The reappointment of Alan Greenspan as Federal Reserve Chairman indicates that the administration and the Federal Reserve intend to pursue an easy money policy as long as necessary to re-inflate the economy. Expanding the money supply at recent rates adds to the bubble aspect of the economic system. These funds tend to concentrate in the financial and housing markets, driving and/or supporting prices at unrealistic levels. To maintain the level, ever-larger doses of credit (debt) are necessary. Added to the current account deficit, the balance of trade deficit is approaching $500 billion a year. In the future, foreign investors may not continue to finance our deficits at the rate that we have become accustom to in recent years. If and when this occurs, we suspect that the system will implode from a broad flight from the dollar.

The Dow Jones Industrial Average (DJIA) continues to flounder at the 10,000 level. Back in the mid-sixties with the DJIA at 1,000 and gold at $35.00 per ounce, Jim Dines coined the phrase that 1,000 on the Dow was a graveyard in the sky. Nearly 40 years later, the DJIA is at 10,000 and an ounce of gold exchanges for $385.00 (after a recent pullback from the $425 per ounce level.) We once again may be facing a similar situation. Looking back from the vantage point of a few years, 10,000 may well be seen as yet another graveyard in the sky. Only time will tell.

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