Despite the best efforts by
the American mainstream financial media, the eager PR division of the United
States Dollar Ponzi Scheme, to paint the rosiest of rosy pictures for blindly
optimistic readers, the stubborn image of a debt-swollen jobless behemoth
economy slowly toppling persists. No matter how much U.S. departmental data
is primped, polished, and primed, no amount of lipstick is going to transform
this fat pig into a princess.
This week’s top harbinger
headline points to the fact that the United States is once again bumping its
fat head on the ceiling of its spectacularly stratospheric debt ceiling of
$14.3 TRILLION dollars. That means an act of congress is once again necessary
to lift that limit. The alternative is either a) a revaluation of the U.S.
Dollar to reflect the depreciation inherent in Quantitative Sleazing as part
of a debt restructuring, or b) default.
Default? Could it be?
Never, according to bright-eyed Harvard
educated economists and Forexperts.
“The likelihood of a
restructuring of US sovereign debt is zero,” says MF global currency
and fixed income analyst Jessica Hoversen. “As for a downgrade, while
it’s theoretically possible, it is still extraordinarily
unlikely.”
Well that’s one opinion.
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, apparently 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.
But that process has resulted in the
Fed being exposed in no insignificant way to major losses from credit
exposure. But Ben Bernanke, the Fed’s embattled leader, suggested last
week 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 earlier
today:
“..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 these two lines, 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 catalyist 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%.
But 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.
But just 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, and he’s
definitely not alone.
Last week, Lombard Street Research put
out a note warning of China’s “already dangerously home-grown
inflation”.
Corriente Advisors stated, “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.”
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.
If China 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.
Gold is now under fresh assault by the
biggest banks who successfully lobbied for the defeat of position limits in
both the gold and silver derivative markets. Now free to build up the huge
short positions against gold and silver that have to date been the source of
most of the negative pressure on those monetary metals’ prices since
2000, the prices of both have descended to new monthly lows.
Consider that a gift. 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.
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James West
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