Fed's Folly Will Come Due in 2004

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Led by the Federal Reserve, the world's central banks have spent five years pursuing some of the most reckless monetary policies ever seen in the developed world. Next year, though, their barmy bets will finally start to come undone.

The crackup won't start happening until the end of 2004 -- after George Bush, the market's favorite for president, has been safely re-elected -- but the coming deluge will usher in a period of global economic malaise and dire losses in financial markets.

The fast-declining dollar we see today is an early indicator of the reckoning that Fed Chairman Greenspan has long tried to forestall, using unsustainable measures. America will be the epicenter of the bust, because it is here that debt totals, as well as trade and fiscal deficits, have risen to historically delinquent levels.

Granted, it almost always pays to ignore most apocalyptic-sounding warnings -- and much money has been made over the years betting against the end of the world. Moreover, shrugging off such a dark-sounding forecast would seem to make a lot of sense after most of this column's predictions for 2003 failed to materialize.

For example, Detox confidently expected equity markets would end 2003 lower than they started. But they have of course risen sharply, showing a 22% gain on the S&P 500 index. Detox also said that stocks like General Electric (GE) and Capital One (COF) would crater, while Tyco (TYC) would likely file for bankruptcy protection. None of those calls hit the mark, it is painful to report.

As foul as the freshly baked crow tastes right now, and as much damage as those predictions have done to this column's credibility, Detox is doubling up its bearish bet with its prediction of an economic and financial crunch starting toward the end of 2004. Why? Quite simple: America has no easy way out of the trap that the Fed has built for the country. No nation has splurged quite like this one without ultimately having to pay the piper. As exceptional as America is in so many ways, not even it can exempt itself from the laws of economics. And what's really scary for investors is that there is nowhere else in the developed world to flee.