Posts Tagged financial services committee
The big event in precious metals this week took place on Wednesday, as Gold and Silver experienced drastic sell-offs after testimony by Federal Reserve Chairman Ben Bernanke, before the House Financial Services Committee, indicated that the Fed is not likely to consider a third round of quantitative easing. The price of Gold dropped over $90, bringing the metal under $1,700 for the first time since late January. By Thursday, however, precious metals prices had rebounded, with Gold once again above $1,700. Standard Bank’s Walter de Wet said, “We had a sense that the Gold market was increasingly pricing in QE3, and obviously Bernanke has put a dampener on that.” but the drop in prices strongly pushed physical sales of the metal, with one dealer saying, “It’s been a long time since we (saw) such decent buying.” Julian Jessop of independent macroeconomic research consultancy Capital Economics called the movement by the metals overdone and said that he feels the appeal of Gold will make up for the unlikelihood of a QE3. Referring to that appeal, Jessop said, “It is the risk of a renewed escalation of the eurozone crisis that underpins our forecasts.” Analysts with bullion broker Sharps Pixley in London suggested that yesterday’s Gold pullback could be a window of opportunity for investors looking to get into Gold, saying in a note to clients, “The long-term Gold story remains unchanged.”
Another factor that contributed to the fall in Gold’s price on Wednesday was the news that the European Central Bank infused nearly a half-trillion euros into the banking system. Laurent Fransolet at Barclays Capital said, “The astonishing number this time is the number of banks participating, which signals that a lot more small banks looked for the money, and it is likely they will pass it on to the economy.” this release of funds from the ECB is designed to allow more time for European politicians to solve the eurozone’s financial crisis. on Friday, 25 of the 27 European Union countries signed a fiscal pact which states that all countries are to write a golden rule regarding balanced budgets and to put those into constitutions or laws. European Council President Herman Van Rompuy said that the agreement “helps prevent a repetition of the sovereign debt crisis.” However, that raises a question: Doesn’t the crisis have to be over before a repetition can occur?
There is concern that rising oil prices could put the brakes on a fragile global economic recovery. The United States has experienced sharp price hikes at the gasoline pump of late, and there are those who speculate we could see $5 per gallon gasoline during peak driving season this summer. It is worth mentioning that in the longer term, the Gold price has a positive correlation to the price of oil. The global economy stands on a precipice of uncertainty surrounding oil. A U.S. advisory body has found that trade sanctions against Iran already are having an effect before they have officially started. there is talk of supply shortages, which will only drive prices higher. The biggest customers of Iranian oil — China, Japan and India — are entangled with the U.S.-led sanctions. another key issue is that OPEC’s supply is fulfilled by Iran, which is the second-largest OPEC producer behind Saudi Arabia, so any additional supply is going to be limited.
The German Parliament voted in support of the second round of the Greek bailout rescue package this week. German Chancellor Angela Merkel stressed the importance of assisting Greece rather than pushing the country out of the eurozone, as some German lawmakers had suggested. Merkel said if the euro is not successful in the future, it could possibly jeopardize the European Union and the global economy. in an interview given on Tuesday, Pimco CEO Mohamed El-Erian stated his view that the Greek bailout package will probably fail, and said that the real issue now if Greece’s debt crisis can be contained or if it will spread to other countries in the eurozone. in a report prepared for the Group of 20 nations the International Monetary Fund (IMF) stated that economic hazards in Europe still threaten the recovery of the world economy, which it said faces “major downside risks.”
In Middle East news this week, there was even more violence in Afghanistan, as a suicide bomber killed nine people in an attack on a military airport. It is believed that the bombing is another revenge response by the Taliban for recent burnings of the Koran. The U.S. Embassy is warning that there are heightened risks for U.S. citizens in Afghanistan. The uprising in Syria continued to be met with brutal force from forces loyal to President Bashar al-Assad. French Foreign Minister Alain Juppe believes that Assad’s government had “broken all the limits of barbarism,” and expressed his frustration about the inability to obtain security guarantees to evacuate wounded civilians and Western journalists from the opposition stronghold of Homs. The French Foreign Minister warned Assad he would be brought to justice and suggested it was time that the International Criminal Court become involved.
Also in the Middle East, some nations are struggling to comply with United Nations sanctions against Iran. According to U.S. Secretary of State Hillary Clinton, some allies face unique situations in the effort to reduce Iranian oil imports. “I think that there’s a very clear-eyed view of Iran and Iranian objectives, and that’s why the president’s policy is so clear and adamant that the United States intends to prevent Iran from obtaining a nuclear weapon.” Iran has previously threatened to counter sanctions either by military force or by blocking the Strait of Hormuz, which could severely impact the transportation of oil from the most oil-rich region in the world. meanwhile, an election in Iran on Friday of this week highlighted growing tensions between that country and Western nations. Supreme Leader Ayatollah Ali Khamenei called on his country’s citizens to vote, as he said, “The arrogant powers are bullying us to maintain their prestige.” U.S. President Barack Obama is scheduled to meet with Israeli Prime Minister Benjamin Netanyahu in the coming days. Israel has been very outspoken about their willingness to use military force to prevent Iran from continuing its nuclear program, and Obama is worried that such an attack may be premature.
Here in the U.S., the durable goods report for January was released this week, showing a 4% drop in orders for long-lasting goods in the U.S., which is the biggest drop in three years. in a time when the fragile economic recovery seems to hinge on every little news item, this report’s effect may be a significant one. News that the Conference Board’s consumer confidence index increased more than forecast offset early worries over durable goods orders and led to an increase in stocks around the globe. However, not everyone viewed this development as rosy. HighTower’s VWG Wealth Management’s Managing Director Richard Weeks said, “I don’t have rose-colored glasses on, but I think the path of least resistance is up. Short-term, all signs say that risks have been reduced.”
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Gold Falls 3% in an Hour Following Bernanke Comments, Iran Trading with Bullion as “Universal Currency”
Wholesale market gold bullion prices dropped 3.2% to $1727 per ounce in less than an hour Wednesday afternoon in London, after US Federal Reserve chairman Ben Bernanke appeared before Congress.
Higher gasoline prices are “likely to push up inflation temporarily while reducing consumers’ purchasing power,” Bernanke told the House Financial Services Committee.
Bernanke’s comments “eased speculation the central bank is moving closer to providing more monetary stimulus,” news agency Bloomberg reports.
The Fed chairman added however that the Fed’s policymakers judge “that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives” of the Fed’s mandate, namely price stability and employment.
Earlier in the day, gold prices hovered around $1785 an ounce Wednesday morning London time, while stocks and commodities were also broadly flat following the European Central Bank’s latest attempt to boost the liquidity held by the continent’s banks.
Silver bullion meantime hit $37.36 per ounce, its highest level since last September, though they too fell following Bernanke’s comments.
“The next target [for silver] is $39.78, the September 2011 high,” says the latest technical analysis from gold bullion dealing bank Scotia Mocatta.
Wednesday’s London Fix price for silver was $37.23 per ounce – a 10.8% monthly gain over the January 31 fixing. by this fix-to-fix measure, the Dollar silver price has seen its biggest calendar month percentage gain since October. Sterling and Euro silver prices have both recorded their biggest calendar month gains since last July.
Gold meantime touched $1790 per ounce for the first time since November during Wednesday’s Asian trade. at Wednesday lunchtime, before Bernanke’s testimony, spot gold in Dollars looked to be headed for a monthly gain of 2.8%.
A total of 800 European banks borrowed €529.53 billion from the ECB’s three year longer term refinancing operation, the ECB announced Wednesday. this compares with 523 banks who borrowed €489.19 billion at the last 3-Year LTRO in December.
In addition to the increased amount of borrowing, analysts estimate that a greater proportion will be so-called new liquidity – as opposed to existing debt that has been rolled over.
“The number of banks participating…signals that a lot more small banks looked for the money and it is likely they will pass it on to the economy,” reckons Laurent Fransolet, London-based head of fixed income strategy at Barclays Capital.
“So the impact may be bigger than with the first one.”
However, “there is a big difference between stopping the rot and starting a recovery,” says this morning’s note from Standard bank currency analysts Steve Barrow and Jeremy Stevens.
“It is always possible that Eurozone politicians shy away from the tough fiscal and institutional decisions that will be required to end this crisis, if they feel that the ECB’s cash is doing the job for them.”
The Euro fell slightly against the Dollar immediately following the LTRO, though it recovered much of the loss by lunchtime. European stock markets barely moved, although yields on 10-Year Portuguese government bonds did start rising immediately following the news, hitting their highest level in nearly three weeks at 13.6%.
The amount borrowed by banks at the LTRO “was pretty much in line with expectations,” says Tom Kendall, precious metals analyst at Credit Suisse.
“Neither gold nor [the] Euro…have done very much on the back of it after an initial reaction, as it’s [already] in the price.”
In London meantime, the International Swaps and Derivatives Association agreed Tuesday to adjudicate on whether or not the ongoing restructuring of privately-held Greek debt constitutes a credit event – and thus whether it should trigger payments on credit default swaps.
ISDA’s Determinations Committee will meet tomorrow. If it agrees a credit event has occurred, it could trigger $3.2 billion of CDS payments, the Wall Street Journal reports.
Ireland’s government announced Tuesday that it will hold a referendum on the so-called fiscal compact agreed last December by European Union members – with the exception of Britain and the Czech Republic.
Irish prime minister Enda Kenny is expected to sign the treaty when European leaders meet later this week, before trying to persuade Irish voters to approve it. even if Ireland votes ‘No’, however, the treaty could still be adopted as it only needs the approval of 12 countries.
Here in the UK, seasonally adjusted M4 – the broadest measure of UK money supply – rose 1.6% in January, though the year-on-year change was a fall of 1.8%. M4 excluding intermediate ‘other financial corporations’ – which the bank uses to gauge the effectiveness of its quantitative easing program – saw a 1.9% s.a. monthly gain, and a 2.9% gain year-on-year.
UK mortgage approvals meantime rose to their highest level since December 2009 last month.
“It is evident that mortgage approvals are currently being lifted by first-time buyers rushing to complete before the stamp duty concession ends in March,” says Howard Archer, economist at consultancy HIS Global Insight in London.
“Even so, mortgage approvals remain low compared to long-term norms.”
India’s economy grew at an annual rate of 6.1% in the last three months of 2011 – the slowest rate since the fourth quarter of 2008 – according to official data published Wednesday.
“India’s economy was battered from all angles through the second half of 2011,” says Glenn Levine, economist at Moody’s Analytics, an arm of the ratings agency.
“[It was hit by] rising interest rates, falling stock prices, a plunging Rupee and weaker global demand.”
India has long been the world’s biggest gold consumer. In Q4, however, its gold bullion consumption was less than that of China – 173 tonnes compared to 191 tonnes, according to the latest World Gold Council data.
Sanction-hit Iran meantime will accept gold bullion as well as Dollars as payment from trading partners, the country’s official Islamic Republic News Agency reports.
“This is a confirmation of gold’s status as a store of value, a universal currency,” says Michael Cuggino, president and portfolio manager at San Francisco-based asset managers Permanent Portfolio, which manages around $15 billion in assets.
Earlier this month, traders reported that Iran was paying for wheat with gold.
Back in September, Rep. David Schweikert, R-Ariz., a member of the House Financial Services Committee, submitted legislation that would phase out $1 bills in favor of $1 coins – a move that Schweikert says would help combat the nation’s deficit and curb government waste. But a new poll out this week indicates that the public disagrees: the overwhelming majority of Americans view the legislation as no more than another budget gimmick disguised as a means of cutting costs.
Results from the Luntz Global poll indicate that the American people have lost faith in Washington’s ability to find real solutions to the nation’s debt problems, even as the congressional super committee races against a deadline to agree on a deficit-savings plan by Wednesday. A vast majority of respondents, 81 percent, agreed that Congress has a poor record when it comes to implementing efficiency. Seventy-three percent believed the coin proposal is a political ploy being misrepresented as a means of cutting government costs, and only 15 percent of those surveyed believed the proposal would save taxpayer dollars.
The Currency Optimization, Innovation and National Savings Act would require Federal Reserve banks to stop issuing dollar bills within four years, or when circulation of dollar coins exceeds 600 million annually. according to a statement on Schweikert’s website, the government would save an average of $184 million a year, and at least $5.5 billion over 30 years, by making the switch.
But the proposal has met with opposition from those who do not want the paper currency to disappear. the Government Accountability Office released a report in March that seems at first glance to support Schweikert’s claim, but a group that opposes Schweikert’s proposal, Americans for George, claims that the report uses an “accounting trick” to get the purported benefit, and ignores the cost to the private sector.
According to Randy DeCleene, a spokesman for Americans for George, the government will actually face a net loss in the first four years after enactment of the legislation – a fact that the GAO report itself acknowledges – which is due to what the report calls “the up-front costs to the U.S. Mint of increasing its coin production during the transition.”
DeCleene said the government would break even only after the first 10 years, and there is no guarantee that the legislation would actually save money. An analysis by Fiscal Economics indicates that the purported benefit in the report results from the assumed ability of the government to replace the existing stock of $1 notes with 50 percent more $1 coins, and counts the difference as revenue.
In addition, DeCleene said the GAO report does not include the negative impact the switch would have on the private sector. the analysis found that a switch to dollar coins would increase annual costs to businesses by $201.85 million and lead to at least 4,300 job losses. and then there are the capital expenses: Businesses would have to install additional storage facilities, safes, new cash registers, and counting machines to accommodate the coins.
According to DeCleene, the only way to get the coin to work is to eliminate the dollar bill entirely – but the Luntz Global poll reported that an overwhelming 83 percent of Americans favor keeping the paper form.
“History is full of failed coin initiatives,” DeCleene said, referring to the rarely seen Sacagawea, Susan B. Anthony, and presidential dollar coins. “People like the bill: It’s convenient, it’s something they’re used to, it’s an iconic symbol of America in the U.S. and abroad.”
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Press Release: COINS Act Calls for $1 Coin Transition to Reduce Government Waste « Dollar Coin Alliance
Rep. David Schweikert Calls for Elimination of $1 bill to Save Taxpayers Billions
Washington, DC (September 20, 2011) House Financial Services Committee member Congressman David Schweikert (R-AZ) today introduced a bill to modernize the nation’s currency by eliminating the wasteful, inefficient $1 note. the Currency Optimization, Innovation and National Savings (COINS) Act calls for a transition to the more economical and environmentally friendly dollar coin, a change that the U.S. Government Accountability Office (GAO) has been advocating for more than two decades to help reduce government waste. Congressman Schweikert is joined in his effort by original co-sponsors, Super Committee member Rep. Jeb Hensarling and Rep. Blaine Luetkemeyer.
According to a report released in March by the GAO, hundreds of millions of taxpayer dollars are wasted each year by the continued use of the dollar note. the report, “Replacing the $1 Note with a $1 Coin would Provide a Financial Benefit to the Government,” found that the transition would save the government an average of $184 million per year and approximately $5.5 billion over a 30 year period. using more traditional assumptions in their analysis, savings could be as high as $11.1 billion. This was the fifth report the GAO has issued on the benefits of transitioning to the dollar coin, dating back to 1990. Estimates of annual cost savings in previous reports have been as high as $522 million.
“During a time when bipartisan debt reduction measures are in short supply, this is a piece of legislation we hope everyone in the Congress can get behind,” said former Congressman Jim Kolbe, honorary chairman of the Dollar Coin Alliance. “Americans are demanding that we find common sense solutions to begin bringing down our long-term debt – here’s a simple way to do just that without raising a single tax or cutting a single program.”
The COINS Act would require Federal Reserve Banks to stop issuing the $1 note four years after enactment of the legislation or when circulation of $1 coins exceeds 600 million annually – whichever comes first. This measure is necessary based on the experience of every country that has successfully transitioned to a low denomination coin. as the GAO reported, eliminating the dollar note was “essential to the success of [the] transition” to dollar coins in other countries. A January 2011 poll conducted by the Tarrance Group and Hart Research found that Americans favor the transition to a dollar coin by a two-to-one margin once the potential government savings are explained.
“Many Americans want to know how they personally can help contribute to deficit reduction – this is one simple thing we can all do to chip in,” added former Congressman Kolbe. “It just makes no sense to continue producing a low denomination paper bill when we have an alternative that would save the nation billions of dollars, especially in the current economic climate.”
While dollar bills last only a few years, according to the GAO’s latest estimate, a $1 coin can remain in circulation for more than 30 years. This means a single dollar coin can replace up to 17 dollar notes during its lifetime. Additionally, while billions of dollar notes are shredded and sent to landfills each year, $1 coins are 100 percent recyclable – meaning that even after coins are pulled from circulation, they can be melted down and forged into new coins. the private sector also stands to benefit from a dollar coin transition. Jammed dollar bills in vending machines cost the industry hundreds of millions in annual repair costs and lost sales. Evidence from the transit industry indicates that it is six times less expensive for businesses with high levels of cash transactions to process $1 coins versus $1 bills.
The Dollar Coin Alliance is a coalition of American small businesses, budget watchdogs, trade associations and private companies with a singular focus of moving the United States toward an economical, environmentally friendly dollar coin. Members include Citizens Against Government Waste, the International Association of Machinists, Southeastern Pennsylvania Transportation Authority, Tri-State Automatic Merchandising Council and United Steelworkers.
For more information, or to get involved, please visit www.DollarCoinAlliance.org.
What our members are saying about the dollar coin:
Tom Buffenbarger, President of the International Association of Machinists
“With all the talk in Washington of draconian budget cuts and austerity measures, switching to the dollar coin makes sense. it reduces the deficit without cutting any programs that hurt working people or raising the tax burden on the middle class.”
Tom Schatz, President of Citizens Against Government Waste
“We are literally throwing our money away… the reality is dollar bills last about three years while coins last thirty or more. This small ‘change’ will save the United States billions.”
Alfred Outlaw, Director of Revenue Operations, Southeastern Pennsylvania Transit Authority
“It is six times more expensive for us to process dollar bills vs. dollar coins. not to mention they are far less likely to jam our fare machines — saving SEPTA commuters’ time and hassle.”
Tony Buckholz, President of the Tri-State Automatic Merchandising Council
“Every time a bill jams up one of our vending machines that is one more dollar down the drain. the dollar coin is good for the taxpayer and good for small business owners like myself. we all win.”
William Dewald, former Senior Vice President, Federal Reserve Board of St. Louis
“Today’s dollar has the purchasing power of a 1950s dime. the United States prides itself in having a dynamic, market-oriented economy. Yet we are completely backward in not having kept our coinage in line with the purchasing power of the dollar.”