Published On: Tue, Mar 17th, 2015

Defying the United States, European allies say they’ll join China-led bank

The more time goes by, the more it seems that the USA is losing its grip on its position as the world’s most important country as regards banking domination. It likes to be able to police all banks everywhere, and to control other economies via “economic warfare” – as witness – for example – its ongoing interference in the financial arrangements of all countries it deems to be tax havens. Its dominance however, may be coming to an end. Certainly that process might take many years yet, but the first sign that it’s perhaps beginning, can be seen in the formation (by China) of the new Asian Infrastructure Investment Bank (AIIB). Of itself, a new Chinese – sponsored bank to serve Asia, hardly makes waves, but the USA perceives it now as a real threat, because last week, the UK agreed to become a partner thereof – and France, Italy and Germany have now followed suit. The Americans had put pressure on Australia not to join, but – emboldened no doubt by Britain’s lead, that country is now “reconsidering”. The Obama administration is said to be “furious” at Europe’s so – called “constant China accommodation”, and you have to conclude that the Americans will never learn. One day, the mighty dollar will be mighty no more – all empires eventually fade into the sunset at best, or get destroyed by war at worst.

Speaking of Australia, the RBA’s minutes of its last meeting tell us that the central bank of that country didn’t reduce interest rates (as had been expected by markets) because of the “need to control the housing bubble”. That rather proves my ongoing thesis, that central banks are a total waste of taxpayers’ time and money. The way to control housing bubbles is of course not to allow them to form in the first place, and indeed, achieving that situation is so easy, it’s almost laughable that central bankers can’t seem to see it. It’s quite simply to restrict lending, via a requirement that potential home buyers need to put down a decent – sized deposit, and that they can borrow only up to a maximum multiple of their earnings. Of course, such outmoded ideas have long since gone by the wayside in almost all Western countries, as retail banks have clambered over each other to lend, lend, lend….

In any event I suspect Australia’s economy is in such bad shape now, that an interest rate reduction will indeed be on the table at the next RBA meeting. The only reason I suspect maybe AUD won’t fall a lot lower against USD, is because I can see the US Dollar suffering a substantial setback, beginning any time now. There are way too many buyers in the market, and hardly any sellers (of USD) and the market hates a one – sided trade. A break below 98 for the Dollar Index, is likely to see considerably lower levels, for a few months at least.

Similarly, the Euro is now too weak – again, almost everyone is selling it, and a bounce back up is imminent there in my view. Draghi – head of the ECB – is smugly claiming that his QE programme is already working, driving down the price of the euro, and of course totally ignoring the fact that the currency has been falling against the likes of USD and Sterling since last May. He is suggesting that the eurozone is “recovering” in a “sustained manner” and that there’s a real opportunity to strengthen currency union and fix its problems permanently. Fine – but meaningless – words! If QE were going to be the success he claims, bond yields would be reflecting the targeted 2% inflation – that’s to say, they would be returning an interest rate above 2%. Yet what is the reality? Even pretty shaky bonds – such as those issued by Spain and Italy – yield less than 1.3%, German ten year debt is at 0.33%, and that country’s five year bonds are yielding below 0% – in other words, investors are paying to hold them!

Finally, I can’t let Greece go unmentioned, and it seems that a major German newspaper is claiming that Greek government employees, together with the country’s pensioners, can expect a reduction in their paycheck at the end of this month. Tsipras, the Greek PM, claims however that “salaries are not in danger” and bank deposits are “totally safe”. The former may be true, the latter most assuredly is not.

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About the Author

- Ian Williams has been trading stocks, indices, forex and commodities on his own account for over 30 years. He set up a "trading training" company in 2004, and since then he has helped a large number of people to become successful traders. His hobbies are skiing and flyfishing, spending his winters in the Alps and summers in Scandinavia. He can be contacted via