Lots of little bits and pieces in the news today. First off, from Bloomberg:
China, the largest foreign investor in U.S. government securities, joined Russia in criticizing American policy makers for failing to ensure borrowing is reined in after a stopgap deal to raise the nation’s debt limit.
People’s Bank of China Governor Zhou Xiaochuan said China’s central bank will monitor U.S. efforts to tackle its debt, and state-run Xinhua News Agency blasted what it called the “madcap” brinksmanship of American lawmakers. Russian Prime Minister Vladimir Putin said two days ago that the U.S. is in a way “leeching on the world economy.”
Spare me the feigned indignation. If you are unhappy, just don’t buy the debt. If there is a problem in the US, China and others were the enablers. Or, another perspective is that because foreign central banks accumulated massive currency hoards to maintain a competitive trade advantage, the US was effectively force to run huge deficits to offset the demand drag. And it’s not like the portfolio is faltering:
The comments reflect concern that the U.S. may lose its AAA sovereign rating after President Barack Obama and Congress put off decisions on spending cuts and tax increases to assure enactment of a boost in borrowing authority. China and Russia, holding a total $1.28 trillion of Treasuries, have lost nothing so far in the wake of a rally in the securities this year.
I also enjoy the complaints of Putin in light of this Bloomberg article:
Roustam Tariko, billionaire owner of Russian Standard Bank and Russian Standard Vodka, completed the most expensive home purchase in Miami Beach since 2006 when he bought a $25.5 million estate on Star Island in April.
The transaction made Tariko the neighbor of another wealthy Russian with a taste for Florida luxury living. Vladislav Doronin, chairman of Moscow-based real estate developer Capital Group, paid $16 million in 2009 for the Star Island home previously owned by Shaquille O’Neal, the now-retired professional basketball player.
“In Russia, it’s a status thing now,” Jorge Uribe, a real estate agent with One Sotheby’s International Realty Inc. in Coral Gables, Florida, said in a telephone interview. “If you’re wealthy and you say you have a place in Miami, it’s like saying back in the old days, ‘I own a place in Ibiza or Monaco.’ It’s a cocktail conversation thing.”
At least somebody in Russia still wants to buy American. The article also has this great material:
The seller of the property, Thomas H. Morgan, declined to discuss details of the transaction. Morgan, the founder of Morgan Energy Corp., a closely held oil and gas exploration company based in Englewood, Colorado, said it’s no surprise that foreigners are stepping up to buy while Americans hold back.
“Americans don’t want to put down 80 percent or pay cash,” Morgan said in a telephone interview. “A lot of Americans are tapped out.”
Morgan, who said his “hobby” is building trophy homes, constructed the Star Island mansion in 2003.
Really, how many “Americans” are really in the market for these homes? As for hobbies, I considered trophy houses, soon after my yachting phase and a related diversion into polo ponies. None of those really worked for me; I settled on gardening.
Currency intervention is all the rage this week:
Japan followed Switzerland in seeking to stem appreciating exchange rates that threatened to damage export competitiveness, selling the yen for the first time since the aftermath of the nation’s earthquake in March.
Japan acted alone in the market, while officials were in contact with other nations, Finance Minister Yoshihiko Noda told reporters today. The yen slid 2.7 percent to 79.21 per dollar at 1:39 p.m. in Tokyo, still above its two-month average. Noda suggested the Bank of Japan may follow with monetary stimulus, saying he hoped it would take appropriate action. The BOJ brought forward by a day the end of its scheduled policy meeting.
I can’t really blame Japanese officials. There economic experience long ago argued for more foreceful monetary policy, including unabashed foreign currency purchases (I could argue the same for another central bank that will remain nameless). I am sympathetic to the Swiss. Once, long ago, I argued that internally that the Swiss Franc was a safe-haven repository, something long-time market participants always knew. I was laughed out of the room, as Switzerland was “too small.” Well, they are too small to be a good safe haven, yet safe haven they are. And a 23% currency gain for a small economy in just six months is understandably unnerving.
The ultimate lesson of recent interventions: The world definitely needs more safe havens.
Europe continues to deteriorate, under the watch-full eye of vacationing leaders (cut them some slack, it’s August, after-all):
The European sovereign-debt crisis placed new strains on the Continent’s banks on Wednesday amid signs that some lenders are finding it harder and more expensive to fund themselves.
The cash crunch for some European Union banks underscores the challenges that central bankers and regulators face in preventing the bloc’s economic and debt problems from seeping into the bank-funding markets.
The barometers that central banks and analysts use to monitor stress aren’t showing extremely heightened levels. But certain gauges are flashing warning signals: Bank funding from the European Central Bank increased and European banks and corporations have had to turn to the currency markets for dollar funding, instead of borrowing from one another or selling debt.
Even more worrying is the fact that the European Financial Stability Fund, Europe’s so-called bazooka rescue fund that it endowed last month with the powers to recapitalize weak banks, will not be able to offer any such aid for at least two months.
According to a stability fund official, staff members there are working night and day to recast the entity, but do not expect to be finished until the end of August. At that point, it must be approved by the parliaments of the 17 countries that use the euro currency.
END OF AUGUST!?! PARLIAMENTS OF 17 COUNTRIES?!? These guys might actually be worse than our guys, and that is saying a lot if you have been watching Washington this past month.
Claiming he wasn’t afraid to let everyone in attendance know about “the real mess we’re in,” Federal Reserve chairman Ben Bernanke reportedly got drunk Tuesday and told everyone at Elwood’s Corner Tavern about how absolutely f***ed the U.S. economy actually is.
Bernanke, who sources confirmed was “totally sloshed,” arrived at the drinking establishment at approximately 5:30 p.m., ensconced himself upon a bar stool, and consumed several bottles of Miller High Life and a half-dozen shots of whiskey while loudly proclaiming to any patron who would listen that the economic outlook was “pretty god***ned awful if you want the God’s honest truth.”
I particularly liked this part:
After launching into an extended 45-minute diatribe about shortsighted moves by “those bastards in Congress” that could potentially exacerbate the nation’s already deeply troublesome budget imbalance, the Federal Reserve chairman reportedly bought a round of tequila shots for two customers he had just met who were seated on either side of him, announcing, “I love these guys.”
While using beer bottles and pretzel sticks in an attempt to explain to the bartender the importance of infusing $650 billion into the bond market, the inebriated Fed chairman nearly fell off his stool and had to be held up by the patron sitting next to him.
You just have to find the humor in this stuff, because the reality is looking pretty sad.
This post originally appeared at Tim Duy’s Fed Watch and is reproduced here with permission.