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It is becoming increasingly clear that the Chinese authorities are mismanaging the economic and financial situation and the risk that the authorities will to cause something to blow increases day by day.
Global stock markets are in a 2008ish kind of crash today and I really don't have much time to write this, but I just want to share my take on it.
Yesterday the Icelandic central bank Sedlabanki hiked its key policy rate by 50bp to 5.50%. The hike was fully expected by the markets and is the second hike this year.
I have been in a bit of media blitz recently. Here is some of it:
I can't stand protectionism in any form. Therefore, I get terribly upset when I hear calls for closed borders - also when it comes to immigration. Therefore I am not impressed with this either:
The Chinese surprise devaluation yesterday and has put currencies across Asia further under pressure. This is only a natural and the most stupid thing local Asian central bankers could do would be to fight it. Rather as China moves closer to a freely floating exchange rate it should inspire other Asian countries to do the same thing and I am therefore happy to see that the Vietnamese central bank this morning has widened the fluctuation band for the Dong and in that sense moved a bit closer to a freely floating Dong. Even though the hand has been forced somewhat by the PBoC's devaluation yesterday it is nonetheless positive that we are seeing a move towards more freely floating exchange rates in Asia.
The big news of the day is that the Chinese authorities have allowed the renminbi to depreciate by 2%. This has triggered the normal sensationalist warnings about an upcoming "currency war".
It is the same thing every month - anybody seriously interested in financial markets and the global economy are sitting and waiting for the US labour market report to come out even though the numbers are notoriously unstable and unreliable.
I should really read this paper and so should you....
If you ever read Friedman and Schwartz's "A Monetary History of the United States" you know what happens when a central bank fails to act as a lender-of-last resort in the event of a bank run and/or at the same time fails to offset the impact on broad money growth of such bank run.