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The Party is Over …
Throughout the last years Asia has been financing the Unites States consumers. This is now about to change. The US is not prepared for the resulting foreign policy and economic trouble.
The Problem’s Start
After the stock bubble burst in 2000, the Federal Reserve Bank lowered its interest rate to stall off a recession and allowed for cheap and plenty credit availability. The government lowered taxes financed by additional debt. Cheap mortgage rates allowed real estate to be used as an ATM. This and the tax cuts put money into consumer pockets.
On the other side of the Pacific central banks were concerned with underemployed masses in their countries. To bring the people into employment and develop their economies they needed growth in production facilities and export markets.
With sinking US interest rates, the Dollar should have lowered versus all other currencies and should have allowed for more US exports and fewer imports. Asian countries could not allow their currencies to increase and stall their exports. They pegged their currencies to the US Dollar.
The Circle
The US consumer carried their Dollars to Wal Mart in exchange for goods produced in China. The producers in China exchanged the Dollars through the Chinese Central Bank into freshly printed Yuan to pay their workers. With its Dollars the Chinese Central Bank then bought fresh US debt in form of Treasury Bills and Mortgage Backed Securities. This facilitated further US tax cuts and even cheaper mortgage rates. The Dollars found the way back into consumer hands.
To the astonishment of many economists this “vendor-financing” circle did work for some years. But ever increasing US debt levels and increased printing of Yuans are not sustainable. Nobody wants to finance a house to 150% of its value and nobody wants to build unprofitable Mobil-Phone-Factory-No.52 in Shanghai.
The Crunch
As Stephen Roach reports India is starting to use the Dollars owned by their Central Bank to finance new roads and water pumps. China starts using its Dollar reserves to bail out some of its failing banks and to build strategic commodity reserves. Roach cites an Indian official:
“We are subsidizing the American economy. These are scarce resources that can be put to better use.”
As China and India slow their recycling of Dollars, the Dollar will have to decrease relative to other currencies. To finance its wars, the US will have to pay higher interest rates on renewed an additional debt and will have to increase taxes. With higher rates and taxes the consumer will no longer be able to sustain current consumption levels. Falling consumption will lead to a recession.
As consumer, financial institute and government debt are at unprecedented highs, higher interest rates and a recession will facilitate severe dislocation in financial markets. The Fanny Mae and Freddie Mac have reached the Outer Limits and will fail.
Unprepared
So far the US has denied these unbalances and the problems that will result. Fareed Zakaria is correct when he writes in WaPo about America’s Big Challenge: Asia. The election discussions have been about foreign policy on a country with 23 million inhabitants and some minor domestic economy issues. A real foreign policy discussion would be about 3,000 million Asians and the coming economic train wreck.
Here is part of Al Martin’s piece of 18 Oct.
It seems that Stanley Sporkin, an old member of the gang, a fixer, is being brought in to sort out problems with Fannie and Freddie. He is a coverup artist extrordinaire.
I will try and edit this down to fit, and not run into copyright problems.
:–start quote–This guy, Stanley Sporkin, in his entire career has been put in charge of an investigation of a coverup, or in his capacity as a judge has overseen a case that, were the entire truth to be told, it would open up a Pandora’s Box. What this guy Sporkin specifically does as a cover-up guy is to make sure that lids on old and deep Pandora Boxes stay shut.
Sporkin’s participation in the Fannie/ Freddie debacle is like, in the old days, the Chicago mob family sending one of their top guys to Vegas to scope it out.
It’s big, because it would be a real problem if somebody ever looks at Fannie Mae and Freddie Mac within the context of the entire GSE complex. You know what it really is? It’s adding up the numbers that nobody has ever done. Not even a GAO has ever done that. No one has ever actually bothered to do an audit to actually determine what the actual, not supposed, value, but what the actual value of these GSE assets are.
The trillions of dollars in mortgage paper, in some cases, to properties that never existed, that were completely fictitious, properties that have been in foreclosure for decades or burned down or wiped out by a flood. It reminds me of the joke Jeb Bush used to tell me. HUD had more apartment buildings on empty lots than all of the realtors in the nation combined. People must understand today the enormity of the fraud.
But people won’t understand. They’re not meant to. You could write a book about it if you want to. I mean you could add Sporkin in by saying that the reason an old Republican coverup guy with such stature has been brought in is that he’s the guy that’s in charge of keeping some of the ultimate Pandora Boxes shut.
Remember what Henry Kissinger used to say. George Bush used to use Kissinger language. So did George Schultz and James Baker. They used to call it — “The domino effect of breaking lies.”
When one lie is broken, in this case, for instance, “Where are the missing trillions? Where is all this property, this underlying property, the trillions of dollars of paper that’s been written or guaranteed against? What happened to it?” When you break that lie, then suddenly the next lie: “How did it occur? How did it happen?”
What happens is that the dominoes fall backwards and successive lies fall down. Now, the last domino is the domino that can’t fall. It’s what George Bush called “the jiminy domino.” The jiminy domino is the last domino at the end that is right on the edge of the great vortex, the great abyss of the way everything works and what it’s really all about.
If the last domino falls into the abyss, then the world, as George Bush said, would collapse because then the American people would first understand the great postwar lie, that everything they’ve been told was a lie. Then you break into what’s called the second set of lies, at a next higher level. The dominoes begin to fall backwards, where the American people learn that everything they have ever been told has been a lie, all they have ever learned. Even some of what they believe to be mathematical constants are, in fact, a lie.
It would become a global event. It’s actually called “the omega effect of the lie conundrum.”
–end of insertion–credit:almartinraw
The piece goes into more detail on who is involved and that the cabal goes back 1500 years to the Byzantine Empire and is based on using religion to keep the people in line. Sound familiar?
Martin professes to agree that it is too late to tell the truth, and that it would damage the world to do so. This is of course the position of the 5000 or so members of the cabal worldwide, and they have been quite confident til now that their secrets will remain hidden.
I would advise them that it is too late, the lock is broken and there will be no getting Pandora back into the box. This would explain the desperation on the faces of some of our current players. Their time is up; they are frantically stuffing all the cash into their pockets to make a getaway. To where?
Posted by: rapt | Oct 19 2004 18:42 utc | 6
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