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Ben Bernanke’s Hyperinflation And Economic Collapse

Weimar GermanyBy Greg Hunter’s USAWatchdog.com 

Yesterday, Federal Reserve Chief Ben Bernanke was in front of the Senate Banking Committee trying to hold on to his job.  Some Senators were complimentary on Bernanke’s job.  Republican Senator Judd Gregg from New Hampshire gave the Fed Chairman a warm welcome.  Judd said, “If you hadn’t been there, and hadn’t been willing to take extraordinary action last fall, last winter, and even early spring … it’s very likely we would be experiencing a depression…”   I look at Bernanke’s performance during the financial crisis the same way I would look at a drunken bus driver who crashes and then stumbles around pulling a few children out of the wreckage.  In my eyes, Bernanke is hardly a hero.  (more…)

Afghanistan, Add It To The Tab

obama west pointBy Greg Hunter’s USAWatchdog.com

I watched the President last night address the nation on why he needed to send 30 thousand more troops to Afghanistan.  He said it would cost an additional $30 billion for this escalation.  That works out to 1 million bucks per soldier.  There are 68 thousand troops already there.  That means there will be 98 thousand troops on the ground in Afghanistan in 2010.  Using the President’s math, 98 thousand troops will cost $98 billion dollars a year!

I do not envy the President.  Sending people to battle is not easy.  I think the President has genuine concerns about the destabilization of Afghanistan.  It’s a place Mr. Obama called the “epicenter of the violent extremism practiced by Al Qaeda.”  Afghanistan is also the home of the Taliban, and they too are trying to overthrow the government.  I think the President’s big fear is across the border in Pakistan.  If Pakistani nukes fall into the hands of terrorists, America would certainly be a top target.  In September, I named Pakistan as one of “The 2 Biggest Geopolitical Wild Cards in the World.”     

I am not here to make a case for or against the President’s actions.  No one is questioning there is a real problem for America in that part of the world.  What I would like to know is why there is no debate on how the U.S. is going to pay for this?  Afghanistan will become a $98 billion per year expenditure!   I have said in the past, the only people suffering in these wars are soldiers and their families.  If this is vitally important to U.S. security and interests, then why are we not asking Americans to pay for this?  CNN reported that Speaker of the House, Nancy Pelosi, soundly dismissed any talk of a war tax to pay for the Afghanistan operation.  So I ask, how are we going to pay for this?

The answer is simple.  I say, “Add it to the tab!”  We will take care of this by adding to the debt ceiling and printing more money.  You think I am kidding?  Back in September of this year, the President asked Congress to raise the debt ceiling to $13 trillion dollars from $12.1 trillion.  Presto! New money, just like that!!  (Click here for the complete story)   

People are living a dream if they think this will not cost them because the tab from all the bailouts of Fannie, Freddie, GM, Chrysler, AIG, the banks, stimulus packages and so on is getting pretty heavy.  Expert investor Porter Stansberry summed it up in an article last week titled “The Bankruptcy of the United States is Now Certain.”  His opening paragraph was a real eye opener.  Stansberry wrote, It’s one of those numbers that’s so unbelievable you have to actually think about it for a while… Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that’s not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That’s an amount equal to nearly 30% of our entire GDP. And we’re the world’s biggest economy. Where will the money come from?”  (Click here for the complete post)   

Yes, where will the money come from?  That’s $3.5 trillion ($3,500 billion) to finance in a single year!  That means the government will have to borrow (or print) $67 billion each and every week!  That’s $268 billion a month!  The entire budget deficit in the last year of the Bush Administration was only $482 billion!   It looks like we will just keep on “adding it to the tab”… until we can’t.  Vice President Cheney once said, “Deficits don’t matter.”  He’s right!  Deficits do not matter, right up to the moment they cannot be financed any more, and then all hell breaks loose!

Lessons From A Dubai Default

MI-AU028_DUBAI_D_20081215181700By Greg Hunter’s USAWatchdog.com

Last week, just before the Thanksgiving holiday, Dubai World asked creditors if it could suspend payments on nearly $60 billion in debt.  Experts call this a “technical default” by Dubai itself because it owns Dubai World which is a state run investment company.

Imagine calling your banker and telling him that you are not going to make your mortgage payment for at least 6 months; that would also be considered a technical default.  The folks defaulting on their debt are famous for building the man-made palm tree shaped island in the Persian Gulf.  Ya think maybe they over did it?

Now, according to Reuters, there may be some sort of bailout by the U.A.E central bank.  “The United Arab Emirates‘ central bank set up an emergency facility on Sunday to support bank liquidity in the first policy response to Dubai‘s debt woes that threatened to paralyze lending and derail economic recovery.”  (Click here for the complete Reuters story.)     

Problem solved, right?  Not by a long shot, according to banking analyst Dick Bove.  The problem is the financial system is murky.   You have things like derivatives, credit default swaps and off balance sheet accounting that make it hard for banks to tell how   much they might lose on bad Dubai debt.  Bove said in an online CNN story, “There could be huge indirect exposure,” he said. “One has to assume that U.S. banks will be hurt.”  (Click here for the complete CNN story.)

It is not just American banks that might take a hit, but also some European Banks will probably be forced to take some big losses.  We won’t know how the Dubai financial crisis will work out for weeks or maybe months.  Dubai has $12 billion in debt coming due before the end of 2009 and plenty more debt due in 2010.

So where are the lessons here concerning the Dubai debt default?  Two things come to mind.  If you thought that the financial crisis was ending, then Dubai is a reminder that the crisis is growing not shrinking.  I wrote about the U.S banking troubles last week in a post called the “FDIC Is Way Beyond Broke.”   This new Dubai default could not come at a more inopportune time, especially for U.S. banks.

Also, this is a worldwide banking crisis that will require a worldwide solution. That solution seems to be the same on every continent.  Dubai will likely print money and let nothing collapse just like everyone else.  By the way, The U.S. Mint suspended the sales of Gold and Silver Eagle coins on the same day Dubai announced its “technical default.”  That probably is a coincidence but, then again, if you have a banking crisis, do you want people taking money out of the system and buying precious metals?

The Dubai crisis is a sign that the global financial meltdown that began in 2007 is just picking up steam, and it will get a whole lot worse before it gets better.

The FDIC Is Way Beyond Broke

 By Greg Hunter’s USAWatchdog.com

The Federal Deposit Insurance Corporation announced this week that the insurance fund that covers more than $4.5 trillion in deposits was not only depleted but has a negative balance of $8.2 billion according to the Wall Street Journal.   The FDIC is now an insurance fund with no money of its own.  The FDIC says it still has $23.3 billion to cover failing banks.  It also has a $500 billion line of credit at the U.S. Treasury.  FDIC Chairman Sheila Bair said in early September, “…We can tap up to $500 billion in a line of credit if we needed to, I can’t imagine that would ever be necessary…”  Well, now it may be necessary because The FDIC said this week that 552 financial institutions were on the government’s problem list at the end of September.  That’s 137 more “problem” banks added to the list in just three months.  These banks have combined assets of $345.9 billion.  The “problem list” will surely get longer as we go into 2010!  Some experts say the real “problem list” of bad banks is more than 1000.  Chairman Bair surely knew she would have to use the $500 billion line of credit when she asked for it from Congress.  While we’re on the topic of bank losses, the head if the IMF, Dominique Strauss-Kahn, said this week, “It’s possible that 50 percent are still hidden in their balance sheets…”  We don’t even really know how bad this will get, but it will get very bad!   I wrote about the grim banking trouble facing America in a September post called “The Banks Are (Still) In Trouble.”    

It is not just a raw numbers game because just a few big banks with lots of bad debt can also create big headaches for the FDIC.  For example, Wells Fargo has some real debt issues it is dealing with regarding credit cards and commercial real estate.  It also has billions in Payment Option ARMs.  These loans typically add to the principal of the mortgage because that is what homeowners pick as a payment.  With a collapsing residential real estate market, this spells even more trouble for the bank.  Wells Fargo’s problems are so bad the respected banking analyst Dick Bove said in September that Wells Fargo is a “volcano, with numbers of tremors, that is possibly about to blow.”  If Wells ends up needing a bailout, it will cost tens of billions of dollars and that is just one bank.  

Recently, the FDIC announced that it will require banks to prepay three years worth of government insurance fees, now!  The government hopes that will bring in $45 billion by the end of this year to help more failed banks.  Can you imagine walking into your state DMV to renew your license plate and the clerk behind the counter says, “Mr. Smith, we need to collect license fees up front for the next three years because we are broke and need the money.”  How about if your car insurance company told you that you need to pay the next three years of premiums because the insurance funds were depleted and  the company needs your money now to stay solvent.  What is going to happen in a year when the FDIC runs out of money again?  Will it then collect money through 2015?  This should make everyone with a bank account feel uneasy.  Will my mattress be better than my bank?

All this is going on under the backdrop of $32 billion in bank bonuses.  Well, that is at least what our brilliant banking executives raked in last year.  Yes, the same people that caused the financial meltdown and got $175 billion in taxpayer funds paid themselves $32 billion in bonuses last year.  I would like to point out the $175 billion does not include the bailout money given to the banks by the Federal Reserve in secret!  In many cases, some of the biggest banks paid more in bonuses than they made in profits!  For example, according to New York State Attorney Andrew Cuomo, in 2008:  Morgan Stanley earned $1.7 billion and doled out $4.475 billion in bonuses; Goldman Sachs earned $2.3 billion and paid out $4.8 billion in bonuses; JP Morgan Chase took in $5.6 billion and gave $8.69 billion in bonus bucks.  The average salary, bonus and benefits for top bank executives in 2008 were $2.6 million.  I do not expect 2009 to be any different.

Today I wonder if a half trillion dollars will be enough to get the country through the waves of bank failures coming from the residential and commercial real estate meltdown.  Make no mistake, we are nowhere near a bottom.  In my August post called “Real Estate at A Bottom…NOT!” I said this,“A Deutsche Bank report claims that 25 million homeowners will probably owe more than their mortgage is worth by 2011.  That will be nearly half  of all homeowners in the U.S.  The bank estimates 26 percent of homes are currently underwater.”  You should check out the chart in this post that shows just how big the wave of residential real estate will get when ARMs reset!  If you add up all the trillions of dollars in sour debt in residential and commercial real estate, you have all the ingredients for a banking calamity.  I do not know when it will happen, but I predict before it’s all over we will have a “bank holiday.”  That’s when the government closes all the banks and then takes some sort of extreme action to try and right the ship.  For me, that’s just the way the math works out.  By the way, gold hit yet another all time high this week.  Do you think some people are buying gold as insurance for defense against a possible banking meltdown?   

Regardless, I’ll bet while shoppers are blissfully gobbling up bargains on “Black Friday,” the FDIC will celebrate what I call “Red Friday” because, once again, it will be quietly closing down some more insolvent banks.

“Mischief” and Fed Secrecy

By Greg Hunter’s USAWatchdog.com  

A very important hurdle was cleared last week for the folks who want to end the Federal Reserve’s privilege of secrecy.   By a bipartisan vote of 46-26, the House Finance Committee approved an amendment to audit the Fed.  This did not get passed without a fight from the Fed and its backers.  Democrat Mel Watt offered up a watered down amendment which was not voted on.  Even Chairman Barney Frank, who had previously been a supporter,  made a surprise turnaround and voted “no” on the amendment.

Here is Congressman Grayson speaking to his fellow House members on why only the Paul-Grayson Amendment should be passed.  Listen closely as Grayson talks about the half trillion dollars that was given to foreign banks and more than 200 billion of toxic assets removed from Citibank.  These bailouts and many more were done by the Fed which is fighting to keep all its actions secret.

This is just one big battle in a long war.  A majority of Senators will have to get behind a bill that will force an audit of the Fed.  Finally, the President will have to sign the legislation.  Will Obama veto it?  Keep in mind, Goldman Sachs is a big campaign contributor and a big beneficiary of Fed largeness.

There are many high profile opponents to a Fed audit.  Warren Buffet is against a Fed audit because he thinks it will hurt its independence.  Buffet recently said,  “…there is nothing more important in the economic future of the country than to have an independent Fed.”  Buffet went on to say, “…curbing the independence of the Fed could lead to a lot of mischief.”  (Complete Video Below)    

Buffet has profited from an “independent Fed,” and that may be the reason he doesn’t want the wall of secrecy around it torn down by legislation.  Take for example Goldman Sachs, this is a company Buffet has heavily invested in.  Goldman got a 13 billion dollar payout from the Fed through the AIG bailout.  The Fed will not explain why it gave such good treatment to the former investment bank.

In all, Buffet has at least $26 billion invested in 9 banks that could be getting secret bailouts from the Fed.  Two of his investments, Bank of America and Wells Fargo,  have already gotten $70 billion in TARP money alone.  Another Buffett bank bailout is something a Fed audit would surely reveal.  If billionaire investor Warren Buffet got bailed out by the Fed, would that be “mischief” or just good business?

All the while this loud battle over the Federal Reserves secret money policies is going on, the mainstream media is silent.  Please show me where this story is getting mentioned on nightly news broadcasts or is being printed on the front page of major publications.  I can’t see where the mainstream media is even mentioning this most important issue.  Instead, it is filling the airwaves and newspapers with superficial garbage like Oprah Winfrey quitting her show two years from now!  Oprah might be interested in the Fed story because she has a couple billion Federal Reserve Notes that are being devalued everyday by the secret actions of the central bank.

The “Fix” Is In!

 By Greg Hunter’s USAWatchdog.com   It appears the “fix” is in as far as the road plan for the U.S. dollar and economy.  The government and the Fed appear to have chosen a path of inflation for America and the world.    This is not an official announced plan but it might as well be.   Just look at what Fed Chief Ben Bernanke and his number two Fed Vice Chairman Donald Kohn have been saying this week.  Both Kohn and Bernanke say, “…it is not obvious there are any large misalignments in asset prices today.” In other words, neither of these guys sees another asset bubble and that is telegraphing a very easy monetary policy to Wall Street.   We have zero percent interest rates and lots of money printing.  According to the Fed, this policy will continue because the bad economy is “… likely to warrant exceptionally low levels of the federal funds rate for an extended period.” This policy effectively gives the banks money for nothing.   And get this, Wednesday St. Louis  Fed President James Bullard suggested that interest rates could be on hold until 2012!   I wrote a post earlier about zero interest rates  called “The Government Approved Carry Trade and Free Money.” I think the Fed also sees big problems coming down the pipe in the credit markets.  New York Fed President William Dudley offered a “backstop” recently weekend to solvent companies to fend off another panic in case of another financial meltdown.  Did Dudley offered this up out of the blue or is it part of the Fed game plan?  I talked all about this in my post “Is the Fed Signaling More Trouble Ahead?” The banks are not really making money in their core lending business these days.  I am sure you have seen one story after another about how tight credit is for just about everyone.  The banks have to make money some way, so they are operating more like government sanction hedge funds.  They are making money by speculation and trading in the markets.  The banking industry has once again become one big casino.  I think the Fed knows the banks are going to need all the money they can get to fight off the next tsunami of failed debt getting ready to crash ashore in the coming months. Maybe that’s why Shadow Government Statistics announced today that “Formal Deflation Has Run Its Course.” Which is another way of saying get ready for higher prices because the dollar is being sacrificed so the banks can build cash.  This will make things like gold, oil and many other commodities go up in price relative to a declining dollar.   I think when things go up in price because the currency is devalued it is called inflation.  For the little guy, this new inflation will be painful. Also, keep your eye on gold because hedge fund manager John Paulson sure is.  You might remember Mr. Paulson for making 3.7 billion dollars betting on the real estate collapse a few years back.  You might also remember Paulson made this play when Fed Chief Bernanke was saying that the sub-prime market meltdown would be “contained.” Some containment, the whole market hit the tank and some say there is more pain to come.  Now Paulson wants to start a gold fund of his own with 250 million bucks.  Do you think Paulson sees more upside in gold from here?  I wouldn’t bet against him.   By the way, gold hit yet another all time high yesterday. What the Fed is doing is very, very dicey.  To my knowledge, this kind of monetary policy has never been tried before here in the United States.  I think the Fed is desperate and is taking drastic measures because it knows the coming financial situation is dire.  There is no telling how this will end up, but I’ll bet at the very least most people will be ripped-off of their hard earned buying power.

Is the Fed Signaling More Trouble Ahead?

By Greg Hunter’s USAWatchdog.com

With all the euphoria about the stock market these days, it would seem that the worst of the economic meltdown is behind us.  After all, the S & P 500 is up an astounding 64% since March.  I have heard plenty of market pundits say “the worst is behind us.”   Then again, I saw this story on Bloomberg over the weekend.  It said, “Federal Reserve Bank of New York President William Dudley said the central  bank could curtail the risk of future liquidity crises by providing a “backstop” to solvent firms with sufficient collateral.  “The central bank could commit to being the lender of last resort” to such firms, Dudley said in a speech yesterday in Princeton, New Jersey. This would reduce “the risk of panics sparked by uncertainty among lenders about what other creditors think…” (Click here for the complete story)

Why would the New York Fed President even bring this up if it were not a potential problem?  My bet is  new “liquidity crises” is something the Fed sees in the not too distant future.   It seems the Fed wants the financial community to know it is on top of things, and  it will do whatever it takes to stop another meltdown.   I asked economist John Williams of Shadow Government Statistics (shadowstats.com) about the Bloomberg story above.  He told me, “It sounds to me like they are front-running a problem.”

Market and gold expert Jim Sinclair had a more critical view  on his website jsmineset.com about what Dudley said.   Sinclair wrote, “A “pre-emptive” backstop to “solvent firms” with “sufficient collateral” – that sounds like an oxymoron to me.  If they really want to work to prevent future liquidity crises they should do exactly the opposite. Stop providing implicit taxpayer guarantees to preferential industries and increase system transparency.”   

We have had a good quarter boosted by government spending, but one good quarter does not mean we have a new bull market.  NYU Economics Professor Nouriel Roubini feels the economy is going to get a lot worse before it gets better.  In a recent article Roubini said, “Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening.”  Roubini also said, “There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, help fiscally strapped state and local governments and provide a temporary tax credit to the private sector to hire more workers.”  (For the complete article click here)

John Williams, on the other hand, thinks there is no “…quick fix” and that America needs to “rebuild its industrial base.”  However, Williams agrees with Professor Roubini and also thinks the worst is ahead of us.  So I asked Williams about the possibility of systemic failure?  He said, “My betting remains that the Fed and the Treasury will do everything in their power to prevent systemic failure, as they have been doing for the last two years…. The efforts to prevent systemic collapse, however, have a cost: inflation.  Given the government’s long-range fiscal bankruptcy, current efforts by the Feb at debasing the dollar have created high risk of eventual hyperinflation beginning to surface in the year ahead.”  

In my final question to John Williams I asked how people should protect their assets?  Williams said, “Holding some physical gold remains the best long term hedge against all that can go wrong here.  It maintains purchasing power in a liquid and portable form.  Long-term holding is emphasized, since any of these markets can go through wild, short-term gyrations, particularly with possible government intervention.  Gold was a buy at $200, $500, $1,000 and will be at $5,000 etc. on a long term basis.  Williams goes on to say, “If there is risk of systemic failure prior to a hyperinflation, holding some cash is worthwhile, as is stocking up on necessary supplies same as one would for a severe natural disaster.”    

Williams, Sinclair and Roubini have been most accurate in their predictions and assessments of the economy.  That is why I included them in this post.  In my humble opinion if everything was turning positive, the Fed would certainly say it.  Instead, William Dudley is talking about providing a “backstop” to solvent firms.  That sure sounds to me like trouble is coming soon.  

 

 

Pay No Attention To That Man Behind The Curtain

Wizard of OzBy Gene Tunney

Guest Writer for Greg Hunter’s USAWatchdog.com  

“Pay no attention to that man behind the curtain” is one of my favorite literary quotes. Today I have a vision of Obama and Congress, in place of the Wizard of Oz, telling the American people to please ignore the economy, unemployment and forget about what the Federal Reserve is doing in secret.

The “Wizard(s)” tell us we need to focus on health care. The government will take care of the people of America as we are too stupid to know what is good for us. After all, our politicians would NEVER put their petty self-interests ahead of the people.  When they do, it’s our fault!   We fail to vote the corrupt bastards out even in the face of overwhelming evidence. We fail to vote on the issues that need to be fixed now such as the economy, unemployment, Social Security and Medicare.  Global Warming is not an immediate issue.  Let’s concentrate on something that will impact all Americans in the next ten years instead of something that MAY happen in one hundred years.

If we ignore the economy and the extreme deficit spending, we are ignoring “that man behind the curtain.”   While ignoring these issues is easy, they increase in severity. If we keep our proverbial heads in the sand for much longer, we risk oblivion and we will deserve what we get. The American public holds as much of blame as the politicians. The politicians that want to do the right thing and propose legislation to fix the economy, Social Security or Medicare programs are crucified, while the politicians pushing the USA toward a “financial Armageddon” are rewarded with re-election.  Does anyone think that we elect and are governed by the best and the brightest? It is sad that most Americans are willing to trade a little comfort now at the expense of our children’s and their children’s future.

In my youth, I envisioned most of the American people as sheep being lead to slaughter by evil politicians. Imagine my surprise upon the epiphany that most of us are lemmings.  We eagerly follow our leaders off the cliff at a dead run and, when we get close enough to see our peril, we cannot stop because of selfish momentum. The entire country sees the precipice yet, almost unanimously, we continue our run toward it.

Our currency and our government Treasury bonds might someday end up worthless.  I hear you.  “What do you mean the U.S. dollar and U.S. government bonds might be worthless?  How can that be?  Everybody knows that U.S. Treasuries are a safe investment.” The answer is simple. We owe more now than we can ever repay, yet we continue to print and spend money.  Total obligations for the U.S. according to USA Today are “a record 63.8 trillion dollars.”  If the U.S. was audited like a public company, we would have been forced into bankruptcy by our creditors’ years ago.

Even using the pie in the sky revenue projections of the Obama administration we show a significant shortfall. That’s before you factor in another TRILLION or TWO for the proposed healthcare legislation.

We need decisive action now on the economy, spending, Social Security, and Medicare. We DO NOT NEED universal healthcare, the carbon tax and any increase in deficit spending. We need to elect Statesmen, not politicians.  And most of all, we need a public that cares about the future of the country and its children instead of the newest trinket or bobble that the current politicians toss them. We should have acted twenty years ago. We are so close to the edge that I can see fellow lemmings topple over the cliff.  I know if you look closely, you can see them falling too.

I am angling toward the edge of the herd, taking steps to protect my assets and the future of my wife and children.  Please turn away from the precipice and run toward a solvent nation, responsible government and personal freedom. Fellow lemmings, remember that when you run off that cliff, you carry your children and their future with you. Act now or continue to ignore “that man behind the curtain!”

Gold Hit Another All Time High! What It Means For You

GoldBy Greg Hunter’s USAWatchdog.com    

Gold hit another all time high this week.  I do not pretend to be a gold expert, but I do know a good story when I see one.  The yellow metal hitting one all time high after another is not just a fluke that makes a few gold bugs happy.    Gold is rising as the dollar is falling.  According to expert money manager Monty Guild, dollar weakness is part of the Obama administration’s plan.  On Tuesday, Guild wrote, Does the Obama Administration want the U.S. dollar to decline?  We believe it does.  On November 5th, the U.S. Federal Reserve announced that they intend to keep “interest rates exceptionally low” for an “extended period of time.”  Given that the U.S. Dollar is already under pressure due to low interest rates, the Fed’s announcement is the equivalent of saying: “go ahead and short the dollar”.  In our opinion, it is clear that this announcement ushers in a period of extreme volatility and a continued downward bias for the U.S. Dollar….”  For Monty Guild’s complete comentary (click here)

Guild went on to say, “… It does not take a rocket scientist to understand that his goals include more unionization and more exports.  And because U.S. union workers are in general much more generously compensated than non-union workers, we believe that the only way that the U.S. can achieve higher exports is to devalue the dollar.  We therefore believe that it is a goal of the Obama administration to see the dollar decline.”   

Low interest rates are not the only drag on the buck.  Money printing in the form of “quantitative easing” by the Fed is another big dollar downer.  The Fed has been printing money to buy Treasuries to suppress interest rates.  The Fed is also buying trillions of dollars in toxic assets to keep the banks from collapsing.  The Fed will keep buying this toxic stuff because hundreds of trillions of dollars of this financial poison is still floating around the globe and nobody else wants it.

We are paying people to buy houses because the residential real estate market is anemic.  What happens when the tax credits stop?  According to the FDIC, commercial real estate bankruptcies will cause even more banks to fail.  Do you think we will bailout some more banks or let them fail?   Speaking of failure, bond insurer AMBAC announced this week that it may have to file for bankruptcy protection.  Does that mean the biggest bond insurer, MBIA will also have to file?  Both companies have been in financial hot water because of bad investments in the real estate meltdown   One thing is for sure, if either of the companies go under you can bet there will be more government bailouts and none of this is dollar positive.

Take a look at state budgets around the country and you will see a sea of red ink.  According to the Center on Budget and Policy Priorities released earlier this year, 46 states could find themselves in dire budget trouble by the end of 2010.  Also, according to the latest Pew Center report released earlier this week 10 states face Fiscal Peril.”  New Jersey, Oregon, Rhode Island, Wisconsin, Arizona, Florida, Illinois, Michigan, Nevada, and California are in deep financial trouble according to the Pew report.  California alone is facing as much as a 14.4 billion dollar deficit.  Nevada is facing a 3 billion dollar shortfall on a 6 billion dollar budget!  These 10 states make up a third of the U.S. GDP.  Do you think there might be some sort of bailout for these states before the 2010 midterm elections?

Now, with the new 10.2% unemployment number (released last week) there is talk of even more stimulus to create jobs.  That is on top of the biggest stimulus package in U.S. history.   787 billion dollars was appropriated by Congress earlier this year and, with growing unemployment, chances are good we will spend even more.  (The true unemployment number is more than 22% according to Shadow Government Statistics.)

All this liquidity has been positive for the stock market.  The Dow and NASDAQ have been in a bear market rally since March because all that printed money had to go somewhere.  Also, plenty of stocks have done better because companies cut costs and laid people off.  That is not the sign of a growing economy and a new bull market in stocks.

Nothing goes straight up or straight down as they say.  You can expect a dollar rally as investor Jim Rogers predicts.  You can also expect some profit taking and corrections in the gold market.  But don’t expect this stock market rally to last.  Interest rates will start climbing when we try to sell all of this debt we are creating for bailouts and stimulus.  Bailouts and stimulus are definitely dollar negative and that seems to be the overarching trend.

Economist John Williams of Shadow Government Statistics told me gold at $1,100 an ounce is a “bargain.”  In addition, he said, “gold at $5,000 bucks will also be a bargain”.  That may seem farfetched but not if you factor inflation from 1980 until now.  The only catch is you have to compute inflation the way the government did it nearly 30 years ago.  If you did, the $850 and ounce peak in 1980, according to Williams, would equal more than $7,000 bucks today. If you compute the inflation rate the way the government does it today, you would have a gold price at near $2,400 an ounce.  Either way, there is still a long way for the price of gold to go up.

All the spending along with past and future bailouts will put more downward pressure on every dollar you save or spend.  That will mean big inflation and will make for tough choices for most of us as we get squeezed by higher prices.  This is not something that is far in the future.  Inflation is coming soon and the rising gold price is the proof!

 

 

 

Whatever Happened to The “Audit the Fed” Bill?

By Greg Hunter’s USAWatchdog.com  

Whatever happened to the “Audit the Fed” Bill?  (HR 1207)   You know, where “We the people” find out what the Fed did with trillions of dollars.  I for one would just like to know why the Fed gave a half trillion bucks to foreign  banks?  That’s a fact!   Some in Congress are trying to gut the legislation so we find out nothing.  What a surprise.  The Federal Reserve is like a vampire; it is sucking the country dry and it cannot live in the light of day.  Below is a great discussion on the stalled bill that aired late last week .  The clip is from MSNBC.  Enjoy… if it doesn’t make you sick.

Prediction Payoff and More Real Stats

By Greg Hunter’s USAWatchdog.com  

Last week, John Williams of Shadow Government Statistics predicted on USAWatchdog that the unemployment number would be worse than expected.  He said in an interview, “The risk is on the upside because the economy is weaker than consensus.”    Williams went on to tell me that, “Unemployment has a fair shot at hitting 10%.” On the phone interview he offhandedly said,”It might go as high as 10.2 percent.”   I did not print that number in the story because I didn’t want to seem alarmist.  My bad!!    Williams was right!  It came in at 10.2 percent on Friday!!  Most other economists expected it to come in at 9.9 percent.  Keep in mind that is according to the “official”  government numbers.   Williams also said there would be a new push for more stimulus in Congress.  Williams has a habit of making big predictions that come true.  For more on last weeks USAWatchdog post, please click here,”Unemployment And A New Stimulus Bill.”

Check out what Williams says is the real unemployment rate!  22.1 percent!  That’s what the unemployment rate would be if you calculated it the way the Bureau of Labor Statistics did before 1994.  After 1994, BLS changed the way it did unemployment to make it look less than what it really is.   Below are bullet points from the most recent report on shadowstats.com.

Shadow Government Statistics

- Annual Payroll Loss Rivals  (Greg’s Take:  We’re still losing jobs big time)

-End of World War II Production Shutdown (Greg’s Take:  Manufacturing is drying up)

- Unemployment Jumps to 10.2% (22.1% SGS) (Greg’s Take:  Simple math, more than 1 in 5 are out of work)

- Systemic Liquidity Problems Still Intensifying (Greg’s Take:  The worst of the economic meltdown is still ahead of us)

- Fed Continues to Explode Monetary Base (Greg’s Take:  We’re printing money like never before)

Shadow Government Statistics is a fee based site…for more click (here)

We Rescued The Top And Told The Bottom To Kiss Off!

By Greg Hunter’s USAWatchdog.com  

The following video was on the Friday MSNBC  “Morning Joe” program.  It features the Chair of the Congressional Oversight Panel, Elizabeth Warren.  This group is supposed to monitor the bank bailout.  Warren is a Harvard Law professor that specializes in bankruptcy and contract law.  Something that came out in the interview: U.S. taxpayers are on the hook for more than 4 trillion in guarantees for financial assets!  This little fact is just glossed over in the interview!!  I cannot believe how candid and critical Warren was on the bailout of the big banks.    The country should have never been put in this “give us money or we will have systemic failure” situation in the first place.    The heads of the big banks made stupid greedy decisions that would have caused them all to go bankrupt if it were not for the government bailouts!   Keep in mind, not a one of these banking chiefs got fired.  Watch the video below for a very good and candid discussion.

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The Government Approved Carry Trade and Free Money

By Greg Hunter’s USAWatchdog.com  

Mixed in with all the happy talk about better than expected jobless claims and high productivity numbers was this story.  (CNNMoney.com) – “The Federal Reserve kept its key interest rate near zero once again Wednesday.”   I think this was the biggest story of the week and here’s why.  The Fed gave a signal to Wall Street that free money was going to be available for many months to come.  In a statement, the Fed said the current economic conditions are “… likely to warrant exceptionally low levels of the federal funds rate for an extended period.”  To any Wall Street Banker participating in the “new dollar carry trade” it was an “all clear” signal.

(The simple definition of a carry trade is to borrow money at a low rate ( in this case near zero percent for dollars) and invest it elsewhere at a higher rate of return.  In order for this to be profitable, rates for the borrowed money have to stay stable and low.)

The Fed might as well have said, “Get your free money here and invest it anyway you like for a guaranteed return.”  The Fed’s action is, at the very least, a tacit if not an outright approval of this kind of dollar damaging speculation.  This weakens the currency and can cause prices to rise.    By the Fed saying the phrase “extended period,” as it has said in the past, it is telling speculators that making this trade is going to be a sure thing for a long time.  The dollar carry trade will likely mean billions of dollars of profits to Wall Street banks, which are now acting more like hedge funds than lending institutions.  Welcome back to the casino mentality.

Nouriel Roubini, NYU Economics Professor, says this is the “mother of all carry trades.”  The professor also says, “… But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever…”  You may check out what Dr. Roubini had to say about this recently on CNBC in the video below.  Please keep in mind he gave fair warning about the current financial crisis long before it happened.

We live in a world where reckless speculators are encouraged and rewarded.  It is also a place where savers are disparaged and punished.  Savings is the bedrock of capital formation which is a key component of capitalism.  Look at Warren Buffet.  He just acquired a railroad for more than 30 billion dollars.  He didn’t do that with a good credit rating.  Buffet bought it with cold hard cash!   But who needs that when you have a printing press and zero percent interest rates that are abused by the privileged few.

 

Unemployment And A New Stimulus Bill

By Greg Hunter’s USAWatchdog.com  

The latest unemployment number will be released by the Bureau of Labor Statistics on Friday.  The consensus is it will be slightly higher than last month.   I interviewed John Williams, an economist at shadowstats.com.  He predicts, “The risk is on the upside because the economy is weaker than consensus.”    Williams went on to tell me that, “Unemployment has a fair shot at hitting 10%.”   Keep in mind that is according to the “official”  government numbers.  Williams contends if you caculate the unemployment number the way BLS did prior to 1994, then the real unemployment rate will be north of “21.4%.”

When the 10%  government number is hit, (that could be Friday) then Williams calls that an “odometer event.”  Meaning, folks will take notice, like when your car odometer rolls over from 99,999 to 100,000 miles.

Williams thinks the Democrats will then see the economy slipping further and says, “they will feel they have to act now!”  Everyone in Washington knows that a stimulus plan needs around 9 months to take effect.  If the Dems do not act soon, then the 2010 election will not be good for the party in power.  So, according to Williams, look for a higher than expected unemployment number and then a push for a new stimulus plan.

What will be the result of even more “stimulus?”  According to Williams, there will be more dollar weakness and higher prices.  A year an a half ago, while I was at CNN, I interviewed Williams.  Back in March of 2008, Williams predicted there would be an “inflationary depression.”  Check it out in the video below.

Williams told me yesterday that we are still heading for an “inflationary depression.”  He also said, “We still have the worst of the systemic and liquidity crisis and the worst of the economy ahead of us.”  Meaning, we are nowhere near a bottom.  Williams thinks gold at $1,100 an ounce is a “bargain.”

John Williams runs a subscription based web site called Shadow Government Statistics or shadowstats.com.  It is a site that is well worth the money.  Williams is a top notch economist that works for hedge funds and fortune 500 companies.  He is an expert in what I call the “real numbers.”  I do not get paid in any way for telling you about Williams or his site.

What the Big Headline Should be Today

Christie

By Greg Hunter’s USAWatchdog.com  

The headline today will probably be something like “Big Republican Wins on Election Day!”   Bob McDonnell won the Virginia Governor’s job and Chris Christie (left) unseated Democrat Jon Corzine for Governor in New Jersey.   I am sure there are going to be many stories about the revived party of Lincoln.  Some will proclaim the health care plan is dead or the Democrats will lose control of at least the House or the Senate in 2010.  Fact of the matter is, it’s not going to make much difference whether Democrats or Republicans are in power. The economy is in deep trouble because America is drowning in debt.  Many experts say the economy and the dollar are doomed to fall further in the future.

Today the Price of gold hit a new all time high!  It closed at $1,084.90!  What the headline should be is “Gold Flashing Warning Signal At New All-Time High.”  What caused the $30 run up in a single day?  India bought 200 metric tons of the yellow metal from the International Monetary Fund.   India buying gold is dollar negative and is just a small part of a world in the process of moving away from the U.S. Dollar.

According to Bloomberg…“This will encourage other countries and other investors, especially Indians, who are big buyers anyway, to jump into the market,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

The Reserve Bank of India paid $6.7 billion for the bullion, which it bought from Oct. 19 to Oct. 30. It was “the biggest single central-bank purchase that we know about for at least 30 years in such a short period,” said Timothy Green, the author of “The Ages of Gold.” “The only comparable event was the U.S.’s steady purchases in the 1930s and 1940s.” (The complete Bloomberg story)   

The “other countries and other investors” include China and Russia.  China has already been a big buyer in the gold market.  Earlier this year, it disclosed it secretly increased the country’s gold holdings by 75%.  China is also the world’s biggest producer of gold and is keeping every ounce it produces.  Russia backs a partial return to the gold standard to help resolve the financial crisis that started in 2007.

The entire world sees a weaker dollar in the future.  The big question is how much weaker?  The feeble dollar will spell inflation and some say hyper-inflation is a real possibility.  Talk about the depreciating dollar seems to be everywhere.  Here is an excerpt from a Forbes article that came out yesterday: “…Make no mistake about it: Central banks have not been liquidating their gold. This sale by the IMF (to India) is therefore an extraordinary event at a time when there is little gold supply to meet the burgeoning demand by investors wary of paper currency. Trillions of dollars have been injected into the financial system to save it from Armageddon; they must find a home somewhere.

Just listen to Buffett. Back in May, he warned, “No one can know the precise level of net debt to GDP at which the United States will lose its reputation for financial integrity.” In other words, printing money can degrade the integrity of the dollar, making gold look like an attractive alternative to Treasuries that yield 3.5%….” (click her for the complete Forbes article)

I made the case for a much weaker dollar or even a dollar collapse in my early September post, “Something Wicked This Way Comes.”  As the dollar goes down in value, gold will go up in price.  Gold expert Jim Sinclair (jsmineset.com) has been predicting gold at $1,650 on or before January 2011 for at least 3 years.  He has said many times that his original prediction will be on the low side and that gold will go much higher in price.  The lower dollar will have a devastating effect on America’s standard of living.  The Republicans had a big day yesterday, but big inflation is on the way no matter who is in control.