Sunday, August 3, 2008

Financial Tsunami Update

The economic storm clouds are getting darker. More writers are calling this a financial "tsunami," and more are comparing it with the Great Depression of the 1930's. The only voices of optimism are Paulson, Bernanke and Bush, and the lap dog mainstream press. And their credibility is plummeting.

Yet I find a number of people, in the spirit of American optimism, think I'm exaggerating. They believe the rhetoric that the Fed will fix things and we'll "muddle through" to face the next crisis. How I wish it were so this time.

The truth is, the die was cast a long time ago. When the US dollar was on a gold standard, monetary discipline was imposed on the financial system. With the founding of the Federal Reserve System in 1913 and Roosevelt's abandonment of the gold standard in 1933, we went on a debt standard. Nixon threw out the last vestige of monetary restraint in 1971 when he closed the gold window. Now the US dollar was backed by nothing but debt, and the "full faith and credit" of the US Government (i.e., the printing press in the back room).

Given the proclivities of politicians to spend money and wage war without raising taxes, the fate of the dollar was sealed. The only variable was how long would it take? A good date to pick for the death of the dollar is 2013, the hundreth anniversary of the founding of the Fed.

FDR and LBJ, as well as every administration since, ramped up social welfare spending that could not be funded in the long run, i.e, when the Baby Boomers started retiring. The Federal Government grew into a self-sustaining, expensive bureaucracy that outlasts every President and never stops increasing in size and cost. The military-industrial complex Eisenhower warned about turned the US into a welfare-warfare state, with the resulting Demopublican War Party firmly entrenched in power.

The media had its last hurrah as a watchdog after Watergate and Iran-Contra. Now the top media stars are highly paid celebrities beholden to their corporate masters, with interlocking ownership and directorates with the entire military-corporatist-banking-globalist establishment.

The Bush-Cheney-NeoCon "war on terror" has become a war on America, installing the machinery for a full-blown police state. John McCain and Barack Obama are salivating at the thought of wielding all that power to push their own agendas.
Both have pledged to carry on the NeoCon program in the Middle East and subservience to Israeli Zionists. Moreover, Obama is pushing a socialist-communitarian-communist ideology that promises fundamental changes in the rights to life, liberty, property and self-defense that most Americans cherish. But more on politics in another post.

If you still believe things aren't too bad economically, you owe it to yourself to challenge your premises. Your financial future depends on it. Start with a trip to John Williams' excellent
Shadow Government Statistics. He exposes in great detail the biased and often-manipulated government economic reporting.

For political reasons, important statistical indicators of economic health have been biased to minimize the bad news about inflation, the federal deficit, unemployment, GDP, etc. This started before Bush II. Williams reconstructs and continues measures the government dropped (like M-3 money supply growth), and recalculates others with their original components (like CPI). The results are staggering.

For instance, by applying Generally Accepted Accounting Practices to the US Government, we're adding an average of $4.6 Trillion a year to our indebtedness! The Federal Net Worth was a negative $57.1 Trillion at the end of 2007!! There is no way to tax or grow our way to solvency. And the politicians seem determined to keep printing money out of thin air to bail out the financial system and cover our obligations.

A must read is his comprehensive report "
Hyperinflation." If you will take time to study this well-written 27-page report, you will see why he says a "hyperinflationary depression" worse than the Great Depression (Great Depression II, if you will) is unavoidable between 2010 and 2018. Probably it will be sooner than later. The graphs are clear about what has happened to the value of the dollar, and what is its fate.

Please read this report! His economic theory is sound and his statistics impeccable. You will see why you must put yourself on a plan to survive the meltdown of the dollar. Yes, the Weimar Republic can happen here. So can the rise of a messianic dictator who offers hope and "economic security" in the midst of economic catastrophe and the resulting social unrest. [Friends, the federal government is not able to provide economic security for anyone. Remember "I am from the government, and I'm here to help you"?]

At the risk of distracting you from the main report, I provide
secondary evidence that the consumer is tapped out. Unemployment is rising, wages are falling, auto sales are crashing, credit cards are maxed, "discretionary" purchases are going instead to buy higher prices energy and food. The US economy, based 70% on consumer spending, is contracting.

Did I mention that banking systems around the world are failing? First Priority Bank in Florida
failed Friday, the 8th US bank this year. The National Bank of Australia took a 90% loss on US mortgage debt writedowns. Royal Bank of Scotland is poised for the biggest loss in UK banking history. One observer says the Fed is panicking to hide the truth about the credit crisis so that the wealthy can be bailed out at the expense of the poor.

If Bush-Cheney-McCain-Obama-Israel start a war with Iran, the hyperinflation timetable shortens considerably. And shades of 9/11, what are we to make of Pulitzer Prize-winning journalist Seymour Hersh's
shocking revelations "that Bush administration officials held a meeting recently in the Vice President’s office to discuss ways to provoke a war with Iran?"

Says Hersh, "There was a dozen ideas proffered about how to trigger a war. The one that interested me the most was why don’t we build — we in our shipyard — build four or five boats that look like Iranian PT boats. Put Navy seals on them with a lot of arms. And next time one of our boats goes to the Straits of Hormuz, start a shoot-up." Cheney's "false flag operation" sounds like Operation Northwoods reincarnated. (Keith Olbermann gave Cheney his "worst person in the world" award for this idea.)

Take advantage of the last few weeks of the
traditional summer doldrums in the precious metals. The base for gold seems established at $910 and silver at $17. Expect gold at near $1200 and silver above $20 by the end of 2008, IF Iran is not attacked. (Big IF). A few graphs (and here) might give you courage. Howard Ruff says "inflation is not rising prices; it's a falling dollar."

I've been begging some of my dear friends to buy gold for the last five years. It was always "too high," at $375, $450, $600, $650. Today it still seems high at $910. Meanwhile, whereas the dollar could buy 1 Euro for $0.85 six years ago, it now takes almost $1.60. As experienced traders say, "Don't fight the trend!" And as Gary North says, "Procrastination kills!"

Grace and Courage and Peace be with you!

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