the us has been checkmated -no escape!

THE US HAS BEEN CHECKMATED -NO ESCAPE!

1. For starters, the US needs to grow and prevent a depression. The faster the growth, the bigger the deficits. The Current Account deficit runs at about US$800 mill/ year at the moment and is growing. The $8+ trillions Govt debt is just the tip of the iceberg and the wars don't help:
Hodges: Foreign Trade & International Debt Report
http://mwhodges.home.att.net/reserves_a.htm#current

It won't be possible to decrease this debt by taxation and the stage has been reached where increasing monetizing is taking place. At the moment it runs at about 10%:
Marc Faber: Dec 8, 205: Money printing to continue:
http://www.quamnet.com/fcgi-bin/columnists.fpl?par2=5&par3=1&par4=08&par5=12&par6=2005

High debt and excessive monetary inflation is likely to lead to stagflation or hyperinflation. The omission of M3 money supply data by the FED will make progress more difficult to trace:
R Blumen: End game: Hyperinflation: http://www.financialsense.com/editorials/blumen/2005/0712.html

2. Any increase in the money supply, apart from that warranted, results in monetary inflation and finally in price inflation. To overcome the worst aspects, data is manipulated so as to reduce the real CPI, GDP, employment data and other:
J Williams: Shadow Govt Statistics. Williams thinks that a stated GDP of 3% is a real GDP of about zero percent. Writers think that an unemployment number of 4% is a real 8%:
http://www.gillespieresearch.com/cgi-bin/bgn


3. The US economy is lopsided and drastic surgery will result in a depression as the economy will become worse than ever previously encountered. Outsourcing and decreasing incomes must ultimately result in less consumption and more unemployment. Consumption is an abnormally high 71% of GDP. Cut back on consumption and less taxes will come in, apart from other less desirable outcomes: heavy recession or depression. Because Greenspan has deferred bad outcomes by immediately increasing the money supply to overcome sliding into a rececession, any future heavy recession or depression would be worse than normally expected.
Bernanke will be forced to continue this policy which could lead to increased price inflation. The state of the US economy, increasing deficits and excessive increase in the money supply will result in a lower dollar. Lenders to the US will finally want a higher interest rate which in turn will affect the productive sectors, the financial housing industry and consumption. High oil prices will speed up this outcome: a heavy recession or depression is coming closer.

4. Sofar the US and the world has "benefitted" from heavy lending to the US by foreigners currently about US$3 Bill/day and growing. This has resulted in abnormally low interest rates and high price inflation, eg housing. Both China and Japan are the biggest lenders (Japan, because of its low interest rate -about zero%) and have the urge to keep the value of their currencies down and hence better compete. Japan mentions that it will increase its interest rate and Europe is raising rates as well to overcome inflation. Japan did'nt increase its lending to the US last year and there are signs that countries are rearranging their currency reserves by weighting less with dollars. The combined effects are leading to a lower USD and in time to higher interest rates/increasing monetizing.


5. SUMMARY
The US economy will need to be urgently restructured and some writers think this can be done by gradual moves. Unfortunately, exports of goods is only about 8% while in Germany it is about 30%. Outsourcing will result in less exports. The mismatch of saving habits: China 42%, the US minus 0.8% means that the US will increase Chinese imports, resulting in a higher and growing Trade Deficit. The excessive debt loads and the dependence on foreign capital diminishes the ability to negotiate, although increasing trade protection is being aimed at. Should the US not adhere to the WTO's agreements, then reprisals could follow and the advent of a depression could be speeded up.

So, if the US increases GDP, this results in increasing borrowing; should the US clamp down on exports from China by various means, trade- or currency wars and a cutback on consumption could occur resulting in a heavy recession.

Should it keep increasing the interest rate then the economy will be squeezed; should it keep increasing the money supply by an excessive amount, then increased prices will result, necessitating higher interest rates. These will also be needed to keep attracting an increasing amount of foreign capital based on a lower dollar.
The economy has been wrongly restructured by Greenspan. Because of past very low interest rates, it has become a speculative economy in stead of a productive one. Consumption *became* the GDP!

No matter, which way the USD is being supported by other Central Banks, other currencies and Gold/Silver will become increasingly attractive to them. Unfortunately, M3 data which records their deposits with the FED won't be released and hence the cumulative damage of increasing the money supply and Central Banks either lessening their deposits with-/ lending to the US will be more difficult to trace.

Whatever, the future is less than rosy and the investor needs to protect him/herself. There have been/are plenty of warnings to indicate that the US and some other countries' economies are rapidly deteriorating.

Gerry
Readers, please do your own research and you decide if and when to buy, hold or sell any stocks or metals/commodities.