Twisted Titan
31st January 2011, 01:40 PM
http://www.munknee.com/2011/01/why-i-think-the-u-s-is-smoking-crack-and-china-is-smoking-opium/
The U.S. is Smoking Crack
The rate at which U.S. debt is growing is well beyond what it could repay, even if the economy were to start growing at 10% per year. That’s because the rate of U.S. debt growth in the last 3 years is well over that figure, and since 2002, the debt has more than doubled. This is the mathematical certainty that is assiduously kept out the press by accommodating editorial boards.
Lets try to sift through the contradictory headlines and see if we can’t discern something a little more reminiscent of reality. First off, the United States Federal Reserve, a private corporation whose self-declared mandate is to be “the central bank of the United States, that provides the nation with a safe, flexible, and stable monetary and financial system”, has been “buying” Treasury bills, the source of U.S. monetary supply, at the rate of, on average, $75 Billion a month. That process has resulted in the Fed being exposed, in no insignificant way, to major losses from credit exposure. [Nevertheless,] Ben Bernanke has suggested that the risks were minimal, because “if the liabilities on the Fed’s balance sheet were to exceed its assets, it would only be so because of rising interest rates in the context of a thriving economy.” Huh? What kind of pie-in-the-sky theoretical postulation is that?
According to a Reuters article: “..the Fed’s newfangled policy steps and the potential for credit losses raises, for some experts, the prospect that the Treasury may actually be forced to ‘recapitalize’ the Fed – economist-speak for what others might call a bail-out.” Bottom line: The Fed, who capitalizes the treasury by buying treasury bills, now needs to be ‘recapitalized’ by the treasury, who will now write cheques to the Fed, so it can continue to write cheques to the Treasury. This is no oversimplification – this is reality.
The Fed is broke, and so is the Treasury. The ability of the Fed to ‘stimulate’ the economy in such a condition does not exist. If the only way to inject capital into the asset-stimulating portion of the economy is to encumber the current account of the same economy with an exponentially greater quantity of debt, the result can only be, at some point, default.
Somebody needs to stand up and admit that debt growth and economic recovery, are permanently divergent, and the economist-generated stipulation that they can one day cross in a self-fulfilling prophetic law of delusional economic prophecy is preposterous. That is one of the events that is pushing the U.S. towards financial annihalation. That will be the primary catalyst in triggering the 2011 financial crisis.
China is Smoking Opium
Even after the horrible catastrophe of the 2008 financial meltdown, exacerbated by opportunistic banks attacking each other in a global cartel-induced moment of weakness, China emerged as the economic juggernaut that was indestructible. Why, even for 2011, the International Monetary Fund pegs China’s growth at 10.5%.
Nevertheless, just as the U.S. puffs and puffs away at its crack pipe burning U.S. dollars, the drug of choice and path to ruin for the United States economy, so China deeply inhales at regular intervals its own pipe carved from jade and stuffed full of smouldering yuan. In fact, China is so confident in the unassailable virtue of its centralist and therefore free-of-political-interference monetary policy that it positions itself increasingly as global economic grandfather. It generously subscribes to the debt auctions of economically hobbled nations like Greece and Portugal, Ireland and Spain, while doling out paternal advice and admonishments to the U.S. and Europe.
How sound is China’s future? No at all sound, if Mark Harte of Corriente Advisors in the United States is to be believed. He is the American hedge fund manager who made millions predicting the sub-prime crisis and the European sovereign debt crisis. His new fund is betting that China’s economic machine may be showing signs of seizing up saying, ”We expect the economic fallout from a slowdown of China’s unsustainable levels of credit and growth to be as extraordinary as China’s economic outperformance over the past decade.” He is not alone. Last week, Lombard Street Research put out a note warning of China’s “already dangerously home-grown inflation”.
Whole cities are vacant in areas of China, built on credit that has yet to be repaid, and in the expectation that the massive migration of rural residents to gleaming new cities would continue – but house prices remain out-of-reach for most Chinese, averaging 22 times disposable income in Beijing alone. According to one analyst, Chinese banks have lent US$1.7 trillion to local state entities that are not themselves commercially viable, and who have use inflated land and real estate values as collateral. Sound familiar? These are the exact conditions that existed in the United States real estate market just before the bubble burst in 2008.
[Indeed,] if China’s growth were to slow to just 5%, commodity prices for coal, copper, steel and cement would plummet by as much as 20%, according to one study.
Conclusion
With the sheer scale and scope of the next economic collapse threatening to dwarf that of 2008, holders of gold and silver will be in a much better position to whether the imminent tempest far better than holders of U.S. dollars or Chinese yuan.
The U.S. is Smoking Crack
The rate at which U.S. debt is growing is well beyond what it could repay, even if the economy were to start growing at 10% per year. That’s because the rate of U.S. debt growth in the last 3 years is well over that figure, and since 2002, the debt has more than doubled. This is the mathematical certainty that is assiduously kept out the press by accommodating editorial boards.
Lets try to sift through the contradictory headlines and see if we can’t discern something a little more reminiscent of reality. First off, the United States Federal Reserve, a private corporation whose self-declared mandate is to be “the central bank of the United States, that provides the nation with a safe, flexible, and stable monetary and financial system”, has been “buying” Treasury bills, the source of U.S. monetary supply, at the rate of, on average, $75 Billion a month. That process has resulted in the Fed being exposed, in no insignificant way, to major losses from credit exposure. [Nevertheless,] Ben Bernanke has suggested that the risks were minimal, because “if the liabilities on the Fed’s balance sheet were to exceed its assets, it would only be so because of rising interest rates in the context of a thriving economy.” Huh? What kind of pie-in-the-sky theoretical postulation is that?
According to a Reuters article: “..the Fed’s newfangled policy steps and the potential for credit losses raises, for some experts, the prospect that the Treasury may actually be forced to ‘recapitalize’ the Fed – economist-speak for what others might call a bail-out.” Bottom line: The Fed, who capitalizes the treasury by buying treasury bills, now needs to be ‘recapitalized’ by the treasury, who will now write cheques to the Fed, so it can continue to write cheques to the Treasury. This is no oversimplification – this is reality.
The Fed is broke, and so is the Treasury. The ability of the Fed to ‘stimulate’ the economy in such a condition does not exist. If the only way to inject capital into the asset-stimulating portion of the economy is to encumber the current account of the same economy with an exponentially greater quantity of debt, the result can only be, at some point, default.
Somebody needs to stand up and admit that debt growth and economic recovery, are permanently divergent, and the economist-generated stipulation that they can one day cross in a self-fulfilling prophetic law of delusional economic prophecy is preposterous. That is one of the events that is pushing the U.S. towards financial annihalation. That will be the primary catalyst in triggering the 2011 financial crisis.
China is Smoking Opium
Even after the horrible catastrophe of the 2008 financial meltdown, exacerbated by opportunistic banks attacking each other in a global cartel-induced moment of weakness, China emerged as the economic juggernaut that was indestructible. Why, even for 2011, the International Monetary Fund pegs China’s growth at 10.5%.
Nevertheless, just as the U.S. puffs and puffs away at its crack pipe burning U.S. dollars, the drug of choice and path to ruin for the United States economy, so China deeply inhales at regular intervals its own pipe carved from jade and stuffed full of smouldering yuan. In fact, China is so confident in the unassailable virtue of its centralist and therefore free-of-political-interference monetary policy that it positions itself increasingly as global economic grandfather. It generously subscribes to the debt auctions of economically hobbled nations like Greece and Portugal, Ireland and Spain, while doling out paternal advice and admonishments to the U.S. and Europe.
How sound is China’s future? No at all sound, if Mark Harte of Corriente Advisors in the United States is to be believed. He is the American hedge fund manager who made millions predicting the sub-prime crisis and the European sovereign debt crisis. His new fund is betting that China’s economic machine may be showing signs of seizing up saying, ”We expect the economic fallout from a slowdown of China’s unsustainable levels of credit and growth to be as extraordinary as China’s economic outperformance over the past decade.” He is not alone. Last week, Lombard Street Research put out a note warning of China’s “already dangerously home-grown inflation”.
Whole cities are vacant in areas of China, built on credit that has yet to be repaid, and in the expectation that the massive migration of rural residents to gleaming new cities would continue – but house prices remain out-of-reach for most Chinese, averaging 22 times disposable income in Beijing alone. According to one analyst, Chinese banks have lent US$1.7 trillion to local state entities that are not themselves commercially viable, and who have use inflated land and real estate values as collateral. Sound familiar? These are the exact conditions that existed in the United States real estate market just before the bubble burst in 2008.
[Indeed,] if China’s growth were to slow to just 5%, commodity prices for coal, copper, steel and cement would plummet by as much as 20%, according to one study.
Conclusion
With the sheer scale and scope of the next economic collapse threatening to dwarf that of 2008, holders of gold and silver will be in a much better position to whether the imminent tempest far better than holders of U.S. dollars or Chinese yuan.