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David Stockman: The Keynesian Endgame

Even the tepid post-2008 recovery has not been what it was cracked up to be, especially with respect to the Wall Street presumption that the American consumer would once again function as the engine of GDP growth. It goes without saying, in fact, that the precarious plight of the Main Street consumer has been obfuscated by the manner in which the state’s unprecedented fiscal and monetary medications have distorted the incoming data and economic narrative.

These distortions implicate all rungs of the economic ladder, but are especially egregious with respect to the prosperous classes. In fact, a wealth-effects driven mini-boom in upper-end consumption has contributed immensely to the impression that average consumers are clawing their way back to pre-crisis spending habits. This is not remotely true.

Five years after the top of the second Greenspan bubble (2007), inflation-adjusted retail sales were still down by about 2 percent. This fact alone is unprecedented. By comparison, five years after the 1981 cycle top real retail sales (excluding restaurants) had risen by 20 percent. Likewise, by early 1996 real retail sales were 17 percent higher than they had been five years earlier. And with a fair amount of help from the great MEW (measurable economic welfare) raid, constant dollar retail sales in mid-2005 where 13 percent higher than they had been five years earlier at the top of the first Greenspan bubble.

So this cycle is very different, and even then the reported five years’ stagnation in real retail sales does not capture the full story of consumer impairment. The divergent performance of Wal-Mart’s domestic stores over the last five years compared to Whole Foods points to another crucial dimension; namely, that the averages are being materially inflated by the upbeat trends among the prosperous classes.

For all practical purposes Wal-Mart is a proxy for Main Street America, so it is not surprising that its sales have stagnated since the end of the Greenspan bubble. Thus, its domestic sales of $226 billion in fiscal 2007 had risen to an inflation-adjusted level of only $235 billion by fiscal 2012, implying real growth of less than 1 percent annually.

By contrast, Whole Foods most surely reflects the prosperous classes given that its customers have an average household income of $80,000, or more than twice the Wal-Mart average. During the same five years, its inflation-adjusted sales rose from $6.5 billion to $10.5 billion, or at a 10 percent annual real rate. Not surprisingly, Whole Foods’ stock price has doubled since the second Greenspan bubble, contributing to the Wall Street mantra about consumer resilience.

To be sure, the 10-to-1 growth difference between the two companies involves factors such as the healthy food fad, that go beyond where their respective customers reside on the income ladder. Yet this same sharply contrasting pattern is also evident in the official data on retail sales.

* * *

That the consumption party is highly skewed to the top is born out even more dramatically in the sales trends of publicly traded retailers. Their results make it crystal clear that Wall Street’s myopic view of the so-called consumer recovery is based on the Fed’s gifts to the prosperous classes, not any spending resurgence by the Main Street masses.

The latter do their shopping overwhelmingly at the six remaining discounters and mid-market department store chains—Wal-Mart, Target, Sears, J. C. Penney, Kohl’s, and Macy’s. This group posted $405 billion in sales in 2007, but by 2012 inflation-adjusted sales had declined by nearly 3 percent to $392 billion. The abrupt change of direction here is remarkable: during the twenty-five years ending in 2007 most of these chains had grown at double-digit rates year in and year out.

After a brief stumble in late 2008 and early 2009, sales at the luxury and high-end retailers continued to power upward, tracking almost perfectly the Bernanke Fed’s reflation of the stock market and risk assets. Accordingly, sales at Tiffany, Saks, Ralph Lauren, Coach, lululemon, Michael Kors, and Nordstrom grew by 30 percent after inflation during the five-year period.

The evident contrast between the two retailer groups, however, was not just in their merchandise price points. The more important comparison was in their girth: combined real sales of the luxury and high-end retailers in 2012 were just $33 billion, or 8 percent of the $393 billion turnover reported by the discounters and mid-market chains.

This tale of two retailer groups is laden with implications. It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.

Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.

How A 28 Year Old Ex-Goldman Trader, Who Accounted For Up To 20% Of E-Mini Volume, Blew Up

As previously reported, former Goldman prop trader and MIT-grad Matt Taylor, 34, handed himself over to authorities earlier today and subsequently pled guilty in Federal Court to one charge of wire fraud “saying he exceeded internal risk limits and lied to supervisors to cover up his activities.” He subsequently posted bail in the amount of a $750,000 bond with two co-signers. His sentencing hearing is set for July 26, when he faces a prison sentence between 33 months and 41 months and a fine of $7,500 to $75,000. He will likely get the lower end of both wristslaps, and come out from minimum security prison, that is assuming he even spends one day inside, to some cash stashed away in an offshore bank account (not Cyptus) courtesy of his many years manipulating massing the market first at Goldman and then at Morgan Stanley. And manipulating massing he did, because courtesy of Reuters we now know the full details of his transgressions.

First: his motivation:

In court, Taylor said he covertly built the position in an effort to restore his reputation and increase his bonus. He earned a $150,000 salary and expected a bonus of $1.6 million, according to court documents.

Taylor, who is now 34, was thus was a paltry 28 at the time when he was expecting nearly $2 million in all in comp. For what? Why being one of the designated few responsible for the daily inexplicable swings and stop hunts that the irrational market is so well known for.

Taylor, who joined Goldman in 2005, worked in a 10-person group called the Capital Structure Franchise Trading (CSFT), and was responsible for equity derivatives trades.


After his trading profits plunged in late 2007, his supervisors told Taylor his bonus was going to be cut and instructed him to reduce risk-taking, the charging documents said.


Instead, he “amassed a position that far exceeded all trading and risk limits set by Goldman Sachs, not only for individual traders … but for the entire CSFT desk,” according to charging documents.

This is pretty much exactly what JPMorgan’s Bruno Iksil was doing when the massive Whale Trader’s portfolio starting going against him, first due to the market, and then when news leaked of his positions, as various vulture funds start going against his maximum pain positions: he doubled down, then doubled down again, then doubled down some more with the knowledge that if anything bad were to happen he has a massive balance sheet behind him on which to fall back on and double down again. Sadly, an infinite Martingale strategy where one can always double down (with taxpayer funds) to offset prior losses is a luxury few outside of the sanctified walls of Wall Street trading floor are exposed to.

How big did Taylor’s position become?

A person familiar with Goldman’s equities trading business said Taylor’s trading position was significant – representing roughly 20 percent of e-mini trading volume the day it was established. The market moved against Taylor’s position, leading to the loss, said the person, who declined to be named.


For perspective, the $8.3 billion position Taylor took in the e-mini futures market was twice the size of the $4.1 billion trade the U.S. Securities and Exchange Commission highlighted in a report on the causes of the May 6, 2010, “flash crash” in which a series of e-mini trades caused the Dow Jones Industrial Average to plunge 700 points in a matter of minutes.

All this happened on the days of December 12 and 13, 2007.

Ignoring for a second the absolutely idiotic statement from Goldman that the world’s most sophisticated hedge fund, with the strictest of risk controls, had no idea what the 28 year old trader (seemingly completely unsupervised) was doing, what Taylor basically did was that he ended up accumulating nearly one fifth of the most levered, market-moving derivative security – the E-Mini futures contract – in an attempt to do what JPM also did: have enough scale to be able to corner the market at will, and bend it to his demands.

It didn’t work, and the rest is history.

Because while Taylor was making money, everyone loved him and he was expecting millions in bonuses fresh out of college. The second it failed, however, Goldman had no choice but to throw him at the wolves. Or Morgan Stanley as the case may be, where he somehow ended up working for the next four years without anyone asking questions. One wonders how many multi-billion ES positions Matt built up in the period 2008-2012, allowing him to bend the market at will, only this time without getting caught? We will never know: simply because Margin Stanley is such a more reputable firm, it would naturally never allow this kind of full tilt trading, and would certainly supervise all of its traders, even those whom it fired for “unrelated” reasons a few months before the CFTC launched its suit (hired previously despite Goldman adding on his U-5 that he took “inappropriately large proprietary futures positions in a firm trading account” – perhaps it actually boosted his comp?).

Of course, the only question remaining is what in the market caused Taylor’s trade to finally throw in the towel, and force cover his position, i.e., blow up, when the margin demanded against him was just too much, and sent ripples across Goldman’s trading floor. We will let readers find the point of maximum pain on the chart below, which shows the ES trading pattern on December 12-13, 2007 (yes, the market was only going up, up, up back then too).

Take home lesson: it appears that that 50 point ES mega-swing from hi to low in a matter of hours was enough to stop out even a Goldmanite with an $8.3 billion gross notional ES position.

A copy of Matt Taylor’s FINRA brokercheck report can be found here.

Two North Korean Submarines "Disappeared"

Chosun TV is reporting that South Korean military have lost contact with two North Korean submarines that left their naval base in Hwanghae Province a few days ago.

There has obviously been a lot of changes between last week and now and South Korean military officials suggested that while maneuvers in February were nothing meaningful, now it is provocation.

The two ‘torpedo’ subs are small 130-ton, 30-meter, 10-man machines that can stay submerged for three-to-four days.


Click image below for link


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"Greater Fools", "Story Stocks", And Bernanke "The Hero"

The term “Story stock” used to mean a company with little more than a sheaf of press releases and a glitzy narrative about its future prospects.  Now, ConvergEx’s Nick Colas notes that pretty much any stock with a fighting chance of outperforming needs to have a “Story” to cut through the clutter of a noisy macro-driven market.  Story-less equities where the valuation is cheap simply dawdle, while theoretically expensive story stocks sizzle loudly.  So what makes a good story?  The answer is not only “Blowin’ in the wind,” it is as old as the hills.  CEOs matter intensely – they tell the story, and in the best cases they are the “Hero” at the center of it.  Other types of narratives: “New Blood”, “Resurrection”, and “Conan the Barbarian.”  And even with all these categories, Colas reminds us that we can’t forget that the U.S. equity market is essentially one large story stock, driven by a “Hero” figure – even if you don’t consider Chairman Bernanke is the same league as Moses or Ironman.


Via ConvergEx’s Nick Colas,

At a recent client event, we got to talking about what U.S. equity was the best “Story stock.”  It took me a second to catch up to this line of questioning.  To me, the term is a derogatory one.  A story stock is one with little more than an overactive PR department pumping out press releases.  Such companies rarely have actual revenues, and when they do the bookkeeping is sketchy, at best.  These types of investments rely heavily on the “Greater fool” theory, hoping that some poor sucker who comes late to the story will take you out of your stock at higher prices.

What our assembled group actually debated was something different: what stock best exemplifies the critical fundamental drivers which investors most value in the current market?  Being the old codger at the table, I offered up the three best examples I could remember from the last 20 years on the Street as a template to consider what stock might fit the bill today:

  • Chrysler in the early 1990s.  Lee Iacocca had resurrected the #3 automaker from near extinction in the early 1980s, but took his eye off the ball as the decade progressed.  When the Gulf War I recession came around, Chrysler didn’t even have the cash on hand to finish the development of the Grand Cherokee – a breakthrough product which could save the business.  So Iacocca aggressively restructured the company, took his show on the road, issued a ton of stock at $5, and finished the truck.  The stock went to $10, then $20, then $30 in just a few years.  A cyclical recovery helped, but investors were consistently surprised by how the new – and American – company could develop cars and trucks with huge margins quickly and consistently.
  • GE all through the 1990s.  The old General Electric was always a strong company, but when Jack Welch took over he brought a new management discipline to an already well-run enterprise.  He introduced a ruthless promote-fire process in HR, added Six Sigma analysis to manufacturing (and eventually services), and generally remade the company along cutting edge management practices.  Every business had to be #1 or #2, or have a shot at getting there.  He fired or sold off over 100,000 employees.  Over his time at GE, the stock appreciated just over 4,000%.
  • Apple under Steve Jobs, Chapter 2 (1998 2011).  Everyone knows this story – Steve is fired by the Apple Board, wanders the wilderness, develops a new product, gets repo’ed back to Apple, designs the iPod, and rewrites the rules for everything from cell phones to movies to digital media.  Like the GE case study, the stock appreciates over 4,000%.

If you sense a rhythm to these tales, that’s because they are largely the same.  Essentially, they follow a mythology which is as old as storytelling itself.  If you are a fan of Joseph Campbell or Carl Jung, you know the pattern.  “Heroes” all follow the same path, whether they be from the world of religion (Jesus, Moses, Buddha and Mohammed), mythology (Prometheus, Homer’s Iliad and Odyssey), or even comic books/popular fiction (Tony Stark/Ironman, Harry Potter, any Star Wars movie).  The model is simple:

  • A seemingly ordinary man is called away from the life he knows to undertake a journey.
  • On that journey he encounters magical challenges and is often aided by equally magical helpers along the way.
  • After many struggles he eventually triumphs over the forces of evil.
  • Eventually he returns to where he started and gives gifts/teachings to humanity.

Iacocca, Welch and Jobs may not seem especially magical, let alone religious, figures.  But all of them took a symbolic journey to change their businesses or industries, fought to execute their vision, and eventually returned with a fundamentally changed company and a much, much higher stock price as a gift to their shareholders.  Don’t stare too hard at the crass commercialism of the comparison – focus on how the narrative of “Story stocks” looks and feels very much like ones which resonate through history and culture.  The pattern is the same.

There are other examples of the common structures of “Story” stocks.  A few thoughts here:

  • New Blood.  Changes in management are the bedrock of many investment stories.  Sometimes it is simply “Out with the old, in with the new.” But just as often this transformation comes from a spin-off, where previously subordinated management has the chance to run their own operation as a public company.  These can be great situations, since they unleash an entrepreneurial spirit among the newly elevated management team.
  • Resurrection.  It takes a lot to kill a large public company.  Usually, you need a deadly combination of lousy business strategy, a highly leveraged balance sheet, and a cyclical downturn.  More often, you get “Zombie” companies, suffering from poor management or a product misstep but with reasonable balance sheets and an economic tailwind at their backs.  And among these, a small percentage will shake off their shuffling gait and return to the land of the living.  Apple, ironically, was such a company when Steve Jobs wasn’t at the helm. 
  • Conan the Barbarian.  Big and brutish, but also agile and disciplined, “Conan companies” essentially destroy everything in their path.  Other names are “Category killer” and “low cost producer.”  Think Wal-Mart in the 1980s and 1990s, crushing small town department stores.  Or Home Depot and Lowes in the 1990s doing the same to local hardware and building supply stores.

The power of “Story” goes far beyond stock picking, however; our macro policy driven investment scene in the U.S. is actually the most pronounced example of the genre.  Fed Chairman Ben Bernanke may be no match for the Buddha or Tony Stark when it comes to heroic status, but his narrative is the same:

  • The Financial Crisis forces Bernanke to take a journey, away from standard monetary policy and into a new and unknown world.
  • The essence of his journey is to complete successfully what past “Heroes” failed to do: provide enough financial liquidity to stave off a second Great Depression.
  • On his journey, he encounters challenges (Greece, Cyprus, Spain, etc) and is aided by like-minded companions (other dovish members of the Fed).

Of course, we don’t know how this particular “Story” will end.  We don’t call someone a “Hero” until they finish the cycle and return with their gifts and teachings.  But it is clear that, thus far, Chairman Bernanke has hewn to the classical “Hero” story pretty closely.  After all, if creating +$2 trillion out of thin air isn’t some powerful magic to fight off the forces of evil, I don’t know what is.  And in that light, it becomes easier to see why this market is so fixated with this story to the relative exclusion of all others.

It’s the biggest one in town. 

Guest Post: Will Globalists Use North Korea To Trigger Catastrophe?

Submitted by Brandon Smith of Alt-Market blog,

Whenever discussion over North Korea arises in Western circles, it always seems to be accompanied by a strange mixture of sensationalism and indifference. The mainstream media consistently presents the communist nation as an immediate threat to U.S. national security, conjuring an endless number of hypothetical scenarios as to how they could join forces with Al-Qaeda and attack with a terroristic strategy. At the same time, the chest puffing of the late Kim Jong-iL and the standard fare of hyper-militant rhetoric on the part of the North Korean government in general seem to have lulled the American public into a trance of non-concern.

In the midst of the latest tensions with the North Koreans, I have found that most people are barely tracking developments and that, when confronted by the idea of war, they shrug it off as if it is a laughable concept. “Surely” they claim, “The North is just posturing as they always have.”

The high-focus propaganda attacking North Korea on our side and the puffer fish methodology on their side have created a social and political atmosphere surrounding our relations with the Asian nation that I believe places both sides of the Pacific in great danger. North Korea has the potential to become a trigger point for multiple economic catastrophes, and there are people in this world who would be happy to use such crises to serve their own interests.

The mainstream view being espoused by globalist-minded politicians and corporate oligarchs with an agenda is that North Korea is a nuclear armed monstrosity ready to use any subversive means necessary to strike the United States. The idea that the North is working closely with Al-Qaeda has been suggested in everything from White House briefings to cable news to movies and television. The concept of pan-global terrorist collusion and the cartoon-land “axis of evil” has been prominent in our culture since the Administration of George W. Bush. It has even been making a resurgence lately in the MSM, which presented countries like Iran, Syria And North Korea as the primary culprits interfering with the success of the U.N. Small Arms Treaty.

Of course, what remains less talked about in the mainstream is the fact that these nations refuse to adhere to the treaty because carefully placed loopholes still allow major powers like the United States to feed arms into engineered insurgencies. Why would Syria or any other targeted nation sign a treaty that restricts its own sovereign ability to trade while giving teeth to internal enemies trained and funded by foreign intelligence agencies?

The establishment brushes aside such facts and consistently admonishes these countries as the last holdouts standing in the way of a new world order, a worldwide socioeconomic cooperative and pseudo-Utopia. The path to this wonderful global village is always presented as a battle against stubborn isolationists, non-progressives who lack vision and cling desperately to the archaic past. The values of personal and national sovereignty are painted as outdated, decrepit and even threatening to the newly born world structure. The image of North Korea is used by globalists as a kind of straw man argument against sovereignty. North Koreans’ vices and imbalances as a culture are many; but this is due in far larger part to their communist insanity, rather than any values of national independence. It is their domestic hive-mind collectivism we should disdain, not their wish to maintain a comfortable distance as a society from the global game.

As far as being an imminent physical threat to the United States, it really depends on the scenario. The North Koreans have almost no logistical capability to support an invasion of any kind. The nation has been suffering from epidemic famine for well more than a decade.

To initiate a war outright has never been in the best interests of the North Koreans, simply because their domestic infrastructure would not be able to handle the strain. However, there is indeed a scenario in which North Korea could be influenced to use military force despite apprehension.

With the ever looming threat of famine comes the ever looming threat of citizen revolution.  When any government is faced with the possibility of being supplanted, it will almost always lash out viciously in order to maintain power and control, no matter the cost. Sanctions like those being implemented by the West against North Korea today, at the very edge of national famine, could destabilize the country entirely. I believe the North would do anything to avoid an internal insurgency scenario, including attacking South Korea to acquire food stores and energy reserves, as well as other tangible modes of wealth.

North Korea’s standing army, obtained through mandatory two year conscription, is estimated at about 1.1 million active personnel; very close to the numbers active in the U.S. armed forces. But North Korean reserves are estimated at more than 8 million, compared to only 800,000 in the United States. If made desperate by economic sanctions, the North Koreans could field a massive army that would wreak havoc in the South and be very difficult to root out on their home turf. Asian cultures have centuries of experience using asymmetric warfare (the kryptonite of the U.S. military), and I do not believe it is wise to take such a possible conflict lightly, as many Americans seem to do. It is easy to forget that the last Korean War did not work out so well for us. At best, we would be mired in on-ground operations for years (just like Iraq and Afghanistan) or perhaps even decades. Like North Korea, we also do not have the logistical economic means to enter into another such war.

The skeptics argue that we will never get to this point, though, because North Korea has brandished and blustered many times before, all resulting in nothing. I see recent events being far different and more urgent than in the past, and here’s why:

1) The West needs to realize that North Korea is under new leadership. The blowhard days of Kim Jung Il are over, and little is known about his son, Kim Jong Un. So far, the young dictator has followed through on everything he said he would do, including the multiple nuclear tests that the West is using as an excuse to exert sanctions. To assume that the son will be exactly like the father is folly.

2) Many people claimed that North Korean threats to abandon the Armistice in place since 1953 were empty, yet they dropped it exactly as they said they would at the beginning of March.

3) The North has begun cutting off direct communication channels to the South, including a cross-border hotline meant to help alleviate tensions through diplomatic means.

4) The North has officially declared a state of war against the South. This has been called mere “tough talk” by the U.S. government, but the speed at which these multiple developments have occurred should be taken into consideration.

5) North Korea has just announced the reopening of a shuttered nuclear reactor used to render weapons grade materials.

6) The DPRK has suddenly locked down the Kaesong Industrial Zone; a region which holds manufacturing centers for both North and South Korea. Southern manufacturers operating there employ nearly 50,000 Northern workers. Nearly 1000 Southerners also work there. The arrangement generates approximately $2 billion a year for the North. The joint industrial zone has existed since 2000, and the North has never locked down access until this past week.  The fact that the DPRK is willing to restrict this area and possibly lose a sizable income signals that the situation is not as “mild” as some would like to believe.

7) At the beginning of this year, silver purchases by the North from China surged. For the entire year of 2012, the government purchased $77,000 worth of precious metals. In the first few months of 2013, North Korea has already purchased $600,000 in silver. The exact size of the North’s precious metals stockpile is unknown. Though seemingly small in comparison to many purported metal holdings by major powers, this sudden investment expansion would indicate a government move to protect internal finances from an exceedingly frail economic environment.  Metals are also historically accumulated at a high rate by nations preparing for war or invasion in the near term.

Again, all that is needed to instigate an event on the Korean Peninsula are tightened sanctions. The establishment knows this, though another Gulf of Tonkin incident (an openly admitted false flag event) may be on the menu as well.

Given that the chances of a shooting war are high if sanctions continue, it might be wise to consider the consequences of conflagration in Korea.

Dealing with a large army steeped in asymmetric and mountain warfare will be difficult enough.  In fact, an invasion of North Korea would be far more deadly than Afghanistan, if only because of the sheer number of maneuver elements (guerilla-style units) on the ground. But let’s set aside North Korea for a moment and consider the greatest threat of all: dollar collapse.

As I have discussed in numerous articles, China, the largest foreign holder of U.S. debt, has positioned itself to decouple from the American consumer and the dollar. This is no longer a theoretical process as it was in 2008, but a very real and nearly completed one. Mainstream analysts often claim China would never break from the dollar because it would damage their export markets and their investment holdings. The problem is, China is already dumping the dollar using bilateral trade agreements with numerous developing nations, Australia being the latest to abandon the greenback.

China isn’t just talking about it; China is doing it.

The development of a decoupled China is part of a larger push by international banks to remove the dollar as the world reserve currency and replace it with a new global currency. This currency already exists. The International Monetary Fund’s Special Drawing Rights (SDR) is a mechanism backed by a basket of currencies as well as gold. The introduction of the SDR on a wide scale is dependent on only two things:

  • First, China has been designated the replacement consumer engine in the wake of a U.S. collapse. They have already surpassed the United States as the No. 1 trading power in the world. However, they must spread their own currency, the Yuan, throughout global markets in order to aid the IMF in removing the dollar. China has recently announced a program to sell more than $6 trillion in Yuan denominated bonds to foreign investors, easily fulfilling this need.
  • Second, China and the IMF need a scapegoat event, a rationale for dumping the dollar that the masses would accept as logical. A U.S. invasion of North Korea could easily offer that rationale.

While China has been playing the good Samaritan in relations with the United States in dealing with North Korea and has supported (at least on paper) certain measures including sanctions, China will never be in support of Western combat actions in the Pacific so close to their territory. The kind of U.S. or NATO presence a war with North Korea would generate would be entirely unacceptable to the Chinese, who do not need to respond using arms. Rather, all they have to do to get rid of us would be to fully dump the dollar and threaten to cut off trade relations with any other country that won’t do the same. The domino effect would be devastating, causing U.S. costs to skyrocket and forcing us to pull troops out of the region. At the same time, the dollar would be labeled a “casualty of war” rather than a casualty of conspiratorial global banking designs, and the financial elites would be removed from blame.

Ultimately, we should take the North Korean situation seriously not because of the wild-eyed propaganda of the mainstream media and not because they are “doing business with terrorists” or because they are a “violent and barbaric relic of nationalism,” but because a war in North Korea serves the more malicious interests of globalization. No matter what happens in the near future, it is important for Americans to always question the true motives behind any event and ask ourselves who, in the end, truly benefited.