October, 2009

Urgent Warning! Things Are About To Get Much Worse! Disastrous Holiday Season Ahead! A Hyperinflationary Depression Is On Our Doorsteps!

Opening Thoughts

Americans are constantly being assured by some politicians, business people and various news publications that we have "turned the corner" and are emerging from the longest lasting recession since the Great Depression of the 1930's. Some publications have been so bold as to proclaim that the recession is definitely over. Nothing could be further from the truth as evidenced by a quick review of the United States economic, banking and financial landscape outlined below.

United States Economy

1. Most Americans would agree that the single most important factor in establishing a sound personal financial base is having a steady, full-time, good paying job. Here's how things currently stand on the unemployment front:
   
   
   1. September, 2009 marked the 21st month in a row of shrinking employment in the U.S. This is the longest period of decline since the monthly numbers started being published in 1939;
      
      
   2. since the official start of the recession in December, 2007, we have lost 7.2 million jobs, bringing the total jobless number to 15.1 million. Worse yet, if we add in individuals who want to work but can't find jobs and no longer receive unemployment benefits and individuals who are involuntarily working part-time, the jobless number balloons up to 26 million;
      
      
   3. the September, 2009 unemployment numbers increased again to the following:
      
      

      U-3		9.8%		government figure
      U-6		17.0%		government figure
      Shadowstats		21.4%		private company estimate

      
      
   Consult my April, 2009 Commentary for the actual definitions of these unemployment rates but, suffice it to say, I believe that the Shadowstats number is the closest to reality. It sure doesn't look like the employment situation is getting any better.
   
   
2. Owning a home is a dream of most Americans. Here's how things currently stand on the housing front:
   
   
   1. there are 6,600 foreclosure filings in the U.S. every day which equates to about 1.7 million foreclosure filings annually;
   2. according to a recent Deutsche Bank study, 26% of borrowers in the U.S. owe more than their homes are worth. The study went on to say that this number will increase to 48% by 2011;
   3. Michael Barr, Assistant Treasury Secretary for Financial Institutions, in September, 2009 congressional testimony, estimated that 6 million families could face foreclosure over the next 3 years;
   4. Elizabeth Warren, Chair of the Congressional Oversight Panel which monitors the various government bailout programs which started about a year ago, recently said "we see things getting worse in the housing market." She cited estimates that 10-12 million U.S. homes could ultimately go into foreclosure.
      
      
   Apparently the housing situation isn't getting better. Then again, why would it? Most people need a job to pay the mortgage on their home!

United States Banking

1. The general consensus is that the U.S. banking system is dramatically improved as a result of the various bailout programs which were instituted about a year ago. The reality of the situation is totally at odds with the consensus as evidenced by the following:
   
   
   1. a relaxation of certain accounting rules by FASB (Financial Accounting Standards Board) has allowed banks to value many of their poorly performing assets at inflated, rather than realistic, values. This has enabled banks to postpone write-downs on these assets which would reduce their earnings;
      
      
   2. losses from additional residential real estate foreclosures and the impending commercial real estate disaster have not been reflected, in any meaningful way, in banks' earnings statements;
      
      
   3. losses from worthless or near worthless derivatives contracts have not, in any meaningful way, been recognized by banks and therefore have not been used to reduce their earnings.
      
      
   The bottom line is that many banks are reporting ficticious earnings which enables key personnel to earn gargantuan bonuses.
   
   
2. The poster child for unseemly bank behavior is Goldman Sachs, the Wall Street investment bank. Goldman received $10 billion from the U.S. Government in October, 2008 as part of TARP (Troubled Asset Relief Program). These funds have since been repaid. However, Goldman also received a $13 billion payment from AIG, the troubled insurance giant now 80% owned by the U.S. Government, for various derivative trades in which Goldman was on the winning side and AIG was on the losing side. Since AIG has been kept alive by funding from the U.S. Government, the $13 billion AIG payment to Goldman actually came from the U.S. Government, - i.e. the U.S. taxpayers.
   
   Goldman announced in July, 2009 that it had just completed the best quarterly earnings results in its 140 year history. It further announced that it expected to pay bonuses for calendar 2009, as follows:
   
   
   1. $11.4 BILLION in total
      
      
   2. $770,000 per person for each eligible person
      
      
   It looks to me like the $13 billion AIG/U.S. government/U.S. taxpayer payment to Goldman is going to wind up in the pockets of selected Goldman employees. Just another screwing of the U.S. taxpayer!
   
   
3. The FDIC (Federal Deposit Insurance Corporation) insures deposits up to $250,000 per account in those banks that are part of the system. As of October 21, 2009, 99 banks have been closed this year resulting in a depletion of the FDIC's insurance fund. Sheila Bair, head of the FDIC, said the following in two different talks recently:
   
   
   1. she expects the FDIC insurance fund to "stay in the red" (which means have insufficient funds to meet claims) until 2012;
      
      
   2. another 500 - 1,000 banks will fail before the recession is over.
      
      
   Recently, a couple of events have occurred which, when combined with the background above, scream BANK HOLIDAY! These events are as follows:
   
   
   1. only one bank has been closed by the FDIC between October 2nd and October 21st, 2009 (refer to http://www.fdic.gov/bank/individual/failed/banklist.html). The only plausible explanation for the slowdown in bank closings is that the FDIC doesn't have the funds to implement the closings;
      
      
   2. since mid-October, armed guards have been present in selected bank branches of Bank of America in Southern California, Arizona and North Carolina. Why the sudden need for armed guards?
      
      
   Given all of the above, I believe that a bank holiday is imminent! When the bank holiday occurs resulting in the closure of those banks in poor financial health, I wonder if the depositors in the closed banks will recover all of their money.
   
   

United States Financial Situation

1. As I have said in previous Commentaries (see April, 2009 and July, 2009) the U.S. Government is INSOLVENT! A current picture of the situation is as follows:
   
   

   Item		Amount		Per US Household
   U.S. Government Official Debt		$12 Trillion		$100,000
   U.S. Government Projected Deficits for Next 10 Years		9 Trillion		77,000
   Estimated Federal Reserve Liabilities (BEFORE AN AUDIT)		2 Trillion		17,000
   U.S. Government Unfunded Obligations for Social Security, Medicare and Federal Pension Payments		104 Trillion		866,000
   Totals		$127 Trillion		$1,060,000

   
   The total burden per U.S. household will exceed $1 million!
   
   
2. Since the U.S. Government has decided that it will not or cannot rein in its profligate spending habits (and thereby get its financial house in order), it must deal with its humongous debt levels in one of two ways:
   
   
   1. default on its various types of debt obligations including, but not limited to, U.S. Treasury bonds, notes and bills;
      
      or
      
      
   2. print money at an accelerated rate so that it can pay off its debt obligations with "cheap dollars."
      
      
   The U.S. Government has made it clear, over the last year, to its foreign and domestic creditors, that it is pursuing option (b) with a vengeance. The net result of this policy choice will be a HYPERINFLATIONARY DEPRESSION!
   
   

Characteristics Of Hyperinflationary Depression

These items were discussed in my July, 2009 Commentary but are being repeated here for ease of reference. Look for the following:

1. Extremely high prices and/or shortages for the basic necessities of life such as food, medicines, medical care, gasoline, oil, natural gas, propane, etc.;
   
   
2. a dramatic collapse in the value of U.S. Dollar denominated paper assets such as savings accounts, U.S. Treasury debt (bonds, notes, bills), U.S. Agency debt (Fannie Mae, Freddie Mac, etc.), corporate bonds, state and local bonds, etc.;
   
   
3. much higher prices for "hard assets" such as commodities, precious metals, etc;
   
   
4. continued deterioration in the prices of residential real estate and a STUNNING COLLAPSE in the prices of commercial real estate. Expect the latter event prior to year end 2009;
   
   
5. uncertainty with respect to the pricing of common stocks. In a normal hyperinflation, common stocks should skyrocket in price. In this case, any escalation in common stock prices might only accrue to companies involved with precious metals and, possibly, other commodities and energy;
   
   
6. much higher interest rates, possibly reaching the teens or higher;
   
   
7. additional bankruptcies of both large and small companies;
   
   
8. unemployment rates that exceed the 25% - 30% seen in the 1930's Great Depression;
   
   
9. outright collapse or substantial impairment of public and private pension plans such that individuals will not be able to count on the pension payments that they had expected in their "golden years;"
   
   
10. significant alterations to all entitlement programs funded by the U.S. Federal Government, especially Social Security, Medicare and Medicaid. The bottom line will be a substantial reduction in benefits for almost everyone;
    
    
11. a disproportionate negative impact on the "middle class," which is the backbone of an economically sound country;
    
    
12. secession movements by states which will be somewhat similar to the breakup of the Soviet Union in 1989;
    
    
13. increased protests, crime and violence, possibly resulting in the institution of martial law, as U.S. citizens become more desperate due to loss of jobs, homes, investments, pensions, etc;
    
    
14. increased reliance on various barter systems whereby like-minded individuals trade needed goods and services with each other;
    
    
15. a possible war (there are numerous flashpoints throughout the world) and/or swine flu outbreak which would serve to distract Americans from their dire economic circumstances;
    
    
16. a possible "bank holiday" in which all banks are closed for an undetermined time so that new bank rules can be imposed, weak banks can be closed, etc.
    
    

Timing Of Hyperinflation

It will start in November/December, 2009 with the full brunt to be felt in 2010. It will last for several years.

Actions That You Can Take To Defend Yourself And Your Loved Ones

With the exception of #9, these items were discussed in my July, 2009 Commentary. Number 9 has been added because the situation is worsening on a daily basis.

1. Don't believe the "spin" that things are getting better! This will only encourage you to overspend and/or spend on the wrong items at a time when you can least afford to do so;
   
   
2. make sure you secure fixed (not variable) rates of interest on any debt you have. This will protect you from the coming higher rates of interest;
   
   
3. try to locate additional part-time opportunities to earn income as your full-time job just might evaporate in the months to come. Especially focus on part-time opportunities that have the potential to become full-time opportunities;
   
   
4. if possible, have a few months of cash available in a safe place outside of the existing banking system in the event a "bank holiday" is declared;
   
   
5. if possible, have a few months of non-perishable food supplies, medicines, and other necessities available in the event of any significant disruption in our "just-in-time" distribution system;
   
   
6. if you have any discretionary investment funds available, consider purchasing a few gold and/or silver coins from a reputable dealer;
   
   
7. lock in prices, wherever you can, for items such as heating oil, propane, etc.;
   
   
8. establish relationships with like-minded friends and relatives so that you have a strong support group to see you through the difficult times;
   
   
9. be prepared to defend yourself and your family. Desperate people will do desperate things during desperate times;
   
   
10. above all, THINK FOR YOURSELF! Don't let anybody else think for you.
    
    

Closing Thoughts

Keep in mind that it has been an incredibly greedy and corrupt banking establishment, aided and abetted by an equally greedy and corrupt group of politicians, that has brought the United States to this DAY OF RECKONING! None of this should be a surprise to any of us as we have been warned so many times in the past by those who came before us and our contemporaries. Read and re-read the following words carefully:

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

"I have never seen more senators express discontent with their jobs. I think the major cause is that, deep down in our hearts, we have been accomplices to doing something terrible and unforgiveable to this wonderful country. Deep down in our hearts we know that we have bankrupted America and that we have given our children a legacy of bankruptcy….We have defrauded our country to get ourselves elected."

"When once a republic is corrupted, there is no possibility of remedying any of the growing evils, but by removing the corruption and restoring its lost principles. Every other correction is either useless or a new evil."

"A government that is big enough to give you all you want is big enough to take it all away."

"And the banks - - hard to believe in a time when we're facing a banking crisis that many of the banks created - - are still the most powerful lobby on Capitol Hill. And they frankly own the place."

"Our fractional reserve financial system is just a gigantic Ponzi scheme. It can only survive as long as it expands, which is to say, as long as new debt is flushed through the system to finance old debt. But like all Ponzi schemes, the larger it grows, the more unstable it becomes. Eventually, it collapses of its own weight."

"The last duty of a central banker is to tell the public the truth."

"America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves."

"America was founded by men who understood that the threat of domestic tyranny is as great as any threat from abroad. If we want to be worthy of their legacy, we must resist the rush toward ever- increasing state control of our society. Otherwise, our own government will become a greater threat to our freedoms than any foreign terrorist."

"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance."

"Wall Street was riddled with abuses. It wasn't just one corrupt individual. It was an entire business model that was flawed. It was distressing to me how simple and outrageous it was. It wasn't so complicated that you said, wow, at least they are smart in the way they are doing it. It was simple, it was brazen, the evidence of it was overwhelming. There is no question that the creation of 'super banks' have created a conflict of interests and a web of relationships that provide the opportunity for massive abuse, and what we uncovered shows that there was massive abuse."