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EJ
09-24-08, 03:50 PM
http://www.itulip.com/images/suddenstop.jpg

Headed for a Sudden Stop

iTulip has since 1999 warned that in a protracted financial crisis the US, a net debtor, is vulnerable to withdrawal of foreign capital and capital flight, producing inflation and a severe economic contraction known in the economics literature as a Sudden Stop.

We called our theory Ka-Poom Theory. It defines two distinct crisis periods. One, a six to 12 month period of disinflation (Ka) that typically proceeds a sharp inflationary (Poom) period of repatriation of capital by foreign investors and capital flight by residents. Repatriation and flight both cause and result from currency depreciation in a rapid, self-reinforcing process.

In light of recent events, a subscriber recently asked how a disinflationary “Ka” crisis period such as we are experiencing during this financial crisis can turn into an inflationary “Poom” as foreign investment dries up and capital flees. In response, I provided the explanation below based on research I am doing for a book. In light of today’s events, I thought I’d share it with readers generally.
Treasuries Lose Allure for Asia, Europe Investors (http://www.bloomberg.com/apps/news?pid=20601103&sid=aeJQFuvxEkIM&refer=us)

Sept. 24 (Bloomberg) -- Investors outside the U.S., who own more than half of all Treasuries outstanding, say the government's $700 billion plan to revive the banking system will diminish the appeal of the nation's bonds.

Treasury Secretary Henry Paulson's proposal, which seeks funds to rescue banks by purchasing devalued securities, would drive the country's debt to more than 70 percent of gross domestic product. The last time taxpayers owed as much was in 1954, when the U.S. was paying down costs from World War II.

``The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,'' said Kwag Dae Hwan, head of global investment in Seoul with South Korea's $220 billion National Pension Fund, which holds about $14 billion of U.S. government debt. ``A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me.''
Stuck in the Debt Deflation Box

The US is in a tough spot. If the Fed does not take drastic measures to at least try to get the US credit markets working again the US economy will continue to crash. Foreign investors will pull out, and domestic investors will follow – or at least they'll try. On the other hand, if the Fed purchases all of the bad debt that is clogging up the credit markets, it dilutes the value of US treasury debt in the process, and as you can see from the Korean fund manager's comments above, that can potentially lead to a crisis of its own. In any case I am not confident that the bailout effort will succeed because the fundamental problem is not toxic debt but too much debt is owed against depreciating assets.

These debt deflation crises all end up in some kind of conundrum like this. For a net creditor with a high savings rate like Japan the choice was between throwing the currency or the labor force under the bus. They went with deflation and a strong yen.

Our latest analysis for subscribers US exchange rate and capital controls or bust ($ubscription) (http://www.itulip.com/forums/showthread.php?p=49722#post49722) includes research that shows that the yield of the 10 year Treasury bond may increase by 100 basis points for each year that net foreign purchases do not increase. Of course if they were to sell, bond prices will fall more rapidly.

Capital takes off

I've studied a dozen instances of capital flight. The process varies case by case but can be generally outlined in this eight step process. Keep in mind that this was written before the nationalization of Fannie Mae and Freddie Mac, the Lehman Bros. bankruptcy, the extension of government depositor insurance to money market accounts, and other recent events.

1) Build-up: The antecedents for crisis may be too much short-term foreign debt relative to GDP, unsustainable fiscal deficits, insufficient foreign exchange reserves, or some other imbalance or vulnerability, or multiple vulnerabilities. A crisis occurs – a crash, such as our housing and securitized debt market crash starting in 2007 – and the economy turns down rapidly. Defaults and bankruptcies begin, first as a few small companies and financial institutions but escalating in size and frequency over time.

2) Erosion: Confidence in the economy and financial markets gradually erodes over a period of a year or more. There are bank and non-bank institution failures, some of which are handled badly by authorities, reducing faith in the ability of government institutions to manage the crisis. Inflation and defaults are equally worrisome for a net debtor because these test the confidence of foreign creditors. Wealth holders inside the country and out start to wonder whether the authorities have things under in control.


http://www.itulip.com/images/whholdaig.gif
Sept. 18, 2008 the Fed and Treasury bail out insurance giant AIG (Bloomberg screen capture)


3) Pre-Flight: Crises become more frequent and severe, remedies increasingly drastic, with ever more heavy handed government intervention in what were formerly considered sacrosanct market institutions and processes. Banks and other institutions fail. There is talk of nationalization. The pre-flight phase may last for several months to a year.

4) Preparation: Long before the event occurs that triggers capital flight, such as the Russian bond default, insiders prepare for a potential economic D-Day with strategies to preserve as much of their wealth as possible. They set up foreign accounts and make ready to transfer funds at a moment's notice. They gradually liquidate bond, stock and other funds to move into their foreign accounts with a phone call – generally not in writing. The preparation process can occur on and off for months or for as long as a year. They may purchase stocks, sovereign bonds, and other assets denominated in other currencies, and take possession of the physical certificates. I've had conversations with fund managers who have clients who have been discussing the topic since the Q1 of this year.

5) Flight Crisis: An event occurs, such as the Russian bond default, that causes the currency to fall in a wave of sales of assets. Those not in-the-know panic and try to follow the prepared insiders out the door; a disorderly expatriation of capital and repatriation of foreign capital begins. In the case of past crises, the currency crashes as rubles or pesos or won are thrown onto the market as assets are converted to dollars or euros or yen en masse for deposit offshore. This typically happens in a matter of days or weeks.

6) Emergency Mitigation: As the crisis goes critical one day the government slams the door shut with capital controls, trapping foreign and domestic investors alike. Malaysia did so in 1998 but Korea did not. We explore the history of capital controls by the US and other countries to assess that risk and recommend steps to hedge the risk for subscribers in US exchange rate and capital controls or bust ($ubscription). (http://www.itulip.com/forums/showthread.php?p=49722#post49722)


http://www.itulip.com/images/recentsuddenstops.gif


7) Sudden Stop: If the government does not exact capital controls and capital leaves en masse, credit contracts, interest rates rise, the currency falls, and economic output drops suddenly as businesses close and unemployment spikes. In the case of Korea during the 1997-1998 currency crisis, for example, college students had to go home to their families in Seoul that year because the won did not cover the tuition. City parks quickly filled with the unemployed when only months before unemployment was largely unknown. The crisis is well documented in social and economic impact of Sudden Stop economic crises in South Korea and Argentina (http://www.providence.edu/polisci/students/economic_crisis/index.html).

8) Recovery: What happens next depends on the structure and state of the nation's economy before the crisis. Koreans, part of a culturally homogeneous and egalitarian society, quickly scraped together more than a billion dollars of jewelry, coins and other personal gold items to give to the government voluntarily to be melted down to shore up the central bank's accounts, which combined with a massive loan from the IMF stabilized the currency and economy.

Korea, like Russia, had a strong basis for recovery. Korea's powerful industrial base, deep pool of household savings, strong work ethic, high education level, and group spirit combined with strong demand from the US and Europe enabled it to quickly rebuild. When I was there only four years after the collapse it was as if nothing had happened, at least on the surface. Korean friends tell me that scars remain, especially mistrust of the IMF. Since then Korea and most Asian countries maintain at least a year's foreign exchange reserves to defend against a future attacks on their currencies. Paradoxically, the buildup of these reserves since 1998 contributed to the glut of foreign official capital inflows that the US has enjoyed.

Russia, aided by western oil companies, began to pump the oil that the inefficient Soviet system could not get out of the ground. Ten years after its crisis Russia developed massive foreign reserves in excess of $600 billion.

Where are we?

Keep in mind that the stages of the process are non-linear, and apply differently to a major economy like the US, with its debts denominated in its own currency and most of it long not short term, compared to the Korean and other cases mentioned.

Steps can revert from one back to another and forth again, for example between pre-flight and preparation phases. However, these processes tend to escalate in a positive feedback loop of crisis and response.

At this point it is not clear to me how the US avoids either capital controls to avoid a Sudden Stop or takes the full capital flight trip and experiences a Sudden Stop.

Most economists reading will be taken aback by the suggestion that the US might be the victim of capital flight and a Sudden Stop. The US has long been the recipient and beneficiary of flight capital as other nations experienced financial crisis. But a world ordered by poor nations financing the rich with their "excess savings" is an environment where long standing beliefs can be turned upside down, and fast. It remains to be seen what happens to the euro as the financial crisis spreads to Europe. The dollar, at least temporarily, may benefit.

The US has averted a "Poom" event so far because foreign central banks stepped in to support our housing and treasury market in 2003. But the financial and economic crisis is intensifying; counting on foreign governments to support the US throughout is an invitation to disaster. One of these days one of our creditors, not all of whom get along with each other, may force the US to make an impossible decision between a political ally and high interest rates. If that were to happen against the current background of global financial crisis, longstanding imbalances between the US and the rest of the world may re-balance in a hurry.

We explore the history of capital controls by the US and other countries to assess that risk and recommend steps to hedge the risk for subscribers in US exchange rate and capital controls or bust ($ubscription). (http://www.itulip.com/forums/showthread.php?p=49722#post49722) The ideal hedge doesn't cost much to set up, so that if the crisis never develops to that stage you have not spent a lot of money for nothing. Needless to say, the cost of not being hedged is enormous. Just ask your average stock market investor who missed our Dec. 2007 notice that a Debt Deflation Bear Market awaited us in 2008.

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c1ue
09-25-08, 12:50 AM
On the one hand, I feel some vindication as the fears I have been acting on for 2 years are coming true.

On the other hand, this sucks. I'd much rather have been wrong and looked paranoid/foolish.

idianov
09-25-08, 02:25 AM
Is China suddenly pulling the plug?

From Marketwatch (http://www.marketwatch.com/news/story/china-asks-local-lenders-not/story.aspx?guid={389CCD2E-9D08-4A8B-A512-F1B3E0B0BE19}&dist=msr_2):


China asks local lenders not to lend to U.S. banks

By V. Phani Kumar
Last update: 10:28 p.m. EDT Sept. 24, 2008
Comments: 78
HONG KONG (MarketWatch) -- Chinese regulators have asked domestic banks to stop lending to U.S. financial institutions in the interbank money markets to prevent possible losses during the financial crisis, the South China Morning Post reported Thursday. The China Banking Regulatory Commission's ban on interbank lending of all currencies applied to U.S. banks, but not to lenders from other countries, the report added, citing a source.

More from SCMP.com (http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cba0a0a0/?vgnextoid=4106a1eccd49c110VgnVCM100000360a0a0aRCR D&vgnextfmt=teaser&ss=Companies&s=Business):


Another banking source said the CBRC issued the ban after obtaining data about the exposure of mainland banks to bonds issued by bankrupt Lehman Brothers Holdings.

Top officials said they were keeping a close watch on the crisis and warned mainland financial institutions to be cautious in their daily business and overseas expansion.

"The international transaction volume of Chinese banks is not big. Those concerning subprime loans are probably lower than US$10 billion," deputy central bank governor Ma Delun wrote this week in the China Business Post, a PBOC-affiliated newspaper.

But the deteriorating situation in the US has shocked top officials.

Mr Ma said that among the unexpected developments was the effect the crisis was having on normal assets, not just problematic assets; its impact on the whole credit market, not just single products; and its effect on Europe and other nations, not only the US.

The exposure of seven listed mainland banks to bonds related to Lehman Brothers totaled US$721 million.

Update:

The news are being denied (http://www.forbes.com/reuters/feeds/reuters/2008/09/25/2008-09-25T044942Z_01_BJC000205_RTRIDST_0_CHINA-FINANCIAL-CBRC-URGENT.html), but the TED has been spreading (http://www.bloomberg.com/apps/quote?ticker=.TEDSP:IND) to 3% today...

magicvent
09-25-08, 08:03 AM
Marc Faber agrees with you

Next year, if the economy in the U.S. is as weak as I think it would be, the trade and the current account deficit will continue to contract,” Faber said. “When global liquidity contracts, it’s not a good time for financial assets.”
Other sources of funding, such as foreign reserves of resources-rich countries, are also likely to dry up, Faber said. “I think sovereign wealth funds are going to be very busy supporting their own markets, they won’t have much money to buy assets around the world.”
The next emergency measure will be that Americans are not allowed to buy foreign currency and transfer money overseas, and the next measure will be not permitting Americans to buy gold and so on and so forth… It creates even more uncertainty in the market place when you continually change the rules.

jimmygu3
09-25-08, 08:51 AM
On the one hand, I feel some vindication as the fears I have been acting on for 2 years are coming true.

On the other hand, this sucks. I'd much rather have been wrong and looked paranoid/foolish.

Yes, I think most of us around here feel the same way. Kind of like when my alcoholic relative says he can handle social drinking and I know he's going to fail. I always hope somehow I'm wrong and it will be different this time. I'd way rather say "I was dead wrong" than "I told you so."

FRED
09-25-08, 10:48 AM
Asia Needs Deal to Prevent Panic Selling of U.S. Debt, Yu Says (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anZHfo6tQi60)
By Kevin Hamlin

Sept. 25 (Bloomberg) -- Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding, a former adviser to the Chinese central bank.

``We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. ``If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''

An agreement is needed so that no nation rushes to sell, ``causing a collapse,'' Yu said. Japan is the biggest owner of U.S. Treasury bills, holding $593 billion, and China is second with $519 billion. Asian countries together hold half of the $2.67 trillion total held by foreign nations.

China, Japan, South Korea and others should meet soon to seal a deal, said Yu, a former academic member of the central bank's monetary policy committee. The talks should involve finance ministers, central bank governors and even national leaders, he said.

``Whether some kind of agreement between them to continue to hold Treasury bills is viable, I'm not sure,'' said James McCormack, head of sovereign ratings at Fitch Ratings Ltd in Hong Kong. ``It would be unusual. If it became apparent that sovereigns in Asia were selling Treasuries the market would take that quite badly, it's something to be avoided.'' more... (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anZHfo6tQi60)

jimmygu3
09-25-08, 11:31 AM
Asia Needs Deal to Prevent Panic Selling of U.S. Debt, Yu Says (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anZHfo6tQi60)
By Kevin Hamlin

Sept. 25 (Bloomberg) -- Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding, a former adviser to the Chinese central bank.

``We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. ``If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''

An agreement is needed so that no nation rushes to sell, ``causing a collapse,'' Yu said. Japan is the biggest owner of U.S. Treasury bills, holding $593 billion, and China is second with $519 billion. Asian countries together hold half of the $2.67 trillion total held by foreign nations.

China, Japan, South Korea and others should meet soon to seal a deal, said Yu, a former academic member of the central bank's monetary policy committee. The talks should involve finance ministers, central bank governors and even national leaders, he said.

``Whether some kind of agreement between them to continue to hold Treasury bills is viable, I'm not sure,'' said James McCormack, head of sovereign ratings at Fitch Ratings Ltd in Hong Kong. ``It would be unusual. If it became apparent that sovereigns in Asia were selling Treasuries the market would take that quite badly, it's something to be avoided.'' more... (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anZHfo6tQi60)

Whoa. That's serious stuff. Sounds like the options are whether to get out fast or get out gradually. No mention of continued buying.

Question: If they can't agree and instead race to get out before the other, that would obviously push yields up. Would that be a time for mortgaged middle class investors to shift into treasuries, taking guaranteed 10% (or whatever it's pushed to) nominal returns to provide current income and service lower fixed-rate debt, thereby crashing stocks?

Is this one of the scenarios the Fed & Treasury are aware of and could implement pre-emptive currency controls to mitigate? If so, what type of controls would discourage China & Japan from dumping?

Jimmy

phirang
09-25-08, 11:46 AM
Whoa. That's serious stuff. Sounds like the options are whether to get out fast or get out gradually. No mention of continued buying.

Question: If they can't agree and instead race to get out before the other, that would obviously push yields up. Would that be a time for mortgaged middle class investors to shift into treasuries, taking guaranteed 10% (or whatever it's pushed to) nominal returns to provide current income and service lower fixed-rate debt, thereby crashing stocks?

Is this one of the scenarios the Fed & Treasury are aware of and could implement pre-emptive currency controls to mitigate? If so, what type of controls would discourage China & Japan from dumping?

Jimmy

If there's a dollar-dump, expect the sort of controls that reek of cordite...

The US can strong-arm people into buying shitty debt pretty easily, but it will definitely have long-term implications.

Sainttjames
09-25-08, 02:10 PM
couple of thoughts:

1) these asian countries own all this treasury debt because they have manipulated the FX rate between their currencies and the dollar for years...in Japan's case decades which leads to...

2) They manipulated the rate in order to provide an economic advantage to domestic industry/labor...it is not in their interest to see a disorderly move in the USD.

3) Rising yields in the US may or may not be an opportunity to 'lock in 10%'...again it will depend on what the denominator is doing...in this case the USD...just look at the stock mkt rally since 2002...and then divide by the euro (for example)...a 10% nominal return might actually become a negative real return if the denominator moves against you.

jimmygu3
09-25-08, 02:24 PM
3) Rising yields in the US may or may not be an opportunity to 'lock in 10%'...again it will depend on what the denominator is doing...in this case the USD...just look at the stock mkt rally since 2002...and then divide by the euro (for example)...a 10% nominal return might actually become a negative real return if the denominator moves against you.

Right, but if you have a dollar-denominated mortgage at 6%, stocks that have returned jack squat for 8 years, and a tight labor market, making 10% nominal return (or 6% for that matter) would be attractive. Even if inflation eats nearly all of it, the need for dollars for debt servicing would be satisfied.

jtabeb
09-25-08, 03:24 PM
the need for dollars for debt servicing would be satisfied.

You sir, have your eye on the ball!!!

aa
09-25-08, 04:54 PM
Right, but if you have a dollar-denominated mortgage at 6%, stocks that have returned jack squat for 8 years, and a tight labor market, making 10% nominal return (or 6% for that matter) would be attractive. Even if inflation eats nearly all of it, the need for dollars for debt servicing would be satisfied.

Perhaps I'm missing something but, if you've got a mortgage and you've got the cash to buy treasuries, why wouldn't you pay the mortgage off with the cash?
I'm in Aus where mortgages are always variable and personal mortgage interest cannot reduce your income tax, so that might make a difference.

Chris
09-26-08, 11:10 AM
Here it comes (http://forums.overclockers.co.uk/showthread.php?t=17924496)

Warning: no source disclosed.

phirang
09-26-08, 11:25 AM
Here it comes (http://forums.overclockers.co.uk/showthread.php?t=17924496)

Warning: no source disclosed.

there's a massive liquidity crunch at the Fed, hence the need for taxpayer dollars to move dogshit from fed b.s. to a greater fool.

JoeSixpack
09-26-08, 01:23 PM
This comes from Merrill Lynch

http://ftalphaville.ft.com/blog/2008/09/26/16381/27-things-you-may-not-have-known-about-banking-crises/

Conclusions (my emphasis):

Implications: Past banking crises suggest that fiscal costs are likely to be substantial and the government is highly unlikely to make a profit on any recapitalization program. Fiscal packages do positively help the economy. Blanket government guarantees are sometimes necessary when previous liquidity provisions have failed.

What is different about this crisis:So far the US and the UK have not suffered from a sudden stop of capital inflows which has been the feature of many episodes in the past. We continue to remain concerned of the risk of a current account financing crisis. Note overnight an article in the South China Morning Post suggested that China’s regulators had told mainland banks to stop lending to US financial institutions. The article was later vehemently denied by the regulators.

The role of the international investor:
The international investor remains a significant holder and continued buyer of US assets. These have primarily been in recent years in the form of fixed income securities, particularly by foreign official institutions. Foreigners own 47 per cent of the Treasurys market; foreign official institutions have accounted for 91 per cent of flows into the agencies market. In order for foreigners to change their US fixed income reserve accumulation policies, they would have to substantially revise their existing exchange rate policies, acquiescing to currency strength. In our view, investors should start preparing themselves for the eventual shift in existing central bank reserve accumulation policies.

JoeSixpack
09-26-08, 09:53 PM
re: Here it comes

Chris, i would speculate this is probably related to the extreme tightness is european USD liquidity, and much worse in Asia.

You can see this for example in the extreme dislocations in LIBOR. For that reason, central banks (ECB, SNB, BanqueLuxembourg, also BOE ?) now offer their banks access to USD repos in special auctions, which they cover via the swap facility with the FED.

As the banks are forced to refinance their USD positions in the shortest terms, they look to reduce exposure to the risk of a sudden complete dryup in USD.

In the the very extreme a bank may therefore choose to stop its USD business, as the poster in your link has claimed.

But I am not certain on the effects this has in the overall scenario we follow on itulip.

Tulpen
09-26-08, 11:04 PM
there's a massive liquidity crunch at the Fed, hence the need for taxpayer dollars to move dogshit from fed b.s. to a greater fool.
A concise summary of what is going on!

Also remember it is the end of the quarter, only a few more days left to hide the disasters from the books by using 700 billion dollars.

kingcopper
09-27-08, 09:12 AM
If the House Republicans find a way to hold out, we could see the FED vanish in their own excrement. I would love to see Bernacke selling inland empire homes in a swanky gold jacket with the Century21 badge! :D

reallife
09-27-08, 07:50 PM
If the House Republicans find a way to hold out, we could see the FED vanish in their own excrement. I would love to see Bernacke selling inland empire homes in a swanky gold jacket with the Century21 badge! :D

Yes, but would YOU buy a used house from Bernacke??:p:p

zenith191
09-29-08, 01:14 AM
Don't fall into the trap of being so focused on only the financial and trade aspects. One must also consider the geopolitical and military aspects.

The US provides military protection through out the world by projecting its military supremacy into certain regions. It is no co-incidence that these countries the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:pUS</ST1:p</st1:country-region> provides military protection to are also its largest creditors. Like all empires the <st1:country-region><ST1:pUS</st1:country-region> Empire extracts a tithe from smaller nations. It has been doing this for several decades by selling debt.
<O:p</O:p
<O:p
I don't think we have to worry about the creditor counties cutting off their credit until such time as <st1:country-region><ST1:pUS</st1:country-region> military might fades and the empire dies.
<O:p</O:p

marvenger
09-29-08, 09:43 AM
nouriel roubini seems pretty adamant that a better solution than the 700b bailout would have been government and private equity injections; these can take many forms, preference shares, common stock, equity for debt, suspension of dividends. Roubini argues that the current bailout is for bank shareholders and unsecured creditors which foreign CB's and SWF's are not major holders of; so it seems to me that the bailout is more about protection of the sanctity of credit and the uber rich's free ride rather than trying to avoid a sudden stop.

metalman
09-29-08, 11:27 AM
Don't fall into the trap of being so focused on only the financial and trade aspects. One must also consider the geopolitical and military aspects.

The US provides military protection through out the world by projecting its military supremacy into certain regions. It is no co-incidence that these countries the US:p provides military protection to are also its largest creditors. Like all empires the <st1:country-region><st1>:pUS</st1> Empire extracts a tithe from smaller nations. It has been doing this for several decades by selling debt.
<o>:p</o>:p
<o>:p</o>
I don't think we have to worry about the creditor counties cutting off their credit until such time as <st1:country-region><st1>:pUS</st1> military might fades and the empire dies.
<o>:p</o>:p

that aspect has been discussed here for years so i don't think it hasn't been considered in the sudden stop analysis. us trade partners have been making alternate security arrangements for years... in prep for the day when the usa can no longer afford its military and they can get it cheaper elsewhere.

</st1:country-region></st1:country-region>

metalman
02-17-09, 01:56 PM
bump...

Sept. 2008...


Most economists reading will be taken aback by the suggestion that the US might be the victim of capital flight and a Sudden Stop. The US has long been the recipient and beneficiary of flight capital as other nations experienced financial crisis. But a world ordered by poor nations financing the rich with their "excess savings" is an environment where long standing beliefs can be turned upside down, and fast. It remains to be seen what happens to the euro as the financial crisis spreads to Europe. The dollar, at least temporarily, may benefit.

ocelotl
02-19-09, 09:13 PM
Athough my personal experience of the 1995 Mexican sudden stop is influenced by the geopolitical events that preceded it, IMHO we can mention that part of the process for it is a worsening of the inner political arena. The capital flight has to be preceded by a series of events that tend to worsen the exterior view on a country in steps. At this moment, the image about US is not that of a colapsing regime, rather, the hope built internationally on the policies set up by Obama are holding many of us foreigners. A set of policies directed to rebuild the infrastructure and the manufacturing base within US borders may be the ideal as seen from outside.

A run to trade protectionism, or a reconstruction of the FIRE Economy may be seen as an attemp to finance the restructuration of US economy on the backs of us foreigners, and that may not bee agreed upon. Such a situation may be one of the triggers to capital flight.

¿Can the human kind, over that situation, revert to asset based currencies? We have been for two whole generations under the rule of fiat currencies. Money will be needed until the basic needs of the whole human population (breathing air, water, food and shelter) can be provided without human intervention, and even then, greed and codice will keep asset property running.

Slimprofits
03-14-09, 03:35 AM
We're in the midst of stage four?

plinko
03-24-09, 10:16 PM
I want to believe we're more than 70% through stage 4, about to transition into stage 5, just my opinion looking at the news lately, unless some newfound dollar strength occurs via bad news in the euro or china. I apologize for not backing this up with facts.

doom&gloom
06-09-09, 04:36 AM
http://www.itulip.com/images/suddenstop.jpgHeaded for a Sudden Stop

iTulip has since 1999 warned that in a protracted financial crisis the US, a net debtor, is vulnerable to withdrawal of foreign capital and capital flight, producing inflation and a severe economic contraction known in the economics literature as a Sudden Stop.

*snip*



Could THIS be what is preventing a 'sudden stop' at present? China has been accumulating gold. LOTS of gold. It may not be so 'far out' as to think we are buying off our debt-masters to keep things calm at the present time. perhaps they are giving us back lots of 'dead presidents' in exchange?

and for the record, I am not a GATA 'guy' or adherent. I just see this a different way...

(all bolding and colors are theirs, not mine)

http://news.goldseek.com/GoldSeek/1243605552.php



-- Posted Friday, 29 May 2009 | Digg This Article | Share this article | Source: GoldSeek.com


This past Tuesday evening I found myself reading a snippet from Enrico Orlandini’s, DTAnalysis [DT stands for “Dow Theory”] - where Mr. Orlandini opined,


"I believe the [U.S.] trade gap will surprise people and continue to shrink and may even turn positive for the first time in decades. Unfortunately, this will only facilitate the flow out of the US dollar and bond and that’s not a good thing.”

With Enrico being “technically oriented” and me being more fundamentally oriented, I recall how I intuitively did not believe the U.S. Census Bureau’s published U.S. Trade numbers and how I might go about proving that they were falsified:

http://news.goldseek.com/GoldSeekimages/29.05.09/1.png

My primary field of research is focused on precious metals; namely, gold and silver, and I know that recent reports indicate that various countries are contemplating repatriating their sovereign gold reserves. Further, the U.S. Treasury and Federal Reserve have balked at GATA’s recent Freedom of Information [F.O.I] requests and demands for an independent, verifiable audit of the Sovereign U.S. Gold Reserve – thus a little bit of forensic investigation of U.S. gold exports was in order.

I just needed to figure out how to access the relevant numbers.

The United States Geological Survey [USGS] publishes monthly Mineral Industry Surveys designed to provide a macro-import/export-overview of the U.S. precious metals [gold] industry. The data in these surveys is supplied to the USGS principally by industry trade groups such as the World Gold Council as well as official sources like the U.S. Census Bureau:

http://news.goldseek.com/GoldSeekimages/29.05.09/2.png
source: USGS Feb. 09 Mineral Industry Survey

I took special note of how 2,920 metric tonnes of “Gold Compounds” had been exported from the U.S. in 2008. This number seemed BIGGER than BIG – because the U.S is only alleged to have stockpiles of sovereign gold of 8,100 metric tonnes while annual U.S. mine production of gold is roughly 228 metric tonnes. This figure of 2,920 metric tonnes is equal to 36 % of all alleged sovereign U.S. gold stocks or more than 14 times annual U.S. gold mine production. So, I was left wondering, “just what is/are ‘gold compounds’?

I contacted the USGS and queried a qualified individual [who had working knowledge of this data stream] about the definition of “Gold Compounds”. I was told that, according to the U.S. Census Bureau – who supplies not only the definition but the actual reported numbers, gold compounds were typified by industrial type products containing low percentages/amounts of actual gold content – like gold paint.

I then reasoned with the USGS person, if such were the case, why would U.S. exports have increased in 2008 to nearly 3,000 metric tonnes [when the Global Economy was slowing and the U.S. Dollar was strong] from 2007, when U.S. exports totaled approximately 2,000 metric tonnes [when the U.S. Dollar was weaker and the Global Economy was booming]? I noted that this was counter-intuitive and made no fundamental economic sense:

http://news.goldseek.com/GoldSeekimages/29.05.09/3.png
source: USGS Feb. 08 U.S. Mineral Industry Survey

When confronted with reason, the individual for the USGS agreed that the data, as published, did not make logical sense and explained that the U.S. Census Bureau was questioned as to the veracity of this particular line item in their data.

I asked the USGS employee if the gross weight or the gross value [not shown in the table but known to the USGS] of the “Gold Compounds” was queried.

The individual confirmed that their query to the U.S. Census Bureau dealt with the gross value being assigned to these exported goods.

I responded rhetorically, “being an issue of gross value – then let me guess that the U.S. Census Bureau is assigning an astronomically high value to these goods. Such a high value would be COMPLETELY INCONSISTENT with what the U.S. Census Bureau claims these items are- namely, industrial goods. The values being reported would be more in line with these goods being gold bullion or equivalents”.

The individual from the USGS confirmed my reasoning when he responded, “that would be CORRECT”.

The Implications

Ladies and gentlemen, the foregoing data and discussion with the USGS individual is proof that the United States of America [or criminal elements within its Treasury and/or The Federal Reserve] “HAS” surreptitiously exported physical gold - and continues to do so. It is confirmed. The exports are likely coin melt [or gold compound, if you prefer] from the great gold confiscation back in 1933; or alternatively, this terminology is being used to disguise physical repatriation of foreign gold bullion formerly on deposit with the N.Y. Federal Reserve. Such repatriations are recorded as “exports” in U.S. Trade data. Public acknowledgement of same would scream like a siren call that the global financial community has totally lost faith in American financial stewardship – hence the need to do so on the sly.

This is being done in a vain/desperate/losing battle to satiate “off the charts” global demand for physical gold bullion arising from the profligacy of the American Empire’s two previous Administrations and to prop up the failing U.S. Dollar.

Over the course of 2007 / 2008 – more than 5,000 metric tonnes of “Gold Compounds” have been exported from the United States of America representing more than 62 % of reported sovereign U.S. gold reserves or about 24 times annual U.S. mine production.

5000 metric tonnes = 160 753 733 troy ounces [$128 billion+ at today’s prices]

The fact that industry funded trade groups like the World Gold Council and other professional gold consultancies, who shall remain nameless, have not reported these facts negates their credibility and illuminates them as dupes or willing shills. These fraudulent or ignorant organizations deserve to be shuttered and disbanded.


U.S. Trade Data Is Bogus

The value of these bullion exports significantly “skew” the doctored U.S. Trade numbers [coincidentally, also prepared by the U.S. Census Bureau] in an attempt to convey a picture that the U.S. financial position is improving.

The reality is this, when gold exports are backed-out, the U.S. Trade picture is decidedly worse.

The United States of America claims to possess a little more than 8,100 metric tonnes of sovereign gold stored principally at Fort Knox, Kentucky, West Point, N.Y., the Denver Mint and The New York Fed. The sovereign U.S. gold reserve has not been independently audited since the 1950’s during the Eisenhower Administration. GATA’s freedom of information requests are all about ensuring that the 8,100 metric tonnes of U.S. sovereign gold is still owned by the U.S.

In April, 2008 the Federal Reserve responded to GATA’s request, releasing hundreds of pages of worthless information with significant portions redacted. They also claimed that they were withholding hundreds of additional pages of documents. The status of the withheld documents is currently under appeal.

These stonewalling tactics – withholding details - are eerily similar to those employed by Messer’s Bernanke, Paulson and Geithner refusing to divulge frank details as to “who” the beneficial recipients were of TARP and TALF funds.

No credible audit of the Sovereign U.S. Gold Reserve will EVER be allowed – because the gold is simply not there.

Hope you have some.

Rob Kirby is proprietor of Kirbyanalytics.com and sales agent for Bullion Custodial Services. Subscribers to the Kirbyanalytics newsletter can look forward to a weekend publication analyzing many recent global geo-political events and more. Subscribe to Kirbyanalytics news letter here. Buy physical gold, silver or platinum bullion here.

TheServant
06-09-09, 09:15 AM
Even though this data is from 2007-2008, it is probably worth noting that the White House (Rahm Emanuel) oversees the US Census Bureau as of February.

jk
09-06-11, 12:27 PM
in eric's most recent piece he listed "emergency measures" as a topic to be discussed, which fred then said would be addressed in a follow up piece. fred also referred to this thread about a sudden stop.

re-reading eric's piece from 3 years ago, a question occurred to me. if there is to be capital flight from the u.s. and from the dollar, where would capital GO? what market or markets are big enough to receive the waves of money we're discussing?

in early 2009, according to the bis [quoted in wikipedia's article on the bond market] the global bond market was then worth around $82trillion, of which the u.s. bond market was $32trillion. those numbers have risen in the intervening almost-3 years. so let's say the u.s. bond market is currently $35trillion. if bond holders sell in any size, first to whom do they sell? and then where do they put their money? what bathtub is big enough for this elephant?

capital flight from the u.s. dollar isn't even possible in any size unless the dollar is first hugely devalued.

FRED
09-06-11, 12:40 PM
in eric's most recent piece he listed "emergency measures" as a topic to be discussed, which fred then said would be addressed in a follow up piece. fred also referred to this thread about a sudden stop.

re-reading eric's piece from 3 years ago, a question occurred to me. if there is to be capital flight from the u.s. and from the dollar, where would capital GO? what market or markets are big enough to receive the waves of money we're discussing?

in early 2009, according to the bis [quoted in wikipedia's article on the bond market] the global bond market was then worth around $82trillion, of which the u.s. bond market was $32trillion. those numbers have risen in the intervening almost-3 years. so let's say the u.s. bond market is currently $35trillion. if bond holders sell in any size, first to whom do they sell? and then where do they put their money? what bathtub is big enough for this elephant?

capital flight from the u.s. dollar isn't even possible in any size unless the dollar is first hugely devalued.

The iTulip thesis is that as peso denominated assets (Argentina domestic capital) fled into the dollar in 2001, dollar denominated assets (Argentina domestic capital) will flee into gold.

jk
09-06-11, 12:45 PM
The iTulip thesis is that as peso denominated assets (Argentina domestic capital) fled into the dollar in 2001, dollar denominated assets (Argentina domestic capital) will flee into gold.

well, as i said in another thread, the gold market is big enough to meet any demand in terms of money, just not in ounces.

bill
09-06-11, 12:51 PM
if bond holders sell in any size, first to whom do they sell? and then where do they put their money? what bathtub is big enough for this elephant?

capital flight from the u.s. dollar isn't even possible in any size unless the dollar is first hugely devalued.

There are not enough exits, political correct financial hubs, yes.
A new one just established.

<TABLE border=0 cellSpacing=0 cellPadding=0 _yuid="yui_3_1_1_9_1315319888245133"><TBODY _yuid="yui_3_1_1_9_1315319888245132"><TR _yuid="yui_3_1_1_9_1315319888245131"><TD vAlign=top _yuid="yui_3_1_1_9_1315319888245130">http://www.bloomberg.com/news/2011-09-06/world-bank-to-set-up-knowledge-and-financial-hub-in-singapore.html
The World Bank started collaborating with Singapore (http://topics.bloomberg.com/singapore/) on a hub to help countries address the challenges of urbanization two years ago, followed by the opening last year of an Infrastructure Finance Center of Excellence in Singapore, Zoellick said. Those will now be joined by units such as International Finance Corp., the bank’s private investment arm, and the Multilateral Investment Guarantee Agency, its private sector guarantee arm.
International Finance Corp.’s new asset management company and Government of Singapore Investment Corp. are already cooperating on a commercially run global infrastructure fund, Zoellick said. The private investment arm will also explore ways of working with Singapore-based commercial banks and companies to make debt and equity investments in emerging markets available to global investors, he said.

http://www.gic.com.sg/
http://en.wikipedia.org/wiki/International_Finance_Corporation



http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22993897~pagePK:34370~piPK:34424~the SitePK:4607,00.html

It’s a partnership that was further deepened by the launch last year of an Infrastructure Finance Center of Excellence, IFCOE, in Singapore – in recognition of the strong demand for services in infrastructure.
We have seen some of the potential already. A project supported by IFCOE in Chongqing, China involving securitization of future toll road revenues is expected to reach financial closure this year. An Infrastructure Guarantee Fund in Indonesia is now established and operational. There is also a public- private partnership toll road project in Vietnam; support to ASEAN in the preparation and implementation of the ASEAN Connectivity Master Plan; and the establishment of a regional mediation center for infrastructure PPP projects.

Today we are building on these successes. Singapore will become a multidimensional hub of the World Bank Group’s knowledge and financial activities – for both Asia and some global enterprises.

The Singapore Hub will be a unique center that encapsulates our commitment not just to mutual learning but to pragmatic decentralization. To deliver on this purpose, we expect this Hub to grow to some 70 professional staff over the next three years. We are investing in Singapore as a knowledge economy and financial services center.

Developing countries have become a key source of growth and opportunity. In East Asia, private investments have accomplished a great deal but key restraints remain. We need to unlock private sector interest in infrastructure and bring more investors to the table. We need an integrated approach to support practical solutions for jump-starting the public-private partnership market.

Our new Singapore Hub can help meet those needs. This will be the first combined World Bank Group office outside Washington able to offer products and services from across the Bank Group to our clients. The Hub will be a Bank Group center that will foster training and capacity building through our World Bank Institute, building on the already very successful urban leadership training program in partnership with the Lee Kuan Yew School of Public Policy.
</TD></TR></TBODY></TABLE>

jk
09-06-11, 01:34 PM
public-private partnerships: how many years has it been since we started talking about them as having a big future? it looks like that future is, increasingly, now.

jk
09-06-11, 01:44 PM
well, as i said in another thread, the gold market is big enough to meet any demand in terms of money, just not in ounces.

just a little arithmetic. tried to find the size of the gold market, this source (http://www.twsinvestments.com/2009/11/how-big-is-gold-market-relatively.html) asserted that in nov '09 all the gold ever mined was worth about $5trillion. of course, at the time gold was selling at about $1100/oz. so if it's now around $1900, that implies that all the gold ever mined is now worth (19/11)*5= $8.6 trillion. if that has to expand to accommodate serious capital flight out of the dollar, gold has a lot more work to do on the upside.

Bundi
09-06-11, 10:51 PM
just a little arithmetic. tried to find the size of the gold market, this source (http://www.twsinvestments.com/2009/11/how-big-is-gold-market-relatively.html) asserted that in nov '09 all the gold ever mined was worth about $5trillion. of course, at the time gold was selling at about $1100/oz. so if it's now around $1900, that implies that all the gold ever mined is now worth (19/11)*5= $8.6 trillion. if that has to expand to accommodate serious capital flight out of the dollar, gold has a lot more work to do on the upside.

So tens of trillions in US$ bonds are liquidated into US$s, then those US$s are used to purchase gold. What is the estimated daily volume of available physical gold. In other words, of the $8.6T in current gold value, how much is for buy/sale at any given time? Seems the float wouldn't be anywhere close to what would be needed in a short time frame associated with a run on the dollar. I suppose central banks can do what they do behind closed doors and without timely reporting. However, institutions and others less tied in would be hard pressed to get into gold fast enough. Perhaps we should think in terms of gold not yet mined and include that potential total in the overall market. Surely, no known reserve would remain private in such a rush. That would be a case for confiscation. Hugo seemed to think so anyway.

Sharky
09-08-11, 02:16 AM
just a little arithmetic. tried to find the size of the gold market

Here's another source for the size of the global gold market:

http://www.zealllc.com/2011/goldob.htm


According to the World Gold Council, about 170,000 metric tons of gold have been mined in all of world history. Though a little has been lost (unrecoverable shipwrecks, electronics, dental work), the vast majority is still around. Do the math and this works out to a staggering $9.8t worth of gold at $1800 per ounce!

However, if a paper market collapses, not all of its wealth will be readily transferable into different asset class. As selling intensifies, prices drop. I like the quote from runtogold.com: "The system does not collapse but evaporate."

4054

astonas
09-08-11, 03:06 AM
[/SIZE][/FONT]4054

This is a great visual summary: Lays out the problem (and consequent solution) in one easy-to-grasp graphic, with all the numerical information you need clearly displayed. Thanks for posting it!