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United States Economy, U.S. Dollar and the China Factor

Economics / US Economy Mar 26, 2009 - 04:13 PM GMT

By: Jim_Willie_CB

Economics Diamond Rated - Best Financial Markets Analysis ArticleA crisis of global confidence in the US Dollar is upon us. Foreigners have begun to lose respect for USGovt approach to problem solving, for US bank administration, and for US Dollar custodial management. Foreigner creditors have suffered deep losses from fraudulent bond export, continue to sit atop mountains of US$-based debt securities, and watch current events in horror. The heap of moldy paper includes both USTreasury Bonds and USAgency Mortgage Bonds. Foreigner creditors see the US Dollar valuation propped up by liquidation forces rather than US Economic strength. Foreigner creditors see the USTBond yields forced down by liquidation forces rather than USGovt debt integrity.

Foreigners are aghast at four new trends. They lose respect when the financial market rules change periodically, obviously to favor the insiders, elite, and connected. They lose respect when the approach taken by the Obama Admin is marred by lack of consistency, coordination, or even thorough research. They lose respect at the flow of $trillion$ in rescues and redemptions for failed institutions, most of which are responsible for the global crisis. They lose respect at the prospect of $trillion$ in ongoing federal budget deficits as far as the eye can see. They lose respect at the prospect of $trillion$ in monetized US$-based bonds, with the prospect of repeated announcements.

View Ben Bernanke, now turned commodity supplier. He is shoveling and humping around confetti laced with mold reinforced by a massive flow of swill, and does not even realize it! Forget the helicopter images. The palettes of $100 bills stacked neatly vastly overshadow any volume dropped from black unmarked choppers. His partner ‘TinyTim' Geithner is an outright rookie with a very questionable past record, whose errors are too numerous to properly cite, starting with the ruinous decisions he recommended for Indonesia with the IMF during the 1998 Asian Meltdown. Details of harsh criticism, hardly reported by the US press networks, were delivered by former Australian Prime Minister Keating. The quotes, discussion, and analysis are included in recent Hat Trick Letter reports.

The latest is a firm undercut against both confidence and integrity in the US Dollar, when $1.05 trillion in monetized USTBonds and USAgency Bonds will be completed, using printed money, undermining the US Dollar further. My deep firm belief is that another $1 trillion in monetized bonds will be required in summer, then another possibly larger >$1 trillion in monetized bonds will be required this autumn when the US Economy deteriorates further, led by supply shortages including food. Acceleration in flow of funds is necessary to sustain a bubble, and a similar acceleration is necessary to prevent a bubble collapse. These are characteristics of a Third World nation's management of a currency that has the unique advantage of operating as the global reserve currency. Such a juxtaposition has never in modern financial history been witnessed before. The perceived abuse by the Untied States is incredible, as numerous syndicates continue to operate under the protection of the system's many appendages. It is no wonder that foreign creditors are both aghast at the situation in the Untied States, and mobilized to defend themselves.

My theory is very simple for a complex global financial structure. The longer foreign nations wait to establish a multi-polar global reserve working alternative, employed broadly within their continental regions, laced within banking and commerce, the greater their loss will be to wealth funds and the greater the disruption will be to their entire economies, their standard of living, and their internal political stability. So let's see what China is up to. Far more details are provided in the Hat Trick Letter report on Gold & Currencies in the March issue.

This message was just received by a trusted colleague. This summer could be very bloody, in terms of global retribution against the Untied States, its debt peddlers. The gloves could finally come off. The person has global connections, decades of gold and banker experience, connections with the Euro Central Bank, numerous commercial contacts in Russia, China, and Arab world, and lives with several feet in several ponds, fluent in a few key languages. He is involved in many meetings of international importance, and lately has had the advantage of being involved with both bilateral barter arrangements created by Russia (with China, with Germany). He has a strong reliability record, with advanced notice often provided in a valuable manner. Here is a quote from this morning, which was in response to some queries about continued USTreasury Bond support, recently difficulty with UK Gilt bond auctions, and general monetary debauchery by major nations like US, UK, and Switzerland.

He wrote: “However, come the end of May/June/July 2009, the United States will be put through the meat grinder once and for all. You have no idea how pissed off the creditor nations are with the unmitigated arrogance and delusional bullshit coming out of Washington DC / Wall Street. I have never heard people be so furious and vocal on how the US needs to be dealt with from here on forward, as demonstrated during an early morning conference call we had with Europeans, including Russians and Asians. All on the call are heavy-duty decision makers.” A time of reckoning comes for the US, and my opinion is that what lies directly ahead is a dark place with more economic hardship and far less liberty. Be prepared with ownership of gold & silver bullion, bars, and coins. If not, a likely outcome is more destruction of personal finances, savings, and pension holdings, along with job cuts.


As prelude, examine the US Dollar DX index. In my past analyses, a forecast error was given in living color when my call was for the US$ to roll over and turn down a couple months ago. The October high provided surmountable after all. My biggest errors of forecasting are clearly with the USTreasury Bond long-term yield and the US Dollar DX index lately. Of course they are subject to the greatest market intervention, despite claims of free markets, despite claims of strong markets that seek equilibrium and proper value through price discovery. Nothing remotely is the case, not when the Plunge Protection Team goes to work, not when the Caribbean bank centers realize a jump from $117 billion in July 2008 to a hefty $204 billion in October 2008 in USTBond holdings . Such numbers are consistent with enormous nations with huge economies, vast banking systems, large indigenous credit markets, massive industries, etc. No, in the US, where $2.2 trillion of additional USTBonds were sold by JPMorgan, above and beyond the USGovt approved issuance (call it counterfeit), combined with secretive Caribbean slush operations and phony front agencies doing the USFed's bidding and doing the USTreasury's bidding, it is easy to make wrong forecasts with the USTreasury Bond long-term yield in the US Dollar DX index. One can be proud to make errors where the concentration is precisely where the US corruption is most deeply engrained. It is a badge of honor to wear. Call them PaulVE moments, the intelligent, personable, eloquent but analyst with consistently wrong forecasts. By the way, how much of the counterfeit JPMorgan USTBond sales went to cover credit derivative losses and gold futures contracts to suppress the gold price all the way from $300 per ounce in 2002 to $1000 this year??? Recall that JPMorgan is protected by national security exceptions.

The DX index faces an increasing challenge. The October 2008 high was rebuffed, but then supported at the 8-month moving average, only to be surpassed with further European and British distress of intense variety. An old reliable rule of thumb in technical analysis says to turn to a longer term chart to gain more clarity and direction in forecast for price movement. So turn to the monthly chart. The October and March highs now look like a failed double top with respect to the autumn 2005 highs registered in the 92 level. Two big red candles look ominous indeed but not fatal. The monthly stochastix appears elevated and stretched. The DX index did well in even approaching the 90 level at all.

Dead men cannot usually walk, let alone climb a staircase. Just as the 2005 rebound in the US$ bear market enjoyed a run, the 2008 rebound has enjoyed a different kind of run. Its strength is derived from US bank insolvency, bank ruin, and major corporate ruin, all of which require staggering liquidation funds and insurance payout funds. It is akin to claiming that Acme Hardware has strong stock value because it has a destroyed business, a destroyed franchise name, is enduring the shame of endless liquidation distress sales, is axing a large proportion of its workforce, has supply chain strangulation. But the Acme stock is strong, since its discontinued wares are in demand!!! This is lunacy, as is almost everything about the US financial system, its structure, its administration, and its criminals left still in charge. The reflection on the US Dollar is inevitable.

IN MY VIEW, A LOWER VALUATION COMES FOR THE US Dollar ONLY WHEN ALTERNATIVES ARE PRESENTED, INSTALLED, AND USED BROADLY ON INTERCONTINENTAL BASIS. Weak US fundamentals clearly are not enough. Extreme distress, dislocation, and disruption in foreign lands act as the bull whip urging those foreign creditor nations into action toward alternatives. The lead is China, without question. They do not feel the political and military pressure that Saudi Arabia has endured for decades. A band of corrupt royals in Riyadh compares badly to a billion throng of upstart industrialists in the famed Middle Kingdom who harbor a bad taste for a century toward Westerners generally, and an even worse bad taste toward fraud king Wall Street jet setters who blame the Chinese for many of their own problems. The trade war with China was forecasted in my analysis long ago, like four years ago. The sequence is simple, from offshore manufacturer to trade partner to global adversary to large scale credit provider to angry creditor to credit master, and maybe to receivership committee governor.


As a quick preface, bear in mind firmly that when foreign creditors own more than half the US debt securities, they slowly take control of the nation with hidden strings, hidden deals, as subtle changes occur in priorities held by US leaders. Worse, foreign creditors begin either to control the selection of key position appointments, or else to go into revolt. With the continuation of the Wall Street control from vividly clear criminal syndicate monoliths, the foreigners have begun to react with firm established detailed blueprint plans for new financial foundation structures. The US press does not cover much at all of these important developments, likely because their outcomes are so dreaded to the US financial way of life. The foreign developments are like turns in the road, where the new pathways are directed to the Third World. The clear signposts scream out of capital shortage and supply shortage.

By the way, Mexico should be correctly be identified as a failed state to the South, as drug warlords have essentially taken full control of many parts of the nation. Worse, Mexico and the Untied States find themselves now embroiled in a trade war, centered upon truckers. The majority (estimated at 95%) of powerful weapons used by the drug lords South of the Border are imported from the Untied States. CNN covers the regular murders of border town police officials like in Juarez across from El Paso Texas. My view is more encompassing. Ever since the Afghan War began, much of US foreign policy (both in the East Asia & Middle East) and domestic policy (airports, borders, banks, war funds), has been directed by the US drug lords who operate the $400 billion narco wars out of Congress, WashDC lobby groups, Halliburton HQ, and the Pentagon.

The banking and logistics require cooperation from Wall Street firms, along with certain big European banks. If you have not recognized that syndicates have strangled the US, you are basically blind. Not only is war funding profitable above board, but hugely profitable when basic pilferage enters the picture. The exact sum missing remains unclear, but the US Special Inspector General for Iraq Reconstruction (SIGIR) suggests it may exceed $50 billion, a figure that eclipses the Madoff Ponzi scheme. This is more than basic grand larceny, a specialty of the last Administration (see the Hurricane Katrina Relief effort).

The other main traits of Third World pertain to puppet government leaders, broken banks, masses of jobless, tent cities for the disenfranchised, ruined savings accounts, deep debauchery of the currency, control of government funds for the benefit of the Elite, preferential treatment of criminal behavior by the Elite, hostility toward civil liberties, steady stream of propaganda in the news media, a national infrastructure neglected in tatters, and a general militaristic stance toward enemy and ally alike. If you cannot detect the degradation toward this miserable situation, with these stated characteristics, you are basically blind.


The war of words, the high-level conflict, between the Untied States and China continues to escalate. This is an significant titanic conflict since China is a principal creditor. The other important creditor nation is Saudi Arabia. Two weeks ago, an unprecedented warning was given by Premier Wen Jiabao, complete with a finger wagging gesture. The implied message was crystal clear: Do not devalue the US Dollar through reckless spending. China already is the biggest foreign creditor to the USGovt, with an estimated $1 trillion in USTreasury debt. Wen wants to avert massive additional losses from a currency collapse. At issue is an vast stream of stimulus packages, escalated federal deficits, endless rescues, to push down the value of the US Dollar, and thus the held value of the Chinese hoard of savings. The international conflict has reached the Bloomberg, Reuters, and Wall Street Journal news. Of course, they leave out major important points. But the WSJ article entitled “China Takes Aim at Dollar” (CLICK HERE ) certainly should act like a cold splash of water to readers, unless myopia is a chronic problem, or unless the reader wears flag draped skivvies every day out of the house.

Chinese leaders are openly critical, expressing deep anxiety. Debate is rampant inside China about the wisdom of continued support to purchase USTreasurys. These are preliminary tectonic shifts to be identified before important new financial structures come to fore. They will disturb the US Dollar system at its global foundation, with much inherent hegemony. The shock waves will come region by region, in a succession. By attracting a lot of attention to this issue, China has decided to attempt to gain influence at the G-20 meeting.

An important issue being watched is the Chinese Govt decision to expand its 4 trillion yuan (=US$586B) stimulus, if needed. The Untied States prints money, undercuts its currency and debt integrity, and adds dangerously to its financial weakness with the parade of rescues and stimulus that seem designed to ignore the people on Main Street. The Chinese have a war chest, and are using it. The Chinese are confident about emerging from the financial crisis and demonstrating vitality again. The Chinese Economy is indeed under stress. Many analysts wrongly conclude that the US is in much better shape. Not true! The US Economy is undergoing a dangerous disintegration process. The Chinese are actively trying to spur domestic consumption, a difficult task when millions of job losses have occurred. A great migration has begun back to the rural areas, away from the cities. The seeds of Chinese social turmoil have been sown, to be sure.


An extremely dangerous and controversial agreement might have been struck between the USGovt and Chinese Govt during a visit to Beijing by Secy State Hillary Rodham Clinton. Some call this news pure rumour, while others claim it is suppressed fact. Time will tell. The Chinese had been demanding greater assurances for continued USTreasury Bond purchase. The public is not privy to actual discussions, as US leaders continue to betray the US public with a string of secret deals dating back to IPO offering by Wall Street for giant Chinese banks. Ever since Goldman Sachs took control of the Dept Treasury in 1992, the nation has suffering a skein of betrayals on gold treasury management, suppressed USTBond yields (that skewer savers), insider trading schemes that would read like out of crime novel, and lately channeled TARP funds for Wall Street elite sequestered usage. Details and quotes appear in the Hat Trick Letter, in particular the Gold & Currency report for March out last weekend. The US Embassy in Beijing confirmed the deal to the source. Hillary closed the deal. A quid-pro-quo agreement was struck, continued USTBond purchases in return for Eminent Domain option to exercise by China for property seizure, “ to physically take, inside the USA, land, buildings, factories, perhaps even entire cities.” The concepts of colonization and carpet-bagging should come to mind!

In order to maintain credit flow for the deeply insolvent USGovt, the federal authorities might have mortgaged the physical land and property of citizens and businesses in the Untied States to a foreign power. What makes the betrayal all the worse if its apparent secrecy. In my analysis last autumn, mention has been made that a great risk grows for China to embark on a COLONIZATION movement. Huge tracts of USTBonds have been accumulated by China since September. The USTBond hoard held by China would be converted into mortgage bonds, and then into actual hard asset property, including commercial buildings. Sadly, the Secy State post under Hillary has morphed into an emissary post to plead with creditors. This is NOT so much about forcible confiscation, but rather conversion to property like during any other ordinary liquidation, ordered within receivership. China has embarked on early stages in preparation to convert debt securities into hard assets like property. They are crafty and deliberate. What few seem to acknowledge is the path from mortgage bond ownership to property purchase (for a very low price) upon foreclosure is a very short path. Imagine a throng of Chinese businessmen and bankers dressed in Western suits attending foreclosure auctions holding property titles in their hands!!! A bizarre obstacle might thwart some Chinese efforts, if they discover that mortgage bonds continue imperfect or missing property titles, or worse, are forged Fannie Mae counterfeit bonds.


In a bold plan, the Chinese Govt has announced the yuan currency will soon replace the US Dollar as the new Asian regional reserve currency. The stage is set for Asia to install the Chinese yuan for broad usage across Asia, with possible massive dump of USTreasury Bonds. Look for other new global reserve currency to spring up in the next year, especially after the Chinese run interference on the financial, geopolitical, and diplomatic fronts. The impact alone from the Chinese plans presents a dire prospect for the Untied States, with dangerous economic and credit impacts. The Asia News is full of excellent analytic editorials, some full of valuable data.

Due to US Dollar instability and unreliability, Beijing is introducing a serious currency experiment, in order to aid in the stability of the Asian economy. The Chinese intention seems clearly to decouple both China and Asia from the US Dollar and to introduce the yuan as the regional reserve currency. The yuan will be infused throughout their banking system. Other Asian governments will surely follow suit and discharge reserve USTBonds in favor of the yuan currency. The full impact will be felt when Asian nations who participate in this new reserve currency begin to purchase raw materials and commodities like grains, energy, and metals in Asia, using yuan currency in hand. The giant blow taken by the Untied States will result in further isolation. That will severely weaken US$ demand in an important continent.

This is a very clever economic as well as political plan by China. The plan is a pathway for regional economic stability for Asia, centered finally in China in a monetary sense. China will proceed under the legitimate political cover of their own financial reform toward stabilization. Chinese bank leaders like Zhou Xiaochuan have begun to state publicly some nontrivial arguments about how continuation of the current US$-based global unipolar financial system bears costs and risks that far exceed the benefits. If the USEconomy wishes to import Chinese finished products, then the American consumer will indirectly contribute toward financing any new Chinese debt. The Chinese are considering a new debt security, which will compete for Asian surplus funds and thus displace the USTreasury Bond. If successful, the Chinese will turn the tables completely, and wear the big currency boot. Chinese sentiment has changed, as has their patience. Geithner's initial comments directed against the Chinese were disastrous, and meant the ‘kiss of death' for the USDollar and USTBond. My firm belief is that a new Asian regional community fund, designed to ward off currency attack, might be vastly expanded to become the precursor of an Asian Credit Market denominated in Chinese yuan, and using newly created Chinese debt securities. The distrust of the IMF is acute these days. They actively seek alternatives. They are collectively wealthy enough to create new support structures, all of which in turn undermine the USDollar and USTreasury Bond.

The graphic on FOREX reserves firmly proves the point that the balance of power has shifted to developing nations. Wealth accumulation leads to shifts in bank power. If the existing structures do not incorporate and accommodate the new reality, then new structures will come into form and take root. The US and UK have given nothing but lipservice to Chinese, Arab, and Russian demands, their creditors. The time for revolt is here. Americans seem last to notice.

The biggest beneficiary is sure to be gold & silver, as the USDollar and USTreasury Bond are weakened. They are the competitors to gold. For practicality reasons, the USTBond will be preserved at all costs. The USEconomy desperately requires that mortgage rates remain low, and that long-term interest rates remain low for commercial loans. Avoidance of further damage from housing decline is urgent. Avoidance of further credit derivative accidents and heavy losses is also urgent. So the more vulnerable of the pair is the USDollar. The Gold-US$ connection is soon to return in powerful force. A decline in the USDollar will send the gold price well above the $1000 level. The only obstacle to the gold runup is continued JPMorgan gold futures contract short positions, like 1.2 million ounces in total put to work in the two days following the USFed $trillion$ monetization announcement. Corruption continues.


From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

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by Jim Willie CB
Editor of the “HAT TRICK LETTER”
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Tweety Pie
30 Mar 09, 16:34
The Dollar?The UK Economy

Do you think that the UK economy is heading for an implosion or just a long period of stagnation? Brown and his Labour fiddling mininsters have sown the seeds of our national destruction....a set up to drive us into the EU?

Do you think the US is heading for a complete implosion? If the dollar, and go it may well, would this nor bring down the house given that 65% of reserves are held in dollars?...This may all change if what you say about China comes to pass?

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