Steve Quayle News Alerts

July 8, 2002
By Michael C. Ruppert

[Ed. Note: The last time FTW issued an emergency economic bulletin to its subscribers was Sept. 9. At that time a derivatives investment bubble on the verge of implosion, a 900-point drop in the Dow Jones average and a pending liquidity crisis signaled a crash on the order of 1929. Only the attacks of Sept. 11 and massive intervention from the U.S. Treasury and Federal Reserve prevented the collapse. Investors blamed the ensuing market losses on the attacks.

The situation now is much, much worse as more factors combine to suggest that foreign investors and trust in the U.S. economy might soon be a thing of the past. Your pension is at risk today and your home may be at risk in six months to a year.

One economic analyst has suggested that a nuclear exchange between India and Pakistan might be the perfect cover for the biggest financial wipe out in human history. I think that an ill-conceived and risky invasion of Iraq might serve the same purpose. From consumer confidence, to corporate accounting, to the dollar, to gold, to foreign capital flight, to pension fund wipe outs, to the derivative bubble, to debt, there is not a single economic indicator that is not flashing red.

The warnings are as clear, explicit and well-documented as were the warnings received by the U.S. government throughout summer 2001 that a terrorist attack against the World Trade Center would take place during the week of Sept. 9 using hijacked airliners from United and American airlines. Nothing was done to prevent that and apparently nothing is being done now in spite of the fact that $4.2 trillion of your money has been stolen right in front of your eyes.

There was no single reason for the attacks of 9-11. I have cited oil, drug cash and geopolitics as three of the primary motives for the U.S. government s complicity in allowing the attacks to happen. But what also cannot be overlooked is the fact that 9-11 effectively masked a major economic crash that was certain to occur. That crash was not been averted by the extraordinary financial maneuverings of the Bush administration that followed 9-11. It was merely postponed for a very short time.--MCR ]

c. 2002 From The Wilderness Publications, www.copvcia.com. All Rights Reserved. May be copied or distributed for non-profit purposes only. May not be posted on any internet web site in its entirety without express written consent. Contact mruppert@copvcia.com.

July 8, 2002, 4 PM PDT (FTW) -- Reuters, London published a story June 27 based upon an interview with billionaire financier George Soros. The headline read, Soros Blames Bush Factor for Dollar s Fall. George Soros is a man to be reckoned with. Emerging from WWII as someone who allegedly cooperated with Nazi occupation troops by identifying assets to be seized, the European financier is one of the most powerful financiers on the planet. He is credited with successfully assaulting the currencies of several nations, including Britain s pound. He recently participated in the World Economic Forum in New York where he was seated on the dais with the likes of Zbigniew Brzezinski, Hillary Clinton, Shimon Peres and academics from Ivy League colleges. It is more than just a case that when Soros speaks, people listen. The truth is that when Soros speaks, markets move.

His comments were brutal.

The international financial system is coming apart at the seams &There is a lack of confidence. That's what I call the Bush factor in the economy. There is a liquidity crisis in financial markets, said Soros. Everybody's going home. The Swiss banks are going home. The strengthening of the yen clearly shows repatriation. Translated, that means that foreign capital is fleeing the United States in the wake of as yet not fully realized accounting scandals that will, according to Fox News on July 6, take an estimated $600 billion in value out of the U.S. stock market this year. One of the many smoke alarms triggered by this is the fact that the U.S. economy needs an estimated $1.5 trillion per year in new foreign investment just to remain solvent.

Reuters quoted Soros as saying that the global economic downturn had exposed the weaknesses of corporate America and how the U.S. administration runs the international economic system.

Soros is aware of what FTW and noted economic thinkers like Catherine Austin Fitts, former assistant secretary of housing, and British economist Chris Sanders of Sanders Research have been saying for years: as much as half of the value of the U.S. financial markets is derived from criminal endeavors, whether it is the laundering of drug money or the fraudulent cooking of financial statements to boost profits.

PUMP AND DUMP

It's a simple scheme really. The mafia knows it quite well. By whatever means necessary, drive a stock's price higher and higher. Make it look like a mover, even if it s a dog. Cook the books and get suckers to buy in, helping to drive the price even higher. When you think the balloon will pop, call all your buddies and sell your shares. That effectively steals all the money that the suckers put in. When the stock crashes, the suckers who weren't part of the scheme will take the loss, whether they be individual investors or the New York City police and fire pension fund.

The U.S. stock markets have been pumped to the breaking point, and they are trying very hard to dump right now. Most sober analysts have agreed for a long time that the prices are over-inflated by as much as 50 percent or more; that price/earnings ratios, now averaging more than 30-1, should properly be corrected to about 15-1. That means the Dow should be at 5,000 or lower. We'll talk about how the meltdown is being temporarily prevented later. It is first necessary to examine the severity of the crisis.

If I mention the bookkeeping problem that s threatening Wall Street right now and asked you how many companies were being investigated for or had announced overstated earnings, how many would you say? Six? Eight? Try 17.* Seven of them are energy companies, and this adds another degree of imperative for Congress to force the White House to compel full disclosure from Vice President Cheney's 2001 energy task force. But he has a problem there too. One of the companies under investigation for fraudulent bookkeeping is Halliburton. Cheney was its CEO until taking office, and the fraudulent accounting occurred while he was the boss.

Did you think that WorldCom was a big one, having illegally claimed $3.8 billion in earnings to boost its share price? On July 5, according to Newsday, the energy giant Reliant Resources restated its 1999-2001 earnings by chopping off $7.8 billion in revenue. Just today it was disclosed on CNN that the pharmaceutical giant Merck has overstated its revenues by $14 billion.

At the core of all these accounting problems is a non-transparent form of corporate bookkeeping called pro forma. As opposed to the more transparent and rigid practice called GAAP (Generally Accepted Accounting Practices), pro forma bookkeeping allows for all kinds of manipulations like hiding debt as income, double booking revenues and sneaking drug money onto the bottom line. What has yet to be fully explored by any of the major media is which other major corporations use pro forma bookkeeping. The reason is that all of the major media companies use it too. Also on the pro forma system are GE (NBC), AOL/Time Warner (CNN), Microsoft (MS-NBC), Viacom (CBS), Disney (ABC), IBM, Intel, Cisco Systems, Sun Micro, Tribune (the Chicago Tribune and the L.A. Times), The Washington Post (Newsweek) and the New York Times.

The accounting scandals are starting to nip at the heels of these and other cornerstones of American capital markets. Trading of GM shares was halted June 27 after unconfirmed market rumors of accounting irregularities. And New York Times reporter Gretchen Morgenson offered the suggestion in an April 14 story that GE might be cooking its books. Thanks to PBS's Lowell Bergman in a 2000 report, we already know that GE has been called on the carpet for accepting drug cash, lots of drug cash, as payment for the good things it brings to life. So has Philip-Morris.

How much foreign capital can Wall Street expect to attract, let alone retain if foreign investors expected to be wiped out for leaving their money here? American investors, especially pension funds are still putting money in or leaving it in place in the stock market. Are there other alarm bells that mom and pop investors should be hearing? What will happen to the value of the American brand name as a trustworthy place to invest money if GM is ultimately revealed to have cooked its books?

A look at the real health of the stock market is revealing. On April 26, The International Forecaster made two chilling observations:

At the time of the AOL Warner merger the combined companies were worth $290 billion. They are presently worth $85 billion. Their quarterly loss is estimated to be $50 billion. This could be the business mistake of the new century &

The downgrade of Bristol Myers Squibb to Aaa by Moody's leaves only 8 AAA-rated companies left. They are GE, UPS, AIG, ExxonMobil, Johnson & Johnson Berkshire Hathaway, and Pfizer & Merck. In 1990 there were 27 AAA companies and in 1979 there were 58.

THE DOLLAR

Soros was extremely upset about what was happening to the U.S. dollar, which has been falling against various currencies for about a month. The key to understanding this lies in the lesson I learned at an economic conference in Moscow in spring 2001. Almost all countries in the world use the U.S. dollar as their reserve currency. They have bought trillions and are holding them. If another currency becomes more valuable or is viewed as more stable, then the world will switch currencies, and trillions of dollars will come back into the country -- inflation would be inevitable and the dollar would lose its value.

In the week ending July 5, the dollar closed consistently at or near parity with the Euro. As of this posting it sits at (US) 99 cents and has been hovering there for more than a week. Since various economic reforms from the 1950s to the 1970s removed the dollar from the gold standard it has been a fiat currency, unconnected to any measure of intrinsic value. The full faith and credit of the United States -- along with its military -- have given the dollar its value. The Euro is partially backed by gold and there have been lingering but credible rumors for years that the U.S.'s gold reserves have been moved to Europe.

Soros told Reuters, But the declines in the markets have gone somewhat further than what would be the natural consequences of the previous exuberance &

The decline in the dollar came as a surprise to me &I attribute it to lack of confidence in the management of affairs by the United States, its unilateralism, the pursuit of national self-interests and not living up to the responsibility of being the dominant financial power in the world, not taking care of the system.

What is Soros setting us up for? The pumping of the stock market occurred while Bill Clinton was president. Yet he s blaming Bush. Is another Herbert Hoover being created before the big crash? The signs are there. Britain s paper the Independent ran a June 28 story headlined, WorldCom scandal: Currencies: Latest Wall Street disaster sends investors all over the world running for cover. The lead read, The U.S, dollar yesterday moved to the brink of free fall, a nightmare scenario for the world economy, after reverberations from the WorldCom scandal triggered panic among investors.

That was before the announcements about Reliant and Merck.

The story painted a glum picture. This is threatening to become a disorderly market, David Bloom, global economist at HSBC said. There's no better way to show loss of confidence in a country than through its currency.

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