Sun Aug 31, 2003
Running on Empty
Author: Jim Sinclair"Running on, running on empty
Running on, running blind
Running on, running into the sun
But I'm running behind"
J Jackson Browne
Just like the average American household with little left in its checking account at month's end, Federal Government spending today is running at full speed but only on fumes.
To be totally objective, if it was not for the Iraq and Afghanistan wars, US economic growth would be pitiful, unemployment would be setting records and the world would be sinking into a 1930's-type depression. This is a comment based on consensus and not strictly my own judgment. It is a simple statement of fact.I make it only for the purpose of structuring the following commentary for your consideration because you will not hear it expressed like this from others.
It was reported in the August 30th edition of the Economist that the US Current Account Deficit is headed in all probability to an historic 7% of GDP in 2004. It is now totally apparent why the St. Louis Fed has caught the Spin Doctor disease and published an article saying that we shouldn't pay attention to the Current Account Deficit.
America's deficit is now financed mainly by foreign governments not by investors. The major purchasing influences that are now financing the US are the Asian/Islamic governments who remain the largest consumers of US Federal debt instruments. Yes, Japan holds the record as the largest single owner with 14% of the US Federal Debt.
But Asian/Islamic interests have recently become huge buyers too. That being the case, the supply of funds to finance this budget deficit could be shifted by the changing seas of politics.
There is a new and extremely disturbing change occurring right under our noses. The financial condition of Americans themselves has now shifted to a point of equilibrium whereby national savings are turning net negative.
So with the US Current Account Deficit growing in an uncontrolled manner, one could easily conclude that this country is now relying on Asian/Islamic governments rather than foreign investors or their fellow Americans to finance US consumer purchases and the US budget deficit.
This is a position of weakness never before experienced in American history since the industrial revolution. Add to these unique factors, the proposition that any drop in the value of homes will put the US consumer under water with respect to their home equity financings and presto: "Houston, we have a problem!"
In plain English, the US has become a beggar nation and the Asian/Islamic governments our only hope for an economic revival. Do you see anything wrong with that picture?
I have told you before that the opposition generals are market savvy and that the dollar is the primary target of the opposition. Any Administration convinced of its superiority is simply not up to fighting a financial war because of US indebtedness.
This time we approach the opposition with armaments in one hand and a beggar's bowl in the other with a sign attached pleading for them to "Please Buy US Government Bonds." The US is seeking alms from governments that are directly or indirectly associated with the Axis of Evil and al Qaeda.
To add fuel to this fire, last week the US Treasury withdrew the final monies from the US$7.7 billion dollars it had confiscated in Iraqi funds. The financial war chest is empty and the hoped for Iraqi oil revenues are not flowing as expected due to the vulnerability of their pipelines.
There is no question that the Administration will have to come to the legislature for more funds quite soon. In a practical sense, the Administration owns the legislature, suggesting its financial needs will be met. Those funds will be supplied by the only entity that can write unlimited bad checks and not go to prison - the Federal Reserve System.
Electricity in Iraq is practically nonexistent outside of Baghdad where it is sporadic at best. Water is lacking and the cost of getting these critical services started is reliably estimated above $20 billion.
The opposition is systematically attacking these infrastructure bases. The only way to protect the oil pipeline is to stand a man every meter along the pipeline and the US simply hasn't the manpower. The same is true to protect the power lines. As soon as we put back a tower, another blows up.
Yes, the dollar and equity market recoveries are now based on the positive economic statistics of the US versus the euro area. So the US dollar and equity market rallies are based on the expenditures for the war in Iraq. In fact, 1.9% of the 3.5% GDP expansion so far this quarter comes from military expenditures.
Because we are involved in troop deployments around the globe, the US has simply run out of manpower. And just imagine what these deployments are doing to American families and the companies that employ these absentee soldiers.
With all this happening, the nation's cash fuel tank is running on empty and the election is 15 months away. An approaching election has always been the driver of an incumbent Administration's economic decisions. This Administration will seek to provide more tax relief and more prescription care while maintaining a war footing to prevent the economy from unseating the incumbent as it has done in the past.
Something has to give and that something is the US dollar. Have you noticed that gold has become dollar sensitive again this week which might be the forerunner of a return to .9238 or lower! The reason that I sponsored the technical contest based on the longest possible look at the USDX is because the entire thing could be a Top Formation. A breakdown of this 30 plus year top carries an unthinkable message for the future of America.
Just a breakdown of Enron's share price through clear Top Formations was the beginning of the revelation that there never was an energy market in the first place. This invented market was taken to a false level to attract huge financings.
Someday this scheme will be defined as the largest money laundering event in history. And who knows, some of those funds may have gone into hidden international bank accounts that may be financing this nation's enemies.
Refer to my article on Larceny 101 where I instruct how I could create Widgets Inc. The Widget Bull market then taps Wall Street. During and after the many Wall Street financings, the transfer begins via thousands of international straw partnerships made up of rented names using derivatives on widgets of all the funds raised.
The final act is that I would burn down the money laundering restaurant which is in the corporate form - a bankruptcy. Of course the records of the transaction would have to be burned by my purchased company's loyal accountants for a fee. That is the story, IMO, of Enron.
The US has a common stock called the dollar. It looks like a 30 plus year Top Formation. I pray it does not break down but only the dollar market will tell. All of you entering the contest now know the real reason for this exercise. Now you are focused on the singularly most important chart that has ever existed - not simply in our lifetime but in the history of the USA.
The neckline in the dollar is more than the neckline of a lifetime. Manipulation can not stop whatever the dollar market wants to do because the entire top is based on deceit that might have a payback day in the not too distant future.
When and if the more than 30 year top in the USDX breaks down, what story will be revealed? To those who were being nursed by their mothers the last time we came close (30 years ago), who will say the US dollar will never break down this clear long term top?
I say "never say never" and also that you had better own some gold!
