Much is made of America’s economy becoming one of the fastest growing economies in the world. It is all relative. Debt has grown even faster. The US dollar too has soared relative to other currencies, thanks in part to a relatively better economic recovery and of course the trillions from the Fed’s bond buying program. However, the US still has 47 million people on food stamps and unemployment remains stuck at 5.5 percent. The US is just the least ugly duckling while the rest of the world copes with its own serious challenges.
The US needs to grow and close the gap between the haves (who benefited from QE) and the have-nots (savers and pensioners hurt by zero interest rates). America’s growth is simply not sustainable because this debt load is heavily dependent upon the largesse of its creditors. In fact, the strong dollar makes America’s goods and services less competitive such that Obama and America’s lawmakers are threatening to enact a trade agenda attacking the “currency manipulators” aka trade wars.
The European Central Bank (ECB) has belatedly followed the United States, the UK and Japan in introducing a quantitative easing (QE) program. The ECB plans to spend more than a trillion euros leveraged by zero-cost borrowings to purchase sovereign debt in hopes to reverse deflation and an anemic economy. Europe’s sovereign bonds (Greek debt excluded) will be bought by the ECB with newly minted euros, which is a massive bet that growth will return.
However, even the French will have a deficit of over 4 percent, not registering a budget surplus since 1970. Four months from now, the threat of a Grexit will be back. Twice bailed out, Greece was looking for another handout from the EU-IMF troika but the recent history is not good and hopes are simply that they can kick the problem down the road.
We believe that Europe’s move to QE has laid bare a “stealth” currency war that has seen the euro fall from $1.40 a year ago toward parity with the dollar. Central banks reduced interest rates causing their currencies to fall against the dollar, reviving worries of a “beggar thy neighbor” currency war which was part of the Great Depression. Ironically, what was good for the goose is not good for the gander as the Americans complained about the ECB’s move to QE
To date, this massive money printing exercise has benefited the big banks, which after a near-death experience in 2008 are holding trillions of reserves stuffed with ultra-safe debt driving down yields even further. Some banks are stockpiling cash, suggesting the economy is not as robust despite the political rhetoric. Others have huge reserves stashed with central banks. Small wonder that this cheap money has not filtered down into the world’s largest economy plagued by anemic growth and increased volatility.
Money printing is not yet inflationary only because money remains on the balance sheets of the rich banking sector. This is to change. When interest rates and long-term yields reverse – as they surely will, money will demand even higher and safer returns. And the dollar on borrowed time will fall as investors reverse the world’s biggest “carry trade.”
The problem is that the sums are so huge that hyperinflation is now a very real possibility. We believe that the imploding Middle East, a cold war with Russia and cracks within the Eurozone are sideshows to the largest money-making exercise in history. All this looks like a formula for a repeat of the Dirty Thirties with "beggar thy neighbor" competitive devaluations, social strife and falling interest rates. While central bankers are keeping their feet on the money accelerator, backed by those politicians who are addicted to low interest rates, the dilemma is that no one wants to take the punchbowl away. While America has stopped its asset purchases, dovish Fed Chairman Yellen’s rhetoric has been one of delay and bluff in a reluctance to take the necessary steps. It’s everyone, every central bank and every currency for itself.
Having exhausted a toolbox of easy money and deficit spending, as mentioned earlier, central banks have now resorted to currency wars. However, faced with excessive debt and the declining credit quality of consumers and governments, these de-facto devaluations put increasing pressure on the American big multi-nationals such that a coalition is building to push America to join this race to the bottom. The choices are narrowing: deflation, default, devaluation or more inflation. This unwinding will be dangerous. Gold, anyone?
An alarming development is that Stephen F. Cohen, the internationally prominent scholar of Russia, is acknowledging that (1:35 on the video) “for the first time in my long life (I began in this field in the 1960s), I think the possibility of war with Russia is real,” and he clearly and unequivocally places all of the blame for it on the U.S. leadership. He calls this “possibly a fateful turning-point in history.” He also says “it could be the beginning of the end of the so-called trans-Atlantic alliance.”
He goes on to say (2:20): “This problem began in the 1990s, when the Clinton Administration adopted a winner-take-all policy toward post-Soviet Russia … Russia gives, we take. … This policy was adopted by the Clinton Administration but is pursued by every [meaning both] political party, every President, every American Congress, since President Clinton, to President Obama. This meant that the United States was entitled to a sphere or zone of influence as large as it wished, right up to Russia’s borders, and Russia was entitled to no sphere of influence, at all, not even in Georgia, … or in Ukraine (with which Russia had been intermarried for centuries).”
He also speaks clearly about the misrepresentations of Putin by the American Government, and he clearly states (5:25): “He’s more European than 99% of other Russians.”
Regarding Ukraine (5:45): “Since November of 2013, Putin has been not aggressive, but reactive, at every stage.”
Regarding, in America, the effective unanimity of allowed scholarly and media opinions to the contrary of the actual facts, (and this is the most startling thing of all, so you might want to go straight to it, at 7:05): “This is an unprecedented situation in American politics. … This is exceedingly dangerous, and this is a failure of American democracy. Why it happened, I am not sure.”
He condemns (7:30) “this extraordinarily irrational [non] factual demonization of Putin … and this too is hard to explain.”
Europe (8:40): “Now things have begun to change. Europe is splitting on this.” He acknowledges “Crimea is not coming back [to Ukraine],” and urges “a Ukraine — and this is what the dispute began over — free to trade with Russia and with the West.” And, “no membership in NATO for Ukraine. … This has to be in writing. No more oral promises such as they gave to Gorbachev. And it has to be ratified by the United Nations.”
Regarding Obama (13:00): “I have never seen an American President make such personal remarks about a Russian leader [Putin] in public.”
Regarding the existing Ukrainian Government (14:10): “This is not a democratic regime. … Unless the West stops supporting Kiev unconditionally, I fear we are drifting toward war with Russia.”
WOW! When even a word-mincer such as he, is stating that the U.S. Government is seeking to conquer Russia, that is news!
Things are so scary now, that even he is beginning to come close to saying publicly (to whatever small public the U.S. aristocracy will allow him to be heard) that America’s corruption at the top is threatening the continued existence of civilization.
Implicit in his statements is that there is massive and systematic censorship and warping of the truth on the part of America’s aristocrats.
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