Daily Digest

Daily Digest - October 7

Wednesday, October 7, 2009, 9:48 AM
  • Apartment vacancy rate hits 23-year high: report

  • Arab Gulf Officials Deny Plan To Ditch USD Oil Trade
  • Dow Will Fall to 6,300 by Year End: Portfolio Manager
  • Dollar Living on Its Reputation and Borrowed Time(Video)

  • UN calls for new reserve currency (Posted by Mike Pilat)
  • Waves of new fund cuts imperil US nursing homes
  • (Cincinnati) City's pension woes deepen
  • New York Income Tax Revenue Falls 36% in Year, Paterson Says
  • Prepaid College Savings Plans Might Not Cover All Costs
  • Oil May Pass $100 on ‘Loose’ Policy, Merrill Says
  • ICN Informed Citizen News 10/04/09 (Video)
  • Martin Weiss – Three Government Reports Point to Fiscal Doomsday…
  • States Resist Medicaid Growth Governors Fear For Their Budgets
  • States worry about strain on Medicaid as uninsured numbers rise

Economy

Apartment vacancy rate hits 23-year high: report

NEW YORK (Reuters) - The U.S. apartment market in the third quarter turned in one of its weakest performances ever as the national vacancy rate hit a 23-year high despite being propped up by landlords willing to take lower rent to keep tenants, according to real estate research firm Reis Inc. The U.S. apartment vacancy rate rose to 7.8 percent in the third quarter, its highest since 1986, according to the report released on Tuesday. Vacancies have been rising since the third quarter of 2007, according to Reis.

Dow Will Fall to 6,300 by Year End: Portfolio Manager

Dollar Living on Its Reputation and Borrowed Time(Video)

When talking about the rumor of using other currencies for the oil trades)"How could these meetings not be taking place"?

UN calls for new reserve currency (Posted by Mike Pilat)

The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the "privilege" of building a huge trade deficit. "Important progress in managing imbalances can be made by reducing the reserve currency country?s 'privilege' to run external deficits in order to provide international liquidity," UN undersecretary-general for economic and social affairs, Sha Zukang, said. Speaking at the annual meetings of the International Monetary Fund and World Bank in Istanbul, he said: "It is timely to emphasise that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity." He said: "Greater use of a truly global reserve currency, such as the IMF?s special drawing rights (SDRs), enables the seigniorage gained to be deployed for development purposes," he said.

Waves of new fund cuts imperil US nursing homes

(Cincinnati) City's pension woes deepen

To keep pace with projected expenses, the city's $26.4 million contribution to the pension fund this year would need to rise to $84 million in 2010 - a scenario that council members and other city leaders concede is unrealistic. With the city facing a 2010 budget deficit estimated at $51.5 million, a shortfall that City Manager Milton Dohoney Jr. has warned is all but certain to force layoffs and worker furloughs, council likely will find it difficult to allocate much more to the pension fund than it did this year. "There's no way the city is going to be able to make a contribution of $84 million to the retirement fund," Councilwoman Roxanne Qualls said. "That's stating the obvious."

New York Income Tax Revenue Falls 36% in Year, Paterson Says

Prepaid College Savings Plans Might Not Cover All Costs

"In the last two decades, more than a million families around the country have invested in state funds that pledged to cover the cost of attending their state’s public colleges and universities, regardless of how much tuition increased. But in the last year, the stock market slump and rising college costs have combined to drive all but two of the nation’s 18 such funds, known as prepaid college savings plans, into the red, jeopardizing those pledges."

ICN Informed Citizen News 10/04/09 (Video)

Martin Weiss – Three Government Reports Point to Fiscal Doomsday…

When our leaders have no awareness of the disastrous consequences of their actions, they can claim ignorance and take no action. Or when our leaders have no hard evidence as to what might happen in the future, they can at least claim uncertainty. But when they have full knowledge of an impending disaster… they have proof of its inevitability in ANY scenario… and they so declare in their official reports… but STILL don’t lift a finger to change course… then they have only one remaining claim: INSANITY!

States Resist Medicaid Growth Governors Fear For Their Budgets

The legislation the Senate Finance Committee is expected to approve this week calls for the biggest expansion of Medicaid since its creation in 1965.

States worry about strain on Medicaid as uninsured numbers rise

Providers nationwide are under strain as state Medicaid programs cut reimbursement rates and benefits during the worst economic recession in decades. In many states, Medicaid rolls are at their highest in history, and states are struggling to keep up with the rapid rise in public healthcare spending as more Americans lose their jobs and employment-based coverage and household incomes slide.

Energy

Oil May Pass $100 on ‘Loose’ Policy, Merrill Says

"Oil may jump above $100 next year as emerging market demand rises and “loose” monetary policy weakens the U.S. dollar, Bank of America Corp.’s Merrill Lynch unit said."

Arab Gulf Officials Deny Plan To Ditch USD Oil Trade

DUBAI (Zawya Dow Jones)--Arab officials in the Persian Gulf strongly denied Tuesday a report that they're in secret talks to replace the U.S. dollar with a basket of currencies to price oil. "We have never heard of this or discussed this, not even secretly," Qatar's oil minister Abdullah bin Hamad Al Attiyah told Zawya Dow Jones by telephone. Arab states in the Gulf account for about half the crude pumped by the Organization of Petroleum Exporting Countries, or OPEC.

36 Comments

JAG's picture
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Gold And The Watched Pot Theory

In my opinion, this is one of Mish's finest posts:

Gold And The Watched Pot Theory

A watched pot may boil, but it's not likely to explode, especially when everyone watching the pot expects an explosion any second.

Indeed, it would be fitting if the Ridiculous Hype Over Secret Oil Meetings, helped form a bottom on the US dollar.

Yet, it's easy to see that a financial crisis is brewing.

Somewhere, something is going to blow sky high, but from where I sit, it's as likely to be in the Yen, the Swiss Franc, the British Pound, or something no one is watching at all as opposed to the US dollar specifically.

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Re: Daily Digest - October 7
Geithner Says Americans Will Have to Save More
 
 
Its like I'm living in an alternate universe.
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Re: Daily Digest - October 7

Just curious to see some opinions on short   and long term effects if oil is based in something other then the dollar.

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Re: Daily Digest - October 7

China Defaults, Currency Basket Threatens Dollar

Janet Tavakoli presents a nice summary and links to support the idea that the West's biggest creditor, China, may have fundamentally changed the way it will deal with its contracts.

Robert Fisk exposed revived discussions by the Gulf States, China, France, Japan, Brazil, and Russia to replace the dollar as the benchmark oil trading currency with a basket of currencies including gold within 10 years.  This proposal is not new and discussions have been ongoing for decades.  But other extraordinary moves in the capital markets suggest we should take this threat to the dollar’s position very seriously.  For example, China has $2.3 trillion in currency reserves (about 70% in dollars), and China knows how to get its way.

In November 2008, Chinese banks said they would no longer play by our rules.  Top tier banks (Bank of China and Industrial and Commercial Bank of China) reneged on derivatives contracts.  They failed to come up with billions in collateral on dollar/yen FX trades, which were out of the money after the yen’s October appreciation.

At the end of August 2009, China signaled that state owned oil consumers: Air China, COSCO, and China Eastern could default on money-losing commodities derivatives contracts.

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Re: Daily Digest - October 7

from Financial Times

http://www.ft.com/cms/s/0/56612c86-b29e-11de-b7d2-00144feab49a.html

Quote

The secondary mortgage market for jumbo loans has all but disappeared because they are left untouched by Fannie Mae and Freddie Mac, the government-backed behemoths that dominate the secondary market as private players flee. As a result, the rates on such mortgages are up to 2 percentage points higher than that of a standard loan, according to Bankrate.com, even though jumbo borrowers may well be more creditworthy. 

Unquote

 

Backs up what CM recently posted that the Govt is the mortgage market.

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Re: Comic Relief: More Americans Outsourcing Their Own Jobs

http://www.fundmymutualfund.com/2009/10/onion-more-american-workers-outsourcing.html 

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Re: Daily Digest - October 7

All I can say is... yikes.

Sebelius: Americans must get swine flu shot

http://www.msnbc.msn.com/id/33207176/ns/health-swine_flu

Quote:

Sebelius unconditionally vouched for the safety of the vaccine, saying it "has been made exactly the same way seasonal vaccine has been made, year in and year out."

Is that really true?  From what I read it was in fact made in a different manner.  It's so sad that I have to doubt the word of our gov't on something that should be so basic as a vaccination.  But the fact is I can't take anything they say at face value anymore.  So so sad.

- Nickbert

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Re: Daily Digest - October 7

Great link Jag,

Its hare to believe the oil producers would take something other than dollars any time soon.  Put yourself in their shoes - would you want Euros or Rubles or Yuan?  Those currencies are guilty of printing as much or more than the US on a relative basis.  Gold then?  Do you think the world powers would allow South America to become such a powerful country simply due to their gold reserves? One article yesterday suggested that the BRIC countries would go to a gold standard of some kind - - can you imagine the battle over what ratio of paper to gold each country would go for?  Close to impossible to accomplish.

I know that fiat currencies are becoming more suspect, but there are no better alternatives now.  The probablity that the next best alternative is something that has very little value in producing anything of worth and which is found concentrated in the ground in countries with no military power seems remote to me (talking Gold here). 

So, I cant argue against the idea that all 1st world currencies could implode (which would happen all a tthe same time if the dollar dies), but to argue that the dollar will be replaced by other currencies is a super far stretch anytime in the next decade barring an utter collapse in all curencies.

 

 

 

 

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Re: Daily Digest - October 7

1) Fed Frets About Commercial Real Estate

With Banks Slow to Take Losses, Fears of a Residential-Bust Repeat; 'More Pain Likely Lies Ahead'

I"n another sign that many U.S. financial institutions are inadequately protected against potential losses on commercial real-estate loans, banks with heavy exposure to such loans set aside just 38 cents in reserves during the second quarter for every $1 in bad loans, according to an analysis of regulatory filings by The Wall Street Journal. That is a sharp decline from $1.58 in reserves for every $1 in bad loans from the beginning of 2007."

2) Region's commercial real estate vacancies foster empty feeling

"San Diego's office market reached the 20 percent vacancy rate for the first time in 16 years, CB Richard Ellis said yesterday in its third-quarter report on the commercial real estate market.

The rate was even worse when factoring in the sublease space available, which raised the vacancy level to 25.6 percent."

 

3) Office vacancies rise, rents continue to fall

"According to real estate research firm Reis Inc, the U.S. office vacancy rate touched a five-year high in the third quarter. The national vacancy rate stood at 16.5 percent, 0.6 percentage higher than the previous quarter."

"Rents at lowest ebb

In addition, the amount actually paid by tenants in the United States dipped 8.5 percent, which is the highest year-over-year drop since 1995."

4) California's Hotel Foreclosures Triple

"Atlas Hospitality Group, a commercial real estate brokerage in Irvine, Calif. specializing in hotels, reported that in the first nine months of 2009, hotel foreclosures more than tripled from 15 in 2008 to 47. Hotels in default also quadrupled to 259."

5) Gold Prices May Rise to $1,650, James Sinclair Says

"Oct. 7 (Bloomberg) -- Gold may climb to $1,650 an ounce by early 2011 on demand for an alternative investment to the dollar and other currencies, said James Sinclair, a commodity investor and the head of Tanzanian Royalty Exploration Corp.

“The carry trade has dropped the dollar as a currency of choice,” Sinclair, the chief executive office of Surrey, British Columbia-based Tanzanian Royalty, said today in an interview on Bloomberg Radio. “Gold is competition to currencies.”"

 6) Faces of Death: The US Dollar in Crisis (Lots of graphs)

7) Hikes in interest rate expected soon: Moody's

"Central banks in India, China and South Korea are closely monitoring the emerging inflationary pressures on their economies and hikes in interest rates could be expected across the Asia-Pacific region after Australia raised key interest rates, says Moody's economy.com."

8) Carnegie Library to close four branches, merge some

9 (Minneapolis)Pensions owed to aging police and firefighters could cost taxpayers millions

City must come up with $22.7 million

10) More tax hikes everywhere (Google news search)

11) "Russia’s central bank probably bought $750 million to $1 billion as it sought to stall the ruble’s advance from the strongest level this year against the dollar, traders said."

12) Deutsche Bank Capitulates to Cut Dollar Forecast 18%

"Oct. 7 (Bloomberg) -- Deutsche Bank AG, the world’s biggest currency trader, capitulated on its dollar-euro forecast, cutting its yearend 2010 target by 18 percent amid evidence the U.S. will keep interest rates lower than other nations.

The dollar will trade at $1.40 per euro by the end of next year, after weakening to $1.55 in the first quarter, Henrik Gullberg, a foreign-exchange strategist at the bank in London, said today in an interview. The previous forecast was $1.15."

13) Asian Nations Step In to Buoy Greenback

"SINGAPORE -- Several Asian central banks appeared to intervene in the foreign-exchange market to curb the rise of their currencies, reflecting an effort to keep exporters competitive as the U.S. dollar swoons.

The apparent interventions Tuesday by South Korea, Singapore, Thailand and the Philippines -- reported by currency traders, but not confirmed by authorities -- came as Asian currencies soared, with some hitting 12-month highs against the dollar and exacerbating worries about the outlook for the U.S. currency among traders."

14) “Optimism regarding the Brazilian economy has fueled an increase in flows from foreign investors,” said Miriam Tavares, foreign-exchange director at AGK Corretora de Cambio, in a telephone interview from Sao Paulo. “I expect the central bank to continue to intervene in the currency market, soaking up the excess flow and keeping the real at a range of 1.75 to 1.80 per dollar by year-end.”

15) "South African central bank Governor Tito Mboweni ditched attempts to talk down the rand last month and started buying up dollars as he looks to ease pressure on exporters reeling from a slump in demand."

"Mboweni said on Oct. 1 he had asked Reserve Bank staff to “cream off more dollars” last month to pare the rand’s 40 percent rally against the dollar in the seven months through Sept. 30. That gain has undermined exports and fueled job losses that pushed unemployment to 23.6 percent in the second quarter, the highest of 62 countries tracked by Bloomberg."

16) "The Bank of Israel again intervened in the forex market yesterday, buying at least $200 million in the early afternoon. Its intervention boosted the dollar's exchange rate against the shekel to NIS 3.74, roughly unchanged from its starting rate for the day."

17)" TORONTO (Dow Jones)--The dollar is trading at day-earlier levels against the yen Wednesday afternoon after an earlier spurt of options-related and Middle Eastern buying triggered a sharp rebound for the greenback."

18) Santelli: Wouldn't You Hold Secret Dollar Meetings Too? (VIDEO)...scroll down to see the video and Santelli talks at 1 1/2 minutes into this.

19) President Barack Obama is considering a mix of spending programs and tax cuts to respond to widening job losses that would amount to an additional economic stimulus without carrying that label.

20) After those 19 news items let's just think about how well the politicians and bankers are serving us.

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Re: Gold And The Watched Pot Theory

JAG,

I concur that was indeed one of Mish's finest.  Thanks for giving me the extra shove I needed to read it!  Dollar devaluation certainly doesn't make sense from anyone's point of view. 

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Re: Daily Digest - October 7

JAG

Dude, Mish's column should be a must read for everyone.  He puts our shared crisis into perspective in a powerful way.  Thanks a ton.

Doug

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Re: Daily Digest - October 7

From www.zeroHedge.com

US Mint Suspends Production Of American Eagle Gold And Silver Bullion Coins Due To "Unprecedented Demand"

Interesting indeed

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Re: Daily Digest - October 7

re this zerohedge post:  Please note that they are not suspending production of all coins - simply a couple of the collectors edition coins in order to meet demand for noncollector coins.  This has happened before, and is simply a normal shift of the manufacturing from collectors to noncollectors.  Its not a scam, its not a conspiracy, its basic business 101 from the production crew.  Zerohedge is sometimes good, yet often just posts articles with misleading headlines trying to get everyone all worked up.

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Re: Daily Digest - October 7

http://theautomaticearth.blogspot.com/

Ilargi weighs in on the Fisk article (4th paragraph) and highlights Newsweek's interview with William Black and Panzner's recommendation to use Goldman's upgrades as a contra-indicator:

"No matter what else happens today, there's no better story than Newsweek's William K. Black interview, in which the lawyer, professor of economics and law and former bank regulator puts his mouth where his money and credentials are, and calls US Treasury Secretary Timothy Geithner, a "disaster" who's "been wrong about everything in his career". There goes the cushy job for Black (if he'd want one). Instead, he gets our admiration and, more importantly, he gets to keep his conscience.

"Michael Panzner suggests that Goldman's recent record in calling bank stocks should perhaps have people sell when the firm upgrades their outlook.

"While stocks are rising, the dollar goes in the opposite direction, a move apparently greatly facilitated by a report from renowned journalist Robert Fisk about "secret" talks between countries other than the US concerning the preferred currency to be used in the oil trade.

"And we may see reports such as these: Gold Jumps to Record as Inflation Outlook Fuels Investor Demand, but it's hard to figure where that inflation would originate. After all, and despite the legal lies, a bank shares bloodbath will be led by, and in turn lead to, writedowns and disappearance acts of massive amounts of toxic debt (or -assets, if you will). At the very least, then, if and when we take serious people like Michael Panzner, Christopher Whalen and William Black, we need to ask ourselves some serious questions regarding that dollar demise and the wisdom of buying gold on account of inflation worries.

Just keeping another viewpoint in mind.

Lori

 

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Re: Gold And The Watched Pot Theory

Thanks, Jeff.

Great article.

Lori

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Re: Daily Digest - October 7
Johnny Oxygen wrote:
Geithner Says Americans Will Have to Save More
 
 
Its like I'm living in an alternate universe.

Maybe the drugs aren't working any more but wasn't he saying not so long ago Americans need to borrow and spend more in order to 'save' the economy?

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Re: Daily Digest - October 7

Tony Fratto: A Stimulus by Any Other Name

http://www.cnbc.com/id/33193485

Alcoa Reports Surprise Profit; Sales Also Beat Expectations

http://www.cnbc.com/id/33213464

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Re: Daily Digest - October 7

Check out the charts that Nathan's Economic Edge put up.

 

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The Drudge Sentiment Indicator

That's it - Drudge has headlined a gold story for THREE DAYS STRAIGHT now!  That marks a market top for me folks.  I definitely believe one should own gold as a hedge, but as far as trading goes, this one's peaked.

Obama under fire over falling dollar...
Alarm over debt draws together diverse coalition...
Budget deficit to hit $1.4 trillion for '09...

GOLD STRIKES ANOTHER RECORD  

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Re: The Drudge Sentiment Indicator

I'm comfortable with my position whether it has peaked or not. My FEAR and sentiment is....it has not peaked.....not even close. Just a few  questions to honestly ponder before going any further.

1. What percentage of the general populace owns gold or silver?

2. What are the implications of probable dollar weakness in the future for gold and silver prices?

3. Why does the U.S. mint keep pulling coins from their lineup to supply mainly by law mandated one ounce coins?

4. What other options are a sound investment for the average American?

5. Would a Right Wing news site post sentiment stories on Gold vs. the Dollar for self serving reasons?

6. Why is there perceived value in Gold and Silver right now?

7. What does history have to say about the possible success of current fiscal policy in our nation?

8. Is there a general denial of our countries economic problems based on Narcissism?

9. Who or what is driving the increase in Gold and Silver?

10. Is the market rational?

You could very well be right, but i'm betting against it. By the way i'll read the new Mish articles on Gold that ive been hearing about. I still think question 10 is where either of us could be dead wrong.

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Re: Daily Digest - October 7

Montana, my guess is Farmer agrees with you in the long-term, as I do because the $ is fatally flawed.  But things rarely shoot straight up or straight down without mid-course corrections.

China operates with long-term stability goals.  It manages decades out, whereas americans think in 30-second sound bites or at most 1 quarter out when the next earnings announcement hits the presses.  Asians banking powers will not let the $ completely collapse anytime soon.  

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Re: Daily Digest - October 7

Strabes,

I definitely agree with the points in your post, and only afterward saw farmers signature about gold production. I do think the dollar has been defending 76 for quite some time now. If that breaks, I see a nice increase in price. I'm not a buyer right now. Short term is a crap shoot though.

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Re: Daily Digest - October 7

http://cbs2chicago.com/politics/comptroller.state.finances.2.1232001.html

Comptroller: State Finances A Mounting Crisis

 

CHICAGO (CBS) ― The State of Illinois' pile of unpaid bills has grown to a record-breaking $3 billion. Comptroller Dan Hynes said Tuesday it's never before been this bad at this point in any previous fiscal year. CBS 2 Political Editor Mike Flannery reports that some social service agencies that rely heavily on state reimbursement warn they will soon be forced out of business.

Hynes said that things are likely to get worse before the state's bleak revenue picture begins to improve.
The comptroller reported corporate income tax receipts down $77 million for July through September; sales tax receipts, down $244 million; personal income tax receipts, down $251 million. One result: the typical creditor must now wait three months to be paid by the state, compared to a two-month wait at this time last year.

It's all very discouraging to the physician who runs Family Home Service. Dr. Norman James said he does not have enough cash to pay his 250 employees this Friday. He said he may have to close the doors, leaving more than 450 clients without the support they need to stay in their own homes and out of expensive nursing homes. Dr. James said his bank had tripled the size of his line of credit, but that money is now all gone. Dr. James said Illinois owes his agency $900,000, about $700,000 of it past due by up to five months.

Evelyn Gonzalez, a Family Home Service supervisor, said she can't afford to miss a pay check. "It's nerve-wracking. Because I have bills to pay just like everybody else," Gonzalez said. Another supervisor, Debra Estrada, is a single mom with two young children. Without a pay check, she said, "I can't pay my rent, I can't buy groceries to feed my children. The state does not realize what's happening to us, the little people. Seriously."

Similar fears haunt tens of thousands at social service agencies all across Illinois. "A Chicago Meals on Wheels and nutrition center can't purchase food and is facing eviction," Hynes said. "A large Lake County disabled program can't make insurance or mortgage payments."

Hynes said he's now getting 2,600 calls a week from creditors desperate to be paid by the state. While the General Assembly is scheduled to reconvene next week in Springfield, no one's even pretending to offer a comprehensive solution to the unprecedented budget disaster. Democrats and Republicans, the governor and legislative leaders all insist that must wait until next year. Late Tuesday, Mayor Daley described Chicago's revenue situation as "very serious." Because local governments receive a proportion rate share of state revenues, including taxes on income and sales, they face the same problems the State of Illinois does.

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And I thought our money printing was out of control

Competitive Currency Debasement - A Look at Rampant Monetary Expansion In China

Given all the finger pointing at the US over monetary printing and the debasement of the US dollar, inquiring minds just might be asking "What is China doing?"

That's a good question, so let's look at monetary numbers translated from Chinese.

Chinese Money Supply in 100 Million Yuan

click on any chart for sharper image

Link For Chinese Money Supply

Balance Sheet Of Depository Corporations - Assets

Balance Sheet Of Depository Corporations - Liabilities

Link For Chinese Balance Sheet of Other Depository Corporations

The Chinese central banks' printing and respective Chinese bank lending make us look like amateurs. Chinese central bank assets and the money supply are up 25-26% annualized YTD. But this growth rate of money supply and bank lending is what is required to make up for the 8-10% net contraction in output from the collapse in exports and export-related production.

Meanwhile, back in the US, total bank credit is contracting while M2 is up 5% annualized YTD.

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FDIC Pays Banks to Foreclose on homes

http://housingstorm.com/2009/10/is-the-fdic-killing-short-sales/

Banks come out ahead by foreclosing instead of short sales or loan modifications:

 For any residential mortgages where OneWest experiences a loss, the FDIC will step in and cover anywhere from 80%-95% of the loss. The loss is calculated using the ORIGINAL LOAN BALANCE, not the amount that OneWest paid for the loan... The scary thing is that over 50 banks have Shared Loss Agreements in place with the FDIC. Some of them include: Bank of America (go figure), CitiMortgage, Wells Fargo, etc.

So if the FDIC covers 90% of the loan loss, if the Bank sells the home for more than 10% of the loan the bank makes an easy profit.

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Re: Daily Digest - October 7

"Because [our] textbook growth model is not forward-looking, the analysis assumes that people will not anticipate the sustainability issues facing the federal budget; as a result, the model predicts only a gradual change in the economy as federal debt rises."

Translation - It is the government's politically correct way of saying that we the people are stupid.

and judging by the lack of opposition & outrage at Obama's handling of this mess - (change we can believe in???? he is closer to Bush II the sequel than anything), sadly, I would have to agree CBO's assessment is largely true.

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Re: The Drudge Sentiment Indicator

This makes four headlines in three days!  Combine that with non-stop gold hucksters on TV 24/7, gold "parties" which are like Tupperware parties, and all the other hype and what you have is peak sentiment.  At the same time, dollar sentiment has troughed.    The doomsday calls for its obliteration are everywhere.  Now look, everyone here I think knows where I stand:  in the end the dollar will be toast, and gold will always be money.  However, we are currently at turning points in both asset classes in my opinion.  Gold sentiment can't get anymore bullish and dollar sentiment can't get anymore bearish.  As Mish has said in both of his last two posts today, something big has to break, soon.

 

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Mother-in-Law Sentiment Index

I went to my "main stream" mother-in-laws house tonight and she asked me how I buy gold. After a long discussion, I encouraged her to buy some (because she has none), but what I was really thinking was "Holy Cow....its time to take some profits on my own PMs"  

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China calls time on dollar hegemony
The original story by Robert Fisk did say that the story would be denied by all the parties - obviously they are not yet ready to pull the pin.
 
Dave

http://www.telegraph.co.uk/finance/china-business/6266790/China-calls-time-on-dollar-hegemony.html#

China calls time on dollar hegemony

You can date the end of dollar hegemony from China's decision last month to sell its first batch of sovereign bonds in Chinese yuan to foreigners.

By Ambrose Evans-Pritchard
Published: 7:33PM BST 06 Oct 2009

"It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened."

It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports – since denied – that China, France, Japan, Russia, and Gulf states were plotting to replace the Greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.

What matters is where OPEC oil producers and rising export powers choose to invest their surpluses. If they cease to rotate this wealth into US Treasuries, mortgage bonds, and other US assets, the dollar must weaken over time.

"Everybody in the world is massively overweight the US dollar," said David Bloom, currency chief at HSBC. "As they invest a little here and little there in other currencies, or gold, it slowly erodes the dollar. It is like sterling after World War One. Everybody can see it's happening."

"In the US they have near zero rates, external deficits, and public debt sky-rocketing to 100pc of GDP, and on top of that they are printing money. It is the perfect storm for the dollar," he said.

"The dollar rallied last year because we had a global liquidity crisis, but we think the rules have changed and that it will be very different this time [if there is another market sell-off]" he said.

The self-correcting mechanism in the global currency system has been jammed until now because China and other Asian powers have been holding down their currencies to promote exports. The Gulf oil states are mostly pegged to the dollar, for different reasons.

This strategy has become untenable. It is causing them to import a US monetary policy that is too loose for their economies and likely to fuel unstable bubbles as the global economy recovers.

Lorenzo Bini Smaghi, a board member of the European Central Bank, said China for one needs to bite bullet. "I think the best way is that China starts adopting its own monetary policy and detach itself from the Fed's policy."

Beijing has been schizophrenic, grumbling about the eroding value of its estimated $1.6 trillion of reserves held in dollar assets while at the same time perpetuating the structure that causes them to accumulate US assets in the first place – that is to say, by refusing to let the yuan rise at any more than a glacial pace.

For all its talk, China bought a further $25bn of US Treasuries in June and $25bn in July. The weak yuan has helped to keep China's factories open – and to preserve social order – during the economic crisis, though exports were still down 23pc in August. But this policy is on borrowed time. Reformers in Beijing are already orchestrating a profound shift in China's economy from export reliance (38pc of GDP) to domestic demand, and they know that keeping the dollar peg too long will ultimately cause them to lose export edge anyway – via the more damaging route of inflation.

For the time being, Europe is bearing the full brunt of Asia's currency policy. The dollar peg has caused the yuan to slide against the euro, even as China's trade surplus with the EU grows. It reached €169bn (£156bn) last year. This is starting to provoke protectionist rumblings in Europe, where unemployment is nearing double digits.

ECB governor Guy Quaden said patience is running thin. "The problem is not the exchange rate of the dollar against the euro, but rather the relationship between the dollar and certain Asian currencies, to mention one, the Chinese Yuan. I say no more."

France's finance minister Christine Lagarde said at the G7 meeting that the euro had been pushed too high. "We need a rebalancing so that one currency doesn't take the flak for the others."

Clearly this is more than a dollar problem. It is a mismatch between the old guard – US, Europe, Japan – and the new powers that require stronger currencies to reflect their dynamism and growing wealth. The longer this goes on, the more havoc it will cause to the global economy.

The new order may look like the 1920s, with four or five global currencies as regional anchors – the yuan, rupee, euro, real – and the dollar first among equals but not hegemon. The US will be better for it.

The.Techno.Luddite's picture
The.Techno.Luddite
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Posts: 34
Metals vs. real wealth

The arguments about gold/silver are silly IMHO.  I can't afford gold, and only a bit of silver --- but you can't eat either.  I think that once you've saved up some REAL wealth (tools, storable food, skills, weapons, toilet paper, vodka/rum, medicine, etc) - then if you've got left over fiat currency - then metals are surely a safer storage mechanism than paper/banks.  But until you are comfortable in your *real* assets, metals are a distraction.

The Soviet Union's collapse is a good lesson in this.  Toilet paper, vodka, medicine and etc -- became the currency for getting anything from engine work done, to getting your house insulated.   Of course, those Soviets were not as obese/illiterate/superstitious/lazy as we are --- but their lessons are still well worth our attention!

http://cluborlov.blogspot.com/

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mainecooncat
Status: Gold Member (Offline)
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Posts: 488
Re: Metals vs. real wealth
The.Techno.Luddite wrote:

The arguments about gold/silver are silly IMHO.  I can't afford gold, and only a bit of silver --- but you can't eat either.  I think that once you've saved up some REAL wealth (tools, storable food, skills, weapons, toilet paper, vodka/rum, medicine, etc) - then if you've got left over fiat currency - then metals are surely a safer storage mechanism than paper/banks.  But until you are comfortable in your *real* assets, metals are a distraction.

The Soviet Union's collapse is a good lesson in this.  Toilet paper, vodka, medicine and etc -- became the currency for getting anything from engine work done, to getting your house insulated.   Of course, those Soviets were not as obese/illiterate/superstitious/lazy as we are --- but their lessons are still well worth our attention!

http://cluborlov.blogspot.com/

Hey techno,

I basically agree with the spirit of your post but would point out the following -- including a micro-disagreement. Many people, perhaps even most (including even the attendees of this website), aren't where you're at in terms of perspective. I would imgaine most people would equate the needing of things such as food stores, weapons, and agricultural skills as doomerish and hysterical. This thinking still imagines that the future will be interconnected and liquid enough that these things -- including skills -- can be purchased with the fruits of their current investments or with their electronically stored fiat currencies.

Here's my micro-disagreement. If we find ourselves in a world where those who stored guns and seeds are the fortunate ones then I also believe that silver and gold coins would probably be the new "money" in that environment and could buy some things like food or tools. So I would recommend to someone like yourself to buy gold and silver coins along the way and not just as the last possible thing one would buy.

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Re: Metals vs. real wealth

cooncat.....

What if you've spent every last penny you own on "survival"? You see, from where I sit, there is very little I "need" now...... a few things I desire maybe, but none of them are "necessities". So at this stage, the only reason we even need money is because we have to pay what you call taxes on the land we own outright. Oh and this 'net connection, desirable but hardly necessary...... in fact if I spent less time communicating with you guys from this keyboard I'd get a whole lot more done!

Mike

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idoctor
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Posts: 1731
Re: Daily Digest - October 7

10/7/09 Peter Schiff on Fox Business: Gold to hit $5000/oz!

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Daily Digest - October 7

Max Keiser: Dollar to be buried way before 2018

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cat233
Status: Platinum Member (Offline)
Joined: Aug 20 2008
Posts: 575
Re: Daily Digest - October 7

From Briefing.com

BOE leaves bond buying program, key interest rate unchanged - DJ

DJ reports the Bank of England's Monetary Policy Committee kept the size of its bond buying program and its key interest rate unchanged, as policymakers waited for more evidence on the impact of their stimulus measures. The decision was widely expected. All 14 economists polled by DJ last week tipped the central bank to keep policy steady, preferring to wait for its quarterly forecast round in November to make any adjustment. Economists are divided on whether the MPC will need to expand its GBP175 billion quantitative easing policy of buying bonds with central bank money at November's meeting to ensure that recovery properly takes hold. "The Committee expects the announced program to take another month to complete," the MPC said. "The scale of the program will be kept under review."... The BOE's statement made no mention of the rate it pays banks on their reserves.

ECB set to hold rates, caution on economy - Reuters

Reuters reports the ECB is expected to keep interest rates at a record-low 1.0% on Thursday and its head Jean-Claude Trichet will probably caution against high hopes of a speedy economic recovery. While most analysts expect the next rate move to be a hike, they forecast that it will not happen before the third quarter of next year. But tighter liquidity conditions may push up market rates before that, futures pricing shows. The Bank of England will also publish its rate decision on Thursday, and it is expected to keep its rates on hold at 0.5%. At his news conference, ECB's Trichet is seen confirming that current policy settings are appropriate and markets will listen any clues on the timing and order of the ECB's exit strategy.

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Davos
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Posts: 3620

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