U.S. economy poised for nose dive

By Jerome R. Corsi
© 2007 WorldNetDaily.com

Major recession feared when 'liquidity bubble' bursts

As the dollar sinks to near-record lows against the euro and the British pound, the stock market has returned to record highs, but investors are being advised to anticipate a worldwide downturn and the U.S. economy may have already entered a recession.

An explanation may be found in a private investment letter published by the Carlyle Group to its "professional investors."

WND has obtained a copy of a Jan. 31 letter by the Carlyle Group's founding partner and managing director, William E. Conway, Jr., to the firm's investment professionals worldwide.

In the letter, Conway attributes the continued rise of world stock markets to a glut of liquidity in the world financial system, which he describes as "the availability of enormous amounts of cheap debt.

Conway writes, "This cheap debt has been available for almost all maturities, most industries, infrastructure, real estate and at all levels of the capital structure."

He says there is so much liquidity in world financial systems that "lenders (even 'our' lenders) are making very risky credit decisions."

WND previously reported concern that the decision of the Federal Reserve to quit publishing a traditional index, "M3," a broad measure of the money supply, signaled a decision to pump the economy with excess liquidity.

Since the Fed quit publishing M3 data, economists who have attempted to re-create the index from other available data have estimated M3 data would today be reporting upwards of a 10-percent increase in the money supply, a high level by historical standards.

"Liquidity" is defined by economists as money available in all forms to be given out as debt, ranging from credit card debt to mortgage debt to large quantities of institutional debt typically used in complex financial transactions such as highly leveraged corporate acquisitions.

Excess liquidity, as reflected in the rise of highly leveraged hedge fund accounts, has been widely seen as a major factor in the rise of the stock market in the recovery since 9/11.

Conway cautions that "this liquidity environment cannot go on forever." He warns that "the longer it lasts, the worse it will be when it ends."

Looking on the bright side of what could be a major recession when the liquidity bubble bursts, Conway advises, "And of course when [the liquidity bubble] ends the buying opportunity will be once in a lifetime."

He adds, "But I do not know when it will end."

Bob Chapman, who publishes a bi-weekly Internet newsletter, The International Forecaster, has issued his reconstructed M3 estimate to100,000 subscribers.

"The world is awash in money and credit," Chapman said. "My numbers show M3 increasing at about a 10-percent rate right now."

Chapman has spent 45 years in the finance and investment business, including 28 years as a stockbroker specializing in gold and silver shares. He publishes his newsletter from an undisclosed address outside the U.S.

In his April 14 newsletter, Chapman wrote, "The effort to save the American economy, which began in 2001, has finally come full circle and the Ponzi scheme is coming unraveled. The overextension of credit, outrageously low interest rates and loans to the totally unqualified have finally come home to roost."

For months, Chapman has been warning that the U.S. economy entered a downturn in February 2006. Chapman expects it will develop into a prolonged recession caused largely by the bursting of the housing bubble and the weakness in the dollar attributable to the United States' large federal budget deficit and international trade imbalance.

At the same time, Chapman has been predicting for months that the dollar will challenge the technical support point of $USD 80 on the world currency markets.

On Thursday, the dollar index closed at $USD 81.64 in a steady decline that began at the end of February.

The euro late last week was trading as high as $1.3576, near its December 2004 record of $1.3539. At the same time, the pound rose to $1.9938, its highest point since September 1992. The pound last reached the $2 mark 14 years ago, when the UK was ousted from the European Exchange Rate Mechanism.

Chapman has argued the U.S. Treasury and Federal Reserve have been trying to manage a gradual devaluation of the U.S. dollar.

Chapman expects the dollar could lose as much as an additional 20 percent of its value this year alone. In the last five years, the dollar has lost 35 percent of its value against the euro.

Still, until debt defaults force a crisis in the world debt markets, Chapman agrees with the Carlyle Group that excess liquidity will continue to buoy the world stock markets, including the New York Stock Exchange, to new highs.

Chapman also agrees with Conway that when the liquidity bubble bursts, the decline in world stock markets could be sharp and severe, possibly even reaching crash magnitudes on the downside.

"Tens of billions of dollars have already been lost in the U.S. sub-prime lending market and the contagion is spreading as the media tries to cover-up what is really going on," Chapmen wrote in his March 28 newsletter. "We are watching the disintegration to an extent of the entire mortgage market, which encompasses 25 percent of all outstanding credit."

Chapman continued: "We predicted this three years ago and those who believe they are savvy discovered the problem a couple of months ago. This is a general meltdown and do not think it isn't, and it has several years to go until the real estate sector is purged."

The Carlyle Group, a large Washington, D.C., private equity firm headquartered founded in 1987, has close ties to the administration of President George H.W. Bush.

WND also reported the Carlyle Group has established a new team to invest in Mexico. The team includes Mark McLarty, president of Kissinger McLarty Associates and former chief of staff and special envoy to the Americas for President Bill Clinton.

Carlyle gains access to our computers

Related
Carlyle Group
http://en.wikipedia.org/wiki/Carlyle_Group

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Carlyle group bids $5.5 bln for Taiwan's ASE
Fri Nov 24, 2006 6:51 AM ET


NEW YORK/TAIPEI (Reuters) - A private equity consortium led by The Carlyle Group plans a $5.5 billion bid for the world's top chip packaging firm, Advanced Semiconductor Engineering Inc. (ASE), Taiwan-based ASE said on Friday.

At T$39 a share, the potential offer represents a 10 percent premium to ASE's Friday closing price of T$35.5 a share, and values the firm at about T$179 billion ($5.46 billion), according to Reuters data.

Private equity shops are looking for domestic technology firms, which generate steady cash flow, have a long-term upward growth trend, and have multiple business units that can be listed or sold, analysts said.

Earlier this week, U.S.-based Jabil Circuit Inc., a maker of electronic components for mobile phones and computers, said it planned to buy Taiwan's Green Point Enterprises Co. for around $881 million -- at around a 3.8 percent premium.

ASE, which encases silicon chips in plastic packages so they can be connected to circuit boards, said the bid consortium already has ASE Chief Executive Jason Chang on board with the deal.

Chang and his affiliated holding company, ASE Enterprises Ltd., hold about 18.4 percent of ASE's shares, but ASE said it had not yet approved the bid and no formal offer had been made.

"Discussions between ASE and the consortium have not been completed, and there can be no assurance that an offer will ultimately be made by the consortium or what the ultimate terms of such an offer would be," said a statement from ASE released in New York.

ASE reported last month its third-quarter profit more than doubled on recovering chip demand, but forecast weaker sales and falling profit margins in the fourth quarter.

The company counts ATI Technologies, Freescale Semiconductor Inc. and Qualcomm Inc. as its major clients.

Its 2006 net profit is forecast to increase by a quarter to T$18.28 trillion, according to Reuters Estimates.

Its forecast earnings per share is T$3.93, making the bid about 10 times forecast earnings, similar to that of smaller local rival Siliconware Precision Industries Ltd.

(Additional reporting by Jean Yoon and Ian Geoghegan in Singapore)

http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyID=2006-11-24T115045Z_01_SP121957_RTRUKOC_0_US-ASE-CARLYLE.xml

WHO'S RUNNING WHITE HOUSE SHOW?

Niagara Falls Reporter

By Bill Gallagher

DETROIT -- British Prime Minister Tony Blair has admitted out loud what his pal President George W. Bush will refuse to recognize until hell freezes over or until he stops lying, whichever comes first. Blair, our only real ally in the Iraq adventure -- the coalition of the bribed doesn't count -- admits the invasion is a disaster.

Blair finally came clean in an interview with Sir David Frost. The usually sunny prime minister swallowed the reality pill Bush still shuns. Frost pressed Blair, challenging him with the bleak truth that the invasion "so far has been pretty much of a disaster." Blair responded, "It has." A Blair spokesman rushed to try damage control, claiming the prime minister's words were a "slip of the tongue." If you believe that, stop reading this and go check out the latest scoops on the Tom Cruise-Katie Holmes wedding.

Ellen Knickmeyer, the intrepid Washington Post Baghdad correspondent, reports that the experts and ordinary people she's in touch with believe civil war in Iraq "is already underway," the "flimsy Iraqi state" is disintegrating and "surrounding countries" may be drawn into the sectarian bloodbath.

Knickmeyer -- who has courageously stuck it out in her perilous posting much longer than most reporters -- sees ominous signs of an impending disaster far worse than the present chaos, bombings, sniper attacks, kidnappings and predictable carnage.

Knickmeyer spoke with Joost Hiltermann, Middle East project director for the International Crisis Group. He said, "We're not talking about just a full-scale civil war. This would be a failed-state situation with fighting among various groups." He added grimly, "The war will be over Iraq, over its dead body."

Prince Turki al-Faisal, the Saudi ambassador, sees the consequences of partitioning Iraq: "To envision that you can divide Iraq into three parts is to envision ethnic cleansing on a massive scale, sectarian killing on a massive scale."

That would certainly mean the Saudis, Iranians, Turks and Syrians would be drawn into the conflict, aligning with various factions to protect their own interests, borders and security.

Knickmeyer cites the important analysis of Syrian President Bashar al-Assad, a key figure in the region. He recently told "Der Spiegel," the German news magazine, "When the ethnic-religious break occurs in one country, it will not fail to occur elsewhere, too." The Syrian president concluded, "It would be as it was at the end of the Soviet Union, only much worse. Large wars, small wars -- no one would be able to get a grip on the consequences."

The Democrats are spurring Bush to come up with an exit plan. He'll publicly resist while he privately hopes his daddy's pal Jim Baker and his Iraq Study Group will give him the bipartisan cover he needs to cut and run.

Baker, the former secretary of state and Bush family valet, is crafty enough to come up with a plan that will not acknowledge the disaster in Iraq, nor call it a phased withdrawal while doing just that. Our troops will protect the oil as we let the Iraqis have their civil war.

Even Henry Kissinger now admits a military victory in Iraq is no longer possible. The former secretary of state, national security adviser and backdoor White House consigliere on Iraq told the BBC the dramatic collapse of Iraq would have "disastrous consequences."

Kissinger called for an international conference including Iraq's neighbors, the permanent members of the United Nations Security Council and India and Pakistan to find a way out of the mess.

Only the uninformed and blind partisans still believe Bush's neocon nightmare was a good idea and our nation is more secure as a result. The Democrats know this, and many Republicans will be getting on the exit-strategy bandwagon, reflecting the will of the American people.

But as obvious as the disaster in Iraq is, and how futile "staying the course" is, in the same neighborhood another monstrous mess is only getting worse, more dangerous and requires much more of our national attention.

The Palestinians suffering in the occupied territories are desperate. They need the world's help, and that will not happen without American involvement and a change of course in our policy toward the Israeli-Palestinian conflict. Resolving this conflict is as central to Middle East stability as keeping Iraq from exploding into regional mayhem.

I support the security of the state of Israel and the creation of a viable Palestinian state. The two principles are in no way mutually exclusive. But what's happening now imperils Israel, smothers the dream of a Palestine, inflames hatred and is a greater threat to any hope of stability in the region than the Iraq fiasco.

After 58 years of forced Diaspora and 39 years of endless and cruel occupation, the Palestinians remain without a nation, impoverished victims of terrible injustice. It must end.

More than any other measure, more than 10 million airport-security officers, more than walls and sealed borders, a resolution to the Palestine issue will do more to stem terrorism, help pacify the region and protect U.S. security than anything else.

The great hope of the Oslo Accords is lost. Decades of Yasser Arafat's intransigence, the incompetence and corruption of the Fatah leadership and the despair of unfulfilled hope drove the Palestinians into the arms of Hamas.

The Israeli shelling of Beit Hanoun in the Gaza Strip left 18 people dead, many of them children. Palestinians inside the West Bank are now required to spend endless hours in security checkpoint lines to get to work or move anywhere. Men under 35 in northern West Bank areas are now generally confined and not permitted to leave their villages.

These measures -- always justified as vital for security -- only increase hostilities, marginalize and further isolate the Palestinians. The unending cycle of terrorist acts and tit-for-tat retribution is a doomed strategy for both sides.

The United States must change its posture or the antipathy and violence will only fester. Afif Safieh, the Palestinian envoy to the United States, wants a non-violent, diplomatic solution and an accelerated process to end the Israeli occupation.

Safieh has written about the view outside the United States and Israel of the consequences of the status quo: "There is a growing awareness around the world from Paris to Pakistan that what is poisoning international relations and creating a rift with the Arab and Muslim worlds is the unresolved Palestinian tragedy and the perceived American complacency and complicity with Israeli territorial appetite."

Every president since Dwight Eisenhower has, to some extent, become personally involved in trying to seek a regional solution and to move the Middle East from extremism and calls to destroy Israel to moderation and a homeland for the Palestinians.

Some -- Richard Nixon, Jimmy Carter, George H.W. Bush and Bill Clinton -- took risks and showed great leadership on the issue.

But then we have George W. Bush. The best thing you can say about his approach to the Israel-Palestine conflict is that he's treated it with malign neglect. There are personal and political reasons for this.

Bush lacks the patience and the eye for detail and nuance such delicate diplomacy requires. He is intellectually lazy. His inclinations are always to come up with some oversimplifications and slogans and turn to hamhanded military solutions.

The same neocon nuts who came up with the Iraq war also shaped Bush's views on the conflict, and their positions reflect the most extreme postures of right-wing Israeli politicians.

Douglas Feith is Exhibit A for that mentality. Until recently, he was Donald Rumsfeld's trusted deputy. He headed up the Pentagon's rump intelligence group that came up with the serial lies about Iraq's weapons and ties with al-Qaeda. Gen. Tommy Franks, who led the invasion of Iraq, once referred to Feith as "the stupidest f---ing guy on the face of the earth."

Feith has longstanding ties with Israel's Likud Party and he's advocated invading Syria and Iran. Feith is a dangerous warmonger. He has criticized George H.W. Bush's and Bill Clinton's views on Palestine.

Feith abruptly left the Pentagon in May, claiming he wanted to spent more time with his family. Incredibly, Georgetown University hired Feith to teach a course on the Bush administration's strategy in the war on terror. That's like hiring Vice President Dick Cheney to teach hunting safety.

Juan Cole, the University of Michigan professor and Middle East expert, wrote before Feith's departure that he is the target of at least two investigations. Cole reported that "Feith has been questioned by the FBI in relation to passing by one of his employees of confidential Pentagon documents to the American Israel Public Affairs Committee (AIPAC) which in turn passed them to the Israeli Embassy. The Senate Intelligence Committee is also investigating Feith." At least Feith will do less damage at Georgetown.

The Christian fundamentalist rapture crowd also influences Bush's views on the Middle East. They want a greater Israel to use as a stairway to heaven for their apocalyptic seances.

Daniel Levy, who worked as an Israeli negotiator in Oslo, advised Prime Minister Yitzhak Rabin and helped draft the Geneva peace plan, has come up with an imaginative idea to do something about what he describes as the "much-neglected Israeli-Arab conflict."

Levy described in "Washington Monthly" magazine how the new Congress should expand the work of the Iraq Study Group to include new policy recommendations on the creation of a Palestinian state.

Levy argued in his article entitled "Send the Baker Commission to Gaza" that it is in America's interest to deal with the stalemate: "It seems blindly obvious to observe that the unresolved, permanently visible Israeli-Palestinian conflict fans the flames of jihadism across the region. ... Making progress in a land settlement could be decisive in stabilizing the Middle East."

Levy noted that anecdotal and polling evidence suggests that "the silent majority of the Jewish community" is hungry for a progressive move to bring peace. He said the Democrats have allowed Republicans to "out-pro-Israel" them and by "failing to challenge a neocon orthodoxy that ultimately damages Israel and the United States."

It's high time we take the "next step in the painful rehabilitation of our policy in the region," Levy added. The Democrats can make a difference, but their new majority status brings a real obstacle to peace in the Middle East. Rep. Thomas Lantos, D-Calif., is set to become chairman of the House International Relations Committee. Lantos' views are in complete conformity with the Likud Party and AIPAC.

Lantos lost all credibility in the first Gulf War. That's when he held a hearing on Saddam's invasion of Kuwait and helped foster one of the great lies in that episode. Lantos brought in a compelling witness who described Iraqi troops going into a hospital in Kuwait City, disconnecting infants from neonatal units and taking the expensive equipment to Baghdad.

The beautiful, tearful young woman spoke in excellent English as she told the committee about Saddam's ruthless infanticide. Her story became one of the most repeated arguments for the need to drive Saddam from Kuwait.

Lantos said his star witness could not be identified for her "protection." Months later, the truth emerged. The woman was the daughter of Kuwait's ambassador to the United States and she was here at the time of the invasion. Her whole story was a hoax, used to sell the war.

Lantos knew who she was, but lied to his colleagues and the world about her act. The Democrats should not allow Lantos to dictate policies on the Middle East. It's time for a new direction and end to the suffering of the Palestinian people.


Bill Gallagher, a Peabody Award winner, is a former Niagara Falls city councilman who now covers Detroit for Fox2 News. His e-mail address is gallaghernewsman@sbcglobal.net.
Niagara Falls Reporter www.niagarafallsreporter.com November 21 2006

http://www.niagarafallsreporter.com/gallagher290.html