Duped by Congressional Lies

by Walter E. Williams

July 12, 2012

Some of the responses to my column last week, titled "Immoral Beyond Redemption," prove that Americans have been hoodwinked by Congress. Some readers protested my counting Social Security among government handout programs that can be described as Congress' taking what belongs to one American and giving to another, to whom it doesn't belong – legalized theft. They argued that they worked for 45 years and paid into Social Security and that the money they now receive is theirs. These people have been duped and shouldn't be held totally accountable for such a belief. Let's look at it.

The Social Security pamphlet of 1936 read, "Beginning November 24, 1936, the United States Government will set up a Social Security account for you. ... The checks will come to you as a right." Americans were led to believe that Social Security was like a retirement account and that money placed in it was, in fact, their property. Shortly after the Social Security Act's passage, it was challenged in the U.S. Supreme Court, in Helvering v. Davis (1937). The court held that Social Security was not an insurance program, saying, "The proceeds of both employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way." In a 1960 case, Flemming v. Nestor, the Supreme Court said, "To engraft upon Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands."

Decades after Americans were duped into thinking that the money taken from them was theirs, the Social Security Administration belatedly and quietly tried to clean up its history of deception. Its website explains, "Entitlement to Social Security benefits is not (a) contractual right." It adds: "There has been a temptation throughout the program's history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. ... Congress clearly had no such limitation in mind when crafting the law." The Social Security Administration's explanation fails to mention that it was the SSA itself that created the lie that "the checks will come to you as a right."

Here's my question to those who protest that their Social Security checks are not handouts: Seeing as Congress has not "set up a Social Security account for you" containing your 45 years' worth of Social Security contributions, where does the money you receive come from? I promise you it is not Santa Claus or the tooth fairy. The only way Congress can give one American a dollar is to first take it from some other American. Congress takes the earnings of a person who's currently in the workforce to give to a Social Security recipient. The sad fact of business is that Social Security recipients want their monthly check and couldn't care less about who has to pay. That's a vision shared by thieves who want something; the heck with who has to pay for it.

Then there's the fairness issue that we're so enamored with today. It turns out that half the federal budget is spent on programs primarily serving senior citizens, such as Social Security, Medicare and Medicaid. But let's look at a few comparisons between younger Americans and older Americans. More than 80 percent of those older than 65 are homeowners, and 66 percent of them have no mortgage. Homeownership is at 40 percent for those younger than 35, and only 12 percent own their home free and clear of a mortgage. The average net worth of people older than 65 is about $230,000, whereas that of those younger than 35 is $10,000. There's nothing complicated about this; older people have been around longer. But what standard of fairness justifies taxing the earnings of workers who are less wealthy in order to pass them on to retirees who are far wealthier? There's no justification, but there's an explanation. Those older than 65 vote in greater numbers and have the ear of congressmen.

Walter E. Williams is the John M. Olin distinguished professor of economics at George Mason University, and a nationally syndicated columnist.

Cloacal Finance

Jesse's Café Américain

12 June 2012

The End of the World as We Know It

by Dani Rodrik

Dani Rodrik is a professor at Harvard University’s Kennedy School of Government and a leading scholar of globalization and economic development.

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CAMBRIDGE – Consider the following scenario. After a victory by the left-wing Syriza party, Greece’s new government announces that it wants to renegotiate the terms of its agreement with the International Monetary Fund and the European Union. German Chancellor Angela Merkel sticks to her guns and says that Greece must abide by the existing conditions.

Illustration by Barrie Maguire

Fearing that a financial collapse is imminent, Greek depositors rush for the exit. This time, the European Central Bank refuses to come to the rescue and Greek banks are starved of cash. The Greek government institutes capital controls and is ultimately forced to issue drachmas in order to supply domestic liquidity.

 

With Greece out of the eurozone, all eyes turn to Spain. Germany and others are at first adamant that they will do whatever it takes to prevent a similar bank run there. The Spanish government announces additional fiscal cuts and structural reforms. Bolstered by funds from the European Stability Mechanism, Spain remains financially afloat for several months.

 

But the Spanish economy continues to deteriorate and unemployment heads towards 30%. Violent protests against Prime Minister Mariano Rajoy’s austerity measures lead him to call for a referendum. His government fails to get the necessary support from voters and resigns, throwing the country into full-blown political chaos. Merkel cuts off further support for Spain, saying that hard-working German taxpayers have already done enough. A Spanish bank run, financial crash, and euro exit follow in short order.

 

In a hastily arranged mini-summit, Germany, Finland, Austria, and the Netherlands announce that they will not renounce the euro as their joint currency. This only increases financial pressure on France, Italy, and the other members. As the reality of the partial dissolution of the eurozone sinks in, the financial meltdown spreads from Europe to the United States and Asia.

 

Our scenario continues in China, where the leadership faces a crisis of its own. The economy’s slowdown has already exacerbated social conflict, and recent developments in Europe have added fuel to the fire. With European export orders canceled en masse, Chinese factories are faced with the prospect of massive layoffs. Demonstrations begin in major cities, calling for an end to corruption among party officials.

 

China’s government decides that it cannot risk further strife and announces a package of measures to boost economic growth and prevent layoffs, including direct financial support for exporters and intervention in the currency markets to weaken the renminbi.

 

In the US, President Mitt Romney has just taken office, following a hard-fought campaign in which he derided Barack Obama for being too soft on China’s economic policies. The combination of financial contagion from Europe, which has already led to a severe credit crunch, and a sudden flood of low-priced imports from China leaves the Romney administration in a bind. Against the advice of his economic advisers, he announces across-the-board import duties on Chinese exports. His Tea Party backers, who were critical in mobilizing electoral support for him, urge him to go further and withdraw from the World Trade Organization.

 

Over the next few years, the world economy slumps into what future historians will call the Second Great Depression. Unemployment rises to record-high levels. Governments without fiscal resources are left with little option but to respond in ways that will only exacerbate problems for other countries: trade protection and competitive exchange-rate depreciation. As countries sink into economic autarky, repeated global economic summits yield few results beyond empty promises of cooperation.

 

Few countries are spared the economic carnage. Those that do relatively well share three characteristics: low levels of public debt, limited dependence on exports or capital flows, and robust democratic institutions. So Brazil and India are relative havens, even though their growth prospects are severely diminished as well.

 

As in the Great Depression, the political consequences are more serious and hold longer-term significance. The eurozone’s collapse (and, for all practical purposes, that of the EU itself) forces a major realignment of European politics. France and Germany compete openly as alternative centers of influence vis-à-vis the smaller European states. Centrist parties pay the price for their support of the European integration project, and are repudiated in the polls by parties of the extreme right or extreme left. Nativist governments begin to kick out immigrants.

 

For nearby countries, Europe no longer shines as a beacon of democracy. The Arab Middle East takes a decisive turn towards authoritarian Islamic states. In Asia, economic strife between the US and China spills over into military conflict, with increasingly frequent naval clashes in the South China Sea threatening to erupt into a full-scale war.

 

Many years later, Merkel, who has withdrawn from politics and become a recluse, is asked whether she thinks that she should have done anything differently during the euro crisis. Unfortunately, her answer comes too late to change the course of history.

 

A remote scenario? Perhaps, but not remote enough.

Analysis: Endless QE? $6 trillion and counting

By Mike Dolan

LONDON (Reuters) - Many more years of money printing from the world's big four central banks now looks destined to add to the $6 trillion already created since 2008 and may transform the relationship between the once fiercely-independent banks and governments.

As rich economies sink deeper into a slough of debt after yet another wave of euro financial and banking stress and U.S. hiring hesitancy, everyone is looking back to the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Japan to stabilize the situation once more.

What's for sure is that quantitative easing, whereby the "Big Four" central banks have for four years effectively created new money by expanding their balance sheets and buying mostly government bonds from their banks, is back on the agenda for all their upcoming policy meetings.

Government credit cards are all but maxed out and commercial banks' persistent instability, existential fears and reluctance to lend means the explosion of newly minted cash has yet to spark the broad money supply growth needed to generate more goods and services.

In other words, electronic money creation to date - whether directly through bond buying in the United States or Britain or in a more oblique form of cheap long-term lending by the ECB - is not even replacing what commercial banks are removing by shoring up their own balance sheets and winding down loan books.

Global investors appear convinced more QE is in the pipe.

"It is almost as if investors are saying QE will happen no matter what," said Bank of America Merrill Lynch's Gary Baker.

BoA Merrill's latest monthly survey of 260 fund managers showed nearly three in four expect the ECB to proceed with another liquidity operation by October. Almost half expected the Fed to return to the pumps over the same period.

The BoJ has already upped asset purchases yet again this year and Bank of England policy dove Adam Posen said on Monday the BoE should not only buy more government bonds but target small business loans too.

SO FAR, SO SO

But aside from investor hopes of a market-based call and response, is there any evidence that QE actually helps the underlying problem and what are the risks from all this?

The "counterfactual", to use an economics wonk's term, is the most powerful argument in QE's favor - what would have happened if they didn't print at all and broad money supply collapsed?

But after four years in which, according to HSBC, the balance sheets of the Big Four have collectively more than tripled to $9 trillion and still not generated self-sustaining recoveries, the question is how long this can keep going on without creating bigger problems for the future.

For a start, there is no quick solution to the problem of mountainous indebtedness.

Recapitalizing banks; stabilizing housing and mortgage markets responsible for deteriorating loan quality; further deep integration of euro fiscal links to support the shared currency; and capping government debt piles in the United States, Japan and Britain will - even for optimists - take many years.

On top of that the rich economies face gale force headwinds over the next decade from ageing and retiring populations.

In the interim, the job of central banks looks increasingly like a blended mix of monetary policy and sovereign debt management. And that's on top of recently acquired roles as guardians of financial and banking system stability.

The concern is that monetary authorities are increasingly acting as government agents responsible as much for stabilizing bond markets and keeping banks clean as for fighting inflation.

The question is not whether central banks can withdraw this money again once broad money growth gains traction - most think that's mechanically easy - it's whether they will be able to resist pressure to carry on underwriting government deficits.

A series of papers prepared for a Bank for International Settlements workshop in May certainly saw the problem.

"Whatever view is taken of this, the boundary between monetary policy and government debt management has become increasingly blurred. Policy interactions have changed in ways that are difficult to understand," the BIS overview concluded.

The papers also made clear that this form of monetary policy has plenty of precedents throughout the earlier part of the 20th century during the gold standard. It's only since the 1980s and 1990s that consensus shifted squarely behind the idea of highly independent central banks pursuing narrow price stability and even strict inflation targets.

And given the level of credit chaos that ultimately emanated from the so-called Great Moderation, it's possible that history will see that system as the aberration rather than norm.

HSBC economists Karen Ward and Simon Wells reckon central bank independence is the biggest impact from ever-more QE and fear that, as in Japan, the price will be paid by persistently high if sustainable government deficits that stifle growth.

"The heyday of independent central banking could be drawing to a close," they wrote in a wide-ranging report on QE.

Hedge fund manager Stephen Jen said he thinks the temporary benefits of QE are outweighed by long-term costs such as removing pressure for fiscal reform and market volatility.

"At some point, the benefit-cost balance flips."

Then again, not everyone bemoans the greater responsiveness of central banks to the will of elected governments.

"The source of central bank independence is public support from elected officials that the central bank is pursuing desirable social goals," BoE's Posen said Monday.

David Rosenberg Channels Felix Zulauf

Submitted by Tyler Durden on 06/13/2012 19:58 -0400

 

From David Rosenberg of Gluskin Sheff

 

This Felix Is No Cat

Though he does seem to be a furry animal nonetheless ... I'm talking about the legendary Felix Zulauf and his remarkable contribution to the Barron's Roundtable. This is what he had to say — clear, concise and cogent:

 

 

There is too much debt in the industrialized world and the financial system is virtually bust. Real disposable personal income is stagnating or declining. Employment participation keeps heading south. This produces a chain reaction: Weaker consumer demand in the West weakens manufacturing in places like Asia, which weakens natural-resource producers such as Australia or Brazil.

 

As for the euro, it is a misconstruction. As I said in January, I expect the disintegration to begin in the second half of this year. That should lead the world into financial and economic chaos. My two major themes into 2013 are euro disintegration and China weakness, due to the bursting of a real- estate boom.

 

The global economy is weakening cyclically on top of a highly fragile credit system. It is an explosive cocktail. The tower of debt is compounded by the gigantic over-the-counter derivatives market. In the past 10 years the notional value of derivatives worldwide has grown from $100 trillion to almost $800 trillion. The numbers are mind-boggling. if something goes wrong in the real economy, it could shake the whole credit system dramatically. It is a dangerous situation.

 

The euro is not the real problem but a trigger and compounder of the structural problems. It could only work if the euro zone entered a fiscal and political union, which won't happen, as Europeans aren't prepared to give up national sovereignty. Politicians therefore will go from one compromise and quick fix to the next, with the crisis deepening until some nations at the periphery won't be able to stand the economic pain anymore. They will want their old national currency back, and devalue to adjust the external accounts.

 

China won't be able to save us, as it did in 2009. The Chinese will lower interest rates but their actions will be reactive and lag. If my thesis is right, we must assume things will go awfully wrong in the next 12 months and the system will be at risk of collapsing. Most U.S.-focused investors might not understand it as they see corporations doing well.

 

The potential exists for a broad-based nationalization of the credit system, capital controls and dramatic restrictions on financial markets. Some might even be closed for some time.

 

We are witnessing the biggest financial-market manipulation of all time. The authorities have intervened more and more, and thereby created this monster. They might change the rules when the game goes against their own interests.

 

We are in a severe credit crunch. It starts when the weakest links in the system can't finance their activities. Then you have a flight to safety into Treasuries and German bunds, compounded by a quasi-shortage of good collateral. That's why bond yields have fallen so low. This isn't an inflationary environment but a deflationary one.

I like to think I could have said it better, but I don't think I could have. These are just a few excerpts but very hard-hitting stuff and a nice contrast to a lot of the other mush out there. Fred Hickey is worth a read too in this Roundtable discussion, ditto for Marc Faber (disclosure: they are friends of mine, but don't hold that against them!)

Hubris as the Evil Force in History

by Paul Craig Roberts

June 14, 2012

I have always been intrigued by the Battle of Bull Run, the opening battle of the US Civil War, known to southerners as the War of Northern Aggression. Extreme hubris characterized both sides, the North before the battle and the South afterwards.

Republican politicians and their ladies in their finery rode out to Manassas, the Virginia town through which the stream, Bull Run, flowed, in carriages to watch the Union Army end the “Southern Rebellion” in one fell swoop. What they witnessed instead was the Union Army fleeing back to Washington with its tail between its legs. The flight of the northern troops promoted some southern wags to name the battle, the Battle of Yankee Run.

The outcome of the battle, left the South infected with the hubris that had so abruptly departed the North. The southerners concluded that they had nothing to fear from cowards who ran away from a fight. “We have nothing to worry about from them,” decided the South. It was precisely at this point that hubris defeated the South.

Historians report that the flight back to Washington left the Union Army and the US capital in a state of disorganization for three weeks, during which time even a small army could have taken the capital. Historians inclined not to see the battle as a victory for the South claim that the southerners were exhausted by the effort it took to put the yankees to flight and simply hadn’t the energy to pursue them, take Washington, hang the traitor Lincoln and all the Republicans, and end the war.

Exhausted troops or not, if Napoleon had been the southern general, the still organized southern army would have been in Washington as fast as the disorganized Union. Possibly the southerners would have engaged in ethnic cleansing by enslaving the yankees and selling them to Africans, thus ejecting from the country the greed-driven northern imperialists who, in the southern view, did not know how to behave either in private or in public.

It was not southern exhaustion that saved the day for the North. It was southern hubris. The Battle of Bull Run convinced the South that the citified northerners simply could not fight and were not a military threat.

Perhaps the South was right about the North. However, the Irish immigrants, who were met at the docks and sent straight to the front, could fight. The South was dramatically outnumbered and had no supply of immigrants to fill the ranks vacated by casualties. Moreover, the South had no industry and no navy. And, of course, the South was demonized because of slavery, although the slaves never revolted even when all southern men were at the front. When the South failed to take advantage of its victory at Bull Run and occupy Washington, the South lost the war.

An examination of hubris casts a great deal of light on wars, their causes and outcomes. Napoleon undid himself, as Hitler was to do later, by marching off into Russia. British hubris caused both world wars. The second world war began when the British, incomprehensibly gave a “guarantee” to the Polish colonels, who were on the verge of returning that part of Germany that Poland had acquired from the Versailles Treaty. The colonels, not understanding that the British had no way of making the guarantee good, gave Hitler the finger, an act of defiance that was too much for Hitler who had declared Germans to be the exceptional people.

Hitler smacked Poland, and the British and French declared war.

Hitler made short work of the French and British armies. But the British in their hubris, hiding behind the English channel, wouldn’t surrender or even agree to a favorable peace settlement. Hitler concluded that the British were counting on Russia to enter the war on their side. Hitler decided that if he knocked off Russia, the British hope would evaporate and they would come to peace terms. So Hitler turned on his Russian partner with whom he had just dismembered Poland. Stalin, in his own hubris, had recently purged almost every officer in the Red Army, thus making Hitler’s decision easy.

The outcome of all this hubris was the rise of the US military/security complex and more than four decades of cold war and the threat of nuclear destruction, a period that lasted from the end of world war two until Reagan and Gorbachev, two leaders not consumed by hubris, agreed to end the cold war.

Alas, hubris returned to America with the neoconservative ascendency. Americans have become “the indispensable people.” Like the Jacobins of the French Revolution who intended to impose “liberty, equality, fraternity” upon all of Europe, Washington asserts the superiority of the American way and the right to impose it on the rest of the world. Hubris is in full flower despite its defeats. The “three week” Iraq war lasted eight years, and after 11 years the Taliban control more of Afghanistan than the “world’s only superpower.”

Sooner or later American hubris is going to run up against Russia and China, neither of which will give way. Either the US, like Napoleon and Hitler, will have its Russian (or Chinese) moment, or the world will go up in thermonuclear smoke.

The only solution for humanity is to immediately impeach and imprison warmongers when first sighted before their hubris leads us yet again into the death and destruction of war.

Decline of the Empire

By Dave Cohen

WHEN WILL THE LYING MSM & WALL STREET A-HOLES ACKNOWLEDGE OUR RECESSION?

Posted on 14th June 2012

by James Quinn

Dress Rehearsal for a Mideast War?

by Patrick J. Buchanan

June 15, 2012

"History does not repeat itself, but it often rhymes," said Mark Twain.

Observing the uprising in Syria, the atrocities, the intervention by rival powers, it all calls to mind the Great Rehearsal for World War II, the Spanish Civil War.

The war began in 1936 with an uprising in Morocco of Spanish Nationalists against a Madrid regime seen as anti-Catholic, Marxist and Trotskyite. Vladimir Lenin had predicted that Spain would be the second Soviet republic in Europe.

The war would last three years, with Joseph Stalin providing aid to the regime, Benito Mussolini sending troops to fight on the side of Gen. Francisco Franco and Adolf Hitler sending his Condor Legion. The bombing of Guernica by the Legion, commemorated in the famous Picasso painting of that name, would be regarded as the great war crime of the conflict.

Yet Guernica was child's play compared with what was to come with the Blitz, Berlin, Dresden, Tokyo, Nagasaki, Hiroshima. The Nuremberg Tribunal would wisely rule out terror bombing of cities as a war crime for which Nazis could be prosecuted and hanged.

As America has declined to intervene in Syria, FDR declared neutrality early in the Spanish Civil War, outlawing any sale of weapons to either side.

In 1936, as the Spanish war erupted, FDR spoke for his country:

"We shun commitments which might entangle us in foreign wars; we avoid connections with the political activities of the League of Nations. ... We are not isolationists except insofar as we seek to isolate ourselves completely from war."

America emphatically agreed.

Today, it is the bitter fruit of Iraq and Afghanistan that explains our reluctance. Then, it was 116,000 American dead in places like the Argonne and Belleau Wood – which had produced a Carthaginian peace at Versailles and set the table for Hitler – that had left us with ashes in our mouths.

Two battalions of American volunteers did go to Spain to fight on the side of the regime. In 1947, veterans of that "Abraham Lincoln Brigade" would be put on the Attorney General's List of Subversive Organizations.

In Spain, the struggle was ideological and religious – Nationalists and Catholics against socialists, communists and anarchists.

In Syria, too, it is religious – the Alawite Shia regime of Bashar Assad battling an uprising centered in the Sunni Muslim Brotherhood.

As Europe in 1936 contained democracies, dictatorships of the fascist and authoritarian right, and a Stalinist left, today's Middle East contains democracies, monarchies and dictatorships.

As there were Catalans and Basques fighting for their own causes in Spain, in Syria today are Kurds, Druze and al-Qaida with their own rival agendas.

As America and Britain stayed out of the Spanish Civil War, so today America and Britain have stayed aloof from Syria's conflict.

As the Spanish Civil War exposed the impotence of the League of Nations, Syria's conflict is exposing the paralysis of the United Nations, when permanent members of the Security Council like Russia refuse to authorize the kind of intervention they did in Libya.

As the Spanish republic received moral and material support from Moscow, today Moscow sends attack helicopters to Damascus, while Turkey provides sanctuary for the resistance, and Saudi Arabia and Qatar provide weapons.

Russia and Iran see Assad's Syria as their last strong, reliable ally in the region. Syria's ports on the Mediterranean are open to Vladimir Putin's navy. And Putin's military-industrial complex has long sold the Assad family the weapons to fight its wars and crush rebellions.

If Assad's regime were to collapse and the Muslim Brotherhood come to power, Russia would be virtually out of the Middle East. Iran would be almost isolated. Had we not overthrown the Sunni regime of Saddam and brought the Shia majority to power in Baghdad, an Iran without Syria would be an Iran without a major ally across the region.

The first peril in the Syrian conflict is that it could become a civil war in which not just 10,000 die, but scores of thousands perish.

A second danger is that as Syria contains Sunni, Shia, Druze, Kurd, Arab, Christian – indeed, mirrors the Middle East – a Syrian civil war could become a proxy war for all in the region, beginning with Lebanon.

Third, as Syria is aligned with Iran in the conflict with Israel and with Russia on the world stage, greater powers may come to see themselves as having a vital stake in how this war ends, and intervene, each in its own way, to assure a favorable outcome.

The Spanish Civil War ended in Franco's victory in 1939 and ended well for the Western democracies that had not intervened.

When Hitler, after occupying France in 1940, met with Franco to ask permission for the Wehrmacht to cross Spain to attack Gibraltar, Franco said no and put troops in the Pyrenees to enforce his decision.

Unlike Mussolini, Franco remained a nonbelligerent in the world war, returned U.S. pilots who came down in Spain and agreed to a postwar alliance with the United States.

Non-intervention in the Spanish Civil War worked out just fine.

June 15, 2012

June 15, 2012

– Nikolai Kondratieff (1892-1938) was a Russian economist who theorized that capitalist economies are subject to a repeating 54-year cycle, though I have seen his work interpreted to fit economic periods lasting anywhere from 40 to 60 years. Each “Kondratieff wave” is divided into four periods that are given the name of the four seasons. A wave begins with an economic boom and ends in a financial bust lasting several years. This period of poor economic conditions is called the Kondratieff Winter.

A Kondratieff Winter is marked by depression and deflation, like occurred during the Great Depression of the 1930s. Followers of this theory generally contend that the world is presently in another Kondratieff Winter.

I am not a proponent of the Kondratieff theory because I do not believe that events are preordained, or that they fit precise cycles. Nevertheless, I am an adherent of Austrian Economics, and thus recognize that economic booms that are artificially induced by cheap credit do occur, and that these booms result in an inevitable bust. So in that sense, if one wishes to call the world’s present circumstances a Kondratieff Winter, I would agree.

Like the 1930s, we are in a period of depression, and if you use the correct money to measure prices, there is deflation. Today’s deflation though is generally not recognized because people only look at prices using national currencies, and not gold.

The dollar price of assets like houses, crude oil and the stock market is falling, but that is not deflation. That is simply an overvalued asset being marked down in price to a more realistic level. Asset prices fall during a bust because the excessive credit extended during the boom is wrung out of the system. This process describes wealth destruction, which is not the same thing as deflation. Deflation, and for that matter, inflation are monetary events.

House, crude oil and stock prices are falling even while the currency being used to measure these prices is inflating. The dollar is inflating even by the US government’s own CPI, which many – including me – contend actually understates the true rate of inflation. This inflation means that the dollar is losing purchasing power. In contrast, in the 1930s the purchasing power of the dollar rose, which is what happens in a deflation. Its purchasing power rose back then because the dollar was tied to gold, first at $20.67 per ounce, and after Roosevelt devalued the dollar, at $35 per ounce.

Today the dollar is fiat currency. It is no longer backed by gold or tied to gold at a fixed rate of exchange, but instead is informally linked to gold by a floating rate of exchange, normally called the gold “price”. Even though gold rarely circulates as currency these days, gold is money. Consequently, gold is useful in economic calculation, i.e., measuring prices to determine whether there is inflation or deflation.

For example, consider the price of a popular commodity such as tea, which rose 49.6% from $2.28 per kilogram in January 2000, near the peak of the economic boom, to $3.41 last month. When measuring in terms of goldgrams, the price of tea fell over this period from 0.251gg per kilogram to only 0.066gg. To put it another way, 0.251gg bought 3.8-times more tea last month than it did in 2000. That huge increase in the purchasing power of gold is deflation, just like occurred in the 1930s. A similar price comparison for dozens of other goods and services would yield the same result. The prices of goods and services when measured using gold are falling, or in other words, the purchasing power of gold-money is increasing because of deflation.

Unfortunately, nearly everyone today calculates prices only in terms of dollars or their national currency. As a consequence, they say “the price of gold is rising”. What they need to realize though is that the purchasing power of gold is rising. In a deflation, money buys more, and that is what gold is doing, though this way of viewing purchasing power and prices is generally ignored. In contrast to the 1930s, in today’s world of fiat currencies deflation is only apparent when measuring prices with gold.

Given the prevailing poor economic conditions and gold deflation, we are in what might be called a Kondratieff Winter, but to be more accurate, I prefer to call our present circumstances a “Fiat Currency Bubble”. It has been ballooning for 40 years, during which time people lost sight of gold’s essential nature and put undue reliance upon currency backed by nothing.

Given that all bubbles are unsustainable, this bubble too will pop. When it does, the preponderance of people who now ignore gold or dismiss out of hand its monetary attributes will once again come to understand that these attributes and characteristics that made gold to be accepted as money for 5,000 years have not disappeared, been destroyed or become less useful. They remain, but sadly, have been ignored or forgotten, allowing the Fiat Currency Bubble to emerge.

When the Fiat Currency Bubble finally pops, the gold price will soar and fiat currencies will collapse, just like all fiat currencies have done throughout monetary history. At that time I expect gold will return to its rightful and traditional role as international money at the center of global commerce. My recommendation therefore is to continue accumulating physical gold, and if so inclined, silver too, in order to protect your wealth in preparation for this watershed event. Even though gold’s purchasing power has been rising for more than a decade, its appreciation has much further to go.

I've been posting articles for at least 4-5 years now about how everything is going to hell and how to try and prepare for it. What's interesting is that really nobody has a clue as we are in totally uncharted territory. I could post a hundred articles where 50 experts, through in depth analysis and charts, make the case for a terrible inflationary environment soon approaching. At the same time I can find 50 others with just as good credentials making the case for a deflationary collapse. So where does that leave us?

I've done some research and the pros (their opinions FWIW) feel that for periods of high inflation the best investments are: commodities, TIPS, gold, REITS, oil, emerging markets and technology stocks.

For periods of deflation: cash/u.s. dollar, long term bonds, short equities (generally) except for high quality dividend stocks, and technology stocks.

To hold through a period of deflation followed by inflation, or vice versa: stocks with pricing power (healthcare conglomerates like JNJ or NVS), food distributors, healthcare, consumer staples, agriculture, cash rich blue chips, emerging markets, foreign bonds, and TIPS.

Perhaps the best idea is a quote from my investing guru Jesse Livermore:

“I knew something was wrong somewhere, but I couldn’t spot it exactly. But if something was coming and I didn’t know where from, I couldn’t be on my guard against it.  That being the case I’d better be out of the market.”
 

100% of U.S. Jobs Added Since 2010 Have Been Self-Employment, Contractor, or Other Jobs Without Unemployment Insurance Benefits

The Military Occupation of Tampa Goes Live
Foreign troops practice for any disturbance at the GOP convention

This is not some Hollywood action movie – though the Pentagon runs both – but America 2012, only worse. If you are going to Tampa, take this video to heart. The killers will be in charge, and the are a bloodthirsty bunch. Give them no reason to target you with sound canons, laser burning weapons, tasers, rubber bullets, or worse.

http://www.youtube.com/videos?feature=mh