Watson's Web Is An Official Affiliated Elliott Wave Partner

The Coming Economic Depression

By Mark S. Watson

This is not what the pundits on TV are telling you. It is not what the newsmen at the nations nationally recognized newspapers are saying, it is not what the FED or the US Treasury Department are saying... publicly.

But they know it just the same. Anyone with access to a computer can find out just how bad things really are. The Federal Reserve has been printing money like there is no tomorrow and yet financial pundits act as though this is simply not important enough to report.

Click Here for Word Document on M1,M2 and M3 From the Fed. (right click save target as)

The Fed's course on the surface seems to be irresponsible, but it really is the only real choice that the Fed has to forestall a major economic downturn in the US that would leave millions jobless and send many of the nations leading banks into insolvency. The Fed knows exactly what is going on, and while Greenspan will never rattle the markets and the American public at large with the whole truth, he must give some hints and allow himself some leeway when he is called before Congress to explain why things are not nearly as rosy as he led the country to believe.

Fiscal problems are being felt in every sector of the economy, except perhaps in law offices. The Governors association announced on 26 November that massive shortfalls in state budgets that totaled 40 billion dollars. With these types of deficits, something has to give. It may be heath care, education, road repairs, unemployment benefits or another essential service but something must give. These deficits were caused by two fundamental things. First, an overly rosy outlook on the nations economic future. This was largely due to the pundits on television, the financial press and the past two US administrations politically motivated economic pronouncements. These forecasts caused state and local governments to invest large amounts of capital in the stock market, eventually costing them billions of dollars. Second, the real effect of the loss of jobs and with it the tax revenues. Today we are seeing the effects of these policies and the real effects of Clinton/Greenspan/Bush economic policies. They have been a recipe for a financial disaster that everyone on the inside knows is coming. If you don't believe me look at the latest personal bankruptcy figures announced on 26 November. They are a clear sign that the economy is not on the mend but is sinking deeper into a recession.

Why Inflate?

The answer to this is simple. Inflation, while bad, is not as bad as deflation. Deflation would be a disaster in two easy steps. With inflation, there are about 10 steps, but each road leads to the same destination; insolvency. Economists, not paid by the US government, large tax-free foundations and the financial press have been warning the American people about the real state of the US economy. The problem here is that no one gets heard in the US mainstream press unless he belongs to one of the three afore mentioned groups. They are increasing becoming an axis of economic disinformation, designed to keep the unsuspecting in the markets to be fleeced by corporate America.

Jobs are still going away at a record pace. Each week new layoffs of at least a thousand persons per lay-off announcement are reported. This is not normal and bodes very ill for any future recovery. These hundreds of thousands of people will not be working, and thus will not be able to purchase things, a key factor of any true forecast of consumer confidence. These jobs are not coming back, and Alan Greenspan knows this. George Bush knows this and it is why he is setting up huge new Government agencies that will eventually employ millions; from homeland security to the proposed new Foreign Aid Department. The President knows that the only way to get out of the economic disaster now unfolding is to inflate the currency, something Greenspan is all too happy to do and to create hundreds of thousands of new federal jobs to keep America employed. This is certainly a bad thing in the long term, but in the short term it may stave off serious social disruptions at least until the next election. The real danger in this path is runaway inflation, foreign disinvestment, and foreign repudiation of the dollar. These are very real dangers as some governments have expressed private concern over the course the US is taking economically. Some have threatened to take their investment elsewhere for both economic and political reasons, still others are seeking a new reserve currency of the world rather than the US dollar. These are the real threats that await any US administration that continues down the road the Bush and Greenspan are now taking us. One day the dollar will become worth less and less until it is finally worthless.

Indeed one of the Federal Reserve Governors has already stated publicly that he will inflate the currency should it become necessary

"The U.S. government has a technology, called a printing press - or today, its electronic equivalent - that allows it to produce as many U.S. dollars as it wishes at essentially no cost," - Federal Reserve Governor Ben Bernanke

Yes, this man is a sitting Federal Reserve Governor and he is saying that he is planning on printing lots and lots of money. Apparently his Harvard and MIT degrees didn't teach him about what happened in the Weimar Republic. The danger of the US currency becoming worthless is increased exponentially with a man like that sitting on the Federal Reserve Board. So yes, you the reader must be warned, the US Economy is in deep trouble that twelve successive rate cuts have not helped and will not help.

A Crash?

Probably not the kind of crash that happened in 1929, and probably not the kind of depression that happened in the '30's. It will be worse in many respects but the effects will not be felt right away by most Americans. The US is still running massive trade and budget deficits. Over 200 billion dollars for our budget deficit this year IF we don't go to war with Iraq, if we do, those deficits will be considerably higher. Indeed, the federal deficits in America are so massive, that America cannot and does not service all of its debt. Indeed the total the credit market debt is rising at an alarming rate.

If it did, It would eat up more than half of all federal revenues. That would send the US government into immediate bankruptcy. These are simple, incontrovertible facts that you simply will not hear on CNBC, MSNBC, Bloomberg or any financial news show. However, credit must be given to CNBC that did for once let the truth leak onto the airwaves in an interview with Paul O'Neill, US Treasury Secretary when asked about these deficits and our ability to service them. He said in essence, that the financial system will fall apart when we can no longer service our debt. And still, very little is heard about America's missing trillions of dollars that no one can account for and no one is investigating. What is happening in America reads like a horror story that is not reported to the people at large who are given large doses of propaganda to keep them content and under control while they are being fleeced on a scale that has never happened before in history. Indeed the Social Security trust fund has been raided by Congress and the Administration in order to pay for the last few years of Government spending and the luxury of lying to Americans by telling them we had a budget surplus. So a crash like in 1929 is probably not in the cards, instead will be something very different and much more destructive. These news is extremely bleak, yet if one listens to the newsmen on TV, one would think everything is just 'coming up roses'. The real barometer of economic health will be the status of the US dollar, and how much foreign investment actually leaves the US in the coming months. Another barometer will be the true state of US employment, how many people will be working for the government in the coming months, how many have taken pay cuts after getting laid off in the private sector and must find work at jobs that cannot support their lifestyles and prior purchasing patterns.

It must be remembered that this is a global problem and no market in the world has been spared. The problems in the US are echoed in Europe, Asia and most importantly in Japan. However, these other nations in the long run are in better shape than the US as none if these other nations have the massive fiscal, trade and consumer debt  that the US carries.  Hence, their economic fortunes will be brighter than America's. The question mark here will be Asia, whose economic might was greatly humbled by the machinations of George Soros and the IMF. Even though some of the Asian Tigers have taken a more defensive stance with regards to a future attack on their economies, real risks remain. The vulnerability of Asia is certainly its dependence on exports to America, its primary market. Should the US dollar fare badly enough, the Asian economies would suffer a correspondingly significant risk.

If the FED continues its course in inflating the currency to keep stock prices high and the banks solvent, the dollar will become far less attractive to foreigners. The fundamental weakness of the US economy is known throughout the world. The problem is that if America goes down the proverbial tubes economically, so does much of the rest of the world, as they are dependent on American markets to sell their goods. The dollars demise will not bode well for anyone anywhere, but if the US cannot manage its own affairs economically and continues to show such continued fiscal irresponsibility, then the rest of the world will have little or no choice but to create a new reserve currency of the world. This is the real issue that any intelligent and open-minded person and or investor should seriously consider. Let it be known that the dollar will not crash overnight. It is not time for 'chicken littles' on the Internet the claim the sky is falling. It is however, time to look at the nation's balance sheets with a cold hard look, without the pie in the sky emotionalism that is the foundation of the American financial media. Our financial health as a nation depends on it as well as our personal freedoms.

The American empire is in a dire state and the debate over the past few months in foreign policy circles has been contentious. The debate appears to be between the so-called hawks (derisively referred to as 'chicken hawks', as many are draft dodgers and evaders) and more moderate elements who mostly reside outside the present administration. The debate centered how to maintain American economic, political and military might on a global scale at the same time its consumer driven economy significantly deteriorates. This was the real debate that took place just before the 911. America's foreign policy has now taken shape. It is now an aggressive, unilateral, and violent foreign policy that some in the administration, Colin Powell in particular, was attempting to prevent. The policy advise of the more hawkish elements of the administration led by Cheney and Rumsfeld were all too conveniently reinforced by the attacks of September 11^th and the ensuing war. The US Government and more importantly its policy makers now view the American population as a major impediment to its future geopolitical aims. This is reinforced by economic fundamentals that portend a disaster that no one living has seen before in the US. Hence, the extraordinary measures this administration has taken to repress the civil liberties and with them key provisions in the US Constitution, which many in the American establishment view as an antiquated impediment to their naked imperial ambitions.

The nature of our economic predicament is becoming clearer. All Americans know that the US just recently reissued new currency. But the US is yet again ready to introduce another currency into the mainstream. This is a clear sign of a significant change in America's economic structure. Counterfeiting is the reason we are being told, however it is clear to all who have been following the economy over the past couple of years that something very ominous is going on with the US money system in general and with the dollar in particular.

Pyramiding Risk

If massive budgetary deficits are not enough to bring down our economic prosperity, there is the $50 Trillion derivatives pyramid to consider. America's largest banks are fully and completely exposed to enormous risk. These risks should not be underestimated as the exposure the major US banks have to these complex financial instruments is massive. However, unlike many who predict a disaster, a serious banking collapse because of a derivatives meltdown is, in this authors opinion, somewhat less likely than many predict. Successive derivative related financial crisis over the past few years (Barings, LTCM, and a serious scare with two major US Banks in the recent past), have probably prompted policy makers to make contingency plans to deal with such an eventuality with speed and enough secrecy to avoid a major meltdown and panic that would ordinarily ensue if one of these major Banks became suddenly insolvent because of a massive derivative loss. This does not mean that a major meltdown of such a nature that even the FED and the world's Central Banks cannot fix is not possible, on the contrary, it is quite possible, though not quite as possible as many believe. Nevertheless, such a bailout would only exacerbate America's debt and dollar problem as it would require to FED to further inflate an already overinflated currency.

To get a sense of just how exposed the banking system is to a derivatives meltdown here is a chart and a graph:

Source: US Treasury Department  http://www.occ.treas.gov/ftp/deriv/dq303.pdf

Dead Broke?

It is becoming apparent that the United States is dead broke and unable to meet is future financial obligations. What is not so apparent is that the United States Government may be at a point in its history that not only are future budgetary considerations in jeopardy, but present fiscal outlays are as well. In short, we at present have no real working budget. We have spent nearly half a trillion dollars in the past 6 months using temporary spending measures. Now foreigners are leaving the US markets. This is an extremely important development that few of the major financial news services are reporting. It boils down to this; The US must attract investors to US securities in order to continue to function. Without massive (in the hundreds of billions of dollars) amounts of incoming capital, the US cannot continue its previous spending patterns. Therefore, some or most of the following will occur if the US cannot obtain foreign capital to finance its debt and budget:

The dollar will tumble to at least 40% of its present value.

Massive (20-50%) spending cuts in federal outlays will ensue.

America's march towards war will be in jeopardy.

Gold's price in dollars will rise sharply and permanently.

Interest rates will have to rise in order to attract foreign investment.

Oil will soar in price to (guesstimate) 40-60 dollars a barrel

Social and economic disruptions will occur in the US as (real) unemployment rises above 30%

Banking Holidays may become commonplace and the new US currency may entail exchanging old dollars for new (devalued) ones.

I know this is now what the pundits are saying on TV. The same pundits that said 'Dow 30,000' and 'there will be no more recessions' and 'techs stocks can only go up'. They lied then and they are lying now. If you listen to them you will be homeless and hungry. That is an absolute certainty as what is happening now is the 'end game' of America's century long dominance in the world. Wall Street knows it, the President knows it and so does the FED. It will be the collapse of the world's greatest economic power and with it the worlds only military super power. These things may not necessarily transpire exactly as stated here. The US has enormous clout and can still strong arm some nations and central banks into investing into US securities and use accounting tricks to stay afloat a (very) little while longer. The main problem is, even if we make such an attempt, will there be enough capital to cover our fiscal needs? The answer is almost certainly not.

Hence the disaster now unfolding will unfold in all of its ugly fury on a completely unsuspecting America.

Out of Bullets (June Update)

Federal and even global policy makers are in a quandary now because they are out of their conventional 'ammunition' to stave off what is becoming and what may have diagnosed, as a global deflationary recession. This has caused some policy makers, including some of the members of the Fed, to call for more unconventional measures to spark growth in the ailing economy. Even the massive tax cut that was recently passed and signed by the President will not assist the US Economy, but rather will certainly cause even larger and more troubling deficits to be accumulated . It is these deficits which are one of the major causes of America's economic malaise. Decreasing taxes for short term political gain is the very sort of thinking that has put America in such a dire economic situation. I must tell you that policy makers in Washington are scared to death. They have no answers and no solutions.

I cannot express just how quickly this economy could collapse. I am not saying that it is just around the corner, although it may very well be. But 13 successive Fed rate cuts as of 25 June, 2003 has not and will not revive this economy. Sooner or later, probably sooner, the US dollar will fall to such an alarming degree that America's economic preeminence will be seriously challenged if not completely undermined. However, another possibility cannot be discounted, that being a banking failure. Let it be noted here that a banking failure will not be advertised as such. The full power of the US government will prevent any such nomenclature from being used. It may be described as a computer glitch or a malfunctioning communications satellite or a computer hacker bringing down a key computer network. Whatever the story will be it will be plausible, it will have major TV News personalities and government pronouncements to support the story. Nevertheless it will be a banking failure. Here are some clues that will tell you that a banking failure has occurred:

• You will not be able to get money at your local ATM.

• Limited access to money at your local bank. Probably, most banks will be forced to close however, in order to keep panic from spreading, local branches may be open to provide extremely limited services.

• Your credit cards will not be accepted.

• Most financial news will be strictly controlled and it may become illegal to say the banking system has collapsed.

• There will be several days of economic inactivity/uncertainty while the Government implements emergency economic measures.

If such a collapse were to occur, there would be absolutely no warning. One day, which will be like any other day, the disaster will strike. The American people will finally realize an important fundamental fact, that being you cannot borrow yourself into prosperity. I remind you that there will be no such announcement, but if any three or four of the above mentioned things have occurred, you are living in the midst of the greatest banking and economic collapse in human history.

While a banking collapse is certainly a real possibility, the more likely scenario will be the 'slow bleed' scenario. This will entail a prolonged economic recession, coupled with the Fed continually pumping liquidity into the markets and banks, high paying jobs continuing to be shipped to India, and fiscal and budgetary problems become so acute that essential services get cut at the state and local level. While the economy continues to contract and the better jobs are being shipped overseas, American households are going deeper into debt. Here is a chart from the FED.

Source: The Federal Reserve

In millions of dollars

Notice the household debt rate for 2002 and 2003 in the Federal Reserve chart. Things are not looking so good for American households. Many have lost good jobs but borrowed money on the hopes of better days ahead. They made an terrible mistake that has them in a financial hole. Many people today are using credit cards to stay afloat, many purchased new cars at very low interest rates and others refinanced their homes or took out home equity mortgages. Many will not be able to pay these loans back, because over the next couple of years, they will lose their jobs. This will only cause troubles for the banks and finance companies.

Debt is the poison pill of the American economy. The only way to fix this economy is a two fold attack. First there must be a significant reduction in federal spending, By at least 20% per year, until all federal outlays are less than 50% of their present levels. Second there must be a debt repudiation of some kind. Consumer debt (especially unsecured debt) should be the primary target, coupled with a vigorous and complete reorganization of current credit related policies. Such policies should make the lender more responsible for unwise lending practices and much more careful before lending to customers. If an across the board 50% debt forgiveness were implemented for all unsecured debt and severely reduced interests rates for all remaining outstanding debt, as well as more favorable terms to the debtor, the economy would being to show more signs of life. However, the old way of amassing large amounts of consumer debt should be strongly discouraged in the future. Giving people more breathing room on the remaining debt will assist in rearranging household priorities in the wake of declining individual incomes.

 Of course these things will not happen. The prevailing winds of our leaders are too parochial and unimaginative to propose, let alone implement such a wide ranging solutions. However, given more poor economic performance and the threat of political unrest by large numbers of unemployed Americans, such proposals may not be impossible to bring about in the future. However a general debt forgiveness may not transpire for the following reason. There is a group of international bankers and financiers that may attempt to deliberately crash the system at the proper time in order to bring about a the necessary crisis to bring about a more powerful and global banking institution, a World Central Bank. This can be accomplished by carefully timing a market crash and/or raising real interest rates in order to confiscate the property of the people who can no longer afford to pay their debts. A banking crisis is a real possibility as stated earlier, whether or not the coming crisis will be a real one or one that is a created or planned remains to be seen. Banking collapses are not an historical anachronism, they really happen and the effects are devastating for the average person. Anyone who has studied the history of banking in America during the 1800's will know that banking instability was a constant problem for America. While the financial pundits are telling you that such a thing is only a topic for 'fear-mongers', the reality is that such a collapse is now in progress and that the smart money knows it and is moving to protect itself accordingly. However the crisis that is now upon is is so huge and gargantuan that the effects will be so devastating that no one living has ever seen anything like it, including those older Americans that lived through the great depression.

September 2003 Update

The market has been heading upwards over the past few weeks but at the same time Jobs are still going away. August saw another significant drop in payrolls, almost 100,000 jobs. These numbers are completely inconsistent with the governments claims of 3% growth in GDP. The government fictions are becoming more and more egregious and self-evident. Even though the number of actual jobs in America is shrinking, using its dishonest method of accounting, the government magically reduced the number of workers by ceasing to count those that cannot find work. In doing so, it could claim, using the 'Arthur Andersen' method of accounting, that the jobless rate actually declined, even though there were significantly less Jobs! The Governments fictions are being increasingly less believed by Americans and foreign investors alike. The most important thing to remember is that the truth and government pronouncements are mutually exclusive. These things are happening while many government numbers will pretend an ever elusive recovery. The fact that Mr. and Mrs. America are out of work or working in jobs that do not pay a livable wage is the screaming reality that is starting to hit home in more and more American households. Another looming problem on the horizon is that of a growing pension crisis. Many pension funds are woefully underfunded and years of regulatory loosening have allowed corporations to grow lax in funding their pensions a few outright stealing money from them in order to claim fictitious profitability. Now there is a gaping hole in the Pension Guaranty Benefit Program, a government agency that exists to guarantee payments to pensioners in case their funds go broke. This fund is in deep trouble and it means that one of two things will happen, either; 1) the many people who have paid hard earned money into their pensions will not get any money back or 2) the government will have to pony up billions of dollars in order to make good on those pension plans that will (and have) gone belly up. Even as corporate America claims earnings are better, there are still serious accounting 'irregularities' with the latest figures. Problems with restructuring charges, pension funds, write downs and M&A's are still present and are readily apparent to astute eyes when corporations use the pro-forma accounting that is still fashionable today.

Indeed, the Congress is acting as though the nation does not have any fiscal problems and is voting for funding of Medicare prescription costs that it has not and more importantly cannot fund without pilling up even more debt. The President is asking for more funding for his war in Iraq, to the tune of some 87 billion dollars, money that will only add to our already disastrous debt woes, once again there is no way to fund this without going further into debt. Unfunded liabilities are a serious problem for America. The following figures are cumulative and include total outlays and are not included in our current budget, hence the term unfunded:

• Medicare has been estimated at $30.5 Trillion Dollars  (Includes Hospital Insurance and Supplemental Medial Insurance (14.4 and 161. Trillion Dollars Respectively) by others. This depends on how far out into the future one wishes to estimate and using various metrics that estimate rises in costs, such as pharmaceuticals. .None of these figures is pinpoint accurate and I have extended Social Security benefits further out than most and am using a much higher inflation rate than most establishment economists care to use. Hence, these figures do not exactly match those of more prominent and 'respectable' institutions.

These outlays for the future of America are dire, even without these, the Governments imbalance is roughly half a trillion dollars. In order to fund these deficits, the American Government will have to raise taxes. Now any such move will never be characterized as such, it will be advertised as a tax cut. But the government will have to raise taxes because foreigners, especially Asians, are freeing themselves from US Federal debt instruments. That means it will be very difficult for the US to raise capital. The only way it can continue on as before is to do something illegal and keep it a secret. Watch the US Treasuries, watch the Bond markets in particular, this should tell you which way the wind is blowing insofar as America's debt crisis is concerned and make no mistake, it is a crisis. Investors in the bond markets are looking closely to see exactly how the Fed will act during this time of uncertainty.

One major problem that is causing American leadership to make the kinds of decisions that are destroying America is the fact that these decisions are made without the people having the slightest clue as to what is really going on and the real issues. Hence, stupid and destructive decisions are made and the people continue to vote for those who make them. Another note here is that this latest market rally is largely a result of insider selling that has occurred; that is, those on the inside of America's Corporations who are selling their own stock, and while we cannot be certain, it appears that the plunge protection team, (which works closely with the insiders) comes in and buys these stocks at inflated prices, using public funds in order to keep the prices high. Yes, I do believe that this is what is happening though I confess the evidence is scant. Foreigners see this trend are are withdrawing or seriously considering withdrawing from US securities. Reality and the American people's perception of reality are currently divorced. The 'trust' in the US Dollar that has allowed America to live far, far beyond its means is now on notice, the message is clear and it is flashing red, 'Get your financial house in order or your currency and with it your global political, military and economic preeminence will become as extinct as the dodo bird'.


How will it transpire? There are many views and each has and makes some very good points. However it appears to this author that it there are only four basic scenario's that could transpire, barring any external interference from the powers that be. In other words if the politicians and 'men of influence' do not intervene to prevent these scenario via suspicious power outages hitting the number one and number two financial centers as we saw in August, more wars, or another mysterious terror attack. I ask all of you to not discount what are derisively called 'conspiracy theories'. Policy makers must make contingency plans. This is done all the time. I know this from when I served in the government and as a consultant. A global financial meltdown is not a wild eyed-conspiracy theory, it happened in the 30's and it can, and almost certainly will happen again. Contingency plans have been made, these plans will be made with two main goals in mind; 1) to pacify the people (this is the primary concern, to avoid pandemonium and an angry populace) and 2) to give policy makers the time to bring in a solution to the meltdown. This is not conspiracy theory anyone who thinks that plans have not been laid have not read many of the banking regulations now on the books. These laws are some of the most heavily amended acts in US history. The Fed has an interesting document that may help to explain how they view certain types of crisis and the legislative and regulatory thinking that went behind several banking bills in the past; it can be found here. In short, it is a history of legal 'contingency planning'. You may call it 'conspiracy theory', nevertheless these bills are now law. Now Congress the FED or any other government agency is NOT going to run around yelling about such plans at the top of their lungs for fear of sparking the events that they are trying to prevent. Thus, plans for such a monumental collapse that all of the real numbers portend points to extraordinary methods being used in contingency planning. These plan are laid very quietly and sometimes they are classified.  

One or more of these are likely to follow in light of the current economic predicament.

1. Deflationary recession – Where prices fall and fall, workers continue to get laid off as companies struggle to make a profit. People continually wait for major purchases because prices are dropping rapidly.

2. An inflationary depression. - High inflation as the Fed counterfeits more and more currency to fund our current account deficits and foreigners flee the dollar and dollar denominated securities.

3. A combination of both. The price of necessities and staples rise higher and higher (energy, food, compulsory insurance) while luxury and non-essential items become cheaper and cheaper as people have less and less disposable income and importing essentials becomes more expensive because of a falling dollar.

4. Regionalized Depression – Where certain areas of the nation go into a full blown depression while others the recession is relatively minor in comparison.

These scenarios are all possible and none should be dismissed out of had. Much will depend on the Fed and how it handles this emergency. The recent 14 year re-appointment of Ben Bernanke to the Fed Board of Governors leads one to conclude that he may replace Greenspan. This is the man quoted above who thinks we should inflate our way out of our predicament, leading to result number 2 above. The rest will depend on political leadership and those who wield tremendous power, globally, quietly and behind the scenes.

Asia, Jobs and Bush.

September 28 Update

What is the real situation with regards to the employment in America. How will Americans fare during the coming economic depression? Jobs have been going overseas for the past several years, but since the beginning of the Bush administration the process has only accelerated considerably. One prominent economist stated the problem in this way

“In June it was declared that the recession had ended in November 2001. Yet in the 20 months since, payroll employment has declined by a total of about 1 million jobs, or about 8%. In not one of the seven or eight postwar recoveries has there been any employment decline.” - Kurt Richebächer

In addition to the above it must be noted that this governments figures are skewed in that it has statistically eliminated over half a million workers who have given up looking for non-existent jobs. These statistical shenanigans are very significant politically, because honest accounting of joblessness in America would place the real number of unemployed at around 10%, at least. If the number of underemployed (those with masters degrees and Phd's working in Walmart's across America) were counted, a much bleaker picture emerges. Another game the government plays with the employment figures is to play the revision game. The revision game is played by deliberately understating the number of unemployed when the figures are due out and announce them with great fanfare. Then, when the camera's aren't looking and the financial news pundits have painted the rosy picture to the people, the Government then revises the numbers upwards. These are not small statistical anomalies we are talking about but significant differences. These differences can range from 30-50% of the total! These statistical frauds are not accomplished via happenstance but are specifically designed to lull Americans and to a lesser degree the foreign investing public into a false sense of security as to the overall health of the US economy. Other deceptions are also perpetrated including adding fictional jobs to the economy. This practice gained particular favor during the Clinton Administration. In short the jobs situation in America is dismal and the real problem is this; there is positively no let up in sight. The consumer society of America is dying, and not so slowly.

From Asia the message has gone forth to US Treasury Secretary Snow, the US must mend its ways and reduce its fiscal deficits. Asians are currently reconsidering their US debt holdings in light of a falling dollar, a policy that the New US Treasury Secretary is currently supporting. There has been some movement in this area as far as the markets are concerned. Primarily, US Treasuries took a big hit during the week of 22 September. The dollar did as well as it fell to three year lows. A declining dollar offsets any interest paid by the US government on its bonds and securities and thus makes it very unattractive as an investment vehicle. Ordinarily, a weaker dollar would assist America with its exports and aid US manufacturers in selling their goods overseas. However, these are not ordinary times. The US is so far in debt that it must raise capital on the open market in order to keep financing itself. When foreigners stop buying our debt (treasuries) the US government goes bankrupt. What the Asians are doing now is a telling sign as to how perilous our debt situation in America is viewed overseas. Fortunately the slide of the dollar and the administrations support for this policy has not led to a wholesale flight from the dollar, but given the precarious nature of the economic numbers coming out of Washington, such a flight will ensue once America's previous consumption patterns give way to more fiscally frugal households. Indeed the US Census is reporting that poverty in the US is rising at the same time as incomes are falling. There are 1.7 million more Americans living in poverty this year than last. This only confirms the worst suspicions, that the consumer society is dying a slow death. America's factories head overseas, people are out of work and some are being pushed out into the street. This is not good news for foreign investors either because many are very much dependent on American consumption to keep their industries afloat. This has been the real effect of globalization, a race to the economic bottom, bought and paid for by the worlds largest corporations banks and most powerful elite. Does anyone remember the middle ages? You had two classes of people, the landholders and the serf's. The serf's owned nothing and were allowed to live only at the graces and whims of the landholders. Once the middle-class and intellectuals of any society are destroyed, this is the type of society men are left with. Rights are given by the state (read rich and powerful) and the poor have none. This, I believe is the primary goal of todays trends. It is to bring about 'economic democracy' aka Global Socialism where no-one will have the opportunity to better themselves economically and most private property will be held by the elite and it will be illegal or extremely difficult for anyone except the very rich to hold it. All real economic power will rest with a very wealthy economic elite and they will have the power of life and death over the earths serfs. This control will perhaps not be accomplished through outright murder, but by denying critical medical care, impoverishment or other technological means heretofore unseen. Prepare yourself for such a world because unless the foundational principles enshrined in the US Constitution can be resurrected in America, I fear that such a world is our fate.

If all of the above were not enough, bankruptcies continue on despite the lack of news coverage.

2^nd Quarter Bankruptcy Figures

Total Filings 440,257

Non-Business Filings - 430,926

Business Filings - 9,331

Chapter 7 - 317,604

Chapter 11 - 2,599

Chapter 12 - 279

Chapter 13 - 119,745

And this graph show the picture of bankruptcies in this so-called 'recovery':

Source ABI World

________________________

As stated earlier in this long running and rather popular article, this author believes that it is entirely possible that the succession of massive power outages throughout the major population and financial centers of the world could very well be some kind of preparation for an economic collapse (to be used as a cover story). The American governments ability to finance itself is in serious jeopardy. Now I admit that using power outages as a cover for an economic collapse is far from a forgone conclusion but when one really considers the scope and depth of the current economic situation in America such a possibility should be considered especially in light of Italy's Power outage on the weekend of the 27^th of September. Now the cause for Italy's outage seem to be storms, at least this is the 'official' line. Keep your eyes on future power outages. Major occurrences have already been;

New York-Ottowa

London

Large part's of Scandinavia

Italy

I post this only as food for thought and for perhaps a few wise souls will make preparations...just in case.

The GDP (5 November Update)

The markets this week began a interesting ride this week due to a miraculous GDP report that came out the US government. The euphoria emanating from the TV does nothing but obscure the real picture that emerges from the report.

• Defense spending is up almost 16%

• Non defense spending is up just over 7%

• Year to year, the Money supply (M1) is up over 8% for the Year ending in September.

• Investment in utilities dropped over 18%, year to year.

• A miraculous 15% Year to Year increase in Computers and peripherals (some of which has shown to be fictitious by special 'quality' or 'hedonic' adjustments¹ which makes takes a 1000 dollar computer and adjusts it upwards to 2000 dollars, thus skewing the numbers in favor of a higher productivity number.

The GDP game in the United States is a massive lie. Consider the following items, which are economically non-productive, but which are buried in the GDP report.

• The war in Iraq (which is 15% of federal spending)

• All welfare and entitlement spending

• All anti-terrorist spending including executive security

• Federal Regulatory agencies such as OSHA, EPA, SEC, etc.

• Intelligence spending (FBI, CIA, DIA, NSA, etc)

• State and local government spending.

These are all counted as GDP even though the above activities are of highly questionable economic value. In fact, if the Government spending goes up 7% and non-governmental economic activity (companies that actually produce things) goes down by 6% the government could still claim an increase in GDP! The GDP numbers are such a political hot potato these days that the numbers should no longer be believed, except perhaps as a barometer of the the political desperation of the sitting administration.

One must marvel at the way in which Wall Street seems to be complicit in the game as these facts are well known. Yet, on such a day when these government fictions are released, the market still rally's ahead fueled by the phony report. These 'smoke and mirror' activities of the government and Wall Street have a definite psychological effect on the uninformed investing public who are, after hearing these numbers and then seeing the rally are more inclined to borrow more money on their homes to invest in Wall Street's 'investment' scams.

Indeed the recent GDP numbers are more of a result of 'no interest' car loans and 'no interest 'till 2005' financing on household items and appliances and people who borrowed money against their homes to continue their unsustainable consumption, the real GDP is significantly less than the governments transparent attempts to support the market proclaim.

Nevertheless it does seem clear that there are signs of life in the manufacturing sector of the economy with orders up. This is the only real substantial (as opposed to fictitious) signs of life that exist today. This may be partly due to the declining dollar which will assist certain industries competitiveness overseas. Yet even this is not enough to really assist an economy that is shedding hundreds of thousands of jobs a month. Indeed, October's jobs numbers were another facet of an abysmal situation. Last month alone (October 2003) saw employers announce over 174,000 job cuts, the most in a year. Consequently, when the real estate Refi's are finished and the 0% financings are no more, the economy will see more significant convulsions. For now, as long as interest rates are where they are and people are still willing to borrow more money against their homes, the economy will continue to lurch along without much more pain than we are seeing now. The fly in the ointment will be an acceleration of the flight from dollar denominated assets globally or a rise in interest rates.

On another note, I advise my readers to watch what is happening in Russia closely. The entire Khodorkovsky affair is one that has enormous implications for future energy consumption as well as the dollar. It is not a coincidence that his arrest was made during negotiations to sell part of Yuko's, Russia's largest oil concern, to US oil companies. This is all occurring shortly after Putin and the head of the European Central Bank issued public statements on the desirability of Russia selling her oil to Europe in Euro's rather than dollars. This would have been an extremely significant break with the entire international trading system that has only allowed oil purchases in US dollars. It is not clear to this author exactly what is going on with the Khodorkovsky affair and hard information is difficult to come by. It is noteworthy to see how visceral the attacks have been on Putin. Never once have I seen any pundit give Putin the benefit if the doubt that maybe the charges have merit (they almost certainly do). Instead, because Putin has had the 'audacity' to arrest a rich oil man, the entire world press goes on the offensive against him, rather than against corruption; against, 'authoritarianism' rather than for the rule of law for all, rich and poor. Keep your eye on this because the howls of the lap-dog press tells me the results will effect who profits from the world's second largest oil reserves. Russian lawmakers are also looking at another oil company, that being Sibneft. It is controlled by another Oligarch named Abrahmovich. Keep an eye on who gets to profit from Russia's enormous oil reserves by watching the governments moves against the owners.

Getting back to GDP, one good barometer of the economy and the GDP is the amount of money the the federal government receives in taxes, how much is spent by Uncle Sam and how much debt as a percentage of GDP is out there. Below we have a table and a chart that tells the story.

Total Federal Receipts 1990-2003

Federal Receipts Outlays Deficit and Debt as a Percentage of GDP  

2003 Figures are before the war in Iraq. Source: Office of Management and Budget, Treasury Dep't, Commerce Dep't
*Latest Estimates from Office of Management and Budget

Even though we hear the government and media making wild claims of a miraculous recovery, we must ask the question, if this is so, why is the Government, federal, state and local taking in less money...and where are the jobs that go with such a recovery? In the coming election year the governments numbers from the CPI to the GDP; from first time unemployment numbers to the size of the deficit should not be believed. This administration has shown a unashamed propensity to use lies to support its polices (i.e., Iraq war intelligence to the number of US casualties) that its pronouncements, without additional firm and incontrovertible evidence to support its claims, should not be believed.

I'm not buying any 'recovery' talk and neither should you,..at least not yet.

So what about the latest job numbers coming out of the government (Nov '03)? Well as usual, the latest employment figures were dutifully reported by the major news media. Massive new hirings have been reported for the first time in a while and it seems, according the to the financial media, that there are now no valid reasons to doubt the recovery. Nevertheless, there are some serious problems with the numbers that are largely touted as being indicative of a significant economic upturn. These numbers, while showing some activity in the labor markets does not tell the whole story. For example:

• The index of total number of hours worked nationwide is actually down

• The largest increase in jobs is in administrative rather than manufacturing which pays and average of $7,000 less per year.

• Many jobs are in the so called service sector which pays just over the minimum wage.

• Nearly half of all job creation has been in outsourcing or so-called 'temp' jobs.

• We need a job creation rate of at least 150,000 a month to keep pace with population growth.

• While the number of unemployed went down to 6.1%, if workers who have been statistically removed from the workforce were counted, the unemployment rate would be closer to 10%.

• 10 Days after the report was released, first time filers of unemployment benefits increased by 13,000 to 366,000.

This does not demonstrate any kind of robust recovery, rather it shows a demonstrable downturn in wages and hours worked and with it, living standards. This is borne out by the increase in credit card debt. People are using their credit card to maintain their previous consumption patterns. This is not only unsustainable but very dangerous for the consumers and the banks alike.

Derivatives are on the rise. The continued 'investment' (more like gambling) in derivatives has increased by 20% in the first half of the year to a total of 170 Trillion Dollars. The largest increase has been on interest rate bets that place large amounts of capital in the hopes of a change in interest rates. This market is huge and there is great hopes of profits from it by major investors. But one must ask the question; how 'productive' is betting on the rise of interest rates? What is actually produced by these paper transactions? Who is really benefiting? How much leverage does this market have over Central Bank decisions the world over to stimulate national economies during an economic downturn or tighten when it is necessary? These are questions that go to the fundamental basis of the miracle 'new economy' that is in America and indeed the entire world. Money is increasingly being printed up en-mass and going into unproductive activities like derivatives and highly over priced stocks.

It is this authors firm belief that the entire global financial system is due for a house cleaning. A re-balancing of capital and production needs to occur before any real meaningful recovery will come. This means using capital primarily to be invested into the means of production, rather than as a tool for unproductive speculation. When this occurs and the massive American twin deficits (fiscal and trade)are dealt with in a significant, meaningful, and verifiable fashion, then and only then can we begin to talk of a meaningful economic recovery. In the meantime the growth seen in the American economy looks more like a malignant tumor than economic muscle.

Don’t believe The Hype

January 2004 Update

Three charts to what in 2004

America's much vaunted economic recovery has been touted by the media is somewhat less of a reality than we are led to believe.  The GDP purportedly grew at a frantic 8.2%  Yet incomes, adjusted for inflation rose only .8%. Jobs are still a serious issue and while economists are also touting miraculous productivity numbers, these numbers are derived from questionable mathematical methodologies. The measurement of service sector productivity reported, according to Stephen Roach, chief Economist at Morgan Stanley, is very poorly measured and is “hopelessly vague for services”. Many government statistics are far too easily manipulated by government statisticians for them to be readily believed. Take the idea of productivity and the entire idea of ‘downsizing’ a company in order to bring about higher productivity numbers. This is a highly questionable process. Many companies are using outsourcing workers especially from India in order to boost their productivity and corporate bottom lines. This coincides many economists view that productivity led downsizing and a jobless recovery go hand in hand. The more work that can be wrung out of a single person, the less likely a large company is to hire another. The rise in productivity along with the miraculous spurt of GDP growth reported late 2003 seems to bear this out. However, such a high rate of GDP growth as dutifully reported would certainly lead to more jobs. And the anemic job growth we are witnessing simply does not support these wild claims of economic activity. For example, such a high GDP growth rate would mean that the economy would be adding between 200-300 hundred thousand jobs a month. This would quickly offset many of the jobs that have already been lost during the recession. This simply has not happened nor is any responsible economist saying that it has or will. These GDP numbers simply cannot be believed. They seemed too carefully timed for boosting consumer confidence just prior to the holiday shopping season (which turned out to be lackluster). To put it bluntly other than the highly politicized release of these fanciful numbers, there is little empirical evidence to support these GDP numbers. This does not mean there has not been any growth whatsoever. That is not the case. Indeed, the weakening dollar does seem to have provided much needed additional competitiveness in select US manufacturing industries. We have seen clear signs that the manufacturing sector is rebounding. December 2003 saw the manufacturing index rise from 62.8 to 66.2, a 20 year high. Thus the weakening dollar, while troubling and quite possibly, eventually disastrous does have some measurable and tangible economic benefits.

Now we come to the crux of the matter the U.S. dollar is in serious trouble. U.S. current account deficits have ballooned to half a trillion dollars. This has helped keep U.S. consumption very high. These inflows (via foreign investors) have been seriously inhibited over the past several months because foreigners have very recently shunned dollar based securities. This is ominous and as long as foreigners shy away from our markets we must print money to keep ourselves from going bankrupt. Simply put, the more the fed prints the lower the dollar will go. The best that can be hoped for is a slow, measured descent rather than a shock. However in the long run it will mean two things for American consumers.

          Much higher prices for imports which accounts for the vast majority of America’s consumer goods purchases

          Much higher rates of interest for money borrowed.

Thus, this recovery is based more upon the machinations of the Fed (printing money) than in any meaningful economic recovery. America’s balance of payments problem is a serious one and one that will cause serious international trade disruptions in the very near future. If the Euro continues to rise, some economists believe this will help solve America’s payment deficit problem. This is something Europe will fight tooth and nail. In essence, striped away to its fundamental form, what is happening today in the Global financial system is a massive debt default of the US Government. It is a game of economic 'musical chairs' and each nation must protect itself as much as possible from the fallout of an American debt and financial collapse. The simple fact that the US government is having trouble financing its current account debt is the most significant event that transpired in 2004, bar none.

"The main theme continues -- US dollar weakness and continued difficulties faced by the world's largest economy in financing its huge current account deficit," - Mark McFarland, currency strategist at UBS.

What does this statement mean? Once again in the simplest terms, America is broke and cannot go out and borrow like it used to in order to keep itself going. This is not an obscure ‘conspiracy theory’, this is happening now as you read this. The US media has kept the vast majority of this information from you in order to forestall a panic. They do not want you to put two and two together and then protect yourself.

This President’s continued confrontational, unilateral and uninformed decision-making will lead to a serious rift between America’s traditional allies as he continues to fight and war with her traditional enemies. This will only serve to further isolate America. The opening salvo’s of this coming trade war could be seen in the steel quota and tariffs question which was quite a news topic late in 2003. Bush finally had to back down in light of the fact that a serious trade war would undermine his reelection chances, as it would seriously dash any hope of economic recovery.  A Bush reelection would certainly mean serious trade problems with our European and eventually Japanese trading partners. Such a war could actually seriously test or even undermine the WTO. Its rules may become obsolete as nations desperately attempt to protect their currencies, markets and jobs. To add insult to injury, America’s war on terror is a very expensive affair, One that America is now trying to get out of paying for by debasing its currency, thus shifting the burden to America’s trading partners. When currencies are devalued essentially a nation is reneging on its financial obligations by repaying its trading partners with something that is worth less than before. Thus America is trying to get Europe and Japan to pay for this war through a debased currency.

As Karen Lissakers put is so well in her book, Banks Borrowers and the Establishment, “The most common form of sovereign debt default is currency debasement, either directly through devaluation or indirectly with inflation” This is what we have seen with the Greenspan policy over the past several years, a concerted effort to inflate ourselves out of our financial mess. The chickens now come home to roost  in the form of foreign repudiation of the Dollar and a coming debt crisis in America.

The budgetary surpluses left by Bill Clinton have been erased by President Bush’s reckless and myopic economic, military and security policies. In just a three short years this President’s policies have erased a fiscal surplus, launched the nation into two wars and caused its currency to fall by over 30% percent. He has rattled a long term allies and stirred up old enemies as he marches confidently towards an almost assured reelection. It is his irresponsible policies bear much of the blame for America’s economic predicament, though certainly Alan Greenspan bears much of the blame as well.

The dollar’s volatile trading with the European Union , and Japan will be the economic story of 2004. As the German and French economy begin to show marked signs of recovery using far more believable economic measuring methodologies, the appreciating Euro strengthens Europe’s ability in the future to acquire goods and services using its stronger currency. The future of the Global Financial system is at stake. An important tell-tale sign in the future, in my estimation, will be to see how Russia decides to accept payment for its increasingly important strategic oil reserves. As mentioned earlier in this article, Russia and the EU have come to an understanding in principle to sell oil to the EU based in Euro’s rather than dollars. While this is far from a done deal it would appear that the Europeans and the Russians are tiring of the dollar game which consistently puts them at an economic disadvantage and leaves them at the whims of Alan Greenspan whose economic policies are highly questionable. The game leaves the ultimate holder in oil transactions (Russia) holding increasingly worthless US Dollars. However the Russians and the EU will show remarkable restraint over the coming months and even years in pursuing such a policy as it would pave the way for entirely different financial system at which the dollar would no longer be the center point. Each knows that the current United States President, George Bush and his neo-conservative cabinet would never allow Russia and Europe to trade fairly. They would launch an all out war against anyone, including Russia and the EU if they saw their economic and with it political and military preeminence so seriously threatened. This may be one of the reasons that many in the EU have sought to distance EU military security from that of NATO and create a truly pan-European Security policy and with it an effective EU military outside of American interference. It would have been unthinkable just a few short years ago to think that America would launch an invasion against another oil rich nation Iraq under conspicuously false pretenses. American strategists have attempted to drive a wedge between Russia and the EU by proposing US (as opposed to NATO) bases in the Eastern European nations, thus providing a military and economic bulwark against a Russian-EU economic alliance.

This is the dilemma that the Russians and the EU face.  Indeed OPEC well recognizes that there is a madman in the White House who will use any and all means to maintain America’s preeminence. Thus this clear and present danger to world peace, which occupies 1600 Pennsylvania Avenue, is a force to be reckoned with by those nations who wish to conduct free and fair trade among themselves without America’s continued harassment and interference. OPEC is running scared as they are aware that it is all too easy to be put on the Neo-Conservative list ‘Axis of Evil’ states. Each must tread carefully now, because for the moment each OPEC nation must take dollars in exchange for their Oil. If OPEC decided in unison to accept payment in either Euro’s or Dollars or worse yet, in Euro's only, this would create a serious financial crisis for America. As this is published Russia and OPEC are making plans to establish a ‘business dialog’. It is in light of OPEC's desire (and most likely eventual success) in freeing itself from being forced to sell its oil in dollars that one can better understand American unwillingness to leave Iraq. It is this authors firm belief that this was the plan all along. I and many other economists have said that in the near term the Dollars days were numbered. The US Administration knew that finding a source of oil that was under direct US control was essential, otherwise almost all economic activity in the US would come to a screeching halt when the dollar collapsed and oil could no longer be purchased. Remember; there never was any link between Saddam and Islamic terrorist networks. No evidence offered proved or even insinuated any such link. Additionally, time and time again, we accused Saddam of having weapons he did not posses and top policy makers, inspectors and intelligence analysts said for the record that he did not have them. Our 'War on Terrorism' was the propaganda method used to sell our naked aggression to US voters. Oil was the key and still is, because in 2-3 years barring a serious war with key OPEC nations, Oil well be available for purchase in Euro's and or (gasp!) gold.²

OPEC needs the political support of a major military player in order to break the bonds of the US dollar. It does not want to keep taking paper for its oil so until they can garner this support (Russia? EU? China?) they will have to sit still and take it. If China decided to diversify its 400 Billion dollar currency reserves into another currency say, Euros, this too would be a crisis point. Thus, we can better understand how Bush could warn Taiwan (a long standing friend) during a recent high level Chinese visit and coddle Beijing (a wiley fox than has long standing 'bone to pick' with America). He simply has no choice.

These are only two potential crisis points on the world economic scene and they are very, very real. While any move by OPEC will probably not happen in 2004, look for OPEC to make more, quiet moves diplomatically and politically to meet this dollar crisis. China is unlikely to move its assets out of dollars just yet and anger its most important trading partner. Nevertheless, neither will continue to take severely depreciated pieces of paper in exchange for real goods and hard assets.

Recognizing that America may be attempting to solve its twin deficit problem through a currency debasement, super investors such as Buffet and Soros are abandoning the dollar in favor of other more stable currencies. Additionally it will be nearly impossible for America to attract foreign investors for its Treasury Bills and bonds in future Federal Debt auctions. This is the more perilous question in my opinion, because while economists do believe that it is possible for America to shift these deficits over on to other partners through a currency the basement, the real problem will be how to finance America’s budgetary deficit without using the printing press to such a degree that our currency not only declines but declines to such a degree that is becomes worthless. This is an enormous gamble that is being taken on America’s economic future by Secretary Snow and Greenspan. It is a gamble that is almost certainly going to backfire in an uncertain and unexpected way. One way this could happen is through a series of competitive devaluations. This is one way the Europeans and Asians with the exception of China (whose currency is pegged to the dollar) could get out of seeing their markets and production dry up because of a lack of consumption by Americans. The other is through currency controls. This could happen if the Europeans in particular see the dollar becoming worthless. Unless they were being forced to take these dollars through America’s geopolitical strategies (war, cut off of oil supplies to Europe, etc³). This would certainly a cause of violent reaction in the form of currency control by the Europeans. This is not an unlikely outcome and while currency controls may not be formally introduced they may through some bureaucratic or administrative means be implemented nonetheless. Indeed America’s printing press solution is one that is increasingly being seen as a one that offers diminishing returns over time. This can be seen from the M3 Velocity rate versus GDP chart.  

There is clearly a diminishing rate of return on the FED funny money that is pumped in the economy. It’s important here to keep in mind that Europe to Asia and America all recognize that there are serious systemic problems with the dollar, with dollar based securities and the ability of America to finance its deficits and the future method of payment for key commodities in the world most particularly oil.

Make no mistake when the President of the United States tells Taiwan it had better 'behave itself' while cuddling the Chinese dragon you can recognize who is in the driver’s seat today. It is not America. While our financial elite make great pains to appear that they are in the driver’s seat and in control and have a good handle on the situation to the population at large, signs are beginning to to show themselves that this is not only not the case but that there is another battle being waged behind the scenes to see who will have economic preeminence when the dollar fails. China is the largest holdings of U.S. Treasuries and dollar assets in the world today. Nevertheless the threat of the Chinese dumping American securities on the open market in retaliation for its trade policies is not one to be lightly dismissed. And the fact that they  have been cutting their overseas holdings over the past few quarters should give us pause to consider. Japan’s problems are also going to two America's twin deficit problems. It is currently attempting to keep its currency stable against a declining U.S. dollar because such a decline makes Japanese goods in particular automobiles too expensive for Americans to buy. Thus we see the massive currency interventions by the bank of Japan and plans as well as  capital being set aside to continue this policy. The Japanese have set aside nearly $930,000,000,000 for currency intervention. This is a mind boggling sum... it’s stifles the imagination to think that much money is being put aside to prop up the U.S. dollar in order to keep Japanese cars on American highways. Yet the Japanese have no other market other than America to keep buying big ticket items. The system is in its entirety, broken and what is being offered now in by central bankers are not solutions but rather only short term fixes that in essence, fix nothing.

And what does this mean? Simple. There will be at dollar crisis in the near term though probably not next year. There are many factors coming together next year ('04). The simple fact that the FED is offering such low and discounted rates on U.S. Treasuries while at the same time the dollar declines in value is going to lead many investors away. In addition, as foreigners begin to sell the U.S. dollars; this will only cause the dollar’s decline to gain momentum as no one wants to hold anything that is consistently dropping in value. It is my estimation that not much can or will be done to stop the dollar’s decline. I believe that there has been a ‘gentleman’s agreement’ between the Europeans and the Americans has probably been reached to let the dollar decline slowly and steadily which is what we’re seeing now. There’s not much Secretary Snow can do about this despite his earlier policy announcements that this was an intentional policy. Inasmuch as he wants to sound as though he’s in the driver’s seat rest assured market forces are running the show. However, this being an election year, other factors may play a more prominently role, especially in light of America’s elite and their ability to mass manipulate public opinion. It is entirely likely that the Dow will continue to rise that may even top 12,000 just before the election in 2004. However., this will all happen while the dollar declines. Next year look for Fed officials and the Treasury Secretary to go on that national television and pontificate to the mass of misinformed and uninformed Americans that the dollar’s decline is “good for America”. This will all happen while gold prices rise, though gold will probably rise at a much slower rate than the dollar’s fall against the Euro. Americans will drink up the propaganda as usual and reelect George Bush by a comfortable margin. It does appear that America’s financial and political elite are quite pleased with Bush’s performance on the world stage. He has treated financial corruption with kid gloves and allowed the wall street fraud-circus to continue to fleece the American people. While the wars are not going quite as well as they would like, contracts are being awarded to key people and companies and they are quite pleased with the increased revenues. Thus despite the poor performance overall in a war in Afghanistan (the Taliban are back) and the fact that our war in Iraq is going very poorly (11,000 Casualties and daily attacks against US Forces), the American establishment is more than happy to pay this price in American blood for their contracts.

Having said these things the market’s rise lately to over 10,000 is an unwarranted an irrational exuberance th