Elaine Meinel Supkis
It is official: the stupid Japanese Carry Trade is again, pumping endless Funny Money™ back into global monetary markets. This is fueling global inflation. The US is happy because this means super-cheap lending and the Fed will drop rates to 2% even as truckers mob Washington, DC, howling with rage over the high cost of diesel fuel. China and Russia are raising interest rates and blocking the flow of this toxic money. But the US is welcoming this poison with open arms. Stocks are going up! We will be richer! Only we are cowboys who are being turned into cows being herded into cattle cars, destined for dismemberment. Time to understand today's headlines. The status quo is back and will kill us.
Here are two important headlines: Euro Rises Against U.S. Dollar, Snaps Three Days of Declines , Mars, With Buffett, to Buy Wrigley for $23 Billion and Dollar Trades Near 2-Month High Against Yen Before Fed Meeting Way back last summer I noted that the sudden and not so mysterious crash in global liquidity had absolutely nothing to do with the fact that a bunch of US homeowners were unable to pay back recent loans that were less than a year old. I even said, 'Everyone knew that 12% of the loans due would crash. This can't be why GLOBAL banks collapsed so suddenly after 7/17/7.'
For the break from 'Making lots of loans to every pirate on earth' to 'Oh no! Liquidity has VANISHED!' was day and night. It was a knife cutting off lending with a crash! Many of us bears were waiting for the Basel II Accords to kick in and revalue declining ABX He and other 'instruments.' But this was in the future. The sudden end to the wild bull stock markets and easy Funny Money™ lending coincided with only one major economic event: the sudden cessation of the Japanese Carry Trade! I correctly called this one. This end was very sudden and catastrophic because of a meeting the G7 had. This meeting featured Japan, the country with the planet's lowest interest rates, one of the top manufacturing powers on earth, egged the other G7 nations into attacking China, demanding China revalue their own currency to balance world trade.
China rightfully said, 'Japan has to do the same.' Japan refused. So China declared a brief currency war with Japan. Instantly, Iran demanded all their oil be paid in yen, not dollars. This surprised everyone but me. I expected this. Soon, other nations doing business with Japan demanded the same. The yen suddenly began to climb against the dollar. The bankers howled with rage. I rightfully pointed out that the source of nearly all global money creation was in JAPAN, not the US and was NOT due to the US trade deficit but due to Japan's FAKE interest rate!
This is very simple: all commodities in the last 3 years have been rising rapidly and are now in hyperinflation due to Japan being able, up until January, to hide this inflation from Japan through the cruel and crude method of squeezing wages of the workers. No matter how fast oil rose vis a vis the yen and it is worse than in America, this didn't show up in the statistics for 'inflation' due to Japan pulling the same ugly trick the US government pulls: neither nation counts food or fuel in ANY inflation statistics! So long as 'inflation' is confined to manufactured products, all is well so long as worker's wages sop up all inflation. This kills the working class, of course. But rulers throughout history have tried this. Killing off the peasants, starving the workers, enslaving populations has always been a nifty way to get rich. But it is also amoral, evil and cruel.
Well, China and Japan have been in intense negotiations ever since China broke the Japan Carry Trade. No matter how low the interest rates, if the yen is rising, the carry trade declines. Japan is anxious to have that stupid carry trade status quo because it increases Japanese profits vis a vis the US. China could not allow Japan to grow too strong via bleeding the US dry of all manufacturing jobs or by colonizing the US south and using the pro-slavery states as Japanese quasi-slaves. Oh, by the way, who won WWII? HAHAHA. Gads. Germany is doing the same only with a very, very strong currency!
Well, Japan and China have an 'understanding' now. Hu visited Japan and got his deal. He went home just last week. And now here comes the old status quo back only the yuan is getting stronger and stronger and the yen, weaker and weaker. The Chinese are now going to Japan to buy stuff. China is allowing this because they are now industrialized on the lower levels. They are now concentrating on what we did in the 19th century: manufacturing for CHINA! This is a HUGE global change! They are building cities and manufacturing cars...FOR CHINA! Japan's car market is collapsing due to the dying Japanese worker losing the ability to buy anything except food and a tiny hovel to live in. The Chinese made it clear to me long ago, they admired the US for what we created 100 years earlier and they wanted that, not to be a major export country like Japan, doing this by making Americans comfortable while enslaving the Chinese. They knew that they had to go through the bad stuff to gain the Holy Grail: the Old USA model for self-improvement and industrialization.
We Americans forget that WE are a market. And we should service our own markets and only when there is room for imports, allow these. Instead, we moved offshore, all our industries! And then after we went deep into debt, it moves back in but under the control of alien powers. This is stupid. The Chinese know this and do NOT want this.
So the carry trade is back! This is terrible news for the US. It means even more debt will pour like a poison fountain out of Japan. China has made a deal whereby this does NOT flow to China. The Chinese know that the Japanese are moving their own factories out to China due to inflation in Japan. So they have grim satisfaction that they are on track to rule the planet.
As farmers confront mounting costs and riots erupt from Haiti to Egypt over food, Garry Niemeyer is paying the price for Wall Street's speculation in grain markets.
Commodity-index funds control a record 4.51 billion bushels of corn, wheat and soybeans through Chicago Board of Trade futures, equal to half the amount held in U.S. silos on March 1. The holdings jumped 29 percent in the past year as investors bought grain contracts seeking better returns than stocks or bonds. The buying sent crop prices and volatility to records and boosted the cost for growers and processors to manage risk.
Hedge funds and investment banks are swapping their Gucci for gumboots as they bet on rising food prices by buying farms.
Billions of dollars are flowing into farmland across the world as investors gorge themselves on vast tracts of Australia, South America and eastern Europe.
"Sell banks, buy cheese," Crispin Odey, manager of London-based hedge fund Odey Asset Management who has started investing in farming companies, said recently.
Here is why we are seeing a sudden upsurge in commodity prices! Gold has, as I warned all the gold bugs, collapsed and is no longer rising much, it bounces back and forth for the time being, while all the Japanese carry trade money flows to commodities. This is enriching the nations producing oil and food as well as mineral wealth. The US government is quite happy with this. After all, none of this shows up in inflation statistics just like in Japan! So we get cheap loans here and can run merrily in the red while the workers sop up all inflation! Whoopee. Only this is killing the US as a market. We soon will be unable to sell to each other if we have no one with any money to buy anything but food and fuel.
The DC trucker demonstration barely made a blip in the news media stream of propaganda. In the past, if truckers demonstrated, the media lapped it up. But today, since the media owners are nearly uniformly pro-free trade, it makes nearly no news and the dreaded Cone of Silence descends upon this news.
The pirates are going to Japan to get loans so they can plop this ugly red ink onto commodities. They will bid up the necessities of life until the hour the US and Europe move against Japan and shut down the stupid carry trade for good or we have global insurrections and revolutions. Since most of our Roman-imperial Senators and quite a few Representatives all make loot working with or being pirates or are in the pay of pirates, they won't stop this horror. They will rely on the Praetorian Guards to do the dirty work.
I also explained the carry trade is a technique based on flimsy and flawed assumptions about the future. And that future changed tremendously in July 2007. In short, the real world of irrational and flawed expectations changed the game dramatically for the carry trade.
Fast forward to 2007 and look at the Japanese yen carry trade. At the end of 2006, analysts estimated hedge funds and other money managers were borrowing at least US$1 trillion in yen. And this doesn't include the many hundreds of billions of dollars domestic Japanese institutions and retail investors sent offshore for better yield.
Plus, money managers use a lot more leverage now than they did in the1990's.
This is a good read for people who don't understand the finances of international FX markets and the odious Japanese carry trade. But he is wrong about the yen leaping upwards. Japan has made a SECRET deal with China. They, of course, will let us know what this is via the method of us watching our economy collapse under a huge mountain of debt while they pretend to have no idea why this is happening. The US loves cheap debt. We want 0% financing. We can't save a penny and are so far in the red, our equity as well as savings have vanished. This dire situation would fix itself via a small depression like it has throughout history. Only this is being put off to the dim future. Then it will 'reset' via the hideous mechanism of 'total bankrutpcy/utter slavery' method. History is very clear about this. If we let the Japanese put us into such deep debt, we can't escape it except via total collapse, this is TREASON.
Our nation should quit the G7 and go alone. Or better, join China. Then the world's two biggest powers can cooperate in putting down the Japanese carry trade. But instead, we side with Japan. With fatal results. Let's look at more news from last night:
``This is a step in the right direction,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone today. ``Rates must correspond to the state of the economy, mainly inflation.''
The central bank lifted rates by a quarter of a percentage point on Feb. 4 to damp consumer-price growth. Inflation accelerated to an annual 13.3 percent in March, the fastest pace in more than 2 1/2 years, led by food costs.
All the major producing nations are raising interest rates or cutting ties to the dollar. They must do this due to the absolute flood of red ink from the Bank of Japan. These are defensive moves. The red ink is generated by Japan, it flows to England and the US and the pirate coves. It then is used to buy imports for the US/UK empire. The exporting nations then suffer from inflation...EXCEPT FOR JAPAN. An important exception. This allows Japan to keep this flood of red ink going. The other nations have decided to allow this since everyone and I do mean EVERYONE has a trade surplus with the US. The US should shut down this trade via tariffs but we will not. So we die.
``It's crucial that the Governing Council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term,'' Trichet said at a conference in Vienna today. The bank's current policy stance ``will contribute to achieving our objective,'' he said.
The ECB has held its key rate at a six-year high of 4 percent to contain inflation, which accelerated to 3.6 percent last month, the fastest pace in 16 years. That's helped drive the euro to a record against the dollar, threatening to deepen Europe's economic slowdown and leading to calls from some governments for the ECB to take more account of growth.
Like Russia and all the producer nations, Europe is NOT dropping interest rates and encouraging red ink spending. They are enforcing savings! Another warning to the US that our policies are terrible and dangerous. Europe also has VAT: value added taxes. The US has a very variable and small sales tax base that is purely local. The VAT prevents wild imports. Europe is a PRODUCER entity, the US is a CONSUMER economy. Note who is in decline!
Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a federal deficit that is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.
The Japanese, who own $586.6 billion, or 12 percent of U.S. government debt, had their worst quarter in Treasuries this decade, losing 7 percent in the first three months of the year as the dollar fell to the lowest since 1995 versus the yen, Merrill Lynch & Co. indexes show. Dai-ichi Mutual Life Insurance Co., Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co., three of the nation's four-biggest insurers, would rather accept the world's lowest bond yields in Japan than buy U.S. debt.
Japan owns more Treasuries than any other nation. After raising their holdings by $9.2 billion to $620.6 billion between March and July 2007, Japanese investors trimmed that stake by $34 billion through February, the Treasury said April 15.
America relies on foreign investors, who own more than half the U.S. government debt outstanding, to finance a deficit that New York-based Goldman Sachs Group Inc. predicts will expand to a record $500 billion for the year ending Sept. 30, after a $163 billion gap last year.
I noted last summer with a shock, that Japan was SELLING US bonds, not buying. This was and is a huge change. So they are flooding us with Funny Money™ while NOT buying up the debts our government is generating. Yet we continue to patrol Japan's borders and give them power to wield when negotiating with China over who controls Asia, Japan or China. We gain NOTHING from this except more debts due to excessive Pentagon spending. And meanwhile, the US can't even peddle our bonds in Japan anymore. We better figure out who is buying our bonds. For we are seeing a huge tax deficit this year due to the give aways that are making every consumer very happy. Those $1600+ bonus checks are EXPENSIVE. And who, who, who is buying these debts???? A good question. I can't wait to see. Grrr.
After an unprecedented three-month period of fastbreak policy easing and credit market intervention — when the Fed threw half-point and even three-quarter-percentage-point cuts in the fed funds rate at the economy and markets — the cycle appears to be reaching an end. In what must be a pleasant surprise to Bernanke and his FOMC colleagues, Wall Street seems OK with that.
The Federal Open Market Committee is widely expected on Wednesday to reduce the target fed funds rate at which banks lend money to each other, but by only 0.25 percentage point to 2%. Officials have already lowered fed funds by three percentage points since September, including two percentage points over a two-month period between January and March alone.
The economy has more or less performed according to script. Though the first quarter may be a bit better than first feared, that appears to be coming at the expense of a slower recovery later in 2008.
The economy's script: 'Let's continue to go deeper into debt, let's increase our consumer spending and kill savings even more and THIS will fix our collapsed banking system!' This script ends with this scene: 'Oh my god! We are bankrupt! We are slaves! We don't rule the earth, foreigners rule US!' The differential between real inflation and the fake interest rates set by our private bankers is a yawning gap now. The pain is spreading. The people slated to die for this are the entire US workforce. One by one, they will be eliminated as 'consumers' and moved over to the 'consumed' side of the ledger. Namely, we will turn from being cowboys to becoming cattle herded into the stockyards.
On his Economist’s View blog, Mark Thoma talks about the possibility of the Fed’s power fading if technology allows prices to become more flexible. “I wonder if monetary policy will slowly run out of rigidities to exploit as, one by one, agents who have been hurt by price rigidities use technology or other means to overcome them (and this is also true for other types of market imperfections, e.g. incomplete information). Should we worry that monetary policy may lose effectiveness over time? Not if our models are correct. In fact, this would be desirable. If all prices are perfectly flexible, markets will behave optimally on their own and there would be no need for the Fed to intervene to stabilize the economy.
This is all hogwash. The Fed is losing power to the BANK OF JAPAN. The Fed can't do anything if the Bank of Japan ignores real inflation. Indeed, the entire G7 system is collapsing because both the US and Japan are ignoring real inflation! And the banking system isn't overtaking the Fed, it is COLLAPSING. The banking system based on pirate coves moving Japanese lending around the globe have taken over traditional banking. This is why we must use our Navy to invade these tiny pirate coves and SHUT THEM DOWN. Period. We cannot allow them to flourish. They are destroying our own banking system. The reason this continues is simple: the US has become addicted to easy lending via this method. It fuels our stock market bubbles even more than the Fed fuels them. It fuels the 'consumer economy' in the US and allows us to import huge amounts of foreign goods. It started a tiny bit in 1974 but didn't pick up steam until the Japanese Carry Trade roared into action after the 1998 Asian Currency Crisis.
It is obvious from all the charts. Whether they be 'global money supply growth' or 'US trade deficit statistics' or 'US government overspending': everything takes off steeply after 1998. And so we must accurately figure out what is wrong. And the mass celebration of the restart of the Japanese Carry Trade means that NO ONE IN POWER wants to stop this. They view this as a gravy train, not a cattle car to hell.