Sunday, January 10, 2010

U.S. to make cuts in Social Security, Medicare, and Education in 2010?

Several European countries --first Iceland, then Ireland, now Greece,etc. -- are mired in inescapable debt and bankrupt nations, the result of crashing banks, bank bailouts, and soaring unemployment. The U.S. and U.K. watch from a distance, knowing their turn is next.

Recently, Moody’s released their notorious “misery index” — the nations that are most sunken in debt and least able to pay it back, requiring that “special measures” be taken to prove to investors that these governments are able to repay their loans.

The biggest losers of the misery index were not surprises and included Iceland, Ireland, and Greece But ranking right behind bankrupt Iceland was the United States: the once-proud super-power.

The U.S. and the U.K. need not make immediate cuts like Greece, Ireland, Spain, but they must make immediate plans to make major cuts, explains Moody’s chief of rating nations’ credit, Pierre Cailleteau: “…this will be the year [2010] where both the U.S. government and the U.K. government will have to articulate a credible plan to address their problems of large debt.”

John Chambers of Standard & Poor’s was more blunt: "The U.S. government, like the U.K. government, … is going to need to draw down fiscal stimulus, pare expenditures [make cuts], raise revenues [taxes] and probably take a look at [cuts] in their entitlement programs" [Social Security, Medicare, and Education]

[From a commentary by Shamus Cooke]

Friday, January 01, 2010

Countries pulling the strings on a stronger or weaker Dollar

If China, Russia and OPEC sold their U.S. Dollar surpluses, they would inflict losses in these holdings on themselves in the process of undermining not just the U.S. but the global economy. Each could react in different ways:

1. O.P.E.C. oil producers are dependent on the States for the security of their sovereignty. The House of Saud dare not reject the Dollar oil price or they will lose the physical protection of the U.S. …However, this may be changing as we now hear the news of a new Gulf currency that may be used to price oil in. If this does happen, then a major nail will have been driven into the coffin of the $ as the global reserve currency.

2. Russia needs to maximize oil income to keep itself economically sound. So it will accept the Yuan from China but won’t reject the Dollar payments from other countries. It is diversifying reserves as far as it can without damaging the Dollar exchange rate and would love to jettison the Dollar, but for the sake of the value of its reserves and the stability of the world’s currency markets, including the Ruble market, it won’t. (As one Treasury Official said, the $ may be our currency, but it’s your problem.)

3. China is stuck with around $3 trillion in its reserves, firmly snared in the $ trap. It is unhappy with this and is diversifying as far as it can [including into gold]. Its unshakeable answer is to peg the Yuan to the Dollar and reap the benefits of sucking the manufacturing out of the States and selling it cheap goods. There will be no loosening of the ‘peg’ until the problem of China’s Dollar reserves are solved. It is therefore turning the disadvantage into an advantage that is bleeding the U.S. of its strength. By doing this, the advantage of a weakening Dollar to the States is neutralized.

[Excerpt from Gold Forecaster]