Monthly Archives: May 2011

Geithner- U.S. Will Urge China to Boost Interest Rates

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Even more confused than the usual out of paradigm nonsense from Geithner highlighted below:

U.S. Will Urge China to Boost Interest Rates in Washington Talks

By Rebecca Christie and Ian Katz

May 9 (Bloomberg) — Treasury Secretary Timothy F. Geithner will urge China to allow higher interest rates when he meets with Chinese leaders this week, as the U.S. extends its push for a stronger yuan.

Geithner will say China should relax controls on the financial system, give foreign banks and insurers more access and make it easier for investors to buy Chinese financial assets, said David Loevinger, the Treasury Department’s senior coordinator for China. Officials from both nations are meeting in Washington today and tomorrow as part of the annual Strategic and Economic Dialogue.

The US Treasury shamelessly fronting for the financial sector.

The U.S. is pushing for greater market access for financial firms as part of its broader effort to persuade China to ease the restrictions blamed for fueling global imbalances. U.S. officials argue that a yuan kept artificially cheap to help exporters also makes it harder for China to lift interest rates and curb an inflation rate that hit a 32-month high in March.

Budget Deficits

Chinese officials, for their part, blame record U.S. budget deficits for contributing to lopsided global flows of trade and investment. China held $1.15 trillion in Treasuries at the end of February, more than any other country. The U.S. trade deficit with China came to $18.8 billion in February.

Vice Finance Minister Zhu Guangyao said on May 6 that China is paying “close attention” to U.S. efforts to reduce its budget deficit, and his country will focus on improving the quality of itsexchange-rate mechanism.

Yes, China is chiming in on US fiscal policy and no one of political consequence believes they are wrong.

Geithner and Vice Premier Wang Qishan will meet alongside Secretary of State Hillary Clinton and State Councilor Dai Bingguo at this week’s meetings, which will draw about 30 top Chinese officials.

The Obama administration and U.S. lawmakers say China’s currency policy gives the nation’s exporters an unfair competitive advantage, costing U.S. jobs. Geithner is trying to convince Chinese officials that a stronger yuan has benefits for their economy.

‘Enhanced’ Ability

Geithner said last week that allowing the yuan to rise and making their financial system less dependent on government- controlled interest rates would give Chinese leaders an “enhanced” ability to damp inflation.

This just gets stupider and stupider with each out of paradigm iteration.

The Treasury argues that higher interest rates on deposits will also encourage consumer spending in China, another way to reduce imbalances.

Here he takes my position on monetary policy- depending on the institutional structure, higher rates add to aggregate demand via the income interest channels. But it’s totally confused in this context of fighting inflation, as higher demand adds to price pressures, and also adds to cost pressures via the cost of capital for businesses.

“We’re going to encourage China to move more quickly in lifting the ceiling on interest rates on bank deposits in order to put more money into Chinese consumers’ pockets,” Loevinger said at a briefing last week in Washington.

Investors are betting the yuan’s rise may be limited over the next 12 months. Twelve-month non-deliverable yuan forwards dropped 0.81 percent last week to 6.3520 per dollar on May 6, their biggest weekly loss of the year, on speculation that China won’t allow faster appreciation to reduce inflation.

Fundamentally, inflation and currency depreciation are pretty much the same thing. So ultimately inflation goes hand in hand with currency depreciation, as inflation removes the ability to ‘allow faster appreciation’.

17-Year High

The yuan closed little changed in Shanghai on May 6, ending a run of seven weekly gains that drove the currency to a 17-year high of 6.4892 on April 29, according to the China Foreign Exchange Trade System.

John Frisbie, president of the U.S.-China Business Council, said support for a stronger yuan among Chinese leaders has increased in the past year.

Yes, looks like inflation is bad enough in their view to throw their exporters under the bus via currency appreciation (for as long as it can last) in what looks like a desperation move.

“The strong hand has switched over to those who are saying that the exchange rate can help us fight inflation,” Frisbie said in a telephone interview. He said his group, whose members include companies such as Apple Inc. (AAPL), JPMorgan Chase & Co. (JPM) and Coca-Cola Co. (KO), wants China to resume opening its financial services sector to allow more foreign investment.

The American Chamber of Commerce in China said in a report last month that foreign banks play an “insignificant role” in China.

Foreign lenders’ market share in China has dropped since the government first opened the industry in December 2006. Banks such as New York-based Citigroup Inc. (C) and London-based HSBC Holdings Plc (HSBA) want to tap household and corporate savings that reached $10 trillion in January as China overtook Japan to become the world’s second-biggest economy.

Foxes into the hen house…

Foreign Exchange

The U.S. has delayed its semi-annual foreign-exchange report, which had been due on April 15, until after this week’s meetings. The previous report, due on Oct. 15, 2010, was released on Feb. 4 and declined to brand China a currency manipulator while saying the No. 2 U.S. trading partner has made “insufficient” progress on allowing the yuan to rise.

The yuan goes beyond the U.S. and China to become “a multilateral issue, in terms of the impact on Brazil, Korea, Thailand and India,” said Edwin Truman, a former Federal Reserve and Treasury official who is now a senior fellow at the Peterson Institute for International Economics.

‘Causing Trouble’

The “slow” appreciation of the yuan “relative to the dollar in an environment where the dollar is going down against other currencies is causing trouble for other countries and currencies,” Truman said.

Diplomats at the Strategic and Economic Dialogue also will discuss events in the Middle East, including military operations in Libya and the ramifications of the region’s popular uprisings.

Officials are likely to discuss efforts to revive six-party talks on North Korea’s nuclear program. Negotiations between the two Koreas, Russia, Japan, China and the U.S. stalled in December 2008 and tensions flared on the peninsula after North Korea’s Nov. 23 bombing of a South Korean island.

Yes, mistakenly believing we are dependent on China to fund our deficit spending has us kowtowing on human rights and nuclear weapons.

“We want to compare notes on where we stand with respect to North Korea, and we will be very clear on what our expectations are for moving forward,” Kurt Campbell, assistant secretary of state for East Asia, said on May 5.

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Australia’s Budget Will Make ‘Substantial’ Savings, Swan Says

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The names of the nations change but the out of paradigm values are universal:

Australia’s Budget Will Make ‘Substantial’ Savings, Swan Says

By Gemma Daley

May 8 (Bloomberg) — Australia’s budget will make “substantial” savings after revenue was crimped by a record exchange rate, the nation’s costliest natural disasters and Japan’s earthquake, Treasurer Wayne Swan said.

Swan, who delivers the budget to Parliament tomorrow, said yesterday the deficit in the government’s finances will widen in the fiscal year ending June 30 before increased mining revenue and an improving economy help bring about a surplus in 2012-13.

Prime Minister Julia Gillard’s administration has revealed the budget will tighten welfare payments to get people back into the workforce and cut 1,000 jobs in the civilian defense industry in the next three years. The government also aims to stop high-income earners receiving a subsidy for having private health insurance.

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MMT presentation in Ireland

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MMT Conference

MMT will inform a number of economic policies to be presented and debated in a conference entitled “Lessons from the Crisis: Money, Taxes and Saving in a Changing World” co-hosted by Smart Taxes, (Fiscal Policy for Sustainability Network) and TASC (Think Tank for Action on Social Change) on the 9th May 2011 at Croke Park, Dublin. There will be a public lecture at 6pm in the Westwood House Hotel in Galway at 6pm on Wednesday 11th May.

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Goldman excerpts from employment report

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The positives have been well publicized, so I’m just forwarding the negatives, particularly the downward revisions to Q2 I’ve been concerned about:

2. Results from the household survey were disappointing. Total household employment fell by 190k, and the unemployment rate rose to 9.0% (8.96% unrounded) from 8.8% previously. . Results were somewhat better after adjusting for methodological consistency with the nonfarm payroll data; on this basis the household survey measure of employment would have increased by 50k. However, the labor force participation rate was unchanged during the month, indicating that the rise in the unemployment rate reflected job losses rather than an influx of persons into the labor force. While the news was discouraging, it follows four months of declining unemployment, and the level of the unemployment rate remains down 1.1 percentage points from its peak. The employment-to-population ratio fell slightly to 58.4% from 58.5% previously.

4. After the Employment Report, our Current Activity Indicator (CAI) showed growth of 2.3% in April, down from 4.0% in March. The deceleration mostly reflects weaker survey-based data (e.g. the non-manufacturing ISM and Philly reports), and indicates a cooling in overall growth early in Q2.

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Mosler Photon in Automobile Magazine

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First Drive: Mosler Photon

By Jason Cammisa
Photography by Andrew Yeadon

From the June, 2011 issue of Automobile Magazine

…When you hear the name Mosler, you should instead immediately think of the MT900S, the supercar that the company began selling here at the end of 2006. The MT900S is indeed quite nice to look at, but this car’s ace in the hole lies hidden on a spreadsheet. Buried in the specifications for the track-focused but street-legal variant of the MT900S, the Photon, is one astonishing measurement: its curb weight is a scant 2394 pounds. This is a car as long as a Toyota Camry and as wide as a 4Runner, but it weighs about 50 pounds less than a Mazda Miata — and that’s despite having a 7.0-liter V-8 engine.

…While mainstream exoticar makers (now there’s an oxymoron!) like Lamborghini are just now starting to get serious about lightweight construction methods, Mosler has been quietly building featherweight monsters crafted from carbon fiber and Kevlar for years. This kind of cutting-edge engineering isn’t what you’d normally expect from a tiny, low-volume manufacturer from Florida, but it’s the result of founder Warren Mosler’s clear mission: to build amazing cars,

…J. Todd Wagner surprised us by showing up and handing over the keys to a $394,500 Photon. At the time, we knew basically nothing about the car. As we were strapping ourselves in, every eye in the paddock was on the orange thing with the exhaust note so violent it could set off air-raid alarms. Wagner yelled over the exhaust, rattling off a ludicrous horsepower number (550), that ridiculous curb weight, and explaining that the Photon — which has a custom Hewland sequential-manual racing gearbox — uses a flywheel with about as much rotational inertia as a spinning, dying housefly.

…Having never once been around PBIR’s track, and not even knowing if the Photon had antilock brakes (it doesn’t, we would learn), we begged for a pace car. When a volunteer stepped forward, he hopped into his track-prepped Porsche 911 GT3 on slicks. When we were told that he was the local Porsche club’s fastest instructor, we asked him to take it easy.

He didn’t bother — and we’re glad he didn’t. The Mosler’s vast, curved windshield provided a first-class, front-row view of the rear-engine Porsche scrambling its way around corners, oversteering, understeering, and countersteering. The Photon followed along happily, nowhere near its limits, with a big-block scream from the General Motors LS7 easily drowning out the 911’s flat-six wail — but only for a second at a time. Any longer wide-open-throttle blasts and the Porsche would have had a whole car shoved up its engine-filled arse. In steady-state corners, the Photon might understeer and its steering might not transmit much information about what the front tires are doing, but at the g-forces it generates, your author’s spinal cord wasn’t transmitting much useful information, either.

We had time for only a few laps, but the Photon’s speed, cornering, and composure is dramatic. The Photon is clearly more than a big engine strapped into a light car — indeed, a decade-long relationship with Siemens has given Mosler access to supercomputers for seriously advanced engineering.

The lightning-quick carbon-fiber MT900R qualified on the class pole for the 24 Hours of Daytona three consecutive years and scored a GTS win in 2003. The reward for this achievement? The car was essentially banned by Grand-Am, and it no longer races in the United States. But the MT900R and the MT900GT3 continue to win GT races and championships in Europe, Asia, and Australia. Ironically, the chassis of these all-American cars are assembled at Rollcentre Racing in England. At last report, no fewer than twenty-five cars were being campaigned worldwide.

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Altman Sees Dealmaking Recovery Surpassing $4 Trillion Record

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As previously discussed on this website, the stock market continues to be stacked against investors.

Management is too often incented to sell shareholders down the river in securing it’s own fortunes.

For example, management thinks nothing of issuing highly dilutive preferred’s and convertible’s, etc.

This means the shares are worth more if you own enough for control, which bypasses ‘anti shareholder’ incentives.

In other words, market forces are continuing to work to keep most stocks at prices where they are take over targets

Altman Sees Dealmaking Recovery Surpassing $4 Trillion Record

By Serena Saitto

May 6 (Bloomberg) — Dealmaking is at the beginning of a recovery whose peak will exceed the record $4 trillion of takeovers clinched at the height of the merger boom in 2007, according to Evercore Partners Inc.’s Roger Altman.

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Galbraith on federal debt sustainability

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Is The Federal Debt Unsustainable?

By Professor James K. Galbraith

Excerpt

A more prosaic problem with the runaway-inflation scenario is that the “nonpartisan, professional” economic forecasters of the Congressional Budget Office (CBO), whose work is often cited as the benchmark proof of an “unsustainable path,” do not expect it to happen. The CBO baseline resolutely asserts that inflation will stay where it is now: around 2 percent. So one can’t logically cite the inflation threat and the CBO baseline at the same time. So far as I know, the CBO does not trouble itself to model the exchange value of the dollar.

What the CBO does warn is that, under their assumptions, the ratio of US federal debt (held by the public) to GDP will rise relentlessly, passing 200 percent by 2035 and 300 percent by midcentury. Correspondingly, net interest payments on that debt would rise to exceed 20 percent of GDP. This certainly seems worrisome, and the CBO warns about “investor confidence” and “crowding out” without actually building these things into their model. Indeed, in their model this remarkable and unprecedented ratio of debt to GDP goes right along with steady growth, full employment, and low inflation, world without end! Why one should care about mere financial ratios if they produce such good—and, according to the CBO model— “sustainable” results is another mystery the CBO does not explain.

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Saving Money by Selling Excess Property | The White House

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It may indeed serve public purpose to sell federal property.

In fact, the burden of proof of public purpose is with the federal government as to why it would own any specific property in the first place.

However, selling property does remove net financial assets from the economy, make the dollar ‘harder to get’, and is thereby a contractionary/deflationary bias that reduces aggregate demand/output and employment.

The continuing problem is that deficit reduction doesn’t currently serve any public purpose that I can discern, but it’s actively being pursued by both sides, now trying to out do each other in what’s shaping up to be a death race to the bottom.

The good news is that at least so far the Saudis seem to be following/allowing crude oil prices to decline. Possible reasons range from the demand destruction or looming supply increases due to the higher prices, to the possibility they got short in their personal accounts. There’s no telling why they do what they do, and as a simple point of logic they remain swing producer/price setter.

Falling crude prices serve to directly make US dollars ‘harder to get’ as the US bill for imported crude and products falls, and thereby offers substantial and ongoing fundamental support to a US dollar that has to be one of the most oversold items of all time.

The only negative for the US dollar I can see is the chart, which has been telling me there continuous portfolio shifting away from the US dollar, which, when assisted by the rising crude prices, combined to keep the US dollar in decline. Without the support of the rising crude prices the tide could be turning.

The White House Blog: Saving Money by Selling Excess Property

By Jeffrey Zients

May 4 — As we look at our fiscal situation, the President understands that the Federal Government must do what American families are doing all across the country: find ways to live within our means and invest in the future. That means cracking down on waste and getting the most from taxpayer dollars.

Since President Obama took office, we’ve made unprecedented progress in reforming the way Washington works – saving billions of taxpayer dollars through IT reform, cut contracting spending, and eliminated duplicative and ineffective programs.

In his State of the Union address, the President discussed another area that is ripe for savings and reform — the real estate footprint of the Federal government. For too long, the American people’s hard-earned tax dollars have gone to waste, funding empty buildings and holding on to valuable properties the government no longer needs. That is something that shouldn’t be tolerated at any time, but especially with this challenging fiscal environment, it’s unacceptable.

Today, we’re sending legislation to the Hill that will cut through red tape and politics to rid the government of the burden of excess property and save taxpayers at least $15 billion. We look forward to working with members of Congress to pass this legislation, the Civilian Property Realignment Act.

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DJ Mexico Ctrl Bk Bought 100 Tons Of Gold In Feb, March -FT

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From a nation with a great tradition of condemning its people to life in the mines.

This modern version is to work their tails off for a pittance in the US for the further purpose of moving gold from one hole in the ground to another.

Not mention the real resources consumed in the actual process of mining.

*DJ Mexico Ctrl Bk Bought 100 Tons Of Gold In Feb, March -FT
*DJ Mexico Gold Buy Worth $4.6 Bln At Current Prices -FT
*DJ Mexico Gold Buy One Of Largest By A Ctrl Bk In Recent History -FT
*DJ CORRECT: Mexico Gold Buy Worth $4.6 Bln At Current Prices -FT

DJ Mexico Ctrl Bk Bought 100 Tons Of Gold In Feb, March -FT
05/04/11 06:09

DOW JONES NEWSWIRES
Mexico’s central bank bought nearly 100 tons of gold in February and March, a purchase worth about $4.6 billion at current prices and one of the largest such purchases of gold by a central bank in recent history, the Financial Times reported Wednesday on its website, citing data provided on the central bank’s website.

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ECB debt buying plan suffers fresh setback

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ECB debt buying plan suffers fresh setback

Another silly headline that completely misses the point of monetary operations.

The ‘debt buying plan’ is a purely technical move to do what is called ‘offset operating factors’ as a means to hitting the ECB’s interest rate targets.

The quantity of securities offered to do this is entirely inconsequential. As always, for a central bank, the monopoly supplier of net reserves for its currency of issue, it’s about price (interest rates) and not quantities. And the only possible ‘inflationary impact’ is via the interest rate channels:

(FT) — The European Central Bank faced embarrassment on Tuesday after failing for a second consecutive week to neutralise fully the inflationary impact of funds it had spent buying government bonds to combat the region’s debt crisis. On Tuesday, the ECB was due to reabsorb €76bn – the total amount spent under the bond-buying programme so far. But banks only offered €62bn. Last week, the ECB had also failed to reabsorb the required amount. In total, such operations have failed five times in the past year.

The latest setback was the result of higher market interest rates, which deterred banks from parking funds at the ECB. It could fuel ECB nervousness about its bond buying.

Europe Services, Manufacturing Growth Accelerated in April

(Bloomberg) — European services and manufacturing growth accelerated in April. A composite index based on a survey of euro-area purchasing managers in both industries rose to 57.8 from 57.6 in March, Markit Economics said. That’s in line with an initial estimate on April 19.

They call the above an acceleration, I suppose because it fell in March:

The euro-area services indicator fell to 56.7 from 57.2 in March, Markit said, below a preliminary reading of 56.9 released last month. The manufacturing gauge increased to 58 from 57.5. In Germany, which has fueled the region’s recovery, a manufacturing indicator rose to 62 from 60.9 in March, while a services gauge slipped to 56.8 from 60.1.

Europe Retail Sales Decline Most in Almost a Year on Oil

Note the ‘and government austerity measures’ didn’t make the headline:

(Bloomberg) — European retail sales declined the most in almost a year in March as higher oil prices and government austerity measures curbed consumer spending. Sales in the 17-nation euro region fell 1 percent from the previous month after a revised 0.3 percent increase in February. March sales dropped 1.7 percent from a year earlier. Among services companies, “expectations for their activity levels in 12 months’ time slipped for the second successive month to reach a six-month low,” Markit said in a report. German retail sales declined 2.1 percent in March from February, when they fell 0.4 percent, today’s Eurostat report showed. In France, sales dropped 1 percent. Spanish sales fell 1.4 percent, while Ireland saw a 0.6 percent increase.

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