China's Cunning Plan to Destroy the US Dollar

This economic paper might have been funny if it had appeared in The Onion, or on Fox News, and not in a serious journal of economic thought.

This rather clever argument proposes that China is 'destroying the dollar' because they are jealous and hate the US for its happiness and freedom. It is not completely new, but I have not seen it in print. Someone that I know who sometimes spreads spin and stories which they get from highly placed contacts in the banking cartel told me about this diabolical plot about five months ago as I recall.

There reminds me of a long standing corporate tactic that says if you have been doing something underhanded to someone and the shit is about to hit the fan, accuse them of doing the same thing to you first. This was standard management procedure at the multinational where I worked for many years, as it tottered towards its eventual self-destruction.

The theory promoted by this paper is funny because I did not know that Ben Bernanke is Chinese, or that the Federal Reserve is a Chinese state agency. Are the Chinese the cabal of international bankers we hear so much about? How cleverly they disguise themselves.

But it would not surprise me if a portion of the Congress is in on China's payroll. They will take money from anybody and everybody. And after all, the Chinese military were campaign contributors to Bill Clinton (remember that scandal the Clintons tried to pin on Al Gore?) just about the time he opened up trade with them despite their recent 40% currency devaluation and continuing currency peg. And China owns Wal-Mart, and Goldman Sachs, Citi, and JP Morgan there rube, don't ya know. And W doubled down on the deal and went along with this commie plot. Maybe Putin hypnotized him while the Chimp was staring into his soul.

I would file this one under "prospective scapegoats to blame when the dollar currency crisis hits" and everyone in charge denies they could have foreseen it coming. After all, the dollar is as a god, all powerful and immortal.

So this must be an economic sneak attack, a conspiracy of crafty foreign devils. Therefore it's time for a pre-emptive strike on (Venezuela/Iran/some weaker country that has something we want preferably oil). After all, the mighty dollar could NEVER fail because of pernicious abuse by a banking cartel conceived in Georgia and ratified in 1913 by a Congress anxious to go on its Christmas vacation.

Here is another clever plan for the people of the US to consider, when the puffed up dollar finally hits the wall and the Congress and Banksters deny all involvement and responsibility.

* admit that one cannot control one's compulsion for debt and fraud and rule by crooks and idiots;
* recognize a greater power that can give strength and guidance, that most definitely does not work for Goldman Sachs;
* examine past errors with the help of a sponsor (the Constitution and probably the IMF);
* make amends for these errors by cleaning up your corrupt financial system and jailing the white collar criminals involved;
* learn to live a new life by honoring a code of behavior (the Constitution), a hard currency, and give up the idea of empire;
* help others that suffer, as a benevolent US did many years ago before it was hijacked by a group of irresponsible sociopaths.

The dollar has been in the process of self-destruction since that clever Chinese agent Richard Nixon defaulted on the US gold obligations in 1971.

And of course that Sino-Soviet agent Ronald Reagan who convinced the nation that 'deficits don't matter' if it involved tax cuts for the wealthy. And the coup de grâce has been delivered by Wall Street and their crony capitalists in the government as collateral damage in the reckless promotion of self interest, corruption and fraud.

The sad truth, America, is that you were sold out by your own people for their own personal gain. And the crony capitalists and oligarchs are still leading you around by the nose, and telling you what to think, which is whatever is good for them. And this goes double for the UK.

Economic Policy Journal
Is China Executing a Cunning Sun Tzu Strategy to Destroy the Dollar and Cause an Upward Price Explosion in Gold?
By Elizabeth Brinsden
August 12, 2010

Could China be coveting the role of the next economic superpower, thereby supplanting the USA? If so, is China planning to do this by design or is it simply awaiting this result by default as a result of the total collapse of the American economic system?

Whether we like it or not, China has already become the 800 lb Gorilla in the dining room, economically speaking. We ignore this fact at our peril. Thus it may be advisable to reorientate our thinking from that of the rationalist, pragmatic thought processes which arose out of the Enlightenment and complement our thinking with something more akin to that of the Chinese.

In order to accomplish this, it is constructive to take a closer look at the ancient Chinese philosopher, Master Sun Tzu. In an earlier article , based on a book by Harro von Senger on this theme[1], I have attempted to do this in connection with the Special Drawing Rights[2], as advocated by the Chinese earlier this year. However, I will now examine this idea in the context of the the Chinese possession of US Bonds, a subject not only of relevance to these two countries, but also for the stability of the entire international economic system.

At a superficial level, it may appear to the onlooker that China has been sucked into a giant malinvestment by purchasing these bonds, but a closer look at Master Sun’s stratagems may reveal a well conceived and even cunning plan...

Read the rest of this paper here.

Whitney: Obama Is 'a Public Relations Hologram'

As you know I have been trying to 'figure out' Barack Obama and his mysterious background and equally mystifying rise to power, without having done anything notable, either in business, or civil service, or even military service. Granted, he talks one hell of a game but always seems to fall short. He seems to have less substance, far less accomplishments than his fellow actor in the White House, Ronald Reagan, who had been a governor before becoming President.

Perhaps the answer is as simple as this.

"It's hard to believe that a two-year senator from Chicago with a background in 'community organizing' presides over this elaborate and opaque system of imperial rule. He doesn't, of course. The real leaders remain hidden behind the cloak of democratic government and all of Washington's phony institutions. Obama is merely a public relations hologram, a friendly face that conceals the machinations of a global Mafia. Other people--whoever they may be--control the levers of power moving the pieces as needed to assure the best outcome for themselves and their constituents." Mike Whitney, Kill Hugo?

Well, unlike his predecessor, at least he has not tortured anyone that we know about.

SP 500 and NDX September Futures Daily Charts; Gold Daily Chart

Today we had the reaction to the FOMC announcement that I was expecting, a failure at overhead resistance that dropped down to the support at our pivot, almost exactly, and going out on the lows.

What next? It's hard to say. The best that can be said for the bulls is that the selling today was on volumes that remain light. But that is also a negative, because this means the market has not yet flushed out to the downside.

This leaves the equity market open to manipulation by the big trading desks, who will trigger a snapback rally if too many specs pile on to the short side. But the momentum is now to the downside.

I would look for the futures to test the lowest levels of the overnight trade during that session, and then a recovery and probe back down after the New York open, and most likely a snapback rally during the day to squeeze the spec shorts. At least, that it the strawman, but we'll trade the market we are given.



Cisco missed its revenue after the bell, but hit its earnings, which is a almost a slam dunk given their acquisition and holdback style of accounting. This does not bode well for the techs.



NYSE Volume



Today we had a pullback in gold to support. The traders on chatboards greatly exaggerate these moves in their chatter. Try not to fall into that trap. So far the trend is well intact.

Kotlikoff: The IMF Says That the US Is Bankrupt, and They're Right

I have not read it yet, but Kotlikoff has a book out called "Jimmy Stewart Is Dead" which was reviewed in April by Craig Heimark at Naked Capitalism.

I have not followed Kotlikoff closely and will attempt to read some of his more serious material in the near future. I did listen to a long discussion on Bloomberg television this afternoon, and he made some real sense to me, although he did not penetrate the miasma of corporate sloganeering that represents the minds of the anchors. They seem to lean to the 'cut everything that is not a subsidy to or a cashflow owned by the oligarchy' school of economic reform. And he takes that sort of supply side hoaxing to task, and harshly.

I have to take a closer look at his analysis of Social Security, which is highlighted in this Bloomberg piece (quelle surprise). But his comments on the need for reform in the financial system was point on.

He disagrees with both the supply siders and the demand siders, favoring a systemic overhaul and reform, and so my interest in what he says is obvious.

Bloomberg
U.S. Is Bankrupt and We Don't Even Know
By Laurence Kotlikoff
Aug 10, 2010

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.

Is the IMF bonkers?

No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

$4 Trillion Bill

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

(Laurence J. Kotlikoff is a professor of economics at Boston University and author of “Jimmy Stewart Is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking.” The opinions expressed are his own.)