The world’s developed countries face growth and employment shortfalls, while developing countries are confronting huge challenges in adapting to increasingly volatile capital flows while adjusting their growth patterns to sustain economic development. And yet America’s political dysfunction has come to marginalize these (and other) crucial issues. It is all very difficult to fathom. The threat of a default on US sovereign debt has been lifted – for now – but the deeper problem persists: For America’s Republicans and Democrats, negotiating a fiscal grand compromise appears to carry higher costs than playing a game of brinkmanship, even at the risk of default. Surely this involves a collective miscalculation of the longer-term costs.
There is nothing any of us can do at this point, except navigate the rapids as well as possible, and to stay out of the way of a dying empire, which is still very dangerous in its death throes. We are actually very privileged to be alive and witnessing this next transition, to what we do not know just yet. But what an honor to live at this time, not in ignorance but with an existential resolve to come out of it alive and much the wiser.
While the stock bubble rages, and the E-mini is solidly in green territory, some are wondering why that is the case on a day in which even the hardcore bulls expected a sell the news event. The reason: the dollar has rightfully regained, much to China's delight, its position as the world's whipping currency, on expectations that the Fed will now not taper purchases until Q1 or even Q2 of 2014, coupled with the realization that the debt ceiling fiasco is set to repeat in another three short months. As a result, the prime broker carry traders are having a field day, shorting their USD-denominated excess deposits and ploughing proceeds into risk assets. But not only: as the chart of the 10 Year yield bond shows, there has been a buying spree in the 10 Year since yesterday's deal and moments ago we dipped below 2.6% for the first time in two weeks. So do your patriotic duty: kill the dollar and buy paper assets: after all the country that issues the "reserve" currency has not defaulted! And whatever you do: don't sell. Keith Alexander may be leaving soon but he is still in charge, and is carefully monitoring all those who dare to hit the sell button. For all of them, the NSA has three simple letters: IRS.
Since all US rating agencies (Fitch is majority French-owned) have been terrified into submission and will never again touch the rating of the US following the DOJ's witch hunt of S&P, any US rating changes on the margin will come from abroad. Like China's Dagong rating agency, which several hours ago just downgraded the US from A to A-, maintaining its negative outlook. The agency said that while a default has been averted by a last minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged. "Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future."
Legitimate revolution takes time, patience and fortitude. Unfortunately, this is a strategic concept that is lost on many Americans today who suffer from a now common ailment of attention deficit disorder and an obsession with immediate gratification. Even some who have their hearts in the right place and who work to defend and resurrect our nation’s founding ideals seem to believe that any action to defeat corrupt oligarchy must be effective immediately, otherwise, it’s not worth the attempt. History, of course, teaches us the opposite. As things stand at this moment, though, the death of the system is not something to cheer, no matter how much we might wish it to crumble under the weight of its own criminality. The collapse of the existing system will not be the end of our troubles, only the beginning. Chaos always opens doors for evil men, and they will certainly take full advantage of the chaos triggered by shutdown, default or continued inflationary debt spending. We must make ourselves ready to resist by making ourselves separate from the monster we plan to fight. Crisis waits for no one, and on the path our nation now walks, crisis is assured.
Q. How worried are you that one morning the bond market has moved against the United States?
A. It’s virtually assured, the question is when and how. I don't know if it will be two years of five years but it will happen. It is a matter of time, the United States can’t borrow indefinitely. Over hundred years bankruptcies of country after country who thought they could get away with it because they had the reserve currency and the military power of the world. We are going to have fiscal discipline. It’s imposed upon us or we do the right thing and do it to ourselves the right way.... America knows the way, it doesn't have the will.
Per Sen sources, Boehner has agreed to take up the Senate's plan and allow it to pass with Dem votes.
— Robert Costa (@robertcostaNRO) October 16, 2013
So what exactly did Reid know and when?
- *UNITED STATES' AAA IDR RATING MAY BE CUT BY FITCH :3352Z US
- FITCH SAYS PUTS U.S. ON RATING WATCH NEGATIVE AS U.S. AUTHORITIES HAVE NOT RAISED FEDERAL DEBT CEILING IN A "TIMELY MANNER
- *FITCH STILL SEES U.S. DEBT CEILING TO BE RAISED SOON :3352Z US
- *FITCH SEES RESOLVING US RWN BY END OF 1Q '14 AT LATEST
- *FITCH STILL SEES U.S. DEBT CEILING TO BE RAISED SOON :3352Z US
- *FITCH SEES U.S. ECONOMIC GROWTH REVERTING TO 2.25% AFTER 2017
Time runs out on Italian and Spanish banks. But the truth is fatal.
There are two characteristics of a currency that make it useful in international trade: one, it is issued by a large trading nation itself, and, two, the currency holds its value vis-à-vis other commodities over time. These two factors create a demand for holding a currency in reserve. Of course, psychological factors entered the demand for dollars, too, since the US was seen as the military protector of all the Western nations against the communist countries for much of the post-war period. Today we are seeing the beginnings of a change. The Fed has been inflating the dollar massively, reducing its purchasing power in relation to other commodities, causing many of the world’s great trading nations to use other monies upon occasion. President Obama’s imminent appointment of career bureaucrat Janet Yellen as Chairman of the Federal Reserve Board is evidence that the US policy of continuing to cheapen the dollar via Quantitative Easing will continue. As we noted before, nothing lasts forever... (especially in light of China's earlier comments)
We assume it is a coincidence that on the day in which we demonstrate China's relentless appetite for gold, driven by what we and many others believe is the country's desire to have a call option on a gold-backed reserve currency when the time comes, just posted in China's official press agency, Xinhua, is an op-ed by writer Liu Chang in which he decries the "US fiscal failure which warrants a de-Americanized world" and flatly states that the world should consider a new reserve currency "that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States." Of course, if China were serious, and if the world were to voluntarily engage in such a (r)evolutionary reserve currency transition, then all Magic Money Tree theories that the only thing better than near infinite debt is beyond infinite debt, would promptly be relegated to the historic dust heap of idiotic theories where they belong.
China has just one thing to say to all those who engage in the now daily slamdowns of gold just around the time of the London fixing, after 8 am Eastern, which lately have gotten so vicious they have resulted in "stop logic" market halts not on one but at least two occasions, keeping the price of gold delightfully low for all those who instead of selling, are looking to buy: "thanks."
The dollar is the world’s go-to currency. But for how much longer? Will the dollar’s status as the only true global currency be irreparably damaged by the battle in the US Congress over raising the federal government’s debt ceiling? Is the dollar’s “exorbitant privilege” as the world’s main reserve currency truly at risk? Sane governments do not default when they have a choice – especially not when they enjoy the “exorbitant privilege” of issuing the only true global currency. We are about to find out whether the US still has a sane government.
While the following may look like a broken scene from "Breaking Bad" (one wonders just how much methylamine was on the train) we couldn't help but see the analogy of an oncoming train (no tunnel, so no warning light this time) of inevitable default, whether in one week or later, and the USA sat square across the tracks as reserve currency status (as we discussed last night) becomes increasingly challenged.
In the midst of a debacle such as the the one under way in Washington currently and the finger-wagging from various foreign entities (that Jack Lew himself warned Congress would be more than happy to replace the USD as world reserve currency), we thought the following simple chart useful for some context as to the rest of the world's "growth."