|
“What other
central banks have been doing must stop now. I am very skeptical about the
extent of the Fed’s actions…
We must return to independent
and sensible monetary policies. Otherwise we will be back to where we are now
in 10 years’ time.”
Angela
Merkel, German Chancellor
June
2, 2009
“…the
S&P could triple from here if they print enough money…S&P could
go to 50,000…stocks could go through unheard of levels, but (it)
would be in worthless currency.” (emphasis added)
Jim
Rogers
June
3, 2009
Chancellor Merkel’s
criticism of The Fed is right “on the money”, as it were. She
knows what we and a few others have been saying for years: The Fed’s
super-loose monetary policies will lead to hyperinflation down the Road.
Encouraged/Required by The Fed,
The U.S. Government (i.e. Taxpayers) incurred $6.8 Trillion in New
obligations in 2008 alone, bringing the Total owed to $63.8 Trillion.
The aforementioned figures
include only the obligations incurred through the end of 2008. That is, they
do not include the obligations incurred with the Obama Stimulus Bill, or the
various 2009 Bailouts, loans, gifts, and guarantees.
In other words, each U.S. household had incurred a record $546,668 in
obligations as of the end of 2008, according to a USA Today analysis reported
May 28, 2009.
Couple this Debt with nearly
$592 Trillion in Potentially Toxic OTC (Dark) Derivatives outstanding
as of December 31, 2009 (according to the Central Bankers’ Bank the
B.I.S. – see www.bis.org, Path: Statistics
> Derivatives > Table 19) and you have a witches’ brew of
potential disasters brewing. See Deepcaster’s “Opportunities
& Threats in Derivatives Shocker” (5/29/08) in the ‘Articles
by Deepcaster’ cache at www.deepcaster.com.
Moreover, Key Statistics
continue to be gimmicked by Official Sources much to the detriment of American
Citizens and Investors Worldwide.
Indeed, the True State of the
Economy is much worse than the Official Figures suggest.
As the Real Numbers mentioned
below demonstrate, our ongoing economic and financial crisis is not
merely a “normal” business cycle Recession, but a
System-Threatening Crisis. Indeed, we have entered into a Depression.
(see below)
It is thus another Naïve
and False Assumption that the Official Figures accurately reflect the state
of the Economy and Markets - - for example, that the current Recession is
merely a normal “business cycle” phenomenon.
In sum, Investors and
citizens-at-large are misled by Official Statistics which have been
gimmicked, as shadowstats.com demonstrates. All of the following
Genuine Numbers are calculated by shadowstats.com, which calculates them
according to traditional methods used in the 1980s, and early 1990s, before
The Political Adjustments currently being utilized began.
Consider the following Real
Numbers from shadowstats:
U.S.
Consumer Price Inflation (CPI) actually averaged about 11% annualized for
much of 2008, rather than the 5% to 6% figures, which have been reported as
Official Statistics. Thus, the consumer must cope with diminished
purchasing power in addition to the threat or reality of job loss and wage
depression.
Though Official Figures show CPI
dropping to 0% in early 2009, the May 15, 2009 Shadowstats report revealed
that CPI was still about 7% annualized.
U.S. Unemployment has (according to
Official Numbers) been ranging 4% to 6% from 1995 to 2007, spiking
“only” to about just under 7% in late 2008 and 8% in early
2009. In fact, Real U.S.
Unemployment is (as of June 5, 2009) about 20% and is still increasing.
(shadowstats.com) Thus the U.S.
consumer (70% of U.S. GDP, we reiterate) is increasingly unemployed,
under-employed, and indebted.
Indeed, May, 2009 jobs loss was
actually 538,000 (net of biases) rather than the official figure of 345,000,
according to Shadowstats’ June 5th, 2009 report.
As well, the Delusion of
Economic Growth claimed by Official Statistics is just that - - a
Delusion. Real GDP growth has been negative since 2004.
Indeed, 2009 GDP “growth” is a negative 5% per the May 29,
2009 report. (shadowstats.com) Thus the consumer is faced with a
deteriorating economy, as well as diminishing job prospects and purchasing
power.
Knowing these Real Numbers
facilitated Deepcaster’s recommending “Opportunities in the
Impending Perfect Storm” - - the title of his early September, 2008
(pre-Crash) Article warning of the impending Crash (available in the Articles
Cache at www.deepcaster.com) and his making five
short (and subsequently quite profitable) recommendations to subscribers at
about that time.
Given the aforementioned Massive
Monetary Inflation, Chancellor Merkel and legendary Investor Jim Rogers are
correct that we likely have hyperinflation in our future, thanks to The Fed.
Indeed, the aforementioned
numbers virtually ensure that the current Bear Market Rally, is just
that, a Bear Market Rally. We have much lower to go before we bottom. See
Deepcaster latest Letter and Alert at www.deepcaster.com.
The private for-profit U.S.
Federal Reserve is the Main Culprit behind our current crises. See our
January 2008 letter “Market Intervention, Data Manipulations,
Increasing Risks, the Cartel End Game & Latest Forecast” in
“Latest Letters” Cache and our July 3, 2008 “Profit from
Fed-Catalyzed Crisis” in the “Articles by Deepcaster” Cache
at www.deepcaster.com.
Indeed, there is compelling
evidence that a Fed-led Cartel* of key Central Banks and their agents, allies
and favored financial institutions is regularly involved in Overt and
Covert Manipulation of a Variety of Markets (and especially the Precious
Metals, Equities, and Strategic Commodities Markets) and Key Statistics.
*We encourage those
who doubt the scope and power of Intervention by a Fed-led Cartel of Key
Central Bankers and favored financial institutions to read Deepcaster’s
December, 2008 Letter containing a summary overview of Overt and Covert
Intervention entitled “A Strategy for Profiting from the Cartel’s
Dark Interventions & Evolving Techniques” and Deepcaster’s
July, 2008 Letter entitled “Market Intervention, Data Manipulation - -
Increasing Risks, The Cartel End Game, and Latest Forecast” at www.deepcaster.com. Also consider the
substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious
metals price manipulation. Virtually all of the evidence for Intervention has
been gleaned from publicly available records. Deepcaster’s profitable
recommendations displayed at www.deepcaster.com have been
facilitated by attention to these “Interventionals.”
There is, however, a Solution to
several ongoing crises, which would genuinely be stimulative, coupled with
other measures. That Solution, which also provides investor
opportunities for profit, is as:
The Solution and
Opportunities
Practicality dictates that we outline only the key
necessary conditions for this Solution. Of course these need to be fleshed
out to provide a complete and workable proposal. While in normal times we
would not approve of certain components of the following plan, they are
forced upon us by the destructive Policies of The private-for-profit Fed.
When one is in a deep hole into which one has been
pushed, one must temporarily cast aside one’s ground-level ideology and
exit as best one can. [The maxim, “when you’re in a hole, quit
digging,” is regretfully and temporarily set aside.]
A Genuine Stimulus Plan: Unique Targeted Tax
Rebate
The Initial and Ongoing Catalyst for the current
Financial and Economic Crisis, credit freeze-up, and toxic waste creation, is
the ongoing and increasing numbers of delinquencies and defaults on
mortgages and other credit obligations by mortgage holders and other
borrowers. We have not even seen the end of the beginning of this
mortgage crisis. The next two years will see record numbers of “Pick N
Pay” Mortgage interest rate resets.
It is clear that The private-for-profit Fed instigated
this crisis by its easy credit and massive monetary inflation policies in
recent years. See the “The Fox Wants More of Our Chickens” and
the July, 2008 Letter referred to above in the “Articles by
Deepcaster” Cache at www.deepcaster.com. But as
investors, taxpayers and citizens we must cope with the consequences.
We reiterate that there is one fundamental problem, which must be solved,
or no long-term Solution is possible. The financial system and economic
crises will not and can not be solved until (the 70% of the US
economy which is represented by) the typically Middle Class U.S.
taxpayer/consumer is in a healthier financial condition and is thus able to
service their debt and pay their taxes while simultaneously resuming some
reasonable level of saving and spending.
Until the Main Street Middle Class Sector returns to a
healthy state, there will continue to be foreclosures, bankruptcies, and
delinquencies, which will in turn continue to create ever more toxic waste
for lenders, with ensuing counterparty failures continuing to ripple through
the system.
Moreover, the ongoing counterparty failures (which will
likely accelerate because the large numbers of interest rate resets in the
next two years) will magnify the continuing defaults on increasing numbers of
those $592 trillion in dark OTC Derivatives The Bank for International
Settlements (The Central Bankers’ Bank) reports as outstanding as of
December, 2008. (per www.bis.org; Path:
Statistics>Derivatives>Table 19ff.)
No number of Wall Street bailouts, “at the
top,” of major banks or other Fed-favored institutions will solve Main
Street’s problem. A lasting solution
requires genuine and substantial assistance at the ground level for the typical
Middle Class obligor (e.g. on a home mortgage). The recent Obama
Stimulus Bill does NOT adequately provide such assistance, as the worsening
plight of the U.S.
Taxpayer/Consumer indicates.
Thus Deepcaster reiterates that the Stimulus Bill and
Bailouts etc. likely will not work in the long-term (except perhaps insofar
as they continue to enrich private financial institutions favored by The Fed,
and the owners of The private-for-profit Fed). We earlier said so,
along with others, including Robert McHugh of McHugh’s Daily Briefing. McHugh
states the primary cause of the Bailouts’ failure succinctly and, to
his credit, articulates The Core Necessary Condition for a Solution:
“…The
reason is that it fails to address the source of the problem, the
consumer’s lack of income due to asset depreciation, job loss,
declining investment yields, rising real estate taxes, and a rising cost of
living. Buying today’s bad assets fails to prevent tomorrow’s bad
assets from showing up as a new batch of consumers fail to make loan
payments, giving birth to the next round of fresh toxic assets, sure as death
and Obama raising taxes on the “rich.”
The solution is simple: Rebate
the past 5 to 10 years of [household] income taxes, up to $10 trillion worth,
requiring half the rebate to pay off the debt. If households don’t have
debt, they get to keep all the rebate. This will metamorphose current and
future bad assets (loans and loan securities) into good assets. This gets the
household back on their feet, heals both household and corporate balance
sheets, and jump starts the economy with a boom that could last decades. Sure,
the Dollar would take a hit, maybe a 50 percent hit, but debts will be
eliminated, a depression will be averted, and everyone gets a fresh
start….”
McHugh’s core
proposal is not only excellent; it is necessary. Since If the basis of 70% of
US GDP (the taxpaying, consuming but increasingly stressed U.S. Middle Class)
is increasingly financially unhealthy, no enduring economic or financial
system recovery is possible, regardless of past, present, or future bailouts
“at the top”.
Though this is an excellent core proposal it needs
elaboration. For example, only individual and small business taxpayers should
be eligible, and only those who are out-of-pocket on taxes. That is, this
proposal is not intended as a transfer payment to those who receive negative
income tax credits. Any checks received from the government over the period
would be deducted from the amount of the tax rebate. As well, a temporary
suspension of the payroll tax could be enacted as a complement to a less
generous tax rebate.
The plan also needs refinements and conditions. For
example, even a massive Tax Rebate would not be sufficient to bring some of
the weakest borrowers and the most egregious loans current. These should
be allowed to go into default and foreclosure because they will have been the
most marginal loans in any event and the lenders deserve to be stuck with the
losses on these loans, which they never should have made.
In sum, neither the continuing taxpayer-funded
bailouts “at the top” nor the buttressing of the Social Safety
Net for the poor will work to change the dismal Fundamentals, unfreeze credit,
etc.
Indeed, to help at all the bailouts, guarantees, etc.
should be coupled with “required loan quotas” for lenders. There
should be “cram-through”, to use the slang term. The Obama
Administration’s Rule should be if you don’t lend (i.e. pass
through your U.S. Taxpayer provided aid) to businesses and consumers, you
don’t get bailed out. But that has not happened. Thus, the
foregoing Solution is proposed.
As well, other changes are needed to effect a lasting
Economic Recovery. For example - - Enact a Fair Trade Policy for
Industry and Job Protection Immediately as well as a Zero-Net-Immigration
Moratorium.
The United States has foolishly been led (by Democratic
& Republican Administrations alike, in concert with The Fed) down the
Globalist (as opposed to Internationalist) path, which has resulted in the
destruction of American industry and American jobs via so-called “free
trade” agreements like NAFTA and CAFTA. Unfortunately, this Job and
Manufacturing Sector Jobs destruction has only just begun.
Appeal to the nineteenth century Ricardo’s Theory
of Trade is usually spurious because modern interpreters confuse
“Relative” advantage with “Absolute” advantage. Absolute
advantage envisions moving capital across national borders in order to
benefit from lower wages in second country. Ricardo espoused free trade only
to the extent that it maximized relative advantage. He never
considered that British capital might be moved to, say, Burma, in order to
manufacture goods more cheaply than these same goods could be manufactured in
Great Britain.
Today’s “free trade” agreements entail
moving capital across national borders and, thus, inevitably impoverishing
the domestic manufacturing base. Some decades ago, it was estimated that a
$150,000 investment was needed to create one well-paying job in the United
States. The Middle Class suffers when jobs are created offshore rather than
in the United States. Capital should be encouraged to stay mostly at home.
Not even Tax Rebates can save the U.S. economy or the World’s
Reserve Currency (the U.S. Dollar) without a durable strengthening of the
U.S. manufacturing and broader business base.
Neither can the United States, nor for that matter most
of the rest of advanced economies of the world, compete with the wage rates
paid in Vietnam, for example. In the long run this fact represents doom
for the advanced industrial economies unless the U.S. and other advanced
economies enact multiple bilateral agreements with tariffs that require an
approximate balance of imports and exports with each trading partner. That
“Fair Trade” approach would generate sufficient competition to
keep domestic industries on their toes, but create sufficient protection so
that domestic industries of all major advanced countries and their employees
could prosper, and so at the same time emerging economies would benefit from
a continuation of Fair Trade not “Free” Trade, which is often
nothing more than welfare for giant globalist businesses.
Of course, a necessary condition for success of this
particular policy would also be to dramatically reduce mass immigration into
advanced industrial countries like the United States via a multiyear
zero-net-immigration moratorium. Mass legal and illegal immigration results
in importing poverty, depressing wages, losing jobs, and in a net increase in
health care, education and other costs usually born by local and State
taxpayers while a few employers get the benefits of paying low wages to
(mainly) low-skilled workers.
Consequently the taxpayers at large (including other
employers!) pay far more net in taxes to support health care,
education, infrastructure and other needs of the (mainly) low-skilled
immigrants and their families than these immigrants pay in taxes. (The U.S.
population, for example, is increased by about 2 million legal, and 2 million
illegal, immigrants and their offspring annually. See the nonprofit www.carryingcapacity.org for more information
on the consequences of Mass Immigration.)
The result of a moratorium would be relief of other
burdens as well, such as on the retirement system. The average age of
immigrants entering the United States is four years greater than that of the
average native born as a Center for Immigration Studies study
demonstrated. As demonstrated above Stimulus jobs should be limited to
Native Born and long-term resident immigrants only. Needless to say the
Illegal Alien Amnesty now contemplated by the Obama Administration would be a
disaster for the U.S. economy.
Remove The Fundamental Cause of Our Systemic Crisis - -
The Private For-Profit U.S. Federal Reserve - - The U.S. Treasury Should
Serve as Our National Bank Instead
The Root of the Problem is both deeper and broader than
just Taxpayer-funded (i.e. Debt Funded) Bailouts. The root of The Problem is
the structure, functioning, and very existence of that very entity which in
large measure created and catalyzed the Financial Systemic Crises to begin
with - - the private, for-profit U.S. Federal Reserve.
Just as The Crisis began with The Federal
Reserve’s easy-credit and Massive Monetary increase policies and the
malinvestment these enabled, the key to its solution is relatively simple. Consider
first Jim Rogers on the March, 2008 Bear Stearns Bailout:
“If
the system is so fragile that the collapse of the fifth-largest investment
bank in America could bring the whole thing down, what's going to happen in a
few years when the No. 2 or No. 1 banks go bad...What's Bernanke going to do,
get in his helicopter and fly around the country repossessing cars and
houses? This is insane."
Jim Rogers, June 25, 2008, Moneynews.com
Thus, Jim Rogers helps make a compelling case that those
“insane” Fed policies (easy credit and massive monetary
inflation) of the past few years have brought the Financial System to the
Brink of Meltdown. Were that NOT the case, the Fed would not have seen it
necessary to intervene to resolve the Bear Stearns (and Fannie Mae, Freddie
Mac, AIG, and….?) crises. Bear Stearns was only the fifth largest
investment bank in the United States.
Deepcaster, former Presidential Candidate Representative
Ron Paul (R – TX), and Jim Rogers all recommend the same Solution to
The Crises catalyzed by the private, for-profit, U.S. Federal Reserve: Abolish it.
Indeed, a few months before he was killed, President
Kennedy signed Executive Order 11110 which would have de facto abolished the
Federal Reserve by gradually replacing Federal Reserve Notes (today’s
Fiat U.S. Dollar) with U.S. Treasury Notes. Executive Order 11110 has
never been revoked.
The currency-creation function of the private for-profit
Fed should be replaced by the U.S. Treasury operating as a de facto U.S.
National Bank as authorized by the U.S. Constitution. The Treasury could then
Re-link the U.S. Dollar to Gold and Silver as constitutionally authorized. This
could prospectively avoid the massive Fed-catalyzed monetary and credit
excesses which are The Fundamental Cause of our current Financial
Crises. It would certainly halt the U.S. Taxpayers having to pay
“interest” to The Fed on money The Fed prints for free.
Interest rate manipulation, which The Fed has apparently
been conducting (doubtless resulting in their shareholders Great Private
Profit!) for decades, should not ever be a government function because it
undermines the pillars of a free market.
Fed abolition is necessary
because Fed policies perennially risk Systemic Collapse while facilitating
massive profits for favored Globalist Financial Institutions. For more
details on a workable Solution see “The Financial Crisis
Solution” in the “Articles by Deepcaster” Cache at www.deepcaster.com.
Opportunities &
Conclusion - - The Silver Lining and Profit Opportunities
Even given the Foregoing, there
is a Silver Lining to the Stimulus Plan and Various Bailouts of which
investors and traders should be able to take advantage. The Stimulus
Plan and Bailouts have already created an increasing need for taxpayer
borrowings from the private for-profit U.S. Federal Reserve. Given that
the U.S. Budget Deficit is around $10 Trillion already (and downstream
unfunded liabilities are over $60 Trillion), this tremendous injection
of liquidity into the economy makes hundreds of billions of dollars available
for purchase of equities when investor confidence starts to return and when
The Cartel* allows the equity markets to rise.
This vast infusion of liquidity
already has, and will continue to create, excellent potential for rallies in
Key Sectors of the Equities Markets. While in the long term these
rallies are probably not sustainable, they should nonetheless be a way to
recoup losses especially in certain Sectors. Deepcaster has identified
certain of those high-potential Sectors in his recent Alerts.
Of course, Gold and Silver are
the ultimate Safe Haven refuge in times such as these, and were it not for
ongoing Cartel* intervention, the prices of Gold and Silver would be much
much higher.
However, Deepcaster has designed
a Strategy for profiting from Cartel intervention and building a core
position of Gold and Silver at the same time. We invite you to consider
The Strategy laid out in our “Defeating the Cartel…with
Profit” article of March, 2008 in the “Articles by
Deepcaster” Cache.
While there is a Silver Lining
to the Stimulus Plan, Bailouts, etc. overall, for the long run, they will,
unfortunately, be a failure with which we Realists expect to be coping, but
profiting along the way, for a long time. A major goal thus must be to realize
Profits which (in purchasing power terms) exceed the loss of purchasing power
resulting from continuing Fiat currency depreciation and inflation.
Deepcaster LLC
Deepcaster.com
All
the other articles by Deepcaster
Wealth
Preservation - Wealth Enhancement
Financial and
Geopolitical Intelligence
Gravitas, Pietas,
Virtus
| 
