Crisis

Hillary Clinton, US Secretary of State, tried to assure global financial markets that the US economy has a viable efficient model that has helped it withstand all crises.

Addressing the US Chamber of Commerce in Hong Kong, the State Secretary assured that the US Congress would come to a deal on the debt before August 2 deadline to avert default.

American consumers pressed by slack salaries and growing prices have now less belief in that they would bring more money home and they think that such chances are now at their lowest in 25 years, says the analysis of survey data by Goldman Sachs.

Jan Hatzius, Goldman’s economic, analyzed the University of Michigan and Thomson Reuters poll, which asks consumers whether they believe their family income will rise more than inflation in the next 12 months.

Gold prices steadied at their highest in about four weeks on Tuesday. The move was backed by investors’ concerns over the mess in Europe about a Greek debt default.

A Wall Street Journal report that Germany could make concessions on efforts to put together a bailout for Greece lifted the euro and boosted equities and base metals at the expense of perceived safe-havens such as gold or bonds.

Dow Jones reported this week that the European Central Bank faces a potential crisis of its own because of "skeleton" risks amounting to several hundreds of billions of euros on its balance sheet.

The report says that the bailed out countries of Greece, Ireland and Portugal but Spain as well have provided as collateral asset-backed securities that are unfit for central bank loans because they have such low or non-existent debt ratings.

Still, providing the collateral allowed the countries to receive more financial support, Dow Jones said.
 

Investors at the largest hedge funds are getting increasingly worried about what to do to protect themselves against the forthcoming crisis. Speakers at the Skybridge Alternative investment (SALT) conference talk about the danger of debt and deficits.

They feel the approaching of the woe but they don’t know how to stop it or when to finally bail out and quit riding the stock market bullet train.

“We’re heading for a crisis,” said Leon Cooperman, chairman of Omega Advisors. “I just don’t know when.”

Last week member countries of International Monetary Fund expressed their concern over rising inflation in emerging markets fearing that it could have adverse effect on rich countries too.

On Saturday the 187 IMF states recognized the alarm among developing countries about huge inflows of speculative cash that are stoking their growth but also their inflation rates.

According to the findings of a new survey by KPMG US manufacturing and service industry executives are now more optimistic about the prospects for the US economy. Both sectors believe that the worst of the crisis has passed for America.

68% of manufacturing executives expressed their belief that business activity will be higher in the next 12 months, up from 57 percent in October.

41% of the same executives say they have plans to employ more in the coming weeks and months. Five months ago that figure was 28%.

US gross domestic product may be reduced only by one-half of 1 percent at worst as a result of a Japanese crisis, said Brian Levitt, economist at Oppenheimer Funds.

According to Levitt’s view, exports account for only 10 percent of U.S. GDP, and Japan accounts for only 5 percent of that number. "Five percent of U.S. exports—10 percent of the U.S. economy—so one-half of one percent to U.S. GDP at the absolute worst," he told CNBC Wednesday.

Common measures should be worked out by European governments to address the stability of the euro zone, urges EU Economic and Monetary Affairs Commissioner Olli Rehn, as cited by the German newspaper Die Welt.

"We must agree on common measures as soon as possible - the sooner the better," he told Die Welt. "The calming on markets in the last few weeks has given us a bit of breathing space, but there is no reason to lean back now, we must now act with the necessary determination."

At an annual convention leading economists were making predictions for the near future of the US economy with outlooks being grey to say the least. 2011 may be a year of declining recovery as government support measures are contracting while in the long run the United States must face up to inevitably being overtaken by China as the world's largest economy. And it may have missed a chance to rein in its largest financial institutions, many of whom remain too big to fail and are getting bigger.

Next year may bring yet another recession with protectionism causing major problems, says Roger Nightingale, strategist at Pointon York.

"If the … world economic cycle is going to be turning down in the second half of 2011 and if in addition to that you get tight money, we could get a fairly steep downturn. We could have another recession," Nightingale said.

In a fight against inflation many countries across the globe are starting to tighten liquidity, Nightingale said after China raised its key interest rate over the weekend.

In early Asian session the Swiss franc regained its losses from yesterday's multi-day lows against the greenback and yen, as traders consider it as safe-haven amid on-going debt worries in Europe.

The franc appreciated by 1.4 percent against the US dollar and 1 percent versus the Japanese yen to reach a 2-day high of 0.96 and 87.43, respectively around 10:35 pm ET and both pairs leveled off thereafter. On the upside, the franc may find target levels at 0.9570 against the greenback and 87.60 versus the yen.

Germany has changed its tone towards countries that contribute to the overall European debt saying that it remains committed to saving the euro zone. Germany’s finance minister ruled out the possibility that any country would ever be ejected from the European monetary union, and said calls to restore the Deutsche mark were “unrealistic nostalgia.”

According to the latest stats Americans' wealth grew 2.2% in the July-September as stock portfolios surged.

Meantime, the report from the Federal Reserve shows that household net worth rose to nearly $55 trillion, even though the value of real estate holdings sank 3.7%.

This can be hardly matched to the pre-recession peak of $66 trillion but it is still far above bottom hit during the recession: $49 trillion in the first quarter of 2009.

Talking in an interview for CNBC a global head of foreign exchange strategy at HSBC David Bloom said that the United Sates will have to follow Europe's economic lead and face up to its debt problems instead of just continuing with quantitative easing that will lead to a dollar decline.

"Europe (is) facing up to its problems, looking into the abyss; the U.S. hasn't even started that process. That will take the dollar into trouble in the second half of next year," Bloom said.