Economic News Articles in the Great Recession — Archive for Week of 02-12-2012
Two major trends for the Great Recession in the Year 2012 can be discovered from the headlines of the past week. One must be sifted out with a little insight. The other hits you between the eyes with all the subtlety of a missile:
The first is a clear report from multiple sources that China and Russia were both doing what I said they were doing a year ago (when no one else seemed to be noticing) — moving their sovereign treasures out of the U.S. treasuries (notes, bills, and bonds). This is a major sea change that is worrisome for the U.S. down the road, as the size of the move indicates that two of the biggest financiers of U.S. debt are done with the dollar. That will mean a higher cost for financing the U.S. debt down the road as the U.S. will eventually have to up the interest on its treasuries to attract new major investors.
Given the lack of a viable international currency to replace the dollar, I suspect these two Asian neighbors, who have been outspoken against U.S. economic hegemony, have made a joint decision to make precious metals their international reserve for the time being and that they are unlikely to ever return to the U.S. dollar, which keeps them too beholden to U.S. interests … just as Mid-East oil keeps the U.S. vitally attached to events in the Mid East. This huge volume of precious metal purchases by China and Russia was, in my stated opinion at the time, largely why the price of gold skyrocketed last year. The move is being done gradually enough to avoid devaluing the dollar, as that would cause both countries major losses from their treasuries.
The other big change in the news last week was the degree to which Iran took center stage in the global economic news. Oil prices began to go up. I ventured to predict at the beginning of the year that the Iranium Reaction, as I call it, would become one of the major developments to shape the Great Recession in the year 2012. Whether war develops with Iran or not, the conflict will grow and will shove oil prices upward, deepening the global recession for everyone.
I base the significance of this trend on the belief that Iran will not back down for the simple reason that its two main leaders are not driven by political expediency as much as by religious zeal. Both the Ayatollah and Ahmadinejad, in spite of their protestations, are intent upon gaining nuclear weapons in order to destroy Israel for the glory it will bring them under the arrival of the Mahdi — the Twelfth Imam of Islamic prophecy who comes in global holocaust to bring the end of the age.
Religious zeal of this level does not cave in to political sanctions or even the best interest of the people. The only hope sanctions have of working is if they create enough unrest among the masses to bring about an overthrow of the Iranian government. Such an accomplishment is unlikely, given how heavily armed the Iranian government is. An attempt to overthrow the government would be as bloody as what we have seen in Syria and would last as long, so even success of sanctions to stir up an overthrow will send oil prices on a missile-like trajectory into the stratosphere. Thus, whether sanctions are effective or not for disarming Iran, the economic outcome is the same, which is deeper recession due to higher energy / production / transportation costs.
China syndrome — following the Great Recession to the Great Wall
- China becomes world’s largest gold buyer As it moved significantly away from buying U.S. treasuries, China increased its gold buying by 20% in 2011. In effect, it is getting out of the U.S. treasury market and putting all of that money into gold as a haven with a better yield and lower risk.
- China Reduces Holdings of U.S. Treasuries to Lowest Level Since June 2010 The world’s second-largest economy decreased its U.S. debt securities by $31.9 billion from November, or 2.8%, the lowest since June 2010. It has been decreasing its holdings for about a year. China’s leaders advocate diversification away from U.S. assets.
- Russia Halves U.S. Treasury Holdings over 14-Month Period Russia’s investment in U.S. Treasuries started to decline Oct. 2010.
Economic indicators seen in the news this week
- CBO: Longest Period of High Unemployment Since Great Depression Unemployment has remained above 8% for three years and, if fully counted, would top 15%. In spite of recent news, the CBO predicts it will remain above 8% until 2014.
- Factories Show Strength In Latest Sign Of Recovery U.S. factories boosted output last month, and December ended up being their best month for growth in five years. Busier factories are helping drive the economy. The Federal Reserve said production increased 0.7% in January. Dec. output soared 1.5%.
- The Economy: Housing Starts Up; Unemployment Claims Decline The Labor Department said the number of people seeking jobless benefits dropped by 13,000. Led by a surge in apartments, housing starts were up 1.5 percent.
Economic predictions / forecasts that made news headlines
- Swiss Investor Zulauf: Rally Will End in March, QE3 May Come Later “This summer to fall of 2013 seems to me the most vulnerable period.” Investors should prepare for a long period of share value “compression,” one likely to last until the middle of the decade, Zulauf said. U.S. will try QE3 when numbers deteriorate.
Euro crisis updates as the Great Recession goes viral
- Europe ’Plays With Fire’ as Greek Rescue Hits Barrier Greece said Europe’s wealthier countries are “playing with fire” by toying with the idea of expelling it from the 17-nation euro area as talks over a second aid program ran into new obstacles. “In the euro area, there are plenty who don’t want us anymore.
- Fitch and Standard & Poor’s downgrade Spanish banks Standard & Poor’s today lowered the credit rating of 15 Spanish banks. It lowered 10 banks by one notch and another five by two notches. Earlier on Monday Fitch Ratings lowered the credit rating of Spain’s four largest banks.
- Greece Struggles to Win Bailout as Europe Doubts Mount European officials jacked up the pressure on the Greek government to deliver budget cuts in exchange for a second bailout as they insisted that default is not an option. Finance ministers canceled a Brussels meeting slated for tomorrow.
- Hope grows for Greek deal, but anger grows in euro zone Optimism is growing that Greece has finally done enough to secure a second bailout after it set out extra budget savings, but the moves failed to ease tensions with EU paymaster Germany.
- Moody’s warns it may cut AAA-rating for UK, France and Austria Moody’s also downgraded Italy, Spain, Portugal, Slovakia, Slovenia and Malta one notch, citing growing risks from Europe’s debt crisis. Its action puts London’s prized top credit rating in jeopardy for the first time.
- Stocks gain after Greece OKs austerity U.S. stocks rose Monday after the Greek government approved a key austerity package, lifting hopes the nation will qualify for more bailout money and avoid a messy default, but Greece must meet other conditions before euro-area finance ministers meet next Wednesday.
- Why Greece won’t go away Expect a lot of noise this week about Europe’s resolve to end the Greek debt crisis, and to roll out a second, 130bn euro bailout for the tormented country. But don’t be distracted by it — Greece’s problems are as bad as ever.
Federal Reserve actions tracked in the economic headlines
- Forbes: Bernanke ‘Supreme Socialist’ “You thought socialism was dead, other than in miserable countries such as North Korea and Cuba? Think again. It’s alive and well at the Federal Reserve, and we and the world are paying a price for it.”
The Iranium Reaction as it makes and shakes the news
- Iran Issues Threat to Oil Buyers in Europe Besieged by international sanctions over the Iranian nuclear program including a planned oil embargo by Europe, Iran warned its six largest European buyers on Wednesday that it might strike first by immediately cutting them off from Iranian oil.
- Iran to announce opening of deep Fordow nuke plant? Pundits in Iran attempted to decipher what President Mahmoud Ahmadinejad meant when he declared that Tehran will soon unveil some “very important and very major nuclear achievements.” Ahmadinejad insisted Iran would never give up its nuclear goals.
- Mossad Chief, Pardo, probed US reaction to unilateral Iran strike According to an unnamed source in the report, Pardo asked if the US was ready to bomb, and if not, “What does it mean if [Israel] does it anyway?”
- New bill to press Obama on Iran strike? US senators lead bipartisan effort to block any foreign policy option that might allow for nuclear Iran; some Democrats reluctant to support measure.
- Op-ed: Israel will bomb Iran’s nuke sites earlier than predicted, with Western and Arab support We need a miracle to avert war. Both sides have been preparing for it for years. The two states are marking resources, holding drills, utilizing intelligence, creating uncertainty, and publicly presenting positions that offer no way back.
- US admiral says forces prepared to confront Iran In Bahrain, commander of the 5th Fleet says Navy ‘built wide range of potential options to give the president.’ Adds: Iran has ‘suicide boats,’ large mine inventory
- US bid to crimp Iran oil sales stumbles American attempts to get major Asian importers of Iranian oil to rein in their purchases are faltering as allies South Korea and Japan give U.S. officials a polite brushoff. Emerging giants India and China may even INCREASE their purchases.
- US, Europe eye risky, unprecedented penalty for Iran over pursuit of nuclear weapons Unprecedented punishment against Iran proposed by U.S. could immediately cripple Iran financially, but it’s an extreme option in the banking world that would come with its own costs. Obama wants Iran evicted from SWIFT, vital to all its oil transactions.
- Video: US on high alert amid possible Iran threat Current Iranian hit squads could affect U.S. on its own soil. If sanctions don’t work soon, war with Iran virtually assured by summer.
U.S. government moves (and blunders) in articles about the economy
- Congressional Negotiators Reach Bipartisan Deal on Payroll Tax Cut Congressional negotiators sealed an agreement on legislation to renew a payroll tax cut for 160 million workers and jobless benefits for millions more. Republicans negotiated the number of weeks a person may get unemployment from 99 down to 73.
- Geithner: Obama Plan Would End Dozens of Business Tax Breaks The Obama administration’s corporate tax reform plan would end “dozens and dozens” of tax breaks, call for higher taxes on the wealthy and eliminate inequities in the corporate tax system while lowering the top rate.
- Obama to unveil budget with higher taxes, more deficits President Obama will release an election-year budget Monday that is loaded with deficit spending and tax increases on the wealthy but avoids tough choices on the soaring costs of entitlements. The president’s budget forecasts a deficit of $1.33 trillion.
Other economic updates / news articles
- Fake US bonds worth trillions seized Worth $6 trillion, the bonds were found in three metal boxes in a warehouse in the Swiss city of Zurich. Investigators say the fraud posed “severe threats” to international financial security.