Tag Archives: United States Congress

USA Has Reached Its Debt Limit

The United States reached its predefined national debt limit Monday morning. That means that the US government no longer is able to meet its obligations by borrowing more money. According to Treasury Secretary Timothy Geithner the nation will default if the Congress doesn’t lift the debt ceiling by August 2.

“Failing to do something about the debt would be far worse in the long-run than failing to raise the debt limit.”

According to TPMDS, the US Congress has ordered that interest must be paid on existing debt, since incoming revenues aren’t sufficient to pay for the services , and the Treasury department is planning a series of ever-more extraordinary measures to pay of its bills.

According to US Treasury Secretary Timothy Geithner, the US may get away with this – but only until August 2.

If Congress doesn’t lift the debt ceiling by then, the country will default, triggering a number of severe economic consequences.

Geithner has already stopped issuing securities to states that help them keep their books in balance and maintain infrastructure, TPMDC writes on their website.

Pointing out that today, the government will defer payments to and investments in federal pension funds – pensions Republicans want federal workers to pay more money into than they currently do.

But despite the serious situation, you won’t get the impression that time is of the essence from congressional Republicans.

They are refusing to raise the debt limit without substantial cuts to government spending and entitlement programs. GOP leaders on Capitol Hill continue to vacillate between claiming that the consequences of default would be smaller than the consequences of not cutting spending.

“Failing to do something about the debt would be far worse in the long-run than failing to raise the debt limit,” says US Senate Minority Leader Mitch McConnell on the Senate floor Thursday.

Admitting that they’re using the threat of a default to make good on long-standing conservative commitments.

“What better time to do something about the debt than in connection with raising the debt ceiling?” McConnell says.

Still, Republicans have thus far set the terms of the debate, at least in the public realm. They insist they will not accept increasing revenues as part of any deal.

They want to implement budget process reforms that will make it easier to cut spending in the future, and say they’ll only raise the debt limit by as much or less than the trillions in spending cuts they’re able to enact as part of a deal.

Underneath that, they’ve expressed willingness to negotiate the precise cuts to discretionary, defense, and entitlement spending, TPMDC highlights.

However, their opening bid – the House GOP budget – includes enormous cuts to Medicare and Medicaid.

House Speaker John Boehner said Sunday that he sees no substantial movement from the Obama administration in his direction, increasing the sense that a deal is still far off.

However, the precise details of negotiations between House and Senate leaders and the White House, led by Vice President Joe Biden, remain tightly held.

“There’s likely a gap between the perceptions presented in public statements and the reality behind the scenes. And that gap will likely grow as we approach August, and the consequences of dithering and the pressure to avoid calamity mount,” The Taking Points Memo concludes.

And perhaps SAXO Bank will hit bullseye with their number one Outrageous Predictions for 2011:

“As we move into the second half of 2011, politicians and pundits increasingly succeed in putting the Fed in the hot seat for having been the critical enabler of the US housing debacle and resulting bank bailout and public debt catastrophe. Meanwhile, the too-big-to-fail banks are back in deep trouble again as their troubled mortgage portfolios once again threaten their solvency. The Fed‟s Bernanke rallies the FOMC to indicate a strong new expansion of monetary policy to once again bail out the troubled banks and/or local governments. Emboldened by the political and popular winds blowing, however, a Ron Paul led challenge of the Fed‟s authority sees the Congress blocking the Fed‟s authority to expand its balance sheet, and sets up an eventual challenge of the Fed’s dual employment/inflation mandate.”


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Saxo Predicts Public Debt Catastrophe, Insolvent Banks

Yes, it’s that time of the year again; Saxo Bank is out with their “Outrageous Predictions” for the coming year, and they are more contagious than ever. Here’s how the Danish analysts describe an unlikely, but possible, scenario for the United States in the second half of 2011:

“Politicians and pundits increasingly succeed in putting the Fed in the hot seat for having been the critical enabler of the US housing debacle and resulting bank bailout and public debt catastrophe. Meanwhile, the too-big-to-fail banks are back in deep trouble again as their troubled mortgage portfolios once again threaten their solvency.”

Saxo Bank


I doesn’t sound too unlikely to me, and if I were to bet, I would put my money on this one; Saxo Bank goes on predicting a Ron Paul led challenge of the Federal Reserve‟s authority, the US Congress blocking the FED‟s authority to expand its balance sheet and sets up an eventual challenge of the FED‟s dual employment/inflation mandate. On the other hand, it’s probably only wishful thinking…

It’s about to become one of Scandinavia’s finest New Years traditions; the “Outrageous Predictions” by Saxo Bank.

Inspired by Nassim Taleb and his Black Swan Theory, they issue an annual report every year in December where the analysts, led by Mr. David Karsbøl, list 10 unlikely, but absolutely possible, economic and political scenarios for the year to come.

The track record so far is relatively good.

Saxo Bank have managed to get an average of four hits, on their ten outrageous predictions the last four, five years.

Last year, three of the predicted, highly unlikely, scenarios did in fact happen.

Personally, I think Mr. Nassim Taleb would object strongly against using the term “Black Swan” about these predictions.

But that aside, according to chief economist David Karsbøl at Saxo Bank, the analysis can be useful in stress testing your investment portfolio.

In other words, it is worth taking into consideration.

Okay, here it is:

“Saxo Bank – Outrageous Predictions 2011”

 

US CONGRESS BLOCKS BERNANKE’S QE3:
As we move into the second half of 2011, politicians and pundits increasingly succeed in putting the Fed in the hot seat for having been the critical enabler of the US housing debacle and resulting bank bailout and public debt catastrophe. Meanwhile, the too-big-to-fail banks are back in deep trouble again as their troubled mortgage portfolios once again threaten their solvency. The Fed‟s Bernanke rallies the FOMC to indicate a strong new expansion of monetary policy to once again bail out the troubled banks and/or local governments. Emboldened by the political and popular winds blowing, however, a Ron Paul led challenge of the Fed‟s authority sees the Congress blocking the Fed‟s authority to expand its balance sheet, and sets up an eventual challenge of the Fed‟s dual employment/inflation mandate.

 

APPLE BUYS FACEBOOK:
What do you do when you want domination of the electronic and mobile device consumer market and have no significant presence in social networking? Oh, and a war chest of a mere USD 51 billion? You buy Facebook, the mother lode of (yet to be monetised) social networks. Facebook is worth USD 43 billion, according to sharespost.com. In interviews, Apple CEO Steve Jobs has explained that Apple was in talks with Facebook about partnership opportunities, but that the talks ultimately produced nothing. Facebook was after “onerous terms that we could not agree to”, according to Jobs. At the Web 2.0 Summit Facebook founder Mark Zuckerberg called for Apple to ease its approach to connecting Ping with Facebook, and said that Apple had to “get on the bus”. Steve Jobs might get on the bus indeed and buy Facebook outright. It makes perfect sense; Facebook doesn‟t compete against Apple and it „faces up‟ to Google, which Jobs loves since Google has become his new number one enemy. It‟s a deal made in heaven… The gigantic 500+ million Facebook user base could be integrated across Apple‟s consumer products and services – every Facebook user automatically has an iTunes Store account and FaceTime chat is integrated into Facebook chat. That‟s a lot of iOS devices.

 

US DOLLAR INDEX TOPS 100:
The economic growth trajectory in most areas of the world appears healthy for a time in 2011 – at least outside of Europe and Japan. But then trouble occurs in China, where its new 12th five-year plan aimed at increasing consumption fails to function as hoped. With the Chinese industrial base growing more slowly or not at all as a result of the policy shift, the satellite countries dependent on Chinese demand see their economies facing a rough adjustment. This puts global risk appetite in a tail spin, and with the Japanese economy struggling and the Eurozone in disarray, the US dollar suddenly doesn‟t look as bad as it did previously. This is especially the case since the market was massively short of the currency at the beginning of the year. The unwinding of these positions pushes the USD index 25% higher to over 100 late in the third quarter of 2011. – Outrageous Predictions 2011 –

 

US 30-YEAR TREASURY YIELD SLIDES TO 3%:
The dollar devaluation policy, with its roots in the „currency wars‟ of 2010, force emerging markets to use more of their spare dollars on Treasuries. Also, the US edges over the brink toward a „Japanisation‟ of its economy with core inflation dropping. The Federal Reserve‟s quantitative easing did not have any positive effects, apart from easing the balance sheet woes of American banks. Main Street did not receive much except some benefits from slightly higher stock prices, and with a failure to clear out the system, borrowing returns only slowly and recovery does not gain traction. And then there‟s the Eurozone, where the ECB, EU and IMF fail to cure the ills of the peripheral PIIGS, pushing the flock of flustered investors to the safe haven of Uncle Sam. The feel-good factor may have been on the rise in the US in the latter part of 2010, but it vanishes in 2011 and the 30-year Treasury yield drops to 3%.

 

AUSSIE-STERLING DIVES 25%:
The UK returns to the values of the old days; they work harder, they save more, and soon enough a surprisingly strong expansion in 2011 is underway as the austerity-stricken country defies the naysayers. The markets have it in for the UK, giving the wide expectation that the economy slows as Prime Minister Cameron‟s cuts work their way through the system. However, the large, narrow cuts will not hinder consumer sentiment and as real savings boost production the economy bounces back in the second half of 2011 to end the year as a growth frontrunner in Europe. Australia, on the other hand, is struggling with a weakening economy
as China steps harder on the brakes to stop inflation from getting out of control. Add to this an Australian property market, which is at best in need of restraint and at worst looks like a bubble ready to burst, and we will see a decline of 25% in AUDGBP.

 

CRUDE OIL GUSHES BEFORE CORRECTING BY ONE THIRD:
Crude oil, now driven by fundamental investor macro expectations, gets carried away, surging to over USD 100 a barrel in early 2011 on the wave of euphoria that the US economy has broken free of the shackles.

Unlike 2008, there‟s no follow through to drive the spike higher and investors are left holding oil positions they cannot sustain.

Crude succumbs to a violent one-third correction lower later in the year.

 

NATURAL GAS SURGES 50 PERCENT:
Natural gas enters 2011 with a supply surplus as the global downturn has resulted in supply exceeding demand for two years – resulting in two years‟ of double digit losses. But heading into 2011 the fundamentals for Henry Hub improve dramatically. Increased industrial demand on a US recovery, historical cheapness relative to crude and coal, forward curve flattening and action on proposals to export more US natural gas reserves all combine to make passive investments in gas more profitable. And the icing – an unusually frigid cold snap leads to a rapid depletion of stocks. Henry Hub thus sees a one-in-25 year move up by 50% in 2011.

 

GOLD POWERS TO USD 1800 AS CURRENCY WARS ESCALATE:
The „currency wars‟ return with a vengeance in 2011, driven by improvement in the US economy rather than a need to help economic recovery.

The US trade deficit widens as consumers and governments get their wallets out. As the deficit expands, President Obama‟s plan to „double exports in five years‟ increasingly becomes a pipe dream and incites the „man on the street‟ to twist the US Congress‟s arm to pursue a weaker dollar.

Pressure piles on China and as investors flee to metals in search of some stability, gold shoots up to USD 1,800 an ounce.

 

S&P500 REACHES AN ALL-TIME HIGH
Dr. Bernanke, using his mandate of „make sure the stock market keeps going up‟, continues to pump liquidity into the system in 2011. Even „mom-and-pop‟ investors realise the only strategy worth following is to buy the dips. But the tactic actually works for the Fed, even though it‟s a house of cards, and the US consumers start to spend as their stock portfolios
improve and they forgive their money managers. Corporate America doesn‟t buy the euphoria that a healthy share price is a good indicator of health, though, and continues the deleveraging process – margin improvements, a wary approach to spending and managing the balance sheet, refinancing debt at next to zero interest rates, and so on. Next thing you know, it‟s a proper recovery and the US benchmark index sees the 2007 peak in the rear-view mirror on its way to 1,600.

 

RUSSIA’S RTS INDEX REACHES 2500
It‟s a perfect storm for Russia‟s RTS index in 2011. The next global economic bubble starts to inflate early in the year, sending crude oil above USD 100 a barrel again. The average US investor won‟t do anything with his money other than buy the dips on the US stock market, and fans of the Russian stock market realise value in their index at a 1-year forward P/E of 8.6 and price to book ratio of 1.26. The RTS nearly doubles to 2,500 in 2011. The options market says it has a one-in-twelve chance of happening – but the RTS was last up there in mid-2008.


Heres a copy.

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Report: Details On China's Internet Hijacking

A report delivered  to the US Congress, Wednesday, by the commission on US-Chinese relations points the finger at Chinese officials for continued hacking attempts and computer exploits against networks and systems in the US and other countries.
 

“Recent high-profile, China-based computer exploitations continue to suggest some level of state support.”
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US-China Economic and Security Review Commission




“Recent high-profile, China-based computer exploitations continue to suggest some level of state support. Indicators include the massive scale of these exploitations and the extensive intelligence and reconnaissance components,” the US-China Economic and Security Review Commission’s (USCC), writes in the report.

The report specifically concludes that the Chinese government, Communist Party, and Chinese individuals and organizations continue to hack into computer systems and networks in the US and other countries.

The researchers have found that the methods used are more sophisticated than in past attacks.

And that the hackers are increasingly using social-networking tools and malicious software with ties to criminal organizations.

The website CNET.com reported  last month on the findings of the commission, based on information obtained from a draft report.

Today’s report details a number of incidents in which China hijacked or redirected Internet data from other countries.

Among the most prominent highlights, the USCC described one incident in April (PDF) in which state-controlled Chinese carrier China Telecom sent out incorrect information on Internet traffic paths that told data from the US and other countries to travel through Chinese servers.

This incident, which occurred in April and lasted 18 minutes, affected traffic to and from US government and military sites as well as those for commercial companies, such as Dell, Microsoft, IBM, and Yahoo.

The USCC could not determine if this redirection was intentional, or what, if anything, Chinese telecommunications carriers did with the “hijacked” data.

But it did point out in its report that this type of activity could let a telecommunications firm access data from traffic that’s supposed to be secure and encrypted.

In response to the USCC’s allegation, China Telecom sent an emailed statement to Reuters, denying any involvement in the April incident.
“The spokesman of China Telecom Corporation Limited denied any hijack of Internet traffic,” the company says in the email.

I guess I’m not the only one who just felt another cold chill swipe through the political valley of relations between China and the western world.

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