And counter to our prediction of an imminent, counter-trend U.S. dollar rally, the dollar is most definitely not surging. Take a look at the chart below. We've been writing about the decline of the dollar for nigh on ten years. So we looked at a ten year chart to tally up the damage. It is considerable.

Click to enlarge

What's at stake with the interpretation of this chart? If the dollar rallies on short covering from the dollar carry trade (a BIG if), then other "risk" assets like gold, stocks, and emerging markets would probably sell off. And yes Australian stocks, that includes you. As well as the Aussie dollar.

The chart shows that the index's 50-week moving average is set to cross below its 200-week moving average. That is mixed news. The first time it happened on this chart was back in early 2003. That was the early days of a long decline in the index. The second time, though the move failed to confirm the "flight to safety" rally of 2008 had staying power in 2009.

Once the fear that gripped markets in 2008 went away, the investment world sold the dollar and started borrowing en masse to buy other, higher-yielding currencies and assets (like the Aussie dollar and resource stocks). That's where we are now.

But based on the chart, is the next move down in the dollar index a new low, which the crossing of the long-term MA by the short-term MA would suggest? Or is it a false move? Will the dollar quickly and violently rally for some reason (geopolitical perhaps) that currently remains unknown to the human beings of this world?

"It's an interesting chart," said our technical analyst Murray Dawes. "But it is not useful for timing your moves out of or into trades related to the dollar's movement."

"So you're saying our chart doesn't have any useful information from a trader's perspective?"

"Not really."

Murray promised to show us HIS dollar index chart tomorrow. We'll bring it to you, live and in colour. But in the meantime, we think the one piece of important information communicated by our chart is that the dollar's trend is down. But there IS a catch.

The catch is that when this many people are this uniformly bearish, everyone is probably wrong. Consider this a warning then, that a dollar rally is just the sort of thing that will lead to a correction in the gold price and the stock market. We won't speculate on the sort of things that could lead to a dollar rally. But surely they're out there and sooner or later they'll come.

The other possibility is that the dollar is in its death throes and that this is the big one, in currency terms. That is such a momentous and disastrous event that people consider it both kooky and unlikely, not to mention undesirable to a predictable and comfortable world. But it IS possible.

And do you get the feeling that this kind of manic melt up rally is the sort of irrational frenzy that comes just before everything goes haywire? Haywire is not a precise financial term. So what do we mean?

We meant that the world enjoyed a 20-year economic relationship based on a fundamentally unbalanced global economy. Manufacturing capacity migrated to Asia where wages were lower. For awhile, this was mostly good news in Western countries. Goods got cheaper but jobs didn't vanish.

Now the situation is not so pleasant. The world is awash in manufacturing over-capacity, especially in China. Wage deflation (in the Western world) looks like a long-term trend, leading to a lower standard of living. This wage deflation is occurring at exactly the same time that Western governments are encountering demographic crises of ageing populations.

We all knew the ageing of the Boomers would put pressure on public finances right around now. But no one reckoned on a global financial crisis further saddling the public balance sheet with debt. And no one reckoned that Western wages and incomes would be falling at just the time people needed them most. And no one reckoned that savers would lose the most from low interest rates on fixed income - even though those low rates are keeping the American housing sector on life support.

It's a bit of global impasse. America's needed structural adjustment has come. Households and businesses are reducing debt, trying to live within their means. But the net adjustment to the American balance sheet is not happening because public sector debt is growing so fast.

Meanwhile, the other obvious adjustment is that the Chinese currency ought to be allowed to strengthen. For political and social reasons though, China will not allow this. It means China is actually adding to its industrial over capacity. It is conjuring up the world's largest ever bubble in fixed asset investment, including commercial real estate.

It is easy to see why China is reluctant to allow a stronger Yuan. Exports account for 39% of Chinese GDP. The Chinese economy, and probably the Communist Party itself, cannot survive on unleashed Chinese domestic demand. They need American markets. But American consumers - in addition to reducing debt - are now realising that the focus on finance over manufacturing from American policy makers has worked out for Washington and Wall Street, but not terribly well for the average American worker.

Where do we go from here? How about the blame game. U.S. Treasury Secretary Tim Geithner once blamed the Chinese for being currency manipulators. He back-tracked later. And yesterday, Liu Mingkang, the chairman of the China Banking Regulatory Commission, had a go at America.

"The continuous depreciation in the dollar, and the US government's indication that, in order to resume growth and maintain public confidence, it basically won't raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation." He is blaming the U.S. for fuelling a destabilising global bubble.

Of course that bubble is felt most acutely because China pegs its currency to the dollar. China is right to blame the U.S. for manipulating its currency to try and improve its competitive position. And China is right to worry about the value of its dollar-denominated assets in a world of exploding U.S. debt supply.

But China has put itself in this position. And here we are at the end of 2009 with a world still fundamentally un-adjusted to a new, workable currency arrangement. The world remains burdened by trillions in assets purchased with debt. Those assets linger on bank balance sheets, on government life support but fundamentally lifeless at fictitious book value prices.

And meanwhile, the China-US currency arrangement has fuelled a global bubble. Australia is part of this bubble, too. The question is how it will end. In the U.S., the housing market looms as the Achilles heel of the economy. It could strike households, banks, and the government again in the next 12 months are more mortgages reset at higher rates (with lower home values).

If the event that pops this bubble comes from America, look for the supply of credit to the emerging world to dry up again. And though Australia is not a developing economy, we saw last time what happened when U.S. credit markets imploded. Australian banks had to get a government guarantee to borrow money in the wholesale market.

We'd suggest that lending for residential housing and commercial real estate would take a real dip in Australia on another U.S. housing crisis (even if Aussie banks aren't exposed to actual U.S. housing-backed RMBS and CDOs. You don't have to own toxic debt to be impacted by it.

If the bubble pricking comes from China, what then? Well, China does everything big. So a Chinese bust would be world-class. It's a subject that requires its own Daily Reckoning. More tomorrow.

Dan Denning
for The Daily Reckoning Australia

• CRB Index Correction Likely to Go Further
• U.S. Markets Could Rally on Oil Price Decline
• Price of Gold Communicates U.S. Monetary and Fiscal Policy is Lousy
• The Aussie Dollar as a Measure of Global Risk Appetite
• Chinese Steel Price to Rise in Wake of Coal and Iron Price Hike

Readers may know Mikhail Gorbachev as a fellow who advertises Louis Vuitton luggage. But before he made it big as a mannequin, he was the top man in the Soviet Union. It was not an easy job. The empire was falling apart. So, in a rare act for a public official, Gorbachev told the Soviet people the truth: "We can't go on like this," he said in 1986. Three years later, on November 9th, 1989, the test was over.

What they were going on with was a system of compulsory economics - in which bureaucrats made the key decisions. They decided how much capital to allocate to what sector...how many people to employ...how much to charge for the output, and so forth. Of course, in order to make these decisions, Soviet economists had already discovered that they needed to make a lot of other decisions too - such as where people would live, how much they would earn, what they would do, and which of them would be starved to death. So, it was a very controlled experiment. Conditions were so miserable in the East that the government needed a vast network of spies and gulags to keep the malcontents from ruining the test. Still, 5,000 people fled to the West. 136 were killed trying to get over the wall that separated West Berlin from the East.

The results were obvious even before the test began. Ordinary people, looking out for themselves, always make better decisions than economists working for the government. Taxi drivers are better at getting people from place to place. Automobile manufacturers are better at making cars. Bakers bake better bread. Consumers buy what they really want. And capitalists make better investments. But just because a thing is absurd doesn't mean it is unpopular. There are people who get upset when they discover that there is H2O in their drinking water. There are also people who want aparatchiks to make their decisions for them. And recently, there are more of them. Many Germans in the East long for good old days when things were under control. They call it 'ostalgie.'

After a bit of food and a roof over his head, a man becomes more concerned with status than with survival. It is not how rich he is that matters; it's how rich he is compared to those around him. Status brings reproductive advantages, say the socio-biologists. But it brings disappointments too. And envy. So wicked and destructive is the urge to envy that the Catholic Church banned it as a cardinal sin. Societies suppress envy in a variety of ways. Some tax the rich. Some force everyone to wear the same dreary clothes. Most level the population by sticking everyone into the same education, retirement and healthcare systems.

Capitalism doesn't make anyone rich. It only allows people to compete for wealth on more or less equal terms. Naturally, some are better at it than others. Most people prefer alcohol, television or jobs on Wall Street to the rough and tumble of real enterprise. And almost everyone is prey to bubble delusions, hoping to get something for nothing from the latest fad investment. And then, when capitalism corrects their mistakes, they turn ostalgic, longing for the state to intervene and rig the game in their favor.

"After the wall fell: capitalism is a disappointment" says a headline in yesterday's Montevideo paper, La Republic. A poll showed that of people asked in 27 countries only 11% thought capitalism was working properly now. We're surprised that anyone thought so. With so much finagling by the feds, it's a wonder that it works at all.

But even among the complainers, few suggest a return to the policies that wrecked East Germany between 1949 and 1989. Instead, what they want is a kinder, gentler form of capitalism with the state as a benevolent partner. Full employment, with Audis. Guaranteed health and retirement benefits, with wifi and cappuccinos. Unlimited government bailouts, but without state bankruptcy.

Alas, the lumpen are worse at rigging the game than they are at playing it. The elites are better; that's why they're the elite. They use corrections the way a general uses a cease fire - to strengthen their positions. They connive with the government for more regulations to keep out competitors, bailouts to protect them from their mistakes, and handouts to enhance their status. That's why, scarcely a year after they were all on the edge of insolvency, the world's big financial firms are paying the biggest bonuses ever.

Does rigging the system like this make people better off? Many thanks to those teuton guinea pigs again! They conducted another test. After the wall came down, the Federal Republic in Bonn decided to intervene in the Eastern states in order to lift the ossies out of poverty and put them on a level playing field with the West. Beginning in 1991, the West transferred an amount equal to 4% of GDP each year to the East. Public works. Public health. Public education. Welfare! Handouts! Bailouts!

Unwittingly, which is the only way to do this sort of thing, they were merely adding to the test data. For next door was the Czech Republic, which also suffered under the Soviet boot, also engaged in absurd and counterproductive policies, and also flew the coop as soon as the Soviets dropped their guard. The Czechs had no rich relatives. They had no source of free money. They had no booming economy that they could join. No money. No port. Not even a language anyone else could speak.

Well, guess who won that race? The Czechs, of course. GDP growth rates in the Czech Republic pulled ahead of those in East Germany in the early '90s; since then, they've been pulling farther and farther ahead each year.

Regards,

Bill Bonner,
for The Daily Reckoning Australia

• The Government Bureaucrats of East Germany Exist in the United States of America Today
• HOORAH FOR CAPITALISM!
• Capitalism is Inherently Unstable
• Britain, the Empire Which Had Paramount Global Power
• Rich Blamed for Financial Debacle of Last Few Years

That's fantastic! Just 18 more months before we can put all of this behind us. Why didn't they aim to overcome the crisis a year ago? Oh well. Better late than never.

Of course, it is possible the leaders of the APEC nations have no idea what to do, and certainly don't agree on how to manage their currencies. The Journal reports that everyone is badgering the Americans and the Chinese to quit their cozy currency arrangement. America has effectively devalued the dollar with low interest rates, and the Chinese have matched the devaluation because of the semi-formal currency peg.

The results is a global race to the bottom, otherwise known as competitive currency devaluation. Exporting nations must mimic the Fed and keep rates low (or sell their own currencies and buy dollars) to stay competitive. It suits China and America for different reasons.

America's weak dollar hasn't exactly helped exports like everyone expected. In fact, the trade deficit widened last month on a weaker dollar, mostly due to huge oil imports. But as long as U.S. interest rates are kept low, the housing market will not implode. The weak dollar suits the Fed.

And a weak Yuan suits the Chinese for now. They remain the world's low cost producers. And their goods get even cheaper when the Yuan declines with the dollar. More market share is good for Chinese producers. But it doesn't make any other exporters trying to compete in manufactured or consumer goods very happy. About the only people, or metal, made happy by the current state of affairs is gold.

The weekend edition of the Australian Financial Review has gold on the cover, incidentally. You can see a picture of it a few paragraphs down. Underneath the giant golden letters it reads, "Why you shouldn't laugh about gold hitting $US2000 an oz." But if anyone's laughing, it's a nervous laughter.

Why? Well, the fact that the gold made the cover of the AFR confirmed our view that it was an excellent month to research uranium stocks. That's just what Diggers and Drillers editor Alex Cowie did. He published his first report as the full-time editor of Diggers and Drillers on Friday. It was on uranium, including one specific recommendation.

We talked with Alex about whether to write about gold this month or uranium. Trouble is, he'd already written about gold in October. We've been getting a lot of questions here at the DR about gold. The gold price is making new highs in U.S. dollars ($1,123.40 in the futures market last week), but hasn't carried over into Aussie dollar.

The strong Aussie dollar has capped the Aussie gold price for now. You can read what Alex has to say about it here. The short version, though, is that Aussie investors looking for leverage to higher gold prices ought to look at producers who incur cash production costs in U.S. dollars. This keeps costs under control, but ought to benefit share prices (all things being equal) if gold continues to make new highs.

November 2009	Winter 2006
Source: The Australian Financial Review	Source: Diggers and Drillers

By the way, a report predicting $2,000 gold was the very first letter we mailed when we began our financial publishing business in 2006. The prediction seemed a bit crazy back then. And truth be told, the report bombed. That is, very few readers took us up on the offer to subscribe to Diggers and Drillers and see what else we had to say about gold stocks and the resource industry.

And to be fair, the prediction hasn't come true...yet. Most Aussie gold stocks have lagged the move in bullion prices. And some people still think that gold itself as a genuine asset class is a crazy idea.

The author of the AFR's piece, Robert Guy, is grudging in his recognition of gold's recent performance: "Often dismissed as cranks and conspiracy theorists, true believers may have found vindication in gold's record-breaking run, which has underscored the migration of the mainstream to the long-held world view of these fringe dwellers."

And then he can't help himself. "Gold bugs' dystopian vision of debased currencies, enfeebled banks, debt-burdened governments resorting to the printing press, coupled with the menacing spectre of inflation, presents a worrying analogue to reality," he adds.

An 'analogue to reality'? Last we checked, all those things Guy mentions weren't just prophetic visions. They ARE reality. The real vision - in the sense of a something that appears in fevered recesses of the mind but has no existence in the physical world - is that government-led efforts to revive the economy by taking on more debt have actually worked and that everything is getting better and better.

But then, the idea that investors who buy gold are crazed believers is a convenient way of dismissing monetary history. Close your eyes and pretend everything is all right!

To understand the investment benefits of gold, you don't have to "believe" in gold in the way that, say, you have to believe in the Virgin birth or the resurrection to call yourself a Christian. You just have to understand how gold has always been part of a sound money system and how it promotes responsible government and personal liberty. It is not an act of faith. It's a rational conclusion.

Further, gold's physical attributes - durability, divisibility, transportability, relatively scarcity, and its sameness in all places - make it such a useful medium of exchange. To the extent that those qualities make for really useful money, gold does have an inherent value. Gold is very good money, which is why it's being remonetised after years in the Keynesian wilderness.

But we've written so much about gold in the past you are probably sick to death of it. So we'll conclude with two points. A sovereign debt crisis is brewing because Western Welfare states refuse to live within their means and are increasing public sector debt. This makes their currencies dangerous to own and their bonds subject to default. At the very least, most paper currencies face major devaluations.

The second point is that gold bullion is not a panacea for the problem of fiat currencies. It's a good start. But if you think the monetary world will somehow muddle through, then gold stocks give you leverage to a higher gold price. As eye-catching as gold's recent gains have been, we reckon most investors haven't begun to stock up and gold.

While the easy money in gold has been made, the big money has yet to be made.

All that said, we think Alex's timing on uranium is good. Turning to your attention to those asset classes that no one wants to touch is hard to do. For one, you have to be conscious that what everyone is talking about is either fully priced or over-priced. Secondly, it takes some courage to step into a market that everyone hates, or finds so uninteresting that it's not worth the time.

Granted, uranium does not exactly constitute a hated asset. But it hasn't been in the limelight lately, has it? There was a small story in this weekend's Australian, though. Energy Resources Australia's CEO Rob Atkinson says the pieces are in place for a uranium shortage down the track.

He cited three factors. First, the GFC cut off the capital for new mine development. This happened with oil and gold, too, both of which were facing production peaks anyway. But in the uranium industry, you've had major interruptions of mine supply from two sources that were expected to be a lot more productive, BHP's Olympic Dam and Cameco's Cigar Lake mine.

On the demand side is the resurgence in the world's fleet of nuclear reactors, which use uranium as fuel. Of course nuclear power remains controversial in some places (like Australia) even as it figures prominently as part of the energy portfolio in other places (like China and India).

No matter how you "feel" about it, it's pretty likely that nuclear will emerge as the clear winner as an alternative to hydrocarbons. Who knows what kind of madness the world's leaders will agree to. The idea that the world can give up burning coal and still maintain a comfortable standard of living is belly-laughable.

But even if next month's climate change summit in Copenhagen fails to produce a breakthrough (and it already looks like that may be the case), uranium should come out of the summit...er...glowing. And don't get us started on that summit. We've heard the interviews and read the articles. It does indeed look like a massive power grab. But that is a subject for another day.

As an investment issue, uranium stocks present better value right now than some other commodity stocks. One reason is that prices in the spot uranium market have trended between US$40 and US$50 all year. They soared to US$140 along with oil in 2007, but have since fallen, stabilised, and consolidated.

In other words, uranium is one of the assets to resist the rising tide of global liquidity. That doesn't mean it's coiled like a spring and will inevitably rise. But there are some good reasons to take a closer look at it now. And Alex pointed out an important fact in his November article: future uranium producers will have to produce above a certain number of pounds per year for at least ten years in order to enter into agreements with the utility companies that buy uranium for fuel.

That means that not just any explorer or developer is going to win the uranium sweepstakes if prices begin to rise in the spot market. And, of course, if global GDP and industrial production again collapse because of a second credit crisis, demand for electricity - including future projections - will go down. Maybe the world will build fewer nuclear reactors than planned, needing less uranium than expected.

Dan Denning
for The Daily Reckoning Australia

• AUD Price of Gold a Measure of Gold’s Strength Against Other Currencies
• Good Month for Aussie Stocks, While U.S. Stocks Fell to Close the Quarter
• Uranium: A Carbon-friendly Substitute for Coal
• Thorium as a Nuclear Fuel
• Uranium and Gold Exploration Spending Both Down in Last Year

Can anything stop stocks and gold?

Trees do not grow to the sky, dear reader. And for every bounce there is a bust.

"It's amazing; the US is doing everything that Japan did wrong," said a friend yesterday.

Let's see, in the 1980s Japan's corporate leaders thought they were going to take over the world. Investors thought so too. They expanded. They wheeled. They dealed. Prices shot up and they all thought they were geniuses.

In the '80s, everyone wanted to be Japanese. Management consultants used Japanese words to describe commonplace insights. For example, instead of saying that businesses always need to try to do things better, they referred to "kaizen" as if it were the secret of success. And US economists urged the Reagan Administration to have an "industrial policy" - because that was what Japan had. Japanese businesses were the envy of the world. Japan was the world's second largest economy. But in growth and stock prices it was Numero Uno.

It turned out, as it always does, that Japan did not have the secret to everlasting success. Instead, what it had was what comes before a fall. The stock market crashed in Tokyo in 1989. The Japanese economy entered a recession. At first, the experts believed it was temporary. They urged investors to take advantage of the opportunity to buy into Japan, Inc. at record low prices. They thought Japanese industry was unstoppable...unbeatable. It would recover in no time, they said.

But Japan, Inc. didn't recover. Instead, it went into a long, drawn-out recession that lasted year after year...with on-again, off again deflation...and several stock market rallies. Each time stocks rallied, they fell again. Each time the economy began to grow...along came another setback. This continued for the next 20 years...until March of this year...when Tokyo stocks hit their lowest point for the whole bear market. A generation of investors had been nearly wiped out. Over two generations they had made nothing. Trillions worth of wealth had been erased.

What did the Japanese authorities do during these last two decades? They fought the correction every step of the way, with the boldest attempt at fiscal and monetary stimulus every undertaken up to that point. Interest rates came down to effectively zero. And government spending soared, creating the largest deficits in Japanese history. Now, Japan's national debt approaches 200% of GDP - a peacetime record. If it continues to grow at this rate, it will hit 300% of GDP in just a few more years.

Sound familiar? It should. The key US interest rate is now effectively zero. The Fed says it will leave it there for "as long as it takes." And deficits have reached staggering levels - 13% of GDP. At this rate, the US debt/GDP ratio will hit 100% in just a few years. And if it continues, US debt/GDP will reach 200% not long after - as recession- reduced tax revenues meet stimulus-increased outlays.

But wait...the feds say they won't let it happen. They'll turn this thing around. The economy will begin to grow. Tax revenues will rise. Prices will go up.

Hey...that's just what the Japanese said!

So far, the US is doing almost exactly what the Japanese did...propping up zombie companies and stimulating the economy as best it can.

But if it does the same thing the Japanese did, won't the US get the same results the Japanese got?

Here is where it gets interesting. Because the US economy is not exactly like the Japanese economy. Japan had high savings...and a positive trade balance. It could run up huge government debts and "owe it to itself." It could finance its government debts with the savings of its own people, in other words. It never had to worry about foreigners refusing to buy its bonds...or selling them suddenly.

America's government debt is different. The US doesn't save enough to finance its own deficits. So it depends on the kindness of strangers. And if those strangers ever lose faith in America's ability or willingness to repay its debts, they'll drop the dollar like an annoying girlfriend. And when they do, the whole global monetary system will come crashing down.

But suppose savings rates go up in America - to, say, 10% of GDP, like they were before the bubble years. That would make $1.4 trillion of savings available to finance the feds' deficits. And suppose the slump continues...as we think it will, with another big scare in the investment markets. People will seek safety in...yes, you guessed it...US bonds. This will take the pressure off the dollar and permit the US to finance its countercyclical spending without depending heavily on foreigners. The recession/depression will be annoying...but not insufferable. And Bernanke will figure he has more to lose by undermining the dollar than to gain from it. In that case, the Japan- like slump could go on for many years - just as it has in Japan!

Bill Bonner
for The Daily Reckoning Australia

• Recession for the Japanese Economy Once Again
• Japan “Wasted Trillions” on Stimulus Programs
• Difference Between the Dollar and the Yen
• How Will the United States Finance the Biggest Deficit of All Time?
• U.S. Government Must Roll Over $3.4 Trillion in Debt Over Next Four Years

We did some thinking yesterday, on our trip to Uruguay. Why Uruguay? We thought we should have a look around. Montevideo is a cheap place to live. It's on the sea, with beaches near the downtown area. It is an old town, with many fine buildings. It is clean. It is safe. It has history too. When the English invaded Buenos Aires, the Spaniards launched a counterattack from the fortress at Montevideo and got it back.

"It looks like a nice place," we said to our local contact. "But it seems a little like a resort town out of season; it's very quiet."

We were having dinner in the best restaurant in town, next to the opera house. The restaurant was large and well fitted out. But it was almost empty. A French group sat at one table. An American group sat at another. The only other diners were sitting with your editor. Outside on the street, it was as if everyone else had been warned of an approaching tsunami; there was no one.

"Well, it's out of season all year round," our host replied. "It's a nice place to live. But it's not very lively.

"Montevideo used to be a lot richer. You can tell that just by looking at the public buildings. They're very grand. We couldn't build those places today. We don't have the money. But during the war years, Uruguay was booming. We were leading exporters of beef and grains. We're still leading exporters...but the margins are no longer there. You can make money in farming, but not enough to get rich."

We wonder what people are going to be saying a century from now.

"Yeah, Manhattan used to have the richest real estate in America...back in the financial boom. Wall Street was the center of the financial industry. People made fortunes from high-margin financial products. But then, the financial industry went into decline...and new financial centers in Shanghai and Singapore took the business."

Could New York have already passed its peak? Perhaps not quite. The papers are reporting record bonuses on Wall Street. But the story has an undertone of desperation about it...like the wild parties in Berlin in 1945, just before the Soviet Army arrived. Maybe that's why the bonuses are so high. Get it while you can! This could be the last hurrah for the US financial industry.

Private sector credit is still contracting. In fact, it's shrinking faster than at any time in the last 35 years. And this trend is not likely to change. As we keep saying - you're probably getting tired of hearing it - the private sector has 7 to 15 years of de-leveraging to do. The financial industry will be forced to downsize, along with the economy.

Wall Street's leveraged debt bombs are still blowing up. Banks are going under. As we reported yesterday, the 'second wave' of residential mortgage defaults may be just beginning. Commercial real estate debt isn't far behind...with no Fannie Mae to help the wounded or pick up the dead.

And how about all those private equity deals Wall Street financed? Of the top 10 deals from the bubble years, 6 are in trouble...and 4 have already defaulted.

The idea of private equity was that the hotshots were so smart they could take over a company, re-organize it, restructure it, and sell it back to the public market at a higher price. What they actually did was merely to load up the company with debt - using the money to pay themselves lavish fees.

And as we know...and maybe we alone know it...debt hurts. Run up enough debt and sooner or later bad things will happen. But not necessarily to the borrower!

Right now, the dollar is at a 15-month low. The speculators borrow dollars. Then, it doesn't matter what they do with them. Everything is going up against the greenback.

But that's why our Crash Alert flag is flying. Mr. Market doesn't like it when morons make money. We wouldn't be at all surprised to see these carry trades go bad in a big, big way. All of a sudden, stocks...bonds...emerging markets...commodities...and even gold...could go down against the dollar. Watch out!

The Dow rose another 20 points yesterday. It is now only 54 points below the 50% retracement level...where the bounce of 1930 peaked out.

Gold, meanwhile, held above $1,100.

As we were saying...once in a while, we think. The last few days have been so busy, we didn't have any time to think. But, now things are settling down, so we've had a chance to put our thinking cap on.

What are we thinking about?

Well, of course, we're trying to understand the basics... George Soros had the right idea: Find the story whose premise is false...and bet against it. What premise is false?

The major premise that almost everyone believes is that government economists can improve the workings of an otherwise free economy. That leads people to believe that the feds have pulled off a save...they've now got the economy well along on the road to recovery...the recovery is getting stronger as time goes by...and soon, the feds will begin to exit from their stimulus efforts.

The big question in most investors' minds is this: how quickly will the feds exit? As long as they keep up their stimulus efforts, investors expect rising prices for everything but the dollar.

Those who think the feds will be able to exit quickly believe growth will come without too much inflation. Those who think the exit will come slowly expect higher rates of inflation.

Well, guess what? The whole premise is false. From top to bottom. From beginning to end. Even the air it breathes is tainted with the smell of fraud and self-delusion.

The theory behind the recovery concept is that government spending and stimulus from the Fed has a "multiplier" effect. That is, the feds spend...the money goes into the economy...and then, the private economy multiplies the spending by growth in consumption and investment of its own. If there were no multiplier effect the whole exercise would be a waste of time, because we know that government spending in itself is a cost to an economy, not a source of real wealth. Government spending, generally, is a drag on prosperity. The Soviet Union proved that. The question remains however, can extra government spending at critical moments "prime the pump" so that it is multiplied by the private sector?

Answer: no.

"Our new research," writes economist Robert Barro in The Wall Street Journal, "shows no evidence of a Keynesian 'multiplier' effect...the available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise the GDP by less than the increase in government spending."

Now, we turn to the current situation. Is there any evidence of growth beyond the government's own stimulus efforts? From what we can see so far, again, the answer is 'no.'

The premise of recovery/multipliers/growth/and exit is false. We want to bet against it. Tomorrow we'll talk about how.

Real economists know that there are no secrets. You work hard. You invest carefully. You save your money. That's the best you can do. There are no multipliers. There are no miracle cures. There are no easy exits from trouble.

That's why the world has little use for honest economists; they tell you what you don't want to hear. So, people turn to the phonies...the charlatans...the imposter economists who say "yes we can!"

Trouble is, they can't.

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

• Government Debt
• Keynesians Believe Governments Have to Manage Economy in Macro-Economic Way
• Why Weren’t Economists On Top of This Thing?
• Can Government Bureaucrats do a Better Job of Allocating Capital than Free Markets?
• Have the Feds Given the Economy a Miracle Drug?

The Dow went up too - 203 points yesterday. It's over 10,000 again. Not very impressive for a bear market bounce. A 50% retracement would take the Dow to 10,300.

But you have to give the bounce credit. It's been going on since March. That is impressive.

And now everyone is bullish, except us. We'll see who's right... in the fullness of time...

Gold seems to be advancing towards a new milestone - $1,100. Makes us nervous. We always feel more comfortable out in the wide, open spaces...that is to say, in trades we have all to ourselves.

But gold is still a marginal holding by marginal investors - like us. Central banks - especially those in emerging countries - have very little gold. The man on the street doesn't know anything about gold. He wouldn't know a gold coin if it hit him on the head.

As gold becomes accepted as a true store of value, we can expect more and more people to want to own it.

Governments are running breathtaking deficits...and accumulating alarming debts. Japan has a national debt of nearly 200% of its GDP. Where did that debt come from? It came from 20 years of trying to buy its way out of a slump with borrowed money. Of course, it didn't work. But now, Britain and America are following the Japanese lead...and the Japanese are still at it! At the present rate, Japan's government debt will grow to 300% of GDP in 10 years. America's debt could grow to 100%...and then 200% of GDP...over the next decade (depending on whose projections you believe). And Britain, if we read the report in The Financial Times correctly, will have debt equal to 200% of GDP within 3 years.

Just what kind of crisis do these numbers portend? It's hard to say. Probably a combination of confidence, followed by debt default and inflation.

Would the US actually default? We agree with Paul Samuelson; the answer is 'maybe.' Samuelson, writing in The Washington Post:

"The idea that the government of a major advanced country would default on its debt - that is, tell lenders that it won't repay them all they're owed - was, until recently, a preposterous proposition. Argentina and Russia have stiffed their creditors, but surely the likes of the United States, Japan or Britain wouldn't. Well, it's still a very, very long shot, but it's no longer entirely unimaginable. Governments of rich countries are borrowing so much that it's conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse. What happens then?

"...People have predicted such a crisis for decades. It hasn't happened yet. The currency's decline has been orderly, because the dollar retains a bedrock confidence based on America's political stability, openness, wealth and low inflation. But something could shatter that confidence - tomorrow or 10 years from tomorrow.

"Despite huge deficits, interest rates on 10-year Treasury bonds have hovered around 3.5 percent. In time of financial crisis, investors have sought the apparent sanctuary of government bonds. But the correct conclusion to draw is not that major governments (such as Japan and the United States) can easily borrow as much as they want. It is that they can easily borrow as much as they want until confidence that they can do so evaporates - and we don't know when, how or whether that may happen."

Why wouldn't the US just "print its way out of debt?"

Because it's not that easy. In effect, the feds are trying to print their way out of debt now. They've added huge amounts to the monetary base. But that money is not getting into the real economy. Instead, it's going into vaults and speculations.

"Jittery Companies Stash Cash," says The Wall Street Journal.

And banks, too, borrow...but they don't lend. They can borrow at negligible rates of interest...and buy US Treasury bonds on a leveraged basis...producing a 20% yield. That means, the US dollar has replaced the yen as the go-to currency for speculators.

Net effect? Lots of cash in what appears to the Mother of all Carry Trades. The Financial Times:

"The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates - as low as negative 10 or 20 per cent annualized - as the fall in the US dollar leads to massive capital gains on short dollar positions."

But in the economy itself? As in Japan, very little economic progress comes from this kind of speculation.

Bankruptcies rose 7% last month. Unemployment gets worse.

The financial markets bubble up. The real economy shrivels up. And people with any sense are stocking up.

David Rosenberg, again, on gold:

We are still contemplating the massive gold purchase by the Reserve Bank of India - the largest in at least 30 years that took up half of what the IMF intends to sell. Look for China to come in next.

But here is the reality. All India did was bring gold to a 6% share of its total FX reserves from 4%. Fifteen years ago, that representation was closer to 20%. China has increased its gold holdings by 76% over the past six years but they are a mere 1.9% of the aggregate 2.2 trillion of reserves and Russia's gold holdings is just under 5%. This is not the 1990s when Bob Rubin was running a hard US dollar policy, US fiscal deficits were vanishing and gold production was on the rise. Today's world is exactly the opposite. Policymakers beginning in the 1990s wanted disinflation and got it. Now they want inflation - it will take years, maybe a decade, but it will come. For the near-term, we are still optimistic on Treasury securities but be forewarned that this view has an expiry date that is earlier than the peak we are likely to see in gold.

It is very clear that central banks are behaving in a way that would suggest that gold is now again being considered a currency within the global monetary system. As we said before, it is all about relative scarcity and a well-defined supply curve - fiat currency at this juncture does not share that quality. As a good friend reminded me yesterday, when the Fed was created nearly a century ago, it was acceptable to have at least 40% of the money supply backed by gold reserves. The US now has 8,133 tons of gold in reserve, which equates to $285 billion at this year's pricing.

Meanwhile, the Fed has spiked the punchbowl to such an extent that the monetary base now stands at $1.7 trillion. Do the math - under the old regime (which indeed hamstrung the Fed), the US alone would need to buy an incremental $400 billion of bullion or the equivalent of what would be nearly four times the typical level of annual demand. We could do the same calculation based on M2 but we don't want anyone falling off their chairs.

And finally today, we're still ruminating about what to tell you about our trip to the ranch. The funny thing was...it had little to do with cattle ranching...and a lot to do with the personalities that we brought with us. It's no easy job being a parent...especially when the kid is 38 years old...and not your kid.

More to come on that another time...

Bill Bonner
for The Daily Reckoning Australia

• Gold is Money
• An Irish Bond Bomb
• Denmark, Spain, the U.K. and Ireland Have Begun to Register Falling Housing Prices
• Where Do the Feds Get Any Money?
• Borrowing and Paying Back in a Foreign Currency

But along came two very important bits of information.

First, we got word that the crisis was officially over. GDP grew last quarter. Thanks to all the Cash for Clunkers, Cash for Bankers, Cash for Houses, Cash for Trash, and cash for every other blessed thing under heaven, the number crunchers were able to report positive economic growth for the third quarter.

Let's not get too excited. Stocks bounce. Bonds bounce. An economy bounces. Even dead economists bounce. And if we're following the Japanese experience, with a long, slow on-again/off-again period of depression, we can expect some quarters of growth, followed by quarters of non-growth. It's going to be a painful adjustment to the 'new normal,' whatever that is.

The other important bit of news was that the Fed - faced with undeniable evidence of growth and prosperity - decided to err on the side of caution. It will keep monetary policy loose from here until kingdom come, if necessary, in order to avoid a Japan-style slump.

But so far, a Japan-style slump is just what we seem to have...and our public officials are fighting it, Japan-style.

Unemployment is headed up. The U6 figure - a more accurate picture of how many people are out of work - is up to 17%. There are 1.5 million homeless children in the US now, including 300,000 in the state of California alone. One out of 10 Americans will not bite the hand of government - for it is the hand that gives him his food stamps.

Foreign direct investment has dropped 30%. International trade is down 10%.

Do you call this a recovery? We don't.

As David Rosenberg puts it, the man on the street is perhaps "less enthused by the fact that a lower rate of inventory de-stocking is arithmetically underpinning GDP growth at this time."

In other words, it's 'growth' that only an economist could love...and then, only an economist who was an idiot. Rosenberg:

"Put simply, a Wall Street Journal/NBC News poll just found that 58% of the public believe the economic recession still has a ways to go - and that is up from 52% in September and means that the private investor, unlike the hedge fund manager, is not interested in adding risk to the portfolio even after a 60% surge in the equity market.

"Only 29% of those polled believe the economy has hit bottom - imagine having that psychology with nearly zero interest rates, a bloated Fed balance sheet and unprecedented fiscal deficits (poll was taken from October 23-25). Nearly two in three (64%) said the rally in the stock market (still a bear market rally - not the onset of a new bull market) has not swayed their view (or ours for that matter). There is going to be some very tough slogging ahead as far as the economy is concerned."

Growth is largely illusional. It is the result of delusional policy- making at the Fed.

So, we'll just keep our Crash Alert flag flying.

Bill Bonner
for The Daily Reckoning Australia

• Markets Rise While the Economy Sinks
• Take Away Stimulus Spending and You’ve Got an Economy Entering Depression
• Bear Market Bounce a Sure Thing
• AIG to Receive $85 Billion Loan from Fed
• Feds Have Used the Correction to Increase Their Power and Add to Their Wealth

You have to wonder who is willing to loan money to the United States government - given the state of its fiscal and monetary policies - for thirty years at below 5%. But the Treasury is anxious to auction as much long-term debt now as it can, locking in what it believes are low rates. This is another way of saying the Treasury thinks rates will rise (creditors will ask for higher rates when lending to Uncle Sam).

In the report from the Treasury's borrowing committee to the Secretary, the committee said it was getting a wee bit worried that the maturity schedule of the Treasury debt portfolio could be in trouble if rates go up. Specifically, it wrote that, "The potential for inflation, higher interest rates, and roll over risk should be of material concern."

Perhaps this is why the Treasury and the Fed are considering whether to "move out on the interest rate" curve and try and set rates for longer-term debt. If the market is going to push them up, the Fed will have to push them down (as it has been doing anyway with its purchase plans). Rules are made to broken!

Take the statutory U.S. debt ceiling for example. The Treasury's borrowing committee writes that, "Based on current projections, Treasury expects to reach the debt ceiling in mid- to late- December. However, the government's cash flows are volatile, and forecasting a precise date is difficult. Treasury is working closely with Congress to pass legislation to increase the debt ceiling. We will keep financial market participants apprised of developments as the debt outstanding approaches the statutory limit."

In other words, the jack asses in the U.S. Congress will have to pass a new law allowing the Treasury to borrow more. This would be comical if it weren't so disgraceful. U.S. monetary authorities continue to tell the world's savers that the U.S. standard of living is not negotiable, even if it means increasing public sector debt to over 100% of GDP.

But the world's creditors may not be in the mood to negotiate anyway. We think the rise in gold is one example of creditors deciding there are better things to do with their money. And in the meantime, take a look at the graph below from the Quarterly Refunding Statement of the Treasury's Office of Debt Management. It's a doozy!

Click to enlarge

Sorry about the size. We had to reduce the chart to get the whole thing in. In case you can't read the fine print, it says that in the next five years, there will 73 days on which more than $20 billion in Treasuries mature and 46 days on which more than $30 billion in Treasuries mature. That's 119 days of major league reckoning.

Normally, that debt is simply rolled over as a new (or often the same) buyer refinances it. But what do you think will happen in the next five years? The U.S. will be borrowing more and more and probably at higher rates. Our guess? It won't be good for the dollar.

Dan Denning
for The Daily Reckoning Australia

• Federal Reserve to Buy $300 Billion In U.S. Treasury Bonds
• Australia to Borrow as Much as $300 billion
• One Year Treasury Bills to be Reissued by Bush Administration
• Every Member of Congress Gets a Copy of I.O.U.S.A.
• U.S. Government Must Roll Over $3.4 Trillion in Debt Over Next Four Years

There are some pretty big issues we left hanging with yesterday's DR. Are the Western Welfare States (the U.S., Japan, and EU nations) really going bankrupt? Things were headed that way before the credit crisis began. If Rogoff and Ferguson are right and the GFC is becoming a sovereign debt crisis, it will worsen an already bad situation.

How bad? We'll show you three of the charts we showed the folks in Canberra on Sunday. This is the condensed version of a forty-five minute presentation. So we'll have to leave out the colour commentary. And we're pleased to offer another contribution from Dr. Steve Kates on how government policy is destroying public wealth.

But first, check out the chart below from the 2008 annual budget audit by the U.S. Government Accountability Office. It shows that the U.S. government must roll over $3.4 trillion in debt over the next four years. This $3.4 trillion does not include any additional borrowing that may be required for other government programs (wars, healthcare, wars, school lunches).

What's the big deal? $3.4 trillion is a small number by today's standards, isn't it? Not exactly.

The chart shows how incredibly interest-rate sensitive U.S. government borrowing now is. Not only is it a big ask to ask the world's creditors to continue funding such large deficits (there are only so many savings available to borrow, after all), but the interest expense on that debt is likely to go up as the fiscal position of America deteriorates.

And if America can't find anyone willing to finance its deficits, what then? Well, the luxury of issuing debts in the currency you also print is that you can print money to pay for them. Technically, you can never become insolvent when you enjoy this privilege. The Fed, for example, can create new money to buy debt issued by the Treasury, funding deficits ad infinitum.

But this monetisation of the debt is another way of saying that international creditors are no longer willing to pick up America's spending tab. They will be betting against the American economy, not on it. Even if the Fed takes the unusual step of moving out further along on the yield curve to set interest rates (and keep the bond vigilantes from sending yields to the moon) this is a clear signal to owners of dollar-denominated assets and holders of dollar currency reserves to get out.

Another scenario to watch for is when creditors begin asking the U.S. to issue debts in currencies other than its own (Yuan, Euros). That would be something. In the meantime, they will look to lessen their dollar reserves.

That may not be such an orderly process. And the urgency to get out of the greenback and into something better will only pick up pace as it becomes clear the politicians in America (along with the Fed) are not likely to suddenly rediscover fiscal prudence.

You never know. The Fed may assert its independence and baulk at more quantitative easing. But we wouldn't count on it. And we reckon tangible assets and possibly emerging market equities would be the biggest beneficiaries of capital flows out of the dollar...and into anything else.

The next chart is for you, Paul Krugman. Krugman, among others, continues to insist that larger public sector deficits are necessary if the Western world is to avoid a Japanese-style deflationary "Lost Decade." He claims the government must increase spending as households and businesses deleverage and reduce debts.

Advocates of this idea claim that public sector deficits, as a percentage of GDP, have no real limits. And the example they cite is Japan. As you can see from the chart below, Japan's debt to GDP ratio is nearing 200%. America's isn't even half of that yet (it's about 98%, or $13 trillion). If Japan can finance a deficit at 200% of GDP, then why are we worried that U.S. deficits half that size would threaten interest rates or the dollar?

First off, it's worth pointing out that high public sector-debt-to GDP ratios haven't worked in Japan, if by work you mean pave the way to a stable recovery. Advocates might say-as advocates of the stimulus here in Australia often say-that the public spending made things less worse. But the opposite is true. It's made things more bad!

Or just worse, if you prefer. We mean that the public spending has done two things, neither of which is productive, and both of which, in fact, waste capital and resources. First, public sector spending to prop up financial firms with dodgy assets prevents the needed reckoning in asset prices that would produce market clearing prices for commercial and residential real estate. You get zombie banks and a zombie economy and zombie house prices.

Secondly, there's no indication that all the infrastructure spending in Japan has produced any kind of lasting growth for the economy. It may have built some great roads and bridges. But we wonder if it solved any of the underlying problems? What' more, the capital and resources that went into those projects was directed by political considerations and not available for the private sector, which could have put them to some use at least designed to produce a return on the capital.

The underlying problem which deficit spending does not solve is compounded by demographics. Japan's government is hoping that continued borrowing can be financed at low rates by pensioners who will be cashing out of their pensions but seeking safety. However, we suspect that Japanese pensioners will begin to consume their savings as they downsize their lives into their twilight years (which tend to last much longer in Japan, as the number of Japanese centenarians shows).

That means interest on Japanese bonds-which already one fifth of the Japanese budget-will consume even more of the nation's resources, if the older population clams up with its money. And like in the U.S., you'll see the government borrowing more and more of every new yen spent, with more of that borrowed yen going to pay a previous creditor. That's bordering on Ponzidom.

Japan has been able to run a higher-than-average public debt-to-GDP ratio because it has had such a high personal savings rates. This kept borrowing costs low for the government. But we'd expect that to change soon. A debt-to-GDP ratio of 200% will be very difficult to finance in the world as it is-much less in a world where those rates begin to rise and when Japanese savers begin to consume their savings.

Finally, what about Europe? Our argument here is simple: Europe's monetary union is going to come unstuck. Why? Europe has one interest rate for twelve different economies. That does not leave national governments with the flexibility to print money and inflate away political problems. This will be intolerable, the monetary union will break up.

The sign to watch for is a spike in the yields on euro-denominated debt. As the chart below (from Stratfor) shows, earlier this year bond yields did in fact begin to widen. Germany Bunds have the most stable rates, as Germany has traditionally the most stable fiscal and monetary policies in Europe (they did not go hog wild for stimulus).

But for Spain, Ireland, Greece, Portugal, Italy and Austria (whose banks lent large for real estate in Eastern Europe), another round of falling asset values really would show that the GFC has become a sovereign debt crisis. And will Germany bail out these nations? Can it afford to?

We don't know the answer to those questions. But it is worth pointing out that by assuming or guaranteeing the liabilities of the financial sector, national governments have also assumed the risk. And the bond markets will be left to decide how to price this risk.

How it ends is anyone's guess. But our take is that the Super Cycle in fiat money is at its peak. And as it unwinds, it's going to take national governments and their financing model with it. They will be forced to adopt a new model and take a new form to survive.

This means a great deal of political and economic upheaval. It's no coincidence that the last time the world faced such monetary upheaval was when it went off the gold standard and straight into essentially thirty two years of military and economic conflict (1913-1945). If the world is about to become that disordered again, you'll need a plan to deal with it.

Dan Denning
for The Daily Reckoning Australia

• Japan and its Economy Did Not Have Secret to Everlasting Success
• Government Debt
• U.S. Treasury Auctioning Off $81 Billion in New Debt
• Zero Percent Interest Rate Didn’t Work for the Japanese
• AIG to Receive $85 Billion Loan from Fed

Our views are different, but not extra-terrestrial. Once upon a time, not so long ago, they were even respectable. The gist of our message two weeks ago was that debt is dangerous. It feels good at first. But give a society too much debt - either in its private sector or the public sphere - and someone's going to get killed. That's why the present situation is such a delight to serious economists; it offers more data points. We get to see how much straw the feds can add before the poor camel's back breaks.

What's the best way to get through a debt crisis? Straight through was our advice last week. For at least a thousand years, the business cycle went round and round without help from central bankers or economists. It is only since these geniuses have been on the case that really serious problems have arisen. The Panic of 1920 - in which the US government did nothing but cut taxes and spending - was quickly forgotten. The Panic of 1929, on the other hand, was followed by massive rigging and jiving by the authorities. It took 20 years and a world war to overcome; today it is still remembered today as the Great Depression.

Martin Wolf, speaking, gravely, for the world's intelligentsia in The Financial Times last week, proclaimed that: "the only thing worse than rescuing the system would have been not rescuing it." But he is wrong; of all the many blessings economists may bestow upon a grateful people, improving the economy is not one of them. An economy is a natural thing. It can be improved by the striving of entrepreneurs, the prudence of bankers, and the sweating of field hands. But when it comes to the macro-economic policy, forbearance is the quality that pays. Any initiative on the feds' part inevitably makes things worse.

The Bubble Era, like the Great Depression, was largely -but not completely - the result of government initiative. Artificially low interest rates - intended to counter the modest downturn of 2001 - sent the wrong message. Consumers - notably those in Britain and America - bought things they couldn't afford. Producers - notably those in Asia - made things for which there was no real market. Debt piled up. Mountains of it.

As consumers bought more and producers made more the economy grew. But much of the economic "growth" of the 2001-2007 period was fraudulent. It was based on debt spending, not on genuine increases in purchasing power. Debt pretends to be real money. It looks like the real thing, but it is not. It stimulates the economy like counterfeit money. It causes production and consumption, but of the wrong sort. Former Reagan era Office of Management and Budget director David Stockman estimates the level of "counterfeit GDP" at $4 trillion in the US alone.

The fraud was discovered, though misunderstood, when sub-prime debt began to implode. The economy had been kissed hard; millions of houses had been built, bought and sold. Now, owners couldn't pay for them. All of sudden, the counterfeit money began to shrivel up. Lenders, investors, and householders all began to de-leverage; paying down the debts as fast as they could, defaulting on those they couldn't.

Rather than come to the obvious conclusion, that they should never have meddled with the economy in the first place, the feds began rescue operations on a breathtaking scale. The British government increased spending to 140% of revenues. America now runs a stimulus program nearly equivalent, in economic impact, to WWII. Not since 1945 have the two pages of its ledgers - debits and credits - told such different stories, with almost $2 of spending for ever $1 in tax receipts. Britain will add almost 50% to its government debt in the next three years. David Stockman expects the publicly held US national debt to almost double in the next five years.

Even at those levels, many economists think the government should do more. Nobel Prize winner, Paul Krugman is one. Richard Koo is another. They've warned that the US (and by extension much of the rest of the world) could suffer a Lost Decade, like Japan, if the government slacks off before consumers have finished de-leveraging. At least they understand what is going on. Too bad they missed the point of it. The problem is too much debt, not too little spending. Leveraging up the public sector doesn't help. Even government debts must be paid - if not by the borrower, then by the lender. The feds are smooching more ardently than any debt lover in history; next, we get to see who dies...or at least who defaults.

Until next time,

Bill Bonner,
for The Daily Reckoning Australia

• Why Weren’t Economists On Top of This Thing?
• Where Do the Feds Get Any Money?
• Keynesians Believe Governments Have to Manage Economy in Macro-Economic Way
• US Economy Still on Runway as Recovery Won’t Fly
• Cash is Created When the Feds “Monetize the Debt” by Buying US Treasury Bonds