Tuesday, September 16, 2008

Financial Tsunami - Category 3 and Growing

The financial tsunami is hitting more quickly than I imagined. I've been warning about it since I started this blog a few months ago. Today I'd say the tsumani is at least a category 3, with category 5 staring us in the face. Nobel prize-winning economist Joseph Stiglitz today said things won't get better for at least two years, and I think he's optimistic. (He's the one whose recent book estimates the total cost of the Iraq war at $3 trillion or more!) I'm more inclined to agree with the estimate of a decade-long depression.

A friend just sent me a brief summary of current events: "In the space of roughly seven days you have just witnessed the near-simultaneous failure:
1. Fannie Mae
2. Freddie Mac
3. The FHLBs (Federal Home load Banks)
4. Lehman Bros
5. Merrill Lynch
...which, all totaled equals companies representing:
And we're not done yet.
Not even close.
On deck is AIG. "

Even in the turmoil, you can still make preparations to lessen the impact on you and your loved ones. Yes, choices are much more limited than they were even three months ago, but you don't have to be swept along like so much flotsam.

It is time to focus on your own liquidity. Cut your discretionary spending, pay off your credit cards, hang on to your job -- if you can. The ripple effects through the economy will leave many finances looking like the aftermath of hurricane Ike. Dave Ramsey has some excellent tools.

If you have savings, IRA's, etc., you need to protect them. Despite the large correction in the precious metals, it is very difficult to buy physical gold and silver. Worldwide investor demand for physical is up, while prices have fallen. It makes no sense. We are most likely headed for the worst of all financial worlds, a hyperinflationary depression, or hyperstagflation. The currency will be inflated to cover all the new obligations the Treasury takes on bailing out banks, investment firms, automakers, airlines, etc. Meanwhile, spiraling unemployment will bring economic activity to a crawl.

And please, invest in at least a 3-month supply of food for your family. Walton Feed has a 12-week backlog. But eFoodsDirect offers shipping in one week. Don't delay.

Make Jim Sinclair's excellent website regular reading. He will help you understand why there is no easy recovery from our predicament. If you have accounts with brokerage houses, you need to take delivery of any shares you want to keep. Here Sinclair tells you what you need to do to protect yourself. Better yet, get out of the stock market altogether. While the Plunge Protection Team is making the most massive cash infusions into the market to prop up the stock market, take advantage of this situation and get out now from anything vulnerable to the financial collapse. That's most everything. Forget about interest and dividends. Try to preserve what you have.

Watch this great video from MSNBC which explains what happened to Lehman Brothers. Now realize that Lehman was just a small part of this worldwide, interconnecting web. When the derivatives exposure of Long Term Capital Management almost toppled the financial markets in 1998, total derivative exposure to the world financial system was a small fraction of what it is today. Think of it as the puffed up egg whites topping a lemon meringue pie. Now squish all the air out of those egg whites. What is left of the egg whites? That's where our economy is headed.

This week I've seen two references (one being the bubble enabler, Alan Greenspan) to our current economic crisis as being a "once in a century event." Remember, the Great Depression of the 1930's started with the stock market crash in 1929. That's 79 years ago. So this may be Great Depression II.

Some of the major differences that today could make our current unfolding depression worse are:

  1. We still had a gold-backed currency. Today we have a fiate currency in its death-throes, with a dollar today worth about what 2 cents was when the Federal Reserve was founded in 1913.

  2. Many more people were self-sufficient, living on farms, being self-employed, having gardens, etc.

  3. Today we've sent offshore much of our manufacturing base and many of our better service jobs. Paul Craig Roberts says the "New Economy" (remember that?) is now based off shore, and as a result, there is not nearly enough money to finance day to day government operations. He expects the government will raid private pensions in an attempt to make ends meet.

  4. America was a more unified nation, with a proud culture, undergirded by sound values. Today we have a massive welfare culture, great social fissures due to the culture wars, a flood of illegal immigrants will too little assimilation, etc.

  5. We're overextended militarily with two ongoing wars, a worn out military, more than 800 military bases in more than 150 countries. The maniacs in Washington seem intent on starting a war with Iran, and have been pushing the Russian Bear into a corner by encircling them with missles and missile defenses based in their border countries. Russia has warned of a new world war if either the US or Israel attacks Iran. (Did you see today's revelation that former Rep. Dick Armey accuses Dick Cheney of puposely lying to him about Saddam Hussein and alQaeda to get his vote for the war?)

  6. The US Constitution seems to be dead and buried. The President claims the powers of a "unitary executive" (doublespeak for "dictator" and seems to think he has the right to kill anybody he pleases. The Patriot Act and its companions has set up the mechanism for martial law and a police state. If the Muslims really hate us for our freedom, then maybe they will leave us alone now, since freedom is now an illusion. I read and hear reports daily about new encroachments on our privacy and Constitutional rights. The American police state lies like a trap waiting to be sprung with the right provocation. (I still plan to report on the police state preview I experienced two weeks ago as a delegate to the Republican National Convention in St. Paul.)

  7. Our elected officials, especially Congress, are the worst that money can buy. With the few exceptions of statesmen like Ron Paul, most of our elected Federal officials are bought and paid for shills for the interest groups that brought them to Washington. They're masters at the spin game, and they won't take a principled stand for what is best for America.

  8. There are no significant differences between the candidates for President. Both have given their allegiance to AIPAC, the Israeli lobby. Both staffs are riddled with advisors that assure the established powers that nothing substantial will change, regardless of the rhetoric. Both seem ready to maintain the total surveilance police state and to continue with our wars in the Middle East and Eurasia.

  9. There are many more differences to be sure, but these come to mind most easily. The bottom line is that we are ill-prepared for what is coming.

All of this makes me more pessimistic about the prospects for withdrawing from our wars of aggression. The historical response to massive domestic economic problems by dictatorial regimes is war. War is a great distraction and excuse for economic hardtimes. It justifies the command economy and suppression of political opposition. A draft for national service or the military is a convenient way to sop up unemployed civilians and give them a paycheck. See Orwell's 1984.

We've just opened a new front in the current wars with attacks in Pakistan. Bush has just taken another step toward war with Iran by imposing new sanctions on Iran's shipping industry. Lord Stirling interprets recent events as Bush agreeing to war with Israel. (See here also.) Take the likely WMD escalation along with Putin's threat to see this as the start of World War III, and we're really in trouble. God help us!

A while back I predicted the death of the dollar by 2013, the hundreth anniversary of the Federal Reserve. The way the Treasury is nationalizing and funding financial firms, with more to come, and the Fed creating money to fund the process, we may not make it that long.

Ever since I read Harry Browne's classic "How You Can Profit from the Coming Devaluation" back in 1970, I've been expecting the financial collapse. I covered some of this ground previously, as well as in many of my other previous posts. The financial "Masters of the Universe" have finally reached the limits of their ability to manage the economy. At best, American imperialism of the last decade of the 20th century will end as reaches its financial limits. At worst, it will end in a world war.

Maybe it just seems that way when it finally happens. The news has been so fast and furious that there is hardly time to assimilate it. One thing is sure: America is becoming more overtly fascist. We're are moving into one of the most difficult periods in American history. Pray that we come through it with our freedom intact.

Grace and Courage and Peace Be with You!

1 comment:

Anonymous said...

Excellent summary.

Buy gold and silver coins, if you can find them. Buy a weapon and ammunition. The entire government now exists to service the power and policies of the Federal Reserve Waste Mismanagement Bank and international plutocracy.