Baseball91's Weblog

February 6, 2010

Don’t Ask, Don’t Tell: Politics Around the World in 2010

Perhaps to avoid protesters, representatives of the G-7 nations have gone to a city of 7,000 near the Arctic Circle to discuss, among other things, Greek debt and China’s currency. With only 300 available hotel rooms, 500 members of the global financial community, including U.S. Treasury Secretary Timothy Geithner and Britain’s Alistair Darling, gather as the euro has fallen from a mid-January $1.44 to $1.36 on February 5th, with risk of further blow up with concerns over the weak finances of other euro-zone countries of Spain and Portugal. Global warming is not on the agenda. The Greek finance minister admitted that the nation could not keep paying 10-year bonds at 3.96 percentage points more than German debt. Concern was whether Greece will be able to pass its budget, which proposes drastic cuts and huge public sector lay-offs, after riots last year and with huge national strikes scheduled for the coming months. The worries about the solvency of Greece involves high deficits, fake budget figures, and low growth.

Government levies taxes not to finance its operations, but to give value to its fiat money as sovereign credit instruments. This meeting was all about the value of currency. With the return of global growth, with China leading the world recovery, Timothy Geithner is expected to bring up the yuan which China has re-pegged to the dollar. By the end of Mr. Obama’s first term in office, the strength of the yuan might change world economic history. With China holding over $1.3 trillion in Treasury debt of the $2.5 trillion U. S. Treasury debt, and a weakening U.S. Dollar as Foreign Reserve Currency, there is the fear China will replace the dollar as the main foreign reserves. A unified G7 position may strengthen Geithner’s position in discussing trade with Chinese officials next summer.

James Chanos is a hedge fund investor who is warning that China’s hyper-stimulated economy, with its own surging real estate sector, buoyed by a flood of speculative capital, looks like Dubai “times 1,000 — or worse,” and is headed for a crash. Rather than the sustained boom that most economists predict, as America’s pre-eminent short-seller, Chanos suspects that Beijing is cooking its books, and faking its eye-popping growth rates of more than 8 percent. The New York Times ran a story on Chanos on January 7, 2010, which include his own record of predicting Enron’s demise, spotting problems at Tyco International, “the Boston Market restaurant chain, home builders, and some of the world’s biggest banks.” His hedge fund is Kynikos Associates.

Economic unification and continued political independence of nation states, write Floyd Norris in the New York Times, was what was fueling this crisis of identity for the European Union. It was what also was causing a lot of divorces in individual homes around the world.

With major banks on the hook for much of the debt, Greece owes the world $300 billion. Helping Greece meet Europe’s deficit rules in 2001, just after admittance to European Union, Goldman Sachs helped the Greek government hide from public view a transaction treated as a currency trade rather than a loan, as Greece quietly borrow billions. With the help from the wizards of Wall Street, Greece engaged in an effort for the past ten years to skirt European debt limits. Before Greece became the center of recent global financial anxiety, which had been predicted since at least the new year of 2009, records show that representatives from Goldman Sachs arrived in Greece in November 2009 proposing to obscure billions in debt from the European Union budget lords, aiding in search to forestall a Greek day of reckoning. he offer to the government struggling to pay its bills was rejected. In deals in Italy and in Greece, banks had previously provided funding upfront in return for rights to airport fees and lottery proceeds through 2019, with those liabilities then left off the books.

There was a monetary arms race going on. Everywhere. China’s currency reserves of $2.4 trillion is a bubble all its own, which is actually an Asia-wide phenomenon.

The reserve bubble was a monetary arms race that, for the world, was not a source of strength, though China was rescuing nations, trying to win friends among nations in need. One pundit noted that the state asset managers in China have replaced the PIMCO funds as well as the World Monetary Fund as a source of aid packages, without the prerequisites that used to come with the money. The air in the bubble, this vacuum, would eventually lead to more suffering than the people in an earthquake nation has seen in recent weeks, when the ground gives way.

Unification and continued political independence. Television with its sponsors was not doing a very good job bringing the entire story to the mass audience.

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1 Comment »

  1. Comment by baseball91 — April 20, 2012 @ 5:00 AM | Reply


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