U.S. Fed to Keep Interest Rates At Records Lows At Least Through Mid-2013

     The Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 in a bid to revive the flagging recovery after a worldwide stock rout. Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up.

    Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity. Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable.


      Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.


     To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.


    The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.


    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.


    Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.

9/5/11 - EXCLUSIVE: Bob Chapman of The International Forecaster

The International Forecaster with Bob Chapman

http://www.theinternationalforecaster.com/

8/4/11 - Did Goolsbee & Stewart Go Short A Day Before Dow Dropped 500+ Points

Austan Goolsbee Biography

Austan Dean Goolsbee (born August 18, 1969) is an American economist, formerly serving as the Chairman of the Council of Economic Advisers and the youngest member of the cabinet of President Barack Obama. Goolsbee is from the University of Chicago where he is the Robert P. Gwinn Professor of Economics at the Booth School of Business. The Obama White House said Mr. Goolsbee will resign his post as Chairman of the Council of Economic Advisers in the summer of 2011 to return to teaching at the University of Chicago Booth School of Business. Goolsbee graduated from Milton Academy and received both his B.A. summa cum laude and M.A. in economics from Yale University in 1991 and went to receive his Ph.D. in economics at the Massachusetts Institute of Technology in 1995. 

Academia

At Yale, Goolsbee was a member of the Yale Political Union, the improve comedy troupe Just Add Water, Skull and Bones, and the Yale Debate Association. He and debate partner David Gray won the APDA National Debate Team of the Year competition in 1991. He and partner Dahlia Lithwick were runners up for the award in 1990. 

8/4/11 - Dow Jones Industrial Average Suffers Worst Drop Since 2008, Plunging 513 Points

By DAVID K. RANDALL
AP Business Writer

NEW YORK — Fears about the global economy led to the biggest panic in financial markets since the 2008 financial crisis.

The Dow plunged nearly 513 points Thursday, its biggest point decline since Oct. 22, 2008. Only three of the 500 stocks in the Standard & Poor's 500 index had gains. Oil fell by 6 percent. The yield on the two-year Treasury note hit a record low as investors sought out relatively stable investments.

All three major stock indexes are down 10 percent or more from their previous highs, a drop-off that is considered to be a market correction. A drop of 20 percent or more signifies the start of a bear market, an extended period of stock declines.

Twenty stocks fell for every one that rose on the New York Stock Exchange. Volume was very heavy at 7.5 billion shares.

Investors are increasingly concerned about the possibility of another recession in the U.S. and a debt crisis in Europe.

"We are continuing to be bombarded by worries about the global economy," said Bill Stone, chief investment strategist at PNC Financial.

The Vix, a measure of investor fear, shot up 36 percent. It is up 92.6 percent for the quarter, which began July 1.

The Dow Jones industrial average was down 512.76 points, or 4.3 percent, to 11,383.68. Thursday's losses turned the blue-chip stock index negative for the year.

The S&P 500 — the benchmark for most mutual funds — lost 60.20, or 4.8 percent, to 1,200.14. It is now down 12 percent from its recent high of 1,363 reached on April 29. The Nasdaq composite shed 136.68, or 5.1 percent, to 2,556.39.

Oil dipped to $87 a barrel on worries demand will fall because of the slowing economy. It had traded over $100 as recently as June 9.

Nearly 20 stocks fell for every one that rose on the New York Stock Exchange.

European stocks also fell broadly because of concerns that Italy or Spain may need help from the European Union. The benchmark stock indexes in Italy, Germany and England each fell 3 percent.

Stock trading has been volatile this week because of concerns that the U.S. economy is weakening. Manufacturing, consumer spending and hiring by private companies are below levels that are consistent with a healthy economy. Those reports have called into question estimates from economists, including Federal Reserve Chairman Ben Bernanke, that the economy will grow more quickly in the second half of the year.

Money poured into investments that are seen as relatively safe when markets are turbulent. The yield on the 10-year Treasury note fell to 2.42 percent, its lowest level of the year. The yield on the 2-year Treasury note hit a record low of 0.26 percent. Bond yields fall when demand for them increases.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, an investment firm in Philadelphia, said some clients are moving to cash "as a parking lot to sort things out."

"With the scars of 2008 still fresh, some clients don't want to miss the chance to pre-empt further damage should it come," Luschini said.

Large investors have moved so much money into cash accounts at Bank of New York that on Thursday the bank said it would begin charging some clients a 0.13 percent fee to hold their cash.

"In the past month, we have seen a growing level of deposits on our balance sheet from clients seeking a safe-haven in light of the global interest rate and credit environment," the bank said in a statement to The Associated Press. Bank of New York clients include pension funds and large investment houses.

"Investors are deciding that now is the time to take risk off the table," said Brian Gendreau, market strategist for Cetera Financial Group. Gendreau said that some investors are now wondering whether stocks will have a prolonged slump similar to the aftermath of the Great Depression.

Technical trading, a term used to signify buying or selling based on the S&P 500's prior highs and lows, also helped push stocks downward. The S&P 500 fell below 1,222, a so-called support level, early in the day. That signified to some traders that the stock market would continue to slide.

"Traders are respecting the technical levels even if they're not technicians," said Quincy Krosby, market strategist at Prudential Financial. "Even if you're what we call a conviction buyer, you have to respect those levels."

Companies that outperform when the global economy expands fell the most. Alcoa fell the most, with a 9 percent drop. Bank of America and Caterpillar were down 7 percent. Boeing ended down 6 percent.

Some traders are selling ahead of Friday's employment report, which is expected to show that unemployment remained at 9.2 percent last month. A rise in the unemployment number would likely push stocks lower again.

The U.S. government said before the market opened that the number of people who applied for unemployment benefits for the first time was only slightly lower last week to 400,000. That's still above the 375,000 level that economist say indicates a healthy job market. It was the latest indication of weakness in the U.S. economy.

All 10 industry groups in the S&P index fell. Energy, materials and industrial companies each lost 5 percent or more.

The sell-off comes at a time when corporate profits are growing. The forward price to earnings ratio of the S&P 500 has fallen to about 12, well below its long-term average of 16. That means that investors who buy now are paying less for each dollar in profits.

Based on what an investor now pays for corporate profits, stocks are now trading at their lowest levels in 20 years, said Tim Courtney, chief investment officer of Burns Advisory Group in Oklahoma City.

Few companies were spared in the sell-off. Just 3 of the 500 stocks in the S&P 500 moved higher. General Motors Co. fell 4 percent despite beating analyst's earnings estimates.

The stock market as a whole had its biggest fall since the start of the current bull market in March 2009. The drop in the S&P was the largest since a 45-point decline on January 20, 2009. The Dow is down 1.7 percent for the year. The S&P 500 is down 4.6 percent. And the Nasdaq is down 3.6 percent. The Russell 2000, an index made up of small companies, has fared the worst. It was down 5.6 percent Thursday and is down 7.3 percent for the year.

David René de Rothschild

Rothschilds Continuation Holdings AG is a bank holding company which through its subsidiaries, provides banking, treasury, investment banking, fund management, private banking and trust management services to governments, corporations and individuals worldwide. The company is based in Zug, Switzerland. Rothschilds Continuation Holdings AG operates as a subsidiary of Concordia B.V.


http://www.rothschild.com/


By: Aaron Wilson 

U.S. Taxpayer's Share of Greek Debt

 Complete default benefits the Europeans and leaves the U.S. on the hook for the balance.

The Bank for International Settlements Quarterly Review for June, 2011 is the first black and white publication I’ve seen on the actual size of the Greek, Irish and Portuguese (PIG’s) debt problems as well as how much the United States and individual tax payers may be on the hook for if it all goes pear shaped.

There are four interesting points concerning these debt issues. These include, who owns the debt, who insured the debt, who profited along the way and finally, who may be left holding the bag.

Initially, Europe is responsible for approximately 95% of the debt of these countries. Most of this would be born directly by Germany and France. However, these countries have purchased Credit Default Swaps (CDS) from U.S. banks to protect themselves on approximately half of the debt they own. This means that if the countries in question end up defaulting on their loans the U.S. banks that sold the credit default insurance will be on the hook for making France and Germany whole again.

The data in the tables is pretty extensive but the end numbers look like there is roughly $890 billion in loans that are in danger of defaulting. The U.S. exposure to these losses both directly and via credit default insurance that U.S. banks have sold is about $200 billion. More than half of that is in Greece, which will be the first to default. U.S. banks are on the hook for approximately $100 billion in credit default insurance to PIG countries with about $35 billion directly insuring Greek loans. The total outstanding credit default insurance sold by U.S. banks to European countries is more than $1.5 trillion dollars.

A quick recap - Germany and France bought Greek debt then turned to U.S. banks to buy insurance on the debt Greece and other countries sold them. U.S. banks collected the fees and sold the insurance even as they were recovering from their own bad loans and accepting bailout money to heal their balance sheets. The fees they collected went on to pad their bottom line and allowed them to post record 2010 earnings. These earnings allowed banks to payout record bonuses for a second consecutive year.

The pending default of Greece will leave U.S. banks on the hook for at least $35 billion dollars. Ireland will add $54 billion and Portugal another $41 billion. These banks also hold direct debt to the tune of another $63 billion. When the market moves on Greece, it will move on these other countries as well. It is simple stampede mentality. Remember the collapse of ’08?

The AIG bailout was due to their inability to meet $85 billion in obligations. It was deemed, “too big to fail.” Bank of America and Citigroup each received $45 billion in TARP money following the sub prime implosion. JP Morgan, Goldman, Wells Fargo and others required governmental assistance as well. Total U.S. bank exposure to Portugal, Ireland and Greece is more than $193 billion.

There are only two arguments left to decide in the coming debacle. First, will we have a partial or a complete default? Complete default benefits the Europeans and leaves the U.S. on the hook for the balance. Secondly, when France and Germany come to the U.S. seeking their insurance payouts will our banks be able to afford them. I don’t believe these banks, funded with taxpayer money and using our savings accounts as collateral for making the loans have the resources to cover their losses. Therefore, the taxpayer may be left holding the bag…again.

Is AIG Selling Credit Default Swaps (CDS) to Greece? Will American Taxpayers Be On The Hook Again?

THE RETURN OF THE CDS – WHY YOU SHOULD BE CONCERNED

Remember, Credit Default Swaps or CDS, were one of the culprits behind the “toxic mortgage scam” that brought down the US economy.

At the behest of their Democratic political masters Fannie and Freddie ”provided” mortgages to millions who could not pay. Then Fannie and Freddie sold the “toxic mortgages” as investment securities with the help of the likes of Goldman Sachs. Finally, AIG “insured” the “securities” by selling Credit Default Swaps to back up the worthless mortgages and put the US taxpayer on the hook for paying off the “toxic debt”. While most of the parties made billions – the US taxpayer got stuck with bill. 

Fast Forward To Greece

Is AIG creating a Greek Debt Bubble – just like the ”housing bubble” AIG helped create?

Greece is purchasing Credit Default Swaps (CDS) to insure its national debt.

“Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, and prices decline as perceptions of creditworthiness improve. A basis point equals $1,000 annually on a contract protecting $10 million of debt.”http://www.businessweek.com/news/2010-05-11/bank-swaps-libor-show-doubts-on-europe-bailout-credit-markets.html

The Greek markets aren’t quite buying the latest bailout, since they price-in a higher chance of default than just a month ago. Moody’s isn’t buying the bailout either. Which is odd, because theoretically Greece has been just provided a life-line that should at the very least allow it to meet its current outstanding debt obligations.