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November 28, 2004

The Economy of the United States of America - The Reactor Goes "Critical"
by Nigel Maund

Introduction

One cannot but notice that the collapse of the world's effective reserve currency, from its manipulated holding triangle, coincided exactly with the successful re-election of George W Bush. Beautifully orchestrated if I may say so! However, the timing was a little too perfect for those who care to notice such things.

Nothing better proves the dirty manipulation of world markets for political reasons than this little exercise, and, moreover, it speaks volumes concerning how, and to what extent, the markets can be rigged if you have the capability to create billions of digital dollars out of thin air at a seconds notice, such is the awesome power the Fed Chairman wields. Tricking and trapping the markets and analysts has become a grand game for the insiders; and this is what we call "free markets". Some joke!

With the US$ in virtual freefall, and Alan Greenspan now saying a weaker dollar is a good thing for the US economy, one may sensibly ask:........... "What next?".

Inflation

With the dollar headed towards 72 on "the Index", before any halt in its "Jules Verne type voyage" to unfathomed depths, the obvious impact on inflation barely needs any amplification. Such responsible un-syndicated writers such as Jim Puplava and Doug Noland, not to mention a host of others whose articles one can read on these pages, have already pointed out the building inflationary pressures in the US economy over the past 12 months. These same writers have also written articles concerning the unprecedented commodity boom now underway, with major price rises (between 30% and 200%) in gold, silver, copper, lead, zinc, nickel, cocoa, oil, soya, etc ad nauseum. On top of all this, comes the less obvious impact of higher property rentals, due to vast property inflation, on all goods and services, and, with these, the higher sales and other taxes levied serve to compound the inflationary pressures. The strongly "doctored", or, more aptly, debauched CPI, is a totally meaningless and misleading figure. Real inflation is already in double figures and headed towards the high teens.

If you now consider things are getting tough, let me tell you: "you have seen nothing yet!" The US dollar has only recently completed the first leg of its decent, with the US election its watershed. It has now commenced the second, and much more severe, leg of its three phase devaluation. The big question is this: "At what point will the Fed be forced to raise rates at a far higher rate than a piddling 25 basis points per month to slow the US dollar decline before "the hull is crushed" under massive selling pressure, and goes into vertical freefall, thus marking the start of Phase 3 (Total Collapse)??"

Clearly, Mr. Greenspan's time, and viable options, are all but non-existent, the end game is upon him. His only gambit is "the Asian Defense"; i.e., so long as the Chinese and Japanese keep recycling their trade surpluses into US securities, financial check mate is deferred and, better still, hopefully avoided. So far this little gambit has worked well. However, as the dollar's decline gathers real momentum the major fault lines in the world economy come under increasing stress. So far, no one has chickened out in this high stakes economic game, because the stakes are quite simply colossal. Furthermore, everyone is now so far into uncharted territory, that they're too scared stiff to rock the economic boat as the consequences are barely worth thinking about. Nonetheless, decisions cannot be postponed forever. No doubt the Asians will be prepared to take serious financial losses to keep the entire grossly distorted world economy intact for the time being. In a race against time, China is trying to nurture its potentially huge internal market to replace the credit maxed out, and essentially bankrupt, US consumer. However, the pressures to "bail out" are increasing with the passing of every "nail biting" day. Even now, Asian investors, institutions and Central Banks are quietly leaking funds out of the US and into Euro's, Sterling, Canadian $, gold, silver, and commodity based assets and securities. For the Fed and US economy, the flood gates are creaking.

The Economic Reactor Goes Critical

When the dollar entered phase 2 of its decline, the US economic reactor started to go critical. The chain reaction leading to financial meltdown has begun. Nothing can now prevent the inevitable. Like nuclear fission, one reaction will lead to the next in the following sequence:

further and accelerating dollar decline > rapidly rising inflation > accelerating rise in US interest rates > bond market decline > equities decline > real estate decline > accelerating dollar decline as foreign investors "hit the exits" > further interest rises and so on. However, the chain reaction set up is a spiraling vortex of accelerating action and reaction and ultimately, uncertainty is replaced by fear, and, finally, panic. The final denouement will be hyperinflation and total economic collapse of the US FIAT dollar system. By this time only gold and silver, and hard commodity or property based assets will be worth anything. The global currency system will be in ashes.

Mr. Greenspan will be able to ponder his legacy and fame "as the banker who wrecked the world, and the lives of billions". His name will join other famous money creation architects whose FIAT money system collapsed spectacularly in ruins, such as Scotland's John Law. However, Mr. Greenspan may now consider the wider social implications of his humongous credit machine, such as:

1. gross misallocation of resources to the detriment of the entire world economy;

2. the enormous transfer of wealth to the hands of the elite few;

3. the widening gap between the world's rich and poor, with destruction of the so called middle class, and all that this portends;

4. the immense downside effects of uncontrolled credit expansion, particularly in the residential housing market, causing an explosion of speculative greed, financial exposure and ultimate ruin for millions;

5. uncontrolled access to credit, coupled with a lack of education in use of credit facilities, and control of credit issuing organizations has caused an explosion of bankruptcies and credit related problems such as the massive increase in crime, and social problems in society in general, that can only accelerate as the impending crisis unfolds.

Yes, Mr. Greenspan and his ilk have very much to answer for. One day, God willing, someone will have the courage and wisdom to question the entire rotten system of unbridled usery he has created, and its consequences. Maybe, this form of totally inappropriate "Democracy" and "Freebooting Unprincipled Capitalism" requires serious revision, if the world is to advance into a more enlightened and fairer future, for all mankind, on this tiny little planet. There are far bigger issues confronting the USA than "the War on Terrorism". However, these barely get a hearing.............yet!

Nigel H. Maund
BSc (Hons) Lond., MSc, DIC, MBA, MIMMM, F.Aus.IMM, SEG
Economic Geologist

Copyright © 2004-2007 Nigel H. Maund

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