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2014 Thesis: Globalization Trap Restricted & Confidential Copyright 2014 © Gordon T. Long All Rights Reserved [email protected]
GLOBALIZATION TRAP The First Global Liquidity Entrapment Release 1.0 Version-01-14-14
FULL REPORT
Gordon T Long 1/15/2014
2 2014 Thesis: Globalization Trap Restricted & Confidential Copyright 2014 © Gordon T. Long All Rights Reserved [email protected]
GLOBALIZATION TRAP The First Global Liquidity Entrapment
EXECUTIVE BRIEF .......................................................................................................................................................................................... 5
INTRODUCTION ............................................................................................................................................................................................ 13
ANNUAL ABSTRACTION: STILL ON THE ROAD TO A FIAT CURRENCY FAILURE & NEW WORLD ORDER (NWO) ............................... 14
EXECUTIVE PERSPECTIVE & SUMMARY: THE GLOBALIZATION TRAP .......................................................................................................... 17
GLOBAL IMBALANCES ................................................................................................................................................................................ 28
SITUATIONAL ANALYSIS ............................................................................................................................................................................................. 28 UNSOUND MONEY ......................................................................................................................................................... 29 GLOBAL LABOR ARBITRAGE ........................................................................................................................................ 29 GLOBAL BALANCE OF PAYMENTS & TRIFFIN’S PARADOX ........................................................................................ 31 NEO-MERCANTILISM VERSUS US$ RESERVE STRATEGY ........................................................................................ 33
ASIAN MERCANTILE STRATEGY ............................................................................................................................. 34 US DOLLAR RESERVE CURRENCY STRATEGY..................................................................................................... 35 THE SYMBIOTIC RELATIONSHIP ............................................................................................................................. 36 WHAT HAS CHANGED .............................................................................................................................................. 38 DEBT SATURATION .................................................................................................................................................. 38 MALINVESTMENT ..................................................................................................................................................... 39 CONSUMPTION IMBALANCES ................................................................................................................................. 39 A VIRTUOUS RISING CYCLE BECOMES A VICIOUS DOWNWARD SPIRAL .......................................................... 40 BERNANKE'S BOX .................................................................................................................................................... 40 FED'S DUAL TRIPLE MANDATE ............................................................................................................................... 41
CREDITISM & CORPORATOCRACY .............................................................................................................................. 44
GLOBALIZATION TRAP ................................................................................................................................................................................ 45
KEY UNDERSTANDINGS ............................................................................................................................................................................................. 45 WEALTH.......................................................................................................................................................................... 45 FLOWS ............................................................................................................................................................................ 46 GLOBALIZATION SCHEMATIC ....................................................................................................................................... 47 CONTINUUMS ................................................................................................................................................................ 47
SUMMARY STAGES .................................................................................................................................................. 48 STAGES-UNSOUND MONEY TO FIAT CURRENCY FAILURE ................................................................................. 48 STAGES-PUBLIC, FISCAL & MONETARY FAILURE ................................................................................................. 49 STAGES-ROAD TO REAL DEFLATION ..................................................................................................................... 49 STAGES-NATURAL PROCESS OF MATURATION ................................................................................................... 50
DRIVERS ......................................................................................................................................................................................................................... 58 LABOR ARBITRAGE ....................................................................................................................................................... 58 SLOWING ECONOMIC GROWTH .................................................................................................................................. 60 FAIRNESS & INEQUALITY ............................................................................................................................................. 60
POOR CHOICES ............................................................................................................................................................................................................ 60 UNSOUND MONEY ......................................................................................................................................................... 60 NEO-MERCANTILISM ..................................................................................................................................................... 61
PRODUCTIVITY PARADOX ......................................................................................................................................................................... 62
DRIVERS ......................................................................................................................................................................................................................... 62 AGGREGATE REAL DISPOSABLE INCOME GROWTH ................................................................................................. 62 202M UNEMPLOYED & 600M JOBS NEEDED WITHIN 15 YEARS ................................................................................ 63 TECHNOLOGY WAVES .................................................................................................................................................. 65
POOR CHOICES ............................................................................................................................................................................................................ 72 KEYNESIAN PHILOSOPHY ............................................................................................................................................ 72 PUBLIC POLICY FAILURE .............................................................................................................................................. 72
GLOBAL GOVERNANCE FAILURE ............................................................................................................................................................ 73
THE SHOCKING FAILURE OF PUBLIC POLICY ...................................................................................................................................................... 73 Policy in a Capitalist System ............................................................................................................................................ 74 Dysfunctional Policy ......................................................................................................................................................... 76
3 2014 Thesis: Globalization Trap Restricted & Confidential Copyright 2014 © Gordon T. Long All Rights Reserved [email protected]
How Socialism comes to dominate................................................................................................................................... 77 The Catalyst: A Crisis of Trust .......................................................................................................................................... 80 The Failure of Democracies ............................................................................................................................................. 81 The New Global Complexity ............................................................................................................................................. 82
DRIVERS ......................................................................................................................................................................................................................... 84 POPULIST GOVERNMENT ............................................................................................................................................. 84 CENTRAL PLANNING ..................................................................................................................................................... 84 CRONY CAPITALISM ...................................................................................................................................................... 84
POOR CHOICES ............................................................................................................................................................................................................ 85 CONSUMPTION versus SAVINGS MODEL..................................................................................................................... 85 CRISIS OF TRUST .......................................................................................................................................................... 85
CRACK-UP BOOM ......................................................................................................................................................................................... 86 DURATION ...................................................................................................................................................................... 88
EVOLUTION – The Reach for Profits.......................................................................................................................... 88 FINANCIALIZATION – The Financialization of the Global Economy ........................................................................... 88 DURATION ................................................................................................................................................................. 89
CONCEPTUAL ................................................................................................................................................................ 90 SAMPLE EXAMPLES ...................................................................................................................................................... 91
ZIMBABWE ................................................................................................................................................................ 91 VENEZUELA .............................................................................................................................................................. 93 ARGENTINA .............................................................................................................................................................. 95
FINANCIAL MARKET PATTERNS................................................................................................................................... 97 STAGES ..................................................................................................................................................................... 97 MID TERM ELECTION YEAR .................................................................................................................................... 98
DRIVERS ......................................................................................................................................................................................................................... 99 VALUE LADDER ............................................................................................................................................................. 99 ECHO BOOM – A “Peripheral Problem” ........................................................................................................................... 99
POOR CHOICES .......................................................................................................................................................................................................... 101 MONETARY MALPRACTICE ........................................................................................................................................ 101
FINANCIAL CRISIS II ................................................................................................................................................................................... 102
“OFF BALANCE SHEET” GLOBAL ACCOUNTS ..................................................................................................................................................... 106 GLOBAL CAPITAL ACCOUNT - $700 Trillion SWAPS .................................................................................................. 106 GLOBAL CURRENT ACCOUNT - $72 Trillion Shadow Banking .................................................................................... 107
ARCHILLES HEEL: DURATION & COLLATERAL RISK ......................................................................................................................................... 121 DURATION .................................................................................................................................................................... 121 INSTRUMENTS OF TRANSFORMATION ..................................................................................................................... 122
SELF SECURITIZATION .......................................................................................................................................... 122 COLLATERAL ............................................................................................................................................................... 125
REHYPOTHECATION .............................................................................................................................................. 125 REPOS & REVERSE REPOS .................................................................................................................................. 127 HQC - HIGH QUALITY COLLATERAL .................................................................................................................... 129 COLLATERAL TRANSFORMATIONS ...................................................................................................................... 144 COLLATERAL DEGRADATION ............................................................................................................................... 149 SECURED & UNSECURED ..................................................................................................................................... 160
CONTINGENT LIABILITIES ........................................................................................................................................... 161
DRIVERS ....................................................................................................................................................................................................................... 162 COLLATERAL CONTAGION ......................................................................................................................................... 162 LIQUIDITY / CREDIT FREEZE ...................................................................................................................................... 162
POOR CHOICES .......................................................................................................................................................................................................... 162 MONETARY BAILOUTS versus BANKRUPTCY RESTRUCTURING ............................................................................ 162 UNSOUND MONEY ....................................................................................................................................................... 162
FIAT CURRENCY FAILURE ....................................................................................................................................................................... 163
DRIVERS ....................................................................................................................................................................................................................... 164 LIQUIDITY TRAP ........................................................................................................................................................... 164
SHRINKING US TRADE LEVELS ............................................................................................................................ 164 FAILING PETRO$ STRATEGY ................................................................................................................................ 166 CURRENCY CARTEL’S FIAT EXPANSION ............................................................................................................. 166
POOR CHOICES .......................................................................................................................................................................................................... 168 RESERVE CURRENCY................................................................................................................................................. 168
4 2014 Thesis: Globalization Trap Restricted & Confidential Copyright 2014 © Gordon T. Long All Rights Reserved [email protected]
NWO ............................................................................................................................................................................................................... 170
DRIVERS ....................................................................................................................................................................................................................... 170 INSTABILITY ................................................................................................................................................................. 170 COMPLEXITY................................................................................................................................................................ 171 FRAGILITY .................................................................................................................................................................... 173 UNREGULATED FINANCIAL STRUCTURES ............................................................................................................... 174
DERIVATIVES – SWAPS & SHADOW BANKING .................................................................................................... 174
POOR CHOICES .......................................................................................................................................................................................................... 175 NEW STRUCTURES ..................................................................................................................................................... 175
DIMINISHING RESOURCES .................................................................................................................................... 175 DESTRUCTIVE TECHNOLOGY ............................................................................................................................... 181 NEW GOVERNANCE OR STATISM ........................................................................................................................ 183
