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Be very afraid

By Owen Paine on Sunday February 15, 2009 04:48 PM

Father Smiff is a great admirer of Alex Cockburn -- hell, the Reverend probably likes Cockburn even better than Doug Henwood -- but I don't entirely share his admiration. Alex has a very silly piece up on Counterpunch online at the moment. He warns:

"Obama’s bailout plan, added to the FY 2009 budget deficit he has inherited from Bush, opens a expenditure hole of about $3 trillion."
Notable authority consulted: Paul Craig Roberts, former assistant secretary of the Treasury in the Reagan years. Here's Roberts:
“Who is going to purchase $3 trillion of US Treasury bonds? Not the US consumer. The consumer is out of work and out of money. Private sector credit market debt is 174 per cent of GDP.” The sum is too big for the increasingly wary Chinese and Saudis to underwrite by buying Treasury bills where interest yields are... so low...."

Now this is all a mare's nest of hooey, as imbricated with holes as a quick wit's quick study can produce. Holes upon holes -- a nestle ring of parlor goblins and dancing tables.

In fact, most of the buying of Uncle's trillions in refuge safe debt, will be by red-blooded American institutions that are simultaneously selling Uncle their present holdings of toxic shit.

And as to the Hans and the burnoose boys -- fuck 'em if they can't take a joke, as Jack Nicholson says somewhere.

Unless the Han want the dollar to sink and further wipe out their exports -- better eat this Yankee paper, fellas. And the towel-topped Midases of the petrodesert? Where else or where better do they have to park their loot? In overvalued currencies like the Swiss franc?

Up now, down later -- that's the North currency game, no matter which angle or sequence of angles you play it all through.

So -- buy they both will.

That room of the haunted castle being passed, Alex gives us this Aunt Nellie turn:

"Failing everything else, there’s the government printing press, which can roll out the dollars and add inflation to unemployment."
In a time of deflation suave Alex fears -- the rentier's nightmare, runaway price levels!

How? In the present state of the global economy a combination -- a one-two punch -- of low nominal rates and high inflation is plain and simply impossible -- as impossible as a flying shark.

Comments (10)

Al Schumann:

Yeah, much as any of them might like to be rid of the extortion, there are plenty of compelling reasons to keep them coming back for more of the same. Not least, any attempt to diversify or find another means of security would entail loosening their stranglehold on their own fiefdoms.


Respectfully, Al and OP, how exactly do you know what the Chinese are going to do? Why would they keep buying treasuries at 0% interest, particularly if the dollar loses its role as global reserve currency? Why would they go on funding our grandiose military budget instead of funding their own internal development?

Does the dollar really look like a good investment at the moment, to you?

Truly, I dont know the answers, and maybe Cockburn is wrong. I'm less interested in the question of whether inflation or deflation is coming, than in what's the right way to rebuild an economy?

Al Schumann:

Seneca, the only investment that China can make with dollars, that won't hit them with an even steeper loss than they currently put up with, is purchase of US treasuries. Their major export market pays them in dollars If they were to purchase European paper, there'd be a forex exchange discount applied to the dollar before they even made the transaction. And they'd still have to worry about a US default bringing down that paper too. The interpenetration of "globalism" gives an advantage to whichever country stands to harm the others most by its meltdown. So the least bad bet they have, for now, is sticking with dollar. It's analogous to giving TLC to the guy on the dead man switch of a bomb.

This is not to say that US treasuries are a desirable investment per se. They're a necessary one. I assume it's a galling necessity too. Although it would never do to misunderestimate the value they get from externally enforced immiseration in their own bailiwicks.

Al Schumann:

Upon rereading, that came off as brusque. Here's what the relucant buyer had to say:

"Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York that China would continue to buy Treasuries in spite of its misgivings about US finances.

Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books.”"



al's right on


Well, if you're going to use REAL QUOTATIONS!!! in your argument, what can I say?

I kinda like this guy Luo!

Al Schumann:

Isn't he great? Even if much of that is tactical perception management, there's enough frankness to cost him dearly at some point. When that time comes, I hope his personal stash is not denominated in dollars.


Hey, Al! Thanks for stepping in with OP and saving this hilarious, literate site from exhaustion. I was worried that Michael would eventually weary of tossing his pearls before the swine. You've put new life in it!

Al Schumann:

Hey, Seneca, thanks so much!

At times like this, I'm tempted to sing the traditional celebratory song of my people. However Owen* made me swear by the Sacred Lasagna that I would leave it to someone with a voice for singing.

*His actual words,

for the love of god

Al, Owen, MJS, I need your nourishing blog crumbs more than you can imagine, but if quotes from the likes of Luo Ping need chasing down, I can starve for a while. Thanks, as always.

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