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    Daily Digest – September 8

    by Davos

    Tuesday, September 8, 2009, 3:25 PM

  • China to diversify out of U.S. dollars
  • China, Bernanke, And The Price Of Gold (H/T SaxPlayer00o1)
  • And just in case you thought 4pm on Friday means Blue Label on the rocks time for HAL9000, you were wrong … 
  • U.S. Government The New Sub-Prime Lender
  • Peter Schiff (Video on definition of inflation, H/T SpillDenmark)
  • Deflation Interview on FSN WithRobert R. Prechter, Jr.
  • Chart of the Day – Journey Into Deflation (Video)
  • Faltering Construction Loans = More Bad News for Banks
  • A Surge in Homeless Children
  • Gold Wars, Part III: Return of the Gold Standard (PLEASE DON’T READ IF YOU DON’T WANT TO SEE A BIBLICAL QUOTE)
  • Soaring junk bond defaults

Economy

China to diversify out of U.S. dollars

According to an account published in the Daily Telegraph by Ambrose Evans-Pritchard, the Chinese government is quite anxious about money printing in the United States and the effect this printing could have on China’s dollar denominated reserve assets. 

For months now, the Chinese have signalled growing unease with U.S. monetary policy. And now comes the clearest signal yet that they are moving away from the dollar.  Cheng Siwei, a former vice-chairman of the Standing Committee, said point blank that the Chinese central bank was actively diversifying new reserve assets away from the U.S. dollar and into currencies like the Yen and the Euro.  He also mentioned Gold as an alternative the Chinese are exploring.

The $2 trillion in U.S. dollar reserves the Chinese already have are a sunk cost.  Going forward, the Chinese are free to do as they wish with incremental additions to reserves. To the degree that they sell dollars and buy gold, Yen or Euros, there can only be downward pressure on the U.S. dollar.

China, Bernanke, and the price of gold (H/T SaxPlayer00o1)

Where is the gold going to come from?

And just in case you thought 4pm on Friday means Blue Label on the rocks time for HAL9000, you were wrong:

U.S. Government The New Sub-Prime Lender

To make this upcoming “train-wreck” even worse still, the U.S.’s spendthrift, baby-boomers are starting to retire, and their retirements are grossly under-funded – even if the U.S.’s pension system can remain solvent (see “CalPERS is unsustainable”). With real estate comprising 75% of the assets for these financial lemmings, and with these boomers needing to come up with trillions of dollars just to come close to maintaining their standard of living, there is no mystery as to what they will be selling – year after year after year (see “U.S. pension-crisis: the $3 TRILLION question”).

Peter Schiff (Video on definition of inflation, H/T SpillDenmark)

[video:http://www.youtube.com/watch?v=M-0AOnGSh-g]

Deflation Interview on FSN WithRobert R. Prechter, Jr.

Mp3 / Windows Media / Real Player

Chart of the Day – Journey Into Deflation (Video)

Faltering Construction Loans = More Bad News for Banks

“At the end of June, $291 billion in [commercial] loans were outstanding, down only a few billion from the peak reached earlier this year. . . . Foresight Analytics estimates that 10.4 percent of commercial construction loans are troubled, but expects that to increase as the year goes on.

The definition of troubled loans used in the accompanying charts includes loans that are at least 30 days past due, as well as those on which the bank identified problems that led it to stop assuming that interest on the loans would be paid.”

Those folks who believe the “all clear” whistle has sounded may find themselves in unpleasant circumstances in a few short quarters . . .

A Surge in Homeless Children

While current national data are not available, the number of schoolchildren in homeless families appears to have risen by 75 percent to 100 percent in many districts over the last two years, according to Barbara Duffield, policy director of the National Association for the Education of Homeless Children and Youth, an advocacy group.

Gold Wars, Part III: Return of the Gold Standard (PLEASE DON’T READ IF YOU DON’T WANT TO SEE A BIBLICAL QUOTE)

Much like a “bomb squad” is sometimes not able to defuse a bomb before detonation, the damage caused by decades of the unbridled greed (and unprecedented stealing) of bankers may be so far advanced that a financial catastrophe can no longer be defused.

A return to a “gold standard” is now imminent. We can only hope that defeat of the bankers comes soon enough that history does not look back on this as a “pyrrhic victory”.

Soaring junk bond defaults

so junk defaults have hit 10% on their way to 13-18% in spite of massive refinancing subsidies for troubles issuers fostered by huge liquidity injections by the federal reserve bank into the relevant markets and agents.

if that doesn’t underscore just how massive the corporate junk bond problem is, i don’t know what could. a lot of these companies are going to default eventually regardless of liquidity provisioning because smaller bank balance sheets are going to force them off the fringe on credit quality concerns, and they’ll become a chapter of the history books written on our society’s great deleveraging.

 

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