Elaine Meinel Supkis
I must tear apart yet another professor, Niall Ferguson of Harvard. The Chinese boast about their foreign investments and the rate of money flowing into China so they give out interesting names of interesting international organizations that track money, in this case, the UN. The UNCTAD has pages and pages of statistics so I tackled just one of many because it is a lot of fun, crunching numbers and seeing what comes of this. Wow! The movement of money has gone through very significant changes over the years and indeed, we are in a new system caused by global free (sic) trade! More and more money is flowing not into loans or even FOREX reserves: the money is mostly flowing into STOCK MARKETS!
Once our leaders had real powerBy Niall Ferguson
By the "real" world, I mean the political world - the world of presidential elections and party conferences. There was a time when the stakes in this world really were high. In Henry Kissinger's heyday, POTUS (as close friends refer to the President Of The United States) really was a potentate. Like his opposite number, the General Secretary of the Communist Party of the Soviet Union, he had the power to kill tens of millions of people at the touch of a button.
Even the British Prime Minister had real power in the 1980s: the power to send a fleet from Portsmouth to Port Stanley, at the other end of the earth, to expel invaders from the Falkland Islands.
This man is a professor. He sits in his chair as the Tisch Professor of History at Harvard University. I sit in my chair in my house as the chair for the Furies and the Fates at Falkenfelsen Farms, NY. This man actually teaches youth how to read history. Oh my. Since he decided to stray into this huge debate raging within the ruling class over the tricky issue of 'sovereign wealth', I feel we must examine this foolish professor since he is carried all over the earth as some sort of expert on the issue of international politics and economic power.
Let's start with this first paragraphs: in the old days, the US and the Soviets could 'kill tens of millions with the touch of a button.' I assume he is referring to the possibility of starting WWIII here. Nuclear annihilation. So, has this reality changed? Does the President of the US and the one in Russia NOT have full nuclear arsenals aimed at each other?
We are embroiled in this insane argument with Russia over our blatant attempt at ringing Russia with ballistic missiles aimed at Putin. Putin recently warned Europe that if they dare to do this, he will put them in his crosshairs and maybe unleash WWIII and kill all of them in two hours or less. So, does he have the power to kill tens (hundreds) of millions?
Now to the US, the country that has been spending more and more every year on our military and is expanding our military presence all over the world, concentrating on all countries bordering on Russia and China. Are we losing the ability to launch WWIII with 'a press of the button'? Recently, the Zionist neocons praying for the End of Times announced the US will now practice pre-emptive NUCLEAR strikes if we think someone might surpass our military powers! Far from power fading, in the US, does the President go to war without Congress declaring war legally? HAHAHA. And does the President of the US defy the UN and after conning the UN into disarming Saddam, then illegally invade and then orders the world to accept our invasion as legal? And how many millions have we killed in Iraq? And how many millions have we turned into refugees? And did the UN arrest Bush like they arrest Serbian leaders? Is Bush being hung by a rope for 'killing the Iraqi people'?
This professor is classic: he cannot understand raw power because he retains his chair by kissing up to Zionists who want to wield full power in the name of their colonization/control of the Holy Lands and the desire of the ruling elites to control this planet's resources in proxy, from behind the screen, using nuclear bombs to terrorize billions of people.
The lastest moves by these people is to pretend they are weak and helpless. This is why they are running this gigantic, global campaign to demonize Iran. Iran, unlike the US, Russia, China, England, France and indeed, all the members of the Security Council, does not have nuclear bombs. The fear that Iran might get what Israel has hundreds of, nuclear bombs, terrifies the rulers who use these nuclear bombs in lieu of diplomacy. They want to be able to say, 'We will do to you what we did to the women and children in Hiroshima if you defy our iron rule!' Because the Western Imperial Alliance the US forged after WWII refuses to even slightly disarm, we are on the verge of WWIII at all times. Any stupid event can trigger this catastrophe.
More Ferguson:
Questions like these were once worth pondering - in the days when politicians had real power. From the mid-17th century until the mid-20th, relations between Britain and France truly were of vital importance to the stability of the world. They were among the five great powers that made up the "pentarchy" of the European state system. Had it not been for Anglo-French conflict, the United States might have been suffocated at birth. Had it not been for Anglo-French cooperation, the German Reich might have conquered Europe.France, Britain, America: each had its era of hegemony. But now? They collectively account for more than a third of global output, it's true. But by 2050, according to Goldman Sachs, their share could be as little as 15 per cent. Their already trivial share of global population could dwindle further, from 6.5 to 5.9 per cent.
I constantly see this: the inabilty to understand how empires operate. A very beloved piece of pure propaganda put out by Britain--we see this in the news, their movies and TV dramas all the time---is the idea that the mighty German Reich menaced poor, tiny, itty bitty England and England bravely withstood this monster empire! This is utter bunk, of course. India politely asked England to cease occupying them and let them rule themselves during WWII and Britain refused. The British occupied Burma and treated it as their own backyard. The British occupied parts of China, too. They were the authors of the destruction of China 100 years earlier. They occupied and used Africa and the Middle East. They also were fighting the Irish back then and the Irish refused to protect England from the Second OR Third Reichs.
Today, all of Europe has rushed to the US nuclear umbrella where they can use their collective economic power to push the rest of the world around. Like Japan, they enjoy the use of the huge American military war machine while not paying for hardly any of the high maitenance costs. On top of this, they get to run trade surpluses, in the case of Japan, huge surpluses, with the US. They get to participate in the military/industrial complex while not paying for it, indeed, the US gives all these 'allies' lots of money.
Much, if not all of this, coming from a consortium of non-US empire nations. Our empire has grown so big as all the European powers rushed into it, we have forgotten the huge non-empire that is also reaching deep inside this gaggle of imperial entities, seeking to control it and use it for themselves while not being real allies or provinces like most of Europe is today.
Ferguson:
The real problem, however, is that they all belong to the club of developed debtors, with combined current account deficits of $970 billion last year. Other members of this club are Australia, Greece, Iceland, Ireland, Italy, New Zealand, Portugal and Spain. Apart from Iceland, it reads like a list of ex-empires, with the former members of the British Empire (energy-rich Canada excepted) in the lead.
The British Empire went broke before WWII. The US was not broke even though we had a depression, we were still 'in the black' and were able to easily lend money to the dying British Empire so they could keep troops all over the earth like in Ireland, India and Iraq. All of the previous European empires have financial problems. All live beyond their means. Britain, per capita, lives far more beyond their means today than even the very much in debt US itself. This mountain of debt doesn't deter Europe and the US from acting out collective imperialist dreams. NATO is not disbanding, it isn't even contracting, it is growing ever larger. Recently, NATO said, they can use military force outside of NATO territories and this is how they invaded Afghanistan with the US empire. And this is how they are re-invading Africa and other parts of the Middle East like Lebanon, for example.
So far from debt deterring imperial derring-do, it has been steadily increasing this last 20 years.
Ferguson:
On the other side of this great global equation is the club of emerging exporters. According to the International Monetary Fund, more than 40 per cent of the developed debtors' funding requirement last year was met by China, Russia and the Middle East.
I am thoroughly amazed at how Japan is constantly deleted from lists when people published by mainstream imperial presses are talking about money. The biggest holder of US bonds due to US overspending on military adventures is NOT China, Russia or even the Middle East.
It is Japan! And Japan is a major exporter to the US. And is the first country to build up huge FOREX reserves in order to gain trade advantage due to keeping their currency weaker than the dollar. Recently, a reader sent me a link to professor Brad Setser's RGE blog. I used to hang out there. Everyone hated me including the professor because I kept bringing up the issue of Japan when they all tried to talk about China's financial affairs. The refusal to understand that Japan is a sovereign nation with a very strong chauvinistic base and which is our rival, is wide-spread here in the West.
The idea that the Japanese are weak and stupid is classic racism. The Japanese let us act this way because they are using our power for their own ends. They are in a tug of war with China that is increasingly dangerous. The keystone to their power is the US nuclear arsenal. They bankroll it for us. Yet they don't do this via taxes or payments to the empire. They do this via debt. They get to control our military forces via proxies in DC who need their loans so the empire can roll onwards. This money lending is totally out of control now.
Japan has TWICE the US bonds that China holds! And yet, they are not mentioned when we discuss our deteriorating finances. We are going into debt to protect Japan's Asian interests.
Ferguson:
This process is about to enter a new phase as China establishes its own sovereign wealth fund, to join those already operated by the likes of Kuwait, Abu Dhabi and Singapore. According to Morgan Stanley, SWFs currently manage about $2.6 trillion, more than the $1.7 trillion run by hedge funds. A further $4.4 trillion is held in sovereign pension funds. By 2011, SWF assets under management could exceed the total foreign exchange reserves held by all the world's central banks. And in just 15 years their assets could reach $27 trillion, giving them control of nearly a tenth (9.2 per cent) of total global financial assets.
Just 6 months ago, the IMF and World Bank both mocked SWFs. They also made fun of anyone building up huge FOREX reserves. And they also made fun of holding gold. Right on the heels of these three ideological pushes, the world's banking system in the West nearly totally collapsed. What a shock. Heh. Just 6 months ago, IMF head, Rato, claimed he didn't even know what a real 'sovereign wealth' was! Now we have a Frenchman in charge of the IMF. Not someone from China that understands all these things. I expect the attacks on the world's banking and wealth-making systems to continue.
The FOREX markets set up when the dollar collapsed due to the US overspending on wars and military equipment, have grown into this huge monster whereby it creates wealth all by itself, generating it via 'trading' against the market to market value of currency itself since NO currencies are backed by anything except each other. Trading on this basis means taking out loans to use as currency trade gambling chips has driven up the collective indebtedness of the world and has sparked one of the biggest and utterly most useless bubbles on earth.
There are an astonishing number of blogs and web pages devoted to tracking the relative value of currencies and then figuring out how to make money off of these inequalities. It is truly a mania. I have some readers who are interested in all of this but my job isn't to suggest currencies to buy or sell. My job is to analyze two things: the possiblity of WWIII and the possibiliy of a Super-Depression. This isn't because I don't think either will happen but because I believe both WILL happen and if we don't stop certain foolish things, we WILL have both in our futures!
In other words, I am a pre-event historian. I use my mental telescope to peer past the present and to discern what lies beyond. This makes reading this news service rather unpleasant because no one really wants to think about these things. Certainly, not Professor Ferguson, for example. This is probably why he needs to pretend the US and Europe, on a violent rampage across the planet, killing many people, are really helpless and incapable of waging WWIII.
The professor admits he is a fool:
Under these circumstances, no one should expect Western politics to get any less brutal. Indeed, it may even become more entertaining as a spectator sport. Like most such sports, however, it just won't matter very much.
If I could reach out and slap his silly face, I would. We certainly are spectators in the Colliseum of Life! Throw those Iraqis to the lions! Watch them battle each other! Now we will drag out the Iran Kitty and pelt it with rotten tomatoes while jeering loudly. Then we will demand the cat fight with no weapons while we menace it with nukes. Ha. Ha. And this bloody entertainment doesn't matter much, does it? Nothing is at stake! This monster, this inhuman man teaches our children history!
Foreign direct investment (FDI) flows are expected to increase over the next three years despite concerns about global financial instability and protectionism in some countries, according to a UN survey released on Thursday.
Now onto the real news: whenever the Chinese mention any financial instrument or structure, I get all excited and run off to do some research. Heaven knows! These terms used to never appear much in the media until the Chinese began to figure out how to use these systems. So when they gain an upper hand in any system, they love to talk about it. The UN survey gives them great glee. Someone is making direct investments and these someones are using sovereign wealth funds to do this. Also, a certain huge country in Asia loves to lure in US and European companies who must outsource labor and production! So this is great news for China.
From Xinhua:
More than two-thirds of the respondent companies plan to increase their FDI expenditures in each of the years 2007 through 2009, UNCTAD said.According to the survey, access to large and growing markets will be by far the main driver of FDI growth, followed by access to resources, especially skilled labor. Access to low-cost labor was also mentioned by many companies surveyed.
A rising number of companies will consider investing in locations away from their home regions. Emerging markets, notably in Asia and Europe, are expected to receive more attention than before, the survey said.
The survey added that South and East Asia would continue to be the most attractive destination for FDI, notably China and India. Vietnam is also considered as a rising star in the region.
Right on the heels of Mattel being forced to apologize to the Chinese for encouraging their sub-contrators to use dangerous paints on children's toys, Disney is in the same toxic boat for the exact same toxic reasons. The Chinese government is now moving against these tricky corporations that increased profits by turning a blind eye to their sub-contractors in Asia. The US is worried about these products but I say, boycott Disney, boycott Sesame Street and boycott Mattel. They and only they, are responsible for this mess.
The outsourcing to Asia isn't stopping, it is accelerating. This is due to the rising cost of commodities and assorted raw materials. Energy inflation in the US and Japan are not a problem for Europe which is paying almost 1/3rd less for oil than Japan and the US since the euro is much stronger than the yen and the dollar. The euro is very strong due to high interest rates in Europe. And the fact that the oil exporting nations are increasingly demanding they either be paid in euros or if the value of the dollar falls further, they raise the price of oil. For a while, Saudi Arabia pretended they wanted to prop up the US economy by pumping more oil so it would be cheaper. But this was either lies for our consumption or they can't pump more oil. The fact remains, the price of oil in dollars has steadily climbed. And will continue to do so except if we go into a major recession that affects China.
This Xinhua article also mentions the UN organization that tracks world trade and investment. From the UNCTAD web page:
South-South trade is increasing, mainly owing to flows to or from Asia, and particularly among Asian countries:In 1995, of the total of $1,400 billion in exports to the countries of the South, 40% came from other developing countries, including 2% from Africa, 5% from America and 33% from Asia. Ten years later, the situation is practically identical for Africa (3%) and remains unchanged for America (5%), while Asia now accounts for 45% of exports to developing countries;
The boom in exports to Asia is taking place particularly in the context of trade among the countries of the region, that accounted for 53% of exports to Asia in 2005 as compared with 41% in 1995; the African and American continents account for only 2% of the Asian market (1% in 1995), essentially owing to trade in commodities.
Actually, the Asia to Asia trade is now over 60%. The US and Europe are losing market share in a growing market to developing countries. I remember when China had this big summit for African leaders. The US and European leaders and press as well as university pundits all showered contempt and disgust on the head of China for doing this. All the former rulers and ravagers of Africa were united in trying to 'protect' the African people from the dreadful Yellow Menace. Just a year earlier, these same people were wondering why Africa was 'the forgotten continent'.
When empires experience a shrinking industrial and trade base coupled with rising deficits, it collapses. This is a historic fact that no military can undo. The more an empire sinks into debt, the more an empire loses percentage of world trade, world financing, the more likely it will fall. All the UN and IMF numbers clearly show, the European/US empire is floundering badly.
From the UN:
For the past 10 years or so, the current account balance of the balance of payments of Asian developing countries has been positive. In 2006, that balance accounted for 6.7% of their gross domestic product (GDP). The trend is the reverse for the developed countries, particularly the United States, whose balance is -6.4% of its GDP;
*snip*
With a 5.2% annual average increase in per capita GDP in real terms from 2000 to 2006, Asia stands out clearly from other developing countries (4.0%) and the world (1.8%);
Asia's GDP is growing faster than the rest of the world especially the US. If Japan is excluded from the Asian statistics, it is even worse for us. I would guess, the 5.2% growth rate would be more like 8+%. China's industrial base is nearly as big as our own and is growing rapidly. The industrious nature of their culture means this won't be a simple matter of popping a few low-quality factories here or there, China has a very highly motivated, high-attainmet culture that seeks knowledge and power restlessly. So they are truly building up a very real culture and society that can easily challenge us just as Germany challenged England from 1880-1945.
The globalization of labor is due nearly entirely to China opening up to investors and exo-territorial economic powers. China could do this because they are run by a powerful government that is in total control, it being a one-party state, and is an ancient culture. They have nukes and can use them so they don't fear being pushed around by the nuclear West. Since all financing is now utterly fluid and knows no borders, the Chinese can prepare situations where it flows to them and not away from them.
The UN:
The commodity price index calculated by UNCTAD indicates that at the end of the first quarter of 2007, prices had doubled as compared with 2000. The index, which is calculated on the basis of the export structure of developing countries´ exports, reflects the rise in the price of minerals, ores and metals that has been noted since the beginning of the decade and, to a lesser extent, a rise in the price of foodstuffs and raw materials of agricultural origin.
It is now official: world commodity prices are inflating. And this is due to the dollar weakening plus an increase in competition for raw materials now that China is a big user of this stuff. Ever since Greenspan and the Japanese lowered interest rates to historic lows, we have had a lot of inflation. There is a connection, I bet. The carry trade is connected to all this. After all, we also had an explosion in debt creation during this same inflationary period! Speculation is running rampant still. The US economy is beginning to contract due to the inability of the consumers to take on more debts. But the rest of the world is still seeing expansion.
This first set of numbers show their earliest records. This chart was launched when the US dollar began to be traded as a commodity rather than reflecting some set value based on Fort Knox. Really! The dollar was based on the gold in Fort Knox once upon a time! Note the first numbers here: the flow rate. In 1972, it was only $13.5 billion. During the Nixon years, it increased every year until he was forced out of office. Then it dropped from $27 billion to $22 billion. I was curious about this so I ran through the whole set of data lists at the UN site. As I suspected, whenever the rates dropped, this coincided with recessions in the US for the most part. This is because we were the major economic force and all other nations were dependent upon our trade to make profits.
In 1981-1982, we had a recession. Volker raised interest rates very quickly to increase savings and kill inflation once and for all and on top of all this, there was the Iran/Iraq war which drove the price of oil up to its highest level ever. In 1981, the money flow rate was $69.5 billion. Two years later, it fell to $50.5 billion. So investment dried up pretty badly. This was a $19 billion dollar drop! This drop, a mere 10 years later than the beginning of this globalization use of funds, is $5.5 billion MORE than the total amount of flow in 1972! Wow.
The concept of 'globalization' took off right on the heels of the US weakening our currency at the Bretton Woods II meetings. The dynamics of inflation that ravaged our nation on the heels of Bretton Woods II caused our industrial manufacturers and our bankers to flee the US and seek greener pastures elsewhere. Labor unrest due to inflation increased the desire to move out of the US and our industrial leaders made a cold-blooded decision to depart and this has increased over time. This is why they don't care if we have inflation, if the dollar is weak. Nay, they benefit from this as we saw this month with them pushing Bernanke to weaken the dollar and increase inflation at home.
We can see from the above chart that the funds flowing around the world increased above the 1980 rate in 1986. The oil pumping nations were very flush with money now. Mexico, Saudi Arabia, the UAE, etc had a lot of money to spend. The US was in trouble with our currency yet again due to the 1980-1983 recession and wanted desperately to have new meetings whereby we could reduce this yet again against the yen and the German mark.
In 1990, the rate of flow was now a flood. The US had the Plaza Accords and Japan created a tsunami of outside investment so the increase is amazing. From $88.5 billion to $201.5 billion in less than 4 years! This is a rise of $50 billion a year! This amount is nearly 4X the total amount in 1972. From 1986 to 1990, the total increase was $113 billion. Wow. A great deal of this money was the surge in buying up the US by our trade partners. They had a tremendous amount of money. This was the years when the US worried that the Japanese would buy up everything.
This was a huge US fire sale. We were still buying lots of Japanese goods but the Japanese had lots of buying power due to the yen suddenly nearly doubling in value. The Plaza Accords set up the present FOREX system whereby we trade our currency as if it were gold or oil or shoes. The trick was, the value would be determined on a daily basis. The Japanese quickly discovered the downside of their strong yen: their trade ability collapsed.
1990, Iraq invaded Kuwait. The price of oil shot up, we had Desert Storm and the US real estate market collapsed along with the Japanese real estate and stock markets which began to fall at this point. The flow of money was cut by $46.5 billion in one year. But this was brief just like our recession was brief. By 1993, the money flow resumed its climb. This is also when Japan began to build up its huge FOREX reserves. This is also after the disorders in China from Tiananmen Square had faded and the doctrinaire hardliners in the CPC were routed and the reformers took over. The workhouse of the world was now open for business and seeking foreign investments. On top of this, the US was busy selling itself off. More and more of our industrial base was being outsourced and with NAFTA and the various WTO rounds, the US increased its aggressive deindustrialization/selling its home economic base to foreign powers.
In 2000, there was another recession in the US and world finance movement slowed again. Dropping from $1.5 trillion to $558 billion in just 3 years. This is a $942 billion dollar drop! OFF THE CLIFF! A 2/3rds drop. Greenspan dropped US interest rates to 1% during this collapse in world money movement. The oil pumping nations were hammered by Russia's sudden entry into world oil markets so Saudi Arabia nearly went bankrupt. Then a bunch of Saudis and Egyptians attacked the US and this make the recession here worse. Then the US declared war on a nation that didn't attack it: Iraq. The money the US began to spend wildly on housing, asset inflation, speculation and war caused the world money flow to accelerate again.But in 2005, it was STILL lower than in 2000! I think we can see something at work here!
What is going on? I invite all readers here to help me riddle this out. I think that everyone has the wrong impression about world trade and finances and I wonder if the super-low interest rates relative to the obvious global inflation of all raw materials has something to do with all this? This doesn't track the real growth item of the last 7 years: debt. I suspect that the growth in debt due to too-low rates in Japan, the US and China, is responsible for the lack of growth in international money investment flows! But I have no proof of this...yet.
Going back over these charts, note the cumulative stock market value rise: from $612 billion in 1981 to $10 trillion today. This is 16X bigger over just 25 years. This is nearly $9.5 trillion more in 25 years. This is an increase of $380 each year. So I would conclude that the rise in stock values is connected with the increase in money flow rather than direct investments. Namely, everyone including the Chinese are issuing stocks! And these are being bought by all and sundry and the sundry is very much a bunch of 'sovereign fund' nations like the oil nations such as Saudi Arabia, Russia and Norway. And the industrial nation of China.
So the flood of money is flowing into stocks. This is why the Chinese stocks are rising rapidly. Even the Japanese stocks are rising after they kept them in the cellar for a long time to keep out strangers. From 2000 to 2005, world stocks doubled in value! In 2000, the world's money flow was $4.5 trillion less than stocks. In 2005, it was far worse: $9 trillion less! This is an increase in differential that increased nearly $2 trillion a year! And this last 2 years which aren't on these charts, I bet the number is far greater since we have seen a huge surge in world stocks in the last year alone! I bet it is around $15 trillion. This is only one trillion more than the rise rate already. So I may go out on a limb and think, the number is probably around $17+ trillion!
This would be 29X the amount in 1980. The world has seen a massive increase in trade/debt/monetarization/cross-border finances. I would suggest, the biggest in history. And this whole thing rests upon the concept of the US empire soaking up all this money in the form of debts and consumerism! This is why the housing mess is destabilizing things. It isn't because Asians own these bad CDOs put out by our mortgage companies and banks. I was startled to see just the other day, how little exposure Asia has with all this. By far and away, the ones exposed are our own beloved Hell Hounds/Pirate Cove guys.
While poking around the issue of sovereign funds and world financial houses, I came across this interesting name of some lawyers who advise the people who are running the world's financial systems, namely, the guys who are making profits right now, not building debts. From Gibson & Dunn's news page:
GIBSON DUNN TO OPEN DUBAI OFFICE BY YEAR-END
October 03, 2007Gibson, Dunn & Crutcher LLP is pleased to announce that it intends to open an office in the Dubai International Financial Centre (DIFC), one of the world’s most important new international financial centers, by the end of 2007.
"Gibson Dunn has a strong existing client base with some of the largest institutions in the Gulf region," said Ken Doran, Managing Partner of Gibson Dunn. "We will staff the Dubai office to serve existing and future client demand by recruiting English and American lawyers, as well as by relocating lawyers from our European and US offices."
The Dubai office will focus on providing counsel on regional and outbound investment and financing transactions, including fund formation; mergers and acquisitions; private equity; real estate investments; corporate finance, including Sharia compliant finance; capital markets transactions; project finance; international arbitration and dispute resolution; and regulatory and compliance matters.
Washington, D.C. partner Peter Baumbusch, who has represented clients from the region for more than 30 years, will relocate to Dubai to oversee its opening and expansion. He will work closely with London partners Paul Harter and Tony Bonanno and other lawyers throughout the firm.
So...I hope they don't sue me for talking about them. Cheney's Halliburton has already moved to Dubai and is now headquartered there while they quarter and dice up Iraq and plot against Iran. All the big guys are opening offices there because this is where there is lots and lots of sovereign wealth. They are all very eager to help the UAE and Saudi Arabia invest their funds. These lawyers boast about how they deal with 'Sharia' laws and thus, can make money making money without technically breaking the laws of Mohammed which are very similiar if not identical to the Christian Church laws. Both the Muslims and the Christians had to use the Jews to run any banking system for many hundreds of years due to these laws. Now we see a new twist in that old game.
The UAE, like China, is no longer simply parking money in FOREX reserves or banks, they are now using them to actively play the world stock markets and other things like playing FOREX games rather than simply holding money. Indeed, this is a new and hyper-dangerous development. Namely, the sovereign wealth nations INCLUDING JAPAN, are all also playing world FOREX markets on an hourly basis if not every second of every day. And they are hiring the best brains to help them. And these people are creating a very unstable system that makes money when it is the most UNSTABLE. Stability is bad!
Both economic theory and recent empirical evidence suggest that FDI has a beneficial impact on developing host countries. But recent work also points to some potential risks: it can be reversed through financial transactions; it can be excessive owing to adverse selection and fire sales; its benefits can be limited by leverage; and a high share of FDI in a country's total capital inflows may reflect its institutions' weakness rather than their strength. Though the empirical relevance of some of these sources of risk remains to be demonstrated, the potential risks do appear to make a case for taking a nuanced view of the likely effects of FDI. Policy recommendations for developing countries should focus on improving the investment climate for all kinds of capital, domestic as well as foreign.
The only people who really must worry about the flow of these exo-territorial funds is the US itself. Our stock market would be worthless if we can't attract all those trillions of dollars sloshing around the world. The IMF is run by the US/European empire so it seldom mentions the elephants in the room. They like to worry about China or Russia. But the tables have been turned with a vengence! It is Europe and the US who are in danger, not China and Russia.
These charts illustrate well, what I talked about above. It clearly shows how investments in STOCKS have swollen while loans have fallen fast and even direct investment has grown at a much slower rate than stocks. Stocks are very mobile: they can turn on a dime. And their value goes up or down...often rather violently. What happened in 1929? This is the scary lesson we all can see. Will 2009 be a mirror for 1929? There is a very real possiblity. Many of the factors are lining up for this.
This chart amuses me. This is EXACTLY the same as the ABX-He stats: the riskier loans are more popular with LENDERS because they make so much more in interest rates! Oh my! And it is risky! Oh my! And all we need is a global downturn caused by the US market stinking because of the ABX-He mess! Oh my! No one wants Triple A when the central bankers are keeping interest rates way below the real rate of inflation in most countries. This global conspiracy to keep interest rates ridiculously low compared to the growth in money, trade and competition for raw materials is the core of the banking system collapse we keep falling into repeatedly. This can't be escaped by continuing the status quo of super-low rates. Bernanke made this much, much worse.
Could a large chunk of those 1.5 trillion in 2000 be related to the buying and selling of hugely overrated dot com companies in that bubble? I remember in Sweden at that time, some venture capitalists bought a small mining company (that were loosing money), because ıt was traded at the stock exchange, they closed the mines and re-introuced it as an internet company (basically they gave a bunch of teenagers computers and coca-cola so they could sit and play games all night in the most expensive parts of Stockholm), I think the company value rose a hundred times before it was totally wiped out in the spring of 2000, those mines would have been good today though!
Here is a joke from that time:
-I bought a dog today for a hundred thousand.
-Are you insane, why would you buy a dog for that much?
-Will sell it next week for half a million
A week later
-How did the dog deal go?
-Well I sold the dog for a million!
-DID YOU GET A MILLION FOR THE DOG!
-Well, I actually got 2 cats worth half a million each.....
Posted by: Neuro Artist | October 07, 2007 at 07:43 PM
LOL - I like the joke. :o)
Posted by: John | October 19, 2007 at 01:21 AM
Yeah, a good descriptiom of bubble insanity/psychology.
Today I think it is insane that the stock markets is at the levels they are at. I think the most reasonable explanation why prices are bidden up in the end days of speculative bubbles, is that so many players, are in so deep shit, that they might as well throw in all they can get their hands on, on a gamble that they may be able to come out on top, if they fail they loose everything, but they know they would loose everything even if they don't try. Almost everyone knows instinctively where it is heading (apart from the few that gets in in the end game), but very few in the game openly admits to it.
Posted by: Neuro Artist | October 19, 2007 at 04:34 AM