krogias

There is a serious situation brewing that few people are talking about. This absolutely required a blog update. One of the most dramatic features of the economic landscape during the 1970s was the disruption of the Oil Shock. Today, people are misled to believe that this was THE cause of inflation in that disastrous decade but that is a long way from the truth. In reality, it was more of a reaction to inflation. LBJ's creation of the modern welfare state combined with his escalation in Vietnam put the US on the path of permanent debt. Accelerating inflation rapidly ensued for nearly a decade had already resulted in cumulative dollar inflation of over 50% before the Arab Oil Embargo and overnight tripling of prices. OPEC was using their market power and leverage to compensate for the falling value of the dollar and to get ahead of the galloping inflation our government and central bank had created. They noticed that they were being robbed via currency debasement and were in a posi...

note: This post was begun some time ago and the date-time stamp reflects the initial draft. The bulk of the data has been added since then. China: The Collapse Begins Chinese exports are collapsing and industrial activity with it. Recent reports suggest that they are experiencing mass factory shutdowns with owners and manager absconding. According to the BBC , migrant workers from rural areas are returning to their homes in the countryside en masse . Those watching the media would think that an shocking collapse came out of nowhere in the last few weeks. Readers of Financial Jenga have known that this was not just possible but virtually inevitable for many months. China could spend some of their dollars but they need to keep at least $1 trillion so the Yuan doesn't completely crash and burn. The interesting problem is the currency mismatch and "sterilization" issues. China's money supply growth is going to fall quickly as there will be fewer incoming dollars against ...

Today we turn our attention to China - certainly the most celebrated economy in the world today and possibly the most celebrated ever. Yet China's contemporary economy may be the most unbalanced in the history of the planet. The Problem Though it is hard to find reliable numbers, most sources agree that capital investment in China accounts for over 40% of GDP . Frankly, this is a terrifying and unprecedented number. For reference, Japan during their boom years was typically around 30% of GDP and never exceeded 35% for long. During the Roaring Twenties, fixed investment in the US economy averaged less than 20% . Looked at a bit differently, about 42% of China's economy is based on ------ the expansion of the economy. This creates tremendous momentum but also huge potential for disaster. Essentially, everything will be fine as long as everyone there believes the economy will continue to expand at a breakneck pace and invests accordingly. This is virtually the definition o...

(editor's note - This blog entry was completed and posted on July 4. The entry date is showing as July 1, as the software uses the date on which the first draft was saved.) Marc Faber was on Bloomberg TV today and he mentioned that the higher reported consumer inflation rates in Asia were a function of lower per capita GDP and a higher proportion of income spent on food and fuel - which are nearly the only prices that are rising aggressively. Common sense right? But of course that really made me start thinking - always a dangerous prospect. Asia, Inc. So Asia's consumer "basket" looks a lot different than that of the average American or Western European. But there are other differences as well. Many Asian nations are resource-poor, major importers of either food, raw materials or both and they depend upon exports of manufactured goods to pay for those imports. Now, let's look at the situation from a slightly different perspective. The industrial sectors of Asian ...