Table of Figures
Figure 1.1
How to Turn $35 into $166,000+, from 1970 to 2009
Figure 1.2
Structure of the Book Profiting from the World’s Economic Crisis
Figure 1.1
Money Has Grown Much More Than Industrial Production
Figure 1.2
Money (World Reserves) Divided by Production Is 20 Times 1970 Level
Figure 1.3
The U.S. Government Debt Will Explode over the Next Two Decades to 800% of GDP
Figure 1.4
The Actual U.S. Deficit Is at a Record $1.5 Trillion
Figure 1.5
Federal Budget Spending Reaches Toward $4 Trillion in 2009
Figure 1.6
Tax Receipts Reached Only $2.1 Trillion
Figure 1.7
Buyers of U.S. Government Debt: Agencies and Trusts, Foreigners, Private Domestic, Fed
Figure 1.8
How the Total Federal Government Debt Will Grow with the Help of the Fed
Figure 1.9
Government Borrowing Takes Over from Private Borrowing
Figure 1.10
How Federal Government Spending and Taxing Increased during the Last Century
Figure 1.11
Federal Outlays and the Deficit Jumped in World Wars—Just Like They’re Doing Now
Figure 1.12
U.S. Deficit Projections Became Worse Each Year
Figure 1.13
Health Care Spending and Interest on Debt Are Increasing to Levels that Our Government Can’t Support
Figure 1.14
The Federal Debt/GDP Level Suggests Inflation Could Be Much Higher
Figure 2.1
The U.S. Current Account Deficit is the World’s Biggest
Figure 2.2
U.S. Trade Balance Accumulated to $7 Trillion
Figure 2.3
Our Trading Partners Hold Half Our Government Debt
Figure 2.4
The Budget Deficit Gives the Public the Money for the Trade Deficit
Figure 2.5
U.S. Consumer Supports the U.S. and World Economy by Borrowing
Figure 2.6
Trade Deficit and Foreign Investment Move Together
Figure 2.7
The Entire Federal Deficit Was Purchased by Foreigners from 1996 to 2008
Figure 2.8
The Correlation between Mortgage Borrowing and the Trade Deficit
Figure 2.9
How U.S. Consumer Saving Has Decreased Since 1959: U.S. Consumers Spend All They Earn
Figure 2.10
Both U.S. Trade and Investment in the United States Have Dropped in Crisis
Figure 2.11
U.S. Trade Balance Declines with Foreign Investment Decline
Figure 2.12
Federal Deficit Remained Smaller Than the Trade Deficit so Foreigners Could Finance Federal Budget Deficit, until 2009
Figure 2.13
How U.S. Manufacturing Jobs Were Lost as the U.S. Imported More Goods, 1939-2004
Figure 2.14
The United States Imports More Capital Than Any Other Country with China the Biggest Supplier
Figure 2.15
How the United States Went From Biggest Lender to Biggest Borrower: The Accumulated Trade balance became Negative in the 1980s
Figure 2.16
Claims by Foreigners on U.S. Tangible Assets
Figure 2.17
Holdings by Foreigners of U.S. Assets
Figure 2.18
Reporting Banks’ Cross-Border External Positions
Figure 2.19
The U.S. Trade Deficit Feeds Our Budget Deficit and the Fed Feeds the Money Supply
Figure 2.20
Foreign Investment Flows into the United States Turned Negative in 2009
Figure 2.21
Foreigners Stopped Buying Long-Term Securities
Figure 2.22
Foreigners Continue to Buy Treasuries, T-bills, and Agencies
Figure 2.23
Foreign Purchases of T-bills Jumped as the Credit Crisis Accelerated in 2008
Figure 2.24
How Foreign Purchases of U.S. T-bills Helped Drive Rates to 0% by 2009
Figure 2.25
Foreign Investment Withdrawal Caused Two Crises in U.S.
Figure 2.26
Foreigners Selling off Record Amounts of Agency Debt in 2008 Brought Fannie and Freddie Collapse
Figure 2.27
Foreigners Stopped Buying Corporate Debt in 2008
Figure 2.28
Foreign Purchases of U.S. Equities Track with Stock Prices
Figure 2.29
Foreign Central Bank Buying U.S. Treasuries Moves Opposite Rates
Figure 2.30
The Dollar Weakens with the Budget and Trade Deficits
Figure 3.1
Medicare Costs Will Rise from Both Aging and New Medical Procedures
Figure 3.2
Medicare Will Bankrupt the Country
Figure 3.3
Components of Gross Domestic Product
Figure 3.4
Health Care Cost Per Capita in the United States Is Double Other Countries
Figure 3.5
Federal Budget for Health Care Grew from 2% in 1962 to 25% Today of Outlays
Figure 3.6
Social Security Will Drag Deficits Lower Once Trust Fund Surplus Is Exhausted
Figure 3.7
There Won’t Be Enough Workers to Fund the Baby Boomers’ Retirement
Figure 3.8
Total Economic Costs of Iraq and Afghanistan Wars
Figure 3.9
Wars Bring Government Spending Which Brings Inflation
Figure 3.10
Federal Debt Jumped in Wars
Figure 3.11
China and Hong Kong Have Acquired $1 Trillion of Treasuries Mostly Since 2000
Figure 4.1
Federal Reserve Credit Easing Policies
Figure 4.2
Federal Reserve Liabilities Grew from Deposits
Figure 4.3
Monetary Base Jumped Like Never Before from Bailouts
Figure 4.4
Money Is Growing, but Not Like the Monetary Base
Figure 4.5
Banks Cut Back Loans, Despite Fed Easing
Figure 4.6
Three Models of Federal Reserve Money Creation
Figure 4.7
Money Market Funds are Bigger than M1
Figure 4.8
Banks Meet Reserve Requirement with ATM Cash
Figure 4.9
The Fed Switched from Noninflationary Actions to an Inflationary Policy in Mid-2008
Figure 4.10
The Federal Reserve Will Have to Buy Treasuries to Fund the Deficit
Figure 5.1
Debt as a Percentage of GDP Is at Record-High Levels
Figure 5.2
Economic Growth Moves with Credit Growth
Figure 5.3
Economic Growth and Money Growth Have Moved Together for a Century
Figure 5.4
Debt and Money Grew and Collapsed Together in the Current Crisis
Figure 5.5
Private Debt Growth Collapsed in This Crisis as Government Debt Jumped to Bailout Problems
Figure 5.6
Debt, Money, and Economic Growth All Move Together
Figure 5.7
Household Debt Has Grown More Than Income, Especially After 1980
Figure 5.8
Government, Businesses, and Households Borrow from Financial Institutions and Foreigners in a Balanced Credit Market
Figure 5.9
Borrowing and Lending Flows Were Disrupted in the Credit Crisis
Figure 5.10
How Debt Drives Employment
Figure 5.11
Consumer Credit Has Declined the Fastest Since WWII
Figure 5.12
How Debt Contributed to Growth of GDP
Figure 6.1
The Virtuous Cycle of Growth
Figure 6.2
The Vicious Cycle
Figure 6.3
Stocks and GDP Tend to Move Together
Figure 6.4
Stocks Had Two Big Bull Markets: 1929 and 2000
Figure 6.5
Real Stock Prices Reveal Big-Picture Cycles
Figure 6.6
Stocks Were the Biggest Percentage of GDP in 1929 and 2000
Figure 7.1
Although the Patterns of 1920 and 1990 Overlap, We Are Not in a Depression Now
Figure 7.2
Stocks of 1921 and 1990 Overlap, with a Similar Pattern
Figure 7.3
CPI Moved Up Now, But Down in 1930
Figure 7.4
Comparison of the M1 Money Supply from 1920-1939 and 1990-2009
Figure 7.5
M1 CPI from 1920-1940 Moved Down Together
Figure 7.6
Money Stock Dropped during the Depression Like No Other Time
Figure 7.7
Currency Rises Now and in the 1930s Are Similar
Figure 7.8
Industrial Output Dropped More in the 1930s Than in the 2000s
Figure 7.9
Gold Inventories Grew after the Depression
Figure 7.10
The Fed Rate Moved Up in 2006, But Stayed Down in 1936
Figure 7.11
Comparison of the Ratio of Debt to Industrial Production in 1920-1940 and in 1990-2010
Figure 7.12
Comparison of the Price of Oil in 1920-1939 and 1990-2008
Figure 7.13
Moody’s Corporate Bond Rates Rose During the Depth of the Depression in 1932—as They Did in 2008
Figure 7.14
Comparing Unemployment from 1925 to 2009
Figure 7.15
How Commodities Prices Rose Dramatically after Going Off the Gold Standard in 1971
Figure 7.16
Housing Investment as a Percentage of GDP: The Housing Bubble in the Years before 1929 Was Even Bigger than in the 2000s
Figure 7.17
The U.S. Trade Balance, from 1919-2009: In the 1930s, the U.S. Enjoyed a Positive Trade Balance, But It Is Negative Now
Figure 7.18
How Excess Reserves at the Fed Grew to 100% during the Depression but Reached 700% by 2009
Figure 8.1
Japanese Stocks, from 1970-2009: The Bubble Peaked in 1990
Figure 8.2
Japanese Real Estate Also Peaked in 1990
Figure 8.3
The Number of Loans Outstanding by Private Financial Institutions Shows How Japan’s Debt Bubble Burst in 1990
Figure 8.4
Japan’s Loan Growth Collapsed from 18% Annual Growth in 1989 to No Growth
Figure 8.5
Japan’s Economy Was Flat after 1990 Burst
Figure 8.6
Japanese Domestic Goods Prices Dropped from 1980 to 2003
Figure 8.7
Japan’s Debt Jumped while the United States’ Was Flat in Terms of Percentage of GDP
Figure 8.8
Japan’s Example of Quantitative Easing
Figure 8.9
Japan’s Quantitative Easing Achieved a Zero Interest Rate
Figure 8.10
Excess Reserves Boosted Japanese Stocks
Figure 8.11
Japan’s Monetary Base Increase Did Not Move Currency
Figure 8.12
Japan’s Quantitative Easing Didn’t Hurt the Yen
Figure 8.13
Positive Current Account Kept Yen Strong
Figure 8.14
Japan’s Interest Rate Has Been the Lowest of the Major World Economies
Figure 8.15
Japan’s Quantitative Easing Was Funded by Buying Government Securities
Figure 8.16
Japanese Banks Bought Government Bonds
Figure 8.17
Government Deposits at Bank of Japan Declined
Figure 8.18
As Deposits Dropped after 2006, the Bank of Japan Extended Loans
Figure 8.19
The Bank of Japan Increased Foreign Currency Assets
Figure 8.20
U.S. Excess Reserves Are Triple Japan’s to 2009
Figure 8.21
Japan’s and the United States’ Expansions Are Similar in Terms of Percent of GDP
Figure 8.22
The Bank of Japan’s Asset Expansion Was Less than the U.S. Federal Reserve’s
Figure 8.23
Japan’s Current Account Is a Surplus whereas the United States’ Is a Deficit
Figure 8.24
Japan’s Current Account Is Much Higher than Its Trade Surplus
Figure 8.25
U.S. Annual Deficit Is Growing Much Faster than Japan’s
Figure 8.26
Japan Took a Decade to Ramp its Deficit to U.S. Level When Compared as % of GDP
Figure 8.27
The Yen Has Been Strong As Stocks Fell. Will this Reverse?
Figure 8.28
Japanese Interest Rates Collapsed Along with Stocks
Figure 8.29
Rates Dropped with the Strong Yen. If the Yen Falls Rates Could Rise
Figure 9.1
German Hyperinflation in Currency Circulation Was Matched by Its Growing Debt, Rising Prices, and Declining Exchange Rate
Figure 9.2
German Inflation in Gold and Silver
Figure 9.3
Germany’s Deficit Drove Inflation, from 1919-1923
Figure 9.4
Germany Was Running Deficits of 60+%, from 1919-1923
Figure 9.5
The U.S. Dollar Was Strong Against China’s RMB until 1994, but Declined after 2005
Figure 9.6
China’s Money Stimulus Replaces Its Slowing Exports
Figure 9.7
China Stimulus Caused Money to Jump in 2009
Figure 10.1
Recessions Brought S&P 500 Earnings Drop
Figure 10.2
The Earnings Yield from Stocks Tends to Move Up and Down with the 10-Year Treasury Bond Interest Rate
Figure 10.3
S&P 500 Earnings and Interest Rates Indicate Stocks Are Fairly Valued
Figure 10.4
Stocks Show Cycle When Viewed in Real Terms
Figure 10.5
Stocks’ Dividend Yields Reveal When Stocks Are Overvalued and Undervalued
Figure 10.6
The Market Capitalization Share of the S&P 500 by Sector
Figure 10.7
S&P 500: Financials Were a Disaster
Figure 11.1
U.S. Oil Reserves Are Only 2%, Whereas the Middle East Has 62%
Figure 11.2
World Oil Supply Has Been Flat for Four Years
Figure 11.3
OPEC Reserves Jumped One Time and Are Now Flat
Figure 11.4
How Per-Capita Wealth Corresponds to Oil Consumption in Various Countries
Figure 11.5
Existing Oil Field Production Decline Must Be Replaced by Discoveries
Figure 11.6
There Will Be a Peak in Discovery That Precedes the Peak in Production
Figure 11.7
Oil Discoveries from 1850-2006: The Peak Years Were in the 1960s
Figure 11.8
Oil Production Outstrips Discovery Rate
Figure 11.9
Oil Discoveries by the UK Since 1930, Projected to 2050
Figure 11.10
Oil Production and Forecast for the U.S. from 1900 to 2050
Figure 11.11
Projected Decline of Regular Oil and Natural Gas Liquids Around the World, after 2010
Figure 11.12
World Natural Gas Supplies by Region Show Limited North American Reserves
Figure 11.13
Alternative Energy Sources Are Still Relatively Small
Figure 11.14
How New Energy Sources Will Need to Supplant Decreasing Oil and Gas Production, as World Energy Demand Continues to Increase
Figure 11.15
Crude Oil Price Spiked and Crashed in 2008 and Looks to Go Higher
Figure 11.16
Price Projection for Crude Oil
Figure 12.1
Oil and Gold Rose Much More Than Corn over the Last 100 Years
Figure 12.2
Stocks Worldwide of Coarse Grains, Wheat, Soybeans, and Rice Are in Short Supply
Figure 12.3
Corn World Usage to Stocks Justified Higher Price, but No Longer Bullish
Figure 12.4
Wheat World Use to Stocks Indicates Price Is High
Figure 12.5
Soybean World Use to Stocks Does Not Support High Price
Figure 12.6
Rice World Use to Stocks Is Tight, But Price Seems High Enough
Figure 12.7
Ethanol Usage Is Approaching the Amount Used for Animal Feed
Figure 12.8
Beef Inventories Are Lowest in Years
Figure 13.1
Exchange Rates Show Weaker U.S. Dollar
Figure 13.2
How the U.S. Dollar Declined against Most Currencies after 2001
Figure 13.3
The U.S. Dollar Will Purchase Only $.20 of What It Did in 1971
Figure 13.4
How a Budget Deficit Often Damages the Value of a Country’s Currency
Figure 13.5
Currency Composition of Official Foreign Exchange Reserves (COFER)
Figure 13.6
Central Bank Network of Swap Lines
Figure 13.7
The Dollar Rose in 2008 as the Fed Swapped with Central Banks
Figure 13.8
T-bills Held by Foreigners Jumped with Currency Swaps
Figure 13.9
U.S. Current Account Is Much More Negative than the Euro
Figure 13.10
Gold Rises as the Dollar Weakens
Figure 13.11
Stocks Sometimes Do Better with a Weak Dollar
Figure 13.12
How Far Could the Dollar Drop?
Figure 13.13
The U.S. Dollar Index (DX) Futures Contract Has Fallen Since 2001
Figure 14.1
U.S. Interest Rates Are as Low as in the 1950s
Figure 14.2
Real Interest Rates, after Removing CPI, Are Low
Figure 14.3
Inflation Drives Interest Rates
Figure 14.4
Corporate Bonds’ Spread Jumped in 2008, Indicating Fear of Default by Corporations, but Has Come Back to a More Reasonable Level
Figure 14.5
Treasury Yield Curve Is High Because of the Very Low Fed Funds Rate
Figure 14.6
Federal Debt Growth Has Moved with Interest Rates until Recently
Figure 14.7
Banks Stopped Lending, Slowing Money Growth despite Fed Programs to Stimulate
Figure 14.8
Government Interest Expense Compounds if Rates Rise
Figure 14.9
The Cost of Social Security and Medicare, Combined
Figure 14.10
Government Receipts Dropped 25% Since 2008, Which Could Cut Revenues by $600 Billion
Figure 14.11
Central Banks of the World Are Inflating
Figure 14.12
Foreigners Stopped Buying Mortgage Debt
Figure 14.13
The Fed Sold Off Treasury Bills and Bought Mortgage-Backed Securities
Figure 14.14
Fed Buying Mortgage-Backed Securities Drives Mortgages Down
Figure 14.15
Commodity Research Bureau Prices Collapsed in Recession, but Are Now Reflating
Figure 14.16
Recession Brought Commodity Prices Drop Along with Interest Rate Drop, Which Are Now Turning Back Up
Figure 14.17
Credit Default Swaps Have Declined from Their Extreme at the Height of the Panic in Late-2008
Figure 14.18
Short-Term Interest Rates Have Collapsed Across the Planet
Figure 14.19
Global Inflation Is Down
Figure 14.20
Comparison of the Real Short-Term Interest Rates of the United States, Japan, and the EU
Figure 14.21
The 3-Month Treasury Bill Rate Has Not Been This Low Since the Depression
Figure 15.1
The Price of Gold Often Rises during Recessions
Figure 15.2
The Big Picture Shows that Inflation, Interest Rates, and Gold Prices Move Together
Figure 15.3
In Inflation-Adjusted Real Terms, Gold Has a Long Way to Go
Figure 15.4
Central Banks’ Foreign Exchange Reserves Could Never Be Redeemed for Gold
Figure 15.5
World Central Banks’ Gold Reserves Dropped from 70% to 10% over 60 Years
Figure 15.6
Central Banks Sold Gold despite Currency Growth
Figure 15.7
The Total Gold Reserve Value Is Only $930 Billion for the World’s Top 15 Central Banks
Figure 15.8
Central Bank Reserves Preceded Gold’s Price Rise
Figure 15.9
Gold Rises as the Dollar Weakens
Figure 15.10
Oil and Gold Tend to Move Together
Figure 15.11
How Gold Production Has Slowed and Is Small Compared to Total Inventory
Figure 15.12
Global Annual Gold Production
Figure 15.13
Gold Mining Costs Have Risen
Figure 15.14
Gold: Supply − Fabrication = Investment Demand
Figure 15.15
Gold ETF Holdings, in Tonnes
Figure 15.16
Central Bank Lending through Banks Adds Gold to Current Market
Figure 15.17
Gold Mine Unwinding Hedge Returns Gold to Central Bank
Figure 15.18
Net Dehedging Is Taking Less Supply
Figure 15.19
Central Banks Are Not Selling as Much Gold
Figure 15.20
Gold Stocks Tend to Rise More in Winter
Figure 15.21
In the Last Decade, Gold is Up Almost 300% while Stocks are Down
Figure 15.22
Gold Stocks Rise More than Gold But Are More Volatile
Figure 15.23
Projecting the Price of Gold to 2016 Suggests It Could Reach $3,000/oz
Figure 15.24
Gold Could Rise to $6,000 in the Decade
Figure 15.25
The Price of Gold Could Rise to $7,000/oz by 2016 (Linear Scale)
Figure 15.26
The Price of Gold Could Rise to $7,000/oz by 2016 (Log Scale)
Figure 15.27
The Price of Gold Could Rise to $3,000/oz or $7,000/oz (Linear Scale)
Figure 15.28
The Price of Gold Could Rise to $3,000/oz or $7,000/oz in a Decade (Log Scale)
Figure 15.29
Gold Could Reach $22,000 If It Rises as Fast as It Did to 1980
Figure 16.1
S&P 500 Has Already Collapsed to Average Crisis Level
Figure 16.2
Housing Prices Can Take Years to Decline SOURCE: Standard and Poors.
Figure 16.3
Unemployment Could Jump over the Decade
Figure 16.4
U.S. Federal Debt Is Likely to Jump from Crisis
Figure 16.5
GDP Falls in Serious Crisis
Figure 17.1
Federal Debt Growth Moves with Inflation
Figure 17.2
Federal Debt Growth Added to Federal Reserve Monetary Base Growth Shows the Size of Stimulation
Figure 17.3
Federal Debt Holders of $8 Trillion of Treasuries Held by the Public
Figure 17.4
Federal Debt Could Double with Higher Rates
Figure 17.5
The Total of All U.S. Debt Stopped Growing Abruptly in 2009
Figure 17.6
Growth in Private Debt Moves with GDP
Figure 17.7
CBO Projects Interest Rates to Rise
Figure 17.8
Unemployed and Unemployment Rate with Forecast
Figure 17.9
Debt and Deficits Are Too High for Many Countries
Figure 17.10
International Investment Position, Net is Positive for Exporters
Figure 17.11
Bud Conrad’s Predictions for 2009