| | | 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.
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7/10/2005 2:29 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
User ID: 9874
7/10/2005
1:47 am EDT Financial Sense Online since 1913...
[link to www.financialsense.com]
Dave Morgan tells how they rig the Gold and Silver markets let alone every thing else.
COT...Cartel Commecials (Banks) + Funds |
| Anonymous Coward
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7/10/2005 3:48 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
PEACE ON EARTH
NESARA ANNOUNCED NOW |
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7/14/2005 1:14 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Filled with the Fire of Gold!
July 13, 2005
Richard Daughty, ...the angriest guy in economics
The Mogambo Guru
In case you are looking at the economic universe and see what appears to be a huge freaking storm waaayyyy out there on the horizon, that is the sight of the biggest decline in Consumer Installment Credit since 1990, as we bozo Americans apparently paid off $3 billion in credit-card debt last month, instead of going farther and farther into debt like we have been doing every month for freaking decades now. It´s a piddly little bit, to be sure, compared to the total credit-card debt of $2.13 freaking trillion, which works out to some diddly little teensy fraction of one lousy percent of the total debt owed,. So $3 billion bucks, at this level, could be just a rounding error.
Being a real thick-headed doofus, you should realize that I cannot possibly comprehend what all this means, but I DO know, deep down in the dark, dismal depths of the heart of The Mogambo (DDITDDDOTHOTM) that for a nation whose only reason for economic existence is to consume in an orgy of raw gluttony, things are not looking particularly rosy in that regard. If they were, as I said, rosy, then Total Consumer Credit would have gone up. But it did not. In the mind of The Mogambo (MOTM) I hear the Horsemen of the Apocalypse, as this portends big changes. Big, important changes. Big, important and ugly changes.
If America, standing proud as the world´s Ultimate Final Consumer, is not buying, then this means that nobody is buying stuff, because we buy all the stuff!. And this means that all those producers, a lot of them foreigners, all the way up and down the line, ain´t a-gonna be making sales. This lack of sales will cause some businesses to suffer a fall in revenue. Which means a fall in profits. Which means that the shareholders are out for blood. Which means management will spring into action to deflect blame from themselves. And since the axe of retribution must fall around here, some sacrificial scapegoat has to be identified and fired. You can almost see the light bulbs appearing above their heads as they suddenly realize that The Mogambo is nearly at the end of the new-hire probationary period. Earning every dime of their obscenely-bloated paychecks, they make another of their many brilliant-but-exhausting executive decisions, and it´s, once again, pink-slip time for Mogambo (PSTFTM). But they do not realize that the wily Mogambo has again turned the tables on them all! Hahaha! He has demonstrated his extraordinary forecasting powers by not only a) anticipating this moment, but has also been b) stealing office supplies and people´s lunches for weeks in shrewd preparation! Hahahaha! I´ll make a fortune in Post-it Notes alone!
But I actually feel sorry for them as they celebrate and laugh it up at their "Goodbye and Good Riddance, Mogambo!" party, with their damn cake and balloons, since none of them owns gold. A few of them wear silver crucifixes around their necks because they think it will magically keep me away. But I know for a fact that they do not accumulate precious metals, or commodities of any kind, as investments! I have spent my short time employed here ignoring my work to attend to the more important matter of constantly calling them on the inter-office phone, and sending them emails, to tell them, over and over and over again, about how the Federal Reserve is destroying our money, and how they are encouraging everyone and everything to plunge into a bottomless ocean of debt, which they do by creating so much money and credit and lowering interest rates to entice you to borrow, and how our many, many, many layers of government are destroying our country by creating so damned much government, and by creating so many more people and businesses who are totally dependent on government spending. So it is not like they do not KNOW about why they should own gold and silver! They know damned good and well why they should! But they don´t! They just don´t.
And not only do they NOT buy precious metals against the guaranteed continued debasement of dollars, but they make fun of me, and mock me, and say hurtful things, like "Hey, gold boy! I see gold is down two dollars! Let me tell you how much I made in my Google stock!" and "What idiot hired you?"
If you take a look at all the people that are screaming at us Americans to grow up and act responsibly, you soon see that it is A-list of the whole world. Off the top of my head I remember some pointed criticism from the Bank for International Settlements, the World Bank, the European Central Bank, the International Monetary Fund, and then most countries, and The Mogambo, to name but a few. All of us are officially on record as demanding that Congress immediately address our glaring and totally irresponsible monetary and fiscal idiocies. I will point out, because the news media censors your news, that I am the only one who has actually formulated a workable plan, a wonderful plan, a Terrific Freaking Mogambo Plan (TFMP), which is to put me in charge of the Federal Reserve, give me awesome, god-like powers to hire, fire, and push buttons at will, and to have the IRS and police attack anybody who disagrees with me, sort of, you know, like Bill Clinton´s administration.
So the question is, "Will Alan Greenspan continue down this rocky, ruinous road of ruthless, relentless monetary accommodation, in spite of unanimous world opinion, and in spite of interest rates being too low, for too long, already?"
In case you are a cub reporter for a great metropolitan newspaper, and you were thinking to yourself, "Yikes! I have a deadline coming! Hmm! I wonder what The Mogambo would say about Greenspan raising interest rates?" I say, and this is a direct quote, "yes". See, if he acquiesced to the demands of these slippery foreigners, who all speak with those strange, foreign languages so nobody ever knows what in the hell they are saying anyway, it would help cover his nasty little butt when the whole thing falls apart, as it will, as it must. Then, he could look into the camera and, with this wide-eyed look of innocence all over his stupid face, say "But I was doing what they all told me to do! And I did it in the spirit of international cooperation between the relevant monetary authorities! So it is all THEIR fault!"
On the other hand, if he ignores all the critics, and keeps on trying to expand credit via lower interest rates, then, when the whole thing finally falls apart as it must, he will go down in history as not only stupid, but stubbornly so. All of the other countries in the world would then strut around crowing, "We told them to stop! But they did not! Stupid Americans!" and then they will laugh at us ("Hahahaha!"), and you notice that even when they laugh, they even laugh with a foreign accent, that will make us even MORE angry because it is all so true, and now the guys we used to laugh at ("Ha ha! Dumb foreigners!") are laughing at us ("Ha ha! Dumb Americans!") and I, for one, don´t like it one little bit.
But speaking of the Federal Reserve, for the last month and a half the Fed was not creating much new credit at all. But I knew that the Federal Reserve could not resist intervening in the markets for much longer. Finally, last week, the long string of week-after-week stasis in Total Fed Credit, which is the glorious, magical fount from which springs the fabled "money from thin air" in the banking system, has been broken, and is now increasing again, theoretically feeding the insatiable maw of America, the Ravenous Monster From Hell That Gobbles Things, Especially Imported Consumer Items And Real Estate.
But, and leave it to The Mogambo to find a dark lining in the silver cloud, incomes are not going up, which is a real bummer, because it takes money to pay money. If debt goes up, but income doesn´t go up, too, then you are paying more but getting less, sort of like being married, ha ha. And I don´t know how things work in YOUR neck of the woods, but around these parts, this usually means that things are not going as planned, and it was profits that were planned. And it is the thought of increasing profits that make stock prices go up.
If I hear one more idiot claiming that inflation is low, my mighty Mogambo brain (MMB) may pop another circuit. It is so ludicrous! If my homeowner´s insurance goes up by three hundred bucks a year, and my health insurance goes up by a few hundred bucks a year, and the power company charges me another fifteen bucks a month for a higher "fuel charge", and my property taxes go up by a few hundred bucks a year, and I have to spend an extra ten bucks a week at the gas pump, then pretty soon I don´t have any money left over to buy any of the things I want. And THAT, my friend, is the true measure of inflation: "How much less stuff will I buy with my constant income?"
Perhaps I can illustrate this stupid point AND, at the same time, perform one of my required units in "Education Goals: Relationship Training For Young Minds". Ahem. Last month I bought thirty bags of food, ammo, pizza, pornography and cookies, and had, at the end of the month (as I do at the end of every month), zero dollars left over. This month, in contrast, I only bought twenty-nine bags of food, ammo, pizza, pornography, and cookies, although I again had zero money left over. How is this possible? Immediate and obvious conclusion: Some dirty, thieving bastard stole one of my damn bags of stuff, and I am going to track them down and delight in killing them slowly so that I can hear their screams of agony and laugh, haha! Or, using the latest theory, nobody stole one of my bags of stuff, but my money was devalued out of buying power, and thus each dollar was worth less, and so it could only buy less, and so I could only buy twenty-nine bags of the stuff I want, using the same pitifully small wad of cash. Thus, the dollars were devalued. Thus, you lose. This concludes the economics portion of today´s lesson.
The thirtieth bag, the missing bag, the bag of stuff we could not afford to buy, is that stupid bag of crap that my wife always wants, like those stupid crackers that she likes but which really taste like crap, so it is a BIG waste of money, as far as I am concerned. Wasting money on these horrible crackers? Screw her! So I stopped buying them when I went to the store. And I stopped buying other stupid things she wanted, too. But then she, always trying to make a big damned deal out of every damned thing, like the whole universe revolves around HER or something, is complaining how she needs that particular brand of deodorant because the other kinds make her break out in a rash, and if she used one of them by mistake she could have a terrible reaction and she could die and blah blah blah, and I tell her maybe we could save a ton of money if she just took more baths instead. And then she gets this really smart-mouth attitude, and retorts how we would have to pay higher bills for the extra use of hot water! So I tell her that she could take cold showers, did you ever think of that? Huh! Did you, you horrible old woman who is probably thinking about killing me right now? And don´t deny it! And she screams "Who´s denying it? It´s all I EVER think about!" and then, for no reason at all, she suddenly gets in one of her "moods", like it was ME that was acting like an idiot or something!
But, and here is the Relationship Training moral of the story, did you notice how, when I don´t give a flying crap about what in the hell she wants, or doesn´t want, it causes a lot of friction in the nuclear family? You did? Good! Then that successfully concludes the Relationship Training portion of the lesson plan. And a job well done, if I say so myself!
But the fact that a bunch of Chinese factories are willing to produce consumer items at lower and lower prices, and thus sell them to me at lower and lower prices, does not mean that inflation is low. If inflation was, as they say, low, then how does one reconcile that statement with the glaring inconsistency of roaring inflation, as measured with the new Mogambo Ultimate Definition Of Inflation (MUDOI).
"Golly, Mogambo!", you are probably saying to yourself in amazement and awe. "What is the Mogambo Ultimate Definition Of Inflation, which you have cleverly shortened to the charming acronym MUDOI, which sounds vaguely, oh, I dunno, Asian-perhaps Chinese! --as is all the vogue nowadays?" I say, and you can quote me on this, "29 bags!" I am outraged at only 29 bags! I used to get 30 bags, and now I only get 29 bags! To the streets, my people! The time for revolution is here! Our rallying cry will be, "Remember the 29 bags! Remember the 29 bags!"
This week we are fortunate to have not just one, but two, examples of how this principle, the famous MUDOI, works. Firstly, I have heard that drive-aways are increasing. This is the desperation ploy of filling your car with gas and then, hopping into your car, start the engine and speed off without paying. How desperate do you have to be to have to resort to stealing thirty buck´s worth of gasoline? Out in the open? With bright lights everywhere? And security cameras everywhere? And with those beady-eyed little cashiers squinting at me through the window, furtively writing down my license plate number, like they are some hot shot employee who´s going to help the police catch some desperate criminal, and they will be a hero, and maybe get a reward or something. So how does this relate to MUDOI? Well, this drive-away thing is a way to replace that 30th bag! The thief is a guy who is upset at that missing 30th bag! He looks at the 29th bag, and he realizes that half the beer and all the potato chips were in that 30th bag! Oh, nooooooo!
And the second example that I promised you earlier was also at the grocery store. The customer was making a big stink because she claimed that she handed the cashier a fifty, and the cashier was saying, and showing, how there were no fifties in the drawer. These are the kinds of things desperate people will do, and more, when they look at that 29th bag, and they realize what was in that missing 30th bag.
The point is, and I usually get around to it sooner or later, is that I don´t give a rat´s patootie WHAT the inflation statistics can be made to show, especially after the government gets to pick and choose what they are going to use to measure it. The best measure of real world inflation, MUDOI, is how much more desperate the poor are, and how much more desperate the working-poor are, and how much more desperate the middle class are, when they can buy only twenty-nine bags of stuff instead of thirty bags like last month. And, soon, they will only be able to buy twenty-eight bags of stuff.
It should make you think. And when you think, you should run screaming down the street, screaming "The Mogambo was right! We´re freaking doomed!"
Of course, the recent weird action in the stock market brings out the rumors swirling about that the Put Protection Team, namely the Federal Reserve acting anonymously, has been behind the recent strength in the stock market, as they rushed to "provide liquidity" to the stock markets, which is, defined as "making damned sure that the prices of stocks always go up."
I, as someone who is always ready to believe the worst about a government or a central bank, admit that it seems that SOMETHING is happening, and it would not surprise me a bit to discover that they were in there, buying futures contracts out the wazoo, forcing the writers of those SP500 futures contracts to hedge that huge bet by buying the underlying stocks. Presto! The market goes up, instead of collapsing like it should, in the face of all of this buying! "Hooray!" they think to themselves. "We´re heroes!"
But I am shaking my head and screaming at the TV, "No! No! This can´t be happening!" I mean, oil is over $61 a freaking barrel! And yet people are buying common stocks? Wow!
Former Fed Governor Ben Bernanke, and now chief of the inbred little clique that "advises" President Bush about things economic, is recently famous for suggesting that there is global saving glut, and that is the explanation of our gaping current account deficit. We are, being the darlings that we are, doing the world a big, fat favor by absorbing those savings by borrowing them. But notice that he does not mention where that glut of savings came from in the first damned place. It came from the hateful Federal Reserve, pounding out new money and credit, year after year after year, and eventually the money all finally found its way, via our trade deficits, into the pockets of people who finally saved the money, namely foreign nationals.
But is there really a glut of foreign savings? Apparently there is some disagreement about that. In 2004, the IMF´s global flow-of-funds pegged the world saving rate at 24.9% of global GDP. Stephen Roach said, "While that marks the second consecutive yearly increase in this measure, it is only 1.9 percentage points above the 23% norm that prevailed from 1983 to 2000. Yes, the global saving rate has edged up from its longer-term average, but this hardly qualifies as a glut."
But notice the period quoted. It starts in 1983. Ever wonder why? Individual Retirement Accounts got going, as I recall, in 1982, the year before. Suddenly, and then more and more, and then more and more, the stock market went up with the growing tsunami of money inflows. And, always ready to make a bad situation worse, Congress spent their time busily extending this "benefit" to government employees, too! Up and down the line, people are paying money into their own retirement accounts, and even raising their own taxes to pay for government employees and recipients of government spending to invest some money in the stock market, too, all of which put even MORE money into the stock market! All of which caused the stock market to go up, which caused a lot of money to flow into the stock market, too, and that made it go up even higher!
The problem is that the stock market is so over-valued, and has been over-valued for so long, so that the returns from the stock market over the last five years -five long, worthless years -have been, on average, about zero. And with gains hovering around zero, it is no wonder that Bob Pisani of CNBC made the comment that traders are finding that their hardest job is trying to convince people not to sell and get out of the stock market. All of the dissatisfied clients want to, as he said, invest in real estate in Naples!
Exactly! Money goes where it is treated best, and making zero return for five long, dreadful years in the stock market is NOT treating money well at all, especially when the dollar has lost about 40% of its buying power in that same period of time! Investors in stocks suffered a double-whammy! On the other hand, real estate has been on a roll for quite awhile, treating money VERY nicely!
But, and here is the Mogambo Tip O´ The Day (MTOTD), forget houses. What you want is commodities trading, so that you can ride the coming inflation in commodities and make some serious money.
And speaking of commodities, the CRB index gained 2% last week. It is up 9.1% since the beginning of the year. Even more astonishing, the goldman Sachs Commodities index is up 28% since January!
If you want to talk about housing, and it seems that everyone does, a recent study by The Wall Street Journal found that in 55 places, the prices of housing had risen by at least 30 percent, AFTER inflation, over three years! And when you add up the market values of all housing in the whole country, it looks like these few 55 markets now account for an astonishing, and apparently completely unprecedented anywhere, 40 percent of all the sum total of the entire value of all the housing in the United States! Hahahaha!
According to the National Association of Realtors, who are quoting an outfit called Loan Performance, which is a mortgage data firm, who said that almost one-third of all new mortgages are mortgages with low required monthly payments, because the borrower only pay the interest, and you pay squat towards paying off the damn loan. Your debt never actually goes down.
Beyond that, some mortgages are supposedly appearing with the option to pay even less than that! You can pay less-LESS! --than even the interest payment that is due! You can pay as little as you want! The bank merely adds the shortfall to the loan balance, happily putting you farther into debt! Arrgghhh! And it is the banks, always the damned banks, that are the ones doing this silly crap! The banks are going waaayyyyyy out on a limb with these risky, insane mortgage options, proving once again that all financial calamities, back and forwards through time, are caused by the banks acting stupidly.
The major difference is that today, they all believe that just because they can lay off the risk, by bundling and unbundling and slicing and dicing the debt, and then selling the risk piecemeal to somebody else, that there is no problem! Hahahaha! Losses are losses, dude! Hahahaha! See what I mean about banks acting stupidly? Hahaha! It never changes!
And who is the idiot that is putting up the money for the other side of these ludicrous mortgage bets? Who is so bereft of even common sense that they are loaning so unbelievably much money to these high-risk, guaranteed-loss customers? Well, guess what? It´s, once again, the only guys who CAN get stuck with the bag so big, and therefore they MUST get stuck holding the bag. And, to paraphrase a famous Pogo dictum "We have met the suckers, and the suckers are us!" And who are, in the particular, these suckers? Well, for starters, pension funds, banks, holding companies, cities and counties and states, mutual funds, investors both foreign and domestic, and all kinds of guys and gals with visions of capital gains in their eyes, investing "for the future!" As it turns out, this long list of investors now holds $4.6 trillion in mortgage-backed securities! Hahaha! At last the banks have figured out how to get rid of whole mountains of crappy loans! So this is proof-proof, I tells ya! --that Barnum was right! The sucker is not going to get an even break! It just gets worse and worse!
I read an interesting statistic arguing that, in the last four years, the U.S. dollar lost nearly 40% of its value against other currencies. That means if you had loaned me $10,000 in the year 2000, it is now worth only $6,000 in purchasing power! So do you know what that means? It means you owe me, you little rat! I have had to put up with your incessant phone calls for the whole four years, always whining and threatening the poor old Mogambo, always yelling about wanting your damned money back, always yammer yammer yammer about the damn money I owe you. But do you even spare a lousy minute to think about me? Have I not lost purchasing power, too? If you cut me, do I not bleed?
Sean T. sends along this quote from Rep. Perry Clark of Kentucky, who apparently has some natural smarts, and said, referring to the coming re-pegging of the US dollar to the yuan, "if we don´t successfully act in time to avert an uncontrolled collapse, my question is, does the U.S. have a fallback position? The fact is that even a 40% adjustment in the value of the dollar would actually be sufficient to wipe out about 80% of my constituents within 30 to 90 days. They would be destitute, and this would especially affect retirees."
Well, the case may be overstated, as the dollar has lost about 40% of its value in the last few years, and nobody is destitute yet. But he is exactly right, in that everyone in his district, and everyone else´s district too, has suffered a huge loss in buying power. And in case he asks you, no, there is no solution, and that is why it is so important that you NOT allow the banks to expand the credit system at their whim, and why only having gold and silver as money will naturally prevent that, and if he really, really, really wanted to get on the good side of The Mogambo, he would get his butt back to Congress and help Ron Paul re-establish the dollar in terms of gold and get us out of the clutches of the banks!. And since we are talking about money, I notice that currency in circulation, the kind that you can put in the G-string of dancers at almost any, um, gentlemen´s club, jumped by an eyebrow-raising $6.6 billion since a week ago, or about $25 for everybody old enough to hold money for transaction purposes. So who in the hell is holding more money, and why? People are stealing gasoline because they are so desperate, so it is not them! Obvious answer? People involved in something illegal, as those things settle in cash.
John Mauldin thinks that Ben Bernanke will be the next chairman of the Federal Reserve, which is probably true. The Federal Reserve is a complete failure in every regard. Ben Bernanke seems to be the worst economist and central-planning/Big Government fanatic that has ever been catapulted onto the public stage, and I make no bones about he fact that I consider him to be an arrogant, pretentious, self-possessed pretender whom I hate for getting all the attention that I crave but can never have. I am sure that he harbors similar feeling towards me, although if you ask him for his opinion of The Mogambo, he will say he never heard of me. But you can tell that he has, and he hates (pause) my (pause) guts.
It is therefore almost ordained by Fate and our headlong rush to kakistocracy (a system of government by the worst and most nqualified people) that he be given the reins of power, so that we can accelerate our entry into the history books as the ultimate chumps in the sad, sorry story about how another thriving and prosperous nation was brought to ruination by the damned banks. Or fiat money. Or fractional banking. Or, and you should feel a chill go up and down your spine at the mere suggestion and your brain should scream out in horror because this is where the concept of painful economic suicide comes from, all of them at once! Like we have! Hahahaha! We´re freaking doomed!
And if you don´t agree with me that the Federal Reserve has been an abject, total failure, then get up and go look out of your window. Or, if you are like me and are too lazy, or too drunk, to actually stagger unsteadily to your feet, just sit there for a few more years, as things will continue to get worse and worse and worse, and what is outside your window will come to you, grab you by the throat, and take away everything you love, and leave you at home, all day, with your family, all of whom hated your guts BEFORE you went bankrupt and lost your job, and now they hate you even more than ever, and they have a lot of time on their hands, which they spend criticizing everything you say or do.
Last Thursday, the House of Representative voted by a lopsided 398-15 vote for a non-binding resolution that calls on the Bush administration to block the CNOOC bid because it "would threaten to impair the national security of the United States." Representative William Jefferson of Louisiana said "We cannot, in my opinion, afford to have a major U.S. energy supplier controlled by the communist Chinese." Hahaha! Our money? Sure! Our economy? Okay! Our debt? No problem! But our gas? No freaking way, dude! Hahahaha! We can think this way because we´re Americans! We´re special! Laws of the universe do not apply to us!
Now you know why Congress and the Americans who elected them are held in such contempt, at home and around the world.
For those of you who like to send me stuff about abiotic oil, okay. It seems that J. F. Kenney, a guy who is the chief executive of Gas Resources Corporation, thinks that we are all wrong about where oil comes from. I thought it came from storks, delivering barrels of oil dressed in little pink and blue diapers, but apparently I am wrong about that, too. He says it is nonsense to believe that oil derives from "squashed fish and putrefied cabbages," but notice he does not dare to address my stork theory.
In the Proceedings of the National Academy of Sciences, he states that it is impossible for alkanes, one of the main types of hydrocarbon molecule found in crude oil, to "evolve from biological precursors at the depths where reservoirs have typically been found and plundered." Using some whiz-bang "mathematical model incorporating quantum mechanics, statistics and thermodynamics", he says he can predict "the behaviour of a hydrocarbon system". Therefore he can show how a "complex mixture of straight-chain and branched alkane molecules found in crude oil could have come into existence only at extremely high temperatures and pressures-far higher than those found in the earth´s crust, where the orthodox theory claims they are formed", which is of dead dinosaurs and grasses and organic, biological stuff rotting and turning, somehow into oil.
And what happens down there with those high pressures and temperatures? Well, he says that "he has shown that a cocktail of alkanes (methane, hexane, octane and so on) similar to that in natural oil is produced when a mixture of calcium carbonate, water and iron oxide is heated to 1,500° C and crushed with the weight of 50,000 atmospheres." And where is this magical place? He anticipates your question when he writes "This experiment reproduces the conditions in the earth´s upper mantle, 100 km below the surface, and so suggests that oil could be produced there from completely inorganic sources." Hence, the term "abiotic" oil.
My response? Who the hell cares? Whatever way it is made is irrelevant. The point is that it is not being made, however it is made, at the rate we are using it, and by a long, long shot. And Peak Oil, the fabled halfway point where we start slowly start running out of oil, is a fact that is almost beyond refute. And when you add China and Russia and India into the mix, well, you already know how I feel about investing in commodities.
The Bureau of Labor Statistics says 146,000 new jobs were created in June, but 184,000 of those jobs came from the infamous CES birth-death model. To make matters worse, 81,000 of those supposed jobs were in Leisure and Hospitality. The next biggest gain was in construction (29,000). Now, personally, I have no doubt that these numbers could be true. But you can´t make an economy out of fast food and building houses.
The BLS report also says "Over the year, the health care industry has added 249,000 jobs. In June, job growth was concentrated in hospitals (12,000) and ambulatory health care services (11,000). Among other service-providing industries, financial activities employment edged up over the month, as credit intermediation and real estate showed continued strength. Employment in food services edged up in June after showing little change in May. Employment in child day care services rose by 8,000 on a seasonally adjusted basis in June, as layoffs were lighter than usual. Employment in warehousing and storage rose by 6,000." It may be instructive to note that not one of these jobs involves taking raw materials and making something to sell to somebody.
In contrast, "In June, manufacturing employment fell by 24,000. Motor vehicles and parts lost 18,000 jobs over the month. Job losses in nondurable goods manufacturing were small but widespread, totaling 12,000." So now we know what happened to the guys who DO take raw materials and make something to sell to somebody! They get fired!
But it is not all skittles and beer in the services sector, either. Challenger, Gray and Christmas issued their latest report, which showed, "Employers announced 110,996 job cuts in June, compared to 82,283 in May. June job cuts rose 73 percent from the year-ago period. So far this year, 538,274 job cuts have been announced this year, 14 percent more than the six-month total of 472,735 last year." 14% more job cuts! Cuts! Fourteen percent!
And C,G & C don´t see it getting any better, either, as they go on to say "The pace of job cutting in the second half of 2005 is expected to stay ahead of last year, as employers continue to close facilities and consolidate in order to achieve maximum efficiency."
Martin Weiss of the Safe Money Report writes that Economy.com figures that over the last few years "real estate has added 700,000 jobs." Weiss also brings us yet another newsy tidbit with the news that TEC International surveyed 2,000 CEOs, and the consensus is that "high energy costs are currently the number one concern." Me, too! Hey! TEC International! Call me! I can tell you that higher energy costs, and costs of every freaking thing you can name, are my number one concern! But the really interesting news, because I think inflation is so scary that it is ALWAYS interesting news, "70% of the CEOs said costs have risen in the past year. Only 3% are reporting a drop in prices."
Richard Schlessel sums it up pretty well, and with an entertaining literary style, when he writes, "(A) there is already much too much debt (astoundingly true); (B) the economy is weak from loss of solid manufacturing jobs (sadly true); (C) low cost foreign labor will prevent the US economy from adding the dependable jobs that are needed for sustained growth (frustratingly true); (D) a perpetually weak economy cannot afford to pay the escalating debt service costs (frighteningly true); (E) the trade, current account, and budget deficits all add crushing new debt at an ever faster rate (unbelievably true); (F) the combined weight of all these negatives makes a depression unavoidable (inevitably true)."
The goldForecaster.com says that with "Oil around $60 and gold around $425" the gold/oil ration has gone to 20-year, "historic lows!" Note their use of an exclamation mark to indicate emphasis! The ratio, they say, is at, and sometimes under, seven. The average historical ratio has been fifteen. To revert to the mean, that would mean $900 gold, even if oil stays at $60 a barrel! And if oil goes to $100 a barrel, or more, as it will, then gold will go, as Ralph Kramden would say "To the moon, Alice!" Yaaa-hoooo!
They also report that China will soon let the country´s banks "sell gold bars to their customers." Up to now, Chinese citizens have only been allowed to own gold-backed certificates, which they trade instead of actual gold bullion.
The next few years ought to be very, very interesting in the gold market, and a third of the world´s population is why.
I got a real nice letter from Eric Y., who is a CPA in Norcross Georgia, whose unfortunate career has sunk to the point where he has to accept clients who are complete idiots, which I infer from him writing, and I quote, "I have several clients who are seriously considering acting upon your advice, i.e. to purchase gold, and possibly silver as well."
The Mogambo smiles benignly, and with the merest flick of an eyebrow confers instant enlightenment, if only from the angle of historical imperative, as this is what always happens! Finally, things get so bad that people will listen to an idiot like me, and run to gold in panic and desperation! "Sell the stocks! Sell the bonds! Get gold!" And your consciousness is blasted when you fully comprehend that investing in gold and silver right about now is destined to be another of those Famous Mogambo Stroke Of Genius And Dumb Luck Things (FMSOGADLT), and then you are filled-FILLED! --with The Fire of gold!
For you have looked into the face of absolute total consciousness, and peered into the beating heart of the cosmos, and now you are, suddenly, one with the universe, and you realize that owning gold and silver and commodities is a damned, damned, damned good idea! Especially if you are a grasping, grubby, greedy little bastard like me, who would love to make a gigantic fortune by investing in gold and gold mining companies at these historically-adjusted, low, low, lower-than-low prices, so that when they do rise, as they will because they must, we will be rich! Rich! Hahahahaha! Gloriously, gloriously rich! We will be rich, and they shall be poor! Poor! And THEN we´ll see who´s sorry about you-know-what, and who is not allowed within 500 feet of whom!
The next item refers to the ever-present danger of government confiscation of people´s gold, like that bastard FDR did, and did I think there was any danger of that? To which I answer, Hahahahaha! Hell, yes, you fools! This is the damned government we are talking about here! They can do anything they want, as long as the Supreme Court can be counted upon to back them up! Is there any danger of the government again confiscating gold, you ask? Again, the mocking Mogambo laughter goes "Hahahahaha!", echoing eerily off the mountains, which is pretty weird since there are no mountains in Florida. But this is not about mountains or how Florida got screwed big time in the mountains department. The real question is, where in the hell have YOU been for the last few decades that you wonder about the powers of the government to do something that that have already legally done once? Hahahaha!
Let´s remember, that they can allow themselves the awesome power of making you turn in your gold. But they cannot, so far, compel you to take a loss when they steal your stuff. They have to pay you, in dollars, what the gold is worth. That part is guaranteed by the Constitution itself. So, theoretically, at the exact moment of exchange, your real worth is unchanged. One minute you had a bunch of gold worth X dollars, and the next you own that X number of dollars, but no gold. You are, at that precise legal moment, unchanged. What happens one nanosecond later, of course, is the problem, and that is why you wanted gold, and not dollars, in the first damned place!
Unless (and notice how the soundtrack is filled with ominous, spooky music, and how, off in the distance, a ravenous wolf pack is howling, "wooooooooOOOooooo" and you know what something bad is going to happen) the Supreme Court finds otherwise. So the real question is "Will the Supreme Court compel you to take a loss, contrary to the Constitution?" Well, let me quote of few of Mr. Y´s own listing of the arguments that arise in favor of stealing people´s gold, including the demonizing of people who are holding their wealth in the form of gold as hoarders, and how "Hoarders are the cause of our economic ills, gold is a weapon of terror by terrorists (new Islamic dinar), hoarders should not be allowed to unfairly profit, it rightfully belongs to the ´people´, we have a national emergency." The Mogambo is, as the Indians say, "of two hearts" about that. One is, of course, hahahahaha! All these arguments will be tried, or thought about, or studies commissioned to explore, or talked about, or proposed, at one time or another, just like everything else!
My contrary objection to this obvious conclusion is that the rich, along with all the people actually in the government and the court system, are ALSO going to be affected by this. I assume that they have wealth that they want to protect, too, and they have family members to protect, like children and aging parents. And distant relatives. And friends. There are not many reasons to own gold, and most of them are about saving someone´s butt from the depreciation of paper money.
But he did ask me to address some practical issues that seem to keep popping up. In what form would I recommend gold? Well, I like the idea of instant acceptance, so you don´t have to go through the hassle and expense of having the raw gold assayed. But gold is gold, and that is what makes it gold. So I obviously favor, from strict theoretical and ease-of-use standpoints, pure gold in some form that is instantly accepted, such as Eagles and Maple Leafs and Austrian Philharmonics and Pandas and those kinds of things.
And almost finally, in what form silver? It comes down to, again, purity and acceptance, plus the cost of the space to store the stuff.
But, then again, like I said, anybody listening to the stupid advice from The Mogambo deserves whatever disaster awaits them. I have no respect for people who read my stupid newsletter, and so you can imagine my contempt for someone following my advice.
And, finally, how to sell it? This, my darling one, is one of the Mogambo constants of the universe (MCOTU), which states that if you have gold and silver in hand, you will always be able to find lots and lots of people who will eagerly trade things or money for it.
And for a second opinion, here is the Optimist, who writes "The good news is that government will not confiscate your gold. Government will, of course, impose a 90% windfall profits tax surcharge on gold and gold shares owned by the rich (defined as anyone who can feed his family and own gold too), because governments like to tax everyone, and especially rich people like you. Some of you may need to sell most of your gold or shares to pay the tax, but you can be happier in that process by knowing that the government will not take your gold from you.
"On the other hand, as all two-handed economists are fond of saying, government will confiscate your silver. The difference is that there is an abundance of gold around, and government doesn´t really need yours. Government wants only the real wealth that your gold represents, and they have a wonderfully subtle program for efficiently extracting that wealth. That program is the Irresistible Retrieval System (sometimes abbreviated as IRS). silver, in contrast, is a rapidly vanishing essential resource, not only for world wide industry, but more important for U.S. Defense Contractors."
Always looking on the bright side, the Optimist says that they are "sure that our defenders of American freedom will waste no time before they declare a national emergency and immediately craft a new program to Systematically Transfer Every Available (oz. of silver) Legally (always abbreviated as STEAL) from you. What else can Congress do after it is too late to plan ahead?" Hahahaha! Well put!
But, like I said, you get a lot of dollars in return, for better or worse.
But perhaps we are being too alarmist, and we should look on the bright side, as without gold, there actually IS no alternative! That´s the whole point! That is why it is always gold that everyone runs to. So why fret about it? .
But it is not only we Americans who are trying to devalue our money. A look at the growth in foreign money supplies is enough to convince you of that. And what is the upshot of a global system where everybody is devaluing their own currencies? Larry O, quoting from the seminal Mises book "Human Action", says that on page 791 of the third edition, where Mises was discussing the results when nations operate on a floating currency exchange basis, wrote, "A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations´ monetary systems".
Ugh.
***The Mogambo Sez: If you were Spiderman, then your Spidey-senses would be tingling from the danger that is everywhere, and that would get to be a real hassle after awhile. Be thankful you are human, grasshopper, and you can buy gold and silver, and you can rest easy at night without your senses tingling and keeping you awake, tossing and turning, and the next day and you have to walk around in a daze, all grouchy and sleepy. And tingling.
[link to www.321gold.com] |
| .
User ID: 18522
7/14/2005 1:16 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
And C,G & C don´t see it getting any better, either, as they go on to say "The pace of job cutting in the second half of 2005 is expected to stay ahead of last year, as employers continue to close facilities and consolidate in order to achieve maximum efficiency."
Martin Weiss of the Safe Money Report writes that Economy.com figures that over the last few years "real estate has added 700,000 jobs." Weiss also brings us yet another newsy tidbit with the news that TEC International surveyed 2,000 CEOs, and the consensus is that "high energy costs are currently the number one concern." Me, too! Hey! TEC International! Call me! I can tell you that higher energy costs, and costs of every freaking thing you can name, are my number one concern! But the really interesting news, because I think inflation is so scary that it is ALWAYS interesting news, "70% of the CEOs said costs have risen in the past year. Only 3% are reporting a drop in prices."
Richard Schlessel sums it up pretty well, and with an entertaining literary style, when he writes, "(A) there is already much too much debt (astoundingly true); (B) the economy is weak from loss of solid manufacturing jobs (sadly true); (C) low cost foreign labor will prevent the US economy from adding the dependable jobs that are needed for sustained growth (frustratingly true); (D) a perpetually weak economy cannot afford to pay the escalating debt service costs (frighteningly true); (E) the trade, current account, and budget deficits all add crushing new debt at an ever faster rate (unbelievably true); (F) the combined weight of all these negatives makes a depression unavoidable (inevitably true)."
The goldForecaster.com says that with "Oil around $60 and gold around $425" the gold/oil ration has gone to 20-year, "historic lows!" Note their use of an exclamation mark to indicate emphasis! The ratio, they say, is at, and sometimes under, seven. The average historical ratio has been fifteen. To revert to the mean, that would mean $900 gold, even if oil stays at $60 a barrel! And if oil goes to $100 a barrel, or more, as it will, then gold will go, as Ralph Kramden would say "To the moon, Alice!" Yaaa-hoooo!
They also report that China will soon let the country´s banks "sell gold bars to their customers." Up to now, Chinese citizens have only been allowed to own gold-backed certificates, which they trade instead of actual gold bullion.
The next few years ought to be very, very interesting in the gold market, and a third of the world´s population is why.
I got a real nice letter from Eric Y., who is a CPA in Norcross Georgia, whose unfortunate career has sunk to the point where he has to accept clients who are complete idiots, which I infer from him writing, and I quote, "I have several clients who are seriously considering acting upon your advice, i.e. to purchase gold, and possibly silver as well."
The Mogambo smiles benignly, and with the merest flick of an eyebrow confers instant enlightenment, if only from the angle of historical imperative, as this is what always happens! Finally, things get so bad that people will listen to an idiot like me, and run to gold in panic and desperation! "Sell the stocks! Sell the bonds! Get gold!" And your consciousness is blasted when you fully comprehend that investing in gold and silver right about now is destined to be another of those Famous Mogambo Stroke Of Genius And Dumb Luck Things (FMSOGADLT), and then you are filled-FILLED! --with The Fire of gold!
For you have looked into the face of absolute total consciousness, and peered into the beating heart of the cosmos, and now you are, suddenly, one with the universe, and you realize that owning gold and silver and commodities is a damned, damned, damned good idea! Especially if you are a grasping, grubby, greedy little bastard like me, who would love to make a gigantic fortune by investing in gold and gold mining companies at these historically-adjusted, low, low, lower-than-low prices, so that when they do rise, as they will because they must, we will be rich! Rich! Hahahahaha! Gloriously, gloriously rich! We will be rich, and they shall be poor! Poor! And THEN we´ll see who´s sorry about you-know-what, and who is not allowed within 500 feet of whom!
The next item refers to the ever-present danger of government confiscation of people´s gold, like that bastard FDR did, and did I think there was any danger of that? To which I answer, Hahahahaha! Hell, yes, you fools! This is the damned government we are talking about here! They can do anything they want, as long as the Supreme Court can be counted upon to back them up! Is there any danger of the government again confiscating gold, you ask? Again, the mocking Mogambo laughter goes "Hahahahaha!", echoing eerily off the mountains, which is pretty weird since there are no mountains in Florida. But this is not about mountains or how Florida got screwed big time in the mountains department. The real question is, where in the hell have YOU been for the last few decades that you wonder about the powers of the government to do something that that have already legally done once? Hahahaha!
Let´s remember, that they can allow themselves the awesome power of making you turn in your gold. But they cannot, so far, compel you to take a loss when they steal your stuff. They have to pay you, in dollars, what the gold is worth. That part is guaranteed by the Constitution itself. So, theoretically, at the exact moment of exchange, your real worth is unchanged. One minute you had a bunch of gold worth X dollars, and the next you own that X number of dollars, but no gold. You are, at that precise legal moment, unchanged. What happens one nanosecond later, of course, is the problem, and that is why you wanted gold, and not dollars, in the first damned place!
Unless (and notice how the soundtrack is filled with ominous, spooky music, and how, off in the distance, a ravenous wolf pack is howling, "wooooooooOOOooooo" and you know what something bad is going to happen) the Supreme Court finds otherwise. So the real question is "Will the Supreme Court compel you to take a loss, contrary to the Constitution?" Well, let me quote of few of Mr. Y´s own listing of the arguments that arise in favor of stealing people´s gold, including the demonizing of people who are holding their wealth in the form of gold as hoarders, and how "Hoarders are the cause of our economic ills, gold is a weapon of terror by terrorists (new Islamic dinar), hoarders should not be allowed to unfairly profit, it rightfully belongs to the ´people´, we have a national emergency." The Mogambo is, as the Indians say, "of two hearts" about that. One is, of course, hahahahaha! All these arguments will be tried, or thought about, or studies commissioned to explore, or talked about, or proposed, at one time or another, just like everything else!
My contrary objection to this obvious conclusion is that the rich, along with all the people actually in the government and the court system, are ALSO going to be affected by this. I assume that they have wealth that they want to protect, too, and they have family members to protect, like children and aging parents. And distant relatives. And friends. There are not many reasons to own gold, and most of them are about saving someone´s butt from the depreciation of paper money.
But he did ask me to address some practical issues that seem to keep popping up. In what form would I recommend gold? Well, I like the idea of instant acceptance, so you don´t have to go through the hassle and expense of having the raw gold assayed. But gold is gold, and that is what makes it gold. So I obviously favor, from strict theoretical and ease-of-use standpoints, pure gold in some form that is instantly accepted, such as Eagles and Maple Leafs and Austrian Philharmonics and Pandas and those kinds of things.
And almost finally, in what form silver? It comes down to, again, purity and acceptance, plus the cost of the space to store the stuff.
But, then again, like I said, anybody listening to the stupid advice from The Mogambo deserves whatever disaster awaits them. I have no respect for people who read my stupid newsletter, and so you can imagine my contempt for someone following my advice.
And, finally, how to sell it? This, my darling one, is one of the Mogambo constants of the universe (MCOTU), which states that if you have gold and silver in hand, you will always be able to find lots and lots of people who will eagerly trade things or money for it.
And for a second opinion, here is the Optimist, who writes "The good news is that government will not confiscate your gold. Government will, of course, impose a 90% windfall profits tax surcharge on gold and gold shares owned by the rich (defined as anyone who can feed his family and own gold too), because governments like to tax everyone, and especially rich people like you. Some of you may need to sell most of your gold or shares to pay the tax, but you can be happier in that process by knowing that the government will not take your gold from you.
"On the other hand, as all two-handed economists are fond of saying, government will confiscate your silver. The difference is that there is an abundance of gold around, and government doesn´t really need yours. Government wants only the real wealth that your gold represents, and they have a wonderfully subtle program for efficiently extracting that wealth. That program is the Irresistible Retrieval System (sometimes abbreviated as IRS). silver, in contrast, is a rapidly vanishing essential resource, not only for world wide industry, but more important for U.S. Defense Contractors."
Always looking on the bright side, the Optimist says that they are "sure that our defenders of American freedom will waste no time before they declare a national emergency and immediately craft a new program to Systematically Transfer Every Available (oz. of silver) Legally (always abbreviated as STEAL) from you. What else can Congress do after it is too late to plan ahead?" Hahahaha! Well put!
But, like I said, you get a lot of dollars in return, for better or worse.
But perhaps we are being too alarmist, and we should look on the bright side, as without gold, there actually IS no alternative! That´s the whole point! That is why it is always gold that everyone runs to. So why fret about it? .
But it is not only we Americans who are trying to devalue our money. A look at the growth in foreign money supplies is enough to convince you of that. And what is the upshot of a global system where everybody is devaluing their own currencies? Larry O, quoting from the seminal Mises book "Human Action", says that on page 791 of the third edition, where Mises was discussing the results when nations operate on a floating currency exchange basis, wrote, "A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations´ monetary systems".
Ugh.
***The Mogambo Sez: If you were Spiderman, then your Spidey-senses would be tingling from the danger that is everywhere, and that would get to be a real hassle after awhile. Be thankful you are human, grasshopper, and you can buy gold and silver, and you can rest easy at night without your senses tingling and keeping you awake, tossing and turning, and the next day and you have to walk around in a daze, all grouchy and sleepy. And tingling.
[link to www.321gold.com] |
| .
User ID: 18522
7/14/2005 1:20 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
History but worth reviewing
The Curious Bush Recovery
by Steven LaTulippe
While I am admittedly not a professional economist, I am an "evil capitalist?with some interest in the field. From this perspective, a quick examination of recent economic data is showing odd and scary trends that defy the general consensus that we are in a great "Bush recovery." And the more closely this data is analyzed, the stranger it gets. As with everything else concerning this administration, it leaves one wondering what the hidden agenda is and who is pulling the levers.
Things just don抰 happen this weirdly by themselves.
The first oddity is the lack of job creation. Normally, by this time in the recovery cycle, millions of jobs would have been added to the national economy. As businesses move out of the wary psyche of recession and into the daylight of prosperity, they eventually hire more workers to meet increasing demand.
This recovery has seen no such hiring surge. In fact, some recent data shows that the manufacturing sector now has fewer employees than it did back in 2000. This must be the first time in US history that a recovery has fewer manufacturing jobs than the recession that preceded it.
But unlike many of the other oddities, the obvious explanation for this one is that the recovery is creating manufacturing jobs卛n China. That giant nation has seen an historic surge in industrial production, much of which is destined for our shores.
While this is no great mystery, things do get a bit more bizarre when one looks at the twin behemoths of our trade and budget deficits in conjunction with the dollar抯 trends on international markets.
In a nutshell, the US government is spending money at a heretofore unprecedented pace卆nd is going into debt at a rate seldom seen before in human civilization. And much of this spending is not defense or terrorism related. Education, housing, and numerous other social programs have exploded under this president at rates far in excess of the "liberal" Clinton administration. This president is about to become one of a very few in history to never have vetoed a single bill during a 4 year term in office.
Accompanying this surge of government indiscretion is our trade deficit. These past months, it has rocketed to stratospheric levels. Americans have been importing far more than they export for many decades, but the current rate could set an all-time record.
What makes this even scarier is that the trade imbalance is occurring in conjunction with two other factors.
First, Americans have essentially ceased saving money. We are financing this import binge on credit (thanks, in part, to the Federal Reserve抯 manipulation of interest rates). The average US household now has somewhere in the neighborhood of $7?000 in credit card balances卆nd growing. EZ credit and mortgage refinancing schemes (fueled largely by the government-manipulated and quasi-governmental mortgage industry) have encouraged Americans to raid their one last store of wealth: the equity in their houses.
Second, is the fact that this massive trade deficit is occurring amid an historic slide of the US dollar on the world抯 currency exchanges. In normal times, a large trade deficit depreciates a nation抯 currency relative to other nations?currencies. The market thus returns things to equilibrium by making imports more expensive and exports cheaper.
But in the Bush-Greenspan universe, nothing seems to operate as it should.
Last month we nearly set a record for a monthly trade deficit, but it occurred after a long 30% slide in the value of the dollar against a variety of world currencies. Our exports should be booming, and imports should be prohibitively expensive卋ringing our deficit to a balance.
But the trade deficit somehow got worse.
Numerous policies can be blamed for the continued hemorrhage. The fact that OPEC continues to accept only dollars for oil purchases is a biggie. If America was any other nation, the recent plunge in the value of our currency would result in a gigantic surge in the price of oil. This alone would short-circuit the recovery and slump the economy back into recession卻hutting off our ability to import and thus bringing the trade deficit to balance.
But since the dollar is the medium of oil purchases, OPEC gets hosed when the dollar drops, while we continue to import oil at the same price.
One might ask why OPEC goes along with this charade. In fact, some oil-exporting nations have discussed switching to the Euro, to gold, or to a basket of currencies. But this would undoubtedly raise the ire of some very heavily armed people.
The last guy who switched from dollars to Euros for oil purchases was Saddam Hussein. He changed over in 2000, and found himself in a jail cell just a couple of years afterwards (as to whether these two events are connected in any way, I抣l leave it to the reader to decide).
Secondly, we are able to continue on this path to oblivion because the wonderful Chinese government maintains a fixed exchange rate between its currency (the yuan) and the dollar. Thus, if the US dollar drops on international currency exchanges, the yuan does as well卪eaning that the baubles we buy from China at WalMart do not change in price when the dollar drops.
And the Chinese (and Japanese) also help Uncle Sam抯 voracious appetite for money by circulating the dollars from their trade surplus back to the US in the form of US Bond purchases.
In essence, the Bush recovery consists of the Japanese loaning us money to purchase things from the Chinese that we really can抰 afford.
The Asians are financing our government抯 budget deficit with dollars obtained from our Asian trade deficit.
This is not a stable economic strategy卛t is a bizarre high-wire act.
Since the market doesn抰 like to be dallied with, it always finds a way to make itself heard. The flaw in this crazy theory of economics is the willingness of Asians to continue to buy US bonds. The question is quite simple: Why buy a bond with a 1?% yield when the currency in which the bond is denominated is plunging? The investor loses on the spread big-time (it should also be added that the investor has a further disincentive when he realizes that the USA is so far in debt that we抣l never be able to pay it back卐ven with devalued dollars)
Sooner or later the geniuses over at the Japanese Central Bank are going to begin to ask themselves this very question. Right now, they probably don抰 pull the plug because they 1) are afraid of precision-guided munitions (after all, some of their cities have only recently stopped glowing from the last run-in they had with Uncle Sam), and 2) realize that their own industries rely on giving Americans their money back to buy more junk.
Talk about a dysfunctional relationship!!
But this can only go so far. Sooner or later, the Asians are going to realize that we can抰 pay the money back卆nd that even if we could, the plunging dollar makes it ludicrous to loan us any more.
Then, interest rates on US bonds will have to rise to lure more investors. And then the budget deficit explodes, the economy slows down due to higher rates, and things get really ugly.
There are a lot of little guys in leotards swinging through the air under the big top. Sooner or later, someone isn抰 going to be at the right place at the right time.
Now some folks might ask who I am to question the Federal Reserve Chairman. To which I reply with the old adage: "Remember, it was amateurs who built the Ark, and professionals who built the Titanic."
February 19, 2004
Steven LaTulippe [send him mail] is a physician currently practicing in Ohio. He was an officer in the United States Air Force for 13 years.
Copyright ?2004 LewRockwell.com |
| Paladin
User ID: 18523
7/14/2005 1:21 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Richard Daughty, ...the angriest guy in economics
The Mogambo Guru
I love to read this guy...
i read this at lunch today......LOL...LOL...LOL...then sad......every bit of it is true |
| Monique
User ID: 335
7/14/2005 1:23 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Hang over FHL(C) correction just around edge!! ;) |
| .
User ID: 8459
7/16/2005 3:01 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Misleading economic indicators
Thu Jul 14, 2005 11:10 AM ET
Printer Friendly | Email Article | Reprints | RSS
By Mike Dolan, Economics Correspondent
WASHINGTON (Reuters) - The fortune tellers of the economic data world have had their crystal balls clouded by Federal Reserve chief Alan Greenspan´s so-called "conundrum."
The peculiar decline in long-term interest rates as the Fed pushes up short rates has rendered one oft-used component of leading economic indices slightly dysfunctional.
The shrinking of the gap between short and long-term interest rates -- a so-called flattening of the yield curve -- has typically been seen as a harbinger of a slowing economy, ebbing inflation and lower official interest rates.
As a result, many business cycle researchers compiling their oracles use the yield spread along with other early economic signals such as weekly jobless claims, money supply, commodity trends, new business orders and building permits.
But these leading indices -- which aim to warn about future peaks and troughs in the economic cycle -- have leaned negative over the past year about future U.S. economic growth even as national output continued to grow well above trend.
Now, questions raised by the Fed and others about whether the yield curve has been distorted by factors such as global savings gluts and demographic trends is leading many to review their use of this measure.
The Conference Board, the firm which publishes the U.S. Leading Economic Indicators series, said its index has declined 1.9 percent in the year to May, with about half of the drop due to the flattening of the yield curve.
This would typically signal a sharp economic slowdown this year.
But it is a lonely signal. Top forecasters polled by Blue Chip Economic Indicators this week raised their outlook for U.S. growth in 2005 for the second straight month, now focusing on a robust 3.6 percent.
Perplexed, the Conference Board announced last month that it is changing how the yield spread affects its reading of where the economy is heading.
It said declines in the yield spread will no longer act as an outright negative on its leading index unless the curve inverts, or long rates fall below short rates.
"You won´t find a full year in history where the Fed steadily raised interest rates by more than 200 basis points and the bond market not only didn´t raise 10-year rates, but dropped them," said Conference Board economist Ken Goldstein.
Since last June the Fed has raised its key rates to 3.25 percent from 1 percent. But 10-year yields have declined to little over 4 percent from about 4.60 percent in the interim.
The Organization for Economic Cooperation and Development also uses the yield spread in its closely watched Composite Leading Indicators series, which aim to predict industrial cycles in OECD member countries.
Its U.S. index fell to 101.6 in May from 102.2 in May 2004 and a six-month rate of change is down 1 percent.
Ronny Nilsson, an economist at the OECD in Paris, said there is likely to be a review of the components of indices.
The yield spread was only recently introduced in 2002, and nominal short-term and long-term rates were separate inputs until then, he said.
But Nilsson acknowledged a problem with the spread is gauging whether its movements are a positive or negative economic influence. Are falling long-term rates a plus for the economy because they mean cheap borrowing or a negative signal of future activity?
What is more, financial data tend to have a longer lead time on changes in economic activity but they are often very "noisy," Nilsson said.
"There are a lot of minor fluctuations that never get picked up in GDP and that in itself is a good argument to play down their influence in the index," he said.
Others think use of the yield spread is inherently flawed.
Lakshman Achuthan, managing director at the forecasting group Economic Cycle Research Institute, said his firm´s weekly leading index does not use the yield spread.
"It just doesn´t pass muster," he said, adding the curve did not invert before the 1990/1991 recession.
Achuthan said that since the mid-1950s there were three occasions when the yield curve did not invert ahead of a recession and one time when it inverted and there wasn´t a recession. "That´s three misses and one false signal."
ECRI claims to be one of the few to flag an impending U.S. recession early in 2001. It was set up by Geoffrey Moore, who developed the U.S. government´s first leading indicator in the 1960s -- the one now published by the Conference Board.
ECRI´s weekly leading index for the United States, which is up about a point on a year ago and whose annualized growth rate rose to a seven week high last month, includes bond yields but inverts them so that lower long rates are seen stimulating growth.
But Achuthan said another problem with financial data is that while they have a long lead time the variability of the lead is also very large.
"If I was to tell you there´s a risk of a turning point a year and half out -- give or take a year -- what are you going to do? Run out and buy stocks?" |
| .
User ID: 19190
7/19/2005 12:27 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Mammon
From Wikipedia, the free encyclopedia.
Mammon, a word of Aramaic origin, means "riches", but has an unclear etymology; scholars have suggested connections with a word meaning "entrusted", or with the Hebrew word "matmon", meaning "treasure". It is also used in Hebrew as a word for "money" - ממון.
The Greek word for "Mammon", mamonas, occurs in the Sermon on the Mount (Matthew vi 24) and in the parable of the Unjust Steward (Luke xvi 9-13). The Authorised Version keeps the Syriac word. Wycliffe uses "richessis". Other scholars derive Mammon from Phoenician "mommon", benefit.
The word is used in contemporary language with the same meaning in at least Finnish (mammona) and Polish (mamona). This is extremely likely to be a result of biblical influence. |
| Someone
User ID: 593
7/19/2005 12:28 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Or, probably not....
. |
| .
User ID: 16081
7/25/2005 11:02 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
China´s yuan revaluation starts another stage of US dollar demise worldwide
07/23/2005 17:19
Other Asian states will gradually reduce the purchase of American dollars after the start of the yuan-revaluating process
China announced the start of the process to revaluate the yuan the day before yesterday. Both international financial organizations and central trade partners, the USA, EU and Japan, first and foremost, were eagerly waiting for this news from the Chinese administration for many years. American, European and Japanese financiers believed that the underestimated rate of the Chinese national currency allowed China to artificially reduce production costs and the costs of its export products. China´s decision apparently became a signal for other countries of South-East Asia to launch freer currency policies. Malaysia followed China´s example and announced about the extension of the corridor for the national currency floating rate just an hour later.
It stands the reason that China did not announce the unique revaluation of its national currency. According to experts´ estimates, the yuan is currently 40 percent more expensive than the dollar. China dropped the national currency´s peg against the US dollar. Form now on, the cost of the Chinese currency will be based on correlations with the cost of other world leading currencies: the US dollar, first and foremost, as well as the euro, the yen and several others.
The decision, however, resulted in the change of the yuan rate from 8.265 yuans per dollar to 8.11 yuans per one American dollar. The US dollar rate subsequently suffered a considerable reduction globally, while other world currencies improved their positions vs. the USD.
Other Asian states will gradually reduce the purchase of American dollars after the start of the yuan-revaluating process: there will be no need for them to conduct interventions on currency markets to cheapen their own currencies. The demand on the dollar will drop in the world; the same will happen with American state bonds, in which central banks of Asian states invest billions of dollars.
If other Asian countries support China and Malaysia, the dollar demise will continue worldwide, analysts believe. It is noteworthy that the US economy will only benefit from it, if it does not cause a sudden growth of the inflation rate in the States, of course. Analysts are certain, though, that the yuan revaluation will be followed with the decline of the US dollar rate on world markets.
As for China, even the gradual revaluation of the national currency will be a serious blow on its economy. The competitive ability of Chinese goods will inevitably slide on foreign markets. In the event the Chinese national currency is revalued by 40 percent, according to USA´s expectations, the Chinese market will find itself defenseless for import goods, whereas numerous small companies will be ruined in China. It is worth mentioning that the level of unemployment is rather high in China (about nine percept of the able-bodies citizens). The revaluation process may take years, though, for Chinese financiers are perfectly aware of the risk and its price. On the other hand, the Chinese currency has very good chances to become one of the largest reserve currencies in the world and even make competition for both dollar and euro.
As for Russia, the decision of Chinese authorities has slightly increased the ruble rate against the dollar over the recent two days. Nevertheless, Russia´s Minister for Finances, Aleksey Kudrin, approved China´s decision to launch the revaluation process for its national currency. It is not surprising at all: China is one of the largest trade partners of Russia. Russia suffers from the ongoing inundation of cheap Chinese goods on the home market because of the growing ruble. If the revaluation process continues in China, the Russian ruble and Russian products will become more competitive at least on the Russian market. |
| Anonymous Coward
User ID: 15928
7/25/2005 11:30 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
 |
| Duncan Kunz 
The Debunker King
User ID: 13705
7/25/2005 11:43 PM
 | | Re: Watch, Its happening ,the global economic change. | Quote |
About two years ago on this same website, I saw the same series of posts about how everything´s going to go down in flames Real Soon Now -- and of course, it didn´t.
I´ve been listening to people talk Gloom ´n´ Doom since the mid-eighties; and so far, no one´s ever been right. Interestingly enough, none of the woowoos ever saw the Internet bubble pop in early 2001, nor, of course, did anyone foresee the September 11 attacks and its fallout.
I´ve made a fair pile of change using just a simple 401(k) retirement plan, and I´d be willing to bet that, five years from now, we´ll see the same doomers quacking how the market´s going to hell in a handbasket Real Soon Now -- and there will be the usual gang of naifs who will buy into it.
But I won´t.
Those western imperialist warmongers beat us to the Moon. Damn! |
| .
User ID: 2194
7/27/2005 10:26 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Home Builder ´Babies´ / San Diego / Yuan
Richard Russell
Dow Theory Letters
Jul 26, 2005
Extracted from the July 25, 2005 edition of Richard´s Remarks
I´ve been saying, and I´ll repeat it -- the US economy is levitating on the back of the housing boom, a boom which some grouches refer to as "the housing bubble." I follow eight of the major home-building companies on a daily (actually hourly) basis, and I want to show you charts of two of these housing biggies below. I don´t know whether the home-building stocks will provide us with the first hints of a "pin-prick" into the housing bubble, but as long as the home-building stocks work higher, there´s a good chance that the housing picture will remain as the mainstay of the US economy.
Below you see a daily chart of KB home, one of the largest home-builders in the nation. The rising blue trendline tells us that KBH has been heading skyward since May. RSI shows that the stock is overbought, and the histograms are staying in the blue -- but barely. The 34-day rate-of-change at the bottom of the chart has been moving sideways, which is actually OK. The rate of change at 23.8, however, is very high and probably cannot be sustained.
Let´s look at a second major home-builder, Lennar Corp. Here we see the stock holding just above its rising trendline. RSI is turning down from an overbought 70 level, and the histograms have just turned down and are just slightly below zero. The 34-day rate-of-change has definitely turned down, and this means that LEN´s peak of (rising) momentum has passed. The expectation is that LEN will break below its blue rising trendline. Thus, we see the first hints of a turn in this typical large home-building stock. We´ll keep our eyes on these babies -- their action is of utmost importance to the US economy.
Russell Comments -- My father was a construction (civil) engineer prior to the Great Depression -- he turned to management during the depression, because after 1929 construction came to a total, dead standstill.
My father once told me, "Dick, I never knew a builder who didn´t end up broke. They always get most enthusiastic at the top. When the Depression came, all the builders went broke, but the buildings they put up stayed up. Later, those buildings were taken over and refinanced, and many of the "refinancers" made the real money.
I´m reminded of San Diego today. This beautiful city is technically broke. Its political structure has fallen apart. It´s mayor has quit. It´s new temporary mayor is now heading for jail. The city owes its pension fund for city workers over $1.4 billion, and the city´s credit rating has collapsed. San Diego may have to declare bankruptcy. But even if SD does go bankrupt, physically, the city will remain the same. All the new buildings (and there are thousands of them) will remain standing, the weather will be the same great weather, the lovely beaches will still be here.
San Diegans don´t seem at all worried about the city´s possible bankruptcy. "It´s the lousy politicians," they say, "They got us into this. Let them figure it out." And all those new building stand shimmering in the glorious sunlight of San Diego. You see, that´s the beauty of a building boom. The builders and the buyers may end up in bankruptcy -- but the buildings get built. And they stay built no matter what the incompetent politicians or the debt-laden economy does.
The revaluation. Ah, finally, the yuan will be pegged to a basket of currencies. Nobody knows what that basket will consist of, and the basket may even be largely dollars. The basket of currencies could move up or down, so, ironically, we don´t know whether this new peg will actually render the yuan higher or lower against the dollar (Gad, suppose the yuan ends up even lower compared with the dollar?). It´s not clear whether the Chinese will reveal the make-up of the new basket of currencies, but clever FOREX traders will figure it out via regression analysis.
Here´s my own opinion regarding what the Chinese are doing. At this early stage of the game, the Chinese are being careful to avoid a fight with the US. First of all, the Chinese are still trying to buy the Unocal oil company. And secondly, there are probably a lot of other US properties that the Chinese would like to buy. Therefore, it would hardly serve their purpose to play hard-ball with the US at this time. Note that the Chinese are emphasizing that all their transactions are economic, and business-oriented -- NOT political.
One way of raising US tempers (and fears) would be to immediately start cutting back on purchases of US bills and bonds, thereby igniting the US´s worst fear, which is sharply rising US interest rates. So I believe the Chinese will hold off a while on doing anything that will arouse US fears and anger.
I believe that the Bush administration is now in the process of trying to decide whether it should view China as a friendly competitor or as a rising threat. I don´t think they have decided yet. It´s going to take time.
more follows for subscribers...
Richard Russell
Dow Theory Letters
© Copyright 2005 Dow Theory Letters, Inc.
Richard Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.
He offers a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $250, tax deductible if ordered through your business).
321gold Inc |
| .
User ID: 1153
7/28/2005 4:23 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Read the whole thread here
[link to www.godlikeproductions.com]
wow! collapse of the world...
“The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops.”
-- The Economist
I sold my home three weeks ago anticipating what I believe will be “Economic Armageddon” in the United States. It wasn’t an easy thing to do. My wife and I have lived in the same home for 25 years, raised both of our children there, and owned the property outright without any loans or mortgage. The house was paid for in “sweat-equity”, that is, by wielding a shovel day-in and day-out in my one-man landscape business. I don’t say that for sympathy, but to illustrate that we played by the rules, worked hard, paid our taxes, and took advantage of the American dream of home-ownership.
All that has changed.
I sold my home for one reason: George W. Bush. He and his protégé at the Federal Reserve have submerged the country into a morass of “unsustainable” debt, disrupted the nation’s economic equilibrium and thrust us towards fiscal disaster. They’ve also generated a humongous housing bubble through their irresponsible and self-serving manipulation of interest rates.
The facts are astonishing.
The current housing bubble is “larger than the global stock market bubble in the late 1990s (an increase over five years of 80% of GDP) or America´s stock market bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.” (The Economist, June 16, 2005)
The banks have lowered the standards for home loans to such an extent that the traditional loan of 20% down and a fixed interest rate is virtually a thing of the past. Instead, those conservative practices have been replaced with “creative financing” schemes that put the entire housing market at risk.
Consider this: In 2004 “one-fourth of all home-buyers -- including 42% of first-time buyers -- made no down payment.” (New York Times, July 7, 2005)
No down payment?!
Sorry, but if a buyer can’t come up with at least $5,000 dollars for a down payment, he shouldn’t qualify for a home loan.
Equally troubling is the fact that “nearly one third of all new mortgages this year call for interest-only payments (in California, its almost half)” (NY Times) This tells us that a large number of new buyers can barely make their payments, but are gambling that their property value will go up enough to justify their investment. This is “equity roulette.” a shell game that anticipates that salaries will go up while interest rates stay low.
Is that a reasonable judgment?
No, Greenspan has said that he will continue to ratchet up interest rates to head off inflation. This means that an economic slowdown is a near certainty. Remember, “class-warrior” Alan Greenspan lowered the prime rate to a ridiculously low 1% in 2002 to keep the economy humming along while $300 billion was sluiced into Bush’s “preemptive” war in Iraq and while the tax cuts were siphoning the last borrowed farthing out of the public coffers. The Bush tax cuts transferred an average of $400 billion dollars per year into the pockets of America’s plutocrats. Now, the country is flat broke and Greenspan will have to “incrementally” raise rates to stabilize the sagging dollar. This means a sluggish economy for most of us and doomsday for over-extended homeowners.
Greenspan assumed he could carry out his plan without too much unnecessary carnage. Unfortunately, gluttonous mortgage lenders have lowered long-term loans while the prime rate continues to go up. The banks, it seems, are addicted to the “cash cow” of shaky lending and are providing even riskier loans to new applicants. This has upset the Fed master’s strategy for a “soft landing” and Greenspan has begun feverishly issuing warnings about an inevitable “adjustment” when the market bogs down. The bottom line is that the housing bubble is getting bigger by the day and increasing the potential for catastrophe.
The current problem is compounded by the dramatic surge of speculation in the housing market. As The Economist says, “A study by the National Association of Realtors (NAR) found that 23% of all American houses bought in 2004 were for investment, not owner-occupation. Another 13% were bought as second homes. Investors are prepared to buy houses they will rent out at a loss; just because they think prices will keep rising—the very definition of a financial bubble.”
What will happen to these “speculative” buyers when the market “flattens out” or the economy takes a sudden dip?
And, what will happen to the US economy when the jobs that depend on new home sales vanish overnight?
“Over the past four years, consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking.” (The Economist)
“Two out of every five” private sector jobs are now entirely dependent on an industry that is built on pure quicksand.
So, why would banks foolishly loan money to people who can’t even scrap together a few thousand dollars for a down payment or who can scarcely meet their “interest-only” obligations?
The reason is simple: because they are not the one’s taking the risk. Mortgage loans are acquired by investment banks and chopped up into various securities where they are sold in mutual funds, hedge funds and pension funds etc. To some extent, this takes the lenders off the hook, but it also means that the shock to the system will be much more widespread when the day of reckoning finally arrives. If we encounter a major glitch in the economy the shock waves will be felt throughout the world. “Investors now hold $4.6 trillion in mortgage backed securities. That’s more than the outstanding value of the US Treasuries.” (NY Times) Think about it.
Shaky lending, interest-only loans, no down payments, a US government that is $8 trillion in debt due to Washington’s profligate spending, and a “ticking-time bomb” of adjustable-rate mortgages that will reset within three years; the table is set for a disaster of Biblical proportions. If we hit a bump in the economic road ahead (rising gas prices? recession?) the “Land of the free” will be knee deep in bankruptcies and foreclosures. We’ll all be fighting for a soft spot under the freeway onramp.
The fatuous Greenspan believes that all this can be avoided by regulating the money supply.
He’s dead wrong, and I bet my house on it.
Note, the current dilemma could have been avoided if Greenspan had incrementally raised rates as the bubble began to appear. Instead he lowered rates to facilitate Bush’s war in Iraq. It was purely a political decision that “postponed” the economic pain of the conflict and allowed the Bush administration to shift the cost of the war onto future generations.
Consider, also, how Greenspan paved the way for the budget-busting tax cuts (which he enthusiastically approved) and how they have increased America’s debt by $3 trillion. This is real money that American workers will eventually have to pay back in the form of taxes and a higher cost of living. This “class loyalty” is strikingly at odds with his philosophy as a young man when he said, “Deficit spending is simply a scheme for the confiscation of wealth.”
So it is. And the $3 trillion dollars that evaporated on Greenspan’s watch was in fact stolen from the American people while the Fed chief concealed the crime behind the smokescreen of low-interest rates. In the final analysis, Greenspan will be seen as a greater traitor than Bush.
Shadow
User ID: 1315
7/27/2005
12:43 pm EDT
Re: wow! collapse of the world...
Wierd, was just reading this article...
>>“Over the past four years, consumer spending and residential construction have together accounted for 90% of the total growth in GDP.<<
90%
And credit card payments are set to double, add that to the new BK laws, what do you get? The straw that broke the camel´s back. |
| .
User ID: 1153
7/28/2005 4:26 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
With thanks to CAFP,,
read the whole article here
[link to www.godlikeproductions.com]
Issues $$$$ to ponder. Solutions to $$ problem?? check it out.
Issues $$$$ to ponder.
FYI
[Source: AP, CNN/Money, Bloomberg, Washington Post, 7/25/05. New York/Washington]
SOME PEOPLE CALL THIS A RECOVERY.
* LAYOFFS INCREASING. Associated Press notes that economy-watchers are worried that the 110,000 layoffs in June—the highest monthly total in 17 months—may foreshadow even bigger trouble ahead. "I do think we may be seeing a tipping point in the economic cycle that these big layoffs are flagging," said the chief executive of Challenger, Gray and Christmas. "I think it´s a sign that leaks are breaking out."
* WORKERS ARE CASHING OUT THEIR 401(k)s, WHEN THEY CHANGE JOBS instead of holding onto retirement savings. A study by Hewitt Associates showed that 45% of 200,000 individuals participating in 401(k) plans opted out of the retirement plan after leaving their jobs, supposedly because they felt a need to spend the money now. Could it be that they needed to eat?
* MANIC SPECULATORS SWOON OVER RECORD HOUSING SALES in June, which increased to an annual rate of 7.33 million, surpassing April´s record of 7.18 million. The median home sales price rose to $219,000 from $206,000 in May. While the chief economist at Mesirow Financial Inc. in Chicago raved that "the red-hot housing market just got hotter," a nervous Washington Post reported on July 25 that the District of Columbia housing market appears to be "cooling off." But a Long & Foster real estate agent in Potomac, Maryland, in Metropolitan Washington, quickly cautioned, "I don´t think we should raise the red flags and send up the alarms yet.... We don´t have enough data to definitively say the expansion has ended."
[Source: Alan Abelson, July 25, 2005, Barron´s]
July 24—REAL ESTATE HAS ACCOUNTED FOR 70% OF THE RISE IN U.S. HOUSEHOLD NET WORTH SINCE 2001, and over 40% of the private- sector jobs created since 2001 have been housing related, according to a recent study by Merrill Lynch economist David Rosenberg. Calling the housing market "over-leveraged," the study says that the subprime market has accounted for 28% of new mortgage funding in the past six months, versus 5% five years ago; that an estimated 42% of first-time buyers made no down payment on their home purchases last year; in the hottest price areas, adjustable-rate mortgages (ARMs) now account for over 50% of new mortgage originations; over 60% of new mortgage loans in California this year have been interest-only loans or option ARMs; and the Fed´s loan-officer survey shows that mortgage standards "have eased a massive 13 percentage points" in the past three years.
Under the heading "affordability stretched," Rosenberg notes: The FDIC reports that 38 of 50 states in the past year have seen home-prices increase far faster than personal incomes, and grew 6.7% faster nationwide; from 1955 to 1995, home prices rose with inflation, or 0% in real terms, while since 1996, home values have risen 45% in real terms, creating a $5 trillion increase in "housing-bubble wealth;" over a third of homeowners are spending over a third of their income on monthly mortgage payments, and 12% are devoting over half their income; homeowner affordability is now at a 13-year low and the total household debt-service ratio in the first quarter hit a peak 13.4%; housing starts at two million units a year are now outpacing the 1.6 million of new household formations, with the excess supply suggesting speculative buying.
Under the heading "speculation rampant," the study says: National Association of Realtors data show that 23% of the home sales in the last year "were ´investor´ (read: speculative) based," and another 13% were second properties; another proxy for speculative buying, units sold but not yet started, are up 47% year over year, a record high, and nearly one in four Americans think it is a good time to buy because its a good investment and/or prices will continue to appreciate; Rosenberg calculates that a decline from double-digit growth to no growth would trim at least 1% from GDP next year.
On the latter point, Abelson noted that such a "drastic change" in housing values "would reverberate through the length and breadth of the economy, and its real effects would be as profound as they are unfathomable."
Good thing there´s no real estate bubble...
[Source: July 25 CrainsDetroti.com, wires; EIR]
HEDGE FUND VULTURES ARE INVESTING IN AUTO SUPPLIERS INDUSTRY, AND WILL CREATE EVEN GREATER DAMAGE. The $1 trillion hedge fund sector now plans to parasitise the auto suppliers industry. The July 25 CrainsDetroit.com reports, "A new type of investor smells opportunity in the struggling auto supply industry, one willing to put money at risk but expecting quick and high returns: hedge funds." The hedge funds are interested in these transactions to make quick cash. This would accelerate the shrinkage of auto suppliers, which has already been battered by the banks and the massive production shutdowns and credit downgrades at GM and Ford.
The Troy, Michigan-based Intermet, which owns and operates nine iron factories and eight magnesium and die-cast plants, is under siege from the hedge funds. On Sept. 29, 2004, Intermet filed for bankruptcy protection. Now, two hedge funds—R2 Investments and Stanfield Capital Partners LLC—have offered to help bring Intermet out of bankruptcy by investing $75 million. The catch? The hedge funds would obtain a majority of Intermet´s new stock. The hedge funds would assist in stripping the assets of Intermet, and then likely sell off the remaining company, hoping that Intermet´s bonds appreciate somewhat, so that it can make a profit on selling them, too.
The Dearborn, Michigan-based Meridian, a major parts supplier which filed for bankruptcy this year, is another example. Soros Fund Management LLC, the vehicle of George Soros, and Davidson Kempner Advisors, Inc., another leading hedge fund, have bought up some of Meridian´s second-tier secured debt. According to Dave Eberly, managing director of Beringea LLC, hedge funds are also aggressively buying up some of the auto suppliers´ accounts receivables, and pressuring customers on price.
Over the first six months of this year, Standard & Poor´s credit rating service downgraded 25 auto suppliers, putting them in precarious condition. The hedge funds would invest and play with the auto suppliers´ debt the same way that the vulture funds did with Argentina´s in the past few years. This underscores the urgency of LaRouche´s solution to retool the auto industry´s advanced machine-tooling capacity for massive infrastructure production.
Concerned Aussie from Perth
User ID: 4080
7/27/2005
11:00 am EDT
Re: $$$$$$$$$$$$$$$$$$$$
Don´t forget Social Security. It´s not so hard i guess with all this "terror" going on.
FYI
This article appears in the July 29, 2005 issue of Executive Intelligence Review.
Interview: Yasmir Fariña Morales
Say ´No´ to Privatized Pensions
Chilean Unionist Advises U.S. |
| Anonymous Coward
User ID: 17247
7/28/2005 4:31 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
was that DK posting up there???? |
| .
User ID: 1536
7/30/2005 10:18 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
It´s a Scary New World
July 27, 2005
Richard Daughty, ...the angriest guy in economics
The Mogambo Guru
The big, big, big, BIG, BIGBIGBIG news is, of course, is that China has lowered the peg of the Chinese yuan to the dollar by 2.1% . As David Tribble commented, "From this point forward, the United States Federal Reserve no longer matters. The balance of power has shifted from the West to the East." He is right, as the new currency regime is a "managed float" of currencies, and the people managing the float are the Chinese, so they run things from now on. It´s a scary new world, and I am sure that you are, like I am, in the throes of hysterical paroxysms of fear, characterized by infantile screaming, crying, begging, moaning, and random bursts of gunfire at unseen enemies lurking in menacing, murky shadows.
At the same time, Malaysia also announced it would no longer tie their currency, the Ringgit, to our dollar, either. Being a xenophobic paranoid lunatic who sees conspiracy everywhere, I note with alarm that both of these peoples with their distinctly Asian features look vaguely similar and may be related, they both have charming sing-song languages that I can´t make heads or tails of, and they both eat really weird food, as far as I can tell from watching old documentaries and older movies on TV . But apparently this Malaysian currency untying does not surprise Chuck Butler, president of EverBank, and who is a guy that they say knows what in the hell he´s talking about when it comes to this kind of currency stuff. Putting all this wisdom and education to work, he noted that the Chinese de-pegging would "lead to other currencies in the region to allow their currencies to gain vs. the dollar."
Aside from the problems of one more large group ganging up on us Americans (as if having all the Muslims in the world and damned near everybody else against us is not enough), there is no more permanent peg at all, although the government will allow a maximum movement of 0.3% per day . 0.3? Like you, at first I said "A third of a lousy percent? That doesn´t sound like much!" But it is! This percentage move is every (pause) freaking (pause) DAY! It is like the little boy who killed his mother and father for twenty-five cents and explained "You know how it is, judge; two bits here, two bits there, it adds up!" It adds up!
My horror lies in the fact that after a few months of this "two bits here and two bits there", and the dollar could be down by fifty percent! There is a lot of work done through the last few years that suggests that the Chinese yuan is overvalued by somewhere around 40%, so overshooting that overvaluation is not inconceivable to me.
If you notice that you are suddenly bathed in a cold chill, then you have passed a milestone in your quest for Total Mogambo Enlightenment (TME), as you understand that a giant disturbance has occurred in the cosmic continuum, and things are not going to be good.
Or perhaps you heard a bell, as Peter Schiff of Euro Pacific Capital suggests when he said "The old saying ´no one rings a bell,´ certainly doesn´t apply today, as China rang the ´mother of all bells.´ So deafening was its sound, that its vibrations will be felt around the world. Nowhere will the amplitude of these waves be more pronounced than in the United States."
You can tell what a class-act Mr. Schiff is, because he calmly lays it out, whereas I was unable to contain my hysterical fear, and am currently hiding under the bed, alternatively crying like a crybaby wuss and vowing blood revenge on all the guys who were responsible for the Federal Reserve destroying our money, which is pretty much everybody in any government job in any government around the world, and all the clueless, moronic teachers who have infested our schools for the last fifty years or so, and the equally clueless media "journalists" who cannot even comprehend what their damned "freedom of the press" function is, and I suddenly realize to my dismay that I don´t have quite enough ammo to do the job, and now I am even MORE depressed.
Immediately (and this is the part that ought to make your trigger finger twitch involuntarily and your heart slam-dance against your ribcage), oil, precious, precious oil, which is priced in dollars, becomes instantly 2.1% cheaper for the Chinese! The price to us is (big sigh of relief!) unchanged. So far. Note the caveat "so far", which is very meaningful to those of you with sharp eyes.
But the oil exporters have to be looking at this, too, and figuring that getting paid in dollars is really, really, really stupid if they are going to turn around and buy something from the Chinese . If they do intend to buy some Chinese products (and who doesn´t?), then petroleum exporters just lost 2.1% of their buying power! In one day! Remember, these oil production companies are in the business of making profits, currently denominated in dollars, by pumping and selling oil. Then, in the natural course of events (and this is the best part!), they will take some of their new dollars and spend them on a few necessities and some other really neat stuff ("Did you see where Abdul has one of those fancy new satellite dishes with the optional polarized gaflugelizer?"). But when the wife gets to the store, she finds that the prices of everything are 2.1% higher! And getting higher by 0.3% per freaking day!
So she runs home and come storming into the room, throwing the bric-a-brac at you and complaining that she needs more money, and you stammer that you don´t have any money because you just put in that new satellite dish, and then she starts yelling about THAT, too! So it would take a real dimwit to NOT run back to the office and raise the dollar-price of your oil, just so you can have a little peace and quiet at home without the wife screeching and whining about how I have to raise my prices to get some MORE damn money into this house, because the damned dollars don´t buy squat anymore, and I tell her to shut the hell up because I have had it up to HERE with her stupidly saying she wants (using a high-pitched, snotty, mocking tone) "more money", but what she REALLY means, but she is just too damn stupid to understand the basic concept, is that she wants more "buying power"! And then she coldly looks me in the eye and calmly says that perhaps it is something like, for example, how she SAYS she wants to kill me, and how she is GOING to kill me one day real soon, but what she REALLY means is that she just wants to see me dead and gone. I laugh in her stupid face and tell her no, it is not like that at all, you hateful old bat! Then, out of nowhere, she got into some little snit for no damned reason at all, and stomped off. Just like (insert footage of fingers snapping) that!
But this is not about my life in hell, but rather about that, as Americans, it will just get worse and worse and worse, as Chinese imports will immediately cost 2.1% dollars more, because the dollar is worth 2.1% in buying power, UNLESS (and this is the crucial part) somebody along the way agrees to make less profit, which is bad for the company, or otherwise cuts expenses. Both of these ideas will work, but crap for somebody else, because all of those lost profits or cuts in expenses were somebody else´s income (shareholders or suppliers), and now THEY are suffering a loss of income! There is nothing good about price inflation. Nothing. It is always bad news. Always.
So why have we jerk-wad American bozos allowed this? Occam´s Razor mandates that we find the simplest answer. Thus I loudly declare that we, as a nation, are really, really stupid. A lot like me, personally, but without the crippling emotional problems. But perhaps there is something more to this whole thing, something in the line of, ummm, destiny, as Bill Bonner of the Daily Reckoning perhaps suggests when he observes "An empire has to figure out a way to exhaust or destroy itself in order to make room for the next empire." And that is exactly what we have done. We have destroyed ourselves so that the Chinese empire can assume dominance, continuing the universal cosmic dance of birth, death and renewal.
Out of the corner of my eye I can see Peter Schiff is bored with listening to me and this metaphysical philosophy, and is furtively looking around for a discreet way out . I figure "I´ll teach him!" I spin around, point my finger at him, and say, "So, Mr. Schiff, what are your final conclusions?" Without missing a beat, the guy jumps up, snatches the microphone out of my hand, and, ignoring the audience cheering him on and urging him to use it to beat the hell out of me, says, "In conclusion, July 21, 2005 will be another date likely to live in infamy. This time the aggressor is China not Japan, and the bombs are purely economic. Though there will be no immediate loss of life, and no American retaliation, the financial damages will be devastating. History will remember this date as the beginning of Chinese independence, and the beginning of the end of America´s ability to depend on the Chinese."
So I confidently predict, without fear of contradiction, that the yuan will continue to gain strength over the long run. It will be, of course, in fits and starts so that the Chinese can "manage" the currency markets so that the local boys will profit from the ups and downs of the currencies, and Wall Street, the Federal Reserve and government will "manage" the stock and bond markets in the USA so that this whole stock / bond / housing idiocy will not implode, and at the same time allow American local boys to make profits from the manipulation. The whole cost will be shifted onto the average American citizens, paid for by suffering a huge, huge, decline in their standard of living, and the wrenching societal dislocations that will result, as the coming years and decades roll by.
And this will be peachy with China, as their strong currency makes imports cheap! Thus, they can import a lot of raw materials to the emerging Chinese consumer, whose average wage is increasing at ten percent a year, and who is a-hungering for the Promised Land of up-scale goods and downright luxuries.
So, and this is the important part for those of you who are whining, "When the hell is he going to get to the damned point?", with a strengthening currency they will import deflation into China, which will offset a lot of the monetary inflation . The downside is for everybody else to gag on, because when the Chinese import deflation, they simultaneously export inflation. So what will we be mainly importing from China? Inflation! Hahahaha!
Paul Tustain of GalMarley.com provides the perfect illustration of how inflation is such a horrid thing. He says he "recently wound up the estate of a great aunt, who died aged 95 after a 35 year retirement." She retired in 1969, and was fortunate enough to have a reliable pension, but where the monthly benefit was fixed at the day of retirement. So she received the same amount every month. Inflation made a mockery of the pension, as "by 2004 the total annual revenue from it failed to pay her local property taxes." In short, the poor woman suffered a continually declining standard of living, even though she had the exact same income, for every one of her 35 years of retirement, until it could not even pay the damned taxes on her house.
And speaking of inflation, the good news is that we will soon be blessed with the new John Williams´ "Shadow Government Statistics", which will begin publishing its own monthly index of consumer prices later this year, now that we can no longer trust the American government´s statistics at all. This ought to be really, really interesting!
To get us started, Mr. Williams posted this as of last Friday; "Yesterday morning´s report of 0.0% monthly CPI inflation (both seasonally adjusted and unadjusted) appears to have been a political fabrication, which was accomplished through the manipulation of reported energy prices. Here´s where the hanky-panky comes in. For example, official (CPI) seasonally-adjusted gasoline prices declined 1.2% in June after a 4.4% plunge in May. Further, June 2005 gasoline prices were up just 6.9% from June 2004. The reported gasoline inflation rates, however, are demonstrably shy of reality. One good surrogate for seasonally-adjusted changes in gasoline prices is seasonally-adjusted retail sales of gas stations, and the June retail sales numbers also were released yesterday morning."
And what did these independent statistics show? "Instead of down 1.2% for June, retail gasoline sales were up 1.9%; instead of down 4.4% in May, sales were down just 0.5% (revised from a 1.6% drop); instead of up 6.9% year-to-year, gasoline sales were up 16.2%!"
Mark L. is thinking along the same lines about this, and sent along a link and his comments. "Gas prices down 34%!" he writes. "This is just like the government; they tell me I can get gas for less than $1.60 a gallon, but then forget to tell me where I can buy it!"
Sure enough, he provided a link to the LeMetropole site, and there we find that Bill King has apparently heard about this crap, too, and says, "The PPI has gasoline station prices DOWN 34.4% y/y and DOWN 25% m/m! Is this a misprint?!? Orwell lives! " Hahahaha! He sure as hell does, Bill!
And there is a reason for that, too! Nobody ever told you the end of the story about the little boy who pointed out that the emperor was wearing no clothes. I will spare you the ugly details and vicious rumors, but unmarked black helicopters were involved, and there were FBI guys and CIA guys and NSA guys and Homeland Security guys everywhere, all bumping into each other, and there were state police and county sheriffs and city police, too, all bristling with their spiffy SWAT gear and dying for a chance to be heroes, and you never again heard of that damned kid saying anything about anyone´s clothes, real or not.
The most interesting thing, to me, was that Alan Greenspan is supposed to have said to Ron Paul, the only clear-thinking, hard-money guy in Congress, "Central banks have learned the lessons of fiat money." Now immediately you, like me, probably responded reflexively and shouted "You filthy lying bastard!" But perhaps we are being too hasty here. Nobody asked him WHAT they learned! And there, as Shakespeare said, is the rub.
I am deathly afraid that they think they learned something that is, in grim reality, very, very wrong . If they DID actually learn the lessons of fiat money, then central bankers would immediately stop that senseless, ceaseless crap of creating excess money and credit. But they are not stopping that, as I said, crap. All we see is more crap crap crap.
For example, Total Fed Credit went up again last week, this time by $4.3 billion. This takes them to a new, all-time record . So what is the lesson about fiat money that central banks have learned?
Almost all the other countries in the world are increasing their money supplies and driving interest rates into the toilet, too. So what lesson about fiat money have they learned?
Even more surprising was that Required Reserves in the banks dramatically dropped to $42.5 billion, down from $46 billion the week before. While it is not unprecedented for reserves to suddenly drop to these low, low levels, it is surprising, nonetheless. Now, I will stand begrudgingly to my feet and under relentless cross-examination admit that the idea of requiring banks to hold reserves is an anachronism. In an age of purely fiat currency, there is no catastrophe that can befall the banks that the Federal Reserve could not immediately "fix" by simply creating as much money as needed to completely make up any loss or shortfall . So the whole exercise of keeping reserves is almost a charming, but useless, relic from the old days. And the way that reserves have diminished to almost non-existent levels only proves that the Federal Reserve agrees with me 100%.
But what IS important is that this has suddenly freed up a lot of money all over the damn place, as the banks suddenly find that they have $3.5 billion of "freed-up" money that they can now lend! Compounded by the fractional-reserve multiplier, which is now running at almost 100, that means that we have a brand-new $350 billion in lending power just sitting there in the banks! A potential $350 billion boost to the money supply!
So, what lesson about fiat money did the central bankers learn?
Perhaps coincidentally, alert reader Rich R. sent an interesting quote from a letter that he recently received from his credit union, Bethpage, which shows in black and white that the banks are bragging about it! "As a result of a federal regulation regarding reserve requirements," the letter begins, "Bethpage will change the way it reports your Checking account balance as part of an aggregate total to the Federal Reserve Bank (FRB). Bethpage will now categorize checking accounts into checking and savings sub-accounts for regulatory account purposes. Bethpage may periodically transfer funds between these two sub-accounts, enabling us to substantially lower our reserve requirement balance at the FRB and increase the amount of funds available for loans and investments, thereby allowing us to better serve our members." Hahahaha! To better serve their members? Hahahaha! Making money for themselves, yes, but better serving their members? Hahahaha!
Wiping the tears of laughter from my eyes, I think I know what lesson about fiat money the central bankers think they have learned. And, as I predicted, it was the wrong lesson. And, suddenly stopping my laughing, I confidently predict that we will pay a huge price for allowing lying, manipulative idiots like Alan Greenspan and Ben Bernanke to seize control of our banks and money.
Larry Edelson says that while people think CNOOC (The Chinese National Offshore Oil Company) wants to buy Unocal because the Chinese want to secure oil, that is only part of the story. The lowly truth is that it is a screaming bargain. "Two years ago, when oil was trading at much lower levels, Unocal´s reserves, based on the price-per-barrel of crude, were valued at $64 billion. But the total value of Unocal´s shares was just $11.38 billion. So, in effect, by buying its shares, you could have bought its reserves for the equivalent of just 14.8 cents on the dollar." Remember, this was two years ago.
Now, we fast-forward to today, where it gets even better! Mr. Edelson takes up the story and says that he figures that "Unocal´s reserves are at $102 billion. So you can buy the reserves for a puny 9.5 cents on the dollar." Hahahaha!
But CNOOC trying to buy all the oil companies is nothing new, as I gather from Larry, and I call him Larry, even though he hates it, only because he is not here to make me stop. He writes "In Angola, China´s Sinopec purchased a 50% interest in offshore oil fields. In Sudan, CNPC has expanded oil production in the southern oil fields of the country, cutting trade deals with the Sudanese government. In Iran, Chinese oil and gas companies have signed several contracts to co-produce oil and natural gas. In Saudi Arabia, Sinopec is exploring and developing natural gas and oil in the Rub al-Khali desert. In Central Asia, Chinese oil firms have purchased major interests in Uzbekistan, Kazakhstan and Azerbaijan, including construction of a 1,860-mile oil pipeline from the Caspian Sea to western China. In Australia, CNOOC owns a stake in a natural gas project, co-operated by Chevron. In Venezuela and Brazil, deals in Venezuela´s Orinoco Basin and with Brazil´s Petrobras. In Canada, PetroChina, Sinopec and CNOOC signed deals for shares of Alberta´s oil sands and for a pipeline to the Pacific coast, for transport via tanker to China."
And, now that they have the gas, all they need is a car to put it in! Then we can all pile into it, take a nice drive down to a noisy bar, get really drunk and rowdy, maybe putting "the moves" on some ugly women . Perhaps to that end, a Chinese outfit just bought Rover, the last major car maker in England.
So, if you want to know where $700 billion a year in trade deficits go? It is being used to let the Chinese buy the world . It´s that old Jeffersonian prediction that those who engage in monetary stupidity will end up homeless and ruined in their own country.
Perhaps adding impetus to the Chinese desire for oil is the news out of China´s State Electricity Dispatch that this summer will be a really hot one, and it will come at the same time as China´s worst energy shortfall in 20 years. They don´t actually say it, but I figure that the energy shortfall is mostly due to the Chinese manufacturing crap like crazy, but also because they are also buying and using energy-gobbling doo-dads like air conditioners, and refrigerators, and dishwashers, and all the rest of that kind of stuff . I mean, they have been building power plants like crazy for years and years, and the situation is the worst in twenty freaking years? It can only mean that demand is outstripping exponentially-increasing supply!
Justice Litle, the energy expert at the Daily Reckoning, sees me hanging out here all alone with this Chinese energy-usage idea, and takes pity on me, and in my defense says to the bullies who are always picking on me that "In China alone, electricity demand is 150% higher right now than it was when China first started to boom, back in 1980. Last year, over 6,400 factories in China had to shut down because they didn´t have enough electricity to run their machinery. Another 10,000 manufacturers had to ration power."
And it is not just the Chinese, either! Mr. Litle notes that "Demand for electricity is continuing to soar worldwide. Worldwide electricity demand is expected to explode by another 85% before the year 2020, faster than demand for any other kind of energy." Almost double in fifteen short years? Ouch!
And somebody has the nerve and gall and arrogance to look me right in the eye and tell me that the price of oil will NOT go up and up and up and up and up and up and up and up and up? Hahahaha! Just because I am stupid and gullible, people think that I will believe EVERYTHING I hear! Hahahaha!
And, additionally, let´s not forget that if oil gets priced high enough, it suddenly becomes profitable to install expensive, extreme-extraction equipment on all those tapped-out, dried-up, capped-off oil wells in Texas and in that whole region, wells that still contain some residues of recoverable oil, but which cannot be pumped profitably now. And I can think of a few guys in power who would profit immensely from that!
This year, they expect that the median price for an existing home to rise 9.4% to $202,600. New-home prices are increasing 5.8% to $233,900. But, and you can believe this because your own government told you so, there is no bubble in housing. And even if the bubble DID burst, then the Fed again will again merely lower interest rates to more low, low, insanely-low levels to reflate the bubble, or create a new bubble in something else, or the Congress will do the same thing with tax-code tinkering. THAT is the lesson Americans, and the world, have learned.
From what I gather from reading the transcripts of Alan Greenspan´s testimony at the Congressional banking hearing, it was weird, as he seems to contradict himself sometimes. Maybe I am just being paranoid, but at Jesse´s Charts we read that maybe I am NOT being just paranoid, as they write "Perhaps our greatest concern is that the problem has been getting increasingly worse, and the best examination we can perform seems to indicate that the Federal Reserve and Treasury are employing most of their resources in masking the symptoms of the problem so as to avoid a panic." And I am sure that he is right, as Shoemakerconsulting.com gives us a little more education when they write, "History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible, to maintain their control over governments, by controlling money and its issuance."
Greenspan, for example, recently said that, in order to control inflation and sustain growth, it "will require the Federal Reserve to continue to remove monetary accommodation." Huh? Where in the hell did THAT come from? I never heard anybody, ever, say that growth in an economy is dependent on the removal of monetary accommodation! This is the exact OPPOSITE of their whole stupid neo-Keynesian philosophy, for God´s sake! You get growth when you PROVIDE monetary accommodation, you idiot! And it works! It produces growth! It also produces cancerous mal-investment, over-investment, a drop in savings (as people try and escape low bank deposit yields), bubbles, and, inevitably, an inflation in prices that matches the foregoing inflation in the growth of money and credit, ruining everything.
It is a sad, sad day when somebody as stupid as The Mogambo has to explain something so basic to the chairman of the Federal Reserve because he can´t get his own ridiculous theory right!
But maybe I am too hasty. As Julian Roberts of the Tiger Fund said, the American consumer may be "out of gas", being so far in debt already, and thus unable to borrow to buy more stuff. If so, then maybe lower interests will one day fail to do the trick. One guy who apparently thinks so is Peter Warburton, author of the book "Debt and Delusion," who said, "There is something big coming. It is the destruction of the economy at low rates. This is going to be the big surprise that the economy will go into a prolonged slump even at very low nominal interest rates."
Now, don´t know if Kelly K. Spors of the Wall Street Journal knows Julian Roberts or Peter Warburton or not, but she is certainly hip to our debt problems and how they just keep getting unbelievably worse and worse. The article itself reveals the extent of the problem. "The debt service ratio, the Federal Reserve´s estimate of the ratio of debt payments to after-tax income, hit 13.4% in the first quarter of this year, an all-time high since the Fed began tracking it in 1980. The financial obligations ratio, which adds automobile lease and rent payments, homeowners insurance and property-tax payments to the debt service ratio, was 18.45% last quarter, near the record high of 18.84% in late 2002. Total household debt grew 11.2% in 2004, the largest year-to-year increase since 1986." We´re not only up to our eyeballs in debt, but it is getting deeper!
In the same vein, Marshall Auerback of the PrudentBear.com site, has borrowed through the 2004 Financial Report of the United States Government. He notes, with his usual cool and unflappable style, like this doesn´t affect him at all, that "The table published in the Overall Perspective on page 11 shows an $11.1 trillion annual deterioration in the government´s net worth."
Eric J. Fry, who writes Daily Reckoning´s Rude Awakening column, notes that a lot of "Wall Street analysts have been rushing to issue ´Sell´ and ´Underperform´ ratings on various resource stocks. The stocks are ´fully valued,´ the analysts explain." Now if it was me that was breaking this news, I would begin by laughing at the idea, and then move on to naming names of the morons who have been issuing these recommendations so that you could look them up in the phone book, and give them a call at 2 a.m., and tell them that they are morons, and then go "Hahahaha!" before hanging up on them.
But Mr. Fry is too sophisticated for that, and merely says only "Maybe yes, maybe no . But we suspect these recent downgrades will seem ill- advised, when viewed from the 20-20 hindsight of July 2007 or 2008. In other words, we´d ignore the dubious advice to sell lowly-valued resource stocks in the middle of a resource-stock bull market."
Hahahaha! Selling cheap stocks into a bull market! Hahahaha! I laugh because I happen to be an expert on selling a stock too cheap, only to see it rocket higher and higher within an hour of me selling it. So I am also somewhat of an expert when I say "what morons!" But these analyst windbags still pull down the big money for nothing, just like the irritating Dick Grasso, who somehow got the NYSE to pay him about $190 million a year to strut around acting like a big shot, which comes out to about $800,000 per day! He says, in his own defense, that he is worth 800 grand a day! But after being ignominiously fired from the NYSE for his grotesque, grubby greed, everything at the NYSE is still running along just peachy, which maybe shows how little Mr. Grasso was REALLY worth.
But this is not about how over-paid clueless weenies with their eyes on your money are everywhere, but about us smelly proletariat vermin out here trying to make a little money by savvy investing, so that then maybe we can afford to slip out this dump in the middle of the night with the money and start a new life, trying to enjoy a little happiness in the last few precious years of our miserable lives. While Mr. Fry does not address this specifically, he does provide a clue on the savvy investing part when he says "To be a seller of resource stocks, the long-term investor must believe that the bull market is over. We do not. Nor do we believe that the long-term demand for energy products, base metals or most other resources will slow enough to trigger a long-term sell-off in resource stocks." So, if you are paying attention, like I know you are because you are as greedy as the rest of us, you doubtlessly noticed that the prices of commodities and resources are 1) in a bull market and 2) will continue to be in a bull market. So we have determined what asset will be going up.
The next part of the strategy is revealed when he says "To be sure, short-term volatility - sometimes wicked volatility - will nip at the heels of resource investors. But, we would be slow to interpret such periodic nuisances as reasons to abandon long-term investments in the sector." Nuisances? Man, that volatility thing is not a nuisance! It´s a series of buying opportunities! Dollar-cost averaging will wring profits out of the whole run, nuisances or not!
I see a couple of you have raised your hands to ask a question. Using my Mogambo Mind-Reading Powers (MMRP), I see that you want to know how this squares with the idea that China is growing too fast, and how its banks are a mess, and how this means that the boom in China can´t continue, and how that means that the boom in demand for commodities and resources stocks can´t go on much longer, either. Mr. Fry adroitly disposes of that argument when he says "We would also note that the price action in nearly every one of the world´s major commodities refutes the notion of a slowing Chinese economy. The prices of copper, iron ore, coal and oil are all hovering near all-time highs. Copper inventories on the London Metal Exchange have dropped 45 percent this year, down to their lowest level in 31 years. Somebody must be buying this stuff."
He does not mention that for the growth in China to stop would mean that there is no more pent-up demand in China, or anywhere else, and that, finally, everybody has enough television sets, and washing machines, and cars, and air conditioners, and snappy new duds. And while I am not an expert on China (although I have eaten a lot of Chinese food over the years), around MY neck of the woods demand is NEVER satisfied, and, as an example, even though we already HAVE a dishwasher, she wants a new one! Why? I don´t know, as I think that the strips of duct tape stuck over the rusty spots adds a really nice, bright metallic sheen to the whole kitchen! Snazzy!
Bill Bonner is casually walking by, and hears us talking about China. Off the top of his head, he comes up with a perfectly apt simile when he opines that "China is almost the exact opposite of the United States. If they are joined at the hip, commercially, it is strange beast they make. One works; the other eats. One saves; the other spends. One gets rich; the other gets poorer every day." Leaving me standing there with my mouth open at the unexpected profundity of it all, he walks off!!
Mr. Fry reaches out and, placing a finger under my chin, closes my mouth for me, and goes on to say, "The real problem is that the United States has lived beyond its means - enabled by the Fed, China, Wall Street, greed, fantasy, and imperial conceit. China can dump her deadbeat U.S. customers. It won´t be painless or easy, but there is plenty of ready need and purchasing power in Asia." So, once again I am in agreement with the estimable Mr. Fry, a point that I will be bringing up the next time somebody says to me "Shut up, Mogambo! You are always wrong about everything!"
And what can be done about it? And, eerily, while I am always loud and strident in my conviction that nothing CAN be done, Mr. Fry is seemingly agreeing with me again when he says "But here is no conceivable adjustment that can be made that will spare the United States a drop in living standards"
And in case you are in a casual conversation with somebody and they are not quite familiar with the phrase "a drop in living standards", then the Mogambo Desktop Reference Dictionary (MDRD) can be your salvation. Looking up "Living standards" and going down the subheads to "Drop in, defined", we read that it means "You get poorer."
From the Texas Hedge we read that "The adult citizens of China, all one billion of them, have recently been given the freedom to own gold", which we all already knew. But the new wrinkle is that they report "Now the government is actually encouraging them to purchase gold as a form of savings." And it all relates to the un-pegging of the dollar to the yuan. They write "As the Yuan strengthens against the Dollar and other currencies, gold becomes cheaper for the Chinese to buy. We have long known that the day of revaluation was coming, now that it is here, the light says ´green´ for gold."
How green is that light at the start of the dollar crisis? Well, Paul van Eeden says that "During the Mexican peso crisis in 1995 the price of gold in pesos doubled. When the yen fell in 1995 and 1996 the gold price in yen rose by 35%. In 1997 the gold price rose more than 40% in both Philippine pesos and Malaysian ringgits, 67% in Korean wons and more than 400% in Indonesian rupiahs. From 1999 to 2002 the gold price increased more than 40% in euros. We are currently in a US dollar bear market. The gold price has already increased by more than 60% in dollar terms and I expect it to increase another 75% or so before it´s all over."
An editorial in the Springfield News, by Representative Peter DeFazio, about how CAFTA (Central American Free Trade Agreement) if another NAFTA-like rip off that will plague us, pretty much sums it up for me when he writes, "The combined economic might of the five Central American countries is only $151 billion, about what the U.S. economy produces in five days. Even if every penny of these countries´ economies was devoted to buying U.S. goods, which isn´t going to happen, the impact would be insignificant in the $11 trillion U.S. economy. The bottom line is that CAFTA is not about creating U.S. jobs and exporting U.S. goods. It is about creating a favorable climate for multinational corporations to export U.S. jobs and use Central America to export goods back into the U.S." Well, maybe not back into the U.S., because if all the jobs are exported, what are we going to use for money to buy those things with?
So is this some idea to help the Central American countries? Obviously not. He notes that "The U.S. already has a trade deficit with the Central American countries of $1.6 billion, which will only grow if CAFTA is enacted."
So the countries affected by the proposed CAFTA legislation are already showing trade surpluses! What the hell is the problem that we need CAFTA? It probably has to do with China. Our whole problem is that American wages and costs are too high to allow us to compete with China. So, with typical Yankee know-how, we change the law to produce tax advantages to get our grubby hands on some cheap Central American labor! It reminds one of the old line about how "The machinery of capitalism is lubricated with the blood of the exploited workers."
Ugh.
***The Mogambo Sez: Addison Wiggin of the Daily Reckoning has some advice gleaned from technical analysis that is better than anything I could come up with. He writes, "Since the beginning of the Dollar Standard era, every time an ounce of gold could buy less than 10 barrels of oil, an investor would do well to buy gold. Today, an ounce of gold buys only seven barrels of oil. The message from the markets it clear: Buy gold."
And this devaluation of the dollar makes that analysis even more clear and compelling.
[link to www.321gold.com] |
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User ID: 1536
7/30/2005 10:35 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Bill Bonner is casually walking by, and hears us talking about China. Off the top of his head, he comes up with a perfectly apt simile when he opines that "China is almost the exact opposite of the United States. If they are joined at the hip, commercially, it is strange beast they make. One works; the other eats. One saves; the other spends. One gets rich; the other gets poorer every day." Leaving me standing there with my mouth open at the unexpected profundity of it all, he walks off!!
Mr. Fry reaches out and, placing a finger under my chin, closes my mouth for me, and goes on to say, "The real problem is that the United States has lived beyond its means - enabled by the Fed, China, Wall Street, greed, fantasy, and imperial conceit. China can dump her deadbeat U.S. customers. It won´t be painless or easy, but there is plenty of ready need and purchasing power in Asia." So, once again I am in agreement with the estimable Mr. Fry, a point that I will be bringing up the next time somebody says to me "Shut up, Mogambo! You are always wrong about everything!"
And what can be done about it? And, eerily, while I am always loud and strident in my conviction that nothing CAN be done, Mr. Fry is seemingly agreeing with me again when he says "But here is no conceivable adjustment that can be made that will spare the United States a drop in living standards"
And in case you are in a casual conversation with somebody and they are not quite familiar with the phrase "a drop in living standards", then the Mogambo Desktop Reference Dictionary (MDRD) can be your salvation. Looking up "Living standards" and going down the subheads to "Drop in, defined", we read that it means "You get poorer."
From the Texas Hedge we read that "The adult citizens of China, all one billion of them, have recently been given the freedom to own gold", which we all already knew. But the new wrinkle is that they report "Now the government is actually encouraging them to purchase gold as a form of savings." And it all relates to the un-pegging of the dollar to the yuan. They write "As the Yuan strengthens against the Dollar and other currencies, gold becomes cheaper for the Chinese to buy. We have long known that the day of revaluation was coming, now that it is here, the light says ´green´ for gold."
How green is that light at the start of the dollar crisis? Well, Paul van Eeden says that "During the Mexican peso crisis in 1995 the price of gold in pesos doubled. When the yen fell in 1995 and 1996 the gold price in yen rose by 35%. In 1997 the gold price rose more than 40% in both Philippine pesos and Malaysian ringgits, 67% in Korean wons and more than 400% in Indonesian rupiahs. From 1999 to 2002 the gold price increased more than 40% in euros. We are currently in a US dollar bear market. The gold price has already increased by more than 60% in dollar terms and I expect it to increase another 75% or so before it´s all over."
An editorial in the Springfield News, by Representative Peter DeFazio, about how CAFTA (Central American Free Trade Agreement) if another NAFTA-like rip off that will plague us, pretty much sums it up for me when he writes, "The combined economic might of the five Central American countries is only $151 billion, about what the U.S. economy produces in five days. Even if every penny of these countries´ economies was devoted to buying U.S. goods, which isn´t going to happen, the impact would be insignificant in the $11 trillion U.S. economy. The bottom line is that CAFTA is not about creating U.S. jobs and exporting U.S. goods. It is about creating a favorable climate for multinational corporations to export U.S. jobs and use Central America to export goods back into the U.S." Well, maybe not back into the U.S., because if all the jobs are exported, what are we going to use for money to buy those things with?
So is this some idea to help the Central American countries? Obviously not. He notes that "The U.S. already has a trade deficit with the Central American countries of $1.6 billion, which will only grow if CAFTA is enacted."
So the countries affected by the proposed CAFTA legislation are already showing trade surpluses! What the hell is the problem that we need CAFTA? It probably has to do with China. Our whole problem is that American wages and costs are too high to allow us to compete with China. So, with typical Yankee know-how, we change the law to produce tax advantages to get our grubby hands on some cheap Central American labor! It reminds one of the old line about how "The machinery of capitalism is lubricated with the blood of the exploited workers."
Ugh.
***The Mogambo Sez: Addison Wiggin of the Daily Reckoning has some advice gleaned from technical analysis that is better than anything I could come up with. He writes, "Since the beginning of the Dollar Standard era, every time an ounce of gold could buy less than 10 barrels of oil, an investor would do well to buy gold. Today, an ounce of gold buys only seven barrels of oil. The message from the markets it clear: Buy gold."
And this devaluation of the dollar makes that analysis even more clear and compelling.
[link to www.321gold.com] |
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User ID: 1536
7/30/2005 10:39 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Why would TPTB and the federal reserve fiat system, anf Allan greenspan(apt name for was the global greenback), want China to do what appears to be economic suicide for the US.
I suspect they are actually trying to buy them off by getting them to enjoin as co-heads of the system that western mammon created, remains to be seen if eastern mammon has other ideas, IMO. |
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User ID: 1536
7/30/2005 10:50 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
A Snowball in the Making: China´s Basket of Currencies
Axel Merk, July 26th 2005
China´s announcement to abandon its U.S. dollar peg in favor of a basket of currencies has to be seen like a snowball in the making: initially, there will be little impact, but seismic shifts have been initiated. China´s initial revaluation of the yuan by 2% versus the U.S. dollar is small, but its repositioning versus a basket of currencies puts in place a mechanism that allows China to respond to both internal and external pressures.
Like any nation, China foremost has its own interests in mind. China is interested in social stability as 10-15 million new jobs have to be created each year accommodating workers joining the labor force. Formidable challenges lie ahead as thousands of new cities are built; China is undergoing its fastest and largest transformation ever. It has been China´s policy to support that growth by subsidizing its exchange rate to foster exports. Any tightly managed economy faces internal pressures as free market forces are suppressed; some of the void is filled by corruption as artificial barriers are avoided. A subsidized exchange rate is akin to an artificial boost to an economy, leading to domestic inflationary pressures (e.g. raw material prices are near record levels) and capital misallocations (nowadays, we call them bubbles) as investments take place into projects that would not be profitable in a free market.
External pressures have been well documented: U.S. manufacturers have had to deal with high raw materials prices, as China´s overproduction impacts world commodity prices; and at the same time, U.S. companies have had to deal with little pricing power on consumer goods as a flood of imports from China and the rest of Asia have kept prices low. These pressures on corporate profit margins have kept a lid on U.S. employment growth as U.S. corporations need to accelerate their outsourcing to retain margins. This has contributed to a heated political environment blaming China for dumping its goods on U.S. markets. While China has certainly done their share in supplying the U.S. consumer with cheap imports, highly accommodative U.S. fiscal and monetary policy have created an environment that has crushed the already small U.S. savings rate in favor of consumption. U.S. households have been extracting equity out of their homes to finance their consumption. We now face the greatest imbalances in world financial history, as manifested by the current account and trade deficits; it is politically only too convenient to squarely blame China, even as these imbalances could have never been driven to such extremes without the support of U.S. fiscal and monetary policies.
China´s shift to a basket of currencies allows it to address these pressures. A stronger yuan will have a dampening effect on its export-driven economy as the Chinese government would like to see its Gross Domestic Product ("GDP") growth "slow" to what it deems a sustainable 7% annual growth rate (we like to point out that such "slowing" will not eliminate the long-term pressures on global energy and raw materials demand). China can now respond to external pressures by stating it is no longer exclusively targeting the U.S. dollar; it can now also use its basket to subsidize exports to other countries.
We have been asked whether our Merk Hard Currency Fund was a microcosm of China´s basket of currencies. Our Fund may indeed have a lot in common with the currencies China is diversifying into. While China has shown no inclination to publish its basket of currencies, we believe China (i) will focus on countries with which it has a trade surplus as it naturally accumulates their currencies and (ii) has an interest in stimulating exports to countries whose central banks do not have a history of active currency intervention. For example, countries with highly liquid currencies where Chinese activities will not cause a turmoil in the markets and not cause an immediate political uproar. China may also park some of its money in gold. In addition, we see China becoming more active with direct investments, notably in their efforts to secure natural resources for its insatiable and growing appetite.
Studying the parameters given above, the euro is likely to become a prime beneficiary of China´s diversification. China is very eager to diversify more heavily to the European consumer; China has a significant trade surplus with Europe. The ECB has welcomed China´s step to a basket of currencies. Note also that foreign central bank purchases are stimulative to a domestic economy -- just as the U.S. has long enjoyed the benefits of being the world´s reserve currency, other regions, notably Europe, may become a beneficiary.
While China has a trade surplus with the U.S. and Europe, it has a trade deficit with much of Asia due to its tremendous appetite for raw materials. China is also by far no longer the lowest cost producer in the region and is moving up in the production chain, thereby importing goods for further assembly in China. As many speculate, the rest of Asia will also see stronger currencies as a result of China´s revaluation, let us not forget the motivation that all these countries have is to foster their exports to the U.S. So far, China has been singled out by American politicians; we believe the rest of Asia will see China´s revaluation as an opportunity to try to take market share. We have already seen Japan being very vocal that they will not accept currency moves that are not in their interest. Japan is very much worried about a return to deflation, which may well be the case if imports from China become more expensive and their own exports to the U.S. are less competitive. In the past, Japan has shown that it is willing to engage in monetary intervention that puts its currency at serious risk of destruction -- to us, the Japanese Yen, despite its speculative potential, is too much of a risk; we believe that if a country acts as if it wants to destroy its currency, one day, it might just succeed. Similarly, many countries in the ´Tiger´ economies have no history of mature monetary history, and their reactions may be erratic when their economies slow down as their exports become more expensive. South Korea and Malaysia together have the third largest foreign currency reserves after Japan and China; we are talking about countries with turbulent exchange rate histories -- for the speculator, these may be worth targeting; however, we much rather focus on currencies that these countries are likely to diversify into.
Talking about the potential for turbulence in the monetary system, I would like to mention a point raised last week by Alan Greenspan, Chairman of the Federal Reserve, during what may be his last testimony to Congress before he retires. He was asked by Congressman Ron Paul why doesn´t the U.S. return to a gold standard when fiat money (paper money not backed by gold) created the problems of the 1970s in a scheme to induce inflation and defraud people of their hard earned money. Greenspan didn´t dispute Ron Paul´s assessment of the 1970s, but said a ´scheme´ would imply a conscious effort, yet the effects of the 1970s policies were "inadvertent." Greenspan said that in the early 1980s, a return to the gold standard, as he suggested at the time, may have been a prudent option, but that former Chairman Paul Volcker´s policies were also effective. Nowadays, however, there is no need to return to a gold standard because central banks have learned from their mistakes and are acting as if there were a gold standard. Greenspan must have forgotten George Bernard Shaw´s quote:
You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold. --George Bernard Shaw
Greenspan appears to be a victim of the same lack of modesty as all central bankers throughout history have been. Every generation of central bankers seems to believe that they have not only learned from the mistakes of the past, but also imply that no new mistakes will be made. During World War I, the German Reichsbank´s central bankers -- all educated men --, believed financing a war is ´exogenous´ and non-inflationary to the economy; hyper-inflation a few years down the road proved them wrong. Nowadays, former Fed Governor and possible Greenspan successor, Ben Bernanke, has not ruled out throwing money out of helicopters to stimulate the U.S. economy; and Greenspan´s policies have contributed to the greatest financial imbalances in world financial history. And these are U.S. central bankers. What about Asian central bankers that were burned just a few years ago by a major currency crisis?
China has put in place an important step to facilitate the unwinding of the global imbalances. Be aware, though, that dollar diversification is going to pose its own set of challenges. The U.S. economy has been driven by extracting cash out of ever more expensive assets; as demand for U.S. assets decrease, creditors may demand higher interest rates for their dollar holdings. The reduced demand for U.S. assets does not bode well for the frothy U.S. housing market. Greenspan has already forecast that the U.S. savings rate will increase - not because we are turning the U.S. into a nation of savers, but because equity extraction from homes will diminish (home equity extraction negatively influences the savings rate). While these adjustments are necessary and long overdue, we do not see that events will unfold without a fight. In Asia, we do not believe the intra-Asian consumption will be make up all of the reduced U.S. consumption; and in the U.S., policy makers over the past 20 years have been confirmed in their opinion that a supply side stimulus is the cure to all economic problems. In that fight, we have our doubts that central banks will, as Greenspan puts it with self confidence, act as if we had a gold standard.
For the long-term investor, the Merk Hard Currency Fund seeks protection against a decline in the U.S. dollar relative to other currencies. Just as our central bankers, we hope that the dismantling of the global imbalances will be orderly. However, it may be prudent to build your investment portfolio not on hope, but by taking advantage of diversification opportunities that seek to protect against a protracted decline of the U.S. dollar. |
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User ID: 1536
7/30/2005 11:06 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
JOHN WILLIAMS´ SHADOW GOVERNMENT STATISTICS
www.shadowstats.com
FEDERAL DEFICIT REALITY: AN UPDATE
July 7, 2005
_____
U.S. Treasury Shows Actual 2004 Budget Deficit at $11.1 Trillion
Ultimate Crisis for Dollar Moves Beyond Possible Remedies
Hyperinflation and New Gold-Based Currency
System Are Likely Consequences
Foreword
From time to time, the U.S. financial markets manifest some concern about the nation´s twin deficits -- the federal budget and the current account shortfalls. These episodes have been short-lived, however. Generally, the markets have been very sanguine about these problems -- much too sanguine, in our view! We believe there is a great deal about which to be concerned in both areas, and that longer run, the U.S. markets will indeed reflect it -- negatively, of course. This article updates our thoughts, etc. on the federal budget deficit.
___
When the U.S. Treasury reported the official 2004 federal budget deficit at a record $413 billion last October, the hisses and boos in the financial media were unrelenting. Two months later, the Treasury reported the actual 2004 deficit -- using generally accepted accounting principles (GAAP) -- was really an incredible $11.1 trillion [1], up from $3.7 trillion in 2003, yet nary a word was heard in the financial media, from Wall Street or from any political denizen of that former malarial swamp on the Potomac. An exception, of course, was Treasury Secretary John Snow, who signed the government´s financial statements, but the data release was as low key as physically possible.
The silence partially reflects the financial-market terror that would accompany an effective national bankruptcy. Such is the risk when a government´s fiscal ills spin so wildly out of control that they no longer are containable within the existing system.
Consider the traditional solution of raising taxes. Putting the $11.1 trillion deficit in perspective, if the government raised individual and corporate income taxes to 100%, seizing all salaries, wages and profits, the government´s 2004 operations still would have been in deficit by trillions of dollars. The deficit has moved beyond practical fiscal control! Many in government and the markets are aware of the underlying deficit reality, but few dare to sound the alarm, for the ultimate resolutions to the situation all are political or financial nightmares.
The government´s GAAP-based accounting generally is as used by Corporate America. It includes accrual accounting for money not yet physically disbursed or received but that otherwise is committed. The largest differences come from the bookkeeping related to Social Security and Medicare, where year-to-year changes in the net present value (discounted for the time value of money) of any unfunded liabilities are counted. In contrast, traditional deficit accounting is on a cash basis. It counts the cash received from payroll taxes (social Security, etc.) as income, but it does not reflect any offsetting obligations to the Social Security system.
For nearly four decades, officially sanctioned accounting gimmicks have masked federal deficit reality. Surpluses in trust accounts, such as Social Security, have been used to obscure the true shortfall in government spending. With less than one tenth of the actual deficit being reported each year, a cumulative negative net worth for the U.S. government has built up in stealth to a level that now tops $45 trillion, with total obligations of $47.3 trillion (more than four times annual GDP). The problem has moved beyond crisis to an uncontrollable disaster that threatens the existence of the U.S. dollar and global financial stability.
Indeed, the unfolding fiscal nightmare likely will entail a U.S. hyperinflation and a resulting collapse in the value of the world´s primary reserve currency, the dollar. With surviving politicians looking to restore public faith in the global currency system, a new system probably will be based on gold, the only monetary asset that has held public confidence for millennia.
This article updates and expands upon our original background piece on the topic, "Federal Deficit Reality", published in September 2004, and a special economic alert, "Financial Report of the United States Government (FY 2004)", which appeared last December. Portions of those articles are revised and incorporated herein.
Current Detail and Options
Where the official cash-accounting deficit for fiscal-year 2004 (year-ended September 30) widened by 10.0% to $413 billion, the broad GAAP-based deficit (including Social Security, etc.) blew up to $11.1 trillion (96% of GDP) in 2004, triple the 2003 deficit level of $3.7 trillion.
Much of the increase in the broad GAAP-based deficit was due to a set-up charge from booking the 2004 "enhancements" to the Medicare system. Net of the $6.4 trillion one-time increase in net unfunded liabilities, the annual broad deficit was about $4.7 trillion, which still would have been a shortfall with 100% taxation.
-----------------------------------------------------------------
U.S. Government - Alternate Fiscal Deficit and Debt (Source: US
Treasury; $s Are Either Billions or Trillions, as Indicated)
-----------------------------------------------------------------
Formal GAAP GAAP GAAP Tot. Fed-
Cash- Ex-SS With SS Federal Gross eral Ob-
Fiscal Based Etc. Etc. Negative Federal ligations
Year Deficit Deficit Deficit Net Worth Debt (GAAP)
-----------------------------------------------------------------
(Bil) (Bil) (Tril) (Tril) (Tril) (Tril)
------ ------ ------ ------ ------ ------
2004 $412.8 $615.6 $11.1* 45.9 $7.4 $47.3
2003 374.8 667.6 3.7 34.8 6.8 36.2
2002 157.8 364.5 1.5 32.1 6.2 32.7
-----------------------------------------------------------------
*$4.7 trillion, excluding one-time setup costs of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003
(enacted December 8, 2003).
-----------------------------------------------------------------
Nonetheless, the total numbers reflect something close to true liability. The new Medicare charges show how quickly politicians can make an already impossible situation significantly worse. By adding features to Medicare without setting up full funding for same, the Administration and Congress helped increase the total net present value of unfunded federal government obligations by 31%, from $36.2 trillion to $47.3 trillion in just one year.
In like manner, any "fix" to Social Security, such as raising the retirement age, would result in a one-time change to the unfunded liabilities, but the ongoing annual shortfalls would be affected only minimally. An annual minimum broad GAAP-based deficit of $4.5 to $5.0 trillion appears to be in place.
Wall Street hypesters recently have been touting how the official 2005 federal deficit will narrow from 2004, and the Administration is promising ongoing deficit reductions from the official 2004 level. First, if the economy falls into recession, which it appears to be doing, all such projections are worthless. Second, even if the promised cuts came to pass, after full reductions in an about-$4.5-trillion broad GAAP-based deficit, the mere billions saved would still leave the annual deficit rounded to about $4.5 trillion.
The impossibility of the current circumstance working out happily is why lame-duck Federal Reserve Chairman Alan Greenspan has been urging politicians in Washington to come clean on not being able to deliver promised Social Security and Medicare benefits already under obligation. He suggests,correctly, that there is no chance of economic or productivity growth resolving the matter. The funding shortfall projections already encompass optimistic economic assumptions.
The current circumstance also is why the Bush Administration has been pushing for Social Security reform, but the plans discussed do not come close to touching the magnitude of the problem. Most Congressional Democrats will not even admit there is a problem. Indeed, neither side of the aisle is willing even to mention the scope of the actual shortfall or talk about the Medicare problem, which is even worse than Social Security.
If the Administration and Congress were willing to address the unfolding fiscal Armageddon, only two very unpleasant general solutions are available:
* The first solution is draconian spending cuts, particularly in Social Security and Medicare, accompanied by massive tax increases. The needed spending cuts and tax increases are so large as to be political impossibilities.
* In the absence of political action, the second solution is tacit bankruptcy, with the U.S. government facing some form of insolvency within the next decade or so. Shy of Uncle Sam defaulting on debt, the most likely eventual outcome is the Fed massively monetizing the U.S. debt, triggering a hyperinflation. U.S. obligations then would be paid off in a significantly debased and devalued dollar at literally pennies on the hundred dollars.
These alternatives are politically unthinkable and unspeakable for the Administration and Congress, hence the silence. Yet, these same political bodies are responsible for the current circumstance, along with the acquiescence of the financial community and an uninformed or disinterested voting public.
Decades of Deception -- Historical Perspective
Misleading accounting used by the U.S. government, both in financial and economic reporting, far exceeds the scope of corporate accounting wrongdoing that keeps making financial headlines. The bad boys of Corporate America, however, still have been subject to significant regulatory oversight and at least the appearance of the application of GAAP accounting to their books. In contrast, the government´s operations and economic reporting have been subject to oversight solely by Congress, America´s only "distinctly native criminal class." [2]
Nearly four decades ago, President Lyndon Johnson´s political sensitivities led him and the Congress to slough off some of the costs of an escalating Vietnam War through the use of accounting gimmicks. To mask the rapid growth in the federal government´s budget deficit, revenues from the surplus being generated by Social Security taxes were added into the general cash fund, without making any accounting allowance for the accompanying and increasing Social Security liabilities. This accounting-gimmicked reporting was dubbed "unified" budget accounting.
The government´s accounting then, as it is now, was on a cash basis, reflecting cash revenues versus cash expenditures. There were no accruals made for monies owed by or due to the government or to the government´s trust funds at some time in the future.
The bogus accounting understated the actual deficit for decades and even allowed for claims of budget surpluses in the years 1998 to 2001. While there were extensive self-congratulatory comments between the President, Congress and the Fed Chairman, at the time, all involved knew there never were any actual budget surpluses. There has not been an actual balanced budget, let alone a surplus, since before Johnson and his cronies cooked the bookkeeping.
The doctored fiscal reporting complemented the short-term political interests of both major political parties. Additionally, the ignorance and/or complicity of Pollyannaish analysts on Wall Street and in the financial media -- eager to discourage negative market activity -- helped to keep the fiscal crisis from arousing significant concern among a dumbed-down U.S. populace.
There were those, however, who believed the government´s bookkeeping should be as accurate as possible. In the 1970s, the then "Big Ten" accounting firms proposed setting up for the federal government an accrual accounting and reporting system similar to that used in the business community. Purchases of capital equipment, weapons and buildings would be booked as assets and depreciated, taxes receivable and accounts payable would better reflect near-term cash needs. Accrued liabilities, such as Social Security payments due in the future, would reflect longer-term cash-flow needs.
As the project progressed, GAAP accounting was applied to the government´s operations and prototype annual statements were published beginning in 1974. The appropriate accounting for Social Security liabilities, however, was discarded during the Reagan administration as being politically untenable.
Under the eventual mandate of Congress, the accounting project culminated in the U.S. Treasury publishing its first formal Financial Report of the United States Government for fiscal year 2000, consistent with GAAP, except for Social Security and similar accounts such as Medicare, Medicaid and the Railroad Retirement Fund.
The gimmicked accounting standards, as established during the Johnson era, still guide today´s official, unified budget reporting. To the credit of the current Bush administration, however, the later GAAP reports, published in April 2003, April 2004 and December 2004 for fiscal years 2002, 2003 and 2004, indicated for the first time since the 1980s what the Social Security and related numbers would look like if they were included in the accounting, just as corporations need to account for pension and retiree health benefit liabilities.
___
An Important Aside, Re: U.S. Government Economic Data
One of SGS´ more important missions is to analyze, then report on the poor and deteriorating quality of "official" U.S. economic data. This growing lack of quality and the attendant diminution of accuracy contributes to bad business and investment decisions -- even bad political ones.
In the June edition of the newsletter, we took our mission a step further with the following announcement:
"Due to popular demand, SGS plans to begin publishing an alternate, monthly consumer price index by fourth-quarter 2005. The index numbers will be set -- not subject to revision -- and usable in calculations in the same manner as the official CPI. A history going back to 1990 will be reconstructed, with a bridge to pre-1990 CPI reporting. Annual inflation in the new series will tend to run about three-percent higher than the government´s official inflation reporting of recent years.
"A full methodology will be published, in advance, and results will be replicable. The SGS index calculations will be fully transparent and based on publicly available data, not on massaged surveying by the Bureau of Labor Statistics, or over-modeled and over-theorized price levels. Further details will follow in upcoming newsletters. Comments and suggestions are welcomed."
Anyone wishing to learn more about this project and follow its progress is cordially invited to do so by letting us know at "CONTACT US". To help in properly responding to requests, we request that you provide your name as well as e-mail address. However, this is by no means obligatory.
___
Dollar, Debt and Hyperinflation
The financial-market counterpart to the federal deficit is federal debt, where gross federal debt was $7.8 trillion as of June 30, 2005. That level was $7.4 trillion at the end of fiscal 2004, of which $4.3 trillion was borrowed from the public and $3.1 trillion was borrowed from the government (i.e. Social Security). Therein lies the problem. There is and will be too much debt from the U.S. government for the financial markets to absorb and remain stable.
The burgeoning deficit means the U.S. government will be increasing its debt level significantly for years to come. Near term, the amount borrowed will increase more rapidly than the markets are expecting, with the economy slowing down and entering recession. The ultimate question is who will lend the money to the U.S. Treasury? The answer is not U.S. investors.
The Federal Reserve´s flow of funds accounts show that foreign investors, both official and private, owned 42.5% of U.S. Treasuries at the end of 2004, up from 18.2% at the end of 1994. In 2004, foreign investors bought 98.5% of new U.S. Treasury issuance. (See "A Look at Foreign Investment Behavior in the Latest Flow-of-Funds Data," courtesy of Gillespie Research Associates.)
Part of the reason for this relates to another deficit crisis the United States faces on the trade front, where an exploding trade deficit is throwing excess dollars into global circulation. By holding dollars and investing in Treasuries, instead of converting dollars to a local currency, foreign investors have been helping to fund much of the U.S. deficit.
The combination of the rapidly deteriorating trade and budget deficits guarantee this will change. At some point, willingness among foreign investors to hold dollars will evaporate along with the reality that currency losses are more than offsetting any investment gains. When sentiment shifts away from the greenback, not only are foreign investors going to stop buying U.S. Treasuries, but also they likely will dump their holdings of existing Treasuries along with the U.S. dollar. Such actions would lead to a sharp dollar decline, a sharp spike in interest rates and a sharp sell-off in equities. The question, again, is who is going to buy the Treasuries?
With new debt continually hitting the market, eventually the Fed will have to step in to buy the Treasuries -- as lender of last resort -- effectively monetizing the debt. The more the Fed monetizes, the greater will be the growth in the money supply, the greater will be the weakness in the dollar, the greater will be the rate of inflation.
Where the numbers already are there for this to happen, fiscal pressures will get even worse. Already, the Pension Benefit Guaranty Corporation looks like it needs a federal bailout. As the economy deteriorates, the Congress or the Fed will step in as needed to prevent the collapse of any major financial institution that would threaten the system. Such action, though, will prove fiscally expensive.
The Fed let the banks fail in the 1930s, which helped intensify a decline in the money supply. That in turn was given major credit for deepening the Great Depression. The Fed will try to avoid the mistakes of the 1930s, but, in the process, it likely will end up triggering a hyperinflationary depression.
Last year, we discussed in some detail that the U.S. government´s sovereign credit rating of AAA more appropriately should be around B-, a below-investment-grade category, based on the 2003 GAAP statements ("Federal Deficit Reality".) Based on the 2004 GAAP statements, that rating now should be at C-, just above the default level. Never has an investment-grade overeign rating, let alone a AAA country, been supported by such negative extremes in underlying fiscal condition. Based on the latest numbers, the broad GAAP deficit for 2004 represents 96% of GDP, up from 33% in 2003, with total obligations now at 409% of GDP, up from 334% in 2003.
For political reasons, none of the rating agencies are likely to take a credit action against U.S. Treasuries under current circumstances, but that could change in the event of a major dumping of U.S. securities by those wishing to exit U.S. dollar exposure.
As noted by Fitch Ratings [3] in its Sovereign Ratings Rating Methodology: "Sovereign borrowers usually enjoy the very highest credit standing for obligations in their own currency. If they retain the right to print their own money, the question of default is largely an academic one. The risk instead is that a country may service its debt through excessive money creation, effectively eroding the value of its obligations through inflation."
Such has been the traditional cure for countries that borrowed so far beyond their means that they ended up with a choice between bankruptcy and hyperinflation. Hyperinflation seems to be the easier political route, although, for the first time, it will involve the world´s primary reserve currency.
In a hyperinflation, the currency very rapidly becomes worthless. In the classic case of the Weimar Republic of the 1920s, a 100,000-Mark note became more valuable as toilet paper than as currency; wheel barrows full of currency were needed to buy a loaf of bread; an expensive bottle of wine one night was worth even more the next morning, empty, as scrap glass. That is the eventual environment the United States faces because of its out-of-control fiscal madness.
For decades, "The deficit doesn´t matter" and "The dollar doesn´t matter" have been guiding principles in Washington. The deficit and the dollar do matter, greatly, as Washington, the U.S. public and the global markets will learn shortly.
A New Gold Standard?
The dollar, as we know it, soon will be history. Dollar inflation has been through a number of cycles since the founding of the Republic, but its current perpetual uptrend -- net of some bouncing during the Great Depression -- only began once the Federal Reserve was created in 1914. Now, with fiscal policy careening beyond any chance of containment, the Federal Reserve will get to oversee the U.S. currency´s demise.
It is not that the Fed wants to monetize the federal debt and trigger a hyperinflation -- the U.S. Central Bank certainly will do its utmost to avoid that outcome -- but it will have no politically acceptable alternative. The system otherwise would tend to right itself anyway through the economic shakeout of a hyperinflationary depression. While the Fed might hope to mitigate and to control the disaster, given the Fed´s nature, it is more likely to exacerbate conditions rather than to improve them.
When the dollar loses most of its value, through hyperinflation and/or currency dumping, the global currency system and economy will be in shambles, and a new currency system will have to be established. Those setting up the new system will need to establish its credibility, and there is only one monetary asset that can accomplish that: Gold.
Gold is the only commodity that has held up as a liquid store of wealth over the millennia. The amount of gold used to buy a loaf of bread in Ancient Rome still buys a loaf of bread today. In like manner, the amount of gold that bought a regular haircut for a man in 1914, still buys a similar haircut today. Where the public does not trust today´s politicians and central bankers, it does trust gold.
Whatever structure evolves for the new currency system, it most likely will have gold at its base. That is one reason that central banks rarely have followed through on threatened gold sales in recent years. The threats usually were nothing but jawboning aimed at depressing current market prices. Those countries holding the most gold will have the greatest advantage in any new currency system, and the central bankers know that, including Mr. Greenspan.
Timing of Related Currency and Financial Market Troubles
Central banks, OPEC, corporations and investors, both foreign and domestic -- as holders of U.S. dollars -- increasingly will sense or realize the greenback is headed for the dumpster. It only is a matter of when, not if.
The dumping of the U.S. dollar and/or U.S. debt by investors likely will hit quickly, with little advance notice. All the official actions that in turn could trigger hyperinflation would follow rapidly, with a full-fledged dollar collapse and developing hyperinflation possibly unfolding in a matter of weeks.
When this will happen is the tough question. It could be years; it could be next week. Without knowing the precise proximal trigger of the shift in sentiment against the U.S. currency, the timing is impossible to call. Nonetheless, some early warning signs may be evident in unusual anti-dollar activity in the currency markets, or in unusually sharp and unexplained spikes in the price of gold.
It would be extraordinarily surprising if the ultimate dollar collapse can be held off three to five years, let alone a decade. The pending global financial crisis conceivably could break in the immediate future, triggered possibly by one or more of the following developments: action by China to peg its currency to a basket of currencies instead of the dollar, OPEC pricing oil using a basket of currencies instead of the dollar, a sovereign credit rating downgrade on U.S. Treasuries, a major terrorist act, a very bad monthly trade report, a misstatement by an Administration official or some other event that may appear obvious in retrospect.
_____
If you would like information on Shadow Government Statistics, be be sure to CONTACT US.
___
Footnotes:
[1] "2004 Financial Report of the United States Government." The full document is available as a PDF file at www.fms.treas.gov/fr/04frusg/04frusg.pdf. The table published in the Overall Perspective on page 11 shows the $11.1 trillion annual eterioration in the government´s net worth. As an aside, check the GAO´s auditor´s letter as to why they will not certify the statements.
[2] Samuel Clemens.
[3] Fitch Ratings website. |
| FHL(C)
User ID: 18176
8/2/2005 9:17 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Anonymous Coward
User ID: 15483
8/2/2005
9:09 am EDT
Add to Favorites This is what will trigger financial collapse and the war!
House bubble bursts, no jobs, panic bank withdrawls then shtf..
By Martin Wolk
MSNBC
Updated: 4:04 p.m. ET June 27, 2005
When Fed Chairman Alan Greenspan and his central banker colleagues hold their two-day midyear meeting on monetary policy this week, America’s booming housing market will be very much on their minds.It is certainly on the minds of economists participating in MSNBC.com’s semi-annual roundtable, who describe the continuing housing boom as the biggest economic surprise of the year so far.
Whether or not prices have reached “bubble” levels in the most overheated urban areas, the housing market would hardly have to collapse to cause heavy economic damage, several of our panelists warn.
“The reality is, you do not need home prices to go down – all you need is for housing prices to stop going up,” said David Rosenberg, chief North American economist for Merrill Lynch. He calculates a flattening of housing prices could trim U.S. economic growth, currently running about 3.5 percent a year, by a full percentage point.
Rosenberg figures that over the past five years rising home values have added $4 trillion to the nation’s net worth, or 70 percent of the total rise in household wealth in that time frame. That “wealth effect” probably has translated to about $50 billion in additional consumer spending a year, adding half-a-percentage point to growth every year.
“A lot of the economy’s fortunes hinge on the housing market, and yet it doesn’t look like it’s all that stable to me,” Rosenberg said. “The last leg has been fueled by a mountain of leverage and a lot of speculation.”
Ethan Harris, chief U.S. economist at Lehman Bros., agrees that the economy could suffer even if the housing bubble gently deflates rather than collapsing in a Nasdaq-like implosion.
“Even if you don’t get a national collapse, the housing market could cool the economy down,” he said. “We think that right now the housing market is generating more than a percentage point of stimulus to the economy. It’s reinforcing a construction boom and strong consumption. So even if the housing market were just to stop growing you’d gradually see that roughly 1.2 percent or so of stimulus disappear, and something else then would have to take up the baton for growth.”
“And then there is of course a darker scenario where you have a pretty big shock to confidence from the housing market,” he said. “I don’t think it requires that prices fall nationally. I think what is important is that enough major regions experience price declines that it really hurts those local economies and then it filters into the national economy. … It’s very hard to know what the other side of the bubble is going to look like, but we certainly should be on the alert for uglier scenarios.”
Not everyone on our panel agrees that the housing market is headed for a fall.
“I’m still bullish on the housing sector,” said David Lereah, chief economist for the National Association of Realtors, who admits that he has been surprised by the pace of home sales and price gains. “I don’t think we’re close to balloons popping. The supply is still very lean.”
Lereah acknowledges that some local markets are “bubbly,” and that those markets might be “vulnerable to a price retreat.”
“But I do not subscribe to the notion that there is an overall housing bubble in this country,” he said.
Nevertheless Lereah and some other panelists say the Fed and other banking regulators might have a role in reining in the worst excesses of the housing market, chiefly by ensuring that lenders are not overly aggressive in their use of products like interest-only loans and so-called “cash-flow ARMs” that allow borrowers to choose how much to pay each month.
“A lot of people who take those interest-only loans are doing it for a good reason,” said Harris. “They are stretching their budget to the limit in order to buy the real estate.”
[link to www.msnbc.msn.com]
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Anonymous Coward
User ID: 15483
8/2/2005
9:10 am EDT Re: This is what will trigger financial collapse and the war!
There is no claim that is made more often and with greater zeal in the US financial media than that the rapid rise in the housing prices is due to the basic Demand for housing (a place to live) exceeding the Supply in the recent years, especially, at the present. A July 28, 2005 article in Wall Street Journal by Neil Barsky, What Housing Bubble?, created lot of stir among those who do see all the signs of a Housing Bubble in the US. Here is Mr. Barsky’s basic claim:
“According to Census data, over the past 10 years, housing permits have averaged about 1.63 million units per year -- including multifamily units.
Household formation has averaged 1.49 million families per year. Roughly 6% of the new home sales (.06x1.63million = 100,000) were for second homes (I have seen estimates that the number is actually twice as high), according to UBS. Approximately 360,000 units every year were torn down. When the latter two numbers are taken into account (100,000 + 360,000 = 460,000), the real number of new homes is closer to 1.2 million (1.63 million minus .46 million), or 19% (1.49 million less 1.2 million, divided by 1.49 million) fewer than the average number of new households formed each year.”
One would think that someone at WSJ, or anyone else in any media for that matter, would bother to check the facts, especially that Mr. Barsky gives his source, US Census Bureau. Well, I did check the facts and the results are tabulated below. First and foremost, we know the current rate of new permits; so, why bother about using a 10-year average when the new housing construction activity level in the second half of 1990s was almost half, or even lower, than the current level, especially, in California. Therefore, you can see a fundamental misrepresentation of the Supply by Mr. Barsky. Do you think that it is unintentional? (Mr. Barsky is heavily invested in housing). The Census Bureau takes into account teardowns, because a house torn down and rebuilt is not two “housing units.” Most importantly, there aren’t too many interpretations of Vacant Housing Units. If the number of Vacant Housing Units is increasing then the Supply is exceeding the Demand.
No?
Table 1: Supply-Demand for the Past SIX MONTHS Ending 2005Q2
(all data in round numbers to 50,000)
Number of Housing Units Added (net new supply) +1,000,000
Number of Additional Housing Units Occupied (new demand) +300,000
Number of Additional Owner-Occupied Housing - 450,000
Number of Additional Renters +750,000
Number of Additional Vacancies (supply in excess of demand) +700,000
The most important thing to note in Table 1 is that the Owner Occupied Housing has gone down substantially. Yes, many former owners are glad to sell at the recent high prices and rent from rapidly increasing purchases by “investors.” Also, the Demand seems to be shrinking due to extremely high prices, as one would rationally expect. Believe it or not, even in America quite a few households share a housing unit; it is especially true of the fastest growing population of Hispanics. One phenomenon that might be taking place, due to very high prices, is that unmarried couples who were living separately have decided to move into one house. When housing becomes unaffordable it does change the behavior of some. That is if you believe that incentives play a role in economics.
Since data for six months is not as reliable as for a longer duration, I have looked at the past three years, a good representation for the current housing climate, which many think is a bubble.
Table 2: Supply-Demand for the Past THREE YEARS Ending 2005Q2
(all data in round numbers to 100,000)
Number of Housing Units Added (net new supply) +4,600,000
Number of Additional Housing Units Occupied (new demand) +2,900,000
Number of Additional Owner-Occupied Housing +3,000,000
Number of Additional Renters - 100,000
Number of Additional Vacancies (supply in excess of demand) +1,700,000
Average ANNUAL Demand for Net New Housing 1,000,000
From Tables 1 and 2 it becomes evident that for the 30 months up to 2004Q4 the Owner Occupied Housing, or homeownership rate, was rising, not smoothly but steadily. Fig. 1 shows the trend.
We have pretty good idea of the new permits as well as the pipeline for new homes, i.e., Supply, for the next two years. Also, the Demand trend is not going to change much. Therefore, we can make reasonable estimates for both and see how much greater the Supply is in relation to the Demand is and going to be.
Table 3: ESTIMATED Supply-Demand for the NEXT TWO YEARS Ending 2007Q2
Estimated ANNUAL Supply For NEXT TWO YEARS Based On Pipe-Line +2,200,000
Estimated ANNUAL Demand For NEXT TWO YEARS Based On Trend +1,050,000
Excess of Supply Over Demand Over the NEXT TWO YEARS
110%!
By combining Tables 2 and 3 we can get a five year picture ending in 2007Q2 and what we see is a disastrous imbalance between the Supply and Demand.
Table 4: ESTIMATED Supply-Demand for the NEXT FIVE YEARS Ending 2007Q2
Number of Housing Units Added (net new supply) +9,000,000
Number of Additional Housing Units Occupied (new demand) +5,000,000
Number of Additional Vacancies (supply in excess of demand)
+4,000,000
Excess of Supply Over Demand For Five Years 80%!
There never was a Demand-driven need for the new Supply. It was strictly a low-interest rate and loose lending standards driven rise in prices that drew in speculators beginning in 2003-4. For the past three years 1/3rd of the new units added are lying vacant and in the past six months 2/3rd of the new units added are lying vacant. At some point the reality of the Supply and the Demand for housing (as in living in a house and not speculating) will assert itself and all the speculative buyers will have hell to pay.
As to Mr. Barsky’s claim of purchases of second homes, anyone who is borrowing 80-100% to buy a second home at the current prices is courting disaster. Mr. Barsky’s article is a perfect example of self-serving propaganda that is the norm in the US financial media including the WSJ.
The data from the Census Bureau is a box of dynamite for the Housing Bubble -- the primary source for the worldwide liquidity -- and the last stand before the Global Depression. Chinese and Indians have a nasty surprise waiting for them as to what was the real source of their boom for the past 3.5 years. Those ignorant of history find all kinds of explanation for bubbles and booms. There is nothing secular about liquidity-driven, or Debt-driven, booms. They always go bust.
2005 Jas Jain
Editorial Archive
Contact Information
Jas Jain
Tehachapi, CA USA
[link to freewordofgod.yuku.com] |
| Anonymous Coward
User ID: 1596
8/2/2005 9:24 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
hey dumbass OP.
Its august and I´m up 35% in my account.
what was that about a correction?
imbecile. ever had an original idea, or do you just c & p bullshit? |
| rrick
User ID: 5021
8/2/2005 9:29 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
This fall as I understand it, buy into rare metals. Safe and you will get to keep your profits. SSSSSsHHHHHHHHH |
| Anonymous Coward
User ID: 6300
8/2/2005 9:35 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Gonna happen any time now!!!!!
|
| .
User ID: 11983
8/2/2005 10:20 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Precisely,
Coward
User ID: 4880, that fact alone should show the gravity of the situation, and soon in the markets when you are approaching the corrections can be years and look very good on the up and up figures, so what you really mean is your a junior shill and wannabe debunker.
get ready for the inevitable, and call on Yahshua when you have no further down to go, if you have the op and havent taken the mark of the beast by then. |
| Anonymous Coward
User ID: 1596
8/2/2005 10:26 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
no, what I really mean 6880 is that i am up a lot, and I expect a lot more.
You let me know when you think the market is a good buy.
That´s when I will sell.
BTW..you should have heard the idiots--perhaps yourself included--when I told them to buy GM at 26 and go long the bonds yielding 9.5.
laughing.
well, who´s laughing now? |
| Anonymous Coward
User ID: 6184
8/4/2005 2:53 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
There has been much talk of China´s "basket of currencies" against which it shall peg the yuan, and also much speculation as to which currencies will be included in said basket.
IMHO it would be most prudent to simply make the market the basket. By all means quote the yuan against any currency in the world ... perhaps even entertain notional proportions weighted by trade or by exchange volume, but it all boils down to the same thing really ... except that the chinese reserve the right to say when the 0.3% limit has been breached ... |
| .
User ID: 10835
8/4/2005 7:42 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
August 4, 2005
Richard Daughty, ...the angriest guy in economics
The Mogambo Guru
As my hands are permanently clenched into fists of rage, I am typing this week´s newsletter by holding a pencil between my teeth and laboriously pecking the letters out, tap (pause) tap (pause) tap. It all started innocently enough, as all I was doing was reading the paper, casually checking for the usual photo advertisements of pretty ladies modeling underwear or bathing suits to get the old heart started, and it was a slow day. Suddenly, my heart went "urk!" when I saw that the new total for the national debt, the honest-to-goodness total net debt that the federal government has racked up over the years, and I am suddenly afraid. Very afraid.
Then I saw that the stock market has been going up ever since China devalued the dollar! The stock market goes up, even when oil is going up! This is insane! Now I am even more afraid!
By this time I am on the floor, completely paralyzed from fear. My wife, who has not received the final paperwork on the new, big life insurance policy she took out on me, is scrambling to find some good news that will reverse my horrifying condition, lying there on the floor, covered in coffee where she spilled it all over me.
Flipping on CNBC and frantically scanning the Wall Street Journal, she says "Oil is up, just like you said!" I start to relax. Then she says "Gold is up, just like you said!" I am now able to shake the stiffness from my mighty Mogambo shoulders (MMS) and slowly rise to my feet. But my hands are, alas, useless, as is my brain.
You can always count on Peter Schiff, of Euro Pacific Capital, to tell you the real ramifications of the revaluation of the Chinese yuan. And sure enough, he says "Some have incorrectly argued that a rising yuan will make American exports more competitive in China, and therefore benefit our economy. Such a simplistic analysis is flawed, as its proponents fail to comprehend the basics of international trade. The only reason our exports become more competitive is that we will be selling them for fewer yuan. In other words, we will now be forced to pay the Chinese more yuan to purchase their products, but in return receive less yuan for the products we sell them. The bottom line is, paying more and getting less is a bad deal for Americans." Exactly!
"For Americans, the opposite will be true. This change will result in reduced purchasing power, lower real incomes, and a falling standard of living. The Chinese will no longer be subsidizing American consumers and borrowers with low import prices and interest rates. Without these supports, consumer prices and interest rates will rise, credit and the economy will contract, stock and real estate prices will fall, service sector jobs will be lost, the federal budget deficit will worsen, and the dollar´s decline will accelerate.
"As credit contracts and interest rates surge, home prices will plunge, wiping out trillions of dollars of paper equity for millions of American homeowners. However, while the equity will vanish, the mortgage debt will not only remain, but be that much more costly to service. Imagine the implications for the U.S. economy and dollar-denominated financial assets, should this financial nightmare become a reality."
Perhaps this has something to do with Dan Denning, with Strategic Alliance, writing "Good-paying, white-collar, ´Ward Cleaver´ jobs disappear." But it is not only jobs, but everything else is in danger of disappearing, too! For example, he postulates that we will also see where "Soaring health care expenses go unpaid. Property prices plunge in the wake of panic selling. Rampant price inflation sends the cost of food and energy soaring to new highs. Police, fire, and highway crews shut down services in strapped states and cities. Countless schools close for lack of funding. City and state governments default on their bonds. One ´safe´ pension fund after another goes the way of Enron."
Sound gloomy to you? Well, imagine how I feel, thinking this kind of stuff all day! But do you ever think about ME and my life of gloom and sorrow? No! It´s always about you, you, you, isn´t it? Always about you! But the ugly reality is that these are the kinds of things that have always happened at the collapse of bubble economies, and they will happen every time a bubble economy collapses. Lots of money has to be lost, as that is the nature of bubbles, and economies do not ever seem to prosper when everybody is bankrupt, and miserable, and homicidal, and people are stringing more expensive barbed wire around the inside perimeter, and having ammunition and supplies delivered by truck because your car can´t hold that much stuff.
Mr. Denning thinks I am not being forceful enough, and so he shoulders me aside, and takes over the microphone and says "Please understand that these are not alternatives. As Peter Peterson, former White House economic adviser, says, ´Absent a colliding comet or an alien invasion, this will surely happen.´ There is no way for American investors to avoid this event. They can only choose how to protect themselves from the outcome."
Well, I would say that guys who were long in the categories of food and energy and commodities WILL "protect themselves" as their prices will be "soaring to new heights." And food and energy are only two of the items in the category of "commodities." The wise investor´s ears should prick up ("poink!") at the mere mention of things whose prices will be "soaring to new heights." That´s the whole point of investing, isn´t it?
And the gains in corn are sown (cute pun, huh?) by Congress, as part of the new energy bill, which contains all kinds of gigantic tax credits and deductions for all kinds of things, including ethanol, which is made from the sugar in some foods. Ergo, corn will do well for three reasons. 1) The Chinese have a stronger yuan, making corn cheaper for them to buy, 2) there is a drought all over the damned place, 3) and now Congress has made it financially advantageous to also compete for corn. So, the Mogambo Tip o´ The Day (MTOTD) is relayed when I reach out and place my hand on your shoulders, look into your eyes, and say "Buy corn." Fade out, and you are left with an indelible memory, so that years and years later it will pop into your mind as you are scratching around in the dirt looking for bugs to eat, and you will wail in woe because you did not follow the path of the Mogambo (POTM).
And, lest I forget, two other items in that "commodities" category, that aforementioned category of things whose prices are soon to be "soaring", are silver and gold, which are a hell of a lot handier to buy and store than corn, soybeans, wheat and oil.
John Crudele of The New York Post reports that "American Auto Association calculates that gasoline prices have risen 21.5% since this same time last year. But the government swears gas prices are only 6.9% higher over the year." What a discrepancy! The upshot is "That little trick alone saved the CPI from being 0.53% points higher."
And it is not just about gas, as he goes on to write, "Despite all you´ve read, the government thinks housing is only 2.2% higher over the past year. Others, including the National Association of Realtors, calculate that housing is up at least 12.5%."
In short, your government has screwed things up royally, but instead of fixing the problems they caused, they prefer to lie about it.
But they don´t have to lie about it if they can keep it secret. Paul K. McMasters, who is the "First Amendment ombudsman at the Freedom Forum´s First Amendment Center" says that the "latest figures released by the federal Information Security Oversight Office show that government workers are manufacturing secrets at the rate of 125 a minute, or 15.6 million a year. At the same time, they are declassifying fewer secrets, and the president is extending classification authority to more departments and agencies. Layered on top of those secrets are an even greater number of pseudo-secrets labeled ´sensitive but unclassified´ that, too, are beyond the reach of the public."
What makes this so bad is that "The problem with excessive government secrecy is that it is a refuge for incompetence -or worse. It is a policy reeking of desperation -or worse. It is reflexive rather than deliberate, defeatist rather than courageous. And in the end it hides not only what our leaders know but, more important, what they don´t know."
And in saying that, this is the perfect time for Axel Merk of the Merkfund.com to remind us of the immortal words of George Bernard Shaw, who famously said, "You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."
I have been reminded that I have been somewhat remiss in pointing out the anomaly in the price of silver, and why that makes silver so undervalued that it is a screaming screaming screaming buy. But I was spared the trouble of getting up off of my fat butt to correct that mistake when I read an essay entitled "Copper, Oil, & Silver" by Jason Hommel. He writes "Not all commodities move up at the same time, so this means there is the opportunity to invest in those that have lagged behind, such as silver and/or copper. It is important to look at charts of ratios between commodities."
The first one out of his mouth is about silver! "In 1980, at the prior peak prices for both silver and oil, oil hit about $43/barrel, and silver hit $50/oz. In other words, an ounce of silver was worth more than a barrel of oil."
Even at the recent low prices of silver and oil "silver languished at $5/oz., and oil bottomed out at $10/barrel, maintaining the 2:1 ratio."
The upshot? "Using those high/low prices as guides, and given the price of oil today, silver should be somewhere between $30 to $60 per ounce! Either that, or oil should be worth between $7 and $14/barrel. But which is more realistic?"
His point is that "if you are bullish on oil, you should invest in silver instead, because in the long run, silver will surely outperform oil prices as the ratios return to historic ratios of 2:1 or 1:1."
So silver, currently selling at seven bucks (and change) per ounce, should be, by historical precedent, selling at somewhere between $30 and $60 per freaking ounce, you say? Which works out to (at $7.30 per ounce) a gain of 411% and 822%? Wow! A home run! Let me at it! There are not many guarantees in this world, but the dead-bang certainty that silver will rise in price faster than the rate of inflation seems to be one of them!
Even by its rough historical average ratio of 16:1 against gold, it should be selling higher than twenty-five bucks an ounce right freaking now!
And don´t get me started on the shortage of physical silver in the world, or the blatant corruption and fraud that is apparently rampant on the COMEX exchange, which is so bullish for silver in its OWN right that you don´t even NEED any of this ratio-to-oil or ratio-to-gold crap! And so here is another Mogambo Tip O´ The Day (MTOTD), where I reach out my arm and put my hand on your shoulder, and look into your eyes and say "Buy silver."
And then you say "What the hell are you talking about? A minute ago you were telling me to buy corn. Now you are telling me to buy silver! I am confused and your smell is making it really unpleasant to be here!"
I smile at the reference to the olfactory sense, and make a mental note to put into your Permanent Record how you are a rude little bastard, which will make it harder for you to enroll in the Mogambo University, where everybody gets straight A´s by just sitting around bitching and whining about the idiots in charge of things, and how they are screwing it ALL up. But I smile inscrutably, and I look into your eyes, and say only "Okay. Buy corn AND silver."
As you turn around to stomp out of the room in justified disgust, I suddenly grow angry at your insolence, and I grab your shoulder and spin you around, and start yelling into your face "And gold! And soybeans! And wheat! And pork! And manganese! The one underlying theme, in case you ain´t noticed, is commodities, Jack! Commodities! Now, go make a fortune in commodities and make us all proud of you!"
And it is not just me, Mr. Fry and a lot of other people who have an opinion about this, but also Puru Saxena, who was specifically asked what will be "the best investment for the next ten years?" Without missing a beat, we get the reply, "Commodities. Why have I chosen commodities out of all the assets? For the simple reason that in 2001, commodities were the cheapest they had ever been in the history or capitalism."
The cheapest they have ever been! Ever!
Continuing, "Let us take a look at the most important commodity oil. Over the past 35 years, there has not been a single major oil discovery anywhere in the world! Global production is peaking and there is no additional supply. Meanwhile, demand for oil continues to rise especially in the emerging world where populations are huge and per-capita consumption of oil is still extremely low. As global demand rises and supply remains tight, oil prices will continue to surge."
I jump to my feet and excitedly exclaim "See? I told you that oil was going to keep going up!" As everyone appears irritated at my rude interruption, I hurriedly sit back down, chastised. Now that I am no longer "creating a disturbance," the class now learns that some commodities are already in a bull market, as "So far, industrial commodities such as metals and energy have done exceptionally well." The best part (from an investor´s perspective) and the worse part (from a consumer´s perspective) "is that "agricultural commodities such as sugar, corn, wheat and orange juice haven´t gone up as much and are still close to their all-time lows adjusted for inflation."
But once again, our old friend gold is alluded to, as we read "Furthermore, I expect gold and silver to outperform industrial metals over the coming years. We now live in an era where inflation is the norm. Fed Governor ´Helicopter´ Bernanke comes to mind. Despite what the mainstream media says the ´deflation threat´ is not a real concern, but only a smokescreen, which allows central bankers to continue printing more money for their own benefit. In today´s world, where paper currencies are only empty promises backed by nothing, I expect all of them to keep losing value against time-honored wealth gold."
And speaking of gold, from BFIConsulting.com we learn that "The World Gold Council recently released supply-and-demand statistics for the first quarter of 2005. Demand for gold in the first three months of 2005 is up 32%, year-on-year. According to the Silver Institute, statistics for 2004 show that a boom in investor activity was largely responsible for a 36% rise in the silver price to 17-year highs."
Further, the Japanese are apparently lifting the bank deposit guarantee, and that "banks are in trouble in Japan, and the government is removing the safety net that protected Japanese deposit holders." BFI sees this as triggering "increased demand for precious metals."
And these BFI people are big believers in silver, as they note that "If the gold price doubled from current levels, it would be at all-time highs of $850 per ounce. However, if the silver price doubles from current levels, it would on be a one-third of all-time highs of $50." A third! Wow!
To add more urgency to their argument, they note that "silver production has not been able to keep pace with demand for 16 straight years. The result is a dwindling of above-ground supplies to alarmingly low levels."
Perhaps in a similar commodities vein, George Ure at Urban Survival got a letter "Just a note to update you on my conversation with a longshoreman from the Port of Seattle last night.
"The ratio of full (30%) vs. empty (70%) cargo ships leaving the US has stayed the same. We are still buying more than selling (except for scrap and food). What is more important is that beginning in June this year, when the cargo trade usually starts to significantly increase at a seasonal level, trade is slowing. This year, cargo ships are not coming into the port as they did in past years and the work load has been down for those on the docks."
So, if the workload on the docks is down, then that means there is less stuff going to retailers, which means that retailers are not buying as much stuff, which means that consumers are not buying as much stuff. Hey! I thought the economy was supposed to be booming!
The longshoreman said they are the first to know of an upturn or downturn in business. They are now saying that with the downturn of imports, a slowdown in the economy "could happen in 6 months or less." Then they also bring up a little history. "If you remember, last year," they said "the ships were coming in so fast that a waiting line occurred at all the west coast ports. That line is not happening this year."
To prove that even the US government thinks that people will start running to gold, the U.S Department of the Treasury, Financial Crimes Enforcement Network has released a bulletin announcing, and I hope you find this as humorous as Phil Spicer and I, an "interim final rule". Hahahaha! "Interim final"! Hahahaha! If you are finished laughing, the news is that dealers in precious metals, stones or jewels are now "required to establish an anti-money laundering program."
One of the interesting parts is that the dealers are supposed to develop "policies, procedures and internal controls, based on the dealer´s assessment of the money laundering and terrorist financing risk associated with its business." Hahahaha! To be a retailer they have to be experts on the financial impact of geopolitical risk? Hahahaha!
Loren Steffy of the Houston Chronicle has looked at the advertisements that say things like "Buy Now and Save!" which strikes her as funny, "as if buying and saving are on the same side of the equation. Bydefinition, buying is the absence of saving." Hahaha! Exactly!
But there are apparently a lot of people who actually DO believe that you can "buy now and save", as he notes that "Last year, among U.S. households that have credit cards, the average total debt was $9,300, according to Cardweb.com. At the same time, the household savings rate is essentially zero and has been for several years." And the latest report shows that saving IS now, officially, zero! Zero! We spend every freaking dime!
One of the few places left in America where people do NOT think this is a good idea is (drum roll, please) Texas, which "will soon start requiring high school students to have basic financial literacy." Hahahaha! Basic financial literacy! This is just one more example, as if we needed one more, of the egregiously bad job being done by America´s idiotic educational system!
Jim Otis of the Optimist notes that insurance and guarantees are not written in stone, as the companies must invest the premiums in the same markets that you do, and they will not fare better than you do, either. "A sometimes overlooked but essential requirement for a good hedge is that there must be a solid guarantee that the agreed benefits really will be paid when the need arises. If the company that is collecting the premiums each month has all of its assets and many policy liabilities in the same 100 year flood plain, that company might be too busy talking to its bankruptcy lawyer to return your frantic phone calls."
Reuters noted that politicians have gotten an earful from their constituents: "It´s about gas prices, gas prices, gas prices," House Speaker Dennis Hastert said. "Consumers are getting squeezed at the pumps. House Republicans want to do something now."
Perhaps that is why we have the sudden emergence of an enormously expensive energy bill from Congress. Martin Weiss has a nice remark about that outrageously expensive energy bill that is speeding to President Bush´s desk. He says that "It´s a welcome extra bonus for investors in energy. If you are an investor in energy, the bill will not reduce oil prices nor reduce oil imports. It does little to address America´s growing appetite for fuel. And even its proponents agree that it will not reduce America´s reliance on foreign oil imports."
But the whole point of the energy bill is that it will "lavish generous subsidies on many companies. It´s packed with tax breaks worth about $11.5 billion for the industry. It contains a provision that would give subsidies of up to $1 billion to promote oil drilling in the Gulf of Mexico. It also includes a tax credit for gas stations to install equipment that could handle an ethanol blend."
What does it add up to? "Bottom line: No end in sight to the energy boom." And, though he was too polite to say so, there is no end to the budget deficits, either, as another result.
We get pretty much the same story from WhiskeyandGunpowder.com, who write that "bookings of supertankers for oil exports from the Middle East soared to the highest monthly level this year in July -and shipping costs doubled along the way, according to Bloomberg. Oil production in Norway -usually the No. 3 global exporter, behind Saudi Arabia and Russia -has hit an 11-year-low...and China´s oil-thirsty economy is humming along at 9.5% growth, shrugging off any and all efforts to slow it down."
"What´s more," they write, "speaking of OPEC, the Saudis also recently told the world´s leading industrial powers that OPEC will not be able to meet Western oil demand in 10-15 years. This was the first time -ever -that OPEC has made such an announcement."
This is oddly in line with a report in the Daily Reckoning, which stated "Last year, according to testimony given to the U.S. Congress, more oil was expended looking for new oil resources than was actually discovered. Even OPEC isn´t immune from draining wells. Oil production has fallen so precipitously in OPEC member Indonesia that it has turned into an oil importing nation, and may have to withdraw from the cartel."
In spite of all this, Daniel Yergin and his Cambridge Energy Research Associates (CERA) are saying that The Mogambo is a big stupid idiot who makes disgusting noises when he eats. Well, they don´t actually come out and say that in so many words, but you can get the drift by reading between the lines, as they are predicting that there is nothing to worry about, as we will soon have oil everywhere! CERA thinks that we "will have 6 to 7.5 million barrels per day of excess capacity and we can expect an extended period of lower prices ˇ perhaps by 2007. Petroleum production will be expanding faster than demand over the next 5 years. The report has tabulated 20 to 30 new projects with a capacity of over 75,000 barrels per day that will become available in each and every year until 2010. By then, worldwide production could increase by up to 16 million Bbl/day. However, most of the increased production will come from reworking existing fields, rather than new oil discoveries, and after 2010 the majority of new production will come from OPEC."
I am unable to comment, as my eyes rolled around in disbelief, my tongue cleaved to the roof of my mouth, and my brain locked onto the word "huh?" when I read those words. So it is fortunate for us that Ronald R. Cooke has taken a look at this CERA stuff, and found that they made 18 big, big assumptions. So he wrote a rebuttal, "Oil Depletion? It´s All In The Assumptions" on the FinancialSense.com. He writes, charitably, that "CERA´s optimistic views are in the minority. In the final analysis, however, the pivotal point for all of these assumptions and scenarios rests on the motivations, political realities, and production capabilities of the Middle East. If they are willing to act in the selfish-best-interest of the industrialized nations, then CERA´s ´Best Case´ scenario is possible." Note that he said "possible," which is akin to my wife saying that it is possible that I will stop acting like a mentally-ill crybaby paranoid homicidal maniac, but we all know how likely THAT is.
The punch line is "If not, we are in for a long period of cultural and economic agony."
Perhaps the CERA people did not talk with Martin Weiss, of the Safe Money Report, who writes "On a per capital basis, China consumes 1.8 barrels of oil per person per year. In the U.S., it´s 25 barrels, or FOURTEEN TIMES MORE. Now, fast forward to 2010, just five years from now. And make the conservative assumption that, despite China´s rapid industrialization and modernization, its per-capita oil consumption will still be about a FIFTH of ours 5 barrels per year.
"That single event will add at least 8 million barrels per day to worldwide demand. It will require a production increase equivalent to that of another Saudi Arabia, the world´s largest producer."
I get a kick out of clowns who see no inflation even when it is beating them over the head, but after all these years, my sense of humor in that area is waning. The astonishing growth in global credit is one of the largest inflations in history, and even though the growth of money and credit is the actual freaking dictionary-definition of "inflation," these guys still say there is no inflation!
Houses are in the biggest price inflation ever witnessed in history, and yet they say there is no inflation! But if this rise in prices is not inflation, then what in the hell is it?
Bonds are also in one of the biggest prices inflations in history, and have now gotten so highly-priced that they are yielding-- even long-term! --less than (after-tax and after-inflation adjustments), the real rate of inflation! But if this rise in prices is not inflation, then what in the hell is it?
Stock prices have risen so much that the SP500 is paying a dividend of 1.8%. The SP500 is priced at $1235, and the SP500 is earning $60, so the P/E is over 20! My Mighty Mogambo Mind (MMM) quickly scans the entire economics literature to try and find a single reference to the idea that "buying stocks at an average P/E multiple of over 20 turned out to be a good idea, everybody who did such a thing got rich, rich rich, and they all lived happily ever after." I comically spin my eyes, wiggle my ears, and after a few seconds making noises that resemble R2D2 from "Star Wars", I announce that the total number of hits resulting from the computer search is zero. Zero! Hahahaha! (Actually, this is a cheap trick, and you can try this the next time you are at a party, as there ARE no such references, anywhere,by anybody, ever). And the reason is that the long-term historical average P/E is much, much lower than that, down around 11 to 14. And so the P/E ratio is, seemingly, destined to go back down to, and probably below, the long-term average. So what in the hell do you think is going to happen? That the earnings were going to go up so much that it brought the P/E down? Hahahaha! I love your sunny optimism!
Jas Jain is not laughing, and with this deadpan look on his face writes, "The US stock market, with S&P 500 as the proxy, was never more over-valued than today, except for period since the bubble of 1990s and a brief period in 1929." And we all know how well stocks worked out BOTH of those times!
Have you noticed how the soundtrack is suddenly dark and gloomy with thunder and lightning? Well, it is there for a purpose. It is there to properly prepare you for the knowledge that what always happens is that the stock prices go down, and people lose their butts, and that makes people stop spending, and that makes earnings of companies go down, which makes the P/E ratios of the companies´ stocks go up, which means that the prices of the stocks have to come down, which makes people lose their butts some more, so they quit spending some more, and that makes the earnings of companies go down, which makes the P/E ratios of their stocks go up, which means that stock prices have to go down, which means people lose some more of their butts, so now they REALLY quit spending, and around and around and around it goes, spreading misery and suffering around so that everybody gets a little.
And yet they say that there is no inflation anywhere. If that is not inflation in stock prices, then what in the hell is it?
And all of this presupposes that you believe the numbers that are being reported, and there is very little reason that you should. As an example of the financial engineering that is rampant in the world, let me point you to Tony Sagami of Money and Markets, who has taken a look at IBM when they reported $1.12 of Q2 profits, "which is 9 cents per share better than the $1.03 Wall Street was expecting. Right?Not so fast!" he says.
"First, the $1.12 excludes 10 cents of costs related to stock options. If you include those 10 cents of true, real, hard compensation expenses, IBM would have missed forecasts by one penny.
"Second, there was a trio of one-time, non-operating costs that IBM used to manufacture two cents of extra profit", which he identifies as "$775 million (29 cents per share) gain from the proceeds of the settlement with Microsoft, a $1.1 billion (45 cents per share) gain from the proceeds from the sale of IBM´s PC division to Lenovo Group in May, and 1.7 billion charge (72 cents per share) to cover the cost of job cuts against earnings for the cost of 14,500 layoffs. That´s a combined 74 cents of one-time gains versus 72 cents of one-time losses."
If you are like me, your head is swimming and you desperately need a beer and a cigarette. But instead of us getting out notepads and calculators, he does the work for us! What a guy! He says "Net result: 2 cents of non-operating gains."
But this is not about IBM or the fact that corruption and accounting fraud is all over the place. No, what we are talking about is inflation. And in keeping with that, the cost of government is going up by leaps and bounds, and everyone agrees that government is a cost to us all. A HUGE cost! Yet these boneheads will stand up in front of me, walk right up to the bars of my padded cell, look me right in the eye and say that there is no inflation! Again, if it is NOT inflation, then what in the hell is it?
Health insurance. Property insurance. Gasoline. Taxes. All of these are going up at double-digit rates. And some of them, like health-care costs and insurance, have been going up like this for years! But if this is not inflation, then what in the hell is it?
And to compound the heart-breaking tragedy, the money that is used in all of these transactions is losing buying power because of all of this monetary insanity crap! Trust me when I say that there are more people taking a financial bath than a couple of million sleazy, slimy financial hustlers. There are many, many, MORE people in this old world who have little or no connection to the stock market, or bond market, or housing market. In fact, a larger and large percentage of people are becoming actual parasites of the government. And every one-every one! --of these pathetic people are suffering the pangs of paying for rising prices, but who are still limited by static incomes.
So (and I really shouldn´t be telling you this because you might blab to the Parole Board), but if I ever get out of here, if see one more clueless jerkwad jackass lying piece of dog crap moron halfwits tell me that there is no inflation, I will probably really lose it. Big time.
Arnold Schwartzenegger, governor or California, has a fight with the entrenched morons and commie bastards who infest California politics. Sticking point? Trying to revamp the budget process so that the dimwits do not take windfall revenues (such as the now-busted dotcom bonanza) and create on-going programs (or provide more funding for existing programs) that will still be needing all this money (and more!) long after the windfalls dry up. A rich uncle dies and leaves you $100K, and you plan to increase your annual spending by $100K. Do you plan to have a rich uncle die every year? Hahahaha! And then they turn around and wonder why California gets so little respect!
But it is not just California, to be sure. And it is not just America, either.
From Alan Greenspan´s August 2002 comments from Jackson Hole we read that he acknowledges that you cannot deflate bubbles. "It seems reasonable to generalize from our recent experience that no low-risk, low-cost, incremental monetary tightening exists that can reliably deflate a bubble. The key policy question is: If low-cost, incremental policy tightening appears incapable of deflating bubbles, do other options exist that can at least effectively limit the size of bubbles without doing substantial damage in the process? To date, we have not been able to identify such policies, though perhaps we or others may do so in the future."
Hahaha! Everybody in or out of government for the last 500 years has tried, and failed, to "identify such policies," and not one of them has even come close. But Greenspan, clueless-yet-optimistic, thinks that one may be found! I stand up and shout "What a moron!"
As security guards surround me and drag me away, I hear him admitting, now that I am out of the room, "data suggest that nothing short of a sharp increase in short-term rates that engenders a significant economic retrenchment is sufficient to check a nascent bubble." Well, duh!
ContraryInvestor.com has taken a look at the unbelievably low interest rates, especially the low Fed Funds rate. "With a Fed Funds rate at 3.25% (soon to be 3.5%) and an implied forward inflation rate of 3% (as measured using the average TIPS yield YTD), we have a spread of 0.25-.5%. C´mon, if that isn´t theoretical zero, then what is it? Bottom line? On a real basis, the Fed is still wildly accommodative. Wildly. Money is still free, so to speak. What the Fed has essentially done over the last 13+ months is bring the Funds rate from negative territory to near zero on a CPI inflation adjusted basis."
Warming to the subject, they go on. "Let´s put it this way; if the Fed is even close to done in terms of tightening rates at the current time, it will be one of the most accommodative monetary policy stance relative to CPI at the end of a Fed tightening cycle ever seen in the last half century at the very least, if not ever. In other words, ´what tightening cycle?´ There hasn´t been any!!!!!!" Note the four, count ´em four, exclamation points!
Really getting going, they write "fixed residential investment as a percentage of GDP rose to 6%. For you history buffs, that´s a new fifty year high. How about one last historical marker before we part company? Along with the GDP report last week came the Employment Cost Index for 2Q. The year-over-year change in wages and salaries recorded its lowest level EVER." Prices are up, but wages and salaries are not! And you think that this portends a healthy, growing economy? Hahahaha!
Even worse, according to Challenger´s monthly job cut analysis, "overall job cuts are on the rise in 2005, reaching 538,274 through June." Ugh.
***The Mogambo Sez: This is a dangerous market to go short, as there is something so manipulative about it. I am pretty sure that it has something to do with Alan Greenspan, John Snow and that whole idiotic, war-mongering Bush administration, which could be properly characterized as Comanche, which other Indian tribes defined as "Somebody who wants to fight me all the time."
And although I do not know where all the money went, in the first 29 days of July alone , the national debt went up by $60 billion dollars! More than two freaking billion dollars a day!
If you don´t think that this is a reason to buy gold and silver, then nothing is.
[link to www.321gold.com] |
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