Looking to the future and planning to do the right thing is life and death. Yet we live in a country that does neither. On Friday, the other shoe fell off the cliff as Bush and his minions sneakily announced that Fannie Mae's investors are now getting $0.00 on their savings. All this money is being eliminated in order to 'save' US house buyers and bankers who did very, very foolish, stupid things when the sun was shining.
Former Hurricane Hanna has been pounding my mountain today and I spent the last three days rapidly rebuilding my roof for this storm. Finished just as the first drops began to fall. Understanding the weather is smart. Looking to the future and planning to do the right thing is life and death. Yet we live in a country that does neither. On Friday, the other shoe fell off the cliff as Bush and his minions sneakily announced that Fannie Mae's investors are now getting $0.00 on their savings. All this money is being eliminated in order to 'save' US house buyers and bankers who did very, very foolish, stupid things when the sun was shining.
As yet another massive sector of the US banking system crashes and sinks like so many Titanics in a sea of icy woes, we have crossed a major threshold: the US is bankrupt. We have just unilaterally told everyone who trusted us just last year, their trust is toast. This is no laughing matter: the buyers of these securities are not friendly, poorly-armed neighbors. They aren't countries we have conquered in the past. The holders of these securities are NUCLEAR ARMED and obviously, very angry about this.
Before we go into the ramifications of the future, we must look at the past. Here is my posting exactly one year ago and it is very, very pertinent to the news today:
We Think China Is Now Selling US Government Debt
The world banking collapse is continuing and so long as the G7 nations continue to attack China while begging Japan to continue the carry trade, the world banking system will continue to collapse. I wonder when they will all figure out that the US housing mess in California and Florida are NOT the cause of all this? Naw. Gold begins to climb as the central banks of the G7 continue to conjure up funny money by waving their wands and this means the attempts at saving the present system is causing...INFLATION. And even so, the wizards want to drop interest rates and so far, they can only do this for a week or so before it shoots up again? HAHAHA. They need to call me...I am free to advise them about reality.
OK: I said last 7/17/7, it being a medium magic number day, something has changed, the world banking system will now begin to sink under the weight of its own contradictions and China, pissed off at the G7 nations attacking only China while petting Japan, demanding China strenghten the yuan while begging Japan to weaken the yen, well, all hell was going to break lose and as I felt back then, it did! And far from being 'fixed,' it is much, much worse now! Also, for propaganda purposes, the head banks are lying about the causes of all this. Nothing concerning US housing has changed in the last year, it has been an obvious decline since November, 2005, and obviously related to the steady rise in interest rates launched by Greenspan because the price of oil has gone up since we went to war in Iraq.
Last summer, the International Monetary Fund and the G7 were continuously hounding China to raise the value of the yuan and to reform the way they do their banking. Interestingly, their method of banking is OLD FASHIONED. The people who should have been yelled at were the G7 bankers, not the Chinese! The people who set up a system that was now failing was not China, it was Europe and America! And above all, Japan.
People take it for granted that a country can have 0% or slightly higher interest rates while having raging inflation. And they can do this while the entire planet earth has much, much higher rates. Indeed, the US and Japan have been in a race to the interest rate bottom. Both want 0% financing because both are playing very nasty currency games with everyone on earth. The US public has been fed a lot of rank propaganda this last 5 years about all this. We like to think we are victims of currency value games. Instead, we are the leaders of the pack!
Instead of reining in the US which was spending money and begging for credit like there was no tomorrow, the IMF and the G7 all bent their wills to forcing China to do stupid things that were bad for China. This ended when the US and Europe orchestrated an uprising in Tibet right before the Olympics. Then, once that was squelched, the US and Europe spent the entire Olympics trying to earn the whine-a-thon gold medals.
I predicted last year, once the Olympics were over, everyone would throw down all pretense of cooperation and we would have all-out economic and maybe even military war. Of course, the US launched a strike against Russia DURING the Olympics. Now, both Russia and China have accepted the fact that the gloves are off and the resumption of the Cold War is at hand.
This is PURE INSANITY. The US was the world's strongest manufacturing base at the beginning of the Cold War. We had the world's strongest currency. We had the world's strongest military.
Now, we are a manufacturing midget. Boeing's workers, fed up with paying for inflation out of their pockets, worried about relentless outsourcing deals, are on strike. I would think the entire workforce in the US should be having a general strike. But up until this year, many working people thought gay men kissing was the number one issue.
Now on to today's startling news about the US selling bonds and then basically, telling our trade partners to eat dirt. We aren't paying them a penny. The papers they hold are worthless. The ramifications of this is obvious to me but obviously NOT obvious to the clowns who are now ripping off one of the biggest nuclear powers on earth, China.
Bloomberg - Treasury Secretary Henry Paulson met with regulators and executives of Fannie Mae and Freddie Mac today as the Bush administration prepared to announce a plan to prop up the firms hit by $14.9 billion in losses the past year.
The plan is likely to involve putting at least one of the companies under government control in a conservatorship, according to a person briefed on the discussions. The move may also result in changes in the leadership of Fannie and Freddie, said the person who spoke on condition of anonymity.
Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, said Newport Beach, California-based Pimco fund manager Bill Gross, in a Bloomberg Television interview.
The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion U.S. mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Federal Reserve provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.
The Marie Antoinettes in Washington think they can gaily say, 'Let the Chinese eat egg rolls!' and there will not be a billion nuclear armed, angry Chinese with pitchforks at the gates. The US thinks it can dump all responsibility for taking the losses of more than HALF of the world's biggest mortgage bond markets, on the Chinese! This is TOTALLY DEMENTED. Of course, the arrogant fools running America off the economic cliff are grinning from ear to ear.
'Ya, this will weaken China and maybe even bankrupt China,' spluttered Bush, smacking his lips. The room full of crazed neo-cons laughed. 'And we get to rip off the Saudi Arabians, too! And Iran! HAHAHA, even Russia!' Yes, dear readers, this is exactly what they are thinking. No fear and trembling.
When Bush and Cheney waltzed into the White House thanks to the corrupt US Supreme Court that ruled, the US public has no civil right to vote directly for President, the very first thing this desperado duo did was begin work on a complex of super-strong nuclear war shelters. I was tremendously alarmed.
In the past, whenever we were a cat's whisker away from total annihilation, the top government officials would lie about this. My father would warn us to be ready to flee while on TV, all the spokesmen would be talking about how things were under control and no one should evacuate the cities. When Kennedy was shot, all the jets at Davis Monthan Air Base in Tucson took off rapidly, one after the other. I was taught to run like hell for the hills whenever this happened so I bolted from my English class and ran past the principal and out into the hills, as fast as my 13 year old legs could carry me.
Deliberately bankrupting a military/trade rival is very dangerous. Especially since China can retaliate in international FX markets. And we get to wait with bated breath to see if the dollar will be worth the same as those worthless US mortgage bonds.
U.S. Rescue Seen at Hand for 2 Mortgage Giants
Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.
Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers.
A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets.
From the Chinese news media: Bank of China may hold huge US debt
Bank of China Ltd may own about $20 billion of debt issued by Fannie Mae and Freddie Mac, representing two-thirds of total holdings among the six largest Chinese banks, according to CLSA Ltd.
The Freddie Mac and Fannie Mae investments would amount to about 2.6 percent of total assets at Bank of China, the nation's third-biggest, CLSA analysts said yesterday in a note to clients. That compares with 0.09 percent at larger Industrial and Commercial Bank of China Ltd (ICBC), they said.
When France, Germany and England pushed the US banking system off the cliff in 1931, France would hike over here to exchange dollars for gold which they then hoarded in Paris. The Germans sharpened their swords so they could slit France's throat and steal all the gold being hoarded [I think there are many lessons to learn here!]. This time around, China is the creditor nation being savaged by bankrupt empires.
Since it looks increasingly that the US plans to simply let all the debts fail and thus, beggar OPEC as well as China, I foresee a union of sorts forming: just like we have the G7, we will have the Pissed Off Creditors Union. If enough economic powers are angry enough, they can band together and cut the US off from things like say, oil.
Main Bank of China Is in Need of Capital
It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac.
Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny capital base. The bank’s capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund.
Mr. Prasad said that during his trips to Beijing on behalf of the I.M.F., he had repeatedly cautioned China over the enormous scale of its holdings of American bonds, emphasizing that it left China vulnerable to losses from either a strengthening of the yuan or from a rise in American interest rates. When interest rates rise, the prices of bonds fall.
Bankers estimate that $1 trillion of China’s total foreign exchange reserves of $1.8 trillion are in American securities.
The US is seeking to destroy a trillion in Chinese savings. This is an extremely hostile, extremely provocative measure. And one that is not going to go the way we expect. When we skipped out on the monetary value of oil we bought with worthless dollars, the OPEC nations forced us to offer higher and higher interest rates to make up for the dying dollar. We couldn't simply make dollars cheaper and cheaper. We had to reimburse them for their losses or the oil would shut off. The US may imagine our military is very powerful and we can defy China, Russia and all of OPEC. This is pure insanity, of course.
Where are we going to get infinite credit if we stiff our creditors? Germany, England and France puzzled about this. Ah! The answer was for Germany to attack England and France and for England and France demand the US fund their empires totally, not partially. And to bleed to death for them, too. The US did this but we did it in order to rebuild our industrial base.
If anyone thinks we are moving towards that right now, they are nuts. And we must never forget, whatever factories we build will be only targets for MIRV nuclear warheads raining from the skies. Some solution! One that would make Hitler proud.
By Elaine Meinel Supkis
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