Continuation of forecasting excellence:

  The FUTURECASTS record of forecasting excellence certainly continues as the publication enters the second decade of the 21st century.
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Health care:

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  It's health care industry forecast is now shown to be particularly on the mark. FUTURECASTS has from its beginnings predicted that heavy and increasing government involvement will continue to make health care the most troublesome sector of our economy.
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  As predicted, in its "Economic Futurecast," the industry has inevitably become increasingly bureaucratized. It has increasingly been forced into a mass medicine mode where patients are dealt with as mere throughput. (See segment "9) Health Care Industry Problems will Worsen," Vol. 3, No. 1, 1/1/01 (from Vol. 1, No. 1, 8/1/98).) The probability of nationalization as a last resort was recognized in 20th Century Absurdities. (Vol. 3, No. 5, 5/1/01, at segment on "The conservative role.")

  "Our troubled health care system is probably heading for yet one more disastrous experiment with socialist and administrative decision making approaches."

  While success is not yet a certainty, Congress is now certainly striving mightily to make that probability a reality.
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Credit Crunch:

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  FUTURECASTS Credit Crunch forecasts have remained right on the mark. Warnings about the dangerous bubbles growing within the economy have been a constant theme since as early as October, 2002, and the increase in volatility as the business cycle became increasingly unstable has been a primary theme since the Near Futurecast of February 1, 2004.

  "The U.S. economy is heading for a period of increased volatility. Some of those 'bubble' factors that FUTURECASTS has been keeping an eye on these last six years will undoubtedly not survive the stresses of these next couple of turns in the business cycle."

  The upturn in stock and commodities markets were accurately forecast and explained in the Near Futurecast for 2009 on February 1, 2009.

  "In any event, now while the blood is still running on Wall Street and idiot talking heads on television are comparing this significant recession to the Great Depression, this would definitely be the time to buy. Investments in the broad index securities this February - diamonds, spiders and cubes - should all be showing significant profits by the end of 2010 - if the dollar holds up."

  The strength of the dollar - the key factor in the government's response to the Credit Crunch - has indeed been undermined - but not yet fatally.

  "Watch the dollar. As long as people run towards the dollar during a crisis, the U.S. government will have the strength to deal with that crisis."

The Fed is in fact tolerating double digit unemployment as we enter the election year of 2010 because even Ben Bernanke now acknowledges the limits of monetary manipulation.

  The dollar continues to surge higher during moments of international crisis, such as the recent Dubai default. Thus, the Fed retains significant capabilities in conducting monetary policy.
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  However, the dollar is definitely feeling its limitations. The Fed is in fact tolerating double digit unemployment as we enter the election year of 2010 because even Ben Bernanke now acknowledges the limits of monetary manipulation. More than a trillion dollars in monetary inflation and trillions in government deficits can no more than mitigate the economic contraction while the markets work through their fundamental problems with commercial space and housing inventories and mortgages. The government is frantically pumping hundreds of billions of dollars into the mortgage markets in its efforts to speed this process along, but is just kicking this can down the road as it re-inflates the housing and mortgage bubbles and loads the massive losses onto the taxpayers.
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  The markets have reduced the housing inventory overhang from a high of 12 months supply to less than 7 months, with considerably less in most states. Normal is about 4 months. It is this that is providing a basis for the beginning of recovery. Government policies were fundamental causes of the crisis and government has considerably mitigated the crisis, but it is the markets, not the government, that provide economic resiliency and promote recovery. 

  The Near Futurecast for 2009 on February 1, 2009 further advised:

  "With all that extra money sloshing around worldwide, it will not take much to again send oil and other commodity prices soaring. Timing, of course, is much more critical with commodities and everything will depend on how fast Bernanke begins to drain funds from the economy. If Bernanke is slow, gold will shine and the dollar will find itself in rapid decline."

  You can't ask for clearer calls than that! Indeed, with the Fed increasing the basic money supply by more than 100% in just a few months, the call on gold and the dollar for the last quarter of 2008 and the first quarter of 2009 was the economic forecasting slam dunk of all time.
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Inflation hedges are inherently bubbly and prone to collapse spectacularly whenever interest rates rise towards positive levels - on a price-adjusted  - “real” – basis.

  However, FUTURECASTS is no mere blind gold bug. It must be emphasized that investing in inflation hedges is not enough during periods of rapid monetary inflation. Inflation hedges are inherently bubbly and prone to collapse spectacularly whenever interest rates rise towards positive levels - on a price-adjusted  - “real” – basis.
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  While inflation hedges should prosper in real terms throughout an inflationary period, their returns in real terms may be disappointing over the length of the period, especially for investors who are slow to abandon them at the end of the inflation period. Inflation hedge investing thus requires as itchy a trigger finger as other forms of investing during such unstable periods, and is especially dangerous for those who get in when the excitement is highest or who invest in illiquid inflation hedges like real estate.
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Any economist, investment adviser, money manager or other authoritative talking head who did not advise the purchase of gold and other inflation hedges during the last quarter of 2008 and the first quarter of 2009 is revealed as totally incompetent.

  Any economist, investment adviser, money manager or other authoritative talking head who did not advise the purchase of gold and other inflation hedges during the last quarter of 2008 and the first quarter of 2009 is revealed as totally incompetent. Many of these incompetents are economists whose brains have been addled by Keynesian concepts. They hate gold because rapidly rising gold prices provide the earliest indication of the breakdown of Keynesian policies They will  determinedly ignore these indications until the breakdown involves high rates of price inflation - at which time they will seek to offload blame onto convenient scapegoats.
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  On the other hand, any advisor promoting investment in gold or other inflation hedges without providing warning about their bubbly nature is just a gold bug whose advice is dangerous.
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The limitations of neo-classical theory:

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  2009 is auspicious as the year when some mainstream economists could no long ignore the many obvious weaknesses of neo-classical theory and mathematical economics. Weaknesses that FUTURECASTS has been explaining since its earliest issues, and that the publisher of FUTURECASTS has been writing about since the 1960s, have become the subjects of recent books written by mainstream economists and reviewed by FUTURECASTS during 2009.
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  The unrealistically narrow focus of mathematical economics is being increasingly criticized even by Keynesian economists. See, Akerlof & Shiller, "Animal Spirits," criticizing mathematical economics for intentional ignorance of obviously outcome determinative psychological and social factors. Such factors as "confidence" and "trust" and "corruption" are ignored simply because they cannot be measured or estimated and expressed as an equation. Mathematical economics thus fails to even adequately cover the trading markets. The same criticism is raised by Baumol, Litan and Schramm, in "Good Capitalism, Bad Capitalism," This criticism has been a persistent FUTURECASTS theme since its inception. See, "Capital as Purchasing Power."
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  See, also, Tavakoli, "Dear Mr. Buffett," explaining why the Credit Crunch cannot be explained or its problems adequately remedied without taking into account the regulatory failures and Congressional mismanagement involved. Cooper, "The Origin of Financial Crises," explains the massive role of  central banks, especially the Federal Reserve, and the mismanagement of monetary policy in generating financial crises, particularly including the Credit Crunch.
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The need for a broader focus than mathematical economists can provide and neo-classical economists are willing to provide is obvious.

The assertion that market capitalism "separates economic activities from political views" is a practical impossibility,

  This is summed up brilliantly in Scott, "The Concept of Capitalism," explaining why we must broaden our focus back to the study of "political economy." Political and societal factors must be recognized as outcome determinative elements in the economy. The need for a broader focus than mathematical economists can provide and neo-classical economists are willing to provide is obvious.
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  Scott asserts that the market system described by monetarists like Milton Friedman is also too narrow. It actually describes informal gray or black market trade or the roadside fruit stand, not capitalism. The assertion that market capitalism "separates economic activities from political views" is a practical impossibility, Scott points out. Political biases are inherent realities in all political actions. The laws "are always created by political actors and therefore, to some extent, always contain a political agenda or tilt within them." Economic analysis must be broad enough to encompass this political fact of life.
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  Competition is the primary disciplinary force in the markets. However, Scott perceptively points out that even competition is hardly all-powerful. The incentives for rent seeking and claims for benefits from the public treasury are omnipresent, and most efforts at "reform" in Washington include thinly disguised efforts at promoting particular interests.
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Krugman and similar Keynesian and mathematical economists are like the blind men attempting to describe the elephant on the basis of only the parts they happen to be in touch with.

The broadened  focus of political economy is absolutely essential for understanding the business cycle and economic development.

Learned economists concentrating only on broad economic aggregates like "savings" and "GDP" and "effective demand" miss the essential causative elements in the economic and political and institutional spheres and financial spheres.

  The great strength of Scott's broadened concept of capitalist economics is thus that it brings into focus the Good, the Bad, and the Ugly of political sector economic activities. Without focus on the political sphere, the reasons for the failures and successes of economic development are inexplicable. The economic differences between the U.S. and Argentina, for example, are primarily found in the political sphere.
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  Learned economists consider such matters a "mystery." Paul Krugman, for example, in "Peddling Prosperity" (1995),  finds economic growth "magic" and both economic development and the business cycle a "mystery." The reasons for persistent high levels of unemployment in Europe during the 1980s is yet another "mystery." All of these economic mysteries can only be resolved by a critical examination of the mix of government policies and the characteristics of pertinent institutions. The business cycle is inexplicable without the mix of psychological factors - especially those affecting credit markets - that are included in the concept of "confidence." Krugman and similar Keynesian and mathematical economists are like the blind men attempting to describe the elephant on the basis of only the parts they happen to be in touch with.
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  Thus, the waxing and waning of purchasing power in the complex financial system is inexplicable without the psychological factors emphasized by Akerloff and Shiller. Scott brings into consideration all the many things that governments do well as well as everything they do to undermine economic stability. His broadened  focus is absolutely essential for understanding the business cycle and economic development.
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  Learned economists concentrating only on broad economic aggregates like "savings" and "GDP" and "effective demand" miss the essential causative elements in the economic and political and institutional spheres and financial spheres. Keynesian and mathematical economists are forced to openly and candidly confess incompetence at the essential task of forecasting the business cycle, largely because of the narrowness of their focus. See, Hendry & Ericsson, "Understanding Economic Forecasts." Yet it is precisely the mitigation of the business cycle that is the primary focus of Keynesian policies.
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  The 40 year record of accurate published economic forecasts compiled by the publisher of FUTURECASTS was made possible precisely because of his broader focus. See the four articles setting forth his forecasting record available through the links on the About the publisher page.
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Economic development is clearly guided by human agency as well as natural forces.

  The five decades of failure of development economics since WW-II is noted by Scott. He points out that neo-classical theory has proven inadequate as a basis for development policy. "It is concerned with the operation of markets, not with how the markets develop," Scott points out.
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  The institutions in which markets are embedded must be a part of economic analysis and the definition of capitalist systems. It is institutions that create the incentives that promote economic growth or stagnation or decline. Those institutions must be analyzed as existing, evolving, thriving or declining entities in their own right. Economic development is clearly guided by human agency as well as natural forces.
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  Of course, political leaders may not be welcoming towards this broader focus that shines a light on their policy misadventures. This broader focus will make harder the essential business of throwing blame on scapegoats - such as speculators, OPEC and the oil companies, and the current favorite target, the healthcare insurance companies.
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The tremendous contraction of purchasing power in the financial system cannot be understood without taking into account the psychological factors encompassed in the concept of "confidence."

The mathematical economists and neo-classical theorists twist reality to fit their theories.

  There were obvious market failures leading up to the Credit Crunch, but they cannot be understood without taking into account the gross budgetary, monetary and regulatory failures of government. The tremendous contraction of purchasing power in the financial system - the collapse of "velocity" - cannot be understood without taking into account the psychological factors encompassed in the concept of "confidence."
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 The prospects for the developing recovery cannot be adequately analyzed without taking these broad factors into account. It is political economy and professional analysis of all substantial outcome determinative factors, not mathematical economics or neo-classical theory, that can provide the analytical capacity required for this evaluation.
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  Instead of conforming their theories to the realities of the living economy, the mathematical economists and neo-classical theorists twist reality to fit their theories. Their theories thus explain economic systems that do not live and cannot live. In their search for mathematical "rigor," they have afflicted their analytical efforts with "rigor mortise."
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The second decade of the 21st century:

  The nature and duration of this recovery period will be the subject of next month's Near Futurecast for 2010.
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  The Credit Crunch has occurred and the past cannot be undone, but the problems leading up to the Credit Crunch remain important since many continue to impact the future. Understanding of the Credit Crunch thus remains essential for an understanding of the recovery period, so FUTURECASTS repeats the explanatory material from the last two years.

Understanding the Credit Crunch:

  The development of the Credit Crunch of 2007 is clearly the primary economic event covered by FUTURECASTS online magazine in its first ten volumes. How did we do?
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  Everything needed for an understanding of the Credit Crunch, its initiation, course and end, and business cycles in general, has been provided in the first ten volumes of FUTURECASTS online magazine. This is MUST HAVE knowledge. As the government responds by monetizing vast amounts of debt and extending guarantees to banks, pension funds, mortgage lenders, health care and other forms of insurance and much more, it is creating additional problems. As FUTURECASTS has repeatedly explained, these policies all depend on the dollar - and they inherently undermine the dollar.
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  WHO WILL GUARANTEE THE DOLLAR? Government policies increasingly undermine the dollar. Only the productivity of the private sector of the economy sustains the dollar.
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  Here is the required reading list for an understanding of what is going on.

• The basics about capital and credit, their strengths and weaknesses, their waxing and waning, their vulnerability and resiliency, is provided in "Capital as Purchasing Power." This is where you begin for an understanding of economic development and business cycles and the Credit Crunch of 2007-2009. Published first in 4/1/99 and republished in 8/1/02, it provided and continues to provide a blueprint for understanding current and future problems with economic development and the business cycle.
• The economic basics from the classics are explained in Adam Smith, "The Wealth of Nations," Part I, "Market Mechanisms," and Part II, "Economic Policy," and David Ricardo, "Principles of Political Economy and Taxation."

• The Credit Crunch is an inflationary period recession, like the 1973-1975 recession during the Great Inflation decade of the 1970s. For an understanding of that Great Inflation decade, see the publisher's forecasting record for that period set forth in three articles, "A Dozen Years of Perfect Economic Forecasts (1966 - 1978)," "Continued, But Not Perfect, Excellence (1979 - 1985)," and "Predictions of Soviet and Oil Cartel Weakness." There was even a massive housing bubble that burst in Florida during the 1970s recession. The savings and loan banking crisis began towards the end of the 1970s. The government mismanaged that banking crisis by keeping financial zombies alive for another expensive decade resulting in a tenfold increase in the expense of cleaning up the mess. 

• The Credit Crunch is basically an inventory recession and is self-liquidating. Unlike merchandise inventories, however, liquidation of a massive housing inventory bubble takes time, and time has its own economic and financial consequences. Nevertheless, the market is chewing through this problem at an incredible rate in its usual ruthless manner. See, 2008 FUTURECASTS Review, below, displaying over five years of warnings and explanations of the fundamental causes of  this mess. For general business cycle explanations prior to initiation of the Credit Crunch excesses, see the summary of "FUTURECASTS Forecasting Record for its First Five Volumes."
• Congress is the primary culprit in the Credit Crunch mess as FUTURECASTS has repeatedly explained. Congress can't help adding vast new commitments to those already imposed on the nation's Full Faith and Credit. Congress idiotically keeps encouraging debt capital while it discourages equity capital with taxes and regulations. They are the boys and girls who simply "can't say no" to even the most unaffordable spending schemes. They create the debts that the Federal Reserve System is forced to monetize. See, "Heedless Government," "Government by Crisis," "Congress: The Engine of Inflation," The real test for Bernanke and the Obama administration will come after recovery from the Credit Crunch begins and the nation is once again confronted with an accelerating price inflation that will begin before restoration of prosperous employment levels.
• Congress is busy with investigations as it attempts to find scapegoats. This is a typical government response to the economic dislocations that it has played a major role in creating. Our government does much that facilitates the economy and indeed much that is absolutely necessary, but it is also inherently unable to resist political temptations and bureaucratic imperatives that undermine the economy. See, "Government Futurecast."  We know who the primary culprits are for the Credit Crunch. WHEN WILL CONGRESS INVESTIGATE CONGRESS?

1. Congress cannot inflate its way out of the problems of inflation. Eventually a painful period of austerity will be forced upon a reluctant Congress to restore the damage caused by the current surge in monetary inflation.
2. Congress cannot spend its way out of the problems of its deficit spending. Eventually, as in the 1980s and 1990s, even Congress will have to accept restraints on its spending proclivities to restore economic stability and sustainable growth.
3. Congress cannot deal with credit bubbles by lowering lending standards. Congress should be insisting on sound lending standards instead of restoring credit bubbles, allocating credit, extending guarantees and lowering lending standards for political purposes.
4. Congress cannot stabilize the economy by encouraging debt financing and discouraging equity financing. Excessive leveraging obviously increases instability. Congress should be encouraging equity capital instead of imposing burdensome taxes, regulations and liability.

• Analogies to the Great Depression are inapt. They are asserted by fools, sensationalists and noted economists who are learned in economic theory but remain totally ignorant concerning the functioning of the real economy. See, "Great Depression: Summaries of Controversies and Facts" and the six Great Depression Chronology series articles beginning with "Great Depression: The Crash of  '29,"
• Current economic theory is either totally invalid or grossly overstates the potential of recommended policies.  

1. Keynesian theory is totally invalid. See, the two articles on Keynes, "The General Theory of Employment, Interest and Money," beginning with  Part I, "Elements of the General Theory."  
2. Monetarist views such as held by Fed Chairman Ben Bernanke are valid but monetarist capabilities are grossly overstated. See the three articles on Friedman and Schwartz, "A Monetary History of the U.S. (1867-1960)," beginning with Part I, "Greenbacks and Gold (1866-1921)" and the three articles on Meltzer, "A History of the Federal Reserve," vol. 1, beginning with Part I, "The Search for Monetary Stability (1913-1923)"

• Government deficits do not stimulate the economy. Without the monetization of an appreciable proportion of the debt, the increase in interest rates and the inherent inefficiency of the government activities would be more burden than benefit. Keynesian theory to the contrary is totally invalid and indeed grossly stupid.
• The Federal Reserve System is not an independent central bank. It is a creature of Congress, and must serve the political interests of Congress and the administration. It cannot take the responsible but painful measures of austerity to control inflation and maintain the strength of the dollar without political cover from the elected arms of government.
• Fed monetary policy can only be effective while the dollar is strong. Monetarist views are valid but the potential of monetary manipulation is grossly overstated by the leading proponents. Aggressive reliance on monetary inflation to avoid or mitigate recessions MUST ultimately weaken the dollar.
• Fed monetary policy can be no more than a palliative until the fundamental economic and/or political causes of a particular economic contraction are substantially liquidated by the market or politically abandoned. Economists who neglect analysis of such particular problems and limit themselves to the demand problems those problems cause are clearly incompetent.

• Inflation that is chronic rather than cyclical is always caused by government. It cannot continue without accommodation by expansion of the money supply. See, "Understanding Inflation." Recessions may occur because of the accumulation of weaknesses in private and/or government management, although it is hard to find a single significant recession where government policy stupidity didn't play a major role. However, all blame for inflation rests with government.

1. Inflation doesn't prevent or mitigate the business cycle. It increases both business cycle volatility and viciousness. Prices can decline during periods of chronic inflation when an inflationary period recession contracts the purchasing power of credit faster than the monetary authority creates additional currency. However, price inflation gets worse with each recovery period as long as monetary inflation policies are continued.
2. Inflation thus causes unemployment. Its ability to reduce unemployment is always temporary, and the period of apparent effectiveness ALWAYS gets progressively shorter. Like an addictive drug, there is always an initial pleasant period that is frequently irresistible to political leaders who are anxious to kick their problems down the road. Unfortunately, the longer inflation continues, the more painful the austerity policies that will be needed to kick the habit. The depression of 1980-1982 and a decade of slow growth thereafter was the price that had to be paid to end the Great Inflation decade of the 1970s.

• The business cycle and the processes of creative destruction are essential elements of a healthy, growing economic system. Paul Krugman to the contrary notwithstanding, a healthy economic system needs to be able to cleanse itself of weak, outmoded and poorly managed entities, and the flimsy houses of cards inevitably erected during prosperous periods. Governments must be forced to confront the policy stupidities that accumulate over time, and discipline must be imposed on government budgets. Like the political system of the U.S., the economic system must be robust enough to deal with the fact that: "Men are not angels!" (James Madison explaining the need for checks and balances in the Constitution.) See, FUTURECASTS comments in From Keynes to Krugman.

1. Government efforts to protect us by reliance on Keynesian policies or overuse of monetarist policies MUST make the business cycle worse. Government should be facilitating markets, not inhibiting them. Market flexibility is the only protection against protracted economic disruptions. Government should be strengthening the dollar, not undermining it. The government and its monetary authority, the Federal Reserve System, can be no stronger than the dollar.
2. The right to fail is as important as the opportunity to succeed. A capitalist market economy cannot prosper if heavily burdened with economic dinosaurs and financial zombies that are propped up by government.

• The authoritative mythmakers who cloud understanding and serve ideological, political and private sector interests have been revealed in FUTURECASTS' "Authoritative Myths" articles available in its archive linked to the Homepage.
•  Keynesians have returned in force to afflict us with further disasters, as predicted in "Future Economic Myths." Despite the catastrophic failures of Keynesian policy that resulted in the Great Inflation decade of the 1970s, they have again surfaced to serve their political masters who are desperate for intellectual rationalizations that justify the continuation of irresponsible budget deficits and monetary inflation policies. Apparently we are in an inflation cycle of about 30 years as each generation forgets the lessons of the last failure of Keynesian policy. Thus the Keynesian economists, like vampires in the business cycle night, rise again to threaten the nation with chronic price inflation.
• Prominent anti-capitalist myths are debunked in "Profits and Capitalist Productivity."
• Economic projections by government and its economist lackeys are pure fiction. The econometric models on which they are based are hopelessly invalid, and the projections seldom survive the next turn in the business cycle. See, Hendry & Ericsson, "Understanding Economic Forecasts." Economists who use these models might as well be searching for omens in the entrails of a pig. Government "projections" based on such models are pure fiction and are always biased.

1. Your government will always lie to you about its economic policies and the expectations for success as well as about much else. Government needs a mass of credulous people so it can spread the burdens of its stupidity.
2. Frequent assurances by government officials and their economist lackeys are a sure warning to check the supplies in the storm cellar.
3. Private interests and their professional hirelings are frequently no better.
4. The media is totally lacking in substantive knowledge and so helplessly continues to act as mere conduits for authoritative misinformation.

• Any business or political leader or economist expressing surprise about the Credit Crunch or any other recession is hopelessly incompetent. FUTURECASTS has been warning about the need to be prepared for a continuation of the business cycle since its very first Near Futurecast on February 1, 1998. In that issue, readers were assured that a return to the Great Depression was not in the cards. "However, the government's capacity for stupidity should not be underestimated. The longer a recession is put off, the worse it gets. Prudence dictates that we be prepared for a recession as bad as that of 1980-1982."

1. Heavily indebted business and political entities deserve to fail. Heavily indebted business and political entities are always threatened by any significant recession. FUTURECASTS has for three years been warning about the budget collapse of profligate state governments epitomized by California. No financial entity geared 20-to-1 or 40-to-1 or more can expect to survive a significant downturn in the business cycle. No partnership of substantially wealthy partners would accept such risks. Only when risks are offloaded onto corporate shareholders or the government do we find top management that includes wealthy managers accepting such risk levels. 
2. Heavy reliance on debt capital is certain to create weakness and instability. There has and always will be those who will succumb to the temptation to abuse credit. There will always be temptations to erect political and business houses of cards. Debt capital has its many uses, but it must rest on a strong foundation of equity capital. There must be substantial "skin in the game." Heavy reliance on debt capital inevitably increases instability and the velocity and viciousness of the business cycle.
3. On September 15, 1930, the N.Y. Times editorialized: "Everyone recognizes now that this is not a new economic era, in the sense that old-fashioned principles and penalties of economic law have been abolished. The new inventions in the way of manufacturing credit are seen to have been merely a novel way of repeating the very old practices of abuse of credit." There will always be "new inventions in the way of manufacturing credit." Some - like the "junk bond" market - will prove very useful. But like all credit mechanisms, all will be capable of abuse.

• Two of the main themes of FUTURECASTS coverage always bear repeating.

1. Watch the dollar. As long as people run towards the dollar during a crisis, the U.S. government will have the strength to deal with it. However, monetary inflation inherently weakens the dollar. The Government has a weak dollar policy. Its assertions about a strong dollar policy are an obvious lie. Government loves monetary inflation. Monetary inflation is the easiest tax to impose on the people. By printing or otherwise creating more dollars, government extracts valuable goods and services from the economy in return for nothing more than depreciating fiat currency.
2. Never underestimate the resiliency, entrepreneurial vigor and innovativeness of the U.S. economy. All it takes for recovery and restoration of normal business cycle levels of stability is the restoration of some sanity in government policies involving particularly budget discipline and monetary policy restraint. 

Volatility and dollar devaluation:

By "Near Futurecast VI," in February, 2004,  the headline was "Revisiting the 1970s."

  FUTURECASTS promised you greater volatility in its "Near Futurecast VII" for 2006, written after a quiet 2005 that was truly the calm before the storm. Indeed, the basic explanation for this phenomenon was provided to FUTURECASTS readers in the previous year, in "Near Futurecast VI" in February of 2004. This built on initial warnings that were provided as early as February, 2003, in "Near Futurecast V."
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  Dollar devaluation and the growing risk of a return to the problems of the 1970s was a main theme of "Near Futurecast V" in February, 2003. By "Near Futurecast VI," in February, 2004,  the headline was "Revisiting the 1970s." This has continued to be the main theme of FUTURECASTS near futurecasts ever since.
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FUTURECASTS has provided its readers with "today's news yesterday," in time for them to profit from it, as promised.

  FUTURECASTS thus fulfills its primary promise. It has provided its readers with today's news yesterday. Indeed, a five year lead on today's financial news has been accurately provided for the benefit and profit of FUTURECASTS readers
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  All the major phenomena of the 1970s are returning. Dollar devaluation, price surges in all the traditional inflation hedges, rising prices in oil, gold, and almost all other commodities, and rising real estate values, increasing instability and rates of volatility have again become prominent market features.
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  Below are pertinent excerpts from the 2004 and 2005 Near Futurecasts. These calls were easy. The predictions were based on the most basic of economic phenomena, clearly explained in FUTURECASTS forecasts and other articles. They have been years in development and have been easily foreseeable for years.
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  Any economist who failed to foresee them is revealed as incompetent. Any economist who fails to understand the nature and gravity of what is happening - who fails to understand what is happening as the inevitable result of Keynesian policies - is incompetent. Such failure reveals ignorance of the most basic aspects of economic systems.
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Vol. 6 No. 2, 2/1/04:

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  "The chronic weakness of the dollar is now the major operative fact in the economic world. The weakness in the dollar will be the primary cause or a major constraining factor in every major economic and financial problem that arises until the fundamental causes of the decline are addressed and dealt with.

The weakness in the dollar will be the primary cause or a major constraining factor in every major economic and financial problem that arises until the fundamental causes of the decline are addressed and dealt with.

  "The importance and benefits of a strong dollar has been a constant theme for FUTURECASTS for more than six years now.

• "A strong dollar lends  strength to the Fderal Reserve Board.

• "A strong dollar shields the domestic economy from foreign crises and provides the strength to play a positive role in their resolution.

• "A strong dollar and expanding international trade are among the most important foundations of prosperity, and play major roles in keeping periodic recessions short and mild and relatively infrequent.

The U.S. economy is heading for a period of increased volatility.

  "The strong dollar is what has been squandered by the Bush (II) administration and a sharply divided Congress. - - -
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  "The U.S. economy is heading for a period of increased volatility. Some of those 'bubble' factors that FUTURECASTS has been keeping an eye on these last six years will undoubtedly not survive the stresses of these next couple of turns in the business cycle."

Vol. 7, No. 2, 2/1/05:

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Keynesian failure - again:

 "There will be a second recession this decade - for the first time since the 1970s - and it will not be as short and shallow as the last two - in 1991 and 2000."

  The Fed actually still has the ability to put off or greatly reduce this coming recession, but only if it is willing to tolerate a plunging dollar and price inflation rates that top 5%, with gold above $1,500 per ounce, oil above $150 per barrel and gasoline above $4 per gallon. Obviously, any such effort to put off the inevitable will make the inevitable much worse.

  "It will be government policies and practices that will be the primary causes of the next recession. Government is always much slower and more reluctant to rationalize its mistaken policies and practices at such times than is the private sector. - - -

There will come a time this year when the Fed will stop permitting its interest rates to rise.

  "Economic expansion stimulated by Keynesian policies will ALWAYS be unbalanced. Keynesian policies of budgetary deficits and monetary expansion can only be continued as long as the currency remains strong - and Keynesian policies ALWAYS tend to weaken the currency. They ALWAYS put adverse pressure on international trade and payments balances.
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  "Of course, John Maynard Keynes would undoubtedly not approve of today's applications of his theory. However, that is one of the inherent weaknesses of his approach. The notion that political leaders are capable of the measured and disciplined application of monetary expansion and deficit spending advocated by Keynes is ludicrous.
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  "Moreover, even Keynes recognized that his recommendations must ultimately break down due to the inevitable weakening of the currency. However, 'ultimately' seemed a long way off during the depths of the Great Depression. 'In the long run, we are all dead,' he is famously reputed to have said. In fact, his 'General Theory' was not 'general' at all, but was applicable if at all only to the dysfunctional autarkic economic world of the Great Depression. - - -
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  "This weakness applies not only to the 'naïve' Keynesian policies that failed so miserably in the 1970s, but also to the more modest policies of today that merely target price inflation.
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  "To begin with, the definition of price inflation itself has changed. There have been major changes in the measurement of the rate of productivity gains that make it impossible to compare today's statistics with those of the 1970s. This is in addition to the other anomalous factors in the inflation statistics. Determining when basic interest rates have risen sufficiently to become 'positive,' and accurately evaluating how 'positive' they are at any point, is thus not possible with any degree of precision.
  [
  "For what it is worth, the inflation rate for 2004 is currently calculated at 3.3%. Anyway you calculate it, as FUTURECASTS predicted, there was a significant percentage increase in inflation in 2004, and dollar devaluation continued.
  [
  "There will come a time this year when the Fed will stop permitting its interest rates to rise. Chairman Greenspan will try to do this at an equilibrium point. He admits he has no way of determining in advance where that point might be. Of course, he will fail.

Interest rates that would be high enough to support the value of the dollar are now at a point too high to prevent economic decline.

  "There are no equilibrium points in an inherently unbalanced economy. Interest rates that would be high enough to support the value of the dollar are now at a point too high to prevent economic decline.
  [
  "The trick for investors - and for FUTURECASTS - will be to judge whether the interest rate increase has been stopped at a point that is too soon for dollar stability and/or too late for continued economic growth. Ultimately - if the situation is permitted to drag on long enough for stagflation to develop - there can be both currency weakness and sluggish economic conditions at the same time - both inflation and rising unemployment at the same time.

Market driven currency devaluation always runs behind the power curve.

  "Currency devaluation has yet again failed to reduce chronic deficits in international trade and payments accounts. Many professional and academic economists continue to display their ignorance of how economic systems actually work. Many repeatedly provide erroneous evaluations of the benefits of currency devaluation.
  [
  "The dollar had declined by about 16% in trade weighted terms by the end of 2004 - by more than 50% against the euro and 25% against the yen - yet U.S. trade and payments deficits had only worsened. (By the end of 2007, these figures looked even worse - much worse.) Only the persistent rise in Fed interest rates prevented acceleration of the dollar decline. Yet 'talking head' economists could still be seen on television estimating how far the dollar would have to fall to materially reduce the payments deficit and reach an equilibrium point.
  [
  "Currency devaluation may be made unavoidable by payments deficits, but it can never by itself cure them. Market driven currency devaluation always runs behind the power curve. Only when accompanied by measures of budgetary and monetary austerity does currency devaluation assist in the reduction of international payments deficits - and then it is the austerity measures, not the devaluation, that does the heavy lifting.

The Fed can only be as strong as the dollar.

The Fed is powerless to do anything more than determine the  sequence and mix of inflation and deflation that will be suffered.

It is these vast budget deficits, not Chinese mercantilist policies, that is to blame for the persistent trade and payments deficits that undermine the value of the dollar.

  THIS IS IMPORTANT - SO LISTEN UP, BOYS AND GIRLS!
  [
  The problems to come will be blamed on the Fed and Bernanke. However, the Fed does not have the power to prevent them. The dollar is now too weak. The Fed can no longer avoid these troubles, it can only determine the sequence and mix of inflation and deflation that will be suffered.
  [
  The problems with the nation's international trade and payments deficits will continue to be blamed on China's mercantilist policies, but the floating of the Chinese yuan would not materially reduce them. A world of freely floating currencies would not materially reduce them. These international deficits are homegrown problems. They are the inevitable result of the massive federal budget deficits and the Fed's monetization of enough of this debt to keep them from causing interest rates to spike unsustainably high.
  [
  Certainly, monetary policy even at best will not be very precise. There is no way it can be. Precise administration of interest rates is as impossible as precise administration for any other price fixing schemes. However, it is the vast budget deficits incurred during the last six years that make the Feds task increasingly impossible. It is these vast budget deficits, not Chinese mercantilist policies, that are to blame for the persistent trade and payments deficits that undermine the value of the dollar.
  [
  Who then is to blame? Congress is to blame!
  [
  Always remember, when sanctimonious Congressmen point the finger of blame at China for our international deficits or eventually at Bernanke and the Fed as the domestic economy spins out of control, it is always Congress that is to blame. The Constitution of the United States leaves with Congress the power and responsibility to control its budget.
  [
  This applies regardless of whether Congress is under the control of the Republicans or Democrats. Only Congress can materially reduce the economic problems of the next few years. It has the power to do this simply by a substantial decrease in the rate of spending increases. Don't hold your breath!

Currency volatility substantially increases risks and thus makes it more expensive to raise capital.

When political leaders succumb to temptation - when they irresponsibly expand monetary supplies and budgetary deficits pursuant to Keynesian policies - they are playing with fire.

  "A declining dollar means an adverse shift in the terms of trade. The U.S. will have to work harder - will have to sell more of its produce abroad - to buy oil and other commodities for its home market." (The prices of oil and other natural resource imports have accordingly been skyrocketing at multiple double digit rates for several years now.)

  "No nation has ever prospered with a weak currency. Chronic currency devaluation ALWAYS causes economic decline.

  "Monetary volatility is costly in any event. Aside from the capital directly destroyed as comparative advantage moves significantly against many economic entities, substantial investments of new capital are needed to take advantage of favorable opportunities. However, currency volatility substantially increases risks and thus makes it more expensive to raise capital.
  [
  "Monetary volatility could result in an increase in protectionism and competitive devaluations that could prove devastating for world commerce. A world that is heavily indebted can only service that indebtedness through world commerce. Expansion of international trade is thus of great importance, and a significant increase in protectionist policies is a major threat. When political leaders succumb to temptation - when they irresponsibly expand monetary supplies and budgetary deficits pursuant to Keynesian policies - they are playing with fire.
  [
  "Economists who don't understand this, don't understand economics - no matter how many Ivy League degrees and Nobel Prizes and other honors they may have. See, 'Understanding Inflation," and "Capital as Purchasing Power.'"

  Encouragingly, there have been many economists who have this time been warning of trouble to come for some time - unlike in the 1960s. Articles about bubble trouble have been appearing in the financial press for several years already. However, almost all of these economists have been attributing economic problems to some particular secondary factor - like inadequate savings or oil imports or imports in general. Most have avoided attributing these problems to the government policies that are the primary causes.
  [

The more the Federal Reserve Board employs Keynesian monetary policy to stabilize the economy and avoid the business cycle, the more unstable the economy MUST become and the more vicious the business cycle MUST become.

  FUTURECASTS readers cannot complain that they were not adequately forewarned of the current difficulties, or that the warnings were not adequately explained. They cannot complain that the warnings were not sufficiently far in advance for them to protect vulnerable interests or profit from suitable investments.
  [
  Volatility indeed did begin to increase in 2006, and by the end of 2007 had achieved proportions sufficient to "git the ahtenshun"  even of the mules in the mainstream media. Triple digit daily moves in the DOW are  now a common occurrence, with similar percentage moves in other stock, financial and commodity markets. This reflects the growing instability in the economy and must in turn cause even greater instability as it increases business and financial risks.
  [
  The mainstream media report these events with mulish incomprehension - as if they were just an inexplicable curse of the gods. FUTURECASTS readers know the real reason.
  [
  The more the Federal Reserve Board employs Keynesian monetary policy to stabilize the economy and avoid the business cycle, the more unstable the economy MUST become and the more vicious the business cycle MUST become. It was little more than a year after the Fed finished allowing its interest rates to rise before it hurriedly began to push its interest rates back down. FUTURECASTS will have more to say about this in next month's Near Futurecast X for 2008.
  [

The no longer so almighty dollar:

[

  The importance of a strong dollar has been emphasized by FUTURECASTS since Near Futurecast I, in 1998. This was emphasized in no uncertain terms as early as Near Futurecast II in 1999. A serious recession was unlikely, it pointed out, until the dollar becomes weak.
  [

Vol. II, No. 2, 9/1/99:

[

Near Futurecast II

  "As long as the dollar is strong, there should be no substantial recession in the United States. The next substantial recession should not occur until chronic weakness in the dollar forces the Fed to chose the austere policies needed to restore dollar strength. - - -

The Fed can only be as strong as the dollar.

  "If you understand that the mighty dollar holds the key to our economic fortunes and the effectiveness of much of our international policies, then you begin to understand the financial realities of our world. If you understand that, absent fixed exchange rates, when the Fed pushes interest rates down, the result is higher market interest rates, and that the only way for the Fed to succeed in getting lower market interest rates is to push its interest rates up, then you begin to understand the reasons why 'monetary policy' nostrums pursued to Modern (Keynesian) Economic Theory cannot indefinitely render the business cycle obsolete."

  After half a dozen years of strenuous Keynesian efforts to stabilize the economy by means of monetary expansion, the world is now awash in dollars and the dollar is now on its way to becoming a basket case.
  [
  As FUTURECASTS has repeatedly explained, the Fed can only be as strong as the dollar. Now, the dollar collapses underfoot each time the Fed monetizes short term debt to force short term interest rates down. As FUTURECASTS has repeatedly pointed out, no nation has ever prospered with a weak currency. Those who tout the advantages of a weak dollar remain intentionally ignorant of the far greater disadvantages.
  [

Bubble trouble:

"Because Men Are Not Angels!"

  Bubble trouble has been a constant theme of FUTURECASTS forecast issues. Long periods of prosperity permit weaknesses to accumulate. Houses of cards proliferate. These things happen because, as James Madison so wisely explained in a political context, "men are not angels."
  [
  Recessions are essential to clear out  these weaknesses and excesses. Getting rid of them is an important part of the vital creative destruction process of capitalist markets.
  [

  FUTURECASTS was emphasizing the many bubbles observably growing in the economy by February 1, 2001, in "Near Futurecast III." Three of them - the debt leverage bubble, the bank lending bubble, and the Freddy Mac and Fannie Mae bubbles - have burst in 2007. The constraints of the energy market were also then emphasized. The housing bubble was first emphasized in "Heedless Government," October 1, 2002.
  [
  These began to make their appearance five years ago. As then emphasized: "All that is needed now for the development of a substantial recession is the development of some chronic weakness in the dollar." Chronic weakness in the dollar has been duly provided by irresponsible Federal Reserve Board Keynesian monetary policy as it increasingly frantically strives to maintain economic stability in the face of huge budgetary deficits.
  [

Vol. 3, No. 2, 2/1/01:

The debt leverage bubbles:

The bank lending bubbles:

• "FUTURECASTS has been emphasizing the pernicious impacts of powerful tax incentives that favor debt capital and drive many economic entities to become heavily leveraged.  - - -
• "FUTURECASTS has been emphasizing the decline in bank lending standards. As the savings and loan crisis of the 1980s faded from memory, bank lending became increasingly aggressive. Not only were the banks lending more to more highly leveraged debtors, they themselves became increasingly leveraged. Their exposure to sinking equity prices has been increased by their increased holdings of private equity stakes. Some have substantial venture-capital operations that, by their very nature, pose substantial risks during any economic downturn. Many hold substantial positions in the junk bond market. Credit card and other consumer loans always soften during an economic slowdown. Second mortgage home equity loans have been expanding substantially and will suffer in any recession severe enough to affect real estate prices. Reserves are at their lowest since 1986, and the lowest in 50 years in risk-adjusted terms. A surge in defaults of various kinds has resulted in a hasty effort by banks to strengthen  their lending practices. This has materially  restricted credit availability and has played a major role in the current economic slowdown.

The energy market limits on economic growth:

• "Now, the current tightness in the supply side of the energy market imposes a new limiting factor on the economic growth of the next few years. While energy prices have recently declined - and will probably remain weak during the current economic slowdown - already forcing OPEC to take some production off line - that excess capacity will be quickly drawn upon when economic growth again begins to surge. The first decade of the 21st century will be a prosperous one - but it will be no repeat of the last 'gay nineties' decade of the 20th century.

Moral hazard at Fannie Mae and Freddy Mac:

• "Now, Fannie Mae and Freddy Mac - the huge and rapidly expanding shareholder owned but government sponsored and favored mortgage companies - are pushing ever deeper into higher risk loans and lending practices. They are permitted substantially lower capital adequacy levels on the theory that their mortgage lending is on average substantially less risky than the broader spectrum of loans provided by banks. Here is a prime example of 'moral hazard' - the 'privatization of profits' accompanied by the continued 'socialization of losses.' Should some future recession ever get deep enough to cause a substantial decline in real estate values, these two mutant institutions (not government owned any more but not totally private yet either) could require a massive federal bailout - that nobody doubts would be forthcoming.

Vol. 4, No. 10, 10/1/02:

The housing bubble: 

 [

Heedless Government

• "With tax laws that now make housing the premier tax shelter, the inflation of a vast housing bubble should surprise nobody. People are building as much house as they can afford - some putting 3,500-to-5,500 square foot mansions ridiculously on lots of just about a half acre. Money is being poured into second and third homes. Low interest rates encourage the assumption of large mortgages."

Vol. 7, No. 7, 7/1/05:

There will be a period of substantial decline in our future.

"The Coming Generational Storm," by Kotlikoff & Burns

FUTURECASTS Comment:

  "With mortgage rates below 6%, leveraging your money to buy as much house as possible is probably the best way to outrun inflation - just as long as you can maintain sufficient cash flow to maintain the house and service the mortgage.
  [
  "Unfortunately, even this has become complicated. The much feared 'housing bubble' is quite real - and there will be a period of substantial decline in our future."

  The employment of Keynesian methods to avoid recessions just permits excesses to increase and bubbles to grow, and ultimately adds currency weakness and inflation to the brew. When currency weakness and inflation get too bad to be ignored, the austerity policies required to deal with them replace recession with depression. Political and private business models and economic plans based on easy money conditions are threatened with collapse. These are the lessons of the 1970s - now so determinedly ignored by the Fed and numerous authoritative talking heads on television.
  [
  Congress, of course, remains stupid beyond mere ignorance. Yet, some supposedly intelligent people want to turn over even more of our vital health care industry to these clowns.
  [

Welcome back to the 1970s:

The easy profits are behind us. Major profit opportunities still lie ahead, but caution, and an attention to detail, are again as in the middle 1970s prominent requirements.

[

  We are now again back in the 1970s, courtesy of the Fed's irresponsible Keynesian monetary policies and the major budget deficits incurred by Congress. Are you pleased with all the favors your government is anxious to bestow upon you?
  [
  But don't forget that the middle 1970s also experienced periods of rapid decline in the prices that had rapidly increased. Financial turbulence with substantial increases in business and financial risks are also again prominent features of financial and economic markets, as demonstrated this year in the housing market. The easy profits are behind us. Major profit opportunities still lie ahead, but caution, and an attention to detail, are again as in the middle 1970s prominent requirements.
  [
  Also as in the 1970s, the U.S. weakens as its adversaries strengthen, there is an unpopular conflict and a weak president, and the electorate has increasingly turned against incumbents. The increasing weakening of the Federal Reserve Board is already obvious - for those with eyes to see.
  [

1970s lite:

  But the differences have also always been emphasized by FUTURECASTS and must be kept in mind.
  [

Increased economic flexibility makes the U.S. economy inherently stronger and more resilient than in the 1970s.

  Floating exchange rates instead of fixed exchange rates permit adverse currency movements to occur smoothly rather than in periodic major crises. Marginal tax rates are lower, regulatory burdens are reduced, globalization is a major asset in holding down overall inflation rates and long term interest rates. With labor market flexibility, these factors hold down unemployment rates. They increase economic flexibility and resilience and make the U.S. economy inherently stronger than in the 1970s.
  [

  But there are also now extraordinary weaknesses that were not present in the 1970s. The War on Terror is not nearly as financially burdensome as the Vietnam war and the Cold War, but entitlements are vastly more burdensome and due to increase massively in this next decade. The fiscal side of the problem is thus on balance considerably worse than in the 1970s - and Congress shows no signs of the spending restraint that alone can mitigate the nation's financial problems.
  [
  No! Tax increases will not do the trick. If more revenues are provided, Congress will just spend them, and the economy will have to labor under the increased tax burdens
  [

  Regulatory costs are again on the rise, especially with regard to efforts to deal with global warming. As each bubble bursts, Congress rushes in to apply regulatory fixes - some of which inevitably impose more costs than benefits. Here is one area where a Democratic administration would be clearly worse than a Republican administration.
  [

  FUTURECASTS one major forecasting error for this period was caused by these differences. The surge in stock prices when the Fed stopped allowing its interest rates to rise was an obvious call for "Near Futurecast VIII" in February of 2006, but the extent of that surge was far greater than expected and out of line with 1970s experience. This was probably due to the many positive differences pointed out above.
  [

  As long emphasized by FUTURECASTS, this is not - yet - a complete repeat of the 1970s. It is still 1970s lite.
  [

Military matters:

[

  FUTURECASTS provided a major review of its material pertinent to the War on Terror and the campaigns in Iraq and Afghanistan in last year's "Futurecasts Review," and need not repeat it here. Suffice it to point out that the recent encouraging - but still very unstable - progress in Iraq has validated FUTURECASTS material.
  [

• The military success of the surge confirms the importance of "boots on the ground."

• The progress in Sunni districts confirms the emphasis that alliances with the Iraqi peoples are the important alliances in this struggle.

• That nation building is a dubious and difficult undertaking is confirmed by the continuing difficulties and instability faced by coalition forces.

• That military occupation is a wasting asset for the U.S. that leaves it with no choice but to do what it can in the few years it has and then return the occupied country back to its people is confirmed by the current reduced ambitions for democratic reform.

  The U.S. can powerfully support and encourage political and military success in Iraq and Afghanistan, but only the peoples of those nations can achieve it.
  [

  The Bush (II) administration is the most Keynesian administration since Jimmy Carter, as FUTURECASTS has repeatedly pointed out. The Bush (II) administration is also the most incompetent wartime administration since Lyndon Johnson.
  [

  Clearly, the Bush (II) administration is at fault for taking so long to realize the failure of its initial strategy in Iraq. The "small wars" strategy now being implemented brilliantly by Gen. David Petraeus has been around for decades. See, Boot, "The Savage Wars of Peace," at segment on "The 'Small Wars' Manual." Waiting until after the 2006 elections to admit initial failure and change course was unconscionable.
  [
  In both Iraq and Afghanistan, the U.S. now has elegant strategic solutions in hand for a long term sustainable presence. More "boots on the ground" are nevertheless still needed in Afghanistan.
  [

   Success both politically and militarily will at best be a generational matter.

• Political "success" will mean the continuation of at least the appearance of democratic elections. As in South Korea and Taiwan, over time, people can come to expect more than just the appearance of democratic systems.

• Military "success" will mean maintenance of military support equivalent to that in South Korea for a period of about 80 years, with the routine provision of domestic security increasingly provided by domestic forces. As proven in the Yugoslav states, not until everyone above 5 years of age during the conflict is dead or in his dotage - and peoples have engaged in peaceful commerce - and young people have found each other and intermarried - can it safely be said that a nation has put such a conflict behind it. However, since the killing continues, this clock has not even begun to run as yet in Iraq and Afghanistan.

Time is an important factor in these matters.

Only if the U.S. makes a credible stand somewhere on the field of battle will the growing mass of Middle Eastern people who resent the militants and insurgents and long for a better future have the heart to actively oppose them.

  Success against insurgencies and against opponents using guerrilla tactics, however, requires more than just competent strategy, as vital as that is. It is simplistic to assume that a substantially larger force at the beginning, as useful as that would have been, could have avoided the subsequent insurgency. Time is an important factor in these matters.
  [
  If Americans are tiring of the conflict, you can imagine how the Iraqi and Afghani peoples must feel with deadly conflict raging in their midst for year after long year. It also takes time for people to come to understand what submission to a Muslim militant theology would mean. Every time the insurgents or al qaeda militants succeed in setting off a bomb, they make more enemies
  [
  The character of its enemies, as usual in the last century, is the greatest strategic weapon in the U.S. arsenal. However, if the U.S. stands aside, evil can win. There is a growing mass of Middle Eastern people who resent the militants and insurgents and long for a better future. However, only if the U.S. makes a credible stand somewhere on the field of battle will they have the heart to actively oppose the militants.
  [

  War is inherently atrocious. As explained in Military Futurecast, in the segment on "Military Strategy - The Power of the Force," the ability and will to act atrociously is an inherent factor in military strategy. Middle Eastern combatants entertain no illusions about this matter,
  [
  The major practical difference in this regard between Abraham Lincoln or Franklin D. Roosevelt on the one hand and Hitler and Stalin on the other, is that the American wartime presidents shifted immediately from ruthless attack to humanitarian assistance and rehabilitation as soon as opponents surrendered, while under Hitler and Stalin, atrocious actions never ceased.
  [

The Shia death squads have played a vital role in impressing upon the Sunni people that it will not be only Shia who suffer from the conflict.

Sunni bombs have been met with Shia death squads.

The attempt to base governance on some level of consensus thus has dubious prospects.

It would be a strategic mistake of vast proportions for the U.S. to abandon its allies among the Middle Eastern peoples.

  It must be understood and acknowledged - as politically incorrect as that may be - that the Shia death squads have played a vital role in impressing upon the Sunni people that it will not be only Shia who suffer from the conflict.
  [
  For very good strategic reasons, the U.S. cannot act in the Middle East with the ruthlessness needed to "win" a conflict. However, the Shia death squads could.
  [
  Sunni bombs have been met with Shia death squads. The death squads have finally impressed upon a growing number of Sunni groups that the Sunni's had better make their peace in the new Iraq while the U.S. still has a dominant military presence. This possibility has been a constant theme for FUTURECASTS since the 2004 FUTURECASTS Review. Although inherently unstable, there is now a real basis for resolution of the conflict.
  [
  As many knowledgeable opponents of the war in Iraq have pointed out, Iraq is not a real nation. Like most nations in the Middle East, it is an artificial construct of colonial era map making. These religious sects and tribal groups have been fighting, dominating and slaughtering each other for millennia. Their hatreds rest on firm foundations of past atrocities and periods of harsh subjugation. Within their Western-imposed national boundaries, they are like tarantulas in a bottle. Terror, not consensus, is the basis of rule in the Middle East.
  [
  The attempt to base governance on some level of consensus thus has dubious prospects. Any peace that is successfully arranged will remain inherently unstable for decades to come
  [
  However, any level of success would constitute a HUGE victory. The U.S. has in fact gained many allies among the Afghani and Iraqi peoples. They are far from perfect allies, but many have demonstrated a willingness to take huge risks in the struggle against the militants. It would be a strategic mistake of vast proportions for the U.S. to abandon these allies.
  [

Governance:

 [

  The inherent ineptness of government has been a central theme of FUTURECASTS since it summarized in its first issue the many things that the U.S. government does right and the many reasons why it does so much that is wrong. See, Government Futurecast.
  [

Apparently, the threats of global warming are not sufficient to trump farm state politics.

  Today, global warming is viewed as a threat to the world, and the U.S. government has sprung into action. Gallant legislators have appropriated tens of billions of dollars to deal with the problem - with corn ethanol.
  [
  Apparently, the global threat is not sufficient to trump farm state politics. In this context as in the economic policy context stated above, Congress remains stupid beyond mere ignorance. Yet, supposedly intelligent people want to turn over even more of our vital health care industry to these clowns.
  [
  As Congress and the administration rush to do more favors and provide more benefits for the public, public esteem for both the administration and Congress plummet to record lows, precisely as FUTURECASTS expected. 

Vol. 3, No. 1, 1/1/01.
(from Vol. 1, No. 1, 8/1/98)

[

  "6) The more that government tries to do for the public, the more its esteem with the public will decline: The 21st Century futurecast for accelerating rates of change means that the shortcomings of government policymaking will be increasingly exposed. Evidence of government ineptness and sheer stupidity will become increasingly apparent in everyday life.
  [
  "As government continuously expands its activities, outside entities will increase their efforts to influence government. They will, of course, succeed - by means both legal and illegal. Government corruption must inevitably grow with the growth of government. Government itself will become the primary sociological problem of the 21st century.

  "The money flowing into campaign coffers provides irrefutable testimony of the correctness of this expectation. Efforts at campaign reform have - as FUTURECASTS predicted - failed to stem the tide."