Category : Treasury Secretary Timothy Geithner

Lawrence Summers reviews the new book on the Financial Crisis "House of Debt"

[Book authors Mian and Sufi] argue that, rather than failing banks, the key culprits in the financial crisis were overly indebted households. Resurrecting arguments that go back at least to Irving Fisher and that were emphasised by Richard Koo in considering Japan’s stagnation, Mian and Sufi highlight how harsh leverage and debt can be ”“ for example, when the price of a house purchased with a 10 per cent downpayment goes down by 10 per cent, all of the owner’s equity is lost. They demonstrate powerfully that spending fell much more in parts of the country where house prices fell fastest and where the most mortgage debt was attached to homes. So their story of the crisis blames excessive mortgage lending, which first inflated bubbles in the housing market and then left households with unmanageable debt burdens. These burdens in turn led to spending reductions and created an adverse economic and financial spiral that ultimately led financial institutions to the brink.

This interpretation resolves the anomalies that Mian and Sufi highlight. Households do not spend while they are still overly indebted, which precipitates slow growth even after banking is restored to health. Spending slowdowns are caused by household over-indebtedness, so of course they precede problems in the banking system. And, when consumers do not spend, businesses have less need to borrow to finance investment, inventories or receivables.

Their analysis, presented with far more depth and subtlety than I have been able to reflect here, is a major contribution that furthers our understanding of the crisis. It certainly affects what I will examine in trying to predict and forestall future crises. And it should influence policies aimed at crisis prevention by demonstrating the insufficiency of keeping financial institutions healthy and by making a case for macroprudential measures directed at preventing runaway growth in household debt.

Read it all (my emphasis).

Posted in * Culture-Watch, * Economics, Politics, Books, Consumer/consumer spending, Corporations/Corporate Life, Economy, Ethics / Moral Theology, Federal Reserve, History, Personal Finance, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The U.S. Government, Theology, Treasury Secretary Timothy Geithner

Spain Takes Center Stage in Euro Crisis

All eyes were fixed Wednesday on Spain, as the country’s borrowing costs showed no signs of slowing their climb amid nervousness about the health of the banking sector and the possibility of the crisis spreading to other euro countries.

Europe’s economic stagnation and continuing financial turmoil in the euro zone have weighed on confidence, the European Commission said Wednesday. The commission’s indicator of business sentiment in the 17-nation euro zone fell in May to 90.6 from April’s revised 92.9. The decline, it said, “was driven by falling confidence in all business sectors, especially in industry and retail trade.”

Jonathan Loynes, an economist in London with Capital Economics, noted that the sentiment data showed “acute weakness across the peripheral economies,” but that the Dutch, French and Germans were also less optimistic. He described it as “overall, an unambiguously weak picture which only looks likely to get worse as the debt crisis continues,” and predicted that euro zone gross domestic product would decline by 1 percent this year, with 2013 “likely to be much worse.”

Read it all. Also, if you want a single picture to keep an eye on, it is the Spanish German 10 year spread which you may see there (yes, that is correct, it is at all all time high).

Posted in * Economics, Politics, * International News & Commentary, --European Sovereign Debt Crisis of 2010, Consumer/consumer spending, Corporations/Corporate Life, Credit Markets, Currency Markets, Economy, Euro, Europe, European Central Bank, Foreign Relations, Politics in General, Spain, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The U.S. Government, Treasury Secretary Timothy Geithner

Jonathan Weil–Hope for Treasury Bailout Profits Rests on Fuzzy Math

Here’s a breakdown of the numbers. The report, citing White House budget office figures, estimated $46 billion of costs under the Troubled Asset Relief Program to support struggling homeowners. It showed $2 billion of overall gains on the Treasury’s investments in various bailed-out companies, such as American International Group Inc. (AIG), some of which are held outside of TARP. Other Treasury programs to buy mortgage-backed securities and to guarantee money-market funds would produce $26 billion of gains, the report said.

Add up those categories, and the projected net cost so far is $18 billion. On top of that, there’s the current net cost of the government-sponsored housing financiers Fannie Mae and Freddie Mac, which the Treasury pegged at $151 billion. So how did Treasury project a potential gain overall?

Read it all.

Posted in * Economics, Politics, Credit Markets, Economy, Ethics / Moral Theology, Federal Reserve, Politics in General, The Banking System/Sector, The National Deficit, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, Theology, Treasury Secretary Timothy Geithner

Austerity Faces Test as Greeks Question Their Ties to Euro

The crisis of the euro zone has finally hit the potholed road of real politics, with the Greeks now openly questioning whether their commitment to Europe and its single currency still matters more to them than control over their own future and economic well-being.

During the two-year financial crisis, the wealthier countries of northern Europe, led by Germany, have insisted that their heavily indebted brethren in the south radically cut spending in return for emergency loans. They have stuck to that prescription even though austerity has undermined growth and increased unemployment in Greece, Spain, Portugal and now Italy, betting that people in those countries will swallow the harsh medicine because their only alternative is to default and possibly leave the euro zone altogether.

The turmoil in the government of Prime Minister George A. Papandreou means that Greece is about to call that bet. Many Greek politicians appear to be calculating, at this late stage, that they have more to lose by sticking to Germany’s terms than by risking a messy default, and even going it alone with their old currency, the drachma, outside the euro zone.

Read it all.

Posted in * Economics, Politics, * International News & Commentary, --European Sovereign Debt Crisis of 2010, Credit Markets, Currency Markets, Economy, Euro, Europe, European Central Bank, Federal Reserve, Foreign Relations, France, G20, Germany, Greece, Politics in General, Stock Market, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The U.S. Government, The United States Currency (Dollar etc), Treasury Secretary Timothy Geithner

(WSJ) Europe Split Threatens Rescue Plan

After a weekend of tense meetings among world finance officials here, euro-zone leaders were weighing options to maximize the size of their bailout fund by borrowing against it. The move could provide trillions of dollars of firepower to rescue governments and banks””-but only if all 17 euro-zone legislatures approve a two-month-old agreement to broaden the bailout fund.

Highly public opposition from Germany, the largest and most powerful euro-zone economy, could block the plan.

Policy makers are “focused on their own internal restraints, so that we don’t have the outcome that we need,” Antonio Borges, head of the International Monetary Fund’s Europe department, said Sunday. While key players were understandably acting in self-interest, he said, it was generating “disastrous” collective results.

Read it all.

Posted in * Economics, Politics, * International News & Commentary, --European Sovereign Debt Crisis of 2010, Credit Markets, Currency Markets, Economy, Euro, Europe, European Central Bank, Federal Reserve, Foreign Relations, G20, Germany, Politics in General, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The U.S. Government, Treasury Secretary Timothy Geithner

Ambrose Evans-Pritchard–Geithner Plan for Europe is last chance to avoid global catastrophe

The reserve powers would be well advised to pull out all the stops to save Europe and its banking system. Together they hold $10 trillion in foreign bonds. If they agreed to rotate just 4pc of these holdings ($400bn) into Spanish, Italian, and Belgian debt over the next two years, they could offer a soothing balm. None has yet risen to the challenge. It is `sauve qui peut’, with no evidence of G20 leadership in sight.

Once again, the US has had to take charge. The multi-trillion package now taking shape for Euroland was largely concocted in Washington, in cahoots with the European Commission, and is being imposed on Germany by the full force of American diplomacy.

It is an ugly and twisted set of proposals, devised to accomodate Berlin’s refusal to accept fiscal union, Eurobonds, and an EU treasury. But at least it is big.

Read it all.

Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, --European Sovereign Debt Crisis of 2010, Credit Markets, Currency Markets, Economy, England / UK, Euro, Europe, European Central Bank, Federal Reserve, Foreign Relations, G20, Germany, Globalization, Greece, Ireland, Italy, Politics in General, Spain, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The U.S. Government, Treasury Secretary Timothy Geithner

Martin Vander Weyer–Financial Crisis: can the euro hope to survive?

It is apparent not only that US banks have lost confidence in their European counterparts and have started shutting them out of inter-bank funding markets, but also that US officials are busy making matters worse by seeking to shift blame for America’s dire domestic performance on to influences from this side of the Atlantic. “Seventy-five per cent of the dark things happening in the world economy are because of the eurozone,” one of Geithner’s team said at Marseille….

Markets are convinced of several things: that Greece is politically incapable of meeting the austerity demands imposed by the EU and the IMF, and is now locked into a spiral in which its debt position can only become worse as its economy deteriorates; that a default on Greek sovereign debt is therefore inevitable sooner rather than later, and will impose losses on European banks, including the likes of Société Générale and Crédit Agricole of France, which may in turn need to be bailed out by their governments; and that the eviction of a bankrupt and incorrigibly irresponsible eurozone member is not only a technical possibility but an economic necessity if the single currency is to survive at all.

Read it all.

Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, --European Sovereign Debt Crisis of 2010, Credit Markets, Currency Markets, Economy, Euro, Europe, European Central Bank, France, Germany, Globalization, Greece, History, Politics in General, The Banking System/Sector, The U.S. Government, Treasury Secretary Timothy Geithner

Ambrose Evans-Pritchard–Flee to Mars if America commits worst error since 1931

Should America embark on such fiscal contraction at a time when economic growth has already slipped to stall speed, and debt deleveraging continues with a vengeance, I would like to flee to Mars for safety.

Yes, there is such a concept as an “expansionary fiscal contraction”, as in Ireland (1980s), Denmark (1990s), arguably Canada (1990s), and the UK after both 1932 and 1993, but in every successful case this was accompanied by monetary loosening. That card has already been played this time.

Should America instead opt to evade these fiscal cuts by actually defaulting on debts accumulated by self-indulgent baby boomers, I would also like to flee Mars because such an outcome might be even worse.

Read it all.

Posted in * Economics, Politics, * International News & Commentary, America/U.S.A., Budget, Consumer/consumer spending, Corporations/Corporate Life, Credit Markets, Currency Markets, Economy, Federal Reserve, House of Representatives, Medicare, Office of the President, Politics in General, President Barack Obama, Senate, Social Security, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The National Deficit, The U.S. Government, The United States Currency (Dollar etc), Treasury Secretary Timothy Geithner

Local Paper Editorial on the Debt Talks–This is not a poker game

In February, President Obama submitted his budget. The CBO reported that it would steeply boost the national debt.

In April, the president released a revised deficit-reduction plan so short on detail that the CBO deemed it too vague to evaluate.

Also in April, the Senate unanimously rejected the president’s February budget. Since then, the Democratic leadership in the Senate and the White House have put forward no clear budget approach….

Read it all.

Posted in * Economics, Politics, * International News & Commentary, America/U.S.A., Budget, Consumer/consumer spending, Corporations/Corporate Life, Economy, House of Representatives, Medicare, Office of the President, Politics in General, President Barack Obama, Senate, Social Security, Taxes, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The National Deficit, The U.S. Government, The United States Currency (Dollar etc), Treasury Secretary Timothy Geithner

(WSJ) Robert Mundell Believes there is a Deflation Risk for the Dollar

From 2001-07, he argues, the dollar underwent a long, steady decline against the euro, tacitly encouraged by U.S. monetary authorities. In response to the dollar’s decline, investors diverted capital into inflation hedges, notably real estate, leading to the subprime bubble. By mid-2007, the real-estate bubble had burst. In response, the Fed reduced short-term interest rates rapidly, which lowered the dollar further. The subprime crisis was severe, but with looser money, the economy appeared to stabilize in the second quarter of 2008.

Then, in summer 2008, the Fed committed what Mr. Mundell calls one of the worst mistakes in its history: In the middle of the subprime crunch””exacerbated by mark-to-market accounting rules that forced financial companies to cover short-term losses””the central bank paused in lowering the federal funds rate. In response, the dollar soared 30% against the euro in a matter of weeks. Dollar scarcity broke the economy’s back, causing a serious economic contraction and crippling financial crisis.

In March 2009, the Fed woke up and enacted QE1, lowering the dollar against the euro, and signs of recovery soon appeared. But in November 2009, QE1 ended and the dollar soared against the euro once again, pushing the U.S. economy back toward recession.

Read it all.

Posted in * Economics, Politics, * International News & Commentary, Budget, Credit Markets, Currency Markets, Economy, Euro, Europe, European Central Bank, Federal Reserve, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The National Deficit, The U.S. Government, The United States Currency (Dollar etc), Treasury Secretary Timothy Geithner

(FT) US Banks Warn Obama on Soaring Debt

A group of the largest US banks and fund managers stepped up the pressure on Congress and the Obama administration to reach a deal to increase the country’s debt limit, saying that even a short default could be devastating for the financial markets and economy.

The warning over the debt limit is the strongest yet to come from Wall Street, highlighting growing nervousness among investors about the US political system’s ability to forge a consensus on fiscal policy.

The most pressing budgetary issue confronting Congress and the Obama administration is the need to raise the US debt ceiling, which stands at $14,300 billion.

Read it all.

Posted in * Culture-Watch, * Economics, Politics, Budget, Credit Markets, Currency Markets, Economy, Euro, European Central Bank, Federal Reserve, Globalization, House of Representatives, Office of the President, Politics in General, President Barack Obama, Senate, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The National Deficit, The U.S. Government, The United States Currency (Dollar etc), Treasury Secretary Timothy Geithner

(WSJ) Evan Newmark–Mean Street: Obama’s Budget Can’t Save America

I wonder if Mr. Obama is at all embarrassed by the 2012 budget. Like his previous two budgets, this one breaks all those “Morning in America” campaign promises of a “new” Washington.

The 2012 budget also is a repudiation of the findings of his very own bipartisan deficit commission.

The Bowles-Simpson commission had plenty of sensible recommendations, like cutting funds for the Corporation of Public Broadcasting, eliminating the Office of Safe and Drug-Free Schools and raising the qualifying age for Social Security.

But you’ll find precious little of this in the 2012 budget. At the White House, political sense apparently matters a lot more than common sense.

Read it all.

Posted in * Economics, Politics, * International News & Commentary, America/U.S.A., Budget, Credit Markets, Currency Markets, Economy, House of Representatives, Politics in General, Senate, Social Security, Taxes, The National Deficit, The U.S. Government, The United States Currency (Dollar etc), Treasury Secretary Timothy Geithner

(BBC) Davos 2011: Timothy Geithner resists pressure for drastic cuts

US Treasury Secretary Timothy Geithner has told Davos delegates rapid, drastic spending cuts are “not the responsible way” to cut national budget deficits.

He also said the US was more confident now there was a sustainable expansion, but said it was not a boom.

Mr Geithner said “education, innovation, and investment” were the way forward for the US economy.

Read it all.

Posted in * Culture-Watch, * Economics, Politics, Consumer/consumer spending, Corporations/Corporate Life, Economy, Globalization, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The U.S. Government, Treasury Secretary Timothy Geithner

Persistence of Unemployment Likely to Test the U.S.

The longer people stay out of work, the more trouble they have finding new work.

That is a fact of life that much of Europe, with its underclass of permanently idle workers, knows all too well. But it is a lesson that the United States seems to be just learning.

This country has some of the highest levels of long-term unemployment ”” out of work longer than six months ”” it has ever recorded. Meanwhile, job growth has been, and looks to remain, disappointingly slow, indicating that those out of work for a while are likely to remain so for the foreseeable future. Even if the government report on Friday shows the expected improvement in hiring by business, it will not be enough to make a real dent in those totals.

Read it all.

Posted in * Economics, Politics, * International News & Commentary, America/U.S.A., Consumer/consumer spending, Corporations/Corporate Life, Economy, Federal Reserve, House of Representatives, Labor/Labor Unions/Labor Market, Office of the President, Politics in General, President Barack Obama, Senate, The Banking System/Sector, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The U.S. Government, Treasury Secretary Timothy Geithner

Challenges Await U.S. at Group of 20 Meeting

Anyone wondering what President Obama will face when he arrives in South Korea on Wednesday for a global financial summit meeting need look no further than an announcement by China’s leading state-endorsed rating agency, which downgraded the United States’ credit rating on Tuesday ”” and provocatively questioned American leadership of the global economy.

The agency cited the Federal Reserve’s decision to pump more money into the United States economy and warned of Washington’s “deteriorating debt repayment capability” and “the serious defects in the United States economic development and management model,” which it predicted would lead to “fundamentally lowering the national solvency.”

In the rest of the world, the United States is still the gold standard of credit risks, and the Chinese downgrade is not expected to have much real impact. But the sharply worded attack from the country that is buying billions of dollars in American debt each month was just the latest rhetorical assault on the United States, as officials from China to Germany to Brazil suggest that Washington’s addiction to debt has greatly diminished its credibility.

Read it all.

Posted in * Culture-Watch, * Economics, Politics, * International News & Commentary, Asia, Budget, China, Economy, Europe, Federal Reserve, G20, Globalization, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The National Deficit, The U.S. Government, The United States Currency (Dollar etc), Treasury Secretary Timothy Geithner