Money Matters

Bush's Speech Is Meaningless But Hu's Speech Is Scary

Elaine Meinel Supkis

The news from China is interesting today. They are changing direction. No question about this. The world banking system is still in crisis as bankers pretend they have infinite resources yet they must borrow from each other all over the place as they shift funds like mad trying to give the appearance of liquidity. The Federal Reserve has decided to inflict terrible inflationary losses on all savers as it tries to save the madcap 'consumer society' of reckless American spending.

From Xinhua:

China's top leader Hu Jintao has called for accelerating banking reform to push forward the sustainable and healthy development of the country's financial sector.

Hu, state president and general secretary of the Communist Party of China (CPC) Central Committee, made the call on Wednesday when presiding over a brainstorm of the Political Bureau of the CPC Central Committee.

Members of the Political Bureau attended and discussed the lectures by two banking experts, Ba Shusong, a researcher from the State Council Research Center for Development, and Li Fu'an, a senior economist from the China Banking Regulatory Commission.

Hu pledged in his speech to push forward banking reform in an all-around way, focusing on building a modern banking system and innovating organization, service and administration of the sector.

He stressed to accelerate the banking reform for the countryside, and push forward the healthy development of the financial market.

OK, I don't know what these reforms are but the fact that the Finance Minister was suddenly demoted and kicked out the door right after the Bank of China opened its vault holding Americans certificates of deposit only to discover these were frauds, China has decided suddenly and unilaterally to change direction. We will see the increasing gale force winds from this change in the next year. I predict, this will overturn our expectations of eternal cheap prices and easy loans. I suspect the third part of the Great Plan To Bankrupt America will be set into motion. This plan was but a gleam in Chinese leadership's eyes back in the mid 1980's. But it is the long range plan.

China looked carefully at Japan's slavish dependence upon a consumerist American open door letting them have perpetual, increasingly big trade deficits so long as they loan Americans money at a very low rate and keep inflation at bay in Japan. The tool used for this was to deny credit to the vast majority of Japanese on top of cutting wages and rationing energy via heavy taxes. This was not working in the last year so the government suddenly unilaterally raised the value added taxes and this led to a voter backlash that is still playing out.

China is big. Its very size makes it quite different from Japan. Japan has to be a sucker on the US market, riding along while drawing blood. China joined Japan in doing this thank to the 'free trade' ideology which was cooked up the right wing in America. This 'free trade' sucker's game was devised to kill unions in America. Once upon a time, unions were blamed for inflation caused by audacious war spending coupled with tax cuts during the Vietnam War.

This scheme worked. The unions were broken and interest rates were dropped. At no time did inflation vanish, it grew. This was due to audacious war spending coupled with tax cuts! Again. This time around, Asia began to buy our government bonds and OPEC joined this game and both gave us loans, too. The more we had unbalanced trade, the more money they could loan us and the deeper into debt our government and the US consumer fell. Not one of the schemes cooked up this last 30 years has stopped our increasing debt loads. The Chinese know this. They also know something else: the US cannot run interest rates back down to 1% a la Japonaise. The US has to have it at least as high as China's interest rates.

Here is this weeks Bank of China's rates:

Note that the 3 months rate is only 2.61% while the 5 year note is 5.49%. Quite a spread. Do note that this is for savings, not lending. Lending is always higher than savings because it HAS to have a penalty since it is based on savings and one has to make a profit off of lending.

Here is a history of the Bank of Japan's Discount rates:

Note how the rates in Japan were comparable with the US and indeed, much of the world. The US was already in grave financial trouble in 1970. Our own rates were artificially kept low and inflation was beginning to seriously take off. The dollar was grossly over valued and already, Bretton Woods II was on the horizon as the US had to deal with all this internationally since we were the world's consumer.

Note how Japan's rates went up as the US began to depress the value of the dollar. The yen and the DM in Germany both more than doubled in value. Japan responded to this sudden hike in value of the yen by jumping interest rates very high, very fast. Japanese housewives hoarded toilet paper, for example. The wild financial games we play have rocked Japan more than once. Each one of these begins with the US negotiating a stronger yen. Each time, Japan tried a different system for re-weakening the yen.

This time around, they figured out a game the US can't help but play along: free money. Note how the Japanese don't even pretend to try to save anything. They don't need to save anything because...$165 billion flows into Japan every year from the world. They have the world's #1 biggest trade profit of any nation, by far! Their banking system is totally cockeyed and so long as this regime runs, we will see a messed up banking system because all the other major exporting nations can plainly see, killing the currency is good business so long as the US is buying more debt and more goods.

This is where the Chinese step in: they faithfully raised interest rates and the value of the yuan and Japan and the US have joined Europe in ganging up on China. Playing this game has earned them nothing at all. The Chinese are now having a brainstorm meeting to decide if it is time to change world banking systems. Already, we feel the effects of them withholding cheap loans to the US and sucking down US dollars in the form of FOREX reserves. The US rates dare not drop below Chinese rates. As I show here, the US rates are similar to the rates in China for 60 month CDs.

This is because we run in the red. We have to find buyers for our government bonds. Japan holds the world's biggest amount of US bonds. China is #2. The Chinese have ceased buying these. The US needs super-low interest rates so we can run up bigger debts but we can't do this if the world can buy higher-return rates in China! And China won't buy this from us if they make more money at home. Obviously. And if we are determined to have a trade war with China, then we will have to play the interest rate war, too. Chopping rates is not a great step forwards for the US. If the US imitates Japan even more and drived down inflation by crushing workers completely, this will not save us since this will cause Japan to collapse as buyers of goods in America vanish.

Already, the Chinese are beginning to bet that the free trade free ride of the US is pretty much over. They know that we can't borrow forever. In banking, if you run up too much in debt, banks and credit cards raise your interest rates because you become a risk for bankruptcy. This drives people into bankruptcy faster, of course, the snowball effect. But this is also true of nations. We can't stop spending suddenly. Yet our attempts at controlling our debts have failed. The 0% loans from Japan has wrecked our ability to control ourselves. This is super-free money when inflation is more than 5%! China has flooded us with goods only because they have cheap labor but China wants to improve the lot of the workers so they can be an internal economy. This sounds strange since we see many stories about the horrors of labor in China and the pollution, etc. This is true but then, this is typical of any nation that is industrializing. The US, Britain and Europe went through these same, exact stages. In Japan, anyone pointing out poisonous pollution was beaten or killed by goons working for the industrialists...in the 1970s! The pious chat about protecting workers is all garbage. After all, conditions here in America are so degraded, many citizens have been forced out of various jobs and replaced by illegal aliens working for less than former union wages.

From Fox News:

Butler County Sheriff Richard Jones held a press conference this morning to discuss yesterdays immigration raid. The Butler County jail is currently housing 20 of the immigrants. There are 12 men and eight women and from Guatemala, Mexico and Peru. They are charged with forgery and identity theft.

Jones said he has run ads for two and a half years warning business to not violate immigration laws. He added that this may be the first time state charges have accompanied an ICE investigation.

The investigation and processing of prisoners will continue today after a huge Immigrations and Customs Enforcement (ICE) raid at Koch Foods in Fairfield Tuesday. Nearly 200 people were picked up, although a number were released Tuesday night. Well over a hundred were in custody as of Wednesday morning.

The entire work force was illegal. Obviously, the Koch industry executives should all be arrested. When I belonged to a similar organization, they also hired illegal aliens because they were cheap. I warned them about this and they thought it didn't matter, they had the politicians in their back pockets. I reported in the past how a gang of lawyers out of Chicago go about the nation, teaching corporations how to hire foreign labor and not hire Americans! They love free trade and are traitors to this nation. Quietly, the US has exported pollution, often to Mexico, in order to comply with pollution laws and reduce inflation at home. The US government then enabled these things to return to the US which is why we have a huge trade deficit with a huge debt load. And China has announced they won't be the pollution dump of the world. The government said they will stop exporting the low-value added stuff and concentrate on imitating Toyota.

From the BBC:

Barclays says that a "technical breakdown" in the UK's clearing system forced it to borrow £1.6bn from the Bank of England.

It is the second time this month that the bank has tapped into the central bank's emergency credit line, sparking fears it is facing a cash crisis.

But the UK bank insisted it was "flush with liquidity".

They are full of shit. This is ridiculous. They have plenty of money so long as the government gives it to them. England has the identical housing situation as t he US and for the same reasons. The housing boom there is ending just like here, after a steady climb in interest rates. Why are interest rates climbing? Well, the price of raw materials and energy are both climbing and both are intertwinned and unlike in the 1990's, England is no longer getting huge amounts of energy from the off-shore North Sea oil rigs! The decline there has been tremendously fast! And this is why Europe has been barking at Putin, trying to terrorize him into dropping prices for them. But they have no leverage over Russia who has the world's #3 FOREX reserves and is working with China to turn the tables on the capitalist spending-wild wild West.

It is pretty clear that the US has passed the Hubbert Oil Peak in the early 1970's and now, just 5 years ago, Europe passed its peak. This is bad news for all of us. Europe and the US consume a lot of oil. This explains why both are attacking the Iranian kitty and why Saudi Arabia is scared. Saudi Arabia + oil profits= buying the US and Europe off. Iran + oil profits= war of liberation of all Shi'ites under Sunni rule. And this inflation of energy is at the root of all inflation in the world today. Without this, inflation could be tamed by some rough application of the whip on the workers as we see in Japan, for example. But if all nations whip their workers at the same time, we get a recession or depression.

This is the paradox. Somewhere, there MUST be some happy workers able to buy industrial output. The scheme of lending money to the fading work force in America is collapsing due to too much indebtedness. There are no replacements so we get a classic depression-style 'over-production' which is silly. There never is over-production, there is a lack of buyers due to dropping incomes or a sudden hike in interest rates or other things. Or there is over-extended indebtedness which is the blight upon the US.

From CNN Money:

Banks increased their borrowing from the Federal Reserve for a second straight week as the central bank worked to deal with a credit crunch that has roiled global financial markets.

The Federal Reserve reported that the daily borrowing averaged $1.315 billion for the week ending Wednesday. That was the highest average borrowing since the attacks of Sept. 11, 2001. The average surpassed last week's average of $1.2 billion, which also had been the highest since the 2001 terrorist attacks.

The data released by the Fed offers a snapshot of how banks are responding to the Fed's encouragement for banks to borrow directly from the central bank through a loan facility known as the discount window.

The discount window is the way the central bank provides direct loans to banks. Fed officials announced Aug. 17 that they were cutting the interest charged for discount window loans by a half-percentage point, marking the most dramatic move they have made so far to deal with a spreading credit crisis.

So, Barclay didn't really need the money and the US bankers are liquid and have no problems yet the flow of money from the wand wavers at the top of the Western banking system continues. More money is flushed down the toilets which are now stopped up since the Chinese are beginning to flush wads of paper towels down the toilet. I used to be a super and I loved the show, 'TJ' which was a cartoon about a super in Chicago. At one point, the Eddie Murphy playing the super says, 'I have to blow up the toilet! How can I do this? Think like a tenant! Think like a tenant!' Then he flushes a roll of paper towels and I nearly died laughing (yes, this happens in reality, I have had to fix toilets after such events in the past!). Well, this is happening today and no matter how often the Western bankers flush the liquidity toilet, the shit won't go down! Shudder.

From Bloomberg:

General Motors Corp., extending its cuts in light-truck production, will eliminate almost 1,100 jobs at an Ontario pickup plant in January as high fuel prices and competition hurt sales.

The move to cut one of three shifts at the Oshawa factory follows a decision last week to end overtime for the rest of 2007 at six pickup and sport-utility vehicle plants, spokesman Tom Wickham said today. Under union rules, the workers still will be paid a majority of their salary, he said.

The largest U.S. automaker is offering no-interest loans for as long as five years, rebates as high as $4,000 and extra bonuses to dealers on light trucks after sales fell in July, including a 29 percent drop for Chevrolet Silverado large pickups.

The pain is spreading. Since we collectively decided to ignore the Hubbert Oil Peak and did the exact opposite of what we should have done from day one in 1974, we are now paying the price. It will be a race to see if we can catch up with ourselves in this race. The US built much of the new housing this time around in the most inappropriate places and now this will also hammer us hard. Canada is in much better financial shape than the US but they will be sucked down the same hole as us because of their proximity and the fact that we can unilaterally annex Canada's energy sources. Which is the plan, by the way. I have Canadian readers who give lots of great information and I personally, love Canada and would love to see Canada flourish, they are more socialist than the US. But in this case, it will be a loot and burn operation and Canada will not gain anything good from it, I am certain about this.

From IHT:

Gold prices advanced Wednesday, bolstered by rising oil prices and a weakening U.S. dollar, both of which are potential signals of inflation.

Elsewhere, commodity prices finished mostly higher. Wheat prices logged a huge gain and record high in the agriculture futures market, while industrial metals recovered from early declines.

Inflation, inflation! And we shall see if this will shoot through the roof yet again as it ALWAYS does when oil trebles in price. Which it did this last 5 years! We always pay for our oil by debasing the currency. Always. And China will probably join ranks with the other bankrollers of America to do something about this for even Japan won't be able to handle a super-weak dollar with a super-duper weak yen since Japan has to buy oil and China will be outbidding Japan (is already happening) for oil. This is when Japan will be forced to cut off the carry trade.

From Bloomberg:

Hedge funds doubled their share of U.S. fixed-income trading to 30 percent and dominated the market for some securities as debt-market volatility increased, according to a study by Greenwich Associates.

``The recent expansion of hedge-fund positions and trading activity has been so rapid and consistent that it is now no exaggeration to say that hedge funds are no longer just an important part of the market in some fixed-income products; they are the market,'' according to the report, which covered the 12 months ended in April.

The Hell hounds, seeing death all around them, are rushing to safety. They have two wishes that clash now: they want super-cheap interest rates while wanting higher interest rates on their securities! Ouch. Everything contradicts everything else. This is the sign that we are in the Heart of the Darkness where the Minotaur lives, his sharp horns glinting in the dim, red light.

Bloomberg:

Trading by all institutions in distressed debt more than doubled to $42 billion in the 12-month period, according to the report. Leveraged-loan trading doubled to $241 billion. Total debt-trading volume increased 10 percent to $25 trillion.

Look at those numbers! UM, HELLO, HELL! $25 trillion = all the government debts of all the nations on earth. And what debts are being traded? HAHAHA. Guess! Wow. Heh. Oh no. Aren't we in trouble? What if all the governments decide to lower interest rates to Japanese levels? Oh, Japan owes $4 trillion, by the way. The US owes $9 trillion. Ouch. Ouch. You are hurting my head, thinking about this mess.

Leveraged-loan trades of a quarter trillion means they used loans from Japan to move loans along, most likely, taking a huge hit to unload those toxic little babies created by the Alt A mess in America. Whoopee.

Bloomberg:

Institutional investors, including corporate and public pension-fund managers and endowments, expected an average return of 5.2 percent from fixed-income assets over the five years starting in 2006, the firm said. Expectations for equities were 8.3 percent; 8.8 percent from hedge funds; and 11.7 percent from private-equity funds.

5.2% return is small if real inflation is over 4%. This is why equities and hedge funds have to do at least 8% and this means higher risks and bankruptcies and now it is near 12%? Impossible in a world undergoing yet another round of energy inflation.

Here is a local, small bank in NY:

Mortgages are still cheap as far as I am concerned. I have held mortgages of over 9%, for example. So 6% is a bargain. But not if everyone is used to 3% loans! Housing prices are determined by income, so if rates go up, house prices go down. Considering that savings have collapsed in America, I would assume that banks would be offering good deals in this field. But alas, for the last 5 long years, interest on savings has collapsed. I wonder why the Fed and the President don't focus on that. Yup. Savings, what is that???

Nothing. Nothing at all. look at this bank's figures for luring in money:

Pathetic, isn't it? Way, way below the rate of inflation. The Japanese don't care if we pay them only 3% interest, this is infinitely higher than they get at home!

Here is the Bank of America rates:

One should assume this is the floor for the future: 4%. If mortgages are lower than that, savings will be absolutely hammered. One thing everyone at the top dares not mention is the flood of refinances done at the cheapest point in all this. When Greenspan lowered rates to the floor, a host of homeowners refinanced at the new low rate. And many of them also added on value, tapping into whatever equity they had formerly built up. This caused two things: a tremendous, historic decline in equity in the US and it locked into place many new mortgages at an insane, low rate.

These are the ordinary mortgages. I know a number of people who did this. For the next 20-30 years, every time interest rates rise above 5%, these loans will hurt banks. For this means they will be repaid at a very low rate of return, namely, with cheap dollars. And this eats away at the foundations of a banking system. This is why banking systems can't endure sudden lurches in inflation. And certainly not sudden changed in rates of return that are totally fake like the Greenspan 1% rates in 2003-2005. This baby will haunt us for years and years. We cannot let inflation rage!

This is why I keep talking about those horns. They are not horns of plenty but horns of death. For we cannot relax and pay for energy via inflation caused by devaluing the dollar! We can't pay for all this by tapping Chinese savings or playing games with Japan that leads to the death of our own economic system.

From Yahoo:

Throughout the recent market turmoil, executives and directors of public companies have invested heavily in their own companies, according to a news report late Tuesday.
Total insider buying in the United States reached $252 million in August, the highest level since 2003, according to the Financial Times. The month normally averages $186 million in such trades.

Stocks didn't shoot up because of an army of outsiders buying in but insiders buying each other in that last-gasp series of deals whereby all these guys bought out each other or into each other. This used up a heroic amount of money, many trillions of dollars as each $10 billion buy-out deal jumped to $20 billion then to the heavens where it crashed, of course. They flew on Pegasus' back until he kicked them off.

From Bloomberg:

Consumer spending in the U.S. accelerated in July, a sign wage gains helped lift demand before credit markets deteriorated this month, economists said ahead of a government report today.

Personal spending increased 0.3 percent last month, three times more than in June, based on the median forecasts of 80 economists surveyed by Bloomberg News. Incomes rose 0.3 percent after a 0.4 percent June gain, according to the survey.

This story illustrates my earlier article about how we are the consumer, not the saver, society. This is bad news, not good news. Wall Streets want reckless spending, wild behavior, pure irresponsibility. They hate careful savings, wise spending. And they want the government to give them more wild spending and this means easy terms on easy loans which leads to inflation and bankruptcy which they don't want but can't get their minds made up which is worse.

Trust me, bankruptcy is much worse than careful spending.

From the Nikkei:

Stocks: Surge On Reports About Bush Subprime Rescue Package

TOKYO (Kyodo)--Tokyo stocks surged Friday as media reports that U.S. President George W. Bush will propose measures to help homeowners with subprime loans avoid default brightened market sentiment that was hit hard by the recent financial market turmoil worldwide stemming from the mortgage woes.
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Bank Min Watanabe: To Watch Subprime Impact On Economy

TOKYO (Dow Jones)--Japan's new bank minister, Yoshimi Watanabe, said Friday that the Financial Services Agency will closely monitor the impact of the U.S. subprime-loan trouble on the Japanese economy.
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Toyota Aims To Sell 10.4mn Vehicles Globally In '09

TOKYO (Dow Jones)--Toyota Motor Corp. (7203) Friday unveiled an ambitious global sales goal of 10.4 million vehicles for 2009, aiming to aggressively expand sales in overseas markets.
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Fujifilm Chief Sees Yen Rates Still Within Assumed Range

TOKYO (Nikkei)--The yen's exchange rates remain within the range assumed by Fujifilm Holdings Corp. (4901) despite fluctuations stemming from the subprime loan crisis, President Shigetaka Komori told The Nikkei recently in a wide-ranging conversation about the impact of the recent market turmoil on the firm's earnings.
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And here is a peek at the Japanese! Note how they are deliriously happy when we decide to do the wrong thing. And how they plan to expand their export empire. And how they are protecting the WEAKNESS of the yen and need to keep it down. Down, boy, down! We should not view this as friendly but as our most dangerous enemies. They are a danger to us, not a blessing. The carry trade is killing us, not saving us. And if the Japanese ruling class views today's news as good news, I can say very clearly, this is very bad news! Bad for us. And ultimately, bad for Japan. For if we sink, they will, like Captain Ahab in Moby Dick, be pinned to this Great White Whale is it bleeds to death and flounders off into the debts of the sea.

And thanks to readers here at Culture of Life, more information about the puts that made the news this week:

As if the mortgage-market meltdown wasn't enough to spook investors, some market players expressed concerns about unusual options bets that some observers have dubbed "Bin Laden Trades."
The blogosphere and options trading desks have been rife with speculation about these trades, which are unusually large bets that the market will make a huge move in the next month. Some entity, or entities, has taken a large position on extremely deep in the money S&P 500 options, both puts and calls, that won't pay off unless the market undergoes an extremely large price move between now and the options' expiration on Sept. 21.

However, Dan Perper, a Partner at Peak 6, one of the largest option market makers and proprietary trading firms, has confirmed that the trades are part of a "box-spread trade."

"This was done as a package in which the box spread was used [as a] means of alternative financing at more attractive interest rates" explained Perper.

Ah, it twas just some hedge hell hounds having fun. They are betting we will fall apart. But they are not privvy to magic numbers sufficiently to understand, nothing will happen in September. Well, if Bin Laden attacks or Bush pays bin Laden to attack, then yes, we will see the market fall. But always, in history, it likes to fall around Halloween. This is because it is due to the predeliction of the fiends summoned by the wizards in the Finance World to appear suddenly in their natural forms. They dislike doing this in September. Note that the market collapse in September, 2001, didn't last very long.

But natural falls in Octobers always are nasty and often long. And this one could be quite long. We shall see. It is all up to China to decide if it happens this October or the October after the Olympics.

Culture of Life News Main Page

Explaining Inflation Statistics And Housing

Elaine Meinel Supkis

Panic and hysteria continue as markets react wildly to any news tidbit. It seems obvious now that the US government and the Federal Reserve will wave their magic wands yet again and save everyone from the messes they made in the first place. Does this mean reforms? HAHAHA. Nope. It means more funny money! And more than one reader has sent me emails with links about how the inflation rate is manipulated. Of course, it is fake most of the time except in one way: it crushes people on fixed incomes and the weaker members of the working class as will as being the chief engine behind our ballooning trade deficit.

From CNN Money:

"The president will discuss a number of initiatives and reforms intended to help homeowners with subprime mortgages keep their homes," the official said. "He will also discuss reform efforts to prevent these kinds of problems from arising in the future."

Bush will direct Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson to team up to help troubled mortgage holders get the services and products they need to avoid defaulting on their loans, the official said.

He will also push Congress to pass Federal Housing Administration legislation that will give the agency more flexibility to assist mortgage holders with subprime loans, the official said.

A profound misunderstanding what is going on infects everything. The manipulations needed to deal with the effects of previous easy-money, funny-money loans won't fix anything. What this does is push forwards the date of the collapse of the American empire. The US has had this long propaganda story that our economic system is superior to every other system on earth. Such as socialist systems, for example. We point to our homeless, the millions living with no health insurance, the widening gap between rich and poor and yell, 'Land of opportunity!'

This ideological stance is part of the problem for in order to justify the present regime here, it has to appear to be a wonderful advancement for humanity and a shining example all must emulate because it is good. When the US won WWII and we did win it, nearly totally, the US was the only intact major manufacturing base left in the world. Russia's military triumph was nearly as great except their home base took a huge hit in WWII and thus, they started an ideological war with the US, the other victors, starting at a much weaker base. The wealth we earned from WWII and its aftermath when we wisely decided to revive world trade and help our trade rivals rebuild, was considerable.

When our revived trade rivals became stronger again, two things dragged the US off of its great triumph and record accumulation of wealth. One was the Korean and then the Vietnam wars and the military build-up of the Cold War. The other was the need to prove the communists wrong and the tool for this was to develop 'consumerism' and wave this as the flag of Capitalism's Triumph.

The kitchen debates between Nixon and Khruschev was the opening shot in this ideological struggle. Nixon was VP back then and he pointed to the consumer goodies Americans were buying thanks to consumer loans and cheap loans on housing. Our nation, that didn't get invaded nor had any cities annihilated from the air, was on a housing boom binge. And on top of this, was spending like crazy on consumer items such as the new-fangled TVs, for example. I remember my parents getting the first one in the astronomer community at Yerkes Observatory. Everyone came over to watch until all the families had a TV.

Back to these debates: Khruschev couldn't show the advantages of socialism because Russia was not a true socialist state but was a classic dictatorship that tried to imitate true socialism just as Naziism was a preversion of socialism because it coupled it with ethnic cleansing and racism. The advantages of socialism are collective. The advantages of capitalism is individual. For example, all my life, I prospered from capitalism but both my husbands ended up disabled due to work so the para-socialist sectors of our system allowed me to nurse both of them instead of throwing them out to die and struggling on by myself. Socialism makes nations stronger because it ties everyone together and to survive no longer is a dog-eat-dog world but is a group effort. This strengthens a nation's purpose and moves it forwards as a unified front rather than being a home base for pirates out to loot not just the world but the home base.

The triumphalist capitalist consumerism of the post-WWII United States created a mindset that we call 'shop until you drop'. In early 1960's cartoons like the 'Flintstones', Betty Rubble and Wilma Flintstone would grap ahold of their husband's credit cards and yell, 'Charge it!' as they rush off to buy knick nacks. I would date the beginning of the Great Credit Bubble to the year this happened which was about 1962. The other force at work was Christmas. In my granddaddy's day, it was a small affair. One ate a feast and went to church. And if one was a good boy or girl, the parents would buy a 'Christmas Book'. I have a number of these, they have 365 days of reading fun and actually, they are really nice books! I love them. Lots of science material, projects to do, inside looks at how things work and stories from around the world as well as the rememberances of past times. Also, a child might get a Noah's ark or marbles or a baseball mit. The limit to toys was about 2 per child for the upper middle class.

When I was a child, this was our limit, too. Even so, my grandfather would grumble about spoiling us. If I wanted things, I had to earn it and I wasn't poor at all. Earning money was easy, I worked for my parent's upperclass neighbors and friends. By the time I was 16, I could buy my own clothes and my own vehicles. The hysteria about raining gifts on Christmas coincided with the ideological debates with Russia and the invention of TV which, unlike the radio, could show wonderful ads for buying all sorts of things. So Christmas grew into the ugly monster it now is, the buying of gifts for children went totally out of control and the need to make Christmas a huge consumer orgy has risen higher and higher, egged on by TV. I remember when they began the 'Scrooge' hysteria. It was a socialist story whereby the rights of workers were shown to be moral, a radical notion in the hard economic times of early industrialization! But reworked by Hollywood which worked alongside the government in re-inforcing propaganda (yes, they were and still are, often an arm of the government), the Scrooge story morphed into a story about greed being shared rather than socialism bringing together the capitalist and the worker!

Tiny Tim is very much in distress today since 50 million Americans are without health insurance! I hope this long epilogue isn't too wearisome but this leads into today's astonishing news that the US will fix the present housing boom mess by...dropping interest rates. There are lots of misunderstanding of inflation, interest rates and how they have, in tandem, dug the US into the present hole we are in and this hole is as deep as a hole can get, it goes all the way to China. We are in deep debt to all our trade rivals and some of them are our former enemies in WWII. We are going bankrupt thanks to our ideology of consumerism being superior to socialism.

From CNN Money:

The focus for financial markets will be a speech Bernanke is due to give at the Fed's annual symposium in Jackson Hole, Wyoming at 10 a.m. ET.

Bernanke is set to speak about monetary policy and housing. Investors will be looking for clues as to whether the Fed plans to cut the target for its key short-term interest rate soon.

Traders are hoping for a rate cut, which could give investors a boost of confidence and help restore calm to the markets. But there are concerns the Fed will keep its focus on containing inflation and not bail out investors.

Of course, rates will be cut. There is no connection between rates and inflation. There hasn't been a direct connection since 1962 when Wilma and Betty yelled, 'Charge it!' The Fed and our government have to pretend there is a connection but this is all propaganda. Since the two were divorced long ago, an astonishing thing has happened that isn't astonishing at all: the US has gone deeper and deeper into debt, faster and faster. We are now totally in debt, debts outstrip savings, our equity in our assets has totally collapsed, there IS NO MORE EQUITY. Now we are in a crisis due to the severing of interest rates from inflation and will Bernanke fix this?

Of course not! He cannot. They will assissinate him. He is a front man for the guys peddling consumerism. He has to continue the consumerism forever. Only this is physically impossible. The US often boasts that we are the consumers of the world's goods and we do consume a lot compared to all other nations! But this is killing us, financially as well as morally. We are making a series of consumerist choices that are destroying our standard of living, our health and safety and of course, our empire.

Again and again, in the news are stories of poisoned Chinese toys for Santa to bring to our children. US corporations like Mattel didn't question what went on in the satanic mills in China, they wanted to make profits and they knew that selling toys in huge volumes meant selling to Americans whose wages have been stagnant or falling so they had to keep dropping prices in order to lure Betty and Wilma into stores. Easy credit for China and Japan insured that Wilma could buy toys and appliances while Fred could buy Toyotas. I watched the news last night and all the auto dealers are advertising 0% loans from Japan and $4000 off on American trucks with loans from China, I suppose. GM no longer owns its loan operation which made money for them. They sold it to a hedge fund consortium.

Consumerist ideology needs 0% loans. Badly. The closer one gets to this, the happier it is for the consumerist ideological program. Only this has been hijacked by our trade rivals! Japan has given us near 0% loans for years now! During that time, we consumed and Japan has consumed our auto industry. Toyota is now on top and still rising, faster and faster. The more we need 0% loans, the more Toyota will triumph!

Why is this? Well, Japan is the anti-consumer society. It used to be semi-socialist but they dropped that for Stalinist rule. The LDP has strangled the ability of the Japanese consumer to either yell, 'Charge it!' or to shop for cheaper goods. Fortress Japan has turned life into hell for Bettysan and Wilmasama. Both now have to play the FOREX markets in order to do some shopping later! And both bet against the yen, driving it lower than the dollar. This is a vicious cycle. And like all yin/yan pendumlum events, it grows greater each year, the dynamics are increased as both Japan, China and the US struggle to maintain the status quo which is totally unstable and terribly bad for the US in the long run!

From the NYT:

Freddie Mac, the nation’s second-largest buyer of home mortgages, said Thursday its second-quarter profit fell 45 percent, partly as a result of larger provisions for bad loans.

The government-sponsored company said it earned $764 million, or $1.02 a share, for the three months ended June 30. That contrasted with profit of $1.4 billion, or $1.93 a share, a year earlier.

Bush and Bernanke will want to plop this mess into the laps of the tax payers. Only the political dynamics here have been for consumerism paid for via IOUs and this includes our government which has been running in the red for a very long time, since our first currency collapse in 1974, it has increased right alongside our trade deficit which took off after that point. The currency collapse was supposed to increase our trade advantage but we can now see that this is false: there is NO ADVANTAGE to dropping the value of the dollar if we undo it by having fake interest rates so we can encourage consumerism!

The lower interest rates always wins out over the cheaper dollar. Always! And we are trying this again. And do note that the dollar is NOT weak against the trading partners who are giving us the super-cheap loans! DUH. This is now painfully obvious. The US either commits group hari-kari or we stop this cheap loan game and begin rebuilding our nation on different principles. I don't want Victorian capitalism which was based on a very violent form of imperial invasions of other manufacturing bases (thus, WWI and WWII) but instead, I am suggesting increasing SOCIALIST CAPITALISM is our only hope.

We are already near that in a negative sense: our military/industrial complex is anti-competitive as well as very expensive. The Pentagon eats up over half a trillion a year. All of this, red ink. We are rapidly becoming a clone of the Soviet Union which was mostly military manufacturing using state funds. China is now spending more on their own military and the US is worried about this yet this is due entirely to the US needing China for getting rid of our inflation so we can say there is no inflation and ergo, we can grant ourselves cheap loans. Which causes housing bubbles which we plan to fix by offering ourselves even cheaper loans which means we need China more than ever.

There is a big push going on for changing our inflation statistics to reflect housing bubbles. This is all very wrong-headed and anti-socialist, I must explain the errors of this thinking and why it can't be fixed by incorporating the price of housing.

From Seeking Alpha:

As you can see, the year-over-year change in home prices has gone from almost 20 percent a few years ago to low single-digit negative numbers just a couple months ago. During this time OER has remained flat by comparison, effectively taking home prices out of the consumer price statistics.

So, what would happen to the consumer price index if real home prices were substituted for the much maligned OER?

Setting interest rates based on inflation statistics is a con game. Japan has manipulated the statistics of the consumer end of the numbers by crushing the buying power of the masses. If they can't buy anything, prices drop! Thus, the lovely depression the Bank of Japan and the industrialists love so very much, they will move heaven and destroy the world's banking system in order to keep the world's #2 economy roaring while killing the value of the yen. This regime is so vicious, the population of Japan is falling and they don't care. I hope the government falls but the LDP dictators are using every trick in the book to keep in power. Including violent moves via the right wing nationalists and the Yakuza.

The entire US didn't have housing inflation. Every year, in good times, housing values do rise around, say, 3% if the GNP rises this much. But the hyper-hikes in housing prices was due entirely to the Federal Reserve dropping rates to 1% when inflation of consumer NEEDS were rising and have been rising. Namely, food and fuel. This is quite simple: people normally don't buy houses but maybe three or four times in their lives. If that. But they buy food and fuel every day. Same with health care: not only should that be given great weight in the inflation statistics, it should have a penalty for LOSS of health care. Namely, when people are forced out of the system due to high costs, this is a gross effect of inflation!

Many years ago, my brownstone was in the register for judging inflation. It was chosen long ago under Roosevelt's New Deal. It was kept secret and when I answered the door one day and a Federal Reserve agent was there with his briefcase, asking to talk to me about my purchases, I was floored. Whoohoo! I was part of the process! I planned for his visits every year and we went over the fuel bills, grocery receipts and other things and discussed inflation a lot. I told him, the cost of taxi service, the cost of subway service wasn't enough. Our lighting in our neighborhood collapsed because the City of New York ceased changing light bulbs! That was due to inflation! And my husband was mugged at night and that was due to inflation!

Volker listened and he raised interest rates very high to kill inflationary expectations. America began to stabilize and this ticked off all our trading partners who had already figured out, the road to success was to get Americans to 'Charge it!' So there was a great push all around to party and we got 'Morning in America' Reaganism with its union breaking, free trade and a collapsing dollar yet again. And the red ink in DC redoubled and redoubled again as everyone let loose and inflation returned, always running somewhat ahead of interest rates. For years and years. And proof of this is simple: our debts increased.

Seeking Alpha:

Second, in early 2004, while the Fed funds rate was still only one percent, home prices began to take off - the CPI would have been over seven percent using the Case-Shiller data instead of only about three percent with OER.

In summary, the Greenspan Fed didn't have to take rates as low as they did or leave them there that long.

Home prices were booming during this time and if they were properly accounted for in consumer prices, monetary policy would not have become too easy and stayed that way for too long - what an increasing number of observers are citing as the genesis of the current housing problems.

It pays to remember why Greenspan dropped rates suddenly. He did this in order to enable the Bush tax cuts. With no tax cuts, the economy still had balloons which is what caused the .com bubble and collapse. But even at 4%, the .com bubble grew because the rate of real inflation was higher. When Greenspan raised rates to 6%, the bubble popped. And that would have been the end of it except Greenspan and the Republicans desperately wanted Bush in power so they could feast on tax cuts. So the same week Bush was sworn into office thanks to the Supreme Court ripping up our rights and saying we can't count the votes (our democracy died that day), Greenspan began to drop rates rapidly. When Congress passed the first of the many tax cuts, Greenspan should have raised rates! This is because rates have NOTHING to do with 'inflation' and everything to do with lending money to people so they can consume. If they spend too much on speculation, this leads to bubbles and crashes and the entire excuse for the Fed existing at all is to prevent bubbles and crashes! They said so themselves back in 1913! And the purpose of income taxes was to flatten out the wealth curve so there would not be excess liquidity!

The excuse was, governments would want inflation and cheap loans at the same time so a gang of Federal Reservists would prevent this since they would not be politicians. This foolish claim is obviously a lie. Greenspan not only didn't raise rates when taxes on the speculator class was dropped, Bush also cut taxes to everyone and so there was a consumerist buying frenzy in early 2001 going through to um, June, when it collapsed as the working class found out, their 'tax cuts' were FAKE. They were 'loans' from the government and the next year, would not appear in the taxes one normally got back! ARRRGH. I was pissed off, of course. My children were shocked and annoyed that they had to increase the their withholding taxes to pay for this and the economy went into a tail spin around August, 2001.

We all know what happened next: Bush's ratings were collapsing. On 9/12/1, the NYT, WP and WSJ were going to release the real vote count in Florida and I heard via a reporter in NYC, Gore won Florida. So on 9/11/1, we were attacked. The news media refused to release the numbers showing Gore won by 20,000 votes on top of winning the national popular vote and when they released it two months later, it was massaged to make those numbers vanish, all numbers being magical, of course. And Greenspan massaged the numbers, too. We had the real first shots of the coming inflation with oil prices rising as Putin gained control of the natural resources of Russia which is why oil prices were so low. And the economy here was collapsing so Greenspan said, openly, 'To HELL with the inflation rate, I will drop interest rates to BOOST CONSUMERISM.' This was a group effort for Bush said, 'Go to Disney World and go shopping.' Right when he also said we had to go to war with the entire Muslim universe.

This proves my point that the interest rate has absolutely nothing to do with 'inflation' and everything to do with the Federal Reserve lying about its mission and instead, spending the last 50 years, inflaming consumerism. This latest bout is the stupidest, most moronic example of this process. When Greenspan dropped rates, the US had to expost-facto drop inflation so we did this by turning to China and Japan for help. And the outsourcing of America took off. People groused about the -$50 billion a year trade deficit suddenly fell silent as it shot through the roof. The increase in this deficit from -$50 billion to an astonishing -$800 billion in a mere 4 years is just...incredible. During this time, as it took off, Greenspan kept rates at 1%. Only after handing off the mess to Bernanke, did a shocked Bernanke begin to re-animate the rates back to 6% where it should have been all along only this was way too late and since he had to make it climb in steps, too ineffective.

For the market was addicted to easy rates and adjusted accordingly and this is where the plethora of funding schemes comes in: to keep the balls rolling, everyone had to scheme. People have gotten mad at me when I inform them, there are no 0% car loans. If I come with cash from elsewhere (yes, this is how we buy our cars every ten years), the price drops $2000 to $4000 dollars! The 0% loans are built into the price of the car. So it is with housing: the lower rates were incorporated into the price of the house! Namely, it is painfully obvious that as the ability to buy with standard mortgages dropped as interest rates rose, the schemes to buy forced prices UPWARDS. In other words, to close, the seller and buyer would conspire with the real estate agents to find mortgage brokers who would offer special deals which would raise the valuation of a house in order to get an extra 20% which could then be used for a fake down payment which then qualified increasingly unqualified buyers for lower rates! Another vicious circle in this hell of consumerism!

This led to a frenzy of increasingly ridiculous loan schemes that undid the Federal Reserve rate hikes! But lo and behold! All this collapsed! Many, many loans written only a year ago under these conditions have collapsed. They are now the crisis we face. Did raising interest rates stop this bubble?

NO! This is because banks circumvented the Federal Reserve and went to... hold on to your hankies, everyone...CHINA AND JAPAN FOR LOANS! When China began raising interest rates starting in February of this year, the whole system began to break down JUST AS I PREDICTED (HAHAHA)---I'm always right---because China is no longer lending cheap money to us to spend on housing. And as I said in the past, Japan can't supply all the money so long as China is sucking down 30% of our trade deficits. The system has been fatally destabilized and this is why international banking is now in distress, I will address that later today, big, big news from China.

From THNT:

The present subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the "benign" inflation figures reported over the last 10 years in no way reflected the skyrocketing rise in home prices, with states like California experiencing annual home-price increases of as much as 30 percent. With the illusion of low inflation inducing lenders to offer 5 percent and 6 percent loans, not only has speculation run rampant on the expectation of ever-rising home prices, but homebuyers by the millions have been tricked into buying homes even though they only qualified for the "teaser" rates that quickly escalated to unaffordable levels. As long as home prices continued to skyrocket, buyers could refinance based on the increased value of their equity as collateral; but once home prices stabilized and even declined, many families were forced into foreclosure.

If economic history were a required subject in our public schools, borrowers would be aware of the dynamics of such frequent bubbles that have occurred in the past. In 1624 in Holland, frenzied speculators saw that the price of tulip bulbs was rising and rushed to buy them on the expectation that the price would rise even further and they could make an easy profit. Banks were eager to lend money to such speculators, because they, too, stood to make handsome profits. Oblivious to the underlying value of the bulbs, more buyers entered the market, pushing the price of a single bulb to the preposterous price of 3,000 guilders (equivalent to perhaps $100,000 today).

Here is yet another attempt at pretending the housing values were excluded from the stats so this is why we are in this fix. As I noted above, housing values ROSE AFTER the Fed announced a long regime of rate hikes. We all knew the rates would return to 6%! But the one year of 1% rates had set targets in housing very high and developers were going nuts, building, so all this had to continue IN THE TEETH OF A RISING WIND FROM THE FED ITSELF! Loans were backed not from the Fed but from the 'carry trade' money in Asia! The only way the Fed could fix this was with tariffs and barriers aimed at stopping the flood of imports that were flooding into America to keep interest rates down. A vicious cycle. Again and again. This is why struggling when in quicksand means sinking faster.

The Fed is supposed to look after the whole nation's interests but using it to control trade is stupid. No nation did this in the past and the present experiment with 'free trade' is pure insanity and it is coupled with our interest woes. Dropping prices via letting in a flood of imports so housing values can climb is insanity but it can't be fixed via interest rates, the other tools in the national tool box for keeping an even keel are tariffs and barriers. Why did they exist in the past?

Beause they work! DUH.

From THNT:

In 1983, the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country's economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent.

The BLS's solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called "Owner Equivalent Rent" component based on what a homeowner might "rent" his house for.

The result of this statistical sleight of hand was immediate and gratifying, for the reported inflation index quickly dropped to 2 percent. (This was in part because speculators needed to offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals that pushed down the cost of renting a house or apartment.)

My dear inflation checker from the government vanished in 1982. I was gloomy. 'Reagan is going to toy with the inflation statistics to make it magically vanish,' I said and as usual, was right. We never saw him again. Inflation was cancelled and my savings began the long process of dying while sitting in the bank. I have been pissed about this for many years now. This began the savings and loan debacle which ended in 1987 with another massive collapse in the dollar, the Plaza Accords, the stock market seeing its biggest one day drop in a century and so on. Many elderly people lost everything because they were forced to take their savings out of safe banking accounts and put them in riskier schemes in order to make more than the rate of inflation.

We are exactly in the same fix today! GADS. Will we never learn? Everyone has put money in increasingly risky schemes in order to beat inflation. These schemes, like before, are collapsing. Like the savings and loans mess under Reagan, they began with tax cuts and super-cheap interest rates and the repudiation of Volker's attempt at killing inflation via interest rates rather than imports. And the giant sucking sound of American jobs leaving the country continues, a Niagra Falls of red ink drowning our working class. Fixing this will be very hard. Expecting the Fed and the President to do something sane is insane.

Culture of Life News Main Page

Japan's Homeless Mirror US Homeless

Elaine Meinel Supkis

Most people are drooling with anticipation the expected plunge in interest rates as the Federal Reserve rescues our economy by magically making money and then giving it away as free gifts. Any time a banking system gives money away for less than it is being inflated by that bank, we get currency devaluations and domestic inflation that can be brutally killed via crushing the lowest classes literally to death. Japan has interest rates well below the rate of inflation and proof of this is, the yen is constantly being devalued! They present a fiction of falling prices via very brutal crushing of the lowest classes. And China demotes Jin, the finance minister.

From Asahi:

Under the current labor situation, even if people living in Net cafes find jobs, the pay is often not enough for them to move out.

There is also the lack of sleep, the stress and frustration stemming from their situation and the constant threat of health problems.

The government conducted its first survey on the plight of Net cafe refugees, and has come up with measures to help these people. But some experts say the Ministry of Health, Labor and Welfare's plans are not enough to prevent what could become a crisis situation.

Japan's currency was on this deliberate course to devalue it. A country can't devalue a currency unless they first drop interest rates really low so inflation drains value. People cease saving and the economic system collapses. In normal times when all countries had trade restrictions, they sought to strengthen their currency in order to keep their balance of payments even. The US, for example, went to great lengths including selling off much of its gold reserves, trying to keep the dollar strong while waging the Vietnam War.

Ever since 'free trade' (sans Japan, of course) was launched by the G8 nations, the closer to 'free trade' (sans Japan) they get, the more brutal are the currency devaluation games. Absolutely no one plays the game as brutally as Japan. Not only do they still maintain Fortress Japan when it comes to imports, they constantly find new tools for imposing this regime. When finding fault with imports fails, they restrict store access to imports so they are hard to sell. Like cars: try making deals with dealerships that give any profit! As all these restrictions were hammered down by fierce negotitations with the Japanese dragging their feet all the way, new forms of torment are devised.

Up until 1994, the Japanese were proud of one thing: they took care of each other. This benevolence shown to the people in total soothed them for the loss of free choice or the abilty to buy world products. So long as they were being cared for at home, they applauded this LDP system. But since 1994, things have gone very wrong. Japan's bubble collapsed and the industrialists discovered that the bubble made life hell for the Japanese working classes but the collapse is now making the industrialists filthy rich. This is why the collapse continues and even worsens!

This collapse has rebuilt Fortress Japan's walls higher than ever! Want to sell an American car in Japan? Hell, even the Japanese-made cars aren't selling! According to the Bank of Japan, car sales fell in Japan in the last 5 years. 5 years of Japan selling record numbers of cars to the entire world. 5 years, during which Toyota became the #1 auto maker in the world as everyone buys their cars except for in Japan! This is quite remarkable.

For 5 years, the Bank of Japan has funded a global housing asset boom. Except in Fortress Japan where property values, alone in the industrial world, fell in value while they ballooned elsewhere.

Asahi:

The man and his wife, 27, could not find jobs in their hometown in the Tohoku region, so they arrived in Tokyo in April to work at a food manufacturing factory through a temporary staffing agency.

They were assigned the graveyard shift, whose hours were longer than initially promised. They were given no breaks during their shifts and no social insurance for the first three months.

The Japanese people are being worked to death. I showed in the past, straight from the Bank of Japan, how part time work has soared in Japan and now a quarter of the working population is stuck in that mire.

Asahi:

Takuro Morinaga, an economics professor at Dokkyo University, said immediate measures are needed because Net cafe refugees can get back on their feet with only a little help, such as interest-free loans for housing deposits and the rent.

Morinaga warned, "The cafes could become slums if new types of impoverished people increasingly gather at such establishments at a time when companies are increasingly using temporary workers rather than hiring regular workers."

This isn't due to overpopulation, Japan's population is collapsing. This couple, for example, probably don't have children. Japan was once a very child-friendly nation. It is now a dying society. While the world built more and more housing for other people, Japan resolutely refused to do the same. With the world's lowest interest rates, bar none and the world's #2 economy, the Bank of Japan and the LDP conspired to prevent the Japanese people from buying virtually anything if they were the bottom 1/2 of society.

From Market Watch:

Japanese retail sales fell more than twice as much as expected in July as unseasonably wet weather and the late onset of summer sales dampened consumer appetites.

Retail sales for the month totaled 11.347 billion yen ($97.89 million), contracting 2.2% from the same period a year earlier, the Ministry of Economy Trade and Industry said Thursday.

How on earth can sales be collapsing, and they never were all that great to begin with, when Japan's interest rates are below 1%? If industrial output had collapsed this last 5 years, I would say, they were in a a depression. But profits and industrial output has soared and Japan has plummeled the competition across the board all over the planet! They have record trade profits! Here is more proof that my analysis is correct, straight from Japan's Wall Street Journal.

From the Nikkei:

Stocks: Surge In Morning On Wall St Rebound, Weaker Yen

TOKYO (Kyodo)--Tokyo stocks rose sharply Thursday morning in reaction to a steep rebound overnight in U.S. shares and the yen's fall against other major currencies.
**********************************************

BOJ Mizuno: Japan Low Rates 'Not Unrelated' To Subprime Woes

KOFU, Yamanashi Pref. (Dow Jones)--Bank of Japan policy board member Atsushi Mizuno said Thursday that Japan's low interest rates may have contributed to global subprime jitters and magnified volatile moves in the foreign exchange market.
**********************************************

Two key headlines. They admit what their strategy and methodology really is. The Nikkei rises ONLY if the yen DROPS! If the currency gets stronger, business dies! Fast! Not only that, they openly admit in a very round about way---'not unrelated' indeed! They admit the carry trade they created by making the yen weak by dropping interest rates below the rate of true inflation is the root cause of the global equity/finance bubble. So the Bank of Japan cheerfully...CONTINUES! Is there inflation? KILL DOMESTIC COMMERCE! Is there still inflation? KILL WAGES! Is there still inflation? MAKE JAPAN HOMELESS!

I read last night the horror story of a Japanese woman who was carted about in an ambulance as she miscarried her baby. The crew spent three hours trying to find a hospital then got in an accident so she had to wait nearly an hour for another ambulance. Lost the baby. I went through this, myself, in New York City when America was going through the mess of the first financial collapse, during the 1970's to 1980. I had my baby only the next day I had a catastrophe and had to be rushed to the hospital. I was taken to 'the Butchershop of Brooklyn', a hospital for the poor even though I had insurance. The doctor came in and saw me lying there with a baby on my chest and said, 'When did you have the abortion?' I yelled, 'Call and ambulance and call a lawyer!'

The second ambulance broke down. I nearly died. My doctor in Manhattan rushed to the curb and hauled me in himself and he saved my life. On top of all this, during those terrible years, housing was vanishing into smoke as landlords torched their buildings due to the high cost of fuel versus low rents. Everything was falling apart. Finally, the system was corrected by a nifty scheme: the US would have low interest rates if Japan could export as much as they desired. The US, far from fixing things, has lived off of IOUs since 1980 and this red ink is now very significant but it has been bankrolled by Japan and now, China.

But Japan has been playing a dangerous game lately due to China's penetration into Japanese territorial markets. They must crush Japan in order to turn it into cheap money which they use to control the entire planet's monetary systems so they can compete with low-wage China! And they successfully got the West to go along with this and China is now in a fit over raising the value of the yuan to please their trade partners only to see a triumphant Japan LOWER the value of the yen the whole time the yuan was rising. Heads will roll!

From Market Watch:

Chinese Finance Minster Jin Renqing resigned for "personal reasons" and has been reassigned to a government think tank, according to media reports Thursday.

According to the BBC, Mr. Jin was caught in a sex scandal. I seriously doubt this. Everyone on the outside thinks that China is doing just great under his rule. But I say, no. China made a huge mistake back when it did as the other G8 nations demanded and let the yuan rise in value. I am betting the leadership, Hu and Wen, ordered Jin to weaken the yuan and raise the value of the yen. There have been sporatic moves of this sort during August. But probably the personal relationship Jin developed over the years with the G8 ministers meant he wasn't as cut-throat as the Japanese who are great at smiling when they meet and then back stabbing when they go home.

The great ship of China is definitely changing direction. The days of wine and roses will be ending. Germany ran off to China to make nice and make deals but then ran straight to Japan to conspire against China. China knows that Germany will join Japan in yelling about the yuan. This irks China no end and an irked dragon is a very dangerous creature. Unlike Japan, China's home economy is growing fast. The people there are buying cars, refrigerators and housing. Wages are going up. This is why China's interest rates are like the rest of the industrial world: above 4%. This is also why I am alarmed about all the happy talk here about dropping rates really low again.

We will see the condition of the working class collapse even further. Already, record numbers don't have any health care. Soon, record numbers will be forced from their homes. The debt situation is dire. Many, many Americans are debt slaves, handing over more and more each month to pay for past purchases. In the 19th century, miners couldn't dig themselves out of debt and they had strikes and great violence over this. They could never leave their jobs because they owed money! This was correctly seen as serfdom or slavery. And we are in a similar situation. More debt, no matter how cheap, can be accessed by the working masses.

Tiffany today boasted record profits because the rich could pay record amounts for frivolities. But Walmart is seeing a collapse in sales at the end of the month as the stretched-thin masses can't buy much of anything thanks to inflation coupled with the rising yuan. Will our rulers crush us even more than the Japanese rulers? Will we fight back? Time will tell. Individualism is no good in a depression. In depressions, people have to pick sides and pick fights. Left or right! And then there are the wars these things spawn.

From Bloomberg:

A Cheyne Capital Management Ltd. commercial paper program with about $6 billion in assets, including real estate securities, may be forced to liquidate because of losses, Standard & Poor's said today.

Hedge funds fuelled by cheap Japanese carry trade loans are all dying. Has interest rates risen in Japan? No? BINGO! It isn't the Japanese side of this equation that has gone bad, it is the IOU side that has finally filled up. There is no way we can support more debt even at 0% interest. For the foundation of any economy is the working class and if they can save money and move up in the world, all is well. If they go deep in debt to move up, disaster looms.

From Bloomberg:

H&R Block Inc., the biggest U.S. tax- preparer, said first-quarter losses more than doubled on costs to finance its money-losing subprime mortgage unit.
*snip*
Chief Executive Officer Mark Ernst agreed in April to sell Option One Mortgage Corp. to hedge-fund manager Cerberus Capital Management LP. Under the terms of the sale, which earlier this month was pushed back two months to December, H&R Block has to keep the unit running with cash infusions until the deal closes.

Cerberus is a pack of three-headed hyenas. They are busy ripping apart all the carcasses. I wonder how they plan to kill off Chrysler? Will the moody, angry Chinese dragon buy it? Certainly, the Japanese won't.

From Bloomberg:

The Bank of England loaned 1.6 billion pounds ($3.2 billion) at its penalty rate of 6.75 percent, suggesting commercial banks are still reluctant to lend to each other after the collapse of U.S. subprime mortgages.
*snip*
Euroclear's CrestCo, which settles trades in London, said in a statement there was a ``processing disruption'' with the Bank of England yesterday. Still, this was ``managed routinely'' and no client reported any ``settlement issues'' to the agency.

Time to visit Markit, a site that tracks the tranches in the trenches and watches how the wonderful hedge fund machines are faring as they fall off cliffs, lemming commuters to the sea.

Click here to see the woeful condition of the ABX-He funds. Any numbers below 100 means losses. Seven of these funds are trading below 50 pts.

Here is a new service at Markit, a PDF file that tracks shortfalls for these ABX funds! Here is an example of the losses that are building up in each of these funds that were supposed to be clever hedges:

All is well...er...sort of. And no one will say who is the chap in trouble. And these 'processing disruptions': we are not out of the woods, no we are not. Bretton Woods III is a forest fire. It looks like Southern California in the Fall, like Greece this summer: burning out of control. Every time the central banks in the West fly helicopters over these blazing fires, dumping nearly a trillion dollars so far on the flames, the fire seems to go out only to reappear, burning even higher. I believe the fires are nearly out of control now but there is more money available to act as a liquid here an the Western Banks hope that Japan and China will take care of any inflation we cause with this fire fighting. But this is a false hope.

Japan can't starve its own people totally to death. Already, there is a rising storm against the rulers who just noticed the pain and anger. Abe is frantically shuffling his corrupt cabinet but this is like moving furniture in an earthquake: it won't stop the shaking or stay put. In contrast, China is ruthlessly cleaning house. The coming change of direction won't please us. It might please Japan who is hoping they can continue to dominate and penetrate the US market for high-quality, high-profit items while buying virtually nothing in the US. This will destroy us which would please China but China will not allow Japan to arm further. So they are at loggerheads, playing a game of chicken which features the US being used by both as the vehicle they are using to drive straight at each other.

From Market Watch:

In contrast, institutional favorite Don Hays of Hays Advisory is a Wall Street triumphalist, with occasional nuances.

And he must be feeling good this morning. After Tuesday's tumble, he emitted this bracingly bullish bellow: "This might scare you as you remember (Tuesday's) one-day spanking, in that you think the stock market might have to spank you even harder along with Mr. Bernanke and crew. Never fear, the valuation of stocks today comes close to a guarantee that the downside risk is practically nil, but the volatility will scream the accountability message loud and clear ... This is when the rubber meets the road, and the Fed has NO CHOICE. The market will shake them every time they appear to be dozing off again."

Belly up to the sushi bar, buddies! The belief the downside risk is nil is betrayed by the continuing collapse of the global banking liquidity system set up by Japan. The ability to tap into Japanese liquidity is being restricted by Chinese attempts at raising the value of the yen. The open irritation of the Japanese every time China raises the value of the yen is obvious. The US is cooperating with Japan in supressing the value of the yen in order to keep the good times rolling but the US is deep in debt to China and it can't play this game forever in this fashion. Once China passed Japan in owning our currency and debts, we should have switched gears and stopped the carry trade. But we didn't and we can't.

For we need sub-inflation level loans in order to pay our bills because we owe too much and we owe too much because of sub-inflation level loans! A trap! A trap! No organization or society can run up infinite debts! It is impossible. Already, the price is obvious: the Japanese are beating us up at home and abroad because their cheap loans makes their currency cheaper than the dollar! And this is bad for us and bad for the poor Japanese working class.

From the BBC:

New York hotelier and real estate billionaire Leona Helmsley has left $12m (£5.97m) to her pet dog, Trouble.

Meanwhile, the rich in the US who shirk paying their debts to society, live it up thanks to tax cuts that help them and hurt the USA. They don't need this money and we need to save our nation and they should pay the price for keeping our nation strong or they will be in just as much trouble as all of us. And keeping the masses quiet is worth the extra money. Ever since the tax cuts, funds flowing to politicians running for elections has shot through the roof because the rich have plenty of money to give to the government....to cut their responsiblities even more! This has not only warped our government and corrupted our representatives to the point, they don't care if they kill us in war or via neglect, this also has warped our foreign policies as rich people pay our government to wage unpopular wars, for example.

Culture of Life News Main Page

The New 5 Year Boom/Crash Cycle

Elaine Meinel Supkis

Stocks went up and everyone who put us in this economic mess now are convinced old Santa Bernanke will follow in Greenspan's footsteps. We will now enter a foolish cycle of sudden rises and sudden falls in interest rates that have no connection with reality. And indeed, I will prove that this has been so since the middle of the Vietnam war when Americans voted for Guns and Butter. We have been dining on this toxic dish nearly all my life. And it is bankrupting us gradually. This slow descent into financial death is now going to speed up if Bernanke pretends inflation is less than 4%.

Just to review today's astonishing news, here is Bloomberg:

The Federal Reserve will probably cut its benchmark interest rate to 4 percent as slowing U.S. economic growth restrains inflation, said Edward Hyman, chairman of International Strategy and Investment Group.

The worst housing slump in 16 years is weakening the economy after the Fed raised borrowing costs 17 times from June 2004 to June last year. A mortgage-market survey conducted by Hyman's firm showed conditions are ``pretty bad'' and ``among the lowest ratings we have ever gotten,'' Hyman said.

``They will start to ease in a measured way, 25 basis points every meeting,'' he said in an interview in New York. ``I think the economy will react favorably to it'' and probably avoid a recession, he said.

Hyman said he sees a ``better economy next year,'' with stocks and Treasury yields rising. Slacker growth this year will ``put inflation aside'' as a concern for the central bank, he said.

What has irritated me for many years now is the belief that spending is our economy. This is false. Only after we deduct our trade deficit, can we see if we 'grew' an economy and the answer is a resounding 'NO'. We are not growing anything except an ocean of red ink. Consumer spending is driving America into a very deep hole. We should NOT be encouraging spending, we should be encouraging SAVINGS. Debt has ballooned and savings has collapsed. Ergo, we need to rebalance them with each other.

This 'Golden Mean' is true conservativism and I am rather conservative. The sober mean is important because it is all about balance. When the rich get too rich while the poor languish, this is not the Golden Mean. This is people with gold being mean. Great differences between rich and poor leads to tyranny, revolution and coups. The great middle class leads to stability and democracy. As our nation follows policies that are extremist leading to extreme ups and downs in our finances, extreme solutions to financial problems caused by extremely wild investments, extreme wealth being pampered and cared for while many millions go without health insurance or even housing, this extremism is not good for any democracy and we see tyranny already raising its head as the millionaires in Congress and the billionaires in the Senate and the multimillionaire govenors all join hands in making extremist policies that make them all richer along with the Secretaries of the Federal government and the multi-multi-millionaire/billionaire President and Vice President richer...this can end with a historic explosion at home when these traitors hand us over to foreign powers who hold the mountain of debts rung up by the super-rich rulers.

The war debt climbs relentlessly as we see here with Prison Planet:

U.S. President George W. Bush is preparing to ask Congress for as much as $50 billion in additional funding for the war in Iraq, The Washington Post reported on Wednesday, citing a White House official.

A desire to save the banks who gave bad loans, to save a million hedge fund hell hounds, to fix the affairs of the very rich, they need to confiscate all the wealth by granting themselves endless 'free' loans. Loans that will be yanked from our hides as they strive to kill inflation by killing all social services, wages, benefits and infrastructures of the working class.

I remember when the government pretended they controlled inflation via the Wage/Price controls: I was working already.

Here is a basic chart courtesy of Yahoo finances: Click on image to enlarge

As usual, I modified this chart by inserting important events and the ups and downs of the IRX 13 week funds the government uses to sell its bonds which pay for things like money we use or misuse. In bad times, the rate the Fed charges drops because everyone rushes to the Fed for protection, in good times, it drops really low. But there is a much more important force at work: the Federal Reserve!

If the Fed rate is very low, the rate here is low. And if the Fed tries to kill inflation long after inflation raced past the interest rates of return, it rises rapidly. The chart above doesn't cover the 1945-1960 era which saw great stability and medium interest rates. The sudden surge upwards from 1975-1985 were supposed to be a one time event that was due to oil wars and not because something was fundamentally wrong with our entire system. Inflation was supposed to be 'cured' and the fiat currency, secure. At home, inflation did moderate but this was due to OPEC pumping oil like crazy again.

After the Plaza Accords debased the fiat dollar further, the US continued its over-all plan of overspending in the government and letting Japan hammer us in trade. Today, everyone hammers us in trade and we overspend like fiends and the accumulation of both are now many trillions in the red. So looking at this chart, one thing is painfully obvious: in 2002, the rates plunged below the lowest rates set back in the good old days of the first Kennedy year, 1960. Did inflation vanish for the first time since the beginning of the Vietnam War? Obviously, not. For in 1960, the USA was a creditor nation, it was in the green all around. And taxes on the rich were very high. It was understandable, money was cheap because everyone was saving and you could buy a house with $3,000 down and a twenty year mortgage and pay it off by 1980. Between then and 1980, all hell broke lose. But in 2002, we were not at peace, not in the green and most certainly not a creditor nation. So how could we charge so little for interest? Of course, it was a gift from Greenspan. Pure and simple. And he began giving long before 9/11. On the chart, the interest rates dropped the most BEFORE 9/11!

From Bloomberg:

``Concerns about upside inflation risk and their credibility will play a role in tempering how aggressively they will be willing to ease,'' said Brian Sack, vice president at Macroeconomic Advisers LLC in Washington and a former Fed economist. ``It won't prevent them from easing in September.''

The central bank did signal greater concern about the threat to the economic expansion from credit markets than it showed in the statement after the Aug. 7 meeting. A deeper deterioration in financial markets ``might require a policy response'' depending on the effect on the outlook for growth, the minutes showed.

When there is a hole in the bucket, a rip in the balloon, no matter how hard one tries to fill it up again, everything dribbles out. Every other day, the stock market swings wildly between extremes. Today, it went up the same degree it went down the day before. Talk about instability! And it rises on rumors and falls on facts and eventually, hard facts will prevail. I always reacall, the happiest day on Wall Street before the Great Depression was in mid-September after it yo-yo-ed up and down for three months.

It is pure wishful thinking that inflation will magically vanish in six months. And the capacity of the Chinese to believe us when we set super-low rates is not where it was when they were trying to penetrate our markets in 2002. They have penetrated and poked a hole right through the other side already.

From Market Watch:

In his letter, Bernanke called for creative thinking to get the nation out of its subprime mess.

"It might be worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low-and moderate-income borrowers, including those seeking to refinance," Bernanke wrote.

"Such products could be designed to avoid or mitigate the risk of payment shock and to be more transparent with respect to their terms," Bernanke wrote. "They might also contain features to improve affordability, such as variable maturities or shared-appreciation provisions for example."

My theme for this week: the Death of the Classic Mortgage.

The 20% down, 20 years to pay mortgage died some time ago. It was replaced by higher-interest rated, 10% down, 30 years to pay mortgages. Then this was slowly replaced by the strange new Alt-A and sub prime mortgages that were much closer to credit cards, the sub-prime being basically glorified credit cards where you don't even pay interest, you slip deeper and deeper into debt after the first payments! So what do we need? Even more credit-card like instruments? Huh? When 45% of the market was these credit-card clome mortgages, I could sense we were turning yet another dangerous corner on this long winding road downhill.

In the Middle Ages, peasants would swap land and pay each other money for the right to use various strips of land but they could NOT buy their land outright, it always remained in the hands of the overlords. If the overlords had bad luck or were reckless, they might have to gain money but they still didn't SELL the land. They handed out 'mortgages' which meant the peasant didn't have to do service but the lord still held the land, so to speak, as part of his or her estates. Smart or lucky peasants could then assemble large mortgaged bits of land scattered about the big estates. Consolidating this to make money, they sold the right to farm these strips to brokers who would then treat them as tranches and collect profits off of a variety of peasants needing strips of land close to home. So a farmer might hold the tilling rights to ten different mortgaged strips of land which happen to be close at hand and paying for all this was passed through a broker who was the ancestor of the art of real estate developer.

In my region in America in the depression of the 1840's, we had a rent war whereby the newly-freed Americans resented this style of landholding which the Van Rensselaers carried over from Europe. The battle over who held the land was not about mortgages but about owning the land outright. The laws in New York, thanks to this uprising, state, I own the land I sit upon from the surface to the center of the Earth. And 1000 feet into the sky. And my land is my castle if I keep it free and clear.

The 'new' mortgages are really old, old ones. The people living in houses will be allowed to mess around for a while and so as they please but over the years, the right to use it in any way will be, like in many 'gated communities', severely restricted. Eventually, homeowners will be mere supers, forced to maintain their properties and pay for all repairs and inspectors will insure the bank's ownership isn't debased by mishandling or misuse. These homes won't be castles, they will be hovels.

From Charlotte, NC:

In three weeks, Charlotte's Emergency Winter Shelter will close its doors to 53 women, and Carmen Adams has started to worry where she will spend the night.

Adams, 46, has been homeless since October. A store manager at Family Dollar for 20 years, she says hasn't worked in the past year because of chronic pain and an array of illnesses. She used to spend nights in her car, but now it might be repossessed, she says.

"I don't know where I'm going to go," Adams said.

Each housing busts has homeless. My family was homeless in the sense, we didn't have a house. But we had a property, free and clear. So even while we lived in a tent complex, we were anything but homeless. I even had a sign on the kitchen area saying, 'Home is where you pitch your tent.' The poor people stuck with credit-card houses are mostly one paycheck away from homelessness. Illness can swiftly lead to eviction! This is absurd. I keep saying, it tis far better to have high interest rates, low housing values and be able to buy houses the old fashioned way! You can't flip housing but then housing won't flip you back into the gutter.

From the Market Oracle:

I am not really one of these people who believe in conspiracies, but that does not mean that the Working Group on Markets is not what is seriously mitigating things. Hey, they admit they do it. They certainly have the horsepower and brains to pull it off, with Paulson and so on, market traders par excellence.

The only trouble is, how many times can this work? I think it is rather clear that, now that mortgage derivatives have been scattered world wide, and are being written down to 10 cents on the dollar, some more anarchy must ensue. We may have sort of weathered the first real test, but at great cost, and likely many hidden losses out there. We are not out of the woods yet by any imagination. The bad derivatives are about $2trillion worth of subprime and Alt A (one level higher). 20% of these are in arrears. Then we have the trouble spreading to even good mortgage derivatives, as investors flee these regardless of quality. That has caused jumbo loans (exceeding 400k US) to become hard to get and at 9%! Good luck to the high end real estate market.

The magic of saying, 'Hocus pokus, low interest ratus, stock markets go up!' is easy, isn't it? Child's play. The fact that this might cause a dragon to come and burn down the place doesn't occur to these childish magicians. They tried and tried to get Santa Bernanke to say this magic spell and so far, he hasn't. But they have shoved him aside and spoke the spell themselves and like magic, up went stocks. These same people buy houses costing more than a million bucks. They HATE paying 9% and they want Bernanke to say, 'Hocus pokus, million dollar mortgages appear!' And there they are! 3% a year! How delightful.

From Bloomberg:

Standard & Poor's said business conditions for securities firms are worse than in the second half of 1998 and revenue from investment banking and trading could fall 47 percent in the final six months of this year.

The rating company said it conducted a ``stress test'' designed to measure the ``ability of investment banking businesses to withstand such scenarios.'' The conclusions don't constitute a forecast, S&P said in a statement.

``This is more severe than in 1998,'' when investment- banking and trading revenue fell 31 percent in the second half following Russia's debt default, S&P analyst Nick Hill said in the statement. At the time, revenue from fixed-income, currencies and commodities was negligible or even negative, he said. As in 1998, firms are likely to cut bonuses to stay profitable, said Hill, who is based in London.

And they are right. Things are bad, very bad. And getting worse, not better. Like all magic spells that go against the forces of nature, the tides of the seas, these spells will fail. The houses built on the sands of such economic insanity will be swept away by the tsunami of events just like the Boxing Day Tsunami. All it takes is an earthquake. Off shore. And there are plenty of fault lines about to blow including the very real ones in California which is way overdue for a catagory 8 or 9 earthquake!

Bloomberg:

Markets recovered quickly after the 1998 drop and favorable economic fundamentals now could cushion the impact of declines in investment banking and trading, the report said. This time, ``the source of the problem has shifted from emerging markets to the world's most developed economy.''

The problem is the death of the American Empire is going to suck everyone down a black economic hole! Note that we saved the world in 1998 by going even deeper into the red. Clinton did 'balance the budget'...for one year. And Bush then announced he would spend it all on tax cuts. So we got stuck with a trade deficit from Clinton's years AND budget deficits that swiftly quadrupled our national debt. And fixing this is harder and harder to do since we are spending like there is no tomorrow. Another reason the Fed wants to drop rates no matter what.

And the same ugly dilemma arises: to sell this debt, we must have rates that are attractive to foreigners since they are the ones buying up all our debts and they are the ones who will be our masters as we live in our own nation as if it were a house on a Master Card credit plan rather than free and clear.

Culture of Life News Main Page

Bernanke Will Drop Interest Rates To 4%!!!!!

Elaine Meinel Supkis

BREAKING NEWS: BERNANKE WILL DROP INTEREST RATES TO 4%! ARRRRGH!
As expected, markets overseas echoed yesterday's panic on Wall Street. Ever since the .com crash, investors have begged wizards to write new spells that create instant wealth. The wizards used two spells: the 'let's exploit Chinese labor even more' spell and the 'let's create pre-Great Depression investment trusts of various sorts' spells. Both no longer produce easy wealth because the basis of both is piling on debts in the Western empire's populace. The last gasp of this long process of indenture came when Greenspan had to lower interest rates 4% below the real rate of inflation which caused the balloon we now see going bust. Today, I talk about SIV funds, another goofy creature created by these magicians.

THE FED WILL PULL ANOTHER GREENSPAN!!! From Bloomberg:

The Federal Reserve will probably cut its benchmark interest rate to 4 percent as slowing U.S. economic growth restrains inflation, said Edward Hyman, chairman of International Strategy and Investment Group.

``They will start to ease in a measured way, 25 basis points every meeting,'' Hyman said in an interview in New York. ``I think the economy will react favorably to it.''

Hyman said he sees a ``better economy next year,'' with stocks and Treasury yields rising. Slacker growth this year will ``put inflation aside'' as a concern, he said.

I was about to publish my story warning about repeating the Greenspan super-low interest rates while pretending there is no inflation when this hit the news wires! And of course, this is PURE INSANITY. And stocks are shooting up! Obviously, Bernanke and his gang surrendered to the financial class who brought this mess down on our heads in the first place.

Now they are safe...until China starts teaching us Mandarin. We are so doomed. But the party will roar on, houses will sell, America's debts will increase to 200% of our GNP instead of 100% and our empire will lose its entire industrial base and anyone saving money will be wiped out, totally.

From reader John's email comes this Telegraph story:

Traders are braced for another week of turmoil after the near breakdown of America's $2,200bn (£1,100bn) market for commercial paper.

"It would be far too premature to judge this crisis over," Mr Summers said. "I would say the risks of recession are now greater than they've been any time since the period in the aftermath of 9/11."

In Germany, it emerged that the state-bank SachsenLB may have accumulated $80bn of exposure to risky assets through a set of Irish funds kept off balance sheet.
*snip*
The biggest losses stemmed from structured investment vehicles (SIVs) which involve using short-term credit to buy longer-term assets, creating a mismatch in maturities.
*snip*Federal Reserve data shows that the outstanding stock of US commercial paper has fallen by $255bn over the last three weeks, a sign that borrowers have been unable to roll over huge amounts of debt. The fall is comparable to the sudden shrinkage that occurred at the onset of the dotcom bust, and may have the effect of draining liquidity.

$80 billion. Whew. Now we know why the officials running the Bank of Europe were in such a panic on the 12th and onwards. As the individual bankers came hat in hand and produced the bills they owed, there must have been a fainting fit at the central bank. Is this the end of the rout? Is there a route out of this rout? Or is this a sign of interior rot? Obviously, the answer is the last. This rot is very expensive and the seeming health of the world banking system was like a giant oak tree that has been hollowed out by lightning bolts and bugs.

The tree used to illustrate this story is on my property. It is hundreds of years old and the crack is twice as tall as I am. When lightning hits trees, it does two things: it sears the outside bark, leaving a wound. And it also can travel up the center of the tree because this is where the water is easily heated by the bolt. When I cut down lightning trees, it is easy to see the burned exterior and the zapped center. Bugs love these lightning trees and chew up the weakened fibers. Then owls, woodpeckers and others move in and widen the wounds. Then foxes and bears move in as with my great oak which I named 'Sherwood Forest' beause the tree is so big, it looked like a forest when seen from afar.

The mighty empires of the West have been struck by several lightning bolts: WWI, WWII and the Hubbert Oil Peak hitting the US. The 'strength' of the US sector in particular, is constantly harped on by our rulers but even if the amount of business is still huge, the GNP huge, this is all based on debts on every possible level, corporate, financial, housing, consumer and above all, state and federal debts. On top of all this debt is the astonishing and unsustainable trade deficit. In all, this is a totally hollow tree ready to blow over in any storm that comes by.

One storm is the one launched by bin Laden who has inspired attacks on the financial hub of the West: Wall Street. His determination is, if he gives enough little pushes, this will egg the US into futile invasions where the tendeny to try to profit off of war sinks our economic ship. He understands us perfectly and as he hoped, our spending on war has been totally out of control and coupled with tax cuts, has made the red ink worse. The chances of him winning his war with the US has risen to 100% at this point, an astonishing feat. Of course, it helps him greatly that Bush and his gang actively want to destroy America.

The reckless US has conned many more cautious nations like Germany into playing bizarre and stupid funny money games and now Germany will get to relive the Weimar Republik. The vast sums poured into the toilet by the Bank of Europe are unsustainable. The euro is strong despite this only because the malicious Asian central banks are forcing up the euro so they can destroy Europe's export markets! A strong euro is a sign that the Central Banks in Europe have failed in their mission due to their lack of FOREX reserves.

The US dollar is weak because the US has printed up so much money for so many years, taking advantage of the Asian desire for weakening their own currencies, no one notices this anymore since a weak dollar is always stronger than a weak yen---except for last week when the Japanese had a huge scare about all this.

From Bloomberg:

The yen fell, snapping a two-day gain versus the dollar and euro, as speculation the Bank of Japan wont' raise interest rates spurred fund managers to send money abroad in search of higher returns.

The yen slipped against all 16 of the most-active currencies as the odds the central bank will lift the overnight lending rate next month dropped to 20 percent from 30 percent yesterday, according to Credit Suisse Group. The yen has risen 7 percent against the dollar this quarter as credit-market losses caused fund managers to repay yen loans used to fund carry trades.

Stocks on the Nikkei fell over 200 pts during the last 12 hours. Japan has two tools it uses: super-low interest rates that encourage everyone to not hold yen and buying dollars and euros no matter what. Stocks depend on exports because the need to keep interest rates low in Japan rests upon preventing the Japanese from buying stuff. This is the artificial depression there which is triggering a REAL depression across the globe! For the world's #2 economy and #1 export profiteer can't opt for depression without destroying world trade. I can't emphasize this enough. Nearly universally, everyone with negotiating powers thinks Japan is helpless in this regard and not cynically generating a depression.

From the Financial Times:

Chinese wages are on the rise. No reliable figures for average wages exist; the government’s economic data are notably unreliable. But factory owners and experts who monitor the nation’s labor market say that businesses are having a hard time finding able-bodied workers and are having to pay the workers they can find more money.

And higher wages in China are likely to lead to higher prices in the United States — at the mall, at the grocery, even at the gas pump.

Both Japan and the Western G7 nations depend on China to wring out inflation via low-wage workers. Now they are moving to India to gain the same bonus but this is a doomed search because all the Chinese have to do is man