The U.S. Senate, in an unusual procedure, cleared the way Thursday for the U.S. to lift its borrowing authority by $500 billion to $15.19 trillion, enough to keep the support federal government borrowing through late January or early February.

The action came under an unusual legislative procedure spelled out under the August agreement to raise the U.S. debt ceiling and avoid a U.S. credit default. In a 52-45 vote, the Senate blocked an attempt by Republicans to slow down the process that will result in the $500 billion debt-ceiling increase.

The increase stems from a deal between Congress and the White House, finalized last month, that spells out how the borrowing limit would be increased by $500 billion. Under the process, lawmakers in both the House and Senate must vote on a resolution of disapproval against the increase in the borrowing limit. President Barack Obama would then have to veto the resolution of disapproval, and Congress would then vote to try and override that veto.

The complicated procedure, designed by Senate Minority Leader Mitch McConnell (R., Ky.), would allow an increase of the borrowing limit while allowing most Republicans to vote against such an increase.

There was a twist in this scenario Thursday evening, however. Democrats held firm, rejecting the resolution of disapproval, thereby speeding the process and increasing the borrowing limit immediately.

Only Sen. Ben Nelson (D., Neb.) broke from his party to vote with the Republicans in trying to move forward with the measure.

The next increase in the borrowing limit, likely in the first quarter of next year, will be dependent on the ability of a panel of 12 lawmakers to reach a deal that cuts at least $1.2 trillion from federal budget deficits over the next decade.

QE3 in Disguise

QE2 was winding down and when you go back and look at it, the USFed had already been blamed (quite properly too) for record high food prices around the globe and some of the unrest in certain locales as well. The overt monetization stage is generally the last one in the fiat life cycle, and obviously it is in Bernanke et al’s best interests to prolong the fleecing, er, rather prosperity, as long as they possibly can. The debt ceiling non-issue was really a work of semi-genius when you think about it. Set an artificial date for the end of the world, get your buddies in the media to put countdown clocks all over their news broadcasts – really a nice touch guys, and then proceed to scare the daylights out of everyone that those checks might not go out if everyone doesn’t get together and take one for the banksters. Uh, the team. So what really happened on 8/2 anyway? Well, I will tell you. QE3 was born. Come again? Here’s the stick. The consumer is now in pullback mode – again. The government is up against the wall with the full light of day being shown on its foolishness. The only institution with any wiggle room is the fed.

I have gotten confirmation from several well-placed sources that the USFed is now buying nearly 80% of all new Treasury bond issues. Most of these are being purchased directly from the primary dealers, who are required to place bids at all auctions. This is one of the reasons why it seems everyone around the world is divesting; yet the Treasury always has plenty of buyers for new debt. Pension funds and other mutual/closed-end funds are good for most of the rest. So follow the logic. The USFed needs cover to launch another round of monetary stimulus even though the first two were an abysmal failure. The USGovt needs to be able to issue a trainload of bonds to make payments on a bunch of ill-advised promises. The best bet at this point would be to borrow enough to divest everyone from SocSec at a 4% per annum rate and opt everyone out and shut the system down. People could invest their own money accordingly and at least if they blow it, it would be on them. And here’s the carrot: we get a debt ceiling extension for $2.8 trillion-ish and this gives the government the ability to borrow and spend while giving the Fed cover for the next round of semi-overt monetary stimulus. The mechanisms may be slightly different, but this one will likely mimic QE1 and 2 in most ways. The fed will be monetizing debt and the government will be spending more of its borrowed money to try to stimulate an economy, and, more and more lately, appears to be beyond stimulation. It would appear that we’ve now reached the phase in Keynes ‘theory’ where the long run is upon us and we’re not dead so now what? Unfortunately, Keynes left us no answers because there weren’t any and he knew it. This may come as a shock to many Keynes proselytizers, but we’re in uncharted territory, with not even the basis of a clue as to how to right this ship. So what we can expect moving forward is more of the same. The ‘cuts’ in this debt deal, from what I’ve been able to see so far, are going to gut the middle two quartiles of the economy. Not at once or immediately, but slowly. Many of the prescribed cuts won’t happen for a while, but others are yet unknown. The ‘super congress’ will have frighteningly dictatorial powers in deciding the winners and the losers and obviously there will be fierce battles by industries, corporations, banks, and pretty much everyone with a lobbyist – except the American people – to get people sympathetic to their cause on that commission. Go figure that 300 million Americans have not one single suite on K Street. Not even a single kiosk. Nothing.

Priming Demand for GBonds

On cue, USEquity markets have deteriorated over the past several weeks, pushing investor money across the aisle into Treasuries. I have made the case both anecdotally and factually in our paid publication for almost 2 years that the small investor is largely out of markets. Much of Middle America’s investments are in managed plans such as 401s, pension plans, and the like. Funds and banks have been driving the markets for quite some time now, shaving pennies off each other each day, with everyone claiming victory at the end of the quarter. I’ve chronicled how several firms have bragged on quarter long winning streaks. When you look at all the information, it becomes very clear that the big banks are running that show now more than ever. So why the recent selloff?  There are a couple of reasons really, and the first is the easiest to understand. The general public, for the most part, regards the stock market as the economy itself. Running down the markets was one way of making the fear campaign launched by Washington stick. Thanks to subterfuge and disinformation, Main Street really doesn’t understand most of the economic reporting other than unemployment, and perhaps GDP, but it certainly understands the stock market.  Dropping the markets was part of the psyop against the American people over the past several weeks. Secondly, there is typically a flow from more risky to less risky assets. Let me be clear that I preface both of those qualifiers with ‘perceived’. Perceived increased risk in the equity markets will push money into bonds and vice versa. That has been a basic paradigm for many years now and is fairly well understood by most investors. That paradigm is going to be ending in the not-too-distant future, but that is another article for another week.

The mere fact that so much money is piling into the long end of the yield curve reeks of manipulation since it simply defies common sense. A stay of execution is not a pardon, and the ridiculous spending spree in Washington will continue, albeit, most likely to a lesser extent in Middle America’s direction. There will be plenty of money for wars, regulation, and plenty of money for the next bailout when the banksters get zapped (most likely by design) by the derivatives time bomb they’ve created on a global scale. Nothing has been done to alter the trillions that SocSec and Medicare pass onto the nation’s plate in terms of unfunded liabilities each year. Perhaps the plan is simply to make the liabilities go away, and then there will be no need for funding. The supercongress could easily have that as its mandate. It will not be comprised of Ron and Rand Paul types, that is for sure, or even main line fiscal conservatives. Or advocates for the people. I wouldn’t be surprised if General Electric CEO Jeff Immelt wasn’t given a spot despite the fact that he isn’t even a Congressman.

Gold Smells the Rat(s)

In short, the run-up of the bond market is to push the perception that US government bonds are safe. There is likely a minor residual effect from the ongoing (and worsening) crisis in Europe, which is spreading well beyond Greece. Gold is properly responding to the debt and derivatives mess globally. At this point, it is one of the few markets that is ‘working’ yet the mainstream press calls the rally ‘ludicrous’.  And make no mistake, the roiling of markets is just as much about derivatives as anything else. Remember all the credit default swaps that were written on junk US mortgages? There are plenty of those written against various European (and American) government bonds, banks, and pretty much anything else that isn’t bolted down. And the nature of the derivatives time bomb is such that it will not matter where it begins, once the avalanche starts, it will take the entire financial system with it. That is the magnitude of the greed that has been poured into this rather unknown and virtually unregulated arena.

Ratings Russian Roulette

Another benefit to pushing up the bond market is to cover what declines may occur if a ratings agency actually does something other than talk about downgrading USGovt bonds. At this point at least it would appear to be a rather safe bet that this will not happen. Moody’s has already affirmed the top rating while saying everything negative they possible can in a vain attempt to save face. These agencies are merely political animals, serving the masters who pay their exorbitant fees. Nothing more. They are not independent by any stretch, because as anyone can understand, your allegiance is to who pays you. When a bank pays the agency to rate its mortgage tranches, the rating agency has a choice. Make the rating pleasing to the customer or lose the business. It is very simple. Amazingly the agencies essentially admit this, claiming their sovereign ratings are ‘more independent’. More independent than what? Than the AAA ratings slapped on C mortgage tranches?

If the Eurozone nations want the ratings agencies to stop arbitrarily and capriciously downgrading them, then they’d better take some of that rescue fund and send a large check. That is what appears to work best with these firms – a large application of money. There is also a little talked about motivator in there for the ratings agencies to keep the USGovt’s rating sterling. If they cut it that could very well mean that fewer bonds will be issued, and therefore diminished demand for ratings. When in doubt, always, always, follow the money.

There was certainly a lot of borrowed money to be followed today as the debt curve resumed its relentless upward climb to oblivion and the loss of the American standard of living we’ve come to enjoy. Meanwhile, awful economic reports continue to flow out of the various reporting agencies and if nothing else, maybe this time folks will come to understand you just can’t put humpty dumpty back together with endless monetary and fiscal stimulus; it is truly the ultimate exercise in financial futility.

If you haven’t taken an opportunity to download our free report entitled ‘If You Have Paper Assets… There are Three Things You Must Consider’, think about doing so now. As debt contagion swirls in Europe and now on our shores, it is more important than ever to take a protective stance towards the entirety of your assets. Simply Click Here to go to the download page. No obligations, no hassles, just common sense investing wisdom. There are also several other compilations available by clicking the above link as well.

Manufacturing activity barely grew in July, falling to the weakest level since just after the recession ended.

The Institute for Supply Management, a trade group of purchasing executives, said Monday that its index of manufacturing activity fell to 50.9 percent in July from 55.3 percent in June.

It was the 23rd straight month of growth. But the reading was the lowest reading since July 2009 — one month after the recession officially ended. Any level above 50 indicates growth.

New orders shrank for the first time since the recession ended. Companies slashed their inventories after building them up in June. Output, employment, and prices paid my manufacturers all grew more slowly in July.

The disappointing report on manufacturing is the first major report on how economy performed in July. It suggests the dismal economic growth in the first half of the year could extend into the July-September quarter.

“The ISM manufacturing report for July is a shocker and strongly suggests that the disappointing performance of the economy in the first half of the year was not just temporary,” said Paul Dales, a senior U.S. economist for Capital Economics.

Stocks fell after the report was released. They had risen ahead of the report on the expectation thatCongress will approve a deal Monday to increase the nation’s borrowing limit. The Dow Jones industrial average fell 60 points in early-morning trading, and broader indexes also declined.

In a separate report, the Commerce Department said builders began work on more projects in June, pushing construction spending higher for a third straight month.

Construction spending rose 0.2 percent in June, to a seasonally adjusted annual rate of $772.3 billion, the government said. But even with the gains, spending remains slightly above an 11-year low hit in March and is just half of the $1.5 trillion pace considered healthy by most economists.

The economy expanded at a dismal 1.3 percent annual rate in the April-June period after an even worse 0.4 percent increase in the first three months of the year, the government said Friday.

The factory sector has expanded in every month but one since the recession ended in June 2009. The ISM’s index topped 60 for four straight months at the start of the year.

But manufacturing has stumbled in recent months. A parts shortage stemming from Japan’s March 11 earthquake disrupted automakers’ supply chains, cutting into the output of new cars. And high gas prices left Americans with less money to spend on discretionary items, such as vacations, furniture and appliances.

The index fell in May to 53.5 from April’s reading of 60.4. That was the sharpest one-month drop since 1984.

Employers have responded by pulling back on hiring. The economy added just 18,000 net jobs in June, the fewest in nine months, and the unemployment rate rose to 9.2 percent. Hiring by manufacturers was nearly flat in the April-June period.

The government issues its July employment report on Friday.

Several regional manufacturing surveys for the month of July have been mixed. The Philadelphia Federal Reserve Bank said its manufacturing index rose to 3.2, signaling that the sector is growing again in that region. It had contracted in June for the first time in nine months.

And a private survey in Chicago showed that manufacturing expanded in July, but at a slower pace than in June.

Meanwhile, a survey by the New York Federal Reserve Bank found regional manufacturing activity shrank in July.

Manufacturing represents only about 11 percent of U.S. economic activity and can contribute only so much to the broader economic recovery. For unemployment to fall significantly, consumer income and spending also must pick up.

The ISM, a trade group of purchasing executives based in Tempe, Ariz., compiles its manufacturing index by surveying about 300 purchasing executives across the country.

]]> http://www.sutton-associates.net/blog/2011/08/01/ineffective-stimulus-part-infinity/feed/ 0 http://www.sutton-associates.net/blog/2011/07/27/move-on-nothing-to-see-here/ http://www.sutton-associates.net/blog/2011/07/27/move-on-nothing-to-see-here/#comments Wed, 27 Jul 2011 12:58:40 +0000 TwoCentsEditor http://www.sutton-associates.net/blog/?p=1007 Editor’s Note: The ratings threats are reaching fever pitch, but buried in this article are two diverging undertones. The first is the (ridiculous) assertion that the US government can meet all of its obligations ad infinitum. If that is the case then why would the ratings agencies even mention a downgrade? The truth is the only way the USGovt can meet obligations is through more borrowing with the destruction of the dollar being the primary ramification. I would encourage anyone who actually cares about this to email the editor and writer of this story and encourage them to engage in some honest presentation of these facts. 

David Beers may be the most influential political commentator in the U.S. right now, even though he’s hardly a household name, that isn’t technically his job and he’s only visiting.

As the London-based managing director of sovereign credit ratings at Standard & Poor’s, Beers will help determine whether the U.S. government’s credit rating will be downgraded as a result of the battle over raising the debt limit.

His company has gone beyond competing credit rating agencies to say that it isn’t enough for lawmakers to agree to lift the government’s $14.3 trillion debt ceiling. Congress and the White House also must agree to a deficit-reduction package to avoid a downgrade in the government’s AAA credit rating.

In an interview this week at Union Station, just blocks from the U.S. Capitol, Beers said he views the debt limit fight as a test of lawmakers’ willingness to tackle the deficit.

“For us, the issue is not the debt limit — it’s the underlying fiscal dynamics,” said Beers, who has been rating governments for the company for 20 years. “It’s not obvious to us that this political divide that is proving so difficult to bridge is going to be any more bridgeable three months from now or six months from now or a year from now.”

He said he didn’t know when an S&P committee would decide whether to cut the credit rating. “Depends on events,” he said.

Downgrade Impact

A decision to cut the government’s credit rating would likely increase Treasury rates by 60 to 70 basis points over the “medium term,” raising the nation’s borrowing costs by $100 billion a year, JPMorgan Chase & Co.’s Terry Belton said. It could also hurt the rest of the economy by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on treasuries.

Yesterday, the markets showed little debt ceiling concerns, as seen in 10-year Treasury note yields hovering around 3 percent, below the average of 4.05 percent over the last decade, and the average of 5.48 percent when the country was running budget surpluses between 1998 and 2001.

On Capitol Hill, House and Senate leaders were trying to advance deficit reduction packages that would clear the way for a vote on the debt ceiling increase that the Treasury Department says must come by Aug 2.

The threat of a downgrade has made Standard & Poor’s a target for critics chafing at demands from a company that blessed the mortgage-backed securities that led to the financial crisis.

S&P Hill Critics

An April report by Senator Carl Levin, a Michigan Democrat, and Senator Tom Coburn, an Oklahoma Republican, concluded the credit agencies “weakened their standards as each competed to provide the most favorable rating to win business and greater market share. The result was a race to the bottom.”

In an interview, Levin said he views those faults as conflicts of interest issues that are separate from the S&P’s sovereign ratings work, which he declined to criticize. “My gut tells me that they’re calling it as they see it and, hopefully, they’re not impacted by their previous failures to call them as they should have seen it,” Levin said.

Senate Majority Leader Harry Reid, a Nevada Democrat, took a different view. “I wish they had made a few demands when Wall Street was collapsing,” said Reid. “They were silent then. Maybe they’re trying to get more energized.”

July Warning

At issue is a warning the company issued July 14 that there is a 50 percent chance S&P would downgrade the government’s credit rating within three months if lawmakers didn’t approve a “credible” deficit reduction package as part of a plan to raise the debt cap.

It was the latest in a series of demands from the company over the past year. In April, S&P said there was a one-in-three chance it would downgrade the government within two years; in October, it said lawmakers had as many as five years to address long-term deficits.

In its July report, the company said, “We believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years.”

Critics say the company is misreading the political dynamics in Washington and that it shouldn’t engage in political prognosticating at all.

“If we fail to increase the debt ceiling, they have every right to take the U.S. down as many notches as they want,” said Jared Bernstein, former economic advisor to Vice President Joe Biden. “I don’t look to S&P for political analysis” and “their job is not to try to do political crystal-ball gazing. Their job is to assess the reliability of U.S. debt.”

U.S. Can Meet Obligations

Bernstein said, “Nothing fundamental has changed in the ability of the U.S. government to fully meet its debt obligations.”

IHS Global Insight Chief Economist Nariman Behravesh said S&P has unrealistic demands because lawmakers are unlikely to agree to a major deficit reduction package until after next year’s elections. “If they really think there is going to be a comprehensive solution before 2012, they are grossly mistaken,” he said.

Where Beers sees ominous gridlock over the debt, Behravesh sees progress. “Think about where we were six months ago: We were talking about stimulus,” he said. “The good news is U.S. politicians are talking” about trillion-dollar budget cuts.

He said S&P is “itching to pull the trigger” on a credit downgrade, saying “it’s almost like they’re overreacting in the other direction” in order “to make up for past errors.”

Former Congressional Budget Office Director Doug Holtz- Eakin, who advised the 2010 Republican presidential campaign of John McCain, said S&P is right to question the political will in Congress to address the deficit because it’s the central question surrounding the debt.

Political Wherewithal

“There is no question that the U.S. economy remains the largest, strongest on the globe and it has the financial wherewithal to pay its debts,” he said. “The question is, is that financial wherewithal matched by political wherewithal? And that’s what they’re trying to find out.”

Beers said critics of the company’s record during the housing crisis “know nothing about our sovereign ratings, which have an excellent track record.” He said it’s impossible to assess a government’s credit rating without making judgments about its politics.

“Economic policy is part of a political process,” he said. “Every government has to make choices, and it has to do it in some political context, and we have to look at that and decide how plausible that is.”

‘Sheer Difficulty’

The gridlock over the debt limit “highlights the sheer difficulty” lawmakers are having coming to agreement, he said, which has prompted S&P to shorten the timeframe over which it wants to see major cuts. He is skeptical that next year’s election will be “that decisive on this issue.”

U.S. lawmakers are lagging behind other similarly rated governments that have also faced debt challenges, he said, pointing to countries such as Britain that are implementing plans to tighten budgets.

“This whole issue of finding common ground has been on the table since March and it’s not as if people aren’t trying,” he said. “You have to make judgments about these sorts of things.”

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

Greek Prime Minister George Papandreou is set to announce a new cabinet in a concessionary move as he seeks support for new austerity measures.

Mr Papandreou, who will stay in his post, says he will put the cabinet to a vote of confidence in the parliament.

Renewed fears that Greece will default on its debt have shaken markets.

Greek ruling party deputies are holding an emergency meeting of their parliamentary group to discuss the current crisis.

President Karolos Papoulias has urged Greek politicians in a statement not to make matters worse by turning the economic crisis into a political one.

The proposed measures are necessary to gain EU and IMF aid, but have been met with fierce opposition in Greece.

Athens witnessed some of the most violent protests in more than a year on Wednesday as demonstrators went on to the streets and took part in a general strike.

A confidence vote in the new cabinet is expected on Sunday, reports say.

“The discussions on the vote of confidence will begin on Sunday evening and will be completed by midnight on Tuesday,” a parliamentary aide, who declined to be named, told Reuters news agency.

MPs’ resignations

Mr Papandreou had also faced the threat of a revolt in his socialist Pasok party over the controversial package.

On Thursday, Greek government MP George Floridis resigned in protest at the austerity plan. He was followed shortly afterwards by Ektoras Nasiokas, another Socialist MP.

Earlier this week, another Socialist MP defected, leaving the party to sit as an independent.

The resignations do not affect the party’s five-seat parliamentary majority as the seats are automatically allocated to the next Socialists in line, but they are an indication of the difficulties Mr Papandreou faces in winning confidence in his leadership, says the BBC’s Malcolm Brabant in Athens.

The IMF is expected to pay the next tranche of Greek aid of 12bn euros ($17bn) on the basis of a promise of future EU funding rather than any concrete commitments.

This would give the EU more time to finalise a package to help Greece.

Assuming that some form of Greek government emerges out of the political discussions now under way in Athens, it is now almost certain that Greece will get the official money it needs to stay above water a few more weeks, notably the next tranche of last year’s EU-IMF bailout, says the BBC’s economics editor, Stephanie Flanders.

All the eurozone ministers have to do is agree in principle to fill the funding gap in the Greek economic programme, which they will now do on Sunday, adds our correspondent.

Eurozone finance ministers will decide on a new bailout in July, according to EU Economic and Monetary Affairs Commissioner Olli Rehn.

“I am confident that next Sunday, the Eurogroup will be able to decide on the disbursement of the fifth tranche of the loans for Greece in early July. And I trust that we will also be able to conclude the pending review, in agreement with the IMF,” he said in a statement.

Such an approach “means that the funding of the Greek sovereign debt can now be ensured until September, while we take the decisions for the medium term, beyond September, in July”, he added.

This is a critical month for Greece, our correspondent says. It has very little money left in its coffers and will literally run out of cash in July unless it receives the next tranche of money from the first bail-out which was agreed in May 2010.

‘Road of duty’

Mr Papandreou, who came to power in 2009, has not indicated the extent of his ministerial shuffle, but correspondents say it may include the replacement of Finance Minister George Papaconstantinou.

Economic analysts predict the post is likely to be filled by Lucas Papademos, a former vice-president of the European Central Bank.

This would be met with approval from the IMF and EU, but whether it will satisfy members of parliament remains unclear, our correspondent says.

The government is seeking approval for a package of 28bn euros (£24.6bn; $40.5bn) of cuts, due to take effect from 2012 to 2015.

The policies are required for the release of the next tranche of aid – 12bn euros – from the EU and IMF.

During talks, Mr Papandreou was said to have offered to step down to clinch a coalition, but later agreed to carry on.

Greece’s debt was downgraded by Standard & Poor’s ratings agency earlier this week, making the debt the lowest-rated of the countrries it monitors.

On Wednesday, tens of thousands of activists and unionists gathered in Syntagma square in Athens, near parliament.

A further 20,000 people also demonstrated in Thessaloniki, police said.

The general strike was the third in Greece this year.

The events destabilised markets, with major indexes witnessing the biggest drop on Wednesday since 1 June, and the euro sliding more than 1% against the dollar.

Yields on Greece’s 10-year bonds reached a record high of 18.4%.

(Reuters) – More than half of Americans say the U.S. economy is in a recession or a depression despite official data that show a moderate recovery, according to a poll released on Thursday.

The April 20-23 Gallup survey of 1,013 U.S. adults found that only 27 percent said the economy is growing. Twenty-nine percent said the economy is in a depression and 26 percent said it is in a recession, with another 16 percent saying it is “slowing down,” Gallup said.

The poll findings have a 4 percentage point margin of error, according to Gallup.

The health of the U.S. economy is expected to be a major issue as President Barack Obama, a Democrat, seeks re-election in 2012.

The government reported on Thursday that U.S. economic growth slowed more than expected to 1.8 percent in the first quarter of the year, as soaring food and gasoline prices drained consumer spending power.

A slowdown in first-quarter growth was acknowledged on Wednesday by the Federal Reserve, which described the U.S. economic recovery as proceeding at a “moderate pace.” That was a step back from the “firmer footing” that Fed officials cited for the recovery in March.

The Gallup poll found that Democrats are the most likely to say the economy is growing. Forty-three percent of Democrats said the economy is in a recession or depression, 13 percent said it is slowing down and 42 percent said it is growing.

Sixty-eight percent of Republicans and supporters of the conservative Tea Party movement said the economy is in a recession or a depression. Fourteen percent of Republicans and 13 percent of Tea Party supporters said the economy is growing.

Fifty-seven percent of independent voters — a crucial segment of the electorate for Obama’s re-election bid — said the economy is in a recession or depression and 24 percent said it is growing.

The debt was $14.2101 trillion on March 30, according to the Bureau of the Public Debt, and $14.2642 on April 7.

Since the beginning of the fiscal year on Oct. 1, 2010, the national debt has increase by $653.4 billion.

“If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when,” Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt. “The short-term negotiations are very important, I look at this as a tipping point.”

But he added he was confident in the Americans’ ability to take the right decisions and said the country would avoid insolvency. Based on what?

“I think we are at the beginning of the process and it’s going to be very painful,” he added.

Fisher earlier said the US economic recovery is gathering momentum, adding that he personally was extremely vigilant on inflation pressures.

“We are all mindful of this phenomenon. Speaking personally, I am concerned and I am going to be extremely vigilant on that front,” Fisher said in an interview with CNBC.

Fisher added that the U.S. Federal Reserve had ways to tighten its monetary policy other than interest rates, including by selling Treasurys, changing reserves levels and using time deposits.

He added that he does not support the Fed embarking on an additional round of quantitative easing. (This time he’s playing ‘good cop’)

“Barring some extraordinary circumstance I cannot forsee…I would vote against a QE3,” Fisher told CNBC. “I don’t think it’s necessary. Again, we have a self-sustaining recovery.” Self-sustaining? This guy is obviously completely disconnected from reality and should be discredited as such. This ‘Good Cop / Bad Cop’ routine the Fed governors play is really wearing thin. Outside the lapdog media, none of these people have any credibility whatsoever.