In the current issue of The Privateer - The late August issue published on August 23, 2009 - this remark appears a the end of The Global Market Report section: "Those who refuse to remember history are condemned to repeat it. Don't be one of them."
Just in case you think that the "stimulus" programs now so beloved of governments the world over are a recent phenomenon, please read the extended quote below. It was written in March 2003, on the eve of the US invasion of Iraq. The US was in dire economic and financial straits then. They are in FAR worse ones now.
The "Battle of the Bulge" (also know to history as the Battle of the Ardennes) was a German counter- attack upon the Allies in late 1944. It took all the western Allies by total strategic and tactical surprise. The Allies got over the shock of this event and won the battle. Later, General Montgomery was asked by reporters when he thought that the battle had been won. He answered as follows: "Once I could pull three divisions back in RESERVE".
On the opposite side of this battle stood that astounding German General Manteuffel. When he saw on his daily opposing forces intelligence report that, suddenly, two British Armoured Divisions and one American Infantry Division had "disappeared" from the Allies order of battle, he sent a signal back to his commander, Field Marshall von Rundstedt, which bluntly stated that the battle has been lost and the Germans must withdraw - NOW.
At that critical point, General Manteuffel had all of his Divisions fully engaged. HE HAD NO RESERVES. That meant that General Montgomery could attack him with HIS reserves and that he, Manteuffel, had no means left to respond.
Suddenly at the very height of this battle, General Manteuffel stood defenceless - and he KNEW it.
Throughout the financial and market upsets and pratfalls of the 1990s, one vast central fact stood out. Whenever financial/economic/market danger threatened, the world fled into US Dollars and US financial assets. Each financial/market upset in the 1990s pushed the US Dollar UP.
But over the past year, a global tidal shift has taken place.
With each negative event, geo-strategic and/or economic - THE US DOLLAR HAS GONE DOWN!
The Bush Administration is, mistakenly, trying to fight this phenomenon with military and strategic means. What they ought to be fighting, using the word metaphorically, is the aftermath of the huge credit "bulge" which the US made for itself in the second half of the 1990s. That huge Federal Reserve organised credit bulge caused the US stock markets to explode upwards in a classical blow-off, followed by their inescapable crash dive.
To fight THAT would have taken firm steps to END the credit expansion. That would have meant holding US interest rates high enough to make SAVING worthwhile. Monetary savings are the seed corn which business must have to carry the write- offs from all the credit-induced malinvestments and over- investments. Having done that, savings provide the seed corn with which to make the new physical investments in plant and equipment with which to produce economic goods that readily sell in unmanipulated markets inside and outside the US. Given a useful profit margin, attractive dividends can be paid. These dividends, in turn, attract real investors for new issues of shares in the companies.
Tragically, the US has done none of this. Worse, it has done exactly the opposite. It has deliberately tried to "underpin" all the credit-induced malinvestments and over-investments with massive cuts in its official interest rates as well as new huge infusions of credit! This "procedure" will have the sad economic result of making the process of clearing away the false credit-induced investments linger on the US economic scene for much longer than really required. Worse than that, all that the almost non-existent interest rates and the massive infusions of credit have managed to do is to cause the build-up of an enormous "bubble" in housing, an unproductive item.
When the huge US housing bubble bursts, so will the US financial system.
This is a quote from The Global Report in The Privateer - Issue Number 471
This issue was published on March 16, 2003 - on the eve of the US attack on Iraq.
Consider this analysis, now more than six years old, as you are bombarded with news stories from "analysts" about the end of the current recession and a return to "growth". Consider the means by which economic "growth" in the US has been generated for the past three decades. What it growing, inexorably, is debt and deficits.
The final growth spurt for the US economy was generated by the Fed lowering rates down to 1.0 percent in 2003 and keeping them there for a bit more than a year. That generated the housing bubble. Today, despite the fact that official Fed rates have remained at ZERO percent since last December and that some $US 13 TRILLION worth of stimulus and suppport packeages have been decanted into the economy, there is no growth spurt at all.
The only thing growing now is US federal government debt. The only thing which has delayed the real economic collapse is a gargantuan flood of US federal government debt. This is the very last "bubble", and like all bubbles, it will collapse.
Last week, we pointed out that the 200-day (40 week) moving average on the US spot future Gold price had hit new all time highs, breaking above the $US 900 level for the first time ever. This week, spot future Gold closed just below $US 960, towards the top of the trading range it has been in for months now. Next week is the end of the summer doldrums in the US.
(Chart appears here in original analysis)
A new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13 last year. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28 last year.
On February 20, as you know, Gold made it all the way back to its previous all time highs. But it did NOT break through the $US 1000 barrier. Since then, Gold retreated to just below the $US 900 level in three moves down. What is being traced out on this chart is a gigantic "reverse" head and shoulders formation. The trading range between $US 900 and $US 1000 was broken early in April. Over the month of April, a tighter range between $US 870-910 was established. Then, Gold went straight up on this chart for six weeks - from the start of May until early June. Since then, the chart has been going sideways with the latest downturn - to below the $US 940 level - taking place this week on August 17. For an upturn on this chart, a spot future Gold close of $US 965 or higher is required.
We began the table below in 2007 and have extended it into 2009, even though Gold in all four currencies in the table remain well above their 2006 highs. The all time highs for Gold which occurred in 2008 have remained intact in US Dollars and in Yen.
But in terms of the Euro and especially the Aussie Dollar, the situation is very different. Gold hit new all time highs in both currencies on January 30 with situation being duplicated by Gold in terms of MANY other currencies. On February 20, those highs were taken out when Gold hit $US 1000. They were not taken out when Gold hit $US 1000 again in May. Right now, Gold in US Dollar terms is much closer (about 5 percent) to its all time highs than it is in terms of any other major currency..
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