Introduction
The dollar is weakening, gold is soaring, unemployment
still rising and the Dow Jones Index is back above 10,000.
What's going on? Both Mike Whitney and Nouriel Roubini analyze
the present trends and warn against the next big economic
imbalance and its possible harsh correction throughout the
global economy. Both blame the same actor: The Federal Reserve
System under Ben Bernanke and its policy of quantitative
easing (printing money) and setting the interest rate far
too low (debasing money). Please read Whitney's article
below in which he quotes Roubini's recent analysis.
It looks like that different components of the American
empire are finding their own graveyard and slowly move into
them: the dollar gets diluted by the Fed; the military gobbled
up by end-of-empires Afghanistan; and US industry competed
out of business by China. Last year's crisis almost woke
up the American public and hopefully next year's crisis
will bring the following three general possibilities into
clearer relief and more fundamental choices have to be made
amongst them:
1) False Mother Syndrome
The US will get further absorbed into the soft socialist-fascist
New World Order (NWO) by increasingly giving up its sovereignties
to international organizations like the IMF, World Bank,
WTO and the UN as designed by semi-secret think-tanks, foremost
among which is the Council on Foreign Relations. There would
be some karmic justice to that situation as initially the
US helped to set up these organizations and used them for
its own imperial ambitions. But now, finding itself hollowed
out, these organizations are slowly turning the table and
go from dominated mode into domination mode. Meanwhile,
to sugarcoat the pill of diminished status, the American
people will be bought off with an extended welfare system.
This path is the one pursued by Obama and the Democratic
party. This I'd call the false mother syndrome.
2) False Father Syndrome
Authoritarian elements within the US power elite will react
to the decline of its power and wealth by employing fascist
strategies like fielding populist politicians allied to
the corporate elite, muffling popular dissent and engaging
in more military adventures to hold on to global resources
and markets. There will be more false flag operations like
9/11 to justify homeland security measures and foreign interventions.
Confrontations will ensue with the international community.
This is more or less the neo-conservative agenda which has
taken hold of the Republican party. This I'd call the false
father syndrome.
3) Political Maturity
The American people wake up and go through a fast learning
process about the spirit and letter of its constitution.
They will bind the instruments of empire like its international
network of military bases, the CIA, unfair trade agreements,
and bring domestic and foreign elements involved in 9/11
to justice. Public hearings about the role of semi-secret
think-tanks like the Council on Foreign Relations, the Trilateral
Commission and the Bilderberg conferences will be held and
appropriate countermeasures taken. And, of course, the linchpin
of the system, the Federal Reserve System, will have to
be thoroughly reformed, put under the US Treasury and the
power of issuing money returned to Congress, which will
use this power to repair and upgrade the dangerously deteriorating
US infrastructure. And any company or agency previously
considered "too big to fail" and bailed out with
public money will have to be broken up in smaller units
which will have to fend for themselves or dissolved entirely.
Exotic, manipulative, hard-to-understand financial instruments
like derivatives will have to be cancelled. These proposals
should be part and parcel of the platform of a third party,
which would bring into coalition libertarians, constitutionalists,
independents, environmentalists, new agers, the anti-NWO
movement, the 9/11 truth movement, Masons, and enlightened
Christians, Muslims, Jews, Buddhists, Hindus and other religionists
who recognize the secular nature of the US Constitution
as a guarantor to their own freedom of religion. This coalition
will have to break the stranglehold the duo-poly of Republicans
and Democrats (and their bipartisan backers in the power
elite) have on the political process. It has been done before,
it has to be done now and it will be done when the temporarily
beaten-down American psyche will reconnect with its original
spirit. This would be the move from confused adolescence
into mature adulthood. It's time.
Govert Schuller
Wheaton
November 11, 2009
======
Mike Whitney
Global Research
November 4, 2009
Interest rates. The Fed does not need slinky women in plunging
necklines to peddle money. All it needs is low interest
rates. When rates are pushed lower than the rate of inflation,
the Fed provides a subsidy for borrowing. This is not as
hard to grasp as it sounds. If I offered to give you $1.00
for very 90 cents you gave me in return, you would buy as
many dollars from me as you could. The Fed operates the
same way. It generates market activity by creating incentives
for borrowing. Borrowing leads to speculation, and speculation
leads to steadily rising asset prices. This is how the game
is played. The Fed is not an unbiased observer of free market
activity. The Fed drives the market. It fuels speculation
and controls behavior by fixing interest rates.
When Lehman Bros flopped last year, markets went into freefall.
A sharp correction turned into a full-blown panic. The bubble
burst and trillions of dollars in credit vanished in a flash.
Trading in exotic debt-instruments stopped overnight. A
global sell-off ensued. Markets crashed. For a while, it
looked like the whole system might collapse.
The Fed's emergency intervention pulled the system back
from the brink, but the economy is still wracked with deflation.
Billions in toxic waste now clog the Fed's balance sheet.
The dollar has fallen like a stone.
When the financial system blows up and credit is sucked
down a capital-hole, the economy goes into a downward spiral.
Businesses slash inventory and lay off workers, workers
have to cut back on spending and credit. That creates less
demand for products, which leads to more lay offs. This
is the vicious circle policymakers try to avoid. That's
why Fed chair Ben Bernanke wheeled out the heavy artillery
and launched the most aggressive central bank intervention
in history.
The Fed dropped rates to zero, but its Quantitative Easing
(QE) program (which monetizes the debt) actually pushes
rates even lower to roughly negative 2 percent.
Bernanke has underwritten every sector of the financial
system with government guarantees. He has provided full-value
loans for dodgy collateral which is worth only a fraction
of its original value. The market can no longer operate
without the Fed. The Fed IS the market, which is why it
is foolish to talk about a "recovery". The idea
of recovery implies a free-standing system based on supply
and demand. But, for now, the government provides the demand,
which is why there is no market and no recovery. Analysts
at Goldman Sachs sum it up like this:
"How much of the rebound in real GDP was due to the
fiscal stimulus, and where do we stand in terms of the effects
of stimulus thus far? Although precise answers are impossible
at this juncture, several aspects of the report are consistent
with our estimates that the fiscal package enacted in mid-February
as the American Recovery and Reinvestment Act (ARRA) would
have accounted for virtually all of the growth reported
for the third quarter." (http://www.zerohedge.com/article/hedging-their-bets)
Positive growth is an illusion created by government spending.
The economy is still flat on its back. Consumer spending
and credit are in sharp decline. Unemployment is steadily
rising (although at a slower pace) and wages are flatlining
with a chance of falling for the first time in 30 years.
Deflationary pressures are building. The talk of a "jobless
recovery" is intentionally misleading. Jobs ARE recovery;
therefore a jobless recovery merely points to asset-inflation
brought on by erratic monetary policy. Surging stocks shouldn't
be confused with a genuine recovery.
The Fed faces stiff headwinds ahead. Low interest rates
can have unintended consequences. The "cheapness"
of the greenback has made the dollar the funding currency
for the carry trade. Investors are borrowing low cost dollars
and using them to purchase higher interest assets elsewhere.
The process, which is rapidly escalating, is fraught with
peril as economist Nouriel Roubini points out in an article
in the Financial Times:
"Since March there has been a massive rally in all
sorts of risky assets... and an even bigger rally in emerging
market asset classes (their stocks, bonds and currencies).
At the same time, the dollar has weakened sharply, while
government bond yields have gently increased but stayed
low and stable...
But while the US and global economy have begun a modest
recovery, asset prices have gone through the roof since
March in a major and synchronized rally... Risky asset prices
have risen too much, too soon and too fast compared with
macroeconomic fundamentals.
So what is behind this massive rally? Certainly it has
been helped by a wave of liquidity from near-zero interest
rates and quantitative easing. But a more important factor
fueling this asset bubble is the weakness of the US dollar,
driven by the mother of all carry trades. The US dollar
has become the major funding currency of carry trades as
the Fed has kept interest rates on hold and is expected
to do so for a long time. Investors who are shorting the
US dollar to buy on a highly leveraged basis higher-yielding
assets and other global assets are not just borrowing at
zero interest rates in dollar terms; they are borrowing
at very negative interest rates...
Every investor who plays this risky game looks like a genius
- even if they are just riding a huge bubble financed by
a large negative cost of borrowing...
...This policy feeds the global asset bubble it is also
feeding a new US asset bubble...
The reckless US policy that is feeding these carry trades
is forcing other countries to follow its easy monetary policy...
This is keeping short-term rates lower than is desirable...
So the perfectly correlated bubble across all global asset
classes gets bigger by the day.
But one day this bubble will burst, leading to the biggest
co-ordinated asset bust ever: if factors lead the dollar
to reverse and suddenly appreciate... the leveraged carry
trade will have to be suddenly closed as investors cover
their dollar shorts. A stampede will occur as closing long
leveraged risky asset positions across all asset classes
funded by dollar shorts triggers a co-ordinated collapse
of all those risky assets - equities, commodities, emerging
market asset classes and credit instruments." ("The
Mother of all Carry Trades Faces an Inevitable Bust",
Nouriel Roubini, Financial Times)
Everyone who watches the market has noticed the inverse
correlation of stocks to the dollar. When the dollar fades,
stocks soar. And when the dollar strengthens, stocks plunge.
Eventually, the dollar will reverse-course and stage a comeback,
probably when Bernanke stops his printing operations. That
will trigger the next severe correction which will burst
bubbles across all asset classes.
Bernanke's success in reflating sagging asset prices has
depended entirely on interest rate manipulation and liquidity
injections. There's been no effort to patch household balance
sheets, increase production, or strengthen overall demand.
It's a clever trick by a master illusionist, but it has
its costs. When the dollar rallies, markets will crash.
And Bernanke will be responsible.
===
© Copyright Mike Whitney, Global Research, 2009
The url address of this article is: www.globalresearch.ca/index.php?context=va&aid=15919
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