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EXTEND & PRETEND

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Articles with
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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.
READ MORE |
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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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12-09-10
1-
SOVEREIGN DEBT & CREDIT CRISIS |
For Europe, a crisis too good to waste
MW
Deutsche Bank Offers `Plan B' for ECB Crisis Fight- Euro
Credit BL
The European Central Bank should draft commercial
lenders as allies in its fight to stem the euro-region
financial crisis by giving them incentives to buy bonds of
debt-swamped governments, Deutsche Bank AG says.
In his proposed “Plan B,” London-based Deutsche Bank
economist
Gilles Moec said the ECB would limit collateral for
one-year central bank loans to investment-grade sovereign
paper rated less than AAA, encouraging purchases of debt
sold by Spain, Italy, Portugal and Ireland. He also
suggested a “margin-call holiday,” freeing banks from
providing more collateral if the value of the swapped
bonds falls.
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IRELAND
Harsh Irish budget fails to stem eurozone debt crisis
fears Telegraph
George Osborne to set cap on UK loan to Ireland
Guardian
ICELAND
Iceland Cuts Main Rate to 4.5% as Stable Krona Cools
Inflation BL
JAPAN
|
time (et) |
report |
period |
Actual |
Consensus forecast |
previous |
Thursday, Dec. 9 |
8:30 am |
Jobless claims |
Dec.4 |
|
425,000 |
436,000 |
10 am |
Wholesale inventories |
Oct. |
|
N/A |
1.5% |
12 pm |
Household debt |
3Q |
|
N/A |
-2.3% |
|
Banks in Europe Fail Stress Tests With No Authority
BL
QE2's days are numbered Grannis

US Treasuries hit by biggest sell-off in two years
FT
Follows soaring borrowing costs for western goverments |
Bond Vigilantes Could Target US: Roubini CNBC
Bond Vigilantes May Thwart Tax Deal Forsyth
Eurozone bond markets face testing run
FT

4- STATE
& LOCAL GOVERNMENT |
Fate of Build America Bonds in dispute
Reuters
Secret GOP plan: Push states to declare bankruptcy and smash
unions Pethokoukis
Bank of America Deal in Muni Case May Be `Tip of the Iceberg'
BL
5-
CENTRAL & EASTERN EUROPE |
Low Rates Squeeze Financial Industry WSJ

At banks with more than $1 billion in assets, net interest
margin has fallen to 3.74% as of Sept. 30 from 3.85% in March,
according to the Federal Deposit Insurance Corp. The percentage
measures how much banks earn from loans and other assets compared
with what is paid to depositors.
"We have probably seen the high-water mark for margins in the
third quarter," says Mark Fitzgibbon, an analyst at Sandler
O'Neill & Partners LP. "In the next several quarters, we will see
it move lower."
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8-
COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE - PHASE II |
No relief in sight for U.S. housing Reuters
Toll CEO Sees Nascent Rebound... BL
Mortgage Applications Declined Slightly Last Week
Reuters
10- EXPIRATION FINANCIAL CRISIS PROGRAM
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11- PENSION & ENTITLEMENTS CRISIS
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Tax-Cut Deal Alone Won't Add Enough Jobs
El-Erian
Food Stamp Rolls Continue to Rise WSJ
13- GOVERNMENT BACKSTOP INSURANCE |
Fannie, Freddie Pressed on Mortgages WSJ
Fannie Mae and Freddie Mac, which own or
guarantee about half of all first-lien mortgages in the U.S., have
been highly reluctant to reduce loan balances... |
14- CORPORATE BANKRUPTCIES |
ADB revises China's GDP expansion upward to 10.1% Shanghai Daily
Academy says China's housing prices are 30 pct overpriced Shanghai
Daily
China is 'doing right thing' to curb inflation: Jim Rogers Xinhua
19- PUBLIC POLICY MISCUES |
Obama facing tough sell in own party on tax deal AP
If Democrats kill the package, it would
mark a stunning defeat for Obama... |
U.S. fiscal health worse than Europe's: China adviser
Reuters
Rogers: U.S. government inflation data is "a sham"
Reuters
For Obama, Tax Deal Is a Back-Door Stimulus Plan NYT (Leonhardt)
Tax cuts, Oprah-style Salmon
Democrats not happy with Obama CNN
The Economic Incompetence Of The Political Class Forbes
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
Death of the crisis has been exaggerated Harrison
The
Perils of Bailouts Bear’s Lair
Private equity wins, U.S. creditors lose Saft
What will 2011 bring? Triple-digit oil Rubin FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
CURRENCY WARS
It isn't QE2 that's flooding Asia with Hot Money Asia Sentinel
the data actually given by the ADB suggest that the main cause
of upward pressure has been the rise in the current account
surpluses of these countries. The only one where such inflows have
been very significant is China, which has resisted significant
currency appreciation and kept its interest rates at levels which
make no sense for an economy growing at 9 percent and experiencing
3-4 percent inflation.
Taking the four main Asean countries
together (Indonesia, Malaysia, Thailand and the Philippines) the
ADB data shows that in the first half of 2010 surpluses on the
aggregated capital accounts amounted to just 1.2 percent of GDP
while current account surpluses were 4.3 percent. “Errors and
omissions” showed an outflow of a massive 2.3 percent.
The
small net capital inflow was in contrast to 2009 when there was
net outflow amounting to 4.5 percent of GDP following a similar
outflow for 2008 – which saw inflow in the first half of the year
then massive outflow as the global crisis hit.
Looking at
the individual countries within this group, it is clear that the
two with the lowest current account surpluses, Thailand and
Indonesia, have also been the least concerned to prevent their
currencies rising more than others in the region. Although they
have imposed some controls, they are still more easily accessed
than the Malaysian ringgit which, judging by a current surplus now
at 15 percent of GDP and above 10 percent for a long period,
should have appreciated far more than has been the case.
The story is a little different for the Asian Newly Industrialized
Countries – Korea, Taiwan, Hong Kong and Singapore – but again
upward currency pressure comes mainly from current account
surpluses which totaled 7.7 percent of GDP in the first half of
this year while capital inflow was just 1.6 percent. The previous
two years saw wild swings in the capital account as money which
flooded out in 2008 flooded back in 2009 but on balance saw a
small net outflow. Meanwhile current account surpluses have never
fallen below 4.3 percent (in the first half of 2008) and hit 8
percent for the whole of 2009.
Korea has surely faced a
surge of foreign money this year, much into a bond market offering
higher returns than elsewhere as well as the prospect of currency
appreciation. But the won has done no more than make up for its
steep fall and capital outflow in 2008. Its current account
surplus has been rising and clearly justifies a stronger won, at
least against the yen.
But Korea is less of an offender
than Taiwan, whose current surplus has been rising strongly and is
now 8 percent of GDP, yet its currency has appreciated by a mere 5
percent against the dollar over the past year and money growth and
inflation are low. Taiwan maintains by far the tightest controls
of the NIEs, not a policy designed to win friends overseas.
It is only China which has seen a large net capital inflow –
3.6 percent of GDP – as well as current account surplus – 5
percent of GDP in the first half of this year following a 6
percent current account and 2.9 percent capital account for 2009
as a whole despite its capital controls and closely managed
exchange rate.
China has been attempting to tighten
controls to prevent this inflow from adding to already too high
money growth. But resistance to significant appreciation may be
having a more disruptive impact than would allowing the currency
to rise another 10-15 percent.
China may be in receipt of
some of those US dollars which Bernanke is endeavoring to create.
But undervaluation attracts capital like nothing else so it is
more than likely that China is attracting surpluses being
generated elsewhere in Asia and flowing out. As for money supply
growth, China's 19 percent rise in M2 this year contrasts with a
US rise of a mere 3.5 percent. So who is really printing money?
For East Asia as a whole there is clearly massive scope for
consumption growth in China, Taiwan and to a lesser extent Korea
and equally massive scope for investment growth in the ASEAN four
– preferably in productive assets not monuments like new
skyscrapers in low density Kuala Lumpur.
|
MARKET &
GOLD MANIPULATION
SPDR Gold Trust holdings slip to 1,297.726 tonnes Reuters
Gold Declines BL
Gold vs. Silver BeSpoke AUDIO / VIDEO
QUOTE OF THE WEEK
"Germany cannot keep paying for bail-outs without going
bankrupt itself. This is frightening people. You cannot find a
bank safe deposit box in Germany because every single one has
already been taken and stuffed with gold and silver. It is like an
underground Switzerland within our borders. People have terrible
memories of 1948 and 1923 when they lost their savings."
Professor Wilhelm Hankel, of Frankfurt University
EU rescue costs start to threaten Germany itself - Telegraph
"We're not swimming in money, we're drowning in debts"
German finance minister Wolfgang Schäuble before Bundestag
EU rescue costs start to threaten Germany itself - Telegraph
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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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TODAY'S NEWS
THURSDAY
12-09-10
DECEMBER
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ARCHIVAL |
|
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 |
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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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