Economic Collapse

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”
- President Woodrow Wilson

Dear readers,

Why is gold ascending in price? Why does it cost you more to go out for lunch today than one year ago? If you understand that gold is money that cannot be printed at will by Central Banks and you look at this chart, then you will be able to answer the questions above.

Source: http://research.stlouisfed.org/fred2/series/BASE

Note also that according to the Fed, we are not in a recession. But then again, according to Ben Bernanke, gold is not money. Now after you watch that clip, read this:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. …This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.
- Alan Greenspan

Ben Bernanke is on the other hand doing exactly what Greenspan told the world in 1997:

[…] A government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.
[…] Thus, central banks are led to provide what essentially amounts to catastrophic financial insurance coverage. […] If the owners or managers of private financial institutions were to anticipate being propped up frequently by government support, it would only encourage reckless and irresponsible practices.
[…] On the other hand, if central banks effectively insulate private institutions from the largest potential losses, however incurred, increased laxity could threaten a major drain on taxpayers or produce inflationary instability as a consequence of excess money creation.

Listen here to an interview Eric King of KingWorldNews.com did with Jim Sinclair in 2009 discussing this quote. Key words: excess catastrophic money creation without limit.

I advice you to watch what the Fed is doing, and listen with critical ears to what they are saying. The Fed is not only managing monetary aggregates, they are managing the perspective on economics (what Jim Sinclair calls “MOPE”). In essence they are saying one thing, doing another and at the same time understanding the third: Gold is money. Has always been. And will continue to be until we come up with a system without money.

We are at a point of critical systemic risk, as James G. Rickards told the GATA audience in London earlier in August. You should still be in wealth protection mode, and not in trading mode, now more so than ever.

Best Regards /Johnny

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

I got a question from a friend today and I thought I’d share it with you here on my blog:

Question: The value of the dollar has gone up recently and it seems to be holding steady. Why is that so?

My short answer is this:

1. First, the derivatives and equities markets are highly leveraged. This means that fund managers borrow cash, with stock or other assets as collateral, to buy even more stock.
2. The more they borrow the worse their credit rating gets and the more interest they have to pay on their loans, their “leverage”. How do they get a better credit rating? They call AIG and purchase a “credit default swap”, insurance from defaulting on loans, and they borrow even more…
3. Now, when the value of the stock invested fall, they get a “margin call” from the bank or institution that provided the borrowed cash. This means that the fund manager by contract is forced to sell.
4. The loan for the cash is taken in USD, but the stock bought with the cash is often purchased on a stock exchange outside the US in the currency of that market. When the stock is sold, due to the margin call, this sale is also done in the local currency. But since the loan is denominated in USD the fund manager first have to sell the local currency and buy back USD to pay back the loan to the issuing institution (paying back the loan is called “deleveraging”). This creates a temporary demand for USD which causes it to go up compared to the local currency.

Also, the second point to be made is that US government bonds are considered to be a “safe haven” in times of turmoil. This is because the USD is still the preferred reserve currency of central banks. This is about to change as inflation kicks in due to the expansion in the money supply and the mega borrowing from the Fed. When the deleveraging is over, and the central banks around the world realize that the USD is no longer a safe haven, the USD will drop like a stone – game over. The other currencies will then shortly after collapse as well. Only gold and silver will preserve your purchasing power at that point.

In late 2009/2010 the USD has been rising again. This is caused by the massive short on the Euro in connection to the crisis in Greece. The financial industry will hammer the Euro, Sterling and eventually the USD again. Remember, all fiat paper will go down to its true value Zero. It’s not how high gold will go, it’s how low paper will fall.

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.

Agora Financial, LLC & The Daily Reckoning interview with Marc Faber:
http://bitcast-a.v1.iad1.bitgravity.com/agorafinancial/DR/faber/indexAF.html

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.