export department of apparel maker Shanghai Dragon Corp., said in an interview at China’s biggest trade fair in Guangzhou on May 3. “If the yuan rises 3 percent, where’s our profit? Many, many factories will close.”

Chinese President Hu Jintao told his U.S. counterpart Barack Obama last month that the nation will adjust currency policies according to its own need and won’t bow to foreign pressure. U.S. Treasury Secretary Timothy F. Geithner meets with Chinese Vice Premier Wang Qishan in Beijing on May 24-25 for the so-called Strategic and Economic Dialogue between the two nations.

India and Brazil have backed calls from the U.S. and Europe for a stronger yuan.

Europe is China's biggest export partner. Since China pegs to the US dollar, China's exports to Europe just got a lot more expensive following this mini-crash of the Euro. That is not what China wants at all.

India, Brazil, the US, Europe, and Japan all want the Yuan to rise.

Adding fat to the trade war fire, the US is threatening to label China a currency manipulator on the misguided notion that US exports will rise if the Renminbi (Yuan) rises.

Japan Wants the Yen to Sink

As noted in Equity Plunge Yen Connection; Reflections on Ponzi Markets and Program Trading, last week's equity meltdown all started with a sudden spike in the Yen.

In response, to the strengthening of the Yen, the Bank of Japan pumped 2 trillion Yen ($21.8 billion), into the banking system, triggering selling of the Yen.

ECB's Action to Save the Euro

In Europe, the ECB's plan to "save the Euro" consists of printing $1 trillion worth of Euros. Given that it is impossible to strengthen a currency by printing more of it, the real goal was not to save the "Euro" but to bail out European banks sitting on bad Greek debts.

Long term, the plan increases debt, exactly the wrong thing to do in a deflationary world.

Short term, that action spawned an unprecedented round trip move on the Euro vs. the US dollar from 1.27 to 1.31 and back in little over a day.

Bounce or Die for the Euro and British Pound

For charts and additional commentary on the Euro and British Pound, please see Bounce or Die for the Euro and British Pound?

Make no mistake about. Trichet wants a cheaper Euro to help European exports, even as the UK is at the mercy of demand in Eurozone countries.

To top it off, the US does not want a cheaper Euro or a stronger dollar out of fear of losing Boeing contracts to Airbus, and grain exports to Brazil and Australia.

In 2001-2002 Greenspan thought slashing interest rates and printing money was a free lunch. Instead, it spawned the biggest real estate/debt bubble the world has ever seen. For a while, Greenspan's efforts created jobs. Then came the global bust. The debt still remains, the jobs didn't.

Now the EU has adopted the same nonsensical plan. Yet all the EU has accomplished is to increase the amount of debt that cannot be paid back. Trichet needs a clue, and here it is: You cannot fight deflation by taking on more debt. Here's a second clue: central banks can print, but they cannot dictate where the money goes.

The housing bubble collapsed years ago, but the global central banker fight against deflation still remains, with one big beneficiary: Gold.

Gold Monthly Chart


Amazingly, until this crisis started last week, there was near unanimous opinion that the US dollar needed to sink and for the Yen, Yuan, Pound, and Euro to strengthen.

"Near Unanimous" is the opportune phrase because Japan wanted the Yuan to rise but not the Yen, and China was just happy with the status quo.

If that is not one totally *upped daisy chain of impossible Central Banker wants and needs, what is?

Hello Ben Bernanke, Jean-Claude Trichet, and Mervyn King, this is Alice, and you are in Wonderland, not my restaurant. At Alice's there is no free lunch. We only take gold.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014