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EScroogeJr (< 20)

How not to get crushed by Bernanke's printing press



November 19, 2007 – Comments (1)

Welcome to our "Lending Money to Subprime Governments" freshman course. While the course is still ongoing, the first semester grades have been posted. The students in this class are the governments, banks, corporations, and individuals across the globe, and the subprime government is the US government. By now, the Fed's intention to swindle foreign creditors by repaying its debt with useless dollar bills is clear to everybody, first of all to the foreign creditors who are being swindled. Surprisingly, despite our extensive lecture notes, we still have some D's and F's in our class. Apparently, some of our students are lacking the IQ to process the information.  Anyway, posted below are the letter grades for the semester.

Best in class: China

A loss is not a loss when you have made a voluntary decision to part with your dough. Accumulating a trillion dollars in its foreign currency reserves and sustaining effective losses of something like 100 bln a year is a sure way to appease the US government. For that, you get to keep your trade, you win the time you need to disentange your economy from the American economy, and you keep the foreign government- sponsored non-governmental organizations from interfering in your domestic policy. Grade: A+

Second-best: Russia

Our second-best grade goes to the KGB colonel. You instruct your government to accumulate a dollar-denominated reserve fund, while at the same time instructing your corporations to borrow more dollars than your government is hoarding. When the dollar plummets, your corporations, which is, for all practical purposes, your government under a different name, will make more money than your official government will lose. In the unlikely case the dollar stages a dead-cat rally, you instruct your corporations, which are nominally independent, to channel their assets to a safe place and announce a default on their liabilities, while your government is collecting its profits. A perfectly reasonable and practical way to deal with the deadbeat debtor like the Federal Reserve. Grade: A 

Exellent: Norway

No reason to accumulate worthless paper. Demand real assets such as stocks in exchange for your oil and hold them forever in your Future Generations Fund. Grade:A 

Very Good: Latin America

Letting your private sector accumulate dollar-denominated debt and thus developing your economy with little currency risk. Grade: A-

Pretty Good: India

Staying out of the game entirely. When you realize you're dealing with a debt cheat, a decision not to have any binding financial agreements is a pretty good strategy. Grade: B+

Good Enough: Eastern Europe

Printing more money to inflate their own asset bubbles, knowing that when viewed against the backdrop of the greenback, their currencies will still look strong enough. Watching approvingly as the population is dumping their dollars and switching to the native currencies. Grade: B  

Satisfactory: American investors

True, houses are often overvalued, but as long as your real estate investment allows you to get rid of the plummeting dollars on your checking account, you should still do OK. Grade: B

Satisfactory: Europe

Providing symbolic support for the dollar to keep the Americans happy. Just make sure that support is not too burdensome for your budget. Grade: B-

Mediocre: Japan

Supporting the dollar with all your resources for many decades in a row because you can't think of any better way to sustain your exports. Grade: C

Unsatisfactory: OPEC 

Warried about the dollar but continuing to accumulate worthless paper because they don't know any better. Grade: D

Failing: the American general public.

Let's close our eyes and pretend the dollar is not falling. I don't need to comment on this dismal performance. These people should not be in our class, but heck, they're paying for the course anyway, so let's just keep it that way. Grade: F 




1 Comments – Post Your Own

#1) On November 19, 2007 at 6:23 PM, abitare (29.91) wrote:

For morale:

Ron Paul owns Helicopter Ben Again: 

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