Author: Monty Guild

We have all been hearing about sovereign wealth funds [SWF's] which are estimated to have $1.2 trillion US available for investment in the rest of the world. Countries like Singapore, China, the mid East and several other countries around the world have SWFs to diversify their national investments.

In addition to these funds, a more recent development is the advent of QDII funds from China (Qualified Domestic Institutional Investors).

This is money owned by banks, insurance companies and wealthy individuals that China allows to leave the country to be invested abroad. It is estimated that these QDII investments will total about $140 billion over the next 12 months.

We estimate that about half will be invested in Hong Kong and the rest in stocks throughout the world.

This equals about 11 days of trading volume of all Hong Kong stocks.

Obviously the other half represents increased demand for stocks, precious metals and currencies outside of China. Since the Chinese Yuan is only rising 5% per year versus the $USD while gold, commodities and many other currencies are rising faster, much of this money will find its way into gold and related investments like commodities and non US currencies.

Respectfully yours,
Monty

JSMineset

Alex’s Notes: Interesting article. Author is missing a few things though.

Low inflation? I suppose this information comes the Consumer Price Index? Which happens to conveniently leave out key indicators such as the cost of housing and food? Dont know about you, but housing and food are pretty large items on my month costs breakdown.

Low unemployment? Respectable growth? Someone has been watching too much TV. I find it ironic how even our news media is fed crap in the dark and then parrots it back to the general populace as the truth.

The thing that I find curious is how we are all so programmed to talk about the ‘National Defecit” instead of the “National Debt”. I encourage each and every one of you to look up the difference, it is quite huge.

In reality, the numbers of the ‘National Defecit’ are so small as to almost be irrelevant when compared to the size of the ‘National Debt’. Its kind of like Congress saying, ‘well we ony added an additonal $200 billion to what we already owe, so its not so bad, arent you proud of us?”, instead of saying “holy crashing dollar batman, we added another $200 billion to the $50 Trillion we have in fincancial exposures already!”

People need to wake up to the fact (including our journalists) that we are borrowing almost $2 Billion dollars a day just to continue to run our government, and if foreign governments such as Japan and China decide to stop giving us loans, we are in deep doo doo.

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Victor Davis Hanson
October 6, 2007

President Bush’s current approval ratings are about 32 percent. Only 1 in 4 Americans approves of the Democratic-controlled Congress.

So why are we so upset with our political leadership? Despite the housing slump, it is not the worst of times. After all, the economy is still strong, with low inflation, low unemployment, low interest rates and respectable growth.

The Iraqi war remains unpopular, but good news has emerged recently about the surge and Iraqis joining Americans against the terrorists. We haven’t had a repeat of the terrorist attacks on America of September 11, 2001, and the Europeans — especially France and Germany — seem far friendlier.

Instead, our anger with our political leaders more likely originates over money — or rather the lack of it. Americans believe their rich country is either going broke or is seen as a global spendthrift that can’t pay for what it charges. And the worry over insolvency gets worse at a time of conflict — which, as the Roman statesman Cicero once remarked, is often decided by money, “the sinews of war.”

We are servicing $9 trillion in aggregate national debt. China and Japan alone hold over $1.5 trillion in U.S. dollar reserves — the result of a general American trade deficit that usually runs about $700 billion per year. The euro — pegged at less than 90 cents to the dollar in early 2002 — is now more than $1.40. And the historically weaker Canadian dollar now roughly equals the value of our own.

Oil prices were around $22 to $28 in 2000, and are now over $80 a barrel. Over the last seven years Middle East oil exporters — many hostile to the United States — have raked in well more than $1 trillion in windfall profits.

The annual budget deficit is shrinking but still will come in this fiscal year at about $160 billion. Economists and government officials, of course, attempt to explain away all this red ink. Creditor nations, they remind us, simply lend us back money at relatively cheap interest to keep buying their goods. So they can’t really call in their debts without ruining their own best market.

Where else will Japan and China bank their profits but in the politically stable, transparent and honest United States — an atoll of security in a world of political upheaval and corruption — in Africa, Latin America and Asia?

Meanwhile, our weak dollar supposedly makes American goods more competitive and keeps employment here strong as we export products and services to dollar-laden customers. In any case, despite European trade surpluses in the last few years, the U.S. economy has outperformed the European Union’s, and our standard of living remains much higher.

True, oil is outrageously expensive. But in real dollars it cost more in 1979, when petroleum also took a much larger bite out of the total U.S. economy. Billions of dollars in annual deficits are scary, but as a percentage of our gross national product the current yearly shortfall is not historically that alarming.

Still, there are problems with these easy rationalizations about charge-it America. First, we will have to spend trillions of dollars for unfunded Social Security and Medicare commitments in the next few years as our population ages. Ever fewer workers must support more lavish benefits for ever more retirees.

Our military has put off necessary plane and ship replacements, and needs billions to replace worn equipment. At home, neglected bridges, roads, airports and railroads need even more money in fresh investment. So we should be saving now, not going into debt, for an upcoming nasty date with fiscal reality.

Even more critical is the toll on our national psyche. Americans don’t like to read that they are borrowing to pay their annual bills, to import their gas, to buy Japanese cars and Chinese consumer goods — and passing on the ever-larger tab to their children.

When they go abroad they feel embarrassed that their currency is weak — and getting weaker. They are bothered by global whispers that our houses and cars are too large, and that we consume in a manner we haven’t earned.

So our collective debt is not just a problem of fiscal sustainability, but also one of national pride and security. Especially at a time of war, the perception of strength — political, financial and military — is critical to our success.

Instead, Osama bin Laden screams that we are spoiled and decadent. Europe chimes in that our national character is profligate. An ascendant China hopes that if present trends hold, even our military power must — as was true of the cash-strapped British in the 1950s — shrink to meet fiscal realities.

So shamed Americans wait in vain for a leader to tell us that the government will balance its ledgers — and that we the people must spend less and invest more now while we can, rather than later when we must.

Victor Davis Hanson is a nationally syndicated columnist, a classicist and a historian at Stanford University’s Hoover Institution. He is author of “A War Like No Other: How the Athenians and Spartans Fought the Peloponnesian War.”

http://www.americaneconomicalert.org/news_item.asp?NID=2857622

KELLY KEARSLEY; The News Tribune
Published: October 7th, 2007 01:00 AM

World market raises value of copper, aluminum, more

Joseph Simon & Sons’ 12-acre yard on the Tacoma Tideflats is filled with mountains of what some may call junk.

There are bales of crushed aluminum cans and cardboard boxes loaded with used bullet casings. There are mounds of wheels and extension cords, boxes of old faucets, stacks of aluminum siding.

But in the booming scrap metal business, even the smallest bit of metal – from aluminum shavings to copper sprinkles – has value.

Global demand for metal has kept the prices of scrap aluminum, copper, nickel, steel and other metals increasing for the past five years.

The recycling of discarded metal items is now a $65 billion industry with players including billion-dollar corporations down to one-man, junk-peddling operations. Exports of scrap metal total billions of dollars each year, providing the raw materials that fuel manufacturing in foreign countries.

“It’s no longer the ‘junk’ business,” said Marc Simon, Joseph Simon & Sons senior account manager.

A GLOBAL BUSINESS

Joseph Simon started his scrap metal recycling company in the 1920s, near where the Tacoma Dome bus station is now. He had one truck, and most of the people he bought and sold metal from were in the Puget Sound area.

“He never knew about China or international markets,” said Phil Simon, Joseph’s son and the company’s president. “He would have thought we were out of our minds.”

Things have changed.

International sales are a large part of the scrap metal industry. Joseph Simon & Sons has been exporting for decades, and overseas sales account for 90 percent of the company’s estimated $200 million revenue. Schnizter Steel and Calbag Metals, two other large scrap recyclers, also export metal out of Tacoma.

On a recent afternoon, Simon & Sons workers loaded a shipping container full of electrical cords. The product was headed overseas, likely to China, where manufacturers will strip the plastic casings and reuse the copper inside.

Marc Simon gets to work at 5:30 a.m. to check prices on the world markets and see if the company received offers overnight. His father and his uncle arrive shortly after, so they can make calls to customers in places such as China, India and Japan.

The United States exported $15.7 billion worth of scrap metal last year. Washington state accounted for more than $200 million, according to the state Community, Trade and Economic Development Department.

The country’s export of scrap metal has surged in recent years, right along with metal prices, said John Mothersole, a nonferrous metals analyst with Global Insight, an economic forecasting firm.

The price of scrap metal is derived from the price of the base metals, such as copper and aluminum, which have been on an upward run since about 2003.

Most of the demand is coming from China.

“It reflects the strength of investment spending there, particularly in basic infrastructure: the metals used to build the ports and roads needed to put out the goods we then buy,” Mothersole said.

According to figures from the Institute of Scrap Recycling Industries, the price of copper averaged about 81 cents per pound in 2003, compared to $3.45 per pound last month. Aluminum was at 65 cents per pound in 2003, and now the price is closer to $1.13 per pound. Iron and steel were selling at $120.56 per gross ton then, compared to $256.50 per ton last month. The consistently strong market is a new frontier for those in the scrap industry, whose veterans are used to volatile cycles with fast rises in prices and corresponding steep drops.

ABOVE GROUND MINING

Large scrap metal recyclers get their material from a few places: smaller recyclers, industrial manufacturers and junk peddlers.

In one section of the Joseph Simon & Sons facility, there are dryer-sized boxes of curlicue aluminium scrap – leftovers from a local aerospace contractor. Large chunks of titanium molds – also remnants of an aerospace manufacturer – sit on a pallet in another part of the yard.

And there are sources like Bobby White.

The Lakewood man calls himself a traditional recycler. He’s been visiting Joseph Simon & Sons almost daily since 1968. He mines the world of used metal goods, picking up junk from people’s homes and the occasional thrift store and selling them to the scrap yards.

On a recent, misty Tuesday afternoon, White and his partner unloaded their wares from his truck: old lamp parts, metal tables, crutches, even a toy-sized, metal shopping cart.

“I just pick up stuff for free if people want to get rid of it,” White said. “I do aluminum, copper – everything but refrigerators.”

White said the past few years have been good for business.

The high prices have paid off for legitimate junk peddlers but have contributed to an increase in copper and metal theft. In the South Sound, thieves have stolen wiring from local parks, sports fields and construction sites, and even pilfered a copper gong from a Federal Way yoga studio. The rash of crime led 20 states, including Washington, to pass laws this year aimed at cracking down on shady scrap-metal sales, according to stateline.org.

Bona fide recyclers are doing their part, the Simons said. The Tacoma company checks the IDs of people who sell them metal and sends checks to people who earn more than $30 from their scrap. Tacoma scrap recyclers have said they won’t take items that seem suspicious or stolen.

Buying and selling scrap metal is as fast-paced as trading shares on the stock market.

Inside the Simon & Sons office, computer monitors at staff desks track changing metal prices on the London Metal Exchange and COMEX.

Outside, whirring conveyor belts move and cut wire into bits. Welders dismantle large chunks of metal machinery. Forklifts haul bales of metal roofing and bricks of crushed aluminum cans.

Peddlers such as White bring in small truckloads of goods, while semis line up to pick up outgoing containers.

The company moves 36,000 tons of nonferrous scrap metal, including aluminum and copper, each year and about 48,000 tons of scrap steel and iron. In addition, Simon & Sons also brokers 30,000 tons of metal material annually, buying and selling the goods but never bringing them to Tacoma.

A NEW WORLD, A SOLID FUTURE

The metals market is now at a turning point, and the dramatic growth in prices is likely to slow, said analyst Mothersole.

Usually a collapse in demand puts an end to price runs, he said. This time that doesn’t seem to be the case.

Instead, he’s forecasting more of a price correction in some metals, including copper, and slower growth – but growth nonetheless – overall.

Even if some prices dip, he noted, the increases of the past couple years have created a higher plateau for the market.

In Tacoma, scrap recyclers say the overseas sales have stabilized their industry.

The companies have their eyes on emerging markets – and their finger on the pulse of the world’s economy.

In one conversation, the Simon brothers talked of growing demand in Vietnam and Malaysia, their Indian customer that imports metals from Tacoma for castings only to send them to Seattle to be distributed, and the Iranian president’s speech at Columbia University.

For now, Phil Simon has his eye on the weakening dollar, something that bodes well for his industry, as overseas customers can pay more for scrap metal, but not so much for Americans, who rely heavily on imported goods.

“The outlook for scrap is very good,” he said. “The long-term is good because we are in a global economy and people can afford to buy scrap.”

http://www.thenewstribune.com/business/story/173275.html

Diversify Your Income

– FREE Report “10 Reasons Gold Has Farther to Run”

Alex’s Notes: Just posted the bottom of the article. Link for the whole thing is at the bottom.

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According to Rogers, investors shouldn’t own dollar-denominated investments – especially currency or bonds – right now. He actually sold U.S. investment banks short some time ago. He also recently sold all his emerging markets investments, except for China, which he’d like to hold “forever.”

He advocated investments in the Japanese Yen, the Chinese Renminbi (Yuan), the Swiss Franc, and perhaps other Asian currencies, too.

But there’s one real long-term play to make here: Buy commodities, Rogers said. Stay away from wheat, which has soared nearly vertically in the past few months, and will likely consolidate, at some point. But Rogers likes most other agricultural commodities, specifically mentioning cotton, sugar and coffee. [For a related story on agricultural commodities - which includes some potential investment opportunities - please click here.]

Rogers has long been an major advocate of China – as both a great long-term investment, and as the world’s next great country: In fact, he has a new book – A Bull in China: Investing Profitably in the World’s Greatest Market – scheduled for publication in December.

Even so, Rogers warned that China could well be experiencing a stock-market bubble. The country is actively working to try and control growth and inflation, but the very inefficiency of its not-fully-formed capital markets may make that impossible.

Even so, given how the Fed is mismanaging the U.S. monetary system, Rogers said he’d rather have the Chinese central bank on his side than the U.S. Federal Reserve.

“They are doing their best,” he said of the inflation-fighting efforts of China’s central bank.

But even if that market bubble were to burst, it might not accurately reflect the soundness of the underlying China economy, which Rogers said remains quite strong. One thing, he said, may have nothing to do with the other.

In other words, should China’s soaring stock market prove to be a bubble that bursts, it will certainly be the ‘Worst of Times’ for investors. But it will remain the ‘Best of Times’ for China’s workers, who care little about how many vacation days they get when they start a new job there. Indeed, Rogers says that all they care about is how many days they can work.

If we look at that statement very closely, I believe that we’ve been given yet one more snippet of wisdom from one of the investing world’s few true masters.

Money Morning

Alex’s Notes: Very long article, posted in its entirety because the whole thing is that good.

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by F. William Engdahl
Global Research, October 14, 2006

Text of author’s presentation at an international conference held in Feldkirch, Austria, September 2003.

It’s accepted wisdom that the United States, despite recent problems, is still the strongest growth locomotive for the world economy, the pillar of the global system. What if we were to discover that, instead of being the pillar, that the United States was, in fact, the heart of a dysfunctional economic system, which is spreading instability, unemployment, and depression globally?

No other nation on earth comes near to the commanding US military superiority in smart bombs, military IT, or in sheer force capabilities. The US position in the world since 1945, and especially since 1971, has rested on two pillars, however: The superiority of the US military over all, and, the role of the dollar as world reserve currency. That dollar is the Achilles heel of American hegemony today.

In my view, the world has entered a new, highly dangerous phase since the collapse of the US stock market bubble in 2001. I am speaking about the unsustainable basis of the very Dollar System itself. What is that Dollar System?

How the Dollar System works

After 1945, the US emerged from war with the world’s gold reserves, the largest industrial base, and a surplus of dollars backed by gold. In the 1950’s into the 1960’s Cold War, the US could afford to be generous to key allies such as Germany and Japan, to allow the economies of Asia and Western Europe to flourish as a counter to communism. By opening the US to imports from Japan and West Germany, a stability was reached. More importantly, from pure US self-interest, a tight trade area was built which worked also to the advantage of the US.

That held until the late 1960’s, when the costly Vietnam war led to a drain of US gold reserves. By 1968 the drain had reached crisis levels, as foreign central banks holding dollars feared the US deficits would make their dollars worthless, and preferred real gold instead.

In August 1971, Nixon finally broke the Bretton Woods agreement, and refused to redeem dollars for gold. He had not enough gold to give. That turn opened a most remarkable phase of world economic history. After 1971 the dollar was fixed not to an ounce of gold, something measurable. It was fixed only to the printing press of the Treasury and Federal Reserve.

The dollar became a political currency—do you have “confidence” in the US as the defender of the Free World? At first Washington did not appreciate what a weapon it had created after it broke from gold. It acted out of necessity, as its gold reserves had got dangerously low. It used its role as the pillar of NATO and free world security to demand allies continue to accept its dollars as before.

Currencies floated up and down against the dollar. Financial markets were slowly deregulated. Controls were lifted. Offshore banking was allowed, with unregulated hedge funds and financial derivatives. All these changes originated from Washington, in coordination with New York banks.

The dollar debt paradox

What soon became clear to US Treasury and Federal Reserve circles after 1971, was that they could exert more global influence via debt, US Treasury debt, than they ever did by running trade surpluses. One man’s debt is the other’s credit. Because all key commodities, above all, oil, were traded globally in dollars, demand for dollars would continue, even if the US created more dollars than its own economy justified.

Soon, its trade partners held so many dollars that they feared to create a dollar crisis. Instead, they systematically inflated, and actually weakened their own economies to support the Dollar System, fearing a global collapse. The first shock came with the 1973 increase in oil by 400%. Germany, Japan and the world was devastated, unemployment soared. The dollar gained.

This Dollar System is the real source of a global inflation which we have witnessed in Europe and worldwide since 1971. In the years between 1945 and 1965, total supply of dollars grew a total of only some 55%. Those were the golden years of low inflation and stable growth. After Nixon’s break with gold, dollars expanded by more than 2,000% between 1970 and 2001!

The dollar is still the only global reserve currency. This means other central banks must hold dollars as reserve to guarantee against currency crises, to back their export trade, to finance oil imports and such. Today, some 67% of all central bank reserves are dollars. Gold is but a tiny share now, and Euros only about 15%. Until creation of the Euro, there was not even a theoretical rival to the dollar reserve currency role.

What is little understood, is how the role of US trade deficits and the Dollar System are connected. The United States has followed a deliberate policy of trade deficits and budget deficits for most of the past two decades, so-called benign neglect, in effect, to lock the rest of the world into dependence on a US money system. So long as the world accepts US dollars as money value, the US enjoys unique advantage as the sole printer of those dollars. The trick is to get the world to accept. The history of the past 30 years is about how this was done, using WTO, IMF, World Bank and George Soros to name a few.

What has evolved is a mechanism more effective than any the British Empire had with India and its colonies under the Gold Standard. So long as the US is the sole military superpower, the world will continue to accept inflated US dollars as payment for its goods. Developing countries like Argentina or Congo or Zambia are forced to get dollars to get the IMF seal of approval. Industrial trading nations are forced to earn dollars to defend their own currencies. The total effect of US financial and political and trade policy has been to maintain the unique role of the dollar in the world economy. It is no accident that the greatest financial center in the world is New York. It’s the core of the global Dollar System.

It works so: A German company, say BMW, gets dollars for its car sales in the USA. It turns the dollars over to the Bundesbank or ECB in exchange for Marks or Euros it can use.

The German central bank thus builds up its dollar currency reserves. Since the oil shocks of the 1970’s, the need to have dollars to import oil became national security policy for most countries, Germany included. Boosting dollar exports was a national goal. But since the Bundesbank no longer could get gold for their dollars, the issue became what to do with the mountain of dollars their trade earned. They decided to at least earn an interest rate by buying safe, secure US Treasury bonds. So long as the US had a large Budget deficit, there were plenty of bonds to buy.

Today, most foreign central banks hold US Treasury bonds or similar US government assets as their “currency reserves.” They in fact hold an estimated $1 trillion to $1.5 trillion of US Government debt. Here is the devil of the system. In effect, the US economy is addicted to foreign borrowing, like a drug addict. It is able to enjoy a far higher living standard than were it to have to use its own savings to finance its consumption. America lives off the borrowed money of the rest of the world in the Dollar System. In effect, the German workers at BMW build the cars and give it away to Americans for free, when the central bank uses the dollars to buy US bonds.

Today, the US trade deficit runs at an unbelievable $500 billion, and the dollar does not collapse. Why? In May and June alone, the Bank of China and Bank of Japan bought $100 billion of US Treasury and other government debt! Even when the value of those bonds was falling. They did it to save their exports by manipulating the Yen to dollar to prevent a rising yen.

Because the world payments system, and most importantly, the world capital markets—stocks, bonds, derivatives—are dollar markets, the dollar overwhelms all others. The European Central Bank could offer an alternative. So far it does not. It only reacts to a dollar world. German banks destroy the German economy as they rush to imitate US banks. The Dollar System is destroying the German industrial base. German national economic policy as well as Bundesbank and now ECB policy is oriented on the far smaller export sector, to maximize trade surplus dollars, or to the big banks, to attract as many dollars as possible.

China plays a key role today

The biggest dollar surplus country today is China. Globalization is in fact just a code word for dollarization. The Chinese Yuan is fixed to the dollar. The US is being flooded with cheap Chinese goods, often outsourced by US multinationals. China today has the largest trade surplus with the US, more than $100 billion a year. Japan is second with $70 billion. Canada with $48 bn, Mexico with $37 bn and Germany with $36 bn make the top 5 trade deficit countries, a total deficit of almost $300 billion of the colossal $480 deficit in 2002. This gives a clue to US foreign policy priorities.

What is perverse about this system is the fact that Washington has succeeded in getting foreign surplus countries to invest their own savings, to be a creditor to the US, buying Treasury bonds. Asian countries like Indonesia export capital to the US instead of the reverse!

The US Treasury and Greenspan are certain that its trade partners will be forced to always buy more US debt to prevent the global monetary system from collapsing, as nearly happened in 1998 with the Russia default and the LTCM hedge fund crisis.

Washington Treasury officials have learned to be masters at the psychology of “monetary chicken.” Treasury Secretary Snow used an implied threat of letting the dollar collapse, after the Iraq war, to warn Germany about the risk of trying to be too close to France with the Euro. Some weeks after the dollar had fallen sharply, and German export industry was screaming pain, Snow reversed his stand and the dollar stabilized. Now the dollar again rises as foreign money flows back in.

But debt must be repaid you say? Does it ever? The central banks just keep buying new debt, rolling the old debts over. The debts of the USA are the assets of the rest of the world, the basis of their credit systems!

The second key to the Dollar System deals with poorer debtor countries. Here the US influence is strategic in the key multilateral institutions of finance—World Bank and IMF, WTO. Entire countries like Argentina or Brazil or Indonesia are forced to devalue currencies relative to the dollar, privatize key state industries, cut subsidies, all to repay dollar debt, most often to private US banks. When they resist selling off their best assets, tehy are charged with being corrupt. The growth of offshore money centers in the Caribbean, a key part of the drug money cycle, is also a direct consequence of the decisions in Washington in the 1970’s and after, to deregulate financial markets and banks. As long as the dollar is the global currency, the US gains, or at least its big banks.

This is a kind of Dollar Imperialism more slick than anything the British Empire even dreamed of. It is a part of the current America “Empire” debate no one mentions. Instead of the US investing in colonies like England to earn profits on the trade, the money comes from the client states into the US economy. The problem is that Washington has allowed this perverse system to get out of all control to the point today it threatens to bring the entire world to the point of collapse. Had the US instead promoted long-term policy of investing in the economic growth and self-sufficiency of countries like Argentina or Congo, rather than bleeding them in repayment of unpayable dollar debts, the world would look far less unstable today.

The internal debt bomb in the USA

The question is if the Dollar System is reaching its real limits? The Dollar System for the past 30 years has been built on growing dollar debt. What if the rest of the world decides it no longer wants to give its savings to the US Treasury to finance its deficits or its wars? What if China decides that it should diversify its risk by buying Euro debt? Or Japan or Russia? That day may come sooner than we think.

In addition to colossal debts to the rest of the world, the US internal debt burdens have reached alarming levels in the past three decades, especially the past decade.

The total US debt—public and private—has more than doubled since 1995. It is now officially over $34 trillion. It was just over $16 trillion in 1995, and “only” $7 trillion in 1985. Most alarming it has grown faster than income to service it, or GDP.

Since the Asia crisis in 1998, the US debt situation has exploded. The heart of the debt explosion is in US private consumer debt. And the heart of consumer debt is the home mortgage debt growth, helped by two semi-government agencies—Fannie Mae and Freddie Mac. Since 2001 and the collapse of the stock market wealth, the Federal Reserve has cut interest rates 13 times to a 45 year low.

US Households took on new home mortgage debt in the first six months this year at an annual rate of $700 billion, double the debt growth in 2000. Total mortgage debt in the US totals just under $5 trillion, double the debt in 1996. It has grown far faster than personal income per capita. That is larger than the GDP of most nations.

The aim has been to inflate a housing speculation market in order to keep the economy rolling. The cost has been staggering new debt levels. Because it was created with record low interest rates, when rates again rise, millions of Americans will suddenly find the burden impossible, especially as unemployment rises. Fannie Mae and Freddie Mac combined guarantee $3 trillion in US home mortgages. The US banking system holds much of their bonds. When the housing bubble collapses, a new banking crisis is pre-programmed as well, with JP Morgan/Chase, Wells Fargo and BankAmerica the worst.

The US economy has only managed to avoid a severe recession since the collapse of the stock market three years ago, by a record amount of consumer borrowing. “Shop until you drop” is a popular American expression. The Federal Reserve has pushed interest rates down to 1%, the lowest in 45 years. The aim is to keep the cost of the debt low such that families continue to borrow, in order to spend! Some 76% of the US economy GDP today is consumer spending. And most of that is tied to a record boom in home buying.

But the rate of new debt growth among families is rapidly reaching alarm levels, while the overall manufacturing economy continues to stagnate or decline. Today US factories only operate at 74% of capacity, near historic lows. With so much unused capacity, there is little chance companies will soon invest in new factories or jobs. They are going to China.

So Greenspan continues to rely on foreign money to prop up his consumer debt bubble, at low interest rates. Were foreign money to stop propping the US economy, now at some $2.5 billion daily, the Federal Reserve would be forced to raise its interest rates to make dollar investments more attractive. Higher rates would trigger a crisis in consumer debt, mortgage defaults, credit card and car loan failures. Higher rates would plunge the US economy into a depression. This may be about to happen, despite poor George Bush’s desires to get reelected.

There is a limit how much debt US families can pay to keep the economy afloat.

There is no US recovery, merely a debt spending boom based on this home buying explosion.

Total US household debt reached a high in June of $8.7 trillion, double that of 1994. Families are agreeing to longer debt payments for basics like homes or cars. The length of new car loans now averages 60.7 months, and the amount of car debt financed increased to $27,920, and the average new home costs $243,000.

With rapidly rising unemployment and a real economy that is not growing, at some point there will come a violent reality clash, as the market for home lending reaches its limit. At that point the danger is the consumer will stop buying, and the manufacturing economy will not be able to create new jobs and a real recovery. The jobs have gone to China!

We might already be at or very close to that point. In the past six weeks, US interest rates have risen sharply, as owners of US bonds have started to sell in panic levels, fearing the bonanza in real estate may be over, and trying to get out with some profit before bond prices collapse. The European Central Bank is advising member banks to not buy any more US Freddie Mac or government agency debts.

The problem is this process of creating debt, domestic and foreign, to keep the US economy going, has gathered so much momentum it risks destroying what remains of the US manufacturing and technology base. Henry Kissinger warned in a conference of Computer Associates in June, that the US risked destroying its own middle class, and its key strategic industries via outsourcing to China, India and other cheap areas. Today only 11% of the total workforce is in manufacturing. In 1970, it was 30%. Post-industrial America is a bubble economy about to pop.

Fed chief Greenspan even warned China about the rate of its trade increase with the US, pressuring China to upvalue the Renminbi to make its goods less competitive in dollar markets, and slow the job loss. But this is dangerous. China holds $340 billion in US Treasury bonds and other reserve assets. The US needs the Chinese dollar savings to finance its soaring deficits.

It is caught in its own web: American jobs, hi-tech jobs as well as factory jobs, are vanishing permanently as US factories source to China, India or other cheap areas. If Washington pressures China and others to cut back exports they risk to kill the goose that lays golden dollar eggs. Who will buy that growing Government dollar debt? Private bond traders are desperately trying to sell their US bonds. Germany can only buy so much dollar debt, also Japan.

The US waged war in Iraq not out of fundamental strength but fundamental weakness. It is economic weakness however, not military.

Oil and food, and money as strategic weapon

The fundamental reason for the Iraq war, beyond agendas of Richard Perle or other hawks, is hence, strategic in my view. US economic hegemony in this distorted Dollar System increasingly depends on a rising rate of support from the rest of the world to sustain US debt levels. Like the old Sorcerers’ Apprentice. But the point is past where this can be gotten easily. That is the real significance of the US shift to unilateralism and military threats as foreign policy. Europe can no longer be given a piece of the Third World debt pie as in the 1980’s. Japan has to cough up even more, as does China now.

Even ordinary Americans have to give up their pension promises. If the Dollar System is to remain hegemonic, it must find major new sources of support. That spells likely destabilization and wars for the rest of the world.

Could it be that in this context, some long-term thinkers in Washington and elsewhere have devised a strategy of establishing US military control of all strategic sources of oil for the one potential power rival, Eurasia, from Brussels to Berlin to Moscow and Beijing? The dollar vulnerability and debt problems are well known in leading policy circles.

As Henry Kissinger once noted, “Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world.”

F. William Engdahl is a Global Research Contributing Editor and author of the book, ‘A Century of War: Anglo-American Oil Politics and the New World Order,’ Pluto Press Ltd. He has completed a soon-to-be published book on GMO titled, ‘Seeds of Destruction: The Hidden Political Agenda Behind GMO’. He may be contacted through his website, www.engdahl.oilgeopolitics.net.

By Jim Jubak
10/5/2007 12:01 AM ET

The sinking U.S. dollar, and the inflation it causes, could throw the runaway Chinese economy off the tracks. And the entire globe would suffer the consequences.

Thanks to a weakening dollar, companies in the United States are selling more goods and services overseas.

But the biggest U.S. export right now isn’t tractors or ball bearings or computer consulting or anything else American industry does. Our biggest export is inflation. And our No. 1 inflation customer is China.

Why should you care? Because the damage to China’s economy could be enough to send it spinning out of control, with grim consequences for the rest of the global economy.

But first, the good news. In July, a weak U.S. dollar pushed American exports up to $138 billion, up 15% year over year. U.S. imports, meanwhile, grew to $197 billion, leaving the trade deficit at $59.2 billion, a small decline from June’s deficit of $59.4 billion. The July decline was the fourth straight monthly drop in the trade deficit.

The absolute size of the trade deficit is less important than the size of the deficit relative to the U.S. economy, and here the news is even better. Thanks to continued growth in the U.S. economy, the relatively minor drop in the trade deficit has produced a big drop in the relative size of the deficit.

From a high of 7% of GDP (gross domestic product), a worryingly high level, the trade deficit has dropped to just 5% of GDP. Another string of months with higher exports and modestly declining imports could reduce the trade deficit to a relatively benign 4% of GDP.

A pain in the wallet
That’s how a falling currency is supposed to work. A cheaper dollar encourages exports and discourages imports, leading to a gradual climb in the value of the dollar.

Ultimately, a high U.S. trade deficit hits you and me right in the wallet. Here’s how:

• When the U.S. is running a big trade deficit, our trading partners wind up holding a larger number of U.S. dollars every month. A trade deficit means we’re importing more goods and services than we export, and we wind up exporting dollars in order to pay for the excess goods.

• As those dollars build up overseas, governments, companies and individuals recycle them by buying U.S. bonds and stocks and other assets.

• This increases the exposure of these overseas owners of dollars to the risks of the U.S. currency and U.S. asset markets. If the value of the dollar declines, their dollar-denominated investments will lose value as well.

• At some point, these overseas owners of U.S. dollars start to demand higher returns — higher interest rates on Treasury bonds, for example — to offset that currency risk.

• Some may sell off a portion of their dollars, producing exactly the kind of fall in the currency that they had worried about in the first place, which leads again to a demand for higher returns.

• The higher interest rates demanded by overseas dollar holders finally start to slow economic growth in the U.S. That slowdown, plus the higher prices consumers have to pay for imported goods because of the weak dollar, takes a painful bite out of family incomes. (Or it halves or eliminates the family income, if one or both family breadwinners get laid off because of the slowdown.)

Though a weaker dollar might be great medicine to reduce the U.S. trade deficit, it confronts our trading partners with a rather stark choice: They can let their currencies rise relative to the U.S. dollar or intervene in the currency markets to keep the value of their own currency relatively stable against the dollar. Both choices hurt but in very different ways.

Canada, our biggest trading partner, is letting its currency rise. The Canadian dollar, the loonie, has reached parity with the U.S. dollar and on some days exceeded its value by a few cents. That’s a huge upward move — a 61% gain — for the Canadian currency, which was worth just 62 U.S. cents in 2002. (The Canadian dollar is called the loonie because, natch, it has a picture of a loon on it.)

That’s a boon for Canadians who want to go on a shopping spree in the United States, but it’s not such great news for the Canadian economy. Canada is on a pace, as of July, to export $550 billion in goods to the U.S. this year. That’s about 50% more than China, our second-largest trading partner. And the number looms even larger when you remember the relatively small size of the Canadian economy: At $550 billion, exports to the United States were on track to make up about 40% of Canada’s GDP in 2007. (Canada’s economy measured $1.2 trillion at the end of 2006).

With the U.S. dollar falling against the Canadian dollar, everything that Canada exports to the United States becomes more expensive. That sends some U.S. customers scurrying to look for cheaper sources of supply, perhaps inside the United States. And it makes some customers shut their wallets completely.

Economic growth in Canada, which came in at 2.6% in 2006, was forecast to drop to 2.3% or 2.2% for 2007 when economists made their projections last December. Forecasts now predict that the economy will slow even more to a 2% annual rate of growth in the third quarter of 2007.

China takes action
China has opted to intervene in the financial markets to keep its currency stable. In July 2005, when China reformed its exchange-rate system to let the yuan move in a bigger price range against the U.S. dollar, it took 8.28 yuan to buy a dollar. On Oct. 2, it took 7.51 yuan to buy a dollar. That’s a move of just 9.3%. Over the same period, the Canadian dollar gained 23.5% against the U.S. dollar, and the euro gained 18% against the U.S. dollar.

Why did the Chinese currency stay so cheap relative to the dollar (and get cheaper versus the euro and Canadian dollar)? The Chinese central bank conducted massive dollar-buying sprees to keep the value of the dollar up versus the yuan.

Without intervention, the huge influx of U.S. dollars into the Chinese economy due to China’s trade surplus with the United States would have depressed the value of the U.S. dollar against the Chinese yuan. Dollars would have been in such great supply relative to demand that the price of the currency would have dropped.

But the People’s Bank of China, the country’s central bank, took steps to make sure the drop was orderly and relatively minor. The bank bought U.S. dollars in China for yuan, removing some of the huge supply of dollars and keeping the price of the yuan from rising too rapidly against the dollar.

Just as choosing to let its currency rise cost the Canadian economy growth, trying to stabilize its currency comes with its own set of costs for China. By buying dollars for yuan, the People’s Bank was injecting huge amounts of yuan into its domestic economy. The bank tried to remove as much of that injection as it could — central bankers call this operation “sterilization” — by selling government bonds for yuan. That had the effect of removing yuan from the economy.

But it’s just about impossible to run a completely successful sterilization; you never manage to sop up all the extra money. And in China that extra money has contributed to runaway growth in China’s money supply.

The runaway train in China
When money supply grows faster than a country’s economy, the result is inflation, which is exactly what is happening to China’s economy.

Consumer inflation grew at a 4.4% annual rate in June. Food was the big culprit, with the prices of eggs and pork jumping 20% from last year’s prices. In response, the People’s Bank ordered its fifth interest-rate increase since April 27, 2006. The 0.27-percentage-point increase on one-year bank-deposit interest rates and on commercial lending took the rate paid on deposits to 3.33%. The one-year lending rate climbed to 6.84%.

In August, the bank raised rates again. That didn’t work. In September, the government reported that inflation for August had come in at a 6.5% annual rate.

So on Sept. 14, the People’s Bank raised interest rates again, to 3.87% on one-year bank deposits and 7.29% on commercial loans. Nobody expects this latest rate increase to have much effect on the runaway train that China’s economy has become. And you don’t have to be a mathematician to see that since June inflation has climbed 2.1 percentage points, while the interest rate on a commercial loan has gone up just 0.6 percentage point. The government has clearly lost ground to inflation.

The People’s Bank recently seemed to admit as much. At the end of September, the bank forecast 4.6% growth in consumer inflation for 2007 and an increase to 5% in 2008.

Why does this matter? What I wrote in my May 1 column, “Why China can’t slow down,” still goes. The faster the train goes, unfortunately, the more likelihood that it will jump the tracks when the brakes are finally put on hard. The signs of overheating continue to flash a warning.

Countries make economic decisions for all kinds of reasons. Few of them are economic in the narrowest sense, and most of them are political in the largest sense. Canada has decided to sacrifice a bit of growth and concentrate on fighting inflation, which has been stubbornly above the 2% target set by the Canadian central bank. That’s politically feasible in Canada, where unemployment recently stood at 6.3%, high by U.S. standards but the lowest in Canada in 30 years, according to Lloyds TSB Bank.

China’s government has apparently decided to sacrifice inflation to growth. A 2% GDP growth rate in China would be regime suicide. Millions of jobless workers would riot in the streets of Chinese cities. A rate of growth near 8% would be ideal, Beijing’s planners said at the beginning of 2007, because that is high enough to generate the jobs the country needs to stay even with its population growth and low enough to keep the economy from further overheating. And if it’s a question of erring on the side of more growth, rather than gambling with the uncertainties of the effect of a stronger yuan on exports — and jobs — then full steam ahead.

Whatever the cost in inflation. And whenever the day of reckoning.

Developments on a past column
“3 hot sectors where shares are scarce”: What do you do when rising prices from a supplier are squeezing your profit margins? One possibility is to buy the supplier. That’s what Steel Dynamics (STLD, news, msgs) did Oct. 2 when it offered $425 million in cash and $462 million in stock for steel-scrap recycler OmniSource, one of Steel Dynamics’ biggest suppliers.

Scrap steel is a key raw material for a minimill steel maker such as Steel Dynamics, which uses scrap rather than iron ore in much of its production. The price of scrap steel has been climbing as more minimills in the U.S. and overseas compete for limited supplies from sources such as junked autos.

This may not be Steel Dynamics’ last venture into the scrap market, either. In announcing the deal, company CEO Keith Busse said it creates “a significant platform” for an expansion into the steel-scrap and recycled-metals markets. As of today, I am leaving my target price at $56 a share by moving the schedule out to March 2008 from December 2007.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/OurBiggestExportInflation.aspx

By Tom Stevenson
Last Updated: 1:30am BST 05/10/2007

The rapid growth of sovereign wealth funds, petrodollar investors, hedge funds and private equity groups poses significant risks for the world economy, claims a report from management consultant McKinsey.

Asset bubbles, excessive lending, market distortions and bank failures are all highlighted as possible consequences of the increasingly large and influential financial players that have emerged in recent years. McKinsey’s New Power Brokers report is the result of six months’ research by the consultancy and analyses “how oil, Asia, hedge funds and private equity are shaping global capital markets”.

Author Diana Farrell says that “for all of their benefits, the rise of the power brokers also poses new risks to the global financial system”.

advertisementMs Farrell, director of McKinsey’s economics research arm, said real estate values in developed countries had increased by $30,000bn (£14,679bn) between 2000 and 2005, far outstripping economic growth. This partly reflected property purchases by petrodollar investors but was also a side-effect of lower interest rates caused by investment in government securities – especially in the US – by Middle Eastern and Asian investors.

“Another concern is that the government connections of Asian central banks and petrodollar sovereign wealth funds may introduce an element of political considerations in their investments,” says Ms Farrell.

“This could lower economic value creation and distort the signals that allow financial markets to function efficiently.” The size and leverage of hedge funds, and their increasingly illiquid investments, threatened contagion in times of financial crisis, says the report. The dramatic growth in high-yield debt, and looser lending covenants to meet demand from private equity groups, have also increased credit risk. “The evidence to date gives some reason for optimism that the risks posed are manageable; never the less, current concerns are real and justify careful monitoring,” Ms Farrell concludes.

Oil investors, Asian central banks, hedge and private equity funds collectively held $8,400bn in assets at the end of 2006. These assets had tripled since 2000 and they are now equivalent to 40pc of the size of the world’s pension funds and a similar proportion of global mutual funds. Altogether, they represent 5pc of the world’s $167,000bn in financial assets.

Crucially, the rate of growth of these four new “power brokers” is much faster than for traditional financial assets. Between 2000 and 2006, the assets held by Asian central banks grew by 20pc a year, four times as quickly as the world’s pension funds.

At the current growth rate, the assets of the four groups will exceed $20,000bn in five years’ time, 70pc of the size of the world’s pension funds.

Biggest of the four is the petrodollar gusher, which has grown rapidly after a tripling in the oil price since 2002 to up to $3,800bn in foreign financial assets. Even if the oil price were to fall back to $30 a barrel, Ms Farrell estimates, petrodollar assets would continue to grow rapidly over the next five years. Using the consultant’s base of $50 oil, an extra $1bn a day will pile up in the financial markets by 2012.

Central banks, mainly those of China and Japan, are the next most significant player, with $3,100bn held in foreign reserve assets at the end of last year. Most of this has found its way into US Treasury bonds, helping keep interest rates artificially low.

The central banks of China, South Korea and Singapore have announced plans to shift a collective $480bn into more diversified assets, potentially applying a new “liquidity bonus” to world markets.

Hedge funds are less significant but have still grown from less than $500bn in 2000 to $1,500bn today. Together with the leverage they typically employ, hedge funds could have $12,000bn of financial firepower by 2012.

Telegraph

Author: Monty Guild and Tony Danaher
“Genius, that power which dazzles mortal eyes, is often perseverance in disguise”
-Henry Willard Austin

CHINA, INDIA, GOLD AND THE POWER OF PERSERVERENCE

I just returned from a trip to China and Hong Kong. My first impression of Los Angeles International airport and the drive from LAX to our offices Monday afternoon was one of amazement how much more elegant, clean and orderly the airports and auto routes of Shanghai and Hong Kong are compared to those in Los Angeles. It seems if one was to compare just these few things, the U.S. would look like the third world country and China, the first.

The trip was fairly grueling, filled with meetings with companies, analysts and economists, late planes and a lot of information crammed into about 10 days…but it is a joy to experience the world as seen through others eyes and to see how they think and react to issues that we may recognize and react to in a much different manner. In short, it was educational and in our opinion, learning is one of life’s great joys.

Main take away points:

1. China and Hong Kong continue their economic boom, and the stock market boom there will probably continue for some time into the future. This does not mean that there will not be major declines. These declines have recently been short (often only a few weeks) and volatile. These are volatile markets, but if one buys the dips, there will be substantial rewards over the long term, in our opinion. China is currently experiencing a stock market boom and a residential real estate boom. The cause of these is the cash being built up in the banking system as a result of the fast GDP growth rate.

2. The economic growth rate in China will likely fall from about 11.5% currently to 10 to 10.5% in the next year. That is still exceptionally fast economic growth by any measure. GDP growth of 10% can probably be correlated with corporate profit growth in excess of 20% for the average company. This implies that many individuals’ wealth will be growing at a rate well in excess of 10% per annum.

Not unreasonably, these individuals will desire to maintain and grow their assets at a rate at least equal to (and hopefully in excess of) the inflation rate. As you know inflation is a growing problem in China and bank deposits in China currently pay less than 5% interest. Last month, inflation was in excess of 6%.

3. In our opinion, much like the U.S. investors in the 70’s, Chinese investors will use residential real estate, precious metals and stocks to stay in front of the inflation-led decrease in buying power of their assets.

Recently, the government has instituted new measures to discourage speculation on residential real estate. Now investors must make a down payment in excess of 50% to buy a second home. Additionally, interest rates are higher on second homes than on other real estate transactions. As money exits the residential real estate market it flows into Chinese equities.

4. China is not growing mostly due to exports. Of the current 11.5% growth rate, 9% is from domestic growth and 2.5% is from export growth. Thus, domestic demand is growing much faster than export demand. This is a positive for the valuation of stocks in China.

We have noticed over the years that countries where the growth is from domestic demand are accorded a higher valuation than markets where most of the growth is from exports. The argument is that growth in domestic demand is generally more repeatable than growth in exports. With exports, many external forces like price cutting, inventory cycles and competition impact growth and are out of the control of exporters.

5. Another positive is that even if the U.S. and possibly Europe fall into recession, China and India may slow their torrid growth rates but they will continue to enjoy very rapid growth. We believe that it is eminently reasonable to believe that this rapid growth will attract money from other markets seeking higher returns.

6. China exports more to non-Japan Asia, Japan and Europe than it exports to North America. North America is the fourth biggest export region for China, although some of the exports to other parts of the world may be further processed and re-exported to the developed North America. This does not impact total exports much.

IN MANY CASES, THE SAME STOCKS TRADE IN HONG KONG AT SUBSTANTIAL DISCOUNTS TO WHERE THEY TRADE IN CHINA

1. Many mainland China investors are shifting assets to Hong Kong. This trend is just beginning and will continue for many years. It is taking place in the form of large institutional investors now, and eventually retail investors will be able to diversify their stock market assets outside of China.

2. China has not been caught up in the credit crisis which plagued the developed world in 2007. For example, insurance companies in China are not allowed to loan on real estate at all. Thus, their holdings of bad mortgage derivative paper are very small. The perceived lesser risk of a financial accident is attracting investors to India and China.

3. The China sovereign wealth fund of $200 billion has started to invest globally. It will be called China Investment Corporation Ltd. We expect that fund to skyrocket in size over the next decade and we expect the fund to invest broadly in companies on a global basis. Initially, the focus will be on Hong Kong and Asian markets. In our opinion, this is a positive for world stock markets.

THE CREDIT CRISIS……A BOON FOR DEVELOPING MARKETS……ESPECIALLY THOSE WITH FAST GROWTH

Money is leaving developed markets in search for growth that will be uninterrupted by an economic collapse and or the meltdown of derivatives. Obviously, those countries with a balance of payments surplus and strong economic growth will be the destination for a lot more global capital in coming years.

JSMineset

Alex’s Notes: Some have argued that there is no risk of countries dropping dollar backed paper, our economy is still the worlds leader.

Isnt it?

I have been saying this for months now, if the countries of the world continue this trend of backing out of dollar backed paper, there will come a time when we are spending more running our government than the world is willing to lend us.

We currenty borrow almost $2B a day just to keep it running right now.

What happens when no one wants to lend the US any more money?

———————-

Dollar’s double blow from Vietnam and Qatar
By Ambrose Evans-Pritchard
Last Updated: 12:12am BST 04/10/2007

Vietnam is planning to cut its purchases of US Treasuries and other dollar bonds, raising fears that Asian central banks with control over two thirds of the world’s foreign reserves may soon join the flight from US assets.

The Saigon Times said this morning that the State Bank of Vietnam was abandoning the attempt to hold down the Vietnamese currency through heavy purchases of dollars. The policy is causing the economy to overheat, driving up inflation to 8.8pc.

Vietnam, which has mid-sized reserves of $40bn, is seen as weather vane for the bigger Asian powers.

Together they hold $3,575bn of foreign reserves, over 65pc of the world’s total. China leads with $1,340bn, but South Korea, Taiwan, Singapore, and even Thailand all built up massive holdings.

The concern is that once one or two members of the region jump ship, it could set off a broader scramble. None of them want to be the last one left holding a devalued asset. Vietnam’s central bank said this week that it would move “gradually” to a floating currency.

Separately, the gas-rich Gulf state of Qatar announced that it had cut the dollar holdings of its $50bn sovereign wealth fund from 99pc to 40pc, switching into investments in China, Japan, and emerging Asia.

The move is intended to increase long-term returns for future generations, but it can easily be seen as a vote of no confidence in US economic management.

The drastic shift by the Qatar Investment Authority is a warning that petro-dollar powers with some $3,500bn under management may pull the plug on the heavily endebted US economy — which needs to suck in the majority of the world’s savings just to stay afloat.

“OPEC and Asia have been the two blocks funding the US current account deficit,” said Hans Redeker, currency chief at BNP Paribas.

“Vietnam is a relatively small country but it is symptomatic of Asia. The entire region is seeing inflation move up as a result of mercantilist policies of holding down their currencies with ‘dirty floats’, which are designed to help their export sectors. They need to change monetary policy, ” he said.

There have been reports that China is already pulling out of US bonds to fund its new sovereign wealth fund. Foreign central banks slashed holdings by $32bn in the last two weeks of August. We will not know which country was responsible the Treasury’s TIC data is released in November.

Japan also has colossal reserves, now near $914bn, but it is does not face the same inflationary threat as the rest of Asia, and is in any case an intimate military ally of the United States.

It is likely to coordinate its dollar policy very closely with Washington for geo-strategic reasons.

Saudi Arabia set off jitters in the currency markets last month when it decided not to cut interest rates in lockstep with the US Federal Reserve, raising doubts about its commitment to the Saudi dollar peg. But it too has strong political reasons to stick with America.

Kuwait has already abandoned its peg, fearing that its economy would overheat if it continued to import America’s loose monetary policies.

Separately, Iran said it would soon refuse to accept dollars for its oil exports, preferring to be paid in a “more credible currency”.

It already receives 65pc of payments in euros and 20pc in yen, but insisted that the remaining 15pc in dollars entailed an excessive risk of devaluation.

The demarche is largely policitcal, since oil is a fungible commodity and the currency markets are highly liquid.

However, if a number of OPEC suppliers began demand long-term futures contracts in euros instead of dollars, this would have an impact over time.

Telegraph

——————————————————————————–

“But incompetence and inflation is what a central bank is all about! According to the Inflation Calculator, it takes $21 in 2007 dollars to buy the same stuff that $1 would have bought in 1913 when the monstrous Federal Reserve was created!”

——————————————————————————–

by The Mogambo Guru

Finally, the Federal Reserve showed its true inflationary colors, and Total Fed Credit went up by $6.6 billion last week. The significance of this is when you take another $6.6 billion in bank credit and multiply it times the current fractional-reserve multiplier (infinity), this calculates out to (according to my rough calculations) exactly 6.6 jillion gazillion umpty-ump quintillion dollars that can be created by the banks, which is just about enough money to bail out everybody in the Whole Freaking World (WFW), which (according to the bizarre current economic theory and practice) is the new purpose of a central bank; create a bubble by creating too much money and credit (which finances the bubble) and then bail everybody out of the ensuing bust by creating another bubble by creating too much money and credit again and again! Hahahaha!

This is the “genius” of Alan Greenspan? Hahaha! What a moron! Hahaha! I laugh in Utter, Utter Mogambo Contempt (UUMT), which unfortunately sounds like a sick raccoon retching and coughing, and which probably explains why, as John Hoefle at Executive Intelligence Review says in his essay, “The Bankers Know: Something Catastrophic This Way Comes”, that, “By now, most people are aware that former Federal Reserve chairman Alan Greenspan is on a ‘not my fault’ tour, proclaiming to everyone who will listen that he is not to blame for the collapse of the financial system. By saying he ‘didn’t really get it,’ Sir Alan is choosing to cloak himself in the mantle of incompetence, in the hope that he won’t go down in history as the worst central banker of all time.”

But incompetence and inflation is what a central bank is all about! According to the Inflation Calculator, it takes $21 in 2007 dollars to buy the same stuff that $1 would have bought in 1913 when the monstrous Federal Reserve was created! And even using these biased statistics, the dollar has lost half its value since 1984! That’s 14% inflation per year since just before Alan Greenspan took over the Federal Reserve! 14%!

And we are getting ready to create more money and more inflation, as the U.S. Senate approved a bill to raise the national debt limit by another $850 billion, taking the National Debt to a stunning $9.815 trillion dollars, which the government will dutifully spend as soon as they can. As Anthony Cherniawski at the Practical Investor newsletter noted in astonishment, “What is intriguing is that none of the U.S. news services are covering this event.” Indeed!

And it is not that the world needs more money or the inflation it causes, as we learn from the front page of Tuesday’s Wall Street Journal about a rare Puer tea, which went from $5 a cake last April to $35 in China recently. “Puer’s popularity,” the Journal explains, “reflects how China, awash with cash and slim on investment outlets, is primed for speculation.”

In short, too much money looking for somewhere to go! No wonder stock markets are going up, despite the utter idiocy of it!

And now add to this potent inflationary monetary cocktail the news that Chinese workers’ wages rose by 21% YOY in the first quarter, and are even higher now, and how that is going to add to a Chinese wage-price spiral of monetary-inflation, price-inflation, monetary-inflation, price-inflation that they already have, and how that means that the prices of stuff are going to freaking go to the moon for them and everybody else, and how I am going to lead off the Mogambo Evening News (MEN) with this horror tonight, and maybe deserve a Pulitzer Prize for it, that I will not win, again, because 1.) I have no talent and 2.) Everyone is against me.

Now add in the news from Tony Sagami of MoneyandMarkets.com about “The Official Launch of the China Investment Corporation.” He reports, “The China Investment Corporation (CIC) is the new $200-billion sovereign investment arm of the Chinese government.” $200 billion! Wow! The government is going to invest $200 billion sometime soon!

Along with now allowing Chinese citizens to invest in foreign countries, “All this new money is going to add even more fuel to the already red-hot China markets.” And world markets, too!

And if that is not enough, on the same page was a headline that said the same thing, namely that all of this money being created will-nilly means that “Global Scramble for Goods Gives Corporate Buyers a Lift.”

In short, grossly excessive amounts of money and credit are constantly being created and spent with unbelievable abandon, and that means inflation in consumer prices heretofore found only in nightmares, history books and old newsreels is (standing up with a groan and looking out of the window) just over the horizon over there, and is here today in the form of stock markets setting insane records and bond markets setting insane records.

It’s going to get really weird, and really ugly, really soon.

The Daily Reconing