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Published November 2009
EXTEND & PRETEND

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Articles with
highlights, graphics and any pertinent analysis found below.
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COMMENTARY for all articles by
Gordon T Long
CURRENCY WARS: Debase, Default, Deny!
In
September 2008 the US came to a fork in the road. The Public Policy
decision to not seize the banks, to not place them in bankruptcy court
with the government acting as the Debtor-in-Possession (DIP), to not split
them up by selling off the assets to successful and solvent entities, set
the world on the path to global currency wars.
By lowering interest rates and effectively guaranteeing a weak dollar, the
US ignited an almost riskless global US$ Carry Trade and triggered an
uncontrolled Currency War with the mercantilist, export driven Asian
economies. We are now debasing the US dollar with reckless spending and
money printing with the policies of Quantitative Easing (QE) I and the
expectations of QE II. Both are nothing more than effectively defaulting
on our obligations to sound money policy and a “strong US$”. Meanwhile
with a straight face we deny that this is our intention.
Though prior to the 2008 financial crisis our largest banks had become
casino like speculators with public money lacking in fiduciary
responsibility, our elected officials bailed them out. Our leadership
placed America and the world unknowingly (knowingly?) on a preordained
destructive path because it was politically expedient and the easiest way
out of a difficult predicament. By kicking the can down the road our
political leadership, like the banks, avoided their fiduciary
responsibility. Similar to a parent wanting to be liked and a friend to
their children they avoided the difficult discipline that is required at
certain critical moments in life. The discipline to make America swallow a
needed pill. The discipline to ask Americans to accept a period of intense
adjustment. A period that by now would be starting to show signs of
success versus the abyss we now find ourselves staring into. A future
that is now massively worse and with potentially fatal pain still to come.
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CURRENCY WARS: Misguided Economic Policy
The
critical issues in America stem from minimally a blatantly ineffective
public policy, but overridingly a failed and destructive Economic
Policy. These policy errors are directly responsible for the opening
salvos of the Currency War clouds now looming overhead.
Don’t be fooled for a minute. The issue of Yuan devaluation is a political
distraction from the real issue – a failure
of US policy leadership. In my
opinion the US Fiscal and Monetary policies are misguided. They are wrong!
I wrote a 66 page thesis paper entitled “Extend
& Pretend” in the fall of 2009 detailing why the proposed Keynesian
policy direction was flawed and why it would fail. I additionally authored
a
full series of articles from January through August in a broadly
published series entitled “Extend & Pretend” detailing the predicted
failures as they unfolded. Don’t let anyone tell you that what has
happened was not fully predictable!
Now after the charade of Extend & Pretend has run out of momentum and more
money printing is again required through Quantitative Easing (we predicted
QE II was inevitable in
March), the responsible US politicos have cleverly ignited the markets
with QE II money printing euphoria in the run-up to the mid-term
elections. Craftily they are taking political camouflage behind an
“undervalued Yuan” as the culprit for US problems. Remember, patriotism is
the last bastion of scoundres
READ MORE
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READER ROADMAP
- 2010 TIPPING POINTS aid to
positioning COMMENTARY
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1
1-SOVEREIGN DEBT |
2-EU BANKING CRISIS |
3-BOND BUBBLE |
4-STATE &
LOCAL GOVERNMENT |
5-CENTRAL & EASTERN EUROPE |
6-BANKING CRISIS II |
7-RISK REVERSAL |
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8-COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE -
PHASE II |
10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
11-PENSION CRISIS |
12-CHRONIC
UNEMPLOYMENT |
13-GOVERNMENT BACKSTOP
INSUR. |
14-CORPORATE
BANKRUPTCY |
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TODAY'S TIPPING POINTS UPDATE |
RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
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Click to Enlarge

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11-12-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISREAL
KOREA
1-
SOVEREIGN DEBT & CREDIT CRISIS |
ECB's Trichet Is Buyer of Only Resort as Debt Crisis Worsens
BL
4- STATE
& LOCAL GOVERNMENT |
5-
CENTRAL & EASTERN EUROPE |
Global Currency War May Miss Investment-Starved Eastern Europe
BL
8-
COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE - PHASE II |
Foreclosure Activity Falls 'Artificially' Due to Moratorium
CNBC
10- EXPIRATION FINANCIAL CRISIS PROGRAM
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11- PENSION & ENTITLEMENTS CRISIS
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13- GOVERNMENT BACKSTOP INSURANCE |
14- CORPORATE BANKRUPTCIES |
China's inflation at two-year high WSJ
“Inflation now replaces asset bubble as
the top concern for policymakers as well as investors.” |
New credit booms in October Shanghai Daily
Moody's upgrades China ratings on economic resilience Reuters
19- PUBLIC POLICY MISCUES |
Deep-Six the Deficit Commission Report Baker
American Profligacy and American Power
Foreign Affairs (R) The Consequences of Fiscal
Irresponsibility
US-South Korea fail to agree trade deal FT
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
24-RETAIL SALES
26-GLOBAL OUTPUT GAP
31-FOOD PRICE PRESSURES
32-US STOCK
MARKET VALUATIONS
GENERAL INTEREST
Sugar Crash BI
MARKET WARNINGS
Be In Cash,
Wait for Stocks to Fall: Jeremy Grantham CNBC
G20 MEETING
G20 fails to reach deal on imbalances FT
Pledge to resolve differences with IMF help
US defensive on dollar at G20 FT
History lessons for a world out of balance FT
History suggests, among other things, that competitive
devaluations and capital controls are the inevitable consequence
of surplus countries failing to take any responsibility for global
payments imbalances |
How the G20 glasshouse is under attack FT
At the very least a new pecking order appears to be forming.
This is reflected in shifting board representation in the
International Monetary Fund and World Bank as developing countries
take more votes and seats at the expense of the old powers. The
shift is also exacerbated by Europe’s inability to act as one in
either the G20 or these institutions, sidelining what should be a
heavyweight player.
Instead it often seems lost in unseemly rearguard actions
to preserve a fading status.
In short, this G20 is far from united in its ambition to offer
more coherent leadership to the world economy. Rather, it is at
risk of being reduced to the sum of its feuding parts as
structural trade imbalances, currency wars and very different
views of each other’s relative economic prospects drive stakes
into the enterprise.
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Obama Presses Hu on Yuan as Trade Imbalances Divide G-20 BL
The eurozone’s stark lessons for the G20 FT Greenspan
Currency problems have now spread to the global financial
system which, like the euro area, requires adherence to certain
rules to sustain it. It is not only the well publicised friction
between China and America – both may be right about each other –
but also by the drive for competitive export advantage through
currency manipulation in a world where a zero global current
account balance permits none. Something has to give in this arena
of zero-consolidated current account balances.
1- We should not wish to inhibit those market-determined
capital flows that reflect the cross-border shifting of resources
that enhances global productivity. These flows are the big
determinants of desirable realignments of exchange rates over
time. But we should discourage reserve accumulation whose sole
purpose is to suppress exchange rates for competitive export
advantage. This, of course, has been the market-distorting
consequences of China’s accumulation of over $2,000bn of reserves
since 2000.
2- What the G20 can initiate through the IMF is a set of rules
that limits the accumulation of reserve assets and sterilisation
of capital inflows. China may need an officially sanctioned
extended adjustment period, and provisions may be required to deal
with unsterilised capital inflows threatening smaller markets. But
that would be far easier to monitor and control than a stability
and growth pact that requires control of central government
revenues and spending.
Delimiting a country’s ability to suppress its exchange rate
(reserve accumulation limits) or to blunt the effect of unwanted
capital inflows (sterilisation) may not fully dissuade a country
bent on other protectionist forms.
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Greenspan Urges G-20 Adoption of Reserve Limits BL
CURRENCY WARS
Geithner Says Dollar Drop Due to Reversal of Safe-Haven Flows BL
“We will never seek to weaken our currency as a tool to gain
competitive advantage or to grow the economy” |
Emerging markets capital flows - how are the BRIC countries faring and
coping? DB Research
Q3 EARNINGS
Cisco Shortfall Shows Risks in Government Spending Cuts BL
MARKET &
GOLD MANIPULATION
AUDIO / VIDEO
QUOTE OF THE WEEK
"It could unfold very, very quickly. Because deflation is a
swing of poverty feedback, it can take awhile to build up. If you
try to explain to people what's coming, because it doesn't happen
instantly, they tend to go back to sleep. The thing they need to
understand, however, is that when it does hit a tipping point, a
kind of critical mass, then it can unfold exceptionally quickly.
Then it's very much like having the rug pulled out from under your
feet. So I tell people all the time, prepare now because it's
better to be two years too early than five minutes too late. You
can't play with this sort of thing. In September, 2008, we came
within a few hours of the banking system seizing up, and that
could easily happen again. People wouldn't get a lot of notice.
For anyone who's not in the meeting room-it will be too late by
the time they find out. My worry is that if there are an enormous
number of people who just had the rug pulled out from under their
feet, they're going to run around like headless chickens, and the
human over-reaction to events will be really responsible for a
large percentage of the impact. “
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Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.ont>
© Copyright 2010 Gordon T Long. The information
herein was obtained from sources which Mr. Long believes reliable, but he
does not guarantee its accuracy. None of the information, advertisements,
website links, or any opinions expressed constitutes a solicitation of the
purchase or sale of any securities or commodities. Please note that Mr.
Long may already have invested or may from time to time invest in
securities that are recommended or otherwise covered on this website. Mr.
Long does not intend to disclose the extent of any current holdings or
future transactions with respect to any particular security. You should
consider this possibility before investing in any security based upon
statements and information contained in any report, post, comment or
recommendation you receive from him.
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TIPPING POINTS |
1-SOVEREIGN DEBT &
CREDIT CRISIS |
2-EU BANKING CRISIS |
3-BOND BUBBLE |
4-STATE & LOCAL
GOVERNMENT |
5-CENTRAL & EASTERN EUROPE |
6-BANKING CRISIS II |
7-RISK REVERSAL |
|
8-COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE -
PHASE II |
10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
11-PENSION CRISIS |
12-CHRONIC
UNEMPLOYMENT |
13-GOVERNMENT BACKSTOP
INSUR. |
14-CORPORATE
BANKRUPTCY |
|
15-CREDIT CONTRACTION II |
16-US FISCAL IMBALANCES |
17-CHINA BUBBLE |
18-INTEREST PAYMENTS |
|
19-US PUBLIC POLICY MISCUES |
20-JAPAN DEBT DEFLATION SPIRAL |
21-US RESERVE CURRENCY. |
22-SHRINKING REVENUE GROWTH RATE |
23-FINANCE & INSURANCE WRITE-DOWNS |
24-RETAIL SALES |
25-US DOLLAR WEAKNESS |
26-GLOBAL OUTPUT GAP |
27-CONFIDENCE - SOCIAL UNREST |
28-ENTITLEMENT CRISIS |
29-IRAN NUCLEAR THREAT |
30-OIL PRICE PRESSURES |
31-FOOD PRICE PRESSURES |
32-US STOCK MARKET VALUATIONS |
33-PANDEMIC |
34-S$ RESERVE CURRENCY |
35-TERRORIST EVENT |
36-NATURAL DISASTER |
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