Global Currency

Article Index

What Kim Jong Il's Death Means for the Global Economy

By , Associate Editor, Money Morning -

All eyes are on North Korea and its repressed economic system this week after the country announced early Monday that Kim Jong Il, the ruling dictator for 17 years, died Saturday. The political instability to follow Kim Jong Il's death could ripple through the global economy, weighing on confidence and growth.

Kim Jong Un, the third son of the deceased leader, will take his place. Kim Jong Un is only in his late-twenties, and has only been groomed for the role since 2008, compared to his father's 14 years of training.

While North Korea has remained economically isolated from much of the world, its military aggression, volatile relationship with South Korea and the United States, and the uncertainty surrounding Kim Jong Un's readiness to lead has put the world on alert.

"This is a tinderbox situation," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Almost nothing is known about Kim Jong Un, this "Great Successor.' The deeper questions are the longer-term issues related to a potential power struggle within the ruling elite, given that Kim Jong Un may not have the training nor the power base from which to assume control. Now is the time to watch carefully."

That said, here's what to monitor in the global economy as North Korea rebuilds after Kim Jon Il's death.

North Korea's economic future: North Korea is a notoriously closed society and has shunned foreign investment. Kim Jong Il had started to show signs of possibly being open to economic reform. He even toured Chinese factories to learn about their rapid economic growth, and visited Russia to discuss building a gas pipeline across North Korea.

Of course, that's unlikely to change at least until the country's new leader gets established.

Still, there's hope the long-term outlook for North Korea will change since Kim Jong Un has more Western world exposure than his father, having attended school in Switzerland. That could encourage him to reach out more to other countries to help improve his impoverished nation.

"With China as its example, I am hopeful that North Korea comes out of its shell and slowly crawls to its borders to see who is willing to start a dialogue and trading with the rogue robot nation," said Money Morning Capital Waves Strategist Shah Gilani. "If it's going to be a scary and not a salutary coming out party, all bets are off; but I'm a betting man, and I'm betting North Korea will emerge from its cocoon."

South Korea's economy: South Korea faces the biggest economic disruption. The country already forecast a drastic export slowdown for 2012, with shipments growing only 7.4% next year, compared to 19.2% in 2011. The threat of North Korean instability could also slam consumer confidence, and cause the economy to grow even slower than the 3.7% gain predicted for next year.



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It's Time to Brace for a Repeat of 2008

By , Money Morning -

If you think the global economy is out of the woods now that the European Union (EU) has expanded its effort to solve the sovereign debt crisis, then I'm afraid you're sorely mistaken.

No doubt, the European crisis is far from being solved - but that's hardly the only potential economic catastrophe looming on the horizon.

Indeed, two successive articles in the Financial Times last week warned of a new disaster approaching: They forecast 25% declines in financing volume for both commodities finance and aircraft purchases in 2012.

Now that would be truly bad news.

You see, the most job-destroying feature of the 2008-09 recession was a 17% decline in world trade that was caused by the financial crash and the disruption to the world's banks. That decline intensified recessionary conditions and caused millions of job losses worldwide. Some 700,000 jobs were being lost each month in the United States alone for a period in early 2009. That's more than double the previous worst monthly losses since World War II.

And now we could be in for a repeat.

In fact, it's hard to see how one can be avoided.

In today's distorted world financial system, a combination of over-loose monetary policy, intractable budget deficits, and tightening regulation seems to have made a credit crunch more or less inevitable.

So if you're smart, you'll take a moment to examine exactly why, and then figure out who the winners and losers are going to be.

Here's how.

A Disruptive Disconnect

When you look at bank lending, it's clear that the link between the huge amount of world money growth and the meager supply of lending to productive enterprise is broken.

U.S. Federal Reserve Chairman Ben S. Bernanke and his international colleagues can hand as much money as they like out to banks, but if the banks don't lend it, that money will be wasted. And right now the banks aren't lending to trade and private businesses for three reasons:



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China's Global Currency Expansion Bringing More Yuan Denominated Products to Market

By , Associate Editor, Money Morning -

Chinese regulators plan on developing more yuan-denominated products and allowing more offshore yuan investment opportunities in the continued push for the global expansion of China's currency.

More yuan-denominated bonds, foreign direct investment (FDI) opportunities and eventually initial public offerings (IPOs) will hit the markets in coming years as China gradually allows its currency, also called the renminbi, to be more accessible in international trade and investment. Chinese regulators also want to support international development of Chinese entities.

The People's Bank of China (PBOC) earlier this month announced that it has started looking into permitting Chinese companies with overseas yuan accounts to engage in FDI in the mainland. The central bank also recently said it would allow mainland companies to conduct overseas direct investments (ODI) with the yuan.

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Taipan Daily: The "Secret" Global Alliances That Can Make You Rich

By , Money Morning -

I have a confession to make... I'm a big Harry Potter fan. Last night, I was re-watching Harry Potter and the Goblet of Fire. In this movie, Hogwart's School of Witchcraft and Wizardry hosts the Tri-Wizard's Cup, an Olympics, of sorts, for witches and wizards from international schools. Its purpose is to promote international magical […]

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Money Morning Mailbag: China Needs to Boost Domestic Demand to Continue Economic Recovery

By , Associate Editor, Money Morning -

China released data this week showing its economy grew 9.6% in the third quarter from a year earlier, slower than years past but still significantly ahead of other countries that are struggling to stabilize their economies.

A slight dip in growth is what China wanted. Its gross domestic product (GDP) has grown on average more than 10% annually since 2006. The country's central bank lifted rates this week by 0.25 percentage points for the first time since 2007 to further cool the risk of overheating.

While working to maintain a healthy level of growth, China now has to contend with other countries devaluing their currencies to compete against a cheap yuan that is fueling an export-driven recovery. However, the whole world can't depend on exports – somewhere along the line there must be growth in demand.

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Currency War: China Stands Firm on Yuan as Global Criticism Escalates

By , Associate Editor, Money Morning -

Germany and Japan are joining the U.S. in pressuring Beijing to let the yuan appreciate to prevent an international currency war from spiraling out of control. Still, China remains firm that a gradual rate change is all it will allow.

German Economy Minister Rainer Bruederle warned yesterday (Wednesday) that a trade war could erupt if China didn't float its currency for a more fair value. As the China-U.S. currency tensions have heated up, other countries are saying China's unfair trade advantage is threatening export-driven recoveries around the globe.

"We have to take care that the currency war doesn't become a trade war," Bruederle told German business paper Handelsblatt. "China bears a lot of responsibility for ensuring that it doesn't come to an escalation."

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You Heard it Here First: China's Plan to Dethrone the Dollar Continues to Unfold

By , Contributing Writer, Money Morning -

The U.S. dollar is on the way out as the world's top reserve currency. And as Money Morning Chief Investment Strategist Keith Fitz-Gerald predicted more than a year and a half ago, the yuan could be set to replace it.

The greenback has served as the world's benchmark reserve currency since the mid-20th century, but soaring deficits and the U.S. Federal Reserve's loose monetary policy have drained the dollar's value. Meanwhile, emerging markets - many of which are vibrant manufacturing hubs, net creditors, and have rich caches of commodities - are more fiscally sound than the United States, which has a $1.3 trillion budget deficit.

"If you look at the fundamentals of a lot of these emerging markets, they are considerably better than developed markets," Kenneth Akintewe, a Singapore-based investment manager at Aberdeen Asset Management PLC told Bloomberg in an Oct. 11 interview. "Who wants to be holding U.S. dollars at this stage?"

China, which leads the world with more than $2 trillion in currency reserves held mostly in U.S. Treasuries, is chief among the countries seeking respite from the dollar's decline. Beijing has long bemoaned the depreciation of the dollar, stating outright that it should be replaced as the world's main reserve currency.

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Global Currency Wars: Three Ways to Profit From the "Race to the Bottom"

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

Short of sitting on the sidelines, investors can't escape the global currency wars - a "race to the bottom" shootout that has countries debasing their currencies to boost overseas sales.

But here's the only thing you need to know: As the central banks of the world slug it out in the global currency markets, individual investors who understand the currency-war strategy can reap some extraordinary gains.

Let's take a look.

For three investments that will let you profit from the "race to the bottom," please read on...

For three investments that will let you profit from the "race to the bottom," please read on...

International M&A Boom Fueled by Global Currency War

By , Contributing Writer, Money Morning -

A binge of mergers and acquisitions (M&A) is being fueled by the global currency war, which has increased the value of emerging market currencies.
The value of worldwide M&A totaled $1.75 trillion during the first nine months of 2010, a 21% increase from comparable 2009 levels and the strongest nine month period for M&A since 2008, according to Thomson Reuters.

But mergers and acquisitions involving companies located in the emerging markets skyrocketed by 62.9% during the same period over 2009, totaling $480.7 billion.  During the first three quarters of 2010, emerging markets accounted for 27.4% of worldwide M&A volume compared to 21% during the comparable period in 2009.
And companies are showing more willingness to venture across borders to find the resources they're after.

M&A activity in deals across international borders has surged during the first nine months of 2010, totaling $723 billion accounting for 41.2% of overall M&A volume, compared to 26.1% last year at this time.

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The Dollar's Unavoidable Day of Reckoning is Here...

By , Money Morning -

The government is printing money 24/7 to paper over the bad debts of the housing crisis and Wall Street bailouts. We're about to enter a cycle of hyper-inflation that will devalue every dollar you own... but there is a way to profit! Find out how in this free report.

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Money Morning Mailbag: Japan's Rising Yen Struggle Signals Need for Industrial Shift

By , Associate Editor, Money Morning -

The yen strengthened as much as 82.75 per dollar Wednesday, fueled by speculation that the U.S. Federal Reserve would buy more government bonds after a drop in U.S. payrolls.

The yen's rise came after the Bank of Japan tried yet again this week to devalue its currency. On Tuesday the Bank of Japan lowered the benchmark interest rate to "virtually zero," and announced a $60 billion (5 trillion yen) plan to buy government bonds - similar to the 'quantitative easing' policy employed by the U.S. Federal Reserve.

"With today's decision, the Bank of Japan paved the path for the next step," Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo told Bloomberg News on Tuesday. "What will be critical will be how foreign-exchange rates move as a result," along with the impact of any additional easing by the Federal Reserve, she said.

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We Want to Hear From You: Are You Prepared for the Global Currency War?

By , Associate Editor, Money Morning -

The housing market remains in the dumper. U.S. stocks - despite a rally - are still 22% below their record highs of two years ago. And the "official" unemployment rate remains at a heart-stopping 9.6%.

With their knees almost ready to buckle under such burdens already, how will American consumers respond when clothes, computer accessories or other key consumer staples at their neighborhood Wal-Mart Stores Inc. (NYSE: WMT) undergoes an overnight price hike of 30% to 60%?

As the United States aims to increase exports by debasing the dollar, a global currency war is underway that could swallow consumers and investors if they don't prepare for the likelihood of a weaker dollar.

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Currency War Heats Up as Japan Lowers Interest Rates to Devalue Yen

By , Contributing Writer, Money Morning -

In a move designed to jolt its economy back to life and protect its export industries from an international currency war, the Bank of Japan (BOJ) said yesterday (Tuesday) that it would expand its balance sheet and lower its benchmark interest rate to "virtually zero."

The bank cut the overnight call rate target to a range of 0.00% to 0.1%, the lowest level since 2006. It last cut the target rate to 0.1% from 0.3% in December 2008.

Policymakers also will establish a $60 billion (5 trillion yen) fund to buy government bonds and other assets, inflating the balance sheet at a time when U.S. and U.K. central bankers are contemplating doing the same.

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