A discussion on the economy .....we are not being told the truth

[cthrumatrix]

Week with Richebächer in Cannes
by Jim Willie CB
September 12, 2003

snip

In my recent article series, I had referred to Herr Richebächer as a “savvy former German banker, longstanding banking critic, and consistent maverick.” I was flattered when he confirmed the legitimacy of my thought process and analysis. Now that little voice speaks in hushed tones.

snip

KR: “Instead of a second-half recovery, the US Economy will stall, then decline, then accelerate downwards. With Iraq fading as economic news, no more excuses for poor US recovery now.”

Kurt believes that rising interest rates and choking levels of debt will gradually erode the foundation pillars keeping the US Economy alive. Refinance operations has gone into decline, which tips the balance for imminent real estate property price declines. He had no firm opinion on any rapid reversal of interest rates, but did acknowledge the significant degree of derivative gearing on rates. I pointed out the GSE agency unwinding of hedge activities, and discussed their convexity problem which is exacerbated by reduction in cash flows from refinance payoffs. This forces closing out and sales of TBond futures contracts. He believes any rise in interest rates will be gradual at this point. Nonetheless, the effect will be corrosive, as it continues to kick out the pillars holding the economy up.

Then came his dire forecast… “within 12 months, the US Economy will simply collapse, along with the US Dollar.” For half an hour we discussed this threat. I wondered aloud how increasing desperation by the financial leaders would contain the decline for a time. He agreed. I was clear that I expected truly unprecedented and extraordinary policy changes in response to deterioration in the face of still greater money supply expansion. We covered how it took $5 of new money and credit back in 2001 in order to generate $1 in new GDP activity. Now that figure is $6.5 to one. Some measure it to be $8, with an alternate definition. I stated my belief that the figure would rise to $10 as desperation set in, confusion reigned, and banker authority was called into question on a widely disputed basis. His reply was as ominous and it was brief… “probably yes.” When I asked if the 12 months could be stretched to 18 instead, he agreed and said something about how to expect extreme responses that will simply fail to produce any remedy or positive results. He anticipates the euro will gain over 20% in the next year versus the USDollar. When the FOREX dust clears, he expects the USDollar to have lost at least half its value.

This brief conversation brought a chill to me. I have come to envision the US Economy not as a supertanker, but rather as a fully loaded B52 flying fortress which is suffering engine failure even as it takes on additional cargo. In the late 1990s we often spoke about the danger of a typical recession turning into a depression. If a stall occurs, the B52 will fall like a stone. Kurt calls ours a “bicycle economy,” one which falls when it stalls.


http://www.financialsense.com/fsu/editorials/willie/0912.htm

This doesn't sound like what Mr. Snow wants us to believe. Hmmmmmm...but then again the other Treasurer was fired for disagreeing with "shrub".

[cthrumatrix]

1. look at consumer sales yesterday....I thought tax cuts were suppose

to stimulate....I guess we believe anything * says.

How many jobs were created becuase of the tax cuts..?

[aneerkoinos]

2. What is really amazing

is that US economy has not already stalled and plunged. The might of unfounded optimism is truly amazing.

[soupkitchen]

3. The truth, the truth, we can't afford the truth.

[PROGRESSIVE1]

4. Also the deficit....

will be a drag down on the economy!!! Interest rates will have to rise signifigantly in order to pay for the mounting debt and that will pull a TON of money out of the economy!!!