Sunday Herald: Business: Business News

Throwing money at a crisis won’t prevent meltdown

Business comment, by Colin Donald

THERE IS a scene in the nuclear accident film The China Syndrome when the plant manager's coffee quivers on his desk. The fact that he has been praising his plant's safety record up until then heightens the drama.

Last weekend was such a moment for American finance, and last Wednesday the shudder was transmitted to Edinburgh, where only a calm counter-offensive by HBOS's communications team prevented something unthinkably worse than even 17% slump in the share price.

Denial of the scale of the global financial crisis is becoming less and less possible by the day. President George W Bush made a characteristically goofy-but-cynical stab at it in a Pentagon speech last Tuesday, implying that economic salvation and the defeat of al-Qaeda in Iraq were intertwined.

In fact it is hard to see the latter having much effect on the former, and the closest connection between the bursting of the US property bubble and the Iraq war is the grim coincidence that each has cost the US economy $3 trillion ($3 million million).

The war figure comes from the Nobel Prize winner Joseph Stiglitz while the credit crisis figure is a three-fold revision of the one produced by Nouriel Roubini of New York University late last year. Despite his reputation as academic king of the bears, it has so far not been seriously challenged.

What is clear from the events of last week is that there is very little faith within the markets in the Federal Reserve Board's capacity to deal with this problem.

So far the Fed's interventions have enabled JPMorgan Chase to rescue Bear Stearns and have dispensed $200 billion of treasury bonds in exchange for suspiciously undervalued collateral. The Fed's intervention was intended to solve the liquidity problem, presuming that this is what the problem is, and counterparty risks should have contracted as a result. They haven't.

It is not that surprising that monetary policy tools are not sufficient to tackle the problem as nobody is quite clear what the problem is. Sub-prime is unwinding at the same time as a massive and accelerating compression in US property prices. Recent US polls show that three quarters of US citizens think they are entering a multi-year recession, a state of mind that will depress consumption even further.

Are there any lifelines out there for optimists to grab on to? Yes, there is the one about how this is going to be as bad as Japan, which has seen only fitful and anaemic emergence from recession since its bubble burst in 1991. The Japan scenario is held up as being beyond the worst-case scenario, and even if it gets that bad, Japan is still a functioning and in many ways comfortable economy, so how bad can it get?

There are some points of comparison between the US's problems and those of Japan, but in more significant respects the equation doesn't work. Japan's economy got into trouble at a time when conditions in the outside world were quite helpful. By the mid-1990s, the US economy was booming, sustaining Japan with a huge export market. There is also the fact that Japan's problem was concealed debt, whereas in this case it is debt that can't be assessed even by those responsible for it. So the Japan comparison is akin to those proverbial generals preparing to fight the last war, as Ben Bernanke, a scholar of the Japanese bubble experience as well as the Great Depression, knows well.

For now the Fed seems to have shot every bolt it can. The ball is in the court of fiscal intervention. Congress and the White House are agreed on tax rebates in an effort to pump up consumption, ignoring the fact that over-consumption was one of the chief causes of the mess. But how much will people spend if they are expecting a multi-year recession? The necessary fiscal intervention should be less a matter of giving people money to splurge on consumption and more on buying up bad debt from the banks. The trouble is, in an election year, no politician wants to be seen bailing out those fat cats, so there is a strong will to try the tax rebate route and see if works.

It seems unlikely. The stats may prick up momentarily but the effect will be flattened by the descending snowball of shrinking property values and the rest. People are likely to save their money or use it pay off outstanding loans. The old Keynesian magic is unlikely to work.

Right now we are at the stage of that film when the deep rumble has subsided and a hush descends in the nuclear station control room. Whichever outcome follows, the blame game is already under way, with "well-wishers" dredging up Alan Greenspan's hymns of praise to "increasingly complex financial instruments" and their contribution to "a far more flexible, efficient and resilient financial system".

In fact the blame must rest with those who got rich propagating the general belief that, as the housing-credit bubble machine ran out of creditworthy borrowers, sub-prime lending was OK as long as it was dispersed widely through the system.

This is akin to the chemical industry of 40 years ago believing "the solution to pollution is dilution". In fact the financial rot, like its chemical equivalent attacks the weakest first, as has happened with sub-prime. Decontamination is going to be a long and costly process.

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Posted by: DOUGLAS E. WALDEN, Asbury Park, New Jersey on 1:21pm Sun 23 Mar 08

SUNDAY HERALD RE: your 03/23/2008 article on the economy “Throwing money at a crisis won’t prevent meltdown” Dear Mr Colin Donald, I enjoyed your article on our current economic conditions in today’s Sunday Herald. Unfortunately, we are just entering the Event Horizon of a Massive (once in 50-to-80 year) distortion in the fabric of our Economic-Financial Continuum. The rate of change in Total Non-Financial Debt relative to the rate of change in Real G.D.P. AND growth rate in the overall Debt-to-G.D.P. Ratio make it certain that we will enter an Economic Depression. It is a matter of simple mathematics. This massive distortion is why you are seeing financial events that we have ostensibly never seen before and why we keep hearing/reading that we are in financial & economic “Uncharted Waters.” The point in time where the Debt-to-G.D.P. Ratio started climbing in 1982 from 1.6-to-1 to it's current level of 3+to-1 marked the beginning of our journey to the point we find ourselves at now (see Grantham article in Feb-11-2008 BARRON'S) . We cannot avoid massive economic dislocations; we just have to figure out how to survive them. To visualize what we face, watch the movie the Perfect Storm. We are the Andrea Gail. The main question is will it be a Hyperinflationary Depression or a Deflationary Depression. The odds of Monetary & Fiscal Policies being so delicately & deftly maneuvered as to continuously and perfectly balance these two forces are a Million-to-One. What will be required (and based on recent experience will not be plentiful) of political, business leaders will be absolute candor about where we are, what is really important in life and what we can do to prevent severe damage to the social fabric of this nation and delicate web of global international relations. We owe billions of people around the world trillions & trillions of dollars and they are going to be more than a little upset. Sorry to be Mr. Sunshine. Take care. Douglas E. Walden 607 3rd Ave Asbury Park, New Jersey 732-481-5031 732-804-0248 -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------- DOUG WALDEN Saturday, March 1st, 2008 607 3rd Avenue Asbury Park NJ 07712 RON INSANA RE: current real economic & e-mail: desic4@aol.com Insana Capital Management symbolic financial instability 732-233- 3533 2200 Fletcher Ave 7th Floor Fort Lee, NJ 07024 Dear Mr. Insana, I have enjoyed your insightful analysis since the early F.N.N./C.N.B.C. days. I’m not much of a letter writer but back in September I wrote to Herb Greenberg to offer my analysis of an article he wrote in the Wall Street Journal. Since then I’ve been writing notes to several people regarding our current economic instability. I hope you find them interesting. I have been amazed by the apparent analytical blind spot most analysts / economists / policy-makers / businessmen / politicians (prospective-Preside nts) have regarding the economic storm we are entering. I find it fascinating (and personally annoying at times) that people who make $5,000, $15,000, even $100,000+ per week are having so much difficulty seeing what is obvious from simple financial mathematical relationships. NOTE: I do not include you with this group; your reticence at saying the worst is over when you are asked how far we are through this turmoil indicates to me that you know something major is wrong…that this time is indeed different. The fact that plans are being considered for the Federal Reserve to monetize non-government debt indicates to me that the financial system is so fragile & overburdened with bad debt and the capital formation markets are so starved of domestic savings to supply the “Raw” financial capital inputs needed to generate (or even maintain) new equity & new borrowing capacity that the economy is entering a “Perfect Economic Storm.” Yesterday, you said in your analysis that we’ve never seen financial market conditions like this before --- Incorrect. I have detailed Expansion/Contractio n charts back to 1855 (with capacity utilization, employment , anecdotal newspaper references in the 1870s & 1920/30s, bank failure charts to 1892, stock price charts to 1917), Total Debt-to-G.D.P. dynamic econometric models and a monetization risk model that indicate we’ve been here before….just not in our lifetimes or the adult lifetimes of anyone under age 90. Ask Paul Samuelson what he thinks about to health & strength of the global economy. I’m not being overly negative (as Mr. Kneale would accuse me of being); I am simply employing my internal economic self-preservation system. The same way 98% of the land animals near the coast during the Indonesian Tsunami sensed danger and moved to higher ground; I’m cutting debt & expenses to near zero to adapt, survive and ultimately thrive in the new economic environment the United States is entering. I just hope I can flat-line the price of my house enough to sell it and escape to South Carolina to build hurricane proof insulated concrete form homes/commercial buildings. Please tell Bill Griffeth & Sue Herera that I’ve been a big fan since the beginning of F.N.N. Thank you for your attention. Respectfully, Douglas E. Walden DOUG WALDEN Letters I've written since September 9th, 2007 regarding world economic conditions. What got me started writing was an article written by Herb Greenberg in the Sat-09/08/2007 Wall Street Journal entitled "After Drinking the Good Life, The Hangover May Be Here." I wrote to him to explain the nature of the finanicial/economic instability we were (and will be) experiencing. DATE PERSON ORGANIZ ATION SUBJECT 1 1/30/2008 Malcolm Knight, C.E.O. BANK FOR INTERNATIONAL SETTLEMENTS Economic -Tsunami Early Warning System 2 1/28/2008 Professo r Stephen Mihm University of Georgia His Boston Globe article on ineffectiveness of current monetary & fiscal policies 3 1/19/2008 George McEvoy journalist PALM BEACH POST His article on the Great Depression 4 1/15/2008 Wolfgang Munchau, assistant editor FINANCIAL TIMES of London His article on the magnitude of the devolping global economic contraction 5 1/13/2008 Michael Panzner Author of FINANCIAL ARMAGEDDON comments on his blog post discussing the collapse of Financial Derivatives 6 12/18/2007 Dr. Glenn Rudebusch, economist FEDERAL RESERVE BANK of San Francisco his comments in 12/18/07 Investors' Business Daily & anecdotal evidence of spending pull back by family, friends & associates 7 12/15/2007 ***** * **** MY DEBT -to- GDP CALCULATION SHEET 8 12/8/2007 Patrick Byrne, founder & CEO Overstock.com His 12/07/07 appearance on CNBC 9 11/25/2007 Ben Bernanke, Chairman FEDERAL RESERVE SYSTEM I referred Mr. Bernanke to Economic Long-Wave Cycle research at the System Dynamics Group, Sloan School of Management, Massachussetts Intstitute of Technology 10 10/12/2007 Steve Moore, editor Wall Street Journal & CNBC contributor discussi on of household net worth and economic instability 11 9/23/2008 Profess or Robert Shiller YALE UNIVERSITY & creator of Case-Shiller Housing Index Housing Depression & Debt Contraction 12 9/21/2008 Andrew Ross Sorkin. Jurnalist NEW YORK TIMES & C.N.B.C. Nature of current & future economic instability & deterioration 13 9/14/2008 Dr Wayne Angell economist & former Governor of the Federal Reserve Housing Depression & Debt Contraction 14 9/9/2008 Herb Greenberg, journalist Wall Street Journal & CNBC contributor regardin g his Wall Street Journal article, I explained the nature of the Economic "Storm" that is approaching us. -----Original Message----- From: desic4@aol.com To: email@bis.org; malcolm.knight@bis.o rg Cc: malcolm.knight@bis.o rg Sent: Wed, 30 Jan 2008 8:42 am Subject: Econ-Tsunami Early Warning System MR. MALCOLM KNIGHT BANK FOR INTERNATIONAL SETTLEMENTS RE: Reuter’s article Jan 25, 2008 – “Top B.I.S. Banker Sees No End to Credit Crunch Fallout” Dear Mr. Knight, I sent you some notes last December (2007). I hope you found them useful. I'm sending you a few more. I read about your comments in Davos...they were refreshingly candid. A rudimentary Economic Tsunami Early Warning System would include long-term trend analyses of changes (of both GLOBAL & Component Country) in the Ratio of Non-Financial Debt-to-G.D.P.; Country specific ratios of $ Value of Changes in Domestic Savings-to-$ Value Changes of Non-Financial Debt (this will automatically reveal country specific long-term unstable trends in Current Account Balances). I also included a Debt Monetization-Risk Model with my calculations to evaluate long-term (5+years) risk of Hyperinflation (see potential credit downgrade of U.S. Government Debt by 2017). Take care. Respectfully, Douglas E. Walden 607 3rd Avenue Asbury Park, New Jersey 07712-5930 United States of America 1-732-481-5031 ____________________ ____________________ ____________________ ____________________ ____________________ ___ -----Original Message----- From: desic4@aol.com To: mihm@uga.edu; rbaedeker@sfgate.com Sent: Mon, 28 Jan 2008 6:00 am Subject: U.S. (Global) Contraction > 24 months DR. STEPHEN MIHM - UNIVERSITY OF GEORGIA RE: your Jan 27, 2008 Boston Globe article – “The Black Box Economy - Behind the recent bad news lurks a much deeper concern: The world economy is now being driven by a vast, secretive web of investments that might be out of anyone’s control.” Dear Professor Mihm, I enjoyed your article in yesterday's Boston Globe. It seems more and more people are intuitively sensing the magnitude of the economic turbulence ahead. Greater understanding of the current ineffectiveness of "Standard" monetary & fiscal policy tools to alter the economy's trajectory can be gained by looking at Finance/Economics through the eyes of a Physicist. Like 19th Century understanding of the Physics of Gravity, our current "Newtonian" Economics-view instructs us that 1) If We Deficit Spend, Then we will Stimulate Demand and Economic Growth and 2) If we Lower Interest Rates, Then More Cheap Debt will Stimulate investment (and thus Growth). It's like being able to calculate the path of a baseball being thrown. The situation you describe in your article (where the "old-tools are inadequate" and "Usual tools are Powerless) is like entering the more complex universe of "Quantum" Economics where simple Laws of "Newtonian"-Economic s fail to explain unexpected outcomes of policy moves. The "Mass" of Debt (and derivatives) is so great relative to G.D.P. that the "Financial-Gravitati onal" force exerted on ANY policy will alter it's intended path in much the same way as a massive star or Black-Hole will alter the path of a beam of light. I thought you might find my recent notes interesting. Best wishes. Doug Walden Asbury Park, New Jersey MR. GEORGE McEVOY PALM BEACH POST Saturday, January 19th, 2008 Re: your article “Let’s Not Be Blind to Recession” Dear Mr. McEvoy, I've been scanning Google for news references to the Great Depression for the last 9-months, since I sold out all my 401k stock holdings and went to cash (and subsequently invested all my money in the Prudent Bear Fund on October 1st, 2007). I was hoping I would not see an uptick in the number of references until I sold my home and moved to rural South Carolina. Unfortunately the number references (like your article) seems to be increasing at a low level geometric rate. Given your article's subject, I thought you might find the letters I've been sending out since September 9th, 2007 interesting. Take care & Good Luck Doug Walden Asbury Park, New Jersey 732-233-3533 -----Original Message----- From: desic4@aol.com To: wolfgang.munchau@ft. com Sent: Tue, 15 Jan 2008 5:31 am Subject: U.S. (global) CONTRACTION > 24 Months. WOLFGANG MUNCHAU FINANCIAL TIMES of LONDON Dear Mr. Muchau, I enjoyed your article. However, your definition of the coming contraction as a "Long Recession" is not correct. The Multiple-Contraction in Credit "Storm" we are entering has all of the Debt-Excess Elements that preceded the Depressions of the 1870s and the 1930. Interestingly, both contractions were referred to by Newpapers of the day as the Great Depression. Please read the attached notes I have sent out recently, you may find them useful. ____________________ ____________________ ____________________ ____________________ _______ To: DR. GLENN RUDEBUSCH 415-974-2168 ECONOMIST, Federal Reserve Bank of San Francisco RE: quote of your comments in Tue-12/18/2007 Investors’ Business Daily Tuesday, December 18th, 2007 Dear Dr. Rudebusch, Your comments in today’s (Tu-12/18/2007) IBD were sobering but accurate. A statistically significant number my family members, friends and associates –who had apparently “strong” balance sheets, cash flows and credit scores- are rapidly slipping into deficit spending and cutting back on MANY discretionary and essential purchases. I read an interesting article by Herb Greenberg in early September about our current economic situation. It motivated me to start writing notes to various people about the forces acting upon the economy. I've attached them, I hope you find them interesting and helpful. Take care Doug Walden 732-233-3533 ____________________ ____________________ ____________________ ____________________ _________ Sunday, November 25th, 2007 Dear Chairman Bernanke, With this note, I'm taking you up on your request during your speech at CATO for input from the "General Public." Forgive me giving you so much input, but I think we're in for quite a bit more instability than most of the "Smartest People in the Room" (i.e. Bears Sterns, Countrywide, Hovnanian, C.N.B.C., etc.) expected last year AND more than they currently expect. FOR BACKGROUND: I am just an average 45 year old working man from New Jersey. I didn't complete my degree in finance and economics at G.W.U. & M.I.T. I have a median income and net worth (even with a decline in the real estate portion of my balance sheet). My area of study (most of it on my own before going up to Cambridge in 1986) was the Great Depression and underlying factors that created it. My models/equations on Non-Financial Debt-to-GDP Expansion/Contractio n during Kondratiev Long-Waves & Monetization Risk Calculations (based on historical hyperinflations) as well as historical correlations with political, social and technological trends have given me a different perspective than most analysts/businesspeo ple/politicians/aver age citizens have. Sir, please understand I don't mean to be presumptuous, but I get a sense from: your speeches, testimony, and rapid change in monetary policy over the summer, that you and the other members of the F.O.M.C. are not looking at our current real economic & symbolic financial asset situation in the right way. It's like trying to see without your reading glasses. Please contact the System Dynamics Group at M.I.T. and study their work on Knodratiev Long-Wave "Cycle". You might not agree with it but it will expand your insights into what we are facing. I have attached notes I've written to various people over the last 3 months to give you a little more insight into my thinking. I hope it is helpful and I apologize for it being voluminous. If I can be of help to you or your staff, feel free to contact me. ALL of this communication will be CONFIDENTIAL. Take care and good luck Sir. Douglas E. Walden 732-233-3533 home: 732-481-5031 607 Third Avenue Asbury Park, New Jersey 07712-5930 Notes 09/09/2007 & 10/13/2007 to/from HERB GREENBERG (CNBC contributor, MarketWatch.com & The Wall Street Journal) -----Original Message----- From: Greenberg, Herbert < HGreenberg@marketwat ch.com> To: tammjen@aol.com Sent: Sun, 9 Sep 2007 6:42 pm Subject: RE: your Sat-09/08/2007 Wall Street Journal article Douglas . My worry is that my kids will pay the price. Cheers. Herb From: tammjen@aol.com [mailto:tammjen@aol. com] Sent: Sunday, September 09, 2007 3:58 AM To: Greenberg, Herbert Subject: your Sat-09/08/2007 Wall Street Journal article Dear Mr. Greenberg, I was very impressed with insights contained in your article ("After Drinking the Good Life, The Hangover May Be Here"). I wish I could say I enjoyed it, but given its conclusions I can't. To gain more insight into the true nature of the Economic Storm that is bearing down on us, please look at the work done by Nikolai D. Kondratiev (a Soviet economist (1882-1938)) on Long-Wave Cycles of boom and bust in capitalist economies. Kondratiev's Cycles have a period of between 45 & 60 years. In the mid-1920s, Mr. Kondratiev predicted that the western economies would enter a period of severe economic contraction because of the excessive (relative to G.D.P.) accumulation of debt. Using a Non-Financial Debt-to-GDP model, I was youthfully arrogant enough to predict in a July 21st, 1985 Asbury Park Press article that the U.S. economy was reaching a Long-Wave top and that the financial markets would experience their largest collapse in history by August 10th, 1987. The reason why we did not enter a period of severe debt induced contraction after 1987 (and subsequently in 1998's Long-Term Capital Management Crisis, 2000's Internet Bubble Collapse and after the 9/11 Attacks) was because of the Federal Reserve's actions of providing soothing doses of and Economic Narcotic - Liquidity. And the patient (the U.S. Economy) numbed by this Narcotic continually needed increasingly potent "fixes" to function. We are at a point were the U.S. Economy is Overdosed with DEBT and no additional Narcotic Fix will provide the same effect as the earlier soothing doses. The U.S. Economy is going to go through withdrawal symptoms just like someone who has had way way too much to drink. To put it in terms Larry Kudlow would use, the Goldilocks Economy has been out on a 3 day drinking binge and is now rushing to the toilet to throw up all the Jack Daniels brand Debt she's consumed. The fact that government officials, business people and consumers have such short time horizons (government officials - the next election; business people - the next few quarters; consumers - the next week or month) allows these imbalances to slowly build up within the body of the economy until the point where they become toxic. I just hope Congress, the President and the Federal Reserve don't screw up and exacerbate the coming contraction to the point where they cause an Inflationary Depression. By the way, I do enjoy watching you go back and forth with Larry Kudlow on CNBC. Take care. Douglas E. Walden Note 09/21/2007 to ANDREW ROSS SORKIN writer New York Times -----Original Message----- From: desic4@aol.com To: sorkin@nytimes.com Sent: Fri, 21 Sep 2007 1:50 pm Subject: your CNBC Appearance Thu-09/20 & Fri-09/21/07 Dear Mr. Sorkin, I enjoyed your appearance on CNBC yesterday & today. Based on your point of view, I thought you might find my notes to Wayne Angell and Herb Greenberg of interest. Mr Greenberg's reply to me is also included. I am amazed as watch reporters and analysts struggle to identify the economic conditions we are experiencing. You seem to have a clearer view of dangers of the economic period we have entered. The summer's seize-up of the debt markets is just an early withdrawal symptom of the Debt-Addicted-Econom y not getting its debt-fix. Its really quite simple. Excessive debt built up (relative to GDP) over the last 25 years, leads to consumer financial stress and defaults, leads to corporate earnings contraction and defaults, leads to stock price declines, leads to compression of the Price/Earnings Ratio, leads to decline in government tax revenues and hitting "trip-wires" for contingent liabilities of the government (because of government guarantees), leads to huge deficits, leads to collapse of the dollar and spike in interest rates, then severe inflation and economic contraction (like pre-Nazi Germany in the 1920s or Hungary ). In the end we (as a nation) are going to have to enter a Debtors Anonymous program and admit that we have a problem with too much debt and NO SAVINGS and we have to find REAL long-term solutions to avoid this happening again. People act like this hasn't happened before: it's occurred in the 1930s the 1870s and the 1830s. The fact is it hasn't happened to most people alive today. There are very few people with an adult memory of the 1930's Depression. We have become so creative at getting to ever higher levels of Debt-to-GDP that we think we've crated safeguards against financial & economic instability......Bul lsh*t. Government guarantees just give people the comforting illusion of security. Hell my state (New Jersey) will probably be the first one to declare de facto bankruptcy. I have to run. Take care. Doug Walden 732-233-3533 Note 09/14/2007 to Dr. Wayne Angell (former Governor of Federal Reserve) -----Original Message----- From: desic4@aol.com To: wangell@comcast.net Sent: Fri, 14 Sep 2007 10:28 am Subject: your CNBC Appearance Thu-09/13/2007 Dear Dr. Angell, It was very refreshing seeing a commentator in the financial media who understands the severity of our current economic instability. Especially since you are a former Governor of the Federal Reserve. I am tired of seeing the Treasury Secretary and analysts say that the "Fundamentals" of the economy are sound and that this is just a contained financial disruption. These people have no sense of history. They act as if the financial & real economies are two separate systems that can be manipulated in isolation. The financial system is the symbolic representation of our (everyone's) perception of the real economy. Ultimately, all debt instruments, stock certificates, deeds, etc are the claims against the real economy's physical assets. Your statement last night about the simultaneous occurrence of a Housing Depression and a Business Cycle Inventory Adjustment demonstrates the coincidence of a 3-to-5 year Business Cycle Downturn superimposed onto the End of a Top of 45-to-70 year Kondradiev Long-Wave Debt Cycle. I hope you are successful in getting the right people to understand your (our) view. Take care Doug Walden Asbury Park, New Jersey 732-233-3533 This is a copy of my note to Herb Greenberg (of MarketWatch.com & CNDC contributor) and his response to me about his article in the Saturday-September 9th, 2007 edition of The Wall Street Journal (page B3). The article is entitled "After Drinking the Good Life, The Hangover May Be Here." It can also be found on www.MarketWatch.com You should read it. Doug Walden NOTE 10/12/2007 to Steve Moore (W.S.J. editor-editorial page, principal with Arduin, Laffer & Moore Econometrics) -----Original Message----- From: tammjen@aol.com To: STEVE.MOORE@WSJ.COM Cc: SVARGA@KUDLOW.COM; tbennett@wbandl.com Sent: Fri, 12 Oct 2007 10:47 am Subject: voter unease & dissatisfaction with government Dear Mr. Moore, As usual, I enjoyed your appearance on Kudlow & Co on the night of the debate. You and Mr. Reich (who I rarely agree with) made the point that there exists a disconnect between between Mr Kudlow's view of the Goldilocks Economy and the financially stressed and generally uneasy view of the future that the average working person/family ($45,000-to-$150,000 per year income). It is simple, with a Savings Rate hovering around ZERO %, shrinking home equity, uncertainty about health care, caring for elderly parents and paying for college, paying for energy, Americans are feeling off-balance and insecure about their own futures and most disturbingly about the future place of the United States in the world. We feel like our power to control and affect our personal destinies is slipping away. The ever increasing claims made on us by basic family expenses (energy, food & medicine), government taxes and debt service is making a majority of us insecure; combine this with the ineptitude of our Representatives at solving even the most basic fiscal, security & border security problems and you get a Perfect Storm of collective doubt. (As I discussed will you and Mr. Kudlow on the radio show in early June, being from New Jersey is seeing coming attractions the direction the Federal Government is headed.) Mr. Kudlow's cheering on household Net Worth being $60 TRILLION seems like someone whistling past the graveyard. That $60 TRILLION is not calculated on a DISCOUNTED PRESENT VALUE of FUTURE NET INCOME basis. If the dollar falls further or the Federal Reserve is forced to monetized our debt (because of lack of buyers or worse yet heavy sellers), That $60 TRILLION (in constant dollars) can shrink like a aging star collapsing into itself. We need real solutions and real FREE MARKET PROSPERITY POLICIES to get people more confident. Quite frankly, I don't see anyone in Congress or the Presidential Candidates who has the guts to tell us what we as a people NEED to hear.....Real Solutions. I've attached a note regarding America's future that I sent and the Comptroller General of the United States - David M. Walker. I hope you find it interesting. Watching you and Larry Kudlow on C.N.B.C., I think I would enjoy sitting in a tavern watching football and talking politics and economics with you guys....LOL. Take care. Douglas E. Walden. NOTE 09/23/2007 to Dr. Robert Shiller (creator of the S&P/Case-Shiller Housing Index and Economics Professor – Yale University) -----Original Message----- From: desic4@aol.com To: robert.shiller@yale. edu Cc: msfeldst@nber.org Sent: Sun, 23 Sep 2007 3:57 pm Subject: Kondratiev Wave Top ?? Dear Dr. Shiller, Every time I see you on C-SPAN or CNBC or read articles on your views and analyses, I feel like I'm not alone. I not the town soothsayer or Nostradamus, but with a little analytical ability and common sense anyone can piece together that our shortsighted live for today and worry about the bills tomorrow lifestyle is about to end....and in a big way. Personally I think we're at a Kondratiev Long-Wave Top. I am just a working class schmuck from New Jersey, but I think (and have for several years) that the United States is in for one of the most difficult periods in it's economic history. And, given our acute social network weaknesses relative to our ancestors form the 1930s AND our reliance of foreign capital and energy, I think this period of economic privation will tax our political, law enforcement and social systems to limits not seen before. I've had my 4,200 square foot Asbury Park Victorian house up for sale for about a year (FiSBO). I haven't pushed it because I didn't have a home to move into. Now I'm putting bids in on 3-9 acre parcels in South Carolina (1 hour from Charleston). My housing expenditures are going to be 86-to91% less than in New Jersey. I've owned the house for 20 years and didn't borrow all the equity out to buy an Escalade or a 4 week vacation to Hawaii. I can undersell my "competitors and still give the new buyer Equity (for Now...3 years from now I may be able to buy it back for half what I sell it for). I'm one of the lucky ones. I just don't know what so many people I know who bought in the last 4 years are going to do. Enough of my ranting. read the notes I've sent out over the last few weeks to Herb Greenberg, Wayne Angell and Andrew Sorkin. I hope you enjoy them. Take care. And Great Work. Doug Walden COPYRIGHT © 2007 by Douglas E. Walden (Saturday-12/15/2007 ) US DEBT-to-GDP - QUICK CALCULATION ASSUMES 4% G.D.P. Growth 2007-Q3 to 2008-Q3 (if we’re lucky) NOTE: U.S. DEBT = Non-Financial Debt (consumers + businesses + all governmental entities) ANNUALIZED GROWTH RATE 2007-Q3 U.S. 2007-Q3 G.D.P. =$13,500,000,000,000 .00 4.00% (+$540,000,000,000.0 0/year) U.S. 2007-Q3 DEBT= $39,500,000,000,000. 00 8.90% (+$3,515,000,000,000 .00/year) PROJECTED (Simple Extrapolation for Purposes of Discussion) U.S. 2008-Q3 G.D.P.= $14,040,000,000,000. 00 U.S. 2008-Q3 DEBT= $43,015,000,000,000. 00 2007-Q3 $2.93 of Debt Per $1 of G.D.P. 2008-Q3 $3.06 of Debt Per $1 of G.D.P. QUESTION 1: Given near ZERO internal U.S. Savings, is the above trend in Debt-to-G.D.P. sustainable? CRUDE W.A.C.D. 2007 INTEREST RATE of 6.50% on $39.5 Trillion INTEREST THIS YEAR = $2,567,500,000,000.0 0 = 19.01% of G.D.P. QUESTION 2: What happens to our – America’s – Debt Servicing Costs if foreigners decide not to buy as much U.S. Debt (or worse yet – They Start Selling It)? Debt/Option Derivatives (Notional Value) = $414,000,000,000,000 .00 414 TRILLION >>> almost Half a Quadrillion 2007-Q3 PER CAPITA GDP DEBT US POPULATION 300,000 ,000 $45,000 $131, 667 US WORKING POPULATION 153,870,0 00 $87,736 $256,71 0 -----Original Message----- From: desic4@aol.com To: financialarmageddon@ gmail.com; panzner@gmail.com Cc: arwmedia@aol.com Sent: Sun, 13 Jan 2008 10:26 am Subject: Derivatives Today & L.T.C.M. MICHAEL PANZNER www.FinancialArmaged don.com Dear Michael, As usual, I found your January 11th post (Upside Turns to Downside) very illuminating. It is becoming all too obvious that Warren Buffet's description of Financial Derivatives as being like "Financial Weapons of Mass Destruction" was dead on accurate. Reading your post got me to thinking of a past derivative Blow-Up - Long-Term Capital Management in September of 1998. I recalled that 1997 Nobel Prize winning economists Robert Merton and Myron Scholes were Creators of the intoxicatingly complex, theoretically elegant, (yet -in practice) too fragile for the REAL WORLD equations that were at the heart of L.T.C.M.'s "Great" performance. Merton & Scholes were awarded their Nobel Prizes in economics (for their work on derivatives) on October 14th, 1997. The meeting at which Long-Term Capital Management came clean to the Federal Reserve & the Treasury about how BAD things were inside the fund occurred on September 20th, 1998. From NOBEL PRIZE to FINANCIAL MELT-DOWN in 339 Days.....hhhhhhhmmmm . Now maybe I'm cranky because I've been up all night working and I'm still trying to sell my house and escape to South Carolina - yadda, yadda, yadda. And I'm sure that Mr. Merton and Mr. Scholes are nice people.....but I think their Nobel Prizes (with the MONEY) should be REVOKED. Take care. Doug Walden Asbury Park, New Jersey TO: MR. PATRICK BYRNE Sat-12/08/200 7 Overstock.com RE: C.N.B.C. appearance Fri-12/07/2007 FROM: DOUG WALDEN 607 Third Avenue Asbury Park, NJ 07712-5930 732-481-5031 desic4@aol.com Dear Mr. Byrne, I enjoyed your appearance on C.N.B.C. yesterday afternoon. It was refreshing to see a prominent businessman with a farsighted long-term view of the unsustainable structural weaknesses that are plaguing our economy. It was, however, almost painful to watch Dylan Ratigan try to counter your assertion that we are on the precipice of a 1929-Great Depression-like event. They really don’t have a clue. It is very frustrating trying to explain long-term (multi-decade) real economic/symbolic financial trends and distortions to people whose time horizon is End of the Trading Today. You are the type of insightful person I hope to do business with in the future (assuming I adequately restructure my family Balance Sheet/Cash Flow before things really start coming apart – (Feb-to-June 2008)). I started writing notes to some people that you might find interesting, given your view of our economic circumstances. I hope you enjoy them. Take care and I hope you have a safe & prosperous holiday. Good luck in the Future. Doug Walden

SUNDAY HERALD RE: your 03/23/2008 article on the economy
“Throwing money at a crisis won’t prevent meltdown”
Dear Mr Colin Donald,

I enjoyed your article on our current economic conditions in today’s Sunday Herald.
Unfortunately, we are just entering the Event Horizon of a Massive (once in 50-to-80 year) distortion in the fabric of our Economic-Financial Continuum. The rate of change in Total Non-Financial Debt relative to the rate of change in Real G.D.P. AND growth rate in the overall Debt-to-G.D.P. Ratio make it certain that we will enter an Economic Depression. It is a matter of simple mathematics. This massive distortion is why you are seeing financial events that we have ostensibly never seen before and why we keep hearing/reading that we are in financial & economic “Uncharted Waters.”

The point in time where the Debt-to-G.D.P. Ratio started climbing in 1982 from 1.6-to-1 to it's current level of 3+to-1 marked the beginning of our journey to the point we find ourselves at now (see Grantham article in Feb-11-2008 BARRON'S) . We cannot avoid massive economic dislocations; we just have to figure out how to survive them. To visualize what we face, watch the movie the Perfect Storm. We are the Andrea Gail.

The main question is will it be a Hyperinflationary Depression or a Deflationary Depression. The odds of Monetary & Fiscal Policies being so delicately & deftly maneuvered as to continuously and perfectly balance these two forces are a Million-to-One.

What will be required (and based on recent experience will not be plentiful) of political, business leaders will be absolute candor about where we are, what is really important in life and what we can do to prevent severe damage to the social fabric of this nation and delicate web of global international relations. We owe billions of people around the world trillions & trillions of dollars and they are going to be more than a little upset.

Sorry to be Mr. Sunshine. Take care.

Douglas E. Walden
607 3rd Ave
Asbury Park, New Jersey 732-481-5031 732-804-0248

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DOUG WALDEN
Saturday, March 1st, 2008 607 3rd Avenue
Asbury Park NJ 07712
RON INSANA RE: current real economic & e-mail: desic4@aol.com
Insana Capital Management symbolic financial instability 732-233-
3533
2200 Fletcher Ave 7th Floor
Fort Lee, NJ 07024

Dear Mr. Insana,

I have enjoyed your insightful analysis since the early F.N.N./C.N.B.C. days. I’m not much of a letter writer but back in September I wrote to Herb Greenberg to offer my analysis of an article he wrote in the Wall Street Journal. Since then I’ve been writing notes to several people regarding our current economic instability. I hope you find them interesting.

I have been amazed by the apparent analytical blind spot most analysts / economists / policy-makers / businessmen / politicians (prospective-Preside
nts) have regarding the economic storm we are entering. I find it fascinating (and personally annoying at times) that people who make $5,000, $15,000, even $100,000+ per week are having so much difficulty seeing what is obvious from simple financial mathematical relationships. NOTE: I do not include you with this group; your reticence at saying the worst is over when you are asked how far we are through this turmoil indicates to me that you know something major is wrong…that this time is indeed different.

The fact that plans are being considered for the Federal Reserve to monetize non-government debt indicates to me that the financial system is so fragile & overburdened with bad debt and the capital formation markets are so starved of domestic savings to supply the “Raw” financial capital inputs needed to generate (or even maintain) new equity & new borrowing capacity that the economy is entering a “Perfect Economic Storm.”

Yesterday, you said in your analysis that we’ve never seen financial market conditions like this before --- Incorrect. I have detailed Expansion/Contractio
n charts back to 1855 (with capacity utilization, employment , anecdotal newspaper references in the 1870s & 1920/30s, bank failure charts to 1892, stock price charts to 1917), Total Debt-to-G.D.P. dynamic econometric models and a monetization risk model that indicate we’ve been here before….just not in our lifetimes or the adult lifetimes of anyone under age 90. Ask Paul Samuelson what he thinks about to health & strength of the global economy.

I’m not being overly negative (as Mr. Kneale would accuse me of being); I am simply employing my internal economic self-preservation system. The same way 98% of the land animals near the coast during the Indonesian Tsunami sensed danger and moved to higher ground; I’m cutting debt & expenses to near zero to adapt, survive and ultimately thrive in the new economic environment the United States is entering. I just hope I can flat-line the price of my house enough to sell it and escape to South Carolina to build hurricane proof insulated concrete form homes/commercial buildings.

Please tell Bill Griffeth & Sue Herera that I’ve been a big fan since the beginning of F.N.N. Thank you for your attention.
Respectfully,

Douglas E. Walden
DOUG WALDEN
Letters I've written since September 9th, 2007 regarding world economic conditions. What got me started writing was an article written by Herb Greenberg in the Sat-09/08/2007 Wall Street Journal entitled "After Drinking the Good Life, The Hangover May Be Here." I wrote to him to explain the nature of the finanicial/economic instability we were (and will be) experiencing.
DATE PERSON ORGANIZ
ATION SUBJECT
1 1/30/2008 Malcolm Knight, C.E.O. BANK FOR INTERNATIONAL SETTLEMENTS Economic
-Tsunami Early Warning System
2 1/28/2008 Professo
r Stephen Mihm University of Georgia His Boston Globe article on ineffectiveness of current monetary & fiscal policies
3 1/19/2008 George McEvoy journalist PALM BEACH POST His article on the Great Depression
4 1/15/2008 Wolfgang Munchau, assistant editor FINANCIAL TIMES of London His article on the magnitude of the devolping global economic contraction
5 1/13/2008 Michael Panzner Author of FINANCIAL ARMAGEDDON comments on his blog post discussing the collapse of Financial Derivatives
6 12/18/2007 Dr. Glenn Rudebusch, economist FEDERAL RESERVE BANK of San Francisco his comments in 12/18/07 Investors' Business Daily & anecdotal evidence of spending pull back by family, friends & associates
7 12/15/2007 ***** *
**** MY DEBT -to- GDP CALCULATION SHEET
8 12/8/2007 Patrick Byrne, founder & CEO Overstock.com His 12/07/07 appearance on CNBC
9 11/25/2007 Ben Bernanke, Chairman FEDERAL RESERVE SYSTEM I referred Mr. Bernanke to Economic Long-Wave Cycle research at the System Dynamics Group, Sloan School of Management, Massachussetts Intstitute of Technology
10 10/12/2007 Steve Moore, editor Wall Street Journal & CNBC contributor discussi
on of household net worth and economic instability
11 9/23/2008 Profess
or Robert Shiller YALE UNIVERSITY & creator of Case-Shiller Housing Index Housing Depression & Debt Contraction
12 9/21/2008 Andrew Ross Sorkin. Jurnalist NEW YORK TIMES & C.N.B.C. Nature of current & future economic instability & deterioration
13 9/14/2008 Dr Wayne Angell economist & former Governor of the Federal Reserve Housing Depression & Debt Contraction
14 9/9/2008 Herb Greenberg, journalist Wall Street Journal & CNBC contributor regardin
g his Wall Street Journal article, I explained the nature of the Economic "Storm" that is approaching us.

-----Original Message-----
From: desic4@aol.com
To: email@bis.org; malcolm.knight@bis.o
rg
Cc: malcolm.knight@bis.o
rg
Sent: Wed, 30 Jan 2008 8:42 am
Subject: Econ-Tsunami Early Warning System
MR. MALCOLM KNIGHT
BANK FOR INTERNATIONAL SETTLEMENTS
RE: Reuter’s article Jan 25, 2008 – “Top B.I.S. Banker Sees No End to Credit Crunch Fallout”

Dear Mr. Knight,

I sent you some notes last December (2007). I hope you found them useful. I'm sending you a few more. I read about your comments in Davos...they were refreshingly candid.

A rudimentary Economic Tsunami Early Warning System would include long-term trend analyses of changes (of both GLOBAL & Component Country) in the Ratio of Non-Financial Debt-to-G.D.P.; Country specific ratios of $ Value of Changes in Domestic Savings-to-$ Value Changes of Non-Financial Debt (this will automatically reveal country specific long-term unstable trends in Current Account Balances). I also included a Debt Monetization-Risk Model with my calculations to evaluate long-term (5+years) risk of Hyperinflation (see potential credit downgrade of U.S. Government Debt by 2017).

Take care.

Respectfully,

Douglas E. Walden
607 3rd Avenue
Asbury Park, New Jersey 07712-5930
United States of America
1-732-481-5031
____________________
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____________________
____________________
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___

-----Original Message-----
From: desic4@aol.com
To: mihm@uga.edu; rbaedeker@sfgate.com

Sent: Mon, 28 Jan 2008 6:00 am
Subject: U.S. (Global) Contraction > 24 months
DR. STEPHEN MIHM - UNIVERSITY OF GEORGIA
RE: your Jan 27, 2008 Boston Globe article –
“The Black Box Economy - Behind the recent bad news lurks a much deeper concern: The world economy is now being driven by a vast, secretive web of investments that might be out of anyone’s control.”
Dear Professor Mihm,

I enjoyed your article in yesterday's Boston Globe. It seems more and more people are intuitively sensing the magnitude of the economic turbulence ahead.

Greater understanding of the current ineffectiveness of "Standard" monetary & fiscal policy tools to alter the economy's trajectory can be gained by looking at Finance/Economics through the eyes of a Physicist.

Like 19th Century understanding of the Physics of Gravity, our current "Newtonian" Economics-view instructs us that 1) If We Deficit Spend, Then we will Stimulate Demand and Economic Growth and 2) If we Lower Interest Rates, Then More Cheap Debt will Stimulate investment (and thus Growth). It's like being able to calculate the path of a baseball being thrown.

The situation you describe in your article (where the "old-tools are inadequate" and "Usual tools are Powerless) is like entering the more complex universe of "Quantum" Economics where simple Laws of "Newtonian"-Economic
s fail to explain unexpected outcomes of policy moves. The "Mass" of Debt (and derivatives) is so great relative to G.D.P. that the "Financial-Gravitati
onal" force exerted on ANY policy will alter it's intended path in much the same way as a massive star or Black-Hole will alter the path of a beam of light.

I thought you might find my recent notes interesting. Best wishes.

Doug Walden
Asbury Park, New Jersey

MR. GEORGE McEVOY
PALM BEACH POST Saturday, January 19th, 2008
Re: your article “Let’s Not Be Blind to Recession”

Dear Mr. McEvoy,

I've been scanning Google for news references to the Great Depression for the last 9-months, since I sold out all my 401k stock holdings and went to cash (and subsequently invested all my money in the Prudent Bear Fund on October 1st, 2007).

I was hoping I would not see an uptick in the number of references until I sold my home and moved to rural South Carolina. Unfortunately the number references (like your article) seems to be increasing at a low level geometric rate.

Given your article's subject, I thought you might find the letters I've been sending out since September 9th, 2007 interesting. Take care & Good Luck

Doug Walden
Asbury Park, New Jersey
732-233-3533

-----Original Message-----
From: desic4@aol.com
To: wolfgang.munchau@ft.
com
Sent: Tue, 15 Jan 2008 5:31 am
Subject: U.S. (global) CONTRACTION > 24 Months.
WOLFGANG MUNCHAU
FINANCIAL TIMES of LONDON

Dear Mr. Muchau,

I enjoyed your article. However, your definition of the coming contraction as a "Long Recession" is not correct. The Multiple-Contraction in Credit "Storm" we are entering has all of the Debt-Excess Elements that preceded the Depressions of the 1870s and the 1930. Interestingly, both contractions were referred to by Newpapers of the day as the Great Depression.

Please read the attached notes I have sent out recently, you may find them useful.

____________________
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To: DR. GLENN RUDEBUSCH 415-974-2168
ECONOMIST, Federal Reserve Bank of San Francisco
RE: quote of your comments in Tue-12/18/2007 Investors’ Business Daily
Tuesday, December 18th, 2007

Dear Dr. Rudebusch,

Your comments in today’s (Tu-12/18/2007) IBD were sobering but accurate. A statistically significant number my family members, friends and associates –who had apparently “strong” balance sheets, cash flows and credit scores- are rapidly slipping into deficit spending and cutting back on MANY discretionary and essential purchases.

I read an interesting article by Herb Greenberg in early September about our current economic situation. It motivated me to start writing notes to various people about the forces acting upon the economy. I've attached them, I hope you find them interesting and helpful.

Take care

Doug Walden 732-233-3533

____________________
____________________
____________________
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Sunday, November 25th, 2007

Dear Chairman Bernanke,

With this note, I'm taking you up on your request during your speech at CATO for input from the "General Public." Forgive me giving you so much input, but I think we're in for quite a bit more instability than most of the "Smartest People in the Room" (i.e. Bears Sterns, Countrywide, Hovnanian, C.N.B.C., etc.) expected last year AND more than they currently expect.

FOR BACKGROUND: I am just an average 45 year old working man from New Jersey. I didn't complete my degree in finance and economics at G.W.U. & M.I.T. I have a median income and net worth (even with a decline in the real estate portion of my balance sheet).

My area of study (most of it on my own before going up to Cambridge in 1986) was the Great Depression and underlying factors that created it. My models/equations on Non-Financial Debt-to-GDP Expansion/Contractio
n during Kondratiev Long-Waves & Monetization Risk Calculations (based on historical hyperinflations) as well as historical correlations with political, social and technological trends have given me a different perspective than most analysts/businesspeo
ple/politicians/aver
age citizens have.

Sir, please understand I don't mean to be presumptuous, but I get a sense from: your speeches, testimony, and rapid change in monetary policy over the summer, that you and the other members of the F.O.M.C. are not looking at our current real economic & symbolic financial asset situation in the right way. It's like trying to see without your reading glasses.

Please contact the System Dynamics Group at M.I.T. and study their work on Knodratiev Long-Wave "Cycle". You might not agree with it but it will expand your insights into what we are facing.

I have attached notes I've written to various people over the last 3 months to give you a little more insight into my thinking. I hope it is helpful and I apologize for it being voluminous.

If I can be of help to you or your staff, feel free to contact me. ALL of this communication will be CONFIDENTIAL. Take care and good luck Sir.

Douglas E. Walden 732-233-3533 home: 732-481-5031
607 Third Avenue
Asbury Park, New Jersey 07712-5930

Notes 09/09/2007 & 10/13/2007 to/from HERB GREENBERG (CNBC contributor, MarketWatch.com & The Wall Street Journal)
-----Original Message-----
From: Greenberg, Herbert < HGreenberg@marketwat
ch.com>
To: tammjen@aol.com
Sent: Sun, 9 Sep 2007 6:42 pm
Subject: RE: your Sat-09/08/2007 Wall Street Journal article
Douglas .
My worry is that my kids will pay the price. Cheers.
Herb

From: tammjen@aol.com
Sent: Sunday, September 09, 2007 3:58 AM
To: Greenberg, Herbert
Subject: your Sat-09/08/2007 Wall Street Journal article

Dear Mr. Greenberg,

I was very impressed with insights contained in your article ("After Drinking the Good Life, The Hangover May Be Here"). I wish I could say I enjoyed it, but given its conclusions I can't.

To gain more insight into the true nature of the Economic Storm that is bearing down on us, please look at the work done by Nikolai D. Kondratiev (a Soviet economist (1882-1938)) on Long-Wave Cycles of boom and bust in capitalist economies. Kondratiev's Cycles have a period of between 45 & 60 years. In the mid-1920s, Mr. Kondratiev predicted that the western economies would enter a period of severe economic contraction because of the excessive (relative to G.D.P.) accumulation of debt.

Using a Non-Financial Debt-to-GDP model, I was youthfully arrogant enough to predict in a July 21st, 1985 Asbury Park Press article that the U.S. economy was reaching a Long-Wave top and that the financial markets would experience their largest collapse in history by August 10th, 1987.

The reason why we did not enter a period of severe debt induced contraction after 1987 (and subsequently in 1998's Long-Term Capital Management Crisis, 2000's Internet Bubble Collapse and after the 9/11 Attacks) was because of the Federal Reserve's actions of providing soothing doses of and Economic Narcotic - Liquidity. And the patient (the U.S. Economy) numbed by this Narcotic continually needed increasingly potent "fixes" to function. We are at a point were the U.S. Economy is Overdosed with DEBT and no additional Narcotic Fix will provide the same effect as the earlier soothing doses. The U.S. Economy is going to go through withdrawal symptoms just like someone who has had way way too much to drink.

To put it in terms Larry Kudlow would use, the Goldilocks Economy has been out on a 3 day drinking binge and is now rushing to the toilet to throw up all the Jack Daniels brand Debt she's consumed.

The fact that government officials, business people and consumers have such short time horizons (government officials - the next election; business people - the next few quarters; consumers - the next week or month) allows these imbalances to slowly build up within the body of the economy until the point where they become toxic.

I just hope Congress, the President and the Federal Reserve don't screw up and exacerbate the coming contraction to the point where they cause an Inflationary Depression.

By the way, I do enjoy watching you go back and forth with Larry Kudlow on CNBC. Take care.
Douglas E. Walden
Note 09/21/2007 to ANDREW ROSS SORKIN writer New York Times
-----Original Message-----
From: desic4@aol.com
To: sorkin@nytimes.com
Sent: Fri, 21 Sep 2007 1:50 pm
Subject: your CNBC Appearance Thu-09/20 & Fri-09/21/07
Dear Mr. Sorkin,

I enjoyed your appearance on CNBC yesterday & today. Based on your point of view, I thought you might find my notes to Wayne Angell and Herb Greenberg of interest. Mr Greenberg's reply to me is also included.

I am amazed as watch reporters and analysts struggle to identify the economic conditions we are experiencing. You seem to have a clearer view of dangers of the economic period we have entered. The summer's seize-up of the debt markets is just an early withdrawal symptom of the Debt-Addicted-Econom
y not getting its debt-fix.

Its really quite simple.

Excessive debt built up (relative to GDP) over the last 25 years, leads to consumer financial stress and defaults, leads to corporate earnings contraction and defaults, leads to stock price declines, leads to compression of the Price/Earnings Ratio, leads to decline in government tax revenues and hitting "trip-wires" for contingent liabilities of the government (because of government guarantees), leads to huge deficits, leads to collapse of the dollar and spike in interest rates, then severe inflation and economic contraction (like pre-Nazi Germany in the 1920s or Hungary ).

In the end we (as a nation) are going to have to enter a Debtors Anonymous program and admit that we have a problem with too much debt and NO SAVINGS and we have to find REAL long-term solutions to avoid this happening again.

People act like this hasn't happened before: it's occurred in the 1930s the 1870s and the 1830s. The fact is it hasn't happened to most people alive today. There are very few people with an adult memory of the 1930's Depression. We have become so creative at getting to ever higher levels of Debt-to-GDP that we think we've crated safeguards against financial & economic instability......Bul
lsh*t. Government guarantees just give people the comforting illusion of security.

Hell my state (New Jersey) will probably be the first one to declare de facto bankruptcy.

I have to run.

Take care.

Doug Walden
732-233-3533

Note 09/14/2007 to Dr. Wayne Angell (former Governor of Federal Reserve)
-----Original Message-----
From: desic4@aol.com
To: wangell@comcast.net
Sent: Fri, 14 Sep 2007 10:28 am
Subject: your CNBC Appearance Thu-09/13/2007
Dear Dr. Angell,

It was very refreshing seeing a commentator in the financial media who understands the severity of our current economic instability. Especially since you are a former Governor of the Federal Reserve. I am tired of seeing the Treasury Secretary and analysts say that the "Fundamentals" of the economy are sound and that this is just a contained financial disruption.

These people have no sense of history. They act as if the financial & real economies are two separate systems that can be manipulated in isolation. The financial system is the symbolic representation of our (everyone's) perception of the real economy. Ultimately, all debt instruments, stock certificates, deeds, etc are the claims against the real economy's physical assets.

Your statement last night about the simultaneous occurrence of a Housing Depression and a Business Cycle Inventory Adjustment demonstrates the coincidence of a 3-to-5 year Business Cycle Downturn superimposed onto the End of a Top of 45-to-70 year Kondradiev Long-Wave Debt Cycle.

I hope you are successful in getting the right people to understand your (our) view.

Take care

Doug Walden
Asbury Park, New Jersey
732-233-3533

This is a copy of my note to Herb Greenberg (of MarketWatch.com & CNDC contributor) and his response to me about his article in the Saturday-September 9th, 2007 edition of The Wall Street Journal (page B3). The article is entitled "After Drinking the Good Life, The Hangover May Be Here." It can also be found on www.MarketWatch.com You should read it.

Doug Walden

NOTE 10/12/2007 to Steve Moore (W.S.J. editor-editorial page, principal with Arduin, Laffer & Moore Econometrics)
-----Original Message-----
From: tammjen@aol.com
To: STEVE.MOORE@WSJ.COM
Cc: SVARGA@KUDLOW.COM; tbennett@wbandl.com
Sent: Fri, 12 Oct 2007 10:47 am
Subject: voter unease & dissatisfaction with government
Dear Mr. Moore,

As usual, I enjoyed your appearance on Kudlow & Co on the night of the debate.

You and Mr. Reich (who I rarely agree with) made the point that there exists a disconnect between between Mr Kudlow's view of the Goldilocks Economy and the financially stressed and generally uneasy view of the future that the average working person/family ($45,000-to-$150,000 per year income).

It is simple, with a Savings Rate hovering around ZERO %, shrinking home equity, uncertainty about health care, caring for elderly parents and paying for college, paying for energy, Americans are feeling off-balance and insecure about their own futures and most disturbingly about the future place of the United States in the world. We feel like our power to control and affect our personal destinies is slipping away.

The ever increasing claims made on us by basic family expenses (energy, food & medicine), government taxes and debt service is making a majority of us insecure; combine this with the ineptitude of our Representatives at solving even the most basic fiscal, security & border security problems and you get a Perfect Storm of collective doubt. (As I discussed will you and Mr. Kudlow on the radio show in early June, being from New Jersey is seeing coming attractions the direction the Federal Government is headed.)

Mr. Kudlow's cheering on household Net Worth being $60 TRILLION seems like someone whistling past the graveyard. That $60 TRILLION is not calculated on a DISCOUNTED PRESENT VALUE of FUTURE NET INCOME basis. If the dollar falls further or the Federal Reserve is forced to monetized our debt (because of lack of buyers or worse yet heavy sellers), That $60 TRILLION (in constant dollars) can shrink like a aging star collapsing into itself.

We need real solutions and real FREE MARKET PROSPERITY POLICIES to get people more confident. Quite frankly, I don't see anyone in Congress or the Presidential Candidates who has the guts to tell us what we as a people NEED to hear.....Real Solutions.

I've attached a note regarding America's future that I sent and the Comptroller General of the United States - David M. Walker. I hope you find it interesting. Watching you and Larry Kudlow on C.N.B.C., I think I would enjoy sitting in a tavern watching football and talking politics and economics with you guys....LOL. Take care.

Douglas E. Walden.

NOTE 09/23/2007 to Dr. Robert Shiller (creator of the S&P/Case-Shiller Housing Index and Economics Professor – Yale University)
-----Original Message-----
From: desic4@aol.com
To: robert.shiller@yale.
edu
Cc: msfeldst@nber.org
Sent: Sun, 23 Sep 2007 3:57 pm
Subject: Kondratiev Wave Top ??

Dear Dr. Shiller,

Every time I see you on C-SPAN or CNBC or read articles on your views and analyses, I feel like I'm not alone. I not the town soothsayer or Nostradamus, but with a little analytical ability and common sense anyone can piece together that our shortsighted live for today and worry about the bills tomorrow lifestyle is about to end....and in a big way. Personally I think we're at a Kondratiev Long-Wave Top.

I am just a working class schmuck from New Jersey, but I think (and have for several years)
that the United States is in for one of the most difficult periods in it's economic history. And, given our acute social network weaknesses relative to our ancestors form the 1930s AND our reliance of foreign capital and energy, I think this period of economic privation will tax our political, law enforcement and social systems to limits not seen before.

I've had my 4,200 square foot Asbury Park Victorian house up for sale for about a year (FiSBO). I haven't pushed it because I didn't have a home to move into. Now I'm putting bids in on 3-9 acre parcels in South Carolina (1 hour from Charleston). My housing expenditures are going to be 86-to91% less than in New Jersey. I've owned the house for 20 years and didn't borrow all the equity out to buy an Escalade or a 4 week vacation to Hawaii. I can undersell my "competitors and still give the new buyer Equity (for Now...3 years from now I may be able to buy it back for half what I sell it for). I'm one of the lucky ones.

I just don't know what so many people I know who bought in the last 4 years are going to do.

Enough of my ranting. read the notes I've sent out over the last few weeks to Herb Greenberg, Wayne Angell and Andrew Sorkin. I hope you enjoy them. Take care. And Great Work.

Doug Walden

COPYRIGHT © 2007 by Douglas E. Walden (Saturday-12/15/2007
)

US DEBT-to-GDP - QUICK CALCULATION
ASSUMES 4% G.D.P. Growth 2007-Q3 to 2008-Q3 (if we’re lucky)

NOTE: U.S. DEBT = Non-Financial Debt (consumers + businesses + all governmental entities)

ANNUALIZED
GROWTH RATE 2007-Q3

U.S. 2007-Q3 G.D.P. =$13,500,000,000,000
.00 4.00% (+$540,000,000,000.0
0/year)
U.S. 2007-Q3 DEBT= $39,500,000,000,000.
00 8.90% (+$3,515,000,000,000
.00/year)
PROJECTED (Simple Extrapolation for Purposes of Discussion)
U.S. 2008-Q3 G.D.P.= $14,040,000,000,000.
00
U.S. 2008-Q3 DEBT= $43,015,000,000,000.
00

2007-Q3 $2.93 of Debt Per $1 of G.D.P.
2008-Q3 $3.06 of Debt Per $1 of G.D.P.

QUESTION 1: Given near ZERO internal U.S. Savings, is the above trend in Debt-to-G.D.P. sustainable?
CRUDE W.A.C.D. 2007 INTEREST RATE of 6.50% on $39.5 Trillion
INTEREST THIS YEAR = $2,567,500,000,000.0
0 = 19.01% of G.D.P.
QUESTION 2: What happens to our – America’s – Debt Servicing Costs if foreigners decide not to buy as much U.S. Debt (or worse yet – They Start Selling It)?
Debt/Option Derivatives (Notional Value) = $414,000,000,000,000
.00
414 TRILLION >>> almost Half a Quadrillion
2007-Q3 PER CAPITA
GDP DEBT
US POPULATION 300,000
,000 $45,000 $131,
667
US WORKING POPULATION 153,870,0
00 $87,736 $256,71
0

-----Original Message-----
From: desic4@aol.com
To: financialarmageddon@
gmail.com; panzner@gmail.com
Cc: arwmedia@aol.com
Sent: Sun, 13 Jan 2008 10:26 am
Subject: Derivatives Today & L.T.C.M.
MICHAEL PANZNER
www.FinancialArmaged
don.com

Dear Michael,

As usual, I found your January 11th post (Upside Turns to Downside) very illuminating.

It is becoming all too obvious that Warren Buffet's description of Financial Derivatives as being like "Financial Weapons of Mass Destruction" was dead on accurate.

Reading your post got me to thinking of a past derivative Blow-Up - Long-Term Capital Management in September of 1998. I recalled that 1997 Nobel Prize winning economists Robert Merton and Myron Scholes were Creators of the intoxicatingly complex, theoretically elegant, (yet -in practice) too fragile for the REAL WORLD equations that were at the heart of L.T.C.M.'s "Great" performance.

Merton & Scholes were awarded their Nobel Prizes in economics (for their work on derivatives) on October 14th, 1997. The meeting at which Long-Term Capital Management came clean to the Federal Reserve & the Treasury about how BAD things were inside the fund occurred on September 20th, 1998. From NOBEL PRIZE to FINANCIAL MELT-DOWN in 339 Days.....hhhhhhhmmmm
.

Now maybe I'm cranky because I've been up all night working and I'm still trying to sell my house and escape to South Carolina - yadda, yadda, yadda. And I'm sure that Mr. Merton and Mr. Scholes are nice people.....but I think their Nobel Prizes (with the MONEY) should be REVOKED.

Take care.

Doug Walden
Asbury Park, New Jersey

TO: MR. PATRICK BYRNE Sat-12/08/200
7
Overstock.com

RE: C.N.B.C. appearance Fri-12/07/2007

FROM: DOUG WALDEN
607 Third Avenue
Asbury Park, NJ 07712-5930
732-481-5031 desic4@aol.com

Dear Mr. Byrne,

I enjoyed your appearance on C.N.B.C. yesterday afternoon. It was refreshing to see a prominent businessman with a farsighted long-term view of the unsustainable structural weaknesses that are plaguing our economy.

It was, however, almost painful to watch Dylan Ratigan try to counter your assertion that we are on the precipice of a 1929-Great Depression-like event. They really don’t have a clue. It is very frustrating trying to explain long-term (multi-decade) real economic/symbolic financial trends and distortions to people whose time horizon is End of the Trading Today.

You are the type of insightful person I hope to do business with in the future (assuming I adequately restructure my family Balance Sheet/Cash Flow before things really start coming apart – (Feb-to-June 2008)).

I started writing notes to some people that you might find interesting, given your view of our economic circumstances. I hope you enjoy them. Take care and I hope you have a safe & prosperous holiday. Good luck in the Future.

Doug Walden

Quote | Report this post

Posted by: Richard Hughes on 12:01am Mon 24 Mar 08

All the previous examples of economic meltdown occurred when global currencies were tied to the value of gold. My guess is that this episode will prove a hyperinflationary depression. Therefore, the prudent course of action is to take on more debt to buy real property, such as real estate and stocks.

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