Soaring U.S. Budget Deficit Will Mean Billions More in Bond Sales
This is going to get out of control over time unless we really start to reduce government spending or we are going to flood the market with dollars and it will make us have to make some very tough choices in the future which could include and official devaluation of our currency. Currently the jobs market is the biggest thing dragging down the U.S. economy. Credit availability is still a huge issue but even if that comes back, I am not sure if we would want that to flow back into the areas of the economy where a large part of the jobs have been lost (Finance, Real Estate and home construction).
News (Bloomberg):
Millions of lost jobs mean billions in lost tax revenue for the U.S. government, and billions in additional Treasury debt to fund a federal budget deficit that may soar to more than four times last year’s record $454.7 billion.
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China positioning its currency for a run at world supremacy by 2020?
In my opinion I do not see the dollar as the “only” dominant currency by 2020 either, with China, India and Brazil working hard to provide employment and raise the standards of their people, to accomplish this, they will need to provide stability and that will make those countries more attractive to invest in and that is the biggest reason people invest in the dollar. If we were more responsible with how we handled our currency, we would not hear these calls as loud as we do in these current times. It will be interesting to see how this plays out.
News (LA Times):
Reporting from Shanghai — Could the world’s currency of choice have the face of Mao Tse-tung on it, not George Washington? Quixotic or not, the Chinese are preparing for that day.
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China calls for new global currency to replace dollar
The calls for a replacement to the dollar is getting more pronounced everyday. China has really pushed for the IMF to use SDRs (Special Drawings Rights) as the super-sovereign currency used between governements. I am not in favor of giving any international agency this type of power. When you concentrate power, it makes it much easier to abuse.
I understand why the call for these changes are coming, being that we are the de facto reserve currency, our domestic monetary polices are devaluing the dollar. We should not look to bailout and look more to preserve our currency on the world market and let the market take care of the mal-investment.
News (AP):
China is calling for a new global currency controlled by the International Monetary Fund, stepping up pressure ahead of a London summit of global leaders for changes to a financial system dominated by the U.S. dollar and Western governments.
The comments, in an essay by the Chinese central bank governor released late Monday, reflect Beijing’s growing assertiveness in economic affairs. China is expected to press for developing countries to have a bigger say in finance when leaders of the Group of 20 major economies meet April 2 in London to discuss the global crisis.
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IMF poised to print billions of dollars in ‘global quantitative easing’
This is a interesting article, what I want to know is how the IMF is getting the ability to issue currency like a central bank? As stated in the article, they will be issuing SDR’s (Special Drawing Rights). Here is a fun quote: “The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them.” and to take the cake “The objective is to create a windfall of cash. However if everybody goes out and spends the money it could be very inflationary.” No need to be worried about secret plans via the “Shadow Banking System” when they are all being publicly displayed.
News:
The International Monetary Fund is poised to embark on what analysts have described as “global quantitative easing” by printing billions of dollars worth of a global “super-currency” in an unprecedented new effort to address the economic crisis.
Alistair Darling and senior figures in the US Treasury have been encouraging the Fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.
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New Zealand’s AA+ Credit Rating May Be Cut, S&P Says
Looks like the global financial crisis is spreading to more stable regions of the world. Lets hope today does not mark the entire theme of 2009.
News:
New Zealand’s AA+ foreign-currency credit rating may be cut if the nation’s current account deficit and overseas debt begin to curb growth and investment, Standard & Poor’s said.
The rating company affirmed the rating, though revised the outlook to negative from stable, according to a statement today. The AAA local-currency rating is affirmed with a stable outlook.
New Zealand’s dollar fell to a four-week low after the statement, which adds to signs that investors may turn away from an economy that is in a prolonged recession. A report earlier today showed business confidence has slumped to a 34-year low and the government last month forecast widening budget deficits over the next five years.
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China to allow Yuan to be used to settle trades normally denominated in dollars
This is bearish news for the U.S. dollar for sure. With China ability to produce goods on a major scale so they will always have something to trade, it looks like the Yuan might become a reserve currency. It should be no surprise that with our reckless bailouts on companies that should of failed that is leading to a devalued dollar is not sitting well with countries that hold much of our sovereign debt.
News:
The pilot scheme was announced in a package of measures designed to help exporters hit by the global downturn. It means if the two parties to a trade have yuan available, they need not enter world exchange markets to pay.
Most of China’s foreign trade is settled in US dollars or the euro, leaving exporters vulnerable to exchange rate fluctuations. The yuan is not yet a freely convertible currency. Officials did not say when the trial scheme would start.
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Pimco limiting U.S. Treasuries exposure as supply builds
Good move on their part. With the amount of issuing that is going to take place over the next 12 months, I would not want to have too much into treasuries. Many economist are calling the dollar, “the next bubble to burst”. Now with President-elect Obama, he needs to get serious about creating jobs in our country.
I would say infrastructure in our highway system, transportation (rail) and energy should be his priority in reverse order. These type of projects are great for creating jobs. I would also do a mix of federal programs and private programs through our bidding process will be a nice balance. I think we are going to start seeing inflation pick up as soon as people start feeling more confident and that will be are next major crisis. You really notice inflation when the velocity of money speeds up through economic activity.
Release:
Fund manager Pimco is limiting its Treasury holdings amid expectations the United States will ramp up issuance to pay for a slew of new programs aimed at easing the credit crisis, Chief Executive Mohamed El-Erian told Reuters late Tuesday.
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