Ass-Backward Economics - IV Jim Willie CB

I attempted to document the most flagrant and destructive among the constructs held as true. The list was covered in three previous installments. This final segment makes several concluding points on current developments. With each passing month, many important events occur.

FOLLY & METAMORPHOSIS :
Never in my entire life have I seen so much misguided folly so widely embraced as competent, expert, and grounded in historical precedent. The political body has had at least three decades of negative influence on the economics field, leaving it seriously damaged and misguided through a gradual subversive process. Free analytic thought has become commandeered, if not appropriated by political purpose. Indebtedness and labor demands have dictated ongoing accommodation. The overvalued USDollar has resulted in industrial output to be replaced by debt production in staggering quantities. Attracting foreign creditors who would finance our trade imbalance and federal deficits has encouraged a strong USDollar by our presidents and cabinet secretaries. The policy has utterly gutted our US Economy, thus requiring even more imported capital. Financing our imbalances has taken precedence over maintaining the industrial strength necessary to sustain a nation of employed workers. America is bleeding capital and jobs as we approach a critical condition, yet economists rush headlong to promote policies long discredited over the past several years. They ignore past history; they ignore recent history. Challenge of important Federal Reserve policy is almost nonexistent. The public, the Congress, business leaders, and banking leaders are working with no proven economic compass whatsoever.

During this menacing and regrettable metamorphosis, the economist trade has been turned on its head, where everything nowadays seems backwards. Policy bothers to rectify neither imbalances nor problems. Instead, policy sets out to overtly perpetuate the distortions in seeming desperation, so as to circumvent the natural consequences of several decades of abuse of money and debt accumulation. History is revised to satisfy political demands, thus no real learning from past errors. Pain is avoided at all costs. Recessions are overruled by financial leaders. Our nation's economic state has rendered us incredibly vulnerable to foreign capital flight, and to massive job loss to emerging Asian low-cost producers and service providers. We look to the Federal Reserve and the Dept of Treasury to create unlimited liquidity in the form of printed money disconnected from any collateral. Our entire nation blindly regards the high-tech printing press as a panacea. Our cadre of economists cheers the entire process, much like an advertising agency would for a drug dealer enterprise!!!

The economist community is ripe for criticism and even attack, yet hardly a harsh word is heard. I perceive their members as having formed a political priesthood, with uncontrollable federal budgets justified by govt frontmen, with falsified deceptive national economic data reports offered up by internal govt swindlers, and with absurdly optimistic forecasts spewed by brokerage harlots. My greatest condemnation goes to the academic quacks, whose arrogant tribes never discuss the giant hidden pitfalls of the debt-based economic foundation, which perpetuates and urges on discredited economic theories, which provides a breeding ground for new deficient disciples. Academia has failed us in their endorsement of an economic system incapable of proper function since Nixon reneged on the Bretton Woods Accord, wherein money was redeemable in gold. In that fateful year 1971, the power to print unreal money, used for payment of real bills, was not granted but rather seized by a financial coup d'état. Financial instability has been breeding in a dangerous manner ever since. Everything nowadays is backwards.

AUSTRIANS & GRESHAM :
The Austrian School of Economics has warned for decades that our national debt burden will eventually act as an enormous damping agent on the economy, leading to stagnation. An economic foundation built upon debt has directly resulted from an unstable monetary system and a currency which by default is backed by govt debt. The tainted money we use as legal tender has displaced true money in the form of gold. Money is not dormant, but rather moves, affecting sectors of the economy. The non-productive financial sectors are now overshadowing and draining the capital from the ailing productive sectors, much like a cancer usurps nutrients from healthy organs in the human body. Worse still, individual assets are detrimentally affected. Assets can become unnecessarily liquidated if too closely associated with heavily indebted business operations or households. Gresham's Law concerning bad money is easily extended to economic sectors and the capital base, unfortunately.

The gross domestic product (sum of national goods & services, internally consumed or produced) is reportedly rising at a 1-2% pace. Roach labels this as "stall speed." Or is the Q2 US GDP actually negative, in recession, after removal of hedonic lifts from sales of faster infotech equipment, and after correcting the suppressed chain-weighted deflator in the distorted GDP calculation ??? The USGovt artificially bolsters IT spending, originally to compensate for dropping computer and related equipment prices. Now, years later, that same compensation typically results in 20-fold amplification (distortion) of real spending and output, reasoning that speeds are now 20 times greater. The USGovt artificially augments the GDP in compound terms from an understatement of price inflation, a benefit of chain-weighted calculations. Kurt Richebächer outlines in impressive detail both manipulative tactics employed by our creative accountants in the USGovt. Their motives are clear; their actions are criminal; the public (if not the world) is being duped. Govt reporting has clearly set out to avoid market setbacks to the USDollar and the stock indexes. Our currency is vital to the domestic cost structure; our stock market is a vital supporting pillar to the economy. The charade will be laid bare for all to see before long. Even the title "jobless recovery" contains inherent contradiction that conjures up few questions. How could Americans be losing jobs at a faster rate than Europeans, when the EuroZone is teetering on recession admittedly? We cling to notions of a New Economy, even after it has been clearly shown to be a myth. Such are the compelling points made by this savvy former German banker, longstanding banking critic, and consistent maverick. His works can be found in monthly issues of "The Richebächer Letter." For further information, sample issues, and guaranteed enlightenment, see http://www.richebacher.com

New bubbles threaten on the horizon, encouraged, sponsored, and thoroughly nourished by the Federal Reserve. When the current bond speculation and residential housing futures contract experiment turns sour, GDP will more than likely stall completely. It will aggravate the early stages of this recession. The 2001 recession was only a prelude for the main event, led by Treasury Bond declines. Money supply is being managed recklessly. At times the spigot is opened full bore, allowing money supply to grow at a pace exceeding 20% annually. Such a frenetic monetary growth rate without benefit of incremental economic activity is precisely what the Austrian School warned about in the final stages of a "highly arthritic totally Keynesian" system. (I cannot remember who authored that colorful quoted description, not me.) Futility is the only word that can describe the effect of Fed monetization. In Q2 it took $6.5 of new marginal money/credit in order to generate $1 in new GDP activity. One year ago the ratio was 5-to-1. In my view, that qualifies easily as a spinning of gears in retrograde. The only sign of growth comes from govt spending and spiraling consumer debt. Inside the margin, the core economy now devotes at least 75% of its GDP to debt service, evidence of late innings in the Keynesian Monetarist game !!! However, Greenspasm views the higher debt as being more than offset by inflated house equity, and concludes household balance sheets have improved. Incredible, now inflation is considered as assets rebuilt. But then again, this is pure alchemy. Everything nowadays is backwards.

RECENT ROACH'S COMMENT :
Our policy makers are in disarray. The bond market revolt that began with the latest Fed interest rate cut in June could turn out to be the pinprick to the credit market bubble. Stephen Roach writes in his August 1st essay that rising rates threaten the fragile recovery struggling to overcome price deflation. Could it be that Roach is getting a nasty whiff of the Perfect Storm scenario warned two years ago by Jim Puplava, whereby commodity price inflation arrives amidst product price deflation, powered by frenzied monetary growth against a backdrop of a declining USDollar? See [13] for the prescient Perfect Storm essay series, brilliantly laid out in detail, whose components are falling into place as if under direction. Fed actions may be encouraging inflationary speculation in a manner which has no net remedial effect on liquidation-driven product price deflation or reduction of debt levels. New more dangerous bubbles are being created. In Roach's words from the end of July :

THE FED CALLS ITS OWN BLUFF :
Greenspasm's "about-face" before Congress one month ago served as a blatant deceit of the bond market. The Fed now offers no promise of open purchases of long-dated paper (10-yr TNotes), despite Bernanke's contradictory comments. This change, this confusion, might both stand as the seminal event for reversing the critically important credit market. Bond experts might now seriously call into question the honesty of Greenspasm's claimed deflation threat. Our USTreasury debt is widely held by foreign entities. Not only are they watching, they are reacting. The month-long bond revolt has taken rates up over 1.0% from their lows in the Trez market, and up 0.7% in the mortgage market. Bond vigilantes are back in force. A grand unwinding of mortgage agency hedges in bond derivatives has entered a dangerous phase, triggered by the stall of mortgage refinances. A backup in rates is not so much about renewed strength in our economy, as it is reversal of widespread sanctioned bond speculation, aggravated by agency hedge convexity. The ripples of bond shocks were also felt in Tokyo, where seriously undersubscribed bidders led to heavy losses in the JGB bond auction. In the last several weeks, many held their breath as the USTBond market survived recent auctions of its own. A seeming calm has been restored. More importantly, we are witnessing a transition as our Fed Chairman quickly loses control. Something must give: either the USDollar or USTBonds, which will lead to either an import and commodity prices rise, or an interest rates rise. When one gives, the other will also give, since one is the de facto obverse of the other.

The US Federal Reserve may have decided that their overt plan to control long-dated TBonds was not possible or practical. The Treasury market is too large to control. The leverage of bond futures, the gearing of derivatives, the agency hedging, the pervasive corporate swaps, the links to currency and gold, and yield carry trade, these are simply too massive to exert control over. Together these exotic instruments are an order of magnitude larger than the stock market. Consequently, the unraveling of the bond bubbles is more potentially destructive. If either formal or clandestine attempts to rig the bond market failed, we could have suffered the consequences of credit market seizures. In fact, this is what I expect to see, regardless. Initial cracks may have already formed in mortgage finance, as the ill-fated agency couple Fanny and Freddy are facing deep rifts. Their fraud and undisclosed hedging (if not speculation) could easily have resulted in a 30-50% recent decline in their balance sheets. Opaqueness prevents our viewing of their deeply damaged books. They may continue to enjoy relatively favorable bond ratings right up to their implosion. I regard them as a massive LTCM destined for failure and bailout, possibly to exceed $1 trillion.

Bond-based mutual fund losses may soon mount, to the surprise of investors. A survey last winter indicated that over 70% of American investors were unaware of potential bond losses if rates were to rise. They regard bonds as certificates of deposit, when in reality they are certificates of confiscation. Once again, naïveté and illiteracy extend from stocks to bonds. The bond revolt delivered numerous shock waves. Housing refinances have stopped in their tracks, with a certain upcoming effect on consumption and the economic stall. The European Central Bank three weeks ago advised their member banks to shed all Fanny Mae, Freddy Mac, and other GSE debt from their reserve base. Under the surface lies the extreme potential for derivative events. Large movements in rates almost always go hand in hand with such dreaded events. Rates are integrally linked to the USDollar and USTBonds by means of highly leveraged and mysterious financial instruments. Warren Buffet calls the collection "financial sewage." Others call them "weapons of financial destruction." How true.

Real Estate in the United States is becoming linked and tethered to unrealistic obligations in mortgage portfolio contracts. We are blindly following Chairman Greenspasm's lead, much like we would a pied piper. Our nation is gearing its entire mortgage industry to artificially high inflated property values, just like Japan did broadly to its banking industry in the late 1980 decade. We distinguish ourselves in by a concentration of the pressure, risk, derivatives, and leverage squarely on the Govt Sponsored Enterprises. Extreme pressure is now exerted on Fanny Mae and Freddy Mac, pressure which will eventually cause current cracks to widen, and a full scale rupture to follow. I sternly believe that the US financial system will experience earthquakes originating from the mortgage bond sector, and Fanny & Freddy the primary fault line. Their colossal irresponsibility, poor audit controls, excessive leverage, speculative hedges, and feedback convexity will ensure their destruction. We are repeating Japan's banking error, under official govt sponsorship and debatable govt gaurantees. Japan's damage was distributed. In the USA, the damage is very much concentrated within mortgage agencies. The leverage involved is pure nitroglycerine. Control was lost long ago.

The stock bubble broke in the spring of 2000. Will we look back and proclaim the summer of 2003 as the time when the credit market bubble broke? I think YES, but unless a derivative event occurs, the process may be agonizingly slow. Official policy only serves to spread a cancer, which precludes a real correction. The sick enterprises are being kept afloat. No economic recovery can therefore occur. Worse still, the more prolonged and stubborn the govt interference with the natural corrective process, the more dire and terrifying will be the ultimate outcome.

INNER CIRCLE & OUTER VISION :
Constant attack is the wage for the few enlightened economists like Stephen Roach, whose ideas are dismissed and excluded from policy making. He had warned about a stock bubble way back in 1999, unconvinced of any "New Economy" or any productivity miracle. Richebächer and the Austrians are often ignored, long the annoying agents to remind of excessive debts and faulty currency. There exists a chronic perverse hope for the Austrian School of Economics to be wrong. They have warned of the printing press buttress to a economy and its accelerating futility. Jim Grant and the Prudent Bear are viewed as annoying gadflies. They stand as critics to the Federal Reserve and the spiraling debts, both public and private. Congressional critics like Ron Paul and Bernie Sanders are criticized for not being team players. They harshly confront the Fed Chairman for his defiance of Congressional queries on our gold reserve status, and for the catering to the billionaire credit market speculators in country clubs. Track record plays a distant back seat to political alignment. Expertise is not a high priority for serving in public office. Political loyalty and servitude are lead items on council advisory resumés. Our country's founding fathers might shudder to recognize our federal govt as the invasive tyrannical embodiment of King George himself. The tax burden carried by ordinary citizens has become overbearing, while leaders work their own private agendas.

Our crack team of economists will in all likelihood miss the warning calls for a crippled financial system and economy, for the danger of foreign capital flight, for a reversal of fortune within the real estate sector, for properly gauging the effect of the huge debt ball & chain, or for a corrosive continued decline in the USDollar. They seem oblivious in the detection of a developing Perfect Storm of historic proportions, whose symptoms include rising production costs, rising cost of living, in stark contrast to falling employment and income, pressured by reduced purchasing power across the entire economic spectrum. A nationwide wealth writedown is in progress under their noses. Economists are politically driven, fatally wedded to the debt-based system. They are fatally flawed in their analytic thought process. They have endorsed the fallacious economic reporting process. They harbor a childlike elevated faith in the Federal Reserve and the power of unlimited phony money to rescue decades of similar abuse. Economists have sadly lost their way. They are intellectually lazy enough to expect a recovery as a knee-jerk response to conventional disproved stimulus. They regard rising rates as confirmation of an economic recovery, without the benefit of due diligence. They rely simplistically on past patterns which are not repeating, and not carefully examined or analyzed. Priests, frontmen, swindlers, harlots, and quacks sadly are in charge. The public has little or no idea what is happening, only aware that "something is wrong" during a highly unusual "jobless recovery" that smells funny.

California's unfolding tragic comedy represents a true microcosm of US fiscal distress at the state level. Many (including me) have observed this enormous state from afar as surreal, idyllic, and thoroughly detached from reality. Few seem to understand the state's woes originate from the tech/telecom/internet boom, from massive capital gains taxes flowing into Sacramento's coffers. The state embarked on a wild spending binge in the late 1990 decade that only recently has abated in the face of default. The state legislature was more than eager to accommodate the profligate socialist programs, confidently assured of endless expected revenues. Until many key people in the legislature are removed or silenced, this state will not see a turnaround. Seeing actor Arnold Schwartzeneggar vie for the governor post against the bright upstart Arianna Huffington and a former Olympic administrator Peter Ueberroth, I want to laugh and cry at the same time. Toss in the diminutive ex-actor Gary Coleman, the porn publisher Larry Flint, and even a porn queen, and you have a theatre of the absurd. What a microcosm of the American political stage, its failed fiscal discipline, and its microscopic financial IQ !!!

Foreign media must regard our leading state as a total joke. Perhaps it is just that. Of one thing we can be certain. Whoever effectively guides this lost state through the financial morass will be utterly hated and despised. The only way out of the fiscal duress is to cut back in committed spending, while not raising taxes at all. Initial action saw 40,000 teachers dismissed from their jobs, but not one single burokrat. Not one token job dismissal was given to the energy regulatory commission, whose price caps caused electrical brownouts. Politics as usual prevails, as the productive are fired. Brutal job cuts and budget cutbacks must occur. Plenty of tax hikes have been installed, discouraging healthy companies from remaining as bagholders. The most likely result of official policy response will be to exacerbate the financial situation, not remedy it. Businesses are leaving the state in droves, due to high overhead, in particular workmen's compensation costs. Eventually resentment will be overflowing. Civil unrest could easily erupt. This state is by far the most insane I have ever seen. They give illegal immigrants social program benefits and driver's licenses. They even have mandatory prison inmate organ transplants. They boasted in 2000-2001 of the broadest and most diverse expanded social programs in the nation. Expansive socialism at the state level sounds good, but leads to state default. Everything nowadays is backwards.

Many other states suffer similar distress. In my native Pennsylvania, police officers and emergency medical teams are given pink slips for layoff. The state legislators in Harrisburg decided in 2001 to cut back school funding by 50%, which led to doubled local property taxes. While jobs are cut for those who do actual work, and provide valuable services, welfare rolls are left intact. Those same state senators routinely bill for lavish lunches to lobby groups and constituent groups, despite per diems for meals. If not inept, then corrupt. Meanwhile, PA road systems are the most potholed in the nation. Perhaps twenty other states can tell of a similar story of their own fiscal distress. The national trend to continue the unsustainable, to keep socialist spending intact, and to dismiss the productive is itself in the process of dismantlement.

My eye is keenly set upon California's inevitable attempt to issue legal tender money. Talk may be followed by action in state coupon issuance to contractors, rumored this past spring. Federal court challenges may ensue. A grand intrigue is underway. Within a few years, this nation might behold state secession movements, in order to wrest control of the power to print baseless money in the face of fiscal duress never experienced in our history. A California Coupon could be construed to be a state currency. To date that counterfeit privilege is the sole sovereign right of the federal govt. Heavily indebted states will covet such privilege and share willingness to risk local price inflation. Fiscally sound states like Idaho might want to distance themselves from the inflationary destruction of neighboring state efforts to do so. A fierce battle to keep our states in the union might well develop. It is all a comedy, a tragedy, a reality which typifies our entire nation's financial folly. If you believe I am way off base, just wait two years.

DANGEROUS SIGNALS :
The system is in the process of failing, since its blood lacks oxygen (real money), and instead relies upon carbon dioxide (fiat money). Reliance upon tainted money is omnipresent, and has wreaked infectious havoc everywhere. Dangerous signals surround us to warn of trouble from many corners.

• A declining USDollar has never in history accompanied an economic recovery. In its wake is typically seen an exodus of foreign capital from our financial markets, a rise in commodity & production costs, and painful aftereffects from lack of competitiveness among US businesses versus foreign rivals. A close watch should be kept on Asian banks, whose reserves are overloaded with USTBonds.
• The commodity research bureau (CRB) index is in a new longterm uptrend. Crude oil prices are not subsiding after the so-called Iraqi victory, which joins annual natural gas price spikes. Both production costs and household expenses will rise in response.
• The silver metal price broke above $5/oz resistance, confirming the breakout of gold above $330/oz last year. Both gold and silver have now broken their multi-year longterm downtrends.
• A steepening bond yield curve, characterized by lowering shorterm rates and rising longterm rates, heralds the specter of price inflation on the horizon. Too much orchestrated talk of price deflation might soon be trumped by actual price rises.
• A recent trend of corporate earnings cannot seem to avoid headlines of spending cuts, job layoffs, plant closings, extinct capital equipment expenditures (capex), and a shift of operations overseas, most notably China and India. This trend has become a tired refrain, a constant thorn in our side.
• Lastly, few note the dire signal of the "head & shoulders" bear pattern evident in the S&P broad stock index. If true to form, the S&P foretells a 50% decline in stock prices.

Are economists on top of these signals? Or is their thinking knee-jerk, if not slovenly and shallow? Are they paid not to examine deeply? Do they learn from history, or merely revise it to suit their needs? Is faith in the Fed unrealistic and desperate? Have we learned anything from Japan's tragic story, or more recently the collapse of Argentina? Lastly, does the American public have any interest whatsoever to learn about economics? Are fallacies embraced so as to promote an agenda, or is integrity a real pursuit? These are tough questions. I lean on the pessimistic side for answers until the Kondratiev Winter spots a spring thaw, which is not likely while debt continues to mount. The corrective process has been systematically interrupted, and thus no remedy to the extreme imbalances has occurred. The entire Enron episode signified a "canary in the financial coal mine" event, which has yet to be fully taken to heart. Economists have sold out. They shape their fallacious constructs to the highest bidder and the highest offices of our land. The distinction between an economist and a political advisor has become fuzzy. Gresham's Law might extend to economic thought as well. We see ample evidence that good thinking is pushed out by bad thinking, when good money is pushed out by bad money. The community of economists seems to have no clue of what is happening. Everything nowadays is backwards.

MASSIVE BUBBLES THREATEN :
The current bond market speculative bubble will inflict more damage than the stock bust did three years ago. All in time. The final requirement for releasing the gold bull is the bond market decline, which has begun. What new bubble will the Federal Reserve (with the help of Congress) inflate when the bubble encapsulating Treasury bonds, mortgage backed securities, and real estate initiates a long slow leak? My considered opinion is an unwanted speculative bubble in gold & silver will develop, accompanied by a bubble in mining stocks. The energy sector will probably join in the speculation, with crude oil and natural gas prices spurting and spewing upward. Gold has been and will continue to be the final arbiter of monetary abuse and the clearest meter of financial distress. Silver's July breakout confirmed gold's longterm reversal in the last two years. China might have orchestrated the July silver breakout. It could have been gesture by Chinese leaders to flick the extended US nose raised in arrogance. It could have been a response to public denunciation of China by Greenspasm and Congressional leaders, seeking a new boogeyman. Is Wall Street watching these developments? I really wonder. Many currency watchers certainly are. In the next several months I fully expect an unfolding currency crisis of tremendous magnitude, certain to gather momentum and to make headline news. At the epicenter of the crisis will be the ailing USDollar, whose nemesis is gold. A major wave down for the USDollar is growing in likelihood, as is a major wave up for GOLD.

The official Federal Reserve response is to provide a torrent of liquidity. That is what they do best, and have always done exceedingly well. They deserve cabinet status and recognition as the Dept of Inflation. Should they invoke an immediate crash by withholding liquidity? Or should they allow a more all-encompassing economic catastrophe from a USDollar crash? The former is not politically acceptable, hardly a path to date ever considered or traveled. Denial of the latter permits hope of its failed arrival. On a fundamental basis, with rising federal deficits, with consistent trade gaps, with degenerative dislocations and malinvestments, a severe USDollar decline bears a much higher likelihood. We are sowing the seeds of hyperinflation amidst nonexistent pricing power, with the Chinese exporters holding a boot heel over the American economy's neck. How many among the experts and media pundits expect prominent pockets of powerful price inflation without the benefit of widening profit margins? The only remaining power to reinforce the USDollar might sadly be the US Military. Even use of military hegemony would invite a strong backlash. We have never been more vulnerable as a nation. Within several years, the political landscape will undoubtedly be reshaped as a reflection of deteriorating conditions. I expect a New World Order to be far more fascist that anything seen since the 1930 decade. For the disbelievers, take a close look at the Patriot Act and its scary Patriot Act II. Then take a look at how the bill's elements are planned for inclusion into other bills, by stealth.

Personally, I expect many unfortunate developments in the next year or two:

• a sharp rise in the cost of living (especially from energy bills)
• rising import product prices from Asian producers
• continued falling prices as our domestic economy continues its liquidation process
• continued fiscal duress among the states, led by California and New York
• increased federal govt spending, offsetting decreased state spending
• increased federal govt tax refunds & rebates, offsetting increased state taxes
• rising longterm interest rates (heading easily past 5%)
• no return to corporate profitability outside the financial sector
• continued strain on household budgets
• sudden illiquidity in mortgage finance
• a gradual decline in residential real estate prices
• disappearance of home equity and other refinancing
• decline in retail consumption
• rise in unemployment
• collapse of both Fanny Mae and Freddy Mac, as losses gain momentum
• dreaded derivative events finally surface, frightening the nation
• foreign capital flight from many financial sectors
• a wider war in the Middle East and Gulf Region

An inflation ripple effect is building. We are treating monetary inflation's ravaging aftereffects with greater doses of monetary inflation. While temporarily quieting the symptoms of those ills, such treatment renders the financial system vulnerable to greater future calamities. The credit market bust is next. Violation of economic laws of nature has invited and will surely unleash great revenge. Widespread price deflation, debt default, job loss, and state fiscal distress now follow. Control centers are distributed across the 50 state capitals, as well as various govt institutions. Contrasting responsible reactions will lead to divisive and contrasting inflationary and deflationary outcomes, sure to confuse most so-called experts. WATCH THE MORTGAGE FINANCE SECTOR, AND FANNY MAE IN PARTICULAR. This is where the devastation will surface, the cracks will widen, the damage will spread.

We live in interesting times. For sure, US leaders and the majority of the population will attempt to shirk responsibility and lay blame on three sources. We will attack the Chinese for their ridiculously low currency peg, and high trade surplus, even though we encouraged the growth in trade and stress how beneficial low-priced imports have been. We will attack Islamic oil producers, whose supplies will rise in cost as our dollar declines further, even while we aggravate them with our occupation of Iraq and our accusations of terrorism linkage to Islam. We will attack currency speculators, whose FOREX traders will benefit from the inevitable USDollar collapse, even though multiple carry trades (yen currency, gold bullion, bond yield curve) must be reversed. The hypocrisy has already begun with verbal attacks within Congress and by the Fed Chairman against China. We forget who our credit masters are. With a stubbornly high crude oil price, it will not be long before we turn angry against Gulf region oil producers.

This nation does not admit its errors, does not correct its errors, and refuses to allow the natural corrections to occur, because the pain would be far too great, even to the point of causing social upheaval. Instead, our leaders compound errors with greater errors. The level of complacency is alarming among the American public. Are citizens crippled in their thought process about economic matters, having learned wrong principles built upon wrong foundations? Do citizens revel in their ignorance of all things financial, clueless of what to do, how to react, whom to trust? I am sorry to say that I believe that two extremely large camps are populated by people from each camp. The trained are traveling down a dead end and blind alley, as they ignore the past. The untrained trust the trained, as they continue to close their eyes.

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PERSONAL ASIDE: It is my sincere curiosity how many readers are willing to make the commitment to pay a nominal $8-10 per month charge for regularly timed clarification on economic matters, to debunk conventional claims, and to provide guidance through the minefields in today's confusing financial world. Something very ugly this way comes, on the tail end of the dissipating bond market bubble and real estate decline that has begun. The long treacherous ride ahead requires a guide.

Professional crossroads lie ahead in my life. For months now, my efforts in the economy, gold, and currency front have been given away. I am excited by the prospect of performing a labor of love in a new opportunity. An informal survey would be helpful for my personal planning. If interested in a monthly paid subscription to a website newsletter with primary focus on economical policy and principles, with direct implications on currencies and gold, please let me know. If you wish, shoot a quick email to me at : JW@goldenjackass.com

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REFERENCES (including those from part II) :
[1] "A Statistician's Indictment of Economists" by Jim Willie CB (Dec 2002)
[2] essay archives by Stephen Roach (July 2003)
[3] "Govt Statistics: Lessons in Cooking and Spinning" by Richard Benson (June 2003)
[4] "Statistical Revisionism and Wizardry" by Michael Hodges (June 2002)
[5] partial editorial list by Kurt Richebacher (2000 to 2003)
[6] "Wall Street Great Says the Market is Broken" by Bill Fleckenstein (July 2003)
[7] "Vicious Circles and US Credit" by Jim Willie CB (May 2003)
[8] "Looming Mortgage Crisis" by David Chapman (June 2003)
[9] "Housing Cover Clause" by Rodney Cook (June 2003)
[10] "The Crumbling Strong Dollar Policy" by Ashraf Laidi (May 2003)
[11] weekly Japanese yen chart by Stockcharts.com
[12] "Japan, Argentina, Weimar, or Muddle?" by Jim Willie CB (April 2003)
[13] "The Perfect Storm Series" by Jim Puplava (July 2000 to Aug 2001)

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Jim Willie CB
August 22, 2003