Time to talk about Russia and China and how the global financial/commodity/asset depression is not destroying these places but rather, have been opportunities for expanding their power bases. This is simple: EVERYONE is going under right now. But those place with strong leaders who are focused on improving conditions in their countries and who have SOVEREIGN WEALTH FUNDS are all going about the planet, buying up important facilities, energy fields, etc. The US, on the other hand, is visiting these same nations, Japan, China and Russia, begging for help.
CBRC Official Says U.S. Bonds Not Only Option, China News Says China Banking Regulatory Commission official Luo Pingsaid holding U.S. government bonds is not the only option for investing reserves, clarifying comments made a day earlier, the China News Service reported….
Dow Jones on Feb. 11 cited Luo as saying that there are few real alternatives to holding U.S. Treasury securities. CBRC said late yesterday in a statement that Luo’s comments don’t represent the view of the regulator.
When the Chinese are not on the same page, this means they are exploring their options. Throwing out something to see what sort of reaction there will be. Hillary Clinton has passed through both Japan and China, begging for money. I do hope she knows how to read between the lines. The Chinese are drawing a line in the sand just like the Japanese are signaling loudly, they want us to cooperate in restoring the Japanese carry trade status quo. In honor of her visit to Tokyo, the dollar is now rising against the yen, to the immense relief of Japanese export powers that have utterly overwhelmed US industries.
This is why owing money to trade rivals isn’t very wise. We lost control of our own currency as well as our debts. And we threw away control of our trade. For a moment, the Asian powers feared the Democrats might protect the US. But that fear is fading fast since the US needs to borrow heroic sums from someone and these someones are nearly all in Asia.
Yu Yongding, former adviser to the People’s Bank of China, recently demanded guarantees for the value of China’s $682bn of Treasury securities. Then Luo Ping, director of the China Banking Regulatory Commission, said that China had misgivings about the US economy, but despite this it would continue to buy Treasuries. The two statements appear designed to raise the issue non-confrontationally before new chief US diplomat Hillary Clinton’s visit to Beijing on February 20….
Foreign buyers have absorbed a little over $200bn of Treasuries annually, a useful contribution to financing the $459bn 2008 deficit, but only a modest help towards the $1.35 trillion minimum average deficit forecast for 2009 and 2010.Unless that changes substantially, there will be $1trillion annually to be raised by the Treasury from domestic sources, more than double the previous record from domestic and foreign sources together, plus whatever is needed to bail out the banks.
Both China and Japan know that if the US funds its debts via guaranteeing it all, ourselves, hyperinflation will occur and trade dollars held by Asian powers will diminish very rapidly in value. We had a sudden splurge of vital inflationary events last year. This is why all systems had to shut down. Trade became too expensive due to high energy, transportation and raw material costs.
The one year surge in index prices is obvious. The average is about at 3500. The peak was 1,200 and it has utterly collapsed to less than 1,000. But look! It is now on the rise again! It is interesting to see that the cost of moving goods internationally shot upwards as all the global housing bubbles collapsed!
On the other hand, overhead is much lower. The price of diesel went thorough the roof last year. I use quite a bit of diesel with my farm equipment. I didn’t even bother mowing my fields last August due to this and many people who normally hay fields, didn’t bother.
Most shipping these days is owned by Asian powers. The US decided many years ago to ditch our native shipping. First, it went under foreign flags like Liberia. Then, it simply vanished. Europe, for the most part, took over. And they are now struggling with Asia going whole-throttle into building and running shipping to the entire planet. The Chinese navy is very busy, too. It is being used to chase down pirates, a significant extension of Chinese naval powers.
Then there is the accident between the British and French subs: evidently, they didn’t talk to each other. This proves that old, old, old conflicts between closely related cultures with an intertwined history can surface at odd times. Heh. Even two world wars as allies can’t undo 2,000 years of animosity. Incidentally, the Japanese/Chinese/Korean animosities also go back that far. Love/hate relations often run between closely related cultures and peoples.
– China is finding new ways to get jobs for the country’s millions of college graduates, as vacancies are getting slashed under the current financial crisis.
New measures include encouraging college graduates to work in rural areas and in smaller firms, and giving financial support for start-ups of their own businesses, according to a circular issued by the general office of the State Council Sunday….
China has 6.11 million college students due to graduate this year, and another one million from last year are still looking for jobs after they failed to get a job in 2008.
According to a Blue Book of China’s Economy (2009) released last December by the Chinese Academy of Social Sciences, a major government think tank, one million unemployed graduates accounted for about 12 percent of college graduates from last year.
I tried and tried to find up to date US graduation statistics but evidently, it isn’t a fun topic for our nation so finding high school rates was easy, finding college rates was impossible. But the number of yearly graduates with degrees here can’t be higher than in China due to our population being fraction of China’s population. Any way you look at it, a million unemployed college graduates is a very dangerous thing. For they can be the seed for revolutions which are different from mere riots.
Many revolutions are run by intelligentsia. Happy smart people are not as dangerous as hungry, angry smart people. Literacy helps when one wishes to spread the word or explain things. I spend a lot of time trying to explain things, for example. The Chinese intelligentsia is like the Russians: they are taught that revolutions are good.
We saw with Tiananmen Square, that Chinese students can quite suddenly and spontaneously erupt into open political defiance of the political power on the Dragon Throne.
China’s fiscal revenue fell 17.1 percent in January from a year earlier to 613.16 billion yuan (89.77 billion U.S. dollars), the Ministry of Finance (MOF) said Monday.
The ministry attributed the decline to slowing economic growth,which affected business profitability, and wide-ranging tax cuts to boost the economy….
China’s fiscal revenue reached 6.13 trillion yuan for the wholeof 2008, up 19.5 percent from the previous year, according to preliminary statistics released by the MOF.
The drop off in Asia is quite startling. Some smug people in the West think, ‘This serves them right,’ but forget that trade is this boomerang.
What flies into Asia will come back here! The circular nature of trade operates this way. The US went down early on. Japan and China both boasted, they were not much affected by things at all. Of course, since this mess is global and since Asia depends on imbalances to profit, our collapse caused their present collapse. This collapsing superstructure will hammer one sector after another until it brings everything into balance.
All attempts to keep the imbalance status quo going will fail. Temporary victories only make future corrections worse. This is why the Japanese bubble/collapse led to the Asian Currency Crisis which then led to the US stock bubble popping, etc. We have been in this dynamic now for a long time, actually, starting with the Reagan-era banking scandals and tax cuts leading to a joint trade/budget deficit dynamic that only gets worse and worse over time.
In economics, the balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country’s exports and imports of goods,services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country’s status in international trade, with net capital outflow.
The balance, like other accounting statements, is prepared in a single currency, usually the domestic. Foreign assets and flows are valued at the exchange rate of the time of transaction.
- Current Account = Capital Account + Financial Account + Net Errors and Omissions
This is a convention of double entry accounting, where all debit entries must be booked along with corresponding credit entries such that the net of the Current Account will have a corresponding net of the Capital and Financial Accounts:
- X = exports
- M = imports
- Ki = capital inflows
- Ko = capital outflows
Rearranging, we have:
yielding the BOP identity.
The basic principle behind the identity is that a country can only consume more than it can produce (a current account deficit) if it is supplied capital from abroad (a capital account surplus).
So, after seeing how both Japan and China have had a reduction in their income revenues, time to look at the worst case in the whole world, the US:
It is clear from these graphs that small problems in 1972 became rapidly much worse as time passed. Foreign capital assets flowing to the US has completely collapsed, for example. It shot up from $300 billion to over $700 billion during the Bush years. Now, it hit near $0 the last quarter and is now at around $100 billion today.
Is China without sovereign wealth? The US hasn’t had any in at least 3 generations. But China, despite the contraction, still very much has sovereign wealth and is using it. Last week, the Chinese scooped up valuable mineral resources in Australia and South America. And as I predicted, China got the Russian energy resources, too.
China has agreed to lend Russian oil companies $25 billion in return for supplies from huge new East Siberian oilfields that will power its economy for the next two decades.
Russia’s state oil champion Rosneft (ROSN.MM) and pipeline monopoly Transneft (TRNF_p.RTS) on Tuesday signed a long-delayed deal to borrow the money from China Development Bank during talks in Beijing, sources close to the deal told Reuters.
China is going to BUY the oil and lend Russia badly needed funds. Japan wanted this but insisted on tying the deal to settling issues about the Kuril Islands. Here are some headlines about this from this week:
The Moscow Times
Japan vs. Russia: unfinished business
GlobalPost – 3 hours ago
Their target was a group of islands located in the freezing waters between the Japanese island of Hokkaido and Russia’s Kamchatka Peninsula. …
Russia to launch major gas project near Japan Channel News Asia
Russia to launch gas project on Sakhalin Island Peninsula On-line
all 37 news articles »
Japanese fishing boat captured by Russia: official
AFP – Jan 28, 2009
Japan has provided medical services and humanitarian aid supplies to Russians on theislands — known as the Southern Kurils in Russia and Northern …
Japanese boat seized by Russia off Sea of Japan The Associated Press
Japan cancels aid to disputed Russia-held islands Zee News
Tokyo requests release of crew detained by Russia for poaching RIA Novosti
all 125 news articles »
Japan’s Aso vows to solve territorial row with Russia
AFP – Feb 7, 2009
Japan demands the return of four islands — called the southern Kuril islands by Russia and known in Japan as the Northern Territories — which Soviet …
It is quite obvious that the Japanese have delusions of grandeur here. Aso can’t vow to solve this ‘problem’ since he has no leverage over Russia due to Japan being desperate to keep and widen its markets in the US and therefore, has to coddle US delusions of grandeur. Russia deliberately popped Japan on the nose a few weeks ago. It looks like Japan had to back down and knuckle under to Russian territorial demands.
YUZHNO-SAKHALINSK, Russia: Russia is set to begin production of liquefied natural gas (LNG) tomorrow on Sakhalin Island, greatly increasing its role as an energy exporter in the Asia-Pacific region.
Japanese Prime Minister Taro Aso and Russian President Dmitry Medvedev are to attend the opening of an LNG plant—the first of its kind in Russia—which will supply markets in Japan, South Korea and the United States. Aso’s visit underlines the importance of the project for Japan, which is highly dependent on Middle Eastern energy sources and is now turning to its oil- and gas-rich neighbour to the north.
It is the first visit to Sakhalin by a Japanese prime minister since World War II, when Japan controlled the southern part of the island. Hundreds of thousands of Japanese were evacuated after the Soviets took Sakhalin in 1945. Sakhalin is also near four small islands at the centre of a long-running territorial dispute that has prevented Russia and Japan from signing a peace treaty to formally end World War II.
Russia is triangulating as all great powers do when they can do it. The US can’t do this, we try to keep everything under our thumb even as we are sawing off our own hand. Eventually, the Russians will play the same game with Japan they play with Europe: at the worst possible time, they will develop problems with the transmission of energy. And this problem will be unfixable until the customer does and says the right things again. This is called ‘leverage’.
AOC Shares Jump on Report of North Sea Oil Field Purchase
AOC Holdings Inc., a Japanese oil and gas explorer, had the biggest gain in more than a month after a report that it agreed to buy 10 percent in an oil field off the southwest coast of Norway.
The explorer jumped as much as 9.4 percent, or 558 yen, on the Tokyo Stock Exchange, the largest gain since Jan. 7. The shares traded at 549 yen at 10:21 a.m. The benchmark Topix index was down 0.7 percent.
Japan also has sovereign wealth funds and like Russia and China, is expanding its ownership of energy fields or systems.
Now, briefly, time to rush off to Ireland as it explores the dark depths Iceland is plumbing:
When more than 10 countries go bankrupt, this is very bad. Like the Asian Currency Crisis of the late 1990s. When Russia went bankrupt, it was not as integrated into world trade as many other export nations except for energy and the value of that had dropped to $10 a barrel which is why Russia was going bankrupt.
“Iceland had one of the highest standards of living in the world just a few months ago,” said Charles Gradante, co-founder of the New York-based hedge fund advisory firm.
“Now after experiencing the fastest economic collapse in history, Iceland is suffering from soaring unemployment, as well as double-digit interest rates and inflation.”
According to Hennessee’s research, the primary contributor to the rise and fall of Iceland’s economy was its growth as an international lender.
Iceland has splendid geothermal plants and some other related facilities. Iceland: No strings attached to loan from Russia was just last fall. The US has been cut out of this game, we have to borrow money so we can lavish it on our anti-Muslim wars. Just today, Putting Stamp on Afghan War, Obama Will Send 17000 Troops, Obama announced more troops will pour into Afghanistan just so we can entertain the Goddess of History by making her laugh to death. Of course, She is immortal, so this is very stupid of Obama. I do wish he would reconsider this. Letting poor, tiny, fanatical Afghanistan the honor of destroying not just one but two of the greatest empires of the last 100 years is just too awesome.
I am truly puzzled by all this. It is beyond painfully obvious. Bin Laden, himself, thoughtfully explained that his entire plan of destroying the US was to lure us into eternal battles with the hardy mountaineers of Central Asia! In my youth, I thought it was very silly to see movie villains painfully explain their complex traps to the hero so he or she could thwart the plans. But as an adult, I can see very clearly that people WANT to fall into traps! You can’t even restrain them! If you yell and wave your arms, they get mad and fling themselves into obvious traps while screaming curses at anyone trying to stop this.
There is little public support for invading the mountains of Afghanistan. Except in the drug dealer parts of the economy, I fear. Back to Ireland: it is a perfect microcosm for the US. As we watch it fall apart there, we can be certain, this is a miniature version of our own fates. The IMF knows this and is, contrary to past practices, is not demanding the Irish starve to death [again!] unlike poor Haiti or some Central American or African nations.
Swedish central bank Deputy Governor Lars Svensson said on Tuesday it was unlikely Sweden would have a policy that included zero interest rates but authorities still needed to be prepared for the possibility.
‘Although it is not particularly likely that we in Sweden will be subjected to a strongly binding zero lower bound for the interest rate, it is wise to be prepared for this eventuality,’ Svensson said in the text of the speech titled ‘Monetary policy with a zero interest rate’.
The major danger with a zero rate floor, he said, was that inflation expectations would be too low or even negative, making the real interest rate too high.
‘It is thus necessary to keep watch on inflation expectations, to counteract expectations of falling inflation, and preferably to create expectations of higher inflation. In this type of situation it may be desirable to create expectations that actually exceed the inflation target.’
The dreaded ZIRP banking monster is pushing down Sweden’s doors, now. The whole business of tying bank rates to prices is now officially unglued from each other. As assets get cheaper and cheaper, we will have ‘stagflation’ with necessities going through horrible hyperinflation cycles and high unemployment destabilizing all governments.
Professor Roubini, who worked with Mr Geithner in the Clinton administration, told The Daily Telegraph: “Many US banks are insolvent, even the major ones.” While nationalisation is “a politically- charged decision” which needs to handled carefully, he said it needs to take place “sooner rather than later” for the sake of the wider economy.
Professor Roubini calculated that, on top of the existing $700bn (£491bn) of American taxpayers’ money allocated to solving the banking crisis, Mr Geithner may need to ask the US Congress for between $1,000bn and $1,250bn in extra funds. “Sooner rather than later, they’ll need more money,” he added.
Geithner listens to no one except his buddies and they are the bankrupt guys. I don’t want to nationalize the banks, I want the bankers arrested, keelhauled off the shores of Iceland…in winter…and then forced to work in some Siberian oil field for the rest of their lives.
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