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

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

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