Collapse of an already weakened bond market

Never international institutions, the impotent G7 (or G8), the Finance Ministers have been also vocal to say nothing.

To thwart the rise of the price of oil, this is the companies urge invited to accelerate their research and exploitation of new deposits warnings expenditures. The risk is not huge prepare investment oversized, calculated on the basis of aberrant price, conditions for overproduction to trigger the return in force of a deflationary spiral

Finished the not-so-distant time (early 1990s) where the best heads financial, investment or non-official functions, wondered publicly if floating exchange, the volatility of financial markets or well excess liquidity were not such as to seriously disrupt economic activity. Today, the market is expected to form an integrated whole. It is him a global rationality. This excludes the concept of aberration courses on a market where supply is confronted with the application. The dogma of globalization serves as a response to any.

The Member countries of the Monetary Fund have also decided to engage in an exercise of "multi-stakeholder consultations" on the persistence of serious balance of payments imbalances. The deficit, a priori considered "untenable", of the US trade balance exceeds $ 800 billion. None of the managers of the system had never considered such a figure. The rate of coverage of imports by exports is no longer about 53.

It is hard to bet on dissertera unnecessarily on multiple transmission belts which the imbalance spreads and continues: a debt accelerated us households and, on the contrary, saving so-called "excess" of the Chinese or Indians already known for their frugality forced reality, etc.; but it does not say a word on the cause mechanism of the deficit itself and its artificial financing.

The dollar system succeeded the former Exchange-gold standard since 1971-1973 ("gold exchange standard"). It is based on two assumptions. The doubt settles on their truth.

First assumption: the U.S. public debt, bonds and bonds issued by the Treasury of the United States, may be considered by the banks as practically equivalent to cash reserves. Why Because the New York financial market is the deepest, "liquid", the most reliable in the world. It is sufficient to state this founding proposal of system for in touch of the finger limits.

From the time when the finance was not yet unleashed, central banks and the market had a restrictive and prudent liquidity concept. Was liquid a good 3 months Treasury that marketable because at any time without loss. Since then, liquid means simply: easily negotiable. Once the most demanding central banks, as the Swiss National Bank "UI" in 1997, purchase securities to more distant deadlines and so volatile, leaving hope capital gains. But during the crash of the American market in the spring of 1994, he found sessions where the obligations of State found no takers.

Second assumption: prefer the narrow a balanced balance of payments constraint US this great nation is supposed to play the role of locomotive in the world economy. In reality, does not ambient mercantilism, aka blessed by the WTO free trade. The Chinese exporters to give heart joie.

The essence of the system, it is that the output of dollars resulting from the payment of U.S. imports not covered by revenues from exports (deficit) does translate not, overall, by an actual transfer of power for the purchase of the United States to China and other creditor countries. According to the classic schema, the balance of the balance was quickly restored: same low contraction of domestic demand in the United States that resulted from the transfer of purchasing power is pushing local producers to find outlets abroad: no deficit if there is no lender! In the dollar system, the Bank of China, in the middle of the dollars received from the hands of the Chinese supplier to which it will be presented of Yuan, buy us public debt securities. It is in the debtor countries as if the output of $ had never occurred.

Another financial officer intervenes. The entries in $ in China will benefit local commercial banks. Their holdings with the Bank of China will be increased by as much. On the basis of these increased assets, they will increase their capacity to provide credits. For example the latter Fund purchases of oil. Continuous increase in the price of raw materials resulting provides large benefits to Chinese importers. National GDP inflates, inflates a bubble.

During the twelve months, acquisitions by the Bank of China of $ converted as soon as the US Treasury debt increased by 33, to $ 875 billion. Total world reserves in foreign currencies (including 70 to the low word dollars) increased by 11 in 2005, 4313 billion: 100 times more than in 1971 at the time where Nixon cut the moorings with gold. And the IMF said nothing!

But the dollar would not need such support if it had not been rendered vulnerable by the monetary policy conducted by its managers. Recovery since June 2004 of interest rates, increased from 1 to 4.75, has failed to calm the scene! The Monetary Authority is still in Washington and New York. Other monetary poles are the reflection of Beijing... and Frankfurt.

That could happen to disturb the game Beginning January, 1980, then the course of gold was, as today, rising (it goes in the middle of this month reach record level of 840 dollars an ounce), the Bundesbank had an unexpected need of liquidity. It mit for sale in New York a fraction of its large reserves of good and US Treasury obligations. Panic on interest rates. Collapse of an already weakened bond market. How the financial markets of today would react if the Bank of China needed to mobilise part of his renowned reserves also available in theory for the currency in cash