Submitted by Tyler Durden on 06/23/2012 12:23 -0400
The following extract from Charles Gave's (of GaveKal ) latest letter to clients is a must read for all, especially for the central planning members of the FOMC. The punchline is this statement which is so simple and obvious, it is no wonder virtually noone in control has figured it out yet: "One Cannot Operate A Capitalist System If The State Can Borrow At A Negative Cost."
From GaveKal Research: Obsessed by Negative Real Rates
Deflation and crisis
Consumption bubbles fuelled by negative real rates always contain the seeds of their own destruction. Debt levels get too high and force household deleveraging; meanwhile the currency falls, which improves competitiveness in the global marketplace. The combined effect is a narrowing of the current account deficit. When the world’s reservecurrency nation experiences such a narrowing, the supply of dollars outside of the US falls, and inevitably catches some countries out.
The best way to look at global dollar supply is to remove China and oil from the US current account balance; this is because of the incredible competitiveness of China, and the scarcity-value of oil producers. Excluding oil and China, the annualized US current account has moved from a deficit of 3% of GDP in 2003 to a recent surplus of 1% of GDP.
This improvement in the current account position has taken place despite the fact that most of the world is growing well below its potential. In effect, the US economy has exercised an immense deflationary pressure on the margins of companies outside of the US, and in so doing has managed to “recover” roughly 4 % of its GDP.
This turnaround underlines just how low the value of the US dollar fell after years of dilutive monetary policy. Moreover, the pressure of a cheap dollar has been compounded by mercantilist China’s de facto peg to the US dollar. No wonder so many current account crises are percolating
more,,,,,,,,,,,,,,,,,,,,,
http://www.zerohedge.com/news/one-cannot-operate-capitalist-system-if-state-can-borrow-negative-cost?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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