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 lead 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 tothe
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. They are reluctant to
inform you because it hurts consumer consumption and therefore advertising
revenues. It simply isn't smart business to publically state the reality of
the situation, and by the way, they get sued for any possibly 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 familiarb with and
you hear your political candidate discussing? Tick them off as you read them.
THE FACTS - JUST THE FACTS! - Of the 3 dozen 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- One prominent economist now says that the Chinese economy will be three
times larger than the U.S. economy by the year 2040.
16- According to a new study conducted by Thompson Reuters, China could
become the global leader in patent filings by next year.
17- 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.
18- 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 half a trillion
dollars (or more) will have left the United States for good.
19- Between 2000 and 2009, America's trade deficit with China increased
nearly 300 percent.
20- Today, the United States spends approximately $3.90 on Chinese goods for
every $1 that China spends on goods from the United States.
21- 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.
22- 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]
23- 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]
24- 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
25- 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
26- 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.
27- The economy of India is projected to become larger than the U.S. economy
by the year 2050.
28- 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.
29- 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
30- 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
31- 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.
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.
32-The United States has the third worst poverty rate among the advanced
nations tracked by the Organization for Economic Cooperation and Development.
33- Since the Federal Reserve was created in 1913, the U.S. dollar has lost
over 95 percent of its purchasing power.
34- U.S. government spending as a percentage of GDP is now up to
approximately 36 percent.
35- The Congressional Budget Office is projecting that U.S. government public
debt will hit 716 percent of GDP by the year 2080.
36- 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's recovery has been noticeably and significantly
worse than other developed nations. The US policy approach to the solution to
the financial crisis has been the least effective according to these figures
just released by the Organization for Economic Co-operation and Development
(OECD).
THE GUILTY PARTIES ARE FLEEING LIKE RATS FROM A SINKING SHIP
We have witnessed defections
in the last month of three of the top four architects of Obama's economic
policy team. Plus the hidden fifth, Rahm Emanuel announced his departure
October 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 last 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.
The chart above was updated in
the fall of 2009 in my thesis paper: Extend
& Pretend. It was pointed out that the public policy
decisions taken by the administration would be the deciding factor on where
the market headed after a 2008 market sell-off counter rally was completed, a
subsequent consolidation down leg took place and the effects of the policies
were evident. We are now entering the latter period. It doesn't look pretty.
FLAWED POLICY THINKING:
Housing Prices - Let prices
fall and allow the system to clear.
- We keep trying to hold
housing prices up to protect bad banking decisions and reward bad
homeownership decisions.
- Why isn't lower housing prices and more affordable housing good for
Americans?
Commercial Real Estate (CRE)
is Out of Time - Let prices fall and allow the system to clear.
- Extend & Pretend
accounting games have run out of time.
- Occupancy rates of offices, hotels and retail shows us massive overbuilding
took place and must now be re-priced. Instead we are trying to hold them up
artificially.
- Why are cheaper rents not good for America?
Too Big To Fail - Let major
players fail and let M & A and the bankruptcy process work.
- The Frank-Dodd Legislation
is a complete legislature failure
- Regulators are now in control and are 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:
- A Washington
Political System of lobbyist, electioneering costs,
legislative/regulatory complexity and lack of accountability which is no
longer serving the public.
- The concept
of a "Federal Reserve" and US Money Centered Banking is
unstable long term under a fiat currency regime.
- 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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