This morning, I saw reports in the media of a large contingency of Americans that were furious at Congress for not passing the Wall Street bailout plan that is now being spun as a “rescue” plan. Yet I am almost sure that if you polled one thousand of these Americans that were angry at Congress, that zero out of those 1,000 people have actually read the actual legislation, and thus, have no idea that Congress is protecting them from the greatest robbery of the 21st century. I have seen many journalists act more like a PR agent for the US government and Wall Street, stating that this plan should immediately be approved because the US Federal Reserve and the US Treasury have claimed that delaying its passage would threaten the stability of the entire global financial system. I have also read articles where journalists stated that this bailout plan is no place for bi-partisan politics.
What a bunch of nonsense. This bailout plan has nothing to do with political bickering or an immediate threat to a global financial meltdown. Americans that are angry at Congress should start by reading the legislation and then formulating an intelligent opinion about whether or not they truly want a quick fix that will sacrifice not only their future but their children’s futures as well.
I’m going to preface this article by warning you that this is one of the longest articles I have scripted in many months because it is the most important article I have written in a long time. During the recent gold and silver correction that begin on July 14, 2008 that perfectly coincided with the miraculous surge higher in the U.S. dollar there was a massive story unfolding that should have been a lead story on every financial magazine, newspaper and website. Yet the media responded with silence. The story was so big, as a matter of fact, that every economics textbook should now have to remove the Law of Supply and Demand from their pages because if free markets still exist, Read more …
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Below are the major reasons why the U.S. dollar has steadily lost value for decades now and is now teetering on the brink of survival:
(1) The death of the gold standard in 1971 when all controls on monetary expansion were lifted and no sane controls against unlimited monetary expansions were instituted;
Recently a bill to bailout Fannie Mae and Freddie Mac was overwhelming passed by both branches of the U.S. Congress, the House of Representatives and the Senate U.S. Congress. It is expected that President Bush will sign this bill into law almost immediately. Because U.S. Senator Ron Paul deftly explains the impact this bill will have on the already sick global financial world, I’ve merely posted the video link below.
I have outlined some of the important points of U.S. Senator Ron Paul’s speech along with my own commentary here:
(1) The housing bill, the “mother of all bailouts” has removed all U.S. Congressional oversight and handed the power to administer this unlimited line of credit to the U.S. Treasury as requested by former Goldman Sachs CEO and current U.S. Secretary of Treasury CEO Hank Paulson.
There are two rules that every investor should abide by not only in volatile markets, but in any type of market: (1) Keep your losses small and cut your losses early and (2) Let your profitable investments ride. So why is it so difficult for the average investor to abide by these rules? With so much information so easily accessible today, the internet was supposed to level the playing field between the big boys and the small retail investor. It has, but conversely and unfortunately, it has also provided a medium for the big boys to mercilessly manipulate the inexperienced retail investor into making poor investment decisions as well.
The other day, on MarketWatch, a headline read, “Markets hope strong inflation warning from Fed in Wednesday statement will keep dollar firm as growth slows, delaying or eliminating need for rate rise later in the year.” I’ve read similar headlines too numerous to count in the past couple of months spinning the same false hope. If the best weapon the U.S. Federal Reserve has right now in their arsenal to keep the U.S. dollar afloat and to check rising commodity prices is mere words versus sound structural actions, then indeed we are in deep trouble.
Several years back, U.S. Federal Reserve Chairman Alan Greenspan stated that the economic behavior of rising prices was the same as the debasement of currency. Not similar, not spurred by, but the same. Today we have all kinds of voodoo economic analyses that try to attribute rising prices to everything but its primary cause – i.e., ethanol production causes higher corn prices, bad weather and lower crop yields cause higher food prices, oil speculation causes higher oil prices. Basically whatever reason the think tanks can conjure up today to distract the masses from the real cause of rising prices seems to show up in newspapers and TV tomorrow. Sure, the above reasons undoubtedly contribute to rising prices, but they are not the primary reason nor do they constitute the greatest component of rising prices worldwide.
In this article, I will debunk the many articles that attribute inflation to rising prices and rising oil prices to nefarious OPEC nations that squeeze production and gouge Western nations. With the use of four charts, I can explain most succinctly what is the predominant factor in contributing to rising oil prices. Just as inflation causes rising prices and not the other way around, the falling dollar is the greatest single determinant of soaring oil prices, not speculators and not a shortage of supply. Sure, these other factors contribute to rising oil prices and shortage of supplies will certainly drive oil prices even higher in the future, but they are not THE main contributor today despite all the articles to the contrary. That honor goes to the falling dollar. To understand, take a look at the four charts below.
I have plotted the USO (AMEX), the United States Oil Fund, LP against gold, silver, the euro and the U.S. dollar for the last 3 years. The United States Oil Fund, LP (USO) invests in futures contracts for light, sweet crude oil and other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the New York Mercantile Exchange (NYMEX), International Currency Exchange (ICE) Futures or other United States and foreign exchanges, so generally it acts as a very good proxy for the price of crude oil (and gas).
In a couple of hours, we’ll soon find out how low the Fed will go in their attempt to inflate their way out of the current subprime/housing market/financial sector mess that we are currently mired in. Last March 18th, the Federal Reserve cleverly manufactured a downturn in the commodities sector off of a 0.75% rate cut to the Feds Fund rate after futures markets had shown their hand by forecasting the probability of a 1.00% or greater cut at 100%. The market then illogically interpreted this less than expected rate cut as a sure sign that the Feds must have fighting inflation as their new priority despite its clear willingness to sacrifice the dollar for the past several months. So what will it do this time around?
Well, there really is no sense in making a prediction because who knows what they will do? I don’t and neither does the futures market. However, what they do will clearly outline their thought processes about the future. Could they have saved the additional 0.25% rate cut that everyone expected in March for this rate cut so they can surprise everyone again with a deeper than expected rate cut this time that will undoubtedly continue to feed this stock market rally?
Consider this. If you owned a prime piece of real estate in 2001 that was valued at $1.8 million that cost 7,200 ounces of gold to buy it back then (at a price of about $250 an ounce), and if you could now sell that same property and receive $2.6 million for it, even at this inflated price, it would now require less than 2,800 ounces of gold (at about $930 an ounce). So while you may have become richer in the paper currency of U.S. dollars, this increase in paper dollars does not mean much if this increase in paper will enable you to buy less “stuff” today. Certainly, despite the inflated price of this property in paper dollars, you have become much poorer in ounces of gold (real currency). Thus, Central Banks, by inflating money, create the illusion of growing wealth when in fact they are stealing wealth from right underneath our very noses. This is EXACTLY what Alan Greenspan meant when he said “deficit spending is simply a scheme for the confiscation of wealth”. By the way, Mr. Greenspan was only bold enough to make such a statement in 1966, decades BEFORE he knew that he would eventually became the Chairman of the U.S. Federal Reserve.
Perhaps, an even easier way to understand the above illustration is as follows.
Out of Omaha, Nebraska, this story was picked up by the major global news services today:
“OMAHA, Neb. (AP) — Billionaire Warren Buffett said Monday that the U.S. economy is essentially in a recession even if it hasn’t met the technical definition of one yet. Buffett said in an interview with cable network CNBC the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases. The chairman and CEO of Omaha-based Berkshire Hathaway Inc. said millions of people have also lost equity in their homes because home prices have dropped.
The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation’s gross domestic product. “I would say, by any commonsense definition, we are in a recession,” Buffett said on CNBC.
Four weeks earlier, I wrote an article on this very blog called, “Is Recession in the U.S. Coming? We’re Already in One”, that received almost zero attention even though, in essence, I said exactly the same thing Warren Buffet said. And thus, this is just another example of people needing someone famous to say something to consider it newsworthy or more importantly, trustworthy. I’ve already given you a plethora of reasons on this blog as to why you can never trust the commercial investment industry, yet when Goldman Sachs declared shorting gold as one of their top 10 trades at the end of last year and gave price targets of $600 to $650 an ounce, thousands and thousands of the sheep herd worldwide undoubtedly sold out of their positions in gold upon this stark pronouncement regarding the doomed future of gold by such a huge investment “authority”
As I only have about 10 free minutes today, this will unfortunately be an extremely abbreviated entry; however, there’s plenty more online at this blog to read about the truth of the underlying economy and premium, information here for our subscribers only about how to make a fortune from this coming global economic crisis.
“This is your last chance. After this, there is no turning back. You take the blue pill, the story ends, you awake in your bed and believe whatever you want to believe. You take the red pill, you stay in Wonderland, and I show you how deep the rabbit-hole goes. Remember: all I’m offering is the truth, nothing more.” - Morpheus, from the film “The Matrix”
Simply put, we are at the tipping point of a major investment crisis today and the opportunity to radically reallocate our portfolios to make a fortune is quickly evaporating. Though I offer investors the opportunity to see how deep the rabbit-hole goes, most investors will shy away, gladly ingest the blue pill and remain firmly grounded in Kansas. Why? The secret of building wealth from this coming crisis is not knowledge itself, but rather an understanding of how your brain processes information that is granted to you. Once we understand that we have been programmed to believe certain investment falsehoods, this will clear our path to truly “see” the current investment crisis that is unfolding.
Most of us have no understanding of the triggers that drive our investment behavior. We are like the people that live in the fantasy computer generated world of the Matrix, constrained by the delusional statistics and reports produced by the commercial investment industry and governments that eventually filter down to us through the media. The great majority of us have come to blindly accept certain investment “soundbites” as truth without having questioned the validity of these truths even once. So today, I encourage you to challenge these beliefs if you have never before done so.
Yesterday a 370-point sell off in the Dow triggered monumental sell offs in Asian markets this morning on fears that the U.S. could be entering a recession. Here’s an unofficial official news bulletin. The U.S. is already in one. Yes, I know that the official definition of recession is marked by a decline in GDP for two or more consecutive quarters, and that this hasn’t happened yet as the 4th quarter U.S. GDP was 0.6%. Yeah right. Like I believe that or any other politically manufactured key economic indicator. First of all, the 0.6% is an annualized figure so the 4th quarter GDP growth rate was 0.15%. Anyone out there really think that changing a few numbers here and there won’t change a negative GDP rate into a barely positive one fairly easily? But we need two quarters of negative growth rate for an “official” recession don’t we? Ok, then wait until next June, counting on a bull market to arise from the ashes, and see if this belief won’t cost your stock portfolio dearly.
For anyone that does not know that the U.S. government consistently massages the reporting of key economic indicators, just study the formula used to determine “core” inflation and every other inflation statistic that they report. Did you know that the formula used to calculate inflation today doesn’t even remotely resemble the formula that was used to calculate inflation just fifteen years ago? Under President Clinton, Alan Greenspan, and the Boskin Commission recommendations, the government made many changes to the formula used to calculate the core price index. Read more …
