Ron Paul: You're Going To Guarantee A Depression!!!

Ron Paul: You're Going To Guarantee A Depression!!!




You're Going To Destroy A Worldwide Economy

Can't Stop Kondratieff Winter!

Tim Wood, one of the writers/analysts I regularly follow, wrote an article on Friday related to the recent bailout package: It Ain't Gonna Work .

Tim feels (and I'd have to agree) that our financial powers that be (FPTB) have been working hard to fight a secular bear market that actually started in 2000, and their manipulative ways have merely delayed, but will not stop the looming Kondratieff Winter that lies in wait.

Excerpts from It Ain't Gonna Work :

By every historical measure the equity markets slipped into a secular bear market in 2000. As a result, we began to see efforts by the powers that be to keep the market afloat. I have stated all along that manipulation will ultimately not work. I have also stated all along that all this will do is make matters worse in the end. Well, I would think that everyone can now see, matters are indeed much worse. Yet, the Fed, the Treasury and the politicians continue to think that they can “fix” the problem by throwing more money at it. They do not understand that they can’t “fix” this economic crisis. They also do not understand that it is their trying to “fix” things in the past that has created the current situation. All markets as well as the economy must both inhale and exhale. They are trying to prevent the exhaling and it ain’t gonna work.

What we are dealing with is the wrath of Kondratieff Winter, which is about the purging of excess credit. Along with that comes deflation and along with that global stock markets enter into extended declines. Real estate declines, economic growth slows, commodities decline, bankruptcies accelerate as the excess credit is purged from the system, the banking system is shaken, the free market is blamed and we move toward national fascist political tendencies. We are now seeing each and every one of these symptoms of K-wave winter. For the record, I did not make up these symptoms to fit the current situation. I have original writings by Nikolai D. Kondratieff and the signs of K-wave winter were quoted from a book by David Knox Barker titled, The K-wave and was published in 1995. Don’t think the powers that be aren’t aware of Kondratieff Winter. They know full well what we are facing and that is why they have tried to hold back its wrath as diligently as they have since 2001.

...Personally, I think that the powers that be helped to make matters worse by postponing the inevitable and that they are now facing checkmate because the dye has now been pretty much cast.


So you ask, sounds pretty scary, but just what exactly is a Kondratieff Winter?

Well, a piece I wrote back in 2007 explains what it is and then goes even further by explaining why/how the Kondratieff Winter of 2001+ was delayed - to now anyway:

Suggest you become familiar with the term, as it will be our destiny: Kondratieff Winter - From Dec 2007 Post


Best Regards

Randy

Senate Overwhelmingly Passes Bailout Package

Our Elected Wall Street Cronies (Senate) overwhelmingly passed the massive bailout bill tonight with a final tally of 74-25.

Guess our only hope for failure is in the House vote on Friday - Keep sending the emails and phone calls - let them know how you feel!

DON'T LET THIS PASS! Contact your Congressional Representatives and tell them: NO BAILOUT!




The Senate added numerous sweeteners to the Bill on Wednesday and it is now 451 pages - It'll probably grow once again when the house is finished.

Sweeteners:

- The Senate modified the $700 billion financial rescue plan with a provision that gives the Treasury Department the authority to buy troubled mortgage securities.

- The bill also now includes an extension of numerous tax breaks for research and development and renewable energy companies, as well as personal tax breaks for college tuition and disaster victims.

- It proposes adjusting the Alternative Minimum Tax, so it doesn't hit more than 20 million middle class Americans in 2009.

- Another key modification is a one-year increase in the limits of personal bank savings the government insures up to $250,000.


CLOSING:

If you want to band-aid our MASSIVE economic problems only to experience hyperinflation (combined w/economic depression) later in the game, do nothing. Otherwise, get on the phones and email your Congressional Representatives.

Ultimately, we're headed for ENORMOUS economic pain - regardless of whether or not this Bill gets through the House, but we the people have a voice and we need to be heard!

If united, we can work to take down this corrupt cesspool of Banks/Wall-streeters who have pulled the strings in Washington for far too long.

Question:

Is our current status-quo gvt. the appropriate government to pass on to our children?

Before answering that question, I want you to think long and hard about Abraham Lincoln's words given at the Gettysberg Address: so "that government of the people, by the people, for the people, shall not perish from the earth."

Well my friends, that form of government has perished from the earth and Wallstreet now makes all the rules.

Again, do your part as an AMERICAN WHO DEMANDS CHANGE: DON'T LET THIS BILL PASS!

Contact your Congressional Representatives and tell them: NO BAILOUT!

Best regards

Randy

Bailout or no bailout - what's the difference?

Many Americans are being brainwashed into believing that our economic woes can be resolved with the "saving grace" of a $700 Billion taxpayer bailout package - being crafted over the weekend.

Well folks, It just ain't going to happen that way...

This package (if approved) may slow the speed of our debt implosion, but the debt implosion train has already jumped the tracks and can not be stopped. A Massive Recession or Depression is well on its way.

If it's coming anyway (you ask), why not try to slow it down with the bailout?

Well, there are several very harmful side effects of passing this bailout - the most significant being: a falling US Dollar/inflation for every American household.

What do I mean?

Well, if passed, we will still experience the same (albeit slower) consequences of the debt implosion: unemployment figures will rise significantly and the value of our assets (homes, cars, boats, toys and other expensive gadgets) will tumble as people flood the market with these items to (1) get rid of the added household expense and (2)use the proceeds to help put gas in the car/food on the table.

The difference will be: If approved, we will experience a significant increase in the cost of living - simultaneously with debt implosion/falling asset values, etc...

Food, gas, clothing, imports, etc, will all skyrocket in price - significantly increasing the cost of maintaining a household.

Ultimately, this bailout will not be enough money and other bailouts will likely follow (due to this precedent) and the Massive Recession/Depression will turn Hyperinflationary in nature - Sticking it to the average Joe from both ends.

Closing:

I just finished watching the Presidential debates. In a nutshell: I wasn't too impressed with either of them, but one key comment stuck and resonated within my head throughout.

When questioned on the pending bailout package and the economic crisis, John McCain stated" "This is not the beginning of the end, but the end of the beginning - if we come out with a package that will keep these institutions stable."

A keen realization that this package is just a bandaid - to slow the bloodletting, with the understanding that there will be much more bloodloss to come.


Hold on to your hats folks!


Randy

Dollar Collapse - America - It's Time To F_cking Panic

Peter Schiff on the Glenn Beck Show - Hyperinflation mixed with Depression

US heading for Depression?

Just got home from a busy business trip and trying to get my head around current events/issues. My inbox is full! Apologies for lack of posts and correspondence the last couple of days

Hat tip FoFoa for the following video tip!

Bailouts Will Push US into Depression:

The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday.

The Crash of 1929

Originally produced in the mid-1990s, this film remains the most authoritative account of the Crash of 1929, and includes rare testimony from the people who worked on Wall Street at the time

Fannie and Freddy -- walking dead

I've been hammering Fannie and Freddy since my very first post in 2005 and have always suspected that they were merely walking dead, but the Gvt. couldn't allow the public to know this, so they propped up their carcass of a body just like the characters did their boss in "Weekend at Bernie's"

Well, it now looks like the cat is out of the bag, as former St. Louis Federal Reserve President William Poole said Freddie Mac and Fannie Mae are insolvent and that the government might need to step in to rescue the struggling lenders.

“Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,” Poole said Wednesday.

In other words, he believes they're virtually bankrupt!

Fannie, Freddie Tumble on Bailout Concern

July 10 (Bloomberg) -- Fannie Mae and Freddie Mac, the two biggest providers of financing for U.S. home loans, fell to the lowest levels in 17 years in New York trading after a former Federal Reserve president said the companies may need a government rescue.

Fannie Mae tumbled as much as 24 percent and Freddie Mac slumped as much as 34 percent in New York Stock Exchange composite trading after UBS AG analysts said in a report today that Freddie Mac's decline creates ``challenges'' for the company's plan to raise $5.5 billion

Chances are increasing that the U.S. will bail out Fannie Mae and Freddie Mac because they don't have enough capital to weather the worst housing slump since the Great Depression, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington- based company show, and may be negative next quarter, Poole said.

The companies, created to boost homeownership and promote market stability, own or guarantee about half the $12 trillion in U.S. home loans outstanding. In addition to those obligations, Fannie Mae has $831 billion in company bonds outstanding, while Freddie Mac has $644 billion, according to Bloomberg data.

Government Ties

Congress created Freddie Mac and expanded Fannie Mae in 1970 to promote home buying in the U.S. The companies' charters give the Treasury the authority to buy as much as $2.25 billion in each of their securities in the event of possible default.

The government will likely be forced to take over the companies because of the mortgage meltdown, Poole said.

``We know in a crisis the Federal Reserve tap would be open,'' said Poole, now a senior fellow at the Cato Institute.

The bailout of Bear Stearns Cos. by JPMorgan Chase & Co., arranged by the Fed, demonstrates the government's unwillingness to allow ``large, systemically important'' financial institutions to fail, he said. Bear Stearns collapsed after customers fled amid speculation the company faced a cash shortage.

``I worry about those institutions,'' retired Richmond Fed President Alfred Broaddus said. ``They are huge. They dwarf the Bear Stearns issue. In the very worst case scenario, I don't know how you do it other than extend money and the public takes the loss.''

Bottom line:

This is huge folks! If Fannie and Freddy were allowed to fail (won't be allowed), we would quickly fall into an ECONOMIC DEPRESSION (i.e. lack of new home loan credit = lack of new money circulating, destruction of debt/bond/equity markets, a complete lack of home sales/swiftly building inventories, MANY times more home loan defaults than expected and an ABSOLUTE COLLAPSE IN HOME PRICES -- compounding several times over the current banking/financial system crisis and significant economic pains that we are now experiencing).

If the GVT indeed does bail them out (likely) expect a HYPERINFLATIONARY Spiral -- followed by a depression anyway. We're talking TRILLIONS of new dollars quickly added to a bloated fiat system that is already creating new money at a near 20% annual rate -- adding explosive fuel to a raging forest fire and increasing the velocity of US Dollar decline and ultimately Dollar hegemony collapse.

Once again, the Plunge Protection Team and Gvt are stuck between a rock and a hard-place, and the days of easy fixes have long since past... We should have taken our harsh medicine after the Dot.com crash, but the Maestro (Greenspan) wanted to leave his chair on a high note. Though honored, knighted and revered around the globe, Alan Greenspan (when history is written/analyzed) will likely go down as one of the WORST Fed Chairman EVER! I hope he can sleep well at night, knowing what he hath wrought.

As an aside: for those who don't understand the word hegemony (used above), I highly suggest you read a superb Ron Paul article written back in 2006: The End of Dollar Hegemony

All the best

Randy

Bloomberg: Hyperinflationary Depression

Tyche Group Senior Manager Martin Hennecke discussing his expectation for a hyperinflationary Depression in both the US and Europe.

Videos of Interest

The global "Credit Crisis" is back: Stephen Long, ABC Lateline covers ongoing problems and longer term impacts -- a short video: watch to the end.




Economic Consequences of Attacking Iran




Wake Up, Peons




Ross Perot is back! Launches Public Information Website

The American people must wake up and face the reality that promises made in the past will soon bankrupt this nation.

"The economic crisis facing America today is far greater than anything since the Great Depression," said Perot. "Our federal government continues to spend us deeper into debt. The American people must get directly involved and demand an end to deficit spending. Perotcharts.com

Bernanke's Next Moves

Federal Reserve Chairman Ben Bernanke this week took the unusual step of defending the US Dollar and stated:

"We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations."

In layman's terms: We understand that our policy of cutting interest rates and injecting massive sums of money into our banking/financial system is causing significant dollar devaluations which is, in-turn, stoking massive inflation and future inflationary pressures. We the Fed, are on top of things and are in the process of formulating new policies to stave off these pressures, so don't bet on future rate cuts and you might even want to plan on seeing future rate increases.

HA! What a bunch of bologna... He's trapped and knows it!

With reports of the biggest jobless increase in over two decades, the largest housing bust since the Great Depression, Contagion spreading across the banking sector -- with massive writedowns to follow, recent MBIA and AMBAC downgrades, and credit crunch phase-2 ready to kick in, he is absolutely, unequivocally a caged animal with no room to move.

If he dare increase rates (he won't) our current, severely understated economic contraction will intensify and the downward sliding economic snowball, gathering momentum, will likely burst into a banking/financial system collapse.

Previously, I stated we'll likely see a 2% FFR in 08 and a 1% rate in 09. Thus far, I've been right in 08 and I still feel strongly I'll be right in 09.

As I see it, the Fed will hold five more FOMC meetings between now and the end of this year and rate announcements will be announced on the following dates:

June 25th
Aug 5th
Sept 16th
Oct 29th
Dec 16th

Baring any drop below 11,700 on the DOW between now and June 25th, I expect the fed to pause at the next FOMC meeting(no action on rates) -- If we do drop below the stated number, expect a new rate cut.

I expect Credit Crunch Phase-2 to kick in by Aug/Sept 08, and it will likely make phase-1 look like a walk in the park, so expect a cut at one of these meetings and another in October 08.

By December, semantic debate over our full-blown economic recession will be over/recession will be unquestionable and our newly elected President will demand action -- so expect another cut.

Bottom Line: Expect a 1.5% or lower FFR between now and the end of this year and a 1% or lower in 09.

Helicopter Ben's recent "strong dollar" talk is just that -- "talk", so don't expect any change from current policy.

US Dollar index going below 70 this year and inflation will intensify... His rant was all smoke and mirrors for the gullible.




Best regards

Randy

Economicrot.blogspot.com

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Absolutely Staggering Housing Chart!

May 29th - Economist.com

America's house prices are falling even faster than during the Great Depression



AS HOUSE prices in America continue their rapid descent, market-watchers are having to cast back ever further for gloomy comparisons. The latest S&P/Case-Shiller national house-price index, published this week, showed a slump of 14.1% in the year to the first quarter, the worst since the index began 20 years ago. Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year.

UPDATED: US Economic Outlook 2008 -2011+ Briefing

Recently, as part of a broad based financial education class for younger folks (in their 20's-30's), I was asked to provide an economic outlook assessment/briefing to help these young adults gain a better understanding of the very complex problems the US economy is dealing with -- both current and future.

Other people will provide generic information w/regard to: balancing a checkbook, living within your means, using credit wisely, investment options, compounding interest, etc... My main objective is: try to make a very complex issue (economic problems/future forecasting) easy to follow, so that these young people can make wiser decisions based upon the knowledge they have gained.

With that said, I have yet to give the actual briefing (it's scheduled for early June), so I thought I'd take advantage of the available time and ask some of you smart folks to review and provide feedback w/regard to content, complexities, general flow/digestibility, accuracy, missing content, etc...

Please remember -- this briefing was tailored for folks who know little about the history of money, the broader economy, inflation or the many issues in play. Additionally, I plan to expound upon many of the points made in the briefing (when presenting it).

Would really appreciate your comments/feedback.

NOTE: briefing updated based on reader feedback and 207 reads today -- very much appreciated!

The following topic's were added/corrected:
- 20% annual growth = 4 year doubling of money supply
- Short history on Federal Reserve
- US Dollar as World's Reserve Currency
- Oil/OPEC issues (imbedded w/Dollar and Current/future outlook)

US Economic Outlook Briefing (Use full-screen mode for best results)


Thanks in advance!

Randy

Worse than a Recession?

Peter Schiff on Bulls and Bears says YES -- We're on the verge of economic collapse

Fed Underrates Inflation

CNN Interview with John Williams (from ShadowStats.com). John has been an economist for many years and his keen investigative work has been responsible for illustrating how our Gvt manipulates a myriad of figures to radically understate inflation and unemployment while overstating GDP and a whole host of other data products -- yes, all the bogus, but "Official" data products that get cited by our gvt/media.

Here John discusses the rapid growth of M3 (our money supply) and what we can expect to see in our economic future -- Severe Inflation, falling dollar (worth_less) and a severe recession (the worst business cycle since the great depression); "potentially" followed by a Depression

Death of a Dream

I just read a great article that needs to be shared. Though quite unconventional and slightly radical in his rant, Roger Mason makes many very good points and I rather enjoyed his writing style/perspective... However, if his timeline and conclusions are correct (which I have some reservations about), we are in far worse trouble than even I envisioned. Enjoy!

Death of a Dream

After 232 years the American Dream is over folks. In the 1780's Alexander Tyler wrote, "A democracy is always temporary in nature lasting on average 225 years and cannot exist as a permanent form of government." The U.S. Constitution and Bill of Rights have been gutted. We almost elected an openly Marxist lesbian as our President and Commander in Chief. Obama Osama is to the left of Hillary, if you can comprehend that. McCain is dying of jaw cancer as if that isn't obvious. 1 in 10 American adults, children, and infants are on food stamps. One in six are government employees. The housing crash is just warming up! 59% of homes for sale in Los Angeles are fore-closures. They are selling for 50 cents on the dollar at auction. Adjusted for inflation since 2005 it is a quarter on the dollar. The dollar is useless. Our trade and budget deficits are egregious. The DJI is ready to collapse down to 5,000 ultimately. The DJT and DJU are hopeless. Dow Theory is telling us the house of cards is about to fall. Illegal immigration is completely out of control, and McCain will open the border gates even wider. Real unemployment is 14%, and real inflation is 18%. Four major airlines just went bankrupt- ATA, Skybus, Frontier, and Aloha (ATA was once the 10th largest). Alan Greenspan just publically admitted we're in a recession. We've been in one for months, and 70% of Americans know that. Gordon Brown (England's Prime Minister) just said we face the greatest economic crisis of the century. George Soros said the economic situation is hopeless. Warren Buffet basically said the same thing. Only 10% of our jobs are in manufacturing. We're now a mere service economy. We are closer to the Much Greater Depression every day.

Real inflation is now up to 18% as proven by configured M3 figures (which the government refuses to print anymore). See www.shadowstats.com if you want to verify that. Has your salary gone up 18%? Your home? Your private or government pension? Your Social Insecurity? Of course not. Your wealth has to go up 18% a year now just to break even! Let's take a prime example: General Electric (GE) was $28 five years ago.

Estimating 10% real inflation over that time GE stock would have to go up ($31, $34, $37, $41, $45) to $45 just to break even. It is $32 now, so it is DOWN 30% in the last five year. The real purchasing power is down almost a third in only five years.

What can you do? Put every penny you have into silver. If you can't convert your IRA/401k to American silver stocks then dump it. Take the 40% hit, and put the 60% into silver. There is a severe shortage of silver bullion, but you can still buy it at Gaithersburg Coin in Maryland. There has never been a silver shortage in the history of the world until now. Soon we will be completely out of silver, and mine supply (and recycling) will not begin to cover the shortage. Silver will go to $200 an ounce and probably keep going. Gold should merely go to $3,000.

Look for $30 silver by Christmas. In addition to Quaterra, Silverstone, Impact, U.S. Silver, ECU, Fury, Endeavor, and First Majestic, we're going to add Genco today (we don't own this). There are only about 50 real silver mines in the world, and only maybe a dozen are worth buying. You must hold any bullion in your own personal physical possession. You cannot own ETF's, silver certificates, or other paper silver. You cannot let anyone store it for you. If you don't possess it, you don't own it. The $4 correction from $21 to $17 makes this a strong market which is now blue skies all the way to $30. Silver has far, far more potential than gold, and cannot be confiscated.

With Admiral Fallon out of the way, our illegal, immoral, insane, unethical attack on Iran looms closer. McCain and Petraeus won't shut up about the "danger" Iran poses to us. We have already attacked the Iranian banks with FinCEN. The Saudis are preparing for it. The Russians have detected American military buildup on the Iran border. Our war- ships are in the Persian Gulf. We have a record number of troops in Afghanistan. Syria is preparing for an attack by the U.S. CNBC, CNN, and the media constantly beat the Iran-ian war drum. An attack on Iran is going to end in disaster in many, many ways. Go to www.vdare.com and read Paul Craig Roberts about this. No more oil will be just one of the results. Gasoline and diesel are now $10 in Europe, and soon will be $10 here. Can you say "$10 gasoline"? Truckers are already starting to strike to stop federal and state diesel taxes for trucks. They are going to have a nationwide strike as they can't feed their families. American moves by truck. A trucking strike will freeze this country. Suspend-ing all commercial diesel fuel taxes would be good for this country. Support the truckers, unless you want the economy to grind to a halt overnight.

CNBC is the official government disinformation center, and Jim Cramer the Emperor of Disinformation. Watch his show to see what NOT to do. Whatever he tells you to buy, you sell it. Notice that Cramer missed the move in gold from $300 to $1,000, and the move in silver from $5 to $20. He still ignores both gold and silver, while he tells you to invest in the house-of-cards stock market. Do the opposite of anything he says. The DJI to gold ratio used to be 1:1 in 1980, but went to 45:1 in 2000. It is now 13:1 (12,300: $930) and headed back to 1:1.

Have you noticed your local shopping mall is going under? Have you noticed how many empty stores there are in your local strip malls? The Big Three Auto Makers are all broke. The entire banking system is bankrupt. The fifth largest bank in the world, Bear Stearns, is bankrupt. Citibank, Wells Fargo, Lehman, Bank of America are all next. Wachovia, the fourth largest, is about to go under as well. Open your eyes! Nothing like this has happened in almost 80 years since the last depression. You don't need to be a psychic to see the future; just look closely at today. The bailout (at YOUR expense) will just make things worse. The entire world banking system is coming unglued with the DERIVATIVES unraveling. Now the Federal Reserve is going to take over our entire investment system, nationalize the banks, and make Russia look like a free country. After the Federal Reserve was formed in 1913 the dollar has lost 99% of it's value. That's right- the Fed has made the dollar worth a penny in 95 years. Countless major chains are going under every day. The Top 10 Home Builders are completely and totally done in. The budget deficit worsens every day. The national debt gets deeper. The trade deficit worsens. We can't even sell T-Bills and T-Bonds to the fools who were buying them. The U.S. dollar is Monopoly Money. Inflation is destroying the middle class here- the very bedrock of America. We used to have the cheapest most plentiful food supply on earth bar none. No longer. Seen $1.19 lemons lately? Watch beef become unaffordable by the end of the year like in socialistic Europe. Restaurants are going broke. Hotels are going broke. Most everyone is going broke.

The energy crisis is a lie; we have endless energy available now. Global warming is complete scam. Ethanol is a government funded scam- at your expense. Coal, natural gas, and uranium are plentiful, and will last for hundreds of years. The military has enough oil off the coast of Alaska for 100 years. We don't even have any oil refineries now. Oil is useless without refineries. Windmills for power is a joke out of the 18th century. Hydrogen fuel cells are a long, long way off in the future. Hydroelectric is limited. We have no SASOL plants in the U.S. to make endless $4 liquid fuel out of coal. 60% of all our energy is ELECTRIC, and we can generate all we want with coal, natural gas, and uranium.

If you think things are bad now, by Christmas you'll be ready to jump off a bridge. 2009 to 2010 will usher in the Much Greater Depression, and events will unfold so quickly you'll be shocked and blindsided. We'll get Patriot Act II for finances. Banks will be nationalized as all police states do. Food and gasoline will be rationed. You'll think you're in Cuba, only you won't have bananas. There are already worldwide food riots. People around the world cannot cannot even get rice to eat. The housing crash is just beginning, along with the stock market collapse. It's just getting warmed up folks.

Your salary, your house, your pension, your Social Insecurity, the stock market all have to go up 18% just to break even! That's just to break even and not lose. Are they all going up 18% or more? Of course they aren't, and your standard of living is going to hell every day- as is your future. Silver is $18, and will be $30 by the end of the year. Silver is your financial saviour. Silver has almost quadrupled in the last five years. Silver is going to $200 an ounce in the next five years. Silver is a much better investment than gold, and gold is a great investment.

So many major longtime companies and chains are closing stores and going out of business you can't name them all. Sharper Image, Wilson's Leather, Pep Boys, Comp USA, Ethan Allen, Macy's, Levitz, PacSun, Lane Bryant, Talbots, Krispy Kreme, Starbucks, Harley Davidson, 84 Lumber, Home Depot, RentACenter, Rite Aid, Sprint, Disney Store, and Linen'n'Things are just SOME of them. The list gets longer every month.

If you want to read more go to http://www.kitco.com/ and read the Contributed Commentaries.
Go to http://www.butlerresearch.com/ to see what Ted Butler has to say about silver.

Join GATA at http://www.lemetropolecafe.com./You can get a two week free trial and it's $199 a year.

Or you can just read the Econmic Rants twice a month for free. Soon the website http://www.economicrant.com/ will open. Free of course.

Now go out and buy all the silver you can!

Click here for Roger's Past Monthly Rants

Deconsumption: Timeline for Unfolding Crisis of Mankind

I'd like to refer you to a very prophetic article written by Steven Lagavulin back in May 2004 (Mainpage: deconsumption.typepad.com).

Steve's 2004 vision is absolutely amazing, and though his timeline has been off slightly, he has NAILED many of the events that have transpired through 2008. With such spot-on foresight (thus far), I think his outlook & viewpoints for the next decade should be seriously considered.

Main thoughts are: As we enter into a predicted depressionary period, we will deindustralize, deconsume, detach from the material world AND detox from mindless spending... Resources will become scarce, US Superpower status will be lost and WW III becomes quite possible. This depressed period will hone and temper our souls... Those that chose this as a test, and rise to the occasion will do just fine... those that are weak and cannot change will enter into the dustbin of history.

It is quite a long article and I've extracted the "meat" of it for you, but if you desire the full effect, please click on hyperlink below

Timeline for Unfolding Crisis of Mankind

Rules of Prediction

Rule #1) The three principle factors to take into consideration in any prediction are the Force of the event being viewed, the Conditions external to it that can alter its propagation, and the length of Time outward which we are trying to foresee. This rule really only applies in generality, since it inherently shows that there are so many different variables affecting the totality of events proceeding in the world and their further influences on each other, that we can really only claim to view possible future outcomes in broad brushstrokes. It also shows that the ability to foresee the future necessarily only takes into question the particular field we have elected to consider.

Keeping this rule in mind, I will try to present this outline in broad brushstrokes, and ask the reader to remember that the items I’ve selected to represent the unfolding Crisis are simply my own subjective reference points. Also, I make no attempt to look further out than 10 years, and will be broadening the brushstrokes even that far out until hopefully, like a Master Brush-painter, I’ll be able to represent the essence of the thing with only a minimum of ink. And if that isn’t the case, then maybe try to think of it as a work by Jackson Pollack…

Rule #2) The tendency when making predictions is to accelerate the natural propagation of events, and to do so on even course. Experience shows that large-scale events tend to unfold “in fits and starts”: moving at what seems to be glacial speed, and then suddenly seeming to “erupt” when some extraneous event acts as a catalyst to precipitate them.

Rule #3) It’s not realistically possible to predict how the Power Possessing Beings of the world will react to influence events, but they will almost certainly do so adversely. It’s somewhat easier to foresee the reactions of a large group of people than those of a small group, since a greater number of entities serves to regulate and streamline the degree of choices that are available to individuals. And the chief reason why the future almost never unfolds “naturally”, and in the manner we foresee that it will is because powerful people are always trying to manipulate it. Thus government entities, corporate directors, religious leaders, etc are continually acting to try to shape the future in their image. It’s a perfectly human impulse, and rooted in the nature of our consciousness: if we have this unique capacity to foresee how cause and effect will unfold, then our response will usually be to try to alter conditions—to the degree that we're willing and able—in an attempt to achieve a more desirable outcome. We all do this at almost every moment of every day. People with power, however, can obviously accomplish things on a much larger scale. But at the same time their actions will always be directed by their own imperfect, subjective view of the world--and almost invariably a view of the world that helps them to achieve more money, more power and more control.

Possible Timeline for Unfolding of Crises (w/ a US-centric bias):

Year 2004-2006

At first the significant stressors to Mankind will be economic collapse, social unrest, and to a very limited extent, the first signs of difficulty coping with the transition to a life of hydrocarbon scarcity.

During this period, currency devaluation—especially in the US Dollar—will be the significant problem, along with the resulting inflation as prices of basic commodities rise (or more accurately, fluctuate wildly following a general rising direction). There may be a triggering event which causes a sharp downward movement in the price of the Dollar, or it may be a continuation of the slow, “controlled” devaluation we are seeing currently, but regardless, even that will eventually accelerate as the foreign holders begin to capitulate. Inflationary pressures will be further exacerbated by the rising costs of gasoline and fuel oil, and their residual price effect on transport and shipping, travel, and food production. This will not be a result of “Peak Oil” conditions—although this will likely rise up to become the “cause du jour” for American and European activists. Rather, higher oil prices will simply be reflecting the instability of conditions in oil-rich regions, and also the insistence by foreign suppliers for higher prices to offset the declining value of the US Dollar (which oil is currently priced in). In fact, toward the end of this period we can expect to see oil-rich countries demanding payment in Euros or even Gold. This will accelerate the fall of the Dollar if it has not already crashed prior to this event, since Dollars will no longer be necessary to settle trade in the world’s most important resource.

In the US, the Federal Reserve will find itself chasing two rabbits (and catching neither): trying to reverse the massive inflation they’ve created over the past couple decades while simultaneously raising interest rates. The will try to telegraph each rate move in hopes they can control the resulting bond market decline. Consumers, especially in the US, will begin to drastically rein in their spending as rising interest rates force them to confront their massive personal debts. Unemployment will continue to rise in the US and EU as companies struggle to control costs and pare back under the growing realization that their customers are tapped out. On the heels of these events, debt default on all levels (Government, Corporate, and Personal) will likely begin to become problematic for banks and finance companies, which will be forced to turn the screws a little bit on their debtors. We may even see the first hints from Congress or the Senate toward reforming or repealing personal bankruptcy laws. There might be a return to “union busting” as corporations become desperate to survive, and strikes may become commonplace.

Housing prices will begin to decline, especially in upscale suburbs, as interest rates are forced up and many people find they cannot support—or are even upside-down on—their mortgage loans. Downsizing will become attractive (or more likely, necessary) in the face of rising unemployment. However, modestly-priced houses—especially those in or near cities having a diverse economic core—should hold up well.

There will likely be the beginning of a shift in public opinion away from SUV’s and toward the newly “fashionable” hybrid cars (and possibly alternative fuel cars as well). Expect the Hummer to become a watershed symbol for the end of an era. Still, it’s unlikely that Americans will give up their SUV’s without a fight, so it’s possible that Hybrid-Hummers, Enviro-Escalades, etc will be slated by the Big 3 automakers in an attempt to put a mind-spin on the more legitimate fuel-efficiency movement. National energy conservation and fuel economy campaigns appear.

The rising cost of oil will take its toll initially on industries such as air and ground transport and intensive agriculture. We will undoubtedly see at least one more major airline go under, and possibly more, as the government will be extremely hard pressed to get any kind of bail-outs approved. The rising costs of nitrogenous fertilizer and diesel fuel will drive up food production prices—further aggravated by the increased fuel costs for transport. As such, non-corporate, local agriculture and meat producers will become more competitive.

Violent civil unrest will begin to increase around the world as any number of angry, disenfranchised groups take their lessons from the Al-Queda handbook. The effectiveness of focused, persistent terror-strikes has grafted itself onto the world-view as a successful means for combating authority…or just simply sending a message. It’s possible the next terrorist attack on America will not involve foreigners….

The US-Mid-East War (nee War on Terror) is a major area of uncertainty because of the high probability for unexpected events. The US looks to be on track for repeating the mistakes of Vietnam, and public opinion is currently declining as the US is losing control of Iraq in many ways. The problem is that, unlike Vietnam, the US cannot simply “withdraw” as the region will quickly destabilize without their presence (thus cutting-off their control of the oil). The reinstatement of the Draft is already being bandied about, which might have flown if Gen-Xers were still of military age, but Boomers are not going to be eager to send their children off to Viet Nam II….especially when CNN has already shown them how un-romantic the defense of freedom really is over there. Still, a significant terror-event could serve to turn public opinion around, especially one on American soil…which is highly likely over this period of time. (Should such an event happen shortly before the November 2004 elections, however, it could backfire and become a public-relations time bomb for the current administration….). There is little doubt that Middle Eastern terrorist gangs are plotting attacks on American soil, and most likely the plans are of a sufficiently large scale to justify the effort. Most of these, however, will be poorly executed or thwarted altogether. Still, it’s likely that American society will have to suffer images of car-bombings at Pike Place Market in Seattle, or rockets fired into a major Las Vegas hotel, or some such.

One incident of high likelihood is that the rulership of the Saudi royal family will be overthrown or effectively compromised. This will severely weaken the US military position in the Middle East, and probably lead to a withdrawal of forces. In this event, oil prices would rise much more quickly and speed along most of the events in this Timeline.

World opinion of the US will probably continue to slide along with its economic and imperialistic fortunes. If President Bush is defeated for re-election this year, and his successor blames all problems on him and promises to redeem the American image, then there might be an opportunity to improve the country’s branding with the world. At least for a while. Any successor will find himself immediately caught up in the oil addiction issue, and with bad feelings in the Middle East and our troops already embedded there, it may seem awfully tempting to continue the Project for a New American Empire agenda. Meanwhile, Australia and Russia will be courting their Chinese neighbors, since that’s where their bread will be buttered. The same goes for the East Asian countries, including Japan.


2007-2010

This is the period where life will begin to seem more uncertain, and “triggering events” will undoubtedly pop up in many spheres to propel mankind headlong into the future. Because the “tectonic plates” of human interaction will be sliding and grinding together in all directions, there is also a high likelihood for some type of new and unexpected “extraneous” crisis to erupt—one that could not even be imagined today.

The Western-centric concept of “Globalization” will be fizzling fast as it becomes more costly to move resources around the globe. Money will be flowing fast out of the US looking for safe havens, and probably out of Western Europe as well. Asian currencies may become the beneficiaries of this, if their economies haven’t been stalled by the devaluation of their own massive dollar holdings, and the dwindling external markets for their products. But all currencies will be sliding, so perceived “strength” in any of them will be only relative. China will be hard-pressed to orchestrate a transition from an export economy to an import one, turning toward its own internal prosperity to provide a market for their goods. With massive overpopulation, it’s going to be almost impossible to sustain the kind of heated growth they’ve enjoyed for the past few years—without even mentioning the ravaging effects this growth is having on the environment worldwide. Critical pressures for food and oil there (China currently has no arable land left) will almost certainly turn Chinese aspirations northward toward Russia, with its overabundance of both—perhaps to forge friendly alliances…or perhaps not….

If not already underway, there is a high likelihood of a derivatives crisis triggering global bankruptcy in the financial world during this period, probably initiating in the US mortgage industry. Governments will be unable to honor real or implied guarantees. This will effectively doom any hope that the Central Banks might be able to “manage” the economic and currency crises that have been unfolding. Bond rates will continue to soar, driving bankruptcy rates much higher, especially among residential and small business borrowers.

Worldwide, a void will begin to be felt by the beginning decline of the US as a superpower. The signal for this won’t be hard to miss: China will “repatriate” Taiwan. Regional (or tribal) wars will spark up everywhere as both social distress and resource scarcity escalate. In South America, drug-cartels will almost certainly step up their terror-tactics against local authorities. Indian/Pakistani relations will probably breakdown become a global concern, for want of a more specific word…. The worst tragedies will occur in Africa, which will further become a basket-case of violence and disease.

China’s oil consumption will be outpacing any kind of conservation the US and Western Europe are struggling to achieve. Relations between these regions will almost certainly break down as they vie for control of remaining reserves. Much of this will obviously depend on developments in the US / Middle East conflict. If the US does not have direct control of Middle Eastern reserves, then it US will probably be on the short end of the negotiations, as Russia and the Middle East side with (or bow to) China in oil agreements. Poorer countries will be crushed by the cost of fossil fuel, and may become suicidally desperate (North Korea comes to mind…). The United Nations might possibly try to enact some type of import/export restrictions to help ease the strain on poorer countries. If World War III is in the cards for the Human race, we will probably see the powers of the globe positioning themselves sometime around 2010.

The US might likely begin implementing “stabilizing” policies to control the price of oil during this period, and certainly we will see more energy conservation campaigns to address electricity and natural gas use. By now the whole economy will be suffering, but hard-hit industries during this period will include ground transport, petrochemical processing, mail and shipping dependent companies, the automotive industry, and tourism. On the brighter side, congestion may clear a bit in major cities as two-car families downsize, and the poor return to the “car-free” way of living they’ve traditionally enjoyed. (This applies primarily to the car-centric US, where the number of registered vehicles presently exceeds the number of registered drivers). If not already, expect to see legislation imposing some type of sin tax on gas-guzzlers (perhaps even singling out SUV’s) and corresponding subsidies on fuel-efficiency and alternative-fuel vehicles. Flying thousands of miles to lie on a beach will become a thing of the past for all but the wealthy. Only a couple airlines will survive bankruptcy through this period, and its likely that the government will be initiating emergency subsidies to keep them going. Small resorts within two or three hours of major metropolitan cities will experience increased business.

Sometime in this period the media may assert the belief that we are making real headway in correcting our oil crisis. This might be attributed to new investments in drilling and exploration triggered by the past few years of rising price-profits at energy firms, and which will be coming online during this period. Or there may be reports of large new reserve discoveries (probably invented, but no one will be able to verify them). It may also be touted that we have been offsetting consumption by adopting a kind of hodge-podge of alternative energy systems. Regardless, this feeling that perhaps all will be right with the world once again will be illusory and will not last long, since China/East Asia will continue to gobble up all the hydrocarbons that we are potentially pumping or saving—and out-negotiating us for import contracts.

Power outages in the US and Western Europe will become more problematic as the outdated transmission infrastructure begins to sag. Rising natural gas prices will take heating and electrical generation costs with them. Here again, energy rationing will be all the rage, as it was in the 1970’s. Photovoltaic systems (solar electricity panels) should finally achieve a roughly breakeven cost-effectiveness toward the end of this period, as technological advances combine forces with the rising costs (and unreliability) of getting electricity directly from the grid. Still, PV and Solar-Reflective generating plants will be slow to come online. Domestic PV systems will be most popular, but only the well-off will be able to afford truly self-sufficient homes. Solar domestic water heating systems, however, will become de facto in new home construction, and will improve the resale value for existing ones.

We will probably begin to see a shift in housing demographics away from the suburbs, as people begin to migrate either “inward” to the convenience of the cities or “outward” to the safety of more rural areas (most likely to communities about 1 ½ to 3 hours from a major city). Furthermore, many people in cold climates will begin to move southward, while people in extremely hot climates move a little further north. Lastly, some will decide to leave the country altogether, perhaps in an effort to stretch the value of their remaining savings as far as possible.

The “whole foods” movement will really begin to latch-on in Western societies, as industrialized, processed foods, meats and milk become more expensive than locally produced goods. This, combined with economic hardship and unemployment, will lead many people—especially those in small towns—to rediscover to some extent an economy of barter and local markets.

Social discomfort will erupt in various ways, and we could expect at least a couple incidents of large-scale rioting in one or more large cities (highest probability lies with Los Angeles). More common will be the rising presence of anti-government and anti-corporate sentiment. In the drive to become independent of the high costs of social infrastructure, many will embrace the emerging popularity of sustainable-living communities, or eco-villages. This will lay the groundwork for how our society will overcome the Crisis period, and will involve a re-discovery of the “local economies” that people participated in before hydrocarbon energy fueled the Industrial Age.

Movies will begin to take on much lighter, more uplifting subject and tone. The classic Musical may return as a popular style.

There is some chance—probably somewhat less than 50/50—that the US may see a legitimate Third-party contender for the Presidency in 2008. If so, it would be a populist candidate running on a platform of public austerity and a return to the pre-Wilson ideology of US independence from international imperialism and diplomatic endeavors.


2011-2015

By this time period, the “impending-ness” of Peak Oil will be much more apparent. If no significant new reserves have been discovered, or conversely if China / East Asia have not experienced an economic collapse, then the developed countries of the world will find themselves in a position of extreme desperation to take direct control of the world’s supply from whomever currently has it—which will mean world war, concentrated in the Middle East, especially Saudi Arabia. Even if new reserves are found, where they are discovered will be a significant factor. If sufficiently large reserves are found in North America, violent crisis will be easily avoidable for the time being. The chance of this is extremely unlikely, however. Therefore, it needs to be recognized that if these events ensue then, because oil will mean life-or-death for the developed (and even under-developed) nations of the world, any conflict will quickly escalate to the use of nuclear and other “weapons of mass destruction”. If this happens then there will be no way to predict how the future will unfold, and the rest of the predictions for this period will be either accelerated or just moot….

In the US, oil and gas will gradually become more regulated as it is concentrated in places of greatest need, such as electrical generation, agricultural production, water processing, necessary transport, military uses, etc. Undoubtedly some kind of high-level (regulated) and/or low-level (unregulated) black market will develop, especially for gasoline. On the renewable front, solar photovoltaic systems may become more widespread, especially if sufficient investment has been made over the past few years to encourage the PV manufacturing industry.

Life in the cities will begin to break down, as basic services become unreliable and fresh food becomes scarce, and lines will frequently form at grocery stores when shipments come in. Things like blue jeans and tennis shoes may become luxury items. Crime of all kinds will have increased dramatically. Racial strife may flare up in some cities. Western communities will probably find that access to water becomes a point of contention, as rivers and reservoirs become coveted resources, especially around Denver, Phoenix and Southern California.

Even as city life becomes more difficult, many rural towns will experience a rebirth as they find themselves reorganized into eco-villages and self-sustaining communities, experiencing an influx of educated, industrious individuals. Life will begin to de-centralize (from an urban-centric structure) and regionalize (around natural resources), and the price of arable land and “hobby farms” will skyrocket. With this return to small, prosperous communities where whole families will be working together for the benefit of the community, a renewed sense of spirituality may begin to bloom. As distribution to these rural areas becomes costlier and more problematic, many things will become unavailable outside of the cities: fast food restaurants will close, as will many other chain stores, and things like truck stops, overnight hotels, and billboards might begin to disappear. However, items that are difficult to manufacture locally will also become scarce, or disappear altogether from smaller communities: electronics (including computers and cell phones), pharmaceutical medicine and medical supplies, plastic and rubber items, etc. Also, rural life may not be entirely safe and secure, as it’s likely that many people with more fearful, xenophobic tendencies will adopt the Survivalist mentality and form paramilitary communities far from the cities. This may lead to civil conflict over local land and resources, which would entail further government intervention in domestic security. More likely, however, is that most these groups will just bunker down with their fingers on their triggers until society appears to stabilize, and then seek to reunite and find a place within more organized and prosperous communities.

In developing countries, it seems likely that poverty and food scarcity worldwide will lead to civil disorder and social strife, especially in urban areas. This may in turn lead to government intervention in the daily life of people. There is some chance that outbreaks of disease will take their toll, especially in Africa, India, China, East Asia and Indonesia, as medical treatment becomes difficult to sustain at suitable levels and malnourishment and breakdown in social services become more widespread.


My closing thoughts: it's a pretty dire viewpoint but very plausible considering the events that are unfolding (food shortages looming, consumer inflation raging, Unprecedented US debt levels (consumer/corporate and gvt), dollar falling quickly, oil becoming scarce while demand increases, G7 financial crisis unwinding, China/Russia bonding and their control of natural resources growing, and the list goes on...)

Guess only time will tell, but I think Steve's viewpoint is worth serious consideration in any future planning.

Regards

Randy

Fed Steps In Again

Clearly, regardless of what the talking heads are trying to hoodwink us to believe, our US financial system has enormous problems that will ultimately require massive doses of Fed assistance—at the expense of our Dollar and standard of living.

We’ve already seen Central Banks inject over $1 Trillion since August, but you need not worry—the presses are warm now, but nowhere near overheating --in due course. there will be much more printing to follow.

I was initially thinking, come March 18th, we would likely see a 50bp cut by the Fed, but after today’s fiasco with Bear Stearns I’m now leaning towards a full 100bp (1%) cut. In the process, we may have to wave goodbye to the once almighty dollar as it falls off the cliff and into the abyss.

Bottom line: The Plunge Protection Team, headed by Treasury Secretary Paulson (former chairman and chief executive of Goldman Sachs) has no choice but to cut big and inject large (bailout); else they may witness the foundation of the world’s financial system collapsing around them—spawning the biggest economic depression ever seen.

These guys (justifiably) are scared shitless...

Bear Stearns Cos. Inc. went on life support Friday

Bear Stearns went on life support Friday, forced to accept an extraordinary bailout package after being deserted by the clients and counterparties at the heart of the 85 year-old Wall Street firm's business.

Triggering a sell-off throughout the financial sector, Bear shares slumped 47% to $30, their biggest one-day drop in at least two decades.

Bear said the rescue consists of getting short-term financing from the Fed, through J.P. Morgan, after its liquidity "deteriorated significantly" during the past 24 hours.

"The financial system supervisors are attempting to prevent this company's problems and the perception of problems from rippling through the system to other financial players," David Hendler, an analyst at CreditSights, wrote in a note to investors. "Given Bear Stearns' huge impact in the mortgage, derivatives and funding markets, we sense that a salvation acquisition is the most likely possibility."

Bear's crisis is the latest sign that the U.S. financial system is cracking under the weight of a global credit crunch that was sparked by last year's subprime mortgage meltdown. The Fed has slashed interest rates and central banks have injected roughly $1 trillion into the banking system since then, but the crunch continues.

The Fed's decision to bail out a brokerage firm recalls other financial crises in which authorities tried to limit turmoil by propping up institutions including Penn Central, Continental Illinois, Orange County, California and hedge fund Long-Term Capital Management.

"What is different this time is that the dominoes are falling in so many different sectors, markets, industries and countries -- all at the same time and there is yet no end in sight," said Sherry Cooper, chief economist at BMO Capital Markets.

Bear's situation turned dire this week by growing concerns that it's struggling to trade with some counterparties. Some market participants have been worried about Bear's exposure to the dwindling mortgage business and its holdings of securities backed by home loans.

Trading is the lifeblood of brokerage firms, so when counterparties pull back trouble often ensues.

The New York Fed said its board unanimously backed the JP Morgan plan. "The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system."

Bear Stearns Posts First Loss in 84 Years

NEW YORK (AP) -- Bear Stearns Cos., the No. 5 U.S. investment bank, said Thursday a bigger-than-expected write-down in its mortgage portfolio caused the first quarterly loss in the company's 84-year history.

Chief Executive James Cayne, under pressure like other chief executives on Wall Street, warned in November that the investment bank would take a $1.2 billion writedown from subprime-related investments and fixed-income trading. And, like rival firms, the losses ended up being much steeper.

Bear Stearns Collapse Reveals Crisis in Confidence

The contrarian --As the nation arguably draws closer to a possible financial meltdown than at any time in the past 79 years, it may no longer be relevant to question whether or not we are actually "in a recession."

As a matter of fact, it is becoming increasingly apparent that the Federal Reserve may be running out of thumbs with which to plug the emerging holes in the dike.

And it is not necessarily encouraging that the president found it necessary to assure the public, in a televised address from the Economic Club of New York, today, that the economy will bounce back.

The package of proposals unveiled yesterday by the Treasury Department, incidentally, have been described as only involving a greater degree of self-policing by the financial industry, and have been characterized by critics as being too little and too late.

Further underlining the seriousness of the situation, the president's address was followed a little later today by a televised speech from Federal Reserve Board Chairman, Ben Bernanke, discussing the credit crunch and the its origination in the orgy of sub-prime mortgage originations.

Today's crisis swirls around Bear Stearns, a leading global investment banking, securities trading and brokerage firm, in business since 1923. Alan Schwartz, president and chief executive officer of The Bear Stearns Companies Inc., said, "Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated."

CNBC reported this morning that the problems resulted from a run on the firm by its customers.

As a result, the company's stock plummeted as much as 40% today and the Fed quickly enlisted the services of JPMorgan Chase & Co. to provide an emergency loan facility and presumably to execute the purchase of certain Bear Stearns assets at steep discounts.

The general situation is generating considerable controversy over whether it is proper for the Fed to bail out institutions that abused their fiduciary responsibilities and borrowers that took on excessive credit under ill advised terms. Questions are also being raised over potential favoritism on the part of the Fed, especially as pertaining to its tapping of JPMorgan Chase & Co. to take over some of Bear Stearns' assets at bargain basement prices.

Bear Stearns' bailout has echoes of 1907 panic

BOSTON (MarketWatch) -- Over a century after John Pierpont Morgan single-handedly staved off a potential run on U.S. banks -- by forcing rivals to come together to save their own -- his name is also linked to the latest bailout of a teetering financial institution.

Before there even was a Federal Reserve, financier J.P. Morgan during the panic of 1907 played a key role in preventing a potential disaster for financial markets. Now, J.P. Morgan Chase & Co. is working with the Fed to help save Bear Stearns by providing it with emergency financing…

Of course, this isn't the first time the Fed has joined hands with Wall Street to orchestrate a bailout.

The most recent case was its role in saving Long Term Capital Management. The hedge fund, run by some of the best and brightest from Wall Street and academia, was undone by leverage during the credit shakeout in the late 1990s.

Similarly, investment banks and hedge funds in the latest credit crisis have also been burned by the use of leverage. Several institutions have already been overwhelmed by margin calls triggered by plunging values in mortgages and other bond assets.

There are also some parallels to the financial panic in 1907, which was triggered by an unwillingness of some New York banks to make loans -- unwillingness that spread across the country. Stock investors were anxious over market declines, the economy was in the grips of a recession, and lending was tight.

So, what are the impacts of another Bailout?

Inflation, falling dollar and a much lower US standard of living… It’s that simple!

As one of my favorite inflation writers (the Mogambo Guru) likes to say: "We're all friggen Doomed"!

Regards

Randy

Final US Economic End-Game

I hope this post serves a useful purpose and helps to shed some light on what may potentially lie in store for our economy/way of life.

Today, with bad new all around, many make attempts to dissect the individual aspects of the myriad of economic problems that contribute to our problematic US economic condition, but few really try to think ahead and analyze the final end-game. With this post, I hope to do just that, and will attempt to answer the following six questions:

1) What is happening with regard to our economy?

2) Why would our monetary policy-masters want a weaker dollar?
3) Where do we go from here?
4) What long-term exit strategy can we expect to see from our monetary policy masters?

5) How does inflation help the Government and what are the impacts to its people?

6) How will people cope with reduced purchasing power and a much lower standard of living?

So, what is happening with regard to our Economy?

Though I’ve been talking about it since 05 (and many early on considered me a knucklehead for my non-conformist viewpoint), I think it is now becoming common knowledge that the largest speculative bubble in our world’s history (housing bubble) has popped and its reverberations are being felt across the globe:

Hedge funds are collapsing, bank write-downs are growing, toxic waste marked-to-model Commercial Paper (CP) sitting in off-balance sheets cannot be offloaded, credit markets are completely locked up, home foreclosures (the catalyst to all these problems) are growing, consumer spending (70% of our economy) is waning, consumer inflation is raging, construction spending is down, the dollar is falling off a cliff, job losses are increasing, state revenue is falling—many are slashing budgets, and the list goes on…

The Fed and our Plunge Protection Team (PPT) understand that deflation is taking hold and they are operating in emergency mode... In a brazen attempt to prevent a collapse of the entire banking/financial systems (and hence the US Economy) “Helicopter” Ben Bernanke has officially sacrificed the dollar in the hopes of printing/inflating our way out of this financial mess -- to prevent an economic depression.

Take a look at the US dollar chart below -– NEVER in our country’s history has the US Dollar been weaker. Why so low? Our policymakers are covertly demanding a weak dollar.

But why would our monetary policy-masters want a weaker dollar?

Well, as I see I see it, there are several reasons:

A devalued dollar will (over time) allow the United States to 1) eliminate much of its foreign debt through devalued payback 2) pay for future (currently $60 Trillion) in un-funded obligations through cheaper payouts 3) reduce US labor costs in the global marketplace –- making US manufacturing competitive in the world again, and 4) a side effect -- lower the US standard of living through massive inflation -- ultimately stoking a grass roots demand for some relief and opening the doorway for successful implementation of a new “stable” currency to replace the ailing dollar –- The AMERO.

Additionally, somewhere along the way, we will probably experience a new war to: 1) secure natural resources, 2) create US jobs to support the military/industrial complex, and 3) help to take our minds off the economic misery we are all experiencing.

So, where do we go from here?

As previously stated, the PPT is attempting to fight deflation with new inflation and the Fed’s monetary printing presses are gearing up to start working overtime. (NOTE: Money=Debt and lack of new consumer/corporate debt means less new money to service older debt, which means declining GDP, defaults and deflation)

Today there are > $13 Trillion Dollars circulating the globe and M3 Growth (expanding US Money Supply) is increasing at an annual 18% rate (see chart below).

M3 -- US Money Supply Growth rate & US Dollars in Circulation
(Note: as an aside, only ~ $400 Billion of this, ~ 3%, is available in cold hard cash in the US -- most of these $13T dollars are 1’s & 0’s on a computer hard-drive somewhere—God help us if we experience banking runs…)

Consumer inflation typically lags M3 growth (those with new dollars first can buy more than those who receive dollars later in the game), but we know inflation in the US is currently running ~ 12% today (next chart below -- measuring inflation w/metrics abandoned in the 1980’s– abandoned to understate inflation, reduce Gvt. entitlement payouts over time and to overstate GDP).

Annual Consumer Inflation Chart – The red line illustrates what our Gvt wants you to believe (inflation ~ 4%); the blue line is our actual inflation rate (~12%); Remember, consumer inflation lags new monetary creation, so you can be certain (after looking at M3 again—the 1st chart) that consumer inflation has only one way to go –- UP!

What long-term exit strategy can we expect to see from our monetary policy masters?

Based on what we have just learned above (that monetary growth and consumer inflation are rising, and that the Fed/PPT have officially sacrificed the US dollar to prevent a depression), if we now gaze into our crystal ball and look out at the next 5 years or so, what should/can we expect to see?

Logic reasoning leads us to believe it has now become official Government policy to try to inflate our way out way out of this financial crisis, so lets assume a master plan exists to bail out numerous banks/financial institutions and rescue the bond, housing and various other markets. Let’s then go on to assume a plan exists to eventually ramp up numerous government infrastructure and military/industrial projects to promote US job growth (in the midst of our deep/dark recession).

To keep the math easy, and assuming all of the above takes place, let’s now presume (being conservative here) M3 Growth averages 20% over the next 5 years to fund all these new government efforts… Therefore, in 5 years time, M3 (worldwide US money supply) will have doubled and M3 will equate to ~ 27 Trillion US Dollars. Note: by that time inflation will be raging and the dollar’s purchasing power will be halved (if not more by then; it really depends on foreign dollar holders—will they cash before then?).

How does this inflationary effect help the Government and what are the impacts to be felt by the people?

By continuing to understate inflation (as you saw in the Inflation graph above) over the next 5 years and more, the US government will be able to pay all its currently un-funded obligations (Social Security, Pension Benefits, Military Pay/retirements, Medicare obligations, even foreign held debt) with significantly devalued dollars—costing the government far less over time.

In other words (lets use a Social Security recipient as an example): Grandma will still get her entitled (currently unfunded) $1,200-1,400 monthly Social Security Check (w/annual increases tied to Gvt's lower CPI rate), but if her utility bills have doubled and she now pays $8 a gallon for Gas, $7.50 for a gallon of Milk, $5 for a loaf of Bread, $4 for a pound of Chicken and $10 for a “value meal” at McDonalds, her purchasing power has been reduced substantially. The government still pays its obligation, but with devalued dollars and w/severely reduced purchasing power.

Thus: Inflation (monetary growth of printed dollars) has eroded unfunded Gvt debt/obligations, but at the cost of American purchasing power and standard of living—it will have dropped significantly. Ultimately, over time, the Gvt. actually pays out less than that which it really owes—through devalued dollars (it’s all smoke and mirrors).

So, how will people cope with reduced purchasing power and a much lower standard of living?

With inflation and unemployment raging, tens of millions of Americans will not be able to make ends meet and cutbacks in lifestyle will become the norm.

Americans feeling the pinch will have to eventually downsize (much smaller house or apartment -- to reduce utilities/costs; take on a room mate or rent out a room, purchase a more fuel efficient car; drive MUCH less -- car-pooling will become popular, eating out will stop--it will only be for the well-off; families will eat cheaper foods at home, clothing will be used until completely worn out, churches and aid agencies will become much more involved in the struggling/average American's life, etc...)

Bottom Line: life will become much more expensive/difficult than that which we know today. We could even see oil/fuel shortages due to geopolitical unrest/war, and food shortages could be an issue too -- world food stores are currently at a 50-60 year low with no relief in sight. (Global food crisis—credit crunch could pale in comparison)

Anyway, you ask: What then happens to society?

If you haven’t already done so, read the following links for some thoughts on the issue:

Social Implications of a Significant Economic Downturn

Maslows Hierarchy of Needs and the US Economy

Our long-term way Ahead:

There is however, potentially very good news that will follow this EXTREMELY difficult period in America: Over time, a much lower US standard of living and a significantly devalued US dollar will make it much cheaper to manufacture in the US again, and 15-25 years from now our massive debt loads will have subsided and all those outsourced jobs will eventually come back home. Then we will be able to do more than sell each other cheaply manufactured goods -- we will actually make them again. For more on this subject, read my Jan 06 article: American Wake Up Call

Bottom line to this article:

I think our day of reckoning has finally arrived. We Americans have lived too comfortably for far too long by sucking up 80% of the world's savings and then we wanted more, so we racked up ENORMOUS personal and Gvt Debt loads that must be paid -- paid through Gvt. monetization, massive dollar devaluations and a much lower standard of living.

As stated previously, the PPT is fighting deflation w/inflation, so we will probably experience concurrent deflation and inflation – if/until the deflationary forces are won over.

I expect, over the next 5 years or so, consumer inflation to be completely out of control, but there is nothing the Fed can do about it -- without throwing the economy into a depression.

Ultimately, the US dollar will plummet in value and its fate as the defacto "World Reserve Currency" could soon be brought to question -- but that might be part of our monetary policy master's "master-plan" anyway, as it will allow the Amero to slip right into its place without an American revolt.

I hope this article provided you with some nourishing "food for thought".

Best regards

Randy

Monetizing Debts & Buying Assets to Prevent a Depression

I was pretty shocked to see this article get released from Reuters. It suggests that the Fed may end up having to resort to buying up assets, stocks etc to prevent a Depression. I would have to concur, as the banking/financial crisis seems to be getting worse. I expect however, we will probably see a FFR below 1% before this actually kicks into high gear.

Depression risk might force U.S. to buy assets:

NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.

Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.

While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today.

The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said.

Then, investors were very optimistic about new technologies, and stocks rose against a backdrop of low inflation, and a trend toward globalization. There was even an equivalent of the modern day subprime mortgage debt meltdown in the form of U.S. loans to Latin American countries which had to be written off.

"The big difference is the attitude of central banks and specifically the attitude of the Fed," Connolly said.

Some economists have blamed the U.S. economy's travails in the 1930s on the Federal Reserve's hesitation to inject reserves into the banking system.

However, today's Fed has tried to preempt the danger of a protracted economic slump and has responded swiftly to a credit crunch in the past year and gathering signs of deterioration in the economy, Connolly said.

The Fed has stepped up its temporary additions of reserves to the banking system, and swiftly slashed its benchmark fed funds target rate to 3.0 percent from 5.25 percent in September. Analysts expect at least another 0.5 percentage point cut in next month.

At the same time, "the fed funds rate can't stay significantly above the 2-year note yield," Connolly said.

On Tuesday, the 2-year Treasury note yield was at 2.00 percent, not far above the lowest level since 2004.

The Fed "almost certainly" has to cut the funds rate to 2.0 percent by the end of this monetary easing cycle, he said. If conditions in the banking sector worsen, the Fed could cut the funds rate to 1.0 percent, a low last seen in June 2004.

Global banks have already written down more than $100 billion of bad debts associated with the U.S. subprime mortgage debt meltdown and housing.

However, Fed rate cuts alone are unlikely to avert a prolonged period of economic weakness because the danger still exists that a burdened banking sector will choke off credit to consumers and households.

"The Fed probably can't fix it all on its own now," Connolly said. "There is a chance the Fed gets forced into unconventional cooperation with government," which could involve buying a range of assets to reflate their value.

That would be reminiscent of some steps the U.S. government took in the 1930s when the economy was mired in deflation and high unemployment.

One turning point came when agricultural prices were restored to their pre-slump levels, Connolly said. Such measures were among the New Deal programs that President Franklin D. Roosevelt launched to bolster the economy.

Either way, investors face bleak prospects now without some kind of further government intervention, he said.

Those steps might offer clues to investors in stocks and commodities, which Connolly expects the government might be ultimately force to step in and buy to stabilize markets. He expects that a depression may be averted, but only by the state and the Fed reinflating the price of such assets.

Beleaguered housing, non-government fixed-income securities and even the now overvalued Treasury market have little hope of generating substantial returns for investors over the next few years, he said.

"If we don't avoid depression, the only thing worth holding is cash," he added.

Additionally, Christopher Laird (from the Prudent Squirrel) is saying much of the same in his new article: The Other Option, Crossing The Rubicon .

With US target rates cut from 5.25% vs 3% now, both consumer and corporate credit have not eased. It is said the US Fed needs to cut to the 2 year bond rate to have any chance of loosening US credit markets - which would be around 2%. The Fed is still behind the curve.

In fact, looking at credit markets now, it looks as if the Fed is not only behind the curve, but has let the train get completely away from them. If they have any hope of catching it, they need a target rate of 2% now. But inflation is still a concern, and that is not going to happen in time.

The other option, Crossing the Rubicon

A while ago I wrote a piece that, if markets got bad enough, central banks could be faced with having to monetize all the bad assets accumulating on financial institutions books. That would be the only way to get banks lending again, and to put a floor on markets.

If CBs saw that interest cuts failed to restart US consumer spending, they would then be faced with the option of actually buying everything in sight to support financial markets. This is monetization of markets. (Monetization is where central banks merely buy everything in sight where the losses are and hold it on their own balance sheets. Presently, central banks are doing what are called REPOs, repurchase agreements, which are short term CB purchases of assets that are supposed to be bought back and the money repaid by the seller. This is short term central bank purchasing of assets, but is not actual monetization, as the assets are only held for a month or so. Monetization would be just wholesale purchases and holding of troubled assets, and no Repo agreement.)

Gold here

With Central banks lowering interest rates, and more to come, gold is rising in all major currencies. This will continue in 08, sans some major world stock crash. But, if central banks actually do the other option, monetization of troubled assets and markets, and cross the Rubicon, then gold will go right out of sight. Even a hint of any serious monetization would drive gold rapidly to $2000.

If we merely have interest rate cuts, gold will get easily over $1000 in 08, probably in a month or two. If there is any significant monetization by Central Banks (perhaps just buying outright all the troubled assets on banks books, right now about $2trilllion worth and counting) gold goes to over $2000 in a few months time.

Monetization is the central bank's Rubicon. They are thinking of crossing it. We are at a decisive point in gold's price action in 08.