Today, investors (holding an aggregate $10 billion) were willing to PAY the US government for the privilege to park their money at the US Treasury. They accepted a NEGATIVE return on their investment… The jitters aren't over and the economy is nowhere near acceptable health as long as investors bank on the return OF their investment, rather than the return ON their investment.
The BBC reports that Venezuela slashes value of currency, the bolivar
There is a lot of interesting information in the article
1) Venezuela is moving to a dual exchange rate.
1a) Currently the bolivar is valued (by government decree) at 2.15 to the dollar. Tomorrow, priority imports will have to pay 2.6 bolivar per dollar, a 20% devaluation. Curiously, priority imports are not only "health care imports" but also "public sector imports." hm
1b) All other, "non essential" items will have to use an exchange rate of 4.3 boliar per dollar, which is a 50% devaluation. The government says that this would "limit unnecessary imports," such as "cars, chemicals, petrochemical and electronics."
Turns out Bolivian President Chavez also has a plan to prevent price increases despite the fact that "unnecessary" imports have just gotten 50% more expensive. Venezuela's President, Hugo Chavez, has said troops will seize control of any business that raise prices in response to the devaluation of its currency. He said there was no reason for prices to go up, and speculators' businesses
Why do countries have to devalue their currencies? Venezuela is an oil exporter. Why does it have balance of payments problems?
Turns out the country is no stranger to currency crises. Although last time the government blamed it on contagion caused by Argentina's malaise (that was in 2002, so another installment of the Argentinean telenovela than the one unfolding right now).
…consider the options. There is a deep divide between "freshwater" and "saltwater" schools – not in terms of quality, but in terms of philosophical approaches (non NYT link here for those without subscriptions.
Where you go to school will crucially influence how you explain the great recession…
"That is, freshwater schools tend to explain all downturn (including the great recession) as the result of a great forgetting of technological and organizational knowledge, or as a great vacation as workers suddenly develop a taste for extra leisure. this characterization is no joke. Of course if the two type of schools disagree on the origins of the crisis, imagine how different the policy prescriptions are to resolve the great recession.
Krugman piles it on, and Cochran replies. Unpleasant mudslinging, but the philosophical divide is real and will play out in your grad school education.
Today Cristina Fernandez de Kirchner, the democratically elected president of Argentina (who happens to be the wife of the previous President of Argentina, Nestor Kirchner…), fired the Argentinean central bank president – for his failure to use the $6.7 billion in the central banks foreign currency reserves to pay down the debt the government owes.
There is a long literature on "central bank independence" and most economists think that the power to manage the money supply should never placed in the hands of the government — it would simply be too tempted for politicians to run the printing presses to pay for fiscal programs. Every episode of high inflation can be traced back to a central bank that is financing a government that is living beyond its means. Lets see what happens in Argentina.
here is part II of the saga. Now, why would a government have to pay 15% to borrow to finance its debt?
Foreign currency reserves keep increasing, after taking a short breather during the crisis.
But the dollar share of global foreign currency reserves is declining, and at a rate that is faster than expected (via Menzie Chin and the IMF)
Perhaps the most startling thing about the new COFER (Currency Composition of Official Foreign Exchange Reserves) data on reserves released by the IMF is not the declining dollar share in total reserves, but rather the fact that reserves have risen….
The change is entirely due to the upward revision in unallocated reserves by emerging market and LDC central banks. This point is shown in Figure 1.
Figure 1: Total reserves, in millions of US dollars (black), emerging market central banks from December 30 (bold blue), from September 30 (teal); emerging market unallocated reserves from December 30 (bold red), from September 30 (purple). NBER defined recession dates shaded gray, assumes recession ends 09Q2. Source:COFER, September 30 and December 30, 2009, and NBER.
Total reserves were revised up $381 billion in 2009Q2, as were total emerging market/LDC reserves, and unallocated emerging market/LDC reserves. The revision in total reserves constituted a 5.5% change – quite substantial.
A straightforward interpretation of the data also reveals a continued — and exacerbated — decline in the identified US dollar share of total reserves.
