US credit downgrade worries Pinoy biz owners

By Steve Angeles, ABS-CBN North America News Bureau
Posted at 08/10/2011 6:14 PM | Updated as of 08/10/2011 6:14 PM

CERRITOS, California – Members of the Filipino American Chamber of Commerce of Orange County are worried that the recent downgrade of America’s credit rating from AAA to AA+ will negatively impact their businesses.
Jun Jao, a vice president of the Hay of California Insurance Services, said the effects of the Standard and Poor’s (S&P) credit rating could trickle down to his company’s clients.

He said the credit downgrade could tighten overnight lending standards, and could make it difficult for businesses to borrow money to meet operating costs.

“We’re probably going to see a lot of our companies closing shop and laying off employees. So it could have a big effect on the insurance industry,” he said.

Jao is hoping another government initiative can offset any losses during these tough times. He’s expecting the healthcare reform bill to bring more to his insurance business.

Jewelry manufacturer Jules Barba is worried that the possible job losses that could result from businesses closing shop may mean slower manufacturing. Manufacturing is one of the pillars of the US economy.

“When there is fear of losing a job then you don’t spend the money and that affects our business,” said Barba, who owns JB Diamonds & Fine Jewelries.

The entrepreneurs believe the possibility of a second recession will force them to become creative.

S&P also downgraded the credit rating of two key private companies that receive federal financing, Freddie Mac and Fannie Mae, that guarantee half of all mortgage loans in the US, reported CNN.

Both received a lower credit rating of AA+, from its previous AAA rating. S&P said the downgrades reflect their “direct reliance on the US government.”

“Certainly, the downgrade could have negative impact effect in terms or rising interest rates,” realtor Lawrence Yun told CNN. “You can damage consumer confidence and many people who are ready to enter the housing market may become more hesitant about entering.”

Homeowners with adjustable mortgages about to reset may find themselves with higher monthly payments, if interest rates were to go up.

Meantime, S&P’s credibility has been questioned, following its decision to downgrade America’s credit rating. The agency said it doubted the country’s moves to reduce its long-term deficit, and the ability of the country’s leadership to solve its problems.

A recent USA Today Poll reflected the public’s dissatisfaction: 56 percent believe incumbent representatives in Congress should not be re-elected.

Economists criticizing S&P have argued that the US can repay its debt. Another credit rating agency, Moody’s, has maintained the country’s triple A credit rating.

*The world financial roller coaster is entering full speed!

40 BIG signs the USA is at the brink of economic collapse

fr: chaospreppers.com

How in tune are you to what's going on in America? Do you realize just how close to complete ruin the whole Western world is financially?

Because you're probably busy making ends meet, spending time with your family, and enjoying life, we’re going to make things easy and provide you with a simple, scannable list to get you up-to-date on the real news you might not have heard about the real economic turmoil.

Here’s a compilation of economic depictions that indicate the proverbial apocalypse is indeed upon the West.

The following are 40 things that every American should know related to the collapse of the economy:

#1Right now we are watching what could potentially be the worst Mississippi River flood ever recorded play out right in front of our eyes. One agricultural economist at Mississippi State University believes that this disaster could do 2 billion dollars of damage just to farms alone.

#2The "tornadoes of 2011" that we just saw in the southeast United States are being called the worst natural disaster that the U.S. has seen since Hurricane Katrina. It has been estimated that up to 25 percent of all of the poultry houses in Alabama were either significantly damaged or destroyed. It is also believed that millions of birds were killed.

#3According to the Wall Street Journal, 5.5 million Americans are currently unemployed and yet are not receiving unemployment benefits.

#4The number of "low income jobs" in the U.S. has risen steadily over the past 30 years and they now account for 41 percentof all jobs in the United States.

#5All over America, state and local governments are selling off buildings just to pay the bills. Investors can now buy up government-owned power plants, prisons and municipal buildings from coast to coast. For example, the mayor of Newark, New Jersey recently sold off 16 government buildings (including the police and fire headquarters) just to pay some bills.

#6One out of every seven Americans has at least 10 credit cards.

#7Most Americans don't realize how much the U.S. dollar has been devalued over the years. An item that cost $20.00 in 1970 would cost you $115.93 today. An item that cost $20.00 in 1913 would cost you $454.36 today.

#8Those that were alive in the 1970’s will remember how much was made of the "Misery Index" during the presidency of Jimmy Carter (1976-1980). At that time, the "Misery Index" was constantly making headlines in newspapers all across the country. Well, according to John Williams of Shadow Government Statistics, if we calculated unemployment and inflation the same way that we did back during the Carter administration, then the Misery Index today would actually be higher than at any point during the presidency of Jimmy Carter.

#9When Americans think of "government debt", most of them only think of the federal government, but it is not just the federal government that has a massive debt problem. State and local government debt has reached an all-time high of 22 percent of U.S. GDP.

#10According to the U.S. Bureau of Labor Statistics, an average of about 5 million Americans were being hired every single month during 2006. Today, an average of about 3.5 million Americans are being hired every single month.

#11The economic effects of the BP oil spill just seem to go on and on and on. The number of very sick fish in the Gulf of Mexico is really starting to alarm scientists. The following is how one local newspaper recently described the situation....

Scientists are alarmed by the discovery of unusual numbers of fish in the Gulf of Mexico and inland waterways with skin lesions, fin rot, spots, liver blood clots and other health problems.

#12All over America, hospitals that care for the poor and needy are so overwhelmed and are so broke that they are being forced to shut down. Recently, a local newspaper in Florida ran an article about two prominent charity hospitals in Illinois that have served the poor for more than 100 years but are now asking for permission to shut down....

Two charity hospitals in Illinois are facing a life-or-death decision. There's not much left of either of them - one in Chicago's south suburbs, the other in impoverished East St. Louis - aside from emergency rooms crowded with patients seeking free care. Now they would like the state's permission to shut down.

#13The U.S. dollar is in such bad shape that now even Steve Forbes is predicting that the U.S. is "likely" to go back to a gold standard within the next five years.

#14The U.S. government now says that the Medicare trust fund will run out five years faster than they were projecting just last year.

#15Over the past 12 months the average price of gasoline in the United States has gone up by about 30%.

#16It is being projected that for the first time ever, the OPEC nations are going to bring in over a trillion dollars from exporting oil this year. Their biggest customer is the United States.

#17According to the Pentagon, there are minerals worth over a trillion dollars under the ground in Afghanistan. Now, J.P. Morgan is starting to tap those riches with the help of the U.S. military.

#18Speaking of J.P. Morgan, most Americans don't realize that they are actually the largest processor of food stamp benefits in the United States. In fact, the more Americans that go on food stamps the more money that J.P. Morgan makes.

#19When 2007 began, there were about 26 million Americans on food stamps. Today, there are over 44 million on food stamps, and one out of every four American children is on food stamps.

#20Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid.

#21Only 66.8% of American men had a job last year. That was the lowest level that has ever been recorded in all of U.S. history.

#22The financial system is more vulnerable today than it was back in 2008 before the financial panic. Today, the world financial system has been turned into a giant financial casino where bets are made on just about anything you can possibly imagine, and the major Wall Street banks make a ton of money from this betting system. The system is largely unregulated (the new "Wall Street reform" law has only changed this slightly) and it is totally dominated by the big international banks. The danger from derivatives is so great that Warren Buffet once called them "financial weapons of mass destruction". It is estimated that the "derivatives bubble" is somewhere in the neighborhood of a quadrillion dollars, and once it pops there isn't going to be enough money in the entire world to bail everyone out.

#23The United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001, and the U.S. trade deficit with China is now 27 times larger than it was back in 1990.

#24In 2010, the number one U.S. export to China was "scrap and trash".

#25All over the United States, many of our once great manufacturing cities are being transformed into hellholes. In the city of Detroit today, there are over 33,000 abandoned houses, 70 schools are being permanently closed down, the mayor wants to bulldoze one-fourth of the city and you can literally buy a house for one dollar in the worst areas.

#26During the first three months of this year, less new homes were sold in the U.S. than in any three month period ever recorded.

#27New home sales in the United States are now down 80% from the peak in July 2005.

#28The European debt crisis could cause a global financial collapse like the one that we saw in 2008 at any time. The world economy is incredibly interconnected today, and the United States would not be immune. A recent IMF report stated the following about the growing sovereign debt crisis in Europe....

Strong policy responses have successfully contained the sovereign debt and financial-sector troubles in the euro area periphery so far. But contagion to the core euro area and then onward to emerging Europe remains a tangible risk.

#29According to one study, the 50 U.S. state governments are collectively 3.2 trillion dollars short of what they need to meet their pension obligations.

#30A different study has shown that individual Americans are $6.6 trillion short of what they need to retire comfortably.

#31The cost of college tuition in the United States has gone up by over 900 percent since 1978.

#32The combined debt of the major GSEs (Fannie Mae, Freddie Mac and Sallie Mae) has increased from 3.2 trillion in 2008 to 6.4 trillion in 2011. Thanks to our politicians, U.S. taxpayers are standing behind that debt.

#33The U.S. government is over 14 trillion dollars in debt and the budget deficit for this year is projected to be about 1.5 trillion dollars. However, if the U.S. government was forced to use GAAP accounting principles (like all publicly-traded corporations must), the U.S. government budget deficit would be somewhere in the neighborhood of $4 trillion to $5 trillion each and every year.

#34Most Americans don't understand that the Federal Reserve and the debt-based monetary system that it runs are at the very heart of our economic problems. All of this debt is absolutely crushing us. The U.S. government spent over 413 billion dollars on interest on the national debt during fiscal 2010, and it is being projected that the U.S. government will be shelling out 900 billion dollars just in interest on the national debt by the year 2019. This figure will be nearly equal to the entire amount taken in by the IRS for the year in the form of tax payments.

#35Standard & Poor’s has altered its outlook on U.S. government debt from "stable" to "negative" and is warning that the U.S. could soon lose its AAA rating.

#36U.S. households are now receiving more income from the U.S. government than they are paying to the government in taxes.

#3759 percent of all Americans now receive money from the federal government in one form or another.

#38The wealthiest 1% of all Americans now own more than a thirdof all the wealth in the United States.

#39The poorest 50% of all Americans collectively own just 2.5%of all the wealth in the United States.

#40The percentage of millionaires in Congress is more than 50 times higher than the percentage of millionaires in the general population.

10 Signs America Is Becoming a Third-World Country before Our Eyes

We all hear that the solution to the economic woes of our country is for its citizens to go abroad and work in the US and then have that citizen send money to their family and they will live happily ever after. Here is a little something to chew on from one of the newsletters that I receive from www.silver-investor.com.

The folks at Casey Research recently unearthed a perceptive little article titled "10 Signs the U.S. is Becoming a Third World Country." The list speaks for itself, as I have been warning my readers of all ten red flags for some time:

1. Rising unemployment and poverty (both are much bleaker than official reports portray, as government statisticians routinely "cook the books").
2. Economic dependence (debt above 90% of GDP).
3. Declining civil rights (Patriot Act and other privacy stealing mandates).
4. Increasing political corruption (not only the criminal trials and sex scandals that make for titillating headlines, but the insidious, below-the-radar payola system that corrupts government at all levels).
5. Military patrolling the streets (my newsletter has detailed the hush-hush training of thousands of U.S. troops for deployment in urban America).
6. Failing infrastructure (bridges, dams, oil and gas pipelines, power grid).
7. Disappearing middle class (massive, permanent loss of blue-collar jobs).
8. Devalued currency (the inevitable result of chronic deficit spending).
9. Controlling the media (the FCC, having effectively co-opted the major networks, is now eyeing talk radio controls and internet "neutrality").
10.Capital controls (preventing free markets and free people from correcting and disciplining the financial misdeeds of big government).

If the US is in trouble due to its fiscal deficit spending then the whole world is in deep trouble, financial collapse is a reality.

Thank you for being updated with these matters and securing your future by buying the right investment vehicles like precious metals.

News we all don't want to hear

While most of us are all busy with the day to day rudiments of our lives and a majority our worried on who gets to win whether in Mara Clara or in the upcoming Pacquiao-Mosley fight. This is a piece of news from one of my favorite authors- Robert Kiyosaki in his Online Exclusive update. Here is the letter-

"Online Exclusive Update - #85
April 27, 2011

Warning

Standard & Poor’s (S&P) rating agency warned the US of a potential downgrade in its credit status last week. Stock markets took a dive as gold and silver prices went up.

What does this mean to you? The answer is, “Nothing you don’t already know, if you’ve read Conspiracy of the Rich or have followed these COR updates.”

When you think about it, who doesn’t know the US has a debt problem? For years, New York City has had the debt clock ticking away, showing the millions of people walking past how fast the debt time bomb is growing.

The real problem is that while most of us know there’s a problem, few people are doing anything about it—especially our leaders. Rather than solve the problem, most people are scrambling for deckchairs on the Titanic, hoping for a good view of the sunset.

If you’ve followed my books, beginning with Rich Dad Poor Dad, which was published in 1997, I’ve always stated, “Your home is not an asset.” Last week, the CEO of Bank of America finally stated, “People should not consider their home an asset.” Slowly, but surely, the US is waking up to the realities of money.

In previous COR updates over the last year, I advised readers to buy silver under $20 an ounce. Since then, silver has gone from $17 an ounce to a high of $43 an ounce. The markets are reflecting the realities of money.

So what is a warning from S&P worth? Not much if people don’t heed it. And most people aren’t.

It seems obvious that the US is on a collision course with self-destruction. The US is like an alcoholic who insists on drinking or a smoker who insists on smoking. Warnings are of little use. We all know that if the US continues in the financial direction it’s going, there is a tragic end in the near future for our economy and our country. To me, it’s not “If” but “when.”

God help us all when the US, as we know it, comes to an end."

Now that is really news we all don't want to hear.

U.S. will hit debt limit by May 16 Geithner warns

By Jim Puzzanghera, Los Angeles Times

Reporting from Washington — Treasury Secretary Timothy F. Geithner said the U.S. will hit the limit on its borrowing capacity by May 16 and could start defaulting on some of its debts about seven weeks later unless Congress acts soon to raise the debt ceiling.

The Treasury Department had estimated that the nation would reach its $14.29-trillion debt limit between April 5 and May 31. But in a letter to congressional leaders, Geithner said new calculations based on projections of income tax receipts showed that the date will be no later than May 16.

The Obama administration is pushing Congress to increase the debt limit for the 76th time since 1962. The nation has never failed to increase the limit, Geithner said.

But Republican congressional leaders, including House Speaker John Boehner, and at least one Democrat, Sen. Joe Manchin III of West Virginia, have said they won't vote to increase the debt limit unless the move is accompanied by action to address the soaring budget deficit.

"Speaker Boehner has been perfectly clear: The American people will not tolerate an increase in the debt ceiling without serious spending cuts and real reforms to make sure we keep cutting spending," Boehner spokesman Michael Steel said.

As the date approaches, Geithner warned Congress in a letter Monday that it is risking "unthinkable" consequences if the U.S. no longer can borrow to pay its bills.

"If Congress failed to increase the debt limit, a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds," he wrote.

"This would cause severe hardship to American families and raise questions about our ability to defend our national security interests," he said.

"In addition, defaulting on legal obligations of the United States would lead to sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans," Geithner continued.

"Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover," he said. The Treasury Department has the ability to maneuver some of its payments to buy some time, he said. But such "extraordinary measures" would push the deadline only to about July 8.

"At that point, the Treasury would have no remaining borrowing authority, and the available cash balances would be inadequate for us to operate with a sufficient margin to meet our commitments securely," Geithner wrote.

jim.puzzanghera@latimes.com

*Did you know that the US is spending more than 8 TIMES the revenue it is earning?

Virginia, a “Fed Breakdown,” Gold and Silver

The state of Virginia has introduced legislation to consider currency alternatives, including gold and silver, in the event of a “major breakdown of the Federal Reserve System.”

House Resolution No. 557 seeks to form a joint subcommittee to study the “timely adoption of an alternative sound currency that the Commonwealth’s government and citizens may employ without delay in the event of the destruction of the Federal Reserve System’s currency,” aimed to “at least mitigate many of the economic, social, and political shocks to be expected to arise from hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System.”

While the likelihood of an alternative currency involving gold and/or silver is unlikely in the short term, such a measure aligns with the views of Ron Paul and a growing minority of additional politicians who would like to return to a form of legal tender that was authorized by the U.S. Constitution.

Furthermore, alongside yesterday’s news of India and Iran considering transactions in gold, Virginia’s move could be the start of a growing trend around the world of various levels of government seeking to transact in a currency that is no individual’s debt and cannot be printed at the whim of central bankers.

*JUST A QUICH ARTICLE TO THINK BY!

The worst is yet to come

Wednesday, 27 October 2010 12:59 John Mangun / Outside the Box
Click HERE for original article

It would be funny if it were not so tragic; commentators and pundits saying the US economy is getting better or at least not getting any worse. The worst is yet to come.

For two decades Americans borrowed at the urging of government and Federal Reserve (Fed) Chairman Alan Greenspan. Inflation was not a problem, so Greenspan thought he was doing a great job. As prices for housing doubled and tripled, no one cared. That type of price rise is not counted in the inflation numbers. The US spent trillions of dollars buying Chinese goods that never seemed to go up in price. No reason for China to raise prices because they were selling more and more goods. No inflation.

But when you borrow money, you must have an asset to back that borrowing, and what better asset than real estate. Borrow against property one to buy property two at higher and higher prices. Then the bubble burst, as there was no more money to lend.

The US government then borrowed and printed $3 trillion in 2009 and put that money into the system in the hope that Americans would borrow and buy. But you can fool the people only for so long.

The fear since 2008 was that there would be a period of deflation, falling prices and a stagnant economy. However, prices did not fall, except for houses since all that new money in the economy caused the dollar to fall, increasing the prices of all imports, especially oil. Gasoline has increased by $1 a gallon since Obama’s economic recovery plan started. So now the Americans have higher prices and no economic growth. What comes next?

The Japanese tried government “stimulus” and zero-interest rates for nearly 20 years, and it never worked. Once burned by a flat economy due to corporate overborrowing, the Japanese never went back to their extravagant consumption habits. Japanese individuals were never big borrowers. In fact, through the 1990s they sat on billions in personal savings that they never spent. No reason to. Prices next year would be the same as today with no inflation. Economists theorized that what the Japanese government should have done was raise interest rates sky-high, forcing corporate borrowers to raise prices, which would force consumers to spend to avoid future price increases.

That is what the US government is now going to do and it will be a huge, disastrous failure, causing greater economic trouble.

From Bloomberg: “With interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms.” Times of inflation are supposed to encourage borrowing because, in the future, you can pay back the loan with money that is worth less. “The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower. Estimates for the ultimate size of the asset-purchase program range from $1 trillion to $2 trillion.”

Except, the American people are not like the Japanese were, sitting on billions just waiting to go back to the department store and spend. What the Fed is hoping is that higher interest rates and higher inflation will force companies, who are sitting on $2 trillion, to start spending. They will not, because why should they invest in new products and new factories. The American consumer does not have any money (or the financial stability to borrow) to become real consumers again.

All that will happen is that inflation of normal goods like food, gasoline and all their imported-from-China clothes will go higher in price. As the Fed prints and borrows a trillion dollars more, the dollar will decrease in value, raising the price of the Americans’ imported goods that the Americans cannot afford, anyway. The hope is that a cheaper dollar will increase American exports enough to offset the cost of imported products further, as imports go higher, American manufacturers will produce toys and shoes cheaper than the chine can and the money will stay at home. Good luck on that. That is why the Chinese keep their currency virtually pegged to the dollar.

Read this. National Review Online: “Uncle Stupid is dumping $109 billion in new debt on the bond market this week.” Part of the $109 billion includes $10 billion of a special Treasury debt called Treasury Inflation-Protected Securities (TIPS). The interest rate that TIPS pay is indexed to inflation in order to protect investors from the negative effects of inflation. In other words, you make more money with TIPS the higher inflation goes. Incredibly on Monday, these bonds sold at a negative yield for the first time in history. The institutions that bought these bonds will lose money unless inflation goes up.

Currently, official inflation in the US is a little over 1 percent. But if you measure inflation as it was computed in 1980, the true inflation rate is 9 percent. What has changed since 1980 is that inflation then was a measure of the cost of living needed to maintain a constant standard of living. Now it is a measure of prices regardless if anyone actually buys those items included in the goods basket. Simplistically put, if the price of bread goes up 10 percent and the price of a car goes down 10 percent, zero inflation. But people must buy bread and not cars, and bread inflation is 10 percent.

Finally, somebody has to pay for all of this stimulus and money printing. From SteynOnline: “Historically, foreign official holdings of US Treasury securities have been less than 5 percent of the rest of the planet’s gross domestic product [GDP]. By 2009, they were up to 7 percent. Obama-sized budgets depend on foreign holdings rising to about 20 percent of the rest of the planet’s GDP.” That will not happen.

What will happen is that the US is headed for the higher inflation that I have talked about for the last year. The dollar is going down. The US economy will not recover any time soon.

The worst is yet to come.

*Buy a little silver for the coming rainy season!

Currency War

by: Alex Magno (Philstar.com) Click HERE for original article.

We’ve heard of trade wars before. Now the talk is about the outbreak of a currency war.

The dimensions of this currency war are not fully defined. The goals are not clear. The standards by which we are to distinguish winners and losers are not agreed upon.

For the most part, currencies are traded freely. Their exchange value is determined by market forces — at least in principle. Although central banks everywhere discreetly nudge the currency exchange markets one way or the other, most of the world’s major currencies are traded freely in the currency market.

There are a few currencies that are not fully traded in the global financial system. Russia’s currency, for instance, is not yet fully interchangeable despite the increasingly large role this economy plays in the global economy. The Chinese yuan is pegged, although it is fully interchangeable and tradable.

For the longest time, the US has made such a large fuss over the yuan being intentionally undervalued in order to boost Chinese exports and act as an effective barrier against imports. Washington has bluntly told China it should allow its currency to revalue. Beijing takes offense at the apparent bullying by the Americans, maintaining that the exchange value of the yuan is market-determined.

The fuss Washington makes about the yuan is intended largely for domestic consumption.

There is this strange belief among Americans that unemployment in their economy is high because China stole jobs from the US economy. Cheap Chinese imports into the US market killed off light industry and forced many factories to shut down.

Many Americans think that if the yuan is allowed to appreciate, jobs will return to the American economy. That is largely a piece of economic superstition. The more likely outcome of the yuan appreciating is that factories in China will move down to Vietnam or even Laos. Those factories will not travel all the way back to the US.

But with midterm elections coming up in the US, it is profitable for American politicians to raise the yuan bogey — mainly for domestic voter consumption.

Beijing is not likely to accede to the American demand it revalue its currency. This has nothing to do with Chinese exports to the US. That volume of exports will remain robust even if the exchange value of the yuan is allowed to reasonably rise.

The main reason for Beijing’s reluctance is financial. China maintains a trillion-dollar foreign currency reserve. The rising Asian dragon has humungous amounts of dollars invested in US equities and bonds. If Beijing allows its currency exchange
value to appreciate, it will (in yuan terms) allow billions of dollars in investments to evaporate.

All Beijing has to do, to cause the dollar to crash, is to cash in on its offshore investment in US bonds and equities. By taking that decision, Beijing will unleash a flood of dollar-denominated paper on the market, effectively pushing down the US dollar’s value. However, a drastic fall in the dollar’s value will translate into a de facto appreciation of the yuan.

Beijing, ironically, has a financial interest in keeping the dollar strong.

But the dollar is falling anyway, against a basket of global currencies including, quite notably, the Philippine peso. Over the past few trading days, the peso has appreciated against the dollar. So have the Japanese yen, the euro and nearly every other currency for the matter. The Canadian dollar has found parity with its American counterpart. The Thai baht is now moving close to its pre-1997 exchange value against the dollar.

All the other currencies are not strengthening. It is the dollar alone that is weakening.

The phenomenon is not due to any aggressive design by the other economies. It is due to the appalling deficit the US is accumulating and the decision by American monetary authorities to keep interest rates at very low levels as a tool for stoking economic expansion in the US.

In a word, the dollar is falling because of American fiscal imprudence.

When the cost of money is cheap, as it is in the case of the US dollar, the value of the currency will tend to erode as well. With interest rates kept aggressively low in the US, few would want to keep their investments in dollar-denominated instruments. They will likely sell down those instruments and flee to stronger currency instruments such as Euro bonds and emerging market equities.

The US does not have to badger China, therefore, to allow its currency to appreciate. The same effect is achieved by allowing the dollar to collapse.

Nobody wants to see a weaker dollar. That is the irony of what is happening this days. Every other nation fears that a weak US dollar could unhinge the global financial system and open the door to currency chaos where every other country will try and undermine the value of their respective currencies. If they do not, the US market for their exports will effectively shrink and their capacity for growth undermined.

Because of its fiscal imprudence, the US is opening a door to high domestic inflation. That eventuality will soon force US monetary authorities to raise interest rates, which in turn will prop up the dollar. But such an outcome will foreclose a stronger American economic recovery.

We have little means to influence the current realignment of the major currencies even if we have a major stake in what is happening. The strengthening peso might help curtail inflation in our domestic economy. But it will also shrink the peso value of OCW remittances and, at some point, undermine the cost advantage of our exports.

In addition to having little means to determine the fate of the peso, our government does not seem to have a clear policy on monetary management. We seem doomed to be washed whichever way by the shifting tides in the world’s currency exchanges.

*This is a Filipino columnist raising awareness on our powerless Currency position

Alan Greenspan: "The US Financial System Is Broke"

repost from www.zerohedge.com

For the definitive confirmation that the Fed is and has always been very open to, at least philosophically, pushing the market higher no matter what the cost (if not in practice - they would never do that, oh no, Liberty 33 would never stoop so low), is this quote from former Fed chairman Alan Greenspan who was on Meet The Press earlier, where he said the following stunner: "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here."

In other words, the Fed's dual mandate of maximizing employment and promoting a stable inflation rate have been brushed aside, and the one and only prerogative for Chairman Ben currently, and for the short and long-term future, is to keep the Dow Jones (because nobody in the administration, even the Fed, has heard about the S&P yet), above 10,000.

Yet Greenspan, who now apparently is off the reservation concludes with this stunner: "There is no doubt that the federal funds rate can be fixed at what the Fed wants it to be but which the government has no control over is long-term interest rates and long-term interest rates are what make the economy move.

And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment there is no sign of that because the financial system is broke and you can not have inflation if the financial system is not working." In other words, we will be in deflation until the broke financial system becomes unbroke... and then we will have hyperinflation.

Well, ladies and gentlemen, Q.E.D.

*If the US Financial system is in trouble so is the rest of the world who pegs their monetary system to the US Dollar $

Schwarzenegger orders government worker furloughs

By JUDY LIN (AP) – 17 hours ago

SACRAMENTO, Calif. — Gov. Arnold Schwarzenegger on Wednesday brought back furloughs for thousands of state workers until California passes a budget that addresses a $19 billion deficit.

Schwarzenegger released a new executive order requiring state workers to take three unpaid days off per month starting in August. State workers were furloughed a total of 46 days when Schwarzenegger issued a similar order in February 2009, which translated to a pay cut of about 14 percent.

Those furloughs just ended in June.

It's unclear how long the latest round of furloughs could last, as Schwarzenegger and lawmakers enter the fifth week of the new fiscal year without a balanced budget. Earlier this week, the governor hinted that he might not sign a budget before he leaves office next January unless it includes pension, tax and spending reforms.

"Without a budget in place that addresses our $19 billion budget deficit, every day of delay brings California closer to a fiscal meltdown," Schwarzenegger said in a statement. "Our cash situation leaves me no choice but to once again furlough state workers until the Legislature produces a budget I can sign."

State Controller John Chiang has warned he will start issuing IOUs in August or September if the budget stalemate drags on in the Legislature. Chiang said the cash-saving measure is necessary because the state is projected to run out of cash in October.

The new order exempts employees who work for departments that collect revenue, such as the Franchise Tax Board, and public safety agencies, including the California Highway Patrol.

It also exempts about 37,000 workers in six unions that recently reached tentative labor agreements with the administration. Those unions agreed for their members to contribute more of their salaries toward their pension benefits and to take one day of unpaid personal leave a month, the equivalent of a nearly 5 percent pay cut.

The state has about 237,000 workers.

The furlough puts pressure on remaining unions that have not agreed to the governor's demands for pension changes.

Schwarzenegger's last furlough order triggered more than two dozen lawsuits, but the administration said the furloughs achieved about $1 billion in general fund savings and $2.2 billion in overall savings during the state's last budget crisis.

Unions also have been fighting the governor's efforts to impose the federal minimum wage $7.25 per hour while the state operates without a budget.

"To once again force state employees to take unpaid furloughs is just another punitive measure by Gov. Schwarzenegger because he couldn't impose minimum wage," said Patty Velez, president of the California Association of Professional Scientists, which represents 3,000 state employees.

The state Assembly's Republican leader, Martin Garrick, said Democrats who control the Legislature were to blame because they have refused to make cuts that Republicans, including Schwarzenegger, have demanded.

"I believe they've brought it on themselves and their constituents — and mine — that have been furloughed, because they haven't made the reductions," Garrick said in a telephone interview. "The longer we go, the deeper the cuts have to be."

Democrats have vowed to protect education and social service programs, such as CalWORKS, the state's welfare-to-work program. They have proposed delaying corporate tax breaks and a new oil tax.

"It's shocking that every single one of the governor's budget moves deliberately hurt people," said Shannon Murphy, spokeswoman for Assembly Speaker John Perez.

Associated Press Writer Don Thompson contributed to this report.

*This is scary since California is one of the biggest economies in the world, and to think that it is in the brink of a financial meltdown could have catastrophic effects on the world economy.

CHINA: US IS INSOLVENT AND FACES BANKRUPTCY

From - http://jessescrossroadscafe.blogspot.com/

The common thought amongst even reasonably educated and economically literate Americans is that China is 'stuck with US Treasuries' and has no choice, so it must perform within the status quo and do as the US wishes, or face a ruinous decline in their reserve holdings of US Treasuries.

And with real short term US Treasury interest rates decidedly negative, meaning that it is costing you money to hold dollars, there is a case to be made that there are a lot of 'price takers' out there in this world. Wow, they are just that good, aren't they. Having their heyday in a genuine deflation. A subtle tax levied on all holders of US dollars, probably more significant because of the official understatement of inflation. Yo, come git some.

I think China is already diversifying their reserve portfolio, and more stealthily and effectively than one would imagine into 'real goods.'

Further, I suspect that through the use of hedging short positions and derivatives such as Credit Default Swaps, China would be able to cover a greater portion of its reserves than the common mind might allow, which is 'none' because of the obvious counter party risk in the event of a total collapse, a typical Western reaction, never seeing the gradations of outcomes.

And if this is in reality one theater in a global struggle for power, sacrificing a pawn or two, and even a bishop, would be a small price to pay to bring down the world's remaining superpower, as indirectly and gracefully as is possible. War is never cheaply waged.

It would most certainly be a nuclear option to outright dump Treasuries outright, and would raise the ire of what is still a formidable military power. But it is the Western mind that is so incapable of seeing the many shades of gray in every situation, the subtle gradations in a range of choices that I believe China not only sees but is already actively pursuing.

China is not the only country that resents the devastating frauds that the US has perpetrated on not only its own people but the rest of the world through its Wall Street banks and ratings agencies.

Most Americans overlook this developing estrangement that is beginning to isolate the US and UK from even their traditional allies in Europe and South America and Asia. This is a serious error, but so typical of the short term mentality dominated by greed, dishonesty, and self-delusion that captured the American psyche in the latter part of The New American Century. But what choice does Europe have except to take what the Anglo-Americans serve them. Take it or leave it. And ain't currency war hell?

*The brink of a worldwide financial storm, prepare or die.

Buffett warns Obama U.S. economy only halfway back

WASHINGTON (Reuters) – President Barack Obama heard a sobering message from Warren Buffett when he asked for the investment guru's views about the economic recovery, according to an interview Obama gave NBC News on Thursday.

"I'll tell you exactly what Warren Buffett said. He said, 'We went through a wrenching recession. And so we have not fully recovered. We're about 40, 50 percent back. But we've still got a long way to go'," Obama told NBC during a visit to Holland, Michigan, to promote his job creation policies.

Obama chatted with Buffett in the Oval office on Wednesday as he sought ideas on how to translate higher U.S. growth into stronger hiring. This would help him deliver on an election year promise to tackle unemployment currently at 9.5 percent.

Buffett, who built an estimated $47 billion fortune running his insurance and investment company Berkshire Hathaway Inc, warned Obama the recession created a huge overhang of excess capacity in the economy that would simply take time to mop up.

Obama said Buffett specifically used the example of the U.S. housing market, noting 1.2 million new homes were built on average per year in the United States, according to historic trends. That number soared above 2 million during the property bubble, but construction activity has since collapsed.

"What Warren pointed out was, look, we're gonna get back to 1.2 (million). But right now we're soaking up a whole bunch of inventory. So a lot of -- the challenge is to work our way through this recession," Obama said.

High unemployment is another type of excess economic capacity. Obama's Democrats risk severe punishment by voters in midterm congressional elections on November 2 if he fails to convince them stronger U.S. growth means better times ahead.

(Reporting by Alister Bull; editing by Mohammad Zargham)

*When Buffet speaks, the world listens.

a Letter from an OFW friend

Recently, I received greetings from my inbox folder in Facebook from a friend working in Texas. Since we have not seen each other for a long time and that I knew that she was a victim of a very clever employer who made her travel long distances to see patients (she is a home health Occupational Therapist) and she filed suit to be able to get out of the contract.

Offering a little unsollicited advice, I inquired if she was aware of where the US economy is headed and followed to tell her that she should have a PLAN B AND PLAN C if things do not go well and Medicare will have to suffer a budget cut.

For most of you who do not know this, Pres. Obama is trying to reduce the budget for health care but is being met with widespread opposition. Others may have a tendency to be too optimistic about the US Economy, but I would not bet too much on this since their problems are just beginning. Their next problems will be meeting the retirement needs of SSS Pensioners who are 75 Million in population (Baby Boomers) who will be retiring in the next few years. Their programs are just too insolvent to survive, not to mention the cost of war in Iraq and the threats coming from Bin Laden on the Israeli issue.

It is a sorry audio flick to hear these things but this is reality and we need to prepare for these sort of occurrences. This affects us Filipinos since one way or another many of us have relatives, friends and family who have families in the US and who think that their fairy tale is still going to continue in the next decade.

My friend on the other hand, surprised me and told me she was studying the subject of investing in precious metals. Smart Kid! She told me she was studying many books including Mike Maloney's "Guide to Investing in Gold and Silver" and also a lot of Robert Kiyosaki's books and has been looking to buy actual metals to hedge for the future. Now that makes sense. Motivating her further more, I told her to stay away from ETFs and Metal Futures which are worthless papers.

If you are reading this and know OFWs that you care about, then you would be doing them a favor by helping them understand the dynamics of the economic powers.

China asks citizens to buy gold and silver

Posted by Mehret Tesfaye | September 10th, 2009 at 4:45 pm |

What Does that Mean to the U.S.?

Across America, consumers are urged to send their gold away to refiners who will melt down their old jewelry and give them a little cash in return. On more conservative networks, the advertisements are a little different. Gold sellers are
encouraging Americans to buy gold, rather than sell it. In China, the government is getting into precious metals advertisements as well. The Chinese government is echoing the advertisers on the more conservative networks, asking its citizens to purchase gold and silver. The United States currently relies on China to purchase treasury bonds in order to keep up with our massive overspending. What does the Chinese investment in precious metals mean to Americans?

An Unbalanced Budget

The United States continues to run an astronomical budget deficit every year. The national debt continues to grow, as the government spends more than it receives in taxes every year. As the national debt grows, so does the interest that the government spends on the debt. As the United States continues to overspend, the value of the dollar theoretically weakens.

China currently owns more than a trillion dollars of the government's debt. The Chinese have lent the United States money in the past, because they felt it was in their best interest. Because they have such a large investment in our finances, they have in the past lent to us. As they lose confidence in the US economy, they are less eager to lend money. In February, Luo Ping, who is a director-general for the Chinese Banking Regulatory Commission, stated "we hate you guys" when referring to the US government's spending binge. They are clearly not happy about lending to the US government, because it has failed to clean up its spendthrift ways.

Getting out of Dollars

Although the Chinese government is still buying dollars, they are slowly divesting of their investments, spending more dollars than they are buying. At the same time that China has been slowly reducing their dollar holdings, the country has been
investing in gold by investing in gold mines. The Chinese must believe that it is in their best interest for their citizens to buy gold, or they wouldn't be pushing their citizens to do so.

If the Chinese government continues to dump US dollars, they will have less of an incentive to keep the dollar afloat. This could result in inflation, or perhaps even hyperinflation, for the dollar. By encouraging the citizens of the most populous country in the world to purchase precious metals, the supply of gold and silver could become limited, causing an increase in the price.

(by Brooke Lorren | AC)

Chinese sovereign wealth fund dumping dollars for strategic investments like gold

By: Lawrence Williams

LONDON -Several reports are coming out of China that there is pressure on state-controlled organisations - notably the country's main sovereign wealth fund, China Investment Corporation (CIC) to rapidly build investment in non-Chinese enterprises. While the CIC itself, with apparent access to some $300 billion in funds - and the possibility of more from the government - may be concentrating on hedge funds and other investment entities, there is another sector for Chinese state-owned companies looking at major investment in commodities. Indeed with the funds available as China seems to be dumping its US dollars in favour of more concrete assets, virtually no minerals sector is safe from Chinese participation.

While CIC was set up only two years ago, funded with $200 billion in initial capital, a report to the U.S. Congress noted that according to top Chinese officials, it was created to improve the rate of return on China's $1.5 trillion in foreign exchange reserves and to soak up some of the nation's excess financial liquidity. Depending on its performance with the initial allotment of $200 billion, the CIC might be allocated more of China's growing stock of foreign exchange reserves - and this has already proved to be the case.

Probably the most interesting of the recent reports of what is happening with Chinese sovereign wealth fund investment outside China has come from Paul Mylchreest's Thunder Road Report where an ex-U.S. intelligence service member is quoted. He reports that he has a friend who is in the Chinese Sovereign Wealth fund sector who says - hearsay I know and it wouldn't stand up in court - indicated that the wealth fund analysts were working all hours of the day and night trying to put investment deals together - particularly in the oil and precious metals sectors. The conclusion is that China recognises that the U.S. dollar is going to tank and it wants to convert as much of its trillions of dollars of holdings into strategic assets as possible before the collapse really takes hold.

The trouble is there is too much money available chasing too few assets - and too little time available - or such is the conclusion. As a result the Chinese government seems to be doing its utmost in trying to persuade the Chinese public to buy gold and silver by relaxing the restrictions - it's now easier to buy precious metals in China than in the U.S. - and by pushing gold and silver investment on state-owned television. If this continues the likelihood is that China will permanently overtake India as the world's biggest buyer of gold and silver, while the country's store of wealth will help shield it against further western economic collapse.

**How much of your portfolio is in precious metals? Now is a good time to buy and invest.

Roubini: Risk of double-dip recession increasing

Nouriel Roubini, the New York University professor who predicted the financial crisis, said the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus.

The global economy will bottom out in the second half of 2009, Roubini wrote in a Financial Times commentary. The recession in the United States, the UK, and some European countries will not be “formally over” before the end of the year, while the recovery has started in nations such as China, France, Germany, Australia and Japan, he said.

Governments around the world have pledged about $2 trillion in stimulus measures amid the worst worldwide recession since the Great Depression. Federal Reserve Chairman Ben Bernanke and other global policy makers have cautioned that the recovery is likely to be muted, indicating they would not soon remove all the stimulus injected into the financial system.

“There are risks associated with exit strategies from the massive monetary and fiscal easing,” Roubini wrote. “Policy makers are damned if they do and damned if they don’t.”

Government and central bank officials may undermine the recovery and tip their economies back into “stagdeflation” if they raise taxes, cut spending and mop up excess liquidity in their systems to reduce fiscal deficits, Roubini says. He defines “stagdeflation” as recession and deflation.

Those who maintain large budget deficits will be punished by bond market vigilantes, as inflationary expectations and yields on long-term government bonds rise and borrowing costs climb sharply, he wrote. That will in turn lead to stagflation, Roubini said.

European Central Bank (ECB) officials led by President Jean-Claude Trichet are suggesting they won’t rush to reverse their emergency stimulus amid mounting evidence of an economic recovery. The ECB has cut its benchmark interest rate to a record 1 percent and is buying covered bonds and flooding banks with money.

“We see some signs confirming that the real economy is starting to get out of the period of freefall,” Trichet said at the Fed’s annual symposium in Jackson Hole, Wyoming, on Aug. 22. This “does not mean at all that we do not have a very bumpy road ahead of us.”

When needed, the ECB will implement a “credible exit strategy” from its crisis policies, Trichet said.

The United States must address the massive amounts of “monetary medicine” that have been pumped into the financial system and now pose threats to the economy and the dollar, billionaire Warren Buffett said last week.

Roubini currently expects a U-shaped recovery, where growth will be “anemic and below trend for at least a couple of years,” he said. A full global recovery from the current recession may take two years or more, Nobel laureate Paul Krugman said earlier this month.

Rising unemployment, a global financial system that is still “severely damaged” and weak corporate profitability are among reasons why any recovery won’t be V-shaped, Roubini said.

“Strains persist in many financial markets across the globe,” Bernanke said in an August 21 speech in Jackson Hole. “The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”

Energy and food prices are also rising faster than warranted by economic fundamentals, which may also increase the risk of a double-dip recession, Roubini wrote, adding that they could be driven by speculative trades.

“Last year, oil at $145 a barrel was a tipping point for the global economy as it created negative terms of trade and a disposable income shock for oil-importing economies,” he said. “The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly toward $100 a barrel.” (Bloomberg)

*Credible economist speaks of coming eminent disaster.