Monthly Archives: September 2008

Ron Paul clearly states the situation…

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Fox News did a ten minute interview with Ron Paul and actually gave him the time to clearly state what is going on.  If the anchors were actually listening I don’t know, and frankly they need to.  The present situation is dire and people are only barely starting to take it seriously.  Given that Bernake is a student of the Great Depression he thinks the only way out is government intervention through bailouts and inflation.  The issue with that is we have a problem: Excess has built up in the system and it needs to be corrected.  By easing the debt burden on the banks the problem doesn’t go away, but only gets pushed further out into time.  

According to Austrian Economics whenever a bubble forms due to excess credit it must be deflated.  During the deflation excess inventory is bought at cheap prices, and the economy then moves forward.  This allows the economy to go though a minor correction and then move on.  The mortages need to be sold off and housing prices need to come down.  Our fiat monetary system only survives on debt and credit, which we are finding out has its limits.  

Instead of letting the system correct the taxpayer might be on the hook for other people’s mistakes.  Why is it imperative that house prices go back up?  Let them readjust to a point where people can afford them.  We will survive, and in the short-term it might be rough.  The dollar is at the brink of destruction.  A bailout will necessarily ensure that the dollar will be dumped because nobody wants to hold worthless paper.  

Warning:  If you see interest rates rising and the dollar falling this is a sign that major players are getting out of the dollar.  This is cause for concern.

Bernake, Paulson, and Bush are selling this proposal as a way to avoid a catastrophe. A necessary evil that if not enacted immediately will be the downfall of the United States and its citizens will suffer. Bush in his address to the nation did comment on the credit problem, but then went for the jugular and instilled fear just as Bernake and Paulson have been doing. He said that he believed in the free-market, but tough times call for decisive action. If he truly believed in the free market the Fed would not exist, there wouldn’t be sugar tariffs and corn subsidies, and I could go on and on. If you believe that we went into Iraq because of WMDs (Weapons of Mass Destruction) then go ahead and believe him on this one.

I find it quite convenient that we have major swings in the stock market and then this proposal comes to light. The banking crisis isn’t something new. Its been going on for over a year, and why now must it be passed right before Congress goes to recess. Fear will induce irrationality and it is imperative that this bill does NOT pass. I would rather face major banks failing then have the government try to sort this out.

Watch this video it is right to the point!

A call to action :: Ron Paul

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I endorse no candidate for the upcoming election.  However, I recently read Ron Paul’s statement about the state of the potential bailout that may be voted on as early as tomorrow.  Given the urgency of that matter and clarity of prose I present it here.

Letter from Ron: Time is running out

September 24th, 2008 by Ron Paul

Dear Friends,

Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.

The events of the past week are no exception.

The bailout package that is about to be rammed down Congress’ throat is not just economically foolish.  It is downright sinister.  It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect.  It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder.  Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China!  “This is welfare for the rich,” he said. “This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters.”

That describes the current bailout package to a T.  And we’re being told it’s unavoidable.

The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it.  But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences – predictable, that is, to those who understand sound, Austrian economics – are being let off the hook.  The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!

•    The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time.  That means $700 billion is only the very beginning of what will hit us.

•    Financial institutions are “designated as financial agents of the Government.”  This is the New Deal to end all New Deals.

•    Then there’s this: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.“  Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

There goes your country.

Even some so-called free-market economists are calling all this “sadly necessary.”  Sad, yes.  Necessary?  Don’t make me laugh.

Our one-party system is complicit in yet another crime against the American people.  The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind – another example of the big choice we’re supposedly presented with this November: yes or yes.  Now, with a backlash brewing, they’re not quite sure what their views are.  A sad display, really.

Although the present bailout package is almost certainly not the end of the political atrocities we’ll witness in connection with the crisis, time is short.  Congress may vote as soon as tomorrow.  With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it.  Call them! Let them hear from you!  Tell them you will never vote for anyone who supports this atrocity.

The issue boils down to this: do we care about freedom?  Do we care about responsibility and accountability?  Do we care that our government and media have been bought and paid for?  Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government?  Do we care?

When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?

Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.

In liberty,

Ron Paul

P.S. All week long, Scott Horton’s excellent Antiwar Radio program, which I highly recommend, will devote its first hour (12:00-1:00pm ET) to the financial crisis. Today, my former economic adviser, Peter Schiff, will be on the program. We’ll stream these programs at theCampaign for Liberty website.  Listen in!

From turmoil to manipulation to control

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TURMOIL, FEAR, CRISIS, PANIC, COLLAPSE, SAVING THE ECONOMY, BAILOUT, CONTROL… Notice the progression from left to right.  A few bumps in the road lead to an eventual bailout with control obtained due to matters rushed in a state of panic.  Do people act rationally when they are paniced?  NO  Generally, they look for a solution.  Someone to come along and say “follow me”  I know the way!  This is exactly what is happening with the proposed bailout plan that is thankfully hitting a few speed bumps.  However, Bernake, Paulson, and the Bush administration want to see it passed immediately.

Bloomberg article:    (Emphasis in bold mine)

“I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,” Bernanke told the Senate Banking Committee today. “My interest is solely for the strength and recovery of the U.S. economy.”

Lawmakers have balked at rubber-stamping the Treasury plan to remove illiquid assets from the banking system, with Democrats demanding it support homeowners and limit executive pay, and Republicans resisting the plan’s reach and size.

Bernanke, putting aside his prepared remarks released earlier today, said the Treasury should buy illiquid assets at “hold-to-maturity” values rather than at discounted “fire- sale” prices. The suspension of “mark-to-market” accounting for assets, a change backed by “many banks,” would instead hurt investor confidence.

Let’s get this straight… Markets in turmoil, unknown amount of worthless assets, the banks don’t want to write them off because it will show up on their books, they will need more cash on hand once the bad debt is written off, which they don’t have, Bernake and Paulson want to push this though ASAP, Bernake and Paulson want to pay the HTM (Held to Maturity cost), and not a discounted price.  That is essentially paying for a salvaged car at the price it cost when new and in the showroom.  THIS IS NOT GOOD

HTM securities are those the investor intends to hold to maturity and is able to hold to maturity. Designation of a security as HTM allows the investor to report the security value at historical cost plus accretion or minus amortization. Unrealized gains or losses are not shown on the balance sheet, reflected in reported income, or reflected in reported net worth. 

What I want to know is what we aren’t seeing.  We have a bill trying to be pushed though Congress at a very rapid pace.  Lawmakers are being asked to assume at a minimum $700 billion worth of debt obligations that nobody knows the value of.  No bank in the world or private institution would consider doing such a thing.  However, the rules change when you say that it is in the taxpayer’s best interest in “saving” the economy, but behind the taxpayer’s back you are reaching into their pocket and pulling out hard earned cash.

Potential outcomes at current juncture…

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I’m attempting to grapple everything going on apart from my disgust… and come up with a couple scenarios. Any help will be appreciated.

Overall economic trend:

  • - Economy is sliding deeper into a recession
  • - Housing prices continue to fall
  • - The dollar’s short-term value is undecided, and long term looking weak
  • - Unemployment rising
  • - Prices falling
  • - Interest rates falling

Present Situation:

If a bailout is passed we might be able to presume that:

  • - The dollar will lose value potentially very much if large reserves are sold off
  • - Interest rates will have to rise as that is the only way foreigners will want to hold dollars
  • - Imports will become very expensive
  • - Prices will skyrocket
  • - Recession will deepen – Depression?
  • - Stock market will rally — for how long?

If the bailout isn’t passed:

  • - Dollar might stabilize a bit
  • - Uncertainty will continue
  • - Markets will gyrate while overall trending down
  • - Financial markets will tighten
  • - Stock markets will plummet

Finally: A potential indicator of a dollar collapse

If interest rates rise and the dollar falls people are selling off their dollars and treasuries, which means nothing but bad for the dollar.

—–
How am I doing so far?

Losing our freedoms…

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Whenever there is panic and fear, which are growing rapidly day by day there is generally an accompanied amount of control and restriction by the state (the government).  Everyone’s focus at the moment is on the stock market and the bailout plan.  However, behind the scenes events are unraveling that once again as they have ever increasingly since September 11, 2001 are limiting and curtailing our freedoms.  We fought hard for these and to have them taken away as a byproduct of events that could have been avoided… 

During times of unrest and ill ease it is imperative that we stand by the constitution and not let it go by the wayside.  We expect the state to intervene and save us versus take care of ourselves.  The founders of this country who risked their lives to have freedom would be disgusted at how we roll over these days. 

Our borders are becoming increasingly difficult to cross with more information required.  Ellen Nakashima of the Washington Post wrote an interesting article about the extended search capabilities of the border guards…

The U.S. government has quietly recast policies that affect the way information is gathered from U.S. citizens and others crossing the border and what is done with it, including relaxing a two-decade-old policy that placed a high bar on federal agents copying travelers’ personal material, according to newly released documents.

The policy changes, civil liberties advocates say, also raise concerns about the guidelines under which border officers may share data copied from laptop computers and cellphones with other agencies and the types of questions they are allowed to ask American citizens.

The article continues 

But what DHS did not disclose was that since 1986 and until last year, the government generally required a higher standard: Federal agents needed probable cause that a law was being broken before they could copy material a traveler was bringing into the country.

If you or I go through the United States border we may be detained, our personal documents photocopied, our cell phones held onto, our computers searched, and the list goes on.  Previously, a customs agent would have to obtain permission from the courts or have a probable cause to commit such acts.  No longer is that necessary.  The rest of the article cites specific instances where people have been detained for 5.5 hours, been asked about their religious beliefs, who people in their cell phones are, and so one.  

Every time I travel internationally I dread going through United States customs.  I would rather go through customs in India, China, Egypt or any other country for that matter than the US (there are a few exceptions).  Prior to September 11, 2001 this wasn’t as big an issue.  However, these days you are automatically assumed to be somewhat guilty, and questioned as such.  As a foreigner I can’t imagine what customs is like.  

Once I was returning to the United States from Europe.  There are many stamps and visas in my passport as I have traveled all over the world.  The customs agent started to go through my passport page by page asking me about every country I had a stamp for.  The stamps were a couple years old and had no relevance to my present trip so I was becoming quite annoyed.  Finally I asked him if he had ever been to India and if not that he had to go because it is such an amazing country.  The people are friendly, the food is amazing, and so on.  He replied that he doesn’t travel outside the United States.  A border agent that doesn’t travel outside the United States seems quite ironic.

State powers seem to be growing within the United States as well.  Prior to the Republican National Convention there was a mass arrest in St. Paul Minnesota.  


 

The Glass Bead Collective released video on Thursday of the mass arrests of protesters, media and bystanders at Shepard Road on day one of the Republican National Convention. A number of those arrested were heading to or from the SEIU Labor Day concert on Harriet Island. (Three members of the Glass Bead Collective were among those arrested in the week before the RNC in St. Paul.)

The Glass Bead Collective said the video came from a cameraman who hid his video before being arrested. From the press release, “Video released today shows the indiscriminate arrest of a crowd of two hundred at the waterfront across from a concert on Harriet Island Regional Park during this month’s Republican National Convention in St. Paul. The video includes multiple angles of the event as well as an interview with the cameraman who buried his footage and was one of almost two hundred people arrested for rioting without probable cause.”

Copperfield & Houdini for Presidency!

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I’ve attended a few performances by David Copperfield and he has performed the unbelievable.  Before my very own eyes a group of thirty people vanished into thin air.  Where did they go?  I watched the unbelievable made real right in front of me.  How could this be an illusion created to fool me into belief?  I ask you… HOW?

David Copperfield and Harry Houdini would probably be a better pair to run the government at this point.  At least they would give us a good show.  The current officials in office make my gut wrench.  We have migrated from the land of the free to nationalization of private property in the name of free markets.  Whoa… okay let’s get something straight.  WE DO NOT HAVE FREE MARKETS… NOT EVEN CLOSE  

If we actually had a system that represented free markets the Federal Reserve (a PRIVATE bank made up of member banks that are also PRIVATE) would not exist, we would still be on the gold standard, and the government wouldn’t even consider a bailout of the taxpayer’s funding, and the United States Treasury would not be proposing this amazing relief package for those who are mainly responsible for getting us into this mess.  

So, I mentioned two masters of illusion… Why?  What is being pulled off at the moment is happening in front of our eyes and for some like me is atrocious.  However, for others they think it is essential to the integrity of financial markets, financial institutions, and YOUR house.  The entire bailout is being purported as a bailout for the helpless homeowner, the saver, the middle class.  

The problem is that nobody knows how much any of this debt is actually worth.  Say the government buys $700,000,000,000,000.00 worth of debt at $0.20 on the dollar, which is great discount.  If that debt is in reality worth less than that we have a problem.  When will these notes be paid back, and in what form are the notes?  

Chris Martenson managed to grab part of an article that later disappeared from Bloomberg that said:

“The Treasury’s thinking is to make it as big and wide as possible so they have the flexibility to act if need be,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. “There have been losses on a whole range of U.S. debts and as the economy deteriorates in response to the housing slump those losses could escalate.” 

Treasury officials now propose buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.

This effectively means any type of debt.  Let’s take a moment to see what forms of debt exist:

  • Credit Card DEBT
  • Mortgage DEBT
  • Automobile DEBT
  • Bond DEBT

………. and the list goes on ………….

So, we have the United States government wanting to take on all this debt in the name of saving the financial markets.  Let’s just take the debt from the banks to clear up their balance sheets so they don’t have to write it off, which would cause them to have to increase their reserves because their assets are now below the minimum.  We could lower that further, but it has already been lowered to 3% of total assets.  That means they most likely loaned out the other 97%.  

As the Fed creates money our dollar is worth less and less.  Where is the Federal Government going to come up with $700 Billion dollars?  They will create it from nothing, which the Federal Reserve is great at doing.  Inflation will not solve the problem, only exacerbate it.  Newt Gingrich opposes it, and admits that if he is wrong in not supporting it that it is the lesser of two evils.  

If this bill passes please say goodbye to the dollar as we know it.  Foreigners might finally reach the breaking point to where they are afraid to purchase dollars and realize that buying them to keep their currency less expensive is futile.

Disgusted

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Amusing yes, depressing yes… Therefore I ask are we just pawns in a game. A host to a virus that will keep us alive to survive. Do we go about our merry lives content with how things are and vote or not — knowing it doesn’t matter? Or worse voting and thinking that it makes a difference? If I am that absolved to complacency then I might as well live on the isle of Gauntlett, an ecosphere… self-sufficient, self-sustaining, and apart from all. Ron Paul lies it out all out in Revolution: A Manifesto, but as I’ve mentioned people don’t want to listen, and are complacent with being robbed and then blaming it on corporations when the culprits are government officials. I want freedom, personal rights, and property rights with a just law. Without those how can I plan for the future. What incentive do I have to invest if the rules are continually changing? 

If someone continually takes a penny from pocket at an ever increasing rate what motivation do I have to produce pennies or for that matter anything?  

Down with the dollar, manipulation everywhere….

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I don’t know what to think about today. There was nothing normal about how the markets went about their day. Up down up down waaaaay up. And exactly when the market took off gold dove. There was a perfect inverse correlation between the two markets.

When gold gets too high this isn’t good for banks and especially the fed. It is a signal of losing confidence on the dollar, which is a piece of monopoly money that we are able to use as a medium of exchange.

For the whole fiat currency to continue to function there has to be debt and liquidity. Liquidy is drying up as banks don’t want to lend to eachother. Nobody knows for sure who is the next in a series of falling dominoes. With the Fed injecting over 100billion dollars into the system last night our dollar is looking ripe for a major devaluation.

I’m off to Newport Beach today for a real estate seminar led by John Schaub. It should be interesting and I’m excited to learn something new and get my mind off the rapidly deteriorating economy.

Bernake admits financials out of control…

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In an article from the Chicago Tribune

“We have lost control,” said Hale, quoting Bernanke. “We cannot stabilize the dollar. We cannot control commodity prices.”

Hale is an economist who had a private meeting with Ben Bernanke several months ago. Now, we are finally feeling the full effect of the loss of control.

I really hope that many of you have hedged your portfolios already or gotten out of the markets. The dollar is next unless perhaps interest rates are raised as an emergency measure to prevent the fallout. Expect housing prices to continue their descent as liquidity evaporates.

The banking system is insolvent.

Stocks for the LONG LONG LONG term

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“The best therapeutic move for long-term investors is to turn off your TV so as not to get caught up in all of the sensational headlines. The stock market has been and will continue to be the best source for wealth creation over the long-term.”

–Patrick J O’Hare, Briefing.com

I love hearing that the stock market for the long term is the way to make money. Close your eyes and prey. Whoa… Did you close your eyes and watch the money flow into your pockets when you labored every day for what you have invested?

What happens if you are in individual stocks and some of them go bankrupt? The indices adjust and find another company to take the failed ones place. Yes, the market has gone up in the long term, but what if you invested at one of the tops before the crash and had to wait 16 years to get your money back? I don’t know about you but I’d rather sit on the sidelines and wait it out. There are ways to see the hurricane of in the distance, but if you are unwilling or unable it will hit you.

When Columbus was making landfall the natives didn’t see his ships because they weren’t part of their reality. If we can’t adjust our thoughts to accept something new or different then how are we going to prepare for a possible change of future direction?

Read the following article… There is a grim reality facing us all. Investment banks have used up their ability to lend to businesses. Considering that the growth of our economy depends on the ability of credit we are facing a MAJOR did I say MAJOR issue in front of us.

Money Central Article

I’m also hearing local news radio having discussions about what to do with your money to keep it safe. Last night I heard someone saying that this is the time to start thinking about buying. Sure there is the old adage that when there is blood in the streets buy. When if the blood is only at a trickle when it will be a river?