Former U.S. Federal Reserve Chairman Alan Greenspan said he's not "overly concerned" about the recent weakness in the U.S. dollar, Bloomberg News reported Thursday. However, Greenspan is concerned about the long-term costs to the United States associated with its rising national debt.
Have the G-8 nations lost their economic power? This is exactly what James G. Neuger feels may be happening. How can this be, you ask. Aren't the G-8 nations are the wealthiest nations on earth? Yes, that is true, but it is also true that the G-8 countries also hold the the most debt.
Bank bailouts and stimulus programs will explode the G-8 nations' debt to 114% of GDP in 2014. This debt load would be triple that of emerging countries. Even some G-8 members say that the group has lost its grip in this global recession, which left them wounded and unable to carry out the grandiose programs they previously envisioned like the reduction of greenhouse gasses.
The BRIC nations -- Brazil, Russia, India, China -- basically the powerhouses of the developing world, recently met to discuss, among other things, the possibility of forming an effort to move away from the dollar as the world's reserve currency.
Among options for consideration: a) a shift to another hard currency, b) a shift to a basket of currencies, and c) the possibility of the International Monetary Fund's special drawing rights unit of account serving as the new reserve currency.
Congressman Mitch McConnell recently pointed out that the United States Congress is spending money at a rate of $1 billion per hour -- all of it financed with increased debt.
In this interview with Jan Helfeld, California Congressman Pete Stark argues that the more national debt we have, the wealthier we are as a country because "debt for a nation is different from debt for an individual or company." That was back when the national debt was $5 trillion. Today the national debt is $10,962,887,347,011 -- as I write this.
The economic firestorm that we are in the midst of is yet to be contained, or for that matter, completely understood.
Some things are very clear like the fact we spent more than we earned, as individuals and as a nation, for decades on end. That we know for sure, and regardless of who we blame the most for this situation there is no bigger economic mistake one can make.
U.S. stock markets appear to be in free-fall (at least short-term), the federal budget deficit will exceed $1 trillion for at least the next two years, and Congress will likely have to raise the national debt ceiling above $13 trillion -- all negative developments for the dollar.
So what does the greenback do Monday? Of course, it continues to rise -- strengthening about one-half cent versus the euro and more than 2 cents versus the British pound, to $1.2581 and $1.4034, respectively.
On a day when the United States committed up to $2 trillion more in government financing and programs to unlock credit markets -- probably the federal government's largest, one-day implied commitment in history -- the dollar rose against the euro and British pound.
The dollar strengthened 1.2 cents to $1.3821 and a gargantuan 4 cents to $1.4488 versus the British pound. The dollar also rose about one-half cent to $1.1584 versus the Swiss franc.
Now, in theory, increasing dollar commitments by the U.S. government means more dollars in circulation, which means every dollar is worth less -- a sequence that should cause the dollar to fall against the world's other major currencies. Not Tuesday, and really, when you review it, not since the financial crisis took hold in October 2008, so says economist David H. Wang. And the reason is basic: the dollar's status as a reserve currency, and as a safe haven.
The dollar, despite the prospect of back-to-back trillion dollar U.S. budget deficits, continues to hold its own against the world's other major currencies. What's more, provided the fiscal stimulus package is passed, the national debt ceiling will increase to $12.1 trillion from the current $11.3 trillion.
The dollar strengthened about 1.5 cents to $1.2867 versus the euro Wednesday, and rose about 1.4 cents to $1.1586 versus the Swiss franc, while remaining essentially unchanged at 89.62 yen and $1.4490 versus Japan's yen and the British pound.
One of the biggest misnomers in the current fiscal stimulus debate concerns the United States' ability to service its budget deficit and national debt (pdf).
Provided the fiscal stimulus package is passed, the national debt ceiling will increase to $12.1 trillion from the current $11.3 trillion.
Deficit approaching intolerable levels?
Economic conservatives, market absolutists, and the like argue that the annual budget deficit and national debt are approaching intolerable levels. In truth, what they're arguing against is a needed government intervention and New Deal-type spending required to jump-start the U.S. economy -- even if it means the economy will plunge into a deeper recession without the stimulus. It seems some economic conservatives would rather see the nation's economy suffer, than to violate one their flawed economic theories.
How'd you like to borrow money for 30 years at 2.95%?
The U.S. government can, and it's making it easier for the federal government to fund its increasing budget deficit, as well as help build the case for a large fiscal stimulus package.
Treasury prices continued to rise Tuesday, pushing the yield on the 30-year government bond down to 2.95% -- close to its lowest level since regular sales began in 1977. The 10-year note yielded 2.48%; the 5-year note, 1.47%.
Further, while it may seem like a contradiction to have long-term interest rates fall at a time the U.S. government is on-track to record at least a record $600 billion (and probably much higher) budget deficit this fiscal year, there's a method to institutional investors' madness, so says economist Richard Felson.
"The landscape for private investment is poor. We have a recession on all continents, and there's a lack of places to deploy capital productively. That dearth of opportunities for return on investment plus fear of losses from toxic assets is driving investors to the safer investments, and one of the safest is the U.S. Treasury," Felson said. "It's the preferred place to be until the major economies start to recover."
Imagine paying the United States government to hold your money for three months.
The condition appears to turn investment theory on its head, but that's what investors are doing in today's uncertain, risk-averse markets.
Foreign investors are accumulating Treasuries at the fastest pace since 1988, up 12% since September, Bloomberg News reported Monday, citing U.S. Federal Reserve data. They are becoming institutional investors' mattress.The tactic is driving Treasury rates to record lows: the 2-year note has fallen to 0.76% from 3.11% on June 13, while the 3-month Treasury turned negative on December 9 for the first time.
Meanwhile, the 10-year and 30-year Treasuries have fallen to 2.55% and 3.04%, respectively -- not much return on your investment, but that's beside the point: investors currently are more concerned about the return of their investment than the return on their investment.
Still, economist David H. Wang said there's an upside and a downside to the lower interest rates for Treasuries.
With apologies to actor William Shatner, How big could the bailout of AIG get? Really big.
The U.S. government -- which is all of us, citizens and taxpayers -- may have to increase its investment in American International Group (NYSE: AIG) by still another $70-80 billion to keep the insurer solvent through the end of 2009.
Just call it USG-AIG
AIG, which reported $43 billion in losses tied to home mortgages in the past quarter, "will probably not function properly if it doesn't receive another cash infusion by September 2009," economist David H. Wang told BloggingStocks Tuesday. Wang based his forecast on his projection for cashed-in credit default swaps stemming from home mortgage defaults.
AIG is a major issuer of credit default swaps, actually a type of credit default insurance, which many holders of mortgage backed securities and bonds purchased to hedge against bond issuer defaults.
"If we project a rise in home mortgage defaults through Q2 2009, that will likely take credit default claims to levels that will require more money for AIG in late 2009," Wang said, although he qualified his projection by stating that it is contingent on negative U.S. GDP for Q1/Q2 2009. A U.S. economic recovery in Q2 2009 is possible, but not likely, Wang said.
AIG's shares fell 15 cents to $2.14 on Tuesday at mid-day, amid a broader market sell-off.
Talk about a large amount of funding in a quarter.
The U.S. Treasury Department, weighed down by unprecedented obligations for the bank rescue and a slowing economy, is expected to borrow a record $550 billion this quarter, compared to the pre-financial crisis estimate of $142 billion, the department announced.
Further, the $550 billion bond issuance follows a record $530 billion in borrowing in Q4 of fiscal 2008, which ended September 30.
In addition to the bank rescue and related programs, the slowing U.S. economy has also increased Treasury borrowing by reducing federal receipts and increasing outlays.
The U.S. Government closed fiscal 2008 with a $407 billion deficit, according to the Congressional Budget Office (pdf). The CBO projects a $438 billion deficit for fiscal year 2009, but economist Richard Felson said the total is likely to approach $1 trillion if the bank recapitalization and toxic asset repurchases proceed along outlined timetables.
"These are staggering sums of debt and it's hard to envision the dollar holding up long-term, given such borrowing," Felson said.
Want to sum up the United States' fiscal situation in a word?
Warren Buffett did, or did so in 16 words to be exact, in a chat with The New York Times: "I'm paying the lowest tax rate that I've ever paid in my life," Buffet said. "Now, that's crazy."
Further, Buffett, the world's richest person as ranked by Forbes Magazine with wealth totaling $62 billion, also said the U.S. Government should increase taxes on the wealthy to help pay for the recently-passed bank rescue, which is designed to end the financial crisis.
Buffett's stance demonstrates that there is at least one person of high income and/or wealth (and probably many more) who believe upper-income groups should be paying more in federal taxes each year. 2001 tax cut generated large U.S. budget deficits
Buffett's view is also in stark contrast to the Bush Administration's philosophy and policy, which has prevailed for the decade and which argues that lower tax rates on upper-income groups will not only generate higher GDP growth, but also result in revenues high enough to close the federal budget deficit. It hasn't happened, said economist David H. Wang.
Just call the impact of the bank rescue package's cost a 'bad news, goods news' saga.
The bad news is this year's budget deficit, for Fiscal 2009, will reach unprecedented heights, in terms of total money borrowed.
The good news is the dollar's reserve currency status will lower the financing cost of the rescue package and related deficit spending to an interest rate of 4% - - or less - - on the additional debt, The New York Times reported Monday.
Further, the Congress could have chosen to offset at least a portion of the additional outlays by increasing taxes or trimming spending in other areas. However, given the contraction effects of the above two, Congress has chosen to let the U.S. budget deficit rise, at least for now, The Times reported.
U.S.: record, back-to-back budget deficits
The United States just posted a record $438 billion budget deficit (preliminary) for F2008, which ended September 30, according to Congressional Budget Office data. This year's deficit is likely to exceed $700 billion, so says economist David H. Wang. Is it wise to straight-line the new spending directly to the national debt via borrowing, in Wang's view? Indeed it is, he says.
One of the nation's foremost economic minds is sending an alarm signal regarding the U.S. budget deficit and national debt.
Have the G-8 nations lost their economic power? This is exactly what James G. Neuger feels may be happening. How can this be, you ask. Aren't the G-8 nations are the wealthiest nations on earth? Yes, that is true, but it is also true that the G-8 countries also hold the the most debt.
The BRIC nations -- Brazil, Russia, India, China -- basically the powerhouses of the developing world, recently met to discuss, among other things, the possibility of forming an effort to move away from the dollar as the world's reserve currency.
Congressman Mitch McConnell recently pointed out that the United States Congress is spending money at a rate of $1 billion per hour -- all of it financed with increased debt.
The economic firestorm that we are in the midst of is yet to be contained, or for that matter, completely understood.
U.S. stock markets appear to be in free-fall (at least short-term), the federal budget deficit will exceed $1 trillion for at least the next two years, and Congress will likely have to raise the national debt ceiling above $13 trillion -- all negative developments for the dollar. 
One of the biggest misnomers in the current fiscal stimulus debate concerns the United States' ability to service its budget deficit and national debt (pdf).
How'd you like to borrow money for 30 years at 2.95%?
With apologies to actor William Shatner, How big could the bailout of AIG get? Really big.
Talk about a large amount of funding in a quarter.
Want to sum up the United States' fiscal situation in a word? 
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