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    The Unkindest Cut of All

    by Chris Martenson

    Friday, October 19, 2007, 4:00 AM

    Friday, October 19, 2007

    Executive Summary

    • It’s not over; the trouble has only just begun
    • Look out – inflation is coming!
    • The Fed cuts rates, bails out big banks
    • Inflation set to rip
    • Oil
    • Oh, the dollar!
    • August TIC data and the dollar
    • Bank runs in the US and England, and a failure in Germany
    • Uh oh – derivatives

    Last time I wrote that the game is afoot. Boy, is it ever. This past month, while the stock market bizarrely hovered near all-time highs (more on that later), the credit markets slipped into even deeper disarray (an understatement) and commodities became pricier (a severe understatement). As always, my primary goal here is to help you understand what’s going on, and that it’s all a matter of policy, not accident. Bad policy, perhaps, but policy nonetheless. My secondary goal is to connect the dots and provide you with a source of news aggregation you can trust.

    To begin, let’s review my most recent recommendations from my August 30th newsletter:

    • Get out of debt, especially variable rate debt such as credit cards and any adjustable rate loans. If I’m right about the dollar, vastly higher interest rates are on the way.
    • Get some exposure to assets that tend to vary inversely with the dollar. Gold, silver, oil, natural gas, and foreign currencies are my favorites.
    • Build up some cash reserves (savings) to get you through a potentially severe recession.
    • Be prepared for a serious decline in equity and bond values.

    I stand by all of these and will try to make the case below that now is a time calling for additional fiscal prudence and caution.

    Unfortunately, there’s so much juicy stuff going on right now that I am forced to limit this missive to a few of the tastier bits.

    For starters, one of the central economic/investing conundrums seems to have been settled. Since I started giving The End of Money talks in November of 2004, I have been on the fence as to whether deflation (brought on by loan destruction first centered on residential real estate, next on commercial real estate, and finally on corporate bond defaults) or inflation would dominate our economic future (never underestimate what a determined government with a printing press can do, says Bernanke). Okay, I admit that I was not literally fifty-fifty ‘on the fence,’ but more like seventy-thirty, tipped in favor of inflation. So that’s central theme #1 of this article: Inflation now seems to have the upper hand.

    Further, to those who’ve come to my seminars over the past three years, you know that I have been consistently harping on the dangers posed by a housing bubble, which bred with recklessly reduced lending standards to produce a toxic offspring of derivative products, which are now running about like feral children on a Halloween night. These past few weeks we’ve seen the first warning signs that the big banks are seriously exposed to these derivative bombs and already lobbying for a taxpayer bailout. So that’s theme #2: A housing-decline-fueled derivative crisis is approaching.

    So, let’s get started with the rate cuts by the Fed.

    On August 16th, when the stock market was taking a small tumble, the Fed overreacted and cut one of their two key interest rates by a half a point, or 0.50%. This cut was in the so-called “discount window” rate, but insiders call it the “penalty window,” because only dead-beat banks that can’t otherwise borrow from other banks use it. While this may seem like an innocuous move to you (I can see you shrugging and yawning), it was rightly read by insiders as a sign that the Fed was deeply worried about the credit markets in general (probably about a specific mortgage related bank in particular), and that it was going to continue Al Greenspan’s policy of bailing out poorly-run banks. The second rate cut on September 18th (actually a pair to both the Fed funds and discount window rates) just confirmed this view and added more fuel to the fire.

    Once we strip away all the gobbledy-gook, what does a ‘bailout’ mean? It means that the Fed is determined to supply whatever liquidity is necessary to prevent any market declines from taking hold. And what does this mean? It means inflation. Lots of it.

    Don’t believe me? Then take a look at this chart (below) of commodity prices, and take a nice close look at what happened there on August 16th (blue arrow) following the rate cut.

    CCI Chart

    Holy smokes! That’s a 14% gain in commodity prices in only 2 months! Oil is making the headlines, but literally everything is exploding in price – corn, wheat, zinc, gold, you name it. At this same rate, we can expect a 119% increase in commodities over the next year.

    Or, as a Bloomberg article put it, September saw the biggest monthly gain in commodity prices in 32 years, leading one investment advisor to sum it all up thus:

    [quote]”The Fed has signaled pretty clearly that they will answer the problem of a slowing economy with greater liquidity,” said Chip Hanlon, who manages $1 billion at Delta Global Advisors Inc. in Huntington Beach, California. “We’re in a bullish phase for commodities.” [/quote]

    That’s euphemistic trader-speak meaning, “Commodities are gonna rip! Everybody who lives on a fixed income is in real, deep trouble.”

    Speaking of which, the just-announced Social Security COLA adjustment for this year is a measly 2.3%, the smallest since 2003. (Hey! that’s $24 a month, on average!) As you know, I am highly critical of government inflation reporting (I still can’t decide, is it merely negligent, or is it overtly fraudulent?), but this 2.3% number just takes the cake. I guess I’m leaning towards fraud now, because there isn’t a single sentient person alive who can argue that inflation over the past 12 months was 2.3%. Why does the government do this? So it can redirect money that would go towards Social Security beneficiaries to other endeavors.

    Hopefully, nobody on a fixed income needs to heat their house with oil, because oil is up 29% in the past 2 months (see chart below – can you spot August 16th???). Ouch.

    Crude Oil

    Of course, everybody from the middle class on down already knows that inflation is much, much higher than what our government admits. Here’s an AP article that came out this morning (10-19-07):

    What used to last four days might last half that long now. Pay the gas bill, but skip breakfast. Eat less for lunch so the kids can have a healthy dinner.

    “It even costs more to get the basics like soap and laundry detergent,” said Michelle Grassia, who lives with her husband and three teenage children in the Bedford-Stuyvesant section of Brooklyn, New York.

    Her husband’s check from his job at a grocery store used to last four days. “Now, it lasts only two,” she said.

    A paycheck that used to last four days now only lasts two? Does that sound like “2.3%” to you? No, obviously not, and the economic disconnect has never been more profound between the distorted version of reality that is being peddled by Washington DC and our daily shopping reality. Heck, even Newsweek is saying “There’s No Inflation (If you Ignore Facts).” The charade is pretty far gone by the time Newsweek is calling shenanigans on the government.

    How sure am I that the Fed & US government have charted a course of dollar abandonment and reckless inflation? Very.

    Take a look at this table showing the percentage gains in our money supply. Note that this is a table of something called “MZM” (Money of Zero Maturity), and it’s the best remaining measure, ever since the Fed scrapped reporting of the much more inclusive M3 measure, the most complete indicator of how much money was being created out of thin air. However, MZM is not a terrible measure, and it’s all we’ve officially got, so we’ll use it even though it misses about 35% of the total amount of money created.


    Holy exponential expansion, Batman! Twenty five point three percent??? You might have expected that all the credit market woes would have stalled money creation, but instead, the Fed and its crony banks have somehow engineered a remarkable expansion of our money supply that is running at a better than 25% annualized rate over the last four weeks. If that rate continues, the Rule of 70 tells us that the total money supply will double in about three years. Let’s see here….if I compare that against economic growth…it means that there is 10 times more money being created than economic growth.

    As you may remember from our seminar series, money created in surplus of economic growth leads to inflation. It always does, and it always will. If you are still uncertain, go back and take another look at the commodity chart above and re-read the anecdotes from the linked article.

    Not to be outdone by the Fed, the US government, having burned through the last $800 billion debt expansion in record time, recently raised the debt ceiling by another by $850 billion (to $9.815 trillion, with a “t”). For those keeping score at home, US government debt has expanded by 50% in only ten years. All of this debt represents hot new money that can only lead to even more inflation.

    At any rate, to make a long story endless, the Fed has tipped its hand and has set us all on a course that favors inflation, but risks hyperinflation and the possible destruction of the dollar as an accepted international monetary unit. They did this because they fear the alternative even more.

    The recommendations I have been giving out for the past three years stand – every one of ’em. While it may seem like I really hit a few out of the park in my prognostications, all I did was observe that 3,800 paper currencies have been destroyed by virtually identical mechanisms. So I simply applied those histories to the situation in the US and predicted that our own leaders would suffer from the same weaknesses as other humans throughout history.

    If you are not extremely rich, I sympathize, because these next few years are going to be difficult. You see, inflation is an unequal-opportunity destroyer. In the short term, inflation dramatically favors the already rich but is devastating to everyone else. In the long term, severe inflation is bad for everyone, because it erodes the entire social and economic framework of a country. However, “short-term-itis” rules the roost down in the halls of power, so I do not expect to see a sudden outbreak of fiscal or monetary sanity anytime soon. For those in power, the path of least resistance is one that attempts to preserve the status quo and provides maximum short-term benefits to those already in power. So, best get ready for some rip-roaring inflation.

    Dollar Daze

    The dollar is hitting 30-year lows against the currencies of our trading partners. Why has the dollar been so weak lately? Besides the fact that we’re printing massive, reckless quantities of them, you mean? Well, the actual mechanism by which the dollar rises or falls is really simple. It all depends on how many dollars are being bought vs. being sold, across, and outside of, our borders. One important report, the Treasury International Capital Flows report, which measures net foreign purchases of US paper assets, had a positively dreadful showing in August, indicating a net decline of $163 billion in US capital flows. This meant that foreigners sold a whopping $163 billion of US assets in a single month! And when foreigners sell US assets that are denominated in dollars, they then need to sell those US dollars for their native currency so they can bring their cash home. In short, a sell-off of US assets by foreigners typically means a decline in the dollar.

    Which foreigners? Of particular note, Japan and China both cut their holdings of US Treasuries at the fastest pace in the last five years. Whoops.

    At any rate, this report tells us that foreigners are not tip-toeing away from our markets, they are stampeding. Oh, to be a fly on the wall at the Fed, to know what’s really going on behind the scenes. Of course, August could have been anomalous, so we’ll be keeping a very close eye on the September figures due to be released November 16th. If that is also bad…look out below. And be sure to be holding some of your assets in foreign currencies, gold, and/or oil to protect against further dollar declines.

    Bank Runs

    You’ve probably heard about the bank runs that happened in the US and the UK. What? You didn’t? This means you don’t receive any foreign newspapers, because this was huge news and has been on the front page of the Financial Times (UK) for the past several weeks. For some reason, this news was minimized over here in the US.

    Here’s a breakdown of the past month: First, there was a run on Countrywide Bank in Los Angeles. Then, a major run on Northern Rock in the UK, complete with large queues of people desperately waiting to retrieve their money from the bank. Next, a major German bank completely failed and had to be taken over. Then the FDIC seized and shut down Netbank in the US.

    What was the common element for all these banks? They were all in trouble because of excessive exposure to mortgage defaults.

    I raise the issue of bank runs because I see a very strong possibility of the emerging mortgage derivative disaster crippling quite a few US banks – possibly more than can be serviced by a completely inadequate FDIC reserve of ~$50 billion. It is my suggestion that you spend a bit of time to be sure your bank is highly rated and somewhat insulated from this whole mess. You can start by following this link to, selecting the Banks & Thrifts tab, entering your bank(s), and then checking out how it/they stand. I personally would not have anything to do with a bank with less than a “B” rating. A surprising number of banks are rated B- or lower. And, of course, do not keep more than $100,000 in any one bank account, ever.

    If you have the time, this is an excellent article by Jon Markham at MSN that details just how large and exceptional the risks are to the entire financial system. After reading this, I became even more convinced of the possibility of a major financial catastrophe that may completely shutter whole portions of our banking and insurance industries. To be clear, I am not saying it is going to happen, I am saying the risk is there and has been growing larger, not smaller, over the past several months. Like a prudent person who carries fire insurance on their physical dwelling, you need to consider taking out insurance on your financial dwelling. The recommendations above would be a good set of first steps.

    Oh, woe is me. I planned to keep this short, and I failed. Worse, I didn’t even get to the most recent housing data, which is both breathtaking and important. And there is more in the news in support of the notion that Peak Oil is already upon us. I will reserve both of these topics for special reports that will be coming out shortly.

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    The Game Is Afoot

    by Chris Martenson

    Wednesday, August 8, 2007, 4:00 AM

    Wednesday, August 8, 2007

    First, a warning about the dollar. As you know, I’ve been keeping a close eye on the US dollar and have been very concerned over the years that the dollar would someday steeply decline against foreign currencies. In fact, the dollar has been steadily eroding in value for since 2002, and it is now poised at a critical spot where there are really only two choices: a sustained rally or a serious drop.

    The dollar chart below shows the monthly ‘value’ of the dollar as measured against a basket of foreign currencies. The red line shows that the dollar is now perched at a level last seen in 2005 and (off the chart) in 1992.
    Foreign Currencies

    USD Monthly

    Foreign Currencies
    If the dollar breaks through this level of ~ 80 on this chart, then it’s anybody’s guess as to how much farther it would fall after that.

    In truth, the dollar should be a lot lower than even this dismal level right now, but foreign central banks, notably Japan and China, have been working very hard to keep the dollar propped up over the past few years. If this foreign propping should ever end, we’d immediately experience two things, a rapidly falling dollar (leading to rapidly rising import prices, notably for crude oil) and sharply higher interest rates (because the Chinese hold their dollars in US bonds, which, when sold, cause interest rates to rise).

    Higher oil and steeper interest rates? Crikey!

    That’s a certain recipe for unpleasantness in the US economy. So it is of critical importance that dollar support be maintained. However, China is now making threatening noises in this regard, warning the US that our insistence on a higher Chinese yuan is unwelcome:

    The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

    Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

    There may be a lot of compelling reasons why China would not want to follow up on this threat, but it’s worth your time to consider what you’d do if it did. While there’s no "one size fits all" solution, a few basic steps to consider would be:

    • Get out of debt, especially variable rate debt such as credit cards and any adjustable rate loans.
    • Get some exposure to assets that tend to vary inversely with the dollar. Gold, silver, oil, natural gas, and foreign currencies are my favorites.
    • Build up some cash reserves (savings) to get you through a potentially severe recession that could be brought about by high(er) interest rates.
    • Be prepared for a serious decline in equity and bond values.

    On that last point (#4), there are some other reasons to be concerned right now. It turns out that the US credit markets, principally for mortgage debt, are undergoing some pretty dramatic convulsions, and while I can’t say for sure how bad it will all be, I can tell you that fear has finally returned to our capital markets after a particularly long absence.

    However, should the dollar start to break down in a serious way, I don’t know what else to counsel besides "Stay alert!" It is entirely unknowable to me how our highly leveraged house-of-cards economy would actually behave in a dollar crisis, but I think it’s prudent to question whether all of our financial institutions would remain solvent.

    As you know, I’ve always been deeply suspicious of the modern financial alchemy that has allowed Wall Street to skim record profits off of dodgy pools of repackaged mortgage loans while simultaneously claiming to have reduced the risk of those instruments. Huh? How does one start with a pool of bad credit risk loans (many of them fraudulent ‘liar loans’), strip out a whole bunch of money, and end up with a safer product? I don’t believe it’s any more complicated than that, and I’ve been saying so for several years.

    And, in truth, this is now pretty much obvious to everyone in the financial industry as well. Paul Muolo, executive editor and associate publisher of National Mortgage News, had this to say:

    "I’ll put it bluntly: if you operate a non-depository mortgage firm (lender or servicer) and don’t have a deep-pocketed parent or hedge fund as a sugar daddy you’re likely to be out of business by year-end, probably sooner.

    In the 20-plus years that I’ve been covering residential finance I haven’t seen a financial meltdown this swift since the S&L crisis of the mid-to-late 1980s. One subprime executive who closed his shop a few months ago told me, "This is a liquidity crunch the likes I have never seen."

    So industry insiders are publicly saying that this is the worst financial crisis to hit since the S&L crisis. Of course, that is the perfect analogy, because the S&L crisis was precipitated by the easing of lending standards that morphed into the usual mélange of bad investments and outright fraud. Same as our current crisis.

    Because of this similarity, what should you, the beleaguered taxpayer, be on the lookout for? A bailout, of course.

    Looks like we won’t have to wait very long for the government officials to begin to look for ways to "help people keep their houses," which is DC code-speak for "help my uber-rich banking buddies avoid paying for their mistakes."

    Here’s an email from the CEO of IndyMac, the second largest independent mortgage lender, that came out last week:

    Unfortunately, the private secondary markets (excluding the GSEs and Ginnie Mae) continue to remain very panicked and illiquid. By way of example, it is currently difficult, at present, to trade even the AAA bond on any private MBS transaction.

    In addition, to give you an idea as to how unprecedented this market has become…I received a call from U.S. Senator Dodd this morning who seeking an understanding of "what is really going on and how can I and Congress help?"

    I also have talked to the Chairman of Fannie Mae this morning and have traded calls with the Chairman of Freddie Mac (Fannie Mae’s Chairman telling me that they are "prepared to step up and help the industry").

    The interesting part is to hear this kind of talk already before the crisis has even really begun. Over the next 12-145 months, more than $1.5 trillion of additional subprime mortgages will be resetting to higher rates, and that’s when I expect the crisis to really get underway. Still, I have to wonder how many more US tax dollars are going to be wasted trying to help people keep houses they can’t afford (which many lied to get into) and thereby bail out a mortgage and banking industry that would prefer not to have to give back any of the obscene profits they made off of this racket.

    I mean, what, with bridges crumbling, a waste-water infrastructure that scores a D-minus, two tragically expensive wars, and a looming pension crisis of biblical proportions, it’s not like we really can afford to bail out the rich, the greedy, and the stupid. I say, let them live with the consequences of their decisions. Call it tuition or something.

    Besides, a bailout will not help at all. The main problem is that house prices rose too far away from median incomes and no amount of mortgage assistance is going to remedy that problem. Median house prices need to fall anywhere from 10% to 60%, depending on the market.

    My prediction is that this will happen over the next 3-4 years, no matter what sort of government intervention schemes are hatched.

    In the meantime, I’m going to sit tight, stay alert, and ponder my options.

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    The United States Is Insolvent

    by Chris Martenson

    Thursday, March 15, 2007, 4:00 AM

    Thursday, March 15, 2007

    Prepare to be shocked.

    The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our combined federal deficits now total more than 400% of GDP.

    That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare.

    Sometimes I wonder why the Treasury Department doesn’t just pay somebody to come in at 4:30 am on Christmas morning to release the report. Additionally, I’ve yet to read a single account of this report in any of the major news media outlets, but that is another matter.

    But, hey, I understand. A report this bad requires all the muffling it can get.

    In his accompanying statement to the report, David Walker, Comptroller of the US, warmed up his audience by stating that the GAO had found so many significant material deficiencies in the government’s accounting systems that the GAO was "unable to express an opinion" on the financial statements. Ha ha! He really knows how to play an audience!

    In accounting parlance, that’s the same as telling your spouse, "Our checkbook is such an out-of-control mess, I can’t tell if we’re broke or rich!" The next time you have an unexplained rash of checking withdrawals from that fishing trip with your buddies, just tell her that you are "unable to express an opinion" and see how that flies. Let us know how it goes!

    Then Walker went on to deliver the really bad news:

    Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation’s total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.

    As this long-term fiscal imbalance continues to grow, the retirement of the "baby boom" generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.

    Given these and other factors, it seems clear that the nation’s current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary in order to address the nation’s large and growing long-term fiscal imbalance.

    Wow! I know David Walker has been vocal lately about his concern over our economic future, but it seems almost impossible to ignore the implications of his statements above. From $20 trillion in fiscal exposures in 2000 to over $50 trillion in only six years? What shall we do for an encore, shoot for $100 trillion?

    And how about the fact that boomers begin retiring in 2008…that always seemed to be waaaay out in the future. However, beginning January 1st we can start referring to 2008 as ‘next year’ instead of ‘some point in the future too distant to get concerned about now.’ Our economic problems need to be classified as growing, imminent, and unsustainable.

    And let me clarify something. The $53 trillion shortfall is expressed as a ‘net present value.’ That means that in order to make the shortfall disappear, we would have to have that amount of cash in the bank – today – earning interest (the GAO uses 5.7% & 5.8% as the assumed long-term rate of return). I’ll say it again – $53 trillion, in the bank, today. Heck, I don’t even know how much a trillion is, let alone fifty-three of ’em.

    And next year we’d have to put even more into this mythical interest-bearing account, simply because we didn’t collect any interest on money we didn’t put in the bank account this year. For the record, 5.7% on $53 trillion is a bit more than $3 trillion dollars, so you can see how the math is working against us here. This means the deficit will swell by at least another $3 trillion, plus whatever other shortfalls the government can rack up in the meantime. So call it another $4 trillion as an early guess for next year.

    Given how studiously our nation is avoiding this topic, both in the major media outlets and during our last election cycle, I sometimes feel as if I live in a small mountain town that has decided to ignore an avalanche, which has already let loose above, in favor of holding the annual kindergarten ski sale.

    The Treasury Department soft-pedaled the whole unsustainable gigantic deficit thingy in last year’s report, but they have taken a quite different approach this year. From page 10 of the report:

    The net social insurance responsibilities scheduled benefits in excess of estimated revenues) indicate that those programs are on an unsustainable fiscal path and difficult choices will be necessary in order to address their large and growing long-term fiscal imbalance.

    Delay is costly and choices will be more difficult as the retirement of the ‘baby boom’ gets closer to becoming a reality with the first wave of boomers eligible for retirement under Social Security in 2008.

    I don’t know how that could be any clearer. The US Treasury Department has issued a public report warning that we are on an unsustainable path, and that we face difficult choices that will only become more costly the longer we delay.

    Perhaps the reason US bonds and the dollar have held up so well is that we are far from alone in our predicament. In a recent article detailing why the UK Pound Sterling may fall, we read this horrifying evidence:

    Officially, [UK] public sector net debt stands at £486.7bn. That’s equal to US$953.9bn and represents a little under 38% of annual GDP. Add the state’s "off balance sheet" debt, however – including its pension promises to state-paid employees – and the total shoots nearly three times higher. Research by the Centre for Policy Studies in London says it would put UK government deficits at a staggering 103% of GDP.

    If we perform the same calculations for the US, however, we find that the official debt stands at $8.507 trillion or 65% of (nominal) GDP, but when we add in our "off balance sheet" items, the national debt stands at $53 trillion or 403% of GDP.

    Now that’s horrifying. Staggering. Whatever you wish to call it. More than four hundred percent of GDP(!). And that’s just at the federal level. We could easily make this story a bit more ominous by including state, municipal, and corporate shortfalls. But let’s not do that.

    Here’s what the federal shortfall means in the simplest terms:

    There is no way to ‘grow out of this problem.’

    What really jumps out is that the US financial position has deteriorated by over $22 trillion in only 4 years and $4.5 trillion in the last 12 months (see table below, from page 10 of the report).

    The problem did not ‘get better’ as a result of the excellent economic growth over the past 3 years, but, rather, got worse, and is apparently accelerating to the downside. Any economic weakness will only exacerbate the problem. You should be aware that the budgetary assumptions of the US government are for greater than 5% nominal GDP growth through at least 2011. In other words, because no economic weakness is included in the deficit projections below, $53 trillion could be on the low side. Further, none of the long-term costs associated with the Iraq and Afghanistan wars are factored in any of the numbers presented (thought to be upwards of $2 trillion more).



    The future will be defined by lowered standards of living.

    As Lawrence Kotlikoff pointed out in his paper titled "Is the US Bankrupt?" posted to the St. Louis Federal Reserve website, the insolvency of the US will minimally require some combination of lowered entitlement payouts and higher taxes. Both of those represent less money in the taxpayer’s pockets, and the last time I checked, less money meant a lower standard of living.

    Every government facing this position has opted to "print its way out of trouble."

    That’s a historical fac,tand our country shows no indications, unfortunately, of possessing the unique brand of political courage required to take a different route. In the simplest terms, this means you and I will face a future of uncomfortably high inflation, possibly hyperinflation, if the US dollar loses its reserve currency status somewhere along the way.

    Of course, it is impossible to print our way out of this particular pickle, because printing money is inflationary and is therefore a ‘hidden tax’ on everyone. What is the difference between having half of your money directly taken (taxed) by the government and having half of its value disappear due to inflation?


    Except that raising taxes is political suicide, while the overprinting of money as the cause of inflation is, conveniently, never discussed by the US financial mainstream press (for some reason) and therefore goes undetected by a majority of people as a deliberate matter of policy. Ergo, we will get all manner of government monetary and fiscal excess, but carefully disguised as bailouts and deficit spending.

    Unfortunately, all that printing can ever realistically accomplish is the preservation of a few DC jobs and the decimation of the middle and lower classes.

    In summary, I am wondering how long we can pretend this problem does not exist? How long can we continue to buy stocks, flip houses, forget to save, pile up debt, import Chinese made goods, and export debt? Are these useful activities to perform while there’s an economic avalanche bearing down upon us?

    Unfortunately, I only know that hoping a significant and mounting problem will go away is not a winning strategy.

    I know that we, as a nation, owe it to ourselves to have the hard conversation about our financial future sooner rather than later. And I suspect that conversation will have to begin right here, between you and me, because I cannot detect even the faintest glimmer that our current crop of leaders can distinguish between urgent and expedient.

    What we need is a good, old-fashioned grassroots campaign.

    In the meantime, I simply do not know of any way to fully protect oneself against the economic ravages resulting from poorly managed monetary and fiscal institutions. For what it’s worth, I am heavily invested in gold and silver and will remain that way until the aforementioned institutions choose to confront "what is" rather than "what’s expedient." This could be a very long-term investment.

    Are you shocked?

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