Early in yesterday’s session, with the Dow Industrials off a hundred points but stubbornly refusing to give up any more ground, bears were sounding a despondent note in the Rick’s Picks chat room.  It was mid-morning, and shares had leveled off for a couple of hours after having fallen in more or less orderly fashion since the opening bell. “Don't bet that the wondrous [Plunge Protection Team] won't pick a great point to jump in again,” noted one trader, glumly alluding to the Fed’s surprise attack on bears two Fridays ago, when the central bank announced a 50-basis-point cut in the discount rate.  Came this strychnine reply: “The bears sound so defeatist today that perhaps the DJIA is on its way to a refreshing 500-point decline. Don't despair, pessimists! Our time will come.”

Alas, the Dow Industrials did not fall the implicitly hoped-for 500 points, only a mere 300.  That would have been scant comfort to anyone looking for the NYSE to start reflecting reality rather than the increasingly pallid hallucination of a strong U.S. economy.  Wasn’t it just last week that our hallucinator-in-chief, Treasury Secretary Paulson, pronounced the economy “very, very healthy”?  Yeah, right.  Even so, we’d be the first to concede that it is perceptions that matter most, and that the Plunge Protection Team’s efforts might therefore be better spent manipulating our awareness of the economy than goosing shares with well-timed forays into the S&P futures pit.  A little LSD in the water supply, perhaps, and millions of otherwise clear-headed observers might start to see things Paulson’s way. Either that, or, we fear, they’d start seeing “666 “ tattooed on the foreheads of everyone who appears on CNBC.

Six-Sigma Event

Plunge Protection Team aside, even bulls must be wondering at this point what They will do to prevent the six-sigma event on Wall Street that might someday make us recall a piddling 300-point drop in the Dow with nostalgia. Surely They will do something!?  In point of fact, the Federal Reserve, by lowering the discount rate and extending loans to 30 days, has already used up virtually every administrative tool it commands, save lowering the federal funds rate. On this subject, and the implications thereof, no one has been more lucid than Gary North. We’d stopped reading the guy a while back because he wouldn’t cop to the possibility, let alone likelihood, of deflation, notwithstanding the fact that a $500 trillion debt implosion lies in prospect for planet earth.  

With the hour of crisis drawing near, though, North’s essays have been better than ever -- and that’s saying a lot, since he is a polemicist of the first rank. But even with debt beginning to suck the life from the economy with the force of a black hole,  he still can’t seem to choke out the word deflation. Indeed, he turns cartwheels, lest his own, pellucid logic lead him in that direction. Even so, we would strongly urge you to read his essay, “The Fed’s Next Move,” since it makes an airtight case for a 50-basis-point easing on or before September 18, when the Open Market Committee next meets to set policy. This article is a must-read for anyone still unpersuaded that officialdom, working behind-the-scenes, is treating our “very, very healthy” economy as though it were just an inch from disaster.  North’s brand of insider baseball is the best we have come across from among the hundreds of URL links we receive each week. It may be a few days before the article is available to non-subscribers, but since it costs nothing to join North’s membership list, you needn’t wait. You can access his site by clicking here.