The Miner's Manual :: A resource for the mining professional

From the prospector comes the salt of the earth

"From the prospector comes the salt of the earth." -- WJ

The Administration's Dishonesty on Fiscal Policy Continues

Here is a Test for the Gold Community

Who Wrote this Article?, Feb 6/03

Return to Mining News List

President George W. Bush compendious US Federal budget for 2004 went on sale in government bookstores yesterday. Too bad they did not have a fiction department to put it in.

The budget, which Congress will consider over the next few months, is disingenuous in its explanations of how the US went from a record surplus to record deficit on Mr. Bush's watch, dishonest in its claims about how the administration's tax plans will effect the economy and irresponsible in shuffling off to Congress the job of finding new spending restraints. The president himself sets the tone, right at the outset in the foreward, "A recession and a war we did not choose have led to the return of deficits," he says. Well, up to a point.

The recession began two years ago and was supposed ot have been over by now.

Remember the $1,350 billion tax cut Mr. Bush pushed through Congress in 2001? That was going to bring about recovery, according to the administration. As it turns out, that tax cut did very little for the economy's short-term benefit. What it did manage to do - whicgh curiously, Mr. Bush does not mention - is significantly undermine the long-term fiscal outlook. And the fruits of the policy are clearly on display in this latest budget.

In this fiscal year the federal deficit will be $304 billion, the administration says, rising to $307 billion next year. Over the five-year period from 2004 - 2008, the cumulative deficit will be 1,084 billion. In a further example of statistical sleight of hand the administration get ot this figure only by counting back in the surpluses from Social Security, the pubic pension system, which represent offsetting assets against the massive future liabilities of the federal government. Stripping out these surpluses raises the cumulative deficit in the next five years to $2,140 billion.

The budget also makes implausible claims about the benefits of the administration's tax cut plans announced last month. The president continues to insist it will provide "critical momentum" to the economic recovery, even though the bulk of it - the elimination of the dividend taxation - will not have any appreciable effect for years.

Fortunately, it does not build it claims about long-term benefits of the changes into its forecasts for growth, which are broadly in line with private sector estimates. Only Depression-era interest rates have kept the service costs of the debts down so far.

The spending proposals are deeply suspect. Mr. Bush makes a great virtue (odd for a Republican government-cutter) out of overall discretionary spending increasing by 4 percent this year, twice the inflation rate. But of course most of this roughly $30 billion increase is from defense and homeland security, leaving implausibly small increases for the rest of the budget.

Perhaps the most fictional aspect of this year's budget is the 800lb gorilla in the room of a looming war with Iraq. Expenditures in the Gulf will certainly increase the deficit, in the absence of offsetting cuts elsewhere or a sudden jump in revenue.

JES asks - Now, who wrote this report?

Harry D. Schultz?
Bill Murphy?
James Sinclair?
None of the above?

The correct answer is none of the above. This article was written and was carried as the lead editorial by the Financial Times, the leading business publication of the USA's only somewhat committed ally in the US Gulf intentions, Great Britain.

JES concludes:

Please refer back the to the Economist article which I have referred you to concerning the potential cost of the Iraq war plus the cost of bringing Iraq after the war into the 21st Century. If we fail to facilitate a truly representative government of the Iraq people, we fail one more time in the Mid East. Therefore please add, according to the Economist article, one trillion in costs to the $2.15 trillion estimated deficit now until 2008. Therefore the total drain on the USA will be between now and 2008 the unthinkable amount of $3.15 trillion. All that is if everything goes as planned with no surprises. This figure of a deficit of $3.15 trillion assumes a quick and victorious Iraq war.

Now you see why I feel the Federal Reserve Gold Certificate Ration aka the Gold Cover Claus in a modernized and revitalized manner will have to be utilized in 2004. The dollar will not be able to withstand the impact of the outflow of US currency and the huge Current Account Deficit that is looming without significant depreciation beyond present expectations.

The price of gold is going higher in the normal fluctuations of the marketplace. The dollar will probe the lows outlined to you in the Kenny Adam's interview. Do not be disturbed by those that desire to profit from the short side of gold and the Euro using negative PR as a tool of their intentions. This is going to be a long bull market for gold and bear market for the dollar. It will be wild in its volatility from time to time. Mark my words, "before this is over there will be a ten-dollar difference between the bid and asked price of gold, if gold fails to be remonetized in 2004."

You had your first taste of the coming volatility on February 5th when gold ranged between $365 to $390.30 to $367 to $376 in 24 hours. That is almost a $60 move in gold in one day in the first leg of as long-term gold market.

That predicts volatility for gold that even I prefer not to think about.

James Sinclair

Return to Mining News List

top of page