Obama administration closely monitoring Dubai debt crisis
The White house and most of the world are looking intently at the looming situation in Dubai after the announcement from Dubai World that they will be postponing almost $60 billion dollars in scheduled bond payments. Reaction on Friday was severe compared to what is usually a light trading day. The dollar fell on this announcement and stocks sold off worldwide.
This does not bode well for the recovery that all central banks are trying to engineer and this could be the catalyst that starts the correction many investors have been waiting for after this major run-up in stock prices. If these types of announcements continue in other parts of the global economy, it is going to make banks even more reluctant to lend which is the lifeblood of any glowing economy. This week will be very important to watch in the markets.
The Obama administration said Friday that it was monitoring developments in a looming debt default by the Persian Gulf emirate of Dubai, whose efforts to fend off creditors sent stocks skidding in the United States and around the globe amid fears of new bank losses.
The Dow Jones Industrial Average opened down by more than 200 points during Friday’s abbreviated session, recovering slightly later in the day as analyst reports suggested that U.S. banks had little exposure to Dubai, one of seven sheikdoms that compose the United Arab Emirates.
Around the world, fears focused on the danger that a massive debt default by Dubai could trigger similar defaults elsewhere. Such defaults in Mexico, Russia and Argentina over the past two decades proved contagious.
“The Treasury Department is monitoring the situation,” said a White House official, who spoke only on the condition of anonymity because she wasn’t authorized to talk about the issue for publication.
Source: Miami Herald
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Offshore private banking model is dead in U.S. according to experts
It won’t be die but private offshore banking will continue to be under scrutiny as tax revenues are falling and our budget expense rise. The United States needs all the tax receipts it can get with all these massively expensive social programs coming online. We can not have the wealthiest portion of our population not pay their fair share of the taxes by making income in the U.S. but then sending the proceeds overseas so they are essentially not taxed.
Regardless if you agree with the tax structure, once you get everyone paying in the system, if they still strongly disagree with the level of taxation, the taxpayers have a strong incentive to lobby their representatives for tax reforms. Right now, our wealthy class doesn’t seem to care either way because they have found a loophole to avoid having their wealth taxed like the rest of us. Right incentives are key to having a functioning democracy.
News:
Reuters, Zurich - A U.S. tax probe against Swiss bank UBS has killed traditional offshore banking and wealth managers will have to improve their offers to survive, bankers and industry experts said on Tuesday.
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German finance minister pressuring banks to provide more lending
It is not a good sign to see pressure being put on to banks to provide lending in a economic environment that does not support such an expansion of credit. This is what will lead to more defaults if the income is not there to support the debt service on this additional lending activity. Another issue you will have to deal with and the German population is familiar with…inflation. Steinbrueck mention that banks have a responsibility for the overall economy, I would hope that includes price stability and growth, not just growth.
News (Reuters):
Finance Minister Peer Steinbrueck has written to German bankers pressing them to supply the economy with ample liquidity, raising pressure on lenders to increase the flow of funds to businesses.
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World Bank approves $535 million loan package for Ghana
ACCRA, June 30 (Reuters) - The World Bank approved a $535 million package for Ghana on Tuesday aimed at helping stabilise the economy knocked by the global financial crisis, the bank said in a statement released in Accra.
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Jobless Rate Climbs to 9.2% in European Union (EU)
The common theme I hear is the “less bad is good” theme. It figures that because the economic statistics are not as bad as they were, that must mean good times are ahead. I am not so sure about that, we could either be in a lull or maybe we will be here for quite some time while this global recession lags on making the recovery more protracted.
In this article it is reported that Spain is at 18% unemployment, that is the formula for mass civil unrest. The longer people do not have a job the more desperate they become or it forces the government to continue to provide for these people which also has side effects like running large deficits. I am not sure where this is going but I do think the worst may still be ahead of us before we actually do get better.
News (NY Times):
The unemployment rate in the European Union pushed higher in April, the E.U. statistics office said Tuesday, indicating that nascent signs of economic recovery had yet to be felt in the Continent’s labor market.
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Russia backs return to Gold Standard to solve financial crisis
Personally I think all this talk about going back to the Gold Standard really points to the underlying problem that we have seen over and over throughout financial history. Having an honest management of the currency with a policy that does debase it over time which harms the savers in your country which kill incentive to save and invest over time. We tend to ignore the savers and focus on the people in trouble without any thought of balance when addressing these issues.
The current crisis in the U.S. is a perfect example when the popular notion of bailing everyone out is being carried out without real discussion being put into what that means and if there is a better method of handling the crisis. If you have followed my writing on here, you would know that I would of let all the banks go under that were reckless and used the money to back up obligations they had (the honest and correct ones) and then went on a robust programs to get funding to private businesses to jump start the job creation process focusing on our infrastructure and energy needs, you can almost never have enough of either.
News (Telegraph UK):
Arkady Dvorkevich, the Kremlin’s chief economic adviser, said Russia would favour the inclusion of gold bullion in the basket-weighting of a new world currency based on Special Drawing Rights issued by the International Monetary Fund.
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Chinese cautious on Treasury Notes
I wonder why, maybe because we are going to issue between 2-3 trillion dollars worth this year and we are still not sure if that is even going to solve the current credit & confidence problem?
News (Reuters):
China’s willingness to continue buying United States Treasury securities in large numbers will depend on its need to protect the value of its foreign investments, the Chinese premier, Wen Jiabao, said Saturday. He also said that a stable yuan is in everyone’s interests.
“Whether we will buy more U.S. Treasury bonds, and if so by how much — we should take that decision in accordance with China’s own need and also our aim to keep the security of our foreign reserves and the value of them,” Mr. Wen said.
His enigmatic remarks, made near the end of a visit to Europe, could raise new concerns about China’s commitment to continue purchasing United States government debt.
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