Greenspan Calls Out U.S. Policy of Weakening Dollar

from FT.com:

The US is pursuing a policy of weakening its currency which is driving up exchange rates in the rest of the world, according to Alan Greenspan, the former chairman of the Federal Reserve.
Writing in today’s Financial Times ahead of the G20 meeting in Seoul, Mr Greenspan argues that with China also holding down the renminbi, the upward pressure on currencies elsewhere risks a return to widespread trade protectionism. Mr Greenspan criticises China for continuing to prevent the renminbi strengthening, saying it reflects a misguided view that a weak currency is necessary for export growth and political stability. “China has become a major global economic force in recent years,” he writes. “But it has not yet chosen to take on the shared global obligations that its economic status requires.” More unexpectedly, Mr Greenspan adds: “America is also pursuing a policy of currency weakening.”

Debase, Default, and Deny

Another phenomenal article by Gordon Long:

In September 2008 the US came to a fork in the road. The Public Policy decision to not seize the banks, to not place them in bankruptcy court with the government acting as the Debtor-in-Possession (DIP), to not split them up by selling off the assets to successful and solvent entities, set the world on the path to global currency wars.

By lowering interest rates and effectively guaranteeing a weak dollar through undisciplined fiscal policy, the US ignited an almost riskless global US$ Carry Trade and triggered an uncontrolled Currency War with the mercantilist, export driven Asian economies. We are now debasing the US dollar with reckless spending and money printing with the policies of Quantitative Easing (QE) and the expectations of QE II. Both are nothing more than effectively defaulting on our obligations to sound money policy and a “strong US$”. Meanwhile with a straight face we deny that this is our intention.  

 

It’s called debase, default and deny.

 

Though prior to the 2008 financial crisis our largest banks had become casino like speculators with public money lacking in fiduciary responsibility, our elected officials bailed them out. Our leadership placed America and the world unknowingly (knowingly?) on a preordained destructive path because it was politically expedient and the easiest way out of a difficult predicament. By kicking the can down the road our political leadership, like the banks, avoided their fiduciary responsibility. Similar to a parent wanting to be liked and a friend to their children they avoided the difficult discipline that is required at certain critical moments in life. The discipline to make America swallow a needed pill. The discipline to ask Americans to accept a period of intense adjustment. A period that by now would be starting to show signs of success versus the abyss we now find ourselves staring into.  A future that is now significantly worse and with potentially fatal pain still to come.

 

 

Unemployed Americans, the casualties of the financial crisis wrought by the banks, witness the same banks declaring record earnings while these banks refuse to lend. When the banks once more are caught with their fingers in the cookie jar with falsified robo-signing mortgage title fraud, they again look for the compliant parent to look the other way. Meanwhile the US debt levels and spending associated with protecting these failed (and still insolvent institutions) are so out of touch with US de-industrialized productive capability that the US dollar is falling and forcing countries around the world to devalue their currencies in a desperate attempt to maintain competitive advantage. So much for the “strong dollar” mantra we heard endlessly for years from every US Secretary of the Treasury that needed foreign investment to fund our deficits. Like second rate powers, our word is no longer our bond.

 

The fork in the road which we chose has resulted in:

1) massive public debt levels that can never realistically be expected to be paid back,

2) Financial markets that are disconnected from fundamental historical values,

3) A global banking industry that can best be described as fragile and is realistically insolvent if the accounting games were to be removed.

I think most would agree that massive public, private and consumer debt levels are a central problem to the current global predicament. We also however need to appreciate that these massive debt build ups have also allowed the over-building of production capacity. We have global supply that is now outstripping demand.  The output gap in the US alone would require a theoretical -7% Fed Funds Rate according to the Taylor Rule (6)

 

EXCESS CAPACITY

 

The currency wars are being fought because global players are being forced to fight for a piece of the global demand pie that is growing at a slower rate (a first derivative problem) versus the capacity presently available and coming online. The Asian buildup of production capacity is nothing short of startling but it is premised on a free spending and 70% consuming US economy. A slowdown in the US and a weakening US dollar are major threats to political and social stability in the Asian export economies. Everything in the mercantile, export led Asian economies must be done to avoid this. The facts however are that there are no longer sufficient jobs in America to support past and present levels of consumptions. The middle class in America is quickly becoming extinct and with it the ability to famously ‘shop till they drop’.

 

What are the US politicos to do?  The well recognized Michael Hudson asserts in Why the U.S. Has Launched a New Financial World World War:

“Finance is the new form of warfare – without the expense of a military overhead and an occupation against unwilling hosts. It is a competition in credit creation to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership. Who needs an army when you can obtain the usual objective (monetary wealth and asset appropriation) simply by financial means? All that is required is for central banks to accept dollar credit of depreciating international value in payment for local assets. Victory promises to go to whatever economy’s banking system can create the most credit, using an army of computer keyboards to appropriate the world’s resources. The key is to persuade foreign central banks to accept this electronic credit.

 

U.S. officials demonize foreign countries as aggressive “currency manipulators” keeping their currencies weak. But they simply are trying to protect their currencies from being pushed up against the dollar by arbitrageurs and speculators flooding their financial markets with dollars. Foreign central banks find them obliged to choose between passively letting dollar inflows push up their exchange rates – thereby pricing their exports out of global markets – or recycling these dollar inflows into U.S. Treasury bills yielding only 1% and whose exchange value is declining. (Longer-term bonds risk a domestic dollar-price decline if U.S interest rates should rise.)

 

What is to stop U.S. banks and their customers from creating $1 trillion, $10 trillion or even $50 trillion on their computer keyboards to buy up all the bonds and stocks in the world, along with all the land and other assets for sale in the hope of making capital gains and pocketing the arbitrage spreads by debt leveraging at less than 1 per cent interest cost? This is the game that is being played today.”

The chart to the right was published in early spring of this year specifically spelling out that a ‘Beggar-thy-Neighbor’ roadmap lay ahead.

 

WINNERS & LOSERS IN A CURRENCY WAR

 

How could I have been so sure when I put this chart together? The realistic fact about wars are that there are winners and losers. These however are not the people on the battlefield. Since Caesar, wars are about money. The winners are those who finance them and the losers are those that pay for them. Rich banking families are well documented to have financed both sides. It matters not much who wins but rather that a war is fought so money is made.

 

So who actually wins in a currency war?  The answer is found by forensically following the money.

 

EVERY WAR COMES WITH NEW TECHNOLOGY

 

The most effective way of following the money is to consider the major new innovations in the financial world. Like all wars the winner is the one who innovates the ‘combat technology’ the fastest.

 

We need to remember that the financial innovations discovered during and after the financial crisis such as: Collateralized Debt Obligations (CDOs), Credit  Default Swaps (CDSs), Structured Investment Vehicles (SIVs), Special Purpose Entities (SPE’s) and a raft of securitization products were the foundations upon which were built the “Toxic Assets” and the reason for the global financial crisis. The toxic assets were the catalyst which we continuously heard referred to during the crisis which forced the government into massive public debt government spending in an apparent attempt to avoid a financial collapse.

 

If we examine the latest raft of new weaponry, we can easily see where this is headed, how the money will flow, who wins and unfortunately who loses.

1-    FIAT PAPER BOMBERS - Quantitative Easing

Quantitative Easing is an euphemism for printing money. The US has embarked on a massive untested trial in recklessly printing money.

 

2-    CURRENCY MISSILES - US$ Carry Trade

Like the hydrogen bomb was to the early atomic bomb, the US$ Carry Trade is to the original pilot Japanese Carry Trade. IF QE are the bombs, then the US dollar carry trade are the missiles that deliver the bombs. With borrowing costs in the US approaching zero, a weakening carry currency and unlimited money creation, we have the perfect carry trade missile that can and will hit any economy in the world.

 

3-    REGULATORY ARBITRAGE - Guarantees and Contingent Liabilities

I have written extensively how the financial crisis has served as a vehicle to shift debt obligations from the banking and private sector to the public sector. This has been achieved through government guarantees, the use of balance sheet contingent liabilities and interest rate / currency swaps. It is the battlefield strategy of Regulatory Arbitrage.

 

 

 

ARTICLES: SULTANS OF SWAP: Smoking Guns!  , SULTANS OF SWAP: The Sting! , SULTANS OF SWAP: The Get Away!

 

4-    PUBLIC PRIVATE PARTNERSHIPS / PRIVATE FINANCE INITIATIVES – PPP/PFI

The extensive hidden use of Public Private Partnerships & Private Finance Initiatives (PPP/PFI) recently came to light during the European Sovereign debt crisis. This tool has become the guidance system for missile delivery since it allows the conversion of freshly printed fiat paper into real, unencumbered, revenue producing assets.

 

 

 

ARTICLES: SULTANS OF SWAP: Explaining $605 Trillion in Derivatives! , SULTANS OF SWAP: Smoking Guns!

 

5-    AN UNREGULATED $615 TRILLION – Derivative Swaps 

 

The unregulated, off balance sheet, offshore, non exchange traded, private SWAP vehicle is the ideal vehicle with which to control global financial markets. The Sultans of Swaps now operate much as the Bond Vigilantes did at one time but with different control and much different motives. The growth of the SWAP market in interest rate and currency swaps effectively muzzled and obsoleted the Bond Vigilantes of yesteryear.

 

ARTICLES: SULTANS OF SWAP: Explaining $605 Trillion in Derivatives!

HOW THE MONEY WILL BE MADE – Paper Assets Exchanged for Real Assets

 

 

1-    TAKE OVER PUBLIC SECTOR ASSETS – buildings, land, treasuries.

2-    TAKE OVER PRIVATE SECTOR ASSETS - land and resources.

3-    TAKE OVER OF SOVEREIGN TREASURY – transfer of sovereign treasury gold holdings

4-    MAJOR CORPORATE CONSOLIDATIONS  - reduced competition, reduced monopoly laws and emergence of cartels

5-    NATIONALIZATION OF PRIVATE & PUBLIC PENSIONS - government grab of financial assets

 

REAL WEALTH

The financiers of the currency wars understand that real wealth in its most simplistic essence can only be created by:

1-    GROWING IT

2-    MINING IT

3-    BUILDING IT

Paper money is simply a tool for the trading of wealth. When money is backed by a hard asset then it also becomes a store of that wealth. However that is not the case with fiat currencies. Though Gold is real wealth it does not grow wealth, but rather stores it or protects it from the debasement of paper ‘trading’ instruments. Ideal real wealth is wealth that continues to grow and yet maintains its inherent value. Over the longer term it is usually better to own well managed, unencumbered agricultural producing land, producing mines and production facilities than just the wealth product they output. The Rothschild banking family learned this hundreds of years ago and is the reason why they moved from solely owning gold to energy, mining, agriculture and selective base materials process production.

 

FLAWED PUBLIC POLICY DECISIONS ASSURE THE OUTCOME

One mistake after another has been made in an attempt to ‘kick the can down the road’ and avoid the inevitable necessity to restructure the debt. Unfortunately when it is restructured it will be at the expense of the public and not the original parties. The cost to the tax payer will be insurmountable debt and the forced surrender of pubic assets. Public assets that in the future will be charged for by ’Private Banking’ and Special Purpose Entity (SPE) owners.

 

            => BAILOUTs:  Banks, AIG, GM, Fannie Mae / Freddie Mac

                        => ZIRP

                                    => TARP & ARRA          

                                                => HAMP, Cash for Clunkers etc.

                                                            => Extend & Pretend Accounting

                                                                        => QE I (Buying $1.7B in        

                                                                               (Mortgage & Treasury Products)

                                                                                    => QE II

 

TIMING

 

Like a well oiled machine the sequence of events continue to unfold as laid out in my Extend & Preserve article series. The implementation of Quantitative Easing (QE I) and change in GAAP Mark-to-Market accounting treatment ignited the initial rally leg. With further refinements (see EXTEND & PRETEND - Manufacturing a Minsky Melt-Up) it continued until it became evident that the US employment and GDP were not improving in any meaningful manner despite $13T of Spend, Lend and Guarantee initiatives. Then as the polarization of the EU wanting ‘austerity’ policies versus the US wanting ‘stimulus’ measures, the US dollar began weakening and stocks stopped their retracement in June. When Bernanke signaled QE II in August the financial markets were once again ignited and the US dollar weakened further. The financial markets are now propelled by both euphoria and fear of more liquidity being made readily available. It will not end well as we naively get caught in the spider’s carefully laid out trap.

 

 

CONCLUSION

 

An interesting fact is that the US has positioned itself for this war as a result of the spending on previous wars. According to Michael Hudson (5):

“What destabilized the system was war spending. War-related transactions spanning World Wars I and II enabled the United States to accumulate some 80 per cent of the world’s monetary gold by 1950. This made the dollar a virtual proxy for gold. But after the Korean War broke out, U.S. overseas military spending accounted for the entire payments deficit during the 1950s and ‘60s and early ‘70s. Private-sector trade and investment was exactly in balance.

 

By August 1971, war spending in Vietnam and other foreign countries forced the United States to suspend gold convertibility of the dollar through sales via the London Gold Pool. But largely by inertia, central banks continued to settle their payments balances in U.S. Treasury securities. After all, there was no other asset in sufficient supply to form the basis for central bank monetary reserves. But replacing gold – a pure asset – with dollar-denominated U.S. Treasury debt transformed the global financial system. It became debt-based, not asset-based. And geopolitically, the Treasury-bill standard made the United States immune from the traditional balance-of-payments and financial constraints, enabling its capital markets to become more highly debt-leveraged and “innovative.” It also enabled the U.S. Government to wage foreign policy and military campaigns without much regard for the balance of payments.”

We don’t need to go into the additional costs of the wars in Iraq and Afghanistan, Homeland Security (War on Terror) and military base expansion into 130 countries which have exploded the US fiscal deficits. Suffice it to say that these and all wars since Vietnam are wars that have been conducted without increasing taxes – a historical first which draws little attention or concern.

 

The present fiat currency system will end based on the strategy of Debase, Default and Deny! It is my opinion that it will be replaced by a system structured on the IMF and BIS’s Strategic Drawing Rights (SDRs) partially backed by precious metals. The question to be asked however is not what will be the replacement for fiat currency, but who will have ownership of the assets after this war ends?  Who will pay the requisite ‘tribute’ that goes to the victors?

 

“Fiat Paper Bombers Spotted Overhead!!”

 

 

Sign Up for the next release in the Currency Wars series:  Currency Wars

 

Follow developments in the Currency Wars daily at Tipping Points

 

 

SOURCES:

 

(1) 10-25-10 Trade of the Decade: The Power Elite's Grand Strategy  Of Two Minds

(2) 10-04-10 Economic Measures Continue to Slow Hussman Funds   John P Hussman Ph.D.

(3) 10-11-10 No Margin of Safety, No Room for Error Hussman Funds   John P Hussman Ph.D.

(4) 01-19-10 Bernanke’s Sorcery Will Fail  Arun Motianey

(5) 10-11-10 Why the U.S. Has Launched a New Financial World World War  Michael Hudson 

(6) 10-27-10

The Fed's impending blunder  Ambrose Evans-Prichard  Telegraph.co.ukDebase, 

China Raises Rates, Impacts Currency Wars

NEW YORK (MarketWatch) — The U.S. dollar on Tuesday enjoyed its biggest one-day advance since August against a basket of rival currencies after a rate hike by China fueled worries that the world’s fastest-growing economy could restrain global growth.

The greenback got an earlier lift from Treasury Secretary Timothy Geithner’s pledge that Washington won’t devalue the currency.
The dollar index /quotes/comstock/11j!i:dxy0 (DXY 78.22, +1.29, +1.67%) , a measure of the U.S. currency unit against a basket of major global currencies, rose to 78.041 from 76.922 in North American trading late Monday. It touched 78.276 at its best level, having advanced 1.8% — the biggest upward move since Aug. 11, according to FactSet Research.

Currency Wars a Result of Misguided Economic Policies

by Gordon Long:

The critical issues in America stem from minimally a blatantly ineffective public policy, but overridingly a failed and destructive Economic Policy. These policy errors are directly responsible for the opening salvos of the Currency War clouds now looming overhead.

 

Don’t be fooled for a minute. The issue of Yuan devaluation is a political distraction from the real issue – a failure of US policy leadership. In my opinion the US Fiscal and Monetary policies are misguided. They are wrong! I wrote a 66 page thesis paper entitled “Extend & Pretend” in the fall of 2009 detailing why the proposed Keynesian policy direction was flawed and why it would fail. I additionally authored a full series of articles from January through August in a broadly published series entitled “Extend & Pretend” detailing the predicted failures as they unfolded. Don’t let anyone tell you that what has happened was not fully predictable!

 

Now after the charade of Extend & Pretend has run out of momentum and more money printing is again required through Quantitative Easing (we predicted QE II was inevitable in March), the responsible US politicos have cleverly ignited the markets with QE II money printing euphoria in the run-up to the mid-term elections. Craftily they are taking political camouflage behind an “undervalued Yuan” as the culprit for US problems. Remember, patriotism is the last bastion of scoundrels.

 

An unusual Wall Street Op-Ed piece appeared Wednesday October 13^th, written by Yiping Huang, a Professor of Economics - China Center for Economic Research at the prestigious Peking University. He called for common sense from Americans and the G20 regarding the potential for destructive currency wars.

“The upcoming Group of 20 summit in Seoul could become a battlefield of this new conflict. But it doesn't have to be. Rather than focus on currency manipulation, all sides would be better served to zero in on structural reforms. The effects of that would be far more beneficial in the long run than unilateral U.S. currency action, and more sustainable. …  it would be much better for the G-20 to focus on a comprehensive package centered on structural reforms in all countries. Exchange rates should be an important part of that package. For instance, to reduce the U.S. current-account deficits, Americans have to save more. But simply devaluing the dollar would not be sufficient for that purpose. Likewise, China's current-account surpluses were caused by a broad set of domestic economic distortions, from state-allocated credit to artificially low interest rates. Correcting China's external imbalances requires eliminating all of these distortions.”

I have been arguing that the US must address its structural problems for a long time now. Read my articles: 1) INNOVATION: America has a Structural Problem, 2) INNOVATION: What Made America Great is now Killing Her! and 3)  America - Innovate or Die! for the facts that are being continually secreted from you.

We have a Public Policy failure that does not recognize we have a major US structural and secular problem.

The solutions should be central to US mid-term party campaign election platforms. They aren’t!

We all need to appreciate that from a Chinese perspective, with the world’s largest holdings of US$ reserves, a US led currency war based on dollar debasement is an American act of default to its foreign creditors no matter how you camouflage it. As JP Morgan was reported to have said regarding sovereign defaults on US loans: "this is why we have the US navy – to stop that from happening". So far the Chinese have been more diplomatic, but their patience is wearing thin.

With 25 currency interventions in a one week period, matters are quickly getting out of control. Stephen King, the managing director of economics at HSBC writes:

"The rich Western world has over-consumed in recent years. It has too many debts. But rather than dealing with those debts – living a life of austerity, accepting a period of relative stagnation – the West wants to shift the burden of adjustment on to its creditors, even when those creditors are relatively poor nations with low per capita incomes. And that rankles not just with the Chinese but also with many other countries in Asia and in other parts of the emerging world. During the Asian crisis in 1997-98, Western nations, under the auspices of the IMF, insisted that Asian nations, having borrowed too much, should now tighten their belts. But the US doesn't seem to think it should abide by the same rules. Far better to use the exchange rate to pass the burden on to someone else than to swallow the bitter pill of austerity. No wonder the Chinese are not willing to play ball."

The Chinese reject the conventional thinking.

1- They could point to the yen's extraordinary rise over the last 40 years – from JPY360 against the dollar at the beginning of the 1970s to approaching JPY80 today – and note that, despite this huge appreciation, Japan's current account surplus has got bigger, not smaller.
2- They could argue that America's prescription for China's economic rebalancing – a stronger currency and a boost to domestic demand – was precisely the policy followed by the Japanese in the late-1980s, leading to the biggest financial bubble in living memory and the 20-year hangover that followed.
3- They could argue that the demand for a renminbi revaluation is, in truth, a policy of American default.
4- During the Asian crisis in 1997-98, Western nations, under the auspices of the IMF, insisted that Asian nations, having borrowed too much, should now tighten their belts. But the US doesn't seem to think it should abide by the same rules.

5- They could argue that Chinese manufacturing margins are so razor thin that significant change in exchange rates would wipe them out and force layoffs of millions of Chinese. Labor rates are already climbing in China and further squeezing margins.

6- A revaluation of the Yuan would only push manufacturing to Vietnam, Cambodia, Thailand, Bangladesh and other lower paying nations without improving the developing economies trade deficits.

If we truly wanted to head off this Currency War then it is a matter of doing what we did in 1985 with the Plaza Accord. We need another 2010 Plaza Accord version. But here is the rub. This Plaza Accord is not about the US and G5 as it was in 1985. It is about an Asian Plaza Accord under the support and auspices of the G-20. It is about the Asia export led and mercantilist leadership agreeing amongst themselves. The chances of this happening, the west seeing the requirement for it or the west relinquishing its powers in any measurable fashion, are not possible as part of the political gamesmanship presently being played with our lives.

 

Why all this has been allowed to knowingly unfold leads me into a discussion where all ‘government fearing people’ fear to tread. Though I love the country I call home, I am coming to question our government. Frankly, I am losing my trust in its true motives.

 

I personally now support neither party since they have become the two heads of the same monster which does not operate ‘for the people by the people’.  I don’t believe I’m alone as I sense real anger across America; and the political polls clearly show confidence falling for our political leadership. Americans want their country back!

 

Almost three-quarters of Americans — 72 percent — have a negative view of the federal government, according to a USA Today/Gallup poll released Wednesday. It is the highest level of dissatisfaction since the Watergate scandal that led to President Richard Nixon’s resignation in 1974.

“The federal government has an image problem,” said Frank Newport, editor-in-chief of Gallup. “It’s like the cable company; they may perform a necessary function but people are dissatisfied with the service.” Newport said when you ask people what they think of the government, “‘Bleah’ comes out of their mouth.” Congress is so polarized that it is hard-pressed to accomplish even the things that the public says are important. When respondents in the Gallup survey were asked what the government should do, more than a third placed top priority on economic and budgetary concerns: 

·         Fifteen percent said the government should “create jobs.”

·         Six percent said “improve the economy.” 

·         Another 6 percent said “balance the budget.”

·         But 4 percent said the government should “expand health care coverage.”

·         And 4 percent said “cut taxes.”

All told, 35 percent mentioned those specific problems. Yet Congress failed to pass even one of 13 regular appropriations bills before recessing last month for the midterm campaign, while lawmakers have made little progress in addressing the deficit.

A PUBLIC POLICY SCORE CARD - WHAT HAVE OUR POLITICAL LEADERS ACHIEVED?

 

Let’s recap where we are because the happy face media doesn’t want to tell you. The media is reluctant to inform you because it hurts consumer consumption and therefore advertising revenues. It simply isn’t smart business to publicly state the reality of the situation, and by the way, the media gets sued for any possible unsubstantiated negative comments that might stop a stock(s) from rising.

Six corporations now collectively control US media and absolutely dominate news and entertainment.

 

“When you control what Americans watch, hear and read you gain a great deal of control over what they think. They don’t call it ‘programming’ for nothing” (1).

 

Americans now watch on average 153 hours of television a month. You would think with this level of information consumption we would be informed – somewhat?

 

I’m sure you are all familiar with the facts in the chart above.  No?  Is it because no one tells you? Still skeptical? How many of the following major facts are you familiar with and you hear your political candidates discussing? Tick them off as you read them.

THE FACTS – JUST THE FACTS! – Of the 35 facts below, how many will you hear during the campaign?

 

1- The United States has lost approximately 42,400 factories since 2001.  About 75 percent of those factories employed over 500 people when they were still in operation. Source: The American Prospect

2- The United States has lost a total of about 5.5 million manufacturing jobs since October 2000. Source: The American Prospect

3- The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.

4- As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.

5- In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008, it represented 11.5 percent. Source: The American Prospect

6- Ten years ago, the United States was ranked number one in average wealth per adult. In 2010, the United States has fallen to seventh.

7- The United States once had the highest proportion of young adults with post-secondary degrees in the world. Today, the U.S. has fallen to 12th.

8- American 15-year-olds do not even rank in the top half of all advanced nations when it comes to math or science literacy.

9- In America today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is spent on services. Source: Economy In Crisis
10- In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th. Source: MACLEANS.CA
11- In 2008, 1.2 billion cell phones were sold worldwide. So how many of them were manufactured inside the United States? Zero. Source: The American Prospect

12- The television manufacturing industry began in the United States. So how many televisions are manufactured in the United States today? According to Princeton University economist Alan S. Blinder, the grand total is zero.

13- Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide.

14- Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975. Source: Businessweek

15- According to a new study conducted by Thompson Reuters, China could become the global leader in patent filings by next year.

16- Back in 1980, the United States imported approximately 37 percent of the oil that we use. Now we import nearly 60 percent of the oil that we use.
17- The U.S. trade deficit is running about 40 or 50 billion dollars a month in 2010. That means that by the end of the year approximately one half trillion dollars (or more) will have left the United States for good.
18- Between 2000 and 2009, America's trade deficit with China increased nearly 300 percent.
19- According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
20- If our trade deficit with China increases at its current rate, the U.S. economy will lose over half a million jobs this year alone. Source: Economic Policy Institute [PDF]
21- As of the end of July, the trade deficit with China had risen 18 percent compared to the same time period a year ago. Source: Economic Policy Institute [PDF]
22- The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States. Source: The Economic Collapse
23- One prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040. Source: MarketWatch

24- In the 2009 "prosperity index" published by the Legatum Institute, the United States was ranked as just the ninth most prosperous country in the world. That was down five places from 2008.

25- The economy of India is projected to become larger than the U.S. economy by the year 2050.

26- From 1999 to 2008, employment at the foreign affiliates of US parent companies increased an astounding thirty percent to 10.1 million. During that exact same time period, U.S. employment at American multinational corporations declined 8 percent to 21.1 million.  Source: Tax Analysts [PDF]

 

       International Job Growth = 30% to  10.1 = 233K Jobs

Domestic Job Cuts =  8% decline from 21.1M = 184K Cuts

Net Growth =  233K – 184K = 49K

Net Percentage Growth = 49 / (10.1M + 21.1M) = 0.16% Employment Growth.

 

Multinationals show paltry hiring growth and are moving the existing work force steadily offshore.

 

27- The Census Bureau says 43.6 million Americans are now living in poverty, which is the highest number of poor Americans in the 51 years that records have been kept. Source: Washington Post

28- Approximately 750 good paying middle class jobs are going to be lost because making Ford Rangers in Minnesota does not fit in with Ford's new "global" manufacturing strategy. Source: Economy In Crisis

29- Dell Inc. has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.  Dell has announced that it will be closing its last large U.S. manufacturing facility in Winston-Salem, North Carolina. Approximately 900 jobs will be lost.

30- Median household income in the U.S. declined from $51,726 in 2008 to $50,221 in 2009. That was the second yearly decline in a row.

31-The United States has the third worst poverty rate among the advanced nations tracked by the Organization for Economic Cooperation and Development.
32- Since the Federal Reserve was created in 1913, the U.S. dollar has lost over 95 percent of its purchasing power.
33- U.S. government spending as a percentage of GDP is now up to approximately 36 percent.
34- The Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.

35- Do you know what our biggest export is today? Waste paper.  Yes, trash is the number one thing that we ship out to the rest of the world as we voraciously blow our money on whatever the rest of the world wants to sell to us.

 

Has anyone been telling you this and have any of your politicians raised this in the current election campaigning?

 

 

Forgetting for the moment that failed US public policy is at the root of the financial crisis, the above chart shows that even the US’ recovery has been noticeably and significantly worse than other developed nations.  The US policy approach to the solution to the financial crisis has been the least effective according to these figures just released by the Organization for Economic Co-operation and Development (OECD).

 

THE GUILTY PARTIES ARE FLEEING LIKE RATS FROM A SINKING SHIP

We have witnessed defections in the last month of three of the top four architects of Obama’s economic policy team. Plus the hidden fifth, Rahm Emanuel announced his departure October 1^st. Rumors are now swirling that Tim Geithner will leave after the election and rumors grow that Michael Bloomberg is going to be the next Treasury Secretary (for a presidential run in 2012 or 2016, another recent rumor). They all know their policies failed, the public knows it, the media does but is afraid to say it and President Obama knows his administration is facing being a lame duck Presidency for the remaining two years of his term because of it.

 

Recovery Is Stuck in Neutral  WSJ   - “The economic recovery is largely stuck in neutral, reports on manufacturing, construction and spending show, and the president of the Federal Reserve Bank of New York gave the clearest signal yet that the Fed was preparing new actions aimed at boosting growth. In a speech Friday (Oct 1^st) before the Society of American Business Editors and Writers, New York Fed President William Dudley indicated that the Fed, confronted with "unacceptable" conditions of high unemployment and low inflation, is likely to take new action to support the economy.  Mr. Dudley said $500 billion in additional asset purchases would provide stimulus equivalent to a reduction of 0.5 to 0.75 percentage point in the federal funds rate, the Fed's typical lever for stimulating the economy - The current situation is wholly unsatisfactory” and “both the current levels of unemployment and inflation and the timeframe over which they are likely to return to levels consistent with our mandate are unacceptable,” Federal Reserve Bank of New York President William Dudley said in a prepared text.

MY PREDICTIONS                     DOCUMENT                   RESULTS

Fiscal:

Stimulus II will be required         Extend & Pretend           Post Labor Day Announcements

 - Thesis Paper -               -                                                                                            - $50B Infrastructure Initiative (Highways, airports and railroads)

                                                                                    - $200B Capital Investment Write-Offs

                                                                                    - $30B Small Business Fund

                                                                                    - $100B R & D Tax Credit

                                                                                    - $14B FHA Homeownership Guarantees

Monetary:

QE II will be required                 Guide to Road Ahead      September 21st FOMC Minutes

                                                Research Article            

 

Shadow Banking Collapse           Slide Presentation          Shadow Bank Liabilities Plunge $2.T Y-to-Date  ZH

                                                                                   

The chart above was updated in the fall of 2009 in my thesis paper: Extend & Pretend. It was pointed out that the public policy decisions taken by the administration would be the deciding factor on where the market headed after a 2008 market sell-off counter rally was completed; a subsequent consolidation down leg took place and the effects of the policies were evident. We are now entering the latter period. It doesn’t look pretty.        

 

FLAWED POLICY THINKING

Housing Prices – Let prices fall and allow the system to clear.

     - We keep trying to hold housing prices up to protect bad banking decisions and reward bad homeownership decisions

     - Why isn’t lower housing prices and more affordable housing good for Americans?

 

Commercial Real Estate (CRE) is Out of Time – Let prices fall and allow the system to clear.

     - Extend & Pretend accounting games have run out of time.

     - Occupancy rates of offices, hotels and retail shows us massive overbuilding took place and must now be re-priced. Instead 

       we are trying to hold them up artificially.

     - Why are cheaper rents not good for America?

 

Too Big To Fail – Let major players fail and let M & A and the bankruptcy process work.

     - The Frank-Dodd Legislation is a complete legislature failure.

     - Regulators are now in control and in turn effectively controlled by

        the lobbyists and major private player interests.

     - Less than 9 Congressmen / Senators claimed to have read the full

       ~2400 page Frank-Dodd Bill.

  

Obamacare- A Hidden Tax Code in disguise

     - Few elected officials claim to have read the full approximate bill ~2000

       pages.

The obvious cause of these failed public policy approaches are the following:

1- A Washington Political System of lobbyist, electioneering costs, legislative/regulatory complexity and lack of accountability is no longer serving the public.

2- The concept of a “Federal Reserve”  and US Money Centered Banking is unstable long term under a fiat currency regime.

3- The media is no longer effectively serving the democratic system. It must be broken up.

Stop interfering and let capitalism work its proven magic!

 

We are locked into Crony Capitalism, Socializing Losses, Political Pandering

and never ending Campaigning versus Governing

 

The following chart shows that money has become a commodity. It can’t command any return for holding it (interest coupon) similar to any commodity where there is excess supply. The unique structure of notes and bonds are generating paper capital gains due to falling rates. Remember, these gains are not realized until the ‘paper’ is actually sold or expires and the issuer is capable of paying the surrender value.

 

 

“When Money Becomes a Commodity, Commodities become Money”

 

 

Soon Someone Is Going To Get Crushed By The Quantitative Easing Trade  Business Insider 

 

“Goldman observed today that QE is priced into the bond market, and well, duh! Your grandmother knows QE is coming, and that more and more of every currency is being manufactured right now. That doesn't mean it can't go on for awhile, but it does mean that there's nobody not aware of this trade. When will it end? Not clear, but come November 2-3, if people are still long the QE trade, and the Fed actually does deliver, we could be due for a huge sell-the news event. Combine that with whatever happens during the election, and it certainly seems like a heck of a lot is building up to that day.”

 

CAVEAT EMPTOR!