It looks as if Alan Greenspan has shown his true colors as he cleverly reversed his position regarding tax cuts. While Clinton was in office, Alan Greenspan was vehemently opposed to tax cuts and argued that the US had to pay off its debts first. This also happened to be Bill Clinton’s view on the matter.  Now Greenspan has a new boss with a different view. Well guess what, Greenspan’s changed his mind and now endorses tax cuts. He even went so far as to say that paying back its outstanding debt could be bad for the US, go figure. I think that Greenspan has shown us that he has no opinion. Like most successful bureaucrats he is just sucking up to his boss. And this is the man who is going to save the world?

The notion of an independent Federal Reserve Board is quaint. Alan Greenspan should have shattered that belief for those who still cling to it. I don’t think Greenspan had half as much to do with the booming US economy than what he took credit for. All he had to do was sit back and relax. It’s the currency woes of countries in South America, Mexico, South East Asia, the former Soviet Union and Europe that gave the US cheap capital.

George W. Bush took the reigns of a country in a precarious state and he knows that. He made it clear during the election campaign that he believed the US economy was slowing and the bubble was stretched to its limits. Will he continue the farce and face the risk of taking the blame when the aftermath digests the enviable US lifestyle, or will he let the market, and the economy, return to more sustainable levels and try and blame the Clinton Administration for allowing such excesses?

How fast perceptions change. Only a few months ago anyone who announced that the US was in recession would have been labeled insane and obviously someone who “didn’t get it”. That being the “New Era” of course. Well, now Wall Street, Alan Greenspan, our new President and even the popular media are all openly talking about the US economic slowdown. Greenspan, like his new boss, believe that tax cuts could help the US recover from a slowdown more rapidly but the Fed. Chairman does not believe tax cuts can prevent a slowdown, or a recession.

The problem is, none of this really matters. These tax cuts that are being proposed are based upon the assumption that the US Government is going to have huge surpluses to spend. But if the economy slows down, where are these surpluses going to come from? Federal tax receipts from both personal and corporate sources have essentially doubled during the past 10 years, but the surplus has only materialized since 1998. I don’t think it’s necessary to explain the correlation between tax receipts, the stock market and the economy, suffice it to say that a slowdown in the economy and a decline in the stock market will surely wipe out any surplus and greatly change the dynamics of both State and Federal Government finances. Neither Greenspan nor Clinton engineered the good times and neither Greenspan nor Bush can prevent the consequences of the mess that the US has gotten itself into.

For anyone who doesn’t think we are heading towards slower economic growth and a prolonged downturn in the stock market, consider today’s headlines in the Wall Street Journal: “Excluding the volatile transportation category, [durable goods] orders sank 1.4% [last month]. Georgia-Pacific missed already reduced earnings forecasts by a wide margin, hurt by higher fuel costs and falling demand for building products. Alaska Air Group reported a much wider loss than analysts expected... Gillette swung to a loss in the fourth quarter... Computer Learning Centers filed for Chapter 7 bankruptcy protection. Egghead.com said quarterly sales will miss expectations... JDS Uniphase tempered its growth forecasts for the current quarter and year, sending shares falling. Troubled Sunbeam received a warning from the New York Stock Exchange that it may de-list the appliance maker's shares because its much-battered stock fails to meet minimum standards. WorldCom is expected to lay off between 10% and 15% of its work force as part of a broader restructuring effort. Sony’s latest quarter net tumbled 23… Existing-home sales fell by 7.4% in December…SBC’s earnings fell 39%… Dow Jones reported a preliminary loss of 22 cents a share in the fourth quarter, down from per-share earnings of 85 cents in the year-earlier period.”

And that was only today’s news. Keep your eyes on the dollar; it is very unlikely that the US will be able to maintain the dollar at current levels given the direction of the economy. If the dollar drops, gold should rise. The risk/reward of owning gold related investments has seldom been more compelling than what it is today. I know I sleep well at night.