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XMFSinchiruna (26.60)

A Survey of Clues About our Economic Future



January 05, 2010 – Comments (7)

It's a sign of our times when a former Treasury Secretary and current co-chair of the Council on Foreign Relations (Robert Rubin) is a source for statements like this:

"The United States faces projected 10-year federal budget deficits that seriously threaten its bond market, exchange rate, economy, and the economic future of every American worker and family. Those risks are exacerbated by the context of those deficits: a low household-savings rate, even after recent increases; large funding requirements for federal debt maturities every year; heavy overweighting of dollar-denominated assets in foreign portfolios; worsened fiscal prospects in the decades after the current 10-year budget period; and competing claims for capital to fund deficits in other countries."

"The conventional concern here is that private investment will be crowded out, which would result in a reduction of productivity, competitiveness, and growth. In addition, the very early 1990s showed that unsound fiscal conditions can have a symbolic effect that broadly undermines business and consumer confidence. But finally, and far more dangerously, our bond and currency markets could react with severe distress to fears about imbalances in the supply and demand for capital in the years ahead or about the possibilities of inflation. Those effects have been averted so far by a number of factors: large inflows of capital from abroad into Treasury securities; concerns about other major currencies; the low level of private demand for capital; and the psychological state of the market. But this cannot continue indefinitely, and change can occur with great force—and unpredictable timing."


Pimco Cuts U.S., U.K. Bonds as Borrowing Increases (Update3)
January 03, 2010, 10:24 PM EST
By Wes Goodman

Jan. 4 (Bloomberg) — Pacific Investment Management Co., which runs the world’s biggest bond fund, is cutting holdings of U.S. and U.K. debt as the two nations increase borrowing to record levels.

Pimco is “more cautious” on corporate bonds and holds fewer mortgage-backed securities than the percentages in the benchmarks it uses to gauge performance, wrote Paul McCulley, a portfolio manager and member of the investment committee, in his 2010 outlook. The company is also underweight Treasury Inflation Protected Securities, according to the report on Newport Beach, California-based Pimco’s Web site.


Prepare for a Keynesian Hangover

In 2008, as the U.S. economy teetered under the weight of years of reckless credit expansion, the Bush administration decided against proposals to sweep out the bad debts from the banking system and then fix the regulatory structure—an approach based on tried and tested models from the S&L crisis and other financial crises.

We will pay the price for this decision in 2010. That's because the Obama administration and the Federal Reserve are plowing forward with Plan B: Nationalize credit creation and "stimulate" the private sector by spending in its stead.

Dec. 17 (Bloomberg) -- Chinese central banker Zhu Min said that the dollar is set to weaken further and it will become more difficult for nations to buy U.S. Treasuries.

“When the U.S. has to fund its deficit through the combination of issuing more Treasuries and printing more dollars, it is inevitable that the dollar will continue to weaken,” Deputy Governor Zhu said at a forum in Beijing today.


And finally my own thoughts on the matter:


Now ... let's have your thoughts. :)





7 Comments – Post Your Own

#1) On January 05, 2010 at 7:20 AM, portefeuille (98.37) wrote:

is this the text version of the daily Peter Schiff videos?


(just kidding)




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#2) On January 05, 2010 at 9:34 AM, workfor (< 20) wrote:

Man the printing presses! It's time for some taxation without representation! Then we'll suck all that money right back in like nothin ever happened - yea right.

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#3) On January 05, 2010 at 11:19 AM, kdakota630 (29.45) wrote:


A question for you...

A friend of mine was purchasing shares of CEF.A (Toronto exchange) and while I was at their website I noticed that there was a link to Silver Bullion Trust. I haven't had a chance to look around there too much yet, but I was wondering if you had any thoughts on it, and if you knew the difference between the different symbols, SBT.UN and SBT.WT in particular.


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#4) On January 05, 2010 at 11:59 AM, XMFSinchiruna (26.60) wrote:


I look forward to the bullion trust's arrival on a major exchange. :)

.wt is probably warrants. Beyond that I have no details for you.

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#5) On January 05, 2010 at 12:08 PM, galtline (34.93) wrote:

Actually, I have a question.  

"large inflows of capital from abroad into Treasury securities"

Why did we have that?   Why did countries abroad flee to Treasury securities, particularly at a time when we started the printing presses.

I have some thoughts on it (however novice and simple they may be), but am curious what your thoughts are.  I read your blogs and articles regularly, and have followed several of your stock recommendations (thanks again for SLW and AUY).


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#6) On January 05, 2010 at 9:56 PM, dbjella (< 20) wrote:

Those effects have been averted so far by a number of factors: large inflows of capital from abroad into Treasury securities;

Who believes that the capital abroad was really our Federal Reserve "giving" money abroad to buy these Treasury securities?  I do, but I can't prove it.  What I do know is that one way or another the US gov't needs more money to re-distribute and stimulate.  Either the Fed will print and buy directly or indirectly.  Taxes are not going to cover it. 


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#7) On January 06, 2010 at 12:25 PM, BadassMFer (51.77) wrote:

Bravo TMFS, brilliant post.  I particularly like Rubin's mentioning of the early 90s.  Thus far the Gov't has unfortunately followed up Bush's wartime Reagonomics with ...wartime Reagonomics.  Its not too late to reverse the trend.

"No pecuniary consideration is more urgent than the regular redemption and discharge of the public debt; on none can delay be more injurious, or an economy of time more valuable." - President Washington in his Fifth Annual Address to Congress, 1792

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