BEGGAR-THY -NEIGHBOR

Currency Wars - Capital Controls - Protectionism

Through the Process of Abstraction the 2011 Thesis outlines that the Global
Macro is presently on a well defined path to a global Fiat Currency Failure and
emergence of a New World Order. 2011 is being highlighted by social unrest in
a period of heightened conflict and tension. As economic growth declines and
chronic unemployment becomes even more broad based on the world stage,
Beggar-thy-Neighbor policies of Currency Debasement and Protectionism will
accelerate. Resource scarcity will begin to be felt in 2011 as will inflation
pressures from the US policy of Quantitative Easing.

Gordon T Long
7/31/2011

2011 Thesis: Beggar-Thy-Neighbor

1

Restricted & Confidential

Copyright 2011 Gordon T. Long All Rights Reserved general@GordonTLong.com

BEGGAR-THY -NEIGHBOR
Currency Wars - Capital Controls - Protectionism

Table of Contents
2011 THESIS............................................................................................................................................................................................... 4
EXECUTIVE SUMMARY ................................................................................................................................................................................. 4
OVERVIEW ....................................................................................................................................................................................................... 8
SITUATIONAL ANALYSIS ...................................................................................................................................................................................................... 8
IN A BOX ................................................................................................................................................................................................................................ 10
x
DEATH OF SHADOW BANKING; BIRTH OF QE ............................................................................................................................................................ 12

2011 PROCESS OF ABSTRACTION .......................................................................................................................................................... 16

ABSTRACTION & SYNTHESIS ........................................................................................................................................................................................... 17
AGE OF RAGE ...................................................................................................................................................................................................................... 17
CORPORATOCRACY & NEW WORLD ORDER .............................................................................................................................................................. 18
FIAT CURRENCY FAILURE & NEW RESERVE CURRENCY........................................................................................................................................ 20

GLOBAL MACRO OUTLOOK ....................................................................................................................................................................... 21

GLOBAL IMBALANCES ....................................................................................................................................................................................................... 22
ENTITLEMENTS & COLLAPSING WESTERN SOCIAL NET ......................................................................................................................................... 25
REGIONALIZATION & EMERGING MARKETS ................................................................................................................................................................ 26

US ECONOMIC OUTLOOK .......................................................................................................................................................................... 27

ECONOMIC DRIVERS ......................................................................................................................................................................................................... 27
ECONOMIC ROADMAP - 2011-2013 ................................................................................................................................................................................. 28
BEGGAR-THY-NEIGHBOR POLICY .................................................................................................................................................................................. 28

2011 FINANCIAL ROADMAP........................................................................................................................................................................ 32

MARKET ANALYTICS & TECHNICAL ANALYSIS ........................................................................................................................................................... 36
REVISITING 2010 'EXTEND & PRETEND" THESIS HIGHLIGHTS ............................................................................................................................... 37

TIPPING POINTS.......................................................................................................................................................................................38
2011 CHANGES OF SIGNIFICANCE .......................................................................................................................................................... 38
MORE RECENT SHIFTS ............................................................................................................................................................................... 38
TIPPING POINTS SUMMARY TABLE ......................................................................................................................................................... 39
HIGHLIGHT TABLE ........................................................................................................................................................................................ 42
LEVEL I - RED CONCERNS .............................................................................................................................................................................. 57
SOVEREIGN DEBT............................................................................................................................................................................................................... 57
EU BANKING CRISIS ........................................................................................................................................................................................................... 60
RISK REVERSAL .................................................................................................................................................................................................................. 64
US STATE & LOCAL GOVERNMENT ................................................................................................................................................................................ 67
FOOD PRICE PRESSURES ................................................................................................................................................................................................ 68
RISING INFLATION PRESSURES & INTEREST RATES ............................................................................................................................................... 72
SOCIAL UNREST .................................................................................................................................................................................................................. 76
CHRONIC UNEMPLOYMENT ............................................................................................................................................................................................. 80
CHINA BUBBLE ..................................................................................................................................................................................................................... 83

LEVEL II - AMBER CONCERNS......................................................................................................................................................................... 85

GEO-POLICAL EVENTS ...................................................................................................................................................................................................... 85
RESIDENTIAL REAL ESTATE - PHASE II ........................................................................................................................................................................ 87
COMMERCIAL REAL ESTATE ........................................................................................................................................................................................... 91
PUBLIC POLICY MISCUES ................................................................................................................................................................................................. 94
OIL PRICE PRESSURES & PEAK OIL ............................................................................................................................................................................ 100
BOND BUBBLE.................................................................................................................................................................................................................... 105
PENSION ENTITLEMENT CRISIS.................................................................................................................................................................................... 108
CENTRAL & EASTERN EUROPE .................................................................................................................................................................................... 112
US BANKING CRISIS II ...................................................................................................................................................................................................... 116

LEVEL III - DARK GREY CONCERNS ............................................................................................................................................................. 122

CREDIT CONTRACTION II ................................................................................................................................................................................................ 122
JAPAN DEBT DEFLATION SPIRAL ................................................................................................................................................................................. 125
FINANCE & INSURANCE BALANCE SHEET WRITE-OFFS ........................................................................................................................................ 128
US STOCK MARKET VALUATIONS ................................................................................................................................................................................ 129
GOVERNMENT BACKUP INSURANCE .......................................................................................................................................................................... 133

LEVEL IV - LIGHT GREY CONCERNS............................................................................................................................................................. 137

2011 Thesis: Beggar-Thy-Neighbor

2

Restricted & Confidential

Copyright 2011 Gordon T. Long All Rights Reserved general@GordonTLong.com

SHRINKING REVENUE GROWTH RATE ....................................................................................................................................................................... 137

GLOBAL OUTPUT GAP ..................................................................................................................................................................................................... 138
US DOLLAR WEAKNESS .................................................................................................................................................................................................. 140
US RESERVE CURRENCY STATUS ............................................................................................................................................................................... 143
PUBLIC SENTIMENT & CONFIDENCE ........................................................................................................................................................................... 144
SLOWING RETAIL & CONSUMER SALES ..................................................................................................................................................................... 147
NORTH & SOUTH KOREA ................................................................................................................................................................................................ 149
US FISCAL, TRADE & CURRENT ACCOUNT IMBALANCES...................................................................................................................................... 150
CORPORATE BANKRUPTCIES ....................................................................................................................................................................................... 152
TERRORIST EVENT ........................................................................................................................................................................................................... 153
FINANCIAL CRISIS PROGRAM EXPIRATION ............................................................................................................................................................... 153
IRAN NUCLEAR THREAT .................................................................................................................................................................................................. 154
NATURAL PHYSICAL DISASTER .................................................................................................................................................................................... 154
PANDEMIC / EPIDEMIC ..................................................................................................................................................................................................... 155

ABSTRACTIONS ..................................................................................................................................................................................... 156

DEBT SATURATION & DEFAULT ............................................................................................................................................................. 156
SOCIAL UNREST ......................................................................................................................................................................................... 164
GEO-POLITICAL TENSIONS ..................................................................................................................................................................... 168
REGIONALIZATION..................................................................................................................................................................................... 171
RESOURCE SHORTAGES......................................................................................................................................................................... 175
EMERGING MARKETS ............................................................................................................................................................................... 182
SYNTHESIS ............................................................................................................................................................................................. 186
BANKING & CREDIT CRISIS II ................................................................................................................................................................... 186
BEGGAR-THY NEIGHBOR & CURRENCY WARS ................................................................................................................................. 188
COLLAPSING WESTERN SOCIAL NET ................................................................................................................................................... 190
WEST -> EAST POWER SHIFT ................................................................................................................................................................. 192
GLOBAL CORPORATOCRAY.................................................................................................................................................................... 195
SHIFTING VALUE CREATION ................................................................................................................................................................... 196
THESIS ..................................................................................................................................................................................................... 198
FIAT FAILURE .............................................................................................................................................................................................. 198
NEW WORLD ORDER (NWO) EMERGING SIGNS .................................................................................................................................. 201
CONCLUSIONS ....................................................................................................................................................................................... 215

2011 Thesis: Beggar-Thy-Neighbor

3

Restricted & Confidential

Copyright 2011 Gordon T. Long All Rights Reserved general@GordonTLong.com