And so, by dishording gold in this manner, and by propagandizing the
largely false notion of enormous productivity gains in America during the
1990's, the Clinton Administration created a phony "Strong Dollar" Policy that
conned foreigners and Americans into buying American financial assets at
enormously overvalued prices. This resulted in the greatest financial bubble
of all times. But the con job worked for Wall Street and for the Clinton
Presidency. With booming stock prices he managed to escape removal from office
by trial and conviction of impeachment by the Senate.
Because Americans were then and still are largely unaware of the deceit
that underpinned the booming 1990's, Clinton was able to claim credit for the
good times though in fact he laid the final foundation for the tragic times we
are now beginning to encounter. Blame for that will not doubt be doled out to
President Bush. The problem is, the rigging of the gold markets led to lower
interest rates even as the Fed created more and more money out of thin air.
But alas, as was true during the late 1960's and 1970's, foreigners are once
again showing signs of the signs of drowning in dollars. Thus the stage
appears to be set once again for a foreign led exit from paper money to gold
and other tangibles assets starting with real estate. Once again, we can
expect the laws of nature to prevail over the lies of our politicians as told
by the tell tail signs of dollar debt asphyxiation. The correction this time
however, is likely to make that of the 1970's look like child's play because
dollar excesses and imbalances are far more excessive.
GOLD RIGGING LEADS TO MAJOR GLOBAL
IMBALANCES
Trashing gold not only assisted in inflating the U.S. financial bubble, but
it also lead to a number of very significant economic bubbles that threaten to
send the global economy into the second Great Depression of the last 100
years.
The current account imbalances continue to worsen year after year after
year. Had the gold price been free to rise to its equilibrium price, most
likely to around $600, the U.S. would never have experienced the irrational
exuberance of the late 1990's that has subsequently led to imbalances like the
following:
- Major domestic debt the likes of which we have not seen since the 1930's
and which is far greater in terms of national income.
- $2.2 TRILLION of debt owed to foreigners, making the U.S. by far the
largest debtor nation on earth.
- The evaporation of trillions of dollars of stock market value leaving
Americans ill-prepared for retirement.
- An overvalued dollar that is now leading to U.S. led trade wars.
- A housing bubble that will soon lead to personal bankruptcies on top of
record bankruptcies already.
- The demise of basic industry in America (mining, manufacturing and
agriculture) without which we will become an impoverished nation as other
nations rise in relative terms.
- A stock market that remains hugely overvalued and still sucking
unsuspecting investor money into that rat hole. No doubt trillions more of
equity valuations remain to be lost as the existing secular bear market
remains in its early stages.
What is most concerning to your editor is the fact that globalizatoin on
top of these problems along with huge supply side excesses continues to put
downward pressure on the profit margins of American companies at a time when
share prices remain extremely inflated. There is in fact no way you can paint
a realistic picture of growth in the U.S. economy required to generate profit
levels sufficient to justify current equity prices for stocks listed in the
major U.S. indexes. At the end of this week, the S&P 500 had at the end of
this week an EARNINGS YIELD of only 2.25% (same as last week). Of this yield,
about 1.4% is in the form of dividends with the remaining portion in highly
suspect retained earnings. In other words, for every $100 you invest in the
S&P 500, you get $1.40 in pre-tax cash returns and another 85 cents in
"maybe" value. By comparison, if you buy the 10-Year U.S. Treasuries, you get
a yield of 5.14% or $5.14 in CASH for every $100 invested plus you get
favorable tax treatment from state and local
government.
See IRG research reports
