Tag Archive: U.S. dollar

Dec 14

Federal Reserve Announcement Causing the to Dollar Lossing It’s Reserve Currency Status; Central Banks Diversify

The Federal Reserve is a  famously inscrutable institution. Given their ability to move markets, Fed  officials have long been in the habit of speaking in careful, jargon-laced  language that is often constructed with the express purpose of saying not much  at all. That’s why when the Fed does communicate with the public, market  watchers scrutinize each phrase and clause in order to divine any changes in the central bank’s behavior. And following yesterday’s final Federal Open Market Committee meeting of 2012, there was a single phrase that got the economics world buzzing, and sent financial markets into a bipolar tizzy.

Ready for it? Instead of promising to keep short-term interest rates at near-zero until at least 2015, as it did in its last  statement, it pledged to keep short-term interest rates near zero at least  until the unemployment rate falls below 6.5% or projected inflation gets above 2.5%. If this change doesn’t sound earth shattering to you, allow me to explain.

The Federal Reserve has two main tools for stimulating the economy. One is through “open market operations,” or the buying and selling of government securities to affect interest rates. The Fed didn’t change much in this regard.  It’s continuing to keep short-term interest rates near zero and attempting to drive down long-term interest rates by purchasing longer-term Treasury  securities and mortgage-backed securities at roughly the same pace as the past  several months.

The other powerful tool the Fed has is its ability to affect expectations of future interest rates. And this is the  tool the Fed is leveraging with its recent policy change, and the one it’s been  employing with greater intensity for more than a year now. It began in the summer of 2011 by promising that it would keep interest rates low until 2013. It doubled down on this strategy in January of this year by extending that date to 2014. Then, with the September 13th launch of third round of quantitative easing  (aka QE3), the Fed promised that it would keep up a $40 billion monthly purchase of mortgage-backed securities “for a considerable time after the economic recovery strengthens.” And today’s announcement linked future policy to the unemployment rate, paired with a higher inflation target of 2.5%

stock binaries 728x90 01 Federal Reserve Announcement Causing the to Dollar Lossing Its Reserve Currency Status; Central Banks Diversify

The U.S. dollar could lose its status as a reserve currency used by countries worldwide for foreign reserves and to conduct commerce if Washington doesn’t make lasting fiscal reforms soon, said Michael Pento, founder of Pento Portfolio Strategies.

Washington needs to push through both short-term and long-term reforms to taxes and spending to keep the greenback attractive. In the more immediate future, lawmakers and the White House will be scrambling during the coming days to steer the economy away from the year-end fiscal cliff, a combination of tax hikes and deep spending cuts set to kick in at the same time and tip the country into a recession.

Today, the dollar and U.S. Treasury securities remain popular safe-haven investments thanks to the European debt crisis, which continues to drag on with relief here and there coming from temporary measures such as bailouts for countries like Greece.

Investors looking to cut their European exposure have flocked to U.S. government debt despite Standard & Poor’s decision to strip the United States of its coveted triple-A rating in 2011, when lawmakers raised the country’s debt ceiling at the last minute and narrowly avoided default.

Such a trend won’t last forever if Washington doesn’t put politics aside and make lasting fiscal reforms. Elsewhere, debt concerns in the United States make precious metals a wise investment, gold especially, as the yellow metal tends to trade inversely to the dollar.

“You are going to have a bond market crisis accompanied by a dollar crisis, so if the dollar is losing its value, there is no way you are going to be buying anything else besides precious metals,” he stated.

“You must own precious metals. They have thousands of years of history of maintaining their value during hyperinflation and intractable inflation, and that’s where we are headed eventually if we don’t get our fiscal house in order.”

 Federal Reserve Announcement Causing the to Dollar Lossing Its Reserve Currency Status; Central Banks Diversify

Jun 07

World Economic Collapse At Hand, Debt is Running Wild Like a Rabid Dog!

Ever since the beginning of the financial crisis and quantitative easing, the question has been before us:  How can the Federal Reserve maintain zero interest rates for banks and negative real interest rates for savers and bond holders when the US government is adding $1.5 trillion to the national debt every year via its budget deficits?  Not long ago the Fed announced that it was going to continue this policy for another 2 or 3 years. Indeed, the Fed is locked into the policy. Without the artificially low interest rates, the debt service on the national debt would be so large that it would raise questions about the US Treasury’s credit rating and the viability of the dollar, and the trillions of dollars in Interest Rate Swaps and other derivatives would come unglued.
In other words, financial deregulation leading to Wall Street’s gambles, the US government’s decision to bail out the banks and to keep them afloat, and the Federal Reserve’s zero interest rate policy have put the economic future of the US and its currency in an untenable and dangerous position.  It will not be possible to continue to flood the bond markets with $1.5 trillion in new issues each year when the interest rate on the bonds is less than the rate of inflation. Everyone who purchases a Treasury bond is purchasing a depreciating asset. Moreover, the capital risk of investing in Treasuries is very high. The low interest rate means that the price paid for the bond is very high. A rise in interest rates, which must come sooner or later, will collapse the price of the bonds and inflict capital losses on bond holders, both domestic and foreign.
The question is: when is sooner or later?  The purpose of this article is to examine that question.
Let us begin by answering the question: how has such an untenable policy managed to last this long?
A number of factors are contributing to the stability of the dollar and the bond market. A very important factor is the situation in Europe.  There are real problems there as well, and the financial press keeps our focus on Greece, Europe, and the euro. Will Greece exit the European Union or be kicked out?  Will the sovereign debt problem spread to Spain, Italy, and essentially everywhere except for Germany and the Netherlands?
Will it be the end of the EU and the euro?  These are all very dramatic questions that keep focus off the American situation, which is probably even worse.
The Treasury bond market is also helped by the fear individual investors have of the equity market, which has been turned into a gambling casino by high-frequency trading.
High-frequency trading is electronic trading based on mathematical models that make the decisions. Investment firms compete on the basis of speed, capturing gains on a fraction of a penny, and perhaps holding positions for only a few seconds.  These are not long-term investors. Content with their daily earnings, they close out all positions at the end of each day.
High-frequency trades now account for 70-80% of all equity trades. The result is major heartburn for traditional investors, who are leaving the equity market. They end up in Treasuries, because they are unsure of the solvency of banks who pay next to nothing for deposits, whereas 10-year Treasuries will pay about 2% nominal, which means, using the official Consumer Price Index, that they are losing 1% of their capital each year.  Using John Williams’ (shadowstats.com) correct measure of inflation, they are losing far more.  Still, the loss is about 2 percentage points less than being in a bank, and unlike banks, the Treasury can have the Federal Reserve print the money to pay off its bonds.  Therefore, bond investment at least returns the nominal amount of the investment, even if its real value is much lower. (For a description of High-frequency trading, see: http://en.wikipedia.org/wiki/High_frequency_trading )
The presstitute financial media tells us that flight from European sovereign debt, from the doomed euro, and from the continuing real estate disaster into US Treasuries provides funding for Washington’s $1.5 trillion annual deficits. Investors influenced by the financial press might be responding in this way.  Another explanation for the stability of the Fed’s untenable policy is collusion between Washington, the Fed, and Wall Street. We will be looking at this as we progress.
Unlike Japan, whose national debt is the largest of all, Americans do not own their own public debt.  Much of US debt is owned abroad, especially by China, Japan, and OPEC, the oil exporting countries. This places the US economy in foreign hands.  If China, for example, were to find itself unduly provoked by Washington, China could dump up to $2 trillion in US dollar-dominated assets on world markets. All sorts of prices would collapse, and the Fed would have to rapidly create the money to buy up the Chinese dumping of dollar-denominated financial instruments.
The dollars printed to purchase the dumped Chinese holdings of US dollar assets  would expand the supply of dollars in currency markets and drive down the dollar exchange rate. The Fed, lacking foreign currencies with which to buy up the dollars would have to appeal for currency swaps to sovereign debt-troubled Europe for euros, to Russia, surrounded by the US missile system, for rubles, to Japan, a country over its head in American commitment, for yen, in order to buy up the dollars with euros, rubles, and yen.

Paul Craig Roberts
June 6, 2012

Read Full Articale Here:  http://www.paulcraigroberts.org/2012/06/05/collapse-at-hand/

gofoods ad4 World Economic Collapse At Hand, Debt is Running Wild Like a Rabid Dog!

Jun 04

China and Japan Abandon the Hideous U.S. Dollar and Begin Direct Currency Trading

China and Japan started direct currency trading on Friday as Beijing marked another stage on its journey to foster the yuan’s use internationally in line with its growing economic clout.

Market participants can now swap Japanese yen for Chinese yuan without having to use the U.S. dollar as an intermediary currency, making foreign trade settlement more convenient and cutting transaction costs.

The move comes as China, the world’s second-largest economy just ahead of Japan, gradually moves to make the yuan freely convertible with an eye towards rivaling the mighty dollar, analysts said.

China maintains a tight grip on its currency, which is not convertible on the capital account, over fears that speculative flows could hurt its economy. That policy has long fostered trade tensions with the United States.

“Yuan-yen direct trading is just a small step toward making the yuan a reserve currency, but what’s foremost is whether China can carry out future reforms,” Zhang Zhiwei, chief China economist of Nomura Securities, told AFP.

“The move may be another step toward free convertibility of the currency, but from a long-term perspective, China has a long way to go,” he said.

On China’s national foreign exchange market, the yuan weakened against the yen on the first day of trading under the new practice, due to the Japanese currency’s overnight gains against the dollar, dealers said.

“Trading has been active this morning and demand for yen is mostly from China-based Japanese companies,” a dealer at a foreign bank in Shanghai told Dow Jones Newswires.

At midday, the yuan was bid at 8.1155 yuan to 100 yen, weakening from the open of 8.1074, according to the Shanghai-based China Foreign Exchange Trade System, the market operator.

British banking giant HSBC, one of the newly appointed market makers in China, said the launch of direct trading will help build a benchmark for non-dollar transactions.

Read Full Article Here:  http://www.japantoday.com/category/business/view/china-and-japan-begin-direct-currency-trading

gofoods ad4 China and Japan Abandon the Hideous U.S. Dollar and Begin Direct Currency Trading

Feb 15

States seek currencies made of silver and gold

A growing number of states are seeking shiny new currencies made of silver and gold.

Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.

“In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System … the State’s governmental finances and private economy will be thrown into chaos,” said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.

Unlike individual communities, which are allowed to create their own currency — as long as it is easily distinguishable from U.S. dollars — the Constitution bans states from printing their own paper money or issuing their own currency. But it allows the states to make “gold and silver Coin a Tender in Payment of Debts.”

To the state legislators who are proposing state-issued currencies, that means gold and silver are fair game, said Edwin Vieira, an alternative currency proponent and attorney specializing in Constitutional law.  And since gold has grown exponentially more valuable, while the U.S. dollar continues to lose ground, the notion has become increasingly appealing to state lawmakers, he said.

The state gold rush: Utah became the first state to introduce its own alternative currency when Governor Gary Herbert signed a bill into law last March that recognized gold and silver coins issued by the U.S. Mint as an acceptable form of payment. Under the law, the coins — which include American Gold and Silver Eagles — are treated the same as U.S. dollars for tax purposes, eliminating capital gains taxes.

Since the face value of some U.S.-minted gold and silver coins — like the one-ounce, $50 American Gold Eagle coin — is so much less than the metal value (one ounce of gold is now worth more than $1,700), the new law allows the coins to be exchanged at their market value, based on weight and fineness.

Local currencies: In the U.S., we don’t trust

“A Utah citizen, for example, could contract with another to sell his car for 10 one-ounce gold coins (approximately $17,000), or an independent contractor could arrange to be compensated in gold coins,” said Rich Danker, a project director at the American Principles Project, a conservative public policy group in Washington, D.C.

South Carolina Republican Representative Mike Pitts proposed a currency system that would allow people to use any kind of silver or gold coin — whether it’s a Philippine Peso or a South African Krugerrand — based on weight and fineness. Pitts said in the bill, which currently has 12 co-sponsors, that the state is facing “an economic crisis of severe magnitude.”

Republican representatives from Washington State followed suit in January, introducing a bill that would also allow any gold and silver coins to be considered legal tender based on metal values. Minnesota, Iowa, Georgia, Idaho and Indiana are also considering similar proposals.

Many of the bills would make it possible for residents to exchange the physical coins for goods and services, so you could use coins to buy anything from groceries to a car as long as the store chooses to accept them.

However, most people aren’t going to walk around with such valuable coins in their pockets, said Vieira. Plus, calculating the value of the coins — especially if they come from different parts of the globe and are of different sizes and shapes — will get tricky.

See Full Ariticle at CNNMoney.com


Jan 26

Gold Climbing Back to $2,000 on News that Federal Reserve Vows to Keep Rates Low & Home Sales Fall

Oil rose to near $100 a barrel Thursday in Asia after the U.S. Federal Reserve said it would keep interest rates at record lows at least until 2014 to help jump-start the world’s biggest economy.

As we suspected yesterday, crude oil prices edged higher after an overtly dovish FOMC announcement sank the US Dollar. The move higher was muted by a pickup in inventories however, where the weekly build more than doubled expectations. Looking ahead, a mixed set of US economic data is ahead, with expectations calling for a slowdown in Durable Goods Orders but improvements on the composite Leading Indicators index and New Home Sales. However, the earnings calendar may prove most market-moving as a hefty dollop of industrials report results, with traders particularly interested in guidance from the likes of Caterpillar Inc as a proxy gauge of the global business cycle (and thereby oil demand prospects).

The U.S. central bank, which has kept its benchmark interest rate near zero for three years, said Wednesday that it doesn’t plan to raise the rate before late 2014.

That caused the dollar to turn lower against major currencies, which makes dollar-priced oil less expensive for holders of other currencies.

“That would mean the U.S. dollar would continue to be cheap versus other currencies, and there is typically an inverse correlation between the value of the dollar and commodity pricing,” said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.

The median sales price for a new home fell 2.5 percent to $210,300 last month, the biggest drop in four months. Compared to December last year, the median price was down 12.8 percent.

There were a record low 157,000 new homes on the market last month and at December’s sales pace, it would take 6.1 months to clear them, up from 6.0 months in November.

Spot Gold (NY Close): $1710.57 // +44.90 // +2.70% 

Not surprisingly, gold soared after the Federal Reserve extended its pledge to keep interest rates at “exceptionally low” levels to the end of 2014 from the previously promised mid-2013. With the central bank determined to keep borrowing costs near-zero for the foreseeable future and recent US economic data pointing to a pickup in activity, inflation expectations are understandably climbing and boosting demand for the yellow metal as a store-of-value hedge. Indeed, the 2-year breakeven rate – a measure of inflation expectations derived from bond yields – soared to the highest in nearly 7 months after the FOMC outcome crossed the wires.

Spot Silver (NY Close): $33.16 // +1.12 // +3.49%

As with gold, silver prices soared higher after the dovish FOMC outcome stoked future inflation bets, with more of the same seemingly likely ahead. Likewise in line with its more expensive counterpart, the spotlight now turns to US economic data to see if positive momentum resumes or falters, with the latter scenario likely to defuse what will otherwise almost certainly amount to another major advance for precious metals. Prices are testing resistance in the 38.78-33.30 region, with break higher exposing 35.30. Near-term support lines up at 31.04.

Jan 11

Iran and Russia End Trading in Dollars, While China defends Iran oil trade

Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported Saturday, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow.

The proposal to switch to the ruble and the rial was raised by President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, at the Shanghai Cooperation Organization, the ambassador said. The meeting was in June of last year.

Iran has replaced the dollar in its oil trade with India, China and Japan, Fars reported.

The European Union, the United States and the United Nations are applying sanctions against Iran over its nuclear program. Iran says its nuclear efforts are for civilian purposes and to generate electricity, while the United States and several major allies say the program represents a weapons threat.

Meanwhile, Iran’s Bushehr nuclear power plant will reach full electricity-generating capacity on Feb. 1, Fars news agency reported Sunday, citing Fereydoun Abbasi, head of the country’s Atomic Energy Organization.

The plant’s 1,000-megawatt maximum output will meet 2.5 percent of the Islamic Republic’s power needs, Abbasi was cited as saying. Iran is ready to export nuclear energy services to nations such as those in Africa that hold uranium resources, he also said.

beprepared 600x1501 Iran and Russia End Trading in Dollars, While China defends Iran oil trade

China’s Defendence of Iran’s oil Trade

BEIJING – China gave no hint on Wednesday of giving ground to U.S. demands to curb Iran’s oil revenues, rejecting Washington’s sanctions on Tehran as overstepping even as Treasury Secretary Timothy Geithner lobbied for Beijing’s support.

“On economic growth, on financial stability around the world, on non-proliferation, we have what we view as a very strong, cooperative relationship with your government and we are looking forward to building on that,” Geithner told Chinese Vice President Xi Jinping earlier in the day.

Geithner is touring Asia to muster support for U.S. sanctions on oil revenues flowing to Tehran, which Western governments say wants to develop the means to make nuclear weapons. Iran says its nuclear program is for civilian uses, not weapons proliferation.

President Barack Obama authorized a law on New Year’s Eve imposing fresh sanctions on financial institutions that deal with Iran’s central bank, its main clearing house for oil payments. That will make it difficult to pay for Iranian oil.

Beijing is crucial to Washington’s pressure on Iran: China is Iran’s biggest oil customer, and has long argued that sanctions will not defuse the nuclear dispute.

China faces pressure to go along with the U.S. sanctions by cutting what it pays for Iranian oil, if not the volume it buys.

But China made it clear that, whatever the commercial or political calculations driving ups and downs in its crude orders from Iran, it rejects in principle unilateral U.S. sanctions.

“Iran is also an extremely big oil supplier to China, and we hope that China’s oil imports won’t be affected, because this is needed for our development,” Chinese Vice Foreign Minister Zhai Jun told a news conference in answer to a question about whether Beijing could curtail crude from Iran under U.S. pressure.

“We oppose applying pressure and sanctions, because these approaches won’t solve the problems. They never have,” Zhai told the briefing about Wen’s six-day visit to Saudi Arabia, the United Arab Emirates and Qatar.

“We hope that these unilateral sanctions will not affect China’s interests.”

China has backed U.N. Security Council resolutions calling on Iran to halt uranium enrichment activities, while working to ensure its energy ties are not threatened. As a permanent member of the council, China wields a veto.

Sep 15

Donald Trump Accepts Gold Instead of Dollars From Manhattan Tenant

“The rent’s too damn high,” to quote Jimmy McMillan, former New York State gubernatorial candidate.

And for Donald Trump, that’s true when it comes to rent in cold hard dollars, given his sharp criticisms of the Federal Reserve’s open fire hydrant of dollar printing and the Obama Administration’s fiscal policies.

Which is why, for the first time ever, Trump will accept today gold bullion instead of dollars for a lease deposit from his newest tenant in one of his marquee properties, 40 Wall Street, a 70-story skyscraper in Manhattan’s Financial District that at one time was the tallest building in the city until the Chrysler Building surpassed it. Trump will accept the gold at an event in the lobby of the Trump Tower at 725 Fifth Avenue.

Usually, Trump gets a certified check for a security deposit when leasing space in one of his office towers. ‘First on Fox’ exclusive interview with Trump today as he accepts gold bullion worth about $200,000 from Michael Haynes, chief executive of precious metals dealer APMEX. The gold payment was APMEX’s idea — Trump’s press office says Trump has been bullish on gold due to his concerns about the value of the U.S. dollar.

The gold is the security deposit for a 10-year commercial lease of the entire 50th floor at 40 Wall Street. The building is also known as The Trump Building. Trump bought and restored the building in 1995.

The gold bars are 0.9999 pure and weigh 32.15 troy ounces each.

APMEX’s lease maths out at about $50 a square foot, says Haynes.

“Trump is a smart guy, and he’ll realize that taking gold is a better idea than taking cash,” Haynes says.

Trump said in a statement: “It’s a sad day when a large property owner starts accepting gold instead of the dollar. The economy is bad, and Obama’s not protecting the dollar at all….If I do this, other people are going to start doing it, and maybe we’ll see some changes.”

Aug 19

Gold Price Vaults to Record High Investors Seek Safety, China Needs Caution in Drive Up Gold Reserves, Silver Surging Twice as Fast as Gold

Gold vaulted 1.4 percent in the first two hours of trading Friday amid mounting concerns the U.S. economy is heading into another recession and as some European lenders faced a short-term funding crunch, highlighting the risk of a banking crisis.  Nervous investors fled to the safety of core government bonds, Swiss francs  and gold, which hit a record high, with many seeking to unwind holdings of riskier assets such as stocks, commodities and higher-yielding currencies before the weekend.

European shares extended steep losses from Thursday, when they suffered their biggest daily slide in 2-1/2 years, with key indexes in Britain, France and Germany all deep in the red.

The sharp decline in stock markets is expected to have an adverse impact on household wealth, further undermining consumer confidence and demand in coming months. Heightened uncertainty over growth could also see producers delaying decision-making, hitting global output.

These concerns are likely to see investors cut exposure to stocks, commodities like metals and oil and growth-linked currencies such as the Australian dollar in the coming days.

Gold for December delivery on the CME Comex jumped $33.60 to $1,855.60, up from Thursday’s closing price of $1,822. At one point in Friday trading it reached $1,881.40, a nominal record. The inflation-adjusted record occurred in 1980 when it hit the equivalent of about $2,400.

China Adding to it’s Gold Reserves

According to data on every country’s gold reserves recently issued by World Gold Council (WGC), the United States’ gold reserves are 8,133.5 tons, accounting for 26.49 percent of the world’s total, and the Untied States is still the largest gold reserve country. China’s gold reserves are a little more than 1,054 tons, ranking sixth in the world. Although China’s gold reserve is not less in quantity, it accounts for only 1.6 percent of China’s total foreign reserves. In comparison, the Untied States’ gold reserves account for 74 percent of its foreign reserve, and even emerging countries including Russia and India have gold reserves accounting for more than 5 percent of their foreign reserves. Insiders said that it is good for emerging economies to hold more gold reserves. It is the trend that the Central Bank of China will hold greater gold reserves.

The gold purchased by every country in 2011 is three times as much as the gold they purchased in 2010.  In fact, before Standard and Poor’s downgraded the U.S. credit rating, the central bank of every country already started to gradually increase their gold reserves because of the European and U.S. debt crises and the declining confidence in the U.S. dollar and Euro. People have noticed that the countries that dumped gold in the past 20 years actually turned into net gold purchaser in 2010 because they want to realize foreign reserve diversification and reduce dependence on the U.S. dollar.

According to data issued by the WGC, governments of all the countries have purchased a little more than 203 tons of gold in 2011, three times as much as the gold they purchased in 2010. It indicates that every country is more and more regarding the gold as a tool for resisting the depreciation of paper money and global economic turbulence. Currently, China’s foreign reserves are definitely the largest in the world, but China’s gold reserves are still far less than the global average level.

Therefore, gold is of great significance to preserve a country’s financial security. The United States holds about 8,100 tons of gold reserves; Germany, 3,400 tons, and France and Italy each, 2,500 tons. These countries have paid high costs for their gold reserves, showing that they have drawn particular attention to the strategic importance of gold reserves.

Silver Surge

For all the well-deserved attention being paid to the rocketing price of gold, the price of silver was rising early Friday at more than twice the rate of gold as Indian investors piled into the white metal. Although silver has not been setting record highs in recent weeks, as has gold, it was surging at 8:35 a.m. EDT in electronic trading on the CME Comex division of the New York Mercantile Exchange.

Silver for September delivery, the most actively traded contract, jumped to $41.79 from Thursday’s closing price of $40.68, a 2.79 percent gain.  Gold, meanwhile, rose to $1,844.80
from Thursday’s closing price of $1,822, a 1.25 percent gain.

Meanwhile, iShares Silver Trust, an exchange-traded fund that is backed by physical silver jumped in premarket trading 3.38 percent.