America Must Do As It Says

In 1997, during the Asian financial crisis, the U.S. Treasury and International Monetary Fund warned East Asian countries against the risks of bailouts or raising interest rates. Ten years later, America ignored its own past lectures and bought up billions of dollars of bad mortgages and lowered interest rates. This after America managed to pass off hundreds of billions of dollars worth of bad mortgages to banks around the world. Isn’t it time We the Apathetic Maids get career politicians to practice what they preach?

The Fed’s actions cast doubt on the future of paper money. China experimented with paper money 1,000 years ago. As the government printed more and more to fund its own profligacy, people refused to hold it and paper money disappeared from history. The current monetary system ─ paper money with no tangible anchor to back it up ─ is four decades old. As soon as the Nixon administration abandoned the dollar linkage to gold, it led to a severe bout of inflation which was contained by globalization. Inflation is back and can no longer be contained by globalization. It can only be contained by Sino-U.S. interlocalism.

China was able to withstand the subprime crisis and recent global recession that created economic havoc in America because it is no longer dependent solely on America. Furthermore, it has usurped the U.S. as the driver of world growth. The U.S. subprime crisis made Hong Kong the China beachhead for foreign funds. Today China has overtaken the U.S. as the largest seller to the euro-zone and is rapidly doing the same in the Middle East, Latin America, Russia and Africa. Isn’t this a geopolitical partner America should be embracing so that it can also cushion any future global inflationary or recessionary economic disasters?

Responsible Bank Holdings

The Central Bank of China, Asian countries and Arab oil-producing nations account for the bulk of foreign treasury holdings. They are responsible for safeguarding their nation’s wealth and if they allowed the U.S. Federal Reserve to rob them they would be criminally negligent.

To prevent massive sell-offs of U.S. treasuries, leading central banks injected over $300 billion into the financial system and lowered the rates at which they lend to private banks. In America, Citigroup, Bank of America and JP Morgan Chase, the three largest U.S. banks reached an agreement to form an $80 billion fund to help unfreeze the market for short-term debt. The fund is another bad joke given to American taxpayers to again clean up bankers mistakes while we pay for the cleanup job. Warren Buffet said it best. “One of the lessons that investors seem to have to learn over and over again in the future, is that not only can you not turn a toad into a prince by kissing it, but you cannot turn a toad into a prince by repackaging it.”

Marc Faber, the Hong Kong-based publisher of The Gloom, Boom & Bust Report voiced my sentiments in October 2007 when he said: “The Fed feeds its customers with booze, and when they get totally drunk and are about to fall of their chairs, the bartender gives them more booze to keep them going. One day it will lead to the ultimate breakdown” ─ and it did. Those that really need government help are not the banks that created the problem in the first place but the homeowners who are the victims of the banks predatory practices. Why do We the Maids allow the government and its career politicians to save the guilty and punish the innocent?

Austerity measures are not the way to correct global imbalances. America needs to export its way back to balancing its books with countries like China and OPEC members increasing their imports from America.