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Wednesday, July 8, 2009

A BRIC Thrown To President Obama

President Obama had a dream, but when he woke up he found a BRIC had been thrown through the White House window! (See the past opinion piece posting.)

The People’s Republic of China is ramping up the rhetoric. It is calling out the dangers of the world’s reliance on a “single sovereign-sovereign currency”. The danger lies in the “concentration of risk and the spread of the crisis”. Now, if this does not sound like “Reaganistic” Cold War Battle Cries, I don’t know what does!

Instead of the “menace” being the “Red Menace”, ie. Communism, it has become the United States via the dollar. (Read “Wary of Dollar, China Wants Super-Sovereign Currency”,; Xin and Buckley, 6-26-09.)

The People’s Bank of China is inferring the U.S. dollar is becoming not only an international concern, and a risky global currency, but also the Boogieman’s currency for all to watch under a global microscope by the planet’s new CSI (‘Currency Scrutinizing Investigators’) forensic headquarters—The International Monetary Fund (IMF).

There is new pressure on the IMF, as they become the organizational body, to perform Timmy Geitheresque Currency Stress Testing on the dollar, as well as other currencies being considered for reserve currency status.

They might ask such questions as, will the dollar hold up under increased financial loads, such as further bankruptcies, to include credit card and commercial loans, further un-underemployment pressures, higher federal indebtedness, expansion of poverty figures, additional military expenditures and entanglements, decreasing private investments, increased personal savings (currently, it reached 6.9% of disposable personal income, and will likely reach 10% in the future), and more.

The sited authors stated “In an essay last March, [China’s central bank’s governor,] Zhou [Xiaochuan] caused a stir by suggesting that the Special Drawing Rights, the IMF’s unit of account, could eventually displace the dollar as the principal reserve currency.” OUCH!

It appears that China’s central bank’s governor, the equivalent of Federal Reserve bank governor Ben Bernanke, has pushed aside the Federal Reserve’s head honcho, and others, as he grabbles his way to the top of the heap in order to claim King of the Hill banker status. The blustery talk of Mr. “X” puts fear into the Dow Jones and forces the U.S. executive branch to go on the defensive. Bernanke ends up looking weaker and weaker on the domestic front, as well as the incompetent head of ‘Banksta Incorporated’ who has placed the U.S. economy into its dangerous tailspin causing a national security disaster.

Mr. “X”, China’s “Dragon Master”, appears to have come out showing he might be able to reduce Beanie Benny Bernanke into a naked pile of carved up flesh shavings. 

China’s Mr. “X” wrote an essay in March referencing a PBOC 670 page report recommending the use of the IMF’s SDR (Special Drawing Rights) currency as the principal reserve currency. The report Mr. “X” referenced said, “ to avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term”, as sited in the Xin and Buckley article. Again, these two authors bring more forward.

It seems that China has taken a lesson from the Little Boy Bush Presidential Playbook. In the chapter named Mind Control, and under the subchapter---Make Them Afraid, the Chinese government has raised the “Red Flag” that the “U.S. fiscal and monetary stimulus will generate inflation and drive down the dollar, handing Beijing big losses on its vast portfolio of U.S. bonds”, as was reported by Chinese officials.

The PBOC report, as sited by the mentioned authors, laid claim that much blame can be placed at the feet of poor regulation and supervision. “[There has been] inadequate [attention] paid to the risks.”

Once again, Mr. “X” slaps at “Bada Bing” Bernanke and Timmy “the Titanic” Geithner’s hands, as well as the others culpable as governmental incompetents who are using government positions to serve their financial crime syndicate masters, and accomplices in the theft of America’s wealth for the purpose of derivative gambling via the securities crap tables in order to make the top 10% extremely rich at the expense of everyone else, while bringing the nation to a Code Red National Security Risk level. Where is Tommy “the Tank” Ridge when you need him to dispense the duct tape and sheet plastic.

Team Obama is hoping none of these changes will happen very quickly, but if the U.S. economy continues to erode, falter, and sputter as seen with June’s unemployment figures, there is much for concern. Team Obama thinks it has time on its side because there maybe trouble brewing inside China’s Emerald City. Experts are saying that China maybe creating its own economic/financial bubble, the likes we saw break in 2007.

China is buying up huge amounts of commodities inflating the prices. This is a worry. Chinese lenders are handing out cheap yuan to commodity speculators, while those in the “real” economy are having a hard time getting access to cash.

Team Obama might be waiting to see if such a meltdown occurs inside China, which might defuse the alterations to the dollar as the reserve currency.

China has spent $4T yuan on its stimulus. Bank lending for the purpose of issuing credit has reached $6T yuan since December. “Much of this lending has not been used to support tangible projects but, instead, has been channeled into asset markets”, written by Mr. Andy Xie in his piece titled “Fear the Dark Side of China’s Lending Surge” (found on Mr. Xie wrote further “The current surge in commodity prices, for example, is being fueled by China’s demand for speculative inventory. Damage to the domestic economy is already significant. If lending doesn’t cool soon, this speculative force will transfer even more Chinese cash overseas and trigger long-term stagflation.”

I believe we have seen this all before. Is China close to what we have already been experiencing with our economy? The flight of cash and investment, as well as the financial economy taking favor over the real economy is all too familiar to the U.S.

The People’s Bank of China’s vice-governor, Su Ning estimated more that $6T yuan of credit lines would be given to investors for the first half of the year. The economy expanded by 6.1% in the first three months, and is expected to grow by 7.0% from April to June.

China has seen significant outflows of capital exiting safe investments, such as money market funds into riskier credit and equity funds, such as emerging market funds.

Found on, Mr. John Lee was sited in his piece “Gloss Cannot Hide Rot in China’s Growth Story”, “Most Western commentators focus on the spectacular success of China’s export sector and the emergence of China as the world’s factory. But the greater contributor to Chinese growth is actually domestically funded fixed investment, which constituted over 50 percent of gross domestic product last year and more than 40 percent of that year’s growth.” “[B]ank loans drawn from citizen deposits funneled into state-controlled banks—constitute around 80 percent of all investment activity in the country.”

WOW!!! Does this sound familiar?

“Despite impressive GDP growth, about 400 million Chinese people have seen their net incomes stagnant or decline over the past decade. The income of the poorest 10% has been declining by 2.4% every year since the beginning of the century.”

Bloomberg News wrote this on 6-25-09: “hidden debt in China’s corporate sector is higher than revealed by official bank-loan data, since 44 percent of corporate capital expenditures in 2008 was financed by money whose source is literally unknowable.” This was the case with U.S. mortgage-backed securities and credit default swaps. The origin of those bonds was literally unknowable, too.

If this actually happens, and the U.S. economy picks up, then Team Obama will look good. But, if China is able to maintain a positive GDP, and avoid an economic meltdown by building its nation from within--domestically, then Team Obama will likely be permanently damaged for the rest of their one-trick pony show presidential term.

How can the United States have a ‘jobless recovery’, which is what the flap jawin’ media is hacking about? The stimulus package will save many government jobs, such as those employed by colleges, universities, junior colleges, and those inside government offices, but where will that lead? From where will the nation’s productivity evolve? How will it increase exports, reduce foreign oil, improve the consumer markets, such as the sales of the New GM? Is Team Obama seeing the purchase of a New GM automobile the end goal? 

What is now being written is that through increased personal saving, the consumer spending frenzy, which was extraordinary, will return to what will be seen as more normal. Yet, what will be normal will require a significant shrinkage in the consumer marketplace, such as fewer retail jobs and the entire supply chain that gets product on the shelf. There will be shrinkage in commercial real estate, and manufacturing, as well.

It sure appears that the shrinkage is not over. I suspect there is much more to come. Now, who will blink first: China or the United States? Will BRIC succeed or fail?

Henry Kissinger said that Obama is playing a game of chess. Those who will continue to suffer are those in the middle and lower classes as their pieces get knocked off the board. Yet, it is clear that the biggest financial banking syndicate: Goldman Sachs and CITI will be standing right behind President Obama pointing out the moves.

Thanks for reading, jerry