Russell snip from tonight:
August 15, 2003 -- Not much surprises me these days, not even a blackout of much of the eastern United States and Canada (all of which interfered with the Internet, by the way). But I admit to being surprised when I looked at the latest figure for M-3, the broad money supply. For the week ended August 4, M-3 grew by an astounding $49.9 billion. At that rate, M-3 would be up over $2.5 trillion during a 12 month period. Fed Chief A. Greenspan isn't just opening the spigots, he's ripped the spigot right off the bathroom sink. This is a flood. If it was my bathroom, I'd make an emergency call to the nearest plumber.
If liquidity is the food that feeds an economy, then the US economy should be going "great guns." And inflation should be leaping higher. And gold should be surging.
So I must profess that I'm just a bit mystified by why none of the above is taking place. Oh, I know -- everything takes time -- more time than you think. Yeah, right.
As I scribble this morning, I'll bet Greenie is just climbing out of his morning bath, maybe toweling off as he picks up the Wall Street Journal -- but what could the Green One be thinking? Wait, I know -- he's thinking, "Heh heh, these reporters are making fun of me because they think I've lost control of the economy. Well, think again, you goof-balls, because Uncle Alan has a little surprise for you. It's called super-ultra-mega liquidity, and pretty soon you'll be drowning in a flood of bank credit that will swamp the system and send everything that's tradeable heading north. Of course, that will set off inflation again, but we know how to handle that -- just up the rates a bit, and inflation will hit a brick wall."
If liquidity is the fuel under the markets, why aren't the markets heading skyward? Well, they may do that yet, but there seems to be some kind of mysterious brake that is holding the markets back. What could that brake be?
Here's a theory. A certain powerful sector of the market is looking far ahead, and it doesn't like what it sees. It sees a situation wherein the US can't keep swapping its dollars for the rest of the world's merchandise and services. At some point, the world won't want any more dollars.
How can that be? Can't nations like China and Japan and even the European nations take in dollars, then turn around and buy US Treasury bonds with those dollars? After all, that's what they've been doing for years. Or can't they take those dollars and buy US real estate or US corporations or US stocks?
What, you say that they'll be afraid to buy more US assets because they believe the good old US has become a credit risk and even an asset risk? You say that the US is so debt-laden, that our foreign friends will believe that all of America is a risk, much as every banana republic represents a risk.
Well, that's a thought, but Russell, you're thinking too far ahead. Let's just deal with what we've got or what we can see now. . . . |
