..... a *should* read ....

  1. dub
    33,892 Posts.
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    December 10, 2003

    The US economy is expanding at a blistering 8.2% annualised. Productivity is exploding by 9.4%. Stock markets are now poised just below the trading range highs of previous bull market highs for the Dow and the S&P 500. The fans are already dancing in the stands waiting for President Bush to spike the economic ball while old coach Greenspan sits with a satisfied smile on his face. The problem is that up in the corporate boxes the boys are on their mobile phones selling the team short.

    The corporate bosses are selling the stocks. The BIG bankers are selling the Dollar. The US Dollar is now in a steepening and accelerating global DIVE.

    According to the Heritage Foundation, recent US government spending totals $US 20,301 per household. This is the highest level (in non-inflated dollars) since World War II. But taxes to support the spending are only $US 17,000 per household. The Bush/Greenspan league sent the fans free tickets to the tune of $US 3,300 to fill the stands to the brim, but they borrowed all the money from the Japanese and the Chinese leagues, who in turn got the chance to place their wares before the huge number of US fans.

    When "Good" Numbers Are Phony:

    Some of the harder driving analysts inside the USA are now seeing through all this. For example, Martin Weiss of the Safe Money Report figures that the $US 500 Billion budget deficit, the borrowings from the Social Security Trust Fund, the war in Iraq, planned tax cuts, prescription drug coverage, and the money needed to bail out the Pension Benefit Guaranty Corporation all add up to a total deficit for 2004 of over ONE TRILLION US Dollars. Add in the regular budget of TWO TRILLION PLUS bucks, and suddenly we are looking at government spending of about 30% of GDP! Naturally, as one of our rare "trailing facts", we must mention the fact that The Privateer made its call for about a $US 1 TRILLION budget deficit many issues ago.

    Economically, this much is certain: ANY economy being held up by anything approaching government spending of 30% of GDP is already set up for a HUGE fall.

    So What Is Holding It Up?:

    Japan's Central Bank bought $US 9 Billion in the foreign exchange markets - IN ONE DAY - to try to prop up the sagging Greenback. That intervention would have taken the total amount they have already bought since August to around $US 85 Billion! On average, this is more than $US 1 Billion every trading day and by itself enough to fund, almost, three quarters of America's yawning foreign trade gap over the same period. In fact, in the past two weeks alone, foreign Central Banks have increased their combined holdings of US government securities by $US 27.8 Billion! That's an annualised $US 772.8 Billion.

    THAT is what is holding up not only the US Dollar, but as a monetary inflow into the US financial system, it is also acting to hold up the internal US economy. Now, reverse the question. What happens when they all STOP sending this global avalanche of money to the USA? First, all the financial instruments they previously bought have the buying pressure pulled out from under them. Treasuries and Fannies and Freddies take a tumble. This is the same as a climb in market interest rates, not in the official interest rates Greenspan has on offer over at the Fed. If Greenspan does not want to see US longer-term market rates climb, then he will have to send the New York Fed into the breach to buy this paper back faster than it is sold.

    For all those Americans now in the economic stands waiting for the certain touchdown, it will be like coming home from the game to find that the house and the cars have been repossessed.

    Ó 2003 – The Privateer




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