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Three Potentially Disastrous Outcomes From Ben Bernanke's QE 2 Wager
Ben Bernanke
has made a very dangerous bet.
The Fed’s
Quantitative Easing 2 announcement of $600 billion in additional Treasury purchases
is literally a “bet the farm” move. True, the Fed had already engaged in an
unbelievable amount of bailouts both known and unknown. However, the Fed’s
previous moves were all made when 1) the world financial system was teetering
on the brink of collapse and 2) other countries were engaging in similar
practices.
In contrast,
the Fed’s new QE 2 announcement comes at a time when the consensus is that the
US economy is recovering (I don’t buy it, but most analysts/ commentators do)
and other central banks have publicly declared they won’t be engaging in
additional easing (the ECB and UK) or are outright tightening credit and
raising interest rates (China and Australia).
So this
time, the Fed is going at it alone. Indeed, the only other major economy that
is determined to engage in more intervention is Japan, which has thrown
trillions of yen down the toilet
for decades with nothing to show for it. And it’s not like Japan is pleased
about the Fed’s move as it devalues the Dollar and cuts into Japanese export
margins.
Consequently,
even the country engaging in more QE is NOT a fan of Bernanke’s QE 2 plan.
However, this is just ONE of the myriad of problems QE 2 faces. The three
biggest problems with QE 2 are:
- 1) The
potential for a US Dollar break-down - 2) Treasuries
falling and pushing interest rates UP - 3) China
retaliating.
Of these, #3
is the most worrisome for the global financial markets. Let’s be clear here,
China is extremely adept at making
investing/ financial decisions. And while we do need to take its decision to cut Treasury exposure seriously, I
cannot believe China would actually telegraph that it was dumping Treasuries
when the dumping really starts.
Moreover,
China has shown that when it comes to real
issues, it doesn’t mess around.
Consider the September 7th news story in which a Chinese fishing
boat crashed into two Japanese coast guard ships. Japan arrested the captain
and his crew. China responded by cutting rare earth exports to Japan.
Rare earths
are used in a multitude of electronics (hybrid cars, LCD screens, magnets,
batteries, TVs, etc). China controls 93% of the world production of these
elements. And Japan’s economy, which is focused on electronics manufacturing,
is heavily dependent on these items for growth.
Consider
this sequence of events.
1) A
Chinese boat crashes into a Japanese
coast guard ship.
2) Japan
arrests the crew.
3) China
CUTS its exports of critical resources that Japan NEEDS.
The message
here is clear. China does NOT mess around and is more than happy to play
hardball when it comes to issues it deems important. Moreover, when China holds
a trump card, it’s not afraid to use it.
These are
some of the trump cards China currently holds:
1) Rare
earths production
2) US
Treasuries ownership (a decision by the #1 holder to dump would start a global
rush from the US Dollar)
3) Derivatives:
China could simply tell its banks and firms to renege on all derivatives deals,
not just the commodity ones (commodity derivatives only comprise 2% of global
derivatives, interest rate-based derivatives, in contrast, comprise 80% or so
of the $600 TRILLION derivative market.
4) Interest
rates hikes.
In plain
terms, China has ALL the trump cards when it comes to global monetary/ economic
issues. For that reason, its decision to simply ban exports of rare earth
elements to Japan during the fishing boat tussle should be seen as a MAJOR
warning of how China will conduct its affairs as it continues its quest to
become a global super power.
Which is why
Bernanke’s decision to blame China for everything is NOT a good idea.
Our illustrious
Fed Chairman recently told Congress that China is the BIG problem and that the
Fed is blameless. Nevermind, that the speech was one of the biggest loads of
self-serving nonsense in history, this is literally Bernanke loading insult on
top of injury (he’s personally seen to it that China loses BIG $$$ on its US
Dollar investments).
How China
will respond to this remains to be seen. But if the Japan/ China fishing tussle
is any guide, Bernanke’s going about EVERYTHING the wrong way here. No one
knows how China will respond to this, but one thing is clear: the Global
monetary showdown just got one BIG step closer to its end.
And whatever
the end is, it WON’T be pretty.
Good Investing!
Graham
Summers
PS. If
you’re worried about the future of the stock market and have yet to take steps
to prepare for the Second Round of the Financial Crisis… I highly suggest you
download my FREE Special Report specifying exactly how to prepare for what’s to
come.
I call it The Financial Crisis “Round Two” Survival
Kit. And its 17 pages contain a wealth of information about portfolio
protection, which investments to own and how to take out Catastrophe Insurance
on the stock market (this “insurance” paid out triple digit gains in the Autumn
of 2008).
Again, this
is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com
and click on FREE REPORTS.
- advertisements -
are you complete insane or just plainly stupid... ???
#hese are some of the trump cards China currently holds:
1) Rare earths production
2) US Treasuries ownership (a decision by the #1 holder to dump would start a global rush from the US Dollar)
3) Derivatives: China could simply tell its banks and firms to renege on
4) Interest rates hikes.
#1Rare earths production
dont want even mention it... I wonder could author even name 1,2 of them ?
#US Treasuries ownership
what a fool...YOU LENT SOMEONE YOUR HARD EARNED MONEY and you called it
rump cards ? what if US TREASURY WOULD NULLIFY treasuries held by Chiane goverment ? what would china do? who would buy it ?
#Derivatives: China could sim
really ??????? what if those contracts are in money ? so China would jsut give away money ?
#Interest rates hikes.
so. it would jsut kill growth in CHina , if any..
GUYs HERE'S MY ADVICE... stop writing bullshit about somethong you dont have any diea.. stick to basics eat burger, watch soap opera on TV, jerk off..thats it..
alx
Okay. Sorry to take up space, probably everyone knew the answer to this question except me:
Can the fed really "go it alone?" Aren't all the central banks connected in some way? Sure seems like they must be. If not, what?
What I found out about central banks around the world doesn't surprise me, and from what I've read I don't really think the US fed can "go it alone", and at some point I wonder if "our" Fed were to try to "go it alone", beyond what already has happened... something far worse WILL happen.
Appended below is what I discovered about central banks...just in case you're still reading.
The Richest Federal Reserve Banks Around the Globe
By Jack WoganEvery nation in this world relies on a banking institution which functions as the sole entity granted the right of lending currency to its government. It is also the only authority in the country responsible for issuing the banknotes and coins which make up the currency of that respective nation. And, one last thing which distinguishes such an institution from a common commercial bank is its role of 'lender as last resort' for other banks as well in times of great financial difficulties.
The names by which these banking authorities are known in different parts of the world are central bank, federal reserve or monetary authority. Their primary function is to insure the money supply of a nation, but they can also be invested with supervisory powers acting as a watch dog for financial institutions or banks in order to make sure they do not attempt any reckless or fraudulent behavior. Central banks also handle the foreign exchange and gold and bank reserves a country has.
These monetary organisms usually function as independent entities in most of the rich countries around the world. That means they operate under a code of principles and regulations designed in a way that makes it possible for any political interference to be avoided. Two conclusive examples of such a functioning mechanism are the European Central Bank and the Federal Reserve System in the USA.
As mentioned earlier, the main job of a federal or central bank is to keep an eye on the banks' reserves. These reserves refer to all the holdings the banks have, deposits and currency, and stored within the central bank. But, just like in the case of countries, the federal reserves of a nation can be classified in two categories: the richer and the poorer.
Our interest shall now focus on the biggest federal reserve banks around the globe. It may come as a surprise for many that the explosion of reserve holdings which has been characteristic for the last ten years is to be observed mainly in Asia. In fact, in a top 10 of the central banks with the richest reserves in the world, China and Japan come on the first two places holding together around 43% of global reserves. Their official reserves accounting for $2,447.1 billion, respectively $1,046.8 billion, entitle them to be considered the countries with the richest federal bank reserves in the whole world. The list of ten is completed with Russia, Saudi Arabia, Taiwan, India, South Korea, Hong Kong, Brazil and Singapore.
Having learned which countries in the world have the larger federal bank reserves, perhaps we should let ourselves be tickled by curiosity once again and try to find out which bank in the world possesses the biggest gold reserves. That place, storing the greatest quantity of gold in the world, amounting $203.3 billion, is the Federal Reserve Bank of New York. A treasure of about 550,000 pieces made of the precious metal, more then enough to stir everybody's imagination. Bars, coins, medals or sovereigns, a beautiful dream for collectors and investors alike, have found shelter somewhere in the vaults under the lower Manhattan.
Article Source: http://EzineArticles.com/?expert=Jack_Wogan
google (Chinese+central+bank+reserves):
BEIJING | Fri Nov 19, 2010 8:05am EST
BEIJING (Reuters) - - China's central bank said on Friday it will raise banks' reserve requirements for the second time in two weeks, stepping up its battle to rein in prices before inflation has a chance to take off.
The People's Bank of China said it would increase required reserve ratios by 50 basis points. The fifth such move to be announced this year, it takes required reserves to 18.5 percent for big banks, a record high.
Maybe that's why they're central bank is so rich! They keep lots of reserves (depositor monies) on hand. Our banks don't.
Things are in the sewer around the world, and China is making sure that the RESERVES in every Chinese bank -- the money that is on hand to pay depositors should they need their money -- is HIGHER (rather than lower, as in the U.S.), so that any Chinese depositor who needs his or her money can get it. US banks use the Fractional Reserve Banking system, which nothing more or less than a big swindle, which they get away with because our government -- being hand-in-glove with the central bank "the Federal Reserve", allows. (See The Daily Paul website if you don't believe it.) And if anyone thinks the FDIC (Federal Deposit Insurance Corporation) is solvent and that in case of a big "collapse" that anyone will get their money (aside from the insiders who know it was going to happen and got to the bank first), dream on; it's part of the swindle. Read the article below for an explanation. -------------------------------------------------------------------------------------------------------Fractional Reserve Banking
by Murray N. Rothbard
We have already described one part of the contemporary flight from sound, free market money to statized and inflated money: the abolition of the gold standard by Franklin Roosevelt in 1933, and the substitution of fiat paper tickets by the Federal Reserve as our "monetary standard." Another crucial part of this process was the federal cartelization of the nation's banks through the creation of the Federal Reserve System in 1913.
Banking is a particularly arcane part of the economic system; one of the problems is that the word "bank" covers many different activities, with very different implications. During the Renaissance era, the Medicis in Italy and the Fuggers in Germany, were "bankers"; their banking, however, was not only private but also began at least as a legitimate, non-inflationary, and highly productive activity. Essentially, these were "merchant-bankers," who started as prominent merchants. In the course of their trade, the merchants began to extend credit to their customers, and in the case of these great banking families, the credit or "banking" part of their operations eventually overshadowed their mercantile activities. These firms lent money out of their own profits and savings, and earned interest from the loans. Hence, they were channels for the productive investment of their own savings.
To the extent that banks lend their own savings, or mobilize the savings of others, their activities are productive and unexceptionable. Even in our current commercial banking system, if I buy a $10,000 CD ("certificate of deposit") redeemable in six months, earning a certain fixed interest return, I am taking my savings and lending it to a bank, which in turn lends it out at a higher interest rate, the differential being the bank's earnings for the function of channeling savings into the hands of credit-worthy or productive borrowers. There is no problem with this process.
The same is even true of the great "investment banking" houses, which developed as industrial capitalism flowered in the nineteenth century. Investment bankers would take their own capital, or capital invested or loaned by others, to underwrite corporations gathering capital by selling securities to stockholders and creditors. The problem with the investment bankers is that one of their major fields of investment was the underwriting of government bonds, which plunged them hip-deep into politics, giving them a powerful incentive for pressuring and manipulating governments, so that taxes would be levied to pay off their and their clients' government bonds. Hence, the powerful and baleful political influence of investment bankers in the nineteenth and twentieth centuries: in particular, the Rothschilds in Western Europe, and Jay Cooke and the House of Morgan in the United States.
By the late nineteenth century, the Morgans took the lead in trying to pressure the U.S. government to cartelize industries they were interested in – first railroads and then manufacturing: to protect these industries from the winds of free competition, and to use the power of government to enable these industries to restrict production and raise prices.
In particular, the investment bankers acted as a ginger group to work for the cartelization of commercial banks. To some extent, commercial bankers lend out their own capital and money acquired by CDs. But most commercial banking is "deposit banking" based on a gigantic scam: the idea, which most depositors believe, that their money is down at the bank, ready to be redeemed in cash at any time. If Jim has a checking account of $1,000 at a local bank, Jim knows that this is a "demand deposit," that is, that the bank pledges to pay him $1,000 in cash, on demand, anytime he wishes to "get his money out." Naturally, the Jims of this world are convinced that their money is safely there, in the bank, for them to take out at any time. Hence, they think of their checking account as equivalent to a warehouse receipt. If they put a chair in a warehouse before going on a trip, they expect to get the chair back whenever they present the receipt. Unfortunately, while banks depend on the warehouse analogy, the depositors are systematically deluded. Their money ain't there.
An honest warehouse makes sure that the goods entrusted to its care are there, in its storeroom or vault. But banks operate very differently, at least since the days of such deposit banks as the Banks of Amsterdam and Hamburg in the seventeenth century, which indeed acted as warehouses and backed all of their receipts fully by the assets deposited, e.g., gold and silver. This honest deposit or "giro" banking is called "100 percent reserve" banking. Ever since, banks have habitually created warehouse receipts (originally bank notes and now deposits) out of thin air. Essentially, they are counterfeiters of fake warehouse-receipts to cash or standard money, which circulate as if they were genuine, fullybacked notes or checking accounts. Banks make money by literally creating money out of thin air, nowadays exclusively deposits rather than bank notes. This sort of swindling or counterfeiting is dignified by the term "fractional-reserve banking," which means that bank deposits are backed by only a small fraction of the cash they promise to have at hand and redeem. (Right now OCTOBER 1995, in the United States, this minimum fraction is fixed by the Federal Reserve System at 10 percent.) (10% may no longer be required in the US.)
Fractional Reserve Banking
Let's see how the fractional reserve process works, in the absence of a central bank. I set up a Rothbard Bank, and invest $1,000 of cash (whether gold or government paper does not matter here). Then I "lend out" $10,000 to someone, either for consumer spending or to invest in his business. How can I "lend out" far more than I have? Ahh, that's the magic of the "fraction" in the fractional reserve. I simply open up a checking account of $10,000 which I am happy to lend to Mr. Jones. Why does Jones borrow from me? Well, for one thing, I can charge a lower rate of interest than savers would. I don't have to save up the money myself, but simply can counterfeit it out of thin air. (In the nineteenth century, I would have been able to issue bank notes, but the Federal Reserve now monopolizes note issues.) Since demand deposits at the Rothbard Bank function as equivalent to cash, the nation's money supply has just, by magic, increased by $10,000. The inflationary, counterfeiting process is under way.
The nineteenth-century English economist Thomas Tooke correctly stated that "free trade in banking is tantamount to free trade in swindling." But under freedom, and without government support, there are some severe hitches in this counterfeiting process, or in what has been termed "free banking." First: why should anyone trust me? Why should anyone accept the checking deposits of the Rothbard Bank? But second, even if I were trusted, and I were able to con my way into the trust of the gullible, there is another severe problem, caused by the fact that the banking system is competitive, with free entry into the field. After all, the Rothbard Bank is limited in its clientele. After Jones borrows checking deposits from me, he is going to spend it. Why else pay money for a loan? Sooner or later, the money he spends, whether for a vacation, or for expanding his business, will be spent on the goods or services of clients of some other bank, say the Rockwell Bank. The Rockwell Bank is not particularly interested in holding checking accounts on my bank; it wants reserves so that it can pyramid its own counterfeiting on top of cash reserves. And so if, to make the case simple, the Rockwell Bank gets a $10,000 check on the Rothbard Bank, it is going to demand cash so that it can do some inflationary counterfeit-pyramiding of its own. But, I, of course, can't pay the $10,000, so I'm finished. Bankrupt. Found out. By rights, I should be in jail as an embezzler, but at least my phoney checking deposits and I are out of the game, and out of the money supply.
Hence, under free competition, and without government support and enforcement, there will only be limited scope for fractional-reserve counterfeiting. Banks could form cartels to prop each other up, but generally cartels on the market don't work well without government enforcement, without the government cracking down on competitors who insist on busting the cartel, in this case, forcing competing banks to pay up.
Central Banking
Hence the drive by the bankers themselves to get the government to cartelize their industry by means of a central bank. Central Banking began with the Bank of England in the 1690s, spread to the rest of the Western world in the eighteenth and nineteenth centuries, and finally was imposed upon the United States by banking cartelists via the Federal Reserve System of 1913. Particularly enthusiastic about the Central Bank were the investment bankers, such as the Morgans, who pioneered the cartel idea, and who by this time had expanded into commercial banking.
In modern central banking, the Central Bank is granted the monopoly of the issue of bank notes (originally written or printed warehouse receipts as opposed to the intangible receipts of bank deposits), which are now identical to the government's paper money and therefore the monetary "standard" in the country. People want to use physical cash as well as bank deposits. If, therefore, I wish to redeem $1,000 in cash from my checking bank, the bank has to go to the Federal Reserve, and draw down its own checking account with the Fed, "buying" $1,000 of Federal Reserve Notes (the cash in the United States today) from the Fed. The Fed, in other words, acts as a bankers' bank. Banks keep checking deposits at the Fed and these deposits constitute their reserves, on which they can and do pyramid ten times the amount in checkbook money.
Here's how the counterfeiting process works in today's world. Let's say that the Federal Reserve, as usual, decides that it wants to expand (i.e., inflate) the money supply. The Federal Reserve decides to go into the market (called the "open market") and purchase an asset. It doesn't really matter what asset it buys; the important point is that it writes out a check. The Fed could, if it wanted to, buy any asset it wished, including corporate stocks, buildings, or foreign currency. In practice, it almost always buys U.S. government securities.
Let's assume that the Fed buys $10,000,000 of U.S. Treasury bills from some "approved" government bond dealer (a small group), say Shearson, Lehman on Wall Street. The Fed writes out a check for $10,000,000, which it gives to Shearson, Lehman in exchange for $10,000,000 in U.S. securities. Where does the Fed get the $10,000,000 to pay Shearson, Lehman? It creates the money out of thin air. Shearson, Lehman can do only one thing with the check: deposit it in its checking account at a commercial bank, say Chase Manhattan. The "money supply" of the country has already increased by $10,000,000; no one else's checking account has decreased at all. There has been a net increase of $10,000,000.
But this is only the beginning of the inflationary, counterfeiting process. For Chase Manhattan is delighted to get a check on the Fed, and rushes down to deposit it in its own checking account at the Fed, which now increases by $10,000,000. But this checking account constitutes the "reserves" of the banks, which have now increased across the nation by $10,000,000. But this means that Chase Manhattan can create deposits based on these reserves, and that, as checks and reserves seep out to other banks (much as the Rothbard Bank deposits did), each one can add its inflationary mite, until the banking system as a whole has increased its demand deposits by $100,000,000, ten times the original purchase of assets by the Fed. The banking system is allowed to keep reserves amounting to 10 percent of its deposits, which means that the "money multiplier" – the amount of deposits the banks can expand on top of reserves – is 10. A purchase of assets of $10 million by the Fed has generated very quickly a tenfold, $100,000,000 increase in the money supply of the banking system as a whole.
Interestingly, all economists agree on the mechanics of this process even though they of course disagree sharply on the moral or economic evaluation of that process. But unfortunately, the general public, not inducted into the mysteries of banking, still persists in thinking that their money remains "in the bank."
Thus, the Federal Reserve and other central banking systems act as giant government creators and enforcers of a banking cartel; the Fed bails out banks in trouble, and it centralizes and coordinates the banking system so that all the banks, whether the Chase Manhattan, or the Rothbard or Rockwell banks, can inflate together. Under free banking, one bank expanding beyond its fellows was in danger of imminent bankruptcy. Now, under the Fed, all banks can expand together and proportionately.
"Deposit Insurance"
But even with the backing of the Fed, fractional reserve banking proved shaky, and so the New Deal, in 1933, added the lie of "bank deposit insurance," using the benign word "insurance" to mask an arrant hoax. When the savings and loan system went down the tubes in the late 1980s, the "deposit insurance" of the federal FSLIC [Federal Savings and Loan Insurance Corporation] was unmasked as sheer fraud. The "insurance" was simply the smoke-and-mirrors term for the unbacked name of the federal government. The poor taxpayers finally bailed out the S&Ls, but now we are left with the formerly sainted FDIC [Federal Deposit Insurance Corporation], for commercial banks, which is now increasingly seen to be shaky, since the FDIC itself has less than one percent of the huge number of deposits it "insures."
The very idea of "deposit insurance" is a swindle; how does one insure an institution (fractional reserve banking) that is inherently insolvent, and which will fall apart whenever the public finally understands the swindle? Suppose that, tomorrow, the American public suddenly became aware of the banking swindle, and went to the banks tomorrow morning, and, in unison, demanded cash. What would happen? The banks would be instantly insolvent, since they could only muster 10 percent of the cash they owe their befuddled customers. Neither would the enormous tax increase needed to bail everyone out be at all palatable. No: the only thing the Fed could do, and this would be in their power, would be to print enough money to pay off all the bank depositors. Unfortunately, in the present state of the banking system, the result would be an immediate plunge into the horrors of hyperinflation.
Let us suppose that total insured bank deposits are $1,600 billion. Technically, in the case of a run on the banks, the Fed could exercise emergency powers and print $1,600 billion in cash to give to the FDIC to pay off the bank depositors. The problem is that, emboldened at this massive bailout, the depositors would promptly redeposit the new $1,600 billion into the banks, increasing the total bank reserves by $1,600 billion, thus permitting an immediate expansion of the money supply by the banks by tenfold, increasing the total stock of bank money by $16 trillion. Runaway inflation and total destruction of the currency would quickly follow. (November 20, 2010: and that may be just what's going to happen very soon!)
This article originally appeared in the October 1995 issue of The Freeman and is reprinted with permission.
Murray N. Rothbard (1926-1995), the founder of modern libertarianism and the dean of the Austrian School of economics, was the author of The Ethics of Liberty and For a New Liberty and many other books and articles. He was also academic vice president of the Ludwig von Mises Institute and the Center for Libertarian Studies, and the editor – with Lew Rockwell – of The Rothbard-Rockwell Report. http://lewrockwell.com/rothbard/frb.html
Murray Rothbard Archives
After everyone redeposits their money in the bank, the bank won't necessarily loan out 10 times that much (thus increasing the money supply by 10-fold). What if no one wants to go into debt because of massive uncertainty? What if no one wants the money?
Answer: the banks deposit the money with the Federal Reserve and obtain interest on it. Sound familiar? Voila, no (hyper or other) inflation.
(voice of John Wayne in your head, besides the 28 other little buggers)
Hold on a spell there, pardner. What if Ben is right?
Has anybody considered that? Dind't hear a single one of ya' thinkin' out loud about him bein' inno-cent.
We don' even know whats gonna happen yet, fer Kericest's sakes.
Wah happens if ez right?
Millions go back to work, n' kids have a future a-gin growin' up in America.
A hell of a lot less people goin' to bed with hungry hurtin' stomachs
and maybe even some folks been knockin' things see this grate countrie for what it is.
God's light shines down upon us n' people starts smile'n again n' the laughter of the tikes warms the ovens of humanity.
There's enough fer all ta go aroun an,
Lloyd's unicorn starts makin them little rainbow colored skittle shits for everybody ta have a hand in again, pickin' up turds by thier clean ends and appreciatin' it, drivin' them Godless little commie red bastards back over the HoChiMinuterice Resivour to them little grass thatched huts on that Goddamned polluted Yangtsee place up north the Mekong Delta River Place, so help me God I swear on my empty grave, Pardner.
I mean even Charlie Gasbagparino says that its not nice to compare Ben to a couple of little fluffy teddybears in a cartoon, cuz makin fun a him takes away his credibility. So lets get serious, an no more cartoons about Ben. Jus' button yer lip and well, no more bellyachin' just.... just button yer lip, n like it.
Thanks to all those who commented. A nice, civil discussion -- so far.
ZH rules!
Fuck you and the Daniel Boone you rode in on RR...
There. Fixed...
Poor Hulk, you never know when those chemicals will kick in.
Removed
Jeremy Grantham gave a long interview with Maria Bartiromo, which airs tonight at 10.
Grantham, whose opinions on the Fed are well known, explains why the Fed-stimulated boom-bust cycle is coming to an end.
"In 2000 the Fed had a good balance sheet and the government had a good balance sheet. in '08 it was still semi-respectable, and now it's not. It's not very respectable at all," Grantham says in the second minute of the interview. "So what are they going to use as ammunition if they cause another bubble and it breaks in a couple of years? Then we might have some real Japanese experiences."
Grantham goes on to give his recommendations, which include getting the Fed out of the market manipulation game.
Read more: http://www.businessinsider.com/jeremy-grantham-interview-bubble-2010-11#ixzz15qwACbyb
JUNK +1
Do bears weave stories like the evolutionists?
http://abetterwaytotradestocks.blogspot.com/2010/11/800-year-old-dinosau...
The Bernank and BO should recall Santayana's maxim.
Love is like war. You begin when you like, and leave off when you can.
Excellent post and commentary. I read ZH to be well informed, but also to see a few good minds at work. Thanks to all, especially those with whom I fundamentally disagree. How else does the light get in?
Our illustrious Fed Chairman recently told Congress that China is the BIG problem and that the Fed is blameless.
What am I missing? Years of Americans jobs flowing to China with the government's blessing! Wall St. cheered the enormous profits!! and now China is the problem, are we serious here? China has been manipulating it's currency for over 2 decades and now its an issue? The real issue WAS to stop it before it hurt us, TOO FKING LATE!! 42 million on food stamps and more on the way!!!
I hope China does float it's currency and we pay the gddam prices at Walmart as if it were made here. We reap what we sow and sowwed a lot of shit for many many years - happy eating bitchez!!
I watchede the video: the end of his nose was vibrating, twitching, getting longer and longer. There was a bird flying around him with twigs in her beak; she's probably built her nest on his schnoz by now.
I'll bet many feel as you do. People are very angry, think what must happen...must happen. Thanks for putting it into words.
Thumbs up brother.
What a ridiculous thing to say...."I can't believe China would telegraph that it was dumping treasuries when the dumping really starts".....of course they could/would. Why?, because the psycho Obama team and Benny and Timmy won't listen to anyone. Wars don't make sense on paper, but they happen often - and mostly as a final result when words don't mean shit. So yeah, a financial war is most definitely in the cards and on the table.
...and they have all those rare earth minerals to hoard...
Wonder if they know that every inch of soil everywhere, in and on top of the earth, has them too. It's true.
Additionally:
4. Quantitative easing provokes leveraged speculation in commodities and energy which acts like a tax on the economy when it can least afford it.
Producers and retailers are now caught in the cross hairs. If they raise prices into a falling income environment, sales will suffer. If they do not raise prices collapsing profit margins will render them insolvent.
Raising interest rates in what Richard Koos calls a "balance sheet recession" will not damage the credit market since borrowers would rather save and pay down debt. Raising interest rates would however, deter speculation in commodities and energy thereby reducing the price inflation tax on the economy.
This is not an ordinary recession where low interest rates can stimulate the economy through increased borrowing.
Back to the drawing board.
China is going to win this economic war. Here's your proof: http://obamajoke.com/wp-content/uploads/2009/11/obama-bows-to-china-again.jpg
Debtor bowing to his Creditor. Spin it any way you want to. A picture is worth a thousand words. There's only one way out of this, two actually. Go back to a Gold/Silver standard (assumes we still have all the gold we claim to have) and two is to wipe away 50% or more of all debt. Either way the banks lose so expect more QE/TARP because Bernanke is standing in a pile of shit and he doesn't have the shoes for it. People around the world are slowly waking-up to government corruption and we will end this madness, one way or another......
Hoser
If we go back to metal (we won't) we won't have QE/TARP because the fed will only be overseeing banks and bank reserves, which is what they're supposed to be doing -- not strangling the whole effing economy. But we won't go back to gold: see http://en.wikipedia.org/wiki/Executive_Order_11110
The Fed will bail out Bank of America again if needed..
They don't need to ask for permission ,,, that is wrong.
The "too big to fails " need to fail... and go under..
The Senate must be over the Fed..
We are going down. Nothing that can stop it now.
BUT!!
There are to many microwave brainiacs thinking it will go down any day now.
And that, it won't.
It will take at least another 5 to 7 years untill the real shit hits the fan.
It's going to be a slow ride downhill from here.
PLENTY OF TIME TO MAKE PREPERATION!!
But the longuer you wait, the costlier it gets.
SD: kept looking for appropriate spot, but defined as? so - right here: that's the GREATEST fuckin' avatar ever! Every time I run by I have to stop and LOL! PS: like your comments, too (in general)
I give it 12-18 months. tops. Once QE3 is announced in 9 months, this will set off a firestorm around the world, which will lead to austerity as a biproduct at home. That will cause the shit to hit the fan inside the US.
the chinese are now trading with russia, other asians, and not using the dollar. the chinese hold billions of u>s> debt, and like loan sharks should demand immediate payment, in gold and silver. the u>s> has become irrelevant in the worlds eyes.
We should have forced China into war while they were weaker.
Unfortunately, our own "free-market" capitalists have sold us out for the sake of global profits at the expense of the nation.
If we lose WWIII I hope those brown-nosing capitalists in Wall Street and Washington and the Elites scrub many a toilet.
"2) other countries were engaging in similar practices."
Who, how, and so what. If another country is run by banking frauds, that means nothing to me. Our style of bailout was the most corrupt by far.
"In contrast, the Fed’s new QE 2 announcement comes at a time when the consensus is that the US economy is recovering"
That's not true. The stated rationale for QE2 is that recovery is not true or robust and we're threatened by deflation. "recovering" is just a bad word for this instance.
China: They're not nationalistic over this like Japanese fishing boats (believe me, apples and oranges). In fact, China has been shamed in the past and underplays this because they know their currency intervention IS causing a big balance of trade issue. If anything, they're the Cheshire Cat getting called out. Their bankers say things, but this is not widespread new in China. Fishing boats, 1 billion people knew.
"In plain terms, China has ALL the trump cards when it comes to global monetary/ economic issues."
Don't agree at ALL. If they did, they wouldn't feel so trapped. The fact is, they're actually trapped to some degree. That's not the position of a stronger monetary party. They've got strength, I admit, but not all the cards.
"Which is why Bernanke’s decision to blame China for everything is NOT a good idea."
It might be the ONLY and BEST short term idea they have to re-cap banks on the RMB arbitrage on all the U.S. capital in China and get some more excess cap on the return into our assets. It's a slime ball pro-bank move without a US consumer in mind, no doubt, but from the perspective of the banks, it's perhaps their best move.
Bottom line, China is the least of our worries of the Three picks, IMHO.
My biggest worry is that the banks (not America, the banks) succeed and get their way with China. That could put them in the driver's seat vis-a-vis the American people for decades more. The banks will gain X's 10 and the people might lose more ground. If I thought China was the prime reason ben was buying treasuries, I'd oppose it thoroughly.
The inflation we see here is primarily reflected from China. dd is correct that this inflation is hitting China harder than us. This is beginning to look like the bernank's underlying strategy; to force China to either accept our inflation or to unpeg the Renminbi. If China wants to peg their currency to the reserve currency, they can accept the inflation that goes along with it. If not, they can unpeg, which BB et al have repeatedly stated as a desired objective. Either means achieves the bernank's goal.
Why would they want China to unpeg? If it happens, the Renminbi becomes more valuable and we simply send a shitpile more dollars to China for the crap they manufacture. It doesn't do a thing to improve our current account deficit. The fed now owns more US debt than China and has a standing bid for 3/4 of the US debt China does own, so it can't be about paying that debt back in cheaper dollars.
Not only will the US be paying China a shitpile more dollars for manufactured goods, but Europe will be paying more Euros, London more pounds, everyone according to his fiat.
As has been noted here many times, the only way to keep the fiat system alive is the multiplication of debt. If China doesn't cooperate, the ponzi stops here. The traditional 'developed world' is saturated. China is at the 'no balls, no blue chips' stage of the poker game. If they want, they can crash the system and create their own right now. However, bet on the fact that there have been banksters whispering sweet nothings in their ear for years. How many poker players have been distracted by some whore making promises?
"Not only will the US be paying China a shitpile more dollars for manufactured goods, but Europe will be paying more Euros, London more pounds, everyone according to his fiat."
With this input into our economy (and other emerging economies), what results are produced? Do other emerging market (besides China) now become competitive? Will the end result really be a "large" ("shitpile more dollars") spent by the US for manufactured goods, or might their be a shifting of were the goods are produced (other emerging economies) and slight increase in the cost?
But even if the results you state are realized "shitpile more dollars for manufactured goods", wouldn't that stimulate"homegrown" manufacturing production, ie. our manufacturing becomes more competitive? The "cloaked" Chinese government industrial subsidies are marginalized.
We have the "raw" ability (engineering talent, research, labor poll etc) to recreate our manufacturing base, however the financial incentives have to be present. Consider the forces and the resources the US had in play during WW II, when most of the "prosperous" US manufacturing base was constructed (note the decrease in the level of "consumer consumption" that occurred in that time frame). The question that follows is, do we still have those "tools" today?
Perhaps, but we need to "reset our values and focus"... the financial machination of Wall Street are NOT what makes our economy prosperous, ie. create real wealth, it is the industries in our economy that efficiently produce real goods and products.
We have the talent in the US to do that, we just need to create a global "level playing" field. The establishment of a "global min. living wage standard" with significant tariffs, on goods that are produced in economies/countries that don't meet those standards, might go a long way to address this. While your at it you may want to consider throwing in some environmental tariffs for the goods produced that do not implement generally accepted and practiced industrial environmental BACT (best available current/control tech.) etc, we have exported alot of our dirty industry, like rare earth mining etc, due to the cost of implementing environment standards.
If that happens it will be only incidental to the objectives of Banana Ben's stockholders and, as such, probably short lived. Those stockholders are solely focused on survival at this point. If this strategy is successful, they will immediately revert to their traditional focus of self-enrichment.
Greenspan and the White House basement leverage-lifters made the most dangerous bets of all.
Needs to be repeated.
For some reason, the Ben-Ben-Ben-Ben talk needs context: how we got here. And a reminder: The same fuckers that got us here are RIGHT NOW fighting the Bernank over ONE thing (T-buys, not asset buys) and the BAD GUYS are making more ABA offerings via legislation.
We need to pay at least HALF as much attention to them.
Then, everyone needs to square themselves with the idea that the ABA ENEMY that got us here is fighting Ben. Why, etc, etc.. You may draw a different conclusion than me, but everyone should ask WHY and be OPEN to alternative theory.
I don't agree with this: "However, the Fed’s previous moves were all made when 1) the world financial system was teetering on the brink of collapse."
The Paulson Fraud has been proven by MIT economists and documented, again, by David Stockman just today and many others. Don't repeat the propaganda. Don't let it sink in the culture. It was not on the brink then or was no MORE on the brink then than now. They shifted private debt PUBLIC, that's it. The shifted risk. Nothing was on the brink MORE THEN THAN NOW.
Lets stop with this "they own treasuries and may sell them kind of shit. The Bernank will just buy them and hand over even more cash. QE3 solved. From what I understand he would welcome the excuse and export even more inflation kindling to whomever he would buy them from. China is a paper tiger.
The chinese spent decades in the international dog house. During that time they developed a very truculent approach to perceived threats and slights; they pushed their hand to the limit. And nobody really cared. Thiry years on the Chinese are becoming very powerful, yet still take a kind loud, sledgehammer approach to the inevitable shoving that goes on between super powers. They have not always wielded their new power gracefully.
The USA is still the most powerful country in the world, and should not cower before anybody, no matter how many tons of rare earths they have. The chinese are playing chicken with the country that beat the Japanese and the Germans on opposite sides of the world at the same time. They may think we've gone soft in in the head and in resolve. I think they are due for a lesson in hard ball.
The US still controls the reserve currency of the world, the dollar. This is a double edged sword, and cuts both ways. The global economy runs on dollars, and to maintain this status we must flood the internation markets with dollars to keep adequate supplies of liquidity. The only way you can do this is to be a net debtor. This is seriously inflationary, although it does "export" that inflation to the people it is benefitting. One way to look at it is that there is a dollar funding nearly every international transaction. That's a lot of dollars, most of which the US doesn't need for itself.
Regardless of how you feel about globalization, we have been provider of the credit created money that made it happen. The chinese are a major beneficiary of all that liquidity, which operated like a loan that allowed developing economies (like China's) to get on their feet.
Of course, this is unsustainable; the USA cannot fund the liquidity of the world forever. The reserve status of the dollar must give way so we don't print ourselves into oblivion, which is obviously happening right now.
However, The Yuan is NOT ready to replace the dollar. The idea that a currency that doesn't even float could become the new reserve is ridiculous. They can only consume about 1/20th of what they produce, so they need to export or die. The creator of the reserve currency must, by definition, be a net debtor, and the bigger the better. Once the Chinese understand that (they probably already do), they wouldn't want the Yuan anywhere near reserve status, they could not withstand the inflation, exported or not. The Chinese have taken a very selfish and small minded posture, keeping as much profit for themselves as possible. They have not "grown up" and become a mature responsible members of the international financial world.
Don't get me wrong I have tremendous respect and admiration for what the Chinese have accomplished in an incredibly short period, but they seem reluctant to go from small mercantilist economy to one of the benevolent patriarchs in the global power play. The wealth a country receives from the world may be theirs, but they didn't create it.
I remember when the Japanese were so wealthy, they were going to buy the world. Rent Black Rain and Rising Sun again if you've forgotten. To me China looks like a replay of Japan's ascendency in the 1970s and 1980s. They have the same aging demographic that Japan had, they made a fortune manufacturing everything. The Japanese made better cars than we could, and eventually put GM out of business. We survived.
And our reaction to China is equally paranoid and xenophobic as it was to Japan. China is blowing a world class construction and real estate bubble, that must collapse on them just like ours did on us, and Japan's did on them. Their mistakes are not the same as ours, we sold houses to people who couldn't afford them, then sold the toxic mortgage several times over. The chinese build cities no one lives in. They over build to satisfy perverse political incentives, we over built to satisfy perverse financial incentives. The third act ends the same way.
Now, I'm no fan of The Bernank, but the other side of this argument gets way too much attention. The situation is, as always, vastly more complex. Already Bernanke's strategy is causing serious inflation in China. And he's not done. As the dollar goes down, the inflationary effect is felt much more strongly in China than here. He's deliberately pushing them to the brink, to force them to behave responsibly, like super power they have become.
If the world abandons the dollar in a panic driven flight to hard assets and commodities. it will create hyper-inflation in every currency. Nobody benefits from that. The Chinese have no incentive to make their 2.5 Trillion of dollar reserves worthless. Consider that the Chinese are scurrying around the global trying to lock up future oil production. We have been doing that for 70 years. The Saudis have been trading oil futures (to us) for gold futures for decades. We have ALREADY locked up huge amounts of future oil production. The Chinese are just trying to catch up.
The US is making some really serious mistakes, but we always have. We blunder our way to success, mostly because we just keep trying. My point here is that this is becoming a game of very hard ball, and we still hold plenty of cards. That story, right or wrong, doesn't get told.
"Don't get me wrong I have tremendous respect and admiration for what the Chinese have accomplished in an incredibly short period, but they seem reluctant to go from small mercantilist economy to one of the benevolent patriarchs in the global power play."
Intellectual property/technology theft + slave wages + trade barriers + currency manipulation = probable business success. Big surprise.
And where in the world is there a "benevolent patriarch" nation? No, the Chinese are mercantalists and that's all they'll ever be.
blank
Excellent post, and to the "junker" learn to read. I see the same issues that you articulate so very well here. I do not believe for one minute though that the flooding of the world with dollars is a good thing for our country long term as it devalues ALL of our assets eventually if those assets are bought by dollars. There is already "inflation" just not by the metrics most economists use, it is commodity inflation which eventually gets into those "metrics" that economists use in about 3-6 months. Corn, cotton, PMs, OJ, anything shipped (oil) all going up.
I do like that part, and we "blunder along" because we employ and appoint mental lightweights to steer the economy and most are purely "academic" and almost all have NO experience, unless of course the people that used to work at Goldman Sucks. Those only have experience in corruption, stealing, and lying, and how to cover shit up in balance sheets, putting securities that suck together and selling them to suckers, then shorting the hell out of them.
Before America gets better, there will be a syem wide "purge" of the "frat boys" controling business and goobermint. These assholes have to go, otherwise the "best and brightest" are not allowed to participate, and that is where "innovation" really comes from.
I do not see "innovation" when I look at Blankfiend, Mizilo, Gietner, or Bernake, I see "Frat boys" that have lived protected lives in a bubble, and have no clue about "real life", and their only point of reference is "what they learned in college".
The "purge" will either be business initiated, or citizen initiated. The latter will be bloody, the former will be painful as the Coprs have to start realizing they cannot collect bonuses 200x the employees pay rate that make the widgets. The CEOs, and BODs need cleaned out of the corruption and inside deals.
we need a "purge" and those are never fun.
"The chinese are playing chicken with the country that beat the Japanese and the Germans on opposite sides of the world at the same time."
Beat the Germans all by ourselves. I think the Russians fighting on the Eastern Front might disagree.
You left out the Canadians and the British on purpose or are you just ignorant?
EDIT: reply to ddtuttle.
And the French. Don't forgetthe French. First ones to march neath the Arc de Triumph en Gay Pariee. Means something.
Bad form "junker", I would have been interested in reading a well articulated dissent to the points in the above post!!!
It sounds like Graham is afraid he won't be able to get some fresh Chinese poontang on his next trip.
China and the USA are going to clash. It's meant to be. The sooner it happens, the better for all of us.
Correct me if I'm wrong but wasn't the same said about the US/USSR? I'd really prefer not to see WW3 especially if the nation I'm in is set to be the aggressor that gets the ball rolling. Surely the breakup of the Soviet Union was preferable to WW3?
Preferable, yes, but I think the government would kill us all before it would let us go.
I don't disagree. A sad state of affairs when we think our government will be even more ruthless when it comes to clinging to power then the Soviets were.
china and the usa are controlled by the same banksters who controlled nazi germany and the usa....now the 4th reich has emerged in the usa we can see the aunchloss between china and the usa...
Ben may be close to a disaster, but he is not going down without dragging the chinese along, and unfortunately for the US of A, too many chest-beaters among the sheeple will follow him. The banksters will be behind him, they are on the same boat, and so would much of the mass media, notably the NYT, WSJ, CNBC, Wapo, FT and The Economist. Ben also knows the support he has among the academia and politicians paid for by the banksters, and he will probably succeed at rallying public and political support to divert attention, regardles of the true cost of QE and a war (whatever form it takes) with china.
To doubters out there, most americans supported the wars in Iraq and Afghanistan when Powell went to the United Nation to tell his pack of lies. Today Powell is still well-regarded by most americans. Iraq and Afghanistan is fait-accompli.
So, your theory is the Jews that stole the money can use their media outlets to con enough poor southern christians to fight their battles again ?. If they cut the CEOs that lean right, in for a slice of the profits, I suppose it's possible... Wicked evil shit though. Better pull the plug on Pat Buchanon first. He knows too much.
If i were China, seeing the USA on the precipice of failure i would help it fall.
It may even be tempting to invade with self righteous anger to save the american people from their criminal government.
And then occupy the country, all with the UNs blessing and financed by Rothchild via goldman sachs. my imagination runs ahead of my good sense.