G20 meltdown and the Deficit Commission. More to follow. -Ed
http://www.informationclearinghouse.info/article26831.htm
China to the US:
Stop With the Monopoly Money
By Eric Margolis
November 15, 2010 "Information Clearing House" -- - -One day, the king of
ancient Babylon summoned his treasury overseer and exclaimed, "I need more
money to wage war on those Hittite terrorists! "I looked in the great
treasure chest and it's nearly empty. There are hardly any gold coins left,"
he thundered.
"Oh Light of the Euphrates," groveled his terrified minister, "we are out of
gold. Your wars have become too expensive."
"But I have a solution, your celestial greatness. We will quietly trim the
amount of gold in our imperial gold coins to make them go further. No one
will notice."
Fast forward to Washington, 2010. It's no longer called "clipping coins."
Today, the name for debauching a nation's currency is called "quantitative
easing(QE)," but it's still the same old fraud committed by financial
flim-flam men.
Washington is flooding financial markets with $600 billion of worthless
dollars, hoping a rising tide of Monopoly money will somehow lift America
out of recession. The Fed's first QE effort was a fizzle.
The US government is stoking worldwide inflation in order to lower its
outstanding debt by repaying creditors with depreciated dollars. The rest of
the world is boiling angry at Washington.
Just before last week's G20 economic summit in South Korea, China's state
credit agency publicly downgraded America's credit rating and questioned US
leadership of the world's economy.
In an unprecedented, stinging rebuke, China scolded Washington for
"deteriorating debt repayment capability," and predicted quantitative easing
would lead to "fundamentally lowering the national solvency."
Wow! This was a real slap in the face heard around the globe. China is the
largest holder of US government debt. I remember the day when New York
financiers used to sneer at iffy stock or bond issues as, "Chinese paper."
Now, it's "American paper." How the world has turned.
Washington has been blasting China for manipulating its currency to keep the
value low - which is quite true. Embarrassingly, Germany and Brazil just
accused the US of being as big a currency manipulator as China - which is
also quite true.
A depreciated dollar boosts US exports and hurts nations exporting to the
US. Economists call it, "beggar thy neighbor," a destructive trade practice
that played a key role in the 1930's world depression.
This money flood is eroding the value of the dollar, the world's premier
medium of exchange. In the past two months, the US dollar has dropped 6%
against other major currencies. Frightened investors are piling into gold,
now up 17% in 60 days.
The Obama administration, just "shellacked" by voters in mid-term elections,
and desperate to lower unemployment, is gambling more debt shock therapy
will spark the economy back to life. But massive, unsustainable debt caused
the US financial meltdown in 2008.
The US public debt has hit a stratospheric $14 trillion. You don't treat a
poisoning victim with more poison.
But panicky politicians are ready to try any sort of economic snake oil
remedy to save their skins. Before 2007, America was living high on phony
financial froth. Finance had become America's leading business. Those days
are over but no one dares tells voters.
Besides destabilizing world exchange rates and trade, Washington's money
flood is pouring into emerging markets as American investors seek higher
returns than the miserable .03% available at home.
During the 1980's, we saw fragile Asian economies battered as investment
from the US flooded in, then out. This is happening again, boosting
currencies of many nations, making their exports uncompetitive. Investments
barriers are going up from China to Brazil.
President Barack Obama inherited a horrible mess from the Bush
administration. However, his wrongheaded economic response is undermining
the world's economic order. A nation's currency is more a symbol of its
strength and good name than its flag. Running down the US dollar, which
ruled world finance since 1945, could mark the beginning of the end of the
American era.
That's what the American delegation to the G20 economic summit in Seoul,
South Korea heard this week. Obama's economic policies, notably his attempts
to stimulate the US economic with the steroids of more deficit spending,
were roundly rejected and criticized by other G20 members.
However, there was an uncommon flash of common sense in Washington last
week. A special bi-partisan presidential panel on reducing the national
deficit proposed $4 trillion in federal spending cuts.
All political sacred cows were targeted. The biggest: the $700 billion
military budget. A third of US worldwide military bases would close. There
would be cuts to social security, mortgage deductions, delays in retirement
age, an end to politician's local pet projects. Taxes would rise.
The howling has already begun. Unfortunately, such unpopular, drastic
spending cuts seem highly unlikely, particularly in the new US Congress
where Republicans and Democrats will be deadlocked. America would need an
economic dictator to implement the panel's full plan.
So it seems the US will stagger along under a mountain of unsustainable debt
while the world economy suffers widening shocks and turmoil.
More empires have been undone by financial collapse than invasion or
battlefield defeats. The once mighty United States is staggering in this
direction.
Copyright Eric S. Margolis 2010 - http://www.ericmargolis.com/
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