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Our January 2, 2007 Newsletter Edition
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THE YEAR IN REVIEW: 2007 AND BEYOND
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Throughout each year and via our various newsletter issues, we try to
identify news items, information and trends of interest to our
clients. In doing so we hope to offer some insight as to how some
of these issues might affect your wallet, standard of living and
perhaps your own freedom (both political and economic) as well.
So then, at the beginning of the New Year, we also try to make some
predictions in terms of on-going trends, be they social, economic or
political, all of which are intertwined. Of course none of us
have a magical crystal ball (it would be very nice if we did).
However, what we can do is to take a look at the trends and statistics
that we certainly are aware of, and based upon that, hopefully paint a
fairly accurate picture or roadmap if you like, of what to expect going
forward. Armed with such information, we are certainly better off
at planning our investments and other kinds of decisions for the
future. So, with that in mind, let us once again re-examine some
of the trends and issues that could have a very real impact on our
finances and quality of life as well as we move forward into 2007.
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One of the major trends we all have heard time and time again, involves
the so-called baby boomer generation and the subsequent aging of this
very large segment of the population, both in North America, Japan and
Europe as well. However, I am going to give you a new twist or
different perspective from what the mainstream news media has
provided. Meaning, it has been reported that the baby boomers are
probably one of the wealthiest generations of the last century, in part
due to inherited wealth from parents and in part due to other
factors. In addition, in terms of investments and even job
prospects, the health care (pharmaceuticals, health care services) and
well being industries (vitamin companies, exercise equipment makers,
etc.) will probably be net benefactors of these aging consumers.
HOWEVER, there are some other issues arising directly because of the
changing demographics involving this group specifically. One
issue not often discussed involves domestic jobs in both North America
and the wealthier western European Union nations. Meaning, there
are more people starting to retire than there are younger people coming
into the workforce obviously because there are simply less younger
people than the older baby boomers who are (or will be) leaving the
work force. One result of this is higher and higher strains on
the public retirement or pension programs and public health care as
well in the western EU nations and North America (minus Mexico).
That much of course has already been touted time and time again.
However, looking at this theme of work force needs, the other result is
a trend (by governments) for relaxed immigration policies to make up
the shortfall, or at least this is what some governments have decided
to do (Spain being one specific example). So, as a result, the
US, and to some extent Canada, will probably witness INCREASED
immigration (illegal and otherwise) from Mexico, Honduras, San
Salvador, Nicaragua and other Latin American nations. Likewise,
the wealthier EU nations such as the UK, Germany, and France are seeing
increased immigration from Poland and the other former communist bloc
countries. The interesting thing about all this is in terms of
the US scenario, we were told that NAFTA would shift many jobs down to
Mexico, and as a result, there would be decreased illegal immigration
into the US as a result (because there would be good paying jobs, and
plenty of them, at home in Mexico for Mexicans as a result).
Similarly, with regards to Europe, the idea was that Western European
companies would shift manufacturing jobs to low wage countries, such as
Poland, Slovakia and so on - AND that this would also motivate locals
in such countries to stay and work rather than migrate. In BOTH
cases, this has NOT happened, or at least not to the extent
predicted. Poor Mexicans and other Latinos continue to migrate to
the US, and Eastern Europeans (plus many from Algeria as one non
European example, continue to flood into France) continue to migrate
into the so-called wealthier western European nations. While it
is true that many of these migrates are hard working people who have
taken many of the unskilled or menial labors jobs in these other
wealthier countries, it is also true that a large enough percentage
have also tapped into the social welfare systems, putting strains on
the social welfare, public housing, public education and public
healthcare programs as well. This has pitted many existing local
residents against such migrants, NOT because of racism but rather
because of the economic and tax drain impact. We continue to see
this as a social problem as politicians in these wealthier nations seem
to be working at cross-purposes to current public sentiment, however,
one must remember that corporations and business are benefiting from
these lower-wage workers, and we believe they (private industry) will
continue to silently support such open immigration policies (pitting
business and industry against the average middle class in terms of what
agendas are being supported, and related pressures on government in
tandem).
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Regardless of what politicians tell you publicly, we have seen
government in the US especially turn a very blind eye towards illegal
immigration (and this is ON PURPOSE we believe, for the reasons
mentioned, even though citizens are told otherwise publicly).
Also, in terms of the US, one must remember this new SPP initiative or
agreement due to come into effect in 2010, which basically opens up the
Canadian and Mexico border completely (and by the way, why we believe
there is all this emphasis and push to get US citizens to use different
terms, such as the phrase illegal immigrant now becoming a supposedly
politically incorrect terminology these days, as a way to
psychologically prepare the US population for a flood of new migrant
workers who will in theory no longer be illegal with the SPP initiative
in place). Obviously in the wealthier EU nations, citizens of
such poorer Eastern Europeans countries can legally migrate and work in
other EU nations without any restrictions - legally, because of the
tenants of the EU and what it means to be a citizen of an EU country in
terms of your right and ability to cross borders and work unfettered
(it would seem the SPP agreement is meant to accomplish the same thing
and why discussions exist for a so-called North America Union ID card
to be issued to citizens of the US, Mexico and Canada).
Regardless, because of this very large influx of cheap labor from
poorer neighboring countries (Mexico in terms of the US and countries
such as Poland in terms of Germany), the result has been DOWNWARD
pressure on wages. To illustrate this point, it has been noted
very recently that the Swift Meat Packing Company in the US has
increased the number of illegal Latino workers at its facilities over
the years, while it has also been steadily DECREASEING wages as a
result as well (from about US$20 per hour for workers a few years ago
down to the current US$12 per hour today). So, what is the net
result of this overall if it indeed is a major long-term trend (as we
believe it is)? The answer is LOWER domestic wages for many jobs,
and as a result LOWER revenues from income taxes also (due to lower
overall wages). If we carry this idea forward and connect the
dots so to speak, we can surmise that government revenues from income
taxes will decline at the same time as government expenditures are
going up in terms of social services costs (government pay as you go
pension schemes, such as Social Security in the US and related
government operated health insurance programs as well). Also, we
must examine the shifting of healthcare and pension burdens as well
away from the private sector and onto the public sector. The
issue surrounding Wal-Mart and reduced or zero healthcare benefits to
employees and the turning over of company pension plans to the
insolvent PBGC, the federal agency that insures corporate pensions, are
just two examples of this trend. In the case of the US as well,
for the time being, there are already expenditure pressures, meaning
the government is spending far more than it is taking in - and is
currently borrowing to fill the gap, for the moment, running outrageous
financial deficits. So, what will be the result of that as well?
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MAJOR TREND NUMBER-ONE:
The standard of living for EXISTING middle class citizens in both the
US, Canada and wealthier EU member nations will go DOWN. The idea
of course is that standards of living in Mexico and the Eastern
European nations will go up, but what really is happening is a leveling
off to the mean between the two, with a slight rise in living standards
in one, and DECREASE to the mean or lower average for the other
so-called wealthier nation. Obviously while no one would
criticize or complain about living standards going up on the aggregate
in nations such as Mexico and Poland, it seems this is happening at the
expense of the living standards in the wealthier neighbor
countries. Which is to say, one at the expense of the other, both
heading towards some mean or average of the two. However, to
explain this further in terms of the so-called wealthier countries,
such standard of living will go down either due to lower income (and we
are thinking of the so-called younger generation X, Y and Z born after
1970 in general, who will face lower wages and possibly higher income
tax rates to support these social programs for the aged), higher taxes
in general (if not higher income taxes then certainly higher
sales taxes and other kinds of taxes, such as real estate taxes), and
possibly reduced social services as another way for governments to
attempt a balanced budget of some sort. Regardless, the bottom
line could be, less or lower wages, higher taxes, and ergo less
disposable income for the average citizen in this brave new
world.
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Keep in mind that this relaxed attitude towards immigrants coming from
lower wage, poorer nations is the SECOND wave of the overall trend (a
trend towards lower wages and lower labor costs for manufacturers -
business). The FIRST WAVE was outsourcing, whereby factories and
manufacturing have been physically moved abroad to these low wage
jurisdictions. Now, the latest or newer trend is the IMPORT of
low-wage workers, and as we have said, we see this being done with
tacit government approval as a way to both solve the predicted labor
shortage issues and to try and help the government pay as you go
pension programs (remember that while outsourced jobs might allow for a
company to continue manufacturing with lower labor costs abroad, such
foreign workers are certainly NOT contributing to the domestic
government social programs in the wealthier EU or North American
nations, so importing cheap labor is one answer to both these issues,
at least in terms of how US corporations and government seem to view
it). With all this taking place, it is safe to predict that these
younger up and coming generations in the so-called wealthier nations
though will not have it as good as their parents, job prospect wise in
terms of income and economically speaking in general. This is not
to say that all high paying jobs will go away or that everyone will
face this same situation. Just remember, we are talking about the
aggregate and average middle class worker, not everyone and perhaps not
yourself. But, even if this scenario does not include you, it is
something to note because of how this could affect overall government
revenues and policies. If the tax revenues go down, you can be
darn sure the politicians will NOT cut spending and in fact they cannot
with all the increased payouts for promised welfare benefits.
Instead they most likely will start taking even more taxes from the
higher paid workers to make up the shortfall - which might be you (and
why this trend will be of concern).
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We have stated in previous newsletters that we have started to see
younger and younger clients in recent years. It would seem that
such younger people (between ages 20 and 45, who are not members of the
baby boomer generation but instead the next generation coming up behind
them) do indeed see the writing on the wall so to speak. Many are
young, intelligent and have highly mobile professions (such as IT or
other kinds of consulting jobs) or they are small business owners that
have figured out (all depending upon the kind of business of course)
that they can operate their business from a lower cost jurisdiction and
operate more tax advantaged as well (via a Panama Company, etc.).
Stated another way, the question becomes who are all these expatriates
escaping from the expensive welfare - high tax nations and why are they
leaving? The simple answer is many were (and are) baby boomer
retirees that realize they can have a better and less expensive
retirement lifestyle elsewhere (such as in Ecuador, The Dominican
Republic, Thailand, and so on), but interestingly enough NOW many are
also the younger generations deciding to get out while the getting is
good, before their domestic taxes and cost of living squeezes them even
further. This will be an interesting trend to keep an eye on,
because if those leaving are not simply snow birds looking for the next
cheap and warm retirement destination, but instead the younger
generation behind them, then this will also indeed force some political
attention on the issue of expatriation as well (as it affects tax
revenues and the like). The result of that will be more draconian
tax collection measures (see below).
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MAJOR TREND NUMBER-TWO:
Increased tax collection, increased scrutiny towards foreign funds
transfers and increased molestation towards expatriates - tax
exiles. In other words, it stands to reason as tax revenues
decline and as government expenses increase across the board to fund or
support all of these social welfare benefits promised over the next 15
to 20 years for the aging baby boomers, one can certainly imagine more
aggressive government policies (rather than less) in terms of tax
collection and asset transfers issues. Of course in the current
environment of supposed untold dangers and foreign bogeymen, terrorism
becomes the new excuse or backdrop for more scrutiny and less domestic
civil liberty, just as this was the case in the so-called war on
illegal drug trafficking in terms of the related money laundering
issues. What ever happened to the war on drugs by the way? Was
that war ever won, or was it scrapped in favor of a new war that
allowed for even more restrictions and control? In other words,
certainly no fly airline lists or permission to travel issues are a
tough sell to the general public when the issue is drug trafficking
alone, but terrorism is another matter altogether. Same with bank
account seizures and scrutiny towards asset transfers abroad done in
the name of combating evils, whereas we believe it to be nothing more
than an excuse for further control over asset flows abroad.
.
Lets face it. The money has to come from some place, and
unfortunately is will come from YOU and or your children. As just
one related example, we highlighted for you in 2006, the heated debate
regarding dual citizenship in Canada and the costs incurred to rescue
such persons from Lebanon. Let us extend this idea out a bit and
discuss dual citizens who have decided to retire back to their native
country because housing, medical care and other living costs are much
cheaper (not to mention possibly to escape the higher taxation and
maybe even higher inflation in the so-called wealthier country -
Canada, US, etc.). It is very conceivable, as more and more
citizens of these high tax social welfare states decide to exit stage
left and head for lower cost jurisdictions, that there will be
increased criticism and debate from those remaining. It would
seem we have already started to see increased focus and attack once
again towards expatriates and those citizens in general who prefer to
no longer reside in the high tax country. Indeed, the so-called
patriotism of such persons has been called in question, when patriotism
has nothing to do with it - whereas economic survival has everything to
do with it. The major difference today from previous trends in
the past is that the middle class and wealthy ARE leaving these
so-called wealthier welfare state countries, whereas in the past, these
nations were net recipients of poorer citizens from elsewhere.
Which is to say, the poor are still coming to the wealthier nations
today, but now the middle class and shall we say more solvent persons
are going the other direction. In many respects, it is literally
a case of changing places and we have explored this idea or trend many
times before. Wealthier middle class Americans moving to Mexico,
for example, to benefit from lower costs of living and poor Mexicans
are of course trying to get into the US for work (illegally and
otherwise). So, once again, literally a case of changing
places. In any event, since we know that such laborers are
forcing down wages in the US, the exchange is not an equal one in terms
of economics, income and taxes. Ergo, while private industry
greatly benefits from such lower labor costs, government looses a
tremendous amount of tax revenue, while at the same time government
finds itself with higher and higher escalating social welfare costs
(both for the retiring baby boomers, and in terms of public health care
and public education costs for the new immigrants). So, once
again, we shall ask where will all this newly needed money come
from? As we can predict, higher taxes, possibly lower social
welfare benefits AND maybe a devaluation of the currency as one other
economic tool in the arsenal that will be used as well (not to mention
all the debt being accumulated to plug the deficit which someday has to
be paid off, and possibly the game plan is to pay it off with inflated
dollars). In addition, as more and more middle class citizens
start to think about leaving with their cash in hand, we can also
predict more future government restrictions on fund or asset transfers
abroad, more attacks and comments about tax havens, offshore banking
and tax exile issues PLUS maybe new arguments and discussions about
dual citizenship. It may very well be the case, that NOW rather
than later is the time to thinking about setting up banking or
investment accounts abroad and obtaining residency and or citizenship
elsewhere before it becomes even more difficult to do so (as one
possible political response we can predict).
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MAJOR TREND NUMBER-THREE:
China as the new major economic power, higher commodity prices plus
inflation in the US and or continued devaluation of the US
Dollar. There is a great deal of information about China already,
so we will not rehash old news here as a result, but generally
speaking, 300 Million new middle class citizens coupled with a country
already producing a very large amount of the worlds manufactured
products is not an issue that one can ignore, economically speaking or
otherwise. Aside from that, China is America's banker, and is
directly a key participant in the US Government bond markets (not to
mention whatever China does or does not do having an impact on the
value of the US Dollar as well).
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In terms of devaluation of the US Dollar, inflation and higher
commodity prices (including oil) - all of these things are
related. The official US government statistics peg inflation
somewhere in the neighborhood of two percent. However, it has
been estimated that the US Federal Reserve has been expanding the US
Dollar money supply by seven or up to even ten percent, depending upon
which of these alternative statistics you prefer to believe. It
is hard to know for sure as certainly the Federal Reserve has announced
they will STOP publishing the statistics that many economists use to
calculate the money expansion numbers, and of course they do not come
and directly tell you what they are doing either. Regardless, we
do know that as the previous so-called world reserve currency and
principal currency of trade, that almost ALL major commodities are
traded and priced in US Dollars. It stands to reason then, one
explanation why commodity prices have gone up is directly tied to a
devaluing US Dollar. Which is to say, the less the US Dollar is
worth, the higher the prices for oil, copper, aluminum, gold, wheat,
cattle and whatever else to compensate. Funny how the inflation
statistics reported by the US government conveniently omits food and
energy - no?
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In summary, while it is unfair to paint a chicken little - the sky is
falling sort of scenario - it is also true that the fundamentals would
lead one to logically conclude that there will be some economic changes
on the horizon. Some things are of course a direct result of
government (devalued currency as intended policy by the US central
bank, higher deficits, higher public debt, etc.) whereas other things
simply a result of demographics. In addition, it is also unfair
to blame government entirely as the individual private citizen does
indeed have a choice regarding what is done with private
finances. Meaning, no one held a weapon to a person's head,
forcing the run up of personal credit card debt or the purchase of real
estate at inflated prices by utilizing a no-money down interest only
adjustable mortgage. So, to blame government entirely is
certainly not fair for this kind of personal mistake. Then again,
inflation or the devaluation of the national currency (over printing of
the money supply) has been called a hidden tax against the common
citizen, and surely this is something under the control of government,
or in the least, the nations central bank. Regardless, all these
issues are trends, problems or agendas to watch out for, as surely our
own personal finances can be impacted one way or another as a
result.
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IN THE NEWS:
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GLOBAL ECONOMY FACES A DANGEROUS YEAR
By Jephraim P Gundzik - The Financial Express 12/26/2006
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Rising inflation and falling home prices are likely to push the US
economy into recession by the second half of 2007. Gathering economic
weakness, combined with negative real yields on US Treasury securities
and growing political pressure to weaken the dollar will lead to
significant dollar depreciation against most currencies. Economic
growth in Asia, Europe and Latin America will also weaken in 2007.
Slowing global economic growth will be very bad news for equity markets
around the world. Dollar depreciation and rising international energy
and grain prices will be good news for precious metals. More
frequent energy supply disruptions in the Middle East and Africa,
combined with accelerating natural oil production declines in the
world's largest oil fields, will keep crude oil and natural gas prices
buoyant. Slower than anticipated global economic growth will not push
oil prices lower in 2007. Production discipline - much greater
than generally understood - among the world's major oil exporters will
ensure oil supply growth remains below demand growth. The continued
rise of global energy prices in 2007, paired with growing demand for
renewable energy, will produce further strong increases in
international grain prices. In 2006, corn and wheat prices in the US
jumped by 70% and 60% respectively. Much of this jump occurred
between September and December.
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http://www.financialexpress-bd.com/
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EDITORS NOTES:
We reported in late 2006 to look out for higher US supermarket prices
after January 2007 - especially among cereal manufacturers as such
companies can no longer continue to absorb these higher commodity costs
(and will pass them on to consumers). Let us see how accurate
this prediction will be as we re-examine US supermarket prices in the
coming new year.
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AN UNPREDICTABLE 2007 IS ON THE WAY FOR GLOBAL INTEREST RATES
By Simon Kennedy and Matthew Benjamin - Bloomberg News - December 26, 2006
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PARIS: The governor of the Bank of England, Mervyn King, says interest
rates should be so predictable that investors view policy-making as
boring. On the evidence of economists' forecasts for 2007, the
world's central bankers may fail his test. A year ago, economists
were almost unanimous in predicting that U.S., Japanese and European
rates would go up in 2006 -- and they were right. This time, some of
them will be seriously wrong, reflecting the likelihood of a far more
volatile global economy where the risks of inflation on the one hand
and slowing growth on the other are more evenly balanced. For
economists, the debate comes down to how severe the U.S. slowdown will
be and how well the rest of the globe copes with it. The United States,
which is the world's biggest economy, slowed to an annual growth rate
of 2 percent in the third quarter from 5.6 percent six months earlier,
as a housing recession and an auto-industry slump sapped demand.
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http://www.iht.com/articles/2006/12/25/bloomberg/bxecon.php
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US INTEREST RATES & BOND MARKET FORECAST FOR 2007
Jan 01, 2007 - By: Nadeem_Walayat
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The Fundamental Economic Picture: The US economy ends 2006, with
slowing economic growth, a weak housing market, rising inflation and a
declining dollar. The economic picture this paints both call for higher
and lower interest rates. Where we need to look at for further clues is
to the Fed. What would the Fed do ?, More importantly what has the Fed
done in the past. The answer to this is clear - Cut interest rates and
print money to ignite economic growth. Thus, even with rising
inflation, and a falling dollar, the Federal reserve is likely to focus
more on attempting to boost a slowing economy by cutting US interest
rates as the danger is clear that another leg lower in the US real
estate market on the back of record amounts of mortgage debt could tip
the US into recession during 2007. That's the fundamental picture.
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http://www.marketoracle.co.uk/Article192.html
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MAX FROST: EXPECT DEFLATION, NOT INFLATION, IN 2007
January 2, 2007
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Last January I wrote that the Federal Reserve Board would continue
raising rates at least one more time, and possibly two times, to a top
of 4.75 percent. It went four times to a top, which has remained since
May at 5.25 percent. Uncle Ben, as Federal Reserve Chairman Ben
Bernancke has become named, has persisted in a belief that inflation
will be returning soon. There are factors which imply higher prices for
oil, wages, consumer spending; all of which bespeak higher prices for
all goods and services. One of the Feds, Jeffrey Lacker from
Richmond, says U.S. growth should pick up gradually next year and
warned the main threat to this benign outlook was higher
inflation. He continues, The risk that core inflation surges
again, or does not subside as desired, clearly remains the predominant
macroeconomic policy risk. Well, I hate to argue with the man,
but over the many years that I have been an observer of economic
history, every time there has been a bubble of one kind or another,
there follows a deflation of sorts. The "dad-burned" air comes out of
the balloon! Any way you look at it, we have had two big balloons in
the past year, one is energy and the other is housing.
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INFLATION: It
is too often confused with higher prices. It isn't just higher prices.
It is more of a monetary policy that continues to print cheap
money. That's always been difficult to understand, but
essentially, when governments continue to lower interest rates for too
long a period of time, "printing money" means that it encourages too
many people to borrow money at lower interest rates. In turn sellers
can raise prices as supply (of houses or gasoline or crude) dwindles.
Then too many dollars (or euros or yuan or pesos) are pursuing too
little supply ... and prices rise!
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http://www.greenbaypressgazette.com/
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MIGRANTS DRIVE UP HOPES FOR FASTER GROWTH AND LOW INFLATION
By Chris Giles, Economics Editor - January 2, 2007
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Continued high levels of immigration should raise the growth rate that
the economy can sustain without sparking inflation, holding down wages
compared with profits and benefiting most people, the vast majority of
economists believe. Immigration, the big new issue for economic
analysis in 2006, has even persuaded the Treasury to raise its estimate
of sustainable growth from 2.5 per cent to 2.75 per cent from 2007
onwards. The Financial Times panel of economists agrees with the
Treasury's sentiments, as immigration brings more people into the
labour force, allowing the economy to expand faster without creating
bottlenecks and rapidly rising prices. Ben Broadbent, of Goldman
Sachs, said: "Faster trend growth is clearly the most important
effect." Ray Barrell, of the National Institute of Economic and Social
Research, added: Higher inward migration puts downward pressure on wage
inflation and hence reduces overall inflationary pressures whilst
raising potential and actual output. From the point of view of
businesses, the effect is to ease pressures, particularly where skills
are in short supply. Ian McCafferty, of the CBI employers'
organization, said: Most important by far has been the impact on the
supply side of the economy: allowing growth to continue beyond normal
cyclical constraints and easing skills shortages in several
sectors. The winners from this process, the vast majority of
economists believe, are consumers of the goods and services produced in
part by immigrant labor, the owners of capital, and the immigrants who,
as Ian Plenderelith, a former Bank of England monetary policy committee
member, said, get a better life. The majority view is that the
losers are those competing with immigrants for jobs, whose wages are
lower than they would have been. Charles Goodhart, a former MPC member,
summed it up as: Winners: capitalists. Losers: workers.
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http://www.ft.com/
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EDITORS NOTES:
As we have said above, the main goal of the increased immigrant labor
force is to A. Keep Domestic Wages DOWN and B. Solve the supposed labor
shortage. All very confusing stuff, as on the one hand, we have
some economists predicting higher inflation in 2007, and thus the
argument is that downward pressure on wages as one way to combat
inflation. On the other hand, we have other economists who say
not inflation, but rather DEFLATION is coming in 2007. So, which
is it? One thing is for sure regardless, while I am not one to
gamble, the odds certainly are in favor of LOWER wages for domestic
workers regardless of which economic predictions come true (either
inflation or deflation, which also places downward pressure on
wages). In summary, we have said our prediction is for a lower
standard of living due to lower overall wages and higher taxes.
All things considered, we do not think this to be an out of the
question possibility.
.
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GREENBACK ON SHAKY GROUND
By Kathy Lien - TradingMarkets.com - December 26, 2006
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The combination of a record high US current account deficit along with
further signs of a weakening housing market triggered a dollar sell off
early in the week with EUR/USD peaking at 1.3247. The current account
balance ballooned to -$225.6 billion in Q3, which was slightly worse
than the market expected, and represents 6.7% of GDP. However,
after the previous weeks surprise drop in the trade deficit and rise in
net foreign purchases of US securities, the significance of the current
account deficits widening is eroded. Meanwhile, both the NAHB
housing market index and building permits hit the tape at disappointing
levels, negating some of the optimism that the fallout of the housing
market had hit a bottom. Furthermore, the final reading of Q3 GDP was
revised lower to 2.0%, while personal spending and the Philly Fed
survey both missed expectations, pointing to substantial weakening in
multiple sectors of the economy.
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http://www.tradingmarkets.com/
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EDITORS NOTES:
A rise in net foreign purchases of US securities protected the US
Dollar from sinking further, so says the article. Could this be a
purchase by the Chinese Central Bank, and could this be the result of
the appendage kissing tour undertaken by our newly dubbed plumbers,
affectionately known as the plunge protection team by Wall Street, Ben
Bernanke and Secretary Henry Paulson? See the following two news
items that alert us to the fact that both gentlemen were visiting China
about the second week in December. Were our heroes there to do
some last minute Christmas shopping for their wives, or was there
another agenda at hand (such as some begging and groveling)?
.
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THE U.S. AND CHINA: IS A TRADE WAR COMING?
By Danny Schechter, December 13, 2006.
.
China may be violating trade agreements, but the savings-poor U.S.
lacks the power to do anything about it. Who has real power over
U.S. decision-making? If you think it is the White House, or even
the Congress, think again. There has been a power shift underway for
years and, believe it our not, our future and fortune rest in the hands
of bureaucrats on the other side of the world. Sorry folks, but our
red, white and blue economy is afloat today because of help from
members of the Politburo of the Chinese Communist Party. Yes, the
Red Menace that we spent so many years fearing as a military threat now
represents a far more serious economic threat. Mao must be turning in
his grave with the news that no less than six U.S. Cabinet Ministers
are on their way this week to the Middle Kingdom to beseech, beg, lobby
and try to persuade the new mandarins not to sell off their vast
reservoir of dollars. There's an old saying that a person can be
in trouble when he owes a bank $100. But if he owes $l00 million, the
bank could be in trouble. We owe China billions but they realize that
collapse of American capitalism -- once their revolutionary goal --
could also trigger a collapse of Chinese communism. That's how
mutually intertwined we have become, and how complicit we are with a
government which the Committee to Protect Journalists says now jails
more journalists than any other.
.
http://www.alternet.org/story/45433/
.
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PAULSON'S CHINA OBSESSION MISSES THE BIG PICTURE!
December 15, 2006
.
TOKYO: Sometimes I wish China would just do it: announce an immediate
40% strengthening of the Yuan to show the world what would
happen. US interest rates would shoot higher as China -- and
Asian central banks in general -- sell devalued Treasuries. Sticker
prices at Wal-Mart and Best Buy would skyrocket. China's economy, one
on which Japan is now highly dependent would grind to a halt, risking
social instability in the world's most-populous nation. Shock
waves would sweep through corporate America. A sharply stronger Yuan
would make household-name US companies cheaper for acquisitive Chinese
executives. If you think China is big news in Washington today, just
wait until companies in the world's fourth-biggest economy start
bidding for General Motors, Microsoft, Boeing or Exxon Mobil. So
if the goal is slower global growth and destabilizing what many see as
the market of the future, by all means keep pushing the Yuan issue. Or
China-obsessed Washington could spend that time and energy getting its
own economy in order. Following the chatter coming out of Washington
these days, you would think there's only one economy outside the US.
Proving the point, Henry Paulson this week is visiting China for the
second time since becoming US Treasury secretary in July. As
Treasury chief, he has yet to set foot in Japan, by far Asia's biggest
economy and one that has lots to do with China's reluctance to boost
the Yuan. Paulson has yet to visit India, an economy that may be just
as important as China's or Japan's 30 years from now. Nor has he put on
his itinerary this week other highly significant economies to see how
they are going.
.
http://economictimes.indiatimes.com/articleshow/815328.cms
.
.
A U.S. MILITARY AT ITS BREAKING POINT CONSIDERS FOREIGN RECRUITS
By Bryan Bender, The Boston Globe - December 26, 2006
.
WASHINGTON: The armed forces, already struggling to meet recruiting
goals, are considering expanding the number of non-citizens in the
ranks -- including disputed proposals to open recruiting stations
overseas and put more immigrants on a faster track to U.S. citizenship
if they volunteer -- according to Pentagon officials. Foreign
citizens' serving in the U.S. military is a highly charged issue, which
could expose the Pentagon to criticism that it is essentially using
mercenaries to defend the country. Other analysts voice concern that a
large contingent of non-citizens under arms could jeopardize national
security or reflect badly on Americans' willingness to serve in
uniform. The idea of signing up residents who are seeking U.S.
citizenship is gaining traction as a way to address a critical need for
the Pentagon, while fully absorbing some of the roughly one million
immigrants that enter the United States legally each year.
Already, the army and the Immigration and Customs Enforcement division
of the Department of Homeland Security have made it easier for
green-card holders who do enlist to get their citizenship, Hilferty
said. Other army officials, who asked not to be identified, said
personnel officials were working with Congress and other parts of the
government to test the feasibility of going beyond U.S. borders to
recruit soldiers and marines. Currently, Pentagon policy
stipulates that only immigrants legally residing in the United States
are eligible to enlist. There are currently about 30,000 non-citizens
who serve in the U.S. armed forces, making up about 2 percent of the
active- duty force, according to statistics from the military and the
Council on Foreign Relations. About 100 such non-citizens have died in
Iraq and Afghanistan. A recent change in U.S. law, however, gave
the Pentagon authority to bring immigrants to the United States if it
determines it is vital to national security. So far, the Pentagon has
not taken advantage of it, but the calls are growing to use this new
authority. Indeed, some top military thinkers believe the United
States should go as far as targeting foreigners in their native
countries.
.
http://www.iht.com/articles/2006/12/26/news/military.php
.
.
IN SOMALIA, A RECKLESS US PROXY WAR
By Salim Lone, Tribune Media Services - December 26, 2006
.
NAIROBI: Undeterred by the horrors and setbacks in Iraq, Afghanistan
and Lebanon, the Bush administration has opened another battlefront in
the Muslim world. With full U.S. backing and military training, at
least 15,000 Ethiopian troops have entered Somalia in an illegal war of
aggression against the Union of Islamic Courts, which controls almost
the entire south of the country. As with Iraq in 2003, the United
States has cast this as a war to curtail terrorism, but its real goal
is to obtain a direct foothold in a highly strategic region by
establishing a client regime there. The Horn of Africa is newly
oil-rich, and lies just miles from Saudi Arabia, overlooking the daily
passage of large numbers of oil tankers and warships through the Red
Sea. General John Abizaid, the current U.S. military chief of the Iraq
war, was in Ethiopia this month, and President Hu Jintao of China
visited Kenya, Sudan and Ethiopia earlier this year to pursue oil and
trade agreements. The U.S. instigation of war between Ethiopia
and Somalia, two of world's poorest countries already struggling with
massive humanitarian disasters, is reckless in the extreme. Unlike in
the run-up to Iraq, independent experts, including from the European
Union, were united in warning that this war could destabilize the whole
region even if America succeeds in its goal of toppling the Islamic
Courts. An insurgency by Somalis, millions of whom live in Kenya
and Ethiopia, will surely ensue, and attract thousands of new anti-U.S.
militants and terrorists.
.
http://www.iht.com/articles/2006/12/26/opinion/edlone.php
.
EDITORS NOTES:
I know what you are thinking: What does news about US military
recruiting matters have to do with economics? To tell the truth,
not much really, but I find it interesting just the same as a cultural
or shall we say social issue. I mean, every empire used foreign
citizens in its military and or offered some sort of naturalized
citizenship in exchange for military service as well. The Romans
did it, so have the British. The French have done it too.
Perhaps the idea that the United States really is an Empire (something
which many people in the US would disagree with, or in the least,
prefer not to use that word when describing the US) is the key
point. Perhaps history repeats itself, and the fact that newer
Empires keep repeating mistakes of previous empires makes this
something to take note of as well. In addition, if history
teaches us nothing else, ALL empires eventually implode or disintegrate
for a variety of reasons, although exorbitant government costs to
maintain such an empire surely stands out (they just cannot afford it
anymore). I could not say where all this is going, but there are
some history lessons to be learned from the rise and fall of the Roman
and other Empires - or is it true that the world is so different today
that lessons from the past need be ignored?
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