Economic Collapse

Modern paper or digital money is created through a mechanism know as “fractional reserve banking”. In short, this means that new paper money is created when a private bank issues a loan. This means that virtually all money that circulates in the world has been created through debt. All paper money is debt and all debt has interest payments attached to it. To keep the Ponzi scheme afloat bankers need to constantly increase the amount of money in circulation. This is why they fear deflation (a decrease in the amount of money in circulation) and love inflation (the opposite). However, they need to control inflation at a level that they see fit. If inflation is cut loose the dragon is free to destroy the debt the bankers created.

In deflation, saving money in the mattress is no problem since deflation makes the purchasing power of money greater tomorrow compared to today, rendering your need for bankers none. The opposite is true in inflation. So, in deflation, people don’t need bankers. In inflation, saving money is penalized and speculation and consumption is rewarded since the purchasing power is lower tomorrow compared to today. Bankers make their money on speculation with deposited money (your money) and lending out newly created money as credit earning interest. Speculation leads to higher risk taking and money flows to all kinds of areas both productive and non-productive. Eventually this leads to asset bubbles.

In Sweden, where I live, a normal deposit account at a bank will give you about 1,75% interest today. At the same time, official statistics on consumer prices says prices rose by about 2,5% last year (2010). This means that the bankers steal the difference from your deposit account. This is an example on why savers are penalized in an inflationary environment. However, real inflation, that is to say the expansion of the amount of money in circulation in Sweden, rose by about 10% in 2010. And I can tell you going out for lunch today is about 10% more expensive than it was one year ago. This means that having my savings deposited at a bank makes me lose about 8,25% in purchasing power per year. This is just 1,75 percentage points better than the mattress!

So, bankers create money out of nothing by issuing credit. Credit is spent in the economy as money. Attached to the money are interest payments that flow from the borrowers to the bankers. To keep the ever expanding credit bubble from popping, the bankers need to constantly increase the amount of money in circulation, otherwise interest payments on outstanding debt cannot be paid, credit defaults and the balance sheet and the stock price of the banks go down.

I believe in Love. If you can learn to love thy enemy, you will be greatly rewarded. I love bankers! Why? Because I keep all my savings in physical gold and silver. The more fake credit-based-fiat-paper-so-called-money the bankers create out of thin air, the more they expand the money supply and the higher the price of my gold and silver will be. Gold and silver in physical possession makes me totally immune to the theft of bankers. Yesterday, the banker of bankers Ben Bernanke, kept interest rates at all time lows. A few minutes after his announcement gold and silver prices headed higher. Gold at all time highs and silver approaching its (in nominal terms).

So go on, Ben! Print! Print! Print! Sure, you’ll totally destroy this Ponzi scheme we call “the financial system” while you’re at it only making the inevitable happen sooner rather than later: the world will return to fair sound money based on gold and silver.

I love you Ben!
Yours truly /Johnny

Just came back from the pre-premiere of a Swedish-made movie called “Overdose - The Next Financial Crisis“. It’s narrated by Cato Institute affiliate and free-lance writer Johan Norberg and the movie is also based on one of his books. I must say the movie portrays the dire mess we are in, in a manner that’s very easily grasped. This makes it a very good movie to share with your friends if you find it difficult to get people close to you to listen to boring financial lingo. Highly recommended! The film features trend forecaster Gerald Celente, investor Peter Schiff and many others.

For everyone in Washington D.C., the Cato Institute is screening the film on the 17:th of May 2010.
Facebook group is also available.

As I posted a two days ago, Peter Schiff does not agree with Nobel Prize winner Paul Krugman about China and what would happen if the chinese stopped buying US debt. As he said in the video he would write an in-debth article on the same subject. That article is now available, entitled “Paul Krugman Versus Reality“. Here are a few quotes:

In his latest weekly New York Times column, Nobel Prize-winning economist Paul Krugman put forward arguments that were so nonsensical that the award committee should ask for its medal back…

According to Krugman, our secret weapon of economic invincibility is the Fed’s ability to print dollars endlessly. If China were to foolishly decide to attack us by selling our debt, the Fed could simply step in and buy the excess with newly printed greenbacks. (In other words, Krugman sees no difference between funding the debt and monetizing it. See my latest video blog on the subject.). For Krugman, China would gain little from such an attack, but would lose the ability to export to its best customer and suffer severe losses in the value of its dollar holdings. Krugman’s worldview is reassuring - but it has absolutely nothing to do with reality…

There is a huge difference between selling your debt to another and “selling” it to yourself. When China buys our debt, it uses its own savings. In order to purchase a trillion dollars of U.S. Treasuries, the Fed would have to expand our money supply by a corresponding amount. Even Krugman acknowledges that this would cause the dollar to lose value; however, he feels that a weaker dollar is good for America and bad for China…

Krugman does not believe that a tanking dollar will translate into higher interest rates or higher consumer prices at home. No matter how many dollars the Fed creates, or how much value those dollars lose relative to other currencies, he is confident that as long as unemployment remains high, rates will stay low and inflation will remain under control. This is absurd…

To construct a policy around Krugman’s ridiculous assumption that we benefit China more than they benefit us is to invite catastrophe on an unimaginable scale.

Duck Tales explains the dangers of loose monetary policy and hyperinflation. Very close to whats going on now in the world today.

As many of you know Peter Schiff is now running for Senator in the State of Connecticut. Schiff is an American economist of the Austrian School, author, commentator and popular video blogger who regularly appears in the role of a bearish pundit on numerous financial news networks. He predicted the Dotcom crash of 2000 and the Housing crisis of 2007/2008 and like the author of this blog he belives that the US Dollar is heading for hyperinflation. He is a licensed stock broker, the president of Euro Pacific Capital with a 100 employees who successfully protect their clients wealth by moving out of the US dollar and into real money such as gold etc.

If you want a crash course in the problems with the US economy, watch this. A good hour well spent with a lot of information and humor. Enjoy.

Disclosure: I have no vested interest in Euro Pacific Capital nor do I receive any payment for writing this.

Cutting the federal deficit is the only way back to a sound economic recovery and job creation. You can’t keep spending money you do not have forever. The fact is that the US is broke. Until the federal deficit is turned back to a surplus the Fed will keep printing money through “quantitative easing” which should more appropriately be called “massive worsening” leading to hyperinflation and the death of the US Dollar. Obama plans to “cut spending” with a total of 250 billion US Dollars over 10 years. Yes, 10 years. Thats 25 billion each year at the same time the official expected federal deficit is 1.35 trillion. Thats 1 350 billion. Obama just announced “savings” of less than 2%. I guess its a start…

One of the best reads on Keynesianism vs The Austrian School of Economics, Slavery vs Liberty, Fiat paper vs Real Money, that I’ve come across in a long time: http://www.goldensextant.com/RKLSage.html#anchor1404
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On the 14:th I wrote in response to a BBC report on Putins visit to Beijing, China:

“Yes, Medvedev and Jintao is moving away from the US dollar and will settle this 20-year-deal in their own currencies. You should also move away from fiat paper of the west and move into your own currency: gold. Be your own banker, as a friend of mine says.”

On the same day the Russian news outlet “RIA Novosti” quoted Putin on the topic:

“Yesterday, energy companies, in particular Gazprom, raised the question of using the national currency. We are ready to examine the possibility of selling energy resources for rubles, but our Chinese partners need rubles for that. We are also ready to sell for yuans,” Putin said.

Now that the Fed is buying almost all the Treasury bills since the demand from foreign buyers is almost gone, the only thing that keeps the US dollar from going down the tube is the petrodollar: Currently buyers of oil, natural gas and other commodities have to first buy US dollars to make their purchases. When these commodities are available in other currencies, the End of the Dollar is here.

This video post is almost a month old by now, but the content is timeless. Canadian economist professor Michel Chossudovsky is the author of “The Globalization of Poverty” and “America’s ‘War on Terrorism’”. He is also the Director of the Centre for Research on Globalization. In this video he sits down with The Corbett Report to discuss the real meaning of the “bank bailouts”. A very well summarized overview in just under 8 minutes.

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This made me laugh. In a crisis, your ability to laugh is perhaps one of your most valuable assets.

This is Rep. Alan Grayson asking Federal Reserve General Counsel Scott Alvarez about the Fed’s independence.