Monday :: May 16, 2005

The Topper$ Are Selling Off America!

by pessimist

Where's Paul Revere when he's needed? If he weren't busy being dead for tax purposes (Hitchhikers' Guide fans know of which I speak!), he would be riding across the land, shouting"

"Two Harms! The dollars are leaving! The dollars are leaving!"

Two Harms? Here's the first:

Foreign investors sell U.S. assets

Between 70 and 80 per cent of the U.S. economy's borrowing requirement is being met by foreign, mainly Asian, central banks, Harvard professor Niall Ferguson wrote in the New York Times earlier this year.

Speculation has risen this year that Asian central banks are diversifying their holdings away from U.S. assets.

On the other hand, foreign private investors, such as hedge funds, flocked to U.S. assets in March. “With foreign central banks retreating from Treasuries, and U.S. investors showing a growing interest overseas, this report highlights the lingering downside risk to the U.S. dollar, despite the greenback's recent rally,” wrote Sherry Cooper, chief economist at BMO Nesbitt Burns, in a note.

“Hedge funds are not a currency's best, long-term friend.”

These fund candidates for recruiting members for Gambler's Anonymous aren't just a problem for Americans:

Germany seeks ways to tighten control of hedge funds

The German government is looking into ways of beefing up control of hedge funds, at the instigation of Chancellor Gerhard Schroeder himself, spokesman Bela Anda said on Friday. There was "a great deal of interest" in Germany in attracting foreign capital in order to boost growth. But ...
"Germany was not interested in "purely speculative capital that destroys jobs and breaks up companies," the spokesman said.

We in America have been seeing this for many years now. As John Perkins revealed in Confessions of an Economic Hit Man, American interests have been doing this to foreign lands since the 1960s.

It's looking more and more like it's our turn now. How do I know? It has to do with the second of the 'Two Harms' I cited above:

The Topper$ are taking their money and running. As fast as they can.

The 'Oracle of Omaha' - Warren Buffett - swings a mean bat - and his clout carries far. His latest swing involves declaring that holding the dollar is itself a risky investment:

Warren Buffett sees no way but down for US dollar

The dollar cannot avoid further declines against other major currencies unless the US trade and current account deficits improve, legendary investor and businessman Warren Buffett said. "I think, over time, unless we have a major change in trade policies, I don't see how the dollar avoids going down," the world's second-richest individual told CNBC television. "I don't know when it happens. I don't have any idea whether it will be this month or this year or next year, but we are force-feeding dollars on to the rest of the world at the rate of close to a couple billion dollars a day and that's going to weigh on the dollar."

Buffett goes on to set an interesting historical note to go along with his disastrous economic revelation:

Buffett deepens dollar worries

Warren Buffett has warned that the US trade deficit risks creating a “sharecropper’s society” as his letter to shareholders sounded an increasingly bearish tone about the value of the dollar.

A sharecropper was about the lowest of the low, as the historic numbers of sharecroppers in Texas indicate. There is one land with which the US does a great deal of business - and whose farmers are mostly of the sharecropper variety: China.

The fact that so many Chinese are extremely poor seems to appeal to the American Topper$ who are pulling out of this land:

Betting on China

Billionaires who talk the dollar down may ultimately cause harm to U.S. workers that far outweighs the growing trend to ship jobs abroad or outsource production to foreign companies. They risk America's global political clout.

A study released [in January] by the U.S. China Economic and Security Review Commission links the loss of 1.5 million U.S. jobs directly to our growing trade deficit with China. Far from taking only low-wage jobs, China is emerging in such fields as semiconductors. As China moves up the economic food chain, our deficits will grow and put strain on the dollar.

The Chinese, of course, do not create our deficits. The U.S. government and consumers overspend and overborrow.

To get a piece of the Chinese market, U.S. companies spend billions to help build a Chinese economy that can churn out goods at prices U.S. manufacturers cannot match. Too often, they also help Chinese competitors who usurp U.S. jobs and technology. The Chinese government, in fact, has engineered a system in which companies can acquire high technology at exceedingly low cost. Often, without fear of consequence, they simply steal it.

Like Iraqi oil?

But I digress.

Stealing away with our stolen jobs to the Land of the Setting Sun (as the Japanese used to derisively tag China), the Topper$ are also stealing our heritage and our legacies along with our capital:

Panic As It Nears Zero

Bill Gates is betting on America's decline and putting his money on China's rise. Or so the Microsoft founder seemed to say last month at the World Economic Forum held in Davos, Switzerland. “I'm short the dollar,” he said. “The ol' dollar is going down.” Gates isn't the only titan talking down the dollar and linking it to America's decline. Warren Buffett, Gates' friend and the world's second-richest man, has been bad-mouthing America's financial house and currency for two years.
A panic in the greenback could conceivably net both men more than the cumulative lifetime earnings of thousands of their U.S. workers.

Thinning Through Won-ton-ization

If the dollar drops like a rock, the greenback could well lose its prized place as the world's reserve currency. The dollar's special status gives it extra value around the world. China held $191 billion in U.S. debt in 2004, but may not have been as willing to play banker to America were the dollar not the reserve currency. Without the reserve currency, the United States could fall into the debt trap long suffered, for instance, by Latin America.

“When other countries have gone through similar crises, people panicked. Whether such a crisis might lead the U.S. to also lose much of its political power, it is hard to say. It is certainly possible,” says Jeffrey Frankel, an economist at Harvard's Kennedy School. “Americans may discover abruptly that interest rates climb and the value of the assets … declines.”

One immediate effect: Foreign investors would pull out of their American investments.

Looking Out For Numbah One

China's promise looks so magnificent to big U.S. corporations and the super-rich that U.S. national interest and the long-term health of our economy count little.

Indeed, they are contributing to huge outflows of U.S. money. Microsoft invests heavily in its Chinese business, and, like so many U.S. companies, is helping China build the cheap juggernaut economy that now poses the greatest challenges to us. This year, the U.S. trade deficit with China may top $170 billion, up more than 27-fold over the past 16 years.

Made In Chinamerica

Conceding China's rise does not have to mean conceding to China. Though Gates may be playing the world currency markets based on the vulnerability of the United States, it may be our very vulnerability that turns into our greatest strength. China is far more dependent on U.S. consumers to buy its vast industrial output than on any others.
Exports to Wal-Mart stores alone account for about 1% of the Chinese economy.
Our unique position gives us the power to act to preserve our economic strength. Using our position as No. 1 customer gives us leverage to press for rules that give our companies a shot at the Chinese market without having to transplant pieces of our economy to their playing field.

Stealing Home On The Suicide Squeeze

At home, we have the power to rein in U.S. companies that willingly shift homegrown technology abroad. We have the might to take the necessary steps, but only if we act now. Reining in our budget and trade deficits is a start.

If the United States does not act forcefully to protect its economy and to keep its currency from losing its reserve status, the damage may take generations to reverse.

Already, our greatest businessmen think we are doomed to fail.

Failure isn't an option in the minds of the Topper$ - it's the objective:

Buffett hopes his US dollar bet will fail
March 7, 2005

Berkshire Hathaway's Warren Buffett, who made US$1.63 billion (HK$12.71 billion) on foreign currencies in the fourth quarter, said he'd prefer if his bet against the United States dollar failed. Buffett said he is less confident in his bet because 'so many pundits predict weakness for the dollar.'

Buffett, whose letters are pored over by investors searching for insights from the world's second-richest man, began betting against the US dollar in 2002 on concern that widening US trade and budget deficits would erode its value. Buffett increased Omaha, Nebraska-based Berkshire's position in foreign currency forward contracts - agreements to purchase an asset at a future date - to US$21.4 billion in the fourth quarter.

Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, said the foreign currency position may allow Berkshire to make acquisitions outside the US. "To the extent he's inclined over time to buy non-US companies, having the basket of non-dollar currencies is a big help," Russo said.

Taking so much out of anything can only weaken that thing significantly. Our economy is demonstrably no exception to that rule:

Dollar wobbles on weak US capital inflows data

The dollar's rally stalled following a set of weak US data, including one report foreign central banks became net sellers of US assets in March. Data released Monday revealed that net capital inflows into the United States fell to 45.7 billion dollars in March from 84.1 billion in February as foreign central banks became net sellers of US assets for the first time in 19 months.
The inflows were not sufficient to fund a US trade deficit of 54 billion dollars.
A sharp fall in the Empire State index of manufacturing activity in the New York area also dented the dollar, with the headline reading dropping to negative 11.1 in May, its lowest since April 2003.

Foreign investors sell U.S. assets

Overseas central banks were net sellers of U.S. assets for the first time since September 2002. March's selling of U.S. dollar-denominated assets by official holders was the largest since August 1998. The March inflows fell well short of the $70-billion economists polled by Bloomberg had expected.
The numbers suggest foreign buyers of U.S. securities may be concerned about the U.S. trade and current account deficits, both of which have ballooned to records in recent months.
International investments in U.S. securities dropped to $45.7-billion (U.S.) in March from $84.1-billion in February, the U.S. Department of Treasury said Monday, further evidence that foreign central banks may be diversifying their holdings away from U.S. assets.
Moreover, it is below the $65-billion to $75-billion that is needed to cover the U.S. current account deficit and outflows of foreign direct investment according to a report by Adam Cole, senior currency strategist at RBC Capital Markets in London.

Keep something in mind - it isn't just the foreigners pulling out:

A Low Float To China

Gates' Way to China
9th August 2004

Bill Gates, as trustee of his US$27bn foundation, has made late disclosure of holdings in 2 HK-listed stocks which spiked 38% and 17% on the news. Gates, as the trustee of the Bill and Melinda Gates Foundation, has made his first disclosures of interests in the shares of two small HK-listed companies, Ocean Grand Chemicals Holdings Ltd (OGC, 2882), and H-share Beiren Printing Machinery Holdings Ltd (BPM,0187). For our overseas readers, an H-share is a HK-listed stock issued by a mainland-China incorporated company.

Mr Gates' disclosure of 5.38% of OGC and his disclosure of 7.08% of the H-shares of BPM were not published until 3-Aug-04, having been filed with the Stock Exchange on 26-Jul-04. This is not the first time that Mr Gates has had discloseable interests around the world. He is a very experienced investor and as the world's richest man he has probably the world's largest private portfolio under his control.

The Gates Foundation alone had investments of US$26.4bn at the end of 2003. He has also been steadily selling Microsoft shares for years to diversify his portfolio, including investments held through a wholly-owned vehicle, Cascade Investment LLC, which sometimes invests in parallel with the foundation.

While the Gates Foundation has commendable charitable activities, it also has the benefit of legally avoiding tax on the disposal of the Microsoft shares with which it was endowed, at the same time as giving him a tax deduction for the donation (which he can probably use to offset income from his other investments), and whilst still allowing Gates ultimately to control the investment of the assets as trustee.

The World's Wealthiest is on a track to control even more money than most of us can imagine - he's being touted as the Capitalist Sorcerer's Apprentice after this news got out:

Bridge buddy Gates gives Buffett a hand

Warren Buffett and Bill Gates, who became the world's richest men on very separate paths, will be working together after this weekend to help guide one of the world's most successful conglomerates.

Shareholders of Buffett's company, Berkshire Hathaway, are expected to officially vote Gates onto the board of directors, cementing a friendship between billionaires that goes back to 1991. Just what the Microsoft chairman's involvement might mean for Berkshire is not clear, but Gates could help the company plan for a future without its legendary 74-year-old founder.

Gates is worth more than $46 billion. He owns about $300 million in Berkshire stock and was named to the board in December to fill the vacancy left by the July death of Buffett's wife.

All In The Family

Buffett may be looking for someone of his own caliber to continue on the board after he is gone, said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco. Buffett has said he would never retire as Berkshire chairman and chief executive, short of physical or mental incapacity. In the event of his departure, he has said three people would be needed to replace him. His eldest son, Howard, a Berkshire board member, would become chairman. Two unnamed Berkshire executives would run the company, one to handle operations and the other to handle investments.

Bling Goes Better With Coke

Berkshire, which has a market value of $130 billion, invests in companies in traditional businesses like newspapers, soft drinks and insurance. Buffett controls the company, owning 40 percent of the stock, worth more than $40 billion. Besides Berkshire, Buffett is on the boards of Coca-Cola and The Washington Post Co., two companies in which Berkshire has large stock holdings.

Melinda Gates, like Buffett, is on The Washington Post board.

Have I ever told you how much I detest WinDOH!!z? It's one reason why the media is so bad in this land!

Think of it for a moment: the Washington Post is directed by the Top Topper$, and the Washington Times is run by Sun Myung Moon, whose net worth is cited as being around $10 billion. He doesn't even make the all-time list of the Topper Top Ten with such a slim wallet!

But I digress.

These two 'news' papers are the main sources of information inside the Beltway, and the actions of the Congress in particular are especially suggestible by what they read there. Can it be any wonder that they of the Congress have no clue as to what the world is like for most of us when the richest in the world are directing the coverage?

We think not.

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pessimist :: 8:56 PM :: Comments (2) :: Digg It!