
After spending the US into its deepest deficit position in history, US President George Bush is now talking about scraping another $150 billion out of this deepening hole to prevent loss of confidence in the economy. (By the way, the latest downturn has already shaved $2.5 trillion off of the market capitalization of the stock market, so how much difference is $150 billion going to make in any case? Such old-fashioned maxims as "good money after bad" come to mind.)
Wait a minute - isn't it economic health that is supposed to sustain confidence in the economy - not remedial measures?
And how exactly does more deficit spending by the most indebted government in world history promote economic health?
Something doesn't add up here, and I think it is our politicians' logic!
Among other possibly relevant facts, did not the Dow Jones Industrial Average just set an all-time record high in October 2007 at 14198.10? And now, three months later, desperate measures are needed to keep the boat floating? That argument just doesn't hold water!

But what really concerns me is the way our politicians and financial leaders are talking and behaving. President Bush stated, "The economy needs a shot in the arm."
What? This is an economy that has had an injection of $5 trillion in liquidity through increased (doubled) money supply over the past decade. Chris Laird estimates that over the past two years alone, corporate buyouts, corporate stock buybacks, the Yen carry trade and mortgage derivatives markets have added perhaps another $5 trillion in liquidity to the economy. And the answer now is... more of the same? I don't think so.
The US economy has had enough shots in the arm to induce a coma, and to qualify it for admission to a rehab centre!
No, the current situation is not about the requirement for another shot in the arm for the US economy....

Tonight's coverage of the topic on CBC radio featured a succession of authority figures offering reassurance that the sell-off in the markets is overdone, and that investors are overlooking long-term value by selling at this point.
Nothing worries me more than talk of that kind in a historical context such as our own.
In fact, I beg to differ with the reassuring experts. By my estimation, the US economy is in its deepest trouble in almost a century. By every measure I follow, the US economy has not been in such desperate straits since 1929 - though of course in 1929, almost everyone (besides say, Joseph Kennedy) thought things were going just fine, thank you very much.

Once again, I'm sorry, but people who talk and behave in such a manner as George Bush, Henry Paulsen and Ben Bernanke are simply not the kind of folks I feel inclined to trust, particularly in matters of money and finance (though I do trust Mr. Bernanke more than his predecessor, Mr. Greenspan, for what that fragile thread of difference is worth).
In short, we are presently enmeshed in the largest-scale multi-bubble debt-financed global economic predicament that has ever faced the world. (I'd be happy to admit to hyperbole here, except that I can find no shred of evidence to indicate that this manner of stating the facts is not simply the closest possible approximation to an objective description of the present truth.)

As this "multi-bubble" deflates, our asset-dependent economy will inevitably unwind. Citizens will avoid further losses by converting their behaviour from borrowing (to enable them to spend more than they earn on investable assets), to conserving (spending less than they earn), and therefore saving.... again.... just as it used to be in the "old days."
Further, this dramatic turnaround is likely to happen quickly. In fact, the tipping point may possibly be very near in time, and almost certainly, nearer in time than our reassuring government and financial authorities presently indicate.

What is my response to the present reassuring talk and behaviour of our leaders?
I have never as an investor been so joltingly reminded of what I suspect must have been the eerie political, economic and emotional climate of 1929 prior to the legendary October 24 & 29 crash as I was today, in listening to the evening radio news. The hackneyed and faintly-reassuring-at-best public messages of our leaders offered only backward-looking encouragements that struck me as entirely inappropriate to our present economic emergency.
Based on this kind of last-ditch "more of the same" soothing talk from these so-called experts, I cannot shake the notion that the Dow Jones Industrial Average can certainly fall another 1000 points next week, and possibly... most or all of it as soon as Monday, January 21, 2008....


Also see my later posts: "More Pre-Crash Talk and Behaviour," "Only Yesterday," and, "There's a Tsunami Coming in Gold."
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