South by Southwest: United States, China, Russia and others are linked together in a small financial world.

Saturday, October 17, 2009

United States, China, Russia and others are linked together in a small financial world.

The Financial Times of London peppered its front page with jitter-making headlines this weekend:

Bank of America reports $1bn loss; Six charged in $20m insider trade case; and US budget deficit hit a record $1,400bn, for example.

BoA difficulties contrast with the wildly positive (for the investment bank, at least) news about Goldman Sachs, along with the expectation of huge bonuses for its employees. See Reference 1, below.
China is the largest foreign holder of United States T-bills. Recent news, however, is that "China's US-debt holdings have dropped." The blurb is from China Daily (10/17/09). Demand for long-term US assets rose in August,with investors from other countries "buying $28.6 billion more in assets than they sold." To quote:

China cut its US Treasury-bill reserve by $3.4 billion to $797.1 billion in August . . . Japan, the second largest holder of the US government debt, however, has boosted its Treasury securities from $724.5 billion in July to $731 billion.

President Obama appears to be committed to a temporarily high deficit to serve as part of the fix to the recent economic crisis. Jobs, the lagging indicator of the state of our economy, will not start to come back for some months.

In China the U.S. dollar is, surprisingly, not very weak, Floyd Norris at the New York Times reports. And a wide range of foreign currencies are rising against Chinese currency. But remember, China pegs its currency to the U.S. dollar. Elsewhere, the weak dollar means bargains for foreign purchasers of US goods and services.To quote:

There is renewed talk about the weak dollar. But don’t believe it. Where it really counts, the dollar is not moving at all.
In February, the dollar hit a high against most currencies amid fears of worldwide recession and a desire for the safety of American investments. It was then worth 80 euro cents, and 6.82 Chinese renminbi.
. . . These days it seems to be in the short-term interests of both countries for China to pursue its current policy. The Americans desperately want someone to buy all the Treasuries that are being issued to finance the stimulus program and bank bailouts, and China wants to do whatever it can to stimulate its own economy.
This week, as the dollar neared 67 euro cents, it was still worth 6.82 renminbi.

The China-USA bargain will hold for the time being. The transaction appears to be a balanced one for both nations.

Russia is an oil-dependent economy, according to Pravda. The IMF is predicting that there will be some economic recovery in Russia because of a rise in oil prices. Predictions are of $60 per barrel until the end of the year and $75 in 2010. To quote:

The nation’s GDP will drop by 7.5 percent in 2009, which is a larger number than in the previous report, but a smaller one if compared with the expectations of the Russian government.
. . . The IMF’s World Economic Outlook said that the Russian economy would start to grow in 2010. The inflation rate in 2009 will make up 12.3 percent and slide to 9.9 percent in 2010, Interfax reports.
. . . The World Bank expected that Russia’s GDP would return to the pre-crisis level only at the end of the third quarter of 2012.

Russia and the United States apparently are willing to deal with each other in a relatively equitable fashion. Secretary of State Clinton felt comfortable enough recently to urge the Russians to give up "cold-war thinking."

In America this post's concluding item will bring back some basis understanding and reality after all the dizzying numbers. The BBC News reports that Barbra Streisand is holding a great big charity auction of "her most treasured possessions." Items to be sold are those that will not fit into her newly consolidated house in Malibu. The piece concludes:

The auction coincides with the release of Streisand's latest CD, which debuted at at the top of the US album chart.
The singer is the first artist ever to have had a number one album in five decades - her first was in 1964.
The proceeds from the sale of her household possessions will benefit the Streisand Foundation, a charity that promotes humanitarian, environmental and children's causes.

Some things stay the same. We love our celebrities. They in turn often develop active lives of giving back in their later years. Streisand, a Democrat, is no exception. Downsizing and philanthropy will occupy her energies in the future. We are lucky, however, that she is still willing to sing for us, too.

References: Current Tweets on the economy:

"Bailout Helps Revive Banks, and Bonuses http://bit.ly/1U12pO," is from the New York Times (10/16/09).
"Happy days are here again--if you're Goldman Sachs and JPMorgan. By @KatrinaNation http://bit.ly/vW7OS," is from The Nation Magazine (10/16/09).
"A smidgen of optimism http://bit.ly/3jnv0G," is by Paul Krugman of the New York Times (10/16/09).
"Summers challenges Wall Street to accept new regulations : Obama's top economic adviser challenged financial ins.. http://bit.ly/O9xNg," is from The Hill (10/16/09).