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Wednesday, June 21, 2006

Back From Blog 'Vacation'

Hi all! I have been very busy with personal 'stuff' recently. I am going to make an effort to stay current from this point forward.

Since I last posted @ a month ago, the stock market has been in a sharp consolidation and highly erratic, while Gold tries to find a bottom above $550/oz. The dollar has been stable vs. major currencies as the Fed continues to raise short term interest rates.

I have been reading two fascinating books which have been recently published-- "Empire of Debt" and "War Against the Truth". I will do reviews in the next week or so.

Briefly, "Empire of Debt" compares the United States to the Roman Empire and predicts all kinds of catastrophes to come. Among these are the collapse of the Dollar and the Bond Market concomitant with a sharp pullback in housing prices. A few days ago I listened to Ben Stein on Fox News give his opinion that Treasury Securities will be 'Junk Bonds' by 2012-2013, as the Trade and Budget Deficits soar.

One thing I worry about as a Baby Boomer is that the Social Security Trust Fund is made up entirely of Treasury Bonds. The Federal Government spends the money contributed via the regressive payroll tax (paid mostly by middle-class and poor citizens) . So technically there is no 'Trust Fund', just pieces of paper (T-Bonds) backed by the 'full Faith and Credit of the U.S. Government'. Hmmm...
And of course Congress may simply slash benefits at some point or adopt some simple minded 'privitization' scheme.

"Empire of Debt" notes that ALL paper money eventually becomes worthless -- the U.S. Dollar has declined by 95% in the last 100 years. Once a Government breaks the link between their currency and Gold, as Nixon did in 1971, the temptation to spend -- (thereby printing more and more paper money) on 'Bread and Circuses', as well as 'Wars on the Periphery' common to Empires like Rome and the U.S. -- cannot be resisted.

At some point, foreign govts. will cease to continue to accumulate T-Bonds, and begin selling them. Already, some countries are considering or already demanding payment for their oil in Euros. The U.S. Empire is at the point the British Empire was just before World War I-- losing market share to newer and more competitive rivals (the U.S. and Germany at the time) like China and India.

How much debt is there? Last year the number was $8.3 TRILLION! But that number vastly understates the problem. Unfunded Liabilities to Social Security, Medicare and Medicaid raise the real number to $35-75 TRILLION... (depending on whose estimate you use).


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