World Economic News
Bundesbank President in Denial: 'No Bubbles Here'
"There are no bubbles in Germany," claimed Bundesbank president Ernst Welteke in hysterical denial of the ongoing global financial madness. On the sidelines of the G-10 central bankers gathering in Basel, Welteke was asked by a Reuters journalist to comment on the growing concern expressed by some economists concerning the emergence of new asset bubbles that could derail the world economy. Only two weeks ago, European Central Bank chief economist and former Bundesbank official Otmar Issing even raised the question, whether central bankers should now start to "prick the bubble."
However, there is no reason to worry, stated Welteke. He feels "relaxed" on the issue of asset bubbles. Central bankers are alert to market developments. They "look at everything and observe developments." But these talks of threats to the worldwide "recovery" are overdone. "We do not always have to talk about threats," Welteke stated, adding, "There are no bubbles in Germany." Welteke knows quite well that the overall German indebtedness, most of it in corporate sector, has reached 14 trillion euro, while the derivatives exposure of Deutsche Bank has ballooned to an additional 14 trillion euro.
Morgan Chase Moots Takeover Bid for Deutsche Bank
J.P. Morgan Chase would also like to buy Deutsche Bank. According to the German news weekly Der Spiegel, J.P. Morgan Chase, which in January bought up Bank One for $58 billion, has asked Berlin whether it would resist a takeover bid for Deutsche Bank. In early February, Deutsche Bank chairman Josef Ackermann admitted that he has been in serious negotiations with Citigroup. On March 4, Deutsche Bank stock skyrocketed by 9%, to 76 euros, following a rumor from London that Citigroup would imminently present a takeover bid for Deutsche Bank at Eu90 per share. On the same day, Citigroup's new chairman Charles Prince had been visiting the Merrill Lynch headquarters in Frankfurt.
German government sources have indicated that they would not resist a foreign takeover of Deutsche Bank. However, they first want to push through the merger of Commerzbank and HypoVereinsbank to make sure that at least one large, independent commercial bank would stay in German hands. Dresdner Bank, the other of the "top four" German commercial banks, now belongs to Allianz, and is no longer listed on the stock exchange. The only thing that is quite clear at this point is that Deutsche Bank is desperately seeking a foreign takeover, while all the possible candidates for this job are as bankrupt as Deutsche Bank itself.
Deutsche Bank still ranks among the largest banks in the world in terms of derivatives speculation and investment banking. However, the stocks of German commercial banks have crashed in recent years, far more than their foreign competitors. In terms of market capitalization, Deutsche Bank is the only German bank still among the world's top 70 banks. Many U.S. banks, as well as Britain's HSBC (a.k.a. Hongkong and Shanghai) and Royal Bank of Scotland, now each have a market capitalization larger than all German banks combined. Berlin is being told that there are only two alternatives left: Either all the German commercial banks will be bought up from abroad, or the public and cooperative banks, currently accounting for 67% of total German bank deposits, will soon be privatized.
China Maintain Forex Reserves Against Financial Risks
China maintains its foreign exchange reserves primarily to guard against international risks, Guo Shuqing, director of the State Administration of Foreign Exchange (SAFE) and a Peoples Bank of China vice governor, said in an interview with Xinhua published March 8. He said that China's forex reserves could not be called "excessive" or "deficient." It is difficult for a national government to set forex targets, he said.
Reflecting the national debate over whether it was China's currency controls, or its foreign reserves that protected it from the financial crisis which devastated the rest of Asia in 1997-98, Guo said that officials of the Republic of Korea said, after the Asian financial crisis, the more the forex reserve a country held, the better. (Of course, China is not showing any signs of lifting its currency controls any time soon.)
Guo said, "Provided China was in a serious financial crisis, the country would need perhaps several hundred billion U.S. dollars, as tens of billions U.S. dollars [in emergency aid] is not adequate as its economic scale is very big." Guo said that there is no lender under the current international financial system that can provide such a huge amount of money. China must depend upon its own efforts.
Guo noted that the "Republic of Korea, Indonesia, Thailand, Malaysia, and the Philippines have increased their forex reserves by US$160 billion over 1997." China's own forex shot up by $116.8 billion in 2003, to $403.3 billion. This was the result of economic performance, not government policy, Guo said.
Unfortunately, Guo went on to claim that "recovery" in the U.S. and other "developed countries" would help ease the pressure on the yuan this year, because this would result in a backflow of U.S. dollars and ease China's excessive supply of foreign exchange.
China is also reducing its trade surplus, he emphasized. Already it has a trade deficit of "several billion dollars" this year.
He warned potential speculators, not to bet on any appreciation of the yuan. Guo noted the risks involved in the fluctuation of exchange rates, and told any potential Chinese speculators on a rising yuan, to be on the alert against risks in order to prevent unnecessary losses. "Betting on RMB appreciation is likely to pay enormous prices," he warned.
China Will Not De-Link Renminbi from Dollar
China is not going to either de-link the renminbi from the dollar, or allow any significant appreciation of its currency any time soon, a very well-informed Chinese banker told EIR on March 10. Citing the policy statement of the officials of the People's Bank of China (PBOC), whom he knows personally, the banker said the one change likely to be made, would be a widening of the band in which the renminbi is currently allowed to trade against the dollar.
China has very closely studied, and learned the lessons of what happened to Japan after the Plaza Accord, the banker emphasized. It is clear in Beijing, that the sharp appreciation of the Japanese yen after 1986, caused big problems in the Japanese economy. China does not want to repeat them!
On reports that China might re-peg the renminbi to a "basket of currencies," the Beijing source told EIR that this was not the case. The point is, that with all other currencies fluctuating so much against the dollar and each other, this situation could pose constant problems for China. At the moment, it is "simpler" to keep the peg to the dollar.
The recent interview, in the context of the National People's Congress, Foreign Exchange Chief Guo Shuqingalso a PBOC officialemphasized that China would not allow the renminbi to appreciate.
China is keeping a "wait and see" policy on the fate of the dollar. There is a view that the Europeans should take action, and stop the euro's soaring rate against the dollar. But more than that, China is striving to develop its internal economy, and this is the focus, as the current National People's Congress made clear.
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