| The Halloween Party That Destroyed America's Currency | ||
| By Jeff Clark | ||
| Tuesday, October 26, 2010 |
"Great. Get in here, then." The Mad Hatter ushers them all into a huddle. Everyone puts their right hands in.
"OK, let's hear it. QE2, on three. One… two… three… "
"Q! E! 2!"
The shout rattles the windows of the Oval Office and startles the guests out in the waiting room. They're bobbing for apples and complimenting the Queen of Hearts on how lovely she looks.
"Let's get back to the party," laughs the Mad Hatter. All the costumed figures leave smiling and snickering with a degree of confidence lacking at the meeting's start two hours earlier…
Two hours earlier…
"This can't be happening." The Mad Hatter slammed his fist down on the desk and pointed a trembling finger toward the clown hiding behind the flag in the corner. "This is all your fault," yelled the Hatter. "You had this problem before I even got here."
The clown shrugged his shoulders, honked his nose, and squirted water from the small American flag pinned to his lapel.
"Come on people," the Mad Hatter turned to address the rest of the room. "The election is in three weeks. We need to get the American people on board with us or we're all screwed. Any ideas?"
The donkey in the middle of the room raised his hoof.
"Whatcha got, Harry?" asked the Hatter. "It's the first idea you've had since you were elected to the Senate 26 years ago. So make it good."
"Sorry, sir," said the donkey. "I just need to go to the bathroom." He trotted out the door and never returned.
"I have an idea," blurted a round-faced, mustached gentleman dressed like Dorothy from the Wizard of Oz. "Let's do the helicopter drop thing again. This time, though, instead of dropping all the money on Wall Street, we can fly over other parts of the country so the money actually makes its way into the economy."
The room erupted in laughter.
"Ben," said the Mad Hatter, "you're a moron. We're not in Kansas anymore. The whole idea is to get money into the pockets of the bankers. This foreclosure crisis is about to blow sky-high. If we don't find a way to bail them out soon, they'll never be able to finance our campaigns. We'll be booted out of office. We'll be stuck standing in line for food stamps like everybody else. Now, get with the program or I'll get rid of you… and your little dog, too."
Toto lifted his head and growled. But what could a little puppy do? He mumbled something about a strong dollar policy and then laid his head back down on Dorothy's lap.
"How many times do I have to tell you the same thing?" The Grim Reaper rose from the couch and waved his scythe at the crowd. "Never let a good crisis go to waste."
"It seems to me," he continued, "there's only one group the American people distrust more than the bankers."
"That may be true," interrupted a short, frumpy figure dressed as a scarecrow. "But how are we going to pin this on the Republicans? They're not even in power anymore."
"I'm not talking about the Republicans, Hillary," the Grim Reaper replied. "I'm talking about the Chinese."
"Ahh," the crowd sighed, recognizing the brilliance of the idea.
"They're currency manipulators!" barked Toto.
"That's right!" yelled the scarecrow. "And they dump their products onto our markets."
"That's right!" repeated a figure wearing a Dick Cheney mask. "And they dump their products onto our markets."
"For crying out loud, Joe," the Mad Hatter grumped. "Hillary just said that."
"Sorry, sir," Joe replied. "Force of habit."
"Rahm is right," said the Mad Hatter. "We can say all our problems are caused by China manipulating its currency. We'll tell them the only way to combat that threat and avoid another Great Depression is through another quantitative easing program. We'll give the new money to Fannie and Freddie. They'll buy up all the questionable mortgage-backed securities investors are threatening to force back on the banks. The banks will be off the hook. We'll get our campaign contributions. And we'll kick the ticking time bomb down the road another generation or two."
"Do you really think the American taxpayer will go for it?" asked Dorothy.
"Sure," replied the Hatter. "We'll just label the Chinese currency peg a 'financial weapon of mass destruction.' The taxpayer will let us do anything we want to after that. Right?"
The clown behind the flag shrugged his shoulders, honked his nose, and squirted water from the small American flag pinned to his lapel.
"Alrighty then," continued the Mad Hatter. "It's Q-E-2 on three. Ready? One… two…"
Best regards and good trading,
Jeff Clark
Jeff Clark
Casey Research LLC Senior Editor, Casey's Gold & Resource Report
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Taipan Daily: The Greenback Has Sucked All the Air out of the Room
by Adam Lass, Senior Editor, WaveStrength Options Weekly
by Adam Lass, Senior Editor, WaveStrength Options Weekly
I am desperate, friends -- absolutely hair-pulling, nail-biting desperate.
I set out today to write a column that didn't revolve around the Fed, the Treasury or the dollar. Lord knows you are probably as sick of hearing about these clowns as we are of writing about them.
But I just couldn't do it. Every meme I study, every thread I chase down, every story line I research -- they all seem to end at the same blind alley: the deliberate destruction of the greenback.
It's not that I am obsessed with five or six guys in suits (and gals -- let's be respectful of Ms. Yellen here) at a polished oak table in a marble hall in Washington, D.C. But the damn dollar has become THE focal point around which everything else swirls and turns right now.
A Better Mousetrap?
For example, I have on my desk several quarterly reports from American blue chip companies. Each purports that the company made substantially more money then analysts expected. And I must confess that in most cases, I was one of those analysts.
An example: Boeing (BA:NYSE) has yet to deliver its long-awaited flagship Dreamliner. It's been an incredible string of serious errors -- wings coming loose, engines catching fire, seats that didn't fit -- the sort of things that ought to doom a company's shares to a permanent position in the stock market's basement in a good economy, let alone an economy that has come to a virtual halt.
But Boeing's execs report that they have beaten Wall Street's dour estimates for the past quarter and are raising guidance going forward. How are they doing it? It's certainly not some new technical flight innovation -- the world's largest aerospace company has proven to be awful at innovation. Nor is it a dramatic reduction in assembly cost of existing designs -- no new build techniques to speak of, or a new agreement with line workers.
When you chase this story down, it turns out that incredibly cheap bonds have cut Boeings cost of capital, and the cheap dollar has made Boeing's planes easier to flog in overseas markets.
See, it all comes back to the damn Federal Reserve, which is intent on pumping ever-increasing gobs of dollars into the economy via the purchase of U.S. bonds.
The Easy Way to Beat the Street
Pick any bellwether you like: Caterpillar (CAT:NYSE), United Parcel Service (UPS:NYSE), Intel (INTC:NASDAQ) -- They've all beaten the Street via reduced capital costs and increased overseas sales.
UPS brags that it will bring in full-year profits of $3.54 a share, an improvement of some 5.6% over previous guesstimates. But not because of any major action happening around here. Stateside shipping is up some 3.6% in the third quarter, but UPS' international biz spiked 13%.
Heck, CAT is even talking about building factories again. (Not here, mind you, where it might help to reduce our semi-permanent 9.6% unemployment, but rather in target markets like Brazil and China, where labor is cheap and sales robust.)
But all of these gains are powered not by some sort of new product or method or such. Rather, it's all being driven by ever-cheaper capital and ever shrinking dollars -- the very facts I swore I would NOT write about again today.
Trading Away Intellectual Capital for Cheap Dollars
There ought to be no reason for a poor suffering columnist to write about these things. The shrinking dollar ought to be a non-story, for Pete's sake.
Didn't our own Treasury Secretary swear on a stack of bibles that the U.S. would never deliberately depress its currency in an effort to increase its competitive edge? And the Federal Reserve's own charter specifies protection of the currency as its primary task.
I really should be focused entirely on some new idea, a new medicine that extends our sanity deeper into our dotage, or the latest wrist videophone, or flying cars (one of my former boss' obsessions). Did you know, for instance, that a company in Colorado has invented a toothed polyurethane and carbon fiber belt to replace greasy old bicycle drive chains?
Or how about those companies that are creating all new "green" technologies that could transform how we live and work? Maybe they are real, or maybe they are bogus, but at least they are trotting out the ideas that can get a guy's juices going!
Smacked Down in Seoul
But then I read of an economic minister pontificating at the big G-20 confab in Seoul, South Korea, that the U.S.' "excessive permanent increase in money" was "an indirect manipulation of the [foreign exchange] rate."
One of our fiercer rivals like China or Russia? No, this rebuke came from Germany's Rainer Bruederle, an ostensible friend at the table, an ally whose own banks benefited hugely from Washington's trillion-dollar bailout of Wall Street.
One must keep in mind when reading of Minister Bruederle's castigation of our printing binge as "the wrong way to go" that Germany's economy is one of the high spots of the developed world right now. In point of fact, Bruederle's own ministry just announced upgraded forecasts for 2010 growth from 1.4% to 3.4%, so perhaps he knows of what he speaks.
And here I am, back to that same damn subject: interest rates, bonds, the Fed, the dollar. This is the poisoning I have spoken of so often. This what happens when Washington becomes so intrusive in our economic lives that it becomes the only genuine actor in the equation.
This is what happens when there is no air in the room, no intellectual capital nourishing new thoughts and inventions, just wise guys maneuvering for their piece of the government pie.
It is the Chairman of the (FOMC) Board's world now -- we just live in it.
Yours truly,
Adam
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