Uncle Sam goes foot-shooting, gets felled by snipers
Last week I posted about how Bernanke has run out of road in his attempt to keep everyone happy. As so often in such circumstances, he’s pleased nobody in the end: not the brokers, not the Asian creditors, and most definitely not the US consumer.
I also posted last week about the huge percentage of US bond-offloading accounted for by Chinese and Japanese dumping. And I’ve posted ad nauseam about the inability to generate spending from people who’s wages one just spent a decade eroding by 30%.
But as America shoots itself in the foot, snipers are busy targeting its head. What follows will explain how.
From Day One of QE, Ben Bernanke insisted he was showering American consumers with money. Along with millions of other sites, The Slog always maintained he did it to get dividends up, keep the Dow high, and create liquidity/solvency/new business at the banks. Some neat new charts now show us precisely why we were right and he was telling porkies.
In this one, we can see how the supply (aka printing) of money went stratospheric during and after Greenspangling and Bernankenomics, and then upcurved further after 2010:
There are today almost exactly twice as many dollars in circulation than there were…..but middle America’s share of it went down 30%. So they had less money with less spending capacity. So they spent less, took out more credit – and bought cheap Asian imports. Bang! There go the toes in your right foot.
Now let’s look at what happened as that Nixonian shift off the Gold Standard inevitably turned into Uncle Ben’s buck-showering bonanza:
While the supply of Fiat paper rocketed, consumer purchasing velocity fell even faster under QE than it had been doing during the previous pauperisation of the populace. And as blue-collars are now working fewer hours for less money with little chance of further credit, most of the money never reached them….and if it did, they paid off debt rather than indulging in retail therapy. Bang! There goes your right instep. Try to keep your balance now…
There is a growing feeling around the globe (if my contacts are even remotely typical) that after all this mess has finally covered every Westerner in excrement, there will be pressure to end the era of fiat paper. Not only would this be a disaster for the US, it would be a major coup for Beijing: there is every chance that a Yuan set against a new gold standard would make it the dominant reserve currency in short order….especially as the Dollar even now is predictably drifting down in value. China, it seems, has the aim of de-linking the Yuan from the US dollar. And Asian media are increasingly of the view that they will, when the time is right, fix it to gold instead.
China continues to amass gold. In June alone, it imported 104.6 tonnes from Hong Kong. That would bring China’s gold imports from Hong Kong to 1,160 tonnes since the beginning of this year. Officially, China hat around 1,000 tonnes of the stuff. But past experience has shown the Beijing suddenly pops up one day far more of shiny metal than you thought. The real figure is estimated to be around 8,000 tonnes….and likely to pass the US total, audited at 8,113 tonnes.
Yao Yudong, major money-man on the China Bank MPC, has of late been talking about fiat paper being a disaster, and his admiration for Bretton Woods. Further, China has been doing currency swap contracts big time with other countries to bypass the Buck. It has currency swap agreements with Brazil, Russia, Iran, Australia and the UK, to name a few. This aim here is clearly to get Westerners accustomed to the idea of dealing with the Yuan, and seeing it as a new ‘Central Currency’.
Bang! That first assassin’s bullet went straight through your neck. Breathing is getting difficult.
And of course, as I posted in recent days, those interest rates that were never going to rise are, um, rising. Very fast. The American cost of borrowing just doubled. And the Chinese are far and away the biggest sellers of those T-Bonds….which must now offer higher yields.
Oh look America, you just fell over, and your lungs are filling with blood….just as the traders, brokers, and big banking dicks get back to their desks next week, only to see a topping Dow, a falling T-Bond, and a backfiring, stuttering economy. And even though you’re manipulating the gold downwards to repair those bank balance sheets, it becomes even easier for Beijing to fill its boots with that gold.
Bang! That was the rear of your cerebrum coming off. It’s over.