WORLD FOREX RESERVES DROP

CLICK HERE LARGE PRINT EDITION: WORLD FOREX RESERVES DROP 

 fall-leaves-berlin-ny2This may seem tedious but we have to step back and look at today’s headlines in light of the changes happening in various FOREX reserves.  Global reserves are now dropping for the first time since the Asian Currency Crisis.  The US Dollar Crisis caused by the collapse of the US banking system is very troublesome for our trade rivals.  They can’t seem to get this one-way, free trade mess restarted.  So today, we look at lots of FOREX information and try to figure out what this means for the future.  


 

emeinel@fairpoint.net  

 

  Here is November 10, 2008 Bloomberg.com news lineup:

 

     Often times, when reading the news, it is good to see an entire group of headlines all at once.  I am experimenting with a new way of doing things here at Culture of Life News.  Presenting the large number of related-story links on this bullet format looks interesting.  Any reader’s feedback is much appreciated!

 

    Today, we will struggle yet again to understand international finance and how this impacts on domestic markets.  The entire world has gotten used to this floating currency regime launched by the world’s biggest empire, the US.  The floating currency regime was launched by President Nixon to fund US military spending and to stop the growth of foreign imports in the US.  Germany and Japan, after WWII, were utterly devastated.  Nearly all of both nation’s industrial bases were savagely bombed nearly totally into oblivion.

 

    Normally, that would have ended either country’s status as an industrial power.  Certainly, no one was very sorry that either nation lost WWII.  Both cynically sought to enslave and loot all of their neighbors.  A very serious criminal matter indeed!  But both were saved by the communists in Russia and China.  Before the Mao Zedong succeeded in displacing Chiang Kai-shek in 1948, there was a tremendous uproar here in the US leading directly to the McCarthy Red Scare hearings.  ‘Who lost China?’ led to a witch hunt of all US citizens in public positions.  

 

    The three empires that won WWII, aside from the Soviet Empire, were already very upset with Russia controlling half of Europe at the end of the war.  Now, half of Asia was gone from US/UK/French control!  So at the very top, a tactical decision was made to re-industrialize Germany and Japan as fast as possible.  A strong German/Japanese manufacturing power base would stop the spread of communism.  So the US invested very heavily in funds brand new factories in these former Axis enemy states.  By 1971, Germany and Japan were exercising their new economic power by flooding the US with goods.  Both nations had very significant tariffs and barriers back then.  

 

   I lived in Germany in 1968 and asked a lot of questions about these barriers.  The US government was so annoyed by all this, Nixon thought that all we had to do was renegotiate currency values with Europe and Japan and the flood of imports would balance out.  But alas, this never happened.  Throughout the following decades, feeble attempts at fixing the US trade deficit were tried by various authorities in the US.  The deficits got worse and worse.   The US trade negotiators were very compromised by ideology as well as connections to financial houses and corporations that were very anxious to increase US imports as much as humanly possible.

 

   Of course, they all succeeded wonderfully in this enterprise!  Since all trade negotiations are done in highest secrecy, stopping deals was nearly impossible for outsiders.  Despite this, from 1980 until 2001, ordinary people in the US would very loudly protest these negotiations and we saw increasingly boisterous and larger and larger demonstrations.

 

   The authorities hated all of this and so did most of our media.  Our mainstream media is nearly united in the enterprise of ignoring trade deficits and supporting ‘free trade.’  So it is now wonder that ‘free trade’ expanded along with the flood of red ink in the US.  We no longer see rowdy youth loudly protesting ‘free trade’ anymore.  This is due to two factors: extreme violence by the authorities and attacking and suppressing any public dissent in the US, Europe and Asia and of course, these meetings becoming extremely secretive and increasingly, held in remote locations surrounded by heavy military presence.

 

   The Real Rulers won, of course.  They are supported by several serious national powers: Germany, Japan and China.  These nations want ‘free trade’ under their own terms.  That is, the US must collude with them to maintain this present status quo and in return, they will give the US lots of credit to buy their manufactured goods.  The OPEC nations have a similar deal.  Everyone will support the value of the dollar no matter how fiat the Fed is, so long as the US runs a trade deficit with OPEC and the top three manufacturing giants of the world.

 

    Lost in all this business is the original reason for supporting Germany and Japan’s re-industrialization: Communist China!  China is still communist and is now being seen by the world as the superpower that will save everyone from the economic collapse of the US.  The US is collapsing due to too much debt.  A lot of which is owed to Japan and China!  

 Picture – Chang Kai Check museum    Photo - Looking down the stairs

 

 

      This is a photo of the spiral staircase of the tall pagoda building at the Chang Kai-shek Memorial in Taiwan.  Note the nets set at each level: to prevent suicides and falls.         

 

    This spiral staircase is a good metaphor for today’s global economic situation.  The world’s economy has grown bigger and bigger.  But as we climb the rising staircase, we are doing nearly all of this based on one thing: rising US debts.  As the world’s biggest empire seeks more and more debt so we can live beyond our means, everyone gets to rise higher on this economic tower’s stairs.  But now, the US has gotten vertigo and leaned over the edge or rather, got too fat with debts and finally busted the banister of the staircase.  And we are now falling.     

 

    As we fall, instead of being caught by the various nets set up by international bankers, international negotiators and the Real Rulers who run world trade regulations, the huge, fat US mess is so big and heavy, we are plunging through one net after another.  Over the course of the last year, we have witnessed the organizers and authorities who set up the present floating currency/free trade conditions, frantically running downstairs, trying to stop the US from crashing through yet another safety net.    

 

     A this point in time, everyone has finally decided, the best way to restart the global floating currency/free trade status quo is to simply make lending so cheap, even the deepest in debt economies can begin spending freely again.  Making lending basically ‘free’ at 0% is free lending.  The lending of funny money.  Fiat funny-money monetarist free financing.  Now, let’s go to some of today’s news stories:   IMF Urges World Leaders to Counter Global Slowdown

In a letter to G-20 and European leaders, released after a meeting in Sao Paulo, Brazil, on November 9, Strauss-Kahn said demand was falling rapidly around the world. “There is scope for fiscal expansion in many advanced and some emerging market economies; and with inflation declining, some central banks have scope for further monetary easing,” he said. *snip*

  Activity in the advanced economies is now expected to contract by ¼ percent on an annual basis in 2009, down ¾ percentage points from the October 2008 WEO projections. This would be the first annual contraction during the postwar period, although the downturn is broadly comparable in magnitude to those that occurred in 1975 and 1982.

A recovery is projected to begin late in 2009. The U.S. economy will suffer, as households respond to depreciating real and financial assets and tightening financial conditions. Growth in the euro area will be hard hit by tightening financial conditions and falling confidence. In Japan, the support to growth from net exports is expected to decline.

 

     By golly, they will get this thing going UP!  Up and up and up!  No matter how or why or if it is even good.  Just go up!  Except commodity prices.  They cause this dread condition we call ‘inflation’ according to the Real Rulers.  So if things are ‘cheap’ then there is no inflation, ergo, we can lend money at ridiculously low rates.  So what they do to goose global trade is very simple: refuse to acknowledge inflation when it is obviously raging.  And then, when the inevitable credit bubbles cause various assets and commodity bubbles to pop, we get a decline in prices which is over-counted by the ruling elites.

 

        So they can pretend that there is no inflation simply because a major bubble, which they all refuse to account for with inflation statistics, pops!  This process hammers savers.  During times of easy credit to borrowers, savers can’t get a good return on their savings versus the ravages of inflation.  When the bubbles pop, savers still can’t get anything good because these bubbles no longer pop due to central bankers raising interest rates faster than inflation.  These bubbles pop because they become utterly unsustainable!

 

        This is why we are seeing a collapse of international banking.  Credit was extended to the nth degree.  There was no limit to who or why one could get credit.  And the biggest credit hog on earth was the US.  And we are being heartily encouraged to continue to suck down more and more debts.  Instead of going on a debt diet, we are pigging out.  When the American consumers noticed that all our trade rivals were most anxious for them to continue spending, we should have been very suspicious.  Not happy.

 

        Note how, in the above article, they talk about the need to increase Japan’s exports.  This is utter insanity.  Japan has a huge, often the biggest industrial export profits of the entire planet.  China and Germany are the nearest rivals.  I still remember the past and recall clearly how the US, starting with the Bretton Woods II negotiations, was always demanding Japan and Germany open their markets to our exports and thus, balance trade.

 

      Now, the focus is entirely on getting the Japanese system going again.  No attempt is made at even appearing to push Japan to accept more imports.  This is because Japan’s biggest export item is credit.  The Japanese carry trade which floods the planet with dollars manufactured in Tokyo, is the basis of all global trade profits and the climbing staircase to the heavens.

 

    Rich nations should ditch ‘unsustainable’ lifestyles: China’s Wen

The gathering in Beijing, which is being attended by representatives from 76 nations, is focusing on the development and transfer of technology that can help tackle climate change ahead of next month’s talks on creating a new global treaty on reducing greenhouse gas emissions. 

China proposed last week that rich nations devote one percent of their economic output toward helping poor countries fight global warming.*snip* China has long resisted calls to join rich nations in setting targets for emissions cuts, saying its relatively low per capita emissions and recent emergence as a major source of greenhouse gases should exempt it from action.

Scientists said in September that China had leapfrogged the United States as the world’s biggest producer of carbon dioxide (CO2), one of the principal gases that cause global warming.

 

      Per capita, the US still produces by far, the most carbon dioxide gases.  China is rather angry about this.  The Chinese plan is for the US to ditch all aspects of our unsustainable lifestyles.  We consume much more of the world’s resources than China, per person.  The plan is to correct this.  Since we live on one planet and not two, this means the US must give some ground here and not live so extravagantly.  

 

China’s 4 trillion yuan stimulus to boost economy, domestic demand

(Xinhua) — China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.  This is a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing. A stimulus package estimated at 4 trillion yuan (about 570 billion U.S. dollars) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.

As of August 2008, as you can see from the graph, according to Alex Tanzi International Reserves were growing at the explosive annual rate of 26.5%. Suddenly, since August, Reserves have stopped growing.  In August, they were just under $7 trillion expressed in dollars, though “paper” Reserves are made up not only of dollars, but also euros, British pounds, Japanese Yen and a smaller quantity of some other currencies. It seems to me that when a huge number such as $7 trillion suddenly stops growing, it must indicate that something very serious is going on. The growth of Reserves was so severe it was really an explosion; quite abruptly, it has stalled and has actually turned negative.

 

      As we saw in the Bloomberg summary at the top, the world’s markets are going up and up because China is going to spend about $0.50 per person on rebuilding China.  I am not surprised.  I predicted this back when China had those epic blizzards last winter.  Already, this winter, Tibet was hit by a massive blizzard.  The herds of yaks and sheep had to be moved down roads plowed by the Chinese military.  Then there was that huge series of earthquakes.   

 

    China must rebuild.  The world is hoping much of this largess will spread across the planet.  But 75% of it will be spent inside China, for the Chinese and by the Chinese.  China, unlike the pathetic US, has a huge, nearly $2 trillion FOREX reserve which they can tap as the basis for this half a trillion government spending.  The US is now running a trillion in the red this year.

 

      To contrast China and the US: in China, they will have the government spend half a trillion building infrastructure and such and this is 100% funded by profits hoarded by China.  The US handed out $600 bonuses charged against future tax revenues and we all went on a very happy spending spree.  And we saw epic inflation surge during the six months this money was being handed out and then spent!  The price of food and fuel shot upwards.  Now, we are not spending much and prices are falling.  Duh.  Every penny of that huge wad was utterly wasted by inflation.  It didn’t make anything grow much except for our debts.

 

      Now it is time to talk yet again about the FOREX reserves.  China, Japan and Germany as well as OPEC will not fund our debts unless we buy their stuff and they make a good profit and most importantly, the dollar must be strong!  Or else.  The struggle to keep the dollar strong as the US government creates a trillion dollar deficit this year is quite a trick.  Since global trade has nearly totally collapsed, the accumulation of dollars in foreign FOREX reserves of our trade rivals has fallen for the first time since the Asian Currency Crisis.

 

Foreign exchange reserves – Wikipedia, the free encyclopedia

Monetary Authorities with the largest foreign reserves in 2008.

Rank Country/Monetary Authority billion USD (end of month) change in year 2007
1 Flag of the People's Republic of China People’s Republic of China $ 1905 (Sept) 1 +32.9%
2  Japan $ 997 (August) +8.7%
3  Russia $ 484.7 (November 062 [1] +xx%
Flag of Europe Eurozone $ 555 (July) +16.6%
4 Flag of the Republic of China Republic of China (Taiwan) $ 282 (August) [2] +2.7%
5  India $ 253 (Oct) 2 +64.4%
6  South Korea $ 212 (Oct) +9.7%
7  Brazil $ 205 (Aug 313 +105.9%
8  Singapore $ 175 (July) +19.1%
9  Hong Kong $ 158 (August) +14.6%
10  Germany $ 137 (August) +20.3%

 

       The US reserves are a pathetic $60 billion.  But in reality, it is now $0.  The Treasury and the Federal Reserve lend back and forth with each other, nearly exclusively, this fall.  It is very queer.  And dangerous.  Since no one is dumping the dollar totally, the effects of all this are temporarily masked.  But eventually, it will show up.  Here are some Fed Reserve statistics from this week: FRB: H.3 Release–Aggregate Reserves of Depository Institutions–November 6, 2008  

    H.3 (502)  

 Table 2
 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND THE MONETARY BASE
 Not adjusted for changes in reserve requirements(1)
 Not seasonally adjusted
 Millions of dollars
 -------------------------------------------------------------------------------------------------------------------------------------------
                    Reserves of depository institutions                                          Vault cash(5)
                  --------------------------------------                                ------------------------------------
                                                                             Reserve                    Used to                      Net
      Date                Total     Nonborrowed   Required     Monetary      balances       Total       satisfy      Surplus      carryover
                           (2)                                   base       with F.R.                  required        (7)        of reserve
                                                                 (3)          Banks                    reserves                    balances
                                                                               (4)                        (6)                         (8)
 -------------------------------------------------------------------------------------------------------------------------------------------
 Month(9)
  2007-Oct.               41499        41245         40040       828373         8286        49755        33213         16542
       Nov.               41847        41481         40150       833052         8503        48996        33343         15652
       Dec.               42701        27271         40932       836432         8179        52161        34522         17639

  2008-Jan.               44065        -1595         42424       831104         8715        53163        35349         17813
       Feb.               42778       -17379         41053       828692         8147        53651        34631         19021
       Mar.               42706       -51817         39728       832358         9754        50446        32952         17494

       Apr.               43506       -91904         41661       830494         9254        49315        34252         15063
       May                45111      -110669         43100       833974         9688        48576        35423         13153
       June               43933      -127345         41660       839085         9181        49333        34752         14581

       July               44124      -121539         42147       846462         9343        49225        34781         14444
       Aug.               44134      -123944         42146       847302         9430        50142        34704         15438
       Sep.              102584      -187521         42533       908052        67173        50443        35411         15032

       Oct. p            314962      -333357         47060      1132799       278034        51720        36929         14791

 Two weeks ending(10)
  2008-Sep. 10            44163      -125318         41908       849866         9429        49230        34735         14496          144
            24           111337      -156524         42575       915072        75753        50225        35584         14641          227

       Oct.  8           179530      -363520         43478       988653       143396        52973        36134         16839          614
            22           327605      -363542         45888      1146416       291169        51721        36436         15285          852

       Nov.  5p          415682      -259590         52067      1239747       377279        50605        38404

 

      Non-borrowed reserves were at $41 billion exactly one year ago.  As the frantic efforts to save our banking system climbed in cost, the reserves fell.  By Xmas last year, it fell to just $27 billion.  These feeble sums have to be looked at realistically: our trade rivals had systems that run at the trillion dollar level.  And our faltering system which is the basis of our entire financial systems which is by far, the biggest on earth, has one of the worst FOREX reserves on earth.      The weakness of such a system is obvious.  The US is now plunging downwards in the pagoda of power and no net can catch our fall.  Look at the numbers after 2007!  The New Year saw us $1 in the red.  Then it mushroomed.  By April, it was $91 billion.  In July, it was $-12 billion.

 

    The Japanese carry trade began its massive unwinding in July, 2007.  So it is a matter of intense curiosity that the US reserves collapsed a year later.

 

        In September this year, when I went to DC to watch democracy die, our reserves deficit was ‘only’ $18 billion.  Then, the Derivatives Beast went to work, eating up all the paper money created during the last 10 years.  The deficit more than doubled in less than three weeks!         Wow!  From October 8th to the 22nd, it more than doubled.  This was when the government tried to protect AIG from collapsing.  Since then, due to the help of our dear trade rivals who are desperate to get us back into deficit spending again, the reserves recovered a tiny bit.  It is now only $25 billion in the red.  Great. Amazing.  Aren’t we glad.

 

  Overseas central banks’ agency holdings fall again-Fed

(Reuters) – Foreign central banks’ holdings of U.S. agency securities at the Federal Reserve declined again as they continued to favor the safe haven status of Treasury debt, Fed data released on Thursday showed.  Their holdings of agency securities fell by $7.24 billion in the week ended Nov 5 to $901.87 billion, following a $8.78 billion fall in the previous week.

 

      That, I believe, is why our ‘reserves’ are  not quite so obviously getting deeper in the red.  Even fools realize that if anyone notices that ALL the US financial systems are running in the red, this means we are bankrupt.  So, to keep our credit ratings up, artificially, they are trying to desperately get our reserves back in the black.  But this strangles securities that are not the Federal Reserve.  We know that the  St. Louis Fed: Series: TOTBORR, Total Borrowings of Depository Institutions from the Federal Reserve graph clearly shows that the banking system of the US is totally bankrupt.  But the rate of borrowing has fallen slightly this last week.  It shot up to nearly $500 billion and is now ‘only’ $460 billion. 

 

picture-11  

 

     This Fed graph, by the way, is very disturbing.  Any sane person looking at it can clearly see that this is not a good thing.  It is a sign that our system is dead.      

 

FRBSF Economic Letter 2005-17; July 29, 2005What If Foreign Governments Diversified Their Reserves?

World financial markets paid close attention when officials from both South Korea and Japan said that their governments were considering diversifying their holdings of foreign reserves (Dougherty 2005 and Koizumi 2005). Many analysts thought these announcements were partly in response to the past depreciation of the dollar; if true, then it seemed likely that those two governments would sell some of their dollar-denominated assets, putting further downward pressure on the dollar.  Since then, officials in both countries have insisted that they were not considering any major changes to the policy of reserve holdings. Nonetheless, the potential for a sell-off of dollar-denominated assets by foreign governments has raised some questions about the consequences of such a move. *snip*

Suppose, for example, that a country wants to see the value of its currency depreciate, so that the cost of its exports will be relatively lower and therefore more attractive to foreign buyers. The government would then buy foreign-denominated securities and pay for them with domestic currency, thus leading the domestic currency to depreciate. Governments may also intervene in the foreign exchange market to keep the local currency stable relative to another currency in order to reduce the risk of exchange rate fluctuations.

By reducing exchange rate risk, foreign governments may promote greater foreign trade and financial flows. A more dramatic use of foreign reserves may occur when the domestic currency is under a speculative “attack.” Reserves can be used as a “war chest” to defend the local currency and, by extension, the domestic financial systems, in case of future runs on their currency. Following the 1997-1998 Asian financial crises, many East Asian governments moved to accumulate large amounts of reserves to serve as collateral for their domestic financial systems and prevent future currency crises (Figure 1).

At the end of 2004, South Korea held over $200 billion in reserves, more than twice the level it held in 2000. Total worldwide foreign reserves holdings reached $3 trillion at the end of 2004, up from $2.4 trillion in 2003, with the largest holders being Japan, at $834 billion, and China, at $615 billion. Most foreign exchange reserves are held in the form of dollar-denominated securities; one reason for this is that foreign governments like the highly liquid market for U.S. Treasury securities.

As of December 2003, dollar-denominated securities accounted for roughly 70% of total reserves, while euro-denominated reserves accounted for about 20% (BIS 2004). At the end of 2004, foreign governments held $1.2 trillion of U.S. Treasury securities, almost double the $609 billion held in 2000.

Official reserve holdings

 

        World reserves were only $3 trillion in 2005.  At this point, the Fed took a look and decided it was  time to raise interest rates and stop the freight train.  But if we look at this graph above, we notice that China had less than a trillion in reserves in 2004.   And Japan’s had grown from only $350 billion to over $800 billion in just 4 years!  This should have alarmed our government.   But obviously, did not.

 

        The real horror is, this graph would have to be double in size to accommodate China’s growth in the last 4 years.  Their reserves tripled.  Taiwan’s doubled.  What really steams me is the comment of the Fed here: they assume everyone is holding Treasuries and US papers because they are ‘liquid.’  HAHAHA.  Right!         The idea that this is done for hostile reasons barely crosses the threshold.  All paper financial instruments are ‘liquid’.  None more so than the Japanese carry trade paper.  It was set up to be very, very liquid.  And I maintain, it flooded the planet with credit… denominated in dollars!  If no one wanted US dollars to hold in reserves so they could gain advantages in foreign trade markets, the liquidity of the US dollar would vanish in a flash.  It is liquid only because everyone wants it to be liquid.  When they collectively decide to not want to hold it anymore, the dollar gets very, very ‘sticky’.

 

        And evidently, FOREX reserves are shrinking, not growing.  The yen is stronger which is driving the Japanese export powers to despair.

November 10, 2008 7:00 p.m. (JST) Toyota Kyushu Unit Faces Y10bn Op Loss In FY08

(Nikkei)–Toyota’s production unit in Fukuoka Prefecture is expected to post an operating loss of over 10 billion yen for the year ending March, the first such loss since fiscal 1993. 

Toyota profits to plunge 74%

The full-year projection was downgraded to 600 billion yen, the lowest since Toyota adopted U.S. accounting standards in fiscal 1998. 

 

    Group sales are forecast to fall 12.5 percent from a year earlier to 23 trillion yen.       The yen is weakening again and Japan is hopeful the status quo will return like Tinkerbell, if we all clap very hard.  The yen is supposedly dropping because China is spending on domestic programs and is reducing its FOREX holdings?  I don’t get this.

 

        I believe the yen is dropping because all the central bankers are conspiring to make the Japanese carry trade resume.  They assume this will fix the mess that began last July.   They cannot accept the idea that the US cannot play this game forever.  They don’t care, quite frankly.  

Mortgage lenders refuse to pass on base rate cut

Britain’s biggest mortgage lenders have ignored calls from the Government to pass on yesterday’s cut in interest rates to struggling homeowners.  Only Lloyds TSB, the bank which is accepting around £5.5 billion in taxpayers cash to shore up its balance sheet, and Abbey, the UK’s second biggest lender, have promised to pass on the historic 1.5 percentage point reduction to borrowers on variable rate deals. At midday, the Bank of England announced that the cost of borrowing would fall by 1.5 points to 3 per cent in an effort to shore up the economy and stave off a deep recession. The surprise cut took the base rate to its lowest level in more than half a century.

 

     The whole problem is to get the consumers to take on more debt.  To do this, they have to make debt cheaper.  And the bankers have to cooperate.  But they cannot simply lend wildly.  They don’t have the reserves.  And we go round and round this issue.  At the very heart is the simple fact that no banking system can exist without savers.  Zimbabwe is trying this and showing the folly of such a system.  Since no one cares if Zimbabwe’s trade collapses, no one is stopping hyperinflation by holding trillions of Zimbabwean dollars.  This is a dangerous thing for the US.  We will be Zimbabwe if we don’t encourage our trade rivals to suck down all the dollars we are creating out of thin air.

 

      And world trade won’t resume unless Japan creates infinite liquidity via the 0% Japanese carry trade deals.  Last of all, here are the latest Mark It graphs for their ABX deals:   Historical ABX Graphs       From last July, when the US Treasury and the Federal Reserve began to ‘save’ everyone from the Derivatives Beast, the value of these creepy paper funds slowly moved upwards to over 50% in value compared to the original value when the funds were first traded in the open rather than secretly.  Namely, these things lost half of their value in less than a year and a half.

 

      Starting on September 12th, when the Lehman mess began, they dropped to below 45% in value.  And are heading to zero.  Already, the AA and BBB funds are rolling along at less than 10% to 0% in value.  How all this ties into the fall in foreign FOREX holdings is something I can only guess at.  But I suspect the loss of the Japanese carry trade is hammering everyone all over the place still.  And this won’t return unless the yen weakens to 120 to the dollar.  It is far from that .  But it would not surprise me to see everyone try their damnedest to do this.

46 Comments

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46 responses to “WORLD FOREX RESERVES DROP

  1. A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks

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  3. igneous

    Allowing the de industrialisation of the US, the large currency reserves , sort of makes sense if the people handling money in the US see themselves as a world economy, or the world economy as an extension of the US economy. The US to enjoyed the benefits of the world economy due to the dollar being the world currency. The us, uk and europe was like the upper class neighbourhood , japan was the industrial complex. Like a lovely global village. Of course the other nations don’t have to play that game.

  4. CK

    The easiest way to diversify is to decrease buying of one asset and buy other assets instead. As long as the portfolio is increasing in size, the new assets reduce the proportion of the portfolio held in those assets one wishes to diversify from. Better than selling, as selling will put further downward pressure on the value of the assets in the portfolio that one no longer wishes to be overly exposed to. A few quiet words to ones counterparts at other asian financial institutions and the demand for that asset ( treasury bonds, agency bonds, whatever ) slips.

  5. Watts

    Elaine: “Nixon thought that all we had to do was renegotiate currency values with Europe and Japan and the flood of imports would balance out. But alas, this never happened.”

    But it did…. temporarily.

    “Japan’s balance of payments moved from a surplus of $4.6 billion in 1971 to a deficit of nearly $10 billion in 1973″. -The Rise of Modern Japan by W.G. Beasley (1990)

    Obviously, this was politically and economically unacceptable for both Japan and the United States. So the exchange rate of yen-USD was relaxed until the US’s trade deficit had swollen.

    It hardly matters now but perhaps the elites thought they could limit the trade deficit, while not strangling Japan’s industrial development.

  6. don

    Elaine-The economic climate in American is going
    to shit. Circuit City files for BK this morning. Deutsche
    has downgraded GM to ” O” , yes Zero !!!!!!!!!!!!!!!!!!!!!!
    Dhl is laying off 8,000 in Columbus, Ohio. You
    wont need reserves, we need a new planet. Obama
    has his hands full. And most anaylst say 2009 is
    going to be worst…………

  7. Blunt Force Trauma

    Got Don’s stories here:

    Circuit City, Electronics Retailer, Seeks Bankruptcy

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aOl7tdCatQU4&refer=home

    Analyst Call: GM Goes To Zero (GM, F)

    http://www.247wallst.com/2008/11/analyst-call-gm.html

    DHL cuts 9,500 U.S. jobs

    http://money.cnn.com/2008/11/10/news/companies/dhl/

  8. Blunt Force Trauma

    GM Is Driving Toward a Bailout (Barrons)

    I hope it careens and goes of a cliff!

    http://online.barrons.com/article/SB122610931599610485.html?mod=googlenews_barrons

    Reposting this in light of the above:

    Why the GM/Cerberus/Chrysler Bailout is bad for taxpayers and doomed to fail without the benefits of a Chapter 11 filing for both Chrysler and GM

    According to this site, the following analysis was sent by a NYC bankruptcy lawyer who wishes to remain anonymous.

    Full article:

    http://www.etresoi.ch/Denis/GMetal.html

  9. Blunt Force Trauma

    Three will become one, however much we spend (Herald Sun)

    “I was at a conference yesterday where it was suggested the US should let China buy GM. I doubt that they would want to.

    But in any event there’s a much more immediate issue for us. We should let – no, damn it, demand that Toyota buy or ‘buy’ GM and Ford in Australia.

    There is only one future for a survivable local Australian car manufacturing industry. And that is if all manufacturing operations are brought together under one – Toyota – roof.”

    You’d probably have a better product 🙂

    Full article:

    http://www.news.com.au/heraldsun/story/0,21985,24632729-36281,00.html

  10. emsnews

    Yes, the bankruptcies are now taking off. AFTER the banking bankruptcies, not before! This is what is different from the Great Depression. Banks in Europe went under in 1930, our banks in 1933. This case today, our banks went under in 2007, AT THE HEIGHT OF THE HOUSING BUBBLE, not long, long afterwards.

    Also, many of the homeowners going belly up owned their homes or refinanced them in 2006-2007. Not struggling along for several years like they did in the Great Depression.

  11. Blunt Force Trauma

    Hyundai Motor denies interest in Chrysler assets (Reuters)

    See the trend developing here? Asia will finally secure and hold the last bastion of all auto manufacturing. If not Hyundai, there will be others that will step in and own GM, Ford and Chrysler or all three.

    The US is broke and they know it. Well, they do hold most of the FOREX reserves, so they should know.

    http://uk.reuters.com/article/motoringNews/idUKLNE4A907B20081110

  12. Blunt Force Trauma

    Surviving the Crash (CFO.com)

    ‘Ford and GM announce huge losses, as American carmakers lurch from disaster to disaster.’

    http://www.cfo.com/article.cfm/12585167/c_12583719?f=home_todayinfinance

  13. Blunt Force Trauma

    But this….this makes me nuts!

    AIG is becoming the ‘auto industry’ of the insurance world. Bailout after bailout and still lsoing money!

    Fitch: Government Support a Benefit for AIG; IFS Affirmed at ‘AA-‘

    ‘Actions announced this morning by American International Group, Inc. (AIG), the U.S. Treasury and the Federal Reserve provide a high level of explicit and implicit U.S. government support for AIG as the company implements its previously announced restructuring plan, according to Fitch Ratings, which has affirmed various AIG ratings and removed them from Rating Watch Evolving.’

    Full article:

    http://www.marketwatch.com/news/story/Fitch-Government-Support-a-Benefit/story.aspx?guid=%7BD4146181-5AF0-46DC-82F5-D78529BBA497%7D

  14. Blunt Force Trauma

    AIG Posts $24 Billion Loss, Fed Revises Bailout Package (istockanalyst)

    You’d think with that headline, the bailout would be less. Oh no. That what would be the thoughts of rational people. Actually, rational people would just let them die. So the Fed UPs their bailout to $150 billion!

    Have a nice day.

    “On Monday, American International Group (NYSE: AIG) reported a third-quarter net loss of $24.47 billion, or $9.05 a share compared to a profit of $$3.09 billion, or $1.19 a share, in the same quarter a year ago. This was the fourth straight quarterly loss for the insurer.Excluding one time items, operating losses totaled $3.42 per share.”

    -snip-

    “Meanwhile, the US Federal Reserve raised the size of bailout package to $150 billion after the insurer reported loss in third quarter. The Federal Reserve announced that the U.S. government would buy $40 billion worth of preferred shares in AIG as part of a revamped bail-out package.”

    Well, AIG keeps losing money. They did after their last hand-out and now you want the public to own stock in a sinking ship so that they can all go down with it the next time around. Beautiful!

    Full article:

    http://www.istockanalyst.com/article/viewarticle+articleid_2782644.html

  15. drkrbyluv

    FED REFUSES TO IDENTIFY $2,000,000,000,000.00 BANK LOANS !

    “The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.”

    “Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.”

    “It’s your money; it’s not the Fed’s money,” said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. “Of course there should be transparency.”

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=worldwide

    *~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*

    This is exactly why it was idiotic to issue special totalitarian powers to the US Treasury – it is part of the NWO conspiracy to push the debt from private banks to the private citizens and government of the United States.

    By providing the collateral for these loans we are effectively assuming their rotten liability so they can maintain the assets to eventually enslave us after we’re bankrupt.

    They have already warned us that “Obama will be tested” in some earth shattering way.

    “Echoing Vice President-Elect Joe Biden’s promise of a generated crisis and Colin Powell’s revelation of a crisis that will happen on January 21 or 22, we now have the president of the Council on Foreign Relations and Biderberger Richard Haas’ similar predictions of doom and gloom scheduled for President-Elect Obama.”

    “While foreign leaders may or may not choose to test Obama, “the one thing I’m sure of is, events will test him,” “There will be coups. … There will be genocide. … There will be terrorism.”

    http://tinyurl.com/5d9gua

    *~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*

    When the CFR/Biderberger bastard Richard Haas talks about terrorism, we should listen because he represents the worlds biggest and most dangerous terrorist organization on the planet. THEY are the ones planning the mayhem – a diversion from our financial woes.

    Out of chaos…

    Problem – Reaction – Solution
    (Thesis – Antithesis – Synthesis)

    Getting tired of being pissed on by the NWO?

    END the FED
    11:22:08

  16. drkrbyluv

    ‘My friends, we live in the greatest nation in the history of the world. I hope you’ll join with me as we try to change it.’

    Barack Obama

  17. ralph

    The Petro-dollar recycling is DEAD. How can the OPEC countries fund our current account deficit, and budget deficit now that oil prices have collapsed by more than 50%??? China is obviusly spending its $ at home, and on vital commodities and water exploration and filtration. The US dollar international payment and settlement system is COLLAPSING FAST. Nov 15th is the beginning of Amerika’s chapter 11 bankruptcy.

  18. Bear of Little Brain

    This forex issue was raised by Hugo Salinas Price a few days ago:
    http://tinyurl.com/5vauqt

    He had no explanation, merely raising the issue. On the basis that “fools rush in…” I pointed out to him that his graph was, perhaps, a little alarmist since:
    1) he was using a linear rather than a logarithmic y-axis, hence exaggerating percentage increases and their accumulative aspect
    2) he had chosen to change the time axis in order to show this recent decline.

    If you look at his graph and compensate for his expanded recent data, you will see that there were also declines in the ’80’s and around 1997. If there is an explanation, presumably the answer may be found there. I have had no reply from Mr. Price, so I guess he is still puzzling this.

    Carry trade comment:
    With all major economies slashing rates, it’s hard to see where a carry trade could begin unless Japan goes below 0%. Oh, wait, didn’t Iceland just go to 15% or so? Or was it the Thai baht? 😉

    Be interesting to see if Crash Gordon will use his banks (e.g., Northern Rock) to force his policies through irrespective of the bastards we’ve bailed out. He does have Stalinist tendencies. Loathsome man.

    Totally worthless comments on markets: probably no point in bothering to do anything until next weekend’s Gsome-big-number meeting; wouldn’t be surprised to see JPM take gold down Friday after UK market closes. More than half expecting another leg down in oil and silver, too. Ho, hum.

    Time for buttered toast and tea. Where’d I put the hunny?

  19. So according to Elaine’s data above, China:

    http://en.wikipedia.org/wiki/People%27s_Republic_of_China

    has 1.905 trillion in United States Dollars (USD).

    Now, I’d put forth that the value of these USD funds could be characterized as “uncertain”. Thus, if you have the funds “in the bank”, spend them while you can. Ergo the $586 billion stimuli:

    http://biz.yahoo.com/ap/081110/wall_street.html

    I have no idea how the stimuli funds are paid for in USD, but if I was China, I’d think now is the time to spend (the USD). Plus, $586 billion is only 30.76% of total reserves. This is just a bit of cashing in upfront for the sake of prudence assuming the stimuli funds are in USD’s.

    Regardless, China can place bets and all the US can do is beg for help. It sucks being bankrupt don’t it? Man the Federal Reserve has screwed things up big time – its time to End the Fed – don’t you think?

    Peace,
    Ken

  20. Can the funds be “spent” in USD? If so, how and would there not need to be some upfront announcement of this intent?

    The USD in some ways is not that different than “derivatives” in that its “tentacles” are wrapped up in all sorts of goofy paper constructs. Paper burns. Ask Gary.

    Anyhow, all of this intricacy gets a bit goofy cause the bottom line is that you can’t spend more than you make. All debts must be paid.

    Peace,
    Ken

  21. Either that — “all debts must be paid” — I suppose, or bankruptcy is formally announced so that steps can be taken for remedy. But lets be honest, when folks start playing with money they don’t have, “things” get serious mighty quick on all sorts of levels. This is just obvious.

    With that said I don’t think “grave speculative talk” about possible future events is of much value other than perhaps pushing the “fear” button. That button practically doesn’t work anymore for the savvy.

    Peace,
    Ken

  22. Fear can only go so far. DUH.

    Love is the bottom line.

    – everything & nothing.

    Love is both.
    _______
    end poem

  23. If we had anyone who gave a damn about the country, they would repeal the stupid useless bank bailout, and simply seize GM by eminent domain. About ten years ago, I read about how the president of that corporation insisted on building gas guzzlers and “sports” trucks. The management is about as intelligent as Bush The younger.

    Some will say that sounds commie and all, but who cares? I always thought Marx was 50% crackpot. Why worry about ideology so much? This is about survival, not some dippy ideological PR.

  24. nah

    A GLOBAL INTELLIGENCE BRIEFING FOR CEOs

    by HERBERT MEYER

    FOUR MAJOR TRANSFORMATIONS

    Currently, there are four major transformations that are shaping political, economic and world events. These transformations have profound implications for American business leaders and owners, our culture and on our way of life.

    1. The War in Iraq

    There are three major monotheistic religions in the world: Christianity, Judaism and Islam. In the 16th century, Judaism and Christianity reconciled with the modern world. The rabbis, priests and scholars found a way to settle up and pave the way forward. Religion remained at the center of life, church and state became separate. Rule of law, idea of economic liberty, individual rights, human rights – all these are defining point of modern Western civilization. These concepts started with the Greeks but didn’t take off until the 15th and 16th century when Judaism and Christianity found a way to reconcile with the modern world. When that happened, it unleashed the scientific revolution and the greatest outpouring of art, literature and music the world has ever known.

    Islam, which developed in the 7th century, counts millions of Moslems around the world who are normal people. However, there is a radical streak within Islam. When the radicals are in charge, Islam attacks Western civilization. Islam first attacked Western civilization in the 7th century, and later in the 16th and 17th centuries. By 1683, the Moslems (Turks from the Ottoman Empire) were literally at the gates of Vienna. It was in Vienna that the climatic battle between Islam and Western civilization took place. The West won and went forward. Islam lost and went backward. Interestingly, the date of that battle was September 11. Since the West beat them, Islam has not found a way to reconcile with the modern world.

    Today, terrorism is the third attack on Western civilization by radical Islam. To deal with terrorism, the U.S. is doing two things. First, units of our armed forces are in 30 countries around the world hunting down terrorist groups and dealing with them. This gets very little publicity. Second we are taking military action in Afghanistan and Iraq.

    These actions are covered relentlessly by the media. People can argue about whether the war in Iraq is right or wrong. However, the underlying strategy behind the war is to use our military to remove the radicals from power and give the moderates a chance. Our hope is that, over time, the moderates will find a way to bring Islam forward into the 21st century. That’s what our involvement in Iraq and Afghanistan is all about.

    The lesson of 9/11 is that we live in a world where a small number of people can kill a large number of people very quickly. They can use airplanes, bombs, anthrax, chemical weapons or dirty bombs. Even with a first-rate intelligence service (which the U.S. does not have), you can’t stop every attack. That means our tolerance for political horseplay has dropped to zero. No longer will we play games with terrorists or weapons of mass destructions.

    Most of the instability and horseplay is coming from the Middle East. That’s why we have thought that if we could knock out the radicals and give the moderates a chance to hold power, they might find a way to reconcile Islam with the modern world. So when looking at Afghanistan or Iraq, it’s important to look for any signs that they are modernizing.

    For example, women being brought into the work force and colleges in Afghanistan is good. The Iraqis stumbling toward a constitution is good.

    People can argue about what the U.S. is doing and how we’re doing it, but anything that suggests Islam is finding its way forward is good.

    2. The Emergence of China

    In the last 20 years, China has moved 250 million people from the farms and villages into the cities. Their plan is to move another 300 million in the next 20 years. When you put that many people into the cities, you have to find work for them. That’s why China is addicted to manufacturing; they have to put all the relocated people to work. When we decide to manufacture something in the U.S., it’s based on market needs and the opportunity to make a profit. In China, they make the decision because they want the jobs, which is a very different calculation.

    While China is addicted to manufacturing, Americans are addicted to low prices. As a result, a unique kind of economic codependency has developed between the two countries. If we ever stop buying from China, they will explode politically. If China stops selling to us, our economy will take a huge hit because prices will jump. We are subsidizing their economic development; they are subsidizing our economic growth.

    Because of their huge growth in manufacturing, China is hungry for raw materials, which drives prices up worldwide. China is also thirsty for oil, which is one reason oil is now over $100 a barrel. By 2020, China will produce more cars than the U.S. China is also buying its way into the oil infrastructure around the world. They are doing it in the open market and paying fair market prices, but millions of barrels of oil that would have gone to the U.S. are now going to China. China’s quest to assure it has the oil it needs to fuel its economy is a major factor in world politics and economics.

    We have our Navy fleets protecting the sea lines, specifically the ability to get the tankers through. It won’t be long before the Chinese have an aircraft carrier sitting in the Persian Gulf as well. The question is, will their aircraft carrier be pointing in the same direction as ours or against us?

    3. Shifting Demographics of Western Civilization

    Most countries in the Western world have stopped breeding. For a civilization obsessed with sex, this is remarkable. Maintaining a steady population requires a birth rate of 2.1 In Western Europe, the birth rate currently stands at 1.5, or 30 percent below replacement. In 30 years there will be 70 to 80 million fewer Europeans than there are today. The current birth rate in Germany is 1.3. Italy and Spain are even lower at 1.2. At that rate, the working age population declines by 30 percent in 20 years, which has a huge impact on the economy. When you don’t have young workers to replace the older ones, you have to import them.

    The European countries are currently importing Moslems. Today, the Moslems comprise 10 percent of France and Germany, and the percentage is rising rapidly because they have higher birthrates. However, the Moslem populations are not being integrated into the cultures of their host countries, which is a political catastrophe. One reason Germany and France don’t support the Iraq war is they fear their Moslem populations will explode on them. By 2020, more than half of all births in the Netherlands will be non-European.

    The huge design flaw in the postmodern secular state is that you need a traditional religious society birth rate to sustain it. The Europeans simply don’t wish to have children, so they are dying. In Japan, the birthrate is 1.3. As a result, Japan will lose up to 60 million people over the next 30 years. Because Japan has a very different society than Europe, they refuse to import workers. Instead, they are just shutting down. Japan has already closed 2,000 schools, and is closing them down at the rate of 300 per year. Japan is also aging very rapidly. By 2020, one out of every five Japanese will be at least 70 years old. Nobody has any idea about how to run an economy with those demographics.

    Europe and Japan, which comprise two of the world’s major economic engines aren’t merely in recession, they’re shutting down. This will have a huge impact on the world economy, and it is already beginning to happen. Why are the birthrates so low? There is a direct correlation between abandonment of traditional religious society and a drop in birth rate, and Christianity in Europe is becoming irrelevant.

    The second reason is economic. When the birth rate drops below replacement, the population ages. With fewer working people to support more retired people, it puts a crushing tax burden on the smaller group of working age people. As a result, young people delay marriage and having a family. Once this trend starts, the downward spiral only gets worse. These countries have abandoned all the traditions they formerly held in regard to having families and raising children.

    The U.S. birth rate is 2.0, just below replacement. We have an increase in population because of immigration. When broken down by ethnicity, the Anglo birth rate is 1.6 (same as France) while the Hispanic birth rate is 2.7. In the U.S., the baby boomers are starting to retire in massive numbers. This will push the elder dependency ratio from 19 to 38 over the next 10 to 15 years. This is not as bad as Europe, but still represents the same kind of trend.

    Western civilization seems to have forgotten what every primitive society understands-you need kids to have a healthy society. Children are huge consumers. Then they grow up to become taxpayers. That’s how a society works, but the postmodern secular state seems to have forgotten that. If U.S. birth rates of the past 20 to 30 years had been the same as post-World War II, there would be no Social Security or Medicare problems.

    The world’s most effective birth control device is money. As society creates a middle class and women move into the workforce, birth rates drop. Having large families is incompatible with middle class living.

    The quickest way to drop the birth rate is through rapid economic development. After World War II, the U.S. instituted a $600 tax credit per child. The idea was to enable mom and dad to have four children without being troubled by taxes. This led to a baby boom of 22 million kids, which was a huge consumer market. That turned into a huge tax base. However, to match that incentive in today’s dollars would cost $12,000 per child.

    China and India do not have declining populations. However, in both countries, there is a preference for boys over girls, and we now have the technology to know which is which before they are born. In China and India, families are aborting the girls. As a result, in each of these countries there are 70 million boys growing up who will never find wives. When left alone, nature produces 103 boys for every 100 girls. In some provinces, however, the ratio is 128 boys to every 100 girls.

    The birth rate in Russia is so low that by 2050 their population will be smaller than that of Yemen. Russia has one-sixth of the earth’s land surface and much of its oil. You can’t control that much area with such a small population. Immediately to the south, you have China with 70 million unmarried men who are a real potential nightmare scenario for Russia.

    4. Restructuring of American Business

    The fourth major transformation involves a fundamental restructuring of American business. Today’s business environment is very complex and competitive. To succeed, you have to be the best, which means having the highest quality and lowest cost. Whatever your price point, you must have the best quality and lowest price. To be the best, you have to concentrate on one thing. You can’t be all things to all people and be the best.

    A generation ago, IBM used to make every part of their computer. Now Intel makes the chips, Microsoft makes the software, and someone else makes the modems, hard drives, monitors, etc. IBM even outsources their call center. Because IBM has all these companies supplying goods and services cheaper and better than they could do it themselves, they can make a better computer at a lower cost. This is called a fracturing of business. When one company can make a better product by relying on others to perform functions the business used to do itself, it creates a complex pyramid of companies that serve and support each other.

    This fracturing of American business is now in its second generation.

    The companies who supply IBM are now doing the same thing – outsourcing many of their core services and production process. As a result, they can make cheaper, better products. Over time, this pyramid continues to get bigger and bigger. Just when you think it can’t fracture again, it does.

    Even very small businesses can have a large pyramid of corporate entities that perform many of its important functions. One aspect of this trend is that companies end up with fewer employees and more independent contractors. This trend has also created two new words in business, integrator and complementor. At the top of the pyramid, IBM is the integrator. As you go down the pyramid, Microsoft, Intel and the other companies that support IBM are the complementors. However, each of the complementors is itself an integrator for the complementors underneath it.

    This has several implications, the first of which is that we are now getting false readings on the economy. People who used to be employees are now independent contractors launching their own businesses. There are many people working whose work is not listed as a job. As a result, the economy is perking along better than the numbers are telling us.

    Outsourcing also confused the numbers. Suppose a company like General Motors decides to outsource all its employee cafeteria functions to Marriott (which it did). It lays off hundreds of cafeteria workers, who then get hired right back by Marriott. The only thing that has changed is that these people work for Marriott rather than GM. Yet, the media headlines will scream that America has lost more manufacturing jobs.

    All that really happened is that these workers are now reclassified as service workers. So the old way of counting jobs contributes to false economic readings. As yet, we haven’t figured out how to make the numbers catch up with the changing realities of the business world.

    Another implication of this massive restructuring is that because companies are getting rid of units and people that used to work for them, the entity is smaller. As the companies get smaller and more efficient, revenues are going down but profits are going up. As a result, the old notion that revenues are up and we’re doing great isn’t always the case anymore. Companies are getting smaller but are becoming more efficient and profitable in the process.

    IMPLICATIONS OF THE FOUR TRANSFORMATIONS

    1. The War in Iraq

    In some ways, the war is going very well. Afghanistan and Iraq have the beginnings of a modern government, which is a huge step forward. The Saudis are starting to talk about some good things, while Egypt and Lebanon are beginning to move in a good direction. A series of revolutions have taken place in countries like Ukraine and Georgia.

    There will be more of these revolutions for an interesting reason. In every revolution, there comes a point where the dictator turns to the general and says, ‘Fire into the crowd.’ If the general fires into the crowd, it stops the revolution. If the general says ‘No’, the revolution continues. Increasingly, the generals are saying No because their kids are in the crowd.

    Thanks to TV and the Internet, the average 18-year old outside the U.S. is very savvy about what is going on in the world, especially in terms of popular culture. There is a huge global consciousness, and young people around the world want to be a part of it. It is increasingly apparent to them that the miserable government where they live is the only thing standing in their way. More and more, it is the well-educated kids, the children of the generals and the elite, who are leading the revolutions.

    At the same time, not all is well with the war. The level of violence in Iraq is much worse and doesn’t appear to be improving. It’s possible that we’re asking too much of Islam all at one time. We’re trying to jolt them from the 7th century to the 21st century all at once, which may be further than they can go. They might make it and they might not.

    Nobody knows for sure. The point is, we don’t know how the war will turn out. Anyone who says they know is just guessing.

    The real place to watch is Iran. If they actually obtain nuclear weapons it will be a terrible situation. There are two ways to deal with it. The first is a military strike, which will be very difficult. The Iranians have dispersed their nuclear development facilities and put them underground. The U.S. has nuclear weapons that can go under the earth and take out those facilities, but we don’t want to do that.

    The other way is to separate the radical mullahs from the government, which is the most likely course of action. Seventy percent of the Iranian population is under 30. They are Moslem but not Arab. They are mostly pro-Western. Many experts think the U.S. should have dealt with Iran before going to war with Iraq. The problem isn’t so much the weapons; it’s the people who control them. If Iran has a moderate government, the weapons become less of a concern.

    We don’t know if we will win the war in Iraq. We could lose or win. What we’re looking for is any indicator that Islam is moving into the 21st century and stabilizing.

    2. China

    It may be that pushing 500 million people from farms and villages into cities is too much too soon. Although it gets almost no publicity, China is experiencing hundreds of demonstrations around the country, which is unprecedented. These are not students in Tiananmen Square. These are average citizens who are angry with the government for building chemical plants and polluting the water they drink and the air they breathe.

    The Chinese are a smart and industrious people. They may be able to pull it off and become a very successful economic and military superpower. If so, we will have to learn to live with it. If they want to share the responsibility of keeping the world’s oil lanes open, that’s a good thing. They currently have eight new nuclear electric power generators under way and 45 on the books to build. Soon, they will leave the U.S. way behind in their ability to generate nuclear power.

    What can go wrong with China? For one, you can’t move 550 million people into the cities without major problems. Two, China really wants Taiwan; not so much for economic reasons, they just want it. The Chinese know that their system of communism can’t survive much longer in the 21st century. The last thing they want to do before they morph into some sort of more capitalistic government is to take over Taiwan.

    We may wake up one morning and find they have launched an attack on Taiwan. If so, it will be a mess, both economically and militarily. The U.S. has committed to the military defense of Taiwan. If China attacks Taiwan, will we really go to war against them? If the Chinese generals believe the answer is no, t hey may attack. If we don’t defend Taiwan, every treaty the U.S. has will be worthless. Hopefully, China won’t do anything stupid.

    3. Demographics

    Europe and Japan are dying because their populations are aging and shrinking. These trends can be reversed if the young people start breeding; however, the birth rates in these areas are so low it will take two generations to turn things around. No economic model exists that permits 50 years to turn things around. Some countries are beginning to offer incentives for people to have bigger families. For example, Italy is offering tax breaks for having children. However, it’s a lifestyle issue versus a tiny amount of money. Europeans aren’t willing to give up their comfortable lifestyles in order to have more children. In general, everyone in Europe just wants it to last a while longer.

    Europeans have a real talent for living. They don’t want to work very hard. The average European worker gets 400 more hours of vacation time per year than Americans. They don’t want to work and they don’t want to make any of the changes needed to revive their economies.

    The summer after 9/11, France lost 15,000 people in a heat wave. In August, the country basically shuts down when everyone goes on vacation. That year, a severe heat wave struck and 15,000 elderly people living in nursing homes and hospitals died. Their children didn’t even leave the beaches to come back and take care of the bodies. Institutions had to scramble to find enough refrigeration units to hold the bodies until people came to claim them. This loss of life was five times bigger than 9/11 in America, yet it didn’t trigger any change in French society.

    When birth rates are so low, it creates a tremendous tax burden on the young. Under those circumstances, keeping mom and dad alive is not an attractive option. That’s why euthanasia is becoming so popular in most European countries. The only country that doesn’t permit (and even encourage) euthanasia is Germany, because of all the baggage from World War II.

    The European economy is beginning to fracture. Countries like Italy are starting to talk about pulling out of the European Union because it is killing them. When things get bad economically in Europe, they tend to get very nasty politically. The canary in the mine is anti- Semitism. When it goes up, it means trouble is coming. Current levels of anti-Semitism are higher than ever.

    Germany won’t launch another war, but Europe will likely get shabbier, more dangerous and less pleasant to live in. Japan has a birth rate of 1.3 and has no intention of bringing in immigrants. By 2020, one out of every five Japanese will be 70 years old. Property values in Japan have dropped every year for the past 14 years. The country is simply shutting down. In the U.S. we also have an aging population. Boomers are starting to retire at a massive rate. These retirements will have several major impacts:

    Possible massive selloff of large four-bedroom houses and a movement to condos.

    An enormous drain on the treasury. Boomers vote, and they want their benefits, even if it means putting a crushing tax burden on their kids to get them. Social Security will be a huge problem. As this generation ages, it will start to drain the system. We are the only country in the world where there are no age limits on medical procedures.

    An enormous drain on the health care system. This will also increase the tax burden on the young, which will cause them to delay marriage and having families, which will drive down the birth rate even further.

    Although scary, these demographics also present enormous opportunities for products and services tailored to aging populations. There will be tremendous demand for caring for older people, especially those who don’t need nursing homes but need some level of care. Some people will have a business where they take care of three or four people in their homes. The demand for that type of service and for products to physically care for aging people will be huge.

    Make sure the demographics of your business are attuned to where the action is. For example, you don’t want to be a baby food company in Europe or Japan. Demographics are much underrated as an indicator of where the opportunities are. Businesses need customers. Go where the customers are.

    4. Restructuring of American Business

    The restructuring of American business means we are coming to the end of the age of the employer and employee. With all this fracturing of businesses into different and smaller units, employers can’t guarantee jobs anymore because they don’t know what t heir companies will look like next year. Everyone is on their way to becoming an independent contractor.

    The new workforce contract will be: Show up at the my office five days a week and do what I want you to do, but you handle your own insurance, benefits, health care and everything else. Husbands and wives are becoming economic units. They take different jobs and work different shifts depending on where they are in their careers and families. They make tradeoffs to put together a compensation package to take care of the family.

    This used to happen only with highly educated professionals with high incomes. Now it is happening at the level of the factory floor worker. Couples at all levels are designing their compensation packages based on their individual needs. The only way this can work is if everything is portable and flexible, which requires a huge shift in the American economy.

    The U.S is in the process of building the world’s first 21st century model economy. The only other countries doing this are U.K. and Australia. The model is fast, flexible, highly productive and unstable in that it is always fracturing and re-fracturing. This will increase the economic gap between the U.S. and everybody else, especially Europe and Japan.

    At the same time, the military gap is increasing. Other than China, we are the only country that is continuing to put money into their military. Plus, we are the only military getting on-the-ground military experience through our war in Iraq. We know which high-tech weapons are working and which ones aren’t. There is almost no one who can take us on economically or militarily.

    There has never been a superpower in this position before. On the one hand, this makes the U.S. a magnet for bright and ambitious people. It also makes us a target. We are becoming one of the last holdouts of the traditional Judeo-Christian culture. There is no better place in the world to be in business and raise children. The U.S. is by far the best place to have an idea, form a business and put it into the marketplace.

    We take it for granted, but it isn’t as available in other countries of the world. Ultimately, it’s an issue of culture. The only people who can hurt us are ourselves, by losing our culture. If we give up our Judeo-Christian culture, we become just like the Europeans.

    The culture war is the whole ballgame. If we lose it, there isn’t another America to pull us out.

    WOW PEOPLE ACTUALLY WRITE THIS STUFF

    http://www.cahrecords.com

    vote your paycheck

  25. Grok

    Stolen From The Internet: (A Touch Of Humor)
    ____________________________________________________________________________________

    Once upon a time in a village, a man appeared and announced to the villagers
    That he would buy monkeys for $10 each.

    The villagers seeing that there were many monkeys around, went out to the
    Forest , and started catching them.

    The man bought thousands at $10 and as supply started to diminish, the
    Villagers stopped their effort. He further announced that he would now buy
    At $20.

    This renewed the efforts of the villagers and they started catching monkeys
    Again.

    Soon the supply diminished even further and people started going back to
    Their farms.

    The offer increased to $25 each and the supply of monkeys became so little
    That it was an effort to even see a monkey, let alone catch it!

    The man now announced that he would buy monkeys at $50!

    However, since he had to go to the city on some business, his assistant
    Would now buy on his behalf.

    In the absence of the man, the assistant told the villagers. ‘Look at all
    These monkeys in the big cage that the man has collected. I will sell them
    To you at $35 and when the man returns from the city, you can sell them to
    Him for $50 each.’

    The villagers rounded up with all their savings and bought all the monkeys.

    Then they never saw the man nor his assistant ever again, only monkeys
    Everywhere!

    Now you have a better understanding of how the stock market works.

  26. drkrbyluv

    Five Things You Need to Know: Why Not Hyperinflation?

    “The assumption is that this record-breaking credit expansion means risk assets (stocks, commodities, etc.) will all skyrocket and the U.S. dollar will get destroyed. But what hyperinflationists fail to realize is that for an inflation (of either the tame or hyper variety) to take place, one must have both the means (credit from the fed and banks) and the motive (the desire to take on more debt) for credit expansion. For over a year now we have had record amounts of the former, but none of the latter. …”

    “One the most remarkable things to me is how the American people have been sold on accepting, even preferring, inflation over deflation. It is truly amazing that government and central banking bureaucrats could successfully instill the belief that lower prices for assets are bad. The reality is that lower prices are only bad for artificially-constructed economies.”

    http://globaleconomicanalysis.blogspot.com/
    (scroll down the link to find the article)

    *~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*

    Massive Zionist Slush Fund Used To Influence Presidential Election by Ralph Nader

    “To advance change and hope, the presidential persona requires character, courage, integrity– not expediency, accommodation and short-range opportunism. Take, for example, your transformation from an articulate defender of Palestinian rights in Chicago before your run for the U.S. Senate to an acolyte, a dittoman for the hard-line AIPAC lobby, which bolsters the militaristic oppression, occupation, blockage, colonization and land-water seizures over the years of the Palestinian peoples and their shrunken territories in the West Bank and Gaza. Eric Alterman summarized numerous polls in a December 2007 issue of The Nation magazine showing that AIPAC policies are opposed by a majority of Jewish-Americans.”

    http://www.americanfreepress.net/html/obama_aipac_11608.html

    Why not move our president, the Fed, GM, Wall Street and United Nations to Jerusalem – let them have them all. Just leave us alone!

  27. The assumption is that this record-breaking credit expansion means risk assets (stocks, commodities, etc.) will all skyrocket and the U.S. dollar will get destroyed. But what hyperinflationists fail to realize is that for an inflation (of either the tame or hyper variety) to take place, one must have both the means (credit from the fed and banks) and the motive (the desire to take on more debt) for credit expansion. ”

    False; look at iceland now.

  28. Off topic ,but this is really important , could change a lot of things; will anybody notice?

    http://www.guardian.co.uk/environment/2008/nov/09/miniature-nuclear-reactors-los-alamos

  29. This is way off topic, but this can change everything, will anybody notice?

    http://www.hyperionpowergeneration.com/

  30. Blunt Force Trauma

    Nah, copy/paste your articles’ url instead of copying and pasting the whole thing to here. Sort of like the one to your record company. Thanks. It’s just easier for us to not have to scroll through all of that.

  31. Blunt Force Trauma

    A bailout for the auto industry? (socialistworker.org)

    Lee Sustar looks at the automakers’ demands for a taxpayer bailout–and what working people should demand in return.

    http://socialistworker.org/2008/11/10/bailout-for-auto

  32. djcrow22

    Herbert Meyer, another neocon dead man walking…

  33. Blunt Force Trauma

    I’m not sure what to make of this. Seems like the paranoid are trying to connect imaginary dots. Or are those saying these things leaking trickles of information, cryptically?

    Warnings from world leaders all within 72 hours (my addition – of each other)

    ” number of notable public figures, to be sure; Biden, Rudd, Colin Powell, Matelaine Albright, Lord West and French Foreign Minister Bernard Kouchner. Taken alone there are plenty of ready explanations, but within 72hrs.? ”

    That is a bit misleading. Within 72 hours means that the comments within were made inside of 72 hours of each other and not that s**t will happen in 72 hours.

    Full article:

    http://www.thejerusalemgiftshop.com/israelnews/politics/80-political/335-warnings-from-world-leaders-all-within-72-hours-.html

  34. drkrbyluv

    ziff house & all –

    The whole inflation thing; or more to the point, the lack of inflation, is very confusing and seems to defy conventional wisdom. If nothing else, Professor Depew offers an alternative opinion to the fact that the US economy is not behaving in inflationary mode.

    he offers:
    – – – – – – – – – – – – – – – – – – – – – – – – – — – – – – — – – – – — – – – –

    “But what hyperinflationists fail to realize is that for an inflation (of either the tame or hyper variety) to take place, one must have both the means (credit from the fed and banks) and the motive (the desire to take on more debt) for credit expansion.”
    – – – – – – – – – – – – – – – – – – – – – – – – – — – – – – — – – – – — – – – –

    I have been reading for months that “gold is goin up; always does upon inflation” – but yet the price of gold has been down for the last few months. Commodities have been down across the board – wouldn’t the prices go up if inflation was working the economy?

    And how many times have we read that the US dollar is “toast” – but it has been rallying against most other currencies (Elaine astutely predicted that the Yen was goin up even more than the dollar while most experts were calling a dollar decline).

    By design, our financial system must be constantly injected with enough money to service our debt (supporting principle and interest payments). The only way to get the required money into our flawed system is through debt. So, what happens when there isn’t enough money being borrowed to service the debt?

    This may be where we are; the mathematical end of a system – the compounding interest is growing at an exponential rate – sucking liquidity like an expanding sponge.

    If this is where we are; then it would make sense that our corrupt government (NWO bastards) would borrow and buy everything possible – the bigger the better. What better time to nationalize everything? War debt would also be very helpful.

  35. emsnews

    Things are VERY queer right now. The old formulas are crashing. No one know why anything works or doesn’t work.

    This chaos means making money out of thin air via computers is nearly impossible. The pirates hate this. Gnomes are going nuts.

  36. Bear of Little Brain

    DrKrbyLuv:
    My guess: when there isn’t enough money being borrowed to service the debt, dollars will be printed to do just that, anyway. The debt is denominated in USD – the advantage of the reserve currency – and can easily be repaid in USD. It’s just that they will be worth less and less. That’s going to fuel the inflation that will make your gold worth keeping, even though it falls in value through this de-leveraging. The dollar has risen due to overseas investments being sold and repatriated as dollars (increased demand = higher price). Similarly, I suppose foreign holders shedding commodities will also be liquidating into USD, since commodities are all dollar-denominated. Dollar going up, gold going down isn’t a surprise. Some of that rush to pay margin calls may also have caused gold liquidation. Still, my concern is gold in GBP. Check the chart facility at BullionVault,
    http://www.bullionvault.com/
    where you can select gold in different currencies. Look at GBP over 5 years. Not looking so worrisome, is it? Also dig out a long term gold chart in USD and look at the period through the ’70’s. Note the 50% retracement before that rocket launch to $800+. these are early days. Could even see $500-$600 per ounce before this is done, but that ’70’s retracement only lasted about 18 months. If you don’t need to raise the cash to get through the next couple of years, let time do the work on gold. Well, that’s what I’m doing.
    Not sure how safe it is from confiscation, though; but I posted on that in this blog’s previous life.
    All the best.

  37. Bear of Little Brain

    Oh, my post hasn’t appeared. Testing.

  38. Bear of Little Brain

    Sorry, DRKrbyLuv, I was going to try to put your mind at ease on gold, but my missive has gone astray and I didn’t copy it and it’s past my bedtime. Ho,hum.

  39. emsnews

    Bear of Little Brain, I am still trying to straighten out the spam filter here. The only way is to keep telling it the people who post here are good people. It is a slow learner. Every time it ruins a posting, I actually go look it up and try to repost it.

    I suspect this time around, the postings are being eaten because the server is having some difficulties.

  40. N. Ron Shrubbard

    Elaine,

    I love your posts and love your site. I am so thankful that somebody exists in the world who methodically and thoroughly follows all this nonsense, and at the same time, knows what the Bank of Japan is. You even know the bulk of USD creation actually occurs in Tokyo, no matter how much contorting and distorting gymnastics the entire G7 performs in their everpresent and ongoing effort to whitewash, hide, and outright launder this.

    It is interesting that even with all the BoJ (by stealth) USD creation, of course hidden from Fed “numbers,” that they still have finally been confronted with deflationary forces and an impulse of deflation that they could not muscle back into the cave.

    I agree the current situation in no way means they have given up. Quite to the contrary, BoJ never gives up, it never forgets, and it is always hypervigilently diligent. I’ve noticed from observing the currency “market” over the past several years, BoJ uses USD/JPY = 115 as a practical working level that it considers its most important task. Even when it drop below this level for lengthy periods of time, as now, they never ever relinquish or ease the goal of getting it back above this level. If there is any way available at present, any way at all, BoJ as well as the entire G7 (possibly others secretly as well, even if contradicted by public statement releases) will get it back above 115.

    I believe the Commodity Bubble has now deflated enough, and most crucial to this topic the price of oil is now low enough, that BoJ can get very aggressive right here whenever they choose to launch a USD/JPY-jamming manipulation counteroffensive. I’m thinking any day now …

  41. Come now Dollar strength is not a mystery, from Elaines favorite Henry CK liu;

    ”Under dollar hegemony, exporting nations compete in global market to capture needed dollars to service dollar-denominated foreign capital and debt, to pay for imported energy, raw material and capital goods, to pay intellectual property fees and information technology fees. Moreover, their central banks must accumulate dollar reserves to ward off speculative attacks on the value of their currencies in world currency markets. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. Only the Federal Reserve, the US central bank, is exempt from this pressure to accumulate dollars, because it can issue theoretically unlimited additional dollars at will with monetary immunity. The dollar is merely a Federal Reserve note, no more, no less.

    Dollar hegemony has created a built-in support for a strong dollar that in turn forces the world’s other central banks to acquire and hold more dollar reserves, making the dollar stronger, fueling a massive global debt bubble denominated in dollars as the US becomes the world’s largest debtor nation.

  42. emsnews

    Except he has it totally backwards!

    Gah! Our trade rivals who are MANUFACTURERS want CHEAP currencies. So they can undersell us. But commodity markets want to be strong. So they gain value when we buy their oil, etc.

    It is so hard for people to grasp.

  43. hmm, must be missing something, you both seem right

  44. Pingback: KRUGMAN AND THE FAUX GLOBAL SAVINGS GLUT « Culture of Life News

  45. obama pakistan

    Cool Blog! Definitely deserves my Digg! 🙂

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