Saturday, March 28, 2009

Governor Zhou's Proposals and Geithner's reaction - the World's Future Reserve Currency System

Zhou Xiaochuan, Governor of the People's Bank of China made concrete, long term proposals to reform the international monetary system. Timothy Geithner's reactions to Governor Zhou's proposals caused a big stir amidst market participants. One of the constraints that leaders have while writing and speaking in public is that issues with strong geo-political overtones, especially those that touch on or highlight international competition or conflict; need to be discussed indirectly. The purpose of my essay below is to present the implications of Governor Zhou's proposals in a slightly more transparent manner so that market participants can understand more clearly and draw the right conclusions to guide their decisions. At this link you can watch the full video of Geithner's remarks at the Council on Foreign Relations.

Wednesday, March 25, 2009

The Hollywood Economy

Here's an interesting article by Gloria Goodale in the Christian Science Monitor on America’s new-found obsession with summer blockbusters. Michael Cieply in the New York Times also wonders at Americans flocking to movies in the downturn.
And here’s a link to weekend by weekend box office numbers for late 2008 and early 2009.
And here's another article on the movie ticket boom from boston.com.

Monday, March 16, 2009

If Americans don't consume, will global trade crash and burn to the ground?

A couple of comments I made on another blog page:
One of the big lenses through which most Americans view the world’s trade is very approximately as follows: “If Americans don’t consume, global trade will crash and burn to the ground.” I expect that Fabius Maximus would have followed the reasoning in Brad Setser’s explanation for China’s February trade data. China’s exports are showing a decreasing year on year rate of decline in February versus January. The Chinese Lunar New year dates are used by Setser, Macroman, and other commentators to explain this trend. They’re unable to accept that China’s overall export volumes are not responding as expected to the fall in US aggregate demand.Another lens through which several people view the US status is that might be possible to reduce the import dependence through a “divide and rule” policy. For instance, one of the themes I’ve come across is that you can massively do away with imports from China through tariffs, etc, while the oil-exporters continue to hold dollar assets. Thus a currency crisis is prevented, and an imaginary “rapid and orderly rebalancing” can ensue, even as millions more are laid off abroad and political crises emerge there. The divide and rule advocates are unable to see the new alliance amongst the Eurasian powers, consisting mainly of Germany, Russia and China. Despite various differences amongst countries, the US dollar hegemony has become a rallying cry, and the US is now more widely seen in the world as the common enemy of all. (246 words)
What FM seems to be thinking about is a gradual import substitution, sector by sector, whatever. This is radically different from the “rapid and orderly” fantasies.The ruse here is very simple. Most people, unless they’re specialized in economics, or naturally very bright, have a belief that doing away with imports will result in higher local employment. For instance, people seem to imagine that, if you ban imports from China, local companies will come up rapidly, and local people will get jobs to manufacture things imported from China. The fact is that real wages of US workers are much higher than almost anywhere else. Consider a situation where all kinds of items, from textiles, nail clippers, electronics, etc are produced locally, and have to be priced accordingly. This provides two choices; either reduce the wages of US workers, or increase the prices of those goods. Neither of these choices results in a better economy or a better standard of living for people. Apart from reducing people to consuming only the barest essentials, the other effect is that aggregate employment will drop drastically. There’s no way to employ lots of high-paid Americans and hope to sell the same volumes at high prices. If you don’t pay the Americans well enough, despite lower prices, they won’t buy so much, so the factories will be unviable. As for hoping to increase exports, which country will buy US exports in the presence of a huge US Tariff? (245 words)

Saturday, March 14, 2009

Fall of the Berlin Wall - Has the American Empire Collapsed?

Have a look at this video , showing a historic moment - the bulldozer gores into the Iron Curtain on the Bornholmer Strasse. And here's the official video from BBC archives.

Thursday, March 12, 2009

Dollar Funding of Foreign Banks - some notes

I looked at line item 5) in the TIC data on “Claims on Foreigners by Type and Counterparty”. The item is called “Foreign Banks, including own foreign offices”.The claims peaked at $2.170 Trillion in August 2008. The claims declined to $1.937 trillion by December 2008, the latest data available at the link below. The decrease of $233 billion in claims payable in dollars by foreign banks and foreign branches of US banks is better reflected in the TIC data.Also, the level of around $2 trillion tallies more closely with the BIS estimate of the dollar funding gap faced by foreign banks. The total liability of US banks to foreign banks by end 2008, $ 637.6 b is probably not reflective of the total amount of dollar funding circulating in foreign banking systems.
http://www.treas.gov/tic/bctype.txt
@Brad: The negative liability line probably represents transfers from branches of foreign banks located in the US to their branches outside the US.Liabilities of US Chartered banks to foreign banks grew from $293.8 b at the end of 2004 to $637.6 b at the end of 2008. This growth creates a picture of increasing borrowings of US banks from foreign banks. Also, the growth in US banks liabilities to foreign banks doesn’t explain the increase in liabilities of foreign bank branches to foreign banks. US Banks liabilities to foreign banks grew from $ 420.3 b at the end of 2006 to $478.2b at the end of 2007, an increase of only $ 57.9 b. The liabilities of foreign branches to foreign banks grew from -$255.3b to -$424.50b between 2006 and 2007, an increase of $ 169.20 billion in owings from foreign banks to their branches here.I remember seeing a line item in the TIC data reflecting something like claims on foreign banks payable in dollars.I think that might be a better indication of the amount of dollar loans not rolled over/withdrawn from foreign banks.

Brad: the combined assets of the broker-dealers and funding companies rose by around $325b (if I got the math and netting right)

Me: From L129 and L130 I got an increase of $326.60 b. I took the funding cos investments in broker dealers out of the total assets for 2008 and 2007. The difference could be rounding.

Tuesday, March 10, 2009

IMF quotas analysis with links

The link below has the voting power shares at the IMF.
http://www.imf.org/external/np/sec/memdir/eds.htm
In simpler terms, a voting/quota share determines the amount of forex that each country is eligible for out of a total increase in SDRs. SDRs are electronic credits from the IMF to countries, that can used for foreign exchange. This is like an equity stake that each member country gets in IMF combine.
The link below takes you to an FT Op-ed by Edwin M. Truman, after he took office as the US Treasury’s IMF person. (Title: ‘How the IMF can help save the world economy’)
http://www.ft.com/cms/s/0/ccafa8d4-09b8-11de-add8-0000779fd2ac.html
And here’s a link to another Op-ed by Ted Truman on IMF Reform:
http://www.petersoninstitute.org/publications/opeds/oped.cfm?ResearchID=1106

Ted Truman proposes overall, an increase of $250 billion in the world’s foreign exchange through SDR credits from the IMF. And, somewhere between 5 and 10 percent of voting rights will be re-distributed away from “traditional industrial countries” to others (as a best case).

Currently the United States has 16.77 % of IMF voting rights, and China has 3.66%. Australia has only 1.47%. Geithner was the US Treasury's representative to the IMF during the 1998 Asian crisis. He personally made sure with his program then, that all those countries would learna lifelong lesson not to depend too much on foreign loans, and to build a large enough forex reserve.

IMF Quotas

The IMF’s list of Directors and Voting Power provides data on the IMF Quotas.

Monday, March 9, 2009

For reference - buffer against possible censorship by Brad Setser

Consider this confusing sentence from the Baba/Ramaswamy paper:
“US banks’ need for European currencies is much smaller because US banks have leveraged their domestic operations with foreign assets much less.”
When you’re telling lies with statistics, it requires the use of complicated terminologies with clever twists in them as well. Such as, for instance, Brad Setser’s phrase “financing the US current account deficit”.
There is, in fact, no such thing as a European bank “leveraging domestic operations with foreign assets”. The more you think about this, the more confused you will be.The financial laws of gravity are simple. A global bank will source funds where interest rates are low; and lend where interest rates are high. Given that both short term and long term rates were much lower in the US, European banks borrowed in dollars and lent in local currencies.“Interbank market” is a euphemism for a bank HQ’ed, say, in Germany, borrowing USD from a local US bank. When this type of source is disrupted, the dollar funding can’t go on any more.Secondly, the existing USD loans weren’t rolled over.Which is why there had to be inter-central bank currency swaps.Apart from the US and the UK, I haven’t seen many reports of retail mortgage borrowers in any geography defaulting in large numbers. Of course, a liquidity crisis can transform into a solvency crisis rapidly.But the BIS papers are a clever attempt to confuse readers on the topic of “European banks’ need for dollar funding”. That ‘need’ developed as a result of lower US rates; and persisted due to non-rollover of existing dollar debt.

Reasoning out how the crisis spread around the world

The BIS paper on the dollar funding shortage doesn’t clearly explain how the crisis was transmitted from the United States to Europe.It’s easier to begin with understanding as to how the American problem was transmitted to different emerging markets. For several years emerging markets around the world had high interest rate regimes and had good growth due to secular strucutural changes in their domestic economies. Banks headquartered in New York,London made out loans denominated in USD to say, banks headquartered in BRIC countries. Rolling over the shorter term lower interest rate USD loans was the source of funding for a number of banks in the BRIC countries, who were able to profit from the interest rate spread across the currencies. Secondly a number of foreign institutional investors held equities in these markets, sometimes more than 20% of the total local market cap. These investments were made by using the integration of i-banking and commercial banking; and used the same source of funding - the New York/London interbank/FX Swap/Central bank dollar funding sources.Once the credit crisis broke loose in the US, the disruptions led to a vary large correction in these exchanges, and a local liquidity crisis due to inability to roll over the USD loans.The BIS paper classifies banks by their headquarters in different European countries. It totals up the “dollar denominated claims” of those banks, and totals up their “local currency assets”. Then it shows that the excess of the dollar denominated claims over the local currency assets was funded through the above three sources of USD funding.There are two important aspects here. A “dollar denominated claim” might perhaps be held in any geography, and not only in the US. This is because banks might lend to say I-Banks that might then go and invest in EUR denominated equities. Or a bank HQ’ed in Germany might make out a dollar-denominated loan to a bank HQ’ed in Eastern Europe; and the Eastern European bank might then lend to the local emerging market in its own currency. And so on.This requires a lot of further analysis and thinking. To be continued…

Brad Setser propagates H1B myths by blocking visa info at his blog

In the middle of another discussion some commentators at Brad Setser's blog started discussing BofA's decision not to recruit foreigners on H1B any more. Specifically the discussion was from some people with European MBAs. I made a comment highlighting the problems associated with the H1 B visa. Namely, the inordinate amount of time it takes to get basic employment freedom in the United States - the defender of the free world. Also, the near bonded labor status of people working on H1B visas.
Also, I highlighted the highly expensive nature of any kind of technical training in the US, and the lack of programs in US corporations to improve skills of workers. Thirdly, I highlighted the bloated bureaucracy in most American Fortune corporations, and compared them unfavorably with State run bureaucracies in countries like India.
Brad Setser had no problem with wide eyed foreigners breathlessly discussing Bank of America's decision not to recruit bonded laborers on H1Bs. But as soon as some real information about the evil H1B visa modern slave-trading scheme was made available to his reading public, he deleted the comment.
H1B visas are just a form of modern slave trade. You get a H1B visa, then every time you think of changing your job, the new employer has to pay $10,000 to transfer it.Secondly, you can’t change your job without losing status if you have a parallel employment based immigration petition.It takes something like 7-10 years before you can get a permanent residence on this track. Then, another 5 years of maintaining residence before they finally give you American citizenship.Meanwhile anything from 10 hours to 15 hours of every weekday of your life is mortgaged to the folks who filled in your H1B forms. And in a recession if you lose your H1B job and stay back in the US to look for another one; you could end up arrested, jailed and tortured by the Homeland Security Police.Immigrating to the US is a good way to lose your job flexibility; also most people working in the US don’t have access to train for new skills; you become a typical overspecialized American worker. What you knew technically when you landed in the US is what you’ll know 15 years later, when you get an American passport.There are some chances that you can become a typical American corporate bureaucrat meanwhile. American Fortune Company bureaucrats are technically behind even bureaucrats in Indian State Governments manning Animal Husbandry departments. Using a blackberry is a skill you can pick up in any country in less than a month; and that’s just about what you can learn professionally by working in the US.

Saturday, March 7, 2009

More on the US Dollar Shortage in global banking

As part of its latest quarterly review, the BIS has examined the shortage of US dollars in the international banking system.
Excerpts:
"
Global banking activity had grown remarkably between 2000 and mid- 2007. As banks’ balance sheets expanded, so did their appetite for foreign currency assets, notably US dollar-denominated claims on non-bank entities, reflecting in part the rapid pace of financial innovation during this period.
European banks, in particular, experienced the most pronounced growth in foreign claims relative to underlying measures of economic activity.
We explore the consequences of this expansion for banks’ financing needs. In a first step, we break down banks’ assets and liabilities by currency to examine cross-currency funding, or the extent to which banks fund in one currency and invest in another (via FX swaps). After 2000, some banking systems took on increasingly large net on-balance sheet positions in foreign currencies, particularly in US dollars. While the associated currency exposures were presumably hedged off-balance sheet, the build-up of large net US dollar positions exposed these banks to funding risk, or the risk that their funding positions could not be rolled over.
To gauge the magnitude of this risk, we next analyse banks’ US dollar funding gap. Breaking down banks’ US dollar assets and liabilities further, by counterparty sector, allows us to separate positions vis-à-vis non-bank end users of funds from interbank and other sources of short-term funding. A lowerbound estimate of banks’ funding gap, measured as the net amount of US dollars channelled to non-banks, shows that the major European banks’ funding needs were substantial ($1.1–1.3 trillion by mid-2007). Securing this funding became more difficult after the onset of the crisis, when credit risk concerns led to severe disruptions in the interbank and FX swap markets and in money market funds. We conclude with a discussion of how European banks, supported by central banks, reacted to these disruptions up to end- September 2008. "

...
On the European Banks' reactions to the crisis:
"
Banks reacted to this shortage in various ways, supported by actions taken by central banks to alleviate the funding pressures. Since the onset of the crisis, European banks’ net US dollar claims on non-banks have declined by more than 30% . This was primarily driven by greater US dollar liabilities booked by European banks’ US offices, which include their borrowing from the Federal Reserve lending facilities. Their local liabilities grew by $329 billion (13%) between Q2 2007 and Q3 2008, while their local assets remained largely unchanged.
This allowed European banks to channel funds out of the United States via inter-office transfers (right-hand panel), presumably to allow their head offices to replace US dollar funding previously obtained from other sources.
"

Friday, March 6, 2009

Ted Truman and new IMF Dreams - watch this carefully!

At this post on Dr. Paul Krugman's blog, Ted Truman is reported to have joined the US Treasury to reform the IMF. An article on Ted Truman's joining the Treasury has links to his writings. Hmm...let's see what Ted Truman has been advocating for the IMF.

Thomas Hoenig, President of Kansas Fed - mulls pre-privatized "bridge bank" resolution of insolvent US banks

Calculated Risk reports on the Koenig speech with characteristic alacrity.

Dr. Brad Setser on Sovereign Wealth, Sovereign Power and Foreign Official Agency Purchases

Here's an extract from Dr. Brad Setser's paper titled Sovereign Wealth and Sovereign Power. (the emphasis is mine)
"
For U.S. policymakers today, complacency is tempting because of comforting arguments that it is not in creditors’ interests to precipitate a crisis. One comforting argument is that it would take a decision by a major creditor to dump all dollar reserves to cause a run on the dollar — and that this sort of decision is so drastic as to be unlikely.
But history contradicts this argument. During the Suez crisis, both British chancellor Harold Macmillan and Prime Minister Anthony Eden were convinced that the U.S. government was behind the run on the pound. But the U.S. government actually reduced its sterling holdings by only four million pounds—or around $11 million dollars—between the end of September 1956 and the end of December, a fraction of the $450 million drain from September through November with which HM Treasury had to contend.43 The United States did not need to sell pounds to put pressure on Britain, just as Russia, China, or Saudi Arabia might not need to sell dollars to put pressure on the United States today. As W. Scott Lucas writes: "The Americans did not have to sabotage the pound to influence Britain ... they merely had to refuse to support it."
Contrary to what the comforting narrative might suggest, a country seeking to use its holdings of dollars to influence U.S. policy has options that fall short of the "nuclear option" of dumping large quantities of dollar reserves.
A creditor government could sell holdings of "risk" assets and purchase "safe" U.S. assets, creating instability in certain segments of the market. This could be done without triggering the appreciation of its own currency against the dollar or directly jeopardizing its exports.
- A creditor government could change how it intervenes in the currency market. A country, for example, could halt its accumulation of dollars without ending all intervention in the currency market if it sells all the dollars it buys in the market for other currencies.
– A creditor government could stop intervening in the currency market, halting its accumulation of foreign assets, whether in dollars or other currencies.
– A creditor government could halt its intervention and sell its existing stocks of dollars and dollar-denominated financial assets, the "nuclear option." If it held a large equity portfolio, this could include large stock sales.
"
In this essay at his blog Brad Setser says "And now even government-backed Agencies are too risky. " (He's discussing the Russian Federation's 2008 action to offload all holdings of Agencies, while accumulating increased volumes of Treasuries.)
There have also been other essays from Dr. Brad Setser, comparing the Fed's willingness to take a higher level of risk, to provide stability during the crisis; against the de-stabilizing influence exercized by foreign central banks, such as the People's Bank of China when they dumped Agencies during the crisis. (I'll try to provide more links to Brad's blog essays and excerpts as time permits)
While he doesn't explicitly state this in his latest essay, Dr. Brad Setser has been advocating increased Agency purchases from foreign central banks for some time now.
If foreign official creditors were excessively concerned about exercising influence on US policies; they could have done that by making conditions in return for continued lending to the US Agencies in 2008. Setser's data clearly shows they massively exited their Agency holdings, and exchanged them for Treasuries. Since there is no information about any conditions made by them that the US Government did not meet, the foreign official Agency debt sell off is an indication that foreign official creditors, in 2008, did not pursue the agenda postulated in Dr. Brad Setser's paper on Sovereign Wealth and Sovereign Power.
In September 2008, the Henry Paulson announcement of a conservatorship for the Agencies made it abundantly clear that though they are known, till date as "Government Sponsored Enterprises" or alternatively as "Agencies" of the US Government; in fact, they are private entities enjoying only a limited guarantee from the US Treasury. Clarification of the non-Governmental status of the Agencies, clearly, was the main cause of the foreign official sell-off in Agencies.
If foreign central banks were to buy Agencies now, that would in fact signal some nefarious intentions on their part, as long as you still accept the risk of foreign official creditors wanting to use their creditor status to influence US policies. So I see a discrepancy here between the recognition of that risk in Brad Setser's paper linked above; and his on going advocacy of a stabilizing influence from foreign official Agency purchases.

Thursday, March 5, 2009

Trans-Pacific Geopolitical Relations

Brief Background:
The war in Iraq, that is still being unwound, led to the loss of life for an estimated more than 100,000 Iraqis, and more than 4,000 US soldiers. The war was provoked by what turned out to be wrong information indicating a massive build up of WMD in Iraq, and suspicions that the Iraq regime was complicit in the 09/11 attack. This war contributed a great deal to the failure of the incumbent and the Republican candidate in the recent US Presidential elections. The process by which this war came about has been highlighted in various forums, as being a simple result of wrong judgements and evaluations by military intelligence experts.
Another, separate, unconfirmed, reason postulated is that the war was provoked deliberately to deal with the Iraq regime's actions to change the composition of their reserve currency from USD to EUR; and to propose exports of their crude output denominated in a currency other than USD; thereby threatening the US geopolitcal influence over the Middle East and the petroleum trade.
Similar ideas about moving away from the USD status as a reserve currency, and the denomination of international trade settlements in USD have been expressed by the leaders of Iran,Germany,Russia, France and Venezuela, according to various press reports. Also, there are reports that China plans to get the RMB accepted in its region as a reserve/trade settlement currency in a very limited way. At the same time, with the exception of Iran, the intention of the other central banks seems to be to gradually re adjust away from holding mainly USD to holding a combination of USD and other currencies.
In this context, it is likely that the USD exchange rate will gradually decline, leading not only to a more multipolar geoeconomic order, but most importantly, an opportunity for the United States to gradually rebalance its trade with several large economies. If things go according to plan, the United States will most probably emerge from the 2008 crisis with a much stronger economy, increased exports, a more feasible and sustainable USD exchange rate; and still retain its military strength and all other aspects of soft power and geopolitical influence.
Note 1) While most people write very dreamily about a "New World Order" I tend to think that the only notable changes are likely to be economic, rather then geopolitical; a weaker dollar, and increased US exports to other countries, in my view, increase US influence rather than decrease it.
2) Though we're already in the third month of 2009, I'm yet to accept the popular notion that the rest of this year will continue to be a 'crisis'. In my view, even the emergence of a clear direction towards economic recovery should lead to declassification of the global economy as being in a 'crisis' of some sort. Recessions are in the mind, as Dr. Amartya Sen pointed out recently. (Amartya Sen is well known for proving, for instance, that many aspects of social development, such as literacy, are independent of economic development, such as per capita GDP' through comparison of these variables across different Indian states.Also, his research in economic history on the Bengal Famine showed that in fact, there was no physical shortage of foodgrains during that famine. Traders hoarded foodgrains due to the widespread belief and expectation of a famine, leading to massive starvation and loss of life for humans and cattle, in the his analysis of the history. If cows can die in the Bengal Famine history, as Amartya Sen showed, due an imaginary shortage of food grains in traders' minds; US banks can refuse to lend money to anyone, due to an entirely imaginary 2009 Global Depression)
To be continued ...

RMB as a reserve currency, the size of China's stimulus and a comment on current account imbalances

Here's a link to my post below on the RMb as a reserve currency.
Also here's a link to Dani Rodrik's accurate statement of world stimulus packages.
China's stimulus is $586 billion, or 6.9% of GDP; the US stimulus is $787 billion, or 5.5% of GDP.

Here is a comment I made to one Rudiger von Arnhim at Brad Setser's blog:
@Rudiger von Arnhim: I noticed you have a Ph.D in economics from a US university, specializing in international economics. Is it possible for you to define “external imbalances” for me? e.g. if US consumers import 10 widgets from China, and China imports 1 widget from the US. If exchange rates adjust freely, will this result in an “external imblance”?When exchange rates DON’T adjust, who’s to blame; the petrodollar recycling scheme since 1971, the 1944-1971 Bretton Woods, or China’s ‘dollar peg’ since 2000? And where will exchange rates be if you remove China’s dollar peg?Who asked the Federal Reserve not to regulate on loan eligibility by monthly income? Was that the People’s Bank of China?When RMB strengthens against USD, how much will US exports increase to China, or elsewhere?There are 20 millions jobless and social-security-less workers in China as of today, by Government estimates. Has this led to even ONE more American job anywhere?
Update: I made some changes to this post and removed another one I made after this.

RMB as a Reserve Currency: Links to two reports: Reuters and China Daily

Sources: China Daily, China State Council, Zhao Deming, official in charge of finance in Guangxi province.
China Daily reports internationalization of the yuan

Reuters Report on XE.com about using RMB as a reserve currency

The Dollar Funding Crisis in the International Banking System

Here's a link to this Interesting Paper from the Latest BIS Quarterly Review

PS: The link was posted by an anonymous blogger by nickname RE on Brad Setser's blog page, that is otherwise mainly concerned with current account imbalance propaganda and rarely looks at objective material such as this.

Update: In a comment today Brad Setser says he will comment on the BIS papers/articles about the dollar funding crisis

Wednesday, March 4, 2009

Will the Us dollar get weaker or stronger now?

Here's my view:
Yen and USD-funded carry trades will be put on massively once the credit crunch eases. I’m not sure what level the yen and USD exchange rates will settle down at.As the RMB gets acceptance as a reserve currency, Russia, Germany, France, Iran, Venezuela all continue to shift their forex reserves composition to a combination of RMB, JPY, Russian roubles, EUR, etc. The USD will draw strength mainly from its RMB peg.The US still has a perhaps 4-5 years available to deal with an emerging balance of payments crisis. That period, according to Obama’s plan, is to be used to reduce dependence on imported oil, and build a more skilled workforce that can provide better export performance in a weaker dollar world. These two factors can actually be expected to mitigate the effects of an emerging external finance solvency crisis for the US.In between, there are old-style trade protectionists in the guise of current account imbalance theorists; calling for an immediate disruption to the external financing flow to the US. If this goes through, the US will definitely face a sovereign default before the end of this year or the middle of next year.

PS: I posted this as a comment on Brad Setser's blog. As anybody can see, it is quite relevant to the topic of his blog post today;but you should wonder if he will be able to tolerate such a radical difference with his views.

My comment below has been approved on Dr. Krugman's blog!

Showing, therefore, that I'm allowed there ...

Tuesday, March 3, 2009

This Comment at Paul Krugman's New York Times Blog

I just uploaded this comment to Dr. Krugman's post titled hey-who-you-callin-neo-wicksellian?
I read an interesting paper on quantitative easing written by a couple of economists at the Fed. Apart from citing the Japanese case, they also go into something called a “floor price system”, that was an innovation of the New Zealand Central Bank. It would be nice to get some further explanation of the use of the short term interest rate and other factors that can be used to influence money supply. Here, I notice the argument that if the money supply increases in the presence of a ZIRP, you’re just substituting cash for short term debt. This is something I’ve never come across and it would really be useful if this can be expanded on further, either by Dr. Krugman or other knowledgeable commentators.— Indian Investor

This comment has nothing controversial in it; it just asks for further explanation that would be useful to understand better. There's a surprising change today. Previously for several days, as I noted before, my comments there wouldn't appear in the status "awaiting moderation" after I uploaded but today this comment does appear in that status!

The Indian Economy

The latest press release from the Central Statistical Organization, which is part of the Ministry of Statistics and Programme Implementation, Government of India contains the latest official estimates of GDP for the quarter ended December 2008.

I recommend reading the complete 6-page press release.Following are the components of GDP on the output side; the percentages of GDP are calculated from the GDP at market price estimates for Q3 FY 2008-2009 at current prices.

Agriculture, Forestry & Fishing 20.98%
Mining and Quarrying 2.53%
Manufacturing 14.79%
Electricity, Gas and Water Supply 1.52%
Construction 8.49%
Trade, hotels,transport and communication 24.40%
Financing, insurance, real estate and business services 13.60%
Community, Social and Personal Services 13.67%

What views do Michael Pettis and others censor?

1) I expressed a view at Michael Pettis blog that China has, in fact bottomed out, when he wrote his essay on “Hooray! China has bottomed out” (which was a sarcastic title). Immediately, I was banned from the Michael Pettis blog! I didn’t even realize it for some time, but his website just wouldn’t load on my system. I thought this was because of some temporary problem with his site. Then one day I tried loading his site from other systems and it was perfectly accessible.And note that I hardly made 2-3 comments in all at Pettis’ and none of them had anything with good or bad manners.
2) At Paul Krugman’s blog on the New York Times web site, I pointed out that nationalizing US banks can make unfriendly foreign governments nationalize the overseas subsidiaries of those banks. Prior to making this comment, my comments - again, very few - would appear as ” awaiting moderation” by default. Some of them would later get approved and published or not; but all of them on my upload would appear as "awaiting moderation". After I uploaded this view on bank nationalization, I no longer see my uploaded comments pending moderation at Krugman’s New York Times blog.
Both of these illustrate to me that I’m touching on topics that are perhaps too sensitive. Pettis probably has an agenda to propagandize against the Chinese exchanges rising, and Krugman to demand nationalization of banks. Though I’m just an individual investor my views were too controversial to be allowed on those sites.
In Setser’s case it appears to me that the objection is from the Council on Foreign Relations mandarins, and less from Setser; though again I could be wrong.
In any case, one thing I’m very sure of is that my particular IP has been pinpointed and banned by Pettis.
Update: I've edited this post to reflect that Paul Krugman writes for the New York Times, so the newspaper might be exercising at least as much control over content at his blog as he does. This insight is based on the comment below.

Brad Setser Censors pro-equities comments

Dr. Brad Setser runs a propaganda blog where the main point is something that goes like:
1) There can't free trade, there can only be 'balanced trade'.
2) Even if the US dollar is just a legal tender currency, China accumulates US dollars in lieu of gold, in a mercantilist manner.
3) Countries use money to 'finance the current account deficit', even when they're spending it mainly on military contracts.
Here are some objectives views about markets; these are just a small subset of various opposite views that have been censored by Dr. Setser. Since Setser runs a propaganda blog, he can't afford to have views opposing his malinterpretations gain traction at his blog page.
The Nifty peak was around 6300 in 2008, and its trough was at 2500 which was hit in October and then again in November after a dead cat bounce. The Q3 FY 2008-2009 results didn’t lead to fall below the October lows. Today’s Sensex close is lower than its October low and the Nifty is a few percent above 2500 because of different weightages.What caused the fall from 6300 to 2500? India’s exports, both merchandise and services have fallen. Imports, on the other hand have been rising, especially fertilizer and capital equipment.The real reason for the Nifty fall was that FIIs steadily sold out each month in 2008, while Domestic IIs were net buyers each month. The last two days’ fall is also a result of massive FII outflows.The INR/USD has shown a strengthening of USD against INR. Private sector banks like ICICI have something like 50% of their borrowings abroad. That has been unwinding, and not rolled over. Add up the effect of not rolling over foreign currency loans, and a sell-off of FII holdings in local equities; In my humble opinion, that explains much more of the fall in equities and weakening of the INR than a fall in real economy exports, etc.I’m expecting a functioning credit system to emerge in the US, which will lead to the reverse of the above flows.Outstanding credit has been growing in India, just as it has been in China. India is an exception to the theory that emerging markets grew mainly through exports, especially exports to the US.India’s external sector has been making a net negative contribution to GDP, while the GDP has been growing at 8-9%. While falling exports will have a negative effect, India’s GDP growth wasn’t ‘export-led’ by comparable standards.Also, this should make you think about the component of China’s growth that came from domestic expansion, though China does have a much larger share of exports in GDP, and a sizeable trade surplus, justifying the notion that exports contributed a lot to China’s GDP growth.All this doesn’t mean that India is shining. The policy makers in every country give statistical nostrums to the people. In a country with millions of uneducated or undereducated people; an agricultural sector that depends on rainfall because of the government’s inability to dig irrigation channels;etc … Consider an African American who is now paid 5 cents a day in addition to food and shelter because Lincoln abolished slavery. When his income grows to 6 cents a day over 5 years, his macroeconomy has grown 8% percent over those years!