Thursday, January 5, 2012
Why Investors are inexplicably treated as Important..
The beginning of 2012 feels much like the last few months of 2011- Market goes up.. it goes down.. it goes up again- no nation has the guts to punish investors economically or criminally for hopscotching around the global markets hunting for personal profit, and corporate media propagandizes every piece of news as further proof of a non-existent 'Recovery'.
And frankly, if we wrote on it every day, we'd at A&G would all get burnt out.
So one of our 2012 resolutions is to write only when something relevant to comment on. Never to post for posting sake. It will be tough for us to not want to fight the good fight daily against the nonstop barrage of spin, but in the grand scheme, it will keep all of us better refreshed to counteract the lies when issues of the day really matter.
So onto today's posting...
All nations seem to care about investor confidence, which is akin to a homeowner caring about rats and roaches, and making sure they're properly fed.
But the question is why? Why the courtship and protection?
Simple: pretty much every nation on earth is financially overextended and living way beyond its means. In other words, with few exceptions, every nation on earth is spending more money than its taking in through tax revenue.
This creates national debts, yearly deficits and lots of can-kicking down the road. But still, national programs and government employees have to be paid. How does a nation come up with the cash which they're deficient in via tax collection?
Answer: The investors. They are the ones with no attachment to anyone and anything, who go where there greatest profit lies.
Governments have auctions monthly which sell bonds or treasury bills to investors as IOU's to get money to survive today while worrying about tomorrow later. So for example, a nation needs to generate $5 billion in January to make up their budget deficiencies and pay increased interest on loans to other nations. So they sell treasuries or bonds at a rate of return that is high enough to entice global investors to buy without being too expensive to trigger a national default upon repayment.
So in this example, the nation has a solid AAA credit rating because it has manageable debt, so it can sell bonds at low interest rates like 1.75% over a given period of months or years. The worse the credit rating which transfers itself to more desperate for fresh money the higher the interest and the greater pressure to come up with repayment later on.
Now when the bonds mature, they must be repaid-- but how? One way is a nation borrows more $$ from others, much in the same way an individual pays off one credit card with another. Nations that do not have the courage or desire to tax the wealthy their fair share to come up with the means to repay debts, will devalue their currency by printing more and more of it, which weakens the purchasing power for all citizens of that nation at the benefit of corporations exporting abroad and the indebted nation doesn't have to technically repay as much to the creditors. Those nations who can't print their own money- they suffer austerity; dramatic cutbacks in social services and increased taxes on middle to poor classes to pay back the loan shark investors.
I do not mean to gross or sicken anyone with example but it does apply: We all have trash, sewage and waste, which is taken away from our homes and businesses through various means, and collects elsewhere out of public view. And when our waste gets to a point there's no place to bury it, those entities that devour and engorge upon the waste, become more and more invaluable to keeping the system running.
This is the role global investors and market traders play because most nations of the world absolutely refuse to get their financial houses in order and live within their means, thus diminishing the scope and importance of the global investor.
And it is this reason why even in the most supposed democratic of nations, the people's' needs are usually ignored, and 'populism' as national policy is sneered at by know-it-alls. Because it doesn't matter who you elect.. Republican or Democrat, Tory or Whig, Socialist or Christian Democrat, when it comes to matters of finance and running the national economy, one group's needs will always supersede that of that taxpaying populace they represent: