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ed harrison writing in his blog credit writedowns has an arresting take on the subject with this trade war looming one must wonder if chimerica the marriage of china and america as one economic entity will end in murder suicide taking the global economy down with it follow the link above to alan kohler s article in today s business spectator the concept of chimerica and economic union between the united states and china is a fallacy it is best described as a co dependency where china produces and america consumes it is a core part of the chinese mercantilist economic policy which has so damaged the us s productive base it could be fairly said that this is not due to china alone but over the last decade its has been the strongest contributor to this process i was actually quite surprised with the chinese response to the us tyre tarriffs a trade war with china will hurt the us but it would be a disaster for the chinese economy this would clearly be an area where quiet diplomacy would be in china s interest playing the trade war card with the us is in my opinion a grave strategic mistake from the chinese it seems that nationalistic sentiment spured on as a tool of social control by the chinese communist party is developing a life of its own nationalism and totalitarianism are the key foundations of fascism a point no doubt that we will be increasingly made aware of as the economic relationship between china and the west breaks down and a new one rises to take its place posted by peter at 11 10 am 1 comments thursday september 03 2009 the elephant in the room i refer to today s australian financial review page 63 and the article titled bernanke s duty to come clean written by vince hooper at the university of new south wales in this article mr hooper has clearly outlined the reasons why i believe there can be no medium term global economic recovery the world needs to know how the us intends to reduce its mountain of domestic and external debt true i think the us needs to work it out first mr hooper outlines three ways the currently unsustainable level of us debt can play out the us does nothing but continues to accumulate further debt not actually a strategy or outcome but a description of the current state of affairs the us selectively defaults on its debt obligations possible but the concomitant annihilation of the us dollar will send us head first into great depression ii in my mind this is the doomsday deflation scenario the flipside of this scenario is that lenders no longer support us s borrowings leading to a rapid rise in the us interest rates the us monetises its debt this is the high inflation scenario there is no easy way out of the hole the us has dug for itself the reason bernanke hasn t annunciated a strategy to extricate the us from its current unsustainable debt position is that there isn t one politically acceptable the only way forward for the us is probably a combination of the following global disengagement massive reduction in military spending lower standards of living reduced imports higher taxation currency devaluation progressive rebuilding of its industrial base a cursory review suggests that this will need to be imposed on the us citizenry by circumstance rather than choice posted by peter at 9 07 am 2 comments friday august 21 2009 cloak of dollar illusion the dollar s role as a good store of value is questionable and the currency has a high degree of risk or so says said nobel prize winning economist joseph stiglitz i couldn t agree more the missing part of this article is what would happen if the world attempted to move to a new global reserve currency i suspect that very quickly the great illusion of the us dollar would manifest itself as a gaping chasm the comcommitant fall in the us dollar the us standard of living us consumption and the us economy would plunge the the us and the rest of the world with it into a economic disaster it s not the the gaping chasm isn t here already its just covered by some precipitously placed chinese silk posted by peter at 3 52 pm 0 comments thursday august 20 2009 banananomics but it was a wise man who said all i want to know is where i m going to die so i ll never go there we don t want our country to evolve into the banana republic economy described by keynes follow the link to the featured article from the new york times penned by warren buffet in this article mr buffet makes a few comments reminscent of paul keating s famous banana republic speech of 1989 the then treasurer of australia warned that the country was headed into economic oblivion he then induced a recession in australia raising interest rates into the high teens it was a brave move and one that earned him not inconsiderable political ire amongst a lage number of voters although i didnt lose my house in that one i have always held that decision in high regard the consequences were ugly there was a very painful period of adjustment but australia emerged stronger and entered a period of long term sustainable growth i believe that the united states will soon face its banana republic moment also as buffet aludes to the question is can the united states find anyone with the political will to make the right decisions posted by peter at 9 30 am 0 comments wednesday august 12 2009 recession over apparently so for a survey of economists who believe ben bernanke should stay as us federal reserve chairman hmmm perhaps alan greenspan should run for president the recession is only over to the extent that the depression hasn t begun in truth though i do forsee the possibility for an interim period were we crest another sentiment wave before beginning a downward turn may no mistake from a personal perspective i wish it was over i have no personal interest in living through a depression the sad truth is that the united states as per our previous post remains insolvent as long as its creditors continue to provide unlimited finance to its unlimited deficits this charade will continue history may determine in retrospect that the u s was already well beyond its capacity to service or repay its debt as i have said before these are still the good times for the united states and the rest of the world a u s debt default de jure or de facto high inflation low currency will be catastrophic while it is not necessarily imminent when it happens it may occur very quickly indeed let s all hope that unlike august 2004 this time i m completely wrong i surely do posted by peter at 12 58 pm 0 comments thursday july 30 2009 the american insolvency this has been building for a long time more and more you find references to the this issue in the mainstream press i expect within 1 3 years the us dollar will commence an extended decline in value however as this article suggests with currencies swings in sentiment really can be dramatic a collapse in the us dollar will be a collapse in us power and influence and accordingly the influence and stability of the western world the economic consequences of the global financial crisis will seem mild in comparison to the collapse of the world s reserve currency in the us the effect will be as severe as the great depression although the us appears almost half way there now the real question is where will china land stable and assertive chaotic and dissolute or perhaps an expansionist police state where miltary conflict is used to maintain public morale and order i sincerely wish the green shoots optimists were right if the us was solvent they probably would be posted by peter at 6 17 pm 0 comments wednesday july 15 2009 the fourth turning revisited i ran into this interesting article just after the last post it is interesting because it links howe strauss s work to the current unfolding economic disaster it is a worthwhile read although i do not have a view on peak oil the two key bodies of though which led me to originally foresee the great recession were howe strauss generation theory especially the fourth turning and austrian economic theory i have posted the link before and its worth a refresh http www fourthturning com posted by peter at 4 17 pm 0 comments the long haul the only recession since the great depression to wipe out all job growth from the previous expansion please follow the link to this post s feature article from the wall street journal it is not commonly known but the real unemployment rate in the united states when you adjust for underemployment is running at around 16 5 we already have unemployment running at mid teens in the united states and we are still in the early stages of this process i read commentators talking about green shoots i see none what i do see is the united states running up astounding budget deficits and accumulating unprecedent levels of government debt there is plenty of ongoing talk now about downward pressure on the us dollar and questions around how long its fiscal prolifigacy can continue despite all the good intentions of the obama adminsistration and the woefful mess they inherited from the bush adminstration i suspect they will oversee the comprehensive destruction of the us economy needless to say the rest of the world will follow it this will destablise the world to such an extent that some form of serious global conflict would now appear inevitable in the next decade there is still that palpable sense in the community and the media that the good times will return unfortunately this generation has already seen their best of times we are a full generation away from recovery posted by peter at 3 57 pm 0 comments monday june 22 2009 usd 134 billion anyone this article makes for a fascinating read whatever the truth of the matter is bumbling would be japanese billionare fraudsters north korean agents or officials of the japanese treasury flogging us bonds off market enjoy posted by peter at 3 02 pm 0 comments friday june 12 2009 page nineteen firstly i have to apologise as the article i am quoting for today s blog is not online but from a print copy so i will refer you to p 19 of the australian financial review 12 6 09 some quotes in context america s fiscal obligations exceed any realistic prospect of it restoring its financial well being america is for all intents and purposes heading into a ditch financially on its deficits this is not sustainable without consequences including the risk of default on america s debt obligations and the collapse of the us dollar what articles like this often fail to do is appreciate the reverse of the implied argument the implied argument is that the us must rapidly curtail its spending in fact the reality is the opposite it cannot the consequences are precisely as the article states debt default and currency collapse both of which are imminent in the medium term the consequences for the world of the collapse of the us dollar and a default from an economy that represents over 20 of global gross product is unparalleled it marks a turning point in the future of the world and the beginning of the decline of the english speaking cultures posted by peter at 11 09 am 2 comments thursday june 11 2009 bond bubble bursting the yield on 10 year bonds surged to its highest level since october at almost 4 per cent sparking concern high interest rates could temper recovery it appears that bond investors are continuing to reprice sovereign risk on us treasuries i suspect it only has one direction up like general motors the us is well on the road to insolvency perhaps inevitably years of over spending on wasteful folly like meaningless wars such as iraq combined with chronic under taxation have left the u s in financial ruin the state of california amongst many is bankrupt financially and politically this us s condition been achieved by the bush administration s prolificacy and greenspan s ruinous monetary policy not as some partisan u s conservative commentators have suggested by the current administration however it is being exascerbated by the obama administrations reponse to the crisis some of the crucial social policy initiatives needed to reform and modernise the u s as a contemporary state such as a national public health care system are necessary but no longer fundable as more and more people in the us fall into unemployment so too will the intolerable sutuation of massive numbers of us citizens without public health care continue to rise national public health care systems deliver necessary social equity and preserve human dignity whilst delivering a needed service at a lower percentage cost of gross domestic product it is one of the few areas where empircial evidence strongly supports the notion of lowest cost government delivery i appreciate that may be anathema to some of my readers of course i have digressed if the current trend continues us bond prices us interest rates and inevitably global interest rates will continue on an upward trajectory despite the recessionary environment posted by peter at 9 57 am 0 comments friday may 22 2009 the early signs early tangible signs are emerging of a repricing in the both the us dollar and the british pound resulting from the active debasement of their currencies as the link to the above article suggests markets are beginning to accept that the us dollar in particular is not adequately priced for sovereign risk in this blog i have restarted time and time again the inevitable consequences of us government deficits and now with quantitiative easing the debasement of the us dollar has virtually moved into the sphere of the deliberate progressively the us will have to pay more and more to foreign holders of its treasury notes interest rates will now progressively start to rise and sentiment decline to a new nadir the chance of a rapid collapse in sentiment and a run on the dollar remains real posted by peter at 12 52 pm 1 comments friday may 08 2009 the second movement we should congratulate the world leaders and central banks for the way they cooperated after the lehman crash we had the leaders and central banks of us china continental europe japan russia and the uk all working together to achieve a common goal it was unprecedented in global history and what they achieved was remarkable above quote from mr gottliebsen from business spectator one of the best business reporting services globally except for this comment link above yes it is remarkable what the world s central banks have achieved together they have primed the global economy for stage two of the great recession it is the part when you look back at 2008 09 as the good ole days the framework for extended global currency instability is now firmly in place sovereign risk is now primed with tangible default potential over the next decade across developed economies the severe depletion of personal savings over the preceding decade has now been matched and exascerbated by an even more severe depletion of government capital as governments have no productive capacity in their own right this in effect further pe...
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