DO THEY REALLY NEED US?

JOHANNESBURG — South Africa has been formally asked to join the BRIC group of major emerging markets, comprising Brazil, Russia, India and China, bolstering its position as Africa's champion.
Chinese President Hu Jintao wrote a letter to his South African counterpart, Jacob Zuma, to inform him of the decision and inviting him to the BRIC's third heads of state meeting in Beijing next year, Chinese Foreign Minister Yang Jiechi said in a statement on his ministry's web site Friday.
South Africa, which has a population of 49 million compared with China's 1.36 billion, is betting on raising its clout on the world stage by joining BRIC, while strengthening political and trade ties within the bloc. The country accounts for about a third of gross domestic product in sub-Saharan Africa and will offer BRIC members improved access to 1 billion consumers on the continent and mineral resources including oil and platinum.
Joining the group is "the best Christmas present ever," South Africa's Minister of International Relations and Cooperation Maite Nkoana-Mashabane told reporters in Pretoria. "We will be a good gateway for the BRIC countries. While we may have a small population, we don't just speak for South Africa, we speak for Africa as a whole."
Zuma has made state visits to all of the BRIC nations since coming to power in May 2009 and the government has "lobbied very hard" to be included in the group, which will now be known as BRICS, Nkoana-Mashabane said.
Africa's biggest economy is a "powerful country," even though it's small compared with the other BRIC nations, Alexei Vasiliev, President Dmitry Medvedev's envoy to Africa, said Dec. 22.
South Africa has an economy of $286 billion, which is less than a quarter of that of Russia, the smallest of the BRIC nations. Its population is also dwarfed by India's 1.2 billion, Brazil's 191 million and Russia's 142 million.
Goldman Sachs Group economist Jim O'Neill coined the BRIC term in 2001 to describe the four nations that he estimates will collectively equal the U.S. in economic size by 2020.
"South Africa's economy is very small," O'Neill, who is now chairman of Goldman Sachs Asset Management International, said in an interview from London. "For South Africa to be treated as part of BRIC doesn't make any sense to me. But South Africa as a representative of the African continent is a different story."
At their first summit in Russia in June last year, the BRIC heads of state called for emerging economies to have a greater voice in international financial institutions and for a more diversified global monetary system.
"South Africa as a country is small, but if we go there as a regional market, that's a different story," said Martyn Davies, chief executive of Johannesburg-based Frontier Advisory, which provides research and corporate finance services on emerging markets. "For South Africa, it's nice to be associated with the big boys."
South Africa is the only African nation represented in the Group of 20, and will take up a two-year seat on the United Nations Security Council along with India and Brazil next year, resulting in all BRIC nations being represented on the council. The African nation is also part of a trilateral group with India and Brazil, known as IBSA, created in 2003 to coordinate action between the three emerging economies in global forums.
"We bring the most diversified and most advanced economy on the continent," said Nkoana-Mashabane. "We may not be the same size, but we can open up opportunities for them and through that, we can complete our economic integration on the continent.

So who's next

There are many theories explaining the decline of America, of which the economic crisis, especially after the subprime meltdown, is the major one. But these are cyclical events, which US has faced a few times in the past. What is different this time is that the economic recession has hit the country when anti-Americanism is at all-time high across the globe. The depression of 1930s was not exacerbated by the deterioration of American image. In fact, the US actually cashed in on the declining power of Britain and other European countries.

After the disintegration of the USSR in 1991, the world moved into a unipolar world in which it seemed USA was unstoppable in all the realms of power. The techno warfare displayed in the Gulf War of 1991 took all of us by surprise. Even movies such as Titanic and Avatar reminded us of the technological gap we still face.

But China is rapidly catching up. The fastest train is now running through nowhere else but Chinese mainland, to which California's Governor Arnold Schwarzenegger was attracted - he even invited Chinese companies to his state. China is also wrestling with the US monopoly of outer space, and the head of NASA knocked on the door of China to seek cooperation with their space authorities.

But one should also remember that it is not the "Rise of China" that has led to the US decline. More than anything else, it is a non-state organization called al-Qaida that precipitated the downfall of the American empire. George W. Bush seems destined to go down in history as a US president who oversaw its decline.

Soft power, a concept coined by Harvard scholar Joseph Nye, has not really worked for America either. WikiLeaks, which has embarrassed the US so much recently, has revealed that US Marines have been carrying genocide-scale killings in Iraq and Afghanistan and still carrying out Guantanamo-esque tortures at undisclosed locations. They certainly haven't done much to help revive America's reputation in the Arab world, an area dominated by radical Muslims, whom America is keen to win over.

All this doesn't even take into account the fact that the War on Terror has seriously drained the energy of the US and it's losing ground rapidly to China on important fronts like Africa and even Latin America, which is seen as the US' backyard.

That the US is going to be replaced as the sole superpower has long been a foregone conclusion. Judging from the developments of the first decade of the 21st century, it appears that the day may come sooner than expected.

The rise of China will be peaceful if the West follows the wisdom expressed in The Revolt of Asia.

"We have come to the end of the White Man's world dominance. If he resigns himself to this historic evolution he will save his world and the Asiatic's world. If he resists he will likely bring about the destruction of both. We have come to the beginning of the White and Colored Man's joint world, when each shall have control in his own house and a proportionate say in the general convocation of humanity. We are passing from the era of Empire by Conquest into the era of Empire by Attraction, Service, and Business that asks only a fair field and no favors. We have come to the time when any prolonged attempt of any race or nation or class or sex to dominate another can only bring destruction to both. It is live and let live. It is tolerance, or death

gold standard ? really ?

Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it.
It was simplicity itself. National currencies were backed by gold. If you didn’t like the currency you could exchange it for shiny coins (money was “sound” if it rang when dropped on a counter). Borders were open and money was footloose. It went where it was treated well. In gold-standard countries, government budgets were mainly balanced. Central banks had the single public function of exchanging gold for paper or paper for gold. The public decided which it wanted.
“You can’t go back,” today’s central bankers are wont to protest, before adding, “And you shouldn’t, anyway.” They seem to forget that we are forever going back (and forth, too), because nothing about money is really new. “Quantitative easing,” a k a money-printing, is as old as the hills. Draftsmen of the United States Constitution, well recalling the overproduction of the Continental paper dollar, defined money as “coin.” “To coin money” and “regulate the value thereof” was a Congressional power they joined in the same constitutional phrase with that of fixing “the standard of weights and measures.” For most of the next 200 years, the dollar was, in fact, defined as a weight of metal. The pure paper era did not begin until 1971.
The Federal Reserve was created in 1913 — by coincidence, the final full year of the original gold standard. (Less functional variants followed in the 1920s and ’40s; no longer could just anybody demand gold for paper, or paper for gold.) At the outset, the Fed was a gold standard central bank. It could not have conjured money even if it had wanted to, as the value of the dollar was fixed under law as one 20.67th of an ounce of gold.
Neither was the Fed concerned with managing the national economy. Fast forward 65 years or so, to the late 1970s, and the Fed would have been unrecognizable to the men who voted it into existence. It was now held responsible for ensuring full employment and stable prices alike.
Today, the Fed’s hundreds of Ph.D.’s conduct research at the frontiers of economic science.“The Two-Period Rational Inattention Model: Accelerations and Analyses” is the title of one of the treatises the monetary scholars have recently produced. “Continuous Time Extraction of a Nonstationary Signal with Illustrations in Continuous Low-pass and Band-pass Filtering” is another. You can’t blame the learned authors for preferring the life they lead to the careers they would have under a true-blue gold standard. Rather than writing monographs for each other, they would be standing behind a counter exchanging paper for gold and vice versa.
If only they gave it some thought, though, the economists — nothing if not smart — would fairly jump at the chance for counter duty. For a convertible currency is a sophisticated, self-contained information system. By choosing to hold it, or instead the gold that stands behind it, the people tell the central bank if it has issued too much money or too little. It’s democracy in money, rather than mandarin rule.
Today, it’s the mandarins at the Federal Reserve who decide what interest rate to impose, and what volume of currency to conjure.
The Bank of England once had an unhappy experience with this method of operation. To fight the Napoleonic wars of the early 19th century, Britain traded in its gold pound for a scrip, and the bank had to decide unilaterally how many pounds to print. Lacking the information encased in the gold standard, it printed too many. A great inflation bubbled.

so who needs dollars ?

Yuan-Ruble Starts Trading With $738,000 Volume

16 December 2010

Bloomberg

MICEX started trading the yuan against the ruble for the first time Wednesday, as Russia and China seek to reduce the use of dollars in trade.
The ruble closed at 46.34 per 10 Chinese yuan by 11 a.m., after opening at 46.35 per 10 yuan shortly after 10 a.m. By the end of trading the volume of transactions amounted to 4.92 million yuan ($738,850), or 22.78 million rubles, according to the index’s data.
Both China and Russia have called for the dollar’s role in global trade to be diminished since the global financial crisis, and Russia is promoting the ruble as a reserve and trading currency within the former Soviet Union.
China is allowing greater use of the yuan, which is not yet fully convertible, in international transactions as it seeks to reduce its reliance on the greenback. Asian exchanges that trade palm oil derivatives and gold are starting to accept yuan as payment and collateral.
“This event will become part of history in Russia-China relations, in the history of our financial markets,” Viktor Melnikov, a deputy chairman of Russia’s Central Bank, said at a ceremony to launch the trade at MICEX headquarters, attended by China’s Ambassador to Moscow Li Hui. “No doubt this will become a serious catalyst for economics and trade.”
“It’s an exotic cross that may develop in importance in the coming years,” Piotr Matys, an emerging markets currency analyst at 4Cast said by phone from London on Wednesday. “The dollar will continue to be the most important trading currency, but obviously given these two countries’ trading relations, this step makes sense.”
Chinese companies buying Russian products including timber, seafood and coking coal and Russian companies importing Chinese goods will be the main clients of the yuan-ruble trade, the Central Bank’s Melnikov said Dec. 6. Clients of Russian banks doing business in China will be able to save as much as 5 percent on transaction costs by buying yuan through MICEX, according to Melnikov.
Chinese Premier Wen Jiabao said in March that he was “worried” about holding assets denominated in the greenback. The Bursa Derivatives Berhad, which sets the global benchmark for crude palm oil, started in November to accept Chinese yuan as margin collateral for trading on the Malaysian derivatives market. The Chinese Gold & Silver Exchange will start the first international gold contract in yuan early next year, the Financial Times reported yesterday, citing exchange president Haywood Cheung.
“The launch of this trade is a big deal,” said Ruben Aganbegyan, president of MICEX. “It won’t become the leading currency pair on our market, but it’s the first step in a very interesting direction.”

on the china exchange

The Exchange, except for the Pacific War years of 1941 to 1945, provides services to investors on every trading day. In January 1980 when the Soviet army invaded Afghanistan, the price of gold soared to a record high of HK$4,855.00 per tael on 18 January, before plunging down to a low of HK$3,590.00 on 23 January, marking a sharp volatility of $1,200.00 in only a few days. Unable to cope with this severe fluctuation, all major gold markets suspended trading. Thanks to great versatility and a sound market system, the Exchange was the only market in the world where trading continued as usual. In early February 1983, plummeting oil prices, tightening of the US Federal Reserve's monetary policy and rising rates brought great volatility to the price of gold again. Gold markets in the US and Singapore suspended trading but the Exchange remained open. The above incidents fully demonstrate the Exchange's ability to ensure trading continuity.

As for liquidity, investors have realized their gold bullion and closed out gold positions smoothly and swiftly over the past decades. Not one complaint has been reported. One significant example is that on 15 January 1970, the Exchange abandoned the then prevailing 945 fineness and adopted 99 fineness as the standard for pure gold. It was a step to meet demand of the gold jewelry industry. At that time, the people of Hong Kong had more than 100,000 taels of 945 fineness gold between them, and the Exchange bought all 945 gold by paying a price based on the 99 fineness standards. Consumers got the full value of their gold investments, and there were no disputes. This piece of history illustrates our members' integrity and the high liquidity of the Exchange. Note: 945 fineness is a 94.5% gold bullion; 99 fineness is a 99% gold bullion.

Depth is best used to describe our strength. While the Exchange is subject to varying market situations due to fluctuation in gold prices, the strength we display in market strong runs is impressive. In the early 1980's when the gold market staged stellar performance, more than 2 million taels of gold were traded on the Exchange daily. History shows that our member firms are establishments of great strengths. They can cope well with large trade volumes in a bullish market.

Hong Kong has secured a key position in the international gold market. This important role is attributed to a number of factors. They include political stability, free trade, a respect for private ownership, a sound and established legal system, good communications networks, sophisticated telecommunications facilities, a strong financial system and a stringent regulatory system. Yet another important factor worth noting is that Hong Kong spans across the Asia time zone and it provides pricing information for the gold market after the close of New York market and before the opening of the London market. Because of this connection, international investors can continue their trading, hedging or arbitrage activities in Hong Kong. Effectively, the emerging of Hong Kong gold market turns the trading of gold around-the-clock.

war currencies ?

The world's monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policy makers are unaware of the implications.

The only questions are how long the denouement of the dollar reserve system will last, and how much more damage will be inflicted by new rounds of quantitative easing or more radical monetary measures to prop up the system.

Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable.

Such a transition is, by definition, nonlinear. So central-bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offer no guidance on what lies ahead.

It's amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape. Until there is fundamental monetary reform on an international scale, most economic forecasts aren't worth the paper on which they are written. Telltale signs of future trouble aren't hard to spot.

Only a few months ago, Federal Reserve Chairman Ben Bernanke and a chorus of other high-ranking Fed officials were talking about exit strategies from the US central bank's bloated balance sheet and the financial system's unprecedented excess liquidity. Now, those same officials are talking about pumping more money into the system to stimulate growth.

And they're not alone: Six months ago, the chief economist of the International Monetary Fund, Olivier Blanchard, suggested that raising inflation targets to 4 per cent from 2 per cent wouldn't be too risky. This sort of talk must grate on the nerves of our trading partners, China, India, Russia and others, who have accumulated pyramids of non-yielding treasury debt.

No haven there. Return-free risk may be a better way to put it. And bickering among central bankers over currency manipulation and rising trade tensions doesn't exactly reinforce one's confidence in a scenario of sustained economic growth and a return to prosperity. The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero.

Bernanke, Jean- Claude Trichet and Mervyn King, his counterparts in Europe and the UK respectively, are huddling en masse upon the most precarious perch in the history of monetary affairs. These alleged guardians of monetary stability, in their attempts to shore up the system, have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life. The consensus investment view seems to be that the credit crisis of 2008 was a freak occurrence, unlikely to repeat. That is wishful thinking. Monetary policy has painted itself into a corner.

Based on our present course, there will be more bubbles and more meltdowns. Financial markets and institutions sense trouble, as reflected in the flight to supposedly safe assets such as treasuries and corporate-debt instruments with paltry yields, as well as the reluctance to lend by commercial banks. We are stuck in an epic liquidity trap. The irony is, if global central banks succeed in creating inflation, the value of these safe assets will be destroyed. It is a slaughter waiting to happen.

As inflation accelerates, consumers will spend to get rid of their dollars of diminishing value and spur the economy. Once consumers start spending, it will be time to raise interest rates because a solid foundation for prosperity will have been established, they say. But whatever the playbook promises, the capacity of financial markets to overshoot can't be overestimated. The belief among policy makers and financial markets in the possibility of this sort of fine-tuning is preposterous, but it is the slender thread on which remaining investment and business confidence rests.

The breakdown of the monetary system will be chaotic. When inflation commences, it will be highly disruptive. The damage to fixed-income assets will seem instantaneous. Foreign-exchange markets will become dysfunctional. The economy will become even more fragile and unpredictable. Gold is an imperfect, but comparatively reliable, market gauge for the extent of current and future monetary destruction.

The recent acceleration in the dollar price of the metal to $1,381, a record high in nominal terms, coincided with talk of a new round of quantitative easing and highly visible discord among major nations on trade and currency-valuation issues. Naysayers point to gold's price and see a bubble, without understanding that the only acceleration that is taking place is in the rate of decline of paper currency.

The Fed is organising an attack on the dollar's value, believing that this is the most expedient way to defuse deflationary market forces. The man in the street is unaware, a perfect setup. Inflation can only be successful when the public doesn't see it coming.