 When Greenspan
Talks - Fewer People Listen
Bill Ridley
July 29, 2004
Since Greenspan's
recent announcement to the world on how wonderful our economy
is growing - the dollar has taken another dive and oddly enough,
so has gold.
Greenspan,
being the master of double-speak that he is, has seemingly divided
the market. There are those that actually believe in his fairy
tale economic recovery story and a growing number who don't seem
to be buying the story any longer despite what the talking heads
in the main stream media keep pumping us with.
Now we have
seen NASDAQ hit a ten month low slipping to 1,839 despite consumer
confidence improving for the fourth month in a row. Another contradiction.
However despite
all the economic statistics and bullish talk from Greenspan which
may have given the dollar a boost for a day or two, there is
one cold hard fact that always gets everyone's attention and
that concerns the spiraling debt situation. This is the primary
reason gold has taken such a strong run over the past three years
and decimated the dollar's value against other major currencies.
Greenspan's
historic low interest rate policy along with the flooding of
$2 trillion worth of paper dollars annually to the money supply
has certainly helped the housing market and retail sales of Asian
made goods - but our debt situation is down right scary.
The current
U.S. public debt is now about $7.294 trillion [editor's note - it hit $7.3 trillion
Tues] and
continues to increase by about $1.69 billion per day. At that
rate, it's asking too much for our dollar to hold its ground
against gold or other major currencies.
But maybe that's
the plan.
Does Greenspan
want to have the United States become Europe's
new home office of choice for cheap labor and manufacturing -
just like U.S. corporations view India and China?
If that's his
plan, maybe he'll succeed.
This month
the Treasury Department said that international investors purchased
a net $56.4 billion of U.S. Treasuries, stocks and other securities
in May, down from $76 billion in April and the lowest purchase
since October.
Net purchases
slowed for the fourth consecutive month, reflecting weaker demand
for Treasury securities and stocks the department reported. Foreigners
now own $1.75 trillion of the $3.76 trillion of marketable Treasury
debt.
The government
report reiterates what I have been saying for months about how
foreign buyers of our debt are turning away from the dollar as
the value of the greenback continues to fall against gold and
other currencies.
Attracting
enough capital to finance the gap in the current account - the
broadest measure of trade and investment- is becoming a growing
problem - literally! The gap has widened to a record $145 billion
over the first quarter.
As demand for
U.S. debt falls off, an increase in interest rates must go up
to attract investors. This is particularly true in light of the
fact that the debt burden just keeps getting bigger and bigger.
Greater interest rate returns will mean larger payments will
be due which means a larger re-financing of U.S. debt securities
down the road.
This a terrible
fix that Greenspan has created along with fiscal irresponsibility
of several presidents from both parties.
So while the
investment community figures out what to do, we will sit back
with our core stock positions and ride up the inevitable demand
for gold and other select commodities.
July 29, 2004
Bill Ridley
Contact
Website: Online Investors
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