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Why China Is Dumping The Dollar - And Why You Should Read Up on the Weimar Republic
As ZH posted today, China is systematically dumping the dollar (and beginning to set up other agreements). CNBC assures everyone, however, that things are fine. Don't read those anonymous financial blogs.
China has a long way to go in turning itself into more of a consumption based economy, so the dumping of USD has to be rather gradual (as to not rock the boat too much, the U.S. still needs to be supplied the funds to purchase Chinese goods, and also most trades are settled in USD for now), but it is happening.
One major reason for this action by China is due to the fact that the United States Government has loaded up on so much debt that it's not possibly sustainable - and the Federal Reserve knows that unless they want to see the house of cards the Keynesians have built come crashing down, they have no choice but to completely monetize the debt. As the dollar continues to be devalued (more in a second), the more yuan China has to print in order to buy dollars to keep their fx target. So not only is China on the hook to pay higher commodity prices (priced in dollars), they're stuck with creating more domestic inflation as well - which is something they don't have time to deal with at the moment, as their housing market is on the verge of collapsing.
Today ZH also pointed out that Greece has 107 Billion Euro in hidden liabilities that oops, they forgot to disclose to anyone. Which made me think, hey, how about the unfunded & if not hidden, largely swept under the rug liabilities the United States has.
Alas, the Treasury doesn't use GAAP accounting when they put out their debt figures, they use cash accounting. This means that all of the social programs we have in place (medicare, pensions, social security, etc) are left out of the debt calculation. China is not stupid, they realize that not only are we going to be 100% of GDP soon on our reported debt, we're going to be well over 100% of GDP on total debt if we are being honest & including our unfunded liabilities. Over $80 Trillion in debt, or over 500% of GDP, accordng to Shadow Stats John Williams.
Here is a chart showing our Gross Debt to GDP, along with Total Debt to GDP if we were being honest (via John Williams, Shadow Stats)
That's pretty isn't it? So what options does that leave the Federal Reserve if they want to continue the global ponzi? You guessed it, monetize the debt, all of it. And as the Fed buys over 100% of the net treasury offerings, the Dollar begins to lose even more purchasing power. This is what puts China in a tough spot, for reasons mentioned above.
And Yes, Monetize the Fed Will:
So, as you can see this is the house of cards we're dealing with right now. China is not being fooled, and they will inevitably leave the dollar behind at some point in the future. Which means less buyers for US Debt, which means more money printing by the fed, and dollar devaluation - you see where we're going here. As this cycle picks up steam, we can expect more inflation than we're already seeing (be it "core" calculated by the Government, or "real" calculated by Shadow Stats).
Here is a nice chart showing how happy we can be that the A. The Federal Reserve was put in place to facilitate this ponzi, and B. That we went off the Gold standard
Pretty soon we can start using money that looks like this -- I reserve the right to be the Battleship.
And finally, the Federal Reserve would like to let the Congress, and the American public know, that no matter what Zero Hedge says about them, they will "not monetize the debt"!
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the "money is a tool" is a quite common way of looking at currency like blood in an organism with focus on it's function of transmission instead of storage - it's seen as a flow only
this way of thinking is quite common in all countries that experience high inflation for longer times - for example China, Brazil, Russia, Turkey, etc., particularly because it's sensible and helpful to see it this way in those environments
for your understanding: in those countries people make a much, much sharper difference between currency for flow and gold or investments for value storage. they think less in terms of currency and more in terms of value - which is btw more straining than just asking for the currency price and expecting it to stay there forever
they might think people in the US are a bit confused about what money is and isn't - because of the global reserve currency status, little exposure to FX in daily life, critical world prices politically adjusted to fit US views and needs, the long no-gold-diet between 1934-1974, the gold bubble of 1980, etc. etc.
Definitely some good points. Most people in the US get a blank expression on their face when they are presented with exchange rates.
Tibet and Nepal immediately come to mind to refute the first assertion.
The Chinese simply buy the productive parts of the other countries, leaving the slavery and corruption in place for the protection of their investments.
Hmmmmm.... I WONDER what nation taught them THAT trick??????
eerily familiar - invading military, deposed heads of state, installed heads of state, corporate friendly state, dominated slave class.
rinse, repeat.
Fuck China.
That's all you have? a -1? Fuck you, China!
Yeah, China is dumping USD, buying gold, and telling their people to buy gold to protect themselves, and generally, acting rationally. Meanwhile, the USSA is trying to crash the US dollar and the monetary system on purpose so the NWO clowns can pull out the new global monetary system plans already sitting in a drawer at the UN/IMF.
The job of the media is to make things appear so muddled we are unable to see our own finger in front of our noses. And.... not working.
China does CTRL-P faster and better than anybody on the planet. Acting rationally... WTF is wrong with you. They are communist P.O.S. thugs, representing everything that 'real' American citizens despise about their own government. Fuck China, Fuck Obama, they are both the same fucking thing. Fucking every human's liberty right in the ass, taking it from you, printing you out, for gods sake just look at China's M2 and tell me that they are acting rationally.
It's kinda cute, the way you think you know what you are talking about.
100 million dead Chinese, murdered in the name of Communism, can't be wrong.
80/10/10. That's the mantra of Marx, Lenin, Mao, Ayers. 10 % will resist, no matter what. The only solution for them is a bullet to the back of the head.
Property rights are the fopundastion of all liberty. If your property is not safe from the Government,, then your life is in danger.
Do you need me to explain what this chart is?
http://i43.tinypic.com/2u9juh4.jpg
-1 = "I recognize that China prints more money than any other country on earth."
I wonder why he hasn't responded yet...
I'm quite astonished at how much abuse the American economy has been able to take. I thought it would have imploded by now.
Inertia.
The U.S. economy has a massive amount of stored energy from past productivity.
The damages are accumulating rapidly, and the rate is accelerating.
The howler monkeys and termites are hard at work, and we're living through the result.
In an interwove complex economy there's a lot of inertia in economic activity because each business, job and product is reliant on thousands of other businesses, jobs and products continuing to occur, thus mutually supporting the continuance of the established trends. That inertia will not end rapidly, or at least not according to an expected time-table or trajectory. If the economy has not done what we might logically have expected it to have done, this just reveals that we don't understand the economy.
If you look at US bank failures from about 1920 to 1934 it's very clear that the credit system's sickness and corruption and progressive banking system failure and its economic effect, took about 15 years to materialise. The cumulative economic damage had been inflicted much earlier than it's arrival in 1933.
This same sort of time-line occurred with the >10 year duration of the 1980's 'S&L Crisis'. It took a similar period to develop into a crescendo of bank collapses.
What I do know is we are in the biggest financial and money system collapse in history, and it may take 10 to 20 years for the bottom to be found, and for at least 20,000 banks to fail globally in that period. We are at the very beginning of that delevering collapse (sans unrepayable school loans). All that has happened is that the bubble is being partially reinflated by money printing.
This last-ditch reinflation will fail, and then we'll finally start to see 1,000+ banks fail every quarter for about five years straight, globally. With probably 5,000 banks failing in the final quarter.
Then and only then will the 'global' economy encounter the deepest depths of a global depression.
THEN THE ECONOMY WILL RECOVER SPECTACULARLY RAPIDLY, FROM A MUCH LOWER BASE, AS ALL THE SMOOTHERING WEIGHT OF BAD DEBTS AND INSANE LEVELS OF INTEREST, DISAPPEARS, CREATING AN ENVIRONMENT IDEAL FOR REAL RETURNING INVESTMENTS TO OCCUR AND GAINFUL EMPLOYMENT TO RESUME.
Until bankers are completely cut adrift and prosecuted (and they will be), we will get an endless stream of Washington statistical happy-crappy, and further avoidence of an actual recovery being permitted to occur prior, as they attempt to prop the banks up, thus making their collapse all the worse.
Sorry, how can "reinflation" fail? The math doesn't add up...
Total World Debt < infinity
Power of Printing Press = infinity
I say printing press wins.
This is just a thought from what I have studied but I think it is right. Dilluting savings with inflation will always cause mal-investment. Take a look around you at the current uses of capital and tell me that is not happening. Compare to the industrial age in America when we had real wealth in circulation that could not be dilluted circulating as gold and silver coin. Wealth in circulation creates prosperity. You cannot have that again until you re-establish the public mints and assay offices and just coinage laws. That alone would solve our problems and put the wealth back into circulation.
Inflation will tend to pull capital away from productive people and give it to people who don't care about it or just concentrate wealth/capital it where it cannot be used.
http://avalon.law.yale.edu/18th_century/bank-tj.asp
The ultimate waste of capital is for Wars - not execpting things like the War on Drugs, War on Terror. Consider your trip through the airport now. Are those people really keeping you safe? (No offense to these people - as most of them are trying to do the right thing and take care of their families) Are those resources (human and otherwise) really being put to productive use? Capital is spent on things that have no real benefit to society. It takes the money power out of the hands of the people, (where it has the best chance to be used for it's highest, best and most creative use). It is spent on destructive or hindering purposes rather than constructive purposes. It will also tend to encourage people to seek out those activities. How many people will go to work for those operations thinking they are doing good for society? In a good monetary system, they might go out and start a farm, or a factory, or put their particular talent to a constructive rather than destructive use.
"For the love of money is the root of all evil."
http://www.fame.org/NotableQuotes.asp
That didn't work in 1923 Germany, nor 1933 USA, or anywhere else.
The banks go bust when their clients go bust.
Inflating the debt away will kill the reall economy, regardelss of what debasing does to stock speculation in the interim.
It's a phantom, no real economy or investment behind it.
Stocks are supposed to be about real returning investments in productive economic actions (i.e. old school buy and hold).
Thus the clients go bust as the economy withers.
Thus the banks go bust.
Then a run away recovery typically occurs (have a look a 1930s Germany and USA from 1934) once the bad debt is destroyed.
Bad debts written off is the cleanup phase of a deflationary cycle.
As you point out, this needs to happen, and is inevitable. Inflation is just the hiding of insolvency under the guise of borrowing.
Eventually the credit is tapped out and the illusion crumbles.
China is saying we've reached the end of our ability to borrow from them- not arbitrarily, but because China's lending habits to the US is beginning to have a negative impact on their own economy.
Of course the only option for the US is to then monetize, ie print.
But this shows hyperinflation to be the beginning stages of deflation.
If economics were the only factor involved, the forces of Kenyesianism could battle reality for a long time, fights and slowly losing the battle, ie the Long Descent.
But wars, in economic terms, are debt and credit brought to the physical realm- Soprano economics if you will. When Vinnie comes to break your legs because you're late on your vig, the Mob isn't getting its money back, it is bringing an atavistic human emotion into the realm of economics. From an economic standpoint, it doesn't help Don Corleone to break your legs- that means he'll never get the money back. So why does he do it? Because the Don instinctively knows that power is the trump. If he destroys you, he has the power, even if he is made poorer in the process. If he patiently waits until you can pay him back, he becomes the weaker party in the transaction, and THEN where would he be? What of all his "client" took note of this? What if, by waiting, you decide to arm yourself against him, so that he can't break your legs whenever he wants? These are the economic calculations of a mafia boss, and ultimately, they are the economic calculations of nations.
This is why the denouement of a deflationary cycle is war. In effect, the debt is literally DESTROYED, as in, the economic efflorescence of the credit, the buildings, lives, etc, is literllay bombed, and shot, and burned up. It doesn't help anyone, but somehow, it makes everyone feel better.
Somehow, I don't think we'll get to the hyperinflationary stage. I think in this case, that the madness, the desire to let it all burn, baby burn, will take hold well before the dollar has more than one zero on it.
Like it. And agree. The social distraction layer is necessary to hide that and make it acceptably 'civilised'. But the more barbaric and obvious it becomes, the more distracted we need to become, and the more extraordinary the blooms of shared hypo-crisies.
But if the distraction layer does not 'take', or if we are naturally resistant, or at least pig-headed enough to reject obvious lies and violent unpunished rip-offs ... we get zh.
It imploded in 2008.
What you see now is a headless chicken running the last few yards.
Problem is the chicken can run a lot further then just a couple of yards.
http://www.miketheheadlesschicken.org/story.php
That depends on your (ultra relativistic) frame of reference.
mmmm, all you can eat Chinese Buffet
edit: dumplings?
Keynesianism is not wrong one bit, in fact it's one of the few things that makes perfect sense. The problem is that what everyone is calling Keynesianism, is anything but.
Rules for how Keynesianism works.
1) When you are experiencing a boom - you save the excess revenue. Surplus is not a thing to be frittered away and eliminated.
2) When you are experiencing a bust - you take that savings and spend it, spend it and spend even more to ensure stability and come out of the cycle. Debt is not a bad thing if you are doing it right.
This is really all there is to it. However when the idiotic mentality of "everything must turn a profit" and "if it's turning a profit, it needs to be returned" breaks it entirely. Revenue surplus? GREAT, pay off that debt. Still got surplus? EVEN BETTER, hang onto it for a rainy day!
How is this so fucking hard to understand?
Its too bad we are humans. Not computers and models. Humans want things. We will use whatever power we have to get more and more of what we want. Keynesian theory completely ignores human psychology.
Can't tell if troll or just really stupid
Even Keynes admitted that governments would never raise taxes to extinguish the debt they had created from monetarization. He also recommended totalitarian rule to best implement his general theory.
What is hard to understand is why people continue to blabber this nonsense, as if it can exist outside of his whole general theory- which is a conceptual mess designed to encourage fractional reserve banking and governmental growth and debt.
Not defending Keynesian ecs, but the man himself was not w/o wisdom. Took one look at the 1919 Versailles Diktat and wrote a book coupla years later that said "nice going, idiots. You just made the next World War inevitable".
You're right. It's simple to understand. Here's where the Keynesian conflation of economics and policy fails:
Because Keynesians, in a boom, DO NOT say "save the excess...."
They say, "we're in the chips, lets spend it! (on ballet for the blind, professor pay increases,
ethanol plants, solar studies, electric cars, windmills, slug farms, etcetera).
Then, in a bust, they say "...you can't stop now! People will suffer! We must borrow."
Simple as pie.
I think the arguement would be that idle money provides no utility
For economics see:
www.mises.org
Keynesianism, on the other hand, is not economics, it is pseudo-science that justifies a political ideology, rather like eugenics. Keynes designed an "economics" to fit his politics, which were socialistic and banker-cock-sucking in nature. After the spectacular failure of Keynesianism in the 70s, not even Keynesians call themselves Keynesians - too embarassing.
not even Keynesians call themselves Keynesians - too embarassing.
I'd say that Obama would call himself a 'Keynesian' (but the's banker-cock-sucking in nature so it all makes sense)...
Google "Obama Man's Country"
I dare you.
Too close to Kenyan, we American citizens get confused easily.
He's only half Keynesian or was it Kenyan?
You're right...lol.
what a gopsucker you are. Never miss an opp. to give the gears to the other side of the same bad penny... lol!
Would you prefer me to begin lying like the Fabian coins you peddle?...which I'm seriously considering doing to those like you.
Please, do us all a favour
"If you must hold yourself up to your children as an object lesson, hold yourself up as a warning and not as an example." G.B. Shaw
"The best part of you ran down your momma's leg." - nmewn
uhnn.. because the central tenant of Keynsian economics is CENTRAL PLANNING?
Because its saying the GOVERNMENT should 'save' the surplus and that GOVERNMENT should SPEND the surplus.
There's never been a governemnt surplus. Don't kid yourself about the Clinton years, we still had a national debt, there was no surplus in absolute terms.
How about individuals being allowed to SAVE for a rainy day with money that doesn't depreciate?
The Fed's depreciating as fast as possible to make people spend money, to get the 'velocity' going. The stupidity of the situation si the keg is loaded so full of dynamic (reserves) that if velocity moves even a slight bit, even CPI and CPE will show 'inflation' (CPI alternate's already showing actual inflation).
"How is this so fucking hard to understand?"
Because it's just fucking 100% wrong?
You can be very sure and (still) very wrong.
"To be positive: to be mistaken at the top of one's voice."
Ambrose Bierce, The Devil's Dictionary
I see MdB replaced ratio with this abortive monicker...
leo..keynesian clap trap is not hard to understand .. just print until the total notional value of all derivitities equal 1 quadrillion dollars .
and the whole planet is set to explode into a debt bomb
and the leo r brain goes explode ... into a mass of monetary fiction
Neoliberal detected...
It took 236 years to make the US a colony again.