Daily Digest

Daily Digest - June 21

Sunday, June 21, 2009, 4:15 PM
  • Russia, China to Promote Ruble, Yuan Use in Trade
  • Suitcase With $134 Billion Puts Dollar on Edge: William Pesek
  • Treasury to Auction $104 Billion In Debt Next Week, a Record
  • The END of the US Dollar is NEAR
  • Special Drawing Rights (SDRs) (Wiki Definition, H/T Fujisan)
  • Money Laundering (Turning Dirty Money into Clean Money) (by Fujisan)
  • Frontline - Macs and Breaking the Bank (Video)
  • Definancialisation, deglobalisation, relocalisation (H/T Nonzeroone)
  • Protectionism: Beijing starts a ‘Buy China’ policy
  • 100 Stimulus Projects, A Second Opinion
  • Hows Your Representative Doing With Our Economy? Give Them a Grade

Economy

Russia, China to Promote Ruble, Yuan Use in Trade

June 17 (Bloomberg) -- The leaders of Russia and China agreed to expand use of the ruble and yuan in bilateral trade to lessen dependence on the U.S. dollar a day after they took part in the first summit of the so-called BRIC countries.

“We agreed to take further steps in this direction, including, perhaps, by adjusting contracts and laws that already exist,” Russian President Dmitry Medvedev told reporters in the Kremlin today after talks with his Chinese counterpart Hu Jintao.

Suitcase With $134 Billion Puts Dollar on Edge: William Pesek

Is Japan dumping its dollars secretly? re the bonds real or counterfeit?

The implications of the securities being legitimate would be bigger than investors may realize. At a minimum, it would suggest that the U.S. risks losing control over its monetary supply on a massive scale.

The trillions of dollars of debt the U.S. will issue in the next couple of years needs buyers. Attracting them will require making sure that existing ones aren’t losing faith in the U.S.’s ability to control the dollar.

The dollar is, for better or worse, the core of our world economy and it’s best to keep it stable. News that’s more fitting for international spy novels than the financial pages won’t help that effort. It is incumbent upon the U.S. Treasury to get to the bottom of this tale and keep markets informed.

GDP Carriers

Think about it: These two guys were carrying the gross domestic product of New Zealand or enough for three Beijing Olympics. If economies were for sale, the men could buy Slovakia and Croatia and have plenty left over for Mongolia or Cambodia. Yes, they could have built vacation homes amidst Genghis Khan’s Gobi Desert or the famed Temples of Angkor. Bernard Madoff who?

These men carrying bonds concealed in the bottom of their luggage also would be the fourth-largest U.S. creditors. It makes you wonder if some of the time Treasury Secretary Timothy Geithner spends keeping the Chinese and Japanese invested in dollars should be devoted to well-financed men crossing the Italian-Swiss border.

This tale has gotten little attention in markets, perhaps because of the absurdity of our times. The last year has been a decidedly disorienting one for capitalists who once knew up from down, red from black and risk from reward. It almost fits with the surreal nature of today that a couple of travelers have more U.S. debt than Brazil in a suitcase and, well, that’s life.

(More)

Those $134 Billion in Fake Bearer Bonds

Some mid-day amusement ...

This was funny ... I never posted on this, because it was pretty clear there wasn't any real story. Maybe the post should be titled: "How some blogs were snookered!"

But a false bottom in a suitcase?

From Dow Jones: US Says Seized 'Treasury Bonds' Are Not The Real Thing

A cache of what appeared to be around $135 billion of U.S. bonds seized at the Italian-Swiss border is, in fact, worthless, a Treasury Department spokesman said.

Two alleged Japanese citizens were stopped by Italian authorities June 4 trying to cross into Switzerland with the supposed bonds, hidden in the false bottom of a suitcase, the authorities said.

Treasury to Auction $104 Billion In Debt Next Week, a Record

The Treasury announced Thursday a record $104 billion worth of bond auctions for next week, part of its herculean efforts to finance a rescue of the world's largest economy. 

The sales will exceed the previous record of $101 billion set in auctions that took place in the last week of April and consist of two-year, five-year and seven-year securities. That record was matched by another $101 billion week in May.

Though next week's total was broadly in line with expectations, worries about supply have weighed on the U.S. government bond market, which will see a mammoth $2 trillion worth of new debt issued this year.

"Maybe the Treasury market reacted a little negatively and it will continue to be like this," said Suvrat Prakash, U.S. interest rate strategist with BNP Paribas in New York. "Supply announcements and auctions on the horizon will make the market a bit nervous about upcoming debt."

Bond prices were lower already in anticipation of the Treasury's announcement and continued to sell off in reaction.

The END of the US Dollar is NEAR

June 16 (Bloomberg) -- Brazil, Russia, India and China are considering buying each other’s bonds and swapping currencies to lessen dependence on the U.S. dollar. The Russian leader reiterated his intention to push for the creation of a “supranational currency” to challenge the U.S. dollar and encouraged China and the other Shanghai group members to use each other’s currencies for trade.

Special Drawing Rights (SDRs) (Wiki Definition, H/T Fujisan)

Special Drawing Rights (SDRs) are potential claims on the freely usable currencies of International Monetary Fund members.

Money Laundering (Turning Dirty Money into Clean Money) (by Fujisan)

The BRICs are also recycling their "excess" dollar into Special Drawing Rights at the IMF. So the exchange risk is mostly for the IMF. They're willing to include their own currencies into the SDR basket, at least for yuan/renminbi & ruble. Since they're lending to the IMF, this would reninforce their position.

Frontline - Macs and Breaking the Bank (Video)

(Suggested highlights. Maria: 'He got tossed under the bus', MAC doesn't matter, You work for us as in U.S. govt.)

Definancialisation, deglobalisation, relocalisation (H/T Nonzeroone)

By Dmitry Orlov - this talk was presented at The New Emergency Conference in Dublin, on June 11, 2009.

"It's rather difficult for most people to take any significant steps, even individually. It is even more difficult to do so as a couple. I know a lot of cases whether one person understands the picture and is prepared to make major changes in the living arrangement, but the partner or spouse is non-receptive. If they have children, then the constraints multiply, because things that may be necessary adaptations post-collapse look like substandard living conditions to a pre-collapse mindset. For instance, in many places in the United States, bringing up a child in a place that lacks electricity, central heating, or indoor plumbing may be equated with child abuse, and authorities rush in and confiscate the children. If there are grandparents involved, then misunderstandings multiply. There may be some promise to intentional communities: groups that decide to make a go of it in rural setting."

Protectionism: Beijing starts a ‘Buy China’ policy

China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

100 Stimulus Projects, A Second Opinion 

Hows Your Representative Doing With Our Economy? Give Them a Grade

8 Comments

djhester1940's picture
djhester1940
Status: Bronze Member (Offline)
Joined: Sep 22 2008
Posts: 35
Re: Daily Digest - June 21

I thought this NYT article was very interesting.  THis is an industry/practice I had no idea even existed.

http://www.nytimes.com/2009/06/21/nyregion/21about.html?_r=1&partner=TOP...

It points out the fact that there are a lot of independent contractors (auto mechanics being one group) that do not show up on the unemployment rolls, have few if any benefits, and are responsible for all of their income/payroll taxes.

It seems that these people have fallen through the cracks and are a significant segment of the economy that is being totally ignored.

Don

joemanc's picture
joemanc
Status: Martenson Brigade Member (Offline)
Joined: Aug 16 2008
Posts: 834
Re: Daily Digest - June 21

$15,000 home buyer tax credit proposed

Quote:

A new bill from Sen. Johnny Isakson (R-GA), who used to be in the real estate business, would not only offer a bigger credit to a wider swath of potential home buyers, it would also removed the income caps ($75,000) that kept a lot of buyers out of the current credit.

This caught my eye. If their talking about increasing the tax credit from 8K to 15K AND it would apply to ALL homebuyers, that means real estate has really tanked. What I don't get is, WHY? An income tax credit simply reduces your taxable income. So, your maybe getting a few thousand back from the feds on your income taxes. In this soft real estate market, you can EASILY negotiate that downward on the asking price. Another example of lobbyists in the pockets of government officials and government incompetence.

http://www.cnbc.com/id/31448492

cannotaffordit's picture
cannotaffordit
Status: Gold Member (Offline)
Joined: Jun 12 2008
Posts: 273
Re: Frontline piece

 Huh!  The thought occurred to me, while watching Frontline the other night......how about taking the percentage of ownership that the gov't now has in these banks and other corps, and divide it among the taxpayers who have ACTUALLY put up the money to bail them out.  It's for sure the government has no money in the deal - the only money they have is ours.  And then, get rid of all the CEO "greed hogs" who are primarily interested in their own egos and their own compensation, and divide that money among those same taxpayers who are bailing these crooks out.  Seems better to me than nationalizing industries, which is what happened in Russia that allowed communism to get in the driver's seat.

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Re: Daily Digest - June 21

Economist puts dent in optimism: bigger crash is coming

http://www.abc.net.au/news/stories/2009/06/22/2604466.htm?section=justin


A respected forecaster is predicting further massive declines in share and property prices (ABC News)

An international economic forecaster says another big crash lies ahead for global share and property markets within the next two years.

Harry Dent predicted the Japanese recession in the 1990s and also forecast the current global financial crisis.

He has told ABC News Breakfast that the Australian share market will continue to make gains during the next few months, before bottoming in about 2011.

"I'd say maybe the Australian All Ordinaries will get back up near 4,500, the Dow maybe close to 10,000," he said.

"And then you'll see another crash late this year and into next year, as banking systems melt down again. I think the next one's going to start in Europe and Eastern Europe, housing prices would lag.

"I think stocks are going to end up down 60 or 70 per cent before it's all over, and I think housing prices in Australia will probably be down 40, maybe 50, per cent, maybe more than that in the United States and Europe."

fujisan's picture
fujisan
Status: Gold Member (Offline)
Joined: Nov 5 2008
Posts: 296
Re: Daily Digest - June 21

 naked capitalism: Xie: Chinese Banks Funding Commodities Speculation, Casting Doubt on Recovery

Andy Xie, writing for Cajing, questions the durability of China's recovery. He argues that much of hte upsurge in lending, which was one of the developments that cheered commentators, is fueling asset speculation, in this case in commodities, Reports this spring has suggested that as much as a third of the new lending was going into the stock market.

Observers have argued that China is stockpiling commodities as a diversification strategy., Xie adds an important tidbit to this equation, that banks are lending against commodities, using mortgage-like structures, and argues that the current price levels of commodities are a function of easy credit, not fundamentals.

...

TtotheA's picture
TtotheA
Status: Member (Offline)
Joined: Jun 12 2009
Posts: 11
Re: Daily Digest - June 21

$104,000,000,000 in Treasury Notes, plus $61,000,000,000 in Treasury Bills equals $165,000,000,000 total . . . IN ONE WEEK!

(Do I want to watch what happens, or should I cover my eyes?)

SteveS's picture
SteveS
Status: Gold Member (Offline)
Joined: Sep 6 2008
Posts: 358
Re: Daily Digest - June 21
joemanc wrote:

$15,000 home buyer tax credit proposed

Quote:

A new bill from Sen. Johnny Isakson (R-GA), who used to be in the real estate business, would not only offer a bigger credit to a wider swath of potential home buyers, it would also removed the income caps ($75,000) that kept a lot of buyers out of the current credit.

This caught my eye. If their talking about increasing the tax credit from 8K to 15K AND it would apply to ALL homebuyers, that means real estate has really tanked. What I don't get is, WHY? An income tax credit simply reduces your taxable income. So, your maybe getting a few thousand back from the feds on your income taxes. In this soft real estate market, you can EASILY negotiate that downward on the asking price. Another example of lobbyists in the pockets of government officials and government incompetence.

http://www.cnbc.com/id/31448492

 

If it's a Tax Credit then it comes off at the end of your 1040 - reducing your tax liability which is 100% useful (if you meet all the other criteria). If it's a tax deduction, then it only lowers your taxable income, thus only reducing your taxes by your marginal rate. It sounds like a credit. Not that either makes sense to me. Housing prices went way too high; they need to fall back to realistic levels. People will start buying property when it makes economic sense. I  don't think we should be pushing people into such big debt decisions.

 

crash_watcher's picture
crash_watcher
Status: Silver Member (Offline)
Joined: Aug 12 2008
Posts: 146
Re: Daily Digest - June 21

Some more recent tidbits on the two "Japanese Travelers:"

"Scanning foreign papers one would find many people demanding to know where is mainstream media? The 134.5 Billion seized by the Italians is attracting a multitude of inquiring minds. Either scenario of counterfeit or smuggling are of historic proportion and should be dominating the news! ....Turner Radio Network (TRN) announced June 20 that it had new confirmed information the two Japanese nationals are in the “employees of the Finance Ministry of Japan.”  TRN has now confirmed the two men arrested were trying to secretly dump Bonds as ordered by the government of Japan because the Japanese government feared that the U.S. government would be unable to repay its debts. Despite the assurances from Japanese Finance Minister Kaoru Yosano that Japan has complete confidence in the U.S. Treasury has confirmed the upon the serial numbers of the Bonds, part of the $686 billion of U.S. debt officially held by Japan."

http://www.examiner.com/x-14143-Orange-County-Conservative-Examiner~y2009m6d21-134-billion-dollar-bond-caper-full-of-holes-and-inconsistencies

Compare this to:

"The counterfeit bonds with a face value of $134 billion seized near the Swiss border are probably the work of the Mafia, say Italian and American secret services. The mystery surrounding the suitcase stuffed with fake US Treasury bonds deepened yesterday, after a blog revealed that police had released the two smugglers. They were carrying Japanese passports but may not actually be citizens. "We don't know where they are now," an official in Tokyo told the Financial Times. "

http://www.newser.com/story/62301/134b-bond-fraud-may-be-mob-handiwork.html 

And compared to:

".....the smugglers seemed intent on being caught with the counterfeit bonds. This leads me back to my previous question. What possible reason would the smugglers have for wanting to be caught? One of the quickest ways to sabotage and usher in the death of a currency is to raise legitimate questions about its ability to withstand counterfeiting efforts. Prove that counterfeiting is not only possible but highly likely, and the world’s confidence in the sabotaged currency will undoubtedly plummet.

In fact, this very tactic was applied during World War II when the Nazis launched Operation Bernhard in an attempt to crash the British economy by producing, by 1945, 132 million expertly counterfeited British pounds, a figure that represented roughly 15% of all real British pounds in circulation at the time.....

Perhaps then, this $134.5.billion bearer bond mystery was an attempt of a nation state to shake the world’s confidence in the position of the US dollar as the world’s reserve currency......"

http://seekingalpha.com/article/143462-strange-inconsistencies-in-the-134-5-billion-bearer-bond-mystery

 Real or fake? Govenment or Mafia? We will probably never know what realy happened here.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments