Bush says economy is in good shape despite recession fears.

more below from him

Fears of dollar collapse as Saudis take fright

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

China threatens ‘nuclear option’ of dollar sales

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

· Blog - Dollar to collapse?

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Canada’s Dollar At Parity on U.S. Weakness, Commodity Surge

Canada’s dollar rose, trading equal to the U.S. dollar for the first time in 31 years, as climbing commodity prices boosted the outlook for the world’s eighth-biggest economy.

Oil prices jump above $82 a barrel

Commodities prices on Wednesday rose with crude oil hitting its sixth consecutive record high above $82 a barrel and spot gold approaching a near 28-year high of $730 an ounce troy. Base metals registered rises of between 2 and 10 per cent.

Agricultural commodities were down on profit-taking and signals that some food importing countries, such as India, had bought enough cereals for their inventories.

Crude oil jumped to a $82.51 after a larger-than-expected fall in US crude oil inventories last week.

China Freezes Some Prices in Move to Contain Inflation

BEIJING (AP) — China’s government has ordered some prices frozen and told officials to closely monitor others in its most drastic step yet to contain a surge in inflation.

The order, issued late Wednesday, came after inflation rose to 6.5 percent in August — its highest monthly rate in 11 years — propelled by a double-digit rise in politically sensitive food prices.

The order stressed the importance of maintaining “market stability” ahead of a key Communist Party meeting next month. It said controlling inflation would affect China’s development, reform and stability.

Oil Up Again As Low Dollar Spurs Buying

Crude Futures Surpass $83 a Barrel, Driven Largely by Weakening Dollar

NEW YORK (AP) — Crude oil prices surged further into record terrain Thursday, breaching $83 a barrel as the weak dollar and some worrisome weather in the Gulf of Mexico spurred buying.

Gasoline futures jumped as well. {snip]

A weak dollar supports oil prices by making futures cheaper for foreign investors, noted Antoine Halff, head of energy research at Fimat USA LLC.

It also prompts buying by domestic investors, who sense that demand for Nymex oil is rising overseas, said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill.

Bush Optimistic About Economy

WASHINGTON (AP) - President Bush on Thursday cited “some unsettling times” in the U.S. housing and credit markets as he sought to assure jittery Americans that the economy basically is in good shape despite worries about a recession.

…and the question is, what’s this all about?”

For starters, it’s about our failure to save for the future. With childish glee we buy anything we see in a hedonistic frenzy: plasma screen TV, cars with a 60 month loan package, 5000 sq ft houses with ARMs, lavish vacations, spa treatments, plastic surgery, every electronic gewgaw, and oversized waistlines. If not borrowed through a bank, then on plastic it goes.

Given that we ceased manufacturing most of these items through offshore means and outsourced many more jobs, our capital (dollars) followed the production and jobs. This is one reason.

Here’s another. We will not fix the drain on the tax base by Medicare, Medicaid, Prescription drug plan, and Social Security. Instead, we financed this huge burden by selling Treasury bonds and T-bills. Worse, the government uses abnormal accounting methods to cover the gaps. When they amalgamated the Social Security fund with the general fund, it permitted the Great Society programs to survive until they enrolled too many voters to scrap it. When one robs Peter to pay Paul, Paul never complains.

So what happens?

The entire outflow of capital (dollars) goes somewhere; they convert to treasury notes with a guaranteed rate of return of principal and interest (future taxes). Countries are investors like everyone else; they go where the return rate is best.

The pop of the housing bubble forced banks and mortgage companies, by banking law, to initiate foreclosure proceedings. By law, at 120 days, bad loans are collected or written off against profit, which really electrifies the stockholders. The market saw them bail out of lending institutions, resulting in the drop in stock prices: Countrywide, Citi, Stanley Morgan, and Merrill Lynch to name some.

The Fed jumped in to improve liquidity by reducing interest rate by 50 basis points. The stock market went up, the banks took happy pills, and there was joy in Mudville.

Except

Other countries didn’t like the rate change (they lend money from overnight to 30 year investment bonds) and cashed in dollars for something other than greenbacks. Anything worked fine. The US is required to redeem these notes, which we pay for with Pounds, Euros, Swiss Francs, Ryials, clamshells, or worse gold. The US just became poorer.

To correct this, we will have to reduce the National Debt, (not just the deficit) by either cutting spending, raising taxes plus manufacturing goods here once more. Putting Americans to work in jobs we offshored starts the program. Getting the illegals out and cutting welfare programs forces the non-workers to change or get hungry.

We will find foreign imports more expensive; buying them will be inflationary (Remember Carter’s stagflation). To cut off the outflow of money, interest rates go up on short term borrowing which cuts into corporate growth, further damaging the economy. What say you Yogi. Something about Deja?

We can correct all this. We will have to put the socialist/liberals/Marxists on Thorzine to quiet them down

Now read the above links again to see just how serious this will be.

One more item needs addressing. China is threatening to utilize the “nuclear option” of dumping dollars onto the open market ($1.33 trillion), which would require our redeeming them, or suffer bankruptcy.

In past times, this construed an act of war.

Archived in: Canada, China, Congress, Deficit, Economy, Housing, India, Liberals, Medicare, Mexico, Middle East, Saudi Arabia, Social Security, Socialism, Taxes, Welfare