China - The Economic Model in Action

More and more, our perceptions of China are changing. Predictions of China emerging as a new world power, capable of replacing America's dominance, are not so unrealistic. They have conducted a series of policy moves in recent months, that have demonstrated to the rest of the world, that they are not going to repeat the mistakes of Japan or follow a dangerous course set by other countries like the United States. The U.S. could learn a thing or two from China and if they don't implement measures to correct serious global imbalances, they will long for the days when fiscal responsibility ruled the day.

China rate hike first in a series of measures to cool economy

Fri Apr 28, 3:37 AM ET

BEIJING (AFP) - China decision to raise interest rates for the first time in 18 months is only the first in a series of measures aimed at preventing the booming economy from overheating, analysts said.

The People's Bank of China announced Thursday the one-year benchmark lending rate would rise by 27 basis points to 5.85 percent in an effort to put a brake on credit and control the "excessively fast" release of bank loans.

"We must carefully handle the scale of credit ... strengthen capital controls and establish the principles of sustainable, stable and healthy management," central bank vice governor Wu Xiaoling said in a statement.

"We must improve financial services, effectively adjust the credit structure and strictly control excessive credit in the investment sector."

Analysts said the hike would have only a limited impact on controlling fixed asset investments, which expanded by 27.7 percent in the first quarter after rising by 25.7 percent for all of 2005, and the broader problem of overheating.

They said the government was no doubt preparing other measures in the coming months to address the issues after the economy expanded by a faster-than-expected 10.2 percent in the first quarter of the year.

"There will be a set of macro-economic measures to adjust the economy," Ning Xiangdong, an economist at the China Center for Economic Research at Tsinghua University, told AFP.

He said these would include structural adjustments as well as using credit and interest rate tools.

"The problems with China's economy are all structural in nature so structural adjustments will be made in key sectors that are overheating like steel, metals, building materials and high-end real estate projects."

In one example, China's chief economic planning body, the National Developmental Reform Commission, had already announced plans on Tuesday to target over-investment in the real estate sector.

"New projects must conform with state industrial policies and market standards, and we must prevent excessive investment in some industries and regions," the commission said in a policy paper.

Julian Jessop, chief economist for London-based Capital Economics, said the rate hike would on its own not have a major impact on cooling the economy but, as a part of expected broader economic reforms, was important.

"This step is not a big surprise. Some form of monetary tightening was widely expected after the strong first quarter data, which showed no sign that the investment boom is abating," Jessop said in a research note.

"We also think it will be the only change in this rate for a while but as part of a wider package of measures, it should help to deliver the 'soft landing' that we expect over the next few years."

Chen Xuebing, vice director at the Institute of Financial Studies at Fudan University, said another rate hike could not be ruled out.

"The move was mainly to tell people that more measures are coming but since the rate hike was so small, it won't have a big effect. If they don't have a good result from the rate hike, they will raise rates again," Chen said.

The rate hike was similarly expected to have little impact on the yuan, which is maintained in a tight band by the government and which the United States and other Western nations want to see appreciate much more strongly.

"We do not think this will have any impact on the dollar/yuan exchange rate," said Stephen Green, analyst with Standard Chartered, adding the move "will not encourage more (fund) inflows."

Hit and Run!

Hit and Run is a term that sums it up nicely. In regional housing bubbles, prices run up fast but the dropoff can be equally dramatic when speculators run for the exits.

Investors hit and run on housing
Catherine Reagor - Arizona Republic
04/25/2006 02:07:34

Investors didn't just ravage metropolitan Phoenix's housing market last year. Almost 28 percent of all home sales nationally were investor driven in 2005, according to a new report.

In Phoenix the figures is probably closer to 35 percent.

The National Association of Realtors reports 27.7 percent of all homes sold last year went to investors, and another 12 percent were sold to people buying vacation homes.

The demand for both investment and vacation homes obviously drove the housing market to its record levels last year. Those sales made up 40 percent of all deals.

If the housing market fell by half that much this year, it would be devastating to Phoenix's economy. For the first quarter of this year, used home sales were off 34 percent from 2005's first quarter.

It's Baaaaaaack!

The Iranian Oil Bourse, presumed to be extinct, or at least delayed for a year, is set to start trading next week, according to this report:

Iranian Oil Minister Kazem Vaziri Hamaneh said on Wednesday that the establishment of Oil Stock Exchange is in its final stage and the bourse will be launched in Iran in the next week.
...
He rejected a statement attributed to him saying that Oil Stock Exchange will bring to the ground the US economy and said, "I don't know who has speculated that I've not talked about US economy."
...
Asked about the oil price rise, Vaziri-Hamaneh said that oil price is being influenced by political situation, whereas it should be freed from political impacts and economic and technical fundamentals should determine the oil prices.

Just when it looked like everyone was going to get along with each other and stick with the oil-for-dollars routine that has served everyone so well for so many years - they're just beggin' to be bombed now.

Tick, Tick, Tick, Boom!

The National Debt Clock

Discussing the U.S. National Debt is a fruitless exercise because the numbers cannot be appreciated unless viewed from a historical perspective. Remember, eventually debts need to be repaid by someone. If not this generation, perhaps the next one will carry the burden of the debt created by our excesses. Who cares if our children have a lower standard of living due to our limitless, gluttoness consumption? They'll understand I'm sure.

The Debt To the Penny

Current Amount

04/21/2006 $8,349,970,836,065.88


Current
Month

04/20/2006 $8,349,277,698,254.18
04/19/2006 $8,371,833,369,714.06
04/18/2006 $8,373,602,616,352.62
04/17/2006 $8,366,862,634,494.69
04/14/2006 $8,407,057,651,820.76
04/13/2006 $8,406,142,649,741.06
04/12/2006 $8,402,876,241,412.25
04/11/2006 $8,406,559,401,664.39
04/10/2006 $8,402,073,299,705.08
04/07/2006 $8,398,801,893,932.15
04/06/2006 $8,393,742,553,848.46
04/05/2006 $8,388,876,683,304.95
04/04/2006 $8,388,195,236,701.49
04/03/2006 $8,377,471,102,607.82


Prior
Months

03/31/2006 $8,371,156,293,376.33
02/28/2006 $8,269,885,515,386.04
01/31/2006 $8,196,070,437,599.52
12/30/2005 $8,170,424,541,313.62
11/30/2005 $8,092,322,205,720.65
10/31/2005 $8,027,123,404,214.36


Prior Fiscal
Years

09/30/2005 $7,932,709,661,723.50
09/30/2004 $7,379,052,696,330.32
09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/28/2001 $5,807,463,412,200.06
09/29/2000 $5,674,178,209,886.86
09/30/1999 $5,656,270,901,615.43
09/30/1998 $5,526,193,008,897.62
09/30/1997 $5,413,146,011,397.34
09/30/1996 $5,224,810,939,135.73
09/29/1995 $4,973,982,900,709.39
09/30/1994 $4,692,749,910,013.32
09/30/1993 $4,411,488,883,139.38
09/30/1992 $4,064,620,655,521.66
09/30/1991 $3,665,303,351,697.03
09/28/1990 $3,233,313,451,777.25
09/29/1989 $2,857,430,960,187.32
09/30/1988 $2,602,337,712,041.16
09/30/1987 $2,350,276,890,953.00


SOURCE: BUREAU OF THE PUBLIC DEBT

Scary Imbalances!

Leave it to the French to point out the obvious. First they said that they wouldn't back the Iraq war. Now they are openly criticizing the U.S. for their massive and unsustainable trade deficit with Asian countries. Might we see the return of "Freedom Fries" again in the U.S.?

NEW YORK, April 24 (Reuters) - France's Finance Minister Thierry Breton on Monday said that the difference between the large U.S. trade deficit and Asian surpluses is becoming worrisome.

Breton, in New York for a conference on global imbalances, had just attended meetings of the Group of Seven rich nations and the International Monetary Fund in Washington, in which tackling the imbalances was a major theme.

"The difference in the gap we have between mainly Asia and the U.S. is starting to be scary for some of us," Breton said.

Government Distorting Inflation?

No! Say it isn't so! Actually, I've been saying this forever. It appears that the obvious distortions in inflation reporting have finally reached the mainstream media. Bloomberg has finally taken a stab at the issue and John Wasik does a reasonable job of superficially tackling the issue:

What U.S. Government Won't Reveal About Inflation: John Wasik

April 17 (Bloomberg) -- There's a great scene in the movie ``A Few Good Men'' in which a Navy lawyer is grilling a U.S. Marine officer played by Jack Nicholson.

``I want the truth,'' the lawyer insists. ``You can't handle the truth!'' Nicholson's character barks. I hear this dialogue in my head whenever there's a question on whether the government's Consumer Price Index, or CPI, is an honest gauge of living costs.

I'm convinced there's a much more insidious story that needs to be told as the bond and precious-metals markets gyrate daily over perceived inflation threats.

If the full impact of consumer-price increases were accounted for, investors would have a lot more to worry about, and you should prepare for a threat that's much greater than Labor Department reports indicate.

The government has a vested interest in keeping official inflation measures low. Everything from Social Security cost-of- living increases to marginal tax rates is adjusted annually to this all-important gauge.

The total cost of what we are paying for big-ticket items is much higher than what's reflected in the CPI.

Take housing costs, for example. The Bureau of Labor Statistics, or BLS, the U.S. Labor Department's agency that calculates the price index, estimates housing costs by figuring ``owners' equivalent rent,'' or a proxy of what homeowners would pay in average rent increases.

The CPI Lie

As the largest component of the CPI at 23 percent, housing represents a huge portion of the overall cost of living. Yet the Labor Department's indirect measure vastly underestimates actual housing costs since it doesn't reflect home-purchase prices, financing, maintenance or property taxes. Done any roofing, remodeling or painting lately? Have you noticed how much your property-tax bill has climbed to match higher home values?

How understated is the Labor Department's rent metric? Jim Floyd, senior analyst for Minneapolis-based Leuthold Group, an investment research firm, notes that ``since 1996, existing-home prices are up 81 percent, but the BLS owner-equivalent rent numbers are up only 30 percent over this entire period.''

``Housing is not factored into the CPI,'' says Chip Hanlon, president of Delta Global Advisors Inc., a Huntington Beach, California-based investment advisory firm. ``I've never seen a great answer as to what inflation really is.''

More Fibs

The government's housing-price figure is so low that Floyd estimates consumer inflation would be as much as 1.5 percentage points higher if actual housing costs were included in the CPI.

There's even more underaccounting on two other large household bills: medical care and college financing.

Last year, health-insurance premiums alone climbed 9 percent, according to the Kaiser Family Foundation, a research organization based in Menlo Park, California. The 2005 increase ``is still more than three times the growth in workers' earnings and 2 1/2 times the rate of inflation,'' the foundation states. U.S. consumer prices rose 3.4 percent in 2005.

Paying for college? You would have seen an almost 6 percent increase in four-year private-college costs just for the 2005- 2006 year or a 7 percent climb in a public-school bill, according to the College Board, a research and testing firm in New York.

Then there's the continued wildcard of rising energy prices. Crude oil is up about 12 percent this year. Reports this month that the U.S. is preparing an attack on Iran have helped push prices near $70 a barrel at a time when supplies are running short and world pumping capacity is peaking.

Inflation Hedges

``It's hard to argue that the average person has seen a 3 percent CPI,'' Floyd says. ``If you've had surgery, paid for college or bought a house recently, it's hard to buy even a 3.5 percent inflation rate.''

What the government is loath to admit is that you are constantly losing money in your portfolio due to inflation -- if you aren't hedged against it.

Traditional inflation bulwarks such as metals-mining stocks, bullion and rare coins offer some protection. The glaring problem is that most investors time their purchases badly and these high- risk vehicles rarely offer dividends.

Keep in mind that, even with its recent increase to $600 an ounce, gold -- the traditional inflation beater -- was in a bear market from 1981 to 2001. If you got Klondike fever in 1980 and held on to your auric investments -- as many people did when gold peaked at $847 an ounce -- you would have lost money for two decades, possibly missing an opportunity in common stocks.

Wilshire Index

Diversification clearly has its virtues. During the same period, a stake in the Dow Jones Wilshire 5000 Composite Index of more than 5,000 U.S.-listed stocks, including energy and mining shares, rose almost eightfold for a 10 percent annualized return, according to Bloomberg data.

Want to capture the overall market's gains without attempting to time it? Consider the well-diversified Vanguard Total Stock Market VIPERs (VTI), an exchange-traded fund that is a proxy for the Wilshire index.

The simplest way of hedging for general consumer-price increases is through inflation-protected securities. The U.S. Treasury packages these bonds in either Treasury Inflation Protected Securities, also known as TIPS, or in Inflation- Protected Savings Bonds, dubbed I-Bonds.

The U.S. Treasury and most brokers sell TIPS, which are Treasury bonds that pay a premium based on the consumer inflation rate. You can also buy TIPS through Treasury auctions. I-Bonds are based on the same idea, only you can buy them at any bank in denominations from $50 to $10,000. The bonds accrue interest, which is paid when you redeem them.

Dazzle of Metals

If you are prudently hedged against inflation, forget about bragging about it at a cocktail party. Index funds and inflation- protected bonds don't have the dazzle of precious metals and you are unlikely to impress your friends by telling them you bought an I-bond.

Then again, you won't be misled and financially crippled by the government's cost-of-living mythology. You can more than handle the truth by inflation-proofing your portfolio.

The U.S. Housing Bubble Has a Face

Great stories always emerge at the beginning of the end of a bubble. This is mortgage fraud at its finest. Homeless people buying multiple properties! Is this just the tip of the iceberg? I'm speechless!

St. Petersburg Times - St. Petersburg, Fla.
Author: JEFF TESTERMAN
Date: Apr 9, 2006

After struggling much of his adult life with unemployment, homelessness and drug addiction, Johnny Moon Sr. died last year on a dirty mattress on the floor of a small home near Tampa's College Hill district.

Moon, who looked far older than his 56 years, died of pneumonia brought on by malnutrition. He left behind a watch, a flashlight and a wallet containing a solitary dollar bill.

And more than a half-million dollars worth of real estate.

In the last months of his life, Moon left his signature scrawled on a variety of deeds and mortgages recorded at the Hillsborough County courthouse.

A high school dropout with no job history who got by on food stamps, Moon morphed into a real estate investor. Within a year, he bought five properties and signed for mortgages in excess of $614,000.

Moon appeared to be an astute picker of properties, finding value others did not see in Tampa's older neighborhoods. He paid well above market value yet managed to get loans to cover all, or nearly all, of the purchase price.

Three months before his death, Moon sold one home for $180,000 - $75,000 more than he paid 17 months earlier.

Those familiar with Moon's background have doubts about his abrupt transformation into real estate investor.

Linda Johnson, Moon's 59-year-old sister, a former packing plant worker who is disabled and lives in a mobile home in Tampa, thinks he was an unlikely candidate for easy credit.

"He never had nothing much, no bank accounts or nothing like that," she said.

Reading through Moon's probation record, Don Russell, division chief for the county probation department at the Salvation Army, concluded that Moon may have been used by someone else to front for real estate deals.

"If this guy walks into a bank with this background, they're not going to give him any kind of money," said Russell. "It looks like someone just used this man's name to get mortgage loans."

Evidence mounting since Moon's death suggests he may have been the latest straw man used in what the FBI says is a national epidemic of mortgage fraud.

In Tampa, one face behind the epidemic belongs to Matthew Cox, a mortgage broker suspected of using phony names, fake documents and forgery to defraud lenders of millions. He is now a fugitive sought on Secret Service warrants.

Cox was initially charged in 2001, accused of using a stolen identity to obtain loans on the home at 1904 E Powhatan Ave. Who was living there at the time?

None other than Johnny Moon Sr.

Among the four properties Moon bought in November 2003 was a white frame home at 2714 12th St. N in Ybor City. The seller was a land trust controlled by Chuong X. Dam, a Vietnamese businessman who was indicted by a federal grand jury in February on conspiracy and bank fraud charges. Dam is accused with others of using straw buyers to apply for fraudulent mortgage loans, though none of the charges involve the 12th Street home.

Records show Moon bought the 12th Street property from Dam's trust for $147,000 - triple what the county property appraiser said it was worth - and paid for it with a $147,000 mortgage loan.

The Federal National Mortgage Association, commonly called Fannie Mae, ended up with the home after Moon died and the loan went into foreclosure. For Fannie Mae, the loan has become a loser.

The lender's representatives discovered the 86-year-old home with the tin roof has leaks, flooring problems, no sink in the bathroom and no kitchen. As is, it is uninhabitable. The home is listed at $88,500, but so far, no takers.

Two businessmen who might provide insight into Moon's investment activities are his son, Johnny Moon Jr., and an associate, Dominic Ferrara. Both are licensed mortgage brokers who assisted Moon Sr. with his acquisitions, records show.

The younger Moon used a power of attorney form to sell one of his father's properties last year.

Ferrara witnessed and notarized that power of attorney, as well as deeds on sales executed by the elder Moon.

Ferrara also helped collect rent from tenants at one of the homes bought by Moon Sr., according to one renter.

"Mr. Dominic collected the $450 rent," said tenant Judy Vaughn, who with her husband and four children rented the four-bedroom home at 905 E 25th Ave. "He said it had to be cash. It was a good deal for us. The last place we were in was a shotgun shack."

The St. Petersburg Times contacted Moon Jr. and Ferrara to inquire about how the elder Moon had qualified for the mortgage loans, what had happened to the $75,000 profit on the home sale before Moon Sr.'s death, and why no one had stepped forward to claim an estate ownership in the real estate in Moon Sr.'s name, including three homes that eventually went into foreclosure.

Moon Jr. and Ferrara did not want to talk about it.

"My relationship with my father is personal," said Moon Jr. "It's none of your business."

"I don't know nothing about it," said Ferrara. "Please don't contact me again."

Moon Jr. and Ferrara are former business associates of Cox, the mortgage broker accused of fraud and now on the lam.

Cox, Moon Jr. and Ferrara worked together at a Tampa firm called Consortium Financial Services.

While there, Cox was charged with forgery and mortgage fraud after obtaining a $110,000 loan under an assumed name.

Moon Jr. and Ferrara were questioned after authorities discovered Cox had directed payments to them from the illegal proceeds totaling $45,000.

Moon Jr. and Ferrara told investigators they knew nothing about any illegal activity and believed they were simply helping hide money from Cox's wife. Neither Moon Jr. nor Ferrara was charged with any crime.

Moon Sr. served four stretches in prison, for delivery of heroin, possession of cocaine, aggravated assault and arson.

In all, he was arrested more than 30 times. Typically, he was assigned a public defender because he was indigent.

Charged with possession of marijuana in 1994, Moon Sr. told a judge he had no income, no cash, no assets.

Charged with shoplifting a can of tuna and a package of steak from a Winn-Dixie in 1998, Moon Sr. testified he received $494 in Social Security income and had last worked "18 years ago."

"He had a long battle with prescription drugs," said Anjeanette Moon, a former daughter-in-law. "He was homeless a lot of the time."

Then came the real estate career.

In November 2002, Moon Sr. signed for an $85,000 loan to buy the home at 2204 E Chipco St.

Six days later, Moon was arrested at a Publix supermarket on Nebraska Avenue after stuffing packages of razor blades, Tylenol and Advil tablets into his pocket and trying to leave without paying. He was charged with petty theft.

Moon pleaded no contest to the $26.69 theft and got 60 days in jail and six months' probation.

Probation records show he reported receiving $108 a month in food stamps and $555 a month from Supplemental Security Income - a form of disability income generally available to people owning less than $2,000 in property.

A few months after being released and reporting that meager income, Moon Sr. signed for four mortgage loans, totaling $529,300, to buy four more properties. The four purchases occurred in a two- week period.

He somehow got himself to all four closings, records show, and presented a Florida driver's license as identification, though the state had revoked his license indefinitely during the 1990s when he was classified as a habitual traffic offender.

Two weeks after Moon Sr.'s flurry of purchases, Moon Jr. and Ferrara paid $53,000 for a two-bedroom home with a fenced yard at 3309 E Dr. Martin Luther King Jr. Blvd.

In July 2005, Moon Sr.'s body was found in one of the back bedrooms there.

Five months after the death, Moon Jr. and Ferrara sold the small home for $98,000 - $45,000 more than they paid for it.

Times researcher Cathy Wos contributed to this report. Jeff Testerman can be reached at (813) 226-3422 or testerman@sptimes.com.

POOR MAN, RICH MAN?

Oct. 7, 1948: Johnny Moon Sr. born, the son of a Baptist minister. He will drop out of high school and work briefly as a carpet installer. During his adult lifetime, he will be arrested more than 30 times.

1977-1989: Served four stretches in prison, for convictions for heroin, cocaine, arson and assault.

June 1998: Charged with shoplifting a can of tuna and a steak from Winn-Dixie. Told judge he had no assets, last worked 18 years ago and subsisted on Social Security income of $494 a month. Sentenced to 45 days in jail.

Nov. 5, 2002: Signed for an $85,000 mortgage loan to purchase home at 2204 E Chipco St. for $85,000.

Nov. 11, 2002: Charged with shoplifting headache tablets and razor blades from Publix. Sentenced to 60 days in jail. Arresting officers list his address as "at large."

Feb. 26, 2003: Released from jail, reported to probation. Said he gets $505 a month in Supplemental Security Income and $108 a month in food stamps.

Nov. 7, 2003: Signed for two mortgage loans: $150,100 to buy the home at 905 25th Ave. E for $158,000, and $137,700 to buy the home at 3801 N Dartmouth Ave. for $153,000.

Nov. 14, 2003: Signed for $147,000 mortgage loan to buy the home at 2714 12th St. N for $147,000.

Nov. 21, 2003: Signed for a $94,500 mortgage loan to buy the home at 1410 31st Ave. E for $105,000, the fourth home he bought that month. Total mortgages: $529,300.

April 27, 2005: Sold home at 1410 31st Ave. E for $180,000 - $75,000 more than he paid 17 months earlier.

July 30, 2005: Died of pneumonia due to malnutrition. Police found meager personal effects, including a single dollar bill in his wallet. His real estate later goes into foreclosure after no relatives come forward to establish an estate for him.

Faith Based Dollar

Well, Hallelujah! The Fed has finally acknowledged the inherent problem that all fiat currencies face. In the absence of a "Gold Standard", all we have are little pieces of paper with ink on them, that people exchange for goods, and hope that they retain some type of value. Unfortunately, they are only little pieces of paper and they have to be backed by the Government that issues them. If investors lose confidence in that Government, the value of those pieces of paper falls. The Government then raises interest rates to attract interest back to their currency. This accounts for the risk premium inherent in owning U.S. Dollars. Did someone say inflation? I perceive this as one of many warnings from the Fed about what lies ahead.

DALLAS, April 11 (Reuters) - The Federal Reserve will do what it takes to maintain its credibility, which is central to preserving the integrity of the U.S. dollar, Dallas Federal Reserve Bank President Richard Fisher said on Tuesday.

Alluding to the Fed's dual role of ensuring inflation doesn't "raise its ugly head" while still promoting the fastest possible noninflationary growth, Fisher said, "We seek to get it right. And the answer to your question is we will do what gets it right."

Answering audience questions after a speech to the Dallas Friday Group, Fisher said the U.S. dollar is a "faith-based currency" dependent on the credibility of a central bank.

"In addition to a faith-based currency, we are the currency of the world and we must maintain its integrity. As far as my involvement is concerned, I will spend every ounce of energy doing that. I have no doubt that my colleagues will do exactly the same," Fisher said.

Seven Trends

InvestmentU.com: Seven Trends Spell A U.S. Financial Crisis
Tuesday April 4, 5:20 am ET

NEW YORK, April 4 /PRNewswire/ -- "Right now we face some powerful negative forces that could lead to a dollar panic, a stock market crash, or a banking crisis," said Investment U (http://www.investmentu.com) Chairman Mark Skousen in a lecture recently at Columbia University.

"The basis of my remark," says Skousen, "is a warning issued by none other than former Fed Chairman Paul Volcker. A year ago he warned that 'The U.S. is skating on increasingly thin ice... The circumstances seem to me as dangerous and intractable as any I can remember, and I can remember a lot.'"

Whether that thin ice breaks, cracks or holds, says Skousen, depends on seven trends that are driving the U.S. economy. "It's a medley of economic woes," he says, that include:


1) An overreacting Fed, switching from "easy money" to "tight money." The Fed has been a major source of instability in the financial system. For example, Greenspan was chairman for 19 years, and switched policies seven times! The Fed often overshot its target on both ends - raising interest rates too high in 1989, 1994, and now, and pushing them too low in 1992 and 2003.

2) Inflation and structural imbalances. The Fed's "easy money" policy caused in part the "irrational exuberance" of the tech stock market bubble in the late 1990s and the real estate bubble in this decade. When the bubble bursts, as it inevitably must, the effects aren't pretty.

3) Poor consumer/investor finances. Our government policies promote overspending and undersaving on a massive scale. The saving rate has turned negative, and household debt as a percentage of disposable income is at a dangerous level, exceeding 150%.

4) A vulnerable financial/banking system. We live in a global laissez-faire financial system that is highly leveraged with debt financing, derivatives and fractional reserve banking. Hedge funds are not really "hedged," but highly speculative, and another collapse along the lines of Long-Term Capital Management in 1997 could be disastrous.

5) Trade deficits and out-of-balance capital flows. The trade deficit is at record levels. To make up this imbalance, foreigners must invest $2 billion a day in the U.S.

6) Overburdened federal debt levels, unfunded liabilities and rising interest rates. The Senate just raised the national debt ceiling to $9 trillion, representing 70% of GDP. Interest expense is now the third-largest category of the federal budget, only exceeded by defense spending and domestic welfare expenditures. Imagine the impact as interest rates start climbing again.

7) The rising cost of war/natural disasters. Last year, we faced a large jump in the deficit as a result of the rising costs of the war in Iraq and the expenses related to the Gulf hurricanes.

"It's easy to get carried away with disaster scenarios," says Skousen. "Don't ignore the fact that the stock market is currently at a four-year high. The single indicator I use to monitor global instability is the price of gold. If it spikes upward, we're in trouble."

Viva Las Vegas!

What's that old saying? What goes up, must come down! This could get scary fast!

LV land prices drop 47 percent in fourth quarter. Average cost for acre hits $376,200

By HUBBLE SMITH
REVIEW-JOURNAL

Housing prices are flat, high-rise condo projects are canceling sales, and now land values have dropped by almost half in Las Vegas, local research firm Applied Analysis reported.

The average price for an acre of vacant land in the valley was $376,200 in the fourth quarter, down 47 percent from the previous quarter and down 28 percent from the same quarter a year ago.

Several factors contributed to the decline in land prices, Applied Analysis principal Brian Gordon said Wednesday.

Foremost is the sale of 2,675 acres in North Las Vegas by the Bureau of Land Management. Olympia Group paid $639 million, or about $239,000 an acre, for the land.

Secondly, there was a shift in investment activity toward other Las Vegas Valley locales that have below-average pricing, Gordon said.

"We saw significant investment in the north and northeast part of the valley that traditionally carry lower-than-average prices," he said, "so with the shift in the mix of property sold, that also contributed to a lower valleywide average."

Among the transactions were a $55.1 million purchase of 106 acres ($365,600 an acre) at Craig Road and Fifth Street in North Las Vegas and a $28.8 million for 80 acres ($345,600 an acre) at Tropical Parkway and Donovan Street in the north submarket.

Looking at the fourth quarter of 2004, Gordon also saw high-density condominium sites being sold at a premium that did not occur a year later. One noteworthy land transaction in the fourth quarter was a 0.84-acre site on Las Vegas Boulevard north of Sahara Avenue, the site of the canceled Liberty Tower condo project by Australian developer Victor Altomare, that sold for $5.5 million.

Land prices that shot up by as much as 99 percent during the past 18 months are "clearly unsustainable," Gordon said.

"The economics of land pricing, escalating development costs and modest increases in interest rates will not allow for average land valuations to reach well beyond the recent peak, at least not in the near term," he said.

Jeremy Aguero, founder of Applied Analysis, said parcels that have the ability to capitalize on density and develop "new urbanism" projects will allow pricing levels to reach in excess of $1 million an acre. Creative, risk-taking developers will likely hold land values up early this year, while speculative investors are finding it difficult to "make the leap," he said.

A Chart is Worth A Thousand Words!

It's Hard to Bully your Bankers!

Finally, Some Great Economic News!

The Bureau of Labor Statistics reported on Friday that they would go back to the traditional method of calculating the Consumer Price Index as a more accurate reflection of Inflation. They admitted that the use of the substitution effect, owner equivalent rents, and hedonics has grossly understated the rate of inflation over the years and they intend to rectify this immediately. Likely, the Fed will move quickly to raise short term rates to 8% to fight off the true inflation rate.

Additionally, the Bush administration has acknowledged the impact of understating inflation and has vowed to increase Social Security payments by as much as 70% (the estimated understated inflation rate since the Carter administration).

The Fed has decided to keep publishing the broadest measure of the money supply (M3) and admitted that they didn't decide to stop publishing it to save money. What a Shocker! They had hoped to manipulate the money supply without public scrutiny, but they now admit that it wasn't such a great idea.

Congress and the Senate passed a bill on Friday that would change the current Federal Budget to a "Pay as You Go" model. They emphasized the need to balance the budget and reduce the crippling deficit that will dramatically reduce the standard of living of future generations. They will be raising taxes for the richest 1% of Americans and will plan a withdrawal from Iraq within the next 3 months. All of this will raise significant revenue and reduce expenditures to a managable level.

President Bush stated that he "can't wait to sign the bill" and is giving up his weekend in Crawford to finalize the new legislation. VP Cheney has given up his weekend hunting trip to witness the signing of this historic legislation.

It looks like the Government is finally turning things around.

Any looming economic disaster will likely be averted.

All is Well!

The Government actually cares about us!

Um.

Um.

Um.


APRIL FOOLS