Global Problems Require Local Solutions by Elaine Meinel Supkis

September 29, 2008

Elaine Meinel Supkis


Washington is basically owned by the banking gnomes. This is why the President snoozed and smoozed while thousands died in hurricane Katrina, for example. But when the banking gnomes wanted windows blasted in the walls of the US central bank so they could keep on looting everyone, they got it. And now they want a bail out now that the Fed has run out of reserves. The last point of power is the US government itself and it, too, is going bankrupt. Rapidly. Fixing this is not easy. We are all accustomed to living it up rather than being sober and careful. More banks in the G7 nations are going bankrupt or being quickly bought up by other dying banks, $1 a share. Wachovia has been eaten by Citigroup. And Citigroup is in trouble, too!


Aso, Brown Efforts to Save Themselves May Help Bush

(Bloomberg) -- Embattled political leaders in Tokyo and London may end up coming to the aid of President George W. Bush in containing the economic fallout from the credit crisis as political self-preservation trumps nationalism.

Confronting a recession, Japan's new prime minister, Taro Aso, is likely to promise tax cuts and higher spending in a bid to win a parliamentary election as early as next month. British Prime Minister Gordon Brown, who faces unrest in his party over its and his sagging popularity, may also opt for budget-busting measures to turn around the weakest U.K. economy since the early 1990s.

That would be welcome news for Bush and Federal Reserve Chairman Ben S. Bernanke because the U.S. has become so dependent on exports to generate growth -- gross domestic product, which expanded at a 2.8 percent annual rate in the second quarter, would have contracted were it not for trade -- that anything foreign governments do to stimulate their own economies is likely to help.



Aso is not a good choice for dictator of Japan. His predecessors were all driven from office as popular support of the LDP one-party rule collapses. Japan has enjoyed an amazing 6 years of growth of the top industrial powers in Japan. Exports boomed, money poured into Japan while the yen was kept tremendously cheap, falling nearly always against both the dollar and the euro for a long time. But starting last summer, on 7/17/7, this all changed. Other nations with sovereign wealth funds and huge FOREX reserves began to make the yen stronger.


Exactly one year ago today, here is Culture of Life News: Bank of Japan, Bank of China and American Speculators

China continues to evolve as an industrial power and a financial banking center. A terse message is issued by the Bank of Japan and the Bank of China. I try peering into the dark behind this message. The financial condition of the huge MITI entities in Japan, that is, Japan, Inc.---continue to grow ever more profitable and powerful while wages languish and purchasing collapses in Japan itself. Gold and commodities rise like crazy as the dollar continues its collapse against the euro and pound. The economic black hole of Japan is gradually pulling the US into a depression in several signficant ways.
First, a message from our present bankers and future rulers:

Dr. ZHOU Xiaochuan, Governor of the People's Bank of China (PBC), and Mr. Toshihiko FUKUI, Governor of the Bank of Japan, signed the renewed Currency Swap Agreement in Tokyo on September 20, 2007. This Agreement, which was signed on March 28, 2002 between both central banks under the framework of the Chiang Mai Initiative, has greatly contributed to strengthening the financial cooperation in the East-Asia region, maintaining the stability of the regional financial market and promoting the economic development in East-Asia. The renewal of this Agreement is a reflection of strengthened mutual confidence between the two sides and enhanced regional cooperation on capacity building for financial risk prevention. Besides, Governor Zhou and Governor Fukui also exchanged views on recent economic and financial developments in the two countries as well as on global financial situation and other issues of mutual interests.


Oh, and what 'recent economic and financial developments' did they discuss? I will note here that the yen has been allowed to closely track the declining dollar again. This greatly pleases Japan. I will also note that Japan has stopped echoing US demands that the yuan rise rapidly against the dollar. I sense these two Asian powers have a gentleman's agreement under the table. This must be the 'mutal interests' part of their joint statement. Also, the Chinese featured this at Xinhua news which means they are pleased with the diplomatic and other arrangements made. The Japanese are silent about this. I believe this is because they figure, if the gaijin don't read about it, they won't notice it.



Japan has enjoyed one year of happiness thanks to this deal they made with the Chinese. But the need to keep the carry trade going had one element that is now giving Japan's leaders headaches: the 0.5% savings rate set arbitrarily by the Bank of Japan supports the carry trade. The carry trade floods the world with cheap, easy credit which has two advantages for Japan: it makes the yen very weak and it encourages customers overseas to go deep into debt and buy Japanese goods. This is why Japan has been intent on keeping this game going even as it fueled global inflation!


But inflation is now in Japan and this is screwing up everything. People there are now up in arms because they had 12 years of dropping wages and now are being ravaged by inflation. So of course, being right wingers, the government is offering tax cuts. Now, the UK, US and Japan have something in common: the governments have accumulated vast past debts. All three owe more than $10 trillion each. The idea that this can grow and grow forever is insanity.


For the problem isn't interest rates, it is accumulations of debt! Even if interest is pathetic and even below the rate of inflation, debt climbs as fast as this differential so even a .5% debt payment is intolerable! Everyone on earth has been focused on keeping debt as cheap as possible. This created a mountain of debts that are utterly unsustainable. If credit was realistically priced by the US, UK and Japan, the flood of red ink would have ceased since repayment schedules would have inhibited wild overspending.


The concept that higher interest rates protect debtors and prevents them from unreasonable price inflation/debt accumulation is a key story here at Culture of Life News. I see many people wishing for a system that hands out loans at ridiculous rates so they can merrily buy, buy, buy. The US and UK are no longer major manufacturing economies. We are 'consumer economies.' And what we consume is our future credit. The cheaper Japan makes it carry trade, the worse it is on our end. Our debts soar. Whenever a central bank sees debt levels soaring and savings collapse, has to force interest rates up. This is what China did recently. The world is falling into a recession because of the Chinese raising their interest rates and choking off debt creation inside China.


This began last July and it utterly changed the flow of trade, finances and banking processes. The US is the consumer nation but China is the producer nation and so if China restricts business, it hits all the consumers of goods. Then there is oil: US warmongering coupled with excess consumption of imported oil has destroyed the US bottom line with trade. Today, thanks to the US unable to consume via cheap credit, our exports are rising and imports falling. But all our trade partners are working hard to re-establish the cheap credit/flood of exports to the US. So this is a very temporary condition.


In the last 35 years, the only times our trade deficit shrinks is during global recessions! This shows us clearly that the NATURAL reset system wants to work! But none of our trade rivals want it to work. So it is short-circuited before it fixes the mess here. And our cumulative debts grow.

Continued>>>
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