Bush Attendance at Emergency cabinet Meeting an Ominous Sign
Well, at long last, it now appears that the sense of urgency that I have tried to convey to our readers (and on Larry Kudlow’s excellent TV show CNBC) over our economy has finally dawned upon the White House.
Until only last week, our president and Treasury Secretary Henry Paulson were telling us how strong and healthy our economy was today.
Apparently, they felt our economy was so strong that we could well afford yet more money to be frittered away on a futile war and on infrastructure enhancement in Iraq.
Today in The Wall Street Journal there appears the following front-page headline: “Rising Cost of Iraq War May Reignite Public Debate.” To my mind, that is a masterly understatement, especially when pouring a planned total of $1 trillion into this rat hole, combined with planned cuts in Medicare — and that is only the declared, “on balance sheet” figure.
Last week, I penned an item entitled “The Great Debt Deflator Coming.” In it, I warned that, “Just as in a growth period, debt acts as an ‘inflator,’ so in a recessionary period, debt acts as a ‘deflator’.”
I also said that I expect the debt proportion of today’s inflated asset prices to be “wrung out” and that we should expect the value of most assets to fall dramatically to near their equity values.
That means that I see serious falls in asset values looming ahead. I feel our readers should be forewarned and not be tempted into buying assets that the Wall Street cheerleaders claim are cheap!
Well, it appears that our government does not share my view and is borrowing like it is going out of style!
Worse still, the government is not borrowing to increase employment in relatively low tech, labor-intensive jobs such as in construction and in the repair of our depleted infrastructure but to make high-tech bombs and shells to blow up over Iraq, where we are in fact investing heavily in infrastructure! It is enough to make a grown man cry.
The message of the gross domestic product figures for the last quarter of 2007 are that it is looking like the recession, which I forecast over a year ago, is now increasingly likely given that our economic growth is declining rapidly.
Today, too, The Financial Times front page include an article entitled “Loan Market in ‘Disarray’ After Harrah’s Upset.”
The article goes on to explain how banks are already saddled with more than $150 billion of unsyndicated debt, most of it LBO-related. (Harrah’s is a casino corporation seeking financing.) According to the head of debt capital markets at one major Wall Street firm, “The market is in total disarray.”
Said another senior banker: “The last 10 days have been the worst ever. There is a complete buyers’ strike.”
As I write, CNBC is highlighting a story of how borrowing is becoming increasingly difficult in many sectors.
And yet, as if totally divorced from the reality of Main Street, our government has just announced a massive $3 trillion budget with massive increases in allocations for the ill-advised war in Iraq.
It is well known by economists that, in times of recession, the one great shortage is that of cash. Loans are increasingly difficult to obtain.
Individuals should prepare themselves by shedding all debt and non-vital expenditures, particularly those financed by debt.
However, the fact that our president had to cancel a planned luncheon talk at such short notice would appear to indicate that things economic are not going according to plan at the top!
In short, there appears to be a growing realization of emergency in Washington. Not a moment too soon.
This should flash emergency signals in the minds of our readers to take appropriate actions — actions such as increased asset allocation to cash; short-term Treasuries; ETFs that short the stock markets; and gold, which we have urged for many months.
Take heed of small signs of a crack before it becomes obvious to everyone, followed by a deluge. Good luck!