Forex: US debt crisis undermines the Dollar

[Ghost Dog]

Source: Forex Street

Sun, Jul 24 2011, 21:24 GMT | FXstreet.com (Barcelona) - The US Dollar has opened on a weaker footing this Monday, especially against safe-haven currencies such as the Swiss Franc or the Japanese Yen. Risk aversion has therefore led the USD to take its toll, with USD/CHF kicking off just above 0.8100, while USD/JPY stands at 78.20.

The deadlock on raising the debt ceiling in the US is starting to spook investors, starting to believe in the possibility of a US downgrade and a “technical default”.




Read more: http://www.fxstreet.com/news/forex-news/article.aspx?storyid=25bcb7b3-7136-43a5-b1fd-96d030b461e8

---

Wall Street Set to Act On Default, But How?
WSJ, JULY 24, 2011, 5:27 P.M. ET

As the U.S. neared a potential default, or downgrade of its triple-A credit rating, many of the brightest financial minds on Wall Street were talking battle plans.

But, through last week, very few were actually taking significant action. The main reason: No one knows exactly what to do.

"If you don't know what you're going to do when the event happens, how do you make a trading decision?" said Alan De Rose, managing director of government trading and finance at Oppenheimer and Co. "That's a very difficult position."

Among the biggest questions: after such a shock, would investors run away from Treasurys, which have long served as a safe haven? Or would they run to them, out of habit? Experts who have followed Treasurys for their entire careers make compelling arguments both ways.

/... http://online.wsj.com/article/SB10001424053111904772304576466373207538638.html

[ixion]

1. "out of habit"

:rofl: :spray:

Yeah, that's right. People who sit around 24/7 analyzing trends will react "out of habit." Talk about a strawman.

[Ghost Dog]

4. From the (longish) WSJ article:

The confusion has to do in part with the unique role of U.S. Treasury debt in the financial markets. Because of the size of the market, the ease of trading and pristine credit history of the U.S., Treasurys are used as the building blocks of capital for banks. They are the place investors run to and hide when trading gets choppy, and they are the collateral of choice for the short-term lending markets that are at the heart of the world's financial plumbing system. And they are a widely popular investment for risk-averse money-market mutual funds.

[ixion]

5. Right... but there was a reason they ran there

and that reason is now being shown to be just so much rubbish.

[Ghost Dog]

6. Right. A reminder: LEAP/E2020: The insolvency of the global financial system

LEAP/E2020: The insolvency of the global financial system (and financial road to serfdom)
Posted by Ghost Dog in Editorials & Other Articles
Fri Jun 17th 2011, 08:14 AM
http://journals.democraticunderground.com/Ghost%20Dog/462

(non-copyright public announcement)

Global systemic crisis – Last warning before the Autumn 2011 shock, when $15 trillion of financial assets go up in smoke

The insolvency of the global financial system, and of the Western financial system in the first place, returns again to the front of the stage after just over a year of political cosmetics aimed at burying this fundamental problem under truckloads of cash.

We estimated in 2009 that the world had about 30 trillion USD in ghost assets. Almost half went up in smoke in the six months between September 2008 and March 2009. For our team, it's now the other half’s turn, the 15 trillion USD of ghost assets remaining, purely and simply vanishing between July 2011 and January 2012. And this time, it will also involve government debt, unlike 2008/2009 where it was mostly private players who were affected. To gauge the extent of the coming shock, it is worth knowing that even US banks are starting to reduce their use of US Treasury Bonds to guarantee their transactions for fear of the increasing risks weighing on US government debt (6).

For the financial world’s players, the Autumn 2011 shock will literally be the ground giving way beneath their feet, since it’s really the foundation of the global financial system, the US Treasury Bond, which will plunge sharply (7).

...

The detonating mechanism of European government debt

The Anglo-Saxon financial operators have played sorcerer's apprentice for the last year and a half and the first headlines in the Financial Times in December 2009 on the Greek crisis quickly became a so-called "Euro crisis". We will not dwell on the vicissitudes of this enormous chicanery with a news item (8) orchestrated from the City of London and Wall Street, as we have already devoted many pages to it in a number of GEAB issues throughout this period. Suffice it to say that eighteen months later the Euro is doing well while the dollar continues its downward spiral against major world currencies; and that all those who bet on the collapse of the Eurozone have lost a lot of money. As we anticipated the crisis favors the emergence of a new sovereign, Euroland, which now allows the Eurozone to be much better prepared than Japan, the United States or the United Kingdom (9) for the Autumn 2011 shock ... even if it ends up, quite reluctantly, playing the role of detonator. The "bombardment" (since we must call things by their proper name) (10), interspersed with breaks of several weeks (11), to which Euroland has been subjected during all this time, in fact had three consecutive major effects, two of them far from the results expected by Wall Street and the City:

1. at first (December 2009 - May 2010), it removed the European currency’s sense of invulnerability formed in 2007/2008, introducing doubts about its durability and more precisely putting the idea that the Euro was the natural alternative to the US dollar (or even its successor) into perspective

2. then (June 2010 - March 2011), it conducted Euroland leaders to start work at "top speed" on all measures to safeguard, protect and strengthen the single currency (measures which should have been taken many years ago). In so doing it has revitalized European integration and reinstated the founding core at the head of the European project, thus marginalizing the United Kingdom in particular (12). At the same time it has boosted increasing support for the European currency from the BRICS, headed by China, which after a moment of hesitation became aware of two fundamental points: first Europeans were acting seriously to face up to the problem and secondly, given the Anglo-Saxon determination, the Euro was obviously an essential tool for any attempt to exit the "dollar world" (13).

3. Finally, (April 2011 - September 2011), it is currently compelling the Eurozone to start reaching for the sacrosanct private investors to make them contribute to solving the Greek problem especially via “voluntary” repayment rescheduling (or any other form of cuts in expected profits) (14).

...

And with this fourth series one enters the heart of the contagion process that will trigger the US federal debt bomb. Because, first, in creating a global media and financial environment ultra-sensitive to the issues of government indebtedness, Wall Street and the City have revealed the unsustainable size of US, British and Japanese government deficits (20). This has even forced the rating agencies, faithful watchdogs of the two financial centres, to engage in a mad race to downgrade countries’ ratings. It is for this reason that the United States now finds itself under the threat of a downgrade, as we had anticipated, even though it seemed unthinkable to most experts only a few months ago. At the same time, the United Kingdom, France, Japan... also find themselves in the rating agencies’ crosshairs (21).

Remember that these agencies have never forecast anything of importance (neither subprime, nor the global crisis, nor the Greek crisis, nor the Arab Spring, ...). If they downgrade willy nilly today it’s because they have been caught at their own game (22). It’s no longer possible to downgrade A without affecting B’s rating if B is no better off. The "assumptions" on the fact that it’s impossible for any particular state to default on its debt have not withstood three years of crisis: this is where Wall Street and the City have fallen into the trap which threatens all aspiring sorcerers’ apprentices. They have not seen it would be impossible for them to control the hysteria kept up over Greek debt. So today it’s the US Congress, with the bitter debate on the debt ceiling and massive budget cuts, that the consequences of the misleading articles in recent months about Greece and the Eurozone enlarge. Once again, our team can only stress that if history has any sense, it’s certainly a sense of irony.

/Much more... http://www.leap2020.eu/GEAB-N-56-Special-Summer-2011-is-available-Global-systemic-crisis-Last-warning-before-the-Autumn-2011-shock-when-15_a6679.html

[ixion]

7. Great read. Thanks for reposting

[PSPS]

9. Either that or this "crisis" is so much rubbish.

I'm beginning to believe that the whole "August 2nd = catastrophe" thing is just a manufactured crisis to cover for the abolishment of Social Security and the theft of its $3 trillion trust fund. (The same "shock doctrine" method was used for the extension of the bush/obaba tax cuts for the rich, the Patriot Act, even the Iraq invasion.)

[ixion]

10. There is political theater going on, but beyond that

there is most certainly a problem.

[jpak]

2. Higher gas prices - thank you Boner/Chinless and Teabaggers

not

[lib2DaBone]

3. All money is nothing more than electronic blips on a screen...

.. the only thing the pig face Republicans and Bankers have managed to do, is to direct those blips to ONLY their bank accounts.. at the expense of all working wage slaves and honest people.

CONgress and Wall Street and The Fed are nothing more than one big Bernie Madoff circle-jerk flim-flam artist club.

[JDPriestly]

8. Here is a battle plan for you: invest in jobs in the US.

No better time to do it.

If the dollar falls, Americans will be forced to cut down on purchases of foreign goods, and the cost of American goods in the international market will be, as you might say, "competitive."

No longer any excuse for avoiding big investments in the US.

Unless, of course, the real reason you don't put your money here is that you prefer to put it in places where you can pollute the environment without being questioned.

[Hubert Flottz]

11. Well the republicans think it's worth all the pain and suffering they will cause

if they can just "Win"...what I haven't a fucking clue?

[harun]

12. I don't think even they know any more.