Everyone has been guilty, at one time or another, of ignoring a cold. Though you knew you were sick, you may have kept working hard, playing hard, and staying out late. Not until you were bed-ridden did you start drinking orange juice and taking your health seriously. The U.S. economy appears to be following a similar trajectory. We have consistently ignored serious symptoms to the point where our economy is nearly a terminal case.

After ignoring and downplaying the inflating credit bubble for much of his first two years in office, this week Fed Chairman Ben Bernanke emphasized, in testimony before the Senate Banking Committee, that no economic recovery would occur unless the financial system was restored. He was quite correct in his belated diagnosis. His prescriptions, on the other hand, are much more dubious.

As the evidence gathers, it looks as if Bernanke and his new colleagues in the Obama Administration are becoming increasingly desperate. The current recession is deepening at an alarming rate. In fact, it now appears to be diving fast towards the depression that we have long forecast. To prevent necessary deleveraging, the policymakers are improvising on a grand scale.

But, just as happened in the Great Depression, the confusion and experimentation in Washington has sapped businesses of the confidence necessary for a sustainable recovery. Rhetorical posturing by Senators and Cabinet members has replaced earnings reports and economic indicators as market moving events. This is no way for a recovery to begin.

It is widely recognized that the basic cause of today’s financial and economic crisis was pressure by politicians to ‘encourage’ banks to make oversized loans to under-qualified homebuyers. This policy was just one small part of a creeping socialist agenda over the last few decades. Now that the crisis is full-blown, the statist tendencies of the Federal government have come into full flower. As Mr. Obama’s chief of staff has noted, the crisis will not go unexploited by those who wish to expand the role of government.

Although the initial reaction to the government bailouts was relief, the financial markets are beginning to question the wisdom of trying to cure a credit problem with the injection of yet more credit. Whether one believes that the ‘stimulus’ is too much or too little, no one can doubt that the result so far has been failure. And although the spending is small in relation to the problem, it is enormous relative to the national budget.

So, if it doesn’t succeed, which I’m sure it won’t, the Government will surely feel justified in upping the ante still further. In fact, left-wing think tanks and Nobel Prize-winning economists are currently laying the intellectual track work for such a move. In the end, the American people will be left with severe stagflation.

Though our future looks bleak, I do have reason to hope. Americans are industrious and able to learn from our mistakes. When the depression sets in, economic reality may then deliver the final verdict on socialism and lead to a long overdue restructuring of the American economy. A restored ‘producer’ economy would return America to the path of prosperity.

In short, after decades of creeping growth, Washington socialism is about to fall flat on its face. I say good riddance to the plague that progressively stifled American enterprise, and has now caused such acute pain to my countrymen.

As perverse as it might sound, this sickness may lead to the cure. Our economy must rid itself of parasitic ideology, broadcast from Washington for as long as anyone can remember. It may take a brush with our economic death-bed to show us the way to a healthier future.

http://www.financialsense.com/fsu/editorials/schiff/2009/0225.html

Sickness May Be Cure For U.S. Economy is a post from: Give Me Mortgage Advice

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There is an old adage on Wall Street that no one rings a bell at major market tops or bottoms. That may be true in normal times, but as many have noticed, we are now completely through the looking glass. In this parallel reality, Ben Bernanke has just rung the loudest bell ever heard in the foreign exchange and government debt markets. Investors who ignore the clanging do so at their own peril. The bell’s reverberations will be felt by everyday Americans, whose lives are about to change in ways few can imagine. While nearly every facet of America’s economy has been devastated over the past six months, our national currency has thus far skipped through the carnage with nary a scratch. Ironically, the U.S dollar has been the beneficiary of the global economic crises which the United States set in motion. As a result, our economy has thus far been spared the full force of the storm.

This week the Federal Reserve finally made clear what should have been obvious for some time – the only weapon that the Fed is willing to use to fight the economic downturn is a continuing torrent of pure, undiluted, inflation. The announcement should be seen as a game changer that redirects the fury of the financial storm directly onto our shores.

In its statement, the Fed announced its intention to purchase an additional $1 trillion worth of U.S. treasury and agency debt. The purchases, of course, will be made with money created out of thin air through the Fed’s printing presses. Few can doubt that they will persist with these operations until the economy returns to its former health. Whether or not this can ever be accomplished with a printing press alone has never been seriously considered. Bernanke himself admits that we are in uncharted waters, with no map or compass, just simply a hope that more dollars are the answer.

Rather than solving our problems, more inflation will only add to the crisis. Falling asset prices, the credit crunch, declining consumer spending, bankruptcies, foreclosures, and layoffs are all part of the necessary rebalancing of our economy. These wrenching movements, however painful, are the market’s attempts to resolve the serious problems at the root of our bubble economy. Attempts to literally paper-over these problems will lead to disaster.

Now that the Fed has recklessly shown its hand, the mad dash to get out of Treasuries and dollars should not be far off. The more the Fed prints to buy bonds the less the dollar is worth. Holders of our debt (read China and Japan) understand this dynamic. We must expect that they will not only refuse to buy new bonds, but they will look to unload those bonds they already own.

Under normal circumstances, if creditors grew concerned that inflation was eating into their returns, the Fed would raise interest rates to entice them to buy. However, the Fed will avoid this course of action as it fears higher rates are too heavy a burden for our debt laden economy to bear. To maintain artificially low rates, the Fed will be forced to purchase trillions more debt than it expects as it becomes the only buyer in a seller’s market.

Just last week, Chinese premier Wen Jiabao voiced concern about his country’s massive investments in U.S. government debt. In the most unequivocal statement yet by the Chinese leadership on this issue, Wen made it plain that he was concerned with depreciation, not default. With his fears now officially confirmed by the Fed statement, we must wonder when the Chinese will finally change course.

There is a growing consensus that if China no longer wants to buy our bonds, we can simply print the money and buy them ourselves. This naïve view fails to consider the consequences implicit in such a change. When the Treasury sells bonds to China, no new dollars are printed. Instead, China prints yuan to buy dollars which it then uses to purchase treasurers. This effectively allows America to export its inflation to China. However, now that we will be printing the money ourselves, the full inflationary impact will fall directly on us.

With such a policy in place, America has now become a banana republic. It won’t be too long before our living standards reflect our new status. Got Gold?

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff’s book “Crash Proof: How to Profit from the Coming Economic Collapse”.

The Mother of All Bells is a post from: Give Me Mortgage Advice

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HONG KONG (MarketWatch) — China’s calls for a new international reserve currency to replace the U.S. dollar are more than mere bluster and could likely lead the debate over the future of the global foreign-exchange system, analysts say.

“By proposing such a sweeping reform, China is demonstrating its growing influence in reshaping the global monetary system, and is now on offensive in the debate of who is responsible for the global imbalances,” Deutsche Bank’s chief economist for Greater China Jun Ma said in a note to clients Wednesday.

The comments by People’s Bank of China Gov. Zhou Xiaochuan are setting a framework for talks on how to resolve the huge trade imbalances between China and the U.S., analysts said.

In the past, China has been blamed for its large trade surplus by officials in the U.S. and elsewhere, who see the yuan as undervalued.

“China has effectively set the agenda for the G20 leaders’ summit,” wrote SocGen economists in a note Tuesday, referring to next week’s meeting of finance chiefs from the Group of 20 leading economies in London.

In an essay published on the central bank’s Web site Monday, Zhou proposed the creation a new international reserve currency, a call rejected by U.S. officials Tuesday. See full story on Zhou’s statement and U.S. reaction.

A super-sovereign reserve currency managed by a global institution could be used to both create and control global liquidity, Zhou wrote.

Analysts said the comments also signal China’s growing concern over preserving the value of its trillion-dollar plus hoard of Treasurys in light of potential swings in the value of the dollar or a probable rise in U.S. sovereign credit risk.

“It has the potential to lead one of the most profound reforms of the global monetary system in the coming decades,” said Deutsche Bank’s Ma about Zhou’s proposal.

No Treasury unwinding

Zhou did not, however, say China’s central bank had any plans to diversify its U.S. debt holdings. China has the world’s largest foreign exchange reserves, and it is also the biggest holder of U.S. Treasury securities.

In fact, Zhou’s proposal came as his No. 2 — People’s Bank of China Deputy Gov. Hu Xiaolian — was quoted as saying U.S. government debt is “an important element of China’s investment strategy of its foreign currency reserves.” See full story on Hu’s comments.

Meanwhile, Japan, the U.S.’s staunchest ally in Asia, said Wednesday it too does not have plans to change its policy of investing a majority of its foreign reserves in U.S. Treasurys.

But Zhou’s comments were seen by some as offering the Chinese currency as a possible alternative to the dollar as a medium of settlement for international trade, analysts said.

“The PBOC is more actively promoting the Chinese yuan itself as a reserve currency,” said RBS economist Ben Simfendorfer. “The ability to settle in Chinese yuan offers export manufacturers a way to hedge against large currency moves in the U.S. dollar and, increasingly, the euro.”

China’s central bank has recently signed currency-swap agreements with central banks in Hong Kong, South Korea, Malaysia, Indonesia and Belarus, Simfendorfer said.

A senior Chinese official speaking in Hong Kong Wednesday said global capital flows need to be monitored and regulated to limit potential damage on developing countries, citing the Mexico peso crisis of the mid-1980s, the 1997 Asia financial crisis and the 1998 Russia default as examples of crises that resulted from rapid capital outflows.

“We should monitor capital flows, and monitor leverage, and this information should be reported to the countries where (institutions) are investing,” Fan Gang, director of China’s National Economic Research Institute, was cited as saying in an interview with the Wall Street Journal Asia.

Fan also said that China needed to further develop its financial infrastructure and its legal system before opening the country in a more significant way to international fund flows.

Separately, Hong Kong Chief Executive Donald Tsang said Tuesday the city would consider altering its now U.S.-dollar linked currency to a system with “linkage” to the Chinese yuan, once that currency becomes freely traded on global exchanges.

Tsang acknowledged, however, that such a move could take years.

Standard Chartered Regional Economist Kelvin Lau said Wednesday he doesn’t expect much to come of the recent talk of change in the currency regime if the U.S. dollar weakens on a gradual basis.

“A weaker currency could be inflationary (via higher imported prices), but that is the last thing policy makers in Hong Kong are worried about right now,” Lau said in a note. End of Story

Chris Oliver is MarketWatch’s Asia bureau chief, based in Hong Kong.

China not fooling in call for review of dollar’s status is a post from: Give Me Mortgage Advice

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We first posted this article on 13th August 2007 when it appeared to us that the US Dollar along with the economy was heading into such dangerous waters that gold would be the beneficiary. At the time gold was trading at around $670/oz and it closed yesterday at $960 for a gain of $290 or 43.2%. Yesterday was the first time that we have seen the ‘C‘ word used as the Federal Reserve announced that it would be buying back $300 billion in longer-term Treasuries in order to assist the economic recovery. This move to buy these Treasuries is regarded by many as a last resort or a sign of panic as the turmoil in the financial markets reaches a crisis  point.

US Dollar Index

Gold was languishing at the $890/oz level just prior to the announcement and then within the hour it rocketed to the $950/oz level as the news of the Feds action spread. Whether it be an article on Market Watch or a mention on the BBC World Service, news travels fast these days to every corner of the planet and investors react accordingly with startling results. A new government and a New Fed, not really, just more of the same but in increasingly larger doses. Todays action will turn out to be a defining moment for the US Dollar and recorded by historians as the beginning of its demise. Unfortunately the worst is yet to come so steel yourself for a force ten storm.

On 4th October 2008 we updated our original essay with the following excerpts;

If we fast forward to time now and read any newspaper the headlines are dominated with the fire fighting actions being implemented by the Federal Reserve with bankers and politicians in tow. From these bailouts we can only conclude that the dilution of paper money will continue with the pace of dilution accelerating, resulting in massive inflation and propelling the precious metals to higher ground. If you have the time, please read this article and then take a look at what’s happening around you and then find the time to question what you are doing and why you are doing it. Being too busy to organise your own affairs is a poor excuse. Just switch the television off for a couple of nights and clear your head, the way forward for you personally will become apparent.

Federal Reserve

The Federal Reserve: The Greatest Scam In History?

This is the original essay posted on 13th August 2007

The Federal Reserve was created in 1913-1914 in order to bring stability to the economy and yet almost every major crash, including the great depression, can be attributed to the Federal Reserve.

We are going to take a look at the history of the Fed and what prominent historical figures have said about the organisation.

Firstly, from 1837-1862 there was a system of national banks in the USA but then in 1913-1914 a consortium of 12 privately held banks got together and formed the Federal Reserve Bank, an entity that is not part of the US government. These banks then purchased notes from the US Mint for printing costs and lent them out through member banks charging interest.

The Federal Reserve came into being after its supporters paid for the Presidential campaign of US President Woodrow Wilson. Wilson signed the bill that transferred the US currency to twelve regional private banks Wilson regretted his decision later saying:

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”

In 1933 President Roosevelt confiscated citizens gold and handed it to the Federal Reserve. At the very moment when Americans have needed to protect their wealth the most, the best store of wealth ever created, gold, was confiscated from American citizens and given to a un-elected conglomerate of private banks.
When the bill for the Federal Reserve was being considered, some brave politicians spoke out against its creation calling it “the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed” and Congressman Victor Murdock said, “I do not blind myself to the fact that this measure will not be effectual as a remedy for a great national evil – the concentrated control of credit.”

It even appears that one of the most important and most respected figures in American history disagrees with the Federal Reserve saying, “If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”

Jefferson also said, “I sincerely believe the banking institutions having the issuing power of money are more dangerous to liberty than standing armies”
“Paper is poverty… it is only the ghost of money, and not money itself.”

The Federal Reserve make no secret about the scam they are running as the Boston section of the Federal Reserve Bank said:

“When you or I write a check there must be sufficient funds in our account to cover the cheque, but when the Federal Reserve writes a check there is no bank deposit on which that cheque is drawn. When the Federal Reserve writes a cheque, it is creating money.”

Perhaps the Fed can create money, but we strongly believe that wealth cannot be created. Wealth is simply transferred, it is not created and we challenge anyone to prove otherwise. The only time wealth was created was when the world was created, with all its resources, true wealth. So why hasn’t the Federal Reserve been disbanded?

Well as the Rothschild Brothers of London said in 1863; “The few who understand the system, will either be so interested from it’s profits or so dependant on it’s favours, that there will be no opposition from that class.”

The great Henry Ford once said “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

The problem is, very few people understand the system at all. It is not taught in schools and even some of the most prominent financial analysts and fund managers really have no idea how the system works. They tend to define inflation as rising prices when in fact inflation occurs because of the expansion of the money supply. Or even link inflation with the economy doing well, saying, “we should raise interest rates as the economy did extremely well this month and we don’t want inflation getting out of hand”, or words to that effect.

What all people, not just investors, need to understand is that paper money is worthless. Gold and precious metals are the real money, the real wealth that cannot be created like its paper ghost.

Gold has been telling us for sometime that all is not well so listen up and put at least a small part of your wealth into precious metals or their associated stocks. Discipline is about to return to a screen near you.

Fed Reserve Building

The Federal Reserve: The Greatest Scam in History is a post from: Give Me Mortgage Advice

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