We Think China Is Now Selling US Government Debt

Elaine Meinel Supkis

The world banking collapse is continuing and so long as the G7 nations continue to attack China while begging Japan to continue the carry trade, the world banking system will continue to collapse. I wonder when they will all figure out that the US housing mess in California and Florida are NOT the cause of all this? Naw. Gold begins to climb as the central banks of the G7 continue to conjure up funny money by waving their wands and this means the attempts at saving the present system is causing...INFLATION. And even so, the wizards want to drop interest rates and so far, they can only do this for a week or so before it shoots up again? HAHAHA. They need to call me...I am free to advise them about reality.

From the BBC:

The European Central Bank (ECB) has moved again to boost liquidity in the banking system, after warning of fresh volatility in financial markets.

The ECB is lending billions at its minimum rate of 4% in its latest effort to counter the global credit squeeze.

Central banks are trying to cut the cost of credit after the rates at which banks lend to each other soared.

OK: I said last 7/17/7, it being a medium magic number day, something has changed, the world banking system will now begin to sink under the weight of its own contradictions and China, pissed off at the G7 nations attacking only China while petting Japan, demanding China strenghten the yuan while begging Japan to weaken the yen, well, all hell was going to break lose and as I felt back then, it did! And far from being 'fixed,' it is much, much worse now! Also, for propaganda purposes, the head banks are lying about the causes of all this. Nothing concerning US housing has changed in the last year, it has been an obvious decline since November, 2005, and obviously related to the steady rise in interest rates launched by Greenspan because the price of oil has gone up since we went to war in Iraq.

To review: BEFORE 9/11, Greenspan dropped rates for half a year in order to make Bush popular after he stole the election. Then, they had to justify tax cuts so the economy that was in a mild recession, began to run white-hot. The tax cuts were very inflationary and so inflation began to take off more and more as Greenspan dropped rates! Not only that, Enron was squeezing California for rate hikes so they were blacking out whole sectors causing the state with the largest economic share to slide into a secondary recession as businesses couldn't function.

Then 9/11 happened and Greenspan poured in the inflation big time and housing took off in a classic interest rate-driven inflationary bubble that was obvious to anyone with a brain. Then the US decided to go completely insane and made a lunge for Middle Eastern oil and to kill Saddam who supplied money and aid to the Palestinians and the Jews wanted him cut off for good so they could oppress the Palestinians and kill them off in various Warsaw ghettoes. This invasion caused global inflation by causing the price of oil to go up and up and up.

And ALL RECESSIONS and ALL ECONOMIC CHAOS in the second half of the 20th century to today have been triggered by wars in the Middle East raising the cost of fossil fuels! This time around, the world bankers believed they could deal with the obvious inflation by outsourcing everything to China. This worked for three years. But the same banks that wanted all industry moved to China to wipe out inflation caused by the US invasion of Iraq are now demanding China RETURN this inflation in the form of inflation!

Once again, we are on a horns of a big Minotaur of Money! All money matters are magical and deep in the heart of fiat money making which is the most magical of the Dark Arts, there are counter-rules the rulers of Earth refuse to understand but the demons guarding the passages and chambers of the complex I call 'the Outerdarkness' know these rules very well, they enforce them! Just like nature on earth has rules like the rule of gravity, in the Chambers of Wealth there are terrible laws, laws that can't be violated. One of them is, all things must come into balance.

I call this, 'Libra's Temple.' She has the scales and note that many banking and other collapses tend to happen during her acendancy. She balances the books. She weighs relative values. All accounting must equal zero! If we fail in this, she punishes us by doing it herself. Being a goddess, she is incapable of doing it gently, she does it all at once. Bang. If we want it done gently, we must do it ourselves before she gets around to doing it her way!

Throughout the last year, our rulers who have gambled at the Gates of Libra, have talked about a 'soft landing' while doing all in their power to keep the imbalances going, nay, getting worse. They really think there will be a soft landing so they don't need to worry about flying onwards to the sun at a madcap rate. This trust in Libra to be gentle is very childlike which is why I call these people 'babies' or 'children' or 'fools.'

I admit to being rather a pagan, can't help it. This makes it much easier for me to visualize various elemental and human-connected forces of nature. Turning things into cartoon characters or Olympian creatures makes it very easy to distinguish what is going one from background noise and predicting the future is very easy if I assume various forces are creatures like Pegasus or Libra. Then there are the associates of these divine entities such as the vulture creatures who watch Nightmare Network News which is our dream world. Combined, it becomes easy to see into the future and be Cassandra who no one listened to.

Something that irritated me as a child but as an older lady, I now know why. People want to live in dreams, not nightmares, so they ignore obvious future reality in the hope they can evade responsiblity for their own actions! When it comes to the realm of power and money where humans go to try to manipulate reality and turn it to their own favor, the desire to buck Libra and unbalance everything so it goes only their own way is huge which is why demons hang out there: it is a prime collection point, a veritable Venus flytrap of a place where picking up souls is laughably easy, no? At least, this is what they told me in the past. I was very bemused as a young person when I discovered all this.

This is also why I stand on the sidelines and yell at foolish humans attempting to keep unbalanced systems going in the wrong direction: it is FUTILE. DANGEROUS. Stop. What we are seeing this cycle is classic: the rich and the rulers both are habituated to a system that is very unbalanced so they will move heaven and earth to keep it going and thus, create HELL. Hell isn't evil, it is merely the reverse of Heaven. And the more a system is pushed out of whack, seeking heaven, the deeper into hell one goes when things have to balance out and be set to rights.

I hope everyone doesn't think I am babbling like a nut. In 1955, in the Fall, I was hit by a very powerful lightning bolt. As I fell through utter darkness, I came into this cosmic realm where all things were at their most extreme. And all things were opposite of what they were in the real world. Hot was cold and light was dark and light was heavy. This oppressive and dangerous condition lasted for probably less than a minute or I would be not sitting here, writing, when Pegasus flashed past me and I grabbed at him and was pulled out of that horrid place with a sudden jerk, landing on the floor of my bedroom.

So picturing finances as part of that place has made it very easy for me to see what things to watch and of course, one of them is magic numbers that are harmonic and balanced and we are moving into Fall which is FILLED with such days on our human calendar. The confluence of all this is so powerful, it takes my breath away and makes me a bit dizzy, actually. But here we are: the Dragon has begun to stir out of its cave and it is moving! As I will explain. And the attempts of the G7 nations to confine the dragon while harnessing this fearsome beast, is failing because the Dragon itself sits upon the world's biggest pile of money! And this is magic money, not gold.

The Dragon is now chanting the formula for turning fiat paper money into gold. And thus, we see inflation in...gold. And all my life, I have studied this dragon both in the fairytale realm, via the Ring Der Nibelungen, the best opera about money, gold and power ever, and of course, via teaching or learning from the Chinese leadership before they took power. Heh. At the request of the State Department, no less though they would deny this today. Hello, guys!

Alert readers have sent me good information confirming the fact that the Dragon has begun to move and I am eagerly watching for the next confirmations of my predictions, all of which comes from understanding the heart of the matter: that dark cave where magic numbers are used to create magic money.

From the BBC:

The European Central Bank (ECB) has opted to keep interest rates on hold at 4%, as jitters continue to unsettle markets worldwide.

The widely-expected decision in the 13-member area comes as central banks try to prevent market turmoil from turning into a bigger financial crisis.

These are not jitters. This is the economic plane plunging into a hurricane and it is shuddering as the pilots insist there is no hurricane, it is just a small thunderstorm. This level of denial is most powerful. One of the traps for wizards in the Outer Darkness is, they think, since they conjure up things out of thin air, they can make reality! Every once and a while, last year is an example, someone comes up with the notion that reality is what you want it to be. Namely, it is easily manipulated if one prays or desires something. This may be true in the sense that the wish will be granted for various reasons including random chance. Random chance is yet another powerful force here that is misunderstood. We imagine we can control random chance but it is one of the oldest elemental forces, it existed before the universe was created.

Indeed, I personally believe that random chance is responsible for this event. After all possible combinations of magic numbers and coincidental harmonic numbers and infinite series of numbers were suddenly used up, so to speak, and all possible combinations of numbers were exhausted and all possibilities in nothingness were cleared away there were two choices: the possible and the IMPOSSIBLE. And since all things must balance, the impossible flipped into being to balance the possible. And this makes little sense yet it is as good as calling this 'god'.

From the Boston Herald:

The Fed's Beige Book, which describes economic conditions in regions around the country, said that while upheaval in the financial markets has made the housing slump worse, the overall economy hasn't been widely harmed. Wall Street appeared disappointed that the Beige Book's findings didn't deliver a sure-bet for a rate cut, which markets have been pining for.

"The markets are reacting to absolutely every bit of information which is coming along tick by tick," said Walter Gerasimowicz, chairman and chief executive of Meditron Asset Management in New York, downplaying the market's initial pullback after release of the Beige Book as an overreaction. "I'm happy to see that the underlying economy is still in fairly sound mode."

He noted that had the Beige Book shown a weakened economy investors might have been enthusiastic about the increased chance for a rate cut but grown more concerned about the prospect of a faltering economy.

Yesterday's news from the Federal Reseve wizards, the 'Beige Book' illustrates how our magicians operate. At NO POINT does this silly analysis of our desperate paradoxical situation get any mention. The trade and budget deficits are ignored. This way, they can claim the future is obscure and can't be seen, look at the present! We are still 'strong' and the 'underlying economy is....sound mode.' It is painfully obvious to even 10 year olds that the basic economy is in ruins and proof of this is our trade deficit. This must be jerked into balance and the deeper we go, the more violent and SUDDEN this event will be! It is inevitable, not a possibility but a certainty. There is no way of evading this certainty. Ceasing deepening this mess is a good start but it has gotten so out of control, it is impossible to even slightly stop it without a host of other out of balance items suddenly flying out of control and crashing so the US wizards are simply trying to manipulate whatever they can to keep this going but this is making things worse and worse. Due to the desire to make more wealth playing this game, the powerful rich behind all this mess want it to continue forever and ever. This fantastic idea won't die a natural death. Outsiders will execute the coup de grace.

From reader Carlos:

Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.

"This comes as a big surprise and it is definitely worrying," said Hans Redeker, currency chief at BNP Paribas.

"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros," he said.

For several years now, I have drawn quite a few Miz Liberty and Miz Japan mixing it up with the Chinese Dragon. Often, I show Miz Liberty mocking or defying the Dragon and then returning to beg for more money, more loans. I also show Miz Japan killing the yen constantly. All this is very real and very true to life. The Dragon has closed the entrance to its cave. It is now using its money to buy out Japan and America. Both want to fend this off somehow so they conspire together. But they are NOT united at all, Japan is further conspiring to undo the murderous mess of WWII by destroying the US native capitalist base and replace it with the US being run by Japan!

Japan has bankrolled the US overspending for a long, long time. For a while, this was working wonderously. I told the Chinese to study the Japanese who were successfully bribing not only American trade negotiators but their boss, the Presidents of the United States. Reagan, for example. I said, 'If you copy the Japanese, you will get very rich and will end up running America because we are led by traitors who sell themselves to foreign powers because they want more money.'

Recently, another Chinese official was executed. The Chinese news admitted they no longer use bullets to the back of the head. Injections are the rule. Well, how many US negotiators and guys running our systems like the Treasury have been executed? Or arrested? None, of course. So the betrayals gather strength as these people feel very emboldened. The Chinese copied the Japanese and when Japan began to build up their FOREX reserves to nearly a trillion dollars, China went one step further.

The stupid wizards running our Treasury and our Federal Reserve still believe that Japan can support our overspending. Proof that this is false is obvious: China and now Russia both are putting away more dollars than Japan and ergo: they are running this system now. So if they both stop and they both stopped, it collapses because Japan's huge trade surplus isn't nearly a trillion dollars a year, it is much less so they can't do this trick!

Balancing world trade must happen and this means the US, which is at the center of this trade, will have to cut its consumption by at least $1 trillion. This is a lot of money, everyone. And this is what we are all trying to evade: we want to overspend because it is fun. And one way to do this is to have very low interest rates which is why the world banks this last month dumped well over half a trillion of very inflationary fake money into the banking system to keep interest rates artificially low and of course, this causes inflation so the system shakes and rattles like a plane flying into a hurricane that is, thanks to this, growing from a catagory 1 to a catagory 5 quite rapidly thanks to the Dragon refusing to lend us more money!

From Yahoo:

Stocks finished sharply lower Wednesday as a jittery Wall Street sold off on a report showing a large drop in pending home sales and read anecdotal data from the Federal Reserve's regional banks as offering little more assurance that an interest rate cut is likely. The Dow Jones industrial average dropped more than 140 points.

As I keep saying, if 0% interest could be had, they would want it. And Japan has been giving this and it has warped world trade and world banking so ferociously, the effects are now so huge, the entire system is about to implode, badly. The US cannot drop interest rates, they must go up because we are no longer saving and our equity level has now dropped to 0% as every system runs in the red and savings have collapsed and are negative for the first time since the Great Depression! We must encourage savings because the alternative is to have no banking system at all and what happened in 1933?

The banking system collapsed! If anyone claims this can't happen again, proof is, humans repeat mistakes with moronic, clockwork regularity. They can't help it. Temptations never change. Once a crop of new wizards are born and they enter the Chamber of Wealth, they discover waving magic wands and chanting magic numbers creates money! And so all the warnings at the entrance to this dire cave, all the bones, are ignored.

Here is a web page that tracks our internal collapse as foreigner buy out America. From Economy in Crisis:

Japan must be doing something right! Better planning, direction, and a more responsive government are keys to their success. They have learned much from us and have improved on it. Perhaps it would be wise for us to study their improvements for our own benefit.

Interest Expense: The US public debt is almost 50% financed by other countries whereas Japan’s public debt is nearly 100% financed by its own citizens. Japan’s government borrows money at rates as low as 0.6% percent (sixth tenths of one percent) whereas the US government short-term rate is almost 8 times higher. What does that say about lenders confidence in these countries and comparative strength of the two economies? To put this in perspective, the US government paid out over $405 billion to pay interest alone in 2006 (over $1 billion per day) on the nearly $9 trillion of government debt.

Foreign Reserves: Japan has foreign currency reserves (redeemable for foreign assets, corporations, resources, etc. on demand) of $909 billion. These are economic bullets poised to take out any American company, most of which are for sale on the open stock market. The US has foreign currency reserves of merely $66 billion.

This is a classic example of examining things while ignoring basic facts. Namely, China can imitate Japan but the US cannot. This is very easy to understand: who can we play such rapine games with? There is no other world-girdling nation with the world's default, fiat currency! Everyone and anyone can play the Japanese game with us, we cannot play it ourselves! Our game has been inflationary: when things get out of control, we squeeze the people running huge trade surpluses and collecting huge FOREX reserves and buying huge amounts of American businesses, assets, facilities and banks, we INFLATE our currency and collapse our economy and thus, destroy the wealth we sent out.

The US doesn't want FOREX reserves. We don't buy up yuan or yen. We jaw bone them to make it what we want and what our rulers want is a cheap yen and expensive yuan because they plan to move all the factories to India and (snark) Vietnam. So we want to kick the Dragon out. So the Dragon has been forced to move and it has decided to toy with the world's international banking systems and strengthen the yen which as risen rapidly against all other currencies right when the US and European wizards were cooperating with Japan in weakening the yen further in order to keep interest rates super-low and the carry trade going.

I said a very long time ago, the Chinese don't mind losing a trillion dollars if this causes both Japan and the US to collapse. They will consider this much, much cheaper and safer than WWIII. We are lucky they think this way. But I fear our own rulers think the opposite: they can win WWIII and evade paying off China and collapsing into bankruptcy or causing Weimar-style inflation. But the very worry about and preparations for WWIII are causing inflation and worry and this is already quite a bit of sand in our own economic gears.

From Economy in Crisis:

Production: Japan was the largest producer of steel in 2005 behind only China. Japan outproduced the US by 22 million tons. Furthermore, at least 20% of the domestic US steel industry is foreign owned according to the IRS and we import nearly 30% of the steel that we consume. Nearly none of Japan’s key industries are foreign owned.

Unemployment: Japan also had the lowest unemployment rate of all countries surveyed in 2006 by the US Bureau of Labor Statistics.

As I keep saying, Japan's depression is utterly fake and it is imposed from above and it is now collapsing because the Japanese people are getting annoyed at China growing richer and stronger by the hour while the Japanese people are being economically crushed by the LPD rulers. Who are corrupt to the core, yet another member of the 'new' cabinet of Dr. Calibari-san has been forced to resign due to financial corruption issues. The corruption inherent in the Japanese economic system is endemic. And mirrors the US corruption. It is true that Japan has severe cultural restrictions on trade and if these fail, they simply won't let Japanese borrow any sums to buy foreign goods even as Japan pours in trillions in loans so foreigners can buy Toyotas and this imbalance is right square in the middle of the economic mess that is troubling world banks!

Back to the Federal Reserve's Beige Book:

Reports from the Federal Reserve Districts indicate that economic activity has continued to expand. St. Louis and Kansas City described the pace of activity as moderate; Cleveland, Chicago and Minneapolis said their economies were expanding at a modest rate; and Boston and Atlanta reported that activity was mixed. New York cited continued expansion. The economies in Philadelphia, Richmond, Dallas, and San Francisco continued to grow; however, the pace of activity has slowed.

Most Banks reported that the recent developments in financial markets had led to tighter lending standards for residential mortgages, which was having a noticeable effect on housing activity, and several noted that the reduction in credit availability added to uncertainty about when the housing market might turn around. While several Banks noted that commercial real estate markets had also experienced somewhat tighter credit conditions, a number commented that credit availability and credit quality remained good for most consumer and business borrowers. Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited.

Note how they refuse to refer to history. It is obvious we are marching down the same road traveled in the past, the one that leads to either hyper-inflation or hyper-depression. Hyper-inflation is when the government decides to create money out of thin air no matter what and hyer-depression is when someone decides it is time to balance everything out once and for all. Both can happen at the same time, we know from the 1970's: stagflation.

From Free Trade:

Protectionist measures currently being considered on Capitol Hill fail to take into account that the nation's manufacturing sector, far from ailing, is in fact booming, according to a new study released today by the Cato Institute.

“The year 2006 was a record year for output, revenues, profits, profit rates, and return on investment in the manufacturing sector," according to the study "Thriving in a Global Economy: The Truth about U.S. Manufacturing and Trade" by Daniel Ikenson, associate director of Cato's Center for Trade Policy Studies.

Just thought I would throw in this infantile Cato Institute paper released this week. If we continue to import far more than we export, it doesn't matter how much we export. Period. This simple fact is totally ignored by the right wingers at Cato because they are fantasists who believe they are gods and therefore, Libra doesn't have any controls over them. Foolish, eh?

More Cato hogwash:

"Despite all the stories about the erosion of U.S. manufacturing primacy, the United States remains the world's most prolific manufacturer-producing two and a half times more output than those vaunted Chinese factories in 2006."

And what are we producing? Eh? Computers? Telephones? Cars? Cars made in the US aren't exported. Televisions? Nope. Very few export items are produced except for two: aircraft and weapons. More about that later today as we discuss WWIII and planes with nukes flying all over America and the Asians forcing the US to move Boeing production to Asia.

From Market Watch:

If you're a saver, a rate cut may not be an event to sing about, and could require immediate action. For borrowers, particularly the millions of homeowners facing a rate reset on their adjustable-rate mortgage, it could be very good news.
*snip*
The current situation is more like that early 2000s rate-cutting run, which started in January 2001. While there is no guarantee of any cut in September -- let alone a raft of rate reductions over time -- it makes sense to prepare as if one is coming.

For savers, that means deciding whether it's time to lock in higher payouts available now; for borrowers, it means preparing to take advantage of what happens next.

I am including this little number because of course, all 'solutions' to economic and banking messes involve stealing stuff from savers. When most of America, especially the government, is up to its eyeballs in debt, the easiest thing to do is to pay for this with funny money worth much less than the money lent! So we get increasing inflation which stimulates economies. The Greenspan 1% interest loans set the economy on a wild ride and ravaged savers ferociously.

As interest rates rise, savers gain strength which we need but this kills the economic fun and games so the temptation to cheat savers rises. This is why we flirt with low interest rates in the teeth of obvious inflation.

From Market Watch:

Gold futures rallied to trade just below $700 an ounce early Thursday, boosted by dollar weakness, strength in oil prices, very strong physical demand and safe-haven buying.

Inflation is here. It is obvious and the rise in the price of gold proves this. The attempt by the European banks at flooding gold markets this summer so they could pretend there is no inflation and thus, they could drop interest rates, has finished and instead of lower gold prices, it is climbing! And the amount of gold to be sold off is greatly diminished now! The gold bugs supporting hoarding gold will now be ascending and their stars will rise higher.

Gold balances funny money every time. Note that powerful rulers deal with this fact by stealing gold.

From Bloomberg:

Credit derivatives awarded the top ratings by Moody's Investors Service and Standard & Poor's may be as vulnerable to default as high-risk, high-yield bonds, according to independent research firm CreditSights Inc.

Constant proportion debt obligations use credit-default swaps to speculate that a group of companies with investment- grade ratings will be able to repay their debt. An increase in credit rating downgrades for investment-grade companies may cause losses that CPDOs would struggle to recoup, CreditSights said in a report entitled ``Distressed CPDOs: We're Doomed!''

As inflation rages, gold rises, the value of paper assets of all sorts decline. This is the downside of inflation. And the AAA ratings were foolish to begin with but then, the very people being rated paid the raters so this closed Oroboros loop ate itself and now is in the process of vanishing along with all the funny money wealth these lies produced. Again: when wizards enter the Cave of Wealth and Power, there is this long hallway leading towards it. It is covered with bones that crunch underfoot. The Skull and Bones frat rats at Yale made fun of all this by adopting the skulls and bones as their symbol and of course, grave robbing to make it very real as well as a metaphor. They run our country. And they ignore the writings on the walls leading to this cave, the long chronicle of history!

From John L. and Bill F., two readers of this news service who also send me new information:

Relatedly, on the topic of subprime-induced losses, hedgefund.net reported that "a probe of Sentinel Management Group has revealed that the Chicago hedge-fund company was missing more than $500 million." (Thanks to a friend for forwarding the story to me.) So, in addition to problems in the dark-matter universe, there may potentially be chicanery. I'm not surprised to find that out, and I think there will probably be more such stories going forward, especially given the enormous latitude for abuse inherent in marking to model.

Meanwhile, the Lord of the Dark Matter checked in with me today. According to a mortgage newswire he reads, Cerberus Capital is looking for a partner for ResCap. Which may mean that even though "Cerberus" pops up with every mention of a questionable financial company potentially for sale, the firm could possibly be out of money. This would be an interesting development as well, not that it would necessarily be actionable.

"The Lord Of The Dark Matter" is one of his readers who is involved in high-level finance. Fleck calls such finance "dark matter" because there's no rel way to know whjat's going on inside it.

Hello, Lord of Dark Matter! It pleases me that some people actually know what they are about. And of course, about the stealing: when making money magically fails, often the wizards resort to theft or force. This is why the resetting of the system after it is pushed out of whack can be so very violent. And Cerberus being out of money: they need the Japanese carry trade very badly and this is why they are pushing for it so hard, they and a host of equally corrupt and foolish financial entities are all kneeling before the Dragon, begging for money.....oh...we are not kneeling, we are ordering the dragon to give us more money.

And this is why I despair. I wish I could say nice things and look forwards to a long, wealthy, happy future. But we cannot do this if we insist on eternal wealth gotten from the innermost chambers of the Outer Darkness! We must leave that terrible place and cease demanding the Goddess give us more wealth! Libra will always win in the end. She is Mother Nature's other sister along with Death.

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Comments

[Mayo]

Returning to view the area in which I grew up I was surprised at the small size of both the homes and streets. Walking past the now almost deserted and run down homes I thought the time I'd watched the inauguration of President Kennedy on a small black & white TV, and my father remarked that hat makers would not like to see John Kennedy appearing hatless on television. True, most do not wear hats today, but mainly I remembered the remark because it was the first time I'd heard it expressed that something we watched on TV might indirectly influence us, beyond the stated purpose of the program.

It's worth keeping in mind that much of the data we receive from the media is repainted by people who have sold their allegiances to special interests. Consider the following excerpt, "A Theology of Capitalism is sweeping the world."...the whole world has adopted the notion that market economy oriented policies are correct. In other words, there is a theology of capitalism that is sweeping the world, to borrow a phrase from British historian Eric Hobsbawm. There are 3.5 billion people from Eastern Europe to the Pacific and from the Indian Ocean to the Arctic that were living under socialism or communism, where it was not possible to trade and not possible for entrepreneurs to get rich and they have been transformed. -David Richards

Transformed with of course this caveat; unless people lose faith in this new theology of capitalism and establish either unions or press their governments to challenge social inequities. Even medical costs around the world are posed as a challenge to contemporary capitalism. These market oriented policies argue that an egalitarian approach to healthcare is unaffordable and export the notion that healthcare is a business and not a right. It seems listening to these ideologues, that their interpretation of original intent goes far beyond Supreme Court decisions. At the heart of their argument is an internationalist ideology at odds with any established global consensus. This ideology claimed you could lower interest rates to 40-year lows without concern for inflation and unload trillions of complex derivatives backed with Mac-house loans throughout the globe. Now that doubt has set in, spin-wizards, politicians and faith based capitalists are turning up the chorus to slash interest rates even further to hide the fact that trillions in illusionary wealth has vanished.

[The Virginian]

Very informative site. If you were to give personal financial advice for these troubled times (which I'm sure you don't for legal reasons and nothing in your response will be held against you) How would you divide one's wealth in percentage terms? Please only use five or less categories.

Thanks in advance.

[DeVaul]

Here, I'll give you some advice for free, but I must warn you that I do not believe in the "science" of economics:

1) Buy food and water and stockpile it in your basement or wherever. Having a two week supply might be a good idea. Beyond that I just don't know, but two weeks gives you time to figure out what to do. Don't try and loot the local grocery store unless you can beat other people to death.

2) If you have excess money, buy some gold and silver coins. These can be used to barter with in the absense of other goods. Don't stockpile precious metals because government goons will come to your home and take it and maybe even shoot you for fun.

3) If you have the money, pay off ALL of your debts now before your money goes "poof". This may or may not matter, but it is better to be on the safe side.

4) Have a toolbox filled with basic tools and things such as nails and other fasteners, rope, duct tape, and whatever. Try to resist the urge to loot Walmart. Having a gun or other weapon for self-defense is also a good idea.

5) Think about how you plan to get you and your family away from your home and to a safer place if things just go terribly wrong.

6) Do not expect to make any money off of paper money ponzi schemes related to stocks and bonds and CD's and whatnot. Try to think in real terms and not abstract terms.

Ooops! That's more than 5 categories. Sorry!

[The Virginian]

Done all of that. But something puzzles me...."3) If you have the money, pay off ALL of your debts now before your money goes "poof". This may or may not matter, but it is better to be on the safe side."

Assuming your debts are denominated in the same currency what exactly does "POOF" mean? Are you of the Deflationary collapse camp or the Inflationary camp?

My take is do NOT pay off debt if we are going the inflation route.

[The Virginian]

Elaine, Care to weigh in?

[Cato]

I think you’re right about China selling Treasuries. On our end the actions are oblique and the words are misleading. Events have fallen into place so we've arrived at the end game. Despite some hope and belief that the Fed is being an adult about this and is not, in fact, providing the liquidity a frenzied and irrational market demands, I see a sucker punch coming. Yes, the Fed’s Open Market Operations have drained reserves over the last week or so giving some the impression they are finally putting the hedge fund crowd in its place. However, short-term interest rate futures see at least a 25 basis points Fed Funds rate cut coming on September 18th. The stock market benefits obviously, but it is also strangely elevated by money pouring in from the essentially defunct $1 trillion dollar asset-backed commercial paper market. Even the equity markets appear to be a safe haven for now. The Fed doesn’t care how the dollar is impacted. They don’t care if Treasuries are sold. They care only to prop up asset values.

A Citibank FX desk report floating about the Internet recently outlined all the reasons one should expect a severe market crash. The report outlined many negative parallels to the pre-1987 and 1998 periods. The report went on to summarize their speculation about things to come. "Bottom line we hold our view that these are trying times and that the worst is not over. We also hold our view that lower yields will be seen in the months ahead on the back of credit, housing, the economy and equities. “We believe that as this develops the Fed WILL show leadership will cut rates as necessary and will ultimately stabilize the situation. If we are wrong in this assessment then as we have said previously, without the Bernanke PUT we may have to entertain the idea of the Bernanke crash." The prediction doesn’t jive with the windup in my opinion. Sounds like a threat to me.

Someone made a comment the other day that struck me as so far out there I wondered if it wasn't a weird possibility. Particularly in light of what’s transpired over the last two months. Instead of entering a period of correction and a drift back to a normalized appreciation of risk and a readoption of the moral hazard principle the poster offered an odd hypothesis. He said he expected a grotesque reinflation of the real estate/credit bubble by offering mortgages to “anybody who can fog a mirror”. The very absurdity of the comment struck me as a surreal, but desperate possibility. This of course coincident with a hyperinflationary episode needed to deal with repudiation of all that nasty debt.

[Elaine Meinel Supkis]

The reason being out of debt is so important WHEN ONE IS A SAVER is, you have a safe home base and if money is inflated, it doesn't matter. Debtors all hope to hyper-inflate out of debt only this is an illusion: at best, a hyper-inflationary time is less than 5 years beause it hits infinity.

So people holding mortgages can't refinance at a lower rate and if they pay cheap at first, wages always fall faster than inflation and the longer the hyper-inflation, the more wages can't keep up.

Always, I have been told to use property as equity and one should go into debt and then invest but....ALWAYS, there are bad times and when they come, being out of debt is tremendous power and all the gains of investment vanishes. This is why I tell people to pay off debts before investing. If you lose money, you still are alive and well.

For example, if housing drops 50% you can still sell and move to a new area or home because all other homes have dropped 50% and since you owe nothing, you can still pay cash!

I have done this three times during really nasty recessions! It works.

About what to do: just in general, the Momons have the right idea about saving things for emergencies. Frankly, my own stocks are very low right now because of various problems with my knees has slowed down keeping the stores filled. I went shopping today and spend over $100 on what used to be $50 worth of groceries just two years ago.

We are, at the bottom levels, already entering hyperinflation, I fear. I wish this wasn't so but look at gasoline this last 7 years: from 85¢ a gallon to well over $3 a gallon!

Young people can afford debts, old should avoid them like the plague. It is pretty simple. Wish my fellow boomers understood this.

[DeVaul]

Ok, Virginian, I think I understand what you are saying, and like I implied, it is possible that the ensuing chaos renders repayment of debts irrelevant.

However, there is always the government and local warlords who change laws and rules at their whim. If you have stocks, they will go poof. If you have cash in the bank, it may go poof if the bank collapses and it is not insured or the FDIC collapses or whatever. In any event, debt payments must continue while you wrangle with the failed bank over your deposits.

As a general rule, and this was always intended by bankers and money lenders, cash is emphemeral, but debts are forever.

There have been a few occasions when the bankers got burned by hyper-inflation, but they are aware of this danger and I do not expect them to leave themselves open to being burned again by worthless dollars or continentals.

That is just my opinion, but history shows that even the bankers can be just as stupid as a sack of hammers. We really will not know for sure until the dust settles, and then it will be too late.

[Rouser]

And don't forget to stock up on ammo!

[Canuck]

Elaine’s home base analogy is most appropriate. The merest whiff of hyperinflation will bring about cascading circumstances which will lead to a bank run followed by bank holiday. A bank holiday is not for the account holders it is intended to impede bank remittances to account holders. Do not expect to see sweeping legislation including freezing of mortgage and loan obligations. The automated processes that withdraw from your account to satisfy a mortgage in particular or loans in general will continue. If you can eliminate these automated background financial responsibilities you will be in a far greater position to hold on to your primary residence and the belongings within. At most risk will be financial obligations which require a transfer between disparate institutions. These transactions are certain to default instantly. Transactions within a singular institution are less likely to be conflicted but I wouldn’t count on it, after all how many departments to you have to address to straighten out simple transactions.

So to recap debt, if it’s the kind of debt that would result in annoying phone calls from collection agencies for resolution and extended process for the sheriff to get involved, then sure don’t loose sleep. If it’s the kind of debt that will have you wandering the streets like an Iraqi in Syria then eliminate it if at all possible. You may be comforted by the fact that you won’t be alone, but I doubt it.

Remember, large areas of New Orleans are still guarded by Blackwater keeping former residents out. These were long term residents who are being denied by writ without the merest of explanations but the rational is obvious (black + poor = out). It will be the same after a bank holiday (default = out). You’ll just be pronounced stupidly overextended and deserving of the streets. And as for all those possessions you think you might take with you after loosing the abode… I suggest you review your loan agreements.

[PJSV]

Dear Elaine,
After all, you believe in conspiracy theories (Atta+Mossad; «when Kennedy was killed in what I believe to be an inside job»). Good girl ! I were suprised when you wrote you didn't believe them: Your background and your texts made me think otherwise...

Other issue: I'm Portuguese. I read your Money Matters column to help on my personal investments. I got some dificulties in understanding some native/jargon english words. Please help your foreign readers...

Só there is a undeclered war between G7 and China. The G7 is trying to keep the party transfering chinese industrial base to India ou Vietnam. Chinese don't like and retaliate in August... So, which will be next moves on this worldwide economic chess ? I bet on a WMD false flag inside US, blaming Iran and skyrocketing Oil price and USD. Than SPP will be set, Bush will be credit for his policy, US public will have somone to blame. Or the destruction inside US will be enought to create a new dollar with a diferent parity to Chinese or Russion holders and US debt will be solved.

Please post about the future, will you ?

Regards
PJSV

[Steven Capozzola]

The U.S. govt must enforce its trade laws. China needs to be held accuontable for illegal trade practices like currency manipulation.

[Elaine Meinel Supkis]

Sorry about the jargon! In the future, I will provide translations into standard English, OK?

And the future: I predict it regularily when it comes to me...

[aitrader]

Hmmm, China dumping its trillion in USD reserves to spite the US? I don't see it happening. China's growth is dependent on the consumer markets in Europe and North America. They may have a long term plan but I doubt it involves biting the hand that is feeding them (actually dumping the reserves would be more like chopping it off wholesale). China has no desire to jump back to the days of the Long March and "Cultural Revolutions".

I do agree the world economic base is headed for a collapse of biblical proportions and China is part of the equation. China and Japan are the main two nations financing the US deficit and, by proxy, US consumer spending (75% of Treasuries and a quite a large chunk of US debt based securities) so its in their interest to support the dollar or they'll be holding worthless paper.

The US has unprecedented levels of government, corporate, and consumer debt, a negative savings rate, job flight, a very expensive war that needs to be paid for, and a huge imbalance of payments, so it's just a matter of time before the dollar massively devalues. Since it's the global Reserve Currency this will be a huge destablilizing force for global markets. China and Japan *will*, I believe, find themselves holding worthless (er, meaning massively devalued) paper in any event, whether they have a plan or not.

I liken the situation of the US to a guy sitting atop a huge pile of kindling doused in gasoline. As long as nothing sparks a flame he can site there for a spell. But if something lights the fire the resulting "boom" will be massive. I'm betting that the final straw will be $200+ oil, which I see coming in 2010-2012 as global demand outstrips supply. Once the fire is lit the domino effect is going to unravel Bretton-Woods right quick.

I also suspect that the initial reaction will be to choose a reserve currency like the Euro or a basket of several currencies. The underlying flaw to this course is that a fiat currency is only as strong as consumers' confidence in it. If global consumer confidence cracks then no fiat currency will do so it's back to barter and metals.

Add to this mix the exponential effects Global Warming, which is coming far faster and stronger than even the most pessimistic projections, and the proliferation of nukes and the gaspile analogy above can be extended globally.

My call is a bouncy ride through 2012, which means plenty of profits for the canny investor, and then an economic meltdown of biblical proportion beginning in early 2013.

The perfect storm.

[Elaine Meinel Supkis]

There are many political reasons for it happening faster. Note our attempt at surrounding Russia with missiles and threatening to give Japan nukes.