- The following missive encapsulates everything you need
to know. Please pass this along wherever there is interest.
- There are indeed a lot of things happening in the world
- and some have terrible consequences. The politicos are scheming intensely.
- I played a business game in university involving three
teams running three companies who were all competing to make the most profits.
The economic situation today mimics that game and its eventual outcome.
If one team made a mistake, invariably the other two teams turned against
it with blood in their eyes. We expected the other team to turn on
the weaker player and planned accordingly.
- In my humble opinion the following factors are particularly relevant
to today's economic situation:
- The fiat money system around the world is a house of
cards. There is no entity I know of that can borrow forever without paying
back someday. Disregarding Europe, (which seems to be suffering worse that
the US at the moment if you believe all the propaganda out there), I doubt
the amount borrowed by the US Feds - never mind the states and cities,
the corporates and individuals, will ever be paid back - and we are talking
trillions. (Remember that the Gross National Product of the USA is between
10 and 15 Trillion). Mother Nature has her own ways of extracting payment.
- When Central bankers around the world collude to save
something - be it the financial system, the dollar or whatever - they never
commit to such a process unless there is a clear and present danger. That
danger had to be recognized by all parties for them to take any action,
whatever the outcome.
- When the problems with our financial system became apparent,
countries started "diversifying" out of the US$. (Read "dumping"
it as quickly as possible without starting a panic.) Aside from the last
few days, which I attribute largely to "open market operations"
(read manipulation) and the fact that markets never go in a straight line,
the US$ has been slipping badly against all currencies, and the effort
to "diversify" has spread to nearly every country.
- The dollar is a forty pound weakling and the whole world
knows it. The dollar underpinned nearly every currency in the world (including
the Euro) and still does to a large extent despite the "diversification."
The clear and present danger affects all fiat currencies around the world.
- Governments have learned to distract others - particularly
their voters - from an issue by setting up a straw dummy and knocking it
down. In the case where the main thrust of some legislation would be roundly
condemned, they add one positively draconian measure as a dummy and give
it up to achieve all their other goals. What bigger distraction could there
be than WWIII, nuclear/biological/EMP style? I think the US set out to
distract their voters and the world from the financial problems by saber
rattling over Iran. War is not only hell, it is expensive.
- I think the US made a mistake. Russia recognized
the ploy and has taken advantage of it. In 1989, when the USSR went bankrupt
over the Cold War, the US was in bad financial shape as well. No war in
history has ever been settled until one or both of the protagonists went
- Since that time, Putin has been busy, particularly in
the oil patch, strengthening Russia's financial position. (I suspect he
now has FAR more reserves financially that the US which currently amounts
to only "the full faith" of the US and loans that are so large
as to frighten most of the holders of that paper.)
- The financial situation in the US continues to deteriorate.
Parties around the world are less likely to lend their winnings to the
US if they do not expect to get paid back, both in principle AND interest.
It may be argued that the US has a superior military to Russia. I don't
know. What I do know is that the care and feeding of that military costs
astronomical amounts. Will the US have to borrow from Russia in order to
challenge them militarily as they currently do with China in order to trade?
And then there is Afghanistan and Pakistan, two other quagmires. And who
knows what China, with vast financial reserves, is thinking?
- The US was busy steaming towards Iran and Georgia
- the latter a US-backed country which attacked South Ossetia, a Russian-backed
region. Within 24 hours, Russia had thousands of men and massive amounts
of equipment in Ossetia. You don't move that number of men and equipment
in 24 hours unless you are fully prepared to do so, and even then it is
difficult. It took many weeks for the US to move that amount of assets
during Desert Storm. Russia was prepared, for whatever reason, for that
attack. Ooops, suddenly the US is being attacked on another somewhat unprepared
flank. The US had prepared for a great show of distraction, and could it
be that Russia has other plans? Putin is not god but he is no dumbbell.
- The US is between a rock and a hard place. They have
wars on umpteen fronts and are trying to save their financial system which
they need to fight even one war. Despite all the happy news in the markets
of the last few days, the financial malaise is growing and not bottoming.
Not only that, but world supplies of oil are tight, and the US imports
at least two thirds of its oil. To maintain its world status and/or military,
the US needs Iraq, Iran, AND Georgia.
- I understand Mexico, a big supplier of oil, has just
become a net importer. Canada, the largest oil supplier to the US, has
conventional reserves that are dropping alarmingly. And despite its vast
oil sands, Canada can't expand oil production from this source very quickly.
(Oil sands extraction needs fresh water, and they are almost at the limit
- Moreover, if the West abandons Georgia, not only will
they lose that oil source, their weakness will be apparent for all to
see. And surely the other players in this game will turn on them. It is
Mother Nature' way.