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A Recession Within A Recession

Recession - Public DomainOn Friday, the federal government announced that the U.S. economy contracted at a 0.7 percent annual rate during the first quarter of 2015.  This unexpected shrinking of the economy is being primarily blamed on “harsh” weather during the first three months of this year and on the strengthening of the U.S. dollar.  Most economists are confident that U.S. GDP will rebound back into positive territory when the numbers for the second quarter come out, but if that does not happen we will officially meet the government’s criteria for being in another “recession”.  To make sure that the numbers for Q2 will look “acceptable”, the Bureau of Economic Analysis is about to change the way that it calculates GDP again.  They are just going to keep “seasonally adjusting” the numbers until they get what they want.  At this point, the government numbers are so full of “assumptions” and “estimates” that they don’t really bear much resemblance to reality anyway.  In fact, John Williams of has calculated that if the government was actually using honest numbers that they would show that we have continually been in a recession since 2005.  That is why I am referring to this as a “recession within a recession”.  Most people can look around and see that economic conditions for most Americans are not good, and now they are about to get even worse.

For quite a while I have been warning that another economic downturn was coming.  Well, now we have official confirmation from the Obama administration that it is happening.  The following is an excerpt from the statement that the Bureau of Economic Analysis released on Friday

Real gross domestic product — the value of the production of goods and services in the United
States, adjusted for price changes — decreased at an annual rate of 0.7 percent in the first quarter of
2015, according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth
quarter, real GDP increased 2.2 percent.

The GDP estimate released today is based on more complete source data than were available for
the “advance” estimate issued last month. In the advance estimate, real GDP increased 0.2 percent.
With the second estimate for the first quarter, imports increased more and private inventory investment
increased less than previously estimated (for more information, see “Revisions” on page 3).

The decrease in real GDP in the first quarter primarily reflected negative contributions from
exports, nonresidential fixed investment, and state and local government spending that were partly offset by positive contributions from personal consumption expenditures (PCE), private inventory investment, and residential fixed investment.

And actually, Q1 GDP would have been far worse if not for a very large inventory buildup.  Without that inventory buildup, Q1 GDP would have been in the neighborhood of negative three percent according to Zero Hedge.  Despite the happy face that most analysts are putting on these numbers, the truth is that they reveal some deeply troubling trends.

One of the things that is driving this current downturn is the fact that our trade balance continues to get even worse.  In other words, the gap between how much we buy from the rest of the world and how much we sell to the rest of the world is growing.

During the first quarter, imports surged by 5.6 percent.  That means that we are buying more from the rest of the planet than we did before.

Unfortunately, during the first quarter of this year exports dropped by a staggering 7.6 percent.  That means that the amount of stuff that we are selling to the rest of the planet is falling precipitously.

When our trade deficit expands, we lose jobs, businesses and economic infrastructure at an even faster pace.  This is why I write about trade issues so much.  Our economy is being absolutely eviscerated, and the Obama administration is pushing another giant trade deal which will greatly accelerate this process.

We are committing national economic suicide by running colossal trade deficits year after year.  But instead of addressing our problems, our “leaders” just continue to conduct business as usual.

And to make themselves look good, they just keep manipulating the numbers until they seem “reasonable”.  As I mentioned above, the negative number for Q1 is causing a lot of consternation in Washington, so now the Bureau of Economic Analysis is going to modify the way that GDP is calculated once again.  The following comes from Bloomberg

The way some parts of U.S. gross domestic product are calculated are about to change in the wake of the debate over persistently depressed first-quarter growth.

In a blog post published Friday, the Bureau of Economic Analysis listed a series of alterations it will make in seasonally adjusting data used to calculate economic growth. The changes will be implemented with the release of the initial second-quarter GDP estimate on July 30, the BEA said.

Although the agency adjusts its figures for seasonal variations, growth in any given first quarter still tends to be weaker than in the remaining three, economists have found, a sign there may be some bias in the data. It’s a phenomenon economists call “residual seasonality.”

Why can’t they just give us honest numbers?

Meanwhile, we also learned on Friday that corporate profits declined again during the first quarter of 2015.  This was the second quarter in a row that we have seen this happen.  The following comes from CNS News

The BEA report also released data on corporate profits, which showed a decrease from the previous quarter. ‘Profits from current production decreased $125.5 billion in the first quarter, compared with a decrease of $30.4 billion in the fourth,’ BEA said.

Can you guess the last time that corporate profits declined for two quarters in a row?

It was in 2008.

So many of the exact same red flags that popped up seven years ago are popping up once again.

I know that I must sound like a broken record, but right now there are more signals that another major economic downturn is approaching than there has been at any other time since I started The Economic Collapse Blog in 2009.

Hopefully this summer will be relatively quiet, but I fully expect for events to start accelerating significantly during the second half of this year.

So if you have things that you need to get done before the next crisis arrives, you better hurry up, because time is quickly running out.

The Last, Great Run For The U.S. Dollar, The Death Of The Euro And 74 Trillion In Currency Derivatives At Risk

Dollars Euros - Public DomainAre we on the verge of an unprecedented global currency crisis?  On Tuesday, the euro briefly fell below $1.07 for the first time in almost a dozen years.  And the U.S. dollar continues to surge against almost every other major global currency.  The U.S. dollar index has now risen an astounding 23 percent in just the last eight months.  That is the fastest pace that the U.S. dollar has risen since 1981.  You might be tempted to think that a stronger U.S. dollar is good news, but it isn’t.  A strong U.S. dollar hurts U.S. exports, thus harming our economy.  In addition, a weak U.S. dollar has fueled tremendous expansion in emerging markets around the planet over the past decade or so.  When the dollar becomes a lot stronger, it becomes much more difficult for those countries to borrow more money and repay old debts.  In other words, the emerging market “boom” is about to become a bust.  Not only that, it is important to keep in mind that global financial institutions bet a tremendous amount of money on currency movements.  According to the Bank for International Settlements, 74 trillion dollars in derivatives are tied to the value of the U.S. dollar, the value of the euro and the value of other global currencies.  When currency rates start flying around all over the place, you can rest assured that someone out there is losing an enormous amount of money.  If this derivatives bubble ends up imploding, there won’t be enough money in the entire world to bail everyone out.

Do you remember what happened the last time the U.S. dollar went on a great run like this?

As you can see from the chart below, it was in mid-2008, and what followed was the worst financial crisis since the Great Depression…

Dollar Index 2015

A rapidly rising U.S. dollar is extremely deflationary for the overall global economy.

This is a huge red flag, and yet hardly anyone is talking about it.

Meanwhile, the euro continues to spiral into oblivion…

Euro U.S. Dollar

How many times have I said it?  The euro is heading to all-time lows.  It is going to go to parity with the U.S. dollar, and then it is eventually going to go below parity.

This is going to cause massive headaches in the financial world.

The Europeans are attempting to cure their economic problems by creating tremendous amounts of new money.  It is the European version of quantitative easing, but it is having some very nasty side effects.

The markets are starting to realize that if the value of the U.S. dollar continues to surge, it is ultimately going to be very bad for stocks.  In fact, the strength of the U.S. dollar is being cited as the primary reason for the Dow’s 332 point decline on Tuesday

The Dow Jones industrial average fell more than 300 points to below the index’s 50-day moving average, wiping out gains for the year. The S&P 500 also closed in the red for the year and breached its 50-day moving average, which is an indicator of the market trend. Only the Nasdaq held onto gains of 2.61 percent for the year.

There’s “concern that energy and the strength in the dollar will somehow be negative for the equities,” said Art Hogan, chief market strategist at Wunderlich Securities. He noted that the speed of the dollar’s surge was the greatest market driver, amid mixed economic data and concerns about the Federal Reserve raising interest rates.

And as I noted above, when the U.S. dollar rises the things that we export to other nations become more expensive and that hurts our businesses.

This is so basic that even the White House understands it

Despite reassurance from The Fed that a strengthening dollar is positive for US jobs, The White House has now issued a statement that a “strengthening USD is a headwind for US growth.”

But even more important, a surging U.S. dollar makes it more difficult for emerging markets all over the world to borrow new money and to repay old debts.  This is especially true for nations that heavily rely on exporting commodities

It becomes especially ugly for emerging market economies that produce commodities. Many emerging market countries rely on their natural resources for growth and haven’t yet developed more advanced industries. As the products of their principal industries decline in value, foreign investors remove available credit while their currency is declining against the U.S. dollar. They don’t just find it difficult to pay their debt – it is impossible.

It has been estimated that emerging markets have borrowed more than 3 trillion dollars since the last financial crisis.

But now the process that created the emerging markets “boom” is starting to go into reverse.

The global economy is fueled by cheap dollars.  So if the U.S. dollar continues to rise, that is not going to be good news for anyone.

And of course the biggest potential threat of all is the 74 trillion dollar currency derivatives bubble which could end up bursting at any time.

The sophisticated computer algorithms that financial institutions use to trade currency derivatives are ultimately based on human assumptions.  When currencies move very little and the waters are calm in global financial markets, those algorithms tend to work really, really well.

But when the unexpected happens, some of the largest financial firms in the world can implode seemingly overnight.

Just remember what happened to Lehman Brothers back in 2008.  Unexpected events can cripple financial giants in just a matter of hours.

Today, there are five U.S. banks that each have more than 40 trillion dollars of total exposure to derivatives of all types.  Those five banks are JPMorgan Chase, Bank of America, Goldman Sachs, Citibank and Morgan Stanley.

By transforming Wall Street into a gigantic casino, those banks have been able to make enormous amounts of money.

But they are constantly performing a high wire act.  One of these days, their reckless gambling is going to come back to haunt them, and the entire global financial system is going to be severely harmed as a result.

As I have said so many times before, derivatives are going to be at the heart of the next great global financial crisis.

And thanks to the wild movement of global currencies in recent months, there are now more than 74 trillion dollars in currency derivatives at risk.

Anyone that cannot see trouble on the horizon at this point is being willingly blind.

Russia Is Doing It – Russia Is Actually Abandoning The Dollar

Vladimir PutinThe Russians are actually making a move against the petrodollar.  It appears that they are quite serious about their de-dollarization strategy.  The largest natural gas producer on the planet, Gazprom, has signed agreements with some of their biggest customers to switch payments for natural gas from U.S. dollars to euros.  And Gazprom would have never done this without the full approval of the Russian government, because the Russian government holds a majority stake in Gazprom.  There hasn’t been a word about this from the big mainstream news networks in the United States, but this is huge.  When you are talking about Gazprom, you are talking about a company that is absolutely massive.  It is one of the largest companies in the entire world and it makes up 8 percent of Russian GDP all by itself.  It holds 18 percent of the natural gas reserves of the entire planet, and it is also a very large oil producer.  So for Gazprom to make a move like this is extremely significant.

When Barack Obama decided to slap some meaningless economic sanctions on Russia a while back, he probably figured that the world would forget about them after a few news cycles.

But the Russians do not forget, and they certainly do not forgive.

At this point the Russians are turning their back on the United States, and that includes the U.S. dollar.

What you are about to read is absolutely stunning, and yet you have not heard about it from any major U.S. news source.  But what Gazprom is now doing has the potential to really shake up the global financial landscape.  The following is an excerpt from a news report by the ITAR-TASS news agency

Gazprom Neft had signed additional agreements with consumers on a possible switch from dollars to euros for payments under contracts, the oil company’s head Alexander Dyukov told a press conference.

Additional agreements of Gazprom Neft on the possibility to switch contracts from dollars to euros are signed. With Belarus, payments in roubles are agreed on,” he said.

Dyukov said nine of ten consumers had agreed to switch to euros.

And Gazprom is not the only big company in Russia that is moving away from the U.S. dollar.

According to RT, other large Russian corporations are moving to other currencies as well…

Russia will start settling more contracts in Asian currencies, especially the yuan, in order to lessen its dependence on the dollar market, and because of Western-led sanctions that could freeze funds at any moment.

Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies, and to set up accounts in Asian locations,” Pavel Teplukhin, head of Deutsche Bank in Russia, told the Financial Times, which was published in an article on Sunday.

Diversifying trade accounts from dollars to the Chinese yuan and other Asian currencies such as the Hong Kong dollar and Singapore dollar has been a part of Russia’s pivot towards Asian as tension with Europe and the US remain strained over Russia’s action in Ukraine.

And according to Zero Hedge, “expanding the use of non-dollar currencies” is one of the main things that major Russian banks are working on right now…

Andrei Kostin, chief executive of state bank VTB, said that expanding the use of non-dollar currencies was one of the bank’s “main tasks”. “Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan [renminbi] is a priority on the agenda, and so we are working on it now,” he told Russia’s President Vladimir Putin during a briefing. “Since May, we have been carrying out this work.”

“There is nothing wrong with Russia trying to reduce its dependency on the dollar, actually it is an entirely reasonable thing to do,” said the Russia head of another large European bank. He added that Russia’s large exposure to the dollar subjects it to more market volatility in times of crisis. “There is no reason why you have to settle trade you do with Japan in dollars,” he said.

The entire country is undergoing a major financial conversion.

This is just staggering.

Meanwhile, Russians have been pulling money out of U.S. banks at an unprecedented pace

So in March, without waiting for the sanction spiral to kick in, Russians yanked their moolah out of US banks. Deposits by Russians in US banks suddenly plunged from $21.6 billion to $8.4 billion. They yanked out 61% of their deposits in just one month! They’d learned their lesson in Cyprus the hard way: get your money out while you still can before it gets confiscated.

For those that don’t think that all of this could hurt the U.S. economy or the U.S. financial system, you really need to go back and read my previous article entitled “De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar“.  The truth is that the U.S. economic system is extremely dependent on the financial behavior of the rest of the globe.

Because nearly everyone else around the rest of the planet uses our currency to trade with one another, that keeps the value of the U.S. dollar artificially high and it keeps our borrowing costs artificially low.

As Russia abandons the U.S. dollar that will hurt, but if other nations start following suit that could eventually cause a financial avalanche.

What we are witnessing right now is just a turning point.

The effects won’t be felt right away.  So don’t expect this to cause financial disaster next week or next month.

But this is definitely another element in the “perfect storm” that is starting to brew for the U.S. economy.

Yes, we have been living in a temporary bubble of false stability for a few years.  However, the long-term outlook has not gotten any better.  In fact, the long-term trends that are destroying our economic and financial foundations just continue to get even worse.

So enjoy the “good times” while you still can.

They certainly will not last too much longer.

The Giant Currency Superstorm That Is Coming To The Shores Of America When The Dollar Dies

By recklessly printing, borrowing and spending money, our authorities are absolutely shredding confidence in the U.S. dollar.  The rest of the world is watching this nonsense, and at some point they are going to give up on the U.S. dollar and throw their hands up in the air.  When that happens, it is going to be absolutely catastrophic for the U.S. economy.  Right now, we export a lot of our inflation.  Each year, we buy far more from the rest of the world than they buy from us, and so the rest of the world ends up with giant piles of U.S. dollars.  This works out pretty well for them, because the U.S. dollar is the primary reserve currency of the world and is used in international trade far more than any other currency is.  Back in 1999, the percentage of foreign exchange reserves in U.S. dollars peaked at 71 percent, and since then it has slid back to 62.2 percent.  But that is still an overwhelming amount.  We can print, borrow and spend like crazy because the rest of the world is there to soak up our excess dollars because they need them to trade with one another.  But what will happen someday if the rest of the world decides to reject the U.S. dollar?  At that point we would see a tsunami of U.S. dollars come flooding back to this country.  Just take a moment and think of the worst superstorm that you can possibly imagine, and then replace every drop of rain with a dollar bill.  The giant currency superstorm that will eventually hit this nation will be far worse than that.

Most Americans don’t realize that there are far more dollars in use in the rest of the world than in the United States itself.  The following is from a scholarly article by Linda Goldberg

The dollar is a major form of cash currency around the world. The majority of dollar banknotes are estimated to be held outside the US. More than 70% of hundred-dollar notes and nearly 60% of twenty- and fifty-dollar notes are held abroad, while two-thirds of all US banknotes have been in circulation outside the country since 1990

For decades we have been exporting gigantic quantities of our currency.

So what would happen if that process suddenly reversed and massive piles of dollars started coming back into the country?

It is frightening to think about.

Well, I guess the key is to get the rest of the world to continue to have confidence in the U.S. dollar so that will never happen, right?

Unfortunately, there are lots of signs that the rest of the world is accelerating their move away from the U.S. dollar.

For example, it was recently announced that the BRICS countries are developing their own version of the World Bank

The BRICS (Brazil, Russia, India, China and South Africa) bloc has begun planning its own development bank and a new bailout fund which would be created by pooling together an estimated $240 billion in foreign exchange reserves, according to diplomatic sources. To get a sense of how significant the proposed fund would be, the fund would be larger than the combined Gross Domestic Product (GDP) of about 150 countries, according to Russia and India Report.

And as I noted in a previous article, over the past few years there have been a whole host of new international currency agreements that encourage the use of national currencies over the U.S. dollar.  The following are just a few examples…

1. China and Germany (See Here)

2. China and Russia (See Here)

3. China and Brazil (See Here)

4. China and Australia (See Here)

5. China and Japan (See Here)

6. India and Japan (See Here)

7. Iran and Russia (See Here)

8. China and Chile (See Here)

9. China and the United Arab Emirates (See Here)

10. China, Brazil, Russia, India and South Africa (See Here)

Will this movement soon become a stampede away from the U.S. dollar?

That is a very important question.

But you don’t hear anything about this in the U.S. media and our politicians are not talking about this at all.

Meanwhile, our “leaders” seem to be doing everything that they can to destroy confidence in the U.S. dollar.  The Federal Reserve is printing money like there is no tomorrow, and the federal government continues to run up trillion dollar deficits year after year.

They do not seem to understand that they are systematically destroying the U.S. financial system.

Other world leaders get it.  For example, Russian President Vladimir Putin once said the following…

“Unreasonable expansion of the budget deficit, accumulation of the national debt – are as destructive as an adventurous stock market game.
During the time of the Soviet Union the role of the state in economy was made absolute, which eventually lead to the total non-competitiveness of the economy. That lesson cost us very dearly. I am sure no one would want history to repeat itself.”


Why can’t most of our politicians see how destructive debt is?

What the federal government continues to do is absolutely insane.  The national debt increased by more than 24 billion dollars on the day after Thanksgiving this year.  But utter disaster has not struck yet, and most Americans are not really that concerned about the debt.  So things just keep rolling along.

And of course our national debt of $16,309,738,056,362.44 is nothing when compared to the future liabilities that our federal government is facing.  Just check out what a recent article in the Wall Street Journal had to say about all this…

The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.

Other economists paint an even gloomier picture.  According to economist Niall Ferguson, the U.S. government is facing future unfunded liabilities of 238 trillion dollars.

So where are we going to get all that money?

Well, why don’t we just print more money than ever before so that the U.S. government can borrow and spend more money than ever before?

Don’t laugh.  That is actually what some of the top economists in the country are actually recommending.

The most famous economic journalist in the entire country, Paul Krugman of the New York Times, is boldly proclaiming that the solution to all of our problems is to print, borrow and spend a lot more money.  He insists that there is no reason to fear that the giant mountain of debt that we are accumulating will someday collapse the system…

For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling.

But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed.

Now, it’s true that investors might start to expect higher inflation some years down the road. They might also push down the value of the dollar. Both of these things, however, would actually help rather than hurt the U.S. economy right now: expected inflation would discourage corporations and families from sitting on cash, while a weaker dollar would make our exports more competitive.

Of course what he is prescribing is complete and utter madness.

At some point this con game is going to collapse and the rest of the world is going to say a big, fat, resounding “NO” to the U.S. dollar.

Why should they continue to use a currency that is becoming extremely unstable and that is constantly being manipulated?

And when the rest of the world rejects the U.S. dollar, the value of the dollar will drop like a rock because there will be far less global demand for it.

In addition, if the rest of the world is not using the U.S. dollar for trade any longer, other nations will cease to soak up our excess currency and huge mountains of our currency that are floating around out there will start flooding back to our shores.

At that point we will be looking at inflation unlike anything we have ever seen before.  The era of cheap imports will be over and we will pay far more for everything from oil to the foreign-made plastic trinkets that we buy at Wal-Mart.

Most Americans don’t even know what a “reserve currency” is, but when the U.S. dollar loses reserve currency status it is going to unleash a nightmare that most economists cannot even imagine.

So enjoy this holiday season while you can.  There are still lots and lots of cheap imports filling the shelves of our stores.

Once the coming giant currency superstorm strikes, we will dearly wish for the good old days of 2012.

Yes, the U.S. dollar is alive and ticking for now.  But at the pace that our authorities are abusing it, I would not say that things are looking good for a long and healthy lifespan.

Somebody Should Start The ‘Stuff Costs Too Much’ Party

Stuff costs too much.  Seriously.  Every time I go to the grocery store these days, I am absolutely horrified by the prices.  I try not to buy anything that is not on sale, but the problem is that I am discovering that the new sale prices are the old regular prices.  So now paying what used to be “full price” is supposedly a “good deal”.  The other way that they are trying to hide rising prices is by shrinking package sizes.  As if we wouldn’t notice that a box of 21 garbage bags is now being sold for the exact same price that a box of 25 garbage bags used to be sold for.  It is one of my pet peeves.  I feel like I am in the middle of some bizarre movie entitled “The Incredible Shrinking Dollar”.  Sadly, I am far from alone.  There are millions upon millions of American families that are seeing their expenses continue to rise even as their paychecks remain the same.  But neither Barack Obama nor Mitt Romney seems very concerned about inflation.  In fact, the Federal Reserve, QE3 and Ben Bernanke were not even mentioned in any of the three presidential debates.  So I think that somebody should start the “Stuff Costs Too Much” Party.  Inflation is a tax which is destroying the value of each dollar that we hold a little bit more every single day, and the American people deserve to know the truth about what is going on.

In this day and age, it simply does not pay to put money into long-term savings.  When you finally pull your money out it will have far less purchasing power than it originally did.

Way back in 1950, you could buy a first-class stamp for just 3 cents and you could buy a gallon of gasoline for about 27 cents.

Wouldn’t it be great if you could still get a gallon of gasoline for 27 cents?

But we don’t have to go all the way back to 1950 to find low prices.  All we have to do is go back ten years.

A recent article by Benny Johnson detailed how the prices of many of the things that we buy on a regular basis absolutely soared between 2002 and 2012.  Just check out these price increases…

Eggs: 73%

Coffee: 90%

Peanut Butter: 40%

Milk: 26%

A Loaf Of White Bread: 39%

Spaghetti And Macaroni: 44%

Orange Juice: 46%

Red Delicious Apples: 43%

Beer: 25%

Wine: 60%

Electricity: 42%

Margarine: 143%

Tomatoes: 22%

Turkey: 56%

Ground Beef: 61%

Chocolate Chip Cookies: 39%

Gasoline: 158%

So what will the next ten years bring?  Unfortunately, we are already being told that it looks like inflation is going to start accelerating.  A recent CNBC article started this way…

Consumers will have to dig deeper into their pockets next year to pay for costlier health care, more expensive grocery bills and higher taxes, an extra drag on the country’s already slow-moving economy.

That is not what millions of struggling American families need to hear right about now.

Their bills just keep going up but their paychecks are not keeping pace.

Have you noticed that almost everything that we spend money on just keeps rising year after year?

According to USA Today, in some areas of the country water bills have actually tripled over the past 12 years.

Has your paycheck tripled?

Electricity bills in this country have risen faster than the overall rate of inflation for five years in a row.

Winter is a really bad time for power bills.  Millions of struggling families will set their thermostats very low this winter and yet will still be slammed with absolutely outrageous bills.

Of course just about every type of insurance is going up faster than the overall rate of inflation.

Have you gotten a price increase notice in the mail lately?

I have.

The price of health insurance in particular has soared in recent years.  Health insurance premiums increased faster than the overall rate of inflation in 2011 and that is happening once again in 2012.

All of these price increases are pushing many American families to the breaking point.

But Federal Reserve Chairman Ben Bernanke insists that there is very little inflation right now, and he has government statistics to back his assertions up.

Of course the way that the government calculates inflation has changed more than 20 times since 1978, but Bernanke never mentions that.

According to John Williams of, if inflation was measured exactly the same way that it was back in 1990, the official inflation rate would be about 5 percent right now.

The American Institute for Economic Research says that inflation is even high than that right now.  According to them, the real rate of inflation was about 8 percent last year.

Meanwhile, household incomes are actually going down all over America.

Even though we are supposedly in the midst of an “economic recovery”, median household income has declined for four years in a row.

Overall, median household income has declined by more than $4000 over the past four years.

Incomes are going down and prices just keep on rising.

So how are families adjusting?

Well, many of them are spending less.  One survey found that 62 percent of all middle class Americans have had to reduce household spending over the past year.

Others are going into increasing amounts of debt in an attempt to survive from month to month.

Inflation has become a way of life in America.  But what could make it a whole lot worse is if a nationwide crisis suddenly disrupted the normal operation of the economy.  If that happened, we would see price gouging happen literally overnight.  Just check out what one article that was posted on CNBC said happened in the aftermath of Hurricane Sandy…

Four dollars for a can of coke. Five hundred dollars a night for a hotel in downtown Brooklyn. A pair of D-batteries for $6.99.

These are just a few of the examples of price hikes I or friends of mine have personally come across in the run-up and aftermath of hurricane Sandy.

So you might want to use your extra dollars right now.  They are never going to be more valuable than they are today, and in the event of a major disaster they might lose value very, very rapidly.

Unfortunately, millions of American families don’t have any extra money at all.  Many of them have been slowly worn down by this economy and are now just desperately trying to survive.  The following is what one reader shared in a comment following one of my recent articles

There is one thing you should know about poverty: it is crushing! It crushes the spirit first and foremost, then it crushes the idea of dreams because people in extreme poverty don’t see a way out when they barely have enough to eat let alone get ahead in life.
So, by offering a hand up to those in poverty, we relieve a bit of that pressure…just enough so that their basic needs are met. Once those needs are met, those in poverty can start to see “LIGHT”, something hard to see when being crushed by the pressures and hardships of poverty.

I know of what I speak; I was once living an upper middle-class life and enjoyed all the trappings of material and financial successes.

However, an accident caused that life as I knew it to end in a moment. I’m no longer able to work and for the past few years have barely been able to feed myself.

When I became homeless in 2010, I felt suicidal. My lowest moment was holding a sign asking for help very near the 6 bedroom home I once lived.

Don’t think that it can’t happen to you.  What would you do if you suddenly lost your job and could not find another one?  Would you be able to survive?

Just because you are living a middle class lifestyle today does not mean that you will be in the same position a year from now.  The truth is that everything in your life can change in a single day.  The following is from a comment that one of my readers named Kimberly left recently

My husband lost his job of 20+ years to cut backs roughly 3 years ago, 8 months later his health declined of which I attribute to the depression he went through at not being able to find employment. I went back into the work force, or I should say tried… I’m a nursing assistant by trade but no nursing homes are hiring because the families are pulling their loved ones out because they cannot afford to keep them there, hospitals are not hiring because what jobs there are in my field go to nurses awaiting a nursing job and I’m sure my age (53) plays a role in it too. The closest hospital to us just announced it will be closing it’s doors on the 31 because despite it’s tries it cannot afford to remain open under Obamacare.

We have in the last couple years armed ourselves with a gun, started a garden and now do serious couponing to stock pile for emergencies which seem more and more each day are coming. We have dropped from a life lived on 65,000 – 75,000 a year to living on under 23,000 a year. We have made cut backs in every area of life and hope for the best.

We go to bed at night worried about tommorow, next week and next year .. you feel anxious all the time and panic attacks come more frequently with each passing day. I love the Lord with all my heart and I know He is in control, but am just human and one cannot stop the feelings that wash over them.

I have children and grandchildren and am scared to death what faces them in the coiming years. We all lived in within miles of each other until my children lost their jobs and could find nothing here in Mobile, Al. so they moved to Texas and have found at least some work… something is better than nothing you know. We are hundreds of miles apart now and rarely get to see them as gas is also so very high. I have a grand daughter I have never met because we cannot afford the trip and neither can they.

The U.S. economy has never even come close to recovering from the last economic downturn.  If you doubt this, just read this article.  Now the next economic crisis is rapidly approaching us.

If you think that the economic pain and suffering in this country are bad now, just wait.

We haven’t seen anything yet.

Things are going to get much, much worse.

China And Russia Are Ruthlessly Cutting The Legs Out From Under The U.S. Dollar

The mainstream media in the United States is almost totally ignoring one of the most important trends in global economics.  This trend is going to cause the value of the U.S. dollar to fall dramatically and it is going to cause the cost of living in the United States to go way up.  Right now, the U.S. dollar is the primary reserve currency of the world.  Even though that status has been chipped away at in recent years, U.S. dollars still make up more than 60 percent of all foreign currency reserves in the world.  Most international trade (including the buying and selling of oil) is conducted in U.S. dollars, and this gives the United States a tremendous economic advantage.  Since so much trade is done in dollars, there is a constant demand for more dollars all over the globe from countries that need them for trading purposes.  So the Federal Reserve is able to flood our financial system with dollars without it causing a tremendous amount of inflation because the rest of the world ends up soaking up a lot of those dollars.  But now that is changing.  China and Russia have been spearheading a movement to shift away from using the U.S. dollar in international trade.  At the moment, the shift is happening gradually, but at some point a tipping point will come (for example if Saudi Arabia were to declare that it will no longer take U.S. dollars for oil) and the entire global financial system is going to change.  When that tipping point comes the global demand for U.S. dollars is going to absolutely plummet and nightmarish inflation will come to the United States.  If such a scenario sounds far out to you, then you have not been paying attention.  In fact, China and Russia have been working very hard to move us toward exactly such a scenario.

China and Russia are not the “buddies” of the United States.  The truth is that they are both ruthless competitors of the United States and leaders from both nations have been calling for a new global currency for years.

They don’t like that the United States has a built-in advantage of having the reserve currency of the world, and over the past several years both countries have been busy making international agreements that seek to chip away at that advantage.

Just the other day, China and Germany agreed to start conducting an increasing amount of trade with each other in their own currencies.

You would think that a major currency agreement between the 2nd and 4th largest economies on the face of the planet would make headlines all over the United States.

Instead, the silence in the U.S. media was deafening.

At least there were some reports in the international media about this.  The following is from a Reuters article about this very important deal….

Germany and China plan to conduct an increasing amount of their trade in euros and yuan, the two nations said in a joint statement after talks between Chancellor Angela Merkel and Chinese Premier Wen Jiabao in Beijing on Thursday.

“Both sides intend to support financial institutions and companies of both countries in the use of the renminbi and euro in bilateral trade and investments,” said the text of the statement.

By itself, this deal would not be that alarming.

However, the truth is that both Russia and China have been making deals like this all over the globe in recent years.  I detailed 11 more major agreements like the one that China and Germany just made in this article: “11 International Agreements That Are Nails In The Coffin Of The Petrodollar“.

In that article I listed a few of the things that will likely happen when the petrodollar dies….

-Oil will cost a lot more.

-Everything will cost a lot more.

-There will be a lot less foreign demand for U.S. government debt.

-Interest rates on U.S. government debt will rise.

-Interest rates on just about everything in the U.S. economy will rise.

So enjoy going to “the dollar store” while you can.

It will turn into the “five and ten dollar store” soon enough.

Okay, so if you are China and Russia and you are working hard to undermine the dollar, how do you get prepared for the fiat currency crisis that your hard work will eventually create?

You guessed it.  You hoard gold and other precious metals.

And that is exactly what China and Russia has been doing.

A recent MarketWatch article detailed the massive hoarding of gold that Russia has been doing….

I can’t imagine it means anything cheerful that Vladimir Putin, the Russian czar, is stockpiling gold as fast as he can get his hands on it.

According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years. Putin has taken advantage of the financial crisis to build the world’s fifth-biggest gold pile in a handful of years, and is buying about half a billion dollars’ worth every month.

Of course Russia is not alone in hoarding gold.  According to Zero Hedge, China has quietly been importing gigantic mountains of gold….

In July, Chinese gold imports from HK, after two months of declines, have picked up once more and hit a 3-month high of 75.8 tons. While it is notable that this number is double the 38.1 tons imported a year prior, and that year-to-date imports are now a record 458.6 tons, well over four times greater than the seven month total in 2011 which was 103.9 tons, what is far more important is that in the first seven months of 2012 alone China has imported nearly as much gold as the total holdings of the hedge fund at the heart of the Eurozone, elsewhere known simply as the European Central Bank, and just as importantly considering the import run-rate has hardly slowed down in August, which data we will have in a few weeks, it is now safe to say that in 2012 alone China has imported more gold than the ECB’s entire official 502.1 tons of holdings.

And all over the world Chinese companies are buying up gold producers.  China National Gold Group Corporation has put in a $3.9 billion bid to buy African Barrick Gold PLC, but that is only one example.

A recent Fox Business article listed a bunch of other similar transactions that have taken place recently….

Zijin Mining Group Co. (2899.HK), China’s second-largest gold producer by output, said last week that its subsidiary has acquired more than 50% of Kalgoorlie’s Norton Gold Fields (NGF.AU).

That deal gives it a foothold in the Australian market, the world’s second-largest source of gold output after China itself. In 2011, Zijin bought 60% of Kazakhstan-based miner Altynken, which has access to a gold mine in Kyrgyzstan.

Since 2008, Chinese companies have completed 10 US$20-million-plus acquisitions of Australian gold assets, worth a combined $1.6 billion, according to Dealogic. Half were initiated since last year.

In November, Shandong Gold-Mining Co. (600547.SH) launched a bid to acquire Brazilian gold miner Jaguar Mining Inc. (JAG.T) for $1 billion.

You would have to be blind to not see what is happening.

Other big names have been hoarding gold as well.  In a previous article I detailed how George Soros, John Paulson and central banks all over the planet have been hungrily accumulating gold.

So what does all of this mean for the price of gold?

That’s right – it is likely to keep heading up.

In fact, Citi analyst Tom Fitzpatrick believes that the price of gold will likely hit $2500 within 6 months.

Personally, I believe that there will be times when precious metals both fall and rise in price dramatically.  It is going to be a wild ride.  But in the long-term I believe that all precious metals will be going up as fiat currencies such as the U.S. dollar fail.

Sadly, most Americans have no idea just how incredibly vulnerable the U.S. dollar really is.

The following is an excerpt from a recent piece by investigative journalist Bob Woodward.  It shows just how worried our leaders are about a crash of U.S. Treasuries….

Another possible outcome, Geithner said, was perhaps worse. “Suppose we have an auction and no one shows up?”

The cascading impact would be unknowable. The world could decide to dump U.S. Treasuries. Prices would plummet, interest rates would skyrocket. The one pillar of stability, the United States, the rock in the global economy, could collapse.

What happens someday if the rest of the world decides to reject our currency and our debt?

Right now we are able to trade our dollars for the things that we “need” such as oil from the Middle East and cheap plastic consumer products from China.

But what happens if the Federal Reserve keeps printing and printing and printing and the rest of the world eventually decides that the U.S. dollar is not even worth the paper it is printed on?

The truth is that the amount of printing the Federal Reserve has been doing and the amount of borrowing the federal government has been doing are both completely and totally unsustainable.

At this point, Moody’s is threatening to cut the credit rating of the federal government if a deal is not reached soon to reduce our debt to GDP ratio.

And Moody’s is not the only one concerned about our exploding debt.

German Finance Minister Wolfgang Schaeuble recently stated that he believes that “there is great uncertainty about the course American politics will take in dealing the U.S. government’s debts, which are much too high”.

Just because the economy is relatively stable right now does not mean that it is always going to be that way.

If we keep debasing our currency like this, at some point the rest of the world is going to decide that China and Russia have been right all along and that we need a new global reserve currency.

That day is coming.  It might not come tomorrow or next week or next month but it is definitely coming.

Once the U.S. dollar loses reserve currency status, that will be a major turning point in the history of our country.  We will never fully recover from that, and we will never get back to the same level of prosperity that we are enjoying today.

So enjoy spending those dollars while you can.  The party is almost over.

Debt-Free United States Notes Were Once Issued Under JFK And The U.S. Government Still Has The Power To Issue Debt-Free Money

Most Americans have no idea that the U.S. government once issued debt-free money directly into circulation.  America once thrived under a debt-free monetary system, and we can do it again.  The truth is that the United States is a sovereign nation and it does not need to borrow money from anyone.  Back in the days of JFK, Federal Reserve Notes were not the only currency in circulation.  Under JFK (at at various other times), a limited number of debt-free United States Notes were issued by the U.S. Treasury and spent by the U.S. government without any new debt being created.  In fact, each bill said “United States Note” right at the top.  Unfortunately, United States Notes are not being issued today.  If you stop right now and pull a dollar out of your wallet, what does it say right at the top?  It says “Federal Reserve Note”.  Normally, the way our current system works is that whenever more Federal Reserve Notes are created more debt is also created.  This debt-based monetary system is systematically destroying the wealth of this nation.  But it does not have to be this way.  The truth is that the U.S. government still has the power under the U.S. Constitution to issue debt-free money, and we need to educate the American people about this.

Posted below are pictures of the front and the back of a United States Note printed in 1963 while JFK was president….

Notice that there is a red seal instead of a green seal on the front, and it says “United States Note” rather than “Federal Reserve Note”.

According to Wikipedia, United States Notes were issued directly into circulation by the U.S. Treasury and they were first used during the Civil War….

They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.

So why are we using debt-based Federal Reserve Notes today instead of debt-free United States Notes?

It seems rather stupid, doesn’t it?

Well, that is what Thomas Edison thought too.

Thomas Edison was once quoted in the New York Times as saying the following….

That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.

Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.

But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.

Our current debt-based monetary system was devised by greedy bankers that wanted to make huge profits by creating money out of thin air and lending it to the U.S. government at interest.

Sadly, the vast majority of the American people have no idea how money is actually created in this nation.

In a previous article about money and debt, I explained how more government debt is created whenever the U.S. government puts more money into circulation….

When the government wants more money, the U.S. government swaps U.S. Treasury bonds for “Federal Reserve notes”, thus creating more government debt.  Usually the money isn’t even printed up – most of the time it is just electronically credited to the government.  The Federal Reserve creates these “Federal Reserve notes” out of thin air.  These Federal Reserve notes are backed by nothing and have no intrinsic value of their own.

When each new Federal Reserve Note is created, the interest owed by the federal government on that new Federal Reserve Note is not also created at the same time.

So the amount of government debt that is created actually exceeds the amount of money that is created.

Isn’t that a stupid system?

The U.S. Constitution says that the federal government is the one that should actually be issuing our money.

In particular, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been given the responsibility to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So why is a private central banking cartel issuing our money?

As is the case with so many other issues, we desperately need to get back to the way the U.S. Constitution says that we should be doing things.

The debt-based Federal Reserve system is literally stealing the future from our children and our grandchildren.

Back in 1910, a couple years prior to the passage of the Federal Reserve Act, the national debt was only about $2.6 billion.

A little over 100 years later, our national debt is now more than 5000 times larger.

So why don’t we just admit that this system simply does not work?

Our current debt-based monetary system also requires very high personal income taxes to pay for it.

In fact, it is no accident that the personal income tax was introduced at about the same time that the Federal Reserve system originally came into existence.

Our children, our grandchildren and many generations after that are facing a lifetime of debt slavery because of us.

As I have written about previously, if the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

Neither the Republicans or the Democrats are proposing any solutions to this problem.  Rather, both parties are only trying to slow down the rate at which we are going into even more debt.

But the truth is that the federal government does not have to go into a single penny of additional debt.

How could this be?

It is not too complicated.

If Congress took back the power over our currency and started issuing debt-free money a lot of our problems could be fixed.

A basic plan would look something like this….

#1) The U.S. Congress votes to take back all of the functions that it has delegated to the Federal Reserve and begins to issue debt-free United States Notes.  These United States Notes would have the exact same value as existing Federal Reserve Notes, and over time all existing Federal Reserve Notes would be taken out of circulation.

#2) The U.S. Congress nationalizes all debt held by the Federal Reserve.  That would instantly reduce the national debt by 1.6 trillion dollars.  In fact, there are a few members of Congress that have already proposed this.

#3) A Constitutional amendment is passed limiting future U.S. government deficits to a reasonable percentage of GDP.  Any future deficits would not be funded by borrowing.  Rather, future deficits would be funded by newly created United States Notes.  Therefore, the federal government would never again accumulate another penny of debt.

And it would be important to inject new money into the economy from time to time.  When existing money is destroyed or when the population grows it is important to inject a certain amount of new money into the system in order to avoid deflation.

#4) The existing national debt would be very slowly paid off with newly created United States Notes.  The U.S. government spent over 454 billion dollars on interest on the national debt during fiscal year 2011, and over time this expense would go to zero.

If the national debt is paid off slowly enough, it would not create too much inflation.  I believe that it could be paid off gradually over 50 years without shocking the economy too much.

There are some that would object to any measure that would ever cause a small amount of inflation, but my contention is that we have created a $15 trillion dollar debt mess for future generations, and it would be absolutely criminal to pass that legacy on to them.

We created this mess, and it is our responsibility to clean it up.

While there is certainly a danger that we would have a limited amount of inflation under a debt-free monetary system such as the one described above, the reality is that we are absolutely guaranteed inflation under the Federal Reserve system.

Most Americans believe that inflation is a fact of life, but the sad truth is that the United States has only had a major, ongoing problem with inflation since the Federal Reserve was created back in 1913.

If you do not believe this, just check out this chart.

Sadly, the U.S. dollar has lost well over 95 percent of its value since the Federal Reserve was created.

So, yes, there would be a need for strict monetary discipline under a debt-free monetary system, but it would be hard to do worse than the Federal Reserve has already been doing.

And Congress could always slow down inflation using other methods.  For example, raising the reserve requirements for banks (which should be done anyway) would help keep inflation in check.

If the above proposals were adopted, the end result would be something that we could all live with.  The Federal Reserve system would be abolished, the national debt burden on future generations would be wiped out, the economy would not have to go through a devastating economic collapse that could last a decade or longer, and we could eventually make a fairly smooth transition to “hard money” if we wanted to after the national debt is gone.

Is there any other proposal out there that does all of those things?

There are many out there that would dispute some of the points above, and debate is good.  By engaging in debate, we can hopefully help educate the American people about the nature of money.

The key is to get rid of our current debt-based Federal Reserve Notes and replace them with debt-free United States Notes.

The American people need to understand that it is a lie that the U.S. government “must” borrow money from somebody else.

When the U.S. government borrows money, it slowly transfers wealth from the American people to those that lent it.

At this point, we have created a financial nightmare for future generations that is unlike anything the world has ever seen before.  We owe it to future generations to eliminate the debt problem without destroying the United States economy.  Adopting debt-free money would allow us to do that.

But sadly, neither political party is even talking about debt-free money.  In fact, most of the politicians in both political parties probably do not even know what debt-free money is.

So we need to get the American people educated about these things.  Because if we stay on the course that we are currently on, an economic collapse is inevitable.

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