It’s All Acrobatics Until Someone Hits the Ground

[Daveparts]

It’s All Acrobatics Until Someone Hits the Ground
By David Glenn Cox




I’ve gotten into the habit of watching the financial markets on TV. Infotainment at it’s finest. Just how many ways can you dance around the obvious? “Will $100.00 a barrel oil affect consumer spending?” Duh! Like Plato’s simile of the cave these experts view the world from the shadows on the wall ignoring the Technicolor reality.

They metaphorically ask, Who are you going to believe me or your own lying eyes? Their eyes have become adjusted to the flickering cave lights and steadfastly refuse blinking at the bright sunlight of reality. This from the Financial Times,

“The dollar’s relentless fall against major currencies has accelerated of late after the recent G7 meeting in Washington produced no statement from the US Treasury supporting the beleaguered currency. With the dollar on a downward slope since 2002, the latest bout of weakness has led to forecasts of continued dollar declines in 2008. We strongly disagree.

A major factor behind the dollar’s depreciation after 2001 was the fear that the surging current account deficit could not be financed indefinitely, and that a plummeting dollar was necessary to force American consumers to curtail their imports.”

Gee Mr. Wizard! Is the US account deficit larger or smaller now than it was in 2001? So the current account deficit can be financed indefinitely? Are you willing to lend me your strong currency so I can print more of my weak currency to pay off the loan with weak almost worthless dollars? I’ll take all you got! Sign me up Doc!


“However, recent data suggest the deficit is already shrinking. During the first eight months of 2007, US exports rose by 11.6 per cent, following up on a 12 per cent rise during the first eight months of 2006. Imports, on the other hand, rose by only 4.3 per cent during January-August 2007, slowing significantly from a 12.8 per cent pace during the same months of 2006.”

Take the above and pretend it’s your own household, you’ve sold your motorcycle and your jet ski to foreign owners who have been buying American businesses picking up bargains at the global yard sale with weak dollars. Imports on the other hand only rose by 4.3 percent or the rate of growth but because of the weak dollar foreign products are now much more expensive. Instead of buying a new Japanese car you will spend $1,000 per year on higher fuel costs. You see it’s all acrobatics until someone hits the ground.

There is a deafening sound of whistling past the graveyard on Wall Street. The Fed cut 50 basis points and it was looked upon as the resurrection but as it turned out it wasn’t a return to life but only a postponement of death. The second Fed rate cut of 25 basis points was greeted like a relative at the door; they were glad to seem them but feared the message they came to deliver. Each rate cut has the unintended affect of reinforcing the fear that it’s all going to pieces.

You can’t finance huge deficits forever, you can’t export high wage jobs and expect the domestic economy to remain sound. Most of all you can’t hide it and say it ain’t so and make excuses as to why blunders were acrobatics. A friend of mine worked in a plastics plant and he related the story to me of how each batch was made and then held until ready for production. If the chemicals were mixed improperly they would form a solid plastic in the pipes. Well, the third shift had made a batch of chemicals that was not up to snuff, it had made it through the pipes but was way below standards and would never pass quality control.

Rather than just taking their lumps they mixed the bad batch with a good batch. They assumed it would bring the poor batch up to standards but it did just the opposite it polluted both batches. The plant was shut down for maintenance and the operator was fired, not for the bad batch but for trying to mix it with a good batch and polluting every piece of equipment in the plant. Everything had to be disassembled and cleaned to make sure all the contamination was removed.

The Sub Prime credit mess in a nutshell but we can’t shut the economy down to clean out the contamination. Instead it lies buried like a hidden minefield, the CEO talk is upbeat and happy, come on we are going to have a big square dance here in the mine field the troubles are all over! Citi announces billions in write downs with, “Heck we make that in two quarters!” But the market is afraid of what you’re hiding not what you’re admitting and every word spoken to calm the fears only raises them. So dire is the situation Citi can’t find a new CEO, no one wants the job as Captain of the Titanic.

Back in the cave the shadows tell of things that appear unreal, people losing homes? You mean government figure could lie? The government statistics say unemployment is at 4.6% the Gather website with over 2500 votes asked are you unemployed? 13% said yes. Do you feel your job is secure? Only 20% said yes would the Bush administration lie about economic data? Lets ask the ancient Chinese fortune telling system I Cheng but lets ask the new and improved version I Cheng 1.43 trillion dollar version.

Mr. Cheng spoke to the National Peoples Congress and explained,

``We will favor stronger currencies over weaker ones, and will readjust accordingly,'' Cheng said in a speech before a conference in Beijing today. The dollar is ``losing its status as the world currency,'' Xu Jian, a central bank vice director, said at the same meeting.”

The Chinese Greenspan is making it clear to the markets that they’re not dancing to that tune anymore. So who will prop up the dollar? Who wants to try? Who gains by this? Maybe the message its throwing as shadows on the cave wall but that isn’t being understood. The US isn’t the center of the financial universe any more and why should good Capitalist lose money to help those Capitalists too stupid to even keep their own house in order. They’ve got our money they don’t want our debt they sell junk they don’t buy it.

The speed of the acceleration continues the dollar loses 25, 30, 35% now 45% against the Euro in the last five years. From $2.00 to the pound Sterling to $2.10 in thirty days a pace that cannot be maintained. You can call it what you will, disinflation is the term dejour, deflation has fallen out of favor, collapse is the classic term, the old trusted stand by. But on the financial infotainment networks it just acrobatics, it’s all acrobatics until some one hits the ground and that someone is us.