The Beginning Of The End
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The Federal Reserve Is Paying Banks NOT To Lend 1.8 Trillion Dollars To The American People

House Of Cards - Photo by ArealastDid you know that U.S. banks have more than 1.8 trillion dollars parked at the Federal Reserve and that the Fed is actually paying them not to lend that money to us?  We were always told that the goal of quantitative easing was to “help the economy”, but the truth is that the vast majority of the money that the Fed has created through quantitative easing has not even gotten into the system.  Instead, most of it is sitting at the Fed slowly earning interest for the bankers.  Back in October 2008, just as the last financial crisis was starting, Federal Reserve Chairman Ben Bernanke announced that the Federal Reserve would start paying interest on the reserves that banks keep at the Fed.  This caused an absolute explosion in the size of these reserves.  Back in 2008, U.S. banks had less than 2 billion dollars of excess reserves parked at the Fed.  Today, they have more than 1.8 trillion.  In less than five years, the pile of excess reserves has gotten nearly 1,000 times larger.  This is utter insanity, and it will have very serious consequences down the road.

Posted below is a chart that shows the explosive growth of these excess reserves in recent years…

Excess Reserves

This explains why all of the crazy money printing that the Fed has been doing has not caused tremendous inflation yet.  Most of the money has not even gotten into the economy.  The Fed has been paying banks not to lend it out.

But now that big pile of money is sitting out there, and at some point it is going to come pouring in to the U.S. economy.  When that happens, we could very well see an absolutely massive tsunami of inflation.

Posted below is a chart that shows the growth of the M2 money supply over the past several decades.  It has been fairly steady, but imagine what would happen if you took the hockey stick from the chart above and suddenly added it to the top of this one…

M2 Money Supply

The longer that the Federal Reserve continues to engage in quantitative easing and continues to pay banks not to lend that money out to the rest of us, the larger that inflationary time bomb is going to become.

In a recent article for the Huffington Post, Professor Robert Auerbach of the University of Texas explained the nightmarish situation that we are facing…

One reason that the excess reserves grew to an extraordinary level is that in October 2008, one month after the financial crisis when Lehman Brothers went bankrupt, the Bernanke Fed began paying interest on bank reserves. Although it has been 1/4 of 1 percent interest, this risk free rate was not low compared to the Fed’s policy of keeping short-term market rates near zero. The interest banks received was and is an incentive to hold the excess reserves rather than lend to consumers and businesses in the risky environment of the major recession and the slow recovery.

The Bernanke Fed is now facing a $1.863 trillion time bomb, they helped to create, of excess reserves in the private banking system. If rates of interest on income earning assets (including bank loans to consumers and businesses) rise, the Fed will have to pay the banks more interest to hold their excess reserves.

If interest rates move up dramatically (and they are already starting to rise significantly), banks will have an incentive to take that money out of the Fed and start lending it out.  Professor Auerbach suggests that this could cause an “avalanche” of money pouring into the economy…

Eighty five billion a month will seem tiny compared to the avalanche of the $1.863 trillion excess reserves exploding rapidly into the economy. That would devalue the currency, cause more rapid inflation and worry investors about a coming collapse.

So the Fed has kind of painted itself into a corner.  If the Fed keeps printing money, they continue to grossly distort our financial system even more and the excess reserves time bomb just keeps getting bigger and bigger.

But even the suggestion that the Fed would begin to start “tapering” quantitative easing caused the financial markets to throw an epic temper tantrum in recent weeks.  Interest rates immediately began to skyrocket and Fed officials did their best to try to settle everyone down.

So where do we go from here?

Unfortunately, as Jim Rogers recently explained, this massive experiment in financial manipulation is ultimately going to end in disaster…

I’m afraid that in the end, we’re all going to suffer perhaps, worse than we ever have, with inflation, currency turmoil, and higher interest rates.

The Fed and other global central banks have created the largest bond bubble in the history of the planet.  If the Fed ends quantitative easing, the bond market is going to try to revert to normal.

That would be disastrous for the global financial system.  The following is what Jim Willie told Greg Hunter of USAWatchdog.com

Everything is dependent on Fed support. They know if they take it away, they’re going to create a black hole. The Treasury bond is the greatest asset bubble in history. It’s at least twice as large as the housing and mortgage bubble, maybe three or four times as large.

But even if the central banks keep printing money, they may not be able to maintain control over the bond market.  In fact, there are already signs that they are starting to lose control.  The following is what billionaire Eric Sprott told King World News the other day…

It’s total orchestration. And it’s orchestration because they might have lost control of the bond market. I find it such a juxtaposition that central banks on a daily basis buy more bonds today than they ever purchased, and interest rates are going up, which is almost perverted. I mean how can that happen?

They’ve lost control of the market in my mind, and that’s why they are so desperately trying to get us all to forget the word ‘taper.’ In fact, we probably won’t even hear the word ‘taper’ anymore because it has such a sickening reaction to people in the bond market, and perhaps even people in the stock market. They will probably do away with the word. But the system is totally out of control. And then we’ve got this quadrillion dollars of derivatives. It just blows blows my mind to think about what could really be going on behind the scenes.

Sprott made a really good point about derivatives.

The quadrillion dollar derivatives bubble could bring down the global financial system at any time.

And remember, interest rate derivatives make up the biggest chunk of that.  Today, there are 441 trillion dollars of interest rate derivatives sitting out there.  If interest rates begin skyrocketing at some point, that is going to create some absolutely massive losses in the system.  We could potentially be talking about an event that would make the failure of Lehman Brothers look like a Sunday picnic.

We are moving into a time of great financial instability.  People are going to be absolutely shocked by what happens.

Our financial system is a house of cards built on a foundation of risk, leverage and debt.  When it all comes tumbling down, it should not be a surprise to any of us.

Social Decay + Illegal Immigration + Poverty = Open War On The Streets Of America

Open War On The Streets Of America - Photo by Javier RamirezWhat did you think was going to happen?  Moral standards have been falling for decades, we have allowed massive hordes of criminals, gang members and drug dealers to enter this country illegally, and thanks to our declining economy our inner cities are being absolutely ravaged by poverty.  Was such a combination really going to produce peace and prosperity?  Should we be so shocked that we now have open war on the streets of America?  In the United States today, there are millions upon millions of young people that can’t find jobs, that are living in poverty, that have no hope for a better future, and that have been raised without any moral standards.  These young people are becoming increasingly desperate, and desperate people do desperate things.  As I wrote about the other day, for those under the age of 18 living in the city of Detroit the poverty rate is 60 percent.  Should we be surprised that Detroit police are now telling people to “enter Detroit at your own risk“.  At this point, the FBI says that there are approximately 1.4 million gang members living in our cities.  That number has risen by an astounding 40 percent just since 2009.  Did we somehow delude ourselves into thinking that there would not be severe consequences for allowing that to happen?  Today,  Mexican drug cartels are active in more than 1,000 U.S. cities.  Are they selling drugs and committing crimes in the area where you live?  Well, don’t be so shocked.  The federal government has left our border with Mexico wide open for decades even though the most violent drug war on the planet has been raging just across that border.  Stupid decisions produce stupid results.  Sadly, this is just the beginning.  When our economy fully crashes the open warfare on the streets of America is going to get much, much worse.

Let’s take a closer look at what is currently happening in a few of our largest cities…

Los Angeles

Did you know that Latino gangs are systematically pushing black families out of some areas of Los Angeles?

For example, once upon a time Compton was a predominantly African-American area.  But now it is 65 percent Latino, and there is a relentless campaign of intimidation against many of the African-American families that remain.

One of these incidents was recently profiled in the Los Angeles Times.  A black family moved into Compton near the end of December, and since that time they have been the victims of endless harassment by Latino gangs.  When a 19-year-old African-American friend came to visit the family one day, four thugs told him that blacks were barred from the neighborhood and they started beating him with metal pipes.  A story in the Los Angeles Times described what happened next…

The 19-year-old family friend managed to break free that first day and run into the house, where the children were the only ones at home.

The attackers left, but a half-hour later a crowd of as many as 20 people stood on the lawn yelling threats and epithets. A beer bottle crashed through the living room window as the youngsters watched in horror.

“They were scared if they called the sheriff they’d be killed,” Westin said. “So they called their mom, who called the Sheriff’s Department.”

The gang members were gone by the time deputies arrived, but they kept coming back, almost daily, driving by slowly until they got someone’s attention, then yelling racial insults and telling them to leave. The mother sent the children to live with relatives and is now packing up to leave herself.

As horrifying as that sounds, the truth is that it is not an isolated incident.

According to the Los Angeles Times, similar attacks “have taken place in Harbor Gateway, Highland Park, Pacoima, San Bernardino, Canoga Park and Wilmington, among other places.”

Oakland

Up the coast in Oakland, a horribly violent gang war has gotten so out of hand that city officials are holding press conferences about it.

Violent crime in the city of Oakland increased by 23 percent in 2012, and police say that gang members were responsible for most of the approximately 2,000 robberies and 65 homicides that took place in the second half of the year.

As the San Francisco Chronicle recently explained, the violence continues to escalate and city officials don’t know how to solve it…

Nearly all the violent crimes in Oakland in the last few months, including two killings over the weekend, have been committed as part of a “war” between rival groups that was sparked by the slaying of a girl last summer, Police Chief Howard Jordan said Monday.

Jordan said “about 90 percent” of the killings, robberies, shootings and other “senseless acts of violence” in the city since mid-2012 can be directly tied to the killing of a girlfriend of one of the combatants.

Over time, the warring factions have become increasingly violent and have grown in number, sometimes by merging with other groups, Jordan said at a news conference called in response to an outbreak of gunfire over the weekend.

Chicago

Savage murders happen so regularly in Chicago at this point that very few people are even shocked by the headlines any longer.  The murder rate in the city increased by about 17 percent in 2012, and 2013 has already started with quite a bang.

Just check out what happened on Saturday.  7 people were murdered and six others were left wounded.  The following is how the Chicago Tribune described one of the crime scenes…

On West Van Buren Street, a body could be seen lying in the roadway, near the curb and a bus stop.

A man who only identified himself as the teen victim’s uncle said the boy, whose family lived nearby, had simply gone to run an errand.

“He was just going to the store,” the man said. “They just killed him just like that.”

Later, the man paced back and forth on the sidewalk, shaking his head in disbelief.

So why has Chicago become such a violent city?

It is because of the gangs.

Today, approximately 80 percent of all murders that happen in the city of Chicago are gang-related.  And as I have written about previously, there are only about 200 police officers assigned to Chicago’s Gang Enforcement Unit to handle the estimated 100,000 gang members living in the city.

Perhaps Chicago could do more to handle all the crime if they had more money, but at this point they are flat broke and so is the entire state of Illinois.  In fact, the state of Illinois just had its credit rating downgraded once again.

I picked out three examples to discuss above, but similar things could really be said about hundreds of U.S. cities from coast to coast.

Once upon a time, gang activity was fairly limited to certain pockets of the country.  But now, it is more widespread than ever.

According to the Justice Department’s National Drug Intelligence Center,  Mexican drug cartels were actively operating in 50 different U.S. cities in 2006.

By 2010, that number had skyrocketed to 1,286.

Are you starting to get the picture?

So why doesn’t the federal government secure the border and make sure that everyone that is coming into this country is doing so legally?

That is a very good question.  For some reason, every single president that we have had in recent decades has chosen to leave the U.S. border with Mexico virtually wide open.

And so millions of criminals, gang members, drug dealers and welfare parasites continue to pour into the country.  The following is what one local police chief down in Texas is saying about what he is seeing along the border…

The problem is not going away.

“Most of them have people here or they’re just trying to make it over here so they can start making a better living for themselves,” La Joya Police Chief Julian Gutierrez told Action 4 News.

No matter how many miles of border fence is erected—it seems nothing will stop the thousands of immigrants, crossing our border illegally, from continuing their journey.

“A lot of times we talk to them and ask them why they’re coming here,” Gutierrez explained. “They say they’re coming for the ‘American Dream.’ I always tell them that they’re here illegally—how do they expect to find work? They always say it’s a lot better than their country.”

So what is the Obama administration doing about this?

They don’t consider it to be a problem.

In fact, one of our stations along the border with Mexico will no longer be manned with real people at all.  The following is from a recent ABC News report

Get ready for the very first “unmanned” border station on the U.S.-Mexico border. Slated to open at the end of this month, the Big Bend National Park in Texas will be staffed by, you guessed it, computers.

But what the Obama administration does seem to be concerned about is giving immigrants lots of “benefits” once they get here.

For example, did you know that the federal government actually has a website that teaches immigrants how to sign up for welfare programs once they arrive in the United States?

Meanwhile, we can’t even come close to taking care of our own citizens.  According to the U.S. Census Bureau, there are more than 146 million Americans that are considered to be either “poor” or “low income” at this point.

Poverty is absolutely exploding in this country, and the middle class gets smaller with each passing day.  When the next major economic downturn strikes, the unemployment numbers are going to start spiking again and millions of families are going to lose all hope that things will ever turn around for them.

Meanwhile, the very foundations of our society continue to rot and decay right in front of our eyes.  At this point, approximately one out of every three children in the U.S. lives in a home without a father.  The U.S. has the highest divorce rate in the world, the highest rate of teen pregnancy in the world, and there are 19 million new STD infections in the United States every single year.

Our nation is a complete and total mess, and many of our major cities are being transformed into gang-infested war zones that are on the verge of total meltdown.

Is it any wonder that millions of American families have chosen to become preppers?

Nothing is going to stop the societal meltdown that is coming.  That is especially true with Barack Obama running things.

Sadly, most Americans still have their heads in the sand and are pretending that everything will be okay somehow.

Sadly, most Americans still have a tremendous amount of faith in the system.

But anyone with a brain should be able to see the storm clouds that are coming.

So get prepared while you still can.

Time is running out.

1.4 Millions Gang Members And More Pour Into The United States Every Single Day

The Politicians We Have Chosen Reflect Who We Are As A Nation

The American people have spoken.  It is estimated that approximately 6 billion dollars was spent on political campaigns in 2012, and we ended up exactly in the same place that we were before.  Barack Obama is still in the White House, the Democrats still have solid control of the U.S. Senate and the Republicans still have solid control of the U.S. House of Representatives. Clearly, the American people want more of the same, and that is really bad news.  The path that we have been on will only lead to unprecedented disaster, and now it is abundantly clear that there are not going to be any solutions to our problems on the national level.  Not that things would be that much different if we reversed things and gave Republicans control of the White House and the Senate and we gave Democrats control of the U.S. House of Representatives.  Over the past several decades, nothing has really seemed to get any better no matter what faces we have sent to Washington.  But this time there is really a feeling of “finality” to things.  The American people have made their choices, and those choices are going to have consequences.  There is no turning back now.  The politicians that we have chosen reflect who we are as a nation.  It is not just our leaders that have turned their backs on the U.S. Constitution and on the principles that this country was founded upon – the truth is that the majority of the American people have rejected them.  We have willingly chosen our destiny, and there are no more excuses.

What Barack Obama has pulled off is absolutely mind blowing.  First of all, I must acknowledge that the Obama campaign had the best “ground game” in the history of American politics.  Their ability to deliver their voters to the polls was absolutely amazing.  Yes, the election was close, but I thought it would be much closer.  The Obama “ground game” made a significant difference.

Having said that, it says a lot about who we are as a nation that the American people would willingly send Barack Obama back to the White House for a second term.  You could almost excuse the American people for having the wool pulled over their eyes the first time, but at this point American voters have had four years to evaluate Barack Obama and learn what he is all about.

Barack Obama, like many of our politicians, is a con man.  He just doesn’t have a few skeletons in his closet – he has a whole army of them.  Over the course of two presidential campaigns he has refused to release his school records, there are very serious irregularities concerning his Social Security number, and he has managed to keep vast stretches of his past a total secret to the American people.  Anyone applying for a decent job or trying to get into a decent school would have been required to disclose more background information than Barack Obama has revealed to the American people.  What Obama has pulled off is completely and totally absurd.  I truly believe that Barack Obama will someday be regarded as one of the greatest con men of all time.

But even setting all of that aside, the outrageous things that Barack Obama has publicly said and done should be more than enough for every American that loves the U.S. Constitution to reject him.  The truth is that no American should have ever cast a single vote for him for any political office under any circumstances.

And yet now he is headed for a second term in the White House, and now he will feel absolutely no accountability to the voters since he will not be running in 2016.  He can do whatever he wants over the next four years, and nobody can do anything about it.

Not that Mitt Romney would have been much different.  Out of all of the Republican candidates, the Republicans selected the candidate that was most similar to Barack Obama.  During primary season, in many of my articles I pleaded with the Republicans not to choose Mitt Romney.  I warned that large numbers of very conservative voters would refuse to support him in the general election.  I was horrified by how Romney treated Ron Paul and his supporters during the primaries.  It turns out that Romney desperately could have used their help in swing states that Romney barely lost like Ohio, Virginia and Florida.

In the end, Mitt Romney ran one of the most inept campaigns in modern American political history.  Except for his one brief shining moment during the first debate, Romney just seemed to keep falling flat on his face over and over.  He seemed to have absolutely no idea how to attack Obama’s track record, and he kept shifting positions every five minutes.  To be honest, his campaign was an embarrassment to the Republican Party.

I know that a lot of Republicans are mourning today, but things would not have been much different under a Romney administration.  Romney was perhaps the most liberal candidate the Republicans have ever nominated for president, and Obama and Romney were perhaps the two most similar candidates that we have ever seen run against each other on the national stage.

The fact that the Republicans picked Mitt Romney says a whole lot about the Republican Party just like the fact that the Democrats picked Barack Obama says a whole lot about who they are.

But let us not overlook the other choices that the American people made yesterday either.

The U.S. Senate has been an abysmal failure for years, and yet the American people just keep voting for more of the same.

If you can believe it, the U.S. Senate has not passed a budget in over 1,200 days.

In fact, the last time the U.S. Senate passed a budget, there was no such thing as an iPad.

But not only did the American people allow Democrats to keep control of the U.S. Senate, the Democrats actually gained a couple of extra seats, and several of the newly elected Senators are extremely liberal.

And keep in mind that all of the new Senators that were elected yesterday will not be up for re-election until 2018.

That is very frightening to think about.

The funny thing is that the American people also gave the Republicans very firm control of the U.S. House of Representatives once again.  It is almost as if they were saying that they want things to remain exactly the same as they are right now.

So we can definitely expect more gridlock in Washington.  And perhaps that is a small piece of good news to come out of all this.

If we can get our politicians fighting with each other so much that they can’t get anything done, perhaps they will have less of a chance of messing this country up even worse than it already is.

This election season was the last, best chance that the American people had to bring about changes on the national level.  Unfortunately, the Republicans, the Democrats and the American people all failed miserably in this regard.

As far as the economy is concerned (after all, this is a column about economics), we will continue to steamroll toward collapse at record speed.  It is now glaringly obvious that there will be no political solutions to our problems on the national level.

So you better brace for impact, because a crash is coming.

And I think we just got a preview of coming attractions.  The Dow was down by more than 300 points on Wednesday.

I wish that I could be more optimistic, but the truth is that there is no hope on the horizon on the national level.  The American people have spoken, and they have made their choices.

Now we all get to pay the price.

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