The Downgrade

German philosopher Arthur Schopenhauer: “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” About a rolling depression. As James Fallow wrote five years ago, “As it comes to the old parties, the story boils down to this: in the age of television, Democrats can’t win except when everything is handed to them or goes their way, while Republicans can’t govern without breaking the bank.”

Seaworthy vessels do not sink. There are boat inspectors who check out sinkability of those vessels. Likewise, the sole job of credit-rating agencies like Moody’s Investment Service, Fitch Rating and Standard & Poor’s is to gauge creditworthiness. As market concerns about France’s triple-A credit rating increased, shares in French banking stocks plunged Wednesday on renewed market jitters over their exposure to Greek debt. “If the maturity of Greek government bonds is extended to 2024, this could mean further depreciation of the assets of French banks that are exposed to Greek debt,” said the trader, who spoke on condition of anonymity.

Société Générale SA was trading down 17% at €21.61, as spokeswoman for Société Générale said, “”We categorically deny all market rumors.”

Loan demand, wise men and women argue, is so, those low interest rates won’t go higher anytime soon. So the downgrade by Standard and Poor’s of U. S. debt logically means a shift in credit quality. The rules of the game have not changed, only the grading system. “If the AAA is no longer AAA, then everything else has to get downgraded,” Edward Dempsey explained.

The credit-rating agencies whose sole job is to gauge the creditworthiness of bonds, all reiterated that France has a stable outlook, with an unchanged triple-A credit rating. France’s credit rating was thrust into the spotlight Monday when cost of insuring its debt against default spiked. Amidst concerns France may be the next triple-A-rated sovereign to suffer a credit downgrade, as another leader came unexpectedly back from holiday to call a meeting with key cabinet ministers along with Bank of France governor Christian Noyer, President Nicolas Sarkozy sought to defend France’s credibility, saying France will do whatever it takes to ensure meeting its deficit-reduction targets.

Not long ago, consumers leveraged their homes to maintain a lifestyles in an era of limited wage growth. Subsequently the U.S. government took on debt to bail out the economy. However the U S government now collects less tax revenue than in did in 2008, yet its debt is trillions higher. The current scenario witnessed falling income levels and rising debt levels worldwide. Something has to give.

“They know,” Edward Dempsey writes, “which is why they are desperately trying to create inflation… to pay that debt back with cheaper money.”

In France, new concerns were triggered that the government may turn to banks to help reduce its deficit. During the latest round of global sell-off, changes were implemented to the Euro currency bloc’s bailout mechanism, along with a new bailout package for Greece. Before a July 21st summit, France’s minister for European Affairs had said initiatives weighing a tax on banks to resolve the Greek debt crisis would be discussed, though no mention was ever made in the conclusions of that summit.

In China, money meanwhile continues to flow in, as the government reported on Tuesday that consumer prices jumped 6.5% in July, its fastest pace in three years. With all these other export-dependent Asian economies, since Friday’s downgrade by Standard & Poor’s of the credit rating of the United States, foreign investors have been unloading shares in Korea – Asia’s fourth-largest economy attracting so much capital in recent years, heavily dependent on exports, accounting for roughly more than half of the country’s GDP. Those foreign investors hold about one-third of the market’s total capitalization in Korea. How long before China feels the affects of a recession which is in transition toward an European Depression?

On August 3, the Obama administration released its own eight-page national strategy for countering domestic violent extremism.

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FOOTNOTE on how to mess up a baseball organization.
http://www.stltoday.com/sports/baseball/professional/article_eb8ffce2-a988-5bb2-8912-3b789f3aad56.html

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Those Tea Parties

In his book, “The Three Trillion War,” Nobel laureate Joseph Stiglitz and co-author Linda J. Bilmes state that the total economic impact of the Iraq War may be $4 trillion or more. And that was before the United States escalated things in Afghanistan.

Former White House economist Lawrence Lindsey was fired as economic adviser to President Bush partly because of his estimate of the dollar cost of the Iraq war. In an excerpt of his own book in Fortune magazine five years after, Lindsey wrote his projections were partly right. “My hypothetical estimate got the annual cost about right. But I misjudged an important factor: how long we would be involved.” Mr. Lindsey also stated his belief that one reasons the administration’s efforts were so unpopular was the choice not to engage in an open public discussion of the consequences of war, including its economic cost.”

Congressional Democrats had predicted the Iraq war would cost about $93 billion, not including reconstruction. Peter R. Orszag, director of the Congressional Budget Office, said, “It’s clear that operations in Iraq and Afghanistan have gone on longer and have been more expensive than the projections initially suggested,”

So far this has been a tax-free Iraq War, and not included in the Congressional Budget, as I recall a piece that was written in 2002. According to an item that ran on the MSN news page, the cost was carried over. I see little media coverage since that time indicting where the war shows up in the president’s budget.

William Nordhaus from Yale University wrote in the New York Review of Books in December 2002 in an article entitled “The Economic Consequences of War,” about the the long-term management of the economy, with the management of planning cycles. “The fabulous Nineties—with soaring stock market, falling unemployment, declining defense spending, budget surpluses, and bubbly optimism—were followed by the Bush administration which made no serious public estimate of the costs of the coming war. The public and the Congress are unable to make informed judgments about the realistic costs and benefits of the upcoming conflict when none are given. Particularly worrisome is the promise of postwar occupation, reconstruction, and nation-building in Iraq. If American taxpayers decline to pay the bills, this would leave a mountain of rubble and mobs of angry people in Iraq and the region. Closely related is a second syndrome, frequently found in past conflicts, of entering war prepared militarily but not economically. The finances of the nation have deteriorated sharply since George W. Bush took office. The annual federal budget has deteriorated by $360 billion from the spring of 2001 to the fall of 2002, and, even with a short war, budget deficits are likely to mount in coming years. The Bush administration has not prepared the public for the cost or the financing of what could prove to be an expensive venture.”

Nor has the Obama Administration. Market participants, wrote William Nordhaus in “The Story of the Bubble,” at this point do “remember how they lost $6 trillion on absurd and wildly overvalued speculations. A similar exuberance is unlikely to recur in the near future. More likely is an economy in which large federal budget deficits lead to cuts in existing civilian programs and doom critical priorities such as comprehensive health care.”

That tax-free Iraq War, as conceived by the Bush White House, was one ongoing economic consequences of war. There was now the subsequent tax-free Afghan War. These wars would soon change American history. Would you like to come over for tea?

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The Tip of the Iceberg in Greece

Ayn Rand wrote in Something to Reflect On (1959), “Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion—when you see that in order to produce, you need to obtain permission from men who produce nothing—when you see that money is flowing to those who deal, not in goods, but in favors—when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you—when you see corruption being rewarded and honesty becoming a self-sacrifice—you may know that your society is doomed.”

Troubles in Greece, representing 2% of the EU’s economy, have weighed heavily on the Euro. Following a downgrade last Wednesday of Portugal’s credit rating, comment s reported from Hong Kong were that “Greece is only one case,” said Zhu Min, deputy governor of the People’s Bank of China, “but only the tip of the iceberg. We don’t see decisive action that tells the market, ‘We can solve it, we can close it,’ so the market is very volatile.”

Fitch Ratings cut Portugal to AA-minus and said a further slide was possible if the country doesn’t do more to bring down its budget deficit. The downgrade in the credit rating of Portugal was due to weak fiscal figures—though not as dire as Greece’s. The Euro has been off 7% against the dollar since the beginning of the year, taking another hit Thursday in Asia after Zhu Min’s criticism of the EU’s handling of Greece. He warned that the “U.K. is weak. America itself is weak, because in a two- to four-year horizon, U.S. debt will climb to 110% [of GDP] and stay there for a while.”

Referring to the large amounts of government debt issued to bail out banks and funding stimulus programs in the West since September 2008, he said, “The governments tried to put every burden from the financial sector onto their own children. Now they find nobody can save them.” High levels of debt throughout the developed world, he added, would keep growth low for several years. Chin as the world’s largest holder of foreign-exchange reserves is a major investor in the Euro. He stated his belief that fiscal problems could spread to Spain and Italy.

“Bonds have seen their best days,” Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co, said in a March 25 interview with Tom Keene on Bloomberg radio. Alan Greenspan warned that rising yields on government debt will drive up American borrowing costs is resonating with the world’s biggest bond traders, who say this month’s losses in the market for US Treasuries are just the beginning. Yields on 10-year notes, the benchmark for everything from mortgages to corporate bonds, climbed as high as 3.92 per cent last week from a low of 3.53 per cent in February. A February survey of 10 dealers showed that budget deficit, which hit $1.4 trillion in fiscal 2009 will drive Treasury sales to a record $2.43 trillion this year.

After Fitch downgraded Portugal, the dollar rose as the euro tumbled raising fears of continent-wide contagion from Greece’s troubles. However, U.S. Treasuries did not. The 10-year Treasury dropped 1 7/32, driving its yield to 3.829%, its highest level since Jan. 4. At other moments of financial panic, U.S. government debt has been a safe haven. No more.

Economists and strategists also predict rising yields in Germany, the UK, Canada, Japan and the rest of world’s major economies, Bloomberg surveys show. Breaking Europe’s diplomatic etiquette, Luxembourg’s Foreign Minister Jean Asselborn told German radio station Deutschlandfunk that the European Union and its single currency are “a peace project, a community of destiny,” adding Germany has a duty to act if a fellow Euro member needs help, writes Andrea Thomas and Adam Cohen in thee Wall Street Journal.

Bill Gross of the PIMCO funds said investors should invest in shorter-maturity US and Brazilian securities and longer-term German and “core” Europe bonds, avoiding the debt of the UK. Higher yields are the “canary in the mine,” Alan Greenspan said, where historically there has been “a large buffer between the level of our federal debt and our capacity to borrow. That is narrowing. And I am finding it very difficult to look into the future and not worry about that.”

Daniel Bell is a sociologist who is listed by the New York Times Literary Supplement as among the authors of the 100 most important books in the second half of the twentieth century, with his books End of Ideology and The Cultural Contradictions of Capitalism. He thinks that a new kind of society was emerging, post-industrialism, information-led and service-oriented, which will replace the industrial society as the dominant system, resulting in a shift from manufacturing to services; the centrality of the new science-based industries; and a rise of new technical elites and the advent of a new principle of stratification.

The news this week. About off-shore oil-drilling. The news this week that forgets the hope and change theme. That theme addressed to a young audience that forgets so soon. Forgets the sins of Kobe Bryant, who got a new contract. Forgets Tiger Woods who will be making his comeback at The Masters. And forgets the betrayal of America whose leaders of Wall Street were rescued in September 2008, by tax dollars. And with this comes news of the release of a sequel by Oliver Stone to his 1987 movie “Wall Street: Money Never Sleeps.” Gordon Greeko delivered a great speech in the original “Wall Street” About greed in all of its forms…in love, in life,in sex. It was, this greed, present in much more than just money. And this society in deep trouble. As the illusion has become real..and the bigger the illusion, the more that they want it. With the census that is due back, with all the census workers, the new census workers, hoping to pump up the economy. After the more than 8 million jobs lost since this recession began, there were the temporary U.S. Census positions.

“I create nothing. I own. We make the rules,” said Gordon Grekko. Oliver Stone was talking about the bubble. In 1987.

Did you believe in the devil? Did you think history repeated itself?

Tom Brokaw wrote a book about the Greatest Generation. The one born at the very end of the Roaring Twenties. Daniel Bell was one of them. He discussed the intellectual movement of his time. In academia. Bell wrote in The End of Ideology that “The twice-born” generation which found its wisdom in pessimism, evil, tragedy, and despair, after the optimism based upon an ultimate faith in the rationality or common sense of men was shattered by war and the Great depression. That greatest generation was, writes Daniel Bell, “both old and young ‘before our time.’”

Money is the barometer of a society’s virtue. When virtue was determined not in the short run, but in the marathon. It was the admission by the Greek government in 2009 that the government in power had lied about budgetary matters. Not unlike what happened in Bulgaria, where were now forthcoming that the government had lied about money, in the past in order to be admitted into the European Union. Not all that dissimilar to what had happened to those items in the budgets approved by Congress that was keeping the cost of war in Iraq off the books.

Yes, money is the barometer of a society’s virtue.

Declarations of Bankruptcy

With the Wednesday anniversary of the $787-billion package of tax cuts and spending in the Recovery Act, in defense of the stimulus, President Obama said, “One year later, it is largely thanks to the Recovery Act that a second Depression is no longer a possibility.” Democratic and Republican leaders in Washington marked America’s legalized corruption by sniping at each other. Bankrupt after 8 years of the leadership of George Bush, Republican lawmakers stepped up their attacks on what was the Paulson-Bush stimulus plan, calling it wasteful and ineffective.

From an article by Simon Johnson in the Atlantic, America’s Legalized Corruption

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”

From the transcript of Frontline on February 16, 2010:

“We didn’t truly know the dangers of the market, because it was a dark market,” says Brooksley Born, the head of the Commodity Futures Trading Commission [CFTC] — an obscure federal regulatory agency — who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country’s key economic powerbrokers to take actions that could have helped avert the crisis.

“They were totally opposed to it,” Born says. “That puzzled me. What was it that was in this market that had to be hidden?”

They being the same people advising the current president. Then Assistant Treasury Secetary Lawrence Summers, Treasury Secretary Robert Rubin, as well as Alan Greespan heading up the Federal Reserve. And who did Timothy Geithner worked for through this all? As Henry Paulson got his start working in the Nixon White House; was it for Erhlichman or Haldeman? He learned under the best of hatchet men.

It had taken 40 years of the media making us all world experts, and this expertise along with the lobbyists had bankrupted American government. It was why I felt uncomfortable having my retirement accounts with Fidelity, with Merrill Lynch, with Morgan Stanley. They all had hijacked the government of the United States, through the Democratic Party and the Republican Party.

One year later, President Obama was sounding a lot like George Bush, announcing victory in Iraq. Or Henry Paulson and Ben Ben Bernanke, with their similar pronouncements all along, when the Bush Administration on July 13, 2008 rescued Fannie Mae, Freddie Mac, or Bear Stearns. When that second Depression “was no longer a possibility.”

The Congressional Oversight Panel, chaired by Harvard law professor Elizabeth Warren, warned on the same anniversary date that it remains “deeply concerned” that commercial loan losses could jeopardize the stability of many banks, particularly the nation’s mid-size and smaller banks. Highlighting yet one more hurdle for this country’s fragile economy, a wave of commercial real estate loan failures could threaten over the next few years America’s already-weakened financial system. The Congressional Oversight Panel was formed as part of oversight for the Troubled Asset Relief Program.

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When Statistics Stole the Show

The “statistical economic recovery, with a human recession.” And so the story in February 2010.

Accumulating cash and highly liquid securities protects banks from the volatility of credit markets and prepares the bankers for stricter liquidity requirements expected from regulators, the chief executive of Wells Fargo noted during the conference call with brokers on Wednesday. Those banks had the rationale to hold back. The real worry is that WHEN INTEREST RISE, and it will happen, rising short-term rates over the life of a loan will eat away the banks’ profits, IF a bank made the loan in the first place.

The real story of the decade was the ongoing off-budget black holes in the budgets. The Iraq War has been one such ongoing black hole responsible for he eroding value of the dollar.

POST SCRIPT: The Federal Reserve would consider, it was announced on February 5, 2010 by William Dudley of the New York Federal Reserve Bank, IF interest rates spiked or the economy showed new weakness, reopening the $1.25 trillion purchase in mortgage-backed securities scheduled to end on March 31, 2010 which has been propping up the economy. Dudley said the time is right to end the program because the economy is growing, and because expanding the purchases would make it harder for the Fed to unwind its support down the road.

The meaning of the puzzle? This one piece of the puzzle suggests more Fed printing is on deck. The Federal Reserve within the first quarter of 2010 would announced that it was extending and expanding its money printing operation to support a failing economic system. As the European Union was wrestling with the economies of Poland, Ireland, Greece, and Spain, the United States was trying to finance wars overseas which have not been part of any reported deficits spending by Washington, along with dealing with the credit derivative scandal.

The State of the Union

When credit card companies gave you zero percent rates….giving away product, charging nothing. Now the government is doing the same. For banks,getting zero percent rates so they could keep operating. As the banks were not extending anyone credit.

By Congressional Act, the Federal Reserve was founded in 1913 specifically to combat financial panics, including runs on banks. Since the Fed, when the economy was overheated during the subprime mortgage boom, did not regulate interest rates to dampen the ardor of member banks for mortgages as it could have, Ron Paul was calling for greater Congressional control of this private entity.

When would the banks get hit by the government by the over the limit fees, like those banks charged their customers on their credit cards?

The system….when the affluent paid the least, and the poor paid the most. For free checking accounts. Unless you had less than $800 in your account, and the bank charged you a monthly fee of $12. At banks, or at your dental clinic, it was all the same. The poor were charged the most. Unless you paid Delta Dental who got a special discount, and the rest were left to pick up the slack. At the banks, U S Bank in Minneapolis, the poor were paying for the rich.

And there were no more free toasters. Nor free checking. Ending TCF’s long-time “totally free” checking account, the regional bank TCF Financial Corporation plans to begin charging maintenance fees to customers with checking accounts, CEO Bill Cooper said in a conference call with investors on Thursday. The rationale was prompted by new federal regulations which likely will reduce revenue from overdraft fees.

Milton Friedman’s fundamental flaw was his fixation on the business cycle as expressed by the stock market, rather than looking at the whole economy with its wide range of meta-finance concerns such as agricultural economics, labor economics, population economics, and the economics of war, pollution, and development. The current administration did not seem to recognize the ongoing fundamental flaw. There was little real difference between the Republican and the Democratic leadership, under the influence of the lobbyists who paid both parties.

The Buck

The New World Order was here. Timothy Geithner met with Japanese Finance Minister Hirohisa Fujii this week in advance of the Asia-Pacific Economic Cooperation forum in Singapore on Thursday. On Wednesday, the dollar was trading just below 90 yen. Last month, a prominent Japanese currency strategist predicted the dollar could fall as low as 50 yen by next year. Geithner and Fujii paid lip service to the U.S.’ strong dollar policy, knowing full well that a weaker dollar is in the best interests of both countries for the time being, despite its very real and painful side effects.

Marketplace.com’s Lisa Twaronite reports quotes Bank of Tokyo-Mitsubishi UFJ strategist Naomi Fink,
“I have no doubts that Geithner defends a ‘strong dollar’ as a large economy would if it wishes to avoid flight from its assets as it increases its balance of debt. Yet like it or not, exports are actually less relevant than they were a year ago.”

“Exports comprised about 12% of the Japanese economy as of the second quarter, compared with about 16% at their peak, Fink said in an email interview. Consumption has risen to nearly 60% from about 54%, due to the reduction in exports and investment. Oil and most other commodities are traded in dollars, meaning a weaker dollar lowers Japan’s imported energy and materials costs. Naomi Fink said, ‘So perhaps the message here is that Japan should focus on domestic consumption and investment as to find a home for a greater volume of U.S. exports, thus narrowing the United States’ trade deficit?’ Fink added that in her view, it was ‘hard to see this happening,’ leaving a stronger Japanese currency as the most likely way to keep Japan from leaning on its old export crutch. ‘Japan might not wish for a weak dollar, but will probably have to bear with it, if it is to face the reality of reduced dependence on exports to the U.S.,’ said Fink. With the combination of fewer exports to the U.S. and lower oil imports and prices, the relevance of the U.S. dollar to Japanese trade has thus been reduced by default.”

“A stronger yen, while it adds to deflationary pressure here, can also help the newly Democratic Party of Japan achieve its goal of shifting the country away from a reliance on exports in favor of domestic-demand-led growth. While a weak dollar could in the long term bring down the U.S. trade deficit significantly by shifting consumption away from imports and by encouraging exports as they become cheaper on world markets, while at the same time discourage overseas investors on U.S. assets.”

The 21-member finance ministers’ meeting was the opening act for President Obama’s first state visit to Tokyo with Japanese Prime Minister Yukio Hatoyama before he heads to China. And then there was the Chinese yuan. Obama said on Monday that “currency, along with a host of other issues, will come up. I am confident that both the United States and China can arrive at a broad set of policies that encourages trade that benefits both countries, that allows ongoing economic growth.”

Economists say that Beijing artificially holds the value of the yuan down to make Chinese exports cheaper, American goods more expensive for Chinese consumers, with limited access to Chinese markets. Obama plans to raise the issue of their currency with Chinese officials in Beijing next week, a potentially disruptive topic for foreign exchange markets.

At their Pittsburgh summit in September 2009 the Group of 20 leaders aimed policies to ease the massive trade imbalance between China and the U S which has led to imbalances in the world economy by contributing to trade surpluses in China, big trade deficits in the United States, and cheap Chinese exports to the United States.

China’s relatively low-valued currency remains a focus of the financial markets. With their own high unemployment in Guandong in the important export regions from a slump in activity, there are no signs China will allow its currency to strengthen. The trade sector continues to be a drag on growth.

“We expect calls for yuan revaluation to be soundly rebuffed,” said Carl Weinberg, chief economist at High Frequency Economics. In the summer of 2008, before the September 2008 financial crisis blew up, China re-pegged its currency to the dollar. The key question is whether and when China will resume letting its currency strengthen. With the Chinese investment earned from exports put into U.S. government bonds, branding China a currency manipulator could anger a crucial U.S. creditor. There are no signs of any painful adjustments in the United States as to whether Mr. Obama will begin to cut spending or raise taxes to finance his goals.

Mr. Obama said say that the two countries share a common interest in delivering sustainable growth that will help rebalance the global economy. “They have a huge amount of U.S. dollars that they are holding, so our success is important to them. The flip side of that is that if we don’t solve some of these problems, then I think both economically and politically it will put enormous strains on the relationship,” he said.

Getting to the Next Party

Somewhere in the world the party was still going on? The Roaring Twenties just moved to a new neighborhood, under the brightness of a new sun?

Somewhere in the world the party was still going on? After the Crash of 2008? People living off the labor of the masses. Like the Lost Generation, Hemingway, Fitzgerald, living in Paris. As the Germans paid the French war reparations. In the Weimar Republic, where the currency was delivered by the wheel barrow.

Like on Wall Street and their salaries? Somewhere the party would keep on going on. Like In China. On September 3, 2009, Chris Oliver wrote a piece about the biggest movement in gold which might have gone little noticed by currency traders. The Hong Kong Monetary Authority, which functions as the territory’s unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, and the Hong Kong Mercantile Exchange had signed an agreement to use the depository for its physical settlement and storage needs.

Somewhere in the world the party was still going on? In China. What about the transparency of China? China and corrupt local political war lords, living off the backs of the laborer? The Chinese. A government that limited families to one baby each. To all those advocates of abortion and Planned Parenthood ( not to be confused with family planning decisions), how is that in the way of “choice?” How is that in the way of repression? Would I invest in China? In their currency? China and human rights. How would that be in the way of repression, when I bought into their system?

George Soros. Was it ethical to make $1 billion in one day against the British pound. When the UK, with all of its taxpayers, paid a price. Then the quest of Soros for power through funding the Democrat Party. Warren Buffet. Living off the backs of the laborer? With his growing investment income and value of Berkshire Hathaway. Which was not the same as blue collar hourly wage. These investors who were, who had, reshaped the Democratic Party.

The Democrats who chased away the blue collar worker. The Democrats who chased away the Catholic voter. All to get funding from those Warren Buffet and George Soros-types, reshaping party platform in the name of women’s rights? Or really not much different than in China? With all the transparency of China. China and corrupt local political party bosses, living off the backs of labor? The Chinese family, limited to one baby families. All those advocates of rescuing the free markets, when I bought into their system that allowed the pay scales at Goldman Sachs, Morgan Stanley, at the cost of the new blue collar worker enslaved by the technology of Bill Gates. Where workers were required to have cell phones and Black Berries and pagers. Even on vacation.

Economic collapse, with a falling currency? With little difference between the 2 political parties on issues of labor and economic policy. The only difference was based on “women Issues.”

Somewhere in the world the party was still going on, having just moved to a new neighborhood, under the brightness of a new sun? With the hyper-inflation still to come, should I buy in? In China?

Performance Enhancement After Affects

Tsunami warnings. Times of panic. When the water recedes.

Money-market funds are no longer insured by the US Treasury. When the Reserve Primary Fund share price fell last September a bit below a dollar, the U. S. Treasury stepped in offering protection against losses, to prevent a “run” by money-market depositors. Commercial banks paid premiums for federal deposit insurance for such protection to the federal government which they are required to have. That money-market fund protection continued in the panicked climate of the last 12 months but came to a stop Friday.

On September 3, 2009, Chris Oliver wrote a piece about the biggest movement in gold which might have gone little noticed by currency traders. The Hong Kong Monetary Authority, which functions as the territory’s unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in a statement. Local newspaper reports said the Hong Kong Mercantile Exchange had signed an agreement to use the depository for its physical settlement and storage needs. According to its International Reserves and Foreign Currency Liquidity statement, the Hong Kong Monetary Authority reported $63 million in physical gold reserves as of July 31, 2009, thought to be stored in London.

A newly built 3,660-square-foot depository, located at the city’s main Chek Lap Kok Airport,will serve as a “storage facility for local and overseas government institutions. The facility would support Hong Kong’s emergence as a Swiss-style trading hub for bullion and would lessen London’s status as a key settlement-and-storage center, Chris Oliver wrote. Marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility, according to Raymond Lai, finance director with the Hong Kong Airport Authority. Managing director at Scotia Capital, Sunil Kashyap, said the facility was the first with official government backing in the region. Martin Hennecke, a financial advisor with the Hong Kong-based Tyche Group, said, “Central banks are increasingly aware of the importance of having gold reserves at time of financial crisis and having it easily available at their own disposal,” and this could be appealing to regional central banks unnerved after watching the global financial system teeter on verge of implosion last year.

Management firm Value Partners planned to launch an exchange-traded gold fund that will use Hong Kong instead of London as a repository for the gold backing the fund, a local newspaper reported. Traders said the new depository facility could foster new financial products, such as exchange-traded funds based on precious metals. “Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region,” said Sunil Kashyap.

China has always shown a respect for the American dollar which comes from the history of the dollar. Now however, a larger interest is growing in China not to fall prey to wide currency fluctuations. Exports which have until now needed a reasonable balance in foreign accounts, a major share made up of the U S dollar. Paul Volcker spoke last night on the Charlie Rose show of the need in China to avoid social tension that is directly linked to currency.

The moves by the Fed last October are now starting to look a lot like a patient weened off steroids. It was not just the American electorate looking at how all the newly minted money was going to be paid for. It was either through tax increases or budget cuts. If the dollar was going to maintain any kind of value.

In the Shadows of Those Cloakrooms

Twelve months ago, there was talk of a revolution coming in the financial markets, which was financially supported by the 3500 lobbyists in Washington, for both parties. There was a new form of fascism in those stories at the time. That is if “fascism” was a word about comforts, with government offering instruction how all of us could live easier. With the help of former Goldman Sachs officers in government, government was now deciding, 12 months later, who were saved, which among us were rescued, at least amongst financial institutions. The free market had been replaced.

If the revolution in the financial markets was not enough, how did you feel as Congress was coming back from summer recess, from all the dog and pony shows, to address not the health care crisis but how, with a nation with an aging populace, to pay for health care. At a point in time when government through Medicare had not exactly been covering the cost of new technology in hospitals, was not paying a fair share. Yet health care itself had never been better.

In the debate, there are people who desire government to decide all of the issues of health care. How much to pay medical institutions, when government was not, had not been, reimbursing hospitals the true cost of taking care of patients with Medicare. Government now wanted to mandate the amount of reimbursement for all procedures, and somehow distribute the cost throughout the entire population in the form of premiums. People who thought government was honest seemed to support the concept. Did they know about the 3500 lobbyists in Washington who had been working for more than a generation to make sure the system was not fair? How had these health care reform supporters felt about the bailouts? (In the case of my Congressional Representative, Betty McCollum supported both the bailout and health care reform.)

Like in those financial bailouts, government was now deciding, if Betty McCollum got her way, who would be saved, which among us would be rescued, amongst both health care institutions, and their patients. Suddenly aware that government knew it had the power to print money, increase property taxes in the states, and if the need were come, to confiscate everything, now they would decided every health care procedure. We had yet to hear specifics how Washington would replace those Blue Cross Blue Shield claims people to make the same kind of every day decisions with all the love and care I found when I went to renew my license plate tabs.

The timing was not real good in September 2009, less than 12 months after the revolution in the financial markets. Not when this discussion seemed more like elective surgery. With a lot of swine flu around. I hoped the vote might be postponed for 6 to 12 months. Until the patients had a lot more strength. Until the president had the courage to introduce the specifics of a bill himself, with some accountability, rather than rely on Congress or the 3500 lobbyists in Washington to take the citizens to a health care destination. Congress had not done a very good job dealing with triage in the last crisis, but that might have been due to a president who just wanted to get out of office after creating the mess himself rather than actually lead.

I wonder if somewhere in those August dog and pony shows from New Hampshire to Montana, if the president heard someone ask when he might introduce the actual legislation that might work. If Congress had spent the time to approve his appointment so he had enough staff to work on a bill.