Sovereign debt bubble thread

[Admiral Yi]

There is a belief by some that an issuer of an international reserve currency can afford to maintain higher levels of deficit because it is easier for them to place government debt securities.

A belief which ignores the fact that since the end of Bretton Woods there are no fiat reserve currencies.

[crazy canuck]

There is a belief by some that an issuer of an international reserve currency can afford to maintain higher levels of deficit because it is easier for them to place government debt securities.

A belief which ignores the fact that since the end of Bretton Woods there are no fiat reserve currencies.

Not sure what you mean by that.  Doesnt the US currency effectively act as such?

[The Minsky Moment]

A belief which ignores the fact that since the end of Bretton Woods there are no fiat reserve currencies.

Not de jure, but the $$ remains so de facto.

[Admiral Yi]

Not sure what you mean by that.  Doesnt the US currency effectively act as such?

The US dollar is a desirable reserve currency because of its properties, such as extreme liquidity and relative stability.  If and when it loses those properties it will no longer be a desirable reserve currency.

[The Minsky Moment]

Anyway the article guy mentions China, Brazil, Indonesia.  Before hypothesizing about the impact of the Fed, might it makes sense to inquire about whether there  could be domestic contributions?

Don't know much about Indonesia, but I do know both China and Brazil responded to the financial crisis by having state banks pump massive amounts of credit into the domestic economy.  Brazil tried to counteract the inflationary impact by having the central bank set tight policy, but closing the right hand doesn't help much when the left hand is throwing money out of the helicopter.  The Chinese also tried to ratchet back, but the rise of trust companies and other nonbanks that escape the regulatory system has compromised the regime's ability to control the money supply.  Both countries also suffer from the fact that food remains a large proportion of househehold budgets and international food prices have gone up due to supply conditions.  So there are plenty of possible domestic explanations for inflation without the need to contemplate the bearded visage of Bernanke.

Another way to think of it is that if dollar liquidity is such the decisive factor, how come the problem didn't arise  before when China was happily accumulating its first trillion or so in US dollar reserves?

[crazy canuck]

Not sure what you mean by that.  Doesnt the US currency effectively act as such?

The US dollar is a desirable reserve currency because of its properties, such as extreme liquidity and relative stability.  If and when it loses those properties it will no longer be a desirable reserve currency.

Which is what I am asking about.  Hasnt the act of other nations buying US currency stabilized its value which in turn continues to make it desireable as the defacto reserve currency of the world. 

[Admiral Yi]

Which is what I am asking about.  Hasnt the act of other nations buying US currency stabilized its value which in turn continues to make it desireable as the defacto reserve currency of the world.

There's no disputing that the dollar is a de facto reserve currency.  You go to various central bank web sites and there it is, in abundance.

That's different than saying the dollar is a fiat reserve currency.  There is no global authority which requires central banks to hold reserves in any particular currency.  There is no Bank of International Settlements for central banks.

As to central bank interventions propping up the value of the dollar, keep in mind that historically the transactions have gone both ways.  If anything the more traditional approach has been to hold up the value of one's own currency by selling off dollar reserves.  Until the emergence of China as a player about the only country I can think of that has followed a strategy of keeping the domestic currency undervalued is Japan.

[crazy canuck]

That's different than saying the dollar is a fiat reserve currency.  There is no global authority which requires central banks to hold reserves in any particular currency.  There is no Bank of International Settlements for central banks.

Exactly why I am asking about whether other countries have helped maintain the US dollar as the reserve currency of choice by buying US dollars during periods when the US dollar was beginning to drop in order to maintain its value.

[grumbler]

Exactly why I am asking about whether other countries have helped maintain the US dollar as the reserve currency of choice by buying US dollars during periods when the US dollar was beginning to drop in order to maintain its value.

Not sure the question.  Are "other countries" buying dollars/dollar-denominated securities?  Some central banks are, yes, in order to maintain price/employment stability.  Some nationals of other countries have also been doing so, as part of their business strategies.  Not sure which of these "other countries" examples you are asking about.

[crazy canuck]

Not sure the question.  Are "other countries" buying dollars/dollar-denominated securities? 

The article in question simply uses the term dollars.

[MadImmortalMan]

[Valmy]

Geez how many times is Argentina going to default?

[DGuller]

I'm surprised that Chile hasn't annexed Argentina yet.  With all those defaults, Argentinian troops and forts must have near-zero morale.

[Neil]

So they figure that there's no chance whatsoever of a Canadian default?  A bold prediction.

[Barrister]

So they figure that there's no chance whatsoever of a Canadian default?  A bold prediction.

That's what I thought.  Seems rather odd.