Archive for the ‘debt’ Category

China tops Japan as No. 1 holder of U.S. Treasury debt for first time

November 18, 2008

Like nearly everyone else, the Chinese wanted the security of holding short-term U.S. Treasury bills in September as markets worldwide crumbled.

With China’s purchases of T-bills that month, the country surpassed Japan to become the No. 1 owner of U.S. Treasury debt, according to government data reported today on foreign investment in U.S. securities.

The September numbers overall confirm that foreigners still regard the U.S. as the best haven in times of international financial crisis.

Los Angeles Times
Money and Business

Net foreign purchases of long-term U.S. securities, including stocks and bonds, totaled $66.2 billion in September, up from $21 billion in August and $18.4 billion in July, Treasury data show.

As the global credit crisis worsened, slamming stocks, commodities and other markets, many investors put safety of principal above all other considerations. That pushed them into short-term U.S. Treasuries.

China increased its Treasury investments by $43.6 billion in September, lifting the total to $585 billion and taking the No. 1 spot among all foreign holders.

Japan, by contrast, reduced its Treasury holdings by $12.8 billion, to $573.2 billion.

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Fighting the Financial Crisis, One Challenge at a Time

November 18, 2008

WE are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy.

By Henry M. Paulson, Jr.
Treasury Secretary
Op-Ed, The New York Times

Treasury Secretary Henry Paulson addresses a gathering of corporate ...
Treasury Secretary Henry Paulson addresses a gathering of corporate CEOs, Monday, Nov. 17, 2008. (AP Photo/J. Scott Applewhite)

By September, the government faced a systemwide crisis. After months of making the most of the authority we already had, we asked Congress for a comprehensive rescue package so we could stabilize our financial system and minimize further damage to our economy.

By the time the legislation had passed on Oct. 3, the global market crisis was so broad and so severe that we needed to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our initial intent was to strengthen the banking system by purchasing illiquid mortgages and mortgage-related securities. But the severity and magnitude of the situation had worsened to such an extent that an asset purchase program would not be effective enough, quickly enough. Therefore, exercising the authority granted by Congress in this legislation, we quickly deployed a $250 billion capital injection program, fully anticipating we would follow that with a program for buying troubled assets.

There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis, always keeping focused on our goal: to stabilize a financial system that is integral to the everyday lives of all Americans. By mid-October, our actions, in combination with the Federal Deposit Insurance Corporation’s guarantee of certain debt issued by financial institutions, helped us to accomplish the first major priority, which was to immediately stabilize the financial system.

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Global Financial Crisis, Intertwined Economies, Too Much Debt: Now What?

November 16, 2008

Barack Obama surely has one of the toughest leadership challenges any incoming president has ever faced. We’re in the midst of a terrible economic meltdown, the current administration has lost all credibility, the House of Representatives is full of knuckle-dragging Neanderthals, and the public is being whipsawed between free-market fundamentalists preaching the virtues of just letting the market rip and left-wingers who think we can punish Wall Street while protecting Main Street. It feels like a mess with no one in charge.

Now is when we need a president who has the skill, the vision and the courage to cut through this cacophony, pull us together as one nation and inspire and enable us to do the one thing we can and must do right now:

Go shopping.

Obama can’t wait until Jan. 20 to weigh in on this. If we don’t stimulate the global economy fast enough and big enough, some of Obama’s inaugural balls might be held in soup kitchens.

When President Bush told us to go shopping after 9/11, he was right. We needed to stimulate the economy then. The problem was that the Bush economic team never turned off the green light and told people to “go saving.” So with easy credit seemingly endlessly available, American consumers saved virtually nothing and bid up housing prices to record levels. Retailers expanded stores and China expanded factories to accommodate all the shopping. It was quite a party. We had banks in America giving mortgages to people whose only qualification “was that they could fog up a knife,” one mortgage broker told me.

By Thomas Friedman
The New York Times

But when something seems too good to be true, it usually is. When these reckless mortgages eventually blew up, it led to a credit crisis. Banks stopped lending. That soon morphed into an equity crisis, as worried investors liquidated stock portfolios. The equity crisis made people feel poor and metastasized into a consumption crisis, which is why purchases of cars, appliances, electronics, homes and clothing have just fallen off a cliff. This, in turn, has sparked more company defaults, exacerbated the credit crisis and metastasized into an unemployment crisis, as companies rush to shed workers.

Governments are having a problem arresting this deflationary downward spiral — maybe because this financial crisis combines four chemicals we have never seen combined to this degree before, and we don’t fully grasp how damaging their interactions have been, and may still be….

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“You’re gonna need a bigger boat.”

Obama, Clinton Schizoid Relationship

November 11, 2008

They have needed each other.  They ran against each other.  They love each other.  Or do they all hate one another?

By Amie Parnes
Michelle Obama wasn’t always an admirer of Hillary Clinton, but last Wednesday the soon-to-be first lady dialed up the former first lady for pointers on protecting her two young daughters from the media maelstrom of the White House.

“Michelle may not have loved the senator, but she always respected how the Clintons raised Chelsea,” said a person familiar with Clinton’s end of the call. “They need to talk. There just aren’t too many people who have shared that kind of experience.”

An aide briefed on Obama’s side of the chat said she was “grateful” for Clinton’s “pointers” on “raising children in the public eye.”

It’s the latest phase in the ruling-class soap opera that is the Obama-Clinton alliance, where the two first families negotiate new personal relationships as Hillary Clinton wrestles with her own ambivalence about Michelle Obama’s husband, a man she once ridiculed as too callow to govern, and then worked tirelessly to elect.

These tensions have created a somewhat schizoid relationship between Clinton and the Obamas – warm on personal matters, warier on political ones, and downright frosty on the still-unresolved issue of Clinton’s mountainous campaign debt, which Barack Obama had pledged to help reduce.

Senator Clinton did not just check the box for Obama – she went all out for him, which says an awful lot about how important she felt this election was, what kind of character she has, and the positive state of their relationship,” said Chris Lehane, an aide to both John Kerry and Al Gore during their presidential bids.

Sen. Hillary Rodham Clinton, D-N.Y., campaigns for Democratic ... 
Sen. Hillary Rodham Clinton, D-N.Y., campaigns for Democratic presidential candidate Sen. Barack Obama, D-Ill., Monday, Nov. 3, 2008, in St. Charles, Mo.(AP Photo/Jeff Roberson)

Since the Democratic National Convention, Hillary Clinton headlined about three dozen rallies and fundraisers – working rope-lines where well-wishers often lamented her exit from the race. 
Bill Clinton, who once called Obama’s Iraq policy “a fairy tale,” hosted about 20 events for Obama after the Illinois senator paid homage to him with a mid-September visit to his Harlem office.

Obama responded by lavishing praise on the pair – after months of questioning the legacy of the Clinton White House. More importantly, he embraced much of Hillary Rodham Clinton’s domestic agenda, especially her health care and green jobs proposals.

Yet a half-dozen Clinton insiders told Politico they are disappointed that Obama’s vaunted fundraising operation hasn’t reciprocated by planning new events or an Internet campaign to help Clinton pay off the $7.9 million she owes to vendors. (Clinton has already written off the $13 million she loaned the campaign during the primaries, aides say).

“I don’t think there’s a whole lot of hard feelings, it’s more like mild annoyance,” said a former Clinton aide on condition of anonymity. “There’s just not a lot of expectation they are going to lift a finger for us.”

Added another longtime Clinton adviser: “She killed herself for them, did a hundred events, went anywhere they pointed – so it’s disappointing they aren’t helping… But it’s not a big deal at this point.”

One former Clinton fundraiser took a more cold-blooded view. “In a few months, when he’s really struggling, he’ll come to her for support,” he said. “That’s when she should ask him for money.”

An Obama spokesman didn’t comment but didn’t rule out a debt retirement effort down the road.

Clinton is expecting a warmer reception from Obama on legislative issues.

People close to the New York senator say she is still struggling to define her role in the Senate following a jarring and unexpected loss. But she’s sure of one thing: she desperately wants to play a major role in crafting the health care reform Obama has pledged to introduce.

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China-US ties seen smooth under Obama presidency

November 6, 2008

China-US ties should remain steady under an Obama presidency, due largely to Washington’s need for cooperation on the global financial crisis from an increasingly powerful Beijing, experts said.

Obama, who won office on Tuesday, criticised Chinese trade policies during his campaign, but not in particularly strident terms.

Chinese President Hu Jintao at a G8 press briefing in Sapporo ... 
Chinese President Hu Jintao at a G8 press briefing in Sapporo in early July. China-US ties should remain steady under an Obama presidency, due largely to Washington’s need for cooperation on the global financial crisis from an increasingly powerful Beijing, experts have said.(AFP/File/Jewel Samad)

And with myriad other problems to face, including two wars and the US financial meltdown , his attention will be diverted from such concerns as China’s currency policy and its military build-up, analysts said.

By Dan Martin, AFP

“It should be a very smooth transition. Obama is not a president who ran against China,” said Professor David Zweig, an expert on Chinese foreign relations at Hong Kong University of Science and Technology.

By contrast, he said, the campaigns of the past four US presidents, with the exception of the elder George Bush, all featured tough words for Beijing.

“This could be the smoothest transition since 1980,” Zweig said.

The need to coax China into global efforts to address the world financial crisis could force Obama to mute criticism on other issues, observers said.

“Obama will not try to project China in negative terms,” said Bahukutumbi Raman, a fellow with India’s Chennai Centre for China Studies.

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Pakistan says it needs billions in aid to avert financial crisis

October 21, 2008

ISLAMABAD (Reuters) : Pakistan requires $10 billion to $15 billion of support from foreign lenders to avert a balance of payments crisis, a government adviser said Tuesday.

“In 24 months, we must correct the imbalance we have created,” Shaukat Tarin, economic adviser to the prime minister, told Dawn News television.

Islamabad, with its the central bank holding barely enough foreign currency to cover six weeks of imports, was expected to seek a multibillion-dollar rescue package from the International Monetary Fund at a meeting in Dubai later Tuesday. Other donors are expected to help if the IMF paves the way and approves Pakistan’s economic strategy.

The border gates between India and Pakistan. (Amit Gupta/Reuters)

Pakistan has already approached the World Bank, the Asian Development Bank and other possible donors, including Saudi Arabia and China, for support.

Inflation in Pakistan is running at close to 25 percent, and the budget deficit is unsustainable, while government borrowing from the central bank has squeezed liquidity in the banking system and the international bond market has priced in a debt default.

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Economists warn over public borrowing

October 20, 2008

The Independent (UK)
More dire news on the nation’s creaking finances today sparked warnings that annual public borrowing could balloon to £120 billion within three years.

Official figures showed net borrowing hitting a record £37.6 billion between April and September – higher than for the whole of the previous year.

The figures – described by one economist as “dreadful” – leave Chancellor Alistair Darling’s forecasts of £43 billion of borrowing this year in tatters.

The UK’s finances have been hit as tax revenues fall and benefit spending rises as the economy hurtles towards recession. Tax handouts to tackle the 10p tax row and kick-start the housing market have added to the burden.

Capital Economics’ economist Paul Dales said net borrowing could reach £120 billion by 2010/11, or 7.8 per cent of national output.

This would be on a par with the £51 billion racked up by the Conservatives in 1993/4, which also stood at 7.8 per cent of GDP.

“The economic downturn is set to push borrowing to alarmingly high levels,” Mr Dales said.

With an election due in 2010, an incoming Government will be faced with the unpalatable choices of cutting spending, raising taxes – or both – to put the finances on a firmer footing.

Mr Darling said in March’s Budget that public sector net borrowing would reach £43 billion in the current financial year, before falling to £38 billion next year.

But these figures will be hiked upwards in his pre-Budget statement, due before Christmas. The Chancellor said yesterday he was ready to spend his way out of a looming recession.

Prime Minister Gordon Brown’s spokesman said the UK’s public finances were “in much better shape than most developed countries”.

He added that the UK’s lower net debt as a share of GDP than most other countries meant it was able to borrow more to support the economy. This figure stood at 43.4 per cent in September including nationalised Northern Rock’s liabilities.

The economic slowdown means that sluggish growth in tax receipts has been outpaced by Government spending.

According to the figures, the Government’s current receipts grew by £1 billion to £39.2 billion but expenditure jumped by almost £2 billion to £43.6 billion.

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Pakistan, Seeking to Avoid Loan Default, Seeks IMF Help

October 20, 2008

By Khaleeq Ahmed

Oct. 20 (Bloomberg) — Pakistan may be forced to seek a loan from the International Monetary Fund to prevent the nation defaulting on its debt, according to a government official.

South Asia’s second-largest economy, which has seen its foreign reserves plunge more than 74 percent to about $4.3 billion in the past year, is also seeking financial support from the World Bank and the Asian Development Bank, said Shaukat Tarin, financial adviser to the prime minister. The country has $3 billion in debt-servicing costs in the coming year.

“They are going to have to bite the bullet and sign for the IMF,” said David Fernandez, the Singapore-based head of emerging markets research at JPMorgan Chase & Co. “It has to come now.”

Pakistan’s first civilian government since 1999 is facing economic turmoil after the rupee plunged to an all-time low, the current account deficit widened to a record, and inflation jumped to a 30-year high. The nation, which only came off its last IMF program in December 2004, may need as much as $4.5 billion in loans to tide over the crisis, Tarin said.

“If I don’t feel the comfort level with the multilateral agencies and our bilateral friends in three to four weeks, then I’ll have to write to the IMF,” Tarin said in an interview in Islamabad yesterday. A default is “out of the question.”

Unpopular Decision

Pakistan faces the politically unpopular decision to seek an IMF bailout after China rebuffed its neighbor’s request for cash, the New York Times reported Oct. 18. The U.S. and other nations are preoccupied with the financial crisis, and Saudi Arabia, a traditional ally, refused to offer oil concessions, the newspaper said.

The U.S. has helped Pakistan financially for its support in the global war against terrorism, providing $10 billion in funds and canceling more that $1 billion of loans. The Bush administration has urged the Pakistan government to do more to fight al-Qaeda and Taliban militants in its tribal areas, which the U.S. says the militants are using to regroup and attack the coalition forces in Afghanistan.

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Obama Says He Really Does Believe In “Income and Wealth Redistribution”

October 14, 2008

I’m no economist but I can read and think and I stated categorically last March 8, 2008, that the United States was in a recession.  I made this statement after mulling over the facts starting around September 2007.  Turns out I was fully seven months ahead of former Fed Charman Paul Volcker who made the brilliant deduction today, October 14, 2008, that the U.S. was in a recession.  The current Fed Chairman Ben Bernanke and President Bush have still not acknowledged the recession we are in now.

By John E. Carey
Peace and Freedom

Volcker today:

Peace and Freedom March 8, 2008:

U.S. Secretary of Treasury Henry Paulson (R) listens as Federal ... 
U.S. Secretary of Treasury Henry Paulson (R) listens as Federal Reserve Chairman Ben Bernanke (L) talks about financial markets and the Market Stability Initiative in the Cash Room of the Treasury Department in Washington, October 14, 2008.REUTERS/Larry Downing (UNITED STATES)

You ever feel like you were living in a nightmare?  Now I know how the players in “Alice in Wonderland” must have felt.

Then we have John McCain and Barack Obama and their last debate.  The event looked like a high school picnic with both parties afraid to speak the truth for fear of offending the other.  One can only hope and pray that one or both of these guys grows the gonads to say something meaningful during their final debate October 15.

Mr. Obama was captured on video this week telling a potential voter (a plumber) that he believed “if you spread the wealth around”  that this was good for everyone.  Well, if a gunman takes my wallet and gets my hard earned cash it is by no means good for me, the guy that earned the loot that the gunman got for free.

See video:

Democratic presidential nominee Senator Barack Obama speaks ... 
Democratic presidential nominee Senator Barack Obama speaks at a campaign event in Toledo, Ohio, October 13, 2008.(Jim Young/Reuters)

The “Say Anything” blog discussed Mr. Obama and income redistribution last February:

The Orange County Register spoke about the same issue in an editorial this week.  We’ve republished that below for readers who really care to know:

Orance County (CA) Register
October 13, 2008

Sen. Barack Obama proposes a welfare plan that will transfer billions of dollars from those who earned it and to others who didn’t.

He doesn’t call his plan “welfare” or even “hand-outs,” which would be accurate descriptions. Instead, Mr. Obama portrays this massive redistribution of wealth as “tax cuts,” which is more palatable to voters. Who could object to tax cuts?

The presidential aspirant from Illinois says he will “cut taxes for 95 percent of workers and their families … .” The first of many problems with this claim is that only about 62 percent of U.S. households pay anyincome taxes. How then under Mr. Obama’s plan can most of the other 38 percent who already pay no income tax also get a tax cut?

The answer is that their tax liability will be reduced by giving them tax credits. Most people recognize the absurdity of lessening a burden that’s already zero. But, after all, it is an election year.

In one sense, 95 percent of American workers and their families will benefit from this scheme with either less money going out or more coming in. But they profit only at a huge cost for the remaining 5 percent, who happen to earn more income than Mr. Obama thinks is proper.

That small minority of the populace will be stuck with the bill. Their taxes will increase in order to provide for the cash not collected from or handed out to 95 percent of us. This no doubt has a short-sighted appeal for many of the 95 percent.

Except by degree, this also is not new to Washington, where people routinely send their money in order that the government can send it back out again to people who didn’t earn it.

In 1999, about 30 million tax filers had no income tax liability after taking advantage of credits and deduction. The number had mushroomed to 44 million by 2006, according to the Tax Foundation, a nonprofit organization that has provided information about government finance since 1937.

“The nation’s tax and spending policies redistributed more than $1 trillion in income from the top 40 percent of American households to the bottom 60 percent of households,” the Tax Foundation reports.

Mr. Obama is proposing to buy the support of a broad swath of voters with the money earned by a narrow band of America’s most wealthy. He assures voters that no family making less than $250,000 a year will see an increase in taxes. Why $250,000? It’s probably as arbitrary distinction as the rest of the numbers in his tax plan. Why eliminate taxes for seniors making less than $50,000, as he proposes? Why not $30,000 or $75,000? Why provide a 10 percent mortgage interest tax credit instead of 5 or 20 percent? Why reduce taxes by $3,700 on married couples making $75,000 with two children, one in college? Why not $5,000 or $1,000?

We suspect Mr. Obama’s metrics have more to do with how many votes he can acquire, rather than how much fairness he can inject into the tax system. And he will acquire those votes by taking then spending other peoples’ money.

There are other costs. The Heritage Foundation says Mr. Obama’s tax proposal would increase the U.S. top marginal income tax rate from 42.7 percent to 56 percent, making it comparable to Sweden’s 56, Germany’s 57 and Belgium’s 60 percent. Part of the price paid in those economies, says the Heritage Foundation, is high unemployment from 7 to 9.8 percent. Moreover, high tax rates also encourage capital and income flight to lower-taxed areas.

But there’s an even more costly price in Mr. Obama’s tax proposal. We favor reducing taxes as a matter of fairness. But there is nothing fair about a minority footing the entire bill while large segments or even majority segments of the population pay little if any taxes or receive government handouts.

Obama on Economy: Alice in Wonderland (Once Upon a Time You Believed in Fairness?)

China: World’s Factory Worries That Exports Will Fall With Demand

October 14, 2008

By JOE McDONALD, AP Business Writer 

BEIJING – As they prepare for China‘s biggest export fair this week, managers at Shunde Xiongfeng Electric Industrial Co. are anxious.

A worker checks timber outside a warehouse in Dalingshan, China's ...
A worker checks timber outside a warehouse in Dalingshan, China’s self-styled No.1 furniture export town, October 13, 2008. The cost of labour and raw materials has risen sharply in China in the past two years, while the currency has strengthened against the dollar and the government has lowered or eliminated many export tax rebates — all rendering exports more expensive. But one thing is certain: the outlook for exporters is worsening because of the global economic crisis, and many are now pinning their hopes on China’s burgeoning domestic markets. Picture taken October 13, 2008.To match feature CHINA-ECONOMY/EXPORTERS REUTERS/Bobby Yip (CHINA)

Sales of electric fans are down this year, and the financial crisis will likely further cut demand from overseas. The 5,000-employee company in the southern city of Shunde, near Hong Kong, sold 6 million electric fans abroad last year.

“We are worried that if our clients are short of capital, they might shut down,” said Shunde’s export manager, who would only give his surname, Zeng. “That’s certainly bad for us.”

China has been known as the world’s factory for everything from toys to T-shirts, and exports have powered its growth in recent years. But exports are taking a hit from the global financial crisis because of lower demand from overseas and tightening credit from state-owned banks.

A slowdown in Chinese exports would ripple through the world economy as China imports fewer raw materials, half-finished goods for assembly and supplies, such as Australian iron ore or factory equipment from the United States, Europe and Japan. Raw materials used for exports made up half of China’s nearly US$1 trillion in imports last year.

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