The One-Sided Compromise – Guest Commentary By John Browne October 29, 2010Posted by Admin in Market Commentary.
Tags: Capital, china, currency, dan mangru, Dollar, economy, Euro-Pacific, g20, geithner, global, john browne, mangru report, reserve, secretary, south korea, treasury, United States, yuan
The One-Sided Compromise
By: John Browne
Thursday, October 28, 2010
Last weekend, the G-20 finance ministers met in South Korea to find areas of agreement in preparation for the main G-20 gathering in November. The Chinese rebuffed renewed American pleas for them to revalue their yuan. They rejected Secretary Geithner’s suggestion of a four percent cap on current account surpluses. However, in return for accepting America’s continued dollar debasement, the Chinese did agree to “look into” a revaluation of the yuan and the management of trade surpluses. They also agreed to an international self-policing regime to curb currency manipulation. This ‘one-sided’ compromise was hailed in the Western media as a triumph for Mr. Geithner. The US stock markets and dollar rallied. All looked good for the election season in November.
Unfortunately, compromises are never one-sided; they are only construed as such. Though the reporting failed to emphasize it, Mr. Geithner actually agreed to a massive shift of monetary power in exchange for China’s empty concessions. The shareholdings and board composition of the huge and powerful International Monetary Fund (IMF) have now been shifted. China will now become the third largest shareholder of the IMF and the developing economies will get a six percent larger voting share. Two European states will lose their seats on the IMF’s board in favor of developing countries.
Meanwhile, China, supported by Russia, India, and even Brazil, continued to lobby hard for the US dollar’s privileged role as the international reserve currency to be replaced by a wide basket of currencies and gold. To this end, the IMF has recently been given additional “emergency” lending facilities. These could be used in a coming sovereign default crisis to ‘bail out’ Western countries, at which point they would be unable to resist global economic governance under the guise of the reformed IMF.
In short, Secretary Geithner’s “victory” at the G-20 was one only King Pyrrhus could love.
But the blame cannot be laid entirely with Mr. Geithner. The fact that he left the meeting at least saving a bit of face for his delegation is a monumental achievement, considering the dismal condition of the US economy.
Fed Chairman Bernanke appears desperate to flood the United States with another round of quantitative easing (QE-2). In a $13 trillion economy, a release of anything less than $1 trillion would not be seen as effective. Remember, the Fed already injected over $1 trillion after the credit crunch – and we are still in recession. How much will it take to right this listing ship?
When Geithner pledged to China a “gradual” debasement of the dollar, it is astonishing that they didn’t laugh him out of the room.
If he were to make good on his pledge and convince Bernanke to cut QE-2 to, say, $500 billion, the US GDP and stock markets would almost certainly begin to contract. This would threaten the banking system with a second crisis borne out of the ashes, or toxic assets, of the first.
For a frame of reference, the US home mortgage market is valued at some $10.6 trillion. Indeed, foreclosures and past-due loans amount already to some 14 percent of the market, or about $1.5 trillion. Of this staggering figure, the loans delinquent or in foreclosure to which the top three banks (Bank of America, Wells Fargo and JP Morgan) are exposed amount to more than $600 billion, an amount roughly equal to the original TARP bailout fund.
At the same time, thanks to falsely low interest rates, the banks’ net interest margins, or the difference between what they earn in loan interest and what they pay to their creditors, are being squeezed severely, while their non-interest earnings are falling, due to lower economic activity and the prohibitions contained in FinReg.
Finally, there is the murky question of how exposed the banks are to the massive derivatives market, a house of cards with a shaky foundation.
As we have described for several years, the US economy is virtually locked into a long arc of decline. There are no politically palatable solutions to this quandary. Until Americans are ready to take their lumps and accept a steep drop in their standard of living, the US government will have no leverage with the creditor nations and no ability to keep its promises. Therefore, we should celebrate when China even gives our Treasury Secretary an audience.
If China does manage to topple the US dollar from its perch as the international reserve currency, our economy will very likely move into free fall as decades of inflation come pouring back into the country. We will be forced to live within our means or face hyperinflation. Losing a few votes at the IMF is a small cost to delay this eventuality, but it also puts us one step closer to it.
John Browne is a Senior Market Strategist at Euro-Pacific Capital. He’s been a member of English Parliament, an advisor to Prime Minister Margaret Thatcher, and currently serves as Lead Panelist for The Mangru Report. You can view all of his commentaries by CLICKING HERE NOW.
Tags: china, Congress, consumers, currency, dan mangru, goods, manipulator, manufacturing, price, quality, resolution, The Mangru Report, United States
While Congress passes a new resolution to label China as a currency manipulator, Dan Mangru evaluates whether this is just political posturing or real policy. China recently unpegged its currency (the yuan) from the U.S. dollar but has seen more pressure from the U.S. to allow it’s currency to appreciate so that U.S. manufactured goods would be cheaper to Chinese consumers.
During this Mangru Moment, Mangru also takes a hard look at whether the U.S. should fight it’s battles with China via the media, whether the U.S. should be focused on growing the Chinese market, and what’s ultimately best for America.
Tags: America, Anthony Pulieri, Apple, asia, business, china, commentary, discussion, domestic, economic, economy, euro-pacific capital, finance, foreign, foxconn, india, Jim Knight, jobs, john browne, knight group, kroger, news, outsourcing, production, Small Business, talk, United Bullion Group, wages, walmart
As election season is in full gear, and politicians ramp up the political rhetoric on how outsourcing has killed jobs in America, The Mangru Report Panel of experts takes a hard look at whether outsourcing is a negative or a positive thing for America.
The Mangru Report Panel of Experts composed of Anthony Pulieri (Joseph Glenn Commodities), John Browne (Euro Pacific Capital), and Jim Knight (The Knight Group) discuss the differences in wages in foreign countries, the influence of unions, unfair government subsidies from foreign nations, the difference in technical skills between the U.S. workforce and countries like China & India, backwards tax incentives that keep U.S. jobs overseas for fear of high U.S. taxation, the influence of cheaper goods and it’s effect on the U.S. standard of living, and why companies are moving more of their operations overseas.
This segment was sponsored by First Hour Trading, you can download their FREE Report, “How to make enough money in the first 59 minutes of the market” by CLICKING HERE NOW.
Bert Dohmen Freedom Fest 2010 Interview – The Mangru Report on Fox Business September 22, 2010Posted by Admin in Interviews.
Tags: bert dohmen, china, crash, crisis, dan mangru, debt, dohmen, dohmen capital, double dip, finance, Fox, Fox Business, george soros, investing, mangru report, market, news, real estate, recession, recovery, smarte trader, stocks, talk, technology, treasuries, tv, U.S., V-shaped, wellington letter
After a long wait, it’s finally here online, Bert Dohmen’s exclusive interview with Dan Mangru from Freedom Fest 2010 in Las Vegas. In this interview, Dohmen discusses the prospects of a V-shaped recovery or whether the United States is headed for what George Soros calls “Act II of the Crisis”. He also shares his views on the financial reform bill, a Chinese bubble, and whether the U.S. can save China if it goes under. Bert Dohmen is the founder of the Dohmen Capital Research Institute and the author of the award winning Wellington Letter.
Foundation for Defense of Democracies’ (FDD) Mark Dubowitz One-on-One with Dan Mangru – The Mangru Report – Episode 8 July 13, 2010Posted by Admin in Interviews.
Tags: angela merkel, brazil, change, china, design, dubai, engineering, fdd, foundation for defense of democracies, gas, germans, Germany, Iran, natural gas, nuclear, nuke, oil, regime, russia, sanctions, secret, turkey, U.N., UN, uranium
With Iran doing billion dollar business deals with U.S. allies and laughing at the face of more U.N. sanctions, Mark Dubowitz, Executive Director of the Foundation for Defense of Democracies, sat down for an exclusive one-one-one interview with Dan Mangru. During their interview, Mark Dubowitz revealed why U.N. sanctions against Iran won’t hurt them, why the U.S. needs to support Iranian regime change, how Russia and China are playing both sides, why U.S. allies such as Brazil and Turkey are selling nuclear materials to Iran, how Dubai has become the secret trading ground to do business with Iran, and how Germany is supplying engineering services to Iran’s nuclear program.
Marco Rubio and Mark Dubowitz to Appear on The Mangru Report TONIGHT on Fox Business at 5:30 p.m. June 19, 2010Posted by Admin in Interviews, Panel Discussion.
Tags: ally, Anthony Pulieri, china, constitution, dan mangru, defense, democracy, dubai, fdd, freedom, freedom fest, gaza, Germany, Iran, israel, jobs, mangru, mangru report, marco rubio, Mark Dubowitz, mark skousen, martin weiss, nuclear, palestine, rubio, russia, talk, Tea Party, tv, U.S., United Bullion Group, weiss, Weiss Research
Current 2010 GOP Senate Candidate from Florida Marco Rubio and the Executive Director of the Foundation for the Defense of Democracy, Mark Dubowitz will appear on The Mangru Report tonight. Wach as Rubio discusses why the U.S. needs to maintain Israel as an ally, why he went to law school, how he will bring jobs to America, and how Jeb Bush influenced his run for Senate.
Dubowitz will discuss the recent sanctions on Iran, why countries like Russia and China are getting away with playing both sides, and the secret trade route that Iran is using to sneak nuclear technology and billions of dollars into their economy.