Chart, foreign currency reserves and US Treasuries : “Gimme more”

Britney Spears ? Nope. The Bank Of Thailand.

Time passes and the BOT pursues with a striking constance -like all the other asian central banks- their suicidal mission : buying US Dollars, mountains of it, and worse  US Treasuries, AKA US debts in US Dollars, in order to save their pathetic exports figures by keeping a weak exchange rate for their currency: it’s the Beggar thy neighbour policy.

US debt in US dollars ? Talk about a double whammy.

And meanwhile… the smart guys (asian too) are buying gold.

Talk about major schizophrenia.

Let’s update our charts.

“Gimme more of less”. What to say else ? More USD and more US Treasuries (US debts).

Yes, the proper word is : “correlation”. This chart is screaming… The Great Correlation.

The key word is : “stability” (apparent, virtual). That’s the fantasy of the thai central bank… But it doesn’t work this way. Because if indeed it’s possible to fool all the people all the time, at one point you face laws of physics…

We can see a lot of efforts (buying a lot of USD) in order to keep the exchange rate USD-THB stable.

We are deep inside the Rabbit’s Hole, Wonderland. It’s the lala economy.

Sustainable ? We will see.

(Source Bank Of Thailand, and US Treasury).

PS : Sorry to repeat myself, over and over… But if you’re looking for some light inside the tunnel… Point your browser to Mish Blog and Calculated Risk Blog. Those people have understood it all… since at least 3 years… Yes, the “crisis”, the “recession”, the “depression” whatever you wish to call it is nothing but new… It was documented, predicted, announced, analysed, dissected… But of course, you didn’t get the chance to read it on Bloomberg or the Wall Street Journal.

Don’t be a clown.

Break your chains.

Banking system, thai understanding of “liberalisation” : “foreign banks can open 2 more branches”

BoT pushes liberalisation under new plan, writes Bangkok Post.

As any normal human being, you would feel excited. So you decide to continue to read. And gradually, you feel baffled and eventually you end up in tears. That’s the beauty of Thailand : a perpetual source of exercise for our zygomatic muscles.

Ready ?

Thailand’s new financial master plan will offer greater opportunities for foreign banks, says Bank of Thailand governor Tarisa Watanagase. [...] The central bank’s second financial-sector master plan would gradually liberalise the sector from 2010-14. [...]

From 2012-13, the central bank will allow greater competition within the sector, starting by allowing foreign banks to open up to two branches in addition to their head offices.

Do you know, as of september, what is the total number of branches of commercial banks in Thailand ?

5 673.

I repeat : 5 673

I know, the proper word is : “surreal”.

(source BOT, FI_CB_060_S2)

So after giving a huge, astronomical boost to foreign banks (allowing them to open 2 more branches)… then come the final blow :

The central bank has no plans to offer new universal banking licences, seeing the current 15 banks as enough for the country’s needs.

Voila. The words “competition” and “liberalisation” in Tarisa’s mouth mean : “we don’t need more banks”.

Surreal. Just surreal. But so tasty. Viva Tarisa !

PS : since I study Thailand, there is one great mystery I was unable to solve : do they really believe the non-sensical words coming out of their mouth… Or do they really think that foreigners are totally and definitely stupid ? To this day, I’m still wondering…

Chart, foreign reserves, and exchange rate

Gold 1, 2, 3 lift off ! 1042 USD/ounce last night ! Cause and effect of a crashing US Dollar…

Time to update the charts about the foreign currency reserves of the Bank Of Thailand.

Like virtually all central banks in the world, the BOT is happy (… not really) to buy USD.

Because, like virtually all countries in the world, Thailand is obsessed with the exchange rate in USD. They would do anything, even crashing their own local currency, to save the appearances and to save thai exports …

(Source BOT, table EC_XT_031)

Those trees won’t be able to grow to the sky…

We should have some real sport before the end of the year…

Chart, credit, august : still going down for businesses

(Source Bank Of Thailand, table FI_CB_015_S3).

“After the Green Shoots, the credit crunch ?“, I asked in august, regarding the figures for credit (from commercial banks in Thailand).

Rethorical question…

The trend is getting worse.

The total outstanding credit for businesses recorded a drop of 3,64 % in july (-1,38 % in june), compared to july 2008.

As for the total and individuals, the % of growth year on year is going down too (but we are still in positive territory y-o-y at + 6,5 and +5,2 %).

The clowns are having fun with stock markets (look at the SET !), same trend worldwide… but on the ground businesses, AKA the real economy, AKA jobs, AKA people… are having trouble to suck the credit breast.

And for many of those companies, today, credit doesn’t mean “investment”. But rather oxygen to breath… To survive. To not die…

But they will.

As for the banks, well, even though the clowns don’t want to understand the basic principle of risks and rewards, the banks are just being rational. Now. Who could blame them ?

In a recession, it makes no sense to increase the risks, to increase capacities by lending money to companies in trouble.

The problem is : somehow it’s the “carpet bombing” principle. Some of those businesses really need money to invest and to grow… But the banks are too afraid.

Anyway my friends. We shall rejoice. The stock markets are euphoric, like teenagers going on a date. Abhisit is handsome (but less than Obama). Bernanke has a beautiful bear(d). The sky is clear. And the women are pretty.

The crisis is over. I repeat : the crisis is over.

The global downturn was effectively declared over yesterday, with the Organisation for Economic Co-operation and Development (OECD) revealing that “clear signs of recovery are now visible” in all seven of the leading Western economies, as well as in each of the key “Bric” nations. (The Independent)

Until… very soon.

Foreign currency reserves, + 17 % in august : the Bank Of Thailand on a crash course

The chart speaks by itself.

Foreign currency reserves (+ forward positions) reached 138 billions USD at the end of august, an increase of 18 % y-o-y, compared to august 2008 !

But meanwhile… the USD is losing ground versus the THB…

Let’s look the reserves and the exchange rate USD-THB.

(Source Bank Of Thailand)

So let’s summarize :

-The Bank Of Thailand is buying US Dollars (it’s a guess, we can’t be sure, foreign currency reserves are converted in USD, the BOT does not give the composition of its reserves), in order to curb the increase of the THB versus the USD. Why ? To save the thai exports (on this issue, there is no doubt). This is why overall, we can affirm that the BOT is buying USD indeed.

-Exports are being crushed by the global crisis (falling demand)… If you add the exchange rate problem… It can compound the problem.

-To illustrate the issue : a thai company sells 1 USD of goods… With a low THB It will get for instance 40 THB… It will “feel” much richer than with a strong THB (It could get only 30 THB for the dollar)…

-But despite this suicidal move (the famous “beggar thy neighbor” policy), the THB is still increasing versus the USD… Proof that downward pressures against the USD are high.

Thailand behaves exactly like all other asian countries (and BRIC countries, read here).

It’s a pathetic short term view… But the political pressures are just too high. Central bankers and bureaucrats are just a bunch of panicked cowards… “give me 5 minutes more mister executioner”….

They don’t have the energy and the courage (and the intelligence) to try to build a real economic growth… instead, they rely on accounting tricks and other tour de passe-passe.

Why do I use the word “suicidal” ? What would happen… if the USD continues to fall ? The Bank Of Thailand will be among the suckers, the mega suckers, with a mountain of worthless US Dollars… Sucker number one would be of course China.

Last but not least… here is my botte secrète : the chart with foreign reserves and thai holdings of… US Treasuries ! Unfortunatly, with data until june only.

(source US Treasury)

Correlation ? You bet. So let’s wait for august data.

Will the Bank of Thailand (and the whole country) be… a double sucker ? Buying US debts in US dollars.

Wait for the next episode of this Great Drama.

Chart, credit, june : after the Green Shoots… the credit crunch ?

(Source Bank Of Thailand, table FI_CB_015_S3).

The total credit (outstanding) at commercial banks was at 7 483 billions THB in june. That’s 131 billions less than may. But it’s still increasing by 7,5 % year on year (compared to june 2008).

Sounds good ? Well… look at the details.

Yes… Growth of credit for business is in negative territory (-1,3 %)... And it’s still decreasing for individuals.

Businesses are under pressure because of the recession.. and for some their cash bloodline is getting dry. And It makes perfectly sense : banks are not willing to increase lendings. Because risks are increasing. And because it’s absurd to add capacities during a recession.

At least, this is how It works in a “normal” system. In China for instance, when the politicians order the banks to increase lendings… the banks comply. And in a hurry (it would be so bad to end up in jail…)

That’s the beauty of communism if I may say. But of course It’s just another bubble (“property sales surge 60 %“), ready to burst. Anyway.

Now let’s look at the amounts.

And the differences per month.

Our dashing Prime Minister, Abhisit, told us that Green Shoots are to be seen everywhere, that the bottom is reached, that recovery is under way blablabla…

Looking at the figures provided by the BOT, his statements are just wishful thinking…

The credit party is over.

And the clowns should explain us how a system based on credit can continue to grow if the credit is drying up ? This basic question is a burning one in the US (read this striking article about the severe US consumer credit crunch).

But it’s much more entertaining and convenient to talk about Green Shoots Soup and Recovery Salad.

Bon appetit. And sleep good.

[ I'm taking holidays. See you last week of august. Until then, may the Crisis be with you and be ready for an exciting september ]

Chart, credit card, may : Green Shoots still brown in people’s purse

(Source Bank Of Thailand, table FI_CB_080_S2)

I know : reading about the “road to recovery” (title displayed on CNN TV for instance), “better than expected” figures, “hopes”, “beginning of the start of the end of the recession”… in the USA and even Thailand… you scratch your head.

Anyway. Christmas is not far away… And Santa Claus is going to surprise us. Meanwhile, let’s have a look on credit cards data for may.

The number of credit cards declined by 47 900 at a total of 13,08 millions. Year on year (compared to may 2008), that’s a growth of 6,88 %.

Look at the trend.

And now, with values.

But even with the magic of plastic (“fantastic”, right ?)… the real indicator is… the cash. The money. The dough. The bucks.

The total spending (usage) declined to 70,05 billions THB, that’s -4,73 % compared to may 2008.

What a nice trend line ? Right ?

So to summarize : compared to may 2008, the number of credit cards increased by 6,88 %, but the spendings with those cards decreased by 4,73 %.

A nice “cisor”.

A cisor to cut the Green Shoots.

But don’t forget the official motto : everything will be fine. We are on the road of the recovery. The recession was just a bad dream. You are going to awake in the real world, that is with unlimited consumers spending growth, and each thai individual will have 10 credit cards.

Chart, credit : the party is over, growth is decelerating

(Source Bank Of Thailand, table FI_CB_015_S3).

Time to update the charts about total credit and type of debtors, at commercial banks.

The total amount (outstanding) of credit was 7 576 billions THB in april, a + 8 % compared to april 2008 (but far lower than +18 % y-o-y we had in january).

My bet : in a few months, the trend will turn negative. The recession virus is infecting, slowly but surely, the thai credit system.

(Credit = Overdraft + Loans + Bills)

Now with amounts :

The “plateau” is visible… Despite the hysterical calls from the government for the banks to lend more, to pump up more cash into the system… it’s obvious : banks won’t take the risks.

This basic, fundamental rule, is totally forgotten : during recession it makes no sense to :

-borrow more money (in order to invest, to increase production capacities when precisely demand is falling)
-and to lend more money (because risks are increasing)

… unless interest rates are very high (to pay for the risks)…

The clowns (all over the world) think that they can make businesses and individuals borrowing more money, and force banks to lend more during a recession… and at the same time keeping interest rates super low.

The 122 billions USD question : should Thailand use its foreign currency reserves ?

Since a few weeks, we hear calls for the BOT to use its foreign currency reserves, in order to boost the domestic economy. People don’t understand why the government should borrow billions of USD… when the BOT has a total of 122 billions in “reserves” (+ 6 in foward positions).

This discussion is not new actually. It started with the Samak government, last year.

First, if you don’t know what are the Bank Of Thailand reserves, read the official definition and my article.

(Here is an update of the chart, source BOT)

Let’s start with the official opinion of the BOT : it’s an absolute no-no. And this is not new. Here are some interesting quotes from Tarisa (the BOT governor), published last week.

Recently, Dr Narongchai Arkasanee, a well-known economist, and other academics, called on the central bank to use US$200 million (Bt6.82 billion) to $300 million of its international reserves of $120 billion to help stimulate the sagging economy as the government is cash-strapped.

Tarisa vigorously defended the central bank’s international reserves management, saying that in economic theory it is not an appropriate policy to use international reserves to prop up the economy.

“We have already talked it out with the prime minister and the finance minister that using international reserves to stimulate the economy is not a good option.

Apart from the US dollar, there are other currencies in the reserves. If we sell the dollar from the reserves, the value of the baht will jump, which would complicate the problems. And if the Bank of Thailand were to push out the baht by converting the US dollar in its own account, this would also amount to printing money,” Tarisa said.

“No country in the world is spending money from its international reserves directly. If we were to use the reserves to buy up some oil reserves, then this matter can be put to rest because it would not affect the domestic economy.” (Nation)

Not an appropriate policy ? That’s a very interesting wording. But she’s right : very few countries are tapping into their reserves…

So why it wouldn’t be appropriate ? Let’s explore a few possible reasons.

Exchange rate
For a country like Thailand, with a growth driven mainly by exports, the issue of the exchange rate USD-THB (the other currencies are totally irrelevant as I showed in this article) is the core issue.

At 34 THB for 1 USD, exporters, businesses are already complaining. They all want a weak THB, to (artificially) boost their income (it’s the “beggar thy neighbor” policy, read my article here)

Selling USD, and converting them into THB, would lower the value of USD relative to THB (offer and demand). And then a higher THB would make like difficult for thai exporters.

Inflation
Inflation could be another concern. All this cash, would be converted in THB, and then would flow the domestic economy. If liquidities are already at high levels, then it could produce an inflation of prices.

The honey pot syndrome
Tarisa is probably shy. But I see a third factor : thai politicians.

Who can trust thai politicians ? Nobody of course. And Tarisa knows that very well… She’s a member of the state apparatus. To give to the politicians the keys of the coffer would be in a way suicidal. This mountain of money could have very negative effect on their sanity… And their own bank accounts

It would be like giving the keys of the fridge to a pack of hungry wolfes…

So maybe the BOT wants to keep an adamant position against this idea, to prevent any breach. To accept to give even a few hundred of millions of USD could create a dangerous situation.

Psychology
As Tarisa says, tapping into foreign currency reserves is not a conventional policy. Central bankers are naturally reluctant to such an idea, because it doesn’t fit with their text books.

Especially in Thailand, where weight of “traditions” and lack of creativity are a heavy burden. However, we should note that the FED with Bernanke was not afraid to take “unconventional” decisions (very unconventional…).

Overall, those are the 4 reasons that could explain the BOT’s refusal.

But I think Tarisa is not telling us everything.

I would like to add a fifth reason, a fifth factor : the fear factor.

The fear factor, the conspiracy of the idiots or the MAD policy
There is a very fragile equilibrium right now in the world, about the USD. We all know that the US is doomed, but nobody who could have an influence over the USD want to take any action that could accelerate the move.

Yes, I’m speaking about central banks… who continue to buy (like there is no tomorrow) US Treasuries (my article here)… therefore USD.

If one central bank starts to getting out of the USD… even on a small scale, it could have huge consequences… and put the equilibrium in serious danger.

I’m not speaking about a conspiracy (albeit…) … but rather a “converging and common interest” between most of the central banks around the world… like a non written agreement if you prefer…

During the Cold War, there was the MAD concept : Mutually Assured Destruction… It’s exactly the same now with the USD…

So what to think ?
As for my own opinion… Should Thailand use its foreign currency reserves ?

I would definitely answer yes. At 122 billions USD and counting, the reserves are just too high (regarding conventional theory, and Tarisa should start to worry about the way she will justify an ever growing reserves…).

A fraction of this money could definitely be used to boost an investment program. A real one.

Thailand needs heavy infrastructures. And those wouldn’t be luxury (like to build a new stadium… interest = zero as far as economy is concerned)… but could really fuel future growth.

And the sector we are looking at is obvious : transportations.

But… of course once you have set up a principle, then politics catch you back.

It would be utterly unimaginable to give a large amount of money to the current thai government… I mean can you imagine a guy like Newin, whose gang controls the Transport Ministry, and such money ? It would be obscene.

That’s one of the main burden of the country : the dirty “politicians” (included bureaucrats and military).

Chart, foreign currency reserves : BOT stockpiles USD… like other BRIC countries

Et voila ! The “beggar thy neighbor” virus strikes again !

The BRICs are buying dollars at the fastest pace since before credit markets froze in September, protecting exports even as leaders of the biggest emerging markets consider alternatives to the U.S. currency.

Brazil, Russia, India and China increased foreign reserves by more than $60 billion in May to limit currency gains as the first global recession since World War II restricted exports, data compiled by central banks and strategists show. [...]

The Dollar Index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, lost 6.4 percent last month, the biggest decline since March 1985. [...]

“What we are seeing is a public expression of discontent over the dollar, yet nobody knows what needs to be done specifically,” said Elina Ribakova, the chief economist in Moscow for Citigroup Inc. [...]

Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3 percent, in May, the third most on record, Bloomberg data show. About 51 percent of the $6.36 trillion in marketable Treasuries are held outside America, up from 35 percent in 2000. China is the biggest foreign owner of Treasuries, increasing its holdings to $768 billion as of March from $60 billion in 2000. (Bloomberg)

And what about Thailand ? Well, it’s too much to ask the Bank Of Thailand to show any sense of creativity or originality… The BOT is happy to follow like a good dog (waving its tail)…

Look at the chart…

[Source Bank Of Thailand]

End of may, we almost reached the all-times record (april 2008). Foreign currency + forward positions (if you want to know what are forward positions, read my previous article) increased to a total of 127,76 billions USD !

The brain of those people are wired in a certain way… They are unable to change their behavior when confronted to totally new circumstances. They all wish a weaker THB in order to “save thai exports” (read my article).

Always the same short sighted view and analysis.

Look at the same chart, with the exchange rates USD-THB.

But if you think about it, the situation is even worse : those countries are buying USD… because they are buying… US debts !

The object they are buying, and the medium they are using to buy, are both doomed. It’s a lose-lose game.

Do they have choice ? Probably not.

But the gap between reality and statements is widening. They are talking about “discontent” with the US Dollar, but they continue to stockpile… USD. Welcome to the Rabbit Hole.

But Thailand should be careful… It can’t play this game for too long. Thailand is not China, nor Japan… The speculators are going to smell the blood… It’s like if the BOT was crying : “come to daddy”.

Meanwhile… thai politicians are looking -with envy- at the BOT’s reserves likes the wolf of Tex Avery… A mountain of money… More they could ever dream of… And, on a more practical level, the coffers are empty and the government is totally broke… so…

More on that later. Stay tuned.

Another perfect non-event : Bank Of Thailand cuts interest rates at 1,25

Sorry to repeat myself. But yes, it’s another perfect non-event.

The Monetary Policy Committee [BOT] yesterday expressed grave concern over political instability along with the prolonged global recession, which could drag the economy down deeply.

The MPC, as widely expected, cut its policy interest rate by a quarter percentage point to 1.25 per cent, the lowest level since July 2004. (Nation)

Why non-event ? Because the Bank Of Thailand is inaudible. They just have followed all the other Central banks around the world, and an absurd keynesian policy, to “figth the crisis”… free money. Toilet paper.

And ? What happened ? NIL, NADA, no result. The crisis is still there, more devastating than ever, gaining strenght like a hurricane, day after day.

Yes I know, CNCB told you last week (after the G20) that it was over, that Wall Street was celebrating. Bullshit. It’s a nightmare. The macro and micro economic statistics are horrible, USA, Europe, Asia, you name it.

So I repeat my question : And ? What’s next ? We are virtually at zero, the Bank of Thailand can’t cut further down obviously.

So ?

To summarize :

-Zero interest rates, free toilet paper money doesn’t matter. We don’t have a liquidity problem. But a solvency problem.

-in the middle of a full blown recession, there is no demand. No demand for free money. To invest. Of course many clowns need to borrow free money, to repay other… debts… But recovery can’t be based on such scheme. The party is over.

-what businesses are going to invest today, increase capacities, seeking loans ? Those that are seeking loans… are the ones that are dying : cash flow problems, less demand. It’s over. Bye, bye. Would you lend money to such businesses (or individuals) ? Even if the government tells you to ? Of course not.

-the banks are cautious : they don’t want to lend more. They know very well that the other word that comes with “recession” is “bankruptcy”. So why would they lend money to businesses that will go bankrupt soon ? To please Abhisit ? To please the clowns ? Ah ah ah.

-the banks are like everybody else : they want to save their margins : therefore they are not going to cut their rates… However, they will cut the deposit rates ! Too bad for… the savings of people. Too bad for… consumption.

-so the BOT’s decision is just a small gift… to the banks and a few business friends (who will be able to refinance their debts).

Here is the proof.

Voila. Everything is simple.

Last point, the rant like the cherry on top of the cake. Ready ? Be focused, it’s going to be quick.

The interest rate cut would help stimulate the export sector, central bank assistant governor Duangmanee Vongpradhip said on Wednesday. (Bangkok Post)

I remind you that this… individual… working apparently at the Bank Of Thailand… is paid. A salary.

What’s the link between a bicycle and a cabbage ? None. It’s the same here. The Assistant governor has just exploded the lunacy barrier, like a F16 would break the sound barrier.

Unless… unless… this individual made a big mistake… and in public drew a line with… the exchange rate issue ! Surprise !

In theory zero interest rates would weaken the local currency (money would go somewhere else)… But… of course it’s the same shit everywhere… So the theory doesn’t apply. Too bad.

Many clowns (politicians but also, and it’s worrying, business owners) are calling for a weak THB policy… in order to “stimulate exports”. The famous “beggar thy neighbor” strategy.

Totally taboo… But they are all thinking about it.

As I wrote… it’s a very powerful temptation.

Anyway… Back to Tarisa (BOT governor) and the question : what’s next ?

Now that interest rates are virtually at zero, what are you going to do ?

Quantitative easing ?

Game over.