This week has seen the US Government bail out a growing number of Wall Street firms, the largest insurance company in the world, and finally end at printing money without subjecting the backing instruments to international market scrutiny.

(Treasury is now selling T-Bills DIRECTLY to the Fed, no pretense of going through an investment bank anymore)

This is pretty shady stuff, and thats being kind.

To understand why this is BAD, we have to understand why inflation is bad.

Yes of course, inflation is bad because prices go up, but that is not what inflation really is, prices going up is just what happens AFTER inflation occurs.

Put simply, inflation is when you add more currency to the currency supply.

Price increases happen, because when you add more currency then each unit of currency already in existence becomes worth less.

So prices rising arent so much because what you are buying is worth MORE than it was a year ago, but simply because your dollar is worth LESS.

So, the reason I explained that to you, is so you can understand what happens when the Government “bails out” all these failing financial institutions.

Really, two things happen:

1. The government creates Treasury Bills, which it then sells to someone, usually an investment bank and now, the Federal Reserve. In exchange, Congress gets currency from the investment bank, or the Federal Reserve, to spend on Bridges to no-where, military toys, and bailouts of corrupt, overpaid, Wall Street Slicksters who are their buddies.

Guess who gets to pay for that? Thats right, US Taxpayers! Arent you excited?!

2. The second thing that happens is, “liquidity”, which is a fancy term for more money, gets injected into the currency supply because this currency was essentially just “created” in order to bail out these silly greedy Wall Street slicksters and the firms who happen to be buddy buddy with our Congressman and Senators.

Ok, so, what happens when we inject all this currency into the system? Thats right, you guessed it, the value of your dollar goes down, prices go up!!!

So essentially, each time one of these Wall Street firms gets bailed out, the value of your dollar to buy groceries and gas, GOES DOWN, so groceries and gas become more expensive.

Now obviously, if you are a Wall Street Slickster,  you are happy with this deal, because you get to do all kinds of stupid things, then get some silly taxpayer shmuck to pay for your severance package of hundreds of millions of dollars anyway.

If you are a Congressman or Senator of course, this is all good, because lots of cash flows into your tax haven bank accounts from your Wall Street buddies, you get to ride around in fancy cars and go to fancy fundraiser dinners, and you get a HUGE pension for life, even if you dont do crap your entire time in office.

AWESOME! Its good to be the King. Or in this case, a Congressman or Senator.

Now now, Mr. taxpayer, dont complain, you should just shutup and eat your gruel, and be happy to get it! Peasants! Your lucky we dont raise taxes to 85% and then make you WALK to work!

But whats really got me miffed right now, even beyond the fact that our “leaders” have no problem raping the wealth of US Citizens to bail out a bunch of greedy, stupid, people who are already rich anyways, all the while destroying the buying power of the common man AND taxing the common man on top of it to pay for all this shenanigans…

Is that just when we think its IMPOSSIBLE for our leaders to get any more stupid, this happens:

President Bush approved the use of existing authorities by Treasury secretary Hank Paulson to make available as necessary the assets of the Exchange Stabilisation Fund for up to $50 billion to buy more illiquid mortgage assets.

When the Government bailed out the the Government Sponsored Enterprises it promised to buy illiquid mortgage backed securities, but this announcement extends that pledge.

The ESF was created after the Great Depression and uses the US gold reserve as collateral for financial stability.

So what does all that mean?

Basically, it could very well be the dumbest thing any group of government officials has ever done, in history.

This is a quote from the website of the US Treasury describing what the “Exchange Stabilization Fund” is:

The Exchange Stabilization Fund (ESF) of the United States Treasury was created and originally financed by the Gold Reserve Act of 1934 to contribute to exchange rate stability and counter disorderly conditions in the foreign exchange market. The Act authorized the Secretary of the Treasury, to deal in gold, foreign exchange, securities, and instruments of credit, under the exclusive control of the Secretary of the Treasury subject to the approval of the President.

This is my translation:

This thing gives Mr. Paulson, who already has WAY to much authority, the ability to sell off the gold stocks of the United States, manipulating the gold price down, to prop up the US Dollar and make all the sheeple think that gold is falling and the markets and USD are rallying, so all the stupid people can pour more money into the markets, bail out the corrupt Wall Street Slicksters, impoverish and steal the wealth of US Citizens, and perpetuate the scam that the USD which happens to be backed by nothing is actually worth something insteading doing whats smart and backing our currency in gold.

They are going to sell off gold into the international market, which is going to depress the gold price, and use the money to prop up the US Dollar, the stock market, and to try and ‘neutralize’ all this garbage derivative crap that Wall Street has been creating over the last ten years or so.

This isnt just any gold mind you, its the reserves of the United States, belonging to citizens of the United States.

So not only are these guys willing to tax you to pay for bailouts, which then adds currency to the currency supply, which then reduces your buying power, but now, they are selling off the bedrock of the nations financial health, the gold stocks that belong to YOU as a US Citizen, to again save a bunch of fools who probably should have been hung from the gallows a long time ago.

If that does not infuriate you, well….

A brief prediction.

I dont like to make predictions, because predictions usually make a guy look stupid later, but here it is:

The gold price will drop, they will use this as another means to manage the gold price, stocks and the USD will rise or remain level, they HOPE through the elections in November.

This of course is only short term. A band-aid on a gushing severed limb, if you will.

They are willing to sacrifice the nations financial future, and the well being of our children and grandchildren, just to get one more US President in office and perpetuate the non-sense.

But at what cost?

Ultimately, Gold ALWAYS revalues to match the amount of currency that gets pumped into a currency system.

This is not a theory, its not conjecture, history proves it happens over and over, every single time, as predictable as the seasons.

Over the long term we will see the US Dollar devalued, the gold stocks of the United States depleted just when they are needed the most, the common citizen robbed of everything he has through inflation and taxation to bail out those who do not deserve to be saved, and worse case scenario, it could cost citizens of America our freedom and form of government in the end.

We will see the government start to directly monetize debt as a matter of habit, and once that occurs the United States is on the road to hyperinflation.

Solution?

Anchor your finances in gold and silver now while you still can.

“Unjust weights and measures are an abomination unto the Lord” - What is an unjust weight and measure? How about a piece of currency that changes in value constantly? If something is a “measure” it has to remain constant, not change in value.

If you were a carpenter trying to build a house, and the tape measure you used to measure your cuts changed all the time, how solid would your house be?

I am of the opinion that if this thing goes down the tubes, and there is no indication that Congress, the Senate, The President, The Secretary of the Treasury, or the Federal Reserve Chairman have any inkling as to how to prevent it based on recent decisions, then the ONLY safe place in this coming storm is gold and silver.

Those who have gold and silver, will see a huge transfer of wealth to them. Those who dont….well….sorry. Get used to gruel and string vests.

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With this announcement, the US has stepped into a realm formerly reserved for such lofty icons of global financial dominance as the Wiemar Republic, Argentina, and Zimbabwe.

We are now officially directly monetizing debt, and creating money out of thin air.

God forgive us for what we are about to do to our children.

September 17, 2008
HP-1144

Treasury Announces Supplementary Financing Program

Washington- The Federal Reserve has announced a series of lending and liquidity initiatives during the past several quarters intended to address heightened liquidity pressures in the financial market, including enhancing its liquidity facilities this week.  To manage the balance sheet impact of these efforts, the Federal Reserve has taken a number of actions, including redeeming and selling securities from the System Open Market Account portfolio.

The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve.  The program will consist of a series of Treasury bills, apart from Treasury’s current borrowing program, which will provide cash for use in the Federal Reserve initiatives.

Announcements of and participation in auctions conducted under the Supplementary Financing Program will be governed by existing Treasury auction rules.  Treasury will provide as much advance notification as possible regarding the timing, size, and maturity of any bills auctioned for Supplementary Financing Program purposes.

http://www.ustreas.gov/press/releases/hp1144.htm

***

Bernanke: ‘We have lost control’

Economist recounts talk with Fed chairman

By Joshua Boak | Chicago Tribune reporter
September 17, 2008

NAPLES, Fla. — Several months ago, economist David Hale had a private meeting with Federal Reserve Chairman Ben Bernanke, who was trying to ward off a recession by lowering interest rates and increasing the money supply in the economy.

“Ben, you are playing a very unique role in world economic history,” Hale recalled telling Bernanke, an expert in the Great Depression. “You are the first central bank governor of the United States to preside over a recession with no decline in commodity prices.”

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

http://www.chicagotribune.com/business/chi-wed_oilsep17,0,4833605.story

***

Government steps in again, bails out AIG with $85B

By JEANNINE AVERSA, IEVA M. AUGSTUMS and STEPHEN BERNARD, AP Business Writers 1 hour, 30 minutes ago

In the most far-reaching intervention into the private sector ever for the Federal Reserve, the government stepped in Tuesday to rescue American International Group Inc. with an $85 billion injection of taxpayer money. Under the deal, the government will get a 79.9 percent stake in one of the world’s largest insurers and the right to remove senior management.

http://news.yahoo.com/s/ap/20080917/ap_on_bi_ge/aig;_ylt=AonHCCQ2_HZ__h1XWo5HDf2s0NUE

***

Global credit system suffers cardiac arrest on US crash

By Ambrose Evans-Pritchard
Last Updated: 11:59pm BST 17/09/2008

The global credit system almost grinds to a halt as yields on US Treasury bills reach zero for the first time since the Great Depression, writes Ambrose Evans-Pritchard

The global credit system came close to total seizure yesterday. Key parts of the derivatives market shut down and a panic flight to safety depressed the yield on three-month US Treasury bills to almost zero for the first since the Great Depression in 1934.

The closely-watched TED-spread measuring stress in the interbanking lending market rocketed to 238 as the share prices of Morgan Stanley, Goldman Sachs, Citigroup, Wachovia, and Bank of America all went into a tailspin yesterday.
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The collapse in investor confidence is a harsh verdict on the judgment of the US Federal Reserve, which chose to ignore market pleas for a rate cut to halt what amounts to a modern-era run on the banking system. Almost none of the current Fed governors have market experience. Most are academic theorists.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/18/ccambrose118.xml

***

Bright Side of a Total Financial Market Collapse: Michael Lewis 

We’ve just witnessed the largest bankruptcy in U.S. history and we know neither the inciting incident (though there is speculation that sovereign wealth funds decided to stop lending to Lehman Brothers Holdings Inc.), nor the deep cause. But there’s now a pile of assets and liabilities smoldering in New York awaiting inspection.

The assets include subprime mortgage-backed bonds and no doubt many other things that aren’t worth as much as Lehman hoped they might be worth. But it’s the liabilities that are most intriguing, as they include more than $700 billion in notional derivatives contracts. Some of that is insurance sold by Lehman, against the risk of other companies defaulting.

http://www.bloomberg.com/apps/news?pid=20601039&sid=a9xtBHJoZTOw&refer=home

***

Panic Is the Word of the Hour

Traders abandoned the NYSE temple visually defeated and immune to the TV crews waiting. The disastrous closing prices were flickering on the ticker above the NYSE entrance: American Express -8.4 percent; Citigroup -10.9 percent; JPMorgan Chase -12.2 percent. American icons, abused like stray dogs. Even Apple took a hit.

“I don’t know what else to say,” stammered one broker, who was consoling himself with white wine and beer along with some colleagues at an outdoor bar called Beckett’s. Ties and jackets were off, but despite the evening breeze, you could still make out the thin film of sweat on his forehead. His words captured the speechlessness of an industry.

http://www.spiegel.de/international/business/0,1518,578944,00.html

***

New World Order: Likely Morgan Merger Leaves Goldman Last Man Standing

Posted Sep 18, 2008 10:48am EDT by Aaron Task in Investing, Recession, Banking

As of this writing, the fate of Morgan Stanley remains uncertain although continued independence seems unlikely. The investment bank is having merger talks with a variety of players, including Wachovia and HSBC, while China’s sovereign wealth fund is looking to raise its stake in the firm, according to various reports. (After rallying early Thursday on such reports, Morgan shares recently turned negative, about $2 below its early high of $22.32.

The bigger story is a Morgan merger would leave Goldman Sachs as the last remaining major independent brokerage firm, when four existed a week ago and five were operating at the beginning of 2008.

“A new world order is upon us. A seismic shift that is redefining the brokerage intermediary,” writes Todd Harrison, CEO of Minyanville.com.

http://finance.yahoo.com/tech-ticker/article/62699/New-World-Order-Likely-Morgan-Merger-Leaves-Goldman-Last-Man-Standing?tickers=MS,GS,WB,BAC,XLF,AIG

***

In the Military, we called this “going to sleep on watch”, which during wartime was an offense punishable by death.

If we are not currently at war in the most desperate fight for our financial system and form of government, and if Congress is not falling asleep at the watch, then they need to reach down, grab a hold of their manhood, and put a stop to this before its too late.

Our Congress and Senate are the only powers within our laws that have full legal authority over the issuance of currency, and have only temporarily delegated it to the Federal Reserve. It is their DUTY and their RESPONSIBILITY to this generation and every generation of Americans to follow, to ACT and not GO HOME.

This is EXACTLY the reason our country is so incredibly screwed up right now.

Our “Leaders” are basically spineless, ignorant, “politicians” who have no clue as to how we got in this mess, let alone how to fix it.

But most important of all, it appears they do not have the courage to fix it, and that is what saddens me the most.

Democratic Congress May Adjourn, Leave Crisis to Fed, Treasury

By Kristin Jensen
More Photos/Details

Sept. 18 (Bloomberg) — The Democratic-controlled Congress, acknowledging that it isn’t equipped to lead the way to a solution for the financial crisis and can’t agree on a path to follow, is likely to just get out of the way.

Lawmakers say they are unlikely to take action before, or to delay, their planned adjournments — Sept. 26 for the House of Representatives, a week later for the Senate. While they haven’t ruled out returning after the Nov. 4 elections, they would rather wait until next year unless Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, who are leading efforts to contain the crisis, call for help.

One reason, Senate Majority Leader Harry Reid said yesterday, is that “no one knows what to do” at the moment.

“When you rush to judgment, you usually make mistakes,” said Sherwood Boehlert, a former Republican congressman from New York. “This is something you can’t go on forever without addressing, but Congress in a short span of time is best served by going home.”

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aVPBaUbYV_qQ

***

The result?

Gold soars as safe haven from Wall Street

By Alden Bentley

NEW YORK (Reuters) - Gold logged its biggest price advance ever on Wednesday and oil snapped a two-day rout as fears that the bailout of U.S. insurer AIG would not end the turmoil on Wall Street restored the luster of an established safe haven.

Gold’s 8.97 percent futures rally was the largest daily percentage gain in since February 2000. In absolute terms, bullion had a record day, leading a recovery across the commodities asset class after several days of liquidation sales to raise cash.

http://www.reuters.com/article/newsOne/idUSN1724013520080917?sp=true

***

Summary: If this thing goes to hell in a handbasket it will happen very quickly.

If that occurs, you will not have time to fix it afterwards.

Anchor your finances in gold and silver now, while you still have time.

Smart Rapid Trenders are already doing this. We may end up taking care of everyone else.

May God watch over us all.

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Dont Look, and Dont Tell..Paper Gold Prices have decoupled from Physical Gold Demand and Supply

I was having a chat with several colleagues of mine in the precious metals industry over the last few days, and a few things have become readily apparent.

1. The massive sell off in paper gold contracts has forced the paper price down substantially

2. The majority of this sell off appears to be coming from large financial entities in liquidity crisis, and desperate for some relief and cash flow that are divesting themselves of metals

3. This does not reflect what the common man investor of gold and silver is looking for, as demand at the retail level is many fold higher than it has been in some time, with some of my colleagues completely inundated with buy orders that they cannot keep up with, nor find physical stocks to provide from

4. Physical supply at the retail level has seriously dried up, especially in silver, but now in gold as well, as it seems the US Mint has ceased taking orders for new American Eagle Gold 1oz coins. In addition, throughout the US on a retail level reports of physical shortage are common.

So what gives here? How is it possible that the prices of metals have plummeted, yet there is no metal to be found anywhere at retail?

A few possibilities come to mind:

If hedge funds are divesting themselves of metal, yet individual investors are buying like never before at the retail level, it may not impact the paper gold or silver price at all, except for the downside, because its doubtful that the few options traders are going to be able to meet what hedge funds can dump. A hedge fund that is on emergency life support and demanding liquidity may exit its metal positions at any cost, and not be met by buyers, as most retail investors are buying at coin shops and not the COMEX or NYMEX.

I have a colleague who has informed me that he has personal knowledge of a default of a delivery of metal on COMEX, the contract holder being forced to take Fiat currency instead of the metal because he got “bumped” at the warehouse because an Industrial user took precedence. What does something like this say about our markets if true?

Is it possible we are looking at trading defaults on a larger scale? Will such trades move to other exchanges in London and Asia? Will such defaults cause a London Gold Pool type escalation in valuation as history records of similar events?

Will actual physical prices decouple from the paper spot price? I suspect this is likely, and in fact we are already seeing such premiums at the retail level. It is my opinion this will only continue, and accelerate as we move farther into this bull market.

While the paper markets will continue to see sharp volatility over the next few years as financial institutions require liquidity infusions to offset the massive write-offs that have still not been reported from the credit crisis, mom and pop investors are buying all they can get their hands on, and not reselling back into the market as has been normal for many years.

No, this marks a definate turning point, and while some will only watch the price action and continue to declare gold no more than a commodity and barbarous relic, some will understand the deep fundamental factors in the economy that will force gold to revalue higher over time.

Yes, some of us will be doing quite well as this unfolds. The question now is, will you? Time is running out. You will either be a fool or a prophet.

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The Case for Gold Today

by: Charlie Bottle posted on: July 28, 2008

“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” - Friedrich Von Hayek

I’m not advocating a return to the gold standard but when governments lose on printing money, as is the case today, investors should buy gold.

The analysis set forth in this article is focused on gold but the same conclusions are largely applicable to the other precious metals with monetary characteristics: silver and platinum.

Gold has been trading in a $900-$1,000 which all time high, slightly above the 1980 brief peak above the $800 range, however, on an inflation adjusted basis (please see chart below) it is still way below the peak and average range during the stagflation period of the seventies; a period that greatly resembles of current macro-economic setting.

I expect gold to continue to appreciate substantially in the medium and long term, with strong chances of moving in a sustained fashion above $2,000 within the next two to three years.

There are perhaps about 130,000 tons of gold above the ground, with about half in jewelry, 40% in bars and coins (of which 30% with central banks and 10% with individuals) and the remaining 10% are in dental and industrial applications.

The total annual demand of gold is currently just under 4,000 tons and breaks down roughly as follows:

• Industrial and Dental: 400 tons (10%)
• Consumer: 3,600 tons (90%)
  o Fashion jewelry: 800 (20%)
  o Investment jewelry: 2,600 tons (60%)
  o Investment (bars and coins) 400 tons (10%)

This demand far outpaces mining production of 2,600 tons, and is met by the following supply:

• Mining: 2,600 tons (65%)
• Net central bank net sales: 800 tons (20%)
• Scrap: 600 tons (15%)

Demand growth should accelerate fueled by the need for a hedge against increased inflation, and against ongoing political and financial uncertainty, as well as growth in emerging markets middle class income.

Gold as an inflation hedge and insurance against political and financial distress

The point on inflation is self-evident as many emerging markets have double digit inflation rates (e.g. Russia 15%, Vietnam 20%, Turkey 11%, Chile 10%, Argentina 10%), or close to that (China 7%, Brazil 6%, India 8%).

In the United States, headline inflation is at about 5% and the public is becoming increasingly aware of the lack of accuracy of the reported inflation figures.

There is much controversy about the effectiveness of gold as an inflation hedge, with substantial research pointing to real estate and stocks as being better hedges. Even if this is the case, considering the ongoing bursting of the real estate bubble and negative trend in equity prices, it seems quite likely that gold will be the preferred hedge. In any case, there is consensus that there is a negative correlation between the value of the dollar and gold prices (see chart below) and that gold substantially maintains its buying power over long periods of time.

The risks of insolvency of the domestic financial system, with a growing number of financial institution bankruptcies, and the resulting risk of ballooning US government debt (from propping up GSEs and possibly in the near future FDIC and Federal Home Loan Bank systems), provide politically expedient incentives for the US government to keep interest rates low and print money to inflate its way out of this crisis.

With growing unemployment and the social costs of high inflation, protectionism and international political instability will be on the rise.

In times of uncertainty, investors turn to gold as a hedge against unforeseen disasters since gold is one of the few investments that is not simultaneously an asset and someone else’s liability.

Emerging Asian middle class income growth

Growth of middle class incomes in emerging economies in Asia with a traditional strong appetite for gold will favor demand growth, independently of the above cited factors.

Indian middle classes have strong appetite for precious metals jewelry. India is already the largest worldwide consumer with annual demand of 650 tons. India, China and Turkey, for example, spend a much higher % of their GDP in gold than the US or Western Europe) and witness the reaction of the Vietnamese public to inflation, at least until a government ban became the largest worldwide importer of gold bullion.

Gold ETFs

The emergence of gold and precious metals ETFs such as GLD, CEF, and several others, and their growing availability to investors around the world is also likely to fuel demand. The first gold exchange-traded fund to trade in the United States, the StreetTracks Gold Shares (GLD), was launched in November 2004 and has been a success since. By the end of 2007 GLD reported holdings of 600 tonnes of physical gold bullion held in trust for its investors. If GLD was a central bank, it would nearly make the top 10 in the world for gold holdings. Gold ETFs provide the same economic benefits, although not entirely, of holding physical gold for ultimate insurance against extreme scenarios when the four horsemen of the apocalypse are unleashed and physical ownership is irreplaceable.

Gold supply

Supply is growth is likely to lag demand as central banks, which have been heavy until recently, are likely to curtail their sales of gold and will likely become net buyers (more on this below). Increased mining production and scrap recovery is unlikely to make up entirely for this.

Gold production has been rather flat for the last ten years (please see chart below) in spite of healthy price growth which indicated there is limited spare capacity. Brand new mine locations, especially the larger ones, can take 8-12 years for production to commence. Smaller mines can begin more quickly but if in the newly discovered category, they require eight years as a probable minimum. Open pit operation start-ups are faster, but not that much faster, and re-opening former operating mines requires the permitting process to start all over again, adding several new layers of paperwork not formerly encountered.

Chart courtesy of GFMS, Ltd.

Also, to some extent, the same problems as the oil industry arise with the gold industry. Gold mines are located in many regions where the political climate (see chart below) makes it difficult for private sector investment, particularly foreign investment, as the risks of nationalization are high. On the other hand, government owned companies often lack the skills and incentives to invest in exploration and adding capacity.

Central banks: from net sellers to net buyers.

We are presently witnessing a change of financial paradigm with the diminution of the dollar’s role as the single dominant global transaction and reserve currency, and the emergence of a multi-currency system, where gold as a percent of global reserves will increase.

Gold as a percent of monetary mass may also increase, but this does not necessarily mean a return to the gold standard. However, it may be the natural reaction to the excesses that are currently being committed by monetary authorities in the United States.

Central banks held relatively little foreign exchange [FX] reserves sixty years ago - the bulk of their reserves were in gold. FX reserves totaled $10.96 billion in 1949, gold reserves were just shy of 28,879 tons, and the gold reserve ratio was over 70%. Today it has declined to under 10%. This is decline is likely to reverse as emerging market economies diversify their reserves and increase their gold holdings. The IMF is a big seller as it uses up its reserves to make up for its operational deficit, reflecting the reduced need for its lending.

Below is a raking of central bank gold reserves:

Emerging markets have remarkably low ratios of gold reserves, particularly China. China’s foreign exchange reserves, the world’s largest, hit 1.53 trillion dollars at the end of 2007, around 70 percent of which is believed to be in U.S. currency-denominated assets, particularly U.S. Treasuries. Thirty years ago China held 95% of its foreign reserves in gold.

For example, the Qatar Central Bank quadrupled its gold holdings in the first quarter of 2007. It didn’t have much to begin with but now it has more - but not nearly as much as it had back in the 1980s according to World Gold Council statistics.

Russia announced a couple of years ago a long term goal of increasing its gold holdings to 10% of total reserves. India, Turkey and the Middle-East have also been important buyers.

Investors choosing to ignore these trends do so at grave peril to their wealth. As Churchill once said: “The time for procrastination and delays and excuses is over, we are into a period of consequences”.

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Alex’s Notes: One of the biggest problems our nation faces today is that the common American has a very low level of financial literacy.

Generations of spin and information control have led us to a current generation of Americans and even “Financial Experts” who do not truly understand how our economy works.

Beginning at US college level teaching economics studies, you can find misinformation teaching our future generations of financial leaders that you can simply create wealth through debt, unchecked printing of money, and federal spending.

A quick look at the facts show that healthy growing economies are based on savings and capital investment, not expansion funded by debt. China for example has a national savings rate approaching 52%. China has a growing middle class and will be able to make the transition from an export economy to a more balanced economy dependant more on domestic revenues.

Yet, when we see a massive devaluation of the dollar, you find hordes of talking head analysts who want to blame it on everything from foreign investment in bonds, money market funds, and other instruments denominated in usd, and completely ignore the root cause of the matter.

The problem we face to day in skyrocketing commodities, debt, a crashing dollar, sky high gas prices, food prices going up, electric bills going up, and on and on can be attributed to one thing: Inflation of the Money Supply.

The problem is is several fold:

1. Your government thinks you are stupid. The government creates all kinds of useless reports such a CPI to measure inflation, that have removed from them key indicators such as the cost of gas and food to reach its conclusions. I dont know about you, but food and gas for my family have gone parabolic in price, so the folks in Washington who come up with this garbage must be buying their gas and groceries on a different planet. The fact that you have to even come up with a way of measuring inflation outside of how much currency created is preposterous, and in itself an insult. But here is the real slap in the face, they publish that garbage assuming you are too stupid to see through it.

2. The Main Stream Media thinks you are stupid. By parroting the same garbage over and over, if said enough times maybe you will believe it. If you have ever seen the media blaming inflation on oil prices increasing, or oil companies who should be audited and punished for making lots of money in a boom in their industry, or the boogie man under the bed or the green alien from mars with the ray gun in your closet, you have had the pleasure of experiencing this. Once again, no one ever wants to talk about the fact that we have added over $14 Trillion to the money supply approaching a rate of almost 20% year over year. Since 1913 when a handful of criminals (oops I mean congressmen) passed the Federal Reserve Act, our nation has printed so much money that we have devalued the buying power of the dollar by over 96%.

3. Wall Street thinks you are stupid. By creating all kinds of red herrings as to what inflation truly means, and making sure to invent thousands of financial terms to confuse people, Wall Street figures they can continue to convince you to give them all of your money to manage, because even though they make money whether you lose or gain, you are too dumb to manage your own money so you should give it to some wet behind the ears kid who just graduated from business school because of his vast financial wisdom. Add to that the fact that when people BUY markets rise, and when people SELL markets fall. When those 85 million baby boomers start to suck their money out of the market to fund retirement expenses, its going to come down like the Hindenberg. Todays tactic is to assume of course that you are too dumb to realize this, and will keep right on letting them suck you dry of every retirement dime you have spent your lifetime accumulating.

I dont know about you but I am about fed up with these people treating the American Public like idiots. I know you are not stupid. You know you are not stupid. Isnt it time we started proving it?

I have bolded the article below where yet another Financial Analyst is 100% off target in terms of why the dollar is crashing.

If you want a spot on interview in terms of the primary reason for the rise in the oil price, see this video interview of Paul Van Eeden of Cranberry Capital 

————–

Bush’s Weak Dollar
By Scott Lilly
May 27, 2008

America’s working families have been squeezed for most of this decade by stagnant wages and diminishing health and retirement benefits. Now they face new economic pressures from rising gasoline, food, heating, and electricity prices. A portion of those higher costs are directly attributable to the weakening of the dollar and the economic policies that have produced a weak dollar.

Since January 2000, the dollar has fallen by 37 percent against the euro, with nearly two-thirds of that decline occurring since January 2006. The dollar has fallen 31 percent against the Canadian dollar, and 17 percent against the British pound.

The fall of the dollar has affected oil prices in two specific ways. First, as the dollar falls against the euro and other major currencies, oil-exporting states have been demanding more dollars per barrel of oil to protect their ability to meet expenses paid in euros and other currencies.

This can be most clearly seen in the price of oil (the spot price for Saudi light crude) as measured in U.S. dollars and euros during the first four years of the current Bush administration. As the dollar weakened, the dollar price of oil increased proportionately.

Measured in dollars, oil cost about 28 percent more on average in 2004 than it had cost in 2000, but the price remained relatively constant if measured in euros. In fact, Europeans were actually paying about 8 percent less for oil in 2004 than they had paid in 2000.

More recently, the declining dollar has pushed the price of oil and other commodities higher for a second reason. Retirement funds, hedge funds, speculators, and other institutional investors around the world have tried to protect themselves against further declines in the dollar by moving money into commodity futures that are denominated in dollars—financial instruments that will remain stable or even rise against other currencies even as the dollar falls.

Stewart Bailey reported for Bloomberg last month that “global investments in commodities rose by more than a fifth in the first quarter to $400 billion, helping boost prices as investors sought a buffer against inflation and a weaker dollar.”

Because so many money managers are attempting to use commodities to hedge against the declining value of the greenback, their investment strategies create at least temporarily additional demand for those commodities, driving the price upward.

This effect is demonstrated by the fact that although the increase in the price of oil has been substantial, it is not out of line with what has happened with other commodities, and in particular agricultural commodities.

Over the past 25 months, the dollar price of oil has increased by 79 percent. That is more than the increase in precious metals such as gold and silver. But it is significantly less than the increase in commodities such as soybeans, which have gone up 137 percent, or corn, which has gone up 167 percent.

There are of course additional factors that influence the price of oil and other commodities. These include growing global demand, particularly from China and other emerging economies, and the so-called “security premium” or “tension premium” that results from the market estimation of the potential for hostilities that could interrupt the production or distribution of a commodity.

With respect to oil, recent U.S. saber-rattling toward Iran and the possibility of hostilities in or near the narrow Straits of Hormuz has clearly played a significant role in a number of recent spikes in oil prices, and perhaps in the ongoing higher price of oil.

Yet the fact that oil prices have risen nearly fivefold when measured in dollars, but slightly less than threefold when measured in euros, would indicate that nearly 40 percent of the increased price American consumers are paying for oil is attributable to the weak dollar.

If only 10 percent of the price increase is attributable to the flow of dollars and other currencies into commodities to hedge against further weakening, then at least half of the explanation for high gas prices is the weak dollar.

Is a Weak Dollar Necessary?

Just as the increases in oil prices are not attributable to a single cause, the same is true of the devaluation of the U.S. dollar. Chronic trade imbalances play an important role. But the recent policies of the U.S. Federal Reserve have had an extraordinary effect on the value of the dollar.

When the Federal Reserve began cutting rates last September the dollar traded against the euro at 0.73 euros to the dollar. The 14 percent decline in the dollar over the succeeding eight months can be clearly tracked against each of the seven cuts in the Federal Funds Rate over that period (see chart below).

The explanation is relatively simple—the lower the interest paid on a currency, the less likely foreign investors will want to invest in bonds, money market funds, and other instruments denominated in that currency, and the more likely U.S. investors will want to search for better returns overseas.

Certain industries do very well with low interest rates and a weak dollar. The banks and Wall Street investment firms are greatly benefited by low interest rates, which is why the Federal Reserve has made the dramatic cuts that have occurred since last September.

Energy companies are directly benefited by a weak dollar since the value of their domestic reserves increase in proportion to the dollars decline. While the value of most businesses rise and fall in rough proportion to the value of their local currency, oil companies can gain significant value in comparison to other businesses as a result of a devalued currency.

The nation’s largest oil company, Exxon-Mobil, is only one of many examples of how powerful appreciating commodity prices are in determining stock valuations of companies owning substantial reserves of those commodities.

At the beginning of 2001, ExxonMobil shares traded at less than $36 apiece. By early 2008, the share price had jumped to nearly $85. For most of that period (as the chart below demonstrates), the increase in ExxonMobil’s share price matched almost precisely the appreciation in the price of a barrel of crude oil.

The 138 percent appreciation in valuation of ExxonMobil during these seven years was reasonably typical of energy companies in general, but at stark variance with the increase in share prices of other large companies. Case in point: Between January 2001 and January 2008 the Standard & Poor’s 500 Index moved from 1,366 points to 1,378 points—an increase of less than 1 percent—but had energy companies been removed from the S&P index the remainder would have doubtlessly shown a significant decline.

The government’s monetary policy and the weak dollar not only create winners and losers in terms of consumers and businesses, but also benefit some businesses far more than others.

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