Reserves Set for $2.8 Trillion Mean Tightening

Reserves Set for $2.8 Trillion Mean Tightening – People’s Bank of China Governor Zhou Xiaochuan ordered lenders to increase funds on deposit at the authority six times in 2010, as the yuan’s interest-rate advantage over the dollar attracted capital that stoked inflation. The yuan may gain the most among currencies in the so-called BRIC nations, rising 5.4 percent by year-end, compared with a 0.8 percent drop for Brazil’s real, a 0.3 percent increase for Russia’s ruble and 5 percent advance for India’s rupee, according to Bloomberg surveys of strategists. “We will probably see a round of pretty intense tightening in the first half,”. “The yuan’s appreciation in 2011, particularly in the first half, should be faster than last year.” The reserves, which exceeded $1 trillion in 2006 and $2 trillion in 2009, will reach $3 trillion by June 30, Premier Wen Jiabao is seeking to sustain the economy’s growth to create millions of jobs each year, while preventing rising prices for homes and food from fueling social unrest

The truth about tax havens: part 2 – The offshore world is all around us. More than half of world trade passes, at least on paper, through tax havens. More than half of all banking assets and a third of foreign direct investment by multinational corporations are routed offshore. An impression has been created in sections of the world’s media, since a series of stirring denunciations of tax havens by world leaders in 2008 and 2009, that the offshore system has been dismantled, or at least tamed. In fact quite the opposite has happened. The offshore system is in very rude health — and growing fast. It is no coincidence that London, once the capital of the greatest empire the world has known, is the centre of the most important part of the global offshore system. The City’s offshore network has three main parts. Two inner rings – Britain’s crown dependencies of Jersey, Guernsey and the Isle of Man; and its overseas territories, such as the Cayman Islands – are substantially controlled by Britain, and combine futuristic offshore finance with medieval politics. The outer ring comprises a more diverse array of havens, such as Hong Kong, which are outside Britain’s direct control but have strong links.

State guilty of ‘delusional behavior’ in slow response to foreclosure chaos, critics say – Fed up with the foreclosure chaos, the New Jersey courts demanded that banks prove the integrity of their home repossession systems or face shutdown. To demonstrate the need for the Dec. 20 order, New Jersey cited flaws in six Florida foreclosure cases, including three in Palm Beach County, as examples. In Nevada and Arizona, attorneys general last month sued Bank of America for a dual-track foreclosure system that offers homeowners hope with a loan modification, while at the same time taking away the home in court. Called deceptive and labeled consumer fraud in the lawsuits, the practice is also prevalent in the Sunshine State. And on Friday, the Massachusetts Supreme Court issued a bombshell ruling against banks’ ability to foreclose on homes – a decision could reverberate nationwide. The moves by other states to address the foreclosure morass has Florida homeowner advocates and defense attorneys asking why more isn’t being done here.

Deepening crisis traps America’s have-nots – There is a telling detail in the US retail chain store data for December. Stephen Lewis from Monument Securities points out that luxury outlets saw an 8.1pc rise from a year ago, but discount stores catering to America’s poorer half rose just 1.2pc.  Tiffany’s, Nordstrom, and Saks Fifth Avenue are booming. Sales of Cadillac cars have jumped 35pc, while Porsche’s US sales are up 29pc.  Cartier and Louis Vuitton have helped boost the luxury goods stock index by almost 50pc since October. Yet Best Buy, Target, and Walmart have languished.  Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs. Yet surely Ben Bernanke’s `trickle down’ strategy risks corroding America’s ethic of solidarity long before it does much to help America’s poor.The US is drifting from a financial crisis to a deeper and more insidious social crisis. Self-congratulation by the US authorities that they have this time avoided a repeat of the 1930s is premature.

So What Else Has the American Securitization Forum Said That is Wrong? Yves Smith – As readers may recall, the American Securitization Forum came out, in what it no doubt thought was guns-a-blazing style, to attack critics of securitization abuses. In particular, the ASF was taking aim at theories of the sort advanced on this blog, and later in Congressional hearings and in a Congressional Oversight Panel report, that the notes (meaning the promissory note, meaning the borrower IOU) in many cases, if not pervasively, had not been endorsed and conveyed as required by the pooling and servicing agreements, which are the contracts that govern mortgage securitizations. Normally, this would not be such a big deal. Contracts are often breached; the usual remedy is to get a a waiver, which sometimes might involve a payment of some sort. But securitizations are particularly inflexible agreements. So given that the PSAs can’t be renegotiated, the securitization industry needs to find a way to argue that everything is hunky dory, despite the ever rising volume of lower court cases in which banks have had trouble foreclosing because borrower’s counsel challenges them to show that they are holders of the note. The big salvo was the ASF’s white paper, published last November, whose argument has been repeated and elaborated a tad. In effect, the white paper ignores the specific requirements of the PSA, and instead argues that “industry practices”, meaning the widespread disregard for contractual commitments, were OK. (We’ve taken apart the paper in previous posts, see here, here, and here)

Satyajit Das: European Death Spiral – Mission Unaccomplished In early 2010, drawing on the military leadership of President George W. Bush, European leaders declared the economic equivalent of “mission accomplished”. A bailout – whoops support! – package of Euro 750 billion had shocked and awed speculators into submission. Like the Bush pronouncement, the European prognosis provided premature. The return of European sovereign debt problems in late 2010, culminating in the bailout of Ireland highlighted the deep seated and perhaps intractable problems of some over indebted European nations.

Portugal and the EFSF: déjà vu all over again – Reuters reports that discussions have started for Portugal to seek emergency aid; size of the package is estimated to be between €50bn and €100bn; EU source say the real test of the system is not Portgual, but Spain; Socrates says no need for EFSF funds, as government was reducing deficit faster than planned; Porguguese opposition leader says Socrates needs to resign if he takes the money; Spain is nervous about its first bond issue of the year this week; Handelsblatt reports that Germany may be ready to expand EFSF ceiling; on Friday, bonds spreads rose across the eurozone, and euro is now at $1.29; Goldman Sachs is optimistic about EU growth; a group of economists at the American Economic Association’s annual meeting say eurozone is condemned to a decade of low growth; Wolfgang Münchau says eurozone crisis may soon be spreading to Belgium; Nicolas Sarkozy seeks US backing for a revision of the global monetary system; Willem Buiter, meanwhile, presents an extensive plan to sort out the eurozone’s crisis, involving a boost of the EFSF and an E-bond. [more]
German dioxin scare spreads to meat – Germany’s poisoned eggs scare has spread to chickens, with investigators now reporting increased levels of cancer-causing dioxin in meat.  Three chickens – out of 15 samples of chicken, turkey and pork sent to the EU Commission – showed a dioxin concentration twice as high as the legal level, it was admitted on Sunday.  The spokesman said the chicken meat had not been sold and that eating it "would not have been harmful in the short term since the contamination levels were so low".  The meat scare follows on from last week’s admission that tainted eggs from chickens that ate feed contaminated with dioxins had entered the UK food chain.  Close to 5,000 farms have been shut across Germany and thousands of chickens culled after feed from a chemical company near Hamburg was tainted.
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