Paying Principal Is The Only Solution To Debt Crisis

November 28, 2007

Elaine Meinel Supkis

A key element in today's banking crisis is the problem of never paying off any principal on loans. Once a feature of credit cards, this has spread like a cancer. The problem with SIVs, for example, is connected to never paying off principal on loans that are used to buy CDOs and gamble in the FX markets. The rising level of debt in all the major economies in the West and Japan are now causing liquidity to disappear. Also, lies about employment and inflation statistics bedevil banking to the point, everyone has lost trust with each other. I also predict that China will evntually win its currency war with Japan and finally force up the yen so it is properly valued vis a vis the dollar AND the euro. Then, China will raise the value of the yuan to the appropriate level.

Apple Bucks Trend as Stores Show `Gravitational Pull'

Cheng Jian Wei, on a 24-hour visit to New York from China, was willing to risk missing his bus to the airport for the chance to buy his son an iPod at Apple Inc.'s Fifth Avenue store.

His determination helps explain why Apple's 178 U.S. stores may outshine other retailers in what is shaping up as a lackluster holiday selling season. The National Retail Federation predicts a 4 percent revenue gain in November and December, the smallest since 2002, after consumer confidence fell.

I have been an Apple user for many years now. Since the IMac. I go to their stores in NY periodically to make purchases. The esthetics of their stores are quite pleasing. The staff is uniformly pleasant and interfacing with them when I have problems with my computer is easy and keeps aggravations to a minimum. There are systems failures with the more radical Apple products, of course. But my first IMac is still being used daily by my ex-husband, for example. This one is around 8 years old. We had the image card on our IMac that is 6 years old fail on us and this ticks me off but we hooked it up to a regular monitor so the computer still works just fine.

The main thing about Apple is, they have a leadership that has good taste. The way things look and feel matters. Apple's artistic designers have launched a number of iFads in design. Heh. Apple, like all manufacturers, has moved much of its business to China. I will note that this story about Apple's success in attracting sales for the sake of touring their stores and taking pictures there [yes, I have done this myself] features a Chinese visitor who went out of his way to visit Apple.

Yes, the transfer of not just manufacturing and technology to China also involves a huge cultural transfer. The stores that are attracting Asians are sensitively designed shells that displays things differently from the warehouse look that so many US box stores are addicted to. If one wishes to make a profit, sometimes less is much, much more. And the melding of the Asian esthetic struggles to overcome the US tendency towards jamming lots of junk in one place. I go into American homes and see a pack rat mentality overwhelming the living space. Go into a store and it reflects this. Apple's involvement in Asia definitely has strongly influenced its vision of how to organize store space. I wish more places did this and maybe we will have a less cluttered culture.

China could become main supplier of capital

"We have so far seen China as a manufacturer of cheap goods, in future it may be seen as a major supplier of capital," Stuart Leckie, senior advisor at Britain's index provider FTSE Group, said at the launch of a report on China's capital market.

Leckie said he expects the Shanghai stock market, the largest in Asia outside Japan, to start attracting listings of foreign companies as it becomes more driven by institutional investors and less by individuals

World's 6th largest bourse. Japan looks with increasing alarm at their neighbor's rise. Notice that 'institutional investors' are now bigger and bigger players in China. The huge boost the market there had when the Year of the Pig began with a bang, continues. It looks increasingly like the US stock market is now a bear. Unlike in the past when people simply cut back on investment positions during recessions, today, the money rapidly moves on to other positions. So long as China has a growth rate in excess of 10% a year, one can safely ignore the daily fluxes in the market statistics. Most big investors are looking for profits and this is just another facet of capitalism.

I remember when Japan was a manufacturer of 'cheap goods.' This is the first rung of the manufacturing capitalist ladder. Just like mechanization of farming is the first step in gaining profits in that field. If we go back in time to pre-capitalist Europe, in Medieval times, farms were more like Soviet collectives with the Church and the fief overlords taking over 30% of the output and demanding 50% of the labor of the peasants who then shared the rest, more or less. The growth of private ownership of the land and control over demands on time was a long battle that really wasn't won until capitalism in industry sprang up. The Industrial Revolution freed the farmers and made them much richer, the ones who were able to mechanize, that is.

China is undergoing this process. Because it is having an increase in wealth and is investing this into its own country, all systems will move forwards in various jerks and lunges. This is in contrast with the US which is contracting all systems. Our industrial base is not getting bigger and bigger, it is shifting from the north to the south half in order to cut overhead, for example. But this isn't increasing production. Stocks rise here when layoffs are announced. In China, they rise if hirings are announced. This, in a nutshell, is why Asian stocks in China are rising even as Japan's flounder as they track the US mess, trapped in a dynamic of their own making.

Chicago Fed index falls to lowest mark since January

The three-month moving average for the index, which the Chicago Fed says provides a more consistent picture of national economic growth given the volatility in monthly readings, was negative 0.56 in October, from negative 0.25 in September.
*snip*
Production-related indicators were negative 0.39 in October, compared with negative 0.04 in September. The Chicago Fed noted that total industrial production dropped by 0.5 percent last month, after increasing 0.2 percent the previous month.

And negative, it is! The US has pretended we can keep our global empire and run huge military budget overdrafts because we are a rich nation. We ignored the 10%+ growth in China while boasting about a 3-4% GNP here. But 90% of our GNP growth was based on us selling world goods to each other. Our trade deficit with the world grew at an astonishing rate. The Japanese sold us mostly expensive, high-end value-added goods but the Chinese are slowly working their way up this particular export ladder and they have every intention of fighting for the exact same markets Japan dominates. This is why there is spectacular tension between China and Japan and both are dancing around each other, probing for control points. Both know they can't dominate each other in this present configuration of world power. But as the US declines as an economic power, they are grappling for a new relationship.

The Japanese just can't decide if this will be friendly or hostile. This is why I watch developments in this area closely.

Citigroup reported to layoff 45,000 employees

The company with roughly 200 million customers worldwide currently employs about 320,000 people. Citigroup refused to confirm the size of potential layoffs.

"We are engaged in a planning process in anticipation of our new CEO and our business heads are planning ways in which we can be more efficient and cost effective to position our businesses in line with economic realities," Citigroup said. "Any reports on specific numbers are not factual."

Another sign of a bad recession. The guys who make money by making money either appear magically or investing in markets or schemes or setting up tulip bulb greenhouses are now being fired. As per usual, the process involves firing important workers at the bottom who make the least money and who do the actual labor. The big shots at the top levels hang grimly on to their jobs. The very top bosses may move on in this eternal shuffle whereby they move from one entity to another doing the same things all the time. They are sacrificial lambs. Or rather, wolves in sheep's clothing.

JPMorgan, Deutsche Bank Keep Mum on Indian Intellectual Capital

Wall Street, which got hooked on shipping its back-office work to India earlier this decade, is taking the next step -- outsourcing investment research. Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and UBS AG are among the firms staffing units in Bangalore, Hyderabad, Mumbai and New Delhi. They're tapping analysts who in the U.S. and Europe would cost firms 200,000- 400,000 euros ($290,000-$580,000) a year and instead are paying a quarter to a third of those sums.

The banks are also relying on firms like Copal, which set up its unit in Gurgaon in 2003 and is based on Jersey in the U.K.'s Channel Islands. Its MBA graduates with three years of experience cost the company about 1.7 million rupees ($43,282) a year in salary, benefits and other perks, co-founder Joel Perlman says.

The outsourcing mania is forever altering our own ability to pass on knowledge and figure things out. There was a flood of applicants for MBA certification that hit our colleges. One field was economic analysis. The graduates then got nice jobs at good pay. But like in the computer engineering classes, if they planned on staying in the US, they faced a lifetime of declining employment opportunities and dropping incomes as the computer companies outsourced this work. A problem with outsourcing is, how can you 'grow' analysts and computer experts here in the US if there are no bottom rungs to the technological ladder? This is true in design, too. The false belief that free trade would mean the drudge jobs move overseas has allowed money making bosses to rip out the very guts of our industrial/intellectual culture.

Perlman is probably a very nice person who just wants to make a profit but his business is quite destructive to our entire economic system. For example, how can we develop executives who understand economics if they never, ever have a job in this field in the first place? The other side of this coin is, if the analysts never move up the ladder due to racism and ethnic in-cliques [we know who] won't let them, the analysts will never be of a very high quality. Indeed, if they are content to sit in their offices and never earn more or figure out things, what sort of economic analysts are they? I would suggest, not very good.

But the truth is, the economic prize will be torn from our hands. If Indians are content to be serving others, I assure everyone that the Chinese definitely do NOT want to be someone's drone pulling in lower pay and doing mindless work in return. They want to understand and then CONTROL all systems. They use foreign intelligence and learn the systems from them but the minute they manage to figure out what is going on, they move ruthlessly to teaching each other this and then muscling out the foreigners.

This is very much like Japan. This is why Japan moved up the Industrial Revolutionary ladder quite rapidly 150 years ago and why they keep moving back up after huge setbacks like WWII. China is the same.

In other words, the Bank of Japan will not let the yen rise too fast, for too long, because as an export economy, it is at the expense of its own growth.

There is already some support for this theory. Last week, Japan's Prime Minister Yasuo Fukuda stated that the yen was rising "too fast," and that speculators should "be cautious" about political intervention if they continued to bid up the currency.

"At different times the myriad other investors enter the market and push [dollar-yen] around. It can be the mums and dads of Japan or the hedge funds of the world. In both instances, a herd mentality can develop that is self-sustaining for a period," he explains.

"The question now is at what level do the original structural players return to stabilize the JPY? My guess is, we're pretty close to those levels now," adds Foster.
*snip*
Most consumers and investors alike feel the pain of the yen's gain, in higher prices for products like electronics and cars. Japanese exporters, like Sony, Canon and Toyota, are forced to raise prices as margins erode when these companies convert their earnings back into yen.

When discussing the yen, it is amazing to me to see news stories like this one. Japan has ALWAYS wanted a weak yen! The two times they were finally forced to increase the value of the yen, the last time being in the late 1980's with the Plaza Accords, their economy has this ugly bubble/bust cycle. They have managed to drive down the value of the yen vis a vis all trading partners via their strange near-zero interest rates, ruthless destruction of their home consumer markets and putting away a remarkable sum of dollars in their FOREX reserves. The 'original structural players' are MITI, the industrial development arm of the Japanese export industry and the industrial giants working with the Bank of Japan and the LDP government who has ruled Japan since WWII.

How these guys can drive down the yen again is a problem that is being argued in back rooms behind locked doors. They have been bested by China! Instead of a super-weak yen, it is growing stronger! Hysteria in the Chrysanthemum Palace and the Tokyo Tower. A strong yen is a Godzilla wrecking Tokyo. It is a Gundum running riot in Yokohama. I bet the Chinese sniggered when poor Fukuda openly whined that the yen was rising 'too fast'. HAHAHA.

No one in the West is yelling at Japan nor are the central banks there trying to undo the carry trade and strengthen the yen. Only China is interested in a stronger yen. And as I predicted last summer, they are winning this sumo match. Slowly, they are dragging Japan to the circle's outer limit. In sumo, you pull the guy out of this ring. Well, Japan's heel is right on that dreaded line of 100 yen to the dollar.

Time for a prediction! The Chinese will raise the value of the yuan radically ONLY after they do this to the yen! They will never, never raise it until the yen does so! All the cries and wails in the West about Chinese trade will not move this forwards unless they first shove Japan over the line and make the yen strong. So, if the West wants Asia to stop invading our markets, strengthen the yen! This will change everything. And the Japanese know this.

Jim Cramer's Stop Trading! Foreign Cash Is King

The money is in foreign firms buying U.S. companies, Jim Cramer said on CNBC's Stop Trading! segment Monday.

Arab and Chinese firms buying up American companies is not a bad thing, Cramer said. "We have to stop being so parochial. If the Chinese want in, fine." Cramer pointed out the jobs provided by such foreign firms as Toyota and Honda : "Better to do it here than there," he said.

Cramer is interested only in grabbing money for himself and his buddies. This is why he celebrates dropping interest rates below the rate of inflation, outsourcing, wild speculative schemes and other crimes that are wrecking our nation. He doesn't care if we all work for the Chinese? Well, guess what?

He will eventually be cut out of the money stream, too. Profits from capitalism is the whole point and we can't play this game for long if we don't know how to do basic economic analysis or if we are the lower levels of management! How on earth do we get rich if we are the people standing in line and bowing to the masters? This is so amazing that this clown can BOAST about all this and then say, it doesn't matter if we work for Germany or Japan? Wars don't end struggles for dominance! We won WWII and lost the peace. And traitors like Cramer don't care. All he wants is to stuff his stupid face.

As for the kings of Muslim oil nations: they hate us. They hate us a lot. We want them as our bosses? Well, this will be interesting when someone writes the final chapters of the Crusades. Probably bin Laden.

John Williams ha some good analysis of how our government manipulates statistics:

In an effort to legitimize the bias factor in recent years, the BLS went through extensive modeling to come up with its replacement "birth/death model" of companies and their employees. While that gussied-up and redistributed some of the bias numbers by month, they still remained mindless plug numbers used to goose the monthly jobs data.
*snip*
As to impact, of the 2,515,000 jobs reported created since the BLS's benchmark revision of May 2006, 1,543,000 jobs, or 60%, were created by the bias factor. Only 981,000 showed up in actual BLS surveying of U.S. employers. That is an average actual monthly jobs-creation pace of 58,000, which is not enough to keep the economy above water.

When there is nothing but lies we end up lying in the gutter. The fake inflation statistics are joined at the hip with fake job statistics. When the bulk of jobs reported as being 'created' are phantom jobs pulled out of a magician's hat, we have financial chaos since all other financial decisions are based on this sleigh of hand. This is one of many reasons why our economy looks 'strong' but is actually very weak. If we use a mirror that distorts our view of ourselves, we can look taller and bigger than we really are. As our automobile mirrors say, 'Objects in the rear view mirror can be closer than they seem'.

The misuse of economic analysis can be excused if this is just ineptitude. The first revisions of our employment statistics were due to missing something, the creation of jobs in small businesses and in construction. But this has been exploited and enlarged and then all things are based on this distortion and they won't fix this because releasing good statistics means the stock market rises and the big bosses can sell stocks even as the economy contracts. Of course, this also steepens the downward curve when investors wise up.

Fed to Inject $8 Billion to Lubricate Economy

Seeking to reassure banks amid the continuing credit crisis, the Federal Reserve said yesterday that it would provide $8 billion in funds to ease concerns about lending during the holiday season.

The $8 billion — essentially a low-interest loan to the nation’s banks — will be issued Wednesday and repaid Jan. 10. The 43-day loan period is the longest in three years for this type of year-end injection. While it is not an unusual step for the Fed, the injection usually takes place later in the fourth quarter and involves a smaller amount. In 2005, the last time the Fed issued year-end funds, it issued 28-day repurchase agreements for $5 billion, starting Dec. 8.

As Japan wrestles with China over strengthening the yen, the US dollar continues its magnificent and bizarre swan dive. Far from this being unprecedented, this has happened twice before. The injections are being lengthened as the Fed knows we are deep in the woods in this present banking crisis. Time to lie about everything! They lie to themselves and then take this and make more open lies to all of us. Far from being more 'open' our central bankers are even more secretive. The actual meetings are a farce. We saw in September how Goldman Sachs demanded and got a bit interest rate cut, for example. Both deliberately and unwittingly, the guys at the very top are cutting the value of the dollar by 50% or more depending on the trade partners. With Japan, a critical trade partner, it has been only a small drop of 17%. The Federal Reserve is keeping our entire banking system going in the teeth of this rending of the dollar's value.

But this is a dangerous operation and can blow up in our faces.

“The Fed would like to address the liquidity problems in the markets without resorting to the shotgun approach of changing monetary policy,” said David H. Resler, chief economist at Nomura Securities International.

HAHAHA. They don't want to change! They won't change course! As the Good Ship USS Even Keel lists to a 60º angle in the raging seas, the captain says, 'Sail onwards! Into the sunset!' And we wave goodbye.

Isn't Congress going to yell about this? I heard from people posting remarks here that Ron Paul is calling for no gas taxes in order to make gas cheaper. Off the cliff we fly! The last thing we need is cheaper gas. We need higher gas taxes to cut energy imports. Or we go off the cliff. As for the shotgun approach: when a raging water buffalo or elephant or Godzilla is attacking, you want to use major fire power. Not watch passively.

Freddie Mac to Sell $6 Billion in Preferred Stock

Freddie Mac, the second-biggest source of money for U.S. home loans, plans to sell $6 billion in preferred stock and cut its dividend in half to shore up capital depleted by record mortgage defaults and foreclosures.

The two-part sale will include non-convertible, non- cumulative preferred stock and a ``substantially smaller'' portion of convertible preferred shares, Freddie Mac said in a statement today. The company will save about $650 million a year by reducing the dividend to 25 cents, Sharon McHale, a spokeswoman, said.

Reducing dividends in a declining stock value environment is suicide. Since Freddie Mac is influenced by politics and since our politicians want to keep this bubble going a bit longer, the mortgage holder has been forced into a deflationary cycle and everything gets smaller and smaller even as the overall funds they represent get bigger and bigger.

I have puzzled over this process for quite a while. I have decided, the key here is the elimination of paying for any principal. This payment regime which was the fundamental basis of all lending for the last 200 years has been ditched for a new system that involves paying a minimum on all loans. Consumer, housing, business and government: they are all trying to pay ONLY interest. On top of this, the biggest players are also manipulating financial statistics to allow them to have interest rates below the rate of inflation. This way, they can all run up massive debts with impunity. There is no tomorrow.

This is deflationary because it starves the system of much-needed savings. Paying off principal, after all, is a fancy way of saying 'increasing savings.' If we are in debt on every level, we have no 'equity'. This is why the notion of 'tapping the equity of one's home' was so toxic. When we do this, we are increasing the size of the hole in bucket. The excuse that we could do this amazing and stupid thing was, 'Asia saves so we have a global savings glut.' The childish idea that we could run up huge debts and pay no principal and thus, decrease savings to below 0% is now being dashed on the rocks of economic reality.

The need to force all agencies and individuals to arrange payment of past loans is CRITICAL to economic systems! If the US gets loans, the government should not be allowed to roll them over and over as they grow bigger and bigger, for example. People shouldn't go through life arranging bigger and bigger home loans until they die, not paying off one penny of their principal! Part of this Fall's credit crisis was the startling news that businesses could not roll over their loans and this was the news about 'loss of liquidity.'

The loss was long ago. We are seeing the results of 35 years of reckless debt accumulation which turned into a truly toxic mess in the last 7 years. As lenders allowed 100% indebtedness rise to an astonishing 112% or more, the government should have stepped in and forced everyone to begin paying off principal. But the government cannot for the simple reason, it is doing this even more than consumers and banks!

Escaping this while NOT paying off principal is the game today. Everyone is trying various tricks and schemes to continue paying interest rates or less than the interest due! So long as they feel they can do this, we will be in a banking crisis. Asia is no longer bankrolling this refusal to save.

MBIA Collapses its Hudson Thames SIV, Takes Writedown

MBIA Inc., the largest bond insurer, is winding down its structured investment vehicle after failing to find buyers for the SIV's short-term debt since August, Chief Financial Officer Chuck Chaplin said.

MBIA has shrunk its Hudson Thames Capital SIV to about $400 million from $2 billion through asset sales to bondholders, Chaplin said. The Armonk, New York-based company has taken an ``impairment'' on its own $15.8 million equity stake, Chaplin told a conference hosted by Bank of America Corp. in New York today.

SIVs, which borrow short term debt to buy higher yielding assets, are collapsing as contagion from U.S. subprime mortgage defaults drives investors away from asset-backed debt. HSBC Holdings Plc yesterday said it would bail out two SIVs by providing up to $35 billion of financing to avoid a fire sale of their assets.

SIVs are not SWF. In other words, sovereign wealth is money left over from trade profits being invested. The structured investment vehicles are debt machines being used to try to make more than the interest due on these debts which are picked up in Japan via the low Bank of Japan loans. Technically, loans can go to infinity. Just like inflation can go to infinity. But in reality, things collapse long before this. Since these gambling operations are based on debts, they have to have a fire sale if there are no profits because THEY ARE CONSTANTLY ROLLING OVER DEBTS. They pay no principal at all. They need constant upwards movement in order to keep ahead of this debt due dating business. They can only pay off if they have sufficient profits to GET A NEW DEBT ARRANGED.

This is what has frozen up here since July. And after it froze, the truth of the value of the assets pledged for this debt are now plunging to zero. They can't sell them for this reason. But they can't hang on, either, since they must get more loans! This is why our lying Treasury has worked to create a super-fund of $80 billion. This fund is to keep the LOANS rolling! So there is never an accounting, no principal is ever paid back.

Most banks and asset managers that operate SIVs are working on plans to restructure the companies and don't expect the business model to survive, Moody's Investors Service analysts said earlier this month. The New York-based ratings company said today that HSBC's SIV restructuring doesn't affect the bank's credit ratings.

This business model isn't new, it is very ancient. It keeps popping up with various details altered so it fools everyone. Even stupid people know that Ponzi schemes don't work. This is why the people launching Ponzi schemes plot and create different disguises and names. The game is to create a Ponzi scheme that is barely legal, milk it and run like hell. Which is why Cramer doesn't give a hoot about the US surviving, for example. Also, note how Moody's doesn't think the death or 'restructuring' of these slippery little SIVs has an impact on HSBC! Their stocks shot up yesterday due to this lie. And look at Moody's record! Why on earth should anyone believe a thing that organization says? HAHAHA.

The so-called ``vertical slice'' deals enable SIVs to raise cash while bondholders avoid the risk of their investment being wiped out in a fire sale, Fitch said in a report this month.

All these elaborate slice and dicing of risk is a very destructive process. Basically, people are desperately trying to stick someone else with the problems caused by over-indebtedness and gambling on borrowed time and funds. The more they try to escape this sinking ship, the more other ships sink. This is spreading rapidly and is causing our banking system to collapse because the final entity holding these SIVs are banks! The entire point of creating them was to allow banks to make loans that paid no principal safer to hold by isolating them in off shore, off the book entities. But all this is still attached by umbilical chords of money lent and money held. Even the scheme to park all this offshore and out of the control of regulators has not protected the banks.

None of these people should be allowed to 'avoid risk' in the first place! And trying to fix things so they don't feel pain is wrong! And the idea that we can lend and not have that extra boost from paying principal as well as interest lies in the heart of our banking crisis and the government can easily fix this by FORCING everyone to pay a percentage on top of the interest. Sigh. And pigs will fly and cows jump over moons.

Home Prices in U.S. Fell Record 4.5% in Third Quarter

Home values retreated 4.5 percent in the three months through September from the same period a year before, the most since records began in 1988, according to a report today by S&P/Case-Shiller. It followed a 3.3 percent drop in the second quarter.

The loss of savings by never paying off principal or using second mortgages and other loans on properties is now being hammered by an overall deflation of property asset values. This is making the banking crisis worse since other forms of saving money have vanished. All homeowners paying only interest are now being amplified by this real loss of savings. The overall GNP is being hammered by this. We can't claim our wealth is growing when our debts are rising EVEN IF WE GET NO MORE LOANS. As the value of SIVs and houses decline in tandem, both feed this debt rise and both hammer savings statistics. And this matters a lot.

Sovereign wealth funds and the US dollar's death.

The US Herald Tribune of August 20, 2007 claims that President Bush is asking the IMF and World Bank to examine the behaviour of these funds and-hear this-develop possible codes of conduct for them. No one attempted to develop codes of conduct for the US when it spent and continues to spend more dollars on imports than it earned from exports over the years, creating large debts in China, Japan and the oil-producing countries in the Middle East, as though the rest of the world was its national backyard. These debts are now the SWFs which give massive leverage to their government owners.

The US is concerned that the magnitude of these funds will give foreign governments unreasonable power in the markets of other countries, the kind of power that foreign investors normally have in developing countries, the kind of power that the WTO was trying to institutionalise.

For example, some governments fear that selling abruptly could precipitate a market crisis or bailing out companies that are in trouble could destabilise these markets. The German Chancellor, Angela Merkel, concerned about Russia buying up pipelines and energy infrastructure and squeezing Europe for political gain, warned that such purchases by foreign governments or government-controlled companies pose a national risk.

A very good article about the decline of the dollar written by a very smart woman. Mary King dryly notes that the IMF and the European/US alliance constantly meddles in other countries' affairs. The outside world secretly rejoices to see the US stumble. Bin Laden's entire plan is about this. He wants us hated and bankrupt. In WWII, we were the liberators who brought lots of goodies which we showered on the places we conquered. But since our debts began to accumulate, we are seen more and more as looters and enslavers. And our own behavior has deteriorated. I got the videos of the old TV show, 'Victory At Sea'. When the Nazis and Japanese surrendered to us or were captured, we didn't tie them up, subject them to sensory deprivation, torture and drug them and then hold secret kangaroo courts to convict them of 'terrorism'. Far from it. A few generals and top officers were temporarily blindfolded. But none of the ugly, vicious stuff we do today.

Soon, we will have to beg the world to save us from our financial follies. We can't do this if we are arrogant or demanding. Indeed, if the world leaders who meet secretly at the Bilderberger getaways or the WTO meetings, could have fixed things, they would have.

This is another problem: our leaders, the people who control all this, want this to be this way! They think they will be absolute rulers if they can only set things up so their financial affairs are protected by the oldest members of this cabal, the British royals. This is why everything is moving to Her Majesty's private properties. The Americans doing this don't care if we all end up working for Japan or Chinese owners and bosses. They don't care if we owe all our homes and incomes to Arab oil pumping kingdoms. After all, that is one Throne supporting another. This is why nothing fundamental is changed. The Fed won't change course. England won't change course. And China plans to use this fact for their own ends!

If we sail straight into the Chinese typhoon, that is OK with the Dragon.

Though our fund may not get to US$800 billion, states like the US may indirectly force investment rules upon us which may constrain what we can do. For example, if these investments are restricted to foreign government paper the returns on our fund would be severely restricted. Further, we may even be constrained from participating in the foreign exchange market for fear of further damage to the US dollar.

She is talking about sovereign wealth funds. Trinidad is part of the offshore business. They worry about the dollar doing another Plaza Accords or new Bretton Woods. Many countries as well as businesses use FX games to fund everything imaginable. It is one gigantic gambling operation. The energy spent playing FX games is the biggest waste of human energy in history. It is mega-tulip bulb madness. And every bit under the control of governments. And in the West, these are controlled by the real rulers who run our media, go to many secret meetings, belong to secret societies and who run the political machines of the older empires.

This status quo is very precious to these people. And slight alterations cause terrible havoc. But the way things are set up, the money flow is in the wrong directions, has the wrong dynamics and will cause a global depression when it hits the wall which is a wall of debts. All systems depend on someone paying enough principal on loans to keep feeding new savings into the system. If no one saves and everyone goes on a debt/speculative binge, we get massive crashes.

The US dollar: the long farewell?

Richard Nixon devalued the US dollar and demolished the Bretton Woods system that had fixed all other currencies in relation to the dollar, inaugurating the current era of floating exchange rates.

There was no other candidate then for the role of global reserve currency, so the dollar stayed at the centre of the system despite all the turbulence. This time, by contrast, there is the euro, the currency of an economic zone just as big as the United States, with the Chinese currency as a possible long-term rival. But nothing is likely to happen very fast.

The last time the world went through a change like this, it took over forty years to complete. Before the First World War the British pound reigned supreme, accounting for 64 per cent of the world's currency reserves and 60 per cent of all international trade. Britain then impoverished itself in two world wars, but the US dollar did not fully replace the pound until the 1950s.

The decline and fall of the British Empire embroiled the entire planet in major world wars. Twice, the US had to pull Britain out of the flames. Throughout this, Britain clung to its dominions and its primary currency powers. The US even conspired with Britain to artificially keep the empire going via currency deals that manipulated relative value. The colonies that were betrayed by all this rose up in rebellion and over many years, destroyed the British Empire, one by one. All that is left is Scotland, a corner of Ireland, Wales and a bunch of money-laundering/tax evading islands.

The 40 years the £ declined, the US slowly moved to fill the void. This tempted us to play financial games the biggest being cutting taxes while waging war. This caused the first currency crisis. Indeed, the unwinding of the US which was slow at first is about 40 years old now. So it is due to fall. The only question is, when will China do this to us?

Back to my prediction above: as soon as they strengthen the yen enough.

Alexei Mamontov, the President of Moscow International Currency Association:

“The Ministry of Finance distributed Stabilization Fund means among currency baskets quite correct. Notwithstanding the declining dollar rate, the American economy remains the leading economy on the global market, and its currency is still reliable. American goods and services account for at least a quarter of the world GDP (for comparison: Russia’s GDP accounts to only eight or nine percent of the U.S. GDP).

The declining dollar rate is not so dramatic therewith. As for the low profitability of deposits and securities (three or four percent per annum), in which the Finance Ministry invested in, these funds are not meant for the commercial use. The Government pursues the only goal: to preserve the money. That is why it deposits in conservative banks. The risk there is minimal, but we should pay for this security.”

Cons:
Michael Delyagnin, the Director of the Institute of Globalization Problems:

“The share of the dollar in the Stabilization Fund of Russia can be reduced. Firstly it can be decreased by 30 percent. The released 15 percent could be spent as follows: ten percent on the Chinese yuan and five percent on the Japanese yen. The yuan is formally inconvertible. But the Chinese economy is the most successful one in the world. It is supposed to develop dynamically in future. Major Western investors invest in China now. It should give a signal to Russia. We should see which Chinese assets are worth investing in now.

This is what I have been illustrating: the flow of money has changed or is in the process of changing. If Russia, the #4 holder of FOREX reserves, changes just 15% and does this by holding yen and yuan, this will alter everyone else who is playing money games. This is why FX traders have to carefully read the news. Since governments control the levers of power with money, knowing their plans and desires is very important. And guess who controls them here?

The same elites who meet secretly at those Bilderberger meetings! The same people who have encouraged everyone to go into debt and not pay any principal! They want us in debt forever and to play these international money games for all eternity. Note that even when they all lose money of 'investors,' their pay, their cut, their bonuses are NOT touched. Their wealth is intact, thank you!

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Comments

[CK]

Non-Cumulative preferred stock: That would be stock where the issuer can skip paying the promised dividend and not have the skipped payments accrue. Preferred stock, gets to eat the assets before the common stock holders but after the bond holders and the secured lenders. Wonder how much edible asset there is in Freddie Mac. Talk about a Mug's game.
Interest only is the way to go, payback with depreciating dollars. 6% interest 8% inflation real cost of borrowing -2%. For anyone of us operating in a vacuum this works beautifully, so what if you don't really "own" that flat screen TV or that house, you have the use of it without ever having to take the capital loss when it goes obsolete. When many of us try to do this simultaneously, things go to hell quickly because we each of us are both providers of and users of capital. Schizophrenically we will not supply ourselves at -2% what we will borrow at -2%.

[Bugout]

Ms. Supkis,
I would like to express my admiration for your commentary on a complicated and important arena. This fine essay has shaken me from my passive reading to the point of posting a comment (oh the effort!). As an appreciator of irony which I have found is an acquired and rare taste, I would like to point out that the delicious savor that emanates from some of the articles you have excerpted is exceptional.

"Stuart Leckie, senior advisor at Britain's index provider FTSE Group, said at the launch of a report on China's capital market." How the times have changed, where once Britain launched mighty warships to rule the oceans, now they launch reports on how well the Asians are doing.

Your use of Pravda as a source for another interesting fact, reminds me how often I had heard in the years of the Cold War that Russian news reports were all propoganda, yet now I get much better information from Pravda and Al-Jazeera on conditions in the United States than from the American media.

I hope that you will permit a metaphor in keeping with your own writing style. As you mentioned the ability to do outside cooking, I would liken your commentary to a stew cooked over a campfire. Your presentation of facts and important details is the meat which though it is cut from the hellhound and is old, tough, and rancid, yet it provides the necessary ability to see into dark places. Your use of historical parallels is the vegetables that add texture and context, while the fairy tales and visual imagery are the spices that make it edible. Though there are occasionally bits of dirt or ash that get in, it is overall a delightful repast.

Whew, all this talk of food is making me hungry.

Finally I would suggest an observation that as often happens with charlatans and magicians, eventually they begin to believe their own lies unless they maintain some connections with reality. Obviously many of the financial elites have become lost in the hall of mirrors they themselves constructed to fool everyone.

Again, thank you for your efforts.

[Elaine Supkis]

Thanks, Bugout.

You forgot to pour wine on the stew. Then you don't care how tough the dog meat is. :)

[Neuro Artist]

Today the US stockmarket gained about 3% on the rumour that the Federal Reserve might reduce the interest rate, because the economy is sinking so rapidly. Truly a sign of the last days of a bubble! I bet the well-connected elites were net-sellers today....

[Neuro Artist]

Mamontov= son of Mamon, what an appropriate name :)

[OC]

Elaine,

Try adding curry spices together with wine:

Curry spices to cover the low quality meat and wine to tenderize its toughness!

Just like the daily financial news!

[Elaine Supkis]

I love curry. Yum. How about venison? Plenty of deer here.
Yes, the market shot to the moon today and there was lots of people happily selling. Am writing about all this in an hour.

[ArthurCorgi]

"Then you don't care how tough the dog meat is. :)"

Well, I care. These liberals are the limit. Is this a recipe from the Al Gore Cookbook?

Please see my current blog entry regarding homeland security.

[Elaine Supkis]

Fluff finds this all very funny. But he prefers mouse stew. Minus the stomach and the head, of course.

[CEO Nutcracker]

Is this you pictured above, Elaine?
If so, nice to finally see you.

[CEO Nutcracker]

I was under the belief that the 'financials', that were all suspiciously in the green today, were being infused by the elites. Please tell me Joe Investor is not that STUPID! Why do Freddie, Fannie, GS, MS, et al, go up always after bad news? It must be a bailout.

I notice the Yen always drops as the Dow goes up too. Maybe a correlation, maybe not. But it's consistent.

[Elaine Supkis]

A prize to CEO for noticing the direct connection between the yen and stock prices in the USA and Japan!

Yes, I have tracked this and talked about this. The top US traders have noticed this and the Japanese Nikkei news even dares mention this starting this last three months.

This is one leg of our mysterious status quo. These guys hyper-amplify this relationship and now they make it swing ever wilder which is a very bad thing. Any status quo that is running on automatic becomes destabilized the more and more people pile in to the dog pile and it collapses.

Government regulators, instead of trying to control prices which is a fool's errand and NOT proper capitalism, should seek to control this.

[Carlos Ballantyne]

Florida suspends withdrawals from state investment fund
http://www.orlandosentinel.com/news/local/state/orl-bk-statefund112907,0,5698387.story?coll=orl_sports_football_jaguars_util

[Elaine Supkis]

Thanks, Carl. I saw that this morning but had to take my husband out to the doctor. It is sad news, very sad for retirees there hoping for fun in the sun.

[onepence]

it is likely the usd will be redefined on a national/international level

as the amount {the govt says} individuals owe the State {bank}

thus ... we would be, in effect, slaves {to the State} until our {individual} debts are paid off ...

o ... you wanna leave the country ... papers/passport please ... o ... you still owe a 200,000 dollar {motgage} to the State {bank}

access denied

[Elaine Supkis]

Britain used to export dead beats. This is how they populated Australia and the US south.