Category: Politics

Morning Snapshot


15-Oct (USAGOLD) — Gold has fallen to a new 4-week low at 1728.76 as corrective pressures that emerged last week persist. Essentially gold has returned to the level it was at when Fed chairman Bernanke announced QE3 on 13-Sep. Global growth concerns are ascendent once again, despite massive monetary stimulus from central banks around the world; amid a growing realization that monetary policy is not a panacea.

This is a sentiment reiterated by Bernanke in Tokyo over the weekend: “As I have said many times, however, monetary policy is not a panacea.” And while the Fed is not likely dismayed by softer gold prices, US equities has also retraced all of their QE3 related gains. A weak stock market is a problem for the Fed as the diminished wealth effect that results tends to have negative impact on consumption; and consumption of course is the life blood of the US economy.

What does the Fed do from here? Well, I doubt they throw up their hands and say there’s nothing more they can do. More growth risks and declines in stocks may well lead to an increasing expectation that QE3 will be expanded to include more outright Treasury purchases. We’re arguably too far down the path to turn back now. So the best hope perhaps is that rather than back-track, we find a new path that will ultimately address some of the underlying fiscal problems that are the root causes of the economic malaise that we find ourselves in.

In that vein, Presidential candidate Mitt Romney has pledged to dump Fed chairman Ben Bernanke. The recent narrowing of Presidential race polls, in the wake of Romney’s Denver debate performance, have raised the odds that he just might get that opportunity to sack Bernanke. That uptick in uncertainty is causing some short-term duress in the market.

Make no mistake though, a President Romney would be very unlikely to appoint a true monetary hawk to head the Fed. Instead, he would likely look for someone who would alter course gradually. That would likely mean that even under new leadership, the Fed’s balance sheet would continue to grow for some time, although perhaps at a slower pace.

• US business inventories +0.6% in Aug, near expectations of +0.5%, vs +0.8% in Jul; sales +0.5%.
• Canada existing home sales surprise at +2.5% in Sep, on expectations of -5.0%; -15.1% y/y.
• US Empire State Index rebounded to -6.2 in Oct, below expectations of -5.0, vs -10.4 in Sep.
• US retail sales +1.1% in Sep, above expectations of +0.8%, vs positive revised +1.2% in Aug; ex-auto +1.1%.
• Turkey unemployment rate (nsa) rose to 8.4% in Jul, vs 8.0% in Jun.
• Switzerland PPI +0.3% m/m in Sep, vs +0.5% in Aug; +0.3% y/y.
• China CPI +1.9% y/y in Sep, vs +2.0% y/y in Aug.
• China PPI -3.6% y/y in Sep, vs -3.5% y/y in Aug.
• Japan industrial production (sa) revised down to -1.6% in Aug, vs -1.3% previously.

Posted in all posts, Daily Market Report, Economy, Gold News, Gold Views, Monetary Policy, Politics, QE |

Fiscal Cliff Poses Significant Risk to U.S. Outlook

25-Sep (Bloomberg) — The so-called ‘fiscal cliff,’ the confluence of $607 billion in expiring tax and expenditure policies set to take effect at the end of 2012, poses a significantrisk to the U.S. economic outlook. Unlesslawmakers reach a compromise to extend some or all of the temporary tax cuts and postpone mandatory spending cuts, the hit to the economy would translate into about 4 percent of gross domestic product.

The current Bloomberg consensus forecast is for a growth rate of 2 percent in 2013, with 1.9 and 2.3 percent rates of expansion in the first two quarters of next year. Should Congress delay acting until early 2013 to address these issues, growth will likely slow to less than 1 percent during the first half of next year. Persistance of financial gridlock would probably push the economy into recession in the first half of 2013.

…The economic impact of permitting the combined tax and spending measures to expire is stark. First, firms are already paring back investment and hiring, and households have stepped up their rate of savings, most likely to smooth out consumption to account for reduced after-tax income next year, and thereby contributing to the current slow pace of growth.

Second, real GDP will likely show negative growth rates of minus 2.2 percent in the first quarter and minus 1.3 percent in the second quarter, with a modest recovery in the second half of the year. The result will be higher unemployment, falling taxable income and a mild recession in early 2013.

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PG View: A comprehensive examination of the impending “fiscal cliff’ and the possible fall-out.

Posted in Economy, Politics |

Romney or Obama Win Means No Escape From Fiscal Crisis of Debt

28-Sep (Bloomberg) — Consumers, banks and businesses have been busy getting their balance sheets into better shape since the U.S. economic recovery began more than three years ago. Now, it’s the government’s turn.

Whoever wins the presidency will contend with a budget on a trajectory dubbed unsustainable by Federal Reserve Chairman Ben S. Bernanke. Barack Obama or Mitt Romney will have to tame a deficit that has topped $1 trillion in each of the past three years, Bloomberg Markets magazine reports in its November issue. How the new president goes about it will influence the direction of financial markets and define the economy and society for his four-year term and beyond.

“We’ve made a lot of progress getting the private-sector balance sheet in order,” says Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pennsylvania. “Where we’ve got a lot of work to do is on the public side.”

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PG View: Whomever wins the Presidency, both parties are still likely to have their heels dug in on higher taxes and spending cuts, meaning that unless one party wins the
Presidency and both Houses of Congress, Washington is still going to mired in gridlock and the status quo of mounting debt will prevail.

Posted in Debt, Politics |

What if Israel bombed Iran? The view from Washington.

21-Sep (Washington Post) — For months, Israel has threatened to strike Iran’s nuclear sites. The United States has urged restraint. If such an operation were launched, how might Washington react?

President Obama is enjoying a quiet dinner with Michelle, Sasha and Malia at the White House residence on a Thursday evening in October when he gets the call.

Two dozen Israeli fighter jets have just entered Jordanian airspace, apparently en route to Iran, chief of staff Jack Lew tells him. They will enter Iranian airspace, via Iraq, in approximately 85 minutes.

“Damn it,” Obama says under his breath. “Bibi told me he was going to hold off.”

[source]

Posted in Politics |

Currency Wars: Move to Make Treasury’s Geithner a Permanent Member of US National Security Council

06-Aug (JessesCafeAmericain) —

“To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create.

What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world.”
Martin Wolf, Financial Times, 12 Oct 2010

“…the Treasury secretary, who has primary authority on economic and financial issues in the cabinet, should be at every meeting to advise on how economic and security issues intersect, and to ensure that the United States is using its economic and financial strength in the most effective way.”
Robert Kimmitt, NY Times, 23 July 2012

Looks like the US is getting ready to flex its financial muscle. I don’t think the Anglo-American banking cartel will relinquish the dollar reserve currency supremacy easily. This is currency war.

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Posted in Economy, Politics |

The Libor Scandal In Full Perspective

by Paul Craig Roberts
19-Jul (Institute for Political Economy) — The article about the Libor scandal, coauthored with Nomi Prins, received much attention, with Internet repostings, foreign translation, and video interviews. To further clarify the situation, this article brings to the forefront implications that might not be obvious to those without insider experience and knowledge.

The price of Treasury bonds is supported by the Federal Reserve’s large purchases. The Federal Reserve’s purchases are often misread as demand arising from a “flight to quality” due to concern about the EU sovereign debt problem and possible failure of the euro.

…The lower is Libor, the higher is the price or evaluations of floating-rate debt instruments, such as CDOs, and thus the stronger the banks’ balance sheets appear.

Does this mean that the US and UK financial systems can only be kept afloat by fraud that harms purchasers of interest rate swaps, which include municipalities advised by sellers of interest rate swaps, and those with saving accounts?

The answer is yes, but the Libor scandal is only a small part of the interest rate rigging scandal. The Federal Reserve itself has been rigging interest rates. How else could debt issued in profusion be bearing negative interest rates?

…How long can the regime of negative interest rates continue while debt explodes upward? Currently, everyone in the US who counts and most who don’t have an interest in holding off armageddon. No one wants to tip over the boat. If the banks are sued for damages and lack the money to pay, the Federal Reserve can create the money for the banks to pay.

…To sum up, what has happened is that irresponsible and thoughtless–in fact, ideological–deregulation of the financial sector has caused a financial crisis that can only be managed by fraud. Civil damages might be paid, but to halt the fraud itself would mean the collapse of the financial system. Those in charge of the system would prefer the collapse to come from outside, such as from a collapse in the value of the dollar that could be blamed on foreigners, because an outside cause gives them something to blame other than themselves.

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PG View: An excellent article that illustrates just how far beyond the Libor scandal the “fraud” seems to extend. Discussions about the manipulation of global financial markets are no longer relegated to just the tin-hat crowd, and Roberts calls the Fed’s zero interest rate policy what it is: “Rigging interest rates”, which is fundamentally little different from what Barclays and the other setters of Libor where engaged in.

Perhaps now is a good opportunity to take a portion of your assets outside of the traditional financial markets, which are increasingly acknowledged as being “rigged.”

Posted in Economy, Gold News, investments, Politics, U.S. Dollar |

Wall Street Trims Early Gains After Bernanke Dashes Easing Hopes

07-Jun (MoneyNews) — Stocks rose on Wall Street Thursday after China cut its benchmark lending rate in another bid to boost its slowing economy, but an early rally faded after Federal Reserve Chairman Ben Bernanke gave no signal of immediate action to prop up the U.S. economy.

The Dow Jones Industrial Average was up 80 points at 12,494 shortly after noon. It had been up as much as 140 points earlier. On Wednesday the stock market had its biggest gain of the year on hopes that more economic stimulus might be on the way in the U.S. and Europe.

China cut its benchmark lending rate for the first time in nearly four years, adding to efforts to reverse a sharp economic downturn. It was the first rate cut since November 2008.

“Markets received a near-term shot of adrenalin from China,” said Matthew Kaufler, portfolio manager at mutual fund group Federated Investors. “China is the world’s economic locomotive at the moment and it can’t afford to slow down at a time when other major economies are in precarious positions.”

[source]

Posted in all posts, Economy, Politics |

Bernanke: Fed Ready to Act if Europe Hits U.S.

07-Jun (The Wall Street Journal) — The U.S. economic recovery faces significant risks, including from the European sovereign debt crisis and uncertain U.S. fiscal policy, Federal Reserve Chairman Ben Bernanke said in testimony prepared for a congressional hearing on Thursday.

Still, the Fed chairman stopped short of signaling Fed action to combat these risks, other than to say that the Fed remained “prepared to take action” to protect the U.S. economy and financial system if stresses on the financial system escalate.

In all, Mr. Bernanke’s testimony was more restrained than comments offered this week by other Fed officials, including Wednesday evening comments by vice chairwoman Janet Yellen, which laid out detailed arguments for why the Fed might to take new actions to bolster the economy and protect it from risks to growth.

[source]

Transcript of Chairman Bernanke’s opening statement: http://www.federalreserve.gov/newsevents/testimony/bernanke20120607a.htm

Posted in all posts, Gold News, Politics |

US initial jobless claims -12k to 377k for the week ended 02-Jun, below expectations of 380k, vs upward revised 389k in previous week.

Posted in all posts, Economy, Politics |

Greece Warns of Going Broke as Tax Proceeds Dry Up

05-Jun (New York Times) — As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money.

Government coffers could be empty as soon as July, shortly after this month’s pivotal elections. In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals.

Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece’s troubled banks. Some are even suggesting doling out i.o.u.’s.

Greek leaders said that despite their latest bailout of 130 billion euros, or $161.7 billion, they face a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes — and growing incentive to avoid paying what they owe.

[source]

Posted in all posts, Politics |