The
critical issues in America stem from minimally a blatantly ineffective public
policy, but overridingly a failed and destructive Economic Policy. These policy
errors are directly responsible for the opening salvos of the Currency War
clouds now looming overhead.
Don’t
be fooled for a minute. The issue of Yuan devaluation is a political
distraction from the real issue – a failure of US policy leadership. In my opinion the US Fiscal and Monetary policies are misguided. They
are wrong! I wrote a 66 page thesis paper entitled “Extend & Pretend” in the fall
of 2009 detailing why the proposed Keynesian policy direction was flawed and
why it would fail. I additionally authored a full series of articles from January
through August in a broadly published series entitled “Extend &
Pretend” detailing the predicted failures as they unfolded. Don’t
let anyone tell you that what has happened was not fully predictable!
Now after
the charade of Extend & Pretend has run out of momentum and more money printing
is again required through Quantitative Easing (we predicted QE II was
inevitable in March), the responsible US politicos have cleverly
ignited the markets with QE II money printing euphoria in the run-up to the
mid-term elections. Craftily they are taking political camouflage behind an
“undervalued Yuan” as the culprit for US problems. Remember,
patriotism is the last bastion of scoundrels.
An
unusual Wall Street Op-Ed piece appeared Wednesday October 13th,
written by Yiping Huang, a Professor of Economics - China Center for Economic Research at the prestigious Peking University. He called for common sense
from Americans and the G20 regarding the potential for destructive currency
wars.
“The
upcoming Group of 20 summit in Seoul could become a battlefield of this new
conflict. But it doesn't have to be. Rather than focus on currency
manipulation, all sides would be better served to zero in on structural
reforms. The effects of that would be far more beneficial in the long run
than unilateral U.S. currency action, and more sustainable. … it
would be much better for the G-20 to focus on a comprehensive package
centered on structural reforms in all countries. Exchange rates should be an
important part of that package. For instance, to reduce the U.S. current-account deficits, Americans have to save more. But simply devaluing the dollar
would not be sufficient for that purpose. Likewise, China's current-account surpluses were caused by a broad set of domestic economic
distortions, from state-allocated credit to artificially low interest rates. Correcting
China's external imbalances requires eliminating all of these
distortions.”
I have
been arguing that the US must address its structural problems for a long time
now. Read my articles: 1) INNOVATION: America has a Structural Problem, 2) INNOVATION:
What Made America Great is now Killing Her! and
3) America - Innovate or Die! for the facts that
are being continually secreted from you.
We have a
Public Policy failure that does not recognize we have a major US structural and secular problem.
The
solutions should be central to US mid-term party campaign election platforms.
They aren’t!
We all
need to appreciate that from a Chinese perspective, with the world’s
largest holdings of US$ reserves, a US led currency war based on dollar
debasement is an American act of default to its foreign creditors no matter
how you camouflage it. As JP Morgan was reported to have said regarding
sovereign defaults on US loans: "this is why we have the US navy – to stop that from happening". So far the Chinese have been more
diplomatic, but their patience is wearing thin.
With 25 currency interventions in a one week
period, matters are quickly getting out of control. Stephen King, the
managing director of economics at HSBC writes:
"The
rich Western world has over-consumed in recent years. It has too many debts. But
rather than dealing with those debts – living a life of
austerity, accepting a period of relative stagnation – the West wants
to shift the burden of adjustment on to its creditors, even when those
creditors are relatively poor nations with low per capita incomes. And that
rankles not just with the Chinese but also with many other countries in Asia and in other parts of the emerging world. During the Asian crisis in 1997-98, Western
nations, under the auspices of the IMF, insisted that Asian nations, having
borrowed too much, should now tighten their belts. But the US doesn't seem to think it should abide by the same rules. Far better to use the exchange
rate to pass the burden on to someone else than to swallow the bitter pill of
austerity. No wonder the Chinese are not willing to play ball."
The
Chinese reject the conventional thinking.
1- They could point to the yen's extraordinary rise
over the last 40 years – from JPY360 against the dollar at the
beginning of the 1970s to approaching JPY80 today – and note that,
despite this huge appreciation, Japan's current account surplus has got bigger,
not smaller.
2- They could argue that America's prescription for China's economic rebalancing – a stronger currency and a boost to domestic demand
– was precisely the policy followed by the Japanese in the late-1980s,
leading to the biggest financial bubble in living memory and the 20-year
hangover that followed.
3- They could argue that the demand for a renminbi revaluation is, in truth,
a policy of American default.
4- During the Asian crisis in 1997-98, Western nations, under the auspices of
the IMF, insisted that Asian nations, having borrowed too much, should now
tighten their belts. But the US doesn't seem to think it should abide by the
same rules.
5- They
could argue that Chinese manufacturing margins are so razor thin that
significant change in exchange rates would wipe them out and force layoffs of
millions of Chinese. Labor rates are already climbing in China and further squeezing margins.
6- A
revaluation of the Yuan would only push manufacturing to Vietnam, Cambodia, Thailand, Bangladesh and other lower paying nations without improving the
developing economies trade deficits.
If we
truly wanted to head off this Currency War then it is a matter of doing what
we did in 1985 with the Plaza Accord. We need another 2010 Plaza Accord
version. But here is the rub. This Plaza Accord is not about the US and G5 as it was in 1985. It is about an Asian Plaza Accord under the support and
auspices of the G-20. It is about the Asia export led and mercantilist
leadership agreeing amongst themselves. The chances of this happening, the
west seeing the requirement for it or the west relinquishing its powers in
any measurable fashion, are not possible as part of the political
gamesmanship presently being played with our lives.
Why all
this has been allowed to knowingly unfold leads me into a discussion where
all ‘government fearing people’ fear to tread. Though I love the
country I call home, I am coming to question our government. Frankly, I am
losing my trust in its true motives.
I
personally now support neither party since they have become the two heads of
the same monster which does not operate ‘for the people by the
people’. I don’t believe I’m alone as I sense real
anger across America; and the political polls clearly show confidence falling
for our political leadership. Americans want their country back!
Almost
three-quarters of Americans — 72 percent — have a negative view
of the federal government, according to a USA Today/Gallup poll released Wednesday. It is
the highest level of dissatisfaction since the Watergate scandal that led to
President Richard Nixon’s resignation in 1974.
“The federal government has an
image problem,” said Frank Newport, editor-in-chief of Gallup. “It’s like the cable company; they may perform a necessary function but
people are dissatisfied with the service.” Newport said when you ask
people what they think of the government, “‘Bleah’ comes
out of their mouth.” Congress is so polarized that it is hard-pressed
to accomplish even the things that the public says are important. When
respondents in the Gallup survey were asked what the government should do,
more than a third placed top priority on economic and budgetary
concerns:
·
Fifteen percent said the government should “create jobs.”
·
Six percent said “improve the economy.”
·
Another 6 percent said “balance the budget.”
·
But 4 percent said the government should “expand health care
coverage.”
·
And 4 percent said “cut taxes.”
All told,
35 percent mentioned those specific problems. Yet Congress failed to pass
even one of 13 regular appropriations bills before recessing last month for
the midterm campaign, while lawmakers have made little progress in addressing
the deficit.
A PUBLIC
POLICY SCORE CARD - WHAT HAVE OUR POLITICAL LEADERS ACHIEVED?
Let’s
recap where we are because the happy face media doesn’t want to tell
you. The media is reluctant to inform you because it hurts consumer
consumption and therefore advertising revenues. It simply isn’t smart
business to publicly state the reality of the situation, and by the way, the
media gets sued for any possible unsubstantiated negative comments that might
stop a stock(s) from rising.
Six
corporations now collectively control US media and absolutely dominate news
and entertainment.
“When
you control what Americans watch, hear and read you gain a great deal of
control over what they think. They don’t call it
‘programming’ for nothing” (1).
Americans
now watch on average 153 hours of television a month. You would think with
this level of information consumption we would be informed – somewhat?
I’m
sure you are all familiar with the facts in the chart above. No?
Is it because no one tells you? Still skeptical? How many of the following
major facts are you familiar with and you hear your political candidates
discussing? Tick them off as you read them.
THE FACTS –
JUST THE FACTS! – Of the 35 facts
below, how many will you hear during the campaign?
1- The United States has lost approximately 42,400 factories since 2001. About 75 percent of
those factories employed over 500 people when they were still in
operation. Source: The American Prospect
2- The United States has lost a total of about 5.5 million manufacturing jobs since October 2000. Source:
The American Prospect
3- The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.
4- As of
the end of 2009, less than 12 million Americans worked in manufacturing. The
last time less than 12 million Americans were employed in manufacturing was
in 1941.
5- In
1959, manufacturing represented 28 percent of U.S. economic output. In 2008,
it represented 11.5 percent. Source: The American Prospect
6- Ten
years ago, the United States was ranked number one in average wealth per
adult. In 2010, the United States has fallen to seventh.
7- The United States once had the highest proportion of young adults with post-secondary degrees
in the world. Today, the U.S. has fallen to 12th.
8-
American 15-year-olds do not even rank in the top half of all advanced
nations when it comes to math or science literacy.
9- In America today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is
spent on services. Source: Economy In Crisis
10- In 2001, the United States ranked fourth in the world in per capita
broadband Internet use. Today it ranks 15th. Source: MACLEANS.CA
11- In 2008, 1.2 billion cell phones were sold worldwide. So how many of them
were manufactured inside the United States? Zero. Source: The American Prospect
12- The
television manufacturing industry began in the United States. So how many
televisions are manufactured in the United States today? According to Princeton University economist Alan S. Blinder, the grand total is zero.
13-
Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide.
14-
Manufacturing employment in the U.S. computer industry is actually lower in
2010 than it was in 1975. Source: Businessweek
15-
According to a new study conducted by Thompson Reuters, China could become the global leader in patent filings by next year.
16- Back
in 1980, the United States imported approximately 37 percent of the oil that
we use. Now we import nearly 60 percent of the oil that we use.
17- The U.S. trade deficit is running about 40 or 50 billion dollars a month
in 2010. That means that by the end of the year approximately one half
trillion dollars (or more) will have left the United States for good.
18- Between 2000 and 2009, America's trade deficit with China increased nearly 300 percent.
19- According to a new study conducted by the Economic Policy Institute, if
the U.S. trade deficit with China continues to increase at its current rate,
the U.S. economy will lose over half a million jobs this year alone.
20- If our trade deficit with China increases at its current rate, the U.S. economy will lose over half a million jobs this year alone. Source: Economic Policy
Institute [PDF]
21- As of the end of July, the trade deficit with China had risen 18 percent
compared to the same time period a year ago. Source: Economic Policy
Institute [PDF]
22- The United States spends approximately $3.90 on Chinese goods for every
$1 that the Chinese spend on goods from the United States. Source: The Economic Collapse
23- One prominent economist is projecting that the Chinese economy will be
three times larger than the U.S. economy by the year 2040. Source: MarketWatch
24- In
the 2009 "prosperity index" published by the Legatum Institute, the
United States was ranked as just the ninth most prosperous country in the
world. That was down five places from 2008.
25- The
economy of India is projected to become larger than the U.S. economy by the year 2050.
26- From
1999 to 2008, employment at the foreign affiliates of US parent companies
increased an astounding thirty percent to 10.1 million. During that exact
same time period, U.S. employment at American multinational
corporations declined 8 percent to 21.1 million. Source: Tax
Analysts [PDF]
International Job Growth = 30% to 10.1 = 233K Jobs
Domestic Job Cuts = 8% decline from 21.1M = 184K Cuts
Net Growth = 233K – 184K = 49K
Net Percentage Growth = 49 / (10.1M + 21.1M) = 0.16% Employment
Growth.
Multinationals
show paltry hiring growth and are moving the existing work force steadily
offshore.
27- The
Census Bureau says 43.6 million Americans are now living in poverty, which is
the highest number of poor Americans in the 51 years that records have been
kept. Source: Washington Post
28-
Approximately 750 good paying middle class jobs are going to be lost because
making Ford Rangers in Minnesota does not fit in with Ford's new "global"
manufacturing strategy. Source: Economy In Crisis
29- Dell
Inc. has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade. Dell has
announced that it will be closing its last large U.S. manufacturing facility
in Winston-Salem, North Carolina. Approximately 900 jobs will be lost.
30-
Median household income in the U.S. declined from $51,726 in 2008 to $50,221
in 2009. That was the second yearly decline in a row.
31-The United States has the third worst poverty rate among the advanced nations tracked by the
Organization for Economic Cooperation and Development.
32- Since the Federal Reserve was created in 1913, the U.S. dollar has lost
over 95 percent of its purchasing power.
33- U.S. government spending as a percentage of GDP is now up to
approximately 36 percent.
34- The Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.
35- Do
you know what our biggest export is today? Waste paper. Yes, trash
is the number one thing that we ship out to the rest of the world as we
voraciously blow our money on whatever the rest of the world wants to sell to
us.
Has anyone
been telling you this and have any of your politicians raised this in the
current election campaigning?
Forgetting
for the moment that failed US public policy is at the root of the financial
crisis, the above chart shows that even the US’ recovery has been
noticeably and significantly worse than other developed nations. The US policy approach to the solution to the financial crisis has been the least effective
according to these figures just released by the Organization for Economic
Co-operation and Development (OECD).
We have
witnessed defections in the last month of three of the top four architects of
Obama’s economic policy team. Plus the hidden fifth, Rahm Emanuel
announced his departure October 1st. Rumors are now swirling that
Tim Geithner will leave after the election and rumors grow that Michael Bloomberg is going to
be the next Treasury Secretary (for a presidential run in 2012 or 2016, another recent rumor). They all know
their policies failed, the public knows it, the media does but is afraid to
say it and President Obama knows his administration is facing being a lame
duck Presidency for the remaining two years of his term because of it.
Recovery Is Stuck in Neutral
WSJ - “The economic recovery is largely
stuck in neutral, reports on manufacturing, construction and spending show,
and the president of the Federal Reserve Bank of New York gave the clearest
signal yet that the Fed was preparing new actions aimed at boosting growth. In
a speech Friday (Oct 1st) before the Society of American Business
Editors and Writers, New York Fed President William Dudley indicated that the
Fed, confronted with "unacceptable" conditions of high unemployment
and low inflation, is likely to take new action to support the economy.
Mr. Dudley said $500 billion in additional asset purchases would provide
stimulus equivalent to a reduction of 0.5 to 0.75 percentage point in the
federal funds rate, the Fed's typical lever for stimulating the economy - The
current situation is wholly unsatisfactory” and “both the current
levels of unemployment and inflation and the timeframe over which they are
likely to return to levels consistent with our mandate are
unacceptable,” Federal
Reserve Bank of New York President William Dudley said in a prepared text.
MY
PREDICTIONS
DOCUMENT
RESULTS
Fiscal:
Stimulus
II will be required Extend & Pretend
Post Labor Day Announcements
- Thesis Paper
-
-
- $50B Infrastructure Initiative (Highways, airports and railroads)
- $200B Capital Investment Write-Offs
- $30B Small Business Fund
- $100B R & D Tax Credit
- $14B FHA Homeownership Guarantees
Monetary:
QE II
will be
required Guide to Road Ahead
September 21st FOMC Minutes
Research
Article
Shadow
Banking Collapse Slide Presentation
Shadow Bank Liabilities Plunge $2.T Y-to-Date ZH
The chart
above was updated in the fall of 2009 in my thesis paper: Extend & Pretend. It was
pointed out that the public policy decisions taken by the administration
would be the deciding factor on where the market headed after a 2008 market
sell-off counter rally was completed; a subsequent consolidation down leg
took place and the effects of the policies were evident. We are now entering
the latter period. It doesn’t look pretty.
Housing
Prices – Let prices fall and allow the system to clear.
- We keep trying to hold housing prices up to protect bad banking decisions
and reward bad homeownership decisions
- Why isn’t lower housing prices and more affordable housing good for
Americans?
Commercial
Real Estate (CRE) is Out of Time – Let prices fall and allow the
system to clear.
- Extend & Pretend accounting games have run out of time.
- Occupancy rates of offices, hotels and retail shows us massive overbuilding
took place and must now be re-priced. Instead
we are trying to hold them up artificially.
- Why are cheaper rents not good for America?
Too Big To Fail – Let major players fail and let M
& A and the bankruptcy process work.
-
The Frank-Dodd Legislation is a complete legislature failure.
- Regulators are now in control and in turn effectively controlled by
the lobbyists and major private player interests.
- Less than 9 Congressmen / Senators claimed to have read the full
~2400 page Frank-Dodd Bill.
Obamacare-
A Hidden Tax Code in disguise
-
Few elected officials claim to have read the full approximate bill ~2000
pages.
The
obvious cause of these failed public policy approaches are the following:
1- A
Washington Political System of lobbyist, electioneering costs,
legislative/regulatory complexity and lack of accountability is no longer serving
the public.
2- The
concept of a “Federal Reserve” and US Money Centered
Banking is unstable long term under a fiat currency regime.
3- The
media is no longer effectively serving the democratic system. It must be
broken up.
Stop interfering and
let capitalism work its proven magic!
We are
locked into Crony Capitalism, Socializing Losses, Political Pandering
and never
ending Campaigning versus Governing
The following
chart shows that money has become a commodity. It can’t command any
return for holding it (interest coupon) similar to any commodity where there
is excess supply. The unique structure of notes and bonds are generating
paper capital gains due to falling rates. Remember, these gains are not
realized until the ‘paper’ is actually sold or expires and the
issuer is capable of paying the surrender value.
“When
Money Becomes a Commodity, Commodities become Money”
Soon Someone Is Going To Get Crushed By The Quantitative Easing
Trade Business Insider
“Goldman
observed today that QE is priced into the bond market, and well, duh! Your
grandmother knows QE is coming, and that more and more of every currency is
being manufactured right now. That doesn't mean it can't go on for awhile,
but it does mean that there's nobody not aware of this trade. When will it
end? Not clear, but come November 2-3, if people are still long the QE trade,
and the Fed actually does deliver, we could be due for a huge sell-the news
event. Combine that with whatever happens during the election, and it
certainly seems like a heck of a lot is building up to that day.”
CAVEAT
EMPTOR!
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Source:
1) 10-05-10 Who Owns the Media The Economic
Collapse
Gordon T. Long
Tipping
Points
Mr. Long is a former senior group executive with IBM
& Motorola, a principle in a high tech public start-up and founder of a
private venture capital fund. He is presently involved in private equity
placements internationally along with proprietary trading involving the
development & application of Chaos Theory and Mandelbrot Generator
algorithms.
Gordon T Long is not a registered
advisor and does not give investment advice. His comments are an expression
of opinion only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his statements
to be true, they always depend on the reliability of his own credible
sources. Of course, he recommends that you consult with a qualified
investment advisor, one licensed by appropriate regulatory agencies in your
legal jurisdiction, before making any investment decisions, and barring that,
you are encouraged to confirm the facts on your own before making important
investment commitments.
© Copyright 2010 Gordon T Long. The information herein was
obtained from sources which Mr. Long believes reliable, but he does not
guarantee its accuracy. None of the information, advertisements, website
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