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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Aubie Baltin
September 30, 2009
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CHINA

We are being bombarded with numbers from all sides about China’s renewed growth, but like all things, upon close examination and a little reading between the lines, we soon discover that over 80% is strictly due to the $586 billion stimulus China pumped into the economy. If it’s anything like our stimulus and there is just as much politics there as here, what is the real state of the Chinese economy? Given the unreliability of Chinese government stats and that like Japan exports are 40-45% of GDP, we look to Japan, the world’s second largest economy, to try and get a clearer picture of what is really happening. Last month, Japan suffered a collapse in exports of some 40%. The same held true for their imports that collapsed by 41%. Since both economies rely on exports, can China really be doing so much better? I believe that both China’s and the USA’s much touted growth is largely a reflection of government manipulation of the numbers.

Government money has never been spent efficiently, wisely or effectively, certainly not when it is spent in such a hurry. China’s stimulus, like that of United States, solves nothing except that of postponing the day of reckoning. I find it "interesting" that many of the same analysts who deride the west for its shift toward Socialism and a government managed economy can, in the next breath, praise the Chinese Communists' skillful management of their economy. So much so that the Chinese economy, representing only 7% of global GDP, is now said to be capable of pulling the rest of the world out of its debt and economic crisis, even though they are doing it with debt and massive monetary inflation —GEE, who would have thunk it?

There is the real economy and there is the Pipe Dream propaganda version coming out of the government controlled media. It’s up to you to choose who and what to believe.

GREENSPAN & BERNANKE

May I remind you that both Greenspan’s and Bernanke’s intimate understanding of money and markets stems from their stints at the Federal Reserve. During this time together, they managed the U.S. (and the world) from one asset bubble to another (3 so far and 1 in the making) and are now working on the 4th Bubble—none of which they saw, understood or predicted. When it came to the biggest danger of all – DERIVITIVES- They both agreed that,”We have found over the years that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so." Never mind the fact that derivatives now stand at some $600 trillion and they are now the biggest danger that the world has hanging over its head. And yet to this day, neither one has ever offered a word of caution nor even a suggestion as to what should be done about it. Was it in fact the taxpayer who they had in mind all along as the ultimate RISK ASSUMER?

By all means let us reward Bernanke by giving him more unlimited power and appointing him to another term without any oversight, examination or discussion. Why not? Congress, the President and all their advisors don’t even know what questions should even be asked. But not to worry, for sure Bernanke knows why Gold is headed higher this time around (especially in the face of all those failed attempts at manipulating Gold Lower).

As to REVERSING COURSE, just in the nick of time so as to guard against the on slot of Inflation, while making sure that the subsequent rising interest rates do not bring about that most feared DOUBLE DIP RECESSION. Not to worry, he has all that experience in managing the FED and the Economy.

CHINA (we all know) is a centrally planned economy and the key tenet of a planned economy has always been making sure the numbers reported meet the plan. Going through China's statistics and ascertain how they are calculated and what they really mean is beyond the scope of this commentary, suffice it to say that they all may not be what they seem. For instance, when the central government disburses money to state enterprises, this counts as increases in GDP regardless of what happens to the money. Likewise, shipments to retailers count as increased GDP whether it sits in inventory, never gets sold or is given away. In short, China measures their economy differently than we do so we really don't know what to make of the data or how to check the information the Communist Party is putting out. What we do know is that the massive monetary growth and rapidly increasing debt offers the real potential for an enormous destruction of capital. If the central planners can't contain things any better than we did, there could be some big and unforeseen surprises ahead.

There is ample evidence that China's massive monetary stimulus efforts are producing asset bubbles both within and outside China, much the same as Greenspan's policies did over the preceding decades. Does it not seem reasonable to assume that Bernanke and Geitner’s massive mega trillion dollar monetary expansion over the last year or so and $ trillion projected deficits for the next 10 years or so will, at the very least, also lead to a series of bursting bubbles?

After the fact, everyone is in agreement that cheap money, greed and government policies are responsible for the financial crisis that shook the financial world to its core. Has China somehow discovered the magic balance between fear and greed; easy and tight money; inflation and deflation; and Keynesian versus Austrian economic policy? Are we not bestowing a bit too much faith on the Chinese Communist Party? If they get it wrong and the Chinese economic miracle blows up, which way does money flow for safety? The U.S. dollar or Gold?

China, which only yesterday was the lowest per-capita consumer of Gold in the world, is bidding to become the biggest by encouraging its population to all own some Gold. Some analysts are convinced that it will pass India – the top dog since forever – as early as 2010 as the world’s largest owners of Gold. Clearly, China believes the country is strengthened if everyone holds some Gold.
Does this suggest that a mania for Gold is in the making, which is now only in its formative stages?

Any way that you look at it, we are entering intense times in the financial markets and a reality check for the monetary system that has brought great advantages to the United States since establishing the dollar as the world's reserve currency. With the U.S. Government creating an unfathomable amount of debt in a very short period of time and China growing increasingly nervous over American monetary policy; it is only a matter of time before we experience a severe inflationary period. Those in power might be able to manufacture one last rally for the dollar and correction for Gold, but each attempt seems to be dwindling in both its potency and stamina. The "Hucksters" are literally running out of ammunition. Reducing your exposure to the dollar and protecting your assets with a sensible allocation of Gold and Silver seems like an obvious minimum safety precaution at this time.