Monday, February 28, 2005

Signs of the Economic Apocalypse 2-28-05

From Signs of the Times 2-28-05:

The euro closed at 1.3243 dollars on Friday, up 1.2% against the dollar. The dollar closed at 0.7551 euros. Oil closed at 51.49 dollars a barrel (38.88 euros), up sharply at 6.5% for the week in dollars compared to last week's close of $48.35 (36.99). In euros, oil rose 5.1% for the week. In the US stock market, the Dow closed at 10,841.75, up 0.4% from last week's close of 10,796.01. The NASDAQ closed at 2065.40, up 0.3% from last week's close of 2058.62. Gold closed at 436.30 dollars an ounce (329.45 euros), up 2.2% from last week's close of 427.10 (324.60 euros). Gold rose 1.5% in euros during the past week. Comparing gold to oil, an ounce of gold would buy 8.47 barrels of oil, down 4.3% from last week and 5.7% over the last two weeks. Gold is climbing steadily, but oil is jumping more rapidly lately.

I've noticed that often there is some bad news mid-week that gets overshadowed with some timely bit of good news by Friday, giving the martini and cigar crowd a bounce in their step going into the weekend (and giving those of us who write weekly summaries less of a clear story). After a rough week, with oil price increases, fears of a dollar crash, it was announced on Friday that U.S. growth in the last quarter of 2004 was revised upward. Here is what Reuters had to say on Friday:

GDP Revised Up on Stronger Exports
By Glenn Somerville

(Reuters) - U.S. economic momentum at the end of 2004 was significantly stronger than previously thought, according to a government report on Friday revising up fourth-quarter output to reflect stronger exports and investment.

The Commerce Department said gross domestic product, the gauge of total goods and services production within U.S. borders, grew at a revised 3.8 percent annual rate in the final three months of last year instead of 3.1 percent reported a month ago.

That was slightly stronger than the 3.7 percent rate that Wall Street economists had forecast and only a small decline from the third quarter's 4 percent pace.

Nearly half the revision stemmed from a stronger trade performance, reflecting more robust exports than previously thought. Statistics Canada corrected a $1.4 billion error in underestimating U.S. exports to Canada during November, and later data also showed the U.S. trade deficit for December narrowed more than had been anticipated.


Despite the fourth-quarter revision, there was no change in the government's calculation that GDP grew 4.4 percent in 2004, ahead of a 3 percent increase in 2003 and the strongest for any year since 1999, when it expanded 4.5 percent.

…Merrill Lynch economists Sheryl King and David Rosenberg said in a commentary afterward they expected a strong first quarter but some gradual slowing in GDP growth as stiffer credit costs begin to bite later in the year.

In spite of that last minute bit of good news on Friday, the signs are getting even more ominous this week. The fact that there was healthy GDP growth in the United States is good news only if you forget that that growth was achieved by borrowing way too much money. The spike in oil prices seems to indicate a trend, as does the increase in gold prices. The sharp drop in the dollar on Tuesday caused by statements of the South Korean central bank that they might shift their reserve holdings away from the dollar frightened a lot of people. The problem was covered up by the end of the day by reassuring statements by the central banks of Japan and South Korea, but the implications are clear. According to Patrick Martin,

The fragility of the international currency and financial markets has been underscored by the turbulence which followed reports that the Bank of Korea might be looking to lessen its holdings of dollar-based financial assets. Stockmarkets dropped on Tuesday and the US dollar fell sharply -- losing 1.3 percent against both the euro and the yen -- following a parliamentary report by the Bank of Korea that it would increase investments in high-yielding non-government debt and diversify its holdings into a variety of currencies. In the wake of the market plunge, Asian central banks mounted a rescue operation. The Bank of Korea issued a statement declaring that, while it was planning to shift more of its reserves into higher-yielding non-government bonds, it was not planning to sell existing dollar holdings.

[...] While the immediate crisis has passed, the underlying imbalances which produced it continue to worsen. As the Financial Times (FT) commented in an editorial on Wednesday: "If the mighty dollar can be rocked by a single paragraph in a report to the Korean parliament then something is sorely amiss. That something is the dependence of the dollar on a handful of Asian central banks, which between them control $2,400 billion reserves."

These reserves are getting larger by the day and as they grow so does the incentive to shift out of the dollar to guard against any capital loss caused by its depreciation. Of course, if all the Asian dollar holders move out, they will set off a plunge in the dollar's value and suffer major losses (in some cases up to 10 percent of gross domestic product). But individual central banks may be able to shift out of the dollar at a good price. The problem, however, is that others will be tempted to follow, setting off a collapse.

Moreover, as the FT editorial pointed out, even if central banks do not withdraw funds, the US currency is still far from safe. This is because, with private capital inflow having fallen off markedly since the end of the 1990s, the US depends on increased purchases of its financial assets by foreign central banks to fund its growing balance of payments deficit.

[...] American imperialism may hold military sway over the world at present, but from an economic standpoint, it is an unstable and declining power, forced to borrow over $600 billion a year (more than the entire Pentagon budget) simply to balance its books. This acute contradiction between superficial military strength and underlying economic weakness is what lends such an explosive, even deranged character to American foreign policy. In that sense Bush, with his semi-literate banality and messianic bluster, is not an accidental figure. He personifies the crisis and historical blind alley of American imperialism.

The situation is so alarming to the establishment, that they are now issuing public warnings in outlets like The New York Times. An editorial there stated,

When a seemingly innocuous remark from the central bank of South Korea makes the dollar tank, as happened on Tuesday, all is not well with the United States' position in the world economy.

The dollar has been on a downward trajectory for three years, thanks in part to the Bush administration's decision to try to use a cheap dollar to shrink the nation's enormous trade deficit. (A weak dollar makes exports cheaper and imports costlier, a combination that theoretically should narrow the trade gap.) To be truly effective, however, a weak dollar must be combined with a lower federal budget deficit - or even a budget surplus, something the administration clearly hasn't delivered. So predictably, the weak-dollar ploy hasn't worked. The United States' trade deficit has mushroomed to record levels, as has the United States' need to borrow from abroad- some $2 billion a day - just to balance its books.

Enter South Korea. On Monday, its central bank reported that it intended to diversify into other currencies and away from dollar-based assets. And why not? It holds about $69 billion in United States Treasury securities, or 4 percent of the total foreign Treasury holdings. Such dollar-based investments lose value as the dollar weakens, leading to losses that any cautious banker would want to avoid. But as the Korean comment ping-ponged around the world, all hell broke loose, with currency traders selling dollars for fear that the central banks of Japan and China, which hold immense dollar reserves - a combined $900 billion, or 46 percent of foreign Treasury holdings - might follow suit.

That would be the United States' worst economic nightmare. If it appeared that the flow of investment from abroad was not enough to cover the nation's gargantuan deficits, interest rates would rise sharply, the dollar would plunge further, and the economy would stall. A fiscal crisis would result.

Tuesday's sell-off of dollars did not precipitate a meltdown. But it sure gave a taste of one. The dollar suffered its worst single-day decline in two months against the yen and the euro. Stock markets in New York, London, Paris and Frankfurt dropped, and gold and oil prices, which tend to go up when the dollar goes down, spiked.

Even the normally idiotic Thomas Friedman, the Times' great cheerleader of globalism and the American Empire, is getting scared:

The dollar is falling! The dollar is falling! But the Bush team has basically told the world that unless the markets make the falling dollar into a full-blown New York Stock Exchange crisis and trade war, it is not going to raise taxes, cut spending or reduce oil consumption in ways that could really shrink our budget and trade deficits and reverse the dollar's slide.

This administration is content to let the dollar fall and bet that the global markets
will glide the greenback lower in an "orderly" manner. Right. Ever talk to someone who trades currencies? "Orderly" is not always in the playbook. I make no predictions, but this could start to get very "disorderly." As a former Clinton Commerce Department official, David Rothkopf, notes, despite all the talk about Social Security, many Americans are not really depending on it alone for their retirement. What many Americans are counting on is having their homes retain and increase their value. And what's been fueling the home-building boom and bubble has been low interest rates for a long time. If you see a continuing slide of the dollar - some analysts believe it needs to fall another 20 percent before it stabilizes - you could see a substantial, and painful, rise in interest rates.

"Given the number of people who have refinanced their homes with floating-rate mortgages, the falling dollar is a kind of sword of Damocles, getting closer and closer to their heads," Mr. Rothkopf said. "And with any kind of sudden market disruption - caused by anything from a terror attack to signs that a big country has gotten queasy about buying dollars - the bubble could burst in a very unpleasant way."

Why is that sword getting closer? Because global markets are realizing that we have two major vulnerabilities that this administration doesn't want to address: We are importing too much oil, so the dollar's strength is being sapped as oil prices continue to rise. And we are importing too much capital, because we are saving too little and spending too much, as both a society and a government.

"When people ask what we are doing about these twin vulnerabilities, they have a hard time coming up with an answer," noted Robert Hormats, the vice chairman of Goldman Sachs International. "There is no energy policy and no real effort to reduce our voracious demand of foreign capital. The U.S. pulled in 80 percent of total world savings last year [largely to finance our consumption]." That's a big reason why some "43 percent of all U.S. Treasury bills, notes and bonds are now held by foreigners," Mr. Hormats said.

And the foreign holders of all those bonds are listening to our debate. They are listening to a country that is refusing to raise taxes, and an administration talking about borrowing an additional $2 trillion so Americans can invest some of their Social Security money in stocks. If that happened, it would almost certainly weaken the dollar, further depreciating the U.S. Treasury bonds held by all those foreigners.

On Monday, the Bank of Korea said it planned to diversify more of its reserves into nondollar assets, after years of holding too many low-yielding and depreciating U.S. government securities. The fear that this could become a trend sparked a major sell-off in U.S. equity markets on Tuesday. To calm the markets, the Koreans said the next day that they had no intention of selling their dollars.

Oh, good. Now I'm relieved.

"These countries don't have to dump dollars - they just have to reduce their purchases of them for the dollar to be severely affected," Mr. Hormats noted. "Korea is the fourth-largest holder of dollar reserves. ... You don't want others to see them diversifying and say, 'We'd better do that, too, so that we're not the last ones out.' Remember, the October 1987 stock market crash began with a currency crisis."

When a country lives on borrowed time, borrowed money and borrowed energy, it is just begging the markets to discipline it in their own way at their own time. As I said, usually the markets do it in an orderly way - except when they don't.

Here we are seeing an odd convergence, one where Anglo-American neo-liberal establishment figures like the New York Times and Thomas Friedman are writing pieces that sound more and more like those published in the World Socialist Web Site or Doug Henwood of the Left Business Observer. Even the New Republic, that bastion of neo-liberalism, supporters of the Iraq War, published an analysis of the failure of American liberalism that was little different from Marxist ones. Both lay the blame for the sharp shift to the right in US politics to long-term structural economic factors like the falling rate of profits of corporations. Speaking of the failure of even Democratic administrations to pass new liberal legislation since the Nixon years, John Judis writes in The New Republic:

It is convenient to blame these failures on incompetence, but the truth is that structural factors were more important. Liberalism's success from the '30s through the 1960s was based primarily upon certain special economic and political conditions: popular pressure from below, business' acquiescence in reform, and the conviction of the nation's opinion-makers that reform was good for America. Since then, dramatic changes in the international economy have turned business against reform and weakened the other forces supporting reform.

[...] Most of the liberal reforms that Congress adopted during Roosevelt's presidency had been circulating since the turn of the century, but they had been blocked by legislators who took their cue from business and classical economics. Enacting those reforms took more than Roosevelt's political genius. As David Plotke spelled out in Building a Democratic Political Order, it took an earthquake in American opinion and class relations.

During the Great Depression, conservative business leaders lost their self-confidence and their public support, while a revived labor movement and a populist upsurge put pressure for reform on Congress and the White House. At the same time, many opinion-makers--including corporate lawyers, economists, ministers, political leaders, writers, and a sprinkling of maverick CEOs--backed Roosevelt's liberalism as an alternative to revolutionary socialism or populism and as a means of lifting the country out of the Depression.

[...] During this time, business enjoyed considerable clout in Washington, but many top business leaders, led by the pro-Keynesian Committee on Economic Development, accepted the liberal argument for Social Security and the minimum wage, and even for collective bargaining.

[...] Underlying this center-left consensus--which prevailed regardless of the party in the White House--was the widespread conviction that the New Deal and regulatory reforms were good for, or at least did no harm to, U.S. business. General Motors executives could agree with the United Auto Works to exchange labor peace for five years of rising wages because they expected that growing demand and superior productivity would protect their profit margins. Many corporate executives welcomed regulation as a way of demonstrating that their companies were good citizens. As late as 1970, a survey of Fortune 500 CEOs found 57 percent believing the federal government should "step up regulatory activities."

New Deal liberalism had been nurtured by the political economy of the Great Depression and sustained by postwar prosperity, but sometime in the mid-'60s, the U.S. and world economy entered a new phase that was not as congenial to reform. Western European and Japanese companies, having fully recovered from World War II, began to compete effectively with U.S. firms. As East Asia industrialized, the world economy began to suffer from overcapacity in steel, autos, textiles, and other key postwar industries, putting additional pressure on profits, especially in manufacturing. According to economic historian Robert Brenner, author of The Boom and the Bubble, average net profit margins in U.S. manufacturing fell from 24.6 percent from 1959 to 1969, to 15.5 percent from 1969 to 1979, to 13 percent from 1979 to 1990.

With their profit rates in jeopardy, businesses no longer acquiesced in unionization and new federal regulatory reforms. Businesses increasingly resorted to tactics that violated the Wagner Act. In 1957, for instance, the nlrb ordered 922 organizers reinstated for being illegally fired; in 1970, 3,779; and, in 1980, over 10,000. At the same time, corporations set up shop in Washington to lobby for deregulation and tax cuts. In 1971, only 175 businesses had registered lobbyists in Washington. By 1982, 2,445 had. Business revived old organizations, including the National Association of Manufacturers (NAM), and established new ones like the Business Roundtable.

Business also joined the battle for ideas, funding new public policy groups and think tanks that issued reports, written by paid experts, arguing that government regulation and high taxes and spending were responsible for the country's economic
slowdown. These ideas found a receptive audience among the country's opinion-makers. Just as the Great Depression lent credence to a Keynesian focus on effective demand, the stagflation and international competition of the '70s seemed to support classical economics and its focus on profit margins. These attitudes permeated public opinion, particularly in the late '70s. The public remained generally supportive of Social Security and Medicare, but became skeptical about taxes and regulations and any new program that appeared to be based on government expansion.

I'm not sure what to make of this convergence between alarmist, left critics and the mainstream media moderates, except that, with the crisis rapidly approaching, things are coming to a head and are therefore coming more and more out in the open. It appears that the establishment middle-of-the-roaders are peeling off of the fantasy politics of the Bush right wing. It must be alarming to those types in the establishment media that the Bush people do not care what they think. They have been used to having their opinions taken seriously by the political elite (if not by the people). Now no one takes them seriously, which might explain some of the anxiety of the media elite about blogging and the internet.

Speaking of convergences, more and more conservatives (true conservatives, that is, not the neo-conservatives or the imperial fascists of the Bush administration) have joined with the left in their contempt for Bush and his policies. The southern conservative, Charley Reese , for example, has this to say about Bush's Social Security reform proposal:

While you are contemplating the president's scheme to gut Social Security, you should remember that Wall Street and Las Vegas have a lot in common. They are both in the gambling business. When most people buy stocks, they are gambling that the price of those stocks will rise. What most don't think about is that the price will have to rise a heck of a lot to avoid the law of zero return. That means to determine your real return on an investment, you have to subtract the commissions (both buy and sell), inflation and taxes.

And, as in Las Vegas, if you want to win big, you have to bet big. The limits the president has in mind practically guarantee that the low-wage worker will end up with nothing plus reduced Social Security benefits. You would be better off going to Las Vegas. The casinos at least are honest. They will tell you the odds against you on every game in their buildings. If the president has been honest with the American people on any subject, I must have missed it.

There are already plenty of programs that will allow working men and women to save for retirement, and, of course, Congress can create more. What they need most is a living wage. There is no logical reason whatsoever for the president's scheme
other than to fatally injure Social Security and provide a bonus for his Wall Street buddies.

Social Security is not going bankrupt. The estimated shortfall in the year 2052 won't even exist if the economy grows at the rate the president talks about when he's touting his private-investment scheme. This is a clear example of his dishonesty. When he touts private investment, he bases his numbers on a high rate of growth; when he predicts bankruptcy for Social Security, he bases his numbers on a low rate of growth. Well, you can't have it both ways. If the growth rate is high, Social Security will prosper; if it's low, private investments will tank.

Monday, February 21, 2005

Signs of the Economic Apocalypse 2-21-05

From Signs of the Times 2-21-05:

The Dow closed at 10,785.22 on Friday, down slightly (0.1%) from last week's 10,796,01. The NASDAQ closed at 2,058.62, down 0.9% from last week's close of 2076.66. The interest rate on the ten-year US Treasury Bond was 4.26% up sharply from last week's 4.08%. Gold closed at $427.10 (324.60 euros) an ounce, up 1.2% in dollars from last week's $422.00 (327.89 euros) but down 1% in euros. Oil closed at $48.35, up 2.5% from last week's $47.16 close and up 4% over the last two weeks. The dollar lost ground again against the euro, closing at .7650 euros or 1.3072 dollars per euro, down 1.56%. An ounce of gold would buy 8.83 barrels of oil on Friday down from 8.95 the week before.

An ominous, yet realistic, sense of foreboding is starting to break through the happy talk.

Consumer sentiment fell in February for the second straight month, puzzling analysts who haven't been paying attention. Bush's dilemma has always been that to maintain power, to invade countries and to get things like Social Security "reform" done, he has to scare people. Scaring people, however, hurts the economy by destroying optimism.

More attention is being paid to the "inverted yield curve" this past week, due in part to the fact that Alan Greenspan had no explanation for it during his congressional testimony on Thursday and that inverted yield curves always precede recessions. An inverted yield curve is when short-term interest rates are higher than long-term interest rates. In other words, since the US Federal Reserve Board began to raise interest rates (the short-term ones) the long-term rates on ten-year bonds (as well as longer term bonds and housing mortgage rates) have actually gone down. This situation almost always predicts a serious recession.

Here's what the New York Times said in an article by Jonathan Fuerbringer:

When Alan Greenspan says he cannot explain why longer-term interest rates are so low, what's an investor to do? Take cover.

Some money managers are doing just that because they have had the same problem as Mr. Greenspan, the Fed chairman: they cannot understand the decline of longer-term rates despite six increases in short-term rates by Fed policy makers since June.

"This development contrasts with most experience," Mr. Greenspan said last week in testimony to Congress. "Other things being equal, increasing short-term interest rates are normally accompanied by a rise in longer-term yields."

Instead, the yield on the Treasury's 10-year note has fallen to 4.26 percent from 4.69 percent at the end of June 2004, despite a climb of 1.5 percentage points in the central bank's short-term rate benchmark, to 2.5 percent. While Mr. Greenspan cited many possible reasons for this unusual happening, he ultimately concluded that "it remains a conundrum."

That's enough to make Paul A. McCulley cautious. "When the Fed chairman says he's scratching his dome, you should be scratching yours," said Mr. McCulley, a portfolio manager and economist at Pimco, the asset management and mutual fund company in Newport Beach, Calif. "You should always be wary when the central bank says an asset price is aberrant."

Thomas H. Atteberry, a manager of the New Income fund at First Pacific Advisors in Los Angeles, agrees. "He's the guy who is supposed to have all the information," Mr.
Atteberry said of the Fed chairman. "And he is telling me he doesn't know why. Why commit capital to a long-term investment when you don't understand why it's valued that way?"

Mr. Greenspan also acknowledged that he was puzzled by other economic behavior. Although investors seem willing to take on more risk, businesspeople appear reluctant to do so. Capital investment has lagged behind the big rise in corporate profits. And worker productivity, a factor in restraining inflation, has proved to be "notoriously difficult to predict," he said.

There were other disturbing aspects to Greenspan's remarks. Greenspan said to Congress on Thursday that by permitting the further growth of federally backed mortgage companies, Fannie Mae and Freddie Mac, "we are placing the total financial system of the future at a substantial risk" [Read full article]. That is apocalyptic language for Greenspan. Fannie Mae and Freddie Mac are government-chartered companies that buy up mortgages from private lenders. They are also privately owned by shareholders, but they enjoy the perception by the market that they are federally backed, since investors don't think that the government can let them fail for social, political and economic reasons. Since 1997, their holdings have tripled, growing to $1.5 trillion.

Greenspan urges cuts at Fannie, Freddie

Fed chief says $1.5 trillion mortgage portfolio will cause problems for nation's financial system.

February 18, 2005: 9:19 AM EST

(Reuters) - Federal Reserve Chairman Alan Greenspan urged Congress to significantly cut the mortgage portfolios of the big mortgage firms Fannie Mae and Freddie Mac to avoid "almost inevitable" problems for the U.S. financial system.

Greenspan has in the past expressed concern about the growth of the companies' mortgage holdings, saying they could pose a risk if allowed to increase unchecked. The Fed chairman went farther Thursday, telling members of the House Financial Services Committee they should require the companies to slash their mortgage holdings.

Congress is weighing tighter supervision of the mortgage finance companies after accounting controversies and senior management ousters at both firms in 2003 and 2004.

Fannie Mae and Freddie Mac buy home loans from lenders and repackage them as securities for investors, but they also retain mortgages and mortgage-backed securities for their portfolios.

Congress chartered the shareholder-owned companies to ensure there are plenty of funds available for home buyers to take out mortgages. Greenspan said in response to lawmakers' questions that the growth of those portfolios, which together top $1.5 trillion, primarily allows the companies to leverage their federal charters to generate substantial profits.

"We have found no reasonable basis for that portfolio above very minimal needs and what I would suggest is that for liquidity purposes they're able to hold U.S. Treasury
bills in whatever quantity they would choose ... and a $100 billion, $200 billion, whatever the number might turn out to be, limit on the size of the aggregate portfolios of those institutions," he said.

A Freddie Mac official disagreed with Greenspan, saying that Freddie Mac's mortgage and mortgage-security purchases pump money into mortgage markets, lowering costs by boosting demand and guaranteeing stability even during unsettled periods, such as the Asian debt crisis of 1997-1998.

"Our retained mortgage portfolio helps us fulfill our charter purposes of providing liquidity and stability to the U.S. residential mortgage market in good and bad economic times," said Freddie Mac spokeswoman Sharon McHale.

But Greenspan said congressional failure to cap the growth of the companies' mortgage portfolios would invite potentially serious risk. He recommended that lawmakers pass legislation within several years requiring Fannie Mae and Freddie Mac to divest a large share of their holdings.

"Over time, several years, that should be done because these institutions, if they continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios which they need to do for interest risk diversion, they potentially create ever-growing potential systemic risk down the road," Greenspan said.

While there is no risk now, problems are "almost inevitable" in the remainder of the
decade if lawmakers fail to act, he added.

"If you get large enough ... and something goes wrong, then we have a very serious problem, because the existing conservatorship does not create the funds which would be needed to keep these institutions going in the event of default, which is what the conservatorship is supposed to do, and we have no obvious stabilizing force within the marketplace," he said.

"Enabling these institutions to increase in size -- and they will, once the crisis passes ... -- we are placing the total financial system of the future at a substantial risk," Greenspan added.

Criticisms of Greenspan's tenure as Fed chief have grown louder in recent months. A headline for an article at screams, "World on Brink of Ruin." That is not the kind of language publications like Forbes usually use. Is there an effort to scare the public to cause a crash? Or are they covering themselves because they know it will happen soon? Here is what Forbes said about Greenspan:

Alan Greenspan, that Matador of the Money Supply, the esteemed Impresario of Interest Rates, has suffered precious few slings or arrows over his many years as chairman of the Federal Reserve. Even the White House has had to offer its critiques off the record for fear of roiling the markets or upsetting the chairman's Elvis-in-Vegas-like following. So when the chief economist of one of the world's most prestigious banks calls Greenspan a bum, that's a big deal.

And yesterday it happened. Stephen Roach, the chief economist for Morgan Stanley & Co., one of the most powerful investment banks and one of the 50 largest companies in the world, says Greenspan has "driven the world to the economic brink."

Writing in an upcoming issue of Foreign Policy, Roach says that when Greenspan steps down as chairman of the Federal Reserve next year, he will leave behind a record foreign deficit and a generation of Americans with little savings and mountains of debt. Americans, Roach says, are far too dependent on the value of their assets, especially their homes, rather than on income-based savings; they are running a huge current-account deficit; and much of the resulting debt is now held by foreign countries, especially in Asia, which permits low interest rates and entices Americans into more debt.

Here's Marshall Auerback:

Economists, politicians, and business executives have repeatedly voiced unease about the imbalances in the global financial system, which have been reflected in the dollar's steep fall against the euro and other currencies until recently. But most expressed skepticism that the Bush administration would reduce the trade and budget deficits, which have fed those imbalances. The White House has said that it does not view these issues as a major problem because foreigners still view the American economy as an attractive investment, and Mr Greenspan has recanted some of his earlier expressed concern about the dangers of ignoring America's mounting imbalances.

The scope of the global imbalances and the potential for crisis makes piecemeal, orthodox solutions to the global imbalance problem unworkable and far too slow. The U.S. service-based economy, with more limited economies of scale than those of newly industrializing economies such as China, will not be able to export its way out of the problem. The only demand left for US goods is largely concentrated in industries such as aerospace and high technology. But these are industries where exports pose national security risks, particularly if the exports are directed toward "strategic competitors" such as China, which generally have extremely poor records in terms of safeguarding intellectual property rights.

As we have noted many times before, there is a danger that over time, the US economy will find itself in a "debt trap", with an accelerating deterioration in its net foreign asset position and its overall current balance of payments (as net income paid abroad begins to explode). We have never been in a position before where the world's leading economy has been subject to this condition, so it is difficult to make the case for traditional remedies, such as trade devaluation (where the corresponding knock-on effects would invariably create a huge international growth shock, thereby throwing into doubt the strategy of the US achieving net export growth). Because the US is such a vast economy, it cannot eliminate its current account deficit as readily as a smaller economy. When it tries to improve its trade balance through devaluation or through restrictive demand management, its sheer size affects the economies of its trading partners adversely and to an appreciable degree. Understandably, they object and resist. When foreign economies resist dollar devaluation and the dissipation of their current account surpluses, the U.S. may have to raise interest rates in order to induce creditors to continue financing its debt build-up.

So the problem is likely to get worse, which could ultimately lead to "solutions" that prove highly disruptive to the existing system of multilateral trade and cooperation which has developed over the past several generations. A resort to out and out military force cannot ultimately be ruled out.

If a full-blown crisis does occur, the macroeconomic challenge would be unlike anything the United States has faced in more than half a century. While this would be a time of wrenching, painful change, the new adverse circumstances might also inspire a great shift toward radically different political solutions than have hitherto been considered within the realm of acceptability.

The first imperative--an unavoidable necessity--would be to suppress consumption through credit-restraining measures, fiscal caution or tax reform, and to stimulate greater domestic savings, yet somehow to keep the economy growing. If this great adjustment is left to market forces alone, the predictable consequences will be to punish the innocent--struggling households and small businesses--first.

The jump-shift strategy may ultimately take the form of a "wartime strategy" – not the phony "war on terror" strategy invoked after the September 11, 2001 attacks (in which Messrs O'Neill and McTeer, amongst others, exhorted Americans to go back to the shopping malls, to show the terrorists that they "couldn't win"). A more accurate precedent is World War II, an extraordinary era of economic development that virtually shut down many forms of domestic consumption (cars and housing) while the government's spending on war production launched major new industries (electronics, petrochemicals, modern aircraft and many others). Essentially, accelerated investment and forced savings replaced consumer spending as the leading fuel for economic growth. After the war, pent-up desires and needs became the economic demand that drove the long postwar era of prosperity.

Of course, an important difference from the World War II example is that it is
difficult to see how reconstruction could be financed primarily through deficit spending, given that the country is already burdened by growing indebtedness. This leads to the possibility of the US repudiating its existing debt obligations to external creditors. A decisive President might start by bringing up a taboo subject--tariffs--and inform the world that the United States is prepared to impose a temporary general tariff of 10 or 15 percent on all US imports. Every multinational would have to rethink its industrial strategy, because some of its production might be stranded in the wrong country.

The idea of tariffs is so alien to conventional wisdom it probably sounds illegal. In fact, there is provision for "temporary adjustments" under the new World Trade Organisation rules. It is also worth noting in any case that the legal technicalities of a global multilateral system didn't stop Richard Nixon, who stunned the world in 1971 when he abruptly announced a 10 percent import surcharge, devalued the dollar and unilaterally discarded the Bretton Woods monetary system. Nor did it stop President Roosevelt in the 1930s, during which he declared it illegal to own circulating gold coins, gold bullion, and gold certificates. In essence, the federal government forced itself into the position by refusing to repay its bond holders in gold coin, forcing them to accept US dollars instead. Hence, subsequent to FDR's executive order, all holders of such bonds were forced to accept legal tender currency instead of "gold coin of the present standard of value." The act of confiscating gold itself was a violation of private property rights and was illegal – but the taboo was broken. As author Eric Englund notes, "[B]y not paying bondholders in gold coin, the U.S. government has technically defaulted on past Treasury bond obligations." Americans (and their foreign creditors) might come to see more of these types of actions from future American President.

It is true that such actions on the part of the US may well provoke reactions in kind. On the other hand, given the lack of restraint evident in the country's current foreign policy aspirations, it is hard to envisage that an economic response to the Americans' abrogation of existing obligations would come without some possibility of a robust military response (or at least the threat of one). The US has already show itself willing to address the problem that it does not make enough of what the rest of the world wants by going to war to monopolise control of the supply and distribution of what the world needs, petroleum. There are other war aims, of course, but control of the global hydrocarbon net is certainly the most important. As market strategist Chris Sanders has noted, "The truth is that the dangerously destabilising idea has rooted in Washington that, in the words of Vice President Cheney, 'deficits don't matter (we proved that in the 90s).' He is right of course in pure power terms; a fuller expression of Cheney's dictum might well add, 'as long as we are able to force everyone else to accept them (deficits).'"

Already, it appears clear that the US is driven to rely more on military adventure because the economic house is in disarray and "overstretched". They can't just bludgeon their way economically anymore. They have to use the stick. Any close look at the inauguration speech bears out the reliance on forcing the world to conform to us dictates. Why should this not extend ultimately to existing debt arrangements if the US finds itself facing an Argentina-like predicament? All these outcomes may sound quite improbable at this moment. Certainly, the establishment would brush them aside. But do not dismiss the possibility that dramatic change and epic political reforms lie ahead. As we have said many times before, Washington's elites will not go down without a fight.

A guest commentator on, Max Fraad Wolf, advises us not to listen to the happy talk, but to think:

Indexes drift upward pulling predictions, expectations and your leg. It is high time to more profoundly question the wisdom being peddled by the Fed, administration and financial press. I strongly recommend that investors listen less and think more.

Let's start with the basics on which most agree. 2005 will see a deceleration of S&P 500 profit growth. US GDP growth will also likely decelerate. The consensus 2005 estimate from the Economist magazine is for 3.5% GDP growth down from 4.4% in 2004. US interest rates and monetary policy will remain stimulative, but less so, as they meander toward neutrality. As this goes to press, broad and narrow US money supply growth is above, and interest rates are below, long term historic norms. This can only continue if we double dip. Huge trade and budget deficits, near or above 2004 record levels, are a virtual certainty. Yes, you listened to Greenspan assert that weakening dollars will suddenly reverse a 15-year secular trend in trade imbalances. He mentioned this as another weak job report was issued, but didn't bother to base his claim on any particular fundamentals. That presents an opportunity to implement the new credo, "don't listen, think."

If you follow this simple rule, your rose-colored goggles will fog over as your temperature rises, and you will be driven toward their removal. No sooner than you slip off those worn out lenses, will you find the following puzzling:

A merger wave seems well established. You have been listening to stories about how this is a great omen for stocks. Stop and start thinking. Over the past five years we have discovered that most of the last great merger wave's shining stars are light years away from real enduring benefit to share holders - from AOL- Time Warner to HP-Compaq.

Secondly, the drivers to the mega-mergers are pricing power, competition reduction and cost cutting opportunity. That explains much of the recent activity, and it also
signals discomfort that leading businesses have with investment in their own industries. Amidst monetary stimulus and hype, firms are looking to hunker down, remove competitors, slash costs and pass along material price increases to debt burdened consumers facing declining market choices. In addition, several major firms are looking to invest repatriated profits- at the new much lower tax rates on these funds. However, they seem disinterested in capital investment or hiring. This is supposed to reflect a healthy environment for stocks.

How many times is a turn in events Iraq right around the corner? Iraq's recent vote
propelled Shia religious leaders and secessionist Kurds into dominance alongside an apparently growing insurgency. This is not the kind of news that rationally leads to popping corks and fine cigars. Yes, it was nice to see that many voted despite the credible threat of death. However, this hardly justifies the Iraq victory premium in the markets, let alone a further run up. Look at the latest issue of Foreign Affairs. In it you will find leading experts extolling their considered "best" option, rapid withdrawal. Is it plausible this suggests that they have been thinking, not listening and are not impressed?

Chronic bulls simultaneously celebrating the ability of declining dollars to overpower trade deficits and the reassurance offered by rising dollars amid forecasts that call for the dollar to end the year at or above where it began. We are told variously that declining greenbacks are helpful, trade rebalancing and likely to reverse direction. Sounds great, but doesn't stand up well to the application of reason. Negative balances of trade are built into our macro economy and our place in the global economy. These imbalances will not substantively change unless the structure of the US economy or the global economy does. Our earnings are insufficient, our savings non-existent and our demand insatiable. Our place is to borrow and spend. Correction of the imbalances would require this to change. Few even acknowledge that possibility, yet they endlessly forecast either painless correction or the sustainability of the present arrangement. Both offer reassurance and buoy sagging spirits and prices. Sadly, they are little more than howling gusts of hot air Prozac. If you listen, you will feel better. If you think you will feel worse.

US equities are not cheap and neither is the dollar. Thankfully, this is not very widely understood. Thus, the safety offered by the mob. To stay happily in the game, one need only ignore reality. Look no further than Greenspan for an impeccable role model.

Of course, you are safe in the mob until the whole mob runs off a cliff. Better to think objectively and face reality.

Monday, February 14, 2005

Signs of the Economic Apocalypse 2-14-05

From Signs of the Times 2-14-05:

The dollar closed at .777 euros on Friday, essentially unchanged from last week with a euro buying 1.287 dollars. The Dow closed at 10,796.01, up 0.7% from last week. The NASDAQ closed at 2076.66 up 2% from 2035.83 last week. The interest rate on the ten-year US Treasury bond closed at 4.09% compared to 4.08% last Friday. Oil closed at $47.16 (36.64 euros) or up 1.5% from last week's close of $46.48 (36.11 euros). Gold went for $422.00 (327.89 euros) an ounce at Friday's close, up 1.5% from last week's $415.90 (323.15 euros). An ounce of gold, then, would buy 8.95 barrels of oil, unchanged from last week.

This week was touted as a strong week for the dollar and for the US stock market, as many investors pretended that Bush was going to do something about the US budget deficit. Before we look at the budget, let's take one more look at the jobs figures from January. While many analysts pointed to a small gain in jobs during Bush's first term, Paul Craig Roberts pointed out in Counterpunch last week that there was still a significant drop in private sector jobs in those four years. War-related government jobs accounted for the increase, which is not surprising, since the United States now resembles Sparta far more than it does Athens:

The January jobs report from the Bureau of Labor Statistics continues the bad news of the past four years. During President Bush's first term, the US economy had a net loss of three-quarters of a million private sector jobs. Despite three years of economic recovery, fewer Americans are employed in the private sector today than when Bush was first inaugurated four years ago. The slight decline in the unemployment rate reported for January is not the result of new jobs; it is the result of large numbers of discouraged people, many with university degrees, dropping out of the work force. They cannot find employment and have given up looking.

During Bush's first term, the once fabled US economy has been unable to create jobs in export sectors or in import-competitive sectors. January's 134,000 new private sector jobs are in domestic services that cannot be outsourced: couriers and messengers, food services and drinking places, health care and social assistance, educational services, temporary help, retail, and credit intermediation.

...America's growing dependence on imports reflects the outsourcing of manufacturing jobs and knowledge services. Every time a US firm outsources goods or services, it turns domestic production into imports. Half of the US trade deficit with China represents US offshore production for US markets.

Interest groups that benefit from outsourcing and their spokespersons who cloak themselves in free-trade rhetoric maintain that there is nothing to worry about. Outsourcing, they claim, strengthens the US economy and creates jobs. If that were true, wouldn't economic strength translate into dollar strength? If outsourcing creates US jobs, wouldn't some of those jobs be in the export sector? Average weekly pay in the US is declining in real terms. Obviously, if outsourcing is creating jobs, they are less good jobs than the ones being outsourced. Trading better jobs for worse ones is the road to poverty, not the road to wealth.

The dismal US performance in job and pay growth is despite the most stimulative monetary and fiscal policy in my lifetime. If the lowest US interest rates in memory, tax cuts and the biggest budget deficits in US history cannot create jobs and boost pay, what can?

How can this be spun as a positive? Al Martin claims that there is a strategy that combines distorting data in the positive direction to boost the markets and then correcting them some time later back downward. The Bush administration is also one of the best at putting their shills in positions of maximum media exposure:

Now on Feb 4, we're having yet another pro-Bush net media spin Friday, as the release of the January employment report. Market guesstimates were for the unemployment rate to hold steady at 5.4%; it actually dropped to 5.2%. Yet non-farm payroll gains, estimated to be up 200,000, came in up only 146,000, with December's job data revise 24,000 lower. Imagine their desperation! We saw CNBC with, of course, Larry "The Dow's Going to 50,000 under Bushonomics" Kudlow leading the charge in a desperate bid to spin this number.

They immediately brought on chief Bushonian economic calendar spinmeister Labor Secretary Elaine Chao. Despite the fact the numbers were horrendous, including the sub-component, wages up 2/10ths of 1% versus the expectation of up 3/10ths of 1%; average hourly work week, which was anticipated to rise to 33.9 hours, actually fell to 33.7 hours. There was nothing positive about the report. Yet every effort was made to concentrate investors' attention on the fact that the 5.2% headline number, or unemployment rate number, was actually down 2/10ths of 1%.

Then they showed e-mails that were sent in, and someone tried to remind Larry Kudlow that the reason the unemployment rate was lower, which has been the reason the unemployment rate has fallen for the last 18 months, is that the number of citizens being counted in the employment survey is diminishing. And, yes, in fact, in January, the Bureau of Labor Statistics dropped another million citizens from the payroll survey. That's the reason the unemployment rate is actually declining; while the number of unemployed citizens is actually increasing, as can be seen in the weekly continuing claims rates, which continues to hover around 3 million, hasn't moved in the last 12 months. Continuing claims means those citizens without jobs for more than 18 months.

...The net result of this well-coordinated spin, of an entire spinning machine that starts at the White House and ends up on CNBC, is that the markets were actually called 50 lower. The Dow is called 50 lower and is now trading 50 higher. And, as retail sucker– they even used the expression on MSNBC, as: "‘Retail sucker money,' emboldened by the news that the employment rate dropped 2/3rds of 1%, are flooding into the markets, as they should be."

But they don't even care. So now, 3 hours after the market opens, the disaster that the numbers are has been completely forgotten. It's completely out of the news, it's out of the headlines. And now, even on Dow Jones broad-tape news services, numbers officially construed as bullish when, at 8:30 this morning Eastern Standard Time when they came out, they were officially construed as bearish.

In conclusion, Joe Sixpack 300-share retail sucker money, which is supporting and propelling the market higher despite deteriorating economic fundamentals, should beware. Do not be taken in by this constant pro-Bush net spin that you hear on CNBC and increasingly, and unfortunately, on Bloomberg News as well.

Remember what Larry Kudlow said only a few years ago on CNBC, when Enron was at $70 a share; and he said, "Oh, you got to buy that Enron at 70; it's a good buy.

At the very same time, a partnership he was involved with had George Bush, Henry Kissinger, George Schultz, James Baker, Donald Rumsfeld–an offshore smart Republican money investment partnership–selling the stock.

But Kudlow always hits the 300-share sucker buyers when he says "You gotta buy 300 shares of that, you gotta buy 300 shares of this," because he knows the audience he's trying to reach. It's the sucker money audience.

What Kudlow's specific role has become, as you see him on CNBC, is to consistently spin bearish Bushonian economic fundamentals into something bullish and specifically address his remarks to the Joe Sixpack investor. That's why they have him on at lunchtime, and then at the 6-to-7 hour -- the time that the Joe Sixpack 300-share buyers most watch CNBC.

It's a deliberate strategy. "Oh, you know, stocks have always gone up in the last 50 years, and you don't have to worry about it. Just buy 300 shares of this and 300 shares of that. You'll be alright."

...We've had propagandists before, but not until the Bush-Cheney regime has such a mechanism been established between the White House, the Republican National Committee, George Bush dot-com, CNBC, MSNBC, and Bloomberg News.

Never has such a well-defined, coordinated mechanism been put together to constantly lie. That's what they're doing, lying. They're not misstating the numbers like happened with the gross domestic product last week; they're outright lying.

...It would probably be useful to remind our readers of who is Larry Kudlow? He was actually in the Treasury Department and held a variety of sub-cabinet level positions in the Reagan-Bush regime. But, more importantly, people forget how many of the great Republican stock frauds that Kudlow's name came up in during the 1980s.

There was Harken Energy [George W. Bush's company] of course. He was a big short in Harken Energy when we busted that. He was a big short at MCorp and Allied Band Shares. Texas American Bank of Commerce. He was a long in the Harcourt Brace takeover, which was an inside deal.

Larry was an investor in the Houston Energy Partnership Trust, which included, of course, George Bush Senior, included all of the sons of Bush's, included Prescott Junior, included Prescott's son Wally, James Baker, George Schultz, Henry Kissinger, Donald Rumsfeld, and Frank Carlucci.

If you simply look at all of the stocks that they were in from, let's say, 1984 to 1988, they were all the great Republican frauds.

Larry Kudlow made his bones in Republican fraud deals. How do you make your bones under a Bushonian regime? By shorting Enron at $70 when you're telling everyone else to buy it. Then you too can become an economic pundit for CNBC – and the chief economic shill for the Bush Regime.

Last week Bush proposed his budget and continued to push for partial privatization of Social Security. The frauds in both instances are so vast, it's hard to know where to begin, but let's look first at the Social Security plan. They have lied and distorted the truth for so long now about Social Security that they have convinced two whole generations that the system is in such danger that it will not be there for them when they retire. That is false.

They have also led people to think of Social Security as a retirement savings program. It was never that, it was a retirement insurance program. But the constant drumbeat of self-centered thinking promoted in the media and encouraged in the people have led to people to think in terms of getting back when they retire what they have paid into the system, plus a return on the investment. In fact, the program is one where today's workers pay today's retirees. Those who are working today will be paid in their retirement by the people working then.

The so-called crisis of a bankrupt Social Security system is only a temporary, easy to solve problem. It arises from the demographic bulge of the post WWII baby-boom generation. When they retire, they will have proportionally fewer workers paying into the system at that time. But in that very fact lies the salvation of the system, because when Generation X (those born in the seventies and early eighties when the birthrate was lower) retires they will have proportionally many more people working at that time, the newer baby boom of people born in the late eighties through the nineties.

Therefore we need only get past a fifteen-year period of relative shortfall, which would have been easy if the so-called trust fund had not been raided to make the general budget deficits look lower. In fact, the budget deficits themselves, have made the situation worse, because if the government had not cut taxes on the super-rich and started unnecessary wars, we could have been piling up surpluses which would have made it easier to borrow money to get over the retiring baby-boomer hump for Social Security (and Medicare and Medicaid).

It is amazing how many people think Social Security is "bankrupt" without really understanding what that means. The reason for this, obviously, is to transfer large amounts of money to the financial industry in the form of fees for the private Social Security investment accounts and to pump up the stock markets with hundreds of billions of extra dollars. They have sold this to the public, especially younger workers, by contrasting a mythical "rate of return" on the money you pay into Social Security, with historic rates of return of stocks. It is worth keeping in mind the Anthropic Principle here:

Suppose you're a young investor pondering whether to invest your retirement savings in bonds or equity. You are vaguely aware of some studies showing that over sufficiently lengthy periods of time, stocks have, in the past, substantially outperformed bonds (an observation which is often referred to as the "equity premium puzzle"). So you are tempted to put your money into equity. You might want to consider, though, that a selection effect might be at least partly responsiblefor the apparent superiority of stocks. While it is true that most of the readily available data does favor stocks, this data is mainly from the American and British stock exchanges, which both have continuous records of trading dating back over a century. But is it an accident that the best data comes from these exchanges? Both America and Britain have benefited during this period from stable political systems and steady economic growth. Other countries have not been so lucky. Wars, revolutions, and currency collapses have at times obliterated entire stock exchanges, which is precisely why continuous trading records are not available elsewhere. By looking at only the two greatest success stories, one would risk overestimating the historical performance of stocks. A careful investor would be wise to factor in this consideration when designing her portfolio.

Not only that, but, according to reliable sources like Paul Krugman, long-term returns on stocks can only be equal to the general rate of growth in the economy, which will probably average long-term about 3%, exactly the rate of return on the bonds issued on Social Security trust fund money. For Bush's plan to work, stocks would have to average a 6 or 7% return over 75 years, something that is not really possible without much higher than expected overall growth. The amazing thing about the Bush gang's argument is that the only way Social Security will go bankrupt by 2045 is if growth is slow, in which case privatization will be a disaster. If privatization is to work, growth will have to be high enough to actually make the present Social Security system financially healthy in the long term.

Of course the intent of the Bush people is not to provide us with comfortable retirements, it is to dismantle a popular Roosevelt-era government program while making their friends rich. Krugman again:

President Bush isn't trying to reform Social Security. He isn't even trying to "partially privatize" it. His plan is, in essence, to dismantle the program, replacing it with a system that may be social but doesn't provide security. And the goal, as with his tax cuts, is to undermine the legacy of Franklin Roosevelt.

Why do I say that the Bush plan would dismantle Social Security? Because for Americans who entered the work force after the plan went into effect and who chose to open private accounts, guaranteed benefits - income you receive after retirement even if everything else goes wrong - would be nearly eliminated. Here's how it would work. First, workers with private accounts would be subject to a "clawback": in effect, they would have to mortgage their future benefits in order to put money into their accounts.

Second, since private accounts would do nothing to improve Social Security's finances - something the administration has finally admitted - there would be large benefit cuts in addition to the clawback.

Jason Furman of the Center on Budget and Policy Priorities estimates that the guaranteed benefits left to an average worker born in 1990, after the clawback and the additional cuts, would be only 8 percent of that worker's prior earnings, compared with 35 percent today. This means that under Mr. Bush's plan, workers with private accounts that fared poorly would find themselves destitute. Why expose workers to that much risk? Ideology. "Social Security is the soft underbelly of the welfare state," declares Stephen Moore of the Club for Growth and the Cato Institute. "If you can jab your spear through that, you can undermine the whole welfare state."

By the welfare state, Mr. Moore means Social Security, Medicare and Medicaid - social insurance programs whose purpose, above all, is to protect Americans against the extreme economic insecurity that prevailed before the New Deal. The hard right has never forgiven F.D.R. (and later L.B.J.) for his efforts to reduce that insecurity, and now that the right is running Washington, it's trying to turn the clock back to 1932.

Medicaid is also in the cross hairs. And if Mr. Bush can take down Social Security, Medicare will be next.

The attempt to "jab a spear" through Social Security complements the strategy of "starve the beast," long advocated by right-wing intellectuals: cut taxes, then use the resulting deficits as an excuse for cuts in social spending. The spearing doesn't seem to be going too well at the moment, but the starving was on full display in the budget released yesterday.

Looking at the Social Security plan in the context of the budget proposed by Bush makes the whole enterprise even more obscene.

To put that budget into perspective, let's look at the causes of the federal budget deficit. In spite of the expense of the Iraq war, federal spending as a share of G.D.P. isn't high by historical standards - in fact, it's slightly below its average over the past 20 years. But federal revenue as a share of G.D.P. has plunged to levels not seen since the 1950's.

Almost all of this plunge came from a sharp decline in receipts from the personal income tax and the corporate profits tax. These are the taxes that fall primarily on people with high incomes - and in 2003 and 2004, their combined take as a share of G.D.P. was at its lowest level since 1942. On the other hand, the payroll tax, which is the main federal tax paid by middle-class and working-class Americans, remains at near-record levels.

You might think, given these facts, that a plan to reduce the deficit would include major efforts to increase revenue, starting with a rollback of recent huge tax cuts for the wealthy. In fact, the budget contains new upper-income tax breaks. Any deficit reduction will come from spending cuts. Many of those cuts won't make it through Congress, but Mr. Bush may well succeed in imposing cuts in child care assistance and food stamps for low-income workers. He may also succeed in severely squeezing Medicaid - the only one of the three great social insurance programs specifically intended for the poor and near-poor, and therefore the most politically vulnerable.

All of this explains why it's foolish to imagine some sort of widely acceptable compromise with Mr. Bush about Social Security. Moderates and liberals want to preserve the America F.D.R. built. Mr. Bush and the ideological movement he leads, although they may use F.D.R.'s image in ads, want to destroy it.
One of the most breathtaking frauds in the new budget is that THERE IS NO MONEY BUDGETED FOR THE IRAQ AND AFGHAN WARS. This is despite a defense budget approaching a half trillion dollars (compared to a third of a trillion under Clinton). The Bush mouthpieces say this is because they don't know exactly how much these losing wars are going to cost. Why not just put a placeholder of about $100 billion, for goodness sake. The money for these wars next year, just like this year, will come from "supplemental appropriations."
But if Bush put those numbers into his budget, he couldn't pretend that he is doing something about the deficit.

As far as Bush is concerned, there is no reason to worry about borrowing dollars, since they will be worthless soon. Why not borrow them to secure oil and military bases? But he can't come out and say this, so instead we get these kinds of games, according to Patrick Martin in an article entitled, "US budget slashes social spending to pay for war and repression":

The most important feature of the new budget released by the Bush administration on Monday is that it is not, in any serious sense of the word, a budget at all. It is a monumental fraud, aimed at concealing fiscal reality and usurping decisions on spending that, under longstanding US constitutional procedures, are reserved to Congress rather than the executive branch.

Many of the most expensive and politically contentious initiatives of the Bush administration are simply left out of the budget. By one estimate, the omitted costs come to $4 trillion over 10 years, an amount equal to about one-and-a-half year's spending at the current rate of $2.5 trillion a year.

There is no funding for the wars in Iraq and Afghanistan, although the costs are estimated at $5 billion a month even if the US troop presence in Iraq is reduced to 120,000 next year. White House budget director Joshua Bolten admitted that the war would involve major costs, but added, "It wouldn't be responsible for us to take a guess at what those costs are." (This argument apparently does not apply to the campaign for Social Security privatization, which Bush has sought to motivate through implausible and tendentious projections about the state of the system's finances 75 years from now).

The Bush administration has consistently refused to incorporate spending for its war policies into the regular budget, instead making use of supplemental appropriations bills rammed through Congress with demagogy about the need to "support our troops." The purpose has been to distance the social cuts imposed by the administration from the cost of its wars, and thus conceal their essential connection: millions are being cut off food stamps, student loans or health insurance to finance American military aggression.

There is no funding for Bush's Social Security privatization plan, although the cost of establishing new private accounts is projected at $754 billion over the first decade and trillions more thereafter. At a press conference Monday, Bolten gave the following explanation for why the Social Security costs had not been included: "The budget went to bed," he said, "before the president's proposals were announced."

The argument is preposterous, since Bush had made no secret of his plans during the election campaign. Moreover, the budget includes many other White House proposals which have yet to be fleshed out, let alone submitted to Congress. Bolten denied that the White House was concealing the enormous costs of Social Security privatization. In any case, he told reporters, the White House position was that "transition financing does not represent new debt."

The White House has also played fast and loose with its tax revenue projections. Most of the sweeping tax cuts for the rich enacted in 2001 and 2003 are scheduled to expire after 2009. The Bush administration is seeking to extend the cuts indefinitely, at a cost estimated at $1.1 trillion through 2015. (Repeal of Bush's tax cuts would provide more than enough money to resolve the projected budget gaps in Social Security and Medicare).

In order to avoid recording the cost of these tax breaks, the Bush administration has scrapped the traditional ten-year scoring of the cost of programs and tax cuts, in favor of a five-year projection that ends in 2010—just when the huge bonanza for the rich would be renewed.

And what is this aggression and repression that we will be paying for going to bring? Large scale death and destruction, most likely - especially if the United States or Israel attacks Iran. An anonymous person with some knowledge of military technology posted a piece speculating on the way an attack on Iran would play out:

How the attack plays out

After watching destruction of Iraq the Iranians will be forced to respond. Because Iran is already at total war footing the attacks escalate out of control in a matter of days.
  • Israel hits Iran's nuclear facilities
  • Iran goes to Alert One
  • Israel hits a US Carrier and blames Iran
  • US hits Iran's navy in northern Persian Gulf
  • Iran attacks with all it's missiles

Iran has already calculated their response and they realize their only option is a massive attack. Iran is sitting on a stockpile of Exorcet, Sunburn 22 and SS-NX-26 Yakhonts missiles. The Fifth Fleet sits at Qatar and it is within range of the Sunburn-22 and Yakhonts. Iran is said to have commercial freighters equipped with Exocets that will be in port at the time. Once Israel hits the US carrier (similar to USS Liberty ) then Iran will have no choice but to defend itself.

The 5th Fleet sits in a lake surrounded by Iran's rugged mountains and will be decimated by the missiles. The US fleet will arrive in the Indian Ocean but will be helpless because the straits of Hormuz will be a Phalanx of hundreds of Exocets.

At the same time Iraqi insurgents begin a counteroffensive. A major attack on the Green Zone would take out most of Iraq's foreign administrators. It's very possible that the Iraq occupation could turn deadly and costly.

Add to this, offensives on Iraq's isolated towns and the occupiers would be in a multiple quagmire – the occupiers are now surrounded. As supplies and ammunition begin to run out, the status of the US forces in the region will become precarious.

Straits of Hormuz

The occupiers will become the besieged... The US is cornered - if they try to escape they will be slaughtered in the Straits of Hormuz. With Iran's enormous missile capability the US will have two choices - either go to the UN for peace or an all out nuclear attack on Iran.

Flow of oil stops

With enough anti-ship missiles, the Iranians can halt tanker traffic through Hormuz for weeks, even months. With the flow of oil from the Gulf curtailed, the price of a barrel of crude will skyrocket on the world market. Within days the global economy will begin to grind to a halt.

Why does the only group that has the power to stop this, the Bush administration, want this to happen?

Tuesday, February 08, 2005

Signs of the Economic Apocalypse 2-7-05

From Signs of the Times 2-7-05:

The dollar closed at .777 euros last week or 1.287 dollars per euro, representing a rise of about 1.2% in the dollar from last week’s close of .768 euros or 1.302 dollar per euro. The Dow Jones Industrial Average closed at 10,716.13 up 2.8% from last week’s 10, 427.20. The NASDAQ closed at 2086.66 up 2.5% from 2035.83 last week. The interest rate on the 10-year US Treasury Bond closed at 4.08%, down significantly from last week’s 4.15%. Oil closed at $46.48 (36.12 euros) a barrel, down 1.4% from last Friday’s close of $47.15 (36.16 euros). Gold closed at $415.90 dollars an ounce or 323.15 euros, down significantly (2.6% in dollar terms) compared to last week’s $426.80 or 327.10 euros. An ounce of gold would buy 8.95 barrels of oil, compared to last Friday’s 9.05.

Some people would look at last week’s numbers and shout: “USA! USA!” Not us, of course. We may not get much more of a warning about a crash than we already have. Things didn’t look too bad in mid 1929, either. That is how crashes work. What we need to guard against is taking comfort from short-term numbers. A reader wrote in with an excellent summary of the talking points he heard in the US media trying to reassure us that a crash won’t happen. For those of you living outside the United States, believe it or not, this is what we in the US are hearing:

1. There is no problem having a federal deficit because the federal deficit as a % of GDP as been higher in the past than it is now. Reagan proved that deficits don't matter. As long as GDP growth is strong, the deficits will disappear in time as the U.S. grows its way out of the revenue shortfall. (No mention that the total debt picture is a combination of household, business, and government debt or that household debt has driven a consumption buying spree, or that 70% of GDP is comprised of personal consumption expenditures with another 5% in housing. Both these areas have been "growing" due to credit creation.)

2. There is no problem having a 50-60 billion dollar trade deficit each month because it shows how high the U.S. standard of living is. The U.S. way of life is a beacon of light to the world. If more countries copied the U.S. system, they could enjoy a better lifestyle too.

3. Foreigners loaning the U.S. 2 billion per day to finance the deficits shows that they regard the U.S. as the safest place to put their money.

4. Gold prices are not historically high, so that means the dollar is not losing any value. It's a myth that the U.S. dollar is becoming unstable.

5. The U.S. is the engine of world economic growth and expert economists see no reason for concern about U.S. deficits or debt loads being excessive. The Bush tax cuts will supply the capital needed to reduce all the deficits within the next few years.

6. The event of 9-11 changed everything and had it not been for that there would be a federal surplus. The federal deficit spending is the sign of a responsible government that takes the steps needed to deal with the crisis and protect the people and the system.

7. Record high levels of mortgage debt are not actually debt; it's really unrecognized wealth. It's a myth that the housing sector in the U.S. is experiencing a price bubble. Price growth is the sign of a healthy real estate market. Ask any economist that's paid by the real estate or homebuilders associations if you don't believe it. The prices of houses have gone up so the debt loads of households are of no concern. People can let their homes serve as savings accounts. House prices never go down and the Bush administration will make sure that economic growth is strong so that everyone can own a home.

Still people are starting to take notice and the talking points quoted above are starting to sound a little desperate. The syndicated columnist, Charley Reese ( had this to say:

What about the record deficit? Well, [Bush] still plans to cut it in half in five years, but no details yet.

What about the falling dollar and the massive trade deficit? Well, he says, we're for freedom. I'm for freedom, too, especially freedom from the poorhouse, which, if the dollar collapses, a lot of us could be occupying. A pension in dollars that are only worth 2 cents in purchasing power isn't much of a pension. It's not that bad yet, but it's getting there.

In the meantime, Europeans and Asians, holders of billions of U.S. dollars because of the trade deficit, are starting to buy up America. One Frenchman just bought an entire island off the coast of Florida and all the mansions on it. I'm sure Bill O'Reilly will be happy to hear that. Maybe some Frenchman will buy Fox News. If that happens, then O'Reilly will say what a fictional Riley used to say on a radio sitcom: "What a revoltin' development this is."

In all seriousness, the trade deficit and the federal deficits are real crises that are looming on a not-very-distant horizon. The only way to correct the trade deficit is to sell more stuff overseas, but that's hard to do when the administration is encouraging manufacturers to export jobs instead of products.

We cannot live as consumers, no matter how much easy credit there is available. To keep consuming, we have to produce and earn and save. American consumers are already $2 trillion in debt. How are these consumers going to keep the economy going while paying off that amount of past consumption?

More people are echoing Sy Hersh’s hope that the collapse of the US economy will prevent Bush’s plan for World War III. No doubt that is an indication of the desperate straits we are in. Protests won’t prevent another war, voting won’t prevent it, nor will opposition from establishment heavyweights. The Xymphora ( blogger wrote:
The Chinese, who are desperately trying to get somebody in the Bush Administration to pay attention to the American economic problem, have had to resort to making a public announcement of their lack of confidence in the American dollar (something central bankers never do, particularly if they are holding massive amounts of these rapidly depreciating dollars). This is their vain attempt to find someone in the Bush Administration who would help them let the dollar down in an orderly way that won't ruin the American economy and the golden goose of the consumer demand of Americans for cheap Chinese consumer goods. When it comes to responsible economic policies, no one in the Bush Administration is at home. Americans find themselves in the odd position that their only hope is that their economy tanks sufficiently quickly to save them from the warmongering stupidities of their own government. Unfortunately, they'll probably get both the wars and the ruined

Last month’s jobs report came out, showing some 146,000 new jobs created, a disappointing number for most economists who had expected a much larger number. It was, however, gratifying to Bush since he can now claim a very small net gain in jobs in his first term (reason enough to be suspicious of the numbers).

It was amusing to hear the mainstream analysts express puzzlement at the anemic rate of job creation in what they see as a strong economy. To those of us working in Cubicle Land, it is no mystery. It’s the outsourcing. Here’s a small example from personal experience. The company I work for is developing some new enterprise-level software products for which there is strong demand in the market. Other companies are practically begging for the right to pay for these products, but first they have to be finished. At the beginning of the year we did not have near enough engineers to do it. In the nineteen-nineties that would have led to a hiring boom. Now, however, we hired one or two new people in the United States and about twenty new people in Bangalore, India. Then we contracted out more engineering work to other firms, who then hired even more engineers in India and Pakistan.

The interesting thing is that all the outsourcing has led to a six to eight month delay in completing work compared to hiring US engineers (of which there is a large unemployed supply) at the outset. The total cost would have been less to do it locally. When that was brought up to upper management, they were told that they had to make "the model" work even if it means delays and lost contracts. "The model" being massive outsourcing of engineering work and business process work to low cost countries.

Is it because the real "model" is simply to lower wages of workers everywhere? Or are they trying to crash the economy? This is not to say that it is not a good thing to have high tech development in South Asia. It is a good thing, not just for them but also for the whole world. But, when the stability of the world economy depends on the continuing excessive spending of American workers, if the United States loses the type of high-paying, high-tech jobs that have made the earlier exodus of manufacturing jobs manageable, all it will take to plunge the world into a depression is the bursting of the US housing bubble from persistent unemployment and stagnating wages.

Last week saw the product launch of the "Ownership Society" of George Bush. What this really means is that THEY will own US. Ostensibly this is a plan where there will be accounts set up from which we citizens of the United States can all pay for our medical expenses, retirement, education of our children using our own saved money without help from that pesky government. Which might work if they paid us enough. Since they only pay a small fraction of the population enough to be able to afford those things, this is a cunning plan to shift the blame for their low pay to the victims.

Last week, for example, it was reported that in the United States, medical expenses accounted for half of the personal bankruptcies. People in the rest of the developed world can only shake their heads in amazement. The thing is, we Americans only have ourselves to blame for being such sheep. In France, whenever the government proposes some small cut in medical benefits or education benefits the, citizens rush out in the streets and start burning cars. In the United States, they take away our pensions, our healthcare, cut our pay, and now they want to take away Social Security, and no one raises a peep.

In the past, in the United States, social progress only came when people began threatening the destruction of the property of the owner class. The inner cities were ignored and pumped with destructive drugs throughout the nineteen eighties. It wasn’t until the Los Angeles riots of the early nineties that the political elite began to say, "maybe we should do something about the cities." Note that I am in no way advocating violent protests. While they can bring about some reform, they are also used by the elite to scare other citizens into supporting deeper crackdowns. What I am advocating is that the elite should not wait until that happens to spread some social health around.

If that doesn't happen, and it certainly looks like the Bush Administration is moving in the opposite direction, the possibility of violence becomes very real. Could that be the real reason for "Homeland Security"?

Signs of the Economic Apocalypse 1-31-05

From Signs of the Times 1-31-05:

The US stock market rose last week for the first time in 2005. The Dow closed at 10,427.20, up 0.32% for the week, while the NASDAQ closed at 2035.83 or up 0.08%. The interest rate on a ten-year US Treasury bond closed at 4.15%, up slightly from last week’s 4.14%. The dollar closed at 0.768 euros up from last week’s 0.766, or 1.302 dollars a euro compared to last week’s 1.305. Oil closed at $47.15 (36.16 euros) a barrel on Friday down from last Friday’s $48.53 (37.17 euros) and it is poised to drop further Monday after the supposedly successful Iraq elections and some help from the OPEC meeting. Gold closed at $426.80 or 327.10 euros up 0.8% (in dollars) from last week’s 423.30 and 325.42 respectively. An ounce of gold on Friday would therefore buy 9.05 barrels of oil, up from last week’s 8.72.

In the markets, we are struck by the apparent normality and the lack of strong short-term trends in any direction. There remains a thin sheet of ice -- the illusion that things are going well -- covering an unsettled ocean. Perhaps alone in the world, the average person in the United States is clinging to that illusion. No doubt that, at least at first, the Iraq elections will be spun as a success to the public in the United States. The professional investors are reinforcing that by driving the price of oil down at the moment.

In such an environment we need to keep our eye on the elite for signs that they are jumping ship. They are. Here are some headlines in Bloomberg on January 30th: “Microsoft’s Gates Bets Against the Dollar. Calls Currency’s Status ‘Scary’” and “Soros Says Greenspan Lost Credibility With Positions on Rates, Tax Cuts

Here’s what Gates had to say:

Jan. 29 (Bloomberg) -- Bill Gates, whose net worth of $46.6 billion makes him the world's richest person, is betting against the U.S. dollar.

"I'm short the dollar,'' Gates, chairman of Microsoft Corp., told Charlie Rose in an
interview late yesterday at the World Economic Forum in Davos, Switzerland. "The
ol' dollar, it's gonna go down.''

"It is a bit scary,'' Gates said. "We're in uncharted territory when the world's reserve currency has so much outstanding debt.''

Gates reflected the views of his friend Warren Buffett, the billionaire investor who has bet against the dollar since 2002. Buffett said last week that the U.S. trade gap will probably further weaken the currency.

"Unless we have a major change in trade policies, I don't see how the dollar avoids going down,'' Buffett said in an interview with CNBC on Jan. 19.

Gates in December joined the board of Berkshire Hathaway Inc., the investment company that Buffett runs. Forbes magazine's list of billionaires ranks Gates, 49, No. 1. Buffett, 74, is second, with more than $30 billion. Almost all of it is in Berkshire stock.

Gates described China as a potential "change agent'' for the next two decades. "It's phenomenal,'' Gates said. "It's a brand new form of capitalism.'' Gates's $27 billion foundation in September received approval from China's foreign-currency regulator to invest as much as $100 million in the nation's yuan shares and bonds.

As for Soros:

George Soros, the billionaire investor, said Federal Reserve Chairman Alan Greenspan has lost credibility for driving the benchmark U.S. interest rate to a four-decade low and advocating tax cuts that Soros said caused the U.S. budget deficit to balloon.

Soros, chairman of the New York-based Soros Fund Management LLC, said Greenspan sought to help President George W. Bush win re-election.
Soros spent $26.5 million, more than any other individual donor or political
action committee, seeking to help Massachusetts Senator John Kerry defeat Bush in November's elections.

"Greenspan lost credibility with me when he became too political,'' said Soros, 74, in an interview today at the World Economic Forum in Davos, Switzerland. ``He tried to push interest rates further down in order to help the re-election campaign, and also reached out beyond his sphere of competence by advocating tax cuts which then led to the current deficit.''

The Fed cut interest rates six times in 2001 and 2002, bringing the overnight bank-lending rate to 1 percent from 6.5 percent. In 2001, Greenspan supported the first in a series of Bush-proposed tax cuts that ultimately reached $1.85 trillion.

The Dollar

Soros said he expected the U.S. currency to extend its three- year slide, as officials and executives from the U.S., Europe and Asia at Davos blamed the U.S. budget and current account deficits for causing a plunge in the dollar. Microsoft Corp. Chairman Bill Gates, the world's richest man, said yesterday that he's betting on a further slide in the dollar, calling the deficits "scary.''

The dollar has dropped 47 percent against the euro since 2001. The dollar was little changed at $1.3038 per euro in trading yesterday in New York. Federal Reserve spokeswoman Michelle Smith declined to comment on Soros's remarks.

While the dollar has fallen 2.8 percent against the currencies of its 30 major trading partners during the past year, it's fallen more against the euro, 4.8 percent, because many Asian countries link their currencies to the dollar, limiting changes in their value. The U.S. current account deficit will likely cause the euro to continue to gain against the dollar. Because Asian currencies are linked to the dollar,
their value won't change as much as the euro.

"Obviously, the dollar is already undervalued against the euro,'' Soros said. "It has every sign of getting more undervalued, because all the adjustment is between the dollar and the euro.''

So three of the richest, shrewdest people on the planet, Gates, Soros and Buffet have lost faith in the dollar. Up until recently, establishment types didn’t say this kind of thing in public.

Here’s another example. The investigative journalist, Seymour Hersh, who broke both the My Lai and Abu Ghraib stories, has never, to my knowledge, written about the economy. However, in a recent talk about Iraq and the takeover of the US government by the Neocon cult as reprinted in Signs of the Times for January 29, 2005 he said the following:

[The economy is] going to go very bad, folks. You know, if you have not sold your stocks and bought property in Italy, you better do it quick. And the third thing is Europe -- Europe is not going to tolerate us much longer. The rage there is enormous. I'm talking about our old-fashioned allies. We could see something there, collective action against us. Certainly, nobody -- it's going to be an awful lot of dancing on our graves as the dollar goes bad and everybody stops buying our bonds, our credit -- our -- we're spending $2 billion a day to float the debt, and one of these days, the Japanese and the Russians, everybody is going to start buying oil in Euros instead of dollars. We're going to see enormous panic here. But [Bush] could get through that. That will be another year, and the damage he's going to do between then and now is enormous. We're going to have some very bad months ahead.

Hersh is a mainstream journalist who spends his time talking to four-star generals, CIA analysts and parents of soldiers killed in Iraq. Right now, we don’t need an economist to know which way the wind is blowing. Hersh’s words are so shocking not because we didn’t already know they were true but because someone like him is saying them publicly. The enormity of the failure in Iraq creates a situation like the building of seismic pressure before an earthquake. On the surface, everything appears normal until the moment when the pressure releases and the earth cracks and shifts below our feet.

In other words, even though last week’s Economic Commentary went through some of the economic factors that will most likely lead to a collapse, political events seem to be moving much more quickly, with the Bush Neocons perhaps realizing they don’t have much time and therefore trying a last, desperate roll of the dice by attacking Iran, Syria and perhaps even Venezuela as well. In one interesting tidbit that came to light last week, crude oil imports to China increased 35% last year, as the Chinese economy grew at a rapid rate. China needs lots of oil in order to complete its plan to become the top economic and political power in the world. In another tidbit, a wire service report on the weekend’s OPEC meeting noted that the Venezuelan oil minister was not there because the Chinese vice-president was visiting Caracas. No wonder Bush gang wants to grab all the oil it can before the empire collapses and they are all thrown in prison for treason and war crimes.

As Kurt Nimmo wrote:

If we were not caught in a Bushzarro reality warp, Douglas Feith—and Richard Perle, Paul Wolfowitz, David Wurmser, William Kristol, Charles Krauthammer, Elliott Abrams, to name but a few of the more prominent Strausscons—would be arrested and packed off to the Hague to face prosecution for war crimes and crimes against humanity.

Unfortunately, Douglas Feith will likely end up writing policy papers and giving speeches for one of a handful of Strausscon “think tanks” in Washington, pulling down a handsome salary. So it is in America, where war criminals such as Henry Kissinger—and former presidents such as Bill Clinton and Bush Senior—are allowedto walk free, considered “elder statesmen,” create law firms and consulting services, write best selling books, are interviewed and pampered, and have libraries built in their names.

If excusing and ignoring these crimes—indeed, often celebrating themdemonstrates
anything, it is that America is suffering from a dangerous and what will likely sooner or later prove to be fatal pathology. For as Germany learned, sooner or later the rest of the world will respond to this murderous pathology and put and end to it for good, more than likely economically since the United States military, at least in a conventional warfare sense, is unbeatable, mostly due to its fearsome stockpile of nukes and other marvels of high-tech mass murder and destruction.

Of course, this will also mean the destruction of the tiny outlaw state of Israel, since it cannot exist without remaining a dependent suckling parasitically fleecing the American taxpayer.

It is interesting that Seymour Hersh advised fleeing to Europe instead of buying gold and waiting out the depression in the US. What else does he know? Could the following by Al Martin be a clue?

The current regime in the United States continues to change from a “democracy” to a dictatorship, according to already established historical precedents. There are several political regimes of the past whose political, economic, social and military policies have been the same as we see transpiring in the United States.

It should be noted that the USA Patriot I Act is extremely similar, even in the language, as a matter of fact, to some of the language that was seemingly “borrowed” from what could be called the German Homeland Security Acts of August 1934 and July 1936.

The Patriot II Act, as we have mentioned before, is transcribed almost verbatim from the Soviet Internal Security Enhancement Act of 1965, which was enacted when the Soviet Union was moving to tighten control even more within its own borders and particularly within its Eastern European satellite countries, in order to quell any further dissent because they knew that such dissent was brewing. This has a direct parallel to current conditions in the USA.

The similarities in Patriot I and these two German security acts that we’ve mentioned, were effectively used to increase the power of the President, and in the German case, of the German Chancellor to absolute power, which has now happened in the United States. Presidential power has now been changed so that previous legislative consent and judicial review has been removed from the War Powers Act, thus effectively making Presidential authority absolute in terms of all key positions, most importantly of which are the decisions that the President could make, unfettered by Congress or the Supreme Court, to permanently cancel elections. This then effectively changes the country from democracy into a dictatorship. The further enhancement in power, without Congress and the Judiciary, comes in the expansion of the War Powers Act under Patriot I, allowing the President to dissolve opposition political parties and simply turn the United States into a unicameral dictatorship.

There are certain parallels in economic policies as well. Economic legislation, including economic powers contained in the Patriot Acts, are very similar to the German Currency Stabilization Act of 1938, wherein Germany, like the Bush-Cheney regime, acted to diminish the ability of German citizens to hold gold, to transfer that gold out of the country, to limit the amount of German marks that could be taken out of the country and to ultimately limit the convertibility of those marks outside of Germany.

These are all measures which the Bush Cheney regime has either already undertaken or, according to Treasury Secretary Snow, has on the drawing board. It would be accomplished in this country through the actual re-institution of the Gold Confiscation Act of 1933 and also the imposition of currency restrictions, similar to what Nixon did in 1971.

It seems that the purely economic factors pointing to a collapse are dwarfed by geopolitical factors. Notice the wording of the German Deputy Finance Minister in Davos last week. In the article about Bill Gates on Bloomberg quoted above, he said that the US budget deficit is the number one problem facing the global economy “disregarding geopolitical risks.” Nowadays that’s a lot to disregard! Even when we focus on the geopolitical risks, is there something even worse looming? With all the news of climate change, meterorites, earthquakes and possible flu epidemics, it may be that “natural” disasters may be an even bigger threat to the global economy. It all seems to be coming to a head at once.