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March 12, 2005

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memer

The "letter" was first published in Urbansurvival.com.
The site aims to answer the following questions: "Are we facing a replay of the Great Depression? What are the strategies to insure Urban Survival? Is it 1931 all over again?"

It doesn't seem hard to guess which way they lean. Cnulan, do you subscribe to these theories as well?

cnulan

Cnulan, do you subscribe to these theories as well?

Be specific...,

cnulan

Marshall Auerback, a brilliant economist (www.prudentbear.com) who dares to see the world whole, notes:

"At the time of the 1929 stock market crash, total US credit was 176 percent of Gross Domestic Product. In 1933 with GDP imploding and the real value of debt rising even faster, total credit rose to 287 percent of what was left of GDP…In 2000 at the top of the late bull market, total credit was 269 of GDP. An extraordinary statistic to be sure but dwarfed by today's figure, in which total credit stands at a whopping 304 percent of GDP, according to a recent study by fund manager Trey Reik of Clapboard Hill Partners.

The title of Auerback's essay was, "Last Orders for the US Dollar."

Auerback opened his treatise with a recent quote from former Federal Reserve Chair Paul Volcker that should have sent politicians (all of us) feverishly to work on a plan.

"Below the favorable surface [of the economy], there are as dangerous and intractable circumstances as I can remember…. Nothing in our experience is comparable… But no one is willing to understand this and do anything about it… We are consuming… about six per cent more than we are producing. What holds the world together is a massive flow of capital from abroad… it's what feeds our consumption binge… the United States economy is growing on the savings of the poor… A big adjustment will inevitably become necessary, long before the social security surpluses disappear and the deficit explodes… We are skating on increasingly thin ice."

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