The Beginning Of The End
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From This Day Forward, We Will Watch How The Stock Market Performs Without The Fed’s Monetary Heroin

Money - Public DomainMark this day on your calendars.  The Dow is at 16974, the S&P 500 is at 1982 and the NASDAQ is at 4549.  From this day forward, we will be looking to see how the stock market performs without the monetary heroin that the Federal Reserve has been providing to it.  Since November 2008, the Fed has created about 3.5 trillion dollars and pumped it into the financial system.  An excellent chart illustrating this in graphic format can be found right here.  Pretty much everyone agrees that this has been a tremendous boon for the financial markets.  As you will see below, even former Fed chairman Alan Greenspan says that quantitative easing was “a terrific success” as far as boosting stock prices.  But he also says that QE has not been very helpful to the real economy at all.  In essence, the entire quantitative easing program was a massive 3.5 trillion dollar gift to Wall Street.  If that sounds unfair to you, that is because it is unfair.

So why is the Federal Reserve finally ending quantitative easing?

Well, officially the Fed says that it is because there has been so much improvement in the labor market

The Fed’s language, however, did suggest that they were getting more comfortable with the economy’s improvement. It cited “solid job gains,” citing a “substantial improvement in the outlook for the labor market,” as well as pointing out that “underutilization” of labor resources is “gradually diminishing.”

But that is not true at all.

The percentage of Americans that are working right now is about the same as it was during the depths of the last recession.  Just check out this chart…

Employment Population Ratio 2014

So there has been no “employment recovery” to speak of at all.

And as I wrote about yesterday, the percentage of Americans that are homeowners has been steadily falling throughout the quantitative easing era…

Homeownership Rate 2014

So let’s put the lie that quantitative easing helped the “real economy” to rest.  It did no such thing.

Instead, what QE did do was massively inflate stock prices.

The following is an excerpt from a Wall Street Journal report about a speech that former Fed chairman Alan Greenspan made to the Council on Foreign Relations on Wednesday

Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.

He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.

Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”

Moving forward, what did Greenspan tell the members of the Council on Foreign Relations that they should do with their money?

This might surprise you…

Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.

Wow.

It almost sounds like Greenspan has been reading the Economic Collapse Blog.

Since November 2008, every time there has been an interruption in the Fed’s quantitative easing program, the stock market has gone down substantially.

Will that happen again this time?

Well, the market is certainly primed for it.  We are repeating so many of the very same patterns that we saw just prior to the last two financial crashes.

For example, there have been three dramatic peaks in margin debt in the last twenty years.

One of those peaks came early in the year 2000 just before the dotcom bubble burst.

The second of those peaks came in the middle of 2007 just before the subprime mortgage meltdown happened.

And the third of those peaks happened earlier this year.

You can view  a chart that shows these peaks very clearly right here.

The Federal Reserve appears to be confident that the stock market will be okay without the monetary heroin that it has been supplying.

We shall see.

But it should be deeply troubling to all Americans that this unelected, unaccountable body of central bankers has far more power over our economy than anyone else does.  During election season, our politicians get up and give speeches about what they will “do for the economy”, but the truth is that they are essentially powerless compared to the immense power that the Federal Reserve wields.  Just a few choice words from Janet Yellen can cause the financial markets to rise or fall dramatically.  The same cannot be said of any U.S. Senator.

We are told that monetary policy is “too important” to be exposed to politics.

We are told that the independence of the Federal Reserve is “sacred” and must never be interfered with.

I say that is a bunch of nonsense.

No organization should have the power to print up trillions of dollars out of thin air and give it to their friends.

The Federal Reserve is completely and totally out of control, and Congress needs to start exerting power over it.

The first step is to get in there and do a comprehensive audit of the Fed’s books.  This is something that U.S. Senator Ted Cruz called for in a recent editorial for USA Today

Americans are seeing near-zero interest rates on their savings accounts while median incomes are falling, and millions of people are facing higher gas prices, food prices, electricity prices, health insurance prices. Enough is enough, the Federal Reserve needs to open its books — Americans deserve a sound and stable dollar.

Whether you agree with Ted Cruz on other issues or not, this is one issue that all Americans should be able to agree on.

If you study any of our major economic problems, usually you will find that the Federal Reserve is at the heart of that problem.

So if we ever hope to solve the issues that are plaguing our economy, the Fed is going to need to be dealt with.

Hopefully the American people will start to send more representatives to Washington D.C. that understand this.

How Will The Stock Market React To The End Of Quantitative Easing?

Stock Market Crash - Public DomainIt is widely expected that the Federal Reserve is going to announce the end of quantitative easing this week.  Will this represent a major turning point for the stock market?  As you will see below, since 2008 stocks have risen dramatically throughout every stage of quantitative easing.  But when the various phases of quantitative easing have ended, stocks have always responded by declining substantially.  The only thing that caused stocks to eventually start rising again was a new round of quantitative easing.  So what will happen this time?  That is a very good question.  What we do know is that the the performance of the stock market has become completely divorced from economic reality, and in recent weeks there have been signs of market turmoil that we have not seen in years.  Could the end of quantitative easing be the thing that finally pushes the financial markets over the edge?

After all this time, many Americans still don’t understand what quantitative easing actually is.  Since the end of 2008, the Federal Reserve has injected approximately 3.5 trillion dollars into the financial system.  Of course the Federal Reserve didn’t actually have 3.5 trillion dollars.  The Fed created all of this money out of thin air and used it to buy government bonds and mortgage-backed securities.

If that sounds like “cheating” to you, that is because it is cheating.  If you or I tried to print money, we would be put in prison.  When the Federal Reserve does it, it is called “economic stimulus”.

But the overall economy has not been helped much at all.  If you doubt this, just look at these charts.

Instead, what all of this “easy money” has done is fuel the greatest stock market bubble in history.

As you can see from the chart below, every round of quantitative easing has driven the S&P 500 much higher.  And when each round of quantitative easing has finally ended, stocks have declined substantially

Chart By DayOnBay

And of course the chart above tells only part of the story.  Since April 2013, the S&P 500 has gone much higher…

S&P 500

If someone from another planet looked at that chart, they would be tempted to think that the U.S. economy must be expanding like crazy.

But of course that is not happening.

This market binge has been solely fueled by reckless money printing by the Federal Reserve.  It is not backed up by economic fundamentals in any way, shape or form.

And now that quantitative easing is ending, many are wondering if the party is over.

For example, just check out what CNN is saying about the matter…

Even in this bull market, all good things must come to an end.

The Federal Reserve is expected to close a chapter in history this week and announce the conclusion of its massive stimulus program. Known as quantitative easing, the program is widely credited with driving investors back into stocks in the aftermath of the financial crisis.

“I think to some extent quantitative easing has provided an assurance to investors that (has) kept them optimistic,” said Bruce McCain, Chief Investment Strategist of Key Private Bank in Cleveland, Ohio. “Now we’re going to have to see whether investors can ride without training wheels.”

Everyone knows that quantitative easing was a massive gift to those that own stocks.

So how will the stock market respond now that the monetary heroin is ending?

We shall see.

Meanwhile, deflationary pressures are already starting to take hold around the rest of the globe.  The following is an excerpt from a recent Reuters report

After months of focus on slack in U.S. labor markets, the Federal Reserve faces a new challenge: the possibility that weak inflation may be so firmly entrenched it upends the return to normal monetary policy.

The soft global inflation backdrop, from sliding oil prices to stagnant wages in advanced economies, has triggered debate over whether the Fed and its peers merely need to wait for a slow-motion business cycle to improve, or face a shift in the underlying nature of inflation after the global recession.

That uncertainty has become the Fed’s chief concern in recent weeks, likely to shape upcoming policy statements and delay even further the moment when interest rates, pinned near zero for nearly six years, will start rising again.

If the Federal Reserve and other global central banks were not printing money like mad, the global economy would have almost certainly entered a deflationary depression by now.

But all the Federal Reserve and other global central banks have done is put off the inevitable and make our long-term problems even worse.

Instead of fixing the fundamental problems that caused the great financial crash of 2008, the central bankers decided to try to paper over our problems instead.  They flooded the global financial system with easy money, but today our financial system is shakier than ever.

In fact, we just learned that 10 percent of the biggest banks in Europe have failed their stress tests and must raise more capital…

The European Central Bank says 13 of Europe’s 130 biggest banks have flunked an in-depth review of their finances and must increase their capital buffers against losses by 10 billion euros ($12.5 billion).

The ECB said 25 banks in all were found to need stronger buffers — but that 12 have already made up their shortfall during the months in which the ECB was carrying out its review. The remaining 13 now have two weeks to tell the ECB how they plan to increase their capital buffers.

Most people do not realize how vulnerable our financial system truly is.  It is essentially a pyramid of debt and credit that could fall apart at any time.

Right now, the “too big to fail” banks account for 42 percent of all loans and 67 percent of all banking assets in the United States.

Without those banks, we essentially do not have an economy.

But instead of being careful, those banks have taken recklessness to unprecedented heights.

At this moment, five of the “too big to fail” banks each have more than 40 trillion dollars of exposure to derivatives.

Most Americans don’t even understand what derivatives are, but when the next great financial crisis strikes we are going to be hearing a whole lot about them.

The big banks have transformed Wall Street into the biggest casino in the history of the planet, and there is no way that this is going to end well.

A great collapse is coming.

It is just a matter of time.

If This Keeps Up, They Will Have To Start Putting Armed Guards On Food Trucks

Food Truck - Public DomainThe basic necessities in life just keep getting more expensive.  On Tuesday, Hershey announced that the price of all of their chocolate bars is going to go up by about 8 percent.  That is particularly distressing to me, because I am known to love chocolate.  But if it was just chocolate that was becoming significantly more expensive perhaps that would be okay.  Last month, it was coffee.  J.M. Smucker, one of the largest coffee producers in the United States, announced that it planned to raise coffee prices by about 9 percent.  And Starbucks has announced a bunch of price increases across the board on their coffee products.  Of course we could all survive without chocolate and coffee, but as you will see below just about every food category is becoming more expensive.  If this keeps up, could we eventually see armed guards in grocery stores and on food trucks?

On Wednesday, Robert Wenzel of the Economic Policy Journal shared some new data that has just been released by the federal government about food inflation over the past year.  Without a doubt, these numbers are quite startling…

According to the latest data released today by the Bureau of Labor Statistics, year-over-year gains in some food products at the producer level have been truly spectacular.

Eggs for fresh use are up 33.9%.

Pork is up 28%.

Processed turkeys are up 20.4%.

Dairy products are up 10.7%.

Fresh and dry vegetables are up 8.4%.

Fresh fruits and melons are up 7.5%.

Unfortunately, paychecks for most American families are not going up at similar rates.

What that means is more pain when we make our trips to the grocery store.  Things have gotten so bad that even the mainstream media is running stories about this.  For example, this excerpt comes from a recent CNBC article

“I try to do all my local errands in one day and go up to the mall,” said Helon Rapfogel of New Jersey. “I used to go maybe twice or three times a week, and now I just go one day a week, if that much. And I try to consolidate things.”

Rapfogel said that higher costs for food and gas are hitting her overall budget.

“You sacrifice things. Like not doing an ice cream run during the week with the kids. [That could] hurt the local retailers, and we don’t want to do that … but we may have to,” she said.

At the grocery store, meat, dairy and fruit prices are all up substantially. People are even paying more for lattes at their local coffee shops. And it’s not just food—gas prices have jumped sharply on geopolitical unrest, and at the moment there’s no relief in sight.

So why is all of this happening?

Well, the truth is that a lot of factors have combined to produce something of a perfect storm.

First of all, we should talk about Federal Reserve money printing.  Since the last financial crisis, the Fed has been on an unprecedented money printing spree.  This has dramatically pushed up the prices of stocks, commodities and just about everything else.  It was naive to think that we wouldn’t eventually see substantial food inflation as well.  Just look at what “quantitative easing” has done to M1 since the last recession…

M1 Money Supply 2014

When you have more dollars chasing roughly the same amount of goods and services of course prices are going to go up.

It is just basic economics.

But according to Federal Reserve Chair Janet Yellen, there is absolutely no reason to be concerned.  The following is a video of her telling the press her view on inflation that I shared in a previous article

But crazy Fed money printing is not the only reason why food prices are going up.

The endless drought in the western half of the country is severely hurting food production as well.  The size of the U.S. cattle herd has shrunk for seven years in a row, and it is now the smallest that it has been since 1951.  And the drought is hitting the state of California particularly hard, and considering the fact that it produces nearly half of all of our fresh produce that is more than a little bit alarming.  Yes, we are more technologically advanced that we used to be, but we are not advanced enough to overcome an epic multi-year drought in half the nation.

In addition, we are also dealing with the worst pork virus to ever hit the United States right now.  Porcine epidemic diarrhea has already wiped out about 10 percent of the pig population in the U.S., and approximately 100,000 more are dying each week.  As you saw above, pork prices are already up 28 percent over the past 12 months, and if a solution is not found to this virus the price increases are going to get much worse.

Down in Florida, citrus growers are facing a horrific outbreak of citrus greening disease.  The U.S. Department of Agriculture says that orange production in the U.S. will be down 18 percent compared to last year, and it is expected that this will be the worst crop in close to 30 years.

Another plague known as the TR4 fungus has hit banana production.  According to CNBC, this horrible fungus may eventually completely wipe out the variety of bananas that we eat today…

Banana lovers take note: The world’s supply of the fruit is under attack from a fungus strain that could wipe out the popular variety that Americans eat.

“It’s a very serious situation,” said Randy Ploetz, a professor of plant pathology at the University of Florida who in 1989 originally discovered a strain of Panama disease, called TR4, that may be growing into a serious threat to U.S. supplies of the fruit and Latin American producers.

“There’s nothing at this point that really keeps the fungus from spreading,” he said in an interview with CNBC.

While there are nearly 1,000 varieties of bananas, the most popular is the Cavendish, which accounts for 45 percent of the fruit’s global crop—and the one Americans mostly find in their supermarkets.

For decades, Americans have been able to go to the grocery stores and fill up their carts with massive amounts of very inexpensive food.

But just because it has been that way for so many years does not mean that it will be that way in the future.

Right now, there are 49 million Americans that are dealing with food insecurity, and that number will only get worse as food prices go even higher.

It is getting to the point where it is not too hard to imagine desperate people holding up food trucks and robbing grocery stores in order to feed themselves and their families.

Let us hope that we don’t see anything like that any time soon, but we are moving in that direction.

Just a few years ago, the notion that we could ever see armed guards on food trucks or in grocery stores in the United States was absolutely unthinkable.

But now, it is not so crazy.

So what do you think?  Please feel free to share your thoughts by posting a comment below…

The Head Of ‘The Central Bank Of The World’ Warns That Another Great Financial Crisis May Be Coming

The Bank For International Settlements at Night - Photo by WladyslawMost people have never heard of Jaime Caruana even though he is the head of an immensely powerful organization.  He has been serving as the General Manager of the Bank for International Settlements since 2009, and he will continue in that role until 2017.  The Bank for International Settlements is a rather boring name, and very few people realize that it is at the very core of our centrally-planned global financial system.  So when Jaime Caruana speaks, people should listen.  And the fact that he recently warned that the global financial system is currently “more fragile” in many ways than it was just prior to the collapse of Lehman Brothers should set off all sorts of alarm bells.  Speaking of the financial markets, Caruana ominously declared that “it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally” and he noted that “markets can stay irrational longer than you can stay solvent”.  In other words, he is saying what I have been saying for so long.  The behavior of the financial markets has become completely divorced from economic reality, and at some point there is going to be a massive correction.

So why would the head of ‘the central bank of the world’ choose this moment to issue such a chilling warning?

Does he know something that the rest of us do not?

According to a recent article in the Telegraph by Ambrose Evans-Pritchard, Caruana is extremely concerned about rising debt levels and the current level of euphoria in the financial markets…

The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned.

Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield.

“Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” he told The Telegraph.

Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then.

And you know what?

Caruana is certainly correct to be warning us about these things.

As I have written about previously, the total amount of government debt in the world has grown by about 40 percent since the last recession, and the “too big to fail banks” have collectively gotten 37 percent larger since that time.

The U.S. national debt has grown from about 10 trillion dollars to more than 17.5 trillion dollars, and even the Bank for International Settlements admits that the global derivatives bubble has grown to at least 710 trillion dollars.

The massive financial imbalances that we were facing during the last crisis have not been fixed.  Instead, they have gotten much, much worse.

But should we trust the Bank for International Settlements?

Of course not.

This is a very secretive organization that very few people know about but that possesses absolutely enormous power.  The following is a brief overview of the Bank for International Settlements from one of my previous articles entitled “Who Controls The Money? An Unelected, Unaccountable Central Bank Of The World Secretly Does“…

An immensely powerful international organization that most people have never even heard of secretly controls the money supply of the entire globe.  It is called the Bank for International Settlements, and it is the central bank of central banks.  It is located in Basel, Switzerland, but it also has branches in Hong Kong and Mexico City.  It is essentially an unelected, unaccountable central bank of the world that has complete immunity from taxation and from national laws.  Even Wikipedia admits that “it is not accountable to any single national government.”  The Bank for International Settlements was used to launder money for the Nazis during World War II, but these days the main purpose of the BIS is to guide and direct the centrally-planned global financial system.  Today, 58 global central banks belong to the BIS, and it has far more power over how the U.S. economy (or any other economy for that matter) will perform over the course of the next year than any politician does.  Every two months, the central bankers of the world gather in Basel for another “Global Economy Meeting”.  During those meetings, decisions are made which affect every man, woman and child on the planet, and yet none of us have any say in what goes on.  The Bank for International Settlements is an organization that was founded by the global elite and it operates for the benefit of the global elite, and it is intended to be one of the key cornerstones of the emerging one world economic system.

The role that the Bank for International Settlements is playing today was envisioned by the global elite long ago.  In another previous article, I quoted from a book that Georgetown University history professor Carroll Quigley wrote in 1975 entitled “Tragedy & Hope” in which he discussed how the BIS was to one day become “the apex” of the global financial system…

[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.

And it is interesting to note that Professor Quigley was not against the system that the elite were setting up.  He was just an academic that was trying to accurately convey what he had learned about how the global system works.

Sadly, the system that Quigley wrote about all the way back in 1975 has fully blossomed today.

Every two months, the central bankers of the world travel to Switzerland for “Global Economy Meetings” in Basel.  Most people have never heard of them, but these Global Economy Meetings were actually discussed in the Wall Street Journal

Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.

The dinner discussions on money and economics are more than academic. At the table are the chiefs of the world’s biggest central banks, representing countries that annually produce more than $51 trillion of gross domestic product, three-quarters of the world’s economic output.

So how do you feel about the fact that the central bankers of the world regularly gather to plot their next moves for the global economy?

Should an unelected group of central bankers that has no accountability to any national government really have so much power?

Please feel free to share what you think by posting a comment below…

Stone Cold Proof That Government Economic Numbers Are Being Highly Manipulated

Detective - Public DomainHow in the world does the government expect us to trust the economic numbers that they give us anymore?  For a long time, many have suspected that they were being manipulated, and as you will see below we now have stone cold proof that this is indeed the case.  But first, let’s talk about the revised GDP number for the first quarter of 2014 that was just released.  Initially, they told us that the U.S. economy only shrank by 0.1 percent in Q1.  Then that was revised down to a 1.0 percent contraction, and now we are being informed that the economy actually contracted by a whopping 2.9 percent during the first quarter.  So what are we actually supposed to believe?  Sometimes I almost get the feeling that government bureaucrats are just throwing darts at a dartboard in order to get these numbers.  Of course that is not actually true, but how do we know that we can actually trust the numbers that they give to us?

Over at shadowstats.com, John Williams publishes alternative economic statistics that he believes are much more realistic than the government numbers.  According to his figures, the U.S. economy has actually been continually contracting since 2005.  That would mean that we have been in a recession for the last nine years.

Could it be possible that he is right and the bureaucrats in Washington D.C. are wrong?

Before you answer that question, read the rest of this article.

It just might change your thinking a bit.

Another number that many have accused of being highly manipulated is the inflation rate.

But we don’t have to sit around and wonder if that figure is being manipulated.  The truth is that even those that work inside the Federal Reserve admit that it is being manipulated.

As Robert Wenzel recently pointed out, Mike Bryan, a vice president and senior economist in the Atlanta Fed’s research department, has been very open about the fact that the way inflation is calculated has been changed almost every month at times…

The Economist retells a conversation with Stephen Roach, who in the 1970s worked for the Federal Reserve under Chairman Arthur Burns. Roach remembers that when oil prices surged around 1973, Burns asked Federal Reserve Board economists to strip those prices out of the CPI “to get a less distorted measure. When food prices then rose sharply, they stripped those out too—followed by used cars, children’s toys, jewellery, housing and so on, until around half of the CPI basket was excluded because it was supposedly ‘distorted'” by forces outside the control of the central bank. The story goes on to say that, at least in part because of these actions, the Fed failed to spot the breadth of the inflationary threat of the 1970s.

I have a similar story. I remember a morning in 1991 at a meeting of the Federal Reserve Bank of Cleveland’s board of directors. I was welcomed to the lectern with, “Now it’s time to see what Mike is going to throw out of the CPI this month.” It was an uncomfortable moment for me that had a lasting influence. It was my motivation for constructing the Cleveland Fed’s median CPI.

I am a reasonably skilled reader of a monthly CPI release. And since I approached each monthly report with a pretty clear idea of what the actual rate of inflation was, it was always pretty easy for me to look across the items in the CPI market basket and identify any offending—or “distorted”—price change. Stripping these items from the price statistic revealed the truth—and confirmed that I was right all along about the actual rate of inflation.

Right now, the Federal Reserve tells us that the inflation rate is sitting at about 2 percent.

But according to John Williams, if the inflation rate was calculated the same way that it was in 1990 it would be nearly 6 percent.

And if the inflation rate was calculated the same way that it was in 1980 it would be nearly 10 percent.

So which number are we supposed to believe?

The one that makes us feel the best?

And without a doubt, “2 percent inflation” sounds a whole lot better than “10 percent inflation” does.

But anyone that does any grocery shopping knows that we are definitely not in a low inflation environment.  For much more on this, please see my previous article entitled “Inflation? Only If You Look At Food, Water, Gas, Electricity And Everything Else“.

Of course the unemployment rate is being manipulated as well.  Just consider the following excerpt from a recent New York Post article

In case you are just joining this ongoing drama, the Labor Department pays Census to conduct the monthly Household Survey that produces the national unemployment rate, which despite numerous failings is — inexplicably — still very important to the Federal Reserve and others.

One of the problems with the report is that Census field representatives — the folks who knock on doors to conduct the surveys — and their supervisors have, according to my sources, been shortcutting the interview process.

Rather than collect fresh data each month as they are supposed to do, Census workers have been filling in the blanks with past months’ data. This helps them meet the strict quota of successful interviews set by Labor.

That’s just one of the ways the surveys are falsified.

The Federal Reserve would have us believe that the unemployment rate in the U.S. has fallen from a peak of 10.0 percent during the recession all the way down to 6.3 percent now.

But according to shadowstats.com, the broadest measure of unemployment is well over 20 percent and has kept rising since the end of the last recession.

And according to the Federal Reserve’s own numbers, the percentage of working age Americans with a job has barely increased over the past four years…

Employment Population Ratio 2014

The chart above looks like a long-term employment decline to me.

But that is not the story that the government bureaucrats are selling to us.

So where does the truth lie?

What numbers are we actually supposed to believe?

Please feel free to share your thoughts by posting a comment below…

 

Inflation? Only If You Look At Food, Water, Gas, Electricity And Everything Else

Wheelbarrow of MoneyHave you noticed that prices are going up rapidly?  If so, you are certainly not alone.  But Federal Reserve chair Janet Yellen, the Obama administration and the mainstream media would have us believe that inflation is completely under control and exactly where it should be.  Perhaps if the highly manipulated numbers that they quote us were real, everything would be fine.  But of course the way that the inflation rate is calculated has been changed more than 20 times since the 1970s, and at this point it bears so little relation to reality that it is essentially meaningless.  Anyone that has to regularly pay for food, water, gas, electricity or anything else knows that inflation is too high.  In fact, if inflation was calculated the same way that it was back in 1980, the inflation rate would be close to 10 percent right now.

But you would never know that listening to Federal Reserve chair Janet Yellen.  In the video posted below, you can listen to her telling the media that there is absolutely nothing to be concerned about…

And it is really hard to get too upset with Janet Yellen.

After all, she reminds many people of a sweet little grandmother.

But the reality of the matter is that she is simply not telling us the truth.  Everywhere we look, prices are aggressively moving higher.

Just the other day, the Bureau of Labor Statistics announced that the price index for meat, poultry, fish, and eggs has just soared to a new all-time high.

This is something that I have repeatedly warned would happen.  Just check out this article and this article.

And it isn’t just meat prices that are going up.  One of the largest coffee producers in the entire world just announced that it is going to be raising coffee prices by 9 percent

It took the Fed long enough but finally even it succumbed to the reality of surging food prices when, as we reported previously, it hiked cafeteria prices at ground zero: the cafeteria of the Chicago Fed, stating that “prices continue to rise between 3% and 33%.” So with input costs rising across the board not just for the Fed, but certainly for food manufacturers everywhere, it was only a matter of time before the latter also threw in the towel and followed in the Fed’s footsteps. Which is what happened earlier today when J.M. Smucker Co. said it raised the prices on most of its coffee products by an average of 9% to reflect higher green-coffee costs.

Not that coffee isn’t expensive enough already.  It absolutely stuns me that some people are willing to pay 3 dollars for a cup of coffee.

I still remember the days when you could get a cup of coffee for 25 cents.

Also, I can’t get over how expensive groceries are becoming these days.  Earlier this month I took my wife over to the grocery store to do some shopping.  We are really ramping up our food storage this summer, and so we grabbed as much stuff on sale as we could find.  When we got our cart to the register, I was expecting the bill to be large, but I didn’t expect it to be over 300 dollars.

And remember, this was just for a single shopping cart and we had consciously tried to grab things that were significantly reduced from regular price.

I almost felt like asking the cashier which organ I should donate to pay the bill.

Sadly, this is just the beginning.  Food prices are eventually going to go much, much higher than this.

Also, you should get ready to pay substantially more for water as well.

According to CNBC, one recent report warned that “your water bill will likely increase” in the coming months…

U.S. water utilities face a critical economic squeeze, according to a new report—and that will likely mean higher prices at the water tap for consumers.

A survey by water-engineering firm Black & Veatch of 368 water utility companies across the country shows that 66 percent of them are not generating enough revenue to cover their costs.

To make up for the financial shortfall, prices for water are heading upward, said Michael Orth, one of the co-authors of the report and senior vice president at Black & Veatch.

“People will have to pay more for water to make up the falling revenues,” he said. “And that’s likely to be more than the rate of inflation.”

Of even greater concern is what is happening to gas prices.

According to Bloomberg, the price of gasoline hasn’t been this high at this time of the year for six years…

Gasoline in the U.S. climbed this week, boosted by a surge in oil, and is expected to reach the highest level for this time of year since 2008.

The pump price averaged $3.686 a gallon yesterday, up 1.2 cents from a week earlier, data posted on the Energy Information Administration’s website late yesterday show. Oil, which accounts for two-thirds of the retail price of gasoline, gained $2.49 a barrel on the New York Mercantile Exchange in the same period and $4.88 in the month ended yesterday.

The jump in crude, driven by concern that the crisis in Iraq will disrupt supplies, may boost pump prices by 10 cents a gallon at a time when they normally drop, according to forecasts including one from the EIA.

And the conflicts in Iraq, Ukraine and elsewhere could potentially send gas prices screaming far higher.

In fact, T. Boone Pickens recently told CNBC that if Baghdad falls to ISIS that the price of a barrel of oil could potentially hit $200.

Of course the big oil companies are not exactly complaining about this.  This week energy stocks are hitting record highs, and further escalation of the conflict in Iraq will probably send them even higher.

Meanwhile, a “bipartisan Senate proposal” (that means both Democrats and Republicans) would raise the gas tax by 12 cents a gallon over the next two years.

Our politicians have such good timing, don’t they?

Ugh.

And our electricity rates are going up too.  The electricity price index just set a brand new record high and there are no signs of relief on the horizon…

The electricity price index and the average price for a kilowatthour (KWH) of electricity both hit records for May, according to data released today by the Bureau of Labor Statistics.

The average price for a KWH hit 13.6 cents during the month, up about 3.8 percent from 13.1 cents in May 2013.

The seasonally adjusted electricity price index rose from 201.431 in May 2013 to 208.655 in May 2014—an increase of about 3.6 percent.

If our paychecks were increasing at the same rate as inflation, perhaps most families would be able to weather all of this.

Unfortunately, that is not the case at all.

As I wrote about recently, median household income in the U.S. is now about 7 percent lower than it was in the year 2000 after adjusting for inflation.

And if realistic inflation numbers were used instead of the government-manipulated ones, it would look a lot worse than that.

Inflation is a hidden tax that all of us pay, and it is systematically eviscerating the middle class.

So what are prices like in your neck of the woods?

Is your family feeling the pain of inflation?

Please feel free to share your thoughts by posting a comment below…

The Velocity Of Money In The U.S. Falls To An All-Time Record Low

Velocity Of Money M2When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly.  Unfortunately, the U.S. economy is the exact opposite of that right now.  In fact, as I will document below, the velocity of M2 has fallen to an all-time record low.  This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money.  This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy.  On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant.  They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.

Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.

To put it very basically, when there is lots of economic activity, there is lots of money changing hands.

When there is not very much economic activity, the pace at which money circulates through our system slows down.

That is why what is happening in the U.S. right now is so troubling.

First, let’s look at M1, which is a fairly narrow definition of the money supply.  The following is how Investopedia defines M1…

A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain “near money” or “near, near money” as M2 and M3 do.

As you can see from the chart posted below, the velocity of M1 normally declines during a recession.  Just look at the shaded areas in the chart.  But a funny thing has happened since the end of the last recession.  The velocity of M1 has just kept falling and it is now at a nearly 20 year low…

Velocity Of Money M1

Next, let’s take a look at M2.  It includes more things in the money supply.  The following is how Investopedia defines M2…

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession.  And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded

Velocity Of Money M2

This is a highly deflationary chart.

It clearly indicates that economic activity in the U.S. has been steadily slowing down.

And if we are honest, we have to admit that we are seeing signs of this all around us.  Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.

In addition, the employment situation in this country is much less promising than we have been led to believe.  According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force

“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”

Never before has such a high percentage of men in their prime years been so idle.

But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty.

Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”.

And now we are rapidly approaching another downturn.  In my recent articles entitled “Has The Next Recession Already Begun For America’s Middle Class?” and “27 Huge Red Flags For The U.S. Economy“, I detailed much of the evidence for why this is true.

And those that run the Federal Reserve know all of this.

That is one of the reasons for all of the “quantitative easing” that they have been doing.  The folks at the Fed know that the U.S. economy would probably drift into a deflationary depression if they just sat back and did nothing.  So they flooded the system with money in a desperate attempt to revive economic activity.  But instead, most of the new money just ended up in the pockets of the very wealthy and further increased the divide between those at the top and those at the bottom in this country.

And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”.

We shall see.

Many are not quite so optimistic.

For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20 percent when quantitative easing finally ends.

Others believe that it will be much worse than that.

Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars.  This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse.

So when the inevitable crash does arrive, it will be much, much worse than it could have been.

Sadly, most Americans do not understand these things.  Most Americans simply trust that our “leaders” know what they are doing.  And so in the end, most Americans will be completely blindsided by what is coming.

The Federal Reserve Seems Quite Serious About Tapering – So What Comes Next?

DollarsWill this be the year when the Fed’s quantitative easing program finally ends?  For a long time, many analysts were proclaiming that the Fed would never taper.  But then it started happening.  Then a lot of them started talking about how “the untaper” was right around the corner.  That hasn’t happened either.  It looks like that under Janet Yellen the Fed is quite determined to bring the quantitative easing program to a close by the end of this year.  Up until now, the financial markets have been slow to react because there has been a belief that the Fed would reverse course on tapering the moment that the U.S. economy started to slow down again.  But even though the U.S. middle class is in horrible shape, and even though there are lots of signs that we are heading into another recession, the Fed has continued tapering.

Of course it is important to note that the Fed is still absolutely flooding the financial system with money even after the announcement of more tapering on Wednesday.  When you are talking about $55,000,000,000 a month, you are talking about a massive amount of money.  So the Fed is not exactly being hawkish.

But when Yellen told the press that quantitative easing could end completely this fall and that the Fed could actually start raising interest rates about six months after that, it really spooked the markets.

The Dow was down 114 points on Wednesday, and the yield on 10 year U.S. Treasuries shot up to 2.77%.  The following is how CNBC described the reaction of the markets on Wednesday…

Despite a seemingly dovish tone, markets recoiled at remarks from Yellen, who said interest rate increases likely would start six months after the monthly bond-buying program ends. If the program winds down in the fall, that would put a rate hike in the spring of 2015, earlier than market expectations for the second half of the year.

Stocks tumbled as Yellen spoke at her initial post-meeting news conference, with the Dow industrials at one point sliding more than 200 points before shaving those losses nearly in half. Short-term interest rates rose appreciably, with the five-year note moving up 0.135 percentage points. The seven-year note tumbled more than one point in price.

But this is just the beginning.  When it finally starts sinking in, and investors finally start realizing that the Fed is 100% serious about ending the flow of easy money, that is when things will start getting really interesting.

Can the financial markets stand on their own without massive Fed intervention?

We shall see.  Even now there are lots of signs that a market crash could be coming up in the not too distant future.  For much more on this, please see my previous article entitled “Is ‘Dr. Copper’ Foreshadowing A Stock Market Crash Just Like It Did In 2008?

And what is going to happen to the market for U.S. Treasuries once the Fed stops gobbling them up?

Where is the demand going to come from?

In recent months, foreign demand for U.S. debt has really started to dry up.  Considering recent developments in Ukraine, it is quite certain that Russia will not be accumulating any more U.S. debt, and China has announced that it is “no longer in China’s favor to accumulate foreign-exchange reserves” and China actually dumped about 50 billion dollars of U.S. debt during the month of December alone.

Collectively, Russia and China account for about a quarter of all foreign-owned U.S. debt.  If you take them out of the equation, foreign demand for U.S. debt is not nearly as strong.

Will domestic sources be enough to pick up the slack?  Or will we see rates really start to rise once the Fed steps to the sidelines?

And of course rates on U.S. government debt should actually be much higher than they are right now.  It simply does not make sense to loan the U.S. government massive amounts of money at interest rates that are far below the real rate of inflation.

If free market forces are allowed to prevail, it is inevitable that interest rates on U.S. debt will go up substantially, and that will mean higher interest rates on mortgages, cars, and just about everything else.

Of course the central planners at the Federal Reserve could choose to reverse course at any time and start pumping again.  This is the kind of thing that can happen when you don’t have a true free market system.

The truth is that the Federal Reserve is at the very heart of the economic and financial problems of this country.  When the Fed intervenes and purposely distorts the operation of free markets, the Fed creates economic and financial bubbles which inevitably burst later on.  We saw this happen during the great financial crisis of 2008, and now it is happening again.

This is what happens when you allow an unelected, unaccountable group of central planners to have far more power over our economy than anyone else in our society does.

Most people don’t realize this, but the greatest period of economic growth in all of U.S. history was when there was no central bank.

We don’t need a Federal Reserve.  In fact, the performance of the Federal Reserve has been absolutely disastrous.

Since the Fed was created just over 100 years ago, the U.S. dollar has lost more than 96 percent of its value, and the size of the U.S. national debt has gotten more than 5000 times larger.  The Fed is at the very center of a debt-based financial system that has trapped us, our children and our grandchildren in an endless spiral of debt slavery.

And now we are on the verge of the greatest financial crisis that the United States has ever seen.  The economic and financial storm that is about to unfold is ultimately going to be even worse than the Great Depression of the 1930s.

Things did not have to turn out this way.

Congress could have shut down the Federal Reserve long ago.

But our “leaders” never seriously considered doing such a thing, and the mainstream media kept telling all of us how much we desperately needed central planners to run our financial system.

Well, now those central planners have brought us to the brink of utter ruin, and yet only a small minority of Americans are calling for change.

Soon, we will all get to pay a great price for this foolishness.  A great financial storm is fast approaching, and it is going to be exceedingly painful.

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