Here’s an addendum to the Yuan article, this is from former Australian Prime Minister Paul Keating:

When Barack Obama announced his champion to rescue the world from economic ruin, it was the first time most Americans had ever heard the name Tim Geithner.

The initial impression was good. The stockmarket surged and the pundits swooned. “Exactly a decade ago, he was Uncle Sam’s golden-boy emissary sent into the stormy centre of what was then the world’s worst financial crisis [the Asian crisis],” reported The New York Post.

The paper gushed: “Just 36 at the time, he’d been raised in Asia and knew the culture so intimately he scored successes and won confidences that other diplomats couldn’t match. Geithner earned widespread plaudits for pulling together quarrelling Asian finance ministers into a $US200 billion rescue of their economies.”

“A fantastic choice,” said a Bank of Tokyo-Mitsubishi analyst, Chris Rupkey, as the Dow rose by nearly 6 per cent. Even one of Obama’s political rivals, the hard-bitten Republican senator Richard Shelby, agreed Geithner was “up to the challenge”.

If anyone in the US media had thought to ask a former Australian prime minister for his assessment, they would have heard a different view. And they would not have been so surprised at Geithner’s performance since.

In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner’s record in handling the Asian crisis: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.”

In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

This is charitable. The IMF and its US hucksters such as Geithner continually apply the same prescription. It’s a strategy not a policy error.

The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.

But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.

Keating continued: “Soeharto’s government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power.”

Exactly who was the “gigantic fool”? It was, obviously, the man who wrote the program, Geithner, although Keating is prepared to put the then managing director of the IMF, the Frenchman Michel Camdessus, in the same category.

Worse, Keating argued, Geithner’s misjudgment had done terminal damage to the credibility of the IMF, with seismic geoeconomic consequences: “The IMF is the gun that can’t shoot straight. They’ve been making a mess of things for the last 20-odd years, and the greatest mess they made was in east Asia in 1997-98, so much so that no east Asian state will put its head in the IMF noose.”

China, in particular, drew hard conclusions from the IMF’s mishandling of the Asian crisis. It decided that it would never allow itself to be dependent on the IMF, or the US, or the West generally, for its international solvency. Instead, it would build the biggest war chest the world had ever seen.

China could also recall George Soros’ raid on sterling in 1992 and numerous other F/X ‘runs’ and came to the obvious conclusion.

Keating continued: “This has all been noted inside the State Council of China and by the Politburo. And it’s one of the reasons, perhaps the principal reason, why convertibility of the renminbi remains off the agenda for China, and it’s why through a series of exchange-rate interventions each day that they’ve built these massive reserves.

“These reserves are so large at $US2 trillion as to equal $US2000 for every Chinese person, and when your consider that the average income of Chinese people is $US4000 to $US5000, it’s 50 per cent of their annual income. It’s a huge thing for a developing country to not spend its wealth on its own development.”

Is this some flight of Keatingesque fancy? The former deputy governor of the Reserve Bank of Australia, Stephen Grenville, doesn’t think so: “After the Asian crisis, the countries of east Asia decided that they would never go to the IMF again. The IMF is taboo in east Asia. Look at the evidence. The revealed preference of the region is that no one has gone to the IMF since, even when they needed the money.”

As noted the other day:

Again, the (Chinese) central bank is in a box. If they could somehow push the yuan’s value upward, dollar- investments already made in China @ the lower rate would be claimed in more valuable yuan. This would represent a value loss to China and a gain for ‘evil’ dollar speculators. Avoiding this outcome was the reason for the dollar/yuan peg and increase in dollar surplus in the first place.

The IMF’s strategy is to create conditions whereby Wall Street financiers are able to loot by way of foreign exchange the value of another country. The victim’s foreign currency reserves are fed into the hopper, loans to banks and firms are paid at the expense of labor, pensions, education and public investment. The outcome is greater debt and diminishing ability to service it.

Here is Michael Hudson @ the Guardian:

Latvia provides no magic solution for indebted economies

Despite being hailed by bankers as a shining example of how to pay off debts, the true picture in Latvia is far from rosy

The “Latvian option” is the buzzword of the moment among European bankers and financial journalists. In October, the Latvian people voted in a coalition headed by the incumbent prime minister Valdis Dombrovskis, whose government had savaged social benefits, cut pay and inflated unemployment in 2009. Was this proof that austerity measures could not only work, but actually be popular? Was Latvia the model that Greece, Ireland and Spain should emulate?

The Wall Street Journal, for one, has published several articles promoting this view. Most recently, Charles Doxbury advocated Latvia’s internal devaluation and austerity strategy as the model for Europe’s crisis nations to follow. The view commonly argued is that Latvia’s economic freefall (the deepest of any nation from the 2008 crisis) has finally stopped and that recovery (albeit very fragile and modest) is under way.

On politics, the standard narrative (as rolled out in the Economist recently) is that Latvia’s taciturn and honest prime minister, Valdis Dombrovskis, won re-election in October even after imposing the harshest tax and austerity policies ever adopted during peacetime, because the “mature” electorate realised this was necessary, “defying conventional wisdom” by voting in an austerity government.

Latvia endures its misery so as to make use of the euro. Its own currency, the lat, is accordingly hard to find and extremely valuable, which accompanies the demise of any organic output in that country. Sez Hudson:

As government cutbacks in education, healthcare and other basic social infrastructure threaten to undercut long-term development, young people are emigrating to better their lives rather than suffer in an economy without jobs. More than 12% of the overall population (and a much larger percentage of its labour force) now works abroad.

Children (what few of them there are as marriage and birth rates drop) have been left orphaned behind, prompting demographers to wonder how this small country can survive. So, unless other debt-strapped European economies with populations far exceeding Latvia’s 2.3 million people can find foreign labour markets to accept their workers unemployed under the new financial austerity, this exit option will not be available.

So what about the much-quoted 3.3% growth rate? Projected for 2011, it is often cited as evidence that Latvia’s austerity model has stabilized its bad-debt crisis and the chronic trade deficit that was financed by foreign-currency mortgage loans. But the real question to ask is whether 3.3% is really enough. Given a 25% fall in GDP during the crisis, such a growth rate would take a decade to just restore the size of Latvia’s 2007 economy. Is this “dead cat” bounce sufficiently compelling for other EU states to follow it over the fiscal cliff?

The method by which the EU’s creditor nations and banks would like to resolve this crisis is “internal devaluation”: lower wages, public spending and living standards to make the debtors pay. This is the old IMF austerity doctrine that failed in the developing world. It looks like it is about to be reprised. The EU policy seems to be for wage earners and pension savers to bail out banks for their legacy of bad mortgages and other loans that cannot be paid – except by going into poverty.

So do Greece, Ireland and perhaps Spain and Portugal understand just what they are being asked to emulate? How much “Latvian medicine” will these countries take? If their economies shrink and employment plunges, where will their labour emigrate?

Apart from the misery and human tragedy that will multiply in its wake, fiscal and wage austerity is economically self-destructive. It will create a downward demand spiral pulling the EU as a whole into recession. What is needed is a reset button on the EU’s economic and fiscal philosophy. Bank lending inflated its real estate bubbles and financed a transfer of property, but not much new tangible capital formation to enable debtor economies to pay for their imports.

Hudson leaves out Ireland which is facing its own IMF- driven deflation and a compounding debt spiral. It seems the current Fianna Fail government is going to smashed @ the polls in March, when elections will presumably be held.

Yesterday the Taoiseach’s supporters claimed that Mr Cowen was being lined up as a “scapegoat” for what will undoubtedly be the most difficult election for Fianna Fail in living memory.

Mr Cowen’s allies remain convinced that the true level of Fianna Fail support will be higher than that recorded in recent opinion polls. A Red C poll last week showed Fianna Fail running neck and neck with Sinn Fein.

The poll for Paddy Power found: Fine Gael (35 per cent), Labour (21 per cent), Sinn Fein (14 per cent), Fianna Fail (14 per cent), Greens (4 per cent), and Others (12 per cent).

Ominously, the Irish establishment still is without a clue:

Last night Mr O’Keeffe, said that while he fully accepted that Mr Cowen had the “best interests of the country at heart” it was abundantly clear that the time had come for him to resign. “The country is experiencing the worst economic crisis of our lifetime but we do not have the strong leadership that is required to address the many major problems,” he said.

He added that the future of the country was being squandered because, among other things, there was “still no overall strategic plan for the banking sector two years after the crisis began”.

Which is where the rest of the world is, nobody has a plan except for more pursuit of ‘growth’, more looting and more crossed fingers.

A good place to start a plan would be with the world’s energy budget which is completely busted. Expensive crude inputs are effecting everything that uses or embeds fuel. The outcome is high food prices, declining bond yields, onrunning forex imbalances, inflation/deflation and rising worldwide unemployment. The easiest and best first strategy is for economy- wide conservation. Let’s cut energy use in half.

How hard can it be?

Here’s a quick look @ Brent crude futures weekly front month from the estimable TFC Chartz:

Even though crude prices pulled back a bit toward the end of the week, the traders have this as a manic bull. At the same time, this price level is one where major breakage is happening/going to happen Look for default noise in Europe or bad news such as food riots or a large interest rate rise in China. Ugliness in US politics might scare stocks but the underlying cause is the oil price train- wreck taking place under our noses. The world economy simply cannot make a profit with $90 crude. The lack of profits in the real economy over a short span of time will in turn bring down the price of crude.

The instrument will be business failures along with more workers fired. Same ol’ same ol’.

Here is the gold weekly chart:

Gold might be rolling over. I don’t see a new bear market in gold as nothing fundamental has changed regarding gold supply or demand. The high value encourages hoarding. Meanwhile, there is a three- way dilemma: a strong bull market in crude is weakening the dollar in the near term, as dollars are ‘priced’ in crude. This is not a condition that can endure as the high fuel prices strangle both dollar and non- dollar economies.

What, then are gold traders looking at? Are they looking @ the current low value of the dollar or are they savvy to the inevitable high value of the dollar when crude dives? Are there other reasons why gold is pulling back?

Time will tell …