china delinquent goldman deficit

US budget deficit tops $1 trillion for first time
treasury reserve currency

China Reiterates Call for New World Reserve Currency

More people fall behind. China worries about the dollar. Yet some rake in billions. We trim, blend, and append five 2009 articles from: (1) MarketWatch, July 7, on delinquencies by Ronald D. Orol; (2) Reuters, July 14, on Goldman by Steve Eder and Joe Giannone; (3) BBC, July 14, on Goldman by Simon Atkinson; (4) AP, July 14, on the deficit by Martin Crutsinger; and (5) Bloomberg News, June 26, on China.

The number of consumers in the first quarter of 2009 who were delinquent on their loans rose to 3.23%, a record level.

JJS: Compare the economic fates of most people who’ve lost money to that of insiders on Wall Street.

Goldman Sachs Group Inc said quarterly earnings surged 33%, a year ago, in the quarter ended May 30, net income for common shareholders was $2.05 billion, or $4.58, but last quarter totaled $2.7 billion, or $4.93 a share.

Just nine months ago the US Treasury bailed out the nation's largest banks with $125 billion of taxpayer money. Goldman accepted $10 billion of taxpayer bailout money.

BBC: Like its rivals, Goldman had to turn to the state for help -- including guarantees for its debt and access to central-bank liquidity and capital.

With its government connections, Goldman has no timeline for buying back stock warrants issued to the government under the Troubled Asset Relief Program, or TARP.

Goldman's traders thrived in an environment of wide price swings and robust demand,

BBC: making bets in the right direction on commodities and volatile currencies as well as shares -- and profiting handsomely.

Also, Wall Street's biggest surviving securities firm has fewer rivals; former ones went bankrupt or were merged with bigger, insider banks.

Goldman set aside $6.65 billion for salary, bonuses and benefits in the quarter, up by nearly half from the quarter ended in May last year. That puts the average Goldman employee on pace to earn more than $900,000 this year. Chief Executive Lloyd Blankfein, senior officers, and star traders will likely receive tens of millions of dollars.

JJS: So some profit enormously while taxpayers make it possible.

The federal deficit has topped $1 trillion for the first time ever and could grow to nearly $2 trillion by this fall.

The government has widened its deficit by a $700 billion financial bailout for banks, automakers and other sectors, and a $787 billion package to try to restart growth, and by waging wars in Iraq and Afghanistan.

Outlays through the first nine months of this budget year total $2.67 trillion, up 20.5% from the same period a year ago.

The US debt now stands at $11.5 trillion. Interest payments on the debt cost $452 billion last year -- the largest federal spending category after Medicare-Medicaid, Social Security, and the military.

The overall debt is now slightly more than 80% of the annual output of the entire US economy, as measured by the gross domestic product. During World War II, it briefly rose to 120% of GDP.

The debt is largely financed by the sale of Treasury bonds and bills. So far, interest rates have remained low. This is partly because the Federal Reserve has kept a key short-term rate at a record near zero. Also, given people not buying houses, that has depressed demand for credit, meaning the government's borrowing costs are relatively low. The benchmark 10-year Treasury security pays buyers a historically low around 3.35%.

The soaring deficit is making Chinese and other foreign buyers of US debt nervous, which could make them reluctant lenders down the road. That could force the Treasury Department to pay higher interest rates to make US debt attractive again.

JJS: The US debt is so big now that foreigners don’t want dollars so much.

China’s central bank renewed its call for a new global reserve currency that’s delinked from sovereign nations and said the International Monetary Fund should manage more of members’ foreign-exchange reserves and expand the functions of its unit of account, Special Drawing Rights (SDRs). The statement triggered a decline in the US dollar.

China has the world’s largest reserve at more than $1.95 trillion. Chinese investors, the biggest foreign owners of US Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.

At the end of 2008 the dollar accounted for 64% of global central bank reserves, down from 73% in 2001.

Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3%, in May, the third most on record.

The value of SDRs are based on a basket of currencies, shielding them from swings in a single currency. One SDR is valued at $1.54. China is proposing the basket be broadened. The current weighting is: 44% for the dollar, 34% for the euro and 11% each for the yen and the pound. It doesn’t include the yuan.


Jeffery J. Smith runs the Forum on Geonomics.

Also see:

Is Keynes correct after all?

Shifting taxes and subsidies would make the economy serve us

Why are we raising the pay of big wasters?

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