Tuesday, December 16, 2008

Indian Markets Not BOTTOMED yet - Bigger Troubles Ahead

My today's post is not for traders but merely a fundamental coverage of "current monetary and fiscal drama" played by Indian counterparts of Bush, Bernake, Paulson etc. Led by Mr. Manmohan Singh, who was the one responsible for changing the course of Indian Financial Picture when he was Finance Minister in Rao's govt. He is a person who will remembered in history for his GREAT victory over conservationists in 1990s and equally his worst MISHANDLE of economy in 2008.

The govt announced a "package" to reinvigorate Indian economy and this package contained various different magical elements resembling more like a kaleidoscope that is handed to children to make them forget "real things".

I will come to the various elements of this package and present my arguments in favour / against them.

First, the "package" contains following items:
  1. An across-the-board four per cent cut in CENVAT
  2. Plan to invest Rs. 20,000 Crore in infrastructure development
  3. (Not in strict terms, but more or less so) FORCING nationalized banks to provide cheap loans (paticularly home loans) at below their cost of funds rates.
Well, these things were factored in at least a week earlier by markets and most people on streets looked happy. The rumour was there would be a 7.5% interest home loan on loans upto Rs. 5 Lakhs but yesterday the news came out and it was decided at 8.5%.

Now let me come to my arguments. First of all this Keynisian theory is dangerously flawed and disasterous in the long run that govt should run surpluses in boom times and deficits in sluggish times. I believe in true free markets and govt should only monitor rule of law. Yes I am one of those economist Mr. Hayek's fans. Let me come straight to my arguments regarding "package" contents.
  1. The across-the-board cut in CENVAT is good action considering there can not be many who can afford to pay high taxes during slowdown and indirect taxes count a lot when prices are concerned. But, that also means a lesser amount of revenue for govt which leads to increasing deficit. Some will argue that this cut in CENVAT will result in price cuts (in fact there are already price cuts in various goods like cars) which will fill the gap of lower CENVAT amount by increasing volume of sales. This looks good in theory but practically this is very flawed theory. The natural "correction" in prices of commodities that would already result in lower consumer goods prices is now being maintained artificially - which means REINFLATING the obscene commodities bubble. I give an example here - let us say the cars were costlier because of higher input costs resulting from high prices of various raw materials like steel and other metals. The natural deflationary cycle would have dealt with this menace on its own by lowered prices which the car companies would pass on to customers. One more advantage of this would be in environmental terms as lesser number of new vehicles sold would mean at least some relief for some time from greenhouse gases.
  2. The next element of the "package" is fiscal stimulous of Rs. 20000 Cr on infrastructure expenses by govt. As I have already said, this is very good thing as India needs a lot of infrastructure development. But, once again the question is where will the money come from? In times of already alarming fiscal dificit it is a real hard question.
  3. The next thing is "forcing" the nationalized banks to cut interest rates. While this looks good for common man as the policy targets loans upto Rs. 20 Lakhs only, the problem is again the viability of such a move. Why can't govt wait for the course of deflationary cycle and preserve its ammunition for more difficult times? What will happen when they reach a situation of high deflation and no scope for rate cuts? That will be disastrous. The banks are said to be very unhappy at this forced duty and they will ask for govt to subsidize these loans. Once again, where the govt will get this extra money?
As you can see, the main problem I see with the "package" is where the govt is going to get this much of money? Remember Farmer's loan waiver? Remember sixth pay commission burden? The govt is already stretched to its limits in terms of funds availability and yet they are going for such "fiscal stimulus".

Although what Indian govt is doing is not even a drop in ocean if compared to what US govt has already done, the difference has to learnt though. Emerging economies don't have the luxury of running big deficits as they have to also consider their currency degradation and devaluation. India, like other emerging economies, needs to rely more on its forex reserves than on external borrowings. Indian govt bonds will not be bought by one and all like that of US are being bought today. Moreover, a destabilized currency will only inflate prices resulting in very complicated monetary situation where the central bank (RBI) will find itself in very difficult position and even HYPERINFLATION (remember Zimbabve?) is a good possibility.

Based on the above I think Indian markets at least haven't bottomed out yet and a fresh new downward spiral may be just around the corner. Being an Indian I pray for being proved wrong.

Friday, December 12, 2008

S&P 500 US - Support Broken



The S&P 500 index of US is what I think is benchmark for US stock markets as a whole (I rarely look at Dow Jones). In my previous post about S&P 500 Future I told how precariously it was placed and any was expecting some good move either side (though my bet was on short side). The reason was it was facing big trend line resistance and yesterday the resistance proved to be bigger than bulls were thinking.

Before today's markets open, S&P 500 future was down sharply below 840 but has recovered to 851 in less than five minutes. Yesterday it broke below 840 and in the process short term uptrend line got broken. In fact, this must be a real bad news for bulls. This broken uptrend line should act as another resistance now, however, given the recent volatility, I would not act in haste.
If we consider this formation as a triangle kind of thing, then the break of support may prove to be a continuation of primary bear trend.

Wednesday, December 10, 2008

S&P 500 Future Analysis based on Daily Chart

I am posting my analysis of S&P 500 (US) after some good gap, the reason was I found it too volatile to look. Today, I can't hold my excitement after what I found on charts, so, here is my view looking at Daily Chart of S&P 500 Future:

If we join the highs of 14th Oct and 5th Nov and extend it, there is a clear down trend line. Yesterday and the Day before yesterday, S&P 500 Future clearly got good resistance there and even today (at the time of writing this post, US Markets are open), also it looks like acting as resistance.

The support line that is being shown on the chart meets the above mentioned down trend line at about 893 and it is going to be interesting going forward. Such situations are always exciting.

To add to this excitement is Fibonacci 61.8% retracement of the down move from 5th Nov high to 21st Nov low is also near, not taken out on a closing basis so far.

Given the volatility, I would refrain from entering S&P 500 at this time, but if I need to make a choice, I would go for a short here as trend line resistance is acting big and risk - reward ratio is in favour of short.

Happy Trading

Nifty Future Analysis based on Hourly Chart

Indian Markets closed up today following global cues. Nifty Future broke an important trend line upwards and it looks like bulls want to charge through.
Here is my analysis of Nifty Future based on Hourly Chart:


Looking at the above chart, I have following to say:

  1. The Downtrend Line that was acting as good resistance so far was conquered yesterday and acted as support after that.
  2. The uptrend line that was broken few days back, can act as resistance now (look at today's close). Nifty Future could not manage to close above it today.
  3. The Fibonacci resistance of 61.8% retracement of previous fall was also taken out today by strong looking bulls.
  4. EMA sequence is looking mixed with Nifty Future closing above 200 SMA and 34 EMA above 55 EMA. Also, these three MAs are closer and a big move either side can be expected.
The above points clearly show that now bulls have upper hand. If Nifty future manages to get past the previous (broken) uptrend line, there can be some good upside. Bulls need to use full force to get past this area. Having said this, we should keep in mind that still the primary trend (intermediate) is bearish and this upmove may be only for short term.

Thursday, December 4, 2008

Nifty Future Analysis Based on Hourly Chart

Here is the Nifty Future Hourly Chart as on the close of 4th Dec, 2008. Looking at the chart, I have following observation:
Although many people are bullsih seeing the impressive upmove of Indian Stock Markets, I have some different view. The Hourly Chart shows a Downtrend Line and an Uptrend Line (which was breached decisively on 1st Dec and also the 200 Period SMA is coincidentally nearby.
  1. This uptrend line (and the accompanied rise) resembles more to a bearish rising wedge / channel , than a genuine, sustainable up move. In my previous post on Dec 1st, I expected resistance then and advised to initiate a short at near 2890, which was not reached. Considering Nifty Future has broken the rising wedge support (uptrend line), now that line should act as resistance.
  2. The two lines converge at about 2819 which should be big resistance now. So, bulls need to take this level with full force to counter bears and then try to conquer 2920 which is not very easy.
  3. The slow stochastic oscillator also signals a short term top, however, I still maintain my view that oscillators should not be given high importance in trending markets.
Looking at the picture, contrary to popular thinking, bears still have bigger hand as compared to bulls.

Monday, December 1, 2008

US Going to Break Down? Already Bankrupt?

Friends, esp those from the US of A, though I am not a US citizen, I am a big fan of AMERICA in many ways. America (USA) is not a country - its an IDEA. An idea of freedom, multiculturalism and law and order. It has entire world's 40% scientific power. It is the only nation in world which is actively trying to save the planet from some possible asteroid strike. Its the only place in the world which is more a dream than a geographical/political place.

Having said the above, I am concerned about the possible collapse of USA financially and politically. Surprising? well, its both surprising and painful to even think in this line but our emotions alone can not change the course of events and what looks like imminent is that USA is on the verge of collapse.

The talk about monstrous US national debt and possible end of dollar based world economy is not new. I told that long back in this post. What is worse is the political deterioration as lawmakers and policymakers in USA seem to be not caring for the facts and only trying to hide recent mistakes (recent means past half century) in the worst possible way. One of the biggest mistake was fiat money regime in 1971 when currency (dollar) was untied to gold. They did that to hide the problems their poor handling of economy created then. So far US has survived so many recessions, stagflations but this time it is VERY DIFFERENT. Different even from The Great Depression. This can be very well the end of FIAT MONEY and dollar based system. The Kondrateif Cycle Winter is on cards (which was postponed in 1990s). If things go as they are going now, then the economic collapse is not far away. If the politicians and policymakers continue to repeat same mistakes(for example trying to fix the bubble burst with reinflating it!!!) then even political collapse is nearer.

The collapse of an empire is not new as history shows that even the best of empires ultimately collapsed (remember Romans? OR quite recent USSR?). So a collapse is not surprising but what is painful is the way it is approaching fast. As Dimitry Orlov put all this in his article on Energy Bulletin website uner the following heading:

Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US

the painful thing is if USA is nearing collapse, it is far worse prepared for it than the former USSR. Already there are warning signs like increasing poverty spreading toward suburbs, which indicates the situation on ground is becoming dangerous every passing day.

I am deeply concerned with these developments as I will also be one of those indirectly but deeply affected by such events. Let us hope somehow this possible collapse be diverted but hopes are not the best solutions.

Nifty Future Analysis based on Hourly Chart

Friends, first my apologies for not posting for several days. My schedule was unexpectedly changed and I had to stay away from markets.

Looking at the Hourly Chart of Nifty Future (at the time of writing this post Indian markets are open) I find the following:

  1. Nifty Future is very short term uptrend but short term downtrend as seen by the EMA sequence on hourly - 5 EMA(gray curved line) above 13 EMA(green curved line) and both above 55 EMA(blue curved line) BUT 34 EMA(red curved line) still below 55 EMA.
  2. The trend line joining high of 4th Nov and 9th Nov when extended, is near 200 SMA on hourly chart, which means the range from 2890 to 2920 should prove to be a big resistance.
  3. The Fibonacci retracement of 61.8% of the fall from 4th Nov high to 20th Nov low comes at 2914, coincidentally near the above point and in the resistance region.
The above observation clearly states that I expect a good resistance at the current levels(2820) through 2920. If Nifty Future manages to get past 2920 with good volume then short term trend will change upwards and bears need to be cautious. I would like to initiate a short around 2890 (if it comes ) and strict Stop Loss at 2930.

Disclaimer: Trading in stock markets is full of risks and can lead to substantial losses. A professional advice before initiating any trade is highly recommended. Anyone acting on my suggestion should know that I will not be responsible for any loss.

Friday, November 21, 2008

Double Top in S&P 500 of US?

First, please note that this analysis I'm presenting here is based on Long Term Monthly Chart of S&P 500 and so its not for trading but just an analysis of an IMPORTANT EVENT. Please see the following chart of S&P 500 from Yahoo Finance:

The S&P 500 index of US is a reliable benchmark for traders as well as investors, although people in general watch Dow Jones Average more. What I present here is an open secret - S&P 500 cash index made Double Top (2000 Top and 2007 Top), and yesterday it did what was most fearing for those who trust technicals - the breakout of that Double Top on downside. The number 768 was very important as was 1077 on S&P 500 and yesterday it closed well below that !

Now, considering the Double Top as a strong case, the target is way too down, so horrifying that I leave it to you dear readers. However, as I've already stated, this is not a trading recommendation as the time period is too large to consider tradeable.

Thursday, November 20, 2008

Target on Nifty Future Achieved

Friends,

The Double Top target of Nifty Future was achieved today. Yesterday I advised to book at least partial profits and I hope most of my readers have done that.

I will update with my latest analysis very soon...

Happy Trading

Wednesday, November 19, 2008

Nifty and Sensex in Danger

Today both NSE Nifty and BSE Sensex closed below the Fibonacci retracement level of 61.8% of the up move from Oct lows to 5th Nov highs. In fact, Sensex was below that level (9850) yesterday itself but Nifty and Nifty Future maintained it.

The worrying thing is that BANKNIFTY, which is the sectoral index for banking sector stocks in NSE, is also below that 61.8% retracement from yesterday. This is considering that bank stocks were already not that much overvalued and Indian banks are relatively much better than that of US and Europe.

The target for Double Top that I had given here is also nearing and those who were short on my recommendation should book at least partial profits.

Tuesday, November 18, 2008

Nifty Future Analysis Based on Daily Chart

In my last post about Nifty Future based on Hourly Chart I spotted a Double Top and told the target to be around 2500. Today Nifty Future came down to almost 2650 and then some short covering (possibly) saved it to close near 2800. Here I present my views based on the Daily Chart of Nifty Future.
Nifty Future Daily Chart 18th Nov 2008
First let me explain objects on it:

Gray Curved Line : 5 Period EMA
Green Curved Line : 13 Period EMA
Red Curved Line : 34 Period EMA
Blue Curved Line : 55 Period EMA
Purple Curved Line: 200 Period SMA

Looking at the Daily Chart, Nifty Future trend is clearly down as the EMA sequence is negative along with falling series of highs and lows. The rally that followed after last month's low resulted in Double Top, which created a downside breakout on 12th Nov.
As I told the target of that Double Top to be near 2500, there is one big incident if that happens. The Fibonacci retracement of 61.8% of the total up move from 27th Oct to 14th Nov is at 2626. This means if we achieve the Double Top target, it will mean all the significance of that up move is lost and chance of a retest of Oct low resurface significantly.

Bulls need to save 2626 at any cost, otherwise all their hard work will be in grave danger. For Bears, they need to give bulls some room so that they can pounce with greater force. I still maintain the view that primary trend is still bearish and all rallies are nothing more than but good selling opportunities.

Tuesday, November 11, 2008

Nifty Future Analysis Based on Hourly Chart

Nifty Future (NSE Nifty India) show weakness after yesterday's up move on global cues. Last time I told my readers that those who have long positions should sell near 3250 rather than to buy fresh as I found a big resistance area around that level.
Nifty Future Hourly Chart 11th Nov 2008
Looking at the Hourly Chart of Nifty Future, the graph looks like coastline of Indian peninsula, on which India, Bangladesh have formed and Myanmar is in progress (Fun intended). Can you imagine if it goes on to complete the map with southeast Asia and then Australia and even New Zealand?

Well, leaving the fun part alone, let me concentrate on what I observe on the Hourly Chart:
  1. The up move of yesterday was although fierce, it failed to even test the high of Nov 4 (There is a Shooting Star on Nov 4).
  2. The EMA sequence on Hourly Chart had turned partially positive but still it is not very reliable considering today's down move has taken the Fibonacci 61.8% retracement of yesterday's up move.
  3. It appears like a Double Top is forming which can breakout downwards if 2850 is breached, then the target comes to near 2450 - 2500.
I would better wait for either the breakout downwards or any other clue rather than preempting. So far it looks like smart money is selling on rallies.

Monday, November 10, 2008

Is it all Fine? Do Not Complain Please

Today, when I opened Yahoo Finance to see what is going on around US Markets, I found something interesting. Below is the screenshot I captured. You can see Dow Jones, Nasdaq and S&P 500 Streaming Quotes on the left side and news headlines on the middle-right. What is funny is that most of the headlines are so negative but stock markets show a completely different picture!

GM stock target $0 !!!
Circuit Cty filing for chapter 11 protection !!!
DHL to cut 9500 jobs!!!
etc etc.

What does it show? Confused? Well, in fact, it is not surprising at all. This is precisely why it is advised to ignore news and follow charts, which incoroparate news in advance barring few unforeseen things. This is also known as "factoring in" of news into price.
I have always maintained and advised here to follow technicals when trading and forget news, the simple reason is - we can't be fast enough to always have breaking news at our steps and we can't be good enough to judge what a news can do to price. Many times the expectation of an event is almost accepted and so it already reflects in the price.

Sunday, November 9, 2008

S&P 500 Analysis on Weekly and Daily Charts

It looks like high volatility has become more a norm than an exception. Last week US Markets fluctuated up and down but settled somewhat in the middle. I present my views on S&P 500 Futures based on Weekly and Daily Charts. Let me first put the common details regarding indicators on charts:

13 Period EMA - Green Curved Line
34 Period EMA - Red Curved Line
55 Period EMA - Blue Curved Line
200 Period SMA - Purple Curved Line
Trend Line - Green Slanting Straight Line

Weekly Chart:
S&P 500 Weekly Chart 7th Nov 2008
Looking at the Weekly Chart of S&P 500 Futures, I observed following:
  1. For some good time(start of June) S&P 500 Future is trading consistelntly below 13 Period EMA which shows how strong the selling force is.
  2. RSI 14 has been indicating oversold state for quite some time but still price is unable to show some good bounce.
Looking at the Weekly chart, I come to the conclusion that buyers have become very weak and even dead-cat bounces are turning out to be few-sessions events. If at all the bulls manage to steer the index up, there will be significant resistance at 1077 area considering it is previous important support and also near 13 EMA on Weekly.

Daily Chart: S&P 500 Daily Chart 7th Nov 2008
Looking at the Daily Chart of S&P 500 Futures, I come to following observation:
  1. After closing above 13 EMA on Daily on 28th Oct, it got resistance at 34 EMA on 4th and 5th Nov and falling from there it is again below 13 EMA.
  2. The 34 EMA resistance coincided with Downtrend Line, so making it a significant point of resistance.
  3. RSI for 14 days does not confirm oversold theory, in fact, if we see previous data, it looks like on a short term basis, it is fairly poised.
Looking at the Daily Chart does not convince me of an oversold situation and so I will refrain from buying into dips and maintain that selling rallies is still better idea.

Tuesday, November 4, 2008

Nifty and Sensex Up

Today the benchmark BSE Sensex and NSE Nifty of India closed up almost 4%. The upside followed previous four days of upmove in a row and traders seem to be more on long side.

Looking at the Daily Chart of Nifty Future, following is my observation:

  • After 22nd Sept, this is the first time it managed to cross and close above 13 EMA on daily chart, which means how weak bulls were in those days but looks like bears have decided to give them some relief.
  • The EMA sequence is still negative (13 EMA below 34 EMA which is below 55 EMA ) but the worry for bears is the gap between these moving averages.
  • Bulls should be looking to square off their longs rather than to buy fresh positions as : 1. this is a vertical up move and a V-shape recovery, which almost always is typical of bear market rally rather than bottom formation. 2. Nifty Future is nearing key resistance areas:
  • The first resistance is from here (3175 ) to the highs of 21st and 22nd Oct (near 3250).
  • Next resistance comes at 34 EMA (near 3460) but that is still some distance away. However, I personally don't think that "price" will go to meet 34 EMA, it could rather be EMA coming down to meet price.
  • If there is a correction in this up move, then support comes at about 2800 to 2700 levels, the Fibonacci 38.2% and 50% retracement levels.

Friday, October 31, 2008

A Must Read Interview of Paul O’Neill

Friends, Today I share an interview that I found on the newsletter I received from "The Daily Reckoning" (www.dailyreckoning.com) with obvious thanks. I have highlighted some important parts, but I recommend reading every single word of the text.

AN INTERVIEW WITH PAUL O’NEILL

From the companion book to I.O.U.S.A.

Paul O’Neill says he enjoyed being the 72nd secretary of the U.S. Treasury
(2001 – 2002), even though the job lasted only 23 months. O’Neill, who has
been analyzing the U.S. budget since he went to Washington, served in the
Bureau of the Budget, which later became the Office of Management and
Budget in the White House.

O’Neill came to American government in 1961 as a management intern, and
stayed for 16 years through the Kennedy, Johnson, Nixon, and Ford
administrations. The last 10 years of his tenure were spent at what was
the Bureau of the Budget, which became the Office of Management and
Budget. There he became deeply involved in the issues of fiscal policy,
budget balance, budget making, and helping presidents choose priorities
for how we spend the nation’s money.

Then he moved to the private sector in 1977. In 2000, he was asked by
President Bush 43 to come back to the government and be the Secretary of
the Treasury, which he did for 23 months before he got fired for having a
difference of opinion.

Q: When you took over at Treasury, how would you characterize the
financial health of the United States? Are you surprised at where we are
today?

Paul O’Neill: When I moved into the Treasury as the 72nd secretary, what
we inherited from the Clinton administration was an economy that had been
rolling itself into a modest recession for a year and a half. By that
time, the dot-com bubble had burst and the economy had slowed down, and we
actually had some negative quarters that we didn’t really know about until
Clinton was gone and Bush 43 was in charge. But on the fiscal policy front
we were in a condition where we had, for the first time in a long time, a
budget that was in surplus.

I have to hasten to add that while it was in surplus, it was not in
surplus on a federal funds basis. It was only in surplus because the trust
funds were bringing in a lot of money and together, with federal funds and
the trust funds, the Clinton administration was able to claim three years
of budget surpluses, which we hadn’t seen since 1969. That was a year
where we were in budget surplus with the use of the trust funds. The last
year I think that we were actually in surplus on a federal funds basis,
without using trust fund money, was in 1960, so we’d been at this now for
47 years of basically living beyond our means – especially if you think
federal funds ought to be in surplus without using the trust fund money to
calculate balance.

So in 2001, when Bush 43 took over and I took over at the Treasury, we
were in a total surplus condition, and arguably (I think this was a
correct argument) we needed to reduce taxes because taxes had crept up to
the point where something like 20 or 21 percent of the GDP was being
effectively taken by federal government. Traditionally, our level has been
someplace around 18 percent or maybe 18.3. So I think it was correct to
say that we could afford to have a tax cut, which President Bush 43 had
run on in the 2000 election, and he set out to deliver what he promised in
the election and I think that was okay. The reason that I agreed to come
in as Treasury secretary was because I saw lots of things in our economy
and our society that needed to be done, and I was encouraged to believe
that Bush 43 was up for the difficult political things that needed to
happen to make course corrections. Those course corrections still include
fixing the Social Security and Medicare trust funds, and fundamentally
redesigning the way the federal tax system works. I thought there was some
prospect that President Bush would entertain the difficult political
choices that needed to be made in order to act on these things, and I
spent a lot of time thinking about these things over a period, better part
of 40 years, so I was anxious to have a go at it.

Q: How did it go?

Paul O’Neill: The first part was the easiest part. Cutting taxes is always
a cinch – it’s only a debate about who gets the credit and how big the cut
is. But then we had 9/11 and it really changed where we were. The economy
was still slow, although we were actually having positive growth in the
fourth quarter of 2001.

But there was still a lot of energy and President Bush himself was
bringing this energy that we need additional tax cuts. I honestly didn’t
think that was the right thing to do, because I continue to believe we
needed the revenue that we were then collecting to work on the
Medicare/Social Security problems. To work on fundamental tax redesign
after 9/11 while worrying about whether there was going to be another
attack or a series of attacks would cost hundreds of billions of dollars.
So I was against further tax reductions at the time, especially as we got
into 2002, as I became more concerned that we were also going to need
money since it looked to me like we were sliding into a war with Iraq. I
argued during the second half of 2002 we should not have another tax cut
because we need the money to work on important policy issues that would
shape the nation going forward, and we needed to have, in effect, rainy
day money for the prospect of Iraq and another set of attacks like 9/11.

That was not a popular view, and in fact, it led to a conversation with
the vice president where he basically told me, “Don’t worry about further
tax cuts, it’s okay. Ronald Reagan proved that we don’t have to worry
about deficits.” Which is really a shock to me because whatever you may
think about Ronald Reagan, I don’t think he or anyone else has proved that
it’s possible to ignore not just deficits, but federal debt as well. I
think it is true that you can be sanguine about deficits for a short
period of time, but you can’t be sanguine about mounting debt for the
United States of America. When we, the Bush 43 administration took over,
we had something over $ 5 trillion, maybe $ 5.6 trillion worth of national
debt. Today [Fall 2007] I think the number’s $ 8.8 trillion. That’s not an
innocent change, it is a monumental change in the debt service that we
have to do in addition to and on top of all of the other things that our
country needs to do.

Q: Toward the end of 2002, you wrote a report that said that the current
debt wasn’t the problem; it was the debt that we are stepping toward.
Shortly thereafter you were asked to leave. Can you explain to me what
happened the day you were fired?

Paul O’Neill: During 2002 I found myself being at odds with where policy
seemed to be going, I kept arguing that we couldn’t really afford another
tax cut and that we didn’t need one, since the economy was doing fine. But
my problems were not just differences about tax policy and social policy
and fixing Medicare and Social Security. I kept asking almost every week,
of the people from the CIA who briefed me, you know, where’s the evidence
for weapons of mass destruction? I see all of these allegations and
projections of trends from 1991 and what we knew in 1991, but I didn’t see
anything I considered to be evidence. One of the things I’ve been trained
to do for a long period of time is to know what you know and to
differentiate that from what you suspect or what someone alleges, so I
kept being a pain in the neck and asking, “Where’s the evidence? There’s
no evidence, there’s nothing I believe.”

Early in the administration, at a National Security Council briefing,
there were a bunch of photos put on the table and it was alleged that this
satellite picture of what looked like a warehouse that you could find
anywhere in the world was a production center for weapons of mass
destruction. I said, I’ve spent a lot of time going around the world,
producing goods all over the world, and have seen a lot of factories and
warehouses. How can you tell me this one is a center for producing weapons
of mass destruction? There’s nothing here that tells you that? You may
assign it that, but there’s nothing here that tells you that.

One of the things I found really interesting out of this experience is
that even today, people that I have a lot of regard for their intellect,
like Bill Clinton, still say they believed the evidence was there. I’ve
never had this conversation with him, but it’s hard for me to believe a
guy who’s as smart as he is doesn’t know the difference between an
allegation and evidence – especially someone who’s trained as he is as a
lawyer. I’ve been astounded, this is a bipartisan thing – people on both
sides don’t seem to get the difference between evidence and what they call
intelligence, which I would call not intelligence, just a bunch of
fabrications. So I was working my way to the margins of what endurance
that people had for me, both in economic policy and in everything else I
encountered. I have to admit some of the things that I said during this
period probably ought to have been tempered. For example, we were
struggling with trying to get the International Monetary Fund and the
World Bank out of the business of effectively bailing out private sector
lenders who’d given money to developing countries with the expectation
that the people of the United States and other tax-paying people around
the world would bail out the private sector lenders. I said (probably not
very advisedly), “Before we give any more money to Argentina, we ought to
make sure it’s not going to go to a Swiss bank account.”

Which was, I admit, not very diplomatic, but it was true – and
interestingly enough, in a few weeks a guy who had been the president of
Argentina said, without any prompting from me, “Well it was true he had
money in a Swiss bank account, but it was all his own.”

So in any event, as we moved past the election in 2002 and we had this
continued conversation, a really heated conversation with the vice
president about what I considered to be the inadvisability of a further
tax cut, I got a call, early in December. I was in my office having a
meeting with a group of people and my secretary came in and said, “The
vice president’s on the phone and would like to talk to you. The vice
president said, “The president’s decided to make some changes, and you’re
one of the changes. What we’d like to do is have you come over and meet
with the president and basically say that you’ve decided to go back to the
private sector, that you’re ready to quit your involvement with the
Treasury.”

I said I didn’t think I needed another meeting with the president, thank
you very much. I thought I’d had plenty of meetings, and I thought he
probably didn’t need a meeting and I certainly didn’t need a meeting. And
I also said to him, “You know, I’ve been going along now for 65 years or
so and, you know, for me to say that I’ve decided to leave the Treasury to
go back to the private sector is a lie, and I’m not into doing lies. And
so what I want to do is issue a press release tomorrow morning before the
markets open so that they’ll have time to digest this news in case it
creates any stir. And I’ll send the president a note telling him I’m
resigning.”

And I think he was surprised by that. He didn’t try to argue me out of it,
I think probably because he’d known me long enough to know that it
wouldn’t do any good, that I’d made up my mind and that was it.

Q: What did it feel like to get fired?

Paul O’Neill: Well, it’s a first in my life – I’d never been fired before,
I’d only been promoted to ever-higher levels of responsibility. But it was
okay with me because I would have really been uncomfortable arguing for
policies I didn’t believe in. One of the things I actually said to
President Bush and Vice President Cheney when they asked me to come and
have lunch with them, and to ask me to serve as the secretary of the
Treasury, was that I had reservations about doing this. And one of the
reservations I had was that, having been the CEO of a very big corporation
for 13 years and the president of a very big corporation for the period
before that, I wasn’t sure how easy it was going to be for me to knuckle
under when I thought the policy was wrong. The thing I didn’t know is how
difficult it would be to knuckle under if you thought the policy was not
well vetted, that it was decided on the basis of ideology instead of what
was right for the country. At that point I really thought the decisions
were not being made on the basis of what was right for the country, they
were being made on the basis of what was right for getting reelected.

It’s probably altruistic, but I thought for a long time we need presidents
who are so devoted to doing the right thing with and for the American
people that they’re prepared to lose for their values and to hang their
values out in public for everyone to see them.

Q: Let’s revisit the conversation that you had with Vice President Cheney
prior to you being fired. Can you discuss the difference of opinion that
you had in regard to tax cuts and deficits?

Paul O’Neill: Sometime after the election – it must have been mid-November
– there was a meeting of the Economic Policy Group, including the vice
president. As we sat at the table in the Roosevelt Room, we talked about
where we were and where we were going. If I remember right, Glenn Hubbard
made a presentation that was displayed on the screen at the front of the
Roosevelt Room and showed where we were going and what different tracks
looked like and GDP growth and the rest, including the effects of the
proposed third tax cut. I made the argument, which I had been making over
and over again since maybe June or July, that it was not advisable to have
another tax cut because of the need to fix Social Security and Medicare
and to have some money to smooth the fundamental redesign of the tax
system. We needed to have in effect rainy-day money in the event that we
had another 9/11 event – and at that point it looked like maybe we were
going to go to Iraq, and it was not going to be cheap to do that.

So I argued that we should not have another tax cut because the economy
was going to be in positive territory and doing okay through the next
couple of years anyway without another tax cut, and there were all of
these other compelling reasons not to risk a deficit and not to risk
adding more to the national debt. And the vice president basically said,
“When Ronald Reagan was here, he proved that deficits don’t really matter
and so it’s not a consideration or a good reason not to have an additional
tax cut.” I was honestly stunned by the idea that anyone believed that
Ronald Reagan proved in any fashion, certainly not inconclusive fashion,
that deficits don’t matter. I think it is true on a temporary basis that a
nation can have a deficit and have a good reason for having a deficit. I
think the Second World War there was no way we could avoid having a
deficit, but when we came out of the Second World War we started running
budget surpluses again and did that through the ’50s and into 1960. It’s
interesting, it’s really only been in the last 40 years or so that we’ve
accepted the notion that it’s a bipartisan thing that we don’t have to
have fiscal discipline.

A year ago there was this signing ceremony in the Rose Garden for the new
Medicare prescription drug entitlement, and it’s going to cost us
trillions of dollars. This event was not unlike any of the others in the
Rose Garden on a nice sunny day, with the president sitting at the signing
table with a bunch of grinning legislators behind him taking credit for
this “great gift” they’re giving the American people. But none of their
money was going to get given to make this happen, because the federal
government doesn’t have any money that it doesn’t first take away from the
taxpayers.

There was no mention of the fact that this in effect was a new tax on the
American people, and we didn’t know how we were going to pay for it. It
was only grinning presidents and legislators taking the credit for a gift,
which strikes me as a ridiculous continuing characteristic of how we do
political business in our country.

Q: If we couldn’t afford it, why did we give it to the people?

Paul O’Neill: If you can get 51 percent of the people in the Congress to
agree with the President’s leadership initiative to say we ought to do
this, that’s all it takes. And I think it’s regrettably true there are a
lot of people who don’t understand that when they get a gift from the
American people, it’s from the American people and it can only be paid for
with taxes over time. I think the confusion is aided and abetted by the
fact that it doesn’t feel like we’re paying for it. It’s a lot like
running up credit card debt: As long as you can pay the interest charges
on your credit card debt, you can live way beyond your means. In fact, we
as a nation are living way beyond our means, and for a period of time,
there’s no doubt we’ve demonstrated you can get away with it. But I think
we only need to look at the fate of other countries who’ve lived beyond
their means for a long time to see you inevitably get into trouble.

If you look at Germany in 1923, they got to a point where their currency
was so worthless that you needed a wheelbarrow to haul the currency that
was needed to buy a loaf of bread. You get inflation where people stop
investing in your national debt, when they say, “We’re not going to loan
you money because you’re not going to be able to pay it back.” It’s the
same thing that happens to individuals and families. When you get extended
to the point that you can’t service your debt, you’re finished.

You know, so you go through a calamity – either you go through a terrible
inflation, which is a way of having a national bankruptcy, and you destroy
accumulated income and wealth, and in fact you have a taking from all the
people because suddenly their financial assets are worth nothing. You
know, are we going to have that right away? No. But should the people who
are in positions of political leadership know that and anticipate it and
do something about it for the American people, you bet – and now is the
time to begin doing something about it.

One of the difficult aspects of this debt problem is that it’s not very
transparent to people who are unschooled in fiscal and monetary policy. In
a way, this problem’s a little bit like the famous example of if you
throwing a frog into boiling water. If you throw him into the already
boiling water, he jumps out right away. But if you put the frog in the pot
of cold water and turn the heat on under it, the frog will let itself be
boiled because it doesn’t respond to slow increase in temperature. Our
debt problem is something like that. If we wait until we have a calamity
and financial markets shut us off because we’ve exhausted their belief
that we can service additional debt, it’s too late.

This is a problem that we need to deal with without letting the heat be
turned up some more.

I would hope we can demonstrate we’re intelligent people that don’t wait
until they create a calamity in their country before they deal with
problems that are obvious to anyone who’s ever studied economic policy and
fiscal policy and monetary policy. You only need to look around the world
to see places like Argentina, Turkey, and Germany after World War II whose
governments have effectively achieved a meltdown condition. Knowing this
can happen to modern nations, we should not let it happen to ours.

Thursday, October 30, 2008

The Common Mistake

When US markets hit new lows few days back everyone was bearish from regular analysts on CNBC to bloggers who post about markets and trends. But, there was a class of these species which thought its "the" bottom, while some thought its "a" bottom. I was in the last category and thought this should be "a" bottom for few sessions, then it will resume the downtrend and the last support is at 2002 lows.

My friend Moyo posted his views on his blog which I found quite a bit interesting. He says the markets have tested bottom and are poised for a rally, also, he says thursday (today) the data on GDP will clear things about wheather US is in recession or not. My first reaction was WHAT????? but instead of repying to that post I thought to post my detailed views here.

If one thinks the lows have been tested and a time for "sustainable" rally is here, then better go to some remote island and relax for few months. If its a vertical up move after such a big sell off, then certainly it is a bear market rally which will fizzle out sooner than later and chances of new lows are more than ever before. To all my readers: there is no BOTTOM for now. For traders, there is definitely a trading opprotunity, but for investors, its nowhere close to bottom.

As far as GDP is concerned, you should keep in mind that GDP of US of A is based on NOT the factory output BUT the consumption by people, which is illusiory by definition. How can Gross Domestic PRODUCT be higher by people buying things they don't need with the money they don't have !!! But, the fact is, people live in illusions and wouldn't listen to me and so they would believe their GDP is growing with increasing spending with borrowed money !!! All this is magic of Fiat Money combined with fat Fate.

Moyo says " Thursday is expected to be another interesting trading day, with the release of the third quarter GDP, this will help clear the air as to whether the US is in a recession or not". How come? US is definitely in recession. Why do you need more data to counter the FACT?

Anyway, what I say was not popular and I do not expect it in near future either. But, the facts can not be changed by data.

God bless America...
God bless humans...

Friday, October 24, 2008

Next Support on S&P 500

Today there is a panic in markets world over and primarily it looks like hedge funds are selling due to redemption pressure. The pressure of selling intensified today in almost every market and is continuing as I write these lines. Yesterday I told about Nifty and Sensex breaking major support levels and today they are more than 10% down.

In this scenario when most of the indexes have retraced more than 62% of their past bull market up move, the question comes where is the next support? Well, for S&P 500 it is very near - 768, the low of 2002 can be a support going forward (As I write this, the S&P 500 Future is trading near 850). But looking at the sentiment globally, even that is doubtful. For Nifty of India, logically it is too far away - 920! It sounds crazy when I even think about that!!!

I hope things stop being worse, but then my hopes don't matter...

Thursday, October 23, 2008

Nifty and Sensex Break Major Support

Today is the day to remember in history for Indian stock markets. The Benchmark BSE Sensex and NSE Nifty both the indexes CLOSED below what could have been ultimate support - the Fibonacci 61.8% retracement of past five year bull market. In other words, the past bull market which made thousands and perhaps millions rich in absolute wealth term is OVER.

BSE Sensex closed at 9771.70, well below 9900 which was the Fibonacci 61.8% retracement from the low 2828.47 in October 2002 to the high of 21206.77 in January 2008. The NSE Nifty was supposed to take support at the 61.8% retracement of the bull market from 920 to 6357 in the same period of five years at 3002.

In my last post I stated my doubt about the markets holding these important support levels and my worst fears came true today. Now that the bull market of past five years is officially over, we should forget it for now and concentrate on the new reality. It does not mean that there will be no upside now, but the fact is even if a bull market starts sometime, it will be all new and will have new dimensions. Also, this effectively means that old leaders like Reliance will no longer be leaders if and when a new bull market starts, although such a possibility of a new bull market is at best bleak for some good time.

The reality is we are in a strong secular Bear Market and there are more chances of it to continue in at least short to medium term. Looking at fundamentals, there may be a time when it is "enough" for the fundamentally "not that bad" Indian economy and we see it going sideways for some time. Historically, Inidan markets are nervous during general elections and this means we should not expect a bull market at least till the coming summer next year.

Saturday, October 18, 2008

Indian Markets at Last Support?

Friends,
Today I present something that is as obvious as oxygen in atmosphere and yet very rarely talked about. I am talking about the long term direction of S&P 500 of USA and NSE Nifty of India.

7th of October, 2008 was when S&P 500 broke the most important support of long term bull market. It was October (quite coincidentally), to be precise, 10th of October, 2002 when S&P 500 index hit a low of 768.63 and a new bull market started after that. On 11th October, 2007 (again a coincidence!), it touched a high of 1576 and as we know the bull market of past 5 years was over.
Taking Fibonacci retracement into consideration, the last support of 61.8% of this up move comes at 1077 and as I've already told, it broke that support decisively. It was last week but considering the interventions and interferences by various governments into capital markets and economy, I thought it might be a result of that. Officially, the bull market is over and if a new bull market starts it will be brand NEW one.

Nifty & Sensex Long Term Trend:
Now let us come to the Indian Markets. The benchmark BSE Sensex and popular NSE Nifty are both at a point which is most important support regarding Fibonacci for the bull market of past 5 years. The 61.8% retracement held this week and it will be interesting to see how these indices behave in coming days. Look at the graph below to see various Fibonacci levels on NSE Nifty:
Nifty Long Term Fibonacci Levels
So, what does it signify? Is the down turn over? Will the previous bull market that got broken in Jan this year resume?
I have simple view regarding this. In my opinion Fibonacci 61.8% is very important retracement level and if we see historically this number has almost always held. Rather than predicting the next move, I would suggest watching the action. If these supports hold, then the long term bull market is intact, otherwise, its over and we better forget that bull market. Had it not been the case for US Markets (that is the broken important support), I'd advise cautious buying here. However, given the importance of this 61.8% retracement level, it would be better to not be a bear for some time and be very cautiously optimistic unless this last support is decisively broken.

Friday, October 17, 2008

Weekend Fun

Friends,
Today after watching Indian Markets collapse and volatile US Futures and European Markets, I feel how bad the position of assets has become worldwide. The BSE Sensex touched four digits and we saw nine handle on it which no one(except some like me) in his widest dream would have guessed a few weeks back! In fact the down swing may be too much but the primary bear market is still far from over.

For a change, let me present here a piece from Bill Bonner's "the Daily Reckoning" newletter in which he presents a hypothetical "letter"from the well known last Fed Chairman Alan Greenspan:

I, Alan Aurifericus Nefarious Greenspan, Chairman of the Federal Reserve
Bank, holder of the Medal of Freedom, Knight of the British Empire, member
of the French Legion of Honor, known to my peers as the “greatest central
banker who ever lived,” (I will not trouble you with all my titles. I will
not mention, for example, that I was the winner of the prestigious Enron
Prize for distinguished public service, awarded on November 1, 2001, just
days after Enron began to collapse in a heap of corruption charges) am
about to give you the strange history of my later years.

For I will dispense with childhood...even with young adulthood, and those
dreary sessions with that terminally dreary woman, Ayn Rand, who couldn’t
write a compelling sentence if her life depended on it. I’ll also dispense
with my own dreary years at the Council of Economic Advisors, and pass
directly to the time I spent as the most powerful man in the world. For
here are my real titles: Emperor of the world’s most powerful money,
despot of the world’s largest and most dynamic economy, and architect of
the most audacious financial system this sorry globe has ever seen.

Yes, I, Alan Greenspan, ruled the financial world. But who ruled Alan
Greenspan? Ah...I will come to that, and tell you how, while presiding
over the biggest boom ever I became caught in what I may call the “golden
predicament” from which I have never since become disentangled.

This is not by any means the first thing I have written. I have written
much over the years. But it was all written for a purpose, which only a
few were able to discern. Most readers foolishly saw the cluttered mind of
a dithering economist or the clumsy, stuttering pen of a professional
bureaucrat. Many listening to my wandering speeches and twisting sentences
thought that English was not my first language. They thought they detected
a faint accent, like that of Henry Kissinger or Michael Caine. They mocked
me as “incomprehensible” or “indecipherable.” They watched what they
thought was an obsequious bureaucrat squirm. They had no idea what I was
really up to and what I can only now reveal.

But they admired me, too. I knew it. Because they saw in me a kind of
genius...a Bernoulli of banking...a Newton of numbers...a Leibnitz of
lucre...a Copernicus of currency. My mind worked at such a high pitch,
they believed, that my thoughts were inaudible to most humans. They
counted on me to keep the great empire’s economy trundling forward. Little
(actually nothing) did they know of my real thoughts and designs.

But now, all has changed. Now, I can write clearly and speak the truth.
For now I am leaving my post. There is no further need for me to
dissemble; no further need for me to pretend to kow-tow before
Congressional committees; no further need to hide the real facts from my
employers and the American people. Now, I swear by the gods, what I write
comes from my own hand, and not from some overpaid, anonymous flack.

Some are born in crisis, some create crisis, and others have crisis thrust
upon them.

Let me begin at the beginning. Scarcely had I settled into to the big
chair at the Fed when a crisis was thrust upon me. And it is true, I
responded in the conventional manner. There is no manual for central
bankers, but there is a code of behavior. Faced with a financial crisis of
any sort, a central banker’s first duty is to run to the monetary valves
and open them. This I did in 1987. I was new to the job and probably
didn’t open them enough. The U.S. economy lagged its rivals in Europe for
several years. My old boss, George Bush, the elder, lost his bid for
re-election in 1992 and blamed it on me. I resolved never to make that
mistake again. Faced with a slew of challenges, shocks, uncertainties,
crises and elections...ever thereafter, I made sure that every valve,
throttle, level, switch and sluice gate was wide open.

But it was on December 5, 1996, that I had my first epiphany. That was the
year that I made my celebrated remark about stock prices. I wondered aloud
if they did not reflect a kind of “irrational exuberance.” In truth,
whether they did or did not, I do not know. But what I came to realize was
this: 1) People, especially my employers, actually wanted prices that were
irrationally exuberant. And 2) they could become far more irrationally
exuberant if we put our minds to it.

I was 70 years old at the time. I had weaseled (why not be honest about
it?) my way to the top post by knowing the right people and by making
myself generally agreeable, and helpful, and by not saying anything anyone
could disagree with. That was the original reason for what the press
called “Greenspan speak.” My private thoughts remained mine alone. All the
public and the politicians got was gobbledygook, but for good reason.

They would not have wanted to hear what I really thought. So, I did not
tell them. For I knew well and good what generally happened when
politicians and central bankers got their hands on soft money and a
compliant central banker. I was not born yesterday. They use their control
of the money to cheat people. It is as simple as that. (I explained this
early on in my career; fortunately, no one bothered to read what I wrote.
Otherwise, I never would have gotten the job.) If central banking were an
honest m├ętier, there would be no reason to have it at all. Private banks
could do the job better.

But people are ready to believe anything. Somehow, they think that a
collection of rich financiers and power-mad politicians got together to
create and run a central bank for the benefit of the people! Well, I’ve
got news: it doesn’t work that way. Money is only valuable when it is
rare. It is like stock in a company. The shareholder is happy to hold a
few shares. But imagine how he would feel if the company issued a few
million more shares. His own ownership of the valuable thing is diluted.
He would be cheated.

Likewise, an honest banker cannot dilute his depositors’ money. He cannot
create real money “out of thin air,” as if he were issuing new share
certificates, without cheating his clients. But that is exactly what
central bankers do. They issue a certain amount of currency. Then, they
issue more and more of it. So, the people who got it and saved it lose a
little bit of the value each year. In effect, the value is lost by the
savers holders and captured by the people who control the currency. It is
really a very simple swindle. Who but an octogenarian Fed chief, on his
way out the door, would have the courage to say so?

People today act as if they had invented money themselves. But money,
central banking, and currency debasing have been around a long time. In 64
A.D., Nero decreed that the number of aureus coins minted from a pound of
gold would increase from 41 to 45 (each coin would be about 10% less
valuable). The silver denarius, meanwhile, lost 99.98% in the five
centuries before the sacking of Rome. Paper sheds value even faster. The
dollar has lost 95% of its purchasing power since the Fed was set up to
protect it in 1913.

A successful central banker, in the age of compliant paper money, is one
who is able to control the rate of ruin so that the rubes don’t catch on.
A little bit of inflation, they believe, is actually healthy. Haven’t the
economists told them so? Issuing a little bit more money each year makes
people feel richer...so they spend more; they hire more people; they build
more houses. Everybody is happy. Everyone feels richer. What an elegant
fraud! It’s almost a perfect crime, because no one objects as long as it
is done right. (My replacement at the Fed, Ben Bernanke, specializes in
controlling the rate at which central bankers can steal from dollar
holders without getting caught. He says that if necessary, he’ll “drop
money from helicopters” should the currency fail to lose value fast
enough. I predict that there will be a lot of people who will want to drop
him from a helicopter...for reasons I will explain here.)

I return to my narrative. After I made my remark about “irrational
exuberance,” I was called into Congress. The politicians who confronted me
were the usual oafs and know-nothings. They made it clear that if I wanted
to hold onto my job, I would have to stop worrying whether asset prices
were too high; instead, I would need to do all I could to goose them up!
It was on that very day, I recall it well, that what I had previously seen
only in foggy theory came out into the clear, bright daylight of applied
central banking.

No one wants honest money. No one. The politicians, bankers, investors,
voters, and householders – anyone with a voice in the matter wants “easy”
money. It is just too delicious to resist. (I wondered what kind of a
central banker would stand against them; he would need a backbone of
titanium like Paul Volcker, and a head as thick and hard as a vault.)
Debtors want a little inflation to lighten their burdens and put a wind to
their backs. Creditors want inflation to swell their asset values.
Politicians want to be re-elected. Businessmen want customers with money
to throw around. Is there anyone who doesn’t appreciate a little
inflation?

And yet, of course, I always knew the answer. Easy money only works by
defrauding people into thinking they have more money than they really do.
Easy come; easy go. They get it; they spend it. Before you know it, you
have a boom. But people soon adjust their expectations. Prices rise to
catch up to new money. Debt levels increase, and with them come heavier
debt service costs. The magic fades. What can a central banker do? He can
do the right thing. He can “take the punch bowl away,” as my predecessors
used to say. But this is where the trouble begins. Take away the punch
bowl, and they begin punching you! I recall they burned Paul Volcker in
effigy on the Capital steps when he did it. They would have burned him
alive if they could have gotten their hands on him.

Why should I, Greenspan, suffer such a fate? No, it was not for me. This
was the “golden predicament” I faced. Yes, I knew well that the nation
would be better off if the punch bowl were removed, but I knew that I
would be removed too, if I did it. And I knew, also, that it would be just
a matter of time until the pressure for easy money would overwhelm any
resistance a Fed chairman could put up. No pure paper money system has
ever lasted. People can never resist the temptation to make the money
easier and easier...until it is so wobbly and woozy it falls on its face.
It’s better that it falls sooner rather than later. It’s better that the
lesson is taught now, rather than 10 years from now. It’s better that the
lean times come on the next man’s watch, not on mine! That’s what I owe to
old Ayn; she taught me who rules Greenspan – Greenspan! Ayn taught me the
number one rule: Look out for Numero Uno.

I remember it so clearly. I was sitting in a House committee hearing room.
My tormentors kept asking questions. I kept giving the kind of answers for
which I later became famous...answers that didn’t say anything. And I
thought to myself: if these lardheads want easy money, I’ll give them easy
money. I’ll give them the easiest money the planet has ever seen! I’ll
give it to them good and hard!

And so, I did.

Since I joined the Fed, outstanding home-mortgage debt has jumped from
$1.8 trillion to $8.2 trillion. Total consumer debt went from $2.7
trillion to $11 trillion. Household debt has quadrupled.

And government debt, too, exploded. The feds owed less than $2 trillion in
the second Reagan administration, a figure that had been almost constant
for the previous 40 years. But under my direction, the red ink has
overflowed like the Nile in flood – to over $7 trillion.

During the two terms of George W. Bush alone, the feds have borrowed more
money from foreign governments and banks than all other American
administrations put together, from 1776 to 2000. And more debt will be
added in the eight Bush years than in the previous two hundred. The trade
deficit, too, more than tripled since I’ve been at the Fed, from 150.7 to
756.8 billion, and will reach $830 billion in 2006. When I came to power,
the United States was still a creditor. Now, it is a debtor, with more
than $11 trillion worth of U.S. assets in foreign hands, a more than 500%
increase since 1987.

Who can argue with such a record? Who can compete with it? Who would want
to?

But that is the smooth, perverse pleasure a cynical old man takes in his
achievements. I have practically ruined the nation, and I know it. If you
distributed the cost of the federal government’s programs, promises, and
pledges to the voters, along with the nation’s private debt, the typical
household, and the nation itself, would be broke. And yet, almost
everywhere I go, I am revered as a maestro...saluted as if I were a war
hero. It is as if I had won World War II all by myself. The same
numbskulls that wanted easy money 10 years ago, now praise me for causing
what they call “The Great Moderation,” as if there were anything moderate
about America’s borrowing binge.

Others say that my real legacy is that I finally “made central banking
work.” Yes, I made it work...just like it’s supposed to work, giving the
people enough rope so they could hang themselves. That’s what they’ve
done. Now, they dangle from a long rope of mortgages, deficits and credit
cards.

And I am delighted. Soon, people will be able to see how central banking
really works. And poor Ben Bernanke will get the blame for it. He and his
stupid helicopters...he almost deserves it.

I hope you enjoyed it...
Sincere credit to Bill Bonner of www.dailyreckoning.com

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