My comment: Finally, people are starting to realise how much fragile is the whole situation and where is the crucial and weaker chain link that will break the chain and make that this economy, that is floating on thin air, to collapse. As we could see since some years ago it is the US dollar and based on Federal deficits.
Geithner Vows to Cut U.S. Deficit on Rating Concern (*). Not easy to be a decission maker in USA nowadays, in particular someone like Geithner whose first speech was to insult the only partner on earth that could have saved his ass. He is right, once Californians told that they do not accept higher taxes, once China will not expand US treasuries acquisition, he has no option but to cut deficits. In fact, they have no option since decades ago. However, the global role of US dollar and therefore the safety of US bonds, allowed US authorities to use the greenback printing machine as the main remedy for US economy sickness. Now, that remedy does not work any more. Only lack of ethics, or lack of professional skills, or corruption among rating agencies allowed US treasuries to remain qualified AAA. Same rating agencies that qualified AAA to some financial institutions one day before their bankruptcy in October 2008. That sorts of shameless jokes are over. Step by step US treasuries are going to lose that rate, that status that obviosuly they do not deserve if it is based on economic reasons. This is going to be one of the major milestones in the change of civilization model that is happening along few decades. Risk rates directly apply to asset value. If one invests $100 in one particular asset that is qualified AAA that person can say that his/her asset is $100 worth. If that person invests on BBB, his/her asset is just $90 worth and therefore he/she requires higher reward in terms of profitability. >From a different perspective. If one has $100 invested in an AAA asset and that asset becomes BBB, that investor loses $10 from one minute to the next one. Obviously, investors will flee from such asset. US dollar and US treasuries directly relate each to other. What means that one will need more and more US dollars to acquire the same amount of anything being that gold, food, or clothes. In other words hyperinflation. Any nightmare scenario is now posible. As some economists told since some years ago, US economy looks more and more like Weimar´s republic in Germany that caused the Great depression or Argentina´s corralito. Now speeches, propaganda, scapegoats, fake promises can convince some cautionless investors for a while. But not forever. It is sad to know that all this could have been prevented. Peace and best wishes. Xi (*) http://www.bloomberg.com/apps/news?pid=20601087&sid=au5M0WphL81g&refer=home May 22 (Bloomberg) -- Treasury Secretary Timothy Geithner committed to cutting the budget deficit as concern about deteriorating U.S. creditworthiness deepened, and ascribed a sell-off in Treasuries to prospects for an economic recovery. “It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television yesterday. He added that the target is reducing the gap to about 3 percent of gross domestic product, from a projected 12.9 percent this year. The dollar extended declines today after Treasuries and American stocks slumped on concern the U.S. government’s debt rating may at some point be lowered. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade. Geithner, 47, also said that the rise in yields on Treasury securities this year “is a sign that things are improving” and that “there is a little less acute concern about the depth of the recession.” The benchmark 10-year Treasury yield jumped 17 basis points to 3.36 percent yesterday and was unchanged as of 12:18 p.m. in London. The Standard & Poor’s 500 Stock Index fell 1.7 percent to 888.33 yesterday. The dollar tumbled 0.5 percent today to $1.3957 per euro after a 0.8 percent drop yesterday. Gross’s Warning Gross said in an interview yesterday on Bloomberg Television that while a U.S. sovereign rating cut is “certainly nothing that’s going to happen overnight,” markets are “beginning to anticipate the possibility.” Nobel Prize-winning economist Paul Krugman, speaking in Hong Kong today, nevertheless argues it’s “hard to believe” the U.S. would ever default. Britain’s AAA rating was endangered when Standard & Poor’s yesterday lowered its outlook on the nation’s grade to “negative” from “stable,” citing a debt level approaching 100 percent of U.K. GDP. It’s “critically important” to bring down the American deficit, Geithner said. In its latest budget request, the administration said it expects the deficit to drop to 8.5 percent of GDP next year, then to 6 percent in 2011. Ultimately, it forecasts deficits that fluctuate between 2.7 percent and 3.4 percent between 2012 and 2019. Early Stages Ten-year Treasury yields have climbed about 1 percentage point so far this year, in part after U.S. economic figures indicated that the worst of the deepest recession in half a century has passed. The yield on 30-year bonds has jumped to 4.31 percent, from 2.68 percent at the beginning of the year. The Treasury chief said it’s still “possible” that the unemployment rate may reach 10 percent or higher, cautioning that the economic recovery is still in the “early stages.” “The important thing to recognize is that growth will stabilize and start to increase first before unemployment peaks and starts to come down,” he said. While “these early signs of stability are very important” this is “still a very challenging period for businesses and families across the United States,” he said. Initial claims for unemployment insurance fell by 12,000 in the week ended May 16 to 631,000, according to Labor Department statistics released yesterday. Still, the number of workers collecting unemployment checks rose to a record of more than 6.6 million in the week ended May 9. As of April, the unemployment rate was 8.9 percent, the highest level since 1983. The economy has lost 5.7 million jobs since the recession started in December 2007. Municipal Bonds Also yesterday, Geithner said the U.S.’s $700 billion financial rescue package can’t be used to aid cities and states facing budget crises. The law “does not appear to us to provide a viable way of responding to that challenge,” Geithner told a House Appropriations subcommittee in Washington. Among the hurdles: money from the Troubled Asset Relief Program was designed for financial companies, he said. Geithner said he will work with Congress to help states such as California that have been battered by the credit crunch and are struggling to arrange backing for municipal bonds and short-term debt. The municipal bond markets are “starting to find some new balance and equilibrium,” he said. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "World-thread" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/world-thread?hl=en -~----------~----~----~----~------~----~------~--~---
