G.O.O.D

Source: washingtonpost.com

With President-elect Barack Obama and congressional Democrats considering a massive spending package aimed at pulling the nation out of recession, the national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world’s appetite for financing U.S. government spending.

For now, investors are frantically stuffing money into the relative safety of the U.S. Treasury, which has come to serve as the world’s mattress in troubled times. Interest rates on Treasury bills have plummeted to historic lows, with some short-term investors literally giving the government money for free.

But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them, even as it launches perhaps the most aggressive expansion of U.S. debt in modern history.

With the government planning to roll over its short-term loans into more stable, long-term securities, experts say investors are likely to demand a greater return on their money, saddling taxpayers with huge new interest payments for years to come. Some analysts also worry that foreign investors, the largest U.S. creditors, may prove unable to absorb the skyrocketing debt, undermining confidence in the United States as the bedrock of the global financial system.

While the current market for Treasurys is booming, it’s unclear whether demand for debt can be sustained, said Lou Crandall, chief economist at Wrightson ICAP, which analyzes Treasury financing trends.

“There’s a time bomb in there somewhere,” Crandall said, “but we don’t know exactly where on the calendar it’s planted.”

The government’s hunger for cash began growing exponentially as the nation slipped into recession in the wake of a housing foreclosure crisis a year ago. Washington has since approved $168 billion in spending to stimulate economic activity, $700 billion to prevent the collapse of the U.S. financial system, and multibillion-dollar bailouts for a variety of financial institutions, including insurance giant American International Group and mortgage financiers Fannie Mae and Freddie Mac.

Despite those actions, the economic outlook has continued to darken. Now, Obama and congressional Democrats are debating as much as $850 billion in new federal spending and tax cuts to create or preserve jobs and slow the grim, upward march of unemployment, which stood in November at 6.7 percent.

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Technorati Tags: debt, inflation, depression

Source: The Associated Press

A nationally televised meeting between Iceland’s prime minister and other political leaders was forced off the air Wednesday night when angry protesters disrupted the broadcast.

For more than two decades, the leaders of Iceland’s political parties have met every New Year’s Eve over champagne and spiced herring to talk about the year ahead on Iceland’s Channel 2 television.

But this year’s show with Prime Minister Geir Haarde was cut short 45 minutes into the program when a torch-wielding crowd stormed Reykjavik’s Hotel Borg in an attempt to get to the studio.

Protesters inside and outside the hotel clashed with police, who fired pepper spray to disperse the 500-strong crowd. Some demonstrators threw water balloons, while others tossed firecrackers.

At one point, the broadcaster’s television cables caught fire, interrupting the live broadcast. The program cut to commercials, followed by an announcement that Channel 2’s equipment had been damaged and the show would be suspended.

Outside the hotel, a policeman hit on the head with a brick had to be hospitalized. Three protesters were arrested.

The disruption was the latest in a series of demonstrations that have rocked Iceland since the country’s economy imploded this fall under a mammoth load of bad debt. Unemployment has increased and inflation has soared.

Demonstrations have been largely peaceful — some protesters were reportedly invited in for coffee when they showed up at President Olafur Grimsson’s home earlier this month.

But other events have been violent. Icelandic authorities used tear gas for the first time since 1949 when a huge crowd tried to storm a police station in Reykjavik in November, and on Dec. 18, protesters smashed the windows of the country’s financial watchdog agency.

Technorati Tags: Iceland, riots, protests, demonstrations, inflation

Source: Reuters

The “nasty” U.S. recession will tighten its grip next year as unemployment rises and weak home and stock prices imperil consumers, finance firms and debt-laden businesses, a UCLA Anderson Forecast report released on Thursday said.

Additionally, a sustained retreat in prices for goods and services is a very real possibility that would further drag on the economy, according to the forecasting unit’s report.

“Where only last quarter we were worried about inflation, we are now worried about its very rare opposite: deflation,” the report said. Falling prices would cut demand and discourage employers from hiring.

“The record collapse in oil prices has brought with it welcome relief to motorists throughout the country and an effective tax cut of $440 billion in the form of a lower oil import bill,” the closely-watched report said. “Nevertheless the swift fall in oil prices is now lowering the absolute level of consumer prices and bringing with it likely declines in nominal GDP over the next three quarters.”

Where the forecasting unit in summer had projected a “subprime” outlook for the U.S. economy through the end of next year with growth at just above 1 percent, it now sees the economy facing a winter of discontent.

“The news from the economy is bad,” the report said. “The recession that we had previously hoped to avoid is now with us in full gale force.”

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Technorati Tags: recession, unemployment

Source: CNN.com

2008- An unusually destructive hurricane season

The 2008 Atlantic hurricane season ended Sunday, marking the finish of one of the busiest and costliest hurricane seasons ever.

The damage caused by this year’s Atlantic hurricanes is estimated at $54 billion, according to the National Climatic Data Center. That’s second in recorded history only to 2005, the year Hurricanes Katrina and Rita devastated the Gulf Coast. The total that year was an estimated $128 billion.

Government studies have noted that, when adjusted for inflation and other factors such as population density in coastal areas, some hurricane seasons from early last century could be seen as more expensive.

Still, the huge financial impact of this year’s storms took their toll on an already-struggling economy.

It was the fourth busiest Atlantic hurricane year since 1944. The National Climatic Data Center said 2008 is “the only year on record in which a major hurricane existed in every month from July through November in the north Atlantic.”

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Technorati Tags: hurricanes

Source: Telegraph

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

…

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

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Source: Reuters

Inflation hit a 16-year high of 5.2 percent in September, but that is likely to be the peak and interest rates are still expected to come down sharply over the next few months in order to prevent a deep recession.

The Office for National Statistics said on Tuesday rocketing utility bills pushed inflation higher by half a percentage point in September to way more than double the central bank’s 2 percent target. Analysts had predicted a rise to 5 percent.

Bank of England policymakers had already factored in the latest jump when they cut interest rates by half a percentage point last week in an emergency move last week to shore up the economy in the face of a global financial crisis.

They are worried the economic outlook has got a lot worse over the last month and two separate surveys on Tuesday showed house prices falling faster in September and retail sales posting an annual fall for a fourth straight month.

Analysts expect interest rates to come down from their current 4.5 percent very, especially as lower oil prices should mean inflation will fall sharply.

“September’s figure will be the peak in inflation and the key issue now is just how far it will drop back as the food and energy effects which have pushed it up so sharply finally fade or go into reverse,” said Jonathan Loynes, chief European economist at Capital Economics.

“Needless to say, steep falls in inflation will help to restore households’ spending power and allow the Monetary Policy Committee to cut interest rates very sharply. We continue to expect rates to drop to 2.5 percent or less.”

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Inflation