“Chimerica Headed For Divorce” -- a hard rain is coming

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Never a disappointing read – Russell has never lost site of the big picture despite the rapid short-term gyrations in the market. If you’re not a subscriber of the Dow Theory Newsletters I highly recommend it:

Niall Ferguson, MA, D.Phil., is Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor of Business Administration at Harvard Business School. He is also a Senior Research Fellow at Jesus College, Oxford University, and a Senior Fellow at the Hoover Institution, Stanford University.

I want to include a few paragraphs from a most important article by the brilliant Niall Ferguson, author of “The Ascent of Money, A Financial History of the world.” Ferguson’s article is about the coming “divorce” between the US and China. I believe the future of the world will revolve around the relationship of US and China. The Ferguson article appeared in Newsweek magazine (Aug. 21) and is entitled, “Chimerica Is Headed For Divorce.”

And I quote –

“Let’s look at the numbers. China’s holding of US Treasuries rose to $801.5 billion in May, an increase of 5% from the $763.5 billion in April. Call it $40 billion a month. And let’s imagine the Chinese do that every month through this fiscal year. That would be a credit line to the US government of $480 billion. Given that the total US deficit is forecast to be about $2 trillion, that means the Chinese may finance less than a quarter of total Federal-government borrowing — whereas a few years ago they were financing virtually the whole deficit.

“The trouble is that the Chinese clearly feel they have enough US government bonds. Their great anxiety is that the Obama administration’s very lax fiscal policy, plus the Federal Reserve’s policy of quantitative easing (in laymen’s terms, printing money) are going to cause one of two things to happen: the price of US bonds could fall and/or the purchasing power of the dollar could fall. Either way, the Chinese lose. Their current strategy is to shift their purchases to the short end of the yield curve, buying Treasury bills instead of 10-year bonds. But that doesn’t address the currency risk. In a best-selling book titled Currency Wars, Chinese economist Song Hongbing warned that the US has a bad habit of stiffing its creditors by letting the dollar slide. This, he points out, is what happened to the Japanese in the 1980s. First their currency strengthened against the dollar. Then their economy tanked.

“What is China’s alternative if it seeks a divorce from America? Call it the empire option. Instead of continuing in this unhappy marriage, the Chinese can go it alone, counting on their growing economic might (according to Goldman Sachs, China’s GDP could equal that of the US by 2027) to buy them global power in their own right. In some ways, they’ve already begun doing this. Their naval strategy clearly implies a challenge to US hegemony in the Asia-Pacific region. Their investments in African minerals and infrastructure look distinctly imperial too. And now the official line from Prime Minister Wen Jiaobao is to hasten the implementation of our ‘going out’ strategy and combine the utilization of foreign-exchange reserves with the ‘going out’ of our enterprises. That sounds like a Chinese campaign to buy foreign assets — exchanging dodgy dollars for copper mines.”

Russell Comment — I believe the above is a brilliant look at our international future. No nation (the US) can be both the world’s leader and world’s biggest debtor. In his fight to thwart the bear market, Bernanke is sowing the seeds for the future demise of the United States. The law of unintended consequences is about to become operative.

A huge problem ahead is this — will the dollar decline slowly, as it has been doing, or will the dollar crash, setting off a world crisis?

Prediction – Where ever you are now will be your best situation for years to come. The trick ahead will be to hold on to what you have. I’ve been warning that a “hard rain is a’coming.” So far, we’ve only experienced a drizzle.

Source

Workplace Suicides Skyrocket

Workplace suicides rose 28 percent in 2008 from the year before according to the U.S. Labor Department reports. And according to a December 2008 study in the American Journal of Preventive Medicine, white people age 40 to 64 have "recently emerged as a new high-risk group for suicide."

Susan Baker, M.P.H., of the Johns Hopkins Bloomberg School of Public Health in Baltimore, told CNN the reason for the increase is unknown. But if economic conditions continue to decline, suicides could go up. "This is a concern, especially when one looks at the high rates during the Great Depression," says Baker.

Seetal Dodd, Ph.D., a senior fellow at the University of Melbourne in Australia, has found that suicide rates tend to fluctuate with the economic trends -- at least in men. The study is cause for concern, Dodd says, because it identifies middle-aged white men as the new high-risk group for suicide -- the same section of the population at risk for suicide during an economic downturn.

"There is a considerable risk that the current economic situation may result in a further spike in the suicide rate for men of working age, especially if we start to see an increase in unemployment and a decrease in housing affordability and consumer sentiment," Dodd says.

"We ordinarily experience much, much higher rates of suicide during times of recession," says M. Harvey Brenner, professor of public health at the University of North Texas Health Science Center and Johns Hopkins University in Baltimore, Maryland.

Brenner adds that what makes this recession different is that the very wealthy -- who are generally insulated from financial worries -- have taken a huge hit, and they have further to fall.

"You would think these people have such wonderful lives," says Brenner, full of private jets, luxury homes and the best of anything that money can buy. "Yet they are capable of losing much more, because they have so much more."

According to Alpha Galileo, a research news publication, investigators at London School of Hygiene & Tropical Medicine and Oxford University estimated that soaring stress brought on by job losses could prompt a rise in suicide rates in people under-64 years of age, a rise in heart attack deaths in men between 30 and 44 years, and a rise in homicides rates, corresponding to thousands of deaths in European Union countries, such as the UK.

Professor Martin McKee, one of the report's authors noted that "Suicides are just the tip of the iceberg - rising suicide rates are a sign of many failed suicide attempts and high levels of mental distress among workers and families."

Prepare For Rash of Murders, Suicides, Civil Unrest

USA Today reports the number of police officers killed in the line of duty increased 20% during the first six months of 2009 compared with last year. All categories of officer deaths in the U.S. are up in 2009, including those killed by gunfire.

Steve McNair's girlfriend had mounting debts that included payments on a Cadillac Escalade, and LaToya Jackson is claiming Michael Jackson was murdered for his money.

European researchers have concluded what many of us already new, murders and suicides spike with unemployment.

"The scientists, who combed through almost four decades of European Union records," reports Bloomberg, "found that a 1 percent increase in joblessness brings about a 0.8 percent rise in suicide and murder rates. The global economy is now in its deepest recession since World War II, with the Organization for Economic Cooperation and Development predicting the output of its 30 members will shrink 4.1 percent this year. The slump has pushed unemployment to its highest since 1983 in the U.S. and the most in a decade in the 16 nations that use the euro.

“The effects of a financial crisis depend crucially on how governments chose to respond,” lead researcher David Stuckler of Oxford University said in a telephone interview. “Suicides are just the tip of the iceberg,” Stuckler said. “We can’t measure all the emotional distress. There is much more going on in the background in terms of human suffering.”

"When the social security system is less extensive, unemployment is a more probable mediator between mental illness and suicide," said Dr. Andreas Lundin and Dr. Tomas Hemmingsson, of the Karolinska Institutet, Stockholm, Sweden. "A related concern is that fear and anxiety in the present crisis could be particularly long-lasting; even when the market recovers, people's worries and associated behaviors might not."

Even as far back as March of this year, Christian Science Monitor's Patrik Jonsson considered the mounting violence when he wrote about four Oakland, Calif., police officers who were shot down; an Alabama man strolling a small town with a rifle looking for victims; seven elderly people shot dead at a North Carolina nursing home; and six people, including four kids, who died in an apparent murder-suicide in an upscale neighborhood in Santa Clara, California.

"Most of these mass killings are precipitated by some catastrophic loss, and when the economy goes south, there are simply more of these losses," says Jack Levin, a noted criminologist at Northeastern University in Boston.

Criminologists say that certain kinds of violent crimes have risen during specific economic downturns. The recession in the early 1990s "saw a dramatic increase in workplace violence committed by vengeful ex-workers who decided to come back and get even with their boss and their co-workers through the barrel of an AK-47," Mr. Levin says.

Jonsson covers a study released in Florida which links domestic violence and job loss and foreclosures. The study claims Florida saw an almost 40 percent jump in demand for domestic-violence centers, an increase related to the state of the economy.

Jonsson's piece also directs our attention to the link between murder-suicides and the economy and a study by the Violence Policy Center in Washington. "We've been looking at this issue of whether there are more murder-suicides … [and] a pattern is starting to develop that may point in that direction," says Kristen Rand, legislative director at the center. "Between the Texas Tower shootings in the 1960s until the McDonald's massacre in 1984, it was extremely rare to see these types of mass shootings. Now we're seeing them much more often, and they do seem to happen in spurts."

Since we already live in a violent world, it's easy to dismiss the news reports of murders and suicides as isolated incidents unrelated to Depression 2.0 -- even as the violence multiplies before our eyes.

And we're just getting started. Unemployment will continue to rise to unprecedented levels. In the US, record numbers are receiving Food Stamps, and the welfare rolls continue to swell as state after state will follow California's lead into bankruptcy. The picture becomes even more chilling when you consider that each day more and more of the unemployed run out of their extended unemployment benefits. When all the benefits run out, the states go broke, and the US defaults, then what?