June 25, 2008
Elaine Meinel Supkis
Japan's export surplus continues to grow at a very high rate. Ever since their 'depression' began, they have enjoyed nearly totally free loans for export industries coupled with huge profits in export trade due to the cheap yen underselling rivals like the US. Vietnam is having inflation problems and is now the #1 importer of gold. The government is trying to cut back on gold buys because now Vietnam has a trade deficit due to gold. And we discuss the connection between inflation and deflation and why they can run neck to neck.
Japan's Exports Climb 3.7%, Twice Predicted Pace
(Bloomberg) Japan's exports grew at twice the pace economists estimated in May, as shipments of cars and fuel to Asia made up for a decline in demand from the U.S. and Europe.Exports, which drove at least half of the economy's growth in the past three quarters, rose 3.7 percent from a year earlier, after climbing 3.9 percent in April, the Finance Ministry said today in Tokyo. The gain was faster than the 1.9 percent median estimate of 18 economists surveyed by Bloomberg News.
Asia, the destination of half of Japan's goods sent abroad, supported exporters including Idemitsu Kosan Co. even as the yen gained and shipments to Europe fell for the first time in more than two years. That may help Japan avoid a recession as higher oil and raw-materials costs squeeze companies and consumers.
I love to include news from Japan all the time because this is the key to the riddle: what is the engine driving global trade and global finance? The US loves to preen itself as the 'engine' of global trade and finance. But it is not. It is the freight cars being pulled along the tracks. There are more than one engine pulling world trade and finance, indeed, there are several. One of them is the German choo-choo. The other is China. And the OPEC nations are the coal car that tags along behind the engines. These are all puffing up a steep hill that is getting steeper and steeper. This is global inflation.
The US runs along the same tracks all these trains run on. As the Engines of World Wealth burn commodities, the US engine is running on paper money. This is being burned at a frantic rate. This is sort of like the Germans using Reich Marks to heat their houses. The OPEC, Asian trains run on energy and labor. The US one runs on Funny Money™. When we read any pronouncements by the leaders and top pundits in America, they all love to talk about how the world needs us. But the world needs us only for one thing: fuel for their trains. This bizarre idea that we can continue to burn paper money to keep our economic engines stoked is why we have global inflation.
For far from pulling along the world's economies, the money burning is slowing down the economic train. The whole world is girdling itself for an economic contraction because they fear that the US will be unable to consume more paper money. As well as the idea that the paper money is now destroying or weakening their own economic engines.
Japan's curious 'depression' which features healthy, strong growth in exports and profits continues. Unremarked by most economists and pundits. This is amazingly invisible. Except that Bloomberg news is finally picking up this story even as there is little sensible commentary they can apply to these queer stories about the strange Japanese economy that chugs along with the rest of Asia, one of the world's biggest economic engines. It pulls along an economy in Japan that is poorer and poorer except at the top.
Asia is doing business with Asia because THIS IS WHERE THE PROFITS LIE. Namely, the US runs on CREDIT and Asia runs on CAPITALIST PROFITS. The more the US economic train runs, the less power it has, the slower its speed, the less capital it has. To keep making Funny Money™ to shovel into the maw of the engine, the US had to bring in billions of profits from the other nations. This constant inflow is slowing or reversing. Eventually, it will cease. As our train runs out of fuel, literally as well as figuratively, our engine will roll backwards. Or derail.
Today's astonishing news from Japan should trigger thousands of comments across the economic side of the internet. HAHAHA. It won't. It will remain below the radar. People can't see this amazing thing happening because many people are ego-centric and can only focus on one outside thing at a time. This is why the very silly Brad Setser, for example, has hundreds of articles about China and zero about Japan. And when talking about China, seldom if ever, mentions Japan. If China's FOREX reserves shoot upwards and they buy lots of US Treasuries, Setser will be on the case. But he never talked about Japan doing this much earlier. Now did he connect the Chinese use of these tools to Japan's use of these tools.
People who write about free trade will ritualistically say that Japan has a depression and we should assist them in 'growing'. Well....they have had an unprecedented 6 years of continuous EXPORT PROFIT growth. Not just exports. The PROFITS from this. Both Germany and Japan have the greatest export profits last year. Germany is now going down in flames thanks to the strong euro. Japan rolls merrily uphill as global inflation shoots upwards! While running a banking sytem at nearly zero % and far below the real rate of inflation
Talk about defying gravity!
Japan Inflation Rate Probably Surged to Decade High
(Bloomberg) -- Japan's consumer prices probably rose at the fastest pace in a decade, hurting household budgets and complicating policy for the central bank as economic growth slows.Core prices, which exclude fruit, fish and vegetables, climbed 1.4 percent in May from a year earlier after rising 0.9 percent in April, according to the median estimate of economists surveyed by Bloomberg ahead of figures to be released June 27. A separate report may show households cut spending for a third month.
Companies are charging consumers more to protect profits that are being eroded by record costs of oil, wheat and soybeans. Those price increases are crimping sales and discouraging people from spending, making it difficult for the Bank of Japan to raise its key interest rate from 0.5 percent even as inflation accelerates.
``The Bank of Japan pays attention to the risk of inflation at home, but concerns about an economic slowdown are far more pressing for policy makers,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. ``Rates will probably stay on hold for a considerable period and the chance of a hike may remain small even next year.''
The Bank of Japan cares no more about the inflation rate than the US Fed: zero interest. Or rather, both want zero interest rates so they can have infinite money. Note how Bloomberg news gets things backwards here: the poor Japanese consumers are being forced to eat all this inflation. This is 'discouraging them from spending'. No money=no spending. They are in a depression and are being hammered by inflation. This is the most evil of all possible economic worlds. It should cause revolutions and riots. Instead, it causes suicides and despair.
So, despite inflation, the Bank of Japan will keep these ridiculous and utterly irresponsible sub-inflation rate loans flowing to the export businesses. For this free money is NOT so the Japanese can go on a buying spree! Nope! It is strictly for growing the profits of exporters. Japan has been far and away, the biggest user of both robots and foreign labor to manufacture export goods. So this market doesn't even produce all that many jobs anymore inside Japan itself. The goal of the Japanese industrialists is to completely replace workers with robots. The amusing story from Japan last week [which I saw on Japanese TV] about the girlfriend robot is a telling sign of where this all leads!
The robot girl didn't even try to look very human. Just enough a hint of human to trigger a human response. But the robot was supposed to be alienating. Eyeless and mindless, soullessly responding to data triggers, it mimics enough human impulses to get a response from increasingly alienated humans who can't love anymore. This crushing contra view of humanity is moving relentlessly forwards. And we are being sucked into it very insidiously.
Marc Faber Favors Commodities as Inflation Quickens
Japanese stocks, Asian real estate and commodities are investors' best bets as faster inflation erodes returns in the rest of the world's markets, investor Marc Faber said.``Demand for commodities and oil will not vanish,'' Faber, the Gloom, Boom & Doom Report publisher, said at a conference in Tokyo. ``The shift in demand that drove up commodity prices is not going to go away.''
Record prices for commodities have accelerated inflation around the world and lifted shares of raw material and energy producers. Oil more than doubled since the beginning of last year, while products including coal, rice and fertilizer also reached record highs in 2008.
Faber, who told investors to buy gold as the metal began a seven-year rally, predicted inflation may boost Japanese share prices and Asian property will benefit as more people gain access to mortgages.
``For Japan, inflation is favorable,'' said Faber, who oversees about $300 million at Hong Kong-based Marc Faber Ltd. It ``will bring cash out of the mattress and into equities and real estate.''
Note how this Faber pirate is gloating over the idea that the poor suffering Japanese will be FORCED to move savings into pirate coves and take on increasing risk of losing everything thanks to inflation! Forcing people to translate cash into gold or oil means they are vulnerable to the rise and fall of gold and oil markets. Gold and oil both have a tendency to go into peaks and then fall into valleys. They never go up and up and up. The only way to force savers to share their wealth is to either lure it into the system by offering a good reward or to force them into markets by destroying the value of the currencies vis a vis gold, oil, etc. Inflation, in other words. The hope of the savers is, they put money into the inflating gold or oil or whatever and then it will be safe. But this fails all the time since the value of these things relative to other things and floating currencies ends up causing them to fall behind inflation of other things. In other words, nimble pirates and speculators might be able to keep up or surpass inflation and deflation but concentrating on this business nonstop but it is hopeless for ordinary people to use up all their time doing this.
The labor that goes into tracking, jumping tracks and running ahead of inflation is LABOR. It is work. Every hour one spends doing this is part of the price. When we put our money in banks and collect interest, the whole point is, one TRUSTS the bankers to control inflation and lending to a reasonable level so the money in the bank grows but the bank doesn't go bankrupt. We then should go about our business doing profitable, value-added labor capitalist things without lying awake at fretting about the relative value of the yen or yuan on the awake side of the planet.
Bill with billions in health plan cuts passes House
(Reuters) - The U.S. House of Representatives on Tuesday approved a bill that would shave billions of dollars in reimbursement from health plans that contract with the federal Medicare program.Payment would be cut to health insurers such as Aetna Inc and Humana Inc under the bill sponsored by Democrats Charles Rangel of New York and John Dingell of Michigan.
U.S. lawmakers face a June 30 deadline to pass legislation blocking a scheduled 11 percent pay cut for Medicare doctors. Cuts to the private plans would help keep the doctors' payments intact.
Like in Japan, the government is slowly retracting the Welfare State. Bit by bit, they must strangle it and kill off the recipients who need this to stay alive. The wild spending on wars that benefit oil companies and Halliburton are fully funded with virtually no debates. The hike for minimum pay was attached to the war spending bill but this is something Congress isn't paying for itself. It is part of the 'let the working class try to catch up with inflation caused by the central bankers' business.
Inflation, Trade Deficit Cause Worry in Vietnam
Business was brisk Friday morning at the Ngoc Son gold shop in Hanoi, as some customers sold gold necklaces for cash, while others bought gold as a hedge against inflation.Vietnam's inflation rate topped 25 percent, with food prices rising 22 percent in May alone. Bui Thi Van, who sells beef at a Hanoi street market, says consumers are cutting back.
Van says customers who used to buy two kilograms of beef now buy just one. Her income has shrunk from $250 a month to under $200.
Declining incomes are something Vietnamese had grown unused to. Since 2000, Vietnam's economic growth has averaged over seven percent a year.
This article from the Voice of America is full of confusion. People are buying gold because they are worried the central bankers will imitate Japan and lower the value of the dong. This makes imports more expensive. And Vietnam is following the tracks of India and China in buying gold. But this is bad for these economies so the gold markets will be strangled one way or another. But the inflation is external. Global inflation can't be easily escaped. Once the main central bankers decide to be honest and raise interest rates to above the rate of inflation, all savings will cease to flow to investment pirates or gold or other gambles. It will flow into banks!
Right now, the banks are feeding at the government troughs. All the main governments in the world---especially the US, England and Japan---are all running in the red. Indeed, what governments are NOT running in the red? Ah! There is the rub! Global inflation comes from all government running in the red! They CREATE CREDIT and then give this to THEMSELVES. Then, they hand off this to each other. The government of Japan and Vietnam both create Funny Money™ at home at a mad rate. They use this to BUY US DEBTS. Which are parked in their FOREX reserves which are growing like mad. China's is now nearly $2 trillion, Japan has passed the $1 trillion milestone and Vietnam is roaring along right behind! All of Asia is doing this. This fuels global inflation that has come to Asia with a vengeance.
Vietnam's trade deficit shot up to $14 billion in the first five months of 2008, from $11 billion for all of last year. The influx of foreign currency puts pressure on the Vietnamese dong to strengthen.But that would make Vietnamese exports more expensive, hurting local industries. So the government held down the exchange rate by buying dollars with dong, which inflated the supply of dong, contributing to inflation.
The global rise in oil and food prices has also worsened inflation in Vietnam. And, says Adam McCarty, of analysis firm Mekong Economics, so did an explosion of credit from banks looking to profit from the boom.
This is the 'liquidity trap' that happens when inflation can't be shoved elsewhere. If inflation can be farmed out to the US, for example, Asia will merrily make more and more Funny Money™ via granting super-cheap loans that help their exporters and wreck their currency's values. But when the money ceases flowing into inert places like gold, real estate, stocks or other instruments that isolate excess credit-created funds, we get rampant inflation.
You see, a house is BIG. It is like a huge sponge. If a country's housing is relatively cheap compared to say, food, this represents a good place to park excess money making! So the banks merrily churn out this money and it is backloaded onto houses. The nature of debt is, in the new floating currency system, debt is WEALTH...TO THE BANKS. So the more they can park huge sums in housing, the more money enters the markets but doesn't cause inflation simply because it is NOT BEING SPENT ON FOOD OR FUEL. It is being spent on big-ticket items.
I just got a letter from my local truck dealer. He is offering me a special: $10,000 off on new trucks. Wow. But the listed truck price is $37,900 and they will drop it to 'only' $27,900. Now, my first brownstone I bought in Park Slope, NYC, in 1978 was $37,000 for a four story, three bedroom, an apartment in the basement, a library, living room, green house, kitchen and dining room....all this for the present price of a mere truck. A truck isn't worth a brownstone. The brownstone is now worth over $2 million and it isn't worth that. For in 1982, I bought an eight bedroom mansion with a music room, a ballroom, a library, a livingroom, a butler's pantry, dining room, a central hall with double staircases that were over 6' wide each, with stained glass windows, a huge carriage house, rolling lawns, hedges and fine trees....for only $125,000. I sold it for $300,000+ just three years later!
Ten trucks are NOT worth a huge historic mansion! There is no way in hell they are the same. Note the inflation....in real estate! Trucks were cheap vehicles back when I bought the mansion. I paid less than $4,500 for a truck back in 1980. But my truck I bought in 1968 cost me $100. It was a 55 Chevy. I sold it in 1974 for $600. Again, see the inflation! This is how I personally track inflation: remembering what I bought in the past and how much I paid.
Analysts at the investment banks Merrill Lynch, Deutsche Bank, and Morgan Stanley have warned that unless the government raises interest rates, devalues the dong, shuts down insolvent banks, and cuts government spending, it could face a currency crisis.
HAHAHA. Both Japan and the US are lowering interest rates, devaluing the currencies, refusing to shut down insolvent banks [the entire US system is now virtually insolvent!] nor will either cut government spending while creating credit based on virtually nothing. As I explained, the price of trucks and houses and other parking places for excess credit which incidentally fuels global trade, these are FALLING IN PRICE. Thus, the continuing credit creation has to be parked in smaller, lesser places like food and fuel. This causes them to surge in price and this torments people because we can use a house that is inflating to create MORE CREDIT. But we can't do this with FOOD! Food is eaten! Fuel is consumed! So both have to immediately hit the market prices and removes wealth while NOT CREATING MORE CREDIT. We can't go to a bank and get a loan on a sandwich. We can, with a house or a car.
Dow Chemical Raises Prices for Second Time in a Month
NYT: The increase of as much as 25 percent — the largest in the company’s history — comes after a 20 percent rise last month that the company said did not go far enough given the continuing surge in energy prices.Dow, which makes products ranging from pesticides to plastic wraps, also said it would impose freight surcharges of $300 for each truck shipment and $600 for each rail shipment beginning Aug. 1 in the United States. In addition, it will scale back production in plants across North America and Europe.
See? DOW passes on the overhead costs. If sales fall, this doesn't matter so long as the sales they do make are profitable due to higher prices. This isn't due to 'inflation expectations.' This is harsh reality. If someone is selling a necessity, it will rise in value, rise in cost in inflationary spirals when things that are not necessities no longer can rise in value but fall. If houses and gas guzzling cars become worthless, this is corrected by having oil and food become very dear.
Investors Call ECB's Bluff, Bet on Rate Increases
(Bloomberg) -- The European Central Bank insists it has signaled only one interest-rate increase; investors are calling its bluff.They're betting the ECB will raise rates twice this year and most predict a third step by March, even as policy makers admonish markets for jumping the gun.
We ``didn't say that we could envisage a series'' of rate increases, ECB President Jean-Claude Trichet told the European Parliament in Brussels today. One move ``should be enough,'' Executive Board member Lorenzo Bini Smaghi said last week.
The price of oil has bounced back down today so it is 'only' $133 per barrel. I have noticed the surge in prices at the pump stopped this last week even as future prices keep approaching the $140 mark. Inflation is being strangled in Europe by stopping the making of credit. But not in Japan or the US. Or Vietnam. China is joining Europe in raising rates and reserve ratios. This has now cut the world into two camps: the EZ credit nations of Japan and the US versus the high interest rate countries of China and Europe. This is a significant change in global dynamics.
Barclays to Raise $8.9 Billion to Lift Capital, Invest Overseas
(Bloomberg) -- Barclays Plc, Britain's fourth-biggest bank, plans to raise 4.5 billion pounds ($8.9 billion) to bolster depleted capital and increase consumer lending in Asia and investment banking in the U.S.
And so yet another Western bank is whoring itself to OPEC and will now switch gears and give out credit to Asia and in particular, places like Vietnam and China, both being communist nations and all that. Marx is laughing himself to death over all this.
Comments