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Realistbear

Fed Chief Issues Statement On U S Deficit

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http://wireservice.wired.com/wired/story.a...storyId=1173032

Tuesday, March 14, 2006 1:41 p.m. ET

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said he was concerned about the U.S. budget deficit, noting in a letter released on Tuesday that the aging of the population will increase the pressure on the budget.
"I am quite concerned about the intermediate to long-term federal budget outlook," Bernanke said in a letter to Sen. Robert Menendez following up on the Fed chief's February 16 testimony to the Senate Banking Committee.
"In particular, the budget is expected to come under severe pressure as impending demographic changes fuel rapid increases in entitlement spending. By holding down the growth of national saving and real capital accumulation, the prospective increase in the budget deficit will place at risk future living standards of our country," Bernanke said.
"As a result, I think it would be very desirable to take concrete steps to lower the prospective path of the deficit," he said in the letter, which was dated March 9
.

Given that the Fed either lower or raise the IR, what is Ben saying? Stop spending so much on foreign goods and save more and to help in that process I will raise the rates even more?

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http://wireservice.wired.com/wired/story.a...storyId=1173032

Tuesday, March 14, 2006 1:41 p.m. ET

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said he was concerned about the U.S. budget deficit, noting in a letter released on Tuesday that the aging of the population will increase the pressure on the budget....
"As a result, I think it would be very desirable to take concrete steps to lower the prospective path of the deficit," he said in the letter, which was dated March 9
.

Given that the Fed either lower or raise the IR, what is Ben saying? Stop spending so much on foreign goods and save more and to help in that process I will raise the rates even more?

he's talking budget deficit, you are talking trade deficit / current account deficit : big diff. Lowering the budget deficit means public spending cuts or higher taxes. The debt is demoninated in dollars and held by foreigners as treasuries. One could reduce the real value of this as well as future social security costs / pension liabilities by ramping up inflation - ie lowering interest rates.

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Weakening you currency through encouraging inflation would tend towards an accelerating trade deficit. Especially since the US is a huge importer of foreign oil. This would lead to the oil prices (which are quoted in dollars) soaring. Global recession.

I think as long as they are dependant on foreign oil they cannot/will not inflate their way out of debt. There are less painful ways to do it than rationing gasolene and heating fuel. This approach would force people to come up with alternative fuels and since the oil majors make up four of the seven most profitable companies on the face of the globe. You can assure yourself, such action will be discouraged at all costs.

Why not do it a way nobody can recognise you doing it? First tax savings and investment gains then drop interest rates to record lows forcing everyone to blow their savings and take out loans snowballing the economy, few will complain as everyone will get lots of cheap stuff. Then when you run up a large deficit increase rates and force everyone to save. The savings taxes are already in place so nobody can compain about them. After a couple of years your deficit is repaid and everyone is misserable so what do you do to cheer them up and keep you in power? Thats right, drop rates and let them spend, spend, spend.

Personally I don't think Bush has the approval rating to introduce taxes and he is likely to suffer the same fate as his father. A failure to meet increased spending.

Remeber G. Bush Snr "read my lips, no new taxes" turned out new taxes were exactly what the US needed after a war against Iraq. Unfortunately hee had promised otherwise. It all sounds too familiar to me.

Bernanke has to wait for a new Presidency before he can chase the budget deficit. In the mean time he needs to get liquidity back in the hands of the US people, they will need savings in order for them to believe they can afford any new taxes, taxing people who are in the red results in furious voters.

He is not about to devalue the only thing the US can exchange for oil. The mighty dollar. The value of the dollar must be protected at all costs. If you ever bothered to check what is going on at the Fed (14 straight hikes) you would be able to see this already in full swing. The Federal Reserve does not really react to economic indicators as much as it pulls the global economy in the direction that best suits the American people. The illusion they put up to portray a reactive role is nonsense. They are in the driving seat. It is the rest of the world who must react to the actions of the Fed, the US is simply too large to go against or ignore.

The Fed is currently discouraging the US people from purchasing goods they do not require. In order to encourage citizens to build up savings in time for future taxes and prevent the long term servicing of debt from slowing GDP growth.

They will use this oppertunity to hurt the Chinese and force the revaluation of the Yuan. Through the stiffling of consumer spending.

All comments and replies are welcome although I probably won't answer until tomorrow

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Today's comment - USD - Let the Show begin!

After yesterday's fx-action in the wake of the higher than expected current account deficit - now running to the tunes of 225 bln. USD or 7% of GDP - I feel certain that we are going to see a general suffering of the dollar in the days - maybe even weeks to come. The show of a sliding dollar is therefore not only on the verge of breaking loose, but has already begun.

a lot of market participants have been focussing on the higher interest rates in the US thereby neglecting the beginning weakness of the economic figures out of the US and not least the sideeffects on the economy by exactly the higher rate show. The last in the row - namely the current account deficit - might prove to be a rude awakening among the presently pro-USD participants.

http://www.fxstreet.com/nou/content/103630...301&dia=1532006

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UK Financial Times: Oil industry's biggest risk is the US administration

<FT>

Published in the Teheran Times, UK Financial Times' Guy Dinmore writes: US efforts to isolate Iran over its nuclear ambitions are colliding with the energy concerns of Asia's economic powers, testing Washington's ability to form a diplomatic coalition and its influence on oil and gas markets.

Officials tell the Financial Times that the US is looking at "creative" ways of addressing the energy worries of China, Japan and India -- major buyers of Iranian oil.

The US is searching for a viable energy framework that would persuade such thirsty customers to halt planned investments in Iran's energy sector or even contemplate the shock of a sudden break in oil exports.

Officials and analysts are skeptical it can be done and, so far, US moves seem to be having the opposite effect.

Iran, second largest producer in the Organization of the Petroleum Exporting Countries (OPEC), is racing to conclude big energy deals with all three countries before possible discussion of sanctions reaches the United Nations Security Council.

China, meanwhile, brought its concerns to Washington last month, laying out three principles that underpinned its energy policy: no interference in the internal affairs of others, no nuclear proliferation and secure energy supplies from the Middle East.

* The US urged China to avoid investing in Iran; China said it would support diplomatic efforts to resolve the Iranian nuclear crisis as long as oil supplies were not affected.

The US' success last week in referring Iran to the Security Council over its nuclear program raises the prospect of sanctions, although the US says they are not the first step. Nonetheless, it is moving towards "targeted sanctions" -- such as a travel ban and an asset freeze for senior officials -- and forming a coalition of "concerned countries" to impose what Dick Cheney, the vice-president, has called "meaningful consequences".

The US message to China and Japan -- as well as India and Pakistan, which want to share a gas pipeline from Iran - is that Iran cannot be trusted as a reliable energy provider.

But the Bush administration's image is also taking a hit.

"The general perception in the oil industry is that the biggest risk to the oil industry is the US administration," commented Fareed Mohamedi, chief economist with PFC Energy consultants. This was China's perception too, he said, following the destruction of Iraq's oil industry after the US invasion and the long-standing US embargo that has hobbled Iran's energy sector. To enhance its independence of energy supplies, China is investing where the US is absent: Iran, Sudan, Burma, Uzbekistan and, possibly Venezuela.

"They fear that in the case of conflict or a cold war, the US will interfere in China's oil supplies," Mr. Mohamedi said. "By saying 'we can help', the US is making the situation even worse. There is very little the US can offer China."

James Placke, analyst with Cambridge Energy Research Associates, doubts the US can devise an energy framework that would exclude Iran and satisfy Asia. "If Iran for any reason were to severely reduce exports or stop exporting, the world would really be in a bind in the short term," he commented. "There is not a whole lot the US could do."

One option would be to tap the oil stockpiles of the 26 industrialized nations coordinated by the International Energy Agency. Claude Mandil, IEA executive director, recently said emergency stocks were enough to fill an 18-month hole if Iranian oil exports stopped. Countries negotiating with Iran "did not have to worry about an eventual loss of Iranian oil because you have the means to deal with it," he said.

Despite these assurances, analysts say crude oil could easily hit $100 (€84, £58) a barrel if Iran was taken off the market.

The US continues to press Japan not to proceed with the $2 billion Azadegan oilfield deal it signed with Iran in 2004. "The difficulty, of course, is that Iran has used its oil and natural gas as a weapon, and used it very skillfully with a variety of countries. They've used it with India, China, with others," John Bolton, US ambassador to the UN, told Kyodo, the Japanese news agency. "I hope there's a way to work around the energy question, but it may be awkward for Japan. We understand that, but we think it's important to stick together on the non-proliferation."

A US official said Washington felt it had a "bit more leverage" over its ally, but that Japan had complained China would fill any investment gap left by Tokyo. "They tell us to solve the China problem first," he said. Manuchehr Mottaki, Iran's foreign minister, visiting Tokyo last month, stressed how Azadegan was a symbol of the two countries' good relations.

India and Pakistan are also of concern for the US. Although President George W. Bush skirted the subject to avoid offending his hosts on his recent visit, the White House later clarified that the US remained strongly opposed to the proposed "peace" pipeline from Iran through Pakistan to India.

Nicholas Burns, undersecretary of state, urged India to meet its energy needs by turning to Kazakhstan and Turkmenistan, as well as clean coal technology and nuclear power -- with US assistance in a deal that allowed India to develop its nuclear arsenal.

</FT>

Basically the US are actively discouraging other nations from signing oil contracts with Iran.

There is one reason and one reason alone for these actions, it would leave much less opposition to an all out war on Iran.

Very interesting to see the FT mention a possible cold war stand off between the US and China and how in such a situation the US is likely to disrupt Chinese foreign oil supplies.

All very interesting stuff at the apex of the global political climate.

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Al Greenspan based his entire career on fighting inflation and Bernanke has been trained to think in the same way. HPI/MEW threatens that policy and yet raising the rates too far could stall the economy and precipitate the US and the rest of the world into recession. Bernanke's job is to determine when to hit the brakes and by how much.

The problem is that something has to give. Stop raising the rates too soon and inflationary pressures will build as the dollar will slump and increase the price of imports upon which the US is heavily reliant. By pushing the rates slightly beyond the pain threshold recession will follow but the pain will only be felt in house prices and other bloated assets while the dollar remains intact and the price of imports will be more easily contained.

IMHO Bernake will turn the screw slightly more to the right than most expect thus keeping the dollar intact and restraining inflation through keeping the cost of imports at reasonable levels. The froth will dissappear from the areas where HPI has gone too far (California, Az, Ma, Va, Md, NYC, Fl) leaving the vast majority of States with moderate falls of around 10-20% which will have little impact other than causing a mild recession.

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I think Bernanke can virtually avoid a US recession. He may trigger one across the Eurozone though.

It's almost as if he wants to exclude Europe from taking advantage of Japan emerging from stagnation

The problem is the Fed is the driving seat for the global economy. Because everybody else has so much to gain from shadowing them.

This will become apparent if you watch Ireland and the Eurozone for the next decade. Ireland needs a rate hike, but they will not get one until Germany needs one, because the German economy is more important to the Eurozone. Ireland is not in sync with Germany and it will cost them their work force as their economy overheats. This is just a small scale example of what happens if you fall out of sync with a larger economy you depend on.

Because of the size of US PLC there is a huge motive to shadow their cycle.

Out of sync

US in Boom, UK in Recession, Outcome is we miss out on US investment due to being unattractive.

US in Recession, UK in Boom, Outcome is not much money in US to invest, boom is short lived.

In sync

US in Boom, UK in Boom, Outcome is US investment fuels our growth & we gain from US investment.

US in Recession, UK in Recession, Outcome is being unattractive at a time when there is little to attract.

The Fed is hiking rates at the minute, if we don't follow we will fall out of sync. It could take two or three cycles to get back in sync with the US or up to 50 years.

We absolutely have to follow the Fed long term, we can lag them briefly but if we fall out of sync we are knackered.

If the BoE avoid raising the base rate they are gambling at the highest stakes. We need a high base rate position to follow the Fed rate down and stimulate growth to take advantage of a US boom. If we are not in this position when the Fed starts dropping rates we have fallen out of sync and will miss that boom. As it stands we are on par with the Fed, so as long as we follow we should be OK.

I believe we will follow them up, we can't afford not to. Bernanke is all about inflation targeting which means the more he talks about inflation the higher the rate will move. The more he talks about growth the lower the rate will move. Inflation targeting central banking offers stability as it's easy to predict what the central bank will do. The market will price in rates long before they happen so the financial fallout of such events will be less spectacular. His style of banking is best suited during times of long and expensive government projects like Apollo or Manhatten when high employment ensures a solid tax revenue. Bernanke is the kind of central banker best suited to cope with a prolonged cold war. So his appointment makes me a little nervous.

There are no mystical forces at work here it is just fiscal management on a global scale using the only tool at hand. The system (Federal Reserve Banking) was designed, it did not emerge, it was designed to do a specific job, to centralise power over the global economy, it does this job very well for two reasons; the size of the US economy and the unparalleled might of the US military. If any of the three loses ground on a rival the other two will re-establish it.

Following the dotcom boom and 9/11 the US economy looked sick. Enter the Federal Reserve to drop rates to 1% and the US Military to wage two wars and low and behold the economy remains in growth.

It’s all about sentiment.

Edited by ?...!

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Al Greenspan based his entire career on fighting inflation

Since when did the man who brought us 1% and change interest rates and created two of the largest bubbles the world has ever seen have any interest in 'fighting inflation'?

I forget the precise figures, but the value of the dollar has dropped dramatically in real terms in the time that Greenspan has been 'fighting inflation'. Except, perhaps, when measured in Chinese DVD players, which would have had a near-infinite cost when Greenspan first arrived at the Fed.

We need a high base rate position to follow the Fed rate down and stimulate growth to take advantage of a US boom.

Agreed: unless the BoE raise rates to get the crap out of the economy, there'll be no room to 'boom' again. Brown might well succeed in eliminating 'boom and bust' by pushing us into perpetual stagnation.

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I think Bernanke can virtually avoid a US recession. He may trigger one across the Eurozone though.

It's almost as if he wants to exclude Europe from taking advantage of Japan emerging from stagnation

The problem is the Fed is the driving seat for the global economy. Because everybody else has so much to gain from shadowing them.

This will become apparent if you watch Ireland and the Eurozone for the next decade. Ireland needs a rate hike, but they will not get one until Germany needs one, because the German economy is more important to the Eurozone. Ireland is not in sync with Germany and it will cost them their work force as their economy overheats. This is just a small scale example of what happens if you fall out of sync with a larger economy you depend on.

Because of the size of US PLC there is a huge motive to shadow their cycle.

Out of sync

US UK Outcome

Boom Recession We miss out on US investment due to being unattractive.

Recession Boom Not much money in US to invest, boom is short lived.

In sync

US UK Outcome

Boom Boom US investment fuels our growth & we gain from US investment.

Recession Recession Being unattractive at a time when there is little to attract.

The Fed is hiking rates at the minute, if we don't follow we will fall out of sync. It could take two or three cycles to get back in sync with the US or up to 50 years.

We absolutely have to follow the Fed long term, we can lag them briefly but if we fall out of sync we are knackered.

If the BoE avoid raising the base rate they are gambling at the highest stakes. We need a high base rate position to follow the Fed rate down and stimulate growth to take advantage of a US boom. If we are not in this position when the Fed starts dropping rates we have fallen out of sync and will miss that boom. As it stands we are on par with the Fed, so as long as we follow we should be OK.

I believe we will follow them up, we can't afford not to. Bernanke is all about inflation targeting which means the more he talks about inflation the higher the rate will move. The more he talks about growth the lower the rate will move. Inflation targeting central banking offers stability as it's easy to predict what the central bank will do. The market will price in rates long before they happen so the financial fallout of such events will be less spectacular. His style of banking is best suited during times off long and expensive government projects like Apollo or Manhatten when high employment ensures a solid tax revenue. Bernanke is the kind of central banker best suited to cope with a prolonged cold war. So his appointment makes me a little nervous.

There are no mystical forces at work here it is just fiscal management on a global scale using the only tool at hand. The system (Federal Reserve Banking) was designed, it did not emerge, it was designed to do a specific job, to centralise power over the global economy, it does this job very well for two reasons; the size of the US economy and the unparalleled might of the US military. If any of the three loses ground on a rival the other two will re-establish it.

Following the dotcom boom and 9/11 the US economy looked sick. Enter the Federal Reserve to drop rates to 1% and the US Military to wage two wars and low and behold the economy remains in growth.

It’s all about sentiment.

About the best analysis I have read so far. People underestimate the role of the US and the constant talk about the fading US influence in the world is naive. The power of debt is the same as purchasing power when you hold the strings of the dancing puppets.

Since when did the man who brought us 1% and change interest rates and created two of the largest bubbles the world has ever seen have any interest in 'fighting inflation'?

I forget the precise figures, but the value of the dollar has dropped dramatically in real terms in the time that Greenspan has been 'fighting inflation'. Except, perhaps, when measured in Chinese DVD players, which would have had a near-infinite cost when Greenspan first arrived at the Fed.

Agreed: unless the BoE raise rates to get the crap out of the economy, there'll be no room to 'boom' again. Brown might well succeed in eliminating 'boom and bust' by pushing us into perpetual stagnation.

I agree that Al "Greenbubbles" is aptly named as irrationally exhuberant IR did cause HPI. Al miscalculated the inability of the Fed to reign in borrowing because long term rates (mortage rates) were unresponsive to Fed hikes. The problem was market momentum and the willingness of the banks to remove all rational lending criterea to make short term profits. They found a greedy public willing to borrow at any cost and up went the prices. Al's successor will show no mercy to the "Froth" and will sacrifice the bubble markets for the greater good of the economy--albeit with a recession to adjust values.

Also agree--perpetual stagnation is next for the UK unless IR break the HPI dependent economy which is, ultimately, counterproductive.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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