Monday, March 15, 2010

Taking (it) On (the) Chin (a)

Greetings good citizen,

Apparently last week’s revelations surrounding the ‘financial improprieties’ involving Lehman Brothers will be ‘the next big distraction’ for the foreseeable future. (Which is to say a couple of days, anyway.)

In a 2,200 page report, it has been revealed that Lehman management, with the assistance of accounting firm Ernst & Young, ‘cooked the books’ a la Enron, which, in essence, ‘defrauded’ the shareowners.

Um, the CEO as well as the CFO of Enron ended up being convicted of criminal wrongdoing in the Enron case but only the CFO actually did jail time…the CEO (Ken Lay) died before commencing his sentence.

More damning is how the Enron ‘scandal’ gave birth to Sarbanes-Oxley, which essentially required the CEO and the other officers of the company to ‘swear’ (via affidavit) that the company’s finances were ‘as advertised’.

Naturally, the question that remains here is whether or not any member of Lehman’s management team will face prosecution.

Which is to ask will this be the instance where we learn that the ‘statute of limitations’ on financial crimes has been reduced to the amount of time it takes the ink to dry?

Hey, ‘who knew’ usury laws were vacated back in 2003, right around the same time the Bush White House was legalizing torture and eliminated habeas corpus?

But let us set this particular ring of the financial circus act aside for now, other matters press.

As I have ranted repeatedly, globalization was made possible through ‘financial manipulation’, that the ‘differences’ between currencies are set by ‘central bankers’, who ‘agree’ on what each nation’s monetary unit is worth.

But that’s not what this article implies which leaves us with a most disturbing conundrum…

Do the respective countries get to ‘declare’ what their currency is worth or is this decision based on something other than their, er, ‘whim’?

I mean, if China says the renminbi is worth 20 cents, why can’t we turn around and say, ‘right back at ya!’ with the dollar? Better, we could, according to this ‘logic’, just ‘peg’ the dollar to whoever’s currency was trying to take advantage of us…then let them try and ‘dump’ their crud here!

Understand good citizen, while China claims their ‘dollar’ is worth roughly one eighth of what our dollar is ‘worth’, their ‘dollar’ buys them four times there what our dollar buys us here!

So their claims are totally bogus! Um, more disturbing, considering how ‘obvious’ this manipulation is, is why we don’t ‘retaliate in kind’?

This begs some mighty peculiar ‘physics’ if money is ‘whatever they claim it is’.

Um, naturally good citizen, the question is ‘who benefits’? You don’t suppose the biggest ‘winner’ here is union hating employers, do you?

Stop right there good citizen…does it look like somebody’s getting ‘screwed’?

Taking On China

Published: March 14, 2010

Tensions are rising over Chinese economic policy, and rightly so: China’s policy of keeping its currency, the renminbi, undervalued has become a significant drag on global economic recovery. Something must be done. [What we have to wonder about good citizen is the mind-blowing implications of the notion that the ‘value’ of money can be arbitrarily determined!]

To give you a sense of the problem: Widespread complaints that China was manipulating its currency — selling renminbi and buying foreign currencies, so as to keep the renminbi weak and China’s exports artificially competitive — began around 2003. At that point China was adding about $10 billion a month to its reserves, and in 2003 it ran an overall surplus on its current account — a broad measure of the trade balance — of $46 billion. [Wait a minute Slim…the largest single amount of ‘foreign currency’ the Chinese hold just happens to be that of its number one trade partner…the US of A. Worse, this still doesn’t solve the mystery of PPP.]

Today, China is adding more than $30 billion a month to its $2.4 trillion hoard of reserves. The International Monetary Fund expects China to have a 2010 current surplus of more than $450 billion — 10 times the 2003 figure. This is the most distortionary exchange rate policy any major nation has ever followed. [So, again we must ask ourselves…who wins in this bizarre game of ‘giveaway’ and why can’t we ‘correct’ the problem ourselves? Naturally, we CAN correct the problem, BUT ‘somebody’ doesn’t want the problem ‘corrected’.]

And it’s a policy that seriously damages the rest of the world. Most of the world’s large economies are stuck in a liquidity trap — deeply depressed, but unable to generate a recovery by cutting interest rates because the relevant rates are already near zero. China, by engineering an unwarranted trade surplus, is in effect imposing an anti-stimulus on these economies, which they can’t offset. [As I have pointed out previously, you can’t ‘stimulate’ your own economy if it is ‘open ended’, it has to be a closed loop in order to work. Understand, EVERY developed nation pumped huge amounts of ‘stimulus’ into their economies and…it didn’t work. Why? Because it all ‘leaked out’ to China…]

So how should we respond? First of all, the U.S. Treasury Department must stop fudging and obfuscating. [Um, from the tone of today’s revelations about Lehman Brothers, there could be some big time personnel shifts coming in the Obama administration Cabinet.]

Twice a year, by law, Treasury must issue a report identifying nations that “manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” The law’s intent is clear: the report should be a factual determination, not a policy statement. In practice, however, Treasury has been both unwilling to take action on the renminbi and unwilling to do what the law requires, namely explain to Congress why it isn’t taking action. Instead, it has spent the past six or seven years pretending not to see the obvious.

Will the next report, due April 15, continue this tradition? Stay tuned.

If Treasury does find Chinese currency manipulation, then what? Here, we have to get past a common misunderstanding: the view that the Chinese have us over a barrel, because we don’t dare provoke China into dumping its dollar assets. [Um, we really can’t get ‘more fucked’ than we already are AND, more importantly, we can ‘nullify’ any punitive measure they throw at us with the stroke of a pen! It really is ‘that easy’…so why are we being subjected to this ‘bullshit?’ There’s the question they don’t want you asking…because you won’t like the answer!]

What you have to ask is, What would happen if China tried to sell a large share of its U.S. assets? Would interest rates soar? Short-term U.S. interest rates wouldn’t change: they’re being kept near zero by the Fed, which won’t raise rates until the unemployment rate comes down. Long-term rates might rise slightly, but they’re mainly determined by market expectations of future short-term rates. Also, the Fed could offset any interest-rate impact of a Chinese pullback by expanding its own purchases of long-term bonds. [If the Chinese try to ‘dump’ their dollar holdings (something they are cautiously doing and have been for quite some time) the largest ‘effect’ would be a reduction in the value of whatever asset they were attempting to dump. If they try to dump, they end up losing money.]

It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. [Great in theory but the bad news is we don’t have anything to ‘trade’ besides raw materials and food.] On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around. [He’s right, as long as you’re cool with the idea of slipping back into the Stone Age, we don’t have enough left of our manufacturing sector to make a thimble, never mind fill one.]

So we have no reason to fear China. But what should we do?

Some still argue that we must reason gently with China, not confront it. But we’ve been reasoning with China for years, as its surplus ballooned, and gotten nowhere: on Sunday Wen Jiabao, the Chinese prime minister, declared — absurdly — that his nation’s currency is not undervalued. (The Peterson Institute for International Economics estimates that the renminbi is undervalued by between 20 and 40 percent.) And Mr. Wen accused other nations of doing what China actually does, seeking to weaken their currencies “just for the purposes of increasing their own exports.”

But if sweet reason won’t work, what’s the alternative? In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.

I don’t propose this turn to policy hardball lightly. But Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It’s time to take a stand.

While Mr. Panzer of Financial Armageddon takes exception to Mr. Krugman’s argument, I, on the other hand, tend to agree with our most recent Nobel laureate. Were I to criticize him, it would be for taking so long to get here.

Um, something’s still ‘rotten in Denmark’. The Chinese wouldn’t be able to get away with what they’re doing without the consent of some mighty powerful individuals.

Which brings us full circle to yet another disturbing realization, that somebody has seized control of money, thereby claiming virtually absolute rulership of the world.

But most ‘sane’ people ‘pooh pooh’ the very idea of lone psychopaths…not that this individual is operating alone; there are indeed accomplices, plenty of them.

But I believe I proved beyond a doubt the other night that you are all ‘certifiable’, so bear with me as I share my ‘delusions’ with you.

This crap doesn’t happen in a vacuum and ‘somebody’ has to be driving the whole screwy arrangement…somebody so far out there they redefine the term psychopath.

Thanks for letting me inside your head,


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