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: alternative investing, business, Commodities, currencies, dan mangru, david mcalvany, Dollar, finance, Fox, Fox Business, gold, investing, ira, jack reed, john t. reed, management, mangru, mangru report, mcalvany, news, real estate, silver, talk, terry coxon, tv, U.S., van simmons, wealth
Watch extended coverage from Freedom Fest 2010 with Dan Mangru moderating a special panel on Alternative Investing. While so many investors are confused as to what that actually is, for the purposes of this panel alternative investing is any type of investment outside of stocks, bonds, options and mutual funds.
The panel features David McAlvany of McAlvany Wealth Management, Van Simmons of David Hall Rare Coins, Jack T. Reed author of How to Protect Your Life Savings, and Terry Coxon of Passport IRA. They will provide key insights on topics such as gold investing, the currencies most likely to beat the U.S. dollar and why the U.S. dollar might be good to hold in the short run, whether investors should pay down debt as opposed to making new investments, how to buy real estate during hyperinflation, and the importance of liquidity.
Panel Discussions – The Mangru Report – Episode 7 June 20, 2010Posted by Admin in Market Commentary.
Tags: Al Zucaro, bernanke, Dollar, euro-pacific capital, johne browne, marco rubio, mark skousen, martin weiss, moron, parliament, pension, retirement, taxation, taxes, union, world trade center
In case you missed last week’s panel discussions here they are:
Also don’t forget to tune in tonight to the replay of yesterday’s episode (episode 8) which features Marco Rubio and Mark Dubowitz with Martin Weiss, Mark Skousen, and Anthony Pulieri on the panel.
Tags: Al Zucaro, Anthony Pulieri, boomers, commentary, dan mangru, depression, Dollar, euro-pacific capital, florida, haridopolos, housing, john browne, mike, property, real estate, retirement, segment, senator, seniors, talk, taxes, tv, United Bullion Group, watch, world trade center
In case you missed last week’s episode, you can watch The Mangru Report Panel of Experts (John Browne, Anthony Pulieri, Florida Sen. Mike Haridopolos) discuss the value of your home as a retirement vehicle on the Retirement Watch segment from Episode 5. During this segment they raise key issues such as stability in the housing market, the unpredictability of property taxes, the effect of inflation on housing, what could happen to housing in a depression, and whether boomers will be able to cash out of their homes for retirement.
Florida Senator Mike Haridopolos, John Browne, and Anthony Pulieri on The U.S. Dollar’s World Reserve Currency Status June 3, 2010Posted by Admin in Market Commentary.
Tags: Abu Dhabi, anthony, browne, Capital, commentary, currency, dan, Dollar, Euro-Pacific, florida, gold, Haridopolous, john, mangru, mike, president, pulieri, report, reserve, senate, senator, talk, tv, U.S.
With countries around the world plotting to overtake the U.S. Dollar, and places like Abu Dhabi installing gold ATMs (ATMs that spit out gold bars instead of dollars), is the U.S. dollar on the ropes? From Episode 5 of The Mangru Report on Fox Business, Florida Senate President Mike Haridopolos (www.senatormike.com), Anthony Pulieri (United Bullion Group), and John Browne (Euro-Pacific Capital) discuss the U.S. dollar’s future as the world’s reserve currency on this War on Your Dollar segment.