a *should read* - as you *will have to* choose.

  1. dub
    29,567 Posts.
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    Just read the article below, and am copying it here in case some others might find it interesting.



    October 6, 2003

    The world has still not grasped the sheer size of what happened in the US between 1995 and 2001, preferring not to face the fact that the immense stock market bubble was the direct result of an even more immense bout of credit expansion. This expansion drew towards the US a gigantic amount of money from all over the world. Everyone wanted to profit from the blow-off. These cumulative money flows into the US since the bubble began in 1995, came close to $US 4.1 TRILLION. That was 68% of the $US 6 TRILLION which the rest of the world sent to the US Imperium over the last half (50 years) of the twentieth century.

    In five short years, $US 4.1 TRILLION flowed into the US to be added to the $US 1.9 TRILLION in overseas capital already there. The $US has been going DOWN since early 2002. So far, foreign investors in the US have been tricked, cajoled, inveigled, and/or threatened into standing pat. Should this new "policy" of flexible currencies produce a stampede for the exits, the US Dollar and US stock and bond markets face a potential catastrophe.

    Global Double Jeopardy:

    Rebecca McCaughrin, writing for Morgan Stanley, has asked this question: "Which markets are liquid and large enough to support the $US 9.1 TRILLION of foreign capital that comprises the US net liabilities position?" Note the bland statement that US external debt is a NET $US 9.1 TRILLION.

    Foreigners own $US 6 TRILLION of investments inside the US. The US has a NET foreign liability of $US 9.1 TRILLION. Add these foreign-owned US assets and this net US foreign liability together and the result is $US 15.1 TRILLION. The G-7 has now given its official seal of approval on "currency flexibility" - read a FALLING US Dollar. A foreign investor withdrawal from the $US could devastate the global financial system in a week.

    What Is The US Doing To Address This Situation?

    US second quarter GDP (+3.1%) was underpinned by a 13.7% increase in US defence spending, a 13.6% jump in US household home mortgage debt, a 10.9% jump in total household debt, and a 10.1% increase in total federal government debt. What is the US doing? It is ratcheting UP its borrowing.

    Inside The Real US Economy:

    The overall US capacity utilization rate held steady at 74.6% in August, while the manufacturing rate fell two-tenths to 72.7%, just above the 20-year low of 72.5% seen in May. Since May, the US machine park which produces the economic goods that consumers consume has managed to add 0.2% to its utilisation rate to climb to a still catastrophic 72.7%. Economically, this is the same as saying that nearly 30% of US factories and plants still stand idle. Most of the fresh credit money which the Fed is making available for Americans who want to borrow and spend is bypassing US industry. Instead, it is storming outside US borders, as can be seen from the second quarter US current account deficit which was up 13% year-on-year (y-o-y) to $US 138.7 Billion. These past four quarters have seen a US deficit of a $US 529 Billion.

    The Federal Government Is Doing ALL It Can:

    The US federal government reported a $US 76.5 Billion deficit for the MONTH of August. Total US federal government tax receipts have dropped 8.3% y-o-y to $US 124.6 Billion, while total spending jumped 6.4%. Year to date Tax receipts were down 4.2%, as federal spending surged 7.0%. Year to date individual tax receipts were down 4.2% and US corporate tax receipts dropped 13.5%.

    The US federal deficit, which is now estimated to exceed the $US 600 Billion mark, and the federal debt, which now stands at $US 6.8 TRILLION, adds up to an utterly unviable internal US situation and a totally unacceptable global situation. On top of that, there is the problem of unfunded liabilities in the system. These exceed $US 44 TRILLION. The Treasury is faced with an insoluble dilemma. If it acts to cut its current expenditures back to its actual tax revenue, it would do much more than cancel President Bush's Iraq escapade. It would also withdraw expenditures equal to about 6% of the US GDP. That would slam the entire US economy into a sudden and steep economic recession.

    Not daring to do these things, the Treasury is grimly maintaining an outlook of "business as usual" and is continuing to inundate both the US financial system and the world with its debts.

    In sum, the US Treasury has boxed itself in and doesn't dare do anything other than go right on with its massive creation and selling of debt paper after which it spends these borrowed sums into circulation. The Federal Reserve, with its official interest rate already at 1% and destined to stay there as far ahead as the eye can see, sees itself in a position where it too can only add to the waves of new credit money.

    These actions by Treasury and Fed are, especially when combined, an historically certain economic recipe for a CRASH in the value of Treasury's debt paper brought about by much higher interest rates. And even with much higher US rates, the Fed's part in the recipe will result in an assured CRASH in the international exchange value of the $US, simply because the Fed has been issuing too many for too long…..

    One only has to look at a 10% global fall in the international value of the US Dollar to see what would happen. A 10% $US fall from present levels would hand foreign investors an additional loss of $US 1.5 TRILLION Dollars on their US assets. If foreign investors stand pat and take such a loss, it will have drastic financial effects on corporate as well as private balance sheets inside their own nations. This fact cannot be avoided by any amount of sophistry. NEVER has a more dire world wide situation existed.

    The US Eggshell Economy:

    The US economy is all shell with no yolk and very little white. Its fragility is enormous.

    Since the beginning of 1998, total credit market borrowings (non-financial and financial) have surged 51% or $US 10.9 TRILLION -- to $US 32.1 TRILLION. That means that US total debts now are equal to about 310% of the US GDP. That is bankruptcy territory. $US 10.9 TRILLION has been borrowed into existence and spent over just 5 and a half years. Now, only the DEBTS remain.

    Ó 2003 – The Privateer


    ..........And the choice you will have to make?

    You either believe in gold or in the US$.

    You can not do both!

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