Written By Basilio Chen

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The first news into 2013 was the USA Fiscal cliff decision by the House of Representatives.

With the fiscal formula repeating itself (which?) there is no reason why the cliff will not be passed so it becomes a mere political theater for both parties to show their stances and at the same time to gain points one against the other in the eyes of the public.

The USA fiscal formula is based on QE1, QE2 and its derivaties QE+ continues until the Federal Reserve due date (2014).  Meanwhile its less coordinated version in the European world continues to take shape.  Now that the European Union has a more established and matured European Central Bank (ECB), it can become a connected world of government level finance.

What about China and Asia.  Ex-Japan which is also in tune with the ECB, many countries of Asia follow its own traditional system of banking.  However China is also using its own method of QE.

QE is actually good for the country however bad for the people and private enterprise.  As a tool, it has the objective of providing liquidity needed to growth and to solve some temporary cash needs however for the long term it always results in inflation.

With the massive trillions of US Dollars into the system since 2000, 13 years later is not a temporary situation anymore.

While the USA is engineering its solution out of the economic crisis and its State-Owned Enterprises (yes, AIG was stated [government] assisted, LTCM also, Fannie Mae and its cousin Freddie Mac, all the major banks, etc…) continues its same path toward creating new modern derivatives, China is entering a new period of government facing changes in its export and manufacturing base.

As a result, China also needs to engineer its new direction.  How to create a economic base to be less dependent on the USA and European exports?

Meanwhile, Europe continues looking for different formulas (which are in the span of human history, a repeat of old themes), like taxing the rich (France, 75% income tax).

Increase in taxation is innevitable as now after massive debt creation, the question will be how and who will pay for the interest on the debt.

What all this leads to?

The trends we are in comes with period of riots and crisis followed by periods of quiet pondering.  However, everything innevitably builts toward a climax before it finally ends the trend.

Although we do not take sides and do not believe in activisms, forecasting the actions and anticipating the probabilities is critical to positioning.  And positioning is everything.  What follows are analysis of geopolitical conditions into 2013.

The USA just approved 2 significant bills: USA takes Japan’s side on the Japanese dispute with China over islands.   The USA specifically confirmed that the disputed Senkaku Islands are covered by a US-Japan security treaty.  And the said treaty, signed in 1960, states that USA is to aid Japan in the event of an attack on the nation’s territory.

Next, USA restated its stance in a bill to sell F-16 attack planes to Taiwan.  This in addition to the the deployment of the so-called X-Band Missile Defense radar system in Japan continues the trend of installing a stronger military in Asia.  This military is no longer in terms of troups but with modern technology. 

The X-Band missile defense system is presumably to counter the threat posed by North Korea’s missile arsenal.  However, some sources have mentioned that it can be more than that.  Based on military strategy, this is all possible.

As 2012 is behind us, 2013 continues quietly the 2012 trend toward a final extreme before the 2000 trend ends and a new one begins.

Under this trend:

  1. Super Inflation
  2. Continue geometric use of natural resources
  3. Gold and Silver, as a save haven, will be valued over inflated prices and devalued monetary paper currencies
  4. Taxation will be increased
  5. Interest will eventually go up
  6. Tension in the world will continue

There is no exact repetition to history however there are exact outcomes where the majority loses to the minority.