Tuesday, December 27, 2011

Seeing Red

This post needed to wait until the reports of the Christmas Day meeting needed to be made public. Expect another post on the New Year!

As most of the Occident celebrated the 4th century fiat which misplaced the lambing season (the reason why shepherds would be in the fields with their flocks for those of you without an agricultural background) at the Roman winter solstice – Dies Natalis Solis Invicti – a star was rising in the East if you were a Wiseman looking for such a thing. Somewhat ironic that the Roman church – the same Rome that reportedly executed the venerated New Born – chose this day less as a celebration fit for buying plastic imports from Asia and more as an affront to the pagan traditions of, well, here it gets a bit circular, Rome. And while we’re at it, I am intrigued, in light of last week’s post, about the near silent astronomer geeks (silent, save the little whirring sound made by the minute gears in their telescope mounts) who try to figure out what the Iranians (Persians, Magi, etc) saw that was the “star in the east”. One of my favorites is the work of University of Notre Dame’s theoretical astrophysicist, Grant Mathews who suggested that the ‘star’ wasn’t a star – rather the April 17, 6 B.C. alignment of the sun, Jupiter, the moon and Saturn in the Constellation Aries sandwiched by Venus and Mars. So ironic that so much of our consumer based economics revolves around a capricious date when a shepherd to the poor and outcast was allegedly born in abject poverty. Uh oh, I may be sounding a bit Scroogy!

But back to the real star of December 25, 2011 – the meeting of Chinese Premier Wen Jiabao and Japanese Prime Minister (for now) Yoshihiko Noda in Beijing. Marking the epiphany of their 40th anniversary of normalized relations in 2012, these two men announced their intentions to move the economic fulcrum of the globe Eastward while most Americans and Europeans were pickling themselves in eggnog – carbo-loading for the post Christmas sales orgy. This largely dismissed meeting is more symbolic than substantive in the minds of most Western-educated (and compensated) economists. And, in the near term, there may be some truth to this. However, as one of the few people who has been sounding the horn for nearly a decade about the structural instability of our Bretton Woods inspired system, I must, yet again, remind you that this is NOT to be taken lightly.

The disintermediation of the dollar happened precisely as I had forecast. As of this agreement – entered into in 2011 – China and Japan have agreed to formally demote the dollar as a conversion or clearing currency. However, of greater import is Japan’s agreement to buy Chinese bonds. It is this latter point that is more likely to keep modern-day Herod’s awake in their bed chambers. Because if you want to go out and exterminate future threats, this bond exchange in the East is the real long-term currency and economic threat. Japan’s relevance as the postwar reconstructed manufacturing behemoth is gone. This position has been taken by China, Vietnam, Thailand, India and, to a lesser extent, Korea. However, its currency reserves of $1.2 trillion are being tactically deployed to insure that it still has influence in key markets. And it’s placing its bets on China, India, and Korea.

At this time, it would be prudent for those who find themselves uncomfortably jittery about what feels like a collapsing empire to look to the Oriental Star and see where it’s moving. You may find a swaddled baby or you may find a newborn power that will shape generations to come.

Wake up! There’s more than a New Year coming.

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Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave