News & Analysis
China Demands American Austerity
China warns U.S. debt-default idea is "playing with fire ... Republican lawmakers are "playing with fire" by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China's central bank said on Wednesday. The idea of a technical default – essentially delaying interest payments for a few days – has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday. But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn. – Reuters
Dominant Social Theme: Don't even try it. Don't even go there. You owe us the interest and ... you ... will ... pay!
Free-Market Analysis: We tend to go back and forth regarding the world's larger financial fix. We have arrived at the idea, eventually that the Anglo-American power elite responsible for the mess wants to push Western citizens as far as possible without setting up full-scale revolutions. The idea is simply to afflict Western Middle Classes with such misery that they will not notice when their countries' sovereignty is removed in favor of a One World Order.
The best way to do this is to keep people distracted and miserable – hovering on the edge of foreclosure, food insecurity and professional oblivion. In Europe this has been accomplished by ensuring that many counties have borrowed far more than they can pay back, thus ensuring generations of "austerity" (assuming that Europe's young people don't revolt against the prospect). Hey, it's a fine line.
America has been a tougher nut to crack. Americans come from hardy immigrant stock and have tended to be thrifty and hard working, certainly in the past. The Anglo-American power elite has been at work for decades to ensure these admirable qualities are subdued. Result? America's finances are a mess.
The US deficit is scheduled to reach $14 trillion (US$14.3 actually), and the U.S. Treasury Dept., responsible for funding it, needs to borrow more money than it is authorized to do. Republicans in the House and Senate have seized on the opportunity to demand that the Obama Administration agree to significant cuts in spending.
The Democrats, for their part, warn that using the debt-ceiling to enforce frugality is a most dangerous strategy, one that could virtually sink the United States' credit. If the US cannot borrow, it will have to default on its debt payments, which would likely lead to some sort of devaluation of the dollar. Since the dollar is the reserve currency of the world, this would lead to significant tumult abroad.
China is willing to do its part in this all, apparently. According to a Reuters' article that appeared yesterday (see excerpt above), China's top officials have some strong opinions about a potential default in the US. Reuters quotes Li Daokui, an adviser to the People's Bank of China, as saying that a default could undermine the U.S. dollar. "I think there is a risk that the U.S. debt default may happen," Li told reporters (according to Reuters) on the sidelines of a forum in Beijing. "The result will be very serious and I really hope that they would stop playing with fire."
While no one seems to know how much US debt China holds, Reuters claims confidently that it is $1 trillion. We've read US$800 million and US$ 2 trillion as well. But US$1 trillion sounds about right. That's certainly a lot of money. Do Chinese officials really expect to get repaid? Here's Li again: "I really worry about the risks of a U.S. debt default, which I think may lead to a decline in the dollar's value."
Ben Westmore, a commodities economist at National Australia Bank, is also upset that the Republicans are holding the debt-ceiling hostage. "It has dire implications for the economy at a time when the macro data is softening. It's just a horrible idea."
Financial markets remain steady, but that may not be the case if the stand-off continues. Republicans, Reuters informs us, have been working on the theory that bondholders would put up with a delay in payments in return for a bipartisan deal that would lower US spending and make the country stronger in the long term.
According to Reuters, central banking officials around the world are less sanguine about the ramifications than Republicans are. "This could then create huge panic globally," Reuters quotes one Indian central banking official as saying. At the same time, India's Treasury officials continue to buy and hold dollars. The government held US$39.8 billion in U.S. Treasuries as of March.
Of course, Reuters doesn't mention that countries HAVE to buy dollars in order to purchase oil from Saudi Arabia, which will not accept anything else. This is how the dollar's reserve currency status is enforced.
The article concludes by quoting Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, as saying that default was indeed a real risk. "The possibility is quite high to see a default of the U.S. debt, which would harm many countries in the world, and China in particular."
We're not so sure as Gangming that the "possibility is high" that the US will default, or not seriously anyway. The House is led by Ohio Republican John A. Boehner (about as radical as a mushroom). Boehner is one of a handful of elite politicians, one of the most powerful men in the world thanks to his position as Speaker of the House. The idea that John Boehner will lead a radical restructuring of America's finances does not seem especially feasible to us.
Of course, a good deal of pressure is being put on Boehner by the Republican-oriented Tea Party, and perhaps this will serve to shove the Republicans out of what would otherwise be their comfort zone. Hard to tell, really.
What is more significant from our point of view is the message the Chinese are sending. The Chinese central bankers, like central bankers around the world are not willing to entertain an iota's reconfiguration of America's debt. It's a kind of dominant social theme – a fear based promotion. We're not sure it will hold, but the rhetoric is stern. We have seen the same sort of implacable rigor in Europe, where the ECB has been at the forefront of the fight to ensure that Greece and the rest of the PIGS pay ever euro of their increasingly unpayable sovereign debt.
The mechanism of American austerity, then, is to be Chinese insistence on the immutability of American repayment terms. What the sovereign crisis is doing to Europe, the Chinese will do to America. In fact, American "austerity" is already here. The Chinese are providing the proximate cause, but increasingly we believe this was the plan all along.
Britain is in the same fix, Europe is rioting, the Middle East has gone up in smoke and Africa is trending the same way. Surely this couldn't be coincidence could it? We think not. The world's economic system is controlled out of the City of London via the Bank for International Settlements (based in Switzerland) and over 100 central banks around the world. The Anglosphere elite that constructed this system knew full well it would self-destruct over time.
They knew it in Europe, too. In fact, it has been admitted. The Eurocrats knew that the current system was unstable and would break down. They intended to take advantage of it to build a more centralized system and in fact they are currently doing so.
The wild card, as we have pointed out, is the Internet itself (and the truth-telling it provides), which we believe has destabilized Europe far beyond what the elites expected. They are said to be meeting somewhat unhappily in Switzerland today, as part of the annual Bilderberg affair. War is supposedly on the menu, along with selecting an IMF chief – and stabilizing Europe. There is to be austerity, yes, but not revolution.
In America, austerity is coming, too. The Chinese and perhaps the Japanese (and other creditors) will demand it. But the same realities hold for America as for Europe. There is perhaps a limit to what people will put up with, a limitation reinforced by the Internet Reformation.
Conclusion: We have no doubt that a chaotic financial situation around the world was intended to increase pressure for a more centralized currency – and for more centralized bank regulations, etc. We are not so sure the current plan will hold. Will the elites get their chaos? They might wish to be careful what they wish for.
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Posted by ekim on 06/17/11 03:36 AM
Hell/no
Well I would like you to look at the US Debt clock at Click to view link I found it very interesting in that it show all the real debt not just the $14.4 trillion but for example the social security liability is at $15 trillion, prescription drug liability 19 trillion and the medicaid liability is at 79.2 trillion. I haven't added them all up but we are so far in debt we could never catch up. The IMF calls this 'Force Majeure' and at that point call in the debt, all of it. From what I understand they hold all agricultural lands in the USA as well as all national parks, etc. I had a chance to ask them at what point would they declare this and of course they would not say. At that site you can look at other countries and see that the UK is even more off then we are. June 30, the Federal Reserve has pledged to cease buying U.S. Treasury bonds. See: Click to view link
Do we really have to ask where this is all heading? Do you have food storage? If your child needs antibiotics how much Gold would you trade to get it? Think about it...
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Posted by Wayne on 06/10/11 04:46 PM
"Americans' notion of their exceptionalism is probably behind the general public tolerance of foreign military intervention'
Now you have touched upon a very interesting subject.
This premise of a People of Exceptionalism.
I suspect this came from the Chosen People myth, but I'm not sure. Hard to get any real evidence when everybody shuts up, and won't saying a word, or goes off on some diversion as "How dare you deny"
Of course that is just smoke, but it proves that there are things just too verbotten to discuss.
Back to "The Emperor Has No clothes" .
And it appears Society will never get beyond this condition of fear and conditioning! Pehaps that is the real definition of Society.
We are trapped in a Monkey House!
It's as though the price of Life is to live a Lie!
This is not going to be a popular theme anytime soon.
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Posted by Wayne on 06/10/11 03:32 PM
To those who still don't get that it's over in the US,
"But a Constitution of Government once changed from Freedom, can never be restored. Liberty, once lost, is lost forever.
John Adams, letter to Abigail Adams, July 17, 1775"
But what would John Adams know?
Yet the intellectuals still rave on about saving the Constitution!
Some people just don't get it!
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Posted by MetaCynic on 06/10/11 01:43 PM
Interesting thought, Wayne. Once the productive classes have been taxed and regulated into oblivion, the government can turn to forcibly harvesting body parts to sell to finance its operations. Perhaps one day the price of admission into a hospital for by-pass surgery under one of those single payer healthcare systems that liberals yearn for, will be a kidney or an eye. If according to collectivist ethics, it's immoral for the rich to keep unnecessary wealth, then why should the healthy be allowed to keep unnecessary body parts when the unhealthy need those parts to survive? Just as we were told that taxation is the price we pay for civilization, we may one day be told that giving up body organs is also a necessary price.
Americans' notion of their exceptionalism is probably behind the general public tolerance of foreign military intervention, especially to secure oil. "Since we're special, it's really our oil," the thinking goes, "so we need boots on the ground to secure it." That's a bad precedent to set. What's to prevent the Chinese from thinking along the same lines? "We are a superior, ancient civilization of 1.3 billion souls which must import much of its food in order to thrive and to continue to bless the world its presence. The fat, barbarian Americans are sitting on far more productive soil than they need to survive. We need Chinese boots on the ground in America to secure food for the master race." Welcome to the world of unintended consequences!
Reply from The Daily Bell
"Americans' notion of their exceptionalism is probably behind the general public tolerance of foreign military intervention, especially to secure oil. "
It is not complacency but fear. The government in America is very large and the police presence is significant as well.
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Posted by Bischoff on 06/10/11 01:28 PM
@ Eyes
"The question has never been answered as to whether or not the congress was constitutionally permitted to delegate its power to coin money ..."
The Congress did not delegate its power to coin money...
Section 8, Article I has not been violated. The U.S. Mint established by the U.S. Congress in 1791 is still the only agency in existence authorized to coin lawful U.S. money (gold and silver coins). Even today, the U.S. Mint is still required by law to coin gold and silver brought to it in whatever amount by anyone, be they foreigners or residents, without seigniorage (meaning without cost). The States are specifically prohibited by Section 10, Article I of the U.S. Constitution to coin lawful money of the United States.
Section 8, Article I charges the U.S. Congress with the responsibility to regulate the value of U.S. coin. It has initially defined the U.S. dollar in the Coinage Act of 1791 to equal the amount of grain contained within a Spanish Silver Dollar coin (Pillar Dollar) or the equivalent in the market price (in grain) of gold (approx. 1/20 of an ounce of gold). In 1935 the U.S. Congress changed the value of a U.S. Dollar coin to be 1/35 of an ounce of gold. However, since F.D.R. prohibited gold holding for U.S. citizens with Executive Order #6102, only foreigners were able to exchange their U.S. currency (paper money) for gold. Just before the U.S. welched on the redemption promise (restated with the 1944 Bretton Woods Agreement), the U.S. Congress reset the value of the U.S. Dollar coin to be approx. 1/42 of an ounce of gold. That is the official lawful value of a U.S. Dollar today.
Section 10, Article I of the U.S. Constitution prohibits States from making any Thing, but Silver and Gold legal tender in payment of debt. The U.S. Constitution is entirely silent as to the power of the federal government on the question of issuing "legal tender".
The founders wanted the States to decide this question through their U.S. Senators. They realized that paying war debts through "legal tender" is a practical solution, but they wanted the States to make that decision. The First Bank of the U.S. was given a 20 years charter to issue legal tender to pay for the costs of the War on Independence. The Second Bank of the U.S. was given a 20 year charter to pay the costs of the War of 1812.
The Banking Act of 1935 married the interests of federal politicians vying for reelection with the interests of mega bankers to control the creation and distribution of currency. By 1935, U.S. Senators were no longer the representatives of the State governments. The 17th Amendments required U.S. Senators to be popularly elected. With the 1935 Banking Act, the U.S. Congress created a central bank in perpetuity to which the separate States would have objected, except they had given up their voice in the Congress with the ratification of the 17th Amendment. The Board of Governors of the Federal Reserve System established with the Banking Act of 1935 is the central bank we known today as the FED.
After defaulting in 1971 on the Bretton Woods Agreement by suspending the redemption of U.S currency, the Federal Reserve Note remained the only U.S. currency in issuance, using the U.S. Dollar accounting standard. With the 1982 Coinage Act, the U.S. Dollar denominated Federal Reserve Note was declared "legal tender".
That is where we stand today with our U.S. currency. It is a Federal Reserve Note which carries the accounting standard of U.S. Dollar, but has no value in terms of the standard of value which is GOLD (positive value).
The Federal Reserve Notes in circulation today are created by the FED by monetizing government debt (negative value). The debt has piled on and the interest which compounded on the debt is now larger than the original debt.
This means that the Federal Reserve central bank, U.S. Dollar denominated
currency is destroyed.
Why don't we know about it...??? Because of the politicians and talking heads are using in the MSM to spin that "nothing is wrong". The actual collapse so far has been avoided by a creating a Rube Goldberg constraption of totally irrational financial derivatives, called insurance rate swaps.
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Posted by DarbyJie on 06/10/11 04:36 AM
Thanks for the link, Wayne. Looks *good*
In reply::
John Galt is the man that every man aspires to be.
Regards!
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Posted by Wayne on 06/10/11 12:28 AM
'I am more than a libertarian; I don't believe in the right of the state to exist. The state is unnecessary for society to exist. Everything that needs to be done can be done by the market.' Douglas Casey.
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Posted by Wayne on 06/10/11 12:15 AM
When the Collecivists whine on about our obligation to pay the cumlative bill of the Collectivst Orgy, just remind them that this is not our country.
It can't be, as it fails to meet the criteria!
Where liberty dwells, there is my country. Benjamin Franklin
I have no liberty if I can be made responsible for the spending of the many!
We are just the plantation slaves who have woken up!
Who Is John Galt?
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Posted by Wayne on 06/09/11 11:32 PM
You won't find my signature on any of this either.
Tell them to take the Debt and put it where the sun doesn't shine
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Posted by bionic mosquito on 06/09/11 10:56 PM
"If there is an easier way to walk back from the present brink of financial disaster, while settling obligations in an honorable way, I like to hear about it."
What obligations? Whose obligations?
Not mine. I never signed a contract. There is nothing "honorable" about obliging someone simply because of the geographic location of his birth.
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Posted by Wayne on 06/09/11 10:39 PM
Here's a little hint of what's to come for this collectivist interconnected commune!
Click to view link
Who is John Galt?
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Posted by John Danforth on 06/09/11 10:23 PM
"The question has never been answered as to whether or not the congress was constitutionally permitted to delegate its power to coin money ..."
We don't really need anyone to answer the question for us, do we?
The base money of the Fed is loaned into existence, to the government. Each debt note is a promise to extract wealth from the hapless citizens to 'pay back' the money that was created from thin air.
That is the PURPOSE of deficit spending. It isn't all about who gets the money, what is bought with it. The money is simply consumed and forgotten once it passes through the alimentary canal.
What isn't forgotten is the base purpose -- you OWE, forever.
I say, it's not my debt. And I ain't payin' it.
Thank you for your generous compliment.
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Posted by John Danforth on 06/09/11 10:15 PM
THANKS!
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Posted by Howard Roark on 06/09/11 10:01 PM
Here is an actual story from the United States mainstream media... Hopefully the Daily Bell will mention this tomorrow. That's pretty much right in our faces... The Secretary of State of the United States is flirting with heading a one world bank? Can't me much more out in the open anymore can they?
Click to view link
Reply from The Daily Bell
Not a one-world bank. THE WORLD BANK, which has been around for 60 years. But thank you, Mr. Roark, for the link.
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Posted by channa on 06/09/11 09:41 PM
I just saw the documentary about trans-humanism called 'The Age of Transition'. You can see the full film at youtube (probably most here have seen it):
Click to view link
It also talks about memes (like "all mankind is severely flawed" therefore not worth saving...or using this meme to elevate oneself above the rest)
"The Age of Transitions is a documentary about converging technology, transhumanism, artificial intelligence, life extension, brain implants, social science, propaganda, nanotechnology, eugenics, geopolitics, world revolution, and more.
Featuring: Bill Clinton, George W Bush, Newt Gingrich, Nick Bostrom, Aubrey de Grey, Ray Kurzweil, Anders Sandberg, Michio Kaku, Hugo de Garis, Kevin Warwick, Marvin Minsky, Charles Galton Darwin, Julian Huxley, Aldous Huxley, William Shatner, Alex Jones, Jordan Maxwell, Cathy O'Brien, Alan Watt"
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Posted by Wayne on 06/09/11 09:40 PM
Perhaps the demand that you think is too much for you!
If you actually think that all you believe is true, then we would never agree.
So be it!
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Posted by channa on 06/09/11 09:25 PM
You said "I never presume to tell people how they should live or think..."
Then you proceed to tell me how to think: "It's what we think we know that's not true..." (sowing seeds of doubt in another person's mind).
That sounds like something an interrogator would say to me! To mess with my "reality". It sounds like something out of Guantanamo or Bagram!
Please don't bother me again with your mind games.
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Posted by Wayne on 06/09/11 08:45 PM
John Bolton is a Shmuck!
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Posted by Wayne on 06/09/11 08:06 PM
Here's a pretty good rule for you.
It's what we think we know that's not true, that is at the base of most of our prblems in life.
Check every premise, validate every conclusion for sound logic.!
Never give anybody the benefit of the doubt, as all mankind is severely flawed.
Your life is too valuable to be wasted on the lies and deceptions of others.
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