Great Depression Online Archive Issue:

"I Love It"

Great Depression Online
Long Beach, CA
February 22, 2011

Inside This Issue You Will Discover…

*** Tedious Distractions
*** How it Works
*** “I Love It”
*** And More

Tedious Distractions

G-20 finance ministers and central bankers met over the weekend in Paris to discuss global trade imbalances.  Nothing much came out of it.  But, following some basil salmon terrine and escargot, the money controllers stayed up late into the night wordsmithing definitions of technical indicators used to track imbalances.

Apparently, the hot point of contention was between the terms ‘current account balance’ and ‘trade balance.’  The trade balance is the difference between a nation’s exports and imports.  The current account balance sums the trade balance with a nation’s interest and dividend income and net transfer payments such as foreign aid.

“China’s large current account surplus, a measure of trade and capital flows in and out of a country, made it reluctant to include that as one of the G-20’s indicators for imbalances,” reported AP.  “Compromise wording was agreed on making that measurement a mix of current account balance -- the indicator most countries wanted -- and trade balance -- the yardstick China had been pushing for.”

~~~~~~Food Crisis Survival~~~~~~

How to Survive the Coming Food Crisis

What would happen if a natural, civil or economic disaster prevented us from growing, transporting and importing food?

Food prices would rise and supermarket shelves would go empty.  Within three days there’d be no food left in most people’s homes.  Chaos and anarchy would break out.  Thousands (if not millions) would starve.

Are you prepared for such a situation? 

~~~~~~~~~~~~~~~~~~~~~~~~~

Here at the GDO we find tedious dissections of these terms to be merely a distraction.  The real issue, of course, is that China exports more than it imports and the U.S. imports more than it exports.  Normally markets would correct these imbalances, but years of currency manipulation and government intervention have pushed these imbalances to absurd proportions.

Here’s a brief review of how it works…

How it Works

You know how it works.  The U.S. Fed and Treasury print money to help spur economic growth.  Consumers in the U.S. borrow at artificially low rates and buy stuff made in China.  Then, rather than letting the yuan rise in value against the dollar, China prints up the corresponding amount of yuan they received in dollars through trade with the U.S., and pumps them back into U.S. Treasuries, thus, propping up the dollar.

This relationship of symbiotic disharmony keeps Chinese goods cheap in the U.S. and keeps China’s manufacturing industry in business.  However, it results in massive U.S. trade deficits and massive inflation in China and other surplus nations.

The increasing trade imbalances won’t stop, or reverse, until one of two things happens.  Either the U.S. stops printing money via quantitative easing or China stops propping up the dollar exchange versus the yuan.  But neither nation wants to take these actions because, when they do, trade will collapse.

Specifically, Chinese goods will become more expensive in the U.S. as the dollar crashes.  In turn, Chinese exports will collapse as their goods become more expensive in the U.S.  Additionally, China’s unemployment rate will spike up as their manufacturing industry is left with massive excess capacity.

On this issue, no one knows what to do.  So, over the weekend, the G-20 chose to bury its’ collective head in the sand…

“The valuation of national currencies -- long a sticking point in Chinese-U.S. relations -- did not survive as a separate indicator, but will be considered as part of the broader analysis of capital flows.  That saved Beijing from even more direct pressure to let its currency -- the yuan -- rise more quickly against the dollar.”

Over on Wall Street no one seems to give a rip about the massive global trade imbalance.  Instead, they continue to bask in the glory of Bernanke’s funny money…

“I Love It”

The stock market seems to go up every day.  In fact, the DOW has only gone down three days this month.  What’s more, the S&P500 recently doubled from its’ March 2009 low.

What’s going on?  MarketWatch reports…

‘“We’re getting a nice financial recovery because of the quantitative easing,’ said Rob Hoxton,” president of Hoxton Financial, “of the Fed’s $600 billion bond-buying program.

‘“I love it, but I’m not sure it is going to translate into fried chicken and mashed potatoes at the end of the day,’ he said of the recovery in equities.

‘“The unwind of the fear trade and all that money that went into money-market funds and bonds, a lot of that is starting to reverse, so I think we could see the stock market pushed to ridiculous levels.’

“Some of Hoxton’s clients have directed him to ‘wait for the correction and then move some more money in,’ he said.

“The trouble with that approach is the herd mentality that can have more and more individual investors piling in at the same time, leading to irrational exuberance, which is when one should say, ‘I need to have clear access to the door,’ said Hoxton.”

In other words, the Federal Reserve has engineered another debt induced stock market bubble.  This thing could really get out of control.  Get in while the getting is good.  But don’t stay in too long.  For this is not a real economic boom…it won’t end well for most.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  The thought that the globe’s leading nations (like the United States and Canada) could suffer even a temporary food shortage (no less a prolonged food crisis) seems unthinkable to most people.  Do you realize how close our technology-driven agricultural industry is to experiencing such a crisis?  In fact, it is because our food system is so sophisticated, integrated and advanced that it is so vulnerable.

Access Free Food Bubble eBook Here

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