Should China Dump Dollars for Commodities? What about the "Nuclear Option" of Dumping Treasuries? Can Global Trade Collapse?

Every time there is a little blip by China in its purchasing or holding of US treasuries, hyperinflationists come out of the woodwork ranting about the "Nuclear Option" of China dumping treasuries en masse.

Such fears are extremely overblown for several reasons.

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The Global Perspectives Update team invites your comments here on our latest GP Update video for July 29, 2010 with Pastor Timothy Neptune and Steve Meyers.

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1 John 5:4 For whatever is born of God overcomes the world. And this is the victory that has overcome the world--our faith.

As we are entering some of the most turbulent times in history, we’ve been receiving an unbelievable amount of email expressing concern about the future. But I want to tell you a little something – the future is VICTORY!

It's not defeat, or loss. If you think about it, all the great leaders of the Bible shone in the hardest of times. When the giant Goliath stood against the army of Israel, David didn't sit around with his brothers complaining about how big Goliath was. Though David was a dwarf next to this evil giant, he was still convinced he was going to be victorious because God was on his side!

When the apostles saw Yeshua die, they must have felt utterly defeated -- then, suddenly, there he was, out from the grave, gloriously alive before them -- and from then on they walked in His victory! They didn’t sit around complaining about Roman persecution, the Sanhedrin, or the Pharisees. They didn’t get wrapped up in how evil the world was becoming; instead they pressed forward in the worst of times and in those dark days they shone like the stars in the midnight sky.

Friend , despite everything that's happening around us, let’s be sure we're not developing a defeatist attitude. We are called children of the King, a royal priesthood and a holy nation. Despite how bad things may be getting – don't forget we're on the winning team! We can stand against this evil and overcome it... with good!

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QE 2.0 Or QE 1.999: GSEs And FHA Are Preparing Auto-Refi Program Taking Millions To Current Market Rates Overnight

The main story making waves this afternoon is the presentation by St. Louis Fed's James Bullard titled "

" in which the Fed president pledges that the Fed should immediately recommence purchasing Treasurys if the deflation scenario picks up, which he notes is an increasingly likely probability. In the paper, Bullard argues that the Federal Open Market Committee’s extended period language may be increasing the probability of a Japanese-style deflationary outcome in the U.S. within the next several years, and concludes that an appropriate quantitative easing policy offers the best hope for avoiding a low nominal interest rate, deflationary outcome. "The U.S. is closer to a Japanese-style outcome today than at any time in recent history...A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.” While of course keeping up a facade that the Fed is in control, Bullard does speculate about the downside case: “The most likely possibility from where we sit today is that the recovery will continue through the fall, inflation will start to move up and this issue will all go away. Suppose we get another negative shock, another surprise. We have to be prepared in that event to have a plan in place to do something." Yet all of this is in the sphere of probabilities of QE2.0 and for now at least, is something to consider in the intermediate future. Yet something far more sinister may be brewing just below the immediate horizon.

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Image: The White House

We must admit to being a tad perplexed by this post up at The White House blog:

Affordable Housing in the Recovery Summer

That's right, apparently our central planners, in their infinite wisdom have decided that what the economy is really lacking right now is more cheap housing.

Here's what Rosie Rios, the US Treasurer wrote:

Access to affordable housing is a challenge facing communities across the country. But the Recovery Act is helping our nation meet that challenge head on by providing states with cash to help them finance low-income housing construction at a time when too many projects would otherwise be stalled. These projects are helping revitalize communities through both the creation of new affordable housing developments and the tens of thousands of jobs being created to build them.

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The market really is struggling. We did take out those support areas I cited in the a.m. blog. Can they manufacture a comeback or is it trouble with everyone looking for higher? The key now is whether or not we stay below those support areas on the close. If we close below, then we are in trouble. Getting above yesterday's low gets another higher attempt going.

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I've often heard folks proclaim, "God is good!" when all is going well, but then doubt His benevolence when the blessings they envisioned don't materialize. Because God alone is good, only He can accurately determine what is best for each person. His kindness is expressed in more ways than simply provision of wealth, health, and relationships. Some of His gifts are experiences we would never choose, but the Lord knows we need them in order to grow in faith, obedience, and perseverance. Consider the following expressions of God's goodness toward us:

• Loving discipline. Since God's love is unfailing, He corrects us when we refuse to follow Him and instead go our own way. The process is painful, but the result is "the peaceful fruit of righteousness" (Heb. 12:11).
• Wise Limitations. Satan offers a world of opportunities and possessions that seem to promise happiness but ultimately draw us away from God. With great wisdom, the Lord lovingly withholds those things that prove detrimental to our spiritual life.
• Useful suffering. God knows which refining experiences we need in order to become fruitful and useful in His Kingdom. What appears to us as a valley of weeping is God's valley of preparation for godliness and service.

It can be tempting to interpret God's character on the basis of our circumstances. If evidence compels us to doubt His goodness, we must remember that while His gifts come in a variety of wrappings, they are always beneficial. As Psalm 34:8 says, "O taste and see that the Lord is good."

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In an interview conducted with Business Week, Nassim Taleb discusses his view of the biggest black swan in the market currently, and isn't shy to call government debt a "Pure Ponzi scheme." - When asked where he the biggest potential source of systemic fragility is, he responds: "The massive one is government deficits. As an analogy: You often have planes landing two hours late. In some cases, when you have volcanos, you can land two or three weeks late. How often have you landed two hours early? Never. It's the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things costs more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it. The problem is getting runaway. It's becoming a pure Ponzi scheme. It's very nonlinear: You need more and more debt just to stay where you are. And what broke Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers." Alas, Taleb is wrong: Ponzi or not, today's UST auction will likely once again come at a multi year high Bid To Cover as the suckers (especially those who recycle Fed discount window money) just refuse to go away. READ MORE

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