Skip to comments.US losing confidence vote as investors flee
Posted on 03/16/2008 8:58:36 PM PDT by bruinbirdman
As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures.
Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed."
The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns.
Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies.
It is not my view. I believe the forces of debt deflation now engulfing America - and soon half the world - are so powerful that nobody will be worrying about inflation a year hence.
Yes, the Fed caused this mess by setting the price of credit too low for too long, feeding the cancer of debt dependency. But we are in the eye of the storm now. This is not a time for priggery.
The Fed's emergency actions are imperative. Last week's collapse of confidence in the creditworthiness of Fannie Mae and Freddie Mac was life-threatening. These agencies underpin 60pc of the $11,000bn market for US home loans.
With the "financial accelerator" kicking into top gear - downwards - we may need everything that Ben Bernanke can offer.
"The situation is getting worse, and the risks are that it could get very bad," said Martin Feldstein, head of the National Bureau of Economic Research. "There's no doubt that this year and next year are going to be very difficult."
Even monetary policy à l'outrance may not be enough to halt the spiral. Former US Treasury secretary Lawrence Summers says the Fed's shower of liquidity cannot cure a bankruptcy crisis caused by a tidal wave of property defaults.
"It is like fighting a virus with antibiotics," he said.
We can no longer exclude a partial nationalisation of the American banking system, modelled on the Nordic rescue in the early 1990s.
But even if you think the Fed has no choice other than to take dramatic action, the critics are also right in warning that this comes at a serious cost and it may backfire.
The imminent risk is that global flight from US Treasury and agency debt drives up long-term rates, the key funding instrument for mortgages and corporations. The effect could outweigh Fed easing.
Overall credit conditions could tighten into a slump (like 1930). It's the stuff of bad dreams.
Is this the moment when America finally discovers the meaning of the Faustian pact it signed so blithely with Asian creditors?
As the Wall Street Journal wrote this weekend, the entire country is facing a "margin call". The US has come to depend on $800bn inflows of cheap foreign capital each year to cover shopping bills. They may have to pay a much stiffer rent.
As of June 2007, foreigners owned $6,007bn of long-term US debt. (Equal to 66pc of the entire US federal debt). The biggest holdings by country are, in billions: Japan (901), China (870), UK (475), Luxembourg (424), Cayman Islands (422), Belgium (369), Ireland (176), Germany (155), Switzerland (140), Bermuda (133), Netherlands (123), Korea (118), Russia (109), Taiwan (107), Canada (106), Brazil (103). Who is jumping ship?
The Chinese have quickened the pace of yuan appreciation to choke off 8.7pc inflation, slowing US bond purchases. Petrodollar funds, working through UK off-shore accounts, are clearly dumping dollars amid rumours that Gulf states - overheating wildly - are about to break their dollar pegs. But mostly likely, the twin crash in the dollar and US agency debt reflects a broad exodus by global wealth managers, afraid that America is spinning out of control. Sauve qui peut.
The bond debacle last week tallies with the crash in the dollar index to an all-time low of 71.58, down 14.6pc in a year. The greenback is nearing parity with the Swiss franc - shocking for those who remember when it was 4.375 francs in 1970. Against the euro it has hit $1.57, from $0.82 in 2000. Against the yen it has smashed through Y100. Spare a thought for Toyota. It loses $350m in revenues for every one yen move. That is an $8.75bn hit since June. Tokyo's Nikkei index is crumbling. Less understood, it is also causing a self-reinforcing spiral of credit shrinkage throughout the global system.
Japanese investors and foreign funds are having to close their yen "carry trade" positions. A chunk of the $1,400bn trade built up over six years has been viciously unwound in weeks. The harder the dollar falls, the further this must go.
It is unsettling to watch the world's reserve currency disintegrate. Commodities from gold to oil and wheat are taking on the role of safe-haven "currencies". The monetary order is becoming unhinged.
I doubt the dollar can fall much further. What is it to fall against? The spreading credit contagion will cause large parts of the globe to downgrade in hot pursuit - starting with Europe.
Few noticed last week that the Italian treasury auction was also a flop. The bids collapsed. For the first time since the launch of EMU, Italy failed to sell a full batch of state bonds.
The euro blasted higher anyway, driven by hot money flows. The funds are beguiled by Germany's "Exportwunder", for now. It cannot last. The demented level of $1.57 will not be tolerated by French, Italian and Spanish politicians. The Latin property bubbles are deflating fast.
The race to the bottom must soon begin. Half the world will be slashing rates this year to stave off credit contraction. The dollar will have a lot of company. Small comfort.
To: Mullah Omar
From: Osama bin Laden
Folder: Deleted File (Recovered)
Date: October 3, 2001
...I would like to emphasise the major impact of your statements on the Islamic world. Nothing harms America more than receiving your strong response to its positions and statements ... Newspapers mentioned that a recent survey showed that seven out of every 10 Americans suffer psychological problems following the attacks on New York and Washington ... Keep in mind that America is currently facing two contradictory problems:
(a) If it refrains from responding to jihad operations, its prestige will collapse, thus forcing it to withdraw its troops abroad and restrict itself to US internal affairs. This will transform it from a major power to a third-rate power, similar to Russia.
(b) On the other hand, a campaign against Afghanistan will impose great long-term economic burdens, leading to further economic collapse, which will force America, God willing, to resort to the former Soviet Union’s only option: withdrawal from Afghanistan, disintegration and contraction.
Thus our plan in the face of this campaign should focus on the following:
Serving a blow to the American economy, which will lead to:
(a) Further weakening of the American economy.
(b) Shaking the confidence in the American economy. This will lead investors to refrain from investing in America or participating in American companies, thus accelerating the fall of the American economy...
Conducting a media campaign to fight the enemy’s publicity. The campaign should focus on the following important points:
Attempt to cause a rift between the American people and their government, by demonstrating the following to the Americans:
That the US Government will lead them into further losses of money and lives.
That the Government is sacrificing the people to serve the interests of the rich, particularly the Jews.
That the Government is leading them to the war front to protect Israel and its security. America should withdraw from the current battle between Muslims and Jews.
This plan aims to create pressure from the American people on their Government to stop its campaign against Afghanistan, on the grounds that the campaign will cause major losses to the American people...
Peace upon you and God’s mercy and blessings.
Osama Bin Mohammed Bin Laden
I agree that the best method of stock investing is to buy a constant amount of money regulary. As you said: “It all averages out.”
No but wait! We must see two quarters of negative growth! My small pharma marketing business forecasted $90k in January factoring in poor financials. We did $56k. For last month, we forecasted $130k. We did $34k. I can’t keep people on staff and will shrink from 11 employees to four. Can’t get an increase on our LOC, our back is close to insolvent, but is feeling Central Bank bailout may help. Yeah right. Your right, we had better get used to depression, because the economy must contract A LOT MORE to even have foreigners buy up the land. We’re going to have a role reversal where our China, India and EU nations use the U.S. to outsource and begin putting manufacturing plants here. That will help at some point but we will be a 2nd class nation for a decade before we have created our own energy supply and fixed the financial mess. Sad, so many responsible Americans go broke while so few become fab wealthy. I guess I will drive one of their cars or dig in their gardens one day to eat. Just like a Mexican, but they will get government freebies and be actually earning far more in net income.
Well since your Christian, it leads to another world war, just like then. Too bad countries have nukes. Sounds like Revelations to me and the great tribulation. The good news is that 1,000 years of peace come afterward, although half the population won’t be around to see it.
“May the game of crap-on-your-neighbor backfire. We need new blood in US business.”
You got that right! My neighbors are in Maine, we help each other out already and we have guns and the woods. We’ll convert the old paper mills and use coal to create biodeisel and help out other uppity states.
Umm, we are a global community these days. International investors NOT investing in our financial system is so bad in so many ways I don’t have time to explain it. The Arabs will soon be decoupling from the U.S. dollar. The commodities world all driving up the oil will collapse (and your talking entire States now seeing safety there) and then the true price of a barrel will be $200 because it will cost that much more dollars to import it at that point. $7 gallon gas, $5 a loaf of bread.
I am stocking up on ammo and things to make me more comfy in the woods while most Americans wait for their weekly delivery of yellow cheese and wheat pasta.
This is serious shit and I spent several months preparing financially because back then I told neighbors chance of recession was 100% AND if the U.S. gov did not begin a massive program of energy independance and subsidizing of millions of jobs toward energy dependance we would have a depression. What did the Fed & Treasury do? Bail out the rich guys club of Central Banks whom are not lending to businesses to grow the REAL economy. Now, chance of depression is 100%.
Slapped by whom? They run the show. Yell at them all you want while you eat peanut butter and bread. They will still be eating steaks talking about ‘inflation is well anchored’.
Posted by JDoutrider to B-Chan On News/Activism 03/14/2008 12:24:57 AM PDT · 24 of 37 As I posted on another thread, I completely finalized withdrawing from Stocks last Friday. Cash is indeed King, and more folks will realize this in the next six months. It would be prudent for them to withdraw a substantial amount out of "whatever" and do what I have been doing. Even setting aside a small amount (grand a month in twenties until this problem levels out) could be a life saver if the S.H.T.F! There is no way to know what may happen...But!...just like having a gun, better to have it and not need it, than need it and not have it!!!
Hope that helps...
I would suggest it, but then I will be paying more for heating oil and gas...
Spread them out in different accounts to $100k, what is guaranteed by FDIC. If the banks fail at this point, we are all really screwed...
All except Russia which will resurface as allies with the other Arabs as the new monetary standard. Ever hear of mark of the beast? But don’t get too afraid, the beast goes off into destruction and 1,000 year reign of peace ensues. Of course 1/2 of mankind goes with it...
I’ve seen a LOT of these “end of the world”, “Great Depression”, “the sky is falling” financial threads on Free Republic since I started reading here in 1998. Eventually several posters would chime in that it’s “not that bad” and we’ll be just fine.
This is the first thread I’ve seen in 10 years that is unanimous that the economy is in real trouble.
Your eschatology (view of end times) is dispensational premillenialist. I’m a postmillenialist. While the current days are scary, I don’t believe they will end in the way you believe they will end.
>> I am sure Ben is a nice enough guy and all, he lookes pained in the pic above
I am financially responsible, debt free, with cash in the bank.
Ben has my balls in a vise. You think he looks pained, you should see the expression on MY face! :-0
Hope he really is a nice guy and all... easy on that vise-handle, Ben! Thanks in advance!
>> “Buy gold & silver (Everbank offers those accounts.) Gold will stay a valid currency” => “Oil just hit 111.48 on NYMEX. Buy oil.”
I think — hope! — that was tongue in cheek. Yes?
>> We’re all gonna die!!!!
Yeah, someday. Right now I’m just focused on the pain in my ‘nads.
But congratulations! Of all the financial prognostications, bluster, and hyperbole on this thread, yours is the ONLY one that is one hundred percent correct!
It sucks being right all the time.
That $870 billion is going to cover a lot of military expenditures.
I put it more at about 200%.
We now know where you are, and we have tanks.
Good luck with that.
Quit whining -- learn to deal with it like the rest of us know-it-alls.
And that slouch towards socialism prolonged the depression into a ten year disaster that only a world war could shake us loose from. And guess what? Into all this congress is poised to raise our taxes! That's sure to help things!
Those of us who experienced them never even thought about connecting such things as "life and death" -- the idea that it meant a choice between life and death never even occurred to us. What a silly notion.
It was just a cycle. We talked about it.
We knew it was just a cycle. Times for some of us would be tough for awhile and then back to work.
Our parents handled the Depression and W.W.II the very least we could do is handle a little stagflation (for example).
Some hedge funds are incorporated in the Caymans.
Soros big fund (Quantum?) has been incorporated since forever in Cayman or Bahamas
Lots of the newer ones too.
Wow.... Your tagline says you turned into a goldbug
No it doesn’t. This tagline would mean I was a goldbug.
Now you are goldbug. If you can’t beat ‘em join ‘em
Along those lines...could someone refresh my memory re: why the Clinton surplus wasn't really a surplus?
Because I know I'm going to start hearing, "Well...when Clinton was prez he had a surplus...look at what Bush did!"
Because it included the Social Security surplus. Without Social Security money, his budgets were all in deficit.
Expect pullbacks in the $ price of gold to be the 20-30% range frequently. The volatility (of the value of the fiat) will be huge just like in the 1970s.
Gloabl de-leverageing and the hedge funds unwinding commodites trades they have ridden for years.
You mean gold could become a semi precious metal?
Never! It's the only real money. It's the answer to all our problems.
An ounce of gold has always been enough to buy a new suit and a nice pair of shoes.
What is the equivalen amount of wheat contracts?
I care. I can't eat silver.
A friend of mine was interviewing for a sales job at Kidder Peabody about 1983. He was telling the boss that he had some terrific technical work. The Boss asked him where bonds were going. My friend answered: "up". The boss got on the phone and, very loudly, gave an order to buy 10 bond futures contracts for his personal account.
He hung up the phone and told my friend: "They'd better. I'll call you in two weeks about the job."
I'm talking about the top of a secular commodities trend a few years from now
Yup. Then his “technical genius” got fouled up, he lost a bunch of money for an institutional client, and he got fired and sued. LOL.
How do you believe they will end? We will all submit our ahthority to a one world government when 1/2 the globe doesn’t believe in freedom and helping his neighbor? Great and good change always comes from pain. While I would love to think we can solve our own problems without pain, history shows us otherwise. We are not that bright of a species but feel we’re masters of the universe. How long did it take modern man to invent the wheel? 80,000 years?!?!
Their is a quite a gun you can buy for $2,800 on the market, right now. It kills tanks. Why, you going to be the new Bob Dole coming in to keep us down? LOL. Yes, it is going to be a bitch. The ‘Greatest Generation’ went from a bunch of drunk binge partyers of the Roaring Twenties, to the best leadership on earth man has ever seen by the end of WWII. I prefer to learn from the lessons of history but unfortunately, I am a minority.