Tag Archives: Global Economy

Obama’s Trade War: When the Economy Breaks in Earnest It May be Over Something as Stupid as Tires

Barak Obama is playing with fire at the behest of his Union masters.

In a blatant act of protectionism the Obama Administration is imposing additional tariffs on Chinese Tires, and risking a trade war with the Chinese. Once the tariffs and sanctions start to be imposed they are matched by counter tariffs and sanctions by the aggrieved government. At best relations with the largest buyer of US debt will sour relations a bit while at worst a general trade war can tear the economy apart as protection of our 7000 factory workers leads to losing the Chinese market in a mindless, and ill advised, game of tit for tat. From some of the most humble beginnings, like this carping over Chinese tires for example, a super destructive trade war can develop that has the power to topple a superpower from its perch.

No one really wins a trade war: it’s a bloody war of economic attrition, much like World War I was an ongoing mindless slaughter of troops to advance the front line a few hundred yards, became the poster child for wars of attrition. The combatants dig in and the mindless slaughter ensues until it becomes unsustainable. Even the eventual winner, is a loser, because of the mindless and senseless waste of recourses.

In a global economy, such as ours, with an enmeshed and ailing financial system, the law of unintended consequences could rear its ugly head, repeatedly, as a twenty first century trade war between the US and China causes untold damage on the planetary economy.

When the last economic straw comes, that crushes the American Economy for generations, it could well come from something as innocuous as this foolhardy tempest with the Chinese. Mr. Obama is, by his words a capitalist, but by his actions, a committed Marxist and a stealthy Black Nationalist, but we need a real president to hold the line on trade wars: not a “community organizer” whose been bought and paid for by big labor.

Consider the following article from the Financial Times: http://www.ft.com/cms/s/0/f67c6fe6-a024-11de-b9ef-00144feabdc0.html

US tyre duties spark clash By Geoff Dyer in Shanghai and Tom Braithwaite in Washington Published: September 13 2009 06:53 | Last updated: September 13 2009 19:23

A full-blown trade row erupted on Sunday night between the US and China after Beijing accused Washington of “rampant protectionism” for imposing heavy duties on imported Chinese tyres and threatened action against imports of US poultry and vehicles.

Trade relations between two of the world’s biggest economies deteriorated after Barack Obama, US president, signed an order late on Friday to impose a new duty of 35 per cent on Chinese tyre imports on top of an existing 4 per cent tariff.

In his first big test on world trade since taking office in January, Mr Obama sided with America’s trade unions, which have complained that a “surge” in imports of Chinese-made tyres had caused 7,000 job losses among US factory workers.

Chen Deming, China’s minister of commerce, condemned the decision, saying that it “sends the wrong signal to the world” at a time when Washington and Beijing should be co-operating to deal with the worst economic and financial crisis in decades.

“This is a grave act of trade protectionism,” Mr Chen said in a statement. “Not only does it violate WTO rules, it contravenes commitments the United States government made at the [April] G20 financial summit.”

China said it would now investigate imports of US poultry and vehicles, responding to complaints from domestic companies.

The US warned Beijing against taking retaliatory action. “Retaliation would be inappropriate, as the United States acted entirely within the bounds of trade laws and within the safeguard provision that China itself agreed to upon accession to the World Trade Organisation,” said an official from the Office of the United States Trade Representative.

The official said that enforcing trade agreements and laws was “critical” to maintaining free markets. Another official said the US had “negotiated to the end with the Chinese to come up with something we could all agree to”.

US officials said they were scrutinising the export of poultry and vehicles, but said any action in retaliation by China could result in a complaint by the US to the WTO.

The dispute comes less than a fortnight before Mr Obama is due to host world leaders at a summit of G20 nations in Pittsburgh and ahead of his planned visit to China in November.

The decision to impose extra tyre tariffs followed a petition by the United Steelworkers union, which represents workers at many US tyre factories. Official figures show an increase in imports from 14.6m in 2004 to 46m in 2008.

Eswar Prasad, professor of trade economics at Cornell University, warned that the disagreement could escalate.

“These protectionist measures, some of which amount to domestic political posturing rather than substantive restraints on trade, could easily ratchet up into a full-blown trade war and inflict serious economic damage on both countries,” he said.

An Offer We Can’t Refuse: The Federal Reserve Chairman Reminds Treasury Who’s Boss!

 

Here is a Fairy Tale about the Economic State of America followed by the moral of the story. 

In these times of cooperation and mutual love and respect, dare I say unbridled affection, the Department of the Treasury and the Global Banking Cartel that owns our country: (known as the “Federal Reserve Board”) the line blurring what belongs to the controlling super banks (the Fed) and the US taxpayer has blurred so as to be indistinguishable?  It’s as if the superrich, who own the international banking system, and the US government who is blithely stimulating the economy with borrowed money, have joined forces to both bankrupt us and break our currency at the same time.  Heartwarming isn’t it? 

It’s as if the Fed and the US Treasury Department had fallen in love and were in the habit of tucking each other into bed at night with a lingering kiss and a sigh of contentment, glorious unity and harmony between our guardian of tax dollars and the controllers of our currency and the outright lords of international finance.  It’s a love story for the ages: Helicopter Ben Bernanke is our Daddy and Timmy Geithner is our devoted but ditsy Mommy (who sometimes forgets to pay his taxes) but who’s love for Daddy Ben gives us a warm feeling of contentment and security.

But then a snake entered the unholy paradise of the money kingdom and Mommy Geitherner and Daddy Ben began to look at each other strangely each night before falling gently into untroubled sleep and dreams of avarice.

“Ben” Mr. Giethner would say.  “I’m not just Mrs. Benjamin Bernankey but I have an important role in this marriage too.  I’m not just an object of money and signer of promissory notes but the guardian of our nation’s purity and strength.” 

Daddy Ben looked at the Missus with bemusement and affection smiling his enigmatic smile that once so beguiled the young Secretary of the Treasury.  “Don’t you worry your poor little head my dear because as always: Daddy Ben knows best!” Bernankey chuckled, not unlike a serial killer, “On the other hand perhaps we should clear up some of the expectations you need to conform to.  Not just you but Uncle Barak and all those silly people in congress.”  Bernanke chuckled again his eyes becoming cold and reptilian.

“Now Ben….” Giethner said with a small yet hysterical laugh

“Sign this one page division of duties that we may be ever united in our marriage of convenience and combat this financial crisis I caused”. Bernanke intoned in a meanasing whisper that was most unpleasant.

“What does it say” Geithener said nervously.

“You Question me!” Bernanke bellowed as all living parlor left his face.  “You dare question me?  It says you won’t question me ever again in any meaningful way and that I don’t answer to you and that while we’re married, as far as your concerned, I retain my bachelor status.  I decide what needs to be done and you do it.”  Bernanke eyes lit with an unearthly green light.  “It’s a match made in heaven, my dear.”

“Ben, you frighten me when you say things like; you retain your total independence while retaining absolute control over the money.  It makes me think you don’t love me anymore.” Githner looked as young and cute as he could when he said this but his paramour, Helicopter Ben Bernanke, continued to morph into an otherworldly monstrous apparition.  Geithner automatically reached for a pen and signed without reading the document; by now it was habit.

“Very good” the ghoulish Fed Chairman intoned as he handed Geithner a shiny gold credit card.  “Here, go play with this and buy yourself something pretty to stimulate the economy”, the Wiley Banker snickered in spite of himself.  “Spend on and don’t worry: be happy, my dear”.

“Oh good.  I so wanted to go shopping and give ACORN some billions today!”  Geithner uncharacteristically hesitated.  “Are you sure it’s ok for me to go shopping again?  I was thinking of building a space needle in downtown Truth or Consequences New Mexico….. But if we don’t have the money….”

Helicopter Ben roared with laughter once again morphing into the bald prince charming we’ve all come to love.  “Silly goose!” he snickered while tweaking Geithners nose.  “I decide when the spending is over!” 

They both laughed with relief and sheer joy that their spat was over.  And if Geithner wondered if Ben was good for the money; he didn’t show it.  And if Ben wondered if Geithner would ever grow a brain; he didn’t show it either.

Here are some possible morals for our story:  Never take financial advice from someone who thinks you can throw money out of a helicopter to stimulate the economy.

Or perhaps its that a central bank is more dangerous to our liberty than a standing army. 

Or perhaps its that we should always spend less than we make and force the government to do likewise.

Now consider this story below and ask yourself if the day is coming when the interests of the nefarious Federal Reserve and the crack addict spending of the US Treasury Department diverge regarding spending?  Does this portend the eventual pulling of the Rug out from under Geithner and Obama?  Time will tell. I got this Article from Bloomberg and here’s the URL for the whole article:

http://www.bloomberg.com/apps/news?pid=20601087&sid=abuPwlNJSeis&refer=home

 

Bernanke Seeks to Avert Pressures on Fed After Crisis (Update1)

 

 

By Craig Torres

on March 23, on a day dominated by release of the Obama administration’s plan to save the banking system and the fourth-best day in postwar Wall Street history, the U.S. Treasury and Federal Reserve released a one-page joint statement on the division of economic responsibilities between the two agencies.

Amid the flurry of news, the statement passed with little public attention; neither the New York Times nor Wall Street Journal printed articles about it the next day. The release said that while the Fed collaborates with other agencies to preserve financial stability, it alone is in charge of keeping consumer prices stable, its independence “critical.”

The statement was the culmination of a behind-the-scenes, two-month long debate involving the Fed’s Open Market Committee, as well as the Treasury. The discussions were driven by Chairman Ben S. Bernanke’s concern that work with the Bush and Obama administrations on repairing banks and markets not lead to attempts at political pressure later that would delay the start of measures to combat inflation.

“This is all about independence,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. “Even though the Fed is cozying up to the Treasury, it is important to know that the Fed would maintain some stability over monetary policy.”

1951 Agreement

JPMorgan Chase & Co. analyst and former Fed economist Michael Feroli called the statement “The 2009 Treasury-Fed Accord,” harkening back to a joint announcement by the agencies in March 1951 that freed the central bank from pegging government-bond rates.

Fueling the debate is the concern that policy makers will have a tough time if they try to end their emergency-lending programs as soon as next year while the unemployment rate, currently a quarter-century high 8.1 percent, remains at elevated levels.

The risk is that, on the one hand, lawmakers and even some administration officials might balk at what they would see as premature steps, and on the other hand that any hesitation on the Fed’s part could spark inflation.

“If we have a slow recovery, which seems likely, who is going to watch them raise interest rates as the Treasury sells this mountain of debt” stemming from fiscal deficits, Allan Meltzer, author of “A History of the Federal Reserve,” said in a Bloomberg Television interview. Politicians “are not going to let them do that, they are not going to want them to do that.”

Economic Unrest in France: Economic Distress Driving Massive Protests

 

Far be it for me to observe that the French are always protesting something; but when French unemployment reaches two million souls the protests take on an ever growing intensity. The Unions are blaming French President Nicolas Sarkozy and his policies for the outrageous unemployment figures and the protests are occurring across the length and breadth of France. As usual the Unions have a list of demands that reflect little in the way of global economic reality and much in the way of a failed reliance on the omnipotence of the state.  A recent poll showed that three out of four French citizens support the strikers as Unemployment heads toward double digests. 

Europe has seen far more civil unrest because of economic conditions than the United States has to this point.  If Mr. Obama doesn’t fix the credit issues and get the banks functioning normally it won’t be long before we catch up to our European friends, as deteriorating conditions in the US Jobs market drives Americans to the streets as well.  You can see the beginnings of it in the growing American “Tea Party’s” and in the popularity of men like Glen Beck. The underlying assumption in France seems to be that the Government can fix this thing which I find to be a problematic assessment at best.  You can make an excellent argument that the United States , and the corruption of our professional politicians, created this mess and it’s become abundantly clear they have no idea how to stop it.  They borrow more; they print more; they castigate corporate executives who they should be thanking while they pretend it was Wall Street rather than Congress that failed us. 

I doubt that European Politicians are of substantially superior moral fiber than our own crop of miscreants who now inhabit Capitol Hill: but with the heat that Europe is getting from its people one wonders how long they’ll be able to hold out against protectionist measures.  Europe is annoyed, to put it mildly, and they want the government to wave a magic wand at the global financial crisis and make it go away. Protests and civil unrest is rising and people are taking to the streets.  As the crisis continues the risk of violence and property destruction increases as well.  This sort of thing has a habit of advancing opportunistic leaders who would never have been listened too in “normal” times but who now have a shot at the brass ring.

Here’s a report from the BBC:

http://news.bbc.co.uk/2/hi/europe/7951949.stm

 

New nationwide strike hits France

Hundreds of thousands of French workers have begun protests across the country during a nationwide strike.

Schools are closed and public transport is being disrupted, with demonstrations organised in about 200 towns.

Unions are opposing President Nicolas Sarkozy’s economic policies. Unemployment has reached two million and is expected to rise further.

Organisers predict the protest will be bigger than one in January, when more than a million people took part.

Union members marched towards Nation in Paris behind a banner that read: “United against the crisis, defend employment, spending power and public services.”

Police said there were about 85,000 people at the rally, according to the AFP news agency.

“They have a profound sense of social injustice, and that, I think, is something that neither the government nor the employers have understood,” said Jean-Claude Mailly, head of the large Force Ouvriere union.

Marches are also being held in Marseille, Lyon, Grenoble and many other towns and cities.

It is the second time in two months that major demonstrations have been held, following a similar display in January.

Beleaguered industries

The strikes began on Wednesday evening with staff on transport networks.

FRENCH UNIONS vs GOVERNMENT Union demands

  Increase minimum wage

  Reverse 50% cap on income tax

  Suspend public sector job cuts

  Measures to protect employment Government stimulus plan

  11bn euros to help businesses improve cashflows

  11bn euros of direct state investment

  4bn euros of investment by state-owned firms in modernisation

  2.65bn euros of tax breaks, and increases in family welfare and short-term unemployment benefits

The national rail operator, SNCF, cancelled 40% of high-speed trains and half of regional services.

A third of flights out of Paris’s Orly airport have been cancelled, while a tenth of France’s electricity output has been shut down with workers on strike.

However, buses and the Metro rail system in Paris were running normally, thanks to a new law enforcing a minimum transport service during strikes,.

But with many schools and public buildings shut for the day, the number of workers travelling into the capital was reduced.

Private-sector firms were also expecting a depleted workforce, with staff from the beleaguered car industry, oil and retail sectors taking part in the strike.

Rising unemployment

The unions say the 26bn euro ($35bn; £24.5bn) stimulus package for France’s struggling economy, unveiled by President Nicolas Sarkozy in December, does not go far enough.

A further 2.4bn euros ($3.2bn; £2.3bn) of measures, including tax breaks and social benefits, presented by President Sarkozy after January’s strike has failed to placate them.

They want him to increase the minimum wage and scrap his plans to cut public-sector jobs.

Recent polls show three-quarters of French people support the strikers.

Many commuters on Thursday said they backed the action, but hoped it would be short-lived.

“Fundamentally I agree, but too much is too much,” one was quoted as saying. “There are strikes in the transport sector too often and we have to put up with them.”

President Sarkozy said on Wednesday that he “understands the concerns of the French people” but has ruled out plans for further measures.

Unemployment is likely to shoot up to 10% in the next 12 months with a further 350,000 lay-offs expected by the end of this year.

Many people are angry that big companies like the oil giant Total is making staff redundant while simultaneously announcing record profits, the BBC’s Emma Jane Kirby in Paris says.

 

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Bunko! The Federal Reserve Bets the Future of America on a Pair of Two’s: How Desperation at the Federal Reserve May Destroy the Dollar and America’s Future

 

 

Bunko!  Hokum!  Flimflam!  Con job!  Snow job!  Played for a Mark!  Played for a Sucker!

America has once again been had by the Nefarious Federal Reserve and the Chief Con Artists of the planet earth: Mr. Benjamin Bernanke! Don’t believe me?

Watch carefully as commodity prices like gold, silver, oil, food and the like begin to rise mirroring a fall in the dollar because in a last desperation move the Federal Reserve has pulled a trillion dollars out of their butt and bought treasuries (American Debt) with it with the idiotic hope that they can stave off a depression.  We can’t.  We’re going into depression but we won’t be alone; we’re taking the rest of the world with us.  Follow along with me as we dissect what the Federal Reserve just did.

The Federal Reserve is not a part of the American Government.  They have a contract to manage the money supply and regulate interest rates but they are a private, profit making consortium of mostly foreign banks that essentially runs our economy. Their mission to run the economy grew out of other depressions in the nations past and it was hoped that this Central Bank i.e. The Federal Reserve System could manage the money supply and interest rates in such a way as to avoid cyclical depressions in the US economy.  Before the Federal Reserve, which is about as “Federal” as Federal express and is as much of a “Reserve” as bankrupt Social Security, depressions occurred at about 60 year intervals.  Since the Fed’s Infestation in America the rate has been a depression every 80 years. Many scholars suspect that the Fed, either intentionally or unintentionally, actually creates our depressions for their own nefarious purposes.  Based on my study of the last few years I think the Fed actually creates depressions for its own reasons and has far more control of world events than the President of the United States.

Thomas Jefferson once said that the creation of a central bank was more dangerous to the Liberty of the American people than a standing army.

Consider a dollar bill.  Look at it and somewhere on there you’ll find the words: “Backed by the full faith and credit of the United States of America”.  In the old days it said that it was backed by gold and fully redeemable at the Treasury of the United States.  What’s the difference?  When your currency is back by gold it’s attached to an asset, a thing of intrinsic value, like gold; and the dollar becomes a stand in for that asset.  When the currency is based on the full faith and credit it’s actually not backed by an asset but is essentially an IOU because that’s what credit is: Credit is Debt.  It’s called a fiat currency and as long as the people running the currency do a good job you can get away with it for a while.  If the currency is badly managed your have problems up to and including the collapse of the currency.  Its value can be derived, like many things, by its scarcity and the demand for the currency. If the world gets flooded with the currency it’s no longer scarce, and if, being no longer scarce, people lose faith in its value, then they dump the currency to get what they can for it.  Its value fluctuates like other commodities and its value becomes a function of what people think and feel about it.

“Permit me to issue and control the money of a nation and I care not who writes its laws” 

Nathan Meyer Rothschild

When a government, like ours, prints a trillion dollars at a crack, as we have done, it devalues the existing supply of money by decreasing its scarcity.  You lose purchasing power because the dollars you have become less scarce and therefore less valuable than they were before.  In this way your savings can be looted by an out of control government that prints money like crazy to cover its own crazy spending by essentially looting the value of the dollars you are holding in savings.  Government, to cover its greed, agrees to let the Federal Reserve make up more money which allows them to put out a fire by making your money worth less.  If the process gets out of control, or it there is a loss of faith by people or governments holding lots of dollar your money can indeed be worthless.

Here is what was just done to finance the astonishing and stupid debt the Neo Socialist Obama Administration has foolishly jammed down our throat to allegedly address the financial crisis and to destroy market capitalism in favor of socialism:

A consortium of mostly foreign bankers, who issue and control our money, has created, from nothing, a trillion dollars of our own money, with interest paid by us for issuing the money, to be used in buying American Debt in the form of Treasury Bonds. Eventually the Treasury will pay off, with interest, to the barer of the bonds,( the consortium of mostly foreign bankers,) with our fiat dollar, based on debt, the value of the Treasuries, with interest, to the consortium of bankers who issue and control our money. Where did the Fed get the money to buy the Treasuries?  They made it up out of thin air.

If you were a nation like China or Japan or Saudi Arabia or Russia who held lots of our dollars and were looking at this rank devaluing of the dollar to fund the pie-in-the-sky utopia of Neo-Socialist Democrats what would you do?  Would you sell your dollars for what you could get and find a new currency to trade in?  Would you demand a world currency that some other government, at its whim, couldn’t devalue just to bail its sorry butt out of the fire?  Is it a coincidence that the United Nations and China and Russia and Europe are calling for a major revamp of the financial system and a new world reserve currency?

“This is a budget only a liberal could love.  We cannot afford to return to the old days of high taxes, more spending and a larger less accountable government”.

Speaker of the House Newt Gingrich

On the 1999 Federal Budget

Why would the country want a consortium of mostly foreign bankers who issues and manages our money to deliberately devalue the currency by PRINTING A TRILLION MORE DOLLARS to fund insane, unsustainable, congressional spending: ultimately financed by the same profit making consortium of mostly foreign banks whom we now owe for buying the debt with our own money created from thin air by the consortium of mostly foreign bankers?????????

If we didn’t spend the money we need not print the money.  If the money is not printed we don’t devalue the dollar.  We might go into depression but when we get through the depression and out the other side: the dollar will still be there.  Now were certain to go into depression anyway and we’ve probably destroyed the dollar to boot. How much more of a con job will the world put up with before dumping their dollars and telling us what to do with them?

 When you see commodity prices go up, oil, gold, food, and the like and the dollar dropping on the world markets you see something that, if it gets out of hand, becomes a run on the dollar, just like a run on the bank, and our currency and economy will be finished for a generation or more. The spending of our politicians is killing the country.  The managers of our money have, with this crazy buying of our debt with our own currency, that they made up out of thin air, may well be the trigger that starts the run on our currency that no one can stop.  Get a good wheel barrow folks because you’re going to need it to buy bread.  If this were a poker game the Federal Reserve just went all in, with all your money, holding a pair of twos, hoping the world doesn’t call our bluff.  We’re in more trouble now than at any time since the Revolutionary War.

“Only a virtuous people are capable of freedom.  As nations become corrupt and vicious they have more need of masters.”

Benjamin Franklin

Here’s an article I found on Bloomberg about the “Rambo Fed” and its antics:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOsvwdYztl7Q

‘Rambo Fed’ Will Buy Treasuries to Combat Crisis (Update1)

By Scott Lanman

March 19 (Bloomberg) — By committing to buy Treasuries and double his purchases of mortgage debt, Federal Reserve Chairman Ben S. Bernanke signaled his determination to avoid a repeat of the Great Depression and his willingness to pump as much cash into the economy as needed to end the current crisis.

U.S. central bankers decided yesterday to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion, aiming to lower home- loan and other interest rates. The Fed kept its main rate at almost zero and may keep it there for an “extended” time.

The moves sparked the biggest drop in 10-year Treasury yields since 1962, rallies in the stock market and gold and a plunge in the dollar against the euro. Economist Richard Hoey said Bernanke has created the “Rambo Fed,” referring to the Sylvester Stallone character skilled with weapons.

“This is a very powerful and aggressive move,” Hoey, chief economist at Bank of New York Mellon Corp., said in an interview with Bloomberg Television. “One of the reasons I’ve been arguing we won’t have a depression is we’ve got a Fed chairman who understands the problem and is going to come with the right diagnosis and the right medicine.”

With the purchases of Treasuries and housing debt, Bernanke is effectively using the Fed’s powers to print money and aim it where he and other officials believe it will have the greatest impact in lowering borrowing costs.

Bond Reaction

The 10-year note yield fell two basis points to 2.52 percent as of 9:14 a.m. in London, according to BGCantor Market Data. The price of the 2.75 percent security maturing February 2019 rose 5/32, or $1.56 per $1,000 face amount, to 102 1/32. A basis point is 0.01 percentage point.

The Federal Open Market Committee’s decision was unanimous, indicating the agreement to start buying Treasuries quelled disputes over how the central bank should expand its balance sheet. Richmond Fed President Jeffrey Lacker and others favored government-debt purchases instead of intervening in credit markets, as Bernanke has pioneered in the past six months.

Bernanke has studied the Great Depression extensively and published a book of his papers on the subject in 2000. In 1929, the Fed was “essentially leaderless and lacking in expertise,” Bernanke said in a November 2002 speech. The situation led to decisions that were associated with a “massive collapse of money, prices, and output,” he said.

Fed Purchases

Yesterday’s decisions will add $750 billion in purchases this year of mortgage-backed securities issued by government- sponsored enterprises Fannie Mae, Freddie Mac and Ginnie Mae, for a total of $1.25 trillion. The Fed has already announced $217.1 billion in net purchases out of $500 billion planned through June, under a program unveiled in November.

The central bank will also double to as much as $200 billion this year its planned purchases of debt issued by Fannie Mae, Freddie Mac and Federal Home Loan Banks. The Fed bought $44.4 billion of the so-called agency debt as of March 11.

The $1 trillion Term Asset-Backed Securities Loan Facility, which is opening this week to jumpstart consumer and business lending, “is likely to be expanded to include other financial assets,” the FOMC statement said, without elaborating.

The Obama administration is considering melding the Treasury’s plan to set up private investment funds to buy frozen assets with the Fed program, known as the TALF, people familiar with the matter said. Treasury Secretary Timothy Geithner may make an announcement as soon as this week, after his first unveiling of the strategy caused a sell-off in financial stocks.

‘All Tools’

“This is not really a victory for Lacker,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “Lacker seems to be arguing for Treasury purchases instead of targeted programs. They are instead supplementing the targeted programs. They are just using all tools.”

The New York Fed will concentrate Treasury purchases among two- and 10-year securities. The transactions will take place two to three times a week, and the Fed may also buy other maturity Treasuries and Treasury Inflation-Protected Securities, according to a New York Fed statement.

The moves may more than double the Fed’s balance-sheet assets by September to $4.5 trillion from $1.9 trillion, said John Ryding, founder of RDQ Economics LLC in New York.

At the same time, the changes increase the danger, once the economy recovers, that the Fed won’t be able to unload the securities quickly enough to raise interest rates and counter inflation, said Ryding, a former Fed economist.

‘Evolving Circumstances’

Bernanke floated the idea of buying Treasuries in a Dec. 1 speech. Then the FOMC said in its last statement on Jan. 28 that the Fed would be “prepared” for the purchases if “evolving circumstances” indicated their effectiveness.

The option gained ground after the Bank of England succeeded in lowering long-term rates by buying U.K. government bonds known as gilts in a program announced this month, said Lyle Gramley, a former Fed governor. The 10-year gilt yield slid to the lowest level in at least 20 years after the purchases began.

“Our objective is to improve the functioning of private credit markets so that people can borrow for all kinds of purposes,” Bernanke said at a Feb. 24 Senate hearing. “We are prepared, and we want to keep the option open to buy Treasury securities if we think that is the best way to improve the functioning or reduce interest rates in private markets.”

While Treasury yields fell, the strategy isn’t guaranteed to work in reducing other rates.

The Fed is “naive” if officials think the move will lower borrowing costs, said Doug Dachille, chief executive officer of New York-based First Principles Capital Management. The “historic precedent” of when the Treasury Department was buying back debt amid the budget surpluses of the Clinton administration show it may fail to do so, he said.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

Last Updated: March 19, 2009 05:21 EDT

 

March 19 (Bloomberg) — The rally that pushed the dollar to the highest levels since 2006 is in danger of crumbling as the Federal Reserve starts buying Treasuries and ramps up its purchases of mortgage debt, adding to a flood of greenbacks.

“The implications of today’s Fed decision are unambiguous,” currency strategists at Citigroup Inc. wrote in a research report within a half hour of the Fed’s decision yesterday. The dollar “should weaken,” they said.

Fed policy makers said yesterday they plan to buy as much as $300 billion of U.S. government bonds and step up purchases of mortgage bonds, expanding the central bank’s balance sheet by as much as $1.15 trillion. The extra supply of dollars threatens to overwhelm investors just as the budget deficit swells.

The trade-weighted Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, tumbled 2.7 percent to 84.595, its biggest one-day drop since 1971. That pushed its decline to 5.6 percent since reaching 89.62 on March 4, the highest in almost four years.

It fell yesterday by the most in nine years versus the euro, to $1.3474, and traded at $1.3631 as of 12:01 p.m. in London. The dollar dropped today against Japan’s currency to a three-week low of 94.72 yen.

“Sell the dollar!” said Scott Ainsbury, a portfolio manager who helps manage about $12 billion in currencies at New York-based hedge fund FX Concepts Inc. “This is huge, huge. It’s equivalent to the Plaza accord. This is the last thing they have in the closet, and they used it a bit early.”

Rally Reversal

In 1985, the U.S., U.K., France, Japan and West Germany agreed at New York’s Plaza Hotel to coordinate the devaluation of the dollar against the yen and the deutsche mark.

The Dollar Index started to slide in 2005 on concern about the widening current-account deficit and reached a record low in the first quarter of 2008 as credit market losses mounted following the crash of the subprime mortgage market.

It then rallied in the second half of last year as the global recession spurred demand for haven assets such as Treasury bills. Rates on bills fell below zero percent in December. UBS AG currency strategist Benedikt Germanier in Stamford, Connecticut, said he is sticking with his forecast for the dollar to trade at $1.30 per euro over the next month.

‘Pretty Big’

Yields on 10-year Treasuries declined the most since 1962 after the Fed said it would concentrate purchases in notes due from two to 10 years. The central bank is expanding its quantitative easing policy, which already includes agency and mortgage debt, to more than $1.85 trillion in securities.

“We’ve been selling dollars and we’re now adding to that short,” said Jim McCormick, Citigroup Inc.’s London-based global head of currencies. “The Fed program announced last night is pretty big both in terms of magnitude and breadth.”

McCormick said the dollar may fall to $1.40 against the euro.

The purchases will bolster concern that inflation will accelerate as borrowing costs fall, said Jessica Hoversen, a foreign exchange analyst with MF Global Ltd. in Chicago.

‘Dollar is Done’

“The Fed is basically financing our deficit by buying the debt issued by the Treasury,” she said. “If the Obama administration pushes through another stimulus package, the dollar is done.”

President Barack Obama is seeking Congressional approval for a $3.55 trillion budget for the year starting in October that would increase spending by 32 percent to kick start the economy. Goldman Sachs Group Inc. estimates the U.S. will almost triple debt sales this fiscal year ending Sept. 30 to a record $2.5 trillion.

The euro will probably rise to $1.3590 in two weeks provided it holds above $1.3330 through March 20, Hoversen predicted. It may rally above $1.39 “sooner than we think,” Citigroup analysts Tom Fitzpatrick in New York and Shyam Devani in London wrote in a research note yesterday.

Trading patterns also suggest the dollar is poised to weaken. Europe’s common currency took 26 days to break through $1.3117 on Dec. 11, before appreciating to the 200-day moving average above $1.47, the Citigroup analysts wrote. Yesterday’s break occurred 27 days after the euro established a resistance level on Feb. 9, suggesting it may “explode” higher, they wrote.

The euro, the Norwegian krone and the Australian dollar will outperform as those nations’ central banks hold out longer against the temptation to print money, said Dale Thomas, head of currencies at Insight Investment Management, which oversees about $121 billion in assets.

‘Timing Difference’

“All the major central banks may end up in the same position,” London-based Thomas said. “The way we look to play it is to see which goes the first and which one lags, and try to explore the timing difference between the two.”

Central banks are grappling with how to steer their economies when interest rates are already close to zero.

The Bank of England is buying government bonds and corporate debt to unlock trading in frozen credit markets and stimulate the economy. The Bank of Japan is snapping up government notes and making subordinated loans to banks, and the Swiss National Bank is selling francs to prevent gains against the euro.

Fed policymakers have committed to buy or lend against everything from corporate debt, mortgages and consumer loans to government bonds as they try to end the seizure in credit markets.

The extra yield relative to benchmark interest rates that investors demand to own debt backed by consumer loans has soared amid concern that defaults will climb.

Bond Spreads Wide

Spreads for top-rated bonds backed by auto loans are trading at about 300 basis points more than the one-month London interbank offered rate compared with 65 basis points in January 2008, JPMorgan Chase & Co. data show. One-month Libor, a borrowing benchmark, is currently 0.55 percent. A basis point is 0.01 percentage point.

“We cannot rule out that this will place additional pressure on other central banks to follow suit,” wrote David Woo, the global head of foreign-exchange strategy at Barclays Capital in London. “Should this turn out to be the case, deflationary concerns in the market may begin to give way to longer-term worries about monetary inflation.”

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net.

Last Updated: March 19, 2009 08:06 EDT

United Nations Panel Calls for a New World Reserve Currency: They Want to Scrap the Dollar

 

Next week a UN panel will make a recommendation that the world switch to a new reserve currency because the US Dollar may be scaled down in the holdings of the major central banks as concerns about its stability persists.  The United States has pursued one of the greatest spending sprees; perhaps the biggest spending spree in the known history of this planet, and the combination of debt and monetized debt has nations holding the dollar concerned that its value may sharply drop.  It’s a basic law of supply and demand, when the world is flooded with trillions of dollars it’s not very scarce and the demand for it as a currency falls.  The United States continues to borrow and print more money and in recent days it’s become clear that the Chinese hate us for our monetary policy, Russia plans to ask for a new world currency in the upcoming G20 meeting, Europe is looking for a new world currency and now the UN is jumping on the bandwagon.

The once mighty dollar was led to its demise not by Wall Street, but by Washington, as a combination of Congressional Corruption and the machinations of the nefarious Federal Reserve System forced mortgages to be written based on political correctness while the interest rates were maintained too low for too long.  You can’t force banks to make loans based on what Barney Frank and Nancy Pelosi think is fair instead of basing your decisions on the person’s ability to pay back the loan.  You can’t create massive Quasi-Governmental Golems like Fannie Mae and Freddie Mac, who are neither government agencies nor profit making corporations, to fund a bizarre social ideal in which financial sanity is replaced by Democrat Ideology.  It didn’t work: and the result tanked the mortgage industry that then tanked the banks and the credit froze up and now it’s out of control and spreading to every sector of the economy.

While it’s true that our constitution says we were all created equally it has been construed by half the population, thru an insidious campaign of political correctness, to mean that we must have an equality of outcome to be a just society.  It’s a theory that believes the government should redistribute wealth from those who have earned it to those who have not.  It’s what Eugene McCarthy warned us about in the fifty’s, and was subsequently vilified for, and yet his concerns about leftist colonization of key industries like higher education, entertainment, media and journalism seem downright prescient in early 2009. All the attempts to point out over the years the fundamental unsoundness of our mortgage lending was shouted down by cries of racism and angry accusations that one lacked compassion if he would not be browbeaten into supporting mortgages to the poor that they could not possibly repay.

While the Congress of the United States continues its witch hunt inquisition of Wall Street CEO’s, like Mr. Stewart of AIG, it makes clear that Congress couldn’t run a pay toilet.  All the AIG upper management should be out the door as fast as they can: as laws are unconstitutionally crafted by a lynch mob congress to personally attack them for Congresses’ own folly. Now the world wants a new currency and when it happens the United States of America will be finished as a superpower as we go the way of the USSR.  The world doesn’t care about democrats trying to extort mortgages for client groups who can’t afford them: they just want a stable unit of value that can’t be looted by a bunch of American Professional Politicians who screwed up bad and are continuing to make it worse in an effort to cover their tracks.  I can’t say that I blame them.

The word will go forward that Capitalism failed and is an inherently evil and an unfair economic theory. That’s a shame because it wasn’t capitalism that failed: It was the Incumbent System of Congress that failed us.  Professional Politicians with entrenched interests no longer represents liberals and conservatives in the American Electorate they simply represent themselves.  The American People want good and wise laws reflecting the majority; and the Professional Politicians’ want perpetual reelection and power., For all intents and purposes the interests of the people and our own government  are now diametrically opposed.  We need term limits on Congress, and we need them now. This UN panel that wants to drop the dollar is representative of where the world is going, it’s just a matter of time, and it’s going to hurt our kids and grandkids a lot.  Consider this Article from Reuters:

http://www.reuters.com/article/newsOne/idUSTRE52H2CY20090318

U.N. panel says world should ditch dollar

A shared reserve currency might negate this move, he said, but he believed that China would still like to take on the role.

Persaud has long argued that the dollar would give way to the Chinese yuan as a global reserve currency within decades.

The other reason, he said, was the success of the euro, which incorporated a number of currencies but roughly speaking held on to the stability of the old German deutschemark compared with, say, the Greek drachma.

Wed Mar 18, 2009 11:16am EDT

By Jeremy Gaunt, European Investment Correspondent

LUXEMBOURG (Reuters) – A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

“It is a good moment to move to a shared reserve currency,” he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value — though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Some analysts said news of the U.N. panel’s recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.

“Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar’s slide between 2002 and mid-2008,” CMC Markets said in a note.

Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday.

It has significantly reduced the dollar’s share in its own reserves in recent years.

GOOD TIME

Persaud said that the United States was concerned that holding the reserve currency made it impossible to run policy, while the rest of world was also unhappy with the generally declining dollar.

“There is a moment that can be grasped for change,” he said.

“Today the Americans complain that when the world wants to save, it means a deficit. A shared (reserve) would reduce the possibility of global imbalances.”

Persaud said the panel had been looking at using something like an expanded Special Drawing Right, originally created by the International Monetary Fund in 1969 but now used mainly as an accounting unit within similar organizations.

The SDR and the old Ecu are essentially combinations of currencies, weighted to a constituent’s economic clout, which can be valued against other currencies and indeed against those inside the basket.

Persaud said there were two main reasons why policymakers might consider such a move, one being the current desire for a change from the dollar.

She Who Pays the Piper Calls the Tune: The Emergence of Angela Merkel in Germany

 

 

As Barak Obama begs the world, and his own people to spend, and borrow, and pretend not to notice the deluge of dollars that will at worse destroy our currency or at best, launch a tsunami of hyper inflation the Chancellor of Germany, Angela Merkel stands strong.  She’s not going along with an endless array of “stimulus packages” and massive government spending.  She’s quite convinced that Obama is making matters worse with his spending and will not emulate the new American President. Merkel is helping Europe to avoid the spending trap Obama has stumbled into and exhibiting the kind of leadership and statesmanship that we used to have.  Once again it begins to look like Europe will experience a depression while the United States will suffer a Great Depression II; or a lost decade like Japan. 

Perhaps it’s in the American character, or lack thereof, in these decadent times, to try to avoid the pain associated with the economic mess we’ve made; but in this case the cure is destine to extend the disease and the crisis atmosphere for years.  Merkel is the lone voice of sanity in the West saying that more insanity will not cure the insanity: it will extend the insanity for as long as we persist in insanity. Merkel is doing for Europe what we desperately need for someone to do for us: we need to put the checkbook away and take our medicine.  

We don’t have the money to stimulate the economy.  When we have to borrow money from China or print it in the basement of the Federal Reserve we debase our currency and instead of the massive increases in government and anti business policy of the Obama Administration we need to cut the spending and sharply reduce government involvement with entitlement programs.  They just don’t work.  All the money collected for Social Security and Medicare has long since been spent and the baby boomers who used the money for social programs will find that there will be no retirement for them!  I guess there’s a certain justice in that but the times in which the people figure out the sheer magnitude of the theft that government has perpetrated on them will touch off some kind of social backlash.  The breaking of the Social Security, Medicare, and Entitlement social contract can’t help but crash the government as we knew it because people are confronted with government corruption and the loss of their retirement, housing values, wealth, savings, and opportunity to work. Its going to be a big eye opener as to the role of government in society.

In the not too distant future the USA is going to look around and realize that Big Government means Big Corruption and either we get the government back and shrink it down to an appropriate size and scope or we go whole hog into a new fascist philosophy.  Socialism for us is a given: we’re already there.  The question is as socialism takes hold will we branch off into communism or Fascism as our final destination.  Obama is leading us toward certain disaster and the only voice out there making any sense is the German Chancellor Angela Merkel. 

Consider the following clips from Bloomberg.com and don’t forget to read the whole story at the following URL:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aL4VMcMofiI8&refer=home

Angela Merkel, taking advantage of Germany’s economic heft, is now the European Union’s dominant figure.

Just as the German chancellor vetoed a bailout for eastern Europe on March 1, she is now leading European opposition to U.S. President Barack Obama’s call for a global pump-priming package.

Merkel’s rejection of more stimulus touched off the first trans-Atlantic clash of the Obama administration and led critics to say she risks deepening the global recession. Even as finance ministers from the Group of 20 nations were meeting in southern England March 14, seeking to paper over differences with a pledge to deliver a “sustained effort” to boost growth, Merkel was 42 miles (67 kilometers) away in London, defending her opposition to further spending.

“Germany really has contributed its share,” said Merkel, 54, as she stood alongside Brown, the U.K. prime minister.

It is a reversion to type for Germany, which built its postwar society on the principle of monetary stability after the economic havoc of two world wars. Germany authored the limits on budget deficits for countries using the euro currency — only to flout them during the reign of Merkel’s Social Democratic predecessor, Gerhard Schroeder.

With the world economy set to shrink for the first time since World War II, Merkel has forged a European position not to go beyond tax cuts and emergency spending that the EU says amounts to 3.3 percent of gross domestic product.

“Merkel is definitely a woman to watch,” says Robert Leonardi, senior lecturer in European politics at the London School of Economics. While Sarkozy may be more flamboyant, he says, “she’s emerging more and more as a strong leader” of Europe.

China Gets Edgy about US Deficit Spending: the Commander and Thief says the Financial Crisis is “Not So Bad”

In an astonishing display of incompetence, ineptitude, disingenuousness, condescension, arrogance and all around bad taste, the President of the United States of America said that the continuing economic crisis is “not so bad”.  Here’s an experiment: Go directly to your retirement account statement, open it, look at the bottom line and decide for yourself if the President is lying or not!  Let’s see, 45% of the world’s wealth has been destroyed in recent days, people are hording ammunition for their guns, businesses (JOBS) are leaving the United States, and it’s insane tax policy, and there aren’t enough printing presses and green ink in the world to print all the money Congress is spending.  Maybe Barak Obama should tell the jittery Chinese Government “it’s not so bad” and see if they’ll withdraw their demand for guarantees if they lend us any more money?  I can’t help but wonder why anti depressant use and the demand for sleeping pills is going through the roof when it’s clear to our Neo-Socialist Commander and Thief that: it’s not so bad?  Maybe the G20 nations, who just get a busy signal, or an answer machine, when they call the United State Treasury, should take a chill pill and not worry so much about completely revamping the world economic system (and American Leadership of the planetary economy) because our Neo-Socialist Messiah says “it’s not so bad?”

                                                            

Wasn’t it just yesterday that Bill Clinton was suggesting a more upbeat tone to our Presidents comments on the economy?  Isn’t it abundantly clear that Wall Street is registering near panic about his socialist policies and the unsustainable, unforgivable, unbelievable amounts of money the Democrats are stealing from us all to spend on pure political corruption and vote buying?  Where’s the doom and gloom President who assured us that if his bills in congress were not passed we’d see a financial Armageddon that we may never fully recover from?  Now that he’s got billions for ACORN, funding to fight pig odor in Iowa, and the right to use human embryos for spare parts, apparently the world according to Obama is just peachy now!  Barak Obama has found his optimism but he may well have lost his mind because his not so bad crack is probably true for him eating up $100 a pound imported beef that we’re paying for but in the real world everyone’s job is on the chopping block!  Here’s a few clips from Bloomberg:

 

WASHINGTON — President Obama is embracing a mantle of confidence-builder in chief. Whether he is meeting with his own economic advisers or worried business leaders, his message is meant to be calm and reassuring — even in the wake of more bad economic news.

Obama will have another opportunity to assert his optimism after he meets Friday with Paul Volcker, the former Federal Reserve chairman who now guides the president’s economic recovery advisory board. Volcker was preparing to brief Obama and his economic team on how the $787 billion stimulus package is working.

Speaking to a gathering of the nation’s CEOs on Thursday, Obama defended his plans for pulling the economy out of a downward spiral, saying that his long-term view gives him reason to maintain optimism despite an uptick in unemployment and falling economic indicators.

“I’ve never bought into these Malthusian, woe, Chicken Little, the earth is falling. I tend to be pretty optimistic,” said Obama, once a long-shot candidate for the White House. “I wouldn’t be here if I weren’t pretty optimistic.”

The president boldly declared that the national crisis is “not as bad as we think” and that he has seen public opinion seesaw without logic.

“A smidgen of good news and suddenly everything is doing great. A little bit of bad news and ‘Ooohh, we’re down on the dumps,”‘ he said. “And I am obviously an object of this constantly varying assessment.”

Obama disagreed with the choices.

“I don’t think things are ever as good as they say, or ever as bad as they say,” he added. “Things two years ago were not as good as we thought because there were a lot of underlying weaknesses in the economy. They’re not as bad as we think they are now.”

 

Apparently the Chinese didn’t get the memo that the economy is not as bad as we think because they admit to being worried about the security of the American Debt they’ve bought. Heres a few more clips from a different Bloomberg article so you can decide for yourself if you think the Chinese are being naughty or if Barak Obama’s new found optimism might be a lie at worst or an astonishingly stupid thing to have said at best.

 

March 13 (Bloomberg) — China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

“We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today after the annual meeting of the legislature. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

U.S. President Barack Obama is relying on China to sustain buying of Treasuries as his administration sells record amounts of debt to fund a $787 billion economic-stimulus package. Chinese investors have lost money on the securities so far this year, after increasing their holdings 46 percent to $696 billion in 2008, according to Treasury Department data.

“China’s purchases of American debt have been one of the few bolts keeping the wheels on the global economy,” said Phil Deans, a professor of international affairs at Temple University in Tokyo. “If China stops buying where does Obama’s borrowing to fund his stimulus come from?”

Treasuries declined, causing the yield on the 10-year U.S. note to rise six basis points to 2.92 percent at 4:51 p.m. in Hong Kong, according to BGCantor Market Data. The securities handed investors a loss of 2.7 percent in yuan terms this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index. The dollar fell 0.2 percent to $1.2938 per euro.

“Of course we are concerned about the safety of our assets,” said Wen. “To be honest, I am a little bit worried.”