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Posted on August 14 at 6:38 p.m.
China’s government elected to peg the value of the Yuan to the US dollar some 15 years ago, which had the desired effect of keeping it unrealistically low. The cheap Yuan was compelling for US corporates to go “off shore” and manufacture products in China. US unemployment rose as our factory jobs vanished. Since China doesn’t import goods from the US it instead purchased our Treasury bills and bonds, lots of them, bringing their ownership to a staggering $1.160 Trillion in US debt. China’s purchase of all those Treasuries helped drive down US interest rates. So, we quickly discovered that we could still keep our “fat cat” lifestyles through borrowing. We could outspend our incomes by continually refinancing our home, while its value kept rising. This refinancing credit scheme kept US families spending rates high. This approach worked well, as long as China continued to buy Fannie Mae, Freddie Mac and our Treasury issues. Now that the topic has shifted to a lowered AA+ US debt rating, it's now becoming too risky to own US debt.
Though they gradually shifted from short term bills to longer term bonds, China now recognizes that it needs to divest its US “holdings”. If it does so aggressively, the US will feel an even tougher down economic cycle, possibly a financial collapse. China and the US have, in essence created a huge liquidity bubble, and increasing our debt ceiling just made it worse. Is there a viable, immediate solution……not really. The prudent approach would have China opening their markets, allowing the Yuan to float on the open market, and the US would need to significantly lower its deficit spending. A serious enactment of paying off the piles of debt should start the process of economic recovery, investor confidence and a return to a more robust, growth-oriented economy. This is the singular major issue facing the 2012 US Presidential candidates, and I have yet to hear any of them address it with a real world, viable solution, that includes Obama. The other concern is that the current administration has zero economic advisory guidance left, given that Romer, Wolfe, Summers, Volcker, Orszag, Bernstein, Goolsbee have all long departed. I must also admit that George Soros, not considered an economic advisor to Obama, reinforces this impeding economic vulnerability precisely. George cites the need to control asset bubbles as critical as controlling the actual money supply. “You must control the availability of credit. The best-known tools are margin requirements and minimum capital requirements. Currently, they are fixed irrespective of the market’s mood, because markets are not supposed to have moods. Yet they do, and the financial authorities need to vary margin and minimum capital requirements in order to control asset bubbles." A mutually agreed upon, prudent financial arrangement between the US and China would go a long way towards S&P's AAA rating return.Igor Sill, Santa Barbara, CA
On What's This AA+ on Your Report Card?
Posted on May 14 at 1:21 p.m.
Thankfully we're now able to clearly re-think this war and why we entered Afghanistan in the first place. Yes, its time to make good on those campaign promises. Let us not forget that UBL was not found in the battlefield but rather as a result of our re-invigorated, re-tuned and focused intelligence work. Similar tactics, along with specialized small forces will target the remaining terrorists, without the need for occupation of 100,000 troops on the ground. It’s time to leave Afghanistan as well as Iraq while continuing our efforts to provide advice and training to Afghans and Iraqis as they take responsibility for their own defenses. We’ve lost 1,564 American Warriors along with 11,657 wounded in Afghanistan alone. I'm hopeful that UBL's death will provide us with a well timed exit strategy and ability to unwind our military in both Afghanistan and Iraq, which would save us billions over the next decade--as well as the lives of our Warriors. We have spent some $3 trillion, that’s trillion with a “T”, since 9/11 on these wars. Withdrawal and peace will go a long way in cleaning up and re-balancing our economy and fiscal finances. My thanks to Senator Barbara Boxer for authoring the Redeployment of US Combat forces from Afghanistan Act, along with co-sponsor Senators Kirsten Gillibrand, Sherrod Brown and Dick Durbin. And of course, hat's off to the accuracy and integrity of our intelligence efforts, Leon Panetta's astute management, and the brilliant heroics of our Navy Seal warriors.
On Time to Make Good
Posted on August 7 at 5:26 p.m.
As a 50 year Californian, I‘m voting for Senator Boxer. She has worked tirelessly in getting the right things done for the people of California and America. She has earned my respect and deserves re-election. Better an experienced, capable, knowledgeable and highly effective fighter than a failed CEO with zero experience in legislative process. I’ve known Senator Barbara Boxer for several years and have followed her policies and legislative actions closely. As for Carly Fiorina, she has never held an elective office, and frankly, was not an effective CEO of HP as evidenced by its stock value during her controversial tenure. Barbara Boxer is well informed, respectful, committed, experienced and highly effective. Boxer is our best choice for Senator of California, and the best Senator for Americans.
Igor SillSanta Barbara
On Money Talks