Agora Financial’s Rude Awakening

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London, England

• The greenback surges on confidence from an unlikely ally,
• 686 billion reasons for Japan not to laugh at the U.S. dollar’s fate,
• Lessons from the political obituaries and plenty more…

Joel Bowman, reporting from Taipei, Taiwan…

Hoorah! The dollar is saved! How do we know? The Russian finance minister told us so!

The dollar is in “good shape” according to Alexei Kudrin, who cautioned the Group of Eight conference in Lecce, Italy, over the weekend that, “It’s too early to speak of an alternative [to the U.S. dollar].”

Even politicians from the Former Soviet Union have the right to their opinion, of course, just as we reserve the right to disrespectfully disagree. And, so it appears, do other members of the same, somewhat confused Rusky government. A few days before Kudrin was heard drumming up support for his unlikely ally at the G8 roundtable, Russia’s president, Dmitry Medvedev joined China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.

From where came this unlikely champion of U.S. currency, we wonder, and is he really looking out for the John Q. Citizens of Anytown, U.S.A.? Not likely. Politicians, as we know, are invariably brewed from near equal parts malice and fraud. Some are a little more evil, others a little more deceptive. Kudrin, rather than simply trashing the greenback outright, understands that a gradual move toward an unspoken alternative currency might behoove his own nation’s global position over the long run.

For starters, Russia has some 138.4 billion of those dollars stashed under a few tones of soviet concrete in Moscow. If the value of the greenback drops too quickly, the buildings atop that stash risk caving in themselves. Other countries with big dollar reserves understand this too, which is one reason China, the largest U.S. creditor, doesn’t simply dump $767.9 billion of U.S. debt on the open market.

It’s also why, speaking just a few days before the abovementioned G8 party, Japan’s finance minister, Kaoru Yosano, described his faith in the U.S. Treasury securities as “unshakable.”

“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Mr. Yosano said in an interview in Tokyo without, we might add, even cracking a smile. But we can think of 686.7 billion reasons Mr. Yosano might resist the urge to burst into uncontrollable fits of laughter. If word gets out that all those green notes aren’t worth the numbers printed on them, what can Mr. Yosano hope to get for them? The same goes for Mr. Kudrin and Mr. Guido Mantega of Brazil, who sits on over 125 billion of them himself.

The case could be made that the abovementioned fellows are actually more responsible stewards of the greenback than either Greenspan or Bernanke, who both actively sought to devalue it by running the presses and lending at ridiculously depressed levels.

It’s all smoke and mirrors, mind you. Everyone knows the world can’t continue to trade in shells if every time the tide comes in another 300 billion of them turn up on the shoreline. What world leaders are doing is simply protecting the value of their own reserves by trying to pretend the tide won’t come in again. It will, of course, and then we’ll see everyone scrambling for coconuts, crushing the broken shells under their feet as they run.

In the column below, Bill Bonner looks at a magnitude of larceny and bribery that can only be perpetrated by organized government and what it means for 50 cents of every borrowed dollar in the world. Enjoy…

—- The Richebacher Society Breaking Report —-

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Yet, they also name seven “Super Shields” you can use to safeguard against further losses… plus at least five surprising “long” plays you can still use — even now — to get very rich. Read On Here.

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Kleptocracy in America
by Bill Bonner

Reading the obituaries is such a delight. First, it is a relief when you find your name not mentioned. Then, it is a joy when you find those that are. Not that we wish to see any man’s name on the roll of the dead; still, the final audits are always the most revealing. Here on the back page, we admire honest scalawags…and learn from them. Thus was our attention drawn to Mr. Omar Bongo’s exit from the mortal stage on June 8th.

Popular government has two major parts. One part is fraud. The other is larceny. As to the first, it is like a professional wrestling match – full of lurid threats, spilled beer, sacred cows, gaudy uniforms and self-delusions; the fans feel their private parts shrink when their man loses. If he wins, they feel they are winners too. But it is the other part, the more rational part – a balance of larceny and bribery – that interests us today.

Serge Dassault miscalculated. One of the richest men in France, he was stripped of his position as mayor of a Paris suburb this week. A court found he had made cash payments to voters in Corbeil-Essones, east of Paris, which could have influenced the outcome of a mayoral election.

We stand dumbfounded…mouths wide open…our fondest hopes for the progress of humanity dashed to pieces. How could an experienced, well- informed man of mature age and sound finances, have made such an amateur’s error? He bribed the voters unfairly – that is, with his own money – but apparently not enough of them!

Mr. Serge Dassault, meet the late Mr. Bongo. France included in its ‘mission civilisatrice’ the cultivation of various public officials throughout Africa. Bongo was one of them.

The moment when destiny stuck her nose into Mr. Bongo’s affairs was probably in 1964, when Mr. Bongo had gotten himself into the post of Minister of Tourism in the government of President Mba. That year was the one chosen by Jean-Hilaire Aubame to launch a coup against Mba’s regime, which saw both Mba and Bongo confined together until French troops came and bailed them out. Being locked up with the president of a country can be good for your career; at least it was for Bongo. His ties to Mba were strengthened by the ordeal, says the TIMES, and he was subsequently made Vice-President, succeeding to the top post itself when Mba’s last cartridge had been spent.

The TIMES described Bongo as “one of the world’s richest heads of state.” The Financial Times provided details: “An indictment…listed 39 properties, mostly in the chic 16th arrondissement of Paris, nine cars worth nearly $2 million, and 70 bank accounts.”

And so the familiar question: “how is this possible?”

Mr. Bongo’s percentage of Gabon’s output must have been substantial. He took over the government of Gabon in 1967 at the age of 31, making him the world’s youngest head of state. “For the next two decades,” continues the obituary, “Bongo was able to rule Gabon almost as a personal fiefdom. With a relatively small population and benefiting from abundant natural resources – principally oil, but also uranium, manganese and timber….”

The man mastered both carrot and stick. With revenue from Gabon’s natural resources flowing into his coffers, he was able to hand out lavish favors. “He placated students in 2000 by providing hundreds of thousand of pounds for the purchase of the computers and books they were demanding,” says the TIMES. He could spend his own money when it suited him too – for he had so much of it. And when the working classes took the streets in 1990, he had plenty of goons in uniform to beat them with sticks.

Bongo did not suffer from the typical financing problem of modern democracy. When you rob Peter to pay Paul, Peter gets cheesed off about it. The next thing you know he’s voting against you or plotting a coup. That is why it is better to bribe Paul with money Peter never earned. And do it on a large scale. That is how Bongo won an election as recently as 2005 with nearly 80% of the vote. Not even Obama can match that.

But politicians in modern, developed democracies are now bribing voters on a breathtaking scale – protecting their bank accounts, shoring up their houses, giving them jobs and health care. In the US alone total US government debts, obligations and commitments now come to $112 trillion. Congressmen risk neither jail nor insurrection. Cometh the old question; how do they get away with it?

Currently, 50% of every dollar spent comes from borrowing. This week brought news that the developing countries – led by China – are still adding to their positions in US Treasury bonds. The funds are spent immediately. The payer and the payee – neither of whom vote in current US elections – can worry about settling the debt later. What a marvelous invention is inter-generational government debt, funded by foreigners! Even Mr. Bongo, RIP, must have been impressed.

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[Rude Endnote: Late last week we solicited your thoughts on the whole green shoots vs. premature celebration debate. We wanted to know how things looked in your neighborhood, specifically:

How is the job market holding up, if at all? Are more of your friends out of work…taking pay cuts…or being promoted?

What are property prices doing up and down your street? How about the number of foreclosure signs on front lawns? How about commercial real estate? Are they building or bulldozing a strip mall near you?

Is credit easier or harder to obtain? Do you see oil at $100 or $40 per barrel next? Gold at $1,300 and ounce in 6 months or back to $600? Dow at 13,000 or 6,000?

You get the drift…

So far the response has been tremendous. We’ll be featuring a selection of your fellow readers’ thoughts during the week as a kind of Group Research Project. If you want to be a part, just send in your own thoughts to the address below. We look forward to hearing from you with your own boots-on-ground analysis.

Until next time…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com

P.S. Finally today, a quick update for Rude readers interested in the explosive opportunities in trading commodities. Our resident resource trader, Alan Knuckman, just turned in his 30-day performance chart. Here’s a peek:

72% on a coffee play on May 7
80% on silver on May 7
67% on the Canadian dollar on May 8
85% on the Aussie dollar on May 20
70% on Treasury bonds on May 27
200% again on the Canadian dollar on June 2
148% again in silver on June 5

If you’re interested in trading with Alan for a little (or a lot of) “on the side” cash, check out his somewhat quirky introduction here.