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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (333)	6/10/2002 1:27:29 PM
From: Jim Willie CB	Respond to of 89467

article: Taylor On US Economy, Markets & Gold gold-eagle.com excerpt: NOT SINCE THE 1930'S - Lowering Interest Rates (Printing Money) Is No Longer Working Since the Fed first began lowering interest rates (by increasing the supply of money by creating debt), the stock market has declined by 20%. Normally 18 months after the Fed relaxes its credit standards, the market is up 20%. The only time share prices have been down this long after the onset of Fed ease was 1930. Why is printing money no longer resulting in higher stock prices? We think the market is telling us that things are not nearly as good as CNBC sales people want us to believe they are. Mr. Greenspan keeps talking about the absence of pricing power. He tries to paint this as a positive in the fight against inflation. But in fact, I believe it is frightening the "beejeebers" out of the Greenman. Why? Because Greenspan has been talking a great deal lately about a lack of pricing power which is a euphemism for deflation. Greenspan has been printing money like mad in an effort to inflate our way out of the trillons of debt the U.S. has taken on. But as Ian Gordon, Ron Gilchrist and John Exter and others in the deflationist camp have all pointed out. At some point in time, as more and more money is printed, the process becomes deflationary. This is true for two reasons. First, in a fractional reserve fiat currency system, money is manufactured via the creation of debt. The second factor to consider is that over time, the growth of money must inevitably increase at an exponential rate of speed merely to keep income growth growing in a straight line. So what happens ultimately - toward the end of the 60+ year Kondratieff cycle is that debt becomes so burdensome that the demand side of the economy is robbed of its power because an ever increasing amount of income is siphoned out of the economy to pay principal and interest. Look again at the chart published on page 5 of our June newsletter. Note that total debt in the U.S. which is now $32 TRILLION is growing exponentially while GDP (income) is growing in a straight line over time. So what happens when Greenspan lowers interest rates? He creates even more debt which in turn inevitably results in still more emasculation of the demand side of our economy. As we have said before, this is akin to a drug addict feeling the need to take heavier doses of heroin and increasing intervals, just to avoid withdrawal pains. Eventually the drug addict dies. Of course the major media cannot fathom this issue, since they were neither taught to think on their own nor were they indoctrinated in anything except the narrow wisdom of Keynesian and monetarist thinking. They have been taught to think that if only the Fed prints enough money, all will be well. But in fact, the symptoms of our current malaise are not so dissimilar to those of the 1930's as most people think. During the 1930's the Fed also tried to print money very rapidly, but found ineffective. That is when the slogan "pushing on a string" was created to describe the ineffectiveness of the easy monetary policy at that time. The economy and stock market simply did not respond to money creation then just as it is not responding now. And, excess supplies of all manner of goods and services existed then just as oversupplies of so many goods and services abound today. Competitive currency devaluation's were also common then just as they are common today in an effort to export to the U.S. And now we are also beginning restrictive trade policies as was also true in the 1930's. So now we are in a real fix, because avoidance of a global economic catastrophe depends on the maintenance of enormous market imbalances created during the Clinton years and to an extent before then too. But now the maintenance of those imbalances seems to be breaking down such that a global financial crisis may be in the offing. For example, one of the weakest links in the existing structure requires huge U.S. current account deficits to be plowed back into U.S. dollar investments. But why would foreigners do that since now the falsehoods upon which so much money poured into the U.S. capital markets are now being revealed. Alas, markets and truth can only be stretched so far. So, market distortions caused by a rigged gold market or untruthful accounting policies or a simple productivity falsehoods spouted by Greenspan are inevitably leading to a tearful ending. As foreigners stop recycling that $1.3 billion into the U.S. each day we look for a declining dollar, rising interest rates, declining equity prices and a huge change in investor psychology from euphoric to decimation. We have heard much talk about capitulation, but as Richard Russell observes, we have seen nothing close to capitulation yet in the U.S. -end-