Economic Collapse

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

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.

Great interview with Marc Faber. FT.com really lets Faber talk in this 4-part interview giving him the chance to go into more depth than he is usually allowed to in F-TV interviews.
Video on FT.com

Gold has reached a new high in terms of Euros. Or, to put it more correctly: The Euros purchasing power falls to a new record low in terms of gold. Remember, gold is not rising, fiat paper currencies are falling.

James Turk puts it this way:

Here’s my point. We live in a world of floating currencies that bob up-and-down against each other as a consequence of what central banks in each country might be doing at any given time. But all national currencies are sinking against gold.

Read his commentary on this event here.

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

Great interview with John Embry. He really makes the case for gold. As he puts it the question isn’t how high gold can go but how low fiat paper can fall:
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/2/6_John_Embry.html

- “You should be in wealth-protection mode, not in trading mode”
John Williams

Very good audio interview with John Williams of Shadowstats.com released today. Listen carefully:
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/2/6_John_Williams.html

Here is a good summery of the financial collapse. This TED-talk is held in Tallinn, Estonia, by Alar Tamming. He is the Chairman of the Supervisory Board at Tavid/Tavex, a gold bullion dealer operating in Estonia, Latvia, Finland and Sweden. He is also an Estonian and he should know a thing or two about what happens when fractional reserve banking runs amok. The crisis in Estonia, caused by wreck-less lending by Swedish banks, is far worse than in many other countries in Europe. Personally, as my readers know, I keep as little of my money as I can in fiat paper and on deposit at the bank, and as much as I can in real money - gold. As a customer at Tavid/Tavex I can recommend them for all your gold bullion needs.

TEDxTallinn: Alar Tamming / English subtitles from Tedsterid on Vimeo.

Disclosure: I receive no income of any kind recommending Tavid/Tavex.

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.