Busted: Bankers and The Global Economy

January 5, 2011

Hyperinflation: Top Economic Predictions

The National Inflation Association is pleased to announce its top 10 predictions for 2011:

1) The Dow/Gold and Gold/Silver ratios will continue to decline.

Major declines in the Dow/Gold and Gold/Silver ratios in the works. The Dow/Gold ratio was 9.3 at the time and finished 2010 down 15% to 8.1. The Gold/Silver ratio was 64 at the time and finished 2010 down 28% to 46. We expect to see the Dow/Gold ratio decline to 6.5 and the Gold/Silver ratio decline to 38 in 2011. Later this decade, we expect to see the Dow/Gold ratio bottom at 1 and the Gold/Silver ratio decline to below 16 and possibly as low as 10.

2) Colleges will begin to go bankrupt and close their doors.

The USA has a college education bubble in America that was made possible by the U.S. government’s willingness to give out cheap and easy student loans. With all of the technological advances that have been taking place worldwide, the cost for a college education in America should be getting cheaper. Instead, private four-year colleges have averaged 5.6% tuition inflation over the past six years.

College tuitions are the one thing in America that never declined in price during the panic of 2008. Despite collapsing stock market and Real Estate prices, college tuition costs surged to new highs as Americans instinctively sought to become better educated in order to better ride out and survive the economic crisis. Unfortunately, American students who overpaid for college educations are graduating and finding out that their degrees are worthless and no jobs are available for them. They would have been better off going straight into the work force and investing their money into gold and silver. That way, they would have real wealth today instead of debt and would already have valuable work place experience, which is much more important than any piece of paper.

Colleges and universities took on ambitious construction projects and built new libraries, gyms, and sporting venues, that added no value to the education of students. These projects were intended for the sole purpose of impressing students and their families. The administrators of these colleges knew that no matter how high tuitions rose, students would be able to simply borrow more from the government in order to pay them.

Americans today can purchase just about any type of good on Amazon.com, cheaper than they can find it in retail stores. This is because Amazon.com is a lot more efficient and doesn’t have the overhead costs of brick and mortar retailers. NIA expects to see a new trend of Americans seeking to become educated cheaply over the Internet. There will be a huge drop off in demand for traditional college degrees. NIA expects to see many colleges default on their debts in 2011. These colleges will be forced to either downsize and educate students more cost effectively or close their doors for good.

3) U.S. retailers will report declines in profit margins and their stocks will decline.

Although most analysts on Wall Street believe retailers will report a major increase in holiday season sales over a year ago, NIA believes any top line growth retailers report will come at the expense of dismal bottom line profits. NIA expects many retailers to report large declines in their profit margins for the 4Q of 2010 and first half of 2011. Retailers have been selling goods at bargain basement prices in order to generate demand. Americans, being flush with newly printed dollars from the Federal Reserve, have been eager to buy up supplies of goods at artificially low prices. However, shareholders will likely sell off their retail stocks on this news. As share prices of retail stocks decline, retailers will begin to rapidly increase their prices by mid-2011.

4) The mainstream public will begin to buy gold.

Although the mainstream media continues to proclaim we have a gold bubble, it is impossible to have a gold bubble when mainstream America isn’t buying gold. The average American is more likely to be a seller of gold through companies like Cash4Gold, in order to raise enough dollars to put food on their table. Most Americans today don’t even know the price of gold. During the next 12 months, we expect to see a huge ramping up in the public’s knowledge about gold. More Americans than ever will know the current price of gold and understand that it is real money. By the end of 2011, we expect the general public to begin looking at gold as an investment, just like they began looking at Real Estate as an investment in 2003. Sometime during the next six months, we believe you will overhear a stranger at a restaurant talking about investing into gold. We believe the price of gold could surge to as high as $2,000 per ounce in 2011.

5) We will see a huge surge in municipal debt defaults.

In the closing months of 2010, we saw yields on municipal bonds rise to their highest levels since early 2009. After 29 consecutive weeks of inflows into municipal bond funds, investors are now pulling money out of municipal bond funds by record amounts, with $9 billion exiting municipal bond funds in the five weeks leading up to Christmas. NIA believes there could be a small dip in municipal bond yields over the next couple of months as investors realize that municipal debt defaults might not be imminent, but we expect municipal bond yields to begin rising again by mid-2011 with a huge surge in municipal debt defaults coming in the second half of 2011. Although the Federal Government has a printing press that it uses in order to pay its debts, cities and municipalities do not.

6) We will see a large decline in the crude oil/natural gas ratio.

When we released our top 10 predictions for 2010, crude oil was $73 per barrel and we predicted that oil prices would rise to $100 per barrel in 2010. Crude oil ended up rising by 26% in 2010 to $92 per barrel, coming short of our outlook. However, it is possible our $100 per barrel oil forecast might be off by just a month or two. We wouldn’t be surprised to see $100 per barrel oil within the first two months of 2011 and if so, we expect to see a huge movement in America this year towards natural gas.

The crude oil/natural gas ratio currently stands at 20. Historically, the crude oil/natural gas ratio has averaged 10 and based on an energy equivalent basis, crude oil and natural gas prices should have a 6 to 1 ratio. Brand new fracking technology has caused natural gas supplies in the U.S. to rise to record levels. Although our country might be flooded with natural gas, the natural gas fracking boom that is taking place across the U.S. today is causing ground water in the U.S. to become contaminated. Americans living near natural gas wells that use fracking, are finding that they can now light the water coming out of their faucets on fire. New government regulations are likely to crack down on natural gas fracking and this will come at the same time as American individuals and businesses begin to convert their automobiles and machinery to run off of natural gas. A large decline in the crude oil/natural gas ratio in 2011 is likely, possibly down to as low as 15.

7) The median U.S. home will decline sharply priced in silver.

For the past couple of years, being able to make ones mortgage payment has been the primary concern for the average American. In an attempt to support housing prices and keep mortgage interest rates at artificially low levels, the Federal Reserve has been implementing massive quantitative easing and buying mortgage backed securities. NIA believes the Federal Reserve will be successful at putting a nominal floor under Real Estate prices. NIA also believes that the Federal Reserve’s actions will cause a massive decline in the value of the U.S. dollar, which will allow Americans to more easily pay back their mortgages with depreciated U.S. dollars.

However, the Federal Reserve will not be successful at reinflating the Real Estate bubble. In fact, in terms of real money (gold and silver), NIA believes Real Estate prices will decline to record lows. The median U.S. home is currently priced at $170,600 or 5,500 ounces of silver. Priced in silver, the median U.S. home price is down 16% from one month ago and 45% from one year ago. After the inflationary crisis of the 1970s, silver rose to a high in 1980 of $49.45 per ounce. The median U.S. home price in 1980 was $47,200, which means the median U.S. home/silver ratio declined to a low of 954.

With the Federal Reserve printing money at an unprecedented rate and record amounts of new homes built during the recent Real Estate bubble, NIA believes it is inevitable that the median U.S. home will decline to a price of 1,000 ounces of silver this decade and possibly as low as 500 ounces of silver. In 2011, we believe a decline in the median U.S. home price to 4,000 ounces of silver is possible.

8) Food inflation will become America’s top crisis.

Starting a few decades ago and accelerating in recent years, America has seen a boom in non-productive service jobs, mainly in the financial sector. Most of these jobs were made possible by inflation. Without inflation, which steals from the purchasing power of the incomes and savings of goods producing workers, the majority of the jobs on Wall Street would not exist today and our country would be in much better financial shape because of it.

With most Americans in recent decades seeking non-productive jobs in the financial services sector because that is where they could access the Fed’s cheap and easy money, very few Americans sought jobs in the farming and agriculture sector. In the 1930s, approximately 28% of the population was employed in the agriculture sector, but today this number is less than 2%. Agriculture currently makes up only 1.2% of U.S. GDP, compared to the services sector, which makes up 76.9% of U.S. GDP.

There is currently a major shortage of farmers in the U.S. and a lot of land that was previously used for farming has now been developed with Real Estate. To make matters worse, agricultural products now trade on the international market and Americans must now compete against citizens of emerging nations like China and India for the purchasing of food.

Prices of goods and services do not rise equally when governments create monetary inflation. Inflation gravitates most towards the items that Americans need the most and there is nothing that Americans need more to survive than food and agriculture. As the U.S. government prints money, the first thing Americans will spend it on is food. Americans can cut back on energy use by moving into a smaller home and carpooling to work. They can cut back on entertainment, travel, and other discretionary spending. However, Americans can never stop spending money on food.

The days of cheap food in America are coming to an end. The recent unprecedented rise that we have seen in agricultural commodity prices is showing no signs of letting up. In the past few days, sugar futures reached a new 30-year high, coffee futures reached a new 13-year high, orange juice futures reached a new 3-year high, corn futures reached a new 29-month high, soybean futures reached a new 27-month high, and palm oil futures reached a new 33-month high.

We estimate that it takes as long as six months for rising agricultural commodity prices to be felt by U.S. consumers in their local supermarket. Even if food producers and retailers accept substantially lower profit margins in 2011, we are still guaranteed to see double-digit across the board U.S. food inflation in the first half of the year. That is correct, let us repeat, NIA guarantees that Americans will see double-digit food inflation in the first half of 2011.

Shockingly, except for Glenn Beck (who was kind enough to feature our food inflation report), absolutely nobody in the mainstream media is doing anything to warn Americans about the food inflation crisis that is ahead. In fact, left-wing groups like Media Matters (funded by George Soros) have been working tirelessly to try and discredit NIA’s research while reassuring Americans that they need not worry about food inflation. The truth is, when Americans realize that they can no longer take food for granted, we will likely see the outbreak of an all out food price panic with everybody rushing to the supermarket to stock up on goods before prices rise even further. The end result will likely be government price controls and empty store shelves, but NIA doesn’t project this to occur until later this decade.

9) QE2 will disappoint and the Federal Reserve will prepare QE3.

The Dow Jones is now back up to 11,670, which is where it was in mid-2008 before the crash. NIA believes that most of QE2 has already been priced into the market, before the Federal Reserve even prints the $600 billion. At some point, we expect it to become apparent to all that the U.S. economic recovery is phony and stock prices are rising solely due to inflation. In our opinion, we will see some sort of catalyst that causes the stock market to sell off at some point and the consensus on Wall Street will be that QE2 will not be enough to save the U.S. economy. By the end of 2011, we expect the Federal Reserve to begin planning QE3. QE3 might be the final dose of inflation that causes the U.S. economy to overdose into hyperinflation.

10) Sarah Palin will announce she is running for President as a Republican.

NIA believes that Sarah Palin has been setup perfectly to run for President in 2012 and that she will announce her candidacy for the Republican nomination with great fanfare from tea party supporters in 2011. We give Sarah Palin credit for recently speaking out against the Federal Reserve’s QE2 and warning Americans about the food inflation crisis that is ahead. Unfortunately, we believe Sarah Palin is not a true independent and is being controlled by the Republican establishment, which is just as responsible as the Democrats are for the financial crisis we have today. As President, Palin would be unlikely to implement the measures that are necessary to prevent hyperinflation. In our opinion, we need to elect a true libertarian candidate as President who will cut government spending, balance the budget, and restore sound money. NIA intends to support Ron Paul, if he decides to run for President.

Thanks to the National Inflation Association for these really decent and down-to-earth predictions.

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January 28, 2009

Congress: We are not the Experts (The Real Truth about the U.S. Economy)

kanjorski-banking-economyIn a CSPAN interview, Democrat Representative Paul Kanjorski, the Capitol Markets Subcommittee Chairman, made some revealing confessions about the expertise of the U.S. House and Senate, the facts behind the scenes during the EESA Stimulus plan last year and the real plight of the U.S. economy.

the actions of the Secretary of Treasury and EESA bailout

“Things were done that were misunderstood. We did not give the $700 million for the purpose of lending money. It was never in the program (TARP, EESA) It was misconstrued initially and put together with the suggestion by the Secretary of Treasury that we would be buying what we called dirty assets, defective mortgages and securities in these banks and that the government would find a way to create a market, buy them in, take them off the balance sheets so that the banks could continue to function normally…I supported that. But another part of the bill, we gave jurisdiction and authority to the Secretary of the Treasury to make investments in banks. He had very wide authority because, quite frankly, we (Congress) are not the experts on the Hill as how to solve this problem and the problem is multifaceted, so we gave great flexibility to Secretary of Treasury to act.”

The near collapse of the economy and U.S. government

“I was there when the Secretary and the Chairman of Federal Reserve came those days and talked with members of Congress about what was going on. It was about September 15th. Here’s the facts: we don’t even talk about these things. On Thursday, at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of Money Market Accounts in the United States to the tune of $550 billion. It was being drawn within the space of an hour or two. The Treasury opened up it’s window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. The decided to close down the operation, close down the money accounts and announce a guarantee of $250,000 per account so that there wouldn’t be further panic out there. That is what actually happened. What if they had not done that? Their estimation was that by 2 o’clock that afternoon $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States and would have, in 24 hours, the world economy would have collapsed. We talked about, at that time, what would have happened, if that had happened. It would have been the end of our economic system and our political system as we know it.”

“That’s why, when they made the point, we’ve got to act and do things quickly, we did. Now, Secretary Paulson said, Let’s buy out these subprime mortgages. Give us latitude and large authority to do many things as we decide necessary and give us $700 billion to do that. Shortly after we enacted our bill with those very broad powers, the UK came out and said ‘No, we don’t have enough money to buy toxic assets. Instead, we are going to put our money into banks so that their equity grows and they’re not bankrupt. The UK started that process. That’s true, it was much cheaper to put more money in banks as equity investments than to start buying their bad assets. It was early determined that we would have to spend 3 to 4 billion dollars of taxpayer money to buy these bad assets. We didn’t have it. We only had $700 billion.”

“So Paulson made a complete switch, went in and started putting money in and buying securities and investing in banks in the United States. Why? Because if you don’t have a banking system, you don’t have an economy. Although we did that, we didn’t have enough money and as fast as we did that, the economy has been falling. We are really no better off than we were off today than we were three months ago because we have had an decrease in the equity positions of banks. Other assets are going sour by the moment.”

the real truth of the matter according to Paul Kanjorski

“Now, we’ve got to make some decisions. Do we pour more money in to the extent that the money goes in…I, myself, think that we ought to take the time, analyze where we are, have the people (American public) understand…We need to really inform (the public) as to the facts and get input (from them). Perhaps (the public) has better ideas. We aren’t any geniuses in economics or finance. We are representatives of the people. We ought to take our time, but let the people know that this is a very difficult struggle. Somebody threw us out in the middle of the Atlantic Ocean without a life raft and we are trying to determine the closest shore and whether there is any chance in the world to swim that far. WE…DON’T…KNOW.”

Remember who actually threw the economy into “the middle of the Atlantic Ocean without a life raft.” We can offer that credit to greedy unscrupulous bankers, a corrupt banking community, unattentive government regulators and politicians that gloried in the temporary economic bubble that the moral bankruptcy created. Never forget that America! ~ E. Manning

U.S. stimulus trivia: the latest stimulus provision provides enough spending to give every man, woman, and child in America $2,700.
President Obama has said that his proposed “stimulus legislation” will create or save 3 million jobs. This means that this legislation will spend at least $275,000 per job. The average household income in the U.S. is $42,000 a year. The way that the stimulus is currently written will probably save mostly state and federal government jobs. The current stimulus is not designed principally for economic stimulus for Main Street.

November 12, 2008

Discouraged U.S. Treasury Takes Other Options

illiquidity support

illiquidity support

The major determination of the initial $700 billion bailout to buy up devalued securities has been scrapped. “Illiquidity in this sector is raising the cost” coupled with continued pressures on consumer credit. “This is creating a heavy burden on the American people and reducing the number of jobs in our economy.” Obviously, Paulson’s original take on the bailout was heavily overestimated.

What U.S. Treasury Secretary Henry Paulson has just admitted is that the functionality, transparency and the scope of the defective banking instruments is so poor, that buying them up won’t solve the problem or would involve a significantly larger sum of taxpayer money, showing a huge chasm in the underlying viability in the U.S. and global banking industry and perhaps the U.S. economy as well.

The bailout made only a month ago won’t deliver what was promised. Secretary Paulson pitched the bailout plan as a way to rid bank balance sheets of illiquid mortgage assets. Congress may show resistance to releasing the remaining $350 million in funds for future purposes. The real problem is that the national bailout won’t work at all. Banks are still holding the toxic debt that they created.

92308-paulson-bernanke-testifyThe United States seems to be stuck in a netherworld of economic dysfunction. Now the U.S. Treasury and Federal Reserve officials are exploring another facility with the idea of supporting the market for securities backed by assets. Paulson wants to use bailout money to encourage investing again. Investing in a terminally broken system is not the answer and a paramount oversight on Paulson’s part. His misjudgment is just another reason why Paulson should not be allowed to continue to tinker with the financial system. He doesn’t have the expertise required, further muddied by a failed and hopelessly bankrupt and antiquated system. This portends bad things for the U.S. economy and the world, but even worse, the U.S. Treasury is now misrepresenting previous actions without answering to any other authority under the guise of failure. Has anyone really studied the problem enough to be able to develop a core solution?

Continuing to invest in the same bankrupt insanity is poor thinking at best. Trying to convince investors to do the same thing is even worse. There is a push overseas to rebuild a new monetary architecture with a new global financial society. Will desperate American politicians pile on in an effort to redeem themselves and what is left of our failing financial system? What real options does America have?
~ E. Manning

July 26, 2008

More U.S. Banks Close Amid Pain

Friday at the last moment seems to be an FDIC favorite process for dealing with bankrupt financial and banking institutions. The Federal Reserve filed an order for First National Holding Company of Scottsdale, Arizona to cease and desist their actions, while providing certain documentation to the Federal Reserve Board.

The FDIC closed First National Bank of Nevada and First Heritage Bank. The FDIC moved quickly before the situation at the banks became worse, stating that the takeover of the failed banks was the least costly resolution and all depositors, including those with funds in excess of FDIC insurance limits, will switch to Mutual of Omaha with “the full amount of their deposits.” The FDIC has made certain that account holders have full access to their funds with the ability to write checks and make ATM transactions.

Local authorities have warned against the “need” for a bank run as (more…)

July 18, 2008

July 10, 2008

Foreclosures Threaten to Consume Economy

Lately, it has been a cruel world for home buyers and banker types alike. The grim cloud of foreclosure hangs in the air like a dark panic. Today, politicians, Wall Street and media pundits spoke about what would happen if Fannie Mae and Freddie Mac were to collapse, revealing the fact that they are already effectively bankrupt. The fact that the president is openly discussing the plight shows the seriousness of the matter, even though he suggests that the potential of such a collapse is remote at best. The administration suggested that avoiding a collapse through the necessity of bailing out the government mortgage houses would create a U.S. (more…)

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