mick silver
22nd November 2010, 05:50 AM
http://danielamerman.com/articles/Bullets.htm ... Currency wars have their victims, much like military wars. What differs is who the victims are and what the casualty rate is. In a military war, the casualties are usually under age 25. Even in a deadly campaign, most soldiers are not victims because they are in support capacities.
The age of the casualties in a currency war is upside down compared to military war, because the worst of the damage is inflicted on those above age 50. Moreover, it is not just a few, but almost everyone who is on the front lines, and thus almost all become a casualty.
The latest financial headlines may seem arcane, with a vocabulary that is difficult to grasp, but the bottom line is unavoidable – the United States government and the Federal Reserve, in a belated defense of the fundamentals of the US economy, have effectively declared their intention to destroy the life savings of older Americans and devastate their future standard of living. It is the necessary "collateral damage" and all.
That may seem to be a wild assertion, but unfortunately, this financial devastation is the obvious implication of the Federal government's choice of strategy in attacking the overvalued US dollar, as this article will illustrate. We will connect three basic dots - and show where and how the bullets will be hitting.
The major events may be beyond our individual control, but the degree of devastation and the implications for our personal lifestyles is very much under our personal control. It is economic ignorance that will be inflicting more casualties in this war than any other factor, and thus our best personal defense is education.
A Gaping Hole In The Economy, Currency War & Creating Money
We will start with three reality checks, each of which is quickly summarized in a paragraph or two below, with a link to a much fuller explanation in other articles. The first reality check is that despite what you have been reading in the headlines, the United States is not in a "jobless recovery". Quite the contrary, the US private economy has a gaping hole in it that enormous amounts of stimulus spending by the government has been trying to cover over. Even when we use (suspect) official government statistics, you can see a better picture for what the true state of the economy is in the graph below (from my previous article "Soaring Government Spending “Crowds Out” Private Investment Returns"):
http://danielamerman.com/articles/Crowding.htm
Over the course of two years, the private economy - which creates the real wealth in the US - has effectively collapsed, and has not recovered. We're talking about $1.3 trillion of the private-sector economy that has been wiped out and hasn't come back. What has patched this over has been frantic government efforts to create an artificial economy through "stimulus" spending and other means. The depth of the crisis has been temporarily masked through creating an artificial stimulus economy that is funded by the creation of artificial money.
The second key item that needs to be understood is that the United States of America has essentially declared war again – this time against the rest of the world. It is a defensive campaign - and from Asia, to South America to Europe, the world is none too pleased. The fundamental reason for this currency war, as covered in my article "Falling Dollar Means Rapid Consumer Price Inflation" linked below, is that the US private economy can't grow out of its $1.3 trillion hole so long as the US dollar is "strong".
http://danielamerman.com/articles/Rapid.htm
Thus, waging currency war has become a necessary evil now that the US government has (finally) come to the defense of the US economy. To do so, the government must knock down the price of the dollar relative to other currencies. The intent is to stop subsidized foreign goods from flooding the US market, and open the doors for US exports to rebound as well. For more than a decade, US workers have been competing with one hand tied behind their back because of an artificially expensive dollar - and untying that hand is essential for any real recovery.
The third extraordinarily important item that must be understood by Boomers and retirees in particular, is the choice of weapon which the US government is using in attempting to counteract currency manipulations by other nations: threatening deliberate, self-inflicted wounds to the purchasing power of the dollar. As covered in my article linked below, "Radical Difference Between Monetization 1 & QE2", the so-called QE2, or second round of quantitative easing, is not the second of anything, but the first round of outright monetization (a government covering spending by simply creating more money from nothingness, rather than borrowing or taxing).
http://danielamerman.com/articles/Monetize1.htm
The bizarre spectacle of the US government threatening its own currency is quite successfully slashing the value of the dollar (at least until the counterattacks begin, as many nations are discussing at this moment), but at a terrible price. The US government is effectively creating artificial money equal to about 9% of the overall economy, and injecting it directly into the economy. In the short term, this both provides a semblance of patching up the hole in the US economy, and very convincingly shows the rest of the world that we're ready to destroy the value of our own currency to gain competitive advantage in trade.
As we will discuss herein, yes, the dollar must be weakened - but it doesn't need to be destroyed, and a reckless strategy is being pursued that risks the annihilation of not only the dollar but the future standard of living of all of us. Through effective direct monetization, creating money from nothingness on a massive scale to cover massive federal deficits, the Federal Reserve and US Treasury are essentially flicking lit matches into a room with puddles of gasoline on the floor and stacks of gasoline cans rising to the rafters. If and when the inferno ignites, the resulting explosion may impoverish not only the US, but many other nations around the world.
The Bullets In Your Back
Let's take a look at the obvious effects of currency war. Walk down the aisle of any Wal-Mart, Costco, Target, Best Buy, or most any discount or department store in the US. What you will see is aisle after aisle of clothes, shoes, toys, kitchenware, appliances, and just about anything else that you could ever want or need, that used to be at least primarily manufactured in the United States 20+ years ago - but no longer is. As a result of more than 10 years of currency manipulations directed against the US, against which the US did not defend itself, we have taken the production of the base essentials of life and moved it overseas.
While a return to genuine free market prices and having real goods and services produced by US workers would strongly benefit the US economy, it comes with a necessary cost – the price for these goods inside the US has to go up because the artificial subsidy has been knocked away. So the price of waging currency war is paying more for everything that is currently being imported into the US. The bullets being fired by the US government in its attempt to lower the value of the dollar - are heading straight towards your back.
Every time you pay more for a new pair of pants, a shirt or blouse, or pair of shoes, you're taking a bullet.
Every time you buy a new TV, clock radio, DVD player, or toaster oven – you'll take a bullet.
However, the worst of the short-term damage from a falling dollar is not the rising cost of imported manufactured goods, but the cheap energy that is the basis of the US economy. We can't produce even half of what we consume in terms of petroleum, so we must import it. One side effect of having an artificially strong US dollar is that energy imported from the rest of the world was cheaper to the United States than it would have been in a free market. Restated, as an accidental by-product of taking over the production of goods from US workers, China (and other nations) effectively had to partially subsidize US petroleum imports as well.
I write of this subsidy in the past tense because the price of crude oil has already risen about 15% in US dollar terms since the beginning of September, and this is almost entirely due to the approximate 15% destruction of the value of the US dollar (in global average terms) since early September. In other words, the price of oil is on average only rising for the US, and not the rest of the world. So every time you gas up your vehicle – you'll be taking a bullet.
Every time you turn up the thermostat this winter, you'll be taking another bullet. Even if your home is heated with natural gas or electricity from a coal burning utility, each of which is primarily domestically produced, the prices of all energy tend to rise together because some utilities can switch from one source or another.
Let's now talk about food. Per Bloomberg (Nov. 1), "The Standard & Poor’s GSCI Agriculture Index of eight futures climbed 30 percent this year, led by corn, wheat, coffee and cotton" and "meat prices advanced to a two-decade high in August, according to a UN index." These wholesale prices have not yet fully hit US grocery shelves - but they will. Just putting a meal on the table will be getting more expensive – particularly once the food/energy relationship kicks in. Yes, the US has an agricultural system that is among the most efficient in the world. However, these high levels of production per acre - and resulting relatively low food prices - are based on the intensive use of fertilizers, which are primarily based upon petrochemicals. So rapidly rising petrochemical prices translates very quickly to rapidly rising US food prices.
As you see, these bullets we will be taking are not only for luxuries, but for the very day to day necessities of keeping warm, transportation and keeping food on the table. And if you are an older American, and you have a portfolio that's being savaged by what's going on here, then hopefully you can clearly see how this currency war may be one of the major determinants of your personal standard of living for years and even decades to come.
Next, let's consider the cost of the bailouts. Hundreds of billions of US government dollars have been given to major financial corporations, even while almost $2 trillion in newly created money was transferred from the Federal Reserve to financial institutions in the Fed's private manipulation of US markets. When we see record bonuses at some investment banks, even as the trillions are manufactured out of the nothingness, we're also seeing waves of bullets hitting all of us in the back.
And then there are the stimulus packages, the waves of spending that the US government has been engaged in to help cover the gaping $1.3 trillion hole in the US private sector economy. As covered in my article "Radical Difference Between Monetization 1 & QE2", the US government is openly planning to cover the federal deficit and pay for the stimulus packages through creating about $1,000 per month per American household out of thin air, and using it to pay the salaries of those people working on stimulus projects, as well as federal government employee salaries, as well as pensions, as well as Social Security, as well as the whole federal government spending structure.
That's a thousand dollars per household this month. And another thousand dollars next month. Plus a thousand dollars the month after that, and another the month after that. We're talking about money being directly created out of the nothingness at a fantastic rate, that is every bit as good for spending as the money that you have worked so hard over all of these decades to save and set aside. It is a fresh and limitless supply of new money, diluting and competing with the conversely quite limited amount of money that constitutes your life savings. Each month - another bullet striking home.
The age of the casualties in a currency war is upside down compared to military war, because the worst of the damage is inflicted on those above age 50. Moreover, it is not just a few, but almost everyone who is on the front lines, and thus almost all become a casualty.
The latest financial headlines may seem arcane, with a vocabulary that is difficult to grasp, but the bottom line is unavoidable – the United States government and the Federal Reserve, in a belated defense of the fundamentals of the US economy, have effectively declared their intention to destroy the life savings of older Americans and devastate their future standard of living. It is the necessary "collateral damage" and all.
That may seem to be a wild assertion, but unfortunately, this financial devastation is the obvious implication of the Federal government's choice of strategy in attacking the overvalued US dollar, as this article will illustrate. We will connect three basic dots - and show where and how the bullets will be hitting.
The major events may be beyond our individual control, but the degree of devastation and the implications for our personal lifestyles is very much under our personal control. It is economic ignorance that will be inflicting more casualties in this war than any other factor, and thus our best personal defense is education.
A Gaping Hole In The Economy, Currency War & Creating Money
We will start with three reality checks, each of which is quickly summarized in a paragraph or two below, with a link to a much fuller explanation in other articles. The first reality check is that despite what you have been reading in the headlines, the United States is not in a "jobless recovery". Quite the contrary, the US private economy has a gaping hole in it that enormous amounts of stimulus spending by the government has been trying to cover over. Even when we use (suspect) official government statistics, you can see a better picture for what the true state of the economy is in the graph below (from my previous article "Soaring Government Spending “Crowds Out” Private Investment Returns"):
http://danielamerman.com/articles/Crowding.htm
Over the course of two years, the private economy - which creates the real wealth in the US - has effectively collapsed, and has not recovered. We're talking about $1.3 trillion of the private-sector economy that has been wiped out and hasn't come back. What has patched this over has been frantic government efforts to create an artificial economy through "stimulus" spending and other means. The depth of the crisis has been temporarily masked through creating an artificial stimulus economy that is funded by the creation of artificial money.
The second key item that needs to be understood is that the United States of America has essentially declared war again – this time against the rest of the world. It is a defensive campaign - and from Asia, to South America to Europe, the world is none too pleased. The fundamental reason for this currency war, as covered in my article "Falling Dollar Means Rapid Consumer Price Inflation" linked below, is that the US private economy can't grow out of its $1.3 trillion hole so long as the US dollar is "strong".
http://danielamerman.com/articles/Rapid.htm
Thus, waging currency war has become a necessary evil now that the US government has (finally) come to the defense of the US economy. To do so, the government must knock down the price of the dollar relative to other currencies. The intent is to stop subsidized foreign goods from flooding the US market, and open the doors for US exports to rebound as well. For more than a decade, US workers have been competing with one hand tied behind their back because of an artificially expensive dollar - and untying that hand is essential for any real recovery.
The third extraordinarily important item that must be understood by Boomers and retirees in particular, is the choice of weapon which the US government is using in attempting to counteract currency manipulations by other nations: threatening deliberate, self-inflicted wounds to the purchasing power of the dollar. As covered in my article linked below, "Radical Difference Between Monetization 1 & QE2", the so-called QE2, or second round of quantitative easing, is not the second of anything, but the first round of outright monetization (a government covering spending by simply creating more money from nothingness, rather than borrowing or taxing).
http://danielamerman.com/articles/Monetize1.htm
The bizarre spectacle of the US government threatening its own currency is quite successfully slashing the value of the dollar (at least until the counterattacks begin, as many nations are discussing at this moment), but at a terrible price. The US government is effectively creating artificial money equal to about 9% of the overall economy, and injecting it directly into the economy. In the short term, this both provides a semblance of patching up the hole in the US economy, and very convincingly shows the rest of the world that we're ready to destroy the value of our own currency to gain competitive advantage in trade.
As we will discuss herein, yes, the dollar must be weakened - but it doesn't need to be destroyed, and a reckless strategy is being pursued that risks the annihilation of not only the dollar but the future standard of living of all of us. Through effective direct monetization, creating money from nothingness on a massive scale to cover massive federal deficits, the Federal Reserve and US Treasury are essentially flicking lit matches into a room with puddles of gasoline on the floor and stacks of gasoline cans rising to the rafters. If and when the inferno ignites, the resulting explosion may impoverish not only the US, but many other nations around the world.
The Bullets In Your Back
Let's take a look at the obvious effects of currency war. Walk down the aisle of any Wal-Mart, Costco, Target, Best Buy, or most any discount or department store in the US. What you will see is aisle after aisle of clothes, shoes, toys, kitchenware, appliances, and just about anything else that you could ever want or need, that used to be at least primarily manufactured in the United States 20+ years ago - but no longer is. As a result of more than 10 years of currency manipulations directed against the US, against which the US did not defend itself, we have taken the production of the base essentials of life and moved it overseas.
While a return to genuine free market prices and having real goods and services produced by US workers would strongly benefit the US economy, it comes with a necessary cost – the price for these goods inside the US has to go up because the artificial subsidy has been knocked away. So the price of waging currency war is paying more for everything that is currently being imported into the US. The bullets being fired by the US government in its attempt to lower the value of the dollar - are heading straight towards your back.
Every time you pay more for a new pair of pants, a shirt or blouse, or pair of shoes, you're taking a bullet.
Every time you buy a new TV, clock radio, DVD player, or toaster oven – you'll take a bullet.
However, the worst of the short-term damage from a falling dollar is not the rising cost of imported manufactured goods, but the cheap energy that is the basis of the US economy. We can't produce even half of what we consume in terms of petroleum, so we must import it. One side effect of having an artificially strong US dollar is that energy imported from the rest of the world was cheaper to the United States than it would have been in a free market. Restated, as an accidental by-product of taking over the production of goods from US workers, China (and other nations) effectively had to partially subsidize US petroleum imports as well.
I write of this subsidy in the past tense because the price of crude oil has already risen about 15% in US dollar terms since the beginning of September, and this is almost entirely due to the approximate 15% destruction of the value of the US dollar (in global average terms) since early September. In other words, the price of oil is on average only rising for the US, and not the rest of the world. So every time you gas up your vehicle – you'll be taking a bullet.
Every time you turn up the thermostat this winter, you'll be taking another bullet. Even if your home is heated with natural gas or electricity from a coal burning utility, each of which is primarily domestically produced, the prices of all energy tend to rise together because some utilities can switch from one source or another.
Let's now talk about food. Per Bloomberg (Nov. 1), "The Standard & Poor’s GSCI Agriculture Index of eight futures climbed 30 percent this year, led by corn, wheat, coffee and cotton" and "meat prices advanced to a two-decade high in August, according to a UN index." These wholesale prices have not yet fully hit US grocery shelves - but they will. Just putting a meal on the table will be getting more expensive – particularly once the food/energy relationship kicks in. Yes, the US has an agricultural system that is among the most efficient in the world. However, these high levels of production per acre - and resulting relatively low food prices - are based on the intensive use of fertilizers, which are primarily based upon petrochemicals. So rapidly rising petrochemical prices translates very quickly to rapidly rising US food prices.
As you see, these bullets we will be taking are not only for luxuries, but for the very day to day necessities of keeping warm, transportation and keeping food on the table. And if you are an older American, and you have a portfolio that's being savaged by what's going on here, then hopefully you can clearly see how this currency war may be one of the major determinants of your personal standard of living for years and even decades to come.
Next, let's consider the cost of the bailouts. Hundreds of billions of US government dollars have been given to major financial corporations, even while almost $2 trillion in newly created money was transferred from the Federal Reserve to financial institutions in the Fed's private manipulation of US markets. When we see record bonuses at some investment banks, even as the trillions are manufactured out of the nothingness, we're also seeing waves of bullets hitting all of us in the back.
And then there are the stimulus packages, the waves of spending that the US government has been engaged in to help cover the gaping $1.3 trillion hole in the US private sector economy. As covered in my article "Radical Difference Between Monetization 1 & QE2", the US government is openly planning to cover the federal deficit and pay for the stimulus packages through creating about $1,000 per month per American household out of thin air, and using it to pay the salaries of those people working on stimulus projects, as well as federal government employee salaries, as well as pensions, as well as Social Security, as well as the whole federal government spending structure.
That's a thousand dollars per household this month. And another thousand dollars next month. Plus a thousand dollars the month after that, and another the month after that. We're talking about money being directly created out of the nothingness at a fantastic rate, that is every bit as good for spending as the money that you have worked so hard over all of these decades to save and set aside. It is a fresh and limitless supply of new money, diluting and competing with the conversely quite limited amount of money that constitutes your life savings. Each month - another bullet striking home.