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No Hope, Only Certainty for World Economy

The Deluge - Paul Gustave Doré

The Deluge - Paul Gustave Doré

The past week saw some important stories break on the mainstream media, including revelations of an explosion in funding of intelligence services in the UK, which reportedly are poorly run, targeting the innocent more often than the guilty. Clearly, the perception of the British Government is that the massive funding boosts are necessary in anticipation of coming major developments around the world.

We found out this week that those calling the latest stock market rise a “sucker’s rally” were right. The pessimists are back in business, with predictions of a fall in the Dow Jones Index to 2,000. It’s a big deal, as the conditions for such a fall in stocks are unlikely to be imaginable for most Americans, even now. Yet two groups in America are conscious of the possibilities: the Government (which has been quietly expanding its prison system and domestic law enforcement) and civilians who are arming up and buying ammunition. But to say that this is merely an American problem would be very narrow minded. Indeed, some of the greatest shifts in economies around the globe are outside the US, such as Japan, having just recorded a record 4 percent contraction in the first three months of 2009.

To that end, the week also marks the shift away from the US currency by Russia as a reserve currency, as well as moves in the same direction by China, a thing that in the past has triggered wars:

In a G2 world (the United States and China), he who is the piper calls the tune, and China holds a US$2-trillion mortgage on the United States and is not happy. This country, along with others that lend money to the United States, such as Saudi Arabia, will determine the value of the U. S. dollar and gold. And they have spoken. They are not buying more U. S. treasuries and are buying gold as a new asset class.

It’s estimated (by John Ing) that the gold price will reach US $9000, which is not a reflection of a meteoric rise in the value of gold, but a total debasement in the value of the American economy. The unmentioned and possibly unmentionable thing in all this is that such a debasement in US currency cannot occur without a significant change in the global military balance. Indeed, if this change is not taken into account, assessments tend to conclude that China (and others) will not recover quickly to take the global lead away from the US. The same degree of extreme economic instability is forecast (and is already coming) for the UK (and other first world countries), although it will likely take different forms. The interesting thing is that talk of conspiracies of world government and globaly tyranny, once only conducted in hushed tones by people suspected of having paranoid delusions, is now the stuff of the regular press, making simple arithmetic easier than ever. Perhaps this is because the notion of coming social upheaval is now a foregone conclusion, making it an acceptable thing to discuss in the public arena.

On a cultural level, the undermining of British social structure appears to be complete, with the sexual equality war now having been lost well and truly in favour of Feminism, where it is reported that advertisers now consider mocking maleness as an advantageous strategy. The significance of advertising trends should not be underestimated, since it is one field where sciences of psychology and sociology are applied effectively, where the current status of a society is accurately assessed. It marks a total disorientation in British society from what could be termed a natural social order.

There is very little left in Western society that reflects the biological realities of being a human being. The lives of men and women are distorted, artificial, medicated. This false way of life guarantees their unhappiness and vulnerability to social pressures. As such, Western society is weaker than it was during the first Great Depression, which is likely to make matters much worse in coming years. Even if people woke up to these facts tomorrow morning, it would take generations for them to relearn what has been lost. It’s unlikely that this will occur, in any case. That particular civilisation has passed its turning point.

There isn’t much anyone can do now to avoid the problems which will arise in the next couple of years. If this were to be compared to the story of Noah and his Ark, then the time now would be that of the first rains of the coming deluge. That  said, the people of the world who have been quietly preparing themselves, mentally, spiritually, and materially, are in a position of great advantage. This “advantage” is not the kind that is understood by opportunists or materialists. Indeed, those who only view current events as a way to make some money are going to be rather surprised.

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The Recession is Still On

May 12, 2009 7 comments
Only South Park would get away with this.

Only South Park would get away with this.

For anyone who had the hairbrained idea that the latest stock market rally was a sign of the return of the good ol’ days, news signaling future woes continues to flood the financial rags.

The housing market in the US and UK is still extending people’s abilities to accept ever more bad news. The Financial Times reports:

The 25 per cent auction discount and the sluggish market give a strong signal that prices have further to fall. But the recent uptick in the auction market also shows the gap is narrowing.

This can mean either of two things; either the housing market is still tanking (in the UK and US), but a turn-around is coming soon, or the housing market is still tanking, and the increase in sales at auction is due to people who have to live somewhere buying at the 25% discount that results at auction, not realizing that prices will fall further still as more mortgate defaults accumulate (since, in the US, as many as 30% of mortgages are still bigger than the asset value). It certainly suggests that the Australian housing market is not at all a safe place to invest currently, although the statistics still look amazingly good there thanks to the naive First Home Buyers.

China, fearing an inflationary spiral, is restricting credit:

Chinese bank lending slowed dramatically in April because of fears that loan growth in the first quarter had been excessive and could pave the way for loans of deteriorating quality, so possibly creating a new round of asset bubbles.

This suggests that nobody there has any real confidence that life is going to get any easier in the near future. Whatever is said of China’s increase in manufacturing, it is occurring in the face of worsening deflation and therefore falling demand. Again we ask, where are the markets going to come from to restart China’s furry toy and other plastic-junk factories? The banks have probably overstepped their mark in spreading around the easy-money:

There have been signs that China’s economy is starting to regain momentum after weak growth in the early months of this year. There was significant growth in fixed-asset investment and industrial output in March. Chinese banks have also lent 4.6 trillion yuan (£460bn) in the first quarter of the year, nearly the total for the whole of last year.

As we described earlier, this is like flogging a dead horse by ramming it with a speeding freight train. Of course the horse will move, but it’s still dead. But according to central bankers such as Jean-Claude Trichet, the recession is over. He is ignoring the magical freight train (the ridiculous amount of new money spirited into existence over the past year) which governments and bankers alike are hoping people will not notice, or at least forget very quickly.

The problems won’t pass until some serious restructuring occurs in advanced economies in order to make them viable. This will take years and, in countries such as Australia, planing for this kind of restructuring (in the form of infrastructure upgrades) is still only talk. Most of this stuff isn’t even on the Parliamentary floor yet.

Australian Housing Disinformation

March 27, 2009 Leave a comment
Know Thy Banker

Know Thy Banker

A short note today on the difference between the RBA’s comments on the stability and durability of the housing market and, well, reality:

The Reserve Bank said Australian banks had been able to concentrate on profitable and relatively safe domestic lending to households over the past decade. They had not lent heavily abroad, where risks are higher, and they had avoided exposure to securities, such as collateralised debt obligations, that have brought such heavy losses to other banks.

How can they pretend that Australian household incomes are immune from international events? The difference between foreclosures on Australian mortgages and those overseas is one of timing and not necessarily magnitude. Claiming that we will survive this worldwide depression like we survived the other, smaller recessions, is nothing more than a random statement. Nobody really knows that.

It’s no secret that the New Zealand economy is in a terrible recession, and everyone is aware of the economic collapse in Ireland, Iceland, Eastern Europe and, it appears, even the United Kingdom. It’s now official news that Australian wealth fell by as much as 38% over the past twelve months. Unemployment is already rising and there is no evidence to support the notion that the trend won’t continue.

If we separate opinion from fact in all of this, we can see that the RBA has plenty of opinion but not much fact behind its confidence in Australia’s real estate market survivability. At the very least, the RBA is tight-lipped on how it arrives at its optimism.

Part of this optimism may come from Chinese investment into Australia which is a particularly smelly bucket of fish:

Market insiders believe China is buying 15 to 20 per cent of the $2 billion in Treasury securities being issued every week.

This would make China the single biggest lender to Australia, although details of who owns the bonds are cloaked in secrecy.

The program, authorised by Treasurer Wayne Swan, will leave Australia with a debt bill approaching $200 billion.

Our Government is playing a very dangerous game in doing so, and any assumption that China won’t want its pound of flesh in return would be foolish indeed. In a way, all this is a bit like taking out a mortgage to buy the kids a Playstation, a swimming pool, and some other expensive entertainment thingies, all in the face of impending unemployment. Hey, we might be lucky and not get unemployed!

Can this all be a reason to hope that real estate prices in Australia won’t fall? It cannot be, because ultimately, borrowed money has to be paid back and the artificial propping up of Australian living standards through foreign debt is not sustainable, even in the medium term, because economic resurgence has not yet occurred anywhere in the world. The stock market rally in the US is not to be taken seriously, as there is no fundamental reason behind it. Where are the glowing US trade figures? Where is the news of factories reopening, or of a jump in forward orders for commodities?

Australia is only in the early phase of the economic storm. Good economic news that is not based on indisputable fact should be considered to be nothing more than disinformation.

China and the Crisis

March 12, 2009 Leave a comment

ChinaThe sea incident involving the USNS Impeccable was suspicious from the start. It has now become a little clearer, in that the US has admitted that its vessel was sub-hunting and was intercepted, probably because China was fully aware of what the Impeccable was up to. This raises anew the question of what exactly is China’s military capability at the present time and just how worried is the United States about this. Being no expert in these matters, I had a dig around and tried to summarize what knowledge is readily available in the public arena. The question has become more important now, as trade based friendship between China and the United States appears to be coming to an end:

Chinese exports slumped 25.7 per cent in February as the collapse in global demand caught up with the country’s exporters and overshadowed a sharp rise in domestic investment.

Will China look for a military solution to its internal social problems? Will it put its unemployed to work in a new military industrial push, in order to avoid revolution?

China’s military capability was previously assessed from the point of view of a possible invasion of Taiwan in addition to otherwise defensive or deterrent capabilities against more distant foes. As such, it has been known for quite some time that China has land-based intercontinental ballistic missiles capable of delivering nuclear warheads to targets 13,000km away, plus hundreds of mobile weapons mounted on aircraft, ships, submarines and so on.

China’s submarine fleet had previously been assessed as limited, due to technical problems with its existing nuclear powered subs. However, over the past decade, China’s spending on military projects has risen sharply and it is quite possible that China now has what could be termed “full submarine capability”, meaning that it may have enough submarines in continuous operation and armed sufficiently to take out any of the major military powers worldwide, although I could not find confirmation of this. The point being that submerged craft are, most of the time, not targets and can be relied upon to deliver an unstoppable volley of missiles to annihilate any nation, including the United States. Once China enters the club of nations capable of promising “mutually assured destruction”, things are set to change substantially with regards to political and military posturing.

As for China’s invasive capability, it has over 2 million active personnel in its formal military forces, with roughly half that number in reserve, plus an unknown number of paramilitary personnel. It’s a very large force, which has been criticized in the past for being unwieldy and armed with low technology weaponry, but should a Chinese invasion (of Taiwan) occur, the massive numbers of available troops makes the probability of success very real. Modernization of China’s military continues, but in comparison it is thought to be far behind Western forces in technological prowess. The current trend is towards automation of weaponry and vehicles, especially with unmanned aircraft (which can eliminate the dead leg of a bombing mission) and tanks, but it is unlikely if human fighters will ever become obsolete, especially in urban combat and the “regime change” phase of invasion. One can even envisage a role for displaced, unemployed or otherwise condemned civilians used to colonize cities which have been cleared of inhabitants by military forces.

However, in assessments made roughly five years ago, a sea-based invasion of Taiwan by China did not appear to be a real threat in the medium term (until around 2015), especially since Taiwan would probably receive defensive assistance from the United States. However, in 2007, it was reported that China has been advancing more rapidly than expected in sea-based invasive capability and could be ready for a Taiwanese invasion by 2010. Other, more sensational reports, suggest that China will soon be second only to the United States in overall military capability.

Is it a coincidence that the plug would be pulled on the world economy at the end of 2008, just a year or two before the estimated time that China would be ready to take on its neighbors militarily? Could there have been a method to the economic madness? It’s difficult to say, but given that, in American circles, there is increasing talk of China’s threat both economically and militarily, one cannot discount such a possibility. The fear of war with Iran has been placed at forefront of the paid news media’s attention over the past year or two, however Iran’s economic significance, or its ability and likelihood to invade its neighbors, is probably much less than that of China’s.

As suggested previously, the world economic crisis cannot have merely monetary consequences. No nation wants to be poor, yet the game appears to be up for the United States as an economic superpower. The United States still has the world’s most advanced military outfit, but it has still shown an inability to overcome even the comparatively low-tech resistance mounted against it in Afghanistan. It is therefore vulnerable to being bogged down in other regional conflicts which could prompt China to carry out some of its long term strategic aims in Asia.

With its main export base vanishing, China may also be tempted to pump its excess productive capacity into its own military, which could see an extremely rapid and unpredictable build-up of its military capability. This would be a logical approach to managing its massive working population which has suddenly been rendered idle (a dangerous scenario if left unchecked). The alternative is to wait for the world to consume again, which could take a decade, or to face massive civil unrest and, potentially, the fall of the Chinese Government.

A Visit to the Banker Manager’s Office.

February 23, 2009 Leave a comment

no_dollar_beggarLike an unemployed man’s wife, Hilary Clinton has made her way to the Bank Manager (China) to beg for leniency on non-payment on the mortgage.

“Because our economies are so intertwined the Chinese know that in order to start exporting again to its biggest market, the United States had to take some very drastic measures with this stimulus package,” Clinton said.

In other words, the furniture has been sold and they have promised to pay the baker, the butcher and the milkman. With money, of course. The sons sit idle, illiterate and unskilled. The daughters are already working the street corners and public houses in the town but it just isn’t making ends meet.

As she walks into the bank, all dolled up, the bank clerks eye the woman with hatred and jealousy. They all talk amongst themselves. One of the secretaries knows about the Banker and tries to wave her hands at the woman to tell her of the dangers, but the woman is very quickly intercepted at the door and ushered to the waiting room.

The Banker is looking at the books and can see that foreclosure is on the cards. He invites the woman into his office.

“Lend me a bit more” pleads the woman, “my daughters will work harder and my sons promise to learn to read”. The Banker just leaned back and smiled.

The US secretary of state had said on Saturday after meetings with China’s leaders that Beijing was still confident in US Treasury bonds and expressed Washington’s appreciation for the investments.

So said the woman as she adjusted her blouse and redid the strap on her high heels. She stumbled out of the manager’s office hurriedly.

But everybody could sense what really happened in the Banker’s office.

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