Democratic lawmakers talking tough. They want China labeled a 'Currency Manipulator'. Another conversion of Chinese USD reserves is rumored to be planned for this week. One of these shifts will eventually provoke a stampede for the exits in the currency markets.

reuters wrote:While Baucus and Schumer focused their remarks on the need for China to act on U.S. trade concerns, Rep. Sander Levin, a Michigan Democrat, said Congress and the Bush administration need to take several steps.

Democrats will again ask the U.S. Trade Representative's office to formally challenge China's currency practices at the World Trade Organization even though USTR has rejected that request a number times in the past, Levin said.

Lawmakers will also reintroduce legislation requiring the Commerce Department to consider China's "currency manipulation" as a subsidy under U.S. trade laws so companies can apply for countervailing duties to offset it, Levin said.

Levin also urged the Treasury Department to formally label China as a currency manipulator in a semiannual report that is now two months overdue.

Obviously, Bernanke and Paulson were sent to Beijing to calm the Chinese, but what if the Chinese recognize that a new Congress will seek to make their exports less affordable in the US? China can retaliate by reducing their purchases of US debt. The US can retaliate by striking Iran, a significant business partner with China.

Might be a very active week ahead in the commodities and metals markets as well.

Am I still a conspiracy theorist for posting about these deficits? It's the Treasury's own report. The numbers do not lie. I know, they're so large, they seem fictional, but think of it this way: every dollar in circulation was generated by a loan. A dollar is a debt instrument. Do you expect the banks to walk away from loans like these?

You are the collateral.

financial sense wrote:
THE UNITED STATES IS INSOLVENT
by Dr. Chris Martenson
The End of Money
December 17, 2006

Prepare to be shocked.

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our federal deficits alone now total more than 400% of GDP.

That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare. Sometimes I wonder why the Treasury Department doesn’t just pay somebody to come in at 4:30 am Christmas morning to release the report. Additionally, I’ve yet to read a single account of this report in any of the major news media outlets but that is another matter.

But, hey, I understand. A report this bad requires all the muffling it can get.

In his accompanying statement to the report, David Walker, Comptroller of the US, warmed up his audience by stating that the GAO had found so many significant material deficiencies in the government’s accounting systems that the GAO was “unable to express an opinion” on the financial statements. Ha ha! He really knows how to play an audience!

In accounting parlance, that’s the same as telling your spouse “Our checkbook is such an out of control mess I can’t tell if we’re broke or rich!” The next time you have an unexplained rash of checking withdrawals from that fishing trip with your buddies, just tell her that you are “unable to express an opinion” and see how that flies. Let us know how it goes!

if you want a .pdf of the full report, here you go

if you want a .pdf of Walker's accompanying statement, here you go

great article on the dollar as ticking time bomb, from Stocks, Futures and Options magazine, July 2006

The author of the above article called for the dollar to finish 2006 at $1.32 to the Euro. With two weeks left, he's within a penny of being right. He concludes his article with this warning:

T
The timing of significant dollar weakness in the future remains highly uncertain and unpredictable. Few economists or currency experts are predicting an imminent dollar crisis given the recent foreign appetite for American securities. Nevertheless, modern investment portfolio theory advocates diversification, which suggests that eventually the enthusiasm of investors for dollar assets will wane and the dollar will slide downward. The esoteric subject of U.S. balance of payments problems receives little attention in the financial press; however, some economists warn escalating U.S. trade deficits constitute a ticking time bomb that will eventually destabilize the world’s financial markets.

Third quarter trade deficit broke the record again.

Some new data on household debt load ( click on them to make them more legible ):




How much cash on hand do households have to pay off their debts? The answer is – a record low amount.

This is where the US savings situation – which is essentially a savings crisis – really comes into play. Just for the sake of argument, suppose a homeowner has an adjustable rate mortgage (not that anyone would ever consider that option). Now suppose the payments on that ARM increase at a high rate. Does the homeowner have the necessary savings to make the payment? The answer is maybe not. And that’s a huge problem. It implies that if there is a sudden shock to the US economy that causes a drastic slowdown (like a lot of central banks dumping dollars because of a record trade deficit), homeowners will be scrambling to make their payments.

clocker bob wrote:A report scheduled to be released by the Treasury Department tomorrow is expected to show the true deficit in the Bush administration's 2006 federal budget to be an astounding $3.5 trillion in the red, not $248.2 billion as previously reported.
...The United States is bankrupt, whether the Bush administration wants to admit it or not."

Jesus. I read somewhere that the legal maximum cap for US debt (whatever that means) was $750 billion. Overshot that cap by a mile, I guess.

Looks like Bush is ransacking the Treasury and using currency to wipe his ass. Nothing he does surprises me anymore. If someone reported that he and Cheney were eating live babies in some kind of blood orgy, I wouldn't be surprised.

rocker654 wrote:
Looks like Bush is ransacking the Treasury and using currency to wipe his ass.

It's asset stripping, predatory capitalism as practiced by us in Latin America, etc., now used against us by these wolves and their European cabal of bankers. It's maintaining market calm with bottomless liquidity while real assets like land and infrastructure ( privatized highways under Spanish ownership? ) and manufacturing ( all the automakers are in merger play ) are sold off, like a stage curtain concealing the set change. The Medicare and SS funds are pits of IOU's. The New Deal is dead, look at the corpse.

Soon, the US dollar will give way. Either the dollar falls to reflect the swollen money supply, or the financing cost of the debt sends interest rates soaring.

Reported by Bloomberg News this morning:

Global Markets Face `Severe Correction,' Faber Says

By Ian C. Sayson and Pimm Fox

Jan. 8 (Bloomberg) -- Marc Faber, who predicted the U.S. stock market crash in 1987, said global assets are poised for a ``severe correction'' and it's time to sell.

``In the next few months, we could get a severe correction in all asset markets,'' Faber said in an interview with Bloomberg Television in New York. ``In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate.''

Faber, founder and managing director of Hong Kong-based Marc Faber Ltd., advised investors to buy gold in 2001, which has since more than doubled. His company manages about $300 million in assets.

BEIJING: The United States has urged China to reconsider a reported multibillion dollar (euro) natural gas deal with Iran amid international efforts to sanction Tehran for its nuclear programs, a U.S. Embassy spokeswoman said Tuesday.

Given the sanctions and Tehran's continued defiance, "We think this is a particularly bad time to be initiating major new commercial deals with Iran," U.S. Embassy spokeswoman Susan Stevenson said in an e-mail.

China has tread a careful line on Iran. Though worried about nuclear proliferation and wary of crossing swords with the U.S. superpower, Beijing is obsessed with securing energy supplies for its resource-scarce economy, and Iran is a willing supplier.

China holds one trillion US dollars in their central bank reserves.

Foreign ownership of U.S. debt has increased by 88 percent since 2001.

U.S. taxpayers send approximately $89 billion overseas each year to pay off interest on foreign-held debt.

From the Brunei Times:

Gulf Arab oil producers are reviewing currency pegs to the falling dollar and could decide as early as March whether to keep or change their exchange rate regime, the United Arab Emirates central bank said. Governors of the six Gulf central banks will meet in March in Saudi Arabia and may agree to switch to another currency or currency basket, Governor Sultan Nasser al-Suweidi said.

OK, Bob-

I just ran a meeting at the local $200.00+-a-steak steakhouse where several major brokers in town discuss their predictions for the upcoming year. A barely mentioned, but very stoically grimaced at point made at this meeting was that over 50% of mortgages are expected to be reset in the very near future. This is being discussed seriously, by professionals in the industry...in the same room with me.

Luckily, I don't own any real estate whatsoever. I can honestly say that I'm worried about the folks, though.

Then again, I don't know anything about what the hell I'm talking about, really. My knowledge of modern finance, other than what I actually see happening, is slight and mostly informed by lefty media activists.

Yikes.

rayj wrote:OK, Bob-

I just ran a meeting at the local $200.00+-a-steak steakhouse where several major brokers in town discuss their predictions for the upcoming year. A barely mentioned, but very stoically grimaced at point made at this meeting was that over 50% of mortgages are expected to be reset in the very near future.

This is from the Telegraph UK, 1/16.

The US Federal Reserve will need to slash interest rates three times this year as the housing slump goes from bad to worse and the American consumer begins to buckle, Goldman Sachs has warned.

"Americans have shown a complete lack of self-control. The personal savings rate is at its lowest point ever, and has actually been negative since April 2005.

"We believe that housing will soon become the proverbial 'straw that breaks the camel's back'," said David Kostin, the investment bank's US strategist.

Goldman Sachs said homeowners had treated windfall gains from rising house prices as if they were "recurring income", using home equity withdrawls to subsidize over-stretched lifestyles. This artificial boost to spending has already dropped from 7pc to 4pc of GDP over the last year, and is likely to halve again in 2007.

I think it is impossible for the Fed to cut rates three times next year- foreign creditors are balking at buying our debt at the 5% yield offered now. If the foreclosures and reset ARM's snowball, the harsh reality is that the US economy is will sacrifice those people as homeowners. They were lured into these homes when Greenspan dropped the rates 21 times after the NASDAQ crash in '00-'01, the last time the big wrecking ball swung perilously close to the US dollar. These poor folks will be cut off at the knees, just like family farmers were when the banks saddled them with debt they should have never assumed- little did they know that the bankers were conspiring with the agri-giants to make their crops and livestock uncompetitive in the global market. When the family farmers defaulted on their loans, the banks swooped in and resold the land to Monsanto and ConAgra and ADM, et al.

The only product bankers have to sell is debt. It's a great product, because all you have to do is write it down on a piece of paper, and presto, debt for sale. If American homeowners default on their homes, the banks will take over the properties and resell the homes ( along with new debt ) to new customers.

This article explains the housing bubble better than I can. It also explains why the press, especially newspapers, is reluctant to be the bearer of bad news on housing- they are heavily dependent on advertising from banks and realtors. It's not much different on TV and radio- if you listen to news talk radio, what do you hear for ads all day long? Spots for refi's and ownacondo.com and other credit fix bullshit.

Ty Webb wrote:

that damned fly wrote:
and i still haven't found the word for when paranoia is right.

people keep telling me suspicion, intuition, premonition...

Probability...

I'll go a little farther here. A good friend of mine says "Total paranoia equals total awareness."

Of course I cannot live in that state, myself, so I just coast along in a state of shellshocked extreme cognitive dissonance/whatever other semiarmchair psychologist catchphrases play the equivalent.