Spooky signs for US economy

Even though the Federal Reserve will probably treat Americans to an interest rate cut on Halloween, the goblins of massive debt -- consumer, corporate, and government -- still loom large over the US economy. So it's flattering when one of my postings here about that scary situation is echoed by a respected economic commentator. Dr. Marc Faber (author of the Gloom, Boom and Doom report, and who correctly predicted the 1987 stock market crash) used the same alcoholic metaphor as yours truly in saying of the Fed's earlier cut in US interest rates:

    “Each time you bail out, the problems become bigger and bigger, and the credit problems become much, much larger. The Fed feeds its customers with booze, and when they get totally drunk and fall off their chairs, the bartender gives them more booze to keep them going. One day, it will lead to the ultimate breakdown.”

What that 'ultimate breakdown' will be, I'm not exactly sure – but it probably won't be pretty. I hope I'm wrong that the US won't have to suffer the mother of all economic hangovers; however, I don't see any way around it. No country can have long-term, sustainable economic growth based solely on borrowing, spending and increasing the money supply – and the US is no exception.

My 2007 year-end gold estimate of $818/ounce also looks good. Gold's trading at $783.50 today (10/26) with solid upward momentum. No market goes straight up or straight down, and commodities tend to have some violent swings in both directions. I realize the Dow has gone back over 14,000 recently, but when you look at inflation-adjusted gains of the Dow versus gold, there's no comparison.

The so-called 'barbarous relic' has tripled from its low of $252/ounce in 2000, while the Dow's performance isn't nearly that impressive, even though it's increased in nominal terms from a low of around 7,500 in 2002 to the mid-13,000s. This increase in the Dow index does not correlate to a healthy American economy – no matter what CNBC talking heads or Washington politicians say. Billionaire investor Jim Rogers (former odd-couple investing partner of George Soros, and co-founder of the Quantum Fund), says the US is “undoubtedly in recession.”

And never mind what Larry Kudlow, Dick Cheney, or Mike Rosen may claim, national deficits and debt still matter – now more than ever.