China Pulls the Plug

My last post was a tad pessimistic…I’m still of the same mind. Yesterday, I ran into a friend who owns a furniture business in town. In fact he owns several of them. He told me that shipping costs from China have just risen to $2900 per container up from $2000 a couple of months ago. This does not bode well for the world economy. The rising costs of transportation are making globalization an expensive proposition. However, this is the least of our problems.

In an official newspaper of the People’s Republic of China, Lau Nai-keung, pretty much repeated what I have been saying for quite a while. The most troubling aspect of this article is that it is the only truthful account of the current state of the U.S. Economy to be found. Read it, it is important.

“It is well known that the US is the world's biggest economy, taking up about 30 per cent of global GDP, but it is now also the world's biggest debtor country. According to the most authoritative person on this subject, the US Comptroller General David Walker, who audits the federal government's books, the tab for the long-term promises the US Government has made to creditors, retirees, veterans and the poor amounts to US$43,000 billion, US$145,000 per US citizen, or US$350,000 for every full-time worker.”

Then she goes on to say…

“The US is now clearly in huge trouble, economically, socially, politically, and internationally. The Bush Administration bungled big in cyclone Katrina's aftermath in New Orleans, and then a minor rerun from Rita in Houston, and this will trigger the general outburst of people's dissatisfaction with the government, leading to great internal turmoil lasting for many years. In all likelihood, long-term interest rates are going to rise, and the greatest property bubble the world has witnessed is going to burst in the next one to two years.

The countdown is in progress, and there is no way that anybody can do anything to reverse it either by short-term measures such as fiscal and monetary policy, or through long-term reform of tax policy, entitlement programmes and even the entire federal budget. This is as inevitable as gravity, and it will take place under a new and inexperienced chairman of the Federal Reserve Board. I do not want to sound alarmist, but I see very bad omens.”

The cash out seems to be happening. World markets are markedly lower over the past two weeks and gold is going up. A crisis is nearing. The crash is probably going to happen in the next two weeks based on the bankruptcy of Delphi and the impact that it will have on GM stock. Imagine the financial crisis that occurs when GM announces it is bankrupt next week. This article outlines some of the larger implications.

What is going to happen...what is going to be the open calalyst for the fall?

We got a problem...

I’m getting increasingly nervous about the world my kids and grandchildren are going to be living in. In my darkest moments, the question about survival enters my mind. This has not been a good three months for the United States of America. Our weakness has been exposed and the realization of something being terribly wrong is entering everyone’s consciousness. This summer the rise in oil prices was dramatic. I’m glad I saw that one coming but what interests me is way these events are being used to support a more overt move to authoritanism.

During the beginning of the French Revolution, there was a complete lack of recognition by the elites that the taxes and social policy of the government had gotten out of hand. Moreover, the inability of the leadership to deal with several poor grain harvests and the environment was ripe for social upheaval and chaos. Economic and political trends are accelerated by exogenous events and not driven by them. The 2001 fall in financial markets was not driven by 9-11—the bubble had already burst by then, the trend down just accelerated. This summer gas and oil prices were already going higher, the hurricanes just sped up the price rise. China and India demand rise combined with production decline and coupled with lack of refinery capacity sent gas over $3.50 a gallon. It will not be a couple of years if ever that gas falls below $2.00 a gallon. The era of stagnation is upon us for a while.

A budget deficit that was huge before this new ½ trillion bailout will now be enormous. Who in their right mind would ever want to by US T-bills in this situation? Was there ever a time when a economic collapse was more likely to occur? I think not. I ran into an old friend of mine who owns a car dealership. He told me that no one is buying and that people are hunkered down and scared. Auto sales are down. Can you blame the people for not wanting to buy a SUV or truck given $3.00 gas? Just wait until winter; unless consumption falls dramatically we are going see shortages in gas and possibly heating oil. The prices of both are going sky high. What will be the people’s attitude when it hit $5.00 a gallon? Lots of debt and falling demand to not bode well for a market where the P/E is in the 50's

As if that were not enough to worry about, we now have H5N1... Not much needs to be said about that….just the building feeling of paranoia and fear. When does the next terror attack happen? Will there be enough fuel to heat the house over the winter? What happens it I get sick? Will my kids be safe in the city? Will my job exist this spring.

Fear is the watchword in the United States of America and I cannot trust that the leadership in this country is doing what is best for the greatest number rather then the privileged few. Yesterday, the President bridged the idea of using military troops to quarantine cities in the event of a pandemic. That means martial law. Sorry, I just do not trust a president with a below 40% approval rating and a penchant for lying, about Miers being the “the best person I could find for the Supreme Court” or “Iraq has weapons of mass destruction,” not to take advantage of the situation and further gut our civil liberties. Such an unpopular leader whose political party controls all the branches of government has absolute and unchecked power. I doubt if he will use this for the better of all of us rather then his select friends. The worst decision I ever made was voting for that guy back in 2000. A great leader would talk to us around the fireside, level with the people, and call for sacrifice. Bush, with that little smirk on his face, is asking that we "trust" him. I don't.

There is very little we can do right now other then watch our own backs. However, I'm open to suggestions...