A little under a month ago, on July 20-21, Alan Greenspan gave two days of testimony to the US Congress during which he assured the world that the "soft spot" through which the US had progressed in June was temporary and that there was nothing to fear. Why? Because "economic growth" in the US was now so well established that higher neither interest rates nor anything else would interfere with it. Mr Greenspan painted the rosiest of scenarios, in the expectation that no-one would dare refute him, and even if some did - they would not be listened to.
Many have refuted Mr Greenspan since he gave that testimony. They have been listened to both outside and inside the United States. But they have NOT been listened to by those who make their living in the midst of the paper blizzard which has now become the US financial markets.
Two weeks ago On July 30, the US "economic growth" figure for the second quarter was announced. It was 3.0%. Market expectations had been for a figure of 3.7%. The markets were rocked, but remained standing.
Then last Friday, August 6, the July US employment figures came out. The "headline" figure was the number of "new jobs" created in July, and that came to 32,000. Market expectations were for a figure of 228,000, almost TEN TIMES the official announcement. The markets were rocked again, even harder, but remained standing.
Now, on August 13, the US trade deficit for June has been announced. The figure was a new record of $US 55.8 Billion - up 19.1% from the previous month. Market expectations were for a figure of $US 46.9 Billion (marginally up on the May figure). The US Dollar suffered a relapse and Gold gained $US 4.60, but neither the US bond nor stock markets moved much at all.
One must ask the question: "How many more of these figures so OUT of step with "market expectations" is it going to take before the markets catch on to the REAL situation?" And there is another question: "Do the individuals who "run" the US political system and those who run the paper markets realise the grave danger they are putting both in by standing by and letting their future predictions be disproven so radically and so often?"
To answer the second question first" The answer is YES, they realise the danger. But they are willing to face any level of danger rather than admit to the real situation and put their power at risk. And as to the first question, to answer that one it would be necessary to know just how far the credulity of those who listen to the Greenspan's of the world will stretch. Using history as a guide, there is always a breaking point, but that credulity can reach astonishing heights and last for an amazing length of time before it is finally breached.
But the political and financial officials are certainly pushing the boundaries. Take Treasurer Snow, for example. Mr Snow was commenting on the June trade deficit at a press conference on August 13. His "solution" to the problem, in concert with his predecessors,was that the rest of the world (specifically Japan and Europe) must step up efforts to increase their economic growth. How? No answer was given.
Mr Snow then went on to uncork a real howler: "We depend on prosperity in the rest of the world ...and the US is growing much faster than the rest of the world. That causes this imbalance. We have more disposable income, we have more prosperity and this prosperity is used to buy goods and services abroad."
The US doesn't use "prosperity" to buy goods and services abroad, it uses US DOLLARS. To an extent far greater than any other nation (because the US Dollar is the world's reserve currency) the US can pay foreigners for their REAL goods and services in its own currency. That currency is created out of thin air. The "prosperity" which Mr Snow talks about is nothing more or less than the ability of the US to have its currency accepted by the rest of the world as payment for goods and services. The unspoken assumption is, of course, that this ability will continue unabated forever.
Please realise that just like Mr Greenspan, Mr Snow knows all this. And just like Mr Greenspan, he is counting on two things. He is counting on the inability of the ignorant to see through the charade. And more important, he is counting on the unwillingness of those who CAN see through the charade to do anything to either change it or to protect themselves from the consquences of it not being changed.
This practice is as old as politics, or finance. Consider this quote from a memo about the state of the US economy prepared for President Hoover by Thomas Lamont, senior partner at JP Morgan, and delivered to Mr Hoover on October 21, 1929, four days before the first market crash:
"The future appears brilliant. It is this future which the stock market has been discounting ...we have the greatest and soundest prosperity and the best material prospects of any country in the world. The whole world has wished to buy our stocks and is pleased to lend money at attractive rates." Mr Lamont was wrong.
But the greatest piece of irony in this regard is in a quote from Adolph Hitler, addressing the German people in the mid 1930s: "In ten years, no one will recognise Berlin." Hitler was right, though not quite in the way he intended to be.
The movers and shakers of the US financial system are talking as if nothing had changed from the heady bubble years of the late 1990s. Once the Republican Convention is over in early September, their political counterparts are set to paint a picture of the United States which will strain the bounds of credulity to hieghts seldom if ever reached in US history. Sadly, this is what we have to "look forward" to over the rest of the year.
The official "faux pas" are mounting up steadily. Reality keeps intruding where it is not wanted, even having the temerity to debunk the latest piece of rosy scenario painting while it is still echoing across the airways. The strain on the system is already acute. Far more dangerous is the increasing strain on the ability of those in the paper markets to go on denying the evidence. All swindles, whatever their magnitude and longevity, collapse when this ability bursts. Right now, it is indeed hanging on by its "teeth and toenails".