| | | Page 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28 | Watch, Its happening ,the global economic change.
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User ID: 7163
6/2/2005 3:43 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
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User ID: 1285
5/24/2005
11:47 pm EDT Golden Devil Eggs
Golden Devil Eggs
A Modern Day Fairy Tale
Two men are arguing---about Money of course and what it is and where it comes from. Actually, only one of them is doing most of the talking.
A Mr. Goldsmith.
Speaking quite quickly he is stating his case,"Actually, your excellent insights are more directed towards the Federal Reserve system, which set up the US to be the transaction station for the world markets [in dollars].
The International Bankers reap the profits of Usury, while gaining hard assets. These same Bankers engineered the system with inter-locking partnerships, to control national monetary policies by wagging the dogma of financial opinion like a barrel full of fish.
One wonders are all people in the US blind to the truth of world-wide exploitations? Does anyone earning wages, really take home any money?
Some but not all.
For example:
The china guy making 30 cents an hour for eight hours makes two dollars and forty cents a day. Since he had far less then after his gain, he knows he has earned a higher standard of living. He was never told his note of credit was to be redeemed in gold and he does not expect such an exchange or perceive such a loss from one form of credit to another.
Compare this to the US guy who is paid 10 dollars an hour, for eights hours, but his worthless notes of credit are only carrying a five cent per note true value. Does he know this is a swindle on his wages as labor?
Actually, he works for only a mere fifty cents an hour, or four dollars a day, but due to INFLATION on those CREDIT NOTES the Wage Income is paid out as $80.00 and taxed; as if it was Non-inflated gross income.
Sounds like allot of hot gas has pumped up his balloon. Right... sure.
Even so, the Fed and State taxes, plus the payroll taxes, reduce this amount even more (without considering any further deductions) and that is his take-home pay. Does this US man compare his wages to the man in China? Not likely. If he did he would know his true wage is only twenty-cents more an hour. How can any man live on this?
Now I ask, what would the governments world-wide rather tax: the four dollars a day man or the eighty-dollars a day man? The price of living goes up to meet the demands of the State. The State causes inflation, and steals the difference between a false set of weights.
The International bankers who run the SCHEME are not going to change what they charge for the Credit Money unless the people in every country demand an honest, non-Credit Money system. A system, that more accurately describes and measures the Markets, while allowing free people to conduct their trades, free of the tyrannical control of the money-lenders/changers themselves, who are merely Agents of the governments, with a license to steal.
Regardless from where the money is produced, printed, stored or sent as electrons in huge, vast computer Networks, AS IF they too (electrons) are money, or any other delivery system which fulfills the purpose of the money, to all that need the money, money is always as money is defined.
The International Agents, of these same cartels of Bankers, did more to ruin the ability of people to haggle, or settle their own senses of value, for what they trading and selling, then even those old non-capitalists ever did by civil warfare, by stealing the rights to Sell in every market from the people who depend on local monies to live.
All these, Neo-Con, Marxist Agents step on people, of course like the heavy-foot of the butcher, always increasing the Pressure on the Scales of Commerce. The Governments are paid to Collect the taxes and to run the show, while these very same Agents of the International Bankers, claim to be fighting the Inflating Costs, by predatory CREDIT lending, the Governments themselves enforce by Law.
The Credit itself like the bloom of a rose is born solely out of the IMAGINATIONS of the all powerful bankers like streams of GOLD raining down from over the RAINBOW.
Why none below them know where that fountain of golden credit actually exists. The balloon from which hope hangs, rises and falls as the CREDIT, like a lot of hot wind, inflates or deflates the hopes of those hanging on for dear life. All the while, the winds of commerce blow this balloon this way and that, never following the same wind twice.
The economy of a Nation, is also like a basket hanging perilously from the Balloon, carrying its frail occupants through blue skies and storms alike. If a rope may snap, under the pressure of the heavy winds, turning the hapless basket like a house in a tornado, why that will of course dump out the occupants. Who, if unable to deploy their parachutes (Hopefully golden to be sure) will be dashed against the cruel lands below.
Considering all of this as a prelude to disaster, the wiser intelligent man will ask, "Where do I find for myself this magical substance called CREDIT?"
The common man knowing quite well that this intangible CREDIT (like Gossamer Wings preventing the Fall) the TRUE source from which all Money flows, is the only way to make substance, like grain into MONEY: The Bread Of Life.
The Credit Master knows THAT this is... the trick-of-ALL treats. His treats are like treasures in a big, fancy box, decorated in splendor and lace, a Present which allows him to be CREDITOR to any, to whom it is presented, just like a fine merry gift. From his hands the ´precious power´ will be delivered. This force is just like a Ring on his finger, to show his hand is Blessed. Whom-ever that precious finger shall touch in the Market, that Person of Business will grow in Prosperity and Health.
You See---The Golden Credit Wealth only comes to those who know the secret of the Golden Goose---whose Eggs are beholdened to the Bearer from which it is Claimed. Here lies in the golden eggs the very creation of credit now revealed from me to you.
Let me Declare, what I have Examined, of this far-fetched Fairy Tale, of which I believe, to be the best of my knowledge, on this subject, of Interests, many less informed find themselves quite taxed by; when discussing both Credit and Debt as defined: Money. As the same thing of substance as such how can this be?
Why my good man The Yolk OF All Credits is... the Egg of All Debts.
For the rest of the tale go here:
[link to www.snowcrest.net] |
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User ID: 4112
6/2/2005 10:23 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Not just insanity, this must be end game deckchair swapping on the titantic, by those who believe there will be enough gas for the helicopter after the last round of russian roulette with a fully loaded gun.
Gimme All My Money...
June 1, 2005
Richard Daughty
...the angriest guy in economics
The Mogambo Guru
The Treasury is back on a borrowing binge, and national debt rocketed up to $7.781 trillion. And the foreign central banks are back in the game, big time, as they soaked up an incredible $6.759 billion of US debt in the last week alone, stashing it directly at the Fed, bringing their total to $1.41 trillion.
The cover of this week´s issue of Barron´s asks "Hedge Funds: Is The Party Over?" If they had taken a moment and asked The Mogambo, I could have told them that the answer is "no": The money that comes OUT of hedge funds has to go INTO something else, and as soon as it becomes clear that a lot of money is moving in to this new thing, whatever it is, then hedge funds will start piling into that, too.
Speaking of Barron´s, I was poking around on the Economic Indicators page of their Market Laboratory section, and I noticed that Total Reserves in the banks is $44.5 billion. This is the money and cash equivalents that the banks have to keep on hand in case somebody comes storming into the bank, screaming "The Mogambo is right! We are going to be freaking killed with this insanely-stupid and suicidal monetary expansion of the Federal Reserve! Gimme all my money so that I can go buy gold and silver with it, and I mean right now!" You look up at the guy and say "Hmmm!" to yourself. Then you turn back to Barron´s, and your gaze happens to fall on the figure for savings deposited in the banks, which is $4,786.6 billion, and suddenly your mind is sharpened! Your nostrils flare and you start to get really, really scared! This would mean (and I gulp as I say this because my mouth is dry and my heart is beating thumpa thumpa thumpa and all I want to do is run somewhere and hide), that reservesare now roughly 0.0093 of liabilities or, if you prefer, 0.93% of liabilities, which is, obviously less than one stinking percent -- one stinking percent! -- of even just the "savings" part of the banks´ liabilities. This is a ridiculously-low, absurdly-low, freakishly-low reserve requirement, such that you wonder why they even bother with having a reserve requirement at all! The textbook example is, I remind our newer viewers, 10%. Now the damnable Federal Reserve has allowed the banks to have on hand less than 1% of this amount! This is where all the money is coming from!
I bring this up because with a at 0.9% reserve requirement, the reserve multiplier is thus huge! If you walk into the bank, take a one-dollar bill out of your wallet, slap it on the counter and tell the surprised teller that you want to use that dollar to make a cash deposit into your account, then the banks are, in effect, empowered to make available (for loaning out to borrowers) more than a hundred new dollars! A hundred!
I also noted that the banks hold almost $1.2 trillion dollar´s worth of government debt. It is not just foreign banks that are stupidly accumulating US government debt, which will fall in value as interest rates rise. But added together, $1.4 trillion and $1.2 trillion, this comes to $2.6 trillion, which is about 25% of the entire GDP of the USA! And this behavior by the banks brings up the point that that I am always screeching about: It´s always the same thing that causes economic slowdowns and problems and recessions and depressions and collapses; the banks acted stupidly and greedy.
Steve H., who prefers to be characterized as "alert reader", says that, in reference to a comment last week about high state taxes, "Montana ALREADY has an 11% top rate. And it starts at only $76,199. I´ll bet they can´t figure out why no one who makes any money wants to live there. What morons!"
And so we see that Montana has political morons, too, which proves that stupidity seems to be, like God, everywhere at once. Which brings up a Cryptoquote by James Feibleman, which recently appeared in my hometown newspaper, which reads "You can say one thing about ignorance: There seems to be more than enough to go around." Hahaha!
Speaking of alert readers, David B.C. sent a link about Paul McCulley of Pimco, who is commenting about what is referred to as the Bretton Woods II system, which is, according to Marshall Auerback of the Prudent Bear website, "posits the notion that the world is effectively back to a regime of global fixed exchange rates pegged to the US dollar like the original Bretton Woods regime that lasted from 1945 to 1973. Mr. McCulley writes "by linking mercantilist emerging market countries, notably China, into a de facto monetary union with the United States, represents a positive shock to global aggregate supply relative to global aggregate demand." Well, not necessarily, because it would take a willingly stupid US consumer to go into debt to buy the new supply of goods and services. But, ass it turned out, Americans DID willingly act stupid! What luck for foreigners!
Anyway, it is the next part that makes me foam at the mouth and stick pins into a voodoo doll. "Consequently," Mr. McCulley writes "it is America´s global civic duty to live beyond its means. And it is the Federal Reserve´s global civic duty to facilitate American hedonism, because in the face of a positive structural shock to global aggregate supply, notably labor, American hedonism is not inflationary." My mouth is hanging open in stupefaction!
Well, I will agree that a glut of supply does not necessarily lead to higher prices immediately. But I am here to tell you that the weird economic distortions and mal-investments of such a shocked system WILL, sooner or later, have to be paid for, in one way or another, because that is the way that economics works. But nowadays, that is considered to be a matter of opinion, I guess, sort of like how everybody says that I am weird, stupid and hateful little drunken bastard, and I disagree and tell them that I am NOT drunk!
But it is the part about our "civic duty" to go into debt that makes me, ummm, I am looking for the right word, crazy. This horrid little McCulley putz, and those words came immediately to my lips, actually says that it is our damned obligation to go into bankrupting levels of debt? We have a duty to consume more that we can pay for? If I decide to go into the business of making lousy chocolate pies, it is automatically the duty and obligation of my neighbors to buy the pies, and eat the pies, and borrow more money to buy more pies? And the bank has an obligation to loan them the money to buy the pies? Wow! It is a good thing that this McCulley dude is good at managing a bond portfolio, because the career options for what appears to be mentally-ill socialist crackpots who declare that an entire country has an obligation to "live beyond its means", and that it is similarly the duty of the central banks of that country to provide the financing for such gluttonous excess, regardless of the consequences, must be very limited, indeed, as I have never seen a "help wanted" classified ad where anybody was looking for one, and as a mentally-ill crackpot myself, I happen to be somewhat of an expert in that particular employment area.
Can you cite another time in all of history when anybody ever said "It is the duty of the nation to live beyond its means, and to borrow and consume to the limits of our greedy imaginations"? And, assumingthat there is actually some precedent for this, gleaned from some backward little enclave of economically-ignorant dirtbags in the forgotten backwaters of economic history, how did it work out? I am asking because I have never, ever read about such a thing happening. I have never HEARD of such a thing happening. In fact, I have never heard of anyone ever even SAYING such a thing! Never! Only now, in 2005, for the first time in all of history, we have a guy saying that we owe it to the world to plunge ourselves into ever-more debt, day after day, month after month, year after year! It boggles the damn mind! It must be a weird mutant variety of Keynesian stupidity taken to new extremes or something!
Or perhaps Mr. McCulley is extrapolating beyond Mr. Auerback´s comment that "Implicit in the Bretton Woods II model is that the presumption is that the arrangement is symbiotic and mutually beneficial for everybody." But perhaps if Mr. McCulley was not so anxious to make a fool of himself, he would have heard what Mr. Auerback said next, as he goes on to immediately say, "Ironically, the very aspect of BWII lauded by exponents as introducing the virtues of an quasi-fixed exchange rate system has in fact propagated enormous international imbalances, the unwinding of which will almost certainly be hugely destabilizing."
Or perhaps the words of Eric J. Fry, who writes the Rude Awakening column, will explain the errors of such irresponsible socialization. He writes "As we pile up foreign debts, we are also piling up liabilities that must be ´socialized´ away. We must all, collectively, satisfy the cost of our excesses, either through taxation or currency-debasement, or both."
Mike C. who is another alert reader who was driven to comment on my boring , predictable and overly-strident denunciation of the stupidity of anyone WANTING to have constant inflation, as the horrid Ben Bernanke and other fellow-traveler central banking morons advocate. He writes that South Africa, where he lives, has a central bank that "is happy with 3.8% y/y inflation." In fact, those South African central bank boneheads are already targeting inflation, like the asinine Bernanke advocates! He writes "Their CPIX target is range of 3%-6%." Wow!
For us, as it is with everybody, such a suicidal plan would dictate a constant devaluation of the dollar, which means a constant lessening of buying power, which means that prices constantly go up and up, which means that tempers go up and up, and pretty soon the world is awash with unions on strike, demanding higher pay, and those existing on government handouts demanding more money, everybody needing more money, lots more money, but nobody is getting more money, much less lots more money, and the government responds by creating MORE money and credit (monetary inflation), which makes price inflation even worse, thus everybody is grumpy as hell and getting grumpier every day. And while I am not an expert on the subtleties of the Elliott Wave theories, one salient aspect is that nations that are grumpy do NOT prosper. And although there is some debate as to which causes which, please use your sharply-honed, SAT test-taking skills and parse the previous sentence to determine if prosperity and grumpiness are 1) mutually exclusive, 2) coincident, 3) both of the above, 4) neither of the above, or 5) who the hell cares? The answer for you and me, as mere mortals who are grumpy, is 1. The answer for the government and the central banks and the monstrously huge, jimongously huge, unbelievably huge financial services industry is, obviously, 5.
And perhaps that is what has led Dan Denning, of Strategic Investment, to make the comment, "Liquidity, simply speaking, is the flow of cash and credit through a financial system. When you have more savings and/or credit in an economy than there are productive places to invest them, you get a bubble: Too much money chasing too few good opportunities. The prudent monetary policy in such situations is to take your medicine and tighten credit. Greenspan, for the most part, has done the opposite. He has flooded the U.S. financial system with excess liquidity, in the process creating bull markets -- or bubbles -- in stocks, real estate and bonds, while fostering a related bubble and in consumption (the symptom of which is a huge trade deficit)."
What we need, we tell one another, is a way to make some fast money on this. Looking to The Mogambo for an answer is, as has been proved, a total waste of time. So where do we turn? To our good fortune, Mr. Denning has the answer! "But for traders, there may be a profitable solution to the liquidity black hole problem. If you could quickly and easily ´buy´ volatility in the options market, you could buy the one thing that WILL go up in a liquidity crisis. You´d want to buy the ´fear gauge,´ better known as the volatility index (VIX)."
But before you run to the phone to pick up some VIX, he goes on to say "The Chicago Board Options Exchange (CBOE) was scheduled to begin trading options on two separate VIX-related indexes in late April. But as usual with a new product, the launch date was missed. CBOE hasn´t said when VIX options will start trading." Apparently, the symbol for two of the first VIX products will be VXB and VBI.
Rob Peebles, writing on the PrudentBear.com site, says that the Japanese Nikkei and the 10-year U.S. Treasury bond yields track each other. I see a flurry of hands go up, as we all are scratching our heads, and quizzically asking ourselves "The Japanese stock market and the American 10-year T-bond are coincident? Now, why would stock prices all the way over in Japan be so closely correlated to U.S. bond yields?" Without even bothering to let us ask the question, Mr. Peebles breezily goes on to note that Michael Panzner (author of "The New Laws of the Stock Market Jungle") wonders if it´s because "when the Japanese invest in our bonds (to support the dollar vs. the yen and to take up the slack from our financial imbalances), they divert funds from their domestic equity market." And vice versa. Well, that´s the way it used to be, but with central banks no longer willing to loan us so much money, who knows any more?
For those of us, like me, who are anxiously waiting for gold to shoot to the moon, Mike Swanson offers his "Three Signs Of A Gold Bottom." First off, he notes that "The divergence between the XAU gold stock index and gold reached an extreme level. The action in gold stocks tends to lead the action in the metal. When gold stocks outperform gold it has historically been bullish for both the stocks and the metal. However, when the stocks trade weaker than gold a correction is usually near." In particular, he monitors the XAU/gold ratio. "When this ratio is rising," he writes, "gold stocks are outperforming gold, and when it is falling, gold stocks are trading weaker than the metal, which is bearish."
More importantly, he notes that "What many of these people don´t know is that this divergence between the stocks and the metal has reached an extreme level, which has marked important bottoms in gold and the gold stocks over the past 14 years." My little antennae are quivering at the words "important" and "bottom", which means I can go long, and not have to go short anything, which is nice, because I know that if I have to go short to make a profit, then I am going to be squeezed by the sharks on Wall Street who will buy and buy, and force the price up, squeezing my short position until blood squirts out of my ears, and I will lose my big, fat butt, and then my wife will be asking embarrassing questions like "Where did all the money go?" and "Why are these people taking away our stereo?" and "Did you just fart?"
His second point about the bullish case for gold, which he cleverly labels as 2), is that "Commercial futures traders are covering short positions. This is important because, during the past five years, important bottoms in the gold market have been made when the commercials have been net short 40-60k contracts." Again with the "important bottom" thing! Are you as intrigued as I am?
His third and final point is that gold is still hanging in there, despite rampant manipulation by the central banks, which he characterizes as "3) Major support levels have held."
Bob Bauman, editor of the A-Letter asks and important question when he writes "We ask again: Does anybody in America care that freedom, liberty and privacy are being diluted, diminished and destroyed? We raise this question because of the deafening silence, the near total non-reaction of the public and the ´news´ media concerning the pending consideration of the PATRIOT Act in the US Senate, where the bill was marked up in secret. Next week debate begins on this legislation. The PATRIOT Act, which gave the FBI and other police agencies unprecedented monitoring powers over us all, was approved only weeks after the terrorist attacks of Sept. 11, 2001. The 342 page law, passed sight unseen, gave police the unchecked ability to conduct Internet surveillance without a court order, secretly to search homes and offices without notifying the owner and to spy on bank and other financial accounts and freeze cash almost at will."
The answer is "no." Nobody cares. Nobody mistrusts the government any more. But they will care one day, and nobody will trust the government ever again, and then people will scratch around for some protection from the government, and they will re-discover the Constitution, and they will read it, and they will be outraged, and they will throw all present and former government elected and appointed officials in jail for life, and desecrate the graves of those previous government elected and appointed officials who took the coward´s way out and died before we could get our hands around their nasty little throats.
As proof of the incompetence and treason of Congress, they passed the Patriot Act, a piece of nightmarish, Orwellian horror, that they did not even read, and that guts the whole purpose of the Constitution and the Bill of Rights. And that is why America is doomed; it is doomed because it deserves to die, and it deserves to die because Americans acted like morons when they voted, and voted, and voted for the jackasses we have (and have had), in our Congresses, and who appointed the jackasses we have (and have had), on the Supreme Courts.
Mike Shedlock, the guy who runs the blog entitled Mish´s Global Economic Trend Analysis, gives us another little peek into Weird Places Where Normal People Do Not Go (WPWNPDNG) when he reports that "President Bush is now urging tax credits for homebuilders!" He even provides a quote from President Bush himself, who perversely has said to the National Association of Realtors, "To boost housing sales even more, Congress needs to pass my single-family homeownership tax credit."
This amazing Presidential disconnect with reality comes at the same time as U.S. new home sales jumped 12%, to a record 1.431 million (at seasonally adjusted annual rate), in March, which smashed the previous record of 1.304 million homes, set in October, and at the exact same time as the median house price rose to $206,000, too! The median household income is about $50,000, and the median new home is now four times their entire annual income! Gaahhh! At the same time as the prices of everything else is rising fast! Gaahhh! At the same time as incomes are actually stagnating! Gaahhh!
Mr. Shedlock notes "New home sales are at an all time high, 69% of American families own a home, prices have gone parabolic, but...the FHA wants to compete against subprime lenders, and the president wants to give tax breaks to an industry that has been setting record profits for the last four years. Is this blatantly stupid or what? Is that an industry that needs tax credits?"
Well, yes and no. If the housing market keeps on getting massive financial infusions, then houses will continue going up in price, and new houses will continue to be built, and a lot of people will pay a lot of money and (more crucially) a lot of taxes on the gains, and pay loan origination fees, the cost of the documentary stamps, and the transfer fees, and the mortgage insurance fees, and title fees, and title search fees, and one damn cost after another, item after item, until you realize that everybody is screwing the hell out of you and they are all out to get you. And that is the whole point of it; getting more money to go into incomes and taxes, especially taxes.
But we are suddenly in full agreement when he says "Since there is no conceivable way this can possibly end well, I have a fail-safe prediction: It won´t."
And I note that several other writers have noticed that some housing prices have started to fall slightly, and that foreclosures are rising. The significance of this is supplied by Bill Bonner, of the DailyReckoning.com site, who writes "The Greenspan Fed has made the likely effects of a recession far more dangerous. By increasing personal debt levels and causing a bubble in housing, the Fed raised the cost of recession. More people will have to cut back more than usual. Contracts to buy will be dropped. Mortgages will be abandoned. The result could be that an ordinary recession could turn into a fat tail credit implosion - a deflationary collapse."
Even Phil Spicer, who is usually calm and steady and is usually found sitting on my chest, soothingly trying to get ME to calm down and stop screaming about monetary policy and how he promises that everything is going to be alright, has had his mind boggled by the idea of someone buying a house for $750,000, especially when one considers that "the annual interest cost (at 5%) would be $37,500 a year." Then he adds in property taxes at twelve grand, plus insurance and those kinds of things, and when one hits the "total button" on the calculator, it looks like $4,000 per month is the monthly cost of buying one of these homes.
And he did not even mention the cost of what to put INTO the damn house, because believe me when I tell you that you are wasting your social-climbing money buying that big, fancy house, unless the insides are as spectacular as the outside. And as a guy who once disastrously tried living in one of those upscale houses, I can reliably report that the typical neighbors are not impressed with ratty furniture rescued from the dump, or bookcases made out of boards and some concrete blocks. And after you visit one of THEIR houses on a reciprocal visit, you will learn that you must add many, many more thousands of dollars, tens of thousands, for furnishings alone. And don´t get me started on artwork, although I still maintain that Playboy foldouts stapled to the walls was a hell of a lot nicer to look at than anything THEY had in their houses, some of which you couldn´t even tell what it was, maybe a coweating an umbrella or something.
And since we are talking about reciprocal things, that means you gotta invite them over to your house, which means MORE thousands of dollars for drinks, food, munchies, decorations, and, (depending on your circle of friends), drugs, establishing alibis, and a live band really making it wail, dude.
But there is more to life than money, live bands, getting totally wasted (although a lot of life is also involved in recovering from spending too much money, tinnitus from the live band and suffering from a killer hangover). Then he gets into the real meat of the thing, as far as I am concerned, and notes that "Interest-only mortgages are enslavement!"
And he is exactly right, as even the thought of owing money perpetually, but making interest payments month after month after month until I die, gives me the willies. The only way that it is NOT enslavement is if Ben Bernanke gets appointed to be the chairman of the Federal Reserve over my strong objections. This guy is saying that he advises that we "target inflation" which is a benign-sounding term that actually translates, after running it through the Mogambo Translating Machine (MTL), that he intends to CAUSE INFLATION! Ben Bernanke, and a lot of other mentally-ill people here and around the world, actually think that you can have a permanent, constant inflation, and that somehow, I guess, "A rising tide lifts all boats". This is a nice metaphor for boats, but is ridiculous when used in economics, because I am here to tell you, with that patented snotty Mogambo smug arrogance (PSMSA), that in an economy there is NEVER an example of rising ANYTHING that is good for ALL the boats. Some of the boats, yes. Many of the boats, sometimes. A few of the boats, often. But all the boats, never. And while this applies to beneficial things like tax breaks, it goes double for inflation. Triple, even. Or more!
But one of the "boats" will be, according to the Bernanke theory of permanent inflation lifting all boats (BTOPILAB), houses. And so your house, for which you paid a king´s ransom today, will go forever, again theoretically, up and up in value! You will be able to constantly, all your life, borrow money against your appreciating house, and so you will never again, in all your life, have to work, and you can borrow and spend, and borrow and spend, and borrow and spend and borrow spend borrow spend borrowspendborrowspend until you wonder "I wonder if this Mogambo idiot is going to ever stop borrowing and spending and borrowing and spending?" But then, suddenly, it stops. You hear the sound of ravenous wolves howling in the distance. Creepy.
Notice the use of all-capital letters when I say that Mr. Bernanke wants to "CAUSE INFLATION, which is a clever literary device that I use to indicate special emphasis. He is even saying, out loud, and in front of witnesses, that he literally advocates the "targeting of inflation"! And since we are talking about it, I will tell you that I cannot WAIT to get on the witness stand as a witness, and how this is going to be sooOOoooo sweet, and testify against this guy, and hopefully get him banished for life, and then he will live out his days in torment and misery because everyone hates him, and even little children spit on him, and call him names like "Mogambo moron!" and "Get the hell out of my tool shed, Mogambo!"
This Ben Bernanke person, and notice how 1) I cannot even say the name without spitting it from between clenched teeth and how 2) my intensity and inner fire closely match those of James Dean, the original Rebel Without A Cause (RWAC) who, I am sure, would have been as outraged as I am about this whole Bernanke inflation-targeting thing, is therefore on record as advising the exact freaking opposite of the Federal Reserve´s explicit freaking mission in life, which is to achieve "price stability"! That is what they are freaking supposed to do! That is what the Federal Reserve is literally freaking chartered to do, dammit! A bunch of private businessmen are given the awesome power of creating all the money and credit for the entire nation, at their total discretion. In return, they are supposed to achieve price freaking stability, so that the economy neither booms nor busts, but just keeping on perking away in a steady, controlled growth, with no price inflation (which is the literal definition of "price stability"), and everybody will be happy! Look it up if you don´t believe me! It´s all right there!
Except for the "freaking" thing. I put that part in because I thought it added a little "elusive, indefinable pleasing quality" which, in French, translates as je ne sais quoi, which I use as an example of my new respect for the French, who have had the good sense to reject the monster known as the European Constitution, which is not just another layer of government, but a HUGE, new, suffocating layer of trans-national government, and at least the French are smart enough to recognize that layers of government always get larger, and more expensive, and they all have "mission creep" as they take on more and more responsibilities, and a whole NEW government, with a bizarre Constitution that runs over 500 pages, is even worse!
But we were not speaking of the French, nor the EU Constitution, but about how Ben Bernanke and lots of other people suddenly want to, to my horror, create inflation. And if the moronic Mogambo (MM) immediately recognizes the glaring error of that, then surely someone with YOUR brains, and YOUR education, and YOUR good looks, and YOUR high-IQ brilliance must REALLY comprehend the profundity that if prices are going up, then prices are NOT "stable"!
And now I want you to look deep into my eyes to see my utter, utter conviction when I say to you that prices of things you need WILL be going up thanks to all the money and credit that has been created since Alan Greenspan took control of the Fed in 1987. But if we ever made the horrific mistake of appointing Ben Bernanke to anything where he has any power, or say-so, or authority of any kind, then we will never again see "price stability", because this horrid little man has promised to cause inflation with his every breath! Right there, for everybody to see! And to make sure that you wake up in the dark of the night, bathed in sweat, screaming in bloody fear, President Bush wants him as the head of his economic advisory team! Arrrggghhhh!
And if he gets in charge of the Federal Reserve and he actually does this, then, yes, one day in the future, a $750,000 house will be a chump-change fixer-upper, lived in by rats and derelict gold-bug screwballs, perhaps even The Mogambo himself, still screaming about the horrors of inflation and how it is going to kill all of us. Of course, the price of a small pizza, one lousy topping, cash-and-carry crappy crust and all, (betcha can´t say "cash-and-carry crappy crust" five times real fast!), will cost $75. Per slice.
And let´s not forget about property taxes, because they are not going to be "price stable," either! They are also going to go up and up. And not only going up in nominal terms as a fixed percentage of your house´s value, but as a constantly-increasing percentage of your house´s value, because every dime that any government gets its hands on gets spent on something that requires funding in the future. It is always either some building that will always need painting and a new air conditioner, or a new group of unfortunates that needs a handout, but which always needs more money because prices are rising faster than their handouts. And that means that the government spending will rise faster than simple inflation, and the cost to taxpayers for those things must always rise faster than simple price inflation. And that means constantly higher and higher taxes.
As a perfect example, on the Bloomberg new site we read, "Venezuela boosted government spending by 28 percent in March as surging revenue from record oil prices paid for bigger outlays for social programs."
And what this Bernanke guy is not telling you is that, thanks to his inflation, your retirement is toast. Hewitt Associations figures the average 401(k) plan has a balance of just $69,000. So, guess what? At retirement your stupid little $69,000 that you have in your stupid little 401(k) will be worth less than what a janitor makes in a month. How far do you think you are going to get on that?
But, now that you mention it, we were not talking about inflation or the Federal Reserve or Ben Bernanke. We were talking about houses. Seemingly thankful to get back to talking about houses, Mr. Spicer goes on to note that "Houses deteriorate over time", which is true in the best of cases, and more so now, because if you think that these crappy little cracker-box houses that they are putting up these days, made on the cheap whenever possible, will NOT need lots and lots of loving care from expensive construction labor every day of their attenuated existence, then you are not dealing in reality as the rest of us know it. And then you will spend the rest of your life telling the story of how the house seemed to just fall apart and how these construction guys screwed you and screwed you and screwed you out of so much money, that you finally had to sell the house at a loss? Hahahaha! Look! I am laughing, because it seems so ludicrous to imagine otherwise! Hahaha!
- Speaking of houses, InvesTech has come up with a new indicator, which they call the "Housing Bubble Bellwether Index." Rather than me reading it and trying to understand things, which requires a lot of reading and thinking and I still get it all mixed up, let me quote them exactly: "Compiled of what we consider the best bellwether stocks in the real estate sector, this Index gave decisive warning before each of the last three bear markets." By the term "decisive warning", they mean that the bellwether stocks usually turn down a couple of years before the real estate market went down.
The other thing follows from the first, in that the housing stocks have not turned down. Ergo, it would seem that the housing market is at least two years away from peaking, according to this theory/indicator.
The essay "Silver is Money" and subtitled "The Four Horsemen ˇ Part III" by Douglas V. Gnazzo on FinancialSense.com, says that trading on the Comex OTC market and the overnight access market is perfect for you, "If you are a big player in the futures market and you want to keep your trading unknown, as neither the over the counter market nor the overnight access market have any disclosure whatsoever. No one knows who is doing what to what degree. This raises derivatives to a whole differentlevel: now it is unknown and secretive, as well as extremely risky, and potentially explosive."
And if you want to make risky profits but not have to make good on your losses, then the Comex is even MORE fun for you if you are a Member! Join today! Their "Force Majeure" rules are custom-made for themselves. These rules come into effect when somebody can´t, or won´t, make good on their contracts. For example, in rule 402.C.1.d. we find that Force Majeure is defined as "The actual or threatened bankruptcy or insolvency of any Member or the imposition of any injunction or other restraint by any government agency, self regulatory organization, court or arbitrator upon a Member which may affect the ability of that Member to perform on its contracts".
From this they give themselves powers, awesome powers, such as the power in rule 402.C.2.c., which is to "Impose or modify position limits and/or order liquidation of all or a portion of a Member´s proprietary and/or customers´ accounts" which shows that they can just wipe out the positions of customers (you) and screw you out of the money that you were due, and counting on! And it gets even better in rule 402.C.2.d., which can "Order liquidation of positions as to which the holder is unable or unwilling to make or take delivery." Note that they can order liquidation, at a price of their own choosing, if one of their friends is "unwilling" to fulfill an obligation! Man! There have been MANY times when I would have LOVED to use that rule!
The really interesting part is that, according to Mr. Gnazzo´s analysis, "The futures market is structured in the same way that our paper fiat monetary system is. Both systems employ irredeemable obligations based on fractional reserves." In short, the Comex can just create commodities on paper, out of thin air, and sell them to you. And if we all try and redeem them, which is impossible since there are more commodities on paper than exist in the real world, they can just screw you out of the money by citing their own rules! No wonder Ted Butler and so many others have such a low opinion of the Comex, as this, apparently, perfectly describes, among others, the silver market at the Comex.
James Puplava of FinancialSense.com, writes that "Credit expansion in the US is hyperinflating. Outstanding debt in the US has grown by 38% over the last four years to $36.2 trillion, an increase of over $10 trillion in the last four years. Last year alone consumer borrowing expanded by $1,017.9 billion, up from $839.4 billion the prior year.
As if this isn´t bad enough, he goes on to write "Spreads began narrowing considerably over the last year right after the Fed began its latest rate-raising cycle. The spread between the 2-year and 10-year note has narrowed to 50 basis points. A narrowing of spreads to less than 25 basis points is indicative of an approaching recession."
Well, let´s take a look at the spread. Considering the 10-year T-note, the yield has sunk to a laughable 4%, with official, hedonically-adjusted inflation running at 3.5% and real, unadjusted inflation running at twice that. It makes no sense!
"Moreover, as spreads continue to narrow with each new Fed rate hike, the Fed risks collapsing the ´carry trade,´ which is dependent on widening credit spreads. As credit spreads have narrowed, hedge funds and other speculators have had to go further out on the risk curve in order to maintain a positive spread. The ´carry trade´ may have started out with Treasuries, but it has moved further out on the risk scale towards the fat tail."
And the "fat tail" that he alludes to is where enormous dangers lurk unnoticed, the kind that took down Long Term Capital Management, with all their precious little PhDs and their darling Nobel Prizes and all their hot-shot, know-it-all arrogance.
But there is some good news, and that good news is that you will make a lot of money by buying oil. He says "The US trade imbalance is structural, not temporal. One structural problem is our deficit in energy. As US production declines by 5-6% a year and the price of energy rises due to tight supplies and competing demands, energy imbalances will become a permanent part of the US trade imbalance. Furthermore, the average price paid for imported oil has been hedged with an average price of $36. As these hedges mature, America´s import energy bill will rise."
But apart from the guys that own oil (you and me), he notes that not everyone else will be so lucky. "The fact that the US trade imbalance is structural means there will be no easy fix -- no easy way out. A lower dollar is not going to make it go away. However, a lower US dollar, which is inevitable once foreign intervention wanes, means even further problems for the US. A lower dollar means higher inflation as the cost of imports rises." And higher price inflation means, usually, that gold will also go up, which he does not mention, because I guess he is waiting for me to bring it up. And sure enough, I did!
The dollar has fallen about 30% in the last few years, and he comments that already "Year-over-year import prices have risen 8.1%. As the dollar falls and as foreign intervention cools, interest rates here in the US will begin their inexorable rise. This will be bad news for the stock and bond markets, the US economy, and the next tipping point: the US consumer."
And since we are talking about the consumer, Mr. Puplava notes that Mister And Missus Consumer (MAMC) are already up to their ears in debt, as "Since the year 2000, consumer indebtedness increased by $3,246.2 billion compared to an increase of consumer income of $1,440 billion."
The bottom line? "In 1995 the US added $4 of debt for every $1 in savings. Last year that figure expanded to over $20 of debt for every $1 of savings. In effect, the American economy has turned into one giant hedge fund."
If you are having a hard time even conceptualizing a trillion, then reader Paul C. is your man. "To visualize a trillion," he says, "one simply has to imagine fields totally covered with upright beer cans". If these cans of beer cost a dollar apiece, which he calls Beer Can Units (BCU´s), all you have to do to visualize a trillion cans of beer, all laid out side by side in a giant square, and then drive your car around the circumference of that square, which is 37 and a half miles on a side! Hahahaha!
For those of you more at home with square units, he computes that "This would comprise an area of 1406 square miles, or if you prefer 899,243 acres (but now we get back to difficult to imagine numbers)."
I am always happy to report on the activities of anybody trying to get the American dollar back on a basis of precious metals and out of the hands of the slippery banks, which simply prints up as much money as it wants and thus always ruins the economy when their raw, filthy greed outmatches their smarts, which is always. As such, I am proud to report that Bernard von NotHaus, renowned Monetary Architect of the pure-silver Liberty Dollar, has announced that "Final arrangements have been made for the Liberty Dollar University 6, RCO Congress" on June 29 ˇ July 4th" in Austin, Texas. But I am also EXTREMELY happy to report that they will also be offering "Michael Badnarik´s Constitution Class", as somebody of his philosophical perspective lecturing about the Constitution is exactly what this country needs a lot more of.
And, in keeping with that, the New Hampshire effort to get precious metals re-introduced into their economy as money has not been killed. Yet. Unfortunately, the one to get silver monetized in Mexico has been.
Ugh.
*****The Mogambo Sez: Keep buying precious metals and oil. Why? Ask Bill Bonner, who says, "We buy gold because we see a dangerously unbalanced world economy with no painless way to set it straight. Americans cannot continue to run up debts forever. Their houses are not going to increase in price at three times the rate of GDP growth for much longer. The Chinese cannot continue to build factories in order to make products for people who can´t afford to pay for them. And the Japanese are not going to lend money forever to a country that cannot pay it back. But the most alarming feature of the world financial market circa 2005 is that so few people find it alarming. Every hedge fund manager and homeowner is leveraged to the eyeballs. Every analys[t] and strategist is confident. Every central banker is complacent."
[link to www.321gold.com] |
| .
User ID: 4112
6/2/2005 10:25 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
But, now that you mention it, we were not talking about inflation or the Federal Reserve or Ben Bernanke. We were talking about houses. Seemingly thankful to get back to talking about houses, Mr. Spicer goes on to note that "Houses deteriorate over time", which is true in the best of cases, and more so now, because if you think that these crappy little cracker-box houses that they are putting up these days, made on the cheap whenever possible, will NOT need lots and lots of loving care from expensive construction labor every day of their attenuated existence, then you are not dealing in reality as the rest of us know it. And then you will spend the rest of your life telling the story of how the house seemed to just fall apart and how these construction guys screwed you and screwed you and screwed you out of so much money, that you finally had to sell the house at a loss? Hahahaha! Look! I am laughing, because it seems so ludicrous to imagine otherwise! Hahaha!
- Speaking of houses, InvesTech has come up with a new indicator, which they call the "Housing Bubble Bellwether Index." Rather than me reading it and trying to understand things, which requires a lot of reading and thinking and I still get it all mixed up, let me quote them exactly: "Compiled of what we consider the best bellwether stocks in the real estate sector, this Index gave decisive warning before each of the last three bear markets." By the term "decisive warning", they mean that the bellwether stocks usually turn down a couple of years before the real estate market went down.
The other thing follows from the first, in that the housing stocks have not turned down. Ergo, it would seem that the housing market is at least two years away from peaking, according to this theory/indicator.
The essay "Silver is Money" and subtitled "The Four Horsemen ˇ Part III" by Douglas V. Gnazzo on FinancialSense.com, says that trading on the Comex OTC market and the overnight access market is perfect for you, "If you are a big player in the futures market and you want to keep your trading unknown, as neither the over the counter market nor the overnight access market have any disclosure whatsoever. No one knows who is doing what to what degree. This raises derivatives to a whole differentlevel: now it is unknown and secretive, as well as extremely risky, and potentially explosive."
And if you want to make risky profits but not have to make good on your losses, then the Comex is even MORE fun for you if you are a Member! Join today! Their "Force Majeure" rules are custom-made for themselves. These rules come into effect when somebody can´t, or won´t, make good on their contracts. For example, in rule 402.C.1.d. we find that Force Majeure is defined as "The actual or threatened bankruptcy or insolvency of any Member or the imposition of any injunction or other restraint by any government agency, self regulatory organization, court or arbitrator upon a Member which may affect the ability of that Member to perform on its contracts".
From this they give themselves powers, awesome powers, such as the power in rule 402.C.2.c., which is to "Impose or modify position limits and/or order liquidation of all or a portion of a Member´s proprietary and/or customers´ accounts" which shows that they can just wipe out the positions of customers (you) and screw you out of the money that you were due, and counting on! And it gets even better in rule 402.C.2.d., which can "Order liquidation of positions as to which the holder is unable or unwilling to make or take delivery." Note that they can order liquidation, at a price of their own choosing, if one of their friends is "unwilling" to fulfill an obligation! Man! There have been MANY times when I would have LOVED to use that rule!
The really interesting part is that, according to Mr. Gnazzo´s analysis, "The futures market is structured in the same way that our paper fiat monetary system is. Both systems employ irredeemable obligations based on fractional reserves." In short, the Comex can just create commodities on paper, out of thin air, and sell them to you. And if we all try and redeem them, which is impossible since there are more commodities on paper than exist in the real world, they can just screw you out of the money by citing their own rules! No wonder Ted Butler and so many others have such a low opinion of the Comex, as this, apparently, perfectly describes, among others, the silver market at the Comex.
James Puplava of FinancialSense.com, writes that "Credit expansion in the US is hyperinflating. Outstanding debt in the US has grown by 38% over the last four years to $36.2 trillion, an increase of over $10 trillion in the last four years. Last year alone consumer borrowing expanded by $1,017.9 billion, up from $839.4 billion the prior year.
As if this isn´t bad enough, he goes on to write "Spreads began narrowing considerably over the last year right after the Fed began its latest rate-raising cycle. The spread between the 2-year and 10-year note has narrowed to 50 basis points. A narrowing of spreads to less than 25 basis points is indicative of an approaching recession."
Well, let´s take a look at the spread. Considering the 10-year T-note, the yield has sunk to a laughable 4%, with official, hedonically-adjusted inflation running at 3.5% and real, unadjusted inflation running at twice that. It makes no sense!
"Moreover, as spreads continue to narrow with each new Fed rate hike, the Fed risks collapsing the ´carry trade,´ which is dependent on widening credit spreads. As credit spreads have narrowed, hedge funds and other speculators have had to go further out on the risk curve in order to maintain a positive spread. The ´carry trade´ may have started out with Treasuries, but it has moved further out on the risk scale towards the fat tail."
And the "fat tail" that he alludes to is where enormous dangers lurk unnoticed, the kind that took down Long Term Capital Management, with all their precious little PhDs and their darling Nobel Prizes and all their hot-shot, know-it-all arrogance.
But there is some good news, and that good news is that you will make a lot of money by buying oil. He says "The US trade imbalance is structural, not temporal. One structural problem is our deficit in energy. As US production declines by 5-6% a year and the price of energy rises due to tight supplies and competing demands, energy imbalances will become a permanent part of the US trade imbalance. Furthermore, the average price paid for imported oil has been hedged with an average price of $36. As these hedges mature, America´s import energy bill will rise."
But apart from the guys that own oil (you and me), he notes that not everyone else will be so lucky. "The fact that the US trade imbalance is structural means there will be no easy fix -- no easy way out. A lower dollar is not going to make it go away. However, a lower US dollar, which is inevitable once foreign intervention wanes, means even further problems for the US. A lower dollar means higher inflation as the cost of imports rises." And higher price inflation means, usually, that gold will also go up, which he does not mention, because I guess he is waiting for me to bring it up. And sure enough, I did!
The dollar has fallen about 30% in the last few years, and he comments that already "Year-over-year import prices have risen 8.1%. As the dollar falls and as foreign intervention cools, interest rates here in the US will begin their inexorable rise. This will be bad news for the stock and bond markets, the US economy, and the next tipping point: the US consumer."
And since we are talking about the consumer, Mr. Puplava notes that Mister And Missus Consumer (MAMC) are already up to their ears in debt, as "Since the year 2000, consumer indebtedness increased by $3,246.2 billion compared to an increase of consumer income of $1,440 billion."
The bottom line? "In 1995 the US added $4 of debt for every $1 in savings. Last year that figure expanded to over $20 of debt for every $1 of savings. In effect, the American economy has turned into one giant hedge fund."
If you are having a hard time even conceptualizing a trillion, then reader Paul C. is your man. "To visualize a trillion," he says, "one simply has to imagine fields totally covered with upright beer cans". If these cans of beer cost a dollar apiece, which he calls Beer Can Units (BCU´s), all you have to do to visualize a trillion cans of beer, all laid out side by side in a giant square, and then drive your car around the circumference of that square, which is 37 and a half miles on a side! Hahahaha!
For those of you more at home with square units, he computes that "This would comprise an area of 1406 square miles, or if you prefer 899,243 acres (but now we get back to difficult to imagine numbers)."
I am always happy to report on the activities of anybody trying to get the American dollar back on a basis of precious metals and out of the hands of the slippery banks, which simply prints up as much money as it wants and thus always ruins the economy when their raw, filthy greed outmatches their smarts, which is always. As such, I am proud to report that Bernard von NotHaus, renowned Monetary Architect of the pure-silver Liberty Dollar, has announced that "Final arrangements have been made for the Liberty Dollar University 6, RCO Congress" on June 29 ˇ July 4th" in Austin, Texas. But I am also EXTREMELY happy to report that they will also be offering "Michael Badnarik´s Constitution Class", as somebody of his philosophical perspective lecturing about the Constitution is exactly what this country needs a lot more of.
And, in keeping with that, the New Hampshire effort to get precious metals re-introduced into their economy as money has not been killed. Yet. Unfortunately, the one to get silver monetized in Mexico has been.
Ugh.
*****The Mogambo Sez: Keep buying precious metals and oil. Why? Ask Bill Bonner, who says, "We buy gold because we see a dangerously unbalanced world economy with no painless way to set it straight. Americans cannot continue to run up debts forever. Their houses are not going to increase in price at three times the rate of GDP growth for much longer. The Chinese cannot continue to build factories in order to make products for people who can´t afford to pay for them. And the Japanese are not going to lend money forever to a country that cannot pay it back. But the most alarming feature of the world financial market circa 2005 is that so few people find it alarming. Every hedge fund manager and homeowner is leveraged to the eyeballs. Every analys[t] and strategist is confident. Every central banker is complacent."
[link to www.321gold.com] |
| Anonymous Coward
User ID: 686
6/2/2005 10:27 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
This thread is the perfect contrarian indicator.
Just "fade" the info presented here and make a bundle.
Go long the market. |
| Anonymous Coward
User ID: 1596
6/2/2005 10:32 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
exactly.
I went long tech on tax day and have made A FORTUNE.
these idiots cut and paste other idiots words.
hilarious.
(I also told the board to buy GM/F Bonds.
doubt any of these morons did)
GLP THANK YOU!!!!!!!!!!!!!!!!!!!!! |
| .
User ID: 4112
6/2/2005 10:35 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
It occurs to me that one of the best ways to realign your economy(and keep your population under control and focused on other more immediate problems, like life and death) is have a war, it also as it happens to be what is said to be the habit of the banksters, in particular for the last 250 years to be at the forefront of having planned, aided, abetted and profited from the winners and losers of these wars. |
| FHL(C)
User ID: 4738
6/5/2005 11:37 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fair use:
fnord
User ID: 12478
6/5/2005
11:32 pm EDT
Add to Favorites Gangster Bankers Think They Own the Planet
The Bankers Own The Earth [Repost, Updated]
All interest is Vampire Tax 05 Jun 2005 11:57 GMT
We are living in an usury-market economy, not a free-market economy. It is by design that the rich get richer and the poor get poorer, not by accident.
Changes: New material from the ´Confessions of an Economic Hitman´ book/website added and a few of the more extraneous quotes have been removed to improve clarity slightly.
"Government is not reason; it is not eloquence; it is force! Like fire, it is a dangerous servant and a fearful master."
- George Washington
"I am convinced that those societies (such as the Native American peoples) which live without government enjoy in their general mass an infinitely greater degree of happiness than those who live under the European governments. Among the former, public opinion is in the place of law, & restrains morals as powerfully as laws ever did anywhere. Among the latter, under pretence of governing they have divided their nations into two classes, wolves & sheep. I do not exaggerate."
- Thomas Jefferson
"The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating."
- Thomas Jefferson
"I hope we shall crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country."
- Thomas Jefferson
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs."
- Thomas Jefferson
"The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction. I sincerely believe, with you...that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."
- Thomas Jefferson
"To take a single step beyond the boundaries thus specially drawn around the powers of Congress is to take possession of a boundless field of power, no longer susceptible of any definition. The incorporation of a bank, and the powers assumed by this bill [chartering the first Bank of the United States] have not, in my opinion, been delegated to the United States by the Constitution. They are not among the powers specially enumerated."
- Thomas Jefferson
"I wish it were possible to obtain a single amendment to our Constitution - taking from the Federal government their power of borrowing (from privately-owned corporate banks)."
- Thomas Jefferson, 1798
"We are undone, my dear sir, if legislation is still permitted which makes our money, much or little, real or imaginary, as the moneyed interests shall choose to make it."
- Thomas Jefferson
"All the perplexities, confusions, and distresses in America arise, not from defects in the Constitution or confederation, not from want of honor or virtue, as much as from downright ignorance of the nature of coin, credit, and circulation."
- John Adams
"Liberty cannot be preserved without a general knowledge among the people, who have a right...and a desire to know; but besides this, they have a right, an indisputable, unalienable, indefeasible, divine right to that most dreaded and envied kind of knowledge, I mean of the characters and conduct of their rulers."
- John Adams
"We, the People, are the rightful masters of both the Congress and the Courts. Not to overthrow the Constitution, but to overthrow the men who have perverted it."
- Abraham Lincoln
"I have two great enemies, the southern army in front of me and the financial institutions in the rear. Of the two, the one in the rear is the greatest enemy. The money power preys upon the nation in times of peace, and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes."
- Abraham Lincoln
"The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the U.S., if they remained as one block, and as one nation, would attain economic and financial independence, which would upset their financial domination over the world."
- Otto von Bismarck, Chancellor of Germany, 1876
"The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government´s greatest creative opportunity. By the adoption of these principles...the taxpayers will be saved immense sums of interest [by not having to borrow from privately-owned corporate banks]...Money will cease to be master and become the servant of humanity. Democracy will rise superior to the money power."
- Abraham Lincoln, Senate Document 23, Page 91, 1865
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money power of the country will endeavour to prolong its reign by working upon the prejudices of the people (e.g., by pitting the cooperation-oriented political left against the competition-oriented political right), until the wealth is aggregated in the hands of a few, and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of the war."
- Abraham Lincoln
"If that mischievous financial policy which had its origin in the North American Republic [i.e., honest Constitutionally authorized debt-free money] should become indurated down to a fixture, then that government will furnish its own money without cost. It will pay off its debts and be without a debt (to the International Bankers). It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe."
- The Hazard Circular (England), distributed to wealthy aristocrats prior to the Civil War, 1862
"The death of Lincoln was a disaster for Christendom. There was no man in the United States great enough to wear his boots and the bankers went anew to grab the riches. I fear that foreign bankers with their craftiness and tortuous tricks will entirely control the exuberant riches of America and use it to systematically corrupt modern civilization."
- Otto von Bismarck, Chancellor of Germany, after Lincoln´s assassination
"Right after the Civil War there was considerable talk about reviving Lincoln´s brief experiment with the Constitutional monetary system. Had not the European money-trust intervened, it would have no doubt become an established institution."
- W. Cleon Skousen
"I went to America in the winter of 1872-73, authorised to secure, if I could, the passage of a bill demonetising silver. It was in the interest of those I represented - the governors of the Bank of England - to have it done. By 1873, gold coins were the only form of coin money."
- Ernest Seyd, Agent of the Bank of England
"Corporate entities are persons, under the law. They are separate persons from the very real human persons who own them and run them. We have the Supreme Court of the United States to thank for this perversion. Through corruption of our government and courts, corporations subverted their original intended purpose and acquired the legal status of "natural persons" while also preserving their limited-liability legal protections (which results in corporate ´citizens´ having more legal rights than human citizens do). This subversion was institutionalized in an 1886 Supreme Court decision of which Justice William O. Douglas would later write, "There was no history, logic, or reason given to support that view." Thus corporations gained Bill of Rights protections, and more, even before women and minorities had full protection. We are currently living in an era of sophisticated corporation-state feudalism."
- [Anonymous]
"Unless you become more watchful in your states and check this spirit of monopoly and thirst for exclusive privileges, you will in the end find that the most important powers of government have been given or bartered away, and the control of your dearest interests have been passed into the hands of these corporations."
- Andrew Jackson
"If congress has the right under the Constitution to issue paper money, it was given them to use themselves, not to be delegated to individuals or corporations."
- Andrew Jackson
"You (International Bankers) are a den of vipers and thieves. I intend to rout you out, and by the Eternal God, I will rout you out. If the American people only understood the rank injustice of our money and banking system, there would be a revolution before morning."
- Andrew Jackson in an address to Congress, 1829
"The bold effort the present bank has made to control the Government, the distress it has wantonly produced...are but premonitions of the fate that awaits the American People should they be deluded into a perpetuation of this institution [The Bank of the United States], or the establishment of another like it."
- Andrew Jackson
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."
- James Madison
"Permit me to issue and control the money of a nation and I care not who makes the laws."
- Mayer Amschel Rothschild, founder of the Rothschild international banking dynasty, 1790
"Whomsoever controls the volume of money in any country is absolute master of all industry and commerce and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."
- James Garfield, assassinated within weeks of release of this statement during the first year of his presidency in 1881
"I am afraid that ordinary citizens will not like to be told that the banks can, and do, create and destroy money. And they who control the credit of the nation direct the policy of governments, and hold in the hollow of their hands the destiny of the people."
- Reginald McKenna, Chancellor of the Exchequer of England, Chairman of the Board of Midlands Bank, 1924
"From the days of Spartacist-Wieshaupt to those of Karl Marx, and down to Trotsky, Bela Kuhn, Rosa Luxemburg, and Emma Goldman, this world conspiracy for the overthrow of civilization and for the reconstitution of society on the basis of arrested development, of envious malevolence, and impossible equality, has been steadily growing. This conspiracy played a definite recognizable role in the tragedy of the French revolution. It has been the mainspring of every subversive movement during the 19th century. And now at last this band of extraordinary personalities from the underworld of the great cities of Europe and America have gripped the Russian people by the hair of their head and have become the undisputed masters of that enormous empire."
- Winston Churchill in the Illustrated Sunday Herald, February 8, 1920
"Marxists can always be relied upon to defend the International Bankers, to their dying breath, by portraying capitalism as some sort of vague, accidental ideological abstraction that either everybody or nobody is truly responsible for, rather than as a very specific, profoundly evil system perpetrated by very specific individuals, who are acting with full intention to drain the lifeblood from the Republic until it is dead. This fact alone should be enough to raise suspicion of the Marxists´ real intention, which is to focus primarily on property-based ´class´ conflict (with its implication that everyone ought to be poor) without ever clearly defining the real methods by which the ruling ´class´ stays in power, so that they can attempt to convince the public that these methods are some kind of magic that only Marxist intellectuals can understand and con them into merely replacing the existing capitalist tyrannical order with a communist one. The Marxists are totally anti-democratic and seem to truly envy the money power more than they despise it."
- [Anonymous]
"If I told you I thought the world was controlled by a handful of capitalists and corporate bosses, you would say I was a left-winger, but if I told you who I thought the capitalists and corporate bosses were, then you would say I was far right."
- Anonymous Anarchist Black Blocker
"Left and Right are monolithic ideas - colossal, abstract, and, as their religious origins suggest, cosmic. They are part of the darker side of humanity that replaces the specific with the general, the personal with the impersonal. If you wanted to find a way of making certain that people would have as little as possible in common, there would be no better way than to divide them, not into ten or three or four, but into two. Dual division turns the largest possible sections of humanity against one another, often causing neighbors and compatriots to have nothing to say to one another. No regeneration of community can begin without a careful demolition of Left and Right; nor can this tearing down be relinquished to academic abstraction, technical philosophy, government, corporations, or ideology. Nothing can be built without a new politics - least of all with a politics that refers outward to ideas of Heaven and Hell rather than inward to the experience of daily life."
- Hugh Graham, in his book "The Vestibule of Hell: Why Left and Right Have Never Made Sense in Politics and Life"
"This isn´t just your normal case of shrill, success-hating, bleeding-heart, eat-the-rich, lawsuit-happy, commie-liberal bed-wetters versus slack-jawed, pinheaded, war-mongering, Bible-thumping, woman-hating, eco-rapist knuckle-draggers. But it is politics as usual."
- [Unknown]
"Communism is fascism with a human face."
- Susan Sontag
"Obviously, neither communism nor fascism has any interest whatsoever in democracy; they both claim that democracy is an unrealistic Utopian fantasy. In fact, they both use each other as convenient scapegoats for their own crimes against democracy and human rights. True autonomist democracy can only emerge from a radically centered anarchist-libertarian philosophy that values competition and cooperation equally, the so-called meta-political ´third-position´, which is the greatest threat to both the left and right extremes. The real struggle that is going on in the world today is the struggle for democracy against ALL tyranny, not merely ´class´ war to replace the tyrannical fiscal aristocracy with some despotic peasant-emporer. Phoney third-positionism is easy to reveal because it embraces both fascist and communist principles, rather than rejecting them."
- [Anonymous]
"An anarchist who does not learn the real agenda behind anarcho-Communism and anarcho-Fascism will not remain a Real Anarchist for very long. Crypto-communist and crypto-fascist subversion is the most serious threat to any emerging autonomist democracy."
- [Anonymous]
"My political opinions lean more and more to anarchy (philosophically understood, meaning abolition of control not whiskered men with bombs). There is only one bright spot and that is the growing habit of disgruntled men of dynamiting factories and power stations."
- J.R.R. Tolkien, in "Letters of J.R.R. Tolkien"
"The world is governed by very different personages to what is imagined by those who are not themselves behind the scenes."
- Benjamin Disraeli, Prime Minister of Britain
"The real rulers in Washington are invisible and exercise power from behind the scenes."
- Justice Felix Frankfurter, Former U.S. Supreme Court Justice
"The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson."
- Franklin D. Roosevelt
"The true equation is "democracy" = government by world financiers."
- J.R.R. Tolkien, in "The Letters of J.R.R. Tolkien"
"The main mark of modern governments is that we do not know who governs, de facto any more than de jure. We see the politician and not his backer; still less the backer of the backer; or, what is most important of all, the banker of the backer."
- J.R.R. Tolkien, in "The Letters of J.R.R. Tolkien"
"Throned above all, in a manner without parallel in all past, is the veiled prophet of finance, swaying all men living by a sort of magic, and delivering oracles in a language not understood of the people."
- J.R.R. Tolkien, in "The Letters of J.R.R. Tolkien"
"Since I entered politics, I have chiefly had men´s views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak above their breath when they speak in condemnation of it."
- Woodrow Wilson, 1913
"The real menace of our republic is this invisible government which like a giant octopus sprawls its slimy length over city, state and nation. Like the octopus of real life, it operates under cover of a self created screen...At the head of this octopus are the Rockefeller Standard Oil interests and a small group of powerful banking houses generally referred to as international bankers. The little coterie of powerful international bankers virtually run the United States government for their own selfish purposes. They practically control both political parties."
- John F. Hylan, New York City Mayor, 1922
"The rich will strive to establish their dominion and enslave the rest. They always did...they always will. They will have the same effect here as elsewhere, if we do not, by the power of government, keep them in their proper spheres."
- Gouvernor Morris, head of the committee that wrote the final draft of the U.S. Constitution
"This (Federal Reserve) Act establishes the most gigantic trust [monopoly] on earth. When the President (Woodrow Wilson) signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed. The trusts will soon realize that they have gone too far even for their own good. The people must make a declaration of independence to relieve themselves from the Monetary Power. This they will be able to do by taking control of Congress. Wall Streeters could not cheat us if you Senators and Representatives did not make a humbug of Congress...The greatest crime of Congress is its currency system. The worst legislative crime of the ages is perpetrated by this banking bill. The caucus and the party bosses have again operated and prevented the people from getting the benefit of their own government."
- Congressman Charles A. Lindbergh, Sr., 1913
"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."
- Woodrow Wilson
"Suppose you go to Washington and try to get at your government. You will always find that while you are politely listened to, the men really consulted are the big men who have the biggest stakes - the big bankers, the big manufacturers, the big masters of commerce...Every time it has come to a critical question, these gentlemen have been yielded to, and their demands treated as the demands that should be followed as a matter of course. The government of the United States is a foster child of the special interests."
- Woodrow Wilson, 1912
"If monopoly persists, monopoly will always sit at the helm of government. I do not expect monopoly to restrain itself. If there are men in this country big enough to own the government of the United States, they are going to own it."
- Woodrow Wilson
"I have never seen more senators express discontent with their jobs...I think the major cause is that, deep down in our hearts, we have been accomplices to doing something terrible and unforgivable to this wonderful country. Deep down in our hearts, we know that we have bankrupted America and that we have given our children a legacy of bankruptcy...We have defrauded our country to get ourselves elected."
- John Danforth, Republican senator from Missouri, reported in the Arizona Republic of April 21, 1992
"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes...Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."
- Napoleon Bonaparte, 1815
"Capital must protect itself in every way...Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principal men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd."
- Taken from the Civil Servants´ Year Book, "The Organizer", January 1934
"It [Central Bank] gives the National Bank almost complete control of national finance. Those few who understand the system [check book money and credit] will either be so interested in its profits, or so dependant on its favours, that there will be no opposition from that class, while on the other hand, the great body of the people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burden without complaint, and perhaps without even suspecting that the system is inimical [contrary] to their interests."
- Rothschild Brothers of London, 1863
"...the lord and master of the money markets of the world, and of course virtually lord and master of everything else. He literally held the revenues of southern Italy in pawn, and monarchs and ministers of all countries courted his advice and were guided by his suggestions."
- Benjamin Disraeli, Prime Minister of Britain, describing Baron Nathan Rothschild in his novel, "Coningsby: Or The New Generation"
"When the conflict with France ended (at the battle of Waterloo) the House of Rothschild was in control of British finance and was the official banker of the British Government. This odd financial octopus was acknowledged to be in some respects the greatest power on the earth and was acknowledged by some writers as the ´Sixth Great Power of Europe´."
- E.C. Knuth, in his book "The Empire of The City"
"The Federal Reserve Bank is pretty secretive about who it´s owning banks or shareholders are. It has been determined that the "class A" stock in the Federal Reserve Bank are held by the following 8 institutions: Rothschild Banks of London and Berlin, Lazard Brothers Bank of Paris, Israel Moses Seif Bank of Italy, Warburg Bank of Hamburg and Amsterdam, Lehman Bank of New York, Kuhn Loeb Bank of New York, Chase Manhattan Bank of New York, Goldman Sachs Bank of New York. The Remaining Stock is held by the Chemical Trust and the Rockefeller Trust. These stockholders hold Federal Government Obligations which amount to about $6 trillion Dollars - The entire U.S. National Debt. Their annual profits from interest payments are over $200 billion dollars per year."
- [Anonymous]
"Bill Gates is not the ´richest man in the world´ by a long shot. His $50 billion dollar fortune (give or take) is virtually nothing compared to the wealth and economic power of the House of Rothschild. Baron Jacob Rothschild (who controls the Rothschild banking dynasty) is owed approximately half of the U.S. national debt (which is now some $6 trillion dollars) because the privately-owned Rothschild Bank and its proxies have a 51 percent ownership and controlling interest in the U.S. Federal Reserve System; and this $3 trillion dollar amount obviously does not even include the debt that many other nations ultimately owe to the Rothschild banking network. The interest payments alone provide the Rothschild Bank with $100 billion dollars per year. The reason that the Rothschild dynasty remains generally obscure to the public is because virtually all of their assets are privately-owned and they are very carefully protected from public scrutiny by various ways and means. It has been estimated that the House of Rothschild, directly or indirectly, controls a very substantial portion of the $35 trillion dollars in total overall spending power that exists in the world today."
- [Anonymous]
"Your money´s value is determined by a global casino of unprecedented proportions: $2 trillion are traded per day in foreign exchange markets, 100 times more than the trading volume of all the stockmarkets of the world combined. Only 2% of these foreign exchange transactions relate to the "real" economy reflecting movements of real goods and services in the world, and 98% are purely speculative. This global casino is triggering the foreign exchange crises which shook Mexico in 1994-5, Asia in 1997 and Russia in 1998. These emergencies are the dislocation symptoms of the old Industrial Age money system."
- Bernard Lietaer, Former Central Banker, in his book "The Future of Money"
"To ignore the pivotal role played by particular individuals who are in positions of power is to do violence to historical accuracy. A recognition that the course of economic events can be influenced by individuals who have the imagination and the power to take advantage of prevailing conditions does not constitute acceptance of a ´conspiracy´ theory of history."
- John Blair, Former Chief Economist for the U.S. Senate Subcommittee on Anti-Trust and Monopoly
"The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it all back again. However, take this great power away from them, and all the great fortunes like mine disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create money and control credit."
- Sir Josiah Stamp, President of the Bank of England in the 1920s, the second richest man in Britain
"A civilization based on a system of parasitic usury economics will ultimately destroy itself, because fractional-reserve ´banking´, combined with compound ´interest´, is truly and totally contrary to the modern "Establishment" economic theory that it represents some kind of perpetual-motion machine. Our economic system was not designed to, nor was it intended to, function honorably for the benefit and general prosperity of all; it was specifically designed to create a nation of debt slaves under the control of a molesting central bank. The perpetrators of the system understand fully that it is finite and must inevitably collapse in a state of insoluble debt, but by that point they expect to have gained full and indisputable control over everything. The 450 richest people in the world have financial assets equal to the combined wealth of the 3 billion poorest; half of all humanity. The only possible explanation for this is that the international economic system has been subverted and corrupted by fully intentional activities, directed towards undermining national governments and creating institutionalized, privately-owned central banks throughout the world."
- [Anonymous]
"This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."
- Robert H. Hamphill, Credit Manager, Atlanta Federal Reserve Bank
"While economic textbooks claim that people and corporations are competing for markets and resources, I claim that in reality they are competing for money - using markets and resources to do so. Greed and fear of scarcity are being continuously created and amplified as a direct result of the kind of money we are using. For example, we can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. In fact, the job of central banks is to create and maintain that currency scarcity. Money is created when banks lend it into existence When a bank provides you with a $100,000 mortgage, it creates only the principal, which you spend and which then circulates in the economy. The bank expects you to pay back $200,000 over the next 20 years, but it doesn´t create the second $100,000 - the interest. Instead, the bank sends you out into the tough world to battle against everybody else to bring back the second $100,000."
- Bernard Lietaer, Former Central Banker
"In addition to almost unlimited usury, the bankers have another method of drawing vast amounts of wealth. The banks are able to approve or disapprove large loans to large and successful corporations to the extent that refusal of a loan will bring about a reduction in the selling price of the corporation´s stock. After depressing the price, the bankers´ agents buy large blocks of the company´s stock. Then, if the bank suddenly approves a multi-million dollar loan to the company, the stock rises and is then sold for a profit. In this manner, billions of dollars are made with which to buy more stock. This practice is so refined today that the Federal Reserve Board need only announce to the newspapers an increase or decrease in their "discount rate" to send stocks soaring or crashing at their whim. Banks collect billions in
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| FHL(C)
User ID: 4738
6/6/2005 3:43 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fair use:
to see stats go here
[link to www.kitcocasey.com]
The US Trade Deficit is Unsustainable 5/31/05
By Bud Conrad
May 31, 2005
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Introduction
The US has been borrowing from willing foreigners to maintain its lifestyle, even as we have become uncompetitive in world manufacturing markets. This article examines how big the US trade deficit is in comparison with other economies, and what this may mean for investment. First I simply show the size of the deficit, and then I show how dependent the US housing market and US government deficit spending is on re-investment by foreigners. I then examine the details of the situation, building on a speech given by ex-Secretary of the Treasury and now President of Harvard, Dr. Larry Summers. This analysis shows how dangerous the US trade balance is to the stability of the US and world economic systems.
The Trade Deficit of the US is at unsustainable levels
The trade deficit is the difference between how much we buy and how much we sell to foreigners. Economists like to use a more precise measure of the net amount of money that flows across a country’s border, so they add in the net returns on investments as well. The investment flows are much smaller than the trade differences. The combination of investment returns and the trade deficit is called the current account (CA). I will show current account data below but it can be thought of as very similar to the trade deficit. How big is the current account deficit? The chart below shows the history since 1959:
The US is importing $700B more in goods and services than it sells abroad. The shape of this change is not one of a cycle that gets pushed to one side and then swings back to the other. It is more like a cliff. Our situation is unprecedented. No G7 country has ever had as big a deficit. Axel Merk, who runs a foreign currency fund (www.merkinvesments.com) points out that the US CA deficit could reach $900B in 2006. He references the OECD for this estimate. To see if this is reasonable, I calculate what would happen if crude oil went to $100/ bbl. We import ¾ of our 20M bbl per day usage. That calculates to (20 X ¾ 365 =) 5 billion barrels per year. At $100/ bbl this bill would be $500B. All other cars, computers and clothes would be in addition. If the dollar’s purchasing price dropped as the quantities of goods stayed the same, the deficit would also rise. A $900B deficit is possible.
The situation is even worse when looking not just at what happened each year, but at the accumulated deficit of the US. This accumulated deficit over time measures how big the US indebtedness has become. The chart below, which is even more dramatic, shows that we have accumulated a $4 trillion debt.
This astounding amount is 40% of GDP and shows no signs of slowing. To put this $4 trillion in perspective, the comparable base of what the whole country is worth is only $48.5 trillion. This total value of the nation is the sum of all real estate, all equities and such personal possessions as cars and furniture. So we are approaching having given away 10% of our net worth as collateral for importing the oil, cars and computers we use for our life style.
The chart below shows the size of flows to and from individual nations. The US stands out with the biggest deficit by far.
The problem of big debt for a country the is same as for an individual: they have to pay the growing interest to service the debt. A rough calculation of how big that interest is on the outstanding debt is shown below by multiplying the amount outstanding by the interest rate of the 5-year note in the chart below:
All these pictures show that the deficit is big and growing.
The Trade Deficit links to the US housing bubble and
government deficit
The most basic view of the economy is diagramed below. Households earn the wages they spend on the goods and services from businesses:
The following chart adds that consumers spend a portion purchasing foreign goods. The foreigners then recycle the dollars they collect from this trade into the US government debt by buying Treasuries and into Agency debt of Government Sponsored Enterprises like Fannie Mae, which then provide money for housing.
Foreigners have funded our housing boom and provided enough credit that the growing federal deficits have not driven interest rates up. Much is simplified out of the above explanation, but the value is that we can see the biggest and most important money flows.
The US credit market matches the amount borrowed and lent. The accumulated foreign contribution of $4 trillion of lending (investment) has provided the credit for the borrowing by the US government whose debt held by the public is now similar in size to the accumulated foreign loans to the US. The chart below shows the size of Federal government debt and the foreign accumulated current account debt to point out that foreigners are funding credit at comparable levels:
A comparison of Mortgage Debt and Current Account shows similar growth rates:
If foreigners were to look for other investments, such as gold, or to cash in their current investments by buying assets like stocks or real estate, there would be a big increase in the amount of dollars in the US borders, and a big increase in US prices. The implication of impending inflation is that investors would see the risk, and expect higher interest rates to cover their loss to inflation.
An ex-Secretary of Treasury views the deficit as dangerous
Larry Summers (see web for a bio - www.president.harvard.edu/biography ) spoke at a meeting of the Stanford Institute of Economic Policy Research on the problems of the US current account deficit. He is analytic and convincing. In summary, he painted a very bleak picture as to how serious the situation is. He used the Mutual Assured Destruction analogy of the cold war, as a model for countries holding our debt but not wanting to lose by cashing it in and forcing its value down. He even suggested that foreign debt holders might get the rip-them-off strategy of letting the dollar drop so much that our debts to them evaporate. He implied that there could be a serious calamity in financial markets. He concluded with "I don´t know the answer" to fixing the problem. I asked him to explain why interest rates were so low in the face of the situation. He said the 10-year note should be at 5.5% at least. He had no economic rationale for the low rate, but proffered that maybe investors who had been betting on the rate rise had decided to "throw in the towel" much like NASDAQ shorts did at 3,000 on the way up to 5,000. By buying back short positions they may be contributing to the low rate.
The current account deficit is now unsustainable at 6% of GDP. Since imports are bigger than exports, if they grow at a similar rate, the deficit will grow. The accumulation of debt means that we have to pay increasing interest on the debt making the balance worse. Historically, as the US GDP grows 1%, the current account deficit has grown 2%. But foreigners grow their CA by only 1% for a 1% of GDP growth. The conclusion is that the CA will get worse.
The 6 measures to identify if the CA is a problem:
1. Is it too big? At 6% of GDP it is bigger than the level that brought Argentina into collapse. Mexico got to 8% before its last collapse. The US absorbs 75% of the world´s export surplus. A G7 country has never had such a big deficit before. The conclusion is that 6% is already too big.
2. Is it rising? Yes, suggested by the measures mentioned above.
3. What is the comparative rate of National Investment compared to the National Saving rate? If a country is making investment for future production and has a strong savings rate, it is in a stronger position. The US has the opposite with big government deficit, and little savings.
4. Does the composition of the deficit indicate weakness? If a country is running a CA deficit, by importing the means of manufacturing for example, it can be expected that investment will improve output, and thus be more sustainable than if the imports are for consumption. A measure of composition is whether the goods are traded goods, or not. The composition of the CA for the US is for consumer products, and therefore more dangerous.
5. Where are wealthy locals moving their money? The US is expanding its buying of foreign stocks. We are making foreign direct investment outside the country. The net flow out of investment adds to the view that US decision-makers do not find good value in US.
6. Is the capital flow to the US coming from private investors, who tend to be more concerned about returns than politics, or more from central banks, who may have other reasons then just profits? The US was getting about 2/3 of its investment from Central Banks, and this could be a weak position.
By all 6 measures the CA deficit is judged to be a serious risk to the US economy.
There are 3 counter arguments that the situation may not be serious:
1. We are the Reserve Currency. The large liquid market for US Treasuries has given us leverage and speed. It looks like local stability, but if there is a big shift, the speed could lead to explosive results. The global capital market my not give that much edge to the dollar.
2. "We will rip the foreigners off.” We will depreciate the dollar enough that they will be left with less than they paid for. In fact, this has been happening. The foreign debt to GDP (nominal) ratio hasn´t been expanding much. The weaker dollar means that the purchasing power of the accumulated foreign debt is not growing so rapidly. The argument has short-term merit, but the obvious flaw is that foreigners can see what is happening and may not allow it to continue. An expectation of a weaker dollar would drive the dollar down even more.
3. Bretton Woods II Co-dependency. The term refers to the regime of using the dollar, which is no longer based on gold, to manage the world economic system. The cold war term of Mutually Assured Damage can be applied to the very big holders of our debt. The foreign country that accepts US dollars in trade transactions and re-invests them in US Treasuries may not be so concerned about the dollar drifting lower, if they believe that keeping the dollar strong will benefit their own economy. We have the odd policy of asking China to raise the value of their currency, leaving them holding claims on us of decreasing value.
There will be substantial adjustments ahead:
1. The most similar historical time was the mid-1980s when the CA peaked at 3.5% of GDP. The fall of the dollar after 1985 caused the CA to come back in line.
2. The 1987 crash might have had some input from these unstable antecedents.
3. Japan had several parallels in its situation in the late 1980s with seemingly unending growth. China today looks like Japan of the 70s and 80s.
The trade imbalance is a substantial problem not only in the US, but globally. US purchases of world goods are necessary for other countries’ economic growth. If the US fixes its CA deficit, then the rest of the world will have excess capacity. So the US fix is a problem for the world.
The relationships of the US savings rate, CA, and investment rate, leave us only limited options. The US investment (borrowing, including the government) has to be funded out of US households’ savings, or from foreigners as investment of their trade-won dollars. For all these things to work, as the US cuts its CA deficit, foreign countries must stimulate their own demand to provide markets for their output. There is no simple path here. With US consumers not saving much at all, the funding of credits must come from foreigners. Asian consumers have been held back by lack of long-term mortgage lending and retail constraints. Commensurately, currency adjustment of the weaker dollar should occur against Asian currencies more than European. The economic link of the CA deficits and the budget deficit, is that a smaller fiscal deficit would help improve the CA deficit.
Summers’ concluding comment was to say "I don´t know the answer." His arrival at such a dire evaluation, suggests reason to be cautious about the economy and the value of the dollar for the future.
My Conclusion
I think the US trade deficit will lead to a weaker dollar. That means alternatives to US-dollar-denominated assets must be an important part of a portfolio. The US avoided a serious recession in 2001 by letting the consumer expand his spending by borrowing. We now have more debt than ever, not only internationally as described above, but also for government, and for mortgages. If foreigners were to consider other options for holding these dollars, there could be a glut of dollars in the world that would drive the exchange rate downward and prices in the US upward. If inflation rises, US interest rates could rise, and many parts of the economy could turn down, like housing, stocks and consumer spending. Because of the size of the amounts involved, and the speed of today’s currency and interest rate markets, the shift could move very fast in a downward spiral.
[link to freewordofgod.yuku.com] |
| Anonymous Coward
User ID: 5790
6/6/2005 4:01 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Jupiter reverses direction this Monday. |
| Pine Eel
User ID: 296
6/6/2005 1:07 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
If you watch the Stock Market, you will succeed in becoming bored to death. This is because "Easy Al, the drunkards pal" has complete control over the federal reserve. The federal reserve props up the market with billions (yes billions) every market day. This is why it (the market) never goes much above 10,500 or below 10,000. Kind of uneventful, wouldn´t you say? And also disconnected from reality.
They (Al and Co.) are going to push the coming economic calamity off to the next Administration. So don´t expect anything significant to happen Stock Market-wise for the next two years. |
| FHL(C)
User ID: 4738
6/6/2005 8:51 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Thanks to Arlene and the ac as well who posted this elsewhere here.
Fair use:
THE DAYS OF NOAH – IT’S THE ECONOMY STUPID
From Arlene
Let us get our noses off the feasts for a little session about the economy, for it also has much to do with prophecy, and our sure word of prophecy is a light, as in a dark place. What follows is my rant, long overdue, about the state of our ECONOMY, and the relevance it has to prophecy. Pardon, please , the length of this diatribe, because it makes me so angry, and will help explain to some of the suffering brethren who are having job/financial problems just what is going on.
My son, bless his soul, has a position very high in the ranks of the finance department of General Motors, having been called to that area a couple months ago, because of “the current distress of the company”.
So he sees much that goes on in the “world” of finance; he is also an avid watcher of all world markets, interest rates, etc., as he has to use these in his reports. As you may all know this lad also studies the scriptures with me, giving to God more than he gives to the company.
To him, any perplexity he sees in the world will have a scriptural answer. One of his greatest perplexities, is why this economy does not implode upon itself, globally, for he sees the nations printing monumental mountains of worthless money (dollars) , then taking that
computer-generated worthless “money”, (trillions and trillions of dollars, in fact even hundreds of trillions of dollars) and setting up various “derivatives”, which are bets on the direction of markets, with “insiders” knowing what the central banks are up to, but not us peons who labor in the world to feed our faces. The ultimate result of this chicanery by the big money men of the world, is that this new money introduced into our economy, causes “inflation”, the definition of which is AN INCREASE IN THE MONEY SUPPLY, whereas most people think it is an increase in PRICES, which is only the symptom, not the disease, like saying the fever is the disease, when in point of fact it is the virus that is causing the disease. Then the big powerful money men think up ways to explain this increase in prices to the laborers who cannot keep up with the increase in prices. They say things like “because of OPEC”, etc. Well, if you were selling baseball caps at $4.00 each to your neighbors, and you found out that all your neighbors were printing dollars surrepticiously in their basements and suddenly had 3 times the amount of money they had before, then WHAT WOULD YOU DO? If you (or OPEC) had any brains at all, you would INCREASE YOUR ASKING PRICE !
With this as an introduction, what does this have to do with the scriptures? And prophecy?
First of all, we know that our Lord told us that when He came that the times would be like “the days of Noah”. And this is an answer to my son’s perplexity as to why the economies of the world do not implode, YET. You see, the Lord said that this “buying and selling, planting and building, eating and drinking, marrying and giving in marriage) would continue until THE DAY THAT NOAH ENTERED THE ARK. These would have been prosperous times, albeit also evil times. And we see this very thing happening today. Nothing but evil imaginations in the hearts of man. Imaginations are “images” of our minds. Take a look at the television offerings. They are all “evil” imaginations, images of evil constantly the world over. My son’s wonderment at the on-going and seeming “magic” of these money men to keep this unsustainable series of bubbles from imploding, can be explained by this “economic” lesson our Lord gave to us.
Now, this inflation is a happy thing to those powerful “elite” who know what is going on, but to the common ordinary worker, which includes 98% of the people of this world, they find that they cannot keep up on the ever-increasing speed of the treadmill of price increases wrought by these constant additions to the money supply. In fact, each time the markets become weak, they have to add even more money the next time. A gigantic house of cards, and game of musical chairs, which very soon God will judge. When “Babylon” falls in one hour, all the “merchants” of the earth, will bewail the loss of their funny-money game, and they will come to their ultimate demise, as a judgment of God, who “hates an unfair balance”, or those who tamper with the weights and balances in order to profit more from the un-wary buyer. And, printing horrendous amounts of new money each day, puts more and more stress on the ordinary hard-working person, who cannot keep up. See – since the l960’s all the wives have had to go out to work, children have had to have jobs, and have also had to borrow heavily for their educations. See—people now have 30-year mortgages and tons of credit-card debt, which they will never pay off, like the debt-slavery of Egypt. In the meantime, these big money men say, hey, look your house has gone up in value – aren’t you rich? NO – MY HOUSE HAS NOT GONE UP IN VALUE YOU TURKEY – THE DOLLAR I WORK FOR EACH DAY HAS GONE DOWN IN VALUE ! LOOK AT MY SAVINGS – SEE HOW MUCH LESS THE SAVINGS WILL BUY---SO WHAT IF MY HOUSE HAS GONE UP IN VALUE. So these creeps come out of the woodwork saying, hey you can RE-FINANCE that house and get some cash out of it. Oh, my, what is going on here folks?
Let’s look at another scripture which relates to this money game of the big powerful “merchants of the earth”. In fact the following scripture will be “fulfilled” just before we see the Lord’s coming for us, so it is an important prophetic message for us, and helps us to understand what is going on, that perplexes us so much:
James 5:1
Go to now, ye rich men, weep and howl for your miseries that shall come upon you.
2
Your riches are corrupted, and your garments are motheaten.
3
Your gold and silver is cankered; and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days.
4
Behold, the hire of the labourers who have reaped down your fields, which is of you kept back by fraud, crieth: and the cries of them which have reaped are entered into the ears of the Lord of sabaoth.
5
Ye have lived in pleasure on the earth, and been wanton; ye have nourished your hearts, as in a day of slaughter.
6
Ye have condemned and killed the just; and he doth not resist you.
7
Be patient therefore, brethren, unto the coming of the Lord. Behold, the husbandman waiteth for the precious fruit of the earth, and hath long patience for it, until he receive the early and latter rain.
8
Be ye also patient; stablish your hearts: for the coming of the Lord draweth nigh.
Let us first notice that these rich men have heaped up their riches for “the last days” i.e., tribulation years. Their riches, and silver and gold, will do them no good then, and in fact their riches will themselves be a witness against them in the judgment. They have lived in luxury and wantonness, and have grown “fat” like hogs before the slaughter.
Notice carefully that they have kept back the ordinary workers’ wages “by fraud”. THIS IS THEIR GAME OF MONEY PRINTING THAT MAKES THE WAGES OF THE WORKER GO DOWN IN VALUE, (AND PRICES UP…..) WHILE THEY TELL THESE WORKERS THEY ARE “RICHER”. How vile ! IT IS FRAUD !!!
James goes on to say that these rich men have “condemned” and “killed” the just man, and the just man (worker) does not resist. That is because the just man, the hard-working population, do not know what is going on ! They cannot resist when they do not know what the central banks are doing with the money supply, for they work hard and do not understand these types of things. And yes, it is a condemnation and death which is dealt to these workers, for their livelihood is taken away bit by bit, and they work harder and harder (like the pharaoh made the Israelites “now you will make bricks without straw”), and their lives are destroyed for want of trying to support their families. When one fails economically it is truly like “death”, for part of our lives here on this planet involves our ability to feed ourselves and our families.
Now, looking further into what James says, for he fore-sees the financial suffering of the last days before the Lord comes. He says “be patient” brethren for the coming of the Lord. And that, in these financial difficulties, while the Lord waits for the precious fruit of the rapture to develop, we are to KNOW that “THE COMING OF THE LORD DRAWETH NIGH !
Let is see if the Lord has more to say about the “rich” – this is a class of people He doesn’t really hold out much admiration for:
Luke 21:1
And he looked up, and saw the rich men casting their gifts into the treasury.
2
And he saw also a certain poor widow casting in thither two mites.
3
And he said, Of a truth I say unto you, that this poor widow hath cast in more than they all:
4
For all these have of their abundance cast in unto the offerings of God: but she of her penury hath cast in all the living that she had.
It is the generousity of the poor, who give even in their poverty, that He commends.
1st Tim 6:9
But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition.
10
For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.
11
But thou, O man of God, flee these things; and follow after righteousness, godliness, faith, love, patience, meekness.
We are told to “flee” this love of money.
James 2:5
Hearken, my beloved brethren, Hath not God chosen the poor of this world rich in faith, and heirs of the kingdom which he hath promised to them that love him?
6
But ye have despised the poor. Do not rich men oppress you, and draw you before the judgment seats?
7
Do not they blaspheme that worthy name by the which ye are called?
Note: it is the “poor” of this world, who are rich in faith, and who love Him, who will inherit the promises of God. But the rich are the ones who “oppress” the poor. God sees all and waits…..and then judges…..
Rev. 6:12
And I beheld when he had opened the sixth seal, and, lo, there was a great earthquake; and the sun became black as sackcloth of hair, and the moon became as blood;
13
And the stars of heaven fell unto the earth, even as a fig tree casteth her untimely figs, when she is shaken of a mighty wind.
14
And the heaven departed as a scroll when it is rolled together; and every mountain and island were moved out of their places.
15
And the kings of the earth, and the great men, and the rich men, and the chief captains, and the mighty men, and every bondman, and every free man, hid themselves in the dens and in the rocks of the mountains;
16
And said to the mountains and rocks, Fall on us, and hide us from the face of him that sitteth on the throne, and from the wrath of the Lamb:
Notice here the (dens) bunkers are heavily populated by the rich men, whereas the poor (tribulation saints) have to head for the caves. They also can clearly see that this event is bringing on the “wrath of Christ”.
I don’t know if it is true, but I have read that the rich men of the world are indeed building massive and heavily-guarded and supplied “bunkers”. That is another trail to go down which I am not qualified to comment upon.
So, while the carnival goes on out there, keep these things in mind. In my own neighborhood within four blocks I have huge, massive mansions being built upon lots where the pre-existing houses were torn down. This is all debt-financed speculation, which will not end happily when it all comes down.
And, while the brethren suffer in their attempts to keep up with this carnival, causing stress, illness, loss of jobs and marriages, etc., James comes forth to tell us that these conditions are to be “expected” right before the Lord comes. Our Lord said it would go on right up until the very day we “enter the ark” (the rapture). We are told to have “patience” unto His coming (that is pretty hard when you are failing economically), but if we keep these things in mind, it does soothe the everyday hurt somewhat, knowing that He knows, and He cares, and then when the day comes up and we can look up and see Him coming, and hear the sound of the trumpet,,,,,,none of it will matter anymore. We will be with Him ever after.
We look at so many things that are going on with Israel, the feasts, and other things,,,,,,but keep in mind, the ECONOMY is something that is a very serious end-time issue. And our suffering in it is part of our own refinement. Also remember that the saints in the tribulation will not be able to buy or sell at all…..because these evil men or elite group, know that they can enslave and entrap all of humanity with their manipulations of the economy. We are well headed well into that scenario as we speak. It will become so bad that the ECONOMY and anyone’s participation in it, will be controlled by one’s WORSHIP OF THE ANTICHRIST OR HIS IMAGE. Disgusting. Appalling.
But there it is.
Hey, thanks for listening. Had to get all that off my chest, and delighted to have a long-suffering audience to hear it………
All the very best, beloved Doves, all of you. May we all stay under His greater wing, and be preserved until that wonderful day……
Your sister in Christ,,,,Arlene
[link to freewordofgod.yuku.com] |
| Anonymous Coward
User ID: 686
6/6/2005 9:11 PM | | Paladin
User ID: 15051
6/6/2005 9:43 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
User ID: 8811
I agree....
you move to the stock market that has been flat for 5 years,,,
I agree.... |
| FHL(C)
User ID: 4738
6/6/2005 11:33 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fair use:
Primate Woo Woo
User ID: 433
6/6/2005
11:21 pm EDT
Add to Favorites Monkeys, using money, to buy SEX!
Check out this guy´s whacked-out research. He´s at Harvard, so he must not be a wierdo!
[link to www.freakonomics.com]
[link to www.nytimes.com]
(Sorry about the NYT link, get bugmenot, it rawks!)
Keith Chen is a 29-year-old Yale economist who is teaching capuchin monkeys to use money. Why? Well, to see what they spend it on, and how their spending might relate to human spending.
Chen and his colleagues have run a series of nifty experiments. Click "Video Clip One" in the green box to the left to watch a typical experiment, described thusly by Chen: "A capuchin monkey must decide how to spend his budget of twelve coins (located on the yellow and white striped tray in the front of the trading room.) Two human research assistants are present (one wearing blue and one wearing red), and both hold a piece of food in an orange dish for the monkey to see. The red research assistant "sells" grapes and the blue research assistant "sells" Jell-o cubes, with each piece of food costing a coin from the monkey´s budget.
A capuchin reveals its preferences.
The capuchin must make a decision analogous to a grocery-store shopper´s: how much of their budget to spend of grapes and how much to spend on Jell-o."
Before he came to Yale, Chen helped run some monkey experiments at Harvard. The monkeys there were cotton-top tamarins. Click "Video Clip Two" in the green box to the left to watch a video clip of the following tamarin experiment: "Two unrelated tamarin monkeys sit adjoining each other. Every fifteen seconds, a human research assistant brings a tray loaded with a marshmallow that is just out of reach of one of the monkeys. The only way that monkey can eat the treat is if his partner pulls a red handle that will put the marshmallow within reach.
You want how much for those grapes?
But pulling the handle doesn´t bring any reward for the puller: pulling the handle only pays if the monkey who receives the marshmallow reciprocates by pulling in the future. Like many human situations, the monkeys must work together to obtain food and build trust while punishing failures to cooperate."
In the Yale lab, the capuchins can be seen on a live Monkey Cam (enter "guest" as both the login and password), though you should be forewarned that the camera is usually inactive on weekends, lunchtime, and evenings.
For more information about Keith Chen, including his academic papers on free-spending monkeys and other economic phenomena, click here.
[link to www.nytimes.com]
Monkey Business
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By STEPHEN J. DUBNER and STEVEN D. LEVITT
Published: June 5, 2005
Keith Chen´s Monkey Research
Adam Smith, the founder of classical economics, was certain that humankind´s knack for monetary exchange belonged to humankind alone. ´´Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog,´´ he wrote. ´´Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that.´´ But in a clean and spacious laboratory at Yale-New Haven Hospital, seven capuchin monkeys have been taught to use money, and a comparison of capuchin behavior and human behavior will either surprise you very much or not at all, depending on your view of humans.
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For more information about the authors and Keith Chen´s research, including photographs, academic papers and a live monkey cam, see www.freakonomics.com.
The capuchin is a New World monkey, brown and cute, the size of a scrawny year-old human baby plus a long tail. ´´The capuchin has a small brain, and it´s pretty much focused on food and sex,´´ says Keith Chen, a Yale economist who, along with Laurie Santos, a psychologist, is exploiting these natural desires -- well, the desire for food at least -- to teach the capuchins to buy grapes, apples and Jell-O. ´´You should really think of a capuchin as a bottomless stomach of want,´´ Chen says. ´´You can feed them marshmallows all day, they´ll throw up and then come back for more.´´
When most people think of economics, they probably conjure images of inflation charts or currency rates rather than monkeys and marshmallows. But economics is increasingly being recognized as a science whose statistical tools can be put to work on nearly any aspect of modern life. That´s because economics is in essence the study of incentives, and how people -- perhaps even monkeys -- respond to those incentives. A quick scan of the current literature reveals that top economists are studying subjects like prostitution, rock ´n´ roll, baseball cards and media bias.
Chen proudly calls himself a behavioral economist, a member of a growing subtribe whose research crosses over into psychology, neuroscience and evolutionary biology. He began his monkey work as a Harvard graduate student, in concert with Marc Hauser, a psychologist. The Harvard monkeys were cotton-top tamarins, and the experiments with them concerned altruism. Two monkeys faced each other in adjoining cages, each equipped with a lever that would release a marshmallow into the other monkey´s cage. The only way for one monkey to get a marshmallow was for the other monkey to pull its lever. So pulling the lever was to some degree an act of altruism, or at least of strategic cooperation.
The tamarins were fairly cooperative but still showed a healthy amount of self-interest: over repeated encounters with fellow monkeys, the typical tamarin pulled the lever about 40 percent of the time. Then Hauser and Chen heightened the drama. They conditioned one tamarin to always pull the lever (thus creating an altruistic stooge) and another to never pull the lever (thus creating a selfish jerk). The stooge and the jerk were then sent to play the game with the other tamarins. The stooge blithely pulled her lever over and over, never failing to dump a marshmallow into the other monkey´s cage. Initially, the other monkeys responded in kind, pulling their own levers 50 percent of the time. But once they figured out that their partner was a pushover (like a parent who buys her kid a toy on every outing whether the kid is a saint or a devil), their rate of reciprocation dropped to 30 percent -- lower than the original average rate. The selfish jerk, meanwhile, was punished even worse. Once her reputation was established, whenever she was led into the experimenting chamber, the other tamarins ´´would just go nuts,´´ Chen recalls. ´´They´d throw their feces at the wall, walk into the corner and sit on their hands, kind of sulk.´´
Chen is a hyperverbal, sharp-dressing 29-year-old with spiky hair. The son of Chinese immigrants, he had an itinerant upbringing in the rural Midwest. As a Stanford undergraduate, he was a de facto Marxist before being seduced, quite accidentally, by economics. He may be the only economist conducting monkey experiments, which puts him at slight odds with his psychologist collaborators (who are more interested in behavior itself than in the incentives that produce the behavior) as well as with certain economist colleagues. ´´I love interest rates, and I´m willing to talk about their kind of stuff all the time,´´ he says, speaking of his fellow economists. ´´But I can tell that they´re biting their tongues when I tell them what I´m working on.´´
It is sometimes unclear, even to Chen himself, exactly what he is working on. When he and Santos, his psychologist collaborator, began to teach the Yale capuchins to use money, he had no pressing research theme. The essential idea was to give a monkey a dollar and see what it did with it. The currency Chen settled on was a silver disc, one inch in diameter, with a hole in the middle -- ´´kind of like Chinese money,´´ he says. It took several months of rudimentary repetition to teach the monkeys that these tokens were valuable as a means of exchange for a treat and would be similarly valuable the next day. Having gained that understanding, a capuchin would then be presented with 12 tokens on a tray and have to decide how many to surrender for, say, Jell-O cubes versus grapes. This first step allowed each capuchin to reveal its preferences and to grasp the concept of budgeting.
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Readers´ Opinions
Questions for Stephen J. Dubner and Steven D. Levitt
The authors of "Freakonomics" take readers´ questions on their bestselling book and new magazine column.
• Submit a Question
For more information about the authors and Keith Chen´s research, including photographs, academic papers and a live monkey cam, see www.freakonomics.com.
Then Chen introduced price shocks and wealth shocks. If, for instance, the price of Jell-O fell (two cubes instead of one per token), would the capuchin buy more Jell-O and fewer grapes? The capuchins responded rationally to tests like this -- that is, they responded the way most readers of The Times would respond. In economist-speak, the capuchins adhered to the rules of utility maximization and price theory: when the price of something falls, people tend to buy more of it.
Chen next introduced a pair of gambling games and set out to determine which one the monkeys preferred. In the first game, the capuchin was given one grape and, dependent on a coin flip, either retained the original grape or won a bonus grape. In the second game, the capuchin started out owning the bonus grape and, once again dependent on a coin flip, either kept the two grapes or lost one. These two games are in fact the same gamble, with identical odds, but one is framed as a potential win and the other as a potential loss.
How did the capuchins react? They far preferred to take a gamble on the potential gain than the potential loss. This is not what an economics textbook would predict. The laws of economics state that these two gambles, because they represent such small stakes, should be treated equally.
So, does Chen´s gambling experiment simply reveal the cognitive limitations of his small-brained subjects? Perhaps not. In similar experiments, it turns out that humans tend to make the same type of irrational decision at a nearly identical rate. Documenting this phenomenon, known as loss aversion, is what helped the psychologist Daniel Kahneman win a Nobel Prize in economics. The data generated by the capuchin monkeys, Chen says, ´´make them statistically indistinguishable from most stock-market investors.´´
But do the capuchins actually understand money? Or is Chen simply exploiting their endless appetites to make them perform neat tricks?
Several facts suggest the former. During a recent capuchin experiment that used cucumbers as treats, a research assistant happened to slice the cucumber into discs instead of cubes, as was typical. One capuchin picked up a slice, started to eat it and then ran over to a researcher to see if he could ´´buy´´ something sweeter with it. To the capuchin, a round slice of cucumber bore enough resemblance to Chen´s silver tokens to seem like another piece of currency.
Then there is the stealing. Santos has observed that the monkeys never deliberately save any money, but they do sometimes purloin a token or two during an experiment. All seven monkeys live in a communal main chamber of about 750 cubic feet. For experiments, one capuchin at a time is let into a smaller testing chamber next door. Once, a capuchin in the testing chamber picked up an entire tray of tokens, flung them into the main chamber and then scurried in after them -- a combination jailbreak and bank heist -- which led to a chaotic scene in which the human researchers had to rush into the main chamber and offer food bribes for the tokens, a reinforcement that in effect encouraged more stealing.
Something else happened during that chaotic scene, something that convinced Chen of the monkeys´ true grasp of money. Perhaps the most distinguishing characteristic of money, after all, is its fungibility, the fact that it can be used to buy not just food but anything. During the chaos in the monkey cage, Chen saw something out of the corner of his eye that he would later try to play down but in his heart of hearts he knew to be true. What he witnessed was probably the first observed exchange of money for sex in the history of monkeykind. (Further proof that the monkeys truly understood money: the monkey who was paid for sex immediately traded the token in for a grape.)
This is a sensitive subject. The capuchin lab at Yale has been built and maintained to make the monkeys as comfortable as possible, and especially to allow them to carry on in a natural state. The introduction of money was tricky enough; it wouldn´t reflect well on anyone involved if the money turned the lab into a brothel. To this end, Chen has taken steps to ensure that future monkey sex at Yale occurs as nature intended it.
But these facts remain: When taught to use money, a group of capuchin monkeys responded quite rationally to simple incentives; responded irrationally to risky gambles; failed to save; stole when they could; used money for food and, on occasion, sex. In other words, they behaved a good bit like the creature that most of Chen´s more traditional colleagues study: Homo sapiens.
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 4738
6/7/2005 12:31 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fair use:
Concerned Aussie from Perth
User ID: 9874
5/27/2005
9:16 pm EDT
Send Private Msg
Add to Buddy List
Add to Favorites Panama Government Privatizes Social Security Over Nationwide Protests and Violence
Note what the World Bank wants below.
PRESS RELEASE
Panama Government Privatizes Social Security
Over Nationwide Protests and Violence
May 26 (EIRNS)--Throwing light on the drive to privatize Social Security which George W. Bush is carrying on over the strong opposition of 60% or more of the American population, forced privatization in Panama has just triggered nationwide demonstrations, violent clashes, and repression by police. Lyndon LaRouche warned Americans, in a December 2004 mass pamphlet, that Bush´s privatization of Social Security could only be carried out by dictatorial measures, as its model was in Chile in the 1970s and 1980s. LaRouche´s point is made by the Panama developments. The World Bank, in a report it has just released, is demanding more--that pension reform in every nation of the world must include privatization.
Four days of protests against government moves to privatize Panama´s social security and medical attention plan, which have involved violent clashes with police, are rapidly moving toward an indefinite general strike, as Panama´s Congress ignored a 10,000-person protest Wednesday night and voted up the privatization "reform" package in the first of two required debates. More than 240 workers and students have already been arrested, and scores injured as well. The social security system serves 75% of the Panamanian population.
In a telephone conversation today, Eduardo Rios, the former labor leader and founding member of the Schiller Institute´s Labor Committee, who has written three books on the Panamanian Social Security System, said that the "reforms" include raising the retirement age (including for people who now are just a couple of years away from retiring), increasing the number of years you must contribute to qualify for retirement, and, most extreme, moving the Social Security funds from the National Bank, to whatever private banks the Social Security administrator, at his or her own discretion, deems appropiate. "From the banks´ standpoint, this is even better than the Chilean scheme: Instead of individual accounts, they get the whole thing in one fell swoop; they don´t have to bother with administering anyone´s pension—the government does it for them—and all they have to pay is minimum interest, if that," said Rios, who added that the ultra-left, which, he said, also supported the 1989 invasion undercover, is leading people into impotent protests and useless acts of violence.
Rios has been pointing out that the "reforms" in Panama are part and parcel of what´s going on in the United States and elsewhere, and for the same reason: the collapse of the world´s financial system, and in recent days he had EIR´s Carlos Wesley on his daily radio show, "Christianity and Society," to brief the Panamanians on the LaRouche-led fight against privatization in the United States.
The New York Times of May 26 obligingly argued the government´s viewpoint, that "The social security system´s reserves are inadequate for its future pension commitments, and the government needs pension reform to rein in a hefty budget deficit. Cleaning up public finances is key to Torrijos´ ambitious plan to expand the country´s interoceanic canal, whose locks are too small for a new generation of vast vessels."
President Torrijos, whose party holds a majority of the 78 seats of the national assembly, is planning to ram the reform through, come what may.
Concerned Aussie from Perth
User ID: 9874
5/28/2005
12:18 am EDT
Send Private Msg
Add to Buddy List Re: Panama Government Privatizes Social Security Over Nationwide Protests and Violence
lets see how the mainstream press reports this.
Concerned Aussie from Perth
User ID: 9874
6/7/2005
12:01 am EDT
Send Private Msg
Add to Buddy List Re: Panama Government Privatizes Social Security Over Nationwide Protests and Violence
FYI
[Source: International wires, June 2, 2005]
June 4—SOCIAL SECURITY SYSTEM GUTTED IN PANAMA. Despite weeks of ongoing and sometimes violent protests against the privatisation of the Panamanian social security system, the Martin Torrijos government rammed through its "reform" of the system at midnight June 1. The next day, thousands of Panamanians, including students, community organizations, opposition politicians, and construction workers, teachers, and public sector doctors unions, dressed in black as a sign of mourning, and marched several kilometres through the capital city to the Presidential office, to protest this gutting of social security and medical coverage for 70% of Panamanian citizens.
While Torrijos crowed that "now pensions are guaranteed," the Front in Defense of Social Security argued that the new package, which includes 180 reforms to the system, will make it much more difficult to meet the requirements of qualifying for a pension. Not only have the ages for applying for a pension been raised for both men and women, but the monthly amount a worker has to contribute to the system has been significantly increased. In addition, people will now have had to work many more years to qualify for retirement.
The reform, which has been dubbed by its opponents "the death plan," was forced upon Torrijos by the IMF and the World Bank, in exchange for the promise of financing to widen the Panama Canal. That will mean the eventual privatisation of the Canal, since plans are for it to be mortgaged to obtain the financing, said former labour leader and Schiller Institute organiser, Eduardo Rios, who just signed the NBW call, in an interview with EIR, soon to be published. Another condition is that social security trust funds be deposited in private banks, namely in the Spanish BBVA and the American Citigroup, plus smaller ones owned by Panamanian oligarchs.
[link to freewordofgod.yuku.com] |
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User ID: 9711
6/8/2005 6:15 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
DEBT CEILING OR DEBT FLOOR?
Doug McIntosh
You realize you are living in strange economic times when the Democrats chastise the Republicans for "fiscal irresponsibility." Such was the case when the House of Representatives finally got around to raising the funny money bar by another $800 billion. Although the vote of 208 to 204 might seem to indicate a chance of fiscal sanity in Congress, a closer look reveals the true reality. President Bush called the bill "important to protect the full faith and credit of the United States." The day is soon coming when votes like this, or statements like that will be laughed off the global bond markets, hounded out of Wall Street and run out of town swirling feathers. Count on it. Even as this fiscal farce was playing out the real verdict was coming in: record precious metals prices and record lows in the fiat funny dollar.
I have written many, many times on the folly of the Federal Debt. I have written many, many times on how we got that way and why it matters and what the likely result will be. All to no avail as the fiscal fruitcakes in government just cruise right along. There will be no reform; there will be no alternatives to the grim consequences of generations of fiscal folly. The articles I read didn´t mention the total amount, so I´m guessing our debt limit is now around $8 Trillion dollars, some 80% of our total economic output for one year. I don´t even think listing the usual figures, or what I call the usual economic suspects, matters at this point in the game, the end game. The United States of America, in economic terms at least, is being judged in the currency markets and in the bond markets and on the stock markets. And the judgment is not very pleasant for the economic bums in Washington D. C.
Paul Simon, he´s the Simon in Simon and Garfunkel, once wrote a song with a line, "One man´s ceiling is another man´s floor." A very good description of modern apartment living I might add. In economic terms I would amend that to one man´s debt ceiling is another man´s bottomless pit of misery. I have no idea how high is high. I have no idea how much longer this "full faith and credit of the United States" scam can continue. Any more than I have any idea how long Mr. Magoo can avoid raising interest rates like Mr. Volcker did in 1980. I have no idea how much longer this fiscal farce of endless debt, endless gimmicks and endless lies can continue. But I will tell you this dear reader, my judgment is our economic doom will come from outside our borders. I feel the economic shell game will go on until the foreigners cut us off. The day is coming when they will kick our drunken butts out of the Funny Fiat Money Saloon and throw us out into a mud puddle. The dazed American Sheeple will wonder what has happened.
The USA money should say, "I spend; therefore, I am." I hold certain economic truths to be self evident. The reason they are self evident is because history is littered with the bones of those who ignored them, mocked them or listened to experts telling them they don´t matter. It is pathetic. It is disgusting and most of all, it is useless for the USA to pretend it isn´t bankrupt. It is like an aristocrat pawning the family jewels to pay gambling debts. We are undone economically.
Not that you will find any open admission of this fact in the downstream press in the USA. The foreign press sees things quite clearly. They clearly understand the USA is nearing the point of being openly derided in the economic markets. I mentioned Mr. Magoo had to sell over 50 billion dollars of government debt to clear a measly 3 billion. In one of the World War Two books I read, they had a story about how Hitler, in March of 1945, heard the Rhine River had been forded by the American Army and they were pouring into Germany. He threw a temper tantrum and ordered several divisions of tank killers to fight them. Only, Adolph didn´t have divisions anymore. At one time, he had sent 4,000 tanks and 10,000 tank killers into battle; now, he was reduced to four, yes four tank killers against several thousand US tanks. The USA is quickly reaching that point economically. It is written in the bond markets, the currency markets and the stock markets. We here in the USA, like Hitler, don´t seem to understand the true economic situation we face.
THERE IS NO MONEY IN THE USA TODAY.
IT IS DEBT, CREDIT AND FANTASY.
It is fantasy at all levels of government. It is fantasy at all levels of corporate America. It is fantasy for individuals. It is fantasy for families. Everywhere I look in the USA I see fantasy and still more fantasy. I see a government system pretending it still functions in the economic arena. They think this because the downstream press doesn´t call them to accountability. The reason they do not do this is because the media is owned by the banks. The reason the money supply is increased endlessly by that economic terrorist called Mr. Magoo is because the system will collapse without it. And guess who owns the FED? The same banks that own the media, own the courts, own the politicians and own the entire country. I tell you plainly, the USA has been sold; bought and now the bill is coming due. It is only in the mental delusions of the vast majority of the United States Sheeple this economic farce can continue. The only place suitable for the United States and its fruitcake economy is the padded room at a mental hospital.
Harsh, you say? Well, read the following quotes from the article I read. The mere fact they have been made tells me they know what is going to happen to the US dollar over the next few months. I could add the fiscal year began October First, but they never get the budget done on time, so that is nothing new. It is not like it matters anyway, since Mr. Magoo just hits the print button on his computer over there in FED land. The usual Treasury Department warning it was running out of ways to keep the debt limit from being breached. The economic version of trick or treat from Mr. Magoo. Of course, they aren´t going to let government bonds go into default. You, I know what that means for the status quo. And of course, they waited until after the election to raise the debt limit. And of course, there was vicious political wrangling, death defying partisanship and devious positioning for the 2006 Congressional elections. Elections with a Democratic theme of fiscal responsibility. Can somebody please get me some kind of drug that will blot out Democrats talking about fiscal responsibility and Republicans acting like Democrats in the economic sense anyway?
It is true President Bush has raised the debt ceiling three times since 2001 and ran an "official" budget deficit of $413 billion. It is my view this is a REPUBLOCRAT issue. They are all economic incompetents and frauds the whole lot of them. I do not see the issue as a political issue at all. It is an economic issue, deficits and debt, embedded in a moral issue. By that I mean endless debt and credit and the lies and fraud that support it are moral failures of the American political system. Moral failures of the leadership elite and the general populace. And it is my personal view, this full faith and credit crap, yes crap, will go down in flames when the foreigners make a moral judgment about the American economy. The point of all this debt and budget deficits is the ABILITY to repay it. Further, the moral willingness to repay it. And finally, the mental will to repay it. The core issue on the budget deficit, the economy and the Federal debt is a moral judgment on whether the United States will pay off its debts. And it is this single, ruthless, brutal statement that will take out the US government, take out the US economy and take out the United States as a superpower. This is isn´t about economics in the conventional sense of the word. It is about how moral failure expresses itself in economic terms and has political and military results. I just don´t think they get it. I have come to the conclusion the people, the leadership and the elite really do think they can keep this debt ceiling fantasy going on endlessly. If you ask the question at what point does the ceiling become a floor, the eyes glaze over.
The day will come when none of the mind games in the House or Senate on debt, or budget deficits or any thing related to the economy will matter any more. On that day, Argentina will look like a Sunday stroll in the park with ice cream cones. Mark my words. When the USA economy goes down, it will take the social structure down with it. What do you think all these people are going to do when the status quo implodes and the checks stop? Answer me that when you say all this economic stuff doesn´t matter and I am just a negative, cynical crank. I live in a major city and I KNOW what will happen even if you do not. Perhaps, that denial, of what the economic consequences will be, is the greatest illusion in the USA today.
I have spoken.
Doug McIntosh
5 June 2005
[link to www.gold-eagle.com] |
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User ID: 15571
6/13/2005 9:33 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Extra
The overlooked $2.3 trillion deficit
If the government were held to the same standards as public companies, its accounting methods would make Enron´s misdeeds pale in comparison. Here´s how they obfuscate the truth.
By Scott Burns
Let me be circumspect: Government accounting is vile garbage. It understates the true federal deficit by a staggering $2.3 trillion, an amount equal to the total market value of the 10 largest companies in America – General Electric (GE, news, msgs), Exxon Mobil (XOM, news, msgs), Microsoft (MSFT, news, msgs), Citigroup (C, news, msgs), Wal-Mart (WMT, news, msgs), Johnson & Johnson (JNJ, news, msgs), Pfizer (PFE, news, msgs), Bank of America (BAC, news, msgs), IBM (IBM, news, msgs) and Intel (INTC, news, msgs).
Blessed by historical habits that have no relationship to what our government does today, our legacy of cash accounting now serves to mislead and confuse. The April issue of Economic Indicators, a publication prepared by the Council of Economic Advisers, for instance, projects a unified budget deficit -- the one that lumps the Social Security surplus in with the rest of government -- of $427 billion. (New reports this week that we may be on track for a smaller deficit don´t change the fact that the accounting methods are misleading. We´ll stick with the $427 billion figure until they make the new estimate official in midsummer.)
The $427 billion deficit, however, is a massive understatement of our true deficit. The real deficit is $2.3 trillion larger. That´s more than five times the publicly discussed $427 billion figure -- but it never enters public discussion.
If the executive branch of government were held to the standards of Sarbanes-Oxley, it would be on a fast track to a criminal trial. We would forget about Ken Lay because the crimes at Enron are mere rounding errors compared to what our government does.
A bipartisan problem
Some readers will expect a diatribe against President George W. Bush to follow.
It won´t.
This is a bipartisan problem. Both the Democrats and the Republicans, in or out of office, have been using accounting methods that are, at best, quaint and, at worst, criminal. And they have been doing it for decades.
You can understand what´s going on by comparing our government to a large corporation like General Motors.
When General Motors (GM, news, msgs) files its annual report, it must report on the condition of its pension fund and other obligations to current and retired workers as well as its profit or loss. If the pension liabilities -- the retirement benefits it has promised workers -- exceed pension-plan assets by more than a certain amount, General Motors must make contributions to the pension fund, reducing its profits. The two, profits and pensions, are deeply linked. General Motors also has substantial health-care obligations to its retired workers.
Sound familiar?
Our government is in a similar position -- but with a lot more zeros on the numbers it uses. It reports its annual profit and loss as a surplus or a deficit. Separately, it reports on its long-term pension, disability and health-care obligations. Unlike General Motors, however, the government doesn´t include these figures in the annual statements of surplus or deficit.
The buried details
You can find them only in the trustees´ reports for Social Security and Medicare.
The 2005 reports (each over 200 pages) show the programs to be underfunded by a total of $33.7 trillion (in today´s dollars) over the next 75 years. That´s four times the $8 trillion in formal debt shown in regular government accounting.
You learn still more when you compare the 2005 reports with the reports from 2004. In 2004, the combined unfunded obligations of Social Security and Medicare were $31.4 trillion.
That´s an increase of $2.3 trillion in a single year. The trustees´ examination of the plans over a longer time period, termed the infinite horizon, shows an even larger change, $7.2 trillion (see table below).
But let´s not look so far in the future. Let´s stay with the traditional (if inadequate) 75-year measure, that $2.3 trillion. It isn´t mentioned in other government documents. It is missing from Economic Indicators. Indeed, it is absent from virtually all discussion of the federal budget -- the one currently estimating a piddling deficit of $427 billion for fiscal 2005.
The overlooked $2.3 trillion deficit*
Program 75 years Infinite horizon Difference
Social Security $4.0 $11.1 $7.1
Hospital Insurance $8.6 $24.1 $15.5
Part B (from general revenues) $12.4 $25.8 $13.4
Part D (from general revenues) $8.7 $18.2 $9.5
Total $33.7 $79.2 $45.5
Comparable total, 2004 $31.4 $72.0 $40.6
Year over year increase $2.3 $7.2 $4.9
*All $ figures in trillions.
Source: 2004, 2005 trustees´ reports for Social Security and Medicare.
The unfunded liabilities measure the value, in current dollars, of the amount by which promised benefits exceed expected tax collections. In all three Medicare programs, the financing gap will grow year by year during the 75-year period. It will continue to grow after the 75-year period traditionally used by the trustees of Social Security and Medicare.
Until more accurate figures are presented, neither party knows what it is talking about or where the country is going.
See Scott Burns´ Web site. |
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User ID: 4844
6/14/2005 11:03 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Thanks CAFP
Concerned Aussie from Perth
User ID: 9874
6/14/2005
10:45 pm EDT
Hedge-Funds Crisis Breaks Into the Open
Lot´s happening behind the scenes people.
FYI
This article appears in the June 17, 2005 issue of Executive Intelligence Review.
Hedge-Funds Crisis Breaks Into the Open
Since the May 5 downgrade of General Motors´ and Ford´s corporate debt to "junk" status by Standard & Poor´s, the signs of a catastrophe in the hedge-funds markets has exploded into public view. Hedge funds are a form of mutual fund for the super-rich, which are permitted to engage in aggressive speculative activities prohibited to ordinary mutual funds; a substantial amount of betting in derivatives is done through hedge funds, with no government regulation whatsoever. An estimated $2 quadrillion in derivatives is traded per year—although nobody really knows the full dimensions of this house of cards.
For a month now, the financial press has been warning of an imminent blowout; Federal Reserve Chairman Alan Greenspan admitted on June 6 that "the hedge fund industry could temporarily shrink, and many wealthy fund managers and investors could become less wealthy"; and a battle royal has broken out at the U.S. Securities and Exchange Commission.
The Tip of the Iceberg
Here is a review of the latest reports on the crisis. Rest assured that what is coming out into the press of Wall Street and the City of London is what they want "the mickies" to hear; the true extent of the problem is certain to be much worse, and who exactly is doing what to whom remains shrouded in secrecy.
May 17: The London Financial Times reported that "hedge funds are liquidating positions in the expectation that investors will be redeeming substantial sums in early July.... The past two weeks have proved one of the most testing times for hedge funds since the collapse of Long Term Capital Management in 1998."
May 19: The Centre for Economics and Business Research was quoted by This Is London saying that 10% of the world´s 8,000 hedge funds will fail or close this year, and another 10% will fail or close next year, for a total failure of 1,600 hedge funds over two years.
May 23: The Wall Street Journal reported from London on the implosion of the Bailey Coates Cromwell hedge fund. The company lost 5% of its value in March, and another 10% in April. It closed its United States operations, and is firing some of its British staff.
May 30: The bankers´ magazine Barron´s ran a cover story titled "For Hedge Funds, Is the Party Over?" It reported that "hedge funds now control $1 trillion in assets. But too much money may be chasing too few opportunities. The likely outcome: a shakeout."
June 3: Hans Fahr resigned as CEO of IWKA AG, a German engineering company based in Karlsruhe. The move reportedly came because of pressure from hedge funds, and follows the ouster of Deutsche Boerse AG CEO Werner Seifert on May 9, amid opposition from hedge funds including Atticus Capital LLC in New York.
June 5: The New York Times Magazine ran a special 106-page "Money Issue," instead of its usual 40-pager. While trying to assure readers that there´s really nothing to panic about, the paper does give the idea that something big is going on, with respect to hedge funds and "the growing financial complexity of risk." One article, "See a Bubble," by Roger Lowenstein, includes this table of annual performance of major hedge funds (from the NYT/CSFB/Tremont Hedge Fund Index):
2005: (-0.11)%
2004: +9.64%
2003: +15.44%
2002: +3.04%
2001: +4.42%
2000: +4.85%
June 8: The Toledo Blade reported that the Ohio Bureau of Workers´ Compensation lost $215 million investing in a high-risk hedge fund, in just eight months last year.
Calls for Regulation
In Europe, panicked calls for regulation of hedge funds are emerging from some of those tasked with keeping the financial ship afloat. On May 19, Jochen Sanio, president of the German financial supervision agency BaFin, referred to hedge funds as "black holes of the international financial system," and said that we need to "systematically monitor the opaque sections" of the financial system. "Regulation is a must," he said. The latest BaFin annual report warns, "The growth rate raises the question whether hedge funds could threaten the stability of the financial system." The European Commission is planning a review of the hedge fund "industry."
The most public fight is in the United States, where the chairman of the Securities and Exchange Commission (SEC), William Donaldson, was dumped by President Bush on June 1. Donaldson was trying to place at least minimum controls on the hedge-fund scam artists. Bush has nominated Christopher Cox to replace him, a Republican Congressman from California, and one of the most rabid anti-regulation fanatics in the nation.
Bush´s ´Enron Reflex´
Donaldson, founder of the Donaldson Lufkin Jenrette brokerage firm, former head of the New York Stock Exchange, and an old friend of the Bush family, was appointed by Bush in December 2002 to replace Harvey Pitt, who had been discredited by his failure to act on the Enron, WorldCom, and related scandals. Because the Enron pirates had been among the leading supporters of the year 2000 Bush/Cheney election campaign, Donaldson faced a near-impossible task, especially since he attempted to take seriously his job as the head of one of the nation´s most important regulatory agencies.
Under Donaldson´s chairmanship, the SEC began to strictly enforce regulations on corporate stock operations imposed by the 2002 Sarbanes-Oxley Act—much to the horror of the free-marketeers on Wall Street.
In a June 1 press conference announcing his early resignation, Donaldson made it clear that he was being forced to leave, and that the primary issue of contention was his effort to regulate hedge funds. He noted that few of these funds were actually hedged, so they would be more accurately known as "pooled vehicles that you can do anything you want with."
What is the job of a regulator, he asked? "It would be almost impossible for me to conceive of a Securities and Exchange Commission that didn´t recognize an industry that was at a $3 trillion level and wasn´t being regulated at all," Donaldson said. "And we´ve set about to regulate that industry in a rather benign way ... simply to get the most fundamental knowledge about the hedge fund industry. Who´s running the money? What´s their investment record? What´s their track record as far as infractions with the law? How do they do their accounting? This was the simplest of kinds of things that will pertain to anybody that runs money. And, of course, the other part of that is that this knowledge will help us, I believe, understand better what impact the hedge funds are having on the other side of the market."
The Wall Street Journal reported that Fidelity Investments led the campaign by the Wall Street financial institutions to dump Donaldson, working through Bush political guru Karl Rove, and with help from Al Hubbard, who became Bush´s top economic advisor early this year.
A rule change proposed by Donaldson would require hedge funds to register with the SEC, and force them to submit to regular audits and inspections. Funds would also have to provide details of trading strategies and how they value their portfolios, giving the SEC a "better sense of the goings-on in business long shrouded in mystery," the Wall Street Journal reported on June 8.
In opposition to regulation, the Managed Funds Association has argued that there has not been enough malfeasance in the business to justify the rule change. And the portfolio manager for Opportunity Partners, has even sued the SEC over the rule.
Donaldson said in his parting press conference that his greatest fear in leaving the post was that there would be a "legalistic rollback of ... key items that we´ve put forward." The most useful of the regulations passed under Donaldson´s chairmanship came as a result of 3-2 votes at the SEC, with Republican Donaldson voting with the two Democrats on the Commission against the other two Republicans. The bipartisan spirit of those actions at the SEC is now doomed, if Representative Cox is approved as the new chairman.
´Cox to the Rescue´
Bush and Cheney retreated to their "Enron reflex" by naming Cox—who proudly declares that he believes there should be virtually no government regulations—to be the chief regulator of the collapsing securities industry. Cox was perhaps best known for his leadership of the Cox Commission on China, which was used as part of the impeachment campaign against President Bill Clinton, lying that the Clinton Administration was illegally selling "sensitive" technology to China in exchange for campaign contributions—a campaign LaRouche described at the time as a "scientifically illiterate hoax."
But Cox has also made a name for himself as a defender of speculators. As a lawyer in California in the 1980s, specializing in venture capital, Cox was named in a lawsuit brought by investors for fraud. The plaintiffs accused Cox of misleading regulators and investors about the conditions of a real estate investment. Although he was ultimately dropped from that suit before his firm settled out of court, he admits that he learned from that experience to "sympathize with people who are victimized in these lawsuits."
This sympathy for speculators led Cox in 1995—by then a Congressman—to write the "Private Securities Litigation Reform Act," which restricted the ability of clients to sue their brokers for securities fraud. As part of the "Gingrich Revolution" after the 1994 mid-term election—the "Contract on America"—Cox´s bill became the only legislation to become law over a veto by President Clinton. (Cox´s callous view of investors who get swindled by speculators did not hold him back from demanding a government bailout when his own Orange County, California, went bankrupt as a result of bad derivatives investments!)
Wall Street greeted the appointment of Cox with delight. Henry Manne, the Dean of the George Mason University Law School, was given the lead op-ed in the June 6 Wall Street Journal to hail the hedge funds as those "powerful institutions which have sprung up on their own as a new and competitive technique for getting investors´ money into productive [sic] use without the baleful cost of deadweight regulations."
Manne identified the broader target in going after Donaldson and the SEC: the entire Franklin Roosevelt legacy of public investment, regulation, and the defense of the general welfare. Manne denounced Roosevelt´s New Deal policies, describing the SEC as one of the "various alphabet agencies that sprang up during the New Deal era. These agencies were designed to—and did, in fact—protect the chosen industries from competition, a sort of legalized cartel arrangement that also misled the public into believing that these agencies were really about consumer or investor protection."
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User ID: 4844
6/14/2005 11:34 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Why Gold Rigging is Ignored by the Media
June 7, 2005
by Nelson Hultberg
Americans for a Free Republic
In Bill Murphy´s recent Midas commentary (June 6th), he hit upon one of the more devastating condemnations that can be expressed about a people and their society.
"It will surprise no veteran Café member/GATA supporter," Murphy wrote, "that the New York Times failed to even mention GATA in their New York Times Magazine story on gold on Sunday. I have been through this drill for more than six years....
"This will give you some idea of why I rant the way I do at times -- and have been doing so for many years now. We DO NOT have a free press in the United States. We DO NOT have free markets in America. As a result of controlling the press and rigging US markets, as well as distorting the real US economic numbers, the Orwellians are taking this once great country down the chute. The coming US financial market / economic disaster is going to devastate the average American, as they won´t know what hit them and why."
What makes Murphy´s commentary such a devastating appraisal of our people and our society? The answer lies in the reason WHY we no longer have a free press in America. For ours is a far more ignominious usurpation of press freedom than those of our historical predecessors.
In all the dictatorships of history, the process of enslavement is always brought about through a blanket "government enforced censorship." It becomes ILLEGAL to tell the truth. It is against the law to utter derogatory statements about one´s leaders. To expose the Emperor´s nakedness, is punishable by fines and imprisonment. Read the accounts of all the despotisms throughout history -- from the ancient Pharaohs, to the savage monarchial tyrannies of the Middle Ages, to the Nazis and the Communists of the 20th century -- and you will find the heavy hand of the State dictating what can and cannot be uttered in the press. The press is basically nationalized in some way so that the ruling bureaucracy decides what is reported every day to the people. Those who try to report truths deviating from the accepted government line are PROHIBITED BY THE LAW from doing so.
Observe, however, the form of "truth suppression" that is taking place in America today. It is not the kind that the 20th century Germans and Russians endured under their oppressors. In fact, if one looks around today, he sees no laws stifling the freedom of the press at all. This is what allows the elites in Washington and Wall Street to present themselves to the people as legitimate governing agents rather than the sinister cabalists and tyrants that they are in reality. For there are no laws suppressing freedom of the press in America today. There is no legal censorship of the press. Yet we in the gold community know that we do not have a FREE press in this country today! So what gives? How do we explain this conundrum?
THE SANCTION OF THE VICTIM
The answer lies in what Ayn Rand called the "sanction of the victim." Our dictatorship in America today is coming about voluntarily. And because it is, it is the most despicable and shameful form of enslavement that there is. Our media pundits and academics are willingly giving up their freedom, their rights, and their money to the unbridled State. They are willingly muzzling themselves. Like Pavlovian dogs, they continuously react to the appropriate stimuli of the statist elites in hopes of gaining the offered rewards -- acceptance in the herd and its rituals.
There are no laws that say the punditry of America must shun Bill Murphy, or ostracize GATA, or refuse to investigate the blatant "rigging of the markets" in today´s world. Yet the pundits never bring GATA´s issues of gold and equities rigging up. Silence is all we get. Total silence in face of evidence any educated, intelligent person could understand. And it´s not because Murphy´s style is the confrontational, in-your-face kind of attack journalism. There are other pundits and journalists (John Embry of Sprott Asset Management in Toronto, Kelly Patricia O´Meara of Insight magazine, etc.) who are not possessed of the pit bull intensity of Murphy, but are equally ostracized by Planet Wall Street and its pusillanimous lackeys.
Why then is this inexcusable default on the truth taking place? Why is our press NOT FREE in a country where there are no laws dictating what can and cannot be written? Our press is not free today because its operators have CHOSEN to sanction the enslavement process that is being smuggled into our lives by the Washington-Wall Street cartel of economic fascism. They have CHOSEN to give up the essence of what makes men manly and women stalwart. They have relinquished that inner spirit that drives all strong-willed people to never bend in face of what they know to be wrong, what they know to be tyrannical, what they know to be sinister and slimy.
This is what Ayn Rand meant with her formulation of the "sanction of the victim" in her great novel Atlas Shrugged. She demonstrated quite powerfully that the modern dictatorship comes about because its victims willingly sanction it. They actually work for it; they subconsciously assist their rulers in taking away the most treasured gift they have been given -- their freedom.
How this "sanction of the victim" mindset has come about is a complex phenomenon that naturally cannot be analyzed deeply in one article. But I have written a good general overview of why and how it has been brought about in my article, Invasion of the Mind Snatchers, for any readers who are interested in delving further into the issue. And it is a very big issue -- why Americans are so readily giving up their freedom and their rights in their embrace of the deceptive sirens of the New World Order.
Suffice it to say that Rand exposed one of the most powerful tools that modern day dictatorships make use of to take people´s freedom away from them. The power elites convince the populace that what they (the elites) are doing is "inevitable," "desirable," and "progressive." The pitiful thing is that it requires a servile mentality to buy into it. And regrettably there are thousands of pundits today who are just such servile mentalities.
These are the members of today´s media. There are no laws that say they must obey the establishment elites and ignore all reports about market rigging. Yet this is precisely what they ritualistically do.
THE ARCHETYPE SERVILE MENTALITY
Back in the 1970s, I worked in the real estate business in Las Vegas over a ten-year period. And during that decade I traveled in a social circle that included real estate agents, finance people, lawyers, stockbrokers, etc. It also included two aspiring journalists who worked for one of the secondary (or weekly) newspapers in the area. As I think back on these two media wanabees now, I see that they were very dangerous humans because of the warped philosophical and psychological drives that motivated them.
I would like to portray a brief depiction of their personas and their beliefs, for these two aspiring journalists were basically archetypes of the mindset that permeates today´s media class from L.A. to New York. The difference lies only in the fact that they were never going to make it into the big leagues. But in regards to their guiding philosophy and their level of intellectual integrity, they were identical to the bigger league models.
In observing the twisted cerebral workings of these two aggravating per¬sonalities, I came to understand one of the most important reasons why freedom is always in jeopardy of being destroyed whenever and wherever it has gained ascendancy in civilization. We´ll call these two past associates of mine Robo and Barry.
Robo was a short, stocky Charlie Chaplan look alike, with the personality of Cliff Claven on the TV sitcom, Cheers. Barry informed him one night over beer, that he was the "most interesting bore he´d ever met." Robo needed elevator shoes to reach five and a half feet, and apparently suffered from a complex about his shortness. All his conversations were pedantic marathons devoted to giant, detailed dissertations on every mundane subject mankind had ever chronicled in the Statistical Abstract. It was as if he hoped glib, gargantuan displays of "facts" would make him into a big man like other men. Not unlike the Orwellians of today´s establishment media hoping to bamboozle the populace into acceptance of their own lie -- that they still revere adherence to truth because they portray voluminous government released data glibly and skillfully. One thinks of the bland automatons that work for each new administration in Washington (such as former Bush press secretary Ari Fleischer).
Barry, on the other hand, was a big, grungy Woody Allen sort of character, with a penchant for cutting cynicism and humorous vulgarity that would put Andrew Dice Clay to shame. One of his favorite movie heroes was actually Ratso Ritzo in the 1969 trash exploitation flick, Midnight Cowboy. Oozing envy for all who displayed superior skills, Barry saw life basically in terms of what he could mooch from his friends by means of his weird wit, and coax from the government by means of his crypto socialism.
Barry could articulate thought, no doubt about that, but it was thought that squirted all over the place and lacked logical coherence. What´s worse, it was adrift from moral-philosophical moorings. It was totally amoral (very much like our big league media pundits today). Vulgarized humor was the real distinctive talent nature had bestowed upon him, and he cultivated this attribute as other men practice music, or law, or athletics. Every human encounter with him inevitably turned into bouts of pornographic crudity, peppered with razor like barbs hurled at mankind´s traditional values (very much like today´s Rolling Stones journalists, or the rank vulgarity of Chris Rock.)
Infatuation with vulgarity was only a sideline to Barry, however. His real dream was to be an intellectual. Actually becoming one was apparently too much work, so he settled for the appearance of intellectuality, which he had decided meant the knowledge and use of large words sprinkled into collectivist diatribes against the American concept of free enterprise. He was constantly memorizing vocabulary books, as if prolific displays of "big words" would somehow make him into a thinker who was respected for his mind. Such books sat everywhere like icons of salvation in the dingy two room flat out of which he operated.
Over the years as I became more philosophically educated, I came to see that these two America haters were the ultimate result of the modern school system and its inculcation of Marxist-Keynesian irrationalism. Their brains were cognitively stunted, for they thought only in terms of the short run. (When asked once about the fact that in the long run, his inflationist monetary policies would surely wreak havoc, Keynes replied that, "In the long run, we´re all dead." This kind of clever superficiality has come to pass for wisdom in today´s illiterate journalistic world.)
Thus, discussing the long-range ideological forces of civilization, or the integrated nature of existence, or the "big picture" with Robo and Barry was like washing water over glass. Nothing ever soaked in. They were incapable of any vision beyond a decade, unable to carry cause and effect relationships back to first principles, exasperatingly devoid of all sense of history, impervious to reason, and obsessively enamoured with the gaucheries of materialism. Truth, idealism and the long run were not concepts to which they were able to relate.
Sophistry governed their modus operandi as instinct drives worker ants. But this was inevitable, for the dominating characteristic of the modern mind is its compulsion to evade reality. (Witness Wall Street and Washington these days.) Skillful sophistry naturally becomes the first and most important tool all media pundits need to acquire so as to maintain their evasions. Sophistry allows them to hold contradictory premises; to flaunt the facts; to choose pusillanimous paths, yet still consider themselves brave; to employ massive government coercion and dispense arbitrary privileges, yet still claim to advocate freedom and objective law. It allows them to sanction the evils of despotism yet con themselves into believing it is a "new kind of freedom."
Robo and Barry had decided early in life that any form of a free-market world was intolerable. Early on they had taken flight into the paradigmatic falsities of Karl Marx, Antonio Gramsci, Herbert Marcuse, and Noam Chomsky. Like homing pigeons, all their ideas moved toward justifications of the leftist world-view: America is a democracy, and "the people" have a right to vote for whatever they desire. Our environment molds us, so there is no such thing as free will. The state must regulate everything in order to establish "justice." Equality demands more redistribution of the "national income," so a 90% progressive income tax would be fair. America should emulate Sweden where everyone is guaranteed happiness and security by a centralized government. Arguments for bigger government tumbled out of their brains like rats scurrying from a flushed out sewer. Their journalistic output always expressed to some degree or another their antagonism toward the ideas of freedom upon which America had been built.
Seeing that I was young and unsophisticated at the time, it took me a little while to grasp why I immediately did not like Robo and Barry. But I soon came to realize I didn´t like them because they personified weakness in a world that demanded mental and spiritual strength. With their clever sophistry and incessant whining about the rigors of reality, they were violating the unwritten law of manliness that men carry ingrained in the essence of their being. These two soft, indulgent, little liberals were copping out on life´s foremost duty of self-reliance -- and it was not pleasant to have to endure their relentless egalitarianism.
THEY LOVE THEIR SERVITUDE
What kind of nation will America of the 21st century become with recreants of this nature at the helm of our media -- so fearful of facing up to reality, so anxious to compel their fellow man to fight the battle of existence for them through more and more redistribution of wealth, so forgetful of the great truths upon which our country stands, so desirous of greasing the path of the manipulators who now rule Washington?
What kind? Read the Wall Street Journal, or the Washington Post, or tune into CNBC on any given day. And you will see the servile, egalitarian mindsets that are ever so eager to "sanction their own enslavement" and ease the way for a New World Order. They speak the language of free enterprise and emanate Americanism, but it is only lip service. They are not advocates of freedom. They are not in search of truth and what our country is really all about.
One of the 20th century´s most percipient intellects, Aldous Huxley, had their number. In the Introduction to Brave New World, Huxley wrote, "A really efficient totalitarian state would be one in which the all powerful executive of political bosses and their army of managers control a population of slaves WHO DO NOT HAVE TO BE COERCED, because they love their servitude. To make them love it is the task assigned, in present day totalitarian states, to ministries of propaganda, newspaper editors and schoolteachers." [Brave New World, Bantam Books, 1967, p. xii. Caps added.]
The "army of managers" Huxley was warning about is already upon us. They are the statist bankers and bureaucrats of New York and Washington. And horrifyingly, they do not have to pass any laws to censor today´s press because today´s journalists censor themselves. Today´s journalists LOVE THEIR SERVITUDE. They have been taught to love it by the "ministries of propaganda" -- the intellectuals in our colleges.
Today´s media pundits have willingly and pusillanimously chosen to relinquish their freedom. This is why we have no free press in this country! The journalists of America have chosen to live the lives of lackeys rather than free men. They have chosen popularity over principle. They have succumbed to an obsession with being liked, to being a part of the establishment´s "in crowd," to being invited to elegant Washington soirees of smarmy fascist insiders and gala Wall Street bashes of the mega-bankers and financial quislings.
Such pigmy men dare not bite the hand that feeds them their obsessive desires. Such craven humbugs are not journalists; they are dutiful apparatchiks serving the menacing State. The real journalists of old -- men like H.L. Mencken of the Baltimore Sun, Garet Garrett of The Saturday Evening Post, John T. Flynn of the New York Globe, etc. -- are turning over in their graves at sight of this display of submissive sophistry and renunciation of the journalist´s creed to seek always the truth even if it brings one down outside the boundaries of respectability and popularity. This is not a pretty sight. This is the capitulation of a nation´s intellectual leaders. It will bring us nothing but the ignominy of a serf´s existence under the lordship of centralized Washington oligarchs.
So Bill Murphy, don´t stop your rant. Keep pouring out the pit bull prose and that intensity that scalds your opponents´ sensitivities. Your adversaries are seedy sycophants that are defaulting on the fundamental reason for their being. They well deserve the lambasting you give them for their contemptible groveling at the feet of their controllers.
[link to www.afr.org]
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 4844
6/14/2005 11:36 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
This figure interests me "An estimated $2 quadrillion in derivatives is traded per year—although nobody really knows the full dimensions of this house of cards."
How is this sum used?, who profits from it? who loses? who are the players?
[link to freewordofgod.yuku.com] |
| .
User ID: 5353
6/15/2005 10:41 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Congratulations to CAFP,
this is the most common sense and wonderful simplicity i have seen regarding this problem, sadly i dont think any of the western nations would do it though, though i suspect China(India might too) could and would, i wonder if this means that the trade, commerce and liberal approach Nodes of society would shift to these nations?
Concerned Aussie from Perth
User ID: 9874
6/15/2005
12:33 pm EDT
Re: Fallout and Losses on Wall Street As Larouche Forecasted End of June Crisis Date Nears.
Large stash of cash?......the crash will render the money as good as "wallpaper".
Unless the Fed Govt takes over the banks, places them in bankruptcy, prints the money itself and keeps the doors open so society can function ( needs to happen in every country )...then your money will get you somewhere?
If the above doesn´t happen and the bankers keep control, were screwed. It´s that simple ladies and gents.
Don´t rely on the bankers that created this horrible system to look after you when it crashes. |
| .
User ID: 5353
6/15/2005 10:44 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
again more thanks to the simple brilliance of CAFP thoughts, one reason i dont see China suffering as much if there was a crash, well most of their money is spent on infrastructure and long term goods, not so much (by a long shot) on speculation.
Concerned Aussie from Perth
User ID: 9874
6/15/2005
1:17 pm EDT
Re: Fallout and Losses on Wall Street As Larouche Forecasted End of June Crisis Date Nears.
"People don´t seem to be buying a home, they´re buying into greed"
I second that Shadow. All these investors in homes have made the Aussie/USA/World dream almost out of reach.
Think about it. Ask people how they made their money.... Oh i bought a house and it doubled on me.(-:
Meaning they made money out of thin air.( no prodcutive input at all into the the physical ecomony )
Wealth created out of thin air. When it crashes, society has nothing left to show for it, except debt. No infrastructure was created out of it.
Time to change the system. |
| .
User ID: 5353
6/15/2005 11:10 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Shadow
User ID: 1318
6/15/2005
1:38 pm EDT
Re: Fallout and Losses on Wall Street As Larouche Forecasted End of June Crisis Date Nears.
*grin* I thank you and add I really enjoy your threads.
Read this one if you think the US will have an easy path back to self-sufficiency:
[link to www.baltimorechronicle.com]
A must read.
Concerned Aussie from Perth
User ID: 9874
6/15/2005
10:17 pm EDT
Re: Fallout and Losses on Wall Street As Larouche Forecasted End of June Crisis Date Nears.
Quote from Shadows article link.
"""In May the Bush economy eked out a paltry 73,000 private sector jobs: 20,000 jobs in construction (primarily for Mexican immigrants), 21,000 jobs in wholesale and retail trade, and 32,500 jobs in health care and social assistance. Local government added 5,000 for a grand total of 78,000.
Not a single one of these jobs produces an exportable good or service. With Americans increasingly divorced from the production of the goods and services that they consume, Americans have no way to pay for their consumption except by handing over to foreigners more of their accumulated stock of wealth. The country continues to eat its seed corn.
Only 10 million Americans are classified as "production workers" in the Bureau of Labor Statistics nonfarm payroll tables. Think about that.""
These are the figures that measure the health of an economy, productive powers of labour per square km...physical economics folks.
Do read the article. |
| .
User ID: 5353
6/15/2005 11:39 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
The Coming Trade War and Global Depression
June 15, 2005
By Henry C K Liu
Asia Times
Many historians have suggested that the 1929 stock market crash was not the cause of the Great Depression. If anything, the 1929 crash was the technical reflection of the inevitable fate of an overblown bubble economy. Yet stock market crashes can recover within a relatively short time with the help of effective government monetary measures, as demonstrated by the crashes of 1987 (23% drop, recovered in nine months), 1998 (36% drop, recovered in three months) and 2002 (37% drop, recovered in two months).
Structurally, the real cause of the Great Depression, which lasted more than a decade, from 1929 until the US entry to World War II in 1941, was the 1930 Smoot-Hawley tariffs that put world trade into a tailspin from which it did not recover until the war began. While the US economy finally recovered through war mobilization after the Japanese attack on Pearl Harbor, Hawaii, on December 7, 1941, most of the world´s market economies sank deeper into war-torn distress and did not fully recover until the Korean War boom in 1951.
Barely five years into the 21st century, with a globalized neo-liberal trade regime firmly in place in a world where market economy has become the norm, trade protectionism appears to be fast re-emerging and developing into a new global trade war of complex dimensions. The irony is that this new trade war is being launched not by the poor economies that have been receiving the short end of the trade stick, but by the US, which has been winning more than it has been losing on all counts from globalized neo-liberal trade, with the European Union following suit in lockstep. Japan, of course, has never let up on protectionism and never taken competition policy seriously. The rich nations need to recognize that their efforts to squeeze every last drop of advantage out of already unfair trade will only plunge the world into deep depression. History has shown that while the poor suffer more in economic depressions, the rich, even as they are financially cushioned by their wealth, are hurt by political repercussions in the form of either war or revolution, or both.
COLD WAR AND MORAL IMPERATIVE
During the Cold War, there was no international free trade. The economies of the two contending ideology blocs were completely disconnected. Within each bloc, economies interacted through foreign aid and memorandum trade from their respective superpowers. The competition was not for profit but for the hearts and minds of the people in the two opposing blocs, as well as those in the non-aligned nations in the Third World. The competition between the two superpowers was to give rather than to take from their separate fraternal economies.
The population of the superpowers worked hard to help the poorer people within their separate blocs, and convergence toward equality was the policy aim even if not always the practice. The Cold War era of foreign aid and memorandum trade had a better record of poverty reduction in both camps than post-Cold War globalized neo-liberal trade dominated by one single superpower. The aim was not only to raise income and increase wealth, but also to close income and wealth disparity between and within economies. Today, income and wealth disparity is rationalized as a necessity for capital formation. The New York Times reports that from 1980 to 2002, the total income earned by the top 0.1% of earners in the United States more than doubled, while the share earned by everyone else in the top 10% rose far less and the share of the bottom 90% declined.
For all its ill effects, the Cold War achieved two formidable ends: it prevented nuclear war and it introduced development as a moral imperative into superpower geopolitical competition with rising economic equality within each bloc. In the years since the end of the Cold War, nuclear terrorism has emerged as a serious threat and domestic development is preempted by global trade, even in the rich economies, while income and wealth disparity has widened everywhere.
Since the end of the Cold War some 15 years ago, world economic growth has shifted to rely exclusively on globalized neo-liberal trade engineered and led by the US as the sole remaining superpower, financed with the US dollar as the main reserve currency for trade and anchored by the huge US consumer market made possible by the high wages of US workers. This growth has been sustained by knocking down national tariffs everywhere around the world through supranational institutions such as the World Trade Organization (WTO), and financed by a deregulated foreign-exchange market working in concert with a global central-banking regime independent of local political pressure, lorded over by the supranational Bank of International Settlement (BIS) and the International Monetary Fund (IMF).
Redefining humanist morality, the United States asserts that world trade is a moral imperative and as such trade promotes democracy, political freedom and respect for human rights in trade participating nations. Unfortunately, income and wealth equality is not among the benefits promoted by trade. Even if the validity of this twisted ideological assertion is not questioned, it clearly contradicts the US practice of trade embargo against countries Washington deems undemocratic, lacking in political freedom and deficient in respect for human rights. If trade promotes such desirable conditions, the practice of linking trade to freedom is tantamount to denying medicine to the sick.
US President George W Bush defends his free-trade agenda in moralistic terms. "Open trade is not just an economic opportunity, it is a moral imperative," he declared in a May 7, 2001, speech. "Trade creates jobs for the unemployed. When we negotiate for open markets, we´re providing new hope for the world´s poor. And when we promote open trade, we are promoting political freedom." Such claims remain highly controversial when tested by actual data.
Phyllis Schlafly, a syndicated conservative columnist, responded three weeks later in an article "Free trade is an economic issue, not a moral one". In it, she noted that while conservatives should be happy finally to have a president who added a moral dimension to his actions, "the Bible does not instruct us on free trade and it´s not one of the Ten Commandments. Jesus did not tell us to follow Him along the road to free trade ... Nor is there anything in the US constitution that requires us to support free trade and to abhor protectionism. In fact, protectionism was the economic system believed in and practiced by the framers of our constitution. Protective tariffs were the principal source of revenue for our federal government from its beginning in 1789 until the passage of the 16th Amendment, which created the federal income tax, in 1913. Were all those public officials during those hundred-plus years remiss in not adhering to a "moral obligation" of free trade?" Hardly, argued Schlafly, whose views are noteworthy because US politics is currently enmeshed in a struggle between strict-constructionist paleo-conservatives and moral-imperialist neo-conservatives. Despite the ascendance of neo-imperialism in US foreign policy, protectionism remains strong in US political culture, particularly among conservatives and in the labor movement.
Bush also said China, which reached a trade agreement with the United States at the close of the administration of his predecessor Bill Clinton, and became a member of the WTO in late 2001, would benefit from political changes as a result of liberalized trade policies. This pronouncement gives clear evidence to those in China who see foreign trade as part of an anti-China "peaceful evolution" strategy first envisaged by John Forster Dulles, US secretary of state under president Dwight Eisenhower in the 1950s. It is a strategy of inducing through peaceful trade the Chinese Communist Party (CCP) to reform itself out of power and to eliminate the dictatorship of the proletariat in favor of bourgeois liberalization. Almost four decades later, Deng Xiaoping criticized CCP chairman Hu Yaobang and premier Zhao Ziyang for having failed to contain bourgeois liberalization in their implementation of China´s modernization policy. Deng warned in November 1989, five months after the Tiananmen incident: "The Western imperialist countries are staging a third world war without guns. They want to bring about the peaceful evolution of socialist countries towards capitalism." Deng´s handling of the Tiananmen incident prevented China from going the catastrophic route of the USSR, which dissolved in 1991.
HOSTILITY IN THE NAME OF ´FREEDOM´
Yet it is clear that political freedom is often the first casualty of a garrison-state mentality and such mentality inevitably results from hostile economic and security policy toward any country the US deems as not free. Whenever the US pronounces a nation to be not free, that nation will become less free as a result of US policy. This has been repeatedly evident in China and elsewhere in the Third World. Whenever US policy toward China turns hostile, as it currently appears to be heading, political and press freedoms inevitably face stricter curbs. For trade mutually and truly to benefit the trading economies, three conditions are necessary: 1) the de-linking of trade from ideological/political objectives, 2) maintenance of equality in the terms of trade and 3) recognition that global full employment at rising, living wages is the prerequisite for true comparative advantage in global trade.
The developing rupture between the sole superpower and its traditionally deferential allies lies in mounting trade conflicts. The United States has benefited from an international financial architecture that gives the US economy a structural monetary advantage over those of the EU and Japan, not to mention the rest of the world. Trade issues range from government-subsidy disputes between Airbus and Boeing to those regarding bananas, sugar, beef, oranges and steel, as well as disputes over fair competition associated with mergers and acquisition and financial services. If either government is found to be in breach of WTO rules when these disputes wind through long processes of judgment, the other will be authorized to retaliate. The US could put tariffs on other European goods if the WTO rules against Airbus and vice versa. So if both governments are found in breach, both could retaliate, leading to a cycle of offensive protectionism. When the US was ruled to have unfairly supported its steel industry, tariffs were slapped by the EU on Florida oranges to make a political point in a politically important state in US politics.
Trade competition between the EU and the US is spilling over into security areas, allowing economic interests to conflict with ideological sympathy. Both of these production engines, saddled with serious overcapacity, are desperately seeking new markets, which inevitably leads them to Asia in general and China in particular, with its phenomenal growth rate and its 1.2 billion eager consumers bulging with rapidly rising disposable income. The growth of the Chinese economy will lift all other economies in Asia, including Australia, which has only recently begun to understand that its future cannot be separated from its geographic location and that its prosperity is interdependent with those of other Asia-Pacific economies. Australian iron ore and beef and dairy products are destined for China, not the British Isles. The EU is eager to lift its 15-year-old arms embargo on China, much to the displeasure of the US. Israel, with its close relations with the US, faces a similar dilemma on military sales to China.
Even the US defense establishment has largely come around to the view that the US arms industry must export, even to China, to remain on top. It was reported recently that US Defense Secretary Donald Rumsfeld tried to sell to Thailand F-16 warplanes capable of firing advanced medium-range air-to-air missiles two days after he lashed out in Singapore at China for upgrading its own military when no neighboring nations are threatening it (see Rumsfeld pitches in for F-16s, June 9). The sales pitch was in competition with Russian-made Sukhoi Su-30s and Swedish JAS-39s. The open competition in arms export had been spelled out for the US Congress years earlier by Donald Hicks, a leading Pentagon technologist in the administration of president Ronald Reagan. "Globalization is not a policy option, but a fact to which policymakers must adapt," he said. "The emerging reality is that all nations´ militaries are sharing essentially the same global commercial-defense industrial base." The boots and uniforms worn by US soldiers in Afghanistan and Iraq were made in China.
THE WIDENING WEALTH GAP
The WTO is the only global international organization dealing with the rules of trade among its 148 member nations. At its heart are the WTO agreements, known as the multilateral trading system, negotiated and signed by the majority of the world´s trading nations and ratified in their parliaments. The stated goal is to help producers of goods and services, exporters and importers conduct their business, with the dubious assumption that trade automatically brings equal benefits to all participants. The welfare of the people is viewed only as a collateral aim based on the doctrinal fantasy that "balanced" trade inevitably brings prosperity equally to all, a claim that has been contradicted by facts produced by the very terms of trade promoted by the WTO itself.
Two decades of neo-liberal globalized trade have widened income and wealth disparity within and between nations. Free trade has turned out not to be the win-win game promised by neo-liberals. It is very much a win-lose game, with heads, the rich economies win, and tails, the poor economies lose. Domestic development has been marginalized as a hapless victim of foreign trade, dependent on trade surplus for capital. Foreign trade and foreign investment have become the prerequisite engines for domestic development. This trade model condemns those economies with trade deficits to perpetual underdevelopment. Because of dollar hegemony, all foreign investment goes only to the export sector where US dollars can be earned. Even the economies with trade surpluses cannot use their dollar trade earnings for domestic development, as they are forced to hold huge dollar reserves to support the exchange rate of their currencies.
In the fifth WTO ministerial conference held in Cancun, Mexico, in September 2003, the richer countries rejected the demands of poorer nations for radical reform of agricultural subsidies that have decimated Third World agriculture. Failure to get the Doha Round back on track after the collapse of Cancun runs the danger of a global resurgence of protectionism, with the US leading the way. Larry Elliott reported on October 13, 2003, in The Guardian on the failed 2003 Cancun ministerial meeting: "The language of globalization is all about democracy, free trade and sharing the benefits of technological advance. The reality is about rule by elites, mercantilism and selfishness." Elliot noted that the process is full of paradoxes: why is it that in a world where human capital is supposed to be the new wealth of nations, labor is treated with such contempt?
Sam Mpasu, Malawi´s commerce and industry minister, asked at Cancun for his comments about the benefits of trade liberalization, replied dryly: "We have opened our economy. That´s why we are flat on our back." Mpasu´s comments summarized the wide chasm that divides the perspectives of those who write the rules of globalization and those who are powerless to resist them.
Exports of manufactures by low-wage developing countries have increased rapidly over the past three decades due in part to falling tariffs and declining transport costs that enable outsourcing based on wage arbitrage. It grew from 25% in 1965 to nearly 75% over three decades, while agriculture´s share of developing-country exports has fallen from 50% to less than 10%. Many developing countries have gained relatively little from increased manufactures trade, with most of the profit going to foreign capital. Market access for their most competitive manufactured export, such as textiles and apparel, remains highly restricted, and recent trade disputes threaten further restrictions. Still, the key cause of unemployment in all developing economies is the trade-related collapse of agriculture, exacerbated by the massive government subsidies provided to farmers in rich economies. Many poor economies are predominantly agriculturally based and a collapse of agriculture means a general collapse of the whole economy.
The Doha Development Agenda negotiations, sponsored by the WTO, collapsed in Cancun over the question of government support for agriculture in rich economies and its potential impacts on causing more poverty in developing countries. Negotiations since Cancun have focused on the need to understand better the linkages between trade policies, particularly those of the rich economies, and poverty in the developing world. While poverty reduction is now more widely accepted by establishment economists as a necessary central focus for development efforts and has become the main mission of the World Bank and other development institutions, very few effective measures have been forthcoming.
The UN Millennium Development Goals (UNMDG) commit the international community to halving world poverty by 2015, a decade from now. With current trends, that goal is likely to be achievable only through the death of half of the poor by starvation, disease and local conflicts. The UN Development Program warns that 3 million children will die in sub-Saharan Africa alone by 2015 if the world continues on its current path of failing to meet the UNMDG agreed to in 2000. Several key avenues to this goal supposedly lie in international trade, but the record of poverty reduction has been exceedingly poor, if not outright negative. The fundamental question whether trade can replace or even augment socio-economic development remains unasked, let alone answered. Until such issues are earnestly addressed, protectionism will re-emerge in the poor countries. Under such conditions, if democracy expresses the will of the people, democracy will demand protectionism more than government by elite.
While tariffs in the past decade have been coming down like leaves in autumn, flexible exchange rates have become a form of virtual countervailing tariff. In the current globalized neo-liberal trade regime operating in a deregulated global foreign-exchange market, the exchanged value of a currency is regularly used to balance trade through government intervention in currency-market fluctuations against the world´s main reserve currency - the US dollar, as the head of the international monetary snake.
Purchasing power parity (PPP) measures the disconnection between exchange rates and local prices. PPP contrasts with the interest rate parity (IRP) theory, which assumes that the actions of investors, whose transactions are recorded on the capital account, induce changes in the exchange rate. For a dollar investor to earn the same interest rate in a foreign economy with a PPP of four times, such as the purchasing power parity between the US dollar and the Chinese yuan, local wages would have to be at least four times (75%) lower than US wages. PPP theory is based on an extension and variation of the "law of one price" as applied to the aggregate economy.
The law of one price says that identical goods should sell for the same price in two separate markets when there are no transportation costs and no differential taxes applied in the two markets. But the law of one price does not apply to the price of labor. Price arbitrage is the opposite of wage arbitrage in that producers seek to make their goods in the lowest wage locations and to sell their goods in the highest price markets. This is the incentive for outsourcing, which never seeks to sell products locally at prices that reflect PPP differentials. What is not generally noticed is that price deflation in an economy increases its PPP, in that the same local currency buys more. But the cross-border one-price phenomenon applies only to certain products, such as oil, thus for a PPP of four times, a rise in oil prices will cost the Chinese economy four times the equivalent in other goods, or wages, than in the US. The larger the purchasing power parity between a local currency and the dollar, the more severe is the tyranny of dollar hegemony on forcing down wage differentials.
THE ORIGINS AND EFFECTS OF DOLLAR HEGEMONY
Ever since 1971, when US president Richard Nixon, under pressure from persistent fiscal and trade deficits that drained US gold reserves, took the dollar off the gold standard (at US$35 per ounce), the dollar has been a fiat currency of a country of little fiscal or monetary discipline. The Bretton Woods Conference at the end of World War II established the dollar, a solid currency backed by gold, as a benchmark currency for financing international trade, with all other currencies pegged to it at fixed rates that changed only infrequently. The fixed-exchange-rate regime was designed to keep trading nations honest and prevent them from running perpetual trade deficits. It was not expected to dictate the living standards of trading economies, which were measured by many other factors besides exchange rates. Bretton Woods was conceived when conventional wisdom in international economics did not consider cross-border flow of funds necessary or desirable for financing world trade, precisely for this reason. Since 1971, the dollar has changed from a gold-backed currency to a global reserve monetary instrument that the US, and only the US, can produce by fiat. At the same time, the US has continued to incur both current-account and fiscal deficits.
That was the beginning of dollar hegemony. With deregulation of foreign-exchange and financial markets, many currencies began to free-float against the dollar, not in response to market forces but to maintain export competitiveness. Government interventions in foreign-exchange markets became a regular last-resort option for many trading economies for preserving their export competitiveness and for resisting the effect of dollar hegemony on domestic living standards.
World trade under dollar hegemony is a game in which the US produces paper dollars and the rest of the world produces real things that paper dollars can buy. The world´s interlinked economies no longer trade to capture comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies in foreign-exchange markets. To prevent speculative and manipulative attacks on their currencies in deregulated markets, the world´s central banks must acquire and hold dollar reserves in corresponding amounts to market pressure on their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces all central banks to acquire and hold more dollar reserves, making it stronger. This anomalous phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The denomination of oil in dollars and the recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.
By definition, dollar reserves must be invested in dollar-denominated assets, creating a capital-accounts surplus for the US economy. A strong-dollar policy is in the US national interest because it keeps US inflation low through low-cost imports and it makes US assets denominated in dollars expensive for foreign investors. This arrangement, which Federal Reserve Board chairman Alan Greenspan proudly calls US financial hegemony in congressional testimony, has kept the US economy booming in the face of recurrent financial crises in the rest of the world. It has distorted globalization into a "race to the bottom" process of exploiting the lowest labor costs and the highest environmental abuse worldwide to produce items and produce for export to US markets in a quest for the almighty dollar, which has not been backed by gold since 1971, nor by economic fundamentals for more than a decade. The adverse effects of this type of globalization on the developing economies are obvious. It robs them of the meager fruits of their exports and keeps their domestic economies starved for capital, as all surplus dollars must be reinvested in US treasuries to prevent the collapse of their own domestic currencies.
The adverse effect of this type of globalization on the US economy is also becoming clear. In order to act as consumer of last resort for the whole world, the US economy has been pushed into a debt bubble that thrives on conspicuous consumption and fraudulent accounting. The unsustainable and irrational rise of US equity and real-estate prices, unsupported by revenue or profit, has meant a de facto devaluation of the dollar. Ironically, the recent fall in US equity prices from their 2004 peak and the anticipated fall in real-estate prices reflect a trend to an even stronger dollar, as the same amount of dollars can buy more deflated shares and properties. The rise in the purchasing power of the dollar inside the United States impacts its purchasing-power disparity with other currencies unevenly, causing sharp price instability in the economies with freely exchangeable currencies and fixed exchange rates, such as Hong Kong and until recently Argentina. For the US, a falling exchange rate of the dollar actually causes asset prices to rise. Thus with a debt bubble in the US economy, a strong dollar is not in the US national interest. Debt has turned US policy on the dollar on its head.
The setting of exchange values of currencies is practiced not only by sovereign governments on their own currencies as a sovereign right. The US, exploiting dollar hegemony, usurps the privilege of dictating the exchange value of all foreign currencies to support its own economic nationalism in the name of global free trade. And the US position on exchange rates has not been consistent. When the dollar was rising, as it did in the 1980s, the US, to protect its export trade, hailed the stabilizing wisdom of fixed exchange rates. When the dollar falls as it has been in recent years, the US, to deflect blame for its trade deficit, attacks fixed exchange rates as currency manipulation, as it now targets China´s currency, which has been pegged to the dollar for more than a decade. How can a nation manipulate the exchange value of its currency when it is pegged to the dollar at the same rate over long periods? Any manipulation came from the dollar, not the yuan.
ECONOMIC NATIONALISM
The recent rise of the euro against the dollar, the first appreciation wave since its introduction on January 1, 2002, is the result of an EU version of the 1985 Plaza Accord on the Japanese yen, albeit without a formal accord. The strategic purpose is more than merely moderating the US trade deficit. The record shows that even with a 30% drop of the dollar against the euro, the US trade deficit continued to climb. The strategic purpose of driving up the euro is to reduce it to the status of the yen, as a subordinated currency to dollar hegemony. The real effect of the Plaza Accord was to shift the cost of support for the dollar-denominated US trade deficit, and the socio-economic pain associated with that support, from the United States to Japan. What is happening to the euro now is far from being the beginning of the demise of the dollar. Rather, it is the beginning of the reduction of the euro into a subservient currency to the dollar to support the US debt bubble.
Six and a half years since the launch of the European Monetary Union, the eurozone is trapped in an environment in which monetary policy of sound money has in effect become destructive and supply-side fiscal policy unsustainable. National economies are beginning to refuse to bear the pain needed for adjustment to globalization or the EU´s ambitious enlargement. The European nations are beginning to resist the US strategy to make the euro economy a captive supporter of a rising or falling dollar as such movements fit the shifting needs of US economic nationalism.
It is the modern-day monetary equivalent of the brilliant Roman strategy of making a dissident Jew a Christian god to preempt Judaism´s rising cultural domination over Roman civilization. Roman law, the foundation of the Roman Empire, gained in sophistication from being influenced by, if not directly derived from, Jewish Talmudic law, particularly on the concept of equity - an eye for an eye. The Jews had devised a legal system based on the dignity of the individual and equality before the law four centuries before Christ. There was no written Roman law until two centuries before Christ. The Roman law of obligatio was not conducive to finance as it held that all indebtedness was personal, without institutional status. A creditor could not sell a note of indebtedness to another party and a debtor did not have to pay anyone except the original creditor. Talmudic law, on the other hand, recognized impersonal credit, and a debt had to be paid to whoever presented the demand note. This was a key development of modern finance. With the Talmud, the Jews under the Diaspora had an international law that spanned three continents and many cultures.
The Romans were faced with a dilemma. Secular Jewish ideas and values were permeating Roman society, but Judaism was an exclusive religion that the Romans were not permitted to join. The Romans could not assimilate the Jews as they did the Greeks. Early Christianity also kept its exclusionary trait until Paul, who opened Christianity to all. Historian Edward Gibbon (1737-94) noted that Rome recognized the Jews as a nation who as such were entitled to religious peculiarities. The Christians, on the other hand, were a sect and, being without a nation, subverted other nations. The Roman Jews were active in government and, when not resisting Rome against social injustice, fought side by side with Roman legionnaires to preserve the empire. Roman Jews were good Roman citizens. By contrast, the early Christians were social dropouts, refused responsibility in government and civic affairs and were conscientious objectors and pacifists in a militant culture. Gibbon noted that Rome felt that the crime of a Christian was not in what he did, but in being who he was.
Christianity gained control of Roman culture and society long before Constantine, who in AD 324 sanctioned it with political legitimacy and power after recognizing its power in helping to win wars against pagans, as pope Urban II in 1095 used the Crusade to prolong papal temporal power. When early Christianity, a secular Jewish dissident sect, began to move up from the lower strata of Roman society and began to find converts in the upper echelons, the Roman polity adopted Christianity, the least objectionable of all Jewish sects, as a state religion. Gibbon estimated that Christians killed more of their own members over religious disputes in the three centuries after coming to secular power than did the Romans in three previous centuries. Persecution of the Jews began in Christianized Rome. The disdain held by early Christianity for centralized government gave rise to monasticism and contributed to the fall of the Roman Empire.
By allowing a trade surplus denominated in dollars to be accumulated by non-dollar economies such as the yen, euro, or now the Chinese yuan, the cost of supporting the appropriate value of the US dollar to sustain perpetual economic growth in the dollar economy is then shifted to these non-dollar economies, which manifest themselves in perpetual relative low wages and weak domestic consumption. For the already high-wage EU and Japan, the penalty is the reduction of social-welfare benefits and job security traditional to these economies. China, now the world´s second-largest creditor nation, it is reduced to having to ask the US, the world´s largest debtor nation, for capital denominated in dollars the US can print at will to finance its export trade to a US running recurring trade deficits.
MARKET IMPOTENCE AGAINST TRADE IMBALANCE
The IMF, which has been ferocious in imposing draconian fiscal and monetary "conditionalities" on all debtor nations everywhere in the decade after the Cold War, is nowhere to be seen on the scene in the world´s most fragrantly irresponsible debtor nation. This is because the US can print dollars at will and with immunity. The dollar is a fiat currency not backed by gold, not backed by US productivity, not backed by US export prowess, but backed by US military power. The US military budget request for Fiscal Year 2005 is $420.7 billion. For Fiscal Year 2004, it was $399.1 billion; for 2003, $396.1 billion; for 2002, $343.2 billion; and for 2001, $310 billion. In the first term of George W Bush´s presidency, the US spent $1.5 trillion on its military. That is more than the entire gross domestic product of China in 2004. The US trade deficit is about 6% of its GDP, while it military budget is about 4%. In other words, the trading partners of the US are paying for one and a half times the cost of a military that can some day be used against any one of them for any number of reasons, including trade disputes. The anti-dollar crowd has nothing to celebrate about the recurring US trade deficit.
It is pathetic that Rumsfeld tries to persuade the world that China´s military budget, which is less that one-tenth of that of the United States, is a threat to Asia, even when he is forced to acknowledge that Chinese military modernization is mostly focused on defending its coastal territories, not on force projection for distant conflicts, as is US military doctrine. While Rumsfeld urges more political freedom in China, his militant posture toward China is directly counterproductive toward that goal. Ironically, Rumsfeld chose to make his case about political freedom in Singapore, the bastion of Confucian authoritarianism.
Normally, according to free-trade theory, trade can only stay unbalanced temporarily before equilibrium is re-established or free trade would simply stop. When bilateral trade is temporarily unbalanced, it is generally because one trade partner has become temporarily uncompetitive, inefficient or unproductive. The partner with the trade deficit receives more goods and services from the partner with the trade surplus than it can offer in return and thus pays the difference with its currency that someday can buy foods produced by the deficit trade partner to re-established balance of payments. This temporary trade imbalance can be due to a number of socio-economic factors, such as terms of trade, wage levels, return on investment, regulatory regimes, shortages in labor or material or energy, trade-supporting infrastructure adequacy, purchasing power disparity, etc. A trading partner that runs a recurring trade deficit earns the reputation of being what banks call a habitual borrower, ie, a bad credit risk, one that habitually lives beyond its means. If the trade deficit is paid with its currency, a downward pressure results in the exchange rate. A flexible exchange rate seeks to remove or moderate a temporary trade imbalance while the productivity disparities between trading partners are being addressed fundamentally.
Dollar hegemony prevents US trade imbalance from returning to equilibrium through market forces. It allows a US trade deficit to persist based on monetary prowess. This translates over time into a falling exchange rate for the dollar even as dollar hegemony keeps the fall at a slow pace. But a below-par exchange rate over a long period can run the risk of turning the temporary imbalance in productivity into a permanent one. A continuously weakening currency condemns the issuing economy into a downward economic spiral. This has happened to the United States in the past decade. To make matters worse, with globalization of deregulated markets, the recurring US trade deficit is accompanied by an escalating loss of jobs in sectors sensitive to cross-border wage arbitrage, with the job-loss escalation climbing up the skill ladder. Discriminatory US immigration policies also prevent the retention of low-paying jobs within the US and exacerbate the illegal-immigration problem.
Regional wage arbitrage within the US in past decades kept its economy lean and productive internationally. Labor-intensive US industries relocated to the low-wage south of the country through regional wage arbitrage, and despite temporary adjustment pains from the loss of textile mills, the northern economies managed to upgrade their productivity, technology level, financial sophistication and output quality. The economies in the southern US also managed to upgrade these factors of production and in time managed to narrow the wage disparity within the national economy. This happened because the jobs stayed within the nation. With globalization, it is another story. Jobs are leaving the United States mercilessly. According to free-trade theory, the US trade deficit is supposed to cause the dollar to fall temporarily against the currencies of its trading partners, causing export competitiveness to rebalance, thereby removing or reducing the US trade deficit. Jobs that have been lost temporarily are then supposed to return to the US.
But the persistent US trade deficit defies trade theory because of dollar hegemony. The broad trade-weighted dollar index stays in an upward trend, despite selective appreciation of some strong currencies, as highly indebted emerging market economies attempt to extricate themselves from dollar-denominated debt through the devaluation of their currencies. While the aim is to subsidize exports, this ironically makes dollar debts more expensive in local-currency terms. The moderating impact on US price inflation also amplifies the upward trend of the trade-weighted dollar index despite persistent US expansion of monetary aggregates, also known as monetary easing or money printing.
Adjusting for this debt-driven increase in the exchange value of dollars, the import volume into the US can be estimated in relationship to expanding monetary aggregates. The annual growth of the volume of goods shipped to the United States has remained around 15% for most of the 1990s, more than five times the average annual GDP growth. The US enjoyed a booming economy when the dollar was gaining ground, and this occurred at a time when interest rates in the US were higher than those in its creditor nations. This led to the odd effect that raising interest rates actually prolonged the boom in the US rather than threatened it, because it caused massive inflows of liquidity into the US financial system, lowered import-price inflation, increased apparent productivity and prompted further spending by American consumers enriched by the wealth effect despite a slowing of wage increases. Returns on dollar assets stayed high in foreign-currency terms.
This was precisely what Greenspan did in the 1990s in the name of preemptive measures against inflation. Dollar hegemony enabled the US to print money to fight inflation, causing a debt bubble of asset appreciation. These data substantiated the view of the US as Rome in a New Roman Empire with an unending stream of imports as the free tribute from conquered lands. This was what Greenspan meant by US "financial hegemony".
The Fed Funds Rate (FFR)target has been lifted eight times in steps of 25 basis points from 1% in mid-2004 to 3% on May 3, 2005. If the same pattern of "measured pace" continues, the FFR target would be at 4.25% by the end of 2005. Despite Fed rhetoric, the lifting of dollar interest rates has more to do with preventing foreign central banks from selling dollar-denominated assets, such as US Treasuries, than with fighting inflation. In a debt-driven economy, high interest rates are themselves inflationary. Raising interest rates to fight inflation could become the monetary dog chasing its own interest-rate tail, with rising rates adding to rising inflation, which then requires more interest-rate hikes. Still, interest-rate policy is a double edged sword: it keeps funds from leaving the debt bubble, but it can also puncture the debt bubble by making the servicing of debt prohibitively expensive.
To prevent this last adverse effect, the Fed adds to the money supply, creating an unnatural condition of abundant liquidity with rising short-term interest rates, resulting in a narrowing of interest spread between short-term and long-term debts, a leading indication for inevitable recession down the road. The problem of adding to the money supply is what John Maynard Keynes called the liquidity trap, that is, an absolute preference for liquidity even at near-zero interest-rate levels. Keynes argued that either a liquidity trap or interest-insensitive investment draft could render monetary expansion ineffective in a recession. It is what is popularly called pushing on a credit string, where ample money cannot find creditworthy willing borrowers. Much of the new low-cost money tends to go to refinancing existing debt taken out at previously higher interest rates. Rising short-term interest rates, particularly at a measured pace, would not remove the liquidity trap while long-term rates stay flat because of excess liquidity.
The debt bubble in the US is clearly having problems, as evident in the bond market. With just 14 deals worth $2.9 billion, May 2005 was the slowest month for high-yield bond issuance since October 2002. The late-April downgrades of the debt of General Motors and Ford Motor to junk status roiled the bond markets. The number of high-yield, or junk-bond, deals fell 55% in the March-to-May 2005 period compared with the same three months in 2004. They were also down 45% from the December-through-February period. In dollar value, junk-bond deals totaled $17.6 billion in the March-to-May 2005 period, compared with $39.5 billion during the same three months in 2004 and $36 billion from December 2004 through February 2005. There were 407 deals of investment-grade bond underwriting during the March-to-May 2005 period, compared with 522 in the same period 2004 - a decline of 22%. In dollar volume, some $153.9 billion of high-grade bonds were underwritten from March to May 2005, compared with $165.5 billion in the same period in 2004 - a 7% decline.
Oil at $50 a barrel, along with astronomical asset-price appreciation, particularly in real estate, is giving the debt bubble additional borrowed time. But this game cannot go on forever and the end will likely be triggered by a new trade war´s effect on reduced trade volume. The price of a reduced US trade deficit is the bursting of the US debt bubble, which could plunge the world economy into a new depression. Given such options, the United States has no choice but to ride the trade-deficit train for as long as the traffic will bear, which may not be too long, particularly if protectionism begins to gather force.
The transition to offshore outsourced production has been the source of the productivity boom of the "New Economy" in the US in the past decade. The productivity increase not attributable to the importing of other nations´ productivity is much less impressive. While published government figures of the productivity index show a rise of nearly 70% since 1974, the actual rise is between zero and 10% in many sectors if the effect of imports is removed from the equation. The lower productivity values are consistent with the real-life experience of members of the blue-collar working class and the white-collar middle class who have been spending the equity cash-outs from the appreciated market value of their homes. World trade has become a network of cross-border arbitrage on differentials in labor availability, wages, interest rates, exchange rates, prices, saving rates, productive capacities, liquidity conditions and debt levels. In some of these areas, the US is becoming an underdeveloped economy.
The Bush administration continues to assure the US public that the state of the economy is sound while in reality the country has been losing entire sectors of its economy, such as manufacturing and information technology, to foreign producers, while at the same time selling off part of the nation to finance its rising and unending trade deficit. Usually, when unjustified confidence crosses over to fantasized hubris on the part of policymakers, disaster is not far ahead.
The Clinton Legacy
To be fair, the problems of the US economy started before the administration of George W Bush. The Clinton administration´s annual economic report for 2000 claimed that the longest economic expansion in US history could continue "indefinitely" as long as "we stick to sound policy", according to chairman Martin Baily of the Council of Economic Advisers (CEA) as reported in the Wall Street Journal. A New York Times report differed somewhat by quoting Baily as saying: "stick to fiscal policy." Putting the two newspaper reports together, one got the sense that the Clinton administration thought its fiscal policy was the sound policy needed to put an end to the business cycle. Economics high priests in government, unlike the rest of us mortals who are unfortunate enough to have to float in the daily turbulence of the market, can afford to focus aloofly on long-term trends and their structural congruence to macro-economic theories. Yet outside of macro-economics, "long-term" is increasingly being redefined in the real world. In the technology and communication sectors, "long-term" evokes periods lasting less than five years. For hedge funds and quant shops, long-term can mean a matter of weeks.
Two factors were identified by the Clinton CEA Year 2000 economic report as contributing to the "good" news - technology-driven productivity and neo-liberal trade globalization. Even with somewhat slower productivity and spending growth, the CEA believed the economy could continue to expand perpetually. As for the huge and growing trade deficit, the CEA expected global recovery to boost demand for US exports, not withstanding the fact that most US exports are increasingly composed of imported parts.
Yet the United States has long officially pursued a strong-dollar policy that weakens world demand for US exports. The high expectation on e-commerce was a big part of optimism, which had yet to be substantiated by data. In 2000, the CEA expected the business to business (B2B) portion of e-commerce to rise to $1.3 trillion by 2003 from $43 billion in 1998. Goldman Sachs claimed in 1999 that B2B e-commerce would reach $1.5 trillion by 2004, twice the size of the combined 1998 revenues of the US auto industry and the US telecom sector. Others were more cautious. Jupiter Research projected that companies around the globe would increase their spending on B2B e-marketplaces from US$2.6 billion in 2000 to only $137.2 billion by 2005 and spending in North America alone would grow from $2.1 billion to only $80.9 billion. North American companies accounted for 81% of the total spending in 1998, but by 2005, that figure was expected to drop to 60% of the total. The fact of the matter is that Asia and Europe are now faster growth markets for communication and technology.
Reality proved disappointing. A 2004 UN Conference on Trade and Development (UNCTAD) report said that in the United States, e-commerce between enterprises, which in 2002 represented almost 93% of all e-commerce, accounted for 16.28% of all commercial transactions between enterprises. While overall transactions between enterprises (e-commerce and non e-commerce) fell in 2002, e-commerce B2B grew at an annual rate of 6.1%. As for business-to-consumer (B2C) e-commerce, UNCTAD reported that sales in the first quarter of 2004 amounted to 1.9% of total retail sales, a proportion nearly twice as large as that recorded in 2001. The annual rate of growth of retail e-commerce in the US in the year to the end of the first quarter of 2004 was 28.1%, while the growth of total retail in the same period was only 8.8%. Dow Jones reported on May 20, 2005, that first-quarter retail e-commerce sales in the US rose 23.8% compared with the year-ago period to $19.8 billion from $16 billion, according to preliminary numbers released by the Department of Commerce. E-commerce sales during the first quarter rose 6.4% from the fourth quarter, when they were $18.6 billion. Sales for all periods are on an adjusted basis, meaning the Commerce Department adjusts them for seasonal variations and holiday and trading-day differences but not for price changes.
E-commerce sales accounted for 2.2% of total retail sales in the first quarter of 2005, when those sales were an estimated $916.9 billion, according to the Commerce Department. Wal-Mart, the low-priced retailer that imports outsourced goods from overseas, grew only 2%, indicating spending fatigue on the part of low-income US consumers, while Target Stores, the upscale retailer that also imports outsourced goods, continued to grow at 7%, indicating the effects of rising income disparity.
The CEA 2000 report did not address the question of whether e-commerce was merely a shift of commerce or a real growth. The possibility exists for the new technology to generate negative growth. It happened to IBM - the increased efficiency (lower unit cost of calculation power) of IBM big frames actually reduced overall IBM sales, and most of the profit and growth in personal computers went to Microsoft, the software company that grew on business that IBM, a self-professed hardware manufacturer, did not consider worthy of keeping for itself. The same thing happened to Intel, where in 1965 company co-founder Gordon Moore observed an exponential growth in the number of transistors per integrated circuit and predicted that this trend would continue the doubling of transistors every couple of years. But what this so-called Moore´s Law did not predict was that this growth of computing power per dollar would cut into company profitability. As the market price of computer power continues to fall, the cost to producers to achieve Moore´s Law has followed the opposite trend: research and development, manufacturing, and test costs have increased steadily with each new generation of chips. As the fixed cost of semiconductor production continues to increase, manufacturers must sell larger and larger quantities of chips to remain profitable. In recent years, analysts have observed a decline in the number of "design starts" at advanced process nodes. While these observations were made in the period after the year 2000 economic downturn, the decline may be evidence that the long-term global market cannot economically sustain Moore´s Law. Is the Google bubble a replay of the AOL fiasco?
Joseph Alois Schumepter´s creative destruction theory, while revitalizing the macro-economy with technological obsolescence in the long run, leaves real corporate bodies in its path, not just obsolete theoretical concepts. Financial intermediaries and stock exchanges face challenges from electronic communication networks (ECNs), which may well turn the likes of the New York Stock Exchange (NYSE) into sunset industries. ECNs are electronic marketplaces that bring buy/sell orders together and match them in virtual space. Today, ECNs handle roughly 25% of the volume in Nasdaq stocks. The NYSE and the Archipelago Exchange (ArcaEx) announced on April 20 that they had entered a definitive merger agreement that will lead to a combined entity, NYSE Group Inc, becoming a publicly held company. If approved by regulators, NYSE members and Archipelago shareholders, the merger will represent the largest-ever among securities exchanges and combine the world´s leading equities market with the most successful totally open, fully electronic exchange. Through Archipelago, the NYSE will compete for the first time in the trading of Nasdaq -listed stocks; it will be able to indirectly capture listings business that otherwise would not qualify to list on the NYSE. Archipelago lists stocks of companies that do not meet the NYSE´s listing standards.
On fiscal policy, US government spending, including social programs and defense, declined as a share of the economy during the eight years of the Clinton watch. This in no small way contributed to a polarization of both income and wealth, with visible distortions in both the demand and supply sides of the economy. This was the opposite of the Roosevelt administration´s record of increasing income and wealth equality by policy. The wealth effect tied to bloated equity and real-estate markets could reverse suddenly and did in 2000, bailed out only by the Bush tax cut and the deficit spending on the "war on terrorism" after 2001. Private debt kept hitting all-time highs throughout the 1990s and was celebrated by neo-liberal economists as a positive factor. Household spending was heavily based on expected rising future earnings or paper profits, both of which might and did vanish on short notice. By election time in November 1999, the Clinton economic miracle was fizzling. The business cycle had not ended after all, and certainly not by self-aggrandizing government policies. It merely got postponed for a more severe crash later. The idea of ending the business cycle in a market economy was as much a fantasy as the assertion by the current vice president, Richard Cheney, in a speech before the Veterans of Foreign Wars in August 26, 2002, that "the Middle East expert Professor Fouad Ajami predicts that after liberation, the streets in Basra and Baghdad are sure to erupt in joy ..."
In their 1991 populist campaign for the White House, Bill Clinton and Al Gore repeatedly pointed out the obscenity of the top 1% of Americans owning 40% of the country´s wealth. They also said that if you eliminated home ownership and only counted businesses, factories and offices, then the top 1% owned 90% of all commercial wealth. And the top 10%, they said, owned 99%. It was a situation they pledged to change if elected. But once in office, president Clinton and vice president Gore did nothing to redistribute wealth more equally - despite the fact that their two terms in office spanned the economic joyride of the 1990s that would eventually hurt the poor much more severely than the rich. On the contrary, economic inequality only continued to grow under the Democrats. Reagan spread the national debt equally among the people while Clinton gave all the wealth to the rich.
RISING RESISTANCE TO GLOBALIZATION
Geopolitically, trade globalization was beginning to face complex resistance worldwide by the second term of the Clinton presidency. The momentum of resistance after Clinton would either slow further globalization or force the terms of trade to be revised. The Asian financial crises of 1997 revived economic nationalism around the world against US-led neo-liberal globalization, while the North Atlantic Treaty Organization (NATO) attack on Yugoslavia in 1999 revived militarism in the EU. Market fundamentalism as espoused by the United States, far from being a valid science universally, was increasingly viewed by the rest of the world as merely US national ideology, unsupported even by US historical conditions. Just as anti-Napoleonic internationalism was in essence anti-French, anti-globalization and anti-moral-imperialism are in essence anti-US. US unilateralism and exceptionalism became the midwife for a new revival of political and economic nationalism everywhere. The Bush Doctrine of monopolistic nuclear posture, preemptive wars, "either with us or against us" extremism, and no compromise with states that allegedly support terrorism pours gasoline on the smoldering fire of defensive nationalism everywhere.
Alan Greenspan in his October 29, 1997, congressional testimony on "Turbulence in World Financial Markets" before the Joint Economic Committee said that "it is quite conceivable that a few years hence we will look back at this episode [Asian financial crisis of 1997] ... as a salutary event in terms of its implications for the macro-economy". When one is focused only on the big picture, details do not make much of a difference: the Earth always appears more or less round from space, despite that some people on it spend their whole lives starving and cities get destroyed by war or natural disasters. That is the problem with macro-economics. As Greenspan spoke, many around the world were waking up to the realization that the turbulence in their own financial markets was viewed by the US central banker as having a "salutary effect" on the US macro-economy. Greenspan gave anti-US sentiments and monetary trade protectionism held by participants in these financial markets a solid basis and they were no longer accused of being mere paranoia.
Ironically, after the end of the Cold War, market capitalism has emerged as the most fervent force for revolutionary change. Finance capitalism became inherently democratic once the bulk of capital began to come from the pension assets of workers, despite widening income and wealth disparity. The monetary value of US pension funds is more than $15 trillion, the bulk of which belongs to average workers. A new form of social capitalism emerged that would gladly eliminate the worker´s job in order to give him or her a higher return on his or her pension account. The capitalist in the individual is exploiting the worker in the same individual. A conflict of interest arises between a worker´s savings and his or her earnings. As Pogo used to say: "The enemy: they are us." This social capitalism, by favoring return on capital over compensation for labor, produces overinvestment, resulting in overcapacity. But the problem of overcapacity can only be solved by high-income consumers. Unemployment and underemployment in an economy of overcapacity decrease demand, leading to financial collapse. The world economy needs low wages the way the cattle business needs foot-and-mouth disease.
The nomenclature of neo-classical economics reflects, and in turn dictates, the warped logic of the economic system it produces. Terms such as money, capital, labor, debt, interest, profits, employment, market, etc have been conceptualized to describe synthetic components of an artificial material system created by the power politics of greed. It is the capitalist greed in the worker that causes the loss of his or her job to lower-wage earners overseas. The concept of the economic man who presumably always acts in his self-interest is a gross abstraction based on the flawed assumption of market participants acting with perfect and equal information and clear understanding of the implication of his actions. The pervasive use of these terms over time disguises the artificial system as the logical product of natural laws, rather than the conceptual components of the power politics of greed.
Just as monarchism first emerged as a progressive force against feudalism by rationalizing itself as a natural law of politics and eventually brought about its own demise by betraying its progressive mandate, social capitalism today places return on capital above not only the worker but also the welfare of the owner of capital. The class struggle has been internalized within each worker. As people facing the hard choice of survival in the present versus well-being in the future, they will always choose survival, and social capitalism will inevitably go the way of absolute monarchism, and make way for humanist socialism.
Henry C K Liu is chairman of the New York-based Liu Investment Group.
(Copyright 2005 Asia Times Online Ltd.
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User ID: 5353
6/15/2005 11:40 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
By allowing a trade surplus denominated in dollars to be accumulated by non-dollar economies such as the yen, euro, or now the Chinese yuan, the cost of supporting the appropriate value of the US dollar to sustain perpetual economic growth in the dollar economy is then shifted to these non-dollar economies, which manifest themselves in perpetual relative low wages and weak domestic consumption. For the already high-wage EU and Japan, the penalty is the reduction of social-welfare benefits and job security traditional to these economies. China, now the world´s second-largest creditor nation, it is reduced to having to ask the US, the world´s largest debtor nation, for capital denominated in dollars the US can print at will to finance its export trade to a US running recurring trade deficits.
MARKET IMPOTENCE AGAINST TRADE IMBALANCE
The IMF, which has been ferocious in imposing draconian fiscal and monetary "conditionalities" on all debtor nations everywhere in the decade after the Cold War, is nowhere to be seen on the scene in the world´s most fragrantly irresponsible debtor nation. This is because the US can print dollars at will and with immunity. The dollar is a fiat currency not backed by gold, not backed by US productivity, not backed by US export prowess, but backed by US military power. The US military budget request for Fiscal Year 2005 is $420.7 billion. For Fiscal Year 2004, it was $399.1 billion; for 2003, $396.1 billion; for 2002, $343.2 billion; and for 2001, $310 billion. In the first term of George W Bush´s presidency, the US spent $1.5 trillion on its military. That is more than the entire gross domestic product of China in 2004. The US trade deficit is about 6% of its GDP, while it military budget is about 4%. In other words, the trading partners of the US are paying for one and a half times the cost of a military that can some day be used against any one of them for any number of reasons, including trade disputes. The anti-dollar crowd has nothing to celebrate about the recurring US trade deficit.
It is pathetic that Rumsfeld tries to persuade the world that China´s military budget, which is less that one-tenth of that of the United States, is a threat to Asia, even when he is forced to acknowledge that Chinese military modernization is mostly focused on defending its coastal territories, not on force projection for distant conflicts, as is US military doctrine. While Rumsfeld urges more political freedom in China, his militant posture toward China is directly counterproductive toward that goal. Ironically, Rumsfeld chose to make his case about political freedom in Singapore, the bastion of Confucian authoritarianism.
Normally, according to free-trade theory, trade can only stay unbalanced temporarily before equilibrium is re-established or free trade would simply stop. When bilateral trade is temporarily unbalanced, it is generally because one trade partner has become temporarily uncompetitive, inefficient or unproductive. The partner with the trade deficit receives more goods and services from the partner with the trade surplus than it can offer in return and thus pays the difference with its currency that someday can buy foods produced by the deficit trade partner to re-established balance of payments. This temporary trade imbalance can be due to a number of socio-economic factors, such as terms of trade, wage levels, return on investment, regulatory regimes, shortages in labor or material or energy, trade-supporting infrastructure adequacy, purchasing power disparity, etc. A trading partner that runs a recurring trade deficit earns the reputation of being what banks call a habitual borrower, ie, a bad credit risk, one that habitually lives beyond its means. If the trade deficit is paid with its currency, a downward pressure results in the exchange rate. A flexible exchange rate seeks to remove or moderate a temporary trade imbalance while the productivity disparities between trading partners are being addressed fundamentally.
Dollar hegemony prevents US trade imbalance from returning to equilibrium through market forces. It allows a US trade deficit to persist based on monetary prowess. This translates over time into a falling exchange rate for the dollar even as dollar hegemony keeps the fall at a slow pace. But a below-par exchange rate over a long period can run the risk of turning the temporary imbalance in productivity into a permanent one. A continuously weakening currency condemns the issuing economy into a downward economic spiral. This has happened to the United States in the past decade. To make matters worse, with globalization of deregulated markets, the recurring US trade deficit is accompanied by an escalating loss of jobs in sectors sensitive to cross-border wage arbitrage, with the job-loss escalation climbing up the skill ladder. Discriminatory US immigration policies also prevent the retention of low-paying jobs within the US and exacerbate the illegal-immigration problem.
Regional wage arbitrage within the US in past decades kept its economy lean and productive internationally. Labor-intensive US industries relocated to the low-wage south of the country through regional wage arbitrage, and despite temporary adjustment pains from the loss of textile mills, the northern economies managed to upgrade their productivity, technology level, financial sophistication and output quality. The economies in the southern US also managed to upgrade these factors of production and in time managed to narrow the wage disparity within the national economy. This happened because the jobs stayed within the nation. With globalization, it is another story. Jobs are leaving the United States mercilessly. According to free-trade theory, the US trade deficit is supposed to cause the dollar to fall temporarily against the currencies of its trading partners, causing export competitiveness to rebalance, thereby removing or reducing the US trade deficit. Jobs that have been lost temporarily are then supposed to return to the US.
But the persistent US trade deficit defies trade theory because of dollar hegemony. The broad trade-weighted dollar index stays in an upward trend, despite selective appreciation of some strong currencies, as highly indebted emerging market economies attempt to extricate themselves from dollar-denominated debt through the devaluation of their currencies. While the aim is to subsidize exports, this ironically makes dollar debts more expensive in local-currency terms. The moderating impact on US price inflation also amplifies the upward trend of the trade-weighted dollar index despite persistent US expansion of monetary aggregates, also known as monetary easing or money printing.
Adjusting for this debt-driven increase in the exchange value of dollars, the import volume into the US can be estimated in relationship to expanding monetary aggregates. The annual growth of the volume of goods shipped to the United States has remained around 15% for most of the 1990s, more than five times the average annual GDP growth. The US enjoyed a booming economy when the dollar was gaining ground, and this occurred at a time when interest rates in the US were higher than those in its creditor nations. This led to the odd effect that raising interest rates actually prolonged the boom in the US rather than threatened it, because it caused massive inflows of liquidity into the US financial system, lowered import-price inflation, increased apparent productivity and prompted further spending by American consumers enriched by the wealth effect despite a slowing of wage increases. Returns on dollar assets stayed high in foreign-currency terms.
This was precisely what Greenspan did in the 1990s in the name of preemptive measures against inflation. Dollar hegemony enabled the US to print money to fight inflation, causing a debt bubble of asset appreciation. These data substantiated the view of the US as Rome in a New Roman Empire with an unending stream of imports as the free tribute from conquered lands. This was what Greenspan meant by US "financial hegemony".
The Fed Funds Rate (FFR)target has been lifted eight times in steps of 25 basis points from 1% in mid-2004 to 3% on May 3, 2005. If the same pattern of "measured pace" continues, the FFR target would be at 4.25% by the end of 2005. Despite Fed rhetoric, the lifting of dollar interest rates has more to do with preventing foreign central banks from selling dollar-denominated assets, such as US Treasuries, than with fighting inflation. In a debt-driven economy, high interest rates are themselves inflationary. Raising interest rates to fight inflation could become the monetary dog chasing its own interest-rate tail, with rising rates adding to rising inflation, which then requires more interest-rate hikes. Still, interest-rate policy is a double edged sword: it keeps funds from leaving the debt bubble, but it can also puncture the debt bubble by making the servicing of debt prohibitively expensive.
To prevent this last adverse effect, the Fed adds to the money supply, creating an unnatural condition of abundant liquidity with rising short-term interest rates, resulting in a narrowing of interest spread between short-term and long-term debts, a leading indication for inevitable recession down the road. The problem of adding to the money supply is what John Maynard Keynes called the liquidity trap, that is, an absolute preference for liquidity even at near-zero interest-rate levels. Keynes argued that either a liquidity trap or interest-insensitive investment draft could render monetary expansion ineffective in a recession. It is what is popularly called pushing on a credit string, where ample money cannot find creditworthy willing borrowers. Much of the new low-cost money tends to go to refinancing existing debt taken out at previously higher interest rates. Rising short-term interest rates, particularly at a measured pace, would not remove the liquidity trap while long-term rates stay flat because of excess liquidity.
The debt bubble in the US is clearly having problems, as evident in the bond market. With just 14 deals worth $2.9 billion, May 2005 was the slowest month for high-yield bond issuance since October 2002. The late-April downgrades of the debt of General Motors and Ford Motor to junk status roiled the bond markets. The number of high-yield, or junk-bond, deals fell 55% in the March-to-May 2005 period compared with the same three months in 2004. They were also down 45% from the December-through-February period. In dollar value, junk-bond deals totaled $17.6 billion in the March-to-May 2005 period, compared with $39.5 billion during the same three months in 2004 and $36 billion from December 2004 through February 2005. There were 407 deals of investment-grade bond underwriting during the March-to-May 2005 period, compared with 522 in the same period 2004 - a decline of 22%. In dollar volume, some $153.9 billion of high-grade bonds were underwritten from March to May 2005, compared with $165.5 billion in the same period in 2004 - a 7% decline.
Oil at $50 a barrel, along with astronomical asset-price appreciation, particularly in real estate, is giving the debt bubble additional borrowed time. But this game cannot go on forever and the end will likely be triggered by a new trade war´s effect on reduced trade volume. The price of a reduced US trade deficit is the bursting of the US debt bubble, which could plunge the world economy into a new depression. Given such options, the United States has no choice but to ride the trade-deficit train for as long as the traffic will bear, which may not be too long, particularly if protectionism begins to gather force.
The transition to offshore outsourced production has been the source of the productivity boom of the "New Economy" in the US in the past decade. The productivity increase not attributable to the importing of other nations´ productivity is much less impressive. While published government figures of the productivity index show a rise of nearly 70% since 1974, the actual rise is between zero and 10% in many sectors if the effect of imports is removed from the equation. The lower productivity values are consistent with the real-life experience of members of the blue-collar working class and the white-collar middle class who have been spending the equity cash-outs from the appreciated market value of their homes. World trade has become a network of cross-border arbitrage on differentials in labor availability, wages, interest rates, exchange rates, prices, saving rates, productive capacities, liquidity conditions and debt levels. In some of these areas, the US is becoming an underdeveloped economy.
The Bush administration continues to assure the US public that the state of the economy is sound while in reality the country has been losing entire sectors of its economy, such as manufacturing and information technology, to foreign producers, while at the same time selling off part of the nation to finance its rising and unending trade deficit. Usually, when unjustified confidence crosses over to fantasized hubris on the part of policymakers, disaster is not far ahead.
The Clinton Legacy
To be fair, the problems of the US economy started before the administration of George W Bush. The Clinton administration´s annual economic report for 2000 claimed that the longest economic expansion in US history could continue "indefinitely" as long as "we stick to sound policy", according to chairman Martin Baily of the Council of Economic Advisers (CEA) as reported in the Wall Street Journal. A New York Times report differed somewhat by quoting Baily as saying: "stick to fiscal policy." Putting the two newspaper reports together, one got the sense that the Clinton administration thought its fiscal policy was the sound policy needed to put an end to the business cycle. Economics high priests in government, unlike the rest of us mortals who are unfortunate enough to have to float in the daily turbulence of the market, can afford to focus aloofly on long-term trends and their structural congruence to macro-economic theories. Yet outside of macro-economics, "long-term" is increasingly being redefined in the real world. In the technology and communication sectors, "long-term" evokes periods lasting less than five years. For hedge funds and quant shops, long-term can mean a matter of weeks.
Two factors were identified by the Clinton CEA Year 2000 economic report as contributing to the "good" news - technology-driven productivity and neo-liberal trade globalization. Even with somewhat slower productivity and spending growth, the CEA believed the economy could continue to expand perpetually. As for the huge and growing trade deficit, the CEA expected global recovery to boost demand for US exports, not withstanding the fact that most US exports are increasingly composed of imported parts.
Yet the United States has long officially pursued a strong-dollar policy that weakens world demand for US exports. The high expectation on e-commerce was a big part of optimism, which had yet to be substantiated by data. In 2000, the CEA expected the business to business (B2B) portion of e-commerce to rise to $1.3 trillion by 2003 from $43 billion in 1998. Goldman Sachs claimed in 1999 that B2B e-commerce would reach $1.5 trillion by 2004, twice the size of the combined 1998 revenues of the US auto industry and the US telecom sector. Others were more cautious. Jupiter Research projected that companies around the globe would increase their spending on B2B e-marketplaces from US$2.6 billion in 2000 to only $137.2 billion by 2005 and spending in North America alone would grow from $2.1 billion to only $80.9 billion. North American companies accounted for 81% of the total spending in 1998, but by 2005, that figure was expected to drop to 60% of the total. The fact of the matter is that Asia and Europe are now faster growth markets for communication and technology.
Reality proved disappointing. A 2004 UN Conference on Trade and Development (UNCTAD) report said that in the United States, e-commerce between enterprises, which in 2002 represented almost 93% of all e-commerce, accounted for 16.28% of all commercial transactions between enterprises. While overall transactions between enterprises (e-commerce and non e-commerce) fell in 2002, e-commerce B2B grew at an annual rate of 6.1%. As for business-to-consumer (B2C) e-commerce, UNCTAD reported that sales in the first quarter of 2004 amounted to 1.9% of total retail sales, a proportion nearly twice as large as that recorded in 2001. The annual rate of growth of retail e-commerce in the US in the year to the end of the first quarter of 2004 was 28.1%, while the growth of total retail in the same period was only 8.8%. Dow Jones reported on May 20, 2005, that first-quarter retail e-commerce sales in the US rose 23.8% compared with the year-ago period to $19.8 billion from $16 billion, according to preliminary numbers released by the Department of Commerce. E-commerce sales during the first quarter rose 6.4% from the fourth quarter, when they were $18.6 billion. Sales for all periods are on an adjusted basis, meaning the Commerce Department adjusts them for seasonal variations and holiday and trading-day differences but not for price changes.
E-commerce sales accounted for 2.2% of total retail sales in the first quarter of 2005, when those sales were an estimated $916.9 billion, according to the Commerce Department. Wal-Mart, the low-priced retailer that imports outsourced goods from overseas, grew only 2%, indicating spending fatigue on the part of low-income US consumers, while Target Stores, the upscale retailer that also imports outsourced goods, continued to grow at 7%, indicating the effects of rising income disparity.
The CEA 2000 report did not address the question of whether e-commerce was merely a shift of commerce or a real growth. The possibility exists for the new technology to generate negative growth. It happened to IBM - the increased efficiency (lower unit cost of calculation power) of IBM big frames actually reduced overall IBM sales, and most of the profit and growth in personal computers went to Microsoft, the software company that grew on business that IBM, a self-professed hardware manufacturer, did not consider worthy of keeping for itself. The same thing happened to Intel, where in 1965 company co-founder Gordon Moore observed an exponential growth in the number of transistors per integrated circuit and predicted that this trend would continue the doubling of transistors every couple of years. But what this so-called Moore´s Law did not predict was that this growth of computing power per dollar would cut into company profitability. As the market price of computer power continues to fall, the cost to producers to achieve Moore´s Law has followed the opposite trend: research and development, manufacturing, and test costs have increased steadily with each new generation of chips. As the fixed cost of semiconductor production continues to increase, manufacturers must sell larger and larger quantities of chips to remain profitable. In recent years, analysts have observed a decline in the number of "design starts" at advanced process nodes. While these observations were made in the period after the year 2000 economic downturn, the decline may be evidence that the long-term global market cannot economically sustain Moore´s Law. Is the Google bubble a replay of the AOL fiasco?
Joseph Alois Schumepter´s creative destruction theory, while revitalizing the macro-economy with technological obsolescence in the long run, leaves real corporate bodies in its path, not just obsolete theoretical concepts. Financial intermediaries and stock exchanges face challenges from electronic communication networks (ECNs), which may well turn the likes of the New York Stock Exchange (NYSE) into sunset industries. ECNs are electronic marketplaces that bring buy/sell orders together and match them in virtual space. Today, ECNs handle roughly 25% of the volume in Nasdaq stocks. The NYSE and the Archipelago Exchange (ArcaEx) announced on April 20 that they had entered a definitive merger agreement that will lead to a combined entity, NYSE Group Inc, becoming a publicly held company. If approved by regulators, NYSE members and Archipelago shareholders, the merger will represent the largest-ever among securities exchanges and combine the world´s leading equities market with the most successful totally open, fully electronic exchange. Through Archipelago, the NYSE will compete for the first time in the trading of Nasdaq -listed stocks; it will be able to indirectly capture listings business that otherwise would not qualify to list on the NYSE. Archipelago lists stocks of companies that do not meet the NYSE´s listing standards.
On fiscal policy, US government spending, including social programs and defense, declined as a share of the economy during the eight years of the Clinton watch. This in no small way contributed to a polarization of both income and wealth, with visible distortions in both the demand and supply sides of the economy. This was the opposite of the Roosevelt administration´s record of increasing income and wealth equality by policy. The wealth effect tied to bloated equity and real-estate markets could reverse suddenly and did in 2000, bailed out only by the Bush tax cut and the deficit spending on the "war on terrorism" after 2001. Private debt kept hitting all-time highs throughout the 1990s and was celebrated by neo-liberal economists as a positive factor. Household spending was heavily based on expected rising future earnings or paper profits, both of which might and did vanish on short notice. By election time in November 1999, the Clinton economic miracle was fizzling. The business cycle had not ended after all, and certainly not by self-aggrandizing government policies. It merely got postponed for a more severe crash later. The idea of ending the business cycle in a market economy was as much a fantasy as the assertion by the current vice president, Richard Cheney, in a speech before the Veterans of Foreign Wars in August 26, 2002, that "the Middle East expert Professor Fouad Ajami predicts that after liberation, the streets in Basra and Baghdad are sure to erupt in joy ..."
In their 1991 populist campaign for the White House, Bill Clinton and Al Gore repeatedly pointed out the obscenity of the top 1% of Americans owning 40% of the country´s wealth. They also said that if you eliminated home ownership and only counted businesses, factories and offices, then the top 1% owned 90% of all commercial wealth. And the top 10%, they said, owned 99%. It was a situation they pledged to change if elected. But once in office, president Clinton and vice president Gore did nothing to redistribute wealth more equally - despite the fact that their two terms in office spanned the economic joyride of the 1990s that would eventually hurt the poor much more severely than the rich. On the contrary, economic inequality only continued to grow under the Democrats. Reagan spread the national debt equally among the people while Clinton gave all the wealth to the rich.
RISING RESISTANCE TO GLOBALIZATION
Geopolitically, trade globalization was beginning to face complex resistance worldwide by the second term of the Clinton presidency. The momentum of resistance after Clinton would either slow further globalization or force the terms of trade to be revised. The Asian financial crises of 1997 revived economic nationalism around the world against US-led neo-liberal globalization, while the North Atlantic Treaty Organization (NATO) attack on Yugoslavia in 1999 revived militarism in the EU. Market fundamentalism as espoused by the United States, far from being a valid science universally, was increasingly viewed by the rest of the world as merely US national ideology, unsupported even by US historical conditions. Just as anti-Napoleonic internationalism was in essence anti-French, anti-globalization and anti-moral-imperialism are in essence anti-US. US unilateralism and exceptionalism became the midwife for a new revival of political and economic nationalism everywhere. The Bush Doctrine of monopolistic nuclear posture, preemptive wars, "either with us or against us" extremism, and no compromise with states that allegedly support terrorism pours gasoline on the smoldering fire of defensive nationalism everywhere.
Alan Greenspan in his October 29, 1997, congressional testimony on "Turbulence in World Financial Markets" before the Joint Economic Committee said that "it is quite conceivable that a few years hence we will look back at this episode [Asian financial crisis of 1997] ... as a salutary event in terms of its implications for the macro-economy". When one is focused only on the big picture, details do not make much of a difference: the Earth always appears more or less round from space, despite that some people on it spend their whole lives starving and cities get destroyed by war or natural disasters. That is the problem with macro-economics. As Greenspan spoke, many around the world were waking up to the realization that the turbulence in their own financial markets was viewed by the US central banker as having a "salutary effect" on the US macro-economy. Greenspan gave anti-US sentiments and monetary trade protectionism held by participants in these financial markets a solid basis and they were no longer accused of being mere paranoia.
Ironically, after the end of the Cold War, market capitalism has emerged as the most fervent force for revolutionary change. Finance capitalism became inherently democratic once the bulk of capital began to come from the pension assets of workers, despite widening income and wealth disparity. The monetary value of US pension funds is more than $15 trillion, the bulk of which belongs to average workers. A new form of social capitalism emerged that would gladly eliminate the worker´s job in order to give him or her a higher return on his or her pension account. The capitalist in the individual is exploiting the worker in the same individual. A conflict of interest arises between a worker´s savings and his or her earnings. As Pogo used to say: "The enemy: they are us." This social capitalism, by favoring return on capital over compensation for labor, produces overinvestment, resulting in overcapacity. But the problem of overcapacity can only be solved by high-income consumers. Unemployment and underemployment in an economy of overcapacity decrease demand, leading to financial collapse. The world economy needs low wages the way the cattle business needs foot-and-mouth disease.
The nomenclature of neo-classical economics reflects, and in turn dictates, the warped logic of the economic system it produces. Terms such as money, capital, labor, debt, interest, profits, employment, market, etc have been conceptualized to describe synthetic components of an artificial material system created by the power politics of greed. It is the capitalist greed in the worker that causes the loss of his or her job to lower-wage earners overseas. The concept of the economic man who presumably always acts in his self-interest is a gross abstraction based on the flawed assumption of market participants acting with perfect and equal information and clear understanding of the implication of his actions. The pervasive use of these terms over time disguises the artificial system as the logical product of natural laws, rather than the conceptual components of the power politics of greed.
Just as monarchism first emerged as a progressive force against feudalism by rationalizing itself as a natural law of politics and eventually brought about its own demise by betraying its progressive mandate, social capitalism today places return on capital above not only the worker but also the welfare of the owner of capital. The class struggle has been internalized within each worker. As people facing the hard choice of survival in the present versus well-being in the future, they will always choose survival, and social capitalism will inevitably go the way of absolute monarchism, and make way for humanist socialism.
Henry C K Liu is chairman of the New York-based Liu Investment Group.
(Copyright 2005 Asia Times Online Ltd.
[link to www.atimes.com] |
| Anonymous Coward
User ID: 686
6/15/2005 11:42 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
The long-awaited correction is making Wall Street shake in its boots.
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| .
User ID: 5353
6/15/2005 11:50 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
" Two decades of neo-liberal globalized trade have widened income and wealth disparity within and between nations. Free trade has turned out not to be the win-win game promised by neo-liberals. It is very much a win-lose game, with heads, the rich economies win, and tails, the poor economies lose. Domestic development has been marginalized as a hapless victim of foreign trade, dependent on trade surplus for capital. Foreign trade and foreign investment have become the prerequisite engines for domestic development. This trade model condemns those economies with trade deficits to perpetual underdevelopment. Because of dollar hegemony, all foreign investment goes only to the export sector where US dollars can be earned. Even the economies with trade surpluses cannot use their dollar trade earnings for domestic development, as they are forced to hold huge dollar reserves to support the exchange rate of their currencies.
In the fifth WTO ministerial conference held in Cancun, Mexico, in September 2003, the richer countries rejected the demands of poorer nations for radical reform of agricultural subsidies that have decimated Third World agriculture. Failure to get the Doha Round back on track after the collapse of Cancun runs the danger of a global resurgence of protectionism, with the US leading the way. Larry Elliott reported on October 13, 2003, in The Guardian on the failed 2003 Cancun ministerial meeting: "The language of globalization is all about democracy, free trade and sharing the benefits of technological advance. The reality is about rule by elites, mercantilism and selfishness." Elliot noted that the process is full of paradoxes: why is it that in a world where human capital is supposed to be the new wealth of nations, labor is treated with such contempt?" |
| .
User ID: 5353
6/15/2005 11:54 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Methinks the Yuan is now considered a contender to becoming a global fiat instrument and that is why the US wishes to make china float it so as cost her labour more cause inflation and in other words put the brakes on Chinese economy and keep this containment going till other planned for events reach fruition.
" World trade under dollar hegemony is a game in which the US produces paper dollars and the rest of the world produces real things that paper dollars can buy. The world´s interlinked economies no longer trade to capture comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies in foreign-exchange markets. To prevent speculative and manipulative attacks on their currencies in deregulated markets, the world´s central banks must acquire and hold dollar reserves in corresponding amounts to market pressure on their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces all central banks to acquire and hold more dollar reserves, making it stronger. This anomalous phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The denomination of oil in dollars and the recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.
By definition, dollar reserves must be invested in dollar-denominated assets, creating a capital-accounts surplus for the US economy. A strong-dollar policy is in the US national interest because it keeps US inflation low through low-cost imports and it makes US assets denominated in dollars expensive for foreign investors. This arrangement, which Federal Reserve Board chairman Alan Greenspan proudly calls US financial hegemony in congressional testimony, has kept the US economy booming in the face of recurrent financial crises in the rest of the world. It has distorted globalization into a "race to the bottom" process of exploiting the lowest labor costs and the highest environmental abuse worldwide to produce items and produce for export to US markets in a quest for the almighty dollar, which has not been backed by gold since 1971, nor by economic fundamentals for more than a decade. The adverse effects of this type of globalization on the developing economies are obvious. It robs them of the meager fruits of their exports and keeps their domestic economies starved for capital, as all surplus dollars must be reinvested in US treasuries to prevent the collapse of their own domestic currencies." |
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User ID: 5353
6/16/2005 12:22 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
And americans wonder why the chinese(for example) dont want democracy, when so called democracy produces this result it is baronial feudalism under new guise, at least Chinese non-democratic rulership has specific policy and will, to look after their citizens, and though by foreign standards 350 million are considered below international poverty standards(mainly farmers) at least they live in houses they can consider their own and work to with the hope that what they are doing will at least lead their children to owning what they have and better, that they will be educated and earn a better living, IMO.
"In their 1991 populist campaign for the White House, Bill Clinton and Al Gore repeatedly pointed out the obscenity of the top 1% of Americans owning 40% of the country´s wealth. They also said that if you eliminated home ownership and only counted businesses, factories and offices, then the top 1% owned 90% of all commercial wealth. And the top 10%, they said, owned 99%. It was a situation they pledged to change if elected. But once in office, president Clinton and vice president Gore did nothing to redistribute wealth more equally - despite the fact that their two terms in office spanned the economic joyride of the 1990s that would eventually hurt the poor much more severely than the rich. On the contrary, economic inequality only continued to grow under the Democrats. Reagan spread the national debt equally among the people while Clinton gave all the wealth to the rich." |
| Anonymous Coward
User ID: 14780
6/16/2005 12:41 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Reagan DOUBLED the national debt in eight years, it´s biggest fastest growth ever until Bushtard |
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