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Jim Cook



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 Doug Noland
April 9, 2009
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Doug NolandToday from the Los Angeles Times’ Don Lee: "Could the world’s currency of choice have the face of Mao Tse-tung on it, not George Washington? Quixotic or not, the Chinese are preparing for that day. In a series of what might be called baby steps, Chinese officials recently have moved to globalize the yuan and promote its influence overseas, with Shanghai designated as command central. Since last December, China has signed deals with six countries, including South Korea, Malaysia and most recently Argentina, for currency swaps that would inject Chinese money into foreign banking systems. That would allow foreign companies to pay for goods they import from China in yuan, bypassing the dollar… Beijing is also taking initiatives to use the yuan… to settle trade accounts between some Chinese provinces and neighboring states… ‘The central bank has set promoting the renminbi for payment settlements as the main task for this year’s work,’ said Shi Lei, an analyst… at Bank of China… China is also spreading the yuan’s influence in Asia by making loans and investments in other countries…"

The media and Internet are abuzz with commentary contrasting the declining U.S. position to that of China Rising. For the moment, my analytical focus is not in passing judgment on disconcerting secular trends. I’m instead trying to figure out the more immediate consequences of (moving-target) reflationary policymaking at home and abroad. Many analysts that focus primarily on the U.S. Credit system and economy see only an intractable deflationary spiral. Examining the incredible global policy and monetary backdrop, I see potential "firepower" that I do not want to dismiss or underestimate.

When the technology Bubble burst in 2000, there was an unappreciated fledgling Mortgage Finance Bubble poised to balloon to unimaginable extremes. I have theorized that a Global Government Finance Bubble today exerts a robust inflationary bias, counterbalancing the collapse of the Wall Street Bubble. The extent and duration of this ongoing "counterbalancing" is an open issue of great significance. I view the resuscitation of the IMF and World Bank as critical developments for the unfolding Government Finance Bubble thesis. I view the heightened role of the "Periphery" in global matters as supportive of global "reflation." And, most importantly, I view the dynamic of an increasingly assertive China as integral to global reflationary efforts.

Back in 2000, conventional thinking (including that of the Fed) was convinced the collapse of technology stocks equated to the bursting of THE U.S. Bubble. Similarly, today the bursting of the U.S. Bubble is thought to correspond with the bursting of Bubbles across the globe. Especially when one examines the horrendous numbers coming out of its export sector, it is reasonable to presume that China is intertwined in the U.S. bust. Yet it’s my view that China is in fact a historic Bubble – and that it may have commenced what may prove a powerful new phase of inflationary excess.

It is commonly appreciated that China has about $2 TN in reserves to go with its population of 1.3 billion. This alone provides China unprecedented reflationary capabilities. China also maintains a tight relationship between its banking system and government policymakers, and it is worth noting that recent reports have Chinese bank lending posting another eye-opening month of expansion ($234bn!). China is also now aggressively using currency swaps and other financing mechanisms to drive exports and trade, especially in Asia. There is also increased talk of the Chinese government providing global vendor financing for its major industries, a potentially huge development from both China and global perspectives. Clearly, if Chinese industrial policy seeks to elevate the status of key domestic industries, current global tumult provides quite a rare opportunity to press decidedly ahead. Moreover, if China moves to develop its northern region as it has developed the south, there is really no bounds to the amount of "money" that could be spent.

On a short-term basis, the Chinese are (as always) fixated on maintaining social stability. As an analyst, I have to presume this is constructive to reflationary policymaking –especially considering the extraordinary nature of today’s global financial and economic risks. To what extent longer-term ambitions of global power and influence also work to spur near-term Chinese stimulus is more difficult to gauge. But until I see something to convince me otherwise, I will assume that today’s global backdrop provides China an opportunity to focus on - and move forward with - its long-term objectives. In the age of synchronized global stimulus, I don’t see why China wouldn’t "compete" fiercely in such endeavors as well. And I believe this dynamic could very well prove a powerful force in spurring global reflation. History may look back at this week’s G20 meeting in London as a key inflection point. The "Core" is in shambles, yet the surprising development may turn out to be the Periphery Rising (inflating).

Doug Noland is a market strategist at Prudent Bear Funds. Their website is