Moody's May Cut US Rating on Tax Package

Reuters

Moody's warned Monday that it could move a step closer to cutting the U.S. Aaa rating if President Obama's tax and unemployment benefit package becomes law.

The plan agreed to by President Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.

A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.

For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.

"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.

After Obama announced his plan, Treasury prices fell sharply in volatile trade last week and yields have hit a six-month high, in part due to concerns over the effect the package will have on government debt levels.

If the bill becomes law, it will "adversely affect the federal government budget deficit and debt level," Moody's said.

On Monday, the Democratic-led U.S. Congress moved toward grudging approval of President Obama's deal with Republicans to extend expiring tax cuts, even for the wealthiest Americans, Last week, Moody's and Fitch Ratings both expressed concerns about the U.S.'s rating longer term, with Moody's fearing the impact if the tax cuts become permanent.

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The BNote: Green Currency in Baltimore

Jeff Dicken and Michael Tew
Reality Sandwich 

Where are we now, and how did we get this far?
The energy is building.  Even before we have printed a single note, everywhere we go in Baltimore people have already heard of the BNote, and businesses are signing on to accept them when we launch next year.  We are finding that people are very receptive to the idea of an alternative economic system - one that will benefit people instead of corporations.  Google searches now show blogs and internet media referencing Baltimore’s new local currency, and we’re starting to get coverage in the local press and on the radio.  Our currency design contest went global when other sites starting picking us up on the net.  When the BNote arrives in Baltimore, only the birds will be surprised.

In less than a year, we have managed to build this idea into an organization that is on track to create a strong local currency with broad participation.  Much of this progress has to do with the diversity and positive vision that the Evolver movement has already been able to foster in its local groups.


The first Baltimore spore on local currencies happened in mid-2009.  Damien Nichols, who attended, suggested to his friend Michael Tew that he come to the next spore and meet the people there, who seemed to be working to achieve similar goals.  Michael had background in both microfinance and legislative lobbying, and had been looking for an opportunity to advance alternative economic systems on a community level.  Michael attended the food spore, and on the strength of his participation in the discussion that night, he was invited to make a short presentation at the 2012 spore on the subject of microfinance.  There, he put forth the idea that, by the end of 2012, a micro-finance based economy (which is fundamentally different from the Capitalist economy in many important ways) would be the dominant form of economic organization for the majority of the people on planet earth.  And that Baltimore would be a very good place to bring microfinance and local currency together.

At the end of that spore, Michael met Jeff Dicken, a long-time supporter of microfinance efforts with an IT systems and arts background.  Through this and subsequent conversations, the idea of a local currency being a necessity for a resilient community and city, in the face of the economic meltdown and further upheaval to come, began to take root.  Soon after, Jill Harrison brought her own social justice and non-profit background to the endeavor.  After some informal meetings over the winter, Michael moved to Baltimore in March 2010, and a series of regular meetings was established.  At first, there were just two or three of us, but as we continued to talk with other Evolvers about the effort, we started to attract people willing to help, and by the end of June we had an increasingly effective and growing team of enthusiastic volunteers.

The basic questions on starting a currency were raised: debit system or paper money; what organizational form to adopt; how to go about designing and printing the currency; how to enroll people in participating, and so on.  Notes from each meeting, including links to relevant Internet resources, were distributed among the group.  Keeping everyone communicating was one of the keys to forming a committed, ongoing project, and many of the system’s features - the “BNote” name, the approach of issuing only 1- and 5-dollar value notes the first year, etc. - were discussed informally via email between meetings before being adopted by the group.  The Lewes (England) Pound site’s guide to starting a currency and Peter North’s book Local Money provided invaluable guidance as we started to put together the strongest features of other currencies already in existence.

We decided that our currency would be convertible to and from U.S. Dollars, and that we would restrict ourselves to a specific, identifiable geographic neighborhood for a pilot project.  Both Jeff and Ian McDonald had realized independently that the Hampden community in Baltimore would be a strong launching place for the BNote, and as we looked more closely, we found that the area had many features that are important for the strong adoption of a local currency:

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Is the College Debt Bubble Ready to Explode?

image source

Laura Rowley
Yahoo! Finance

Kelli Space, 23, graduated from Northeastern University in 2009 with a bachelor's in sociology — and a whopping $200,000 in student loan debt. Space, who lives with her parents and works full-time, put up a Web site calledTwoHundredThou.com soliciting donations to help meet her debt obligation, which is $891 a month. That number jumps to $1,600 next November.

In creating the site, Space, of course is hoping to ease her financial burden, but it's "mainly to inform others on the dangers of how quickly student loans add up," she said. So far she's raised $6,671.56, according to her site.

Space is just one example — albeit an extreme one — of a student loan bubble that may be about to burst. Over the last decade, private lenders, abetted by college financial aid offices, eagerly handed young people hundreds of thousands of dollars to earn bachelor's degrees. As a result of easy credit, declining grants and soaring tuitions, more than two-thirds of students graduated with debt in 2008 — up from 45 percent in 1993. The average debt load is $24,000, according to the Project on Student Debt.

In some respects, the student loan crisis looks remarkably like the subprime mortgage crisis. First, outstanding student loan debt has ballooned: It grew roughly four-fold in the last decade to $833 billion as of June — surpassing outstanding credit-card debt for the first time.


Secondly, defaults have soared amid a difficult job market. In 2008, the most recent year for which data are available, nearly 3.4 million borrowers began repayment, and more than 238,000 defaulted on their loans. The number of loans that went into forbearance or deferment (when borrowers receive temporary relief from payments) rose to 22 percent in 2007, from 10 percent a decade earlier, according to The Chronicle of Higher Education. Over a 15-year period, default rates range from 20 percent for federal loans to 40 percent on loans to students who attend for-profit schools, The Chronicle found.

Just as lenders offered easy no-money-down mortgages to unqualified borrowers during the housing boom, private student loan firms offered instant online approval for up to 100 percent of college costs to students, in some cases for four consecutive years. In early 2007, half of loans made by Sallie Mae, one of the industry's biggest players, were to students with no co-signers, according to Mark Kantrowitz, founder of informational Web site finaid.org.

As tuition costs have outpaced the caps on federal loans, more families have turned to private loans, which carry higher interest rates and stricter repayment rules. Last year private lenders supplied about $10 billion in loans (compared with $100 billion in federal loans). A study by the College Board found about a third of graduates in 2007-2008 had private loans. About two dozen private lenders offer student loans, and their business is growing at 25 percent annually, after a temporary decline amid the recent credit crisis, according to finaid.org.

Space, for instance, took out $12,000 in federal loans and borrowed $189,000 from private lender Sallie Mae. In an email interview, Space said she spent the money on tuition and room and board for four years; two summer semesters; a three-month study abroad program in Ireland; and books for three semesters. Some $20,000 of her debt is accrued interest. (Interest rates on her loans range from 3 percent to 9 percent.)

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Corporate America has best quarter in US history as real unemployment rate soars

Stephen C. Webster
The Raw Story

Even amid the most turbulent economic conditions since the Great Depression, US corporate profits are at an all time high, according to a Tuesday report [PDF link] by the US Bureau of Economic Analysis.

At the same time, America's poor and middle classes are under siege, with a mostly stagnant job market that has shown only marginal signs of improvement.

In spite of meager growth in some sectors, the real unemployment rate remains high, at approximately 1 in 5 Americans.

Yet for seven fiscal quarters running -- since President Obama's election -- American corporate profits have shown strong growth.

According to a New York Times analysis, Q3 2010 saw the largest corporate profits in recorded US history, at $1.66 trillion.

The official unemployment rate from the Department of Labor Statistics was nine percent at time of this writing, but another statistic provided by the government, which includes underemployed persons, sat at 17.5 percent in October. 

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Gold at $7800/oz, Or S&P 500 at 220? Take Your Pick

Seeking Alpha

The chart below (to the right, Ed.) shows yet another way to look at the value of the stock market and gold in relation to each other.

The S&P 500 to gold ratio essentially prices the stock market in terms of gold. (Normally, it is priced in terms of dollars. Alternative reference points could include barrels of oil, acres of land or any other thing of value.) This helps provide a way to evaluate the market adjusting for a loss in purchasing power.

A few observations:

1. The ratio of S&P 500 to gold reached a bottom in 1981 - i.e. gold valuations reached a peak.
2. Between 1981 and 2000 the stock market rose in real terms.
3. Between 2000 and present the stock market lost value in real terms.
4. The S&P 500 to gold ratio has not yet fallen to historical lows. To reach historical lows set in 1981 the S&P 500 would either need to fall to 220, gold would need to rise to $7800/oz or some combination of the two.

Disclosure: I own some bullion

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The Fed Bought Fraud

Dees Illustration

Greg Hunter
USA Watchdog

In the wake of the financial meltdown of 2008, the Federal Reserve announced it would buy mortgage-backed securities, or MBS.  The January announcement by the Fed said it would buy MBS from failed mortgage giants Fannie Mae and Freddie Mac in the amount of $1.25 trillion.  At the time, the Fed said in a press release, “The goal of the program was to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally.”  (Click here for the full Fed statement.)  It did provide “support” to the mortgage market, but did it also buy fraud and cover the banks that sold it?  The evidence shows, at the very least, it bought massive amounts of fraud.

We now know the Fed definitely bought valueless MBS because it has joined other ripped-off investors to demand Bank of America buy back billions in sour home debt.  A Bloomberg story from just last week, featuring Philadelphia Fed President Charles Plosser,  reports, “The New York Fed, which acquired mortgage debt in the 2008 rescues of Bear Stearns Cos. and American International Group Inc., has joined a bondholder group that aims to force Bank of America Corp. to buy back some bad home loans packaged into $47 billion of securities.  On the one hand, the Fed has “a duty to the taxpayer to try to collect on behalf of the taxpayer on these mortgages,” Plosser said today at an event in Philadelphia.”

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Fuel pipeline to Paris cut as protests escalate

Photo: EPA

*Supply cut at fuel pipeline to Paris

*Truckers union calls drivers to join protests

*Police arrest dozens in student protests 

Catherine Bremer -- Reuters

PARIS, Oct 15 (Reuters) - French refinery workers cut off a fuel pipeline to Paris on Friday as protesters piled on pressure to derail President Nicolas Sarkozy's unpopular pension reform.

Police broke up blockades at fuel depots in southern France but protesters blocked a terminal at Paris's Orly airport and truckers were set to join the fray as momentum built for a day of street rallies on Saturday.

A nationwide strike is planned on Tuesday, a day before the Senate is due to vote on a bill to make people work longer for their pensions.

The protests have become the biggest challenge facing the centre-right president, who is struggling with rock-bottom popularity ratings as he tries to appease financial markets by stemming a ballooning pension shortfall.  

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Super-rich investors buy gold by ton

Reuters 

The world's wealthiest people have responded to economic worries by buying gold by the bar -- and sometimes by the ton -- and by moving assets out of the financial system, bankers catering to the very rich said on Monday.

Fears of a double-dip downturn have boosted the appetite for physical bullion as well as for mining company shares and exchange-traded funds, UBS executive Josef Stadler told the Reuters Global Private Banking Summit.

"They don't only buy ETFs or futures; they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest.

UBS is recommending top-tier clients hold 7-10 percent of their assets in precious metals like gold, which is on course for its tenth consecutive yearly gain and traded at around $1,314.50 an ounce on Monday, near the record level reached last week.



"We had a clear example of a couple buying over a ton of gold ... and carrying it to another place," Stadler said. At today's prices, that shipment would be worth about $42 million.

Julius Baer's chief investment officer for Asia is also recommending that wealthy investors park some of their assets in gold as a defensive stance following a string of lackluster U.S. data and amid concerns about currency weakness.

"I see gold as an insurance," Van Anantha-Nageswaran said. "I recommend 10 percent as minimum in portfolios and anything more than that to be used for trading purposes, to respond to short-term over-bought or over-sold signals."

ULTIMATE BUBBLE?

Billionaire financier George Soros, echoing comments from investment guru Warren Buffett, last month described gold as the "ultimate bubble" because it is costly to dig up and has no real value except its market price.

But a rising price for the precious metal has in itself generated more and more demand from investors looking for a way to hedge against a fresh recession. Gold bears no yield and is uncompetitive in an environment of rising interest rates.

The uneasy outlook for inflation, hard currencies and global growth has triggered a five-fold increase in a physical gold fund launched by Pictet one year ago, the Swiss private bank said.

UBS's Stadler said the precious metal has become a staple of investors' portfolios, despite questions about whether it makes for a smart long-term investment. 

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