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
