PANIC Part II: One Year Later

July 28, 2008

Elaine Meinel Supkis

Once again, the stock market slipped on a 239 point banana peel. We revisit this blog exactly a year ago and my, oh my, it was the exact same thing! Looks like the Japanese carry trade has been pulled out of the ditch and restarted. I don't think it will creak along much longer due to increasingly painful inflation in Japan. Japan's workers are being hammered even harder, incidentally. All the major US media is now intent on proving that it is China, not the warmongering US, that is causing high oil prices. HAHAHA. I don't see China menacing Iran Kitty! And Venezuela pulls our chain, sells oil for only $100 a barrel to Spain. I don't think the US public can figure out what is going on, thanks to all this wonderful propaganda churned out by our lovely media owners.

My blog, exactly one year ago: Pause In Panic, Counting Many Losses

I decided to make a chart of the data they had at Big Picture. What interests me most is that the world's #1 and #2 economy both have the poorest stock markets. Both have the weakest currencies. Both had beggared their own workforces to cut inflation. But also outsourced jobs like crazy to cut inflation. But within this little scheme are several exact opposites. Japan has the world's biggest profit margin from trade, for example. Japan also has the world's biggest US bond fund, double that of China who is #2. And Japan has the biggest automobile trade surplus with the US compared to all other nations.

The real puzzle is not that Japan's Nikkei is so bad but why they keep it deliberately bad for this can't be accidental. If Japan was doing really badly in global trade, etc, then it would be understandable! But this is not the case here. The US struggles with inflation while Japan enjoys the ravages of depression and the Bank of Japan does nothing to fix this even as the US and indeed, the entire world struggles with oil-induced inflation.

I made up that graph, myself. My, oh my! Look at that: the worst stock markets when it comes to percentage growth were the US and Japan! And it is obvious to me that both are using the cheap currency, cheap loans, crush the workers schemes that seem pretty anaemic. Far from being astounding economies, the #1 and #2 economies were both pretty pathetic. One very significant difference: Japan is the creditor nation for the US. The US is in debt to virtually every man, woman, child, dolphin, polar bear, koalas on this planet earth! Not to mention, the panda in China.

Japan has one of the planet's biggest trade surpluses. The US definitely, by far and away, has the world's mightiest trade deficits! This yin/yang duality is down the line. Everything Japan is, we ain't except for the 'suppress worker's wages, lie about inflation and lend far below even the fake official inflation rates' parts. Let's look at today's news in light of what I wrote a year ago:

Yen Cross Basics by Joseph Trevisani:

Three terms have resurfaced in the currency markets recently: carry trade, risk aversion and risk appetite. The euro/yen cross is once again popular. Have world economic and financial conditions so improved that this risk barometer is again an active trade?

A little more than a year ago, in June 2007, the American dollar was worth 124.00 yen. That month it began falling against the Japanese currency and by late March of this year it had landed at 96.00 yen --an astonishing 23% slide in ten months. Over a slightly later period, August 2007 to July this year, the dollar fell a comparable amount against the euro, dropping 20% in value from 1.3350 to 1.6037. But since then the yen and the euro have parted ways against the dollar.

On Friday, the dollar closed at 107.90 against the yen, a 43% recovery of the 124.00 – 96.00 decline. But against the united currency the dollar finished the week at 1.5700, a bare 13% recovery of its 1.3350 – 1.6037 decline. The difference is the euro/yen. This cross has erased the entire credit crisis inspired collapse when it sank from just over 169.10 to 149.26 in two months. On the 17th of this month it reached a new all time high at 169.96. The dollar has hardly improved versus the euro but it has surged against the yen. Is the euro/yen the biggest factor in the dollar’s return against the yen? The euro/dollar rate gets most of the media focus but for currency traders the cross has been where the action is.

The yen got weaker because, as I reported last year, Japan surrendered to China and after a flurry of top secret Bank of Japan and Bank of China presidents, a series of diplomatic initiatives were signed and suddenly, Japan went from barking along with the US at China over China's currency values and Japan and China began to work in tandem on many, many issues, large and small.

Indeed, the globe trotting duo, Hu and Wen had a huge visit to Tokyo and then Japan visited the Dragon Throne. And since those visits, a curious silence has fallen over Asia. Both China and Japan suddenly, and in tandem, resumed stockpiling dollars in the FOREX reserves after these visits and both are weakening their currencies against the dollar and boosting the euro. This is why the yen is collapsing against the dollar while the dollar is still bad off vis a vis the euro. There is no logical reason for this. It is purely Asian strategic moves in the Floating Currency Casino. They are playing with marked cards while the US is playing poker with a mirror behind our backs, reflecting our cards so the Asians can read them.

From Seeking Alpha:

The primary Japanese factor in the movement of the dollar yen, as the pair is called in the interbank market, has been the static nature of the Japanese economy and Japanese interest rates. For almost six years prior to mid-2006 the Bank of Japan had a zero rate policy. When the Bank of Japan finally raised rates to 0.25% in July 2006, the bank governors envisioned a slow return to a normal rate environment. But the persistence of deflation until last August, and the fear of the prior deflationary decade inhibited the BOJ’s ability to increase rates.
*snip*
The yen crosses can and do affect the trading rates of their components, the euro and the dollar, in ways which do not relate to the economic currents between the Eurozone and the United States.

Bullocks! This article by an 'expert' goes off the cliff like so many others! Japan has had the EXACT SAME INFLATION AS THE REST OF THE PLANET. I have crunched Bank of Japan's numbers and looked at their graphs and they show quite vividly, the thing that has been eating inflation is the Japanese workers! They have seen huge wage reductions coupled with the government allowing Toyota to not pay for overtime...AT ALL! But to force workers to do 'inspections' above and beyond working hours. Free overtime for Toyota!

Indeed, literally working people to death. Not only have wages utterly collapsed there, working conditions are dire, it is more like China than say, Germany or France. The number of full-employed has fallen like a rock. Part timers are used, instead. This keeps wages very low, too. More people are now part time workers than full time in modern Japan. A significant loss of working class powers.

Toyota to raise prices in Japan

Toyota Motor Corp. plans to raise domestic prices for some models by 1 to 3 percent to cope with the sharp rise in prices of materials, including steel, sources said.

The models subject to the price increases will likely be midsized passenger cars or larger vehicles that are currently selling well, they said.
*snip*
If Toyota raises prices, other automakers will likely follow suit.

Toyota could keep prices low in Japan thanks to ....super-cheap 0.5% lending by the Bank of Japan! And even with this and working people without pay, Toyota's bottom line is suffering because of the downturn in auto sales in the US. So here is yet more obvious inflation in Japan! But does this stop the Bank of Japan?

No. Not any more than the budget and trade deficits coupled with rising, even hyperinflation bothers Bernanke. 2% or lower! Full speed ahead, damn the icebergs.

Ministry urges labor policy shift

Corporate efforts to cut labor costs by reducing the number of regular employees and hiring more part-time and dispatch workers are actually stifling productivity and hampering economic growth, a government report said Tuesday.

In its annual white paper on labor and the economy, the Ministry of Health, Labor and Welfare suggested that companies return to Japanese-style, long-term employment with an emphasis on nurturing their work forces and raising the added value per employee.

The ministry called on companies to devise well-planned strategies to hire new graduates and train personnel from a long-term vision.

This tid bit is from today's Asahi Shimubun in Japan:

Japan Jobless Rate Rises to 4.1%, Highest Since 2006

(Bloomberg) -- Japan's unemployment rate rose to the highest in almost two years in June and household spending fell, adding to signs that the economy's longest postwar expansion may be coming to an end.

The jobless rate climbed to 4.1 percent, the statistics bureau said today in Tokyo. Economists estimated the rate to stay at 4 percent. Household spending declined 1.8 percent from a year earlier, the fourth monthly drop, the bureau said.

Corporate sentiment is at a four-year low as higher energy prices and the U.S. slowdown prompt companies to pare hiring plans and forego wage increases. Inflation at a 10-year high is discouraging consumers from spending and weighing on an economy that probably shrank last quarter.

The misery in Japan is astonishing. And totally ignored by the government. Note the 'inflation is at a 10 year high' part! No wage increases plus rising inflation=death. And suicides, murders and abortions are all rising rapidly. This is very cruel. Note also the 'longest post-WWII expansion' is ending. Hey, we were told in the US media, Japan has been in this depression, not a massive, fast-growing economy!

Their stock markets didn't soar. Nor did their housing markets. But their MANUFACTURING took off like a rocket! And this is significant because as Japan's manufacturing took off, ours died. Now, ours is totally dying, fast.

Asian Nixonomics May Spell Subsidy-Driven Stagflation

(Bloomberg) -- Asian governments from India to Malaysia, clinging to budget-busting fuel subsidies, may end up paying an even higher price: saddling their economies with an extended period of stagflation.

``Subsidies will come increasingly in the way of future growth,'' says Kalpana Kochhar, a senior adviser for the International Monetary Fund's Asia-Pacific Department in Washington. ``Not passing prices through and keeping artificial price and wage controls never works.''

Governments are being forced to choose between two unattractive alternatives: run up bigger deficits by continuing to shield citizens from soaring energy prices, or start to withdraw subsidies, fueling inflation and political backlash. Inflation has already reached decade highs throughout the continent and played a role in destabilizing politics.

Yes, there is inflation. There is inflation in America. Despite the subsidies in Asia, the biggest gas guzzlers on earth are still...AMERICANS! We dearly wish to blame everyone else for this situation. On top of this, China and Indonesia [which is mostly Muslim] and Japan are not menacing Iran. The US is doing this. Menacing Iran means high oil prices. Period. If Asia is trying to minimize the pain of all this rabble rousing oil conquering messes created by Americans seeking to tear apart the Middle East and steal the oil---well, what on earth? HAHAHA. Right! We are not doing things, Asia is doing things to us! We are innocents.

This is the sort of rubbish propaganda the US needs to feel better. Well, oil prices fell for two reasons: the US for the first time, directly talked to Iran. And the US has asked Israel to cool the hot head talk about war. Also, Asia might have 'stagflation' but what are we brewing? Hyperstagflation? We just have to stop throwing rocks at others and look in the mirror! Can we achieve a hideous depression alongside hyperinflation? I had to buy a large box of screws today. It cost me over $28. Three years ago, it cost only $16. OUCH. Plywood: 12 years ago, 1/2" sheets were going for about $3.50. Now, they are over $12. This is crazy. Then there is the oil....1999, it was selling at $0.89 a gallon, today, with it dropping by $0.5 it is still above $4 a gallon!

China's Cars, Accelerating A Global Demand for Fuel

"In China, size matters," says Zhang, the 44-year-old founder of a media and graphic design company. "People want to have a car that shows off their status in society. No one wants to buy small."

Zhang grasps the wheels of his Hummer, called "hanma" or "fierce horse" in Chinese, and hits the accelerator.

Car ownership in China is exploding, and it's not only cars but also sport-utility vehicles, pickup trucks and other gas-guzzling rides. Elsewhere in the world, the popularity of these vehicles has tumbled as the cost of oil has soared. But in China, the number of SUVs sold rose 43 percent in May compared with the previous year, and full-size sedans were up 15 percent. Indeed, China's demand for gas is much of the reason for the dramatic run-up in global oil prices.

ARF! The Washington Post warmongers are barking again at the Chinese! THEY are much of the reason we are paying through the nose for gasoline! HAHAHA. Right. I am glad Bloomberg News admitted this month, the war talk aimed directly at Iran is mostly responsible for all this price hike stuff. The US government has threatened to rip the noses off of all the hell hounds if they corner the top tiers of the global oil market futures so they have backed off, whimpering and snarling. For the moment. They will be back if there is no other way to make a fortune.

The US produces Hummers. We should be delighted, the Chinese want to buy these gas guzzling machines from us! Balance our trade deficit! Eventually, the Chinese will be running around in pick up trucks, drinking booze, driving into ditches and getting tasered by Chinese cops. Then singing about it on the radio, with a nasal twang. Yup!

Fuel Subsidies Overseas Take a Toll on U.S.

From Mexico to India to China, governments fearful of inflation and street protests are heavily subsidizing energy prices, particularly for diesel fuel. But the subsidies — estimated at $40 billion this year in China alone — are also removing much of the incentive to conserve fuel.

The oil company BP, known for thorough statistical analysis of energy markets, estimates that countries with subsidies accounted for 96 percent of the world’s increase in oil use last year — growth that has helped drive prices to record levels.

HAHAHA. The NYT joins the propaganda dog pack. Why should China conserve fuel when the US is responsible for the high price of fuel? Eh? It isn't their responsibility. The US can shut up about Iran, make peace there, open markets to Iranian oil and voila. Oil will be cheap again. To the complete horror of the Texas oil men! They do NOT want this any more than Israel wants this! End of story.

Venezuela agrees to sell Spain oil at $100 a barrel

(Thomson Financial) - OPEC member Venezuela agreed Friday to sell Spain 10,000 barrels of oil per day at $100 a barrel in exchange for medicine and other goods, a Spanish government source told AFP.

The agreement was reached during a meeting between Venezuelan President Hugo Chavez and Spanish Prime Minister Jose Luis Rodriguez Zapatero in Madrid, the source said.

Oil prices hovered around $125 a barrel on Friday after reaching a record high of over $147 on July 11.

Spain would make up the difference between the market price for oil and the price charged by Venezuela, a former Spanish colony, by providing the country with building material, new technologies and medicine, the source said.

YIKES! The price of oil is only $100 a barrel...for select customers. What will the US doing about this? How about attack the Spanish for not conserving oil? Tell Europeans to stop driving cars? The coordinated media efforts this week to convince Americans, we have NOTHING to do with high oil prices, it is the fault of people babbling in Spanish, Chinese drivers who want to act like Americans and Indonesian fishermen who want to use their boats. Not us. And since NONE of these people are egging on a massive boycott of Iranian oil or talking about bomb, bomb, bombing Iran, they, not the nutty warmongers running for President or the monkey in the White House, are causing high oil prices. Eh? Two weeks ago, the major media and the major money men including that innocent, silly, little baby boy, Paulson, were in DC for an emergency Bilderberger meeting.

I suspect this massive propaganda push is the result of that meeting. 'Ja, Let's blame der slanty-eyed, funny talking foreigners from former third world nations for der high oil prices!' said Kissinger in a thick, funny German accent. By the way, I am not joking. This is exactly what they decided.

IMF Says End of U.S. Housing Slump `Not Visible'

(Bloomberg) -- The International Monetary Fund said there's no end in sight to the U.S. housing recession and warned that deteriorating credit conditions for consumers and banks may prolong a period of slow economic growth.

``At the moment, a bottom for the housing market is not visible,'' the IMF said in its Global Financial Stability Report, released today in Washington. ``Stemming the decline in the U.S. housing market is necessary for market stabilization as this would help both households and financial institutions to recover.''

This news is being blamed for causing total panic in the stock market today. HAHAHA. Let's blame this on the Chinese, South Americans, Indonesians and Spaniards.

Bust Up These Beasts

Steve Forbes

The Bush Administration should vigorously push to have Fannie and Freddie recapitalized and broken up into 10 to 12 new companies, with their ties to the government completely severed. Yes, this would mean Uncle Sam's pumping in some $300 billion in equity capital and, perhaps, taking on some $100 billion in those questionable mortgages. But such an investment would enable these companies to have a sound debt-to-equity ratio in the vicinity of 4-to-1. Shares in Fannie and Freddie would then be exchanged for shares of common and preferred stock in the new, solvent firms. Current shareholders could ultimately recover their losses, and taxpayers could eventually get most, if not all, of their money back. In fact, Uncle Sam might even make a profit.

One part of the restructuring should mandate that the federal government sell off its equity within, say, a five-year period.

Having 10 to 12 sound private companies competing in the mortgage market will help revive and reinvigorate that sector. If the Federal Reserve ever learned central banking--i.e., making the dollar strong and stable--the housing market would quickly snap back.

The housing collapse has nothing to do with the weak dollar. AU CONTRAIRE! The dollar going weak is not what killed the housing bubble! The Japanese carry trade ended rather abruptly. The housing market going weak in the knees saved our trade deficit by weakening the dollar which was too strong against the yuan and yen. They, in turn, fixed this by holding increasing numbers of dollars instead of plowing them back into the US lending stream. This, in turn, is now causing higher interest rates and is strengthening the dollar which is wrecking our trade with both nations! The easy lending regime that enabled the housing bubble ran alongside a very strong dollar vis a vis the yen and yuan. But not the euro. We cannot make the dollar stronger unless we brutally end the trade deficits with Asia and incidentally, Europe. Both nations know this. So they are trying to trick us into thinking the dollar is stronger this summer due to something nice happening.

But all that is happening is simply, China and Japan are holding a total of nearly three trillion dollars in cash and another trillion plus in US Treasuries. And the US plans to overspend our own budget by over half a trillion this year alone, a record. And to do this, Congress raised the debt ceiling to well over $11 trillion. Can Japan and China sop up another trillion from us in the next year and a half? One wonders. Oh, do we wonder.

Steve Forbes thinks all we have to do is 'privatize' mortgage lending. And this is just stone stupid. Fannie Mae and Freddie Mac were waste paper baskets for the private lenders. Who would write loans to all and sundry and then rush to Fannie Mae and Freddie Mac to dump them there and then rush off to write more bad loans! This is why the system is collapsing, got that, Steve?

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