Tuesday, November 27, 2007

AMERO and the North American Union

Some of our secretive leaders are working a plan to replace the US Dollar with the Amero--a joint American, Canadian and Mexican Currency.

- Do you want to know why we have a completely ineffective border policy?
- Do you want to know why the Dollar has been sacrificed?
- Do you want to know why we've outsourced our manufacturing base?

Well, many of these answers lie below--It's all about big business, corporate profits and unfulfilled family promises.

This first video is one of our elected representatives Rep. Marcy Kaptur (D. Ohio) discussing NAFTA and Globalists on CSPAN -- Finally, a non-insider representative, looking out for our (the people's) best interests. Why don't we see this type of discussion from our Presidential front runners? hmmm...

Wake up people! Before it's too late!

The rest of these videos speak for themselves. Therefore I will comment no more.

**CAUTION: Foul Language in this video**

Saturday, November 24, 2007

Will the Fed Cut Rates again on December 11?

If Federal Open Market Committee (FOMC) members were to center their December 07 rate decision around the basis of Treasury Secretary Paulson’s continually spouted “Strong Dollar Policy” there is absolutely no way they could make a rate cut, as the dollar is falling off a cliff and its rate of decent is increasing.

Bloomberg 24 Nov: The U.S. Dollar Index touched 74.484 yesterday, the lowest since the gauge started trading in 1973. The index tracks the value of the dollar against six major currencies, including euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc.

So what is happening in the financial realm and why is the dollar falling so fast? Well, a big part of the answer to this question relates directly to debt and the creation of money.

For those of you who don’t know, every dollar in circulation today was actually borrowed into existence and was created from nothing. For many years this creation of new money through debt was not a problem. As long as the debt could be adequately serviced and various conduits (banks) were open to/available to take on new debt, the system worked just fine.

Recently however, it has become abundently clear to our Federal Reserve Policy makers that massive US debt loads are proving very difficult to service, while at the same time our banking systems are having problems allowing for the creation of new debt (hence new money). This is all VERY BAD news that could cause a systemic implosion if not dealt with swiftly. Therefore, the Fed is monitoring this crisis closely and is lowering short term borrowing rates while injecting massive amounts of new money (through new bank debt) into the banking systems. This combination of excessive liquidity (monetary injections) and lower rates is causing the value of the dollar to plummet. See video below for a better understanding of this whole debt-to-money process (money as debt)

MONEY AS DEBT (~11 seconds to load)

Money As Debt Part 2

Money as Debt Part 3

Money as Debt Part 4

Money as Debt Part 5

Video Summary: money is created through debt and in order to keep an economy expanding, debt loads must continually expand (increasing money supply) or else a deflationary environment sets in.

As previously stated: today, after many years of cheap/easy credit (much of it subsidized by foreigners--we used to suck up 80% of the world’s surplus savings) US debt loads are now at an all time high and adequately servicing this debt has become a huge problem.

A perfect example of this problem is the US housing market. Back in the heyday of our irrationally exuberant housing market, nearly anyone could qualify for a mortgage. We had >100% financing, super low teaser rate mortgages and even NINJA Loans (No Income, No Job, No Assets). All this easy money led to no-risk investment speculation and caused a huge new wave of home buyers (many who couldn't previously qualify). This led to supply/demand imbalances, which drove home prices up dramatically.

Today however, things are a bit different. As these initial teaser rates on millions of mortgages began to reset, servicing this additional debt became unbearable for many and defaulting was the only option. These defaults (in the $ tens of billions per month) eventually led to the collapse of several hedge funds, a significant tightening of lending standards and ultimately to a complete immobilization in the Securitized Mortgage Backed Commercial Paper market—where recent financial losses & bank write downs have been massive (yet merely the tip of the iceberg to date).

But, these write downs are only making matters worse, as each dollar of the losses eats into available bank capital, creating an additional burden to future lending, which tightens lending standards further, prevents the creation of new debt, and causes further downward price pressures on all those homes that sit unsold.

Additionally, part of the domino effect caused by reduced home sales (due to less available credit) is lowered sales volume at home improvement, furnishing and a myriad of other stores--cutting into business profits, leading to less work hours, increased layoffs, et cetera.

Ultimately, reduced credit leads to reduced money creation, which leads to reduced spending which leads to a deflationary environment.

That is where we are today… The beginning of a deflationary environment poised to implode the economy…

Well have no fear Ben Bernanke and the boyz are here!

In a 2002 speech before the National Economists Club in Washington, D.C., Ben Bernanke made it clear the Fed should do everything in its powers to prevent deflation: Deflation: Making Sure "It" Doesn't Happen Here

So, what are the tools Ben feels the Fed should use to prevent deflation?

Well, based on his comments, the Fed could cut rates to ZERO, while simultaneously they could print/inject massive amounts of fiat money into the system. See excerpts of the link below (Note: Emphasis is mine)

“ But suppose that, despite all precautions, deflation were to take hold in the U.S. economy and, moreover, that the Fed's policy instrument--the federal funds rate--were to fall to zero. What then? In the remainder of my talk I will discuss some possible options for stopping a deflation once it has gotten under way”.

Could this comment be a sign of things to come—Zero percent?

“ Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

There you go, he said it--print more money to reduce its value and to generate more spending (sounds like a call for Hyperinflation)

“ Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior).8 Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system--for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.”

I believe what he’s saying is: the Fed will reduce rates simultaneously while increasing liquidity, but the fireworks (printing/monetary injections) will really have to pick up steam once we’re at zero because the Fed’s ammunition canister will then be empty.

“ The Fed should and does use its regulatory and supervisory powers to ensure that the financial system will remain resilient if financial conditions change rapidly. And at times of extreme threat to financial stability, the Federal Reserve stands ready to use the discount window and other tools to protect the financial system, as it did during the 1987 stock market crash and the September 11, 2001, terrorist attacks.”

Huge discount window operations have become a regular thing of late, while the rules were recently changed to allow banks to pledge a broader range of commercial paper as collateral. Are we currently experiencing an extreme threat to our financial stability? Nah, can’t be--the media keeps telling me everything is fine.

“ Unlike some central banks, and barring changes to current law, the Fed is relatively restricted in its ability to buy private securities directly.12 However, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window.13 Therefore a second policy option, complementary to operating in the markets for Treasury and agency debt, would be for the Fed to offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral.14 For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Pursued aggressively, such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector, over and above the beneficial effect already conferred by lower interest rates on government securities.15

Minus the zero interest, I think we’re already there.

Bottom Line:

Back in 2002, Ben Bernanke highlighted what he would like to do if faced with the problem of deflation. Well, his test has just begun and deflation is now standing at our doorstep. Thus far, with consumer price inflation raging and the dollar tanking around the globe, Ben and the Boyz have been working overtime in an attempt to bail out our banking/financial sectors. They see the approaching financial train wreck, barreling downhill at ever increasing speed, and although they would really like to back Treasury Secretary Paulson’s Smoke and Mirrors “Strong Dollar Policy”, it is far too late for that. They are now stuck between a rock and a hard place (Deflation/financial collapse is the rock; Hyperinflation is the hard place) and they have chosen the hard place--Hyperinflation

With bank losses mounting, Ben and the Boyz know that they are waay behind the power curve in their rescue attempts and that deflation is setting in. Therefore, I feel pretty confident in predicting that come December 11th, rates WILL once again be cut.

As an aside, If we are fortunate enough to evade a complete systemic banking failure, I think the tools used (printing presses and helicopters) will force us into a Hyperstagflationary environment (Hyperinflationary consumer price inflation combined with slow-to-no output growth, rising unemployment, and recession) This should allow us to muddle through until ~ 2010, but unfortuantely I don't think the "Big D" can be avoided forever. My bet is: 2011/2012.


Monday, November 12, 2007

Financial Wizard Manipulation

I have to give some credit to our Global Financial/Wall-Street Wizards. Today’s engineered price drop in commodities (Oil, Gold, Silver, etc) was pretty impressive, and the fact that it was executed on a thin trading holiday (Veterans Day) was no mere coincidence, as it provided them with a tremendous amount of leverage.

Don’t be alarmed though. This sell off, engineered by Central Banks to strengthen the dollar vs. nearly every currency except the Yen, is temporary in nature, and was done to (1) take some trade pressure off countries with strengthening currencies (2) restore some confidence back into the dollar, (3) reduce the nearly vertical ascent in gold/oil prices and (4) bring some green signals back into the ailing US equities market... They absolutely had to do this, because FASB 157 is to take effect on Thursday, Nov. 15. These new FASB provisions will make it much harder for banks to avoid “mark-to-market” pricing on their level-3 (off balance) securities, triggering much larger financial write-offs and potentially exploding into a new financial panic…

From Barrons:RBC Capital Markets interest-rate strategist T.J. Marta says that additional write-downs are coming and adds the U.S. banking sector is "embarking on its third major crisis since the 1920s." He adds: "Not only have the 'go-go' days of structured products come to an inglorious end -- at least temporarily -- but vast swaths of the financial system lie in ruins,"

The Financial Wizards understand that this is coming and they absolutely have to try to shore up investor confidence in the U.S. system beforehand… Today was a compelling, yet futile attempt at their manipulative ways.

So how did they engineer this?

As you all know by now, the Dollar has been bleeding badly and has been setting new record lows against almost every currency daily—except for the Yen. The Japanese for years have been trying to keep their currency artificially low to (1) enhance trade and (2) supply the global system with an endless spigot of cheap money. The Yen Carry Trade has evolved (Yen borrowed at .5% and leveraged at high multiples to invest in other areas) and has provided nearly free money for all who wish to blow big beautiful bubbles.

As previously stated, the Yen was practically the only currency NOT strengthening in direct relationship to the falling dollar. Therefore, in order to strengthen the dollar against the currencies it was falling against, make the Yen stronger… Voila! The dollar strengthens… Additionally, this Yen-Dollar manipulation was being rigged while concurrently having OPEC work to bring down Oil Prices.

With regard to the Dollar, just look at what Central Banks are up against (Bloomberg snippets below)

Nov. 12 (Bloomberg) – “Central banks from Bogota to Mumbai are imposing foreign-exchange curbs to take control of their soaring currencies from traders dumping the dollar.”

``Central banks are struggling to find new ways to intervene against their currencies and some of the proposals simply can't work,'' said Mirza Baig, an analyst in Singapore at Deutsche Bank AG, the world's biggest currency trader. Some plans are ``truly bizarre,'' he wrote in a report.”

`More Violent Correction'” An index tracking the dollar against seven major trading partners dropped to 71.11 on Nov. 2, the lowest ever, a week after the Fed reduced its target rate for overnight loans between banks by a quarter-percentage point to an 18-month low of 4.5 percent.””

Stephen Jen, head of currency research at Morgan Stanley in London, said on Nov. 2 that the dollar's slide threatens to turn into a ``more violent correction'' that may require joint intervention by the U.S., European Union and Japan. The dollar will trade at $1.51 per euro by year-end, Jen said on Nov. 8.”`

`The weaker dollar causes central banks to look at foreign inflows differently,'' Robert Fullem, vice president of U.S. corporate-currency sales at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The market is pushing the central banks into corners. I don't have faith in them. They may have to push the envelope further.''

So, where do we go from here?

I wouldn’t put much faith in the Financial Wizards, as they are putting a band-aid on a gaping wound where a tourniquet is required. Sure, they can help to slow the bleeding, but with over 400 billion in toxic waste to be written down soon, bleeding to death will be the final outcome.

Bottom line: don’t worry about the noise generated by our Financial Wizards today. Over the mid-long term, this will be regarded as merely a blip... The dollar, financials and many equities are going much, much lower while real assets (Gold, Silver, Oil, etc) are going much, much higher.

For all our soldiers who are still in harm’s way today, let us give thanks and say a prayer for their safe return.

Best regards and Happy Veteran’s Day to all!

Sunday, November 11, 2007

3rd World America

I originally wrote this article in March 2006. Though the words are over 20 months old, I feel the article is just as relevant (if not more so) today, as we see the financial wizards (1) hyper-inflate to rescue our financial systems and (2) literally throw the dollar off a cliff. In due time, it will become quite apparent that they have failed in their efforts to rescue the financial sector and our economy will fall to its knees. What could happen next is anybody’s guess, but I think it will happen and quicker than many realize.

Anyway, though my article below is not specifically related to the economy (it’s more philosophical in nature), I think it captures how we as a people have taken the wrong path and are now throwing away what our forefathers have built for us. Ultimately, if we stay on this path, our wake-up-call could be quite severe.

I hope you enjoy the read…

As a USAF veteran, I’ve been fortunate enough to have had the opportunity to travel the world, experience numerous cultures, and see some of the best this small planet of ours has to offer. I’ve ridden a camel through the Sahara Desert, visited several of the Egyptian Pyramids, swam in the Red Sea, drank beer in Germany, sunbathed in Spain, toured a bit of Italy, shopped for gold in Qatar’s bazaars, visited WWII sites in the Philippines, pulled some R&R in Kenya, climbed Mt Sinai at 3am to watch the sun rise, touched remnants of the burning bush @ St Catherine’s Monastery, etc. Those were some great times…

With that said, I’ve also seen some of the worst this world has to offer. In many of the places I’ve visited over the years, although exciting to experience, I witnessed far too much human suffering. Poverty is rampant and almost the “norm” around the 3rd world. In some of the extreme cases, I’ve seen homeless beggar children (and adults) roaming city streets pleading for handouts; in-your-face prostitution as impoverished girls try to earn money any way they can to better their lives; entire communities living in slums/shanty towns--some living next to or in garbage dumps—existing off the refuse of others; the disfigured & crippled cast aside by society, and with no social programs available, left on the street to fend for themselves… I guess the absolute worst that I’ve seen over the years was the massive numbers of starving, skeletal shells of human beings trying to survive any way they could in war-torn Somalia--the smell of death hanging in the stale air as thousands of bodies slowly decayed beneath shallow improvised graves baking in the desert sun… It was an absolute nightmare and words cannot describe the complete despair and atrocious living condition of those people.

Anyway, each of these unique travels was a new learning experience for me, yet my heart always ached for the thousands upon thousands of unfortunate people I encountered. But aside from empathy, I knew there was little I could do for these folks.

Ultimately however, these travels & human experiences did open my eyes to the many blessings that I had previously taken for granted, and it also provided me with a much better appreciation for the countless advantages that we, as American citizens, have. Lastly, these experiences provided me with a new awareness for the fragility of life in general.

I only wish more Americans could visit 3rd world countries to see how the majority of the world lives. I honestly believe that most Americans have no concept of what life is like outside of our borders, and aside from what little they see on TV (when not watching Survivor or Idol) they are completely oblivious of the hardships people endure just to survive.

So, why am I bringing up this issue? Answer: We are a great nation of wealth built through the hard work and sacrifice of our forefathers, yet I believe our greatness is slowly slipping away--from both an economic and a cultural standpoint. In our get rich quick, baggy pants wearing, MTV lovin, fast-food eating, living for today, throw-away cultural mind-set, I think we’ve lost sight of what is or should be important, we don’t respect one another, we don’t appreciate what we have and are far too preoccupied with our own self interests. We have turned into an “all about me” society where everyone wants something for nothing and if we can’t get it now, we whine until someone listens.

American society has made it an accepted norm to be caught up in trivial things (fashion, keeping up with the Jones', reality TV, the latest unsolved murder mystery, sports, shopping, Hollywood, petty lawsuits, material things, etc), and the truly important things in life (family, values, education, hard work, social courtesies, respect, religion, caring for others, etc) have fallen by the wayside. Each and every day our brains are filled with mush and we become far too ignorant to realize that the things that once made us a great nation are slipping away.

I love this country, but feel that if things don’t change soon, we’ll eventually follow the path of the Romans and ultimately will see to our own demise... A 3rd world America.

Friday, November 09, 2007


Though I don’t post very often (full-time job and family), every day I try to read various opinions regarding geopolitics, financial markets, the housing debacle, banking issues and the swiftly approaching credit/financial crisis (of which the masses, fed by daily mainstream propaganda, are completely oblivious).

Anyway, one of the many folks who I regularly follow is Charles Hugh Smith-—a superb writer with a knack for simplifying various complex economic issues... Well, today I ran across one of his articles that I absolutely had to share, as it simplified the very complex financial instruments called derivatives (identified by Warren Buffet as financial weapons of mass destruction).

Derivative instruments are used by markets to hedge bets, and their use/popularity has exploded over the last 10 years. Today, the world is awash with these weapons of mass destruction and hundreds of TRILLIONS (yes, that was not a typo) of these bets are so over-utilized and intertwined throughout the various financial markets, hedging one’s bets against losses, that no one really understands the true impact of any one loss against another and the daisy chain effect caused by simultaneous losses of many with the same bet.

Problem is: we’re now starting to find out... As the housing bubble bursts, the financial world is swiftly realizing that their insurance bets on losses (derivatives) were also used by everyone else and the losses are so staggering, there is absolutely no way anyone can get paid.

Aah… I’m starting to get emotional and I’m pounding on the keyboard so I’ll just let you read the article for yourself... Enjoy!

(Caution: If you thought I was pessimistic, you ain’t seen nothing yet).

Empire of Debt I: The Great Unraveling Begins

Some readers have been concerned that my recent posts have been overly bleak or strident. Perhaps; but I sense the Great Unraveling of the Empire of Debt is finally upon us, and breathtaking losses could be revealed any day now.

You cannot properly anticipate the coming wealth destruction unless you understand that the entire model rests on financial instruments (derivatives) which mask and distort risk. Thanks to readers Cheryl A. and U. Doran, I read the best description of how derivatives are written and sold--and how they blow up: Fiasco: The Inside Story of a Wall Street Trader .

Here is an analogy. Let's say you are offered a chance to play roulette, a very risky game of chance, but with an option for insurance which guarantees you will suffer no more than a tiny loss.

Let's say you place a $10 bet, in the hopes of winning $100. Your "insurance"--what we call a hedge, as in "hedging your bets"--costs only $1. Thus you can gamble $10, with a chance of winning as much as $100, and your loss is limited to a mere $1--the cost of your hedge. If you lose the $10, the other side of the hedge trade--whoever took your $1--will give you $10. Life is good, n'est pas?

Note what this hedge does: it makes you believe a high-risk game can be played at almost no risk. But alas, the game is inherently risky, and the reduction of risk is ultimately illusory: you can't change roulette into a low-risk gamble.

Since this is such a low-risk bet, you are soon gambling, say $100 billion. And why not? The hedges are so cheap! Abd everything goes swimmingly until the day you lose the $100 billion. Ah, bad luck, Mate; but no worries, you turn to the other side of your hedge and politely request your $100 billion.

Oops--that guy just lost his bets, too, and can't pay you. Now the risk of the underlying game is fully revealed; the entire hedge which made it all so "safe" is revealed as a house of cards which depends on all the other players being able to pay off their bets. Once they can't, well, as the saying goes, all bets are off.

To hide your immense losses, you continue to claim your bet is still worth $100 billion. Since you aren't required to "mark to market," i.e. reveal the market value of your bet, you stash the $100 billion loss in "Level 3" of your assets--a dark place where you can temporarily hide your worthless bets.

In other words, you bought an insurance policy to protect your risky bet on mortgage-backed securities and derivatives and now you find the insurer is belly-up and can't pay you.

If their bad bets were marked to market, Citicorp and Merrill Lynch would be declared insolvent. Why? Because they are insolvent--right now. The meaning of insolvency is straightforward: their losses exceed their capital. Recall that these firms list assets of $100 billion (or whatever) but their actual net capital is on the order of 2.5% - 5% --a mere sliver of their stated assets. In other words: a 5% loss of their stated assets wipes them out.

And once those leviathans fall, what other dominoes will they strike down?

The financial catastrophe which will unfold within the next few weeks is fundamentally a gross mispricing of risk. Inherently risky bets were encouraged because they were "hedged." That's what Hedge funds do: place bets on both sides so they collect gains whether the markets go up or down. But the risks of the gamble didn't really change; the introduction of low risk to a high-risk bet was an illusion.

The whole risk-management model depends on somebody being able to pay off the hedge. If they can't-- the game is over. the game is now over, and the players shuffling losses can only last a few more days or weeks.

The game is over for other fundamental reasons, too. The U.S. "prosperity" of the past five years has depended on one thing and one thing alone: cheap, easy borrowing, by consumers, home buyers, businesses, gamblers/bankers and government--cheap easy credit for everyone.

This was funded by capital inflows of billions each and every day. Foreigners poured trillions into U.S. markets, buying up risky mortgage-backed securities, supposedly "safe" U.S. Treasuries, and U.S. stocks, bonds and derivatives.

Now as the Fed and the Treasury destroy the dollar's value, foreign owners of dollar-denominated assets are seeing their wealth decimated. That "safe" Treasury you bought in 2002? It's down 30% as the dollar has been depreciated. You're underwater so deep you'll never make that money back.

And how about all those Yankee CDOs, MBS, interest-swaps and other exotic derivatives which Yankee ingenuity invented and sold to you as low-risk, high yield investments? They're mostly worthless now. You lost most of your money in a "safe investment." How anxious are you now to buy more Yankee "investments" denominated in the sinking dollar?

There goes the capital inflows which have funded our profligacy. They're gone, and not coming back. Mr. Bernanke and Mr. Paulson are busy destroying the dollar with interest-rate cuts, fueling runaway inflation as they flail mightily to save their banking buddies--but they can't succeed. Making more debt available to bankrupt entities, be they investment bankers or homeowners, solves nothing. It's called "putting good money after bad," and it simply guarantees ever-larger losses.

Allow me to sum it up: the money's lost, folks. You can't borrow more and pretend you made the money back. All those trillions in bad debt and derivatives are already lost. The Ministry of Propaganda is in a tizzy, trying to mask the meltdown and offer up a facade of normalcy. But the money's already lost.

Will it be contained to the U.S.? Why should it? The bad debt is everywhere. And the spending spree all that borrowing unleashed washed over the entire globe. Now that Americans can't borrow any more, the spending dries up--and so does the global "prosperity" built on an Empire of Debt.

Please link to original site for the rest of his article: Empire of Debt I: The Great Unraveling Begins


Thursday, November 08, 2007

Ron Paul Schools Ben Bernanke Today:

Ron Paul Schools Ben Bernanke Today on inflation and the falling dollar:

CNBC - Traders Cheering on Ron Paul, briefly talk about the credit crisis and discuss the massive wave of incoming inflation

Saturday, November 03, 2007


It seems the masses still believe our skewed government inflation statistics. Yes the stats that regularly get spouted by the babbling heads in the media… Sure, these same folks end up scratching their heads while paying higher prices for nearly everything, but why should they doubt what the government and the boobs on TV have brainwashed them to believe? Certainly, the government is looking out for our best interests—Right…?


The government knows that most believe their blatant lies, therefore (in a futile attempt to manipulate the system ever more--to keep the banking/financial systems from collapsing) they continue to press the limits of common sense and their lies become ever more egregious. Eventually, (and it’s not too far off now) the masses will finally wake up and realize that they have been duped. By that time however, inflation will have eaten them alive.

So what is inflation? Nearly everyone understands that inflation is an increase in the price of goods and services, but what actually causes these increases? Well, those who follow the government’s skewed doctrine falsely believe that inflation is caused by higher wages, which in-turn causes more people with extra money to chase the same number of tangible goods--driving up prices. In reality though, inflation is actually caused by excess growth of the money supply, without a commensurate increase in the supply of goods and services.

OK, so what does that really mean? Well, the powers that be have absolute control of something called a “printing press” and they use it to create money (backed by nothing) at ever increasing rates. They inject this money into the banking systems and economy to keep inflation going, because if they stop doing so, deflation will set in—which can lead to an Economic Depression.

The problem right now is: The largest speculative bubble in our world’s history is beginning to deflate (Housing Bubble) and its reverberations are being felt across the entire globe: Hedge funds are collapsing, bank write-downs are massive, toxic waste marked-to-model Commercial Paper (CP) sitting in off-balance sheets cannot be offloaded (and will soon have to be accounted for), credit markets are drying up, and home foreclosures (the catalyst to all these problems) are just now getting started. (See Mortgage Rate Reset Chart Below—The resets have merely begun ):

The Fed and US banking systems understand that deflation is setting in and are now operating in crisis mode... In a brazen attempt to prevent a collapse of the entire banking/financial systems (and hence the US Economy) “Helicopter” Ben Bernanke (under severe pressure from Treasury Secretary Henry Paulson and the many heads of leading financial institutions) has sacrificed the dollar in the hopes of printing/inflating our way out of this mess.

What do you mean he sacrificed the dollar? Well, by virtue of the Fed lowering short-term rates and printing/injecting money at the fastest rates ever seen in history, foreign holders of US dollars (now holding over $4.4 Trillion in US Government Debt) understand that the inflation tide is coming in; they know they can make better returns on their savings elsewhere, and therefore they have started to offload their massive dollar holdings.

Additionally, for decades now, many foreign countries have pegged their currencies to the US Dollar, but recent inflation increases, internal to their domestic economies, is becoming far too severe for them to handle (with the dollar peg, they have to print money as fast as we do, and it is stoking inflation), therefore several countries have started a new trend of depegging. Recently, Vietnam, Qatar and Kuwait have depegged, while a host of others are in line to do the same. When this depeg happens on a larger scale (not if, but when) inflation within our borders will SCREAM. Why? Well, as they de-link from the dollar, their currencies become stronger causing our import costs to increase Commensurately (e.g. Oil, consumer goods, etc).

BOTTOM LINE: To prevent deflation, the US Fed is creating inflation at the fastest pace in history and the dollar gig is nearly up! See chart of M3 Money Supply Growth below (Recreated by Shadow Government Statistics): M3 is growing by >15%

Additionally, take a look at the US Dollar Index (below). NEVER before in our country’s history has the dollar been weaker—and it’s only going to get worse as this banking crisis evolves and the inflationary escape mechanisms (printing presses/monetary injection) are blatantly overused, while at the same time a greater number of countries de-peg their currencies from the Dollar.

Recent data from the Bureau of Labor Statistics suggests that current inflation in the US is running at modest annual rate of 3.6%.

“ Consumer prices increased at a seasonally adjusted annual rate (SAAR) of 1.0 percent in the third quarter of 2007, following increases in the first and second quarters at annual rates of 4.7 and 5.2 percent, respectively. This brings the year-to-date annual rate to 3.6 percent and compares with an increase of 2.5 percent for all of 2006.”

Maybe it’s just me, but my Seat Of the Pants Inflation-o-Meter (SOPIM) and my empty wallet are both telling me that inflation is running at a much, much higher rate than that... I’m now paying $3 a gallon for gas and $3.50 for a gallon of milk; my electric rates were jacked up twice last year; car insurance premiums were increased; It cost me over $40 bucks just to take my kid bowling the other day; hell, it now costs $10 a person to see a movie—forget about popcorn and a soda.

So, why does there seem to be a disparity between my SOPIM and Government provided statistics? BECAUSE THERE IS A DISPARITY AND THE GOVERNMENT NUMBERS ARE ABSOLUTE BALONEY!

Take a look at the Consumer Inflation graph below. The red line depicts the inflation statistic our government officials want you to believe (inflation is moderate)… They calculate this rate by excluding many food and energy products, by using rent vs. mortgage costs and by using substitution methods (e.g. steak prices showed a spike this quarter so we’ll substitute our calculations with the price of hamburger) and Hedonic Adjustment Methods (e.g. a computer has twice the processing power of the previous model but at the same cost—therefore cost has been reduced 50%)—Bottom line to these red numbers: It’s all a Con Job!

With all that said, now take a look at the blue line in the same graph. This line accurately illustrates our real rate of inflation in the US and is calculated by using the same metrics that were used prior to a change of rules that took place just before the Clinton administration took office. As you can clearly see, today's inflation rate is actually running at >10%… Now that seems to be more in line with my SOPIM.

So, why does the Government lie about Inflation? Well, by virtue of using this fictitious inflation number in a myriad of annual government calculations, the government can reduce the cost of obligations and entitlements programs (e.g. Social Security and other Government employee cost of living increases {think military and civil servants here}, Medicare payments, welfare increases, etc), as each program receives an annual COL increase based on the reported inflation index.

Additionally, these bogus lower inflation numbers are also used to make Gross Domestic Product (Economic Growth of the Country) look much better than it really is... If the higher (actual inflation) number were to be used, GDP would be abysmal (See blue line in the GDP chart below—this line illustrates actual GDP based on the true >10% rate of inflation). WE Have Negative Growth my Friends!

So, what if, after reading this long explanation, you're still having a hard time believing that the government would lie about inflation numbers? Ok, that’s completely understandable, as we’ve all been programmed to think a certain way for far too many years to change on a dime… So, lets look at it another way.

Why did the price of gold reach a 28-year high last Friday (closed at $806 oz)? Well, the reasons are: Gold is SCREAMING to us that the Fed will continue to try and inflate our way out of this banking/financial market crisis and will do anything to prevent deflation—including hyperinflation. Gold is telling us that smart money is seeking safety as the dollar is thrown off a cliff. Gold is telling us, all is NOT WELL in the economy and your savings will soon be eaten alive by inflation. Gold is telling us that people are scared. Gold is saying, batten down the hatches cause a trainwreck is unavoidable!

I know it’s hard for people (who have been conditioned to believe in the everlasting greatness of our country) to think or believe that things could spiral out of control, but they can. Never in the history of the world has a fiat based economy lasted beyond a few decades. Since 1971, when the dollar was pulled off the gold standard, the dollar has been 100% fiat—a currency based on nothing but a promise--a promise that cannot be kept.

Bottom Line: There are no set limits, no regulation controls, and there is absolutely no one holding public office who can tell the Federal Reserve Banking System (a group of Private bankers who control the nations currency) how much money they can or cannot create. The Fed has complete control of our monetary system and they will do anything they can to prevent the massive banking crisis/financial storm they see on the horizon. Problem is: Short-term rates, Printing presses and liquidity are their only options.

Hyperinflation here we come!

Peter Schiff video on declining dollar, purchasing power, credit problems, etc: LINK

A Closing Funny