I guess the economy is roaring back towards prosperity. According to the news, the stock market is at all time highs, companies are making record profits, unemployment is falling and inflation is non existient. All of these things should make us sigh in relief and embolden us with confidence in the future. However there is one small problem, the economic recovery is a lie. Not that what the news is reporting isn’t mostly true but rather that these economic highlights are achieved synthetically. For in a real recovery private sector business growth creates the revenue. However in this immitation recovery, the Federal Reserve substitutes that revenue with money printing. The power to be able to print as much money as they wish at any time gives them this incredible power to mimic economic growth. But let’s look at this in more detail. For instance stock prices are driven by profits. Record high prices should mean near record high profits. While both the real and imaginary recovery technique can accomplish this, the do so very differently. In a real recovery a large portion of the profits come from an increase in revenue as a result of increased demand. But in the immitation recovery, the Federal Reserve manipulates interest rates by buying large amount of treasury bonds. This has allowed rates to fall to near record levels. This has allowed companies to dramatically reduced their debt by refinancing. In effect the refinancing saved so much money that many companies that had reduced overall revenues were able to still raise their profit margins. Now to be fair these companies did grow, just not in America. Since the great recession American companies have been adding jobs in China 3 to 1 versus in the states. In case you’re wondering this is what a jobless recovery looks like. Of course skeptics will ask me “If you are right then explain how come unemployment is going down? ” This is actually a simple answer, it hasn’t really fallen to the degree they claim. The government has found it much easier to quit counting some unemployed people as unemployed than to either tell the truth or address the issue. For they only count those who are receiving benefits. If your unemployment outlasts your benefits you are counted as somebody who has given up looking for work. Such an act is not only deceiving but insulting. My wife is a college graduate who judicially searched for a job and it took her 2 years to find one. So while they claim unemployment has fallen from a high around 10% to currently 7.6% the fact remains that there are less people working today than before the recession. Until our labor force surpasses the pre recession mark, we are still net negative in the job category. Finally there is the low inflation. Like with the unemployment numbers, inflation statistics are also creative writing. In fact when reported by the media they usually say something like” inflation rose .2% in the second quarter, not including the volitile food and energy sectors.” Wow that is so helpful to us considering that we buy nothing more frequently than food or energy. Of course food and energy have been hit the hardest by regulations and inflation which is the real reason they do not want to put it into their calculation. The fact is a trip to the grocery store or gas station will always give you a more accurate gauge of inflation and it’s impact on you. But more dangerous than inflation is that which is causing the inflation. For in a growing economy inflation is created by demand outstripping supply. This type of inflation signals businesses to increase production to meet demand, the net result of which is a reduction in price and increase in jobs. But in the immitation recovery inlation is created by the massive overprinting of money. The only reason this bubble has failed to pop is because the Federal Reserve is actually PAYING THE BANKS INTEREST NOT TO LOAN OUT THE MONEY. And how are they financing this? BY PRINTING MORE MONEY. This is clearly unsustainable for at some point the banks will have so much interest due to them that the Fed will not be able to both hold rates low enough to keep the government solvent and pay all of the interest due. At that point they will stop paying the interest and the banks flush with cash will flood the market with dollars and all of the pent up inflation will arrive as one big devaluation of the dollar. Just like in 2008 we will wake up one day and the economy will be in shambles.
We do not have to wind up like the Germans of the 1920′s hauling a wheelbarrow of cash into the bakery for a loaf of bread. Instead we can protect ourself through the use of altenative currency. I propose that gold and silver should be allowed to be used as alternative currencies. Such transactions would not take place with physical gold or silver but rather with a debit card linked to an account that specifically holds gold or silver. Gold could only be used for large purchases and silver for the rest. With computer capability transactions could be carried out to the hundredth or thousandth of an ounce. You would have the capability to move cash from your checking account into your hard assets account and vice versa. Cash would still be the only currency that would be physically used in a transaction. And banks would only provide withdrawls in cash. Such a system would allow people to protect themselves from currency debasement. Think such an idea is crazy? While doing research to finish this article I found that none other than the legandary investor, Peter Schiff had actually opened such a bank. (click the link to read)
In fact ATM access to a Euro Pacific Bank account is worldwide and since it is backed by hard assets there is no hassle with foreign currency conversions. I personally would not only open an account myself but would advise you to do the same if not for one little detail, it is not open to American citizens. So why did Mr. Schiff close the door in our American faces? Our laws. For the American banking system is a cartel, where the Federal Reserve ,who is owned by the banks, makes the laws the banks must operate under. To allow a hard asset bank to operate in the U.S. or even just with U.S. citizen access would create the competitive currency effect. The Federal Reserve and it’s bank owners have no desire to allow for such competition and posses the capability to ensure that their monopoly is not threatened. Of course as the situation deteriorates, both the Fed and the government will only become more millitant in eliminating competitive forces. So when the dollar bubble bursts, the only thing that will stop people from dumping the dollar will be to outlaw buying anything of real value. Remember this has happened before during the depression with the Gold Confiscation Act of 1933. Except this time, 80 years later, the financial world is more complex. Gold is only one of many safe havens that will be available and as such the government will have to go even further this time. Expect to see forced liquidation of investments into foreign currencies and commodities as well as the forced liquidation of foreign accounts held by Americans. By the time they are done you will have three investment options, the American stock market, the American Bond market or American currency.
So in the future we are left with three possibilities. First come together and force political change, which is difficult to do when it does not benefit the government. Second, plan on changing your citizenship when the time comes with the hope that the TSA doesn’t confiscate your valuables as you flee. Or finally we can all go to Home Depot and buy a wheelbarrow before they to cost more than a wheelbarrow worth of dollars to buy.