Shenandoah

August 16, 2007

By John Galt

Twas the night before football
And all through the house,
Most Americans were stirring,
Even the mouse.

As we screamed Go Bucs
While others “go Colts”
The stock markets were crashing
Because of the dolts.

As we chanted and sang,
A terror hit a guy named Chang,
As the something in Shangai
Went Boing and then Bang!

The markets were churning,
But we did not care,
Kudlow was crowing,
”Don’t worry Ben’s there!”

Then all of the sudden,
With a violent thrash,
The speculative bubble
In China did crash.

This horrible poetry sounds like a far fetched story out of a Tim Burton movie, yet tonight it is not. There is an 800 lb. gorilla blocking the America citizen’s view of the television, yet most just figure it’s “summer programming” or Cramer forgot to shave. No, the Shanghai markets have not crashed. And no, the Yuan has not been revalued to par on the dollar either. That gorilla in the room is about to eat millions of people alive and beat the snot out of them, yet few dare to notice it on either Main Street or Wall Street. The thrashing of our markets continues to dominate the media worldwide, as the fears of the credit lockup will spread into a full fledged banking crash. The reality of this lockup should terrify everyone even more, because despite the fraud and Ponzi scheme perpetuated on the general public and most investors by the derivatives and housing fiasco, there is a larger problem ten thousand miles away that is being denied like a Bill Clinton midnight adventure when he was the original Governator.

A little background on this story is in order, first and foremost. For over five years now, we’ve been preached to about the “China miracle” which is neither Chinese in origin, nor much of a miracle economically speaking. It does not take a lot of effort to change an agrarian regressively authoritative economic structure into a semi-capitalist turn of the twentieth century robber baron fiefdom. The United States was determined at all costs, including it’s future, to keep labor cost structures down and exploit the larger more populated nation’s prospective future growth. If this meant sacrificing industrial production in our nation to stave off labor inflation and increase profitability, be it in any currency that was on a more solid basing than the dollar, then so be it. Article after article was being produced proclaiming proudly “see, they’ve changed” and of course my favorite line in almost every article “the introduction of capitalism will eventually lead to a democratic society” or words to that effect. The key phrase that pays, as usual, was ignored by the American public because it’s a dirty word which has been translated into meaning you’re a racist or redneck if you use it: Communist.

You see, the “Communist” Chinese Party has never had any intention of reducing it’s power, it’s reach, or it’s desire to have regional if not hemispheric domination at any cost. They attempted to use older methods based on the Soviet model for decades, but when the USSR faded into oblivion, it became painfully obvious that their methodology was flawed. Upon further review, they determined it was more logical to use our own greed as a weapon against us, and of course our banksters and robber barons said “dude, that rocks” and proceeded to outsource millions of jobs to benefit the Rust Belt so that plastic widgets at Chinamart would only cost 89 cents instead of costing 92 cents like they did when Americans made them. This logic of course was so flawed that our banksters could not just stop with widgets and weapon systems being outsourced to a nation which has nuclear missiles pointed at our cities, oh no, we could not stop there. Instead, we thought “let’s teach those good old boys in the Communist Party how to manage a stock market and make a big bubble there so we can all speculate and make a fortune.”

Needless to say, there is a huge Communist Chinese stock market bubble and the banksters made a fortune.

The consequences of their foolishness was not limited to the smog ridden shores of China or India, oh no, the Pirates had to set up hedge funds around the world to move unregulated monies about and pray that nothing went wrong. Well, guess what sparky? It’s gone wrong. The concept of creating a Communist Chinese economic machine at the expense of the American worker finally came home to roost when it was discovered that the former American factory worker now working two jobs, one at an Indian owned franchisee of a 7-11 store and the other stocking Communist Chinese goods at the local Chinamart overnight did not cover the “A” in the A.R.M. Suddenly it was discovered by the banksters that manipulating the government data to say there was not much inflation when there was and people choosing to eat and buy medicine for their children was more important than paying for their homes because in their minds the logic was that there was no way the government would ever let the banksters put them out on the streets. Theory A meet Result B. Whoops, they went on the streets, the cash flow stopped to the banks, and an asset appraised and estimated incorrectly plus all the derivatives on the original paper came crashing down. And now, as if this was not unforeseen, we have a major credit and liquidity crisis in the good old US of A, much like the late 1920’s. The difference this time is that we are the largest debtor nation in the history of capitalism and our currency is based on Ben Bernanke’s and the bankster’s whims as opposed to gold as our Constitution originally mandated.

So what does this have to do with the price of egg rolls in Nanking you may ask? Let’s take a look at the mitigating factors in the Communist Chinese economy which will cause much more pain than a Goldman Sachs hedge fund defaulting someday. The Communist Chinese have had it pointed out in numerous financial publications that they manipulate their stock market and have no clue about proper accounting practices or how to deal with every aspects of banking operations. They are sitting on about $1.3 trillion in their foreign currency reserves which is wonderful if you’re opening up a money laundering operation in the Cayman’s for government treasuries (whoops, did I say that?) but not so hot for the average Chinese citizen to open up dry cleaners on every street corner. The mania that everyone forgot about that is my nightmare scenario is setting up perfectly and Wall Street has less control over that than it does the housing fiasco they helped create here. The average Communist Chinese citizen was forced since birth to accept all edicts and teachings from the government as the gospel thanks to a rigid “this is it or you get shot” education system. Since the average Communist Chinaman has about as much experience running a capitalist economy as my cats do running a Bear Stearns hedge fund, they imported “help” to manage their economy. And it does not take much of a reach to figure out that the banksters were more than eager to create a speculative bubble there in exchange for selling out our industrial heart and soul.

“So get to the nightmare John” you scream futilely at your computer screen. Time, grasshopper, in good time. The problem is the same problem America experienced and in short order we can all discuss if this is a dangerous or correct assumption on my part. The banksters were so successful modeling the Chinese economy after the American 1920’s economic miracle that the nation has experienced huge growth if you can believe the figures published by a Communist Chinese government who learned how to calculate and publish government data from the same nation which has been publishing faulty and in some cases fraudulent government data for the last fifteen years (gulp!). The figures were so good, so beyond belief, that the average Chinese citizen decided that stocks were the only casino really worth playing because the Communist Party would never lie to it’s citizens and if you caught them in the lie, so what because if you talked about it, you would get a fair, speedy trial and hung like the Director of Quality Control for the Communist Chinese food exporting companies. The average citizen in Communist China discovered that what we did in the 1920’s was brilliant so they started taking out second and third mortgages on their homes, pawn loans on their vehicles and selling family members if they could get that burden off their backs and buy some more shares in companies who like to paint Barbie with lead based paints to poison those evil capitalist Americans. The perception created thanks to such brilliant souls that have brought you the Dot Com bubble and the Housing Bubble was the same one sold to Americans in 1928, 1986 and 1998; that markets can never go down as long as there is a “report” of economic growth coming from the government. Since our government is laden with the same rocket scientists who created the hedge fund Ponzi scheme, why should we doubt any reports coming from them, right? The Communist Chinese happily allowed their economy to be bubbled up and now are humming right along posting figures to make everyone happy, keep our banksters smiling, and our industrialists fleeing here for there without thought of the consequences here in America to their actions. So what could go wrong, right?

As with all Ponzi schemes, they eventually unwind. The greatest danger facing our markets right now, our economy, is not just the current credit crunch, that’s small potatoes compared to what could be on the horizon. The Communist Chinese speculative bubble is showing signs of bursting, but nobody wants to mention the thought. The shuddering in fear you here is in the back rooms of Wall Street where already they are trying to figure out how their Quant funds could possibly be in trouble when they hired the best video gamers in the world to insure that they would never lose money in their programs. The proverbial “whoops” is right around the corner. Assuming the Communist Chinese experience a correction in their markets of twenty-five percent, that would rattle our markets even further to the down side for several reasons, the least of which is that our hedge fund morons invested in a Communist country thinking they can manipulate people who have nuclear warheads pointed at their own offices. This correction could easily snowball into a full blown crash which would be a logical leap since the only way the Communists know how to control bad events is to shoot people or run them over with tanks. This would create a liquidity crisis at home as the average citizen in China would want their money immediately and almost all of them would try to sell all of their holdings at the same time. The safeguards that worked so well here in 1929 and 1987 will fail there as usual, and create a liquidity crisis in Communist China that will crash the U.S. Treasury market almost instantly. How? Simple. The Communists will not care what our banksters say and will insist that the Communist Chinese re-inflate their economy even though inflation is pretty rampant now. As opposed to that, they will dump their U.S. assets on to the world markets to raise cash and bring their Yuans home as they have seen what a wonderful job the hedge fund managers have done here and after watching our markets have figured out that our banksters are absolutely clueless. Once our Treasury market collapses, the nightmare crash there, will result in our markets tanking completely. And the stock market aspect is the small potatoes; my concerns are more with the debt markets imploding totally, bringing our entire economy to a grinding halt and into a full blown depression within twelve months.

The motto of this story? For the intelligent soul, I would have several months of salary set aside outside of the banking system. I would have several months more of salary in precious metals like gold or silver just in case it is finally revealed just how worthless our U.S. Dollar really is. This nightmare before kickoff does not have to happen, but every indication that the education we gave the Communist Chinese was too good. Unfortunately, we failed to educate them on how to manage the downside risks, as apparently everyone here has forgotten the consequences of speculative credit and equity bubbles that we have created throughout history also.