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

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.

Unemployment in the USA has reached at least 20% according to a recent Gallup poll. Shadow Government Statistics puts the number at about 22%. The fact is that the official reported unemployment level of 10% i far from the real truth. The US is cooking its books as Greece did to enter the Euro-zone. They got caught. The market now values the risk of borrowing money to Obama higher than to Warren Buffet. There will be no jobless recovery. This is not the beginning of the end of the recession, it is the start of an epic depression. What should you do to protect your savings? Buy gold and silver and keep it in your own possession. The only risk you take by doing that is being robbed by desperate unemployed criminals.

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.

Peter Schiff takes on Nobel Prize winner Paul Krugman’s column in the New York Times in this little clip explaining why Krugman is wrong on China and the impact of a Chinese massive sell-off of US debt on the Dollar. This is a good example on the difference between a Keynesian view (Krugman) and the view held by the Austrian School of Economics (Schiff). For some fun on the difference between these schools of though, watch this rap video.

I’d love to see a debate between these two guys.

However controversial this might sound to you dear reader, this article sums up the handwriting on the wall - no sugar coating. Follow Bob Chapmans references down the rabbit hole at your own risk. I don’t really care for the conspiracy stuff anymore even though I have my fair share of insights. This blog is about how to prepare yourself in times of change as well as explaining the lies of financial media in simpler terms - not so much about the conspiracy you inevitably find doing research. Thing are happening, knowing about why is secondary. Knowing how to act to protect you purchasing power is primary.

Here’s a quotes from Bob Chapmans article:

Most observers discuss Europe’s problems and the plight of the euro, pound, and the Danish and Swedish koronas. They believe these European currencies will plunge lower versus the dollar and that the dollar will maintain, even after a dollar rally from 74 to 81 on the USDX. As we have said before the euro was unnatural creation born of a desire to usher in a world currency. As we shall see in the future the euro will fail. In spite of that the dollar is certainly no bargain, because next year America will be totally bankrupt. As a result of the terrible conditions among currencies, gold makes great gains. Last year and so far this year gold is up 10% to 24% against many major currencies. This kind of action of course proves again that gold is the world’s strongest currency. We might add here that we believe that it is only a matter of time before the LBMA, or Comex, or the ETFs, GLDs and SLVs are enveloped in scandal. As so often has happened in history fiat currencies have collapsed. Thus, it will happen again. Those of you not in gold and silver related assets will lose most of what you have worked for your entire lives.

Like I said, no sugar coating, from Bob Chapman of The International Forecaster.

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.

Here’s a great commentary by Peter Schiff on the low-lights of Obama’s State of the Union address held on the 27th January 2010.

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…

Here is a great intervew with the legendary Marc Faber on interest rates, T-bills and currencies.