Daily Digest

Daily Digest - December 16

Wednesday, December 16, 2009, 10:53 AM
  • Gulf Monetary Council to Tackle Single Currency Peg, Launch
  • Gulf Petro-Powers To Launch Currency In Latest Threat To Dollar Hegemony
  • Mortgage Originations to Fall 16% in 2010 as Stimulus Ends
  • House To Vote On $167 Billion In Jobs Measures
  • Rising U.S. Debt Could Push Up Interest Rates
  • Welcome to Camp Millionaire
  • Foreign Demand For U.S. Assets Wanes
  • State Prisons To Be $15 Million Short This Year, Requesting $476 Million For 2011 (Alabama)
  • Springfield City Council Declares Homeless Problem A Calamity
  • Unemployment Rate for Older Workers Hits Record Level
  • The $11.5 Billion Pension Albatross is Costing You Mega-Bucks
  • U.S. Gave Up Billions In Tax Money In Deal For Citigroup's Bailout Repayment
  • Gov. To Cut $300 Million From Schools (Indiana)

Economy

Gulf Monetary Council to Tackle Single Currency Peg, Launch

A Gulf monetary council will be tasked with deciding on the peg of a proposed single currency among Saudi Arabia, Bahrain, Qatar and Kuwait and timeline to launch the currency, Kuwait's foreign minister said on Tuesday. "Whether this currency will be pegged to the dollar or a basket or something else is a technical matter that will be decided by the monetary council," Sheikh Mohammed Al Sabah said at a press conference at the end of a meeting of the Gulf Co-operation Council in Kuwait. "The council will be tasked with setting a number of standards, such as the percentage of deficit to gross domestic product."

Gulf petro-powers to launch currency in latest threat to dollar hegemony

The move will give the hyper-rich club of oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts.... The Gulf states remain divided over the wisdom of anchoring their economies to the US dollar. The Gulf currency – dubbed “Gulfo” – is likely to track a global exchange basket and may ultimately float as a regional reserve currency in its own right. “The US dollar has failed. We need to delink,” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank.

Mortgage Originations to Fall 16% in 2010 as Stimulus Ends

Mortgage originations probably will decline 16 percent next year as the homebuyer tax credit expires and the Federal Reserve winds down purchases of mortgage-backed bonds, according to a report by Keefe, Bruyette & Woods Inc. Lending may drop to $1.6 trillion in 2010 from $1.9 trillion this year, Bose George and Jade Rahmani wrote in a research note today. The volume of refinancings will decline after the end of the Fed program in March boosts rates, and home purchases will “taper off” after the tax credit expires in April, according to the analysts for the New York-based firm.

House to vote on $167 billion in jobs measures

The House plans to vote Wednesday on measures totaling about $167 billion that would extend the safety net for the unemployed and spur job creation. Lawmakers expect to extend the deadline to file for jobless benefits and the COBRA health coverage subsidy by two months. As it stands now, the deadline to apply for federally paid unemployment benefits and for the 65% insurance subsidy is Dec. 31. It would also maintain the stimulus-funded $25 boost in unemployment benefits through February and provide more money for food stamps.

Rising U.S. debt could push up interest rates

Congress set to raise borrowing limit by $2 trillion to $14 trillion Over the past two years, both lines on the chart have been moving in the wrong direction: The national debt has risen to more than 80 percent of GDP, and the economy has shrunk, putting added pressure on Uncle Sam’s budget. If the situation is temporary, it might not be is dire. If you lose your job and use your credit card to pay your bills, you’ll be OK as long as you find a new job soon enough. If you can’t find a job, you’ve go two problems: You’ve got to pay this month’s bills and come up with a bigger minimum payment every month. The same is true if the U.S. economy doesn’t back on its feet quickly and convincingly. Without strong growth ahead, the economic burden of the debt becomes more severe. There are two possible scenarios we can imagine to this “bad” outcome.

Welcome to Camp Millionaire

You can't just borrow your way out of trouble or keep printing money," says 14-year-old Hannah Cooper wisely. She goes on to explain the cause of hyperinflation in Germany in 1923 to the younger attendees...... Camp Millionaire started in California in 2002 and has since spread across the US and to Canada, Mexico, the Bahamas, Jamaica, Brazil, Australia and Poland......When Mr Zimmermann asks for a volunteer to define financial freedom, every hand in the room shoots up. "It's earning more than you are spending," says Esta Krizel, 11.

Foreign demand for US assets wanes

When short-term securities like stock swaps are factored in, foreigners sold off a total of $13.9bn in US assets in October after buying $127.6bn in September when banks ramped up overseas borrowing. Alan Ruskin, a strategist at RBS Securities, said demand for US assets, which remains healthy compared with a year ago, reflected concern about the ongoing weakness of the US dollar. In October purchases were dominated by Treasuries and equities while demand for corporate and agency debt was thin. “Key players are not willing to add to their US dollar portfolio while they have excess funds parked in the front-end,” Mr Ruskin said. In October, China, which during the prior month became the biggest holder of US government debt, kept its Treasury holdings flat at $798.9bn, signalling that it is diversifying its portfolio to other currencies as the value of the dollar slides.

State prisons to be $15 million short this year, requesting $476 million for 2011 (Alabama)

The Legislative Fiscal Office expects a more than $600 million hole in the General Fund budget, which is the source of the majority of funding for state prisons, Medicaid, state troopers and most other non-education functions. Lawmakers are concerned about how they will replace the $118.5 million in federal stimulus funds that are being used this year to hold up the corrections department.

Springfield city council declares homeless problem a calamity (Video)

The Springfield City Council took action Monday night on what it's calling an economic and housing calamity. The problem is the ever-growing populaton of homeless people.

Unemployment rate for older workers hits record level

While there were rays of hope in the recently released jobless report, statistics show that one segment of the population remains overlooked and underserved. The number of unemployed individuals age 55 and older rose to 2,082,000 in November, up 54 percent from November 2008 and the most since the Bureau of Labor Statistics started keeping records for specific age groups. Experts in Indiana say older job seekers are faced with unprecedented challenges, and many are on the verge of crisis.

The $11.5 Billion Pension Albatross is Costing You Mega-Bucks (Opinion)

The combined deficit of the City’s two major pension plans is $11.5 billion! This represents $8,200 for each and every household in Los Angeles, $7,200 for every registered voter, and about $40,000 for every person that voted. On the other hand, the City, with its head in the sand, pretends the deficit is only $4.6 billion, a mere $7 billion difference.

U.S. gave up billions in tax money in deal for Citigroup's bailout repayment

The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.... A senior Republican staffer also questioned the government's rationale. "You're manipulating tax rules so that the market value of the stock is higher than it would be under current law," said the aide, speaking on the condition of anonymity. "It inflates the returns that they're showing from TARP and that looks good for them."

Gov. to cut $300 million from schools (Indiana)

Education cuts needed, along with entire rainy day fund, to fix $1.8 billion deficit... The new revenue forecast estimates Indiana will take in $12.1 billion in fiscal year 2010, which ends June 30, and $12.8 billion in fiscal year 2011. However, state spending is based on May estimates predicting state revenue of $13.1 billion in 2010 and $13.6 billion in 2011, leading to the projected $1.8 billion deficit.

15 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - December 16

"California’s finances resumed a decline in November, adding to the state’s resurgent deficit as Governor Arnold Schwarzenegger readies a spending plan that will need to erase a $21 billion gap.

California, the most populous U.S. state and the largest municipal bond issuer, collected $439 million less revenue in November than what was estimated in July, Schwarzenegger’s Department of finance said yesterday in a report. The decline leaves revenue $1 billion behind projections halfway through the fiscal year.

Schwarzenegger is due to release his budget for the coming fiscal year in January. California Legislative Analyst Mac Taylor said in November the state will face a deficit of $14.4 billion beginning in July. That’s in addition to a $6.3 billion gap opening up in the current year as several projections within the budget falter or miss revenue projections. "

"The state may be forced to cut more than $1 billion over the next 18 months from BadgerCare Plus and other health care programs for the disabled, elderly and low-income families.

The shortfall comes at a time when more people are turning to BadgerCare Plus because of the state's battered economy. About 700,000 people were enrolled in BadgerCare Plus alone on Nov. 30, an increase of more than 70,000 since the start of the year. At the same time, state tax revenues have plummeted because of the economic downturn."

"CalPERS said the rate hike is necessary because of heavy investment losses and the disproportionate number of people drawing benefits compared to those paying in.

"This is a painful decision for the board, particularly in light of the current economic challenges our members are facing," Priya Mathur, chairwoman of the health committee, said in a news release Tuesday. "However, we have a fiduciary duty to ensure the long-term sustainability of this program.""

"WASHINGTON (Reuters) - The current account deficit widened as expected in the third quarter to $108 billion, largely driven by a big trade shortfall, a Commerce Department report showed on Wednesday.

The deficit rose from a downwardly revised $98 billion in the second quarter and was in line with analysts' forecasts for a third quarter shortfall of $108 billion.

The third-quarter deficit equaled 3 percent of gross domestic product, up from 2.8 percent in the April-June period, a Commerce Department official said.

The current account is the broadest measure of total U.S. trade with the rest of the world, covering goods, services and income transfers."

"Dec. 16 (Bloomberg) -- John Hancock’s Lifecycle 2010 mutual fund is marketed as an investment that “becomes more conservative” for people approaching retirement age. Thirty- five percent of the fund’s debt holdings in September were junk bonds, according to Morningstar Inc."

"Marin County's public pension system is financially unsustainable without reform, officials say.

No message came across more forcefully than that during a budget restructuring workshop attended by county supervisors Tuesday at the Marin Center in San Rafael. With an audience of more than 30 county employees, supervisors received a refresher course on why the county is facing a deficit of $15 million in fiscal 2010-11 and a deficit of $46 million over the next five years."

"A New York Times/CBS News poll released Monday found that 26 percent of unemployed Americans surveyed have been threatened with evictions or foreclosure since losing their jobs and 13 percent have lost their homes for not paying their mortgage or rent.

Those who have been looking for a job for six months or more are even more likely to have been threatened with foreclosure, according to the survey conducted on December 5 through December 10.

With 15.4 million Americans currently unemployed, some 4 million would be at risk of losing their homes and 2 million would have lost them, if the survey’s findings proved to be true on a national level. Total foreclosures in 2009 are expected to exceed 3.5 million, according to RealtyTrac.

The poll found that 86 percent of those surveyed say the loss of their jobs plunged them into crisis. For 46 percent of the unemployed, that crisis was described as “major.” Among those out of work more than six months, 57 percent say their unemployment caused a major life crisis."

gregroberts's picture
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Re: Daily Digest - December 16

"So everything you heard last year was a lie, the purpose of which was to generate public support for the printing of money.  The monetary base increased by $700 billion in autumn 2008; then it paused in the first half of ’09, and since July it has increased by another $400 billion.  Look at the chart above.  Gold is going up because paper currency is going down.  This autumn gold broke above $1,000 and raced to $1,200.  Now it may dip to $1,000 again, but if it does, this will be a time to buy.  It will be similar to the gold bottom of summer 1970 and the DJI bottom of 1982."

http://www.24hgold.com/english/news-gold-silver-the-big-picture.aspx?art...

idoctor's picture
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Re: Daily Digest - December 16

Poll Reveals Trauma of Joblessness in U.S.
http://www.cnbc.com/id/34429927

In terms of casting blame for the high unemployment rate, 26 percent of unemployed adults cited former President George W. Bush; 12 percent pointed the finger at banks; 8 percent highlighted jobs going overseas and the same number blamed politicians. Only 3 percent blamed President Obama.

Hum......

Johnny Oxygen's picture
Johnny Oxygen
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Re: Daily Digest - December 16

Great post Greg.

Thanks that was a good read.

idoctor's picture
idoctor
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Re: Daily Digest - December 16

Bernanke Named Time Magazine's Person of the Year

http://www.cnbc.com/id/34443779/

idoctor's picture
idoctor
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Re: Daily Digest - December 16

Waiting On The Citi

http://www.cnbc.com/id/34450901

Regardless of price, here's an idea being floated on trading desks: a halt in ALL trading in Citi right after the close, and a trading halt prior to the opening in all markets. That will enable Citi to open tomorrow at a SINGLE price.

Why? To avoid the debacle of Wells Fargo

[WFC  25.85    0.19  (+0.74%)   ]

the other day, when bookrunner Goldman Sachs

[GS  165.03    2.29  (+1.41%)   ]

held up trading on the floor for 50 minutes before allowing it to open. In that 50 minutes, 80 million shares traded away from the NYSE, at prices ranging from $25.40 to $26.20 (secondary was $25), and traders saw their opening orders vanish.

Will's picture
Will
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Re: Daily Digest - December 16
idoctor wrote:

Bernanke Named Time Magazine's Person of the Year

http://www.cnbc.com/id/34443779/

I saw this and immediately thought back to when Time put Greenspan on the cover and hailed him as a hero.  I couldn't even read this new article on Benny.  Unbelievable...

jkibbe's picture
jkibbe
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Re: Daily Digest - December 16

Must read - Obama's Sell Out

http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout/print

Vanityfox451's picture
Vanityfox451
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The Money Song ...

Best,

Paul

Hotrod's picture
Hotrod
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Re: Daily Digest - December 16

jkibbe,

Thanks for the link to that excellent article.  What a surprise!  The incestuous relationships among the high rollers. is even more rotten than we suspected

mono's picture
mono
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Re: Daily Digest - December 16_Bernanke

-Prisoner of the year- would have been more appropriate.

guardia's picture
guardia
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Re: Daily Digest - December 16

Oops, there's one chart I found interesting that didn't get through for some reason...

Rosenberg: We've Barely Begun The Deleveraging Process
http://www.businessinsider.com/rosenberg-weve-barely-started-the-delever...

guardia's picture
guardia
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Re: Daily Digest - December 16
Will wrote:

I saw this and immediately thought back to when Time put Greenspan on the cover and hailed him as a hero.  I couldn't even read this new article on Benny.  Unbelievable...

They try to portray him as "The Man from Main Street" ...  eesh, sure sounds like propaganda to me.. it's funny, you should read it :)

guardia's picture
guardia
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Re: Daily Digest - December 16
guardia wrote:

They try to portray him as "The Man from Main Street" ...  eesh, sure sounds like propaganda to me.. it's funny, you should read it :)

And they even put some interesting bits in it like this one:

Quote:

"He was substantially the same guy he is today — very quiet, very serious, very, very capable," recalls his MIT adviser, Stanley Fischer, who is now Israel's central banker

Ugh, conflict of interest anyone? Might help answer, in part, where the half-trillion dollars went...

Farmer Brown's picture
Farmer Brown
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Mish on the new "Gulfo" currency

Mish's take on the new Gulf currency (hint: he's not impressed)

http://globaleconomicanalysis.blogspot.com/2009/12/gulf-monetary-union-to-launch-currency.html

Gulf Monetary Union to Launch Currency - What Does It Mean?

 

After years of threats, four of six countries in the Gulf Cooperation Council (GCC) finally agreed to a monetary union with a single currency and central bank.

Saudi Arabia, Kuwait, Bahrain, and Qatar opted in. The UAE and Oman opted out of the agreement.

So what does it mean?

For Ambrose Evans-Pritchard's opinion, please consider Gulf petro-powers to launch currency in latest threat to dollar hegemony.

“The Gulf monetary union pact has come into effect,” said Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC) summit in Kuwait.

The move will give the hyper-rich club of oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts.

The Gulf states remain divided over the wisdom of anchoring their economies to the US dollar. The Gulf currency – dubbed “Gulfo” – is likely to track a global exchange basket and may ultimately float as a regional reserve currency in its own right. “The US dollar has failed. We need to delink,” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank.

Khalid Bin Ahmad Al Kalifa, Bahrain’s foreign minister, told the FIKR Arab Thought summit in Kuwait that the project would not work unless the Gulf countries first break down basic barriers to trade and capital flows.

At the moment, trucks sit paralysed at border posts for days awaiting entry clearance. Labour mobility between states is almost zero.

Yet hurdles are formidable even for the tight-knit group of Gulf states. While the eurozone is a club of rough equals – with Germany, France, Italy, and Spain each holding two votes on the ECB council – the Gulf currency will be dominated by Saudi Arabia. The risk is that other countries will feel like satellites. Monetary policy will inevitably be set for Riyadh’s needs.

Hans Redeker, currency chief at BNP Paraibas, said the Gulf states may have romanticised Europe’s achievement and need to move with great care to avoid making the same errors.

“The Greek crisis has exposed the weak foundations on which the euro is built. The gap in competitiveness between core Europe and the periphery has grown wider and wider. The obvious mistake was to launch EMU without a central fiscal authority and political union, as the Bundesbank warned in the 1990s,” he said.

“The euro was created for political reasons after the fall of the Berlin Wall to lock Germany irrevocably into Europe. It was not done for economic reasons,” he said.

The GCC also agreed to create a joint military strike force – akin to the EU’s rapid reaction force – to tackle threats such as the incursion of Yemeni Shiite rebels into Saudi territory earlier this year.

This is a major breakthrough after years of deadlock on defence cooperation.

The Sunni Gulf states are deeply concerned about the great power ambitions of Shiite Iran and its quest for nuclear weapons, to the point where the theme of a possible war between Iran and a Saudi-led constellation of states has crept into the media debate.

The Gulfo Threat?

Inquiring minds are asking if the Gulfo is a threat to dollar hegemony. First off, let's see if and when the monetary union actually gets off the ground, and with what currency when it does.

For the sake of argument, let's assume it gets off the ground right away, with the Gulfo, and let's further assume that the UAE and Oman quickly decide to opt in.

Will that end US dollar hegemony?

Let's answer that question with a question: Did the Euro end US dollar hegemony?

Here's a hint: The answer is the same.

This will finally put an end to speculation this is some major threat to the dollar. It will also put an end (hopefully), to the ridiculous notion that the US attacked Iraq because Iraq was about to price oil in Euros.

It will not matter one iota if they price crude in Gulfos given that currencies are fungible. Rest assured, US dollar hegemony will end, but it will not be on account of the Gulfo.

Military Significance

In terms of US policy, the military significance of the union is likely greater than the economic significance.

For starters, the Gulf Pact union will make US bullying of individual countries in the region that much harder. Moreover, the US sure will not like it, if those countries all tell the US to remove its bases (something I actually hope happens given that US bases destabilize the region).

Remember, the primary reason cited by Bin Laden for attacking the US on 911 was US troops were on sacred Arab soil.

Finally, the defense cooperation agreement takes on significance given various sabre rattling between the US and Iran, and Israel and Iran.

Consider this statement by Sheikh Mohammad al-Sabah, Kuwait's foreign minister, as reported by Al Jazeera in Gulf nations sign monetary pact: "We do not accept any military action against Iran. Any tension in the region will reflect on our situation. We have many problems already and we don't want any more"

I wholeheartedly endorse that statement. We do not need another war in the region.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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