- The Fed is in a dangerous game with China(FT): “The Federal Reserve is taking no half measures in its efforts to stimulate economic recovery in the US. To ward off the spectre of deflation, it is prepared to generate inflation and reflate the asset bubble. China is a silent but active partner in the Fed’s pump-priming. It would not be possible for US Treasury bond yields to be at current levels were China not a willing and able supplier of savings to the US. Combined annual purchases of Treasury securities from China and Hong Kong have reached $290bn - more than those by any other creditor nation. Both China and the US are having fun at this game. The flow of Chinese savings has enabled Americans to borrow more and spend more. Long-term bond yields are still very low, in spite of the recent bond market shake-out. The refinancing boom continues. The collapse in borrowing costs is reviving capital spending. China is glad to see Americans going on another shopping spree. Its factories are cranking up production at an unprecedented pace and capacity is tightening. China’s exports to the US jumped 35 per cent in the first quarter compared with the first quarter of last year and the trend is accelerating. The US’s bilateral trade deficit with China has reached $110bn, bigger than with any other country. In effect, China is trading goods for US paper. The rapid accumulation of Chinese reserves means the Chinese are buying dollars to keep their own currency steady. This has allowed US interest rates to remain low, which in turn has encouraged American consumers to buy more Chinese goods.” (Thanks Hayek Blog
- US bartering arms for Soldiers in Iraq: (Asia Times) ”Faced with a rising death toll among its soldiers in Iraq, the United States is trying to “buy” foreign troops for a proposed 30,000-strong multinational force in Baghdad...The inducements - including weapons and increased military aid - have apparently been offered to at least three countries whose troops Washington desperately needs to bolster the fledgling multinational force in Iraq and relieve the pressure on US forces in the war-ravaged country.” (Thanks AntiWar.com)
- US slashes growth forecast(BBC): “Mr Greenspan, in his twice-yearly testimony to Congress, said the central bank was cutting its forecast for US economic growth this year by three quarters of a percentage point to 2.5-2.75%.
- Big spreads blow-out on mortgage hedging(Reuters): U.S. swap spreads blew sharply wider on Thursday, suffering one of their worst weeks since the 1998 LTCM crisis as the big rise in benchmark yields had mortgage investors hammering the market with heavy hedging. Five- and 10-year spreads widened dramatically, by more than 8 basis points, in what traders described as a market in which it was increasingly difficult to get trades done and where dealers are struggling with the overwhelming needs of the mortgage universe.
- Missing Liberty Head Nickel Appears (AP): “A million-dollar mystery was solved early Wednesday with experts certifying that a nickel that had been missing for decades is the fifth 1913 Liberty Head nickel.”
- Military Spending Boosts GDP (Baltimore Sun). Comment: perhaps if we just triple or quadruple government spending, economic growth would soar!
- More Payroll Weakness (CNN.com): U.S. employers cut thousands of jobs in July, the government said Friday, defying expectations that payrolls would grow, but a decline in the labor force sent the unemployment rate down.
- Ten Indicators: CNN keeps a nice chart up to date on its Economic News page
