Thanks to the use of the US Mastercard called ‘Treasury bonds’, we have sprung our economy out of the basement. But this is a case of ‘horns of dilemma’ typical events. This is typical of ‘out of the frying pan and into the fire’ events. The US dollar has been dropping in value against virtually all currencies which supposedly is the way floating fiat currencies are supposed to fix trade imbalances. But this isn’t working for the US and we have to figure out why, not live in childish denial. Defaults on mortgages continue to set records. And our government holds 90% of these.
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The gross imbalances in the US economic systems is a serious problem. Bernanke was hailed as some sort of hero when he did the easiest thing on earth. That is, he dumped over a trillion dollars into the monetary system and between the Federal Reserve and the US government, the faux-socialism via dumping all banking and insurance business into the lap of the taxpayers grew at a record pace. Instead of seeing economic health on the horizon, I see worse problems.
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Dealing with this is very important. This requires a complete change in how we think about ourselves. We can’t continue to mock true socialism while playing this bizarre game of keeping up the facade of banking and insurance systems while herding the real actions into a government holding pen. This is truly a holding operation. We hope that everything will return to normal but we can’t afford normalcy. And why can’t we afford normalcy? This is the pressing question.
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The US is the world’s biggest empire. Our paper money is used to settle virtually all international trade and is created by alien banks via various systems like the Japanese carry trade. By making loans based on the US trade dollars, the entire planet was flooded with US credit even though the US had virtually no control over the creation of this money. But then, this is what happens when the governments of rival economic powers end up holding as much or more US dollars and debts than the US holds at home! For example, the majority of dollars in circulation are outside the US, not inside the US. And the majority of US government debt bonds are held by dangerous trade rivals (excluding the bonds held by the Fed Reserve, it actually is much worse!).
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So, time to visit the news stream before going onwards:
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Trade Deficit in U.S. Widens Most Since 1999 as Imports Surge – Bloomberg.com
The U.S. trade deficit widened in July and imports gained by a record in percentage terms as demand for cars, computers and oil increased. .
The gap between imports and exports increased 16 percent, the most in more than a decade, to $32 billion from a revised $27.5 billion in June that was larger than previously estimated, the Commerce Department said today in Washington. Imports soared 4.7 percent, outpacing a 2.2 percent gain in exports. .
Increased output from the auto industry to meet orders linked to the “cash-for-clunkers” program is helping to pull the world’s biggest economy out of the worst recession since the Great Depression. Finance chiefs from the Group of 20 nations meeting in London last week vowed to sustain efforts to boost growth worldwide, which will help U.S. exports grow further.
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Good gods! I tremendously resent having my future tax contributions used to pay interest on loans giving like candy to other consumers who wanted to buy cars!!! This is utterly disgusting. Spending money on social systems like healthcare keeps all of us alive and well. Preventing epidemics is a good thing and benefits all of society. We are a society and have joint interests.
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Spending tax money so some bozo can tool around in a spanking new car is insanity. It is disgusting. If we had some sort of boon which could be spend and wanted to waste it in this fashion, OK. But we don’t. This was DEBT which had to be sold to someone else. And the main buyers, China and Japan, didn’t buy any US debt during the clunker business. Note that the above article admits that most of this clunker debt went to Asian automakers who increased profits and exports at our own expense. This made the clunker deal twice as toxic for the US public.
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Rising Exports: The Basis for Sustained Economic Recovery — Seeking Alpha
With the credit crisis and the devaluation of assets, especially houses, more than $13 trillion in consumer wealth is gone. Now U.S. consumers are saving more than 7% of their income as they struggle to replenish their depleted savings and retirement accounts. It will take many years for them to repair their finances. Economists now expect consumer spending to return to a 2% growth rate once the economy is in full recovery mode. In prior expansions, consumer spending had been 3.4% on average. As a result, the U.S. economy will not receive the same positive affect from increased consumer spending as in the last two decades. .
It is looking like exports will take up the slack to help push up the GDP of the U.S. Domestic demand in Europe, China, India, Brazil and other emerging countries will encourage export growth. In June, GE announced it would start to make a low-energy water heater in Louisville, Kentucky, a product that was made in China. In addition, the company is creating a software research center in an old auto manufacturing plant in Michigan, with the goal to produce software for its manufactured products sold worldwide.
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This guy is typical of the shallow thinking we use when discussing the trade deficit. As Asia reams out our auto industries, we get to replace this with software deals? Good gods, and what has been offshored like crazy? Software production! This guy goes on to boast that the dollar is dropping so our exports should triumph.
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Well, that is shallow analysis, isn’t it? The dollar can collapse against the yen and Japan will find many ways to prevent the importation of US autos. Right now, Japan buys FEWER autos every year than before. Their peak came 12 years ago and is now heading downwards. So we have no growing market there, at all. China could import US cars but have zero desire to do this and you can bet, the smart guys at the top of China’s power pyramid would never, ever, ever allow a flood of any auto imports into China.
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Unlike the US, no Asian nation believes in ‘free trade’. They heartily love ‘one way trade’ with the US. They do want our raw materials so we see that going up whenever international production rises again. But manufactured goods? Kiss that goodbye.
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U.S. Foreclosure Filings Top 300,000 for Sixth Straight Month – Bloomberg.com
Foreclosure filings in the U.S. exceeded 300,000 for the sixth straight month as job losses that boosted the unemployment rate to a 26-year high left many homeowners unable to keep up with their mortgage payments. .
A total of 358,471 properties received a default or auction notice or were seized last month, according to data provider RealtyTrac Inc. That’s up 18 percent from a year earlier, and down 0.5 percent from July, the Irvine, California-based company said in a statement. One in 357 households received a filing. .
Foreclosures rose from a year earlier as companies cut payrolls by 216,000 workers last month, boosting the U.S. jobless rate to 9.7 percent, according to Labor Department data released last week. The rise in unemployment is having a bigger impact than an effort by the U.S. government and banks to modify mortgages and prevent foreclosures, said Morris A. Davis, an assistant real-estate professor at the Wisconsin School of Business.
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The housing bubble is taking time to collapse. As I pointed out in 2005, all housing bubbles take at least 5 years to deflate and then another 10 years to regain their peaks, MINIMUM. So this won’t end for a while. This is another area socialized by our government. Instead of public housing, we have the government be the banker for 90% of the mortgages that are held. This means, all losses will be on our own tab. We are the bankers as well as the insurers and the recipients of all this.
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But we do NOT control the writing of mortgage loans. So, the bankers get to eat all the goodies from writing loans and take zero losses as they dump these into the public till. This is unsustainable and irresponsible. And why should I bankroll people buying homes? I paid for my own homes, myself. I now have no mortgage and this is quite possible to do. By 60, people should be out of debt when it comes to mortgages.
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Instead, we get a mortgage which is supplied by our government and which is capitalized with red ink, not capital. And then, we can increase our debts all the way until we die. Then, someone can try to sell the house which is usually run down when people die of old age, and hope that some of the mortgage can be recouped. And the losses will be eaten by the public who have no say in how these houses are cared for or run. After all, if your house is deep in debt and you have no hope of selling it, why paint it or fix the roof? People end up living in these places turning them into hovels, over time. And this then becomes a slum.
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Slums exist where homeowners don’t have a stake. And if the entire US housing market is owned by Uncle Sam via mortgage proxies, this means people will just give up if housing sales languish. People will not invest time nor sweat on making the house nice if there is no profit in this.
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Now, we go to the Federal Reserve beige book which was released today. According to the incoming data, the decline in our economic situation has slowed down. And there are signs of life. But we don’t simply sigh and imagine all is well. Now is the time to fix the dire problems that are epidemic to our systems. That is, we have to stop the deterioration in trade balances, the government overspending problems and we have to denationalize auto sales and the mortgage markets. The US must not be the lender of all systems, all the time.
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St. Louis Fed: FRED Graph
The Fed holdings of our national debt has shot upwards since 1971, when Nixon cut the gold standard. It was less than $60 billion back then. It shot up to $800 billion in 2007. This happens to be the same amount as our trade deficit back then. And these are connected underground, in a way. That is, when we run trade deficits, we also run other things to the same degree. So our government, which is the holder of most US private debts is also generating immense debts itself which is connected underground. For all losses on debts held by the government comes out of the government, itself. This is due to our faux capitalist system which refuses to understand the nature of capital.
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If we had a trade surplus with China AND bought most of China’s public debt, we would be powerful. Instead, we imagine that our debt to China makes us strong because we can wreck things by committing mass suicide. Sheesh. The Federal Reserve considers US government IOUs to be ‘capital’. And to recapitalize the insane banking gnomes, there was a transfer of US government debts to them to the tune of $300 billion. This was the money we were discussing in DC in September, 2008. Note that the Federal Reserve is back to collecting US government debts. Not because the bankers don’t need these faux capital bonds but because the government is creating massive amounts of debt thanks to trying to be 90% of the mortgage and auto sales.
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St. Louis Fed: FRED Graph
Even though both China and Japan have sold some of their US debt holdings this last month, overall, the rate of foreign entities (often pirates in the Caribbean) are still increasing the buying of US debt. But the debt is growing faster than they can buy which is why the Federal Reserve is buying it. And this is also a faux purchase. The Fed tells the government to simply spend money. The Fed is the most undercapitalized central bank on earth. You cannot count your own country’s government debt as ‘capital’. A central bank MUST buy the debt of OTHER countries in order to call it ‘capitalization’.
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When they don’t do this, we get INFLATION.
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Oil Trades Near $71 as Dollar Declines, China Plans Stockpiles – Bloomberg.com
Crude oil traded near $71 a barrel after surging yesterday as a slump in the dollar spurred demand for commodities and as China pledged to stockpile more supplies for emergency use. .
Oil gained as much as 5.5 percent yesterday as the U.S. currency dropped to the lowest level this year against the euro and on speculation inflation will accelerate. China, the world’s second-largest crude oil user, approved a plan to have 169 million barrels in the second phase of an emergency stockpile, state-owned China National Petroleum Co. said yesterday. .
“Crude is inextricably linked to the dollar,” said Peter McGuire, managing director at Commodity Warrants Australia, in a Bloomberg Television interview in Singapore. “The dollar got spanked yesterday so oil shot higher. China wants to buy as much as they can as cheaply as they can. They know that their demand is going to go off the Richter scale for the next few decades.”
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Oil, in particular, is settled with dollars. So anyone who has too few dollars is hammered when the US debases its own currency via wild government spending. The Chinese will concentrate not on buying oil on open markets. They are buying up oil fields and eventually, we will be buying oil from Chinese-owned facilities. Japan was content to buy oil from global markets controlled by the US military umbrella that does considerable killing in the oil pumping regions. This noxious business is being skirted by the Chinese who aren’t killing anyone in the Middle East.
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A number of oil pumping nations are now being supported by China. Venezuela, for example, as well as other South American governments. Also, in Africa, this is happening more and more. And in the heart of our heartless occupation of oil nations in the Middle East, China is busting our chops when it comes to buying oil field contracts. All, while slowly cornering the alternative energy production markets. The US basically goofed off for 35 years and is now lagging behind nearly everyone when it comes to alternative systems. China is even buying up Canada’s oil exploration.
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St. Louis Fed: FRED Graph
This graph horrified me back in September, 2008. It was basically static until then. Sitting at below $50 billion for many years, it relentlessly shot up to nearly a $trillion. Is is back to normal?
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No, this seems to be the new normal. It barely fell to $800 billion and might even surge back upwards again. So this is yet another proof that things are not normal at all. How can they return to normal if our government is the banker for nearly all economic activity here?
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St. Louis Fed: FRED Graph
Currency in circulation doubled in one decade. This is insanity. It seems to have topped off in the last three months but I fear, this is deceptive. Or rather, it is a sign that the banking collapse continues. That is, banks are not capitalized. England is in a worse fix than us. To force banks that have no capital to expend, to lend money anyway, the government is trying desperately to figure out how to have a negative interest rate below ZIRP! This is madness. The US debt versus GDP is much better than either Japan or Britain so we can still screw around with borrowing money.
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Also, we are still the major destination for world trade. While Japan and England are not. Both have to follow different strategies than the US. But our own strategy is stupid since it leads to bankruptcy.
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St. Louis Fed: FRED Graph
The TOTBORR has dropped significantly but still is tremendously high. Normally, it is zero. That is, balanced. It hasn’t been balanced since 2008. It is another indication that normal has not returned at all. The disrupted systems are still very disrupted. And if we fix it via fixing all other economies across the planet, we will still go bankrupt. We can’t fix this ourselves. We have to figure out the obvious: no nation has ever left bankruptcy by going deeper into debt.
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