Krugman is very popular with liberals who think he knows all. But he is very vapid, as far as I am concerned. Today, he takes on the notion of a ‘global savings glut’ and decides, there is none now. But this is a surface analysis based on false data. When I went looking for graphs and charts showing how Japan began the FOREX dollar holdings and US Treasury purchases, this enabled them to run a ZIRP lending system while keeping the yen artificially weak vis a vis the dollar and then, the euro. And only when other trade export nations noticed this, they imitated Japan. This was the ‘global savings glut’.
The speech, titled “The Global Saving Glut and the U.S. Current Account Deficit,” offered a novel explanation for the rapid rise of the U.S. trade deficit in the early 21st century. The causes, argued Mr. Bernanke, lay not in America but in Asia.
In the mid-1990s, he pointed out, the emerging economies of Asia had been major importers of capital, borrowing abroad to finance their development. But after the Asian financial crisis of 1997-98 (which seemed like a big deal at the time but looks trivial compared with what’s happening now), these countries began protecting themselves by amassing huge war chests of foreign assets, in effect exporting capital to the rest of the world.
The result was a world awash in cheap money, looking for somewhere to go.
Most of that money went to the United States —hence our giant trade deficit, because a trade deficit is the flip side of capital inflows. But as Mr. Bernanke correctly pointed out, money surged into other nations as well. In particular, a number of smaller European economies experienced capital inflows that, while much smaller in dollar terms than the flows into the United States, were much larger compared with the size of their economies….
One way to look at the international situation right now is that we’re suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.
So that’s how we got into this mess. And we’re still looking for the way out.
This is so childish! Krugman can’t see the difference between deliberately pulling an operation on another nation. He thinks, the poor central bankers of Asia were desperate to ‘find’ a place to send all those savings! Poor babies! They looked around and lo and behold, there was the US, mouth opened wide, begging for these savings! And then, we got stuck with a trade deficit!
This backwards tale of woe is typical of our university elites. Anyone who differs with this is ignored or mocked. The idea that the Japanese worked very hard to undo both Bretton Woods II and the Louver and Plaza Accords, doesn’t occur to Krugman or any of these idiots. They don’t connect events or understand national objectives of RIVALS. We think we ‘won’ WWII [we didn’t, we merged with the Axis and took over their functions and became a colony of Japan and Germany].
Germany has been more careful than Japan to balance things so the US won’t notice who is boss. The Japanese, on the other hand, are very anxious to be on top of us and work hard at this project. They love the idea that we won’t see them as rivals anymore due to China being even more an obvious rival. But they are rivals, not allies, when it comes to economic matters.
Japan reluctantly signed the Plaza and Louver Accords and this caused a huge CREDIT bubble in both Germany and Japan when the US forced them to renegotiate the value of their currencies vis a vis the dollar, making the dollar weaker. Germany dealt with this by sending its bonus to Russia and getting East Germany back, in return. Japan spent it all at home, creating an immense housing and stock bubble.
When this popped during the Gulf War I which saw temporary higher oil prices coupled with a US recession, Japan crashed. From the wreckage of this crash, the Bank of Japan and the LDP ruling party decided on a New Course. They decided, in 1995, to begin parking all excess US trade money in their FOREX reserves. Up until 1995, the Japanese reserves were hardly more than any other nation’s reserves. The Japanese made it grow from $80 billion to a trillion dollars in 15 years.
I wanted graphs from other publications to talk about all of this. But when I use Google Image to find these, I find mostly MY OWN stuff! This is because virtually no one outside of my own news service, has shown the slightest interest in what the Japanese were doing with their FOREX reserves. Indeed, this is even more true: OTHER GOVERNMENTS were interested in the Japanese experiment! And imitated the Japanese!
The nature of the Japanese experiment was so obvious to other Asian exporters, they all imitated Japan. The FOREX holdings of our top trade rivals in the East exploded in size! China managed to double its own FOREX holdings to twice as great as Japan’s holdings! This is what we call ‘a feed-back cycle’: the more FOREX holdings a nation can hold, the greater the trade surplus with the US. China’s surplus was double Japan’s surplus, for example.
In return, while HOLDING these surplus dollars, the Asian trade rivals lent to the US and even more, to pirates in the Caribbean. This was the ‘Japanese carry trade’ business. China didn’t lend to pirates like the Japanese, they lent directly to Uncle Sam which is why we allowed our federal obligations to explode in size. Why tax ourselves when our bitterest trade rivals will bankroll our government while they undermine our industrial base? Whoopee!
Below is an article I wrote last year:
Now it is time to talk yet again about the FOREX reserves. China, Japan and Germany as well as OPEC will not fund our debts unless we buy their stuff and they make a good profit and most importantly, the dollar must be strong! Or else. The struggle to keep the dollar strong as the US government creates a trillion dollar deficit this year is quite a trick. Since global trade has nearly totally collapsed, the accumulation of dollars in foreign FOREX reserves of our trade rivals has fallen for the first time since the Asian Currency Crisis.
Monetary Authorities with the largest foreign reserves in 2008.
World reserves were only $3 trillion in 2005. At this point, the Fed took a look and decided it was time to raise interest rates and stop the freight train. But if we look at this graph above, we notice that China had less than a trillion in reserves in 2004. And Japan’s had grown from only $350 billion to over $800 billion in just 4 years! This should have alarmed our government. But obviously, did not.
The real horror is, this graph would have to be double in size to accommodate China’s growth in the last 4 years. Their reserves tripled. Taiwan’s doubled. What really steams me is the comment of the Fed here: they assume everyone is holding Treasuries and US papers because they are ‘liquid.’ HAHAHA. Right! The idea that this is done for hostile reasons barely crosses the threshold. All paper financial instruments are ‘liquid’. None more so than the Japanese carry trade paper. It was set up to be very, very liquid. And I maintain, it flooded the planet with credit… denominated in dollars! If no one wanted US dollars to hold in reserves so they could gain advantages in foreign trade markets, the liquidity of the US dollar would vanish in a flash. It is liquid only because everyone wants it to be liquid. When they collectively decide to not want to hold it anymore, the dollar gets very, very ’sticky’.
Look! By 2000, Japan already held over $300 billion in FOREX reserves! They doubled it in less than 4 years! Krugman and others would love to have us believe, this soaring reserve holdings was due to the currency crisis in Asia. But the countries that were hit by that crisis, South Korea and Taiwan, had barely $100 billion in holdings and only $200 billion by 2004.
Both need a trade surplus with the US, too. Of course, if trade with the US collapses, Asia will cease growing their FOREX reserves. If all banks lend at 0%, no one will go to the Japanese carry trade for loans. The world was NOT flooded with ‘savings’. The world was flooded with LENDING. This lending was not due to FOREX holdings. It was due to ZIRP in Japan.
The US is going about the planet, begging for loans. We are giving ourselves loans a 0%, too. We need easy money so we can spend more than we save. All major industrial trade nations are now running not only in the red, but at 0% interest. All governments want loans. Where are these loans coming from?
Asia still has immense FOREX reserves but as my article pointed out a year ago, these were no longer growing back then. Today, they are shrinking. Russia, China and Japan are going about the planet, buying up distressed infrastructure. If there is no trade surplus with the US or EU, they will buy commodity systems in the rest of the world and wait for prices to drop further in the US and EU before shopping there, more.
Below is another article almost exactly a year ago:
Today, we must examine all the Holy Scriptures of the Great Depression. The ones that claim the US should have saved the European Great Powers who were going bankrupt trying to rule the planet, by letting them flood us with their value-added exports. Our defenses may have made all of us suffer worse but the alternative would have been the US being deindustrialized by 1960 and a third world colony by today. The suffering of the Great Depression saved us from this fate. But today, we are not being destroyed by global trade that is based on false relative monetary values. And the ‘rescues’ of the last six months have WEAKENED the US FATALLY! Instead of saving us, it has ruined us while increasing our trade woes that caused all this in the first place! This is a long article but I consider this one of my most important ones yet.
Both Germany and Japan repeatedly had to ‘reset’ their currencies at a higher value vis a vis the dollar so the US could fix our trade deficits with Germany and Japan. But after Greenspan took over the Fed, all attempts at jiggering the dollar downwards was dropped. The triumph of free trade and no laws or regulations of trade, monetary systems, etc. meant that Japan could flood the planet with easy lending via the carry trade while running immense trade surpluses with the world.
The US couldn’t even negotiate a deal with China concerning the yuan. If we went to Europe, Japan and China and demanded a Bretton Woods III, they would have to do it for us. For the threat would be a trade collapse. Of course, we got the dreaded trade collapse, anyway. Due to the US inability to soak up any more Japanese carry trade surplus cheap credit.
Krugman, like Bernanke, refuses to connect the words ‘Japanese carry trade debt’ with ‘savings glut.’ Japan’s populace was not cutting back in order to save, they were cutting back spending due to wages falling. This is true in the US, too. Wages have been falling, not rising. We doubled our incomes temporarily by putting women into the workforce. But this led to marriages collapsing so the net benefit has been pretty poor for the working classes.
Aside from my own news service, I did find another source of information about the faux ‘savings glut’ business. From Norway. From the end of 2002 is this Norwegian bank report:
Note the business of formerly buying private securities but now, in 2001, Asia was buying US government Treasuries. The Norwegian bank even underscores the concept of this being due to Asian powers wishing to change the ‘floating currency regime’ into a FIXED RATE EXCHANGE. If the Norwegian bankers understood this obvious thing back in 2001, why can’t a celebrated genius like Bernanke or Krugman figure this out? I figured this out and I have n degree in economics except in the most excellent school of Hard Knocks.
The economic collapse of Japan was in 1992 and here is this chart from 2003 showing that the percentage of ‘non-performing loans’ was highest in 2002! At the same time, Japan had more than trebled their FOREX holdings compared to 1992. Japan was hit hard by the Dot Com Bubble collapse. The failure rate of domestic loans was HIGH at the SAME TIME Japan was conducting its carry trade business overseas.
This is so funny! Both Germany and Japan, the world’s #1 and #2 trade surplus PROFIT nations were also the same ones to NOT have housing bubbles during the Japanese ZIRP carry trade decade. All other major nations used this cheap lending spree to dump immense amounts of debt on top of their real estate markets which, in turn, put immense populations deep in debt owed on the PRINCIPAL of these loans.
It is easy to reschedule rates of interest. It is IMPOSSIBLE to reschedule principal owed. Interest rates are profits for banks. The principal balance is PURE POISON. This is where all the ‘losses’ are showing up. When no one pays a loan, it moves from the happy ‘asset’ side of the ledger to the same side of banking ledgers where savings go: the ‘deficit’ side. Even 0% profit is better than 5% losses. 5% losses, each year, becomes death to banks.
Japan had nearly 10% losses in 2002! Yet, the Bank of Japan, that held none of this, was able to lend to the entire planet, trillions of US dollars thanks tot he 10% deal of using FOREX dollars to fund dollar lending to the planet. Look at the graphs above! In 1995, all lending was basically the same level. But when Japan began its aggressive FOREX holding that year, the housing lending in many other nations began to climb steeply.
Despite Reserve Bank attempts to stimulate the economy by slashing interest rates, new figures show that households are hoarding the savings and overpaying on their mortgages instead of spending at the shops.
Government data shows that Australia has been transformed from a nation of happy-go-lucky spenders to scrooge-like savers in just 18 months.
“In mid-2007, Australia had a savings ratio of zero — that means the average household was saving absolutely nothing,” said Shane Oliver, chief economist at AMP.
Look at this story! Where are the savings going? TO PAY OFF DEBTS! Why are the solvent people paying off debts? Because in a ZIRP system, paying interest is doubly nasty. It pays to get out of debt, fast. Once the savers are able to get rid of debts, they can begin looking for NON-ZIRP locations to make their money ‘grow’. It is obvious, one of these non-ZIRP things is gold!
The other half of the population is defaulting on their principal due. This is killing the banks. The solvent are removing their debts from bank controls. And the insolvent are throwing it all away, leaving the banks holding the bag. This is an impossible situation and will correct itself once all the solvent people get rid of all their debts and all the insolvent go bankrupt. Then we get to start all over again.
Krugman and Bernanke choose to forget why the Federal Reserve was created. It was set up to PREVENT banking collapses. Both bubbles and crashes were supposed to be eliminated by this goofy, stupid central bank owned by international goons.
THIS HAS BEEN A TOTAL FAILURE. We get bigger and nastier bubbles and bursts, not the opposite. Because of this, many of us are calling for an end to the Fed and restoring this business to the Treasury where we can see exactly who is doing what. And can vote to get rid of whoever is screwing up.
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