Dec 10, 2004
MARKET NEWS DIGEST
-> Oil higher as OPEC talks supply curbs -Reuters
-> Stocks slip on inflation jitters -CBSMW
-> Gold/silver off, but above 1-mo. low -Reuters
-> Dollar aided by central bank buying -FT
-> IBM Sells PC Business to Chinese Group -UPI
-> C.I.A. Reports Offer Warnings on Iraq's Path -NYT
-> Attack on Saudi U.S. Consulate, Oil Rises -BL
-> WGC's Bullion Fund Double-Counts Gold Bars -GATA
-> Ruth home run bat fetches $1.3 million - CNNfn
-> PAT BOONE TO ENTERTAIN PHX GOLD BUGS -IFN
-> GOLD VS. DISAPPEARING DOLLAR -Craig R. Smith, SATC
-> CENTRAL BANKS BUY DOLLAR, SELL GOLD -Craig R. Smith, SATC
-> Distractions in the Social Security Debate -Hans F. Sennholz
-> The passing of the buck? -The Economist
-> Take Cover from the Plunging Dollar -Larry Edelson, AUR
-> Dollar's plunge a blight, not a benefit -Bill Fleckenstein
-> U.S. Economy Improving Like Gangbusters -Rich Spohr, SATC
-> A nuclear Iran poses extreme threat to U.S. -AR
-> THE DOLLAR - OVERSOLD OR OVERWROUGHT? -John Mauldin
Founders' Quote of the Week
"All the perplexities confusion and distress in America arise not from defects of the Constitution, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation."
-JOHN ADAMS, a letter to Thomas Jefferson in l787
PAT BOONE TO ENTERTAIN PHX GOLD BUGS -IFN
By David Bradshaw, Idea Factory News
Dec 10, 2004
Phoenix, AZ (IFN) -- Legendary performer Pat Boone will be appearing tonight at West World in Scottsdale to entertain hundreds at the annual Swiss America Christmas Banquet between 8-9pm.
Boone is the national spokesperson for Swiss America and an outspoken advocate of truth, justice, the America way and U.S. gold and silver coins (""My No Matter What Happens Financial Strategy", as seen on national TV.)
Swiss America CEO, Craig Smith first met Pat a decade ago at an Awards Banquet hosted by Dr. Ted Baehr's Movieguide. Since then, Swiss America has supported Boone's efforts to help propel America toward morality -- in both modern culture and in our family finances.
"Pat Boone started off as a Swiss America client and has since become our spokesperson and a close friend," says Craig Smith, "it is an honor to welcome him back to Phoenix to share some of his precious time and talent with our families tonight as we celebrate the season."
After seriously considering a career as a cartoonist (having drawn cartoons for his high school newspaper), Mr. Boone opted instead for a decades long career as a singer, crooning many hits in the '50s and '60s, including "Love Letters in the Sand," "April Love," and "Ain't That a Shame."
Mr. Boone's career has since spanned television, radio, and the silver screen. With his tongue planted firmly in his cheek, Pat Boone put his "Mr. Nice Guy" image away and released an album of heavy metal songs set to big band orchestrations in 1997 called "In a Metal Mood: No More Mr. Nice Guy."
The great, great, great, great grandson of Daniel Boone, Pat is sure to be clad in those famous white patent leather shoes tonight. He will likely be performing songs from his latest CD's; including "American Glory" (hit single "Under God" and "Hopelessly Romantic," a tribute to his wife of 50 years, Shirley Boone, and to celebrate 50 years of making music that make other people fall in love.
According to Mr. Smith, the event is not open to the public, but Mr. Boone will be available for short media interviews by appointment.
For more information contact David Bradshaw at 602-326-5432.
For more information on Pat Boone CDs visit Patsgold.com
MARKET NEWS DIGEST
Oil higher as OPEC talks supply curbs -Reuters
Dec 10, 2004
By Toby Reynolds
LONDON, Dec 10 (Reuters) - Oil prices rose for a third straight session on Friday as traders bet OPEC would agree to curb leakage over official output limits to stem a price slide from October's record highs.
Kuwait, the United Arab Emirates, Libya, Venezuela and Algeria have called for the cartel, which controls more than half of global crude exports, to trim about 1 million barrels per day (bpd) of over-quota supply.
U.S. light crude climbed 69 cents to $43.22 a barrel, up from the $40.45 four-month low struck on Wednesday. London's Brent crude rose 78 cents to $40.45 a barrel.
"The betting at this point is that members will agree to cut back current production of the OPEC-10 (excluding Iraq) to their actual quota of 27 million barrels a day," said Jan Stuart of brokerage Fimat.
"I think early meeting and full compliance will be the main resolution today," Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah said ahead of the ministerial talks in Cairo. OPEC is expected to schedule another meeting for late January or early February.
Ministers said supply cuts would not take effect immediately as many producers already have agreed January supplies with their customers.
"Implementation in 40 days from now," Algerian Energy Minister Chakib Khelil said.
The Organisation of the Petroleum Exporting Countries has been producing at the highest level in 25 years to meet rising demand in the United States and China, and compensate for a series of supply disruptions.
Estimates indicate that OPEC production for the 10 members bound by quotas was a little more than 1 million bpd above the official ceiling of 27 million bpd in November.
That overproduction has swelled crude inventories to about five percent above year-ago levels in the U.S., and pushed crude forward curves into contango, as sellers have had to discount prompt barrels aggressively to make stock building economical.
Prices have slipped more than $12 from the NYMEX crude high of $55.67 in late October as the plentiful supplies combined with receding fears of a cold northern hemisphere winter and concerns about the elasticity of demand growth.
12-9-04 -- Report Expects High Oil Prices for Decades -AP ..."Some analysts have estimate this "fear factor" may be adding $10 to $15 on the cost of a barrel of oil. While the EIA long-term forecast shows prices lower than today's, it also reflects the view held by many energy experts that a new era of long-term higher oil prices has begun."
$5 Gas Coming Soon?
Stocks slip on inflation jitters -CBSMW
"...the worst inflation since 1981"
By Mark Cotton, CBS.MarketWatch.com
Dec. 10, 2004
NEW YORK (CBS.MW) -- U.S. stocks traded lower Friday as a sharper-than-expected rise in producer prices for November sparked some investor consolidation amid fears of a pick up in inflation.
But a report showing a solid improvement in consumer confidence in early December put a floor on declines.
The Dow Jones Industrial Average was last down 23 points, at 10,529.
Within the benchmark index, United Technologies gained 1.1 percent after it said it was comfortable with analyst forecasts for its 2004 earnings.
The Nasdaq Composite Index fell 4 points, to 2,125 while the S&P 500 Index slipped 3 points, to 1,186.
"It's kind of a standstill day," said Michael Metz, chief investment strategist, at Oppenheimer & Co. "It's one of those dull, consolidation sessions."
But investors should be taking heed of this morning's producer price report which does show inflation gaining pace, according to Metz.
Higher energy prices drove U.S. wholesale prices up a greater-than-expected 0.5 percent in November, the Labor Department reported.
Economists were expecting the PPI to rise about 0.1 percent. Core producer prices, which exclude food and energy costs, rose 0.2 percent, as expected. The PPI is up 5 percent in the past year, the biggest rise since late 1990, when another energy crisis pushed inflation higher.
"I think you're going to see (inflation) flow through intermediate and final prices and it's going to be a problem," said Metz.
Core intermediate prices have risen 8 percent in the last year, according to the Labor Dept. This is the worst inflation since 1981.
IBM Sells PC Business to Chinese Group -UPI
United Press International
Dec 8, 2004
International Business Machines Corp. is selling its personal computer business to Chinese rival Lenovo Group Ltd. for $1.25 billion in cash and stock.
The deal will catapult Lenovo from being the eighth-largest PC maker in the world to third-largest behind Dell Computer and Hewlett-Packard, and is also one of the largest ever foreign acquisitions by a Chinese company, the Financial Times said Wednesday.
IBM will own an 18.9 percent stake in Lenovo, which will open a new U.S. headquarters in New York City. Lenovo will be allowed to use the IBM brand for five years as well as other trademarks on PCs and notebook computers, the Wall Street Journal said.
The purchase price is one-eighth of the estimated $10 billion in sales IBM's PC business will generate this year. Lenovo will pay IBM $650 million in cash and as much as $600 million in stock, representing 18.9 percent of Lenovo's equity. It also will take on $500 million in balance-sheet liabilities.
Dollar aided by central bank buying -FT
By Steve Johnson in London
Dec 9, 2004
The US dollar was solid in European morning trade on Thursday, holding on to the gains of Wednesday, when the greenback enjoyed its best single-day rise since April 2001.
The dollar held its ground at $1.3301 against the euro, Y104.28 versus the yen and C$1.2223 against the Canadian dollar, as the market debated whether Wednesday’s bounce was merely a one-off correction caused by profit taking by speculators who had shorted the dollar, or a sign that relative interest rate expectations, as well as the twin deficits of the US, were once again starting to drive the market.
Paul Chertkow, head of global currency research at Bank of Tokyo-Mitsubishi, took the former view. “We doubt that the current correction of the dollar will prove sustained. The correction appears attributable to a reduction of market risk ahead of the holiday season, not to a shift in market focus from structural problems to cyclical developments,” he said.
However Hans Redeker, global head of FX strategy at BNP Paribas, predicted further gains against the commodity currencies, with the like of the Australian and Canadian dollars and South African rand having suffered the sharpest sell-off on Wednesday.
“There remains scope for further dollar corrective gains against the high yielders and commodity currencies, where there has been a high level of speculative participation recently,” he said.
“Indeed, the easing in oil prices and the sharp declines seen in gold, silver and the industrial metals all suggest that the commodity currencies will remain under pressure.”
CENTRAL BANKS BUY DOLLARS, SELL GOLD! -- Gold falls 3% ... time to buy more! By Craig R. Smith, CEO SATC -- Dec. 8, 2004 ... Last night the central banks finally started to realize that any additional pressure upon the U.S. dollar could cause a mass exodus, thereby igniting a worldwide panic. Therefore, the so-called "Plunge Protection Team," made up of Central bankers intervened to support the dollar...for the moment.
12-5-04 -- Dollar's Fall Tests Nerve of Asia's Central Bankers -NYT ... As the dollar has slumped this fall, many investors have started to worry that Mr. Asakawa and his counterparts elsewhere in Asia will be tempted to pare their ...
12-5-04 -- Japan threatens huge dollar sell-off -Guardian Observer...Japan is warning the White House that there will be 'enormous capital flight' from the dollar if the Bush administration maintains its laissez-faire approach to the mounting currency crisis.
12-5-04 -- Bush plays high-stakes game with the falling dollar -CBS CHICAGO (CBS.MW) -- President Bush has another Texas-sized challenge on his hands. He wants to navigate an already weaker dollar low enough to shrink the trade ...
THE IN-CREDIBLE SHRINKING DOLLAR -- 12-6-04 - By Craig R. Smith, SATC -- The U.S. dollar has lost over 40% of it's buying power since 2001 -- and that's under Bush's "strong dollar" policy!
Gold/silver off, but above 1-mo. low -Reuters
Dec. 10, 2004
NEW YORK, Dec 10 (Reuters) - U.S. gold futures slipped but held above a one-month low on Friday morning, as this week's more muscular dollar continued to spark profit-taking and the lightening of long positions in the precious metals.
In other precious metals, silver fell about 1 percent after losing around 15 percent Wednesday and Thursday, but it held above a 10-week low, while platinum rose and palladium was barely changed.
Benchmark metal gold was gyrating up from session lows near $432 an ounce as traders digested moves in currencies after they shrugged off mainly upbeat U.S. economic data.
"It's jobbing around on the dollar," said a gold trader at a bank. "There has definitely been a lot of liquidation. Everyone is still long everything, so the end of the year comes and you try to put something in your pocket.
February gold futures traded $1.30 lower at $435.90 an ounce by 10:29 a.m. EST (1529 GMT) on the New York Mercantile Exchange's COMEX division, zigzagging in a range from $439.70 to $432.90 -- its lowest level since Nov. 5.
Analysts said the marketplace remained nervous and relatively illiquid this week, leaving it vulnerable to further speculative selling before it can again probe higher.
Meanwhile, the dollar rose broadly Friday, climbing almost 1 percent against the euro, as traders cast an eye to global economic data and continued buying dollars this week after months of relentlessly selling the currency.
Metals such as gold often move in opposition to the dollar as they are viewed as alternative investments to the greenback.
The euro fell to $1.3184 by midmorning, which was well below the record high at $1.3470 hit earlier this week.
"The dollar will continue to have a heavy influence on market direction over the coming sessions, with the Bank of Japan's quarterly Tankan report due for release on next Wednesday, and will add further volatility should it show manufacturers are less optimistic," TheBullionDesk.com said in a daily report.
"Moves higher by gold are likely to be met by further profit taking, while downwards pressure should continue to find good scaled down support from physical and bargain hunter sources," it said.
Spot gold traded to $434.20/5.00, compared with $436.60/7.40 at the previous New York close. Friday's afternoon London fix was at $434.
Holdings of gold in the U.S.-listed exchange-traded fund streetTRACKS, which is backed by bullion, were at 91.13 tonnes for the second day as of Thursday, after rising from about 88 tonnes Wednesday.
March silver fell 8.5 cents to $6.715 an ounce, trading from $7.195 to $6.64, which was above Thursday's low at $6.62 -- its softest price since Sept. 28. Spot silver priced at $6.70/73 from $6.74/78 previously. Silver fixed in London at $6.71.
2 C.I.A. Reports Offer Warnings on Iraq's Path -NYT
By DOUGLAS JEHL, New York Times
WASHINGTON, Dec. 6 - A classified cable sent by the Central Intelligence Agency's station chief in Baghdad has warned that the situation in Iraq is deteriorating and may not rebound any time soon, according to government officials.
The cable, sent late last month as the officer ended a yearlong tour, presented a bleak assessment on matters of politics, economics and security, the officials said. They said its basic conclusions had been echoed in briefings presented by a senior C.I.A. official who recently visited Iraq.
The officials described the two assessments as having been "mixed," saying that they did describe Iraq as having made important progress, particularly in terms of its political process, and credited Iraqis with being resilient.
But over all, the officials described the station chief's cable in particular as an unvarnished assessment of the difficulties ahead in Iraq. They said it warned that the security situation was likely to get worse, including more violence and sectarian clashes, unless there were marked improvements soon on the part of the Iraqi government, in terms of its ability to assert authority and to build the economy.
Together, the appraisals, which follow several other such warnings from officials in Washington and in the field, were much more pessimistic than the public picture being offered by the Bush administration before the elections scheduled for Iraq next month, the officials said. The cable was sent to C.I.A. headquarters after American forces completed what military commanders have described as a significant victory, with the retaking of Falluja, a principal base of the Iraqi insurgency, in mid-November.
The American ambassador to Iraq, John D. Negroponte, was said by the officials to have filed a written dissent, objecting to one finding as too harsh, on the ground that the United States had made more progress than was described in combating the Iraqi insurgency. But the top American military commander in Iraq, Gen. George W. Casey Jr., also reviewed the cable and initially offered no objections, the officials said. One official said, however, that General Casey may have voiced objections in recent days.
The station chief's cable has been widely disseminated outside the C.I.A., and was initially described by a government official who read the document and who praised it as unusually candid. Other government officials who have read or been briefed on the document later described its contents. The officials refused to be identified by name or affiliation because of the delicacy of the issue. The station chief cannot be publicly identified because he continues to work undercover.
Asked about the cable, a White House spokesman, Sean McCormack, said he could not discuss intelligence matters. A C.I.A. spokesman would say only that he could not comment on any classified document.
It was not clear how the White House was responding to the station chief's cable. In recent months, some Republicans, including Senator John McCain of Arizona, have accused the agency of seeking to undermine President Bush by disclosing intelligence reports whose conclusions contradict the administration or its policies. But senior intelligence officials including John E. McLaughlin, the departing deputy director of central intelligence, have disputed those assertions. One government official said the new assessments might suggest that Porter J. Goss, the new director of central intelligence, was willing to listen to views different from those publicly expressed by the administration.
A separate, more formal, National Intelligence Estimate prepared in July and sent to the White House in August by American intelligence agencies also presented a dark forecast for Iraq's future through the end of 2005. Among three possible developments described in that document, the best case was tenuous stability and the worst case included a chain of events leading to civil war.
After news reports disclosed the existence of the National Intelligence Estimate, which also remains classified, President Bush initially dismissed the conclusions as nothing more than a guess. Since then, however, violence in Iraq has increased, including the recent formation of a Shiite militia intended to carry out attacks on Sunni militants.
The end-of-tour cable from the station chief, spelling out an assessment of the situation on the ground, is a less-formal product than a National Intelligence Estimate. But it was drafted by an officer who is highly regarded within the C.I.A. and who, as station chief in Baghdad, has been the top American intelligence official in Iraq since December 2003. The station chief oversees an intelligence operation that includes about 300 people, making Baghdad the largest C.I.A. station since Saigon during the Vietnam War era.
The senior C.I.A. official who visited Iraq and then briefed counterparts from other government agencies was Michael Kostiw, a senior adviser to Mr. Goss. One government official who knew about Mr. Kostiw's briefings described them as "an honest portrayal of the situation on the ground."
Since they took office in September, Mr. Goss and his aides have sought to discourage unauthorized disclosures of information. In a memorandum sent to C.I.A. employees last month, Mr. Goss said the job of the intelligence agency was to "provide the intelligence as we see it" but also to "support the administration and its policies in our work."
"As agency employees we do not identify with, support or champion opposition to the administration or its policies," Mr. Goss said in that memorandum, saying that he was seeking "to clarify beyond doubt the rules of the road." The memorandum urged intelligence employees to "let the facts alone speak to the policy maker."
Mr. Goss himself made his first foreign trip as the intelligence director last week, with stops that included several days in Britain and a day in Afghanistan, but he did not visit Iraq, the government officials said.
At the White House on Monday, President Bush himself offered no hint of pessimism as he met with Iraq's president, Sheik Ghazi al-Yawar. Despite the security challenges, Mr. Bush said, the United States continues to favor the voting scheduled for Iraq on Jan. 30 to "send the clear message to the few people in Iraq that are trying to stop the march toward democracy that they cannot stop elections."
"The American people must understand that democracy just doesn't happen overnight," he said. "It is a process. It is an evolution. After all, look at our own history. We had great principles enunciated in our Declarations of Independence and our Constitution, yet, we had slavery for a hundred years. It takes a while for democracy to take hold. And this is a major first step in a society which enables people to express their beliefs and their opinions."
Dec. 6 (Bloomberg) -- Crude oil rose from a three-month low after an attack on the U.S. Consulate in Jeddah, Saudi Arabia, boosted concern that a revival of terrorist attacks in the country might threaten oil shipments from the world's biggest oil exporter.
Three attackers were killed, and two others wounded and captured, according to the statement on the state-run Saudi Press Agency. Oil prices jumped in June after an attack on a housing compound by militants with suspected al-Qaeda links. The number of attacks fell this summer as the police conducted a crackdown and al-Qaeda supporters took advantage of an amnesty.
``Terrorist attacks appeared to drop off a great deal since the early summer but that calm appears to be over,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons Inc. in St. Louis. ``It shows that al-Qaeda in Saudi Arabia isn't dead.''
Crude oil for January delivery rose 61 cents, or 1.4 percent, to $43.15 a barrel at 10:25 a.m. on the New York Mercantile Exchange. Oil has declined 22 percent from a record of $55.67 on Oct. 25. Prices were 40 percent higher than a year ago.
In London, the January Brent crude-oil futures contract rose 57 cents, or 1.5 percent, to $39.93 a barrel on the International Petroleum Exchange. Brent futures have declined 23 percent since reaching $51.95 on Oct. 27, the highest since the contract began in 1988.
Reports of surging U.S. crude oil and petroleum-product inventories helped push prices lower last week. Oil in New York plunged 14 percent last week, the biggest weekly decline since March 2003, when U.S.-led forces invaded Iraq.
Crude-oil production by the Organization of Petroleum Exporting Countries fell in November, the first decline in seven months, as Iraqi output dropped, a Bloomberg survey showed.
Production by all 11 OPEC members fell 570,000 barrels, or 1.9 percent, to an average 29.97 million barrels a day, according to the survey of oil companies, producers and analysts. OPEC pumped a revised 30.54 million barrels a day in October, the highest rate since December 1979, according to figures from the U.S. Energy Department.
$5 GAS COMING SOON! -- 10-22-04 -- SWISS AMERICA SPECIAL REPORT -- Oil prices have jumped from $17 in 2001 to over $55 in 2004 -- skyrocketing 65 percent in the past year alone!
MANCHESTER, Conn.--(BUSINESS WIRE)--Dec. 6, 2004--More than 2 percent of the gold reported as the property of the World Gold Council's new exchange-traded bullion fund on the New York Stock Exchange (GLD) appears to have been double-counted on account of duplicate serial numbers on the fund's gold bars, the Gold Anti-Trust Action Committee said today.
The duplication was discovered by GATA consultant James Turk, editor of the Freemarket Gold & Money Report and founder of the GoldMoney gold depository and Internet-based gold payment system. Turk examined the bar list reported to investors by the fund.
In today's statement, GATA argued that the duplication of bar numbers deepens concerns about the adequacy of the bullion fund's custodial and auditing arrangements.
"For years the suppression of the gold price and the manipulation of the gold market have been facilitated by the mystery that has been deliberately woven around the leasing of gold and around gold custodianship generally, "GATA said. "If the World Gold Council's bullion fund is not to be suspected as another part of that manipulation, the council must answer some questions urgently:
"-- Why does the bullion fund list ownership of duplicate gold bars?
"-- Why have all the custodians and potential custodians of the fund's gold not been identified?
"-- Why is the fund refusing to let its gold holdings be fully and publicly audited?
"-- Is any of the fund's gold being leased, made available for leasing, or encumbered in any way?
"-- Exactly what is the fund's relationship with the Bank of England, a major lessor of gold?"
Turk's report on the duplication of serial numbers in the bullion fund can be found on the Internet HERE
Ruth home run bat fetches $1.3 million -CNNfn
A piece of sports history fetches more than auction house estimated but doesn't break record.
December 2, 2004
NEW YORK (CNN/Money) - The bat Babe Ruth used to hit the first home run at Yankee Stadium sold for nearly $1.3 million at auction Thursday -- above its presale estimate but well below the $3 million record for sports memorabilia for Mark McGwire's 70th home run ball in 1998.
The bat was bought by Mastronet Inc., a Chicago-based sports and memorabilia company that bought the bat on behalf of an anonymous New York-based collector, according to Sotheby's auction house.
Ruth, who was known as "Bambino," homered with the bat the day Yankee Stadium opened on April 18, 1923.
The famed "Curse of the Bambino" is said to have started with Boston's sale of Ruth to the Yankees before the 1920 season. The Red Sox domination of baseball yielded to the Yankees just a few years later, as the Yanks won the World Series in 1923 while the Red Sox finished dead last that season.
The curse did not end until this year when the Red Sox won their first World Series since 1918, after staging the greatest comeback in postseason history to beat the Yankees for the American League championship.
"When Babe Ruth hit the home run with this bat, it set the tone for the 1923 season," Dan Imler, auction coordinator from SportsCards Plus, which presented the sale with Sotheby's, said last month. "It could be said his home run marked the final transfer of power from the Red Sox to the Yankees."
The bat was among hundreds of baseball memorabilia lots in the Sotheby's sale, dubbed "The Babe Comes Home." Other big names linked to items on sale include Dodger pitching great Sandy Koufax, Yankee slugger Mickey Mantle and "Pee Wee" Reese of the old Brooklyn Dodgers.
12-1-04 -- Investors Flock to Coins Amid Rising Metal Prices -WSJ ... The interest in coins comes as sophisticated investors are increasingly looking for assets outside of the U.S. stock market, which many market observers expect to post only modest gains during the coming year. In buying rare coins, individuals not only acquire a collectible asset, but they are also getting exposure to precious metals. The prices of gold and silver, from which many popular U.S. coins are made, are both rising smartly.
GOLD VS. DISAPPEARING DOLLAR -Craig R. Smith, SATC
[Reprint from June 3, 2003 RMP]
In a letter to Thomas Jefferson in l787, John Adams wrote: "All the perplexities confusion and distress in America arise not from defects of the Constitution, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation."
What was true then... is even more true today.
Confusion surrounds the very meaning of the words; money, dollar, wealth, inflation, and credit. Add to this, widespread public ignorance and confusion concerning tax laws, and you have a system designed to control and enslave the population.
The money system operates in a way that would astound most Americans if they only knew how it worked. A dishonest money system is at the very heart of America's economic and social problems. The degree to which the money system is corrupt is the degree to which all other areas of society are corrupted.
Money is the builder or destroyer of society. An honest money system brings prosperity to all citizens - willing to work. A dishonest one enriches a few at the expense of everyone else - regardless of how hard they work.
If a group of men were able to gain control over the money system of a nation, would they not be masters of that nation? If they had unlimited power to create unlimited amounts of money, could they not direct the course of society and all of its institutions? If their alliance encompassed the length and breadth of the globe, would they not be masters of the world?
On November 22, 1910, the nation's leading bankers left by train at night from Hoboken, New Jersey on a secret mission to Jekyll Island, Georgia. Their mission-to create what was to become the Federal Reserve System.
The essence of psychological warfare is to confuse the meaning of words, and infiltrate the mind with conflicting concepts.
Use of the word "Federal" in the name "Federal Reserve" leads the public to believe that the Federal Reserve is a government institution. Contrary to this misleading use of language, the FED (as it is commonly called) is a private corporation owned by foreign and domesticbanks and operated for profit - no more Federal than Federal Express.
The FED controls the nation's money supply and interest rates, and thereby manipulates the entire economy, in violation of Article 1, Section 8 of the United States Constitution that expressly charges Congress with "Power to coin money and regulate the value thereof." Article 1, Section 10 of the Constitution says: "No State shall make any Thing but gold and silver Coin a Tender in Payment of debts."
Under the FED's direction, gold and silver coin were taken out of circulation between 1933 and 1965 - removed as the backing for our currency and replaced with monetized debt - in other words, credit.
"Today the entire world is out of balance because of credit and debt abuse and central bankers are now between the devil and the deep blue sea," John Mauldin summarizes. The FED cannot raise interest rates because it would throw the economy into recession. I expect the dollar to fall to new lows this year.
According to John Mauldin's upcoming untitled book, "Slow growth and inflation? Recessions? We have seen this movie before -- it is called 'Stagflation: The Return of the 70s' Only this time Alan Greenspan will be a scapegoat."
P.S. The U.S. dollar is in deep, deep trouble. What do you currently have in your investment portfolio that will offset the effect of the dropping dollar? Read "THE IN-CREDIBLE SHRINKING DOLLAR" ...
CENTRAL BANKS BUY DOLLARS, SELL GOLD! -- Gold falls 3% ... time to buy more! By Craig R. Smith, CEO SATC -- Dec. 8, 2004 ... Last night the central banks finally started to realize that any additional pressure upon the U.S. dollar could cause a mass exodus, thereby igniting a worldwide panic. Therefore, the so-called "Plunge Protection Team," made up of Central bankers intervened to support the dollar...for the moment.
Distractions in the Social Security Debate -Hans F. Sennholz
Von Mises Institute
Dec 8, 2004
An old English saying perfectly applies to election promises made by the Presidential candidates: "Vows made in a storm are forgotten in calms." The loser need not give second thought to his promises and the winner usually is prevented from living up to the promises he made in the election storm. In his brief victory speech President Bush echoed what every president promised before him, "to strengthen Social Security for the next generation." Surely, he may set out to coach the system, as all his predecessors have done, but it is unlikely that he will be able to change its course by more than a few degrees.
The basic course of Social Security has remained largely unchanged since it was created by President Roosevelt some 70 years ago. It was born from politics and fashioned along lines of the sweeping social reforms first introduced in Germany by Chancellor Bismarck during the 1880s; it provided for sickness, accident and old age support.
Social Security probably is one of the most popular and celebrated political institutions ever designed. But it also is a divisive construction that is creating unending bitter discord. Most reform proposals are new concoctions of the old welfare medicine. They are searching for another truce between beneficiaries and victims. Unfortunately, there can be no lasting peace as long as the system engages in class and generation warfare. If it would allow a breath of individual freedom to enter the stale atmosphere of coercion, it would point not only toward financial solvency but also to social peace.
In the coming years the Social Security program will undergo many alterations and reorganizations. No political system that seizes income and wealth from some subjects and bestows them on others is ever in a stable equilibrium. And no political system can forever create a growing burden of obligations and then shift them to future generations. Sooner or later the victim generation will resent the shifting and endeavor to lighten the load. It will repudiate it via inflation or other default devices.
In battling error and injustice, it is tempting to seek compromises which adjust the differences and meet the opposition halfway. Fearing popular censure and rejection, it is appealing to echo public opinion and come to terms with the opposition. But such a position may actually aggravate the error, which forces this writer to reject a happy medium. He is aware, of course, that his reasoning is rejected summarily in the din of public opinion and official pronouncements. But he is confident that it will be remembered in years and decades to come when the American people finally tire of class and generation warfare. The following proposal hopefully may shed some light and point to a peaceful order.
1. Telling the Truth. To restore a commonplace of truth and reality, every recipient of Social Security benefits should be informed of the nature and source of his benefits. Every benefit check should carry a stub that reveals the dollar amount contributed to the system including the accrued interest and the cumulative amount of benefits received.
2. When total benefits received equal the contributions made the recipient may apply for Social Security assistance and submit to a means test. At that time many Americans being ashamed of applying for public assistance undoubtedly would hasten to leave the system. It is the worst kind of shame to publicly admit to being poor. Wealthy Americans for whom Social Security benefits merely amount to pocket money would shun the assistance immediately. According to some estimates, some 20 percent of all present recipients would not miss it. Moreover, one-half of all present retirees are enjoying employer-sponsored pensions; most probably would leave the system as soon as the benefits received would equal the contributions made and they would have to apply for Social Security assistance.
3. The departure of affluent Americans as well as many pensioned recipients would allow young Americans to leave the system. They are the primary victims of the present scheme that is loading trillion-dollar burdens on them. They are condemned to finance the system for some fifty years, hoping to survive and collect a meager return. In our age of inflation they must brace for ever rising tax exactions and ever depreciating benefit claims.
4. When millions of older Americans have gladly left the system and millions of young Americans have rushed to leave it or choose never to join, the mode of Social Security operation will change fundamentally. Many Americans will be as free again as they want to be. The remaining system thus reduced by way of truth and freedom can now be privatized. It should be offered to a great number of private insurance companies which write policies for the protection of families. The benefits they pay are augmented by compound interest and payable in a lump sum at the end of a term of years. They also offer annuity policies which pay the insured a monthly or yearly income after a certain time. And in contrast to Social Security, all such contracts may provide for hereditary transmittal of claims and savings.
5. Some portions of Social Security may not be privatizeable; they need to be returned to charity organizations from which they came. Helpless and handicapped individuals may depend on charity which is one of the primary virtues of all great religions, of Christianity, Judaism, and Islam. Throughout American history private organizations cared for the sick and poor. By 1900 some 150 societies, such as the Salvation Army, the Red Cross, various Christian charities, the Jewish Charities, and later the Community Chests, ministered to them in the larger cities. According to some estimates, recipients of charity at times totaled one-third of New York City's population. Early in the 20th century public funds began to supplement and often take the place of private charity.
Rising tax exactions invariably dampened the spirits of charity. The passage of the Social Security Act in 1935 revolutionized charitable activity by giving central focus to the welfare responsibility of the Federal government. The Department of Health, Education, and Welfare, which was created during President Eisenhower's presidency in 1953, is confirming and buttressing the Federal position.
In the coming months President Bush's plan "to strengthen Social Security for the next generation" is likely to encounter much political opposition. It matters little who will prevail in the battles on the floor of the Congress; politicians will decide who will get what, when, and why. It is unlikely that they will soon pass a Social Security reform act that reduces their immense power and points to the light of freedom.
The passing of the buck? -The Economist
America's policies are putting at risk the dollar's role as the world's dominant international currency
The Economist, Dec 2nd 2004
FORECASTING exchange rates is an inexact business. As Alan Greenspan, the chairman of America's Federal Reserve, once said, the activity "has a success rate no better than that of forecasting the outcome of a coin toss." Recent years have borne this out: most currency forecasters would actually have done better if they had simply tossed a coin-at least they would have been half right. Yet over the next few years it seems an excellent bet that there will be a large drop in the dollar.
Since mid-October the dollar has fallen by around 7% against the other main currencies, hitting a new all-time low against the euro and a five-year low against the yen. The dollar has lost a total of 35% against the euro since early 2002; but it has fallen by a more modest 17% against a broad basket of currencies, including the Chinese yuan, which is pegged to the greenback. The dollar wobbled badly this week, having fallen for five successive days after Mr Greenspan said that America's current-account deficit was unsustainable because foreigners would eventually lose their appetite for more dollar-denominated assets.
The disappearing dollar
Mr Greenspan may not be the only central banker to have become bearish on the dollar. Markets have been rattled by concerns that foreign central banks might reduce their holdings of American Treasury bonds. Last week, officials at the central banks of both Russia and Indonesia said that their banks were considering reducing the share of dollars in their reserves. Even more alarming were reports that China's central bank, the second-biggest holder (after Japan) of foreign-exchange reserves, may have trimmed its purchases of American Treasury bonds.
This combination of events has led some economists to ponder the once unthinkable: might the dollar lose its reserve-currency status? Over the past 2,000 years, the leading international currency has changed many times, from the Roman denarius via the Byzantine solidus to the Dutch guilder and then to sterling. The dollar has been the dominant reserve currency for more than 60 years, delivering big economic benefits for America, which can pay for imports and borrow in domestic currency and at low interest costs.
The dollar's share of global foreign-exchange reserves has already fallen from 80% in the mid-1970s to around 65% today. And yet does the dollar really risk losing its status as the world's main currency? The same question was asked in the early 1990s after the dollar's previous long slide, but the dollar's pre-eminence survived. Then, however, there was no alternative to the dollar. Today the euro exists, and could yet emerge as a rival to the greenback.
The requirements of a reserve currency are a large economy, open and deep financial markets, low inflation and confidence in the value of the currency. At current exchange rates the euro area's economy is not that much smaller than America's; the euro area is also the world's biggest exporter; and since the creation of the single currency, European financial markets have become deeper and more liquid. It is true that the euro area has had slower real GDP growth than America. But in dollar terms the euro area's economic weight has actually grown relative to America's over the past five years.
The dollar has failed as a store of value.
Since 1960 the dollar has fallen by around two-thirds against the euro (using Germany's currency as a proxy before 1999) and the yen (see chart 1). The euro area, unlike America, is a net creditor. Never before has the guardian of the world's main reserve currency been its biggest net debtor. And a debtor may be tempted to use devaluation to reduce its external deficit-hardly a desirable property for a reserve currency.
Those bearish on the dollar are asking why investors will want to hold the assets of a country that has, by its own actions, jeopardised its reserve-currency position. And, they point out, without the intervention of central banks, which have been huge net buyers of dollars, the dollar would already be lower. If those same central banks were to begin to sell some of their $2.3 trillion dollar assets, then there would be a risk of a collapse in the dollar. However you look at it, America is likely to find it increasingly hard to finance its huge current-account deficit.
The deficit is at the heart of this issue. Various economists have put forward at least four arguments why the deficit does not matter and the dollar's reserve status is safe. First, the deficit is a sign of America's economic might, not a symptom of weakness. Second, sluggish demand overseas is a big cause of the deficit, so it is reversible. Third, the deficit exists largely because of multinationals' overseas subsidiaries. And fourth, central-bank demand for dollars creates, in effect, a stable economic system. It is not difficult to demolish each argument in turn.
Why the deficit matters
Start with the first argument, which has been favoured by America's Treasury. Foreigners want to invest in America, it is claimed, because it offers higher returns than Europe or Japan; and if America runs a capital-account surplus, it must by definition run a current-account deficit. There may have been some truth to this argument in the late 1990s, when America enjoyed large net inflows of direct and equity investment, but over the past year or so, there has actually been a net outflow from America of such long-term investment. Moreover, in the past few years America has had lower returns on foreign direct investment, equities and bonds than Europe or Japan.
The current-account deficit is now being financed by foreign central banks and short-term money. In the year to mid-2004, foreign central banks financed as much as three-fifths of America's deficit. The recent purchase of reserves by central banks is unprecedented. Global foreign-exchange reserves (65%, remember, are denominated in dollars) have risen by $1 trillion in just 18 months. The previous addition of $1 trillion to official reserves took a decade. These purchases of dollars have nothing to do with the prospective returns in America, but are aimed at holding down the currencies of the purchasing countries.
Worse still, in recent years capital inflows into America have been financing not productive investment (which would boost future income) but a consumer-spending binge and a growing budget deficit. A current-account deficit that reflects a lack of saving is hardly a sign of strength.
What about the second argument, that sluggish demand in the rest of the world is to blame for America's external deficit? If only Europe and Asia would save less, spend more and so import more from America, it is argued, the deficit would simply vanish. Martin Barnes, an economist at the Bank Credit Analyst, a Canadian investment-research firm, reckons that this is much exaggerated*. In 2001, when domestic demand did grow slightly faster in Europe and Japan than in America, America's deficit barely budged.
The problem is that America's imports are 50% bigger than its exports, so if exports and imports simply grow at the same pace, the trade deficit automatically widens. If imports rise by, say 10%, then exports need to grow by 15% just to prevent the deficit from widening. This means that while stronger foreign demand would undoubtedly help, it would be virtually impossible for America to reduce its deficit significantly through stronger exports alone. Li Ruogu, the deputy governor of the People's Bank of China, said last week that America should put its own house in order-ie, save more-and stop blaming others for its problems. He was right.
The third argument is that fretting about the current-account deficit is outmoded because a large slice of the deficit reflects transactions between American multinationals and their foreign subsidiaries. Thus, it is claimed, importing an IBM computer from China is not the same as importing a Toshiba from Japan. Outsourcing by American firms boosts their profits. The problem with this argument, as Mr Barnes points out, is that the total trade between multinationals and their foreign subsidiaries still creates a deficit even allowing for the return of profits and dividends, and this gap must still be financed by borrowing from abroad.
Last, but not least, last summer's favourite explanation of why America's deficit is not a problem is the notion that the world now enjoys the equivalent of the Bretton Woods system (the system of fixed exchange rates after the second world war), in which Asian governments happily buy the Treasury bonds that finance America's deficit in order to maintain cheap currencies to support their own export-led growth. In turn, Asia's purchases of bonds hold down interest rates in America, and so support consumer spending and imports. This cycle, it has been argued, could last another decade.
One big difference is that under the original Bretton Woods system America ran a current-account surplus and the value of the dollar was officially pegged to gold. No wonder, perhaps, that today's "system" is already starting to creak as some Asian central banks start to worry about the value of their dollar reserves. To sustain the current arrangement, they will have to keep buying more and more dollars as America's current-account deficit widens. Asian central banks are already exposed to enormous potential losses in local-currency terms should their currencies appreciate against the dollar. It would be prudent for them to diversify their reserves, but that could send the dollar tumbling. Larry Summers, a Treasury secretary under President Clinton, calls this the "balance of financial terror": in effect, America relies on the costs to Asian central banks of not financing its deficit as assurance that financing will continue indefinitely.
For almost two decades, economists have worried about America's current-account deficit and predicted a plunge in the dollar and a hard landing for the economy. The dollar did indeed fall sharply in the late 1980s, but with few ill effects on the economy. So why worry more now? One good reason is that the current-account deficit, currently running at close to 6% of GDP, is almost twice as big as at its peak in the late 1980s, and on current policies it will keep widening. Second, in the 1980s America was still a net foreign creditor. Today it has net foreign liabilities and these are expected to reach $3.3 trillion, or 28% of GDP, by the end of 2004 (see chart 2).
Some economies, such as Australia and New Zealand, have built up bigger debt ratios without obvious adverse economic consequences, but they are small countries so their current-account deficits absorb only a tiny fraction of global saving. This year alone, America's new borrowing from abroad will mop up a massive 75% of the world's surplus saving.
So far America's hefty debt has not been a burden on its economy, mainly because it has pulled off an extraordinary trick. Although it is a large net debtor, it does not have to make net payments of interest and dividends to the rest of the world. Instead, America still enjoys a net inflow of investment income because it earns a higher average return on its foreign assets than it pays on its liabilities. Returns on foreign direct investment and equities are higher abroad than at home, and America has benefited from unusually low interest rates on its borrowing in recent years. Unlike in previous periods of dollar decline, bond yields have remained low-largely thanks to those huge purchases by foreign central banks. But as interest rates rise in future and net foreign debt mounts, America's net investment income is likely to turn negative, probably next year. Not only will that swell its current-account deficit, but it will also exert an increasing drag on the economy.
America has enjoyed another huge advantage in its ability to borrow in its own currency. A normal debtor country, such as Argentina, has to borrow in foreign currency, so while a devaluation will help to reduce its trade deficit, it will also increase the local currency value of its debt. In contrast, foreign creditors carry the currency risk on America's $11 trillion-worth of gross liabilities. Its net foreign investment position actually improves as the dollar declines, because this boosts the dollar value of overseas assets. This makes devaluation an attractive option for America.
The dollar's position as the world's main reserve currency allows it to attract finance on exceptionally favourable terms. However, this is a mixed blessing. It encourages America to borrow excessively, which increases the eventual cost of adjustment. The issue is not whether America can afford to take on more debt, but whether the rising debt burden will make investors less willing to finance future deficits at current exchange and interest rates.
A recent paper by Nouriel Roubini, of New York University, and Brad Setser, of Oxford University, estimates that, if the real trade-weighted value of the dollar remains close to its average in 1990-2003 (slightly above current levels) and there is no change in domestic policy, America's current-account deficit would rise to 8% of GDP in 2008, and its net debt would increase to over 50% of GDP. In practice, such levels are unlikely to be reached because private investors would be unwilling to finance debts of that size without much higher interest rates and/or a lower dollar, both of which would help to shrink the current-account deficit.
Despite its recent drop, the dollar is far from cheap. After adjusting for inflation differentials, the dollar's real trade-weighted value against a broad basket of currencies is close to its average level over the past 30 years. Although it has barely fallen against most emerging-market currencies, the greenback is already below most estimates of its "fair value" against the euro. But that should be no surprise. Typically, a currency needs to undershoot its fair value by a wide margin in order to reduce a country's large external deficit. The real broad trade-weighted dollar has so far fallen by only 15% since early 2002, compared with a drop of 34% from its peak in 1985 (see chart 3). Yet America's current-account deficit is much bigger today than in the 1980s, so the dollar is likely to fall more sharply. Some economists reckon that it needs to fall by at least another 30%. That would imply a rate of over $1.80 for one euro, compared with today's $1.33.
The less the dollar falls against emerging-market currencies, such as the Chinese yuan, the more it is likely to drop against the euro. China accounts for one-quarter of America's total trade deficit. Speculation has mounted in recent weeks that the yuan will soon be revalued against the dollar. But Beijing has indicated that it will not be rushed into changing its exchange rate, especially if pressured by America.
In any case, the current-account deficit cannot be corrected by a fall in the dollar alone: domestic saving also needs to rise. The best way would be for the government to cut its budget deficit. That would reduce America's need to borrow from abroad, and so mitigate the fall in the dollar and rise in bond yields that will otherwise be demanded by investors. If combined with stronger growth abroad, then the current-account deficit could slowly shrink. America's growth would be depressed by tax increases or spending cuts, but there would be no need for recession. If, on the other hand, the government fails to cut its budget deficit, the dollar will fall more sharply and bond yields will rise. America's housing bubble might then burst and consumer spending would certainly slow sharply. That combination would reduce the external deficit, but only at the cost of a deep recession.
A history lesson
In 1913, at the height of its empire, Britain was the world's biggest creditor. Within 40 years, after two costly world wars and economic mismanagement, it became a net debtor and the dollar usurped sterling's role. Dislodging an incumbent currency can take years. Sterling maintained a central international role for at least half a century after America's GDP overtook Britain's at the end of the 19th century. But it did eventually lose that status.
If America continues on its current profligate path, the dollar is likely to suffer a similar fate. But in future no one currency, such as the euro, is likely to take over. Instead, the world might drift towards a multiple reserve-currency system shared among the dollar, the euro and the yen (or indeed the yuan at some time in the future). That still implies a big drop in the long-term share of dollar assets in central banks' vaults and private portfolios. A slow, steady shift out of dollars could perhaps be handled. But if America continues to show such neglect of its own currency, then a fast-falling dollar and rising American interest rates would result. It will be how far and how fast the dollar falls that determines the future for America's economy and the world's. Not even Mr Greenspan can forecast that.
12-6-04 -- The Disappearing Dollar by Rep. Ron Paul...A true strong-dollar policy would require constriction of the money supply and higher interest rates, both of which would cause some short-term pain for the American economy. In the long run, however, such a correction is the only alternative to the continued erosion of our dollars.
Take Cover from the Plunging Dollar -Larry Edelson, AUR
Source: AU Report 12/07/2004
This morning in overseas markets, traders and investors dumped dollars like hot potatoes, pushing the dollar down again to a new all-time low against the euro and a 12-year low against the British pound. . . Why is the dollar so weak ... how much lower can it fall ... what does it mean to you ... and to your investments?
First, why: The dollar is plunging because overseas investors are fed up with the decrepit balance sheets of the U.S. government and U.S. households.
-- They see the U.S. budget deficit as insurmountable, requiring more than 80% of the world's surplus savings to finance it.
-- They see the U.S. current account deficit now running at more than $600 billion per year -- and getting steadily worse by the month.
-- They see the U.S. government's debt at $7.43 trillion and growing at the rate of more than one billion dollars per day.
-- They know Americans are spending almost every penny of their earnings, leaving virtually nothing to finance those deficits.
Indeed, the personal savings rate in the U.S. fell to 0.2% in September, the second lowest on record. That means for every $100 earned, Americans are spending $99.80 and saving just 20 cents!
These overseas investors hold $4.4 trillion in U.S. securities. They've had enough, and they are starting to turn away from U.S. securities in droves -- dumping nearly $6 billion in stocks in August and September.
Second, how much lower can the dollar fall?
No one knows for sure and therein lies the danger: The dollar decline could escalate into a dollar panic. But even without a panic scenario, we project that the U.S. dollar can crumble another 20% to 30% over the next 12 months, and perhaps fall even further.
If you were a business, would you lend money to such an indebted country? Would you loan money to a nation of such indebted households? Hardly.
Third, what does the dollar's declining value mean to you? Simply put: inflation is back.
Already, producer prices for the month of October had their sharpest jump in 14 years ... and consumer prices are now surging at the annual rate of about 7%. If that rate holds, it means that inflation is double the rate of just a year ago.
It's also why gold has surged to new 16-year highs ... why oil is rebounding again ... and why almost every commodity and natural resource under the sun is starting to experience rapid price increases.
Soon, more and more companies will NOT be able to absorb these increasing costs. They will be forced to pass them on to the consumer. Inflation could spread and take off.
Indeed, the U.S. dollar is taking an absolute beating. It has fallen to yet another all-time low against the euro, almost five-year lows against the Japanese yen, twelve-year lows against the British pound, and eleven-year lows against the Swiss franc.
At one time, a dollar bought 1.2 euros. Now it buys just 74 cents worth of euros -- and it's falling at a record pace. Virtually the only currencies the U.S. dollar is gaining against are the Sri Lankan rupee, the Zimbabwe dollar, the Costa Rica colon, and other such economic "powerhouses."
This is not the result of Bush's reelection, nor would it be any different if Kerry had been elected. No one can fool overseas investors who hold $4.4 trillion in U.S. securities, including about $1.8 TRILLION in outstanding U.S. Treasury debt. Ultimately, they are beyond anyone's control.
Already, we're beginning to see the cracks in the dollar become gaping holes. All over the world, major central banks are now seriously considering selling dollars as their only self defense against a currency that's rapidly losing its value.
I've been warning about this for some time, and now it's happening in spades. Make no mistake: The plunging dollar has vast implications for virtually every financial market under the sun. Consequences ...
• A sudden jump in inflation. Already the U.S. government has announced that consumer prices are increasing at an annualized rate of over 7%!
• An upward surge in interest rates! It's happened nearly every time the dollar has plunged in value.
• A sharp reversal back down in stocks vulnerable to the weak dollar and rising interest rates.
This is precisely what happened in the Crash of 1987, as the dollar plunged and short-term interest rates began to explode. We are on the precipice of the same exact event repeating itself again, any day now!
• Yet another surge higher in gold, oil and natural resources!
Without a shred of doubt in my mind, this is the time to insulate the purchasing power of your dollars with the most direct hedges and profit opportunities out there: Namely, natural resources, gold, and oil and energy.
Naturally, with every profit opportunity, there is also risk of loss and past performance is not indicative to future results. But this gives you an idea of the kind of awesome, wealth-building power that this natural resource boom offers you now. . .(December 7, 2004)
Dollar's plunge is a blight, not a benefit -Bill Fleckenstein, MSN
I don't buy the idea that the falling dollar will fix our trade deficit. It will cause a lot more trouble, and even Chinese peasants understand the problem. By Bill Fleckenstein
Dec 6, 2004
This week's column is devoted to the dollar, and it begins with a sobering vignette from Shanghai: "The long lunch-hour lines at this city's downtown Bank of China are filled with people who not long ago stuffed their accounts with U.S. currency. Now they are dumping dollars. . . . The customers lining up to change dollars are young and old, Chinese as well as foreign."
That comes from a recent Wall Street Journal story called "Chinese Are Losing Dollar Faith," and I'm sure it's a story that's being played out all over the world. This is what Alan Greenspan's stewardship of the dollar has wrought. It has become confetti to the point where it depreciates against virtually every currency on the planet -- something that would have been unthinkable under former Fed Chairman Paul Volcker (who has said that there is a 75% chance of a dollar crisis in the next five years). Banks and insurers check your credit. So should you.
As I have been saying for more than a year now (see "The dollar is on borrowed time," written in May 2003; and "The sliding dollar is already costing you," written this past February), a train wreck is coming in the currency. It will have serious ramifications. I wish I could time it exactly, but I can't. However, I continue to look for clues that suggest a further acceleration of the trend.
Curiously, it seems to me that the No. 1 battle cry is not "I'm bearish on the dollar" (though lots of people are bearish), but "There are too many dollar bears, and therefore the dollar is going to bounce." I think that is the consensus, not that the dollar will be weak. Certainly in America, that is the consensus.
On a similar note, I am often asked: "Isn't the dollar's decline going to be bullish because so many people tout it as such?" As I stated in my column, "The 7 stages of a dollar crisis," the bullish argument is always made in the early stages of a currency decline, because the ugly ramifications often have a long gestation period. It's like the way that every slowdown in a business cycle is at first always deemed to be a soft landing.
Forget the fact that the new (paper-hat wearing) job creation figures were terrible. Those menial jobs that were created still managed to produce a smoke-and-mirrors drop in the unemployment level to 5.4 percent.
(Of course, if you believe that percentage, I've got a bridge to sell you...)
But there actually WAS some great economic news today. "Corporate and personal bankruptcies dropped" a tiny bit this past year from the all-time record levels.
Break out the champagne!!!!
The US economy - despite record budget deficit, record trade deficit, slowing growth, continued high unemployment, stagnant wages, significant inflation, plunging dollar, complete absence of personal savings, a massive debt bubble, a ludicrous housing bubble and absurdly overvalued stocks - is turning the corner.
Now for the GREAT news on the bankruptcy front:
US bankruptcies fall 2.6 pct in year to September
Fri Dec 3, 2004 12:01 PM ET
WASHINGTON, Dec 3 (Reuters) - U.S. commercial and personal bankruptcy filings fell 2.6 percent in the year to Sept. 30, as personal finances improved in a strengthening economy, but bankruptcies still remain near record highs, a federal court report showed on Friday.
Filings dropped to 1.62 million cases in the year from a record-high 1.66 million the previous year, the Administrative Office of the U.S. Courts said in a statement.
"Despite the drop in filings, bankruptcies remain at historic highs," the court said.
Nonbusiness bankruptcy filings eased to 1.58 million in the year ended Sept. 30 from 1.63 million the year before, while business filings dipped to 34,817 from 36,183.
Bankruptcy filings in the three months ended Sept. 30 fell to 396,438 from 421,110 in the quarter ended June 30.
For the year ended June 30, bankruptcy filings marked their first decline over a 12-month period since 2000.
BUT... Here's What Will Cause The Upcoming TSUNAMI of Personal Bankruptcies
Want to see an economic train wreck in the making? Check this out:
More Homeowners Borrowing Against Equity In Their Homes
By KENNETH R. HARNEY, Feature Writer
Americans may be filling the malls for holiday shopping, but when it comes to serious financing needs they are lining up in record numbers to tap their real estate equities.
New research by mortgage market giant Freddie Mac found that 60 percent of all refinanced mortgages the corporation purchased during the third quarter of 2004 involved "cashouts,'' where homeowners increased the size of their loans and pocketed the difference tax-free. That 60 percent figure was up from 42 percent during the second quarter and represents the highest rate since mid-2002.
In hard-dollar terms, American homeowners converted $41 billion in real estate equity into spendable cash in the third quarter alone, up from $28.5 billion during the second quarter. For the year as a whole, Freddie Mac estimates that homeowners will cash out $118 billion of their home equity.
A typical cashout works like this: Say you have a mortgage balance of $200,000. But the market value of your house has appreciated over the past few years and the property is now worth $400,000. If you need cash, you could easily refinance your $200,000 loan and replace it with a $250,000 or $300,000 mortgage. The proceeds of the refinancing - $50,000 to $100,000, less the transaction costs - would be yours to keep, tax-free.
The key to this trend, of course, is an unusual confluence of high home value appreciation with near-record low borrowing costs. The average house in the United States has gained 44 percent in value in the last 60 months alone, according to the Office of Federal Housing Enterprise Oversight. In some high-roller markets on the West and East coasts, appreciation gains of 60 percent to 80 percent or more during that period have been commonplace. Meanwhile, 30-year mortgage rates have hovered at or below 6 percent, making borrowing money from your home piggy bank cheaper than it has been in four decades.
In Freddie Mac's study, the houses securing cashout refinancings had experienced a median appreciation of 17 percent in value during the brief, 2.6-year median life of the preceding mortgage. Even with the high cashout ratio, however, many refinancers were able to lower the interest rate on their notes. More than half of all refinancings in the study produced net decreases in the rate from the preceding mortgage to the new loan.
Another booming technique for tapping rapidly accumulating home real estate wealth: equity lines of credit. In a recent survey of a sample of its members, the Mortgage Bankers Association of America recorded a major surge in new applications for home equity lines of credit - up an astounding 77 percent in the first half of 2004.
Not only were new applications on the rise, but the size of the credit lines appears to be ballooning as well. The average credit line was $71,932 in January, and swelled to an $83,630 average for new lines in July, a 16 percent jump. The initial average drawdown on the lines also was up - from $42,523 in January to nearly $46,000 in July.
Home equity credit lines are hot in part because lenders have cut rates, cut settlement fees, and streamlined the closing process dramatically. Equity lenders, primarily big banks, now routinely offer credit lines priced at or below their prime commercial rates for eligible homeowners with high credit scores. After taxes, the effective cost of these lines is in the mid-to-upper 3 percent range for many consumers.
As just one example of the trend, Bank of America's popular "equity maximizer'' program offers lines up to $500,000 for eligible homeowners, and guarantees no appraisal fees, no title charges, no origination or underwriting fees, no local transfer or recordation taxes, no annual maintenance fees and no early termination penalties....
And now the U.S. PESO
I've got two words for you: GOT GOLD?
A nuclear Iran poses extreme threat to U.S. -AR
Orde Kittrie, The Arizona Republic
Dec. 5, 2004
Armed only with boxcutters, the 19 al-Qaida hijackers on Sept. 11, 2001 killed 3,000 people and caused hundreds of billions of dollars in damage to New York City, the Pentagon and the global economy.
This toll pales in comparison with the damage that would be caused by a “nuclear 9/11” – a terrorist state or group using a nuclear weapon against the United States or its allies. Detonation of a single small nuclear weapon in a U.S. city such as Phoenix could kill more than 500,000 and cause over $1 trillion in damage.
The risk of a nuclear 9/11 is high and rising. As Harvard Professor Graham Allison writes in his outstanding recent book, Nuclear Terrorism: The Ultimate Preventable Catastrophe: “On the current path, a nuclear terrorist attack on America in the decade ahead is more likely than not.”
In the first presidential debate, President Bush and Senator Kerry agreed that the single most serious threat facing the United States is nuclear proliferation. The Bush administration’s success in countering this threat will turn first and foremost on its handling of the Iranian nuclear weapons program.
The most important action we can take to prevent a nuclear 9/11 is to stop the Iranian nuclear weapons program in its tracks. During the presidential campaign, Senator Kerry characterized the Iraq war as the wrong war in the wrong place at the wrong time.
Unfortunately, what we were told about Iraq that turned out to be false – that it was a leading sponsor of anti-American terrorists and on the verge of developing nuclear weapons — turns out to be true of Iran.
There is a risk that the American people — having felt “burned” with respect to Iraq — might reflexively dismiss the Iranian nuclear threat. To fail to understand, and act upon, the dangerous nature of the Iranian regime and how close it is to acquiring nuclear weapons would be a tragedy of historic proportions.
Iran and a trio of European countries recently negotiated a temporary freeze of part of the Iranian nuclear program. Media coverage of this deal has shed too little light on the dangers of the Iranian program and on the tenuousness and limited scope of the temporary freeze agreement. The Bush administration’s very important concerns about the negotiations, which it has watched from a distance, have been given short shrift.
The difficulty of reaching agreement on even this temporary partial freeze does not bode well for the long term. It seems likely that Iran will violate the temporary freeze agreement, as it violated a similar agreement reached in October 2003, or that follow-on negotiations will fail to extend the temporary freeze.
The United States will likely soon have to make an important decision regarding its willingness to tolerate an Iranian nuclear bomb. To understand the stakes and prepare for that day, it is critical to know why a nuclear-armed Iran would be extremely dangerous, how close Iran is to acquiring nuclear weapons, and what steps must be taken if we are to decisively avert the menace of a nuclear-armed Iran.
Iran’s track record
A nuclear-armed Iran would be extremely dangerous for a number of reasons. Iran’s hard-line fundamentalist regime continues to blatantly threaten the United States, which it routinely refers to as “the Great Satan.”
In May, on the first day of its new session, Iran’s parliament broke into chants of “Death to America.” At Iran’s annual military parade in September, a long-range missile had draped over it a banner proclaiming, “We will crush America under our feet.”
Three different sets of Iranian diplomats at the United Nations have been thrown out of the U.S. in just the last two years for suspiciously photographing infrastructure and transportation sites in New York City. Meanwhile, Iran is working on the Shihab 5 missile, which would be capable of hitting the continental United States.
THE DOLLAR - OVERSOLD OR OVERWROUGHT? -John Mauldin
Dec 5, 2004
Is there anyone left who is bullish on the dollar? Even Greenspan and other Fed governors openly suggest the dollar and the trade deficit are too high. If the United States is borrowing to finance its trade deficit, then somebody must be lending, which means someone is saving. Everyone knows that the United States trade deficit, at 6% of GDP, takes around 83% of total world savings to finance (International Monetary Fund). The US government deficit soaks up a huge amount of our own national savings.
The reality is that the trade deficit cannot go much higher because the world is running out of the ability to lend more money. Someone somewhere must start to save more or the deficit must begin to come down. The classic ways are for the dollar to drop or for a recession to appear. What politician or Fed governor in his right mind would deliberately induce a recession? The answer that is left is for the dollar to drop, and that is clearly the way the Fed and the Treasury are leaning.
That also means the US must ultimately finance its own deficit. Thus we will be forced to save more and spend less. Given the boomer retirement coming all too rapidly down the road, it is hard to imagine a longer term scenario which yields growth in consumer spending, increased savings and a stable dollar, all at the same time.
So, the open short position on the dollar continues to climb. If everyone is on the same side of a trade, who is on the other side? Is the dollar extremely oversold? Maybe. I can paint a scenario either way.
Fundamentally, the dollar has not dropped all that much on a trade weighted real basis, and given the trade deficit, government debt and other factors, it still has a way to go, in my opinion. Further, the current short position of traders is a small percentage of the huge ($1 trillion a day) currency markets. There is still plenty of room for more short-selling.
On the other hand, the traders who move the market from day to day are all on one side of the trade. It is quite crowded. It feels a lot like this time last year when again everyone was short. The dollar stopped its slide and actually began to rise with a significant correction. Now we can see that correction was a buying opportunity. At the time, many said the dollar had reached its bottom. That scenario could, and likely will, play out again. Very few markets have ever gone down (or up) without significant corrections along the way.
The Sleeper Dollar Issue
Did you feel the ground shake? The epicenter of the economic quake happened in Laos last Tuesday. Southeast Asian nations and China signed an accord to create the world's biggest free trade area by removing tariffs for two billion people by the end of the decade. In macro-economic terms, that is tomorrow. Leaders in the 10-member Association of Southeast Asian Nations (ASEAN) also signed a pact to create an ASEAN Community along the lines of a unified Europe by 2020. It aims to create a common market with common security goals. ASEAN members are actively talking of creating their own "reserve currency" to compete with the dollar and the euro.
On an even larger note, Japan, South Korea, Australia and New Zealand have all agreed to start free-trade talks with the ASEAN countries. (Just for the record, the Association of Southeast Asian Nations consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.)
Now, let's couple that with another fact or two. The Wall Street Journal reports: "Total flows of Foreign Direct investment (FDI) have collapsed since 2000 - from a peak of $314 billion in 2000 to [a mere! - JM] $29.8 billion in 2003. That's down 90%. No doubt some of that decline is a cyclical response to the giant surge in the late 1990's. But some of that falloff might be structural. In 2003, for the first time, China attracted more FDI than the US ($53 billion). This comes as the US share of world FDI inflows fell to only 5.3% in 2003, from 22.6% in 2000."
Where is the US International Trade Commission? We are still putzing around with a Caribbean free trade agreement, which we cannot get done because of sugar subsidies to the Florida Fanful family, let alone a Central American agreement or a southern hemisphere agreement.
Right now, the world and especially Asia needs the US consumer. But we cannot always count on that. Asia is working hard on creating its own internal consumer demand. A free trade territory the size of the one developing is huge, and we should be driving the talks, not watching them.
The Balance of Financial Terror
Right now, the world and largely Asia, finances our deficits. It is a kind of vendor financing, where a company arranges the financing of its products so it can stay in business and grow. But there are limits.
"However, such a large deficit leaves the US effectively relying on what Larry Summers so aptly refers to as the 'balance of financial terror.' In fact, Summers' recent speeches are amongst the best arguments I have seen over the current account for ages. As Summers notes:
"'Inevitably, dependence on foreign governments for short-term financing has to raise questions and create vulnerabilities in both the economic and political realms. The question can fairly be asked: How long should the world's greatest debtor remain the world's largest borrower? I have previously used the term "balance of financial terror" to refer to a situation where we rely on the costs to others of not financing our current account deficit as assurance that financing will continue.'" (Global Equity Strategy, DKWR)
Free trade, whether in Europe or Asia is good for the world at large, and should be applauded and encouraged at every instance. But if the United States is to remain a major world power through this century, we must participate in that trade or be left behind.
Falling foreign direct investment, huge trade deficits, a world working actively to no longer be forced to rely on the American consumer for growth - these are all bearish on the dollar over the very long term. These are all events and facts which can change. Certainly the trade deficit is reaching its limit, but the longer we delay in creating balance, the worse the correction is likely to be.
One final thought. In 1971, the yen was at roughly 350. (Today it is at 102). In the 80's, Lee Iaccoco, the CEO of Chrysler, stated something to the effect that "Give me a 150 yen [to the dollar] and we can beat the Japanese." It fell soon after to 120. Japan and Toyota are still taking market share from Ford, GM and Chrsyler.
Those who take comfort that a falling dollar will make our companies more competitive, who yearn for a floating Chinese Renminbi, should be careful for what they wish. They might get it.
(2004 news/views weekly summary
ABOUT THE EDITOR
David M. Bradshaw is Editor of Real Money Perspectives, publisher of Rediscovering Gold in the 21st Century: The Complete Guide to the Next Gold Rush (7/01) and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 1997, he produced a one-hour TV documentary, "Preparing Wisely for the Next Millennium," which was distributed free of charge at Blockbuster Video nationally. In 1999, he produced a one-hour radio special, "The Big Picture: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. MORE ... NOTE: Youngest daughter Braida Zoe (10 months today) is now standing, clapping, waiving, stepping, and even saying "mama" & "dada" to the correct parent.
DISCLAIMER: All of the information in this story is believed to be true, however errors are possible. Past performance is no guarantee of future performance. All investments have risk.