China Calls To Replace Dollar With World Currency

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China’s central bank has reiterated its call for a new reserve currency to replace the US dollar.

The report from the People’s Bank of China PBOC said a “super-sovereign” currency should take its place.

Central bank chief Zhou Xiaochuan has loudly led calls for the dollar to be replaced during the financial crisis.

The bank report called for more regulation of the countries that issue currencies that underpin the global financial system.

“An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis,” the Chinese central bank said.

The dollar fell after the report was released. The US currency dropped 1% against the euro to $1.4088, and declined 0.8% versus the British pound to $1.6848.

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Russia - World Needs New Reserve Currency

Russian President Dmitry Medvedev said Tuesday the world needs new reserve currencies.

Medvedev told a regional summit that the creation of new reserve currencies in addition to the dollar is needed to stabilize global finances.

Medvedev has made the proposal before. It reflects both the Kremlin’s push for greater international clout and a concern shared by other countries that soaring U.S. budget deficits could spur inflation and weaken the dollar.

Airing it at a summit meeting underlined the challenge to U.S. clout.

Medvedev spoke at a summit of the Shanghai Cooperation Organization, which includes China and four Central Asian nations.

Later Tuesday he hosts a summit of the BRIC group of leading emerging economies — Brazil, Russia, India and China.

The Kremlin’s top economic adviser said Russia may put part of its currency reserves in bonds issued by Brazil, China and India.

Arkady Dvorkovich said Russia could make the move if the other three nations reciprocate. Brazil, Russia, India and China are the members of the BRIC group of leading emerging economies.

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U.S. Inflation to Approach Zimbabwe Level

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.

“There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.”

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Brazil and China Eye Plan To Axe The Dollar

Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.

An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.

“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”

Henrique Meirelles and Zhou Xiaochuan, governors of the two countries’ central banks, were expected to meet soon to discuss the matter, the official said.

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If China Loses Faith, The Dollar Will Collapse

Emerging economies such as China and Russia are calling for alternatives to the dollar as a reserve currency. The trigger is the US Federal Reserve’s policy of expanding the money supply to prop up the banking system and its over-indebted households. Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing dollars massively, which would eventually trigger high inflation or even hyperinflation and cause great damage to countries that hold dollar assets in their foreign exchange reserves.

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China Has Canceled Americas Credit Card

China, wary of the troubled US economy, has already “canceled America’s credit card” by cutting down purchases of debt, a US congressman said Thursday.

China has the world’s largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country.

But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.

Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had “very legitimate” concerns about its investments.

“It would appear, quietly and with deference and politeness, that China has canceled America’s credit card,” Kirk told the Committee of 100, a Chinese-American group.

“I’m not sure too many people on Capitol Hill realize that this is now happening,” he said.

The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the US government due to the financial crisis.

Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the US Federal Reserve due to absence of foreign investors.

“There will come a time where the lack of Chinese participation may have a significant impact,” Kirk said.

“We should track that, because up until last month they were the number one provider of currency to the United States and now they’re gone.”

With China’s economy also hit by the global economic crisis, Premier Wen Jiabao has openly voiced concern about the status of his country’s investments in the United States.

China has also floated replacing the dollar as the key international currency with a basket of units bringing in the euro, sterling and yen.

via AFP: China has ‘canceled US credit card’: lawmaker.

China Calls For Reform Of Global Monetary System

China called Sunday for reform of the global currency system, dominated by the dollar, which it said is the root cause of the global financial crisis.

“We should attach great importance to reform of the international monetary system,” Chinese Vice Finance Minister Li Yong told the spring IMF/World Bank Development Committee meeting in Washington.

A “flawed international monetary system is the institutional root cause of the crisis and a major defect in the current international economic governance structure,” Li said, according to a statement.

“Accordingly, we should improve the regulatory mechanism for reserve currency issuance, maintain the relative stability of exchange rates of major reserve currencies and promote a diverse and sound international currency system.”

As the world’s main reserve currency, US dollars account for most governments’ foreign exchange reserves and are used to set international market prices for oil, gold and other currencies.

As the issuer of the key reserve currency, the United States also pays less for products and can borrow more easily.

Li did not name the dollar but in late March the People’s Bank of China Governor Zhou Xiaochuan said he wanted to replace the US unit which has served as the world’s reserve currency since World War II.

“The outbreak of the crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Zhou said, suggesting the International Monetary Fund could play a greater role.

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Forget Nukes Watch Out for Economic War

Fought with currencies, embargoes and hackers, economic warfare may lack the “shock and awe” of conventional battles but it could still pose a threat to the U.S., especially in these troubling economic times.

Picture this hypothetical dreamed up by a national security expert obsessed with economic catastrophe:

Angry that U.S. policies aimed at boosting the economy have devalued their $2 trillion of currency reserves, the Chinese decide to stop buying Treasurys just as America tries to finance its massive spending plans.

In response, the U.S. imposes trade sanctions against China, which in turn pushes for a global currency. From there, the U.S. accuses China of manipulating its own currency and things escalate further.

Without a shot being fired, those actions represent a type of unfriendly economic competition that some are very worried about.

‘Unstable Escalation’

“I think it’s very likely the participants wouldn’t call it a war. Each side would say they are acting in their best interest. But this could lead to an unstable escalation,” said James Rickards, co-head of threat finance and market intelligence at consulting firm Omnis.

The struggling U.S. economy and scary financial crisis could make such an escalation more likely and more damaging.

“On the one hand, you could say it [would have] less of an impact because we’re already in a more defensive posture due to the recession,” said Dan Goure, vice president of the Lexington Institute, a nonprofit public-policy research organization. “On the other hand, we’re closer to the edge so we have fewer resources.”

Rickards was more unequivocal, saying flatly, “It definitely raises the stakes which could play out in some financial warfare scenarios.”

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World Economy In Severe Recession, IMF Says

The International Monetary Fund on Wednesday slashed growth forecasts for every major country and urged governments to take forceful action to ensure the world economy’s recovery from a severe recession.

In its latest World Economic Outlook, the IMF said the global economy would likely contract 1.3 percent this year in the deepest post-World War Two recession by far.

Growth is set to re-emerge at a sluggish 1.9 percent next year but the pick-up depends on aggressive measures to repair a poorly functioning financial system.

“The longer this goes on, the longer and the deeper will be the recession,” IMF chief economist Olivier Blanchard told a news conference.

Just three months ago, the IMF had projected global growth of 0.5 percent, although last month it warned of a deep recession.

The Washington-based institution said it revised its forecasts downward because financial markets appear likely to take longer to stabilize than it had thought earlier.

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Is The US Russia?

Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point.

“In its depth and suddenness,” argues Prof Johnson, “the US economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets.” The similarity is evident: large inflows of foreign capital; torrid credit growth; excessive leverage; bubbles in asset prices, particularly property; and, finally, asset-price collapses and financial catastrophe.

“But,” adds Prof Johnson, “there’s a deeper and more disturbing similarity: elite business interests – financiers, in the case of the US – played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.” Moreover, “the great wealth that the financial sector created and concentrated gave bankers enormous political weight.”

Now, argues Prof Johnson, the weight of the financial sector is preventing resolution of the crisis. Banks “do not want to recognise the full extent of their losses, because that would likely expose them as insolvent … This behaviour is corrosive: unhealthy banks either do not lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and, as it does, bank assets themselves continue to deteriorate – creating a highly destructive cycle.”

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Communities Print Currency

A small but growing number of cash-strapped communities are printing their own money. Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses.

The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.

Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.

Ed Collom, a University of Southern Maine sociologist who has studied local currencies, says they encourage people to buy locally. Merchants, hurting because customers have cut back on spending, benefit as consumers spend the local cash.

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Unemployment - 13 Million Jobless

Unemployment zoomed to 8.5 percent last month, the highest in a quarter-century, as employers axed 663,000 more workers and pushed the nation’s jobless ranks past 13 million. The hard times were only expected to get harder — a painful 10 percent jobless rate before long.

The current rate would be even higher — 15.6 percent — if it included laid-off workers who have given up looking for new jobs or have had to settle for part-time work because they can’t do any better. That’s the highest on record for that number in figures that go back to 1994.
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Tent City For Homeless Moving To California Fairgrounds

California Governor Arnold Schwarzenegger said a make-shift tent city for the homeless that sprang up in the capital city of Sacramento will be shut down and its residents allowed to stay at the state fairgrounds.

Schwarzenegger said he ordered the state facility known as Cal-Expo to be used for three months to serve the 125 tent city residents, some of them displaced by the economic recession. The encampment may be shut down within a month, said Sacramento Mayor Kevin Johnson. The move comes after the Sacramento City Council last night agreed to spend $880,000 to expand homeless programs.

“Together with the local government and volunteers, we are taking a first step to ensure the people living in tent city have a safe place to stay, with fresh water, healthy conditions and access to the services they need,” Schwarzenegger said in a statement. “And I am committed to working with Mayor Johnson to find a permanent solution for those living in tent city.”

California, home to one of every eight Americans, has been particularly hard hit by the housing market collapse after many residents turned to exotic mortgages to afford homes. The tent city, which has long existed along the banks of the America River, gained national attention last month when some of its recently homeless residents were featured on the Oprah Winfrey Show.

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Is This The End of America?

Helicopter Ben Bernanke’s Federal Reserve is dropping trillions of fresh paper dollars on the world economy, the President of the United States is cracking jokes on late night comedy shows, his energy minister is threatening a trade war over carbon emissions, his treasury secretary is dithering over a banking reform program amid rising concerns over his competence and a monumentally dysfunctional U.S. Congress is launching another public jihad against corporations and bankers.

As an aghast world — from China to Chicago and Chihuahua — watches, the circus-like U.S. political system seems to be declining into near chaos. Through it all, stock and financial markets are paralyzed. The more the policy regime does, the worse the outlook gets. The multi-ringed spectacle raises a disturbing question in many minds: Is this the end of America?

Probably not, if only because there are good reasons for optimism. The U.S. economy has pulled out of self-destructive political spirals in the past, spurred on by its business class and corporate leaders, the profit-making and market-creating people who rose above the political turmoil to once again lift the world out of financial crisis. It’s happened many times before, except for once, when it took 20 years to rise out of the Great Depression.

Past success, however, is no guarantee of future recovery, especially now when there are daily disasters and new indicators of political breakdown. All developments are not disasters in themselves. The AIG bonus firestorm is a diversion from real issues , but it puts the ghastly political classes who make U.S. law on display for what they are: ageing self-serving demagogues who have spent decades warping the U.S. political system for their own ends. We see the system up close, law-making that is riddled with slapdash, incompetence and gamesmanship.

One test of whether we are witnessing the end of America is how many more times Americans put up with congressional show trials of individual business people and their employees, slandering and vilifying them for their actions and motives. And for how long will they tolerate a President who berates business and corporations as dens of crime and malfeasance? If the majority of Americans come to accept the caricatures of business as true, then America is closer to the end of its life as a global leader, as a champion of markets and individualism.

But America is at risk in other ways, especially in the technical business of setting and executing policy. The presidency of Barack Obama has set out on a course that has no precedent in U.S. history. Franklin D. Roosevelt, whose New Deal transformed the U.S. economy during the Great Depression, pushed America off on a sharply different political and ideological course. The Obama administration is different in many ways, not least in its supreme self-confidence in its methods and objectives.

Reform of health care, environmental policy, education, energy, banking, regulation — every nook and cranny of the U.S. economy has been put on alert for major change. Expansion of government spending, plunging the U.S. into unprecedented deficits, is without parallel. In economic policy, through regulation and control of energy output, financial services and monetary expansion, the U.S. government has embarked on a fundamental reshaping of America. It is designed, in short, to bring on the end of America.

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