A NEW BEGINNING

Jan 1, 2004


MARKET NEWS DIGEST
-> A NEW YEAR JOLT FROM INFLATION? BusinessWeek
-> Gold falls $8 on dlr strength, Tsunami effect -CBSMW
-> U.S. consumer confidence surges -CBSMW
-> US Pledges Aid After 100,000 Killed by Tidal Waves -CNS
-> Dollar Heads for Worst Quarter in Over 2 Yrs -BL
-> Gold Heads for Longest Rally Since Nixon Years -BL
-> New home sales tumble -CNNMoney
-> Paycheck has yet to make recovery -Tribune
-> Social Security debate heats up -Denver Post
COMMENTARY
-> 2004: Top Monthly Financial Stories -Editor
-> 2005 FLIGHT TO QUALITY -Craig R. Smith, SATC
-> A WORD FROM A DOLLAR BEAR -Forbes
-> TROUBLE AHEAD, TROUBLE BEHIND -Chris P. Dialynas, PIMCO
-> What's Driving Bullion Prices? -Alex Wallenwein
-> REGGIE WHITE, A GREAT ATHLETE AND MAN OF GOD DIES -ANS
Founders Quote of the Week

"Sometimes it is said that man can not be trusted with government of himself. Can he, then, be trusted with the government of others? Or have we found angels in the forms of kings to govern him? Let history answer this question."

-Thomas Jefferson


SPECIAL REPORT:
2004 INVESTMENT SCORECARD - 2005 TRENDS

-- 12-30-04 -- Tangible asset investments again outperformed stocks, bonds and CD's in 2004. Rare Morgan silver dollar investment-grade coins topped the chart with annual growth of 54% in 2004, followed by rare $20 Liberty gold coins at 31%, rare art at 20%, silver bullion at 15%, residential real estate 10%, Nasdaq 9%, Gold 5.4% Dow +3%, Bonds +3% and CD's +2%.. FULL STORY


MARKET NEWS DIGEST


A NEW YEAR JOLT FROM INFLATION? BusinessWeek
In '05, a series of factors will boost a seasonal pattern of higher first-quarter price rises. Faster Fed action may result
By Michael Englund
Dec 29, 2004 BusinessWeek

Inflation likes to get off to an early start, if the chain-price inflation measures in the U.S. gross domestic product (GDP) and personal income reports are any indication. These reports often reveal substantial seasonal strength in inflation in the first quarter of the year. That's mainly because of cost-of-living adjustments (COLA) for the year in labor contracts and government-entitlement programs that aren't fully offset by seasonal factors. The effect is concentrated in the government sector, but emerges elsewhere as well.

Unfortunately for the markets, this time around the upside seasonal risk for first-quarter price measures will emerge just as the falling dollar and ugly inflation numbers for the fourth quarter are fueling growing concerns about rising prices in the U.S. financial markets. To make matters worse, the first-quarter figures this time will get an extra boost from the oil-led 2004 surge in headline inflation. That's because labor contracts and government COLA adjustment rules are based on the prior year's performance and generally make no exception for food and energy price changes.

HEARTY GAIN. The seasonal pattern in the quarterly inflation data from the GDP report has been substantial, both overall and in recent years. The past 10 years saw an average first-quarter chain-price gain of 2.3%, vs. average gains of 1.8% in the second quarter, 1.5% in the third, and 1.7% in the fourth.

This implies a hearty 0.6% first-quarter premium for chain prices over what appears to be a fairly stable pattern for the other three periods. Over the past five years the pattern has been stronger, with an average first-quarter chain-price gain of 2.7%, vs. averages of 2.2% in the second, 1.6% in the third, and 1.8% in the fourth, for an overall 0.8% first-quarter premium.

Distortions in the government sector largely explain the pattern. The average first-quarter chain-price gain for the government sector over the past 10 years has been a hefty 4.6%, vs. averages for the second, third, and fourth of 1.6%, 2.7%, and 2.5%, respectively, for an average first-quarter premium of 2.3%. Again, the five-year average shows a more powerful pattern, with averages of 5.3% in the first quarter, 2.1% in the second, 2.9% in the third, and 2.3% in the fourth, for a 2.8% first-quarter premium.

UPSIDE RISKS. This time around, at Action Economics we cautiously expect a government chain-price growth rate of 4.6% in the first quarter of 2005, vs. a 3.5% gain in the 2004 fourth quarter. This should provide a solid boost to the overall first-quarter chain-price increase, which we estimate at a solid 3.0%. This gain follows our 2.1% overall estimate for the fourth quarter, and the surprisingly restrained 1.4% growth rate reported for the third.

Though this is a dramatic increase in reported inflation for the first-quarter data, the seasonal boost we assume is only about two-thirds of the prior pattern -- leaving upside risk to our estimate.

The first-quarter inflation figures contain three risks to the high side beyond the usual seasonal strength. First, as noted earlier, the unusual run-up in oil prices in 2004 has left a notable acceleration in headline inflation for the year. That implies that the cost of COLA adjustments in January should presumably exceed the usual seasonal tendency.

Second, U.S. domestic inflation measures are gaining steam, likely due to the combined effects of sustained rapid economic growth, ripple-through effects on nonoil prices from the 2004 oil price surge, and steady delayed effects of the two-year dollar decline. As such, the seasonal first-quarter rise in chain-price inflation may well heighten the market's fears, as the seasonal pattern isn't fully understood by market participants.

Third, Wall Street is increasingly pricing in a sustained downtrend in the dollar over the foreseeable future. Soaring current-account deficits, rapid growth in U.S. domestic demand alongside weakness in spending in Europe and Canada, and the downtrend already evident in the dollar -- despite massive and unsustainable efforts at currency-market intervention by foreign central banks through 2004 -- make it hard to argue with a pessimistic dollar forecast.

DAMAGE CONTROL. These three factors, taken together, mean the Federal Reserve may face damage-control issues as Chairman Alan Greenspan approaches both the two-day FOMC meeting ending Feb. 2, and his semi-annual congressional testimony later that month. The Fed's "measured" pace of policy tightening has made sense to many market participants in the context of the honeymoon inflation period that the Fed usually enjoys during the middle years of each business cycle. And the market no doubt remembers the Fed chief's tendency to prefer a "gradualist" policy approach that leaves interest rates generally low during these years -- counter to the preferences of the so-called bond market vigilantes, who are keenly sensitive to any stirrings of inflation.

The risk to Greenspan's approach is that the tightening trajectory might need to be stepped up more dramatically, and presumably more disruptively, if inflation unexpectedly gets ahead of the Fed. Though we think Greenspan still has some time to enjoy those cozy middle years of the expansion, the upside to prices that appears to be in the pipeline for the first quarter of 2005 may be enough to prompt a more preemptive policy rhetoric from the Fed at its February meeting.

Englund is chief economist for Action Economics

FULL STORY

Related:
TOP INFLATION FIGHTERS ARE TANGIBLE, USA TODAY, May 12, 2004


Gold falls $8 on dollar strength, Tsunami effect -CBSMW
Metals futures, mining shares suffer broad declines
By Myra P. Saefong, CBS.MarketWatch.com
Dec. 29, 2004

SAN FRANCISCO (CBS.MW) -- Gold futures lost more than $8 an ounce Wednesday, pressured by some strength in the dollar, an improving economic growth outlook, and easing investment concerns linked to the tsunami disaster in Asia.

Gold for February delivery closed at $437 an ounce on the New York Mercantile Exchange, down $8.30, or 1.9 percent for the session.

"Gold is sharply lower on a dollar recovery and on the view the U.S. economic growth outlook will improve," said John Person, president of National Futures Advisory Services.

The Conference Board reported Tuesday that U.S. consumer confidence bounced higher in December to 102.3 -- its highest level since July.

"That leads to speculation the [Federal Reserve] may raise rates further when they meet in late January," Person said, adding that this in turn would "close the gap on interest rate differentials from foreign countries and makes gold less attractive to hold as borrowing costs increase."

Tsunami effect

Williams Adams, an analyst at TheBullionDesk.com in London, said, "The disaster in Asia has surprisingly had very little impact in the financial markets, which is hard to understand."

Gold and silver are an "important form of savings" in Asia, and the devastation that this disaster has caused is "bound to force many people to cash in their savings as they fight to survive and rebuild their lives and livelihoods," he said.

"[It's] possible that precious metal prices have come off in anticipation of this extra supply," he said.

http://www.cbs.marketwatch.com

Related:
12-29-04 -- Economic toll $13B-plus, insurance cost minimal -USA TODAY...While economic losses from the catastrophe are expected to exceed $13 billion, global insurers estimate their losses will be "in the low single-digit billions," says Matthew Josefowicz, manager for Celent Communications, a financial consulting group. By comparison, last fall's Florida hurricanes triggered 2.2 million claims and cost the industry more than $20 billion. Unlike many individual and commercial property owners in Florida, most people in India, Indonesia and Sri Lanka have no insurance. In Sri Lanka, which was devastated by the tsunami, property insurance premiums represent less than 1% of gross domestic product, vs. more than 5% in the USA, according to the Insurance Information Institute. "It would have been a different story if this had hit Japan or some other industrialized country," Josefowicz says. While the paucity of insurance in the disaster area will limit the industry's losses, it will also slow the region's recovery, Hartwig says. Most victims won't be able to rely on insurance payouts or aid from governments to rebuild homes and businesses, he says.


U.S. consumer confidence surges -CBSMW
At highest level since July, Conference Board says
By Rex Nutting, CBS.MarketWatch.com
Dec. 28, 2004

WASHINGTON (CBS.MW) -- U.S. consumer confidence bounced in December to its highest level since July, the Conference Board said Tuesday.

The board's consumer confidence index jumped to 102.3 in December from a revised 92.6 in November, far ahead of the 93.9 expected by Wall Street economists. See Economic Calendar.

Confidence had fallen for four straight months.

The expectations index surged to 99.9 from 90.2, while the present situation index rose to 105.9 from 96.3. Both subindexes are also the highest since July. Read more.

"The continuing economic expansion, combined with job growth, has consumers ending the year on a high note," said Lynn Franco, head of the board's consumer research unit. "Consumers' outlook suggests that the economy will continue to expand in the first half of the new year."

"The strong confidence showing suggests continued consumer attitude improvement through the holiday season as well as hints at a solid month of job creation," said Mat Johnson, chief economist for ThinkEquity Partners.

The confidence figures, combined with an upbeat report on last week's retail chain store sales, were "giving a good underpinning to the market," said Paul Mendelsohn, chief investment officer at Windham Financial. Listen to an interview with Mendelsohn.

The current outlook improved markedly, Franco said. The number of consumers judging the current economy to be "good" rose to 24.4 percent from 23.2 percent, while the number saying it is "bad" fell to 17.8 percent from 20.2 percent.

The number saying jobs are plentiful rose to 19.4 percent from 17.1 percent, while those saying jobs are hard to get fell to 26.4 percent from 28 percent.

The number of consumers expecting conditions to improve increased to 22 percent from 20.3 percent. The number fearing the economy will worsen declined to 7.7 percent from 11.4 percent. The outlook for jobs deteriorated slightly, with the number expecting more jobs falling to 16.2 percent from 17.6 percent.

Consumers were also more inclined to plan to buy a major appliance, car or home in the next six months than in November.

http://www.cbs.marketwatch.com


US Pledges Aid After 100,000 Killed by Tidal Waves -CNS
Dec 28, 2004

Pacific Rim Bureau (CNSNews.com) - President Bush has pledged emergency relief to the victims of disastrous tidal waves that took thousands of lives across South and South-East Asia, triggered by what geologists said was the most powerful earthquake in the past 40 years.

Aid agencies launched emergency appeals, and the U.N. Office for the Coordination of Humanitarian Affairs in Indonesia announced that medical supplies, tents, helicopters for emergency evacuation and portable sanitation facilities were urgently needed.

The undersea earthquake, measured by the U.S. Geological Survey (USGS) at 9.0 on the Richter scale, occurred just before 7 a.m. Sunday local time off the coast of Indonesia's western Sumatra island, at a depth of about six miles.

A series of tsunamis then spread across the Bay of Bengal, wreaking havoc in India, Sri Lanka, Indonesia and Thailand. Malaysia, Bangladesh, Burma and the Maldive islands southwest of India were also affected to various degrees, and reports of casualties came from as far away as Somalia, 3,500 miles to the west.

By Monday, the death toll as reported by government agencies had climbed past 40,000, including more than 19,000 in Indonesia and almost 18,000 each in Sri Lanka and 5,000 in India. Hundreds died in Thailand, where coastal tourist resorts were hardest hit.

The casualty figure was expected to climb as more reports came in, especially from outlying areas where communication is poor or has been cut off.

In India, some fishing villages were completely submerged, Indian Home Minister Shivraj Patil told reporters. Sea water hit a nuclear power station near Chennai, but Indian authorities said it had been safely shut down.

One of the worst-hit areas appeared to be Aceh, Indonesia's westernmost province and the location of a long-running separatist insurgency. Some 3,000 people were killed in the area of Banda Aceh, the province's capital, according to the Indonesian health ministry's emergency center.

Officials in Sri Lanka said it was the country's worst disaster ever. A million people were displaced after tidal waves wrecked their coastal villages.

White House Deputy Press Secretary Trent Duffy said the president expressed his condolences on behalf of the American people for the terrible loss of life and suffering caused by the disasters.

In a statement issued as Bush traveled from Washington to Texas, Duffy said the U.S. stood ready to offer assistance to the affected countries, and that relief was already flowing to Sri Lanka and the Maldives.

"We will work with the affected governments, the United Nations, non-governmental organizations and other concerned states and organizations to support the relief and response to this terrible tragedy," he said.

A State Department spokesman, Noel Clay, was quoted as saying the U.S. was "prepared to be very responsive."

Pope John Paul II urged the international community to rush relief aid to the region.

The International Federation of the Red Cross and Red Crescent Societies (IFRC) launched an immediate $6.7 million appeal aimed at helping half a million people and supporting local society relief efforts in the countries affected.

Red Cross teams in Sri Lanka and India helped evacuate survivors, dispense first aid and provide emergency relief materials and food, the federation said.

The IFRC senior health officer in Geneva -- Hakan Sandbladh -- said the biggest health challenge now was the spread of waterborne diseases such as diarrhea and malaria. Reports of the destruction of hospitals and health infrastructure in Sri Lanka were of particular concern.

A spokesman for U.N. Secretary-General Kofi Annan voiced his condolences and said disaster assessment and coordination teams were being dispatched to work with the affected countries' governments to provide rescue and relief assistance.

Australia, China, Russia, Israel and European countries were among those preparing Monday to send aircraft, aid and humanitarian personnel to the stricken area.

"We'll do everything we can as a regional neighbor and regional friend to assist the countries that have been so very badly affected," Australian Prime Minister John Howard said at a press conference called to express the country's sympathy and announce emergency aid efforts.

According to the USGS, the earthquake was the fourth most powerful since 1900 and the biggest since 1964, when a 9.2 quake hit Prince William Sound in Alaska on Good Friday. That earthquake, the largest ever in Alaska, costs 125 lives -- 15 in the earthquake and 110 in resulting tsunamis.

Rounding off the big five since the start of the 20th century were earthquakes in Chile in 1960 (9.5), the Andreanof Islands of Alaska in 1957 (9.1) and the Kamchatka peninsula in the far east of what was the Soviet Union in 1952 (9.0).

Indonesia, the world's most populous Muslim country, comprises more than 18,000 islands strung out across five time zones. It is highly prone to earthquakes, lying on what is known as the Pacific "Ring of Fire," a series of seismic fault lines and volcanoes.

http://www.cnsnews.com

Related:
12-28-04 -- Tsunami Damage Put Above $13.6 Billion -Reuters ...FRANKFURT (Reuters) - The tsunami catastrophe in south Asia has caused economic damage in excess of 10 billion euros ($13.6 billion), a top risk researcher at Munich Re, the world's largest reinsurer, was quoted as saying on Tuesday.

Natural Disasters Hit All-Time High in 2000 ... were on fire for weeks, resulting in economic losses beyond ... Re analysis includes charts detailing the financial consequences of natural disasters in 2000. ...

Beyond the damage: probing the economic and financial consequences of natural disasters This joint meeting of ODI's Humanitarian Policy Group (HPG) and International Economic Development Group (IEDG) launched the report by Charlotte Benson and Edward Clay 'Understanding the Economic and Financial Impacts of Natural Disasters' published by the World Bank.


Dollar Heads for Worst Quarter in Over 2 Years -BL

Dec. 27 (Bloomberg) -- The dollar is heading for the biggest quarterly decline against the euro in more than two years and may weaken versus the yen on speculation U.S. officials will allow a prolonged slide into 2005, according to a survey by Bloomberg News of 58 traders and strategists from Tokyo to New York.

Almost sixty percent of the participants polled from Dec. 22 to Dec. 24 advised selling the dollar against the euro. The dollar is down 8.1 percent this quarter and fell to a record $1.3548 per euro on Dec. 24. Forty-three percent said to sell the dollar versus the yen, up from 39 percent.

Investors are betting the Bush administration won't try to stop the dollar's decline because it will help narrow the U.S. trade deficit from an all-time high, said Matt Cobon, who manages currency risk in London at Deutsche Asset Management. The European Central Bank has offered no sign it's prepared to stem the slide, which has pushed the U.S. currency toward a third consecutive annual drop versus the euro, he said.

``The U.S. has a very benign policy towards the dollar and policy makers recognize there needs to be some adjustment in the currency,'' said Cobon at Deutsche Asset, which oversees $70 billion. ``For the ECB to intervene, you'd have to see the economic situation in Europe worsen considerably from here. They would have to start signaling to people they were also prepared to cut rates and we're not there yet.''

Against the euro, the dollar declined 1.7 percent last week to $1.3528, according to EBS, an electronic foreign-exchange trading system. The dollar weakened 0.5 percent to 103.69 yen. Moves may be exaggerated this week because of public holidays in London today and tomorrow and in Japan on Friday, said Grant Wilson, a trader at Mellon Financial Corp. in Pittsburgh.

Biggest Since Reagan

The dollar has lost 5.2 percent this year as measured by the Federal Reserve's Trade-Weighted Major Currency Dollar Index. It dropped 15.8 and 9.3 percent in the previous two years. The index hasn't retreated for three consecutive years since Ronald Reagan was in the White House.

H.J. Heinz Co. and Deere & Co. are among U.S. companies to benefit from a weaker currency. Heinz, the world's biggest ketchup maker, said the dollar's decline boosted revenue from abroad in its second quarter. Deere said overseas sales of farm machinery jumped in the quarter ended Oct. 31.

Bush's policy of letting markets set exchange rates is unchanged, U.S. Treasury spokesman Rob Nichols said on Dec. 23 in an e-mailed response to a question about the administration's stance, after the dollar dropped to $1.35 per euro. A day earlier, he said the U.S. has ``a strong dollar policy.''

`Unsustainable'

The U.S. needs a weaker dollar to shrink the record deficit in the current account, said Laurence Meyer, a former Federal Reserve Governor, in an interview on Dec. 23. The current account is a measure of trade, services, tourism and investments. The gap widened to $164.7 billion last quarter.

``The current account is unsustainable and the dollar is going to fall,'' said Meyer. ``It's part of an unwinding of global imbalances and on balance is a good development.''

Bush is the only U.S. president who hasn't bought or sold dollars to affect the exchange rate since the end of the Bretton Woods system of fixed exchange rates three decades ago. The ECB hasn't sold the euro since the 12-nation currency made its debut in 1999 and probably isn't yet prepared to do so, said Cobon at Deutsche Asset.

http://www.bloomberg.com


Gold Heads for Longest Rally Since Nixon Years -BL

Dec. 27 (Bloomberg) -- Gold prices, already near a 16-year high, may be headed for the longest rally since Richard Nixon was U.S. president as a falling dollar and renewed concern about inflation boost bullion's appeal as an investment.

The precious metal has climbed since 2001 to about $442 an ounce as U.S. budget and trade deficits widened to records under President George W. Bush. Gold last rose five straight years from 1970 to 1974, when inflation peaked at an annual rate of 12 percent, five times the current pace.

``The cycle now is just like the 1970s,'' Frank Holmes, chief executive of U.S. Global Investors Inc. in San Antonio, said in a telephone interview. The firm manages $1.8 billion, including gold-mining stocks and bullion. ``Inflation isn't as high, but that may take some time to emerge.''

Gold for immediate delivery will sell for an average price of $435 an ounce next year, about 6 percent more than this year, based on the median estimate of 37 traders, investors and analysts from Sydney to New York surveyed by Bloomberg this month. Forecasts ranged from $395 to $550.

``With growing demand and less supply, prices are bound to rise,'' said Graham Birch, who helps manage about $6.5 billion in mining assets for Merrill Lynch & Co. in London. Gold reached $456.89 on Dec. 2, the highest since June 1988.

Dollar Slumps

Gold fell to a 20-year low of $251.95 on Aug. 25, 1999, about eight months after the euro's introduction. The dollar has slid 60 percent against the 12-nation currency since July 2001, touching a record low of $1.35 on Dec. 23.

The slide prompted some investors to buy dollar-denominated metals as a hedge against declines in U.S. securities. Stocks are down for the period, even after gains the past two years. The Dow Jones Industrial Average has dropped 5 percent and the Standard & Poor's 500 is 12 percent lower.

``The situation is extremely analogous to what happened after Nixon was elected,'' said John Embry, chief investment strategist at Toronto-based Sprott Asset Management Inc., in a telephone interview. ``Stocks got swiped and gold jumped up.''

Embry co-manages the C$296 million ($241 million) Sprott Gold and Precious Minerals Fund, which holds about 10 percent bullion and 90 percent precious-metals mining stocks. The fund has more than tripled since it started in November 2001.

It's down 20 percent this year. The Merrill Lynch Gold & General Fund, which had beaten the Dow and S&P 500 since 2000, has fallen 15 percent. The dollar's slump has driven up costs for companies that mine in South Africa, Australia and Canada and cut profits from sales of metal in dollars.

Nixon, Inflation

This decade's gold rally hasn't been as pronounced as the Nixon-era one. Gold's gains accelerated in the five years through 1974, with annual increases building from 6.5 percent to 72 percent. This year, prices have risen about 6 percent, slowing from 19 percent last year and 25 percent in 2002.

The Dow fell 40 percent during the last two years of the 1970s gold rally, after higher spending on the Vietnam War and social programs turned the federal budget surplus into a deficit and fueled inflation. A growing trade gap forced the U.S. to stop redeeming dollars for gold in 1971. The metal, fixed at $35 an ounce since 1946, ended 1974 at $140.25.

Twin Deficits

Inflation erodes returns from fixed-income securities, driving some U.S. investors to put their cash into dollar- denominated metals. The Federal Reserve increased its benchmark overnight lending rate five times this year to 2.25 percent to keep inflation in check. Consumer prices excluding food and energy rose at a 2.2 percent annual rate in the year's first 10 months.

U.S. deficits, meanwhile, are bigger than ever in dollar terms, forcing Americans to borrow more from abroad and contributing to the dollar's drop. The budget gap was $412.6 billion in the year ended Sept. 30 after Bush cut taxes and the U.S. spent more on Iraq and domestic security.

The current account deficit, the broadest measure of trade and investment, widened to $164.7 billion in the three months through September.

``The dollar will remain weak as long as Bush is in office,'' said Ko Young-Sang, manager at Shinhan Bank's currencies and derivatives department in Seoul. ``He has to solve the twin deficits and he's not going to take his hands off Iraq.''

http://www.bloomberg.com


New home sales tumble -CNNMoney
November's 12% drop, sharpest since '94, follows sharp dip in construction; should you be worried?
December 23, 2004
By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - Sales of new homes took the sharpest plunge in more than a decade in November, the second report in a week that raised questions about the strength of the nation's real estate market.

Sales tumbled 12 percent last month to an annual rate of 1.125 million new homes, the government reported, coming in well below most economists' forecasts. It was the weakest sales pace since July and the sharpest percentage decline since January 1994.

Sales of new homes are just a fraction of all home sales, but since they're reported when contracts are signed, rather than at closing, they're more of a leading indicator about the housing market.

Existing home sales, on the other hand, while a far bigger part of the market, are reported at closing, typically a month or two after sales contracts are signed.

http://www.cnnfn.com


Paycheck has yet to make recovery -Tribune
Salary increases no longer keeping up with inflation
By Barbara Rose, Tribune staff reporter. Freelance writer Ann Therese Palmer contributed to this story December 26, 2004

More than three years into the economic recovery, U.S. workers' hourly wages continue to decline when adjusted for inflation with little hope of a dramatic turnaround anytime soon.

The long, lean times for salary increases have led some experts to wonder if a fundamental shift is under way even as productivity levels remain high and corporate profits continue to soar.

Beyond the temporary factors contributing to a sluggish recovery from the recession of 2001, some believe that globalization, the movement of jobs offshore and the declining influence of trade unions could be putting pay envelopes on a permanent diet. Some companies have concluded that the past practice of hiking wages faster than inflation is no longer needed to keep employees from leaving. It may never, in fact, be needed again.

Naturally, not many human-resource managers are trumpeting their commitment to holding the line. But in a recent issue of Workforce Management, a leading trade journal for human resources executives, the latest advice is plenty blunt:

"Annual pay increases designed for optimal hiring and retention are no longer needed," the magazine declares. "If your salary increase budget for 2005 is much higher than 3 percent, you're probably overspending," the article advised.

Even though real wages are falling for many workers, consumers continue digging deep into their pockets to keep the economy growing. Consumer spending, which accounts for about two-thirds of all economic activity, has remained relatively high during the recovery while savings levels have declined.

Meanwhile, average growth in wages and salaries fell below 3 percent for the 12 months through September for U.S. sector employees, according to the U.S. Bureau of Labor Statistics. Pay grew at 2.4 percent--the lowest increase on record, partly because soaring health benefit expenses raised overall compensation costs for employers, some economists say.

Hourly wages for production and service workers--representing four-fifths of the nation's workforce--declined or remained flat year over year, when accounting for inflation, every month since May, according to the bureau's reports.

"Real wages are falling for a lot of workers," said economist Jared Bernstein of the Washington-based Economic Policy Institute, a liberal think tank. "It's surprising and disheartening, three years into the recovery with strong productivity growth, we're still looking at declining wages." FULL STORY


Social Security debate heats up -Denver Post
By The Denver Post
Dean Rohrer
Dec 26, 2004

Short of saying "Happy Holidays" to a devout "Merry Christmas" advocate, there is no surer way to start an argument than to start discussing Social Security.

In today's Perspective feature, Writers Robert Hardaway and Ari Armstrong call for drastic changes in the system, while Robert Scheer defends the existing program as both fair and affordable.

H. Michael Hayes offers a middle view, urging a calm review of the system's objectives.

FACTS AND STATS

Who's covered?

-About 156 million Americans (96 percent of all workers)
-Generally, you need to work for 10 years to get benefits

Who pays?

-Workers and employers each pay 6.2 percent on earnings up to $87,900 ($90,000 starting in 2005)
-The self-employed pay the full 12.4 percent

Who gets benefits?

-Retired workers and dependents; survivors of deceased workers; disabled workers and dependents
-More than 47 million Americans will receive about $492 billion this year
-90 percent of Americans age 65 and older receive benefits
-On average, Social Security provides 39 percent of income of the elderly. But two-thirds of recipients get 50 percent or more of their income from the program

When do benefits start?

-Reduced benefits are available at age 62
-Benefits started at 65 if you were born before 1938
-The eligibility age rises until it reaches 67 for those born in 1960 or after
-A worker with average income can expect benefits equalling about 40 percent of average earnings

What's the future?

-There now are 3.3 workers paying into the system for every recipient. By 2031 there will be 2.2 workers for each beneficiary.
-In 2018 there will be more benefits owed than taxes collected.
-Trust funds could be exhausted in 2041.

What are some possible reforms?

-Further increases in the retirement age
-Cutting benefits
-Raising the tax rate, and/or increasing the ceiling on the amount taxed
-Allowing younger workers to have their own investment accounts
-Allowing the government to invest Social Security funds to increase income

Source: Social Security Administration

Related: Social Security Solutions Special Report


COMMENTARY


2004: Top Financial Stories -Month By Month- Editor
"Let The Headlines Help You Survive in '05"
David Bradshaw, Editor, Real Money Perspectives
Dec 27, 2004

Here are the top economic stories that REAL MONEY PERSPECTIVES reported this year, starting with the most recent -- followed by a Special Report and or multi-media educational resource that we've published on each this past year. Perhaps some wisdom can be gleaned as we look toward 2005 and beyond.

DECEMBER 2004 - "Investors Flock to Coins Amid Rising Metal Prices" -WSJ
By JEFF D. OPDYKE, THE WALL STREET JOURNAL December 1, 2004; Page D1 Rare coins are starting to attract investors more at home with stock brokers than coin dealers. 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. SEE: CNN rediscovers gold with Mr. Smith

NOVEMBER 2004 - "How to profit on a weak dollar" -CNN
"Because gold is priced in dollars across the globe, it generally rises when the dollar loses value, as buyers using other currencies drive up the price. For example since mid-May the euro has risen sharply against the dollar while the price of gold gained 20 percent. Gold is also seen as a way to protect against inflation, but experts say it's the dollar, not inflation risk, driving it up to recent 16-year highs." SEE: The In-credible Shrinking Dollar

OCTOBER 2004 - "Report Expects High Oil Prices for Decades" -AP
"Some analysts have estimated 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." SEE: $5 GAS COMING SOON?

SEPTEMBER 2004 - 'Nuclear Terrorism': Counting Down the New Armageddon -NYT
By JAMES HOGE, New York Times - September 5, 2004 "TERRORISTS are striving to acquire and then use nuclear weapons against the United States. Success, as defined by Osama bin Laden, would be four million dead Americans. Mounting evidence makes this much abundantly clear. Documents discovered in Afghanistan seem to reveal Al Qaeda's detailed knowledge of nuclear weaponry, while intelligence confirms the terrorists' attempts to acquire nuclear material on the black market." SEE: A CITIZEN'S GUIDE TO COUNTER-TERRORISM

AUGUST 2004 - "DC/NY/NJ Put on `Orange' Terror Alert, Ridge Says" -Bloomberg
"Aug. 1 (Bloomberg) -- The Department of Homeland Security is raising the terrorism risk status for the financial services sectors in New York, Washington and northern New Jersey, Secretary Tom Ridge said. ``We do have new and unusually specific information about where al-Qaeda would like to attack,'' Ridge said at a news conference in Washington." SEE: FOX NEWS LIVE Interviews Craig R. Smith on Why to Prepare for Financial Terrorism

JULY 2004 - "The Great Economics Debate: Bush v. Kerry" -IFN
"The major difference is in their world view. Kerry/Edwards have a socialistic, left-leaning agenda that represents a humanist world view. Bush/Cheney have more of a right-leaning agenda that values faith in the free market and in self-government under God. Self-government is the foundational building block of both a republic and a democracy. That is the core of America's disagreement over economic policy -- creating a debate that is likely to further disunite the United States between now and November 2nd." SEE: THE 2004 PRESIDENTIAL NON-DEBATES

JUNE 2004 - "Federal Gov't, Markets to Close in Honor of Reagan" -AP
Monday June 7, 2004 2:31 AM - WASHINGTON (AP) - The federal government will be closed Friday in honor of former President Ronald Reagan, the White House announced Sunday. Reagan's funeral service will take place Friday at the National Cathedral. His body will be returned to California later that day for burial at the Ronald Reagan Presidential Library. Financial markets will be closed Friday in memory of former President Ronald Reagan, who died Saturday after a long battle with Alzheimer's disease." SEE: A PERSONAL TRIBUTE TO MY HERO

MAY 2004 - "When 5 Cents Is Worth $3 Million" -WSJ
By THADDEUS HERRICK, Wall Street Journal- May 20, 2004 - The 1913 Liberty Head V Nickel is to coin collectors what an important Picasso is for collectors of art. Today, a New Orleans retailer is expected to announce the sale of one coin for $3 million in a private transaction. A rare coin with a storied past, the nickel provides a glimpse at the rising value of rare U.S. coins, up at least 20% in the past two years. Experts say coin prices tend to follow the price of gold, with both rising on inflation fears. The last sale of a 1913 Liberty Head in 2001 garnered $1.8 million." SEE: 2004 RARE COIN MARKET TRENDS - By Kevin Lipton

APRIL 2004 - "Surge in Consumer Prices Fans Inflation Fear" -NYT
By EDMUND L. ANDREWS, New York Times - April 15, 2004 WASHINGTON — Consumer prices jumped much more sharply than expected in March, driven by increases for gasoline and clothing. The data reawakened worries about a return to higher inflation and higher interest rates. The Labor Department reported that consumer prices rose by 0.5 percent in March, which would translate to an annual inflation rate of more than 6 percent if it were sustained. SEE: TOP INFLATION FIGHTERS ARE TANGIBLE

MARCH 2004 - "Greenspan Urges Social Security Cuts" -AP
MARTIN CRUTSINGER, Associated Press - WASHINGTON - Federal Reserve Chairman Alan Greenspan, stepping into the politically charged debate over Social Security, said Wednesday the country can't afford the benefits currently promised to the baby boom generation. He urged Congress to trim those benefits to get control of soaring budget deficits, which he said threatened a "very debilitating" rise in interest rates in coming years." SEE: SOCIAL INSECURITY: The Problem and Proposed Solutions

FEBRUARY 2004 - "National debt surges to $7 trillion" -Reuters
WASHINGTON (Reuters) - The federal government's debt -- the accumulation of past budget shortfalls -- totaled more than $7 trillion for the first time as of Tuesday, according to a Treasury Department report. The government debt ceiling stands only a few hundred billion dollars ahead at $7.384 trillion, and Treasury would need Congress's blessing to borrow beyond that. Treasury officials say they expect the limit to be hit sometime between June and October." SEE: 5-Minute Economic I.Q Test

JANUARY 2004 - "Sell oil for gold, Mahathir tells Saudi Arabia" -Forbes
JEDDAH, Saudi Arabia, Jan 18 (Reuters) - Former Malaysian Prime Minister Mahathir Mohamad said on Sunday that Saudi Arabia should sell oil for gold, not dollars, to avoid being "short-changed" by a decline in the U.S. currency. "The price of oil is $33, but the U.S. dollar has declined by 40 percent against the euro so you're effectively getting $20," Mahathir told an economic conference in Saudi Arabia's Red Sea city of Jeddah. "So you're being short-changed." He suggested countries tally their total annual imports and exports and settle the difference at the end of the year in "gold dinars". SEE: IS THE ISLAMIC GOLD DINAR A REAL THREAT?

These are my choices for stories of the month in 2004. You may have seen it differently, based on the news that you have read, but we sincerely hope this digest helps you to see things from a 'real money' perspective. For a complete roundup of the year's economic news and views ...
Full 2004 REAL MONEY PERSPECTIVE Archives
Full 2004 FEATURED COMMENTARY Archives
2004 Reflections: A Year of New Beginnings...and Answered Prayer!


2005 FLIGHT TO QUALITY, Part I -Craig R. Smith, CEO SATC
Dec 27, 2004

In 2004, dire predictions about Iraq, Russia, China, Social Security, and an impending recession, were almost enough to send even the staunchest optimist fleeing into the safe haven ... but WHICH safe haven? The U.S. Dollar, U.S. stocks, real estate or gold?

U.S. investors, whose returns were eroded in 2004 by high oil prices, rising interest rates, sluggish job creation, slowing corporate-earnings growth and modest retail-sales gains, can be forgiven for hoping 2005 will bring relief. But they will probably be disappointed.

DOLLAR EROSION
2004 ends with the U.S. dollar at new lows against the Euro. Currency trading experts agree that the euro should hit $1.50 to $1.60 by the end of 2005 -- amounting to another 15% erosion of U.S. buying power. I think our no-so-precious buck could drop another 30% in 2005 to $1.80 Euro.(see The In-credible Shrinking Dollar Special Report)

STOCKS PRICY
With the S&P 500 just over 1200, the price/peak earnings multiple on the index has returned to 21. Aside from the 2000 bubble peak, this multiple exceeds the valuation seen at any historical market peak including 1929, 1972 and 1987. Sure, stocks may drift higher in 2005, but they remain volatile and could stay rangebound for many years. Advice: Don't sell out of stocks, but look for value- priced stocks and portfolio diversification for 2005 growth.

REAL ESTATE BUBBLING
The great housing boom of the early 21st century is looking shaky. Governments are growing nervous about whether prices will hold, and what will happen if they do not. Prices have begun to fall in Australia and Britain, and economists are asking if central banks can prevent a plunge. The housing market would not have to collapse to have a negative impact on the economy. Even a lack of further appreciation could put a damper on consumer spending, both by depressing sentiment and by reducing the money available from refinancings. Advice: Don't sell the farm, but don't borrow against it either.

INTEREST RATE GROWTH
Alan Greenspan once said, "If you want to know where interest rates are going, watch gold." Today the Fed is backed into a corner of their own (money) creation. To attact the $2,000,000,000 per day of foreign capital that the U.S. needs to keep this big "USS DOLLAR" ship afloat, they must raise interest rates. Rising interest rates tend to slow the economy, which has been so overstimulated with cheap money since 2002. Advice: Lock in fixed mortgage rates ASAP, reduce debt ASAP and start saving at least 5-10% of your income ASAP.

GOLD FEVER RISING
Gold prices, already near 16-year highs, may be headed for the longest rally since Richard Nixon was U.S. president as a falling dollar and renewed concern about inflation boost bullion's appeal as an investment. Gold has climbed 76% since 2001 to about $442 an ounce as U.S. budget and trade deficits widened to records. Gold last rose five straight years from 1970 to 1974, when inflation peaked at an annual rate of 12 percent. Advice: Make sure that you own some physical gold coins in 2005 and beyond.

2005 - A MAJOR PARADIGM SHIFT

Last December I wrote, "Four Major Facts Driving The 21st Century Gold Rush!" and stick by 'em in '05:
FACT #1) A DROPPING DOLLAR (reducing OUR standard of living - and our kids!)
FACT #2) TRILLION DOLLAR DEBT & DEFICITS (living on borrowed time & money)
FACT #3) SCANDALOUS WALL STREET BEHAVIOR (fueling a confidence crisis) and
FACT #4) ACTS OF TERRORISM (adversely impacting economies and oil prices).

Last December I also suggested FOUR NEW YEAR'S RESOLUTIONS, and I also stick by 'em in '05:
1) I WILL NO LONGER TRUST IN THE U.S. DOLLAR AS A STORE OF VALUE -- ONLY GOLD IS 100% TRUSTWORTHY.
2) I WILL NO LONGER TRUST GOVERNMENT TO SOLVE OUR DEBT/DEFICIT CRISIS -- REGARDLESS OF POLITICAL PARTY.
3) I WILL REMAIN VIGILANT TO ALL FORMS OF TERRORISM, INCLUDING FINANCIAL TERRORISM -- IN MEMORY OF 9/11.
4) I WILL NO LONGER TRUST WALL STREET, NOR REWARD SCANDALOUS BEHAVIOR -- INSTEAD, I WILL DO MY HOMEWORK.

In the 21st century I see a major paradigm shift, leading investors to sell dollar-denominated assets and buy hard assets -- like gold, silver and other commodities. And I am not alone. Dozens of economists and respected financial commentators now agree that "gold is the BUY of a generation!" READ, "THE NEW GOLD RUSH, PT. II INTRODUCTION"

FIVE REASONS U.S GOLD AND SILVER COINS ARE TRUSTWORTHY

1. COINS ARE VERY LIQUID - Reputable dealers offer a 72-hour cash liquidation - unlike stocks, bonds, mutual funds, real estate, etc. which can range from weeks, to months to liquidate.

2. HISTORIC U.S. COINS APPRECIATE TAX-FREE - Sure gold and silver coins may seem boring to some because they just sit in a safe or depository, but they are also one of the only assets that does not require a monthly tax payment, margin calls, or weeding to maintain their value.

3. GOLD COINS ARE TRUE, UNENCUMBERED WEALTH - Most equity assets are both assets and liabilities at once. Not so with gold or silver coins, they are nobody's liability.

4. GOLD COINS ARE VERY PORTABLE - Unlike most other tangible assets, U.S. gold and silver coins can be transported worldwide in a briefcase - privately.

5. GOLD STABILIZES A PORTFOLIO - According to the World Gold Council, "Gold is an effective portfolio stabilizer during periods of financial stress ... History implies that the upside potential for gold is greater than the downside risk." - 9/10/01, WGC

In sharp contrast to equities, tangible assets are not dependent on; Wall Street corporate earning reports, Fed interest rate and money supply manipulation, consumer spending, government bailouts, or even economic cycles. Add it up and I think you will understand why more and more people are going for the gold.

TO GET UP TO SPEED QUICKLY ON THE 21ST CENTURY GOLD RUSH, REQUEST OUR NEWEST FREE EDUCATIONAL RESOURCE: "CNN REDISCOVERS GOLD".

P.S. FLIGHT TO QUALITY ASSETS IS CONFIRMED BY INSIDERS

Using the financial markets as a barometer of our confidence in the future, the 21st century has so-far marked a historic flight to quality - from symbolism to substance, which I covered in my book, Rediscovering Gold in the 21st Century.

Here are a few quotables from noted economists that will help to explain why the destiny of a currency always rests on the cornerstone of FAITH and CONFIDENCE.

STEPHEN ROACH, Morgan Stanley economist says:
"I fear there is a tear in the fabric of CONFIDENCE that underpins the special role of the dollar -- a tear that is now getting larger under the stresses and strains of an unbalanced world." -Nov. 21, 2003 RMP

RICHARD RUSSELL of Dow Theory Letter:
"Many years ago the dollar “was as good as gold,” since you could turn your dollars into the government and receive gold. Today the government is implying that the dollar is still “as good as gold.” After all, you and I continue to work for dollars, don’t we? Yet today the dollar is simply as good as our CONFIDENCE in the dollar. Intrinsically, the dollar is worth nothing, and dollars can and are printed by the billions every week by the government. Yet by law we must accept dollars because the U.S. government states that they are “legal tender.” Logically, this tells us that the dollar as a store of value is doomed. It’s only a matter of time before the dollar falls, and falls big time [30-40%.]" Source: "2003-04 Economic Fundamentals by Richard Russell."

ALAN GREENSPAN agrees with Russell on the confidence factor:
"Today the dollar is simply as good as our CONFIDENCE in the dollar..." -GOLD & ECONOMIC FREEDOM

JOHN WAGGONER, USATODAY reported back in 2002:
"Gold is a direct bet against the monetary system: Gold investors figure an ounce of gold is always worth something, even if the government is in shambles and currency is worthless. For two decades, the powerful U.S. economy kept the dollar strong and gold prices low. But lack of CONFIDENCE in the financial system and the specter of more terror attacks are pushing gold prices up - and individuals back into the gold market." -"In Uncertain Times, Gold Beckons Again" August 14, 2002


A Word From A Dollar Bear -Forbes
By Robert Lenzner and Daniel Kruger
Dec 27, 2004

Since January 2002 the dollar has fallen 33% against the euro. Buffett blames that on bad policy, coming from both the White House and Congress. It does appear that forex speculators are no big fans of George Bush or his Treasury secretary, John Snow. Since Nov. 2 the dollar has fallen 4.4% against the euro.

Says Buffett: "The rest of the world owns $10 trillion of us, or $3 trillion net." That is, U.S. claims on foreign assets run to only $7 trillion. "If lots of people try to leave the market, we'll have chaos because they won't get through the door." In a nutshell, the trade deficit is forcing foreign central banks to ingest U.S. currency at a rate approaching $2 billion a day. Buffett continues: "If we have the same policies, the dollar will go down."

The $20 billion bet has to be put in context. Berkshire has a huge portfolio of investments that includes $40 billion of Treasury securities. Budget and trade deficits are likely to make dollars worth less and bonds worth less. So the currency play is a partial hedge of a large position that can be read as bullish on the U.S.

Still, that Buffett is making a currency bet at all is striking given that this investor has, in his 74 years, rarely made macroeconomic bets. He built Berkshire to a $130 billion market value by acquiring parts or all of lots of businesses, primarily in the insurance sector and primarily in the U.S. Now some of those assets are antidollar assets. Example: In 2002 he bought bonds of Level 3, a telecom company, that were denominated in euros. In 2000 Berkshire picked up MidAmerican Energy, a gas pipeline company. By doing so, Berkshire indirectly acquired the assets of Northern Electric, a utility in England, at a time when the pound was worth $1.58. Now it's worth $1.94, so Berkshire has a paper gain irrespective of any appreciation in the electric company's pound-denominated earning power.

A continuing fall in the dollar "could cause major disruptions in financial markets. There could be unpredictable side effects. It could be precipitated by some exogenous event like a Long-Term Capital Management," Buffett says, referring to the 1998 collapse of a steeply leveraged hedge fund.

How about a soft landing for our deficit-addicted economy? Don't count on it. We're running $100 billion a year in the hole against China, but Buffett doesn't expect that an upward revaluation of the renminbi (stoutly resisted, in any event, by the Chinese government) would greatly reduce this number.

How about a rise in short-term interest rates? They used to say on Wall Street, "Six percent interest will draw money from the moon." Buffett is skeptical, though, that the recent tightening by Fed Chairman Alan Greenspan will do much more than "put off the day of reckoning."

FULL STORY

Related Story:
12-27-04 -- Warren Buffett Warns of Financial 'Chaos' -Jon E. Dougherty, NewsMax.com
Tuesday, Dec. 28, 2004 ... The Sage of Omaha has real worries about the U.S. dollar. It is no surprise that billionaire stock investor Warren Buffett continues to flee the U.S. dollar as he pours billions into foreign currencies.


TROUBLE AHEAD, TROUBLE BEHIND -Chris P. Dialynas, PIMCO
Dec 2004

EXECUTIVE SUMMARY

Today, the global economy is on the threshold of upheaval. The U.S. has borne the majority of the costs associated with the substantial structural change in the global economic architecture of the past ten years. Severe trade and financial imbalances pose grave risks to international stability. Keynesian spending policies and monetary stimulus predicated upon by Adam Smith’s free trade dogma, and the importance of global growth have produced the vulgar externalities of unsustainable indebtedness in the U.S. and Japan and excessive reliance on foreign capital in the U.S. As shown in Charts I and II below, domestic, non-financial business debt outstanding in the U.S. roughly doubled from approximately $3.8 trillion in 1994 to approximately $7.6 trillion today. Over the same period, the U.S. current account deficit soared from approximately 2 percent of U.S. GDP to nearly 6 percent, or by about $3 trillion, accounting for 75 percent of the increase in U.S. debt formation. Absent a long overdue global restructuring, status quo policies yield to these imbalances. The U.S. current account deficit is forecast to grow to 8 percent of GDP in a few years.

The potential for a dangerous financial crisis exists wherein the burdens of increased debt in the U.S. are transferred from the suppliers of leverage, mainly Asian central banks, back to the leveraged, namely U.S. citizens. Capital inflows into the U.S. have provided for debt formation, which has in turn resulted in an even greater U.S. dependency on foreign capital. Misguided Federal Reserve policy based on a flawed understanding of the natural rate of unemployment is at the heart of the problem. During time of war, such as today, full employment must prevail at all times, so Fed policy is constructed around a variable, theoretical rate of unemployment that is itself a fiction. Current and past Fed policies have promoted consumption, encouraged debt formation and contributed substantially to the trade and global imbalances of today. The objective function for the Fed therefore requires immediate Congressional amendment. Congress needs to impose trade and financial balances as critical variables in central bank policymaking.

The links between an accommodative Fed, consumption, debt accumulation and the explosion in the U.S. current account deficit are captured in Chart III below. Note first in Chart III that the money supply, a measure of the liquidity injected into the economy by the Fed, has expanded substantially from 1994 to 2004. To complete the link, note the explosion in domestic, non-financial business debt outstanding during the period and the surge in the current account deficit as a share of the economy.

What might motivate some members of the cartel of Asian central banks that hold massive dollar reserves to sell these assets? Perhaps it is their belief that U.S. policy makers will be foolish enough to take them out of their positions. Perhaps they will decide that their industrial development is well enough advanced that they no longer need to support the U.S. dollar as the cost for growing market share, importing technology, and expanding production becomes too great. Alternatively, perhaps they will realize that U.S. policy makers have changed their trade agenda such that their products are not welcome.

Ultimately, it does not really matter what motivates the change in behavior. Today, the potential exists for policy makers in a few Asian countries to immediately direct a sale of the holdings of their U.S. assets, and re-direct the proceeds to other countries or to domestic uses. Such a policy shifts would produce a very hard landing in the U.S. which could include: a rapid increase in U.S. interest rates; sharp depreciation of the dollar; a fall in the stock market; a contraction of global trade; a reconfiguration of political/military alliances away from the U.S.; and, at the extreme, even military confrontation as the U.S. moved to sever its excessive reliance on foreign capital.

The scope of the global imbalances and the potential for crisis makes piecemeal, orthodox solutions to the global imbalance problem unworkable and far too slow. The U.S. service-based economy, with more limited economies of scale than those of newly industrializing economies such as China, will not be able to export its way out of the problem. The greatest demand for U.S. goods will be in industries such as aerospace and high technology. These are industries where exports pose national security risks. U.S. dollar devaluation by itself, especially if it is progressively slow, will increase inflation, interest rates and currency volatility without substantially improving the trade deficit. Tariffs would also work slowly and eventually invite counter-tariffs that could cripple global economies.

What then, is the solution? I believe that nothing less than an immediate comprehensive reordering of the global economic architecture will suffice. The scope of the problem is too large, time is too short, and the eventual dangers associated with global economic imbalance are too great for anything less. In effect, I am calling for a new "Marshall Plan" for the global economy: A plan to be led by the U.S. It will include a broad mix of domestic policy initiatives in the U.S. designed to boost saving, cut the federal budget deficit and shift the Federal Reserve’s objective function away from promoting consumption and toward a current account readjustment. The U.S. standard of living must decline substantially if these initiatives are to be achieved.

Change is not confined to the U.S. in the new regime. For global rebalancing to work, costs must be broadly shared. The new Marshall Plan would call for a 40 percent revaluation of the Chinese yuan, Indian rupee, and Russian ruble vs. the U.S. dollar and the renegotiation or even forgiveness of U.S. debt held by countries with large trade surpluses with America. Such external changes would create a system that measures and adjusts outcomes relative to the objective of trade/financial balance and provides a rebate to the U.S. for the prior currency readjustment bridge financing provided by the U.S., and rebates to the U.S. a portion of the cost in the fight against terrorists.

A list of policy ideas to be included in the new Marshall Plan is included as the final section of this paper. These recommendations are serious and real, yet few people will agree with all of them and fewer still will believe that any, let alone all of them are achievable. I disagree with the former group. Moreover, I do not agree with the bleak prospects of achieving at least some of these initiatives if an effort were actually undertaken to do so. Status quo despair takes us down the common path, the path to ruin and global conflict.

FULL STORY


What is Driving Bullion Prices? -Alex Wallenwein
Dec 27, 2004

Who and what is pushing the price of "physical" gold up, and do those factors lie sufficiently within the US government/banking sector's control to do anything about them? No. It's more than "just" the falling dollar. The dollar has fallen about 40% since its early 2002 peak - but gold has risen about 70% since its mid-2001 bottom!

Here is what may explain bullion's rise:

1. Muslims, Chinese, Indians, and Russians have no intention of enriching companies of countries like South Africa, Australia, Canada - and especially the US - by investing in their mining shares. They understand the value of the metal itself (maybe with the exception of private Russian investors), so that's what they go for. As far as these countries and areas' official policies go, they don't mind destabilizing the dollar at all, as along as it doesn't hurt them too much. Pumping money into US company stocks - and therefore into the US economy - isn't these groups' top priority, really. (When it comes to US productive assets, however, China doesn't seem to mind. Gives it some nice leverage for the future, rather than potential stock-loss risks)

2. In the long term, gold miners, though they profit from higher prices in their own currencies, still have to operate in their own economies. As far as US miners go, only those holding metal instead of cash as their assets will be able to post serious profits when inflation goes from tame to hyper as the world-wide dollar- drubbing continues.

3. India may be setting itself up to becoming the major bullion player in the world. That only makes sense - because it already is. India's official gold reserves are far below those of the major financial powers of the world, but look at how much the population is estimated to own according to India's Commerce and Industry Minister, Khamal Nath: Currently 9,000 tons, and soon expected to become 15,000 tons. That's about what GATA and many others estimate al of the world's central banks to have left in terms of actual, unencumbered gold reserves. (Which country do you think is better prepared to weather the coming storm: the US - or India?)

4. Chinese and Japanese official gold buying is gaining momentum. At the same time China intends to align its now spot-oriented domestic trading to the world wide futures trading system, intending to become a major player in the international gold trading arena. Yet, despite this official trend toward derivatives and hedging practices, individual Chinese savers are expected and officially encouraged by their government to buy and hold physical to hedge against financial and currency risks. More on that in the next section.

None of these factors lie within the sphere of US legislative or Fed control.

China's Role

It is by now almost unanimously accepted that China will succeed the US in being hte world's economic locomotive at some point in time. It is only reasonable to co0nclude that China is also slated to dominate the world's future financial order, just as the US has since Bretton-Woods.

In the light of that, the following takes on a humongous significance for the future of gold and its role in any future world monetary system: Zhou Xiaochuan, the governor of the Peoples Bank of China, stated his vision of how gold will figure into China's future monetary policy on September 6, 2004 at the London Bullion Market Association's Annual Precious Metals Conference in Shanghai. In his statement, he observed that:

"From the micro-economic perspective, allowing people to hold assets in gold can improve social welfare benefitting both the country and its people. Also, the dual characters of being an ordinary commodity and a currency allow gold to well hedge against risks. So it is practical to develop individual gold trading business."

One can only hope that "Amerikan" monetary officials will some day dispense similarly profound and truthful advice to their own subjects.

By officially acknowledging that the Chinese regime is encouraging its people to save gold bullion to hedge against currency risks, he points to the nature of the emerging world financial order (of which the creation of the euro was only the first step):

Fiat will be earned and spent - while gold will be saved.

Even the world's central banks will eventually join this trend, because the dollar as a reserve-asset is now largely history - and the euro is not really set up to take over its function in that regard. The euro's cornerstone is "price-stability, i.e., limited printing! A currency so limited cannot assume the dollar's "print on demand" character that is so necessary for fulfilling its sole-reserve currency objective Any current movements from dollar into euro-reserves are temporary. The world's future reserve asset is gold, make no mistake about it.

(Does this mean that free markets will return and gold investors can breathe easier? Unfortunately, no. Markets can only really be free if they have a true free-market currency to operate on. It is still necessary to establish a private, parallel bullion currency to achieve that.)

Got gold?

FULL STORY


REGGIE WHITE, A GREAT ATHLETE AND MAN OF GOD DIES -ANS
Known as the 'Minister of Defense," Reggie White was also a defender of the Gospel
By Jim Uttley, ASSIST News Service

CORNELIUS, NORTH CAROLINA (ANS) -- The sports world and the Christian community has lost a great athlete and a man of God. Reggie White, 43, died the day after Christmas of what's believed to be respiratory failure as a result of sleep apnea.

One week after his 43rd birthday, the man many called "the Minister of Defense," was gone.

"I still don't believe it," said Eugene Robinson, a teammate of White with the Gree Bay Packers and Carolina Panthers. Robinson told The Charlotte Observer "When I saw it flash on television...I said 'I'm not even going to fight my tears. I'm just going to cry.'"

White's death was announced in his hometown of Cornelius, North Carolina, by his wife, Sara.

Reggie was a starring player for the Philadelphia Eagles, the Green Bay Packers and in his last season with the Carolina Panthers, ending his career in 2000. Standing at six feet five inches and weighing 300 pounds, White was famous for attacking opposing quarterbacks.

When he retired after 15 seasons, White held the career record for sacks (198). His record was just broken by Bruce Smith last year.

He possibly was "the best defensive lineman ever to play the game," George Seifert told the Associated Press. Seifert coached White with Carolina.

White was a great football player but he was also a Christian who loved the Lord. A pastor in Knoxville during his football career, White also was known for reaching out to inner-city kids.

White also defended the gospel whenever he had opportunity. He wasn't afraid of controversy. In 1998, he spoke out against homosexuality in a speech he made before the Wisconsin Legislature. He said the Bible calls homosexuality a sin and anyone who practiced it made a conscious decision to do so.

White told The Charlotte Observer in 2000 that "he stood against sin, not sinners, and that he stood behind his remarks."

When White was contemplating retirement, he was on a list of possible candidates to be on CBS's N.F.L. show. He didn't get the job.

White's wife, Sara, said that CBS had "wimped out" because of pressure from homosexual groups, although the network claimed that they were not influenced by "outside groups."

"It's just a tragedy for him to leave like this," said Rick Joyner, pastor of the Morning Star Fellowship Church in Charlotte, and a close friend of White. "I think he certainly had one of the great lives of anyone I know. He probably lived more in 43 years than most people live in a lifetime," Joyner told the Observer.

"Reggie was a man who had a heart for God, a man who challenged people to walk with God," said Tshimanga Biakabutuka, a former Panther.

Carolina linebacker Kevin Greene described White as a man many people loved. "I told him there's not too many guys I tell them I love them. But I told him I loved him," said Greene. "A lot of people loved him. You have to stand in line when you say you loved Reggie."

While playing for the Eagles, White used to share the gospel with teens on Philadephia inner city streets. He challenged them to stay in school and keep away from drugs.

During his career, White was an associate pastor of the Inner City Community Church in Knoxville. He set up a fund to help people who couldn't get funding from other sources. According to the Associated Press, he put up $1 million to start that bank.

FULL STORY


ARCHIVES ...
(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 ... 2004 Reflections: A Year of New Beginnings...and Answered Prayer! NOTE: Youngest daughter Braida Zoe (10-mo old) is now standing, clapping, waiving, stepping, 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.

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