Financial collapse

(Survival Manual/1. Disaster/Financial Collapse)

The great play

‘The Coming Liquidity Tsunami Into Something Real’
14 May 2011, Gold Eagle editorial, by Mark J Lundeen
<http://www.gold-eagle.com/editorials_08/lundeen051411.html> and <Mlundeen2@Comcast.net>
“I was once told, by someone who’s name I’ve long since forgotten, that the ancient Greeks once pondered death from a scientific perspective: One day Pericles was manning the walls of Athens against the Spartans. The next day a plague came and Pericles was gone, though his now room-temperature body was still in Athens.

Question: what changed?

Maybe warming his now cold body would cause Pericles to return; and then again, maybe not! But who can say until we try?

If I were to write a script for a play, using the Peloponnesian War as a motif of the current financial situation, the US financial system would certainly be Pericles: glorious and powerful one day, and somewhat else the next.

If asked, I’m sure the academics from our Ivy-League schools of social sciences would demand to play the part of the old Greek philosophers. But I see them more as the vectors of “policy” that has pulled our poor hero down to his lamentable state. That leaves us with what to do with the politicians?

Well no one would ever mistake these corrupt, baby-kissing sycophants for Greek philosophers! So, I guess the politicians will have to play the part of the vectors of “policy” and I’ll let Doctor Bernanke dress up like Socrates.

In the opening scene, Pericles lays still on a marble slab, at room temperature, when Doctor Bernanke orders members of the AMA (Athenian Medical Association) to warm poor Pericles’ human remains to that of the living. He steps back into the gloom of the Parthenon, as a Greek choir (played by the financial media) then lets loose a mournful chant, 3 times:
“Woe unto Athens! Though the philosophers have warmed worthy Pericles until his toes smoke, still neither does he move nor speak!”

A brilliant spot light cuts through the gloom of the scene, highlighting the noble presence of Socrates (played by Doctor Bernanke) as he brings the Greek Choir to silence with a sweep of his arm, and proclaims to the audience (played by everyone who still believes their pension fund and social security will be worth something ten years from now):
“Pericles needs not move nor speak to serve Athens well. A pulse he needs not. As long as the wise men of “policy” can maintain his body temperature above that of the marble slab on which he rests, all will be well!”
The spot light fades to black, the curtain closes, and all educated and respectable people are happy with the performance, and will continue to be until dear Pericles begins to reek more than “policy” predicted. This is as good a way of understanding the current state of the debt markets as any you’ll  see on TV or in the papers. Think of structured finance, using derivatives in the hundreds-of-trillions, as “policy’s” method of giving trillions of dollars in dead assets the appearance of being alive, though a closer inspection shows they are merely warm and motionless.

The secondary market in American mortgages stopped trading several years ago, so for what purpose are these dubious derivatives still serving? I suspect someday we will discover that this is the “policy makers” chosen method to enable trillions of dollars of worthless mortgage assets held by large banks, to continue generating income for the financial system.
[Image above right: Pericles,  495-429BC]

The show goes on
Derivatives are simply another form of margin, the nemesis which caused the last great market crash. This time though it’s “different enough from the last time so no one realizes what is happening.” Use this analogy: “…it is like the floor show in a seedy nightclub. A sequence of girls trots on the scene, first a collection of Apaches, then some ballerinas, then cowgirls and so forth. Only after a while does the bemused spectator realize that, in all cases, they were the same girls in slightly different costumes.” In other words, “the so-called hedge fund actually is an excuse for a margin account.”
Pasted from <http://www.usagold.com/derivativeschapman.html>
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Act 1:  We go broke

 It Is Now Mathematically Impossible To Pay Off The U.S. National Debt
4  Feb 2010, The Economic Collapse
<http://theeconomiccollapseblog.com/archives/it-is-now-mathematically-impossible-to-pay-off-the-u-s-national-debt>
A lot of people are very upset about the rapidly increasing U.S. national debt these days and they are demanding a solution. What they don’t realize is that there simply is not a solution under the current U.S. financial system. It is now mathematically impossible for the U.S. government to pay off the U.S. national debt. You see, the truth is that the U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.

And the U.S. government would still be massively in debt. So why doesn’t the U.S. government just fire up the printing presses and print a bunch of money to pay off the debt?  Well, for one very simple reason. That is not the way our system works.
You see, for more dollars to enter the system, the U.S. government has to go into more debt.
The U.S. government does not issue U.S. currency – the Federal Reserve does.

The Federal Reserve is a private bank owned and operated for profit by a very powerful group of elite international bankers. If you will pull a dollar bill out and take a look at it, you will notice that it says “Federal Reserve Note” at the top. It belongs to the Federal Reserve.

The U.S. government cannot simply go out and create new money whenever it wants under our current system. Instead, it must get it from the Federal Reserve. So, when the U.S. government needs to  borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.

The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. The Federal Reserve either sells these U.S. Treasury bonds or they keep the bonds  for themselves (which happens a lot these days).

So that is how the U.S. government gets more green pieces of paper called “U.S. dollars” to put into circulation. But by doing so, they get themselves into even more debt which they will owe even more interest on. Every time the U.S. government does this, the national debt gets even bigger and the interest on that debt gets even bigger.
Are you starting to get the picture?

[Image at left: $1 trillion in $1 bills would fill the interior of the Empire State building.
The current $14.3 trillion debt (May 2011) would fill a 3/4 mile high block, 50% higher than the green block shown in  the picture at left.
Consider this: One hundred dollars in one dollar bills, pressed down, measures about ½ of an inch. One million, 100 dollar bills, measures four feet in height. One billion 100 dollar bills is 4,000 feet high, almost three Sears Tower buildings tall.
$1 trillion $100 dollar bills measures 789 miles, or one hundred and forty four Mt. Everests stacked on top of each other. Our national debt is more than 14 times THAT… ]

As you read this, the U.S. national debt is approximately 12 trillion dollars, although it is going up so rapidly that it is really hard to pin down an exact figure. So how much money actually exists in the United States today? Well, there are several ways to measure this.

The “M0” money supply is the total of all physical bills and currency, plus the money on hand in bank vaults and all of the deposits those banks have at reserve banks. As of mid-2009, the Federal Reserve said that this amount was about 908 billion dollars.

The “M1” money supply includes all of the currency in the “M0” money supply, along with all of the money held in checking accounts and other checkable accounts at banks, as well as all money contained in travelers’ checks. According to the Federal Reserve, this totaled approximately 1.7 trillion dollars in December 2009, but not all of this money actually “exists” as we will see in a moment.

The “M2” money supply includes everything in the “M1” money supply plus most other savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000). According to the Federal Reserve, this totaled approximately 8.5 trillion dollars in December 2009, but once again, not all of this money actually “exists” as we will see in a moment.

The “M3” money supply includes everything in the “M2” money supply plus all other CDs (large time deposits and institutional money market mutual fund balances), deposits of Eurodollars and repurchase agreements. The Federal Reserve does not keep track of M3 anymore, but according to ShadowStats.com it is currently somewhere in the neighborhood of 14 trillion dollars. But again, not all of this “money” actually “exists” either.
So why doesn’t it exist?
It is because our financial system is based on something called fractional reserve banking.

When you go over to your local bank and deposit $100, they do not keep your $100 in the bank.
Instead, they keep only a small fraction of your money there at the bank and they lend out the rest to someone else. Then, if that person deposits the money that was just borrowed at the same bank, that bank can loan out most of that money once again. In this way, the amount of “money” quickly gets multiplied. But in reality, only $100 actually exists. The system works because we do not all run down to the bank and demand all of our money at the same time. [All going at the same time  is what a ‘bank run’ is]

According to the New York Federal Reserve Bank, fractional reserve banking can be explained this way….”If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000).”
So much of the “money” out there today is basically made up out of thin air.
In fact, most banks have no reserve requirements at all on savings deposits, CDsand certain kinds of money market accounts. Primarily, reserve requirements apply only to “transactions deposits” – essentially checking accounts.

The truth is that banks are freer today to dramatically “multiply” the amounts deposited with them than ever before. But all of this “multiplied” money is only on paper – it doesn’t actually exist.
The point is that the broadest measures of the money supply (M2 and M3) vastly overstate how much “real money” actually exists in the system.

So if the U.S. government went out today and demanded every single dollar from all banks, businesses and individuals in the United States it would not be able to collect 14 trillion dollars (M3) or even 8.5 trillion dollars (M2) because those amounts are based on fractional reserve banking.

So the bottom line is this….
1)  If all money owned by all American banks, businesses and individuals was gathered up today and sent to the U.S. government, there would not be enough to pay off the U.S. national debt.
2)  The only way to create more money is to go into even more debt which makes the problem even worse.
You see, this is what the whole Federal Reserve System was designed to do. It was designed to slowly drain the massive wealth of the American people and transfer it to the elite international bankers.

It is a game that is designed so that the U.S. government cannot win. As soon as they create more money by borrowing it, the U.S. government owes more than what was created because of interest.
If you owe more money than ever was created you can never pay it back. hat means perpetual debt for as long as the system exists.
It is a system designed to force the U.S. government into ever-increasing amounts of debt because there is no escape.
We could solve this problem by shutting down the Federal Reserve and restoring the power to issue U.S. currency to the U.S. Congress (which is what the U.S. Constitution calls for). But the politicians in Washington D.C. are not about to do that. So unless you are willing to fundamentally change the current system, you might as well quit complaining about the U.S. national debt because it is now mathematically impossible to pay it off.
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Act 2:  They go broke

What happens when Greece defaults?
25 May 2011, The Telegraph, By Andrew Lilico
http://blogs.telegraph.co.uk/finance/andrewlilico/100010332/what-happens-when-greece-defaults/
It is when, not if. Financial markets merely aren’t sure whether it’ll be tomorrow, a month’s time, a year’s time, or two years’ time (it won’t be longer than that). Given that the ECB has played the “final card” it employed to force a bailout upon the Irish – threatening to bankrupt the country’s banking sector – presumably we will now see either another Greek bailout or default within days.

What happens when Greece defaults. Here are a few things:
•  Every bank in Greece will instantly go insolvent.
•  The Greek government will nationalize every bank in Greece.
•  The Greek government will forbid withdrawals from Greek banks.
•  the Greek government will declare a curfew, perhaps even general martial law.
•  Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting)
•  The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting on 50 per cent or more of all Greek euro-denominated debts.
•  The Irish will, within a few days, walk away from the debts of its banking system.
•  The Portuguese government will wait to see whether there is chaos in Greece before deciding whether to default in turn.
•  A number of French and German banks will make sufficient losses that they no longer meet regulatory capital adequacy requirements.
•  The European Central Bank will become insolvent, given its very high exposure to Greek government debt, and to Greek banking sector and Irish banking sector debt.
•  The French and German governments will meet to decide whether (a) to recapitalize the ECB, or (b) to allow the ECB to print money to restore its solvency. (Because the ECB has relatively little foreign currency-denominated exposure, it could in principle print its way out, but this is forbidden by its founding charter. On the other hand, the EU Treaty explicitly, and in terms, forbids the form of bailouts used for Greece, Portugal and Ireland, but a little thing like their being blatantly illegal hasn’t prevented that from happening, so it’s not intrinsically obvious that its being illegal for the ECB to print its way out will prove much of a hurdle.)
•  They will recapitalize, and recapitalize their own banks, but declare an end to all bailouts.
•  There will be carnage in the market for Spanish banking sector bonds, as bondholders anticipate imposed debt-equity swaps.
•  This assumption will prove justified, as the Spaniards choose to over-ride the structure of current bond contracts in the Spanish banking sector, recapitalizing a number of banks via debt-equity swaps.
•  Bondholders will take the Spanish Banking Sector to the European Court of Human Rights (and probably other courts, also), claiming violations of property rights. These cases won’t be heard for years. By the time they are finally heard, no-one will care.
•  Attention will turn to the British banks.

Then we shall see…

Ilargi:
What I think is important is to connect the dots here. Greece is but a two-bit player relatively speaking, but the effects of a default in Athens, and the haircuts it would force upon financial institutions (and dare we even consider pensions funds?!), would -make that will- be felt across the world. For one thing, it would substantially weaken banks and economies pretty much around the globe. Just Greece alone.

It all comes back all the time to the dreaded mark-to-market theme. The last thing anyone wants is to let anyone else know what the paper they’re holding is truly worth. But it will be done.
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Act 3: All go broke

Derivatives: The Quadrillion Dollar Financial Casino Completely Dominated By The Big International Banks
<http://theeconomiccollapseblog.com/archives/derivatives-the-quadrillion-dollar-financial-casino-completely-dominated-by-the-big-international-banks>

“If you took an opinion poll and asked Americans what they considered the biggest threat to the world economy to be, how many of them do you think would give “derivatives” as an answer? But the truth is that derivatives were at the heart of the financial crisis of 2007 and 2008, and whenever the next
financial crisis happens derivatives will undoubtedly play a huge role once again. So exactly what are “derivatives”?
Well, derivatives are basically financial instruments whose value depends upon or is derived from the price of something else. A derivative has no underlying value of its own. It is essentially a side bet.
Today, the world financial system has been turned into a giant casino where bets are made on just about anything you can possibly imagine, and the major Wall Street banks make a ton of money from it. The system is largely unregulated (the new “Wall Street reform” law will only change this slightly) and it is totally dominated by the big international banks.

Nobody knows for certain how large the worldwide derivatives market is, but most estimates usually put the notional value of the worldwide derivatives market somewhere over a quadrillion dollars.
If that is accurate, that means that the worldwide derivatives market is 20 times larger than the GDP of the entire world. It is hard to even conceive of 1,000,000,000,000,000 dollars.
Counting at one dollar per second, it would take you 32 million years to count to one quadrillion.

So who controls this unbelievably gigantic financial casino? Would it surprise you to learn that it is the big international banks that control it? The New York Times has just published an article entitled A Secretive Banking Elite Rules Trading in Derivatives. Shockingly, the most important newspaper in the United States has exposed the steel-fisted control that the big Wall Street banks exert over the trading of derivatives. Just consider the following excerpt from the article….

“On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.”

Does that sound shady or what?
In fact, it wouldn’t be stretching things to say that these meetings sound very much like a “conspiracy”. The New York Times even named several of the Wall Street banks involved: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup. Why does it seem like all financial roads eventually lead back to these monolithic financial institutions?

The highly touted “Wall Street reform” law that was recently passed will implement some very small changes in how derivatives are traded, but these giant Wall Street banks are pushing back hard against even those very small changes as the article in The New York Times noted….

“The revenue these dealers make on derivatives is very large and so the incentive they have to protect those revenues is extremely large,” said Darrell Duffie, a professor at the Graduate School of Business at Stanford University, who studied the derivatives market earlier this year with Federal Reserve researchers. “It will be hard for the dealers to keep their market share if everybody who can prove their creditworthiness is allowed into the clearinghouses. So they are making arguments that others shouldn’t be allowed in.”

So why should we be so concerned about all of this?
Well, because the truth is that derivatives could end up crashing the entire global financial system.

In fact, the danger that we face from derivatives is so great that Warren Buffet once referred to them as “financial weapons of mass destruction”.

In a previous article, I described how derivatives played a central role in almost collapsing insurance giant AIG during the recent financial crisis….

Most Americans don’t realize it, but derivatives played a major role in the financial crisis of 2007 and 2008. Do you remember how AIG was constantly in the news for a while there? Well, they weren’t in financial trouble because they had written a bunch of bad insurance policies. What had happened is that a subsidiary of AIG had lost more than $18 billion on Credit Default Swaps (derivatives) it had written, and additional losses from derivatives were on the way which could have caused the complete collapse of the insurance giant. So the U.S. government stepped in and bailed them out – all at U.S. taxpayer expense of course.

As the recent debate over Wall Street reform demonstrated, the sad reality is that the U.S. Congress is never going to step in and seriously regulate derivatives. That means that a quadrillion dollar derivatives bubble is going to perpetually hang over the U.S. economy until the day that it inevitably bursts. Once it does, there will not be enough money in the entire world to fix it.

Meanwhile, the big international banks will continue to run the largest casino that the world has ever seen. Trillions of dollars will continue to spin around at an increasingly dizzying pace until the day when a disruption to the global economy comes along that is serious enough to crash the entire thing.

The worldwide derivatives market is based primarily on credit and it is approximately ten times larger than it was back in the late 90s. There has never been anything quite like it in the history of the world.

So what in the world is going to happen when this thing implodes? Are U.S. taxpayers going to be expected to pick up the pieces once again? Is the Federal Reserve just going to zap tens of trillions or hundreds of trillions of dollars into existence to bail everyone out?

If you want one sign to watch for that will indicate when an economic collapse is really starting to happen, then watch the derivatives market. When derivatives implode it will be time to duck and cover. A really bad derivatives crash would essentially be similar to dropping a nuke on the entire global financial system. Let us hope that it does not happen any time soon, but let us also be ready for when it does.”
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Act 4:  The citizens speak

The Depression Of 2011?: 23 Economic Warning Signs From Financial Authorities All Over The Globe
28 May 2010, Daily Markets.com, by Michael Snyder
<http://www.dailymarkets.com/economy/2010/05/28/depression-in-2011-23-economic-warning-signs-from-financial-authorities-all-over-the-world/&gt;

“Could the world economy be headed for a depression in 2011? As inconceivable as that may seem to a lot of people, the truth is that top economists and governmental authorities all over the globe say that the economic warning signs are there and that we need to start paying attention to them. The two primary ingredients for a depression are debt and fear, and the reality is that we have both of them in abundance in the financial world today. In response to the global financial meltdown of 2007 and 2008, governments around the world spent unprecedented amounts of money and got into a ton of debt. All of that spending did help bail out the global banking system, but now that an increasing number of governments around the world are in need of bailouts themselves, what is going to happen? We have already seen the fear that is generated when one small little nation like Greece even hints at defaulting. When it becomes apparent that quite a few governments around the globe cannot handle their debt burdens, what kind of shockwave is that going to send through financial markets?

The truth is that we are facing the greatest sovereign debt crisis in modern history. There is no way out of this financial mess that does not include a significant amount of economic pain.

When you add mountains of debt to paralyzing fear to strict austerity measures, what do you get?
What you get is deflationary pressure and financial markets that seize up.

Some of the top financial authorities in the world are warning us that unless something substantial is done, that is exactly what we are going to be seeing as 2010 turns into 2011.

Of course some governments around the world could try to put these economic problems off for a while by printing and borrowing even more money, but we all know by now that only makes the long-term problems even worse.

For now, however, it seems as though most governments are opting for the austerity measures that the IMF seems determined to cram down the throats of everyone. So what will austerity measures mean for the global economy? Think “stimulus” in reverse.
Yes, things are going to get messy. It looks like there is going to be a great deal of economic fear and a great deal of economic pain in 2011 and the years beyond that.

So are we headed for “the depression of 2011”?
Well, let’s hear what some of the top financial experts in the world have to say….
1)  Economist Nouriel Roubini:
“We are still in the middle of this crisis and there is more trouble ahead of us, even if there is a recovery. During the great depression the economy contracted between 1929 and 1933, there was the beginning of a recovery, but then a second recession from 1937 to 1939. If you don’t address the issues, you risk having a double-dip recession and one which is at least as severe as the first
one.”
2)  Bank of England Governor Mervyn King:
“Dealing with a banking crisis was difficult enough, but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there’s no backstop.”
3)  German Chancellor Angela Merkel:
“The current crisis facing the euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957.”
4)  Paul Donovan, the Senior Economist at UBS:
“Now people are questioning if the euro will even exist in three years.”
5)  Michael Pento, Chief Economist at Delta Global Advisors:
“The crisis in Greece is going to spread to Spain and it’s going to be very difficult to deal with. They are bailing out debt with more debt and it isn’t sustainable. It’s a wonderful scenario for gold.”
6)  LEAP/E2020:
“LEAP/E2020 believes that the global systemic crisis will experience a new tipping point from Spring 2010. Indeed, at that time, the public finances of the major Western countries are going to become unmanageable, as it will simultaneously become clear that new support measures for the economy are needed because of the failure of the various stimuli in 2009, and that the size of budget deficits preclude any significant new expenditures.”
7)  Telegraph Columnist Edmund Conway:
“Whatever yardstick you care to choose – share-price moves, the rates at which banks lend to each other, measures of volatility – we are now in a similar position to 2008.”
8)  Peter Morici, an Economics Professor at the University of Maryland:
“The next financial tsunami is emerging and will ripple to America.”
9)  Bob Chapman of the International Forecaster:
“The green shoots of recovery have now turned into poison ivy. The abyss has again been filled with more debt and more fiat currency. In the process the Fed and now the ECB have lost all credibility.”
10)  Telegraph Columnist Ambrose Evans-Pritchard:
“The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.”
11) Professor Tim Congdon from International Monetary Research: “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly.”
12)  Reuters Columnist  Iliana Jonas:
“The default rate for commercial mortgages held by banks in the first quarter hit its highest level since at least 1992 and is expected to surpass that by year-end and peak in 2011, according to a study by Real Capital Analytics.”
13)  Paul Krugman, a Nobel Prize-winning Economist:
“It’s not hard to see Japan-style deflation emerging if the economy stays weak.”
14)  Stan Humphries, Chief Economist for Zillow.com:
“Anyone expecting a robust rebound in the housing market … will be sorely disappointed.”
15)  Fox News:
“As the national debt clock ticked past the ignominious $13 trillion mark overnight, Congress
pressed to pass a host of supplemental spending bills.”
16)  Bloomberg:
“The U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce projected record budget deficits, according to Moody’s Investors Service Inc.”
17)  Peter Schiff:
“When creditors ultimately decide to curtail loans to America, U.S. interest rates will finally  spike, and we will be confronted with even more difficult choices than those now facing Greece. Given the short maturity of our national debt, a jump in short-term rates would either result in default or massive austerity. If we choose neither, and opt to print money instead, the run-a-way inflation that will ensue will produce an even greater austerity than the one our leaders lacked the courage to impose. Those who believe rates will never rise as long as the Fed remains accommodative, or that inflation will not flare up as long as unemployment remains high, are just as foolish as those who assured us that the mortgage market was sound because national real estate prices could never
fall.”
18)   The National League of Cities: 
“City budget shortfalls will become more severe over the next two years as tax collections catch up with economic conditions. These will inevitably result in new rounds of layoffs, service cuts, and canceled projects and contracts.”
19)  Dan Domenech, Executive Director of the American Association of School Administrators:
“Faced with continued budgetary constraints, school leaders across the nation are forced to
consider an unprecedented level of layoffs that would negatively impact economic recovery and deal a devastating blow to public education.”
20)  Mike Whitney:
“Without another boost of stimulus, the economy will lapse back into recession sometime by the end of 2010.”
21) Kevin Giddis, Managing Director of Fixed Income at Morgan Keegan:
“There is big money making big bets that at a minimum we we’ll have a recession if not a depression that could last for years.”
22)  John P. Hussman, Ph.D.:
“In my estimation, there is still close to an 80% probability (Bayes’ Rule) that a second market plunge and economic downturn will unfold during the coming year. This is not certainty, but the evidence that we’ve observed in the equity market, labor market, and credit markets to-date is simply much more consistent with the recent advance being a component of a more drawn-out and painful deleveraging cycle.”
23)    Richard Russell, the Famous Author of the Dow Theory Letters:
“Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the
stock market told him.”

Other words of wisdom and woe…
1)  Jean-Claude Juncker,  Chairman of the Eurozone finance ministers and the currency union’s key spokesmen, 7 May 2011: “When it becomes serious, you have to lie”.
2)  George Orwell: “During times of universal deceit, telling the truth becomes a revolutionary act”
3)  Mark Twain: “There are three types of lies: Lies, Damned Lies, and Statistics.”

≈ Intermission ≈ 

 

Why The U.S. Economy Is Not Recovering
21 May 2011, Economic Crisis Writings, by Dick Kazan
http://economiccrisiswritings.blogspot.com/2011/05/why-us-economy-is-not-recovering.html
“20 million people unemployed, underemployed or no longer counted because they have been unemployed too long.
Falling home prices with no bottom in sight and foreclosures and notices of default mounting, as half of all home sales are now foreclosures or short sales in which owners lose their equity and lenders forgive some of the mortgage amount.

This is today’s American economy. Add to that young people also having trouble finding jobs including recent college graduates. And many people are defaulting on their credit cards, student loans and other financing. This is not what economists and pundits predicted. Why is this happening? What’s gone wrong? The answer is simple: 

1)  We are now a military industrial economy.
Coast to coast we produce weapons of mass destruction and delivery systems, including jet fighters, and for the 1st time in our history, we are now fighting perpetual wars. Before World War II, we had about 14 military bases and today we have well over a thousand all over the world. We spend as much on our military as the rest of the planet combined spends on theirs, and all of what we spend is at tax payers expense. It is draining the life out of our economy.
2)  Including its military expenses, and its refusal to tax the people to pay for it, the U.S. brings in only 59 cents for every dollar it spends. This in itself is a formula for financial disaster.
3)  Our finances are so dire, we are willing to slash our Medicare, Medicaid, Educational System (our children’s future) and Social Security (whose funds are now mostly a government IOU) and police and
fire protection in order to support our military industrial complex. Why?
Because they are a massive source of jobs. “Defense” is the one part of our economy that is booming [which includes Homeland Security].
4)  Wall Street and the stock markets are doing well because giant companies have shipped much of their manufacturing overseas and their profits are up. And stocks trade on profits, not on American jobs.
5)  Speaking of being up, gas prices are up as are food prices, clothing prices, doctor and hospital prices, college tuition and the cost of most everything else, as inflation is beginning to take hold. This
is a result of the Fed’s stimulus plans in which they print and circulate large sums of money in the vain hope we can spend our way out of this mess.

No my friend, we cannot solve a debt crisis by spending our way out of it. We will have to confront our problems and solve them, starting with ending our three wars. Then we must slash our military spending, which will bring hardship but hardship is coming anyway as we are going broke. Clearly the two political party monopoly under the control of lobbyists is failing us and it is long past time we
Americans raised our voices and got involved. This was a great nation and it can be great again. We must restore it for ourselves, for our children and for the world.

≈ The show resumes ≈

Act 5:  Consulting the Oracle

Predicting date of economic collapse (TSHTF)
2 Feb 2010, Gold Eagle editorial,  by Ray Elliott
<http://www.gold-eagle.com/editorials_08/elliott020210.html>
“The event that many would like advance warning on is economic collapse. It is an event that most informed economists say is inevitable due to U.S. deficits that are too large to be paid back. Yet, those of us that must work and pay our bills cannot stop what we are doing and dig a hole to hide in every time a new event happens that appears to be the beginning of the Economic Collapse.

We must first make assumptions on what Economic Collapse is. History tells us. All paper money falls into one of two categories, those that have failed and those that are going to fail. They failed in the past (including United States currency) in a spiral of constantly losing value. The federal government continually increases the obligations that it must pay for.
Buyers of federal debt slowly back away from buying long term debt and later will not purchase even short term debt. The government begins buying its own debt by issuing new paper money. As more paper money is issued it loses more and more of its value. When the public becomes aware that the issuance of paper money is out of control, and that holding it weeks or days will result in a loss of
value, they attempt to convert the paper money that they have into assets that retains some value. To do this, they have to remove any cash they have from banks and other institutions and convert it to something else. What ensues is a run on the banks.

When will this happen? We have some clues because of the process that will take place prior to
the event.

The Main Stream Media (MSM) generally is in favor of big government spending and supports the
socialistic policies of the Obama administration. The problem with socialism is that eventually you run out of other people’s money.  At the point that MSM begins to see the hazards of the uncontrolled printing of money, the beginning of the end is near. Then the Main Stream Media will begin to report the REAL MONEY CRISIS. For those that ask, “When will the SHTF?” That is when.

The events that follow this are events that you will not want to be a part of.
•  Long lines will appear at banks for those trying to get their money out while it still has some value.
•  Paper money will be issued in greater and greater denominations.
•  Food and other necessities of life will skyrocket in price.
•  Soon a bank holiday will be declared while the government attempts to control the panic.
•  Rules will be enforced that restrict how much money may be withdrawn at a time.
•  Attempts will be made to “freeze” food prices.
•  Payment for all goods and services will be turned upside down.
•  Everything will rapidly increase in price. Soon, the paper money you have will not buy the things that you need. At some point, $1,000 will not buy a pair of shoes.

The events that follow this are also predictable because they have happened before.
•  Gold and silver become extremely valuable. Pre 1965 silver coins (they still have some silver in them) will become a known standard of value that is accepted by those that still have something to sell.
•  The barter system for goods and services will return.
•  People that want to eat will grow gardens.
•  Most people who have had life savings in 401Ks will be poor again.
•  The winners are the ones that have planned in advance and the ones that still have outstanding loans or mortgages. The mortgages will no longer have any value. Homeowners will be able to send a million dollar note to a mortgage holder and tell them to keep the change. The change will not buy a loaf of bread.
•  Large cities will become dangerous places to be.
•  Those that plan ahead can avoid the most severe aspects of this scenario. It is up to each individual to plan ahead early enough to survive. A following article will outline some suggested courses of actions that any individual can implement.

.

Act 6:  The Public makes sacrifice

Personal Actions You Should Take Before the TSHTF!
Ray Elliott
<http://www.silverbearcafe.com/private/03.11/actions.html>
“In a previous article I discussed when the financial collapse will occur. This report will review some steps each individual should take in advance of the difficult days that are coming. Before going into the details, it is important for you to judge the necessity of following these steps. If you follow them and no collapse occurs, you have lost very little. If you follow them and the collapse occurs, these steps may save your life. If this discussion seems unreal, think about how unreal the world will be when the U.S. cannot pay its bills. Treasury Notes are no longer being purchased by China or Japan. Both are now selling (just like PIMCO). The Fed’s printing press is becoming the sole buyer.

Think about what your days are going to be like when paper money has no value. People that depend on government jobs, Social Security, food stamps, welfare, retirement checks or unemployment checks will no longer receive them. As the system winds down, some checks may be mailed, however; they will have little or no purchasing power. A new method of exchange will begin taking place.

Money in 401K’s will be gone. Money in banks will be worthless. Some people will benefit from the
collapse. Some that have mortgages will find that they now own the property, but no longer have a burdensome loan payment. Larger and larger denomination currency bills will drive out smaller denominations. You will be able to wipe out your mortgage by simply sending your mortgage company a million dollar bill and tell them to keep the change. The change will not buy a loaf of bread. The
banks know this and are making very few loans while foreclosing on others before TSHTF.

Silver coins (pre 1965 have silver in them) will be valuable for purchasing necessities. Gold coins will have great value, but will not be useful for small purchases. One or two ounces of gold may purchase a
home. Other basic necessities will be used for bartering to acquire goods that you need. In Russia, after 1989 or in Argentina, in the late 90’s, liquor was used as money to acquire goods. Producing alcohol requires having a small, home still (for distilling alcohol). Food items that you have stored or produce from your garden, sometimes gets too old for consumption (such as potatoes) and can be converted into alcohol with a still. Alcohol can be used for trading, for powering your generator or even fueling your vehicle. In post World War II Germany (during the German Occupation), poverty was widespread. A pack of cigarettes would purchase several hours of labor. Five gallons of gasoline was
worth a week’s supply of food. These days, medicines will be in demand (even outdated ones). Storing a quantity of aspirin will be useful for trading. Salt will also be used for money (as it was thousands of years ago).

Many have reviewed the need for storing sufficient food supplies. The amount depends on you and how many you need to sustain. Canned goods can be kept for two or more years. Rice and pasta in large bags can be kept in plastic storage boxes in a cool location. A water source and a method of sterilizing water are essential. Water disinfectants cost about one half cent per quart of water. Having a small garden will help feed your family. Storing good quality seeds is essential.

Finding a safe place for your family is more difficult to solve. Large population centers will not be safe. Those that have not prepared will begin taking from those that have prepared. Law and order will be sporadic because few in law enforcement will be paid. You should keep your survival supplies in or near the vehicle you plan on using when you leave. Getting out of town before TSHTF will be much easier than trying to leave later. Quickly relocating to a small town in a farming community will be much safer than remaining in a suburban home near a large city. Visit a small community near you now and set up a safe haven. See if you can arrange a garden and/or camping site. Small rural towns have lots for sale that can be acquired for very little. A small deposit can secure an option to purchase a lot in a small town that will give you a place to park your vehicle (a small motor home would be ideal) and a place for a garden. One quarter acre is more than you will need. Be careful about locating in a more remote location because it can be dangerous. In Argentina, roving bands of thieves routinely raided remote ranches and homes, inflicting both financial and physical harm. A small community is safer and may have an organized defense.

Last, but certainly not least is personal defense. Weapons are required. They can be used for both hunting and defense. Using the same caliber for both hand guns and long guns will save on the types
of ammunition needed to be stored. Nine millimeter is a good choice. A shotgun is both a good hunting weapon and a defense weapon. A 22 rifle is a good weapon to harvest small game for your family. A compound bow also serves both purposes. Having a plan of action when strangers appear is a necessity. In the meantime, you may ask yourself, can you defend your current home? Do you have a safe room? Do you have a guard dog? Do you have a warning system? Do you have friends nearby that would help you? How do you contact them?

As I stated in the beginning, you may never need to use any of these tactics. I pray that you do not. However; if and when TSHTF, you and your family will have a far better chance to survive than those that do not prepare.”

.

Act 7:  and with the Ides of March, the winds blew cold…

The Coming U.S. Depression of 2011/2012: Full of  homelessness, hunger, street  and the emergence of a 3^rd party
7 Feb 2011, PBT Consulting
<http://tommytoy.typepad.com/tommy-toy-pbt-consultin/2011/02/the-coming-us-depression-of-20112012-full-of-homelessness-hunger-street-violence-and-the-emergence-o.html&gt;

“The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting a revolution in America, food riots and tax rebellions – all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.

Gerald Celente, the CEO of Trends Research Institute, is publisher of the Trends Journal which forecasts and analyzes business, socioeconomic, political, and other trends, and is renowned for his accuracy in predicting future world and economic events which can send a chill down your spine.

Celente says that by 2012 America will become an underdeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

“We’re going to see the end of the retail Christmas… we’re going to see a fundamental shift take place… putting food on the table is going to be more important than putting gifts under the Christmas tree,” said Celente, adding that the situation would be “worse than the great depression.”

“America’s going to go through a transition the likes of which no one is prepared for,”said Celente, noting that people’s refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis.

Celente, who successfully predicted the 1997 Asian Currency Crisis, the sub-prime mortgage collapse and the massive devaluation of the U.S. dollar, told UPI in November last year that the following year would be known as “The Panic of 2008,” adding that “giants (would) tumble to their deaths,” which is exactly what we have witnessed with the collapse of Lehman Brothers, Bear Stearns and others.

He also said that the dollar would eventually be devalued by as much as 90 per cent. The consequence of  what we have seen unfold this year would lead to a lowering in living standards, Celente predicted a year ago, which is also being borne out by plummeting retail sales figures.

[Movie image above: Bartertown where futureworld power structures fought over ‘pig shit- methane energy’; a time and condition which brought about roving, mobile gangs that killed and plundered their way across  the land.   This is the view of ‘collapse’ at the grass roots, an image from the movies.]

The prospect of revolution was a concept echoed by a British Ministry of Defense report last year, which predicted that within 30 years, the growing gap between the super-rich and the middle class, along with an urban underclass threatening social order would mean, “The world’s middle classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest,” and that, “The middle classes could become a revolutionary class.”

In a separate recent interview, Celente went further on the subject of revolution in America.“There will be a revolution in this country,” he said. “It’s not going to come yet, but it’s going to come down the line and we ‘re going to see a third party and this was the catalyst for it: the takeover of Washington, D.C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen.”
Internet image: This is how marginal people are affected – before the ‘main event’ unfolds; its what we see at the grass roots, this is reality.]

“The first thing to do is organize with tax revolts. That’s going to be the big one because people can’t afford to pay more school tax, property tax, any kind of tax. You’re going to start seeing those kinds of protests start to develop.”
“It’s going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we’re going to see many more.”
“We’re going to start seeing huge areas of vacant real estate and squatters living in them as well. It’s going to be a picture the likes of which Americans are not going to be used to.
It’s going to come as a shock and with it, there’s going to be a lot of crime. And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people’s minds weren’t wrecked on all these modern drugs, over-the-counter drugs, or crystal meth or whatever it might be..

So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody’s comprehension.
Above left, territorial boss ‘Humongous’ from movies. Right: territorial bosses- the Council on Foreign Relations.
Below left, citizen Mad Max, just struggling to stay alive from the movies. Below right, a suburban family with short term survival supplies. Reality.

The George Washington blog has compiled a list of quotes attesting to Celente’s accuracy as a trend
forecaster.
•  “When CNN wants to know about the Top Trends, we ask Gerald Celente.” – CNN Headline News
•  “Gerald Celente has a knack for getting the zeitgeist right.” – USA Today
•  “There’s not a better trend forecaster than Gerald Celente. The man knows what he’s talking about.” – CNBC
•  “Those who take their predictions seriously …consider. Gerald Celente and the Trends Research Institute.” – The Wall Street Journal
•  “Gerald Celente is always ahead of the curve on trends and uncannily on the mark … he’s one of the most accurate forecasters around.” – The Atlanta Journal-Constitution
•  “Mr. Celente tracks the world’s social, economic and business trends for corporate clients.” – The New York Times
•  “Mr. Celente is a very intelligent guy. We are able to learn about trends from an authority.” – 48 Hours, CBS News
•  “Gerald Celente has a solid track record. He has predicted everything from the 1987 stock market crash and the demise of the Soviet Union to green marketing and corporate downsizing.” – The Detroit New
•  “Gerald Celente forecast the 1987 stock market crash, ‘green marketing,’ and the boom in gourmet coffees.” – Chicago Tribune
•  “The Trends Research Institute is the Standard and Poor’s of Popular Culture.” – The Los Angeles Times
•  “If Nostradamus were alive today, he’d have a hard time keeping up with Gerald Celente.” – New York Post
So there you have it – hardly a nut job conspiracy theorist blowhard now is he? The price of not heeding his warnings will be far greater than the cost of preparing for the future now. Storable food and
gold are two good places to make a start.”

≈≈≈  ≈  ≈≈≈
While the future seldom unfolds the way we imagine, it may come in a  flavor that is not surprising. We may not know the exact height a tide may rise to on the beach, but we can certainly tell the direction the water is flowing; similarly, without seeing the wind, we can feel its pressure and see its effects. Even within a decade, the U.S.A may not experience literal secession as predicted by the Russian professor, but several regions may suffer patchy, severe economic depression, areas within other regions  may become wracked by moderate scale social/racial upheaval requiring federal military support…
.

“Dark clouds gather on the global horizon, the wind direction is changin’.
 Flashing light in the darkening sky, promise storms gale soon rising ”.
5-29-2011 Mr. Larry]