New York Times columnist and economist Paul Krugman won the Nobel Prize for economics in 2008, primarily for his work in the areas of international trade and economic geography.  He recently wrote this interesting article.

He makes a case, with caveats, that three factors saved us from a second depression: 1. government spending in the face of falling revenues 2. rescuing the financial sector 3. the American Recovery and Reinvestment Act (the Obama Stimulus Plan).

Three things initially struck me about the article: 1. Why did Krugman make no mention of the dangers of our budget deficits and national debt? 2. Has Krugman considered the possibility that the rescues and spending could prolong the economic downturn, especially if it leads to killer inflation and/or loss of our AAA credit rating? 3. I’m not as confident as Krugman that we have avoided a second depression, as I’ll cover in my portfolio update at the bottom of this blog.

After digging around on Youtube, I did find this clip of Krugman discussing how much debt he thinks this country can handle.  I now have a theory as to why Krugman isn’t too concerned about the issues I raised.  Incredibly, I don’t think he’s considering Social Security and Medicare entitlements when estimating the viability of our future debt-to-GDP ratios!  Is this possible?

Note that at 2:50 in the video, he makes the statement that “Deficits do matter but we have 5-6 trillion dollars to play with here.”  How do we have that kind of money to “play with” when you consider the trillions of entitlement debt?

Can a Nobel prize winning economist really be ignoring tens of trillions of dollars in debt?  It seems hard to believe.

Bill Gross founder of Pacific Investment Management Company has a very different view from Krugman, as quoted in this Bloomberg article. Look how much estimated debt-to-GDP ratios change when entitlements are considered.

From Bloomberg: “Gross, manager of the world’s biggest bond fund, said on May 21 the U.S. will ‘eventually’ lose its AAA credit rating after Standard & Poor’s lowered its outlook on the U.K.’s AAA to ‘negative’ from ’stable’ amid an escalating ratio of debt- to-gross domestic product. While U.S. marketable debt is at about 45 percent of GDP, annual deficits of 10 percent will push the amount to 100 percent within five years, a level that rating companies and markets view as a ‘point of no return,’ he wrote.”

“The U.S. growth rate ‘requires a government checkbook for years to come,’ Gross wrote. Coupled with Medicare and Social Security entitlements, government borrowing could reach 300 percent of GDP, meaning ‘the Chinese and other surplus nations cannot fund the deficit even if they were fully on board,’ he wrote.”  (Bloomberg)

For an illustration of how important entitlements are when estimating debt-to-GDP ratios, please check out this clip from the Glenn Beck show.

Quote of the Week:

“We’re going to go bankrupt as a nation.  Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’  The answer is yes, that’s what I’m telling you.”

~Joe Biden, speaking during an AARP Town Meeting in Alexandra, VA (here’s a link to the video).

Portfolio Update:

I’m not sure we’ve reached the bottom of this downturn.  I’m still standing by my prediction of Dow 5,500 or lower.

And don’t worry, I’ll still take credit if there’s a big terrorist attack or H1N1 flu outbreak that helps tank the economy.

I believe we will have another market downturn within weeks or months, so I’m still being very cautious.

For now I’m holding core positions in IShares Silver Trust (SLV) and SPDR Gold Trust (GLD).  I’m also trying to trade around the ups and downs of silver and gold.

In addition, I have a position in Agnico Eagle Mines (AEM) and a position in Federated Prudent Global Income Fund (PSAFX).

I’ve taken a horrible hit on my speculative position even though it’s more than doubled since the first of the year.  Broadwind Energy (BWEN) manufactures wind turbines and are one of the purest wind plays around.  ‘

Shortly after I bought it at around 27 bucks, Jim Kramer said on his Mad Money show, “Broadwind’s going to 40.”  It never reached 40 but tanked instead.  For a while there I thought that rascal meant 40 cents instead of 40 bucks!

Buried News of the Week

Are compulsory H1N1 Flu Shots Being Planned?

Some of us are old enough to remember the swine flu shots of 1976.  If shots are being planned, I hope they do a better job this time.  (In ‘76, over two dozen people died from the vaccine and the vaccine turned out to be unnecessary.)

See you next time!

I realize that Thomas and Matthews aren’t talking about our current economic crisis in this MSNBC clip.

But maybe my fears of runaway inflation due to the overspending of the Bush-Obama years are unfounded.

After all, if Obama can deliver “…the world, once again, from evil” (Chris Matthews of MSNBC) and “he’s sort of God” (Evan Thomas of Newsweek), then perhaps I’m over-reacting.

Maybe we don’t need no stinking capital…we’ll just print more fiat currency and sell Treasuries!

“If increased government spending with borrowed or newly created money is a ’stimulus,’ then the Weimar Republic should have been stimulated to unprecedented prosperity, instead of runaway inflation and widespread economic desperation that ultimately brought Adolf Hitler to power.”

~Thomas Sowell (as quoted in the May 27, 2009 issue of the Rapid City Journal, and available online here).

Buried News of the Week

Ron Paul Sponsors Bill to Audit the Federal Reserve

Fed Would be Shut Down if it Were Audited, Expert Says

Regular readers have already figured out that I’m no fan of either political party, and when it comes to the financial crisis-with a few exceptions-I believe Republicans and Democrats are equal opportunity destroyers.

Sen. Judd Gregg, Obama’s former Commerce Secretary appointee, may be one of the exceptions. Gregg is the ranking Republican member of the Senate Budget Committee and has been highly critical of Obama’s handling of the budget since withdrawing his name from consideration due to “irresolvable conflicts” over such issues as the porkulus-I mean the stimulus package-and the Census.

What struck me about this interview was Gregg’s comment about how if we keep going with this budget over the next 10 years as planned, that “this country will go bankrupt.” He goes on to say that the budget numbers “aren’t sustainable” and that members of the Obama administration “know they’re not sustainable.”

Think about the implications of that statement.  He’s basically saying that the Obama administration has developed a budget that will lead to the bankruptcy of this country and that they know it.

What if Gregg is correct and is telling the truth about Obama’s budget?  Why would the administration plot such a disastrous course?

I have an idea, but maybe my readers have theories that could spark discussion.

Quote of the Week: “If the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”~Thomas Jefferson

Well, maybe not exactly homeless, just as long as you don’t mind calling a FEMA camp home.

Was Jefferson psychic about his predictions?  No, he was a political genius and the deeper we get into this crisis, the more apparent this will become in my opinion.

Right now, we’re headed for a historic deflationary spiral, and then a historic inflationary spiral, all predominantly caused, in my opinion, by the private bank known as the Federal Reserve, with the collusion of powerful people in the Republican and Democratic parties. (Is there anyone left in this country who is surprised to know that the Federal Reserve is no more Federal than Federal Express? Check this Youtube video for Rep. Dennis Kucinich’s comments at 3:44 for the start of the discussion about the Fed, while the “Federal Express” comment comes at 3:57.  He is also, in my opinion, one of the “exceptions.”

See you next time!

Buried News of the Week

Geithner Considers Chinese Proposal to Replace Dollar as World Reserve Currency

The wild divergence of predictions about our current economic crisis amazes me!

The March 16, 2009 issue of Newsweek has an article on page 37 entitled, “Brighter Days Ahead.”  The subhead proclaims, “The recovery will be sluggish.  But the doomsday scenario of depression, deflation and Dow 5000 seem farfetched.”

Farfetched?  If Nouriel Roubini of Forbes magazine is correct, I believe this is a load of garbage.  He wrote an article entitled, “The U.S. Financial System is Effectively Insolvent.” Roubini crunches the numbers and finds out that they don’t add up.  I would like to see an effective rebuke to Roubini’s analysis instead of corporate sponsored cheerleading.

My philosophy is to hope for the best and prepare for the worst.

To hope for the best, my advice would be to read the Newsweek article but don’t buy stocks right now for a long term hold.  I believe the markets are in a sucker’s rally right now and I’m holding fast to my prediction of Dow 5,500 or lower.

Prepare for the worst by listening to people like author Dmitry Orlov and Peter Schiff.

Orlov wrote the book, “Reinventing Collapse: The Soviet Example and American Prospects.”

Orlov was recently interviewed by Russia Today and sees the collapse of the United States as “unavoidable.”  He gives some advice on how to prepare, including starting a “tiny business,” eliminating debt and getting to know your neighbors.  That’s good advice no matter what happens!

Quote of the week: “I’ve always believed that America’s government was a unique political system-one designed by geniuses so that it could be run by idiots.  I was wrong.  No system can be smart enough to survive this level of incompetence and recklessness by the people charged to run it.”

~Thomas Friedman

Buried News of the Week

Seymour Hersh exposes Cheney sponsored “executive assassination ring”

In several prior blogs, I’ve noted the alarming executive orders and policy changes that seem to suggest that the U.S. may be moving from an open society to a closed one-from a constitutional republic to some form of tyranny.

I’m now suggesting that these moves may be leading up to the implementation of a North American Union tying Canada, the U.S. and Mexico together with open borders and one currency.  I wonder if the next step could be global governance and if our current economic crisis may be used somehow as a catalyst-a pretext-to eventually bring all of this about.

The Wall Street Journal’s Market Watch ran an article on Tuesday, Jan. 28 2009 stating that Uniting U.S., Canada, Mexico money could result from crisis. The article also said that, The New World Order is upon us, full of hope, promise and a fair amount of fear.

As previously posted, the respected Financial Times of London also ran a recent commentary considering the increased likelihood of world government due to the financial crisis and other factors.

The above articles are well-done, but failed to cover the news items below, which lend credence to the idea that we could be headed for historic and unconstitutional changes in how our government functions.

Unfortunately, most Americans are still unaware that 4,700 troops were deployed stateside on Oct. 1, 2008; that Congress was threatened a few days later with martial law if the No Banker Left Behind Bail-out wasn’t passed; that the Pentagon has admitted that 20 thousand more troops are on the way for deployment stateside-duties to include civil unrest and crowd control; that Congress-even members of the Homeland Security Committee-have been denied access to executive branch continuity of government plans (PDD 51) (aka, NSPD 51) which authorize martial law; that American citizens can be declared enemy combatants and lose their constitutional rights-even if they’ve never left our country (Military Commissions Act of 2006); that evidence of detention camps being constructed or refurbished-potentially to confine American citizens-goes back to 1999, before the attacks of 9/11; that HR 45 calls for gun licensing and registration; that if/when reintroduced and passed, HR 1022 would allow Attorney General Eric Holder-who is an anti-second amendment activist-to confiscate virtually any firearm he chooses from the American people.  The list goes on and on.

Don’t feel bad if you haven’t heard about all this.  If you want to hold your breath waiting to see the mainstream media put all these puzzle pieces together for you, you’re going to turn blue and keel over.

The agenda setting mainstream media is complicit in keeping the American people from seeing the big picture.  (Note for those who haven’t read Chomsky: The Rapid City Journal isn’t part of the agenda setting mainstream media.  If they were, this blog probably would’ve been shut down by now, or more likely, never offered in the first place.)

Based on the comments I’ve received, a minority of my readers still think the prospect of global governance is something to laugh about and ridicule.  Even if these people are paid posters, hopefully this blog will help quell the laughter and bring about what we need instead: motivation to hold our leaders accountable, especially in regard to respecting our Constitution.

Now onto my headline: Legislation has been introduced in the form of House Resolution 645 that lends credence to the story about detention camps for American citizens, as discussed in this San Francisco Chronicle article and other publications.

As noted by infowars.com, the National Emergency Centers Act or HR 645 mandates the establishment of national emergency centers to be located on military installations for the purpose of providing temporary housing, medical, and humanitarian assistance to individuals and families dislocated due to an emergency or major disaster, according to the bill.

The legislation also states that the camps will be used to provide centralized locations to improve the coordination of preparedness, response, and recovery efforts of government, private, and not-for-profit entities and faith-based organizations.

Ominously, the bill also states that the camps can be used to meet other appropriate needs, as determined by the Secretary of Homeland Security, an open ended mandate which many fear could mean the forced detention of American citizens in the event of widespread rioting after a national emergency or total economic collapse.

Will the camps be used to detain American citizens who are declared enemy combatants and stripped of their constitutional rights?

Since the Army Times originally reported that the battle-hardened troops to be deployed stateside would be responsible for civil unrest and crowd control, this also raises the suspicions of many people regarding the use of these camps.

If troops were deployed stateside on Oct. 1 because of terrorism fears, why weren’t they sent until over seven years after the 911 attacks?

Is it possible that late last year, certain elements within our government knew more about what was coming than they told us?

Now, I’m sure there are explanations for all of this, but would they be true  If the Constitution was still in place to protect Habeus Corpus from arbitrary revocation by the executive branch (Military Commissions Act of 2006), and Congress was allowed access to all of PDD 51, and if the Posse Comitatus statutes hadn’t been subverted, etc., etc., etc., I would feel much more comfortable.

As things stand, I wonder if certain elements of our government are gaslighting us and then providing us with the solutions they want to ease the anxiety they created.  Could this be a deliberate strategy to implement policies and consolidate power in a way that Americans wouldn’t otherwise accept?!

Our country seems to be establishing the framework for socialism and tyranny!

Is the banker bailout a fraud that was never intended to help?!

If this is true, then I believe we will see more bail-outs approved even when we have proof that they don’t work.

For an eye-opening and fascinating lecture, please scroll down and listen to New York Times best-selling author Naomi Wolf discuss the 10 signs that an open society is transforming into a closed one.  Wolf has studied history and sees all ten signs occurring today in the United States.  I tend to agree with her.

Hearing a politically liberal person passionately defend the 2nd Amendment at 23:06 is worth the price of admission alone!  Which would be, let’s  see, ZERO!  What a bargain!

Please keep in mind that when Wolf made this defense of the 2nd Amendment she was worried primarily about Blackwater Security.

Now there are 4,700 Army troops stationed stateside with another 20,000 admitted to be on the way, as I wrote earlier.  I predict that we’ll see more than another 20,000 and sooner than 2011.

Wolf also gave this lecture before the banker bail-outs were even dreamed about.  I think these facts make her presentation even more prescient.

Please check it out!

CALL TO ACTION: Please contact your U.S. Representative (Stephanie Herseth-Sandlin for South Dakota) and politely ask him/her how the abuse of these new governmental powers is going to be limited.

I recommend that PDD 51 (aka, NSPD 51) would be a good starting point.  As I wrote earlier, this is the directive that includes executive branch continuity of government plans authorizing physical martial law in America, in the event of a catastrophic emergency.

The Homeland Security Committee and the entire Congress have been denied access to the classified portions of this document!  THIS IS NOT THE AMERICAN WAY! Here’s a link to the clip I referred to earlier regarding PDD 51.  Please ask Rep. Herseth Sandlin if congressional hearings on this power grab are forthcoming.  WE NEED SOME ACCOUNTABILITY!

Contact Information:

U.S. Rep. Stephanie Herseth Sandlin, 331 Cannon House Office Building, Washington, D.C.  20515, Ph: 202-225-2801.

In Rapid City, 343 Quincy St., Suite 102, Rapid City, SD 57701, Ph: 605-394-5280

LOCAL CALL TO ACTION: Please contact the Voices of the Heartland Film Society and encourage them to show Naomi Wolf’s documentary film, The End of America.

Contact Kim and Don with VOH at : kim_don2001@yahoo.com

Put in the subject line, “Film Suggestion,” and ask them if they would please consider The End of America, and if you’d like, please add why you think this film is important for VOH to show to the Rapid City community.

Thanks to everyone who writes!

Please check out the Youtube video below featuring the trailer for Naomi Wolf’s new documentary film.

We can get the film below shown at the Elks Theatre in Rapid City!  Please contact Kim and Don and encourage VOH to show it!  The agenda-setting mainstream media in the U.S. is not doing their job, so I believe we MUST step up to the plate to get the word out!

Quote of the Week: “A nation of sheep will beget a government of wolves.”

~Edward R. Murrow

Does anyone else see the irony of a (Naomi) “Wolf” warning us about the “wolves” in the government?  Is this the Universe’s/God’s sense of humor?  Anyway…

PS: Check out this music video featuring A Perfect Circle at 2:13 for the sequence with the hooded sheep running around scaring the other sheep.  (Be forewarned, it is graphic.)  I see this as a metaphor for the reaction to the sort of warnings I talk about in this blog.  Like the sheep that run away from the black ones, a certain percentage of the population will run away from what people like me say but won’t bother to check the facts and seriously consider them because of fear and/or denial.  That, I believe, is the true source of the laughter in some cases.

For More Information:

Amazon.com links to two of Naomi Wolf’s books:

The End of America: Letter of Warning to a Young Patriot

Give me Liberty: A Handbook for American Revolutionaries

If you’d like to hear ideas similar to what Naomi Wolf has to say but would rather hear it from a more politically conservative source, I recommend the following documentary from Alex Jones, which is available for free viewing on Google video.  Please keep in mind that I don’t agree with everything Jones says and he’s not known for subtlety!  However, he is good at citing sources for many of the allegations he makes and he’s obviously very intelligent and articulate, similar to Wolf-just with a different flavor.

Police State 3: Total Enslavement

If you like Police State 3: Total Enslavement, you can find more videos at Google video and Youtube, or you can go to his Websites to find more information at www.infowars.com or www.prisonplanet.com

Another good conservative voice is former Presidential candidate Ron Paul.

Here’s the link to a great book:

The Revolution: A Manifesto

See you next time!

This blog has been a doozy!

I’m exhausted!

I hope I’m wrong about that, but so far it appears that spewing fiat money isn’t solving our problems.

My position is that this economic crisis was created predominantly by easy money, excess spending and debt.  This situation led to a bubble in housing.  Trying to re-inflate the bubble with more easy money and excess spending is only going to make our problems worse, leading to a collapse of this house of cards economy and another depression (assuming we’re not already in one).

So what is Obama’s plan?  Do more of the same.  This seems like a regular pattern with governments: When something doesn’t work, do more of it.

That being said, we may see an Obama bump in the economy, but I don’t think it will last.  He does have some tax cuts on the agenda which may actually help a little.  But basically, his main plan is to follow Bush’s lead and keep those fake money machines rolling.

My new downside target for the Dow is 5,500 or lower. Does anyone care to make a bet?  (Be forewarned; if you’re an optimist, my portfolio has probably done better than yours, going back to about August of ‘07.)

I saw a funny cartoon the other day.  It showed our major financial institutions on fire while Ben Bernanke and Henry Paulson tried to put out the fire with fire hoses.  The only trouble was, a massive stream of cash was coming out instead of water, feeding the fire.  I believe this is an excellent illustration of what is happening.

To avoid making things worse, Obama should be listening to people who saw this crisis coming years ago.

Peter Schiff, former economic adviser to Dr. Ron Paul, was one of those people.

I’ve written in this blog before about Peter Schiff.  He wasn’t the only person to see the credit crisis coming, but he was perhaps the most outspoken and well-known.  Some supposedly very intelligent people ridiculed Schiff for his views, but he pushed back hard. (Here’s an example, from my previous blog.)

My main purpose in writing this blog is to highlight the fact that, according to Schiff, no one in our government has contacted Schiff for his input on how to get out of this mess!  I think that’s nuts, since he was one of the few experts to see this recession coming the way it did!

In the video below, Schiff gives a great summary of why no one listened to him, why we’re in trouble, how to get out of it, and what will happen if we don’t.  He also gives some advice on what to do with your money.

The only thing I disagree with him on is the inflation issue.   I think we’re in for massive deflation for the foreseeable future.

I don’t think we’ll see really nasty inflation and a collapse of the dollar for many months or even years, but I do agree that it will come.  (If I’m wrong about that, I’ll pay for it in my portfolio.)

See you all next time and I hope everyone’s new year is off to a good start!

Money Talks Trader’s Group Update: Tuke and I will be meeting at the Firehouse Brewing Company in Rapid at 3 pm on Saturday, January 17, 2009. Check my last blog to see what I look like.  Everyone interested in investing, trading, or the crazy developments in this world is welcome!  See you there!

Tuke is an excellent technical trader and has taught me a lot already about trading and reading the charts.

Portfolio Update: My ProShares UltraShort Real Estate ETF (SRS) did very well Wednesday.  Then it started up huge early Thursday before dropping like a rock.

I got stopped out Thursday at $65 for a profit of $5.01 per share plus a dividend of .86 and capital gains of $164.40.  This comes out to about 15.6% in 26 days.  (Profit in my second batch of SRS-which I sold first- was much lower.)

I put in a limit order tonight for another dose of SRS at $56.50.  I doubt I’ll get it Friday, but things are really volatile right now so who knows?

Quotes of the Week:

“Reality is a mass hallucination.  We gauge what’s real according to what others say.  And others, like us, rein in their words, caving in to timidity.  Thanks to conformity enforcement and to cowardice, a little power goes a long, long way.”

~Howard Bloom in Global Brain: The Evolution of Mass Mind from the Big Bang to the 21st Century.

“The Federal Reserve is no more federal than Federal Express.”

~Rep. Dennis Kucinich

See him in action on Youtube!

Note: Mr. Kucinich’s comments on the Fed start at 3:44, while his “Federal Express” comment is at 3:57.

UPDATE: I wrote this blog just last night, Tuesday, Nov. 25, 2008.  My original headline stating that, “U.S. has pledged $7.76 trillion” for the bailouts was based on information obtained from a Bloomberg.com article from Nov. 24, 2008, just the day before.  Pathetically, this information is already out-of-date, so I’ve changed my headline to  reflect the new “$8.5 Trillion” figure.  My source is this San Francisco Chronicle article.

For this post, I will rely heavily on a couple of excellent articles which I really can’t improve upon.  However, I can link the two articles together in a meaningful way and bring them to your attention.

Both articles are from the mainstream financial press, but the candidness with which the reporters communicate is still relatively rare.  That will change as the seriousness of our financial situation can no longer be denied, covered up, or rationalized away.  Until then, these two articles may be considered aberrations or curiosity pieces by some.  I don’t take such a view and I suspect most of our readers won’t either.

The first article I would like to focus on is from the August 22, 2008 issue of The Wall Street Journal.  The title is, “Washington Is Quietly Repudiating Its Debts.”

The article begins: “Will the U.S. Treasury repudiate its obligations to its creditors, be they citizens or investors around the world?  Most observers would answer ‘no’ without hesitation.  But congress, with the complicity of the White House and the Fed, has arguably embarked on a stealth repudiation.

In his famous treatise, ‘The Wealth of Nations,’ Adam Smith noted there had never been a ’single instance’ of sovereign debts having been repaid once ‘accumulated to a certain degree.’  We may have reached Smith’s threshold.’”

What was that?  Excuse me?  Yes, this mainstream media article said that there is evidence that the U.S. may default on its debt, leaving its own citizens as well as foreigners holding the bag. (Iceland is currently going broke and may be the proverbial canary in the coal mine.  They’re probably headed for a hyper-inflationary depression, so keep an eye on them.  What they experience may give us a hint as to what things may look like in this country.)

The Wall Street Journal article is well done and builds an excellent case that such a scenario is plausible.  However, the article was written before our financial situation became exponentially more serious.  Things have changed, and you ain’t seen nothin’ yet.

Now some might ask, “Why in the world would the U.S. government be considering such a plan?” I hope to illustrate why by utilizing these two articles. Our government can see the writing on the wall, but isn’t telling the American people the full extent of our problems. (Yes, even with all this “depression” talk.)

The second article I would like to highlight was written after the recent Citigroup bailout and is an exclusive report from Bloomberg.com.  This article illustrates the fact that the mainstream media is able to do real reporting and is entitled, “U.S. Pledges Top $7.7 trillion to Ease Frozen Credit (Update 2)”

I will summarize the article as follows: “The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday.  The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg.  The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program.  Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government’s rescue effort” (end quote).

Good thing Bloomberg is doing their job since the full extent of the government’s rescue effort seems to be deliberately obfuscated.  Their investigation gets better.

Bloomberg is suing the Fed under the Freedom of Information Act to “force disclosure of borrower banks and their collateral.”

I suspect some of this collateral is fraudulent, so this will be a big fight.

The Fed will be fighting this lawsuit on the grounds that such a revelation would be “counter-productive,” according to Ben Bernanke.  (I think what he is diplomatically saying is that this information would cause runs on the banks.)

The main point I wanted to make in this blog is that the $700 billion bailout is diverting the American people from the real cost of the bailouts that our government is perpetrating on the taxpayers and our system of capitalism. The following quote from the Bloomberg article illustrates my point.

“Too often the public is focused on the wrong piece of that number, the $700 billion that Congress approved,” said J.D. Foster, a former staff member of the Council of Economic Advisers who is now a senior fellow at the Heritage Foundation in Washington.  “The other areas are quite a bit larger.”

These “other areas” bring the total bailout bill to $8.5 TRILLION. This is where the media now needs to focus attention: the real costs of these bailouts. Let’s see how well they do now that Bloomberg has done the legwork. (I did hear Sean Hannity mention the Bloomberg article tonight on Hannity and Colmes.)

Mark Tobin, “principal of New York-based loan-sale consultants and investment bank Mission Capital Advisors LLC,” made one of the most provocative statements in the article.

He said, “’If you mark to market today, the banking system is bankrupt,’” Tobin said.  “’So what do you do?  You try to keep it going as best you can.’”

“‘Mark to market’ means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices.”

To put this in plain English, “current prices” have tanked, so that means mortgage backed securities have tanked. Our financial system is a zombie; dead but still walking around frightening people who respond by throwing money at it, hoping to make it go away.

Can our country afford to throw 60% of our GDP into these bailouts? I don’t have a PhD in Economics, but that sounds like an INSANE amount of money. I believe we are in fact throwing money down a black hole and only making matters worse, ultimately leading to a complete financial collapse and a new currency.

I know I’m probably sounding like a broken record to regular readers, but I’m not going to stop saying it.  We could be on the road to a Weimar Republic scenario and eventually a North American or world currency.

Once this de-leveraging and deflationary spiral is over with, get your wheelbarrows ready for trips to the store.

I don’t dismiss the possibility that all this was engineered to reach the goal of a one-world government controlled primarily by central banks. Comments, anyone?

Happy Thanksgiving!

Quote of the week: “Someone should submit a proposal to make the paper that the depreciating dollar is printed on softer so it’s more Charmin-like, just in case.”~Anonymous

“You better hope aliens are real.  The United States has borrowed 80% of the capital on earth, so if you need more, you’re going to have to go to other planets.”~Catherine Austin Fitts, on Coast to Coast AM with George Noory, quoting an unnamed Brit at an investment conference.

In a prior post, I lamented the lack of mainstream media coverage of the recent stateside troop deployment. I also wondered if the deployment was related to our financial crisis. I just found out that there’s a lot more to the story and the mainstream media, for the most part, isn’t covering this aspect either.

I’ll start out with a brief summary from my previous post, Is Financial Crisis the Reason for Stateside U.S. Troop Deployment?

I wrote: “For the first time ever, according to the Army Times, a brigade of active duty, battle-hardened U.S. troops will be under the command of NorthCom and deployed stateside starting Oct. 1, 2008. The Times reported that the 3rd Infantry Division’s 1st Brigade Combat Team will begin this ‘permanent mission’ and that other active duty troops will take over after 12 months.

NorthCom is ‘a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.’

The Army Times reported that the duties of these troops could include ‘civil unrest and crowd control or to deal with potentially horrific scenarios such as a massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack.”

I questioned, “why are the posse comitatus statutes and the 1807 Insurrection Act being subverted by the John W. Warner Defense Authorization Act of 2006 with virtually no public debate or concern?”

I went on to state: “I’m no fan of Sen. Patrick J. Leahy, D-Vt., but according to Congressional Quarterly, Inc., he said that the 2006 act “’subverts solid, longstanding posse comitatus statutes that limit the military’s involvement in law enforcement, thereby making it easier for the President to declare martial law.”

Just the other day, I found another piece to this puzzle when I came across this C-Span clip from Youtube.com. You’ll see U.S. Rep. Brad Sherman, D-California, claim that members of the House had been threatened with “Martial Law in America,” presumably by members of the Bush administration (Treasury Dept?), if the first bail-out bill wasn’t passed.

I believe the Congressman makes some good points. Any time someone stokes fear and tries to persuade you to get out your wallet without stopping to think, be very afraid.

The more I find out about the bail-out bill that passed (not the one Sherman was referring to), the more I think it stinks. I think both bills smell bad. This should be a good topic for a future post.

Now when you combine the Oct. 1 troop deployment with what this Congressman says, why wouldn’t this be a big story? I don’t get it.

If the thought of martial law doesn’t scare you, or even makes you feel more secure, please watch this clip of a press conference with former director of the National Security Agency (NSA), Gen. Michael Hayden, who is now Director of the Central Intelligence Agency (CIA). His interpretation of the fourth amendment to our constitution is unbelievable and downright frightening. I guess the General would like us to think he doesn’t know that probable cause is a vital part of the fourth amendment.

To go back to a cliche from the presidential campaign, isn’t that kind of like Joe the Plumber not knowing that plumbing pipes transport liquids from one point to another?

I would bet that every police officer in Rapid and many of its citizens have a better “understanding” of the fourth amendment than the man who is Director of the CIA.

If readers have any stories that you feel are important to our financial well-being but are under-covered by the media, please post your ideas in the comments section and I’ll check them out and possibly write a blog on the topic.

Quote of the day: “Barack Obama said today the government’s $700 Billion bailout should not be a blank check. Barack Obama says he knows that $700 Billion is a lot of money. In fact, it would take him at least 10 Hollywood fundraisers to come up with that kind of money.”~Jay Leno

“There may be a recession in stock prices, but not anything in the nature of a crash.”
- Irving Fisher, leading U.S. economist, New York Times

“Some pretty intelligent people are now buying stocks… Unless we are to have a panic — which no one seriously believes, stocks have hit bottom.”
- R. W. McNeal, financial analyst

“We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.”
- Goodbody and Company market-letter quoted in The New York Times

I’m sure all of this sounds very familiar.  So-called experts have been unsuccessfully predicting a market bottom for months now.

What’s troubling to me is that the above quotes weren’t made recently, but at the cusp of the Great Depression, i.e., Sept. 5, 1929, October, 1929, and October 25, 1929, respectively.

Check out this link which has a 1927-1933 Chart of Pompous Prognosticators. The chart connects quotes like those above with the corresponding value of the Dow.  It illustrates very clearly how wrong intelligent and experienced human beings can be regarding economic predictions.  Therefore, I believe it would be wise to listen to economic experts who saw our current economic crisis coming years ago, especially in the face of harsh criticism.  This is the type of person I would like to see Obama appoint as his economic adviser.

Peter Schiff, former economic adviser to Ron Paul and President of Euro Pacific Capital is one of those people. (The Rapid City Journal ran an interview with Schiff in the Sunday, October 26^th, 2008 business section.)

Schiff wrote a book in 2007 called, “Crash Proof,” which warned of a “coming economic crash.”

Back in August of 2006, Schiff was on CNBC debating Art Laffer, Chief Investment Officer of Laffer Investments and former economic adviser to President Reagan. Schiff believed that a severe recession was coming in ’07 or ’08, and Laffer vigorously argued against this view.

Please watch this CNBC clip of the debate and notice the arrogance with which Laffer operates.  He repeatedly bets that Peter Schiff is wrong about a coming recession and a collapse in housing and stock prices. Laffer hammers home the point that stock and housing prices are “real wealth,” and how wrong Schiff is in predicting the price collapse we now see playing out before our eyes.

Schiff was obviously prescient in predicting our current economic crisis in the face of stinging criticism. Will Obama appoint someone like this as economic adviser?  I would be pleasantly surprised.

Part of the reason people like John McCain and Barack Obama are popular is because they don’t address the painful truths about our economy and our culture that Ron Paul was willing to address during his campaign.

People don’t want to hear that an economy based on borrowing and consuming instead of saving and producing is unsound.  Americans are addicted to borrowing and spending, just like our government. The American people will only be ready to hear this message after a protracted period of suffering unlike anything we’ve seen since the Great Depression.  That will bring about the soul searching necessary to change us as a people in fundamental, positive ways.  Then candidates like Ron Paul won’t have to struggle to get their name on the ballot.

Paul’s lack of success illustrates my point.  If the economy was really the number one issue for voters, then he should’ve won this election.

There has been some talk of Obama naming Warren Buffet as his economic adviser. I would support that move but I would strongly prefer someone more like Peter Schiff.

I’m afraid Obama could end up with an economic adviser like Art Laffer-a Johnny-Come-Lately who still has no idea how to handle the latest collapsing bubble in our economy and can’t see the big picture. I’m sure, though, that he will appoint someone with lots of “hope” and probably an unwillingness to deal with the tough issues Americans don’t want to hear about…yet.

This economic crisis came about partially because of Fed-created, artificially low interest rates and a flood of money which created a huge speculative bubble.

Doing more of the same and throwing fiat money at the problem in an attempt to prevent the bubble from bursting will only make the problem worse.  Since we are spending money we don’t have, we are going to be facing crippling inflation in the next year or so and possibly the collapse of our currency if we keep going down this road.

If that were to happen, I’m sure the government will have a solution for us.  How about a brand new currency backed by silver and/or gold that is legal tender in Canada, the U.S., and Mexico?

Quote of the Day: “Insanity: doing the same thing over and over again and expecting different results.”
~Albert Einstein

“All government spending represents a tax. The inflation tax, while largely ignored, hurts middle-class and low-income Americans the most. Simply put, printing money to pay for federal spending dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real – the individuals who suffer most from cost of living increases certainly pay a ‘tax.’”~Ron Paul

“Don’t buy the governement propaganda that inflation is rising prices; it’s a decline in the value of the dollar, brought about by U.S. Treasury Department printing presses producing an excess of fiat currency.”~Aaron Grow

For more information, please check out this previoiusly posted Wikipedia link to see what a currency collapse looks like.  This tells the tale of Inflation in the Weimar Republic during 1921-1923.

According to cnbc.com, we just witnessed the Dow dropping more than it ever has during any week in history. In other words, the Dow performed worse this week than any week during the Great Depression, or any other time in our history.

CNBC reported that the Dow lost 1874 points or 18.15%, the worst week ever “in terms of points as well as percent drops.”

They went on to state that, “the second biggest weekly percentage drop was the week ending July 21, 1933 when the Dow closed down -15.55% for the week.

The third biggest weekly drop for the Dow on a percentage basis was the week ending Friday, 9/21/01 after 9/11 when the Dow fell 14.26% for the week.”

The article also noted that the Dow swung Friday (10-10-08) more than 1,018 points, breaking another all-time record.

I was watching CNBC Friday morning when the market opened at 7:30 am, MDST. It dropped steadily and rapidly, reaching a low of about 697 points before suddenly and dramatically reversing course.

Just a few minutes later, by about 8:07 am, the Dow hit positive territory. This was a convenient turnaround for President Bush, since he made a statement about the crisis at 8:25 am.

This situation caused me to suspect that the rumored Plunge Protection Team (PPT) may have been working hard Friday morning to support the markets. Many of you may have never heard of the Plunge Protection Team or would like to learn more, so I’ll write about them in a future post.

So the $64 trillion question is, where do we go from here?

By looking at the futures, it looks like Monday could be an up day, but I don’t think we’ve put in a bottom yet.

I agree with Ron Ianieri, chief markets strategist with Options University.

He spoke Thursday with CNBC’s Amanda Drury and made the point that the markets aren’t oversold because the traditional technical indicators and oscillators don’t work during this sub-prime crisis.  He said that the market is “revaluing” itself and that his next downside support level is 7,500 for the Dow.

I also agree with Art Hogan of Jeffries that this isn’t the time to liquidate your entire life savings to cash at this point, but for him to call Friday the bottom is CRAZY in my opinion. (I hope I’m wrong.)  For the happy talk version of reality, please check out this CNBC video of his comments.

Other interesting CNBC videos and links from Friday:

Mr. Optimistic, Jim Cramer, draws frightening parallels between the behavior of the Bush Administration during this crisis, and the behavior of those in the Hoover administration immediately preceding the ‘29 crash.

At another point in Friday’s Mad Money, Cramer said that Dow 5,886 is a possibility.

Hugh Hendry, CIO and partner at Eclectica Asset Management out of London, is up 40% this month with his hedge fund.  Some call him a “fruitcake.”  Any “fruitcake” who can make 40% in ten days in this market has my FULL ATTENTION!

Even while making money hand over fist, Mr. Hendry sounds close to panic.  Please check out his recent comments on this CNBC video.

Bob Andres, the Pollyanna from Porfolio Management Consultants,  ironically pulls a plan out of the Great Depression playbook by calling for bank and market holidays. In this clip, you’ll hear Andres talk about traders’ “irrational pessimism.”  I call the pessimism entirely appropriate.

This cnbc.com article gives some perspective since comparing our current situation to the Great Depression is becoming more common.

See you next time when I hope I’ll be licking my wounds and looking to recoup my losses in about 10 years.  (That’s my optimistic side talking.)

Luckily, I put most of my retirement into cash over a year ago when I decided to listen to the “irrational pessimists” of the world.  The losses I speak of actually just cut into the rather healthy profits I’ve seen since the Spring of ‘04 (about 100%, primarily in oil and gold stocks-PSPFX and USERX, respectively).  No, I wasn’t diversified at all, and I made out like a bandit-that time.

Quote of the Day: “Let Wall Street have a nightmare and the whole country has to help them back in bed again.”

–Will Rogers as quoted in the October 13, 2008 issue of Forbes.