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In the make-believe world of U.S. “business news” reporting, we are currently witnessing a sham of epic proportions. The lame-duck, U.S. dollar has bounced up by 5% - based completely on the false assertion being spread by the U.S. (and British) media that the European Union is currently experiencing worse fiscal stresses than the hopelessly insolvent U.S. economy.

The latest farce began with U.S. propagandists jumping on news of Greece's fiscal stress to grossly exaggerate the significance of this news – suggesting it could literally tear the EU apart. GEAP, the fine European web-site which was one of the few news sources to correctly anticipate the bursting of the U.S. housing bubble, and the collapse of the U.S. economy had this to say about the efforts of U.S. propagandists:

“...this news was not based upon anything credible and that it was only a deliberate attempt on the part of Wall Street and the City [i.e. London] to create the belief of a crack in the EU and instill the idea of deadly risk weighing on the Eurozone, in continually publishing false stories on the banking risk from Eastern Europe and trying to stigmatize a Eurozone cowardness [sic] compared to American or British willful measures.”

GEAP went on to point out two important (and obvious) factors which made it obvious the news item was being blown completely out of proportion. To start with, Greece's dysfunctional fiscal policies date all the way back to its admission to the EU in 1982 – so there is nothing new here. The second and more important observation is that Greek GDP represents less than 2% of total EU GDP.

In other words, the hatchet-job done by American and British “news” sources is the equivalent of a European publication claiming that fiscal problems in the state the size of Oregon could totally destabilize the entire U.S. economy. GEAP prefers to compare Greece to California.

With the Californian economy representing 12% (or1/8^th ) of total U.S. GDP), and teetering on the verge of bankruptcy, there has been far less talk of California's problems leading to an economic collapse, or even a disintegration of the United States than the exaggerated clamor over Greece.

However, perhaps the best pairing with which to compare the current plight of Greece is with a 'Third World' economy, where unemployment among adult males was recently estimated at about 50%: the state of Michigan. Even after the collapse of its economy, it still represents a larger share of U.S. GDP (over 2%) than Greece represents compared to the EU.

Has anyone heard any estimates of 50% unemployment among Greek, adult males?

Furthermore, the Michigan economy has always been a one-industry economy (the auto sector), with most of that industry now only been kept alive through government “life-support”. Greece's economy has no similar vulnerability.

Today, a Goldman Sachs talking-head added a new prong of attack to this smear campaign: Spain. Clearly, Spain is a deeply troubled economy. With arguably Europe's most-extreme housing bubble, and an economy that had become nearly completely dependent on housing sector growth, there is obviously plenty to criticize. However, once again American hypocrites are leaping at the opportunity to undermine Europe, while ignoring their own “back yard”.

“If you start having serious problems credit-wise with the likes of Spain, then the issue for the euro's credibility and its pricing against other currencies becomes a much bigger issue,” pronounced Goldman Sachs “chief economist” Jim O'Neill.

Yes, Spain's housing bubble was almost as extreme as California's housing bubble. As people must surely remember, Californian operated without a budget for two months this year – as state legislators grappled to close a $20 billion funding-gap – and only part of the $80 BILLION in new debt taken on by California in 2009, alone.

In contrast, Spain's government issued a total of $120 billion in new sovereign debt in 2009. There are two big reasons why Spain's larger issuance of debt is a smaller concern than California's enormous shortfall. First of all, Spain is a national government – responsible for many, major funding obligations (such as national defense) which mere states or provinces do not have to cover. Secondly, as a national government, Spain has a printing press (although admittedly its use of its printing press is constrained by the euro). California does not - but that hasn't prevented Governor Schwarzenegger from trying to “print money” (in the form of those dubious “revenue anticipation warrants” and the state's IOU's).

However, refusing to allow facts to get in his way, O'Neill continues. “The really important thing for the broader issue is whether we're going to see a cascading game, where Greece loses another notch...and the market just starts going after Spain and Portugal.”

Another American “domino theory”. Gee, I haven't heard one of those for a few weeks.

Of course when it comes to teetering dominoes, clearly it is the U.S. which is already set up for a “cascading game”. It was only a few weeks ago when it was divulged that ten U.S. states are already experiencing acute fiscal crises. In addition to California and Michigan; Arizona, Florida, Illinois, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin are all facing their own financial Armageddons.

Meanwhile, as U.S. banking oligarchs are set to pay themselves record “bonuses” exceeding $30 billion, both the city and the state of New York openly discuss their own battles against bankruptcy – yet New York doesn't even crack the top-10, U.S. fiscal doomsday list. More than half of these states are major cogs in the U.S. economy, rather than merely “bit players” like Greece is to the EU.

Only two U.S. states are described as “fiscally solvent” and able to “meet their 2010 budgets”: Montana and North Dakota. Call me a “skeptic” but I strongly doubt that these two 'economic juggernauts' can prop-up the U.S. economy by themselves.

Given that the U.S.'s fiscal catastrophe is far more severe than that experienced by Europe (either by comparing individual states, or collectively), this begs the question: why has this flimsy propaganda campaign been so successful?

The answer is obvious: EU officials are extremely grateful for this U.S. hatchet-job. Only a few weeks ago, with the U.S. dollar in free-fall, with nothing to prevent a further steep decline, and the euro already trading at $1.50US, leaders in the EU were frantically searching for some means to weaken their currency.

At the same time, the U.S. government was equally desperate in attempting to stop the dollar's collapse. The result: a lie “made in heaven”.

Concurrently, the rise in the (temporarily) less-weak dollar has also resulted in a correction of more than 10% in the prices of both gold and silver. Again, the buyers in this market are only too happy to allow U.S. smears to bring the price of these metals down to a much more favorable buying-level.

While current, U.S. machinations suit the interests of almost everyone (those of us holding precious metals are not amused), clearly this current scheme will not be allowed to continue. To begin with, while a weaker euro is strongly desired by many of Europe's individual, member nations, wild swings from one extreme to another are not conducive to stable economies.

I suspect that once the euro gets within sight of the $1.40-level versus the dollar that this current propaganda campaign will be terminated. This is in the interests of both the EU and U.S. As I have pointed out on many occasions, with $60 trillion in current public/private debt, and an additional $70 trillion or so in “unfunded liabilities”, the only way for the U.S. to delay national default for any significant period of time is to dilute the value of the U.S. dollar down to a real-dollar level where it can continue to service these massive debts for a few more years.

In addition, buyers in the gold market (led by China) are probably comfortable renewing their accumulation of large-scale buying – at, or perhaps slightly below current prices. Even after this 10% correction, the price of gold is still higher than when the government of India jumped into the market (in a big way) with the purchase of 200 tons of IMF gold.

With the thin trading in markets at year-end, bizarre moves which have little to no connection with fundamentals are not uncommon. In this instance however, there was nothing random or fickle about current moves. This was totally and exclusively the work of the U.S./U.K banking cabal – and their servants in government and media. Anyone proclaiming that these recent currency moves are suggestive of any king of long- or medium-term trend is going to look extremely foolish in a couple of weeks – given it does not suit anyone's interests for this current manipulation to continue.

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written by Jeff Nielson, December 30, 2009

Hi JsJ. It's been decided that I need to be a little more TACTFUL in how I describe such sentiments. I suppose I could have TOTALLY stolen the quote from Queen Victoria and said "WE are not amused".

All the best in 2010.

Jeff

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written by JsJ, December 30, 2009

I love the line, "those of us holding precious metals are not amused." Classic!

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