In Celebration of Fools

Story One




Equipped with a BB-gun to control altitude and a small American flag mounted on the chair, Kent Couch flew his lawn chair tied to a number of balloons 200 miles from Central Oregon to Idaho. Mr. "Lawn Chair" Couch is a hero of fools. God Bless Him.

Story Two


In today's Financial Times, Yu Qiao, a professor of economics at Tsinghun University in Beijing is concerned that Asia will be the victim if the U.S. bond bubble bursts. Basically, Mr. Qiao rightly observes that as investors don't trust stocks and corporate bonds due to the past decade's over-inflated values and the recent popping of those bubbles, "smart" money has gone into U.S. government bonds in droves -- thereby creating a new bubble. He says:

Analysts have warned of the dangers of the US Treasury bond bubble that developed in late 2008. Although insurance against sovereign debt default may reduce credit risk, it is unable to safeguard the real value of dollar-denominated securities. If this bubble burst, east Asians would be victims. Their economies directly hold more than $1.6 trillion of US sovereign debt, or 25 per cent of the total held by the public. Including direct holdings, Asians may hold half of the outstanding public-owned Treasury bonds. China, by some estimates, directly and indirectly holds more than $1.2 trillion of US Treasury bonds. If the dollar collapsed, the consequences would devastate Asians’ hard-earned wealth and terminate economic globalisation.

Interestingly, he cites the early 1970s collapse of the Bretton-Woods monetary system that was created after WW2 as a similar event when the United States sold out the global financial market for national gain.

The provision of stable, reliable and viable dollars may be subordinated to short-term US interests, posing a risk to global monetary stability. In the long term, America may seek to resolve its economic mess by devaluing the dollar at best and a default at worst. This is depicted in a Chinese proverb: “Drinking poisonous liquid to quench thirst”. History points to examples such as the collapse of the Bretton Woods system in the early 1970s. It is the foreign holders of US obligations denominated in dollars that would end up paying.

What caused the collapse of the Bretton Woods system? Republicans fighting unpopular wars. Nixon & Vietnam, in particular. The US Government needed to pay for the war, and they were running out of gold which they promised to exchange with governments for dollars. Well, dollars were being printed like crazy, and no other country wanted to hold them. In 1971, Germany was forced to accept a pile of schiesse and they said "Never Again" and the balloon popped. The dollar fell, the economy damaged, and inflation went up up up. In 1980, St. Ronald Reagan blamed everything on the demonized Jimmy Carter and the Republicans were reborn as the party of honesty and integrity.

If, as Marc at Adored By Hordes says, "History does not repeat itself, it rhymes", look for the Chinese to get really pissed when this current mess bursts. They will blame Obama, not Bush.

Mr. Qiao introduces what Asians need to do to protect themselves, but chickens out when it comes to enforcement claiming ignorance.

The basic idea is to turn Asian savings, China’s in particular, into real business investments rather than let them be used to support US over-con are vulnerable to any fall in the value of the dollar, equity claims on sound corporations and infrastructure projects are at less risk from a currency default. But Asians do not want to bear the risk of this investment because of market turbulence and a lack of knowledge of cultural, legal and regulatory issues in US businesses. However if a guarantee scheme were created, Asian savers could be willing to invest directly in capital-hungry US industries.

He then enumerates all the guarantees the US government should introduce to make sure the Asians are secure in their investments. Trust the Americans once again - the defenders of freedom, democracy, and capitalism. They have such a good track record. As soon as such an agreement was put in place, the Darth side would reneg if given power (or take it by force). If I were the Chinese government, I would bypass the U.S. Treasury altogether and lend directly to American industries and American homeowners. Give zero interest rates on loans, with repayments pegged to a Chinese-monitored international basket of currencies. This would put political pressure on the US not to print money and inflate the debt away.

But then again, the Chinese have pretty much forgotten their supposed idealism of equality, throwing that baby out with Mao's bathwater.