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Monday, August 8, 2011

Western Governments Will Embark On A New Round Of Quantitative Easing To Help Spur Their Moribund Economies

They'll try to disguise it. They'll call it cupcakes or who knows what. It'll cause a big rally in raw materials and commodities because more and more people will realize they are printing money, they are debasing the currency. - in Reuters

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China Tells U.S. It Must ‘Cure Its Addiction to Debt’

SHANGHAI — China, the largest foreign holder of United States debt, said Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the rating agency Standard & Poor’s downgraded America’s long-term debt.

The harshly worded commentary, released by China’s official Xinhua news agency, was Beijing’s latest effort to express its displeasure with Washington.

Beijing’s reaction to the downgrade was the harshest among foreign leaders. Japan — which held $882 billion in United States Treasuries at the end of last year, making it the second-biggest overseas holder of American debt — did not release any official statement about the downgrade. A Finance Ministry official said he could not comment.

Though Beijing has few options other than to continue to buy United States Treasury bonds, Chinese officials are clearly concerned that the country’s substantial holdings of American debt, worth at least $1.1 trillion, are being devalued.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the commentary, which was published in Chinese newspapers.

Beijing, which did not release any other official statement on the downgrade, called on Washington to make substantial cuts to its “gigantic military expenditure” and its “bloated social welfare” programs.

The commentary serves as a sharp illustration of how the United States’ standing in the world is sliding and how China now views itself as ascendant.

While Washington wrangles over its debt and deficit problems and the European Union struggles to deal with its own debt issues, China is sitting on the world’s largest foreign exchange holdings, and its economy is growing at close to 9 percent. The country is also once again racking up huge trade surpluses with the rest of the world.

Beijing does have its own worries, like soaring inflation and housing prices and an overheating economy. Policy makers are also trying to deal with the accumulation of huge foreign exchange holdings. Trade and current account surpluses have helped China accumulate the vast foreign exchange reserves. It has invested much of those reserves in United States Treasury bonds, largely because the American market has long been considered the safest and most liquid bond market in the world.

Analysts say that China can also buy bonds in the European and Japanese markets but that those two markets are not big or liquid enough to absorb China’s fast-accumulating foreign exchange reserves.

But because China has about $3 trillion in foreign exchange reserves, there are few places big enough to invest those holdings safely outside of United States Treasuries, even though it looks as if they may lose value.

Analysts say that if China pulled back from buying Treasuries, the dollar would weaken and America’s borrowing costs would rise sharply, but that would also hurt China’s existing holdings.

And so until China can find a way to slow its accumulation of dollars or find alternatives, it is likely to be the largest buyer of Treasuries. Still, government leaders here increasingly sound as if they are losing confidence.

“International supervision over the issue of U.S. dollars should be introduced, and a new stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” the Xinhua commentary said.

Japanese officials in recent weeks had voiced some concern over Washington’s debt impasse and its effect on the global economy. Still, trade-driven Japan is more than ever lured to holding Treasuries as a way to weaken its currency and make its exports more competitive. This week, Japan started what one economist estimated to be a 4.5 trillion yen intervention to buy dollars and sell yen. Data is expected to show that Japan’s holdings of Treasuries have increased.

Meanwhile, Japan is struggling with its own burgeoning debt, already twice the size of its $5 trillion economy. Standard & Poor’s in January downgraded Japan’s sovereign debt rating to AA-, two notches lower than the newly downgraded AA+ rating held by American securities. The markets shrugged off the downgrade, however, and Japan maintains low long-term interest rates.
New York Times

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Factors behind market turmoil

The past few days have seen a dramatic sell-off in shares around the world, with stock markets seeing falls of the magnitude not seen since the global financial crisis of 2007-08.
Once again, there are worries that the eurozone debt crisis could spread from the bloc's smaller countries, to larger economies such as Spain and Italy.
Investors are also worried that growth in the US economy is slowing, which would have a knock-on impact on the rest of the global economy.
And confidence in the world's largest economy could be knocked after the credit rating agency Standard & Poor's downgraded the US's top-notch AAA rating for the first time in its history.
Stock market graphs
The world's main stock markets have seen big falls in the past few days, as investors shun shares and look for safer investments.
The falls have wiped out any gains that many of the markets had made this year, with fears growing that we could be heading for another credit crunch.
London's FTSE 100 index fell almost 10% last week, while Germany's Dax lost almost 13% and the Dow in New York fell 5.8%.
Shares in European banks have come under particular pressure as investors are worried about what level of eurozone government debt they are holding, and whether this will be repaid if the eurozone debt crisis spreads.
Crisis spreading
One of the main causes of nervousness on the markets has been whether the eurozone debt crisis will spread and about European leaders' ability to deal with it, as voiced by European Commission President Jose Manuel Barroso.
So far Greece, Portugal and the Irish Republic, have already received international help to deal with their crippling debt problems.
selected european debts and deficits
Last month, eurozone leaders agreed a second bailout deal for Greece, and also agreed more powers for the European Financial Stability Fund.
This was supposed to have reassured markets that the debt crisis would not spread beyond the "periphery" countries to larger economies such as Spain and Italy.
However, any relief was short-lived, and yields - which indicate the cost of borrowing for a country - on Spanish and Italian debt continued to rise.
Bond yields
Analysts were worried that yields are reaching the point where it would become prohibitively expensive for these countries to borrow on the financial markets and force them to ask for international help, too.
As a result, the European Central Bank has decided to buy Italian and Spanish government bonds to try to bring down their borrowing costs.
The yield on Spanish and Italian 10-year bonds fell shortly after the move.
And the G7 group of industrialised countries has also moved to reassure markets, issuing a statement saying it is "determined to react in a co-ordinated manner".
US fears
Another factor which is unnerving the markets is concern about the US economy.
Part of that focuses on the US's ability to repay its debts, with Congress only agreeing on a deficit reduction plan at the eleventh hour, following days of deadlock between Republicans and Democrats over how to raise the US debt limit.
And investors were further unnerved when the credit rating agency Standard & Poor's cut the long-term US rating by one notch from AAA to AA+ with a negative outlook, citing concerns about budget deficits.
There are also worries that the US economy is growing much more slowly than had been hoped.
US GDP growth
Last month, figures show the economy grew at an annualised rate of 1.3% in the second quarter of the year, which was slower than expected.
In addition, the growth rate for the first quarter was revised down sharply from 1.9% to 0.4%.
Recent days have brought more gloomy news. Figures showed that US consumer spending fell 0.2% in June, the first drop in almost two years.
However, the unemployment rate fell slightly from 9.2% to 9.1% in July.

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Iran says U.S. 'will be taught the mother of all lessons'

Iran is planning to retaliate against the United States for the sabotage against its nuclear program, according to an editorial in the Kayhan newspaper, the mouthpiece of Iran's supreme leader, Ayatollah Ali Khamenei.

The U.S. has all of its infrastructure connected to the Internet, the editorial says, and as a result, "it is constantly worried about an unknown player, who they will never be able to identify ... sitting in some corner of the world who would launch an attack on a sector of (the Americans') foundations. They will be taught the mother of all lessons."

Specifically, Iran is looking into launching a cyber attack against U.S. electrical grid systems.

Iranian officials are furious over the July 23 assassination of nuclear scientist Dariush Rezai-Nejad, who was working on electric detonators for the Iranian nuclear program, which can be used on missiles or nuclear bombs. He was the third Iranian nuclear scientist assassinated since 2009.

The frustration over acts of sabotage started with the computer virus Stuxnet in which 1,000 of Iran's centrifuges at the Natanzs nuclear facility were destroyed and had to be replaced. The virus also attacked the Bushehr nuclear power plant, which has resulted in repeated delays in it joining the country's power grid.

The July 29 Kayhan editorial threatening America with retaliation said that during the last month, the United States has published two strategy documents regarding cyberspace, both of which emphasize the ever-evolving nature of Internet communications.

Read more:Iran says U.S. 'will be taught the mother of all lessons'http://www.wnd.com/?pageId=329977#ixzz1URdDdgH3

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Fresh video London riots

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Arab League expresses 'growing concern' over Syria

Arab League hall Photo: AP

The Arab League expressed "growing concern" over the developments in Syria and called on the authorities to immediately stop acts of violence against protesters, Qatar's state news agency QNA reported on Sunday.

Arab League Secretary-General Nabil Elaraby issued a statement expressing "growing concern and strong distress over the deteriorating security conditions in Syria due to escalating violence and military operations in Hama and Deir ez-Zor, as well as other areas of Syria", QNA said.

Meanwhile, at least 57 civilians were killed in Syria on Sunday, according to human rights activists in the country.

Syrian PresidentBashar Assad has defended his crackdown on "outlaws" despite rising international condemnation, saying that Damascus had "an obligation" to punish those who are "terrorizing the population."

"These are preliminary figures. The numbers of casualties are escalating by the hour," Suhair al-Atassi, an activist with the Syrian Revolution Coordinating Union, said.


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World discards dollar: Chinese rating co.

Amid gloomy prospects for the United States creditworthiness, China's top ratings agency says the world is gradually disposing of the dollar as its reserve currency.

Dagong Global Credit Rating Company's chairman Guan Jianzhong said the US dollar is “gradually discarded by the world” and the “process will be irreversible,” CNBC reported on Sunday.

Earlier in the week, the firm slashed the US credit rating from A+ to A, casting doubt on whether the federal government is capable of repaying its USD 14.3 trillion public debt in the long term.

The agency's move came after interminable infighting in the US Congress over raising of the country's debt limit brought the country within an inch of defaulting on the debt.

“I think the most pressing issue facing the US at the moment is to reflect on the crisis which happened in relation with the debt ceiling," Jianzhong stated.

"They should get a clear understanding that the continuous decline of the debt service capability will inevitably result in the outbreak of a sovereign debt crisis,” he noted.

Officials in Beijing say a failure by Washington to control its massive debt could put the lives of millions of families within and beyond the US borders in danger.

Dagong downgraded the US ratings from AAA to A+ in November after the US Federal Reserve loosened its monetary policy.


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The world runs out of options

We face recession without shock absorbers as Berlin loses patience

This time we face the risk of double-dip recession without shock absorbers. Interest rates are already at or near zero in much of the OECD club. Fiscal deficits are stretched to the limits of safety.

Far from loosening, the US is on track to tighten by 2pc of GDP next year, and Europe by 1pc to 2pc, into the slowdown.

China has already pushed credit to 200pc of GDP. It cannot repeat the trick.

The Anglo-Saxons can print more money, but the gains in asset prices for the rich are offset by losses from fuel and food inflation for the poor. This is a destructive trade-off.

The decision to throw everything we had at the crisis after Lehman-AIG was a legitimate gamble at the time, given the near certainty of depression if shock therapy had been tried – as in 1931.

The Telegraph

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Asia stocks down

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London riots

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Schiff: Standard & Poors AA+ rating on U.S.

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EU anger at U.S. base rating agencies

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Markets volatile following European Central Bank move

European stock markets have given up early gains, which had been triggered by the European Central Bank saying it intended to buy up government debt.

Spanish and Italian markets jumped in early trading before slipping back, while major European indexes slid sharply in mid-morning trading.

Markets tumbled last week, forcing the ECB to intervene to address concerns the debt crisis is spreading.

Yields on Spanish and Italian bonds fell sharply after the bank's move.

The yield on Spanish 10-year bonds - an indication of the risk associated with lending Spain money - fell from more than 6% to about 5.2%. Yields on Italian bonds fell by a similar amount.

"Thanks to the ECB's intervention, [yields have] collapsed dramatically. I can't remember the last time I saw such a big move down," said Louise Cooper at BGC Partners.

Stock market investors appeared to be less enthusiastic about the ECB's bond purchases, as they continue to worry about the US economy following Friday's downgrade of US debt by ratings agency Standard and poor.

In London and Paris the FTSE 100 and Cac 40 indexes lost almost 2%, while Frankfurt's Dax was down almost 3%.

Earlier, Asian shares had fallen due to that downgrade of US debt.

Japan's Nikkei and Hong Kong's Hang Seng indexes lost 2.2%, while South Korea's Kospi dropped 3.8%.

Last week saw trillions of dollars wiped from the value of global markets, with the Dax losing about 13% of its value, the FTSE 100 dropping 10% and the Dow ending the week 5.8% lower.More wobbles?

On Sunday, the ECB indicated that it would start buying the bonds of eurozone governments, hoping to instil confidence that some of its biggest economies would not default on their debt obligations.

Bonds are essentially IOUs issued by governments, or companies, to raise cash. Governments issue new bonds to help pay maturing bonds, which is why it is so important that investors continue to buy them - if they do not, governments are unable to pay their outstanding debts.
Continue reading the main story

In a separate statement, the G7 group of developed countries said members were "determined to react in a co-ordinated manner" to preserve financial stability.

Analysts were mixed in their reaction to the ECB's move, and said the markets would be hoping to see more action from European policymakers.

"The markets are looking for a concrete plan out of Europe and the US in terms of how they are going to deal with their deficits and those plans need to be implemented," said Richard Hunter at broker Hargreaves Lansdown.

"Until the market can get comfort on these matters, there is going to be more volatility."

The intervention by the ECB is seen as a short-term measure to help calm stock markets, but what investors want to see most of all is highly-indebted countries reducing their levels of debt, by spending less and raising more in revenues.

On Friday, Italian Prime Minister Silvio Berlusconi announced plans to balance the country's budget by 2013, a year earlier than planned, while Spain has also promised to speed up cost-saving measures.Knock-on effects
Many will see the ECB as taking a serious credit risk in bailing out two financially over-stretched governments and as behaving contrary to the rules of prudent central banking”
S&P's downgrade of US debt has also underminded investors' confidence.

"The ratings downgrade has been an unprecedented event," said Alvin Liew of UOB Bank in Singapore.

Standard & Poor's cut the US's top-notch AAA rating for the first time, citing concerns about the size of the country's budget deficit and the acrimonious and protracted battle in Congress to raise the country's debt ceiling at the eleventh hour. It has graded the US at AA+.

The fear for many investors is that the US economy will slow further, and even enter a double-dip recession.

This in turn would hurt Asia, which relies on the US, the world's biggest economy, to buy billions of dollars of exports every month.

It would also hamper efforts of governments to reduce their debt load, as it would cut tax revenues.

BBBC correspondents assess the financial markets

The downgrade was heavily criticised by the US administration, with Treasury Secretary Timothy Geithner telling NBC news S&P had shown "terrible judgement" and a "stunning lack of knowledge about basic US fiscal budget maths".

But China, which is the world's biggest investor in US debt, has told Washington to address its high levels of debt rather than blaming S&P.

An editorial in Monday's China People's Daily newspaper, the mouthpiece of the Chinese Communist Party, called on the US not to "become blind to the great risks that a weak greenback could pose to the world's fragile economic recovery by lifting dollar-denominated commodities prices".

"It is time for the US to tighten its belt and solve its structural problems, in order to resume its reputation and restore world confidence," the paper said.Gold standard

Fears of renewed global slowdown were reflected in the price of gold and oil.

Gold, which is seen as a safe investment in times of economic uncertainty, jumped to a new record high of $1,706 an ounce on increased demand.

Meanwhile the price of oil slipped further, reflecting concerns that weak global growth could lead to a fall in demand. US light crude fell 3.3% to $83.59 a barrel, while Brent crude lost 3.4% to $105.96.

"There are few places you can obviously hide," said Greg Gibbs of RBS in Sydney. "And the ones that you can hide in are doing very well. Gold is the beneficiary because there is no central bank to sell it."


Russia uses dirty tricks despite U.S. ‘reset’

In the past four years, Russia’s intelligence services have stepped up a campaign of intimidation and dirty tricks against U.S. officials and diplomats in Russia and the countries that used to form the Soviet Union.

U.S. diplomats and officials have found their homes broken into and vandalized, or altered in ways as trivial as bathroom use; faced anonymous or veiled threats; and in some cases found themselves set up in compromising photos or videos that are later leaked to the local press and presented as a sex scandal.

“The point was to show that ‘we can get to you where you sleep,’ ” oneU.S. intelligence officer told The Washington Times. “It’s a psychological kind of attack.”

Despite a stated policy from President Obama and Russian PresidentDmitry Medvedev of warm U.S.-Russian ties, the campaign of intelligence intimidation - or what the CIA calls “direct action” - has persisted throughout what both sides have called a “reset” in the relations.

They have become worse in just the past year, some U.S. officials said. Also, their targets are broadening to include human rights workers and nongovernmental organizations as well as embassy staff.

The most brazen example of this kind of intimidation was the Sept. 22 bombing attack on the U.S. Embassy in Tbilisi, Georgia. A National Intelligence Council assessment sent to Congress last week confirmed that the bombing was ordered by Maj. Yevgeny Borisov of Russian military intelligence, said four U.S. officials who have read the report.

False rape charge

One example of such intimidation occurred in 2009 against a senior U.S. official in the Moscow office of the National Democratic Institute (NDI), the congressionally funded nongovernmental organization that promotes democracy throughout the world. The Times has withheld the name of the official at the request of NDI.

According to a Jan. 30, 2009, cable from U.S. Ambassador John Beyrledisclosed by WikiLeaks, USAID employees received an email with a doctored photo of the NDI official reclining with an underage girl.

The email from someone purporting to be a Russian citizen accused the official of raping her 9-year-old daughter.

In the cable, Mr. Beyrle said the embassy thought the Russia’s Federal Security Service (FSB) was behind the smear attack, which also appeared in Russian newspapers. The FSB is the successor agency of the Soviet-era KGB.

Kathy Gest, the NDI director of public affairs, said, “The allegations recounted in the WikiLeaks memo are all false and were protested at the time. We consider the matter closed and NDI, which is legally registered in Russia, continues its programs.”

Former Sen. Christopher S. Bond, who served as the vice chairman of the Senate Select Committee on Intelligence between 2007 and 2010, said he had raised the issue of Russian intimidation of U.S. diplomats with the Obama administration.

“We are concerned about the acts of intimidation as well as their record on previous agreements and other activities,” Mr. Bond said. “It’s a real concern, I’ve raised it. It’s not the intelligence committeethat fails to understand the problem. It’s the Obama administration.”

Yevgeny Khorishko, a spokesman for the Russian Embassy in Washington, said accusations that Russian diplomats have stepped up intimidation of U.S. officials were false.

Washington Times

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Jim Rogers about S&P downgrade

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AAA mageddon

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