Cheap Money Extracts A Terrible Price In The End

January 18, 2007

Elaine Meinel Supkis

Although it is Friday evening and everyone is going to relax this weekend, I have to ladle out more bad news. Ambac Insurance is as dead as a BBB Dodo. They insure half a trillion. Yikes. And Bush and his gangsters want to stimulate our simulacrum of an economy via cheap money and more government debt. It ain't gonna fly, dudes. Alas, we all want Santa but we will get the Satan of Inflation. And far from being a cure, we better remember how it worked in Germany in 1923. I visit las month's Treasury Report that says all is doing just great, man, fabulous, yeah! But it obviously isn't but then, why all the lies? Inflation will be the cure since dead beats and people in hock always want cheaper money, faster. And savers will be ravaged until we all become bankrupts.

Ambac Insurance Loses AAA Ranking at Fitch Ratings

Ambac Assurance Corp. was lowered two levels to AA and may be reduced further, New York-based Fitch said today in a statement. The downgrade ``reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction,'' Fitch said.

Without its AAA rating New York-based Ambac may be unable to write the top-ranked bond insurance that makes up 74 percent of its revenue. Ambac may quit the business or sell itself, said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York. The downgrade throws doubt on the ratings of $556 billion in municipal and structured finance debt guaranteed by Ambac.

Um, this goes under 'Hurricane Katrina' level of bad news. We were all expecting this news but look at the numbers! Half a trilion is at stake here, not a trivial sum. The lender of last resort is the US government and it is deep in hock to Asia and Arabs and already, we have seen a parade of aliens landing, where are the UFO freaks, anyway?

Aliens landing in Manhattan on Wall Street, coming down in their planetoid machines, the Death Stars of various Vaders. Invading Vaders vanquishing our Yodas and Yuppies who are now pretty old, old wretches like myself. Yup. They are coming here to take over and this is due to us owing them lots and lots of money. They are the bankers. Not the Federal Reserve. I would suggest the government, which owns the estates on Jekyll Island where the Federal Reserve was hatched, this facility should be sold to our new bankers. We could have Hu move in there and issue proclamations from that wonderful vantage point.

By the way, up until this month, this website was accessible in China. But now it is not. I wonder if Hu is mad at me again? Well, it won't matter. Millions of people can still read this news if they knew I existed but of course, in the US, I have been eliminated as a news source and so why not in China? All I know is, if you say the wrong thing, the Net censors immediately attack, eventually, we will all be eliminated by the New World Order if things don't go to the dogs, first. Bark*bark*bark.

The machinery set up to do sales and produce loans and protect hedges has been destroyed, by the way. I must name this period in time. Normally, I call this 'The Great Banking Collapse of the Western Powers.' Or maybe the 'FUBAR US/UK Planet Earth Mess.' Or 'The Decline and Fall of the Dollar'. We must take a vote and then aggressively push this new name. Anyone here who wishes to concoct a name, please feel free to add it below. I will use the one we think is best, OK?

Paulson Says Fiscal Stimulus Needed Urgently

U.S. Treasury Secretary Henry Paulson on Friday said that there was an urgent need for a fiscal stimulus program to give the slowing economy a boost but said it was not in danger of stalling.

"This is not an emergency. There is an urgent need," Paulson said on NBC television about rapidly-moving plans to develop a rescue plan for an economy hit by a housing crisis, a credit crunch and soaring oil prices. President George W. Bush is to outline his plans for a stimulus package later on Friday.

"The long-term fundamentals of our economy are strong," Paulson said. "We believe the economy is going to continue to grow slowly here, but it has slowed down and the risks are to the downside and the President is very focused on taking actions quickly that will give a boost to our economy as soon as possible this year."

When I was a sentient child in the mid-1950's, my two favorite hit songs were, 'The Purple People Eater' and 'They Are Coming To Take You Away.' One was about a purple creature that stalked humans and ate them. Yummy. The other was about going insane and being locked up. A great combo and I felt at the time, quite appropriate, seeing how we were exploding nuclear bombs like crazy, destroying the planet in the process, while talking about peace.

I really wish they would come and take all these guys away. And throw away the keys. Good grief. There is NO EMERGENCY! I can just picture Robbie the Robot swinging his arms, his antennae spinning madly, 'Danger, danger, Will Robinson!' Then Will runs to Robbie and says, 'What? What?' And Robbie says, 'There is no emergency. We just have to put all our emergency systems in action but pay no attention to the man behind the curtain.'

So, Helicopter Bernanke is going to have Fight Suit Boy drop over a hundred billion on the US just for the hell of it. Eh? Well? Why are they in such a hurry to destroy the dollar even more? Did the Chinese stiff them when they tried to pay the bill for last month's Xmas sales in the form of pesos? If there is no emergency, why the hurry to dump dollars on us? Is it to amuse Bernanke so he can play at 'Bombs away!'

This scares me. When I was a child, our other favorite game was to imitate the adults around us when they talked about dropping bombs during WWII. 'GERONIMO!' we would shriek as we flung ourselves into water or off of cliffs at Kitt Peak. Later in life, I would be involved in trying to get Geronimo's skull back from the Skull and Bones at Yale. I failed, of course. But here we are with Bernanke itching to yell, 'Geronimo!' as he dumps dollars. Geronimo would love this, he wanted to see the US fall apart.

This is LAST WEEK'S Treasury Report!

Job Creation Has Slowed:

Job Growth: 18,000 new jobs were created in December, the 52nd straight month of job gains. The United States has added 1.3 million jobs in the past 12 months and about 8 and a half million jobs since August 2003. Employment increased in 48 states and the District of Columbia over the year ending in November. (Last updated: January 4, 2008) [Note from Elaine: I could use a hairdresser and a bartender. Maybe I should hire some, they seem to be the only positions being filled these days.]

Low Unemployment: The unemployment rate rose to 5.0 percent in December from 4.7 percent in November. Unemployment rates have declined in 23 states and the District of Columbia over the year ending in November. (Last updated: January 4, 2008) [Note from Elaine: Hey, mix the bad news with the good! Jobs for bartenders and men in white coats coming to take you away are increasing employment in some regions like in DC!]

There Are Still Many Signs of Economic Strength:

*Economic Growth: Real GDP growth was 4.9 percent in the third quarter of 2007, supported by strong gains in business investment and exports. (Last updated: December 20, 2007)
[Note from Elaine: less than the rate of real inflation, of course and on top of this, predicted by the World Bank and IMF to be less than 1.5% next year.]

*Business Investment: Business spending on commercial structures and equipment rose solidly in the third quarter. Healthy corporate balance sheets bode well for continued investment growth. (Last updated: December 20,2007)
[Note from Elaine: we can kiss all that goodbye at this point, even as this report was assembled, stocks were falling rapidly and lending drying up.]

*Exports: Strong global growth is boosting U.S. exports, which grew by 10.3 percent over the past 4 quarters. (Last updated: December 20, 2007)
[Note from Elaine: HAHAHAHAHAHA---the plan to make me laugh to death continues!]

*Inflation: Core inflation remains contained. The consumer price index excluding food and energy rose 2.3 percent over the 12 months ending in October. (Last updated: December 14, 2007)
[Note from Elaine: Bastards. Pure bastards. May they freeze to death and be eaten by polar bears!]

*Tax Revenues: Tax receipts rose 6.7 percent in fiscal year 2007 (FY07) on top of FY06's 11.8 percent increase. As a share of GDP, FY07 receipts exceeded their 40-year average. (Last updated: October 12, 2007)
[Note from Elaine: Taxes were up in the past but with rising unemployment, kiss that goodbye, and then those tax cuts and rebates means even less and it never got close to balancing the budget at any point, anyway!]

Americans Are Keeping More of Their Hard-Earned Money:
[Note from Elaine: I wish! But speculative pirates have stolen as much as they could and inflation eats any increase instantaneously if not a lot sooner.]

Real after-tax income per person increased 2.1 percent over the past 12 months (ending in November). (Last updated: December 21, 2007)
[Note from Elaine: No, it hasn't. If we don't include the top 1% incomes in this statistic, it shows the reverse as we all know, our collective incomes have been declining for several decades compared to the older way of reckoning statistics.]

Pro-Growth Policies Will Enhance Long-Term U.S. Economic Strength:
[Note from Elaine: HAHAHA. Only the weeds of trade deficits have been growing and growing rapidly.]

We are on track to make significant further progress on the deficit. The FY07 budget deficit was down to 1.2 percent of GDP, from 1.9 percent in FY06. Much of the improvement in the deficit reflects strong revenue growth, which in turn reflects the continued strength of the U.S. economy. Looking ahead, higher spending on entitlement programs dominates the future fiscal situation; we must squarely face up to the challenge of reforming these programs. [Note from Elaine: OK, time for the men in white suits and straightjackets to come and take the guys who wrote this report which is coming in long, long after the obvious collapse of the US finance/banking systems not to mention 7 years of trade deficits adding over $5 TRILLION to our misbalance of our trade!]

The GDP is a fabulous and very flexible number. It fluctuates since it isn't anything very real but a statistical figuration. But the DEBTS we are accumulating and have been accumulating for most of my life, that is hard and quite real and very easy to figure out since a number of hostile nations and organizations hold this debt. I know from myself, if anyone owes me money, I track it closely. Note her how these clowns do NOT mention the total. They dare not, for it is racing to $10 trillion and will reach there in less than 5 years. Especially if Bush and Bernake play 'Geronimo' with huge bundles of dollar bills.

When playing on the World Stage, it helps heaps to pay attention to both the audience and reality. If we pretend 'All is well' while inflation fires rage, the dollar is dying, the price of commodities are soaring, the US debt is being rejected by our own selves and our entire banking/insurance/lending/financing system is collapsing, it is like a rock band ignoring the fact that their fireworks have set the stage on fire. We can pretend our little auto-de-fatal is simply warming us up this winter but the rest of the world sees us screaming as we trip over the wires going to our loudspeakers which are crackling and cackling like old witches.

We are so doomed. There are lots of people who think, if they act as if something is the way you want it to be, it will be that way in reality. This sort of magical thinking is epidemic in the Wizard community. The money wizards really think everything is psychology. For example, the last time we got in this fix, under Nixon, they thought we should wear 'WIN' buttons. 'Whip Inflation Now!' was the meaning. I said, back then, Ford should have worn a 'LOSER' button. When Carter came in, we all wanted more free money, easy money, many money and more money. He let Volker crush inflation the rational, old fashioned-way: raising interest rates until it soaked up all the speculative money and crushed all the balloons in gold, commodities, housing, etc. Once that was done. we could get back to 'normal' which is inflation eating things somewhat slower rather than at a 10% or more rate per year.

Time to visit the crazed nuts living in la-la-land of the Cato Institute. They are NOT conservatives, they are New World Order radicals.

Democrats create pessimism about trade prospects

by Sallie James

January 14, 2008

As the Democratic candidates jockey for position in the primaries, free trade has taken a more prominent role than anyone expected. Exit polls in New Hampshire on Tuesday showed the economy was the No. 1 issue for voters there, with Democratic voters more concerned than Republicans. With economically floundering Michigan the next stop this Tuesday, we can expect more demagoguing on trade from the candidates.

Last week, the trade-skeptic activist group Iowa Fair Trade Campaign (whose name tells you all you need to know) sent a letter to all the candidates, asking for their views on "an acceptable trade and globalization policy." The results are revealing, if disheartening for advocates of more liberal trade and economic growth.

Overall, the five Democrats (the only respondents at press time) lay out an agenda more preoccupied with fair labor rights and environmental standards than the free exchange of goods between people who want to sell them and people who want to buy.
*snip*
Similarly, he wants to "fix" the North American Free Trade Agreement and "reinvigorate" the U.S. manufacturing sector, which actually saw a record year of outputs and profits in 2006.

The primary process always yields extreme positions before candidates move to the center for the general election. Let's hope that the end of the primaries brings with it some clearer thinking.

First: no Republicans answered? Wow. I do know that Ron Paul has been rather loud about the 'giant sucking sound'. But the neo cons fear him more than both Obama and Osama. Scratch that, they love Osama. They hate Obama. In this case, they are all in a tizzy due to the idea that someone might take alarm at trade deficits shooting to the moon at $700+billion a year. Note how they are perfectly happy with this because business men are making a profit on this! Naturally. Many people at the top are making lots of money destroying our economy with grotesque and unsustainable trade deficits. They are desperate to keep this monkey climbing the walls. Note also, they don't mention job creation since jobs in manufacturing have been declining in the US nearly all my life. And wages which went up in response to inflation in the 1970's have not done this in years.

Note that inflation in the past was rendered useless as a tool to control and steal thanks to unions forcing pay hikes to make up for this. Now, inflation is how they defund the lower classes. Year after year, wages fall further and further behind inflation. Readers ask me, 'Why shouldn't we have cheap loans? This means more money for us!' And I have to warn everyone, it is NOT MORE MONEY, it is STEALING MONEY. Only if we can render inflation pointless with equal or greater pay raises, does inflation work for people who want more debts. But if debts have to drop to some awful interest rate level like 1% in order to buy things we could have paid cash for in earlier days, guess what?

This is financial slavery! Debt=enslavement! Not wealth, it is poverty! People who think they are sharp like my multi-million dollar neighbor to the west of my property line, he told me, my tightfisted ways were stupid. He increased his wealth every day via loans which he used to play the markets.

In the Dot Com crash, he had his margins called in and he lost his second wife, his mansion and his several foreign cars, one of which was a classic Jaguar. He lost his shirt and all his properties. I still have mine.

The average 6 pack Joe wants cheap loans so he can buy stuff. The average Jane wants to go to the mall. Both refuse to understand, this cheap money is a lead weight on their minds and souls. This weekend, I will post the rest of the book about how to save money for the future. It is a good read.

Time to go to the past again, right before the Dot Com collapse and my neighbor's financial Waterloo:

"The U.S. Trade Deficit: A Sign of Good Times"

August 19, 1999

TESTIMONY of

Daniel T. Griswold
Associate Director, Center for Trade Policy Studies

before the Trade Deficit Review Commission

Before discussing the cause of the U.S. trade deficit, let me spend a moment on two alleged causes that in reality have no direct connection to the deficit.

One alleged cause is a lack of "competitiveness." The immediate problem with this explanation is that competitiveness, on a nation-to-nation level, is an imprecise term, one almost devoid of meaning. What does it mean for a nation's economy to be competitive? If it means "more productive," then this is just another term for "wealthier." It makes no sense in theory or in practice why a nation's trade deficit should shrink as the overall productivity of its workers rises. Indeed, the opposite effect may be more plausible.

A second, empirical problem with this explanation is that, by almost every measure of productivity and wealth, the U.S. economy is performing well at the end of the 1990s at a time when the trade deficit is reaching record levels. Compared to the other major developed economies, our economy is growing faster, productivity is rising more briskly, and innovative new products and services, from medical drugs to Internet communications, are being developed more rapidly here than anywhere else. Yet we run persistently large and growing trade deficits.

Our economy was not growing faster. When this was published, China was beginning to take off. As it was, they were already growing much faster. Since then, they grew over 11% a year for the last 10 years while our economy went deeper and deeper into the red, both Federal Debts and trade deficits. This article liked to lull us into thinking a $100 billion trade deficit didn't matter due to us 'growing fast.' But when it hit $780 billion 6 years later, did they stop this mad thinking?

No, they were not taken away. They are still going to work, sitting at desks and not in an asylum. Let's fast forwards to today:

Asian markets pin hopes on Bush

Asian stocks mounted a recovery on Friday after heavy morning losses as hopes rose of aggressive action to ward off a recession in the US, the region’s biggest export destination, and investors took the view that some markets were oversold.

With the US outlook darkening, President George W. Bush on Friday is to sketch out a fiscal stimulus plan of up to $150bn, expected to include tax rebates and corporate investment incentives. Comments from Ben Bernanke, Federal Reserve chairman, supported expectations of a US rate cut of at least 50 basis points at the Fed’s meeting at the end of the month.

They hope Bush does the dumbest things. And he will. They want us to go deeper into debt and run up bigger trade deficits. They love all the talk about helicoptering another $125+ billion into the pockets of dumb Americans who will then rush to the malls to spend it on imports. Japan is so excited about this possibility, the Nikkei went up today even though the US stock markets went down the same amount.

Washington Mutual swings to loss

Washington Mutual reported a nearly $2 billion fourth-quarter net loss as the lender continued to struggle in the face of a meltdown in the mortgage industry and questions about its viability.
The company lost $2.19 a share in the period after taking a $1.6 billion charge to write down the value of its home loan business and set aside more provisions to cover the cost of housing-market weakness.
*snip*WaMu, one of the largest mortgage lenders in the U.S., has been hit hard by the housing crisis. The company said in December it would cut 3,150 jobs, slashed its dividend and raised $2.9 billion by selling new securities. The shares have slumped more than 60% since mid-October.

And our own banking crisis deepens. Giving away free money to spendthrifts won't fix the mess which is due to too many spendthrifts unable to pay loans on houses they bought last year. The default rate on the most recent loans has the highest rate of all the loans originated in the last 5 years! The fixes proposed don't even begin to address this problem. Much less, the gold balloon which is now growing as fast as the housing bubble grew in 2005.

MBIA, Ambac Bond Default Risk Exceeds 70%, Swaps Show

MBIA Inc. and Ambac Financial Group Inc., the two biggest bond insurers, have a more than 70 percent chance of going bankrupt, credit-default swaps show.

Prices for contracts that pay investors if Armonk, New York- based MBIA can't meet its debt obligations imply a 71 percent chance the company will default in the next five years, according to a JPMorgan Chase & Co. valuation model. For New York-based Ambac, credit-default swaps show the odds are 73 percent.

The companies fell the most ever in New York Stock Exchange trading yesterday, and prices of the contracts rose to a record high after Moody's Investors Service threatened to cut the AAA credit ratings of their insurance units. Ambac plunged $6.73, or 52 percent, to $6.24, and MBIA dropped $4.18 to $9.22.

To return to the top story here: AMBAC will become BANKRUPT. I can't see them avoiding this fate. Maybe Bernanke can drop half a trillion on them. After all, the Bank of Europe did this recently. What is half a trillion to international bankers, anyway? They simply sit down at a computer terminal and type in a 5 and rows of zeros. The sky is the limit. And I suppose the lack of panic in DC is due to the thought, 'All we have to do is add zeros just like they did in Weimar Germany.' Only the Bank of China snarled, 'You do that and we will dump all our securities and our FOREX reserves on top of the world and you will die right after we take Taiwan.'

Gulf states’ foreign assets to top $2,000bn

The net foreign assets of Gulf Arab states are set to rise to more than $2,000bn by the end of this year on rocketing oil prices, according to new research. The Institute of International Finance said the region’s public and private overseas wealth stood at $1,800bn (€1,211bn, £916bn) at the end of 2007.

“High oil prices are enabling the GCC [Gulf Co-operation Council] governments to place a growing volume of resources into reserve and wealth management funds, which will play increased roles in international financial markets,” said Charles Dallara, managing director of the IIF, a Washington-based association representing global financial institutions.

One reader here said, speculators are not responsible for high oil prices. He told me that the Hubbert Oil Peak is the only cause.

This is false. War threats against Iran raises the price of futures [the prices we see on the news are FUTURS not present prices!]. On top of this, the perception that the dollar will continue to fall as the government resorts to inflation in order to 'fix' things broken by inflation. HAHAHA. Impossible. Throwing gasoline on a fire results in explosions, not the fire going out. On top of this, speculators are bidding up the price of oil because they have lots of CHEAP LOANS from Japan and soon, again, from the US. Note that when Greenspan dropped the price of lending to a ridiculous 1%, the commodity markets in gold, food stocks and energy shot upwards immediately and continue to do this.

Speculators cannot do this unless there is a shortage of something while lending is easy! If lending is expensive, they can't do this! Period! This is why governments ration stuff and force savings during wars! If they don't, the speculators will take advantage of the war's effects and bid up futures of necessities. Note that we are AT WAR RIGHT NOW and all necessities are being bid up by guys using cheap loans. What does it take to understand this terrible situation? No nation doing this can do it for long. The economy collapses.

And savings are wiped out. I will note here that the savings rate in the US is negative. No nation can run for long on negative savings. None, not even the US. So we must kiss cheap money goodbye and deal with the problem of speculators driving the futures off the cliff.

Beijing wages psychological war on prices

"If [the controls] work they can only work in the short term, not in the long term," says Ha Jiming, chief economist at China International Capital.

But such criticism may miss the point, according to Chinese officials who say the measures are primarily a signal of the government's determination to stop inflation - which surged to an 11-year high of 6.9 per cent in November - getting out of hand.

Articles about China never, ever mention the greatest genius of wage/price controls: Richard Nixon. So I dug up this article from Stein, one of the Robbing Hoodums working for Nixon. Note here: I was due a huge raise back then due to my sterling work and was denied it via the board that overlooked the wage hikes. I hated it. Really hated it. My boss slipped me a bundle under the table, endangering himself. I mentioned Nixon and Ford above and maybe it is time to refresh everyone's memory of those years. I certainly remember them well, I had a child, my degree program collapsed when many US colleges ended language requirements so my German degree was useless. I couldn't work for the CIA for moral reasons. And so I had to get a job with a German corporation which had an office in Manhattan.

Wage and Price Controls: 25 Years Later

By Herbert Stein

As it turned out, we were in the price and wage control business not for 90 days but for nearly 1,000. We were in the business of controlling energy prices for much longer. Would the Nixon team have embarked upon its controls if we had foreseen that? Was that foreseeable? Perhaps is was not a certain outcome, but it was surely a possible one. Probably the whole idea of the controls was so alien to us that we could not imagine that we would be living with them for very long. About two months later, when then-Treasury Secretary George Shultz and I gave Mr. Nixon the suggested plan for controls to follow the 90-day freeze, the president said, "If this baby gets too strong we can strangle it in its cradle." He was wrong.

We had created a system tens of millions of people depended upon. Sometime in the fall of 1971, when I was working on the plans for what would follow the freeze, a Canadian economist sent me these lines from Macbeth: "I am in blood/ Stept in so far that, should I wade no more,/ Returning were as tedious as go o'er." This was all too apt.

Some people at Camp David had a theory of what we were doing with the 90-day freeze. The theory was that the inflation then under way (about 4% a year) was propelled by expectations of inflation, not by underlying demand and supply conditions. The 90-day freeze would shake those expectations, and the economy would then subside into price stability. It was a rather flaky theory, and we were not prepared for the possibility that it was wrong.

The story of closing the gold window was only a little different. At Camp David we decided that we wanted to get the exchange value of the dollar down. Closing the gold window and imposing a surcharge were ways to do that. But how much did we want to get the dollar down? And did we want to keep it at its new level indefinitely, or did we want to provide for readjustments? If we wanted an adjustable-rate system, what would the rules be? Or did we want exchange rates to float freely? Some at Camp David had answers to these questions, but they were never discussed.

The other day, Stein wrote in the NYT, about the need to investigate Goldman Sachs. He started out trying to write the usual pro-free trade article and ended up on another planet. I am glad reality intruded. Note here the fact that Nixon considered a 4% inflation rate 'high.' HAHAHA. With today, they use fake statistics to drop it to 4% a year and think this is a triumph! Also note the 90 day freeze went on and on. I certainly noticed this. It was a real problem for me. I also noticed it was harder and harder to do banking. They took FOREVER to clear checks, for example. They made mistakes that were curiously always in their favor and which hammered either myself of anyone and everyone around me.

Even the most cautious conservative saver who watched the bottom line was snared in one difficulty after another. I never had so many shouting matches in banks as those years. And note how Stein talks about unhinging the US dollar from gold. Gold was pouring out of Fort Knox. So they got together at a lunch and drinks and then simply decided to slam the window shut on anyone daring to use dollars as money! Hey! Way to go! Easy, wasn't it?

The 'float free' solution to valuing currencies has been a total failure as I have written here endlessly. To this day, all nations manipulate their currencies either openly or sneakily. They use every tool possible to make certain their currencies play various trade and finance games that suit the elites of various countries. When this gets out of control, we see banking collapses like the one hammering the US right now.

The U.S. Federal Reserve published a white paper in June of 2002 entitled Preventing Deflation: Lessons from Japan’s Experience in the 1990s, which concluded deflation could have been avoided if both fiscal and monetary stimulus were applied aggressively.

“We conclude that Japan’s sustained deflationary slump was very much unanticipated by Japanese policymakers and observers alike, and that this was a key factor in the authorities’ failure to provide sufficient stimulus to maintain growth and positive inflation. Once inflation turned negative and short-term interest rates approached the zero-lower-bound, it became much more difficult for monetary policy to reactivate the economy. We found little compelling evidence that in the lead up to deflation in the first half of the 1990s, the ability of either monetary or fiscal policy to help support the economy fell off significantly. Based on all these considerations, we draw the general lesson from Japan’s experience that when inflation and interest rates have fallen close to zero, and the risk of deflation is high, stimulus–both monetary and fiscal–should go beyond the levels conventionally implied by forecasts of future inflation and economic activity.”

Board of Governors of the Federal Reserve System, June 2002

At first, the Japanese floundered about. Then they cleaned the decks of all the blood and discovered their ship was now sailing free and clear enough to operate as a pirate ship! So they have invaded all other ports and trade markets using their fabulously weak yen as a weapon. All other ports and nations have noticed and are trying to drop the value of their own currencies in order to compete only they don't do what Japan has done: prevent the people at home from buying ANYTHING foreign!

So everyone is hammered by Toyota and others while unable to penetrate even slightly, Japan's markets! Instead of looking clearly at Japan's markets and seeing how the exporters are thriving, profits are soaring, the Japanese FOREX reserves grew at a tremendous speed, instead, we are supposed to think Japan is in a depression. Japan's 0% interest rates were used to drive up debts with trade partners. This was how we got all those super-cheap loans so we could go on a buying binge.

The Japanese locals are not allowed to go into debt. Nope, they are forbidden to buy even Japanese stuff which is why Japanese cars are selling worse and worse at home. But Toyota doesn't give a damn! They are selling to the US! Not just to Japan. The Federal Reserve, filled with free trade madmen, refuses to understand this just like everything else they are in denial about.

Are Consumers Driving Us into Recession?

By Lewellyn Rockwell

So let's not demonize the consuming public for doing what it should be doing. It's a good rule of thumb that when the government tells you to spend money, you should close your wallet.

A cynic after my own heart. A worth while read. Consumers are buffeted by propaganda which we call 'commercials'. As well as politicians who are snake oil sales personnel.

Seriousness of the Gold Dinar

Dr. Mahathir Bin Mohammed

- If the Muslims are going to protect themselves they must have sufficient wealth. Allah has endowed Muslim countries with inexhaustible wealth. These need to be administered for the good of the ummah.

- But wealth can also be acquired through commercial activities, through the production and distribution of goods and services and through trade.

- Today trade between Muslim countries is small. It is not suggested that we reduce our trade with the non-Muslims. But we should endeavour to increase the trade between Muslim countries.

- We can trade through the exchange of goods, through barter. But today we use money. Since we don't have a currency which is strong enough and stable enough in exchange rate terms, we have to use the American dollar. But the dollar is also not stable. Today the dollar has depreciated against many other currencies. This means that despite the increase in the price of oil for example, we are actually earning less due to the devaluation of the dollar. It is the same with the other currencies. It is the same with our own currencies. They all fluctuate in value. And they are all subject to speculation and manipulation as happened in Malaysia and other East Asian countries, in Russia and in Latin America.
*snip*
- If we want to avoid being short-changed we must have a currency that has intrinsic value. Gold does fluctuate in price but the fluctuation is minimal. It is not possible to devalue gold by one hundred percent or one thousand percent. Nor is it possible to revalue gold by the same percentage. The fluctuation in the value of gold can only be by a few percentages, up or down.

Eventually the Chinese and the Muslims just might unite forces and force a gold standard again. I think this is a very real possibility. They are learning how to get a grip in this Wild, Wild West economy and they can see better than most of us, alternative systems.

Culture of Life News Main Page

Comments

[Jim Smith]

Elaine:
You refer to gold balloons but isn't a surge in the US$ gold price just the reaction from the collapse of the US$? Not to make gold a sacred cow, but isn't its attraction its immutability and the fact it is such an excellent store of value? In those terms, gold doesn't "balloon".

My suggestion is to name this period the "21st Century Fiat Money Fiasco". A bit cumbersome, so I'll keep trying. "Greedorama 2008"?

[tom]

"The Great Dollar Hegemony Lobotomy"

[Pluto]

Elaine, you write

This is financial slavery! Debt=enslavement! Not wealth, it is poverty! People who think they are sharp like my multi-million dollar neighbor to the west of my property line, he told me, my tightfisted ways were stupid. He increased his wealth every day via loans which he used to play the markets.

Yes, I know your neighbor flamed out in the bubble, but it doesn't have to be that way. Clever investors play the bubbles short-term, and they hedge them, as well.

What I'm asking this this. There's going to be cheap money liquidity for a year (to play with), and you already know the soaring assets. Why not use that knowledge to buy options on "select" commodities and currencies? What will the gold sell at in June? How about oil in May? Wheat in April? The GDP in two weeks?

I know you know the answers to these questions. So, I have to wonder why you don't enrich yourself? Or maybe you do. Sorry if that was too personal.

This article is one of my faves. How do you find the time?

[Pluto]

Oh, and I'd call it "The Insider's Guide to Low-Risk Easy Wealth in 2008" or "There's Always a Fast-Moving Bull Market in a Zero-Sum Game."

I guess I'm feeling proactive tonight. Brilliant generous people deserve to be rich.

[Elaine Supkis]

The trick is to buy early one and then sell well before the peak. But one never knows when the peak will come. It is like gambling: you might leave the table with a lot of money rather than playing until you lose but then there is the second problem: the other players will then MUG you and steal it all!

There are reasons why I can't get rich off of knowing these things, frankly. It is a long story and totally unbelievable but that is OK. I'm just weird.

I want to simply be free. So I have no debts and no desire to have any. My life proves this is a good plan. For example, when my husband got sick, having no debts was what saved us from ruin.

About gold: I see NAKED FEAR in the faces of our rulers. When the attempt to steal all the oil in Iraq got screwed up and the theft of US tax dollars by Halliburton and other defense companies run by the rulers filled coffers but also coffins. And there is rising rage over all this that can do a Marie Antoinette on our rulers.

They want to steal all the gold, too, somehow. You will see. They know they can do this very suddenly and sneakily. I don't trust them even slightly.

A true story about these things: I had my first property, a super-cheap little house on an alley in Tucson.

I thought all was well and happily went to college while living in this little house. It was over 100 years old and lots of fun. The city decided to steal it from me and turn it into a parking lot.

So we fought for 2 years. I did all sorts of things including being on TV, etc. They tore down all my neighbors houses but I refused to leave. They even had army tanks go round and round my house because the soldiers were told, my house was abandoned. I ran outside and asked them to leave which they did.

The fight raged on until one day I had a dream. I saw a military jet crashing into my house and killing me. So the next morning I left. The city of Tucson was estatic and tore my little house down.

2 years later, I was in the kitchen in NYC when my mother called in hysterics. 'Your house was totally destroyed by a jet!' she screamed.

'I'm in NYC, ' I said, in shock. She was on the roof of the Optics Center at the U of A when a military jet roared overhead and cartwheeled into where my house used to be and blew up.

But I was safe in NYC. 4 people died in the parking lot where my house was. The jet was flown by a crazed Saudi Arabian. Ahem.

Money is just money. Seeing what will happen in life to stay alive is far, far better.

[shargash]

"the prices we see on the news are FUTURS not present prices!"

That's exactly the point I was trying to make about oil speculators. The prices you see quoted on the news are the prices of oil futures contracts, not oil. No oil has been bought or sold at that price, just futures contracts.

On the day the contracts expire (Fed 8 for the ones in the news now), the price of the futures contracts will go up or down depending on the spot price of oil on that day. Futures are a derivative, which means the price is derived from the price of oil, not the other way around. If oil sells on that day for $85/barrel, then everyone who bought futures contracts today is going to lose money.

Worries about Iran DO effect the price of futures contracts. They will, however, have very little effect on the price of oil on Feb 8, unless our Chimperor attacks Iran by then, in which case it will have a very large effect. To state it another way, the risk premium on the price goes to zero as expiration day approaches, assuming the risk is not realized by then. That is just basic derivative pricing.

In any case, the only reason oil traders worry about an attack on Iran is because Iran is a major supplier of oil, and we are at Hubbert's peak. If the US were awash in oil, like it was 50 years ago, no one would care. If Iran had no oil, no one would care. People care because supply is tight and a war on Iran will reduce supply a lot.

Now please don't take me in the wrong way, Elaine. I love your site, and I'm by no means trying to be argumentative. It is just that we are having an oil price crunch (and soon an oil crisis) because of bad public policy, not because of speculators.

The prople who are responsible for our current problems (big oil companies, oil producers, the US government) like to blame speculators, because it is a way of diverting attention from themselves and from the real problem. However, we should be able to lay the blame where it is due.

BTW, I didn't mean to imply that Peak Oil was the only reason oil prices are high. I would say that 2/3 of the rise in oil prices has been Bush's war on the dollar. The other 1/3 is a combination of tight supply and worries about future supply (e.g. an attack on Iran). My main point was that 0% comes from speculation.

[OC]

How's this:

"The Dumb Central Bank's Guide to Collapsing Monetary Systems"

[OC]

Now is not a good time to be rich or connected - it'll almost guarantee a Marie Antoinette ending.

If US were to follow the former USSR's ending - there is not many places in this world that these folks can run to for safety...

Much better to cut a deal with Hu asap!!

But then again, most of these folks make life-or-deaths decisions for the rest of us when they are on Prozac or ice....

[Elaine Supkis]

Speculators are also playing with the globe's monetary systems. This causes warping of the systems. The huge growth in 'money' is due to speculators going to Japan and then using the loans from there to play futures markets of every sort.

This is destroying Japan, by the way. It is part of many things causing 'inflation'. An this will end with people freezing and starving to death while the financial systems collapse. History shows how this works out in the end.

[Umberto]

How About,
The Global Financial Meltdown Created To Justify The Next Mass Human Cull.

Actually it will be one of many "Problems" Requiring "Solutions".
Lets remember that we live under the Rule of Law, laws which were written by a certain demographic for a certain demographic.

Proof is in the pudding.

[Blunt Force Trauma]

....and after all that of which you wrote in this entry, the next BIG thing is to be corporate debt/junk bond problems that are said to dwarf the sub prime problem.

[GMG]

Dear Elaine,

I'm partial to a John Lennon reference. Try this one.

"Vibrating Karmic Explosion and the Plastic Ono Band".

Notice the Japan reference, but I don't mean to cast any apersions toward Yoko.

GMG

[Elaine Supkis]

Oh god, not Ono blowing up and splattering herself all over us! YUCK.

We could just call this 'The Great PotatoE Famine'. :)

[DeVaul]

There is no "Rule of Law". There are only pieces of paper with scribblings on them.

Our monkey king called the constitution "nothing but a damn piece of paper", and that is what I call his "Patriot Act" and all his imperial decrees. Same paper, same ink, same deal.

He can sign decrees until his hand falls off for all I care. They mean nothing, and history shows this.

I would call this age:

The Collapse of the Great Hidden Ponzi Scheme

[EEngineer]

"By the way, up until this month, this website was accessible in China. But now it is not. I wonder if Hu is mad at me again?"

Another good reason to write a book. How long do you think the archives of this blog will last when you're gone? Paper does have some nice qualities...

[OC]

HI EEngineer,
I second that - get that book out asap!!

Lots of folks need the blinders off before they can help themselves!!

[Elaine Supkis]

I track readers here and haven't broken through to my goals for writing something. One can't publish unless one has enough potential audience. I figure, after the election, people will settle down and try to figure out how we can fix things without Santa Claus dropping money on us.

[Chris]

I doubt sanity will return just like that. For too many people unless they feel the immediate effect of something directly in their own lives it isn't real to them. Militarism and consumerism is too alive and well in the US; whole generations know no other way of living. We know from history many people will rather blindly follow a 'strong man (or woman)' leading them off a cliff than take a sober look at causes and effects and reality.

[insanelybull]

Quote:The GDP is a fabulous and very flexible number. It fluctuates since it isn't anything very real but a statistical figuration.

What is the GDP? Because by the above answer, I doubt very seriously that you have any concept of what the GDP actually is. That response is similar to the Waynes brother in "In Living Color" - "The hypotonouse of the tranfliguration, taken from the Latin word; jalepeno". It's a nonsense answer.

Quote: "But the DEBTS we are accumulating and have been accumulating for most of my life, that is hard and quite real and very easy to figure out since a number of hostile nations and organizations hold this debt."

When is the last time that the % of the U.S. GDP was represented by this much debt?

Your blog is really mightier than the sword!