Uh-oh. It's the Chinese. And boy are they mad! It seems that they are catching on to our economic scam. You know - in order to report a pretend positive GDP number the United Banks of America print and manufacture money to lend to people that can't repay the loan so they can continue spending at unsustainable rates mainly buying cheap Chinese manufactured products. See the last ten years. We can only expect one of two outcomes. One, we finally buy so much stuff that we don't need anymore and suffer a deflationary spiral fueled by too much capacity and too little demand. Two, the money printing catches up and inflation bursts forth. Either way, the lenders get screwed. The Chinese are finally on to us. What will the Federal Reserve do now?
To become the world's largest debtor nation and beg the world to keep lending is one thing. But then to continue to manifest money out of thin air is another altogether. Our governmental witless nitwits will need to issue a couple of trillion of notes and bonds just this year alone! To put that kind of indebtedness in perspective, two trillion is more than the annual GDP of every country in the world except the top seven - the US, Japan, China, Germany, France, the UK, and Italy. If California was a country, they would be eighth but they are so broke they are issuing IOUs. All this debt and all this printing and all this bank saving and all this insurance and car takeover by our government should have one consequence. Our excessive borrowing should be costing us more in the form of higher interest rates required from our creditors for them to continue to feed our debt addiction. The bond yields should be rising like Jack's Bean Stalk. But, it is becoming very apparent that every time the 10-year yield rises toward 3.9% or so, something dramatic happens. Now, let's see. Who is the biggest sucker in the world? Who is on the hook for nearly a cool trillion in our junk debt? Oh yeah, that would be the Chinese. My guess is they pick up the phone and call the keepers of the US government, the Federal Reserve, and demand action. The Fed and their PPT arm spring to action and buy the yield down. Back to 3.5% or so we go and the Chinese calm down. Of course, the PPT can't manipulate all markets at the same time so when they are busy manipulating the bond market, the stock market suffers. So went this past week.
The Fed had a meeting and declared no change to the zero percent fed funds rate. I suspect this will be the same line 20 years from now. They will never again raise rates. Why? You need a real economy that can actually pay to borrow money. That means that the borrowers have to be able to make money on the money that they borrow. Dig it. We are subsidizing the banking industry, the insurance industry, the car industry, the mortgage industry, and the obamanistas are coming for the health care industry. Under this policy of idiocy, our government claims that GDP was down only 1% for the second quarter and most importantly, all the village idiots stepped forward to declare either an end or an eminent end to the greatest recession since the 'Great One' of the '30's. Hallelujah, the recession is over! If you believe that, then you must also believe that the Fed had to take over the banks for the good of us all. Step back and think about it. What would really have happened if the troubled banks had been allowed to tank? Sure, the FDIC would have been in scramble mode but we all know this is a sham of an insurance provider. They don't have enough money to insure deposits and had to get our real life 'Wizard of Oz', the Fed, to promise access to the printing press to stay alive. Really, what would have happened? I'll tell you what would have happened. The derivatives world would have vanished and all the carnies and con men would have been vanquished from our landscape. Also, the Chinese, the Japanese, the South Koreans, and so on, would have been left holding a balloon full of Federal Reserve bubbles and would be a little more prudent in whom they choose to lend money in the future. Lastly, we would have to go back to buying with cash. If we don't have it, we don't buy it. As a country, if we can't collect it in tax, we don't spend it. The Pelosi's and Reid's of the world seem even more ridiculous than they already are. In the end, we, our economy, would recover because it would again be rooted in assets and not 'conceptual' assets like derivatives. But I digress.
Isn't it odd that this past week was not a good week for the stock market? We celebrated the 'statistic' issued by 'our government' that claimed fewer job losses. The recession was over. Inflation was supposedly lower in July even though gas went from $2.30 or so to $2.50 a gallon. I know, I know. Our government has been pathological in their lying about everything for so long we have no basis anymore to determine reality. All we can do is rely on the markets and charts. The chart below is a ten-year chart of the Dow and the US dollar. The Dow is in blue and the dollar in green. Notice the phenomenal volume the PPT threw on the market in March of this year in an effort to convince us that TARP was good! Wow! What I want to get across is the obvious inverse relationship between the two. For the Dow to rise, the dollar must fall. Why? The Dow is function of inflation. It is not a function of value. We are now Zimbabwe. Zimbabwe is us. Like I previously mentioned, we need to issue more debt this year alone than anyone in the world can absorb. Now, our Federal Reserve has had to step in and buy the Treasury auctions of debt so we can pretend that demand is still strong. It is not. That knock at the door is getting louder and louder. The Chinese are not stupid. They know we are purposely devaluing our currency because the only way to repay our debts is to do so with cheaper currency. We have borrowrd the cow but want to repay it with a 10 ounce sirloin. The Chinese want the cow back. Our Fed knows the American populace is ignorant of all things economic so they distract us with a stock market rally. They occasionally bring forth things like health care reform to woefully and totally distract the idiots that report the news to the idiots that view the news so we won't pay attention to the theft of the country's assets at the hand of the Fed and their banker right arms. Oh, did you see that the big banks all reported grand profits? Hallelujah! Our bankers can reward themselves with billions in bonuses. To the people of the US? More job losses, more asset deflation (houses continue to fall in value), more mortgages under water, higher prices for non-assets, and a currency that will continue to fail. Follow the green line in the chart. There are three distinct triple tops right before plunges in value. We are about to exit the third as I write. What does it mean? Probably, a further stock market rally. Are you happy now? At least we know that interest rates aren't going up. Knock, knock!! Hey, Ben. Get to work. You know who you work for now. Who's your daddy? Who's our daddy? I wonder how you say that in Chinese?
Dow in Blue; US Dollar in Green - 10 yrs
Chart courtesy StockCharts.com