THE STEVENSON REPORT - MARCH 21, 2008

The Trade Bubble

Subprime Loan From China

The extension of subprime loans encouraged the boom of the housing market. A subprime loan typically was set up in such a way that the borrower only had to pay an interest rate that was below the prime rate for the first few years. It later reset to the higher interest rate. Many of the borrowers would not have qualified for a regular mortgage. Now many of those loans are ready for the reset at the higher rate and the borrower is unable to make the higher monthly payment. Foreclosures are imminent.

In a similar fashion, the US has borrowed a subprime loan from China in the form of our enormous trade deficit of nearly one trillion dollars. The payments for the goods we have purchased from China have been lower than they would have been due to their 40% currency manipulation and rebated border taxes.By "discounting" goods by approximately 75% China has “stored up” some of our inflation for us. But now it’s time for the reset.

Banks cannot keep the assets they foreclose on. They must sell them to someone else. With China, that is not so.
From the beginning of our enormous trade deficits we have been told that the excess money in the hands of foreigners will eventually come back to us. Some naively believed it would come back through foreign purchases of consumer goods produced in America. But China’s consumers are not the ones with all those excess dollars, the Chinese government is. The Chinese government is not interested in buying consumer goods, but will rather “foreclose” on our American assets and keep them.

There is hardly a leader in America who has not seen that there is a problem with the subprime lending of the last decade, but many refuse to see the problem with China even though many of the elements are similar to the subprime lending crisis. Our “loan” from China is due for a reset. Stored up inflation is being released, and communist China is acquiring our assets. The problem is real.

Sovereign Wealth Funds, Weapons of a New Warfare

There is a new creature lurking the world. It is substantially different from anything seen before. It is the sovereign wealth fund. Far larger than any hedge funds, a sovereign wealth fund can consist of trillions of dollars worth of assets.
As Americans, we tend to look at the world through American eyes. It is inconceivable in this country for our government to be an owner of a corporation. In some other countries, the practice of government ownership of corporations and investment funds is normal. This is especially true in China and Arab countries. These huge money pools are known as sovereign wealth funds.

In 1999, two Chinese colonels wrote a book entitled Unrestricted Warfare. In it, they ask the question, “Can using financial instruments to destroy a country’s economy be seen as a battle?” Their answer is a resounding, “yes!”

With money generated by our continuing trade deficit, foreign corporations are buying up America. But these buyers are not just companies in a foreign country. They are actually owned and funded by foreign governments. So the bottom line is that foreign governments are buying American corporations.

The China Investment Corporation (CIC) has just bought a significant share of Morgan Stanley. Morgan Stanley is specifically mentioned in Unrestricted Warfare because of the importance of its credit rating service, “which points outs targets of attack for the benefit of the big fish in the financial world.” Without blood and death, Morgan Stanley has succumbed in this new financial warfare.

The Chinese colonels perceptively remarked that, “Financial warfare has now officially come to war's center stage--a stage that for thousands of years has been occupied only by soldiers and weapons, with blood and death everywhere. We believe that before long, ‘financial warfare’ will undoubtedly be an entry in the various types of dictionaries of official military jargon.”

As for America, it is very difficult to win a war we don’t even acknowledge is taking place.

Contact The Stevenson Report by email at jr549@wyoming.com or view at www.thestevensonreport.com