NightBlogger

Financial journalist and author Roger Lowenstein predicts the cause of the next widespread economic crunch as he excerpts his new book, “While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis.” Series: Revelle Forum at the Neurosciences Institute.

Wow! Big pop in inflation last month: July CPI rose 0.8% headline, 2X consensus expectations as food, energy, airline fares and — of all things, clothing apparel — rose in price. Energy prices rose sharply in July, tagging on another 4%; gasoline gained 4.1%, while natural gas surged 7.4%. Food prices saw a 0.9% rise, and “food at home”increased 1.2%. More

James Turk
The Federal Reserve did not suddenly contract the amount of dollars in circulation. Its latest H.6 report shows that both M1 and M2 expanded in recent weeks, so there was no shortage of supply. The Federal Reserve did not raise interest rates during this period. Consequently, inflation adjusted interest rates remain negative. In other words, the annual inflation rate is higher than the amount of interest one can earn on a 1-year dollar deposit, which is highly inflationary and a major disincentive to holding dollars. There has not been any news exceptionally favorable to the dollar. In fact, the banking problems in the United States continue to mount, while the federal government’s deficit continues to soar out of control. On July 28th Reuters reported that “The Bush administration on Monday plans to project the U.S. budget deficit will soar to a new record…because of the slowing economy and an economic stimulus plan approved this year.” So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar, and here’s the proof.

When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly. On July 16, 2008 (the closest date of the weekly reports to the July 15th low in the Dollar Index), the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. To put this phenomenally high growth rate into perspective, for the twelve months ending this past July 16th, assets in the Federal Reserve’s custody account grew by 17.3%, which is less than one-half the growth rate experienced over the past three weeks.

So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others. So central banks pushed in one direction and funds and traders then stepped on board. In other words, central banks ignited the fuse of a bear market rally. With this intervention, central banks have bought some time. More

US finance chiefs’ outlook for America’s economy sunk to a four-year low amid mounting concern over high oil prices, waning consumer demand and inflation, according to a study. The findings, which are to be released on Friday, follow a spate of US economic data and corporate earnings reports in recent weeks that fuelled fears of a recession and damped hopes of an easing of the financial crisis. Optimism among chief financial officers has also faded this year, and in the second quarter touched its lowest point since June 2004, a survey by Financial Executives International and Baruch College’s Zicklin School of Business showed. At least half of those surveyed believed that the price of crude oil would climb to at least $160 a barrel in six months, or about a third higher than where it traded on Thursday. Many have taken steps to insulate their companies from the jump in fuel costs, raising prices, cutting corporate travel or investing in more energy-efficient gear. Controlling expenses is among the top challenges for the rest of the year. More

Joseph Y. Calhoun, III
Over the last 50 years (at least) but especially the last 30, every economic problem has been buried under another layer of credit and government intervention. The Federal Reserve and Congress have worked together to promote an economic environment where failure is deemed a threat to the “system” and all economic ills are “solved” by reducing the cost of credit. The result is plain for all to see. The US has moved from creditor to debtor nation. Debtors are bailed out through the tax code while savers are consigned to a prison of low interest rates. It is no surprise that we must import capital to cover our debts when we encourage debt and discourage saving.

The long term problems facing our economy will not be solved painlessly. Nor will they be solved by providing more of the same policies that got us to this point. While the Federal Reserve sits at the center of our problems the institution itself is not at fault. They have been given an impossible dual mission to maintain economic growth and to limit inflation. Having control only over the money supply, it is beyond the capabilities of the Fed to create growth. Inflation and credit expansion do not add anything to the amount of resources available or the capital stock. The Fed cannot create universal prosperity by creating more money. Inflation consumes precious capital by misdirecting resources into non economic investments. If you have any doubts about that, think of all the empty houses sitting around the country which attracted so much investment over the last decade. The capital devoted to housing was diverted from more productive uses and is now being destroyed as banks are forced to write off the bad loans.

The villains in this story are the inhabitants of our political institutions. They seek to buy our votes with our own money and when they find that is not enough, they turn to the Federal Reserve and the banking system to create more. Rather than raise taxes to pay for the goodies they promise or the wars they deem necessary, they depend on debt and inflation. They do not create jobs, but destroy them. They do not create equality but exacerbate the divide between the haves and have nots and manipulate the divide to accrue more power. They do not create capital but rather destroy it. They are not special but mere mortals susceptible to the same failings as all men. They are self interested actors acting on a stage of their own design in a play written for their own benefit. More

The documentary divided into twelve parts tells the story of how debt combined with political corruption impoverished a nation that was once so rich that the expression “Wealthy as an Argentine” was once in common use throughout the world. When the USA took on trillions in debt starting in the early 1980s, did we enter a Dante’s hell as Argentina did when it took on its debt under a military dictatorship in the 1970s. Is it only a matter of time before US debts lead inexorably to currency crisis, inflation, and political chaos. The story will strike North Americans as uncomfortably familiar. More

Inflation in the US could hit 6 per cent by the fall, CIBC World Markets’ chief economist said on Wednesday. Consumer prices for June were up 5 percent from the year before, the fastest one-year change since 1991. Jeffrey Rubin, chief economist of Toronto-based investment bank CIBC, predicts a 6 per cent rate for overall inflation, a level last seen in 1982. His reasoning: Increased shipping costs are making goods produced in the United States more competitive with goods shipped from China. High energy prices give American manufacturing workers bargaining power that they have lacked for over a decade, while at the same time encouraging them to ask for larger pay raises to keep pace with the soaring price of gasoline,” Rubin wrote. If workers can bargain for cost of living increases, sparking inflation further, then interest rates will rise too, Rubin predicted. The last time we saw 6 per cent inflation in 1990, the federal funds rate was running at around 7.5 per cent _ over three times today’s setting. And a 10-year Treasury bond was yielding 8.5 per cent _ over double what it yields today.” More

JOHN HEINZL
When CNBC or Fox needs a guest who can be counted on to deliver a thoroughly gloomy outlook for the U.S. economy, they call on “Dr. Doom.” To say Peter Schiff is bearish is like saying Tiger Woods is an okay golfer, or China has a small problem with air quality. The president of Connecticut-based Euro Pacific Capital Inc. is so pessimistic about the U.S. economy that he lives in a rented house and keeps the vast majority of his and his clients’ money outside the country, a healthy chunk of it in gold and energy stocks. “America is finished. We are going to destroy this country. Our economy is just going to unravel,” he told me yesterday. “The question is how much money is the world going to lose before it writes us off?” Apocalyptic forecasts are a dime a dozen these days, so why should anyone pay attention to Mr. Schiff? Because his past predictions have proved uncannily accurate.

When dot-com stocks with no earnings were shooting skyward in the late nineties, he was advising clients to stay away and instead putting money into the unloved energy sector, just in time for the great oil bull market. A few years later, when the housing bubble was inflating, he was warning about the dangers of reckless mortgage lending and the precarious state of Fannie Mae and Freddie Mac. “If it looks like a bubble, walks like a bubble and quacks like a bubble, it’s a bubble,” he wrote. That was in 2004, when speculators were still lining up to buy investment properties in Las Vegas. Ever the contrarian, Mr. Schiff made a bundle shorting the subprime mortgage sector. So, one year into the credit crunch and with more than $400-billion (U.S.) of mortgage losses piling up on company books, where does Dr. Doom see the U.S. economy heading now? Unfortunately, into an even deeper hole, one from which it could take years to emerge.

Far from rescuing the economy from the housing debacle, the government’s efforts to prop up Fannie and Freddie - which own or guarantee nearly half of the $12-trillion in outstanding U.S. mortgage debt - will only compound the problem by delaying the inevitable day of reckoning. The same goes for plans to help hundreds of thousands of homeowners refinance into more affordable mortgages. Apart from encouraging the very moral hazard that got the U.S. into this mess in the first place, the government bailout will come with an enormous price tag in the form of soaring inflation, Mr. Schiff argues. He believes government figures vastly understate the true rate of inflation, which he estimates is now running at 10 to 12 per cent. Before long, it could be north of 20 per cent.

“The government doesn’t have the balls to raise taxes. It’s going to print the money. It’s going to destroy the currency,” he says. During the Depression of the 1930s, at least people who held cash made out okay. Because prices were falling, their money actually bought more. But if Mr. Schiff is right and the U.S. is heading into a period of hyperinflation, then even the most prudent savers will see their wealth eviscerated. With the walls closing in on the U.S. economy, where is an investor to turn? Apart from gold and energy producers, which benefit from a plunging U.S. dollar, Mr. Schiff likes conservative, dividend-paying stocks such as pipelines and utilities. He’s especially fond of Europe, Asia, Australia and Canada, where his holdings include Barrick Gold Corp., Goldcorp Inc., Crescent Point Energy Trust, Baytex Energy Trust and Pembina Pipeline Income Fund. He has two words for Canadian investors thinking now is a good time to shop for bargain-priced U.S. stocks: “Stay away.”

While the media rings the bells of alarm on how the sub-prime crisis only seems to be building into a bigger mess before it gets better other issues are ignored, forgotten or not even realized yet. By briefly paying attention to the news anyone can see that the consumer price index is out of control, making it a public affair that inflation is rising at a record pace. In June of 2008 the Consumer Price Index surged 1.1 percent. The entire year’s inflation rate is currently at 5 percent which is the highest the U.S. has experienced in 26 years. The soaring costs of food and fuel are adding to the woes of Americans that are already facing a credit crunch due to the sub-prime crisis. Dollar inflation down the toilet but what is hiding on balance sheets, trading floors and in the big bank’s boardrooms is a list of problems that could easily spiral out of control beyond the sub-prime crisis. More

Rita Braver interviews Peter Schiff on Charles Osgood’s Sunday Morning.

By. Peter Schiff
This week, with the nation’s financial infrastructure crumbling before our very eyes, the nation’s top two economic policy makers made their way to the Congress for an extraordinary episode of political theater. Fannie Mae and Freddie Mac, the quasi-government entities that form the backbone of America’s gargantuan mortgage market, appeared to be cracking. To the somewhat bewildered members of Congress, Ben Bernanke and Henry Paulson offered radical remedies to save the lenders. Despite the fact that the proposed policies would thoroughly redefine America’s supposedly capitalistic pedigree, the moves were presented as wholly inevitable, and in the end, benevolent and costless. If you are looking for a new chapter in American history, it has just begun. More

Ron Paul talks about Fed chairman Ben Bernanke’s testimony in front of the House Financial Services Committee yesterday. Our economy faces enormous difficulties and one of the biggest culprits is the inflation tax for which the (privately owned) Federal Reserve is largely responsible.

Congressman Ron Paul confronts Federal Reserve Chairman Ben Bernanke on monetary policy and its consequences. 7/16/08

Ron Paul
There are reasons to believe this coming crisis is different and bigger than the world has ever experienced. Instead of using globalism in a positive fashion, it’s been used to globalize all of the mistakes of the politicians, bureaucrats and central bankers. Printing dollars over long periods of time may not immediately push prices up–yet in time it always does. Now we’re seeing catch-up for past inflating of the monetary supply. As bad as it is today with $4 a gallon gasoline, this is just the beginning. It’s a gross distraction to hound away at “drill, drill, drill” as a solution to the dollar crisis and high gasoline prices. Its okay to let the market increase supplies and drill, but that issue is a gross distraction from the sins of deficits and Federal Reserve monetary shenanigans.

This bubble is different and bigger for another reason. The central banks of the world secretly collude to centrally plan the world economy. I’m convinced that agreements among central banks to “monetize” U.S. debt these past 15 years have existed, although secretly and out of the reach of any oversight of anyone–especially the U.S. Congress that doesn’t care, or just flat doesn’t understand. As this “gift” to us comes to an end, our problems worsen. The central banks and the various governments are very powerful, but eventually the markets overwhelm when the people who get stuck holding the bag (of bad dollars) catch on and spend the dollars into the economy with emotional zeal, thus igniting inflationary fever. This time–since there are so many dollars and so many countries involved–the Fed has been able to “paper” over every approaching crisis for the past 15 years, especially with Alan Greenspan as Chairman of the Federal Reserve Board, which has allowed the bubble to become history’s greatest.

The mistakes made with excessive credit at artificially low rates are huge, and the market is demanding a correction. This involves excessive debt, misdirected investments, over-investments, and all the other problems caused by the government when spending the money they should never have had. Foreign militarism, welfare handouts and $80 trillion entitlement promises are all coming to an end. We don’t have the money or the wealth-creating capacity to catch up and care for all the needs that now exist because we rejected the market economy, sound money, self reliance and the principles of liberty. Since the correction of all this misallocation of resources is necessary and must come, one can look for some good that may come as this “Big Event” unfolds. More

Matt Taibbi
“The middle class is disappearing,” says [Bernie] Sanders. “In real ways we’re becoming more like a third-world country.”

Here’s the thing: nobody needs me or Bernie Sanders to tell them that it sucks out there and that times are tougher economically in this country than perhaps they’ve been for quite a long time. We’ve all seen the stats — median income has declined by almost $2,500 over the past seven years, we have a zero personal savings rate in America for the first time since the Great Depression, and 5 million people have slipped below the poverty level since the beginning of the decade. And stats aside, most everyone out there knows what the deal is. If you’re reading this and you had to drive to work today or pay a credit card bill in the last few weeks you know better than I do for sure how fucked up things have gotten. I hear talk from people out on the campaign trail about mortgages and bankruptcies and bill collectors that are enough to make your ass clench with 100 percent pure panic.

None of this is a secret. Here, however, is something that is a secret: that this is a class issue that is being intentionally downplayed by a political/media consensus bent on selling the public a version of reality where class resentments, or class distinctions even, do not exist. Our “national debate” is always a thing where we do not talk about things like haves and have-nots, rich and poor, employers versus employees. But we increasingly live in a society where all the political action is happening on one side of the line separating all those groups, to the detriment of the people on the other side. More

The Market Oracle
…I wanted to make a special point to the folks who are viewing this week’s two-day rally as the potential start of a massive bull-market upswing. And that point is this: None of the factors that we were worried about before the rally have changed or gone away. Nor have any of the other potential pitfalls that we’ve repeatedly warned you about. The U.S. Federal Reserve is still scrambling to deflate the asset bubble it created - and is trying to do that in an orderly manner (a mistake on both counts). But the backstory isn’t pretty. Banks are still taking big write-offs, and in some cases also are under investigation. And there still are many reasons to be worried about commercial real estate, the U.S. housing market, inflation, stagflation, soaring food and commodities prices, and stratospheric energy costs.

The other thing that concerns us is that the markets tend not to do well when bad news is interpreted as good news - as Citigroup Inc.’s ( C ) latest numbers were overnight. Somehow the Street thinks that Citi’s loss of a mere $2.5 billion this quarter is good because it was less than the $2.86 billion of red ink that the Street was expecting. Let’s not forget that the beleaguered banking giant has written off nearly $40 billion in the past 12 months, revenue has fallen 29%, and that it is laying off 15,000 employees. That brings us to the broader markets, and our belief that rallies like those we’ve had in recent days are suspect, at best. The data seems to support this.

The bottom line: As much as we wish this weren’t the case, the strength we’ve seen in recent days may be nothing more than a massive short-covering rally. [Interestingly, Money Morning Contributing Editor R. Shah Gilani said precisely the same thing in his “Inside Wall Street” column published earlier today (Friday).] While it’s true that we may have a tradable bottom here that takes us as high as 1,370 or thereabouts on the Standard & Poor’s 500 Index (only about a 9% increase from current levels), such numbers are hardly impressive when viewed against the harsh light of history. More

Posted by Karl Denninger
The Fed can halt deflation only in the instant case, and in the four dimensions that actually govern reality that fourth dimension, time, derails attempted printing every time. Why? Because The Fed cannot control what people will demand in order to loan out their capital. It can set a target rate and then defend it by either injecting or withdrawing liquidity, but if it tries to set the rate too far under the actual trading rate (that is, the true cost of borrowing is higher than what the fed funds target is set to) the amount of money necessary to defend that too-low rate rises to infinity! Once The Fed prints the perception is that they will do so again. As such interest rates in the market rise to the actual monetary inflation rate plus a margin for the risk of The Fed doing it a second time. See the problem? The margin is always positive, otherwise nobody would lend at all! More

The greenback set record lows again on Tuesday in its alarming downward spiral as severe questions are being asked by overseas investors about the financial reliability of the world’s biggest economy and its financial obligations. The risk to the dollar in that environment is stark and given few governments around the world have any interest in seeing a further devaluation of the U.S. currency, support for concerted intervention is on the rise. More

Chairman Ben S. Bernanke testified Before the U.S. Senate in the Fed’s Semiannual Monetary Policy Report to Congress. Actions continue to speak louder than words. For all this talk about “inflation”, the Fed sure is not concerned much about it. Bernanke has an ongoing alphabet soup of credit lending facilities and has extended the Primary Dealer Credit Facility to next year. More, recently in a yes we are, no we are not, yes we are scenario the Fed is opening up the discount window to Fannie Mae and Freddie Mac. The market has now forced Bernanke to walk away from his ridiculous June assessment that threats to the downside have diminished somewhat.

Bernanke continues to have no vision. He is stuck with his academic models that suggest it is possible to spend ones way out of a recession. It is impossible. Unwarranted spending is particularly dangerous at this juncture. Capital that could and should go to more productive uses, is instead diverted to more malinvestments or personal consumption. That capital is as wasted as a drop of water on the desert. Bernanke is now spouting the same concerns about a wage-price spiral that Yellen did a couple weeks back. One has to be in La-La Land to think there is any risk of a wage-price spiral. The idea is complete nonsense as discussed in Confessions of a Former Inflationist. Somehow Bernanke believes that housing and the economy will pick up in 2009. The question remains “Is he that dense or is that just what he is saying?” More

As the national economy takes a downturn and homes become harder to sell, another measure of American life is on the decline in South Florida. In Miami-Dade County, almost 1,300 fewer divorces were filed from January through May this year than in the same time period in 2007, a decrease of about 18 percent, according to Zoila Miranda, the court operations officer in charge of family filings. The drop comes after five years in which the number of divorces each year was relatively constant. Filings for divorce ranged from 15,622 to 16,868 in the years from 2003 to 2007. From January through May 2008, 5,956 dissolutions were filed in Dade. More

Sam Mathid
The period wherein the U.S. dollar was the official reserve currency of the western world is now over. That will neither be announced nor admitted by any government until they have finally dumped the dollars that they own. It is in everyone’s interest to maintain the facade, at the moment. In reality they want almost anything except U.S.$’s in their reserves.

Bernanke must dramatically raise interest rates to strengthen the U.S. dollar, that is a MUST. Of course that will mean the collapse of the whole U.S. real estate market within a month. That would lead to the absurd and sad situation of millions of empty houses within sight of millions of families living in cars and tents. Such an interest rise would take a Volcker on steroids which Bernanke most certainly is not, so of course he hasn’t raised interest rates, and he won’t.

His whole education and training make him more inclined to again drop interest rates in a forlorn attempt to re-start money flow into the asset area of the economy. Too late he has been disabused of some of his Ivory Tower notions and now knows that won’t work any longer either. ‘Fool me once shame on you, fool me twice shame on me’. Dropping interest rates would also precipitate a panicked flight from the U.S. dollar which would see a faster flood of ever more worthless dollars turning up in the supermarket and energy area of the domestic economy. No matter what Bernanke does or doesn’t do, the chickens are coming home to roost. More

The American stockmarket had its worst month since 2002 in June and is now down more than 20% from its peak, the definition of a bear market. It is not alone. According to Standard & Poor’s, a rating agency, the value of global stockmarkets fell by $3 trillion during the month, thanks in particular to a 10% decline in emerging markets. Share prices are suffering because of the outlook for four forces that impel stockmarkets: economic growth, profits growth, interest rates and inflation. At the moment, the first two seem to be slowing while the last two are rising. That is the worst possible combination. More

The roar of the bear is shaking the London stock market once again. The FTSE 100 Index of leading shares fell as low as 5,358…taking the total loss since last June’s peak of 6,732 to a shade over 20 per cent – the technical definition of a bear market. Although the blue-chip index recovered later in the day, City analysts believe the respite is almost certain to be temporary, with no prospect of interest rate cuts to boost the economy while domestic inflation fears remain and global commodity prices continue to soar. The bear has not been sighted in Britain since 2002, although the US moved into bear market territory some weeks ago. Our jury of economists, fund managers and stockbrokers is almost unananimous: he’s back and he’s only just beginning to sharpen his claws. More

Richard Daughty
There is only one way to “protect the financial system”, and that is to stop the damned Federal Reserve from creating all the excess money and credit that finances the inflated crap that ends up endangering “the financial system” because so many people have lied to so many people to have them invest so much money into so many over-valued things, and now losses are inevitable, and on a scale that dwarfs the economies of the world.

I tried to leap to my feet to shout, “No! No! No! The Fed is supposed to protect the value of the dollar, which it has completely failed to do, and now it has created so much money and so much inflation in asset prices that they created the ‘unacceptable systemic risk’ you are talking about, you moron! In fact, the Federal Reserve is so incompetent and stupid that the dollar has lost almost 98% of its buying power since 1913 when the Fed was authorized by a few corrupt Congressional politicians on Christmas Eve, 1913 when everybody else was away! And now you want to give the Fed more powers? You’re a freaking imbecile or insane! Or both!”, but I found that was frozen in outrage! I could not move!

Hell, the recent downdraft in the S&P500 index to just over 1300 means that anybody who bought shares in this index since October 2006 has lost money! And now, because so many people are getting ready to lose so much money, here is the Secretary of the Treasury wanting permission to take over the finances of every company in America! Hahaha! Un-freaking-believable! We’re freaking doomed! Ugh. More

James Howard Kunstler
This isn’t so funny anymore. Intimations of a July banking collapse rumbled though the Internet this weekend while mainstream news orgs like The New York Times and CNN pulled their puds over swift boats and Amy Winehouse’s performance technique. Something is happening, and you don’t know what it is, do you Mr. Jones…? to quote the master. What’s happening is that American society is sliding into a greater depression than the one Grandma lived through. On the technical side, there has been unending controversy as to whether we’re gripped by inflation or deflation. It’s certainly deceptive. Food and gasoline prices are rising faster than the rivers of Iowa. But the prices of assets, like houses, stocks, jet-skis, GMC Yukons and pre-owned Hummel figurines are cratering as America turns into Yard Sale Nation.

We’re a very different country than we were in 1932. In that earlier crisis of capital, few people had any money but our society still possessed fantastic resources. We had plenty of everything that our land could provide: a treasure trove of mineral ores and the equipment to refine it all, a wealth of oil and gas still in the ground, and all the rigs needed to get at it, manpower galore (and of a highly disciplined, regimented kind), with fine-tuned factories waiting for orders. We had a railroad system that was the envy of the world and millions of family farms (even despite the dust bowl) owned by people who retained age-old skills not yet degraded by agribusiness. We had fully-functional cities with operating waterfronts and ten thousand small towns with local economies, local newspapers, and local culture. More

This post is not meant to alarm but to make aware of the potential risks and dangers now facing not only US markets but global markets as all these entities are linked to each other. I have pasted two thumbnails, one of the Philly Banking Sector (BKX) and 20 yr DOW. The banking index chart clearly shows the acceleration of downside movement. This index could hit 35 before it finds support, if it breaks through the support trendline (outlined) then the situation with the finanicals could even be more fragile then anticipated. Both Barclay’s and RBS have announced warning that within weeks to months we could witness a financial collapse based on inflationary influences. Very little mention of the true root cause of this debacle, which falls back to the irresponsibility’s of the banking industry related to sub-prime mortgage fiasco. Let them lay fault where fault is deserved, not with the FED releasing the inflation genie.

Bernanke’s FED truly was dealt a sucker hand from Greenspan. The wheels of destruction were already set in motion and there was no recourse, no detour available to navigate around this economic sink-hole now facing us. The US government has catered to big business and special interest groups leaving the US consumer harnessed to toiling in the field, the blood, sweat and tears of hard labor and little to show for it other then overwhelming debt. The Government is still under the belief you can suck blood out of a stone, we’ll see how that works out.

The economy is built on a house of cards, excess greed, excees debt, excess spending, excess deficits etc. All bets are laid and the dealer is asking for a show of hands. The US economy is unlikely to make the final table. Unfortunately you will find that when things go bad, they have to get much worse before it can get better. We will have to pay for all this excess, lack of responsible Government and Greed.

When the Banking Institutions start crying “fire” in their own house, one should pay extra attention and consider the source. It may turn out to be a self-fulfilling prophecy. This slow train wreck was long in the making, but as with all events which mature, they build up momentum and start to accelerate. We may be experiencing this acceleration now. Barclay’s warning; had mentioned consumers would do well just to preserve their wealth (given the high inflationary outlook). There was no mention of vesting in precious metals but any savvy investor can read between the lines and figure this out for himself. More

Congressman Ron Paul comments on the Federal Reserve’s decision to maintain interest rates and raises concerns about inflation on June 25, 2008. “If you’re worried about $4/gallon gasoline you better worry about $8/gallon because they’re [the Fed] still inflating…we live in an age that’s very dangerous and it’s coming to an end.”

NEW YORK (Reuters) - The specter of inflation and a bear market in equities is a powerful formula to rekindle investor interest in gold, which looks to be staging a catch-up rally after lagging other commodities in 2008. Bullion, which has often moved in lock-step with oil because of the metal’s appeal as a hedge against inflation, has in the last several months parted ways with the energy and grain markets, which have soared to record highs.

Yet, in the wake of U.S. Federal Reserve’s decision this week not to raise interest rates but its warning that inflation is a growing threat, a sudden resurgence in gold appears to have revived its positive correlation with oil. That should mean gold benefits as resurging inflation continues to wreak havoc for the stock markets, erode the value of the dollar and drive equity investors to seek returns elsewhere. “The recent rise in the gold market shows that uncertainty and fears still exist out there, and the inflation concern due to the lack of a definite Fed statement was a big plus for the metal,” said Bill O’Neill, managing partner of commodity firm LOGIC Advisors in Upper Saddle River, New Jersey.

On Thursday, U.S. gold futures soared nearly 4 percent, posting the biggest one-day gains in dollar terms since 1985, as financial market worries and record oil sent global stocks tumbling. Even though gold has lost 10 percent after it hit a record high of $1,030.80 on March 17, bullion is still up 10 percent year to date, compared with a 12 percent decline of the broad-based global equities. More

“If the American people ever allow private banks to control the issue of their currency, first by inflation, 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. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

–– Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin (1802)

Ellen Brown
Jefferson had it right. More than 1.5 million homeowners are expected to enter foreclosure this year, and about half of them are expected to have their homes repossessed. If the dire consequences Jefferson warned of 200 years ago have been slow in coming, it is because they have been concealed by what Jerome a Paris calls the Anglo Disease – “the highly unequal economy whereby the rich and the financial sector . . . capture most of the income but hide it by providing cheap debt to the middle classes so that they can continue to spend.” He calls “finance” the “cannibalistic” sector in today’s economy. Writing in The European Tribune this month, he states:

“[O]ne of the more attractive features of the financial world, for its promoters, is its ability to concentrate huge fortunes in a small number of hands, and promote this as a good thing (these people are said to be creating wealth, rather than capturing it). . . . [O]f course, the reality is that such wealth concentration is created by squeezing the rest, as is obvious in the stagnation of incomes for most in the middle and lower rungs of society. This is not so much wealth creation as wealth redistribution, from the many to the few. But what has made this unequality . . . tolerable is that the financial world itself was able to provide a convenient smokescreen, in the form of cheap debt, provided in abundance to all. The wealthy used it to grab real assets in funny money, and the rest were kindly allowed to keep on spending by tapping their future income rather than their insufficient current one; in a nutshell, the debt bubble hid the class warfare waged by the rich against everybody else.” More

(Bloomberg) — Gold prices may rise to $5,000 an ounce as investors seek to protect themselves against accelerating inflation, said Schroder Investment Management Ltd., which oversees $277 billion of assets globally. “You could easily see for the next several years that prices rise not to $1,000 an ounce, but prices rise to $5,000 an ounce or beyond as inflation psychology becomes more and more embedded and people become desperate to have a source of value,” said Christopher Wyke, London-based emerging market debt and commodities product manager at Schroder, which oversees about $10 billion of commodity assets.

Investors are turning to gold for protection as two-thirds of the world’s population cope with inflation rates that are climbing to more than 10 percent, Wyke said. Cash and inflation- linked bonds are poor substitutes as low interest rates, coupled with surging inflation, erode the real value of assets, he said. Bullion for immediate delivery was down 0.2 percent at $892.48 an ounce at 9:57 a.m. in Singapore, after gaining 3 percent in the past four days. Wyke didn’t give a time frame for his gold prediction.

Demand for gold will also rise as central banks become net buyers for the first time in 20 years, driven by developing countries, he added. Last year, world production of gold sank to the lowest since 1937 as reserves are depleted and few new sources of gold have been found. More
Also See:
Central bank body warns of Great Depression

Photo courtesy of Andrew Baron

First, we need to take into account inflation. As for gas prices, in 1950 the price of gas was approximately 30 cents per gallon. Adjusted for inflation, a gallon of gas today should cost right at $2.64, assuming taxes are the same. The tax per gallon of gas in 1950 was roughly 1.5% of the price. Today, federal, state, and local taxes account for approximately 20% of gas’s posted price. Taking inflation and the increase in taxes into account (assuming no change in supply or demand) the same gallon of gas that cost 30 cents in 1950 should today cost about $3.13.
Read more

Pic courtesy of klynslis

George Will at The New York Post writes:

“The Fed has no mandate to be the dealmaker for Wall Street socialism. The Fed’s mission is to preserve the currency as a store of value by preventing inflation. Its duty is not to avoid a recession at all costs; the way to get a big recession is to engage in frenzied improvisations because a small recession (aka, a correction) is deemed intolerable. The Fed should not try to produce this or that rate of economic growth or unemployment.

After the tech bubble burst in 2000, the Fed opened the money spigot to lower interest rates and keep the economy humming. And since the bursting of the housing bubble, the Fed has again lowered interest rates, which for now are negative - lower than the inflation rate, which the open spigot will aggravate”. Read more

Ron Paul, considered by many to be completely out of the loop, wrote this is 2002:

“Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve’s inflationary policies. This represents a real, if hidden, tax imposed on the American people.”

From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial “boom” followed by a recession or depression when the Fed-created bubble bursts”. Read more

Photo: Courtesy of u07ch
This from Michael Fox in The Smirking Chip:
In an excellent column on the state of the dollar, Brother, Can you Spare $10,000, economist Peter Schiff writes that:

“…Bernanke blames the [Great] Depression on the Fed not printing enough money. Had the Fed done precisely what Bernanke now thinks they should have, the Great Depression would have been much worse. Had the Fed tried to re-inflate the stock market bubble or keep it from bursting in the first place, it’s the dollar that would have collapsed, and Depression-era America would have looked liked Weimar Republic Germany. As bad as the Great Depression was, hyperinflation would have made it even worse. The good news is that there is still time to alter course and steer clear of both hyper-inflation and depression. The bad news is that if we remain on our current course that is precisely where we will end up.”

So what can you do to hedge against this? Precious metals, especially platinum and gold. But remember, if anyone thinks saving coins qualifies, they don’t (unless they’re very old).
Read more