THE GLOBAL FINANCIAL DEATH SPIRAL?
By Kristie Pelletier and Michael S. Coffman, Ph.D
August 27, 2013
Part I—The Disintegration of the Global Financial Architecture
Beginning in 2009, Estonia…implemented real austerity through actual spending cuts and tax reform that did not aim to increase revenue in nominal terms from its pre-austerity level… This was not the result of an increased average tax burden, which had fallen by approximately 6 percent from the previous year…, but it was the result of economic growth, which had already reached 2.3 percent in 2010 and 7.6 percent in 2011. The problem with the U.K.—and the rest of Western Europe—is that government is squeezing more and more tax revenue out of a shrinking economy. Matthew Melchiorre, Competitive Enterprise Institute, May 7, 2013
Most American’s have been so focused on trying to make ends meet as the purchasing power of their paycheck rapidly declines that they have only been peripherally aware of what is happening in the world at large. They occasionally hear about the upheavals in Europe and that China is undertaking currency manipulations, but nothing that would really alarm them. They never hear that Japan is in meltdown. Nor do they know that the American taxpayer is paying trillions to keep Europe afloat, even though there are in-your-face examples of what to do to get out of the financial death spiral they are in. The American people are being kept ignorant to keep them from understanding that global events are increasingly threatening everything we take for granted – in a potentially devastating way.
Japan has taken the spending practices of the West and kicked it up to a whole new level. As of this year, they owe 250% of GDP in debt. Just like the U.S., they are trying to print their way out of trouble by firing up the currency printing presses. Over the past year, the value of the Yen has fallen almost 20%. All of this has caused the largest credit bubble in Japan’s history. All of this uncertainty and instability in Japan is causing a crisis in other countries of the region. Japan’s bond market is literally in meltdown threatening their solvency, while China is using smoke and mirrors to convince the world it is wildly prospering.
Fed up with what it sees as Washington’s debauching of the dollar, China is busily promoting the use of its own yuan as the reserve currency with nine other nations. GoldSilver.com writes: “Displacing the dollar, Beijing says, will reduce volatility in oil and commodity prices and belatedly erode the ‘exorbitant privilege’ the United States enjoys as the issuer of the reserve currency at the heart of a post-war international financial architecture it now sees as hopelessly outmoded.” No mention is made that if China is successful, it will make the U.S. dollar worthless.No mention is made that China has major debt problems of its own, as will be discussed in Part II of this Financial Death Spiral series.