Tuesday, November 24, 2009
But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. (more)
Against that bleak backdrop, Wall Street is squeezing one of America's weakest cities for every penny it can. A few years ago, Detroit struck a derivatives deal with UBS and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city's credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That's precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab. (more)
Legislation in many parliaments favors large corporations and puts ordinary citizens and small businesses at a disadvantage. Wealth is being systematically transferred from the middle classes to the super-rich. The poor are getting poorer and are joined in by more and more former members of the middle-classes.
Large banks, which had brought themselves and the whole world economy to the verge of bankruptcy by their fraudulent speculations, are being bailed out with tax-payer money, while small banks with honest business practices are being swallowed by those just bailed out. (more)
When you think about the government’s exploding debt burden, you probably don’t focus on interest payments.
But those payments will likely total $4.8 trillion over the next 10 years, amounting to more than half the government’s $9 trillion in debt.
Interest rates are near zero now, thanks to the Federal Reserve’s massive monetary stimulus. But at some point the Fed will have to reverse that easing.
"When interest rates rise, even a small amount, the interest payments go up a lot because of the size of the debt," Charles Konigsberg, chief budget counsel of the Concord Coalition, told CNNMoney.com. (more)
The investment guru who runs the world’s biggest bond fund at Pimco, Bill Gross, says a speculative bubble is emerging in China.
Real economic growth there is still constrained by limited consumer demand from the United States and other trading partners
Gross told Bloomberg News that the Chinese will have “a bubble of their own” to confront shortly.
“It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.” (more)
the cash price of gold in the same location. A positive basis is called contango; a
negative one, backwardation. Since there were no organized futures markets in
gold prior to 1971, the history of gold basis is confined to the last 35 or so years.
Gold futures trading started on the Winnipeg Commodity Exchange in
Canada in 1971 at a time when ownership and trading of gold was still illegal in
the United States. Upon becoming legal the bulk of gold futures trading moved
to New York and Chicago. (more)