Friday, September 24, 2010

Another Day, Another (Drop In The) Dollar.

The fate of the currency of the realm is something I'm keenly interested in for personal and intellectual reasons. In truth, everyone who uses, however modestly, the dollar as a medium of exchange, and heaven forfend, as a store of wealth, ought to be riveted by matters related to The Greenback's prospects, which, I am sorry to report, are, like all fiat, dismal.

Why should this be so? Putting aside the history of currencies, even reserve ones, whose viability rests ultimately on nothing but the existence of a solvent and subservient citizenry pliable to government taxing schemes, the dollar- which, since the inception of The Federal Reserve in 1913 has already lost 94 percent of its purchasing power- is destined to be devalued at an increasingly faster rate, perhaps to the point where it becomes shunned as a medium of exchange, because the vast majority of the taxable citizenry, contrary to economic reports that might suggest otherwise, are quickly being reduced to penury.

Add that condition to the existing burden to pay for all that needs to be paid for by way of pubic spending, as well as the need to repay borrowed funds- two requirements that are consuming the host like a late stage cancer- and it is as close to a certainty that, within a few years, if not sooner, there will be crisis on these shores of the sort that, in years gone by, would have only seemed fitting in places like late 20th century Argentina and Chile.

Lately, the authorities have been trying to pressure China into devaluing their own currency, the Yuan, the idea being that inducing a drop in Chinese currency would improve the United States' prospects for export. The diplomatic efforts, if that is, indeed, what they were, seem to have failed, and, so, the U.S. powers that be are engaged in skinning the cat via another time honored method, ergo the dollar's precipitous fall of late.

In truth, all currencies around the globe are in a race to the bottom as governments attempt to prop up their export trade with beggar they neighbor policies. This will, of course, simply exacerbate the already fragile condition of the world economy, but when winning elections are at stake, and the tempers of the citizenry are frayed, governments invariably opt for these sorts of measures. Rarely does anyone express concern that inducing weakness in one's currency carry any sort of real long term risk such that the weakness may start to take on the cast of a fatal illness. Even so, that shouldn't stop us, on this occasion, from being on guard for the already sick patient's transfer to the critical ward.

Monday, September 20, 2010

I Have Seen The Enemy

Today I am redirecting your attention here. I hope it is apparent in the post at the link why there will be no revolution in the U.S. Too many of us have a hand in the sordid pie. Too many of us are, in effect, compromised, our acquiescence to all sorts of skullduggery, foreign and domestic, bought and paid for by a system that, by hook or by crook, we helped create. Until this system is sundered, and it will be, probably by an exogenous shock or two-because the U.S. is not a closed system-there will be no alteration in the current trajectory of our political, economic, and social behavior.

Monday, September 13, 2010

The Selfless Psychopath.

What is China's famed growth and prosperity built on? For that matter, upon what foundation rests Dubai's once vigorous economy? They were both built on the same platform that the United States' storied nineteenth and early twentieth century economic growth rested upon, namely that of an army of mostly powerless, defacto indentured, and, quite often, just plain, old, slave labor. They say there is honor among thieves. I wouldn't know, but it's my view that there may be more honor, and certainly heaps more dignity, and freedom, at least until one is caught, being a petty thief in China than working for some
charnel house like Foxconn.

It's interesting to note the similarities for the average Joe and Josephine Chin under capitalism compared to life under another oppositional ism spawned by Karl Marx. Both socioeconomic orders featured, and this may be a peculiarly Chinese trait, or not, big bosses-you know, the ones with immense authority, power, and, of course, big time perks-who seem to instinctively paint themselves as mere humble servants of the social order, working for the greater good, unconcerned with their own prosperity.

As Foxconn boss man, Terry
Gou, put it:

"I am not interested in knowing how much I have. I don't care. I am working not for money at this moment, I am working for society, I am working for my employees."

One would very much like to ask Mr.
Gou what salary he receives from his employees?

And lest we find ourselves taken in by the posture of selflessness, here is a more telling quote regarding the sensitivity of the aforesaid, Mr. Gou,

"The first one, (suicide) second one, and third one, I did not see this as a serious problem. We had around 800,000 employees, and here [in Longhua] we are about 2.1 square kilometers. At the moment, I'm feeling guilty. But at that moment, I didn't think I should be taking full responsibility." After the fifth suicide, in March, Gou says, "I decided to do something different."

Right. One wonders what amounts to taking full responsibility? Legally speaking that would seem to indicate, at the very least, some jail time.

On another, related, note, China's meteoric rise to economic prominence must be put down to more than just cheap, cheap, cheap virtual slave
labor. It's also the result of a top down wild west mentality that decrees that environmental concerns aren't, well, something business needs to be overly concerned with. And so, concomitant with China's prosperity is pollution throughout the country that would've made a resident of 1930s Pittsburgh blanche, if not choke up and keel over.

Friday, September 10, 2010

A Moment of Clarity?

As things continue to go all pear shaped here in the world's foremost crony capitalist kleptocracy masquerading as a democracy, we should probably expect more of just this sort of lunacy. How embarrassing (it ought to be) for this very breathless, and clearly overwrought, self styled, Republican loyalist to invoke Albert Einstein, only to immediately fail to remember the chosen pearl of wisdom at the moment of truth.

"In the middle of difficulty lies opportunity."

I know, it doesn't really seem like an especially brain straining collection of words does it? But when one is as away with oneself as Mr. Davison clearly is, remembering such items can prove to be too much. And while I can readily agree with Mr. Davison's general position that we are, in fact, in the middle of difficulty, I will hazard a guess that were he to reveal precisely what he has in mind, I would share very little, if any, common ground with this berserk would be elected official's view on exactly what our problems consist of and how to best address them.

In the meantime, Ohio, you have my sympathies.

Sunday, September 5, 2010

A Bigger War Coming

One of the great, albeit, lopsided debates that has taken place the last few years amongst those keenly interested in finance and economics has been over whether the forces of deflation or inflation would ultimately dominate. So far, the deflationists have held the upper hand. Employment has been moribund for years, ditto the share markets, and in most areas of the country, housing prices have cratered. And since the vast majority of people's (seemingly) ever diminishing wealth still resides in their homes, it is very hard to make the case, despite evidence of rising costs for consumer goods, food, and fuel, that the effects of inflation have been, to date, as deeply felt as those of deflation.

At this point it might be helpful to point out that hyper-inflation, a dreadful condition that has most recently ravaged Zimbabwe, and that most notably occurred in the last century in such varied locales as Weimar Germany, Argentina, and Chile, is, despite the seeming similarity to inflation, a very different animal. Hyper-inflation occurs when a nation's currency is, in effect, shunned, which tends to be the result of a total and relatively sudden loss of confidence in the issuer of said currency. Inflation, by contrast, is generally a healthy development that comes about as a result of a fully functioning economy simply overheating.

There is nothing healthy about hyper-inflation. In fact, it is so nasty that, after wreaking absolute havoc, economically, politically, and socially, it generally burns itself out in a year or so. There is no evidence in modernity of hyper-inflation occurring in a currency that has held global reserve status, and that is the primary reason commentators invoke against the possibility of hyper-inflation occurring in the U.S.

The other reason that many "experts" offer for why
it can't happen here, a reason that is, in essence, inextricable from the idea that the U.S. Dollar's reserve currency status will forestall hyper-inflation, resides in a belief in the indomitability of the U.S. monetary authorities. The basic idea is as follows: The Federal Reserve, The Treasury, and the broker dealers that work closely with these two institutions will not collude to monetize to a degree that will ignite hyper-inflation, because it is not in their interest to bail out borrowers at the expense of lenders. Despite sitting on trillions of dollars of non performing, (i.e. worthless) assets that can not be allowed to sit on balance sheets forever in their vastly depressed state, to head down the road of hyper-inflation would destroy The Federal Reserve's most prized asset, its dollar franchise. The goose that laid the golden eggs would be well and truly killed.

These arguments have several flaws, one of which is that the U.S. dollar is already in the process of losing its reserve currency status. It is happening slowly, and in fits and starts, but the wheel is rolling down the hill nonetheless. The rest of the world has been badly burned by the profound corruption in our capital markets and political sphere, and they are taking steps to insure that they will not be the bag holders of tomorrow.

As for the vaunted power of the U.S. monetary authorities, only in the sort of system we don't live in, namely a closed one, can their formidable power be, in theory, unassailable. The Federal Reserve and The Treasury do indeed have massive, if not unimpeachable, strength, but it is my view they have already squandered a great deal of their wherewithal in the service of a plethora of scams and frauds-see gold and silver suppression, and, of course, the much better known, but hardly transparent, exchange of toxic assets for currency. So, in short, the U.S. dollar is a currency whose days as the globe's reserve monetary unit are numbered, and the U.S. monetary authorities have, despite surface appearances, squandered their advantage and compromised their authority through various execrable endeavors.

Having said that, nobody wants a hyper-inflation, which may, in the end, be the main reason why one won't come about. However, my view is that the aforesaid wayward deeds of the U.S. monetary authorities are all that stands between us and the onset of wheelbarrow money. When, for whatever reason, their machinations are finally sundered-they are already exposed, but to date, no one in our thoroughly corrupt political environment seems remotely interested in addressing them-we will likely be hours away from a full blown hyper-inflation as they have an unerring and alarming tendency to emerge with blinding speed.

At this point you may be wondering what the title to today's blog entry has to do with what I've written about so far. Here's a hint: The authorities, monetary and otherwise, are, in my view, very aware that our financial system and economy are in a terminal state, and that the risk of an uncontrolled currency collapse-as opposed to their far more preferred scenario of a contained, slow moving one- is far from inconsiderable. What do you suppose they might have in mind to forestall, or at the very least, divert attention away from, the inevitable day of reckoning?