Tuesday, February 23, 2010

No longer a 'viable entity'

Greetings good citizen!

I have many times pointed to 'currency manipulation' as the principal cause of the destruction of our economy.

Do you know why I make such an outrageous claim? I make it partially because the people living in the 'cheaper there' should be dead, but that's only the half of it.

Letting the bankers play both ends against the middle is how the economy crashed and burned...note I use the present tense...the economy IS gone, it's 'cooked' and there is no 'bringing it back (although that's not what dopey thinks. Who is 'dopey'...you'll see.)

On the other hand, I learned something from this piece. I learned the importance of the gold standard and why the global economy 'turned to shit' once the 'gold standard' was, er, 'abandoned'.

Without the gold standard (everybody's money tied to an 'agreed upon' standard) Bankers were free to 'assign' different values to different nation's currency, where they proceeded to use those 'non-existent' differences to make themselves a ton of money!

The 'screw-job' here is a pig is a pig and a duck is a duck and a buck is a buck no matter where you find it, and they're all priced by the pound for the consumer's convenience. A pound of chicken in Beijing is identical to a pound of chicken in Berlin, which is a carbon copy of a pound of chicken in Bayonne (N.J.,USA)

To an extent, food is better than a 'gold standard' because we all need to eat but we don't all need gold. In fact, nobody would die if they never in their entire life so much as laid eyes on gold...that's how 'unnecessary' gold is. You can't say the same thing for food, and the fucktard bankers know this.

YET, I spend on food each week what the average Chinese worker earns in a month! How do you suppose THAT works? One of us is getting 'ripped off' and guess who it is?

Do the math, it's me! (and by extension, you!) Not only are we paying many times what the Chinese worker pays for food but we are losing our jobs to them in the bargain.

How do you like your 'Wall Street Banker' now?

Anyway, onward with tonight's offering

“The US is not a viable concern anymore” – Duncan
Posted by Izabella Kaminska on Feb 17 13:45.

FT Alphaville spoke with Richard Duncan, partner at Blackhorse Asset Management and author of The Dollar Crisis on Tuesday, regarding his new book The Corruption of Capitalism. And while he is pretty pessimistic on the US, Duncan says there is a way out if policymakers make bold decisions. [I completely agree, however, you’d be hard pressed to call what comes out on the other end ‘capitalism’.]

But first some background. In the Dollar Crisis, published in 2003, Duncan explained how the collapse of the Bretton Woods system in 1973 was always going to lead to a global financial crisis due to the trade imbalances it encouraged and created. Based on the premise, Duncan successfully predicted the subprime problem, the downfall of government sponsored agencies as well as the banking crisis (and related bailouts) we’ve all — seven years on — come to know and love. [Most of us who have been predicting crisis are being ‘exonerated’ although most of us had the timing way off.]

Simply put, according to Duncan, the breakdown of the gold standard allowed too much paper-money to be created in the US. This de facto funded the US deficit, which respectively fuelled a savings glut in Asia. That inevitably drove dollar inflows back into the US — which themselves, over the course of a four-decade period, fueled a global credit bubble of simply gargantuan proportion.

In Duncan’s words, the collapse of Bretton Woods represented the moment “capitalism became corrupted by government debt”. From that point on “US policymakers abandoned the core principles of economic orthodoxy: balanced government budgets and sound money”. [Open for debate here is who the government acted on the behalf of, it sure as hell wasn’t in the best interests of the ‘non-investor, working class!’]

One chart reflecting the situation well according to the author is this one: [click link to view chart.]

In Duncan’s eyes it clearly shows the breaking of the global financial system’s imbalanced back.

To his frustration, though, it’s not a point that’s been grasped by policymakers yet. Policy response if anything has been ill-fitting, meaning the world’s economy is on life support — at best. As he explained to FT Alphaville:

Last year the US economy shrank by 2.4 per cent. But the budget deficit was 10 per cent of GDP. Without that deficit spending, the economy would have shrunk by at least 12 per cent, i.e. -2 per cent plus -10 per cent. Even after that deficit spending, the unemployment rate is 10 per cent, interest rates are zero, and central banks around the world are printing enormous amounts of paper money to prevent economic collapse. This policy response is supporting the global economy but it has not even targeted the structural flaws responsible for the crisis.

The point being: the world’s largest economy and engine of global economic growth — the United States — is simply not a viable concern any more. As Duncan explained it:

The country is de-industrializing because wages in the US are up to 40 times higher than those in developing countries like China. [This is due to currency manipulation, which starts where? With BANKS of course!] Therefore, the United States makes very little that the rest of the world cannot buy somewhere else much more cheaply. [Understand, we didn’t price ourselves out of the market, the sleaze-ball bankers did it for us! How, by abandoning the ‘universal standard’ that gold provided.]

And so, like any troubled company, the US too must restructure itself if it is to remain operational, says Duncan. How it goes about it, though, will be crucial to its success. The best policy according to the author would be heavy government investment in so-called ‘future’ industries — everything from solar, biotech, nano-technology and so on. Trouble is, a move like that would take more government spending not less. [It would also be extremely ‘moronic’ if we fail to ‘re-anchor’ our/the world’s currency to a universal standard. This has become an exercise where the lesson is ‘not everyone who agrees with you has a fucking clue!’]

Duncan estimates some $3,000bn or so on top of the $10,000bn already estimated in deficit spending over the next 10 years would be needed to put the US back on top of the global industrial game in this way.

Full stop! I have mentioned before that I usually select the day’s offering by the ‘headline’ more so than the content, which I read in detail as I ‘highlight’ the writer’s main points.

Sometimes, and this happens to be one of them, you agree with the headline but hardly any of the rest of what THE CLUELESS BASTARD has to say!

What do you suppose adding three trillion to an already ‘towering inferno’ is going to accomplish? Perhaps more amazing is how these clueless bastards ignore the present crisis in Zimbabwe!

Ilargi enlightens us to this ‘more better’ syndrome (albeit not very clearly.) So I’ll ‘recap’ here in a nutshell, when you’re drowning, more water doesn’t help anything!

That sailed right over roughly 50% of your heads, let’s try again.

A quarter buys you a chocolate bar…so two quarters would buy you two chocolate bars…except when there aren’t two chocolate bars to be had, there is still only the one.

This is the heart of the crisis, adding money doesn’t increase the amount of available resources, no matter how much money you add! (Governments around the world have been pumping trillions of ‘dollars’ into their economies without adding any corresponding ‘real wealth’, which merely ‘dilutes’ the value of ‘existing money’ and makes us all ‘net’ poorer.)

Are you working for nothing yet? Pretty much.

Back to the article…

The worst-case scenario, meanwhile, would be America turning into Japan while it attempted to do just that. On the flip side, it’s from Japan’s experience that valuable lessons could also be drawn. As Duncan explained (our emphasis):

When Japan’s bubble popped in 1990, the Japanese government’s debt to GDP was 60 per cent. The Japanese economy has been on government life support since then and government debt to GDP is now more than 200 per cent.

During the bubble years of the 1980s, a great deal of profit was made in Japan. That money was available to finance the expansion of government debt after the bubble popped. If it had not invested in government bonds it would have been destroyed, because there are no viable investment opportunities in a post-bubble economy. So the private sector has financed the expansion of government debt in Japan, and it has done so on concessionary terms.

The 10-year Japanese government bond yield is only 1.3 per cent. Now that the US bubble has popped, the US government will also be able to greatly expand its debt. But the lesson the US must learn from Japan is not to waste that money building bridges to nowhere, but instead to use the money wisely to restructure the economy to restore its viability. This global crisis will not end until the United States restructures its economy and restores its long-term viability. [What do you suppose the odds are of that happening quickly enough to save the doomed Boomers? What do you suppose the odds are that the Boomers will burn this clam shack to the ground?]

The consequences of a scenario where the US failed to respond effectively, meanwhile, would be grave indeed. Not only would the US slip into irreparable decline, according to the author, globalization would break down and export-oriented Asian economies could collapse. [Change ‘could’ to ‘would’, albeit the commies have a better chance of surviving a collapse than the predatory capitalists do...]

End of an era for Asia?

But if Duncan’s view here is bleak, it’s even bleaker on the China situation. As he stated:

…regardless of what happens in the US, China is facing a much more difficult future than is generally believed. Every boom busts. Every bubble pops. China will be no exception.

It is a serious mistake to believe China’s economy will continue to grow at 8 per cent or more for the next decade. That’s what people believed about Japan in 1989. Today, Japan’s economy is no larger than it was in 1993, if you don’t adjust for deflation. 2 per cent to 4 per cent annual GDP growth would be an excellent outcome for China over the decade, in light of the enormous capital misallocation that has occurred there over the past 10 years.

The economic crisis in the United States means Asia’s era of export-led growth is over. A protectionist backlash in the West will force China to substantially revalue the Yuan to avoid trade tariffs in the United States and Europe. Other Asian currencies will follow the Yuan higher. Finally, the direction of asset prices in Asia, and around the world, will be determined by the size and timing of successive rounds of government stimulus packages in the United States and within Asia. The global economy will remain on government life support for years to come. [When energy becomes scarce the ‘global economy’ (as it currently exists) will collapse, this is not a question of ‘if’ but ‘when’. (We will, as we have for centuries, trade worldwide. Most commodities will be sourced ‘locally’ as the return of wind driven ocean travel makes cargo hold space ‘pricey’ once more.)]

So that’s pretty much bad news for Asia under every conceivable scenario.

And if gold bugs were hoping for a call back to the gold standard, we would have to disappoint.

Duncan’s view is that we’re now beyond a return to a gold-pegged system. The best we can hope for in terms of restricting future imbalances is regulatory reform focused on keeping credit creation at banks in check. As he summed up:

…we’re simply not in the garden of Eden scenario anymore.

While I might be inclined to agree that we won’t see the ‘gold standard’ re-instated, there is no ‘cure’ for the badly unbalanced global economy if the currency situation remains…’open to banker’s interpretation’.

If they keep on ‘fudging’ the value of the dollar the way they have been, we will all walk off the job in disgust. There won’t be any point in ‘working for the man’.

It’s difficult to image something more terrifying than finding out your money is no good. If you don’t have something to trade, you are well and truly.

Thanks for letting me inside your head,


In case you’re interested, here’s the official version of today’s market ‘bellyflop’.

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