Currency Crisis Coming

By Greg Hunter’s  

Everybody is wondering where all of the bailouts and spending are going to take us?  Just a few of the big companies the government has bailed out to keep them from going bankrupt are: General Motors, Chrysler, AIG, Citigroup, Bank of America, Wells Fargo, (all the big banks got some kind of bailout) Fannie Mae and Freddie Mac.  According to Pro Publica, 721 companies have received some sort of financial help from the taxpayer.  If the economy does not improve, many of these companies will require more money to stay afloat.

There were several stimulus programs.  The biggest is the 787 billion dollar spending bill passed by Congress earlier this year.   Also, there was “Cash for Clunkers.”   It was designed to give people with old gas guzzling vehicles up to $4,500 towards a new fuel efficient model.  Remember the $8,000  credit for first time home buyers?  It looks like the government is going to extend the program.  Let’s not forget the trillions of dollars that the Federal Reserve has given away in secret to the big banks.  Congress wants to audit the Fed to find out where the money went and why even foreign banks got a half trillion dollars!  Meanwhile, Congress is talking about giving every newborn $500 to fund a retirement account.  I kid you not! (Click here for the story.)

One respected news source recently claimed we have spent or committed 19 trillion dollars during the financial crisis.  Another government source said the final tab for the financial crisis could come in at 23.7 trillion dollars.  Who knows how much this will cost?  One thing is for sure, the final tab will be big, as in many trillions of dollars.   No country in all of history has ever bailed out itself with this much printed money. We are clearly in uncharted territory.  We have spent more on the financial crisis than all of these financial expenditures below, combined!

Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion    (Click here for the complete story)

There’s an old saying, “When you find yourself in a hole, stop digging.”  But in America, we keep shoveling and piling on the debt.  A perfect example of an agency that keeps on digging is the Federal Housing Administration.  The FHA is involved in its own version of the bailout game by continuing to make loans to people with very shaky credit.  The down payment for its new loans is just 3.5 percent.  A recent New York Times article showed the FHA sinking further into trouble in an effort to keep housing prices from falling.  The Times said, in part, “The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.  Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans…the current rate is over a billion dollars a day.  7.77 percent of the portfolio is in default, up from 5.6 percent a year ago.
Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.  “I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast.  That’s a policy.”

The FHA, which insures 675 billion in mortgages, will likely need a bailout of it’s own in as little as 24 months according to some experts.  I say the FHA will need help much sooner because the housing market will get worse before it gets better.  I talked about why real estate prices will continue to fall  in an August post called,  “Real Estate at a Bottom…NOT!”

And let’s not forget the two wars we are fighting in Afghanistan and Iraq.  Did your taxes go up to pay for that?  Of course they didn’t!   The only people sacrificing for the war efforts are the men and women of the armed forces and their families!   We are paying for all the bailouts and expenditures by simply printing the money!

The world is noticing what we are doing in our financial house.  Foreign governments are getting nervous about the creation of all these dollars.  There have been calls by many in the international community for a “Super Sovereign Currency.”   This would not replace the dollar but compete with it.

Gold is also in competition with the Buck.  That’s why the yellow metal hit all time highs last week.  Gold is not replacing the dollar but it is competing with it.  In a recent interview, gold expert Jim Sinclair said, “Gold is a competitor to currency.”   Unlike dollars, it is “hard to expand gold” supplies quickly.  Investors are turning to gold as an alternative to the dollar.

The same is true for oil.  Despite some pretty healthy supplies, the price is trading around $70 a barrel.  Everyone in the oil field knows there is a good quantity of oil, and that is why some have repeatedly predicted a steep decline.  A roll back in the oil price has failed to materialize.  The high price of oil, relative to supply, is reflecting the fact there is a huge supply of dollars.  More dollars are printed out of thin air everyday.

So what does this mean to you?  In the end, there is going to be a currency crisis.  I am not talking about a problem for the grandkids but a crisis in the here and now.  I quoted several experts on this issue in a post last month called, “Something Wicked This Way Comes.”   

The bailouts and the spending are going to continue because that, in the short run, that will get politicians re-elected.  In the long run, the massive money printing will ruin the buying power of every dollar you have.  Expect some deflation as we have right now in the real estate market but also expect big inflation.  Yes, deflation and inflation at the same time!   A weaker dollar is coming and there will be no way to avoid the inflation it will bring with it.

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