O.K., Richard,
I'll read this thread occasionally and will post (but infrequently)....
Here's the best that I've seen today...From that Denver coin dealer's site...
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BillinOregon (08/08/02; 18:06:03MT - usagold.com msg#: 82599)
Roger Bently Arnold's comments
I am finally home. I will start posting Roger's comments again.
Hope you find them as interesting as I do.
BillinOregon
General Comments
What we are experiencing right now in the US economy, and reflected in the US equity and bond
markets, is an attempt by the FED, Treasury, GSE's and soon the Whitehouse to convince the
CEO's of corporate America that they have successfully stopped the traditional bottom of an
economic cycle which has always occurred when the consumer capitulates.
The CEO's have so far not bought into this new economic system and the longer they wait to
increase capital borrowing, spending and investing the more likely it is that it will fail.
It is like watching a show down between the lenders and the borrowers. The key borrowers
necessary to make this economy grow, corporate America, aren't borrowing even though the
consumers are.
Capital spending and investing typically only represents about 20%-30% of US economic activity
but that is what creates the jobs. And, those jobs then drive the other 70%-80% of consumer
spending.
Unless capital spending increases jobs are not created and unemployment rises as the pool of
available workers continues to grow from kids coming out of school.
Further, companies are not stagnant. If capital spending does not increase neither do revenues and
earnings. And that forces stock prices down and borrowing costs up. Which in turn forces further
reductions and unemployment as CEO's attempt to reduce costs to maintain profitability.
So, why aren't CEO's borrowing?
The CEO's first job is risk mitigation, not reward creation. In other words their first job is to not lose
money. Making money is secondary.
These CEO's know that every economic cycle contraction, not caused by the FED since the
creation of the FED in 1913, has ended with a consumer capitulation. Because they know this they
also know that increasing capital borrowing, spending, and investing until this occurs is speculative
and dangerous regardless of how cheap the FED makes money.
They also know that every other CEO knows this which is what makes business and economic
cycles self fulfilling and reinforcing.
Since September 11th however, the FED, Treasury, and GSE's have been attempting to prove to
the CEO's and corporate America that they can stop this cycle.
This is an awesome task and if successful will cause the WORLD to enter a new economic phase of
expansion and rate of expansion the likes of which we can not even imagine today.
The risks however are gargantuan. By not allowing the traditional cycle to complete its course and
by attempting to mitigate it the US Fed, Treasury and GSE's are running the risk of a world wide
systemic financial, economic, political and social collapse worse than the 1930's.
This is the economic equivalent of changing the course of the Mississippi River and the entire world
is watching the US to see if we are successful. The longer we go without success the less probable
success is.
The FED controls the supply of and cost of money in the US economy to the banking system and
has an internal portfolio of about 700 billion dollars. Using open market operations they use this
money to either inject money into the banking system or remove money from the banking system.
The GSE's, Fannie Mae, Freddie Mac and the Federal Home Loan Banks control the supply of
money to the housing market and the ease with which it may be accessed. They control a portfolio of
about 6 trillion dollars; almost 10 times the size of the FED. Because of this they actually have a
much larger impact on economic viability than the FED does. There is a saying: As goes housing, so
goes the economy. It is usually very true. They do not however control the cost of money to the
housing sector.
That is controlled by the US treasury through the issuance of US treasury notes and bonds, which is
what mortgage rates are tied to, and by the bond markets appetite for them, which determines their
price and yield. The treasury has a portfolio of about 4 trillion dollars of debt which they control.
The last piece in the puzzle to be added is fiscal stimulus which is controlled by the Whitehouse and
congress through both government spending and tax cuts.
The FED has done most of what it can reasonably do to drive short term rates down through
monetary policy in an attempt to compel companies to increase borrowing and spending. So far it is
has failed to compel companies to borrow even though consumers continue to spend. Compounding
this for the US FED now is that going lower further without a corresponding reduction in rates by the
ECB could actually result in the exact opposite of what is intended; i.e. it could drive money out of
the dollar and US economy in preference for the higher returns in Europe.
The US Treasury has done most of what it can reasonably do through treasury issuance and the
cancellation of the 30 year US treasury bond in an attempt to drive long term rates down and keep
mortgage money cheap. So far this has failed to reduce corporate borrowing costs as speculative
grade credit spreads and thus the cost of long term borrowing to companies are rising rather than
falling. It has succeeded in reducing the cost of mortgages to consumers.
The GSE's have done all of what they can do to keep consumers buying houses by making mortgage
qualifications as easy as possible. They have even made them imprudently easy to access, which will
cause problems in the future and is the subject for another day.
Fiscal Stimulus
Fiscal stimulus in the form of tax cuts rather than government spending is the last tool available and
there is no guarantee we will get it soon. However, no matter when we get it, if it doesn't work the
world economy will begin to fail.
With an election coming up in November and the Democrats smelling blood in the water it is
impossible for fiscal stimulus by way of tax cuts to be implemented before the election.
The Republicans have done such a poor job of explaining to the American people why tax cuts are
necessary that I am left wondering whether or not there is any intelligence in the party or the
Whitehouse at this point. I do not say this jokingly. Tax cuts are our last hope to make this new
economic cycle real and avoid a world wide economic collapse.
So, why are the Democrats opposed to tax cuts?
Because it would inevitably lead to an initial BOOM in stock prices and perhaps make the new
economic cycle real. If that were to occur under Republican leadership and guidance it could literally
be the cause of the beginning of the end of the Democratic party as a viable political institution in the
US.
Additionally, they have their own agenda on what direction to take the new economy and the
relationship between the political and economic states. Their agenda is to increase governments roll
in economic activity rather than decrease it. They are using this volatility to grab for political power
and they appear to be doing a better job of winning their case with the American media and people
than the republicans are.
But why would the Democrats be willing to sacrifice the economy simply to win power and why
haven't the republicans been able to explain something so obvious? I don't know.
What I do know is that the agenda to end this crisis laid out by the Democrats, increasing taxes and
government spending will destroy the US and world markets and economies over night. One of the
primary drivers of the markets right is concern on the part of investors that the Democrats will win
the elections in Congress this year and perhaps take control of both houses. That would kill any
chance at tax cuts and doom the economy; and that is what investors are beginning to fear.
So, with so much at stake for both political parties as well as the US and world economy why are
our public and quasi-public leaders at the FED, Treasury, Whitehouse and GSE's taking this risk?
Globalization demands it. If the US and western civilization is going to fully convert the world to our
economic and political systems we must be able to prove to the world that our systems are
absolutely controllable. In other words that we can make depressions non-existent.
And the only way to do that is to face down a depression with all the tools we have and successfully
stop it from occurring.
Will it happen?
I don't know but I am not willing to bet my financial capacity and future on it.
This is clearly the only story we have. Each day I write is another chapter in the continuing saga. I
earnestly hope you are getting something out of this.
US rates 'could hit 1930s levels'
By George Trefgarne, Economics Editor (Filed: 07/08/2002)
Wall Street rallied dramatically yesterday on hopes that the US Federal Reserve will deliver a shot in
the arm to the American economy next week with an interest rate cut.
The Dow Jones index finished the day up 230 points at 8,274. In London, the FTSE 100 index of
leading shares also rallied, closing up 134.6 at 4131.0. Major US investment banks are queuing up
to forecast cuts in US interest rates.
Lehman Brothers said yesterday it had seen "enough economic and financial pain" and was changing
its forecast. "The precise dimensions of such a move are hard to pinpoint, but our main scenario is a
quarter point cut at the September, November and December meetings, pushing the funds rate down
to 1pc," said Lehman.
That would leave US rates at their lowest since the Depression era of the 1930s. Goldman Sachs
also believes US rates could be cut next Tuesday, when the US Federal Reserve's open market
committee meets.
However, at 1.75pc, US interest rates are already at a 40-year low and Peter Dixon, an economist
at Commerzbank, said some traders were guilty of wishful thinking yesterday. "There could be
another cut in US rates," he said, "but I am not expecting one until October. You must remember
that this is August and markets are very thin."
Mr Dixon cited the US Federal Funds Futures contract, which is traded at the Chicago Board of
Trade. The contract for September was trading at 98.33 yesterday, indicating that no change is
expected by a market that watches the Fed's moves very closely. However, the October contract is
forecasting a cut.
The dollar also had a strong day against most major currencies as funds flowed into the US stock
market. The dollar's strength struck a blow against the pound, which dropped sharply against the US
currency in its worst day's trading for more than five years.
By the close in London the pound had fallen 3 cents against the dollar, to end at $1.5383. The dive
came the day after National Statistics said that manufacturing output had plunged in June at its fastest
rate since 1979.
Some currency analysts said that although there is a growing view that the US economy will suffer a
so-called "double-dip" recession, it could recover faster than the UK as the US authorities have
taken swifter action.
"Today's situation is because of the dollar and interest rates," said Ryan Shea of Bank One. "The US
recovery will be quicker than in the UK economy." The International Monetary Fund produced its
latest forecast for the US economy yesterday and said it expected growth to accelerate from 2.5pc
this year to 3.25pc next year.
However the trade-weighted index, which measures the pound against a basket of currencies,
showed it almost unmoved, dropping from 106.8 to 106.7, as it gained slightly against the euro to
62.69p. The euro was also weak against the dollar, slipping more than two cents to 96.43.
Today, the Bank of England releases its quarterly inflation report. The minutes for this month's
meeting of the monetary policy committee, when rates were left at 4pc, will also be published.
Economists will be watching to see if Mervyn King, deputy governor of the Bank, repeated his lone
stance of July when he voted for a rate rise.
Real Estate
Feel free to call me or send me an e-mail about your situation and we can figure out if it is viable and
advantageous for you to refinance. I can be reached at 1 800 658 2813 or
roger@myhomelender.com
If you would like to apply for a mortgage click on or go to:
secure.web-loans.com
As per some of your inquiries, the loan application site is fully secured.
Don't forget the COFI loans either, especially if you are self employed. The report on those loans by
the way is at :
myhomelender.com
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