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To: isopatch who wrote (3095)	11/7/2003 4:30:02 PM
From: Jim Willie CB	Read Replies (1) \| Respond to of 108980

Consumption -- Recovery Leader or Potential Profit-Killer? by Kurt Richebächer gold-eagle.com "...The underlying basic fact is that Americans, in the aggregate, have been spending and continue to spend in excess of their current income. What is wrong with that? Why should excess consumption strangle economic growth? The short answer is, consumer spending in excess of income inherently means also in excess of production, and this part of consumer spending essentially emigrates to foreign producers, adding nothing to the U.S. GDP..." America's economic recovery and its likely strength have been and remain the central preoccupation in economics around the world. In the consensus view, the U.S. economy will record in this year's second half its strongest pace of growth since the late 1990s. According to a monthly survey of 53 economic forecasters conducted by the Wall Street Journal Online, its seasonally adjusted annual growth rate during the current quarter will be 4.7% and 4% in the fourth quarter. Consumer spending, propelled by the housing and mortgage refinancing bubble, is supposed to lead the recovery. It is growing, yes. But even here acceleration is completely missing. There were temporary boosts from promotion programs by the car manufacturers and also from tax cuts and tax refunds, but there always followed a new relapse. Consumer borrowing is on the rampage as never before. In 2000, at the height of the bubble, it increased by $558.8 billion. This accelerated during 2001, the recession year, to $614.6 billion, and in 2002 to $771.8 billion. During the first two quarters of 2003, it has further soared to $837.2 billion and $1,000.2 billion, at annual rate. The debt binge is working, for sure. But on closer look, we notice that more and more debt produces less and less consumer spending. The fact is that the growth rate of consumer spending during the past fours quarters (2.9% y-o-y) is far below its average rate of growth (more than 5%) in prior post recession periods. It is true that creating the greatest consumer borrowing binge, as well as the greatest monetary and fiscal stimulus, in history has so far prevented a deeper recession in the United States. However, this bubble has rapidly diminishing effects, and above all, it has completely failed to induce an accelerating upward movement. All the acceleration in real GDP in the second quarter that is being hailed as proof of an ongoing recovery has come from government spending and the hedonic pricing of computers. Take the two away, and there is more economic sluggishness. (it continues)

To: isopatch who wrote (3095)	11/7/2003 4:31:51 PM
From: Jim Willie CB	Respond to of 108980

Saving the Dollar from Destruction by Dr. Hans F. Sennholz gold-eagle.com Never before in recent history have monetary and fiscal policies been as "stimulative" as today, and yet, the American economy remains weak and vulnerable. The Federal budget deficit for the 2003 fiscal year was posted at $555 billion, some six percent of GNP; it may continue to rise in coming years when new tax reductions add their weight. The Federal Reserve System has opened its flood gates and reduced all interest rates to their lowest levels since the 1950s. Its basic rate now stands at just one percent, permitting the stock of money in all its forms to soar at frightening rates. Government and Federal Reserve officials are convinced that this combination of stimuli is bound to facilitate an annual growth rate of 3.75 to 4.75 percent, just like that of the late 1990s. The fact that this opinion is widely held by many officials and economists is no evidence that it is accurate; indeed, in our age of inflation and economic manipulation, an official pronouncement is more likely to be political than sensible. With the gates wide open, the rush of liquidity is bound to inflict serious harm not only on the American economy but also on global conditions. The Federal Reserve's utter disregard of the market rate of interest, which guides the efficient employment of all factors of production according to consumer choices, is bound to do great harm to the economic structure. It causes severe maladjustments and imbalances which market forces sooner or later are bound to correct. Record-low interest rates encourage present consumption and generate massive debt. In just five years, total financial as well as nonfinancial American debt has surged by 51 percent or $10.9 trillion to more than $32 trillion, three times the annual Gross National Product. The Federal government itself is chafing under a $6.8 trillion debt and adding $1.6 billion a day. At present interest rates, this debt alone commands charges of $300 billion a year, or more than $1,000 per man, woman, and child. It may be no concern for officials and politicians who, like Franklin D. Roosevelt, reassure us that internal debt merely is a debt by the nation to the nation and interest payments just are payments to ourselves. But it frightens this observer. It may soon distress millions of households which, tempted by low mortgage rates, converted their housing equities into consumer goods and new debt. During the last quarter alone American households added $397.6 billion in mortgage debt and another $40 billion in credit card debt. The annualized rate amounts to more than $1.5 trillion or approximately fifteen percent of GNP. If it is true that the living standard of Americans has been stagnant for years, we must draw the startling conclusion that this boost in debt was needed to maintain it. If the rate of new indebtedness should ever decline, or the people should choose to repay some debt, living standards would surely plummet. (it continues)

To: isopatch who wrote (3095)	11/7/2003 4:33:10 PM
From: Jim Willie CB	Respond to of 108980

Benson's Economic & Market Trends Economic Recovery or Stimu-Less? gold-eagle.com This economic recovery is the most expensive on record and has yet to produce material results for corporate investment, or employment. So far, the recovery has cost 13 interest rate cuts, 3 tax cuts, and, a war! In addition, it has created a real estate bubble (the likes of which the world has never seen before), a reflation of the stock market bubble, and a policy designed to have average citizens support both bubbles by taking unprecedented personal risks when investing. Indeed, never before has a central bank cut rates so many times, nor has a federal government spent so much money resulting in such a small economic improvement, other than boosting consumer spending. Third quarter economic growth of 7.2% is impressive, yet this growth is a sign of gluttony fed by money borrowed by the US Treasury and the mortgage market. The spending is yet to be backed up by any growth in consumer wages and salaries. The US is experiencing the best year-over-year increases in corporate profits that will be seen in a long time. The magnificent third quarter consumption binge is in direct proportion to the change in tax rates, one time rebate checks mailed to households with children, and the peak of mortgage funding and cash-out REFI's. July and August were stellar months for consumption and September was already lackluster. All of this "Stimu-Less" proves only that a few months of growth can be purchased if the authorities are willing to pay any price. (The fact remains that if consumers are given money or access to credit, they will spend it.) Spending on consumer durables was up at a 26% annual rate in the latest quarter! The 4th Quarter of 2003, and the first Quarter of 2004, will truly suffer from "Stimu-Less." How will the current level of spending be surpassed, yet alone sustained, with no government checks in the mail, and mortgage REFI's dropping like a stone? The worst of economic job loss seems to be history for the US economy. However, the serious structural weaknesses in the economy that caused the recession and job loss in the first place have not only not been addressed - they have been made worse in an effort to encourage continued spending and consumption to create "prosperity." The economic policy of the Greenspan Fed and Bush Administration has been to use low interest rates and equity extraction from housing to keep the consumer propping up the economy until such time as business investment can take over as the leader of the economy. It does look like business investment is improving and is well above its lows and there is investment to replace depreciation. However, business investment in the US will clearly not lead the economy or even be sufficient to offset any slowing of consumer demand. Domestic capacity utilization is too low, and foreign investment in new Asian factories is too high to suggest there is any legitimate economic reason for a meaningful increase in business investment. Our domestic policymakers had not counted on the "dark side" of globalization in this economic cycle to send both new investment and job growth to Asia. Indeed, much of the productivity and profit growth in US corporations is merely a reflection of cheap Chinese labor, being substituted for expensive American labor, and some currency translation gains from a falling dollar. Moreover, the political earthquakes in California and the possible bankruptcy of the City of Pittsburgh are symptoms of the serious budget mess that remains at state and local governments. For the past couple of years, aligning revenues and expenses at the state and local level have been postponed by record borrowing. Any real reform to close budget gaps will mean more taxes, and less spending. Neither of these actions will spur the economy moving forward. (it continues)

To: isopatch who wrote (3095)	11/7/2003 4:35:19 PM
From: Jim Willie CB	Respond to of 108980

The Big Three, Gold ...and The Happy Frog by Richard Russell Dow Theory Letters 321gold.com The Big Money --I have the feeling that "big money" is becoming decidedly squeamish about the "big picture," and I'm talking about the economy and the stock market. And I sense that big money is looking at ways to protect itself. Look at the men that I call "The Big Three" -- Soros, Templeton, and Buffett. These three men have each made billions in the markets. And all three have come out publicly to warn about the current situation. The latest is Buffett's warning in the current issue of Fortune magazine, an article that I urge all my subscribers to read. I often think that the best and safest and most intelligent thing to do in this business is to keep it simple. This brings to mind four basic theses that I adhere to -- (1) Bear markets following bull markets, and the greater the bull market, ultimately, the more drastic the bear market. (2) The action of the D-J Industrials and the D-J Transports taken together with volume indications tell you all you need to know about the market and the economy. (3) Russell adage -- The primary trend always takes longer to reach its conclusion than anyone thinks possible, and the primary trend always take an item further (up or down) than anyone thinks possible. (4) The only real monies are gold and silver as specified in the US Constitution. In fact, the Founding Fathers in the US Constitution warned against the use of paper money. In its effort to circumvent the US Constitution, paper money is now used rather than the metals, and in 1971 the last vestiges of gold-backing behind the dollar was removed. What goes around, comes around. In the end, paper money will destroy itself, and gold will again takes its place as authentic, intrinsic money and as a true store of value. I would like subscribers to keep numbers 3 and 4 firmly in mind. As I see it, the bull market in gold is going to be a long one, a difficult one, and one that will constantly be attacked by the establishment and by the various central banks. Obviously, the central banks want the peoples of the world to believe that the paper they grind out is real money. Gold represents an enemy and a danger to the central banks' propaganda. One of the cornerstones of real money is that it serves as a store of value, and clearly on this count alone paper money is a total fraud. (it continues)

To: isopatch who wrote (3095)	11/7/2003 4:41:28 PM
From: Jim Willie CB	Respond to of 108980

RABBIT HOLE, by Rodney Cook (aka Big Fisherman) I love this guy obsceneprophets.com The general public should find it difficult to invest with confidence when our most esteemed financial oracle can’t find anything in which to park his spare change, but such is not the case. Mr. Buffet likes currencies with foreign currencies being favored. This is a first. For Mr. Buffet it is not as it has ever been. Nor for any of the rest of us I’m afraid. Do you suppose that Mr. Buffet includes gold in his definition of currencies? If not, his gold bug father must be whispering from beyond. But junior may not be listening. In his new role as a social engineer, Buffet has expressed opinions on fiat based mechanisms for dealing with our trade deficit. And they do not include the historic role of gold in this function. So perhaps we have a ways to go before the oracle turns to the noble metal. And even further for the general public. We are considerably closer to an acknowledgement of gold with many other legendary giants that have exhibited consistent financial genius. So far they seem uncertain in their vision. They see the favorable financial data for what it is, or is not. But they vary in their expectations. While they have a common concern over the dollar, there seems to be a consensus of trepidation, with each constituent speaking to a separate weakness in the global financial landscape. It is almost as if they are afraid to complete their perspectives. It is as if some of what they see is too terrible for polite company. Some times you can almost see it in their eyes, or read it between the lines. Or perhaps they just recognize the echo of the equities bubble. That once again their warnings will be dismissed with oblique references to those crazy old coots. It is eerie. (it continues)

To: isopatch who wrote (3095)	11/7/2003 4:42:38 PM
From: Jim Willie CB	Respond to of 108980

CRB touched 251 again / jw

To: isopatch who wrote (3095)	11/7/2003 4:46:26 PM
From: Jim Willie CB	Respond to of 108980

Buttonwood: Hard money Oct 14th 2003 From The Economist Global Agenda Money used to be backed by gold. Now it is backed by the promises of central bankers. Are these worth less than they were? economist.com IN BETWEEN saving the world from terrorism, President George Bush is finding time to dash off to Asia at the end of this week, first to Tokyo and then to Bangkok, where he will attend a meeting of the clumsily named Asia-Pacific Economic Co-operation, which sounds a little better as its acronym. There he will meet, among others, Hu Jintao, the president of the country American manufacturers most love to hate when they are not investing there. It is a racing certainty that the subject of China’s currency, the yuan, and whether it should be revalued from its present 8.3 per dollar, will be high on the agenda, if not atop it. It is, of course, always lovely to talk, but although America wants a lower dollar, and wants one now (which is understandable for a country with a current-account deficit of 5% of GDP and a congenital inability to save), China couldn’t seem to care less. Quite probably, then, tension will increase and the dollar will fall against other currencies that do not have such a firm peg. The rapidity of this fall will depend on two things. The first is the force with which Washington rattles its sabre. On this subject, Buttonwood merely notes that next year is election year. The second is whether other countries, especially those in Asia which together hold $1.7 trillion of IOUs issued by the American government, are prepared to see the Treasuries in their portfolios rapidly devalued, their export competitiveness choked and deflationary pressures intensified. (it continues)

To: isopatch who wrote (3095)	11/7/2003 4:50:48 PM
From: Jim Willie CB	Read Replies (1) \| Respond to of 108980

The coming first world debt crisis by Ann Pettifor The reckless financial policies of leading western powers in the last two decades make it likely that the next seismic debt crisis will be in America, not Argentina. It can be avoided, says Ann Pettifor of the Real World Economic Outlook, only by serious efforts to bring regulation and balance to the international economy. opendemocracy.net The report predicts that a giant credit bubble, created by central bankers and finance ministers (the engineers of decades of “easy money”) has now reached a “tipping point”. This point – at which the “bubble” of financial assets exceeds GDP by nine times – has triggered financial crisis elsewhere. Another “tipping point” would be a rise in interest rates – not unlikely for economies like the US and UK which have massive foreign deficits. The financial system: unbalanced, unfair, unsustainable On a global level, there is $100 trillion of debt outstanding, but only $33 trillion of income with which to repay those debts. Even the drastic recent stock market falls have barely dented the credit superstructure. When this credit bubble bursts in the United States and Britain, it will be middle-class consumers that will first bear the brunt of the financial crash. That will be unjust and unfair, because American and British consumers have been actively encouraged in their borrowing by the financial deregulation policies of both central bankers and governments. Moreover, politicians and bankers have watched as dutiful and compliant consumers have propped up these two big economies – helping to keep the global economy afloat. They will be rewarded for their heroic efforts by bankruptcy, losses, liabilities, and personal anguish – which will extend some time into the future. The impact of a collapsing credit bubble will reverberate around the world, and hurt the poorest most. The crisis will be exacerbated for individual consumers, because the end of the credit boom will take place in a deflationary environment. Deflation is in part a consequence of the policies of central bankers and finance ministers for opening up markets, and clamping down on wages and prices. Deflation is good for lenders, but bad for debtors. This is because the value of debts rises in real terms in a deflationary environment. This is in contrast to inflation, which ultimately erodes the value of debt. (it continues)

To: isopatch who wrote (3095)	11/7/2003 4:57:14 PM
From: Jim Willie CB	Read Replies (1) \| Respond to of 108980

Templeton Trepidations, Buffett Battle Stations by Bill Fox America First Trust Financial Services financialsense.com According to Gary Moore, who serves as a media spokesman for Sir John Templeton, the legendary investor “…Surprised even me [a few weeks ago] by suggesting that we avoid [U.S.] stocks altogether as the money that was in tech has moved to cheaper stocks around the world…John primarily suggested sovereign debt from Canada, Australia and New Zealand. He’s been there the past three years, principally in Canadian zero coupon treasuries.” When a reporter who wrote the article “"Templeton Feeling Bearish,." (Sarasota Herald Tribune, Oct 14, 2003) asked about the prediction that the dollar would slide 40% in a special Economist report, Gary Moore assured the Herald Tribune reporter that he had the feeling that Sir John wouldn’t waste much time arguing with that prediction. However, it is more Sir John’s style to say, “The odds are better than even…” rather than give a specific number. (Please note Gary Moore’s letter in the Appendix of this article for more complete background on Sir John Templeton’s views.) The dollar index has already lost about 24% of its value since Jan 2002. John Templeton’s continued dollar bearishness implies that the unhedged gold stock index (HUI), which is already up over 400% from its low in late 2000, could run further. Precious metals have a strong historical inverse correlation with the strength of the dollar. Billionaire investor Warren Buffett said in his Oct 27, 2003 Barron’s interview that he sold $9 billion in long term U.S. Treasuries earlier this year and feels it is unwise to buy into the stock market at current levels. He has $24 billion in cash on the sidelines. There is no evidence that he has sold the 129.7 million ounces of silver that he accumulated in 1997. In regard to currencies, Warren Buffett wrote the article: “America’s Growing Trade Deficit Is Selling the Nation Out From Under Us” (Fortune Online Edition: Sunday, Oct 26, 2003). He stated: “I am crying wolf again [about the impact of mounting trade deficits, having first started his warnings in 1987] and this time backing it with Berkshire Hathaway's money. Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in—and today holds—several currencies. I won't give you particulars; in fact, it is largely irrelevant which currencies they are. What does matter is the underlying point: To hold other currencies is to believe that the dollar will decline.” America’s Achilles Heel lies in the growing glut of dollars held by foreigners as America’s balance of trade deficits grow worse. Foreigners have bought 45% of America’s deficits, typically buying US government bonds with their trade surplus dollars rather than dumping them on the currency markets and driving the dollar lower. They have allowed America’s trade deficits to grow to 6% of GDP without forcing a currency crisis. Deficits over 5% of GDP historically enter high-risk territory. The U.S. Government and Fed response has generally been cosmetic at best. From 1995 to 2000 U.S. Secretary of the Treasury Robert Rubin used currency interventions to artificially strengthen the dollar. The more recent funds rate cuts by the Fed down to 1% serve to artificially stimulate consumption and support asset bubbles amidst over 6% unemployment. Deep structural problems make it unlikely that a declining dollar will completely eliminate the trade deficits soon. Many Asian countries inflate their currencies in line with dollar declines and have vast pools of peasant labor always willing to work for less. Many American business leaders focus on short-term profits and neglect the reinvestment required to competitively advance quality and innovation at home. Many American consumers are addicted to buying more foreign goods with more debt. (it continues)