The inflation data released by the U.K. showed that CPI has increased to 4 percent. The largest price increase was in INK costs as Mervyn King had to pen another letter to the Chancellor of the Exchequer explaining the price increases maintained during the BOE’s inflation-mandated levels. King has placed himself in a difficult position as he has held rates steady in the face of rising inflation. Governor King’s stance is the same as Bernanke’s. The rise in prices are due to elements that the CENTRAL BANK cannot effect and the inflationary impact is acting as a drag on the consumer. Why ?
Because wages have not kept up and the gap is causing hardship for the average British citizen. During the ’70s when inflation reared its ugly head, unions in both the U.S. and the U.K. had significant power to negotiate wage packages that kept workers at least even with the deleterious effects of inflation. Now that the bargaining power of the workers in the PRIVATE SECTOR have been diminished, it seems that Mervyn and Ben have taken on the role of protecting the working man. The two MONETARY CHIEFS claim that an increase in interest rates would halt growth and negatively affect consumer demand as unemployment resumed its upward momentum.
This is the new conundrum for the central bank chiefs as they fall farther behind the inflationary curve. Yet, the global investors BID up the pound in anticipation of higher U.K. rates. For now we will use the SEPTEMBER 2011 SHORT STERLING contract as our indicator on short-term British rates as it closed today at 0.9856, indicating a 75 basis point rate increase by SEPTEMBER (the 75 basis points are built in to the current contract price).As Mervyn King continues his letter writing campaign, the British yield curve continues to steepen so we will pay close attention as we monitor its effect.
The RIKSBANKEN of Sweden raised its overnight interest rate 25 basis points today in an effort to slow the vibrant Swedish economy. In a statement issued by the bank, it stated the concern regarding rising property prices and increasing levels of household debt. Also, the RIKSBANKEN stated that rate tightening would increase in coming months. This was the fifth rate increase since July 2010 and led to the Swedish krone reaching its highest level to the EURO in ten years. I wonder why central banks have adopted the Greenspan nonsense of raising rates in 25 basis-point increments.
The legacy left by the “maestro” is dangerous as it creates an asymmetry in the markets for we saw how the world’s central banks were quick to cut rates. If central banks are concerned about inflationary pressures enough to raise rates, then do the job and let the markets absorb the impact. If the currency rallies, so be it. The markets will make the needed adjustments and send the banks the message as to how it views its effectiveness. It is time to slay the “GREENSPAN PUT” and restore monetary policy to the elevated status it was given by the “MONETARY GIANT,” Paul Volcker.
In another example of the lack of coordination in U.S. financial policy, the CFIUS denied a take over of a U.S. firm by HUAWEI Technologies of China. This is the second time a HUAWEI deal has been blocked–the previous was 3COM–and this time the Chinese did not back down and are going to force President Obama to make a decision. The Committee on Foreign Investment in the U.S. is a very secretive group that meets under the auspices of the TREASURY. Usually when CFIUS nixes a proposed deal on grounds of strategic national interest, the acquiring party walks away. Not this time and it has surprised many lawyers.
The Chinese seem emboldened after the promises Obama seemed to convey to President HU Jintao on his recent White House visit. Remember that the Chinese economic battle cry is “MUTUAL RESPECT.” Alright President Obama: The Chinese are calling you out and challenging you to override the decision of your Treasury officials. Game on. If I were the CHINESE I WOULD ALSO BID FOR THE NYSE AND REALLY SHAKE THE FOUNDATIONS OF WESTERN CAPITALISM. THE CHINESE NEED THE EXPERTISE OF U.S. FINANCIAL INSTITUTIONS AND THE NYSE IS ALREADY HOME TO MANY CHINESE LISTINGS. If the U.S. is looking for Chinese sovereign wealth funds to help in AIG, the Chinese may as well raise the ante.
It would also be a litmus test to see if CFIUS is solely anti-CHINA AND ARAB, for it is not the NYSE as great a strategic assets as 3COM or the seaport operations that were desired by the DUBAI WORLD GROUP. Its time to rattle the shackles that have been employed by TREASURY INTRIGUE. LET’S SEE IF THE CHINESE ARE GOING TO TEST U.S. RESOLVE or merely watch as the DEUTSCHE BOERSE tests the possible bias of CFIUS. Nothing could make Senator Schumer more agitated than … the NEW YORK SHANGHAI EXCHANGE .
Tags: 3Com, Alan Greenspan, Ben Bernanke, BOE, central bank, CFIUS, China, CPI, Deutsche Boerse, Hu Jintao, Huawei, Mervyn King, Paul Volcker, Pound, President Obama, Riksbanken, Sweden, Treasury, U.K.
February 16, 2011 at 8:42 am |
So, if the US says NO to Huawei, China will say bye bye to AIG?
February 16, 2011 at 10:18 am |
No not so quick –other ways for the Chinese to counter move—but how well does the G20 play–it makes it a meaningless affair
February 16, 2011 at 4:05 pm |
I see, interesting… FT´s article talking about the possibility of retaliatory moves by China: http://www.ft.com/cms/s/0/f7d582f0-393a-11e0-97ca-00144feabdc0.html#axzz1E9STbzM4
February 16, 2011 at 6:22 pm |
Now you’ve done it. Advising a foreign POWER without registering as a foreign agent. Soon you’ll start seeing dark colored sedans with tinted windows parked on your street….and maybe numberless black helicopters overhead.
On a serious note. I could not agree more, as was thinking the same thing after seeing Schumer’s puss on TV today.
One the biggest mistakes and miscalculations by the political/business class (and most State Department careerists) is not understanding unrestricted warfare, which is well understood by the Chinese Red Army. If they have to, they are prepared to use economic policy (and cyber tactics) as a weapon. We too often make the mistake that when we sit down and talk to them, they think “just like us.”
Dennis Gartman often opines that it is food shortages and suffering in the provinces that overthrows dynasties, and that strikes fear into the political class. That is correct in the intermediate term. But the central Party is not a dynasty. It’s far larger. It’s an economy within an economy, and they have all the guns. Any government that sanctions markets for human organs and body parts, would have no compunction sacrificing a percentage of their population if it were a collateral result from checking a rival to maintain power.
And as for our U.S. military/blue water carriers being the support beam of our “reserve” currency, I think it’s the other way around. Our military power was made possible by a strong currency that supported productive industry and commerce which built the revenue stream to buy several state of the art aircraft carriers. How long can we support a military budget to protect U.S. interests while debasing the dollar? How low can American standards of living go in order to maintain support for a world class police force? I think China is considering that question having looked at the Roman and British models. (And not having forgotten their own very recent experiences hosting western navies.)
Inflation: Unfortunately the professional “investor class” and money managers seem to agree with the Bernanke and the political class, that there is no inflation. The simpleton that I am says that merely stems from the “professional” class not noticing or perhaps not having to care about the cost of a steak dinner, a box of corn flakes, a gallon of regular unleaded, health insurance premiums, or college tuition. Until they see housing prices rise with 95% LTV loans and office occupancy rates of 92% and UAW and Teamster contracts increase by 10%, they’ll keep saying there’s no inflation. Frankly, I think the professionals ought to Google “stagflation.” Monetarism is an attempt at creating perpetual motion. Ok, that’s my Santelli moment.