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Is the Growing Asian crisis the start of
the World-Wide financial collapse?

As originally published in American's Bulletin January 1998


Major economy after major economy has been wiped out. America is next. One reason this is being written is that the traditional media has refused to report the critical condition the world financial system is in.

Endless debt creation had gone on for decades. Trillions in losses -in the banking, brokerage and manufacturing sectors -were being swept under the rug. Global stock markets were shooting to the moon, far beyond their fundamental values.

All this is going to create the greatest financial crisis ever.

Trillions of dollars will be lost. Hundreds of millions of people will be wiped out. People armed with knowledge of these events could protect themselves. More important, they could position themselves to make a proverbial fortune.

It is hard to fathom how far Wall Street arrogance and greed could propel things out of control. Same with global debt. Never in my wildest dreams did I imagine that government after government -in incestuous relationships with the world's biggest corporations -would create institutions so big, they could not allow them to fail.

But that is what happened.

Government gave Wall Street a blank check and they cashed it!

Big players quickly realized that no matter what they did -no matter how bad the deals they made -no matter how much money they lost -governments around the world would bail them out.

So why be cautious? Why follow time-proven, prudent business practices? Every big institution was free to roll the dice. When they came up snake eyes, government bailouts would cover their losses. More incredibly, governments would give them the money to roll the dice again and again.

Economies have natural cycles. Small collapses-cyclical downturns-normally act as safety valves. They clean out the excesses and keep the system sound. But thanks to Wall Street larceny, those safety valves were not allowed to work. Small collapses and isolated failures that punish unwise investments and keep the system clean were not allowed to operate.

Ten years of nonstop growth -built on previous government bailouts -have short-circuited the world economic/financial system. Great excesses have driven overvaluations to bizarre extremes. Only a global collapse can clean out the absurd excesses.

You have seen many boom/bust cycles, of fast growth and then recession. They affect every economy and every industry, from autos and airlines, to farming, real estate and banking. Cycles in the stock market -the famous bull market rallies, followed by the bear market busts -are legendary.

During every boom cycle, the markets generate vast over-enthusiasm among investors. Markets get grossly overvalued.

Then comes the inevitable bear market bust, to clean out the overvaluations.

In the past, suppose some rich tycoons or over enthusiastic investors miscalculated -say in the oil business, real estate or shipping. They were allowed to go broke. Not any more. Now we have the greatest bull market ever. Wall Street has created huge monster institutions. The Street has convinced government these institutions “are too big to allow to fail.” Politicians -who have a vested interest in seeing that the bubble never bursts -are only too eager to oblige.

The first significant private failure government bailed out was Chrysler. That started the great government bailout program in earnest. Next came banks that were allowed to grow so large, they “were too big to collapse.”

You may remember when the government bailed out Continental Illinois bank. That cost taxpayers billions. Well, what was good for banks was good for savings and loans. Government spent a trillion dollars bailing out that bankrupt industry. Taxpayers are still paying the bill, in the form of special bonds.

The technique here is simple. Government takes the loss away from the big players, who made reckless, over-bloated investments. Instead, they spread it to the taxpayers, who are burdened for generations to come. But even that has a limit.

The next mess that “couldn't be allowed to fail” was massive third-world debt. Many of America's biggest banks would have gone under. So government bundled the billions banks were losing into the now-infamous Brady Bonds. That saved the banks, and saddled the American taxpayers for the next 20 years with another trillion dollar burden.

And the big players went right back into the market. With a lot of help from Goldman Sachs (a leading Wall Street firm) they squandered billions more in Mexico.

Treasury Secretary Robert Rubin then ran Goldman Sachs. Once he became Treasury Secretary, he had government bail out the banks and financial institutions for another $50 billion. Goldman Sachs -Rubin’s own firm-was one of the major beneficiaries of this bailout.

These same banks and brokerage firms are now taking huge losses in Asia and Latin America. They never learned their lesson. This time the losses are so big, the money does not exist to bail them out.

These government-guaranteed bailouts never work. They reward bad business practices. Bailouts have led to wild speculation in country after country, industry after industry. They have made today's institutions so big and cumbersome, they can't manage their portfolios. They are impossible to analyze, never mind regulate. They hide staggering losses, for incredible lengths of time.

Governments will endlessly try to keep bailing out these mega-institutions. They stop only when they no longer have enough money. That's what is happening now.

World's largest corporations and financial institutions are broke As I’ll show you in just a minute, wipeouts of monumental proportions are occurring on a global scale. The world is about to suffer a financial meltdown, the likes of which have not been seen since the Great Depression.

Quick-fix aid packages don’t solve the inherent problems. At best, IMF and government aid only buys a little time. They loan mega-institutions enough money to cover a few payments, avoiding an immediate default. But that does not begin to address the bad investments that got them into such grave circumstances in the first place.

The problem is, these institutions are broke. They made terrible deals. They destroyed trillions of dollars of assets and dissipated hundreds of billions in cash. By giving them bail out after bail out, the eventual wipeout just gets more costly and devastating.

The monster gets bigger and bigger. It eats more and more money. Eventually the problem grows too big to solve. (As we are seeing in Asia, Russia and Latin America “eventually” is now.) The money does not exist to bail out the institutions that were once seen as “too big to fail.”

By not allowing the guilty parties to take a loss, bad credit risks soak up the finite capital in existence. Creditworthy borrowers can no longer get the financing they need. In the capital crisis that follows, both good investors and bad -wise and unwise-get wiped out.

And the problem is not just in Asia. There are bad deals, huge hidden losses, in Latin America, Europe and even the U.S. American wipeouts will be the most devastating of all.

Never are so many about to lose so much. The collapse has already started. Ten years ago, the Japanese markets tanked. They never recovered. Investors were wiped out.

But the Japanese government did not allow these institutions to go under. They considered them “too big to fail.” Now the domino effect is wiping out good and bad companies throughout Asia.

The current crisis started in relatively small economies, such as the Philippines and Thailand. A healthy world economy would have easily absorbed those problems. Instead, the failures quickly spread. Now the capital crisis is destroying some of the world's largest institutions, in some of the world's richest economies.

Staggering wipeouts are taking place in economic powerhouses such as Hong Kong, Korea and Japan. Company after company, bank after bank, brokerage after brokerage firm is getting wiped out.

The Asian crisis has rocked economies around the world. It is bringing down the global financial system. Currency markets, capital markets and stock markets around the world will pay the price. All because institutions that made lousy investments were regarded as “too big to fail.” They were allowed to keep losing vast amounts of money. Now their losses are too big to pay.

For 15 years, governments, banks, businesses and stock markets had access to damn near unlimited money. They have squandered that money in what will turn out to be the greatest financial orgy of all times.

Budgets have not been balanced for thirty years. Multi-trillion dollar debts that went bad were deferred far into the future. Broke financial institutions were not allowed to fail. They were kept alive with access to unlimited capital, and by hiding their staggering losses. Now those losses are too big to cover, too big to hide.

Greedy speculators backed by government guarantees drove stock markets to the moon. They were priced in impossible valuations. Heavy promotion and limitless financing drove real estate valuations way past any reasonable level. Governments threw away vast sums on wasteful, useless programs. They financed these programs by deficit spending.

That pushed debt payment generations into the future.

All this created a world financial system that is grossly overvalued. It desperately needs capital, to bail out multi-trillion-dollar mistakes. Unfortunately, there no longer is enough money to cover the losses.

The problem does not lie in just absurd stock market valuations. Banks kept loaning vast amounts of money, in deals that got worse by the minute. These loans are supposedly backed by real estate and other fixed assets. But the valuations they placed on these assets were artificially manipulated into the stratosphere. These valuations are impossible to justify. They can never be sustained.

The markets have given financing for multibillion dollar expansions that were not even close to viable. They have allowed government debt and spending to go way beyond what can ever get paid back.

Now those chickens are coming home to roost. Do not be fooled. The Asian contagion is not a bout of the flue. It's an incurable cancer that is fatal. Russia, South America? Who is next is a certainty. America, big time.

IMF and central banks cannot cover even a small fraction of Asia’s losses! The world’s largest economies and financial entities are collapsing. The IMF is desperately trying to rescue them. But the IMF is bankrupt. They do not have close to the hundreds of billions it would take to buy some time, much less the trillions needed to bail out the global financial system.

Look, it’s simple. Entities that owed just $5 billion can’t pay even that back. Their assets don’t justify the loan. Then how does the IMF loaning them another $5 billion solve the problem? It only increases the debt, and prolongs the agony.

In truth, an IMF bailout is the kiss of death. They impose impossible conditions on the nation that gets the money. What's more, the IMF doesn't have the expertise to administer the money. They make demands that are counterproductive. IMF bureaucrats lack the understanding and finesse to solve the Asian, Russian and South American crisis.

It wouldn't matter how much money the IMF had. The capital does not exist to stop the global monetary system from imploding. These guys have already wiped out the capital. They are broke. The money is gone. Loaning them more money will not solve the problem.

The dominoes have started to fall here is the story of how the world debt crisis is unfolding. Since mid-1997, stock markets in some of the world's most important, fastest-growing economies have gone from record highs to record lows. Trillions of dollars in stock equity alone have been wiped out.

And that's only part of the story. Global currency markets are in complete disarray. Key Asian currencies are collapsing. Many of the world's largest brokerage firms and corporations are broke. The spreading Asian crisis is bigger than most anyone can comprehend.

So far, the IMF has committed $163 billion to Asia. The IMF only has $ 100 billion. By their own accounting, they must somehow come up with $63 billion they don't have. That $63 billion shortfall is nowhere close to the money they really need. Their trick is to understate what they really need, then go back for more money later. Unfortunately, later is now.

Thailand will need another $30 billion. Indonesia, $40 billion. And those are small economies. Korea’s problems can’t be touched for at least another $200, more likely $500 billion. All this money is on top of what's already been committed. And that brings us to the biggest problem of all: Japan.

Japan's banks and brokerage firms are the biggest in the world, by far. Their known losses at the present time are over five trillion dollars. Their hidden losses are much greater: with what I expect is going on in derivatives, you can easily double that number. The capital does not exist to even begin to paper over the craters in their financial system.

Remember, the IMF is still funding the Mexico bailout. That cost them $50 billion. Spin to the contrary, it did nothing for the country'. Mexico is an armed camp run by drug lords. Much of the nation is at war with itself. Murder, kidnappings and violent crime are out of control. Mexico is the new drug capital of the planet, replacing Colombia. The south of the country is in armed conflict.

IMF bailouts in Asia will not work either. 50 of Thailand’s largest financial companies have closed. Until recently Thailand had one of the world's best debt ratings. Now it is rated triple junk.

An interesting side note. Thailand already has massive overcapacity for auto production. During the present crisis, car sales have plunged by 75%. That is to be expected in a financial downturn. Yet right in the midst of the worst financial collapse ever-surrounded by vast Overcapacity in auto production all through Southeast Asia-both GM and Ford are building multibillion dollar assembly plants there, to service the Thai market!

Both companies announced they will continue their investments, and complete their assembly plants. This shows you how far the corporate world is from understanding this crisis.

What's more, the big car companies are forging ahead with new factories throughout Asia. And it’s not just the auto companies. Builders are also plunging ahead.

Bangkok has 300,000 empty office units. Even in a boom year, they can only absorb 100,000 units. But to further to their folly, they are building the world's tallest skyscraper. Totally absurd. Especially when you concede that their economy is broke.

Not to be outdone, Shanghai is about to complete a 90 story building. It will stand next to an empty 88 story building. And a Japanese group is building a 97 story building right across the street. You would think the Japanese had learned their lesson after getting burned in Tokyo real estate. Actually, they did learn their lesson: keep building and borrowing.

These huge companies have become monsters. They have learned that governments consider them “too big to allow to fail.” Like the Energizer Bunny-who keeps going and going until its battery runs dead --these mega-institutions will keep spending money till there is no more to borrow.

Korea has fallen from the world’s 11th largest economy to the 35th. IMF has already committed $50 billion to Korea. Both Japan and the U.S. have committed several billion dollars each. Those figures are a joke. Until the past month, Korea was the world's 11th largest economy. Now it is ranked 35th, and still dropping.

Korea’s currency has lost 70% of its value. After setting a record high in August of 1997, the stock market has crashed and lost three-quarters of its value. The country is near collapse. Korea is about to give the world its largest default ever.

It will take at least $200 billion to bail out Korea-and another half trillion to clean up the messes. Seven of their largest conglomerates have declared bankruptcy. Thirty more are walking dead. Nine of Korea's largest merchant banks have been forced to close. Many others are not far behind.

Panicked investors have caused runs on several of Korea’s largest banks. Because of the staggering currency losses, Korea has been forced to let its currency float free. Most days, you can't even get a quote on the won (Korea’s currency).

Millions have lost their jobs. Businessmen are jumping out of windows. People are selling family heirlooms, just to eat. The Korean economy is devastated. Factory after factory is closing. Interest rates are soaring. And still there’s no money to borrow.

And even this doesn’t describe the true losses Koreans have taken. Their banks and markets are tightly controlled. People cannot easily diversify into foreign currencies. So in just a few short months, the average Korean has seen about two-thirds of his wealth vanish.

In a desperate backlash, the Koreans just elected socialist dissident Kim Dae Jung as their new president. Talk about a comeback story. This man went from death row and an appointment with the hangman, to life in prison, to house arrest, and now to president.

Kim is a close friend of and supporter of Korea’s very militant, very socialist labor unions. Korea has some of the most radical labor unions in the world. This is not the time for antibusiness labor to come to power. Kim is extremely anti-capitalist and anti-free market. He is definitely the wrong man, at the wrong time.

One of Korea’s biggest problems is that a small number of powerful groups control their industry, finance, manufacturing and economy. These groups are all closely inter-linked. When one of them gets in trouble, it puts the others in danger as well. This is true throughout all Asia.

For example, Haila was Korea’s 61 largest group. They just defaulted, with $5.8 billion in debt. The total bill for Haila will come to over $20 billion. 100-year-old Haila Group's bankruptcy has put the Hyundai group in jeopardy. Hyundai is one of Korea's largest and most important entities. In fact, the viability of most of Korea's multibillion dollar industrial groups is now in question.

In reality, Korea is already bankrupt. They can’t pay their debts, which total at least several hundred billion dollars. They are very near official default. If Korea officially defaults, it will be the largest since the Great Depression. Korean problems are not limited to the peninsula. 70% of Korea’s foreign debt is held by Japan. As bad as Korea’s problems are, Japan's are far worse. Japan is cash-starved. A Korean default would lead to a Japanese crisis, the likes of which the world has not experienced.

Japan followed the U.S. and created scores of institutions “to big to fail” Japan’s major institutions are deeply under water. As in Korea -as in the rest of the world -allowing them to fail would have brought on short-term pain. But they would have solved their deep-rooted problems. That wasn’t permitted to happen. Banks, brokerage firms and conglomerates made terrible investments. Yet they were not allowed to go under.

Japan made the same classic mistake as the U.S. They considered their mega-corporations "to big to allow to fail." These corporations were kept alive by nothing less than state-sponsored fraud. They greatly overstated the value of their assets. Then they borrowed trillions against those overvaluations. Now they have lost all their money. There is not enough capital on planet earth to bail them out.

Japan built the world’s wealthiest economy (on a per capita basis). They acquired vast manufacturing resources. They won huge amounts of global market share. They spread their tentacles all across Asia and America. They had the world's deepest pockets. They financed everything in sight.

These very same institutions had blown a vast fortune before. But the government had considered them “too big to let fail.” So they were given more and more money to stay afloat. The institutions blew all that money too. How? By loaning it to crazy projects in Korea, Indonesia, Malaysia, and even the U.S.. Now they owe even more money. They can't begin to pay it back.

And the financial tides are turning. The problems of these mega-corporations are too big to let them keep going. Their losses are so big, they can’t be repaid. They owe too much money to let them keep operating.

Takushoku Bank -Japan’s 11th largest (and one of the world’s top 20) -recently went broke. They were unable to hide their mounting losses any longer. This caused a chain reaction. Soon Japan’s 41 largest brokerage firm, Yamaichi Securities, fell. They were one of the privileged elite of primary U.S. government securities dealers.

But the hemorrhaging does not stop there. Within days, Nissan Life Insurance Company failed. So did Sanyo Securities, and scores of other large financial institutions. One of the world’s largest trust companies -Asura Trust -suffered a run on its deposits.

And this is just the start. As in Korea, the major Japanese groups are all inter-linked. Japan’s mighty trading firms are virtually broke. It is only a matter of short time before dozens more key Japanese institutions publicly go under.

U.S. Treasury Secretary Rubin says: “The health of the Japanese banking system is deeply imperiled.”

This Japanese problem is so serious, U.S. Treasury Secretary Robert Rubin wrote a secret memo to his counterpart in Japan. He said “the health of the Japanese banking system is deeply imperiled.” Rubin knows they are near collapse.

Rubin has a hell of a lot of reason to be deeply concerned. Japan is the world's second largest economy and the most prosperous. Nine years ago, their stock market crashed, losing over half its value. Since then, they have been in a banking/stock market crisis. Instead of taking their lumps, allowing broke institutions to close, as stated earlier they decided they were “too big to let fail.” They kept these institutions alive.

Over the past 30 years, Japan has come up with a three-pronged plan. They have implemented this plan one stage at a time. On the upside, it made them the world's richest economy. But the plan had an awful downside, which I will get to in a minute. As you'll see, a terrible price will be paid for this folly.

Prong One: to get things cooking, the Japanese lowered the value of the yen. This made their industries the most competitive in the world. It created Japan's huge trade surpluses.

Later on, they also loaned America over a trillion dollars, at far less than market rates. That subsidized their biggest customer: the U.S. consumer.

They accomplished their plan by recycling their huge trade surpluses. They did not bring their surpluses home. That would have sent the yen soaring. Instead, the Japanese government printed vast amounts of yen, so it could buy the dollars from Japanese trading companies, where they were building up. Then the government took those dollars and bought U.S. government securities.

Suppose America had been forced to finance her vast debt by herself. The dollar would have crashed. (Without all that Japanese buying of U.S. government securities, demand for dollars would have collapsed.) The yen would have soared. Interest rates would have climbed to double digit levels. (Because without Japanese buying U.S government securities, demand for bonds would have fallen. The U.S. government would have been forced to offer much higher interest rates to attract buyers, to finance the deficit.)

Higher interest rates would have thrown the U.S. economy into a prolonged recession. High rates would have slowed demand, and increased the cost of borrowing.

Both these events would have been bad for Japan. One, they would have raised the value of the yen. Two, they would have killed Japan’s booming export market: the higher yen would have taken away Japan’s great competitive advantage.

So Japan subsidized the U.S. economy with low interest loans. (That's what government securities are.) They kept the dollar high, and created the decades-long consumer boom. At the time, it was a win/win for all concerned.

Japan loaned the U.S. the money to keep buying their Products: that let Japan maintain its number one consumer market. The Japanese subsidized their exports with a cheaper yen, giving them a huge price advantage in international trade. They won critical market share in key industries, and displaced huge international conglomerates that stood in their way.

Japan, bolstered by its cheaper yen, had the most competitive prices in the world. Japanese industry was selling everything they could make, at a breakneck pace.

U.S. consumers were happy. With the yen so cheap, they got Japanese goods at bargain-basement prices. And with the Japanese providing cheap capital, the American consumer had all the credit he wanted, at bargain rates. This let the U.S. import deflation: a huge amount of cheap foreign goods flowed into the country.

U.S. Treasury got over a trillion dollars of badly-needed money, at interest rates about half what they would have been without the Japanese. This let Treasury easily finance the ever-increasing federal deficit, at bargain-basement rates, while avoiding a recession. (Which would be the political equivalent of drinking a bottle of strychnine.)

In essence, Japan gave America a one trillion dollar loan, at record low interest rates, with no conditions attached. They did so as long as America bought Japanese consumer goods. That loan freed up domestic U.S. capital. By keeping the dollar artificially high, this gave the U.S. the world's goods and services at less-than-market prices. It created the soaring 90’s. It is singly responsible for the supposedly lower budget deficits America has temporarily enjoyed; the decade of nonstop U.S. economic growth; and the outrageous balloon stock and bond markets.

It is critical that you understand this point. America’s boom economy could only take place with Japan willing to loan their huge trade surpluses back to the U.S. This kept the dollar high, the yen low, and provided plenty of capital in the system to loan the consumer.

By supplying the U.S. with endless money, Japan brought the U.S. false prosperity. Prosperity that was based on ever-increasing debt, not on increasing production.

Normally, when a country maintains a huge trade deficit -like the U.S. -market forces drive their currency lower. Prices then rise, and cut off consumer demand. Interest rates go up, slowing the economy.

Japan could not let the U.S. economy slow down. So their government immediately bought back all the surplus dollars that Japanese trading companies were accumulating. Then they took those dollars and bought U.S. government securities. That kept the yen lower, the dollar higher. In this way they kept increasing the trade imbalance, and U.S. debt.

This also solved Japan’s next problem. U.S. consumer spending is based on cheap, easy money. But the U.S. was running too-huge federal deficits. U.S. capital -that would go to the consumers, to let them keep buying Japanese exports -would have to go to finance the U.S. deficit. Japan could not afford to let that happen either. Buying all the U.S. government securities they could -at the lowest rate there is: 30-year notes -freed up U.S. domestic capital to keep consumers buying Japanese imports.

In essence, Japan kept their yen artificially low. They loaned the U.S. cheap money at artificially low interest rates to keep consumers buying their goods.

Prong Two: Japan GUARANTEED the big boys they would not lose on their stock investments

To maintain the huge increasing flow of money to loan the U.S. and the domestic market, Japan had to keep inflating the value of its assets. Their stock market had taken a major downturn. They had to stop that plunge and make it reverse.

Japan needed to attract investors to their beleaguered stock market, and shore up the brokerage firms. They did this in a simple way. Japanese brokerage firms guaranteed big players they would suffer no losses.

Brokerages would guarantee any money the big boys lost. The Japanese government backed the brokerages, with multibillion dollar loan guarantees. This enticed big players back into the stock market. It immediately reversed the market, bringing it off its lows, and provided much-needed stability.

Otherwise the Japanese stock market would have collapsed even further. With lower stock values, Japanese companies could not have borrowed the money they needed to keep the game going. By guaranteeing no losses, they were able to stop the stock market slide.

In addition, the Japanese subsidized their stock markets and corporations. They allowed them to use the value of their stocks as a source of capital.

Here’s how. Company A would give a massive amount of stock from its treasury to Company B. Company B would give a massive amount of its stock to Company A. Each company would then go to their banks, and borrow against the stock they held in the other company.

This technique gave them many billions more to play with. Also, Japanese corporations were benefiting from the inflated value of their corporate real estate, factories and capital assets. Once the stock market slide stopped, they also gained from artificially high stock prices.

In essence, Japan desperately needed capital to loan their customers. Otherwise, they could not sell their goods. They could not tolerate the stock market falling any further: it would erase to much money. So they created a scheme that stopped the stock market slide; and let their corporations capitalize on artificially high stock prices.

Same thing with Japan’s banks. They let ridiculously high prices be put on real estate. With government’s approval, they then made absurdly high loans, on the artificial value of that real estate. That pumped vast amounts of capital into the system.

The Japanese real estate bubble is starting to pop. Trillions of dollars were created out of thin air, by putting artificially high values on real estate, and borrowing against those valuations. It will all disappear.

Prong Three was the most clever of all: free money

Prong one made Japan the most prosperous nation on earth. They grew rich flooding the world with cheap exports. They loaned their biggest customers the money they needed to keep buying.

Prong two let them create a huge stock and bank industry, by guaranteeing no losses in the stock market. They let the banks value real estate at 10-to-100 times more than its real value.

But still that was not enough. So as a desperate last resort, the Japanese offered their biggest banks, corporations and brokerage firms the choicest plum of all: free money.

Japan took a page out of the U.S. S&L debacle. They gave their biggest institutions money at 0% real interest. The institutions were free to borrow against the grossly inflated value of their assets.

The Japanese thought their corporations would make so much profit, they would dominate the world economic system.

They thought they would catch up on their mounting, hidden losses. And they damn near got it done. Japan's economy was energized. Their banks, brokerage firms and manufacturing companies became the biggest in the world. They had free money to invest any way they chose. They had a subsidized export market; cheap yen; a stock market with no guaranteed losses; and free money for Japanese mega-companies from the Treasury.

You may recall those days. Japanese industrialists were running around the world. They were snapping up land, factories, ships, prestigious real estate such as the Rockefeller Center and Pebble Beach Golf Club.

The Japanese investor had one hallmark. He paid ridiculously absurd prices. The secret was, he didn't care The Japanese government was giving him free money to make his purchases. Then, if he went broke, the government would cover his losses. He was too big to let fail. And for a long time that's how it worked.

Japan was rocking and rolling. They grew their banks, corporations and brokerage firms into the biggest on earth. (For example, all ten of the world's largest banks are Japanese.) Pretty heady stuff. You have to wonder how anyone could lose money with vast price subsidies on exports, unlimited money loaned to your customer to buy your products, unlimited capital for your business, guaranteed profits on stock market investments, and the ability to borrow as much free money as you wanted at 0 interest.

Everything goes well in a scheme like this, until the Japanese have a domestic crisis and need money at home. Like right now. Then they must repatriate their capital. They must bring all their money home. The Yen soars, the dollar tanks, and global interest rates shoot to the moon.

Finally, the day of reckoning has arrived. Here comes the Grim Reaper. The schemes and projects failed They are now all under water. The money is gone. From Malaysia to Korea, Asia is broke. The next great depression is already underway.

Korea and all through Asia, currencies and stock markets have crashed. They are crashing further by the week. Factories are closing. Executives are committing suicide. Millions and millions are losing their jobs. Food, gold and energy prices are soaring to the moon.

The Asians are exporting deflation to the U.S., by sending them cheap goods. They are importing massive inflation: as their currencies fall their oil and other import bills soars. They are importing huge inflation and massive defaults.

Korea's biggest creditor is Japan. Japan is booking massive losses, as the Koreans default wholesale. This is really bad news for Japan, and even worse news for the U.S.

America is the world’s biggest debtor. It's critical right now that you understand this key point: for America to survive with anything close to the comforts and amenities she has grown accustomed to, the world must keep on loaning the U.S. vast amounts of money. They must supply her with vast amounts of cheap imports. And that’s the key problem.

The world has run out of capital. The huge amount of money Japan loaned Asia has vanished. Global liquidity is vaporizing. Their last pool of desperately needed cash is the stash of a trillion dollars in U.S. government debt the Asians -namely Japan -hold.

Right now a Korean default seems imminent. That could cause Japan to default. In a global chain reaction, one default leads to another.

Please understand, you are not being told how big this global liquidity crisis really is. Asia already is having a 1929 style crash and depression. Businesses are closing. Millions are out of work. Markets have crashed 50% and more. Runs are taking place on banks, and bread lines are forming.

Japan is allocating 20 trillion yen -about $155 billion -to shore up their bank deposit insurance. That's a drop in the bucket: their losses are in the trillions of dollars. And Standard & Poor’s just lowered the debt rating of Sanwa and Sekura -two of Japan's biggest financial companies.

Anyone who thinks the U.S. -the biggest debtor nation of all -can somehow avoid all this is crazy. Anyone who believes Japan will wipe out its own economy by not cashing in its U.S. government securities so America can maintain her bubble market and economy is crazy.

The Japanese are not going to let their economy crumble. The world is in a liquidity crisis. Japan will have no choice but to repatriate their money, to prop up their economy. The U.S. chalked up its vast debt buying plastic and chrome toys. The Japanese wracked up their debt creating the mightiest manufacturing society on earth. When this is over and done with, the U.S. will be the biggest loser of all.

How did all this happen?

The roots of this crisis lie in the 1987 stock market crash. At that time, many institutions should have been allowed to fail.

U.S. real estate and stock markets were grossly overvalued. Government should have let the stock market collapse, go down and stay down.

They should have let real estate markets and the savings and loans collapse. They should have let U.S. banks take the losses on bad third-world debt. Government should have balanced its budget and stopped deficit spending.

But government did not want to take its lumps. Politically, that was not expedient. They were persuaded to regard the banks and brokers as “too large to let fail.” Wall Street played the key role in this.

Japan was collapsing at the same time. Japan, America and the world central bankers became convinced that their institutions were too big to fail. That's when the Japanese government went into the three-pronged attack we described above.

They held the yen artificially low, and let banks keep the artificially high real estate values on their books. They subsidized the stock market, not letting it collapse any further. They gave their big institutions free money.

The U.S. government did much the same. They covered foreign losses with the Brady plan. They covered real estate losses with the S&L bailout. They bailed out Wall Street after the 1987 crash, supplying hundreds of billions of dollars to the nation's broke brokerage firms. This made possible the bubble rally you see now. They bailed out America's largest banks and the big investment banks in the Mexico debacle.

The U.S. got a one trillion dollar loan from Japan to finance her deficits, at practically no interest. This brought on the easy-money consumer boom. Everyone walked away from the table happy. But Japan and the U.S. were building very huge, dangerous excesses. They were not dealing with those excesses. To make matters worse, they created even bigger bubble markets, all founded in debt and falsely inflated asset values.

Always remember when you are analyzing the impact of the Asian collapse, that the world's biggest debtor is the U.S. We haven't heard much from it yet in this crisis.

The Japanese loaned the U.S. a trillion dollars by 1) subsidizing their GDP with exports to the U.S.; 2) holding their currency artificially low; and 3) recycling their balance of trade surplus into U.S. government securities.

To keep the whole Ponzi scheme going, they loaned vast amounts of capital to the whole world. The U.S. was the significant beneficiary of all this. But this newfound prosperity was not based on better productivity or new technology. It was based on a global Ponzi scheme.

And now the Ponzi scheme is coming unglued. Japanese loans to all the Asian tigers have gone bad. Those institutions and nations have failed or are failing, creating a spreading financial domino effect. And those failures are now collapsing Japanese institutions. Japan must not only stop loaning more money to the U.S., they must now withdraw the capital they have already given.

It's the only way they can save their domestic economy.

You're seeing some of the results now. The U.S. stock market had 15 years of the greatest bull market ever. Small cap stocks peaked in April of 1998 and on August 4th 1998 according to "Dow Theory" a bear market began for the entire market. When the market just gets a whiff of how severe this Asian crisis really is, it will trigger the worst collapses in U.S. history.

Wall Street knew about Asia's crisis.
Why didn’t they warn you?

What makes this whole mess sicker is that Wall Street knew what was going on. You see, Asia's problems were common knowledge. Wall Street knew that nearly every Asian bank, brokerage firm and conglomerate is sitting on vast losses. Bad real estate deals, overvalued stocks and cheesy investments were the norm, not the exception.

Yet the boys with the real local knowledge went ahead and pushed these investments on the American public anyway. They sold out their customers. They knew the theater was on fire. They sent their customers marshmallows, urging them to keep watching the show. They escaped out the back door, as they left their investors behind to burn.

They knew what was happening in Asia. And they know what’s about to happen in the U.S. Wall Street again is throwing their customers to the wolves. They refuse to warn their investors about the disaster waiting right around the comer.

In fact it's worse. They are unloading investments on their customers they know will soon be worthless. Why do you think they are pushing U.S. government bonds? Because U.S. interest rates are about to shoot to the moon, just like they are in Asia. When Japan starts repatriating its capital (real soon now) 30 year bonds will take a huge hit. That’s why Wall Street now wants the public to buy.

Just last year Wall Street was hawking global stock funds. Now you don’t see those ads any more. Where is Martin Moebius pushing the great Asian opportunities? Where is the advice to buy Asian funds? You mean to tell me they did not see this Asian crisis? I wonder what else they happened to miss, and forgot to tell you about.

I want you to think about this. The biggest global wipeout of our lifetime is occurring. Not only did Wall Street not warn people to get out. They committed billions of their investor dollars, to Asian markets that were on the verge of collapse. This drove these markets to their record highs in August 1997. Since then these very same markets have lost half their value and more. Someone has taken a hell of a beating. What else is about to happen that Wall Street is forgetting to tell you?

The saddest part of all:

How America’s press has sold out the American people

America's traditional press is in a unique position. Their constitutional rights give them the power to act as the watchdog of the financial system. That should be a sacred trust. But the press has become contaminated.

The vast bulk of their financial support comes from the very companies they are supposed to be objectively reporting on. They no longer point out the grave problems facing the global financial system. Instead, they mitigate them. They paper them over.

The mainstream press has become just another branch of Wall Street’s marketing arm. This marketing has created the greatest financial rip-off in history.

Publications like Barron's, Forbes, Money, the Wall Street Journal are little more than 100% advertising copy for the Wall Street p.r. machine. Same with TV shows like Wall Street Week and CNBC. They have a strong vested interest in the success of their advertiser. They have become Wall Street's biggest cheerleaders.

Any negative story is immediately played down. Soon it gets dismissed altogether. To not stand up and proclaim the crises on Wall Street is an astonishing dereliction of duty.

Bottom line, as we speak, trillions of dollars are being lost in Asia, Russia and now America. Company after company is going bankrupt. The biggest financial collapse the world has ever seen is occurring.

While the media is paying lip service to the world crisis, they are way underreporting how bad things really are. They constantly spin as though the crisis will soon be reversed by every little bailout. Truth is, the crisis is getting worse and worse. Bailouts are only giving the crashing markets a few days' pause.

I find it appalling you aren't being told the truth of how serious the world crisis is. You get no mention of the countless millions of people getting wiped out.

Most important, the traditional media are not telling you how dangerous this crisis is for the U.S. No one is telling you the true significance of the on going financial crisis in the world.

Folks, this problem is serious. $50 billion or even $150 billion in handouts doesn't come close to addressing the problems.

Bailouts are only for billionaires

As you hear all these stories about billion-dollar bailouts from the IMF, central banks and the World Bank, remember one key point. That aid never goes to help the economies in trouble. The money goes to billionaire buddies, who are in deep financial trouble.

This happened in the Mexican bailouts. (All of them. In the last two decades Mexico has gotten four bailouts. None of them went to the country itself. They saved the butts of the Wall Street cronies who created the problem in the first place.)

This same billionaire-bailout is happening now in Asia, Russia and South America. It has happened in every big collapse and aid program.

The reason for all these bailouts is simple. Wall Street had unprecedented success selling stock in public companies. This enormous infusion of cash created vast bubble markets around the world. From Tokyo and Korea to Mexico and the U.S. corporate stock values got inflated to bizarre levels. Companies traded for many times more than their earnings, assets or future prospects could justify. Huge numbers of paper billionaires were created.

But this paper prosperity came at a terrible price. All around the world, markets peddled just one way to form capital: by selling the stock of public companies. Problem is, capital formation through stock markets has inherent flaws. They inevitably create bubble stock markets.

As you’re seeing, stock markets are allowed to run wild. They create catastrophes that wipe out whole economies. Wall Street's massive excesses are now causing the global depression.

This has some very frightening implications. For example, the Chinese have the fastest-growing economy on earth.

Obviously, China does not use a capitalistic system. They have no interest in democracy. The Chinese are licking their chops as they watch their Asian competitors (and I might add enemies) get wiped out wholesale.

How you can make money from the spreading world crisis? Within a year the Dow will be under 4000. Stock market mutual funds have seen their biggest redemption's in years. The public is finally tired of getting burned.

Fidelity is the nation's biggest mutual fund group, by far. They used to announce the amount of cash that flowed in or out of their funds each day. Until recently, they were getting massive inflows of money. So Fidelity used these massive inflows as an advertising tool. This made the stampede even bigger.

Now those flows are reversing: money is flowing out. Fidelity is afraid of panicking more people out of the market. They have changed their decades-long policy. They no longer report the cash status of their mutual funds.

The most critical thing you can do is understand the implications the World crisis will have. Wall Street, government and the financial press have only one choice. That is to diminish to you in every way possible the severity of the World crisis.

But IMF and government loans are doing absolutely nothing except getting a headline. Standard & Poor's has now declared Korean banks in default. This is the largest default that's ever occurred. It has fatal implications for the U.S. Yet you might notice, the traditional media has hardly reported it.

There’s only one thing Asia can do: revitalize their export machine. Problem is, who is going to be the winner: Japan, Korea, China? They now have all become fierce competitors.

China, through Hong Kong, holds Asia in the balance. How the Chinese react is critical. Forget all the hyperbole about opening up their markets, and liberalizing their financial systems. Do you really think there are any worries in Beijing over Korea's problems? Not hardly. China like a hungry wolf is looking to pounce on its wounded prey.

The huge U.S. stock market rally was based on the great Japanese subsidy, plus well-planned and well-timed government bailouts. You may recall how, for a long time, Wall Street justified the gross overvaluations in the U.S. stock market: by the great business opportunities Asia offered. No one is even pretending that's possible now. Now they have another problem.

Lower currency values are giving desperate Asian manufacturers an even greater export subsidy. They have a greater incentive than ever to dump as much as they can on the only consumer market left standing for them: the U.S. This puts American corporations in deep trouble. They are losing global market share to a global market slump. This is a formula for another U.S. market disaster, and it is now in progress.

U.S. companies will do less and less business in Asia. U.S. companies will get their butts handed to them in the U.S. domestic markets. You will hear howls of protectionism arise from the hinterlands, as U.S. trade deficits soar ever-higher.

The Asian invasion will hit America like a sledge hammer between the eyes. These guys are not playing. They need money, lots of it, and fast. So does Russia, South America..... It is spreading like a disease.

Already, U.S. corporate profits are starting to fall. And now the market is starting to suffer another crisis: a world liquidity crunch. In other words, there is no money. The competition for what little money does exist is fierce.

Markets run on capital, and lots of it. Wall Street will not be able to pretend it's “good times,” when future earnings reports show the disaster U.S. companies are in.

Of course there will be rally-backs, as we’ve seen. But on balance, the U.S. stock market is well off its highs. Stock markets around the world are collapsing 50%, 70% and more. Market after market is starting to price in the growing seriousness of the spreading world crisis.

Wall Street wants you to believe refugees from the world collapses will come into the U.S. market. What a joke. What makes you think there are any refugees, who are getting out with any money to begin with?

Remember that people play the markets with excess cash. Kind of hard to do if they don't have any excess cash, trying to forestall their corporate bankruptcies.

That's what's happened. Korea's stock market hit its high in August 1997: since then it has lost 75% of its value. The Japanese market is trading at its lowest price in over five years. Singapore, Hong Kong, Malaysia, Indonesia and the Philippines stock markets all put in their highs together: now they have lost over half their value. Now too, the Latin American and U.S. stock markets has joined them.

The parallels between 1998 and 1929 are astonishing. Just like in 1929, the global stock market crash has started, but the markets are in denial. Do not underestimate the seriousness of this crisis. It’s here and it's happening. Believe me, if the players could have avoided this, they would have.

If you haven't gotten out of stocks and stock funds, DO SO AT ONCE. No exceptions. The U.S. stock market has now lost money since the April high in 1998. This year it will suffer its biggest loss of all time. Every stock, every fund will get demolished. Just like in the 1930's bear market, you will lose 90% of your wealth.

World crisis will crush the dollar!

It’s critical that you understand the world crisis is a money crisis. A credit crisis. There is not enough money to pay back multi-trillion dollar debts that have gone bad.

The world economies leveraged their growth by borrowing vast amounts of money. More significantly, they loaned their biggest customers the money to buy their goods. As pointed out in this issue, Japan, Korea and China got in a bidding war. They wanted to keep their currencies as cheap as possible. A cheap currency meant low, low prices for their exports.

There are several downsides to that. Much of the world’s debt is denominated in dollars. As their currencies continue to slide, the more expensive their debt becomes.

Second, the world is off the gold standard. There is no policing of the currency markets. The Asians were rowing against the current. The market mechanism that preserved the integrity of markets was not allowed to function. The U.S. racked up larger and larger and larger trade deficits. Asia built up record-breaking surpluses. The surplus currencies should have become more valuable, while the deficit currency lost value. Instead, the opposite happened.

In essence the Asians subsidized the dollar. As you’re now seeing, that was an extremely expensive undertaking. It took every trick in their books to finance the U.S. trade deficits, plus their own ever-growing economies. This is the key to the currency markets.

The dollar is grossly overvalued. The Asian currencies --especially China's, Korea's and Japan's --are artificially low. As the shakeout continues in Asia, Asian economies will have no choice. They will have to repatriate their surplus dollars, and convert them to their local currencies.

That conversion will depress the dollar. It will send the mounting trade deficits soaring. This double whammy will force an enormous flip-flop in the world currency markets.

The bottom line problem is that Asia can no longer afford to support the U.S. dollar or the U.S. deficits. That means the yen will sharply rise.

You might notice that Europe has stayed pretty much out of this game. Europe does not depend on Asian goods or capital as America does. Without a doubt, Europe's powerhouse is Germany. They are wealthy and productive. They have huge export markets. They are forcing unification of the European monetary system (in essence run by their central banks).

Germany’s central bank -the Bundesbank -has gone against almost every central bank in the world. They have consistently been raising interest rates. That makes the German mark the other outstanding currency play.

The core of Asia's problem is the enormous imbalances the huge U.S. trade deficit is causing. Contrary to Wall Street myth, American productivity growth has averaged only a bit over 1% per year. That's about the pace of the sluggish 70’s and 80’s. It is less than half the growth of the 50’s and 60’s.

4.6% unemployment means America is beyond full employment. Wages are now at their all-time highs. Productivity has had virtually no growth, and lags far, far behind wage growth.

The U.S. has been really successful at one thing. Convincing the rest of the world to finance her follies. The Asians have put a terrible strain on their economies. They have desperately tried to subsidize sales to the U.S. Sooner or later, no matter how many billions of dollars are wasted in the meantime, values must adjust to reflect economic realities.

The dollar is riding very high right now. It will quickly reverse. Using a high dollar now to buy low-priced currencies like the Japanese yen and German mark -is a good strategy. When the crash and depression come, these currencies will help you preserve your wealth. (Something no one else will be doing.)

Unfortunately, it’s not a great strategy. The dollar flip-flop will occur when the U.S. trade deficit and inflation soar. Until then, you will have to buckle down and watch as foreign currencies slide further into the abyss.

Asian exodus out of government bonds will send U.S. interest rates soaring. For now, U.S. interest rates are falling. But to suggest the U.S. bond market has any chance is absurd. Bond yields have dropped to almost 5%, at the very time the world is desperately looking for capital. Global interest rates are soaring. What’s more, the largest holders of U.S. government securities are the ones desperate for money.

Get ready for one of the greatest reversals ever. U.S. bond yields are going to rapidly jump to double digits. Japan will be unable to subsidize U.S. government debt. Robert Rubin's comments to the contrary, capital does not exist to cover a Japanese-led Asian exodus out of U.S. government securities.

And the markets will soon realize all this so-called “deflation” is really a depression. America will fall into an inflationary depression, exactly like what is occurring now throughout Asia.

Wall Street is pushing long-term U.S. government securities in earnest. This is the fool's play of the century. Japan has stated many times that they are perfectly willing to liquidate their U.S. government securities holdings. Investors better listen to them.

Interest rates are soaring in Korea, Malaysia, Indonesia all around the world now. They are starting to climb in Japan. And they will soar in the U.S. The complexion, price and direction of U.S. government bonds will change overnight.

Any discussion of lower interest rates is ridiculous. The Fed did not raise rates at its last two meetings for just one reason. They were extremely concerned about the Asian crisis. They even stated this.

Remember that the U.S. holds vastly more debt than any nation on earth. To assume the U.S. does not have to be extremely concerned about the debt crisis in some of the world's most prosperous economies is crazy.

Of course there is a crisis. Interest rates will rise in unison. The world really is one market. Especially when it comes to capital. This is a global liquidity crisis, a global financial crisis, and a global monetary crisis. There’s going to be a competition for money, the likes of which the world has never seen.

Precious metals will help you maintain your wealth after the crash and depression wipe out everyone else.

What a very interesting time in precious metals.

As the markets convince themselves there is a prolonged deflation (not a coming depression) gold will be hurt. Reality is, we are headed for an inflationary depression, like we're seeing in the rest of the world. Most every central bank in the world, especially the U.S., is going wild, printing more money.

Bunker Hunt and his group tried to corner the silver market in the late 1970's. They drove silver to $50 an ounce. One outcome was that over 100 million ounces of silver came out of the woodwork.

People sold coins, sterling, and family heirlooms, literally by the ton. Everyone rushed to cash in on the sky-high prices. This brought an explosion in aboveground supplies of silver placed in warehouses.

19 years later, that silver is finally coming out of the great depositories. Someone -actually a group of someone’s -has been quietly accumulating large amounts of silver. Silver climbed from the mid $4 range, to the lower $6 area. As you know, we recommended accumulating silver before the silver price launched upwards.

Look, forget the “disinflation” and “deflation” spin Wall Street is so fond of. World central banks are in serious trouble. They don't have the capital to cover the staggering, multi-trillion dollar losses. So they must and will print money, and a hell of a lot of it. That is inflationary.

U.S. Treasury has a real problem. Asian nations desperately need capital. Their one source is the large amount of U.S. government securities they hold. Treasury does not have close to enough money to cash out the Asians.

So very quietly, Treasury has been printing money to give to their Asian friends. U.S. money supply has been soaring at double digit rates. At some point, something’s got to give. Silver will soar.

Gold is just as interesting as silver. Gold is selling at less than its cost of production. Mines are going broke and shutting down, left and right. One day you will wake up, and the market will realize that global inflation is taking off. Just like silver, gold will soar.

Anytime you can buy something under its cost of production, I regard that as a bargain. When in addition all the fundamentals scream out that prices must soon soar --when you catch everyone sleeping --that's an even better buy. Precious metals are just at that point.

Of course there will be a time lag. They must first deny they are printing money, all the way to the presses. But higher inflation and higher metals prices are a certainty. That is why I recommend you maintain 20% or more of your wealth in gold.

At the same time, the dollar will be worth only about one-fourth as much against other currencies. Soaring inflation will lower the value of money even further. Metals will help you stay even. They will help you maintain your wealth, while the crash and depression are decimating everyone else.

Your broker, banker, fund and government will not warn you of a global collapse -till it’s too late.

Any way you analyze the options, the results are the same. If they print money, the result is the same. If they close the broke financial institutions, the result is the same. If they loan even more money to keep things afloat, the end result is still the same: A global financial collapse.

It is critical that you understand what you are seeing. At no time in history has a government ever warned its people of a coming financial collapse. At no time has the banking industry, the Wall Street establishment, or the co-opted press ever warned you that the financial system was about to collapse.

Not your banker, not your broker, not your fund manager, not your favorite financial publication, not your favorite TV commentator will warn you. They can’t. Even if they wanted to, they couldn’t.

****IMPORTANT POSTSCRIPT****

Korea has defaulted. Their debts are due, and they can’t pay them. They bought extra time by putting on a debt moratorium. But that doesn't change the fact that they defaulted.

Indonesia is past default. Hong Kong’s largest bank/investment entity has gone broke. Japan just announced its banks have over $600 billion in losses. The real number is at least twice that amount. Russia and South America are in collapse.

These are not events that happen in a strong global economy “soaring on the new paradigm.” Obviously, something is very wrong out there. Despite the infusion of billions of dollars, things are getting worse, not better.

Interest rates are skyrocketing in Asia. Central banks are increasing rates time and time again. Short-term money in Korea is 25% -when you can find it.

Massive inflation is hitting the region. At the same time, they are losing their jobs and their wealth.

Energy prices as denominated in dollars have dropped to dangerously low prices globally. Why? Because the depression has drastically lowered world demand for oil. The world is awash with gasoline, heating oil and crude oil. Gas prices have dropped over a dime -about 15% in just six weeks. Heating oil has gone from over $.62 to under $.48 a gallon.

Right now, exports from Asia are soaring 30%, and more. And Asia is dropping prices even further.

Before you break out the champagne to celebrate the lower prices, remember one thing. To buy these lower-priced items, you must have money. During the Great Depression, prices dropped. No one could buy, because no one had money.

Asia is falling apart. They are in a depression. An inflation depression. Asian companies are desperate for cash. In the very short term they are going to dump whatever they can in the U.S. That’s just for immediate cash right now, to try and stay alive. They will immediately need more cash to buy materials for their next run of production. Two critical problems: the prices of those materials have skyrocketed, and the companies have no money.

The billions they are getting in loans only covers payments due on current and past debts. It does not cover the money they need to keep operating. The capital does not exist. The world is straining to loan them enough to make a few interest payments on past debts.

Asia has only one option: to grab the trillion plus dollars they hold in U.S. government securities. When that happens, there will be a credit/capital crisis in the U.S., like you've never seen.

No one really knows how big this crisis is. The players aren't going to tell you. But you're seeing 30%-to 50% increases in Asian exports and trade surpluses, almost overnight. You're seeing oil prices in Asia soar (due to their crashing currencies).

Now couple all that with the large corporations that are going broke; the huge increases in unemployment; the skyrocketing interest rates; the collapsing stock and bond markets there. It's pretty easy to see a huge, huge event is occurring.