"When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper which should have been gold, are a token of honor -- your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money." ~ Ayn Rand
The Perfect Economic Storm
Exclusive to STR
September 15, 2006
I have dear friends whom I have taken to divesting of their ignorance about the economic state of the nation. They find the information overwhelming on its face. I thought I'd write it down in what I hope is an orderly fashion and share it with you too, dear reader. This way it can be examined and digested in whole or in part, depending on your tolerance for pain.
My friends would really like all my bad economic newscasts to be due only to the fact that I am paranoid. I wish the same. Like I tell my friends, dear reader, I hope you do not believe anything I say. Question everything you hear and read and search for answers to those questions yourself. Only remember this: Just because I'm paranoid doesn't mean that the government isn't full of self-serving, power-mad whores and murderers, and that there aren't international puppet masters taking over the world's currencies (and with it their economies), thereby subjugating the world's population. The mental state of the messenger does not negate the accuracy of the news.
This is not an exhaustive account of the troubles facing our nation. It is a thumbnail sketch for discussion of the perfect economic storm of our own making into which America now sails. This is strong medicine. If it weren't so painful and dangerous a prospect, front row seats for this once in a lifetime event might seem exciting. We've paid our admission and, like it or not, the show must go on. I could be wrong about it. I hope I am.
America is the biggest debtor nation in the history of the world. Government debt is beyond fathom. It can never be repaid if taxes were raised to 100% of income, even if we stopped the spending spree now. That's not going to happen anyway, not with the $300 billion tiger we have by the tail in the Middle East .
According to the U.S. Debt Clock, as of this writing, each citizen's share of the nation's $8.5 trillion debt is a paltry $28,505. I'm sure a lot of people would consider this small potatoes. As nauseating as it is to watch the numbers race round and round the clock, the thing is, it in no way reflects the unaccounted for debt from future payments of Social Security, Medicare, prescriptions, and other unfunded liabilities of the U.S. government. Factoring in those, the debt burden to every man, woman and child in America is now in the hundreds of thousands of dollars. However, in their own words, government doesn't need to factor in promised future benefits because they can be withdrawn at any time. All those FICA taxes you've paid ' poof! Not much 'security,' socially speaking.
Social Security is the world's biggest Ponzi scheme. Such schemes are illegal and are still prosecuted today, unless you're the government and you're here to 'help us.' Government employee's retirement packages, not to mention the whores at the top of the heap, are much more lucrative than what average Americans are promised, and a glance reveals the emptiness behind those promises that were inadequate and unrealistic to begin with.
Private debt is accumulated trance-like as well. Revolving credit card debt hit $807 billion this year in the U.S. , which works out to about $7,000 per family. I know a woman with $130,000 of credit card debt! She couldn't even say exactly how many credit cards she owns. How unusual is she, really?
The savings rate in America is negative. Technically, it's probably just as well. The U.S. Dollar is 'walking the green mile,' as they say. When it finally gives up the ghost, any dollars in your wallet or your savings account will be almost worthless pieces of paper. It could take tens of thousands of them to buy a loaf of bread. Why bother storing a few hundred?
When you consider the frenzied buying of real estate with easy credit in the last couple of years, remember that there is always tremendous pressure to return to the mean. There are already record numbers of foreclosures and we haven't yet begun to feel the domino effect of unemployment from the failing housing sector and auto industries, not to mention the service sector that middle class Americans can no longer afford.
In a strategic move, the bankers last year saw the storm clouds gathering and decided that all those home equity and sub-prime loans they had made were becoming hot potatoes. They turned to their friends in Washington, whom they had helped to get elected, to cover their bad bets. A few simple strokes of the pen, and all those little fish caught in the dragnet of easy credit now find it impossible to fall back on bankruptcy to wipe clean the slate as many had in the past. Currencies collapse; debt, however, remains. With a million Asians willing to do your job for a tenth of your wages and no hard assets, how shall those debts ever be repaid?
I have a horrible notion of one day American's only means of retiring personal debt is to score a signing bonus by enlisting their children as cannon fodder for the Emperor's wars. This would also solve the problem of meeting enlistment quotas without an unpopular military draft. With support for illegal and immoral wars ebbing, no one wants to upset the sheeple by reinstating the draft. Let them think they have choice; let freedom ring. I'm sure that's just my paranoia. That can't be part of the plan at all!
Empires come and empires go, especially when they are spread too thin. It happened to the Roman Empire , do you think it can't happen to us? I don't think ours can be spread any thinner.
In a bloodless coup de gras in 1913, the dollar was detached from the gold standard. In fact, it became illegal to own gold; it carried with it too much authority--the government doesn't care for sovereign individuals. Since then, over 90% of the value of the U.S. Dollar has been inflated away, or stolen, by the Fed in the last century.
Congressman Ron Paul tells us inflation is a hidden tax. Think of it as a mouse eating away at a dollar bill. One or two little nibbles doesn't really affect the buying power of it. But if we average a 4% annual inflation nibble every year, it adds up, and after decades of nibbling, there is only one end ' that currency becomes as hollow as a cheap chocolate Easter Bunny. No one can feed their family on that.
The Federal Reserve Bank is now poised between Scylla and Charybdis. If they raise the interest rate, the housing market, which is precariously perched over a steep precipice, will collapse, taking millions of people with it. Think 'Hoover Ville.' If they lower the interest rate, the dollar will continue to decline in value, because like the game of musical chairs, investors don't want to be left standing when the music stops. The only thing holding up the U.S. Dollar right now is, in government's own words, faith. With a horrifying track record, faith in government is truly shocking. It's classic Stockholm Syndrome.
Avoiding booms and busts were the reason we were given for the formation of the Federal Reserve Bank. Actually, the Fed itself creates booms and busts and constant inflation. I'm sure this was never the intention of the private owners of the Federal Reserve!
Will interest rates continue to go up or will they go down? That's up to the Fed. Either way, someone is going to be sacrificed to the angry Gods of easy money. You can bet it won't be the power brokers who created this little chess game and know how to position themselves to scoop up the pawns working for a thin slice of the American dream. The U.S. debt is, in fact, owed in large part to the Federal Reserve Bank. Isn't that clever? The ones left standing will be the little guy. It's time to turn off the tube and get busy.
But you're insulated, you say--you own stocks. Stocks are neither a reliable asset nor a valuable source of income, no matter what Wall Street would like you to believe. The market is in basically the same place it was five years ago, as opposed to the U.S. Dollar, which has been in a free fall against other currencies for the past five years. Even if we accept the government's calculation of yearly inflation at only 4% (it's actually much higher when you add in housing and fuel, but who needs those?) if you were lucky enough to have earned 4% and paid taxes on that return, you've actually lost money by holding those stocks. Many haven't even done that well, such as the major, tumbling housing stocks that are down nearly 50% since their peak.
The stock market in America is poised for a major downturn. Imagine your stocks becoming worthless pieces of paper overnight but your debt is still alive and well. It's happened before, and our nation was not even the biggest debtor on earth at the time. Now imagine your savings also as worthless paper and unavailable because the banks declare a holiday? That's happened before, too.
But wait, your savings are federally insured! The government can just crank up the printing presses and print as much money as they need. Can you say 'hyperinflation'? It means a loaf of bread might cost $10,000 tomorrow, or $50,000 the next day, or $150,000 the following week.
If you, like most Americans, have debt, you need a plan to get out of it. With a finite amount of crude oil in the world, something we have all come to rely on, the price of it along with other limited commodities can only go up in the long run. This means constant increases in food that must be transported and heating your home, leaving less money to spend on other necessities. Put the yoke of discipline around your own neck before the noose of debt is tightened there for you.
You've probably heard the trade imbalance with China pooh-poohed by mainstream economists. We must downplay it--we caused it ourselves. Addison Wiggin, writing for 'The Daily Reckoning', says it is due more to cheap credit in the U.S. than it is to cheap labor in Asia . So we use credit cards to buy a bunch of cheap stuff we don't need (which will only end up in a landfill) to keep up with the Joneses. In return, we send them a billion dollars a day. As the Mogambo Guru says, 'a billion here, a billion there, pretty soon you're talking about real money.' I don't know about you, but what comes next is what worries me.
What to do with all those Chinese warehouses stacked to the rafters with U.S. Dollars? As the U.S.D. is the reserve currency of the world and specifically OPEC, the Arabs as well as the Russians also find themselves holding gobs and gobs of dollars too. (For communists and other oppressive stripes, they sure know how to accumulate capital!) Communist fingers can feel a pulse as well as any other, and these holders of excess U.S.D.'s have noticed our money is looking greener around the gills than usual. Do they let these dollars sit around year after year, losing value through inflation?
Not any more, they don't. Foreign holders of U.S.D.'s have decided to greatly increase their gold reserves. They are buying top end real estate in the West. 51% of London is now foreign owned. They are also buying up infrastructure in the U.S. such as bridges, toll roads and ports ' all things built and paid for by the taxpayer. You can either take responsibility for your future into your own hands or learn to speak Chinese.
How did we get into this mess? Americans are the ultimate 'fly now, pay later' consumers, but Alan Greenspan has done more harm to America in recent times than any other individual. He knew what he was doing economically to this nation when he became President of the Federal Reserve Bank.
Amazingly, before he was seduced by the Fed, he had written about gold being the only real store of value. To hush him up, they gave him the illusion of power, like that 'one ring' that almost no one can resist, and a cool title - Maestro! Greenspan was the main man, the big kahuna, el capitano, the pimp of all pimps. He made a lot of money for himself and the powers that be at the expense of working men and women.
The Maestro opened the floodgates of cheap credit, a Pandora's box of reckless spending, booms and busts, debt and foreclosure. Like Pandora's world, ours shall know 'sorrow, poverty, crime, and despair' unprecedented in this generation and be 'extremely bleak for an unspecified interval' as the story goes. One way or another, if you dance to the music, the piper must be paid.
It reminds me of a story I once heard about catching monkeys. Trappers cut a hole in a secured coconut only big enough for a monkey's open hand. They hollow it out and put treats inside. Unsuspecting monkeys come along and easily reach inside for the treat. But with their fingers wrapped around it, they cannot get their hand out the narrow opening. They're too dumb or greedy to let go of the treat and be free. They cry aloud in frustration with hands stuck inside, fingers wrapped around the prize, as their captors approach and easily apprehend them.
With icy water swirling around his ankles, Greenspan decided he'd done enough for us. He retired earlier this year because he could see the storm we sail into now. If he were truly a maestro, wouldn't this be the time we need him most? The thing is, this 'maestro' knows there's nothing he or anyone else can do to ward off what's coming any longer, what the inevitable outcome must be of a top heavy, rudderless ship in the face of a tidal wave. There's only one thing to do, and it's very simple, really. Let the sinking ship look like the fault of the new captain! It doesn't matter that he's only been here five minutes and his only weapon is a printing press, he's now the main man, the big Kahuna, the . . . .
Sooner or later the 'salt of the earth,' the middle class that keeps the ship America sailing, will realize they've been had by their masters, those very men for whom they voted. Greenspan had to 'blow Dodge' because he didn't want that blood in the streets during the next revolution to be his.
If you live in a heavily populated area, and are not prepared to protect your home from angry, hungry mobs in the streets, now is the time to do that before the 'whip comes down.' Go to a shooting range. They will rent you a firearm, instruct you in how to use it and sell you ammunition.
After you've practiced and have become a fairly decent shot, start educating yourself on home security. Your friendly neighborhood gun shop will be happy to share their knowledge and expertise with you and make recommendations. They sell used firearms if that's all you can afford.
The Supreme Court has already ruled that police are under no obligation to protect you. You cannot afford to be unwilling to protect yourself and your family. An angry mob is an ugly thing, and even though one cannot reason with it, one can make intentions known, and mobs take the path of least resistance.
Batten down the hatches
Can you hear the wind blowing, my friends? When the U.S.D. became detached from the gold standard, the economic collapse of this once great nation became inevitable. If you've been listening to the snake charmer politicians whispering in your ear that you can live high on the hog and without paying for it, now is the time to snap out of the trance.
With interest rates rising and liquidity drying up, the middle class will be forced to stop this drunken spending spree. They've already slowed the buying of real estate and SUV's; many have stopped dining out and the other non-essentials that keep our entire service economy running. With foreclosures up, negative savings rates, bloated debt, public and private, unemployment poised to explode, stocks poised to tank, oil and food prices expanding at an alarming rate with no end in sight, the party is over. Don't be the last one out the door.
Get to know your local gold bullion dealer and give him as much business as you can. Only gold and silver are real money because they have intrinsic value. This is why people move into them every time there is an economic downturn, and some say we are poised for a bigger downturn than the Great Depression. The current dip in price looks like a 'buy signal' to the savvy. Wouldn't you rather buy gold before the price explodes? Once the masses catch on, it'll be too late.
Study history, question authority, get to know your neighbors, get out of debt, learn how to shoot. Make plans now for a long-term, worst-case scenario. If you never need to use that plan, that's good. Wouldn't you rather have a plan and not need it, than need it and not have one?