Central banks start to abandon the U.S. dollar

There's mounting evidence that central bankers have little faith in the greenback these days. Can we blame them?

by Heidi N. Moore, contributor

There are those who would argue that the financial crisis was caused by over-enthusiastic worship of the Almighty Dollar. Call it brutal financial karma, but that church is looking pretty empty these days.

A new report from Morgan Stanley analyst Emma Lawson confirms what many had suspected: the dollar is firmly on its way to losing its status as the reserve currency of the world. We already knew that central banks have preferred gold to dollars, and that they're even selling their gold for cash; now, according to Lawson's data, it seems that those central banks prefer almost anything to dollars.

Lawson found that central banks have dropped their allocation to U.S. dollars by nearly a full percentage point to 57.3% from 58.1%, and calls this "unexpected given the global environment." She adds, "over time we anticipate that reserve managers may reduce their holdings further."

What is surprising is that the managers of those central banks aren't buying traditional fall-backs like the euro, the British pound or the Japanese yen. Instead, she suggests they're putting their faith in other dollars - the kind that come from Australia and Canada. The allocation to those currencies, which fall under "other" in the data, rose by a full percentage point to 8.5%, accounting almost exactly for the drop in the U.S. dollar allocation.

Call it diversification, if you must, but the trendline indicates that central banks are finally putting their money where their anti-dollar mouths are. The dollar has been in free-fall since 2007.

Last year, both China and Russia have questioned why the dollar should be the world's reserve currency. (Naturally, they were advocating for the ruble and yuan).

And just last week, the United Nations released a report concluding that the dollar should no longer be the world's reserve currency because it is not stable enough. The dollar is down 5% over the past month, and even currency traders don't see it as a safe haven any more.

There is certainly an element of economic competitiveness in those statements from foreign bodies and governments, but at the same time, Americans shouldn't be surprised that, in these touchy times, central banks want more of a measure of security than the dollar can afford right now - particularly when we're running up an enormous deficit through the costs of stimulus programs and two simultaneous wars.

Just last week, America's debt lept $166 billion in a single day. That one-day run-up is greater than the entire U.S. annual deficit in 2007. And Americans, the world's consumers, continue much of the behavior that helped the U.S savings rate drop so low.

The other options that reserve managers seem to be taking are also not a surprise. Canada's rude financial health - and robust banks - were bound to draw more attention. The Australian dollar is near a nine-month high because employment numbers there are strong.

The steady fall of the U.S. dollar is, while understandable, certainly nothing to be celebrated at home. The U.S. just has to make a stronger case - both to buyers and to its citizens - that it is on the right path.

UK debt is 'twice as much as we thought'

The true scale of the national debt is £2 trillion - more than twice the official figure, an alarming study shows.

The black hole in the public accounts equates to £78,000 for every household in the country.

The 'real' state of the national finances is exposed in a study published today by the Centre for Economics and Business Research, which warns of a series of mammoth debts that aren't revealed by the official figures.

The national debt - forecast to reach £932m by next spring - does not include a number of expensive liabilities, such as the cost of civil service and town hall pensions and projects funded under the Public Finance Initiative.

Putting these liabilities into the official figure would add £1.13 trillion to Britain's whopping overdraft, according to CEBR.

Under the worrying scenario, the debt would jump from 62% to 138% of Britain's income.

In its study, CEBR warned that the Government cannot formulate a plan to revive the economy while the liabilities remain hidden.

Charles Davis, an economist at CEBR, said: 'Clarity and transparency on the public sector finances has never been more vital in the context of recent concerns over public sector debt, particularly in the advanced economies.'

The report, which found that public sector pensions are by far the biggest liability excluded from the official record, will provide ammunition for the Government as it prepares to slash civil service pay and perks.

Unfunded public sector and local government pension liabilities, which the Government will need to pay in the future, amount to a staggering £1.08 trillion, according to CEBR.

Also written out of the accounts are the full cost of projects financed through the PFI, which by CEBR's calculation adds a further £43bn. So-called contingent liabilities, such as Network Rail, add £2bn to the total.

Also today, the Office for National Statistics confirmed that UK gross domestic product for the first quarter was 0.3%, as previously reported.

But economists warned that, although the headline figure remained unchanged, more of the growth was being accounted for by government spending – signalling that growth may fall, or even reverse, when the coalition government's tough austerity measures kick in. Read the full report...

Debt commission leaders paint gloomy picture

BOSTON (AP) -- The heads of President Barack Obama's national debt commission painted a gloomy picture Sunday as the United States struggles to get its spending under control.

Republican Alan Simpson and Democrat Erskine Bowles told a meeting of the National Governors Association that everything needs to be considered -- including curtailing popular tax breaks, such as the home mortgage deduction, and instituting a financial trigger mechanism for gaining Medicare coverage.

The nation's total federal debt next year is expected to exceed $14 trillion -- about $47,000 for every U.S. resident.

"This debt is like a cancer," Bowles said in a sober presentation nonetheless lightened by humorous asides between him and Simpson. "It is truly going to destroy the country from within."

Simpson said the entirety of the nation's current discretionary spending is consumed by the Medicare, Medicaid and Social Security programs.

"The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans, the whole rest of the discretionary budget, is being financed by China and other countries," said Simpson. China alone currently holds $920 billion in U.S. IOUs.

Bowles said if the U.S. makes no changes it will be spending $2 trillion by 2020 just for interest on the national debt.

"Just think about that: All that money, going somewhere else, to create jobs and opportunity somewhere else," he said.

Simpson, the former Republican senator from Wyoming, and Bowles, the former White House chief of staff under Democratic President Bill Clinton, head an 18-member commission. It's charged with coming up with a plan by Dec. 1 to reduce the government's annual deficits to 3 percent of the national economy by 2015.

Bowles led successful 1997 talks with Republicans on a balanced budget bill that produced government surpluses the last three years Clinton was in office and the first year of Republican George W. Bush's presidency. Simpson, as the Senate's GOP whip in 1990, helped round up votes for a budget bill in which President George H.W. Bush broke his "read my lips" pledge not to raise taxes.

Despite their backgrounds, both Simpson and Bowles said they were not 100 percent confident of success this time around.

Simpson labeled the commission members "good people of deep, deep difference, knowing the possibility of the odds of success are rather harrowing to say the least."

Bowles also said Congress had to be ready to accept the commission's findings.

"What we do is not so hard to figure out; it's the political consequences of doing it that makes it really tough," he said.

Arkansas Gov. Mike Beebe was one of those leaders who sat in rapt attention during the presentation, one of the first in public by the commission leaders.

"I don't know that I ever heard a gloomier picture painted that created more hope for me," said Beebe, commending its frankness.

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Chicago's new gun law goes into effect today

Chicago's newly minted handgun regulation law goes into effect today, less than a month after the U.S. Supreme Court struck down the city's ban on handguns.

The new ordinance bans gun shops in Chicago and prohibits gun owners from stepping outside their homes, even onto their porches or in their garages, with a handgun.

"Our big thing is knowing who has weapons," Chicago Police Supt. Jody Weis. "Believe it or not, we are trying to make it as easy as possible for people to register their weapon."

The police department has posted forms and other information on permits and registration on its Web site, the superintendent said.

Lawsuits have already been filed by a man who wants to open a gun shop in Lincoln Park, by four residents and a gun sellers group. They claim the ordinance is unconstitutional.

The Supreme Court ruled in June that Americans have the right to have handguns for self-defense. The ruling effectively made the city's 28-year-old gun ban unenforceable.

Starting today, anyone who wants to get a handgun must obtain a Chicago firearm permit. People who have committed violent crimes, or have two or more convictions for driving under the influence of alcohol or drugs, will not be allowed permits.

To apply for a gun permit, applicants must be 21 years old or older (or 18, with parents' permission), have a valid FOID card and an affidavit signed by a state-certified firearms instructor, among other requirements. The permit fee is $100, the permit itself expires in three years and the application must be submitted in person at police headquarters, 3510 S. Michigan Ave., though applicants were advised not to bring their weapons with them.

Key provisions of the ordinance include:

• Firearm sales will be banned in the city.
• Gun training totaling four hours in a classroom and an hour on a firing range will be required before getting a permit. But firing ranges are banned, so training must be completed outside Chicago.
• To transport a gun, it will have to be "broken down," not immediately accessible, unloaded, and in a firearm case.
• Firearms may be possessed only inside the dwelling. It will be illegal to have a gun in the garage, on porches or in the yard. Guns also will not be allowed in hotels, dorms and group-living facilities.

Permit-bearing owners also must individually register each gun they own within five days of purchase and are allowed to register only one handgun per 30-day period, Weis said. The registration fee is $15.

-- Staff report, Associated Press

French minister in boy sex tourism claim

A senior aide to French President Nicolas Sarkozy defended Culture Minister Frederic Mitterrand who is facing calls for his resignation for having written about paying boys for sex.

The revelations were made in a 2005 autobiography The Bad Life and have surfaced after Mitterrand passionately defended film-maker Roman Polanski, who faces deportation from Switzerland were he was arrested to the United States for having had sex with a 13-year-old girl in 1977.

Politicians from all parties have criticised Mitterrand for his attack on the United States.

The far-right National Front party has called for him to step down.

"French political debate sometimes takes on a pathetic form. It's excessive and quite undignified," Sarkozy adviser Henri Guaino said on France 2 television.

Asked whether Mitterrand should resign, he said: "When there is a controversy as pathetic as this, with so much delay, I don't think there should be such drastic consequences."

Guaino said there were no facts to back up the accusations and Mitterrand had not been subject to any legal complaints.

The experiences in the book are presented as a mixture of straight autobiography and more dreamlike reflection.

"I got into the habit of paying for boys," Mitterrand wrote, adding that his attraction to young male prostitutes continued even though he knew the sordid details of this traffic.

"All these rituals of the market for youths, the slave market excited me enormously ... the abundance of very attractive and immediately available young boys put me in a state of desire."

Mitterrand is the nephew of former Socialist President Francois Mitterrand and was drafted into Sarkozy's centre-right cabinet in June.

Although he was not a Socialist, his surname still reverberates in France and carries a lot of clout.

Sarkozy was delighted to have brought him on board, but now faces unease within his own UMP party over his choice of minister.

France considers itself to be at the forefront of the fight against sex tourism but Guaino said Mitterrand would not compromise this position.

"I have not heard Frederic Mitterrand say anything against France's position of fighting sex tourism," Guaino said.

Interior Minister Brice Hortefeux said Mitterrand was respected for his competence in the role of culture minister.

Although still openly siding with Polanski, Mitterrand has toned down his language, saying his emotions overtook him the day he heard that Switzerland had arrested the film director.

Gunman kills 2, wounds 4 others at office

ALBUQUERQUE, N.M. — A gunman angry about a dispute with his girlfriend forced his way into the New Mexico manufacturing plant where she works and killed two employees Monday before turning the gun on himself.

Police identified the shooter as 37-year-old Robert Reza, who had addresses in Rio Rancho and Albuquerque.

Four others were wounded in a rampage police said was motivated by Reza's disgust over a domestic violence dispute involving the girlfriend.

Police Chief Ray Schultz said no other names will be released before Tuesday.

Reza confronted the girlfriend outside the fiber optics and solar manufacturing plant in Albuquerque, and his rampage continued inside, Schultz said. She was hospitalized in critical condition with gunshot wounds.

The chief called the Emcore plant "a very secure facility" and said it appeared the gunman forced his way into the building and entered several areas. Schultz said detectives and FBI agents were reviewing surveillance video.

"It was a large and complex shooting scene," he said.

Why Loan Mods & Short Sales are a Sucker's Game

Loan modification and short sales are a sucker’s game the banks play with you. They are designed to lure you into a false hope and squeeze you for every last dime the they can get out of you before they throw you into the street.

Here’s why.

First and primarily, you are negotiating with your servicing entity, not the true owner of the note. As such, the person you are talking to has no authority to do anything. They can’t do anything without permission from the note holder. And who is the note holder? No one knows and that is the entire basis of this website.

But that’s not all. If the servicing agency tries to pull certain notes out of a securitized trust for modification, he must buy those individual notes outright at the value the trust would have seen for that note had it held it to maturity. No one wants to do that.

As evidence, Countrywide settled a suit from several state Attorneys General to modify the terms of what the attorneys general had called predatory loans. No sooner had Countrywide entered into that agreement than they were served with a multi-billion dollar class action lawsuit from the bondholders demanding Countrywide buy the notes under question at full value before re-negotiating any terms.

Next, you need to understand there is big money in foreclosures and short sales. One of the metrics of a bank’s health is the number of performing loans on its books. If a bank forecloses on a home or submits to a short sale, they remove a non-performing loan from their books. Further to that, Fannie & Freddie have cut a deal with the banks where they will receive 90% of the face value in the event of a foreclosure and 70% of face value in the event of a short sale.

So if a home is foreclosed upon, the bank collects upon the insurance on the default through the SIV (Structured Investment Vehicle) as well as 90% of the face value from Fannie & Freddie. They are paid twice. In addition, they own a hard asset (your home) which counts towards the bank’s overall health.

Another way they make money is at the Sherriff's sale itself. Oftentimes, the banks are the only one's who show up for the sale. They buy the houses out of a special account and then sell or transfer the house to its internal REIT (Real Estate Investment Trust) who then contracts with the local rental agency(ies) to manage the houses as rental properties. They buy them on the cheap and are making bank in short order from the rental income.

In the event of a short sale, they get the money from the short sale (performing note), 70% of the face value of the old note (it has nothing to do with the real value), plus, unless you are careful, they can come after you for the shortage. Paid Thrice.

Our Federal Government has a program which guides distressed homeowners through the short sale process. This program is supposed to ease the transition to homelessness by facilitating short sales instead of going through the whole foreclosure. Buried in the agreement at the bottom of page 3 in a 7 page document is language which forces the homeowner to give up their interest in the house through a Deed in Lieu of Foreclosure in the event there is no short sale. So even if you try to do the short sale to get away from the house as quickly as possible, if it doesn't go through, which, as we know will rarely happen as the person with actionable interest in title can never be found, you give up the house without them having to go through the expense of a foreclosure. When can you move out?

And let’s not forget the money these sales generate for title companies, real estate agents (in the event of a short sale and sale of REO's (Real Estate Owned)), foreclosure mills, house rental agencies, appraisers and mortgage bottom feeders like PennyMac – a company formed by former Countrywide execs to take advantage of the collapsing mortgage market.

If you are a homeowner, you need to check the title on your deed. You can do this by a quick trip to the recorder’s office at your county courthouse. Do not bother with your title company. What they have will most likely mirror what you will see at the courthouse, but not necessarily. The only information which matters is that which is at the courthouse.

If you see MERS on your title, or verbiage like CWALT Inc Alternative Loan Trust 2005-28C3 Mortgage Pass Through Certificates, then there is a high probability your mortgage has been securitized and as such there is a real chance that in addition to no one being able to foreclose, no one is able to deliver clear title.

If you are in foreclosure, or fighting a rear guard action to forestall foreclosure, do NOT pin your hopes on loan modification or a short sale. Those two are designed to suck you of the money you need if you choose to fight. Save your money, save your headache and heartache. Do not bleed your savings to keep paying your mortgage. You can play the game so the people on the other side of the phone are happy, but know going into it that the whole purpose is to make you feel good as they bleed you for a few more months and then foreclose anyway. Don’t play.

Short sales, loan modifications and even deed in lieu of foreclosure are the way the herd is trained to operate. The herd will pressure you to do what the herd does because that is what the herd does. But always remember, if you follow the herd, they are quite liable to run you over the cliff.

Do the research. Trust your mind. Hire a good attorney. Challenge the system. Spread the word.