END OF THE KEYNESIAN MONETARIST ROAD
DEATH OF THE USDOLLAR OR RETIREMENT
(notes from lunchtime seminar I gave at work to BrownBag group)
(they wanted to hear the case for GOLD)
WHAT WENT WRONG ???
US ECONOMY SOPHISTICATION OR SUFFOCATION ???
JAPANESE LIQUIDITY TRAP OR ARGENTINE CONVULSION ???
Jim Gale April 9, 2003
Collectivized capitalism joins magnificent fraud with impunity, deadly debt levels
- SEC stock accounting fraud (accepted deception, unpunished crimes)
- Fanny Mae socializes home ownership
- 401k laws enable private institutionalized stock ownership
- socialized Medicare, next prescription drug coverage
- shop til drop, borrow til bankrupt, spend your way out of trouble
- Congressional spending led to socialism, catering to lobbyists, not people
- federal intervention is rampant, regular, and uncontrolled
- we have socialized DEBTISM, not CAPITALISM
- financial engineering fraud and debt excesses negated innovation, productivity
Batra: spending and production vastly outpaced income growth
- we overspent via debt, beyond our income means
- we overbuilt productive capacity via debt, beyond our income means
- foreign departure will lead to higher longterm interest rates
- end result will be inflationary depression
- bust might have occurred in early 1990’s, except for $600-800B from Japan
- this guy is right on with all predictions, except only in timing, since 1978
Best case scenario is the Japanese Liquidity Trap, since they have many advantages
- high savings level, while we spend on credit to excess
- economy benefits from debased currency, as an export economy
- bankruptcies thwarted, so problems never climax
- expectation: inflationary recession with relentless duration coming
- interventionist attitude leads more likely to Argentine outcome
o desperate measure invite a market response toward dollar and rates
o fast market conditions could ensue
o bank failures could occur, as well as sudden price inflation
Austrian School of Economics warned USA for 30 years
- since 1997, $4.5 newly printed dollars creates now $1 in new GDP activity
- 76% of GDP was devoted to debt service in 2002
- household debt is now 108% of household income
- inflated asset prices now prevent economic growth, leading to stagnation
o stock values 100% overvalued, housing prices defy deflation
Economists = political priesthood, govt frontmen, brokerage harlots, academic quacks
- underreport price inflation (omissions), unemployment (dropoffs)
- overreport productivity (double count capex)
- encourage economic recovery through continued consumption (financed by debt)
- arrogance behind Strong Dollar Policy has had tragic repercussions
- apologists for an interventionist system built entirely upon a debt system
- Federal Reserve ignored asset prices during 1990’s when calculating price inflation
o opened the gates to a speculative bust
- too much “blame game” and not enough expert objective examination
- now advocates constant intervention with Working Group for Financial Markets
o formerly in currencies, now S&P stocks, bonds, banks, FannyMae debt
Financial illiteracy at catastrophic levels
- ignorance and indifference has reached tragic proportions
- price inflation is totally misunderstood, incorrectly defined
- wealth cannot be produced through debt
- wealth is not defined by asset values
- money has become confused with legal tender
- business cycle cannot be repealed
- Vanguard survey indicated 70% of bond fund investors unaware of nature of losses
Kondratiev Winter drives the supercycle every 60-70 years
- well underway, driven by events, not calendar
- culls excessive and irresponsible debt with vengeance
- attacks transportation and communication most visibly
- 1810 (panic), 1870 (railroads), 1930 (cars, radio, stocks), 2000 !!!
- has anyone noticed the widespread comparison to 1930 conditions ???
- expect bankruptcy of all but one major airline, both auto mfrs
- safeguards dismantled prior to K-Winter (Glass-Steagal Law repealed in 1997)
- climax will be likely death or retirement of the USDollar monetary standard
- last one ended with destruction of world monetary standard (GOLD)
- usually ends with a world war
Gold Carry Trade mimicked JapYen Carry Trade
- borrow gold at 1% (or JYen), invest in 10/30-yr US Treasury Bonds
- employ futures contracts for 30:1 added leverage
- watch interest rates fall for a decade, stocks boom, dollar uptrend
- now USDollar Carry Trade will feed both Euro and Gold in reverse
- short interest in gold and silver is more than two years world production
o long awaited short cover squeeze might someday occur
Strong Dollar Policy gutted entire US mfg base
- over 20 years of mfg base dispatched to Asia and Mexico
- now service sector subjected to same exportation
- wealth engines replaced by debt production
- chief export of US Economy is debt (of multiple kinds)
- resultant byproduct is overvalued stock assets and bond assets
- severely undermines the American Imperial era
Symptoms of economic critical condition
- declining trend in corporate earnings since the mid-1980’s
o opposite of what Wall Street proclaimed in their lure
- hemorrhaging US trade gap and balance of payments deficit
o at annual 6.0%, invites a 20-25% currency correction
- replacement of capital equipment with accumulating debt
- large capacity under-utilization
- tremendous foreign dependence on capital ($3 billion per day)
- dangerous foreign held US federal debt (45% of $6.5 trillion)
- dangerous level of USTBonds held as foreign bank reserves (75% of total)
- Goldman Sachs expects additional $4 trillion in federal debt by 2010
- shorterm USTBill yield offers negative real rate (SENTINEL GOLD SIGNAL)
Staggering increase in money supply since 1995 is basis of monetary inflation
- over 50% MZM increase since 1995
- 30% MZM increase since January 2000
- excess increase in production has led to price deflation (liquidation)
- neglected commodities is leading to price inflation (shortages)
- while excess consumption by households has led to huge indebtedness
Remedies do not follow, since politics rule (take an example)
- case in point is Electricity Problem in California
- blamed on Enron as scapegoat, not wholesale price controls
- now faulty system has spread to Arizona, Nevada, and Oregon
- strong political power of large California unduly influenced FERC
Dow Theory signals great trouble
- chief living proponent is Richard Russell
o he anticipated Dow meets GOLD at $3000
- DJ Industrials make lows
- DJ Transportations confirm lows
- but DJ Utilities breaking down
o signals supercycle K-Winter debt distress
- all major indexes are still in longterm downtrends
o Dow and S&P must deal with stock options and pension funding
o TBond market must deal with rising interest rates
o Utilities must deal with reluctant debt financing
o Real Estate sector must deal with rising mortgage rates
§ what about possible curtailment of Fanny Mae funding?
USDollar and GOLD sit on opposing sides in monetary war
- USDollar losing ground to Euro, as world reserve currency
- USDollar in decline, pushed along by departing Arab PetroDollars
- declining dollar sets in motion strong vicious circle dynamics
o each decline sets up the forces for the next strong decline
- lower dollar cannot be achieved without a decline in the dollar
- monetary mechanism is being dismantled via Fed intervention
o higher longterm interest rates will not be permitted
- industrial mechanism has been absent for more than 10 years
o mfg base now in Asia and Mexico
- inelastic gold supply and inelastic gold demand only feed the process
The “China Card” is a deadly card to be played
- 2002 increase in money supply equals increase in consumer debt
- but it also equals increase in China’s trade surplus with USA
- yuan pegged to USDollar, in violation of World Trade Agreement
- also in violation of bilateral Most Favored Nation accord with USA
- China has been devoting 1/3-rd of trade surplus to gold accumulation
- Chinese crude oil demand is growing by 7% per year
o they pressure every single commodity in earth
- by 2004, Chinese Yuan will float and trade as world currency
o G7 pressure has already begun, by Japanese govt leaders
o trade surpluses are just too large
- rise in yuan could be 200-400%, as predicted by Goldman Sachs
o all Asian currencies will rise in lockstep
o this will import inflation to US shores
Gold is real money, has been for 5000 years
- USDollar is unit-denominated federal debt, used as legal tender
o IT IS NOT MONEY
- gold is historical safehaven currency of last resort
- gold price rise owes to a multitude of reasons, far beyond geopolitical stress
- since abandonment of Bretton Woods in 1971, growing economic volatility
o expansions are greater, recessions are greater
- unprecedented stock boom & bust presages upcoming economic BUST
- as oil & gas are commercial commodities, gold is financial commodity
- significant general commodity trend reversal is evident
MONETARY CRISIS BY 2006, WITH USDollar AT THE EPICENTER
CORRESPONDING EXPLOSION IN GOLD PRICE
- no internal mechanisms exist to stop the dollar decline in progress
- UN and NATO alienation, military adventurism only risk further US isolation
- either death of the USDollar, or its retirement
- Dept Treasury already announced new orange-tinted dollar release
o firewall to protect US Economy from foreign dollar debt writedown ???
- K-Winter does not stop until debt excesses are expunged
o all US Federal attempts in place to forestall exactly that
o home equity extractions perpetuate the consumer spending bubble
- Arab PetroDollar diversion to Europe could lead to worldwide movement
o expect GOLD to win the Dollar-Euro battle as new world reserve
o gold-convertible Islamic Dinar could climb atop the oil movement
- Chinese Yuan revaluation will provide a 2nd gear for GOLD
- retreat from bankruptcies and defaults, higher interest rates support GOLD
- some bank failures are likely from abuse of derivatives
- hyperactive Fed Printing Press has already been announced
o monetary inflation plants seeds of future price inflation
- SENTINEL SIGNAL is negative real interest rate on 3-month TBill yield
o 1.2% is below the CPI (underreported) price inflation rate
REFERENCES:
“Reasons Why Gold Will Rise: USDollar Decline Vicious Circle” (Nov 2002)
321gold.com
“Statistician’s Indictment of Economists: 12 Counts of Incompetence” (Dec 2002)
goldenjackass.com
“2003 Predictions – Bear Claws” (Jan 2003)
321gold.com
“The Gold Volcano: Roads Merge Golden Lava” (Feb 2003)
321gold.com
“Denial Confront Illiteracy: Mass Delusions” (March 2003)
321gold.com
Glossary of Excellent Articles in last 10 months
goldenjackass.com
"Gold Wars: The Battle Against Sound Money As Seen from a Swiss Perspective"
by Ferdinand Lips |
