Sunday, March 29, 2009

Financial Armageddon Looming

Maintaining the value of notes requires that countries do not issue too much money. It is ironic that the US has been regarded as a haven when it seems that there are many obvious parallels to the early 1970s when it comes to current management of the US economy. The Government is running huge budget deficits, and the US Federal Reserve last week announced it would be purchasing some US Treasury bonds being issued to fund this spending. from:

In my post yesterday , I briefly alluded to this. As i noted much of Scenario 2 has come to pass or will unfold, Inshallah. Scenario 1 was just beginning to crystallise at the time of writing. In fact, it was not yet a formal policy but was rather an opinion piece in a local paper. In essence, the piece called the Us of A, a pirate or in local lingo, a lanun:

"The grim reality has led people, amidst the panic, to realise that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

Now, that is not a nice way to address your friends especially in the context of free trade, globalisation, debtor-creditor relationships etc. But that is what the Chinese were angry about for all their so-called chutzpah for business acumen, they had been were suckered into ; the ponzi scheme of the millenia:

"the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance"

and this: "Victor Shih, a specialist in Chinese central banking at Northwestern University, said that when he visited the People’s Bank of China for a series of meetings this summer, he was surprised by how many officials resented the institution’s losses [on dollar assets].He said the officials blamed the United States and believed the controversial assertions set forth in the book “Currency War,” a Chinese best seller published a year ago. The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.“A lot of policy makers in China, at least midlevel policy makers, believe this,” Mr. Shih said. from :

Oh...the stupidity to funnel money to an incorrigible debtor who will, in all probability, abscond.....shades of Ah Long- debtor economics at work here..LOL

Since, then that proposal has morphed into something more sinister and especially threatening to the United States ( see here , here and here ). Now, the full impact of China's holding of increasingly junk US paper can be seen in this table (remember that holding has since touched US$ 1 trillion):

Now if you factor in HK's holdings, the amount exceeds US $800 billion (revised to US $ 1Trillion). Panic at the reckless way Obummer and his minions are handling the finances through running up the printing press and dollar-steroid feeding the deficit has led to a certain personality voicing his concern here, the echoes of which first amplified in the land of Hadrian's wall bounced off the Canyon walls, sailed over the Great Wall and reached here which prompted the Canto-pop chorus to join in on cue.

The spectre that the US dollar is becoming a debased banana currency gains further traction when one studies the chart below (note how National debt has grown in relation of GDP, although some may say GDP may rebound, that % may be staggering if this doesnt happen as Obummer predicted which makes him look like an idiot!):

All this brings us to the prediction I made about 6 moons or so ago. What if China really begins to dump its US debt securities. Something similar to what i had highlighted will unfold:

Publicly dumping U.S. debt. Self-explanatory in nature - and also the most unlikely, if it wants to maintain its “friendly” status with the United States - this is the worst-case scenario, and is the one that ends up with the dollar and the stock market getting stomped. If China chooses this route, it’s also essentially cutting off its nose to spite its face. The reason: By publicly dumping U.S. debt, the Treasury market will also take a beating - meaning China’s remaining U.S. debt holdings would take a haircut of 20% to 30%.from:

and that thought is worth considering as investors grow leery of US debt and another thing, would the US of A be gracious enough to abandon it top dog position in the world if it realises that it is nothing more than a Pekingnese in the shadow of Boxers which will begin to talk trash about Iran, US foreign policy etc...then what...war anyone?? and free trade has never been China's forte either while protectionism is abhorred .........

China has made its agenda clear: It wants a stable U.S. dollar, and has even advocated the creation of another global currency altogether. It is leery of protectionism.

Cina! oh Cina ( common trait isnt it)...................

Revert: Wonder what is Malaysia's exposure to that pile of worthless paper....and for trivia; remember, how me and Warrior 231 were often criticised for endorsing authoritarian rule, well.. chew on this :

"Zhou Xiaochuan, said China's rapid response to the downturn — including a 4 trillion yuan ($586 billion) stimulus package — proved the superiority of its authoritarian, one-party political system".

Ken Arrow was right after all??? and "the Kuffars are never of one heart"....paraphrased that from the Quran

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