I consider myself a fairly suspicious person, so when I’m shown that I haven’t been suspicious enough, I get aggravated!

I’ve written several blogs in the last few months lamenting the U.S. Government’s apparent lack of concern regarding flooding the economy with billions of additional debt while not having the resources to meet already astronomical entitlement obligations.  (Please check out this excellent Website.)  I initially thought maybe the Fed and Treasury were trying to fight a very real deflationary problem and going overboard.  I think I may have been wrong about that and incredibly naive.

After watching the CNBC clip below, I think the real motivation for massive debt that can only be covered by firing up printing presses and selling Treasuries is a deliberate crash of the dollar. Why would the U.S. Government want such a thing?  Massive inflation.  How does this help the U.S. Government?  Please check out the video below for what I consider to be a brilliant analysis by Mr. Jim Rickards of Omnis. My only disagreement with him would be using the example of 4% inflation over the next 17 years.  I think that’s way too conservative.  After all, Jimmy Carter would’ve felt blessed to have that number.

I suspect that there are certain very powerful elements within our government and the Fed who would like to see the dollar replaced as the reserve currency of the world with a global currency of some sort.

Rickards discusses Special Drawing Rights, or SDR’s and how some country or entity must carry massive debt to fuel global growth, but no one country can carry that burden for too long or they’ll go broke.  The U.S. is now at the point where we must bow out of that role and inflate our currency to keep from losing our shirt.

I like Rickard’s analysis and I’ll expand upon it.

Many people believe that the first obligation of any government is to protect it’s people.  However, this deliberate crash of the dollar will be paid for by the citizens of this country and foreign creditors.  If the government says to Medicare, Medicaid and Social Security recipients, “There will be a cost-of-living freeze on your benefits,” that doesn’t sound nearly as bad as, “You will be receiving massive cuts in your benefits.”  But that’s exactly what they’ll be receiving through inflation.  I believe that certain elements within the U.S. government have no problem with a massive white collar criminal heist of their creditors and the American people.

To expand upon the example used in the video, if your Social Security benefits are frozen and inflation is at 4%, within 17 years your benefits have been cut in half without the ostensible amount of your check changing one bit.  This is a crooked politicians dream come true and I’m afraid they’re in the majority.  Our system is more corrupt than ever and it’s much easier for politicians to go along for the ride than to try and fight it.

This “free society” we live in, along with a few other western cultures has been a grand experiment in controlling people without force.  Over generations, the elite ask themselves, “How can we have power over the people when we can’t beat them over the head with a stick to get them to do what we want?”  The answer is to control how people think and one way to do that is to crash the dollar instead of cutting benefits!

What’s the takeaway for investors?  Get into gold and silver while being vigilant for the U.S. Government to confiscate it. I’m not kidding.  It’s happened before; in this country! Don’t be naive!  (Ha Ha!)

OK.  I’ll see you all next time.  Hopefully fall will be back by then.  October in the Hills is usually so nice!  I feel like I’m getting gypped, although summer was nice.

Quote of the week: “I don’t like it, but I will vote for it because we need something right now. But this constitution in time will fail, as all such efforts do. And it will fail because of the corruption of the people, in a general sense.”

~Benjamin Franklin on being shown the new constitution of the United States of America.

One of my favorite economists, Peter Schiff, discuses the Demise of the Dollar.  Here’s a link to the article he mentions from the UK paper, The Independent.

My favorite quote is at 6:11: “If they stop pricing oil in dollars, people going to Wal-Marts are going to feel like they’re going into Saks Fifth Avenue or Bergdorf Goodmans.  Prices are going to be through the roof, because the dollar is going to collapse and we won’t be able to afford to import all these cheap products.”

Buried News of the Week

World Central Banks Dumping the Dollar, Feeding Worst Two Quarter Rout in Almost Two Decades

In the August 24 & 31, 2009 issue of Newsweek, Sharon Begley claims that there are many “lies” flying around about the Obama health care plan, partially because people are scared right now.  She quotes a psychiatrist, Louann Brizendrine on the subject: “The brain is signaling ‘danger’ right now.  Whenever that happens, the brain typically loses its logical reasoning power.”

Presumably then with her reasoning and logic unclouded by emotion, Ms. Begley exposes several “lies” about the health care bill  in her article entitled, “Attack!  The truth about Obamacare.”

Well then, I’m going to get illogical and dispute her expose on a couple of points.

Begley writes, “Opponents say bureaucrats will decide if it is worth treating you by somehow calculating the value of your life.

It’s not in any of the bills, but the rationing lie sticks because people who should know better keep repeating it”  (end quote).

Irrational and emotional point number one: Just because rationing is not in any of the bills, does that eliminate the danger of rationing once government takes over health care?

Is it conceivable that the government could run into fiscal problems at some point in the future and start making cuts in Medicare, Medicaid, Social Security and any government run health care program?  Is it emotional and irrational to ask the question?  (Maybe it’s even considered hateful.)

For a graphic illustration of how critical entitlements are to the national debt, please go to the bottom of this Webpage and notice the numbers under “US UNFUNDED LIABILITIES.”  Compare the “LIABILITY PER CITIZEN” number with the number at the top center of the page, “DEBT PER CITIZEN.”  As you can see by comparing these two numbers, our national debt is going to balloon exponentially and dangerously, unless drastic cuts are made to government entitlement programs.

Even the most liberal economists agree that there is a limit to how high the debt-to-Gross Domestic Product ratio can go before countries run into catastrophic problems.  We are on that road.  (Please see my last blog where this issue is discussed by Nobel Prize winning economist Paul Krugman and I give my analysis.)

Another “lie” Ms. Begley mentions is that the Obama health care plan “will cover illegal aliens.”  She counters with, “(No illegals will be covered.  But don’t worry: under today’s system, some of your insurance premiums do pay for their medical treatment, to the tune of $1 billion a year, because illegals are guaranteed emergency care in every state.)”

Irrational and emotional point number two: If, under our current health care system, illegal aliens are receiving health care paid for by part of our insurance premiums, how will that change when the government takes over?  Does Obama plan on throwing illegal aliens out of emergency rooms on their ears?  I doubt it.

Maybe she’s saying that the government will eat the extra cost of the illegals and not pass it on to health care consumers.  If that’s the case, I’d like to know where she gets her confidence.

I don’t consider myself an ideologue against government managed health care.  But I would like to see our government operating in a fiscally responsible way before even considering socializing our health care system.  In addition, I strongly believe our elected officials should read the health care bill before voting on it. Is there such a hurry to pass this thing that we can’t read it?  If Begley sees these views as fearful,  illogical and emotional, then I find that opinion very interesting.

From Michigan, here’s one congressman’s  opinion on reading the health care bill.

Website Recommendation!

My friend Brian Johnson runs a great Website.  This guy knows what he’s doing and I wouldn’t include his link if I thought otherwise.  If you want to get some excellent free training in the art and science of technical stock trading, check it out!

In Brian’s words: “My site is www.thestockmentor.com and it’s geared towards people who are interested in trading or learning how to better manage their own retirement accounts through stock charting. I have a lot of free online videos that explain the basics of trading and each day I do a daily video on the markets and where I see them going next. I also highlight some individual stock picks I’m watching during the course of that week as well.”

Quote of the Week:

“When you’re 50 you start thinking about things you haven’t thought about before.  I used to think getting old was about vanity, but actually it’s about losing the people you love.  Getting wrinkles is trivial.”

~Joyce Carol Oates

Buried News of the Week

Prominent banking analyst foresees 150-200 more bank failures

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!

John Quinn’s article in Saturday’s Rapid City Journal (07-11-09) caught my eye, particularly the following quote: “By what twisted logic do elitists think that the solution for too much borrowing and too much spending is even more borrowing and more spending?”

I believe the answer may lie in one of my previous blogs, where I quoted Sen Dick Durbin: “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.”

Could there possibly be a connection?  Hmmmmm…

Could our representatives, senators and presidents be putting special interests ahead of the American people?

All of this reminds me of one of my older blogs about our national debt.

Yes, our national debt has risen tremendously due to the bailouts, but the real crisis is entitlements.

When Social Security and Medicare obligations are taken into account, our national debt rises to about $65.5 trillion, which exceeds the Gross Domestic Product (GDP) of the world, according to this previously cited article in World Net Daily.

So, here are two points to ponder: 1. If $65.5 trillion in debt isn’t enough to consider the U.S. bankrupt, how much would it take?  2. If we aren’t bankrupt, then how much inflation are we going to encounter to cover this debt?

Please check out this interview with economist Marc Faber. He sees only 10-20 percent inflation in the next 5-10 years.  (I’m not quite that optimistic, but I can’t quite see a Weimar Republic scenario either.  What do you think?)

I hope everyone’s having a great summer!

Quote of the Week: “We usually meet all of our relatives only at funerals where somebody always observes: ‘Too bad we can’t get together more often.’”

~Bernard Berenson as quoted in the May 25, 2009 issue of Forbes

Digging through Youtube after considering some of these issues, I came across the following documentary about the possibility of hyperinflation in the U.S.  It features some of my favorite economists.

Quirky News of the Week

Gas station charges man $23 Quadrillion for smokes

When secured lenders chose Chrysler bonds, they accepted a lower rate of return in exchange for the assurance that in the event of trouble, they would be paid everything they were owed before any money went to the junior or unsecured lenders. (The unsecured lenders in this case would be the United Autoworkers Union, a.k.a., the UAW.)

In short, the bondholders were assured that they would be paid first because the United States is supposed to be governed by the rule of law.  (As many Lakota and others are aware, this country doesn’t always measure up to that standard.)

More specifically, legal precedents in the areas of contract and bankruptcy law provided the bondholders a “guarantee” of being paid first.

That concept went out the window with the Obama plan.  The secured lenders were paid 29 cents on the dollar while the unsecured lenders were paid 50 cents.

Yes, some of these secured lenders were hedge funds but according to economist Dr. Mark W. Hendrickson, they were also “retired blue-collar workers, investment firms managing the retirement accounts of state and municipal employees,” and “school endowments…”

Obama unfairly lumped these folks in with the hedge funds and referred to all of the ripped-off bondholders as “speculators.”

The uncomfortable conclusion I’ve come to is that Obama violated the rule of law so he could reward his UAW supporters.  This behavior smacks of Soviet style cronyism, in my opinion.  This is theft at the highest branches of the government and at this point, no one is safe with the rule of law thrown out the window.

There are also constitutional problems with the Chrysler bankruptcy and government semi-nationalization.

Dr. Hendrickson claimed that :  “The Constitution allows Uncle Sam to ‘regulate commerce’ not to own and manage it.”

According to the attorney for the Chrysler bondholders, Tom Lauria, an argument could also be made that the Constitution was violated in the area of right to contract and right to property.

The executive office, which is charged with enforcing the law is breaking the law, he claims.

With this plan, the executive office is intruding into the judicial branch and upsetting the checks and balances that are supposed to prevent this sort of abuse.

So it’s with some disgust that I share the following clip of Obama proclaiming that the secured lenders to Chrysler wanted an “unjustified tax payer funded bailout.” “Unjustified?” What’s unjustified about expecting contract and bankruptcy laws to be respected?  What about the U.S. Constitution?

In addition, Obama says that the bondholders “were hoping that everybody else would make sacrifices and they would have to make none,” when in fact, the bondholders’ attorney offered to take 50 cents on the dollar when they had no legal obligation to take less than 100%!  No joke!

If what attorney Tom Lauria said is accurate, this is one of the most disgusting cases of spin that I’ve ever seen come out of the White House; prepare yourself.

What is differentiating us from a Banana Republic on this issue?

Where is the collective outrage?

Maybe it’s  in hiding until people in this country really start to hurt.

Watch your pensions and your 401Ks.  They may very well be stolen to bail-out the bankrupt social security system.

Quote of the Week: “God seems to have left the receiver off the hook.”

~Arthur Koestler as quoted in the May 11, 2009 issue of Forbes.

Buried News of the Week

Attorney for Bondholders Accuses the White House of Threats

Please check out this clip of attorney Tom Lauria being interviewed by WJR talk radio host  Frank Beckmann.

Mr. Lauria is representing the secured Chrysler bondholders.  He makes some shocking allegations about the Obama administration.

And here’s a later Fox Business News clip where Mr. Lauria seems to back off somewhat from his earlier allegations.

Readers, if you have any theories about why Lauria moved into “no comment” mode regarding his earlier allegations, please let me know.

Lauria seems to be saying that his client wanted him to be quiet about it.

My best guess is that the White House was unappreciative of Lauria speaking publicly about the threats and so they issued further threats to his client and/or Lauria, if he didn’t shut his mouth.

See you next time.

Was that a long winter or what?

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

I ran across a couple of interesting articles at WorldNetDaily.com, so I decided to combine them and comment.

In this article by Jerome Corsi, he asserts that the Federal governments “$65.5 trillion in total obligations exceeds the gross domestic product of the world.”

He goes on to say that “the total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.”

He explains that the true budget deficit for 2008 was “$5.1 Trillion,” and not the “$455 Billion” reported by the Congressional Budget Office.

Why the difference?  Corsi reports that “the difference between the $455 billion ‘official’ budget deficit numbers and the $5.1 trillion budget deficit cited by ‘2008 Financial Report of the United States Government’ is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.”

“But the numbers in the 2008 report are calculated on a GAAP basis (’Generally Accepted Accounting Practices’) that include year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.”

“Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits accrue.”

So in other words, the governments real obligations are hidden by a cash basis while they are revealed by Generally Accepted Accounting Practices.

Here’s another article by Jerome Corsi, this one entitled, “Trillions?  Get ready for quadrillion”

Corsi illustrates the concept of a trillion dollars.

“If you had gone into business on the day Jesus was born, and your business lost a million dollars a day, 365 days a year, it would take you until October 2737 to lose $1 trillion.”

“If you spent $1 million a day, every day since Jesus was born, you would still be only slightly more that three-quarters of the way to spending $1 trillion.”

“Craig Smith, founder and CEO of Swiss America, estimates it would take approximately four generations of Americans to pay off the interest of the U.S. Treasury bonds sold as debt to create the $1 trillion stimulus package, factoring in a 3 percent growth rate in the economy throughout that time.”

Now taking all this into account, do you think the stimulus bill is responsible?

One of my readers says our leaders are incompetent in this department.  I think the movers and shakers know what they’re doing and have no plans for a stable dollar.  We the people are going to pay for this with massive inflation…eventually.

Excess debt helped create our problems.  How is more debt going to solve our problems?

Buried News of the Week

Lawmakers in 20 states move to reclaim sovereignty

After reading this article, ask yourself how long states are going to be able to keep up this level of vigilance.

The Feds could simply say, “Do you want your money or do you want to go broke?  Well then, forget the Ninth and Tenth Amendment!”  I predict this will happen.

Haven’t heard about the states going broke?  Check out this article.

Kansas is already withholding income tax refunds and may miss payroll.  Check out this AP article.