hanson001

Wall Street Breakfast: Must-Know News

"The U.S. dollar is safe as the world's reserve currency for now, but China took the first step towards a new reserve currency by agreeing to buy $50B of the IMF's Special Drawing Rights."

From my understanding of SDRs, they are made up of a basket of currencies of which the U.S. dollar makes up around 45% of the basket. The IMF can change the weight of the dollar (in the basket) based on exchange rates. If you purchase these, are you really diversifying away from the U.S. dollar?

If China wants diversification of its reserves why not just buy the other major currencies in the basket (from Europe, Japan, and Great Britain) in the currency market? Is the IMF the new satan?

It makes no sense for China to desire a weaker dollar however. Like Japan, it's in their interest to have a strong dollar and thus great dollar reserves. This closes the trade imbalance loop and keeps their goods and services affordable to U.S. consumers, though I understand they worry about their dollar investments depreciating. Still what do you do? If I were China, I would purchase hard U.S. assets with that ocean of dollars. It looks like a perfect time for them to be shopping.

Wall Street Breakfast: Must-Know News

I was looking for the G20, when they met some months back, to come out with a coordinated stimulus package. Cerntainly they would see the importance of this coordination given the globalization that has taken place and the danger of trade wars given this global recession. It didn't happen.

Eventhough I really believe that equilibrium will eventually take place with the bad businesses going chapter 11 in the long-run, I would love to see a global Keynesian-type stimulus package just once in my life time. I would be Keynesian, if every country had net savings and not so much debt. That's why the Keynesian model, I believe, will never work.