Something else that could impact the (hitherto) beleaguered US dollar further down the road is the brewing budget-cutting storm in America. Forty years of rising wealth and profits for the “job-creators” coupled with four decades of falling wages and the advent of a lethal credit binge that was intended to mitigate the effects of said falling wages (for the worker bees) have resulted in the current mess that threatens to derail the American gravy train- from locomotive to caboose.
Mr. Buffet – one of America’s richest individuals – has, in effect, signaled to his peers that the time may have come to “pay” (at least partially) one Mr. Piper, lest the elites are prepared to endure the type of social upheaval that has hitherto been the exclusive “privilege” of certain Second and Third World nations. See the “Arab Spring”. It is now possibly morphing into the “American Autumn.” Enter President Obama, who, today is set to unveil his long-term deficit reduction plan that totals upwards of $3 trillion.
Surprise! Half of the budget-balancing high-wire act is indeed, supposed to come courtesy of spending cuts (including some sacred cattle). However, the other $1.5 trillion is intended to come from…you guessed it: higher taxes on those who can well afford it. We have long warned that any comprehensive solution to the American budget trouble cannot and will not lack higher tax revenues. This, despite the conniption fits that Messrs. Trump, Romney, and/or other “job creators” might throw when asked to give up a modicum of their sky-high piles of amassed cash.
“Class warfare at its finest” - argue some. But, look no further than UMass/Amherst Prof. Richard Hoffman’s “Capitalism Hits The Fan” lecture or the brilliant “Crises of Capitalism” cartoon to fully grasp the causes and effects of what it is we are dealing with here. Not a financial crisis, at all. Not a budget situation that can be fixed with Tea Party formulae by which the poor are to survive only if they are fit to.
And so, the eurozone crisis began to take a backseat for possibly the remainder of the week as the upcoming meeting of the FOMC and the unveiling of a $3 trillion budget-cutting plan by President Obama slowly started to occupy most of the financial news headline space and the inner cranial space of most speculators and investors this morning. Albeit Greece’s ability to skirt a default might very much be subjected to a test this week the reassurances about Greece not being jettisoned from the EU coming from Chancellor Merkel and President Sarkozy last week did make for a one percent gain in the euro against the US dollar.
Don’t ask the hedge funds to share such optimism however; their CFTC-tallied bets against the common currency are at their highest levels since June of 2010 even as talk of a $1.50 euro-dollar crept into the marketplace as some see aggressive central bank support for the currency in QIV as a certainty. We got a preview of such coddling just last week when a cabal of five central banks injected dollar-based liquidity into a parched banking sector in Europe.
Speaking of the “hedgie” crowd, behold a further cut in their bullish bets on “stuff” as mirrored by the latest CFTC positioning reports. The spec squads reduced their net long positions in raw materials for the first time in five weeks in the reporting week that ended on Tuesday. That would be 1.2 million futures and options contracts fewer. Leading the pack of reductions was industrial bellwether metal copper; its bullish bets experienced a 91% contraction on the perception of…contraction in the global economy being imminent. The orange metal fell to a nine-month low last week on the heels of such negative perceptions even as labor strife at producer FCX’s Indonesian and Peruvian mines should have lent support to it.