Hello EUro

OPEC has been seriously considering moving to a euro backed petroleum industry, as opposed to US dollar backed, and there are numerous valid economic reasons for a [potential] shift.

As the dollar's rate of exchange continues to fall against the world's major currencies, there has been much speculation about the likely knock-on effect. One area receiving a lot of attention is crude oil in general, and OPEC in particular.
It has been suggested that OPEC may begin pricing crude oil in terms of the euro, and further, that OPEC may actually begin invoicing its crude oil exports in terms of euros. This latter step would require shifting out of dollars, with OPEC receiving euros in payment.


On November 6th of 2000 Iraq became the first country to receive all of its oil export payments in euros instead of American dollars. This switch was estimated to cost Iraq $270 million dollars, but Iraq had since actually come out on top due to the rise in the value of the euro, which was actually probably influenced by Iraq’s decision to use the euro as its foreign exchange currency. At the time of the switch Iraq was selling over $60 million in crude oil a day so its easy to see that the change to the use of the euro could have a positive effect on the value of the euro.

The euro hit another all-time high against the dollar overnight on growing concerns the mortgage mess will force the
Federal Reserve to cut interest rates.Euros traded as high as $1.4855 earlier in the session before pulling back to $1.4823 recently. That was still up from $1.4812 late Tuesday.

Fed Funds Rate

After todays rapid rise in Stock prices it is important to look at that this really means. The Federal Funds Rate is the interest rate that depository institutions lends immediately available funds (balances on deposit with the Federal Reserve Bank)to another depository institution overnight.

The Discount Window
In many respects the Discount window is an outdated function of the Fed, having long been replaced by the Open MarketThe Discount window functions as a safety valve in relieving pressures in reserve markets; in circumstances where extensions of credit can help relieve liquidity strains in the banking system, the window also helps to assure the basic stability of financial markets more generally.

Recently a number of large financial institutions, including, CitiGroup (the largest institution in terms of assets in the United States), BoA and Wachovia have all paid visits to the Discount Window. This represents a shift in the way Banks think and operate, for years most banks avoided the Discount Window, there was a stigma that this form of borrowing was reserved for distressed banks only, but that feeling is slowly beginning to change.

Little Bank takes Big Bank

Reverse Re-construction or vendor financing

What happens when a nation's trade deficit runs at levels upward of 6% of GDP: investor confidence ebbs, capital investments are scarce, credit markets plummet, and the central bank is forced to counterbalance deflation by raising interest rates, all this while the currency is weaker then a sand castle - deep recession.

When that nation is the USA, these things don't happen, or at least they haven't yet; but how much longer will Asia keep up this predatory lending practice? As of June 30, 2007 the Japanese government owned just over $800b, and China owned around 680b worth of US government backed securities or Treasury bonds. Basically the US Treasury sends over IOUs and they send us money.

This affects us all: since mid 2004 the Federal Reserve has raised the federal funds rate from 1% to 5.25% and, in-theory, this should have caused a sell-off of long dated Treasury’s. However thanks to central banks around the world this didn't happen.

In short, why would a poorer nation lend to richer one? Simple: send cheap money to the richer nation and they will send it right back in the form of Lexus’, Samsung flat screen TVs, LG washing machines, and any number of [defective?] Chinese products

Tomorrow we will discuss how US borrowing affect mortgage prices. For now buy Doral Financial

Same Old Song

Stocks fall, while oil rises. It seems like the stock is beginning to mirror the housing market: buy NOW, prices are low. This is a buyers’ market. From the opening bell stock prices headed down, not far into the red, but just outside of the black. Most of this can be blamed on Fed anxiety; every market expert is speculating on what the Federal Reserve will do in their Board Meeting tomorrow. For the casual investor - WHO CARES - the only thing that matters now is looking at P/E ratios and trying to find some last minute bargains.

The market is betting on a rate cut from the Fed when the central bank meets Tuesday; but investors are not completely sure what it will do and what it will say in its accompanying economic statement. Furthermore, with the major brokerages' third-quarter results yet to be released, investors are uncertain about how badly the summer's stock downturn, souring home loans, and credit squeeze will hit the banking industry.

Making matters worse, the mortgage crisis seem to be spreading across the Pond. Northern Rock PLC, Britain's fifth-largest mortgage lender, saw its stock plunge and customers withdrew billions of dollars after it issued a profit warning after hours on Friday and drew from emergency funds held in reserve by the Bank of England. That gave U.S. investors an added impetus to pare their stock holdings, particularly in the financial sector. The good news for us is that financials almost always bounce back; like car manufacturers and airlines.

60 Minutes
The former Federal Reserve Boss Alan Greenspan did his first interview, since leaving as the Chairman of the Fed, on 60 Minutes and he warned of a possible recession. The couples with job cuts from First Franklin and Merrill have investors jumpy.

The good news is that while looking at the bigger picture one will discover that the job rate is steady, and this may help contain the credit crisis to the "sub prime" market. However, be careful when asking your credit card company for a limit increase, and check for new terms as well. The lenders of last resort will begin to tighten their belts' as well.

Week in Review

Friday DJ plunge
The Dow tumbles more than 240 points after the Labor Department reports the weakest jobs data in four years. Investors also weigh comments from former Fed chief Alan Greenspan about volatility in the stock market.

Country Wide cute more jobs
Reacting to a meltdown in the subprime housing market, the largest U.S. home-mortgage lender is expected to announce plans to reduce its work force over the next several months by about 20 percent. This is in the wake of the Bank of America bailout. What's next?

Home prices have fallen in 1/3 of the metropolitan areas in America over the past three months. How are values where you live? If you are trying to sell now, you may want to be very careful the time is bad. On one street in Cuyahoga County, OH there are 9 houses for sale.

The mortgage "bubble", while it has not you extended into the Prime markets, it has made its way into the creative market. Even high value homes are loosing their value and people are loosing their homes. What happened was that years ago, a man with a 680 credit score could either take a standard mortgage on a 3 bedroom, $250,000 home or he could take a "creative" mortgage and move into a 5 bedroom 1/2 million dollar home. In short prices are falling, and falling fast.

Fed to cut rate?
NEW YORK (AP) - The arrival of September was supposed to bring more clarity to the economic impact of the current credit crisis. Instead, each new bit of data coming out seems to be creating more confusion.

The first labor market contraction in four years, as revealed Friday in a weaker-than-expected jobs report, shows that the housing and mortgage collapse is putting some strain on the economy. And the continued dislocation in commercial paper markets, where companies raise cash to fund their operations, should be taken as a warning sign - in flashing red - that more bad news may be coming.

Yet plenty of good economic news still stands out. Strong August sales results from retailers and manufacturers suggest the painful credit crunch's effect on the broader U.S. economy has been limited so far.

Anyone hoping that Federal Reserve policymakers will reduce the overnight bank borrowing rate when they meet on Sept. 18, should not ignore the positive signs the economy is giving.

Credit Crunch 2

What makes the Fed Chairman believe that a rate cut will have such economic impact that the Lener's will be more free with lending. Rather I think the converse is true. The Fed hasnt made an interest rate cut in four years. Lenders are not in touble because they didnt have money to loan; they are in trouble for trying to artifically boost profits at the expense of the Middle Class. If you give money to a homeless man, assume that you will not get the money back. In essences that is what happened.

Lets not forget the banks still have money, they are simply keeping it all for themselves.