Ben Bernanke surprised the markets and most economist at its September meeting by deciding not to taper back its 85 billion a month bond/mortgage backed security buying program. It was believed by most economist that the Fed would began tapering because at its June meeting Bernanke had hinted that the Fed would begin tapering later this year. This belief had caused stocks to go slightly down, gold and silver prices to drop dramatically, and bond yields to spike. While most economist were fooled into believing the Fed narrative that the economy was getting better and that it was time for the Fed to start ending its QE ( monetizing the debt), Peter Schiff was saying at the time that the Fed could not taper or if it did that it would have to reverse course and expand its QE program. From what I have read it is impossible for the Fed to voluntarily exit its bond/MBS purchases as the markets are addicted to Fed stimulus, and this stimulus is the only thing keeping the economy from collapsing. Eventually the markets will realize that the Fed is trapped and that it is impossible for it slowly end its QE program: “The Fed has checked into a monetary Roach Motel. Getting out will be infinitely harder than getting in. In fact it will be likely impossible to get out without tipping the country back into recession”. When the markets realize this, the real economic crisis will happen. This will be a currency/debt crisis where you will be lucky to have half of your savings left.
Obama just told the world that America
is unable to pay its bills unless it is able to borrow more money. He also told the world that America won't even try to pay its creditors by cutting spending or raising taxes: “President Barack Obama challenged the
U.S. Congress on Friday to approve an increase in the U.S. debt
ceiling or else the United States will be unable to pay its bills and
then, 'We're deadbeats.'”. This sends a profound message to the world.
America has had a massive trick played
on it as it fails to realize that our free-market economic system has
been switched out with centrally-planned economic system. Watch this four minute card trick starting at 4:48 to see this illustrated. The Fed is the card
trick that distracts us from the fact that our economic system has
been changed.
This is exactly right. It's truly frightening that no one is brave enough to take the foot of the gas of quantitative easing, for fear of plunging us into a recession. The economy, with massive pumping (ie indebtedness to younger/future generations) of dollars from the Fed, has managed to recover somewhat from the Great Recession, but is just stumbling along, and anything can trip it up. What this tells us is that the recovery is phony, only held up by the constant priming of the Fed.
ReplyDeleteWhen Reagan was elected, he bit the bullet and raised interest rates to beat stagflation (stagnant GDP + inflation). This plunged the US economy into a severe short term recession but an even more positive recovery that lasted all the way from Reagan's first term through Bush's second.
Obama and Dems don't care: as long as wealth is being redistributed they're happy. Zero-sum world for them and the future be damned.
You have been fooled by a card trick very similar to the one in the video as you are looking at the issue through the prism of democrats vs. republicans. This is a distraction aimed to distract your attention from what is really going on.
ReplyDeleteWith the 17 trillion offical debt, raising interest rates is simply impossible. One of the reasons the Fed decided not to taper was the fact that interest rates spiked after it hinted that it would taper. If interest rates were to go back to their historical average then this would increase the deficit dramatically.
"... 40% of US government debt comes due within two years. Rolling it over at higher rates of 4% or 5% would add more than $100 billion to the budget deficit. And that is just the first two years. The budget cost increases every year, as more of the debt rolls over – and that does not include agency debt and the large increase in the current-account deficit to pay China, Japan, and other foreign holders of US debt."
http://www.zerohedge.com/news/2013-08-14/guest-post-when-inflation-doves-cry
Here is a great article about QE. http://www.zerohedge.com/news/2013-09-23/qe-worked-weimar-republic-little-while-too
The bottom line is that we are currently living in the greatest financial bubble in human history. An economic crisis is guaranteed. Multiply the Great Depression by a trillion and you start to get an idea as to what the implications for our lives will be.
As any solution to the problem that has any chance of happening needs to go through the political parties we have, it only makes sense to say they are a distraction if you have no interest in solving the problem. There is a real difference between Democrats and Republicans regarding our debt. Democrats have zero interest in solving it, as their only interest is wealth redistribution through big government. Reducing government reduces their ability to confiscate wealth and redistribute so is attacking their reason for being. Republicans at a minimum pay lip service to getting the debt under control and sometimes back it up, as when all Republicans voted against Obamacare, and as when Newt Gingrich and House Republicans rammed Welfare Reform down Bill Clinton's throat in the '90's. Also, the only people truly interested in getting our debt and government under control are in the Republican party: Ted Cruz, Rand Paul, Marco Rubio, Mike Lee,...
ReplyDeleteThe only hope is to grow their number.
I also think you overstate the severity of the economic crisis, should things not be rectified: it is beginning to happen now in Detroit, and in various municipalities in California: public servant pension funds disappear and public services provided by the government disappear. But business will continue, if at a reduced rate. What will fill the gap? See this article:
http://www.foxnews.com/us/2013/07/16/detroit-dire-but-private-groups-citizens-keep-motor-city-running/
I think we will see a lot more of this kind of thing, and I think that's a good thing, so long as the citizens doing it are given a relatively free rein from the government.
Is a depression coming? Maybe. Digging for grubs for dinner as you imply? I don't think so.
You had to watch the video of the card trick to fully understand the point I was trying to get across about the two political parties being a distraction. What happened is the video was you had a lady performing a card trick where she asked someone to pick a card and she would place it back into the deck and shuffle it and then choose the card that the guy picked. The camera was shifting back and forth between the lady doing the trick and the guy. While the audience was focused on the card trick, they failed to realize that as the camera was switching back and forth between the lady and the guy that the guy was switched out with another guy that looked similar to the previous guy, and the lady doing the trick had her hair changed by untying it and changing out parts of her clothing. The vast majority of people watching the trick failed to realize this because they were focused on figuring out the card trick or having their attention diverted from what was really going on. Even after seeing the switch out it was hard for people to believe.
ReplyDeleteThe false dichotomy between the republican and democrat party and the financial markets obsessive fixation on watching and guessing what the Federal Reserve does/will do acts as a distraction to distract the American people from what is really going on behind the scenes in the economy and the structure of our government. While we are focused on these distractions we have been blinded to the fact our whole system of government has been switched out with a new one, and we have been blinded to the fact that the republican/democrat false dichotomy and the Fed are just a trick to distract the American people from what is really going on.
There is extremely little difference, aside from fringe elements in the two parties, between republicans and democrats regarding the national debt and just about all other issues. See pg. 8 about the debt. http://www.theblaze.com/stories/2012/11/23/50-charts-that-explain-why-dr-doom-thinks-were-headed-toward-massive-wealth-destruction/
ReplyDeleteThe national debt and the government has grown steadily under the leadership of both political parties. No difference here. This is hard to accept because we grew up being told and believing that there is a difference between the two parties. Bush increased the national debt and expanded the national government to a greater extent than any president before him. Obama is now doing the same. The republican/democrat and Fed card trick are a distraction that redirects our focus away from the fact that there we have no choice in the direction our government is headed.
Regarding how bad the coming economic crisis will be, it could get very bad. I saw a John Stossel special on Fox about Detroit. I think it is interesting what is happening there. But I don't think that you can extrapolate what is happening in Detroit to what will happen when the entire national and global economy goes into crisis. Detroit is one city in America. In the next economic crisis the entire American economy will be like Detroit. One of the factors that lessened the severity of Detroit's economic problems was that people were able to leave. Where will people go in the next economic crisis? Plus Detroit still has a functioning national currency. The next crisis will be a currency crisis. That has not happened to America in this global- economic age and not in any of our lifetimes. This will wipe out vast swaths of American's savings. Things will cost more and there will be shortages of the most basic essentials of life. I am basing my opinion of what the crisis will be like by reading actual history. Read "When Money Dies" to see what happen when the Wiemar Republic experienced a currency crisis. It was not a pretty picture. People were prostituting themselves out to provide food for their family so as to avoid having a starved child or infant. What America is doing is nothing new throughout history. Go back thousands of years and you will see the same thing. Many nations have gone down the same path of racking up massive debt and inflating it away by printing massive amounts of money. This is what America is doing. The same thing almost always happens in each of the historical cases. Check out history to see what this will mean. The factor that will make this instance different is the global scale of the crisis. All major economies are going down the same path. Maybe America is special and laws of economics and gravity don't apply to us and we won't experience the same things these nations have. I doubt that this is the case. I don't know how bad the economic crisis will get, but I think that people should educate themselves about history and prepare themselves for what history says will most likely happen when the dollar and the economy collapses. Not accepting reality is human nature. We have ingrained optimistic biases that prevents us from dealing with harsh truths. You have to educate yourself on human psychology to be able to overcome this human weakness.
I think the Weimar republic and the collapse of the Soviet Union would be the two instances that you could look at as being models of the collapse. But, even then, people pull through. Germany was only temporarily held down. This is not an endorsement of Nazism or Hitler, but his re-invigoration of Germany's national will did turn their depression around. Things stay bad only temporarily. People respond to crises. We all here at RTP&GG know that the Great Depression would have been shortened in the US had the New Deal not been implimented.
ReplyDeleteThe Roman Empire didn't fall for this reason. Nor did the British Empire. The Roman empire fell because enough of their neighbors got their acts together enough that the Romans couldn't handle them all at once. The British Empire fell I think more through a fall in national will to maintain the empire than through anything else (as you could say it was just coasting from WWI through the '20's and WW2). You could say that the financial cost of maintaining the empire was too high, but it hardly meant that Britain was falling apart because of the cost of maintaining the empire (it wasn't).
China's empire didn't fall even though things were terrible there during Mao's reign. They just changed their economic model to be more aggressively capitalistic and they turned it around.
Certainly, things can't keep going as they're going, but people will change and/or find ways to muddle through. America, even now, still has a lot of exceptional will. We will do better than others at turning things around.
Yes, I'm generally an optimist ;) Your points are good but they will be overcome. I don't know, but my guess is the doomsayers at Zerohedge have not pulled their money out of the stock market.
In the Wiemar Republic their bout with hyperinflation created the conditions that enabled the rise of Hitler. Hitler did turn the economy around for a short time by doing Keynesian deficit spending that was used to prepare Germany for WW II. Ultimately this lead to the destruction of the German nation, the deaths of millions of their people, and the physical rape of millions of their women. I don't consider that being a good outcome of their economic crisis.
ReplyDeleteThe fall of the Roman Empire were many and can not be attributed to any one thing. One of the causes was deficit spending and inflating away their currency. Another reason being moral decay.
In China under Mao, people were being tortured and killed and starved. The largest man-made starvation occurred under Mao. I don't consider that to be good conditions to live under.
Where is the exceptional will that America has to address its looming economic crisis? I haven't seen it. I fact I have seen the exact opposite. The government is incapable of making even minor insignificant cuts to spending.
I agree with your point that things will eventually be turned around, but that does not address what happens in the intervening time period.
Regarding doomsayers at Zerohedge. You seem to be dismissing economic reality by labeling it as doom saying. Actually if you have read history ("When Money Dies"), you will know that keeping some money in the stock market is a good idea. The Fed is inflating assets and that means stock prices will go up. A lot of what Zerohedge says is mocked and labeled as conspiracy theories, but eventually what they report is picked up on by the mainstream media and found to be correct. Although there is some unreliable stuff on there. Peter Schiff was laughed at when he was saying a major economic crisis was headed our way in 2006-07, youtube peter schiff was right. He was yet again laughed at when he was saying that the Fed would not taper, youtube peter schiff was right taper. You can't rely on what other people say when it comes to figuring out what is going on. You have to educate yourself by reading a lot to come to you own conclusions.
Read "The Creature From Jekyll Island", "The Tragedy of the Euro", "Modern Times", "The Constitution of Liberty", "Basic Economics", "This Time is Different", "Free To Choose", "Law, Liberty, and Legislation", "A Conflict of Visions", "Manias, Panics, and Crashes", "Conquest of Cultures", "Liberty and Tyranny", "The True Believer", "The Road Ahead", "Economics in One Lesson", "The Road to Serfdom", "Lenin, Stalin, Hitler", "Liberal Fascism", "Generations", and many more books and articles. This takes a lot of time and effort so you might have to just rely on what people like Peter Schiff says.
Here is some doomsayers:
ReplyDeletehttp://www.zerohedge.com/news/2013-03-09/jim-rogers-were-wiping-out-savings-class-globally-terrible-consequence
"Throughout our history – any country’s history – the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on."
"In America, many people saved their money, put it aside, and didn’t buy four or five houses with no job and no money down. They did what most people would consider the right thing, and what historically has been the right thing. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We’re wiping them out at the expense of people who went deeply into debt, people who did what most people would consider the wrong thing at the expense of people who did the right thing. This, long-term, has terrible consequences for any nation, any society, any economy."
"If you go back in history, you'll see what happened to the Germans when they wiped out their savings class in the 1920s. It didn’t lead to good things down the road for Germany. It didn’t lead to good things for Italy, which did the same thing. There were plenty of countries where it wiped out the people who saved and invested for their future. It’s usually a serious, political reaction, desperation in some cases, and looking for a savior and easy answers is usually what happens when you destroy the people who save and invest for the future."
What if Obama is planning on creating a worse correction than 2007/8 but knows that he can keep it at arms distance for the rest of his turn? Maybe he expects the Republicans to win the next election and then the ignorant public will blame the GOP for the recession. Obama may have long term plans for his party.
ReplyDeleteI have always had a feeling that the ingrained entrepreneurial spirit of Americans is a secret weapon of leftists. They can foist all their ambition-and-standard-of-living destroying policies on Americans, maximizing wealth redistribution, and the ambitious spirit of Americans will find a way around the obstacles and make it work anyway, so that what ought to have been a disaster ends up being kind of OK. For example, the US economy right now: Obama and Democrats have been doing everything they can to bring it down, but the energy boom -that has occurred entirely independently and in fact in opposition to US govt- is keeping the economy from totally tanking. Things like this will continue to happen. Like Reardon metals in Atlas Shrugged, but with much better success.
ReplyDeleteObama and the democrats are the bad guys and the republicans are the good guys. Just like in the card trick, you are being distracted by having your attention misdirected as to what is really going on. The issue is far bigger than the card trick that is the false dichotomy of left vs. right. The Federal Reserve and its monetary policy is what has enabled both political parties to spend money that we don't have, and because of this both parties have been able to rack up massive debt with out any consequences. If it were for the Fed printing money, both political parties would have had to deal with our debt and reckless spending long ago. Americans don't have a choice in who their president is or the direction this nation is going. That is predetermined by the ruling elite class, and it is a function of the electorate that has been dumbed down and mislead by the education system and popular culture. The 2012 election and other major issues have made very evident that both political parties are the same. State one difference between the republicans and the democrats when it comes to a major issue.
ReplyDeleteWhile Americans have been distracted by the left vs. right false dichotomy, the entire American government and economic system has been switched out with a new one.
Just because the economy is headed for a crisis doesn't mean that it is all doom and gloom. If you know what is going on and how to plan accordingly, it will be significantly easier to be successful that it would have otherwise been.