Can a forex guy out there help me? What is the best currency pair to be in if the USD collapses over the next 12 months? One that leverage can be used for unlike Yuan. JPY, SFr, .........?
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Can a forex guy out there help me? What is the best currency pair to be in if the USD collapses over the next 12 months? One that leverage can be used for unlike Yuan. JPY, SFr, .........?
The obvious ways to short the USD are against the Chf or to long the Eur. I tend to prefer the former now that the contagion of loose banks and recession has spread to the continent. The yen seems to have started its move already so you may be a bit late there... Gold or even silver are also $ plays. I've started shorting in a very minor way the USD/CHF already.
Oil seems a popular hedge against the US$?
You can get a lot of Zimbabwean dollars for your $US
http://www.boncherry.com/blog/2008/1...e-real-crisis/
somthing could be starting.... USD/CAD in the lead +45
added another little USD/CHF short earlier this evening
got a quick 97 tonite off this USD/CAD spastic gartley
Something that you can barter for one of these
Still holding 2 core positions now which average out to +130 , and sold more into the rally last night at 1.2020. By this morning the +100 target on that had been taken.
.
How about you manage my account Peat :)
lol
one of those core positions was -385 at one stage. just as well I trade small.
Aussie dollars looking like its building for a leg up. The RBA also defends the 60c mark (rumoured), so it could be a safe currency when the USD falls?
USD very weak!
talking about Zimbabwean dollars...........
if / when mugabe gets kicked out voted out or dies of old age,
somewhere between 3 months and 10 years...........
the zimbabwean currency will skyrocket upwards.
the people and the economy may be ravished,
the the land is still the most fertile in africa.
a real change of leadership will see the growth story of the century in this saga.
trouble is........ with inflation in the millions, when do you take up the punt on its currency or its desimated business?
sort of like russia 10 years ago.........
the right timing will be very rewarding.
I'm sure we are all waiting with bated breath for the Fed decision later today. The Fed is projected to lower rates to .5% from the current 1% on the fed funds rate. WHO CARES! The Fed started lowering rates about 16 months ago, I wrote at the time that lowering rates would not "make bad loans, good ones". In hindsight, lowering rates has done very little other than the short term "psychological boosts" they provided for the equity markets only to fade away quickly. But here we are at the doorstep of ZERO percent and the Fed has no ammo left. It took about a year and a half but now for all the world to see, THE FED HAS NO TEETH! They have gotten no traction whatsoever and in the meantime their balance sheet has turned into a monster sized cesspool of bad debts.
Let's go back to mid July, remember the "rally call" was for a stronger Dollar because the Fed was going to begin raising rates by the third or fourth quarter? Well, the 3rd and 4th quarters have come and gone and the Fed has not, and cannot raise rates. Back in the summer we were supposed to "skirt" recession, begin a recovery, and have a stronger Dollar because of the rate differentials with the rest of the world. All we got was a stronger Dollar because of the demand to pay off $ Dollar debt. Now, even the short covering rally is in the rear view mirror and the Dollar is returning to its death spiral.
Now we enter into "the moment of truth and consequences" phase. The Fed will have no wiggle room as far as rates are concerned, they have lost credibility on a global scale, and only have one gun left with bullets. They can print! This is all they can do as they have backed themselves into the corner, the Fed has spun yarn from here to eternity regarding the banks, the economy, etc.. It has all turned out to be wrong, they clearly were "buying time" for a miracle to occur. Well, when it comes to "math" which is really what economics, finance, and banking all boil down to, THERE ARE NO MIRACLES! Math is math, reality is reality, and facts are facts. The smoke, the mirrors, the misdirection, all the lies, all the frauds, are all in the process of being discovered because the "consequences" are surely beginning to make themselves felt.
This is it, the Fed and the Treasury are in the process of losing the Dollar. The Dollar has now lost 7-8% in a very short time, it is clear that the top is in. Now we will get to see many naked truths. When history is written, the American miracle that was, took a U turn in the 70's. The Dollar as it turns out has been a Ponzi scheme, the stock and real estate markets turned out to be bubbles that grew through debts based upon debts, nothing was as it appeared to be. Mark my words, the amount of fraud still present in the system will dwarf what has turned up so far. The prosperity was false and the U.S. will be treated as any and all "debtor nations" have in the past, they will be shut off from the credit markets, goods markets, geopolitical decisions and on and on. When someone commits a fraud, do you do further business with them? No you do not, you isolate and shun them for your own good.
We will be left with one lasting legacy, HYPERINFLATION. The consequences of building a banking system and economy on a currency that is intrinsically worthless is hyperinflation. We have traded "IOU nothings" for years now but I sense that here and now in this current reversal of the Dollar, the jig is up. Common sense will prevail, when something has no value you do not to accept it in payment for something real, be it goods or services. Gold and Silver have gone into hiding and are in strong hands because investors smell the same thing I do, the U.S. currency is in the process of breaking down. The Dollar scam is over, it's sad, but it is the truth.
We have begun the end game when it comes to the Dollar and the world monetary system. Yesterday's rate cut to zero % is beyond farce for any central bank, this is third world stuff that they are adopting as official policy. The flight from the Dollar is continuing again today with close to a 10% drop in value from little over a week ago. This is BIG monetary stuff, in fact the biggest in history. At different points in history England, France, and Spain all held sway over the worlds' monetary system by virtue of having the largest hoard of Gold and thus the strongest currency. This was also true for the U.S. from 1944-1971. Since 1971 the Dollar has been the reserve currency but it truly was only a pretender.
Now that "quantitative easing" has become the new buzz word, the Dollar can in no way compete against anything real or even remotely scarce. The Fed and Treasury have told us all that they will continue to provide more money and credit until "deflation" is no longer a potential problem, this is clearly flawed. First off, with the amount of derivatives and credit outstanding [and blowing up on a daily basis] they cannot possibly create credit faster than it is collapsing. This IS deflation! BUT, they are intent on battling the "deflation monster" so print print print they will. Now for the next part that is only now just beginning to dawn on people, all this new money and credit absolutely DWARFS "real stuff".
If you add together all the commodities worldwide currently available for delivery, you don't even get a pimple on an elephant's ass as compared to the amount of "paper" that's been created over just the last 3 months to fill all of the "black holes". This fake stuff has been piling in as fast as possible into Treasury securities now yielding less than 3%. Once it begins to dawn on investors that getting a sub 3% yield for 30 years in a currency that can drop 10% in a week, then it becomes "Houston we have a problem". The Treasury market has, like all other "bubble" markets before it, become STUPID. It is now set up for the biggest bloodbath in history.
The solvency of the U.S. Treasury and Fed will surely be questioned soon, and the recklessness of these two entities will be case studies for the next 100 years or more. Oh yeah, the best part is Paulson and Bernanke telling us they will "drain the excess liquidity" once the economy begins to turn around. Just a couple of questions for them; and when did you say the turnaround will be?, will the Treasury or Fed still be solvent by then?. I really don't think they have a clue.
Regards, Bill H.
http://www.lemetropolecafe.com
...would not count out the US-currency just yet and think, it is undergoing a substantial correction rather then the final Good Bye, short term that is
...there is still a lot of deleveraging to come with more hedge funds going to bite the dust
...and as far as I understand the monetary stance of the FED, if they succeed in re-inflating the economy (it did not happen that way in Japan), how can they keep inflation in control (mopping up the trash) when things are starting to bubble again, when they are paying a paltry 2.25% on borrowing now???...or is it that the economy will stay in a prolonged slump??
Kind Regards
It's mostly a lot less than that . . . The 3 month T-Bill is a fraction above 0%. The 6 month is not far off it . . . hell the 30 year is less than 2.5%. Who in their right mind would tie up their money for 30 years at that rate, pay taxes and then factor 30 years worth of inflation. What a joke. The Treasury market is the biggest bubble yet and when it pops it will truly be the shot that is heard around the world. Americans will suddenly awake to a bank holiday and their very own Argentina.
But it's not just the US economy that needs re-inflating, it's the entire world economy. This has NEVER been tried before like this. What makes anyone believe that Bernake & Co have any clue as what they are doing. All I can say . . . Got Gold?
Hi Aussie,
The design is called: 'The Great Depression II' and GOLD IS GOOD
...short US treasuries in New Zealand?? -how-
Kind Regards
Maybe we could be seeing the next round of mortgage related problems when these similar style US loans start defaulting.
Interesting view, lets hope its not as bad as they make it out to be - but it looks pretty bad.
Huge Crash Coming
http://au.youtube.com/watch?v=shYJ_KkbzWg
Sir Richard Branson has delivered a characteristically blunt verdict on the state of the economy, describing it as "f****d".
But Britain's cheeriest billionaire said that he hoped that the downturn might only last a couple of years instead of becoming a repeat of the Great Depression of the 1930s as so many economists now fear.
The Virgin boss was asked his views on the economy by Five News. “I was going to say, it’s f*****, but I think I had better not have said that,” he replied.
He added: “I think it is a terrible, terrible mess, which has been brought upon us by some very irresponsible people in the banking community, some very lax regulation and we are going to have to work hard to dig ourselves out of it.
Related Links
“I think governments have moved quickly and hopefully it will be a two-year, two or three-year nightmare not a 1929 nightmare. But we are all going to have to work very, very hard to get things back on the even level.”
A spokesman for Sir Richard said: “He’s only saying what everyone’s thinking, in a more forthright way. He was making the point that the economy is in dire straits. It’s nothing that hasn’t been said every day for the last three months.”
http://www.timesonline.co.uk/tol/new...cle5358019.ece
...well it is those people, who expect Depression II, as the bond market has factored in a slump of around 5 years and in case of a bank holiday, the best way to park cash is US treasuries
...what the FED is trying to achieve of course is to discourage investors to buy treasuries or money market funds, but put their money somewhere else, like bank deposits and equities for example, just the opposite of what is happening right now;
...and with interest rates at 0% short- and approaching a lot lower levels long term, credit will be a lot cheaper in the mortgage sector; this should revive the dead securitization market; together with quantitative easing, a wave of liquidity will swamp the market and away goes a new and bigger asset bubble...
...there are a lot of unknowns within this FED strategy, but as the old saying goes:
DO NOT FIGHT THE FED (and personally I would not);
The BEST HEDGE under the current circumstances is definitely holding physical gold as long one can dide it out of reach from the greedy tentacles of utterly corrupt governments;
Kind Regards
ananda77, I wasn't suggesting that as a strategy just offering some info but if you are interested I'm sure there is a fund or an ETF somewhere . . . this is a related article.
Why Now Is The Time To Short US Treasury Bonds?
http://www.contrarianprofits.com/art...ry-bonds/10276
Cheers
The US Treasury market is so unbelievably huge and it is the last great bubble. It is the only place that governments and corporations feel that there is any safety. They can't/won't park their idle $Billions of dollars into money markets accounts with a banking institution that could go broke. They are turning to the US government as a final source of safety.
Imagine what will happen when they discover that the US government really is insolvent and their measly "interest" is really just more worthless printed paper. The rush into tangible assets, especially gold and silver will be absolutely breath taking.
Here a brief commentary from this week's The Privateer which is very interesting. If you are familiar with the inverted debt pyramid it's interesting to note that we are now about one step away from the apex - which is of course - gold.
THE US DOLLAR IS NOT WORTH SAVING
The US Federal Reserve has made it - to ZERO. It has no further place to
go after cutting official interest rates to record lows of 0.00 - 0.25 percent.
Endless US Credit - At NO Cost??
From here on, monetary absurdities abound. The US Federal Reserve
Note as issued into external circulation is on the balance sheet of the Fed
as a liability - a debt. Anybody who accepts it has de facto given credit to
the issuer of the note, they have made a loan to the Fed. Americans, of
course, have no choice here because they must accept the Fed Note. It has
been made legal tender inside the US. Foreigners, though, are under no
such legal obligation. It shows. The US Dollar (aka the Fed Note) has
dived precipitously on the currency markets.
The post July 2008 US Dollar rally is over - the USDX (US Dollar Index)
has given back half its gains. The Fed is now strongly hinting that it will
soon issue its own debts! This is absurd. The Fed is proposing to issue its
own bonds, notes, etc which will pay a rate of interest. The interest will
be paid in Fed Notes, non-interest paying debt paper which the Fed can
create in unlimited quantities.
That amounts to the Fed paying interest payments on its future debts by
printing the non-interest paying Fed Notes required. Economically, this
makes the US Dollar (aka the Fed Note) not worth saving, buying or even
holding. If the issuer of a debt can service the debt, and later redeem it -
repay the principal amount of the loan - with its own non-interest paying
notes, then no repayment has been made at all. One debt - the non-interest
rate bearing Fed Note - will be used to repay the other. To repay a debt
with another debt is fraud. That is what the Fed is proposing to do.
Ultimately what they are trying to do is keep people INSIDE the banking system - period. Just one of the great reasons to own gold is that it is always money that exists OUTSIDE of the banking system so no matter what happens to the international finance system whether it's banking collapse or currency devaluation - if people own gold they are protected. The money masters are desperate to keep people out of alternative stores of value like gold, silver and commodities. In that regard it is a giant ponzi scheme.
Permission hereby given to
quote short excerpts - provided
full attribution is given:
© 2008 - The Privateer
http://www.the-privateer.com
capt@the-privateer.com
(reproduced with permission)
...no problem Aussie; at this stage, -NOT SHORTING JUST YET- only reading the market:
-early in December, bond traders tried to drive down bond prices, but after Bernanke announced the FED's intention (5-12-08) to buy bonds to drive down yields to stimulate the economy, bond prices took off again;
-the Fed's intervention in the bond market is the ONLY factor currently driving bond prices up, to extent the bond bubble to even more extreme limits;
-basically, getting ready to jump to short the bond market at the earliest indication of a divergence indicating a turn around...
-Rydex Inverse Government Long Bond Strategy - C Class (RYJCX)...this is one of them;
Kind Regards
Quite an interesting table...................
World Interest Rates Table
Interest rates in Brazil and Egypt have actually gone up (to 13.75 and 11% respectively)
But Iceland looks to be the current winner - was 12% NOW 18%
http://www.fxstreet.com/fundamental/...t-rates-table/
-But the Fed's argument doesn't stack up. US inflation – as measured by the pre-Clinton methodology, before the politicians started messing with the numbers – stands at 4.5pc.
Deflation is being used as an excuse for the US authorities to print money like crazy, attempting to bury their mistakes and bail out their Wall Street friends.
This reality is crystal-clear. The fact other economists aren't shouting it from the roof tops is both an outrage and a farce.
US Fed's foolhardiness is of more concern than deflation
By Liam Halligan
Last Updated: 10:08AM GMT 21 Dec 2008
http://www.telegraph.co.uk/finance/c...deflation.html
The Madoff Economy
By PAUL KRUGMAN
Published: December 19, 2008
http://www.nytimes.com/2008/12/19/op...rugman.html?em
Kind Regards
What happens there affects us here. Has anyone else been wondering where is the outrage from Americans . . ? Eighty four year old legendary CEO Lee Iacocca who brought Chrysler back from bankruptcy in 1979 is pissed off . . .
20/12/08
Lee Iacocca writes:
Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder. We’ve got a gang of clueless bozos steering our ship of state right over a cliff, we’ve got corporate gangsters stealing us blind, and we can’t even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, “Stay the course.”
Stay the course? You’ve got to be kidding. This is America, not the damned Titanic. I’ll give you a sound bite: Throw the bums out!
You might think I’m getting senile, that I’ve gone off my rocker, and maybe I have. But someone has to speak up. I hardly recognize this country anymore.
The most famous business leaders are not the innovators but the guys in handcuffs. While we’re fiddling in Iraq , the Middle East is burning and nobody seems to know what to do. And the press is waving ‘pom-poms’ instead of asking hard questions. That’s not the promise of the ‘ America ‘ my parents and yours traveled across the ocean for. I’ve had enough. How about you?
I’ll go a step further. You can’t call yourself a patriot if you’re not outraged. This is a fight I’m ready and willing to have.
The Biggest ‘C’ is Crisis!
Leaders are made, not born. Leadership is forged in times of crisis. It’s easy to sit there with your feet up on the desk and talk theory. Or send someone else’s kids off to war when you’ve never seen a battlefield yourself.
On September 11, 2001, we needed a strong leader more than any other time in our history. We needed a steady hand to guide us out of the ashes. A Hell of a Mess. So here’s where we stand. We’re immersed in a bloody war with no plan for winning and no plan for leaving. We’re running the biggest deficit in the history of the country. We’re losing the manufacturing edge to Asia , while our once-great Companies are all moving offshore. We’re getting slaughtered by health care costs. Gas prices are skyrocketing, and nobody in power has a coherent energy policy. Our schools are the worst in the world. Our borders are like sieves. The middle class is being squeezed every which way.
But when you look around, you’ve got to ask: ‘Where have all the leaders gone?’ Where are the curious, creative communicators? Where are the people of character, courage, conviction, omnipotence, and common sense? I may be a sucker for alliteration, but I hope you get the point.
Name me a leader who has a better idea for homeland security than making us take off our shoes in airports and throw away our shampoo? We’ve spent billions of dollars building a huge new bureaucracy, and all we know how to do is react to things that have already happened.
Name me one leader who emerged from the crisis of Hurricane Katrina. Congress has yet to spend a single day evaluating the response to the hurricane, or demanding accountability for the decisions that were made in the crucial hours after the storm. Everyone’s hunkering down, fingers crossed, hoping it doesn’t happen again. Well guess what people? We are having more floods right now. What are we doing to help these people out? Now, that’s just crazy. Storms happen. Deal with it. Make a plan. Figure out what you’re going to do the next time. Why are we allowing people to build in flood plains anyway? If you build in a flood area, expect to be flooded and deal with it. Don’t expect the Government to bail you out.
Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing. All they seem to be thinking now-days is getting themselves bigger salaries and bonuses. Who would have believed that there could ever be a time when ‘The Big Three’ referred to Japanese car companies? How did this happen, and more important, what are we going to do about it? Likely nothing!
Name me a government leader who can articulate a plan for paying down the debt, or solving the energy crisis, or managing the health care problem. The silence is deafening. But these are the crises that are eating away at our country and milking the middle class dry. I have news for the gang in Congress and the Senate. We didn’t elect you to sit on your asses and do nothing and remain silent while our democracy is being hijacked and our greatness is being replaced with mediocrity. What is everybody so afraid of? That some bonehead on Fox News will call them a name? Give me a break. Why don’t you guys show some spine for a change? I honestly don’t think any of you have one!
Had Enough?
Hey, I’m not trying to be the voice of gloom and doom here. I’m trying to light a fire. I’m speaking out because I have hope; I believe in America … In my lifetime I’ve had the privilege of living through some of America’s greatest moments I’ve also experienced some of our worst crises: the ‘Great Depression’, ‘World War II’, the ‘Korean War’, the ‘Kennedy Assassination’, the ‘Vietnam War’, the 1970s oil crisis, and the struggles of recent years culminating with 9/11. If I’ve learned one thing, it’s this:
‘You don’t get anywhere by standing on the sidelines waiting for somebody else to take action. Whether it’s building a better car or building a better future for our children, we all have a role to play. That’s the challenge I’m raising in this book. It’s a call to ‘Action’ for people who, like me, believe in America . It’s not too late, but it’s getting pretty close. So let’s shake off the crap and go to work. Let’s tell ‘em all we’ve had ‘enough.’
-US$ short/Gold long: The Best Currency Pair To Counter The US$ Crash in 2009-
...the only way to counter the difficult US-position to keep financing a massive current account deficit without being able to offer anywhere near competitive yield returns or additional capital gains in the treasury bond market is to use a currency response, Rudiger Dornbush (1976) described as “exchange rate overshooting”
...according to this model and based on the Fed commitment to keep short term interest rates low (even move further out along the curve (2 year/5 year/10 year/30 year), is to drive the US currency down to extremely depressed levels and as a result, creating expectations that the US$ will appreciate over time...
...the gold response in this instance should be clear but such a response also creates a timing point for shorting US treasuries...
!!Be Aware though:
-the above outline assumes that the Fed will be successful in re-inflating its way out of the down price spiral;
-however, there are big risks and, the bond market is the foremost warning sign, that the Fed efforts will NOT be able to stop the down price spiral; consequently, if depression digs deeper and prices will continue to free fall, including the price of gold, the US$ will enter into a major bull market;
Kind Regards
Whatss the best way to short $US? Short $US against $AU or EUR?
Dr.Who:
!!Be Aware though:
-the previous outline assumes that the Fed will be successful in re-inflating its way out of the down price spiral;
-however, there are big risks and, the bond market is the foremost warning sign, that the Fed efforts will NOT be able to stop the down price spiral; consequently, if depression digs deeper and prices will continue to free fall, including the price of gold, the US$ will enter into a major bull market;
Kind Regards
Friday, 12 December 2008
Deflation has become inevitable
http://londonbanker.blogspot.com/200...nevitable.html
Kind Regards
The beginning of the end of paper money?
Welcome to Free Lakota Bank
The Free Lakota Bank is the world's first non-reserve, non-fractional bank that issues, accepts for deposit, and circulates REAL money...silver and gold. All of our deposits are liquid, meaning they can be withdrawn at any time in minted rounds.
http://www.freelakotabank.com/
Jens O Parssons in the Dying of Money: Lessons of the Great German & American Inflations (Wellspring Press, 1974, p.71) best describes the initial ignorance, early warning signs and final consequences of inflation.
"Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation"
For the many deflationists out there take particular note of the Parssons comments re faltering prosperity and tightness of money. This is a normal phase of inflation. Using the tsunami parallel first the ocean disappears (draw back) and its all sand for miles in front of you then out of nowhere appears a giant wall of water 10 stories high.
Right now most people are standing on the beach saying "where has all the water (cash) gone?" Those well studied on the patterns of tsunamis understand what this signals and have moved their families to higher ground by protecting themselves with physical gold and silver.
Hi Aussie,
...my mind is made up about the strategies necessary to prosper further in 2009/beyond and:
-although the Fed will continue to use its magic box of tricks to continue the pumping of massive amounts of $$$$ into the system (these tricks will provide the windfall opportunities during 2009), this money-wave will hit an even more massive money-wall of debt; until this debt is largely purged from the system, deflation, inevitably, will run its course; and remember, $$$$ are the currency needed to pay down the debt and can not purchase gold...
...still very bullish on gold, but more for reasons like:
-its an asset class outside the ****ed banking system
-I have NO TRUST in the present political and economical system
-it is almost assured that gold will fare a lot better than any other asset class available under present circumstances
Kind Regards
Thanks for the great articles guys, keep them coming. I have grave concerns for the global economy. The US is dragging us down a black hole. How long will the world keep bailing out the US?
My take is that the next crash will take us into depression, assuming we come out of this recession. If we cant dig ourselves out of this recession than it will go into a depression.
All good reasons and you are right, opportunities will abound in some places as although the banks are not lending/spending at the moment, that may change next year and once the magic multiplier of fractional reserve banking does it's trick, the wave of inflation will be huge. I think there will be some giant bear market rallies in the US and other markets. Probably here and in Australia - follow on rallies I suppose, but they will ultimately prove to be short with huge declines as the world economy gets structurally weaker and weaker.
However, against this there is an enormous amount of derivative and mortgage hell to get through with the US "ALT-A" and "Option-ARM" resets starting next year, not mention commercial real-estate, auto loan and credit card failures. There are $100's of Trillions of "off balance sheet" interest rate derivatives held by the likes of JP Morgan, Chase and BofA. If things turn in the bond market and interest rates start to rise, these things are going to explode big-time.
Everywhere you look there are financial land-mines. A currency crisis is coming . . . my advice to anyone who does not yet have physical gold in their possession, is get some NOW while you can because even right now it is very difficult come by and in the near future for all practical and economic purposes it will be simply unavailable. Period.
The bond market is the next big bubble to burst. Bernanke and Co will make sure of that.
http://research.stlouisfed.org/
A mine of useful information.
The Research Division's goal is to promote quality economic research and contribute to economic policy discussions while expanding the frontier of economic knowledge around the globe in the areas of money and banking, macroeconomics, and international and regional economics.
Inflation Targeting instead of Income Targeting
Inflation targeting does not work if economic turmoil is caused by the bursting of a debt bubble created by monetary inflation, which could only be cured by allowing the bubble burst to liquidate the misallocated investment made during the bubble boom. The debt bubble burst has left the US with a national insolvency problem of insufficient income to support bloated asset price levels. US ideology of market fixation normally limits the solution to come only from market corrections. However, when market correction causes systemic market failure, market ideology is cast aside to make room for practical emergency measures to revive a market system hit by cardiac arrest.
Still, under this market ideology, government assistance is not allowed to be applied directly to distressed individuals who are innocent victims of a dysfunctional debt regime to help them increase their income to transition to a new viable financial regime in a new economic system. It can only be applied to distress institutions deemed too big to fail. Yet nationalization of insolvent private institutions facing weak demand so that they can continue to survive massive losses in a market economy will only bankrupt the entire nation, bringing down all citizens with it.
What the US economy needs in this crisis is not inflation targeting but income targeting. Let’s hope the new Obama administration has the sense to implement immediately a massive income policy when it hits the ground running on January 20, 2009.
http://henryckliu.com/page175.html
Obama aides stress long-term goals
Senior economic adviser warns of 10% unemployment by end of 2009
By Michael Kitchen, MarketWatch
Summers repeated Obama's plans for government works spending, including funds for infrastructure upgrades and environmental technology, but he played down the importance of direct stimulus to consumers.
"Some argue that instead of attempting to both create jobs and invest in our long-run growth, we should focus exclusively on short-term policies that generate consumer spending," he said. "But that approach led to some of the challenges we face today -- and it is that approach that we must reject if we are going to strengthen our middle class and our economy over the long run."
http://www.marketwatch.com/news/story/Obama-aides-stress-long-term/story.aspx?guid={0CA3917B-23A2-449C-9DD9-6A11C723C13A}
-Moody's view of end market performance for US diversified manufacturers in 2009:
Interesting opinion piece by Bill Holter and he is not the only commentator expressing the same concerns - Bill Buckler at "The Privateer" has been warning of a USD collapse for some time now. These guys were right about the mortgage and derivatives mess, I have no doubt they will be right about a US currency crisis as well.
Anyone who believes that the US can continue to borrow unlimited amounts of capital and savings from the rest of the world is in denial of the current situation and is ignoring past currency history at their peril.
We in NZ should be especially concerned because I think the RBNZ has far more of those paper "USD Reserves" than physical gold.
What will that mean for the international value of the NZD if the reserve asset that underpins it either crashes or is significantly devalued? We now live in a time where NO paper currency is backed by or is convertible into gold, so when the panic comes - there will be no escape for those who were unprepared.
Cheers :D
Transfer of wealth
Things are about to change very quickly now. In Sept. I wrote "Fannie and Freddie in the lap of the U.S. Treasury"
http://www.forsoundmoney.com/2008/09...sury/#more-180
we are now approximately 4 months past this watershed event, and I believe we are now at the point where the questions will begin. These questions will examine the solvency of the U.S. Treasury and Federal Reserve, I do not believe either will receive a passing grade whether the Plunge Protection Team can hold things together up until President Bush leaves office is a moot point, the "plunge" is coming no matter what is done.
I believe that very shortly the rest of the world will begin to abstain from Treasury auctions and continue selling Dollars, only now the pace will begin to quicken and become frantic as in a PANIC. The questions will arise as to how safe of a credit U.S. paper is, math questions such as the impossibility of the U.S. ever paying back without printing and borrowing more, and the obvious question, that of default and bankruptcy. The biggest questions of all will be "how do I get paid?", "what do I get for settlement"? The current answer is YOU DON'T and NOTHING! This must change. These are very simple questions that even a child would ask but have been repressed for years now to hide and obscure the Ponzi scheme. Surely the world knows that they have been run through a Ponzi scheme but they want to get out without exposing it, an impossible task indeed.
For the last 60 years or so, Americans lived the "good life" with less and less work and production with each passing generation. A good deal if you lived through it, but then the bill must be paid. This "bill" will be a shocker to all who think that life will go forward and "things are bound to get better". They will not, almost every facet of life will change drastically and the standards of living will decline no matter where in the world you are located. It has become clear that the U.S. must begin to reign in military spending and thus shrink it's global presence on foreign soils.
History has shown that past booms that turned to bust invariably ended up in war, I hope this time will be different because now their are too many competing nations with nuclear capabilities. Because the U.S. financial position has become public and common knowledge, the risks of tensions flaring up will intensify even without Washington stirring up the pot, U.S. weakness or collapse will spark all sorts of aggressive movements and posturing.
The IMF and Council on Foreign Relations have both recently forecast the rising risk of civil unrest worldwide, they have run the numbers and know that the "Dollar hegemony" is collapsing and a monetary change is in the wind. Washington knows this too and have recalled some 40,000 troops trained in "crowd control". It is always bad enough on a country when they are forced to devalue or discontinue a currency, however, the current problems reach the four corners of the Earth and no sovereign will pass unscathed. The collapse of a currency or even a "reserve currency" is nothing new, it has happened many times before. The key to survival has always been whether or not you sought shelter and exited the busted currency in time to preserve your wealth, however, in the past 37 years the game has been one of "musical currencies". Today that game is over as all currencies are "busted" because their reserves being Dollars, are "busted".
Once every 50 to 100 years is it wise to have ALL your assets in either Gold or Silver, this is that time! Physical metal has risen between 10-15% in Dollar terms for 2008, a fantastic return while all else was crumbling. Metal itself has become very, very scarce, and for good reason, smart money has already intellectually arrived at the end game, they are exiting the Dollar system and seeking shelter in the only historically tried and true safehavens. The coming devaluation will dissolve
Treasury values and the last competing safe haven with metal will dry up and blow away, Gold and Silver will be the "last man standing" and absorb absolutely massive amounts of global capital. This is it, this coming year has the potential and probability to have THE largest revaluation and "transfer of wealth" in history. It is very simple actually, the biggest Ponzi scheme in history has been played on the world for at least half of everyone's lifetime, do you not think that when this sham collapses, fortunes will be destroyed and fortunes will be made? This wealth transfer will be FOR ALL THE MARBLES, either wealth is transferred away from you or away toward you, either you stay in the system or you exit it. Very simple but very important choices, these choices will remain a legacy to your future generations, either good or bad.
Regards,
Bill Holter C/O Le Metropole Cafe
...Surely the world knows that they have been run through a Ponzi scheme but they want to get out without exposing it, an impossible task indeed.
source: http://www.forsoundmoney.com/2008/09...sury/#more-180
...it needs to be found out indeed, if it will be an impossible task because:
-the Brigands are about to raid the Peons again and still it seems, the Peons still haven't got a clue!!!???!!! and this is how its done this time around: see attached graphic
...the problem for the US is that CHINA PEONS, RUSSIA PEONS, GERMANY PEONS, FRANCE PEONS (just to name the most influential) will not tolerate to get ****ed again...
...consequently, 'BE AWARE' how you invest your resources in 2009...
All good points ananda77.
Where do people get their news from . . .
Reuters, AP, ABC, NBC, CBS, FOX, NYT, WP etc . . . why do we get the same lame, toothless financial news and disinformation reprinted across the globe? People constantly being told the bottom is in . . . the masters herding the masses back into the stock market only to be slaughtered again. Their savings and retirement accounts picked over one more time . . .
Could it be that the same interests that control international banking, also control much of the international media through large shareholding blocks under different entities that were acquired long ago?
The ultimate Pyramid Scheme . . .
Attachment 1123
.
Everybody is saying buy gold, which probably means we should be selling gold. :D
Currently a Doji on the weekly chart- could that lead to an Evening Star?
Ichimoku Kumo on the weekly is still bearish with current action stuck in the Kumo (and on a DT line). In fact, two downtrend lines need breaking.
Spotted this posted on another forum.
Market Update for December
Market Condition: Volatile Bear
by
Van K. Tharp, Ph.D.
............................My advice, once again, is that secular bear markets usually end when the PE ratios of the S&P 500 hit around 6-8, for example, 1932, 1942, and 1982. We’re in the worst crisis since the Great Depression and perhaps in one that is worse. Are you willing to risk the PE ratio of the S&P 500 dropping to single digits? My advice, get in the market when prices are above the 200-day moving average and get out when they are below (or at least stay out until our market type turns bullish for at least two weeks). That would have kept you out of this market throughout 2008.
...and the GOOD NEWS till last:
Fred and the Economy
http://blip.tv/file/1528079
Kind Regards
As of 22 September 2005, the largest gold holdings in tonnes as reported by the World Gold Council can be seen in the table below.[7] The United States' holding of gold is worth approximately US$164 billion (December 2006). A tonne or metric ton (symbol t), sometimes referred to as a metric tonne, is a measurement of mass equal to 1,000 kilograms. ... The World Gold Council, formed in 1987, is an industry association of the worlds leading gold mining companies. ... The United States dollar is the official currency of the United States. ...
1 United States of America 8,133.5 2 Germany 3,427.8 3 International Monetary Fund 3,217.3 4 France 2,892.6 5 Italy 2,451.8 6 Switzerland 1,290.1 7 Japan 765.2 8 Netherlands 722.4 9 European Central Bank 719.9 10 People's Republic of China 600.0 11 Republic of China (Taiwan) 423.3 12 Portugal 407.5 13 Russia 386.6 14 India 357.7 15 Venezuela 357.4 16 United Kingdom 311.3 17 Austria 307.5 18 Lebanon 286.8 19 Spain 283.0 20 Belgium 227.7 21 Philippines 187.9 22 Bank for International Settlements 185.3 23 Algeria 173.6 24 Sweden 155.4 25 Libya 143.8 26 Saudi Arabia 143.0 27 Singapore 127.4 28 South Africa 123.9 29 Turkey 116.1 30 Pakistan 107.9 31 Romania 104.9 32 Poland 102.9 33 Indonesia 96.5 34 Thailand 84.0 35 Australia 79.7 36 Kuwait 79.0 37 Egypt 75.6 38 Denmark 66.5 39 Pakistan 65.3 40 Kazakhstan 58.6
_________________________
It will be interesting to see how accurate this mob is - we can look back in 2012 .
These target prices are based on the median of 21 gold analysts surveyed by Bloomberg. As shown, analysts currently aren't expecting a big rally or a big decline in gold over the next few years. By mid-year 2009, analysts are expecting gold to be at $825/ounce, which is less than $10 from its current price of $816. At the end of 2011, analysts expect gold to be down to $790, and then down to $762 by the end of 2012.
http://bespokeinvest.typepad.com/.a/...d4d4970c-400wi
Perhaps oil could be a better deal, - heres the Crude Oil Price targets
http://bespokeinvest.typepad.com/.a/...a4d4970c-400wi
http://bespokeinvest.typepad.com
I see gold stopped trading in 08 at 880-80
In Chinese communities around the world, eight is considered the most fortuitous of numbers, making it much coveted for addresses, phone numbers and bank accounts."
If you're Chinese--every fifth person in the world is--an eight not only portends prosperity but confidence and money worth even millions,
depending where you are.
"In Hong Kong, a personal license plate with the number eight can cost
millions of dollars," says Alhambra, California developer Raymond Cheng, who was born
and reared in the [former] British colony. "A single eight on your license plate gives you status. People know you have to pay top dollars for it."
Today--the eighth day of the eighth month--the cultural significance
of the number eight will be renewed in the Chinese American communities
in the United States too.
For centuries, this ancient culture has held eight as the most
fortuitous of numbers. Early Chinese settlers coming to California a
century and a half ago brought their beliefs with them, passing them on
to the new generations.
Since the '70s, with the influx of moneyed immigrants to the state
from Taiwan and Hong Kong, the traditional tenet about the number eight
has moved beyond the gates of Chinatowns to become an American suburban
fact of life.
People Place Culture History
Chinese home buyers in the San Gabriel Valley routinely look for an
eight in a street address, viewing it as an added value. Some try to have
their home address changed to include an eight. Others seek to rid a
number, such as a four--considered unlucky because it sounds like the
Chinese word for "death." Many pay to get as many eights as they can in
phone, fax and license numbers.
There is even a Chinese restaurant named 888 in Rosemead. Chinese
Yellow Pages for the San Gabriel Valley have more eight combinations than
one thought imaginable.
"If they get a phone number or a checking account with a lot of
eights, they're extremely happy," says Councilwoman Judy Chu of Monterey
Park, who is Chinese American.
Recently, when she opened an account at a Monterey Park bank, the bank
made sure it had many eights. "They thought I would be pleased," Chu says.
Next door in Alhambra, Raymond Cheng and his wife, Tina, have a lot of
eights between them.
His business phone is (818) 282-2828. His fax number: (818) 282-0283.
Their three cars--a Rolls-Royce, his and her Mercedes-Benzes--also have
ample sprinkling of the number eight. And, naturally, their home phone
and street address are sprinkled with eights. (His parents' Hong Kong
flat is on the 18th floor and the street number on their San Francisco
home is 18.)
Cheng, who serves on more than 10 civic and professional boards in
addition to owning a development company and a Chinese restaurant, won't
go so far as to say that the many eights in his life contributed to his
visible prosperity.
But his wife ventures: "All things being equal, an eight gives you
added confidence." After all, it's worked for Hong Kong.
One has to ask the question why has Hong Kong done so well in such a
little space? Cheng says.
"Hong Kong is a small island with no natural resource, and yet it is
one of the world's most important financial centers."
Here in Los Angeles, too, he lives with what he calls a "Hong Kong
syndrome."
Not long after opening his own company in 1983, Cheng won a contract
to remodel Los Angeles National Bank in Monterey Park.
"I had to complete everything in 2 1/2 months because the owner
absolutely said a grand opening would be on Aug. 8," Cheng recalls.
Working nights and weekends and getting a city inspector to come out
on a Saturday, Cheng made sure the bank had the grand opening on Aug. 8.
"There was no other reason except that the date signified good fortune
and prosperity," he says.
Daniel T.C. Liao, a ranking Taiwanese government official who served
as the director of the Chinese Cultural Center in El Monte, says the
belief follows wherever Chinese go.
JBmurc is also a big 8 fan and will only drive V8 cars :)
2008 has come and gone. Gold held up very well while the mining shares got hammered. In fact, Gold did everything it was supposed to do no matter what the nay sayers tell you. Actually the physical metal did far better than "they" want you to know. The physical metal, if you can find it, is trading at a $100+ premium over COMEX. This is better than a 10% gain for the year while virtually all other assets crumbled with the exception of US Treasuries. Treasuries are living on borrowed time though as the Treasury is issuing literally $trillions more in supply with no end in sight. In any case, the metal of monarchs turned in a year that many could only have wished for.
So where to now? I believe 2009 will be the year that "spin no longer works". I truly believe that this coming year will be one of comeuppance for the U.S. Treasury and the Federal Reserve. 2009 is shaping up as the year that the credit spigot will shut tight on further U.S. borrowings from the rest of the world. This shutdown may or may not be called a bankruptcy, though it matters not, Uncle Sam will be shut out and shut down. This will be THE year of divergence of those things real vs. those things paper. Some will even discover that what they thought was real, really was not, ie. ETF's, pooled accounts, etc.. UGLY is too pretty for what I am afraid 2009 holds in store.
If I am even half correct in what I expect 2009 to bring, civil unrest worldwide and in particular within the U.S. will be commonplace especially in the urban areas. This unrest will be a result of market and bank closures, those with "cash" will be disappointed that it will not spend for more than a couple weeks after the initial "banking holiday". Those with metal will be disappointed that "goods do not grow on shelves". while those with "goods" will be disappointed that they don't have more, or even enough. Putting it mildly, 2009 will be the year of disappointments. I come to the conclusion that 2009 will be the year of the fiscal and monetary train wreck that must come at the end of all fiat Ponzi schemes.
Why is this? Ponzi schemes all require more and more new capital to sustain prior entries, it is the same with "fiat" capitalism. Either more new debt and credit enters the system or the system will begin to deflate, this deflation is what kills off earlier entries into the system. It is either inflate or die until you can no longer inflate, then you die. We are there now. But what of hyperinflation? Don't worry, that is out there for 2009 also, probably very, very early in the year. Many have, and will, argue that deflation and hyperinflation are complete opposites and cannot exist together, I disagree completely. I envision much further deflation of assets in 2009 while the collapse of the $ will create $10 cups of coffee, [I'm not talking Starbucks either].
The deflation that surely will continue in 2009 will be massive in terms of Gold and to a lesser extent in Dollars, I also believe Gold will end 2009 at a minimum $1,600 per ounce and that is only IF the system holds together which I give odds of less than a coin flip of occurring. All bets are off when the banks close and Uncle Sam can no longer borrow, pick your wildest number for Gold and that will probably be too low, [2009 will probably be the year when you begin "counting ounces" as opposed to Dollars]. However, the hyperinflation side will be far worse to humanity than assets deflating, I say far worse because FOOD is the quintessential necessity and hyperinflation hurts the masses where it counts, in the belly. This, I believe, will be the catalyst for civil unrest, government response and thus conflict.
We stand in the doorway of food shortages for several reasons, first, a hyperinflation [currency run] causes hoarding and panic buying, second, what retailers have just experienced with inventory loans and the demand for COD payments will surely come to a grocery store near you, third, some farmers will not plant this year because crop prices have been pummeled by the commodity bust and can no longer make a profit, and fourth because of distribution bottlenecks. Distribution will be adversely affected by lack of credit, it already has in many retail industries. I wrote all about this potential "credit crunch" result early last year and it now appears to growing. Without credit, the umteen different "hand offs" from start to finish are affected and just like any chain, if one link breaks, the chain is no longer functional.
I don't like being the bearer of bad tidings or doom and gloom, but this is how I see it, I do not at this point see any possible escape from this "two headed 'flation' monster. The debt is already in place, the monetary and fiscal responses have been textbook, as one would expect, and yet still no traction. Unfortunately and unbelievably this appears to be the financial end of the greatest empire in Earth's history. Those who know me personally know that I do not say this with malice, I am speaking from my gut and hoping that those reading this will take all means to protect themselves and family. The bankruptcy of the US Treasury and Dollar is now imminent, is it Jan. 2009 or July 2010?, I have no idea. I would bet it will be sooner than later as only a fool would lend further funds at this point, and the U.S. Treasury "lives" on borrowed capital. The entire system as it turns out was a "con game", now that the "confidence" is gone we enter "game over". This "game" is really not a game, it is about the 6 billion souls living on the planet all of whom will suffer because of a long term banking scam centered in the U.S.
2008 was the year misdirection and illusions, next year, reality will hit you square between the eyes as things are so far over the edge that it will no longer be "spinnable". All along the spin has been deafening, "contained, sound, strong, no recession then mild recession, lower rates then 0% [yeah!], TARP and 22 other loan programs, $10 trillion from the Fed and Treasury, real estate is bottoming, V bottom then L bottom, and on and on. Nothing has worked, all the spin was just that, spin, the WHOLE THING HAS BEEN SPIN, IT IS ALL A PONZI SCHEME!!!
Individuals, banks, brokers, real estate, autos, insurance co's, municipalities, states, and even the federal government are all financially crippled with too much debt and no ability to service that debt, PLUS the money we use is untenable. What entity can possibly step in and fix this? I think the only possible remedy the rest of the world can take is to "change" the money. They must distance themselves from the Dollar or go down with it, I believe this also pertains to individuals. Either exit the Dollar arena or go down with it, pretty simple. Please do not take the upcoming year lightly as there will be a point in time where the public mindset will become one of "the boy who cried wolf" as it pertains to spin, reality will become all too apparent.
I wish everyone who encounters this missive the best of health, fortune, and luck in 2009, we will all need it.
Regards, Bill H.
Via LeMetropole Cafe
Analysts say one thing and know another. They work for investment banks that are insolvent and create lies and disinformation as a matter of everyday business practice.
I wish I had an once of gold for every time Goldman Sachs or JP Morgan have been bearish on gold, telling their clients to sell, while they do the opposite and load up. - then they reverse the play and make money on the unwind - all the time with their hand in their clients wallet.
These people have no vested interested in dealing in truth, because the truth is - their gig is up, it's only a matter of time.
Aussie
I was recommending Gold as a buy here on Sharetrader circa 2001 when it was around $250. Most people thought I was mad, but I went ahead at that time and bought both gold and silver at bargain basement prices.
At some point around the same time I started a thread 'the looming American dollar disaster". This situation we are in now is something I have been conscious of and preparing for over a number of years.
My current opinion is precious metals should be part of your holding, but in this economic situation I feel more diversification may be required to cover any eventuality.
We do know things are bad globally but we dont know exactly what is going to happen for certain. Governments have the power and can do many things.
Be diversified, be nimble
Clearly a move away from the USD by the world's largest oil producers is on the cards here . . . the results of this would be devastating for the US. Imagine if the US had to convert it's currency into this new one (like everyone else) in order to buy oil?
GCC leaders approve Monetary Union as members seek to host Central Bank
By Sunil K. Vaidya, Bureau Chief
Published: December 30, 2008, 23:46
Muscat The GCC leaders put their final seal on the Gulf Monetary Union on the concluding day of the two-day 29th summit yesterday but the question of the location of the Central Bank remained unresolved.
"There are four countries staking a claim to host the GCC Central Bank," Mohammad Al Mazroui, assistant secretary-general for economic affairs, told Gulf News at the end of the summit on Tuesday.
He said the UAE, Bahrain, Qatar and Saudi Arabia were keen to host the GCC Central Bank.
He said he hoped a decision would be taken by year end.
Gold reserves
In reply to a question on gold reserves for the GCC Central Bank, Al Mazroui said "that is a matter to be pondered over later.
"We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank," he said.
Oman had pulled out of the common currency in 2005 citing unpreparedness but had decided not to object to the other five members going ahead with it.
Ironically, it was during the 2001 GCC Summit in Muscat that the plan for the common GCC currency was mooted and it was given the final nod here in Oman yesterday without the participation of the hosts.
It was decided to speed up the creation of the Monetary Board to oversee technical requirements for Monetary Union. The proposed board will finalise details for setting up the Central Bank and the issuance of the single currency.
Common currency
Saudi Arabia's King Abdullah Bin Abdul Aziz proposed that the committees working on the GCC economic integration process should speed up their work and complete the whole process by September 2009 so as to benefit GCC nationals.
The leaders also reviewed the functioning of the GCC common market and adopted a document containing principles, market requirements and objectives and mechanisms for implementation.
Al Mazroui said that the common market draft proposed by the finance ministers went off smoothly and was adopted but some issues of revenue have to be sorted out as far as the Customs Union issue was concerned.
On the name for the common GCC currency he said there were some names that had come up. When pressed, he agreed that Khaleeji was ahead in the race.
Al Mazroui said that the railways project feasibility study was also given the approval along with the $7 billion (Dh25.69 billion) GCC power grid. "The power grid should be functional in the first half of 2009," he said.
He, however, added that the GCC finance ministers had shown concern about the cash flow.
http://www.gulfnews.com/business/Economy/10271396.html
Gulf Cooperation Council leaders yesterday concluded their 29th annual summit meeting in Muscat, Oman with a final approval for the creation of a single currency for the six-nation economic bloc, still targeted for 2010.
Saudi Arabia is the largest economy in the GCC and boasts substantial gold reserves. But whether gold will be included in the currency basket has not yet been decided.
Golden opportunity
GCC assistant secretary-general Mohammad Al Mazroui told Gulf News: ‘We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank’.
The creation of the GCC single currency - likely to be known as the Khaleeji which means Gulf in Arabic - is a major gold event for two reasons.
First, the breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Secondly, any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.
2009 deadline
The project is gathering pace, and no lesser a figure than Saudi Arabia’s King Abdullah has directed that GCC economic integration committees speed up their work and complete the whole exercise by September 2009.
It is only a couple of months since a group of Saudi businessmen allegedly bought $3.5 billion worth of gold, believed to be the largest ever single transaction for the precious metal. Perhaps in 2009 it will be gold rather than local currencies which become of interest to speculators about monetary reform in the GCC.
Gulf countries are keen to break away from the link with the US dollar because it ties them to inappropriate monetary policies that exaggerate the boom-to-bust cycle in their economies.
http://seekingalpha.com/article/1127...y-include-gold
Fed has abandoned monetary policy, critic says
Sat Jan 3, 2009 9:58pm EST
SAN FRANCISCO (Reuters) - The Federal Reserve has embarked on a campaign of unsupervised industrial policy to end the country's financial crisis, a move that could undermine its independence, a former top U.S. official said on Saturday.
John Taylor, who was under secretary of treasury for international affairs from 2001 to 2005, said the explosive growth of the Fed's balance sheet since September was "unbelievable."
"This doesn't really seem like quantitative easing in the sense of finding a growth rate in the money supply," he told a panel discussion during the annual meeting of the American Economics Association.
"What you are looking at now is really being determined by other considerations. How much should we buy of mortgage-backed securities? How much should we loan to foreign central banks? This is really more like an industrial policy," he said.
The Fed's balance sheet has more than doubled in size to over $1.2 trillion in recent months as it has tried to shield the U.S. economy from the worst financial crisis since the Great Depression by supporting key credit markets.
This has included direct purchases of mortgage-backed bonds by the Fed and support for top-rated non-financial borrowers in the crucial commercial paper market, as well as hundreds of billions of dollars lent to banks on the basis of collateral.
"If you have a situation where the Fed is borrowing to invest in all these sectors it seems to me you have a huge governance issue...that demands a lot of thought," Taylor said.
Taylor said the U.S. Congress has a legitimate right to demand a say in who the Fed lends money to. The outcome would be "radical reform" that would risk monetary policy independence, he said.
This concern was echoed somewhat by the president of the St Louis Federal Reserve Bank, James Bullard, who also took part in the panel discussion. He said the close collaboration between the Fed and U.S. Treasury in fighting the crisis could have unintended consequences.
"We are blurring the institutional arrangements a little," Bullard said. "I am concerned about independence. Fed independence is very important," he told reporters.
Things are way more out of control than anyone in Washington or Wellington would dare let on . . .
A Future U-Turn In A One Way Street
The Federal Reserve has boxed itself into a corner. With official US rates at (effectively) zero, they have only one way to go in future - UP! As a direct consequence of this, US Treasuries are standing on a trap door. The mad stampede over the past two months into Treasuries for “safety” simply means that these holders of US official debt now stand on that trap door. US Treasuries are the main assets held by the rest of the world’s central banks as reserves behind their own national currencies. US yields are certain to climb as the US Treasury tries to borrow more than $US 2 TRILLION this year. When yields climb, bonds - ALL bonds including US Treasury bonds - fall in value.
US Treasuries are the last bubble, following after stocks, real estate and commodities which have already deflated. When the US Treasury bubble bursts, the carnage on the global bond markets will be awesome.
A Now Invalid US Benchmark
In the staircase of ascending risk, government debt paper - bonds, notes etc. - have long been deemed the safest. Only after government debt comes the debt issued by the private civil economy. It is deemed more risky because this debt is exposed to commercial risks which government debts are not. The problem is that government debt is exposed to political risks.
Today, the climbing political risk of US Treasuries is radiating all around the world. Most of the rest of the world’s other central banks hold in their vaults US Treasury and Agency paper “valued” at $US TRILLIONS. When US Treasuries start their fall, this will contract the valuation of the “reserves” of every global central bank. That will in turn contract their reserves, forcing all their own interest rates upwards. Were the US Dollar fall along with Treasuries (an almost certain event), then many foreign central banks would face a double jeopardy situation. As their holdings if US Treasuries fell in market value because of climbing US interest rates, a falling US Dollar would tear their holdings of official reserves apart. These foreign central banks would have to take desperate measures to replenish their reserves. They would have to do so in public in order to “reassure” the public. Any foreign central bank which failed to do this would risk losing their standing as the backstop for their commercial banking sector. At that point, the US political risk would spike up to a global crisis level since, clearly, US Treasures, Agencies or even the US Dollar itself could no longer be valid reserves. In outline, these are the already built-in monetary and financial features of the global situation which is arriving.
The Looming US Debt Default
As things stand economically, the Obama “stimulus” package is woefully too little and too late. It amounts to throwing money into a US deflationary hurricane. But that same “stimulus” package opens the door politically for the later claim that since the rest of the world refused to lend the money to save the US economy, we will no longer service our external debts to the world. From that comes debt default. But even that is only the start because it then becomes critically necessary to stop an immense outflow of foreign funds presently invested in the US. That means US currency controls. Under such controls, an American who wants to make payments offshore will have to justify their action. Foreigners will have to justify why they should be allowed to take some of the US Dollars they own out of the US. Foreigners outside the US who are today holders of US Dollars will have to explain why they want to send some of their US Dollars back inside the US and what they intend to buy there.
Historically, there is not an item in this which has not been done in the many instances of debt default.
The Likely US Triggers
The most likely global trigger event will be when a US Treasury debt issue is under-subscribed (i.e. an issue is left on the counter because it faces a global buyers’ strike) or when US interest rates start their climb, the US Treasury is forced to offer a higher rate because of international fears of a US debt default. An under-subscription or a higher US Treasury offer rate required to sell new US debt paper are really two sides of the same economic coin. Either or both will signal that the US Treasury has reached its global credit limit and can borrow no more. At that point, the Treasury will stand in the same position as any person receiving a letter in the mail that says their credit card has been totally maxed out.
Permission hereby given to quote short excerpts - provided full attribution is given:
© 2009 - The Privateer
http://www.the-privateer.com
capt@the-privateer.com
(reproduced with permission)
The bond bubble is an accident waiting to happen
The bond vigilantes slumber. As the greatest sovereign bond bubble of all time rolls into 2009, investors are clinging to an implausible assumption that China and Japan will provide enough capital to keep the happy game going for ever.
More . . .
http://www.telegraph.co.uk/finance/c...to-happen.html
I agree the bond bubble will pop one day.
What to we buy or sell to benefit from the bond bubble popping?
All Roads Lead to Default
Unfortunately, the above title is mathematically correct. From here all roads do, and will lead to default. But default of who? You, me, the company we work for? Possibly. The coming default I am referring to is that of governments and their currencies. Default can happen in several different manners, each of which has one central theme in common. SETTLEMENT, or in this case, lack of. I will get back to this term later but for now, how or why must all roads lead to default?
Default can occur when the debtor does not, can not, or refuses to pay. Please remember while reading this piece that the U.S. Dollar is the world's reserve currency and that almost all currencies use "Dollars" as their "reserve" or foundation for value. The way I see it, the U.S. has several paths to go down, they can try to borrow until eternity, they can try to raise taxes, they can try to print enough Dollars to make payment [notice I didn't say settlement], they can cut spending, or they can just throw their hands up and say "we're broke" and can't pay. The current and past official plan has always been to "out grow" the debt and thus the payments, anyone looking at a chart of debt growth and economic growth side by side knows that this theory is a complete fallacy.
None of these options has a prayer of working either intellectually nor in reality. No matter how "big" the bozos in Washington think they, or the government is, there is a limit as to how much they can borrow. There is a limit as to the amount of global capital available, a limit to what can mathematically be "afforded", and a limit as to the amount of confidence the world will have in our ability to pay. Borrowing to eternity is a nice concept, however when dealing in finances, eternity is an impossibility because of the restraints of reality.
They can try to raise taxes but this cannot work either. You can only raise taxes to 100% of income or even confiscate assets but this only serves to destroy the system and create incentives not to produce and to trade in black markets. Long ago we passed the threshold where the national debt could be paid off by increasing taxes since the increase in taxes will only serve to shrink an already shrinking economy. The military, the embedded entitlements, and interest due are now more than tax receipts so paying the debt down with current taxes is mathematically impossible.
The Fed can try to print enough "Dollars" to pay the debt down but this option will destroy the value of all existing Dollars and cause a foreign central bank panic out of Dollars. This option is ultimately where I believe we are headed but to no avail, governments have tried this many times before only to ultimately blow up their currency. This amounts to trying to make payment with a fictitious entity created out of thin air and of no value, mathematically possible but true and fair settlement is not attained.
Washington can also try to cut spending. They can try [they will be forced] to cut military spending, domestic spending [resulting in riots], but the debt will remain and thus the interest payments. Spending money is what Washington does best, tightening their belts [ours] will not happen. Even if it were to happen, the amount of debt and interest due is beyond payment. Washington is in a position where the mortgage payment is already $25,000 per month with an income of only $10,000.
They can stop going to the grocery store, not use electricity, park their car and not even leave the house, they cannot make the payment without borrowing more.
Washington can try all of these at the same time or in any combination, it will not work. IT IS MATHEMATICALLY IMPOSSIBLE! No matter what option or combination of options are tried or chosen, the key element of SETTLEMENT can never occur. Settlement is the bottom line to any transaction going back to caveman times. As silly as it sounds, even cavemen expected to get something in return for their labor or produce, they expected settlement! Since 1971 settlement has been denied anyone and everyone who accepted Dollars, Pounds, Yen etc. in return for their product or labor. All you received was a piece of paper that you could pass on [or hoped to] to another party in exchange for something else of value. Settlement has been denied ever since Nixon closed the Gold window and withdrew any real backing to the Dollar. The world will demand settlement thus forcing default!
Whether you know it or not, we have been living in a "never pay" world. Think about this for a moment, if you can create currency out of thin air and continually borrow more, do you ever really pay anything, or is it always "something for nothing"? Not only has the system been set up as a Ponzi scheme, it has used a fictitious currency of no value to boot. Most all of the worlds' production for going on the last 40 years has not been "paid for" nor settled, this lack of settlement will ultimately result in one gigantic bankruptcy where those who believe they were paid will find out differently. Values [true, real values] will shock millions to tears or worse as the reality will set in of having "saved" for a lifetime only to find out that what they were saving was of no value.
This is not just a U.S. problem though the Dollar is at the heart of it. Perceptions of values worldwide will be turned upside down in what will feel like a a living hell to those caught unprepared. The world was conned into believing that pieces of paper and debt instruments that promised even more pieces of paper were stores of value, they are not and the rude awakening is coming. This coming default will come about by the world changing its perception and demanding settlement. Unfortunately some governments will not have the ability to settle as they participated in rigging the Gold market, their Gold is gone and can only be replaced through mining. As strange as it sounds now, miners will replace banks as the true "blue chip" investments and settlement will be demanded for any and all transactions. This "never pay" model will be discredited, as well it should!
Regards, Bill H.
via Le Metropole Cafe
Dr, here's a Canadian ETF that has US Treasury bull and bear funds. Some poking around a few message boards tells me that the 30 year "bear fund" HTD.TO sounds like a popular vehicle.
http://www.hbpetfs.com/fundSummary.asp
http://reports.theglobeandmail.com/j.../html/jovianf/
A Canadian dollar investment might be a good way to play it as they drop - I'd be curious to see what others here think, if I find some spare capital I might jump in it myself. But DYOD.
Cheers
As this commentary says, it's interesting that Fed Chairman Bernanke and FDIC Chairwoman Sheila Bair this week both blew off a couple The US Congressional hearings at the last minute to attend an "emergency" meeting of central bankers at the Rothschild controlled Bank of International Settlements (BIS) in Basel Switzerland. It's not news to anyone that the largest US banks have been on life support for the past 12 months or so. There is no doubt that they are insolvent and have become "zombie" banks that are only functional due to the huge inflows of capital from the Fed and Treasury. One has to wonder how long this charade can continue . . . ?
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The largest banks in the country are getting hammered again today and are trading at multi year lows. Bank of America is receiving another $10 Billion band aid and Citi is back to where it was a month ago when it was "saved". JP Morgan announced 7 cents per share earnings [FANTASY] a few days earlier than the expected report, I think the advance timing has to do with getting the release out before a new set of overseers from the Obama administration may or may not allow "fantasy" earnings. If every bank in the country is and has been reporting massive losses, and JP Morgan was the leader in "cutting edge" toxic investments AND was THE most leveraged of all, then they are sitting on hundreds of $ billions if not $ trillions in losses!
This credit crunch has progressively moved to more and more important institutions, 2 of the last 3 are now "fessing up" and imploding. It is only a matter of time before JP Morgan is attacked and thus the Fed. So we have the last three big U.S. institutions under scrutiny and attack and the Dollar rallies. Like I said earlier this week, huh? Can you say manipulation? It is also notable that an emergency Basel meeting has been called because THEY KNOW. They know that these banks are about to blow and something drastic needs to be done, and fast. Basel meetings are always scheduled far in advance, this time IS different.
There is also the Mexico, Russia etc. oil producing nation problem that must be addressed, crude prices MUST go higher or we will witness several sovereign failures that will lead to a domino cascade of bankruptcies. The rubber is hitting the road and hard, right now. All of the past manipulations have caused "unintended consequences" that are just now beginning to kick in full force. The perfect storm of financial collapse has been lining up for years now and appears to have assembled across the board from individuals, companies, states, and countries. All we need now is some 1st grader to appear on CNBC and say "but Mr. Kudlow, 2+2=4, they taught me this in school, why is everyone saying it is 5?". The delusion of crap is about to be obliterated, and with it the illusion of paper wealth.
Watch the banks, the Treasury market, and the Dollar, these are going to gap down or even fail bigtime while physical metal will become unattainable and go to levels where only central banks can reach. It is this reason that I think Silver will outperform Gold, the masses will only be able to afford Silver. I will write about this subject next week. For now, hold on tight as it will be amazing what can happen in a one month period of time. Perceptions will be swept away and reality will bite hard.
Regards, Bill Holter
via Le Metropole Cafe
U.S. net inflows fall to $56.8 billion in November
Fri, Jan 16 2009, 14:15 GMT
http://www.afxnews.com
NEW YORK, Jan 16 (Reuters) - Net capital inflows into the United States fell to $56.8 billion in November from a revised inflow of $260.6 billion in October, the Treasury Department said on Friday.
The department originally reported inflows of $286.3 billion in October.
November's capital inflows were sufficient to cover the month's trade deficit of $40.4 billion.
Net long-term capital flows excluding swaps showed an outflow of $21.7 billion in November compared with revised outflows of $400 million the previous month. October's figure was initially reported by the Treasury as an inflow of $1.5 billion.
The report showed foreign investors sold U.S. Treasury bonds for the first time since August 2007, when the credit crunch began. Foreigners sold $22.87 billion worth of Treasury securities, after buying $32.87 billion in October.
http://www.fxstreet.com/news/forex-n...d-0f7c2349e13c
From 13/01 I sold in demo 100 Bunds (GBP 11,000) and 250 US T-Bonds (GBP 24,000) on the day of this post - so thats nearly a week ago.
The Bund got stopped out at -100 but the T-Bond is going well now at +383 = GBP 680 so seems like it wasnt too bad a thing to have done. Less of course the 100 quid lost on the Bunds.
It wasnt at all a well timed entry point see how I didnt even wait for the 38% retracment and it went to almost 62% before falling again. Could be gathering some momentum now
Anyway I know its in demo but hey just showing how bonds can be fun too!
Ive never traded bonds before.
It sounds abit complicated. Will have to read more on how to trade bonds.
Cheers mate.
the only thing weird about bonds is that their yield and their price are inversely related - so if interest rates go up the price of bonds goes down.
other than that I would just treat them as a number on a chart like everything else.... thats whats cool about technical analysis.
Bel, I do keep a close eye on the economy and rates movement via the OCR. I try to predict what the RB will do and usually I do get it right. I have never dabble in bonds before, but I did buy some ANZ notes last year with over 9% yield. Cant remember the exact rate, cos I am too lazy to look it up. It is also listed on the NZSE. This is more of a long term yield play for me giving fantastic rates.
It's getting closer day by day. Gold staged a HUGE rally last night even in the face a relatively strong dollar - still 85'ish on the USDX. The following is from Bill Holter at Le Metropole Cafe . . . I'd be interested in what you guys think of this.
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Termites did it.
I wrote on Tuesday about the swirling phrase "Treasuries fall on debt concerns", I'd like to expand on this after a couple days of thought. Bottom line, IT'S OVER! If anyone talked or wrote 18 months ago that the credit quality and solvency of the U.S. Treasury would come into question they would have been ushered off stage left and put into a straight jacket. Fast forward 18 months and the topic is all over the world including in the U.S., my what a few burnt $trillion here and there will do.
Never mind that mathematically the biggest game of Monopoly/Ponzi ever played is past the point of no return [we are witnessing a business as usual mentality far beyond this point], the key is perception or "direction of the herd". The fact that U.S. sovereign solvency even has been spoken about publicly means that we are VERY close to a PANIC. Yes the economy and fundamentals have weakened very rapidly, but it is the "perceptions", the "confidence", that moves the herd. The thing is, perceptions can change at the drop of a hat and be 180 degrees within days. If we were on a Gold standard [we wouldn't be where we are now] a panic could [and did in the past] happen, however, there would not be the possibility [probability] of a worldwide banking and all things financial collapse such as we have now.
The credit crunch has chewed its way like termites up the totem pole all the way to Uncle Sam's bare ass, I say this because everything below him has been chewed up and spit out. Only the Treasury remains, there are no other targets left. Unfortunately the U.S. has put itself in a stupid position. We cannot survive without borrowing more money and the rest of the world sees this. EVERYONE sees this, now it is only a matter of time before confidence breaks. The "silly" questions about U.S. solvency are like the cracking and snapping sounds a tree makes in a wind storm just before it breaks. The ONLY thing left is confidence, the fundamentals and strong foundation were termite food long ago.
It was a "good run" that lasted 38 yrs., in fact, the current fiat experiment has lasted longer than any other in history to my knowledge. If you study the busts that came after previous fiat/credit booms then you know that the experience is very "compacted, vicious, and swift", the current fairy tale will be all of these and more because of size and scope. The entire world drank $ Kool Aid for years based on nothing but confidence. The changes occurring in current thought is like a hot knife through the butter of monetary confidence, the panic will be swift!
I am sorry to harp on the Dollar, confidence, solvency and all the other "unimportant" topics but they are the foundation to a fair and functioning financial and trade system. We were led down the path to drink the Kool Aid, now fewer and fewer are complying and others in line are hearing the "grumblings of common sense". The tipping point cannot now be far off, Uncle Sam's financial termite infestation will soon be visible even to those looking the other way because too many are TALKING ABOUT IT! Talk is cheap except when it comes to a fiat currency based on confidence, then talk can topple currencies and the governments that issue them. Be prepared,
Bill Holter
Which currency is best to buy to benefit from the USD weakness?
We learned today that the global recession, as defined by rising global unemployment, is only just getting underway.
It might feel like it has been going for more than 12 months and you might be getting very tired of it already, but the collapse in the real economy is just a few months old – following the global economic “cardiac arrest” last October – and is now building a head of steam.
In the past 24 hours companies in the United States and Europe announced job cuts totalling 62,000, headed by Caterpillar’s decision cut its workforce by 20,000.
In addition there was Sprint Nextel (8,000), Home Depot (7,000), Pfizer (8,000), General Motors (another 2,000), ING (7,000), Phillips (6,000) Corus (3,500). Last week Microsoft announced 5,000 lay-offs, while in Australia BHP Billiton said it was cutting 3,000 jobs.
So the rise in unemployment, especially in Australia, is still in its infancy, as is the impact of the slowdown on corporate earnings.
Although this began as a credit crisis and will only end when the world’s banks are repaired and can reopen for business, what is now unfolding is the “reverse wealth effect” – the opposite of the consumer spending and business investment boom that came out of the housing and sharemarket bubbles.
In his latest letter to clients, Jeremy Grantham of the Boston based investment firm GMO, lays out graphically how the reverse wealth effect works for the United States.
Assuming declines in value of 50 per cent for the stockmarket, 35 per cent for housing and 35-40 per cent for commercial real estate, there has been a total loss in perceived wealth (my emphasis) of about $US20 trillion from a peak of $US50 trillion.
US GDP – the annual value of goods and services produced – is $US13 trillion.
“These write-downs not only mean that we perceive ourselves as shockingly poorer, they also dramatically increase our real debt ratios."
The national private asset base of $US50 trillion was supported by debt of $US25 trillion. Now the asset values have fallen back to $US30 trillion, while the debt remains at $US25 trillion, “give or take the miserly $US1 trillion we have written down so far”.
Maintaining the same gearing ratio means the debt has to be written down to $US15 trillion. However, as Grantham points out: “As always, now that it’s raining, bankers want back the umbrellas they lent us.” That is, they are demanding lower gearing ratios – no more than 40 per cent, not 50 per cent.
That means $US12 trillion in debt, not $US15 trillion – half the current level. So somewhere between $US10 trillion and $US15 trillion in US needs to disappear.
That’s just the United States. The story is being repeated around the world – in the UK, Europe, Japan, Australia, Russia, Iceland and now China.
The decline in real wealth, and the amount of debt that has to “disappear” is almost unimaginable.
Short of finding another bubble to reinflate asset values, there are only three ways to do it: write the debt off, inflate the money supply and reduce the real value of the debt, or do what Japan did and take years – decades – to gradually save more and pay down the debt (that hasn’t actually worked for Japan yet, by the way).
Each of these three measures is now underway. Each is extremely painful and takes a long time.
The sharemarket has already anticipated a big decline in earnings with its fall of 50 per cent. Is it enough?
The problem is that price/earnings multiples can change for long periods at the same time as profits fall. A profit decline of a third accompanied by a halving of the P/E ratio produces a price fall of two-thirds.
Over the next few weeks we will get a clearer idea of the likely decline in corporate earnings, although it's clear that companies are already seeing what’s coming and are cutting staff in readiness.
No one can really know what’s coming – it’s too early in the process.
But as Grantham reminds us, only “make-believe assets” are being destroyed – that is, the inflated values of shares and houses.
“It is worth remembering that real wealth lies not in debt but in educated people, laws, and work ethic, as well as in the quality and quantity of fixed assets and the effectiveness of corporate organisation.”
When we have dealt with this crisis all of those assets will be sitting around waiting to be put to full use again.
http://www.businessspectator.com.au/bs.nsf/Article/Brace-for-a-20-trillion-write-down-$pd20090127-NNQY6?OpenDocument&src=ea&ir=4
McDonald's - world's largest restaurant chain, reported a 23% profit drop in Q4 despite a tax gain in the year-earlier period, according to Bloomberg news. The company's net income fell $985.3MM, or $0.86 per share vs $1.27bln, or $1.06 per share a year earlier. Analyst's F/C a profit of $0.83 per share.
Dr. I would say it depends on your timeframe. If you know what you are doing and trade aggressively you can probably make some money but IMHO, ultimately there is no paper currency that will benefit and here's why.
CB's the world over are racing to lower interest rates and devalue their currencies to inflate away debt. Also, every government (including ours) wants to have as competitive an export economy as they can in order to try and help their balance of payments at a time when they are running or planning to run huge deficits for years to come.
Bill English said at the weekend that NZ's debt will likely increase by some NZ$50B over the next 4 or 5 years to around $80B. That's a lot for a small country with a tiny (and shrinking) GDP. It WILL affect our credit rating and our currency - how can it not? Over the medium term, I mostly see further and prolonged NZD weakness unless the commodity and export sector improves dramatically.
As I said, IMO it's quite likely that the AUD, NZD and CAD will get a bump as the USD falls as long as it falls in an orderly fashion. If that fall becomes disorderly, then all bets are off since most countries have foolishly relied on USD and US Treasury paper as the "reserves" to back their own currencies. What happens if those reserves drop in value unexpectedly? If the reserves that underpin a nations currency suddenly drops say 30%, 40% or even 50% in short order due to unforeseen events or a lack of confidence, what do we suppose will happen to the value of the currency itself?
Look at what a nightmare the EU is becoming for it's more affluent members like France, Germany and The Netherlands etc . . . it's fast become a currency and economy trap. It is being dragged down by indebted, near insolvent economies like Ireland, Spain, Greece, Italy and the Baltic states. Violence is erupting daily in some of these countries. Under the charter, the EU cannot bailout these economies as the US Fed would, but you know it is likely happening anyway - in secret. It is in effect an additional tax on the German people and if they ever found out . . . there would be real fireworks.
Brussels will do what ever they can to keep the Eurozone experiment together but ultimately, it will show that one economic policy and currency cannot serve the best interests of 27 different nations.
We cannot trust governments to manage our wealth. This is why I am into the hardest currencies of all - gold and silver. Their time is fast approaching.
Interesting video here for anyone who hasn't seen it . . .
Cheers
http://nz.youtube.com/watch?v=pZsY1rFr_yw
is it time ?
I've got a couple of USD/CHF shorts in place from last night ... and this mornings rally looks corrective = the downwaves look convincing. added another now. av price = 1.1650
trying to use that time strategy from the general chat thread on it - quite interesting , seems to fit the turning points reasonably well.
in the picture similar colour lines are duplicates of each other
Peat
Interesting set-ups on the chart at the mo.
Are you targeting the uptrend line (H1/H4 chart) or a bigger move? (Uptrend line daily - from potential Gart). Target circa 1.0530-1.0600
1:04 PM, 2 Feb 2009
It's about time we called a spade a spade. We are looking at the biggest concealment of capital losses the world has ever seen. Until banks around the world come clean, reveal their hidden losses and cover them with capital will we not be able to see an end to the crisis.
Much more.........
http://www.businessspectator.com.au/bs.nsf/Article/Time-to-spill-the-beans-$pd20090202-NV3QR?OpenDocument&src=kgb
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US Treasury in plans for record debt sale
Published: February 4 2009 18:01
The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come.
The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note rising to 2.95 per cent, up from just over 2 per cent at the end of December.
The rise in Treasury yields has been pushing mortgage rates higher, complicating efforts to revive the economy. The US Federal Reserve said last week it was "prepared to" buy Treasuries if that would be a "particularly effective" way of reducing private borrowing costs.
"The Fed has to be troubled by the fact that mortgage rates have been rising and the buying of Treasuries by the Fed may come sooner than the market expects," said William O’Donnell, UBS strategist.
The Treasury said it would sell $67bn (£46bn) in new securities next week, the largest ever quarterly refunding, beating the last peak in August 2003. It may also start monthly sales of all its benchmark Treasury securities.
At the end of February, the Treasury will start selling seven-year notes every month for the first time since the issue was discontinued in 1993. Sales of 30-year bonds will double to eight times a year and the Treasury will say in May whether the bond will be sold every month.
For Barack Obama’s administration, the step-up in borrowing costs comes as it is fighting to secure an $800bn-plus fiscal stimulus, and is likely to need many hundreds of billions more to fund a banking sector clean-up.
The Treasury Borrowing Advisory Committee expressed concern on Wednesday over the sharp jump in net borrowing needs – which market analysts estimate could reach $1,500bn to $2,500bn for the 2009 financial year.
Traders are particularly concerned about the appetite for Treasuries among foreign investors, who hold more than half the outstanding $5,500bn in Treasury debt.
In recent years, demand for US government debt has been stoked by developing countries running huge trade surpluses with the US and recycling dollars by buying Treasuries. However, many are facing growing pressure to stimulate their own economies and are seeing their current account surpluses decline as global demand diminishes.
http://www.ft.com/cms/s/0/bdf4ee70-f...0779fd2ac.html
This is a very recent interview with Paul Keating on ABC Australia's "Lateline". Keating was a longtime Australian Treasurer under Bob Hawke and Australian Prime Minister from 1991 till 1996.
In this very thoughtful interview, he lays out a startling accurate picture of the current global situation, including a very bullish outlook for gold, which is a position not normally associated with someone who has been an insider and extremely intimate with the inner workings of the global economy at a high governmental level and he actually calls for the abolition of the iMF and the creation of a new financial system.
When in power, Keating was not known for his personal modesty or humility, but I do get a sense in this interview that he is chastened and awed by the extreme gravity of our current global predicament.
Enjoy.
http://www.abc.net.au/lateline/conte...8/s2480345.htm
The page also includes a handy transcript.
U.S. Treasury default bets surge, hit new record
NEW YORK, Feb 4 (Reuters) - Rising U.S. government borrowing has a growing number of investors betting on a potential default by the Treasury down the line, according to credit default swaps data on Wednesday.
According to CMA DataVision, five-year U.S. CDS spreads stood at 82 basis points on Wednesday, having closed on Tuesday at a record 85.9 basis points. As a result, it currently costs $82,000 a year to protect $10 million of U.S. debt.
That is up tenfold from levels seen a year ago and even more from the negligible levels that were common before the credit crisis.
The CDS market is used to hedge against the possibility of sovereign and corporate defaults, and has played a controversial role in exacerbating the credit crisis.
Many believe a default by the U.S. Treasury is a physical impossibility, since all of the government's debts are denominated in its own currency and it could conceivably print more dollars to meet their obligations.
http://in.reuters.com/article/market...31292120090204
Interesting read................
The depression of 1929 is the wrong model for the current economic crisis
By SCOTT REYNOLDS NELSON
As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else.
Read on............................................
http://chronicle.com/temp/reprint.ph...h07p4hy9z83x18
Interesting read Arco. Unless I missed it, he forgot to mention there was no US Federal Reserve in 1873 and the US was on a classical gold standard with gold and silver coins in circulation.
In 1873, the US economy was fundamentally different in so many ways.
It's financial system was based on "sound money" gold and silver - not credit based government paper. At that time it ran a trade surplus, not deficit. There was no income tax. As there was no central bank, inflation was virtually non existent. The US was emerging as the strongest industrial and manufacturing economy in the world, Americans earned good wages and actually saved money, it was completely energy independent, it was not at war and the national debt was a miniscule fraction of GDP . . .
Contrast this to an American Empire . . .
that has fallen into a very deep recession, is militarily exhausted fighting two wars while potentially provoking a third in Iran, maintains over 700 military bases in 130 countries, is 70% dependent on foreign countries for it’s energy supplies, has exported most of it’s manufacturing plants and jobs overseas, has unheard of levels of personal, business and government debt along with some $100 Trillion in unfunded promises to the baby boomer generation for future entitlement programs stretching over the next 25 years and an annual trade deficit that is over 10% of GDP! Not to mention that it's banking system is insolvent . . .
In my humble opinion, I think there are no direct comparisons. The world really is in unchartered waters and the more I learn, the more it seems to me that it is by design more than poor management. The confluences of government and Wall St. and the commonality of the players and legislation involved, the spectacular rise of "globalism" particularly over the past decade, are all too precise to be coincidental. What has occurred could simply not have happened without the knowing collaboration of both the US Government and the banks.
Out of this chaos - will come order, but it may not be the order we desire . . .
Aussie
I think he was perhaps more comparing this to the current situation.
"The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral"
"As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis."
etc.
Was up late watching the box the other night and there was a program on about all the Chinese factory's closing down as demand for there goods had dropped off,and allot of the demand had come from the US.
The US owes china allot of money which up until now they have let ride as the US was still consuming there stuff,sort of like a junky and a pusher,the junky may be a bit behind on what he owes the pusher but as long as he keeps buying and doesn't get to far behind the pusher keeps selling to him.
But when the junky stops buying then the pusher wants all his money and if the junky doesn't have it he gets knee capped,so the US junky isn't buying and the Chinese pusher needs his money as times are hard for him so is the US about to get kneecapped ?.
Cheers
Miner
I agree with you Miner.
Who will continue to support US debt in the near future. I am wondering how the US will be able to raise the trillions needed to stimulate the economy. All the money has gone into the pockets of greedy bankers who are friends of Bernake/Bush. There is no money left in the kitty.
The US will struggle to raise more debt in the future.
So where to from here?
From Bill Buckler in the latest Privateer . . .
"The US Treasury Department says it will need to borrow $US 493 Billion in the first three months of this year, a record amount for the January-March period. The Treasury says that figure comes on top of the $US 569 Billion the government borrowed in the last quarter of 2008, the all-time high for any quarter. The US is now expected to borrow a record $US 2.5 TRILLION over the fiscal year ending on September 30, nearly THREE TIMES the $US 892 Billion it borrowed over the prior twelve months.
Using data from the Bank for International Settlements (BIS), the OECD and others, it is known that the $US 2.5 TRILLION in NET free savings does NOT exist in the entire world. The world cannot “fund” these monstrous US deficits. Worse, when the US budget deficit of $US 2.5 TRILLION is compared to the US nominal GDP of $US 14.3 TRILLION, the budget deficit is 17.5 percent! Something has to give."
In short, the answer will be Fed monetization (Printing), they have no other choice. Bernanke has already said in his last official statement that the Fed will (has?) started buying the long end of the Treasury market - the 30 year bond. This is an attempt to keep a lid on US mortgage rates but it is likely to backfire as the statement above says "Something has to give" and it will be the USD. Foreigners will demand higher rates or they will dump US Bond's en masse and head for . . . you guessed it - precious metals and commodities as a store of value.
Property for me is a long term play. I am cashed up and with rates at these levels, it makes more sense for me to put my money in properties than in the bank. I have holding power and can ride out the storm. Property is part of my strategy in the portfolio, esp when I sold out all my investment property 2-3 years back.
Hey, I maybe wrong, but then I have holding power and can ride it out, esp when my investment properties are all cashflow positive.
No problem mate good luck with your cunning plan.
Cheers
Miner