Gold closed at 542.20 dollars an ounce on Friday, up 4.3% (and more than 7% for the past two weeks) from $519.70 at the end of the week before. The dollar closed at 0.8239 euros on Friday, down 2.4% from 0.8440 the week before. That puts the euro at 1.2137, compared to 1.1849 at the previous Friday's close. Gold in euros would be 446.73 euros an ounce, up 1.9% from the previous week's 438.60. Oil closed at 64.31 dollars a barrel on Friday, up 5.4% from $61.04 the week before. Oil in euros would be 52.99 euros a barrel, up 3.0% from 51.43 for the week. The gold/oil ratio was 8.43 down 1.0% from 8.51 the week before. In the U.S. stock market, the Dow closed at 10,959.31, up 2.3% from 10,717.50 the week before (down when denominated in gold and oil, though). The NASDAQ closed at 2,305.62 on Friday, up 4.5% from 2,205.32 at the previous week's close. The yield on the ten-year U.S. Treasury note was 4.37%, down two basis points from 4.39 the week before.

Another odd week where the Mainstream Media in the U.S. are trying to push their rosy economic scenario while gold and oil are up sharply, and the U.S. seems to be careening from two disastrous and expensive military defeats while planning several more. Iran, Syria, Venezuela, Cuba? Which will it be? And it is doing this planning with a major constitutional crisis looming (that is, if there is any constitution left to have a crisis).

Speaking of Iraq, lost in the bad news for the U.S. on the battlefield was the news that the International Monetary Fund's prescription for Iraq is working like a charm in producing the classic "IMF Riot":
IMF Occupies Iraq, Riots Follow

By Matthew Rothschild
The Progressive
Tuesday 03 January 2006

Bad enough that the US military is occupying Iraq.

Now the IMF is occupying the country.

In December, the International Monetary Fund, in exchange for giving a loan of $685 million to the Iraqi government, insisted that the Iraqis lift subsidies on the price of oil and open the economy to more private investment.

As the IMF said in a press release of December 23, the Iraqi government must be committed to "controlling the wage and pensions bill, reducing subsidies on petroleum products, and expanding the participation of the private sector in the domestic market for petroleum products."

The impact of the IMF extortion was swift and brutal.

"Since the Dec. 15 parliamentary election, fuel prices have increased five-fold, mostly because the outgoing government of Prime Minister Ibrahim Jafari has cut subsidies as part of a debt-forgiveness deal it signed with the International Monetary Fund," the Los Angeles Times reported on December 28.

"The move has shocked Iraqis long accustomed to hefty subsidies of gasoline, kerosene, cooking gas, and other fuels."

Iraqis are getting a nasty taste of the IMF's medicine. "Over the summer, gas was selling for about five cents a gallon," the LA Times noted. "Now it's about 65 cents, and at the end of the price increases, gasoline will cost about the same in Iraq as it does in other countries in the Persian Gulf, about $1 per gallon. The prices of kerosene, diesel, and cooking gas have seen similar or steeper increases." The price of public transportation has also gone up significantly.

Not surprisingly, these enormous price hikes have led to riots around the country, with police firing on 3,000 protesters in Nassiryeh, according to an account on Daily Kos, Iraq's oil minister quit to protest the government's capitulation to the IMF. According to Daily Kos, Oil Minister Ibrahim Bahr al-Uloum asked, "Is this how we repay the Iraq citizens who risked their lives to participate in the elections, by raising fuel prices in this way?"

The indestructible Ahmad Chalabi, a longtime favorite of Donald Rumsfeld and Dick Cheney, replaced al-Uloum.

The Bush Administration is four-square behind the IMF deal.

"This arrangement will underpin economic stability and help lay the foundation for an open and prosperous economy in Iraq," said US Treasury Secretary John Snow.

What it is actually underpinning is economic instability. "It's crazy, socially and politically," Robert Mabro, former chairman of the Oxford Institute of Energy Studies, told the LA Times.

Even the Pentagon's "National Strategy for Victory in Iraq" recognized the need for "balancing the need for economic reform - particularly of bloated fuel and food subsidies - with political realities."

But "political realities" on the ground - such as inciting riots and increasing discontent - don't appear to concern Bush.

For the Bush Administration, the endorsement of the IMF price increase represents a schizophrenia that's almost clinical.

Bush is desperate to rescue his floundering Iraq policy, and yet backing the IMF plan is like throwing a drowning patient both ends of a lifeline.

The Iraqi people are sick and tired of the US occupation already, to put it mildly.

Now that they are seeing their standard of living plummet, thanks to the IMF, they are going to be even more irate at the United States, which they know controls the IMF.

Caught between deciding whether to try to win hearts and minds or whether to cling to free market fantasies, Bush has once again chosen to live in fantasyland.
Again, no shortage of storm clouds on the horizon, but those of us who have been predicting a collapse in 2005 have had to explain why one didn't happen. In some ways predicting the timing of a crash is even more difficult than predicting the exact timing of an earthquake. As with an earthquake, we can observe and measure the buildup of pressures at fault lines, and so forth, but we do not know exactly which event will release the pressure. There are, however, many potential triggers to choose from, both endogenous (coming from within the economic system) and exogenous (from outside the system). Unlike with earthquakes (we hope), with the economy we have the added complexity that many of the most markets are fixed, for all practical purposes. That being the case, the timing of a crash - a fact of great value financially to whoever knows this in advance - becomes even less linear and predictable.

For those of us who did predict a crash in 2005 and are predicting one in 2006, the fact that it has not yet happened is no cause for joy, since those of us who believe that reality cannot be ignored forever, or, to put it more accurately, that reality won't ignore us forever, believe that the longer the "rebalancing," as some put it delicately, is postponed the worse it will be.

Leaving aside the deluded position that all is well with the U.S. economy, there seem to be two opinions as to what will happen: a gradual crash or a sudden crash. Ran Prieur posted a good summary of the gradual scenario for 2006 on his web site:
January 5. Predictions for 2006 ...

Tensions will increase between China and Taiwan, Russia and Europe, Israel and its neighbors, and the USA and everyone, especially Latin America, but I don't see any big wars this year. The Bush gang will continue to make threats and spread rumors about attacking Iran, but I'll be shocked if they do it. Also, there's no way they'll pull out of Iraq.

Meanwhile, Republicans and Neocons will endure more and bigger scandals, which will not affect their ability to keep passing laws to strengthen the central control of corporations and the federal government. Democrats will make gains in and only in states with paper trail voting, and the dominant media will continue to ignore that issue.

Housing prices will fall, more Americans will slide into permanent debt, and the price of almost everything will rise, but the effects on daily life will be subtle -- boarded up neighborhoods here and there, and more people living with friends and family. I don't know how they're doing it, but somehow they'll keep airline prices cheap, and traffic will not get noticeably better. Gas prices could go above $3 a gallon, but will not hit $3.50.

As in recent years:
  • Something big will happen that nobody guessed, and then they'll look closer and see that someone did guess it.
  • Global warming will manifest locally as extreme and unusual weather, including extreme cold.
  • Some big disease will make a lot of headlines and motivate more laws to strengthen central control, but 99.99% of humans will not die from it.
  • Some disaster will lead people to learn to get along with each other and be more autonomous, until they are crushed by the military, and the dominant media will report it as horrifying "chaos" made "peaceful."
In general, I see 2006 as a year of words, not action, the year the TV starts talking about the stuff that's been happening all along as if it's new -- a little year disguised as a big year.
We should be so lucky. Prieur's analysis to too linear, I think. The "balance" of recent years (between inflation and deflation, for example, or between the deficits of the U.S. government and the lending of asian governments) has been increasingly unstable, since the balance is achieved by balancing extreme opposing forces, like an arm wrestling match or a tug of war that ends with a rapid unbalancing. More likely, then, to my mind, is the scenario summarized by a QFG member:
Yes it could get pretty ugly. Governments will topple, I would be surprised to see the US survive in any recognizable form. Most people would have no incentive to go to work since the only pay would be worthless paper money. A lot of confusion much like the aftermath we saw in New Orleans would become commonplace.

It's hard to imagine how they could manage to enforce any property rights; everyone would be defaulting on their mortgages and credit cards. They could use martial law to try and suppress violence but are there really enough soldiers to evict virtually everyone out of their homes? Can we really have millions of people roaming around homeless while millions of homes sit vacant? It doesn't make sense.

There is probably more to this picture we are missing and no doubt the PTB have some plan for the masses based on wishful thinking. I hope I am wrong, we'll have to wait and see, meanwhile I'm looking to get a hold of some organic seeds and get serious about a kitchen garden.
There are two scenarios of collapse: one with decentralized anarchy with no centrally-maintained rule of law and one with autocratic control, complete with labor camps, rationing and the like. Judging from their behavior and from the passage of Patriot Act legislation, it seems that the PTB, the powers that be, having milked most all the wealth out of the majority of us for the past three decades, are putting measures in place to be able to control the post-collapse environment with the rule of law in an iron-fisted autocracy. Al Martin explains the milking this way:
The year 2005 has been another stellar year for the top 20% of the United States of America. It can also be reported that the goal, or the "magic number" has finally been reached. That number relates to what George Bush Senior said in 1992 – the goal of having the top 1% of the nation controlling 70% of all the private wealth in the nation... Bushonomics should be lauded for accomplishing its agenda.

...The original Reagan-Bush Regime started the mechanism of wealth transfer through disproportionate tax cuts. The Bush-Cheney Regime increased the tempo by making tax cuts as disproportionate as they have ever been in the history of taxation in the United States. As such, all Bushonian tax cuts, individual so as to separate them from corporate, proffered under the Bush-Cheney Regime, including the most recent 70 billion, 68% (or more than 2/3rds) of the economic value of those tax cuts have inured to citizens earning more than $250,000 per annum, or with a net worth exceeding $5 million.

...Furthermore, under this regime, of course, the Federal Reserve has cooperated marvelously (there is no other way to put it) by maintaining, and still maintaining, despite 13 Fed rate increases, what is known as an easy-money policy, which allows plenty of liquidity in the system, so that asset values rise, even though the demand, or the number of people being able to afford an appreciating asset is declining. The value of the assets, nonetheless, can continue to rise even though the number of people who can afford to purchase them can fall.

The reason why that can happen is that the ability to finance the purchase of the item has been made easier.

...Essentially the same theorem works with almost any tangible item of value. It could be securities, debt instruments, commodities, or real estate. However this is due to the combination of disproportionate tax cuts combined with an easy-money policy -- the maintenance of an easy or liquid money policy combined with exceptionally low interest rates relative to the underlying rate of inflation, i.e., exceptionally low real interest rates or interest rates minus inflation.

This is what Bushonomics I under Bush Senior started to do in 1988. This was a very similar type of period. When they saw the end of the asset boom coming, they began to squeeze the lower 80% even harder by fostering even more disproportionate tax cuts and more restrictive bankruptcy laws. This having been done in 1988 was also done again in 2005.

To further facilitate the transfer of wealth, the Bush-Cheney Regime, as of October 17, 2005, had the bankruptcy laws changed, which the banking industry had been repeatedly asking for. In return the banks were forced to give nothing back.
War spending, particularly with all the outsourcing to private contractors the Pentagon has done recently, provides excellent opportunites for upward wealth transfers.

As wealth was transferred upwards, wages fell for those who have to work for a living. Politically this can be a problem, since Bushonomics could never sell itself based on what it really is, a way to loot the public treasury for the benefit of a gang-like super-elite. Instead, the Bush regime has been able to stay in power by maintaining a base of around 30-40% of the voters, those with fascist sympathies, to keep them within vote-stealing distance of 50%. Martin again:
As of December 2005, year over year, real wages (wages net of inflation) have been absolutely zero. In other words, zero-percent growth rate in wages over the past 12 months. The regime has done a remarkable job in keeping down wage growth, wherein, now, over the past 5 years, real aggregate, 5-year real wage growth, is now a minus number.

And that's a remarkable job for a regime to stay in power and be able to do that: to diminish wages of the bottom 50%, to increase the net aggregate tax burden of the bottom 50%.

That can be explained by understanding that Bushonian regimes have always been kept in power by the continuous creation of foreign diversions, like wars.

It should be noted that American author Sinclair Lewis said that fascism would come to the United States wrapped in a flag and carrying a cross. And isn't that what we've seen under this regime? As George Bush Sr. used to say -- We should thank God for our flag. Oh, how many Bushonian sins it hides!

...They have taken voters that constitute about 30% of the nation, which we call the Fippies, Nifwics and Rens. To explain that again, the Fippies are the fear, ignorance and prejudice brigades. And their erstwhile cousins, the Nifwics, are the naive flag-waving crowd, supported by their chums, the Rens, right-wing religious nuts. They're about 30% of the vote.

The Republican Party has formulated control over this new little bloc by using the flag. That's how they were able to get the PATRIOT Acts passed despite the fact it is within this working class that Republicans have suffered because of Bushonomics. However, the regime is able to maintain the line: "We are at war. We must expect sacrifices." There is still a third of the population, the flag-wavers, that are prepared to accept that.

Combined with the Rens, the right-wing religious nuts, which, nationally, can deliver perhaps, maybe 6 to 8% of the vote and you add onto that the traditional corporate vote combined with the top 20%, which is what I would call the Republican money vote, whose ranks have swelled under this regime, and you find out that what the regime is consistently able to deliver is between 50 and 53% of the vote. Forget the polls. I'm just saying what they can deliver in the voting booths.

It is after all a moot point that the Republicans run the voting machine companies. The conspiracy theorists like to say the Republicans run the voting machines and thus the voting process. That's true. That's a true conspiracy.

What I'm saying is they need that. They can actually only deliver in the voting booths 50 to 53%. And that's on a good day. They need the ability to control voting machines, to control the voting process, to be able to manipulate potentially up to 3% of the vote nationwide to ensure that they could maintain majority.

The politics of the nation have certainly changed under Bushonomics. The PATRIOT Acts have turned the Constitution on its head, turned it upside down, inside out, whatever words you want to use. Now what we have is a regime that, public support notwithstanding, doesn't have to really concern itself anymore with political opinion polls or even, or as Henry Kissinger once put it, "the inconvenience of a vote."

...Thus, armed with the power, the regime no longer has to be concerned about public opinion polls. You would note that, despite public opinion polls showing support for the regime at less than 40%, the regime has not caved in. The regime has not come to any compromise with the Democrats or moderate Republicans on any of its economic agenda. It claims that it will continue to prosecute war in Iraq forever, or until such time as it deems otherwise, despite the $100 billion per annum expenditure. It also maintains that it will continue to proffer tax cuts for the Republican Rich.
Such is the plan, perhaps, but wishful thinking is the Achilles heel of the power-hungry crowd. Maybe those who think they are in control of the process have less control than they think.

In any case, something has to give soon.