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Christian W

The Gulf states are also about to launch their own currency union soon.

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This article from the Guardian points out how powerful Sovereign Wealth Funds may be soon:

"The consultancy Global Insight said sovereign wealth funds had grown 24% for each of the past three years. If they continued to expand at that pace, they would exceed the economic output of the United States by 2015, and the European Union by 2016, it said in its annual Sovereign Wealth Fund Tracker."

http://tinyurl.com/5dxbul

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Michael

HOW MANY WRONGS DOES IT TAKE TO MAKE ONE RIGHT?

"In the long run, we are all dead."
- John Maynard Keynes [when asked about the long-term consequences of intentionally using deficit spending to reflate the economy during the Depression]

"What has Posterity ever done for us?"
- Ronald Reagan [when cautioned about paying for current tax cuts and military expansion with debts to be passed on to future generations]

WRONG #1: The "financial system" [nowadays just about everyone from the Fed and Treasury on down to your local bank, mortgage company, and county pension fund] makes its living off creating and passing credit around, so it expands credit as fast as it can with no internal controls. Most players are both borrowers AND lenders in an out-of-control frenzied process, including the American worker/consumer (who seeks leverage by borrowing more than she/he lends, just like everyone else).

WRONG #2: The former "international currencies" prove too restricted for planetary trade expansion (not enough gold, the English Pound destroyed along with the English economy by empire & WWI). The Dollar takes over - Americans swell with nationalistic pride at this further proof of "American exceptionalism" (the belief - similar to the Israelis - that God has chosen us and given us special powers and a different set of rules to play by than everyone else). The Federal Reserve becomes the Central Bank of the world.

WRONG #3: The U.S. government ramps up intentional deficit spending (started as a temporary attempt to fix the Depression) during WWII to more than 100% of GDP, and afterwards there is no more talk - ever - of paying off the National Debt (which previously in our history was always considered temporary and always paid off). Post-war expansion and prosperity (contrasted with the Depression) is considered prima facia proof that more debt = more prosperity. War, debt, and prosperity are thereafter "known" to be inseparable (hence, Korea, Vietnam, The Cold War, Israel, Iraq, Iran, China, etc, etc, forever).

WRONG #4: Japan and Europe recover from the war, we start running low on resources and cheap labor, third-world countries start developing, and Communist countries turn capitalist. We no longer "own" the exclusive right to prosperity (or the pursuit thereof), and we will have to pay for resources and goods we import. Since we want more than we can pay for, we print more and more Dollars and exchange them for stuff then borrow them back again. Our trade deficit - yet more debt - also becomes permanent.

WRONG #5: Regulations, restrictions, and oversight adopted in the first half of the 20th Century to stabilize the "financial system" are dismantled in the second half as the Austrian/Chicago school of laissez-faire entrepreneur-worshipping anti-labor anti-consumer anti-environment "Wealth is God" Republicans take over the Presidency, the Congress, and the Fed. The American workers/consumers get on board, as do the governments and people of all the other countries. Screw the Club of Rome, there is no such thing as limits to growth; there is going to more and more of everything - based on freer and freer credit and more and more debt - and everyone is going to be richer and richer and happier and happier!!

WRONG #6: To mask to fabulous rate of growth of the government debt, and to undermine the (anti-entrepreneurial) social safety net by claiming the Social Security Trust Fund is "just worthless IOUs," the surpluses in the SS Trust fund are loaned to the government and spent as if they were genuine income (when they are really more debt), but because kept off-balance-sheet they appear to reduce the size of the reported annual deficit and accumulating National Debt.

WRONG #7: As the inevitable ponzi-level cheap-credit party starts collapsing like a house of cards, the agreed-upon solution by the entrepreneurs and Government in the G7 world is CREATE MORE CHEAP CREDIT - IF THAT DOESN'T WORK CREATE FREE CREDIT - PRINT MONEY!!! Worry about a bigger collapse down the road? What about posterity? Talk to Keynes and Reagan, we're busy saving our asses this week from the consequences of our decisions last week.

And the strange thing is, all this wrong DOES MAKE A RIGHT. Because, it's not dictatorships and Communist societies who are doing this - it's democratic countries, who have the clear support of the their workers/consumers. In fact, it's the workers/consumers who are most loudly demanding more cheap credit to maintain their accustomed (and aspired-to) lifestyles. This completely self-destructive system (in the long term) is beloved of the workers/consumers, who live in the short-term, select politicians to make them feel good in the short term, and will support any oligarchical financial power for central banks and private business if they just keep the cheap credit coming.

WHAT MUST WE CONCLUDE?: The fiscal and trade deficits, the National Debt, consumer debt, the Carry Trade, Fed money-printing, inflation, and always war somewhere (and/or terrorism at home), will continue as long as the system can be sustained. The workers/consumers are not going to "revolt" against the system just because it makes the oligarchs richer than them - they love the system and identify with the oligarchs ("that's going to be me someday"). If the house of cards were to collapse completely (massive deflation, business cycle bust, massive unemployment), if "revolution" were to be even slightly considered by the workers/consumers (highly doubtful), the War option would just be seriously cranked up to unite everyone behind the oligarchs to "fend off the horrible foreign hordes who created this whole problem and now want to come steal our hard-earned riches from us out of jealousy." It works every time.

GK

The movement of the world's financial power to Asia the the mega story of the century and you have seen through the haze of US/British media/imperial propaganda to call it.

The western IMF sold off 400 tons of their gold in April to help complete the transfer of power to the Asian IMF.

I predict the new Asia IMF will do the Volker interest rate hike that will collapse the US treasury market as the last of the worlds money floods to Asia to get the high interest rates.

The US/British empire will try to sell debt to fund consumption and $1 Billion per day for wars and this will fail so they will print money and then we go Zimbabwe.

I have an aunt who married a man from Kenya and she does micro-finance with people in Zimbabwe. Their rents are $7 billion per month.

Last year the Zimbabwe stock market was the best performing in the world rising 600%.

So the best part of the collapse of the US currency will be the soaring stock market. HAHA!

The ultimate trick to loot the country. Don't worry, everything is great, Dow Jones goes from 13,000 to 40,000 in 18 months. Yahoo!


Anthony

i guess the rest of the planet simply move on without us.

http://www.hindu.com/2008/05/05/stories/2008050556181400.htm

Foreign Ministers of Brazil, Russia, India and China to meet

NEW DELHI: Foreign Ministers of Brazil, Russia, India and China (BRIC) will meet exclusively for the first time in the Russian city of Ekaterinburg on May 14 with economics and cooperation at multilateral fora topping the agenda.

A meeting of Foreign Ministers of Russia, India, China (RIC) will take place at the same venue the next day as a follow-up to their regular interactions, the latest being in Harbin, China, last year. Although the BRIC Foreign Ministers have discussed the prospects of mutual cooperation on the sidelines of the United Nations General Assembly, the agenda here will be solely focused on promoting the concept of BRIC, first articulated by Goldman Sachs in 2003.

OC

Elaine,

When u're right - u are so right:

'13 Asian nations agree to set up US$80b crisis fund'

http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/345554/1/.html

'Chinese President Hu calls for friendship with Japan'

http://www.channelnewsasia.com/stories/afp_asiapacific/view/345516/1/.html

Phil the thrill

This plus the PBoC encouraging Chinese to buy gold as an investment... very interesting, especially as China is the world's largest producer of gold now.

In the forthcoming fiat chaos, china will have the greatest power on the price of gold with respect to both USD and Yuan... this will prove decisive when it defends the Yuan from appreciating against the price of gold, aka the new reserve currency.

Elaine Meinel Supkis

Michael: BRAVO. A great summation of what I and so many other outsiders strive to say, over and over again! I salute you.

Everyone else: you are all 100% correct. Thanks for the news links. I searched for several hours for more news and didn't get those stories. Will read them.

We had to deal with a bad thing today: our lovely Haflinger horse from Austria had to be put down due to his rear right leg breaking. It was a very difficult day for me. I dug his grave myself.

Phil the thrill

Elaine, you agree with my theory vis a vis gold in china? It's very interesting to read the PBoC's stance on the "microeconomic benefits" of Chinese citizens owning gold...

Royal Dutch

excellent article and mike and gk are right on the money save the part about reagan. Hindsight is 20-20 this has been in the works for a long time I have wondered when the gold selloff will be completed? and what are the reserves? after that they will toss a match in the pyre. No revolution thank god, but you will never see a poor man rise up unless a rich man is standing behind him with a stick. good news is we get to sit out ww3, bad news is we will fight each other off before the benevolent will send in the liquidation teams. anybody want a job as a gravedigger?

blues

How often do I have to say this? In the end, primitive economics rules. Do you have the factories? do you have the trained and disciplined workers? Do you have the basic infrasructure? If not, thou art fukt! Have these things, and you can walk! Without them, you will die. Play all the stupid shell games you want. It will matter not.

What the fuck have we been doing? Sleepwalking. Having spies playing games? Well that will surely not cut it! Having big bombs? Will NOT cut it. Make your way, or someone ELSE will make it for you. And you will NOT like where you end up. We can keep the bomb factories open 24/7, while the steel mills die? WHAT A FUCKING JOKE!!! Bad move, assholes. Fatal move. An "economy" is a SYSTEM, not a "sector." No system, no power. So sorry 'bout that. Another very very very hard lesson to be learned AGAIN.

Phil the thrill

OH, but hillary and obama are gonna push reboot on the US economy through a new-new deal...

sadly, they overlook the asian economies tearing our export market to shreds.

whoops!

Rascist

Just what we need more of... a nigger and a dyke on the leash of a jew.

Phil the thrill

ah, the agent-provocateurs have arrived just on schedule!

Karmaisking

OK, now is the time to start shutting up. I don't like you getting it so right. We are entering a dangerous phase. Let's start talking sports...how about the playoffs?

Elaine Meinel Supkis

Racist is probably an undercover plant who is NOT what he is pretending to be. Ever since my blog was featured in an Israeli news service concerning my contention that Israel is practicing blatant ethnic cleansing, I get all sorts of queer trolls. I can see where they are posting from and it is usually Israel.

Sad, isn't it?

PLovering

Imagine that. Israeli trolls.

Supkis and Carter, known by their adversaries.

Paul S

The media.They operate more like a propaganda arm than a "news" outlet. BUT, when their usefulness is over, they will be purged a la Stalin in the 1930's. Elaine, your description of Repugs is good, but may I add supreme arrogance and total incompetence to the description? I can't wait to hear how--when it is too late and even lying won't cover it up, the propaganda ministry will "spin" this. I think it will go something like,we Republicans caused this (along with some Democrat friends), BUT we are your only hope out of this, so for better or worse, you are stuck with us. Or maybe they will just mobilize HA and institute "controls" over people who know too much and/or are foolish enough to not keep their mouths shut. If you look at some of the domestic 'security' provisions that are out there, it gets a little frightening. THAT doesn't get much press coverage either. The crooks who caused this mess will NEVER admit their mistakes; they will just put the hammer down on anybody who dares point it out.

AA

Elaine -- from a big picture view point, on one hand it seems you are concluding that China/Asia are doing this to prop up the US economy to protect their investment, but on the other hand the dollar is essentially toast. Which is it? Will they let it crash or not? Confused...

Buffalo Ken

I'd just like to say that I appreciate all the effort that goes into this blog and the wisdom plus insight that are shared (both in the articles and most of the comments).

Perhaps the US of A is just too sick to save. Perhaps it is time for D.C. to be diminished for the good of the rest of the world. Perhaps the folks in the US of A need to better understand suffering so that we can "grow up" collectively.

I don't know, but all the signs seem to be pointing to major quantum-shift changes just around the corner and the corner seems to be getting mighty close. Personally, I'm trying to localize.

Anyhow, regards to all - Ken

Elaine Meinel Supkis

AA: the currency union is to prevent BLOW BACK. Blow back from the dollar collapsing or the Arabs, pirates or EU guys dumping dollars into Asia to clean out their own bank vaults, just for example.

As a united front, they can SUPPORT the dollar while not endangering their own currencies vis a vis the army of Buffet wannabes who want to make a killing by flooding various FX markets.

Germany, on the other hand, is barely keeping the euro going, many Germans are getting fed up with it and want the old DM back.

AA

Thanks Elaine - now it makes sense.

CK

Invade the world
Invite the world
In Debt to the world
This is a quiz?
The invade the world part is looking like a failure
The invite the world ... 50/50 right now.
The invitees who made money in construction are returning home, those who made money in nursing, lawn maintainence, food service are not leaving.
The indebt to the world part of the strategy is working charmingly.
Yesterday I read somewhere that Paraguay's new maximum presidenté is desirous of signing extradition treaties with various nations.... there goes the extancia in Paraguay that our current Dogé's family "invested in." Although it ( the ranch ) still sits over the largest fresh water aquifer in the Western world.
The Euro is a paper currency, so is the yen, so is the yuan. Yes the current Chinese establishment is currently smarter than the current American establishment ( not hard to do considering the misedumacation that the current American establishment obtained). We're number 2 and falling. Oye Vey!!.

Elaine Meinel Supkis

You see, Obama looks and sounds smart so he is an elitist even as he is from a very despised minority. Al Gore was a braniac techie freak which is perfect for China but here, was a huge minus. A drunk frat rat: that is what we want. A spoiled rotten elitist slob.

Paul S

If it wouldn't be too much to ask, could everyone refrain from using the "F" word and other similar words? My ears aren't sensitive, but too much swearing lowers the level of discussion. One can make their point without using foul language.

Sands

This reminds me of one strain of macro economic thought that claim demographics limits the type of economic growth a country can achieve. In a graying population more and more end up as frugal pensioners and this puts the brakes on consumer driven growth. In such countries growth must be achieved through exports. This would explain (partially at least) the economic situation in Germany and Japan. Both are major exporters but in the home market consumer demand is weak.

China's GDP per capita is for now too low to rely on consumers as a driver of growth. As more and more Chinese earn enough to afford discretionary spending the result should be that consumption will pick up and for a while complement or even replace exports as an engine of Chinese growth. But only for a while, because the effects of the one child policy will ensure a return to reliance on exports. A troublesome long-term prospect for other exporting economies and a situation that probably persists until around 2050 (presuming dwindling older generations and a change in the one child policy by 2020).

The US has in recent times relied on a credit driven expansion. But during the same time industry was run so hard into the ground that it created a huge trading deficit. Closing the gap will take a long time to accomplish but on the upside industrial investment could fuel the next economic expansion in the US, even as banks and consumers slowly digest their debts. Unfortunately continued fierce competition from China could mean the deficit is never completely overcome. So we can only hope China will be reluctant to scotch their biggest export markets and not do something funny with all the dollars and euros piling up.

Paul S

My biggest concern on the subject? When is "Dubaya" going to start bombing Iran and play the Patriotism card? It probably won't be until close to the Prsidential election this Fall. It has worked before, but I hope people will smarten up. I think the only thing holding Bush back is "his" military--no matter what the neo cons say publicly--is stretched dangerously thin already.

Elaine Meinel Supkis

Now that it is certain to be Obama, expect a terrorist attack/assassination.

Bin Laden and those people backing him always move right before elections.

Gary W

Don't forget the home-grown loonies and spooks.

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