noworldsystem.com

Even the Fed Doesn’t Want to Hold U.S. Dollars

October 24, 2009, 10:18 am
Filed under: bailout, bank bailout, Big Banks, China, Credit Crisis, DEBT, deflation, devaluation, Dollar, dollar collapse, Economic Collapse, economic depression, Economy, Federal Reserve, global currency, global economy, Great Depression, Greenback, hyperinflation, imf, Inflation, interest rate cuts, Japan, liquidity, market manipulation, private bank, rate cut, SDR, SDRs, Stock Market, US Economy, Wall Street, world currency, Yen

Even the Fed Doesn’t Want to Hold U.S. Dollars

Seeking Alpha
Friday, October 23, 2009

This is the scariest image in finance:

The above chart shows the dollar’s performance since the Fed announced its Quantitative Easing program in March. This chart tells us two things:

1. Americans just got 15% poorer on the world stage thanks to Ben Bernanke
2. A currency crisis is in the works (and perhaps already starting)

Regarding #1: When the financial crisis hit, the Fed realized it would need to keep interest rates low while it attempted to bail out the banks (80% of the $200+ trillion in derivatives sitting on commercial banks’ balance sheets are related to interest rates).

The problem with this is that it makes Treasuries very unattractive to foreign investors (China & Japan) who want a higher yield. Consequently, the Fed decided to pick up the slack by buying $300 billion worth of Treasuries through the now famous Quantitative Easing program.

As I noted last week, the Fed is now the largest buyer of US debt (it bought more debt than the next three largest buyers combined in 2Q09). China and Japan are no one’s fools. And they’re not going to fund a monetary policy that is both profligate and likely to erode the value of their dollar holdings.

Which brings us to item #2: the coming dollar crisis.

I am not a huge fan of technical analysis, but it is a useful tool for navigating a trader-heavy, liquidity driven, manipulated market such as today’s. On that note, I want to point out that the dollar began forming a falling bullish wedge pattern starting in June (see above chart). This pattern entails an ever-tightening range of lower highs and lower lows and typically precedes major breakouts to the upside.

Except it didn’t.

As you can see, the dollar broke down out of this pattern in late September. It then rallied back up into the trading range before breaking down again. This is bad news. The next line of support (place where the dollar could bounce) is 76. We’ve already broken that one too.

Now the next line of support is 72. Now, the dollar has only fallen to this level once in the last 30 years (Summer 2008, see the chart below). If we fall below that, then we’re in uncharted territory and a major dollar devaluation is in the works.

Perhaps it’s already happening.

To review a point made earlier, the dollar has lost 15% of its value since March 2009. On an annualized basis, we’re talking about the dollar losing almost a third of its value in one year (30%). That is an absurd level of devaluation. And China, Japan, etc. have had enough. It is now clear that a flight from the dollar has begun; the Fed buys more US debt than the next three biggest buyers combined.

However, what most people don’t realize is that even the Fed itself is shifting away from the dollar. Everyone knows that China and Japan hold massive foreign reserves (the dollar). But the US Federal Reserve does this too (we own euros, yen, etc.). And for some reason the amount of foreign reserve assets (non-dollar assets) on the Fed’s balance sheet skyrocketed by 50% to $133 billion at the end of August.

Now, $133 billion in foreign reserves is nothing compared to China and Japan’s ~$3 trillion. But a 50% increase in one week is an astounding rate of change.

The culprit?

A 500% increase in SDRs: the “global” currency issued by the IMF. The blog ZeroHedge caught this story first and pointed out that SDRs are the IMF’s means of maintaining a “super reserve” currency for the world. SDRs are defined as: a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar.

Now, one has to wonder why the US Federal Reserve decided to suddenly buy $40 billion worth of SDRs overnight. The answer is that the IMF decided to massively increase the amount of SDRs outstanding from SDR 21 billion to SDR 204 billion in late August.

This came as part of a G20 decision made in April 2009 to stabilize the global financial system. Interestingly, of the countries involved in buying SDRs, the US bought the most at SDR 30 billion, compared to Japan (SDR 11 billion), and China (SDR 6 billion).

I realize this is getting a bit technical. But in simple terms this means that the US Fed intentionally participated in a world reserve currency scheme that devalued the dollar.

Folks, even the Fed doesn’t want to own dollars. It’s time to look for a currency that can’t be devalued.

Jim Rogers: Avoid Dollar At All Costs

July 3, 2008, 4:36 pm
Filed under: central bank, Credit Crisis, DEBT, Dollar, Economic Collapse, economic depression, Economy, Federal Reserve, gas prices, Great Depression, Greenback, Inflation, jim rogers, Oil, Petrol, Stock Market, US Economy, Yen

Jim Rogers: Avoid Dollar At All Costs

Bloomberg
June 30, 2008

Investors should avoid the dollar and buy commodities, which is the “best investment’’ for this year, said Jim Rogers, chairman of Rogers Holdings.

Avoid the dollar “at all costs,’’ Rogers said at the opening of an investment club in Shanghai today. “Agricultural prices have much higher to go over the next decade. We have a shortage of everything including seeds.’’

The U.S. currency has slipped 7.6 percent against the euro and 5.1 percent versus the yen this year as the Federal Reserve cut interest rates to stave off a U.S. economic recession. Oil prices in New York have doubled in the past 12 months, while gold futures jumped 41 percent.

Rogers, who put his New York house on the market in 2006 and now lives in Singapore, said last October he planned to shift all his assets out of the dollar. He predicted last month the currency’s decline would pause in the second quarter because it was overdone.

Gold Hits Record $1,009, Oil $111, Euro $1.56

March 14, 2008, 5:39 pm
Filed under: Britain, comex, Credit Crisis, DEBT, Economic Collapse, economic depression, Economy, Euro, Europe, food prices, foreclosure, gas prices, George Bush, global economy, gold, Great Depression, Greenback, housing market, Inflation, interest rate cut, interest rate cuts, jim rogers, nymex, Oil, palladium, Petrol, platinum, rate cut, S&P, silver, Stock Market, subprime, subprime lending, tax, United Kingdom, US Economy, Wall Street, wheat, White House, Yen

Gold hits new record at $1,009

Bloomberg
March 14, 2008

Gold surged to a record $1,009 an ounce in New York as the Bear Stearns Cos. bailout and a plunging dollar increased demand for the precious metal. Silver also gained.

Bear Stearns got emergency funding from JPMorgan Chase & Co. and the New York Federal Reserve. The securities firm said its cash position had “significantly deteriorated.” The dollar fell to a record against the euro and a 12-year low against the yen. Gold has jumped 19 percent this year, while the Standard & Poor’s 500 Index fell 13 percent.

“Gold’s assault on $1,000 is happening for a good reason,” said James Turk, founder of GoldMoney.com, which had $337 million in gold and silver in storage for investors at the end of February. “Gold is not only an inflation hedge, it’s a catastrophe hedge. Gold is becoming increasingly important as the credit crunch continues to spiral out of control.”

Gold futures for April delivery rose $5.70, or 0.6 percent, to $999.50 an ounce on the Comex division of the New York Mercantile Exchange. The price reached the highest ever for a most-active contract at 10:45 a.m., topping yesterday’s record of $1,001.50. The metal has tripled in the past five years.

Silver futures for May delivery climbed 23.5 cents, or 1.2 percent, to $20.655 an ounce. The price has gained 38 percent this year.

“Gold at $1,000 is a clear sign of a lack of confidence in the dollar and the Fed’s handling of monetary affairs,” said Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland.

Oil Hits Record $111, Euro Reaches $1.56

AFP
March 14, 2008

The dollar struck a fresh all-time low against the euro Friday as gold prices traded close to record highs a day after topping 1,000 dollars for the first time on US economic woes.

Oil prices fell on profit-taking after striking an historic peak of 111 dollars per barrel Thursday.

The European single currency reached a record high of 1.5651 dollars in Asian trade Friday, prompting the EU presidency to voice deep concern.

In later European trading the euro stood at 1.5566 dollars, down from 1.5624 late on Thursday in New York.

http://video.google.com/videoplay?docid=-6046520409389956642&hl=en

Jim Rogers: Abolish The Federal Reserve

Dollar Declines, Fed May Cut Rates 75 Points

March 12, 2008, 3:13 pm
Filed under: bernanke, Britain, central bank, Credit Crisis, Dana Perino, DEBT, ECB, Economic Collapse, economic depression, Economy, Euro, Europe, european central bank, Federal Reserve, food prices, gas prices, George Bush, global economy, Great Depression, Greenback, Inflation, interest rate cut, interest rate cuts, Iraq, marc faber, Oil, Petrol, rate cut, russian mafia, S&P, Stock Market, United Kingdom, US Economy, Wall Street, War On Terror, Warren Buffett, Yen | Tags: Standard & Poor

Dollar Declines, Fed May Cut Rates 75 Points

Bloomberg
March 10, 2008

The dollar weakened against the euro and approached an eight-year low versus the yen as traders bet the Federal Reserve will lower interest rates by at least 75 basis points to avert a recession.

The currency traded within a cent of a record low against the euro as futures indicated 96 percent odds the Fed will cut its benchmark rate to 2.25 percent on March 18, 175 basis points more than the Bank of Japan’s and 175 basis points less than the European Central Bank’s. The U.S. currency weakened against a basket of major trading partners to near the lowest since the index began in 1973.

“What’s been driving the market is U.S. economic developments and expected interest-rate differentials,” said Thanos Papasavvas, head of currency management at Investec Asset Management in London. “This is a weak-dollar story. We would expect the Japanese yen and euro to continue appreciating.”

The dollar fell to 102.33 yen by 7:24 a.m. in New York, from 102.67 yen on March 7, when it slid to 101.43, the lowest since January 2000. It dropped to $1.5364 per euro, from $1.5355 at the end of last week, when it declined to $1.5459 a euro, the weakest level since the European single currency’s debut in 1999.

The yen advanced 0.4 percent to 157.20 per euro as the Cabinet Office said Japan’s equipment orders jumped 19.6 percent in January, the fastest pace in more than seven years.

The U.S. currency declined to $2.0197 against the pound, from $2.0134 on March 7, after a government report showed factory-gate in February inflation matched the fastest annual pace since 1991. The dollar also dropped 0.2 percent to 1.0233 against the Swiss franc and 0.5 percent to 5.1361 Norwegian krone.

http://www.youtube.com/watch?v=C-Cvg9deslg

Faber: Bernanke Will Destroy Dollar

Market Watch
March 9, 2008

Federal Reserve Chairman Ben S. Bernanke will “destroy the U.S. dollar” by cutting interest rates, investor Marc Faber said.

Bernanke’s reduction in the target rate for overnight loans between banks to 3 percent has spurred a rout in U.S. stocks and gains in oil and gold prices, said Faber, the Gloom, Boom & Doom report publisher who told investors to buy gold at the start of its six-year rally.

The U.S. is now in a “de-leveraging” phase where banks make fewer loans, stunting economic growth, Faber said. He estimated that a U.S. recession began two or three months ago.

“In the U.S., they pursue essentially economic policies that target consumption, which in my opinion is misguided,” Faber said in an interview with Bloomberg Television from Chicago. “They should pursue economic policies that stimulate capital investment and capital formation.”

The Standard & Poor’s 500 Index is down 9.7 percent since Sept. 18, when the Fed began cutting the fed funds target to 3 percent from 5.25 percent. The dollar has lost 9.2 percent of its value versus the euro, crude oil futures gained more than 29 percent and gold added 34 percent during that time.

Further interest-rate cuts may spur inflation and reduce the value of 10- and 30-year Treasuries, Faber said, calling the bonds “a disaster waiting to happen.” Ten-year notes fell to a four-year low of 3.44 on Jan. 22.

Press Secretary Perino: I’ll Be Fired If I Talk About the Dollar

Greenspan Joins Firm That Bet Against US Housing Market

January 16, 2008, 5:53 pm
Filed under: Alan Greenspan, central bank, China, Credit Crisis, DEBT, ECB, Economic Collapse, economic depression, Economy, european central bank, Federal Reserve, gas prices, gas tax, global economy, gold, Goldman Sachs, Great Depression, Greenback, housing market, Inflation, interest rate cut, interest rate cuts, job market, john paulson, Northern Rock, Oil, Petrol, rate cut, Stock Market, subprime, subprime lending, unemployment, US Economy, US Treasury, Wall Street, Yen

Greenspan joins firm that made billions betting against the housing market

Reuters
January 15, 2008

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Hedge fund manager John Paulson, who earned billions of dollars last year by betting against the housing market, said on Tuesday that former Federal Reserve board chairman Alan Greenspan will advise his firm.

Greenspan, whose words can still move financial markets, will advise Paulson on the global economy for an undisclosed amount of money, the hedge fund said in a statement.

By joining the New York-based fund, Greenspan becomes the latest former Washington insider to work in the fast growing $2 trillion hedge fund industry. Former Treasury Secretaries Lawrence Summers and John Snow provide advice to D.E. Shaw and Cerberus.

Goldman Sachs Hints at $1000 Gold and $135 Oil

24/7 Wallstreet
January 16, 2008

Goldman Sachs is RAISING ITS 2008 GOLD FORECASTS factoring for a recession in the U.S. in both Q2 and Q3 2008, leading to a weaker U.S. Dollar target of $1.51/Euro (up from $1.35) over the next six months. The prior $800/ounce gold target is now put at an average of $915/ounce for all of 2008, with an exit 2008 commodity price of $850 (up from $825 prior). The call is based on support from investment demand, purchases from emerging market central banks, and the ongoing declining mine supplies.

Goldman Sachs is also raising its 2009 and 2010 gold prices:

2009 prices are now expected to be $870/ounce (up from $852);
2010 prices are now expected to be $940/ounce (up from $907);

Near-term Goldman Sachs notes a possibility of a spike past $1,000.00 that could be the effect of further credit events and increases in oil prices.

Crisis may make 1929 look a ‘walk in the park’
Wholesale Prices Up 6.7% In 2007
Breaking phase ahead for the global financial system in 2008
Traders betting oil will hit $200 a barrel in 2008
Gold Futures Rise to Record $900.10
Weaker dollar likely to push gold over $1,000-mark

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Gold Peaks Above $861, Oil $100 a Barrel

January 3, 2008, 5:26 pm
Filed under: Big Banks, central bank, China, citigroup, Credit Crisis, DEBT, Economic Collapse, economic depression, Economy, Euro, Federal Reserve, food prices, gas prices, global economy, gold, Great Depression, Greenback, housing market, Inflation, Nigeria, nymex, Oil, OPEC, Pakistan, Petrol, Saudi Arabia, Stock Market, subprime, subprime lending, US Economy, Venezuela, Wall Street, Yen

Gold Peaks Above $861, Oil $100 a Barrel

Economist
January 3, 2008

TRADITIONALLY, the beginning of the year is a time for bargain-hunters to snap up excess stock on the cheap. Not, this year, on the commodity markets. On Tuesday January 2nd, the first business day of the new year, oil breached $100 a barrel for the first time. Gold, at the same time, reached a record price of over $861 an ounce. The immediate catalysts for the rising prices were ongoing turmoil in places like Nigeria and Pakistan and the continuing slump of the dollar. To those holding euros or yen, the weakening dollar makes oil and gold look cheaper; they can bid up prices in dollar terms without spending any more of their own currency. Moreover, gold, and nowadays oil too, is seen as a haven when the dollar is weak—so the latter’s drop may be accelerating the former’s rise.Gold is also seen as a haven more broadly, from political turmoil, inflation and all-round economic malaise. Gloomy news from America, where house prices are falling and manufacturing is contracting, have prompted fears of a full-blown recession. The economies of emerging markets in Asia and the Middle East are still chugging along, but analysts are cutting growth forecasts for them too. Normally, the worsening outlook for the world economy would prompt commodity prices to fall, on the assumption that demand for most goods will soon be slowing. But demand for oil continues to rise quickly in booming spots such as China and the Gulf states. These countries make matters worse by artificially inflating demand for petrol through subsidies or price caps, which leave consumers with little incentive to drive less even as the oil price surges.

Western oil companies, saddled with rising prices for everything from engineers to truck tyres—and in some cases, outright shortages—are struggling to pump more oil. They have also been excluded from the most promising terrain for exploration by nationalist regimes, which are increasingly reluctant to share their wealth with outsiders. Those same regimes seem in no hurry to increase their output, partly because they realise that their sluggishness is helping to keep prices high. But publicly, at least, the Organisation of the Petroleum Exporting Countries argues that oil at $100 is the result not of a shortage of supply but of financial speculation.

There might be some truth in that: in recent years, the volume of oil traded on markets such as New York’s Mercantile Exchange (NYMEX) has risen out of all proportion to the amount consumed. Hedge and pension funds and even individual investors have been piling into commodities of late. This influx of money could be exaggerating the market’s gyrations. Indeed, oil only topped $100 in a single transaction before falling back.

Politics is not helping either. A surge in violence in the oil-rich but restive Niger Delta in Nigeria over the New Year’s holiday helped to propel the oil price to three figures. Since the world has few idle oil wells, and relatively low stocks, even minor disturbances in producing countries prompt sharp jumps in the price. The traders at NYMEX, for example, pore over every diplomatic statement concerning Iran’s disputed nuclear programme to see if they can detect a heightening of tensions.

All this makes life particularly difficult for the world’s central bankers. High oil prices, after all, further blight the economic outlook by reducing consumers’ spending power. Yet they also stoke inflation, making it harder to cut interest rates. It is proving a gloomy new year for them too.

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December 31, 2007, 10:26 am
Filed under: Benazir Bhutto, Big Banks, Britain, Canada, canadian dollar, central bank, China, Credit Crisis, DEBT, Economic Collapse, economic depression, Economy, Euro, Europe, Federal Reserve, gold, Great Depression, Greenback, Inflation, interest rate cuts, job market, loonie, Musharraf, Pakistan, platinum, pound, rate cut, Stock Market, US Economy, Yen

Gold nears record-high on dollar, Pakistan turmoil

Reuters
December 30, 2007

Gold rallied to a 7-week high on Monday and close to a record high of $850 on speculative buying driven by a weak U.S. dollar and tensions in Pakistan following the assassination of opposition leader Benazir Bhutto.

But thin trading in Asia ahead of the New Year holidays meant gold and other precious metals were prone to sharp fluctuations. Platinum dropped but held near last week’s record high of $1,542 an ounce.

Spot gold hit an intraday high of $842.90 an ounce before dipping to $842.00/842.80. This was still higher than $837.80/838.50 late in New York on Friday.

“There’s still a potential for further unrest in Pakistan following Bhutto’s assassination. I guess there’s a potential for us to push higher and test the highs around $847 at least,” said Darren Heathcote of Investec Australia in Sydney.

“I think $847 will be the initial technical point to breach. When London comes in, more stops get taken out,” he said.

Gold hit a record high at $850 January 1980 on high inflation linked to high oil prices, Soviet intervention in Afghanistan and the effects of the Iranian revolution. After adjusting for inflation, that level was equal to $2,079 at 2006 prices.

Gold has risen more than 30 percent this year — the biggest annual gain since 1979 — as a number of factors, including a weak U.S. dollar, record-high crude prices, credit market turmoil and falling U.S. rates, boosted its safe-haven appeal.

The latest safe-haven buying was sparked by Bhutto’s killing last week, which plunged Pakistan into crisis. Electoral officials hold an emergency meeting on Monday to decide whether to go ahead with a January election that is aimed at shifting the country from military to civilian rule.

Bhutto’s killing in a suicide attack on Thursday triggered bloodshed across the country and rage against President Pervez Musharraf, casting doubts on nuclear-armed Pakistan’s stability and its transition to civilian rule.

“I think it’s possible to touch $850 in the near term. It moved in a massive range already in the past 24 hours,” said David Moore, a commodity analyst at the Commonwealth Bank of Australia in Sydney.

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Dollar Heads for Annual Declines Against Euro, Yen on Fed Cuts

Bloomberg
December 31, 2007

The dollar fell for a second year against the euro and declined against the yen, snapping two years of gains, as traders raised bets the Federal Reserve will cut interest rates again to bolster the slowing economy.

The dollar traded at a two-week low versus the euro and yen, after weakening against 14 of the 16 most active currencies this year, as the Fed reduced borrowing costs three times to temper the worst housing slump in 16 years. A U.S. report today may show sales of existing homes held at the lowest since the National Association of Realtors began keeping records in 1999.

“Going into the end of the year, clearly markets have taken another bounce of dollar negativity on board,” said Jeremy Stretch, senior market strategist in London at Rabobank Groep, the third-biggest Dutch bank. “The slowdown in the U.S. economy is clearly going to happen.”

The dollar fell to $1.4712 per euro as of 9:48 a.m. in London from $1.4723 in New York on Dec. 28. It has lost 11.4 percent this year, and reached $1.4967 on Nov. 23, the weakest since the euro began trading in 1999. The dollar slipped to 112.11 yen, from 112.28 on Dec. 28 and 119.05 at the end of 2006.

The British pound headed for a second annual gain versus the U.S. currency, rising 2 percent to $1.9986. The Canadian dollar was poised for its biggest yearly advance since 2003, climbing 16 percent to 97.91 Canadian cents per U.S. dollar.

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Oil Rises $99 Overnight, Settles to $97 a barrel

November 22, 2007, 10:03 am
Filed under: Credit Crisis, Credit Suisse, Dow, Economic Collapse, economic depression, Economy, Euro, Europe, foreclosures, freddie mac, gas prices, Great Depression, Greenback, housing market, Inflation, Oil, Petrol, S&P, Stock Market, subprime, subprime lending, US Economy, Yen

Stocks Fall as Oil Flirts With $100 a Barrel

NY Times
November 21, 2007

A late sell-off in the final minutes of trading sent stocks down sharply today, with the Dow Jones industrial average closing at its lowest level since April. The Standard & Poor’s 500-stock index, a broad measure of the equity market, fell into negative territory for the year.

The plunge came as investors remain frightened and uncertain about a credit crisis that does not show any signs of easing. Freddie Mac, considered a backstop for the mortgage industry, said yesterday that it lost $2 billion last quarter because of increased foreclosures tied to subprime mortgage defaults. Oil prices flirted with the symbolic $100-a-barrel level in overnight trading. Markets in Asia and Europe dropped sharply as investors questioned whether the United States economy will slow more than expected. And investors fled to the safety of relatively stable government bonds.

The Dow Jones industrials, off less than 100 points soon before 3 p.m., finished down 211.10 points, to 12,799.04, a 1.6 percent decline. It was the lowest close since April 19. The index fell even below the low ebb of trading during the summer’s credit crisis, when it finished at 12,845.78 on Aug. 16.

The S.& P. 500 index fell 22.93 points, also 1.6 percent, to 1,416.77, putting it down 0.11 percent for the year.

“This is an ugly week,” said James Paulsen, chief investment strategist at Wells Capital Management. Indeed: the Dow lost 2.9 percent of its value in the last three days alone.

Some market watchers suggested that lower trading levels during a holiday week make the market more volatile, but at least one analyst disputed that notion. “I don’t know of anyone taking a day off today,” said Dennis Davitt, who oversees equity derivative trading for Credit Suisse. “Not in these conditions.”

Crude oil futures briefly rose above $99 in overnight trading and an Energy Department report showed that inventories fell slightly last week, leaving investors wondering how soon oil will be nudged above its inflation-adjusted record of $102. Crude settled in New York trading at $97.29, down 74 cents.

The recent run-up in oil prices, which threaten to curb consumer spending, dovetails with a shaky economic outlook released by the Federal Reserve yesterday, which predicted a slowdown in growth over the coming months.

The overnight rout in foreign markets reflected a broad reaction to the Fed’s grim projections and a growing sense that the besieged housing market, which once helped American consumers buy the world’s products and services, has not hit bottom.

Dollar hits new low versus euro

China View
November 22, 2007

NEW YORK, Nov. 21 (Xinhua) — The dollar dropped to new low against the euro for the second straight day Wednesday on worries about credit market losses and the health of the U.S. economy.

The U.S. currency also fell to a two-year low against the yen on Wednesday as investors sold higher-yielding assets financed by borrowing in Japan.

The dollar traded at 1.4858 dollars against the euro late Wednesday. It dropped to a record low of 1.4870 against the euro and 1.1016 versus the Swiss franc in earlier trading on speculation that the Federal Reserve will cut interest rates for a third time this year in December to prevent the economy from falling into a recession.

The dollar has declined 11.2 percent this year against the euro since the Federal Reserve began cutting rates in mid-September.

The dollar fell as low as 108.26 yen, the first time it has fell below 109 yen since June 2005, as global stocks weakened and oil prices surged toward 100 dollars a barrel. It stood at 108.63 yen in late trading.

Analysts said further sharp currency moves are likely in the near term, with U.S. markets closed on Thursday for the Thanksgiving holiday and trading likely to be thin on Friday.

Dollar Decline “Irreversible”

November 18, 2007, 3:51 pm
Filed under: Alan Greenspan, Bank of England, Big Banks, Britain, China, citigroup, Credit Crisis, Dow, Economic Collapse, economic depression, Economy, Euro, global economy, Goldman Sachs, Great Depression, Greenback, housing market, Inflation, interest rate cuts, Joseph Stiglitz, Merrill Lynch, Northern Rock, Paulson, pound, rate cut, Stock Market, subprime, subprime lending, US Economy, US Treasury, wells fargo, Yen

Dollar Decline “Irreversible”

The Independent
November 17, 2007

The decline of the dollar, symbol of US global hegemony for the best part of a century, may have become so entrenched that some experts now fear it is irreversible.

After months of huge and sustained turmoil on the money markets, lack of confidence in the world’s totemic currency has become so widespread that an increasing number of international traders are transferring their wealth to stronger currencies such as the euro, which recently hit its highest level against the dollar.

“An American businessman over here who is given the choice would take anything but the dollar,” David Buik of Cantor Index said yesterday. “I would want to be paid in yen, and if not yen then the euro or sterling.”

Matthew Osborne, of Armstrong International, added: “The majority would say sterling. There are a few dealers in the City who may take the view that they’ll take dollars now, while they’re cheap, and hold on to them for 12 months.

“But the problem is so serious that there are people who in July or August might have been thinking, ‘I’m paid in dollars, how annoying’ for whom it’s now a question of, ‘Do you have a job; do you have a bonus?’ “

The collapse of the sub-prime mortgage market in the US, which is fuelling the dollar unrest, has already brought down one British bank, Northern Rock, and has forced others to declare vast losses. Yesterday, just as it appeared that the dollar might have finally reached its floor, there was another warning that the sub-prime crisis is going to get worse. The US Treasury Secretary Henry Paulson, warned an international business summit in South Africa: “The sub-prime market, parts of it will get worse before it gets better.” Huge numbers of US homeowners are still cushioned by introductory interest rates set when they took out loans in 2005 or 2006, he said. When these introductory offers run out, their interest payments will increase, setting off another wave of defaulting and repossessions. And the dollar is enduring its rockiest spell in recent memory.

Goldman Sees Subprime Cutting $2 Trillion in Lending

Bloomberg
November 16, 2007

Nov. 16 (Bloomberg) — The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a “substantial recession” in the U.S., according to Goldman Sachs Group Inc.

Losses related to record home foreclosures using a “back- of-the-envelope” calculation may be as high as $400 billion for financial companies, Jan Hatzius, chief U.S. economist at Goldman in New York wrote in a report dated yesterday. The effects may be amplified tenfold as companies that borrowed to finance their investments scale back lending, the report said.

“The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,” Hatzius wrote. “It is easy to see how such a shock could produce a substantial recession” or “a long period of very sluggish growth,” he wrote.

Goldman’s forecast reduction in lending is equivalent to 7 percent of total U.S. household, corporate and government debt, hurting an economy already beset by the slowing housing market. Wells Fargo & Co. Chief Executive Officer John Stumpf said yesterday that the property market is the worst since the Great Depression.

Citigroup Inc., the biggest U.S. bank, and Merrill Lynch & Co. have led companies writing down more than $50 billion on securities linked to subprime mortgages. The risk of further losses by banks has pushed their borrowing costs above the average for investment-grade companies, according to Merrill Lynch indexes. Citigroup paid bondholders the highest yield relative to benchmark interest rates in its history this week.

Gold steadies as bargain hunters resurface
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U.S. Economic Collapse News Archive

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Jim Rogers Urges People To Sell Dollars

November 16, 2007, 4:14 pm
Filed under: Bank of England, bernanke, Big Banks, Britain, China, Credit Crisis, Economic Collapse, economic depression, Economy, Euro, Federal Reserve, food prices, foreclosure, George Bush, Goldman Sachs, Great Depression, Greenback, Inflation, interest rate cuts, jim rogers, Northern Rock, poll, pound, rate cut, Stock Market, subprime, subprime lending, swiss franc, United Kingdom, US Economy, US Treasury, Wall Street, Yen

Jim Rogers Urges People To Sell Dollars

Bloomberg
November 15, 2007

Nov. 15 (Bloomberg) — Investor Jim Rogers urged people to get out of the dollar and says he expects to be rid of all his U.S. currency assets by summer next year.

“If you have dollars, I urge you to get out,” Rogers said in an interview from Singapore. He is chairman of New York-based Rogers Holdings, formerly known as Beeland Interests Inc. “That’s not a currency to own.”

The dollar fell 9.5 percent this year against a basket of six major currencies as a housing slump slowed the economy and losses stemming from subprime mortgage defaults spread among U.S. banks. Rogers, who said last month he was shifting out of all his dollar assets, plans to buy commodities, Japan’s yen, the Chinese yuan and the Swiss franc.

Interest rate futures traded on the Chicago Board of Trade show a 72 percent chance that the central bank will lower its target rate for overnight loans between banks to 4.25 percent on Dec. 11, its third reduction this year.

Rogers, who predicted the start of the global commodities rally in 1999, criticized Federal Reserve Chairman Ben S. Bernanke for comments on the currency before a congressional committee on Nov. 8.

“He is a total fool,” Rogers said. “He said Americans who buy only American goods are not affected if the value of the U.S. dollar goes down. I was terrified.”

Bernanke said the only effect of a weaker dollar on a typical American with their wealth in dollars, buying consumer goods in dollars, would be “their buying powers, it makes imported goods more expensive.”

Rogers said that’s not right.

“If you only buy American products and the dollar goes down, the price of oil goes up, copper goes up, wheat goes up,” he said. “That affects you. He doesn’t understand the economy as far as I can see.”

Pound hits fresh 4-yr low vs euro after weak data

Reuters
November 14, 2007

Sterling fell to a new four-year low against the euro on Thursday, while British shares timmed losses after UK retail sales data showed an unexpected monthly fall in October, boosting the case for Bank of England rate cuts.

Retail sales fell 0.1 percent on the month versus expectations for a flat reading.

“It suggests that the economy is slowing down in the fourth quarter and it’s looking like there is going to be a rate cut in February which will mean cable (sterling/dollar) will go lower,” said Geoff Kendrick, currency strategist at Westpac.

Sterling fell to a session low of $2.0472, down about half a cent from pre-data levels .

The euro rose as high as 71.52 pence, highest since July 2003 .

The FTSE 100 .FTSE trimmed losses, down 0.46 percent after the UK retail sales data.

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Dollar Sinks To New Low

October 27, 2007, 12:43 pm
Filed under: abx, Australia, Britain, Credit Crisis, Economic Collapse, economic depression, Economy, Eisuke Sakakibara, Euro, european central bank, european union, Federal Reserve, forex, Great Depression, Greenback, Inflation, interest rate cuts, Oil, US Economy, Warren Buffett, Yen

Dollar Sinks To New Low

AP
October 26, 2007

FRANKFURT, Germany (AP) — The dollar fell to another new low against the euro Friday in midmorning trading on speculation that U.S. interest rates will be cut again.

After rising to a record $1.4375, the euro slipped back to $1.4369, higher than the $1.4319 it bought in late Thursday trading in New York.

The euro last hit a record high against the dollar Monday, rising to $1.4348.

The euro was lifted higher by a spate of sour economic reports from the United States, including a report that showed U.S. orders for durable goods dropped 1.7 percent in September, after an even bigger 5.3 percent plunge in August.

That was the first back-to-back decline in more than a year and took economists by surprise.

The data exacerbated concern about the health of the U.S. economy and has caused investors to sell their dollars in a climate of market nervousness ahead of next week’s U.S. Federal Reserve Bank meeting on interest rates.

“Yesterday’s run of downbeat economic data out of the U.S. is underlining the fact that the Fed’s last rate cut of 50 basis points clearly hasn’t been sufficient to kick start demand,” said James Hughes, a market analyst with CMC Markets in London.

He said traders and markets are expecting the bank to cut its benchmark rate from 4.75 percent next week. That, in turn, has caused the dollar to lose value because of speculation that the European Central Bank will increase its interest rates.

Although lower interest rates can jump-start the economy, they can weaken a currency as investors transfer funds to countries where their deposits and fixed-income investments bring higher returns. Higher rates can boost a currency.

In other trading, the British pound bought $2.0564, up slightly from the $2.0511 it bought on Thursday.

Meanwhile, the dollar was up against the yen, rising to 114.31 yen on Friday compared with 144.06 yen on Thursday.

‘Mr. Yen’ warns that dollar could plunge in 2008

Bloomberg News
October 19, 2007

TOKYO: The dollar could “plunge” in 2008, prompting the United States, the European Union and Japan to intervene in foreign exchange markets, Eisuke Sakakibara, the former top currency official of Japan, said Thursday.

U.S. economic growth may slow to less than 1 percent next year as losses on loans to homeowners with poor credit erode consumer spending and bank earnings, he said in an interview in Tokyo. Sakakibara was known as Mr. Yen because of his ability to influence the currency market during his time at the Ministry of Finance from 1997 to 1999.

“Should growth fall below 1 percent, we could see a plunge in the dollar,” said Sakakibara, now a professor at Waseda University in Tokyo. “Some form of intervention would be necessary to stop it, and that would require coordinated effort from all three major economies.”

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http://www.youtube.com/watch?v=isD2aj3wh20

Gloom & Doom Economist Says Worst Is Yet to Come

October 26, 2007, 6:29 am
Filed under: Bank of America, catastrophic event, central bank, citibank, CNBC, credit card, Credit Crisis, DEBT, Dow, Economic Collapse, economic depression, Economy, Euro, Federal Reserve, gas prices, global economy, gold, Great Depression, Greenback, housing market, Inflation, Iran, jim rogers, liquidation, marc faber, Merrill Lynch, Nasdaq, Oil, Petrol, S&P, Stock Market, subprime, subprime lending, US Economy, Wall Street, Yen

Gloom & Doom Economist Says Worst Is Yet to Come

CNBC
October 22, 2007

Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, thinks the worst is yet to come for the global economy.

Appearing on CNBC’s “Squawk Box,” the economist and managing director of Marc Faber Ltd., explained his bearish outlook — and offered advice for how to play a glum market.

Faber perceives a “battlefield” between the Federal Reserve and other central banks, which had infused billions of dollars into the worldwide system to boost liquidity, and the counter-pressure of illiquidity brought about by market forces such as declining home prices.

Watch It:

http://www.youtube.com/watch?v=YmORG10k71c

http://www.youtube.com/watch?v=VXsZu9oXCcg

But the economist fears that the Fed’s “throwing money at the system” will not help improve the fundamentals of the real economy. Instead, he believes, excessive monetary growth has merely driven excessive consumption in the U.S., with consumers living beyond their means and speculators “piling one bubble, housing, on top of the Nasdaq [tech] bubble” that popped in 2001-2001.

“The easy money, the easy credit — you can’t solve your problems with what caused them in the first place,” Faber declares.

He posits that a fully-realized recession at the turn of the millenium might have been for the best, restabilizing the world credit markets. “The longer you postpone the hour of truth, the worse it will be,” he augurs. “We will reach ‘zero hour,’ when more debt doesn’t help.”

How should one prepare for the full-fledged global bust Faber predicts?

Precious metals. He points to the traditional safe harbor, gold — but cautions that the precious metal is “a bit over-bought.” Construction-oriented commodities in general will continue to be driven by Chinese demand, he says, making mining companies a good bet. And he the one absolute essential: Food. “We all have to eat.”

Markets. As to national markets, Faber says that Japan and Thailand are “very reasonable.”

Currencies. He foresees the U.S. dollar remaining low against other currencies — but notes that “Euroland” is very expensive compared to the greenback.

Real estate. Faber’s outlook for real estate goes against the grain: Manhattan is the great exception to U.S. trends, continuing to rise in price even when strong U.S. regions show signs of decline. But Faber says that in the bigger perspective, New York property is as vulnerable to a credit bust as any major metropolitan areas, such as “Hong Kong, Zurich and Frankfurt.”

His real-estate advice: “Buy a farm and learn to drive a tractor.”

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U.S. Economic Collapse News Archive

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Dollar Slides To Record Low Against Euro

October 24, 2007, 11:16 am
Filed under: Australia, China, Credit Crisis, Economic Collapse, economic depression, Economy, Euro, G7, gold, Great Depression, Greenback, housing market, imf, Inflation, Iraq, Stock Market, subprime, subprime lending, Turkey, US Economy, Yen

Dollar Slides To Record Low Against Euro

Financial Times
October 22, 2007

The dollar hit a record low against the euro on Monday after the weekend G7 summit failed to explicitly address dollar weakness.

In their post-meeting communique G7 finance ministers urged China to let its renminbi appreciate more rapidly, but did not mention dollar weakness, which provided the catalyst for traders to dump the currency.

“The communique did not make any references to the levels of the dollar, euro or yen,” said Sue Trinh at RBC Capital Markets. She added: “This is, in effect, a green light to sell the dollar.”

After hitting a record $1.4348 against the euro, the dollar later clawed back to trade up 0.2 per cent on the session at $1.4280. Sterling climbed as high as $2.0537 against the dollar.

Japan’s yen hit a six week high of Y113.27 against the dollar, helped by rising aversion to risk after tumbling US equity markets drove the Nikkei 225 more than 2 per cent lower.

The unwinding of risky carry trades, where the low-yielding yen is sold to fund high-yielding purchases, led to hefty losses for the New Zealand and Australian dollars – which are among the highest yielding currencies.

Lee Hardman, currency economist at the Bank of Tokyo-Mitsubishi UFJ said the sharp fall in equity markets “reinforced risk aversion and encouraged the liquidation of yen carry positions”.

The Aussie fell 1.1 per cent to Y100.81 against the yen, while the Kiwi dollar shed 1.4 per cent to Y84.37.

The euro fell 0.8 per cent to Y162.40 against the yen and remained 0.4 per cent lower at Y163.

Sterling was 1.1 per cent lower at Y233.45 against the yen, lost 0.4 per cent against the dollar to $2.0435 and dropped 0.3 per cent to £0.6987 against the euro.

Elsewhere, the Turkish lira tumbled 2.1 per cent to TL1.2334 against the dollar as the country’s stock market took a dive after a rebel attack on Turkish soldiers was seen as increasing pressure on the government to launch an incursion into northern Iraq.

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Dollar stays near record euro low

October 19, 2007, 4:31 pm
Filed under: bernanke, Credit Crisis, Economic Collapse, economic depression, Economy, Euro, Federal Reserve, global currency, Great Depression, Greenback, Inflation, interest rate cut, Japan, job market, Stock Market, subprime, subprime lending, US Economy, Yen, Zimbabwe

Dollar stays near record euro low

BBC
October 19, 2007

The US dollar remained near record lows against the euro in early Friday trading, on growing expectation of a further American interest rate cut.

After disappointing US economic data overnight, one euro was worth $1.4280 by late morning in Europe, just short of Thursday’s all-time $1.4311 low.

Analysts said the rise in US unemployment makes the Federal Reserve more likely to trim rates this month.

Against Japan’s yen, the dollar remained near a three-week low.

The greenback was at 115.05 yen in early Friday trade.

Rejuvenate confidence

Commentators now expect the Fed to trim US interest rates from 4.75% to 4.5% when it next meets later this month.

The dollar has been sliding since the Federal Reserve cut rates from 5.25% to 4.75% in September to help rejuvenate confidence in the world’s largest economy.

This followed a summer of turmoil in the world’s credit markets, sparked by record loan defaults in the US sub-prime mortgage sector.

Since then, a raft of mostly disappointing economic news and soft inflation figures has prompted the anticipation of further rate cuts.

The inevitable collapse of the dollar

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Strong silence from U.S. on dollar’s weakness

October 11, 2007, 2:56 pm
Filed under: bernanke, canadian dollar, central bank, credit card, Credit Crisis, DEBT, ECB, Economy, Euro, Federal Reserve, George Bush, gold, Greenback, henry paulson, Inflation, interest rate cuts, Ron Paul, subprime, US Economy, Yen

Strong silence from U.S. on dollar’s weakness

Herald Tribune
October 10, 2007

The U.S. dollar is slumping near all-time lows against the euro and has weakened considerably against several other major currencies, but officials in Washington are reacting with almost contented silence.

Less than two weeks before finance ministers from the Group of Seven industrialized countries meet to discuss economic policy, European officials are grumbling about the weakened dollar because it makes U.S. exports cheaper in world markets.

Jean Claude Trichet, president of the European Central Bank, reiterated Monday that he was paying “great attention” – a week ago he spoke of his “extreme attention” – to U.S. statements in support of a “strong dollar.”

But while the official mantra of the Bush administration remains that a “strong dollar is in our nation’s interest,” this formulation has not changed during the past five years as the dollar gradually lost about a third of its value against the euro.

On Wednesday, the dollar was trading at about 1.408 against the euro – slightly off its all-time low earlier this month. In January 2002, the dollar was worth about 0.89 per euro.

Indeed, when the dollar’s slide accelerated after the U.S. Federal Reserve Baord lowered interest rates on Sept. 18, U.S. officials barely even repeated the mantra.

“They don’t really care what the dollar does, at least within a fairly wide range,” said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. “What the U.S. government cares about above all is that the changes are orderly.”

Since the most recent decline began three weeks ago, the U.S. Treasury secretary, Henry Paulson, has mentioned the strong dollar only once.

That was on Sept. 21, during a trip to Canada, just as the U.S. dollar was dropping to parity against the Canadian dollar for the first time in three decades.

“I feel very strongly that a strong dollar is in our nation’s interest,” Paulson said back then, “and we believe that currency values should be set in a competitive marketplace based on underlying economic fundamentals.”

In practice, analysts said, the administration’s position has been, effectively, that a “strong” dollar is whatever value the foreign-exchange markets settle on.

By contrast, Paulson has repeatedly expressed satisfaction that U.S. exports have climbed by about 15 percent over the past year – a trend that has been helped by the weaker dollar.

Analysts see little mystery in the U.S. position: At the moment, a weaker dollar offers more benefits than a stronger one.

The cheaper dollar offers a lift to American exporters by making their products more competitive in many parts of the world. And while a weak dollar usually makes imports more expensive, import prices have climbed far less than the other currencies so far because foreign producers have kept prices low in order to preserve market share in the United States.

“Implicitly, Paulson and the Federal Reserve are happy with a gradual fall in the value of the dollar,” said Nouriel Roubini, an economist at New York University and president of Roubini Global Economics, a consulting firm that also operates a popular economics Web site. “They’ll never say they favor a weak dollar, but the benefits to the U.S. in terms of competitiveness are significant.”

Though Paulson has primary responsibility for U.S. exchange-rate policy, officials at the Fed have also made it clear that they are not worried about any imminent inflationary dangers posed by a weaker dollar.

The Fed chairman, Ben Bernanke, recently told a congressional hearing that the dollar’s value remains “strong” in other respects.

“The value of the currency can also be expressed in terms of what it can buy in domestic goods, the domestic inflation rate,” Bernanke said in response to questions about the dollar from Representative Ron Paul, a Republican of Texas, a long-shot candidate for the Republican presidential nomination. Noting that inflation remains low, Bernanke suggested that the dollar’s weakness was not a source of concern to the Fed.

Democratic lawmakers, who have been quick to attack the Bush administration about most other economic policies, have said almost nothing at all about the currency’s decline.

To at least some European officials, worried that the soaring value of the euro will hurt European exports, the U.S. silence has been thunderous.

“I would like very much to hear U.S. Treasury Secretary Henry Paulson repeat loud and clear that a strong dollar is good for the American economy,” said Christine Lagarde, the French finance minister, in an interview last week with the French business newspaper Les Échos.

Paulson has yet to respond. Left with his taciturnity, European officials have resorted to reminding Paulson about the one statement he did make.

“We agree with Mr. Paulson,” said Miguel Ángel Fernández Ordóñez, the governor of the Bank of Spain and a member of the European Central Bank board, after a meeting Monday in Luxembourg.

Yet even as European and U.S. officials warily circle each other on the currency, a bigger issue for both the United States and Europe is China, which continues to tether its currency, the yuan, closely to the dollar even as the Chinese trade surplus swells further.

According to recent data, the Chinese foreign reserves have been climbing at the pace of $40 billion a month – twice as fast as last year.

In recent days, European officials like Trichet have begun to focus more on demands that China allow its currency to float more flexibly.

That would be in line with long-standing efforts by the United States. But thus far, those efforts have had very limited effect on Chinese policy.

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Dollar lower vs euro and yen after Fed minutes

October 10, 2007, 11:28 am
Filed under: bernanke, central bank, China, Credit Crisis, Economic Collapse, economic depression, Economy, Euro, european union, Federal Reserve, George Bush, global economy, gold, Greenback, hedge fund, housing market, Inflation, interest rate cuts, Oil, S&P, Stock Market, subprime, US Economy, Yen

Dollar lower vs euro and yen after Fed minutes

MarketWatch
October 9, 2007

The dollar initially jumped against its major counterparts Tuesday after the release of minutes from the U.S. Federal Reserve’s last meeting, but quickly lost ground as investors realized the minutes didn’t remove the chances of another interest rate cut.

The greenback was also undermined by comments from a key Federal Reserve official that housing and credit markets remain fragile and won’t recover for some time, implying significant risks to the Fed’s forecast for a modest improvement in the economy.

“Recent events suggest that housing will remain weak for several more quarters,” said William Poole, president of the St. Louis Federal Reserve Bank, and a voting member of the Federal Open Market Committee this year.

With the economic outlook in the wake of the financial market turmoil highly uncertain, Fed officials agreed that a half a percentage point rate cut was “the most prudent course of action,” but said only that future actions would depend on how the economy fared in coming weeks, according to a summary of the Sept. 18 meeting.

“Since Sept. 18, the housing data have deteriorated significantly and while some credit spreads have narrowed, overall credit conditions and standards have not loosened materially,” noted economist Michael Gregory of BMO Capital Markets.

“The Fed could cut again on October 31 based on these developments alone, and we judge the data flow during the next 22 days will corroborate what’s on the ground now,” Gregory said.

Lower interest rates erode returns on dollar-denominated assets and therefore weigh on the dollar.

On Sept. 18, central bankers decided to cut U.S. interest rates by an unexpectedly large half percentage point. There was no opposition to the rate cut, the minutes showed.

Fed officials were so uncertain about the outlook that they refused to provide the traditional balance of risk statement, language that indicates to the market whether the Fed believes it must focus its policy attention on higher inflation or slower growth. Such a statement in mid-September “could give the mistaken impression that the FOMC was more certain about the economic outlook that was in fact the case,” the summary said.

The dollar index, which measures the greenback against a basket of major currencies, was at 78.450, after jumping up to 78.630 after the minutes were released. It was at 78.775 in late U.S. trading Monday.
The euro spiked up to $1.4103, after dropping to $1.4072 after the minutes. It was at $1.4043 late Monday.

The dollar was buying 117.17 compared with 116.94 yen before the minutes and 117.39 yen Monday.

EU focus on China

Investors were also studying the comments that emerged from the monthly meeting of European finance ministers, which concluded Tuesday in Luxembourg.

Rather than focus on the recently weak dollar, the meeting participants chose to zero in on the Chinese yuan. Though China no longer pegs the yuan to the dollar, it still trades in ranged bands against major currencies rather than float freely according to market rates.

“First point China, second point dollar, third point yen,” said Jean-Claude Juncker, chairman of the meeting, according to news reports.
Juncker, European Central Bank President Jean-Claude Trichet and European Economic Affairs Commissioner Joaquin Almunia will visit Beijing before the end of the year.

“We note that the euro is playing its role for an orderly reduction of the imbalances,” referring to China’s huge trade surplus, the euro zone statement said.

“EU Finance ministers have gotten little indication that the U.S. is willing to change its core view on [the dollar] and have directed their discomfort with the strong [euro] at China and the lack of movement” in the dollar-yuan pair, wrote David Watt, senior currency strategist at RBC Capital Markets.

Subprime crisis far from over

Reuters
October 09, 2007

The U.S. subprime housing crisis will not peak until 2009, rating agency Standard and Poor’s said on Tuesday, adding it had underestimated the extent of fraud in the industry.

S&P expected the world economy to grow 3.6 percent in 2007 and 3.5 percent in 2008, with emerging market economies driving growth. The U.S. economy would lag at 2 percent in both years, down from 2.9 percent in 2006.

Housing was the major weakness in the U.S. economy and the subprime crisis — which roiled global markets in late July and August — was far from over, although its shock value was wearing off, David Wyss, S&P’s chief economist, said in Mumbai.

“We underestimated the extent to which fraud was occurring in the industry,” he said.

“It looks, based on some surveys that had been done, the extent of frauds increased sharply in 2006.”

S&P said the U.S. Federal Reserve had estimated that subprime losses could reach $150 billion, and Wyss said that would feed through to unemployment and remain a brake on growth.

“We think in the United States the housing market is not going to bottom until winter. We think the losses in these sectors won’t really hit their peak until 2009,” Wyss said.

“We are not halfway through with this crisis yet.”

Emerging markets were far less vulnerable to credit market turmoil than during previous crises because of the capital flows attracted by high economic growth coupled with improved corporate governance standards, S&P said.

“World growth remains strong despite the weaknesses seen in the U.S. economy — especially in emerging markets because of healthy domestic demand conditions and export strength to non-U.S. markets,” it said in a report.

“The fact that the U.S. slowdown is concentrated in housing, which has relatively low import content, helps,” it said.

High commodity prices were also helping many emerging market economies, such as Latin American and African countries that are major exporters.

S&P estimated that, on a purchasing-power parity basis, the United States would contribute only 9 percent of world growth in 2007, compared with China’s 33 percent and India’s 12 percent.

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Dollar falls, unable to shake gloom despite jobs report

October 7, 2007, 1:09 pm
Filed under: Australia, bernanke, canadian dollar, central bank, ECB, Economic Collapse, economic depression, Economy, Euro, Federal Reserve, G7, Great Depression, Greenback, housing market, Inflation, interest rate cuts, job market, Stock Market, subprime, US Economy, washington mutual, Yen

Dollar falls, unable to shake gloom despite jobs report

Reuters
October 5, 2007

NEW YORK (Reuters) – The dollar fell on Friday as a solid U.S. employment report was not enough to convince investors the U.S. economy is growing fast enough to keep the Federal Reserve from cutting interest rates again.

The greenback rose sharply after the data showed September U.S. jobs growth of 110,000, the highest since May, and upwardly revised numbers for August and July, but the rally petered out ahead of the long Columbus Day holiday weekend.

“Even if you get some better news in terms of the employment report balancing out some of the doomsday scenarios for the U.S. economy, we still have a situation in which the Fed has eased and will likely ease further because of the risks to growth, while other central banks are on hold or tightening policy,” said Sophia Drossos, currency strategist with Morgan Stanley in New York.

In late afternoon trading in New York, the dollar index, a gauge of the greenback’s value against a basket of major currencies, was down 0.2 percent at 78.324 (.DXY: Quote, Profile, Research). After the jobs data, the index rose as high as 78.819. On Monday it had dropped to an all-time low of 77.660.

The euro fought back from earlier losses to trade little changed at $1.4140. The dollar rose 0.3 percent to 116.85 yen.

Commodity-related currencies were the biggest movers among the world’s most liquid.

The Australian dollar climbed to a 23-year high of US$0.9004 and was last up 1 percent at US$0.8970. The U.S. dollar tumbled to a three-decade low against the Canadian dollar of C$0.9816, falling 1.5 percent, the biggest daily decline in three years, after data showed the Canadian unemployment rate was the lowest in 33 years.

Despite the strong jobs report “it didn’t take long for the market to refocus on the overall fundamental weakness that remains for the U.S. dollar,” said Camilla Sutton, a currency strategist at Scotia Capital in Toronto.

G7 ON ITS WAY

While the jobs report reduced the chances of a cut in the Fed’s benchmark federal funds rate this month, it did not eradicate them. The futures market reflected a 50 percent perceived chance of a cut in the benchmark rate, down from a roughly 70 percent implied chance prior to the payrolls report.

Since mid-August when a crisis in the U.S. subprime mortgage market practically froze bank lending, the dollar has been on a one-way road downhill. The sell-off accelerated after the Fed slashed the fed funds rate by a half percentage point to 4.75 percent last month.

But this week’s U.S. economic data, as well as less-than-hawkish comments from European Central Bank President Jean-Claude Trichet, have at the very least introduced more two-way traffic.

“The jobs report makes what the Fed will do in October a very close call,” said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

The focus in the market has shifted to an upcoming meeting of finance ministers and central bankers from the Group of Seven rich nations this month and a Fed policy meeting at the end of the month.

Growing complaints by European politicians about the euro’s strength have added the risk in the market that the dollar could find firm footing in the run-up to the G7 meeting.

On Friday, French President Nicolas Sarkozy’s spokesman said France’s position on the euro’s surge is increasingly finding wider backing in Europe.

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