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The treasury department has taken steps to avoid further borrowing pending the debt limit increase Moody's has warned it may downgrade the US debt rating if Congress fails to increase the US debt limit in the coming weeks and risks default. The agency warned of political "entrenchment" preventing an increase. Republicans on Wednesday blocked a bill to raise the debt limit, demanding Democrats first agree to spending cuts. The US risks default if Congress does not authorise more borrowing by August. A downgrade would increase borrowing costs, slowing the economic recovery. The US runs a $1.5tr (£916.8bn) deficit and is...

When should we start to expect the "unexpected"? Every economic datum released in the last month has been dutifully reported as "worse than expected," from the various Federal Reserve regional economic surveys, initial claims for unemployment, plus every measure of housing activity, just to mention a few.

Government May Lose $16 Billion on Auto Bailout By JOSH MITCHELL WASHINGTON—The White House said Wednesday that taxpayers may never recover about $16 billion of the bailout money extended to the auto industry in 2008 and 2009, in a new report designed to tout the industry's turnaround from wide-scale bankruptcies. The White House released the report, "The Resurgence of the American Automotive Industry," ahead of President Barack Obama's trip Friday to a Chrysler Group LLC facility in Toledo, Ohio. The report said that of the $80 billion in bailout money for the industry, less than 20%, or $16 billion, may...

Washington – The Obama administration said Wednesday that the government will lose about $14 billion in taxpayer funds from the bailout of the U.S. auto industry. In a report from the president's National Economic Council, officials said that figure is down from the 60 percent the Treasury Department originally estimated the government would lose following its $80 billion bailout of Chrysler and General Motors in 2009. The report's release coincides with the administration's efforts to tout the bailout's role in the revitalization of the U.S. auto industry after last week's announcement that Chrysler is repaying $5.9 billion in U.S.

'Stagflation" is an ugly word for an ugly situation: persistent high inflation combined with high unemployment and stagnant demand in a country's economy. The term was coined by British politician Iain Mcleod in a speech to Parliament in 1965. We haven't experienced it here in the United States since the bad old days of the 1970s. Yet with prices on the rise and unemployment still high, the U.S. economy again seems to be entering stagflation. April's producer price index for finished goods, which excludes services and falling home prices, rose 6.8%. The Bureau of Labor Statistics reports that intermediate goods...

In an almost verbatim repeat of Carl Icahn's words of caution which we noted yesterday, Templeton's legendary chairman Mark Mobius said that "another financial crisis is inevitable because the causes of the previous one haven’t been resolved" ... at the Foreign Correspondents’ Club of Japan in Tokyo... "There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings...nothing in the structure of capital markets has changed,...

Quantitative Easing QE3 Is On Its Way, Inflation Will Go Through The Roof Mar 30, 2011 - 12:37 PM By: Bob Chapman QE3 is on the way accompanied by almost zero official interest rates. QE1 was to bail out the financial sectors in the US and Europe and QE2 was to bail out US government debt. That is why the Fed has purchased 70% to 80% of Treasuries. Previous debt and the $1.6 trillion of new debt created this year means someone has to buy that debt and there are very few buyers. That means the Fed has to buy...

Over Half PD Holdings In Under Two Weeks Today's POMO closed with the Fed monetizing its usual fare of $6.69 billion in various 3 Year bonds, at a 5.81 Submitted-Accepted ratio. The surge in the S/A ratio is not surprising: a quick look at the internals shows just what the reason for the Primary Dealers' urgency was. Of the entire POMO, one CUSIP: the just auctioned off QH6 3 Year which was sold by the Treasury not even 2 weeks s. Of the entire POMO, one CUSIP: the just auctioned off QH6 3 Year which was sold by the Treasury...

No wonder Geithner called in all the Treasury secretaries for a dinner meeting this past Sunday. The Federal Reserve has surpassed China as the leading holder of US Treasury securities even though it has yet to reach the halfway mark in its latest round of quantitative easing, according to official figures. Based on weekly data released on Thursday, the New York Fed’s holdings of Treasuries in its System Open Market Account, known as Soma, total $1,108bn, made up of bills, notes, bonds and Treasury Inflation Protected Securities, or Tips, reports FT. According to the most recent US Treasury data on...

Deep inside the Federal Reserve Bank of New York, the $600 billion man is fast at work. In a spare, government-issue office in Lower Manhattan, behind a bank of cubicles and a scruffy copy machine, Josh Frost and a band of market specialists are making the Fed’s ultimate Wall Street trade. They are buying hundreds of billions of dollars of United States Treasury securities on the open market in a controversial attempt to keep interest rates low and, in the process, revive the economy. To critics, it is a Hail Mary play — an admission that the economy’s persistent weakness...

... My perspective, as with those of all other members of the FOMC, was given a thoughtful and fair hearing at the table. After deliberation, the majority of the committee concluded that under current and foreseeable conditions, the better approach was to purchase $600 billion in Treasuries between now and the end of the second quarter of next year, on top of the amount projected to replace the paydown in mortgage backed-securities. The math of this new exercise is readily transparent: The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit...

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The Keynesians finally got their wish. The Federal Reserve plans to inject $600 billion dollars of the most caustic debt imaginable into the economy. This is the Agent Orange of monetary policies that has the potential to wreak financial havoc. In the hope of generating inflation, the central bank is going to enable deficit spending by buying treasury bonds. You read that correctly; the primary goal is to erode the value of the dollar, and we get to watch our currency and wealth literally dissolve before our eyes. Only a desperate government would consider debasing its own currency. The resulting...

There's one good thing that'll come out of the Federal Reserve's likely decision tomorrow to create more money so it can continue sham purchases of government debt. It's this: if Washington continues to monetize our country's liabilities in this way, we will no longer need the Bureau of Printing and Engraving -- a considerable cost savings. Yep, keep this up and US dollars will soon be supplied by Charmin. And this has worked pretty damn well. In fact, assets coming into the dollar from around the world have made the US economy the strongest, most resilient one ever on this...

Educational video about debt monetization.

"If The US Can Do It, So Can We": Japan To Keep Pumping Cash And Monetizing Debt Until Deflation Goes Away Submitted by Tyler Durden on 02/22/2010 00:17 -0500 And with that Japan joins the competitive devaluation currency race, in which both the SNB and Federal Reserve have a substantial head start (the euro and the fat Brussels bureaucrats are in a ouzo daze, with no clue what the hell is going on). Speaking before lawmakers BOJ governor Masaaki Shirakawa, who recently said Japan was powerless to fight deflation on its own, has changed his tune, and today said that...

Minneapolis Fed's recently appointed president Narayana Kocherlakota had his first public speech before the Minnesota Bankers Association. His remarks on the economy were significantly much more cautious than some of the other Bernanke sycophants. While the Fed President espouses the need for bank regulation by the Fed (to be expected, the inverse would be equivalent to mutiny), Kocherlakota is much less sanguine than his Fed colleagues about the prospects for the $1+ trillion in excess reserves and how these may lead to (hyper)inflation in the future. His remarks that the only way to fix the debt excesses: increased taxes and...

In the current hodge podge of abstract finance, it is easy to get lost in the numbers and lose sight of the forest for the trees. Which is why we provide the ultimate simplification: In calendar (not fiscal) 2009, the US grew its budget deficit by $1.47 trillion. In the same time, the Federal Reserve grew its securities holdings from $500 billion to $1.85 trillion, a $1.34 trillion increase. Keeping it simple: 91% of the budget deficit increase in 2009, under the authority of President Obama, was funded by the... United States.

Sprott Asset Management has "pulled forward" something I intended to cover in my "year end review" Ticker but since he's put it out there I think I need to cover it now: As a thought experiment, we separated all the various US Treasury owners and asked our readers whether each group could afford to increase their 2009 treasury purchases by 200%. In the end, we surmised that most groups couldn’t, and prepared our readers for the worst. Almost seven months later, however, nothing particularly bad has happened on the US debt front. There have been no failed auctions, no sovereign...

... I don’t think many people grasp just how much job creation we need to climb out of the hole we’re in. You can’t just look at the eight million jobs that America has lost since the recession began, because the nation needs to keep adding jobs — more than 100,000 a month — to keep up with a growing population. And that means that we need really big job gains, month after month, if we want to see America return to anything that feels like full employment. How big? My back of the envelope calculation says that we need...