There is a game of 'Pass the Parcel' happening in the world at the
moment. The 'parcel' is filled with U.S. dollars. Just like little children
at a birthday party, the governments who are holding vast reserves in the
form of US paper dollars, are full of apprehension and nervous giggling lest
they be left holding the 'parcel'. They are jiggling the parcel up and down
and frantically trying to pass it on to the government sitting next to them.
The general hubbub is almost drowned by the din of bursting balloons.
The problem in the real world of course is that there are many, many
parcels of U.S. dollars in the hands of foreign governments, and they are all
trying to pass them to each other. No one wants the parcel they already have,
let alone the one in the hands of the government sitting next to them. They
all want to avoid being left with a vast wad of cash which they strongly
suspect will end up not only worthless, but making them look like complete
mugs.
All are hoping against hope that the storm will pass. All fear to be
the first to start selling in large amounts, yet simultaneously fear to be
the last. Each is regularly divesting itself of tiny amounts. As fast as they
do manage to dump a part of their parcel those dollars head back to the U.S..
U.S. exports will start to look good for a while which will reflect the
desperate desire to exchange the dollars for something, anything.
All money must eventually head back to the country of its issuance.
That is the only way ultimately that value can be realized. Now is the time
for that value to be realized, whilst there still is any. The trillions of
U.S.$'s in the world are returning home. As that money washes up into the US
economy so it will continue to drive U.S. domestic prices higher and higher,
placing ever greater strain on the economy, which is already at breaking
point.
The period wherein the U.S. dollar was the official reserve currency
of the western world is now over. That will neither be announced nor admitted
by any government until they have finally dumped the dollars that they own.
It is in everyone's interest to maintain the facade, at the moment. In
reality they want almost anything except U.S.$'s in their reserves.
Bernanke must dramatically raise interest rates to strengthen the U.S.
dollar, that is a MUST. Of course that will mean the collapse of the whole
U.S. real estate market within a month. That would lead to the absurd and sad
situation of millions of empty houses within sight of millions of families
living in cars and tents. Such an interest rise would take a Volcker on
steroids which Bernanke most certainly is not, so of course he hasn't raised
interest rates, and he won't.
His whole education and training make him more inclined to again drop
interest rates in a forlorn attempt to re-start money flow into the asset
area of the economy. Too late he has been disabused of some of his Ivory
Tower notions and now knows that won't work any longer either. 'Fool me once
shame on you, fool me twice shame on me'. Dropping interest rates would also
precipitate a panicked flight from the U.S. dollar which would see a faster
flood of ever more worthless dollars turning up in the supermarket and energy
area of the domestic economy. No matter what Bernanke does or doesn't do, the
chickens are coming home to roost.
It is unlikely to be the Chinese or any of the other major holders of
U.S. dollars who precipitate mass selling. They have so many that they would
crash the currency just by opening their mouths. They also are damned if they
do and damned if they don't. It will more likely come out of left field and
be one of the smaller holders. Maybe one of the Arab mini-states will take
the chance that they can dump all their dollars without anyone noticing. The
likelihood is that it would be immediately noticed. Everyone has their beady
eyes on everyone else at the moment. The awareness that the 'big dump' had
started would lead to a stampede. How would the Fed handle that... print more
dollars... tinker with interest rates?
Obviously, not selling at the moment is seen by the major holders of
U.S. dollars as an option, albeit an enforced one. Becoming a buyer most
definitely is not an option. Along with the game of 'Pass the Parcel' there
is another concurrent game being played called 'First to Blink'. The
government who blinks first and tries to dump their wad at below market price
just might win, immediately followed by everyone else losing. There may be
some reservations about being the first seller, but there will be none about
the desire to avoid being the last seller.
The unpleasant truth is that the mutually agreed selling truce is
occasioned by the fact that there are no buyers of the amounts needing to be
sold. All would dump their dollars now if they could, the fact that they
would like to, but cannot, speaks loudly and eloquently of the problem.
Thus Bernanke will continue to procrastinate and do nothing with
interest rates. It is the sanest approach, as it is the approach most likely
to put off the inevitable for a while longer. Procrastination is contagious,
which at this point may be a good thing. Any decision to do something will
end in complete disaster as it forces the governments playing pass the parcel
to blink and also do something. Whatever they do would be very bad for the
U.S. dollar and curtains for the U.S. economy. For many decades there has
been a very ugly reality underneath the attractive veneer of confidence in
the U.S.$ and economy. That veneer of confidence has now completely gone.
What lies exposed is not a pretty sight.
The only hope for America is that those governments holding U.S.$'s
will continue to hold them even though they are quite aware that they will at
best drift down in value, and at worst collapse. It is a conspiracy of
silence aimed at maintaining the status quo. I will hold mine and pretend
that they are still valuable if you will do the same. All governments are
using the borrowed time as best as possible to prepare their economies for
the coming collapse of America. The U.S.$ will continue to be a currency for
as long as that tacit agreement holds.
The End of the Party
I wonder how Bernanke is sleeping at the moment? I also wonder whether
he and Paulson are personally buying gold and silver and secreting it away.
Everyone who truly understands the situation has a survival plan. I find it
hard to believe that Bernanke and Paulson still do not understand the real
situation. Maybe they believe the government will look after them... maybe it
will. What is for certain though is that the government will not look after
Main Street. As always the common herd is pencilled in to foot the bill for
this disaster. The bill is far larger for each household than each household
owns in total assets. If it is any consolation the banks will go down as
well.
For those who have not already lost everything, there is right now,
possibly, one final chance to remove their capital from the cesspit that
comprises the U.S. financial markets and exchange pseudo investments for real
money... namely gold and silver. Not the paper variety of options or futures,
but bullion. All paper is now suspect.
Even stock in mining companies is now suspect due to the vast amounts
of naked short selling that has taken place. Many 'owners' of mining stock
are going to find out, too late, that the statements of stock ownership in
their filing cabinet are worthless. There are publicly listed companies on
the major U.S. exchanges that have more stock sold than legally exists, a lot
more. The situation on the minor boards is even more dire. An unknown at this
time number of 'owners' of stock are going to find out too late that they in
fact own fraudulently printed paper worth precisely zero.
Criminality in the U.S. financial markets is rampant and all
pervasive. Corruption exists from the top to the bottom. A blind eye is
turned by the regulators because they are afraid that to expose it now would
topple the whole system. That gives an indication of how large the corruption
is. It is the return of the Wild West (WW2), and at this point, the outlaws
are running the show. Marshall Elliot Spitzer was the guy who rode into town
on a white horse. He was almost immediately gunned down. Is there anyone else
out there who will publicly challenge what is happening... preferably someone
who doesn't mind going home to his wife at the end of the day?
Naked short selling is a great example of the type of 'mal-investment'
created by showering a financial system with cash and credit and calling it
economic growth. The past has, and the future will, show a direct parallel
between the size of the inflation and the size of the ensuing criminality.
What has been exposed so far is just the tip of the iceberg.
The economies of the world are on a knife's edge and we can but cross
our fingers for the 'system' to hold together a while longer. The best hope
is for a long, meandering collapse, much along the lines of the last 37
years, but at a greatly increased pace. It will end up with not just both
parents being forced to work to survive, but the children as well. That will
probably be spun as 'Children's Liberation'.
America no longer has even the appearance of an expanding economy
because the world will no longer lend the money to finance it. That is
because they know now, as they should have known years ago, that the U.S.
cannot hope to ever pay back the money that it has been borrowing.
The worst case scenario is for a sudden and calamitous fall with no
time to adjust. The end result over whatever time frame it happens will be
very unpleasant. It will be a profound shock for most people who have been
conditioned to believe that whatever happens the government will look after
them.
A Party Bag For Everyone
The transition from fear to panic when it comes will be remarkably
fast. One moment people will be just sitting there eating their Prozac, the
next they will have a party bag in their lap. Inside the party bag will be a
parcel which has finally found its way to its real home. At that point the
contents of the parcel will be exposed for what it really always was under
our current banking system... debt... vast, unpayable debt.
Sam Mathid
July 4, 2008
The
brilliant Professor Emeritus Antal Fekete is conducting a seminar in Canberra, Australia
from the 11th to the 14th November this year. Meet and hear one of the giants of our
age. Bookings for the seminar can
be made through:
feketeaustralia@yahoo.com
I attended
Professor Fekete’s seminar in Hungary in August of last year
and to say that it was memorable is an understatement.
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