Forget carry trades, forget risk appetite: “Changes in the dollar correlate more closely to changes in international reserves than any other variable since 1999.” So China has “far more control over the price of the dollar than the US.”  The US has little control over the dollar, especially treasury secretary Tim Geithner, in spite of his oft-stated desire for a strong dollar, agrees The Economist: “Yeah, right. I have a “strong man” policy under which I intend to become world heavyweight champion. I’m just not planning to do anything about it, like train or fight someone.”

The federal housing administration is less able to cover loan insurance claims than ever before. Its net capital ratio has fallen to 0.53 per cent, well below the statutory requirement of 2 per cent. The FHA says its reserves would still be above the mandated level if it hadn’t been obliged by Congress to insure loans with seller-funded down payments. Schemes such as these encouraged people with low deposits into home ownership, many of whose properties are now being foreclosed (see US map). But at least those home owners are receiving some help: data from the CBO show that little help is being given to renters by comparison.

The Chinese president has promised to increase the economy’s focus on domestic consumption and reduce its dependence on exports, music to the ears of many economies. No details were given. A video report by Al Jazeera suggests that stimulus-funded infrastructure projects – building roads, rail and indeed entire cities – has led Chinese growth. But much of this infrastructure lies unused (”ghost town” video).

Are investors wearying of government bonds? To raise stimulus funds, the US sold $81bn of debt this week, including record amounts of three- and ten-year notes. But their $16bn 30-year bond saw the weakest demand since May. Japanese government bonds have already been heavily sold (indeed short-sold) by investors worried about the Japanese economy. Yet increasing numbers of cash-strapped governments are planning to issue sovereign bonds: Kazakhstan, $500m; and Russia, $18bn.

More terrible numbers on state and federal indebtedness (New York’s reliance on millionaires’ tax receipts; an October US deficit of $176bn; and an annual federal budget deficit of $1,400bn). Banks may be doing better than the states that have bailed them out. There is some money going back the other way, however. FDIC, which safeguards consumer deposits, has chosen how to refill its coffers: banks will prepay 3 years’ premiums. And all this amid increasing discussion of a second stimulus.

And 16 million tonnes of additional snow have fallen in China thanks to government intervention to seed clouds with silver iodide. The heaviest snowfall in 54 years led to 60 flight cancellations, dead and injured children after the collapse of a school roof, and tens of thousands of stranded travellers. Apparently Beijing takes every opportunity to maximise precipitation as the city is suffering from drought.

Tags: bonds, china, currencies, government debt, property, snow, stimulus

November 13, 2009 1:52pm in Global, bail-outs, currency, digest, government debt, stimulus | Comment