US Holiday jewelry sales expected to skyrocket

According to Mastercard SpendingPulse, US jewelers can expect revenue from jewelry sales in the US between November 1 and December 24 will grow 59% compared to the same period last year.

17 september 2021

Australia becomes world’s biggest producer of gold for first time

Australia has become the world’s biggest producer of gold for the first time, having played second fiddle to China for the last decade. Australia unearthed 157 tons of gold in the first half of the year, pipping China by four tonnes.

17 september 2021

Nigerian minister mulls death penalty for gold smuggling – report

Nigeria’s deputy minister in charge of mines and steel development has called for the death penalty for gold smuggling in the West African country.

17 september 2021

Gemfields back to black

Gemfields is expected to register a net profit after tax of $23.8-million in the first half of the year compared with the net loss after tax of $56.7-million, a year earlier. Earnings per share are expected to be 2 US cents from a loss per share of 4...

17 september 2021

Debmarine Namibia's new diamond recovery vessel to arrive in SA next week

Debmarine Namibia’s new N$7 billion diamond recovery vessel, Additional Mining Vessel #3 (AMV3), is expected to arrive in Cape Town, South Africa next week ahead of commissioning early next year.

17 september 2021

How to avoid greenback grief

13 october 2009

“More poor economic data have put Washington in a nearly impossible fiscal position. The US economy requires more stimulus than provided by the original package passed in March. But the dismal deficit outlook poses a huge longer-term threat. Indeed, it is just a matter of time before global financial markets reject this fiscal trajectory,” Roger Altman writes in the Financial Times. The author is Chairman of Evercore Partners, a leading investment banking boutique providing advisory services to prominent multinational corporations and financial sponsors on significant mergers, acquisitions and other strategic corporate transactions, and former deputy US Treasury secretary under President Bill Clinton.

That could lead to a punishing dollar crisis. To avoid it, America’s leaders should commit now and in detail to implement deficit reduction once the economy has strengthened. Vague promises will not work.

America’s fiscal dilemma is unprecedented because the short-term need differs so dramatically from the long-term one. Today, all the data are signalling weakness. Consumer spending, which represents 70 per cent of gross domestic product, and employment are especially downbeat. Joblessness, having hit a 26-year high, will not improve much through 2010. That puts pressure on consumers. The pace of recovery, therefore, will be painfully slow.

This requires that policy remain stimulative over the next year. The economy could slip backwards without it. That is why the Federal Reserve is maintaining a zero Fed funds rate. It also explains why the $787bn (£492bn, €534bn) stimulus will expand, perhaps to $900bn.

But for 2011 and beyond, the fiscal challenge is fearsome. A combination of prior tax cuts, years of high spending and a brutal recession have produced the worst budget conditions in 75 years. Through 2019, private forecasts predict deficits averaging $1,000bn a year. In 2019 the deficit would represent 6.5 per cent of GDP and be rising. Worse, national debt will hit nearly 85 per cent of GDP. Annual interest costs on it would exceed the US defense budget and the whole category of discretionary spending. The Treasury’s annual borrowing, including refinancings, would average a breathtaking $4,000bn. All this occurs before the Medicare/Medicaid share of GDP explodes beyond 2019.

This debt surge comes against a fragile backdrop. The national savings rate is essentially zero. Net borrowings are being supplied entirely by foreigners. Foreigners already hold half the national debt. Not only do we know, empirically, that massive deficits raise interest rates, cut private investment and depress standards of living. But there is no precedent for financial markets lending such amounts, over 10 years, at anywhere near current interest rates and exchange rates. Indeed, does anyone think that once recovery takes hold and private demand for capital strengthens, the Treasury will raise $4,000bn a year at below 4 per cent, as it is doing today?

The acute threat is the foreign exchange market. When markets lose confidence in a nation’s financial policy, a sharp and often panicky decline in its currency follows. This has happened before to the dollar and this dire fiscal outlook risks triggering it again.

We saw this in the 1978-79 dollar crisis that shook Jimmy Carter’s administration, in whose Treasury I served. Then, rising inflation and perceived indifference to the dollar’s stability eroded nearly half its value against the yen. Global anxiety rose and an emergency rescue was arranged. It required that the deficit be halved and the Fed raise rates. This was costly to growth and the administration’s goals.

In recent weeks, the dollar has lost 15 per cent against the euro and gold has soared above $1,000 per ounce. There are technical factors involved, too, but these signs are not healthy. They suggest concern over currency stability – and the recovery, with its inflation and financing pressures, has not even begun yet. President Barack Obama and Congress should not risk a replay of the Carter experience. The scale is so much larger now that the impact of a dollar stabilisation programme would be more punitive. It would jeopardise the entire recovery. This is why an overt commitment to deficit reduction should be made now.

It could take the form of legislation creating a bipartisan deficit reduction group modelled on the successful budget summit of 1990 and consist only of administration and congressional leaders. Its recommendations, by law, would be submitted by December 31 2010 and face an up or down vote within three to four months. It would acknowledge the need for higher taxes and spending cuts.

It is true that Mr Obama inherited the deficit. But, like Afghanistan, it is his responsibility now. Only he can forge a process for solving it.