believe the newspapers hahaha

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    Hello Investors and Market Watchers,
    Friday the 24th of October 2003

    A great deal has happened in the last three months. First, I lost my job, thank God! Now I can do some work. Second, I was invited to visit a world leading German economist named Kurt Richebacher. Imagine the travails of slugging with baggage and laptop computer all the way to the French Riviera. We had an interesting time discussing the US Economy, principles generally, misguided policies, and more. I attempted to chronicle our discussions in an article titled together with some unflattering comparisons of the United States. (

    My plans to launch a paid newsletter have been delayed, since Richebacher has hired me to serve as a research assistant. The pay scale is meager now. When momentum builds in writing his commissioned book, the income will increase beyond working at a Burger King hole. The book title is to be . All factors are aligned for a gradual collapse of both the US Economy and the USDollar. Nothing can stop it. Remedy is politically unacceptable. Our currency is fast resembling a cross between banana republic paper and a motorcycle victim suffering from hemorrhage in an Intensive Care Unit. Trade gaps are stubbornly near $40 billion per month. Federal deficits are rising past $500 billion officially, and well past $1 trillion annually on the obligation side. I regard the prescription drug bill as a pure budget wrecking ball, which over time will utterly destroy the federal budget. Once again, socialism kills the cow and removes milk from the table.

    In at least two summer articles, my prediction was boldly stated that the Japanese Yen would break from its multi-month range and cause problems. The dollar-yen range had been steadily 114-119 over most of the last twelve months. My host Richebacher disagreed with me. He thought that the Bank of Japan would never allow their currency to rise. I claimed the cost of intervention had become prohibitive. And besides, their trade surplus with the USA was at 2.5% of their GDP, which created a huge money flow current for the BoJ to overcome. Japan has a large trade surplus with China, which might be what finally broke the Yen loose. He repeated that the damage to the Japanese economy with a recession, and to the US Economy with both imported inflation and reduced Treasury Bond purchases, would be so dire that it would never happen. I stood my ground, reminding him that a financial catastrophe which he is predicting requires some catalyst events, and THIS YEN RISE IS ONE OF THEM. I followed up with a claim that once the Yen broke out, all Asian currencies would rise in concert. He finally said that it could happen. IT DID. Only Steve Saville and I were publicly on record in a prominent fashion for predicting this. We both expect the Yen to reach parity with the USDollar. I outlined my many analytical points in a recent article titled which describes an extremely dangerous phase two. We will now see both the Euro and the Yen gain versus our crippled, bloated, and doomed currency. Numerous detrimental effects will come next. All Japanese imported products will soon cost more. Asian appetite for our Treasury Bonds and mortgage agency GSE debt will soon decline, if not already. The combination of higher price inflation and reduced supply of credit will push interest rates higher, regardless of a weak economy. Our economy is far weaker than the statistics attempt to deceptively indicate. The Yen rise is a lose-lose situation, whose mathematics are dictated by the lunatic floating currency framework in which the world economy operates.

    Notice that the USDollar, the Euro, and the Yen are much more in the news lately. So is gold. We are being bombarded by pathetically inept thinking and fallacious economic claims. In fact, over 90% of what you read and hear and see on television and in newspapers and in journals is simply backwards. It is tragic how poor our economic understanding has become. Just look around you and observe colossal debts suffocating our entire nation, which is the direct byproduct of economic policy. In fact, new money & new debt are failing to stimulate. In early 2002, it took $5 of new money creation & credit formation to generate a single $1 in GDP. This summer it took $6.5 to generate a new $1 in GDP. Now it takes $7. I call this the Monetary Futility Index. The index was stable for two decades at $1.4 per GDP dollar. The same futility occurred in pre-WW2 Germany, and caused hyperinflation. In our land, we are more likely to see sharply rising costs across the entire spectrum, against a backdrop of no pricing power, thanks to China and India and Mexico. By next year, the USA will be the only nation on earth suffering from persistent price inflation without the benefit of rising profits. The US Economy is spinning its gears with wasted debt energy. Case in point is the car industry, where zero loans do not prevent stalled sales. October figures show a 35-40% decline in sales.

    Moronic economists are shoveling your way pure bullshit, as they claim some inflation will offset the widespread deflation. This is like saying if someone drains half the blood from your body, then throws the blood in your face, that the two effects offset each other. Or like saying if your legs are amputated, and transfusions are delivered around the clock, that the two effects offset each other. Pure unadulterated bonafide bullshit !!! And illiterate Americans believe it. If the cost of gasoline, heating oil, diesel, electricity, natural gas, lumber, nickel, copper, silver, beef, and grains are all higher month after month, how does that offset the decline in prices of clothing, cars, computers, furniture, lamps, trinkets, and a multitude of retail merchandise? It clearly does not. Now factor in a new wrinkle, the prospect of increasing prices for all products made in Asia. First the Japanese currency rises. Soon, all Asian currencies will rise in order to maintain regional balance. For God sake, the clueless Secy Treasury Snow went to China to beg them to raise all prices on their exports to the United States. That is how lost and clueless our leaders are. They actually believe an increase in prices for manufactured products in Asia will create jobs in the United States, even though we do not even have any manufacturing plants for entire blocks of consumer products. Unbelievable how truly inept our leaders are, and how unfixable our situation is. The floating currency world creates misallocations, which are structural in nature. As currencies correct, while the USDollar declines further, we will see gradual damage increase. Angry labor prodding will lead to trade wars, just like it did in 1930. We are repeating past mistakes, since politics prevails over wisdom.

    The next stage will see faltering bond markets. We have already begun to justify rising interest rates as evidence of this so-called recovery. Nevermind that not a single economic recovery has ever happened in the history of the United States during a dollar decline. Nevermind that by definition one cannot have an economic recovery if jobs are lost. Such claims are utterly laughable. Bear in mind that the Federal Reserve is massively pumping money (counterfeit green) into the banking system. The new amount added to the money supply equals the increase in consumer household debt. And just by coincidence, the amount borrowed equals the increase in Chinese trade surplus with our country. So please tell me where my logic is lacking. Our Fed is creating US debts and Chinese jobs !!! Our collection of economists is the most absurdly incompetent in modern history.

    As this dangerous phase two continues, our domestic price inflation will rise. However, we will not see rising pricing power for our corporations. Instead, production costs will rise and household costs will rise. So corporate profits will fall, and discretionary household spending will fall. Neither corporations nor households will see inflation offset deflation, but instead new pressure on their profits and available funds for new spending. As price inflation becomes evident, bonds will see higher long-term interest rates. Unfortunately, Asians will be more concerned about diversifying their vast USTBond holdings than purchasing the same quantity of our debt as in the past. The result will be continued bond losses, higher long-term rates, and a decline in real estate prices finally. The recession should arrive next year sometime, when real estate begins its long awaited decline. The end to this insane Greenspasm Bigger Bubble response will be tragic. Gold will be the primary beneficiary as bonds falter and housing goes into reverse. All roads lead to gold.

    A new worldwide trend has begun. The Islamic world is angry at the USA, and has taken action. They have embarked in two directions. They are selling more crude oil in Euro denomination. They are settling their bilateral commercial transactions in their new Dinar. That Dinar will soon be gold-backed. Russia is soon to sell its huge supplies of crude oil and natural gas and industrial metals in Euro denomination, a stab in the back by Putin to Bushy. Russia is moving closer to Europe than the USA commercially. China is accumulating gold in a big way. In the next two years, I fully expect China to allow their Yuan to float, then to make it gold-convertible. The action will come when their middle class can support increased demand and economic activity. The end result will be a new alliance which includes Europe, Russia, China, and Islamic nations, which isolates the United States. We can pound our chests, express our bravado, and say until our price inflation rages as in the 1970 decade, inflicting damage to our credit markets. This new alliance is about economics and commerce, not politics. The rest of the world has begun to distance itself from vulnerability to the falling USDollar, which will not end.

    The economic fallout will be stagnation, recession, and a new cycle of price inflation. The stock and bond market bull markets will falter, and the gold bull market will enter a more powerful new phase. I expect that gold will rise toward $2000 per ounce. Several years before the 1980 peak of gold at $885, a formula was promulgated to forecast a gold price peak. Divide the total value of US Govt Treasury debt held by foreigners by the total number of gold ounces held in the US Treasury. The calculation yielded $900 per ounce. In the following years, the forecast missed by $15. Perform the same calculation now and you get $1600-1700 per gold ounce. Except now, even the US Congress is denied information on how much gold is left in our treasury. Many believe that our gold supply is actually 50-70% below what is believed, thanks to the decade-long pilfering by the gold carry trade participants. I refer to Robert Rubin, certain gold mining executives, and well-connected speculators. They coordinated the gold carry trade to benefit USTBonds and the USDollar for many years. Now comes the cleanup process and the realized damage. If half our gold has been sold off, then the target for gold in this new peak will be $3200-3400 per ounce. I expect this level to be approached.

    Expect desperation to continue for the Federal Reserve. Greenspasm has announced his plans to keep interest rates low for a long time. We have experienced interest rates below the prevailing price inflation rate since November of 2002. Why invest in 3-month TBills when the rate of return is a lousy pathetic 1.0%? This is the sentinel signal for a gold bull market, which has never disappointed. As the Monetary Futility Index (new money to generate new GDP) increases further, the jet-power assist to the gold price will be in high gear. As all production costs rise, so will gold. As the bond markets falter, gold will take the lead. As real estate goes into reverse, gold will benefit. As the outsourcing phenomenon continues, and jobs flee to China and India, our income will be diminished. Calling this an economic recovery is an insult to your intelligence. As the US Economy enters a recession next year, gold will be making headline news. It has outperformed the S&P in 2003, yet gets no attention.

    All govt and Fed actions are now attempting to continue the artificially low interest rates, to continue the highly destructive money pumping, to escalate federal deficits, to add new govt spending (like war, security, tax cuts, drug bills), to continue the consumer debt abuse, which collectively will perpetuate the enormous imbalances rendering recovery impossible. Many actually believe that since Asia recycles its huge trade surpluses back into our credit markets, such action negates and renders harmless the lethal trade gap. In fact, it creates two unsolvable problems as our jobs are replaced by debts held by foreigners. We must rebuild our mfg plants, and in time bring them back from Asia. We must stop spending and start saving, so that we can support our own debt. Neither is likely to happen anytime in the next few years. The monetary mechanism has been dismantled, whereby higher interest rates will prevent the USDollar from decline. The industrial mechanism has been dismantled, whereby our mfg plants can sell products at lower prices abroad to stem the USDollar decline. With both devices absent, a crisis will unfold as the USDollar never stops its decline. Disinformation is running rampant on the totally confused and incredibly unschooled and illiterate public. Gold will skyrocket during this upcoming crisis. It is written in stone.

    All factors are aligned for gold and silver to enjoy several years of big gains.
    My favorites are small Canadian miners and energy producers, like:
    Cardero Resource Corp (CDU.V = CUEAF.PK) in copper, gold, and silver
    Athlone Minerals (ATH.V = ALMLF.PK) in oil and gas

    Each is very likely to rise 200% in the next twelve months. Each is busy with big new projects.
    Some notable advisors expect an imminent move in Cardero of at least 50%.

    sincerely, Jim
    Golden Jackass

    Jim Willie CB
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