When Wen Jiabao Speaks

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by Charles Lemos, Sat Mar 14, 2009 at 01:57:12 AM EST

In 2008, China's holdings of US debt grew 52.3%. All told, the Chinese bought $249.8 billion in US treasuries and now hold $727.4 billion surpassing Japan as the nation's largest lender. Today speaking at his annual press conference at the close of China's parliament, Chinese Premier Wen Jiabao said: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."

Concerned, worried and increasingly blunt for this isn't the first time that the Chinese Premier has lectured US policymakers. Back in late January at the Davos World Economic Forum, he delivered a stinging rebuke of American capitalism calling it an "unsustainable model of development characterized by prolonged low savings and high consumption." Unfortunately, he does have a point.

From the story in the New York Times:

While refraining from direct criticism of the Obama administration's economic policies, he reminded Washington of China's status as its largest creditor. With budget deficits mounting rapidly, the United States needs China if it is to finance all that new debt at low interest rates.

"President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures," Mr. Wen said. "We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried."

He called on the United States to "maintain its good credit, to honor its promises and to guarantee the safety of China's assets." What he did not mention was that Chinese investments in the United States helped drive the debt-fueled boom of the last decade, during which China grew increasingly dependent on the American market -- a point that was driven home earlier this week when China reported a record 26 percent drop in exports in February.

He stopped short of any threat to reduce purchases of American bonds, much less sell any of them, underscoring the two countries' mutual dependency.

Some specialists say that China's investment in American debt is now so vast that it would be impossible for Beijing to unload its Treasury securities without flooding the market and driving down their price.

Still, it is rare for any world leader to raise questions about the safety of United States Treasuries. Both the White House and Treasury Department issued reassuring statements. Robert Gibbs, the White House press secretary, said, "There's no safer investment in the world than in the United States." Foreign investors would be reassured if Congress adopted the president's budget plan, he said, because it would put "us on that path to fiscal responsibility."

While economists dismiss the possibility of the United States defaulting on its obligations, they say China could face steep losses in the event of a sharp rise in United States interest rates or a plunge in the value of the dollar.

After giving the world lectures on economic stewardship all the while running current account deficits and budget deficits that were unsustainable, we are getting our comeuppance and there's little doubt that the world's economic playing field is vastly different than it was a mere 30 years ago. It should not escape you that we are here because the Republican Party, controlled by a powerful group of wealthy individuals and corporate leaders who were viscerally opposed to notions of a mixed economy, state planning and regulation, pursued a free market ideology that has not just made most of us poorer but now threatens our national security. We will regain a semblance of our financial independence if we chose to rebuild our manufacturing prowess, otherwise we may just have to listen every time Wen Jiabao speaks.

MyDD :: When Wen Jiabao Speaks

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Treasury Unveils Details of Plan to Relieve Banks of Toxic Assets - washingtonpost.com

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The Treasury Department will pour money into private investment funds that bid against each other to buy troubled assets from banks, officials said today, describing a long-awaited but risky signature piece of the government's strategy for stabilizing the financial system.

Under the plan, the government and private investors will invest together to buy up between $500 billion and $1 trillion worth of real estate-related loans and securities from banks. The hope is that instead of hoarding cash in case those assets continue to lose value, the banks instead will be able to resume lending money once the toxic assets are off their books.

The government and private investors, meanwhile, will hold the assets for the long term, and stand to either make or lose money depending on how the economy does.

Treasury officials are betting that the current low market prices for these assets are driven more by excessive fear than the reality of how the economy will perform, and that the new purchases will help kick-start those markets and return them to more normal functioning.

Treasury Unveils Details of Plan to Relieve Banks of Toxic Assets - washingtonpost.com

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The Big Takeover – Financial Crisis : Rolling Stone

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MATT TAIBBI

Posted Mar 19, 2009 12:49 PM

It's over — we're officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses).

The Big Takeover : Rolling Stone

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Once the Gold Price pierces US$1,000, it Will Swiftly Move Toward US$1,250, then US$1,600

Franklin Sanders, The Moneychanger

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The GOLD PRICE now has put its feet on the road to $1,000 again. Next week it must add to its gains, or melt back for more correction. That appears unlikely, given the astonishing strength this week.

Shortages of gold coins are worsening, delays stretching out. That also points toward higher prices. Once the gold price pierces US$1,000, it will swiftly move toward US$1,250, then US$1,600. Buy now.

The next big move in the market will be a huge gain by silver against gold. Recall that silver took a much worse hit than gold in the decline last fall, so silver has much ground to reclaim. It's easy to imagine silver in the upper 2000s or even lower 3000s this spring, or by year-end. Yep, I know it sounds crazy, but it will prove perfectly sane.

By announcing it would double its balance sheet for the second time in a twelvemonth & buy US debt, the Fed announced at the same time that the US dollar is dead, or at least, would soon be executed. The words were not lost on the markets, who knew what they meant. The US DOLLAR INDEX dropped 255 basis points, while the gold price shot up US$60.

Silver and Gold Prices: Once the Gold Price pierces US$1,000, it Will Swiftly Move Toward US$1,250, then US$1,600. Buy Now

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Undo Sending a Gmail Message

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If you ever send a Gmail message too early or you change your mind after you press "Send", there's a feature that will help you. It's called "Undo Send" and you can find in the crowded space of experimental features from Gmail Labs.

After enabling the feature, Gmail will show an "undo" link when you send a message. You have to react quickly because the link disappears in 5 seconds and there's no way to bring it back. If keyboard shortcuts are enabled in your Gmail account, a better option than clicking on "undo" is to press "z". When you undo sending a mail, Gmail saves it as a draft and you can continue editing the message or discard it.

Undo Sending a Gmail Message

Will cash infusion work? It's a coin toss | Philadelphia Inquirer | Financial crisis

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By Joseph N. DiStefano

A day after the Federal Reserve Board of Governors voted to pump another $1-trillion-plus into the economy, U.S. stocks and the dollar fell, and oil and gold rose. Not exactly a vote of confidence in the USA's radical attempt to save jobs by risking massive inflation.

"Nothing like this has ever been attempted before. The risk of failure is therefore quite high," warns veteran bank analyst Richard X. Bove, lately of Rochdale Securities in Connecticut.

"The Federal Reserve is taking a calculated risk," he told clients in a note. "What the central bank sees as likely is a reduction in interest rates, increased lending, higher sales activity, inventory building, and renewed capital expenditures."

If it works, Bove said, "prosperity will return. Equity values will soar. Financial companies will be primary beneficiaries."

If not? Dollars "would become valueless, eliminating [their] usefulness in averting problems in the United States economy," he predicted.

Bove concluded, "This is almost a heads-or-tails move, with the result being 50 percent in each direction.

PhillyDeals: Will cash infusion work? It's a coin toss | Philadelphia Inquirer | 03/20/2009

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The Monetary Stimulus, Or Start the Printing Presses – Financial crisis

 by Charles Lemos, Wed Mar 18, 2009 at 11:24:39 PM EST

The main policy setting committee of The Federal Reserve, the Federal Open Market Committee (FOMC) voted unanimously (10-0) today to employ the only monetary levers it has left to prop the US and global economy. The FOMC opted to pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities. From their press release, here is how the FOMC views the economy:

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth. In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In its announcement, the Federal Reserve is saying that the United States remains in a severe recession and listed a litany of our continuing woes, job losses, falling equity markets, lost housing wealth and declining exports as a result of the worldwide economic slowdown. The FOMC isn't worried about inflation, rather it continues to worry about declining asset prices.

Now here is what they have opted to do. It's a quantitative easing or a monetary stimulus:

MyDD :: The Monetary Stimulus, Or Start the Printing Presses

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It’s Obama’s Crisis Now

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By Byron York

Chief Political Correspondent 3/20/09

You might have missed it, but a key moment in Barack Obama's young presidency occurred Wednesday afternoon as he began his trip to California to become the first sitting president to appear on a late-night comedy show. Heading for his helicopter, Obama made a statement about the AIG bonuses, and he didn't use the word "inherited." As in "we inherited this crisis."

"Ultimately, I'm responsible, I'm the president of the United States," Obama told reporters. "The buck stops with me." That makes it official: Barack Obama didn't start the financial crisis, but he owns it now. Before anyone gives the president an award for political courage, remember that provisions regarding the bonuses -- and who knows what else -- were buried deep inside the $787 billion economic stimulus bill that Obama and his fellow Democrats rushed through Congress. Every single Republican in the House voted against it, and all but three GOP senators did the same. There's no way Obama can blame the stimulus, and its contents, on anyone other than himself.

"What's beginning to happen is his actions are starting to have consequences," a Republican pollster told me. "And this is one of those. He hurried everybody through that process, and it's now his actions that are causing things that people are unhappy about.

> Politics">www.washingtonexaminer.com >> Politics

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US Economist James Galbraith: Financial Crisis Caused by a 'Culture of Complicity'

While the world talks about new ways to save struggling banks, there are a handful of economists who think some banks shouldn't be saved at all. American economist James Galbraith told Manager Magazin that it might make more sense to break them up and start over.

Manager Magazin: Professor Galbraith, you suggest that banks that suffer from bad assets should simply be declared insolvent, instead of rescuing them with taxpayers' money. Why? What should be done with the world's ailing banks?

James Galbraith: We need a correct assessment of the degree of losses suffered by a bank which is functionally insolvent. But as long as the old management is in place, there are no incentives to cooperate in the evaluation you need to make. That's the first problem. The second problem is: When a bank is insolvent, the incentives for normal banking practice disappear. They become perverse. The incumbent management has good reason to gamble excessively and to make capital losses. This is because it appears that the regulators could soon close down the bank. Beyond that, if the situation for the bank is truly hopeless or if the management is truly corrupt, then the incentive is to loot the institution, to take as much money out of it -- e.g. in the shape of bonuses and dividends -- before the true state of the books is discovered.

US Economist James Galbraith: Financial Crisis Caused by a 'Culture of Complicity' - SPIEGEL ONLINE - News - International

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Global: Bubbles, Bailouts and Stimulus Plans – Financial crisis

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Wednesday, March 18th, 2009 @ 20:56 UTC

by Mong Palatino

Identifying the economic woes of the United States is crucial. But we should also understand that other countries are also grappling with bankrupt companies and shrinking economies. Many countries are also implementing their own stimulus plans. What are some of the examples used by bloggers around the world when they discuss the bubble economies, bailout of banks and stimulus plans of their countries?

Global Voices Online » Global: Bubbles, Bailouts and Stimulus Plans

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