The man on the street is increasingly beginning to figure it out that the
Government has been lying to him and, in effect, stealing from him. The
retired person is finding out because after his cost of living adjustments he
is just not making ends meet. The purchaser of inflation-adjusted securities
is noticing that after his return of capital the capital does not purchase
what it once did. The sender of a Federal Express letter can find a fuel
adjustment charge of $4.13 now for just a single letter! Even producers of
gold and silver, the ultimate defense against inflation, notice the price of
steel and fuel are rising even faster than their end products. These are all
dead giveaways that inflation is higher than reported and the masses are
waking up in larger and larger numbers that it is a matter of survival to
keep pace with inflation.
All of the government manipulations have largely worsened the situation by
not only deceiving the masses, but also the allocators of capital which has
resulted in serious misallocations of capital. Do we really need more retail
stores or housing? Would we even come close to needing what we already have
if it weren't for free and easy money? (In real terms money has in actuality
been less than free unless you believe the ridiculous measures of low
inflation that have been bandied about over the past few years.) The
credit-based emphasis on consumption and asset bubbles to drive economic
growth has gutted the longstanding, self-sustaining infrastructure of the US
economy that had been its greatest strength.
The differences between our economy today with the centrally-planned
economies of Russia in the past are less decipherable every year. The neglect
of savings and investment that is crucial to a solid foundation for economic
growth has been replaced by central planning of the economy by economic
illiterates. While paying lip service to free markets and free trade, markets
are manipulated and consumption is now entirely dependant on foreign capital.
On top of all of this the foreign capital is precluded from investing in
assets of its own choice but rather are directed toward more US debt; debt
that is unlikely to be repaid in real terms. It is becoming obvious that the
free money phase has played out, and as foreigners refuse to provide more
capital except with higher compensation for the increasingly necessary
monetization, more and more monetization will become necessary. The seeds of
hyperinflation have been sown.
The US economy is heavily dependent on keeping asset bubbles from
deflating. Just think how many people are employed as real estate agents,
mortgage brokers, stock brokers, and other paper shuffling activities, not to
mention the huge employment in the retailing industry that is totally
dependent on the US continuing to consume more than it produces. Unemployment
probably already exceeds 10%, yet, again government statistics assure us
everything is sound. With such a heavy dependence on stocks and real estate
never going down again, it makes sense to look at the Weimar experience and
the great inflation in Germany in the early 1920's. Wall Street and the
Government have the masses fooled that everything is just fine since the
market never goes down. Yet if we look at the German experience the stock
market went from under 100 to over 26 Billion in five years' time. A lifetime
of savings and retirement funds were wiped out in a matter of months and
people were forced to live from hand to mouth. With $50 trillion in present
value of future benefits promised to workersm do Americans really believe
they will get anything close to that in real terms? They may get it in
nominal terms but it will probably not buy a bologna sandwich.
So, what to do to protect yourself from this cataclysmic possibility? Our
recent administrators of the financial system are incredibly similar to John
Law, a notorious financial alchemist that resurrected the economy of France
before bringing it to its knees in the 1800's. The difference is that today's
charlatans are equipped with much more powerful weapons through
computerization and financial derivatives which in the end merely allow for
vastly higher degrees of leverage and obfuscation. This has prolonged the day
of reckoning to an incredible extent yet also guarantees the unwinding will
be ever more painful. The typical financial planner today should be
completely ashamed of his lack of knowledge and ability. While it is not
surprising that bus drivers, plumbers, and the bulk of society are not
conversant in the dangers prevalent today, it is totally unacceptable and
disgraceful that financial people whose business it is to know are so
completely in the dark. For example, it is common to hear advisors
recommending municipal bonds as completely safe to investors while the
municipality has huge deficits, debts, with a need to raise taxes that will
kill the local economy. The land mines out there are clear to see with stocks
like; FRE, FNM, GM, GE, F, JPM and a host of others. Don't be surprised if
one of these firms is used as a toxic dumping ground to bury as much of the
defaults as possible. All of these problems lead back to the same thing; the
replacement of real money, gold and silver, with fiat money that is in the
early stages of failure. "The Rude Awakening", an in-the-know free
daily economic commentary, posted the following chart showing how in real
terms gold has barely taken off.
Comparing yesterday's gold price to todays is apples and armadillos.
Don't be impressed that the Dow is closing in on all-time highs. The
charts above from Robert Prechter's "The Elliott Wave Theorist"
show a much truer picture. If measured in a stable measure of value such as
gold, the Dow hit a new six-year low early this year. Do the recent
multi-year highs in some of the major indices mean everything is strong and
running smoothly as the talking heads on Bubblevision proclaim? We should
soon see. The wisest defense in this environment is to have the bulk of your
assets in gold and silver yet the vast majority as yet have none. What are YOU
waiting for?
