Geithner Interview - the Debt Ceiling Fight (Meet the Press)

A Tim Geithner Interview, speaking on behalf of the Federal Reserve - the Debt Ceiling Fight (Meet the Press)

"The Most Important Thing We Can Do Is To Be Taking Steps To Get People Back To Work"

Geithner talking economics theory.. and what's best for Americans...

Greece Deal Constitutes Default

A French scheme involving private lenders in a second rescue package for Greece would "likely" amount to a default in the eyes of leading credit rating agency Standard & Poor's, it stated on Monday, in a blow to European efforts to avoid that assessment.

"It is our view that each of the two financing options described in the (French) proposal would likely amount to a default under our criteria," the London-based agency said in a statement.

Such a finding would precipitate a banking crisis, since the European Central Bank has warned that it would then stop accepting Greek bonds as collateral for loans to Greek private banks.

The European Union and International Monetary Fund (IMF) are currently preparing Greece's new bailout - it needs up to 120 billion euros (174 billion dollars) to remain solvent beyond 2012 - after its parliament last week approved prerequisite austerity measures.

Germany and other bailout-weary governments have insisted that the private sector share in the risk this time, unlike in the case of the first 110-billion-euro rescue package.

Under the French proposal, financial institutions would receive new Greek 30-year bonds - representing about 70 per cent of their original holdings - in lieu of debt set for repayment in the short term.

That would give Greece more time to repay its loans, taking some of the pressure off of its troubled economy. The remaining 30 per cent of the debt's value would be paid as cash when the bonds mature.

Banks and insurance companies in France and Germany are among the major investors in Greek debt.

German financial institutions also on Thursday agreed in principle with that country's government to roll over Greek debt under a formula modelled on the French plan, but modified to suit Germany.

Standard & Poor's, however, deemed that the general approach would not lower the risk of Greece going bankrupt in the future and lead investors to receive "less value" than originally promised - thus meeting its criteria for a default.

"Greece's near-term reliance on EU/IMF official financing, the government's difficulty in reducing its sizable fiscal deficit, and the current pricing of Greek government debt in the secondary market all underscore the Hellenic Republic's weak creditworthiness," it said.

It, however, also noted that the French proposal is still being worked on and is "just one" of several approaches being considered.

"We understand that the ... proposal may change, and it is possible that it could take a form that results in a different rating outcome," Standard & Poor's said.

A spokesman for EU Economy Commissioner Olli Rehn on Monday declined to comment on the credit rating agency's findings.

EU finance ministers are expected to "clarify the outline" of the next Greek bailout when they meet on July 11, including the issue of private lenders, he said.

"The precise modalities and scale of private sector involvement... will be determined in the coming weeks," EU spokesman Amadeu Altafaj told reporters in Brussels.

"Exploratory talks have been taking place in Europe. But it's not one size fits all."

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Gold and Silver now legal tender in Utah due to Dying Dollar

Video Talking about Gold and Silver now legal tender in Utah in Salt Lake City in America, also no capital gains tax.

Gold Could Lose Glitter with End of US ‘Cheap Money’ Policy

The end of Federal Reserve emergency cash is unlikely to derail gold’s 10-year rally, but the precious metal might face a rockier road as the cheap money that had fuelled its ascent dries up, at least for now.

Fund managers have cited the threat of deflation, slower growth, a resurgent dollar and gold’s overvaluation as just a few reasons why the precious metal’s performance as a safe haven is unclear. In the past, its value tended to rise in times of economic crisis.

Since the global economic downturn, however, gold has benefited from a string of stimulus measures by central banks attempting to boost growth.

Gold prices have doubled since the 2008 crisis, but that rally may be difficult to sustain if the Fed winds down its cheap money policy. Kacper Pempel / Reuters

Bullion has more than doubled from its 2008 low at the depth of economic crisis, and is up 20% since Federal Reserve Chairman Ben Bernanke’s Jackson Hole speech last August, which marked the start of the Fed’s second round of quantitative easing.

On Thursday, the Federal Reserve ended its $600 billion bond-buying program known as QE2, for quantitative easing, because the addition of money to the monetary system effectively lowered US interest rates.

“Even with the QE ending, there is no prospect of the Fed increasing rates any time soon. We have negative US real interest rates. And gold historically did very well in a negative-real-rate environment,” said Bob Haber, chief investment officer of Haber Trilix, which manages $2 billion in assets and runs US and Canadian hedge funds.

On Friday, Gold fell below $1,480 an ounce, nearly $100 below its record high of $1,575.79 set on May 2.

Fed Chief Bernanke has yet to offer any hints of further monetary easing, or QE3. Even though the Fed is not expected to tighten money policy any time soon, gold is likely to rally if the US central bank reintroduces additional market stimulus, which US President Barack Obama called for this week to spur job growth.

“The notion of QE3 is more liquidity, which will likely be dollar-unfriendly. And it would then further run the risk of inflation,” said Mark Luschini, chief investment strategist at broker-dealer Janney Montgomery Scott.

“With that being taken off the table at least for now, it was enough to obviously impair gold prices heavily,” he said. Janney manages $54 billion in assets.

Dollar as reserve currency

A strong US dollar undermines gold’s status is as an alternative currency.

Most commodities, including oil and gold, are denominated in the greenback, which remains the world’s reserve currency, despite an uncertain US economic outlook and political tensions about raising the debt limit in the world’s largest economy.

Most investors see dollar strength limiting gold’s gains.

“If risk assets sell off, and people shun the dollar, that’s when we are in a new regime, that’s when gold’s going to take off. But, I don’t see that happening,” Jeffrey Sherman, commodities portfolio manager of DoubleLine Capital, which oversees $12.5 billion in assets.

Sherman said the threat of deflation, partly created by a European debt crisis, should drive investors toward US Treasuries and the dollar, making gold susceptible to weakness.

“Gold is somewhat of a safe haven, but it’s only a safe haven when you are worried about inflationary pressures,” he said.

Billionaire financier George Soros dumped almost his entire $800 million stake in bullion in the first quarter. Famed gold bull John Paulson remained the largest holder of the SPDR Gold Trust at the end of the first quarter.

Overvaluation?

The precious metal, which notched 10 consecutive yearly gains, has increased fivefold from just $250 an ounce in 2001. Adjusted for inflation, bullion’s all-time high was above $2,200 an ounce set in 1980.

Gold’s rally appeared to stall at the end of the second quarter, but the metal still posted a 4% gain in a quarter that saw the benchmark index of 19 commodities fall 6%.

Jason Pride, director of investment strategy at Glenmede, a wealth management firm with $20 billion in assets, said the extreme valuation of gold is hampering its ability to rise further and perform as a safe haven.

“It has simply gotten to a point now where the value of gold puts investors looking to protect their portfolios at risk simply from the valuation angle,” he said.

Bullion should still offer some protection against inflation and sovereign debt default risk due to its unique role as a global monetary vehicle, but its overvaluation is likely to constantly drag down on prices, Pride said.

“With gold having no dividend, no profit, it’s as much a visual reaction to what you think is going to be the direction of gold as anything, because there is really nothing you can point to from a fundamental standpoint that says it should be worth X or Y,” said Janney’s Luschini.

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