"There is a real sense of foreboding about the economy now that Katrina has struck with full force," said Bernard Baumohl,
executive director of Economic Outlook Group. "The Louisiana and Mississippi Gulf region represent the soft underbelly of
the U.S. energy industry."
So as you drink in this chart and its sobering implications, please realize that these
numbers are the most conservative possible estimate of inflation that your ever-benevolent government wants you to believe.
If broad M3 money growth was used to measure inflation as it ought to be rather than the controlled CPI, the results below
would be far, far worse. CPI inflation truly is the best-case scenario for investors.
THE nightmare scenario that haunts global strategist Clyde Prestowitz is an economic September
11 -- a worldwide financial panic triggered by a sudden massive sell-off of US dollars that would lead inexorably to the collapse
of economies around the world.
This is the first oil shock in the modern era of globalization. That means its impacts
are likely to be compounded by the cross-border linkages that shape the global trade cycle. In today’s US-centric world,
that spells unusual vulnerability. If higher oil prices take a toll on the over-extended American consumer, repercussions
in the rest of an externally-dependent world will be all the more acute. That puts Asia, the world’s most rapidly growing
region, right in the cross-hairs of the energy shock of 2005.
There is no way the United States can possibly pay off its creditors should they decide
to cash in their IOU's. Right now, the United States holds only $87 billion in reserves against its obligations. That would
last about three minutes should creditors begin to sell the dollar, rather than trying to support it.
East Asia, with some of the most dynamically growing economies in the world, has long
been considered a possible candidate for a regional monetary union. This Economic Letter addresses three questions that help
frame the issue. First, is it desirable for East Asia to adopt a common currency like the euro? Second, does Europe's experience
provide any lessons for East Asia about how to attain a common currency? Third, how does the economic integration path that
East Asia is now following differ from the path Europe followed?
If housing speculators stop buying, who's left to buy? The average American with a job
has already bought. America has been creating new homes faster than new jobs, and it has been the home speculator, and second
home investor, holding up the market for at least the past year. (The latest reports show that the time it takes to sell a
home has increased, and price rises have been trailing off.)
A new report from the International Monetary Fund says that Iraq’s economic growth is
stalling because of the deteriorating security situation. Political progress, too, seems to have slowed, with the government
struggling to produce a new constitution. Without substantial improvement in one of these areas, the future of Iraq looks
grim.
The economy is facing renewed upward momentum on prices led by soaring oil. Inflation
fears are continuing to oscillate between overshooting and undershooting what might better be seen as a sustained cyclical
uptrend in inflation to levels that will probably prove higher in this cycle than in the last cycle.
A new forecast from the Congressional Budget Office shows America’s budget deficit once
again coming in lower than expected. Republicans, unsurprisingly, are rushing to claim credit for sound economic management.
But the long-term outlook is still soaked in red ink.
Euroclear wants to create a single, low-cost European securities market, but it also wants
to expand the role of its bank. That leaves market participants feeling uneasy about where Euroclear fits into the brave new
world of clearing and settlement. Some are concerned that time is running out to settle the debate.
Oil prices hit yet another record this week, on fears of political instability in the
Middle East and refining problems in America. So far, the world economy has managed to chug along without much ill effect.
But how long can consumers go on paying ever more at the pump without cutting back elsewhere? And why aren’t high prices bringing
new supplies to market?
Look for Washington to lose its role as leader in the drive for open markets and to become
a player in a complex international system of markets that remain global but are hedged by restrictions and do not move in
the direction of neo-liberal models of "free trade."
Friday was a bad day for housing stocks and this could be a sign that the housing bubble
may have sprung its first leak. This is what the Philadelphia Housing Index looked this week – losing about 5% for the week.
Long the envy of its peers in continental Europe, Britain’s economy has hit a soft patch.
Consumers, no longer buoyed by rising house prices, have cut back their spending, and so far nothing has come forward to take
its place. The Bank of England has announced a rate cut in the hope of softening the landing, but will it be enough to keep
the economy on track?
"The 30-year Treasury, at least right now, isn't offering fund managers dramatically more
yield than the 10-year Treasury," says Scott Berry, bond fund analyst at Morningstar. "But they could be getting considerably
more volatility."
That said, it's unlikely then that many fund managers or even savvy individual investors
will be waiting in line at midnight for the Treasury to open the 30-year window. So will anyone be there?
American practices of debt abuse are fully out of the ordinary, unique to our debt culture,
yet fully embraced as normal on this side of the Atlantic. Zero percent financed deals are not available in most of Europe.
Why should they be available? Our bizarre lending practices are accepted as normal, when we have strayed light years from
normalcy. Complementary to debt abuse is bond speculation abuse, another common American practice. It too requires heavy borrowing,
but for financial asset purchase. However, the United States does not own any monopoly on carry trade, yield trade, or bond
arbitrage. London and Tokyo are large participants in carry trade. The US Economy vitally depends upon all kinds of credit
for both commerce and investment. We are twenty years deep into this unnatural evolution.
With the stocks of the country’s largest credit engines – Citigroup, JPMorgan Chase, and Fannie Mae
– shutting down and nearing 2-year lows, this credit rocket is sputtering on fumes. Mr. Greenspan, we have a problem.
Jim Sinclair opined that it signals a top in the dollar with its recent highs becoming an impenetrable
resistance level and that gold will trade to $480 then $518 to $529. The dollar will in time drop back to the $0.805 level
and thereafter much lower.
If you ask me to name the proudest distinction
of Americans, I would choose- because it contains all the others . . . the fact that they were the people who created
the phrase "to make money." No other language or nation had ever used these words before; men had always thought of
wealth as a static quantity . . . to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were
the first to understand that wealth has to be created.
