ECONOMIC BITS AND PIECES.............

WHERE WE ARE HEADED.................

There is no pleasant ending.

Political activity over the past fifty years guaranteed that. As Ludwig von Mises observed, "Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump."

The best solution is for Mr. Bernanke to cease and desist his QE policy.

That would require the political class to face its problems. It would require a massive rollback of the welfare state and government. It would require resizing government to a level that productive citizens would support. Transitional hardships would occur, including civil unrest and possibly a depression.

The worst solution is the one that Mr. Bernanke has selected.

If he stays on this course, fiat money will become worthless. So will Social Security checks, because they will have no purchasing power. All fixed income and savings will be wiped out. The middle class will be financially destroyed.

Markets will cease to function except on a barter system. Food and other necessities will be in short supply, possibly to the extent of health risks developing. Unimaginable civil unrest is likely.

A Greater Depression is assured.

Unlike the first Great Depression, citizens would be without any financial wherewithal. Their savings and fixed income will have been stolen from them. In short, it would be the worst economic hell imaginable.

Mr. Bernanke is unwilling to tell you what is happening.

His action has moved us into the eye of a massive storm. Do not be lulled into complacency, for as von Mises stated, "A fiat-money inflation can be carried on only as long as the masses do not become aware of the fact that the government is committed to such a policy."

　

California Will Default On Its Debt...

THE VIDEO CLIP BELOW IS AWESOME

Municipal bonds have

plummeted in recent days, as investors have suddenly focused on huge state and city budget deficits that there's no easy way to fix. Nowhere has this collapse been more visible than California, which faces a massive $25 billion shortfall and red ink for as far as the eye can see.

After years in which every looming financial crisis has been met with a government bailout, you might think that the same solution awaits California, as well as all the other states that have huge obligations that they can't afford to meet.

But this time that may not happen, says Chris Whalen, a financial industry analyst and Managing Director of

Institutional Risk Analytics.

In fact, Whalen thinks that California will default on its debt--hammering all the pension funds and other investors who have loaded up on apparently safe state bonds.

The state won't immediately default, Whalen says. It will start by issuing the same sort of IOUs that it issued to by itself time during its budget crisis last year.

But, eventually, the debts will have to be restructured, and this will result in those who own California's bonds receiving less than 100 cents on the dollar.

Why won't California just get a bailout?

Because the Republicans now control Congress, Whalen says. And also because,

if California gets bailed out, dozens of other states will immediately line up with their hands out. The public is fed up with bailouts, Whalen says--and eventually, the country will be forced to face up to its bad debts and write them off.

Of course, if Whalen is right, the country could have a major crisis on its hands. California is hardly the only state in trouble (click here to see the worst ones), and pension funds and other "safe" investments that Americans depend on will get hammered if states begin to default.

Fixing state and local obligations will also require the renegotiation of pensions and salaries that government workers have long since taken for granted. And they certainly won't give those up without a fight.

FAST FORWARD TO 1:25 ON THIS CLIP TO SEE THE INTERVIEW WITH CHRIS WHALEN

http://www.youtube.com/watch?v=sGo5in11LQE

　

　

POSSIBLE RAMIFICATIONS OF QE2........

The US is one failed auction away from economic meltdown.

OECD countries are not aligned on what battle they're fighting.

'Emergency' measures governments are now taking will become permanent.

Currency devaluation & higher prices are inevitable.

Time to prepare is running out.

By choosing the path of money printing (instead of austerity like the UK),

the Fed has decidedly placed the US on a very risky course. I see the outcomes as binary: either this works or it doesn't.

If this gamble works, business will pick up, unemployment will drop, tax revenues will flow again to the states and federal government, the sun will continue to rise in the east and roses will bloom in the spring.

If the gamble fails?

There we can envision an enormous devaluation event for the US dollar and the Fed having to choose between defending the dollar (via rising interest rates) or preventing the federal government from a fiscal emergency brought about as a consequence of rising interest rates. And by "fiscal emergency" I mean being forced to slash expenditures by as much as 50% in order to service rapidly escalating interest carrying costs on the short term portion of the fiscal debt load. But that's a death spiral because cutting government spending is the same as cutting GDP (it's practically 1:1) and every cut to GDP leads to lower revenues which will necessitate more expenditure cutting, et cetera and so on until 'the bottom' is reached.

Either the Fed's efforts work or they don't.

　

UNDERSTANDING QE2..........

I DON'T LIKE THE GEEKY FORMAT OF THIS CLIP BUT THE INFORMATION IS ACCURATE, FACTUAL AND INFORMATIVE. DON'T MISS THIS CLIP!

http://www.youtube.com/watch?v=PTUY16CkS-k

MORE GOOD INFORMATION HERE;

The Federal Reserve is Laundering Money

http://www.youtube.com/watch?v=wpmlHTeVG9A&feature=related

Austrian Economics

http://www.youtube.com/watch?v=QQfiqfdRNro&feature=related

Bernanke's Royal Mess!

http://www.youtube.com/watch?v=8DsSmMBWBdE&feature=related

　

　

DOES ANYONE REALLY GET IT?

If dollar devaluation becomes too pronounced, Washington threatens to kill the goose that lays the golden eggs: namely, the dollar's reserve status.

If that were to happen, a global financial crisis of staggering intensity would surely erupt, the resolution of which would not favor the United States.

Whether or not it is openly acknowledged, the US government is pursuing a policy of great risk that offers no long term reward. It's the worst of all possible worlds for average Americans. Wise investors will reduce their exposure to US dollars and debt, while increasing their allocations to precious metals, key commodities, and hard currencies.

　

REAL GAINS vs. DOLLAR GAINS.........

When measured against the standard basket of currencies, the US dollar has fallen by some 30 percent over the past decade so has everything denominated in dollars. So what shows real increases in value? Most likely, precious metals' prices, discounted somewhat to allow for investor speculation, represent an absolute measure of increase.

Silver has risen by some 56 percent in the past 10 months. Gold has gained some 30 percent this year, and some 400 percent over the past decade!

　

HERE IS HOW THE GAME WORKS...........

So if we assume a conservative 40 percent devaluation of the US dollar over the past ten years,

our current $13.4 trillion federal debt is equivalent to an only $8 trillion liability in 2001 dollars - the rest is just inflation. The $189 trillion of unfunded obligations to Social Security, Medicare, government pensions, etc. would appear as $113 trillion a decade ago!

It is clear that a debased currency suits the US government, but what about average Americans?

The 40 percent devaluation equates to a 40 percent tax on every holder of US dollars, rich and poor alike. It has hindered, rather than encouraged, consumer spending. It forces Americans to make do with less, purchase shoddier products, and deal with inferior service. Sometimes it's hard to perceive slowly ebbing living standards, but take a look around and think whether you feel richer than a decade ago.

　

UNDERSTANDING WHY CURRENCY MANIPULATION MATTERS.............

Printing more dollars increases the money supply, thus lowering the value, which makes alternative currencies more attractive (and handcuffs policymakers across the pond). That's fine in a vacuum but not so much when the greenback is the world reserve currency and the measuring stick of multiple asset classes.

Look at it this way. You're China and you own, say, gold. Since the beginning of September, gold is up 15% and the dollar is down 9%. You own gold (nice call!) but you're losing almost two-thirds of your gains on the aggregate, which sucks... if you're China.

Now pull back the lens.

The dollar index is down 36% since 2002. Thirty-six percent. And during that same stretch, the S&P 500 is basically flat. All of a sudden, the notion of currency wars and economic espionage isn't that farfetched.

　

ONCE AGAIN, WE ARE AT THE BEGINNING OF THE END........

The public has been almost totally missing during the entire rally from March '09. But instead of sulking, they've successfully loaded up on fixed income stuff, including, so we are told, a massive (for them) amount of Treasuries, preferreds, and all sorts of fancy new-fangled stuff, with some of the more venturesome discovering municipals, and have only recently started to believe the brokerage sales pitch that they should own dividend-paying familiar big cap stocks such as, say, JNJ or PG. In reality, that public on the sidelines has done well by protecting the resources of its collective self, especially since stocks themselves were not going up well, even though they didn't want to go down.

But now, ah now, now it seems safe. It isn't that the public knows that the Fed is right, or that the Republicans can save the world, it is simply that the public has seen the stock market suddenly go up in remarkably lively, even exuberant, fashion … and that seems to say, in bold headlines, that stocks are safe again, and can be bought. That sequence, from "I'll never buy a share of stock ever again," to believing it's okay now, is how it has worked in past cycles, and evidently is starting to work today."

　

THE POLICY OF FOOLS............

Everyone wants to know what we are going to do about the growing government debt? "Progressives" answer: there is no debt, because, as Franklin Delano Roosevelt — their family god — once put it: "We owe it to ourselves!"

That was no kind of answer, at least not one overseas investors in our debt would today find reassuring, but that doesn't bother our Keynesian geniuses, the economic planners who think their edicts are weightier than the immutable laws of economics.

Given the course we have been on and are continuing on – in which the government printing presses are seen as the path to recovery – we are headed for economic catastrophe.

　

IRELAND GOES BUST...............

There was a bank run in Ireland on Wednesday. LCH Clearnet, a London based clearinghouse, surprised the markets by announcing it would increase margin requirements on Irish debt by 15 percent.

That's all it took to send investors fleeing for the exits. Yields on Irish bonds spiked sharply as banks tried to close positions or raise the capital needed to meet the new requirements. The Irish 10-year bond soared to 8.9 percent by day's end, more than 6 percentage points higher than "risk free" German sovereign debt. The ECB will have to intervene. Ireland is on its way to default.

This is what a 21st century bank run looks like.

Terms suddenly change in the repo market, where banks get their funding, and the whole system begins to teeter. It's a structural problem in the so-called shadow banking system for which there's no remedy. Conventional banks exchange bonds with shadow banks for short-term loans agreeing to repurchase (repo) them at a later date. But when investors get nervous about the solvency of the bank, the collateral gets a haircut which makes it more expensive to fund operations. That sends bond yields skyrocketing increasing the liklihood of default. In this case, the debt-overhang from a burst development bubble is bearing down on the Irish government threatening to bankrupt the country. Ireland is in dire straights.

Two things have delayed Ireland's funeral. First, in anticipation of being booted out of bond markets, the Government built up a large pile of cash a few months ago, so that it can keep going until the New Year before it runs out of money. Although insolvent, Ireland is still liquid, for now.

Secondly, not wanting another Greek-style mess, the ECB has intervened to fund the Irish banks. Not only have Irish banks had to repay their maturing bonds, but they have been hemorrhaging funds in the inter-bank market, and the ECB has quietly stepped in with emergency funding to keep them going until it can make up its mind what to do."

Ireland has enough cash to get through the middle of next year, but then what? The bad news has rekindled fears of contagion among the PIIGS. Greece is a basketcase and Portugal's bond yields have spiked in recent weeks.

IT LOOKS LIKE THINGS ARE GOING TO GET REAL INTERESTING SOMETIME IN THE FIRST OR SECOND QUARTER OF THE NEW YEAR. THE RAT'S AND COCK ROACHES ARE BEGINNING TO SCURRY ABOUT AT AN INCREASED RATE AGAIN.

TEACH YOUR CHILDREN WELL.............

Children should be taught how to think critically and analytically about politicians and political issues.

They should be taught how to recognize demagogues and their demagoguery. They should be taught the importance of applying a universal standard of critical inquiry and skepticism, not only to their political adversaries, but to their political allies as well.

The main reason why we are in this predicament today, is that the vast majority of the electorate is unable to identify the logically fallacious and/or factually incorrect bullshit issuing from the politicians and pundits who have been setting the parameters for political discourse in the US.