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  Pathetically, this information is already out-of-date, so I’ve changed my headline to  reflect the new “$8.5 Trillion” figure.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.