Behind China Saying Not Enough Money to Buy US Debt

Okay, I’ll admit it. I’m becoming a cynic. Well actually, I’m spending a lot of time learning how to understand the reality behind the so-called news. In fact, “news” as we used to know it doesn’t exist anymore. Headlines exist, media reports exist, even reporting agencies exist. The problem is that they don’t tell us anything about reality. Take, for instance, the story going around today that at least 5 members of the Chinese government are saying there isn’t enough money in the world to buy up US treasury bills (a.k.a. debt).

The overwhelming majority of stories (not factual reports) tell us that here’s the problem: With a shrinking amount of purchases from the United States, there isn’t enough money going overseas for other nations to buy treasury bills and bonds issued by the United States government. As you know, we, as a nation borrow money and issue T-bills and US bonds as IOUs.

Let’s say I buy a Thing from China for $100. I send over one hundred dollar bills to China and they send me back the Thing. Each of those dollar bills is a contract between the US government and whomever holds the dollar bill. The contract says, “The US government will redeem this piece of paper for…” what?

In the old days, it meant you could redeem 35 of those pieces of paper for 1 ounce of gold. Today, it means you can exchange $1 for “something,” somewhere. Nothing objective, just…”something.” Who knows what “something” might be? It could be corn, wheat, copper; or, it could be clothes, envelopes or whatever else you buy in Walmart. As long as everyone believes that somehow, somewhere, some time you’ll be getting something for that piece of paper, we’re good to go.

That’s called fiat money. It’s valuable because I say so! Or the US government or any other “someone” says so.

The problem is that China sells us lots of real things — things you can drop on your toe and say “ouch!” In exchange, they get lots of pieces of paper. They hang on to those pieces of paper until a) they can buy something from America in exchange (like wheat), or b) they can redeem the pieces of paper for IOUs in the form of T-bills and bonds. The dollar bills they’re holding are called their “reserve” currency.

So here’s the deal. Americans (and much of Western Europe) have been buying cheap Things from China for a number of years. We’ve been using credit cards and piling up debt, but that doesn’t matter. The banks who issue us the credit cards are sending our dollar bills to China each time we buy our Thing.

Meanwhile, American governments (state and local) are spending so much money it’s as if they believe there’s an unlimited supply. They long ago ran out of real money, and you can see how each year’s tax payments barely scratch the surface of what’s being spent. So the politicians print up bonds and securities and sell them to China, who in return, send dollar bills back to America. That’s the money supply.

What happens when Americans stop buying stuff from China?

Ordinarily, it’s not a problem. China sells stuff to everyone else and even sells stuff to their own people. But wait! Most of the Chinese population makes about 10-cents a year, barely has enough to eat, lives in mud huts, and might not even own the land they’re standing on. How are they going to buy that microwave oven if they don’t have electricity within a thousand miles of their town?

Okay, scratch that idea of selling to their own people.

The rest of what China sells goes out the door in the form of exports. Walmart imports a bikini, pays a fee to US Customs, and sells it here in the US. You buy it and that’s the money going back to China.

With less and less money going to China as “The American Consumer” becomes more “frugal,” what happens? We aren’t becoming more frugal, we’ve maxed out our credit cards and are losing our jobs! With NO money coming in each week, what the hell are we going to use to buy anything?

So China’s been using up more of its reserve currency to buy IOUs from the US government. Why?

Oddly enough, it’s because the Chinese government has mandated, by fiat declaration that the Chinese economy shall grow by 10% each year. Is there any factual or real basis for that demand? Nope, none at all. It’s only that China wants to stay in the limelight as the world’s darling economy. Everyone loves China! We should look to China as an example of a brilliant economic expansion! Forget the slave labor and incredible inequality between the coastal “haves” and the inland “have nots.”

Uh oh…bad news. Since most of China’s economy rests on exports, and fewer of us are buying those products, China’s economy isn’t growing all that fast. So that 10% is starting to look a bit worrisome.

If you lived in China, the government could simply tell you to buy more stuff or you’d be taken out an shot. But America doesn’t (yet) live in China. So what’s a poor country to do?

The answer is to threaten the United States. “If you don’t start buying more of our stuff, we’re not going to buy any more of your stupid treasury bills and bonds!”

There! How’s THAT for geopolitical interaction!

Alright, fine. So here we stand. I got no money, you got no money, nobody gots no money. We need Mo’ Money! But we Ain’t Got No Money. Know anybody with a job? What about anybody without a job? Oh…those folks working for the government, they’re getting paid with borrowed money. It’s been borrowed from “somewhere,” in exchange for T-bills and bonds.

Think about it: You got no money, I got no money. We ain’t got no money. We’re not buying stuff from China. But our politicians and government employees are all working, they all got lots of money! It’s only that their money comes from China. China is buying US debt with the “old” cash we sent them, back when good times were rolling.

Once again, it’s US…the Little Guys who are causing all this trouble! If WE…the little guys would only buy more stuff from China, then they could keep growing at 10% annual GDP expansion. And China would be hunky-dory. So you’d better get out there and spend…something. What? Nobody knows, that’s a mystery. But you’d better spend it anyway.

If you don’t spend whatever it is, then the federal employees won’t get paid, the US won’t be able to sell T-bills and bonds, and China won’t have enough money to buy those bonds. And then China’s economy won’t grow at 10%. In which case, the entire nation of China will be taken out and shot! End of story!

Jobless Recovery 2010

I think I’m finally getting it! I believe I’m finally understanding government-speak! By Jove, it seems to me that there IS some factual basis for the phrase “jobless recovery!” What it means is that after the Democrats lose half their seats in both the House and the Senate in 2010, they’ll be jobless. And when that happens, the economy will at least have a fighting chance at recovery.

Right?

The more jobless politicians in 2010, the stronger the economic recovery! Simple…!

Countdown to 4,000

Some people think there’s going to be a light at the end of the tunnel, soon, with respect to the financial markets. Last year the Dow-Jones Industrial Average (DOW) was at 13,941. Today (2/17/09), following the signing of the new stimulus package, it closed at 7,552.

Personally, I think all this is a historic cycle coming into action. The world, and certainly the American public, would have had to pay the piper, so to speak, for decades of over-spending, lack of saving, and disregard for reality. We haven’t. As such, I suspect we won’t see the end of this slide until we approach the 4,000 mark.

February 17, 2008 DOW
13,191

November 27, 2009
10,310

Loss: 21.8%

(Not inflation adjusted)

America is being held hostage by the Federal Reserve, banks and financial institutions, and corrupt politicians whose entire lives are devoted to the single goal of staying in office. Those politicians haven’t the slightest interest in the American public. They have zero interest in fixing anything, and would prefer to have high anxiety and fear running rampant. The more anxiety, the better their chances of re-election.

How long will it be before we the people get really angry about the real cause of our problems: the government!

June 3, 2008 – Obama nomination victory speech October 5, 2008 – Bush administration passes TARP bill January 25, 2009 – Obama inauguration February 17, 2008 – Obama administration passes second $1-trillion stimulus February 20, 2009 – Rumors of short-term bank nationalization, denied by administration February 23, 2009 – Obama introduces “deficit in half by 1 year” (likely means tax increases) February 25, 2009 – Obama talks to joint session Congress about fixing the economy February 27, 2009 – Omnibus spending package and new budget revealed March 2, 2009 – AIG gets 4th bailout, Feds buy Citibank stock March 4, 2009 – Obama announces Section-8 plan for endangered mortgages March 5, 2009 - Citibank falls below $1/share, healthcare reform talks begin March 10, 2009 – Citibank announces first quarter profit March 12, 2009 – Financial Accounting Standards Board announces mark-to-market change March 18, 2009 – Housing starts report first upward movement in long time March 20, 2009 – Markets miss the memo that the recession is over March 24, 2009 – RTF-like proposal to buy $1-trillion in toxic assets from banks April 2, 2009 – G20 World Finance meeting to contain international money crisis April 3, 2009 – DOW up past 8,000 mark, first time since January April 9, 2009 – First-quarter earnings reports indicate banks made profits April 17, 2009 – California housing prices stable 3 months, Fed says we’ve hit bottom April 24, ‘09 – Q1 bank and retail accounting changes show companies making profits. Apr 29, 09 – Fed says it will continue to interfere with all possible tools to help fix economy Apr 30, 09 – Chrysler announces bankruptcy to qualify for gov’t. bailout money from Fed. May 4, 09 – Bear rally sends market up 300 points apparently due to insider selling. May 5, 09 – Rally continues ahead of Fed “stress test” results for banking industry. May 8, 09 – Fed says biggest banks healthy, just need a little extra capital. Rally continues. May 20, 09 – Q1 retail down, housing starts down. Fed says some signs of improvement. May 22, 09 – US dollar rating may drop. Fed says things may still be a little off. May 29, 09 – USD value drops, oil up, transport and commodities up. GM bankruptcy. Jun 1, 09 – GM declares bankruptcy. Wall Street apparently rejoices. DOW is up! Jun 10, 09 – Feds say rate of decline is slowing, unemployment claims slowing. Jun 12, 09 – Inkspots guitarist Huey Long dies at 105. Analysts predict economic recovery. Jun 22, 09 – FDA takes control of tobacco, Healthcare reform, World Bank worried Jul 9, 09 – Obama ratings dropping, next bailout coming, Michael Jackson dies July 20, 09 – Recession petering out, likely done by Fall. Banks making money like crazy! Jul 23, 09 – Happy Days Are Here Again! 64th US bank closes. Leading indices all up. Aug 7, 09 – Bear market rally continues. Losses everywhere less bad than expected. Aug 13, 09 – Banks, Wall Street, Fed, Ford making money. Unemployment increases Aug 21, 09 – 80 banks fail – 3500 branches, small banks in peril. 13+% mortgages in peril Aug 28, 09 – Unemployment up, FDIC says 400+ banks may fail, retail down, markets rally Sep 2, 09 – Recession is over, green shoots everywhere. Health care for everyone in question. Sep 9, 09 – Institutional traders push rally. Gold over $1,000 Sep 15, 09 – Fed says recession absolutely over. Definitely. For sure. Really! 9700 peak coming Sep 17, 09 – Passing through predicted bear rally peak. All fundamentals down, Wall street up. Sep 22, 09 – High continues, unemployment increases, Wall street ecstatic. Sep 24, 09 – Insiders take profits, DOW springs leak. “Green shoots” everywhere, presumably. Oct 2, 09 – Recession over, banks making money, unemployment higher, no problems! Oct 9, 09 – Alcoa Aluminum singlehandedly saves the US economy. Gold over $1040/oz. Oct 22, 09 – Foreclosures, unemployment up, retail down, 99 banks closed, Wall Street ecstatic Oct 24, 09 – NetFlix shares record high, Wall Street cheers. 106 banks now closed, FDIC broke Oct 30, 09 – US GDP up unexpected 3.5% Banks try to spell “debt,” consumers stop spending Nov 5, 09 – Published Unemployment near 10%, Central Banks exit emergency “largesse” Nov 9, 09 – 0% rates, absolutely no loss Fed guarantees, gold at record $1100 on dollar weakness Nov 17, 09 – Markets totally disconnected from reality, all fundamentals down, WS up. Nov 27, 09 – Dubai World nears default. DOW 10,500 upper test limit nearly reached.

12,402 9,955 8,116 7,552 7,365 7,114 7,351 7,063 6,763 6,876 6,595 6,927 7,170 7,487 7,278 7,660 7,978 8,018 8,087 8,131 8,076 8,186 8,168 8,426 8,512 8,575 8,422 8,277 8,500 8,721 8,771 8,799 8,339 8,183 8,848 9,093 9,370 9,398 9,506 9,545 9,281 9,627 9,683 9,784 9,830 9,707 9,484 9,865 10,081 9,972 9,713 10,006 10,227 10,437 10,310

Qualities of Excellence

The older I get, the less impressed I am with many things going on in the world around me. It’s perhaps that I’m changing somehow, due to age and presumed cynicism. But I think it has more to do with the historical times in which we’re living. Life and progress happen in cycles if you follow history, and as such, there’s more or less progress at different historical times.

We’re living in a period of slow progress, where two fundamental ways of living are in conflict. The one is the mythological, where people don’t really think about or care about reasoned explanations of anything. The other is the scientific method, requiring reason, logic and data. Lost in the middle is a third way of living, blending that which we can see with that which we imagine. The problem seems to be that we’ve removed imagination from our lives to a large extent.

Be that as it may, I’ve been totally impressed with a few things I’ve run across on YouTube recently. They highlight the use and purpose of imagination.

We aren’t limited anymore to only what we find in our local neighborhoods, or even our local regions. Instead, we’ve come to a place where the whole WORLD is coming into visibility! People everywhere do amazing things; not everyone all the time, but individuals here and there. The problem is that until now, we haven’t had a way to find those individuals. Now we have the Internet and things like YouTube.

Each of the following example shows that there’s hope for the world and for the human race. At least I think so. Perhaps you’ll agree. Regardless, though, I wanted to gather these examples together in one place, because they all deserve an Oh Wow!

The first is a version of Amazing Grace that, indeed, is amazing! Performed by Il Devo, not only is the whole rendition excellent, but the intersection between the bagpipes near the middle, and the entrance of the baritone solo is stunning! (Just click twice, embedding has been disabled in order to have you watch it on YouTube directly.)

Then, on a completely different level, there’s this version of The Lion Sleeps Tonight, originally known as Wimoweh. It’s the story of an African legend, speaking about how the great lion (symbolizing the Spirit) sleeps in the jungle (of life) but knows of our waking, daily struggles. Performed by Ladysmith Black Mambazo and The Mint Juleps, the level of elegance, grace, and simplicity arrive at a perfect summit. Yet there’s all the complexity of male-female, active-passive, yin and yang, not to mention the subtleties of exquisite details.

There are two basic languages of existence, at least that we human beings can perceive. The one is mathematics, the other is music. Each language offers the scope of countless layers of information, and provides a way to blend those many, many layers into a unified whole. Part of that language is rhythm, and the Kings Firecrackers are astonishing. They’re students from a school in Kings County, Ohio, offering us an alternative to my theory that exercise will kill you.

All three of these examples bring together the principles of elegance and grace, and show us that life isn’t about forcing effort and grinding through technical details. It’s about “going with a flow,” which is part of the Eastern way of doing things. But passive floating isn’t the answer either. There must be a component of desire, intent, and having a specific “something” in mind. It’s the dream we see in our imagination, brought into the world as a visible reality.

Today’s young folks have almost lost that ability to dream. They’ve become nearly inarticulate in their lack of ability to express anything, much less their most powerful emotions. Rising to the top of that lost nihilism, Lily Allen still retains her capacity to speak out loud in music. “Fuck You Very Much” doesn’t much sound like a title for an excellent song, but when you explore others of her songs, you begin to truly empathize with the darkness of a lost world of narcissism.

When we consider the astronomical level of destruction that’s been wrought by the world’s bankers, politicians, and academic philosophers, there isn’t much left to say other than “screw this!” But Lily Allen has somehow retained enough soul and spirit that she creates gold. All of us can do the same, by looking around at our own lives and finding those specific things we can change.

There’s a crash coming, and life will get hard for awhile. But just as the lion eventually wakes again, so too will the spirit of human individualism and excellence rise to the call. We’ve slept too long and let too many of “them” run our lives. Too many of us are still asleep, but that’s changing as well. We’re waking up, and it shows in the wondrous creations of people like these, in the above examples. Be inspired!

Nothing You Do Matters to the Government

Have you ever wondered how the government (at all levels) can continue to do some of the harebrained stupid things we’re reading about? Have you thought that a little common sense would go a long way toward getting the economy going again? So how come it doesn’t happen? Why does it seem that politicians repeatedly throw gasoline on the fire of wasted efforts and pointless programs?

The answer is that politicians, bureaucracies and civil administrations NEVER take into account reactions to their actions!

Give this a try yourself. Take a look at any announcement, any program, and idea, any proposal or anything at all coming out of any government system. Then say to yourself that no human being is ever going to react to this proposal in any way whatsoever. ALL things will remain exactly the way they were when the government made the “plan.”

You’ll quickly see that, “Hey…that makes sense! That’s a great idea! That’s a terrific plan! That will FIX everything immediately! I vote for that!”

So for example, we hear that the government is in talks with Freddie Mac and Fannie Mae to extend their line of credit by $400-billion EACH! They’ve both already slammed through half a trillion dollars, covering the dumbass loans they forced the banks to make. Now “suddenly” it looks as if they’re going to need massive amounts of new money. How come?

Well, back when the Bush administration decided “we” needed an emergency $700-billion bailout package, that money was supposed to “fix” the exploding bubble of the sub-prime and risky home loans on the books. Many people said no! They shook their fingers, looked very stern, frowned deeply at the TV and said, “No!” The bill passed immediately!

Those people saying no, understood that as soon as the federal government (and the taxpayers) decided to guarantee all those failing loans, EVERYone would react! Banks would shift all their bad loans to the government (now the Federal Reserve’s quantitative easing program, or QE). Presto! All “bad loans” (i.e., toxic assets) would vanish from the bank’s accounting, and BAM!…move over to the black hole of national debt.

Secondly, with “someone” (i.e., you and me and everyone not in government) acting as the co-signer on all these loans, people with problems paying their monthly mortgage could relax. Or they could walk away. Which they did, and are doing so in droves.

From there we see all sorts of “unforeseen” consequences that come from messing with a complex system. But nobody at all in the government, nobody at all in the administration, nobody at all in the news media had a clue! This is all a complete and utter mystery! It’s astonishing, astounding, never-before-seen stuff! Who knew?

Suppose the government decides to raise taxes on tobacco. Why? Because they need more money. They’re spending everything they have and everything the future will provide, and they need more money. They won’t stop spending, so they raise taxes. Tobacco is killing everyone, particularly The Children, so they tell us the new taxes will be for The Children.

Now say after me: “Nobody at all will change a single part of their behavior when the price of cigarettes goes up. It’s not possible, it won’t happen, it shouldn’t be considered, it means nothing.”

Anyone who smokes will never, ever, EVER make a decision about their smoking based on new prices. Particularly if those prices nearly double.

Right?

Fast forward a year or so and the state governments are STUNNED to discover that their sales tax revenues are falling! In particular, their tobacco tax revenues are falling. They have no idea why. They can’t imagine a reason. It’s a total and absolute mystery to them!

The fact is that in the mind of bureaucrats, politicians, civil administrators and anyone who has a guaranteed public-sector job, the “world” will be exactly as they say it will be until they say it should change.

Mr. Obama has announced via the Copenhagen climate summit meeting that either he or some other group of government officials have officially stated that NO WAY will the earth’s temperature climb more than 2 degrees until he (or they) say it’s allowed to. They’ve said that the tides will cease to move until they’re told to move.

This is much like saying that General Motors will continue to be a fine car company, they’ll only make crappier cars. Why? Because NOBODY is going to stop buying GM cars! They weren’t told they could stop buying them, so…they won’t stop buying them.

You, me, our friends, and the citizens of the world haven’t been told that we should stop buying GM products. Therefore, we won’t. Either we’re utterly helpless in our actions and can only do something (or stop doing it) when we receive word from the government, or we’re too stupid to act on anything without being told to do so.

One way or another, there are only two fundamental rules to understanding Government: 1) the only reason for laws to be passed are so that someone can make a whole lot of money. 2) No human being ever will change their actions because of a government law or regulation being passed.

That’s it. Civics 101 in a nutshell. Now go out and get a college loan so you too can take part in the Great Recovery! You did get the memo, right? That letter from the government that everything is good now, and it’s okay to get back in the pool?