Dance of the suckers : thai Central bank “intervenes” to curb THB gains

We had an interesting string of events this week :
-dollar was hammered
-gold shot up

… and

Asian central banks said to be intervening in currency markets overnight by buying dollars included South Korea, Hong Kong, Taiwan, Thailand, the Philippines and possibly, Indonesia, according to analysts. (Reuters)

A pathetic fart. And the perfect Dance of The Suckers.

And indeed the Bank Of Thailand does confirm :

The Thai baht, Asia’s fourth best-performing currency this year, is rising too fast this month and the Bank of Thailand is taking action to slow its rise, an assistant central bank governor said on Thursday.

‘Somedays its strength is beyond economic fundamentals,’ Suchada Kirakul told reporters. ‘The baht is strong and we are still taking care of it.’

‘Our economic factors are not as good as others’, so we (our currency) does not need to rise as fast as theirs’,’ she said. […]

The BOT has been in the market frequently in recent weeks to curb baht gains, but the currency has climbed fast after breaking 33.50 — a level which the market suspected would trigger intervention. (Forbes)

First, you’ll notice : they spend a huge amount of energy to convince us that the Recovery (hats off) is there, but… meanwhile they tell us that the thai economy is not as good as others… And therefore, cry baby, the local currency should not increase versus USD.

Let’s make it clear : the THB is not “strong”. What is happening is that the USD is falling. Period. And a lot of smart money is going into asian and emerging countries. It’s mechanical : offer and demand… People want to invest in Asia (and to fly away from USD), so they have to buy local currencies, and so they are selling US. Therefore the exchange rates of those local currencies are going up.

But it’s too complicated for the Suckers. It’s politically incorrect. Because the Recovery is nothing but a fiction, they all want to boost their exports… at the expenses of others.

It’s the famous Beggar thy neighbour policy, through competitive devaluation (or at least competitive-not-valuation).

The famous blogger Mike Shedlock summarizes it perfectly :

Every country wants to grow by ramping up exports in a world of decreasing consumer demand. To achieve that end, every country wants its currency to be weaker against every other currency. Of course that is logically impossible.

Logically impossible indeed. But again, it’s too complicated for the Suckers to understand this.

The BOT is buying USD through forward positions.


(Source BOT)

From a low point of 3,68 billions USD end of february… the total forward positions increased to 15,63 billions last week.

It means we can’t even see the “‘interventions” of this week in the current chart (we will have to wait 7 days more).

To know more about forward positions, you should read my article of last december : The case of the forward positions : the coal mine canary.

Forward positions = Bank of Thailand’s forward obligations to buy (long) or sell (short) foreign currency against Thai Baht.

For that matter, they are like a “peek” at how the reserves will behave in the future.

By the way, I was perfectly right. I wrote that eventually the BOT would follow the asian bias, to save thai exports.

And I spoke about the “joker” too.

And this is the true frightening part… USA are doing exactly the same (but for different reasons, not exports). The USD is condemned to loose value. It’s inescapable (zero interest rates, massive printing of money, mountains of debts, etc.)

So you start to understand the problem : we have a freaking race toward zero, a race toward the bottom. What could happen if all the countries in the world see their currencies going down ? At the same time ? It’s insane.

Yes… this is exactly what is happening now… and this is why gold is going up ! Paper money is toilet paper.

Anyway. Back to the BOT and asian central banks.

Interventions do not work. They can’t control the forex market. Because it’s just too huge. Japan was a famous “currency manipulator”… At least on intends side… But it didn’t work. So of course, if we speak about scale, the BOT’s small farts will change nothing.

Only one thing could work… They did it not so long time ago… You don’t remember ? 😉

Capital controls !

Yes ladies and gentlemen… In december 2006, three months after the Coup… And the situation was exactly the same : the THB was shooting up against the USD. At that time already, the obsession was to save exports sector.

One last word : when we speak about “saving thai exports”… it’s not really a matter of competition. I think it’s even simpler than that. It’s a matter of liquidities. For the whole economy.

Thai companies convert in THB (most of) the USD they earn outside Thailand (this exchange was even compulsory before... the BOT changed the regulations in 2008 , read here).

It’s very simple to understand :

-1-with an USD-THB exchange rate of 40, when you export 1000 USD of goods, you receive 40 000 THB. You feel rich. You can use this money to invest, to buy stupid and overvalued condo in Bangkok… The builders will earn money… Workers have work… The economy is running. People are happy. So politicians are happy too, and they can steal more money.

-2-with an USD-THB exchange rate of 33, when you export 1000 USD of goods, you receive 33 000 THB. You feel much poorer. You won’t buy a third condo for your children. Or to rent to stupid foreigners who won’t come to Bangkok anymore. Builders will earn less money. Unemployment rises. The economy is choking. People are not happy… And politicians are scared… And they can’t buy another Mercedes Benz with the money they can’t steal (and that’s really inhumane 😉 ).

Liquidities = lubricant = fuel = gasoline onto the fire.

The thai economy (along many other asian countries) is not really healthy (at this stage). A large chunck of the “growth” we have had in the recent years… was a mirage. Fueled by cheap currencies. Remove the lifeline of a strong USD… what do we have left ?

Abhisit’s smile ? 😉

Not quite enough to save us…

PS : I advise you to read the latest piece of Eric Janszen, about inflation on the long run… What he calls inflation via currency depreciation : the stealth currency devaluation. It’s radiant.

You’d think the deflationists would wonder how oil prices are above $70 in 2009 when demand is lower and inventories higher than in 2001 when the economy was nominally 15% smaller and oil prices averaged $22 after a very brief recession. […]

The U.S. monetary system is not on a gold standard in 2009 as it was in 1933. Instead the U.S. and the rest of the world monetary regime employ a de-facto global oil standard.

To prevent a liquidity trap via currency depreciation, instead of depreciating against gold the U.S. government depreciates the dollar against oil.

On one hand, we have Mike Shedlock, the Great Deflationist. And the other hand, what Mish calls the inflationistas. This debate deflation versus inflation is raging. Personally I’ve picked up my side : both. 😉

Mish is right : we are in deflation (assets prices / debts deflation). But Janszen is right too : on the long run, the bias toward a slow debasement of the value of money is just too appealing for the politicians (nothing new, the roman emperors did the same).

20 Responses to “Dance of the suckers : thai Central bank “intervenes” to curb THB gains”

  1. 1 Marvo 10 October 2009 at 11:29 pm

    TC, love your eloquent and really easy to understand “how the economy responds to the exchange rate for dummies” summary. I think this is one of your best literary works to date. Keep it up.

  2. 2 ThaiCrisis 11 October 2009 at 12:00 am

    Thanks. Read my PS about Eric Janszen.

  3. 3 bodhisattva 11 October 2009 at 7:22 am

    Mr. ThaiCrisis

    Perfectly said and closer to the truth then you know yourself 🙂

    Thanks, and please keep writing and and telling it like it is…

  4. 4 ray 11 October 2009 at 1:31 pm


    great blog. also i want to point out the difference. ppl flee dollar to the asian markets. if the fed reserve raise interest rate it crushes the usa stock market. if the bot or asian central bankers intervenes to weaken the thai baht( or asian currency) the foreign investment in the set will flee asian beacuse the only reason the are in the asian is to save guard from the falling dollar.

    very soon ppl are going to realise that this is a zero sum game. there has to be a LOSER. interesting times. the govt is already projecting growth for 3rd and 4th quarter of 2009.of course they will be wrong.

  5. 5 ThaiCrisis 11 October 2009 at 3:00 pm

    You summarize it perfectly Ray : THERE HAS TO BE A LOSER.

    It is this burning truth, this adamant fact that all the clowns and the zombies DON’T WANT TO UNDERSTAND.

    All those people are so childish in a way. In their lala fantasy world, banks don’t fail, debtors don’t fail, creditors don’t fail, tax payers don’t fail, businesses don’t fail, governments don’t fail… Everything is so rozy.


    The FED will NEVER increase its rates. And in any case, it would be too late.

    As Churchill said about Chamberlain returning from Munich :”You were given the choice between dishonor and war. You chose dishonor. And you will have war.”

    The FED will get both an economic meltdown AND a crashing currency.

  6. 6 On-anong 11 October 2009 at 5:05 pm

    Actually I’m pretty sure if China stopped pegging the RMB to the USD, the RMB would appreciate and other Asian countries would not intervene as much.

    Anyway, right now savers are punished with very low interest rates and are forced to speculate if they don’t want to see their purchasing power collapse.

  7. 7 fall 11 October 2009 at 7:28 pm

    And the best part is, no matter how deep the shit hole they dig. The BoT will get away scotch free.

  8. 8 Bob 12 October 2009 at 8:34 am

    According to The Economist (last weeks issue), there is now a US-$ carry trade. The Yen carry trade kept the yen weak for a very long time, but as we see now, eventually there is a reversal of any carry trade and the yen has gained a lot of value.
    Will the same happen to the US-$?

  9. 9 Marvo 12 October 2009 at 5:41 pm

    The BOT “slowing the rise” of the baht must in turn be slowing the fall of the GBP (against the baht), but the GBP is still falling 😦 (Maybe it’s too late to get out of Sterling, or maybe it’s still early days!).

  10. 10 ray 12 October 2009 at 8:44 pm


    i dont think the dollar carry trade will last for long. reasons

    1. japan always had a trade surplus and usa trade deficits till the eye can see.

    2. japan exports and has a huge forex reserves. usa do not produce anything and just prints the dollars.

    3. the private sector in japan has savings and in usa the private sectors has too much debt, which started all the mess.

    this crisis is just a rebalancing of the equation. the dollar will rally but it will be short term. in a few short months u are going to see the dow jones/sp500 drop like a stone as well as the dollar.

    we are looking at the onslaught of the currency crisis. it will affect the whole world because every country on the planet holds the blessed dollars. no one is immune.

  11. 11 James 12 October 2009 at 11:28 pm

    Ray – You said the U.S. does not produce anything. The U.S. Fed would like to world to believe this, as it keeps the dollar low and helps the world’s largest manufacturer stay ahead of the curve. The fact is, the U.S. still makes more than all BRIC nations combined, and remains the world’s most developed nation – take a drive through that country sometime, makes Germany, France, Japan and China look like they still have 1,000 years to catch-up.

  12. 12 ray 13 October 2009 at 5:17 pm

    i agree i have overstated when i say usa does not produce anything. but the gdp of usa is 70% consumption. regarding the fed reserve being ahead of the curve to boost usa exports i dont think so. usa has a lot of cooperations whose manufacturing bases are in china and the far east taking advantage of the low labor costs.

    the service sector has more or less repalced the manufacturing in usa. i have been to usa many times and yes they are more prosperous than the rest of the world. they borrowed that prosperity( thus the huge debt in the private sector and govt sector) and now the rest of the world want the lifestyle.

    usa has 70% consumption and thailand has 70% of gdp on exports( very unhealthy). there is a huge imbalance in the world and right now hte bric nations are trying to correct it by moving away from the dollar. once the opec nations stop pricing oil in us dollars the cheap dollar will hurt the usa more.

    if the us dollars weaken further the asian countries will surely intervene to devalue their own currency. as for the big story about the boom in china and china leading the recovery i am very sceptical.

  13. 13 ThaiCrisis 13 October 2009 at 6:56 pm

    Seconded Ray. I 100 % agree.

    New record for gold this morning : 1063 USD.

    The situation is becoming dangerous. At any moment, a stampede, a (nervous) breakdown of the USD on the markets could happen.

    The deception, the cheating, the non sense have lasted for a very long time. Too long. The backslash could be really astonishing.

    There are only 2 things that could change the situation :
    -a quick and brutal “fly to safety”… like a good old military conflict… that could increase the demand for USD.
    -a quick and brutal hike of US interest rates

    Solution number 2 is as unlikely as an Jupiter inhabitant jumping naked in the Chao Praya River a sunday morning. That leave us with solution 1. Unfortunatly.

  14. 14 ray 14 October 2009 at 10:36 am


    my sentiments exacty. a military conflict. the afghan war is surely and purposely extended into pakistan. the buzz about unsafe iran is gaining momentum in the usa media even though the iranians have agreed to be checked by the IAEA. also israel has the most atomic bombs in the region.

    also russia has snubbed issuing sanctions on iran.

    a military conflict will boost the us dollar as well as hammer the stock market around the world. it will also boost the treasuries in usa. at the moment the dowjones/s&p500 is underperforming other markets around the world. so hammering the world market down will make the usa stockmarket look less bad.

  15. 15 ray 14 October 2009 at 4:42 pm


    boomberg ticker. thai stock loses 2% due to concerns over king’s health. at one point it was 4% minus.

    but all thai channels say it was technical.what is going on?

  16. 16 ThaiCrisis 14 October 2009 at 4:57 pm

    Technical ? Yeah sure… I would say that in such circumstances, it’s normal to have a playground for rumors… And therefore, quick and brutal movements.
    Officially, (latest official statement yesterday), the King’s health is improving. Latest X-ray showed “almost normal” lungs.
    Wait and see.

  17. 17 Tarrin 14 October 2009 at 4:57 pm

    The brokers have heard a rumor today that the king will not last so long, I’m working for a securities company this is what have been spreading on the inside.

  18. 18 ThaiCrisis 14 October 2009 at 5:24 pm

    Exactly what I’ve said. It’s even strange that we didn’t have such rumors… before.

  19. 19 Tarrin 15 October 2009 at 10:09 am

    Actually they all know since day one, but for some reason it didnt effect market at all, so people were thinking that its just a “rumor”, I dont know, I’m not even working with the brokers so what can I say.

  20. 20 ray 19 October 2009 at 1:38 pm


    looks like the military crisis u discussed is already under way. iran was attacked by suicide bombing and many of their decorated generals were killed. looks like the first dice has been cast.

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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

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