| | | Page 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28 | Watch, Its happening ,the global economic change.
| Told You So
User ID: 191
5/10/2005 6:19 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
It wasn´t very steep, but I was correct! |
| .
User ID: 14609
5/13/2005 1:09 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
We´re Freaking Doomed, Dude
May 12, 2005
Richard Daughty...the angriest guy in economics
email: scgcjs@gte.net
Not much happened last week that you could put a finger on, as then perhaps you could understand why I am in such a foul mood. I dunno why. I just am. And then I remember that I am The Mogambo, bearing the crushing weight of the world on my brawny Mogambo shoulders (BMS). There is no other way to feel.
Debt problems worsened, of course, but only to the usual degree of the average monthly increases in that particular bad news category (BNC), such as outstanding consumer credit increasing by $5.5 billion in March, which means that the consumer´s debt load is rising at an annual rate of somewhere between 3% to 4.5% or so, and is already at $2.12 trillion, which is a tidy $15,193 per every freaking worker in this whole freaking country (140 million of them) who has a damn job. And the interest rate is rising on that debt, or is getting ready to rise, because interest rates are rising. And if lenders DON´T start raising their interest rates on credit balances, then their own bottom line (which is where profits would be found, if any) will suffer, and then somebody´s cushy executive job will be on the line, since they did not produce results that "benefit the shareholders", and then they get laid off, and then after awhile they start coming around here and wanting me to pay them back the money I borrowed from them five years ago. And then that bums me out. And then THEY get bummed out when I laugh in their faces at the very thought of me even having any money, and if I DID have any money I certainly wouldn´t give it to him, as I had him in my crosshairs from the moment he turned the corner.
Maybe it was that foreign custody holdings at the Fed increased by $8.1 billion last week, which is, again, towards the top of its range, and is worrying to me, mostly because I am the worrying type. And I worry because I believe that the Austrian Business Cycle Theory school of economics is correct, and Mises and Rothbard were very explicit about what happens when a government has acted as irresponsible as ours, and especially when you have a central bank that has actually eclipsed Congress in pushing the envelope of the bizarre, hewing, as they are, to some lunatic economic theory that can be conveniently modeled on computers, which means that things are permanently linked, and which is why their dumb-ass theory starts out with the proposition that lowering interest rates always causes an increase in economic activity which is, on its face, such a stupid statement that you marvel that educated adults would say something so damned insane, especially when Japan is the living proof that it is NOT true, because they are limping along at interest rates that are almost literally zero, and have been for almost fifteen freaking years in a row (how do you say "Nice job of investing there, morons!" in Japanese? Answer: Mogambo him say Hahahahaha!"), and it is only an export surplus that is keeping them alive. For fifteen years bond holders make nothing, and shareholders make ditto.
That things are heading for doom was even at the meeting of the Berkshire Hathaway people in Omaha, which produced this memorable quote from Buffett´s sidekick, Munger, who said "The present era has no comparable referent in the past history of capitalism. We have a higher percentage of the intelligentsia engaged in buying and selling pieces of paper and promoting trading activity than in any past era. A lot of what I see now reminds me of Sodom and Gomorrah. You get activity feeding on itself, envy and imitation. It has happened in the past that there came bad consequences."
So there are lots of people who are cognizant of the facts. Big deal. But now, the moment you have been waiting for! Now comes the reward for those who have not already stopped reading and said hurtful things like "This is really stupid! What kind of idiot reads this Mogambo crap?" which, although it is true, hurts my feelings nonetheless.
So, without further ado, here is the real reason The Mogambo is so forlorn (TRRTMISF): The general trend of the last seven years, since 1998, is that the Federal Reserve started creating money and credit in earnest , creating credit like something out of a nightmare that just doesn´t end, like my wife hitting me on the forehead with a hammer, but I can´t move and I cannot pass out, and I have to go to the bathroom real, real bad, and she is yelling "Maybe THIS will knock a little sense into your thick, stupid head!" But it doesn´t! It doesn´t teach me anything except that I think toilets should be closer to the bed, and then I feel worse and worse. But this tidal wave of fresh, new credit, as measured by Total Fed Credit, is reflected in a concomitant rise in debt that passed the point of being "un-payable" years and years ago. And given the lack of press coverage, apparently it is all a non-event, even though I am right there, every morning, under the 49th-street overpass, standing in the shade so that the harsh morning sun does not hurt the sensitive eyes of the Mogambo (SEOTM), holding up my sign, "Prepare to meet thy doom! The Federal Reserve and the world´s central banks are killing our money! And everybody else´s money, too!"
I also have another sign that says "Free kittens to good home" and a new sign that reads "Homemade cookies, $1.00". But (and here is a little business tip that they don´t teach you in those fancy-schmancy business schools), it turns out that very few people want to buy a home-made cookie from a crazy man standing on the curb. Not that I am complaining, because I made them out of stuff I found in a dumpster, so it´s not like I have a lot of money invested in the Great Mogambo Cookie Venture (GMCV). But with the price of ingredients so low, I figured that if I sold any at all, the profit margin was at infinity! Wow! What a business model!
But this is not about how a plucky young entrepreneur tried and failed to make a successful business in the cutthroat world of cookies, and how they all laughed at me for trying to sell a cookie that tasted worse than it smelled, and how I told them that it is not about smell or taste, but about PRICE! But explorations into that fascinating bit of marketing lore will have to wait for another day, as I am much too busy preparing the release of the seldom-issued Mogambo Market Move Memo (MMMM). We cut to the inside of the Mogambo Bunker Of Impenetrable Gloom And Homicidal Despair About Global Monetary Policy (MBOIGAHDAGMP), where our scene opens with me taking a long pull on a bottle of bourbon, chain-smoking unfiltered Luckies and glancing nervously over my shoulder. Using a .45 automatic as a pointer, I gruffly refer to several charts fastened to the walls with stiletto daggers, mostly for the effect, as it looks so cool. I use the barrel of the gun to point to one of the charts, where we see the slowdown in Total Fed Credit over the last month or so, as compared to 1) the whole history of Fed Credit since 1913, and 2) since 1998.
For you Mogambo fans, this next part is going to be on the Mogambo Bloopers and Outtakes Show, showing where I accidentally pulled the trigger and the gun fired and that damn bullet started ricocheting off the wall, going ping! plang! whing! and, if I remember my Batman correctly, where Adam West, as Batman, is being fired upon by various criminal elements in comical attire, ker-plewie! Subsequently, I have amended the Mogambo Bunker Policies and Procedures Manual (MBPAPM) to include the requirement "Fingers off the trigger! Off! Until such time as it is immediately obvious that something or somebody needs a big ol´ healing dose of Dr. Leadplugger."
But since we no longer have one of the charts, thanks to the little accident, I motion for you to move your seat closer to me, right up close, so that you can look into the fiery eyes of The Mogambo (FEOTM) as I tell you, with words, hand gestures, facial expressions and ESP, what I was planning to show you, but now I can´t. But you would have loved it, because it so graphically illustrated the point that you would look at the charts, instinctively clasp your hands together and excitedly exclaim, "Oh, Mogambo! You have made me see the light! We´re freaking doomed, dude!"
So pay attention, because here it is (H I I). The last time a slowdown in credit creation happened, and you can tell by the way I have kettle drums and discordant brass instruments in the sound track, was in the year 2000. Clash of cymbals! Lightning flashes outside the window! Wolves howl in the distance!
Now you know why your hands are clasped in, to use the popular phrase, shock and awe. And you also know why we are doomed. And you know why the Mogambo is holed up in that filthy little rat hole of his, hiding out in the backyard, crying and shaking in fear, bristling with so many heavy weapons and ammunition that he cannot even get up to walk. And yet, unbelievably, when he politely applies to haveone of those do-gooder departments of the damned government to supply him with a lousy electric scooter to get around, and maybe help me move some cases of munitions, they say "no!" Real snotty, like. "No!" Then I go home with their rude laughter ringing in my ears and the salty bitterness of my tears on my trembling lips, and after awhile I get tired of plotting my revenge, and turn on the TV, where I see these commercials where all these other people get electric wheelchair carts! It is just another example of how they are all out to get me, the bastards. And now people want to know why I am resentful, and snarling, and hateful, and sometimes all three at once, and all the people around me are snarling and hateful, but then I remember that they are just family and neighbors, so who the hell cares what they think? Screw ´em.
In short, the dysfunctional idiocy known as the New American Economy, based entirely on debt-fueled consumption and trading financial securities and borrowing against the bubble-created value of our houses and assets, needs ever-more debt to just stay where it is. And that creation of debt has, suddenly, not been increasing anymore. Just like in 2000. Ergo, big freaking problems are coming soon (BFPACS). The headline in tomorrow´s newspaper in your hometown, and in hometowns all across America, will read "Mogambo Says Big Freaking Problems Soon!" and if it is NOT the headline, then you know that your newspaper is ALSO out to get me, the bastards, and lie to you, which is worse.
But if the perfect revenge is to make money and flaunt it in front of them until they die of jealousy and envy , this would seem to be a very, very good time to buy a put option or two on the OEX. The optimum strike price is, the way I figure it, at-the-money. If I am right, we will all make a lot of money when the SP100 falls a long way. If I am wrong, well, I have been so wrong about so many things, for so long, that you were stupid to listen to my advice, and now you have nobody to blame but yourself, and even I sneer in disgust and disrespect at your gullible stupidity.
- The credit rating of General Motors and Ford were downgraded to junk status, which means it carries a higher risk of default. An ominous sign of some kind. We´ll see how it turns out, but I am betting on lower share prices, a threat of bankruptcy, an emergency government bailout, the foisting of their retirement plans onto the government pension bailout safety net, the PBGC, and a resurgent share price, making Wall Street a bunch of money both on the way down and the way back up.
- Antal Fekete, "goldbug Variations V" on the Freemarketnews.com talking about the decision by Nixon in 1971 to take the dollar off the gold standard, essentially defaulting in the worth of the US dollar. "We must remember that the financial annals do not record a single case in which a default has not been followed by a progressive increase in the discount on the paper of the defaulting banker, until it reached 100 percent - possibly several years or even decades later." Mogambo Instant Translation (MIT): the purchasing power of the currency went to squat, which makes everything cost more. "Obviously, the defaulting banker would try to slow down the process by hook or crook. However, ultimately economic law was to prevail and the remaining value of the dishonored paper would be wiped out."
Now, because you are reading this, I know that there is something wrong with you, as only people who have something seriously wrong with them would stoop to reading the Mogambo Guru, and so you are saying to yourself "What in the hell does this have to do with me making some money and amassing incredible power through the sheer bulk of my money, so that I can stride as a colossus across the financial and social landscape, and all will tremble at the sound of my name?" Well, I was getting to that, in my peculiar Mogambo way (PMW), but first the grasshopper must learn to place his consciousness in a garden of serenity whereby one can grasp the transcendent wisdom about to befall him. But now I am not in the mood anymore, thank s to someone interrupting my train of thought.
So, instead, we will hear from Mr. Ankete himself, he declares "There is no reason to believe that the dollar default will end differently." Then he sits back down. Obviously, that phone call he got earlier was when he found out that my check has bounced. Bounding up (Just like that damned neighbor´s kid who accidentally backed into the electric-fence section of the Mogambo Bunker Perimeter Security System last week. You should have seen the look on his face! Hahahaha!), I go on to fill the sudden silence by asking "The value of the dollar will fall, a money backed by nothing and therefore can be created out of nothing, until so damn much money has been created through the creation of debt, that the country and the world are going to be affected, and in a bad, bad way (BBW)? Hahahaha!"
Mogambo scholars immediately run to their dog-eared copies of the Mogambo Dictionary (MD), and look up BBW. The entry is "BBW. Acronym for Bad Bad Way. Indicative of worsening pain and suffering of one kind or another, and if it is used in conjunction with economic or financial subject matter, it implies the certitude of ruination and starvation and misery on a grand scale, and then one bad thing will lead to another bad thing, and after awhile people will get tired of ruination and starvation and misery, and they will rise up in the street, crying out ´Save us, Mogambo! Save us!´ but I will be too busy counting my wealth because I had seen it all coming, plain as day, and bought gold, but I will ultimately be convinced to seize the reins of power by shallow flattery and cheap bribes of one kind or another, which will lead to a deepening sewer of depravity and corruption, a period known to historians as ´The Mogambo Reign of Terror´."
Seeing that The Mogambo is getting all the attention with this ridiculous fantasy about ruling the world and how if I do, there are going to be some BIG changes made, Mr. Ankete gets up, walks over to the podium, and stands right beside me. I am pretty sure that he crossed his eyes and graphically indicated that I am crazy by making little circles with his finger alongside his head. But I can´t get mad at him, as it is such a good impersonation of me. I step aside, and he immediately steps to the microphone and says "As the discount on the dollar approaches 100 percent, the dollar price of gold will approach infinity. To assert that the dollar is going to escape this fate is tantamount to asserting that the laws of economics and logic have been turned upside down, and the penalty for default has been replaced by reward in perpetuity."
If the dollar falls in value, then the "dollar price of gold will approach infinity"? Wow!
For those of you who want me to give you tips on what the "small investor" should do, here is a tip: Buy an asset whose value, in dollars, will go to infinity. If you are not familiar with the subtleties of an infinite amount of dollars, it is more than a jillion dollars, it is more than a gazillion dollars, it is more than a trillion, zillion, bazillion flabgobble splendillion dollars and, as such, represents one hell of a large chunk of money, and I cannot imagine the size of a wallet needed to carry that much money, so don´t get me started thinking about it.
And the good thing is that it is also worth a lot of money all over the world! Perfect safety! Huge gains! All at $435 per ounce! What more could you ask for in an investment? And at the same price as the large investor would pay, too!
And while Mr. Ankete does not come right out and say it, I am sure that he is thinking it, and instead of trying to coax it out of him, or wheedle it out of him, or demanding that he tell me, or threatening to beat it out of him and if he knows what it good for him he had better start talking, I will tell you myself. Buy gold and/or silver.
Besides the bad news that we are doomed, and how we are all going to die a horrible, painful economic death, he also notes that "A reliable measure of destruction is the so-called ´notional´ size of the derivatives market trading interest-rate futures, options, and swaps. It now stands at a quarter of a quadrillion dollars and is increasing at an accelerating pace." Now this, in American terms, is $250 trillion, which is about nine times the value of global GDP, which means it is ten times as big as all the goods and services produced by everybody and every company on the face of the earth.
This is not news to John Mackenzie, who wrote the essay entitled "M2- Debt and the Delusionals", as he has been looking at the most current Settlements Data on Derivatives, assembled by the Bank of International (BIS).
He notes that the BIS figures that Exchange Traded Derivatives now total $279 trillion, and OTC derivatives now total $220 trillion, which add up to, and I am going to take his word for this, as I cannot reliably add $279 plus $220, almost $500 trillion, which is almost HALF a quadrillion!
The good news, if there is any, is that the banks also figure that not all of that $499 Trillion in combined Derivatives is at risk. Whew! The banks decided that only somewhere between $25 trillion and $35 trillion of that total amount of derivatives is, as they say, "at risk." Hey! Now I feel a LOT better! The amount "at risk" is only the total value of all the freaking goods and services produced in the whole freaking world in an entire freaking ear! I feel MUCH better now!
This is where I was supposed to get up and make some stupid comment about how these are big, BIG numbers, but I could not handle the stress, and the mere mention of those mountains of big bets (MOBB) caused my brain to seize up in a spasm. Always the trooper, Mr. Mackenzie bounded up out of his seat, grabbed the microphone out of my lifeless hands, and said "These figures are simply staggering." A faint smile crosses my face, and with a Herculean effort I manage to waggle my little finger to indicate that I agree with him. And it is probably a lot worse than that, as he goes on to say "It is important to note that although Exchange Traded Derivatives are regulated, OTC derivatives are not and in fact many OTC derivatives can go unreported. Essentially, the $220 Trillion figure in the BIS release does not account for non-reporting, and is therefore low."
- Steven Lagavulin has written "The Most Important Thing You Don´t Know About ´Peak Oil´ at the Deconsumption.typepad.com site, which is the idea that we have already passed the point where we can get more and more oil out of the ground, and from now on there will be dwindling supplies because we have used up so damned much of it. He sees, naturally, a feeding frenzy for oil. "If this scenario sounds over-dramatic," he writes "keep in mind that what I´m talking about is a dawning recognition of something that many analysts have already come to realize: that the ´oil grab´ is in fact already on, that it´s not a temporary ´bottleneck´ or passing ´shock´, and that the losers in this game will not survive."
And since we are talking about oil, let me give you the Mogambo Investment Tip Of The Day (MITOTD). I smile as I gently and confidently forecast that the current fall in the price of oil is a big chance for you to buy oil-related stocks, and oil futures if you have the inclination, because there is not one instance in all of history when a rising demand, a falling supply, coupled with the devaluation of the currency, resulted in lower-priced oil for that stupid country that so debased its currency. Never. And it never will happen, either. Ever.
And it is not just oil, as Addison Wiggin of the DailyReckoning.com notes that there is a new interest in coal and coal-fired energy. He first notes that "The Chinese plan to replace 10% of their oil imports with liquid coal by 2013. And it will also have huge advantages for running power plants that Chinese trains and trucks can´t get to as easily or regularly", and then he brings it all home when he goes on to say "Over the last 12 months, energy companies in the United States announced plans to build over $100 billion worth of new coal-fired power plants."
So, investing in companies that build these things seems to be a no-brainer, which is the kind I like, as not having any brains makes it hard to understand any other kind.
- I, like a lot of people, am continually pondering the "inflation or deflation" debate, mostly so that I can place some investment bets on it and make a big pile of money and then maybe I´ll get a little respect around here. Mostly I get a headache from the confusion, because and I gotta say that both sides make good arguments. On the one hand, the deflationist camp is right that if all those derivatives go bad, and houses deflate in price, and stocks deflate in price, and bonds deflate in price, and debts are bankrupted, then money will simply disappear. The reason is that all our money comes from debt; and when you go to the bank to borrow some money, the bank creates the money out of thin air. But if I bankrupt out of the debt, doesn´t the money disappear, too? And a falling money supply is the actual definition of deflation. So, therefore, we should have deflation.
The other side of the debate, the inflation side, is (for one thing) that in all other post-inflation busts, asset prices DID fall, just as in the deflationist camp said they would, and the economy suffered. But not all prices went down. Many of them went up, including food and fuel. And inflation can happen with surprising suddenness. In Germany in 1919, the most recent example of a large, modern economy going bust, the exchange rate was nine German marks to one US dollar. In November 1923, four lousy years later, the exchange rate was 4,200,000,000,000 (4.2 trillion) German marks to the US dollar. But food and fuel and other necessities became so damned expensive that the suffering was unimaginable, and that is why Germany, desperate for someone to "do something", elected Adolf Hitler, which didn´t turn out to be such a hot idea in the long run.
So the values of things they owned, and their whole economy, were in tatters, but food and all the things you need to stay alive and warm were so expensive that they were unattainable. So, now, YOU answer the question: Did they have deflation or inflation?
- Julian Phillips and Peter Spina of goldForecaster take a look at how a falling dollar against the Chinese yuan might work out. They ask us to "Imagine all those holding Yuan waiting for the revaluation. They are looking for the Yuan to fall to around Yuan 5.90 to 6.00 to the US$. In Yuan, then, a gold price of $426 stands at Yuan 3780 at present. After a revaluation of 40%, it should trade at around 2703. Suddenly, the Chinese gold holders are sitting on a 40% loss, that´s true. But there are not so many of them. But you can be sure that many, many Chinese will see it not as a drop, but as a tremendous buying opportunity if this happens. This could set of quite a demand across China."
Ken Gerbino has also looked at what a devaluation of the dollar could mean to the Chinese. "If the Chinese revalue the RMB, the very next day after a 5-10% revaluation (and this could be very soon) every Chinese saver will be able to go out and buy 5-10% more gold for the exact amount of cash from the day before."
Messrs. Spina and Philips are through talking about gold, and want to get back to the subject of interest rates and inflation. "The Fed is caught in a cleft stick," they say, "knowing that if they don´t raise interest rates, inflation will grow. If they do raise interest rates, growth in the economy could wither and reverse. The balance is so delicate now that whatever they do may be wrong." This just shows you what optimistic guys Spina and Philips are, because The Mogambo says that whatever they do WILL be wrong, as there is no way out of this damned mess, and that is why it is so crucial that we not get into this damn mess in the first damn place.
But that does not answer the question "So what will the Fed do?" Spina and Philips figure that they will err on the side of growth, and keep interest rates so low for as long as it takes for The Mogambo go out of his mind and end up in custody somewhere, cursing and kicking and vowing revenge on Alan Greenspan. Mr. Willie thinks the same thing, and writes "We reiterate that the Fed will place continuing growth of the economy above the curtailing of inflation". The Fed, for its part, hopes that nobody notices that the main damn purpose of the Federal Reserve is to achieve price stability.
Part of the demand for gold is coming from India, and they note that "Indian buyers are in the market in force. Below $430 they are rapacious, above it they are still there, but somewhat cautious, hoping for a pullback. The demand is so strong that they will not stand back for long."
The news is not so good for platinum, as some news from the world of nanotechnology says that work with nickel has "advanced to the point where nickel can be substituted for platinum in catalytic exhausts."
- "gold Mining Stocks: What is Happening Now" by Kenneth J. Gerbino is not about gold, per se, but about how everyone is going to wake up every morning and find that inflation is gnawing their feet off, and the reason is that all the world´s governments are now peopled exclusively by morons who are creating more and more money with every breath. "Inflation in the U.S is 3.5% and rising. Globally this number is 4.3%. My investment management firm monitors 61 foreign countries that report regularly on money supply statistics. In the last 12 months these 61 foreign countries have increased their basic money supplies by an average of 15.2%. Most people with savings in these countries will try and protectthemselves from inflation that is surely looming and will most likely be buying gold. The Chinese basic money supply from 1998 has averaged an annual increase of 13% for 7 solid years. Inflation is coming to China - and that means plenty of gold buying."
This bring up John St. George, the guy who is the terrific voice and quick-on-his-feet host of on FreeMarketNews.com., who was interviewing me on the phone, which was, I regret, not so much of an "interview" as it was my screeching in my usual whining, hysterical little sissy-boy way, when he suddenly distracted me by graciously remarking that he thought I had finally, after all these years of trying, constructed a memorable sentence. I was as surprised as you are, since I seem to specialize in forgettable prose that is also stupid. He was referring to how I wrote that the money that the Federal Reserve creates to sustain the economy is a bad thing, because "All that new money will, because it always does, show up as inflation in prices, since there is nowhere for the money to go except into buying something, and with all that new demand, prices rise."
Okay, now that I look at it, I see that this St. George guy was either puffing my ego or pulling my leg, because after the big introduction, now I look like an idiot again, and everybody is laughing at me, giggling and pointing like when someone has taped a paper onto my back that reads, "I am a big stupid idiot". So I went to a mirror and checked, and was relieved to find that I do not. I DID have one stuck on the back of my coat that says "I am a filthy pervert", but it was an old one; I have mixed feelings about the free publicity, and it doesn´t take up much room, so I just leave it there.
But, to give myself a little credit that Mr. St. George tried to give me, the sentence is banal but unassailably true, and the curse of inflation is why normal countries and normal people do not inflate their money supplies.
- A few people have taken notice of how undervalued gold is right now. One of them was cornered by Tom Dyson, writing on the Daily Reckoning Rude Awakening column. He quotes Steven Jon Kaplan, who is "author of a free website called the True Contrarian [www.truecontrarian.com], and student of the precious metal markets since the 1970s." Mr. Kaplan says "The key to knowing good buying and selling opportunities in gold mining shares is to track the spread between the price of spot gold and HUI, the Amex gold Bugs Index" which he calculates by subtracting the HUI from the spot price of gold. "As a general rule, a high spread indicates pessimism toward gold mining shares, so you want to buy these stocks when the spread is starting to reverse lower from a major high point." So where is it now? "This past Friday, April 29, 2005, the spread reached 257, an all-time record high. The record low was 148 on December 2, 2003, when HUI was at 258.60." Yow! According to this, we are at an historic opportunity to buy gold mining shares? Great!
Another guy is Bill Murphy of LeMetropoleCafe.com, who was quoted by John Hussman as saying pretty much the same thing, only using the XAU in comparison to the spot price of gold. "Probably the simplest way to emphasize conditions in the precious metals shares is to examine a simple valuation indicator that is, surprisingly, nearly as useful as much more sophisticated indicators: the ratio of the spot price of gold to the Philadelphia XAU Index. On Friday, spot gold closed at 434.39, while the XAU closed at 83.51. That put the gold/XAU ratio at 5.20."
Now, if you are like me, then numbers come and numbers go, mostly in reference to things like neighbors standing out in my front yard, yelling things like "You are number one on our list of people we hate!" and it is only when we consider the exact meaning of numbers do we understand. To this end, they go on to say, "To put some historical context on this measure, since 1974, the gold/XAU ratio has been greater than 5.0 about 15% of the time. When the ratio has been this high, the XAU has followed with annualized gains of 89.6%, on average ˇ a figure that remains high even if the data is split into multiple samples. When the ratio has been greater than 4.0, the XAU has followed with average annualized gains of 27.4% (though the finer profile of returns has been sensitive to other conditions such as interest rates, economic trends, and inflation)."
Wow! This is great! If you would loan me some money, I would buy some gold mining shares right away! But not all is beer and chili dos, as that is what I would really do with the money if you were so stupid as to loan me some, as he notes when he goes on to say "In contrast, when the ratio has been less than 3.0 (meaning that the gold stocks are very elevated relative to the actual metal), the XAU has declined at an annualized rate of -36.6%, on average."
Now that we know all about the relevance of the numbers, we re-read the part where 1) the ratio is at 5.20, and then 2) we skip down to the part where he says "When the ratio has been this high, the XAU has followed with annualized gains of 89.6%."
And let´s not forget to mention Bob Hoye, who is "a market historian and editor of Institutional Advisors", and hope he is correct when he says "According to thorough technical analysis, the gold sector seems to have reached a significant low." But he notes that this is not particularly news to him, as "Every era of financial bubbles is eventually followed by a severe credit contraction. Since the advent of modern financial markets by around 1700, there have been five examples prior to the blowout in 1Q2000."
And that is not all, especially as pertains to gold. "Also typically, the post-bubble rise in gold ran for 20+ years. With varying degrees of intensity and success, the record is complete back to the 1690s´ depression bottom, which recorded the ´Oro Preto´ mania in Brazil."
Bull markets in commodities typically run for more than 20 years, and "They start from a depression bottom and end in the era of bubbles ˇ never the other way around."
So all we need is for the weird markets to roll over to get this thing started? Apparently so, as he writes "This recovery in stocks, business, and credit markets is showing some of the classic signs of topping at the same time as the gold side of the equation is indicating downside capitulation. In which case, the second cyclical bull market, whereby gold will outperform most commodities as well as most financial assets, is about to get underway."
And what will happen when it does get underway? "The first one out of the collapse of the tech bubble launched a remarkable drive to acquire millions of ounces of gold. This one will launch an even more remarkable drive to discover millions of ounces of gold. Exploration companies with outstanding field abilities and portfolios of identified properties will be outstanding performers." Ergo, acquire both physical gold and gold stocks.
- I was sitting here thinking about how to convince people that investing in the stock market is NOT a place where a lot of people make money. The stock market IS, on the other hand, a place where lots of people put their money, THINKING they are going to make money, only to see it wither away. But the more I thought about it, the more beer I drank, and the more confused I got, and , fortunately, ran across the essay, "Bear´s Shadow Falls Over Financial Markets", by Jeffrey L Ferguson in the Asia Times which saves me a lot of thinking time that could be drinking time. He writes "The second secular bear growled its way through the 1970s and it was truly secular in nature. Contrary to a common belief, equities didn´t simply trend sideways through the 1970s before moving to new highs with the great bull market starting in 1982. This illusion is caused by inflation that plagued the period. Deflating the S&P 500 with the CPI reveals that the market peaked in 1969, not 1973, before falling 64% over the subsequent 13 years, ultimately bottoming out in 1982."
It gets worse. "Stock prices failed to exceed the 1969 peak until 1993, 24 years later, and didn´t move convincingly through the 1969 level until 1995. At this point, the weary, and rather aged, investor still faced capital gains taxes on a phantom 300% gain wholly due to inflation. Covering this tax liability likely extended the true recovery period to within shouting distance of the bear market in stocks beginning in 2000, the most recent peak in equity markets."
I short, nobody made any money, in the real, inflation-adjusted sense, until just before the swoon in the stock market in 2000, and then, of course, they are back underwater again. In other words, if you had not bought a new car in 1969, but had, instead, invested the money in the stock market, in 2000 you would have enough to, after taxes, buy a new car. You call that investing? Hahahaha! If you do, then you are the product of the American public school system! Hahahaha!
And it won´t get any better for the rest of your life, according to Captain Hook, of Treasure Chests, who says that "we are of the opinion true highs (Grand Super Cycle Degree) in the broadest sense of the word were not put in until last month, as presented above in the S&P 500 Equal Weighted Index." And, in case you can´t gather from the phrase "Grand Super Cycle Degree", it means that you will be dead and gone before the next bull market in shares starts.
- David Bond, the man behind the annual silver Summit, has announced on the sitethesilverPennies.com that it will be "the rock´n´roll concert of the investment conferences this year. Literally." The Whole Hollywood Story is that Steve Doré, who is a terrific boogie-woogie piano player, has written a song about the wonders of silver, and will be performing it live and in person. To elevate the event, there is also an educational component, as I will help him out by simultaneously demonstrating 1) why there are no boogie-woogie fiddle players, and 2) why my career in music was an even bigger failure than everything else I tried and failed.
The silver Summit will also celebrate Wallace´s international recognition as Center of the Universe, as represented by a year-old marker, "a manhole cover of incredible detail and quality." [click].
- The subject of this week´s Newsweek magazine is "Special report: China´s Century." For the last twenty-five years, they have had 9% economic growth, which is, according to the magazine, "the fastest growth rate for a major economy in recorded history", quadrupling the average income and bringing about a quarter of the entire population "out of poverty." Pretty impressive.
Now, the more thoughtful among you may sit back, stroke your chins, and calmly ask yourself, "What in the hell is this idiot writing about now?" Ah, grasshopper! If you had waited just a moment longer, my impetuous and impatient one, I would have eventually gotten to the point, probably after a long and tiresome diatribe about the Federal Reserve and how they are, predictably, out to kill us all by killing our money, and I won´t even mention how they are out to get me personally, maybe to turn us into slaves for some alien invader from someplace like Mars or something, or maybe another dimension or something. I dunno.
But this is not about how money and capital has poured out of this country, thanks to the aforementioned Federal Reserve policy of creating money out of zipola. But it is the next sentence that shows how the modern neo-Keynesian/ Supply-Side monster grows and gains legitimacy. They write "The Chinese leadership has to be given credit for this historic achievement." Well, duh!
But it has come at a cost, as they report in the very next paragraph which echoes my sentiments exactly, although in a style that is MUCH different than you get from the hysterical Mogambo (THM). They write, "There are many who criticize China´s economic path. They argue that the numbers are fudged, that corruption is rampant, that its banks are teetering on the edge, that regional tensions will explode, that inequality is rising dangerously and that things are coming to a head. For a decade now they have been predicting, ´This cannot last, China will crash, it cannot keep this up´ So far, at least, none of these prognoses have come true." Well! If we are going to get snippy, let me point out that the snotty little author, whose name is Fareed Zakaria, doesn´t actually mention me, The Mogambo, by name. But if you carefully read between the lines of what he actually wrote, you can plainly see that he is saying "Mogambo is a big, fat idiot, and everybody hates the Mogambo, and that is why we ´arranged´ to have his lawn sprinkler bite the dust last week, and that ought to teach him a lesson!"
Well, yes and no. I learned, on the one hand, that this Zakaria guy hates my guts, and so I am going to make a note to myself to put this guy´s name on the Mogambo Official List Of Known Enemies (MOLOKE).
On the other hand, I haven´t learned a damned thing, because we did NOT say that a government creating gigantic amounts of money in the banking system and spending vast amounts of money on government projects, using government-favored businesses, would not work. Nobody EVER said it would not work! It WILL work! It will ALWAYS work! What we REALLY said is that this cannot LAST! This stupid non-self-sustaining spending and rampant creation of money will not last because it cannot last, and it cannot last because of the one thing that they CANNOT control: inflation. Inflation in the prices of various things will always keep rising until all the money is accounted for, and it will be a long and ugly process the entire trip. It will be driven towards balance and equilibtation, if you believe in that kind of thing.
But isn´t the damn point of the thing that economies are supposed to LAST? Aren´t we supposed to be looking for some way to make economic prosperity last a long time, so that there is nothing but gently rising prosperity, as scarce resources are put to their best use, and therefore put to their most economic use, which brings up standards of living because things generally get cheaper and cheaper as firms compete in the markets, using differences in price versus perceived value paid by the final consumer in the open marketplace to let those customers in the open marketplace decide whose products are good and whose are bad? And then, after awhile, the bad firms go under, victims of relentless competition, and bankers and foolishly-trusting people for miles around learn not to ever trust a guy named Mogambo selling stock certificates of Mogambo World-Wide Enterprises, which he had by the crate in the trunk of his car, and now all that money is gone, and so are their whole pathetic lives, boo hoo hoo?
We, by which I mean me and the Austrian school of economics, ALWAYS said that is entirely possible to achieve miraculous growth if you create as much money and credit, and accommodating tax laws, and corruption, as you are capable of creating! My God! Do you think that we are so stupid that we believe that creating huge demand (by deficit-spending) and also supplying the money (Federal Reserve policy) to pay for it all would NOT create a boom? Hahahaha! How stupid do you think we are? Gimme some credit here!
So I am here to tell you that China, like the USA, like a lot of countries, is on the path to ruination, too, because they are ramping up their own money supply in reckless fashion, too.
- By the way, John S. a reader from Canada, wonders why no-one at the US mint ever thought of investigating the success of the Canadian one-dollar "Looney" coin, which complies with the basic, non-stupid criteria of the Mighty Mogambo (BNCOTMM) by being made LARGER than a quarter (He notes that "of course, a dime is smaller than a nickel, but that´s because it used to actually be made of silver"). He goes on to say "We poor backward Canucks also have a two dollar coin we affectionately call the "Two-nie" (hahaha -- get it? We kill us!) Guess what, it´s bigger than the Looney, and even has different edges, so that you can tell them apart without even taking your hand out of your pocket ... which has led to the popular Canadian gibe: ´Are you counting your change, or are you just glad to see me?´ OK, I made that last part up. And our beer´s stronger, too!"
- From American Banker, we read Rob Blackwell who writes" "Fannie Mae has announced that it will begin purchasing 40-year fixed-rate loans from lenders, saying that doing so could help borrowers in areas where home prices are high It said that such loans reduce monthly payments and make it easier for borrowers to get approved."
Well, duh! Let me get this straight; your stupid teenager suddenly says that she is moving out and she is going to get as far away from you as possible, and it is right on the beach, probably a large penthouse of some kind, and if you ever try to find her or bother her in any way, she will come after you with a knife and "cut you bad", and you say "Oh, yeah?" and she says "Yeah!" and you say "Oh, yeah? Who´s going to loan you the money, miss smarty-pants thinks she´s got it all figured out?" and she says because she afford to buy a house that not even YOU can afford, because the length of the loan is extended out by 33%! Your eyes suddenly have that blank look of incomprehension, and your mouth is hanging open. The total amount of money she will owe, and eventually pay back, will be monstrously bigger, but the monthly payment is lower, and the monthly payment is lower because she will be paying it, month after month after month, for an additional 20% of her adult life? What can you say except "Stop the madness!"?
Ugh.
[link to www.321gold.com] |
| .
User ID: 14609
5/13/2005 1:10 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Now that we know all about the relevance of the numbers, we re-read the part where 1) the ratio is at 5.20, and then 2) we skip down to the part where he says "When the ratio has been this high, the XAU has followed with annualized gains of 89.6%."
And let´s not forget to mention Bob Hoye, who is "a market historian and editor of Institutional Advisors", and hope he is correct when he says "According to thorough technical analysis, the gold sector seems to have reached a significant low." But he notes that this is not particularly news to him, as "Every era of financial bubbles is eventually followed by a severe credit contraction. Since the advent of modern financial markets by around 1700, there have been five examples prior to the blowout in 1Q2000."
And that is not all, especially as pertains to gold. "Also typically, the post-bubble rise in gold ran for 20+ years. With varying degrees of intensity and success, the record is complete back to the 1690s´ depression bottom, which recorded the ´Oro Preto´ mania in Brazil."
Bull markets in commodities typically run for more than 20 years, and "They start from a depression bottom and end in the era of bubbles ˇ never the other way around."
So all we need is for the weird markets to roll over to get this thing started? Apparently so, as he writes "This recovery in stocks, business, and credit markets is showing some of the classic signs of topping at the same time as the gold side of the equation is indicating downside capitulation. In which case, the second cyclical bull market, whereby gold will outperform most commodities as well as most financial assets, is about to get underway."
And what will happen when it does get underway? "The first one out of the collapse of the tech bubble launched a remarkable drive to acquire millions of ounces of gold. This one will launch an even more remarkable drive to discover millions of ounces of gold. Exploration companies with outstanding field abilities and portfolios of identified properties will be outstanding performers." Ergo, acquire both physical gold and gold stocks.
- I was sitting here thinking about how to convince people that investing in the stock market is NOT a place where a lot of people make money. The stock market IS, on the other hand, a place where lots of people put their money, THINKING they are going to make money, only to see it wither away. But the more I thought about it, the more beer I drank, and the more confused I got, and , fortunately, ran across the essay, "Bear´s Shadow Falls Over Financial Markets", by Jeffrey L Ferguson in the Asia Times which saves me a lot of thinking time that could be drinking time. He writes "The second secular bear growled its way through the 1970s and it was truly secular in nature. Contrary to a common belief, equities didn´t simply trend sideways through the 1970s before moving to new highs with the great bull market starting in 1982. This illusion is caused by inflation that plagued the period. Deflating the S&P 500 with the CPI reveals that the market peaked in 1969, not 1973, before falling 64% over the subsequent 13 years, ultimately bottoming out in 1982."
It gets worse. "Stock prices failed to exceed the 1969 peak until 1993, 24 years later, and didn´t move convincingly through the 1969 level until 1995. At this point, the weary, and rather aged, investor still faced capital gains taxes on a phantom 300% gain wholly due to inflation. Covering this tax liability likely extended the true recovery period to within shouting distance of the bear market in stocks beginning in 2000, the most recent peak in equity markets."
I short, nobody made any money, in the real, inflation-adjusted sense, until just before the swoon in the stock market in 2000, and then, of course, they are back underwater again. In other words, if you had not bought a new car in 1969, but had, instead, invested the money in the stock market, in 2000 you would have enough to, after taxes, buy a new car. You call that investing? Hahahaha! If you do, then you are the product of the American public school system! Hahahaha!
And it won´t get any better for the rest of your life, according to Captain Hook, of Treasure Chests, who says that "we are of the opinion true highs (Grand Super Cycle Degree) in the broadest sense of the word were not put in until last month, as presented above in the S&P 500 Equal Weighted Index." And, in case you can´t gather from the phrase "Grand Super Cycle Degree", it means that you will be dead and gone before the next bull market in shares starts.
- David Bond, the man behind the annual silver Summit, has announced on the sitethesilverPennies.com that it will be "the rock´n´roll concert of the investment conferences this year. Literally." The Whole Hollywood Story is that Steve Doré, who is a terrific boogie-woogie piano player, has written a song about the wonders of silver, and will be performing it live and in person. To elevate the event, there is also an educational component, as I will help him out by simultaneously demonstrating 1) why there are no boogie-woogie fiddle players, and 2) why my career in music was an even bigger failure than everything else I tried and failed.
The silver Summit will also celebrate Wallace´s international recognition as Center of the Universe, as represented by a year-old marker, "a manhole cover of incredible detail and quality." [click].
- The subject of this week´s Newsweek magazine is "Special report: China´s Century." For the last twenty-five years, they have had 9% economic growth, which is, according to the magazine, "the fastest growth rate for a major economy in recorded history", quadrupling the average income and bringing about a quarter of the entire population "out of poverty." Pretty impressive.
Now, the more thoughtful among you may sit back, stroke your chins, and calmly ask yourself, "What in the hell is this idiot writing about now?" Ah, grasshopper! If you had waited just a moment longer, my impetuous and impatient one, I would have eventually gotten to the point, probably after a long and tiresome diatribe about the Federal Reserve and how they are, predictably, out to kill us all by killing our money, and I won´t even mention how they are out to get me personally, maybe to turn us into slaves for some alien invader from someplace like Mars or something, or maybe another dimension or something. I dunno.
But this is not about how money and capital has poured out of this country, thanks to the aforementioned Federal Reserve policy of creating money out of zipola. But it is the next sentence that shows how the modern neo-Keynesian/ Supply-Side monster grows and gains legitimacy. They write "The Chinese leadership has to be given credit for this historic achievement." Well, duh!
But it has come at a cost, as they report in the very next paragraph which echoes my sentiments exactly, although in a style that is MUCH different than you get from the hysterical Mogambo (THM). They write, "There are many who criticize China´s economic path. They argue that the numbers are fudged, that corruption is rampant, that its banks are teetering on the edge, that regional tensions will explode, that inequality is rising dangerously and that things are coming to a head. For a decade now they have been predicting, ´This cannot last, China will crash, it cannot keep this up´ So far, at least, none of these prognoses have come true." Well! If we are going to get snippy, let me point out that the snotty little author, whose name is Fareed Zakaria, doesn´t actually mention me, The Mogambo, by name. But if you carefully read between the lines of what he actually wrote, you can plainly see that he is saying "Mogambo is a big, fat idiot, and everybody hates the Mogambo, and that is why we ´arranged´ to have his lawn sprinkler bite the dust last week, and that ought to teach him a lesson!"
Well, yes and no. I learned, on the one hand, that this Zakaria guy hates my guts, and so I am going to make a note to myself to put this guy´s name on the Mogambo Official List Of Known Enemies (MOLOKE).
On the other hand, I haven´t learned a damned thing, because we did NOT say that a government creating gigantic amounts of money in the banking system and spending vast amounts of money on government projects, using government-favored businesses, would not work. Nobody EVER said it would not work! It WILL work! It will ALWAYS work! What we REALLY said is that this cannot LAST! This stupid non-self-sustaining spending and rampant creation of money will not last because it cannot last, and it cannot last because of the one thing that they CANNOT control: inflation. Inflation in the prices of various things will always keep rising until all the money is accounted for, and it will be a long and ugly process the entire trip. It will be driven towards balance and equilibtation, if you believe in that kind of thing.
But isn´t the damn point of the thing that economies are supposed to LAST? Aren´t we supposed to be looking for some way to make economic prosperity last a long time, so that there is nothing but gently rising prosperity, as scarce resources are put to their best use, and therefore put to their most economic use, which brings up standards of living because things generally get cheaper and cheaper as firms compete in the markets, using differences in price versus perceived value paid by the final consumer in the open marketplace to let those customers in the open marketplace decide whose products are good and whose are bad? And then, after awhile, the bad firms go under, victims of relentless competition, and bankers and foolishly-trusting people for miles around learn not to ever trust a guy named Mogambo selling stock certificates of Mogambo World-Wide Enterprises, which he had by the crate in the trunk of his car, and now all that money is gone, and so are their whole pathetic lives, boo hoo hoo?
We, by which I mean me and the Austrian school of economics, ALWAYS said that is entirely possible to achieve miraculous growth if you create as much money and credit, and accommodating tax laws, and corruption, as you are capable of creating! My God! Do you think that we are so stupid that we believe that creating huge demand (by deficit-spending) and also supplying the money (Federal Reserve policy) to pay for it all would NOT create a boom? Hahahaha! How stupid do you think we are? Gimme some credit here!
So I am here to tell you that China, like the USA, like a lot of countries, is on the path to ruination, too, because they are ramping up their own money supply in reckless fashion, too.
- By the way, John S. a reader from Canada, wonders why no-one at the US mint ever thought of investigating the success of the Canadian one-dollar "Looney" coin, which complies with the basic, non-stupid criteria of the Mighty Mogambo (BNCOTMM) by being made LARGER than a quarter (He notes that "of course, a dime is smaller than a nickel, but that´s because it used to actually be made of silver"). He goes on to say "We poor backward Canucks also have a two dollar coin we affectionately call the "Two-nie" (hahaha -- get it? We kill us!) Guess what, it´s bigger than the Looney, and even has different edges, so that you can tell them apart without even taking your hand out of your pocket ... which has led to the popular Canadian gibe: ´Are you counting your change, or are you just glad to see me?´ OK, I made that last part up. And our beer´s stronger, too!"
- From American Banker, we read Rob Blackwell who writes" "Fannie Mae has announced that it will begin purchasing 40-year fixed-rate loans from lenders, saying that doing so could help borrowers in areas where home prices are high It said that such loans reduce monthly payments and make it easier for borrowers to get approved."
Well, duh! Let me get this straight; your stupid teenager suddenly says that she is moving out and she is going to get as far away from you as possible, and it is right on the beach, probably a large penthouse of some kind, and if you ever try to find her or bother her in any way, she will come after you with a knife and "cut you bad", and you say "Oh, yeah?" and she says "Yeah!" and you say "Oh, yeah? Who´s going to loan you the money, miss smarty-pants thinks she´s got it all figured out?" and she says because she afford to buy a house that not even YOU can afford, because the length of the loan is extended out by 33%! Your eyes suddenly have that blank look of incomprehension, and your mouth is hanging open. The total amount of money she will owe, and eventually pay back, will be monstrously bigger, but the monthly payment is lower, and the monthly payment is lower because she will be paying it, month after month after month, for an additional 20% of her adult life? What can you say except "Stop the madness!"?
Ugh.
[link to www.321gold.com] |
| Anonymous Coward
User ID: 5790
5/13/2005 1:12 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
"Sell in May and go away" ,so the pundits say. |
| .
User ID: 14779
5/14/2005 1:24 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Letters at 3am: $4 a Gallon
May 12, 2005
BY MICHAEL VENTURA
America is over. America is like Wile E. Coyote after he´s run out a few paces past the edge of the cliff – he´ll take a few more steps in midair before he looks down. Then, when he sees that there´s nothing under him, he´ll fall. Many Americans suspect that they´re running on thin air, but they haven´t looked down yet. When they do ...
Former Federal Reserve Board Chairman Paul Volcker, a pillar of the Establishment with access to economic information beyond our reach, wrote recently: "Circumstances seem to me as dangerous and intractable as any I can remember. ... What really concerns me is that there seems to be so little willingness or capacity to do anything about it" (quoted in The Economist, April 16, p.12). Volcker chooses words carefully: "dangerous and intractable," "willingness or capacity." He´s saying: The situation is probably beyond our powers to remedy.
Gas prices can only go up. Oil production is at or near peak capacity. The U.S. must compete for oil with China, the fastest-growing colossus in history. But the U.S. also must borrow $2 billion a day to remain solvent, nearly half of that from China and her neighbors, while they supply most of our manufacturing ("Benson´s Economic and Market Trends," quoted in Asia Times Online) – so we have no cards to play with China, even militarily. (You can´t war with the bankers who finance your army and the factories that supply your stores.) China now determines oil demand, and the U.S. has no long-term way to influence prices. That means $4 a gallon by next spring, and rising – $5, then $6, probably $10 by 2010 or thereabouts. Their economy can afford it; ours can´t. We may hobble along with more or less the same way of life for the next dollar or so of hikes, but at around $4 America changes. Drastically.
The "exburbs" and the rural poor will feel it first and hardest. Exburbians moved to the farthest reaches of suburbia for cheap real estate, willing to drive at least an hour each way to work. Many live marginally now. What happens when their commute becomes prohibitively expensive, just as interest rates and inflation rise, while their property values plummet? Urban real estate will go up, so they won´t be able to live near their jobs – and there´s nowhere else to go. In addition, thanks to Congress´ recent shameless activity, bankruptcy is no longer an option for many. What happens to these people? Exburb refugees. A modern Dust Bowl.
For the rural poor it´s even worse. They are the poorest among us, with no assets and few skills; they earn the lowest nonimmigrant wages in America, and they must drive. When gas hits $4, their already below-the-margin life will be unsustainable. They´ll have no choice but to be refugees and join in the modern Dust Bowl migration. So, too, will people who live where people were never intended to live in such numbers – places like Phoenix and Vegas, unlivable without air conditioning and water transport (energy prices will rise across the board, regular brownouts, blackouts, and faucet-drips will be "the new normal" everywhere). In the desert cities, real estate will plunge, thousands will be ruined, most will leave – while all over the country folks will have to get used to "hot" and "cold" again.
But where will the new refugees go, and what will they do when they get there? They will migrate to the more livable cities, where rents are already unreasonable and social services are already strained, and where the new refugees will compete with immigrants for the lowest-level housing and jobs. Immigration issues will intensify to hysteria. Native-born Americans will clamor for work that only legal and illegal aliens do now. In a culture as prone to violence as ours, that will probably get ugly.
Meanwhile, suburbs and cities will be in various states of chaos, depending on their infrastructure. As inflation and interest rates rise, and the real estate bubble bursts, millions will see their assets plunge precipitously. In five years, many who are now well-off will live as the marginal live today, while the marginal will sink into poverty. With gas at $4-plus a gallon, real estate values will depend on nearness to working centers and access to transportation. As has already happened in Manhattan, the well-off will head for what are now slums, and the slum-dwellers will go God-knows-where. Places with decent rail service will be prime. Places without rail service will be in deep trouble.
One key to America´s future will be: How quickly can we build or rebuild heavy and light rail? And where will we get the money to do it? Railroads are the cheapest transport, the easiest to sustain, and the only solution to a post-automobile America. (For reasons I haven´t space to detail, hybrid cars and alternative energy won´t cut it, if by "cut it" one means retaining anything like the present standard of living. See James Howard Kunstler´s "The Long Emergency" on Rolling Stone´s Web site. Also check Mike Ruppert´s site www.fromthewilderness.com and the documentary The End of Suburbia.) A massive investment in railroad infrastructure could offer jobs to the unskilled and skilled alike, absorb much of the inevitable population displacement, and create a new social equilibrium 10 or 15 years down the line. Old RR cities like Grand Junction, Colo.; Amarillo, Texas; and Albuquerque, N.M., could become vital centers, offering new lives for the displaced. Railroads are key, but the question is: how to finance them?
There´s only one section of our economy that has that kind of money: the military budget. The U.S. now spends more on its military than all other nations combined. A sane transit to a post-automobile America will require a massive shift from military to infrastructure spending. That shift would be supported by our bankers in China and Europe (that is, they would continue to finance our debt) because it´s in their interests that we regain economic viability. What´s not in their interests is that we remain a military superpower.
And that´s where things get really interesting. The question becomes:
Can America face reality? If the government responds to the coming changes by attempting to remain a superpower no matter what, there is no way to underestimate the harm. The numbers speak for themselves. Soon we´ll no longer have the resources to remain a military superpower and sustain a livable society that is anything like what we know today. It happened to England; it happened to Russia; it´s about to happen to us. England sustained the transformation more or less gracefully; it lost its dominance while retaining its essential character. Russia is still in a period of transformation, but has remained a player thanks to its oil reserves. Europe in general – France, Germany, Italy, and Spain (all world powers in the fairly recent past) – is creating a post-national society, the most experimental form of governance since America´s revolution. We have no appreciable oil, and we no longer have a manufacturing base. So what will the United States do? Sanely recognize its declining status and act accordingly, or make one last ignoble stab to retain its position by force?
Half a century ago James Baldwin wrote: "Confronted with the impossibility of remaining faithful to one´s beliefs, and the equal impossibility of becoming free of them, one can be driven to the most inhuman excesses." Americans believe they´re "No. 1," destined to lead the world. That is the America that´s over. If we insist on that illusion, then this world is in for tough times. We will neither hold on to what we have nor create what we might have, but we will wreak untold harm (if we don´t destroy the species altogether). Or we can face and embrace reality. And that reality is: There is no such thing as "No. 1" ... there is no such thing as an ideal destined country that is better than any other ... there is only us, doing the best we can, trying to live free and sanely, within limits that are about to become only too clear. Our glory days are done. What´s next?
Remember, we´re not talking about the far future. We´re talking about the next decade.
No country gets two centuries anymore. The 21st will be China´s century. That´s what $4-plus a gallon means, and nothing can stop it. So: How will we change? But the question "How will we change?" is really the question "How will I change?" Because history isn´t a spectator sport. It´s you and me. Everything depends on whether we side with reality or illusion. Face reality, and we have a chance. Cling to illusion, and we are lost. The America we´ve known is over – very soon. The America we can create is up to us.
[link to www.financialsense.com] |
| .
User ID: 14779
5/14/2005 1:37 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Taxes, Gasoline, and the Coming Economic Slowdown
May 12, 2005
by Clif Droke
In recent weeks we’ve examined the plans now advancing to mop up some of the excess liquidity the Fed created between 2002-2004. These efforts have included a pronounced slowing down in the money supply growth rate and interest rate hikes. The focus of this commentary will be a tool that is used to combat inflation – both officially and unofficially.
In his book, "War Cycles, Peace Cycles," Richard Hoskins explains how taxes are used by the government to remove excess money from circulation in order to curtail inflationary pressures and to prevent imbalances in the accumulation of wealth. What is not widely known is how modern day governments employ the use of surrogates to tax money out of circulation in a non-official capacity. One such example of surrogate tax collectors are the petroleum concerns, which use their control over the price of gasoline and other fuels to tax consumers, mop up excess liquidity and reduce consumption.
This explains in large part the exorbitant gas price increases Americans have lately had to suffer through. When you couple the unofficial "gas tax" and other energy-related costs with the money supply slowdown initiative (see graph below), can you guess what the outcome will be? You guess right – an economic softening. This graph, which shows the compounded annual rate of change slowdown in MZM, makes an economic slowdown a near-certainty in the months ahead.
On the other hand, as Hoskins attests, the pre-ordained reason for the economic slowdown and higher taxes is to pave the way for the next wave of economic expansion, likely to begin in later 2006 or early 2007.
Writes Hoskins, "Everyone who has paid taxes has wanted to do away with them, but what happens when taxation is abolished? The usury-bankers end up with all the money, and more is left in circulation." (War Cycles, Peace Cycles, p. 14). His famous 4th Law of Interest states that "Interest requires a heavy tax so that money will not be hoarded but circulated to pay interest."
But this time around the economic cycle is different. The leading governments and central banks of the world are combining their efforts to establish a fully integrated global economic order (GEO) that will require a relative balance among the major economies, including the U.S. Hence the coming international taxing authority, which for the time being is being administered by the oil companies and other multinational interests. (Of course, this opens up a Pandora’s Box of related issues, such as "taxation without representation," etc. But this we’ll leave off for a future commentary).
The extreme rise in the price of a gallon of gas to approximately $2.25 (or higher in some locales) is outrageous if you consider that consumers in many states were paying only about $1.00/gallon back in 1998. Again we must ask, has the supply/demand equation in the petroleum markets changed that much in only seven years to warrant such a price spike? Where is the representation for the beleaguered U.S. consumer who has no voice in the matter of how he must now pay the incredible increase in fuel costs. And let’s face it, the excessively high gasoline prices have lasted a lot longer than $1.00/gallon gas did a few years ago (funny how it always seems to work that way).
In truth, the much-bemoaned spike in fuel prices is more a function of manipulation and speculative activity than a true supply/demand imbalance. The imbalance in the market equation is a testament to the excessive greed of the oil cartel than to a squeeze in the supply pipelines.
A highly recommended web site that you might want to visit from time to time is the Oligopoly Watch. This fascinating web site documents the ongoing maneuvers of the multinationals and provides the latest news on how oligopolies are usurping control over the lives of individuals and governments. In their petroleum section they point out that the basic economic assumption that higher prices tend to stimulate greater production (or exploration), this has not happened with the oil companies.
A case in point is the recent merger between ChevronTexaco and Unocal. OligolopolyWatch observes, "ChevronTexaco invested its added profits into the oil business, but only by buying up exsiting operations, not by digging new wells or upgrading oil recovery from existing sources. We expect that cash-rich oil companies will follow suit." OligopolyWatch further points out that a mere handful of oil companies, including ExxonMobil and ChevronTexaco, now control over 50% of the oil refining market.
Now another threat faces the consumer in the ongoing battle for control and consolidation of the energy market, namely the potential takeover battle between the China National Offshore Oil Corp. and Chevron for control of Unocal. Here we have an attempt by a state-owned Chinese company to buy a U.S. oil rival, according to the Financial Times of London, which if successful will only further the global economic integration efforts we alluded to earlier.
[link to www.financialsense.com] |
| r.rdam
User ID: 8992
5/14/2005 1:49 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
euro corected the dollar . so that stock market correction allready hapened !
dont put things on message boards you dont understand ,with statements that doesnt stick . good day |
| Cl1mh4224rd
User ID: 816
5/14/2005 2:19 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
So... 4 months later. Are we there yet? |
| .
User ID: 14779
5/14/2005 3:09 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
20 Wisdom crieth without; she uttereth her voice in the streets: 21 She crieth in the chief place of concourse, in the openings of the gates: in the city she uttereth her words, saying, 22 How long, ye simple ones, will ye love simplicity? and the scorners delight in their scorning, and fools hate knowledge? 23 Turn you at my reproof: behold, I will pour out my spirit unto you, I will make known my words unto you. 24 Because I have called, and ye refused; I have stretched out my hand, and no man regarded; 25 But ye have set at nought all my counsel, and would none of my reproof: 26 I also will laugh at your calamity; I will mock when your fear cometh; 27 When your fear cometh as desolation, and your destruction cometh as a whirlwind; when distress and anguish cometh upon you. 28 Then shall they call upon me, but I will not answer; they shall seek me early, but they shall not find me: 29 For that they hated knowledge, and did not choose the fear of the YHVH: 30 They would none of my counsel: they despised all my reproof. 31 Therefore shall they eat of the fruit of their own way, and be filled with their own devices. 32 For the turning away of the simple shall slay them, and the prosperity of fools shall destroy them. 33 But whoso hearkeneth unto me shall dwell safely, and shall be quiet from fear of evil. |
| FHL(C)
User ID: 7716
5/16/2005 10:17 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Good find by GLPer
Fair use:
[link to www.godlikeproductions.com]
(EIRNA)—CENTRAL BANKS AND RELATED FINANCIAL AUTHORITIES ARE IN FULL MOBILIZATION TO PREVENT A SYSTEMIC BREAKDOWN
Lots going on behind the scenes.
FYI
[Source: EIRNA]
WIESBADEN, May 13 (EIRNA)—CENTRAL BANKS AND RELATED FINANCIAL AUTHORITIES ARE IN FULL MOBILIZATION TO PREVENT A SYSTEMIC BREAKDOWN following the downgrading to junk of $453 billion GM and Ford debt last week, emphasized a City of London source. Already before the recent escalation of the global financial crisis, a concerted effort by leading central banks, governments, rating agencies, and private financial interests was put in place, in order to minimize the disruptions caused by the inevitable downgrading of General Motors and keep things under control. The deployment of Kirk Kerkorian, announcing his intent for a partial takeover of GM, was part of that effort. The Kerkorian movement boosted GM stocks by 18% within a few days and under such circumstances S&P could then announce its downgradings. The next part of the script, said the source, was to lead GM to file for Chapter 11, thereby dumping its pension and health obligations on the public guarantee funds. Central banks during the whole time would stand ready to inject as much liquidity into the system as needed.
However, said the source, there are at least two areas which just cannot be controlled by that concerted action. First, the repercussions on financial markets that might soon be triggered, once a second rating agency confirms the S&P decision on GM and Ford. The leading investment funds worldwide would then be forced to dump all their GM and Ford assets. The other area is the derivatives complex, in particular those collateralised debt obligations (CDOs) and other credit derivatives that are directly linked to the GM and Ford debt. And indeed, here the concerted effort went out of control.
The source said that those hedge funds, which were named, like Highbridge Capital and GLG, are most likely in real trouble. However, what the media is not reporting is that many more hedge funds all over the globe are in a precarious situation right now. Furthermore, the problem is not at all limited to the hedge fund sector. The largest banks in the world today are very closely interlinked with hedge funds, much more than they were during the time of the LTCM crisis in 1998. As also the underlying debt which now caused the fall-out on the derivatives markets is many times larger than the volume of the Russian GKO default in 1998, the ongoing disaster by far "dwarfs the LTCM crisis" of 1998.
The problem has now reached a stage where central banks are forced to intervene directly. As an example, said the source, the Bank of England is right now managing "CDO disengagements" of a number of hedge funds. The same is going on in other parts of Europe, as well as in the U.S. He added: "I firmly assume that this management of disengagement means significant liquidity injections to prevent that hedge funds go bankrupt and trigger a chain-reaction throughout the system. We are in the midst of a real-life crisis management operation."
[source: Bloomberg, Mark Gilbert, May 13]
"THE TICK, TICK OF GM IN HEDGE FUND DERIVATIVES," WARNS BLOOMBERG WIRE. This week, S&P began cutting its assessment of derivatives backed by Ford and GM debt, while research reports full of rumors about so-called correlation trades blowing up, are fueling concerns that some hedge funds may collapse. "This is the perfect storm to implode some hedge funds," warned independent market analyst Dennis Gartman in his daily newsletter on May 11. "We expect a rush to the door to be painful," cautioned analysts at Merrill Lynch & Co. in a May 10 research note. The chief financial officer of Deutsche Bank, departed from his prepared slides at presentation in NY earlier this week, to claim that Germany´s biggest bank "has no cash lending exposure to hedge funds," and has collateral to protect it against any potential losses in its dealings with hedge funds.
Concerned Aussie from Perth
User ID: 9874
5/16/2005
2:46 am EDT
Send Private Msg
Add to Buddy List Re: (EIRNA)—CENTRAL BANKS AND RELATED FINANCIAL AUTHORITIES ARE IN FULL MOBILIZATION TO PREVENT A SYSTEMIC BREAKDOWN
[Source: FT 14.05.05]
WIESBADEN, May 14 - ASAM CAPITAL MANAGEMENT, A SINGAPORE-BASED HEDGE FUND, "HAS LOST A BIG CHUNK OF ITS INVESTORS´ MONEY," writes columnist John Plender in a Financial Times editorial. The fund is just one example of probably many others that are about to go under in this "under-regulated corner of the financial community, which controls more than $1 trillion of assets." Plender attacks the notion by Alan Greenspan and other financial "experts" who claim that another LTCM would be unlikely today, because "leverage, whereby a small amount of capital supports large exposures to risk, has plunged since the Long Term Capital Management hedge fund stumbled in 1998." This is just not true, says Plender. "Nobody knows what leverage exists in this opaque cottage industry." While the ratio of borrowing to capital might have come down a bit, there are new forms of leverage today thanks to new forms of financial instruments.
[Source: as noted]
May 14—PANIC OVER HEDGE FUNDS BARELY HIDDEN. A survey of press coverage today indicates that just below the surface, something bigger than the 1998 LTCM collapse may be developing. Bloomberg reports that 10-year Treasury bonds had their biggest weekly gain in a month, this past week, with yields falling 14 basis points to 4.12%. This happened on a $22 billion bond auction for which for every dollar sold, there were $2.38 worth of bids, up from $2.01 at a previous auction on Feb. 8. Market surveys are showing that most investors had bet that the price of debt would decline, but the opposite has happened, suggesting that some may have been forced to buy bonds to exit those bets. Why? Because of the panic in the hedge funds.
At the same time, a New York-based consulting firm reported that hedge funds lost 1.75% in April. "Everybody´s waiting for somebody to blow up," said Ralph Axel, a U.S. government debt strategist at HSBC Holdings plc, adding that the market is mostly driven by fear, now. He also predicted that the yield on 10-year bonds could easily fall to 4%.
Meanwhile, the Houston Chronicle says that Kirk Kerkorian´s move into GM, to raise its stock price, caught many hedge funds in a vise. They had bought GM bonds to take advantage of their higher yields and were selling borrowed GM stock expecting the stock price to fall. When S&P downgraded GM´s debt and the stock price went up instead, many funds may have had to sell "a lot of securities, fast." Highbridge Capital Management, named in yesterday´s briefing as one of those that may be in trouble because of the GM hit, reportedly sent a letter to its investors to reassure them that it had not made any bad trades on GM. "The last time hedge funds communicated early with their investors was back in 1998," when the LTCM collapse occurred, said Sol Waksman, president of the Barclay Group, a firm that tracks the performance of hedge funds.
[Source: EIRNA]
ITALIAN ECONOMY HAS OFFICIALLY ENTERED IN A RECESSION. For the second quarter in a row, Italy´s GDP has declined. The first quarter of 2005 it decreased 0.5% in respect to the previous quarter, which was already in red. Industrial production declined even more, down 2.5%. Hardest hit were textiles (-11%), shoes (-16%), and furniture (-8.1%), which are most exposed to low-cost imports. But also the automobile sector, which means Fiat, took a bath: -9.8%.
Prime Minister Silvio Berlusconi made an ass of himself by commenting that the production plunge is due to the Easter holidays, i.e., people worked less hours in March, but he was rebuked by the central statistic office, Istat, which explained that official figures are already adjusted to the number of actual working days. Since the new figures correct to -0.2% the forecasted GDP on a yearly basis, this threatens to drive Italy´s budget deficit well over the 3% limit. The EU Commission watchdogs have announced that they are preparing to start a disciplinary action next month; however, after the reform of the Stability Pact, the Commission action has no executive power, but is a proposal to be judged by the EU Ministers´ Council.
[Source: Clarin, Financial Times, 5/13/05. Buenos Aires]
ARGENTINA WILL FIGHT WORLD BANK DEMANDS THAT IT PAY FINANCIAL PREDATORS. "THIS FIGHT HAS ONLY JUST BEGUN," stated Justice Minister Horacio Rosatti, responding to a ruling by the World Bank´s ICSID (International Center for Settlement of Investment Disputes) on behalf of CMS Energy Corp. On May 12, ICSID ordered the Kirchner government to pay CMS $133 million for its alleged "losses" as a result of the forced conversion of its dollar debts to pesos, and peso devaluation that followed the December 2001 default.
This is one way the financial predators think they can squeeze blood out of Argentina. At least 30 foreign-owned privatised utility companies, which savagely looted the country during the privatisation binge of the 1990s, have taken their claims to the ICSID, hoping for favourable rulings that can force Kirchner to pay up, to the tune of $20 billion. These same companies, with IMF/World Bank backing, are also demanding that Kirchner grant them rate increases of as much as 60%.
But Argentina isn´t swallowing this. Rosatti announced that the government will request that the ICSID declare the May 12 ruling null and void, on grounds that CMS is a minority shareholder of the Argentine energy company TGN. Otherwise, anyone who owns even one share could go to ICSID, and if there are 20 shareholders, there could be 20 different claims, Rosatti said. But more important, he added, is Argentina´s sovereign right "to defend its interests." When companies were privatised in the 1990s, he said, legal jurisdiction was also handed over to foreign courts. But the disputes between the privatised companies and the state "should be resolved in local courts," Rosatti said. Despite ICSID´s ruling, "we can never give up the possibility of determining the ruling constitutionally.... [T]his fight has just begun."
During the summer of 2004, when vulture funds were attempting to seize Argentine diplomatic holdings in Washington and Maryland, it was Rosatti, then the Treasury General Prosecutor, who reminded the U.S. of the Drago Doctrine, which states that the foreign debt of nations cannot be forcibly collected.
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 7716
5/17/2005 1:06 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fair use:
[link to www.godlikeproductions.com]
How Japan financed global reflation
By Richard Duncan
FinanceAsia February 2005
In 2003 and the first quarter of 2004, Japan carried out a remarkable
experiment in monetary policy . remarkable in the impact it had on the
global economy and equally remarkable in that it went almost entirely
unnoticed in the financial press. Over those 15 months, monetary
authorities in Japan created �trillion. To put that into
perspective, �trillion is approximately 1% of the world´s annual
economic output. It is roughly the size of Japan´s annual tax revenue
base or nearly as large as the loan book of UFJ, one of Japan´s four
largest banks. �trillion amounts to the equivalent of $2,500 for
every person in Japan and, in fact, would amount to $50 per person if
distributed equally among the entire population of the planet. In
short, it was money creation on a scale never before attempted during
peacetime.
Why did this occur? There is no shortage of yen in Japan. The yield on
two year JGBs is 10 basis points. Overnight money is free. Japanese
banks have far more deposits than there is demand for loans, which
forces them to invest up to a quarter of their deposits in low
yielding government bonds. So, what motivated the Bank of Japan to
print so much more money when the country is already flooded with
excess liquidity?
The Bank of Japan gave the �trillion to the Japanese Ministry of
Finance in exchange for MOF debt with virtually no yield; and the MOF
used the money to buy approximately $320 billion from the private
sector. The MOF then invested those dollars into US dollar-
denominated debt instruments such as government bonds and agency debt
in order to earn a return.
The MOF bought more dollars through currency intervention then than
during the preceding 10 years combined, and yet the yen rose by 11%
over that period. Historically, foreign exchange intervention to
control the level of a currency has met with mixed success, at best;
and past attempts by the MOF to stop the appreciation of the yen have
not always succeeded. They were very considerably less expensive,
however. It is also interesting, and perhaps important, to note that
the MOF stopped intervening in March 2004 just when the yen was
peaking; that the yen depreciated immediately after the intervention
stopped; and that when the yen began appreciating again in October
2004, the MOF refrained from further intervention.
Chart 1
[link to www.investorsinsight.com]
Chart 2
[link to www.investorsinsight.com]
So, what happened in 2003 that prompted the Japanese monetary
authorities to create so much paper money and hurl it into the foreign
exchange markets? Two scenarios will be explored over the following
paragraphs.
In 2002, the United States faced the threat of deflation for the first
time since the Great Depression. Growing trade imbalances and a surge
in the global money supply had contributed to the credit excesses of
the late 1990s and resulted in the New Paradigm technology
bubble. That bubble popped in 2000 and was followed by a serious
global economic slowdown in 2001. Policy makers in the United States
grew increasingly alarmed that deflation, which had taken hold in
Japan, China and Taiwan, would soon spread to America.
Deflation is a central bank´s worst nightmare. When prices begin to
fall, interest rates follow them down. Once interest rates fall to
zero, as is the case in Japan at present, central banks become
powerless to provide any further stimulus to the economy through
conventional means and monetary policy becomes powerless. The extent
of the US Federal Reserve´s concern over the threat of deflation is
demonstrated in Fed staff research papers and the speeches delivered
by Fed governors at that time. For example, in June 2002, the Board of
Governors of the Federal Reserve System published a Discussion Paper
entitled, "Preventing Deflation: Lessons from Japan´s Experience in
the 1990s." The abstract of that paper concluded "...we draw the
general lesson from Japan´s experience that when inflation and
interest rates have fallen close to zero, and the risk of deflation is
high, stimulus-both monetary and fiscal- should go beyond the levels
conventionally implied by baseline forecasts of future inflation and
economic activity."
From the perspective of mid-2002, the question confronting those in
charge of preventing deflation must have been how far beyond the
conventional levels implied by the base case could the economic policy
response go? The government budget had already swung back into a large
deficit and the Federal Funds rate was at a 41 year low. How much
additional stimulus could be provided? A further increase in the
budget deficit seemed likely to push up market determined interest
rates, causing mortgage rates to rise and property prices to fall,
which would have reduced aggregate demand that much more. And, with
the Federal Funds rate at 1.75% in mid- 2002, there was limited scope
left to lower it further. Moreover, given the already very low level
of interest rates, there was reason to doubt that a further rate
reduction would make any difference anyway.
In a speech entitled, "Deflation: Making Sure ´It´ Doesn´t Happen
Here", delivered on November 21, 2002, Federal Reserve Governor Ben
Bernanke explained to the world exactly how far beyond conventional
levels the policy response could go. Governor Bernanke explained that
the Fed would not be "out of ammunition" just because the Federal
Funds rate fell to 0% because the Fed could create money and buy bonds
of longer maturity in order to drive down yields at the long end of
the yield curve as well. Moreover, he said, "In practice, the
effectiveness of anti-deflation policy could be significantly enhanced
by cooperation between the monetary and fiscal authorities. A
broad-based tax cut, for example, accommodated by a program of
open-market purchases to alleviate any tendency for interest rates to
increase, would almost certainly be an effective stimulant to
consumption and hence to prices."
He made similar remarks in Japan in May 2003 in a speech entitled,
"Some Thoughts on Monetary Policy in Japan". He said, "My thesis here
is that cooperation between the monetary and fiscal authorities in
Japan could help solve the problems that each policymaker faces on its
own. Consider for example a tax cut for households and businesses that
is explicitly coupled with incremental BOJ purchases of government
debt-so that the tax cut is in effect financed by money creation."
These speeches attracted tremendous attention and for some time
financial markets believed the Fed intended to implement the
"unorthodox" or "unconventional" monetary policy options Governor
Bernanke had outlined.
In the end, the Fed did not resort to unorthodox measures. The Fed did
not create money to finance a broad-based tax cut in the United
States. The Bank of Japan did, however. Three large tax cuts took the
US budget from a surplus of $127 billion in 2001 to a deficit of $413
billion in 2004. In the 15 months ended March 2004, the BOJ created
�trillion which the MOF used to buy $320 billion, an amount large
enough to fund 77% of the US budget deficit in the fiscal year ending
September 30, 2004. It is not certain how much of the $320 billion the
MOF did invest into US Treasury bonds, but judging by their past
behavior it is fair to assume that it was the vast majority of that
amount.
Was the BOJ/MOF conducting Governor Bernanke´s Unorthodox Monetary
Policy on behalf of the Fed? There is no question that the BOJ created
money on a very large scale as the Fed would have been required to do
under Bernanke´s scheme. Nor can there be any question that the money
created was used to buy an increasing supply of US Treasury bonds
being issued to finance the kind of broad-based tax cuts Governor
Bernanke had discussed. Moreover, was it merely a coincidence that the
really large scale BOJ/MOF intervention began during May 2003, while
Governor Bernanke was visiting Japan? Was the BOJ simply serving as a
branch of the Fed, as The Federal Reserve Bank of Tokyo, if you will?
This is Scenario One.
If this was globally coordinated monetary policy (unorthodox or
otherwise) it worked beautifully. The Bush tax cuts and the BOJ money
creation that helped finance them at very low interest rates were the
two most important elements driving the strong global economic
expansion during 2003 and 2004. Combined, they produced a very
powerful global reflation. The process seems to have worked in the
following way:
US tax cuts and low interest rates fuelled consumption in the United
States. In turn, growing US consumption shifted Asia´s export-oriented
economies into overdrive. China played a very important part in that
process. With a trade surplus vis-�-vis the United States of $124
billion, equivalent to 9% of its GDP in 2003 (rising to approximately
$160 billion or above 12% of GDP in 2004), China became a regional
engine of economic growth in its own right. China used its large trade
surpluses with the US to pay for its large trade deficits with most of
its Asian neighbors, including Japan. The recycling of China´s US
Dollar export earnings explains the incredibly rapid "reflation" that
began across Asia in 2003 and that was still underway at the end of
2004. Even Japan´s moribund economy began to reflate.
Whatever its motivation, Japan was well rewarded for creating money
and buying US Treasury bonds with it. Whereas the BOJ had failed to
reflate the Japanese economy directly by expanding the domestic money
supply, it appears to have succeeded in reflating it indirectly by
expanding the global money supply through financing the sharp increase
in the MOF´s holdings of US Dollar foreign exchange reserves. There is
no question as to if this happened. It did. The only question is was
it planned (globally coordinated monetary policy) or did it simply
occur by coincidence, driven by other considerations?
What other considerations could have prompted the BOJ to create �trillion over 15 months? A second scenario is that a "run on the
dollar" forced the monetary authorities in Japan to intervene on that
scale to prevent a balance of payments crisis in the United
States. This is Scenario Two.
During the Strong Dollar Trend of the late 1990s, foreign investors,
both private and public, invested heavily in the United States. Those
investments put upward pressure on the dollar and on US asset prices,
including stocks and bonds. The trend became self-reinforcing. The
more capital that entered the US, the more the dollar and dollar
denominated assets rose in value. The more those assets appreciated,
the more foreign investors wanted to own them. Because of the large
sums entering the country, the United States had no difficulty in
financing its giant current account deficit, even though that deficit
nearly tripled between 1997 and 2001.
By 2002, however, with the US current account deficit approaching 5%
of US GDP, it became increasingly apparent that the Strong Dollar
Trend was unsustainable. The magnitude of the current account deficit
made a downward adjustment in the value of the dollar unavoidable. At
that point, the Strong Dollar Trend gave way and the Weak Dollar Trend
began. Foreign investors who had invested in US dollar denominated
assets during the late 1990s naturally wanted to take their money back
out of the United States once it became clear that a sharp correction
of the dollar was underway. Moreover, many US investors, and hedge
funds in particular, also began selling dollar- denominated assets and
buying non-US dollar-denominated assets to profit from the dollar´s
decline.
Chart 3
[link to www.investorsinsight.com]
The change in the direction of capital flows can be seen very clearly
in the breakdown of Japan´s balance of payments.
The preceding chart shows the balance on Japan´s current account and
financial account, the two principle components of Japan´s balance of
payments, going back to 1985. Traditionally, Japan runs a large
current account surplus and a slightly less large financial account
deficit, with the difference between the two resulting in changes
(usually additions) to the country´s foreign exchange reserves.
Beginning in 2003, however, there was a startling change in the
direction of the financial account. Instead of large financial
outflows from Japan to the rest of the world, there were very large
financial inflows. For instance, in May 2003, Japan´s financial
account reflected a net inflow of $23 billion into the country. The
net inflow in September was $21 billion. These amounts increased
considerably during the first quarter of 2004, averaging $37 billion a
month.
The capital inflows into Japan at that time were massive, even
relative to Japan´s traditionally large annual current account
surpluses. But, why did Japan, which normally exported capital,
suddenly experience net capital inflows on a very large scale in the
first place? The most likely explanation is that very large amounts of
private sector money began fleeing the dollar and seeking refuge in
the relative safety of the yen.
When the Strong Dollar Trend broke, had the BOJ/MOF not bought the
dollars that the private sector sold in such large quantities, the
United States would have faced a balance of payments crisis, in which,
in addition to having to fund a half a trillion dollar a year trade
deficit, it would have had to find a way to fund a deficit of several
hundred billion on its financial account as well.
Any other country facing a large shortfall on its balance of payments
would have experienced a reduction in its foreign exchange
reserves. The United States, however, maintains only a limited amount
of such reserves; only $75 billion as at the end of 2003, far too
little to fund the private capital outflows occurring at that time.
Once those reserves had been depleted, market-determined interest
rates in the US would have begun to rise, in all probability, popping
the US property bubble and throwing the country into recession. Under
that scenario, a reduction in consumption in the United States would
have undermined global aggregate demand and created a severe
world-wide economic slump.
The US current account deficit more or less finances itself since the
central banks of the surplus countries buy the dollars entering their
countries to prevent their currencies from appreciating and then
recycle those dollars back into US dollar-denominated assets in order
to earn interest on them.
Large scale private sector capital flight out of dollars presented the
recipients of that capital with the same choice. The central bank of
each country receiving the capital inflow had the choice of either
printing their domestic currency and buying the incoming capital or
else allowing their currency to appreciate as the private sector
swapped out of dollars. The European Central Bank chose to allow the
euro to appreciate. The Bank of Japan and the People´s Bank of China
chose to print yen and renminbe and accumulate the incoming dollars to
prevent their currencies from rising. If some central bank had not
stepped in and financed the private sector capital flight out of the
dollar, then sharply higher US interest rates most likely would have
thrown the world into a severe recession. It is quite likely that this
consideration also played a role in influencing the actions of the
Japanese monetary authorities during this episode.
Chart 4
[link to www.investorsinsight.com]
The BOJ/MOF stopped intervening in March 2004. By that time, the Fed
had indicated that it planned to begin tightening interest rates. That
put a stop to the private sector capital flight out of the
dollar. Therefore no more intervention was required. At the same time,
by the end of the first quarter of 2004, it was becoming clear that
strong economic growth in the US was creating higher than anticipated
tax revenues. That meant a smaller than expected budget deficit. In
July, the President´s Office of Management and Budget revised down its
estimate of the budget deficit from $521 billion to $445 billion. The
actual deficit turned out to be $413 billion. Thus less funding was
required than initially anticipated.
So, what did motivate the monetary authorities in Japan to create the
equivalent of 1% of global GDP and lend it to the United States? Was
it simply, straightforward self interest to prevent a very sharp surge
in the value of the yen? Was it globally coordinated monetary policy
designed to pull the world out of the 2001 slump and prevent deflation
in the United States? Or, was it necessary to stave off a US balance
of payments crisis that would have produced a global economic crisis?
Perhaps it was only straightforward foreign exchange intervention to
prevent a crippling rise in the value of the yen. Intentionally or
otherwise, however, by creating and lending the equivalent of $320
billion to the United States, the Bank of Japan and the Japanese
Ministry of Finance counteracted a private sector run on the dollar
and, at the same time, financed the US tax cuts that reflated the
global economy, all this while holding US long bond yields down near
historically low levels.
In 2004, the global economy grew at the fastest rate in 30
years. Money creation by the Bank of Japan on an unprecedented scale
was perhaps the most important factor responsible for that growth. In
fact, �trillion could have made the difference between global
reflation and global deflation. How odd that it went unnoticed.
This should have helped give you yet another perspective on Asia and
our current account deficit.
Your watching the global flow of money analyst,
John F. Mauldin
johnmauldin@investorsinsight.com
---
Reproductions. If you would like to reproduce any of John Mauldin´s
E-Letters or commentary, you must include the source of your quote and
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reproductions including where and when the copy will be reproduced.
Anonymous Coward
User ID: 11017
5/16/2005
6:48 pm EDT Re: How Japan financed global reflation (Bernanke printing press)
Problems with the yen-sign, apparently. "?trillion" should be "35 trillion yen".
Anonymous Coward
User ID: 2679
5/16/2005
8:20 pm EDT Re: How Japan financed global reflation (Bernanke printing press)
35 trillion Yen?
What´s that - about $100?
Anonymous Coward
User ID: 11017
5/17/2005
12:19 am EDT Re: How Japan financed global reflation (Bernanke printing press)
35000000000 Yen (JPY) = 329000000 US Dollar (USD)
"The Bank of Japan gave the 35 trillion yen to the Japanese Ministry of Finance in exchange for MOF debt with virtually no yield; and the MOF used the money to buy approximately $320 billion from the private sector. The MOF then invested those dollars into US dollar-denominated debt instruments such as government bonds and agency debt in order to earn a return."
"approximately 1% of the world´s annual economic output"
[link to freewordofgod.yuku.com] |
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User ID: 1781
5/19/2005 5:57 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
To Infinity - And Beyond!
May 15, 2005
by The Mogambo Guru
Daily Reckoning
Antal Fekete, in his "Goldbug Variations V" essay on the Freemarketnews.com, talks about the decision by Nixon in 1971 to take the dollar off the gold standard, essentially defaulting in the worth of the U.S. dollar. "We must remember that the financial annals do not record a single case in which a default has not been followed by a progressive increase in the discount on the paper of the defaulting banker, until it reached 100 percent - possibly several years or even decades later."
Mogambo Instant Translation (MIT): the purchasing power of the currency went to squat, which makes everything cost more. "Obviously, the defaulting banker would try to slow down the process by hook or crook. However, ultimately economic law was to prevail and the remaining value of the dishonored paper would be wiped out."
Now, because you are reading this, I know that there is something wrong with you, as only people who have something seriously wrong with them would stoop to reading the Mogambo Guru, and so you are saying to yourself, "What in the hell does this have to do with me making some money and amassing incredible power through the sheer bulk of my money, so that I can stride as a colossus across the financial and social landscape, and all will tremble at the sound of my name?" Well, I was getting to that, in my peculiar Mogambo way (PMW), but first the grasshopper must learn to place his consciousness in a garden of serenity whereby one can grasp the transcendent wisdom about to befall him. But now I am not in the mood anymore, thanks to someone interrupting my train of thought.
So, instead, we will hear from Mr. Ankete himself, as he declares, "There is no reason to believe that the dollar default will end differently." Then he sits back down. Bounding up, (Just like that damned neighbor´s kid who accidentally backed into the electric-fence section of the Mogambo Bunker Perimeter Security System last week. You should have seen the look on his face! Hahahaha!) I go on to fill the sudden silence by asking "When the value of the dollar falls, as it is a money backed by nothing, and therefore, can be created out of nothing, until so damn much money has been created through the creation of debt, will the country and the world are going to be affected, and in a bad, bad way (BBW)? Hahahaha!"
Mogambo scholars immediately run to their dog-eared copies of the Mogambo Dictionary (MD), and look up BBW. The entry is: "BBW. Acronym for Bad Bad Way. Indicative of worsening pain and suffering of one kind or another, and if it is used in conjunction with economic or financial subject matter, it implies the certitude of ruination and starvation and misery on a grand scale, and then one bad thing will lead to another bad thing, and after awhile people will get tired of ruination and starvation and misery, and they will rise up in the street, crying out, ´Save us, Mogambo! Save us!´ But I will be too busy counting my wealth because I had seen it all coming, plain as day, and bought gold, but I will ultimately be convinced to seize the reins of power by shallow flattery and cheap bribes of one kind or another, which will lead to a deepening sewer of depravity and corruption, a period known to historians as ´The Mogambo Reign of Terror.´"
Seeing that The Mogambo is getting all the attention with this ridiculous fantasy about ruling the world and how if I do, there are going to be some BIG changes made, Mr. Ankete gets up, walks over to the podium, and stands right beside me. I am pretty sure that he crossed his eyes and graphically indicated that I am crazy by making little circles with his finger alongside his head. But I can´t get mad at him, as it is such a good impersonation of me. I step aside, and he immediately steps to the microphone and says, "As the discount on the dollar approaches 100 percent, the dollar price of gold will approach infinity. To assert that the dollar is going to escape this fate is tantamount to asserting that the laws of economics and logic have been turned upside down, and the penalty for default has been replaced by reward in perpetuity."
If the dollar falls in value, then the "dollar price of gold will approach infinity"? Wow!
For those of you who want me to give you tips on what the "small investor" should do, here is a tip: Buy an asset whose value, in dollars, will go to infinity. If you are not familiar with the subtleties of an infinite amount of dollars, it is more than a jillion dollars, it is more than a gazillion dollars, it is more than a trillion, zillion, bazillion flabgobble splendillion dollars and, as such, represents one hell of a large chunk of money, and I cannot imagine the size of a wallet needed to carry that much money, so don´t get me started thinking about it.
And the good thing is that it is also worth a lot of money all over the world! Perfect safety! Huge gains! All at $435 per ounce! What more could you ask for in an investment? And at the same price as the large investor would pay, too!
And while Mr. Ankete does not come right out and say it, I am sure that he is thinking it, and instead of trying to coax it out of him, or wheedle it out of him, or demanding that he tell me, or threatening to beat it out of him and if he knows what it good for him he had better start talking, I will tell you myself. Buy gold and/or silver.
Besides the bad news that we are doomed, and how we are all going to die a horrible, painful economic death, he also notes, "A reliable measure of destruction is the so-called ´notional´ size of the derivatives market trading interest-rate futures, options, and swaps. It now stands at a quarter of a quadrillion dollars and is increasing at an accelerating pace." Now this, in American terms, is $250 trillion, which is about nine times the value of global GDP, which means it is ten times as big as all the goods and services produced by everybody and every company on the face of the earth.
This is not news to John Mackenzie, who wrote the essay entitled "M2- Debt and the Delusionals," as he has been looking at the most current Settlements Data on Derivatives, assembled by the Bank of International (BIS).
He notes that the BIS figures that Exchange Traded Derivatives now total $279 trillion, and OTC derivatives now total $220 trillion, which add up to, and I am going to take his word for this, as I cannot reliably add $279 plus $220, almost $500 trillion, which is almost HALF a quadrillion!
The good news, if there is any, is that the banks also figure that not all of that $499 Trillion in combined derivatives is at risk. Whew! The banks decided that only somewhere between $25 trillion and $35 trillion of that total amount of derivatives are, as they say, "at risk." Hey! Now I feel a LOT better! The amount "at risk" is only the total value of all the freaking goods and services produced in the whole freaking world in an entire freaking year! I feel MUCH better now!
This is where I was supposed to get up and make some stupid comment about how these are big, BIG numbers, but I could not handle the stress, and the mere mention of those mountains of big bets (MOBB) caused my brain to seize up in a spasm. Always the trooper, Mr. Mackenzie bounded up out of his seat, grabbed the microphone out of my lifeless hands, and said, "These figures are simply staggering." A faint smile crosses my face, and with a Herculean effort I manage to waggle my little finger to indicate that I agree with him. And it is probably a lot worse than that, as he goes on to say, "It is important to note that although Exchange Traded Derivatives are regulated, OTC derivatives are not and in fact many OTC derivatives can go unreported. Essentially, the $220 Trillion figure in the BIS release does not account for non-reporting, and is therefore low."
Regards,
The Mogambo Guru
for The Daily Reckoning
P.S. The Mogambo Sez: This looks like the beginning of the end (TBOTE) to me. But relax, as I am scared enough for the both of us.
[link to www.dailyreckoning.com] |
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User ID: 1781
5/19/2005 6:05 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fears for Dollar as Central Banks Sell U.S. Assets
May 16, 2005
By Christopher Swann in Washington and Richard Beales in New York
Financial Times
The world´s central banks were net sellers of US assets in March for the first time since September 2002, according to figures that may hint that the recent rebound in the dollar will be temporary.
Central banks sold a net $14.4bn in US assets during the month, the largest sale since August 1998, the US Treasury revealed. Asian central banks, however, continued to accumulate reserves, with their stockpiles rising by about $30bn over the month.
“For those central banks that are not managing their currencies, there may well be a feeling that the dollar is not a great bet,” said Adam Cole, currency strategist at RBC Capital Markets
Economists says these sales may be a sign that central bank officials fear the dollar downtrend will at some point resume. The most conspicuous sale was by the Central Bank of Norway, which sold $17bn of US Treasuries.
Private-sector inflows into the US remained robust in March at $74.5bn, only slightly down from $79.4bn in February.
“It does seem that when private sector investors are willing to buy dollars, the central banks are happy for any excuse to offload part of the mountain of dollars they have accumulated,” said David Bloom, currency strategist at HSBC.
Demand for US Treasuries was boosted by $28bn of net purchases from the Caribbean region, the highest level in at least four years. Analysts associate banking centres in the Caribbean with hedge funds.
Some analysts suggest that hedge fund buying of US government bonds in recent months may be associated with unwinding failed bets in which the funds were short on Treasuries while owning riskier, higher-yielding debt.
Among the central banks, reserve accumulation has been particularly aggressive in Asia, where many of the banks have been anxious to prevent a rise in their currencies from choking off export growth.
The US dollar fell by about 30 per cent against floating currencies from its peak in February 2002 until the end of last year. But since then it has bounced back just over 5 per cent.
Many currency strategists believe the dollar downtrend will resume. “The cyclical picture for the US still looks very good for the dollar,” said Ray Attrill, director of US research at 4Cast, an economic consultancy. “But there are no convincing signs that the current account deficit is getting better and this should eventually weigh the dollar down again.”
Although the US trade deficit narrowed in March from $60.6bn to $55bn, most economists believe this was due to a shortlived slowdown in US demand and the timing of the Chinese new year. Last year the current account deficit was $666bn, or 6 per cent of gross domestic product.
[link to news.ft.com] |
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User ID: 5100
5/20/2005 12:36 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Lawn Sprinkler Economics
May 19, 2005
Richard Daughty...the angriest guy in economics
email: scgcjs@gte.net
I made a solemn vow to sober up, and this time I really mean it, when I read that Total Fed Credit did NOT, again, climb, it did NOT, again, remain constant, but last week it went down by $3.2 billion! Naturally, I assumed that my bloodshot eyes are deceiving me or that I have finally killed the few remaining neurons in my brain that still work. Can this slowdown in Fed credit be true, and I can get back to a life of drunken dissolution with a clear conscience? Time will tell.
And what is the significance of Fed Credit? Because this is the magical and fabled Money From Thin Air, which is distributed to the banks by the Fed merely pushing a button, which use it to make loans, and when the bank makes a loan, real money is thus created, not from thin air, but from the increase in their reserves, which came from the increase in Total Fed Credit, which you realize DID, if you have been paying attention, come from thin air. So, without all this new money from thin air, the money supply has, umm, stagnated.
Mark Lundeen, a guy who literally drips data, sent me a graph showing the growth of Fed Credit since 1938. Back then, even after that arch-communist FDR was installing the socialist state in America, it was about $10 billion or so, and it was gradually rising and rising, faster and faster. Somewhere in the middle 70´s, it finally grew to $100 billion, but it kept on increasing, faster and faster. Then, coinciding with the horrid Alan Greenspan being appointed as the chairman of the Federal Reserve, it really got going. Now it is at $783 billion.
Sure enough, when we take a look at the money supply, as measured by the M´s, we notice that they all fell, too, although for reasons completely different than why The Mogambo fell down, which was because I was going to unsteadily go over and finish off that bottle of tequila so that I would not be tempted to drink it. But the money supply probably fell because of a lot of reasons, mostly because more people were paying off their loans than were taking new on new ones. But it was nothing to write home about, but it does merit the kind of attention that one pays to small clouds on the horizon, knowing that small clouds can grow to big clouds, and then suddenly you get pelted by wind and rain and your new portable radio gets all wet and is ruined, and nobody wants THAT! So it pays to keep an eye on these damn clouds.
Even Randall W. Forsyth, taking over for Alan Abelson in writing the "Up and Down Wall Street" column in Barron´s, remarked "The money supply (which is hardly ever mentioned in polite company anymore) has hit the wall, And while we´re not high-church monetarists, a collapse in money growth always has presaged an economic slowdown and a punk market."
Now, let´s analyze the last phrase of that sentence. "(A) collapse in money growth" which probably has nouns and verbs all over the place, but who cares, is when money is no longer being created. And since it can only be created by people borrowing money (because that is how a fiat/paper money system works), this has "presaged," probably meaning something like meaning to "leading to" or "providing advanced warning about" or something in that vein, "an economic slowdown" which hardly needs any explanation because everyone knows what an economic slowdown is, and if you do NOT know what an economic slowdown is, then I know you are very young, and you are now going to get an education as to why your parents are probably the way they are, mostly yelling at me to stop watching that damn TV and get some work done, a task that has now fallen to my wife, who is even less successful at it.
Clif Droke, editor of the Gold Strategies Review newsletter, notes that MZM (money of zero maturity) has not been growing, and concludes that this "makes an economic slowdown a near-certainty in the months ahead."
Just as alarmingly as people wanting me to do actual work, the Treasury has apparently stopped selling new debt, which makes you wonder how in the hell they are going to finance their megalomaniacal visions of empire.
But this is not about how the federal government and their willing little whore, the Federal Reserve, have apparently gotten tired of the Mogambo screaming bloody murder about this monetary insanity stuff, and have stopped this silly crap long enough to take a nice nap or something. It´s about how frauds (and our current monetary policy is the biggest fraud in history) always come undone and leaves everybody weeping and then I get blamed for everything.
For one, GATA, the Gold Anti-Trust Action committee, is back with Eric Hommelberg leading the charge, who has even more strident denunciations of the manipulation of the gold market. That the gold marketis manipulated is beyond doubt, but then so are all the other markets, too. One current example is the precious metals markets, and Ted Butler remarks "(T)he tech funs have never booked a real profit in gold or silver due to their buy-high, sell-low approach." An interesting detail is that "the dealers have never booked a loss." He notes that there are some who suspect some type of collusion between the dealers and the techs, me included, but then I always suspect collusions and betrayal, as that is all I have ever experienced.
But there is good news in this, as Mr. Butler explains. "It has been the remarkably predictable trading pattern of the tech funds that has made the analysis of the COT (Commitment of Traders) so reliable. It is the predictability of the tech funds´ behavior that has enabled me to consistently identify low and high risk points in the silver market for the past few years."
But before you jump up out of your seat to delve into this revelation and make a few bucks for yourself by following the behavior of the tech funds, here is the interesting part: Things are suddenly different! In fact, he says so himself, as he writes "The numbers are different than anything we´ve seen in the past" and he surmises that it may be time to "throw the old COT guidelines out the window" because a lot of other big-money dudes have noticed this weird relationship, and are moving in to cash in on it, too.
So what to do with gold and silver if you buy it? Well, James Turk, who writes The Freemarket Gold and Money Report, writes that "Last year, State representative Henry McElroy introduced HB 1342, which has been dubbed the New Hampshire Sound Money Bill. This bill enables people to use gold and silver in their transactions with the state of New Hampshire."
If this passes, then New Hampshire will finally be free of the inflationary shackles of the illegal fiat monetary system that has been pounded down our throats since Wilson allowed the establishment of the Federal Reserve, and (as he has been called by Vin Suprynowicz) Franklin Delano Mussolini, who used it to destroy freedom from government in America and put us all in the thrall of the government and the banks, which was a big, big mistake, as you can see by just looking around you.
But Mr. Hommelberg is addressing gold when he says "Knowing that the price of Gold was managed paved the road for the ´in the know´ bullion banks to accelerate their profitable gold carry trade (selling gold being lend by the Central Banks). A declining gold price was win-win situation for many." How was this a win-win situation? Well, for one thing, the banks lent the gold and got a higher price for it, and they still had the damned gold on their books, if not actually in the vault! The guys who leased the gold sold it, and now they can repay the borrowed gold by buying it cheaper on the open market! Not only that, but Mr. Hommelberg notes "The US government welcomed a lower gold price since it lowered inflation expectations and strengthened the dollar." Now, the failure of the price of gold to rise did not, of course, prevent inflation. It just made it LOOK like there was no inflation, since people were not scrambling to trade in their depreciating money for gold.
He goes on to write, "This effort [by the Federal Reserve, Bank of England and BIS to turn back the gold price] was later described by Edward A. J. George, Governor of the Bank of England and a director of the BIS, to Nicholas J. Morrell, Chief Executive of Lonmin Plc ´We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K.´ "
In a related note, Switzerland has finished, as of March 30, with its sales of roughly 1300 tonnes of gold that it started in 1999. The odd thing is that even as they were selling, the prices of gold went up almost from the very day that they started selling it!
The Depository Trust Clearing Corp. has announced that in 2004 they cleared over one quadrillion dollars in securities trades, which translates into $4.5 trillion every day, which further translates into buying and selling securities at a rate that equals the entire US gross domestic product, GDP, every 2.7 days.
This bizarre gambling mentality is one of the earmarks of the end-game of a long boom, born of inflation, where so much money has been created and so many things have been created to absorb all of that money, that it degenerates into nothing more than raw speculation and gambling.
-From the Financial Times we read, "Real wages in the US are falling at their fastest rate in 14 years, according to data surveyed by the Financial Times by the Economic Policy Institute. Inflation rose 3.1 per cent in the year to March but salaries climbed just 2.4 per cent, according to the Employment Cost Index. In the final three months of 2004, real wages fell by 0.9 per cent."
And speaking of wages, the Labor Department reported last week that 274,000 jobs were created in April, although a close reading of the data shows that most of them (257,000 of them) were assumed to have been created (like the Federal Reserve creates money, out of thin air), as an expedient to make the numbers look good, as all government statistics are now massaged to make the government look good. But maybe there were more jobs created, as the Bush administration came up with another request for another $80 billion for their empire-building in Iraq and Afghanistan and all that money has to go somewhere.
But, then again, maybe not, as first-time claims for jobless benefits rose 4,000 last week to 340,000, which is waaayyy over 300,000, which used to be bad news ("As long as first-time claims stay below 300,000, then it is okay!"), but is not even mentioned in polite company anymore.
Moreover, the Labor Department also reported that factories eliminated 6,000 positions, on top of the 7,000 that were shed a month earlier, which probably explains part of the reason why the index of New York state manufacturing surprisingly fell this month. The index is now at the lowest level since April 2003, ending two years of growth in that particular index.
But even without wage gains or employment growth, some consumers apparently found a way to justify going farther into debt, and so consumer spending went up 1.4 percent in April, and is actually running at a stronger pace in May. The really interesting part is that some retailers mentioned that the number of transactions declined, but that each customer bought more. Hmmm.
At least most people got into the debt thing a little deeper, perhaps except the guy who wrote to Richard Russell, of the Dow Theory Letter, who was complaining because his credit card company has now raised the minimum monthly payment, and now he can´t pay that much money, and is considering filing for bankruptcy as a result! Can you believe this? What a moron! He has gorged himself with so much stuff that he can only afford to make the minimum payment? Well, to show you what a class act Mr. Russell is, he only addressed the facts and was solicitous and gracious as usual. Whereas if he has written to The Mogambo with his pathetic little whining snot-faced tale of woe, I would have called up his mother and had her go over there and slap his stupid little face to 1) teach him a lesson in the benefits of going into un-payable debt and 2) punish him for embarrassing her by admitting to such stupidity in public, and now when she walks into the grocery store she can feel everyone´s eyes upon her, and she can hear them whispering to each other "I wonder how much farther in debt her idiot deadbeat son got? She must be a bad mother!," and I tell her that she now knows how I feel when I go to the store, and I could hear them whispering "There´s that stupid Mogambo. He must have had an insane mother! And father!"
On the other hand, discount retailers reported weak result in April, as we lower-income proletariat scum, who primarily shop at discounters, and whose wages are falling, are finding it difficult to consume our way to nirvana, as it the current vogue.
An essay entitled "Shanghai Surprise" on the DR site by Karim Rahemtulla has an interesting anecdote about the coming re-pegging of the yuan. "My Big Mac meal in Shanghai set me back $2.19 - about half what it would cost in the United States. This is a good indication, along with the 15 cents I paid for a Snickers bar and the 30 cents I paid for 16oz Pepsi, that the Yuan could appreciate quite a bit from current levels." Which I conclude means that the dollar could depreciate "quite a bit from current levels."
Beyond that, he thinks that "China is a conundrum. It defies economic principles with low inflation, high growth, and huge money supply, and a socialist government all in one...someone is lying somewhere." Putting these two pieces of information together, he says "My advice on investing in China is this: To really profit from China, fly over with a few suitcases and spend as much as you can, buying goods at artificially low price," which is probably real good advice, since when the dollar depreciates, you will only be able to buy less stuff. So buy now, before the dollar falls, and get more stuff! It´s the American way!
As my latest stupid bid to win that elusive Nobel Prize in Economics, I have happened upon what I think may be the defining metaphor for what is going on. I call it the Mogambo Lawn Sprinkler Theory (MLST). Like Newton having an apple fall on his head, whereupon he supposedly invented gravity, I, too, have had such an epiphany.
See, what happened was that my good lawn sprinkler finally bit the big one, and now I am on auxiliary back-up sprinkler, which is so cheap that it was probably a free gift inside a box of breakfast cereal or something, or a gift from a realtor wanting to list my house for sale and then make a big fat profit, and then where would I live? With my parents? They´re dead, you moron! I can´t GO home! But we are not here to talk about how I am now a pathetic orphan with no mommy or daddy, boo hoo hoo, or how realtors are beating the bushes for houses to sell, as if anybody would move into my run-down rat trap, much less pay money for it.
So here I am, trying to maneuver this damn sprinkler around the yard, a little at a time. And that means that I have to go out there and physically pick the damn thing up to move it to another spot that needs some water. So I am crimping the hose with one hand to stop the flow of water that comes shprutzing out of this damned little sprinkler, but you can never completely stop it. No matter how hard I crush that stupid hose, there is always a little spray, sort of a mini-shprutzing, and so you have to be real careful when handling it or you will get wet. And you are almost never careful enough, because sooner or later you are going to get spattered by drops of water. And then the next time you are out there, adjusting the sprinkler, you are being extra careful, but you STILL get shprutzed by that damned hose! And then, just when your clothes have dried off a little, you gotta go change it again. But this time, having gotten wet the last two times in a row, you are being extra, EXTRA careful, holding a cold beer in one hand and a cigarette with the other, while simultaneously holding and dragging and manipulating the damn hose, but it´s flipping and flopping, and you can´t seem to maneuver it into the exact damn spot you want, because this has got to be aimed correctly or some damn little stupid place is not going to get as much water as the wife thinks it needs, and then she is saying to me, with that ill-disguised undertone of loathing and disgust that is the bedrock of our marriage, "My (insert name of some dumb plant that I never heard about that she planted within the last five or ten years that looks like a weed to me) didn´t get any water! Now they are dry and dying!" Naturally, because I am The Mogambo, I politely tell her that maybe the plants would feel better if I came over there and shut her fat yap for her, and then she suddenly goes all weird on me (probably hormones or something).
But it was during one of these sprinkler-turning episodes where it suddenly occurred to me that economics is like a cheap water sprinkler; you can´t do stupid things with it, and if you do, you will get very wet, because you are going to get a little wet anyway, even if you do NOT act stupid. And when that happens, it will look like you peed in your pants, and the neighbors come out and start pointing at you and laughing, "Hahaha! Mogambo peed in his pants!" and then I say "No, I didn´t!" and they say "Yes, you did" and I say "No, I didn´t!" and then I start to cry. Then the bitter tears of rejection and desolation are dimming my eyes, and everything seems watery and indistinct and surreal, and now the tears are starting to sting my eyes with all the salt, and I can´t get a good aim at any of them, and my bullets are going everywhere. As my vision clears, I see that my shot pattern looks like I am some kind of rookie, and I end up wasting a whole clip of very expensive ammunition for nothing.
So, just as getting wet is a bummer, so is the price inflation that is inevitable when the money supply expands so much, and now getting some more ammo is making a dent in my budget. That may explain why my kid wakes up in the middle of the night, screaming about monsters under his bed. I patiently explain that there are no monsters, and so therefore there cannot be monsters under his bed. And then he says "Well, the government says that there is no inflation, and they are liars! Therefore, you are probably lying to me, too, and that is why everybody hates you! And you´re all wet, too!"
And while getting wet from a stupid sprinkler is bad enough, you will dry eventually, but your clothes are ruined. And so it is with inflation, as eventually it will end, too. But while your clothes will not be ruined, everything else about your life will be.
The Texas Hedge Report talks about the goings-on at the Berkshire Hathaway meeting where they discussed the gigantic fraud of Fannie Mae. They quote Warren Buffett saying, "Fannie´s earnings were off by $9 billion from what the company originally said. Freddie´s were off by $5 billion. People weren´t necessarily negligent. It´s just hard to estimate. A lot of relatively small assumptions go into the numbers. If you change one even slightly, it could have a big effect on the bottom line."
Although they didn´t mention it, this is the whole point behind Chaos Theory, which proved that any tiny, teensy-weensy, insignificant little change, in any of a thousand variables, or a million variables, or a billion variables, WILL give you a result that is wildly different than what would otherwise occur.
Here is a real life example. Every Saturday morning, my wife wakes me up with an exercise program, wherein she takes a pillow and jams it down over my face, which wakes me up, kicking and screaming. Since I can´t breathe, I start struggling to get that damned pillow off my face. But she is pressing down hard, and by the time I manage to free myself, I have worked up a good sweat and am wide awake, ready to face the day. But this morning she did not, as she was out meeting with a lawyer, who advised her to get a handgun, and so I completely overslept. Thus I missed today´s episode of The Brady Bunch. See what I mean? The slightest change produced wildly different results.
Now, I´ll be the first to admit that Warren Buffett is a smart guy, which I surmised from his never taking a call from me (in fact has his secretary tells me "Mr. Buffett is not here. May I take a message?" and I can HEAR him standing behind her, laughing at me!). So you gotta wonder why he says stupid things like "I´m not crazy about gold as a hard asset, compared to, say, oil, See´s Candies, or Coke. If the value of the dollar dropped by half, we´d sell See´s chocolates at twice the price." Huh? You notice that I am uncomfortable with this whole pricing concept, the theory of which eludes me completely. I mean, if raising prices is so easy, then why in the hell doesn´t he raise prices NOW, and make twice as much money NOW? That´s what I would do, and so would you, and so would every kid that struggled through microeconomics, because he or she knows that microeconomics is solely concerned with achieving optimal performance and profits. So, Warren Buffett, the fabled Sage of Omaha, says that is performing at, at most, 50% of potential? Jeez! How in the hell did this guy get such a great reputation?
He also shows a kind of weird logic when he says, "If you go back to 1900, gold sold for $20 an ounce, and has risen to just $400 since then." Well, duh! In 1900, the dollar was DEFINED in terms of grains of gold, for crying out loud!
I know that this ragging on Warren Buffett is dangerous business, as he is a rich genius hot shot and I am just a guy, an ordinary guy, a guy with a broken heart and song to sing, a guy stupid enough to think that he can poke fun at Warren Buffett and moronic enough to think he can get away with it.
So, naturally, my folly reminds me to start praying, (as Marlon Brando said in his role in the movie "Mutiny on the Bounty" as he was putting Captain Bligh adrift in that little boat in the middle of the ocean), to "whatever pig-god you pray to." Well, as it turns out, whatever pig-god that Captain Bligh prayed to is a pretty nice dude, as they miraculously made it to safety and testified against the handsome and young Marlon Brando and his fellow mutineers.
So while I am not advocating that we worship a pig-god, even though it seemed to have worked out great for Captain Bligh, I nevertheless turn to the religious side, since the country seems to be waxing religious, which is one of the things that you will notice as things get progressively worse and worse. So there I am on one side, calling them a bunch of hypocritical, Bible-thumping cowards and morons who can´t comprehend the Constitution, and everyone else on the other side, doing hurtful things like calling me "spawn of Satan" and "ugly, smelly little creep" and yelling "Hey! Quit trying to steal my lawn sprinkler, you thieving bastard!"
So turn to your Mogambo Religious Book (MRB), and after I recite a relevant passage from the Book of the Naughty Nymphettes, you chant the appropriate response, which has been thoughtfully provided by The Mogambo, which you will find conveniently enclosed in parentheses. The congregation shuffles nervously as I adjust my religious headgear (the Propeller Beanie Of Infinite Compassion And Holiness (PBOICAH)), and in my squeaky little voice I begin, "And verily I say unto you, who the hell knows what gold would have been worth if the dollar was then, as it is now, a dumb-ass fiat currency?" ("The Mogambo knows!"). "And who amongst us knows what gold would have been worth if the banks and the Fannie Mae´s had not been allowed to insanely expand the money supply then, like it does now?" ("The Mogambo knows!"). "And who is it that walks in our midst who can tell us what gold would have been worth if the government was then, as it is now, some giant borrowing- and money-distributing machine? ("The Mogambo knows!").
Warming up to the role, I raise my arms dramatically, and peering off into the infinite distance as if perceiving wisdom from the reaches of the, again, infinite universe, I loudly conclude "And who resides in the bosom of our community who can know the person responsible for this calamity that soon befalls us? ("Alan-freaking-Greenspan, the chairman of a damned private bank they named the Federal Reserve!")
Now that we have finished quoting scripture, it is time for the sermon. Mr. Buffett is right, of course, when he says that people who hold gold "would have to pay for insurance and storage." And he is also right that "The Dow, by comparison, was at 60 or so in 1900; it´s now around 10,000-and has paid dividends along the way." And while he conveniently forgets, taxes were paid, and you paid your brokerage all kinds of fees and costs and commissions, too!
And let´s not forget that indexes are manufactured, where the custom is to drop any companies in the index if they go bankrupt, which may explain why the Mogambo Money-Grubber Company cannot be found in any index nowadays. Notice that there is no accounting for the losses that were incurred by the holders of the bankrupt stock that used to be in the index. How convenient!
Mr. Buffett is also anti-gold, as he proves when he says, "Gold is just about the last thing we´d want to own. Other alternatives have utility, which gives them value. I´d rather have the ability to sell a pound of candy 20 years from now." Well, so does everybody, dude! That is the whole point! We want you to be ABLE to sell a pound of candy twenty years from now! And a destroyed economy is NEVER conducive to selling chocolate candy!
Seeing that I am winded and out of breath, I reach out and slap the hand of the Texas Hedge, signaling them that since we are in this tag-team match together, they ought to get into the ring with Mr. Buffett awhile. Bounding over the ropes, they say, "We do not disagree with Buffett in that under most circumstances gold is a poor asset to hold when compared with a solid operating company over long periods of time. However, this is no ordinary time. The Fed and the powers that be are attempting to debase our currency like no time in recent financial history. Buffett himself has seen fit to take $21 billion in a basket of foreign currencies for the first time in 50 years. He recognizes the same trade and current account issues that make people bullish about gold."
But it is not just gold they like, but also, as does Warrant Buffet, silver. They note that "Silver, for instance, has a wide range of industrial applications. We are more bullish on silver than gold for supply/demand fundamentals." Then they give Mr. Buffett a whack about his 130 million ounce silver purchase! Hahaha! Take that! Hahaha!
But they, like The Mogambo, can´t stop thinking about all that candy. "Likewise, the ability to sell a pound of candy versus holding a quantity of gold is a point well taken, but paying an absurd multiple for the right to sell that candy (akin to the expensive stock prices prevailing today) versus purchasing gold still near the lower end of its 20-year bear market range and with a once-in-a-generation current account problem doesn´t seem so foolish to us."
Sitting ringside, nursing a bruised jaw while watching the action, I say, to no one in particular, "That´s what I figure, too."
In my younger days as a young larva, I would spend the warm summer days in my cozy cocoon, trying to think of some way that I, The Mogambo, could come up with a way to get us out of this suicidal economic mess caused by creation of too much money and credit, made worse by operating in tandem with a fractional-reserve banking system, and then made suicidally worse by being coupled with a fiat currency, all under the control of a monstrously large and expensive central-planning government that is trudging down that same tiresome road to socialism that lead everyone else to ruin. All my hoodlum friends said to me "Quit wasting your time! Everyone in history has grappled with this problem without success! Why don´t you figure out a way to get us some reefer or some beer?"
Bill Bonner of the Daily Reckoning.com, who has neither reefer nor beer, or if he does, he isn´t sharing any of it with me, says roughly the same thing when he says "Greenspan is trapped. He needs to ´normalize´ rates to encourage saving and investing, otherwise the economy cannot really grow in the future. But he needs to lower them too; otherwise the economy might collapse now."
So there you have it! If you want to be famous, like I do, and if you want future generations of people to sing your praises, like I do, then all you have to do is solve one stinking little economic problem, like I can´t! And you owe a debt of gratitude to Mr. Bonner here, who has just told you exactly how to do it! All you have to do is to simultaneously a) lower interest rates to stimulate the economy and b) raise them to choke of inflation at the same time! If you find a way to do that, then you have it made, and thus your genius will enable people to forever buy more and more stuff, going farther and farther into debt, forever buying more and more stuff! And you better hurry, because they are so sodden with debt that you can actually hear them slosh when they walk past me without leaving any money in my hat as I play my guitar and singing the blues, mostly plaintive 16-bars of heart-wrenching pathos and desperate despair along the lines of "Oh, the Federal Reserve destroyed our money, and now we´re going to die (doo wah, doo wah),. Oh, the Federal Reserve destroyed our money, and now we are going to die (doo wah, doo wah).My woman done left me, I don´t know why. But it may be that she is tired of me just because I can´t hold a job, and I can´t hold a job because my bosses are government goon-squad robots (doo wah, doo wah)."
If you do NOT find a way to solve this riddle, then Mr. Bonner provides a little incentive for you. "Empires do not always die gracefully."
Even Bill Fleckenstein, who writes the "Rick´s Picks" newsletter, [editor´s note: Rick Ackerman writes "Ricks Picks." Bill Fleckenstein writes "Market Rap."] says that he agrees with me and Mr. Bonner, although he is quick to add that while he DOES agree with Mr. Bonner, he does NOT agree with me about anything, mostly because I am an idiot. So naturally I get all huffy and explode "But we are saying the same thing, you butthead!" and he says "I know. But he never called me a butthead" and I reply "But I didn´t call you a butthead until you said that you did not agree with me!" and then he says "See there? You called me a butthead again!"
Seeing that this is going nowhere, I drop the whole subject, and merely report that he says "Sane adult central bankers throughout history have tried to avoid asset bubbles, because the aftermath of them is so ugly. The Fed, though, has decided that bubbles are not dangerous, as they think they can remedy their aftermath."
Then he goes on to agree with Mr. Bonner, The Mogambo and the entire corpus of economic history, from the present all the way back to when the first primitive creatures walked up out of the sea and started putting up condominiums on the beach, where it has been proved time and time again that "Bubbles are not solvable. They are only preventable."
-When things start getting weird, things start getting weirder. The latest example is the announcement from the Pentagon, although they are currently fighting belligerents all over the damn place, has announced plans to close 180 military installations, including 33 major bases. Weird enough. But, I guess, budgets being what they are, there has to be a little belt-tightening. So how much is this going to save? You´re going to love this; $48 billion over 20 years! Twenty years! That comes to $2.4 stinking billions per year! Per YEAR! Hahahaha! Hell, we need that much money per DAY, every damn day of the week, just to balance the trade deficit! And that is roughly the amount of money that is being spent per DAY by this year´s budget deficit alone! And these base closings are so important because we are going to save $2.4 billion a year? Hahahaha!
And it is spread over twenty years! Hahaha! They can´t project a damn thing from one month to the next, but here they are promising to save money over twenty years! Hahahaha!
But offsetting money is being spent in other places, such as Florida, which will see a big benefit, including $47 million for an Armed Forces Reserve training facility right here in my little town of Pinellas Park, to train reservists, which I figure is just a cover, and they are turning out the robots to be used as federal goons squads, and they are going to be coming over here, and then one day I will just disappear, and everyone will say "Whatever happened to The Mogambo?" and someone will tell them "The government robot goon squads came and got him," and then everyone will nod their heads knowingly.
So, on net, regardless of the $48 billion in saving, all the spending is continuing.
Then we go on to learn that tens of thousands of direct jobs will be, in those locations, eliminated. And not like when they fire The Mogambo, which involves them shooting tranquilizer darts at me from behind the water cooler and I wake up under a bush in the park (and it´s a good thing, too, because if they don´t, then I scream and throw things and break everything and make death threats against everybody, including that snotty little mailroom kid).
But the point is that there will be a roughly corresponding increase in other places, so, on net, again, there is not much reduction in anything, including employment.
And the funny part is that these are only recommendations, and the closing process can´t even start for six years! Even if the plan is adopted right now! Which it won´t be, because there is a long and arduous appeals process, and input gathering and blah blah blah, which means more money for lobbyists, and individuals and companies that provide the dog-and-pony shows, and the data gathering, and again the blah blah blah, and at the end of it, historically usually only about 15% of the recommendations are adopted anyway. What a system, huh?
The going rate on Certificates of Deposit has been moving up, although still in the range known in Mogambo-ese as "junk assets" as it pays an interest rate that is less than the inflation rate plus the tax rate, so you are steadily losing money by buying one. And the rate is now 133% of the rate they paid just twelve months ago, up from 1.5% to the current 3.47%. Still crappy, but the percentage move in the yield is pretty impressive!
So CD holders, when they renew their CD´s, are going to be relatively happy, as they are now going to get a yield that is more than twice as big! Much more than twice as big!
Of course, they will never make up for all the buying power that they lost for the last five years as prices climbed and their interest-income dropped below the rate of inflation, as Alan Greenspan and the asinine Federal Reserve pounded interest rates into the toilet to bail themselves and the damned banks out of the mess they created in goosing the stock markets to insane levels. And even at the now-relatively princely interest rate of a 3.47% rate, depositors are still underwater, simply because they will owe the marginal tax rate on the 3.47% yield, which, at 25%, means that the take-home, after-tax yield is reduced to 2.6%, at the same time (Hahahaha! I can hardly stop myself from laughing!) as inflation is twice as high as that! So people who own certificates of deposit can actually chart exactly how much poorer they got: How much interest did you collect last year from your certificates of deposit? Then you lost that much buying power! But it is better than the calculations of last year, when they were losing triple the going rate! Hahahaha! "We´re from the government, and we´re here to help you!" Hahahaha!
Speaking of inflation, last Friday the Labor Department said that U.S. import prices rose 0.8 percent in April. As if that was not bad enough, March´s import price numbers were revised up to a 2.0 percent gain, up from an initially reported 1.8 percent rise. For those of you who like your inflation statistics spread over a longer period of time, total import prices have risen 8.1 percent on a 12-month basis. 8.1%. Horrendous inflation!
And it is not just import prices that are rising, but April export prices were up 0.6 percent, too! Prices are increasing everywhere!
They also said that, so far this year, producer prices are rising at a 5.6 percent annual rate compared with a 4.4 percent increase at the same time last year. Costs of intermediate goods, those used in earlier stages of production, rose 0.8 percent last month and were 8.2 percent higher than they were in April of last year. Prices of raw materials, used at the earliest stage of the production process, rose 2.7 percent and were up 11.8 percent in the past 12 months.
And yet all I hear is how inflation is "contained" and "low!"
Dan Denning, of Strategic Investment, has been taking a look at the deflation/inflation debate, and has concluded, as I have, that "I haven´t changed by long-term view that tangible assets will be in a bull market while financial, retail and housing stocks will ´deflate.´ In fact, there´s abundant evidence that the entire commodities complex is in the midst of a long-term super-cycle secular bull run."
An outfit called Investec published an interesting article entitled, "Howzit my China?" which is a nice piece about China and how it is the future and blah blah blah, but they took time to note that all financial crises are always the fault of the damned banks, and in the US they remind us that. "During the period 1873 and 1914, there were 11 banking crises; from 1884, they occurred every three or four years[1]. Between 1875 and 1900, 700 railroads with over 50% of the nation´s track ˇ or 100,000 miles ˇ went bankrupt."
And things are no better. Now that the moronic idea of the Federal Reserve has plunged us into such extraordinary levels of debt, debt owed to banks, that financial crisis is inevitable.
Ugh.
***The Mogambo Sez: The lease rates for gold on the Kitco.com site show that the rates are rising a lot. This should cut down on the current push to crush the price of gold. Theoretically.
[link to www.321gold.com] |
| .
User ID: 5100
5/20/2005 12:40 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Even Bill Fleckenstein, who writes the "Rick´s Picks" newsletter, [editor´s note: Rick Ackerman writes "Ricks Picks." Bill Fleckenstein writes "Market Rap."] says that he agrees with me and Mr. Bonner, although he is quick to add that while he DOES agree with Mr. Bonner, he does NOT agree with me about anything, mostly because I am an idiot. So naturally I get all huffy and explode "But we are saying the same thing, you butthead!" and he says "I know. But he never called me a butthead" and I reply "But I didn´t call you a butthead until you said that you did not agree with me!" and then he says "See there? You called me a butthead again!"
Seeing that this is going nowhere, I drop the whole subject, and merely report that he says "Sane adult central bankers throughout history have tried to avoid asset bubbles, because the aftermath of them is so ugly. The Fed, though, has decided that bubbles are not dangerous, as they think they can remedy their aftermath."
Then he goes on to agree with Mr. Bonner, The Mogambo and the entire corpus of economic history, from the present all the way back to when the first primitive creatures walked up out of the sea and started putting up condominiums on the beach, where it has been proved time and time again that "Bubbles are not solvable. They are only preventable."
-When things start getting weird, things start getting weirder. The latest example is the announcement from the Pentagon, although they are currently fighting belligerents all over the damn place, has announced plans to close 180 military installations, including 33 major bases. Weird enough. But, I guess, budgets being what they are, there has to be a little belt-tightening. So how much is this going to save? You´re going to love this; $48 billion over 20 years! Twenty years! That comes to $2.4 stinking billions per year! Per YEAR! Hahahaha! Hell, we need that much money per DAY, every damn day of the week, just to balance the trade deficit! And that is roughly the amount of money that is being spent per DAY by this year´s budget deficit alone! And these base closings are so important because we are going to save $2.4 billion a year? Hahahaha!
And it is spread over twenty years! Hahaha! They can´t project a damn thing from one month to the next, but here they are promising to save money over twenty years! Hahahaha!
But offsetting money is being spent in other places, such as Florida, which will see a big benefit, including $47 million for an Armed Forces Reserve training facility right here in my little town of Pinellas Park, to train reservists, which I figure is just a cover, and they are turning out the robots to be used as federal goons squads, and they are going to be coming over here, and then one day I will just disappear, and everyone will say "Whatever happened to The Mogambo?" and someone will tell them "The government robot goon squads came and got him," and then everyone will nod their heads knowingly.
So, on net, regardless of the $48 billion in saving, all the spending is continuing.
Then we go on to learn that tens of thousands of direct jobs will be, in those locations, eliminated. And not like when they fire The Mogambo, which involves them shooting tranquilizer darts at me from behind the water cooler and I wake up under a bush in the park (and it´s a good thing, too, because if they don´t, then I scream and throw things and break everything and make death threats against everybody, including that snotty little mailroom kid).
But the point is that there will be a roughly corresponding increase in other places, so, on net, again, there is not much reduction in anything, including employment.
And the funny part is that these are only recommendations, and the closing process can´t even start for six years! Even if the plan is adopted right now! Which it won´t be, because there is a long and arduous appeals process, and input gathering and blah blah blah, which means more money for lobbyists, and individuals and companies that provide the dog-and-pony shows, and the data gathering, and again the blah blah blah, and at the end of it, historically usually only about 15% of the recommendations are adopted anyway. What a system, huh?
The going rate on Certificates of Deposit has been moving up, although still in the range known in Mogambo-ese as "junk assets" as it pays an interest rate that is less than the inflation rate plus the tax rate, so you are steadily losing money by buying one. And the rate is now 133% of the rate they paid just twelve months ago, up from 1.5% to the current 3.47%. Still crappy, but the percentage move in the yield is pretty impressive!
So CD holders, when they renew their CD´s, are going to be relatively happy, as they are now going to get a yield that is more than twice as big! Much more than twice as big!
Of course, they will never make up for all the buying power that they lost for the last five years as prices climbed and their interest-income dropped below the rate of inflation, as Alan Greenspan and the asinine Federal Reserve pounded interest rates into the toilet to bail themselves and the damned banks out of the mess they created in goosing the stock markets to insane levels. And even at the now-relatively princely interest rate of a 3.47% rate, depositors are still underwater, simply because they will owe the marginal tax rate on the 3.47% yield, which, at 25%, means that the take-home, after-tax yield is reduced to 2.6%, at the same time (Hahahaha! I can hardly stop myself from laughing!) as inflation is twice as high as that! So people who own certificates of deposit can actually chart exactly how much poorer they got: How much interest did you collect last year from your certificates of deposit? Then you lost that much buying power! But it is better than the calculations of last year, when they were losing triple the going rate! Hahahaha! "We´re from the government, and we´re here to help you!" Hahahaha!
Speaking of inflation, last Friday the Labor Department said that U.S. import prices rose 0.8 percent in April. As if that was not bad enough, March´s import price numbers were revised up to a 2.0 percent gain, up from an initially reported 1.8 percent rise. For those of you who like your inflation statistics spread over a longer period of time, total import prices have risen 8.1 percent on a 12-month basis. 8.1%. Horrendous inflation!
And it is not just import prices that are rising, but April export prices were up 0.6 percent, too! Prices are increasing everywhere!
They also said that, so far this year, producer prices are rising at a 5.6 percent annual rate compared with a 4.4 percent increase at the same time last year. Costs of intermediate goods, those used in earlier stages of production, rose 0.8 percent last month and were 8.2 percent higher than they were in April of last year. Prices of raw materials, used at the earliest stage of the production process, rose 2.7 percent and were up 11.8 percent in the past 12 months.
And yet all I hear is how inflation is "contained" and "low!"
Dan Denning, of Strategic Investment, has been taking a look at the deflation/inflation debate, and has concluded, as I have, that "I haven´t changed by long-term view that tangible assets will be in a bull market while financial, retail and housing stocks will ´deflate.´ In fact, there´s abundant evidence that the entire commodities complex is in the midst of a long-term super-cycle secular bull run."
An outfit called Investec published an interesting article entitled, "Howzit my China?" which is a nice piece about China and how it is the future and blah blah blah, but they took time to note that all financial crises are always the fault of the damned banks, and in the US they remind us that. "During the period 1873 and 1914, there were 11 banking crises; from 1884, they occurred every three or four years[1]. Between 1875 and 1900, 700 railroads with over 50% of the nation´s track ˇ or 100,000 miles ˇ went bankrupt."
And things are no better. Now that the moronic idea of the Federal Reserve has plunged us into such extraordinary levels of debt, debt owed to banks, that financial crisis is inevitable.
Ugh.
***The Mogambo Sez: The lease rates for gold on the Kitco.com site show that the rates are rising a lot. This should cut down on the current push to crush the price of gold. Theoretically.
[link to www.321gold.com] |
| OK Idol....
User ID: 206
5/20/2005 12:54 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
<<I do not care. If my money becomes worthless someday I will simply go back to the farmlands where I was raised and life will continue, although without the technological benefits of the modern society.
It is important to be ready for a sudden material loss, thus one must be spiritually prepared and not clinge to the mundane things.
However, I tend to think crisis means opportunity for new leaderships rather than catastrophy.>>
***************
Have you lost your mind??
You´re supposed to say it´s B.S......remember?
What have you done with the real Idol? |
| .
User ID: 4440
5/26/2005 8:15 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
makes me mad
User ID: 17009
5/26/2005
7:58 am EDT The BEST explanation of our bullshit federal reserve money system!!
This site has the best, most concise explanation of our bullshit federal reserve system I have ever heard. It is free and in MP3 format and is about 30 minutes long.
Our forefathers warned repeatedly about a paper money system. Our country is under the control of the federal reserve system - a PRIVATELY owned organization that controls the money.
I have always heard this - but I never really understood it all - now I do.
Don´t listen if you don´t want to get mad!!!
[link to www.golddealer.com] |
| .
User ID: 4440
5/26/2005 8:23 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Danger ahead for the world economy: OECD
The global economy is facing big risks in the form of high oil prices and an unsustainable American trade deficit, a new study has warned. The Paris-based Organization for Economic Cooperation and Development (OECD), in its latest report on the world economy, has said it could no longer ignore the rising pressures facing the globe.
The OECD has predicted that growth in its 30 industrialized member nations would slip to 2.6% in 2005, after 3.4% in 2004, before edging up slightly to 2.8% next year. The OECD´s members include European industrialized nations along with the United States, Japan, and South Korea.
Weak demand in Europe, it said, and oil prices around US$48 a barrel, were already causing problems for the global economy. Painting a grim picture for the European economy, the OECD said the European Central Bank must consider cutting borrowing costs even from the current low of 2% to stimulate growth. The OECD has cut its growth forecast for the euro region to 1.2% for this year from a forecast of 1.9% in December.
But Europe´s stagnation may be exacerbated if the United States fails to control its trade deficit, which would result in a depreciation of the American dollar. "Given the unsustainable US current account position, endogenous pressures for correcting existing imbalances will become ever larger. At some point, they may take the form of an abrupt weakening of the dollar with adverse consequences for the OECD area as a whole," it warned. "More concretely, a falling dollar would not only curtail net exports but also domestic demand in Japan and Europe where resilience is low and monetary and fiscal room for maneuver is limited. Although not the most likely outcome at present, such an unpleasant scenario is gradually looming larger," the report said. "Cooperative adjustment" to the value of some Asian currencies would help reduce the danger of any sudden drop in dollar value, the report said.
Growth in the US has been forecast at 3.3% in 2006, down from 3.6% this year and 4.4% in 2004. The warning on the US trade deficit is the most strident yet from the OECD. Economists are particularly concerned about the OECD´s prediction that the deficit will reach 6.7% of the US gross domestic product (GDP) by next year, or nearly $900 billion.
The OECD´s chief economist, Jean-Philippe Cotis, said any economic recovery across the globe´s developed nations was patchy at best. "The smooth scenario where the recovery was expected to spread more evenly across the OECD has not materialized," he said. As a result, the OECD has trimmed its forecast for world GDP growth to 2.6% in 2005 from the previous forecast of 2.9%.
As for the US, the OECD said growth is expected to slow there because of growing labor costs and capacity constraints starting to be felt in specific industries. It also implicitly criticized the Bush administration´s determination to push on with tax cuts in its current budget, which will further push up the country´s budget deficit.
In a positive sign for all developed countries, the OECD said the threat posed by inflation is ebbing away as low-cost manufacturing nations such as China and India flood the world with cheap imports. But this means that cost pressures will have to be borne by companies, since they will be unable to pass on higher prices because of tough competition from Chinese and Indian firms.
"Inflation will continue to be damped, like in other OECD countries, by the ongoing offshoring trend, and more generally by the integration of China, India and other emerging markets into the world economy," it said. "Much of the cost pressure is expected to be absorbed by profit margins, leaving core inflation still fairly subdued."
According to the OECD, China´s rapid economic expansion will continue to drive Asia´s growth burst. The multilateral agency expects China´s economy to expand at 9% this year and accelerate to 9.2% the next. For the other major Asian economy, Japan, it has lowered its forecast for growth to 1.5% from the 2.1% forecast in December.
(Asia Pulse) |
| .
User ID: 4440
5/26/2005 8:31 AM | | FHL(C)
User ID: 52
5/30/2005 2:43 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fair use.
Emperor Greenspan has No Clothes
May 27, 2005
Todd Stein & Steven McIntyre
The Texas Hedge Report
Federal Reserve Chairman Alan Greenspan´s solution to every economic crisis has been to print more money - often by cutting rates which has the effect of increasing credit. The Alan Greenspan, who several decades ago clearly understood the Austrian school of economic thought (purge speculative excesses before they get out of hand) and the value of a gold-backed sound currency, is gone. Turned to the Darkside did he. With every scramble to frantically pump in credit at the first sign of a potential economic slowdown, Greenspan´s transformation from a sound central banker (i.e. Paul Volcker) to an intellectually corrupted and pandering politician (seeking to keep the public working and the stock and real estate market bubbles propped up at all costs) was made more complete. The debt and deficit ridden economic house of cards that certain areas of the U.S. financial system have become was not going to collapse on his watch.
The Darth Greenspan Fed cut interest rates in 1998 partly due to the blowup of hedge fund Long Term Capital Management. When fears of Y2K hit the American populace in 1999, the chairman put his foot on the monetary pedal and increased liquidity to extreme levels. A significant amount of that newly created money found its way into Internet and other technology stocks fueling the greatest stock market bubble in history. As the NASDAQ bubble deflated in 2000-2002, Greenspan should have let the detoxification process take its course. Instead, he poured Americans another drink and cut rates again to their lowest levels since the Eisenhower administration, which spawned a colossal real estate bubble that still exists today. Greenspan´s policy of extreme accommodation was accepted by the mainstream as critical weapons in the central bank´s war against deflation.
Finally in 2004, Greenspan decided that his interest rate cuts had successfully done the trick of keeping the U.S. out of a Japanese-style deflation. Prices for everything were going up, especially in housing, raw materials, energy, and food. Fast forward to May 3, 2005 when the Fed hiked rates by a quarter-point to an even 3%, marking a cumulative increase of two full percentage points in the past ten months in the Fed Funds Rate. Now people are wondering what Greenspan will do next.
First of all, despite the Fed´s talk about deflation, inflation has always existed and continues to rear its ugly head. The government´s CPI data is bogus - no one that pays bills in this country really believes that inflation is only 2-3%. In fact, widespread worries of inflation are what have been prompting pundits to predict that the Fed will hike rates several more times before the year is over. But we see things a little bit differently. We think the Fed will only hike once or twice more before they are forced to deal with a slowing economy. As 2-year treasury rates move closer and closer to 10-year rates, fears of recession will be widespread and this could cause real problems in the banking & mortgage sectors. Moreover, if long term lending rates creep up, the credit and real estate bubbles may finally implode.
Are we predicting the Fed will start to cut rates this summer? No. Greenspan cannot cut because it will show that the Fed is worried about deflation again. A late 2002 type economic environment with fear and panic engendering widened credit/risk spreads and deflating asset prices may be unavoidable - and this time the Fed will be out of bullets. Greenspan´s economic corner that he has painted himself into will likely mean that any attempt to cut rates could cause a run on the Dollar. Raising rates will likely shut down housing. Luckily for Greenspan his time as Fed Chairman is nearly up. His successor will be forced to deal with the ramifications of a highly levered economy that teeters into a severe recession. The Fed has always feared deflation more than inflation, so we think Greenspan will just try to hold things in place for another 7 months so that he can leave with his reputation unscathed.
[link to www.321gold.com]
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 52
5/30/2005 3:26 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fair use:
ASIAN CENTRAL BANKS DISCUSSING NEW BRETTON WOODS, ANNOUNCE EXPANSION OF AMF-RELATED FUND. The central bank chiefs of South Korea, Japan, and China, meeting in Seoul May 26, announced they had doubled the size of the Chiang Mai Initiative (CMI) currency swap agreements, formed as the interim step to a proposed Asian Monetary Fund in 2000. The new swaps range in size from $3 billion to $4 billion worth of won, yen, and yuan apiece, which in theory could mobilize up to $12 billion. The CMI funds are for apparent use in case of another speculative attack to weaken the Asian currencies, as the media reports.
"Close neighbours are better than distant relatives," Bank of Korea Governor Park Seung told the press. "Three arrows never break when bound together," Bank of Japan Governor Toshiko Fukui added, "With this strengthened trilateral currency swap network, I am confident that future financial difficulties, if any, will be resolved effectively." People´s Bank of China Governor Zhou Xiaochuan added that he was pleased by Korea´s role in creating harmony between financial officials, at a time when politicians of the three nations are at such odds.
In private, and so un-announced as yet, however, central banks and finance ministry officials of these "Plus 3" nations are intensively discussing how to arrange for their governments to call for a New Bretton Woods monetary conference, as Italian and Philippines legislators have taken the lead to do, officials told EIR. "The problem now, of course, is not that our currencies are weak, but that the slightest word could send the U.S. dollar crashing," a Japanese official said.
The three Asian nations are not only furious at having to buy more and more worthless dollars every day, but are searching for ways to force the Cheney neo-cons to back off from their threats to go to war against North Korea (see slug on Pentagon testimony May 26).
Bank of Korea Chairman Park Seung on May 19 "once again showed our sword" in Washington, a Korean official told EIR, referring to the $1.8 trillion held by America´s top three creditors, Korea, Japan, and China. In an interview with the Financial Times May 19, Park again brought up the fact that South Korea might some day no longer go on buying billions of dollars. The dollar then collapsed May 20, as it did when the Bank of Korea made similar comments in February. The BOK had to buy an extra $1 billion on May 20 alone to stem the bleeding in Washington.
Seoul and Tokyo officials have emphasized to EIR that the BOK statements and similar statements by Japanese and Chinese officials are "in coordination," as one Korean official told EIR May 27, "but the pressure is intense. I was personally pressured in a very serious way by the U.S. Treasury after Governor Park´s recent interview."
Lyndon LaRouche has pointed out that, however, the neo-con side has no cards, due to the utter collapse of the U.S. economy. Now the effort is to create a combination which will call their bluff by actually calling for the New Bretton Woods.
[Source: S&P, May 26]
[link to freewordofgod.yuku.com] |
| Anonymous Coward
User ID: 9582
5/30/2005 3:41 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
With all this debt, the government is, in effect, short the dollar and that is about the best currency to be short...because of the debt. |
| i is that which i is
User ID: 2630
5/30/2005 4:11 AM
 | | Re: Watch, Its happening ,the global economic change. | Quote |
Don´t have time to read all these long posts but here is My Humble Opinion:
The Stock Market is nothing but legalized gambling!!!!
Based on greed.
This whole world economy is based on munipulation created to advantage the World Bankers and the Market handlers.
If the value of money in any given country were based on what it costs for a few necessities such as comparable shelter, the cost of bread, milk, and other staples then it would not be advantageous to send jobs overseas.
If it were not for the greed factor, it would not be necessary for people to migrate to other countries for work which pays better than staying at home.
There is also a greed factor in having more children than the environment can handle.
The Housing Market bubble is similiarly based on greed.
As an ex building contractor, I have on numerous occasions had customers buy a house that needed a few thousand in renovations, then jacked the price up by tens of thousands for resale.
Peace, light, and love. 
"I am not afraid to stand alone, but it's always more fun if I have friends standing with me." Lena Coleon. |
| FHL(C)
User ID: 52
5/30/2005 4:51 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Fair use:
Mr spock
User ID: 4212
5/13/2005
3:26 am EDT
Send Private Msg
Add to Buddy List
Add to Favorites Who´s Life are you Living ? Quotes of power, that control us all.
The systems of power we have set up in the world only benefit a very small elite of the human population; too many of us are still controlled by powerful illusions, like democracy, capitalism and equal rights. It may be easy for the delusional to label our kind as paranoid conspiracy whacko’s; it is often harder to label historical men, many of whom are our cherished Icons as such lunatics. In the spirit of this conclusion don’t just take my word that the powers that be are intent on treating you all as cattle. Take it from much more important men that this is so ………..
Benjamin Disrali :- First British Prime Minister
“The world is governed by very different personages from what is imagined by those who are not behind the scenes.”
1844
“The governments of the present day have to deal not merely with other governments, with emperors, Kings and ministers, but also with the secret societies which have everywhere their unscrupulous agents, and can at the last moment upset all the governments plans.”
1876
Woodrow Wilson :-
U.S. President
“Since I entered politics, I have chiefly had men’s views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture are afraid of something. They know that there is a power somewhere
So organised, so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak above their breath when they speak in condemnation of it.”
1913
“I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit.
Our system of credit is concentrated in the hands of a few men.
We have come to be one of the worst ruled, one of the most completely controlled and
Dominated governments in the world….no longer a government of free opinion. No longer a government by conviction and vote of the majority. But a government by opinion and duress of small groups of dominant men.”
Henry Ford :-
Industry Giant
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
“The one aim of these financiers is world control by the creation of inextinguishable debts.”
John F. Hyan :-
Mayor of New York (1918-1925)
“The real menace of our republic is this invisible government which is like a giant octopus sprawls its slimy length over city, state and nation. Like the octopus in real life, it operates under cover of a self created screen. At the head of this octopus are the Rockefeller Standard Oil interests and a small group of powerful banking houses generally referred to as international bankers. The little coterie of powerful international bankers virtually run the United States Government for their own selfish purposes. They practically control both political parties.”
1922
Joseph Kennedy :-
U.S. Ambassador
Father of JFK and RFK
“ Fifty men have run America, and that’s a High figure.”
1936
Curtis Dall :-
FDR’s Son in law
“ For a long time I felt that FDR had developed many thoughts and ideas that were his own to benefit this country, the United States. But he didn’t.
Most of his thoughts were carefully manufactured for him in advance by the Council on Foreign Relation-One World Money Group.
The United States is but a long range, international banking apparatus clearly set up for financial and economic profit by a small group of powerful One –World revolutionaries, hungry for profit and power.
The One-World government leaders and their ever close bankers have now acquired
Full control of the money and credit machinery of the U.S. via the creation of the privately owned Federal Reserve bank.”
-quote from his book FDR: My Exploited Father-in-law
Franklin Delano Roosevelt :-
U.S. President
“ The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the Government ever since the days of Andrew Jackson.”
1933
James Warburg :-
Rothschild Banking Agent
“ We shall have world government whether or not you like it….by conquest or consent.”
1950
Felix Frankfurter :-
U.S. Supreme Court Justice
“ The real rulers in Washington are invisible, and exercise power from behind the scenes.”
1952
William Fulbright :-
U.S. Senator
“ The case for government by elites is irrefutable.”
1963
Barry Goldwater :-
U.S. Senator
“ The Trilateral Commission is intended to be the vehicle for multinational consolidation of the commercial and banking interests by seizing control of the political government of the United States.
…..they will rule the future.”
1964
Carroll Quigley :-
Revered GU Professor
“ The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.”
1966 from Tragedy and Hope
David Rockefeller :-
Trilateral Commission Founder
“ We are grateful to the Washington Post, the New York Times, Time Magazine and other great publications whose directors have attended their promises of discretion for almost forty years.
It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But the work is now much more sophisticated and prepared to march towards a world government.
The supranational soverenty of an intellectual elite and world bankers is surely preferable to the national auto determination practiced in past centuries.”
1991
Henry Kissinger :-
Big-Time Motherfucker
“Today, America would be outraged if UN troops entered Los Angeles to restore order. Tomorrow, they will be grateful!
This would especially be true if they were told that there were an outside threat from beyond. Whether real or promulgated that threatened our very existence.
It is then that all peoples of the world will plead to deliver them from this evil.
The one thing man fears is the unknown. When presented with this scenario, individual rights will be willingly relinquished for the guarantee of their well-being granted to them by a World Government.”
1991
Strobe Talbott :-
Fmr. U.S. Deputy Sec. of State
“ In the next century, nations as we know it will be obsolete: all states will recognise a single, global authority. National sovereignty wasn’t such a great idea after all.”
1992
Arthur Schlesinger :-
U.S. Historian
“ We are not going to achieve a new world order without paying for it in blood as well as words and money.”
1995
IS THIS THE WORLD YOU WANT ?
Who’s Life Are You Living ?
[link to freewordofgod.yuku.com] |
| Curious Voter
User ID: 13269
5/30/2005 6:02 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
This money crisis appeares to be happening globally - but particularly here in the UK and US. We live in interesting times indeed.
If you have a mortgage worth more than 75% of the value of your home - be prepared to find somehere else to live because the Bankers want to take it from you!
 |
| FHL(C)
User ID: 52
5/30/2005 6:08 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Thanks ac,
Fair use:
It´s Not a Bubble Until It Bursts
By David Streitfeld Times Staff Writer Sun May 29, 7:55 AM ET
The chief economist for the Mortgage Bankers Assn. is worried enough about the torrid housing market to get out of it.
ADVERTISEMENT
"I´m going to rent for a while," said Douglas Duncan, who expects "significant reversals" in regions that have enjoyed strong home price appreciation, including Washington, D.C., Florida and California. He plans to sell his suburban Washington home, which has tripled in value since he bought it a dozen years ago, and move into an apartment.
Duncan is among a multitude of experts and consumers across the country debating the possibility of a housing bubble — a condition where prices have risen so far out of hand that they eventually crash.
Prominent policymakers and academics, including
Federal Reserve Chairman
Alan Greenspan, have recently warned about bubbles in regional markets. A recent nationwide Gallup/Experian poll of consumers showed that nearly four in 10 said they expected a bubble to burst in their region in the next three years. Across America, water cooler or cocktail party conversations often include talk about those who have made a killing in real estate, and whether it´s now too late to get in on the action.
However, none of the experts or novices knows for sure when and how a bubble might burst. Bubbles throughout history, including tech stocks in the late 1990s, often go on for years, and crash when few expect it. Many experts and media pundits have been predicting a downturn for the last three years — and home prices have continued to rise, up nearly 70% since 2001 in the hot Southern California market.
Consequently, though some homeowners like Duncan are pulling back, others are buying as if prices will continue to rise for quite some time. Still others regret that they didn´t buy in the last two or three years, now hoping to pounce when the bubble bursts and prices fall.
"If I had been reckless and disobeyed every single financial analyst´s advice, I would be one of those people with tons of equity," said Susan Lindsey, a 42-year-old La Jolla renter who passed up buying a home in San Diego three years ago because she refused to take out a riskier type of mortgage that would have allowed her to qualify.
She estimates she would be up as much as $200,000 in home equity now if she had pulled the trigger then. "Yeah, I´m bitter. I want to own my own home. I want it badly." When the crash comes, she said, "I will have no qualms about swooping in on someone´s foreclosure."
To listen to many pundits and the media, housing was a sure bet to implode long ago.
In late summer 2001, Business Week magazine was cautioning that "a housing bubble may be developing." In July 2002, a Wall Street Journal personal finance columnist warned, "Dumping Stocks for Land? That May Be a Big Mistake."
The current issue of Fortune magazine has a cover story on real estate speculators getting rich buying and selling houses in rapid succession. None of them seems to have taken to heart the magazine´s 2002 cover story, which said: "U.S. housing prices are stretching the outer limits of what´s reasonable and sustainable…. In a year or two, prices will fall with a thud."
When that didn´t happen, some people got tired of waiting. The website [link to www.housing-bubble.com] hasn´t been updated since mid-2003.
Others have accommodated themselves to the current reality.
A widely followed University of Michigan consumer survey, released Friday, showed that 24% of respondents nationwide said it was a good time to buy a home because prices would rise. That was the highest percentage since 1988 — right before prices peaked in the previous real estate cycle.
"These are powerful engines creating a boom in home sales, and all booms end the same way," Richard Curtin, director of the survey, said in a statement.
Three years ago, Phoenix Management Services, a turnaround firm based in Philadelphia, asked about 100 lenders in its regular quarterly survey if they thought there was a real estate bubble. Voting yes were 58%, and 29% said no.
A few months ago, Phoenix asked the question again. Despite the last three years of zooming prices, 46% of the lenders said it was a bubble, and 39% believed it wasn´t.
"They´re saying, ´This isn´t a bubble — this is here to stay,´ " said Phoenix Managing Director Michael Jacoby. "That´s really scary."
It´s possible that something fundamental in the nature of real estate has shifted over the last three years, powering the growth while tamping down the risks.
Irvine real estate consultant John Burns told the Los Angeles Times three years ago that "we´re in a mini-bubble." He added that if the market continued to grow by double digits for more than a year, Orange County "will get to a point where home prices are no longer sustainable."
The median price in the county then was $317,000. Last month, it hit $576,000. But Burns no longer thinks there´s much risk.
What´s changed, he argues, is the job picture. In 2002, the region had emerged from a recession the year before. People who lost their jobs had to sell their homes. That´s what dragged down housing in the early 1990s, and it easily could have done so again.
"It was a recipe for disaster," Burns said. "We got through the job losses somehow, and now we´re generating more demand for houses than we´re building."
In 2002, Dean Baker was a more emphatic housing bear than Burns. But he hasn´t changed his mind.
"We´re going to have a decline in house prices in six months," said Baker, director of the Center for Economic and Policy Research, a Washington think tank. "I´ve been saying that for three years now."
A year ago, Baker was so sure the collapse was at hand that he sold his Washington condo, which had tripled in value in the seven years he owned it. He moved two blocks away into a rental and wrote another article warning that "the crash of the housing market will not be pretty."
He pointed out that housing prices traditionally didn´t rise faster than inflation, but that on the coasts the price jumps were exceeding that level by double digits. He dismissed the argument that prices were increasing because of immigration, or the scarcity of land or the demographics of the baby boomers.
Despite this excellent list of reasons, the crash stubbornly refused to happen.
"It´s kind of troubling, like you were a physicist studying the laws of motion and you see an object that ignores gravity," Baker acknowledged.
Asked for his latest prediction of a bubble bursting, he said: "I´ll stick with six months."
Some people, however, don´t think a crash will ever come. They include many California homeowners.
Yale University professor Robert J. Shiller, a housing bear who expects prices to fall so much he sees a risk of national or even world recession, has been surveying recent home buyers in the Southland.
In 2003, new owners surveyed said they thought the value of their homes would increase an average of 13% a year for a decade.
By last year, they expected 22.5%.
"They said their $650,000 home was going to be worth $1.7 million," said Shiller. "About a third of the population has really high expectations. They see the price increases and extrapolate from them."
Shiller´s unscientific survey — he sent out 500 letters and followed up with a postcard if there was no reply — was backed up by the recent Gallup/Experian poll, which surveyed the whole country.
A quarter of the respondents said they expected the value of their homes to increase by at least 10% a year, significantly above the historical average. However, that also was the survey in which about four in 10 said they expected a bubble to burst in the next three years.
Shiller, who earned a national reputation by calling the 2000 tech stock bubble shortly before it burst, is hedging his bets.
He bought a second house on Long Island a few years ago, despite his view that a psychological frenzy was gripping housing that matched the earlier mania for tech stocks. The house is worth a lot more now. He´s not selling but said, "I pulled back on my real estate portfolio a bit. I don´t see any sense of immediate urgency."
Millions of people still have to change their thinking, Shiller said. "That´s a gradual thing."
It´s a human temptation to stay in the game until the last moment. But Duncan, the economist for the mortgage bankers, doesn´t seem to feel it. Workmen are prepping his home now for a sale, he said.
Acting on his gut has served him well before. In 1988, as the economist was moving to Washington, he went to look at a house that was for sale. Three couples were already there. They started a bidding war in the living room.
"This is irrational behavior," Duncan remembers thinking. He decided to rent. Shortly afterward, the market crashed.
In 1993, he decided it was a good time to own. The price he paid for his house was about a third less than the previous owner, who had lost it in a foreclosure sale.
[link to news.yahoo.com]
[link to freewordofgod.yuku.com] |
| .
User ID: 6918
5/30/2005 9:08 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Paladin
User ID: 8882
5/30/2005
11:37 am EDT Re: May 28—HOUSING BUBBLE FALLS INTO COMPLETE INSANITY: IN THE FASTEST-RISING REAL ESTATE MARKETS, MOST HOME-BUYERS ARE TAKING SO-CALLED INTEREST-ONLY
In the event of a collapse in the heretofore ever rising housing market, often at a factor of 3 to 5 times the increase in average earnings over a sustained period of nearly 20 years, one’s house becomes a “financial lobster pot”. Given the low equity in most new home purchases, in a collapsing market the mortgagee is little more than a tenant, albeit with a thumping great paper debt to pay off over the rest of his or her miserable life. In other words, modern society has reverted to one of Baronial serfdom reminiscent of 11th Century Europe at its impersonal worst. Genuine democracy and freedom has vanished in that other great illusion – so called Democracy. The biggest fear a family man will hold is losing his job. What a pernicious instrument of societal control the home has become. It’s a corporate shareholders dream come true. Like a dead albatross slung around the neck of “the ancient mariner”, as he thinks: “how I wish I had never bought this house!”, and, how I wished that I had saved for what I have purchased and that it really did belong to me. The deep evil of credit, whose use appeals to man’s darkest and bleakest being, as an instrument of acquisition, exploitation and control, will be brought home to the unthinking US, UK, Australian, and Canadian consumer like his very worst nightmares. As Yoda says to Luke Skywalker in the “Empire Strikes Back”, “you’re not scared? …..You soon will be! Oh yes! You soon will be!”
The downside of the exploding property market is immense and highly insidious. The vast inflation of property prices has served to bring about the following:
1 Distort the cost structure of the entire economy through increased “on costs” of mortgages, rentals and leases, which are recovered through higher charges on all goods and services;
2 Inflated house prices push homes into higher tax thresholds including: sales tax, stamp duties, council or local authority taxes and capital gains tax resulting in increased costs of living;
3 The increased purchase price, and lower equity downpayment in homes for most buyers, requires them to take out ARM’s (adjustable rate mortgages) rather than fixed rate mortgages. This increases the lender´s exposure to financial risks in an environment of rising interest rates, when unemployment and job loss risks increase. Furthermore, most mortgages issued in ARM contracts are junk status loans, backed by derivatives, with little or no financial due diligence performed by the lender on the debtor;
4 Further distortions due to high and rising house prices mean that vital labour mobility is restricted throughout the economy as lower wage earners, in important sectors of the economy, cannot afford to take out a loan or move from a location of low house prices to one of high prices. Such key labour includes: teachers, medical staff, police, firemen, and drivers of public transport vehicles;
5 Large mortgages, or home loans, come with a deep psychological load on the mind of the mortgagee or borrower. The thought that you have a mountainous debt overhanging your daily life effectively dominates your life whether you like to admit it or not. The fear of losing ones job, becoming ill, or having an accident, where you cannot pay your monthly bill, resulting in your family being made homeless is a socially destructive and degenerative influence, colouring a person´s outlook on life and their entire social behaviour. The net result is greater mental stress and physical illness, increased crime, drug and drinking offences. In some, and by no means rare, cases, suicide results.
[link to freebuck.com] |
| .
User ID: 10394
5/31/2005 12:28 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Internet rumour.
I have also learned from a source in the Chase Manhattan bank that his people are scared literally shitless over the news, gleaned from a very competent German intelligence service, that a group, totally off the screen, not Muslim and probably American-based, have managed to crack the entrance information into the electronic, international banking wire and transfer system. These are:
· SWIFT (Bruxelles)
Society for Worldwide Interbank Financial Transactions
· CHAPS (London)
Clearing House Automated Payments System
· CHIPS (New York) - Private Sector
Clearing House Interbank Payments System
· FEDWIRE (New York) - US Government
Fedwire Funds Service
If, as the German reports have rumored, someone or some group successfully sabotages these systems, the world of international banking and the entire country would suffer a terrible blow that would take months, if not years, to recover from. Billions of dollars in bank transfers would vanish instantly and replicating the data, if the attackers know what they are doing, would take eons to try to replace. For instance, the BofA transfers $200.000,000 to a bank in Germany and in a nano second, the transfer vanishes. No money is sent and none received. I do not know if this operation is connected with other very disruptive activities that our Brave Defenders of Liberty are trying to track but the Germans seem to feel that the elements involved are not Arabs or Russians but Americans because of the idiomatic English in the messages they have decoded. |
| .
User ID: 10394
5/31/2005 12:37 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
UPDATED: 09:23, May 31, 2005
Who has led to a global market imbalance?
[link to english.people.com.cn]
Since April this year, the United States has continuously increased pressure on a revaluation of the Renminbi (RMB).
On April 17, the US Treasury Department submitted a report to the Congress, demanding that the Chinese government reform its monetary system "without delay" in the coming six months, and threatening China with trade sanction. The report went so far as to charge that China´s exchange rate policy hinders the adjustment to the unbalanced international market. On May 27, US Treasury Secretary John Snow resentfully indicated that he felt disappointed at China´s delay in revaluating the RMB. He warned: a minor, symbolic appreciation of the RMB is not enough.
What is noticeable is that the wording of the report is "carefully chosen", laying particular emphasis on "global balance". Then, isn´t it that China has really led to a global imbalance and so has to shoulder the responsibility for revaluation?
As a matter of fact, it is precisely the US economic policy that has caused a global imbalance. Famous US economist Prof. Jeffrey Sachs, in his recent article, "Bush Lost the Bet", sharply criticized that the foundation of the Bush administration´s economic policy is the most adventurous stake, especially its tax-cut measure is irresponsible from the very beginning. He believes that the failure of this policy has added unstable factors to the world economy. In fact, it is this dubious tax-cut policy that has given the "green light" to lifting financial budgetary deficits.
Particularly after the "9.11" incident in 2001, the US government enormously increased expenditures on domestic security, on the Afghanistan war and the Iraq war. Currently. US annual budgeted deficit has accounted for 5 percent of GDP (gross domestic product), a greater part of which is made up by the loans borrowed from the central banks of Asian countries. Harvard University Prof. Rogoff pointed out sharply that the present so-called "global unbalance" actually is "US incontinent loans".
Drastic tax-cut and sharp increase in military spending have led to astonishing growth in US imports, this is the important reason for the tremendous US trade deficits. However, senior US officials consistently use the "outward" mode of thinking to seek solutions, accusing China and other countries of adopting "illegitimate trading means" or "manipulating domestic currency", and lifting this to the height of threatening balanced global growth. Just as Sachs put it, this means "asking others to shoulder the responsibility for its own difficulties".
A revaluation of the RMB cannot really spur the United States to replace import with domestic production. Particularly in the era of economic globalization, many products are born of the supply chain that covers many countries and regions. Therefore, the floating currencies of some individual countries are totally insufficient to change the status quo of US domestic suppliers. If a hasty substantial revaluation is forced on the RMB and thereby leading to a slowdown in China´s economic development, then how can China´s ability to import from the United States be enhanced? Moreover, if the United States obstinately relies on the devaluation of the US dollar to reduce its trade deficit, it will possibly cause a dumping momentum of the US dollar on the international market, thereby leading to a steep fall of the US dollar, the outbreak of a global financial crisis and then the emergence of a worldwide economic recession--the consequence as worried about by economist Garten at Yale University.
If the United States really wishes to maintain a global balance, it might as well do more to adjust and correct itself instead of imposing pressure on China in the name of maintaining global balance. |
| .
User ID: 7163
6/2/2005 3:23 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
THOUGHTS ON A SECOND GREAT DEPRESSION
by M.A. Nystrom, M.B.A.
Man on the Street in (the Republic of) China
March 9, 2005
1. Introduction to the Second Great Depression
The idea of a second great depression first occurred to me in the summer of 1998, at an empty bookstore in a shiny, modern, deserted mall in Bangkok. It was a year after the Asian financial crisis had devastated the economies of many newly emerging Asian nations, casting a pall over the fantasy of uninterrupted economic growth. Bangkok still bustled, but the city was dotted with brand new malls such as this one, immaculate temples to capitalism, everything 50% off but with no buyers in sight. Some of the older malls were already abandoned, escalators stopped and gathering trash, their upper floors darkened while the lower floors became home to spontaneous traditional markets selling vegetables and household goods from makeshift stalls.
It was in this context that I first picked up Robert Prechter´s book "At the Crest of the Tidal Wave," in that deserted bookstore. I devoured the book and all of its charts over the next few days and began to see Bangkok in a different context. It was a glimpse of the future of America: Deserted malls, innumerable cardboard and tin shanties built along the railroad tracks by people without homes of their own, and others -- the sick, the injured, the lame, the living dead -- sleeping in the shadows of gleaming new skyscrapers, the monuments to modern finance capitalism.
This began a long journey into understanding the nature and causes of economic depressions that has turned into something of a scavenger hunt for me, one clue leading to the next in an ever-expanding search for truth.
2. Cycles, Cycles, Cycles
The idea of cycles of prosperity and suffering is nothing new. The Bible tells the story of Pharoah´s dream, which Joseph interpreted as a prediction of seven years of feast, followed by seven years of even greater famine. (The Bible is full of symbols, and seven is not a literal number, but the number of God, symbolizing a divinely ordained period of time.)
Modern man is far removed from his natural roots, and is no longer ruled by mysticism or religion, but it is still possible to see that everything in nature moves in cycles. The earth spins round once a day, and travels around the sun once a year. Because of this we have seasons that determine when many plants and animals are born and grow, and when they die. Other cycles govern the growth and decline of markets, societies and civilizations.
2.1 Elliott Waves
My search for the second great depression began with Prechter and his theory of Elliott Waves, which are clearly identifiable patterns that describe how groups of people behave. They reveal that mass psychology swings from pessimism to optimism and back in a natural sequence. The waves are most clearly seen and measured in financial markets. The patterns are fractals, occurring at all levels of scale, from minutes all the way to years, decades and centuries, rising and falling according to natural rules. From Prechter´s analysis, we are just completing a pattern of Grand Supercycle degree, which in short means that after decades of prosperity, we are on the brink of an economic setback that will be larger than the Great Depression (which was a pullback of only Supercycle degree).
Prechter´s first forecast for the great market top came in 1995, then again in 2000. Markets did peak in 2000, but the onset of the ensuing depression has been like waiting for a slow train coming.
2.2 Technology Long Waves
From an economic standpoint, Soviet economist Kondratieff identified a long wave cycle in capitalist economies of about 60 years that got him banished to Siberia for claiming that capitalism was cyclical, moving through periods of growth, booms and busts but inevitable regeneration. Further study on long waves by Western researchers identified that the process behind long waves is an interaction between 1) new technology, 2) business opportunities that the new technology creates, and 3) an eventual overbuilding of capital after the technology ages. The stages are:
1. Discoveries in science create a phenomenal base for technological innovation
2. Radical and basic technological innovations create new products
3. These products create new markets and new industries
4. The new industries continue product and process innovation, expanding markets
5. As technology matures, new competitors enter, creating excess capacity
6. Excess capacity decreases profitability and increases business failures and unemployment
7. Subsequent economic turmoil in financial markets leads to depressions
8. New science and new technology provides the basis for new economic expansions. (From Managing Technology, by Frederick Betz, National Science Foundation, 1987)
Up to #6, this sounds very much like the internet boom and bust of the 1990´s, but as of yet, it has not led to a second great depression.
2.3 Concentration of Wealth
Ravi Batra´s book "The Great Depression of 1990" has excellent discussions on a number of different cycles that lead to depressions, including social cycles, cycles of monetary growth, government regulation, as well as concentration of wealth. The book is well worth the read, in spite of its title (and very cheap at used book stores because of it). Batra points out that there is a large body of economic literature upholding the theory that recessions are caused by unequal distribution of incomes and concentration of wealth.
It works like this: As savings rise, consumption falls. Since the rich save more money than the poor, the concentration of wealth in fewer hands increases savings and decreases consumption. As demand drops, and economic growth fails to keep pace with growth in the labor force, unemployment rises. Classically, this is a self-correcting process; labor costs eventually adjust, excesses are flushed out of the system, and growth begins anew. But in a depression, the above process is accompanied by a collapse of the financial system. A recession is a normal, necessary part of the business cycle and will not, in itself, cause a healthy financial system to collapse. However, as wealth becomes concentrated, it has a detrimental effect on the financial system. As Batra goes on to explain, in a sound financial system, banks make loans only to credit-worthy customers who are unlikely to default on their loans. But when wealth becomes concentrated, the number of less affluent people increases, as well as their borrowing needs. These less affluent people, who now make up the majority, have fewer assets and are thus less credit worthy. Even in such an environment, banks cannot afford to be choosy -- they must make loans in order to stay "competitive" with their peers and simply to stay in business. Thus, as the concentration of wealth rises, the number of unhealthy banks with shaky loans also rises in a dangerous spiral, increasing the possibility of systemic failure.
A perverse side effect of the growing wealth disparity is the rise in speculative investments. As a person becomes wealthy, his aversion to risk declines, so the number of risky investments by the rich also increases. Money doesn´t mean so much to the rich, so they´re willing to take a wild chance on a flyer, if it will double, triple or quadruple their money. As Charles Kindleberger puts it:
The object of speculation may vary from one mania or bubble to the next. It may involve primary products, or goods manufactured for export to distant markets, domestic and foreign securities of various kinds, contracts to buy or sell goods or securities, land in the city or country, houses, office buildings, shopping centers, condominiums, foreign exchange. At a late stage, speculation tends to detach itself from really valuable objects and turn to delusive ones. A larger and larger group of people seeks to become rich without a real understanding of the process involved. Not surprisingly, swindlers and catchpenny schemes flourish.
Sound familiar? We´ve seen bubbles in each of the securities he mentioned over the last two decades, and the last few years have shown us that even huge, multinational companies such as Enron and WorldCon can also be swindlers and catchpenny artists. Everyone wants to be rich quick and with the minimal amount of effort. In spite of these signs of the times, it has yet to lead to a second great depression.
4. Not if, When
There are so many factors pointing to a breakdown of the current dollar-based financial system that I have simply lost count. The rich get richer and the poor get poorer and the divide between them grows wider each day. The US government is in more debt than it can every repay. Personal bankruptcies are at an all time high. Home "ownership" is also at an all time high, but much of it is due to risky loans made by audacious banks to unqualified buyers. It is the banks that own the homes, not the people. In fact, banks own just about everything, since most everything these days is purchased on credit. Personal debt is at an all time high. Americans work longer and harder, but wages have stagnated. The number of Americans who are homeless and in jail is at an all time high. These problems are not going away, and they´re not getting better. People are falling out of the system at an increasing rate, and it is only a matter of time before that trickle becomes a deluge.
My point is not to convince you of the inevitability of a financial collapse. One need only look at history to understand that the tide of prosperity rises and falls with time. In my mind a second great depression is a foregone conclusion, a fait accompli. The storm clouds are gathering and growing darker. We have already felt the first drops of rain. It is not a matter of if, but when.
But depressions do not affect everyone equally. Even during the Great Depression, which left 25% of workers unemployed, it also left 75% with jobs. The amount of work did not fall -- there is always work to be done and needs to fulfill -- but there was no money to pay the workers. Times of change also produce great opportunities for enterprising individuals. For example, the wildly popular board game Monopoly was born during the depths of the Great Depression, allowing people to fantasize about better times and also learn the skills of capitalism.
Studying the causes and effects of past collapses can help you become psychologically prepared, mitigate personal damage, preserve wealth, and then you can begin taking steps toward building a better, more just and robust system for the future. In the coming environment, will you be one of the 75% with a job, or the 25% or more without? Will you be an entrepreneur, on the lookout for new opportunities for betterment, or will you be waiting for a government handout and a government solution? Will you be caught at the top, holding speculative investments that will eventually become worthless, or will you be picking up bargains at the bottom of the cycle? Will you blame the system or look for ways to help create a better system?
5. Purpose of a Second Great Depression
Since first picking up Prechter´s book, my reading over the past several years has covered a wide range of topics beyond just financial markets, and I´ve come to see that the looming depression is actually a symptom of deeper problems, not a root cause. Unbridled capitalism under a fiat currency system leads to ever greater consumption fueled by debt spending. But if every country (notably the emerging BRIC countries) wants to achieve the American way of life, humanity will suck the earth dry of her resources and pollute the environment with the refuse of our disposable lives. It is already happening, and this also plays a role in the coming depression.
Just as the Great Depression came as the final break in the transformation of the US from an agricultural to an industrial economy, the second great depression can bee seen as the line of demarcation between the industrial age and the age of a knowledge based economy. From this perspective, the looming depression should be seen as an opportunity, not a disaster. Humanity must transform and change its course of development away from the path of inevitable destruction through consumption, and seek new ways of living and interacting with each other and its environment. The American economy doesn´t manufacture as much as it used to (that seems to be China´s job now), but American ideas still power the world, from the automobile to computers to the internet. The world still looks to America for the most innovative ideas. To make our way out of the depression, we´re going to have to think our way out. (This is why I encourage you to turn off the TV and think!)
Our current monetary system is a relic of the past that is not equipped to handle current or future needs for humanity. The old saying that money makes the world go around is quite true: Without money, we would never do lots of things that now keep many of us occupied for our entire lives! At its root, our monetary system is flawed, causing us to make fatal choices. Part of the reason for this is that The Federal Reserve has been given the power to create money from nothing. Another part of the reason is the role that interest plays in systematically transferring wealth from the poor to the rich.
The wealthiest people and organizations own most of the interest bearing assets. They receive an uninterrupted flow of interest from whoever needs to borrow money. This chart shows the impact of the transfer of wealth via interest from one social group to another, based on a study performed in Germany in 1982. Germans were grouped into ten income categories of equal size, and during that year, a total of 270 billion DM in interest was paid and received. The graph clearly shows the systemic transfer of wealth from the bottom 80% of the population to the top. This transfer of wealth is due exclusively to the monetary system, and is completely independent of the degree of cleverness or industriousness of the participants -- the classic argument to justify large differences in income. As a result of schemes such as these, the top 1% of Americans now have more personal wealth than the bottom 92% combined! (From The Future of Money, by Bernard Lietaer, Random House UK 2001) In these modern times, money has lost all connection with value, work and productivity, making a collapse of the system inevitable. Part of the purpose of a second great depression will be to flush away arbitrary, unfair systems such as these.
Under a sound monetary system, the value of a currency is tied to a fixed asset such as gold, so banks and governments can´t create money out of thin air, as they do today. This will help to limit the power of government. Other types of fairer monetary systems exist and these can also be created, and I will discuss these in the future. These systems will be instrumental in the rebuilding process after the depression, since fiat currencies will be seen for what they truly are -- worthless paper.
6. Conclusion
Like a slow train coming, another great depression is on its way. No one knows exactly when that train will arrive, so now is the time to prepare for your safety and do what you can to preserve the wealth you´ve built. Then you can begin to scan the horizon for opportunities that will inevitably arise, and think about ways you can help people less fortunate than yourself.
Pessimism, cynicism and negativity are for better times; for times like the ones we are approaching, we can´t afford them.
I believe the looming second great depression with be a cathartic period of transformation giving us (meaning all of us, collectively) the opportunity to reengineer society into something more just, free and appropriate for the future world that we are living into. Just as we no longer need to spend 16 hours per day slaving on the farm to meet our subsistence needs, in the future we won´t need to spend 10 hours per day slaving at the office in order to simply consume more.
The digital information communications revolution is changing the world as much as the industrial revolution did, but in the midst of the current dislocations and confusion, it is difficult to recognize. But since most work -- from farming to manufacturing to many routine services -- can be automated, the question then becomes what will people do with their time? How will people live and interact? The answers to these questions will be decided during the pain, confusion, reflection and search for answers that the second great depression will inevitably bring.
© 2005 M.A. Nystrom
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