We Americans are a people in revolt against fate. Wealth and power are migrating from West to East…our empire is peaking out…our dollar is doomed — if only we could take it more gracefully. Instead, politicians, central bankers and ordinary consumers want to dispute it, as if they could stop the tides of history, like Xerxes’s troops doing battle with the waves.
Just listen to the mindless rants coming from Congress: The Arabs want to take over our ports; the Chinese are taking over our oil companies! What do they think this is…a free country? Last year, 96 American companies were bought by firms from emerging markets. Those transactions were worth about $14 billion and were hardly noticed. But when a big offer makes the headlines, you can count on resistance, indignation, and dissembling.
Who do these Chinese think they are? How dare they try to stabilize their economy by tying their currency to that of their largest trading partner? Don’t they know they’re supposed to let their paper money rise so ours can fall?
Meanwhile, the Financial Times reports on "How China is Winning the Resources and the Loyalties of Africa." China needs resources; Africa has a lot of them. So far, they seem to be going after them honestly — with smiles and cash, both of which they have in abundance.
Back in the homeland, consumers spend more than they earn, borrowing the shortfall from Asia. And why not? They deny that there is any problem at all. If there is a problem, they’re sure it can be solved with more debt. Have real hourly wages gone down? They don’t seem to have noticed. Don’t they already owe a lot of money to a lot of people? It doesn’t seem to bother them. And, isn’t most of the growth since 2001 simply a by-product of a booming housing market? It never seems to occur to them that there is anything wrong with it.
Investors, too, deny that there is a problem. They buy stocks at an average of 20 times earnings — with a dividend yield below 2%. How do they expect to make any money? And over in the bond market, at current yields, after taxes and inflation, an investor is practically guaranteed to lose money. How could he miss it? The math is so simple: a 4.5% yield…less inflation of 4% (being optimistic about it)…leaves only half a percentage point to pay taxes. There is no way that will work.
But, Americans have been told that they have the world’s most dynamic and flexible economy, and they believe it.
What they really have is a mature, shopworn economy struggling to appear young. What can it do but dye its hair, pin back its face, and lie?
Around the world, people are beginning to notice the signs. While no maturing economy can avoid some sag, bulges and lines, it is the resistance, denial and debt that produce the real problems.
The Russian newspaper, Pravda, reports:
"The United States is heading to financial crisis at top speed. That is correct, America will default on its foreign debt sooner or later if the actual trends remain unchanged. Consequently, the whole dollar-based world (including savings in U.S. currency) may crumble. The picture looks pretty grim this time around. Several factors will have an extremely detrimental effect on the dollar, according to U.S. Secretary of the Treasury John Snow who forwarded a letter full of ominous predictions to 21 members of U.S. Congress. The letter was made public after the markets had been closed for Christmas and New Year’s holidays — a rather appropriate precautionary move in terms of the international foreign exchange market, which is extremely sensitive to any sound produced by U.S. bureaucrats.
"Besides, the U.S. Federal Reserve is going to stop publishing the so-called u2018M 3 aggregate’ reports i.e., data on increase rates in money supply. Given the New Year’s predictions by John Snow, the Fed’s intentions look pretty suspicious. In other words, the international community will have no tool for measuring a real value of the dollar…
"The Fed is going to pull the plug on the data in March this year. Several events should occur in different countries more or less at the same time and thus damage credibility of the U.S. securities. Risk-averse investors get rid of speculative securities e.g., the dollar securities under the circumstances.
"All in all, the situation is quite alarming though it looks like a play being staged on purpose."
Peter Schiff: "The Fed distracts the audience with short-term rate hikes, while behind its back it monetizes long-term government bonds. It creates the illusion of its being an inflation fighter, while in reality it is an inflation creator. No wonder it wants to further cover its tracks by no longer reporting M3!
"My guess is that the Fed’s goal is to keep long-term interest rates low long enough to allow millions of homeowners to refinance their adjustable rate mortgages into 40 or 50 year fixed-rate loans, and to create enough inflation to cause nominal incomes to rise sufficiently in order to enable homeowners to make higher debt payments and prevent nominal home prices from collapsing."
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.