Carry Trade Dries Up, as Floating-Rate Monetary System Careens Toward: `Boom!'
Aug. 16 (EIRNS)The following release was issued today by the Lyndon LaRouche Political Action Committee (LPAC).
Headlines from London to Seoul today warn of the "End of the Yen-Carry Trade," that insane "free yen" mechanism which world central banks had arranged to pump hundreds of billions into speculators and hedge funds in recent years. "Carry traders dash for for the exits," the Financial Times wrote. The Daily Telegraph called it "panic flight from emerging markets."
Recognition is setting in that that party is over. "We are calling the end of the global currency carry trade," BNP Paribas's Hans Redeker told the Financial Times this morning.
Publicly, most people estimate that the hedge funds hold some $200 billion worth of yen loans for the carry trade, but more realistic people put the size of the carry trade at anywhere from 450 billion to one trillion dollars. Whatever the figure, the rise in the value of the yen has turned those billions into losses. Hedge funds are scrambling to sell off assets, quick, to bail out of their yen loans before they lose more. This, in turn, is driving the yen through the roof, further squeezing those who borrowed in yen.
Developing-sector currencies, propped up by speculators who were turning monstrous profits from investing their freebie yen loans into those high-yield currencies, are now crashing, as speculative capital leaves. The New Zealand and Australian dollars are "in free fall," a trader told the Financial Times this morning. The South Korean won, the South African rand, the Brazilian real, the Turkish lira, Iceland's krona, favorites of the carry trade, not to mention the "monster bubble" of Eastern Europe, are following New Zealand and Australia's downward path.
Thus, the two great generators of liquidity for the bubble in recent years the mortgage securities scam and the yen carry trade are both disappearing simultaneously, just as the hedge funds and banks are desperate for cash to pay off all the promissory notes they signed for their leveraged buy-out scams.
This squeeze between the two "book-ends" of the crisis, is exactly what Lyndon LaRouche pointed to on August 4, when he admonished people to stop looking at the various crises as local affairs, and face the reality that we have "a general, systemic breakdown of the system.... The whole thing is one, big bubble," LaRouche emphasized. "And when the speculator is caught with his pants down, that is, he cannot pay to maintain his continued speculation, thenboom!"