U.S. Debt Downgrade Leaves China in a Bind

At Los Angeles Times:

The Chinese government has built what is now the world's second-largest economy in part by keeping its currency cheap in order to subsidize exports. To do that, it has bought gobs of U.S. Treasury bills and other securities. Any big move on China's part to unload its $1.2-trillion-plus trove of American debt would only result in a self-inflicted wound: sinking the value of the dollar further and eroding the value of its own reserves.



For the moment, at least, the economic and political consequences of dumping dollars are likely to keep Beijing from taking any such drastic action.



"There really isn't a better choice than U.S. Treasury bonds," wrote Huang Yiping, professor of economics at Beijing's Peking University, in a commentary published Monday in the influential financial magazine Caixin. "The basic requirements for foreign reserves are safety, stability in value and liquidity. Although U.S. Treasury bonds might not meet the first two criteria right now, the problem is still that we do not have a better choice."

Markets Plunged Despite President Obama's Reassurance

I meant to post this yesterday. And Stormbringer provides extra incentive, "BARACKALYPSE NOW: IT TANKED AS HE TALKED!"

And the latest at Wall Street Journal, "Markets Sink Then Soar After Fed Speaks":

The Federal Reserve sent investors lurching from worry to hope as it warned that the economy would remain weak for some time but said it was prepared to take further steps to shore it up.



The Fed's statement, which included plans to keep interest rates near zero for at least the next two years, ultimately sent the Dow Jones Industrial Average up 4%, its biggest daily gain since March 2009. Yields on Treasurys dropped as money poured in.



Trading was chaotic. Investors were initially discouraged by the Fed's announcement just after 2:15 p.m. EDT, disappointed that policy makers didn't announce any new initiatives and disheartened by the Fed's gloomy appraisal of the economy. That sent the Dow down more than 200 points within minutes.



Then, just as quickly, the market rebounded as traders focused on a phrase low in the Fed's statement, which said the central bank had discussed a "range of policy tools" that it was "prepared to employ." That prompted speculation that the central bank might soon step in with additional measures aimed at spurring the economy. In the last hour of trading, the Dow shot up 500 points, closing with a gain of 429.92 points, or 4%, at 11239.77. In Asia Wednesday morning, Tokyo shares opened higher, rising 1.9% at the start of trading.

See also LAT, "Dow gains 429 after remarks from Fed."



When in doubt, parse the Fed's statements (and ignore President Barack "Steve Urkel" Obama).

Asian Markets Fall in Monday Trading After U.S. Downgrade

At New York Times, "Asian Markets Fall Despite Efforts by Policy Makers."



But see Los Angeles Times, "No rush from U.S. Treasuries, as yields fall while Asian stocks slump":

U.S. Treasury bonds' status as a haven seemed intact in Asia on Monday, as yields fell despite Standard & Poor's downgrading of Uncle Sam's credit rating on Friday.



It may have helped Treasuries that Asian stocks were broadly lower, as some investors bailed out ahead of European and U.S. equity trading.



The 10-year Treasury note yield slid to 2.50% in late Asian trading, down from 2.56% on Friday.



Shorter-term yields also fell. The two-year T-note dropped to a record low 0.26% from 0.29%.

More at that link above, and see, "What the U.S. debt-rating cut may mean for markets":

If investors dump Treasuries, where would the money go?



They don’t have a lot of options if they want to keep their money in something relatively safe.



The bond markets of other countries still rated AAA -- including Germany, Canada, France, Finland and Australia -- are far smaller than the U.S. debt market. The appeal of Treasuries in part is their great liquidity, meaning it's easy for investors to instantly buy or sell bonds.



What’s more, Europe has its own worries: The continent’s government-debt crisis has worsened in recent weeks, with investors now fearing that Spain and Italy could be forced to seek European Union bailouts, following the paths of Greece, Ireland and Portugal over the last 15 months.



Some investors are likely to run to gold, another classic haven. Gold has been streaking this year, rising 16% year-to-date through Friday, to $1,648.80 an ounce.



Haven’t Treasury interest rates been falling lately, anyway?



Yes. Investors have been pouring cash into Treasury securities since mid-April, driving interest rates down, as global economic growth has faded. The rate on the 10-year Treasury note, a benchmark for mortgage rates and other long-term interest rates, fell as low as 2.40% last week from 3.59% in mid-April.



Because worries about the economy have only worsened in recent weeks, many analysts believe that any jump in Treasury rates related to S&P’s downgrade could quickly bring a torrent of buyers into the market, happy to snag higher yields.



“The fundamentals of U.S. and global growth are weakening, and that’s a fertile time to be in Treasuries” as a haven, said William O’Donnell, head of Treasury-bond strategy at RBS Securities.

RELATED: At CNBC, "No Chance of Default, US Can Print Money: Greenspan" (via Memeorandum).

Amilya Antonetti, Small Business Owner, Slams President Obama — 'I Don't Care If You're Red or Blue ... What Are You Doing to Our Country?'

She really unloads toward the end of the clip, via Memeorandum:

Senator John Cornyn: 'Time to Give GOP New Mandate to Govern'

From the Texas Sanator, at The Houston Chronicle:

With the support of the American people, Republicans told the president that raising taxes during a weak economy was unacceptable. Once again, the president backed down. And that option came off the table as well.

Republicans held the line on taxes and canceled the president's blank check. We won the argument that spending cuts are the key to reducing our debt and balancing our budget. That's pretty good work for a party that only controls one-third of one-half of the federal government.

Yet despite refocusing the debt-ceiling debate on out-of-control federal spending, the actual spending cuts in the compromise bill are too small. The $2.1 trillion in potential debt reduction is far less than we need to prevent a downgrade in the U.S. credit rating, according to many analysts. All the spending cuts so far are backloaded, with only $21 billion scheduled to be cut from next year's deficit. The Pentagon is specifically targeted for spending cuts, even as our troops are fighting three wars and other security threats loom on the horizon.

So I sympathize with my colleagues, as well as many Republican candidates, who say that the compromise bill does not fix the problem. They are right. A far better alternative was Cut, Cap, and Balance. A far better budget is the Pathway to Prosperity. I voted for both of those plans, and I wish we had the votes to enact both of them into law.

RTWT.

Republicans are looking ahead to 2012.

See also New York Times, "Republicans Set Sights on Balanced Budget Amendment."

Photo Credit: Wikimedia Commons.

U.S. Debts Tops Size of Entire Economy

See IBD, "An Unwelcome Debt Milestone."

With $14.5 trillion in total debt, we're already in deep trouble. Where will we be in 2021, 10 years from now, when total federal debt is expected to reach as high as $28 trillion and GDP is (generously, in our view) expected to reach $23.8 trillion? Then, by conservative estimates, our debt-to-GDP ratio will be close to 120%.

In short, debt will be a permanent millstone around the neck of the once-vibrant U.S. economy.

Bank of New York Mellon Charging Negative Interest on Deposits

When I went to deposit a check yesterday, the screen on the ATM machine flashed, "Special 1% Interest Rate on CDs of $25,000 or More!"

I thought, my God, banks don't pay interest anymore!

So, yep. You pay them, or at least on big money deposits at Mellon Bank. See New York Post, "BoNY: Big deposits will cost you a pretty penny."

You can keep your stinkin' money.

The financial markets are so foul that Bank of New York Mellon -- overwhelmed by a flood of investors pulling their money out of stocks and stashing it in bank accounts -- is going to start charging its largest institutional customers for holding their cash deposits.

The nation's largest custodial bank announced that it would charge customers more than a tenth of a percentage point for "extraordinarily high" deposits of $50 million or more.

The unusual move by the bank, which manages more than $1.1 trillion in assets for investment funds and money managers looking to safely park their dough, is hoping to discourage customers from plowing even more money into their accounts.

Also at New York Times, "Nervous Investors Chase Low-Risk Assets."

In a sign of just how much cash had poured into commercial bank accounts, Bank of New York Mellon said on Thursday that it would charge institutional clients with more than $50 million on deposit a fee of 13 basis points. The move is intended to recover some of the cost of managing the money, but is also a bid to slow the so-called hot money that has been ricocheting between Treasuries, money-market funds and pure cash balances at the big banks.

The Bank of New York Mellon said the fee would only be applied “to a small number of institutional clients with extraordinarily high deposit levels where the deposits have increased significantly in recent weeks, well above market trends.” The bank did not disclose just how much cash had poured into its coffers recently.

The good news is that investors are pouring their money into U.S. banks. We're lucky that way. When we've seen financial crises in Mexico and Thailand in recent decades, the money flowed out of those countries, leaving them dry and needing bailouts from the U.S. There's a reason we need to worry about our debt overhang. We don't want go the way of Mexico!

Double-Dip Recession May Be Returning

Well, I've been writing about this all day, and I'm not surprised at all.

At New York Times:

Until recently, most observers believed the American economy was in a slow recovery, albeit one with very disappointing job growth. The official figures on gross domestic product showed the United States economy grew to a record size in the final three months of 2010, having erased the loss of 4.1 percent in G.D.P. from top to bottom.

Then last week the government announced its annual revision to the numbers for the last several years. New government surveys indicated Americans had spent less than previously estimated in 2009 and 2010 on a wide range of things, including food, clothing and computers. Tax returns showed Americans even cut back on gambling. The recession now appears to have been deeper — a top-to-bottom fall of 5.1 percent — and the recovery even less impressive. The economy is still smaller than it was in 2007.

In June, more American manufacturers said new orders fell than rose, according to a survey by the Institute for Supply Management. The margin was small, but the survey had shown rising orders for 24 consecutive months. Manufacturers in most European countries, including Germany and Britain, also reported weaker new orders.

PREVIOUSLY: "Commerce Department Downward Revision on GDP Growth, 2007-2010."

RELATED: From Roger Simon, "Dow Down 500: Should Obama Resign?" (via Memeorandum).

Recovery Summer? Stocks Crash After Debt Deal, Raising Fears Over Economy

I wrote on the economy yesterday, and the hits keep coming.

At Los York Times, "Dow down more than 400 points as market plunge continues."

Also at The Hill, "Dow plunges after debt deal, raising anxiety over economy." (At Memeorandum.)

Economic Fears Hit Global Markets

At Wall Street Journal (Google link here):

Worries about the global economy rippled through financial markets on Tuesday, driving down share prices from Tokyo to New York and placing new strains on Spanish and Italian bonds.

Concerns that have been building for days erupted into a selloff that began in Asia, gathered steam in Europe and culminated in a sharp, late-day drop in New York. As the dust settled from the acrimonious debate in Washington over the debt ceiling, investors turned their attention to mounting evidence that the global economy is weakening. Data in recent weeks has shown that the economic "soft-patch" seen around the world in the second quarter is proving deeper and more entrenched than many investors had thought would be the case.

"As people take their focus off the debt ceiling…they're focusing on an economy that looks worse than they had thought," said Erik Weisman, a portfolio manager at MFS Investment Management.

U.S. stocks fell for the eighth straight day, the longest stretch of declines since the 2008 financial crisis. Several measures fell into negative territory for 2011. The Dow Jones Industrial Average dropped below 12000, plunging 265.87 points, or 2.2%, to 11866.62. In its eight-day decline, the blue-chip index is down 6.7%. In Europe, Italian and Spanish bond markets continued their decline, sending yields to euro-era highs. European bank stocks, too, also suffered sharp losses and broader stock indexes tumbled.

Government dependence on borrowing is hammering investor confidence and rattling markets.

'I Love Rich People'

From Katie Kieffer, at Townhall, "Why I Hope the Rich Get Richer":

We hurt ourselves by envying, over-taxing and slandering the rich. Anti-wealth public policies will only persuade independently wealthy Americans to shut down their businesses, stop hiring and retire early to their hammocks in the tropics. On the other hand, if we “love” the rich, we will receive the love back in the form of ample jobs, loans, innovations and investments.

Come to think of it, I'm amazed at how infrequently we hear this argument. A great essay. (Via Linkiest.)

Vans Shoes Digs the Debt Deal!

Vans shoes are cool!

Economy Grew at Weak 1.3 Percent in Second Quarter

At LAT, "The U.S. economy grew at a weak rate of 1.3% from April through June, another sign that the recovery has faltered dramatically."

And at Sundries Shack, "Let’s Stop the Clubbing of America":

It’s not so much that President Obama has hamstrung the economy but that he’s methodically stalked it over the past two and a half years.

And now he’s clubbing it to death.

And hear it from the Stalker-in-Chief himself:

See also, Dan Riehl, "O'petulance: Master Barry's Childish Temperament," and Weasel Zippers, "Obama Demands Congress Give Him Debt Bill By Tuesday, Still Refusing To Come Up With His Own Plan…"

Heading for a 'Haircut'

At WSJ, "U.S. Default or Downgrade Could Cost Repo Borrowers; Debt-Ceiling Anxiety":

The debt stalemate in Washington is creating stress in a little-known but vital corner of the bond market, increasing the risk that banks, hedge funds and other investors will have to pay billions of dollars in additional costs if the U.S. defaults or is downgraded.

Rates are rising for repurchase agreements, or repos—a roughly $4 trillion market that greases the wheels of the U.S. financial system—as officials in Washington feud over how to bring down the nation's debt. And Wall Street is now calculating the damage that could ensue if the nation was forced to default on its debt early next month or, more likely, loses its triple-A credit rating.

While many believe a downgrade would have relatively muted effects on the repo market, some worry that the costs to borrow there would rise.

There's a cool chart at the link.

Meanwhile, The Other McCain has this big report: "UPDATE: Boehner Yanks Debt-Ceiling Bill at Last Minute! Vote Postponed UPDATE: Sarah Palin Sends Cryptic Message to Republican Freshmen UPDATE: 24 Republican ‘No’ Votes?"

Also, at Politico, "Debt deal compromise suggested by Democrats." (Via Memeorandum.)

Laura Ingraham Show — Hey Speaker John Boehner, Did You Really Tell House GOP to Get 'Your Ass in Line?'

House Speaker John Boehner joins Laura Ingraham on the air:

And at Wall Street Journal, "Debt-Crisis Vote Goes Down to Wire in House":

The House was headed for a cliffhanger vote Thursday on a revised debt plan from Republican Speaker John Boehner that could go a long way in determining if the government's borrowing limit is raised in time to avoid a possible default next week.

Mr. Boehner scrambled Wednesday to stem defections by conservatives, telling fellow Republicans, "I need an army behind me." But he could delay the vote if he concludes his plan won't pass the House.

If it does pass, Senate Majority Leader Harry Reid (D., Nev.) prepared to put it to a vote in the Senate, hoping to defeat it. He then could try to push through his own debt plan, or make changes to Mr. Boehner's plan to make it more palatable to Democrats.

Meanwhile, senior Democratic aides said Mr. Reid and Senate Minority Leader Mitch McConnell (R., Ky.) are exploring ways to bridge the gaps between the House and Senate bills and craft an alternative that can pass both chambers by Aug. 2. A spokesman for Mr. McConnell said the Senate Republican leader isn't working on any bill other than one by Mr. Boehner.

Even as both sides press ahead with their plans, back-channel conversations between Messrs. Reid and McConnell focus on the biggest divide between the parties: whether to raise the debt ceiling in one phase or two, the Democratic aides said, reflecting a recognition that neither of the bills put forward by Mr. Boehner and Mr. Reid is likely to pass both chambers unchanged.

"You need to get agreement, and there are talks going on to try to get that agreement," said Sen. Charles Schumer (D., N.Y.).

The Journal's piece is gated, so if it's not coming up, see if you can RTWT at the Google click through.

L'Oreal Ads Banned by Britain's Advertising Standards Agency

At Fox News, "L'Oreal Forced to Pull Julia Roberts Ads After Watchdog Groups Deems Retouching Unrealistic."

And at New York Times, "British Authority Bans Two Ads by L’Oréal":

On Wednesday, an advertising watchdog group in Britain upheld complaints that had been lodged against the cosmetics giant, forcing the company to withdraw two advertisements deemed misleading.

The group, the Advertising Standards Authority, began investigating the ads after Jo Swinson, a member of Parliament from the Liberal Democrat Party, filed a complaint about them. According to reports, Ms. Swinson and other Liberal Democrats support banning advertisements that use digital technology to create misleading ads.

The ads in question featured the actress Julia Roberts and the supermodel Christy Turlington. Ms. Roberts’s ad was for a Lancôme brand foundation called Teint Miracle. Ms. Turlington’s ad, for a Maybelline brand foundation called the Eraser, showed parts of her face covered by the makeup as having fewer wrinkles in contrast to the parts of her face that were not covered. The ads ran in the February editions of women’s fashion magazines Red and Grazia in Britain.

The funny is that these are beautiful women without all the retouching.

More at the link.

'Bizarro' Budget Politics

Well, yeah.

It's pretty bizarro when politics turns to J.R.R. Tolkien, but perhaps it fits. It's been a while since I read "The Hobbit." See Ed Morrissey, "WSJ: Tea Party “hobbits” need to go back to Middle Earth, or something."

More at New York Times, "McCain vs. the Tea Party" (via Memeorandum).

Is the old John McCain back?

The fiery, independent version of the Republican senator from Arizona took to the floor of the Senate Wednesday morning. Demanding “straight talk,” Mr. McCain accused conservatives of abandoning reason by opposing the House Republican leader’s plan to resolve the debt crisis.

Mr. McCain mocked Tea Party-allied Republicans in the House for believing — wrongly, he said — that President Obama and Democrats will get the blame for a default if Republicans refuse to increase the nation’s debt ceiling.

By that flawed logic, “Democrats would have no choice but to pass a balanced budget amendment and reform entitlements and the Tea Party Hobbits could return to Middle Earth,” he said, quoting a Wall Street Journal editorial.

“This is the kind of crack political thinking that turned Sharron Angle and Christine O’Donnell into G.O.P. nominees,” he jeered, referring to two losing Tea Party candidates for the Senate in 2010.

And Senator McCain's "bizarro" moment today on the Senate floor:

And check Los Angeles Times, "Stubborn debt-deal problems plague Boehner and Reid."

Also, at National Journal, "Six Similarities Between the Boehner and Reid Debt Plans."

Fans First Coalition

I've dealt with this issue for years. I even had a buddy who did a pretty good job scalping tickets. The trick is to get them when they're first issued. But who gets them?

A report on concert middlemen, at New York Times, "Scalping Battle Putting ‘Fans’ in the Middle":

It’s the summer concert season and, as usual, many fans are frustrated that rampant ticket scalping online has made seeing their favorite performer almost as much a frustration as a thrill. But now a new group says it wants to help.

This week a new nonprofit group, the Fans First Coalition, announced itself with a mission of protecting ordinary consumers from predatory ticket scalpers. The group appeared to have broad support from the industry, including prominent artists like R.E.M., the Dixie Chicks, Maroon 5 and Jennifer Hudson.

What fans might not know is that the coalition is financed by Live Nation Entertainment, the parent company of Ticketmaster, and that it has grown out of a lobbying fight between Live Nation and StubHub, the biggest legal online ticket reseller, over control of the multibillion-dollar secondary ticketing market.

Muddying the waters further, there is another group with a confusingly similar name, the Fan Freedom Project, which also claims to represent the interests of consumers. But it is largely financed by StubHub, a division of eBay.

The organizations, which were introduced with the help of Washington public relations firms, are of a sort typically referred to as astroturf groups. They are unusual for the entertainment industry but to political watchdogs, the idea of powerful interests creating apparently populist nonprofits is all too familiar.

I'm old fashioned. I like to have ticket in hand when I head out the door. All I've got to do is get to the concert and get inside. But RTWT. The issue is how are markets for concert tickets organized. There's just a couple of big players, and few outlets drive up prices. Interesting, in any case. I'd like to see more concerts, especially with front row tickets.

Steve Wynn: 'It's Obama That's Responsible for This Fear in America...'

I was just over on the North end of the Las Vegas Strip last week, and the Wynn properties looked fabulous. We haven't stayed there yet, but we will. They send us invitations for multi-night stays, but the schedule hasn't worked out so far. But listening to Wynn's conference call makes me want to speed it up. Business people know what it's like to create jobs, and in Las Vegas you see it first hand. People are working. They are bustling and making good money. Democrats want to kill it, and Wynn says business owners are waiting it out.

Joe Weisenthal has the commentary, "Wynn CEO Goes On Epic Anti-Obama Rant On Company Conference Call." And the full transcript's at Seeking Alpha, "Wynn Resorts' CEO Discusses Q2 2011 Results - Earnings Call Transcript":

Everybody complains about how much money is on the side in America. You bet. And until we change the tempo and the conversation from Washington, it's not going to change. And those of us who have business opportunities and the capital to do it are going to sit in fear of the President. And a lot of people don't want to say that. They'll say, "Oh God, don't be attacking Obama." Well, this is Obama's deal, and it's Obama that's responsible for this fear in America. The guy keeps making speeches about redistribution, and maybe we ought to do something to businesses that don't invest or holding too much money. We haven't heard that kind of talk except from pure socialists. Everybody's afraid of the government, and there's no need to soft peddling it, it's the truth. It is the truth. And that's true of Democratic businessman and Republican businessman, and I am a Democratic businessman and I support Harry Reid. I support Democrats and Republicans. And I'm telling you that the business community in this company is frightened to death of the weird political philosophy of the President of the United States. And until he's gone, everybody's going to be sitting on their thumbs.

Borders to Close All Stores

At Wall Street Journal, "Borders Forced to Liquidate, Close All Stores":

Borders Group Inc. said it would liquidate after the second-largest U.S. bookstore chain failed to receive any offers to save it.

Borders, which employs about 10,700 people, scrapped a bankruptcy-court auction scheduled for Tuesday amid the dearth of bids. It said it would ask a judge Thursday to approve a sale to liquidators led by Hilco Merchant Resources and Gordon Brothers Group.

The company said liquidation of its remaining 399 stores could start as soon as Friday, and it is expected to go out of business for good by the end of September.

RTWT.

Seems weird. For a long time I enjoyed Borders more than Barnes and Noble. But times change.