De-Dollarization and the Collapse of the US Economy

For several months we have been writing about how the world’s financial landscape is changing and the complete failure of the FED’s monetary policies and how their policies are creating an utter disaster for the US economy. Since 2008, when the FED decided for us (the US taxpayer) that we would bailout and continue to fund the totally insane bankers and their never ending casino games, our economy is flat, poverty is increasing, our infrastructure is collapsing, our trade deficits are exploding, and we are beginning to look like a third world country.

All the while, the rest of the world (excluding the US. Canada, the EU, and Japan), are starting to wake up and say “No More Insanity”. Quietly, but surly, the BRICS and in particular China began to build consensus that a new approach was needed to address the world’s economic situation. When China formed the AIIB, the FED, the World Bank, and the IMF snickered arrogantly at their efforts. After all, the US, Japan, and the EU were giants in the financial world.

Now, just a few years later, there is quiet panic within this same group and for very good reason. Not only has the BRICS and particularly China been successful in their efforts, they are about to crush the EU and US economies. The dollar is essential DOA as the international trading currency. It is truly criminally negligent how the FED and the ECB have handled this situation. Further, instead of waking up to the new economic reality, the western banking cartel continues to play their insane game.

These bankers have created a $278 TRILLION dollar derivatives time bomb SINCE 2008 that could go off at any moment.  The ECB has doubled down on Greece and this will absolutely insure a Greek default which will, without question, create a total collapse of the Euro. Instead of curbing the gambling excesses of these bankers, breaking up the too big to fail banks, stopping the blatant market manipulations, the FED and the ECB continue to ignore their fiduciary duties to regulate and police the very bankers that have created this disaster.

They say a picture is worth a thousand words, so here is the big picture.

aiibmap

 AIIBCapitalStructure

 

What is most important to note is that in just under a year, the AIIB has created a membership of participating countries that is quickly isolating the ECB, Japan, and the US. Secondly, you can see the AIIB already has more paid in capital than the World Bank, the IMF, and the ADB combined.

What is also interesting to note is how far behind the US has fallen in infrastructure. Infrastructure is the backbone of economic growth and the US is beginning to look like a third world country. Our CONgress continues to ignore these needs and by all measures could be seen as criminally negligent in addressing these issues.

It is really time that the American people begin to wake up and understand that these issues are at the very core of our standard of living issues and if we don’t make these issues the focus of the next election, we are in for one helluva dismal future. This isn’t a theory or opinion. It is FACT.

What can we do? Here are just a few suggestions that need to be addressed immediately.

1). Can the FED and return the responsibility of determining fiscal policy back to the Treasury Department.

2). Break up the big six “too big to fail” banks and instead of fining them, start the criminal charges and send some of these idiots to jail. Congress and our Department of Justice should be doing their jobs honestly and not as dupes to these cronys.

3). Starting working with the BRICS and the AIIB, instead of being like recalcitrant children. This means working on sound global fiscal policies, developing real backing to international trading currencies, and addressing the world’s infrastructure needs, instead of trying to fast track TPP, which is just another failed effort to exert a strength we no long have in the world. Our trade agreements, based on this unrealistic premise, has been a disaster for the US economy and US workers, has killed our manufacturing capabilities, and skyrocketed our trade deficits. These are facts, not opinions or theories.

4). Make rebuilding the US infrastructure a priority in the federal budget. It is the fastest way to create jobs and economic demand. Our critical immediate needs would generate nearly $5 trillion in spending. That is money that would go directly into the economy and not in some bankers accounts.

Get informed as a voter, speak up, demand these actions from our representatives. We are literally only months away from a total economic meltdown from which there is no immediate recovery. It would take decades to recover. Action is needed right now.

Advertisements

The Insanity on the Currency Warfront

As I have chronicled the global financial meltdown, I have been amazed at the number of economists, traders, and politicians that seem to be in complete denial of the facts of the current crisis and at each step either they have reacted in exactly the opposite manner required to respond to the crisis, or they have failed to act at all for self-centered political reasons.  Some examples include banks sitting on huge cash reserves instead of stimulating the economy, the US CONgress adding $1.3 trillion in new debt with tax cuts, central banks everywhere printing money willy-nilly without regard to the consequences. But most of all, we, as citizens and the main participants in the economy merrily skipping down the road without a care in the world.  That is until you are homeless and hungry, then the feelings are anger and despair.

Then the other day, I had a conversation with an old friend who was a forensic psychologist for one of the US Government alphabet agencies.  He is retired now, but his job was a “profiler”.  He would investigate crimes and other “stuff” to help the agents understand the make-up of the criminal or spy and maybe predict “next” moves.  When I lamented about those around me who I love and respect being in complete denial as to the grave nature of the current economic situation, he explained that this is a very natural response to extreme crisis and distress.  It is called Normalcy Bias.

In short, when humans are faced with natural disasters or a man-made crisis that overwhelms them, they simply slip into complete denial.  Logic and intelligence functions stop.  He pointed out some startling examples.  Consider this.  In Germany in 1937 there were nearly 550,000 Jews.  Long established the Jewish German community was rift with businessmen, intelligentsia, professional people who were just beginning to enjoy a good life again after recovering from World War One.

As Hitler rose to power with his hate mongering and obsession with the Jewish community, it became very apparent that the Jewish community was facing more and more injustices.  Property seizures, business taxed at 100%, lose of civil rights, street beatings by the Brown Shirts, still they did not understand the danger they were in and believed being rational and calm would weather them through the storm.  Only about 100,000 Jews fled in time.  We know the tragic end to that story.

However, things are heating up on the currency warfront.  This week saw many assaults on the US Dollar.  Let me stop here and talk some basics.  Currently the US policy and the FED policy simply has been to print more money.  The US enjoys a unique position when it comes to currency because the US dollar is the world’s transactional currency.  For example, if Germany wishes to buy oil, it must first convert Euros to Dollars to purchase the oil.

However, keeping the dollar as the global transactional currency only lasts as long in the faith of the value of the dollar remains in the rest of the world.  The US actions of the last week, both at the FED and CONgress have gone a long way to weaken that faith.  What is happening is both countries and companies are choosing to use other methods to transact business.

So we are beginning to see news items like this. In spite of its infancy, interest in the offshore renminbi market is growing quickly. Caterpillar, the US-based maker of earth-moving equipment, launched a Rmb1bn ($150m) bond issue last month, making it the second multinational to tap the market, following an August issue by McDonald’s, the fast-food chain.

What makes these bond issues important is that the offshore renminbi market is much more than just a new avenue for debt financing – it is one of the core components in a plan to internationalize the Chinese currency. The process will be a slow one, with more baby steps than giant leaps, and it is by no means assured that the renminbi – also known as the yuan – will forge a decisive international role. But it is one that could have a huge long-term impact on trade, the global financial system and even international politics.

If the plan works, the renminbi could become the main currency for doing business in Asia, the world’s most economically dynamic region, and in the long run it could become a significant part of the reserves of the world’s central banks. Indeed, some Chinese officials have already called for the renminbi to be included in the International Monetary Fund’s basket The timing is also full of portents. The renminbi is starting to go global just as the future of the euro and the dollar is looking increasingly uncertain. Eventually the shift could have an impact on the ability of the US to borrow overseas in its own currency. In China, some have taken to calling their currency the hongbi, or “redback”, to rival America’s greenback – a moniker that gives a flavour of the geopolitical undercurrents.

“We may be on the verge of a financial revolution of truly epic proportions,” says Qu Hongbin, China economist at HSBC, one of the banks pushing the renminbi to its corporate clients. “The world economy is, slowly but surely, moving from greenbacks to redbacks.”of main currencies.

So even though the Fed has flooded the credit markets with cash, spreads haven’t budged because banks don’t know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is “the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue.”

Today, the banks have a problem on the asset side of their ledgers — “all these exotic securities that the market does not know how to value.” “Why are they ‘toxic’?” Ms. Schwartz asks. “They’re toxic because you cannot sell them, you don’t know what they’re worth, your balance sheet is not credible and the whole market freezes up. We don’t know whom to lend to because we don’t know who is sound. So if you could get rid of them, that would be an improvement.”

And economics professor and former Secretary of Labor Robert Reich wrote in 2008:

The underlying problem isn’t a liquidity problem. As I’ve noted elsewhere, the problem is that lenders and investors don’t trust they’ll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years — the derivatives, credit default swaps, collateralized debt instruments, and so on — has undermined all notion of true value.

What everyone here is cryptically referring to is the credit derivatives and credit swap facilities which no one knows the value of when conducting a transaction.  Indeed only nine major banks control this $1 quadrillion market.  No I didn’t make a mistake, I said $1 quadrillion! We were just getting our heads around what a trillion really meant.  Here is the fundamental problem with this situation. $1 quadrillion represents about 20 times the Global GDP!  This is pure insanity.  There is no other way to describe what is going on right now.

Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”

Indeed, polls show that people no longer trust our economic “leaders”. See this and this. A psychologist wrote an essay published by the Wharton School of Business arguing that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable.

Government regulators know this – or at least pay lip service to it – as well. For example, as the Director of the Securities and Exchange Commission’s enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

If people don’t trust their government to enforce the law, government will become more and more impotent in addressing our economic problems. If government leaders take action, the market will not necessarily respond as expected. When government leaders make optimistic statements about the economy, people will no longer believe them.

Then also on the warfront, China and Russia announced they will trade in their own currencies.  In addition, the IMF recently released a report suggesting that given the weakness of the Euro and the Dollar, we should be moving toward a global central bank and a single global currency, which they are calling the Bancor. Several banks no longer are accepting deposits in dollars.

What does this really mean and why should you care about it.  I have one word for you, hyperinflation.  The world is currently pushing back on US policies and are demanding that either the US deal effectively with the deficit or devalue the dollar.  When the pressure gets strong enough, and I believe that could be as soon as the next three months, the US will acquiesce and devalue the dollar by as much as 40%.

This will happen suddenly and overnight!  You will wake up to $8 gas, $5 bread, a 4000 point dip in the Dow and events will rapidly cascade from there to riots in the streets of the US just as we have riots now in Ireland, Greece, Italy, France, and Britain.  The war is reaching fever pitch.  Pay close attention now because bunker time may not be far off.

Be Prepared For a Crash Landing!

As some of you are aware there is something large looming in the predictive linguistics concerning the first few weeks in November.  For those of you who don’t understand what I am talking about, let me give you a brief explanation.  Predictive linguistics can predict near future events with some accuracy based on analyzing different language sets appearing on the internet and the variation in frequency of these appearing “in the cloud”.

The effects of the predicted events in November have impacts never seen before in the project.  To put it in prospective to September 11th, it is about 5-6 times larger in predicted global impact.  Well that is enough to sit up and take notice.

The mid-term elections in the US will conclude, more or less, today.  This is significant because of what the Fed has been planning to initiate later this week.  The Federal Reserve is likely to start a fresh round of unorthodox stimulus tomorrow by announcing a plan to purchase at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.

Policy makers meeting today and tomorrow will restart a program of securities purchases to spur growth, reduce unemployment and increase inflation, said 53 of 56 economists surveyed last week. Twenty-nine estimated the Fed will pledge to buy $500 billion or more, while another seven predicted $50 billion to $100 billion in monthly purchases without a specified total. The remainder said the Fed would buy up to $500 billion or didn’t quantify their forecast.

The varied responses reflect differences among Fed officials over the total amount of purchases needed to bolster the recovery. Policy makers, pursuing unprecedented stimulus, have cut the benchmark rate almost to zero and bought $1.7 trillion in securities without generating growth fast enough to bring down unemployment from near a 26-year high.

The Fed has put intense effort into judging what it should signal and how. The FOMC has at least three broad options. First, it could be neutral, pledging to adjust the size of QE2 depending on the data. Second, it could signal a clear bias towards continuing to buy assets unless the economic data have improved. Third, it could pledge to keep buying assets until it is on track to achieve its inflation objective.

However, opponents of the QE2 have very critical opinions that these actions will take the global economy over the cliff. This outflow from the dollar is not the kind of capital that takes the form of tangible investment in plant and equipment, buildings, research and development. It is not a creation of assets as much as the creation of debt, and its multiplication by mirroring, credit insurance, default swaps and an array of computerized forward trades. The global financial system has decoupled from trade and investment, taking on a life of its own.

In fact, financial conquest is seeking today what military conquest did in times past: control of land and basic infrastructure, industry and mining, banking systems and even government finances to extract the economic surplus as interest and tollbooth-type economic rent charges. U.S. officials euphemize this policy as “quantitative easing.” The Federal Reserve is flooding the banking system with so much liquidity that Treasury bills now yield less than 1%, and banks can draw freely on Fed credit. Japanese banks have seen yen borrowing rates fall to 0.25%.

This policy is based on the wrong-headed idea that if the Fed provides liquidity, banks will take the opportunity to lend out credit at a markup, “earning their way out of debt” – inflating the economy in the process. And when the Fed talks about “the economy,” it means asset markets – above all for real estate, as some 80% of bank loans in the United States are mortgage loans.

The currency impacts can be significant and immediate.  By forcing up targeted currencies against the dollar, this U.S. outflow into foreign exchange speculation and asset buy-outs is financial aggression. And to add insult to injury, Mr. Geithner is accusing China of “competitive non-appreciation.” This is a euphemistic term of invective for economies seeking to maintain currency stability. It makes about as much sense as to say “aggressive self-defense.” China’s interest, of course, is to avoid taking a loss on its dollar holdings and export contracts denominated in dollars (as valued in its own domestic renminbi).

Countries on the receiving end of this U.S. financial conquest (“restoring stability” is how U.S. officials characterize it) understandably are seeking to protect themselves. Ultimately, the only serious way to do this is to erect a wall of capital controls to block foreign speculators from deranging currency and financial markets. Changing the international financial system is by no means easy. How much of alternative do countries have, Martin Wolf recently asked. “To put it crudely,” he wrote:

“The US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world.”

An eerie calm has descended upon world financial markets as they await perhaps the two most important financial events of the year this week.  On Tuesday, investors will be eagerly awaiting the results of one of the most anticipated midterm elections in U.S. history.  On Wednesday, the Federal Reserve is expected to end months of speculation by formally announcing the details of a new round of quantitative easing.  If either the election or the meeting of the Federal Reserve open market committee delivers a highly unexpected result, it could have a dramatic impact on world financial markets.  In fact, many are looking at this week as a potential turning point for the U.S. economy.  The decisions that are made or not made this week could set us down a road from which the U.S. economy may never recover.

This is probably the most significant move of the current economic crisis and the results of the FED’s action will literally affect every family in the world and that is not an exaggeration.  To put this in real simple terms, the US has declared war on the world’s currency.  Now the question is how will the world react to this move.  What effect could the FED’s actions have on the fragile EU economy?  How will China, especially, respond.  China being the biggest holder of US securities, the FED printing $500 Billion in “new money” grossly devalues China’s investment.  Does China take that sitting down?  I don’t think so.

So, let’s go over the procedures for a crash landing.  In the event of…….

Update From the Currency Warfront

As we have discussed in previous articles, our fears relating to the lack of political will or statesmanship are seemingly coming true. Our global leaders seem to be struggling at the G20 summit when it comes to the subject of currency imbalances.

Consider these facts reported by the Telegraph UK …..With China resolutely refusing to allow the yuan to rise more quickly, the US shifted the debate on the first day of the G20 summit to address trade imbalances, the root issue behind exchange rate clashes.

Timothy Geithner, the US Treasury secretary, told G20 members they should commit to specific trade caps, allowing surpluses and deficits on their current account, the broadest measure of trade in goods and services, to be no more than 4pc of gross domestic product.

China’s current account surplus was 5.9pc in 2009, having almost halved from its peak of 10.6pc in 2007. The US, by contrast, had a current account deficit of 3pc last year.  In a letter to the G20, Mr Geithner called for a “co-operative effort” on the issue, but said there would have to be “some exceptions” for countries that imported large quantities of raw materials.

The US plan was seen as a way to side-step a direct confrontation over currencies. It was backed by the UK, Korea, Australia and Canada, but immediately opposed by large exporters such as Japan and Germany.  Rainer Bruederle, the German finance minister, rejected a “command economy” approach, while Yoshihiko Noda of Japan said “setting numerical targets would be unrealistic”.

India also said the trade caps would be hard to work out, while Russia said there would be no numerical limits set in the summit’s final statement.  Mr Geithner also called for G20 countries to refrain from “either weakening their currency or preventing the appreciation of an undervalued currency”. Mr Geithner, who also called for the IMF to monitor the G20’s commitments, added: “G20 advanced countries will work to ensure against excessive volatility and disorderly movement in exchange rates.”

Guido Mantega, the Brazilian Finance minister, who was not at the G20 summit, also revealed the Mr Geithner had telephoned him to reassure him that the US had no intention of allowing the dollar to weaken further.  “He guaranteed US policy is not to weaken the dollar, on the contrary, it is to strengthen the dollar,” said Mr Mantega. “He said the impact of the Fed policy was being overestimated. It is difficult, if you weaken the dollar and want the Chinese to let the yuan appreciate,” he added.

However, as the first day of meetings closed, there was little sign that currency issues would be resolved. With scepticism growing that the G20 was a focused enough forum to iron out global economic problems, Lee Myung-bak, the South Korean president who is hosting the summit, warned ministers that if they did not reach a compromise “we may not operate bus, train or airplane services to take you back home”.

In a final statement after two days of heated negotiation, the G20 said it would “move towards more market-determined exchange rate systems” and that the International Monetary Fund would “deepen” its supervision of exchange rates.

“This language calms everything down and gives us a route map forward,” said George Osborne, the Chancellor of the Exchequer. “Obviously this colorful language about currency wars has got everyone excited,” he added.

Mr. Osborne clarified, however, that the statement was not a criticism of China for persistently undervaluing the Yuan. “What people have been nervous about is that the current imbalance would get worse as countries other than China look at the route of competitive devaluation.” He also said that while currencies “tend to grab the headlines”, they are just one part of wider economic imbalances.

While several member countries of the G20 hailed the summit in South Korea as a success, Japan immediately broke ranks to declare that, contrary to the spirit of the communique, it would continue to devalue the yen if it saw fit.  Yoshihiko Noda, Japan’s finance minister, said: “A prolonged appreciation in the yen is not good for Japan’s economy. Our stance, that we will take appropriate, bold action if needed, is unchanged.”

From all of this, the thing we need to fear the most is an outbreak of currency devaluation to counterbalance China’s refusal to let the Yuan finds its place in the market.  This could have disastrous effects on already stressed economies.

While a little inflation and growth would be a good thing, hyperinflation would be devastating to the US and EU economies that are at best still on their knees.  Relate this also to the fact that most of these nations have committed to rather severe austerity programs and the temperature in the pot will go up a few degrees I fear.

It is no secret that for months now that predictive linguistics has pointed to a major event that has been anticipated within the first 15 days of November.  Most recently, it seems to somewhat focus on the global economy.  PAY ATTENTION, very close attention to these events now unfolding.