Avoiding The Truth: The USA Has Over-extended Its Credit

Elaine Meinel Supkis

Despite nearly all the pundits singing like demented sirens upon the rocks threatening to sink our ships, sensible people see the writing on the Great Wall of China and are 'jittery' still. As my blog has said in the past, eventually, the USA will be unable to borrow infinite amounts of money and the world trade/exchange systems will collapse.

The New York Times wants desperately to be sensible so they point out a tiny tip of the huge iceberg we just hit.

The short answer is that investors have a proclivity to hear what they want to hear. On Tuesday, warning bells were simply too loud to ignore, including the steep sell-off in stocks in Shanghai, downbeat reports on the United States economy and an attempt in Afghanistan on the life of Vice President Dick Cheney. Yesterday, investors needed only the slightest prod to revert to “hear no evil” form.

The more complete answer is also more troubling. In recent years, as housing and stock markets surged, even highly speculative investors have been encouraged to an unusual degree by their bankers and regulators, who are supposed to restrain investors’ more maniacal bents, but instead have done little to quell or question excessive risk-taking.

People never take huge risks with their own money and much of the money being risked comes from either Chinese/Japanese workers' savings or Germans. The other source is all that oil money denominated in dollars. This is insensible because the dollar has been losing value relative to the only other real currency on earth, the euro. Well, outside the Swiss currency. Anyway, the other major currencies like the yuan and yen are fake. This is deliberate. They need to have misbalanced currencies in order to have misbalanced trade.

The USA conspires with this even as they yell about it in order to fool American voters. Worse, we know how fake this is because not once in the last four years has the USA called for Japan to fix their currency and let it be traded honestly. Using ill-gotten money via super-cheap loans from both Asia and our own government, people have been placing bets with increasing abandon. Japan is the ultimate cause of this: their business leaders, accessing loans at virtually NO interest rates at all for the last six years, have been spending this loot buying many businesses in the West, particularily the USA.

This causes our stockmarket to shoot up higher and higher. To keep a crippled economy afloat, the Fed reduced interest rates after the last stockmarket correction in 2000. When bin Laden successfully attacked us in 2001, our economy took a huge hit. To fix this, interest rates were dropped even more.

Bush told Americans to go shopping, not save money for a war on terror. This meant we overthrew all caution and went crazy. One aspect of all this was the frenzy to build fancy homes. As one factory after another disappeared or was bought by aliens, Americans prettified their homes. Putting all our psychological and fiscal energies into this rehab project, we bid up the value of our homes collectively.

This is because home buyers gage what they can buy by calculating how much they can pay each month on a mortgage. With super-cheap money, the sky was the limit.

When a major American city was nearly totally destroyed by a hurricane, we didn't change direction, the urge to spend like crazy and demand cheap loans from Asia to rebuild a doomed city was paramount. Then there are those expensive wars and imperial bases all over the planet: due to cheap Asian loans, we overextended ourselves there too. When our rulers talk about cutting back, they mention only services to Americans, not stopping this mega-expansion of imperial control that is costing us so very dearly in finances as well as blood.

The next crisis appears to be building around weakness in the United States, not in Russia or Asia or South America. That means money could flow out of the country if markets were rattled. That would weaken the dollar and require speedy and complex remedial action by the world’s central banks — not just a rate cut by the Fed. Tuesday’s stock market decline could turn out to have been a garden-variety correction. But major market participants would be wise to rethink their assumptions.

What on earth can the world's 'central banks' do? I know: raise interest rates due to the fact that the USA is overextended. I know for a fact that credit card companies and loan officers do this all the time: people take on too much debt, their credit rating drops! The USA's credit rating should be XXX not AAA! Our credit rating is fake! Normally, when someone is this over-extended, the banks automatically up the interest rates due and add penalties! It exists only because the Japanese want to rule us economically and the Chinese communists are waiting to slit our throats! Instead of seeing these loans as boons, they are a trap! Yet no one in our government is calling for us to bite the bullet. Already, the USA has a negative savings rate due to interest rates that are much too low.

This is because the world's economy, based on a very dangerous fulcrum, is so out of whack, the whole thing will collapse just like it did when Britain's empire collapsed in 1929. This isn't a minor correction, this is a much-needed major shift in power, one big enough to trigger WWIII.

Today, the clowns who have lied to us nonstop are still at it, they must convince us the Chinese investors were stupid when they panicked.

[And on Thursday morning, the Shanghai index was down again, falling 1.7 percent. Japan's Nikkei 225 index had fallen 1.3 percent and Hong Kong's Hang Seng 0.46 percent.]

Minggao Shen, a Citigroup economist based in Beijing, wrote in a report by three Citigroup analysts that the Shanghai sell-off was prompted by "ill-founded jitters" and that there was no significant new information revealed to justify it.

Readers of this blog know that I have been in a panic for three years. And for good reason. Under Clinton, we began to slightly correct our course and I hoped this would continue. When Bush ran on the 'cut all taxes' bribery scheme, I was sick to my stomach. This childish plan was doomed to drive us into bankruptcy and of course, it is. I can't imagine anyone not being in a total panic about this. Yet our Congress continues to spend merrily and they show little alarm. So the average Chinese has to do it for us.

If they are running for the hills, we better run for the mountains.

Here is another article filled with lies, blaming psychology for a very real fear of fiscal collapse.

The first point surely is that markets are not completely rational entities, weighing up the importance of new information as it comes in and allocating capital flows in response to its implications. There is a wild and wacky element, as we have just seen. By rights, a proposed shift in investment regulation in China, plus some tax changes in South Africa, ought not to give such a kick in the teeth to global markets. The Chinese economy may be growing swiftly, but the market capitalisation of the Shanghai exchange remains tiny by comparison to Wall Street. The tail is wagging the dog. That is odd.

The second point to be made is that the present phase of the bull market has run almost uninterrupted since May last year. That has been an exceptionally long period without a correction. I love that expression "correction", by the way. It implies that the market is basically sensible, pausing periodically to correct any mistakes that creep in. Even though things ain't like that, the idea that markets do need to correct over-enthusiasm is a useful one.

The real dog here is China, not the USA. The USA is the tail. We generate little. We consume a lot. We abuse the Chinese dog so we can live high off of the hog and this is the year of the Pig which we intend to exploit for ourselves and pig out. These plans have a big drawback: we have to take on epic amounts of debt to do this thanks to our collapsing dollar coupled with a collapsing industrial/export base.

We have long fallen into the habit of selling stuff that isn't value added: timber, unprocessed food stuff, oil (yes, we sell Japan our oil!). In turn, we sell Boeing jets and miltiary equipment. This is why I track both of these items so closely. Of all the economic blogs, I have the most postings about Boeing, just google that topic and it is clear: I am one of the top publishers on this topic outside of the BBC and NYT and Wall Street Journal.

Here is the Chinese news service, Xinhua:

The losses across much of Asia underlined lingering worries about the outlook for the U.S. and global economy as well as overvalued stock prices. While analysts said the global jolt was most likely a correction to cool surging markets, some said market volatility could persist for months.

"Asia and Japan are highly dependent on the U.S. economy," said Shun Maruyama, an equity strategist with Credit Suisse in Tokyo. "Stocks need some more time to return to a rising trend."

The bane of capitalism is its boom/crash cycle which mirror's nature's evolutionary cycle for lemmings. Rationalists, alarmed with the Great Depression, tried to rig up a system whereby the government would spend when the capitalist cycle goes into a crash and then tax it heavily when it was booming, this would flatten out the cycles.

Only this was based on a misunderstanding of the Great Depression: all global depressions (unlike recessions) are caused by imperial collapses due to disastrous wars and over-accumulations of debt by the top imperial power.

The other thing which prevents booms/busts are unions. Today, we see a major union action across all of Europe as Airbus tries to outsource 10,000 jobs to CHINA. They won't say they are doing this but my blog pointed this out just three days ago. I see the writing on the wall: this is China's intentions for the last 20 years and they will get their way in this matter or there will be no more Airbus contracts. Ditto for Boeing. And both are the last important industries the Chinese haven't conquered.

Along with cars which the Japanese rule, they too will be sucked into China and will end up in the same condition as the top German automakers.

Click here for amusing song about world trade and the common worker.

By Thomas Heffner

BORN AND BRED IN THE U.S.A.
GIVES ME THE RIGHT TO SAY MY SAY
AND I'VE GOT A FEW OPINIONS TO DISPERSE
'BOUT ALL THE CHANGES THAT I SEE
WITH DIRECT EFFECT ON YOU AND ME
SOME ARE FOR THE BETTER
SOME FOR WORSE

VERSE 2
THE TRADE DEFICIT HAS ME UPSET
WITH OUR EVER INCREASING DEBT
(AND THE) LOSS OF OUR MANUFACTURING BASE
(WHEN) SCORES OF AMERICAN INDUSTRIES
(ARE BEING) SOLD OUT OVERSEAS
(WITH) FOREIGN COMPANIES TAKING OUR PLACE

Killing the unions in industrialized nations has set the world on a mega-boom/bust cycle like the ones in the past. And like in the Great Depression, many nations will kill their unions further and weaken worker's rights and like in the 1930's, will turn to SLAVERY and to gain these, conquest, just like back then. And like back then, it won't work. Today, the Koreans again demanded Japan repay the Korean sex and labor slaves and again, Japan refused.

Eventually, we will all pay the piper and this includes the Thrurmond family repaying the Sharpton family slaves. Reparations will be paid, in hell, if not here.

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Comments

[JSmith]

"Readers of this blog know that I have been in a panic for three years."

You've been in a panic for longer than that! If I were you, I would be tired of waiting for the hammer to drop by now...

[Elaine Meinel Supkis]

YUP. SEVEN LONG YEARS. As I noted in this article, when Bush ran on tax cuts we couldn't afford.

The giant alarms are in the last three years with the housing/stockmarket bubbles. They are a classic example.

[Liberal AND Proud]

The so-called financial geniuses are simply shifting the coals today. They'd best hope they don't overturn a "hotspot" and get caught in a flash fire, which will quickly burn out and die.

The "market" is desperately fighting to find positive news. Unfortunately, you can't fight fundamentals. Oooh...manufacturing growth came in at 52 instead of 50. That's like saying...oh the cable car industry is rebounding! The auto will not survive!" LOLOL!

U.S. manufacturing...an oxymoron. The unions have been destroyed, manufacturing has been hollowed out. Those facts cannot be ignored. They are simply FACTS. There will soon be only TWO U.S. auto manufacturers, and then only ONE. Steel? Dead. What's left? Oh, the nuclear weapons industry is poised for a big growth spurt if the Bush Admin has its way.

Real wages? Flat. Savings? Negative. Debt? Rising? Housing? Falling. Oh...but inflation is under control. Great, we get to die a SLOW death. Lack of inflation is an indicator of lack of growth. Any business school freshman knows that.

We are in the hands of charlatans, liars and the morons that follow them.

[Elaine Meinel Supkis]

You said it perfectly as always, Liberal and Proud. Thank you!

[JSmith]

"Lack of inflation is an indicator of lack of growth. Any business school freshman knows that."

And if they stay in school a few more years, they learn differently. (Which is probably why L&P isn't running things.)

From 70 - 83 or so, there was a great deal of inflation around but little accompanying growth. Then Paul Volcker wrung the inflation out of the economy (painful, yes, but it needed doing) and the economy began to... yep. Grow.

[Elaine Meinel Supkis]

GROW???? You're kidding me, Smith!

THE RED INK GREW. Reagan opened the doors to hell and all our problems today stem from back then. All, and I do mean all, of our wealth is due to going ever steeper into debt and running up the biggest trade deficit since the Roman Empire.

[Liberal AND Proud]

The "inflation" you speak of Smith was caused by the oil embargo. It was ARTIFICIALLY created. We can argue about the culpability of the energy companies at a later date.

As for growth, when you adjust for "stagflation", Carter growth wasn't all that bad, and debt levels were relatively flat. After 1980, take a look at the debt numbers. Yes, there was growth after the '84, tax cut...but that was NOT a supply side cut. That was a totally Keynesian tax cut, designed to generate demand and boost the economy which had slowed during the hostage crisis.

[Ajien]

Its filipino not Philippino, i know this cause i am one