first blow was financing VietNam with new USTrez debt
that accounted for the first $1 trillion
the lousy mid-1970's recession was principally based upon the quadrupling of OPEC oil prices in 1973
our economy had to absorb an incredible blow in cost
the "energy crisis" title first was written then
Watergate compounded many financial problems in 1973
ironic that OPEC slammed us just after Watergate hit
we were vulnerable as a nation, and they knew it
we also assisted Israel during a brief war in 1973
foreigners departed our stock markets in droves as a result
the USDollar took major hits, but came back
our US leaders responded in two big ways:
1. they arranged for Saudi and other Arab oil nations to recycle their huge windfall profits back into USTBonds
2. they enlisted Fed Chairman Volcker to produce inflation
which immediately screwed the Arabs on the value of their new debt investments !!!
they will never forget the doublecross betrayal
our economy suffered mightily from almost $2 trillion by then in federal debt, rising interest costs, and a deep TRIPLE DIP recession
that is right, three mid-1970 recessions
the post-VietNam condition was replete with malaise, distrust, anti-establishment aura, rock & roll, and heavy duty drugs
we had to inflate our way out, and we did BIGTIME BIGTIME
late in 1970's, the gold price reflected the successfully engineered officially sanctioned inflation policy
then Volcker's new job was to subdue inflation
which he did during Reagan's terms in office
sure, inflation in the 1970's
but to counteract both VietNam costs and OPEC costs
this time is much much different and dangerous
because our entire nation has accumulated 5-7x more debt
and our federal debt is up to $6.4 trillion
I expect 2004 to have a $1 trillion fed deficit alone
so many forces will sink the dollar, it aint even funny
if 2 or 3 are staved off, the other 23 will hit it instead
this is like a dike with 25 entire sections leaking horribly
the Federal Reserve has a 5% chance of successfully warding off deflationary forces by means of monetization efforts
I dont give it much chance at all
it is like putting a skimcoat of cement over the entire dike
the erosion will be deadly, steady, relentless, and universal
eventually the entire dike will simply explode
then we will face deflation in earnest
the meter for failure on the Fed Monetization efforts will be the TENyr TNote yield
if foreigners (and Americans alike) believe the official efforts are futile, they will sell the longend, and keep the shortend liquid, thus producing another sloped yield curve
we may see some more continued flight from stocks into bonds on the next scary downleg, but ...
I FULLY EXPECT TO SEE LONGRATES COMING BACK UP, FRUSTRATING THE HELL OF THE FED !!!
most of my fellow Americans are simply spoiled consumer addicts who have no concept for debts and their deadly effects, are as fat as they are debt-ridden, trust the system (which they fail to comprehend) far too much, and are truly ripe for slaughter
/ jim |
