Friday, November 12, 2010

Tension Heighten as the G-20 Approaches

Been awhile since I did 3 posts.  Anyways, I wanted to put this pic up that I got from a friend as we approach the G-20 summit:

Let me be the first to apologize if I offended anyone with this pic!  However, I must admit it made me laugh out loud.

I started thinking about our crazy world after looking at this, and it left me wondering how the G-20 could  possibly could go well given the variety of cultures and economic problems. 

Tensions between the US and China at the meeting are already leaking out:

"UK sources say that officials from the UK, France and Russia had to be called in the early hours of this morning after "fractious" negotiations between China and the US broke down in "acrimony".

My Take:

I expect the tension is much worse behind the scenes than we'll ever know.  After all, the world economy and financial supremacy hang in the balance.  When the meeting ends they will put some lipstick on this G-20 pig and claim that they made great strides in balancing out the global economy.

This will be a bunch of bull of course.  As this economic catastrophe plays out, everyone will look out for themselves in the end.  The problem is everyone has different self interests and in other instances the SAME interests.

China needs a cheap currency and strong demand from the US consumer in order to drive their economy.  The US on the other hand needs the same because their consumer is toast.  Therefore, we need to turn the tables and start selling to their consumers.  China no likey on that idea.  They want it all ala Scarface.

In other words, the USA needs stronger exports, and will try and cheapen it's currency in order to try and turn the economy around.  This is a direct conflict with China's interests.

Europe has the same interests as the US because their consumers are dead as well.  One difference is they are also attempting severe austerity which appears to be stirring up the masses as they tire of being broke and jobless.  This is putting severe pressure on the European leaders to turn things around fast.

The bottom lin here I don't see how this ends well.  As things deteriorate and countries become more desperate for jobs and growth, andthey will become more aggressive towards other nations in order to save themselves.

I can see the blame game talking points already:

The US will start to complain that they are tired of "carrying" the world on it's financial shoulders. 

China will complain about the cheapening dollar because it creates crippling inflation for them and the rest of the world.

Europe will tire of our quantitative easing because they already understand from experience that it's a failed policy.  They will start sable rattling with negative rhetoric aimed at the Fed to stop the insane spending.

Japan will rapidly start complaining about China's currency manipulations as the  Yen continues to rise.  This is crippling their export based economy and it puts them at risk of default as a result of their debt to GDP of 200%.

Japan will not be alone when it comes to debt problems.  The US, and Europe will both have to deal with severe debt crisis that will eventually force a slashing of spending.  this will then trigger another worldwide slowdown. 


Don't think that the spending will stop over here?  Just wait.  The Fed took it on the chin in treasuries today, and if the bond market continues to fight QE then they will eventually be forced to stop because higher rates would destroy their ability to spend.

Austerity is coming folks.  Start saving.  NOW.  We may have to suffer through QE 3,4, and 5 before we get there but the "easy money" days will end at some point.  After seeing the bond markets reaction today to QE2, it may be a lot sooner then we think especially with the Republicans now controlling the house.

The Bottom Line

The G-20 should be interesting.  I expect a giant hand holding smiley fest on worldwide TV on Sunday as they tell us how well they are working together in response to the financial crisis.

Meanwhile, behind closed doors, they are having bare knuckled fist fights as they blame each other for creating this mess. 

I bet some huge finance minister from Germany has already picked up Turbo Timmy by his ears and threatened to throw him out the window if he doesn't stop spending!

Pay attention to the news this weekend.  Also, watch out for a Chinese rate hike.  I sold 40% of my silver today as I said earlier.  If China hikes I expect to see a sell off in commodities and treasuries.

Stocks are also very vulnerable here especially if Ireland becomes the newest Iceland.


Herb said...

Damn that Madagascar!

Jeff said...

lol..I loved that map