A proposal to strengthen the dollar

and falling

If there is one plain economic truth in the United States, it is the steady rise of prices. Inflation is something every American can see and feel. It is a painful reality we know too well. It is an issue around which nearly all Americans find themselves rightfully united; as a whole, and as individuals, we hate higher prices.

Adding desperation to anger, the media’s experts tell us that inflation is normal, natural, unavoidable, and even healthy in modest doses, like red wine. This is a big lie. Inflation may give us headaches, but it is nothing like red wine. You never learned this in history class (blame government-approved textbooks), but between 1820 and 1913, prices steadily decreased, in much the same manner that they increase today–so we know that steady inflation is avoidable. It is not natural. It is not normal. It is not healthy. It doesn’t even give us a buzz. It’s bad for us, and we know it, so we should do what we can to remove the underlying cause of inflation, which is the creation of too much money.

Because my primary remedy for ending the creation of money out of thin air (disbanding the Federal Reserve and establishing a metal standard currency) usually yields only puzzled or horrified faces, I am offering an alternative that I hope will be more attractive in the mainstream. It’s very simple: force the Congress, President, Vice President, and all federal judges to keep all of their wealth in dollar form. Allow them to own one residence, and force them to keep the rest of their wealth in simple, FDIC-insured, U.S. demand deposit bank accounts (or, if they prefer, in their mattresses). If these accounts are a good enough store of value for the average American, they will surely suit the lawmakers who represent that American.

This proposal will more perfectly unify the interests of the public servants with the interests of the public, both financially and politically. It is Congress’ job to preserve the integrity of the currency, but most legislators do not actively seek to do so, and if asked to address inflation, many in Congress would not even know where to start. If all of the D.C. gang had their life’s work invested in the dollar, I imagine they would be more inclined to preserve our currency’s spending power.

There are advantages to this proposal beyond the obvious, the most important of which may be the reduction of conflicts of interest within our federal government. For example, we will be sure that our legislators are not packing unread bills with contractual assists for corporations in which they own stock, because they won’t own any stocks. Their only stock will be the dollar, and it’s the only stock every American owns, so when they help out their own stock, they will be helping out all Americans. This proposal will restore integrity to Washington and our dollar.

Iran: the bait that could hook the world’s biggest shark

Are these presidents allied?

The rhetoric coming from Tehran, whether it be anti-American, anti-Israeli, Holocaust-denying, or ambiguously nuclear, is accompanied by a confidence that one would not expect from a nation that the United States could crunch like a cockroach. We may call Ahmedinejad evil, unscrupulous, radical, or unreasonable, but it would be a mistake to think of him as a poor politician, or even an irrational leader. As a public figure and ambassador for his nation, he is much more polished than President Bush. It is unlikely that such a figure would make the sort of mistake that Saddam Hussein made, inviting a war without a plan for fighting it. One can’t help speculating that Ahmedinejad must have an ace up his sleeve, or perhaps even two or three aces, China being that of spades.

China rests on the grounded edge of an economic see-saw, using its weight to prop the United States consumers above its own. The weight on the lever, however, is beginning to shift. By simply looking at bond markets, trade imbalances, interest rates, capital flows and production trends, it is evident China’s economy must soon boom and America’s economy is likely to collapse. One event could change the economies of both countries seemingly overnight, and the beneficiary of such an event would be China. Currently, China’s money is backed by productive labor, while the U.S. Dollar is backed by the art of the press.

Since 2000, perhaps no International ties have grown stronger than those between Iran and China. Trade between the two countries has increased astronomically. China has been Iran’s most staunch ally in UN arguments about economic sanctions. If the U.S. were to make the mistake of attacking Iran, it is not inconceivable that China would immediately declare war against the U.S. for launching an unprovoked, aggressive war against one of its allies. This would be enough to tip the scales of the U.S. and Chinese economies. The loss of U.S. trade would become negligible to China, as it realized the power of its own currency, and took into account the sudden devaluation of U.S. currency. The dollar collapse that would result from war with China would haunt even some of the most pessimistic economists, as foreign dollar reserves would begin flowing back into the U.S. economy, U.S. Treasury securities would lose their appeal, and in order to support its own massive military and domestic promises, America would be forced to leave the dollar presses running constantly.

It is a pessimistic view, I realize, but it is the nature of arrogant and irresponsible empires, like the one the United States has steadily become since 1913, to fall this way. I take this view not from my own opinion, but from my plain and honest reasoning, propelled by the evidences of history and nature.

Free money: explaining 2008 U.S. stocks

Leaning on thin air?
Investing tip: put all of your money in the stock market the afternoon before a Federal Reserve announcement.  Take it all out the next afternoon.

 U.S. stocks have been in free fall this year, except on the days when the Federal Reserve announced it would be pumping extra cash into the banking system.  Every rate cut and liquidity facility has brought with it a great day on the trading market, and today is no exception.  An investor who times his market participation with Federal Reserve action has seen a phenomenal return in 2008.

Market strategists can be found all over mainstream news, having weird little greed orgasms every time the Federal Reserve “takes decisive action” to inject free money into the market, but anyone with a compassionate perspective and a basic understanding of economics asks the question: What is the price of one good day on the stock exchange?

The exact answer to that question is slippery.  The what is simple: hyperinflation and stagflation.  Who is affected? Everyone, but inflation is regressive, and will affect the middle class much more, as their wages will be unable to keep up with rising prices across the market.  Much of the nation’s capital will be invested in more lucrative, less expensive ventures overseas, so employment will be difficult to find in the U.S.  It is difficult to say when this will happen, but it is an inevitable law of money.  Nothing is free.  Only productive labor can give value to currency, so the Federal Reserve’s “free money” stock jumps are worthless.  Market strategists do not see hyperinflation coming, just like they did not see the depth of the subprime mortgage mess (they still don’t see that).  By the end of the summer, however, they will realize the price of a few days of good trading–a price paid by the extreme efforts the American middle class will have to exert to sustain their families, most of whom do not care about artificially inflated stock prices.

The Federal Reserve is not saving the economy.  It is exploiting the middle class to conserve malinvested wealth, and it is delaying and harshening an unavoidable market correction.

Bunch of drunks run the economy

Another shot of the green stuff, please.

“Mishief springs from the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges, which are employed all together for their benefit.” – Andrew Jackson 

“Banking establishments are more dangerous than standing armies,” warned Thomas Jefferson, in defense of Americans against the possible monopolization of money. Jefferson’s foresight is noteworthy, and will soon become even more so. The interests of banks are compounding against the interests of citizens, in this country and around the globe.

Today the Federal Reserve introduced the Term Securities Lending Facility to address “increased pressures in liquidity markets.” The TSLF will give $200 billion of Treasury securities to banks each month, and banks can exchange their residential-mortgage-backed securities for these Treasury securities. In simpler terms, the TSLF is a tool that gives banks an easy way to transfer their mortgage losses to the U.S. Treasury.

The TSLF comes on the heels of (and in addition to) two other unprecedented and controversial Fed actions, the Term Auction Facility (TAF) and Federal Reserve repurchase agreements. The Federal Reserve has hinted that these actions will continue for the next six months, and may even increase. Currently, the new facilities pump $400 billion of fiat currency into the market each month, which, in our $12 trillion economy, represents 40% of GDP.

The Fed is also expected to cut rates yet again, in an attempt to stimulate growth through inflation. Low rates, stagnant consumption, negative savings, and high investment, make an awkward combination that would leave even Keynes scratching his head. The U.S. economy is in dire need of a market correction, but the Fed has decided to avoid a market correction (job losses) in favor of a dollar correction (hyperinflation). The Fed may consider that stock prices are measured in dollars; it will probably not consider that wages are paid in dollars. While jobs may be saved, wages will not be able to pay for the inflated prices of the coming year, and then Barack Obama will come to the rescue, touting free healthcare, food, water, electricity, and whatever else a too fat and too happy American public might hope for. The Federal Reserve is unwittingly forcing the United States into complete democratic socialism, and cannot stop it but through honesty, which isn’t forthcoming.

Moving on to the gloomy part of the Fed’s announcements this morning, the Fed’s efforts will be coordinated with those of the European Central Bank, the Bank of Canada, the Bank of England, and the Swiss National Bank. When national sovereignty is properly respected, these banks operate as monetary competitors, helping their citizens by practicing competitive responsibility. This morning, they publicly declared that the nightmare of many neo-classical economists for decades had become reality-collusion against humankind among the planet’s monetary policymakers. Those investors who thought they outsmarted the Fed by switching to Euros or Swiss Francs have not escaped. There truly is no safe store of value in paper anymore.

Buy gold and beans.

Fed plan: sacrifice the dollar

safe store of value?
Fears of recession have turned to reality in the minds and wallets of every American not named George W. Bush.  Having long forsaken the free market economy to arbitrary powers, Americans naturally turn their economic concerns over to the federal government and the Federal Reserve.  The government has offered them $600 in tax rebates to help boost the economy.  This stimulus is miniscule in the grand scheme of the economy.  The Federal Reserve has taken much more drastic action.

 Fed chair Ben Bernanke recently announced that the central bank will increase its controversial Term Auction Facility loans to $100 billion per month, and said the TAF will remain in place for at least the next six months, and could be raised even further.  In addition, Bernanke said the Fed would be offering $100 billion per month of repurchase agreements.  All the borrowings could be collateralized by mortgage-backed securities, which are widely considered the most toxic investments in today’s market.  Essentially, banks are transferring their bad loans over to the government, to be paid by U.S. taxpayers, by printing money out of thin air. 

In our $12 trillion economy, $200 billion per month represents 20 percent of GDP.  Over the next year, trillions of dollars of worthless money will be tossed around in the U.S. market, and while this increases the number of dollars and helps stock prices, it is detrimental to the value of the dollar.  Stockholders should remember that their stock prices are measured in dollars, and while their stocks only go down some days, the dollar will go down every day with rare exceptions over the next year.

The rules of Keynesian economics are very simple, market corrections in this system are unavoidable, and the U.S. is overdue for a very large one.  Ben Bernanke and the Federal Reserve have decided to avoid the traditional route of depression by filtering it through the dollar first, but this will only delay the suffering felt by Americans.  By the end of 2008, the mighty dollar will have fallen below $0.45 on the Euro (it is now at $0.65), over three million jobs will have been lost in the U.S., the credit crisis will still haunt the market, and mutterings of the word “depression” will seriously enter the political discussion for the first time in many Americans’ lives.

Federal Reserve’s “Term Auction Facility” = inflation machine

On December 21, 2007, the Federal Reserve Board introduced a new source of liquidity available to banks called the “Term Auction Facility (TAF).”  The reason stated for the TAF is “pressures evident in short term borrowing markets.”  The TAF is a loan auction, which allows banks to take out a 28 day loan from the Federal Reserve.  The results of the TAF are starting to become evident, and problematic.
It is important to note that the discount window has always been considered a “lender of last resort,” and that banks are instructed to use it as an emergency source of liquidity, when other banks are unwilling to loan federal funds.  This rule is followed because any time the Federal Reserve loans money from the discount window, it involves injecting more cash into the banking system and causes inflation. 
Since TAF’s inception in late December, the Federal Reserve has been issuing $30 billion of TAF loans to banks to provide them with liquidity.  This is cash created to cover current liabilities (DDA and investment withdrawals from U.S. banks) and encourage lending.  The Federal Reserve has never done anything like this before.  Rate cuts, which also cause inflation, have always been the Federal Reserve’s only way to encourage lending.  The injection of cash into the banking system will compound the inflation.  It is a way of keeping the banks liquid and confident at the expense of the value of the dollar. 
I did not read this on a press release or a website; I just analyzed the Fed’s own data, which is available below.  The scariest thing about this data is on the first link, which shows the non-borrowed reserves of U.S. depository institutions to be negative.  This is unprecedented.  Granted, the borrowed funds are from the Federal Reserve, but this is still bad news for American savings.  This means, if banks do not turn a huge profit soon, and repayments are demanded by the Fed, they will not have any money left, and will be forced to start selling plant assets and cutting jobs. 
The Federal Reserve is giving out more unwise loans to banks as the problem worsens, despite losses in the financial sector.  These loans are likely to be forgiven, and the losses are going to be masked by creating more money out of thin air through the U.S. Treasury (printing more notes).  The banks will make money, but the depository account holders will lose due to currency devaluation.  Expect the dollar to drop big time, and soon.  When the bag of dollars is rendered worthless, do not be one of the unfortunate ones left holding it.  Get out of U.S. currency, U.S. banks, T-bills, bonds, etc. now.  The dollar is not a safe store of value when the Federal Reserve is acting this irresponsibly.