What do these three things have in common? Aside from each of them being in the news recently, that is? Read on, dear reader and find out.
It’s not everyday that one can say that a nuclear weapons test by a rogue state such as North Korea has a silver lining. However, as far as the dollar is concerned, that seems to be the case, as investors are suddenly finding security in the greenback that only a few days ago was noticeably absent:
May 26 (Bloomberg) — The yen and the dollar rose after Yonhap News reported that North Korea carried out a missile experiment a day after conducting a nuclear test that provoked international condemnation.
… The euro fell for the first time in seven days against the dollar after Britain’s Daily Telegraph cited a German banking regulator as saying debt at the nation’s biggest lenders may increase. […]
“The market is still digesting the news from North Korea,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London. “The dollar is holding up and the yen is also having reasonable gains. The defining factor is broad risk metrics.”
The yen weakened to 95.01 per dollar as of 10:17 a.m. in London, from 94.83 yesterday in New York. It appreciated to 131.82 per euro, from 132.92. The euro declined to $1.3869, from $1.4017.
Maybe Obama’s National Security Council is concerned about North Korea’s latest nuclear gamesmanship, but oddly enough Tim Geithner may be quite happy. With the value of the dollar rising, this does make it easier for him to sell Treasury bills and other debt instruments, after all. Probably only a temporary boost, but when you’re running trillion dollar deficits you take any advantage you can get.
Nonetheless, in the long term, the dollar is likely to fall again. Borrowing to bailout Detroit, Wall Street and possibly everyone in California can have that effect. The unintended consequences of believing taxes are the source of all evil is coming back to bite us in the hindmost.
The dollar’s gains may be tempered on speculation bond sales this week will renew concerns that a record supply of Treasuries will jeopardize the U.S.’s AAA credit rating.
Ten-year Treasuries fell the most since June 2008 last week as the U.S. prepared to resume debt auctions after a two-week pause. The Treasury plans to sell $40 billion in two-year notes today, $35 billion in five-year notes tomorrow and $26 billion in seven-year notes on May 28. It will also sell $61 billion in three-month and six-month bills in a weekly auction today. […]
The U.S. will increase debt sales to $3.25 trillion in the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc., as President Barack Obama borrows record amounts to try to snap the recession in at least 50 years. […]
“Given growing concerns about U.S. creditworthiness, capital outflows from the dollar-denominated assets may gain further momentum,” said Kengo Suzuki, manager of the foreign bond trading department in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group.
Rising debt levels may jeopardize the AAA credit rating of the U.S. in the next three years, New York University economist Nouriel Roubini told Il Sole 24 Ore in an interview. “The situation may become risky in two, thee years time,” Roubini told Sole. “The evolution of the crisis requires paying attention to this matter too.”
Just more evidence that it’s a mad, mad, mad, mad world out there. And the United States is still the King of the Crazies when it comes to economic policy. Example numero uno is the State of California, where the tax limitations imposed by Proposition 13 are wrecking untold havoc on that state’s ability to deal with the current economic crisis. Demanding tax cuts in a deep recession, at a time of rising unemployment? Abandoning funding for essential government services? Failing to invest in critical infrastructure that no private company is ever going to risk their precious capital on without large investments of public funds? Perhaps California’s right wing ideologues really do want to be the next Epic Fail Land of Libertarian Magic Dust. Like, say, Somalia.
Something tells me the time for faith based economics is at an end. That tax and regulatory policies which benefit the rich at the expense of everyone else need to go back to where they belong: the 19th Century. If only our Wise Old Men in Washington would come to the same conclusion. Fat chance of that ever happening, eh?
So thanks North Korea. You may have done Tim Geithner a big, if temporary, favor with your nuclear sabre rattling. Those of us in the know appreciate how your particular brand of crazy helps us maintain our own a little longer. Too bad you can’t test a nuke or an ICBM every month. Then again, maybe that should be Obama’s new policy toward Kim Jong-il’s regime. Secretly provide the NK with enough weapons grade uranium and plutonium in exchange for an agreed series of nuclear “tests” to scare the investors of the world into buying all the US Treasury’s dollar denominated debt. Probably makes as much sense as anything else Obama’s economic team has been doing lately.
Taxes aren’t the root of all evil.
Taxes and Iran are the root of all evil.
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By Alexander Vorontsov
Criticism of South Korea’s activities by Pyongyang became harsher during 2008 and, early this year, turned into dramatic demarches. On January 17, a spokesman of the Chief of Staff of the Korean People’s Army said that his country’s armed forces were “forced to transit to a state of full standoff to undermine the course of confrontation.”
Several days later, on January 30th North Korea’s Committee on the Peaceful Reunification of the Fatherland said that the “Lee Myuong-bak’s group” had rejected the path of peace-making and cooperation and had “brought the Korean situation to the brink of war”.
The Democratic People’s Republic of Korea annulled all the agreements ending the military and political confrontation between the North and the South, including the 1992 Agreement on Reconciliation, Non-Aggression, and Exchanges and Cooperation, refusing also to honour the military demarcation line in the Yellow Sea (also known as the Northern Limitation Line)
Conservative Lee Myuong-bak wins elections – Dec. 2007
"But I will not let myself be reduced to silence.".
No state prints a better quality dollar.
"But I will not let myself be reduced to silence."Well in regards to California even if does collapse, rightists will blame Mexican immigrants (legal or illegal) and say “See! This is what happens when non-whites get power! 3rd World Country!”
Anyone going to tell me I’m wrong?
Unintended consequences, Steven? Is that snark?
Half snark, yes.
As a Californian, I look at the ‘death spiral’ the state government’s in, and just shake my head.
The conservative South has ruled policymaking for so long that it’s become pretty much customary, and now that those policies (2/3 cote to pass budget, prop13 to start off) no longer fit the current state of the State, there’s no political will to change them (The Dems can’t muster 2/3 vote, and the ‘Cons taped their eyes shut decades ago, and so can’t see that change is needed).
I’m fortunate my dependence on State resources is relatively low, but even I’ll feel the ‘pinch’ if the State shuts down because the ‘Con guvernator can’t assemble sound fiscal policy, and the Assembly/Senate can’t wrangle the necessary votes to pass the budget…
Was the 2/3 thing from a referendum too? The whole story of CA seems like a good object lesson for Obama and the Dems on the consequences of thinking the right ever works toward the good of the body politic.