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Guest Post: Into The Economic Abyss
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Submitted by Brandon Smith of Alt-Market
Into The Economic Abyss
Over the past few years, mainstream analysts have
shown a tenacious blind faith in the U.S. economy and the dollar that
goes far beyond religion to the point of mindless cultism, so, when even
they begin to question the future of American finance (as has been
occurring more and more everyday), you know its time to worry. For
those that have been following my work since 2007, the events of the
past few months have not been a surprise at all, however, for those just
waking up to the ongoing implosion of our fiscal infrastructure, the
bubbling inflationary meltdown just over the horizon and the nightmare
unfolding around our national debt is rather shocking. Living
through a full spectrum catastrophe is, to say the least, confusing,
especially when you have no idea where the whole thing began.
Until now, the mainstream media has provided nothing but economic fantasy for the masses. They
have satiated the public with what amounts to financial toddler talk
for helpless preschool minds averse to any research beyond their daily
15 minute sippy cup of New York Times, CNN, MSNBC or FOX cable news
sound bites. I mean, have you ever actually stopped and read a Paul Krugman article more than once? Or listened carefully to an MSNBC economic piece? It’s
like being violently accosted by a band of slobbering mental deficients
with securitized ARM mortgages stuffed in their pants. Of course, fewer and fewer people are now buying what these hucksters are selling. With
gasoline nearing $5 a gallon, grain prices doubling, and shelf prices
beginning to skyrocket, it’s hard for even the most ignorant suburban
schlep to remain oblivious to the problem anymore. We are no longer on the edge of the abyss; we have fallen into it head first…
I make this statement not for effect, not to
startle people out of their apathy, not even to illustrate what “may” be
coming around the bend in the near future. I make this
statement as directly and sincerely as I know how; we have indeed
crossed the line between economic weakness and economic catastrophe. For those of you who have been asking when the final stage of the economic collapse will begin, that time has arrived. Here is why…
Energy Inflation Overdrive
Here’s how to tell when inflation is about to run
out of control in your country; wait for the politicians and bankers to
begin making excuses for its consequences instead of pretending it
doesn’t exist! Remember after the initial 2008 spike in oil prices when we talked about the prospect of “speculation” as the culprit? Remember
also that I have pointed out for the past three years at Neithercorp
Press that when the dollar eventually began to crumble, and the price of
crude began to spike again, the government would try to blame
speculators as the scapegoat hoping that Americans would assume the
situation today was the same as it was in 2008?
http://neithercorp.us/npress/2010/12/oil-juggernaut-unleashed/
Well, guess what? The Obama
Administration has just initiated the first volley of “speculation”
propaganda talking points by tapping the Department Of Justice among
others to “investigate” possible trader fraud and speculation in the
price destabilization of oil:
Ah! So it’s those devious “traders”
and “speculators” out there in the ether that are driving up the price
of oil, and don’t worry folks, ole’ Barry is on the case! Little mention of OPEC’s general distaste for current U.S. activities in the Middle East. And
certainly, no mention of the dollar’s continuous sharp decline over the
past two months from the White House as being even remotely responsible
for you being robbed at the gas pump. The dollar, despite
intervention by G7 countries, continues to depreciate against the
Japanese Yen, and has also slid to a 15 month low against the Euro:
http://www.rttnews.com/content/CurrencyMarket.aspx?Id=1597070&SimRec=2&Node=
At the publishing of this article, the Nymex crude
index is at around $113 a barrel, while the Brent crude index stands at
$124 a barrel. Gasoline prices across the country are averaging $3.50 to $4.00 a gallon. Now, some crazy individuals out there may question any overt concerns towards $120 or even $150-a-barrel crude. We survived it back in 2008, right? Why not today? However,
this fuzzy logic depends greatly on a very unfortunate premise; that
the economic atmosphere of today is the same as it was in 2008. Not even close…
The crude explosion in 2008 lasted for around six
months, peaked at around $4 a gallon, and then ended with a
deflationary-like plunge precisely because that price spike WAS (for the
most part) caused by speculation. This time, expect no peak. Only an endless steady climb as the summer months progress. We
have been calling for an increase in oil costs far exceeding the $150 a
barrel achieved in 2008 and we stand by that prediction.
Negative aspects of energy inflation will take hold
much faster than in 2008, primarily because our economic foundations
are even weaker than they were three years ago. Today, we
not only have a massive and unsustainable national debt, and a credit
crisis still unresolved, but also a privately controlled Federal Reserve
with no oversight running amok, printing non-stop since the derivatives
bubble first popped. Not even the dollar’s fake reputation as a safe haven investment can stall the collapse now.
High energy costs hit every conceivable sector of the economy, from freight, to food, to vacations, to housing. People
drive less when it costs them twice as much to do so, which means less
shopping, fewer trips to Disney World, and second thoughts about moving
to a new home in a new state. The cost of producing goods
hits wholesale prices, which eventually hit retail prices when corporate
chains are no longer able to absorb the increases. Your electric and heating bills take a bite right out of your tender behind. All of these factors will snap the thin thread our system is clinging to. America, as we know it, WILL NOT survive $5-$10 gas. Period.
To Default, Or Not To Default
Should the debt ceiling be raised? Should it be frozen in place? Frankly, in the short term, these questions are irrelevant. In either case, the taste and feel of the resulting chaos will be the same. Holding the debt ceiling in place will at least (in theory) stop the Federal Reserve’s printing bonanza. If
the Treasury can’t continue borrowing from the Fed, then the Fed has no
means to continue creating debt or fiat (my suspicion though is that
they would find a way around this). A national default would result. The
U.S. Treasury Bonds held by governments around the world would become
essentially worthless, the dollar would lose its reserve status, plummet
in value, and hyperinflation would result.
If the debt ceiling is raised yet again, the Fed
will persist in its quantitative easing programs until the dollar is
dust, or foreign central banks lose all interest or respect and begin a
dollar/treasury dump, again resulting in hyperinflation or Stagflation. Today,
news has hit the wire that officials in China are discussing a
reduction of their large forex (Foreign Exchange) reserves to around $1
Trillion and diversifying away from the Greenback:
http://news.xinhuanet.com/english2010/china/2011-04/23/c_13842843.htm
To put this in perspective, China currently holds
around $3 Trillion in various bonds and currencies, a large portion of
them U.S. dollars. This means that China is now considering cutting its reserves by over two-thirds! Can you guess where the majority of those cuts are going to come from…? This is devastating news for the dollar!
It is perhaps not a coincidence that this news
comes right after the S&P changed its debt rating outlook for the
U.S. to negative. At the beginning of this year, the Obama
Administration and the Treasury made it clear that rating agencies would
be ignored when it came to their analysis of the American debt
situation. Rather convenient since this was right before
U.S. default became a stark reality in the face of budget battles and
the falling dollar. Ironically, despite the government’s
insistence that ratings agencies views no longer mattered, the White
House still attempted to pressure the S&P to back down from its
recent announcement:
http://www.foxnews.com/politics/2011/04/20/obama-officials-tried-convince-sp-issue-credit-warning/
Fitch has also warned that the U.S. “official” debt
to GDP ratio is around 100%, an impossible position for any nation to
maintain and still hold onto a AAA credit rating. As long as we continue
to spend at the rate of a trillion dollars or more a year (not counting
Fed stimulus spending which is mostly unknown), and the so called GOP
leadership is willing to compromise cuts down to a pathetic pantywaist
$38 billion, you can bet the ratings outlooks will grow much worse in
the coming months. That said, if you see what I see; the
endless stream of evidence asserting a deliberate destruction of the
U.S. economic structure and the dollar as a pretense to remove it as the
world reserve and replace it with a basket of currencies under the
control of the IMF, then the government’s seeming fiscal madness and its
complete inability to heed the wishes of the people it is supposedly
tasked with defending makes perfect sense. To put it simply, they represent globalist interests, not our interests. Shocking….I know. But then again, I’m just a crazy kooky conspiracy theorist doom monger terrorist puppy killer….
But at least I’m not a liar…
Alternatives: Ours and Theirs
Nothing scares the hell out of me more that $1500 an ounce gold and nearly $50 an ounce silver. I
mean, I’ve been predicting it since the credit collapse, and I’ve been
begging people to buy precious metals for the better part of three
years. Its one thing to know that such inflation is coming, but it’s another thing to witness it first hand. If
you took my advice to buy silver back in November of 2010 at $25 to $27
an ounce, for instance, then your investment has just doubled. It’s barely been six months!
http://neithercorp.us/npress/2010/11/silver-still-the-investment-of-a-lifetime/
Despite incredible market manipulation, precious metals have fought back and are now on the path to historical highs. Even if you are a holder of PM’s, though, this is not good news for the country.
There are two reasons why international banks like
JP Morgan have consistently manipulated the market value of gold and
silver down (and been caught in the act). First, global bankers strive to remove all competition from any economic system, and this includes forms of currency. Gold and silver have long been competing forms of currency to fiat paper. Therefore, banker attacks on metals are a given. The less viable gold appears to be as an investment, the less people will take it seriously as an alternative to the dollar. You
must be forced to believe that only dollars hold “tangible value”,
otherwise, Americans would realize they don’t need the dollar (or any
fiat currency) at all.
Second, commodities like gold and silver are traditionally prime indicators of inflation and dollar devaluation. Skyrocketing commodities mean poor monetary policy. Thus, manipulation of metals downwards helps to hide poor monetary policy. The
doubling of silver in only six months despite this manipulation, along
with the doubling of most other commodities in the past two years, is
not just a sign of destructive inflation, it is a guarantee.
As the dollar heart attack nears a climax, many
individuals as well as sovereign states are turning towards precious
metals and alternative markets as a way to hedge against a Weimar-style
fiscal fiasco. At the same time, globalists are introducing their own “solutions” into the mainstream. Joseph
Stiglitz of Columbia University has come out against the dollar,
calling for an end to its world reserve status as well as the
implementation of a new “global system”:
George Soros has done the same at his Bretton Woods
II conference, which received almost no initial publicity despite four
major journalists on the speaking list, including the editors of both
Reuters and The Times, calling for the “global regulation of financial
systems”, as well as the formation of a “New World Order”:
http://www.guardian.co.uk/politics/2008/nov/14/g20-summit-key-aims-imf
So, you have the American people pulling towards
transparency and sovereignty, and you have the globalists pulling
towards more secrecy, more unaccountability, and more centralization. Story as old as time, right? Perhaps the stakes are higher this go-around…
If global banks have their way, we are facing, at minimum:
Full Housing Collapse
Full Credit Collapse
Grid Failures
State And Municipal Defaults
National Default
Energy Crisis
Food Crisis
Civil Unrest
Increased Crime
Reduction Of Civil Liberties
Martial Law
How these incidents play out in the end is dependent upon the reactions of the citizenry. Placation will result in the complete loss of Constitutional freedoms. Rage could result in civil war. There are no easy answers. There are no magic bullets that remove all obstacles. This IS the reality we are facing in the near term, and there is little left to question. I
am personally shifting away from economic analysis because I feel that
the problems are so numerous and so evident that it makes little sense
for me to point them out much longer. The elephant in the room has been noticed.
If ever there was a time for solutions and action, it is now. From
my perspective, the best bet for short term protection against
inflation and dollar collapse is for communities and hopefully states to
begin decoupling from the diseased system entirely. This
means localized markets, self sustained neighborhoods and towns, as well
as sound money legislation and nullification bills at the state level. It means average Americans taking responsibility for their own food, energy, money, and defense. It
means pursuing the exact opposite of what international bankers are
suggesting; a global version of the Federal Reserve with prolonged fiat
slavery.
Again, we have crossed the line. Every concrete economic signal and index I know of shows the avalanche is no longer building but in progress. Prepare now, or not at all.
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I'm not sure that's the checkmate we're facing. Let's ask a chessmaster, hey Bobby...
http://www.youtube.com/watch?v=-D7APJ4dr78
I blame email and the internet.
Loved this:
Let me know if you run out of tinfoil compadre.
Tinfoil hats are now confirmed not just a funny bauble for 'kooks', its a requirement for everyone!
tinfoil is money!
Term limits for the children might help. Then, if they are around for 2, 6 year terms, the second term, they might do what is right since job 1, getting re-elected is over.
Not gonna happen. This is taking time. But for me, the path is clear. But, it is sad. We were number 1.
When I listen to proponents of globalization closely, I usually come away with the belief that they are mostly talking about centralization. Guess who they plan to have sitting at the control board with their fingers on every knob?
Economic abyss? What about mental abyss?
The dumbing down of America has reached new levels with the TV series Mafia Wives. Shouldn't these bitches be doing time for living off ill gotten gains? What are we telling our kids, that it's OK to be a big time criminal? The guys running the big networks have obvioulsy lost their minds.
True that, but even the biggest sheeple out there senses somethings very wrong when they can no longer afford gas and food!
45 million on "food stamps" keep the bread lines hidden and the bellies full. One trip to Walmart each week is all the "extra driving" you need to do.
Again I say, "doublesuperplusungood"
Your can add figures after figures. You do not give me the feeling that you understand what's going on.
Why do we have energy inflation ?
Why are we unable to pay our debts ?
Why economy is not recovering ?
Why finance industry is so mighty ?
Does financie industry bring something positive to the US population ? What ?
What to do to correct that situation ?
Has inequality of revenues anything to do with the situation ?
They are examples of questions that could be dealt with. They won't be answered by the current level of oil price. An absolute necessity is to understrand what's happening now. Discovering that the country has an economic problem is as impressive as discovering that we are breathing air.
If your answer is "We can't understand the market" or analogous, then I bet with you that the situation will worsen. Get your figures into a picture corresponding to reality or get ready for the end of the USA.
Public Banking Institute
Check out the new streamlined, sporty dollar, 73 cents. We're in good hands with the Bernank. What's the chairsatans job description again? Something about a strong dollar? Meanwhile, the DXY's new trim agility will allow it to drop lower and faster than ever.
Oooooo SLEEK and SPORTY! Heroin chic US LOLlar!
Jim Rickards, excellent presentation.
http://vimeo.com/18160394
Thanks, EXCELLENT VIDEO.
You bet! Thanks.
Banks and tech on fire today.
Gold and oil stocks the weakest group.
JPM at HOD.
Junking you, MomoTrader, has become almost an instinctive reflex for me now --- like brushing away a momentarily annoying but meaningless mosquito. A brief "Bzzz bzzz" in our metaphorical ears is all that your posts have become.
Second that.
Can anyone link me to some good news? I just want to drink my coffee and know that my grand kids will inherit my P.M.s and I’ll not need to trade them for bread & bullets.
Suffered through about 5 minutes of CNBS this morning...man they really are bringing out the con artists, excuse me analysts who just keep pumping-up the stock market like no tomorrow. No shame these salesman who will lie to their own mothers to sell them useless paper...for all of them I have the following:
http://www.youtube.com/watch?v=Waem8bkKAI4
But we'll still have free porn, right?
no more online poker. nanny strikes again!
He's a good writer. The only part I challenge regards the outcome of spiking oil prices. One reason why traders begin to take their profits and hit the exits is looming demand-destruction. At some point businesses cannot afford to expand economic components dependent on petroleum. In a profoundly shaky economy one would expect that threshold to be more easily achieved.
Correction on the debt ceiling: Failure to raise the debt ceiling does not cause a default.
Default only occurs when an entity is unable to make good on payments that are contractually required. In the case of the United States this is ONLY on debt issued by the government. Social security payments, Medicare payments, federal salaries - failure to pay those does not constitute default.
The US government takes in approximately $2 trillion in tax revenue. Current interest expenses are a few hundred billion. Ergo the US can meet its debt obligations quite easily. What a failure to raise the debt ceiling would do is force a balanced budget unless Obama simply chooses to break the law outright. Obama would have $2 trillion in revenues to spend and a few hundred billion of that would be for interest payments. The remainder ($1.5-$1.7 trillion, depending on who you ask) would be what is available for all remaining programs. Currently those remaining programs consume about $3.3 trillion so a failure to raise the debt ceiling simply forces the US government to reduce spending by about 50%.
Now while I think this would have catastrophic fallout, it would not constitute a technical "default". Of course, I am sure there are many Social Security and other recipients who will argue about that but the courts have clearly stated that social security is not any sort of "trust" fund at all and is just another set of transfer payments.
Damn I thought I was a Bear , you left out the plague, locust and super volcano.
Just curious to know what others think about this, when the economy/dollar (FRN anyway) does collapse and the powers that rule us have wrung all they can out of the system, I am guessing that they will simply move on to a new currency, special drawing rights, Bancor, Amero, it makes little difference what they call it, in order to start the whole pyramid ponzi rip off over from scratch, possibly under a new banner of patriotism. But what I want to know is when the US$/FRN is no longer legal tender will my contracts that were denominated in "dollars" be void? I mean if I can no longer legally tender or even get dollars how would we settle contracts for things like our car loans or other obligations? Would switching to a new monetary regime backed or not be in effect a jubilee? I can't for example imagine I would be permitted to retain my BMW which has a principal balance on the loan of over $40,000, or how about the status of people who have hundreds of thousands in dollar denominated mortgage debt? Will they just be handed the deeds to their houses?
But to allow someone to stay in their car or home by paying what amounts to a new balance in the new currency would be a de facto establishment of an exchange rate from old money to new, once you do that you find nothing at all has really changed. It would be selective defaults by the ruling powers only.