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Saving the Global Economy Central banks forever blowing bubbles Part 3 By Dene McGriff
I just came up with Part 2 of my recent article on saving the global economy, and it turns out that the major central banks of the world (European Central Bank, Bank of England, Switzerland, the U.S., Canada, Japan) got together with their own plan. “The central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland agreed to cut the cost of providing dollar funding via swap arrangements, the Federal Reserve said, and agreed to make other currencies available as needed. China said earlier today it will cut the reserve requirement ratio for banks by 0.5 percentage points, while data on U.S. business activity and the employment and housing markets topped economists’ estimates.” And the Daily Reckoning opined, “Big news out of the
gate today is that the central banks of the world are about to do more. More
what, you ask? More of what central banks do best, of course...more money
printing! People had already started writing me asking if this is what I had in mind. No, not at all. This is basically a big bailout of banking and the Eurozone and we are going to become responsible for it! If you read on in the article cited above, you will see that derivatives are involved – credit default swaps which is insuring against losses. This allows the system to dig a deeper debt hole. So some are asking if this is what I had in mind in the first article “How the Economy is Saved.” Absolutely not. Very far from it. However no one was aware that the Kuwaiti Dinar revaluation even occurred resulting in Clinton’s balanced budget. They do not want the revaluation of 133 currencies including the Iraqi Dinar or the Vietnamese Dong to be made public. This could be the perfect cover and it would make America look like the hero. I’m not saying this is going to happen – just speculating. A Central Bank bailout is not what I was talking about in Parts 1 and 2 of “How the World Economy is Saved.” I was referring to the IMF and the revaluation of world currencies. The idea that the Central Banks are going to collude to lower interest rates is only adding more fuel to the fire. Please ask yourself. Who is this helping? We the people? NO! THIS IS NOTHING MORE THAN ANOTHER BANKING BAIL OUT! I wouldn’t blame the “Occupy Movement” if they went ballistic with this (if they grasp what it means – which in all likelihood they don’t in that that booming noise that just went through the roof is the Wall Street Stock Markets soaking up them cheap dollars). Throwing a “Hail Mary” Pass… This is called “increasing liquidity” to stimulate the economy – a great Keynesian move! Didn’t low interest cause the housing bubble to begin with? Did it work in the past 21 years in Japan? We’ll come back to Japan later. The entire stimulus in the past 2 or 3 years has done nothing to help the economy or make more money available to the average Joe but it has paid for big bonuses for Wall Street money men. So what are people thinking? The stock market jumps nearly 500 points (after gains of several hundred points the past two days) and the world cheers – problem solved. The consumer confidence is up nearly 16 points in the month of November (2011). I am going to carefully explain why this won’t work but it will actually make matters worse, much worse! Frankly, I view this as a desperate move by Central Banks, the equivalent of a “Hail Mary” pass. If the Central Banks move to lower interest rates to practically zero in order to stimulate the world economy, it will merely create more bubbles, more debt and ends in hyperinflation. Background First of all, what is a central bank? Is the Federal Reserve “federal” or does it even have “reserves.” What an oxymoron! It is not a part of the “Federal” government. It is a private banking cartel, owned and run by and for the banks. Read Creature from Jekyll Island – and “creature” it is! These are foxes guarding the hen house! These are central banks bailing out their member banks! If anyone knows how to bail out a bank, it’s another bank! Now let’s back up for a moment. There are two major streams of thought in banking, economics and politics. For the past 70 years most western governments have been proponents of the Keynesian Economics practiced by Franklyn Delano Roosevelt. The key is to stimulate the economy by low interest, public spending, public works, etc. In other words, the government has been seen as the protector of the people and the Central Bank the way to manipulate the economy into growth. We have all been taught that it was government stimulus and spending that brought us out of the Great Depression. This is pure fabrication and historic revisionism. It was war that brought the world out of the Great Depression, not public works projects and so-called stimulus, no matter how hard big government spenders try to make us believe. The other school of economics was championed by Ludwig von Mises and is known as the Austrian School of Economics. (See expanded definition here.) They believe that it is the role of the private sector to invest and produce for a society. Government is viewed as non-productive and a drain on society. This is what Ron Paul and Senator Paul (his son) propose and why they are gaining so much traction with thinking people. And yes, I mean to be sarcastic here because most people are like sheep that blindly follow, trust and believe what they are told. I mean really! If we acted like our government does thinking they can drag all of us into debt indefinitely without ever paying it back, we’d all be in the poor house, flat broke, zero credit rating. The difference between a business or an individual and the government is that they can print money. The more money that is printed, the less value it has. Is the hamburger my parents bought on sale for 25 cents a pound any different or better than the hamburger we pay $5.00 a pound for? No, the money is worth 5% of what it was 60 years ago. The Great Depression and Japan Did government stimulus get us out of the Great Depression? “Let’s start with the New Deal. Its various alphabet-soup agencies—the WPA, AAA, NRA and even the TVA (Tennessee Valley Authority)—failed to create sustainable jobs. In May 1939, U.S. unemployment still exceeded 20%. European countries, according to a League of Nations survey, averaged only about 12% (unemployment) in 1938. The New Deal, by forcing taxes up and discouraging entrepreneurs from investing, probably did more harm than good.” In spite of the facts, we continue to demand more government action as if it helps. Only after the war when taxes fell and the private sector was encouraged, did America enter a period of unprecedented prosperity. But the myth of the magic of government spending and intervention continues to this day. Let’s look at a modern example. Japan was the economic miracle in the 70’s and 80’s with double digit growth. Suddenly in 1989, their stock and real estate markets crashed losing three quarters of their value. Twenty years has passed; they have not recovered at all. They lowered interest rates to zero, bailed out sick banks, had massive deficits, huge public works programs – all to no avail. The US has been mirroring Japan’s experience. The US now finds itself in much the same fiscal boat as Japan. America’s “stimulus” efforts have become permanent, structural elements of the economy.
Not surprisingly, these
massive stimulus efforts require equally massive borrowing efforts. Talk about
crowding out! The government has completely displaced the private sector from
the credit markets. As the chart below shows, as of last year public sector
borrowing had been more than 100% of total domestic credit for two consecutive
years. If we look at the US government’s massive spending as an investment, the payoff is obviously and hugely negative. GDP growth – albeit largely phony – comes to only about $500 billion this year. That’s a net loss to the economy of $1.5 trillion, more or less. Of course, it’s not an investment at all. It’s a subsidy. And like all subsidies, the economy adapts. And then becomes dependent.” (Excerpt from The Daily Reckoning) Analysis
Okay, kind of grandiose questions but bear with me a minute. Does Congress or the Fed care if there is inflation? After all, your dollar has devalued down to 2 percent of its original worth since the creation of the Federal Reserve in 1912. Do they care about balancing the budget? If you look at the chart to the right, it doesn’t look like it. The temptation is just too great. All the protestations about leaving a pile of debt for our grandchildren aside, it doesn’t appear that way – what it appears is that we’re drunk on inflating our dollars and taking the grandkids for a joy ride to prove we really care for their safety – say what? We can certainly trust the banks to act in their own interest. If you look at the revolving doors between banks and investment houses such as Goldman Sachs and Treasury, Congress and the Federal Reserve, they certainly have a tight relationship. Oh did I mention John Corzine (senator, governor, CEO of Goldman Sachs and finally Chairman of MF Global) who only lost clients $1.2 billion in the collapse of MF Global. The bailouts create even more risk for the system. According to Bloomberg, US taxpayers are risking $9.7 trillion in bailouts and that was before today’s announcement. Stupid question number three is: What is our interest in saving the world? There is an obvious advantage in being the world’s only reserve currency. But beyond that, there possibly is a more sinister question and that is: Why does America have to have an interest in nearly every corner of the world, both economic and military? This little inquiry I pursue in a prophetic and down-to-earth e-book entitled: “In Search of Prophetic Babylon?” Revelation 17 to 19 describes a powerful “end times” religious (Christian-oriented?) nation that is apostate (falling away from the faith); a great consumer/economic powerhouse among the nations of the world from whom all the nations trade and are made rich; and, of course, and a nation possessing great military powers.
I don’t know about you – but we’re almost there. The mercy of God is from everlasting but at a certain point the “system” just snaps and what’s ever in that cup is poured out. There’s something very captivating about American exceptionalism, but something very disturbing as well. More and more we’re witnessing the manipulation of vast sums of money and clever leveraging by the “merchants of the earth” in forever blowing bubbles. I leave you with this little ditty that was popular at the close of World War I as a part of America’s legacy and somber war reflection…just consider: Verse 1I'm dreaming dreams, I'm scheming schemes, I'm building castles high. They're born anew, Their days are few, Just like a sweet butterfly. And as the daylight is dawning, They come again in the morning. Chorus I'm forever blowing bubbles, Pretty bubbles in the air, They fly so high, Nearly reach the sky, Then like my dreams, They fade and die. Fortune's always hiding, I've looked everywhere, I'm forever blowing bubbles, Pretty bubbles in the air.
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