When Greenspan Talks - Fewer People Listen
Bill RidleySince Greenspan's recent announcement to the world on how wonderful our economy is growing - the dollar has taken another dive and oddly enough, so has gold.
Greenspan, being the master of double-speak that he is, has seemingly divided the market. There are those that actually believe in his fairy tale economic recovery story and a growing number who don't seem to be buying the story any longer despite what the talking heads in the main stream media keep pumping us with.
Now we have seen NASDAQ hit a ten month low slipping to 1,839 despite consumer confidence improving for the fourth month in a row. Another contradiction.
However despite all the economic statistics and bullish talk from Greenspan which may have given the dollar a boost for a day or two, there is one cold hard fact that always gets everyone's attention and that concerns the spiraling debt situation. This is the primary reason gold has taken such a strong run over the past three years and decimated the dollar's value against other major currencies.
Greenspan's historic low interest rate policy along with the flooding of $2 trillion worth of paper dollars annually to the money supply has certainly helped the housing market and retail sales of Asian made goods - but our debt situation is down right scary.
The current U.S. public debt is now about $7.294 trillion and continues to increase by about $1.69 billion per day. At that rate, it's asking too much for our dollar to hold its ground against gold or other major currencies.
But maybe that's the plan.
Does Greenspan what to have the United States to become Europe's new home office of choice for cheap labor and manufacturing - just like U.S. corporations view India and China?
If that's his plan, maybe he'll succeed.
This month the Treasury Department said that international investors purchased a net $56.4 billion of U.S. Treasuries, stocks and other securities in May, down from $76 billion in April and the lowest purchase since October.
Net purchases slowed for the fourth consecutive month, reflecting weaker demand for Treasury securities and stocks the department reported. Foreigners now own $1.75 trillion of the $3.76 trillion of marketable Treasury debt.
The government report reiterates what I have been saying for months about how foreign buyers of our debt are turning away from the dollar as the value of the greenback continues to fall against gold and other currencies.
Attracting enough capital to finance the gap in the current account - the broadest measure of trade and investment- is becoming a growing problem - literally! The gap has widened to a record $145 billion over the first quarter.
As demand for U.S. debt falls off, an increase in interest rates must go up to attract investors. This is particularly true in light of the fact that the debt burden just keeps getting bigger and bigger. Greater interest rate returns will mean larger payments will be due which means a larger re-financing of U.S. debt securities down the road.
This a terrible fix that Greenspan has created along with fiscal irresponsibility of several presidents from both parties.
So while the investment community figures out what to do, we will sit back with our core stock positions and ride up the inevitable demand for gold and other select commodities.
Online Investors News
July 29, 2004
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