International Forecaster Weekly

George W. Bush Is In Total Disconnect

George W. Bush is in total disconnect, Why economoists are wrong 2/3 of the time; the incredible growth of mortgages... the impending collapse of the dollar

Bob Chapman | December 16, 2006

George W. Bush has been in serious disconnect with the American people for some time. That is borne out by his approval rating of 28%. He is looked upon by the majority as an arrogant, incompetent lout. Americans have trusted George W. Bush to do the right thing, and in turn he has lied to them, killed their children in Iraq, has aided his Illuminist friends in the military industrial complex to get richer and has taken away Americans’ freedom with the help of Congress. George W. Bush has sold out Americans for the corporatist fascists behind the scenes who now control our country. This is the man who signed legislation for building a fence across our southern border and has absolutely no intention of building that fence. He intends to assist Republicans and Democrats to grant amnesty to more than 20 million illegal aliens knowing that 80% of Americans oppose amnesty. It will be a long time before Republicans again control Congress and in the next election hopefully Americans will have smartened up and will eject almost all incumbents from Congress.

George W. Bush has been instrumental in millions of Americans losing good paying jobs to offshoring and outsourcing, a process that guarantees us status as a Second Class Nation. We are also being stripped of industrial ability to engage in major warfare. Once the machine tool industry is gone, it’s over.

George W. Bush, his Illuminist masters and their neocons have sold us out and if America doesn’t soon wake up we will be living on our knees.

Goldman Sachs is at it again – rigging the market. A few months ago they changed gasoline’s weighting in its commodity index and gasoline plunged. Recently the stock market averages have been acting unnaturally vaulting higher without so much as any correction. This has been triggered by a mysterious reduction in margin requirements for an already over-margined hedge fund community that has cranked up the markets since October. It is purely mystical why every time the equity markets look like they are set up for a downside correction, buying comes out of nowhere to drive the market back up. There are always mysterious buyers who appear at every correction juncture. We are sure the mystery buyers are our Working Group on Financial Markets and the Fed via the repo pool. If we did that we would go to jail.

Economists are wrong 2/3’s of the time because they must serve their employers. Employers do not want negative forecasts so economists and analysts give them what they want to hear. That is why today, as most of the time, economists focus on the positives of our economy. That is characterized by a pause in interest rates, a sharp fall in oil prices, liquidity beyond the dreams of a Sultan or a King and supposed tame inflation. It gets serious when you believe your own lies. A very small minority of economists see gross imbalances, structural distortions both economic and monetary, a debt implosion, a credit explosion on the verge of implosion, all of which, along with outsourcing and offshoring, undermine economic growth that has already put us into recession.

We have had seven months of falling indicators, a falling housing market, a falling dollar and an inverted yield curve. Real GDP has fallen from growth of 5.6% in the first quarter to 1.6% in the third quarter. We really do not believe that Mickey Mouse revision to 2.2%. The scale of the false boom will be reflected in the same magnitude to downside, if not greater. Credit is at the basis of the destructive process and the current credit and housing boom has been the most expansive in world history. That means the correction will be of Titanic proportions, nothing like anything the world has ever seen before. Who with any sanity can justify outstanding mortgages increasing from $4.8 trillion in 2000 to $9.3 trillion in 2006? In five years mortgage growth has equaled that of the entire earlier 50 years. Who can justify such madness?

This housing boom not only elevated the value of real estate – it allowed the withdrawal of equity, which kept the economy afloat and created even more debt. A side effect was savings went to a minus 0.5%. Homeowners may, because this boom lasted almost five years, believe it was normal when in fact it certainly was extraordinarily excessive. Normally there would be a real tightening of credit and as prices fell inventory overhang would be worked off not only in housing but also throughout the economy, unfortunately this time it is different. Those things will happen over a longer period of time and the correction will be deeper because the economy is correcting throughout and all sectors will be hit this time if for no other reason than there will be massive unemployment and an inability to service debt. The system has to be fully purged and it will be.

Whether observers of the housing boom believe it or not, 6-1/8% 30-year fixed rate mortgages are quite supportive of borrowing and spending. By historical history only a rate higher than 7-3/8% would be restrictive. We can remember when professionals told us 10% was a super rate. Another factor is housing prices are not still rising. We covered that in the last issue, so with still cheap rates lower prices of 10% to 30% are reality in the former hot markets. The volume is off 50% and the discounts do not show up in the price. We have a housing price hiatus bound by affordability and to some extent liquidity that will continue until rates move. If they move down the downward pressure on prices will dissipate and the economy will moderate its fall, but the dollar will collapse. That collapse will force rates higher again in a more meaningful way. Then the economy, housing and the dollar will become victims.