Why world flocks to US amid EURO, Korean War woes

us bond interest rates 1960 to 2002

north korea euro dollar haven

“People have looked at Greece over the last three to four months and now they’re focusing their attention on Spain and its banking sector,” said Aroop Chatterjee. Tensions on the Korea peninsula also buoyed the dollar and yen after South Korea’s Yonhap news agency said North Korean leader Kim Jong-il had told his troops to prepare for combat.”

One of the main reasons that investors flee to the US Dollar and US Dollar denominated bonds is that it is extremely liquid and high volume – so you can buy and sell easily. In comparison, the Canadian market is very small, and so if you buy CAD when it is low, there is nothing to say you could easily sell it again when it goes up. You could end up with no buyers. So the lower CAD is not a sign of economic weakness here – or of much of anything to do with Canada. It is all to do with the US being the world common currency.

The value of any currency is not purely dependent on the state of that country’s economy – it is also dependent on the stability of that country, its ability to raise funds when needed, and on its existing levels of debt and its ability to service that debt. While the US economy is weak, it is still able to raise funds (largely from Asia and Middle East sovereign funds) because it is not likely to default on its debt in the near future (who knows the long term picture!), and so in the near term, investors can get in and out of the US Dollar with a fair degree of safety. Buying US Dollar denominated bonds will cause the US Dollar to increase in value – although it may seem contrary to what you may first think.

Euro falls on debt fears; safe-haven dollar climbs

The euro neared a four-year low against the U.S. dollar and hit a 8-1/2-year trough against the yen on Tuesday after Spain’s weekend takeover of a small bank fanned fears the euro zone’s sovereign debt crisis is spreading.

The dollar and yen rallied as global stock prices tumbled and tensions in the Korean peninsula escalated, prompting investors to flock to the U.S. and Japanese currencies for safety.

The Bank of Spain on Saturday said it had taken over savings bank CajaSur. Although CajaSur is relatively small, analysts said the bailout highlighted weakness in the European banking sector and fueled worries more banks may need to be bailed out at a time when European countries are trying to repair their public finances.

“People have looked at Greece over the last three to four months and now they’re focusing their attention on Spain and its banking sector,” said Aroop Chatterjee, currency strategist at Barclays Capital in New York. Source

This is all because people have been made nervous when they see things that are so grossly out of proportion to what they would expect, they then move their savings nervously around hoping to hedge against any one bad hit. The truth be told though the Euro will settle down and yes the countries within this block will all have to cut back on their social programs and even on the pensions of the people. They created an unworkable model that we not can see has a destiny with failure. So now we try and back track, but the problem is many people are now relying on the numbers of that old system, and it just can not accommodate such numbers.

Korea Won Falls 4.1% as Yonhap Reports Kim Readying for Battle

The South Korean won declined as much as 4.3 percent after the nation’s Yonhap news agency reported that North Korean leader Kim Jong Il ordered military bodies to prepare for battles. The currency weakened to as low as 1,272.45 after Yonhap cited a defector group for the information.

Those who have lived in the communist neighbor’s country, South Korea, obviously know that this saber rattling and the severing of economic ties severely puts a damper on trade between the two countries, and will undoubtedly put many millions more North Korean people already working for starvation wages in the popular joint South and North Korean industrial zone of Kaesong.

us bond interest rates 1960 to 2002

US monetary policy is not what it appears to be

If the Governments were to allow the interest rates to climb back to where they should be, they will make their own debts even bigger. But to the guy who has saved his whole life and set aside a good nest egg, he now can not get enough interest on his money to alow him an kind of reasonable retirement. An example would be someone getting $6,000.00 per year interest on a $200,000 dollar savings, where before all of this crazy low rates this person was getting near $14,000.00 on that same money. This is just what my government policies have done to many people and they have been at this for near 4 years now so they have robbed them of near $40,000.00 and that is a bit hard to take.

“The reality is, that if we put interest rates anywhere near where they ought to be, we would bankrupt most of our financial entities and we’d have a real collapse. We’re never going to have a real recovery until the market lets us have a real recession. Our phony consumer-based economy isn’t viable; it only exists as long as the Chinese and Japanese lend us money to buy their stuff.” Peter Schiff

The low rates do not do anyone any good as they take on more then they can afford when rates go back up, and then whine about losing their homes etc. People have paid more then their share in taxes their whole life and now the government is stealing from them again. So yes, many people are very upset. Many investors have little option now then to take their money and put it in more risky investments and maybe try to get their returns back up or recoup their losses, but then again they could lose it all. There needs to be a happy medium. It looks like now the low rates will stay for now, but the potential for hyperinflation to the likes of Zimbabwe are a very possible reality if central banks keep printing money without enough reserves in their holdings (as is happening now as they are printing money unabated).

As the world’s leading stock markets continue to play stomach-hockey with investors via one triple-digit turn after another, the mainstream community takes solace in this core belief: No matter how uncertain things become, the Federal Reserve can at any moment swoop in to set the economy right.

In reality — the Fed has no such power. This is the revelation of Elliott Wave International’s newest complimentary resource from Club EWI: the 35-page eBook titled “Understanding the Fed.” Including excerpts from the selected works of EWI President Robert Prechter — including his 2002 book “Conquer the Crash” and several past “Elliott Wave Theorist” publications — this riveting report exposes once and for all the most dangerous myths about the Federal Reserve.

Chapter 3 (of the 8-chapter anthology) attends to the “Potent Directors Fallacy” — i.e., the false notion that the central bank is in control of the U.S.’s money, market, and economy — and offers this “Conquer the Crash” insight:

“For recent examples of the failure of the idea of efficacious economic directors, just look around. Since Japan’s boom ended, its regulators have been using every presumed macroeconomic ‘tool’ to get the Land of the Sinking Sun rising again, as yet to no avail. The World Bank, the IMF, local central banks, and government officials were ‘wisely managing’ South East Asia’s boom until it collapsed spectacularly in 1997. In America, the Federal Reserve has lowered its discount rate from 6% to 1.25%, an unprecedented amount in such a short time… What will it do if the economy resumes its contraction; lower rates to zero?

Note: The underlined sentence above was written in 2002. Today, that forecast has come to fruition after the Fed’s rate-slashing campaign since September 2008 has brought rates to the zero level.

Chapter 3 then goes on to explain WHY the Fed’s monetary policy failed to lift the hot-air balloon of the economy out of the violent credit and housing downdraft. Here, the eBook writes:

“The Fed’s ultimate goal is to influence public borrowing from banks. During economic contractions, banks become fearful. At such times, low Fed-influenced rates cannot overcome creditors’ disinclination to lend and/or customers’ unwillingness or inability to borrow. Thus, regardless of assertions to the contrary, the Fed’s purported ‘control’ of borrowing, lending, and interest rates ultimately depends upon an accommodating market psychology and cannot be set by decree.”

2 thoughts on “Why world flocks to US amid EURO, Korean War woes”

  1. Why the world flocks to US ? It is a habit, stupid ! Reenforcing that are the Centres of Power that have vested interest in US and have been emotional dancing partners for the last 4 decades. How do you break such habits? Maybe, people got to see more unemployment, more foreclosures, more bank closing and more food lines ! Every bit of Western Commercialism is based on Hubris, Manipulation, Bait and Switch Tactics and pandering to the baser instincts of human beings of wanting quick easy fixes at the cost of 2 billion people suffering in developing countries world-wide. Every act of Big Corporate Deception is done in well planned slow incremental deviation from the truth that they have trapped humanity to face a bottomless downward spiral for the next 10 years !!! We are now experiencing a World Financial War. People don’t die by bullets. They die by starvation and suicides.

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