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Report: U.S. deficit to hit $2.29 trillion (pg. 7)
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| Trancer-X |
Uncle Sam, Your Banker Will See You Now ...
In the Hole to China
from Counterpunch
By PAUL CRAIG ROBERTS
Early this morning China let the idiots in Washington, and on Wall Street, know that it has them by the short hairs. Two senior spokesmen for the Chinese government observed that China's considerable holdings of US dollars and Treasury bonds "contributes a great deal to maintaining the position of the dollar as a reserve currency."
Should the US proceed with sanctions intended to cause the Chinese currency to appreciate, "the Chinese central bank will be forced to sell dollars, which might lead to a mass depreciation of the dollar."
If Western financial markets are sufficiently intelligent to comprehend the message, US interest rates will rise regardless of any further action by China. At this point, China does not need to sell a single bond. In an instant, China has made it clear that US interest rates depend on China, not on the Federal Reserve.
The precarious position of the US dollar as reserve currency has been thoroughly ignored and denied. The delusion that the US is "the world's sole superpower," whose currency is desirable regardless of its excess supply, reflects American hubris, not reality. This hubris is so extreme that only 6 weeks ago McKinsey Global Institute published a study that concluded that even a doubling of the US current account deficit to $1.6 trillion would pose no problem.
Strategic thinkers, if any remain who have not been purged by neocons, will quickly conclude that China's power over the value of the dollar and US interest rates also gives China power over US foreign policy. The US was able to attack Afghanistan and Iraq only because China provided the largest part of the financing for Bush's wars.
If China ceased to buy US Treasuries, Bush's wars would end. The savings rate of US consumers is essentially zero, and several million are afflicted with mortgages that they cannot afford. With Bush's budget in deficit and with no room in the US consumer's budget for a tax increase, Bush's wars can only be financed by foreigners.
No country on earth, except for Israel, supports the Bush regimes' desire to attack Iran. It is China's decision whether it calls in the US ambassador, and delivers the message that there will be no attack on Iran or further war unless the US is prepared to buy back $900 billion in US Treasury bonds and other dollar assets.
The US, of course, has no foreign reserves with which to make the purchase. The impact of such a large sale on US interest rates would wreck the US economy and effectively end Bush's war-making capability. Moreover, other governments would likely follow the Chinese lead, as the main support for the US dollar has been China's willingness to accumulate them. If the largest holder dumped the dollar, other countries would dump dollars, too.
The value and purchasing power of the US dollar would fall. When hard-pressed Americans went to Wal-Mart to make their purchases, the new prices would make them think they had wandered into Nieman Marcus. Americans would not be able to maintain their current living standard.
Simultaneously, Americans would be hit either with tax increases in order to close a budget deficit that foreigners will no longer finance or with large cuts in income security programs. The only other source of budgetary finance would be for the government to print money to pay its bills. In this event, Americans would experience inflation in addition to higher prices from dollar devaluation.
This is a grim outlook. We got in this position because our leaders are ignorant fools. So are our economists, many of whom are paid shills for some interest group. So are our corporate leaders whose greed gave China power over the US by offshoring the US production of goods and services to China. It was the corporate fat cats who turned US Gross Domestic Product into Chinese imports, and it was the "free trade, free market economists" who egged it on.
How did a people as stupid as Americans get so full of hubris?
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions. He can be reached at: [email protected]
http://www.counterpunch.org/roberts08082007.html |
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| atbell |
This article ignores a rather disturbing alternate option.
Why would the US have to honour it's debt obligations to China?
What happens then?
It also fails to take into account that there is a near run on the US dollar already. |
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| Trancer-X |
| quote: | Originally posted by atbell
This article ignores a rather disturbing alternate option.
Why would the US have to honour it's debt obligations to China?
What happens then?
It also fails to take into account that there is a near run on the US dollar already. |
The article probably doesn't bring that up for a reason and that's because those obligations really don't even matter. Plain and simple, China possesses such a large holding of Treasury bonds that it could wreck the dollar overnight if it put them on the market. The only way that we'd be able to counteract that would be to buy them back but it's quite obvious that we don't have the money. |
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| Trancer-X |
| quote: | Originally posted by occrider
Sigh ... is this the same Larry Bates who's a religious fundy that claims that the "New World Order" is leading us to socialism through the evil UN?
Yup, that's the same ignorant hick who's a disillusioned supporter of bush:
Lol fundies ... a constant amusement to me. |
It appears so. I don't speak for the man in any way but he's obviously on the right trail in regards to the NWO while he's terribly wrong about Dubya.
| quote: | | Anyway I don't know how I can make this any simpler ... you don't seem to understand what the Fed does or how it operates. |
I almost hate to say it but I'm not exactly convinced that you do either.
Maybe it's just the skeptic in me but the last place that I'd ever look for useful information on a highly secretive, quasi-governmental corporation is off of their public website. Doesn't the term 'window dressing' ring any bells? |
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| D-res |
| Bush asked congress for an additional $190,000,000,000 for this next year to be put towards the war in Iraq. That's $190,000,000,000 that doesn't even exist. |
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| atbell |
| quote: | Originally posted by Trancer-X
I almost hate to say it but I'm not exactly convinced that you do either.
Maybe it's just the skeptic in me but the last place that I'd ever look for useful information on a highly secretive, quasi-governmental corporation is off of their public website. Doesn't the term 'window dressing' ring any bells? |
The fed is not secrative at all. What the chairmen decide is rather predictable if you read up a bit.
I'd suggest this book:
http://www.amazon.com/Macroeconomic...91066107&sr=8-1
It's a university level text written by Ben Bernanke in 2005 which is intended to teach economists. Right or wrong about the theory aspect of economics is only moderately important in terms of the book. The reason it is most valuble is because it tells you how Ben thinks the whole damn thing works, which means you can get a pretty good idea of what he will do as the chairman of the fed.
The coles notes is that the board members will consider money supply, intrest rates, output levels, inflation, national savings rates, and employment levels. Then they likely argue a whole bunch in thier offices about who's calculations are valid, and then they try to use open market operations (printing money, changing intrest rates) to direct the economy. Currently the two things they are trying to balence are inflation and output. Expect Ben to lean more towards maximizing output then minimizing inflation because it seems like he thinks inflation stats are skewed high (a view I do not hold).
The fed web site is a great place to read economics related papers. Recently I've read about what people in the US have done with thier gains in refinancing mortgages (mostly consumption and paying for past consumption) and the effects of international corporations on productivity (the fact that a corporation is based out of the US or another country does not affect the rate of productivity growth, but companys that were international lead those that weren't in productivity growth by a substantial amount). |
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| Trancer-X |
| quote: | Originally posted by atbell
The fed is not secrative at all. What the chairmen decide is rather predictable if you read up a bit.
I'd suggest this book:
http://www.amazon.com/Macroeconomic...91066107&sr=8-1
It's a university level text written by Ben Bernanke in 2005 which is intended to teach economists. Right or wrong about the theory aspect of economics is only moderately important in terms of the book. The reason it is most valuble is because it tells you how Ben thinks the whole damn thing works, which means you can get a pretty good idea of what he will do as the chairman of the fed.
The coles notes is that the board members will consider money supply, intrest rates, output levels, inflation, national savings rates, and employment levels. Then they likely argue a whole bunch in thier offices about who's calculations are valid, and then they try to use open market operations (printing money, changing intrest rates) to direct the economy. Currently the two things they are trying to balence are inflation and output. Expect Ben to lean more towards maximizing output then minimizing inflation because it seems like he thinks inflation stats are skewed high (a view I do not hold).
The fed web site is a great place to read economics related papers. Recently I've read about what people in the US have done with thier gains in refinancing mortgages (mostly consumption and paying for past consumption) and the effects of international corporations on productivity (the fact that a corporation is based out of the US or another country does not affect the rate of productivity growth, but companys that were international lead those that weren't in productivity growth by a substantial amount). |
It's not secretive at all? I've asked several exec's in the banking industry about the Fed and they don't even have the slightest clue about what really goes on there and yet you have such a good idea simply from reading the Fed Chairman's book?
Don't you even bother listening to insightful individuals like Ron Paul (House Banking Committee)?
We should all just go back to sleep now :rolleyes:
Or not.
| quote: |
Revealing interview from the August, 1988 broadcast of Frank Morrow's "Alternative Views" found at archive.org. It cements Dr. Paul's place as America's leading economic prophet crying in the wilderness and a voice we ignore at our own loss. At the time of the interview, Dr. Paul was the Libertarian candidate for president. From the original description: "Former four-term Congressman Ron Paul describes the American power structure. As a member of the House Banking and Currency Committee, Paul was in a unique position to see the inner workings of economic power and control of the country, and how this power translates into political power. Paul describes how, through the control of the Federal Reserve and the banking system, the American power elite is basically out of reach of the democratic system." There's a lot of information contained. Dr. Paul rightly states that many politicians in DC aren't informed about the nature of banking or economics, a condition that serves the interests of the central banking establishment. He also rightly states that the Federal Reserve, due to its secrecy and power, is nothing less than evil. |
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| Magnetonium |
WOW, thats an amazing interview with Ron Paul, from 1988. :eyes: :eyes: :eyes: |
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| jerZ07002 |
| quote: | Originally posted by Trancer-X
.......I've asked several exec's in the banking industry....... |
Bull! branch managers of local banks don't count as banking executives. |
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| Krypton |
| quote: | Originally posted by D-res
Bush asked congress for an additional $190,000,000,000 for this next year to be put towards the war in Iraq. That's $190,000,000,000 that doesn't even exist. |
Kind of like Hitler demanding the German 9th Army relieve Berlin while the Russians had it encircled. The army no longer existed. Bush is financially deranged, as Hitler was strategically deranged. |
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| Trancer-X |
It's funny how we were all talking about this four years ago.
| quote: |
When Benjamin Franklin was Ambassador to the Court of Saint James, he was asked, 'Why is that you Colonists are prospering? Since you are all misfits and outcasts of society, how is it that you are all getting along so well and prospering?' At the time there was 100% employment in the Colonies and in response Ben Franklin replied, 'Because we issue currency according to the needs of the people, we spent our money into circulation, none of it is borrowed!' Shortly thereafter the Rothschild Bank of England promised King George III three-percent of all English Pounds with his picture on them if he would force the American Colonies to use Bank of England Notes! Within a year, there was 30% unemployment and a 'tax' on everything to pay the interest/ usury to the Bank of England! The rest is history leading up to the first Act of the new Congress, the Banking Act of 1792 to issue interest free currency in the Colonies!
Then came the demand from Alexander Hamilton to permit 'private banking', connected to the Bank of England, to co-exist with the United States Treasury Bank ~ so a twenty-year charter was issued that expired in 1812. When it was not renewed, the British attacked, burned & sacked Washington, D.C., and after four years, America agreed to another twenty-year charter that expired in 1836. Andrew Jackson hated the private banks, refused to renew their charter, had several attempts on his life, yet managed to survive. When New England cotton industrialists agitated against slavery to block southern cotton growers from establishing their own cotton industries in Mississippi, the South threatened succession. To block succession, Abraham Lincoln tried to raise an army but the Bank of England wanted 24% interest/usury, and another charter, but Lincoln's Secretary of the Treasury noted that 'Nations are Sovereign, not Banks', so $400 Million in 'U.S. Notes' were printed, interest-free, which later became the 'Lincoln Greenbacks', now called 'Silver Certificates', and these existed as 'interest-free' currency until taken out of circulation by Lyndon Baines Johnson as his first 'executive order' in 1963! John F. Kennedy attempted the same as Lincoln, i.e., print 'U.S. Notes', interest-free, to the tune of $5 Billion in two-dollar bills to 'buy-back' the Federal Reserve Bank from the Bank of England ~ but he too met the same fate as that of Lincoln ~ a hail of bullets and death! And the 'Kennedy U.S. Notes' also expired in the same 'executive order' on the same day in 1963! No more interest-free currency!
http://www.reformpartyusa-ag.org/To...sues_hq_004.htm |
| quote: | Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve banks. The Federal Reserve Board, a Government Board, has cheated the Government of the United States and he people of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government. It has done this through the maladministration of that law by which the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it.
- Louis T. McFadden, Chairman of the House Banking Committee, June 10th, 1932 |
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| Trancer-X |
| quote: | Fooled by the Numbers
by Antony P. Mueller
[Posted September 13, 2004]
Modern central banks pronounce economic and monetary stability as their target. But what they are after is not the real thing but a statistical chimera. Ludwig von Mises put it this way:
"The money equivalents as used in acting and in economic calculation are money prices, i.e. exchange ratios between money and other goods and services. The prices are not measured in money; they consist in money."
and
"All methods suggested for a measurement of the changes in the monetary unit's purchasing power are more or less unwittingly founded on the illusory image of an eternal and immutable being who determines by the application of an immutable standard the quantity of satisfaction which a unit of money conveys to him. It is a poor justification of this ill-thought idea that what is wanted is merely to measure changes in the purchasing power of money. The crux of the stability notion lies precisely in this concept of purchasing power." (p. 221)
"Price stability" is a misleading and an inherently contradictory concept. When such a construct as the price index becomes the guiding post for central banks, they will tend to produce and reinforce the very instabilities they proclaim to fight.
What is getting published as "the consumer price index" represents a statistical hodgepodge. It can be concocted in almost any way, and one can do this without violating common statistical rules. Hedonic calculation is just one example. But despite all the statistical tricks that are being invented and applied, the core issue remains unresolved: what actually is being measured by "purchasing power" and what is the value of money—other than subjective and individualistic—upon which the calculation could be based?
Along with the statistics related to the figures about the domestic and national product, the price index is one of the most unreliable, most deceiving and most abused statistical economic numbers. This is even more the case as the price index provides the basis for a series of other statistical indicators as it serves as a deflator and enters economic growth and productivity figures.
These macroeconomic numbers suffer from the illusion that the properties of an object—called "the economy"—could be objectively observed and measured. Whatever finesse will be applied to their calculation in order to make these statistics more accurate, it cannot do away with their basic invalidity that results from the impossibility of obtaining a fixed standard of measurement for value.
Attempts to measure the economy as if it were an object has its origin in government planning. Treating the economy as a whole becomes necessary for socialist central planners and under the conditions of total war. They take place under the presumption that some center with decision-making power has the proper knowledge about the means and ends of economic action. The results of these plans are well known; but while socialist-type total economic planning is off the screen even for many devout socialists, central monetary planning through the manipulation of money, credit and the exchange rate ranks still high on the public agenda. Indeed, central banking may be called the last refuge for those still under the spell of the pretense of knowledge.
Fixing their eyes on the so-called "price stability" or following the now fashionable inflation targeting schemes, central bankers are not just after a movable target but one that is more symbolic than real. This way, they neglect the inflation that takes place in the expansion of money and debt.
While central banks theoretically do have the instruments to control at least the monetary base, they are rarely willing to pay the price of a contraction and instead favor an illusory permanent expansion. They act like pushers selling cheap drugs to a gullible public with the financial sector as the intermediary. There is hardly any central bank free from this disease, which is inherent to an unanchored fractional reserve banking system.
Like with individual prices, the prices of groups of goods and services rise and fall. There are always inflationary and deflationary spots in an economy at the same time. When small aggregate price movements occur or when opposing forces are at work, the price index renders no valuable signal. If, however, strong tendencies in one or the other direction of the general price level are under way, and when this finally shows up in the price index, it is usually too late for the central banks to catch up.
Price indexes necessarily average out the extremes; they are unable to signal the more subtle price movements and they leave out relevant items such as asset prices. This way, it is not only the general public that is being deceived, the central banks themselves are falling victim to their calculations like the joke of the statistician who drowns while crossing the water that he had thought was easy to wade based on the arithmetic average of its depth.
Currently, for example, the depreciating value of the dollar is already visible in oil, real estate, precious metals, domestic services, health care, tuition or even when calculated against other fiat monies such as the Euro. In this perspective, there is inflation taking place and it has been taking place for quite some time at a remarkable pace. However, when counting in a considerable portion of computer storage capacity and imported gadgets, the picture changes and the perspective of a deflationary trend could be diagnosed by that yardstick.
The great cheat of the stabilizers consists in spreading the illusion that a stable or a moderately increasing price index would imply economic stability and would have no effect on the capital structure. Neither do monetary policy measures publicized under the heading of stabilization imply a constancy of purchasing power. Such measures rather mean that old distortions are covered up while new ones are being created.
Temporary success, like is also typical of deficit spending, makes central banking even more dangerous. Modern central banking is a hideous endeavor. The true dimension of the devastations caused by easy money policies become visible only in the longer run when inflation begins running wild and as such can only be stopped by a deflationary contraction.
Currently, central banks again fail to recognize or remain inactive in the face of the flood of liquidity. Swamping the globe with monetized debt drives the system inexorably on a path where the alternative of either accelerating price inflation or deflation becomes more pressing. When economic actors finally form a dominant expectation, a spiral of feedback processes begins and actions will be adapted accordingly. This is the point where the game slips out of the hands of the stabilizers and hyperinflation and depression loom.
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Antony Mueller is a professor of economics at the Universidade de Caxias do Sul (UCS) in Brazil and an adjunct scholar of the Ludwig von Mises Institute.
http://www.mises.org/fullstory.aspx?Id=1600 |
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