By Giordano Bruno
In the past few years, the concept of economic globalism has revealed itself as quite the Trojan horse; once posing as the next step in the evolution of “free market” capitalism and the savior of third world nations striving for development status, now revealed as a fiscal plague spreading delirium and destruction wherever it touches ground. There is no denying that the economies of the world are irrevocably tied to one another, but until recently, this was always thought of as a “good thing” in mainstream financial circles. Today, the great failings of engineered interdependency are painfully apparent. The EU’s many peripheral nations are dropping one after another like flies in a fog of DDT, rising economies in Asia are bloated with investment capital escaping from debt default in the West, causing impressive levels of inflation, and the U.S. is on the verge of a currency implosion as the Federal Reserve opens the floodgates of fiat in a bid to hide our system’s extreme destabilization and maintain what little international faith is left in our ability to service our rampant liabilities. Globalism has led us to disaster…
Of course, this disaster is not quite so obvious if you only follow the MSM’s version of events, or the pithy, watered down observations of mainstream economists, central bank officials, and puppet politicians. In fact, it’s difficult for the average person only mildly versed in economics to understand just what is going on! The closer we get to the edge of the ravine, the deeper the deception becomes. Most Americans feel the danger intuitively, and see the warning signs in their local communities, but clear, concise information in the midst of this ‘Gordian Knot’ of lies is difficult to come by.
Treasury Secretary Timothy Geithner claims that the Fed’s quantitative easing programs are no threat to the dollar and that our country “will not engage in devaluation”, all while commodity and energy prices skyrocket to record levels and numerous nations threaten to dump the Greenback as the world reserve currency. China claims that their inflation is manageable, releasing CPI data that is even more arbitrary and skewed as our own, while the Chinese masses grow louder in their anger over a lack of purchasing power to match exploding housing and food prices. The U.S. blames the lack of global recovery on China’s undervalued Yuan and its unfair trade imbalance. China blames the lack of global recovery on the overprinting of the dollar. Europe sits across the Atlantic hoping both China and the U.S. will keep printing and sending currency care packages to keep the EU afloat, all while claiming every three months or so that the “crisis has passed”.
So, what’s the truth in all of this?
In the following, I will attempt to dismantle the latest disinformation campaigns, explaining the most important factors surrounding the developing calamity between the world’s major economic powers in the easiest terms possible; including how these factors will directly and indirectly affect you…
Truth: Dollar Devaluation Is Occurring, Inflation Is Here
As we have covered in recent articles, widely visible inflation in the U.S. has been steadily developing for at least one and a half years. Food, energy, and metals prices across the board are soaring, and commodities actually outperformed stocks, bonds, and the dollar in 2010:
Wholesale prices (according to “official” numbers) rose 1.1% in December, following a 1.5% gain in November. These figures are diluted, to be sure, but the fact that inflation is being reported at all signals probable danger for the coming year:
Grain prices surged in 2010. Corn gained nearly 60%, while soy and wheat gained around 40%. Cooking oil prices jumped 62%:
Anyone today who denies inflation is evident in our economy is either blind, dishonest, or mentally deranged. In any case, they are not to be trusted. The question now is, is this inflation being caused by devaluing world currencies like the dollar, or a myriad of random chaotic “coincidences”…
Lie: Current Inflation Is Caused By “Global Recovery”, And “Rising Demand”
The great lie surrounding these inflationary warning signs is that they are a product of “recovery”, and increasing demand in the U.S. and developing countries. While the “demand” argument may be partly true for gold and silver’s rise, it is certainly not true for oil and grains. Global demand for goods overall is dropping off a cliff, as is evident in the Baltic Dry Index, which measures shipping and freight rates around the world. The BDI has suffered a 20% decline in the past three weeks alone:
If shipping demand is falling around the world, then demand for goods is falling around the world. If demand for most base goods is falling, then demand is not the cause of our current price spikes. Period.
More Americans filed for consumer bankruptcy in 2010 than in any year since 2005. Keep in mind that the government’s new rules making bankruptcy filing far more difficult took effect after 2005. This means that even with harsher bankruptcy guidelines, we still saw a massive wave of filings last year. If demand is actually a substantial factor, then U.S. consumers are burying themselves in red ink in order to support it:
Considering that over 8 million Americans have stopped using credit cards just since Christmas 2009, I think it much more likely that consumer demand in the U.S. is flat, or, still falling, despite the claims of the MSM:
Mainstream analysts are often quick to point out that annual retail sales for 2010 were up over 6%, claiming this is a sure sign of recovery. Unfortunately, in their effort to ignore inflationary factors in 2010, they forgot to consider that perhaps rising retail sales were not due to increased consumption, but INCREASING PRICES on goods we already buy daily. Black Friday and Christmas season sales were generally unimpressive compared to 2009. Black Friday sales were flat and December sales were up only 0.6%. Are Americans really buying more, or are they forced to spend more on goods they need due to inflation?
Lie: The BDI Is Falling Because Of An Expanding Shipping Fleet
A new disinfo tactic I’ve noticed in the past two weeks is the suggestion that the BDI is not falling because of decreasing demand for raw goods, but a growing fleet of idle freight vessels in an already tight market. That is to say, some analysts are suggesting that it is not demand that is falling, but the supply of ships that is growing.
While it is true that world freight fleets are to add 200 new ships, this is not to occur for another year and a half:
The BDI plummeted in 2008, and has not shown any signs of recovery since. This was not due to a new supply of ships, but directly tied to the global economic collapse. The “growing fleet” argument seems to be a distraction designed specifically because of the public’s growing awareness of the Baltic Dry Index and its implications.
Another poorly conceived argument is that the BDI is inaccurate because it does not take into account that smaller fleet vessels are seeing increased freight rates while larger ships are falling out of favor. It’s true, that if you only count the shipping frequency of smaller boats, demand appears to be rising (barely). However, I hardly see how this is a good thing. Increased demand for smaller boats means no one is shipping enough volume to make leasing a large vessel worthwhile. Smaller volume still equals smaller demand.
Lie: Food Inflation Caused By “Bad Growing Season”
It would appear that the “mystery” of exploding food prices has been solved, and according to a USDA report released this month, the culprit is “weak agricultural output” causing a diminished supply of staple grains in the U.S.:
This release was so shocking to markets because the report’s figures were so far below the USDA’s original estimates for harvest at the middle of this year, but why should we care about the USDA’s estimates? Are they not arbitrary? Why not look at the actual output for previous years compared to 2010 and get a real sense of what is happening?
If we are going to compare the crop outputs of 2010 to 2009, we should also keep in mind that 2009 was a record year for agricultural production. Did the USDA really assume that 2010 would meet or surpass such a bumper crop?
Corn harvests reportedly dropped 5% compared to last year, however, 2010 was still the third largest crop on record. Soybean production was down only 1% from 2009. Cotton (not edible, but still important) was up 50% from 2009. Wheat was down less than 1% from 2009. One of the only grains affected in a substantial way in 2010 was Sorghum. The crop yield for Sorghum dropped 10% compared to 2009, but the planting area used in 2010 was 19% less than a year before, so this drop was to be expected:
What does this mean? The U.S. had a GOOD year for crop output, not a bad one. And what about Russia’s summer disaster wheat crop? Are our exports picking up the slack of bad harvests overseas, causing prices to rise? Actually, warmer Russian weather in November spurred wheat production, helping alleviate the weaker summer yields:
Are there dangers in world grain output due to weather? Yes, but not enough to warrant a doubling of commodity prices. The REAL concern of agriculturalists, not just in Russia but in many nations, has not been the weather, but the ever expanding costs of production itself! From fuels to fertilizers, the process of growing food is becoming more and more expensive. What is facilitating this surging cost of production? How about the one factor that no one seems to want to discuss; the devaluation of major currencies, most especially the dollar? I find it interesting that so much disinformation on supply and demand in commodities is hitting the news streams just as the Dollar and the Euro begin to unhinge. In my view, this engineered hysteria is meant to distract us from the collapse of our currency, and to create plausible scapegoats for the inevitable ill effects that devaluation will bring.
Lie: Oil Inflation Caused By Rising Demand
Same argument, different commodity. Oil output has been more than ample in light of the fact that oil consumption in almost every nation has fallen substantially in the past three years:
What about the surprise shutdown of the Alaskan pipeline this month? Is our supply in danger? No. According to the EIA (Energy Information Administration), the U.S. exports (that’s right, exports!) over 2 million barrels (2009 figures) of petroleum and petroleum byproducts a day, most of it from the Alaskan fields!
Apparently, Americans didn’t need that oil when the pipeline was working, so shutting it down certainly wouldn’t diminish supply here at home.
Oil is pegged to and traded in the world reserve currency; the dollar. Any devaluation in the dollar will have immediate effects on the value of oil. OPEC nations can and have been absorbing the inflationary costs, but they can only succeed in this for a short time. Eventually, the fundamental expenses will overwhelm them, and they will be forced to allow the price per barrel to take flight. That time has essentially come. Prices are likely to climb at breakneck speed in 2011, not because of demand, but because of the crumbling Greenback.
Truth: China Is Preparing To Dump The Dollar
Most economists should have seen the Chinese problem back in 2005, when their central bank started issuing Yuan denominated treasury securities called “Panda Bonds”:
Maybe the cute name threw mainstream pundits for a loop, or maybe they just couldn’t see the true purpose behind such a move.
China is the largest holder of U.S. debt and dollars. It is also the largest holder of forex reserves in the world. China’s coffers are bloated with savings. So then, why would the Chinese government introduce a plan to sell their own debt securities? They don’t need constant inflows of foreign cash to stay afloat like we do here. Their currency was pegged to the dollar so issuing a Yuan denominated security would have been pointless, at least in the eyes of the common investor. What did the Chinese central bank know that we didn’t?
It took some connecting of dots, but in 2008, when the ASEAN trading bloc took shape and they began to allow Yuan bonds for cross border trades, the reason was clear; China was planning to de-peg from the dollar. China was going to allow their currency to valuate. China was going to move towards a consumer based economy. China was going to drop the dollar as its reserve currency for international trade. And, eventually, China was going to dump their U.S. Treasury holdings altogether.
Why would China start preparations for this all the way back in 2005? It seems like a serious gamble, unless they KNEW what was coming in 2008. Unless they knew that the credit crisis would strike hard, that U.S. consumption would falter for years, not months, damaging Chinese exports. Unless they knew that the Federal Reserve would recklessly pour fiat into the system. Looking back at China’s actions, one can only conclude that their central bank was made aware of coming events by others, or, they are all Jedi, and deserve some kind of award for their incredible powers of foresight.
So far, the Chinese have de-pegged from the dollar, Yuan bonds are now being issued by the World Bank, and China has dropped the dollar in bilateral trades with Russia. We are only a step or two away from a global shunning of the dollar and a treasury dump by our biggest creditor.
Truth: China Is Suffering From Inflation
Concise data on Chinese inflation is even more impossible to obtain than it is here in the U.S. The “official” inflation rate in China increased by 5.1% last year, however, some estimates double that figure:
Chinese property prices rose for the 19th month in a row last December, while Chinese demand for housing remained low. Government subsidization of residential construction has created modern day “ghost towns”; entire complexes of apartments and retail spaces devoid of inhabitants:
China has introduced its own stimulus measures in the face of the global credit crunch. While our fiat dollars have all been stuffed into the pockets of corporate banks and foreign entities, their fiat Yuan is going directly into their real economy. This is why China’s inflation is so immediate, while ours is still partly subdued.
Does this mean China is in the midst of its own bubble, ready to pop and rain down financial havoc? Not necessarily…
Lie: China Can Counter Inflation Without Boosting The Yuan
China has one option; extreme Yuan appreciation boosting the buying power of their populace in order to counter rising prices. China denies this possibility in public forums, but their central bank’s actions tell a different story.
Reserve requirements (the amount of money Chinese banks must hold as a safety net) have been upped several times, mushrooming to 19%. This is meant to remove excess liquidity from the economy, but so far the move has failed miserably. China has also raised interest rates to curb lending several times to no avail. As noted above, inflation continues.
I believe Chinese as well as Western central bankers are well aware that the Yuan will have to spike considerably if inflation is going to be halted, but currency valuation is not something that can be enacted without consequence. Generally, for one currency to rise quickly, another currency tends to fall. In this case, that currency will be the dollar.
Forget about all the empty rhetoric you hear in the MSM or are liable to hear during Chinese President Hu Jintao’s visit this week in Washington. Already, Hu has called for greater cooperation between the U.S. and China while at the same time stating that the dollar based system is a “product of the past”:
The U.S. government has called for greater cooperation with China while the Senate has issued a statement demanding Congress institute a bill that would label China as a “currency manipulator” on the eve of Hu’s visit:
The meeting between Hu and Obama will generate nothing, because neither Hu nor Obama actually have any say in the financial decisions they will discuss. Those decisions are made by the central bankers of our respective nations, and the central banks want an end to the dollar. When it comes down to it, the banking elites of China and the U.S. are both working towards this goal, while the masses are led to believe that they stand opposed.
Most revealing has been China’s support of the EU. Why are the Chinese suddenly so interested in propping up European economies that are destined to default? It’s definitely not out of the kindness of their hearts. First, China gains greater proliferation of the Yuan by tying itself closer to Europe, Africa, and the rest of Asia. Greater Chinese investment in the EU makes a switch to the Yuan (or a basket of currencies) and a move away from the dollar more acceptable to the citizenry of Europe. (Notice that all the American taxpayer dollars that were sent to tide over the EU were made secret, while all that Chinese money sent to the EU is loudly paraded for all to see. China: good guy. America: bad guy). Second, the greater the proliferation of Yuan bonds, the faster the Chinese can begin to dump their U.S. Treasuries. This is the key!
China must shrink its forex and T-bill reserves in order to drive an appreciation of the Yuan able to cut off inflation concerns. Timothy Geithner claims this will be good for the U.S. Hu claims it would be bad for China. They are both liars. Ultimately, inflation will be used by China as the excuse to drop the dollar completely, which is what they have been planning to do since at least 2005. The private Federal Reserve and our government will announce victory and a “managed” devaluation of the dollar, only to have the treasury bubble snap and bury us in hyperinflation, which is what they wanted all along, for many reasons, but most importantly to allow for the birth of the IMF’s SDR as the new global currency (amply supported by the new improved Yuan).
The Saga Of Disinformation Continues
I thought the economic situation was confusing two years ago. I never dreamed the pretzel could become so twisted so fast. The reason it is vital to stay on top of the fog and misdirection should be evident; deception in the economy can be used to steer the public and our country towards terrible ends. While many of us might become exhausted with the constant reminders of the dark road ahead, we cannot take for granted that the battle for the truth is far from over. We have made great headway over the years, far more than I dared imagine possible, but this is a beginning, one that must be cradled carefully, like the embers of the first fire.
The nature of propaganda is to strut, to pound its chest and wail the closer we get to reality. The more Americans stumble upon the facts behind the false statistics and false smiles of establishment pundits, the more we will be subjected to globalist think-tank fancies and elaborate insanities. In this, we find our most reliable gauge of impending jeopardy, and salvation. Bigger grifts signal precarious times, but also desperation amongst the perpetrators and con men. There does come a time when people become weary of being fooled, and they turn their blunderings from a hindrance into an education. Ironically, lies very often destroy themselves, by frustrating their intended victims into action.