Military "manoeuvres" have not exactly been raining from the skies lately, at least not from the US and its "allies". At the end of last week, the Bush Administration was busily denying rumours that the push towards Bahgdad was about to be put "on hold" for some length of time while the US forces replenished everything from ammunition to fuel to food and water. These rumours, denied as often as they arose, filled most observers with a gradually increasing sense of disquiet.
All this has changed over the past week. The US powers that be have clearly decided that ANY "pause for breath",no matter how short, is too dangerous. It is not dangerous in regard to the ultimate outcome of the war, it is too dangerous in regard to the attention of the people of the world in general and Americans in particular. At all costs, attention must remain glued to the war, the whole war, and NOTHING BUT THE WAR. With that in mind, US forces sprinted for Baghdad, arrived on the outskirts, and are now milling around the airport. All this in the face of almost no opposition at all.
With that push, the markets also straightened up and renewed their flight in the "right" direction. The Dow had another 200 plus point rise on April 2 - even though it could only manage a 132 point rise for the week. The $US index regained the 100 point level. And Gold, after closing as high as $US 335.90 on the last day of March, turned around and set new 2003 lows, breaking BELOW its 200 day moving average in the process.
These events, in combination, have induced a fragile but fiercely held onto optimism. Most of the international diplomacy this week has not centered on the war, it has centered on who gets to do what in Iraq after the war is won. The implication here is, of course, that the war is all but won and now we can go on to discuss the "fruits" of the victory. On the financial markets, investors have for the most part stoutly refused to spare even a passing glance at the US economy, being too busy getting in on the ground floor of what is "sure" to be a post war boom.
In sum, the present situation is EXTREMELY dangerous. With not one major population centre in Iraq yet firmly in the hands of the "allies", the choreographed assumption is that the war is all but won. With the US economy nearing extremis, the equally choreographed assumption is that all will be well as soon as the war IS won.
The war has already cost more than the Bush Administration was bargaining for. Treasury Secretary Snow has recently been doing the rounds to his G-7 partners suggesting that they might want to "contribute" to the rebuilding job in Iraq. This rebuilding job is sure to cost even more than the war, and the US has not budgeted one penny for that, not yet anyway. Meanwhile, government deficit spending spirals out of control, while US manufacturing investment and employment continues to set new post WW II record lows.
And now, after months of studied silence, the US Treasury has emerged with a public plea to Congress to "do something" about the government credit card. For the first time since 1995, (when President Clinton dipped into it to make a BIG loan to Mexico) the Treasury has offically been dipping into the "Exchange Stablisation Fund" (ESF).
Please note, we said that the Treasury had OFFICIALLY dipped into the ESF. We are well aware of the many reports of clandestine use of this fund over the past few years, but this is the first time since 1995 when the Treasury has actually come clean about such things.
The ESF was born with the confiscation of privately held Gold in the US which was accomplished via Executive Order #6102 signed by President Roosevelt on April 5, 1933. That having been accomplished, the legal basis for the ESF was the Gold Reserve Act, signed into law on January 30, 1934. What this act did was to take away legal title to all Gold held by the Federal Reserve Banks of the time and vest the title with the US Treasury. The Federal Reserve Banks got nebulous "Gold Certificates", the Treasury got the Gold. Having done that, the Act then devalued the Dollar against Gold from the previous $US 20.67 per troy ounce to $US 35.00 per troy ounce.
Thus, the Gold content of the US Dollar was reduced by 40.94%. On the day of the passage of this act, the monetary Gold stock - now owned by the Treasury - stood at $US 4.033 Bilion (at $US 20.67 per ounce). On the day after the passage of the act, the monetary Gold stock increased by $US 2.806 Billion (at $US 35.00 per ounce). This "Gold profit" of $US 2.806 Billion was the "seed money" used to create a $US 2 Billion "Stabilisation fund". THIS was the origin of today's "Exchange Stabilisation Fund" (ESF). It was also the origin of the Treasury's (with the Fed) history of intervening on international foreign exchange markets.
There are three fundamental turning points in US history which mark its devolution from being the global exemplar of freedom and liberty to the latest in a long line of empire-building nations. These three are:
The actions of the US federal government during and after the Civil War were flagrantly Unconstitutional. So, of course, was the establishment of the income tax and of the Federal Reserve. And so was the confiscation of Gold. Only one of these three fatal developments has ever been partially overturned. To his everlasting credit, in January 1975, President Gerald Ford repealed Roosevelt's Executive Order #6102 to the extent of once again making it legal for American citizens to own Gold. However, the $US was not once again made REDEEMABLE in Gold, so the progressive destruction of the US Dollar continued, and accelerated.
At the end of the Civil war, Federal debt was $US 2.7 Billion (before the Civil war it had never exceeded $US 130 million). In 1913, Federal debt was $US 2.9 Billion. In 1934, Federal debt was $US 27 Billion. Today, Federal debt is $US 6,400 Billion. Nuff said?
Actually, the official Treasury debt "subject to limit" is more than $US 6,400 Billion (which is the current US "debt ceiling") but nobody knows just how much more. On February 19, 2003, Treasury debt "subject to limit" reached an official $US 6,399.975 Billion. It has been frozen at that level ever since.
In February/March, the Treasury went through the gamut of financial "manoeuvres" pioneered by Treasury Secretary Rubin in the mid 1990s and refined by Treasury Secretary O'Neill last year. By late March, the manoeuvre room was growing thin, so the Treasury tapped the ESF. Now (see this story from Yahoo), the Treasury is pulling out all that is left of the stops. the goal is to postpone having to raise the ceiling until April 15, when the annual deluge of tax receipts washes over the IRS. Secretary Snow claims that if the present manoeuvres allow the Treasury to function until April 15, the inundation of tax receipts will allow the raising of the debt ceiling to be postponed to - wait for it - July 11.
This is exactly what happened last year, of course. The Treasury managed to manoeuvre around the debt ceiling (then $US 5,950 Billion) until April 15 and then the tax inflow (meagre as it was compared to what the government was expecting) allowed them to postpone the actual raising of the debt ceiling until the end of June. This time, Mr Snow claims they can postpone the new ceiling until July 11. We'll see.
In April 2002, the US and the Bush Administration had not yet dissipated the outpouring of global outrage and sympathy generated by the atrocity of September 11, 2001. A year later, they most certainly have. The lasting tragic legacy of "9/11" is that it did NOT lead to an examination of US global policy, it led to the intensification and acceleration of the same policies which had (in large part) made some version of a 9/11 inevitable. It also provided the perfect smokescreen of "war", first against "global terrorism", now against Iraq.
The US Administration, and behind it the US political establishment, is accelerating their rush towards global domination because they do not dare to take the steps necessary to begin to "fix" the mess they have left behind them in the US economy and financial system. No risk is now deemed to big to take.
Thus, they have continued the push towards Baghdad WITHOUT having resupplied an invasion force which knowledgeable military opinion has long since stated is insufficient to the task. Thus, they are adamantly ignoring the fast deteriorating state of their own finances. And thus they are risking the viability of their economy and their currency by pushing any day of reckoning on the level of their debts into the future, the very NEAR future.
THIS is the situation in which Gold has penetrated below its 200 day average and is now down to levels unseen since early December last year. Two weeks ago, the "Reverse Gold Barometer" was blowing its top. This week, with Gold a bit lower, it has jumped right off the wall. The manoeuvres, military AND financial, going on right now smack redolently of desperation. There's no way of knowing when, but something has got to give. Stay tuned.