April 10, 2008
Elaine Meinel Supkis
Another day, another dollar vanishes. Woolfolk, a banker in NYC, says, recessions will be good. It will strengthen the dollar. But the only tool we have for balancing our way-out-of-whack trade is to have a weak dollar? This is the 'Horns of Dilemma' business all over again. People forget the various schemes and games we are playing in an effort to make things go up and up. Alas, the wrong things go up! Also, Goldman Sachs dumps a huge, huge pile of useless paper at a 37% discount. This burns the other pirates who had a conspiracy going to keep up appearances. And the Fed Reserve has given away 34% of its Treasury securities. The reserve with no reserves! Great. And GMAC teeters on edge of bankruptcy.
A recession may bode well for the dollar
"A U.S. recession is a positive for the dollar in the sense that expectations bottom with respect to the U.S. growth outlook and U.S. interest rates eventually bottom," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York."Expectations for strong U.S. growth and higher U.S. rates provide support for the greenback as trade and investment flows provide fundamental underpinning for a dollar rally," Woolfolk said.
Though the definition of recession can vary, during the acknowledged U.S. economic downturn of late 2000 into 2001 the New York Board of Trade's dollar index .DXY peaked in July 2001 at around 121.
By then the Federal Reserve had already cut the benchmark overnight interbank lending rate from 6.5 percent in May 2000 to 3.75 percent in May 2001.
While the conventional thinking is that lower interest rates reduce the attractiveness of dollar-denominated securities the dollar only began to fall from that peak as the Fed continued to cut rates to a 40-year low of 1.0 percent in June 2003.
Interest rates have nothing at all to do with the value of the dollar. Trade issues are everything. Europe is being hammered right now by all the other traders because they don't have a real central authority that can buy other nation's currencies and hold them in gigantic FOREX reserves! It is that simple. China and Japan, up to now, didn't mind the huge haircut they take when they hold US Treasuries that have almost no interest accruing. They make up for this in spades in global trade. Since much global trade is in dollars, this has been a plus-positive venture for both nations. But oil has shot up in price and this is causing increasing financial problems for both nations.
Below is a chart which, as usual, I heavily amended:
The plunge in the dollar's value wasn't due to recessions or anything. It was negotiated between the US and Germany and Japan who were both hammering us in global trade. So the US demanded they artificially revalue their currencies. Which they did. This slowed down the imports into the US a tad. But then Japan figured out a new scheme: holding dollars in their FOREX banking sector! Wow! It worked like a charm! Japan's trade surplus with the US shot through the roof!
China, seeing this, imitated Japan. China confirmed that this scheme worked. On top of this, China showed us that if a central bank isolates over a trillion dollars, trade shoots through the roof to over $200 billion surplus with the US. Right after other bankers---perhaps they read my blog---did the same and so global FOREX holding of dollars shot up. Since everyone wanted to hold, not trade, the cost of selling dollars has fallen and will continue to fall so long as our trade rivals are slaughtering us in global trade.
The hope in the US is, if we have a nasty recession, we can't buy stuff. Period. The other hope is, if Japan and China make their currencies stronger, then we will see them buying our stuff, whatever that is. HAHAHA. Like, we can ship our Hondas assembled by cheap US labor and ship it off to Japan! Yes! Great solution to our loss of sovereignty.
Fed Weighs Its Options in Easing Crunch
Before the credit crunch began in August, the Fed had $790 billion in Treasury securities on its balance sheet, about 87% of its total assets. Since then, it has sold or lent about $300 billion. In their place, the Fed has made loans to banks and securities firms to assist them in financing holdings of mortgage-backed and other securities. Some on Wall Street say the potential for further declines in Fed treasury holdings could leave it out of ammunition.The Fed holds assets to manage the nation's money supply and influence the federal-funds rate, which banks charge each other on overnight loans. When the Fed buys Treasurys or makes loans directly to banks, it supplies financial institutions with cash; in effect, it prints money. The cash ends up as currency in circulation or in banks' reserve accounts at the Fed.
Since reserves earn no interest, banks lend cash that exceeds their required minimum. That puts downward pressure on the federal funds rate, currently targeted by the Fed at 2.25%. The Fed could purchase securities and make loans almost without limit, expanding its balance sheet. That would cause excess reserves to skyrocket and the federal funds rate to fall to zero. The Fed would contemplate such "quantitative easing" only in dire circumstances. The Bank of Japan took this step this decade after years of economic stagnation.
Again, I change the chart a tad to show relationships:
One of my favorite beefs is, we have a Federal Reserve which is neither Federal nor has much in the way of reserves. The whole stinking point of the Fed is, they hold TREASURIES which they buy from our dear, departed Treasury. This legalizes the coup back in 1913. If the Fed didn't do this, it would be unconstitutional. But then, our leaders and the corrupt Supreme Court are traitors and have torn apart the Constitution relentlessly. Now the Fed Rez is handing out these same Treasuries like candy to a bunch of Halloween trick or tricksters. This army of begging vandals need endless finances so they can make these massive 'deals' which enrich them to obscene levels. Of course, the notion that they should not be paid for this ripping off of others, eludes everyone.
GMAC's Bank Unit Has a Problem
With bad news swamping GMAC LLC, potential problems at an obscure bank unit threaten to further sink the finance company's prospects and add to the woes of private-equity firm Cerberus Capital Management LLP, majority owner of GMAC.A technical snag at GMAC Bank LLC -- a small part of GMAC but crucial to its financial health -- has Cerberus attempting to salvage its ownership of the small Utah bank.
The banking system that was set up outside of the banking system is sinking like a rock. The three headed hell hound is howling. This feels like the ancient Norse tales of Fenrir the Wolf howling as Asgard collapses in flames. The Ice Giant's three daughters no longer churn the crank that pours out gold and are now cranking out salt. So everything is falling apart. And what is this 'technical snag'? I didn't get it from the short article and don't have access to the longer article. I suppose it is a typical 'off the books of the main entities' business coupled with 'we will park derivatives here and use this to hide losses.'
NO banking system can be healthy if they have nothing but bad loans. Bad loans don't default instantly except for the last year of housing boom loans which were utterly irresponsible. They went down into default in less than 4 months! No, in this case, the loans seemed OK but only if one never has a recession. But recessions come like clockwork. Smart bankers recognize this and hold sufficient reserves to protect themselves from this.
In the New World Order Banking System, this was tossed out in favor of derivatives protecting the bankers! They piled on derivative protection on top of each other forming the dread Derivative Beast. This thing can't protect anyone. If it ever heaves into view, it being bigger than the entire wealth of the world, it will annihilate everything. So it has to be hidden from view. I seriously don't know how this really works, all I know is, all financial matters come from this eternal cave where Death lives with his daughter, Miz Risky. And they feed dragons as pets and love destruction a lot.
So I am assuming this thing is one of their best pets, ever. Certainly, it has translated 'risk' into the biggest potential blow out, ever. Hats off to Miz Risky in this matter. She is one hot legged chick. Anyway, GMAC will now totally collapse because they INCREASED risk, not eliminated it. They fooled themselves. Fools and money don't last long together. Money tends to vanish when fools touch it.
Goldman sells $500 mln of Chrysler debt at very deep discount
Goldman Sachs placed $500 million of Chrysler Automotive's loans at a price of 63 cents Wednesday to an investor group that included hedge funds, a person familiar with the matter said.Those loans are trading between 64 cents and 66 cents at the moment, another person familiar with the matter said, indicating some demand for the debt at this deeply discounted price. At such a price, the yield on the debt is more than 20%.
JP Morgan, Citigroup, Morgan Stanley and Bear Stearns are also underwriting the Chrysler Automotive deal, but Goldman Sachs sold part of its stake independently of the syndicate. It's a practice that's becoming more common in the leveraged loan markets as banks look to trim their exposure to risky leveraged buyout debt that they have been stuck holding onto since the credit crunch erupted last summer.
It's also not the first time Goldman has broken away from this syndicate to sell Chrysler Automotive debt. The bank originally held about $1.6 billion of the $7 billion first-lien loan issued to finance Cerberus Capital Management LP's purchase of an 80% stake in Chrysler Group from DaimlerChrysler AG (DCX). According to a report by Standard & Poor's Leveraged Commentary & Data unit, Goldman had already sold about $300 million of that exposure.
There is no honor within a conspiracy of con artists! Note how Goldman Sachs bailed out on the others without warning. This should be a lesson to all of them: trust? HAHAHA. Pickpockets are more trustworthy. Of course, just like last month when GS boasted that they conned their investors into buying bad tranche waste paper while GS skated away with profits, so it is here: they will say, 'Aren't we the smartest people on earth?' Goodfellows, all. The three headed hell hound is being burned over and over again.
I remember when they first appeared. I warned everyone, anything that is proud of its attachment to Hell is dangerous. Miz Risky likes boyfriends like this canine creature. But anyone seeking security should avoid this like all hell, no? I think we should put Cerberus on the 'Old Yeller' death watch list. Who will put a bullet to its head? I can't wait to see.
Of course, the Fed will rescue this stupid offshore tax fraud organization. 'Too big to fail!' will be the excuse. Excuse me, but I would say, 'ARREST CERBERUS. Call the ASPCA.'
President Bush wants lenders to waive tenth of unpaid sum on 100,000 home loans
Washington stepped up its efforts to combat the housing crisis yesterday as the Bush Administration asked mortgage lenders to waive up to 10 per cent of the unpaid amount on 100,000 home loans and the US central bank worked on proposals to increase its lending capacity.The US Government is urging about 2,000 mortgage lenders to cut the value of some outstanding home loans, arguing that this would make it easier for the borrowers to repay the loans and so benefit the lenders by reducing the risk of a default.
Its target group is borrowers who have made some late payments in the past year but have solid credit ratings.
Furthermore, the Government is promising to guarantee any loan that a lender agrees to write down through the Federal Housing Administration (FHA), which would continue to make the payments if the borrower defaults.
Wow. Why can't all lenders get a free 10% haircut? This will fix many a financial problem. Back in time, when I used to do sales, I discovered the easiest people to sell things to were ones deep in debt. They would just pile it on. When I asked to see their financial papers, we would end up with me arguing with them to NOT BUY ANYTHING. But to get their affairs in order! I finally decided, it would make more sense to advise people in finances rather than drive them deeper into debt. The degree to which people were in debt BEFORE 9/11 was astonishing. Today, it is disgusting.
As I pointed out before, the lower the interest rates, the higher the debts. Except in Japan. There, the banks don't give out loans unless they are for invading foreign markets. So they have this 'depression' going on and on and on. While running the world's second biggest trade surplus and seeing GNP growth as well as inflation! All, at sub-1% interest rates. Which they want to drop so they can continue this business.
The FHA will end up underwriting as much as $25billion (£12.6billion) of mortgages, of which about a quarter will probably end up in default, said Brian Fabbri, chief US economist for BNP Paribas.
The reckless, stupid, greedy twits who made multi-billions in fees handing out mortgages that were impossible to pay back, won't take the haircut. No, the sheep that will be fleeced will be the US taxpayer. And this will be added to the mountain of debt we already can't carry and must sell to the Japanese and Chinese who are slaying us in international trade. And these things are CONNECTED. This is why I have to say, we are in a trap that gets worse, the more we try to escape the 'easy way'. The US has no savings. The Federal Reserve has ridiculously, dangerously low reserves compared to the rest of the planet as well as the size of our economy. Our banking system threw away the concept of reserves. Americans don't save, they spend. And the entire banking system here is beginning to collapse due to all this. Dropping interest rates KILLS SAVINGS.
As Volker keeps warning us, we need a basis of savings. Social Security taxes are enforced savings. But the flood of money flowing to there and then into the US budget deficit is going to end when the mass of baby boomers retire. And everyone knows this. Taxing the poor to keep this going is insanity. We can't get blood from stones. But certainly, squeezing blood from stones in order to save offshore tax haven banker who rip us off: this is INSANITY. Anyone doing this should be arrested.
We can NATIONALIZE these entities and leave the investors in these sick, disgusting piratical funds high and dry! Serves them right. If we are going to be the Soviet Union, we may as well collect the loot ourselves.
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