Collapse of the Global Economy

Warning Signs of Full Spectrum Collapse Are Everywhere

May 31, 2010

Neithercorp Press

... China has had trillions of dollars in currency reserves which help create the trade deficit that allows their industrial based export economy to thrive. Why would they want to issue bonds in their own currency, increasing the value of the Yuan and ending their trade advantage? Because China’s goal is to convert its billion citizen society into an import and consumption hub while making the RMB, or the Yuan, a reserve currency to rival the Euro and the Dollar.

Indeed, these bonds are meant to strengthen the Yuan, increase its prominence as a reserve currency, and eventually allow China to break from U.S. treasuries entirely. It is also possible that the valuation of the Yuan could make it eligible for inclusion in the IMF’s Special Drawing Rights basket currency, a goal China has openly expressed:

http://www.reuters.com/article/idUSTRE6250LC20100306

China has strengthened ties with Indian markets, African markets, and formed the ASEAN trading block. ASEAN is now attempting to “unite” with the European Union in order to “combat” the global financial crisis:

http://english.peopledaily.com.cn/90001/90777/90856/7001488.html

Every single action by China in the past two years indicates that they are not only preparing to break with the U.S., but that they are ready to do so today if they preferred. The bottom line is this: China wants reserve status for the Yuan, and China wants the Greenback replaced as the world reserve currency. When China de-pegs the Yuan from the Dollar, they will begin dumping whatever U.S. treasuries they still hold, allowing the Yuan to strengthen and the Dollar to fall. This will be a disaster for the U.S. economy, and it could conceivably happen before the end of this year.

Not far off the coast of China, Japan has found itself in dire straights. Still clinging to the traditional export relationship with the U.S., America is no longer consuming Japanese goods anywhere near the pace they were once accustomed. This has resulted in a deflationary spiral in Japan’s markets, as well as wages and wholesale prices of goods. Expect to hear much more about this before the end of 2010:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9.PG6nGY6_g&pos=5

The Japanese government has on several occasions suggested ending reliance on the U.S., and to discontinue purchases of U.S. Treasuries. They have also hinted at the possibility of fully joining China’s ASEAN trading bloc as a way to offset any damage done by breaking from American markets. The deflationary collapse in Japan is extremely hazardous and grows worse now with each passing month. Japan may soon have no other choice but to turn to ASEAN for trade support and end its relationship with the U.S. Once again, this move would bring calamity to American stocks and to our currency.

Brazil, a member of the BRIC group of nations along with China, is facing serious upheaval in its bond markets:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aUVznIauvQYg&pos=4

The Brazilian currency is also declining in a fashion much like the Euro, and their sovereign debt issues are becoming unmanageable. This in turn could lead to greater pressure from BRIC nations to push for a new reserve currency outside of the Dollar and the Euro.

These signals across the globe are like the swell of the tide just before the onslaught of a hurricane. If you know how to read the waters, then you know when its time to stop the beach party and run for cover.

American Market Signals

Though the infinite stimulus by the Federal Reserve and the skewing of statistics by government agencies like the Labor Department have lead the average American to believe a recovery is in the making, the fact is, our situation has only become worse since the initial collapse began in 2007. Most recent signs indicate we may soon return to the hyper-volatility we saw in the Dow back in 2008, but this time, the Dollar will follow the plunge of stocks instead of hedging against it.

Key measurements of credit instability are once again spiking, just as they were before the Dow plummeted out of control in 2008 ...

According to the Economic Policy Journal, 32 states are now technically bankrupt, and are borrowing money from the Federal Treasury just to keep up with unemployment benefits:

http://www.economicpolicyjournal.com/2010/05/32-states-have-borrowed-from-treasury.html

What we are looking at appears to be a snowballing implosion of municipal funding, starting small with cities and counties one by one filing for bankruptcy until a crescendo of debt default is reached, resulting in the breakdown of state governments, making them totally reliant on fiat from the Treasury and the Federal Reserve just to function. This is yet another opportunity for hyperinflation to fester.

We might think of corporations as international and not local, but since corporate chains now dominate local economy, it is important to consider them in a local light. Municipal Bonds are not the only train wreck in progress. As we mentioned above, corporate bond markets are also now frozen. This could lead to a whole host of financing issues for corporations, not to mention even more downsizing and job losses.

Wal-Mart is one example of a major corporate chain that is ingrained into the financial root of most communities (for good or ill), and it is also an example of a chain at risk:

http://money.cnn.com/2010/05/20/news/economy/consumer_retail_walmart.fortune/index.htm http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/7804784/Wal-Mart-to-create-500000-new-jobs.html

When the sales of a monstrous price undercutting consumer outlet like Wal-Mart start slipping, then we are in serious trouble.

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