Author Archives: TheGauntlett

Responsibility

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I don’t need to say anything more…

Link: Time will tell….

For Immediate Release
June 11, 2009

Audit the Fed Bill Reaches Crucial Benchmark

Washington, D.C. – Congressman Ron Paul’s Federal Reserve Transparency Act, HR 1207, has reached and surpassed the level of 218 cosponsors in the House of Representatives, which means it is now cosponsored by a majority of the members.

The 218th cosponsor was Dennis Kucinich (OH-10), and the bill has since received its 222nd cosponsor.

“The tremendous grass-roots and bipartisan support in Congress for HR 1207 is an indicator of how mainstream America is fed up with Fed secrecy,” said Congressman Paul. “I look forward to this issue receiving greater public exposure.”

Hearings on Federal Reserve transparency are expected within the next month, as part of the Financial Services Committee’s series of hearings on regulatory reform.

IMF issuing bonds…?

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Foreigners buying US Dollars?

I’m attempting to put a couple puzzle pieces together so here goes…

1) China has tons of US dollar and dollar denominated debt.  Additionally I heard suspictions that China may be purchasing land, companies, etc… with the debt.  Considering that we have no real access to their books, and they can really tell us anything they want I find this easy to believe.  If they had long-term dollar denominated deals they could exchange their dollars for tangible assets, which protects them from a declining dollar.  The US government will probably default on their debt via inflation so China goes and buyes an asset and says we will pay you in US dollars.  China’s holdings of US debt pays interest, and has a principle payement at expiration.  So, it seems plausible that they could use all their US holdings to buy up tangible assets.

2) BRICs (Brazil, Russia, India and China) are purchasing our debt.  Why?  What if they were willing to purchase dollars to placate the US only to use them to purchase raw materials, or IMF bonds (see #3).  We know China has been stockpiling commodities.  Oil has to be transacted in dollars. Are they paying for all the commodities with Yuan or dollars?

3) IMF Bonds… http://online.wsj.com/article/SB12441969…

China is thinking about purchasing $50b in IMF bonds.  Since when has the IMF sold bonds?  I didn’t see anything (see further down in my post) about which currencies would be used to purchase these bonds, but why can’t we make a leap and say that perhaps they would use US dollars.  The IMF holds a multitude of currencies so they buy dollars to keep the dollar stable for a bit and then use the dollars to purchase assets, which may be partially valued in dollars, but not a 100% exposure. The dollars are then held at the IMF, which issues bonds based on a basket of currencies.  This pulls dollars out of circulation (for now), helping to strengthen the dollar at least in the short term.

I don’t know if a scheme like this is even viable or makes sense, but it jumped into my head and I wondered if I’m completely off or there may be a bit of truth in it all.

Yet IMF is issuing bonds?

I’m pondering

a) the move by the IMF to issue bonds, and

b) that nations are cashing in their US obligations / cash for these newly created bonds.

So, I did a bit of digging…

http://blogs.wsj.com/economics/2009/06/01/imf-bonds-are-coming-soon-but-you-cant-buy-any/

The International Monetary Fund is putting final touches on its plans to issue its first bonds. Russia has already said it would buy $10 billion of the bonds, which would be priced in the IMF’s quasi-currency, “special drawing rights.” SDRs are a basket of currencies consisting of the euro, yen, pound sterling and U.S. dollar. As of Friday, 1 SDR equals $1.55.

So these are the major players when it comes to currencies, but excludes the Yuan.  All of these nations are in trouble.  The UK is in worse shape than the US and Europe is fracturing.  Perhaps this is an attempt to shore up some of the weaker currencies so they don’t collapse.  If hard currencies were to skyrocket (as many predict) this is a nail in the coffin to fiat currencies.

and

http://www.imf.org/external/np/sec/pr/2009/pr09207.htm

Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), issued the following statement today welcoming Brazil’s intention to invest up to US$10 billion in notes to be issued by the IMF:

http://www.imf.org/external/np/sec/pr/2009/pr09204.htm

Same thing as with Brazil, but notice my bolded parts…

“This decision will be beneficial to all,” Mr. Strauss-Kahn added. On one hand, IMF members’ investment in Fund securities will boost the Fund’s capacity to help member countries—particularly developing and emerging market countries—cope with the crisis and thus benefit all members by facilitating an early recovery of the global economy. At the same time, the new notes will offer members a safe investment instrument with reasonable return.

Reading a bit into this I’d say that there is a huge and continued growing concern that the previously risk-free and safe investments are no longer considered so.  IE: US treasuries.  This is nothing new, but perhaps to prevent an all out run on our debt, by consolidating these first world countries many believe that it will shore up confidence in our debt.

More ideas:

http://blogs.reuters.com/felix-salmon/2009/06/10/switching-from-treasuries-to-imf-bonds/

Perhaps by backing these instruments by a basket of currencies priced in dollars foreign holders will feel better about holding dollar denominated assets backed by a multitude of nations.

What might be the effects of such actions?

Is this to shore up confidence with developing nations?  They have the oil, the raw materials, and everything we need to produce the stuff that we buy.  For now they need us as consumers, but that gig is about up if not over.

Unless I’m mistaken this look like a move away from the dollar as the reserve currency.  As this unfolds I wonder how much transparency there will be as far as IMF holdings with regards to the backing of these bonds.  I don’t know enough about the IMF to make any solid presumptions or predictions, except is this slowly a move to a global currency?

What I really want to know is if countries are buying US debt, yet are in serious talks about purchasing IMF bonds… something isn’t adding up here.  Say they purchase the bonds in US dollars then the IMF will have a bunch of dollars.  Unless the Fed reigns in the money supply somebody has to hold our dollars unless they dump them on the market causing a crash in the dollar, which doesn’t make sense unless they have found a way around this.

I know this is a lot of fragmented thoughts, but something is going on… Will someone please help fill in the missing pieces.

Airlines

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As gas prices rise, people lose their jobs, and business cut back on travel airlines suffer. Many have gone in and out of bankruptcy (remember 9/11?), and employees have made many concessions to keep their jobs.

However, what happens when you have poorly paid pilots, working too many hours, and cash strapped airlines?

Buffalo Crash

Article:

WASHINGTON – Pilot training and fatigue are expected to be the focus of an unusual public hearing on Tuesday into safety issues raised by the February crash of an airliner near Buffalo, N.Y., that killed 50 people.

A recent experience of mine is also cause for concern:

Touch and Go

I had a couple firsts on my trip to Bonaire, one seeing a slipper lobster. Reminded me of some prehistoric creature crawling along the ocean floor. Quite amazing.

The other first is one I’d rather not have again, but alas life is unpredictable. So, yes a touch and go. A what? We hear about them when people are first learning to fly an airplane to practice takeoffs and landings. However, common it may be I’ve never done one on a commercial airliner before, more specifically a 737.

We took-off from Bonaire, and I had an empty seat next to me until… Until the pilot came and sat down. From time to time I’ve seen members of the flight crew leave the cockpit to use the facilities are stretch, but he sat and slept. The pilot was sleeping next to me, while we flew on autopilot. I wasn’t really concerned because there were two other people up front. What did concern me a bit was that our pilot was exhausted.

Our airplane had just arrived from Houston, and was now going back. It had arrived at around 5:30 am, which made it a red-eye. All in all this crew was having a very long day. I figured after we arrived they were looking at around 14-16 hours maybe more. And they were piloting a metal airship. Great!

The flight was pretty uneventful, a few bumps here and there, but that was it until the landing. About 30 prior to landing our pilot was summoned to the cockpit to presumably land the craft. So far so good. My windows seat provided me with a nice view of our approach and I looked over Texas checking out the landscape as it grew nearer and nearer.

A couple minutes before touchdown I was noticing that the pilots kept throttling the engines up and down and weren’t very consistent about or speed or approach altitude. My heart was pitter pattering at an accelerated rate, but landing is essentially a controlled crash anyways.

The ground was oddly close, and there was no sign of a runway. Sure I can’t see straight out so I figured it was just in front of us. For a short runway I might expect this as they need all the room they can get, but we in a 737 going into Houston, not a tiny airport.

I kept waiting for the flare or the moment where we glide over the runway and the read wheels touch and then the front. Instead … BANG the front wheel slams into the runway. Last time I checked it isn’t wise to put the front wheel down prior to the rear. Next thing we know full thrust and the pilots pull back on the yolk.

Quite disconcerted I look around and everyone is a bit freaked out wondering what just happened. What happened is that we had a lovely touch and go due to the fact that we landed incorrectly. After a bit as we are circling around listening to the landing gear going up and down (did we break something?) the pilot announces that we bounced and they thought it prudent to go around and do it again.

Right…

And as Mish points out airlines are slashing left and right to stay afloat.  I’d personally rather pay a bit more to ensure my safety and travel less.  What will the travel industry look like in the coming years?

Some See China’s Buying Spree on Commodities as Short-Lived – NYTimes.com

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Some See China’s Buying Spree on Commodities as Short-Lived – NYTimes.com.

With the advent of Central Banks printing their way out of this mess the probabilities continue to point toward inflation.  While the rate of expansion of the money supply has lessened it is no less continuing to rise.  Should the Fed decide to sell some of its assets I can only imagine a depression ensuing.  As some have said they are threading the needle between inflation and depression, but at some point I think the hole will close and we will be stuck on the side of inflation.

The rebound in commodity prices is staggering.  Many factors influence commodities, among them currency valuations, supply and demand, forecasted demands, hedges against currency devaluations, and inflation.  China plays a major role in the demand factor.  In a recent NY Times article, referenced above, they state that while China is stockpiling commodities production lags.

At least 90 large freighters full of iron ore are idling off Chinese ports, where they face waits of up to two weeks to unload because port storage operations are overflowing, chief executives of shipping companies said in interviews this week. Yet actual steel production from that iron ore is recovering much more slowly in China, and Chinese steel exports remain weak.

“There has been enormous stockpiling of all commodities” by China, and this cannot continue indefinitely, said Tim Huxley, the chief executive of Wah Kwong Maritime Transport Holdings, a big shipping line based here.

China is getting ahead of it future needs, which makes sense, but how long can it continue?  I have no doubt in my mind that we will see higher prices for everything, while wages stagnate and job losses continue.  The question however is if commodity prices will continue to rise without a correction?  If I had a crystal ball I would say yes primarily due to our fiat money system, record low levels of food supplies, and energy stocks being depleted while further exploration and extraction projects are being put on hold.  Until we see higher energy prices they won’t be put into full swing, which take years to develop. Nothing goes in a straight line however, so a mild correction would be encouraging for buying on the dip.

Back to the demand situation…

Richard S. Elman, the chief executive of the Noble Group, Asia’s largest diversified commodities trading company, bounced up from the conference table in his office here when asked about freight rates during an interview on Tuesday morning. He walked over to his desk, dominated by three computer screens that partly obscure a perfect view of Hong Kong’s harbor, and quickly punched up on one screen a list of daily charter rates for large bulk carrier freighters.

The list showed ship owners charging $58,000 a day now but just $24,000 a day for charters next year or in 2011 — an indication that there will be more ships than cargoes in the years ahead, particularly with shipyards still finishing vessels ordered during the recent boom.

Pointing to the rates for the next two years, Mr. Elman said, “That’s the real market” for ships.

As demand drops so do shipping rates.  There just isn’t as much stuff being moved around the globe.  Thanks to our inflated demand for goods we have excess capacity.  How many more ships can sit idle while China continues to stockpile?  If China slows it stockpiling, and demand for goods continues to drop and the recession continues and joblessness rises then what will be the impetus for prices to rise.  Again we have to go back to the fiat money system, and increasing debt to GDP all around the world.  How will our debt be paid off?  Inflation.
Even with a drop in demand for raw goods and materials if central banks continue on their present path we are headed for higher prices.  So, I’d like to see a correction in the price of goods due to a demand drop and then hold on for a wild ride as prices increase.
While I say I’d like to see this for profit potential, unfortunately there is a consequence on the human level.  If prices rise, while wages stagnate people will protest in anger.  It is a catch-22.

Valuable Info!

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I’ve stumbled upon an extremly useful site… Really it goes beyond just useful, and if you are interested in Finance, Math, or Physics I recommend you check it out. Even if you aren’t and may know someone in school send them to this site. Mind you that without YouTube it would be much more difficult to implement such a site.

Okay, how did I discover this? Well, I must thank Gary North for pointing me to it. Without his continued efforts to find valuable resources and simplify complex matter I may have not discovered it for sometime.

Anyways, please check out Khan Academy. Salman Khan does an amazing job of simplifying potentially complex ideas. So far I’ve gone though some of the finance and banking videos. While I’ve understood many of the concepts presented I’ve really enjoyed the refresher and he has also managed to get me thinking from a different perspective.

Sometimes we find the material, but how it is presented makes all the difference. Have you ever been confounded by the Federal Reserve’s material? Sometimes I think they are speaking another language… How about a textbook or college professor? Mr. Khan is doing a service to society through his non-profit making all his content available free of charge. Again from what I’ve watched thus far I can’t recommend it enough.

-RtG

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13ship01-600

Yes, long time and no posts… Okay I went on an around the world scavenger hunt — www.globalscavengerhunt.com. While I didn’t win, I did see some amazing places and met many people.

Our trip took us from Seattle -> Taipei, Taiwan -> Phenom Phen, Cambodia -> Siam Reap, Cambodia -> Bangkok, Thailand -> Delhi, India -> Agra, India -> Istanbul, Turkey -> Tunis, Tunisia -> Frankfurt -> Hamburg, Germany -> Copenhagen, Denmark -> Reykjavik, Iceland -> Boston, MA!

Phew it was a heck of a trip over three weeks… And no it wasn’t the Amazing Race, but a scavenger hunt / fundraising event!

While the world is in a contraction, food shortages are more common, and jobs are continually being lost many places didn’t seem in such dire straights. Perhaps we are in a wave of many in which the initial impact has yet to be completely felt.

Cambodia and India are impoverished and I fear for primarily Cambodia due to the decrease in tourism. Siam Reap is experiencing a near 40% collapse in tourism. Bars were nearly empty, while many, yet few roamed the streets.

As I resume my routine I’ve been sifting through my email and came across a somewhat frightening article. Ships are treading water as exports collapse due to the unsustainable expansion experienced over the last couple decades.

I wouldn’t be surprised to see a different picture if I were to visit these countries again in 6-12 months. However, the reality may have been quite different had I stayed in these countries longer to get a real sense of how the people are being affected by the global downturn.