Federal Reserve Chiefs Talk of

Coming Economic Destabilization

"The current account deficit is going to cause problems," said McTeer, who resigned Nov. 4 from the Fed. "Flows will turn against us, and there will be a crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar that will be very disruptive," he said on Oct. 7. -- Seattle Post-Intelligencer, 11/11/04

"While corporate leaders tout the benefits of investors owning their stocks, many executives seem to be running for the doors themselves. Selling of shares by insiders - which includes executives and other top officers and directors at a company - has been rampant in recent months, with sales rising to their highest level in more than four years in November. The implication is troubling since big insider selling is often considered bearish for the overall market as well as for individual stocks." -- Associated Press, 12/14/04

Dear friends,

Be prepared for a possible rocky ride ahead. The first of two articles below reveals serious problems in various parts of the U.S. economy. It is my belief that the power elite are very possibly planning an economic crash. If you explore the great stock market crash of 1929, you will find that though the vast majority of investors lost large amounts of money, that money did not disappear. It was simply transferred into the hands of the ultra-rich who knew what was coming. The second article shows that the elite are cashing in now. We could be in for some economically depressing times in the near future, though there are too many factors to be certain.

Looking at this spiritually, I believe that as long as we both collectively and individually choose to deny or suppress the existence of dark forces both out in the world and within ourselves, the activity of those dark forces is going to increase. If we continue to ignore these forces for much longer, we may find ourselves in a great crisis. The sooner we are willing to acknowledge these dark forces and deal with them in a way that supports what's best for all on the planet, the smoother this transition will be. This, of course, is speculation on my part, but it is speculation based on a lot of deep inside knowledge.

I invite each of us to open to acknowledging the dark, hidden places both in ourselves and in the world. You can do this on a personal level through deep prayer and introspection, and on the global level through exploring the reliable, verifiable information on our website at http://www.WantToKnow.info and the many links provided. I also highly recommend reading our concise summary of what is going on and what you can do about it at http://www.WantToKnow.info/brighterfuture.

No matter how dark things may get, I am very optimistic that we can turn it around. I trust that there is a divine essence deep within every one of us, including within the manipulative power elite. I know that there are divine forces out there watching over us, who want only what is best for all of us. My own wish is that everyone might have just enough suffering to help them realize that we don't need suffering to grow. By working together to reveal the darkness and deal with it consciously, we can and will build a brighter future together.

With very best wishes,

Fred Burks for the WantToKnow.info team

P.S. Besides the below two articles, see the interview with Paul Krugman of the New York Times titled: "Krugman: Economic Crisis a Question of When, Not If."

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=6888422

And in the Boston Herald, Stephen Roach, the bearish chief economist at investment banking giant Morgan Stanley, predicts America has no better than a 10 percent chance of avoiding economic "armageddon.''

http://business.bostonherald.com/businessNews/view.bg?articleid=55356

A Google news search reveals that practically no media are reporting these huge stories from reliable sources.

http://seattlepi.nwsource.com/business/199115_greenspanwarns11.html - Seattle's largest newspaper

Thursday, November 11, 2004

Fed Warns of Growing Budget Gap

By CRAIG TORRES AND ALISON FITZGERALD
BLOOMBERG NEWS

Federal Reserve Chairman Alan Greenspan says the growing U.S. budget deficit might destabilize the economy. Fed Governor Susan Bies says Congress spends like it's dipping into "a cookie jar." St. Louis Fed President William Poole says Social Security is in jeopardy.

In the last two months, Greenspan and at least seven other Fed officials have warned lawmakers about tax and spending policies that have led to record budget and current account gaps.

As Greenspan begins in January his last year atop the central bank, the comments suggest that Fed members are concerned his successor will have less room to guide an economic expansion should they have to raise interest rates to counter a plunging dollar or surge in spending.

"If you get to a point of fairly significant long-term structural budget deficits, it begins to impact on the level of long-term interest rates," Greenspan told the House Budget Committee on Sept. 8.

That means the government must pay higher rates to borrow money, leading to even higher deficits, he said.

"If you get into that sort of debt maelstrom, it is a very difficult issue to get out of," he said.

Budget surpluses from 1998 to 2001 helped Greenspan orchestrate the longest economic expansion in U.S. history. When the boom ended in 2001, low inflation allowed the Fed to cut the benchmark rate to 1 percent, the lowest since 1958, limiting the recession to just eight months.

Then the surpluses evaporated. President Bush, who will choose the next Fed chairman, won passage of $1.85 trillion in tax cuts and raised spending for wars in Iraq and Afghanistan. Defense spending rose 12.4 percent in fiscal 2004 to $437 billion, the Congressional Budget Office said.

The budget deficit widened to a record $413 billion in the fiscal year ended Sept. 30, with government spending rising 6.2 percent from the previous year. The deficit amounted to about 3.6 percent of the country's $11.8 trillion gross domestic product, the highest percentage since 1993.

Yesterday, the Treasury reported a $57.3 billion budget deficit in October, narrower than the $69.5 billion shortfall in October 2003, as spending declined.

Social Security, the main government-funded retirement program, will spend more money than it takes in starting in 2018, according to a report by the program's trustees. A report by trustees of Medicare, a federal health-insurance program, shows that their hospital insurance fund spending will exceed income by 2012.

"There are a number of things that are just extraordinary, beginning with the fiscal imbalance," said Rep. Jim Leach, an Iowa Republican and former head of the House Financial Services Committee, which oversees the Fed. "The Fed has less credible discretion the more out of whack fiscal policy gets."

While crude oil prices slipped to $47.37 a barrel this week, oil is still more than 50 percent higher than it was a year ago.

Janet Yellen, president of the Federal Reserve Bank in San Francisco, said the surge would result in a temporary boost in broad inflation and, as long as prices stay high, a tax on U.S. consumers. Greenspan said that tax amounted to about $88.5 billion this year, equal to 0.75 percentage points of the gross domestic product.

Former Dallas Fed President Robert McTeer flagged the record $166.2 billion deficit in the United States' current account, the broadest measure of trade, as a threat to stability.

"The current account deficit is going to cause problems," said McTeer, who resigned Nov. 4 from the Fed to run Texas A&M University in College Station, Texas. "Flows will turn against us, and there will be a crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar that will be very disruptive," he said on Oct. 7.

Samarjit Shankar, director of global foreign-exchange strategy at Mellon Financial Corp. in Boston, which manages $625 billion, agrees.

"There's no way of convincing the market additional spending on the war can be paid for if you have a lower tax base," he said. "It's a fundamental mismatch between spending and revenue."

Greenspan urged Congress on Sept. 8 to rein in spending and return to the "pay-as-you-go" system that was in place during President Clinton's administration, whereby all new expenditures or tax cuts needed to be offset by reductions in other programs or higher fee income from government services.

"We cannot continue to just go on without saying, 'We can have this, but not this,' and pay-go embodies that mechanism," the chairman said.

Rampant Insider Selling Raises Red Flags

RACHEL BECK
Associated Press

NEW YORK - Talk about a double standard. While corporate leaders tout the benefits of investors owning their stocks, many executives seem to be running for the doors themselves.

Selling of shares by insiders - which includes executives and other top officers and directors at a company - has been rampant in recent months, with sales rising to their highest level in more than four years in November.

While no one can pinpoint an exact reason for that run-up, the implication is troubling since big insider selling is often considered bearish for the overall market as well as for individual stocks.

Of course, not all insider selling should be construed as a bad sign. Some stock sales may just be routine or may be executives wanting to free up money to cover personal expenses or to help pay the taxes on shares they buy after exercising options. And in some sectors, namely technology, stock compensation is often the bulk of executive pay, so they sell their stock for income.

In addition, November has historically been a busy time for insider selling. That's because it comes after most companies have reported their third-quarter earnings and restrictions for selling have been lifted. In addition, some executives sell in November for tax purposes.

Still, insider-trading trackers at Thomson Financial say the recent selling bonanza is "particularly noteworthy."

Some $6.6 billion in insider stock sales took place last month, the highest level since the $7.7 billion in sales tallied in August 2000, according to Thomson. Contrast that with the $144 million worth of stock that was bought by insiders last month.

The most selling came from in the financial sector, where executives sold $882 million of their own stock in November, and health care companies, whose insiders sold $734 million worth of shares. Selling in both sectors was double the five-year monthly average, according to Thomson.

On a company-specific basis, consider what has gone on at networking company Avocent Corp., where company statements seem to contradict insiders' actions. On Nov. 1, the company announced a buyback plan for up to two million shares and said in a news released that the purchase of the stock "represents a solid investment for our shareholders."

Apparently, the company's insiders seemed to have ignored that memo. In the month following the announcement, they sold 578,565 shares out of an aggregate of 645,756 insider shares sold during the last 12 months, according to Vickers Weekly Insider, a newsletter that tracks trading by company executives.

There was no buying during that time period.

To be fair, much of the selling came as executives exercised their stock options, not surprising given that its shares have climbed 30 percent in the last two months reaching their highest level since last winter. In addition, the company's officers were blocked from making stock transactions from December 2003 through April of this year because of Avocent's acquisition of OSA Technologies Inc., according to vice president and chief accounting officer Edward Blankenship.

Yet, as Vickers editor David Coleman points out: "If they thought the stock would continue to climb, wouldn't it be in their interest to hold on to it rather than immediately get out?"

Looking beyond companies where executives say one thing but do something else, Coleman points to other warning signs that investors should use to gauge potentially negative signs associated with insider selling. He suggests looking out for insiders who have sold their stock at times that don't coincide with when they exercise options, or those who sell above and beyond the amount that they have exercised.

Sometimes, though, investors refuse to heed such warnings.

Take, for instance, the surge in shares of homebuilder NVR Inc., which has seen its stock jump from just over $432 a share at the start of the year to now trade about $730 apiece. That rise has come despite expectations for a slowdown in the housing market as interest rates begin to climb.

Also troublesome with that giant stock run-up is that NVR's insiders have been bailing out of the stock big time. They have sold more than $220 million in shares this year alone.

Among those selling: NVR CEO Dwight Schar, who hasn't purchased any stock since June 2002, only exercised just over 83,000 shares this year and has sold about 265,000 shares at a market value of about $155 million, according to Thomson. The company declined to comment on its insider selling, said NVR spokesman Dan Malzahn.

At least so far, NVR's investors have ignored the insiders' moves, and haven't been hurt by that decision. Whether that luck continues will surely be tested in the months ahead.

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