A Major Economic Challenge is Facing America

Business and Economic Forecast Summary 2005-2006
By Benjamin Train
April 15, 2005

The dominant paradigm of this Nation projects the appearance of a controlled economic climate that is capable of sustaining broad-based economic growth. However, expansion of a debt-funded, growth-based economic model under any economic model, without new capital generation instruments, results in an implosive bankrupt structure with only isolated class segments reaping the rewards.

At no other time in the last 40 years, that I have studied ecometric modeling numbers in America, have I witnessed the instability that I see today. The economy Worldwide is declining. You can see it in personal savings at or below 0.2%, precious metals, unfunded pension funds, stocks, bonds, commodities, future markets, and currencies. The current American debt has climbed over $36 trillion dollars.

My personal and social responsibility dictates that I publish this alert for all small business owners, private investors, and private citizens here in the U.S. Please prepare yourselves for the coming economic condition that will surface in the third quarter of 2005. If you have not already realized the repercussions of what supply-side economics means, I promise, you will by the first quarter of 2006.

Fred Bergsten, director of the Institute for International Economics, said, "We finally understand the true meaning of supply-side economics. Foreigners supply most of the goods and all of the money."

2005 will continue to be a year of only moderate growth for U.S. based small businesses. The massive public and private debt, coupled with massive, National broad-based unemployment, and raising costs, will undermine the small business owner and the general public.

Business sectors that serve the objective of the military industrial complex and current oil based energy paradigm will continue to realize growth. All other sectors will be abandoned and decline, as soon as subsidies end.


BANKING INTERESTS:
The US Government allowed the banking interests to move the US economy from a gold and silver backed currency, to a debt based currency in the 1960's. The US operates on a growth based, debt structured economic model controlled by banking interests, not the Congress. This current model is subject to the continuation of permission-based debt growth. If personal and Corporate debt growth is restricted by the Federal Reserve, then the US economy and Corporate growth ceases.

The 1980 economic legislation act, that directed the Federal Government to subsidize the economy, in both the public and private sectors, has artificially controlled economic appearances in the precious metals, stock markets, bond markets, CPI, securities, futures markets and more.

In 2001, even after massive Federal intervention, our debt-based economy collapsed. It has been aggressively subsidized by the Federal Government since. I see these subsidies leading to massive inflation and massive unemployment beginning in 2005.


STOCK MARKET:
Interest Rates, Oil, Gold and Inflation All Rise Together!

Stock market scandals the last four years, have cost millions of innocent investors hundreds of billions of dollars. Corporate Boards, now required to comply with the Sarbanes-Oxley act, and Corporate Governance being rated by mainstream investment research firms, make it expensive and challenging to do business in America. However, even with the new securities and banking regulations now in place, Federal laws continue to fail to protect the needs of investors.

Due to the tremendous opposition by banking regulators, Banks remain protected from having to comply with full and accurate accounting disclosure regulations. If double accounting practices continue, just in expensing employee stock options in computing earnings per share alone, it could cost U.S. investors as much as 1.5 trillion to $2 trillion dollars.

Public companies, with no real assets, are now dependent on consumers to use their credit, to buy the 'public company's' 'real-time', or 'just-in-time' supply chain, cash-flow inventory, to present investment value. The Federal Government kept the federal funds rate at a 46 year low of 1% to spur debt-based buying, to enable 4% Corporate loans for capital improvements, to fund short-term liabilities, stretch out bond maturities, and to support the banking interests.

The week of April 15, 2005, the U.S. Stock market Dow index lost more than 400 points in a week. The spike began on Friday April 8th and is expected to end on Tuesday, April 19th. The loss will add up in the billions in stock devaluations across all stock industry sectors. The next such drop is expected in the final quarter of 2005, and again in the first quarter of 2006.

Stock Market Indices -- Friday, April 15, 2005
S&P 500 1142.62 -19.43
DJIA 10087.51 -191.24
NASDAQ 1908.20 -38.50
Total Volume NYSE 2,175,785,000
Total Volume AMEX 87,849,000
Total Volume Nasdaq 1,238,311,000
Global stock markets are now capitalized at more than $30 trillion dollars.

DOLLAR:
The U.S. dollar will continue to drop in value. The strong-dollar policy of the past is being abandoned Worldwide. The US dollar value has plunged 32 percent since October 2000. Foreign investors are extremely uneasy about the amount of the US National debt, low interest rates and the value of the dollar. By late afternoon Friday, April 15, 2005 in New York, the euro was trading at $1.2913, up about 0.9 percent from late Thursday, according to Reuters data. The dollar was also down 0.4 percent against the Japanese yen to 107.73 yen. Certainly the Dollar's weakness reflects concerns about the U.S. economy, and will be driving the dollar weaker.

The United States imports roughly $3 billion to $4 billion of foreign capital each day, half of that to cover the current-account deficit and the other half to finance investments abroad. Net purchases of U.S. assets were $84.5 billion in February 2005, easily enough to counterbalance a record $61.04 billion in February. That trade gap has been a persistent weight on the U.S. currency over the past three years. The United States is now borrowing about $540 billion per year from the rest of the world to pay for the overall deficit funding, Americans' consumption of goods and services and U.S. foreign aid transfers.

China's accumulation of dollars to maintain the peg mean it has banked hundreds of billions of these dollars in U.S. debt securities. China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to more flexible currencies, a top Chinese economist said at the World Economic Forum.

China has also reported it is burdened with US$100 billion in two years worth of overdue accounts receivable. This $100 billion dollar loss of face in China, may be much more a component of our National debt and the weak U.S. Dollar, than Corporate abuse. With an export and import volume of over US$one trillion in 2004, China has become the world's third largest trader following the United States and Germany.

Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn't whether to devalue the yuan but "to limit it from the U.S. dollar." China's prime minister, Wen Jiabao, whose nation is at the center of a struggle with Washington over currency policy complained about the fall of the dollar, asking, "Shouldn't the relevant authorities be doing something about this?"

Japan is now financing about a quarter of America's current account deficit. If foreign investment in U.S. treasury bonds stopped, it would be impossible to finance our current National deficit. The February trade deficit with Japan rose to $6.87 billion from $6.21 billion in January, 2005.

The Chinese, Japanese and oil generating counties have carried the U.S. for over six years by buying U.S. Treasury Notes, corporations, real estate and other U.S. assets.

Finance chiefs from the Group of Seven economic powers on Saturday, April 16, 2005 vowed "vigorous" action to reduce global economic imbalances, calling for U.S. budget deficit cuts and reforms in Europe and Japan.

The U.S. trade gap reached a monthly record high in February amid a sharp pickup in the cost of oil, gas and other imported industrial supplies and growing imports of consumer goods. The U.S. deficit in international trade of goods and services grew 4.3% to $61.04 billion in February from a revised $58.50 billion in January, 2005.

Noted World economist; Peter G. Peterson, Chairman of the Council on Foreign Relations, in October 2004, warned in his paper titled: "Riding for a Fall", said "Virtually none of the policy leaders, financial traders, and economists interviewed by this author believes the U.S. current account deficit is sustainable at current levels for much longer than five more years. Many see a real risk of a crisis. Former Federal Reserve Chairman Paul Volcker says the odds of this happening are around 75 percent within the next five years; former Treasury Secretary Robert Rubin talks of "a day of serious reckoning." What might trigger such a crisis? Almost anything: an act of terrorism, a bad day on Wall Street, a disappointing employment report, or even a testy remark by a central banker."


SAVINGS:
The total amount of US consumer savings, supports less than 60 days of minimal living expenses. 70% of employed workers have no cash savings. 90% of employed workers are living pay-check to pay-check. Bankruptcy, of both companies and the public is at an all-time high, prompting the new bankruptcy Federal limits that will take effect in October 2005.

Household savings rates are higher in Europe than in the United States, adding to the building strenth of the Euro, but private-sector savings rates are almost certain to fall as the number of retired households rises and the number of working-age households declines, leading to a global economic decline over the next ten years.


PERSONAL DEBT:
The record low interest rate, controlled by the Fed, designed to seduce the public into further debt has worked; generating more private debt than at any time in the history of the United States, and has further, been used to artificially bolster false economic reports and forecasts. Consumer debt is currently more than $9.3 trillion US dollars.

The average unsecured consumer debt load per U.S. household, is approximately $19,000.00 at 18+% interest rate and growing. Anyone now holding a variable interest rate loan, or mortgage, is now urged to secure a fixed rate loan as soon as possible. Carefully consider the consequences of any variable interst rate instruments during inflationary periods. Your Federal Government has. New double-EE savings bonds are being changed to a fixed pay rate.

The help illustrate the impact of interest rates on the US economy, the mere mention of the possibility of raising the interest rate, sends stock markets into a 200 point nose dive worlwide. This happened January 2005.


EMPLOYMENT:
Corporate cost cutting to support published profits, has resulted in severe layoffs in all sectors. The Corporative imperative to be as competitive as possible, requires domestic layoffs, and a low-cost offshore outsourcing labor pool.

The published unemployment figures no longer make any sense. Even with adjustments for the moderate growth and expired Federal unemployment benefits, It appears U.S. unemployment may now exceed 25 percent of the eligible workforce in America. The U.S. has lost more than 2.7 million manufacturing jobs alone since 2001. We can't have economic recovery, unless our people have jobs that supports the economy.

A metamorphosis took place turning human resources into human capital. We, the Citizens of the United States of America are now referred to as "Consumers" and used as human capital by government and corporate interests. Where is the lowest paid human capital on the planet kept? The U.S. Bureau of Prisons reports that 10 States are now hiring prison inmates at .12 cents to $5.69 per hour for customer service, garment and furniture manufacturing jobs.

Our remaining service based jobs, in all service sectors, including many Federal and State service jobs, are being aggressively exported to India, Asia, Canada, Hungary, Ukraine, Poland, and South America. The US Department of Labor and Forrester Research expects 3.3 million IT jobs to be outsourced offshore by 2015. IT jobs lost this year alone due to outsourcing, will cost American families $16 Billion dollars in lost income, according to IDC.


EDUCATION:
The US public education system has failed to prepare it's population for the type of jobs and economy that we are facing today. At most, I would credit the public education system for lining its own pockets, and teaching our children to be non-discretionary consumers that blindly respond to sound bites and visual stimulation.

Disciplined Countries like India, have invested the last 20 years in training its citizens excellent work ethics, incredible skills, and training with technology. India's Universities teach economy, technology and business as integrated topics, because they are in real life. We must make bold moves in our educational system to begin being competitive in the Global market place. Unfortunately, no one has the political will to fix it.


SMALL BUSINESS:
The Adaptive Imperative of: Evolve or die. Innovate or stagnate, position yourself for the turnaround. Finding new sources of growth is harder than ever. However, one source of growth has emerged as a major force in the Corporate and small business sector, and that is US Government contracts. Revenue from defense contracts are growing at over 12% per quarter.

To survive the next economic "recession" I expect to begin mid-to-late-2005, business priorities for the remainder of 2005, must remain governed by relevant business practices that include; creating two years worth of cash liquidy, no credit debt, streamlined business processes, mergers, buyouts, layoffs, measurable productivity, customer service pressures, moderate return on capital investments, and a highly skilled workforce with the agility to adapt to opportunities presented in business.

Outsourced business processes, manufacturing, and IT job functions, coupled with intensified collaboration with; offshore suppliers, and strategic business advisors, will be the priority for most of this year. Increased energy and fuel costs will be evident most of this year.


PERSONAL ADVICE:
For individuals, I recommend eliminating all unsecured debt. Capitalize on secured debt's inflated prices by selling real estate at your regions top-price by mid-2005. Start an off-shore savings in Australia or other higher yield savings rate country. Invest in Euro's and gold. Reduce expenses where ever possible.

Store as much cash as possible before the first quarter of 2006. Gas prices are expected to exceed $3.50 US per gallon within 12 months. Food prices are expected raise more than 20% per quarter. You will need as much cash as possible. I recommend that you have at least a year's supply of cash on hand, two if at all possible.

Together as a Nation, our lack of savings, lack of jobs, personal debt load, poor education, debt-based consumerism, and trade imbalances are heading toward National economic disaster. We have ourselves, banks and multiple administrations of our Government to thank for the economic condition of our Country.

Ben Graham, author of The Intelligent Investor, and the man credited with developing the concept of value investing, said: "The essence of investment management is the management of risk, not the management of returns." Risk management will become a full-time pre-occupation for small-business owners and private households throughout the U.S.

Greed and short-sighted, 'have it all now' planning has taken its toll. Blind consumerism has permitted banks and the U.S. Government to have taken it this far. There is no way out. Your economic future and your children's future rests in your hands, and in the hands of a greed we no longer control. A recent Wall Street Journal poll shows that 6 in 10 voters say the economy is heading toward trouble, not prosperity.

Those of you who are unfamiliar with the depth of my experience in international strategic business development, communications, engineering, technology and economic studies, may doubt this forecast. To you, I am stating that this is my final summary economic forecast after advising clients throughout the World for the last 40 years.

No, I am not retiring, I have entered the private security sector to build security companies that will be dealing with future public unrest due to future economic conditions, here in the US and abroad.

I originally formed the Online Consultancy Network in 1997 to help business owners and managers by providing reliable resources and experienced business consultants throughout the World. Our Web site was launched in 1999 and our membership grew into thousands Worldwide.

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We are what we repeatedly do.

Excellence, then, is not an act, but a habit.
Aristotle BC 384-322