USD Retreat, What about our HKD?

Hello all, what intervention will the HK Government and Monetary Board need to do? Will this mean the final chapter on the Peg?

From another matter with the USD, though not to advocate this, does anyone here have information that supports the following:




Petrodollar Scam.


-The fall of US Dollar







* Back in 1971, the USA printed and spent far more paper money than it could cover by gold.


* Few years later, French demanded redemption of its paper-dollar holdings in gold. But the USA rejected as it actually didn't have enough gold for the dollars it had already printed and spent all over the world, thus committing an act of bankruptcy.


So the USA went to the Saudis and cut a deal – OPEC denominate all sales of oil in US dollars.


* From that point, every nation that needed to buy oil had to firstly hold US dollars, which meant that they exchanged their goods and services for dollars, which the Americans just printed.


* The Americans brought their oil literally for free by printing those dollars. The ultimate free lunch for the Americans at the expense of the rest of the world.


* However, the scam began to unravel when Saddam Hussein started selling Iraq's oil directly for Euro, abrogating the cozy arrangement the Americans had with OPEC. Thus Saddam had to be stopped. How?


* USA concocted up a pretext to wage war (drama of twin tower blast) and invade Iraq and the first thing the Americans did was to revert sales of oil back to dollars. The currency crisis was averted for the moment.


* But Hugo Chavez (Venezuela President) also started selling Venezuelan oil for currencies other than dollars, so there were a number of attempts on his life and "regime change", traceable right back to the CIA. The petrodollar cat was out of the bag.


* Iran President (Ahmedinejad), watching all of this, decided to kick The Great Satan in the goolies and do the same thing - sell oil for every currency EXCEPT US dollars.


* The shell game is coming to an end for the Americans. As the nations of the world find that they can buy oil for their own currencies instead of holding paper US dollars, more OPEC nations will abandon the dollar.


* The worst thing for the Americans is that eventually, they will also have to buy their oil with Euro or Rubles instead of just printing paper money to get it.


* That will be the end of the American Empire, the end of funding for the US military and the destruction of the US economy.





* The great scam is coming to an end and there's not a lot that the USA can do about it, except start another world war!!!





* Wait and Watch… Only few years/months ahead.

Wow! Now that is quite a scam. Chain of events seems to be well documented and correct. It's either completely TRUE or a CONSPIRACY THEORY!

If you want details of this go to youtube.com - type in John Perkins Confessions of an Economic Hitman.


This is not a conspiracy theory - it is reality - Kissinger was the man responsible for cutting the oil/USD deal... and Saddam didn't play ball so that's one reason why we have a war in Iraq...


Many things in our world are not what they seem (or what we are told they are...)


This is a topic much discussed on our THINK forum.

Ed, you have been watching the x files again haven't you!!!!

Okay so back to our HKD? What's in the future and are HKers going to loose their jobs and valuation of the currency?

The answer is yes there will be dramatic fallout for HKers due to the USD woes. AND as i have said before there will not be a proactive move to protect HKers as all government decisions will be made after the event !! Its going to be tough times ahead.

I would have to think that the HK government would depeg if the USD crashes dramatically. Inflation would run out of control otherwise.



Kissinger's deal with the Saudis is not the stuff of xfiles - it is for the most part public record.


Read through the lines on the news and you will have your evidence.


Why do you think Bin Laden despises the House of Saud?


A number of reasons - some related to religious fanatacism - others related to the sell out of their country's resources.


The deal is that the House of Saud gets a portion of the oil revenue sales in their pockets while they promise to invest the rest into US govt instruments.


The interest from those investments for the most part goes to infrastructure projects that must be built by US companies (Bechtel Haliburton etc etc...).


Also oil gets denominated in USD.


House of Saud gets billions in their pockets to buy Rollers and babes... and a promise that the US will ensure that their oil gets to market uninterrupted (i.e. US will quickly turn on them if they dont play ball).


If you don't believe it do a fact check on google checking Mossadeq in Iran.


There is hard evidence that the US in cahoots with Britain orchestrated the overthrow of a democratically elected president so that they could continue to control Irans oil reserves.


Apparently when they ran for the hills the Iranians glued together shredded top secret docs that revealed all...


Anyway, lets not sidetrack - back to the discussion at hand...

ofcourse the HK government will depeg but only AFTER the event. If the USD crashes dramatically then us HK Dollar holders will be wiped out as well.

If the HKD depegs even after the USD crashes I fail to see how HKD holders are wiped out if they hold their HKD. Let's say the HK government repegs based on a basket of currencies, doesn't that immediately reflate the value of the HKD based on that basket?

Because I’m saying by the time the re-pegging takes place the HKD will have already been devalued. So for example at the moment for argument sake (and assuming re-pegging takes place to the YUAN) lets say current exchange rate of HKD to YUAN is 1 or there abouts.


Then, lets say, USD crashes and HKD remains pegged to USD then the exchange rate between HKD and YUAN is now 10 i.e 1 YUAN buys 10 HK$ (for arguments sake).


So whilst the re-pegging will improve future purchasing power, if it is delayed it will have a negative impact on people saving and holding HKD now before the US Dollar tanks and the de-pegging and re-pegging takes place.


So if we de-peg now and repeg we will be getting a better deal for our HKD than if we hold off and re-peg after the event which may happen soon or may happen much later. It's going to happen though.


Alternatively just let the HKD float the market is wanting to make the HKD stronger and stronger however the government keeps on having to intervene flooding the economy with HKD just to keep the peg in check.

Yes but the purchasing power will only be impacted for the period when the USD crashes and the time it takes for the re-pegging.


I would assume that the HK government is modeling this scenario and that they have a contingency plan in place - I suspect that when this crisis worsens dramatically we will wake up one morning in the not too distant future and find the link to the USD gone...

WHAT DOES EVERYONE THINK OF THIS SUMMARY!


In today’s newsletter we focus on currency dynamics around the globe.





Does the U.S. dollar’s December slide mean the USD has passed its peak? Most likely not. The turn-of-the-year profit-taking on long USD positions creates a near-term blip in the dollar's uptrend but doesn't alter the medium-term trend of appreciation versus the euro. The four horseman of the carry trade apocalypse - Deleveraging, Risk Aversion, Growth Differentials and the Dollar's Reserve Currency Status - would need to retreat before we see a sustained pullback in the EUR/USD from the slide to near-parity ($1.10-$1.30). Governments, banks and other firms are still scrambling for dollars to repay their USD-denominated debt while signs of global recession and credit crisis spur on the flight-to-safety in U.S. Treasuries. European sovereign bonds offer an alternative but inferior safe haven because of the European bond market’s fragmentation and exposure to emerging Europe. More aggressive policy response in the U.S. compared to Europe, could bring the U.S. out of a recession faster than the Eurozone (though growth will most likely remain subdued for some years to come), supporting the dollar against the euro. In the longer term, however, once risk appetite revives, the greenback might lose its defenses in wake of worries surrounding U.S. public debt expansion and the potential inflationary effect of quantitative easing.





The Japanese yen hit a 13-year high against the dollar in mid-December when it broke below 90 per dollar. It may hold the distinction of being the only currency apart from the Swiss Franc that could appreciate against the dollar in early 2009 due to carry trade unwinding and repatriation of Japanese funds invested overseas. The recent surge in the yen is being driven by carry trade unwinding as well as a substantial shrinkage in US-Japan rate differentials. While there is room for the JPY to strengthen in the short-term, Japan’s increasingly gloomy macroeconomic outlook raises questions about its continued strengthening over the medium-to-long term.





The rest of Asian and the Pacific currencies are losing ground against the dollar. Faced with slowing growth and exports as well as withdrawal of foreign capital, many Asian currencies have fallen against the dollar, with those with current account deficits like South Korea and India hardest hit. Despite central bank intervention, the currencies of India, S. Korea, Thailand, Philippines, Indonesia have depreciated recently as global risk aversion contributed to outflows from EMs.





Declines of around 20% for these currencies may have contributed to some slackening by Asia’s other strong currency, the Chinese yuan. After appreciating against the dollar at the beginning of 2008, and tracking it closely through spring, summer and most of the fall, the yuan is now depreciating slightly against the dollar as Chinese growth slows and the Chinese try to temper the 25% appreciation against the Euro since mid 2008. Last weekend’s powwow between China, Japan and Korea which followed the Japanese and Chinese extension of credit lines to support the Won, may be the first step in greater exchange rate coordination within Asia and may help to support some faltering Asian currencies at least in the short-term. Meanwhile the dollar’s rally is putting the Hong Kong dollar under pressure when Hong Kong is in recession, despite the strong support for its peg from authorities.





The Korean won has been victim of the selloff of emerging market assets in an environment of acute risk aversion. South Korea gives the world an example of a net creditor in a currency crisis. The won’s downfall also has its roots in Korea’s high ratio of short-term external debt to foreign reserves (60% at end-2007). After international capital markets essentially shut down, Korean banks and firms have sought dollars to repay their external debt or sell off assets to do so – raising demand for USD versus KRW. This deleveraging, plus the export slowdown and portfolio outflows from Korean equity and debt markets, might keep the won weakening versus the USD until late 2009. The current account will likely improve if commodity prices remain low and import demand falls, but capital outflows will outweigh the effect of the current account surplus on the won.





Free floating commodity currencies like the Australian, Canadian and New Zealand dollars and the Norwegian Krone have followed their commodity exports values down - together the fall in commodity prices and currency corrections of 20-30% have eroded their terms of trade. Despite the chance that they may already have overcorrected, with further rate cuts to come, these currencies could slide further. And so might the South African rand, especially now that the Reserve Bank has joined the cutting cycle. But these currencies might not gain much from any prolonged dollar weakness unless commodities pick up much steam as all of these economies are facing sharp slowdowns at best and recessions at worst.





Other fuel exporters like Russia and Nigeria were reluctant to let their currencies slide and in Russia’s case spent significant portions of their ample reserves to avert it. But with Russia’s current account about to shift to deficit as early as this quarter and its reserves falling by almost 30%, it is now allowing more frequent 1% devaluations. The rouble may fall another 20% at current price points through Q109, meaning that Russia’s fx-denominated debt may become an even greater burden for the government especially as the devaluation expectation is contributing to retail and corporate deposit withdrawals from the banks – expect to see more declines in fx reserves. Nigeria too is allowing the Naira to shift downwards and the Kazakh Tenge may not be far behind. Meanwhile the dollar peggers among the oil exporters, especially the GCC, are no longer facing the appreciation pressure they suffered earlier this year even as the dollar’s rally has increased their purchasing power. In all of these countries, inflation is slowly coming down, even if it remains stubbornly in the double digits and weakening local currencies offset falling global price declines.





Most MENA currencies are pegged either to the dollar or to a basket which includes exposure to the euro - these pegs are expected to remain in place. However, the region's more flexible currencies have been allowing more depreciation. Egypt's pound plunged from a five-year high of LE 5.31 per USD in August 08 to a rate of almost LE 5.53 in December 08 and may continue depreciating in 2009 as Egyptian – and global growth – slows and Egypt's balance of payments continues to be weak. With inflationary pressures easing, the Central bank of Egypt (CBE) may do little to prevent the pound’s depreciation in hopes of boosting growth via cheaper exports, increasing tourism and Suez Canal revenues and attracting more FDI. Israel's monetary easing comes as the country is witnessing a significant growth slowdown - another rate cut on December 29 may further weaken the shekel. With many of Israel's export partners faltering, a weaker shekel has been 'desired' by the BOI for some time. However, government support of the financial sector may cause intermittent strengthening of the shekel.





Eastern European currencies are coming under pressure, in part due to spill-over from global market turmoil and in part due to domestic fundamentals. Many analysts are bearish on all CEE currencies given these economies’ heavy dependence on capital inflows. Nevertheless, some economies (i.e. Czech Republic and Poland) seem better placed than others (i.e. Hungary and Romania) and this should feed through to their currencies. Similarly, despite steep devaluation on the Ukrainian Hryvnia, pressure continues given its large current account and reliance on steel exports.





Devaluations in the works in the Baltics? The currency pegs in the Baltic economies, particularly Latvia’s, have been coming under pressure recently. Given their large external imbalances and the global financial crisis, the question has arisen as to whether these countries will be forced to give up their currency pegs to the euro. Many analysts, however, see no appetite for a devaluation as the high degree of foreign currency borrowing in these countries mean a devaluation could undermine financial stability. Moreover, the possibility of a speculative attack is limited by the shallow financial markets in the region.





The Turkish lira is among most risk-sensitive of EM currencies. The TRY shows a strong correlation to carry trade baskets given Turkey’s high interest rates and is therefore sensitive to unwinding. In the near-term, expectations of an IMF deal, as well as global risk appetite and monetary policy moves, are the factors determining the currency’s path. Analysts expect the lira to depreciate further in next 6 to 12 months given Turkey's large current-account deficit, increased global risk aversion, and sluggish foreign direct investment (FDI) inflows since beginning of the year.





Moving to Northern Europe, economic recession, vulnerability of Swedish banks (due to their exposure to sharply slowing Baltic economies) and the rate cycle have been weighing on the SEK, which hit record lows against the euro in December. Yet, a number of analysts now see the SEK strengthening over the next 12 months from its current levels.





In Latin America, the Brazilian Real (BRL) remains a source of concern on the inflation front, continuing to show a weakening bias after having depreciated over 30% in the last three months. While Brazil’s external indicators suggest the currency is overshooting, the authorities cannot ignore its persistent weakening. Estimates of the historical pass-through from BRL movements to domestic consumer prices stand at around 8-10% after approximately one year.





The Mexican peso (MXN) seems to be stabilizing after a volatile adjustment phase that affected energy-linked emerging-market economies. Interest rate differentials, banking sector systemic health, a swift government response to the global financial crisis, still large central bank FX reserves, and the reciprocal currency arrangement between the US and Mexican central banks have been MXN-supportive.





The Chilean peso (CLP) has discounted a sharp contraction in trade-linked currency flows, despite a relatively solid fiscal position. Interest rate differentials are not a CLP supporting factor in spite of the fact that the central bank has earmarked the fight against inflation as a key priority. The sharp commodity price adjustment anticipates a weakening prospect for Chile’s export sector.





The Peruvian sol (PEN) has been quite stable, trading at an average rate of 3.04 per USD over the past month; during the recent wave of financial turmoil it has also experienced the lowest volatility amongst peer-group floating currencies within Latin America. The central bank will continue to heavily intervene in the foreign currency market if need be. The USD/PEN is expected to close this year at 3.00.





In Venezuela, the government has stashed away substantial funds during the windfall oil years. With prices falling bellow USD60pb and local inflation rampant the government fiscal accounts remain vulnerable. This will lead the government to devalue the VEF currency sharply in Q1, likely by 30%.





In Argentina, the central bank is letting the peso devalue in a gradual and controlled manner. The central bank is managing the slide in an effort to avoid further eroding investor confidence in the peso.

Makes sense provided the crisis is resolved without a total implosion... still not sure what the impact of adding trillions of dollars to an already massive US debt. Surely there is a piper to pay somewhere down the road...

I would expect that if the HKD is depegged from the USD it would repeg to a basket of currencies or another currency that is seen as more stable than the USD.


I suspect there are quite a few advantages to moving off the USD peg in the event of its collapse - inflation being one of them...


The HK govt will no doubt be flexible and I doubt they will follow a sinking ship to the bottom

We are making new History here so I question the USD recovery as it in itself could be seen as bubble. Plainly, B52 Ben will not care about bringing the USD down so the US has no choice but to consume little, think more domestically, save money, make exports look cheaper and open the door for foreign money to come back in.


The question is will US = Japan or worse US = Agentina


I'm out of the USD already since its year end and more bad news will keep the USD down along with ECB doing what they do best reluctant to play the interest rate game.


Swiss Franc is a good play if you want some safety, AUD if you want higher gains on commodity currencies, don't play CAD as it is too close to US and Oil exports.


I really DONT see the USD rallying anytime soon even during a deflationary period.

Ed, agree but how long will they wait as our HKD could depreciate by 15-20% against all other currencies including the RMB and other Asians.


There is possibility that all currencies could even out eventually as we are for the most part in the same boat but those of us pegged to the first RAT will suffer the gap in time.


What about when HK Property tanks and also the currency against others, then the RMB shoppers come and absorb HK.

Ed, i guarantee they will follow the ship to the bottom and then switch its in their nature - buy high : sell low !!! it always works - doesn't it?

in the meantime the dollar index is tanking! now at 78. i need'nt show you the graph as it looks like the bubble has popped.............

I remain HKD long... expenses are in HK and I am not a gambler...

DaHKGKid,


The US could well look like Argentina- if its lucky - but its more likely heading the way of Zimbabwe with inflation there currently running at 230 million %. And thats the government figures.


Independant sources put inflation in Zimbabwe at 516,000,000,000,000,000,000 % (THATS QUINTILLION!!)


Bear in mind that inflation there was only 50 million % just in August 2008.

There is evidence that at least a large part of the HKMA intervention is necessary due to repatration of RMB into HKD. If the market decides the HKD has to depeg from the USD, then it will happen. The HKMA cannot and will not defend the peg forever. Don't forget that the HKMA's interventions are sterilised, or so they claim, so their capability of to intervene is by practical means not unlimited. Of course one has to assume the HKMA prefers to keep the HKD's fate in its own hands and revalue/repeg before the situation becomes untennable. I would not write off the USD yet, but last weeks moves against the EUR were quite spectacular I must admit.


Btw, the dollar's history as a reserve currency is not a conspiracy, and it is done in the open. The US is and has been very good at buying influence all over the world. It has given America access to cheap credit and strong purchasing power for the last 60 years or so. It may come to an end (soon), but I have not seen the emergence of an alternative yet.

Some say the USD is just another bubble looking for pin. I believe flight to USD currency has already occurred for the most part by corps (needing to finance and saty liquid) and the US will be looking to (manipulate) depreciate the dollar to a level which helps any level of exports, riding down with deflationary trends. I am taking my strong USD now and moving into hedging currencies.


I would have to say that the RMB will also be devaluing but never at a level equal to a false economy in the US. I also believe there is no chance China will come in an intervene in time before the life is sucked out of the USD pegged HKD.


This is when China will truly absorb HK in one foul swoop at who knows 30%-50% off after the real-estate market has already gotten hammered.


This is only a theory but shared by numerous bearish economists right now.

You are painting an economic implosion scenario now. If that were to happen I think China would have bigger internal problems to address. And I would be more worried about feeding my family than maintaining my wealth.


I have heard from well-informed sources that China switched a big chunk of its USD reserves into EUR last week. That would partially explain the big move in the euro.