*** Stocks up triple digits... bad habits resume...
*** But so does the 'jobless recovery'... and the trade deficit... and the federal deficit... and the war in Iraq... and the falling dollar...
*** Consumer prices falling - if you live in a cave...
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The Lumps rubbed their eyes and shook off their sudden attack of prudence. Yesterday, it was back to bad habits.
All around them, the noise and distractions were as appealing as ever.
Saddam was behind bars.
November housing numbers were strong.
Industrial production registered its biggest gain in 4 years.
So what's the problem, the Lumps asked themselves?
"People who are looking at day-to-day events are really missing the forest for the trees," explained an economist interviewed by TheStreet.com.
"The fact is," writes Alan Abelson in Barron's, "this is still very much a jobless recovery."
While admiring a pretty sapling in the day's news, they have failed to notice the thicket growing up around them - becoming darker, wilder, and more dangerous every day. It now takes $45 billion per month of foreign capital to make ends meet in the U.S., while foreigners become less and less willing to fly over and drop supplies of new money... which is why the dollar is falling.
Yesterday, the dollar fell again - to a new record low against the euro.
Americans, who keep score in dollars, think their economy is growing... their stocks are becoming more valuable... their wealth is increasing.
But it is all a colossal fraud and a scam. The economy is 'growing' only insofar as Americans are ruining themselves at a faster rate - buying things they don't need with money they don't have while counting on the kindness of strangers to make up the difference. And in terms of euros or real money - gold - neither the stock market nor the economy nor even real estate is going up. Since the beginning of the year, the value of U.S. assets in global terms has remained unchanged... while Americans have gone deeper into debt.
The underbrush is becoming impassable, inescapable. As the dollar falls, foreigners become even more reluctant to finance Americans' spending spree - which puts even more pressure on the dollar itself.
Without financing from overseas... Americans will be unable to borrow... and unable to spend. In any direction we turn, the vines of debt and thorny limbs of recession will block the way.
Addison is traveling today, so we've taken the liberty of glancing at the financial news ourselves.
*** What's this? House prices have fallen 25% in Alameda County, CA. Hmmm...
*** And what's this? Consumer prices are still falling... at least for consumers who live in unheated caves and get their food from hunting and fishing. Last month, energy was rising at a 6% rate. Medical care rose at a 3.5% rate. And the number for food and drink was 3.1%.
*** And this? The Xinhua Financial Network - a partially state-owned news agency - has purchased a Wall Street news organization. They'll now be broadcasting stories of the Asian miracle direct from Wall Street themselves. Pao Mo! Pao Mo!
*** Daily Reckoning reader Michael Boyd just returned from a three week trip to China. Mr. Boyd sends this note:
"What most people probably don't know is that China's current boom is unsustainable because it is based on a massive expansion of credit (i.e. it's financed by debt). This should sound familiar because the same situation has existed in the U.S., only on a much larger scale. The latest figures show that China's M2 money supply grew by 21.6% over the past 12 months. At some point over the next year or so China's government will be forced to take serious steps to curtail the credit expansion. When this happens there will probably be a very sharp downturn in growth.
"In fact, excessive credit creation has already attracted the attention of policymakers in China, who have announced their intention to sharply restrain credit growth. Thus, China's growth will probably slow down considerably beginning next year, as a result of the government reigning in excessive credit growth. In addition to the slowing domestic demand, China's growth will further weaken because Chinese exporters are currently shipping next year's exports ahead of the removal of export tax breaks which will take effect early next year."
We've posted additional observations Michael made while travelling to 23 different cities in China on the Daily Reckoning website. If you're interested in learning what's really going on in the country, by all means, go to:
Reflections On The Pao Mo Bubble http://www.dailyreckoning.com/body_headline.cfm?id=3634
*** Everybody knows that education is the key to success in life. And everyone knows that good medical care is the key to health. Which makes us suspicious...
A letter in Barron's from Dr. Thomas G. Pretlow:
"How many people know that [in the U.S.] our life expectancies are the shortest among the 10 largest industrialized democracies (they were among the longest in the 1950s), that we have the highest mortality rates in the first year of life, that we have the highest maternal mortality rates, that we pay more than twice the average cost per capita for health care?"
*** "Economists are almost unanimous," we read recently, "in believing the dollar will continue to fall."
This makes us suspicious, too. Economists are almost always wrong about important market trends. And yet, the continued decline of the dollar seems inevitable to us, too. How could the dollar decline and still make the economists look like fools?
While economists are nearly unanimous in believing the dollar will fall... they are also nearly unanimous in believing that it will not fall too much nor too fast. Instead, they expect a 'soft landing' for the U.S. currency... much like the soft-landing of the late '80s.
What if the dollar crashed? What if it went down far more than they expected? What if the whole Dollar Standard system collapsed?
