The United States has "lost control" of its budget deficit

Greenspan to French Finance Minister: US lost deficit control
Sat Sep 24, 2005 9:00 PM ET

By Paul Carrel

WASHINGTON, Sept 24 (Reuters) - U.S. Federal Reserve Chairman Alan Greenspan told France's Finance Minister Thierry Breton the United States has "lost control" of its budget deficit, the French minister said on Saturday.

"'We have lost control,' that was his expression," Breton told reporters after a bilateral meeting with Greenspan.
"The United States has lost control of their budget at a time when racking up deficits has been authorized without any control (fromCongress)," Breton said.

"We were both disappointed that the management of debt is not apolitical priority today," he added.
Ministers from the Group of Seven rich nations on Friday called for vigorous action around the world to curb rising imbalances in international trade and investment accounts.

A decrease in the U.S. budget deficit were cited by the G7 as one wayto ease those imbalances. U.S. Treasury Secretary John Snow said the U.S. administration was still committed to halving its budget deficitby 2009.

Breton spoke as International Monetary Fund Managing Director Rodrigo Rato said U.S. plans to cut its government expenditures now lookedambitious in the light of huge reconstruction costs to be borne in the wake of Hurricane Katrina.

Breton said: "The situation that is creating tension today on the currency market ... is clearly the American deficit." The United States needed to address its budget deficit, he said, adding: "It seems to me that my counterpart John Snow is completely aware of this, he wants to harness the problem, but it seems to me he doesn't have the room for maneuver."

Breton added that after hearing Greenspan talk about inflation: "One has the feeling -- though he didn't say so -- that interest rates will probably continue to rise....

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US Treasuries dip as Hurricane Rita eyed warily

Thu Sep 22, 2005 01:18 PM ET
By Chris Reese

NEW YORK, Sept 22 (Reuters) - U.S. Treasury debt prices eased slightly on Thursday in a pullback from Wednesday's gains as traders waited to see the extent of damage to energy facilities that could come from powerful Hurricane Rita.

The market posted strong gains on Wednesday, following crude oil prices higher as Rita churned through the Gulf of Mexico on course to disrupt energy production and refining facilities along the Texas coast.

Higher energy costs could slow the economy, a prospect that generally supports Treasuries.
"We had a big boost (Wednesday) and today people are really just staying out of the way. They don't want to get involved in the curve trades and are just waiting to see what path the hurricane takes," said Mary Ann Hurley, a trader with D.A. Davidson & Co. in Seattle.

"People want to see what impact Rita will have on the oil infrastructure, how many people are displaced, and if that is going to impact consumer spending," she said.

While investors followed the path of the Category 5 hurricane toward Texas and the heart of U.S. oil refining capacity, the bond market gave back some of the previous day's price gains.

U.S. benchmark 10-year Treasury notes (US10YT=RR: Quote, Profile, Research) eased 2/32 for a yield of 4.18 percent, up a tick from 4.17 percent on Wednesday.

About 25 percent of U.S. oil refining capacity is in Texas, and Rita threatens to batter oil and natural gas infrastructure that has already been damaged by Hurricane Katrina.

"The fear is that what happened with Katrina could happen with Rita," said Andy Brenner, head of institutional fixed-income at Investec US. "We doubt that will be the case, but weather will be the determining factor in the short-term price of energy, hence the short term direction of bonds."

Oil prices moved higher on Thursday, trading around $67.00 per barrel. Economists fear the high energy prices will take a toll on consumer spending, especially once the winter season kicks in and fuel oil and natural gas bills jump.

"We are looking at possibly a really bad situation economically," said Michael Franzese, head of Treasury trading at Zions Bank Capital Markets. "Energy supply is really going to start putting a drag on this economy -- the consumer's pocket book is definitely being affected."

If the U.S. economy is slowed enough by the impact of Rita and Katrina, the Federal Reserve may have to reconsider its campaign of monetary tightening. The Fed raised interest rates by a quarter-percentage point on Tuesday, but acknowledged that Katrina would at least have a short-term impact on the economy.
"We gave them the benefit of the doubt when it came to Katrina, but this marketplace cannot see rising rates in the face of another natural disaster," Franzese said.

The bond market largely shrugged off data showing U.S. jobless claims rose to 432,000 in the week ended Sept. 17 from a revised 424,000 in the prior week. On average, economists had been looking for an increase of 440,000 last week.

Jobless claims related to Hurricane Katrina totaled 103,000 in the latest week, the Labor Department said.
Two-year notes (US2YT=RR: Quote, Profile, Research) were unchanged with a yield of 3.92 percent, while five-year notes (US5YT=RR: Quote, Profile, Research) lost 1/32 with its yield steady at 3.99 percent.
The 30-year bond (US30YT=RR: Quote, Profile, Research) lost 10/32 for a yield 4.47 percent from 4.46 percent on Wednesday.

In other data on Thursday, the Conference Board said its index of leading, coincident and lagging indicators fell 0.2 percent in August from a decline of 0.1 percent in July.

The Federal Reserve Bank of Chicago said its gauge of the national economy fell in August, with its National Activity Index slipping to 0.10 from an upwardly revised 0.28 in July.

Dollar tumbles on Rita fears

By Justyna Pawlak
Wed Sep 21, 2005, 6:26 AM ET

LONDON (Reuters) - The dollar lost about one percent versus the euro and Swiss franc on Wednesday, despite Tuesday's rise in U.S. interest rates, as markets feared a new hurricane could wreak as much damage in the United States as Katrina.

Hurricane Rita gained power on Wednesday and headed across the Gulf of Mexico on a course that could take it to Texas and dump more rain on Katrina-battered Louisiana.

Katrina devastation triggered a fall in the dollar to 2-1/2 month lows as oil prices soared.

Meanwhile, higher interest rates failed to support the dollar after one member of the Federal Open Markets Committee voted against the latest hike.

"The dollar is coming under pressure across the board, following the FOMC because of the dissenter," said Ian Stannard, currency strategist at BNP Paribas in London.

By 1005 GMT, the euro was up 0.8 percent at $1.2207 after climbing as high as $1.2234.

The dollar lost 0.8 percent to 1.2711 Swiss francs and shed 0.6 percent to 111.23 yen after touching a six-week low of 112.03 yen earlier in the session.

Oil prices bounced back above $67 a barrel on Wednesday.

DAMAGED DOLLAR
The U.S. currency's inability to keep its upward momentum after the Federal Reserve raised rates on Tuesday and left the door open for further increases also prompted traders to take profits on the dollar despite an initial rally.

"The market has been long on the dollar and since it didn't firm beyond $1.21, some people decided to take profits," said a trader at a foreign brokerage in Tokyo.

The dollar briefly gained on Tuesday after the Fed it said in its post-meeting statement that economic disruptions triggered by Hurricane Katrina did not pose a persistent threat and that it remained vigilant about the risks of inflation.

But some analysts said a vote by Fed Board Governor Mark Olsen for borrowing costs to be held steady added a note of caution as this was the first dissent since June 2003.

Investors fear that the damage caused by hurricanes could prompt the Fed to scale back its tightening plans.
Rita is expected to develop into a Category 4 storm on Wednesday, the same classification as Katrina which devastated New Orleans.

"That is preying on people's minds particularly if it hits areas with some key strategic oil facilities," said Kamal Sharma, currency strategist at Bank of America in London.

Elsewhere, sterling stood firm against the dollar after minutes from this month's Bank of England policy meeting revealed a unanimous vote to hold rates steady.

All nine members of the BoE's Monetary Policy Committee voted to keep interest rates at 4.5 percent this month, minutes of their September 7 and 8 meeting showed.

The Norwegian crown rose against the dollar before a Norges Bank interest rate decision at 1200 GMT. The bank is expected hold rates steady at 2.0 percent.

Read the entire article: http://news.yahoo.com/news?tmpl=story&u=/nm/20050921/bs_nm/markets_forex_dc

Strong Negative Divergence in Economic Sectors

Wednesday September 21, 8:51 am ET
By Kevin Haggerty
TradingMarkets.com

"Greenspan raises the short end 11 times while continuing to pump up the money supply. The US dollar was up, while gold declined with the HUI -2.2%, as was the XAU. Crude oil declined, while the gold/crude oil relationship is about 7 times (7 barrels of oil to buy an ounce of gold) which is very low. If the dollar shows further weakness--as the pundits seem to think--after an oversold rally, then gold will advance to higher prices and expanding that ratio. Gold is expensive when it takes 15-20 barrels of oil to buy gold."

To read the entire article: http://biz.yahoo.com/tm/050921/13166.html