Mainstream US economic and financial columnists and analysts are talking about it. So is the IMF and the BIS and the OECD. Even at the Fed, there are Governors who have gone public saying the chances of it happening are in the 40 percent range. Long suffering US stock market investors are wondering how it has been postponed for so long, given the fact that the markets have been going sideways for seven years or more now. Even the hedge fund traders, one of whom just dropped a cool $US 5 Billion on natural gas futures that zigged when he bet they would zag, are beginning to express concern.
What they are all "concerned" with it burgeoning mass of evidence all pointing to an inescapable conclusion. The conclusion being that the US is staring down the barrel of an economic recession.
Of course, The Privateer has already pointed out that in REAL terms, the US economy i9s already IN recession. We did that in our Early September issue (Number 560) published on September 3. The reasoning is simplicity itself. In the second quarter of 2006, the official US annualised economic "growth" rate was 2.9 percent. The equally official annualised US rate of consumer price inflation was 4.1 percent. In REAL terms, that's a recession.
And, of course, leaving aside any questions about "manipulation", many US markets are now reflecting this expectation of recession. The prime example is in the futures markets for commodities (including precious metals). These have plummeted so far this month. Then there are the yields on US Treasury debt, which have also been plummeting. On September 22, for example, the yield on the Treasury 10-year bond slumped to 4.59 percent. That's a whole 56 basis points (0.56 percent) below the Fed Funds rate of 5.25 percent.
All this is, of course, a product of the orthodox methods which everyone now expects the financial powers that be to put into play to "deal" with the upcoming recession. As recently as last May, Wall Street was still convinced that the sequential 0.25 percent rate rises which had been inexorably advancing for the past two years were going to keep on going. Then the first evidence that the housing bubble might be leaking emerged, precious metals and commodity prices dived, and the clamor began to mount for the Fed to stop raising. The Fed duly complied on August 8 when, for the first time since May 2004, it DIDN'T raise rates by that 0.25 percent.
Now, the attitude has completely reversed direction from where it was going back in May. Now, Wall Street is not expecting higher rates, it is expecting LOWER rates from the Fed. The only question still in contention is whether the Fed will start back down this year of wait until 2007. Clearly, plummeting Treasury yields so far this month are indicative of a HUGE bet that the Fed will move sooner rather than later.
And that, it is almost universally anticipated, is all that will be required. It is the holy writ of modern "economics" as it is accepted in the US that any economic slowdown, no matter what the cause and how long it has been "delayed", can be overcome by lowering interest rates and/or by the injection of "judicial" amounts of new "capital" (read "money") into the system.
This is, of course, how modern finance "works". According to "economics", any economy has the inherent tendency to go in up and down cycles (known impolitely in some circles as "boom and bust"). If left to its own devices, an economy would accentuate these "cycles" to the point where nobody could cope with them. It is, therefore, absolutely essential that a "governing" mechanism should be applied so as to smooth out these otherwise unavoidable ructions and thereby safeguard the future prosperity and well being of the people.
That's what modern "economists" would have you believe. In reality, of course, the precise opposite is the case. These dreaded economic cycles are purely and wholly a RESULT of interfering with individual choice and above all, of tampering with what individuals use as the indispensible means of exchanging the fruits of their labour with each other. Boom and bust, economic "growth" and recession/depression, call it what you will - the underlying cause is official interference with money.
That simple fact does not register at all with those who are sublimely confident that, having got the US economy into the mess it is in, the Fed now only needs to intensify its interference to get it out again. Nobody who holds this view admits into their thinking any inkling of a prospective weakening of the money itself CAUSED by this Fed tampering.
Inside the US, and in a surprisingly large number of nations outside the US, the US Dollar is complacently viewed as being utterly invulnerable and invoilate. It is an article of faith that no matter what level of interference the Fed resorts to to achieve yet another "soft landing", it will have minimal effect on US MONEY. Oh sure, the Dollar might fall a bit in exchange value, but once the "soft landing" is put in place it will come roaring back again. After all, it always has.
The US Dollar always has, at least since 1944, because it has been the world's RESERVE currency since then. Unlike any other currency, the world has a vested interest in the US Dollar. This is not merely because of all the US Dollars they hold as "reserves" behind their own systems. Fundamentally, it is because the interlocked global economy depends on the viability of those reserves to function at all.
Without this status for the US Dollar, the US itself would have long since succumbed to its voracious appetite for debt and yet more debt. The problem today is that the reserve currency status has been abused to such a degree by those in charge of the US financial system that it is now a hollow shell disguising a bankrupt economy.
Monetary manipulation is viable for only so long as there is something of substance to manipulate. The US Dollar and all other global paper currencies have no connection whatsoever to anything of substance. They once did, and that substance was Gold. The connection has been sundered for a long time now, so long that few still remember a time when it still held sway.
Those who thing that the Fed can rescue the US economy from this latest approach to recession are utterly ignoring the fact that the means by which the Fed is expected to rescue them are the exact same means by which the problem was created in the first place. One does not douse a fire with imflammable liquid, nor "cure" a man with a broken leg by breaking the other one, and if that doesn't work by breaking his arms too.
No currency is immune from the kind of manipulation the US Dollar has undergone for the past four decades. All currencies so manipulated eventually succumb, history provides no exception to this rule. The other historical constant is that, having failed, every monetary system returns, however reluctantly, to Gold.
This time, it will be no different. The blind faith that the Fed can fix the problem that they caused by means of the same methods by which they caused it is bringing the day of reckoning - for the US Dollar - ever closer ever more quickly.