Sunday, August 15, 2010




Friday, August 13, 2010



President BARACK OBAMA was invited to address a major gathering of the American Indian Nation two weeks ago in upstate New York .

He spoke for almost an hour about his plans for increasing every Native American’s present standard of living. He referred to his time as a U.S. Senator and how he had voted for every Native American issue that came to the floor of the Senate.

Although President Obama was vague about the details of his plans, he seemed most enthusiastic and spoke eloquently about his ideas for helping his “red sisters and brothers.”

At the conclusion of his speech, the Tribes presented Obama with a plaque inscribed with his new Indian name, “Walking Eagle.” The proud President then departed in his motorcade to a fundraiser, waving to the crowds.

A news reporter later asked the group of chiefs how they came to select the new name they had given to the President.

They explained that “Walking Eagle” is the name given to a bird so full of shit it can no longer fly.

Wednesday, August 11, 2010


Growing up in the 80's, suburban Massachusetts was a great place for a generation X kid to explore all of the things America could offer. I worked with the same friends I grew up with, doing residential construction and roofing and earning good money while learning valuable skills. I went to Middlesex Community College when the cost was about $350 per semester and when I transferred to the University Of Lowell, the cost was not much more than that. Jobs were plentiful and I never felt that the "American Dream" was out of reach. 8 years enlisted in the United States Naval Reserve as a SeaBee helped pay tuition, and I met the best people in the world through my military service.

The 90's progressed and the economy expanded with massive business spending on technology upgrades to prepare for the Y2K switchover, I was able to explore the world of computers and the internet while making a living using these new technologies. Learning so much, I never felt at any time that the world wasn't destined for the greatest future, with America leading the globe in advancement, freedom and possibility.

I recall so much growth and opportunity that corporate and political heads, from Bill Gates to Bill Clinton pushed for legislation to allow highly-skilled immigrants to come to America to help fill positions at Software and Bio-tech corporations, teaching and researching at Universities. Even to work for Military Defense Contractors under H1B and other programs designed to help American Corporations fill much-needed positions in a growing economy. With the dot-com induced economic cycle contracting rapidly at the beginning of the decade, the Federal Reserve dropped the discount rate to near zero to compensate for the contraction. The result was a continuation of the residential building and real estate boom that started in the 90's, well into the latter part of this decade. Many in both congress and industry alike argued for unfettered migration from south of the border to fill the booming construction, as well as farming and manufacturing jobs that Americans "were not willing to do".

It was great that people from all over the globe could look to Corporate America for opportunity. It is part of what has made America. Everyone needs a job.

The economy came to a screeching halt during the end of 2007. What we must understand as Americans is the following reality: Our economy has fundamentally shifted. The combined trends of outsourcing jobs to super-populated nations such as China, India, Mexico, etc., where labor is limitless and wages are a tiny fraction of what is needed for basic survival here in the USA is decimating the top-end of our middle-class. Allowing anyone willing to cross our southern border to obtain employment in traditional blue-collar manufacturing, construction and trade jobs is decimating the lower end of our middle-class. The net result of the corporate and government sponsored policies contributing to these trends is a pincer attack against the vast majority of us. We are rapidly transforming into a nation of two groups: A lower-class where the reality of every day life is food stamps (40 Million and growing) and chances of gainful employment are slim to none. At the opposite end of this spectrum is the super-wealthy class that own what is left of American industry and finance. And they have no loyalty to the Nation or its' people that made them.

This group is not new (regardless of how they define themselves) but they are growing in power and influence over the political levers of control that have been historically reserved for the body politic in America.

The document that was crafted at the start of our nation was based on the study of many hundreds of years in the governance of people. Our founders understood a few basic truths; too much power in the hands of too few people ends in despotism. Allowing private groups to control the issuance of currency and credit can be disastrous. Freedom has always been the engine of prosperity. Unleashing the well-intentioned human spirit to creatively pursue honest endeavor, unhindered by rule or bureaucracy that favors only a few, is the best way to strengthen a nation and further the development of all human beings.

There has always been a super-wealthy class, and they have always had influence over others. The massive pools of capital that these individuals and corporations have obtained, which was created by the labor and ingenuity of the American people, is being transferred off-shore with the full compliance of our law makers and judiciary. Sounds shocking? They no longer feel answerable to the American people. The American people have lost their ability to fundamentally influence their representatives because the political capital controlling elections has shifted away from the people.

The corporate lobby and the controlled media, now more than ever, are the masters of those who hold public office. Every election, we watch each other get hopelessly sucked into the false choice of only those political representatives that are pre-approved for us. And those provided will inevitably vote for legislation which best serves those that have the most influence over them.

I was even told by a local selectman during the 07 presidential campaign, when stating who I was going to vote for, that it would be a "wasted vote". This is what we have been reduced to? a controlled populace that is steered toward a chosen candidate? One might be thought of as "a lesser of two evils", but who will invariably serve those that erode our only protection; our constitution. Coke vs. Pepsi. Blue vs. Red. One more choice than communist China. But not really, because our bi-partisan system has essentially become a two-headed snake.

While Americans rallied together in defense of their homeland 9 years ago, the creeping dislocation between those that head the largest corporations and industries and the American people that built them expanded. Those who control the highest echelons of power and control in America, and who have so much influence over our government, appear to have an agenda that shows no loyalty to America. You want to see income inequality? Here:

When Halliburton Corporation, one of the most generously rewarded American Defense Contractors moved their corporate headquarters to Dubai, gaining massive tax shields and effectively becoming a foreign corporation, not even the former CEO of Halliburton raised an eyebrow at this transition. And he was our Vice President.

As the devaluation of the USD accelerates downward, there is open talk of a new world reserve currency (
, the ramifications of which require more space than this article will allow, but suffice it to say, Americans lose.

Lose bigger than you could possibly imagine. If the USD was not the world reserve currency, how could the federal government print its way out of debt? It can't. Just like Greece, we would be threatened with bankruptcy and social unrest unless we agreed to "austerity measures". In simple terms, cuts to basic services and "entitlements" (like social security can be called such a thing, after you have worked and put money into it your entire working life). The concern is that we will lose more than just control of our currency to an international body of private financiers when this happens; we will also subjugate the sovereignty and individual protections; the unalienable rights specified in our constitution, to the same foreign, private entity that has worked for so long with this goal.

America, as an experiment in human freedom and individual self-determination is at stake. This is why I will vote for Bill Gunn in November. I would encourage you to do the same. Even with a massive turnover in with our corrupt or compliant representatives, we have a long slog climbing out of this abyss.

Chris from Townsend

PAUL FARRELL: Reagan insider: 'GOP destroyed U.S. economy' - David Stockman

Friday, August 6, 2010

John Williams: Times That Try Our Souls

What John envisions—and he's by no means looking to the far horizon—is a systemic collapse, a hyperinflationary great depression... and the cessation of normal commerce.

Wednesday, August 4, 2010

Monday, August 2, 2010

A Police State You'd Better Believe In


"To watch the courageous Afghan freedom fighters battle modern arsenals with simple hand-held weapons is an inspiration to those who love freedom. Their courage teaches us a great lesson-that there are things in this world worth defending. To the Afghan people, I say on behalf of all Americans that we admire your heroism, your devotion to freedom, and your relentless struggle against your oppressors." President Ronald Reagan - March 21, 1983

"In Afghanistan, the freedom fighters are the key to peace. We support the Mujahidin. There can be no settlement unless all Soviet troops are removed and the Afghan people are allowed genuine self-determination.". President Ronald Reagan - Address Before a Joint Session of Congress on the State of the Union - January 25, 1988


White House proposal would ease FBI access to records of Internet activity:

The Obama administration is seeking to make it easier for the FBI to compel companies to turn over records of an individual's Internet activity without a court order if agents deem the information relevant to a terrorism or intelligence investigation.

FBI's Robert Mueller supports record-keeping on prepaid cell phones:

FBI Director Robert Mueller has endorsed anti-terrorism legislation that would require prepaid cell-phone sellers to keep records of buyers' identities.,0,516779.story

FBI defends guidelines for domestic surveillance:

Under fire from civil liberties groups, the FBI is defending domestic surveillance guidelines that critics fear could unfairly target innocent Muslims in terrorism and other criminal investigations.

FROM JSMINESET.COM: The Death of Market Fundamentals

The Death of Market Fundamentals

Posted: Aug 02 2010 By: Jim Sinclair Post Edited: August 2, 2010 at 6:15 pm

Filed under: General Editorial

To Own Gold is to Vote with your feet where Government is Concerned.
–Jim Sinclair “A Pocketbook of Gold”


Dear CIGAs,

If the past three years has taught us anything about markets, it is that they will do what they are set up to do. OTC Derivatives, financial Ponzi schemes (Madoff etc) and gyrating Fed policy are but a few of the machinations determined by the new market Fundamentals… the Fundamentals of government policy.

The political and legislative environment creates new Fundamentals that economic realities were supposed to. As government becomes more self-indebted, and politically captured by special interests, the markets reflect these political realities instead of the economic fundamentals they should.

None of this is news. It has been going on for years. But it is not as benign as it used to be. At the outset its just favouritism: a (usually no-bid) government contract is awarded and a company share price roars on the back of it. Legislative tweaking portends winners and losers. But then things get out of hand.

An early signal was found not only in the insanity of the mortgage backed securities markets and their attendant derivatives, but was also evident in the energy industry. Nobody in their right mind believes that fundamentals had the slightest thing to do with crude oil’s move from 2006 to 2008 – but the shrill cry of “Peak Oil” (Hat Tip Media) sure did help. (Where is it now?) Far more likely is that a couple of market participants decided to clear some competition from the market by running it to ridiculous levels, and make a large amount of money along the way… and enlisted the Media’s help. A natural bull market presented a great opportunity to push the market to unnatural levels and then drop it like a stone. Fundamentals had no role. Not even the first Gulf War when the borders of Kuwait and Saudi Arabia fell, produced a similar event in terms of scale, though the market was overrun with fear. Even before the Algos started ripping markets up and down for fun and profit the game was on.

The West Coast electricity market did a similar thing – by creating unscheduled maintenance that somebody had (personally) “scheduled”. $40 million+ people got their eyes gouged out for months on end, but it sure was fun for someone. A similar situation occurred (several times) in the German power market around the turn of the millenium. An American utility or marketer would simply buy every KwH in sight, along the curve, bar none, in a one or two hour space of time, until people who needed the physical power position to meet actual customer demand were forced to follow them, whereupon the relentless buyer would line up every bid in the market and try and unload everything in one shot. Many times it worked. But the US utility industry blew itself up in fraud, and the main German companies refused to trade with them after a while. Deregulation had happened – but the fall back for the near-monopoly German utilities was to say, “I don’t like you as a credit risk. So I can only trade in very, very small size with you.” The gamers were forced out. They killed their own game in the rush for personal glory.

The charade of options expiry in the Gold market is similar. Get the market up, knowing that call buyers are the public and liked to go naked, and the put buyers are usually market makers trying to butterfly their position and get short the at-the-money strike in expiry. Just before expiry the market is whipsawed down. The public goes out worthless on the call side and the market makers (volume traders) get expired near or at their long strike (i.e. max. loss) and are forced out. Next time around – spreads are wider. It’s an attractive strategy if you can control the underlying for a few hours at the right time of the month. If you can’t – tough luck. Only a fool would trade in such a game. People should roll out weeks before expiry – but the public never does. They hang right on in there every time because the market gets so close to going in the money. (Like the Bbanks aren’t aware of this psychology!). The professionals have a name for these people: They’re called Screen Jockeys… and in case you didn’t know – it’s a term of derision.

A similar situation now exists in that bastion of public interest – the stock market. Trading is simply impossible. Stop-losses can’t be held as orders because they will be used against anyone with a position. As related in M. Lewis’ latest book, the Chinese Walls that supposedly exist in the multiple platforms that trade a single stock should be properly considered as “Bullshit”. Charts are painted to flush people out. What passes for a market is now just a series of raids up and down the flagpole to shake the hell out of its minor participants. If you aren’t equipped to play “chase the algos” (entry ticket c. $40 million for the technology and servers), your money will simply be taken. The market has for hundreds of years taken money from weak hands, but now anyone without a first class algo can be considered and proven as weak. Fundamental analysis will not help the small trader. It’s simply pointless to participate. Instead of tree-shaking… now the whole damn forest is being shaken. As explained in the book “A Pocketbook of Gold”, any individual with the slightest amount of margin will be destroyed by the hyper-over-leveraged banks that don’t have to mark to market, never have a margin call, and have a government guaranteed, taxpayer funded bailout. These are the NEW fundamentals. You want to participate on the other side of this, so call “trade”? If you do, you need serious help. Do you want to play with the take-down artists, the chart painters and algo-drive market-bashers? (To Mr Sinclair’s “haters” of the past fortnight please recall his relentlessly iterated warning to abandon all Gold trading and margin at $548 per ounce, and hold the core as insurance only.)

The result is that retail has had it with the so-called “market”. Outflows are increasing steadily, while liquidity swamps financial institutions unwilling to do anything other than sit on the liquidity. The bail-out looks like a bail-in. Only idiots like the zero-return in a decade (and a lot less if properly numerated against Gold) pension funds are left. The suckers have woken up and are refusing to play. Computer driven markets go from awash with liquidity to zero liquidity and back again in seconds. It’s enough to make a schizophrenic look balanced. Risk is fully on, then fully off, then fully on again several times in a given day, soon to be in a given hour, minute, second, mille and then micro-second. Trade if you have a death wish only. As the public exits, the algos will now attack each other in a macabre pas de deux of death dance.

Government, of course, is playing its part too in the death of the markets by destroying the value of fundamental analysis. The capitulation of FASB to a government/Fed dictated policy of suspending the assessment of fair value has, as its corollary, the suspension of even the possibility that ‘fair value’ can still, in fact BE determined. Since the government now determines market outcomes, reading Maoist “Wall Posters” is now all one has. (“If one knows the nuances, the walls tell all” was the nod for Deng Xio Peng’s political destruction. This is what we have been reduced to.) As if analysing Greenspan’s FedSpeak wasn’t enough to live through, we now must be scanning the horizon all day for the QE II, instead of analysing a company’s worth and prospects. Resistance may be futile, but participation is now idiocy. Money supply is viciously ramped up and then completely shut-off, at a whim, and with few but opaque methods for observation. When people are buying the stock market only because they envision a Bernanke money-printing induced melt-up, it’s time to leave. That is no reason to be in the marketplace, it is a reason to avoid it.

Previous market participants are sick of trying to decide the level of deceit in Government statistics. No one can anticipate whimsical “on the hoof” policy (like occupying Iraq), so everyone is fearful of investing. Money is going to the mattress like a Spaniard living under Franco. Germans and other Europeans are rushing into the Swiss Franc in outright fear of what politicians might do next. The level of trust from the investing public has never been lower. Government won’t let Fundamentals play out, just like they refused to take a recession ten years ago. The Fed can trump all fundamentals until, of course, they can’t any longer, and they blow up everyone including themselves (i.e. sovereign default). When proper valuation is suspended for as long as possible and seemingly, hopefully, forever, one would be advised to spend their time building a nuclear resistant financial bunker, preferably lined with Gold. It could give a whole new meaning to the old adage that the “Fundamentals always win in the end”. In the new intonation, the emphasis is on the word “end”. An “end” that seems to be in the process of being succinctly arranged.

In the search for absent fundamental indicators, “Shadow Stats” became preferred, but that only detracts from confidence. It does nothing to enhance it. Mr. Williams does not sit at the Fed or in Government. Most likely, it will be QE to infinity, because the disastrous outcome of a Treasury market implosion could be even more devastating than perpetuating a depression. QE is a government played trump card that destroys Fundamental analysis by moving the pricing numerator. Desperation is palpable. It’s why the Government is actively destroying any attempt at fundamental analysis. The sustaining of the smoke and mirrors game demands it. If Government continues to spend, they eventually go bust from debt. If they head down the austerity path, you’ll never have enough GDP to SERVICE the debt. They’re cornered. Devaluation de facto or de jure (i.e. default) is the only possible outcome short of waiting for inevitable systemic collapse along with the hyper-inflation which will give you about as much warning as a Tsunami on your visible horizon. As Mr. Sinclair has related, “Gold is financial High Ground, when a Global Tsunami hits.” Prepare accordingly.
CIGA Pedro


Sunday, July 25, 2010

KARL DENNINGER: Crack Smoking Part Deux

"There is no free lunch folks; we should have taken our recessionary lumps all along through the 1990s and 2000s, but we refused. We instead covered up the insolvency of corporations and individuals with the ever-growing emission of more and more credit. In 2007 we ran smack into the wall, and despite the government's attempt to "replace" private final demand with even more credit issuance as a "bridge" it did not and cannot work, because the absorption limit for credit in the private economy has been reached.

Greenspan, Bernanke and the rest who proclaim that a "free lunch" can be obtained or mathematic principles you should have learned in the 5th grade can be cheated are FRAUDS. They presided over the issuance of a record amount of unbacked credit - that is, a MASSIVE naked short against the monetary system - and now are DESPERATE for some means - any means - to prevent it from unwinding and detonating their "favored" institutions, specifically the banks that emitted that credit.

These actions were and are unsound and in fact should be viewed as acts of treason by all in this nation, and in addition are a blatant violation of The Federal Reserve Act. "We the people" failed to recognize this at the time (and still do) because instead of our officials explaining what was being done (and/or we choosing to think it through) we were "sold a payment" on our new car, house, or i-want-it-now of the particular moment.

The sooner we stop screwing around and take our medicine the sooner we will stop accumulating more and more economic damage that must, mathematically, be absorbed."

KARL DENNINGER: The Reliable Can't Be Relied Upon

KARL DENNINGER: Why The (Obvious) Discomfort Ben?



Thursday, July 15, 2010


"Sadly, the Federal Reserve, the U.S. Treasury, and Cartel of private banks designed the system so that the money must funnel through them first, and thus they will decide how and when to inject it into the economy"

Tuesday, July 6, 2010


Jim’s Mailbox

Posted: Jul 06 2010 By: Jim Sinclair Post Edited: July 6, 2010 at 7:43 pm
Filed under: Jim's Mailbox

Dear Jim,

Allow me to chime in here and bolster your comments to CIGA Arlen.

First and foremost, what your readers need to understand is that no one who has a loan secured by a mortgage on his home is safe. Mortgage servicing companies, including Wells Fargo Bank, CitiBank, JPMorgan Chase, and Bank of America, etc. control everything. This is why, as banks, mortgage companies, and hedge funds began to fold, beginning with the Mortgage Meltdown in 2007, the acquisition of mortgage servicing rights was the name of the game.

Regardless of whether Fannie Mae, Freddie Mac or a securitized Trust Fund purportedly “owns” your loan, the Servicer controls your destiny. Back in 1995, I first started seeing Servicers manufacture a default on a current loan and institute a foreclosure action even though the consumer had made every payment on time. Once this process begins, it is virtually impossible for the consumer to straighten out the problem and get back on track. This is because the Servicer’s policies, procedures and technologies are set up to automatically trigger a series of unstoppable events once there is the slightest deviation e.g., an increase in your interest rate on an Adjustable Rate Note, an increase in escrow items, a late payment, or bankruptcy.

Through the mortgage auditing work that I have been doing since 1991, and particularly with all of the expert report writing I have been doing over the past two years analyzing the securitization of these residential mortgage transactions, I can tell you with certainty that even though the noise has quieted down since the bailout, the house of cards is crashing down at lightning speed.

I subscribe to the Bloomberg Terminal to research whether or not my client’s loan is in a particular securitization trust which is tremendously helpful. For example, an attorney I am working closely with here in Massachusetts has a client who was facing a foreclosure sale date of July 15th. The foreclosing entity was Deutsche Bank National Trust Company as Trustee of the IndyMac INDA 2005-AR1 Mortgage Loan Trust-AR1. Using Bloomberg, I was able to establish that the loan in question is not being tracked as an asset of the Trust. I wrote an expert report laying out the fraud; the foreclosure was canceled; and now the foreclosing law firm is begging the attorney I am working for not to sue them.

There is so much fraud throughout the system that it is unimaginable. We are now living in a criminal culture where the Banksters are running the show with impunity. Virtually every subprime securitization I have audited is suffering default rates between 20% to 57% of the entire portfolio. Each of these securitizations is a Ponzi scheme. There was never going to be enough money in the system to return the investors’ principal. Those in the know (spell that SERVICERS) knew these loans were designed to fail and purchased credit default swaps and other derivatives to short the deals.

This is why Jim says to Arlen below:

2. Yesterday, I sent you a list of the bailouts on which a major mortgage service company received one billion dollars.

3. If the servicer was simply a mortgage service company middle man how did it lose so much money as to need a one billion dollar bailout.

The only credible explanation as to why Deutsche Bank (a Trustee for 1900 securitization Trusts) and mortgage Servicing companies such as those Jim refers to would be receiving bailouts is if they were being paid on their credit default swaps.

It is clear for me to see through my use of the Bloomberg Terminal that the mortgage servicing industry is squeezing the last bit of liquidity out of the market. At these double-digit default rates, with a 50% severity loss rate, most of these Trusts will be wiped out by 2014.

In historical terms, I think of this as The Civil War, and it won’t be long before we see the Carpetbaggers and Scalawags (the debt buyers and junk-yard dogs, etc.) coming around to pick up the pieces.

I can also tell you that 90% of the foreclosures are illegal and fraudulent and could be stopped if consumers had the right analyst and attorney working together. The problem here is that the scheme has stripped homeowners of their cash, savings, and assets in the process.

Well, I could go on but I shall leave you with these thoughts to mull over.

My best advice to CIGAs: follow Jim’s advice and hunker down. Gold is the most stable repository of real wealth that civilized society has ever known. The dollars that have been created through the financialization of our economy via derivatives trading is totally unsustainable. Perception drives the market and when the world learns too late that that super-hyper-inflation of our currency will render it worthless, perhaps this madness will stop.

Kindest regards,
CIGA Marie

Marie McDonnell, CFE
Truth In Lending Audit & Recovery Services, LLC
Mortgage Fraud and Forensic Analyst
Certified Fraud Examiner
P.O. Box 2760, Orleans, MA 02653
Tel. (508) 255-8829 Fax (508) 255-9626



In 1929, the Soviet Union established gun control. From 1929 to 1953, about 20
million dissidents, unable to defend themselves, were rounded up and exterminated.

In 1911, Turkey established gun control. From 1915 to 1917, 1.5 million Armenians,
unable to defend themselves, were rounded up and exterminated.

Germany established gun control in 1938 and from 1939 to 1945, a total of 13
million Jews and others who were unable to defend themselves
were rounded up and exterminated.

China established gun control in 1935. From 1948 to 1952, 20 million political
dissidents, unable to defend themselves, were rounded up and exterminated

Guatemala established gun control in 1964. From 1964 to 1981, 100,000 Mayan Indians,
unable to defend themselves, were rounded up and exterminated.

Uganda established gun control in 1970. From 1971 to 1979, 300,000 Christians,
unable to defend themselves, were rounded up and exterminated.

Cambodia established gun control in 1956. From 1975 to 1977, one million educated
people, unable to defend themselves, were rounded up and exterminated.

Defenseless people rounded up and exterminated in the 20th Century because of
gun control: 56 million.

You won't see this data on the US evening news, or hear politicians disseminating this information.

Guns in the hands of honest citizens save lives and
property and, yes, gun-control laws adversely
affect only the law-abiding citizens.

Take note my fellow Americans, before it's too late!
The next time someone talks in favor of gun control, please remind them of this history lesson.
With guns, we are 'citizens'. Without them, we are 'subjects'.

During WWII the Japanese decided not to invade America because they knew most Americans were ARMED!

If you value your freedom, please spread this
anti gun-control message to all of your friends.

The purpose of fighting is to win.
There is no possible victory in defense.
The sword is more important than the shield,
and skill is more important than either.
The final weapon is the brain.
All else is supplemental.



Monday, July 5, 2010

The Real Meaning of the Fourth of July

"the real significance of the Fourth of July lies in the expression of what is undoubtedly the most revolutionary political declaration in history: that man’s rights are inherent, God-given, and natural and, thus, do not come from government."

Saturday, July 3, 2010

Learned Hand -- (1872-1961), Judge, U. S. Court of Appeals

"What do we mean when we say that first of all we seek liberty?

I often wonder whether we do not rest our hopes too much upon constitutions, upon laws and upon courts. These are false hopes; believe me, these are false hopes.

Liberty lies in the hearts of men and women; when it dies there, no constitution, no law, no court can save it; no constitution, no law, no court can even do much to help it...

What is this liberty that must lie in the hearts of men and women? It is not the ruthless, the unbridled will; it is not the freedom to do as one likes. That is the denial of liberty and leads straight to its overthrow.

A society in which men recognize no check on their freedom soon becomes a society where freedom is the possession of only a savage few -- as we have learned to our sorrow.

What then is the spirit of liberty? I cannot define it; I can only tell you my own faith.

The spirit of liberty is the spirit which is not too sure that it is right; the spirit of liberty is the spirit which seeks to understand the minds of other men and women; the spirit of liberty is the spirit which weighs their interests alongside its own without bias..."

-- -- Learned Hand -- (1872-1961), Judge, U. S. Court of Appeals -- Source: Learned Hand, in "The Spirit of Liberty" - a speech at "I Am an American Day" ceremony, Central Park, New York City (21 May 1944)

Happy Secession Day

Gerald Celente: The Crash Is Underway

Tuesday, June 29, 2010

Tecumseh - (1768-1813) Shawnee Chief

"Live your life that the fear of death can never enter your heart. Trouble no one about his religion. Respect others in their views and demand that they respect yours. Love your life, perfect your life, beautify all things in your life. Seek to make your life long and of service to your people. Prepare a noble death song for the day when you go over the great divide.

Always give a word or sign of salute when meeting or passing a friend, or even a stranger, if in a lonely place. Show respect to all people, but grovel to none. When you rise in the morning, give thanks for the light, for your life, for your strength. Give thanks for your food and for the joy of living. If you see no reason to give thanks, the fault lies in yourself.

Abuse no one and no thing, for abuse turns the wise ones to fools and robs the spirit of its vision. When your time comes to die, be not like those whose hearts are filled with fear of death, so that when their time comes they weep and pray for a little more time to live their lives over again in a different way. Sing your death song, and die like a hero going home." by: Tecumseh -(1768-1813) Shawnee Chief

Monday, June 28, 2010

Gold: Assumptions vs Reality



Sunday, June 27, 2010




Picking up the Pieces: Practical Guide for Surviving Economic Crashes, Internal Unrest and Military Suppression






Saturday, June 26, 2010


The Second Treatise of Civil Government 1690
"That the aggressor, who puts himself into the state of war with another, and unjustly invades another man's right, can, by such an unjust war, never come to have a right over the conquered, will be easily agreed by all men, who will not think that robbers and pirates hhave a right of empire over whomsoever they have force enough to master, or that men are bound by promises which unlawful force extorts from them.

Should a robber break into my house, and, with a dagger at my throat, make me seal deeds to convey my estate to him, would this give him any title? Just such a title by his sword has an unjust conqueror who forces me into submission. The injury and the crime is equal, whether committed by the wearer of a crown or some petty villain.

The title of the offender and the number of his followers make no difference in the offence, unless it be to aggravate it. The only difference is, great robbers punish little ones to keep them in their obedience; but the great ones are rewarded with laurels and triumphs, because they are too big for the weak hands of justice in this world, and have the power in their own possession which should punish offenders." John Locke - 1632-1704



DYLAN RATIGAN: Wall Street Reform: Politicians Lie, Media Applauds, America Suffers


drexl spivy 22 minutes ago (9:58 AM) 0 Fans

Glass-Steagall 1932-1999 -- During this time, the United States achieved the following major accomplishments during a period when our banking system, for the most part, was actually designed to allocate capital for the country's productive purposes, where risk was appropriately priced and client fiduciary relationships were hallmark:

1) Successfully fought an unconditional war against totalitarianism on 2 fronts with victory in little less than 4 years after starting out with only a modest standing army.

2) The US became the sole economic superpower during the 1950s with an unbelievable rise in the general standard of living for most of the population.

3) Led the world in technical innovation in computer technology and aviation culminating in a successful moon landing during the 1960s.

4) Continued advances in medicine and information technology and communciations setting the stage for leadership in the information age through the 1990s.

Since Glass Steagal's repeal (1999-today and forever with the passage of "Fin Reg") our country's hallmarks are the following:

1) The US banking system exploded to become a debt churning ponzi scheme where government's and most individuals became slaves to debt by doing away with a tried and true capital allocation system that for the better part of sixty years brought rising prosperity for most people.

2) War on terror.

3) The Patriot Act.

4) Rendition and Guantanamo.

5) Stop Loss.

6) A housing bubble.

7) Systemic government and corporate corruption.

8) Strip mall graveyards.

9) A gutted production infrastructure.



Wednesday, June 23, 2010



Jim’s Mailbox

Posted: Jun 22 2010 By: Jim Sinclair Post Edited: June 22, 2010 at 12:55 pm
Filed under: Jim's Mailbox

Dear CIGAs,

A bankrupt BP is worse for the financial world than Lehman Brothers was for exactly the same reason.

Pedro’s credentials in energy exceed by orders of magnitude those talking heads giving daily BP opinions. In fact, Pedro’s credentials might just be better than all of them added together.

Please read this article closely, and share it with others. It is just that important.


Dear Jim,

The BP crisis in the Gulf of Mexico has rightfully been analysed from the ecological perspective. People’s lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion.

People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP. BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples.

And at the heart of it all are those dreadful OTC derivatives again! Banks try and lean on major oil companies because they have exactly the kind of credit-worthiness that they themselves lack. In fact, major oil companies, conversely, spend large amounts of time both denying Banks credit and trying to get Bank risk off of their books in their trading operations. Oil companies have always mistrusted bank creditworthiness and have largely considered the banking industry a bad financial joke. Banks plead with oil companies to let them trade beyond one year in duration. Banks even used to do losing trades with oil companies simply to get them on their trading register… a foot in the door so that they could subsequently beg for an extension in credit size and duration. For the banks, all trading was based on what the early derivatives giant, Bankers Trust, named their trading system: RAROC – or, Risk Adjusted Return on Credit. Trading is a function of credit bequeathed, mixed with the risk of the (trading) position. As trading and credit are intertwined, we might do well to remember what might happen to global liquidity and markets if BP suffers what many believe to be its deserved fate of bankruptcy. The Intercontinental Exchange (ICE) has already been and will be further undermined by BP’s distress. They are one of the only “hard asset” entities backing up this so-called exchange.

If BP does go bust (regardless of whether it is deserved), and even if it is just badly wounded and the US entity is allowed to fail, the long-term OTC derivatives in the oil, refined products and natural gas markets that get nullified could be catastrophic. These will kick-back into the banking system. BP is the primary player on the long-end of the energy curve. How exposed are Goldman sub J. Aron, Morgan Stanley and JPM? Probably hugely. Now credit has been cut to BP. Counter-parties will not accept their name beyond one year in duration. This is unheard of. A giant is on the ropes. If he falls, the very earth may shake as he hits the ground.

As we are beginning to see, the Western pension structure, financial trading and global credit are all inter-twined. BP is central to this, as a massive supplier of what many believe(d) to be AAA credit. So while we see banks roll over and die, and sovereign entities begin to falter… we now have a major oil company on the verge of going under. Another leg of the global economic “chair” is being viciously kicked out from under us. Ecological damage is not just an eco-event on its isolated own. It has been added to the list of man-made disasters jeopardizing the world economy. The price tag and resultant knock-on effects of a BP failure could easily be equal to that of a Lehman, if not more. It is surely, at the very least, Enron x10.

All the counter-party risk associated with the current BP situation means the term curve of the global oil trade has likely shut down. Here we have yet another credit-based event causing a lock-up in markets that will now impede trade and commerce. It looks like an exact replication of the 2008 credit market seizure could ensue all over again – and it could probably be a lot worse. The world is in a far more delicate state now.

Although never really discussed, the world is highly reliant on BPs provision of long-term credit to many core industries. Who makes good on all the outstanding paper that so many smaller oil, gas and electricity companies, airlines, shipping companies, local bus, railway and transportation networks that rely on BPs creditworthiness and performance for? It doesn’t take a genius to figure out how this could all unwind. If BP has to be bailed-out, like a bank, the system will have to print even more unimaginable amounts of money.

The market, intellectually lazy and slow to realization, as it often is, probably has not woken up to it yet – but the BP crisis could unleash damage similar to the banking crisis. A BP failure through bankruptcy could make Lehman look small in comparison, and shake the financial house of cards we live in even more severely. If the implicit danger of the possibilities imbedded in such an event doesn’t make an individual now turn towards Gold at full speed, it is likely that nothing will.

Respectfully yours,

CIGA Pedro

Saturday, June 12, 2010



"In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good and thereafter decline to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to be able to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

-- The above was said by Alan Greenspan, 'Gold and Economic Freedom' in 1966.



Monday, June 7, 2010



Counting on Government Stupidity

The specious reasoning of Census employment

Bill Bonner

Reckoning from Baltimore, Maryland...

Well, the much-awaited unemployment report came out on Friday. The pundits, analysts, and kibitzers were all waiting. Their mouths open. Their pulses racing. They expected an "I told you so" moment.

Bloomberg polled them a week or two ago. The 2000 of them surveyed were overwhelmingly bullish...with the average forecast of a 27% increase for the stock market in 2010.

They must have thought the job figures would show that the 'recovery' was firmly underway...with unemployment finally turning down in a big way. Then it would be clear sailing...

Oops... Bummer!

It turned out that 95% of the new jobs were census takers - people paid by the government to count the people who pay the government.

It also turned out that people are waiting longer than ever to find a average of 34 months compared to only 16 months in 2007.

Investors' mouths turned down. They sold stocks so they could go home for the weekend without worrying. The Dow dropped 323 points.

The shorthand interpretation? It's a Great Correction...not a recovery.

The census takers illustrate our point. Government spending - including government jobs - do not really make us richer. They make us poorer. If you could make people better off by hiring them to count each other, why not count them twice? Or three times?

The trouble is, no matter how often you do it...or how well you do it...counting people doesn't add to our wealth; it takes away from it. Because it diverts resources - human labor - from worthwhile activities to activities that are a waste of time. And the more people you hire, the bigger the waste...and the poorer you get.

Why count people anyway? So you can apportion seats in the House of Representatives? We got a census form in the mail. It looked official...and very nosey. As far as we're concerned, it's none of their damned business!

But wait a minute. What if the government hired people to do useful things - such as baking and pole dancing? Well, as Jefferson put it, if you expect the government to do your baking for you, you "will soon want bread."

As for the pole dancing, we don't know...

But there's no secret to what makes people wealthier. No magic. No miracles. No free lunches.

People want to believe that the feds can pull off some trick...that they can turn this Great Correction around by stimulating this or regulating that. Or how about tarring and feathering the BP chairman? Or sacrificing a few of Goldman's young virgins? What? There are no virgins at Goldman? Well, how about some old sluts from JPMorgan?

JPMorgan just got fined $50 million - the largest penalty ever handed out by a UK regulator. What was its crime? "Failing to protect billions of dollars of client money by keeping it in segregated accounts," says The Financial Times.

How much did clients lose as a result of JPMorgan's faithlessness?

Not a penny. But they could have lost big-time, said the FSA. And besides, the regulators are getting tough everywhere.

Back in the USA, BP faces criminal charges. We don't know exactly what its crime was either...but with so many laws on the books, it's hard to imagine the giant oil company didn't break a few of them.

Not that we're shedding any tears for the goo pumper. If they can't keep the oil in their pipes, they should get out of the oil business. But it's a tough business. And accidents are bound to happen.

Destroying the oceans and endangering life on planet earth could be called a mistake. But destroying the economy is malicious mischief. Which is what the feds are doing.

So, Friday, the news was let out that the jobs stimulus effort was a flop. And as it made its way from one Bloomberg terminal to the others...the traders sold!

'Risk off'...the traders call it. It means that they are selling their 'risky' investment positions and putting the money into safe positions - notably, US treasury bonds. The dollar rose on the news - and is now near a 4-year high.

Sunday, May 30, 2010

Dan Denning on the accuracy of Austrian Economic Theory

Whiskey & Gunpowder
By Dan Denning
May 27, 2010
Melbourne, Australia

There is a place in life for expert opinion. If a doctor tells us our heart is going to quit because we’re drinking too much beer and not exercising enough, we listen to him. If a physicist tells us that jumping from high places without a parachute could be bad for our health, we listen to him. If Tiger Woods tells us how to correctly hit a one iron or send a saucy text message, we listen to him.

But if a group of economists tells us that a government tax delivers a public benefit, we are inclined to guffaw in their collective face.

Most of the economics profession that gets quoted in so-called respectable publications has studied the wrong textbooks over the last 50 years. They are doctors prescribing remedies based on an incorrect understanding of illness.

Most mainstream textbook economists are reading from the playbook of John Maynard Keynes. They believe, and will say on command – not because there’s any evidence that it works but because it’s how you get tenured and earn grant money or get a government job – that when private demand falls because households and business de-leverage, it is the proper role of government to boost consumption and aggregate demand by increasing public spending. Amen.

As a scientific proposition, empirically speaking, there is zero evidence that this policy works. The one example trotted out is FDR’s spending boom in the Great Depression. But the evidence now suggests that it was war-time production that dragged the American economy out of depression, not morally enlightened fiscally policy.

There no evidence to suggest the big deficit spending really is better than doing nothing. But time after time, the interventionist mantra gets trotted out like the Ten Commandments in the Ark of the Covenant to incinerate anyone who doubts its gospel truth. Yet it’s just a bunch of superstition with very little basis in fact.

Economics is simply not a science in the same way that chemistry and physics are sciences. It’s probably not a science at all, to be honest. Or, if it is, it’s a pseudo science, having more in common with psychology than geology.

Complex adaptive systems like the modern marketplace do not behave mechanistically. They cannot be controlled precisely with the rods and levers of monetary and fiscal policy. To believe so is an enormous – and as we’re finding out – costly error. It’s also massively arrogant and conceited.

There’s a reason the great Austrian economist Ludwig von Mises called his great book “Human Action.” Economics is the study of human action. And human action is sometimes rational, sometimes irrational, sometimes predictable...but ultimately...very difficult to model and predict with charts.

As Nassim Taleb points out, all the most important stuff in your life probably happened or will happen in non-predictable ways. Most of the time, today is going to be like yesterday and tomorrow is going to be liked today. But the most life-changing things happen to you at times you’d have no way of predicting or preparing for. But not everyone is comfortable with this kind of un-planned spontaneity.

Please note the Austrian School of Economics was the only school of economic thought that accurately predicted the current crisis. Why? The Austrians correctly identified the influence of credit (free money to change your life) on human action. Altering the price of money alters incentives and changes individual calculations across the breadth and depth of an economy.

The Austrians pointed out that government-controlled interest rates are the real cause of the business cycle inasmuch as they lead to credit booms and inevitable busts. When the price of money is rigged, the market isn’t free. Only if you understand the “root cause” of the business cycle can you learn how to prevent bubbles from blowing up and popping later. The Austrian answer is, by the way, sound money.


Sunday, May 23, 2010

**1911 Turkey established gun control. From 1915-1917, 1.5 million Armenians, unable to defend themselves, were rounded up and exterminated.

**1929 The Soviet Union established gun control. From 1929 to 1953, approximately 20 million
dissidents, unable to defend themselves, were rounded up and exterminated.

**1935 China established gun control. From 1948 to 1952, 20 million political dissidents, unable to defend themselves, were rounded up and exterminated.

**1938 Germany established gun control in 1938 and from 1939 to 1945, 6 to 7 million Jews,
gypsies, homosexuals, the mentally ill, and 12 million Christians who were unable to defend
themselves, were rounded up and exterminated.

**1956 Cambodia established gun control. From 1975 to 1977, one million “educated” people,
unable to defend themselves, were rounded up and exterminated.

**1964 Guatemala established gun control. From 1964 to 1981, 100,000 Mayan Indians, unable to defend themselves, were rounded up and exterminated.

**1970 Uganda established gun control. From 1971 to 1979, 300,000 Christians, unable to defend themselves, were rounded up and exterminated.

**After the Christian Tutsis had been disarmed by governmental decree in the early 1990s, Hutu-led military forces began to systematically massacre the defenseless Christians. The massacre began in April 1994 and continued until July 1994. Using machetes rather than bullets, the Hutu forces were able to create a state of abject fear and terror within the helpless Christian population as they systematically butchered hundreds of thousands of them.

Tuesday, May 18, 2010


Yes this is it! We have crossed the Rubicon and events in the world economy are now likely to unfold in a totally uncontrollable fashion. Clueless governments still don’t understand that it is their ruinous actions that have created a credit infested and bankrupt world. They will continue to prescribe the same remedy that caused the problem in the first place, namely more credit and more printed money. The consequences are clear; we will have hyperinflation, economic and human misery as well as social unrest.

Tuesday, May 11, 2010


"When I contemplate the natural dignity of man; when I feel ... for the honor and happiness of its character, I become irritated at the attempt to govern mankind by force and fraud, as if they were all knaves and fools, and can scarcely avoid disgust at those who are thus imposed upon." - - Thomas Paine - (1737-1809)

He that would make his own liberty secure must guard even his enemy from oppression; for if he violates this duty he establishes a precedent that will reach to himself: Thomas Paine

Liberty is meaningless where the right to utter one's thoughts and opinions has ceased to exist. That, of all rights, is the dread of tyrants. It is the right which they first of all strike down: Frederick Douglass

Wednesday, May 5, 2010


"Four sorrows ... are certain to be visited on the United States. Their cumulative effect guarantees that the U.S. will cease to resemble the country outlined in the Constitution of 1787.

First, there will be a state of perpetual war, leading to more terrorism against Americans wherever they may be and a spreading reliance on nuclear weapons among smaller nations as they try to ward off the imperial juggernaut.

Second is a loss of democracy and Constitutional rights as the presidency eclipses Congress and is itself transformed from a co-equal 'executive branch' of government into a military junta.

Third is the replacement of truth by propaganda, disinformation, and the glorification of war, power, and the military legions.

Lastly, there is bankruptcy, as the United States pours its economic resources into ever more grandiose military projects and shortchanges the education, health, and safety of its citizens.":

Chalmers Johnson, Sorrows of Empire


Global Europe Anticipation Bulletin


6 reasons 'Goldman Conspiracy' must kill reforms

Derivatives-bonus culture needs neo-Reaganomics resurgence to survive
By Paul B. Farrell, MarketWatch

Tuesday, May 4, 2010

John Williams: A Hyper-Inflationary Great Depression Is Coming

John Williams: A Hyper-Inflationary Great Depression Is Coming

Posted: May 04 2010 By: John Williams Post Edited: May 4, 2010 at 8:13 pm
Filed under:


Courtesy of The Gold Report (

ShadowStats’ John Williams has done his math and believes his numbers tell the truth. He explains why the U.S. is in a depression and why a "Hyper-Inflationary Great Depression" is now unavoidable. John also shares why he selects gold as a metal for asset conversion in this exclusive interview with The Gold Report.

The Gold Report: John, last December you stated, "The U.S. economic and systemic crisis of the past of the past two years are just precursors to a great collapse," or what you call a "hyper-inflationary great depression." Is this prediction unique to the U.S., or do you feel that other economies face the same fate?

John Williams: The hyper-inflationary portion largely will be unique to the U.S. If the U.S. falls into a great depression, there’s no way the rest of the world cannot have some negative economic impact.

TGR: How will the United States’ decreased economic power impact global economies? Will the rest of the world survive?

JW: People will find to their happy surprise that they’ll be able to survive. Most businesses are pretty creative. The thing is, the U.S. economic activity accounts for roughly half that of the globe. There’s no way that the U.S. economy can turn down severely without there being an equivalent, at least a parallel downturn outside the U.S. with its major trading partners.

When I talk about a great depression in the United States, it is coincident with a hyper-inflation. We’re already in the deepest and longest economic contraction seen since the Great Depression. If you look at the timing as set by the National Bureau of Economic Research, which is the arbiter of U.S. recessions, as to whether or not we have one, they’ve refused to call an end to this one, so far. But assuming you called an end to it back in the middle of 2009, it would still be the longest recession seen since the first down-leg of the Great Depression.

In terms of depth, year-to-year decline in the gross domestic product, or GDP, as reported in the third quarter of 2009, was the steepest annual decline ever reported in that series, which goes back to the late ’40s on a quarterly basis. Other than for the shutdown of war production at the end of World War II, which usually is not counted as a normal business cycle, the full annual decline in 2009 GDP was the deepest since the Great Depression. There’s strong evidence that we’re going to see an intensified downturn ahead, but it won’t become a great depression until a hyper-inflation kicks in. That is because hyper-inflation will be very disruptive to the normal flow of commerce and will take you to really low levels of activity that we haven’t seen probably in the history of the Republic.

Let me define what I mean by depression and great depression, because there’s no formal definition out there that matches the common expectation. Before World War II, economic downturns commonly were referred to as depressions. If you drew a graph of the level of activity in a depression over time, it would show a dip in the economy, and you’d go down and then up. The down part was referred to as recession and the up part as recovery. The Great Depression was one that was so severe that in the post-World War II era, those looking at economic cycles tried to come up with a euphemism for "depression." They didn’t want to create the image of or remind people of the 1930s. Basically, they called economic downturns recessions, and most people think of a depression now as a severe recession.

I’ve talked with people in the Bureau of Economic Analysis and the National Bureau of Economic Research in terms of developing a formal depression definition. The traditional definition of recession—that of two consecutive quarters of inflation-adjusted contraction in GDP—still is a solid one, despite recent refinements. Although there’s no official consensus on this, generally, a depression would be considered a recession where peak-to-trough contraction in the economy was more than 10%; a great depression would be a recession where the peak-to-trough contraction was more than 25%.

We’re borderline depression in terms of where we’re going to be here before I think the hyper-inflation kicks in. You’ve certainly seen depression-like numbers in things such as retail sales, industrial production and new orders for durable goods, where you’re down more than 10% from peak-to-trough. In terms of housing, you’re down more than 75%, and that certainly would be in the great depression category. With hyper-inflation, you have disruption to the normal flow of commerce and that will slow things down very remarkably from where we are now.

TGR: After a period of recession, isn’t inflation considered a good sign?

JW: There are a couple of things that drive inflation. The one that you’re describing is the relatively happy event where strong economic demand is exceeding production, and that’s pushing prices higher, as well as interest rates. That’s a relatively healthy circumstance. You can also have inflation, which is driven by factors other than strong economic activity. That’s what we’ve been seeing in the last couple of years. It’s been largely dominated by swings in oil prices. That hasn’t been due really to oil demand, as much as it has been due to the value of the U.S. dollar. Oil is denominated in U.S. dollars. Big swings in the U.S. dollar get reflected in oil pricing. If the dollar weakens, oil rises. That’s what you saw if you go back to the 1973-1975 recession, for example. That was an inflationary recession.

Indeed, the counterpart to what you were suggesting earlier about the strong demand and higher inflation is that usually in a recession you see low inflation. The ‘73 to ‘75 experience, however, was an inflationary recession because of the problem with oil prices. That’s what we were seeing early in this cycle, where a weakening dollar rallied oil prices, and then the dollar reversed sharply and oil prices collapsed. We have passed through a brief period of shallow year-to-year deflation in the consumer price index, but, as oil prices bottomed out and headed higher since the end of 2009, we’re now seeing higher inflation, again.

I’m looking at hyper-inflation, which is a rather drastic forecast. This has been in place as an ultimate fate for the system for a number of years. Back in the ’70s, the then Big 10 accounting firms got together and approached the government and said, "Hey guys, you know you need to keep your books the way a big corporation does. You’re the largest financial operator on earth." The government then, as well as today, operates on a cash basis with no accrual accounting and such. Yet, over a period of 30 years, the accountants and government put together generally accepted accounting principles, or GAAP, accounting for the federal government and introduced formal financial statements on that basis in 2002, which supplement the annual cash-based accounting.

If you look at those GAAP-based statements and include in the deficit the year-to-year change in the net present value of the unfunded liabilities for Social Security and Medicare, what you’ll find is that the annual operating shortfall is running between $4 and $5 trillion; not $500 billion as we saw before the crisis or the $1.4 trillion that they announced for fiscal 2009. Now to put that into perspective, if the government wanted to balance its deficit on a GAAP basis for a year, and it seized all personal income and corporate profits, taxing everything 100%, it would still be in deficit. It can’t raise taxes enough to contain this. On the other side, if it cut all government spending except for Social Security and Medicare, it still would be in deficit. With no political will to contain the spending, eventually the government meets its obligations by revving up the currency printing press.

TGR: With all this new paper money coming into the system, wouldn’t we see a bigger bubble than we’ve ever seen prior to a hyper-inflationary great depression?

JW: No, in fact, it’s a very unusual circumstance that we have now. Put yourself in Mr. Bernanke’s situation—he had to prevent a collapse of the banking system. He was afraid of a severe deflation as was seen in the Great Depression, when a lot of banks went out of business. The depositors lost funds and the money supply just collapsed. He wanted to prevent a collapse of the money supply and keep the depository institutions afloat. Generally, that has happened. The FDIC expanded its coverage and everything that had to be done to keep the system from imploding was done. The effects eventually will be inflationary.

In the process, what Mr. Bernanke did was to expand the monetary base extraordinarily, more than doubling it over a period of a year. The monetary base is money currently in circulation plus bank reserves. If you go back to before September 2008, the bank reserves were in the $50 to $60 billion range. Where the currency was maybe $800 billion, we’ve gone over $2 trillion in total reserves. Most of that is in excess reserves and not required reserves that banks have to keep to support their deposits. Normally banks would take their excess reserves and lend them out into the regular stream of commerce, and in doing so, that would create money supply. Instead they’re leaving the excess reserves on deposit with the Fed. Money supply and credit are now generally contracting. We’re going to see an intensified downturn in the near future. I specialize in looking at leading indicators that have very successful track records in terms of predicting economic or financial turns. One such indicator is the broad money supply.

Whenever the broad money supply–adjusted for inflation–has turned negative year over year, the economy has gone into recession, or if it already was in a recession, the downturn intensified. It’s happened four times before now, in modern reporting. You saw it in the terrible downturn of ‘73 to ‘75, the early ’80s and again in the early ’90s. In December of 2009, annual growth in real M3 turned negative. It’s now at a record low in terms of decline, down more than 6% year over year. What that suggests is that in the immediate future you’re going to see renewed downturn in economic activity.

In all the prior instances that I mentioned, this event led recessions, except for ‘73 to ‘75. That’s when you had the oil spike and a recession that came from that. When the money supply turned down in that recession, the economy accelerated in its decline. We’re going to see something along those lines, now, with about a six-month lead time. You’re going to have negative economic growth this year. The implications for that are extraordinary, because the projections on the federal budget deficit, a number of the state deficits, and the solvency and stress tests for the banking system all were structured assuming positive economic growth in the 2% to 3% range for 2010. Instead it’s going to be negative. Many states are going to be in greater difficulty than they thought. Most likely, you’re going to have federal bailouts there. The banks are going to have more troubles. All this means more government support, more government spending, greater deficits and greater funding needs for the U.S. Treasury. We have a global market that already is increasingly reluctant to hold the dollars and U.S. Treasuries.

TGR: The U.S. dollar is still the reserve currency, and it’s holding its value while the euro struggles. Wouldn’t decoupling precede hyper-inflation?

JW: I don’t know if it will decouple from being the reserve currency formally, but it will de facto. The reserve status is the reason the dollar didn’t collapse per se a year and a half ago during the September ‘08 panic. The movement is already afoot, however, to try to relegate the dollar to some status other than a reserve currency. For example, OPEC purportedly is looking to price oil in something other than U.S. dollars. The pressure is there to change the status.

Again, if you start to see a great depreciation of the U.S. currency or a tremendous increase in lack of confidence in the soundness of the government’s fiscal condition, there is a problem. You mentioned Greece, for example. The sovereign solvency issues there are minuscule compared to what we have with the United States, which is the elephant in the bathtub. The markets know it’s there. The central bankers know it’s there. Again, with the downturn in the economy, all the issues are going to be brought to a head. As they come to a head, there will be that effort to dump the dollar. I would expect that, indeed, it will be decoupled from its reserve status, although it could follow after the fact as opposed to before the fact.

TGR: Major economic indicators suggest significant improvement; even the IMF has stated that we’ve averted a global depression. What are you seeing that these governing bodies are not?

JW: What I’m using is a leading indicator of economic activity: year-to-year change in inflation-adjusted broad money supply. We’re now seeing a very sharp year-over-year decline, which has not been seen since the 1990 recession. This indicator does not work always in the upside; it doesn’t necessarily give you a signal for a rising economy. It is, however, basic. If you strangle liquidity you can always contract an economy. Deliberately or not, liquidity’s being strangled. You’re seeing very sharp declines in consumer credit, commercial and industrial loans and commercial paper outstanding.

You are getting happy news from governments, central banks, financial markets, Wall Street analysts and the popular media, which does tend to cater to Wall Street. Such is standard practice. Happy news is what sells and you don’t want to discourage people. The Obama administration, interestingly, started talking-down the economy when it wanted to get its stimulus package in place. As soon as that was done, it started talking-up the economy. Everything was just fine and dandy again. This is the most extraordinary downturn most people living today have ever seen. In terms of modern economic reporting, which basically started after World War II, we’ve never had a downturn as long or as severe. Perversely, the extreme nature of the downturn actually has warped recent reporting of seasonally-adjusted data to the upside.

TGR: Earlier you mentioned that business around the world will survive in the event of a depression. Aren’t there sustainable businesses in the U.S. as well? Won’t an influx of printed currency and green-tech job creation offer some value? At some point, doesn’t stimulus money become real cash producing real goods? Surely the economy would be viable at some level?

JW: Not without income growth. There’s nothing there that you’ve described to me that is growing, aside from inflation. To have sustainable growth in the economy, you have to income growth, net of inflation. That is not happening, and there is nothing in existing government stimulus that will cause real income growth.

Beyond income issues, the problem with the hyper-inflation is that very quickly the use of cash will cease. Let me contrast our circumstance here with a very popularly followed hyper-inflation case that’s now run its course in Zimbabwe. There you had probably the worst hyper-inflation that anyone’s ever seen. After devaluation upon devaluation, they successively lopped the zeros off the bills. If you took a $2 bill that they first issued back in the ’80s and then tried to come up with the equivalent of a $2 bill in the last form of the currency, it would be very difficult to do because it was so worthless. If you put a pile of those together to equal the original $2 bill, it would actually stretch from the earth to the Andromeda Galaxy. We’re talking light years. There are not enough trees on earth to print them. Yet the Zimbabwe economy survived and functioned. They had a lot of problems, but they operated. The reason they functioned was because they had a back-up system, which was a black market in U.S. dollars. People switched out of the Zimbabwe dollar to U.S. dollars. They could live with that. In the U.S., we don’t have a back-up system.

TGR: You mentioned in a recent interview with CNN that you’re recommending individuals move into both cash and gold. With the euro and the dollar in jeopardy, where does that leave us?

JW: I don’t like the euro. I don’t think that’s going to hold together, and I’ve thought so for some time. If it should break up and you have a new German currency, a new mark or something like that might be a strong one option. At the moment I like the Canadian dollar, the Australian dollar and the Swiss franc. For anyone living in the United States, rather than looking at the short-term volatility in the markets and trying to make money off of that, this is the time to batten down the hatches and to look to preserve your wealth and assets.

In terms of preserving the purchasing power of your assets, the best thing I can think of is physical gold. That’s worked over the millennia. I’m not per se a gold bug. It just happens to be a circumstance in which it’s the cleanest asset around for that. You don’t need to put all your assets into gold, but hold some. Hold some silver. I’d look to get some assets out of the U.S. dollar and look to get some assets out of the U.S. When I say outside of the U.S. dollar, again, I look at the Canadian dollar, Australian dollar, Swiss franc in particular. I think they will tend to do particularly well, whereas the U.S. dollar is going to become effectively worthless.

As the dollar breaks down, you’ll also likely see disruptions in supply chains, including shipments of food to grocery stores. People should consider maintaining stockpiles of basic goods needed for living, much as they would for a natural disaster. I sit on the Hayward fault in California. I have a supply of goods and basic necessities in case something terrible happens—natural or man-made—that will carry me for a couple of months. It may take that long for a barter system to evolve, which I think is what you’re going to end up with; at least until a new currency system is reorganized and you get a government that’s able to bring its fiscal house into order. No currency system in the U.S. is going to work unless the fiscal conditions that drove it into oblivion are also addressed.

On a global basis, where the dollar is the world’s reserve currency, 80% of currency transactions involve the U.S. dollar. There’s going to have to be an overhaul of the global currency system. To gain credibility with the public, the powers that be likely will design a system that has some kind of a tie to gold, but that’s purely speculative.

TGR: From a personal investment point of view, you emphasized that this is a time to conserve assets, including gold and other currencies. How else can investors protect themselves?

JW: I like physical gold and silver. I look to gold as a primary hedge. If you can come out of this holding gold, you’ll be in a position where you’ll be able to take advantage of some extraordinary investment opportunities that will follow. With inflation, real estate is usually a pretty good bet. It tends to hold its value over time. There may be periods of illiquidity, though, and it’s not portable. Neither of those limitations is an issue with gold. Maybe gold will become the black market to support U.S. economic activity. It certainly would be the area that people will try to transfer their assets to as time goes along.

You see people now as gold gets to a new high saying, "Oh my goodness, I bought at $200, and I can sell out at $1,100 making a good profit." What people don’t realize is that they haven’t made a real profit. What they’ve done is retained the purchasing power of the dollars that they invested in gold, and they’ve lost proportionately the purchasing power of the amounts left in dollar-denominated paper assets over the same time. Gold is a long-term wealth preserver. Again, where many people are used to an investment environment where they can buy a stock, make a quick profit and then sell, with gold you need to hold on for the long haul as an insurance policy, not as a quick investment.

TGR: Thank you very much for your time.

Walter J. "John" Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies. For more than 25 years he has been a private consulting economist and a specialist in government economic reporting. His analysis and commentary have been featured widely in the popular media both in the U.S. and globally. Mr. Williams provides insight and analysis on his website,