(London Telegraph)The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank.
In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.
The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.
Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.
The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.
By Philip Aldrick
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Monday, July 6, 2009
Friday, July 3, 2009
China Moves to Cut Reliance on Dollar
(Financial Times) - China has taken another step towards internationalising its currency and reducing reliance on the US dollar with the announcement of new rules to allow select companies to invoice and settle trade transactions in renminbi.
The regulations released by the People's Bank of China, the country's central bank, will allow approved companies to settle transactions through financial institutions in Shanghai and other cities in southern China.
Offshore, the trial scheme will allow transactions to be settled in renminbi in Hong Kong and Macao, the two self-governing territories on China's southern borders, and later in a limited fashion in south-east Asia as well.
Importers and exporters will be able to place orders with authorised Chinese companies, and settle payment for them, in renminbi.
Although it has no short-term implications for the full convertibility of the renminbi, the announcement adds to the volley of political signals Beijing has sent recently over its dissatisfaction with the US dollar.
"To many minds in China the US dollar's time is almost up, the eurozone suffers from political paralysis and a too-conservative central bank, while two decades of economic stagnation and a shrinking population do the yen no favours," said Stephen Green, of Standard Chartered, in Shanghai.
"For them, the renminbi is an obvious, and imminent, replacement."
By Richard McGregor in Beijing
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The regulations released by the People's Bank of China, the country's central bank, will allow approved companies to settle transactions through financial institutions in Shanghai and other cities in southern China.
Offshore, the trial scheme will allow transactions to be settled in renminbi in Hong Kong and Macao, the two self-governing territories on China's southern borders, and later in a limited fashion in south-east Asia as well.
Importers and exporters will be able to place orders with authorised Chinese companies, and settle payment for them, in renminbi.
Although it has no short-term implications for the full convertibility of the renminbi, the announcement adds to the volley of political signals Beijing has sent recently over its dissatisfaction with the US dollar.
"To many minds in China the US dollar's time is almost up, the eurozone suffers from political paralysis and a too-conservative central bank, while two decades of economic stagnation and a shrinking population do the yen no favours," said Stephen Green, of Standard Chartered, in Shanghai.
"For them, the renminbi is an obvious, and imminent, replacement."
By Richard McGregor in Beijing
Read Entire Article
Thursday, July 2, 2009
Seven Banks Fail, Pushing 2009 Tally to 52
Regulators close six Illinois banks and one Texas bank setting the FDIC back a total of $314.3 million.
NEW YORK (CNNMoney.com) -- Seven banks were shut down by authorities Thursday, pushing the tally of failed banks for 2009 to 52, more than doubling the failures in 2008.
Six regional banks in Illinois and one in Texas closed their doors, according to the Federal Deposit Insurance Corporation.
Twelve banks in Illinois have failed this year. Thursday's failure in Texas was the first for the state in 2009.
Last year, 25 banks failed in the United States.
Local banks have been hard hit as plummeting home values devalued mortgage-backed assets and rising unemployment rates caused an increasing number of consumers to default on their loans.
By Catherine Clifford
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NEW YORK (CNNMoney.com) -- Seven banks were shut down by authorities Thursday, pushing the tally of failed banks for 2009 to 52, more than doubling the failures in 2008.
Six regional banks in Illinois and one in Texas closed their doors, according to the Federal Deposit Insurance Corporation.
Twelve banks in Illinois have failed this year. Thursday's failure in Texas was the first for the state in 2009.
Last year, 25 banks failed in the United States.
Local banks have been hard hit as plummeting home values devalued mortgage-backed assets and rising unemployment rates caused an increasing number of consumers to default on their loans.
By Catherine Clifford
Read Entire Article
Banks Own the US Government
There are smart ways to raise money and regulate the market, but Wall Street is working to kill any meaningful financial reform
(London Guardian) - Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.
After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.
More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.
Under these circumstances, it would be reasonable to think that the bankers would be keeping a low profile for a while. That's not the way it works in Washington. The banks are aggressively pushing their case in Congress and Obama administration. Not only are we not going to see bankruptcy reform, but any financial reform package that gets through Congress will probably contain enough loopholes that it will be almost useless.
In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.
This is why it was so encouraging to see congressman Peter DeFazio's proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% on trades in oil futures and options as a way to make up a shortfall in the federal government's highway trust fund. This tax could raise billions of dollars each year in revenue and make speculation in the oil market a more dangerous affair.
The logic is very simple. For someone using these markets to hedge, the tax will be inconsequential. For example, a farmer that hedges a $400,000 wheat crop will pay $80 when selling a future. Similarly, airlines that hedge by buying oil futures will barely notice the higher cost. In fact, because trading costs have fallen so much in recent decades, a tax at this level would just be raising costs back to their levels of two decades ago, a point at which there was already a very vibrant futures and options market.
However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.
Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.
This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.
The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.
Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.
Dean Baker guardian.co.uk, Tuesday 30 June 2009 18.00 BST Article history
Read Entire Article
(London Guardian) - Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.
After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.
More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.
Under these circumstances, it would be reasonable to think that the bankers would be keeping a low profile for a while. That's not the way it works in Washington. The banks are aggressively pushing their case in Congress and Obama administration. Not only are we not going to see bankruptcy reform, but any financial reform package that gets through Congress will probably contain enough loopholes that it will be almost useless.
In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.
This is why it was so encouraging to see congressman Peter DeFazio's proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% on trades in oil futures and options as a way to make up a shortfall in the federal government's highway trust fund. This tax could raise billions of dollars each year in revenue and make speculation in the oil market a more dangerous affair.
The logic is very simple. For someone using these markets to hedge, the tax will be inconsequential. For example, a farmer that hedges a $400,000 wheat crop will pay $80 when selling a future. Similarly, airlines that hedge by buying oil futures will barely notice the higher cost. In fact, because trading costs have fallen so much in recent decades, a tax at this level would just be raising costs back to their levels of two decades ago, a point at which there was already a very vibrant futures and options market.
However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.
Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.
This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.
The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.
Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.
Dean Baker guardian.co.uk, Tuesday 30 June 2009 18.00 BST Article history
Read Entire Article
Wednesday, July 1, 2009
Five More Banks Closed by Regulators
Five more banks were closed by banking regulators on June 26, bringing the total number of bank/credit union failures to 50 for 2009. Two banks in Georgia, one in Minnesota and two in California were shut down. Four were bought by other banks. The total assets of the five banks were just over $1 billion.
These five come on the heels of three banks closed on June 19.
The Federal Deposit Insurance Corporation (FDIC) paid out the insured deposits of Community Bank of West Georgia, Villa Rica, GA. The bank was closed by the Georgia Department of Banking and Finance. The failed bank had assets of $199.4 million and deposits of $182.5 million. The customers of the failed bank receiving direct deposits have been transferred to United Community Bank, Blairsville, GA. The estimated cost of the failure to the FDIC's Deposit Insurance Fund will be $85 million. Community Bank of West Georgia is the eighth Georgia bank to fail this year.
The second Georgia bank to fail was Neighborhood Community Bank, Newnan, GA. The Georgia Department of Banking and Finance closed the bank and appointed the FDIC receiver. The FDIC in turn sold the failed bank's deposits to CharterBank, West Point, GA. The four offices of Neighborhood Community Bank are now branches of CharterBank. The failed bank had $221.6 million in assets and deposits of $191.3 million. CharterBank agreed to purchase $209.6 million of assets. The bank and FDIC are in a loss-share agreement on $178.5 million of the failed bank's assets. The FDIC DIF cost will be $66.7 million. Neighborhood Community Bank was the ninth bank in Georgia to fail in 2009.
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The Horizon Bank in Pine City, MN was closed by the Minnesota Department of Commerce. The FDIC was named receiver. Stearns Bank, N.A., St. Cloud, MN has bought the failed bank's $69.4 million of deposits.
The two offices of Horizon Bank reopened on Saturday as branches of Stearns Bank, N.A. The failed bank had assets of $87.6 million. Stearns Bank will buy $84.4 million of the assets, $65.1 million of which will be covered under a loss-share agreement with the FDIC. The closure will cost the FDIC's DIF will be $33.5 million. Horizon Bank is the first bank to fail in Minnesota in 2009. The last bank to fail in the state was First Integrity Bank, N.A., Staples in 2008.
The two California banks that were closed on Friday were MetroPacific Bank, Irvine, and Mirae Bank, Los Angeles.
MetroPacific Bank was shut by the California Department of Financial Institutions, and the FDIC was appointed receiver. The failed bank's deposits were bought by Sunwest Bank, Tustin, CA and the failed bank's one office opened today as a branch of Sunwest. MetroPacific Bank had assets of $80 million and deposits of $73 million. The cost to the FDIC's DIF will be $29 million.
The California Department of Financial Institutions also shut Mirae Bank and appointed the FDIC as receiver. The failed bank's $362 million of deposits will be bought by Wilshire State Bank, Los Angeles, CA.
June 29, 2009 - Linda McGlasson, Managing Editor
Read Entire Article
These five come on the heels of three banks closed on June 19.
The Federal Deposit Insurance Corporation (FDIC) paid out the insured deposits of Community Bank of West Georgia, Villa Rica, GA. The bank was closed by the Georgia Department of Banking and Finance. The failed bank had assets of $199.4 million and deposits of $182.5 million. The customers of the failed bank receiving direct deposits have been transferred to United Community Bank, Blairsville, GA. The estimated cost of the failure to the FDIC's Deposit Insurance Fund will be $85 million. Community Bank of West Georgia is the eighth Georgia bank to fail this year.
The second Georgia bank to fail was Neighborhood Community Bank, Newnan, GA. The Georgia Department of Banking and Finance closed the bank and appointed the FDIC receiver. The FDIC in turn sold the failed bank's deposits to CharterBank, West Point, GA. The four offices of Neighborhood Community Bank are now branches of CharterBank. The failed bank had $221.6 million in assets and deposits of $191.3 million. CharterBank agreed to purchase $209.6 million of assets. The bank and FDIC are in a loss-share agreement on $178.5 million of the failed bank's assets. The FDIC DIF cost will be $66.7 million. Neighborhood Community Bank was the ninth bank in Georgia to fail in 2009.
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Need Help?
The Horizon Bank in Pine City, MN was closed by the Minnesota Department of Commerce. The FDIC was named receiver. Stearns Bank, N.A., St. Cloud, MN has bought the failed bank's $69.4 million of deposits.
The two offices of Horizon Bank reopened on Saturday as branches of Stearns Bank, N.A. The failed bank had assets of $87.6 million. Stearns Bank will buy $84.4 million of the assets, $65.1 million of which will be covered under a loss-share agreement with the FDIC. The closure will cost the FDIC's DIF will be $33.5 million. Horizon Bank is the first bank to fail in Minnesota in 2009. The last bank to fail in the state was First Integrity Bank, N.A., Staples in 2008.
The two California banks that were closed on Friday were MetroPacific Bank, Irvine, and Mirae Bank, Los Angeles.
MetroPacific Bank was shut by the California Department of Financial Institutions, and the FDIC was appointed receiver. The failed bank's deposits were bought by Sunwest Bank, Tustin, CA and the failed bank's one office opened today as a branch of Sunwest. MetroPacific Bank had assets of $80 million and deposits of $73 million. The cost to the FDIC's DIF will be $29 million.
The California Department of Financial Institutions also shut Mirae Bank and appointed the FDIC as receiver. The failed bank's $362 million of deposits will be bought by Wilshire State Bank, Los Angeles, CA.
June 29, 2009 - Linda McGlasson, Managing Editor
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About Me
Gabe Elton is a Gold and Rare Coin Specialist that has been working in the Precious Metals Industry since 1999. During his more than 10 year experience working with Gold, Silver and Rare Coins he has successfully placed over $15 Million in Rare Coins and Precious Metals acquisitions through his work with thousands of satisfied clients.
He is the author of our monthly Gold Specialist Exclusive Reports that cover economic issues and worldwide events relating to the Gold and Precious Metal industry. These reports are archived here on our site for our readers, You can find them under the category Gold Specialist Exclusive Reports.
Should you have any further questions or would like individual attention regarding the acquisition of Gold, Silver, Platinum or Rare Coins, do not hesitate to contact him. All of his contact information is listed under the "Contact Us" tab. You may also fill out the Request Information form and he will be glad to send you an investment package tailored to fit your needs.
Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. This sites content shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author.
He is the author of our monthly Gold Specialist Exclusive Reports that cover economic issues and worldwide events relating to the Gold and Precious Metal industry. These reports are archived here on our site for our readers, You can find them under the category Gold Specialist Exclusive Reports.
Should you have any further questions or would like individual attention regarding the acquisition of Gold, Silver, Platinum or Rare Coins, do not hesitate to contact him. All of his contact information is listed under the "Contact Us" tab. You may also fill out the Request Information form and he will be glad to send you an investment package tailored to fit your needs.
Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. This sites content shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author.