Making Unique Observations in a Very Cluttered World

Monday, 13 July 2009

China is concerned about the Dollar

Reading - China is concerned about the Dollar http://www.daralhayat.com/p...

China is insisting on the need to reform the global currency reserve system, sparing no occasion without reasserting and restating this demand, even in front of the U.S. officials themselves.

During the G8 summit last week (in Italy), China led one of the harshest and most direct attacks against the hegemony of the dollar on the global economy, while explicitly calling for the world to diversify its currency reserve system, and to seek to achieve the relative stability for currency exchange rates. It emphasized that "We should have a better system for reserve currency issuance and regulation so that we can maintain relative stability of major reserve currencies' exchange rates and promote a diversified and rational international reserve currency system."

China, like Russia, India and other countries, fears that the financing of the American deficit will have a negative impact on the stability of the U.S. dollar’s exchange rate. This is because the financing of large deficits entails an expansion of the process of “creating money”, and consequently, a decline in the value of the dollar itself.

In fact, the deficit in the U.S general budget is estimated to rise from 5 percent of the GDP in 2008 to 13 percent this year. This budget, which expires next September, requires certain returns and revenues to cover the expenses of the U.S administration that are estimated at 3250 billion dollars. But due to the reduction in tax revenues – stipulated by the economic stimulus plan – the American administration finds itself compelled to resort to public borrowing, where the public debt is expected to become a major burden on the U.S Treasury.

In the 1990s, this debt did not exceed 60 percent of the U.S. gross domestic product. It is however expected to rise this year to 80 percent of the GDP, and up to one hundred percent, and possibly 114 percent by 2014, provided that the economic activity will recover and restart next year.

Although keeping public debt in check vis-à-vis the GDP requires the enactment of various associated measures - the most important of which

is protecting financial institutions and all other funds - fixing interest rates on treasury bonds at low levels remains the most important condition for controlling this debt. This is because any gains brought by public debt (in a given country) are eroded when the debt’s interests exceed the rate of economic growth (in the same country).

Meanwhile, it is noted that the returns on U.S treasury bonds issuable over ten years have been strongly rising since the beginning of this year, reaching 4 percent in early June and currently beyond, but on the other hand, growth has shrunk by about 4 percent also this year. Perhaps it is the estimates that a recovery will occur in the second quarter of the year, as well as the forecasts of increasing inflation in addition to the large U.S treasury’s needs for financing, that are all behind this climb in treasury bonds revenues over the long term. Nonetheless, these financial needs are placing pressures on the prices of treasury bonds, thus raising their interest costs. The Federal Reserve Council however, led a counter-effort against the high returns on Treasury bonds, and announced last March that it will buy treasury bonds worth 300 billion dollars. This course of action "created money" in order to ease the pressure on the bonds market, but it has also rocked the lending countries. The reason is that “creating money” subjects the dollar to fluctuations and causes the deterioration of its value, which is exactly the situation the dollar finds itself facing right now.

Continue reading -http://www.daralhayat.com/portalarticlendah/37579

The Consequences of Big Government

Reading - The Consequences of Big Government - http://bit.ly/C6vXk

We face an unprecedented collision between Americans' desire for more government services and their almost equal unwillingness to be taxed. The conflict is obscured and deferred by today's depressed economy, which has given license to all manner of emergency programs, but its dimensions cannot be doubted. A new report from the Congressional Budget Office ("The Long-Term Budget Outlook") makes that crystal clear. The easiest way to measure the size of government is to compare the federal budget to the overall economy, or gross domestic product (GDP). The CBO's estimates are daunting.

For the past half-century, federal spending has averaged about 20 percent of GDP, federal taxes about 18 percent of GDP and the budget deficit 2 percent of GDP. The CBO's projection for 2020 -- which assumes the economy has returned to "full employment" -- puts spending at 26 percent of GDP, taxes at a bit less than 19 percent of GDP and a deficit above 7 percent of GDP. Future spending and deficit figures continue to grow.

What this means is that balancing the budget in 2020 would require a tax increase of almost 50 percent from the last half-century's average. Remember, that average was 18 percent of GDP. To get from there to 26 percent of GDP (spending in 2020) would require an additional 8 percentage points. In today's dollars, that would be about $1.1 trillion, a 44 percent annual tax increase. Even these figures may be optimistic, because CBO's projections for defense and "nondefense discretionary" spending may be unrealistically low. This last category covers much of what government does: environmental regulation, aid to education, highway construction, law enforcement, homeland security.

Continue reading - http://www.washingtonpost.com/wp-dyn/content/article/2009/07/12/AR2009071201533.html?wprss=rss_opinions

Online Pranksters Wreak Havoc at Hotels, Restaurants Nationwide

Reading - Online Pranksters Wreak Havoc at Hotels, Restaurants Nationwide http://bit.ly/46OXUk

Please, sir, do not throw your toilet out the window, no matter what the stranger on the phone is telling you.

If the phone in your hotel room rings unexpectedly at 2 in the morning, you might soon become the next victim of a network of scammers who are causing tens of thousands of dollars in damage at accommodations around the country.

Often imitated and deviously duplicated, a group called PrankNET appears to be at the center of a growing trend that has harried hoteliers and restaurateurs for months and is now being investigated by the FBI.

The head of PrankNET, who goes by the online name "dex" and has been behaving badly since 2000, leads an online chat system where he and fellow merry pranksters collaborate. Members of PrankNET chat online, stream their calls live on an Internet radio show and post their greatest hits to a YouTube page, a popular breeding ground for more pranks.

During their calls they often drop the name of a security corporation or say they are phoning from a hotel's front desk to lend themselves an air of credibility — and to get their victims to do surprising things.

In February, Dex's work made headlines when hecalled a KFC in Manchester, N.H., and convinced workers there to douse the restaurant with fire suppression chemicals, evacuate the building and strip outside in freezing temperatures. Dex accomplished all of this by pretending to be their boss from a corporate office.

Calls recently posted to PrankNET's YouTube channel have upped the ante even further, capturing scenes where confused hotel patrons have been duped into setting off fire alarms and sprinkler systems — flooding hotels and panicking sleeping guests.

A Florida family staying in an Orlando Hilton was tricked last week into smashing windows, breaking a mirror, bashing in a wall with a lamp and tossing their mattress outside, causing about $5,000 in damage, the Orlando Sentinel reported. The caller persuaded them to do all of that in order to save themselves from a gas leak.

Montreal Madoff - 'Please come back,' investors beg adviser

Reading - Montreal Madoff - 'Please come back,' investors beg adviser http://bit.ly/hO0ns

More than 150 people packed into an investors meeting in Montreal on Sunday to learn more from police and lawyers about what financial adviser Earl Jones has done with their money and how they might get it back.

The self-styled financial adviser is nowhere to be found and the accounts containing his clients' assets have been drained. Quebec authorities have frozen Jones's accounts and are trying to locate him.

Local and provincial police attended the meeting at a hotel in Pointe-Claire to gather statements from investors who suspect they’ve lost millions of dollars in a Ponzi scheme. The losses amount to life savings for some people.

Many of them said they had dealt with Jones for so many years, it never occurred to them to verify his credentials. Quebec's finance regulator, the Autorité des marchés financiers, confirmed Jones was never registered with them.

Kevin Curran, one of the organizers of the meeting, said his mother Karlene Kennedy invested with Jones but had not received a statement from him since the market crashed last October. He also said her mortgage payments have not been paid in two months.

Curran and his brother reached out over the internet last week and located other clients in similar situations. Curran said he planned on meeting with five or six people, and did not expect 150 to show up.

'There's no money'

"Probably some people [here] are saying that 'I'm just here as a friend,' but in fact it's them. I think there was a lot of that shame. That was tough to get through at the onset. They still didn't believe it, even though [their] kids were pushing since Monday, Tuesday [that] something's wrong," said Curran.

He and his brother passed all the information they collected last week to the AMF. Jones has not been charged with any crime and the allegations against him have not been proven, but the province's securities regulator froze his accounts and those of his company last week.

"We got the source documents and we know pretty much how deep it goes, at least enough to stop it. After that, you know, what difference does it make? There's no money, there's no money," Curran said.

Neil Stein, an insolvency lawyer representing one couple who invested, told the crowd his firm would try to bring Jones's corporation into bankruptcy, "to take possession of all the assets, to be able to distribute them to all the parties, as opposed to just the individual who's taking the proceeding."

Margaret Davis, an elderly investor at the meeting, said she doubts she'll ever see her money again.

"I can survive this month. After that, it's going to be a big question mark. Don't sleep very well these days," said Davis.

Quebec investors need 'new framework'

Michel Nadeau, executive director of the Institute for Governance of Private and Public Organizations in Montreal, said he believes losses by Jones's investors could turn out to exceed $100 million.

Nadeau said he thinks the Jones affair will lead to closer scrutiny of all private financial advisers.

“I believe unfortunately we will have to be more severe. To put a new framework. Meanwhile I think you should always deal with at least two financial institutions," said Nadeau.

Nadeau cautioned that investors can never be too careful when hiring a financial adviser.