Findings & Forecasts 05/29/2013
Systemic economic decline begets credit contraction, leading to deflation, currency wars and finally, physical war.
In 2002, one noted economist wrote “Ignore the ghost of deflation.” Another stated that “Deflation is an overblown worry.”
On November 21, 2002, then-Fed Governor Ben Bernanke spoke to the National Economists Club in Washington, D.C. about “Deflation: Making Sure ‘It’ Doesn’t Happen Here. He started with this premise: “With inflation rates now quite low in the United States, however, some have expressed concern that we may soon face a new problem – the danger of deflation, or falling prices.”
Now, of all people, Bernanke knew full well that the measure of deflation is not falling prices, but rather the contraction of overall credit which may or may not prompt falling prices. The rest of his speech argued against falling prices but did little to address credit contraction.
Nevertheless, he gave two principal reasons on why the U.S. would not experience deflation in coming years:
- The first was the “resilience and structural stability” of the U.S. economy itself.
- The second was the Federal Reserve System itself.
With an apparent attitude of overconfidence, Bernanke then stated,
“I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.
“…Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.” [emphasis added]
In 2013, we can look back over the last 11 years to see how accurate Bernanke’s analysis was. The Fed’s easy credit policies created the biggest housing bubble and subsequent bursting since the Great Depression of the 1930’s. It pushed its internal interest rates to near-zero, pumped trillions of dollars of liquidity into the banking system. Even though some economic improvement has been seen in the last three years (in certain sectors, at least), our overall economy has statistically made very little progress.
Where has all of the Fed’s new money gone?
In the above chart, Zero Hedge shows the distribution of QE money landing in small banks (blue), large U.S. banks (red) and foreign banks (yellow). (The chart can be enlarged for better viewing) The correlation here is 100 percent! For all those who are shaking their fist at domestic banks like JP Morgan Chase, Bank of America, Citigroup, etc., they would be shocked to see that considerable more didn’t benefit U.S. banks at all!
So, let me ask the question: Has Bernanke’s clandestine bailout of (primarily) European banks saved Europe? The answer, of course, is “No.” Europe is officially in recession again, with several countries still on the verge of economic collapse and depression.
Thus, the tools that Bernanke thought the Fed had, were illusory. For all the bluster, jawboning and arm-twisting, the Fed has proven impotent on all levels of operation. The deflation scare originally produced because of Japan during the 1990’s continues unabated, and the global economic system is measurably weaker and dysfunctional today than in 2002.
Why would I bother to even bring this up? I believe these events are forcing the global elite to change tactics, if not strategy, to achieve their beloved “New World Order.” They are extremely worried that market forces are stronger than their ability to manipulate, and that the end result could set them back by several decades.
What now concerns the elite the most is the expansion of currency wars which have been enabled and exacerbated by dysfunctional capital flows as described above. Historically, currency wars are the outcome of a shrinking economy where nation-states must compete for a dwindling share of the global economy. Furthermore, currency wars invariably precede real wars, as was the case in both WWI and WWII. This is not lost on the global elite.
As the dollar has been rallying sharply higher in recent weeks, a host of articles has appeared heralding the death of the dollar. One writer recently stated, “For years now, the collapse of the dollar has been in the cards.” He doesn’t say who owns the cards or who the dealer is. CNBC asks today, “Is the Dollar Dying? Why US Currency is in Danger:” “The U.S dollar is shrinking as a percentage of the world’s currency supply, raising concerns that the greenback is about to see its long run as the world’s premier denomination come to an end.”
Let me set the record straight. The dollar is not dying. However, the reason it is rising in value has nothing to do with some inherent goodness in the U.S. economy or the color green. Rather, it has to do with currency wars where other nations are trying to devalue their own currencies at the expense of the dollar. They go down, we go up. All of the Fed’s efforts to drive the dollar down (Yes, the Fed would be a currency manipulator too) have failed, primarily because the Fed is not greater than the combined dozens of nations who desperately want to devalue.
This leads us to examine a recent lecture by C. Fred Bergsten, senior fellow and director emeritus of the Peterson Institute for International Economics. Bergsten was an original founding member of the Trilateral Commission, and one of the principal early architects of the “New International Economic Order” that it espoused. Bergsten’s major concern is revealed in his paper’s title — “Currency Wars, The Economy of the United States And Reform Of The International Monetary System.” He concludes his lengthy talk by stating,
“I would like to close with a historical footnote from over 40 years ago that bears some resemblance to where we stand today. Four days after the Nixon shocks of August 1971, their architect John Connally asked four outsiders (I had left the government a few months earlier) to spend most of a day with him and his top team, led by Paul Volcker, at the Treasury. He began by saying “you know what we have done, please tell us what we should do next” – at which point I really began to worry! He then personally led us through six hours of intense discussion, during which I stressed the opportunities they had created for systemic reform – especially moving to flexible exchange rates. It became increasingly clear that Connally did not have systemic goals in mind, however, and he finally brought the session to a close with the following statement: “I appreciate the advice from you gentlemen and want to share my own philosophy with you before we break up: the foreigners are out to screw us and our job is to screw them first. Thank you and goodbye.”
“Having spent most of the previous three years as Henry Kissinger’s deputy for foreign economic policy, I thought I was fairly sophisticated about the ways of both Washington and the world – but even I was stunned by Connally’s xenophobia (which I immediately conveyed to Kissinger, who had not been aware of it, but that is another story). The relevance to today is of course that some of the foreigners have again been screwing the United States (and much of the world), to use Connally’s colorful terminology. The choice, now as then, is whether to respond nationalistically and unilaterally or systemically and multilaterally – or, as is most likely, a combination of the two, hopefully with a clear strategic decision to use national actions to achieve global reform. Our goal must be to start resolving these crucial problems by reforming the global system decisively before the arrival of the next John Connally.
“Addressing another vital issue of US national interest in which China also plays a central role, cybersecurity, President Obama used these words in his State of the Union message in February: “We cannot look back years from now and wonder why we did nothing!” I would submit that we should adopt the same attitude toward widespread currency manipulation, which violates the most basic precepts of the international economic system while destroying growth and jobs in our own economy and in numerous other countries. The time for action has clearly come. It is time to declare war on the currency wars. [emphasis added] [Ed. Note: Kissinger and Volcker ware also members of the Trilateral Commission]
The intensity of Bergsten’s concern is easily detected throughout his paper, but the derailing of his globalist agenda is the major point. Bergsten’s original and naive design for “flexible exchange rates” is being scuttled by greedy, selfish and self-centered foreigners who have implemented currency wars against each other and the United States.
It is ironic that original members of the Trilateral Commission had no problem pillaging and plundering the world back in 1973, but when they get “screwed” (his word, not mine) by “some of the foreigners” in 2013, it’s cause for national alarm. It is also ironic that while members of the Trilateral Commission eschewed the Constitution, the nation-state and national sovereignty back then, they look to the same nation-state today for relief.
A large part of the global elite’s paranoia stems from their fear of global and uncontrolled war. Along the lines of Schumpeter’s theory of Creative Destruction, regional and local conflicts are controllable — and thus profitable — but unrestrained war ends up destroying the means of production.
Few, if any, Americans would wish for war, but we should realize that if currency wars are not contained, physical conflict will follow. While it may appear that we are lined with the global elite on currency wars, our motives could not be further apart. We seek freedom and liberty: They seek global domination.— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — – Note: Additional content on this page is available only to Premium subscribers of Findings & Forecasts.
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