September 2008 the US came to a fork in the road. The Public Policy
decision to not seize the banks, to not place them in bankruptcy court
with the government acting as the Debtor-in-Possession (DIP), to not split
them up by selling off the assets to successful and solvent entities, set
the world on the path to global currency wars.
By lowering interest rates and effectively guaranteeing a weak dollar, the
US ignited an almost riskless global US$ Carry Trade and triggered an
uncontrolled Currency War with the mercantilist, export driven Asian
economies. We are now debasing the US dollar with reckless spending and
money printing with the policies of Quantitative Easing (QE) I and the
expectations of QE II. Both are nothing more than effectively defaulting
on our obligations to sound money policy and a “strong US$”. Meanwhile
with a straight face we deny that this is our intention.
Though prior to the 2008 financial crisis our largest banks had become
casino like speculators with public money lacking in fiduciary
responsibility, our elected officials bailed them out. Our leadership
placed America and the world unknowingly (knowingly?) on a preordained
destructive path because it was politically expedient and the easiest way
out of a difficult predicament. By kicking the can down the road our
political leadership, like the banks, avoided their fiduciary
responsibility. Similar to a parent wanting to be liked and a friend to
their children they avoided the difficult discipline that is required at
certain critical moments in life. The discipline to make America swallow a
needed pill. The discipline to ask Americans to accept a period of intense
adjustment. A period that by now would be starting to show signs of
success versus the abyss we now find ourselves staring into. A future
that is now massively worse and with potentially fatal pain still to come.
critical issues in America stem from minimally a blatantly ineffective
public policy, but overridingly a failed and destructive Economic
Policy. These policy errors are directly responsible for the opening
salvos of the Currency War clouds now looming overhead.
Don’t be fooled for a minute. The issue of Yuan devaluation is a political
distraction from the real issue – a failure
of US policy leadership. In my
opinion the US Fiscal and Monetary policies are misguided. They are wrong!
I wrote a 66 page thesis paper entitled “Extend
& Pretend” in the fall of 2009 detailing why the proposed Keynesian
policy direction was flawed and why it would fail. I additionally authored
full series of articles from January through August in a broadly
published series entitled “Extend & Pretend” detailing the predicted
failures as they unfolded. Don’t let anyone tell you that what has
happened was not fully predictable!
Now after the charade of Extend & Pretend has run out of momentum and more
money printing is again required through Quantitative Easing (we predicted
QE II was inevitable in
March), the responsible US politicos have cleverly ignited the markets
with QE II money printing euphoria in the run-up to the mid-term
elections. Craftily they are taking political camouflage behind an
“undervalued Yuan” as the culprit for US problems. Remember, patriotism is
the last bastion of scoundres
California officials acknowledged last Thursday that the state
faces $20 billion deficits every year from now to 2016. At the
same time, California's state Treasurer entered bond markets to
sell some $14 billion in "revenue anticipation notes" over the
next two weeks. Worst of all, economic sanity lost out in what may
have been the most important election on Nov. 2—and, no, I'm not
talking about the gubernatorial or senate races.
This was the California referendum to repeal Assembly Bill 32,
the so-called Global Warming Solutions Act, which ratchets the
state's economy back to 1990 levels of greenhouse gases by 2020.
That's a 30% drop followed by a mandated 80% overall drop by 2050.
Together with a $500 billion public-pension overhang, the new
energy cap dooms the state to bankruptcy.
Many of these green companies, behaving like the public-service
unions they resemble, diverted some of their government subsidies
into the AB 32 campaign for more subsidies. Virtually every new
venture investment proposal harbors a "green" angle that turns it
from a potential economic asset into a government dependent.
Republicans may delude themselves that the U.S. can undertake a
costly, inefficient and disruptive transformation of the energy
economy, estimated by the International Energy Agency to cost some
$45 trillion over 40 years, while meeting our global military
challenges and huge debt overhang. But the green campaign wastes
scarce and precious technological and entrepreneurial resources
indispensable to the nation's future.
A major task for the next Congress will be rewriting the laws
governing Fannie Mae and Freddie Mac, and House Republicans have
now won a seat at that table. Which makes it all the more
important that their seat not be occupied by Members who were once
powerful defenders of the toxic mortgage twins.
These days, everyone—even Barney Frank—claims to want to reform
Fannie and Freddie. Most Republicans now sound like these columns
did for more than a decade, assailing the companies for their
systemic risk to the financial system after taxpayers have had to
put up $150 billion, and counting, to maintain them as the walking
Since the end of the Cold War, the world's powers have
generally agreed on the wisdom of letting market competition—more
than government planning—shape economic outcomes. China's national
economic strategy is disrupting that consensus.
Western anger with China has focused on Beijing's
cheap-currency policy; President Obama blasted the practice at the
G-20 summit in Seoul last weekend. Mr. Zhu's sprint to the top
points to a deeper issue: China's national economic strategy is
detailed and multifaceted, and it is challenging the U.S. and
other powers on a number of fronts.
Central to China's approach are policies that champion
state-owned firms and other so-called national champions, seek
aggressively to obtain advanced technology, and manage its
exchange rate to benefit exporters. It leverages state control of
the financial system to channel low-cost capital to domestic
industries—and to resource-rich foreign nations whose oil and
minerals China needs to maintain rapid growth.
"The Chinese have shown that if they have the ability to kill
your model and take your profits, they will," says Ian Bremmer,
president of New York-based consultancy Eurasia Group. His book,
"The End of the Free Market," argues that a rising tide of "state
capitalism" led by China threatens to erode the competitive edge
of the U.S.
According to China's Ministry of Finance, assets of all state
enterprises in 2008 totaled about $6 trillion, equal to 133% of
annual economic output that year. By comparison, total assets of
the agency that controls government enterprises in France, whose
dirigiste policies give it one of the biggest state
sectors among major Western economies, were €539 billion ($686
billion) in 2008, about 28% of the size of France's economy.
Politicians are now talking austerity for America – adios home
mortgage deduction! What is that going to do to the home market
and to prices? What will that mean for what’s left of America’s
Is it necessary? Absolutely not! The national
debt does not even need to exist in any form whatsoever, we have
been controlled to believe that we owe banks for the use of our
own money system! It’s a brainwashing and in this short video
David Icke spells it out as to where the power really lies.
The power rests with us!
QUOTE OF THE WEEK
“The thought that you can create a prosperous economy by
inflating is an illusion”
“We sure have to maintain some confidence in the dollar or
none of this would work"
Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.ont>
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Gordon T Long
is not a registered advisor and does not give investment advice. His comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, we recommend that you consult with a qualified
investment advisor, one licensed by appropriate regulatory agencies in your
legal jurisdiction, before making any investment decisions, and barring that,
we encourage you confirm the facts on your own before making important