Author: Steve Boren

Just when you thought the flu pandemonium was dying down, it’s rearing its ugly head again. But it’s not the flu itself that’s the problem… it’s the people who are trying to "protect" you from it.

Because despite the fact that we’ve experienced one of the mildest flu seasons in years, the vaccine hustlers at the U.S. Centers for Disease Control and Prevention are recommending that every single man, woman, and child be vaccinated starting with next flu season.

They’re saying it’s because the current recommendations are too complicated. But the REAL reason is that this type of official policy would make it more likely that insurers would cover flu shots.

And let’s face it — pushing vaccines is what CDC bureaucrats do best. Well, that and denial… and they’ve outdone themselves recently on that one, too. They’re still warning of a deadly "third wave" of swine flu that could strike at any time.

Anyone here scared? Didn’t think so.

People aren’t being careless; they’re being realistic. And when it comes to the flu, the warnings simply don’t match reality.

Seasonal flu generally peaks in February and March. For the past few years, around 3.5 percent of all doctor visits in late February have been for flu-like symptoms. That’s small enough… but this year, that number was slashed nearly in half — to 1.8 percent.

How do they explain that? Guess what… they can’t! So they’ve made up some nonsense about how flu might peak in May this year instead.

It’s like a doomsday cult that keeps revising its prediction each time the world doesn’t end.

The CDC brains want you to think they’re playing it safe in the face of a serious disease… but really, they’re just playing us for saps, plain and simple.

Here’s what else is going to happen during the next flu season, when more people than ever will be urged to get shots even if there’s no real flu threat: Some of Big Pharma’s biggest drugs will be losing their patent protection.

They’re going to lose billions, unless they think of something fast.

What do you think they care about more… protecting you from the flu, or protecting their bottom line? Think about that the next time you roll up your sleeves.

Giving the CDC a reality check,

William Campbell Douglass II, M.D.

The drug companies want you to think of aspirin as a magic bullet for your heart. Oh, it’s a bullet all right — and it’s definitely aimed at your ticker.

One of the most irritatingly persistent myths in modern medicine is the downright insane notion that daily aspirin can help your heart. So I can’t tell you how it lifts my own heart to see this one finally crumbling.

Even the Wall Street Journal is giving aspirin therapy the kiss of death. A recent story with the headline "The Danger of Daily Aspirin" began with this sentence: "If you’re taking a daily aspirin for your heart, you may want to reconsider."

Forget "may" — definitely reconsider, because this was a bad idea the moment Big Pharma’s marketing department dreamed it up.

One new study in the Journal of the American Medical Association found no benefit at all in giving aspirin to people at high risk of heart disease. My favorite part: It was funded in part by Bayer.

Must’ve been awkward when it came time to deliver the results. I’ll bet they’re looking for a refund… and a few researchers’ heads.

But the truth’s the truth… and the truth is, aspirin can cause bleeding in the stomach and brain. And that’s not the only way this supposed painkiller can kill you… because aspirin can actually cause potentially deadly blood clots.

Yet despite aspirin’s obvious dangers, you can’t turn on the TV without seeing a commercial that talks up aspirin therapy for heart patients. An actress in one commercial claims, "My doctor says it’s the easiest preventive measure you can take."

Easy — yes. Safe — heck no! Sounds like you need a new doctor, lady… one who’s been reading the medical journals instead of watching aspirin commercials.

Here’s one fact you won’t hear in those ads: Roughly half of all people who suffer a fatal heart attack took an aspirin that day. I wonder what their final thoughts were. I bet more than a few clutched their chest and cried out, "But… I took an aspirin today!"

Bottom line: Don’t gobble down daily aspirin unless you’ve got a death wish. And if you really hate life, add an ibuprofen to the mix — patients who take that and aspirin together have double the risk of fatal heart attack.

These are powerful drugs, not candy… even if many people munch on them like Skittles. If you really want to pop a pill for your heart, take a fish oil capsule instead.

William Campbell Douglass II, M.D.

1. The Massive Healthcare Bill Becomes Law
2. National Debt Soars $2 Trillion Under Obama
3. Moody’s Issues US Credit Rating Warning
4. Think Greece – Welcome to the Third World
5. Have We Passed the Tipping Point?

Introduction

America is headed for another much more serious financial crisis in the coming years. Trillion- dollar annual budget deficits are skyrocketing our national debt – now at a record $12.6 trillion – which could double over the next decade. As I will discuss below, Moody’s, one of the nation’s oldest credit rating firms, warned recently that the US government could lose its triple-A credit rating in a few years if the current runaway spending is not reduced.

Whether the government loses its triple-A credit rating or not, those who buy our trillions in government Treasury securities are becoming increasingly nervous about our ability to make good on those supposedly risk-free obligations. Foreigners own over half of our outstanding national debt. When these creditors decide they no longer trust our commitment to make good on this exploding debt, we will enter a financial and currency crisis that will make 2008 look like a walk in the park.

More and more Americans are coming to realize this. As the healthcare reform debate has raged on for over a year, President Obama and congressional leaders Nancy Pelosi and Harry Reid and others have assumed that the American people who oppose a government takeover of healthcare simply do not know what is best for them. But they miss the point, in my opinion.

More and more Americans now realize that the healthcare reform bill that was passed on Sunday by the Democrats will cost over a trillion dollars over the next decade, and that this is simply more out-of-control government spending. They understand that we face a massive financial crisis in the next few years if the US continues down this path.

Of course, new taxes and cost savings are supposed to more than cover this trillion-dollar boondoggle, at least according to the Congressional Budget Office. However, considering that the CBO projected the cost of the Bush Prescription Drug Program at about $400 billion and it ended up costing about three times that much, I have ZERO confidence in this estimate.

All of my trusted sources (including BCA that I am no longer allowed to quote in these pages) now agree that the US will face a much greater financial crisis sometime in the next few years. Some fear that we will face a multi-year crisis and depression – sooner rather than later – if we continue to run trillion-dollar budget deficits and balloon the national debt.

This week and in weeks to come, I will focus on this issue. If we do not take action to reduce our out-of-control spending and deficits, it will lead to the devastation of our investment markets – all of them – at some point. And many fear that point is already on the horizon. If so, this subject is well beyond a political issue.

The Massive Healthcare Bill Becomes Law

After all of the political hullabaloo over the past year, the healthcare bill is now the law of the land. We still don’t yet know all of the political deals (read: bribes) that were made to get the number of votes required, but I think we can be sure there were plenty. And to think Obama ran on ushering in a new age of government “transparency” – yeah, right!

There’s an old saying about how a camel is really a horse built by committee. The healthcare bill is probably the ultimate culmination of that idea. Only time will tell just how bad this hodgepodge of provisions will be for healthcare, future deficits and the national debt. I have received many negative comments from those who supported this healthcare initiative and all I can say is, be careful what you wish for. Unfortunately, by the time they see that their hopes were misplaced, it will be too late.

I’ll leave my comments on the passage of healthcare to that, but keep in mind that this first step toward government-run healthcare will cost much more than projected (as all government-run programs do), and it will only make the problems I discuss below be even worse.

National Debt Soars $2 Trillion Under Obama

The Treasury Department recently released data showing that the national debt has increased over $2 trillion just since President Obama took office. The national debt now stands at over $12.6 trillion. On the day Mr. Obama took office it was $10.6 trillion. The national debt has never increased this much in such a short time.

Again, this is not a political observation. Former President George W. Bush still holds the record for the most debt run up on his watch, $4.9 trillion. But it took him over four years to rack up the first $2 trillion dollars in debt. It took President Obama only 421 days in office to do so!

Obama and his administration routinely blame the Bush administration for inheriting a budget surplus and turning it into years of record-breaking deficits and debt, and then leaving it on the doorstep of the new president. They also cite the credit crisis of 2008 as another reason for the surge in debt. The president has said on more than one occasion:

“I walked into office facing a massive deficit, most of which was the result of not paying for two wars, two tax cuts, and an expensive prescription drug program. When we walked in, we had a deficit of $1.3 trillion and projected debt over the course of a decade of $8 trillion. The lost revenue from this recession put us in an even deeper hole. And the steps we took to save the economy from depression last year have necessarily added to the deficit — about $1 trillion, compared to the $8 trillion that we inherited.”

Much of the above is indeed true. Long-time clients and readers will recall that I routinely criticized President Bush for running huge budget deficits, the worst of which was in FY 2008 when the deficit topped $459 billion. But President Obama’s answer to record budget deficits is to spend even more.

The actual federal budget deficit for FY 2009 was a record $1.413 trillion according to the Congressional Budget Office. This was the last federal budget submitted by President George W. Bush, and President Obama made no effort to reduce it. In fact, he is on course to increase it in 2010 and 2011. Here are the CBO’s deficit projections for 2010 through 2020 based on Obama’s FY 2011 federal budget projections (in trillions):

2010

$1.500

2016

$0.894

2011

$1.341

2017

$0.940

2012

$0.915

2018

$1.001

2013

$0.747

2019

$1.152

2014

$0.724

2020

$1.253

2015

$0.793

If we count the FY 2009 deficit of $1.413 trillion, that will more than double the current national debt by 2020, and it will likely be even worse.

Based on the 2009 deficit and these CBO projections, Obama will add over $5 trillion to the national debt in his first four years in office alone! Unfortunately, these numbers are very likely too optimistic. The CBO’s economic assumptions are overstated in my opinion and those of other respected analysts. For example, these projections assume there will be no recessions over the next decade; never mind that we’ve had two in the last decade. And this does not include any expenditures for healthcare.

Note in the chart above that the darker bars represent the CBO’s “baseline” deficit projections before Obama announced his proposed federal budget for fiscal year 2011 on February 1. Following the unveiling of his record large $3.8 trillion budget for 2011, and his budget projections for the next 10 years, the CBO went back and adjusted its deficits projections accordingly, which are represented by the much larger lighter-colored bars above.

The impact is enormous, and this is why I and many others believe that another larger financial crisis looms ahead!

Moody’s Issues US Credit Rating Warning

While the gloom-and-doom crowd has been wringing their hands over the possibility of a downgrade of the US triple-A Treasury bond rating for years, most have just dismissed this as much ado about nothing. After all, everyone else in the world seemed to be worse off than the US, so by comparison, we looked pretty good.

Unfortunately, the glass-half-empty crowd got a big boost recently from a report issued by none other than Moody’s Investors Service, one of the major US bond rating companies. While Moody’s report noted that the AAA rating currently enjoyed by US Treasury bonds is in no immediate danger, it also warned that if the US continues down the road of out-of-control deficit spending, that our AAA credit rating could be a thing of the past.

This isn’t the first time that Moody’s has made comments in regard to the vulnerability of America’s top credit rating. Previous reports have had similar warnings. However, the latest report contained one of the most sobering quotes I have ever seen in regard to the consequences of uncontrolled deficit spending:

“Growth alone will not resolve an increasingly complicated debt equation. Preserving debt affordability at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”

In other words, welcome to Greece if we don’t get our act together. We have become spoiled by the fact that the US economic engine has pulled us out of past scrapes. The US economy has surprised on the upside for over 25 years, and recessions have been fairly mild over that period. That is until the credit crisis/recession in 2008-2009, which was a warning of what is to come, in my opinion. If Obama and Congress keep spending like drunken sailors, any substantial economic growth is going to face a fierce headwind, or worse.

Following the startling Moody’s report, President Obama wound-up Treasury Secretary Tim Geithner and marched him out in front of the cameras to do some damage control. Geithner said there was “no way” that the rating agencies would downgrade the US bond rating. Speaking before the House Appropriations Committee, Geithner said:

“What people who look at our country – credit rating agencies, investors, Americans – what they look at is whether we have the political will to restore gravity to our fiscal position.”

Apparently, Mr. Geithner assumes that President Obama and the politicians who surround him in Washington have the political will to cut spending and reduce the trillion dollar deficits at some point before we go over the cliff. Frankly, I don’t believe they do! I’m not really sure Geithner believes it either, but he has to make the public believe he does, and he’s not doing a good job of convincing anyone.

Think Greece – Welcome to the Third World

While I realize that there is no immediate threat to the US Treasury debt rating, I think it would be instructive to consider just how the US would look if Treasuries were to lose their triple-A rating. The first and most obvious effect would be that the Treasury would have to pay a higher rate of interest on its debt.

This isn’t World War II where citizens bought war bonds to help fuel government military spending. Today, over half of our public debt ($7.5 trillion according to the Treasury Dept.) is held by foreigners, most of which have no patriotic motivation for holding our Treasuries. While some have global trade reasons for making sure the US economy continues to stay strong, they may still want a higher rate of interest to compensate for lending us money going forward.

Higher rates on Treasury debt securities would also mean higher debt servicing payments. Under the current conditions, annual interest payments on Treasury debt are expected to grow significantly over the next 10 years. A recent CBO report contained the following statement about future debt service:

“With such a large increase in debt, plus an expected rise in interest rates as the economic recovery strengthens, interest payments on the debt are likely to skyrocket. CBO projects that the government’s annual net interest spending will more than triple between 2010 and 2020 in nominal terms (from $207 billion a year to $723 billion) and will more than double as a share of GDP (from 1.4 percent to 3.2 percent).” [Emphasis added, GDH.]

If Treasury yields have to rise to stimulate global demand for our debt, that will flow through to the economy by raising long-term interest rates across the board. That’s the last thing a struggling economy and a still slumping housing sector need, whenever it occurs. The government would also be competing for loans with private business, making it harder for the economy to grow and prosper.

Finally, having a national debt ($12.6 trillion) approaching our GDP ($14.3 trillion), foreign owners of our Treasury debt are increasingly becoming nervous about our record deficits. Considering that they own over half of our outstanding debt, it is no wonder that they are making their concerns known. China, the largest foreign holder of Treasury debt, has publicly chided the US over the out-of-control spending proposed by Obama.

And in case you haven’t heard, the Treasury Department reported that China has reduced its holdings of US Treasury debt over the last three consecutive months. While the amount of this reduction by China is not seen as significant, it may well be a harbinger of things to come if we continue to run trillion dollar deficits.

Have We Passed the Tipping Point?

Most economists agree that the worst of the credit crisis and the recession is behind us, and I would agree – for now. Most analysts agree that the US will experience mild economic growth over the balance of this year and perhaps into the first half of 2011. But beyond next year, there is no consensus on what lies ahead over the next several years.

What we do know is that the US is increasingly dependent on foreigners who: 1) buy and hold over half of our national debt; and 2) hold trillions in US dollars. Everyone agrees that should these foreign holders of Treasury debt and US dollars ever decide to stop buying (or worse, start unloading) our debt securities and dollars, it’s game-over!

Yet the Obama administration’s own projections show the national debt almost doubling over the next 10 years, as noted earlier. Of course, Obama doesn’t get all the blame. Every president in recent decades has run budget deficits, including Ronald Reagan, who I also criticized at the time in my Forecasts & Trends paper newsletter.

With the exception of Bill Clinton, who managed budget surpluses in FY1999 and 2000, we have had annual budget deficits for years. Making matters worse, those deficits have gotten larger almost every year. As noted above, the federal deficit reached a record $459 billion in President Bush’s last year in 2008. President Obama’s deficit in 2009, and the projections for 2010 and 2011 (shown above), are nearly triple Bush’s last deficit!

It is as if we are snubbing our collective noses at the foreign buyers of our debt who make this record spending and ballooning deficits possible in the first place.

The question is whether we’ve reached the so-called “tipping point,” where we have gone too far to remedy the problem short of a disastrous end. Based on President Obama’s own budget and deficit projections (which may be too optimistic), he will have added $5 trillion to the national debt from FY2009 to the end of 2012. The national debt would then be apprx. $17.6 trillion, and I believe it is safe to also assume that our foreign creditors will be up in arms by then.

There are some that believe there is no great problem with the national debt exceeding GDP ($14.3 trillion). Japan, after all, has done it for a number of years, as have some other smaller nations. There are some who believe that the US economy is going to bail us out yet another time. Yet even if the economy was to somehow return to annual growth of 5-6%, or even more, that would not make a huge dent in the deficit projections. And with bank lending still in the tank (as discussed in my March 2 E-Letter), there is little chance of that happening.

Another possibility is that Congress and the Obama administration come to their senses and move to cut federal spending dramatically. Yet in order to balance the budget, it would require significant cutbacks in discretionary spending AND mandatoryprograms – including entitlements – that make up over 60% of the federal budget. Obviously, that is not going to happen; in fact, just the opposite is happening with the latest healthcare entitlement.

With the economy not expected to boom in the next several years, and with no cuts in entitlement spending, that leaves only the markets and our foreign creditors to enforce the discipline on our lawmakers and ultimately, the general public that elects them.

At some point – and no one knows exactly when – foreigners will balk at buying more US debt; likewise they will begin to unload US dollars. When this happens, I believe we will face a financial crisis that will be much worse than that of 2008-2009. I believe it will usher in a new depression if something is not done.

I know there are those who will disagree. Here’s one common argument: China has to keep buying our debt to keep the US – its largest customer – afloat and healthy. To a degree this is true, and it explains why China is the largest foreign holder of US Treasury debt.

But let’s not forget that age-old banking saying: I’m more concerned about the return of my money than I am about the return on my money. I believe that if we continue down this path of trillion dollar deficits, our foreign creditors will reach the point where they decide to bail on the US, and that will spell disaster.

Think of the US housing market in 2005, 2006 and early 2007. Home prices were going through the roof. If someone had predicted that home prices across the country would dive 30-40-50%, the response would have been: That simply cannot happen!

But it did happen. Bubbles always burst, and it’s rarely pretty. If a $5 trillion (40+%) surge in the national debt in only four years is not a bubble, I don’t know what is.

Sorry to be so negative this week, but I believe we are headed for a train wreck, and it’s just a matter of time.

Wishing I had better news,

Gary D. Halbert

SPECIAL ARTICLES

Democrats to Americans: Drop Dead
http://www.washingtonexaminer.com/op…-88785812.html

Healthcare: Liberal governance with a very steep price
http://online.wsj.com/article/SB1000…813148208.html

Healthcare: The Lie of Fiscal Responsibility
http://reason.com/archives/2010/03/2…l-responsibili

More…

While the US was focused on the health care drama over the weekend, over across the pond events are rapidly deteriorating in euro land. For this week's Outside the Box I offer two columns, one from the Financial Times and another from the London Telegraph. Both describe the problems that the eurozone faces. It is not pretty.

I was sent this note from a Steve Stough who translated this from a German TV news show' It is a nice set-up for the two short columns.

I was reading an interview with Germany's most-quoted economist and then, all of a sudden, his face pops up on a TV show (a panel discussion on Germany's version of Fox Business News) at the same time, so I paid close attention. Hans-Werner Sinn's remarks are apparently listened to as closely as are the Federal Reserve Chairman's remarks in the US. He said:

• The Greek drama will have a 'frightful' ('schreklich') ending no matter which course of action is taken. The objective is to avoid having a Greek default trigger another banking crisis across the EU.
• The EU member states are too financially fragile to take on any flaky Greek debt. The actual Greek deficit is running at 16% of GDP, not 12% as previously reported. Greece is in a deepening retraction, not a recovery, as previously claimed. [Germany's social security, welfare, unemployment, and health care entitlement programs are all running cash-negative or soon will be, but that is another subject entirely. Angela Merkel has a committee established to work on tax reform, meaning tax rate reductions – Steve].
• There are three bad alternatives. He recommends #3 (effectively, default):
  1. A Franco-German bailout. Dr. Sinn believes this is impractical and the worst of the three alternatives because the amounts required for an effective bailout are so large that it would trigger a jump in yields on French and German sovereign debt which would result in a Euro-wide financial crisis. In addition, Angela Merkel said 'no,' and so did Guido Westerwelle (her coalition partner and foreign minister).
  2. IMF loans. Dr. Sinn believes that this would accelerate the Greek economic contraction with a dramatic deflation of wages and prices, which could lead to civil war, revolution and a political destabilization of the area.
  3. Exit the Euro zone, revive the Drachma, re-denominate the sovereign bonds in Drachma, let the Drachma collapse, and rebuild after the collapse, largely on tourist remittances Assuming a small amount of domestic (internal) default, this would be the least-painful to the Greek populace, but German banks and investors would lose approximately $38 Bn in bond investments +/- what can be recovered after the Greek economy recovers. Eventually, Greece would be allowed to re-join the EU.
• Formation of an EU monetary fund is out of the question, he believes, because it requires treaty modifications that might take many years to pass.
• As an aside, he said that if German tax rates are not lowered, that Germany will slide back into recession.

Steve Stough

As a quick aside, I know I said two weeks ago that I would do an assessment of the affect of taxes on the US economy. I decided to hold off until we can see what the health care taxes rally look like, rather than guessing. I will get to it, as I am quite curious as to the total level of the tax increases.

Now, to this week's OTB.

John Mauldin, Editor
Outside the Box

Has Germany just killed the dream of a European superstate?

By Ambrose Evans-Pritchard from the Telegraph

German Chancellor Angela Merkel has little hope of selling a bail-out of Greece to German voters

German and Dutch leaders have concluded in the nick of time that they cannot defy the will of their sovereign parliaments by propping up a country that lied about its deficits, or risk court defeats by breaching the no-bail-out clause in Article 125 of the EU Treaties.

Chancellor Angela Merkel has halted at the Rubicon. So has Dutch premier Jan Peter Balkenende, as well he might in charge of a broken government facing elections in a country where far-right leader Geert Wilders is the second political force, and where the Tweede Kamer has categorically blocked loans for Greece.

The failure of EU leaders to cobble together a plausible bail-out – if that is what occurs at this week's Brussels summit – is a 'game-changer' in market parlance. Eurogroup chair Jean-Claude Juncker said last month that such an outcome would shatter the credibility of monetary union. It certainly shatters many assumptions.

There will be no inevitable move to fiscal federalism; no EU treasury or economic government; no debt union. It is Stalingrad for the federalist camp and the institutions of the permanent EU government.

I remember hearing Joschka Fischer, then German Vice-Chancellor, telling Euro-MPs a decade ago that EMU was “a quantum leap … creating an inexorable federal logic”. Such views were in vogue then.

Any euro crisis would force Europe to create the necessary machinery to make it work, acting as a catalyst for full-fledged union. Yet the moment of truth has come. There is no quantum leap. We have a Merkel pirouette.

Paris is watching nervously. As Le Monde put it last week, “behind the question of aid to Greece is a France-Germany match that pitches two conceptions of Europe against each other.” The game is not going well for 'Les Bleus'. The whole point of the euro for the Quai D'Orsay was to lock Germany into economic fusion. Instead we have fission.

EU leaders may yet rustle up a rescue package that keeps the IMF at bay, but alliances are shifting fast. Even Italy has slipped into the pro-IMF camp, knowing that rescue costs can be shifted on to the US, Japan, Britain, Russia, China, and the Saudis, lessening the burden for Rome.

Besides, too much has been said over the last week that cannot be unsaid. Mrs Merkel's speech to the Bundestag was epochal, a defiant warning that henceforth Germany would pursue the German national interest in EU affairs, capped by her call for treaty changes to allow the expulsion of fiscal sinners from Euroland. Nothing seems so permanent about the euro any more.

Days later, Thilo Sarrazin from the Bundesbank blurted out that if Greece cannot pay its bills “it should do what every debtor has to do and file for insolvency. This would be a suitably frightening example for every other potentially unsound state,” he said, pointedly excluding France from the list of sound countries.

Dr Sarrazin should be locked up in a Frankfurt Sanatorium. It was such flippancy that led to the Lehman disaster, requiring state rescues of half the world's financial system. A Greek default would alone be twice the size of the combined defaults by Argentina and Russia. Contagion across Club Med would instantly set off a second banking crisis.

Some suspect that ultra-hawks in Germany want to bring the EMU crisis to a head, deeming delay to be the greater danger. How else to interpret last week's speech by Jürgen Stark, Germany's man at the European Central Bank, calling for tightening to head off inflation.

This is alarming. Core inflation in Euroland was 0.9pc in February, the lowest since the data series began. It is certain to fall further as the doubling of oil prices fades from the base effect. M3 money has been contracting for a year. Business credit is shrinking at a 2.7pc rate.

So, it is not enough for the EU to impose a fiscal squeeze of 10pc of GDP on Greece, 8pc on Spain, and 6pc on Portugal, and 5pc on France over three years, we need a dose of 1930s monetary policy as well to make sure life is Hell for everybody.

Be that as it may, Greece's George Papandreou says his country is in the worst of both worlds, suffering IMF-style austerity without receiving IMF money – which comes cheap at around 3.25pc. So why allow his country to be used as a “guinea pig” – as he put it – by EU factions pursuing conflicting agendas?

The IMF option has its limits too. The maximum ever lent by the Fund is 12 times quota, or €15bn for Greece, not enough to nurse the country through to June. The standard IMF cure of devaluation is blocked by euro membership. So Greece will have to sweat it out with a public debt spiralling to 135pc of GDP next year, stuck in slump with no exit route.

The deeper truth that few care to face is that under the current EMU structure Berlin will have to do for Greece and Club Med what it has done for East Germany, pay vast subsidies for decades. Events of the last week have made it clear that no such money will ever be forthcoming.

Let me be clear. I do not blame Greece, Ireland, Italy, or Spain for what has happened. No central bank could have tried more heroically than the Banco d'España to counter the effects of negative real interest rates, but the macro-policy error of monetary union washed over its efforts.

Nor do I blame Germany, which generously agreed to give up the D-Mark to keep the political peace. It was the price that France demanded in exchange for tolerating reunification after the Berlin Wall came down.

I blame the EU elites that charged ahead with this project for the wrong reasons – some cynically, mostly out of Hegelian absolutism – ignoring the economic anthropology of Europe and the rules of basic common sense. They must answer for a depression.

Gaps in the eurozone 'football league'

By Wolfgang Münchau from the Financial Times

At last we are heading towards a resolution, albeit a bad one. After weeks of pledges of political and financial support, Angela Merkel appears ready to send Greece crawling to the International Monetary Fund.

Germany cites legal reasons for its position. In past rulings, its constitutional court has interpreted the stability clauses in European law in the strictest possible sense. These rulings have left a deep impression among government officials. It is hard to say whether this argument is for real or is just an excuse not to sanction a bail-out that would be politically unpopular. It is probably a combination of the two.

I have heard suggestions that a deal may still be possible at this week's European summit, but only if everybody were to agree to Germany's gruesome agenda to reform the stability pact. That would have to include stricter rules and the dreaded exit clause, under which a country could be forced to leave the eurozone against its will. I am not holding my breath.

But either outcome will mark the beginning of the end of Europe's economic and monetary union as we know it. This is the true historical significance of Ms Merkel's decision.

While Greece faces the most acute difficulties, it is not the only member in trouble. There are at least four – Greece, Spain, Portugal and Ireland – that are probably not in a position to maintain a monetary union with Germany under current policies indefinitely. There may be several more, where the problems are not yet quite so evident. In the presence of extreme current account imbalances and a lack of bail-out or fiscal redistribution mechanisms, a monetary union among such a diverse group of countries is probably not sustainable.

In a column several weeks ago I put forward three conditions necessary for the eurozone to survive in the long run: a crisis resolution mechanism, a procedure to deal with internal imbalances, and a common banking supervisor. Since then, things have been moving in the wrong direction on all three counts.

For a start, we have come from a situation in which the “no bail-out” clause of the Maastricht treaty, having been almost universally disbelieved for 10 years, is suddenly 100 per cent credible. The minute the IMF marches into Greece, all ambiguity will end.

The debate on imbalances is also regressing. It would be unreasonable to ask Germany to raise wages or cut exports, but there is a legitimate complaint about Germany's lack of domestic demand. Berlin should accept it needs to develop a strategy. But the opposite is happening. Rainer Brüderle, economics minister, said last week there was nothing the government could do about demand because consumption was a decision by private individuals. A senior Bundesbank official even compared the eurozone to a football league, in which Germany proudly held the number one slot. The long-term direction of fiscal policy is even more alarming, as the gap between Germany and the others will widen.

On banking supervision, the main reason for a common European system is macroeconomic. In a monetary union, imbalances would matter a lot less if the banking system were truly anchored at the level of the union, not the member state. As banks can obtain liquidity from the European Central Bank, even extreme and persistent current account deficits should not matter in good times. But they matter in times of crisis. For as long as bank failures remain a national liability, persistent imbalances could ultimately lead to a national insolvency. If the banking sector were genuinely European, imbalances would still be an important metric of relative competitiveness but we would need to worry a lot less, just as we do not worry about the current account deficit of a city relative to its state.

The lack of a bail-out system, of an agenda to reduce imbalances and of a common banking system are realities that investors should take into account when making long-term decisions, as should policy-makers when they make important choices for citizens. The reality is that the eurozone, as it works today, is not a monetary union but a souped-up fixed exchange rate system.

In the past, global investors have placed a lot of trust in European politicians. They believed Peer Steinbrück, the former German finance minister, in February 2009 when he ended a speculative attack on Ireland, Greece and others with a simple statement of support. They also believed, as I did myself, that political leaders would ultimately do the right thing to save the system, having first explored all the alternatives. As I follow the political debate in Berlin, I am no longer certain that is the case.

Ms Merkel is not a politician driven by a strong historical destiny, unlike Helmut Kohl, her predecessor but one as chancellor. However real the constitutional problems may be, I suspect Mr Kohl would never have hidden behind a technical or legal argument on such a crucial issue.

Europe's current generation of leaders lacks this accident-avoiding instinct. So when Ms Merkel and her colleagues in the European Council see the iceberg coming, they will tend to rush not to the helm but to the nearest constitutional judge.

I am not predicting a catastrophe. I am merely pointing out that the present policy choices are inconsistent with the survival of the eurozone in its current form.

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Yesterday, we suffered a tough defeat on the health care takeover vote in Congress. But take heart – we won with the American people. And trust me, this battle is not over.
Every public opinion poll demonstrates that a solid majority of the American people oppose this health care takeover bill. Every major election since health care took center stage was won by candidates opposing this legislation – Virginia, New Jersey, Massachusetts.
Why are the American people with us and against the liberals in Congress?
They’re with us for two key interconnected reasons.
First, the energy and determination and sacrifice of literally hundreds of thousands of grassroots activists just like you helped win our fellow citizens to our side. They saw the "Hands Off My Health Care" rallies, congressional town hall meetings (when members of Congress would actually hold them), tea parties, bus tours. They heard you talking to them, read your emails and blogs, watched your passion and heard your reasoning.
When Speaker Pelosi called us "un-American" and Majority Leader Reid said we were "evil-mongers" and the Obama administration said we were "astro-turf," they looked around and realized that in fact you and I and so many grassroots activists are friends, family, neighbors, little league coaches, teachers, veterans, students. In short, our freedom movement is so big that political independents now personally know and hear from us and that’s making a huge difference.
Second, the facts of this issue are simply on our side. Our fellow citizens know a Washington, D.C. – passed bill over 2,000 pages long, costing $1.2 trillion just in the first decade, adding at least 118 new federal agencies, and hiring 16,000 new IRS agents to enforce the $569.2 billion in new tax increases is another disastrous big-government scheme.
Our fellow citizens know that a government powerful enough to create new health care boards and to mandate what is or is not acceptable health insurance coverage will in the end get between us and our doctors. They know government control of health care means bureaucrats deciding who gets what treatment and when. After all, they only have to look north to Canada or across the Atlantic to Europe for frightening examples.
This vote tells us a lot about Congress. Every single Republican in the House voted NO. 34 Democrats voted NO as well, and we should thank both groups. CLICK HERE for the list of members and how they voted.
But, 219 Democrats put their party and their liberal ideology and their fear of the Left’s machine above the clear desire of their constituents and voted YES.
Now, some state attorneys general are talking about suing, and states are passing laws trying to exempt their citizens from being forced to purchase government-approved health insurance.
In the coming days we will detail plans to make sure this health care issue stays front and center. Our NovemberisComing.com website petition continues to grow with over 323,000 people signing the petition in just 4 days. Let’s make sure Congress sees this list of citizens grow each and every day.
But for now, let’s get up off the ground, shake off the dust and prepare for what lies ahead.

Tim Phillips

PS: One last thing. I would love to hear your most enduring memory up till now from this health care battle that we’re fighting. Perhaps it’s something you saw or heard at a rally, tea party or "Hands Off My Health Care" bus tour event. Or, perhaps it’s a response you received to an email or call.
Email me at [email protected]m and we’ll share these with your fellow activists.

"The movement to turn back the Democrats’ takeover of American healthcare has already begun: but it will only happen if Republicans select the right candidates for the job. In the U.S Senate race in California, I am that candidate. I’m the only one who signed the Club for Growth’s ‘Repeal It’ pledge (repealit.org/pledge/candidate) that commits its signatories to ‘sponsor and support legislation to repeal any federal health care takeover passed in 2010, and replace it with real reforms that lower health care costs without growing government.’ Neither Tom Campbell nor Carly Fiorina joined me in this. Worse, Carly Fiorina has been telling audiences that though she opposes this particular bill, she agrees with President Obama’s ‘goals’ for healthcare reform. As recently as late October, she said she had no opinion on Obamacare — surely the only public figure in America to have remained ignorant of this signal issue.

The DeVore for California campaign is online at ChuckDeVore.com.

Some researchers are claiming that happiness could cure heart disease. If only it were that easy…

For most people, heart disease is the accumulation of a lifetime of bad habits. It’s something you earn — and no matter how jolly you are, if you’re fat, sick and diabetic you’ll stay that way until you take better care of yourself. And you can laugh yourself right into an early grave.

Researchers looked at data on more than 1,700 Canadians from Nova Scotia who participated in a decade-long health survey. At the start of the study, each participant’s happiness was ranked on a five-point scale — as if your overall contentment can be measured like blood-sugar levels.

Over the course of that decade, 145 of the participants developed heart disease, and those who ranked lowest on that happiness scale were far more likely to come down with the condition.

The researchers also claim that each one-point boost on their arbitrary happiness scale lowered the risk for heart diseases by 22 percent, according to the study published in the European Heart Journal.

I hate to burst the good feelings here, but this study flunks the common-sense test. I don’t care how big you smile or how loud you laugh — no amount of happiness in the world will undo the artery-clogging damage caused by a lifetime of TV dinners and fast food McThings.

Happiness has its benefits — but let’s not get carried away. Happiness alone WON’T save your life.

Happy and healthy,

William Campbell Douglass II, M.D.

Breast cancer rates are down… but don’t thank Big Pharma. After all, they caused many of these cancers in the first place with one of the biggest mistakes in modern medicine: hormone replacement therapy.

Harvard researchers looked at data on 350,000 women and found a decline in breast cancer overall… but the biggest dip occurred among rich white women over the age of 50, according to the study published in the American Journal of Public Health.

What’s money got to do with it? Everything… because it can’t buy you happiness, and it won’t pay for the best medical decisions, either. These rich women were the biggest market for those lab-created chemical hormones a decade back, when it seemed like every doctor in America was pushing them as a menopause cure-all.

These women thought they were buying a shortcut through one of life’s biggest changes. Instead, the landmark 2002 Women’s Health Initiative Study revealed that all they really purchased was their own personal highway to hell.

That study linked Big Pharma’s phony-baloney hormones to breast cancer, heart attack and stroke. Many women turned away — and those HRT-inflated breast cancer rates are now falling again, as the new study shows.

I expect we’ll see the same thing with heart attack and stroke among these women.

Today, we’re still learning of the problems with these lab- monster hormones: Recent studies link them to lung cancer, heart problems, cataracts and asthma.

It’s amazing to me that these hormones are still on the market when there’s a simple, safe alternative: bio- identical hormones. These custom-made all-natural hormones are more easily metabolized by the body and come with far fewer risks than Big Pharma’s Frankenstein creations.

You can get your own bio-identicals made by a compounding pharmacist… but they’re not necessary for everyone. If you’re just looking to overcome hot flashes, first try vitamins C and E along with some bioflavonoids.

You’ll find those in wine — and I’d take that over anything from a Big Pharma test tube any day of the week.

William Campbell Douglass II, M.D.

I’ve been known to butcher a few sacred cows in my time… but today, I’m going after the actual sacred cow.

What can I say, I can’t help myself.

You probably already know how Indians — the ones in India, not the ones we’re supposed to call Native Americans — feel about their cows. They’re sacred animals. McDonalds in India won’t even put a single beef item on the menu.

And now, India is taking bovine devotion to a new level. They’re turning cow dung into drugs.

A brave reporter from the AFP recently visited Indian facilities where "scientists" working on these doo-doo drugs claim they can treat or cure everything from bad breath to liver problems to cancer.

"What they eat is what they release," cow nutrition researcher Raghav Gandhi told the news agency. "Cow dung stores all the vital nutrients and minerals. The urine is blessed with disinfectant properties."

Gandhi even told the reporter that he sings to the cows to help them to, ahem, produce.

The dung is dried and turned into powder, which is put into the meds. The poo is also being turned into toothpaste, soap and shampoo.. or is that sham-poo?

It doesn’t stop there, I’m afraid. One producer is even distilling cow urine and turning it into a soft drink.

GROSS… but even I have to admit, cow pee can’t be any worse for you than cola.

But maybe I’m being a little harsh. After all, there’s something to be said for truth in advertising.

I’ve always argued that most of Big Pharma’s drugs are basically just steaming piles of poop. At least the makers of these wacky new treatments come right out and admit what’s in their meds.

Serving up a steaming pile of reality,

William Campbell Douglass II, M.D.

I’ve told you over and over that global warming is nothing more than politically motivated hot air. And now, one by one, climate-change scientists are falling like those glaciers they want us to worry so much about.

Take Professor Phil Jones, one of the world’s leading Chicken Littles. Last autumn, e-mails surfaced in which he essentially admitted to fudging data on global warming and deliberately avoiding Freedom of Information requests from skeptics.

Jones isn’t alone in his deception. Hardly a week goes by that another climate-change scientists isn’t caught lying, cheating, backtracking, pulling data or making unsubstantiated claims.

Remember the Intergovernmental Panel on Climate Change? They’re the group that won the 2007 Nobel Peace Prize along with Al Gore for their panic-inducing report on the imminent climate Armageddon.

Do they ever take those prizes back? Because it turns out that report has some problems as big as the Himalayan glaciers they warned could disappear by 2035.

A key figure behind the report recently admitted that they had no real data to back that up. They made the claim anyway, as the Mail puts it, "purely to put political pressure on world leaders."

In yet another climate-change backtrack, scientist have been forced to withdraw a study that claimed global warming would cause sea levels to rise by more than 32 inches by the end of the century.

Turns out they had to fess up to not one but TWO major errors in their study, which was published in Nature Geoscience, one of the leading journals in the field.

The gig is up, fellas. With each new report, it becomes abundantly clear that climate-change fanatics are more interested in pushing their agenda than they are in saving the world.

William Campbell Douglass II, M.D.

Here’s some news that could even make a die-hard vegan swear off salad: Pre-washed packaged greens sold in supermarkets are crawling with fecal filth.

Consumer Reports tested 208 bags of allegedly pre-washed salad blends — the kind you’ll find in supermarkets everywhere — and found shockingly high levels of the bacteria that indicate fecal contamination and poor sanitation. Tests revealed unacceptably high levels of total coliforms in 39 percent of the salads, and 23 percent had high levels of the bacteria enterococcus.

What’s more, they found this filth in organic and inorganic blends alike… and it didn’t matter if the label said "washed," "pre-washed," or — my favorite — "triple washed," because clearly whoever was doing the washing was asleep at the hose.

Some of these salads had 100 times what experts considered acceptable levels for these bacteria.

But really, what’s an "acceptable" level of poo in your food? Don’t know about you, but for me that number is ZERO. That’s why I don’t eat any prepared foods, and I include pre-bagged supermarket bunny chow in that category.

It’s not just the salad. Much of the mass-produced packaged foods and meats available in supermarkets are crawling with filth. And the junk they peddle in fast food joints is even worse (not to mention the risk of boogers, spittle and anything else the teenage chefs feel like "adding" to your meal).

The lesson here, if it’s not clear already, is to be extra choosy about your food. Buy meats from a good butcher who sells grass-fed organic cuts. And treat pre-bagged veggies like any other packaged food: avoid them.

If you hate preparing lettuce and spinach so much that you’re buying these feces-filled feedbags, then just skip them altogether.

Seeing red over greens,

William Campbell Douglass II, M.D.

O Canada
The Threat to Muddle Through
Back to 1971
The fault, dear Brutus, is not in our stars
GDP = C + I + G + Net Exports
An Optimistic New Venture, San Diego, and New York

If the Chinese allowed the renminbi to rise, would that make the USA better off? That is the contention of a cabal of critics from Senators to Nobel laureates. Paul Krugman wants to see a 25% tariff on Chinese goods. Today we examine that idea, and look at the real problems that we face. If only it were so easy. The numbers just don't add up. The fault, dear Brutus…

O Canada

But first, and quickly, and in keeping with the spirit of the recent Olympics in Canada, I want to let my Canadian readers know that I am excited to announce a new Canadian partner, Nicola Wealth Management, based in Vancouver. Why Nicola Wealth Management? I have spent some time getting to know them and have come to have a great deal of trust in and respect for John Nicola (President) and his team. In my opinion, they are one of the premier wealth management firms in Canada. Further, they are as committed to helping you find high-quality investments, including absolute-return strategies, as I am.

If you are from Canada, get started now by going to www.accreditedinvestor.ws and signing up, and I will make sure one of the team at Nicola Wealth Management will call and qualify you to receive our Accredited Investor Communications.

And of course, if you are in the US, Latin America, Europe, or South Africa, and if you are an accredited investor (basically a net worth of $1 million or more), you can go to that link and I will have one of my partners in those areas contact you about the various absolute-return strategy funds that are available to you. (In this regard, I am president of and a registered representative of Millennium Wave Securities, LLC, member FINRA.)

The Threat to Muddle Through

I have pretty well laid out over the past decade that I think the US will Muddle Through what promises to be a period of below-trend growth and a long-term secular bear market. It will not be pleasant or fun – there will be a lot of pain – but we will get through the coming crisis (note: I think the Big One is still in our future). That is what we do in a more or less free-market world. But, as I wrote 7 years ago and have written since, there is one caveat that turns me from a Muddle Through-er into a real doom and gloom type, and that is the threat of protectionism and trade wars. As in Smoot-Hawley, which made the Depression into something much worse than it should have been.

Yet that is the prescription that Paul Krugman is advocating. In a commentary in Sunday's New York Times (“Taking on China“), he called for an across the board 25% tariff on Chinese goods:

“In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it's hard to see China changing its policies unless faced with the threat of similar action – except that this time the surcharge would have to be much larger, say 25 percent.”

Krugman doesn't think the Chinese can really retaliate by dumping their hoard of dollars. He points out:

“It's true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.”

I probably shouldn't take on a Nobel Laureate who got his prize for his work on trade, but this truly scares me. People pay attention to this nonsense, including the five Senators, led by Schumer of New York, who want to start the process of targeting China.

First, the Chinese have got to be wondering what they have to do to make these guys happy. In 2005 they were demanding a 30% revaluation of the Chinese yuan. And over the next three years the yuan actually rose by 22% at a gradual and sustained pace. Then the credit crisis hit, and China again pegged their currency. From their standpoint, what else were they to do? Force their country into a recession to appease our politicians?

They responded by a massive forcing of loans to their businesses and governments and huge infrastructure projects. Kind of like our stimulus, except they got a lot more infrastructure to show for their money. It remains to be seen how wise that policy was, and how large the bad (non-performing) loans will be that came from that push – just as there are those (your humble analyst included) who do not think the way we went about the stimulus plan in the US was the wisest allocation of capital.

But the reality is that the Chinese will do what is in their best interest. I wrote in 2005 that the yuan would rise slowly over time. The political posturing of Schumer, et al., was counterproductive then, and it still is now.

My prediction? The Chinese will begin to allow the yuan to rise again sometime this year, just as they did three years ago, because it will be to their advantage. A stronger yuan will act as a buffer to inflation, which they may face due to the massive stimulus they created. They are going to need some help in that area. But it will be 5-7% a year, so as not to create a shock to their export economy. Not 25% at one time. And at some point they will allow the yuan to float against the dollar. They know they will have to get the currency status they want. As an aside, are we going to put a tariff on every country that pegs their currency to the dollar? That is a whole lot of countries.

Back to 1971

By the way, let's go back to the 1971 that Krugman mentions. The Japanese yen was around 350 to the dollar. They revalued by 10%. Oh goody, salvation for the US. The yen is now at 90, and the Japanese are still producing massive trade surpluses, about half the size of Chinese surpluses, with less than one-tenth of the people. That is an almost 75% devaluation, and yet the world keeps buying Japanese products.

Why? Because they make good stuff we all want. The Chinese could raise the value of the yuan by 25% over the next year and they would still run a surplus, because like the Japanese, they make good stuff we want at prices we like. Would their surplus still be as high? No. Because a 25% increase in prices would mean that we could afford less of what they sell. But of course it would also give them wider profit margins, which would help hold their trade surplus up.

And it would also introduce inflationary increases in our imports and higher prices for lower-income families. Yes, a 25% tariff is such a smart idea that it took a Nobel laureate to think it up.

What Krugman argues is that we should pay more for Chinese goods, so that we will buy less of their goods. As if we wouldn't buy the same goods from Vietnam or Brazil or Pakistan, if those goods were cheaper than Chinese goods. For the life of me, I can't see how substituting goods from foreign countries other than China helps our trade deficit.

Are we going to start targeting the currencies of every nation that runs a surplus with us? What about Europe? And Great Britain? Their currencies are dropping against the dollar, in the case of England rather precipitously. Are they pursuing mercantilist policies, Senator Schumer [in reference to his recent scandalous press conference]? What happens when the euro goes to parity against the dollar (and it will!) because the Europeans are having trouble getting their act together? Are we going to demand they force the euro to rise? Tell the ECB to raise rates and shove the whole euro area into an even worse recession?

Do you think Japanese businessmen believe the yen is too strong, and we should make the dollar stronger against the yen? What are we going to do in three years when the yen is at 150 on its way to 300 because Japan is getting ready to hit the wall, due to their massive government deficits? Accuse the Japanese of mercantilism and try and force them to revalue the yen?

Maybe Canada should put a 25% tariff on US goods, because their dollar has risen by almost 40% against ours in the last few years. That would teach us a lesson. It would also destroy trade and a very good relationship.

It is a dicey damn world we live in. We are coming to the end of the debt super cycle, as I have written elsewhere in this letter. It is a very perilous time. Things are going to be hard enough. We have a huge problem with deleveraging and controlling our fiscal deficits, not just in the US but in the entire developed world. Starting trade wars is the absolutely worst possible thing to do. For the US to even suggest that such a policy is reasonable is the worst possible kind of message. Where are the adults in the administration?

The fault, dear Brutus, is not in our stars,
But in ourselves, that we are underlings.

Let's look at the actual trade deficit. This past month it rose to $40 billion, but that is down from the $70 billion it was only a few years ago. Over half that deficit is oil and energy. The Chinese “deficit” fell to a four-year low.

Trade deficits actually matter in a deleveraging cycle. Let's go back to the Outside the Box I sent you a few weeks ago from Rob Parenteau and review.

“… if we divide the economy into three sectors – the domestic private (households and firms), government, and foreign sectors – the following identity must hold true:

Domestic Private Sector Financial Balance + Fiscal Balance + Foreign Financial Balance = 0

“Note that it is impossible for all three sectors to net save – that is, to run a financial surplus – at the same time. All three sectors could run a financial balance, but they cannot all accomplish a financial surplus and accumulate financial assets at the same time – some sector has to be issuing liabilities.”

As Rob noted, this is an “identity” equation. It is always true for all nations. In order for the US or any nation to be able to see both its government and private sectors reduce their leverage or deficits, the country must run a trade surplus.

Let's look at the implication of that equation. Most everyone in the US (other than Paul Krugman and his fellow uber-Keynesians) think that reducing the federal deficit would be a good thing. And the private sector is busy reducing its leverage and “deficits” as well. But if we really want to reduce the government and private deficits at the same time, we have to be able to run a trade surplus.

Those numbers must ALWAYS add up to zero. The US trade deficit is due to a lack of savings in the US. No one is forcing us to buy goods from abroad. If we saved more and bought less we would have a trade surplus. It's really that simple.

Another implication. And a rather sobering one. For the US to continue to run such massive government fiscal deficits, either the private sector is going to have to massively increase its savings or we will have to reduce the trade deficit by buying less goods and energy, or some combination of the two. There is no other option. And if the savings of the private sector are funneled into government debt, then that crowds out private investment. And it is private investment that produces jobs.

GDP = C + I + G + Net Exports

The above equation is another identity equation. It says that Gross Domestic Product is equal to total Consumption (consumer and business) plus Investments plus Government Spending plus Net Exports (which in the case of the US is a deficit and in the case of Germany or China is a surplus).

We are going to examine this in great detail in the coming weeks, as there are serious implications for the economy contained within these simple terms.

But for our purposes today, if you play with the above equation a little you find that savings is equal to investments. But if the government “dis-saves” or runs a deficit, that means that savings have to go to cover the government deficit, which means there is less for investment. And it is investment that produces jobs.

Krugman and the Keynesians are right in this regard. If consumption falls, as it does in recession, then a corresponding increase in “G” helps offset that drop. But Keynes assumed that in good times government would run surpluses. It seems that we forgot that part.

What Greece is learning, as will all nations, is that you cannot increase “G” in an unlimited fashion. There is an end to the ability of governments to get investors to lend them money. That level is different for different countries, but the work of Rogoff and Reinhart (which we have looked at extensively in previous letters) clearly shows that at some point, and generally rather dramatically, markets lose confidence in the government's ability to pay, and the game stops.

Let's assume (and here I put on my optimist hat) that the US decides that reducing our deficit over time is a good thing. Fiscal conservatives get into Congress and we reduce the deficit by (say) $200 billion a year for five years, with a growth in revenues, so that the budget deficit is less than the growth in nominal GDP.

The first identity equation says that to do so we must either increase savings or reduce the trade deficit or some combination. If we use all our savings to cover the government deficit, then we have nothing left for private investment. And yes, it is not quite that simple, as we could use already accumulated savings, but over the medium run, large government deficits will crowd out private investment, the engine of job growth.

As we will see in a few weeks, reducing “G” (government deficits) in the short run is a hit to GDP. There is no question about that. But in the medium run (we no longer have the luxury of the long run) running massive deficits, as we are now, will mean that we, too, will become Greece. As will much of Europe and Japan if deficits are not brought under control.

It is not a question of pain or no pain. We are going to have the pain. The question is whether we take it in small doses or all at once. Slow growth, or a depression?

Part of that process that we MUST address is getting the trade deficit down, as we need that money for handling the deleveraging process.

A rational energy policy that gets us off foreign oil as quickly as possible must be enacted. Senator Schumer, if you are so worried about deficits, why not demand that we drill for oil offshore on the continental shelf, where we know there are massive deposits? And why not aggressively encourage the use of natural gas in the medium term for transportation? Nuclear energy?

And why are we not aggressively doing as many open-trade agreements as we can? Columbia and Korea have been done, and it would open up those markets for our exporting businesses. Yes, they get a shot at us, but I will bet on the home team. Our exports are growing every month. It seems, Senator, that you oppose all those policies. But simple accounting demands that we reduce the trade deficit, and tariffs are the worst possible way to try to do so, and won't work. And the possibility of a trade war and the real damage to our export sector? I really get alarmed.

Instead of bashing China over their currency valuations, let's challenge them where it would make a difference, on opening up their markets to our products and businesses more than they already do. Seriously, if we did impose a tariff on Chinese goods, US consumers would just switch to goods from other countries. It would be meaningless. But if we could sell more to them?

If we are going to put our fiscal house in order in the US, we are going to have to get a handle on our trade deficit. The operative word is “our.” Not Chinese deficits. They are not responsible for what we choose to buy.

When we look into our economic mirror, we must confess, “We have met the enemy, and he is us.” We can't borrow our way out of a debt crisis, Paul. At some point, we just have to get on with it.

One last thought. The whole world cannot run a trade surplus. Someone must actually consume. Germany and Japan are also running huge surpluses. Many of the problems in the peripheral European countries are because they are running trade deficits. Would not the rational extension of Krugman's and Schumer's ideas mean that we also target Germany and Japan? The world is out of balance, and getting it back will not be easy, and certainly not easier if we all pursue beggar-thy-neighbor policies.

An Optimistic New Venture, San Diego, and New York

Let me express my thanks to ProFunds, Rydex/SGI, Trust Company of America, and Ceros for sponsoring the CMG Advisor Forum that I hosted along with good friend Steve Blumenthal of CMG. There was a good crowd (about 70) of advisors and brokers from all over the country, and we finished the day at my house for Texas BBQ. If you are an advisor or a broker (or an investor) and want to see the outstanding platform of traders Steve has assembled, then go to http://www.cmgfunds.net/public/mauld…stionnaire.asp and they will get in touch with you.

Just for the record, I am helping to start a new software company. I will write about this later, but I think there is a large opportunity in new-media and mobile software, and I have persuaded an experienced executive in the industry to start a new venture with me. I will be providing the money and nothing much else, as what I know about software is limited. But I am convinced after a lot of research and discussion that there is an opportunity.

And that is how recovery happens. Someone sees an opportunity and takes a chance. Some of them work out. Most of them don't. Believe me, I know. Yet, if all goes well we could create a dozen jobs this year. Not a lot, I know, but it all adds up.

And what I saw in Cincinnati simply amazed me. A whole new mega-health-care business will be born in the next few years. I will give you more on that later.

The world is not ending. It is changing and adapting.

I will be in San Diego twice in April, once for my conference, which is now sold out, and again for Rob Arnott's annual conference. In between I will be in New York for a speech and an appearance/interview with Steve Forbes, which should be fun.

I will be a panelist in the inaugural “America: Boom or Bankruptcy?” summit to be held in Dallas on March 26. There will be five of us, presenting problems (plenty of those!) and possible solutions. This promises to be a no-holds-barred, full-throttle event. It should be a ton of fun. Details at www.fedfriday.com.

Once again, it is time to hit the send button. It is late and there is a lot to do tomorrow. I have it blocked off as a day with my youngest son, ending with the Mavericks playing the Celtics. The Mavs are starting to look decent as we move into the playoffs. But then so are many other teams. We will see. Have a great week.

Your excited about new ventures analyst,

John Mauldin

http://feedproxy.google.com/~r/Thoug…e-through.aspx

Here are the official results of the March 2 Chatsworth Neighborhood Council election as certified by the City Clerk. The top 21 candidates will be seated at the next Board Meeting, 7 p.m., April 7, at Lawrence Middle School, 10100 Variel Ave.

The term of office is four years.

The City Clerk ran the March 2 elections for 11 Neighborhood Councils. Additional elections will be held during the next two months for other Neighborhood Councils throughout the city

Name Votes LINDA J. VAN DER VALK
177 ☑
ANDRE F. VAN DER VALK
170 ☑
JUDITH DANIELS
155 ☑
DIANA K. DIXON-DAVIS 139 ☑MARY E. KAUFMAN
137 ☑JELENA CSANYI
130 ☑DOROTHY M. ALLISON
126 ☑
DAN L. HUFFMAN
122 ☑
LINDA S. ROSS
119 ☑
CAROL M. LUCAS
119 ☑
ALLEN D. GLAZER
118 ☑JEFF HAMMOND
118 ☑
SCOTT J. MUNSON
117 ☑
CHUCK KNOLLS
110 ☑
KAMESH AYSOLA
110 ☑
LUCIE VOLOTZKY
108 ☑
VICKI S. BRISKMAN
99 ☑
RICHARD S. NADEL
98 ☑
WILLIAM F. LANDER
90 ☑
VAROUJAN DEIRMENJIAN
88 ☑
VERNALIE DEIRMENJIAN
81 ☑
WRITE-IN – Jan Eddy-Languein 72KURT S. LOWRY 45☑ indicates elected

The train depot is at 10038 Old Depot Plaza Road.

For more information on the Arts in Education Aid Council, visit http://www.aieac.org/annualvalleywide.html

The CHIME middle school at Devonshire Street and Valley Circle is seeking to modify its Conditional Use Permit so the campus can be leased to another school in September.

The Neighborhood Council Land Use Committee was told Thursday that CHIME has decided not to sell the property.

North Hills Prep wants to enter a three-year lease, but requires clearance to conduct high school classes on the middle school site. North Hills Prep specializes in 7-12th grade classes for students who "have not achieved their potential in mainstream educational environments," according to Claire Bowman, chief executive officer of North Hills Prep.

"We love the way it feels," said Bowman of the CHIME campus. "We love the neighborhood."

There will be 90 students who will arrive on campus in 10 9-passenger vans. Students will not drive to school.

CHIME will continue to have an infant and toddler program on part of the campus.

The Neighborhood Council Land Use Committee will discuss CHIME’s plans, 7 p.m., Thursday, April 15, in the Community Room at the Chatsworth Train Depot.

LAPPL Blog

LAPPL Blog

Ride-On is a Chatsworth-based non-profit organization that offers horseback riding as therapy and recreation for children and adults with physical and mental disabilities.

Everyone is encouraged to attend this free, family-friendly event. Come enjoy a delicious breakfast, see Ride-On’s new expanded facility, and meet the staff, volunteers and participants that make Ride On so special!

Saturday, March 20
9:00 am to 2:00 pm
Ride On Ranch
10860 Topanga Cyn. Blvd.
Chatsworth

For more information call Sara Jones at (818) 700-2971 or visit www.RideOn.org.