Exits abound on Obama’s economic bench

By Stacy Kaper and Catherine Hollander

National Journal

updated 7/5/2011 12:13:27 PM ET 2011-07-05T16:13:27

 

If Timothy Geithner steps down as Treasury secretary, it would spotlight an increasingly apparent liability for the Obama administration as it searches for a way out of the economic crisis — the weakness of its bench on economic and financial services policy, where a number of crucial vacancies loom at a fragile time for the financial system.

While the administration’s economic attention has been consumed by the struggle to strike a budget-cutting deal that would lift the debt limit before the economy is further rattled by the threat of a default, critics have been complaining that there is little attention or manpower devoted to other pressing issues. Having to take time and energy away from limited resources to focus on replacing a Treasury secretary would only add to those problems, analysts said Friday.

“It makes matters worse,” said William Longbrake, an executive in residence at the University of Maryland and the former vice chairman of Washington Mutual. “What about the rest of the economics team? There doesn’t seem to be a whole lot there to actually help the president formulate good sound economic policies as well as good sound political strategy. Everywhere I look, the people who have been guiding the president’s economic policy are all either departed or shortly will depart.”

Link to Full Article

Washington on the Economy: The Big Con

By Al Walsh

Obama, Geithner, Bernanke and the rest of the Washington cast of characters are basking in the afterglow of the G-20 summit and parading around the country:  patting themselves on the back for “saving civilization” and pronouncing that “the Recession is over”.

Yeah?  Really?      Let’s reconsider that.

The derivatives mess that was key to bringing the whole house-of-cards down is still with us.   One recent article valued it at over one quadrillion dollars.  We can’t know for sure, because it’s unregulated and no one’s talking.

The banks are still insolvent.  Creative accounting, with the government’s blessing, hides the extent of the rot.  Many experts say that more bank bailouts are coming.

The bank bailout created a whole new debt element that Main Street is expected to pick up the tab for.  One article predicted that the interest alone on the debt could amount to more than our total Gross Domestic Product.

Unemployment is awful and getting worse.  The true figures are much worse than the intentionally deceptive government data says.  The last estimate I saw was 16%+ nationally.  While Obama beats his chest and crows, fresh layoffs are being announced; such as Eli Lilly’s announcement of 5,500 more layoffs over the next two years.  I suppose that when we’ve finally all lost our jobs, the statistics will look great because there won’t be anyone left to get laid off.

The housing market has stabilized a bit, but there are more mortgage resets coming that will drag it down further.  Commercial real estate just continues to decline.

Consumers are expected to pick up demand and buy us out of the recession – but how?  They’re up to their necks in debt, out of work, and broke.  Adding insult to injury, the very banks who created this mess are gouging them with new banking & credit card fees.

There’s good reason why Gold & Silver are rising in value; despite government’s best covert efforts to hold them down.  The dollar’s been trashed, and is becoming a laughing-stock globally.   I just laugh when the Fed ”suits” keep talking about a “strong dollar policy”.  I’m starting to feel like a ”banana republic” citizen.

Wall Street pundits cheer whenever the stock markets show an uptick.  Keep in mind that the vast majority of market trading is institutional; by the very people who have the biggest vested interest in fooling the rest of us.  Gee, there couldn’t be any market-rigging going on, could there?  Nah, we only have free and open markets here in America (and if you believe that I’ve got the proverbial bridge to sell you).  I’m reminded of the time last year or the year before when Goldman Sachs was publicly recommending that investors sell their Gold (while secretly buying it for their own account).

I won’t even get into the growing “anti-business”, socialist tendencies of our government for decades that have done so much damage.  We voted these successive administrations in, and we deserve what we get.

Apparently Obama thinks that he can talk us out of recession by spreading rosy messages.  Mr. President, even if you could pull the wool over America’s eyes - they have few assets left to do anything with.

For decades, the Fed has been pulling our economic “butts out of the fire” of each bubble by pumping out even more money and creating new bubbles.  I think they’ve finally run their string.  Now we have a long way to go to dig ourselves out; the hard way.

I respectfully disagree with you President Obama, and consider it insulting that you think we’re so ignorant as to buy into your big con.

By the way, I sure would like to see that audit of the Fed which has been getting kicked around in Congress.  Actually, I’d like to see the Fed be audited, and then disbanded.  They’ve screwed up our economy and stolen from the pockets of the citizens long enough.  It’s time to put U.S. monetary policy into the hands of a true government agency; and out of the hands of self-serving bankers. While we’re at it, how about an audit of the Gold reserves.  Why all the secrecy?  What do you have to hide?  What have you “gentlemen” been up to for decades that you don’t want America to know?

I love America and don’t want to see the country endure any more pain, but I have to “call ‘em as I see ‘em”, and the fundamentals just don’t add up to the same story as the ‘Washington speak”.

Protect yourselves the best you can fellow citizens.  It’s going to be a long and bumpy ride.

Borrowing from the immortal words of Dennis Miller:   “It’s just my opinion.  I could be wrong.”

Of course, according to former President Carter, I’m just being a “racist” for daring to disagree with President Obama.  I actually feel sorry for the President that he has to endure this buffoon speaking in his name.  There seems to be no end to the silliness.  If only it wasn’t so expensive.

Latest Skinny on the Dollar

Chuck Butler’s latest musings…

The chicken traders are scared to death of having short dollar positions ahead of the G-8, where they fear U.S. Treasury Sec. Geithner will say that the U.S. favors a strong dollar! Geez Louise!  Here we go again! How many times can a U.S. Treasury Sec. go to the well with that saying and get positive traction? For each time they do say that, they follow it up with an attack on the Chinese renminbi, saying it must appreciate. Well, how can that happen if they “truly” believe in a strong dollar? Add to that, the goings on now… How can anyone in the Gov’t say they believe in a strong dollar when they are implementing Quantitative Easing?

The other thing boosting the dollar this morning is a report that Big Ben Bernanke is calling for reduced bond buying, thus reducing the pressure on the dollar. Now… That would be great news, if it were really going to play out… But these guys are like junkies now, this Quantitative Easing is like cocaine to the Fed, and the bond markets… And soon enough, the bond guys will be clamoring for more cocaine/ bond buying / Quantitative Easing! And the Fed is the pusher…
You know the dealer,
the dealer is a man
With the love grass in his hand
Oh but the pusher is a monster
Good God, he’s not a natural man

OK… A blast from the past there! My good friend, Rick, likes to guess at the band’s name when I put lyrics in the Pfennig… This one is waaaaaayyyy before your time Rick!

So… The dollar will end the week getting some love from the chicken traders… Bawk, Bawk… (I do that really loud, when pitchers pitch around Albert Pujols!)

The news that the Fed “might reduce bond buying” hit the high yielders in the mid-section, knocking the air out of them! But, these currencies are resilient, and after the wind is restored in their mid-sections, they climb back on the rally tracks! You have to love currencies that show resilience!

The dollar received an additional boost overnight… You’ll want to sit down  for this one… and put the coffee down, to not risk spilling it and burning yourself! Here’s the skinny… Japanese Finance Minister Yosano who stated that “we have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” and “so our trust in US Treasuries is absolutely unshakable.”

What else did you expect from a country that is the second largest holder of U.S. Treasuries? But… The dollar basks in the sun from those comments…

Did you hear that U.S. Treasury Sec. Geithner is clamoring for more power for the Federal Reserve. In Geithner’s mind the Fed should be the Big Dog regulator in the markets… Hmmm… Let’s see now… Could he want to see that because of the Fed’s “wonderful” track record of allowing the dollar to lose over 90% of its value since they took over the stewardship of the currency? Yeah, that’s the ticket! I shake my head in disgust that this is even being talked about… The Federal Reserve Bank is not even a Gov’t Agency! The Fed is a Farce! Come on people, get your rakes, and pitchforks, and let Geithner and the administration know this is not in the best interest of this country!

Manufacturing Inflation

Fool on a Fool’s Errand
by Bill Bonner

Last week brought an entertaining episode. Wall Street’s man in Washington, incidentally Secretary of the US Treasury, was sent to Beijing. His mission: to convince the canny Chinese of something that everyone knows is untrue – that US bonds are safe. But if the Americans keep faith with China, it won’t be for lack of trying.

Of US government paper China has plenty. Bond holdings alone tote to $768 billion. Other dollar-denominated assets in Chinese hands add another $700 billion or so. Despite this Newcastle in its vault, the US would like China to buy more coal.

But lately, those dollar holdings have done poorly. Thanks, supposedly, to the economic rebound, the dollar has fallen against just about everything. Against gold, it is down 15% in 2009. Against oil, it is off 50%. As for copper, the dollar has lost 65% of its purchasing power. Thirty-year US Treasuries have fallen too – down about 27% since January. A rough guess is that China has lost more than $200 billion so far this year, thanks to the fall of the dollar and US Treasury bonds.

Martin Wolf, in the Financial Times, says these trends are signs of progress. “Rising government bond rates prove policy is working,” begins his line of thought. Spreads between corporate bonds and Treasuries are narrowing. Real yields on corporate bonds are falling while yields on Treasuries go up. “Normalization,” he calls it; investors now expect inflation instead of extinction.

The rise in inflation expectations is clearly visible in the US bond market, where inflation-indexed bonds are once again selling for substantially higher prices than their non-indexed cousins. Towards the end of ’08, the bond market anticipated zero inflation. Now, the latest figures imply a 1.6% positive inflation rate over the next 10 years.

If inflation doesn’t show up as forecast it won’t be for lack of effort on the part of Mr. Geithner and his friends. The US deficit for the current year is $1.84 trillion. Every two months, the feds need to borrow nearly the equivalent of the previous entire year’s record- breaking deficit. And if private lenders balk, the Fed stands ready to raise its own hand at the next auction of US government debt.

The Chinese are worried. They’ve put a lot of eggs in the basket now being carried by Geithner, Bernanke et al. What if Team America isn’t as surefooted as it claims?

“It will be helpful if Mr. Geithner can show us some arithmetic,” said Mr. Yu Yongding, described as a former advisor to the central bank of China.

Mr. Geithner showed up with numbers, of course. From a deficit of 12% of GDP, the US plans to take its deficit down to 3%, he said. But when he delivered this solemn fib at the University of Beijing the students laughed at him.

American Secretaries of the Treasury are not used to being laughed at. Almost 40 years ago, a US Treasury Secretary – John Connally – expressed the imperial view: “it may be our currency, but it’s your problem.” Even after the crack up in the fall of ’08, the US continued in the fantasy that it could lay off as much paper on the foreigners as it wanted.

The aforementioned Mr. Yu Yongding addressed this point directly:

“I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds… The euro is an alternative. And there are lots of raw materials we can still buy.’”

China is hedging its bets, buying assets that don’t have dollar signs on them. Along with shrewd speculators, they’re worrying about a government-fueled melt-up in prices. These anxieties – not a return to ‘normalcy’ – are sending the price of gold back towards $1,000 and the dollar towards $1.50 per euro.

Inflation, like cholesterol, comes in two forms – good and bad. The good inflation raises asset prices. The bad inflation raises consumer prices. No one complains when prices of houses and stock are rising. But when toothpaste and bread begin to follow, an alarum goes up. Soon, central banks are taking action to stop it – raising interest rates and credit standards. But this time it is different. Both types of inflation are welcome. Harvard economist Ken Rogoff says he advocates 6 percent inflation “for at least a couple of years.” It would make it easier for debtors to repay loans, he says. Economist John Taylor, of the eponymous ‘Taylor rule’ gives another reason inflation would be well met. He points out that running a balanced US federal budget – even 10 years in the future – would require a permanent 60% tax increase. “A 60% tax hike won’t happen,” he writes. “The government will attempt to inflate the problem away instead.” Ev en Warren Buffett told CNBC that the likely solution to America’s problem was inflation.

Yu countered: “You should not try to inflate away your debt burden…” But that is exactly what the US is trying to do. So far, it’s not good faith that protects China’s dollar assets. It’s a depression…and incapacity. The Geithner team tries to create inflation, but hasn’t yet got the hang of it. Give them time.

First Deficit Tax Month in 26 Years … and More

By Chuck Butler

The deficit spending in the U.S. recently got some very bad news, that you won’t hear on the TV news… Here’s the skinny…

The budget Deficit this April was $20.9 Billion, the first deficit in this “tax-paying” month in 26 years! Can you imagine that? In April when taxes are paid, we recorded a deficit? That’s pretty amazing folks…  April 2009 tax receipts dropped 44% compared with those in April 2008. OK… I also read where the money collected by taxes is only going to cover half of the fiscal 2009 federal budget, requiring the government to borrow and print more than $1.8 Trillion to fund it. And that’s not the end of it… There are equal-sized deficits looming for fiscal year 2010 onward. (read entitlement programs) Tax receipts fell 50% during the Great Depression. Now eight months old, this depression is already rivaling that drop!

Did you know that we as a country were in the red during April? Do I have to tell you what’s next for Jean and Joan and who knows who? Higher Taxes! You won’t hear the lawmakers running around screaming that they need to cut Government spending! Instead, you’ll hear them screaming that they need to increase revenue! HEY! Cut the spending Jack!

Bill Gross, founder of Pacific Investment Management Co (PIMCO), is advising holders of U.S. dollars to diversify before Central Banks and sovereign wealth funds ultimately do the same amid concern about surging deficits!

You know… Bill Gross is like the old E.F. Hutton commercials (sorry youngsters, this will go right over your heads!) When Bill Gross talks… People listen! I suggest you do too! Here’s more, from Bill Gross speaking about Geithner’s statement to the Chinese about shrinking the budget deficit… “I think he’ll (Geithner) fail at pulling a balanced rabbit out of a hat. They are talking about, once the economy in the U.S. renormalizes, the move back toward balance or much less of a deficit. I suspect that will be hard to do.”

Big Ben Bernanke was right on one thing he talked about yesterday… And that is “a prolonged deficit will choke economic growth”… He said it! But, that’s almost like me saying it… He can’t do a think about the deficit, and neither can I! He can try to be influential, I can’t even do that! So… I just think Big Ben is seeing the writing on the wall, and wants to be able to point out in a few years, that he “told lawmakers to cut the budget deficit, and they didn’t listen to him, see how smart I was!”

OK… Now, I saw some news flash across the TV yesterday that just made my blood pressure rise quickly… OK… Remember when I told you that the Gov’t owning banks was a baaaaaaaaaddddddd thing? Recall me telling you how banks would be directed by lawmakers to make loans in the lawmaker’s districts, when it would not meet the Bank’s requirements for a loan? This among other things would be very bad…
Well… Skip ahead to the Gov’t bailout of carmakers… Guess what? The lawmakers are going after the carmakers for closing dealerships in the lawmaker’s districts! That’s right… It’s happening right now! Let the Gov’t put their foot in the door, and, the next thing you know, the Gov’t is making out your grocery list and telling you where you can shop!

U.S. Economics… China… Manufacturing… Dollar

Latest musings by Chuck Butler…

“Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting skepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

I guess I have more in common with a Chinese student than you would have thought, because I would have been laughing out loud too!

There’s a story running on the news wires this morning that the U.S. recession ended in May… Wait a minute! Did the ISM Manufacturing Index soar back to the expansion number of 50 in May? No… How does 42.8 sound? Now… We have to go back to January of 2008, when I kept writing about how the U.S. had entered a recession, although the Gov. officials (read dolts), and the NBER, the official recession caller, said otherwise… The reason I was so adamant about the recession at that time is that the ISM Manufacturing Index number slipped below 45, for the second consecutive month… My research over the years showed that any time that happened, the NBER would follow it up months later with a call that we had entered a recession!

So… “is this time going to be different?” I think NOT! And… By the by… That saying really gets my blood boiling, as it reminds of the dolts that kept saying that about 8 years ago!

And here’s how I view this manufacturing thing… First of all you have to deal with delays and such, but in a simplistic view… The dollar was strong through February, and the ISM Manufacturing Index was in a free fall… That makes sense, right? The cost of exports was increased, thus it affects manufacturing… But… The dollar began its current decline on March 1st… And by May, the ISM is recovering… Dollar down, manufacturing up… Want to have manufacturing a part of an economic recovery? Guess what needs to happen… Awww… You know the answer!

Stocks, Currencies, Treasuries, Mortgage Rates

More sage observations from Chuck Butler…

Yesterday, I talked about how we might be seeing the end of the link between stocks and currencies, and stocks had gained the previous day, and currencies had not… Well, yesterday stocks sold off, and so did currencies… But this time, I think it had more to do with the N. Korea news than any “link” between the two… I really do think we’re beginning to see a break… Let’s hope so, because that would mean that we’re taking baby steps toward getting back to “fundamentals”…

And these fundamentals include the fact that stocks and currencies have a low correlation to each other, and different pricing mechanisms…

U.S. Treasury yields continue to climb with the 10-year Treasury gaining 19 Basis points in yield yesterday… That pushes the annual climb in yield for this note to 148 Basis points… Hey! You can’t say I didn’t bring this to your attention before it happened!

My friend, Bill Bonner, had this to say about Treasuries yesterday in the Daily Reckoning (www.dailyreckoning.com) “The US Treasury market is in a bubble. Like all bubbles, it will pop. And as always, when bubbles pop, there are those who get hurt – and those who profit. The difference is how well you’re prepared for it.”

Oh, and one more thing… With Treasury yields rising… Mortgage rates will HAVE to follow… And that’s not going to make Messrs Obama, Bernanke, Geithner and anyone else involved in artificially keeping mortgage rates low, happy… But, that’s fine with me! I don’t really care if they are happy with this development or not! They are responsible for this rise in yields, so they can only be unhappy with themselves!