Monthly Archives: August 2011

Time to pay the piper: Who gets stuck with the bill?

Prior to his recent visit to China, Vice-president Joe Biden tried to assure investors that U.S. Treasury bonds are still a good investment, saying that the US administration “is deeply committed to maintaining the fundamentals of the US economy” to “ensure the safety, liquidity and value of US Treasury obligations for all of its investors”.

Good try, but the Chinese are not buying it, nor, it seems, is anyone else. The Federal Reserve has become of late the biggest buyer of treasury bonds, and Standard and Poor recently announced that they have downgraded the U.S. debt rating from AAA to AA+. Dollar denominated securities are now becoming a “hot potato” as loss of purchasing power of the dollar seems assured.

An August 19, 2011 article in China Daily titled, Experts urge China to trim US T-bond holdings, quotes both Chinese and American authorities and concludes thatChina should reduce its holdings of US Treasury bonds to protect the value of its massive foreign exchange reserves.” Here are some excerpts:

“China should move progressively to cut its holdings of US Treasury bonds and use it as leverage to ask Washington to further open its markets, including the high-technology sector, to Chinese investment,” Xiang Songzuo, deputy director of the Center for International Monetary Research at Renmin University of China, said at a forum.

“Washington should provide a guarantee on the safety of China’s assets,” while it is creating global inflationary pressure through quantitative easing to stimulate its economy, Xiang said

Zhu Chao, assistant dean of the School of Finance at the Capital University of Economics and Business, said Biden’s promises were more symbolic than meaningful.

Stephen Roach, the non-executive chairman of Morgan Stanley Asia, said that the US debt crisis has shaken China’s confidence in Washington but the pro-consumption shift in its economic structure will help reduce the pace of its foreign-exchange accumulation.

“The US debt crisis has taken a serious toll on China’s confidence in Washington’s economic stewardship,” Roach said in a research note.

“China is no longer willing to risk financial and economic stability on the basis of Washington’s hollow promises and tarnished economic stewardship.”

The situation suggests some major policy questions that could have far-reaching effects on the American economy and on the American middle-class. China has, up to now, been willing to accept America’s i.o.u.’s in exchange for all those computers, TVs, shoes, clothing, and other goodies that Americans have been gobbling up at bargain prices. Now the piper must be paid, one way or another. Will Washington “further open its markets, including the high-technology sector, to Chinese investment,” as the Chinese are demanding? Will the U.S. government allow Chinese companies to buy up American companies, real estate, and infrastructure?

You can’t blame the Chinese for wanting real value in return for what they have already delivered. The fault lies with the policies of the past 30 years that, in the guise of “free trade,” have promoted the interests of the few at the expense of the many.—t.h.g.

More about Iceland’s ongoing revolution

This article, Iceland’s On-going Revolution, by Deena Stryker, provides additional information and inspiration.

New Moneeey

I recently came across a series of video animations titled, New Moneeey, which, it turns out, are pretty good. New Moneeey appears to be a group effort but John Ince seems to be a key player. I met John a couple years ago when he came to one of my lectures in San Francisco. I lost track of him for a while but we’ve recently reconnected. I’ve not tried to verify all of the statements made in the videos, but even if off by a factor of 10, they are significant.

John’s credentials are quite impressive. They include a Harvard MBA and whole raft of accomplishments in writing, media, and entrepreneurship. He is the author of two recently published books, The Money Question, and Meaningful Money, and is in the process of preparing a new book, The Wizard of Iz.

Here is the first part of the New Moneeey series. You may want to watch the entire thought provoking series.

Who came within a whisker of beating Michlle Bachmann in Iowa?

The mainstream media will not utter his name, but Jon Stewart does.

Move Your Money

The movement away from dependence upon mega-banks and political currencies is gaining momentum, not only amongst individuals and companies, but also amongst countries that have lost confidence in the international banking establishment.

The Associated Press reports today that Venezuela is recalling $11B in gold reserves. Here are some excerpts:

President Hugo Chavez announced Wednesday he is nationalizing Venezuela’s gold mining industry and intends to bring home $11 billion in gold reserves currently held in U.S. and European banks.

Central Bank president Nelson Merentes said on television that the decision to move the gold reserves was being taken out of “prudence.”

Venezuela has nearly $4.6 billion of its gold reserves in the Bank of England, according to a report by Finance Minister Jorge Giordani that was leaked to the news media Tuesday by an opposition lawmaker.

The report said additional Venezuelan gold reserves are held by the U.S. bank J.P. Morgan Chase, British banks Barclays, HSBC and Standard Chartered, France’s BNP Paribas and Canada’s Bank of Nova Scotia.

Giordani and Merentes, who appeared together on television Wednesday, said they proposed to Chavez that Venezuela’s nearly $6.3 billion in non-gold international reserves such as bank deposits and bonds should be reviewed and transferred from U.S. and European banks to countries they consider safer, including China, Russia and Brazil, among other countries in Asia and Latin America.

It makes sense for countries like Venezuela to hold their reserves in the currencies of countries that actually produce something and from whom they make substantial purchases. While the U.S. remains one of its main suppliers, Venezuela also imports significant amount from Colombia, China, Brazil and Mexico.

Meanwhile, back in the U.S., there has been a growing grassroots movement in which savers are taking their money out of the large banking corporations and moving it into credit unions and locally owned banks. One significant development is the Move Your Money Project, “a nonprofit campaign that encourages individuals and institutions to divest from the nation’s largest Wall Street banks and move to local financial institutions.” Go here to find one near you.

In my May presentation to the Financial Planning Association, I provided a resource list that included financing alternatives for enterprises and options for savers and investors.

As a side note, you may be interested in viewing Dylan Ratigan’s recent rant on MSNBC, in which he complained that the “Banking system is corrupt and defrauding us.” You can see it here.—t.h.g.

A mega-dose of reality

The message by Silver Shield titled,  5 Reasons Why American Riots Will Be the Worst in the World, by may seem rather harsh to some, but it is one that needs to be heeded. I recommend that it be read in its entirety, and that the embedded videos be watched. The article ends on a hopeful note saying,

This collapse will not result in a One World Order. The Elite that are trying desperately make this happen will no longer be able to operate in secrecy. Their minions will lack any legitimacy with the people they rule. After all who is going to trust a President who says he did not see this coming when you and I can see it coming from miles away. The result after a very violent Anger phase is going to be massive decentralization of power not more centralization of power. Local communities, cities counties and states will assert more power over the daily activities of our lives. Some will slip into tyranny to make order out of chaos. Others will attract the best and brightest by embracing freedom and honest money. The end result is a life where we can reach our highest and best self. How we get there is a rough road, but one I feel is easily traveled if you are aware and prepared.

Let us work together to ease the transition and assure a happy outcome.

My movie now available, and the further decline of the dollar

In early May, I gave a presentation to the Financial Planning Association, which I titled, Financial Planning in the Emerging Butterfly Economy. The slide show was posted here shortly thereafter. Now, thanks to Bill Jackson, we have that presentation in movie form, complete with my slides and narrative. You will find both of these listed in the sidebar to the right under, My Audio-visual presentations You can also view the movie by going directly to the Slide Show Album on my Vimeo site, http://vimeo.com/album/1660843.

You should also be aware that the United States has for the first time in its history, lost its triple-A debt rating. Standard & Poor’s announced on Friday that “it lowered its long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’. Standard & Poor’s also said that the outlook on the long-term rating is negative,” which suggests that further downgrades are likely. You can read the entire S&P statement here.

The recent budget cuts agreed upon by Congress are a mere drop in the deficit “bucket.” As I said many years ago, so long as the debt-money system based upon compounding interest prevails, the federal government budget cannot be balanced. As we have seen very clearly in the recent bailouts by government of banks and financial institutions, government is the borrower of last resort. If government does not play that role, the entire global financial system collapses, as it almost did in 2008.-t.h.g.