The Stupidity - of the intellectually superior man who looks down upon others, w orse has contempt for

the common man - will eventually reveal itself through the course of his own life provided he has some sense left to percieve it - Kannor Simple method to Identify any bubble is its Value-to-Income-Ratio (You get the r atio by taking the Value and dividing it by annual disposable income) - Kannor It can not be emphasized enough; depressions are NOT caused by a private, free m arket economy. The culprit is government. Between 2003 and 2007, there was confidence in air for investments across the wo rld and it looked like this growth would never end. We know that prices go up not because of demand but because of wastage or lack o f storage or lack of infrastructure which can facilitate smooth transportation a cross the nation. But, RBI tool kit is limited and only powerful arsenal is jacking up interest ra tes. Even in this confidence strengthening period, with the rise of Equity market, fo reign capital flowed in India to unprecedented level and on account of that Rupe e appreciated to the level of Rs. 39 from Rs. 49/$. Two thirds of us eat dinner while watching TV, preferring the fake, sensationali zed lives of others to engaging with our own families. The modern urban metropolis is a peculiarly attenuated form of community, in whi ch people live together but have very little in common. "The great enemy of the truth is very often not the lie - deliberate, contrived and dishonest - but the myth - persistent, persuasive and unrealistic." ~ John F . Kennedy Mark Twain said it better than both of us: "It ain't what you don't know that gets you into trouble. It's what you know for sure and just ain't so!" "The public and majority of investors are always wrong." Watch out when the necessities of life become investment oppurtunities - Kannor America, like all great powers in decline, has become complacent and apathetic w ith an unjustified sense of entitlement. Over the next few years we will have inflation in the things we NEED and USE. Th ese are the items we buy and consume every week, the items we buy and not financ e, and the items we need ready and recurring cash for. Food, energy, consumables , and basic services are examples. We will have deflation in the things we WANT and OWN. These are the items we strive for that we perceive will move our lives to an even higher standard of living. They are primarily assets like: housing, real estate, financial instruments, boats, exotic cars, art, collectibles, etc. - often the items we finance. For the first time, Asia s contribution to a global recovery is outstripping that of other regions. Rather than being dependent on a narrow export-driven recovery , domestic demand particularly household consumption is reinforcing Asian growth . Asia also cleansed its weak banking system and regulated prudently. By rejecting so-called sophisticated financial practices and despite U.S. criticism for that

decision

Asia saved itself a lot of grief.

Problem for the U.S. is that a large chunk of U.S. GDP and the jobs, incomes, an d careers associated with it, have been moved offshore and given to Chinese, Ind ians, and others with low wage rates. Profits have soared on Wall Street, while job prospects for the middle class have been eliminated. No-think economists, such as the ones engaged in the debate over fiscal stimulus , who mistakenly associated globalism with free trade instead of with its antith esis--the pursuit of lowest factor cost abroad or absolute advantage, the opposi te of comparative advantage, which is the basis for free trade theory. The U.S., with all its huffed up power and importance, depends on the U.S. dolla r as reserve currency. It is this role of the dollar that allows America to pay for its imports in its own currency. For a country whose trade is as unbalanced as America s, this privilege is what keeps the country afloat. The U.S. is so depe ndent on the dollar as reserve currency that it must have as its main policy goa l to preserve that role. Otherwise, the U.S., an import-dependent country, will be unable to pay for its excess of imports over its exports. Fiscal consolidation , the new term for austerity, could save the dollar. What we have in front of us is an unaware economics profession. There may be som e initial period of deflation as stock and housing prices decline with the econo my, which is headed down and not up. The deflation will be short lived, because as the government s deficit rises with the declining economy, the prospect of fina ncing a $2 trillion annual deficit evaporates once individual investors have com pleted their flight from the stock market into safe government bonds, once the hyp ed Greek, Spanish, and Irish crises have driven investors out of euros into doll ars, and once the banks excess reserves created by the bailout have been used up in the purchase of Treasuries. Then what finances the deficit? Don t look for an answer from either side of The Great Stimulus Debate. They haven t a clue despite the fact that the answer is obvious. The Federal Reserve will monetize the fede ral government deficit. The result will be high inflation, possibly hyper-inflat ion and high unemployment simultaneously. The no-think economics establishment has no policy response for economic armageddon, assuming they are even capable o f recognizing it. Economists who have spent their professional lives rationaliz ing globalism as good for America have no idea of the disaster that they have wrou ght. Finally, one more reason why we may not have to wait overly tate becomes at least a rational investment. And that reason lot of money on the sidelines just now, both in the U.S. and t money is in cash, and much is in bonds a disaster in the long before real es is that there is a abroad. Much of tha making.

As interest rates start moving up, and the fiat currencies start to come down, i nvestors will become fairly desperate to get out of bonds and into pretty much a nything with a discernable heartbeat. Once housing prices have fallen by another 20%, 30%, real estate will be again considered a safe asset to own, and some pe rcentage of money will certainly begin to flow back into it. So, personally, I would hold off buying real estate for the time being. At least in the post-bubble markets where the debt still really hasn t been addressed (muc h of it now sits on the books of the Fed, and Fannie and Freddie), and where des perate governments will take advantage of the fact that you can t pick up and move your house to raise your property taxes. Demand is for metallurgical, or coking, coal. This is what China and India reall y need good-quality metallurgical coal, something that North America has in plen ty. And this demand is not going away anytime soon.

For a strong economy, one needs strong infrastructure. For strong infrastructure , one needs steel. Steel is the backbone of an economy, and it is metallurgical coal that is used to produce the heat in 90% of the world s steel production proce ss. And for as long as the economy continues to blaze, it is metallurgical coal imports that will be stoking the furnace. The U.S. overthrew Iran s government in 1953, installed a dictator and taught his goons how to torture. The U.S. backed Saddam and his ilk from the late 50s throu gh the 1980s. The U.S. engineered the Soviet invasion of Afghanistan in 1979 and continued to meddle in that country, radicalizing Islamist fighters and helping to create the modern fanaticism there. In the 1980s, the U.S. government bombed Libya and encouraged Saddam to invade Iran, even as President Reagan secretly s ent weapons to Iran. In 1990, the U.S. government started a war with Iraq that h as essentially continued to this day. Clinton bombed Iraq and Afghanistan. In th e decades leading to 9/11, it is fair to say that the U.S. government directly o r indirectly murdered millions of innocent people in its interventions in the Mi ddle East and Central Asia. Every president from Eisenhower through Clinton shar es some of the blame. How much longer will we deal with increasing humiliations at the airports, the r apid militarization of our police, the economy-crushing Pentagon that seems to d ouble in size every few years, the demonization of Muslims that has become so co mmonplace? Will the U.S. be occupying Afghanistan nine years from now? And it goes without saying that the U.S. government hasn't even caught Osama bin Laden. Not that his capture would vindicate the million killed, the trillions s quandered and the liberties smashed in this war. This would be obvious to people in a normal country. But the madness will end, eventually. The bad dream that is post-9/11 America st at last give way to something else. If the people don t get sick of it and nd that it end, or military defeat doesn t do it, the U.S. empire will simply out of money. Its days are numbered. It's just tragic and sickening that many re will die before that happens. mu dema run mo

US consumer is and will be absent on a permanent basis since his insolvency cont inues and even gets worse (10) for the one American in five without work who no longer have a job, no longer have a house, no longer have any savings, are wonde ring how they will survive in the years to come. Americans have deserted the stock market. Each month, an increasing number of sm all investors leave Wall Street and the financial markets If one keeps in mind the traditional image that the stock exchange is today s temp le of modern capitalism, then we are witnessing a phenomenon of loss of faith co mparable to people s disaffection with official demonstrations experienced by the communist system before its fall. The US consumer has become ears, has gradually become with more than 70% of U.S. nsolvency of US households insolvent, the consumer who, during the last thirty y the central economic player of this financial heart ( growth dependant on household spending). It is this i that has broken the Fed s efforts.

Ben Bernanke s speech full of veiled threats to his central banker colleagues: in ambiguous terms, he passed the following message: We will try everything and any thing to avoid an economic and financial collapse and you will continue to finan ce this everything and anything , otherwise we let inflation loose and thus deval ue the Dollar whilst US Treasury Bonds will no longer be worth much. When a cent ral banker expresses himself like a common cash extortionist, there is danger in the house.

As the historian Niall Ferguson points out "the sun can suddenly set on a superp ower when debt bites". The Japanese government has spent two decades squandering the wealth of its citi zens. Japan's rural areas have been paved over and filled in with roads, dams an d other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. Japan's large foreign exchange reserves, although la rge compared to those of most other countries, are only a small fraction of its liabilities and could not alone eliminate refinancing risk at a time of severe s tress. There has been only one reason that investors have accepted virtually no interest income on Japanese bonds. The relentless strength of the Japanese Yen has made up for the lack of interest. The Yen has appreciated 100% versus the US D since 1995. The Yen has stayed strong despite a weak economy because Japan has run a massive trade surplus for decades. That unsustainable trend is also comin g to an end. China, Vietnam, Indonesia, and other developing Asian countries can produce the crap that Americans desire much cheaper than Japan. The Japanese tr ade surplus has begun to plummet. Devalueing the Yen can help and it requires J apan to print more and more yen, ultimately easing monetary policy even further. A weakening Yen combined with a demographic nightmare would reduce demand for bonds paying 1.0%. This isn't a positive development when you are running $600 billion annual deficits and desperately need investors to buy your debt. When you import from a country you would welcome the devaluation of its currency or appreciation of your currency. When you export to a country you would welcom e the revaluation of its currency or depreciation of your currency. The United States asserts that China deliberately keeps its currency undervalued to boost exports cheaper by making them cheaper for overseas buyers. The lesson of the 1930s is that surplus countries with structurally weak domesti c demand come off worst in a trade war (where bans, sanctions etc. are imposed o n import/export). "It's true that the dollar would fall if China decided to dump some American hol dings," Paul Krugman said."But this would actually help the U.S economy, making our exports more competitive. Ask the Japanese, who want China to stop buying th eir bonds because those purchases are driving up the yen." Some analysts and Japanese policymakers had theorized that China was attemp ting to hamper Japan 's recovery by keeping the yen excessively strong. A Country's Appreciating Currency is Bad for its Exports. Alternative to closing the doors is to reorganize the ownership structure to att ract new capital and keep it in business. The Western commercial system is extractive. It exists to extract more from cons umers than it supplies in products and services. Its goal is profit, and profit literally means to make more (pro-ficere). Its goal has never been to improve th e human condition but to exploit it. Western commercial system exists merely to enrich vendors by exploiting consumer s. When governments institutionalize this system, they place their nations on su icidal paths. Does any reader of this piece really believe that the makers of Humvees, drones, and F16s would ever consider supplying them to our military at cost? Yet how gr

eat is the cost of the sacrifice parents are asked to make by sending their chil dren off to fight hideous wars? People, a merchant unwilling to sacrifice for his country has no country, he wil l support no country, defend no country, and if such people are given control of a nation, they will suck its blood dry and sell off the body parts to the highe st bidder. Not even a recognizable corpse will remain. It is not terrorism that threatens the security of the Western World, it is the Western World's commercia l system. US will remain as it has been for the last 30 years: an oligarchy masquerading a s a democracy. The belief stated by USFed Chairman Bernanke, that zero cost comes from printing money, is pure heresy with dire consequences. The cost is lost confidence in th e monetary system, in the currencies, and in the central bank franchise system. The QE initiatives kill the requisite confidence. Thus the rise in the Gold pric e in response. De-industrialized USEconomy racked by asset bubbles. Gradually the dollar is being eliminated from the foreign trade settlement flows . People are beginning to trade Asian currencies without intermediation via the dollar. The government is most unlikely to cut back on its spending, most of which has b ecome part of the social fabric Medicare, Social Security, unemployment benefits, food stamps, corporate bailouts, continuing foreign wars, domestic "security" It's not because gold is magic in any way. It's just because it has characterist ics that among the 92 naturally occurring elements make it uniquely well suited for use as money. It's durable. It's divisible. It's convenient. It's consistent . It has use value in and of itself. Rule has justifiably and very intelligently been a big promoter of geothermal en ergy, because it's actually superior to even nuclear in some ways. It should hav e a huge future. There's very little geothermal being generated right now, and a great deal could be generated in the future. Energy shortages, and high energy costs, are totally caused by political issues. In a true free market world they wouldn't even be worth talking about. Wind and solar are trivial sources of power. Good for certain applications in ce rtain locations, but not suitable for mass power in an industrial civilization w ith anything like our present technology. If you're paying more for something than necessary, you're misallocating capital . You're destroying capital. That's a real crime against humanity. The Chinese know that one of the reasons Mao took over is because the government of Chiang Kai-shek destroyed the national currency. The Chinese can see the pro blems with the U.S. dollar. That it could blow up in their hands. They also see the problems they're creating for themselves by creating trillions of new renmin bi. So I think that they're encouraging the average guy in the street to do some saving with gold so that if things go sideways with these paper currencies, the average guy isn't left too destitute and too angry. At least he'll have some go ld coins. I think they're being quite intelligent about encouraging their people to buy gold. It's easier to do business in China than it is in the U.S. lower taxes, less regul

ation, less legal hassles. Democracy is just mob rule dressed up in a sports coat. It's much overrated. The U.S. government is becoming more powerful, and the U.S. is radically departing from the economic philosophy of free markets that made it great. It's simultaneo usly becoming more politically repressive. The Chinese are just reverting to the ir traditional economic philosophy, which is not communism, it's capitalist trad e and production. The free investment capital of the of world said to be around $ 3 tn has to find its way in some assets to keep growing at least at inflation adjusted return. Each generation, the pattern switches. One generation gets obliterated by the st ock market, knocking everyone out of stocks. Then the next generation lives thro ugh a soaring stock market. World's top 10 currencies, weighted by GDP - US Dollar at top, with the Euro nex t...then the Chinese Yuan...Japanese Yen...British Pound....Russian Rouble...Bra zilian Real...Canadian Dollar...Indian Rupee...and Mexican Peso. And oddly enou gh, emerging-market central banks have been reducing the Big Four's weighting in their reported reserves right alongside, actually nudging it below the "advance d economies" weighting of USD, EUR, GBP and JPY since the start of last year. Kondratieff long wave will continue to give the global economy and financial mar kets a drubbing in the next few years that will be remembered for generations to come. Then the long wave will make its turn from winter to spring, and unleash a global boom of heretofore-unimaginable economic growth and human achievement. Russian economist Kondratieff has had the wheel of the global economy all along. The central banks of the world are just going along for the ride, distorting sh ort-term rates, dropping them to artificially low levels, and creating business cycle distortions of excess consumption and supply. Central bank rate manipulati on only makes the regular business cycles longer and more harmful than they have to be to capital formation. Businesses cannot get a clear picture of demand due to artificial stimulus and overconsumption. Central bank loose money, coupled w ith government fiscal stimulus has created massive oversupply in the global econ omy. Deflation destroys corporate profits. The smart central bankers in the world have realized they need to let the global economy take the natural dose of long wave deflation and debt liquidation body blows that it has coming. Once the inevitable long wave debt liquidations are sh aken off, a new long wave expansion will begin. If the Fed goes down the QE2 trail with anywhere close to the $3 trillion number being floated in the rumor mill, the call for an audit of the Fed will gain sup port, and the independence of the Fed will be in serious doubt. Inflating the dollar is a beggar-thy-neighbor policy that is exporting U.S. defl ation to our trading partners, and they are growing tired of it. U.S. trading pa rtners have been pushed to the limit. Our trading partners will devalue their ow n currencies to defend against a cheap dollar that is exporting U.S. deflation t o the world, triggering a vicious currency-trade war cycle. Germany appears to be the exception that has made the decision not to inflate an d take the Keynesian low road. They will reap rewards in the end. Keynes was wro ng; it is in the short run that we are dead. In the long run international free market capitalism will be fine, if the world follows Germany s lead.

Prices will rise and the dollar crash if Bernanke s QE2 and inflation are winning and rates will be driven lower. If Kondratieff is gaining the upper hand in Roun d QE2, CPI and PPI prices will fall, the long bond and 10-Year will continue to rally in price, and interest rates will fall naturally into the upcoming long wa ve trough in 2012 before trending higher. If Kondratieff long wave deflation dom inates this round, the dollar will not collapse, it will rally hard into 2012. Most, if not all, the great events in the history of mankind since the advent of money, have a causal explanation. The causes are to be found in the use or abus e of money and credit -- provided that we penetrate historiography sufficiently deeply. However, printing money and giving it away cheapens the US dollar, making goods and services more expensive, especially commodity prices. Rising commodity price s in the face of weak demand for nonessential goods is hardly an inducement for small businesses to go on a hiring spree. Moreover, salary and benefit levels of government employees compared to the priv ate sector are massive, unjustified, and extremely damaging economically speakin g. Deficit spending is unsustainable. Unfortunately it is rising because of Keynesi an clowns who have learned nothing about the lessons of Japan or Greece, insist it is not a problem. Yes, Japan has not blown up yet, but it will. We just do no t know when. Japan has squandered all of its surplus building bridges to nowhere and other no nsensical things. It now has a debt to GDP of 200%, highest in the G-20. All it takes for this to be a major, major problem is for interest rates in Japa n to rise a few percent. When that happens, (and it will), it will take all of J apan's tax revenue, just to pay interest on the national debt. I believe 7th graders can easily understand the problem of deficit spending even if Noble Prize willing economists and other clowns can't. Without a doubt states need to get a grip on finances. The correct solution is t o reduce pay and benefit levels of government workers, privatize anything and ev erything that can be privatized, and scrap the Davis-Bacon Act along with all pr evailing wage laws. Davis-Bacon ensures that taxpayers pay the most for the least amount of work. Th e goal should be to get projects completed at the least cost to taxpayers. In capitalism, the shareholders who took the risk would be wiped out and the deb t holders would take a discount but banking would go on. Virtually all leading independent economists have said that the too big to fails must be broken up, or the economy won't be able to recover, and that smaller ba nks actually lend more into the economy than the mega-banks. BIS warned that the Fed and other central banks were simply transferring risk fr om private banks to governments, which could lead to a sovereign debt crisis.Tha t is what caused the sovereign debt crisis in the first place! Turmoil in sovereign debt markets necessitating another round of bailouts? This is amusing, given that it was the last round of bailouts which caused the sover eign debt crisis in the first place. The banks and their water-carriers in the central banks, IMF and other agencies

will repeatedly say the same thing over a number of years to slowly get the bank s' $20-40 trillion dollars worth of debt mopped up by the taxpayer. If people knew that the giant banks have created a black hole of debt large enou gh to suck most of the world economy into it, and that the debt was created thro ugh fraud and wild gambling and speculation, demands to break up the giant banks and imprison their management would be overwhelming. For 30 years, our nation's economists have adopted the view of the business cycl e held by the late British economist, John Maynard Keynes, who created the Keyne sian, or the "New," Economics in his book, The General Theory of Employment, Int erest, and Money, published in 1936. Beneath their diagrams, mathematics, and in choate jargon, the attitude of Keynesians toward booms and bust is simplicity, e ven navet, itself. If there is inflation, then the cause is supposed to be "excess ive spending" on the part of the public; the alleged cure is for the government, the self-appointed stabilizer and regulator of the nation's economy, to step in and force people to spend less, "sopping up their excess purchasing power" thro ugh increased taxation. If there is a recession, on the other hand, this has bee n caused by insufficient private spending, and the cure now is for the governmen t to increase its own spending, preferably through deficits, thereby adding to t he nation's aggregate spending stream. The function of the government is to be the wise old manager and physician, ever watchful, ever tinkering to keep the economic patient in good working order. In any case, here the economic patient is clearly supposed to be the subject, and the government as "physician" the master. It was not so long ago that this kind of attitude and policy was called "sociali sm"; but we live in a world of euphemism, and now we call it by far less harsh l abels, such as "moderation" or "enlightened free enterprise." We live and learn. the booms and busts are much more intense and severe in the "capital goods indus tries" the industries making machines and equipment, the ones producing industri al raw materials or constructing industrial plants than in the industries making consumers' goods. Conversely, it is these industries that really take off in the inflationary boom phases of the business cycle, and not those businesses serving the consumer. Banking, with its capacity to expand credit and the money supply (first, in the form of paper money, or bank notes, and later in the form of demand deposits, or checking accounts, that are instantly redeemable in cash at the banks). It was the operations of these commercial banks which, these economists saw, held the k ey to the mysterious recurrent cycles of expansion and contraction, of boom and bust, that had puzzled observers since the mid-eighteenth century. Governments through their central bank create artificial money flow and interest rates. Lower interests make business take more investment/expansion risks in ca pital goods. But the resultant money flow through higher wages,rent etc. is inev ested more in consumer goods by workers and hence works against business that ha ve been investing in capital goods. Inflation reveals itself through money's decreased purchasing power. In the first place, government must cease inflating as soon as possible. It is t rue that this will, inevitably, bring the inflationary boom abruptly to an end, and commence the inevitable recession or depression. But the longer the governme nt waits for this, the worse the necessary readjustments will have to be. The so oner the depression-readjustment is gotten over with, the better.

The government must do nothing to encourage consumption, and it must not increas e its own expenditures, for this will further increase the social consumption/in vestment ratio. In fact, cutting the government budget will improve the ratio. W hat the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom. Thus Misesian (Mises and Hayek) prescription is thus the exact opposite of the Keynesian: It is for the government to keep absolute hands off the economy and to confine itself to s topping its own inflation and to cutting its own budget. China has emerged to become the world s largest exporter, overtaking h held the title since 2002. Factories employing low-paid workers to ods, computers, shoes, and toys are leading the boom. China has also US as the world s largest auto market and producer. Two decades ago, y barely existed in China. Germany, whic assemble iP passed the a car industr

In the midst of the global banking crisis, stimulus-driven Chinese growth helped to propel the world s economy out of recession. Chinese demand for raw materials and other imports buoyed economies from Australia to Brazil to South Korea. Chin a uses more than half the world s iron ore and more than 40% of its steel, aluminu m, and coal, lifting commodity prices. China is the biggest player in the copper market, buying 35% of the global supply, and is the second biggest importer of crude oil. State-owned Chinese companies are pouring billions of dollars into ba se metal mines and oil fields from Canada to Latin America to Iraq. The state-run mouthpiece, the People s Daily newspaper has hailed China s economic s uperiority over Western-style capitalism, boasting about its authoritarian ruler s ability to make quick decisions and their will to carry them out. Congressional lawmakers have long cited Beijing s policy of undervaluing its curre ncy, - the yuan, to give its exporters an unfair advantage in world markets, and making China a more affordable place to attract foreign direct investment in ne w manufacturing plants. Warning of the danger of currency wars, IMF Managing Director Dominique StraussKahn told finance chiefs of the G-7 industrial powers and the emerging economies of Asia and Latin America, There is clearly the idea beginning to circulate that currencies can be used as a policy weapon. Translated into action, such an idea would represent a very serious risk to the global recovery. Yet the global curre ncy system itself, and the entire network of economic relations built upon forei gn trade, - is already breaking down under the weight of QE- in England, Japan, and the US, and the daily rigging of currencies in the emerging world. A weaker dollar may not spur growth as intended. In the short-run, earnings of U .S. based exporters may benefit as foreign earnings translate to more U.S. dolla rs in a weak dollar environment. However, an advanced economy simply cannot comp ete on price; the day the U.S. exports sneakers to Vietnam may be the day I see a pig fly past my window. Instead, a strong currency is an incentive for an econ omy to adjust to more value added goods and services with more pricing power; th at incentive is missing when a weak dollar is pursued, eroding long-term competi tiveness in exchange for perceived short-term gains. Conventional wisdom has many believe that economic growth is the key to a strong currency; however, our analysis shows that this mostly applies to countries wit h current account deficits. China has arranged currency swaps with many of its trading partners to accelerat e the transition. These agreements allow China to receive yuan, instead of dolla rs, for its exports. Previously, as the dollar has been the primary reserve curr ency for international trade, an importer would have to cross two "spreads," fir st converting, for example, Korean won to U.S. dollars, and then the dollars to

Chinese yuan. So far, China has set up currency swaps with Argentina, Russia, South Korea, Hon g Kong, Indonesia, Malaysia, and Belarus. As China builds a larger network of sw ap agreements it can trade directly with its trading partners without ever havin g to put their currency on the open market - and with no need to settle in dolla rs. For instance, Brazil could use its yuan to buy goods and services from Indon esia or Malaysia. For Westerners who are struggling to come to terms with the notion of a disarray ed dollar, the thought of oil, gold or other commodities being priced in yuan in stead of dollars has to seem about as likely as having another country put a man on the moon," says Fitz-Gerald. "But the Chinese yuan is already well on its wa y to becoming that globally accepted standard unit of exchange and the proverbia l genie, as they say, is out of the bottle. The turmoil in the housing market demonstrates how disastrous it is to flood the economy with fiat money. Latest events with foreclosures are good examples of m istakes made in the market, in this case, by the banks, in the rush to soak up m anipulated currency. This is why the truly free market depends on sound, honest money, free from false signals of artificially low interest rates. Fraud by a financial company usually involves the company: 1) Growing like crazy 2) Making loans to people who are uncreditworthy, because they ll agree to pay you more, and that s how you grow rapidly. You can grow really fast if you loan to pe ople who can t you pay you back and 3) Using extreme leverage. This combination guarantees stratospheric initial profits during the expansion p hase of the bubble. But it guarantees a catastrophic subsequent failure when the bubble loses steam. And collectively - if a lot of companies are playing this game - it produces ext raordinary losses (more than all other forms of property crime combined), and a crash. In other words, the companies intentionally make loans to people who will not be able to repay them, because - during an expanding bubble phase - they'll make h uge sums of money. The top executives of these companies will make massive salar ies and bonuses during the bubble (enough to live like kings even even if the co mpanies go belly up after the bubble phase). Johnson confirmed that a high housing default rate was part of the banks' models . The financial giants knew they would make huge sums during the boom, and then transfer their losses to the American people during the bust. Exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investme nts were intentionally created to defraud investors. The fraud originated in the mortgage market of the United States. The houses were over-appraised, and the banks only hired appraisers who were wil ling to do that. Galbraith rhetorically asks: "For what conceivable reason would a lender accept an inflated appraisal for a house against which it was going to

make a loan?" The language used in the mortgage industry is very telling: "liar's loans", "nin ja loans" (where the borrowers had no assets and no income), "neutron loans" (wh ere it would destroy the people but leave the buildings), and "toxic waste" The mortgages in the millions were counterfeits, not mortgages. They were "laund ered" ... the dirty paper was converted into clean paper. Securitization was use d to convert the worthless paper from triple D minus junk to triple A. The comme rcial banks were the "fences", they took the laundered paper and sold it on to t he legitimate market. The "marks" were the pension funds, or any investing entit y which trusted triple A rating or investment banks. If the counterfeit is big enough, the whole system collapses, because you can't tell what's real from what's counterfeit and so confidence collapses. The issue is not "robo-signed" documents. The issue is that the robo-signed docu ments are an attempt to cover up for previous failures in the securitization pro cess which have left investors worldwide holding an empty bag, and homeowners wi th seriously-damaged chains of title. when you have a huge government presence in the economy, you also have a huge bu reaucracy, and bureaucracy brings corruption. Corruption breeds misallocation of capital, because the capital flows not to the best use, but it basically flows to whatever the political connection or whatever the bribe is directed to. When you have a government-managed economy, it creates excesses. China has huge excesses in the industrial sector, as well as in commercial and residential real estate. We see plenty of evidence of these excesses, but they are likely to be much greater than we can measure today as they are covered up by robust economic growth. The true magnitude of these excesses will come to the surface once the economy slows down.In essence, you ve got a relatively small group of individuals who are making big decisions about China's economy and where production should b e, in what sectors, etc. If history is any guide, that really can't last, yet ma ny people seem to think it can. China is manufacturer to the world, that manufacturing business comes with a lot of fixed costs. Factories, equipment need financing, and they are mainly financ ed by debt another fixed cost. High fixed costs are great when revenues are risi ng as income grows at a faster rate than sales. But they are devastating to prof itability when sales decline: costs decline at a slower rate than sales and you start losing money, fast. A very small change in consumption in the U.S. and Europe has to be overcompensa ted by a huge increase in consumption in China, and that is going to be very dif ficult to do, especially considering that the Chinese currency is kept at artifi cially low levels. That, of course, diminishes the purchasing power of the Chine se consumer. Look at the data and the data does not really tell you that much until it does. Because, basically, it s the government's involvement that is driving a lot of the demand. I don t trust government-reported statistics, thus I d watch numbers that the e government is less likely to fudge: electricity consumption, which was down ring the global recession, same-store sales of American fast food restaurants China, tonnage of goods shipped through railroads, and, though they may lag, les by American and European companies in China In the same way that everyone in the United States decided they Chines du in sa

must own a house,

this belief was reinforced by continuously rising house prices. You can see how big a problem this became in big cities such as Beijing and Shanghai where the a ffordability ratio is horrible, so the property-value-to-income ratio in Beijin g is pushing 15. In Shanghai it is over 12. If you look at the national average, it is over eight times. Here is another interesting piece of data: property investment in China in 2009 was 10% of GDP, up from 8% in 2007. In Japan, at the peak of its bubble, it did not exceed 9%; in the U.S. it never exceeded 6%. In China an apartment is worth less once rented out. So they just keep them unoc cupied with the hope to flip them. There is a long tradition of American entrepreneurship and a commitment to educa tion which, when combined, are greater than any other society. Central banking offers no benefits to society at large and contributes, mostly t hrough the process of inflation, to numerous serious problems. The following ar e just a few of the issues engendered by central banking and inflation: * It hinders economic calculation and causes capital consumption and malinve stment * It taxes fixed income earners (savers and fixed wage laborers) * It discourages saving or forces savers to take more risk * It encourages general consumption and debt * It benefits debtors (especially government), speculators, politicians, lob byists, and fractional reserve banks * It produces the business cycle -boom/bust sequence * It rewards corruption and corrupts morals * It causes capital decumulation (the formation of capital in reverse) due t o several of the above * It bolsters the growth of government and therefore the trend toward decivi lization * And if not abandoned it can result in a crisis of confidence, total impove rishment and chaos By continually manipulating interest rates away from their natural free-market l evel central banks distort the pricing mechanisms by which entrepreneurs, busine sses and consumers make decisions. This continual distortion results in massive amounts of wasted resources as capital gets invested in unsustainable areas and soon after that capital is destroyed. Row after row of empty houses in Florida , Nevada and Arizona are excellent such examples of capital that was put to work in the wrong area because people were fooled by artificially low interest rates into believing there was a large need for new housing. This boom and bust process has been recurring over and over for decades now and the boom/bust cycle is now accelerating as the system nears collapse. This cont inual boom/bust cycle and massive amount of malinvestment has destroyed trillion s of dollars in wealth and is the real reason why the US is in such terrible sha pe today. Capitalist society with bankers and captains of industry firmly in control, thei r rule governed by the need to enrich their class, not make progress toward a di stant socialism by raising standards of living and expanding the country s product ive base.

High rates attract foreign hot money as speculators borrow at low interest in the United States (or Japan, for that matter)

Under current arrangements the dollars being pumped into the global economy are recycled back into U.S. Treasury IOUs. When foreign sellers turn over their dol lar receipts to their banks for domestic currency, these banks turn the payment over to the central bank which then faces a Hobson s Choice: either to sell the do llars on the foreign exchange market (pushing up their currency against the doll ar), or avoid doing this by buying more U.S. Treasury securities and thus keepin g the dollar payment within the U.S. economy. Why can t this go on ad infinitum? What makes these speculative capital inflows so unwelcome abroad is that they do not contribute to tangible capital formation or employment. Their effect is sim ply to push up foreign currencies against the dollar, threatening to price expor ters out of global markets, disrupting domestic employment as well as trade patt erns. Foreign economies are now taking more active steps to shape the market in which in ternational speculation occurs. The most modest move is to impose a withholding tax on interest payments to foreign investors. Just before the IMF meetings on O ctober 9-10, 2010, Brazil doubled the tax on foreign investment in its governmen t bond to 4%. Thailand acted along similar lines a week later. It stopped exempt ing foreign investors from having to pay the 15% interest-withholding tax on the ir purchases of its government bonds. Finance Minister Korn Chatikavinij warned that more serious measures are likely if excessive speculative inflows keep pushin g up the baht. We need to consider the rationality of capital inflows, whether th ey are for speculative purposes and how much they generate volatility in the bah t, he explained. Malaysia blocked foreign purchases of its currency to prevent short-sellers from covering their bets by buying the ringgit at a lower price later, after having emptied out its central bank reserves. The blocks worked, and other countries ar e now reviewing how to impose such controls. But the most decisive counter-strategy to U.S. QE II policy is to create a fullfledged BRIC-centered currency bloc that would minimize use of the dollar. China has negotiated currency-swap agreements with Russia, India, Turkey and Nig eria. China cannot make its currency a world reserve currency, because it is not runni ng a deficit and therefore cannot supply large sums of renminbi to other countri es via trade. So it is negotiating currency-swap agreements with other countries , while using its enormous dollar reserves to buy up natural resources in Austra lia, Africa and South America. The major international economic question today is how such national economies c an achieve greater stability by insulating themselves from these predatory finan cial movements.