Geithner warns Congress raise debt limit to avoid national catastrophe

January 6, 2011 by · Leave a Comment
Filed under: Economic News 

With all the economic rhetoric  about fiscal and monetary policy, some things never change.   One of them is the pretty straight talk from politicians on the U.S. debt limit when we get ever closer to the new limit.   We stop the talk about cutting deficits and living within our means and bring out “the sky is falling” talk because of the reality of what will happened if we stop issuing debt and refinancing our Treasuries.  You can’t hide this fact and I do like the lack of beating around the bush when it come to this subject.

Yes, we will have grandstanding by both parties on the ideology grounds but when push comes to shove, they all know the score.  The debt will be raised or we will literally have a mini-civil war in this country.  We are too used to this bubble-based living.  Just saying….

Washington Post – Treasury Secretary Timothy Geithner warned lawmakers Thursday that the national debt could hit the legal limit on federal borrowing as soon as March 31, and he urged them to act quickly to avoid a government default that would spark “catastrophic economic consequences that would last for decades.”

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Federal Reserve may be `Central Bank of the World’ after UBS & Barclays aid

December 3, 2010 by · Leave a Comment
Filed under: Economic News 

Bloomberg – Federal Reserve data showing UBS AG and Barclays Plc ranked among the top users of $3.3 trillion from emergency programs is stoking debate on whether U.S. regulators bear responsibility for aiding other nations’ banks.

UBS was the biggest borrower under the Commercial Paper Funding Facility, with $74.5 billion overall, more than twice as much as Citigroup Inc., the top U.S. bank recipient, according to the data released yesterday. London-based Barclays Plc took the biggest single amount under another program that made overnight loans, when it got $47.9 billion on Sept. 18, 2008.

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Central Banks Cut Holdings of U.S. Agency Debt by 7% This Week

September 22, 2010 by · Leave a Comment
Filed under: Economic News 

There is a very interesting statement in this news piece.  The writer said that investors in agency debt like mortgage bonds backed by Fannie & Freddie were cutting their holdings because the worry that the U.S. will push the refinance of mortgages that are underwater and borrowers that have no equity.

What is interesting is if they do not refinance these borrowers then many will default on their loan.  If this happens then the available income for the mortgage bond payments would be less so you would think that this would be an undesirable effect if you were expecting payment from these bonds.  If you did refinance then you would have more income to make these interest payments.   Another problem with the defaults would be th affected value of homes around them and that could create more defaults.   So the question is why would an investor sell agency debt if that was the was the real reason.

This seems like a pretty weak argument for correlating this 7% sellout and actions by the U.S. government.  More likely it is because of our fiscal and monetary policy and they want to reduce their exposure to the U.S. dollar.   The Federal Reserve is actively talking about doing more quantitative easing (money printing) and this is worrying investors in U.S.  assets about the coming devaluation.

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Bernanke signals Fed is ready to prop up U.S. economy

August 27, 2010 by · 1 Comment
Filed under: Economic News 

Following up on my comments yesterday, it looks like inflation is going to be the route to try and bring a recovery.  The Federal Reserve and Ben Bernanke will fail in this attempt because at the end of the day, income (wages) will not keep prices and real growth where it is needed to stop deflation.

The recovery is basically over when we are getting statements like this from our central bank chairman.  It can become really dangerous when the Fed create uncertainty by talking about purchasing long term treasuries.   The gold market has sniffed this out and the price is almost nears its nominal high of $1,253.00 per ounce.

The more these type of discussions keep coming up, the more it shows that the Fed and Treasury so not have a handle on the macro-economic situation and the market is what is really dictating our conditions.  Bernanke said that deflation is not a risk to the economy but he is wrong, to him this is the biggest risk and that is why he is continuing the program of Quantitative Easing (QE aka: money printing).

Ask yourself this question, do you fight inflation with inflation or do you fight deflation with inflation?

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Fed chairman says ‘unemployment will remain stubbornly high for several years’

July 21, 2010 by · Leave a Comment
Filed under: Economic News 

Well you have it from the proverbial horses mouth in Ben Bernanke, our Federal Reserve Chairman.  It does not bode well for the U.S. economy when the head of our central bank tells us that we should expect high unemployment for the next several years.  On a political note, that is going to make this election cycle and the 2012 presidential election far from certain.

When the economy is going south, it makes it easier for a new candidate to make promises of a better economic environment even if they can not deliver.  Bernanke said we will still be between 7-7.5% in 2012 for our percentage of unemployed population.  We also need to take account for discouraged workers that will also come back on the rolls and possible push that statistic even higher.

This is also a best case senario, we need to take into account that a double-dip recession is not out of the cards either.  I have to tip my hat to Ben for atleast giving us a realistic picture and not telling us our economy through rose colored glasses.

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