The Rude Awakening
Wall Street, New York
Friday, May 12, 2006 ------------------------- - The great savings glut and the position nobody wants
to be in,
- "Anyone have Paul Volker's phone number?"
- The great money migration and the phenomenal market
data so far this week...
------------------------- [Joel's Note: From time to time, a journalist must present a column that
may not be easily stomached by its reader. This is not
because he seeks to incite disillusionment or trepidation,
but merely to make the reader aware of a particular
situation…however bleak it may seem. Aftere all, there can
be no solution until the problem is first reported and
acknowledged. Today's column is an example of such an
instance. Read on as Eric reports on the rather harrowing
savings glut inherited by the current Federal Reserve and
the undesirable position Mr. Bernanke now finds himself in.
Please send along your own thoughts to your hopeful editor
here at aussiejoel@the-rude-awakening.com --- Special Investment Alert --- THE GREATEST MONEY MIGRATION IN 63 YEARS
IS ABOUT TO MAKE A FEW INVESTORS VERY RICH An historic event is taking place in the financial markets
right now. As of last month alone, $7.9 Billion "migrated"
to one investment class. This is bigger than the "Great
American Industrial" run up, the tech boom and the Internet
combined... Click below for a free report which explains just how and
why this may be the biggest money-making opportunity you'll
see in your lifetime. http://www.isecureonline.com/Reports/MMT/EMMTG501/
-------------------------
"A Really High Gold Price"
By Eric J. Fry On Tuesday, the Ben Bernanke hiked short-term interest
rates to 5% - the 16th straight quarter-point increase –
and promised to continue hiking rates "if the data
warrant." Over the ensuing three days, global stock markets
have stumbled, the dollar has dropped 2% and the gold price
has skyrocketed more than $50. These financial data are probably not the sort of "data"
that Bernanke had in mind, but they are exactly the sort
that might warrant a 17th or 18th or 25th rate hike...as a
desperate effort to defend the U.S. dollar. "Anybody have Paul Volcker's phone number?" joked futures
trader Richard Morrow yesterday. "We need help sooner
rather than later. The Fed needs to step up and defend the
dollar. So far, that's a no-go as it would bust asset
prices. The Fed is in a really tough position...The wild
spending orgy from the Republicans in D.C. is finally
beginning to hurt." Republicans, alone, are not to blame for the U.S. dollar's
precarious footing. American's of all political, or
apolitical, persuasions have mastered the art of spending
money that belongs to someone else. Our world-beating
consumerism has plunged our personal savings rate into the
red while elevating our current account deficit to an
astounding 7% of GDP. Against these imposing macroeconomic
forces, Bernanke's little interest rate would seem to stand
very little chance of defending the dollar. "Bernanke is not inheriting the best of situations," former
Fed Chairmen, Paul Volcker, recently remarked. "How would
you like to be responsible for an economy that's dependent
upon $700 billion of foreign money every year? I don't know
what I would do about it, but he's going to have to do
something about it sooner or later." Mr. Volcker, of course, knows something about rugged
economic situations. When he assumed the chairmanship of
the Federal Reserve in 1979, he inherited the inflationary,
"Carter-era" economy that produced 14% inflation rates and
$800 gold. The dollar's esteem plunged to such depths
during that time-frame that the U.S. Treasury temporarily
issued "Carter bonds," denominated in foreign currencies.
Volcker responded to this crisis by rapidly hiking short-
term interest rates to 20%. Predictably, the U.S. economy
lurched into a deep recession. But within two years time,
the inflation rate tumbled and the dollar strengthened. Not
coincidentally, the stock and bond markets also stabilized
and began what would become two-decade-long bull markets. Bravo for Volcker! But will history repeat itself?...
Probably not, but it is rhyming already. At $730 an ounce,
the gold price has reached its highest level since the
beginning of the Volcker era. But beyond this superficial
connection, the two eras possess very few obvious
similarities, "obvious" being the operative word. Based on
the prevailing economic, Volcker faced a far more dire
situation than Bernanke faces. But we fear that the reality
is exactly the opposite. "Ben Bernanke," writes Ambrose Evans-Pritchard for the
Telegraph of London," picks up a chalice brimming with the
nastiest of toxins: a current account deficit of 7% of GDP,
covered for now by fickle flows of capital from the Chinese
central bank and petro-dollar sheikhdoms; a negative flow
of global investments earnings for the first time in modern
memory; a dollar hanging by a political thread; and hair-
raising levels of debt." Volker's chalice, by comparison was brimming with milk and
honey. In 1979, America produced a current account surplus
and boasted a national savings rate of nearly 10%. Today,
both of these essential balance sheet line-items are in the
red. 
Meanwhile, we have amassed a few trillion dollars of
government debt since the Volcker era. Our crippled
national balance sheet, therefore, raises the risk of
serious economic crisis, should the dollar's slump become a
rout. And now that the dollar is slumping, while gold is soaring,
the unimaginable rout of the dollar is becoming a bit too
imaginable. "How much longer can the dollar's supremacy last?" Paul
Volker wondered aloud at the Grant's Interest Rate Observer
Conference last month. "And what's the endgame?" Implicit in Volcker's musing was the clear suggestion that
the dollar's days are numbered. "Does this go on forever?"
he asked rhetorically about the financing of American
consumption by foreign creditors. "What kind of pyramid can
you build?" "There seem to me to be a lot of unknowns that are facing
this de facto world currency called the U.S. dollar and its
increasing importance in the world," Volcker concluded.
"Does that increase in importance have some natural limit?
And if so, what is the endgame?" "In response to the question posed by Paul Volcker," James
Grant remarked, "not a few of the Grant's conference
attendees had an answer at the ready: 'A really high gold
price.'" [Joel's Note: We here at the Rude Awakening desire not for
the U.S. economy to face the perils it does. We have no
defeatist bent, but simply report the numbers as we see
them. Unfortunately, the outlook is somewhat bleak. Paul
Volker's close friend and advisor, Dr. Kurt Richebacher,
has been warning of such a situation for some time now.
Earlier this year, we dispatched Eric Fry to Cannes,
France, to find out exactly what the good Doctor had to say
about the economy and, perhaps more importantly, what he
recommended you can do about your own situation to avoid
falling victim to the coming crisis. In his report, Dr.
Richebacher outlines his three shocking predictions for
2006. He also offers you two safe and lucrative solutions
that you can implement to secure your wealth. For the full
report, simply follow this link: Dr. Richebacher's prognosis
http://www.isecureonline.com/Reports/RCH/ERCHG512 --- Special --- 3 Shocking Events...
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http://www.isecureonline.com/Reports/RCH/ERCHG512 ------------------------- 
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