Ugly bailout fallout: Dollar plunges, oil and gold surge

The world’s reaction today to Uncle Sam’s massive housing bailout plan: Sell America.

The dollar is plummeting, commodity prices are soaring, Treasury bond yields are up and the stock market is slumping.

This can’t be the reception Treasury Secretary Hank Paulson was counting on from foreign investors.

But is it them -- or is it us?

"What people are focusing on is that this damages the fiscal position of the U.S. dramatically," said Kathy Lien, currency strategist at GFT Forex in New York. "It’s making foreigners less interested in U.S. assets."

The $700-billion bailout plan will mean a huge amount of new borrowing by Uncle Sam, on top of the borrowing binge already underway to help support the financial system (such as to fund purchases of Fannie Mae and Freddie Mac mortgage securities).

Countries judged to be fiscally challenged typically don’t have strong currencies. So the dollar is taking a big hit.

The euro was at $1.48 just before noon PDT, up from $1.446 on Friday and the highest in six weeks. The DXY index, which measures the dollar against six major foreign currencies, has fallen 1.8% to 76.31, the biggest one-day drop in at least a year.

The crumbling dollar is helping to fuel a major rush back into commodities. At the close of floor trading on the New York Mercantile Exchange today, near-term crude futures were up $18.05, or 17%, to $122.60 a barrel, the highest price since Aug. 1.

Oil's huge gain was skewed by "short covering" related to the near-term futures contract's expiration.  Still, every one of the 19 commodities in the Reuters/Jefferies CRB index is higher today. The index itself is up 3.3%.

And gold is going vertical again, resuming the climb that began last Wednesday. Near-term gold futures are up $45.10 to $909.80 an ounce, the highest since Aug. 1.

"At times like this, people just like to flock to tangible assets," said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

But will it last? Traders clearly are bearish on the dollar and U.S. assets in general right now, and they’re creating the kind of situation they love: a big shift in momentum that pulls in more buyers (in the case of commodities) and sellers (in the case of the dollar).

Longer-term, if the bailout plan fails, and the U.S. plunges into a deep recession, that may be more bearish for the dollar -- but it’s hard to imagine it being bullish for commodity demand.

In a hot market, nobody thinks that far ahead.

Comments

[Norman Rockefeller]

The Problem with the bailout. Ok, now that we are seeing the actual details come out regarding this plan, it will simply not cost $700 B. I've been reading about this and the actual costs of this will be much higher for the taxpayer. Here is one piece I stumbled across that lays it out in detail:

http://www.greenfaucet.com/economy/the-700-billion-bailout-no-its-the-1-8-trillion-bailout/98564

[ejwaits]

Of course this is almost guaranteed. This administration has followed a policy of borrow and spend, borrow and spend, borrow and spend, but that can only go on for so long. Now the time has come to pay up. And, it seems the world is not willing to let us pay up with newly printed money. Ouch! Oh, the pain, the pain. We will have to pay the price someday, and that someday just moved a lot closer.

The GOP plan is to reduce taxes more, which means more borrowing. Neither candidate has addressed spending, which is the problem. We are teetering on the edge.

[Karleigh De Salvio]

The United States is so in debt that even though we try to borrow money from our representative it wont do much help. were creating a 700 billion dollar bail out that will save our economy but we our already getting financial support by that countries our judging that we don't have strong currencies and were taking a big hit for that. our country needs help and deserves better. we need better financial support and aid to get us past our billion dollar debts.

[Peter for no bailout]

There should be no bailout. Let's everyone feel the pain. Then, may be we can rebuild from the groud up again.

[Ken Bley]

Fundamental fairness requires that the nation BAIL OUT THE ROW BOATS ALONG WITH THE YACHTS OR LET THE WHOLE FLEET SINK TOGETHER.

$700 billion for Wall Street lenders PLUS
$700 billion for Main Street borrowers

OR nothing for anyone and

we can all see whether Wall Street's fattened cats can swim as well as Main Street Americans who have been treading water for the last 8 years.

[Bust Trusts]

If a company is large enough that it can't be allowed to fail, it should be part of the Federal government. Or, it should be broken into smaller companies, as was done in the era of trust-busting. It is quite true that the free market enforces efficiencies greater than those of government bureaucracy; however, that holds true only in the presence of competition.

If a company is too large and too important to fail, then it is without true competitors, and capitalism fails.

[happaGirl]

A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. Section 8 ... of this legislation is just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
"

http://www.huffingtonpost.com/2008/09/22/dirty-secret-of-the-bailo_n_128294.html

[Fed up]

No bailouts! If a bank made careless loans, that bank deserves to fail. If a homeowner lied and/or borrowed irresponsibly, they lose their house.

The people who have budgeted and borrowed responsibly should not be forced to spend their last dime to save every last crook or deadbeat.

Enough is enough!

[PNW Trojan]

Sooo glad to see you all getting this...it is U-G-L-Y....and you're getting the bill! Remember back to the S&L's RTC? (Reagan era too, like Iran Contra etc) You got the bill for that, while Party INSIDERS and their FINANCIERS picked up CLEAN S&Ls for somewhere between 30 and 50 CENTS on the dollar; ready for another GOOD deal, you're gonna pay thru the nose for? Call Pelosi, Boxer, Feinstein, and TELL THEM "Hell NO! WE ARE NOT GOING TO BAIL OUT CLINTON, BARNEY FRANK, CHRIS DODD, LieBERMAN, NOR, ANY REPUBLICANS back East. All the BENEFITS go to THEM, and you, EAT the costs....no healthcare, no mass transit, much higher tuition...tell me WHEN you want this to STOP! No heat? No pressure? Then you cannot change this lump of coal, into a diamond! Obama can't do it with Congress filled with career Party loyalists that laugh at you.

[Vincent Bui]

This bailout is ridiculous, but necessary! It's amazing that people and business wants the government to stay out of their affairs until they run into trouble with their finances. We have everyday individuals filing for bankruptcy because they don't know how to stop spending. We have Credit card companies giving credit to everyone even my dog and 5 year old son! We have these CEOs who get huge severance pay that I will never see in my entire life. Our ethics have gone down the drain & we continue to hold out our hands for that $$$$ handout!

[No Bailout]

BEFORE any bailouts are discussed further, make every CEO give back his bonus.

They are the ones who screwed up, not me.

They don't deserve ANYTHING for making their companies go bankrupt and I shouldn't have to suffer abysmal T-bill rates to make up for their corruption.

Lets 'clean house' this November. Vote out everyone who thinks its ok to make taxpayers pay for greedy, fat cat, elitist's mistakes.

[PNW Trojan]

Re my much criticized (by ignorant! whiney, Dem toadies!!!) post of yesterday...the L.A. Times reports TODAY....
Since 2002, the sector has contributed more than $1.1 billion to congressional candidates, with Republicans getting an edge during that period, according to federal lobbying records. The figure does not include millions more donated to the favored charities of prominent politicians and the hundreds of millions spent on lobbying. The sector is among the biggest donors overall; by comparison, another major category, lawyers and lobbyists, gave $646 million during the same period.

In the 2008 election cycle, the list of the top recipients of donations from the financial services, insurance and real estate sectors (all likely to be affected in varying degrees by the legislation) included the leading presidential candidates.

Democratic nominee Sen. Barack Obama took in $22.5 million, followed by New York Sen. Hillary Rodham Clinton with $21.5 million. Arizona Sen. John McCain, the Republican nominee, was close behind with $19.6 million.

Money rained down also on the top members of Congress who are steering the legislation. Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), a candidate for president during the primaries, received $6 million. His counterpart in the House, Rep. Barney Frank (D-Mass.), received $720,000 this year.

The No. 2-ranking Democrat on Frank's House Financial Services Committee, Rep. Paul E. Kanjorski of Pennsylvania, collected $755,000, and ranking Republican Spencer Bachus of Alabama took in $704,000.

"If you trace the movement of Wall Street money through Washington, it pretty well tells the story behind this and any other piece of legislation," said Lynn Turner, former chief accountant for the Securities and Exchange Commission. "The way Washington works, it is the lobbyists and the executives who hire them that get what they want. And it is the taxpayer who usually ends up getting fleeced."

LET US HEAR FROM YOU IGNORANT Dem WHINERS, NOW????

[Robert]

I find it ironic that for years people worried that immigration would cause the U.S. to become a 3rd world nation when it just took rampant greed & deregulation. We should have been worrying about the people & corporations making billions of dollars, not the people struggling to provide for their families.

[willie velasquez]

Again I see the fighting is Republians vs Democrats. To answer PNW Trojan, because of educated people like you that defend a party our system is crumbling.

"Don't blame the chief, blame the indians that chose him as chief"

Both parties are to blame in this situation, but more blame comes from the citizens who are not doing anything to change this situation.

You come to me as an educated person, so why not say what our country has become. The United States government is the biggest prostitue that ever existed. It will go to bed with whom every pays the most.

Life is simple and will continue to be simple. Would you accept prostitution in your family? No, than why accept it from our government.

[PNW Trojan]

Sorry Willie V... I loathe BOTH parties, but none more than the indescribably IGNORANT, boot licking, butt-kissing party-toad voters. Look at Calif...the Dems have RULED this State, forever. Do you like ALL the welfare folks now ON Govt payrolls, with Govt cars and Govt credit cards? Are you happy they can't be fired? Just look at the CREEPS at that LA hospital.... CRIMINAL records, and yet, they are sacrosanct!! Abuse and neglect of patients....and they are sacrosanct! Look at what they squandered on illegals...LA got reimbursed $600 million for ILLEGAL care. UCLA provided ILLEGALS with $5000,000 kidney transplants and follow up care. Stanford Hospital provided a felon prison inmate with a MILLION dollar heart transplant. You read in the LA Times about the Prison Guard Union....and the SEIU UNion head. And some of the Dem Party toadies, have the unbridled temerity to call me names? Hahahahaha...who's the FOOL?