Major government institutions have issued a joint statement regarding the banking system. The government has reiterated its commitment to the banking system, and offered to point out that it plans to institute a program to ensure that banks have the capital they "need" to remain solvent.
Stock Market Funding reports on the program expected to help buoy banks through this particular crisis:
Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government.
This news goes hand in hand with the rumors that bank nationalization could be on the way as well -- should that be necessary to keep banks from collapsing. As a result of this promise, the U.S. dollar is down in forex trading (but the stock market is up).
Ben Bernanke: Economic Recovery Will Not Happen Fast
Today, Federal Reserve Chair Ben Bernanke spoke before Congress and testified that he hopes to see an end to the recession by the end of this year. Despite this hope, however, he also pointed out that true recovery is likely to take years. CNN Money reports on some of his testimony before the Senate Banking Committee this morning:
The head of the central bank said a turnaround will only occur "if actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability." He also acknowledged the recovery might not go as well as hoped.
"This outlook for economic activity is subject to considerable uncertainty, and I believe that, overall, the downside risks probably outweigh those on the upside," he said in prepared remarks before the Senate Banking Committee Tuesday.
Ben Bernanke declined to comment on plans for the banking system (although making it clear that supporting banks was paramount to economic recovery), and he also avoided details on when the Federal Reserve might start buying long-term Treasury bonds -- if the body does decide to do it.
It will be interesting to see how these developments affect the U.S. dollar in forex trading, which is falling to the euro right now.
U.S. Dollar: Strange Tale of Gains on BAD News
For the last few months, we have been seeing a rather interesting trend in the U.S. dollar as far as forex trading is concerned: Strength when the economic data is bad. Indeed, Kathy Lien in FX360 points out that weak economic data is one of the reasons that yesterday's euro rally is a false start. And today she appears to have been justified: Both the sterling and the euro are giving back gains in forex trading.
Which means that we're back to the strange relationship that the U.S. dollar now has with bad economic news. Instead of dropping as the economic data does, the greenback has been gaining. The answer this: Even though the U.S. economy is in trouble, the dollar is still consider one of the most stable and safest currencies in the world.
The assumption is that the dollar will provide a "safe" place for forex traders and investors to preserve their capital. It's this safe haven status that is providing strength not seen in the U.S. dollar for years.
President Barack Obama's address to Congress yesterday, though stirring and somewhat inspirational, did little to actually inspire the markets. As a result, risk appetite is shrinking again, and the U.S. dollar is finding strength as traders pursue a flight to safety.
The interesting conclusion of all of this is yet to come. What happens if the economic stimulus works and the U.S. dollar is no longer needed as a safe haven? And what happens when traders start looking at U.S. economic fundamentals and see trillions upon trillions of dollars in debt? Dollar strength may be the immediate effects, but dollar weakness may be the long-term end game.
Barack Obama Unveils 2010 Budget
President Barack Obama unveiled his $3.6 trillion budget to Congress today. It is a breakdown, rather than the fully-fleshed budget expected in April. At any rate, this year's budget is likely to be the largest of the Obama Administration -- assuming that economic stimulus measures work out.
Stock Trading To Go has an excellent budget breakdown that offers analysis of the budget by putting most of the essentials into 5 main categories:
Health care.
Expiration of the Bush tax cuts.
Iraq War.
Bank funding.
Reducing greenhouse emissions.
The idea is that by 1013, assuming the economy is recovering and increased revenues are coming in, the yearly deficit can be cut in half.
US Government to Own 1/3 of Citi
The US government and Citi have agreed to a deal in which the government will increase its stake in Citi to 36%. Even as the government owns more than 1/3 of the embattled bank, almost 3/4 of existing shareholder stake will be eliminated.
On the news, Citi shares dropped rather dramatically -- not much of a surprise. The US government also expects to make changes with the Board of Citi. This type of government interference is beginning to cause some concern.
Since this is seen as a sort-of quasi nationalization of Citi, it is clear that the situation in the U.S. continues to deteriorate in terms of economy. As a result, the US dollar is likely to remain strong in the near term, since this will prompt more forex traders in a flight to safety.
FOREX stands for Foreign Exchange - which means currency market. The Forex market is where currencies are sold, bought, in the form of parity. On the Forex market, all currencies are traded in real time, 24h/24h, 7J/7J. The Forex is open since few years to individuals, single investors wishing to diversify their investments or pure speculators. The access to foreign exchange market for individuals is offered through Forex Brokers.
BEWARE: FOREX is a market made volatile by the leverage which is offered to you. Consequently, a risk of important financial losses is always present. Tribuforex provides his internauts some trade ideas and analysis, but will not be responsible in case of losses. The main goal of www.tribuforex.fr is to offer a tool allowing traders to share forex between them.
