Economic Prosperity

What Is America Going To Look Like When Stocks, Home Prices And Even Used Cars All Crash By At Least 50 Percent?

April 2, 2017April 2, 2017 by Michael

Have you ever thought about what comes after the bubble? In 2008 we got a short preview of what life will be like, but most Americans seem to have come to the conclusion that the last financial crisis was just a minor bump in the road toward endless economic prosperity. But of course the truth is that the ridiculously high debt-fueled standard of living that we are enjoying now is not sustainable, and after this bubble bursts it will be an extremely painful adjustment for our society.

Since the last financial crisis, the U.S. national debt has nearly doubled, corporate debt has doubled, stock valuations have reached exceedingly ridiculous extremes, the student loan debt bubble has surpassed a trillion dollars, we are facing the largest unfunded pension crisis in U.S. history, and in many parts of the country (particularly the west coast) we are facing a housing bubble that is even worse than the one that burst in 2007 and 2008.

And even with all of these bubbles, U.S. GDP growth has been absolutely anemic. Even if you believe the grossly manipulated numbers that the federal government puts out, the U.S. economy grew at a “miserably low” rate of just 1.6 percent in 2016…

In terms of GDP, the fourth quarter was revised up slightly, but there were adjustments for prior quarters, and overall GDP growth for the year 2016 remained at a miserably low 1.6%. We’ve come to call this the “stall speed.” It’s difficult for the US economy to stay aloft at this slow speed. As Q4 gutted any hopes for a strong finish, GDP growth in 2016 matched the worst year since the Great Recession.

And corporate profits, despite a stock market that has been surging for years, are even worse. A lot worse. They’ve declined for years. In fact, they declined for years during the prior two stock market bubbles, the dotcom bubble and the pre-Financial-Crisis bubble. Both ended in crashes.

Things have continued to get even worse early in 2016. At this point, it is being projected that U.S. GDP will grow at an annual rate of just 0.9 percent during the first quarter of 2017.

So anyone that tries to tell you that the U.S. economy is in good shape is simply not being honest with you.

But even though things don’t look great now, they are going to look far, far worse after the biggest debt bubble in human history bursts.

For example, what do you think that America will look like after half of all stock market wealth disappears? In a recent note to his clients, John P. Hussman stated that his team is projecting that by the end of this current market cycle “roughly half of U.S. equity market capitalization – $17 trillion in paper wealth – will simply vanish”.

And of course that projection lines up perfectly with what I have been saying for quite a while. In order for key measures of stock market valuation (such as CAPE, etc.) to return to their long-term averages, stocks are going to have to fall at least 40 to 50 percent from their current levels.

As this coming crisis unfolds, other asset classes will experience astounding downturns as well. This week, Morgan Stanley (one of the too big to fail banks) released a report that said that used car prices “could crash by up to 50%” over the next several years…

For months we’ve been talking about the massive lending bubble propping up the U.S. auto market. Now, noting many of the same concerns that we’ve highlighted repeatedly, Morgan Stanley’s auto team, led by Adam Jonas, has just issued a report detailing why they think used car prices could crash by up to 50% over the next 4-5 years.

Housing prices are primed for a major plunge as well. This is especially true on the west coast where tech money and foreign purchasers from Asia have pushed home values up to dizzying levels. Half a million dollars will be lucky to get you a “starter home” in San Francisco, and it was being reported that one poor techie living there was paying $1400 a month just to live in a closet. Many believe that some cities on the west coast will be quite fortunate if home values only go down by 50 percent during the coming crash.

Everywhere you look there are bubbles. In a recent piece, Daniel Lang pointed out some more of them…

Eric Rosengren, the president of the Federal Reserve Bank of Boston, recently made a startling tacit admission. We may be in the midst of yet another real estate bubble. Major financial institutions in this country are in possession of over $14 trillion worth of residential real estate loans. That’s well over $40,000 for every man woman and child in America.
Low interest rates have fueled a bubble in subprime auto loans, and that bubble appears to be reaching its limits. There are now over 1 million ordinary and subprime auto loans that are delinquent, a number that hasn’t been this high since 2009.
There is now well over a trillion dollars worth of student loan debt in this country; much of it owned by low income families. And there’s little hope that these students will ever see a return on their investment. That’s why at least 27% of student loans are in default. While more than one in four students are in default now, that number was one in nine a decade ago. And if current trends continue, there could be $3.3 trillion of student loan debt by the end of the next decade.

At some point the imbalances become just too great and the system collapses in upon itself.

In other words, we are heading for a massive implosion.

And once the implosion happens, people are going to go absolutely nuts. Anger and frustration are already rising to the boiling point all over the country, and it isn’t going to take much to push millions of Americans completely over the edge.

In a recent interview with Greg Hunter, author James Rickards warned that when things get really bad in America we could actually see what he refers to as “money riots”…

So, could we be facing a “Mad Max” world if the financial system totally crashes? Rickards says, “In ‘Road to Ruin,’ I talk about what I call the money riots. There is a lot of reasons for rioting. When you start shutting banks and the stock exchange and they say you can’t get your money, it’s only temporary, trust us, people will go out and start to burn down banks. The government is ready for that also with emergency response and martial law. . . . Governments don’t go down without a fight. . . . You can see the shutdown coming because they will try to buy time until they come up with a solution, whether it’s gold, Special Drawing Rights (SDR), guarantees or whatever it might be. There are only two or three possibilities here, but all of them will take time, and they will have to shut down the system. . . . People will not sit for that. So, that means people will riot. They’ll burn down banks. They will smash windows, but what is the reaction to that? The answer is martial law, militarized police, actual military units and you get something that looks like fascism pretty quickly.”

I very much agree with his assessment.

All it is going to take is another major financial crisis and this nation will go completely and utterly insane.

Unfortunately, all of our long-term economic problems have proceeded to get a lot worse since the last time around, and so when things fall apart this time we will likely be looking at a scenario that is absolutely unprecedented in American history.

A lot of people have become very complacent out there these days, but that is a huge mistake.

Just because a crisis is delayed does not mean that it is canceled. And because our leaders have kept making this economic bubble larger and larger, that just means that the coming crisis will be even more painful than it otherwise could have been.

China Starts To Make A Power Move Against The U.S. Dollar

February 20, 2014 by Michael

In order for our current level of debt-fueled prosperity to continue, the rest of the world must continue to use our dollars to trade with one another and must continue to buy our debt at ridiculously low interest rates. Of course the number one foreign nation that we depend on to participate in our system is China. China accounts for more global trade than anyone else on the planet (including the United States), and most of that trade is conducted in U.S. dollars. This keeps demand for our dollars very high, and it ensures that we can import massive quantities of goods from overseas at very low cost. As a major exporting nation, China ends up with gigantic piles of our dollars. They lend many of those dollars back to us at ridiculously low interest rates. At this point, China owns more of our national debt than any other country does. But if China was to decide to quit playing our game and started moving away from U.S. dollars and U.S. debt, our economic prosperity could disappear very rapidly. Demand for the U.S. dollar would fall and prices would go up. And interest rates on our debt and everything else in our financial system would go up to crippling levels. So it is absolutely critical to our financial future that China continues to play our game.

Unfortunately, there are signs that China has now decided to start looking for a smooth exit from the game. In November, I wrote about how the central bank of China has announced that it is “no longer in China’s favor to accumulate foreign-exchange reserves”. That means that the pile of U.S. dollars that China is sitting on is not going to get any higher.

In addition, China has signed a whole host of international currency agreements with other nations during the past couple of years which are going to result in less U.S. dollars being used in international trade. You can read about many of these agreements in this article.

This week, we learned that China started to dump U.S. debt during the month of December. Many have imagined that China would try to dump a flood of our debt on to the market all of a sudden once they decided to exit, but that simply does not make sense. Instead, it makes sense for China to dump a bit of debt at a time so that the market will not panic and so that they can get close to full value for the paper that they are holding.

As Bloomberg reported the other day, China dumped nearly 50 billion dollars of U.S. debt during the month of December…

China, the largest foreign U.S. creditor, reduced holdings of U.S. Treasury debt in December by the most in two years as the Federal Reserve announced plans to slow asset purchases.

The nation pared its position in U.S. government bonds by $47.8 billion, or 3.6 percent, to $1.27 trillion, the largest decline since December 2011, according to U.S. Treasury Department data released yesterday.

This is how I would do it if I was China. I would try to dump 30, 40 or 50 billion dollars a month. I would try to make a smooth exit and try to get as much for my U.S. debt paper as I could.

So if China is not going to stockpile U.S. dollars or U.S. debt any longer, what is it going to stockpile?

It is going to stockpile gold of course. In fact, China has been voraciously stockpiling gold for quite some time, and their hunger for gold appears to be growing.

According to Bloomberg, more than 80 percent of the gold that was exported from Switzerland last month went to Asia…

Switzerland sent more than 80 percent of its gold and silver bullion and coin exports to Asia last month, the Swiss Federal Customs Administration said today in an e-mailed report. It imported most from the U.K.

Hong Kong was the top destination at 44 percent on a value basis, with India at 14 percent, the Bern-based customs agency said in its first breakdown of the gold trade data since 1980. Singapore accounted for 8.6 percent of exports, the United Arab Emirates 7.9 percent and China 6.3 percent.

When China imports gold, most of it goes through Hong Kong. We know that imports of gold from Hong Kong into China are at an all-time record high, but we don’t know exactly how much gold China has accumulated at this point because they quit reporting that to the rest of the world a number of years ago.

When it comes to global finance, China is playing chess and the United States is playing checkers. China knows that gold is a universal currency that will hold value over the long-term. As the paper currencies of the world race toward collapse, China could end up holding most of the real money and that would be a huge game changer when they finally reveal that fact…

The announcement of China’s new gold hoard will send shockwaves through the financial markets, and make China and the Chinese yuan (their national currency) even bigger players at the international table.

International banking expert James Rickards compared it to a game of Texas Hold ‘Em poker:

“You want a big pile of chips. The U.S. has a big pile of chips, Europe has a big pile of chips. The U.S. has 8,000 tonnes [metric tons] of gold, 17 members of the euro system have 10,000 tonnes. China at 1,000 tonnes is not a player, but at 5,000 tonnes, they are a player.”

There are some really good points made in the quote above, but I do take exception with a couple of things. First of all, I believe that China now has far more than 5,000 tons of gold. Secondly, I seriously doubt that the U.S. still actually has 8,000 tons of gold or that Europe still actually has 10,000 tons of gold.

As China (and eventually the rest of the world) moves away from a U.S.-based financial system, the consequences are going to be dramatic.

For instance, right now the average rate of interest that the U.S. government pays on debt is just 2.477 percent. That is ridiculously low and it is way below the real rate of inflation. It is simply not rational for anyone to lend the U.S. government money so cheaply, and at some point we are going to see a dramatic shift.

When that day arrives, interest rates are going to rise dramatically. And if the average rate of interest on U.S. government debt rises to just 6 percent (and it has been much higher than that in the past), we will be paying out more than a trillion dollars a year just in interest on the national debt.

Even more frightening is what a rapidly changing interest rate environment would mean for our banking system. There are four large U.S. banks that each have exposure to derivatives in excess of 40 trillion dollars. You can find the identity of those banks right here. Interest rate derivatives make up the biggest chunk of those derivatives contracts. As John Embry told King World News just the other day, when that bubble bursts the carnage is going to be unprecedented…

“Stockman brought up a brilliant point, the fact that we have hundreds of trillions of dollars of interest rate swaps, which are polluting the world’s banking system. If we see growing volatility in interest rates, and I think that’s inevitable with what’s going on, that would cause spasms in the financial system. And if something goes wrong in the derivatives market, Heaven help us because the leverage that is imparted to the banking system through these derivatives is unholy.”

Unfortunately, very few of the “experts” will ever see this crash coming.

Very few of them saw it coming in 2000.

Very few of them saw it coming in 2008.

And very few of them will see it coming this time.

I really like what Paul B. Farrell had to say about this…

Early warnings of a crash are dismissed over and over (“just a temporary correction”). They gradually numb us about the inevitable. Time after time we forget history’s lessons. Until finally a big surprise catches us totally off-guard. Financial historian Niall Ferguson put it this way: Before the crash, our world seems almost stationary, deceptively so, balanced, at a set point. So that when the crash finally hits — as inevitably it will — everyone seems surprised. And our brains keep telling us it’s not time for a crash.

Till then, life just goes along quietly, hypnotizing us, making us vulnerable, till a shocker like Lehman Brothers upsets the balance. Then, says Ferguson, the crash is “accelerating suddenly, like a sports car … like a thief in the night.” It hits. Shocks us wide awake.

Don’t let the upcoming crash take you by surprise.

The warning signs are very clear.

Get ready while you still can.

Denial Is Not Just A River In Egypt: 10 Hilarious Examples Of How Clueless Our Leaders Are About The Economy

March 13, 2013 by Michael

They didn’t see it coming last time either. Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future. In fact, as late as January 2008 Bernanke boldly declared that “the Federal Reserve is not currently forecasting a recession.” At the time, only the “doom and gloomers” were warning that everything was about to fall apart. And of course we all know what happened. But just a few short years later, history seems to be repeating itself. Barack Obama, Federal Reserve Chairman Ben Bernanke and almost every prominent voice in the financial world are all promising that the U.S. “economic recovery” is going to continue even though Europe is coming apart like a 20 dollar suit. But the economic fundamentals tell a different story. Our national debt is more than $6,000,000,000,000 larger than it was back in 2008, the number of Americans on food stamps just hit another brand new all-time record, and the bankers up on Wall Street are selling gigantic mountains of the exact same kind of toxic derivatives that caused so much trouble the last time around. But all of our “leaders” swear that everything is going to be okay. You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.

Sadly, many Americans are not even going to see the crash coming because they still have faith in the “experts”. They haven’t figured out that the “experts” really do not know what they are doing.

The blind are leading the blind, and in the end the results are going to be absolutely tragic.

The following are 10 hilarious examples of how clueless our leaders are about the economy…

#1 When I first came across the following chart the other day, it made me chuckle. It is a chart that supposedly tells us the “probability” of a recession, and it was taken from the website of the Federal Reserve Bank of St. Louis. According to the chart, right now there is a 0.16% chance of a recession…

#2 Federal Reserve Chairman Ben Bernanke has also been proclaiming his belief that the U.S. economy will continue to grow. The following is an excerpt from his recent remarks to Congress…

The pause in real GDP growth last quarter does not appear to reflect a stalling-out of the recovery. Rather, economic activity was temporarily restrained by weather-related disruptions and by transitory declines in a few volatile categories of spending, even as demand by U.S. households and businesses continued to expand. Available information suggests that economic growth has picked up again this year.

And Bernanke also insists that the labor market is “improving”…

Consistent with the moderate pace of economic growth, conditions in the labor market have been improving gradually.

Of course the labor market is not actually improving. I showed this using the Fed’s own numbers the other day.

And you can put stock in Bernanke’s forecasting ability if you like, but considering his track record of failure in the past, that might not be too wise. Just check out what he was saying before the last financial crisis: “30 Ben Bernanke Quotes That Are So Stupid That You Won’t Know Whether To Laugh Or Cry“.

#3 Although Bernanke has such a nightmarish track record of failure, Warren Buffett still has faith in him. In fact, Buffett loves all of the money printing that Bernanke has been doing…

The U.S. economy might be “dead in the water” without the stimulus provided by the Federal Reserve under Chairman Ben Bernanke, according to Warren Buffett, CEO of Berkshire Hathaway.

“I think very cheap money makes things happen, it makes asset values higher. When asset values are higher, people do have a greater propensity to spend,” Buffett told CNBC.

“I think Bernanke has sort of carried the load himself during this period.”

If Buffett thinks the wild money printing that the Fed has been doing is so wonderful, then he probably would have absolutely loved living in the Weimar Republic.

#4 Barack Obama continues to insist that we do not have a debt crisis, but that we will not be able to balance the budget any time in the foreseeable future either.

Even though the national debt has grown by more than 6 trillion dollars under his leadership and our debt to GDP ratio is now well over 100%, Obama does not believe that it is a significant problem…

“We don’t have an immediate crisis in terms of debt”

And Obama certainly does not plan to even come close to balancing the budget during his second term. In fact, he openly admits that we won’t see a balanced budget at any point within the next decade…

“We’re not gonna balance the budget in 10 years”

Sadly, the truth is that the U.S. will never have a balanced budget ever again under our current system, but most of our politicians are not willing to go that far and admit that sad fact to the American people just yet.

#5 But of course it would certainly help if the U.S. government would stop wasting so much money. For example, did you know that the federal government is helping dead people get free cell phones? The following is from a recent article in the New York Post…

Dead people don’t need cell phones.

That’s the message Rep. Tim Griffin of Arkansas wants to send Congress, after he says a controversial government-backed program that helps provide phones to low-income Americans ended up sending mobiles to the dead relatives of his constituents. Griffin has introduced a bill that targets the phone hand-out program, which has ballooned into a fiscal headache for the government.

And of course a lot of living people are abusing the free cell phone program as well. Rep. Griffin says that he has heard of some people getting as many as 10 free cell phones from the government…

“I’ve also gotten calls from people who say their employees were bragging about having 10 phones.”

#6 Meanwhile, the most prominent economic journalist in the United States, Paul Krugman of the New York Times, continues to insist that it is a good thing for the government to be running up so much debt…

First of all… that trillion-dollar deficit is overwhelmingly the result of a depressed economy. And when the economy’s depressed it’s good to run a deficit. You don’t want the government to try and balance its budget right now.

Krugman is also operating under the delusion that the federal government “can’t run out of cash”, that it can just print money whenever it wants and that printing giant piles of money would not hurt anything.

The United States is a country that has its own currency–can’t run out of cash because we print the money. If you even try to think what would happen–suppose that investors get down on the United States. Even so, that would weaken the dollar, not send interest rates soaring, and that would be good. That would help our exports

It is frightening that the top economic journalist in America has such little understanding of how our system actually works. I would encourage Krugman to read a couple of my previous articles so that he won’t be so ignorant in the future…

-“Where Does Money Come From? The Giant Federal Reserve Scam That Most Americans Do Not Understand”

-“10 Things That Every American Should Know About The Federal Reserve”

#7 Many Americans have wondered why the federal government never seems to go after the big Wall Street banks. Well, now we know why. The other day, the Attorney General of the United States admitted that the federal government is very hesitant to prosecute anyone from the big banks because of what it might do to the global economy…

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy”

So I guess we now live in a world where there is a different set of rules for the big banks, eh?

Most of us already knew that this was the case, but it is quite chilling to hear the Attorney General of the United States publicly admit this.

#8 Many of the big Wall Street banks are absolutely giddy that the Dow keeps setting new all-time highs, and many of them are projecting wonderful things ahead for the U.S. economy. For example, here is one forecast from Morgan Stanley’s Vincent Reinhart …

“In the Morgan Stanley forecast for the US, the trajectory of economic activity marks an inflection point midway through 2013. The severe financial crisis of 2008-09 necessitated significant downward adjustments by the private sector to the levels of aggregate demand and efficient supply. As the event recedes further into history, however, the drag on growth from these ongoing level adjustments plays out.

In our forecast, the expansion of real GDP steps up to around 2-3/4 percent in the second half of this year and beyond.”

#9 Vice-President Joe Biden is pushing economic optimism to ridiculous levels. Apparently he believes that most Americans are “no longer worried” that a major economic crisis is coming…

But all kidding aside, I think the American people have moved — Democrats, Republicans, independents. They know that the possibilities for this country are immense. They’re no longer traumatized by what was a traumatizing event, the great collapse in 2008. They’re no longer worried, I think, about our economy being overwhelmed either by Europe writ large, the EU, or China somehow swallowing up every bit of innovation that exists in the world. They’re no longer, I think, worried about our economy being overwhelmed beyond our shores.

And I don’t think they’re any more — there’s no — there’s very little doubt in any circles out there about America’s ability to be in position to lead the world in the 21st century, not only in terms of our foreign policy, our incredible defense establishment, but economically.

#10 Right now, many in the financial world are projecting that this will be a year to remember for the stock market. During a recent interview with Fox Business, Wharton School of Business Finance Professor Jeremy Siegel declared that the Dow will cross the 16,000 mark by the end of this year…

“I think by the end of this year, we’ll be in the 16,000 to 17,000 range.”

Of course it is true that other analysts have a much different view of things. Many of them are absolutely amazed that the U.S. economy has become so disconnected from economic reality. For example, just check out what Steve Russell and Hamish Baillie, fund managers at the Ruffer Investment Company, recently had to say…

“If this was explained to a recently arrived Martian he would no doubt be puzzled – US unemployment has almost doubled since 2007, GDP [gross domestic product] growth is a third lower and debt as a percentage of GDP is within a whisker of doubling. The market is forward looking but this is extreme”

So who is right and who is wrong?

Time will tell.

Fortunately, it appears that the American people are getting fed up with the constant stream of lies that they have been told.

According to a new Pew Research survey, just 26 percent of all Americans trust the government to do the right thing.

So what about you?

Do you trust what the government and the “experts” are telling you?

Do you trust them to do the right thing?

Feel free to post a comment with your thoughts below…

65 Percent Of Americans Believe That 2013 Will Be A Year Of Economic Difficulty

January 3, 2013 by Michael

Do you believe that economic trouble is coming in 2013? If so, you have a lot of company. According to a brand new Gallup poll that was just released, 65 percent of Americans believe that 2013 will be a year of “economic difficulty” while only 33 percent of Americans believe that 2013 will be a year of “economic prosperity”. Gallup has been asking this question for a lot of years, and the percentage of Americans that are anticipating economic difficulty in the year ahead has not been this high since the early 1980s. And without a doubt, there are a whole lot of reasons to be deeply concerned about the economy as we head into the new year. But it isn’t just 2013 that Americans are pessimistic about. According to the new Gallup poll, 50 percent of all Americans believe that the best days of America are behind us, and only 47 percent of all Americans believe that the best days of America are ahead of us. Those are very sobering numbers. Half the country believes that it is only downhill from here for the United States. Unfortunately, they are exactly right. Things are rapidly going to get worse for our economy and for our nation as a whole. We are going to start reaping the consequences of decades of very foolish decisions, and the pain is going to be immense.

Gallup asked some other very interesting questions as well. The following are some of the other results from the poll…

-68 percent of Americans believe that 2013 will be a year of rising crime rates.

-57 percent of Americans believe that 2013 will be a year in which American power will decline in the world.

-82 percent of Americans believe that 2013 will be a year in which taxes in the United States will rise.

So why are so many people so pessimistic as we enter 2013?

That is a good question. I think that a lot of people are starting to wake up and are realizing the gigantic problems that are staring the U.S. right in the face.

Even our friends over in Europe can see what is happening to us. We are like a former athletic champion that is now clearly on the wrong side of “middle age” and is exhibiting obvious signs of decline. We still like to think of ourselves as “the champ”, but the truth is that we are fat, lazy, broken down and bankrupt. The following is a brief excerpt from an article that appeared in a major UK news source the other day…

The rest of the world — dangerously reliant on a buoyant U.S. — should note one thing above all: the fundamentals of America’s economy are, frankly, terrible, and its international dominance is not nearly as assured as it once was.

Its economic culture has started to change since President Obama entered the White House four years ago this month.

America more closely resembles Europe in living beyond its means and in the President’s determination to build a massive welfare state.

The mainstream media and most of our politicians endlessly proclaim that things are about to turn around and that a “recovery” is on the way, but that is not even close to the truth.

Fortunately, a few of our politicians realize what is really happening and are willing to talk about it. Unfortunately, not enough people are listening to them.

For example, Ron Paul has a really good grasp on how destructive the U.S. national debt is and how we are literally destroying the bright future that our children and our grandchildren should have had. The following is what he posted on his Facebook page the other day about the “fiscal cliff deal” that just got pushed through Congress…

We Are Already Over the Fiscal Cliff

2 January 2013

Despite claims that the Administration and Congress saved America from the fiscal cliff with an early morning vote today, the fact is that government spending has already pushed Americans over the cliff. Only serious reductions in federal spending will stop the cliff dive from ending in a crash landing, yet the events of this past month show that most elected officials remain committed to expanding the welfare-warfare state.

While there was much hand-wringing over the “draconian” cuts that would be imposed by sequestration, in fact sequestration does not cut spending at all. Under the sequestration plan, government spending will increase by 1.6 trillion over the next eight years. Congress calls this a cut because without sequestration spending will increase by 1.7 trillion over the same time frame. Either way it is an increase in spending.

Yet even these minuscule cuts in the “projected rate of spending” were too much for Washington politicians to bear. The last minute “deal” was the worst of both worlds: higher taxes on nearly all Americans now and a promise to revisit these modest reductions in spending growth two months down the road. We were here before, when in 2011 Republicans demanded these automatic modest decreases in government growth down the road in exchange for a massive increase in the debt ceiling. As the time drew closer, both parties clamored to avoid even these modest moves.

Make no mistake: the spending addiction is a bipartisan problem. It is generally believed that one party refuses to accept any reductions in military spending while the other party refuses to accept any serious reductions in domestic welfare programs. In fact, both parties support increases in both military and domestic welfare spending. The two parties may disagree on some details of what kind of military or domestic welfare spending they favor, but they do agree that they both need to increase. This is what is called “bipartisanship” in Washington.

While the media played up the drama of the down-to-the-wire negotiations, there was never any real chance that a deal would not be worked out. It was just drama. That is how Washington operates. As it happened, a small handful of Congressional and Administration leaders gathered in the dark of the night behind closed doors to hammer out a deal that would be shoved down the throats of Members whose constituents had been told repeatedly that the world would end if this miniscule decrease in the rate of government spending was allowed to go through.

While many on both sides express satisfaction that this deal only increases taxes on the “rich,” most Americans will see more of their paycheck going to Washington because of the deal. The Tax Policy Center has estimated that 77 percent of Americans would see higher taxes because of the elimination of the payroll tax cut.

The arguments against the automatic “cuts” in military spending were particularly dishonest. Hawks on both sides warned of doom and gloom if, as the plan called for, the defense budget would have returned to 2007 levels of spending! Does anybody really believe that our defense spending was woefully inadequate just five years ago? And since 2007 we have been told that the wars in Iraq and Afghanistan are winding down. According to the Congressional Budget Office, over the next eight years military spending would increase 20 percent without the sequester and would increase 18 percent with the sequester. And this is what is called a dangerous reduction in defense spending?

Ironically, some of the members who are most vocal against tax increases and in favor of cuts to domestic spending are the biggest opponents of cutting a penny from the Pentagon budget. Over and over we were told of the hundreds of thousands of jobs that would be lost should military spending be returned to 2007 levels. Is it really healthy to think of our defense budget as a jobs program? Many of these allegedly free-market members sound more Keynesian than Paul Krugman when they praise the economic “stimulus” created by militarism.

As Chris Preble of the Cato Institute wrote recently, “It’s easy to focus exclusively on the companies and individuals hurt by the cuts and forget that the taxed wealth that funded them is being employed elsewhere.”

While Congress ultimately bears responsibility for deficit spending, we must never forget that the Federal Reserve is the chief enabler of deficit spending. Without a central bank eager to monetize the debt, Congress would be unable to fund the welfare-warfare state without imposing unacceptable levels of taxation on the American people. Of course, the Federal Reserve’s policies do impose an “inflation” tax on the American people; however, since this tax is hidden Congress does not fear the same public backlash it would experience if it directly raised income taxes.

I have little hope that a majority of Congress and the President will change their ways and support real spending reductions unless forced to by an economic crisis or by a change in people’s attitudes toward government. Fortunately, increasing numbers of Americans are awakening to the dangers posed by the growth of the welfare-warfare state. Hopefully this movement will continue to grow and force the politicians to reverse course before government spending, taxing, and inflation destroys our economy entirely.

It was good that Ron Paul placed blame on both political parties and on the Federal Reserve for our debt problems.

The Federal Reserve is not often talked about much when it comes to assigning blame for the debt, but it truly is one of the primary reasons why our debt is so enormous today. The Federal Reserve system was designed to be a perpetual government debt machine, and it has accomplished that task very well.

When the Federal Reserve was first created, the total U.S. national debt was less than 3 billion dollars.

That is about as much as we add to the U.S. national debt every single day at this point.

And since Ben Bernanke took the reigns at the Fed, our debt problems have greatly accelerated.

The U.S. national debt has more than doubled from a little over $8 trillion to more than $16.4 trillion since Ben Bernanke became chairman of the Federal Reserve in 2006.

But disaster has not struck yet, so most Americans think that everything must be okay.

Well, if you want to ignore all of the evidence of our impending economic demise, go ahead and do that. Go on lots of expensive vacations, run up your credit cards, buy a new boat and party like its 1999. Enjoy every minute of our debt-fueled prosperity while you still can. You only live once, right?

But if you are wise, you will try to understand what is coming and you will make preparations so that you and your family will be able to withstand the storm that is coming. Here are some basic steps that I suggest…

-Use this time of relative prosperity to work hard and make money while you still can. You want to store up your finances during the good times to help you get through the lean times.

-Get out of debt. You don’t want massive amounts of debt weighing you down when things get really hard.

-Get more independent of the world system. Start a side business in the evenings and the weekends. Learn how to grow your own food. Get your house off of the grid if possible. Anything you can do to become more independent and more self-sufficient is good.

-Store food and other essential supplies. Right now we take for granted that the supermarkets and the big box stores will always be packed with mountains of quality goods at affordable prices. That may not always be the case. You want to be prepared for whatever may happen.

For even more tips, please see my previous article entitled “How To Prepare For The Difficult Years Ahead“.

All bubbles eventually burst.

Our national debt bubble will eventually burst.

The derivatives bubble will eventually burst.

The consumer debt bubble will eventually burst.

When those bubbles burst, will you be ready?

I hope and pray that you will.

14 Reasons Why We Should Nationalize The Federal Reserve

November 6, 2011November 6, 2011 by Michael

One of the most important steps that we could take to bring prosperity back to America would be to nationalize the Federal Reserve. Doing so would allow the federal government to quit borrowing money, dramatically reduce taxes and eventually pay off the entire U.S. national debt. Instead of inheriting the largest debt in the history of the world, future generations would actually have a chance at economic prosperity because they would not be forced to pay off the horrific debt of previous generations. The Federal Reserve is a perpetual debt machine, it has almost completely destroyed the value of the U.S. dollar and it has an absolutely nightmarish track record of incompetence. There are no good reasons to keep the status quo. Our current debt-based monetary system will inevitably lead to a complete and total economic collapse. We desperately need to make a change while we still can. As you will see below, there are a ton of good reasons why we should nationalize the Federal Reserve.

Right now, most Americans believe that the Federal Reserve is actually an agency of the federal government. But that is simply not the case. The truth is that the Federal Reserve is about as “federal” as Federal Express is.

The Federal Reserve openly admits as much. For example, in defending itself against a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve stated in court that it was “not an agency” of the U.S. government and therefore not subject to the Freedom of Information Act.

So who owns the Federal Reserve?

As the Federal Reserve’s own website describes, it is the member banks that own it….

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

The debt-based monetary system established by the Federal Reserve has greatly enriched the big banks and the people that own them. This has been at the expense of the American people.

A private central bank should not issue our currency, set interest rates and run our economy. Rather, we need to return control over the currency to the American people where it belongs.

The following are 14 reasons why we should nationalize the Federal Reserve….

#1 The U.S. Constitution says that the federal government is the one that should 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”.

#2 Our current debt-based monetary system is a perpetual debt machine. It is absolutely imperative that we nationalize the Federal Reserve and begin to issue debt-free money.

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.

This process creates a huge problem. When each new dollar is created, the interest owed by the federal government on that new dollar is not also created at the same time.

Therefore, more debt is actually created than the amount of money that the federal government receives from the Federal Reserve.

This is a Ponzi scheme that is designed to drain wealth from the American people and transfer it to the banking system.

This is why I call the Federal Reserve system a perpetual debt machine. Today, the U.S. national debt is more than 5,000 times larger than it was 100 years ago.

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

By going to a system of debt-free money, the U.S. government would never have to borrow a single dollar ever again.

#3 Our current debt-based monetary system requires very high personal income taxes to pay for it. It is no accident that the personal income tax was introduced at about the same time that the Federal Reserve system came into existence.

If we nationalized the Federal Reserve and capped federal government spending at a reasonable percentage of GDP, it would be entirely possible to massively cut taxes and still keep our promises regarding Social Security and other important social programs at the same time.

I believe that eventually the entire personal income tax system could be completely wiped out and the IRS could be totally shut down. This would save our economy billions upon billions of dollars in income tax compliance costs.

However, as an initial first step, I believe that we should eliminate all payroll taxes, all “self-employment taxes” and all taxes on the first $100,000 earned by every American.

This would provide much needed relief to the millions of poor and middle income families that have been hurt so badly by this economic downturn.

Also, I believe that we could instantly reduce the corporate tax rate to levels that would be competitive with the rest of the world, while closing corporate tax loopholes at the same time. This would remove the temptation for companies to leave the United States in order to escape our brutally high corporate tax rates.

Yes, the proposals above would definitely cut taxes.

So where would we make up the difference?

Well, the U.S. Constitution provides one clue. According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress has the right to impose “duties, imposts and excises” on goods sold in this country.

For way too long, big corporations have been taking advantage of sweatshops in the third world. For way too long, other nations have used predatory trade practices to take unfair advantage of us. For way too long, we have allowed nations with horrific human rights records to ship their goods into our country for free.

Well, we need to bring that to an end. By raising tariffs we would raise money for the federal government and we could potentially start to reverse the flow of jobs and businesses that have been leaving this country.

Access to the U.S. market is a privilege, not a right. High tariffs would be imposed on goods from any country that allows slave labor wages to be paid. Very high tariffs would be imposed on goods from any country that is using predatory trade practices against us. Extremely high tariffs would be imposed on any nation that does not respect basic human rights.

However, please keep in mind that none of this would work if we did not nationalize the Federal Reserve. The tax cuts proposed above would be suicidal under our current debt-based monetary system. But if we nationalize the Fed, we really could do this. It may sound crazy, but it really would work.

#4 If we nationalize the Federal Reserve, there would be no more budget deficits. If the federal government was a bit short one year, it would just print up a little bit of extra money in order to make up the difference.

It would also be very important to cap federal government spending as a percentage of GDP so that we don’t have crazy Congress critters creating a lot of inflation by spending us into oblivion.

Just because we would be adopting a debt-free monetary system does not mean that we could throw spending discipline out the window. Rather, it would actually become more important than ever.

#5 If we nationalize the Federal Reserve, we would instantly reduce the national debt by 1.6 trillion dollars. That is the amount that is currently on the balance sheet of the Federal Reserve. The Federal Reserve just created this money out of thin air anyway, so it was never their money to begin with. Some members of Congress have already proposed cancelling the debt held by the Federal Reserve, and it is a great idea.

#6 If we nationalize the Federal Reserve, we could eventually get rid of the entire national debt.

Under our current system, the U.S. national debt will never, ever be paid off. We are 15 trillion dollars in debt, and at this point we add more than a trillion dollars to that number every year.

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.

But under our current system we are not paying it off. Rather we keep piling up more debt at an astounding pace.

In a system of debt-free money, there would be no more budget deficits, and we could actually start slowly paying off the national debt with newly issued “United States money”.

This would have to be done very slowly so as to not shock the financial system, but it could be done. As U.S. debt becomes due, a small percentage of it could be retired each year.

It is entirely conceivable that within 30 to 40 years we could pay it off entirely without causing tremendous damage to the financial system.

#7 If we nationalize the Federal Reserve, we will eventually totally eliminate the interest on the national debt. Most Americans don’t understand this, but each year we spend hundreds of billions of dollars just on interest on the national debt. For example, the U.S. government spent over 454 billion dollars on interest on the national debt during fiscal year 2011.

Under a debt-free monetary system, that number would eventually go to zero. That would save the federal government a ton of money.

#8 While there is certainly a danger that we would have inflation under a debt-free monetary system, 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 monetary discipline under a debt-free monetary system, but it would be hard to do worse than the Federal Reserve has already been doing.

#9 If we nationalize the Federal Reserve, we would eliminate all of the financial bubbles that the Federal Reserve has been creating.

For example, there would not have been such a bad housing crash if the Federal Reserve had not created such perfect conditions for a housing bubble in the first place.

We should eliminate the Federal Reserve and allow the market to set interest rates. Having a central authority that sets interest rates is just simply wrong and it creates all sorts of problems.

#10 The Federal Reserve has not been doing a good job.

In case anyone has not noticed, Federal Reserve Chairman Ben Bernanke has a very long track record of incompetence. Nearly every major judgment that he has made since taking over that position has been dead wrong.

We are always told that we need someone to run the economy and that the Fed is there to keep depressions from happening.

Well, the truth is that the Fed actually greatly contributed to the Great Depression and it was at least partly responsible for the financial crash of 2008.

Now we are right on the verge of yet another massive financial implosion.

If someone keeps wrecking your car, you don’t let them keep driving it, do you?

#11 If we nationalize the Federal Reserve, we could potentially transition to “sound money” at some point.

There is great debate about this of course. But it is a debate that we need to have.

But before we go to “hard money” we need to do something about this horrific debt that we have piled up for future generations first. We simply cannot lock this debt in and expect them to pay for our mistakes.

We made this mess, so we need to clean it up.

Going to a debt-free monetary system would allow us to do that.

#12 If we nationalize the Federal Reserve, our local banks will have much more freedom. Most Americans simply do not understand just how much power the Federal Reserve actually has over our local banks.

For example, just last year Federal Reserve officials walked into one bank in Oklahoma and demanded that they take down all the Bible verses and all the Christmas buttons that the bank had been displaying.

#13 If we nationalize the Federal Reserve, we won’t have trillions of dollars of secret loans being made to big financial institutions on Wall Street and in foreign countries.

Most Americans don’t realize this, but the Federal Reserve made $16.1 trillion in secret loans to their friends during the last financial crisis.

Meanwhile, hundreds of small banks were left out in the cold and the American people got no help.

This is rampant corruption and it needs to be stopped.

#14 The Federal Reserve needs to be nationalized because it is an unelected, unaccountable “fourth branch of government” that has gotten completely and totally out of control. Even some members of Congress are now openly complaining about how much power the Fed has. For example, Ron Paul told MSNBC last year that he believes that the Federal Reserve is now more powerful than Congress…..

“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”

To learn much more about the Federal Reserve and how it is destroying prosperity in America, there is a great animated documentary on YouTube entitled “The American Dream” that you can watch right here.

It is absolutely imperative that the American people get educated about the Federal Reserve and about why a debt-based monetary system is bad for us.

In 1922, Henry Ford wrote the following….

“The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.”

The U.S. government does not need to go into debt to anyone.

The U.S. government is a sovereign nation.

So why in the world are we 15 trillion dollars in debt?

We have allowed ourselves to become willingly enslaved.

In the book of Proverbs, it tells us the following….

The rich ruleth over the poor, and the borrower is servant to the lender.

By allowing ourselves to become enslaved to debt, we have become the servants of the international banking system.

Our founding fathers attempted to warn us about this.

For example, Thomas Jefferson strongly believed that when the federal government borrows money in one generation which must be paid back by future generations it is equivalent to stealing….

And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

Not only that, Thomas Jefferson also once stated that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing….

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.

If we had implemented that advice, how much better off would we be today?

We can still do this.

We can take back control of our financial system.

We can nationalize the Federal Reserve.

We can dramatically cut taxes and eventually shut down the IRS.

We can give our children and grandchildren a future that is debt free.

We can escape the tyranny of the international bankers.

The choice, America, is up to you.

Barack Obama’s White House Rural Council: Central Economic Planning For America’s Heartland

June 20, 2011June 20, 2011 by Michael

Barack Obama has issued a brand new executive order that establishes a White House Rural Council. This Rural Council has been given the task of developing “public-private partnerships” that will seek to bring the “economic prosperity” of our big cities to rural America. In other words, the U.S. government and the big corporations are going to team up to dominate the economies of our small towns and rural communities just like they dominate the economies of all of our big cities. So should those that live in rural America be excited about this? After all, the U.S. government and the big corporations have done such a great job of bringing “economic prosperity” to places like Detroit, Michigan and Camden, New Jersey. Won’t it be great to have the federal government come in and tell rural communities how they should be doing things?

The chair of the White House Rural Council will be Agriculture Secretary Tom Vilsack. Vilsack is a former governor of Iowa and a Democrat. Swing states like Iowa will be key in 2012, and so perhaps Obama is trying to show that he really cares for middle America.

But it is really hard to forget the remarks that Obama made about rural Americans during the 2008 campaign.

In particular, the following quote about the “bitterness” of those living in rural America got a lot of attention at the time….

“And it’s not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.”

Look, the vast majority of the people who live in rural America do not want to hear that they need to let go of their guns or their religion.

And most of them certainly do not want the federal government to come in and tell them how to run their local economies.

But according to Obama, the U.S. government “has an important role to play” in managing the economies of rural communities. The following is a direct quote from the executive order establishing the White House Rural Council….

Though rural communities face numerous challenges, they also present enormous economic potential. The Federal Government has an important role to play in order to expand access to the capital necessary for economic growth, promote innovation, improve access to health care and education, and expand outdoor recreational activities on public lands.

To many Americans, all of this will sound really great. The federal government is going to come in and help the “backwoods folk” catch up with the rest of us. What could be wrong with that?

Well, the truth is that whenever the federal government gets its fingers into something it tends to really mess it up. Many of the biggest problems our country is facing today can be traced directly back to Washington D.C.

Many small towns and rural communities are doing just fine without the interference of the federal government. In fact, large numbers of Americans have purposely moved out to rural areas because they don’t want the interference of the federal government in their lives.

But according to this new executive order, the Obama administration plans to stick its itchy little fingers into just about every aspect of rural life. One of the stated goals of the White House Rural Council is to do the following….

coordinate and increase the effectiveness of Federal engagement with rural stakeholders, including agricultural organizations, small businesses, education and training institutions, health-care providers, telecommunications services providers, research and land grant institutions, law enforcement, State, local, and tribal governments, and nongovernmental organizations regarding the needs of rural America

This is yet another example of how we are rapidly becoming a centrally-planned economy.

Today, there are way too many Americans that expect the federal government to solve all their problems and take care of them from birth to death.

But that is not what our founding fathers intended, and our federal government has become so corrupt and so incompetent that it could not do those things even if we wanted it to.

Before the federal government “fixes” the problems of rural America, perhaps it should focus on “fixing” many of the other problems it has created first….

*Growing numbers of military veterans cannot find jobs once they leave the U.S. military. In fiscal 2008, the Pentagon spent $450 million on unemployment benefits for military vets. In fiscal 2010, the Pentagon spent almost twice as much – $882 million. According to the U.S. Bureau of Labor Statistics, the unemployment rate for military veterans between the ages of 18 and 24 is more than 30%.

*The housing collapse that the Federal Reserve and the U.S. government caused is a nightmare that never seems to end. According to the New York Times, at the current pace it will take 62 years for the banks to repossess all of the homes that are in severe default or foreclosure in the state of New York.

*The recent commodity price increases caused by the Federal Reserve have resulted in much higher prices at the gas pump and at the grocery store. These higher prices are hitting the poor and the lower middle class much harder than they are hitting the wealthy.

*The federal government has piled up the biggest debt in the history of the world and the U.S. dollar is dying. Standard & Poor’s has altered its outlook on U.S. government debt from “stable” to “negative” and is warning that the U.S. could soon lose its prized AAA rating. Russian presidential economic adviser Arkady Dvorkovich says that his nation is going to keep dumping U.S. government debt. China has been dumping U.S. government debt. The entire U.S. financial system is on the verge of financial collapse and the federal government seems to be powerless to make any meaningful changes.

But instead of fixing the glaring problems that are staring them directly in the face, the control freaks and the bureaucrats in Washington D.C. seem obsessed with figuring out more ways to interfere in our lives.

Over the past couple of months, bad economic news has been pouring in almost constantly. Our economy appears to be in danger of breaking apart. We are in the midst of a horrific economic crisis and nobody is sure what is going to happen next.

So please excuse the good folks of rural America if they are not in the mood to put up with federal government interference in their communities.

The federal government has failed so dramatically so many times before that it is really hard to have any faith that the federal government can do much of anything right at this point.