by John Browne – Senior Market Strategist, Euro Pacific Capital

The U.S. economy is in uncertain times. Analysts are split between those seeing recovery and those fearing a second downturn. This confusion is being echoed in the highest levels of government as President Obama simultaneously speaks about the need for more federal spending and warns of the dangers of increased debt. As the volatile markets indicate, investors are not only confused – they are seriously concerned.

The country appears to be going through a period of buyer’s remorse over the election of Barack Obama. The majority cobbled together by the President one year ago included the Democratic base, independents hoping for “change,” and many disaffected Republicans betrayed by the Bush Administration’s big-government neoconservatism. It is unlikely that most of these voters favored an overt push toward socialism; however, this is what they have received. As the ‘tea parties’ illustrate, voters are not only confused – they are seriously concerned.

These concerns are justified. The Administration’s hard-left turn was evident from the outset. Ignoring expert advice to spend on job-creating infrastructure, Obama spent wildly on entitlements. Now, with rising grassroots discontent, a falling currency, and threats to America’s AAA credit rating, there is some evidence that the Administration is trying to hedge its bets through tough talk. Yet, they still have not taken any tough action. As their gold stockpiling highlights, foreign governments are not only confused – they are seriously concerned.

Over at the Federal Reserve, no such soul-searching appears to be underway. Its chairman, Ben Bernanke, is clearly intent on avoiding deleveraging. He has charted a course of massive liquidity injections, financed by hitherto unimaginable levels of monetary inflation. He has even attempted to coordinate these expansionary policies on an international basis.

For the moment, the cheap liquidity has saved Wall Street. To the delight of the Goldman Sachs, et al., the Fed has created a boom in financial assets, including equities, bonds and commodities. These rallies have stimulated a nearly universal belief that the worst has past. This feel-good attitude could be clearly seen on a recent cover of The Economist that read: “After the Storm – How to Make the Best of the Recovery.”

But, to many people, life looks increasingly desperate. Official U.S. figures admit to some 15 million unemployed. Despite the massive stimulus packages, American consumers are still in shock and not spending as they once did. Already, the fall in consumer demand is larger than that of the early 1930’s. The authorities now face a moment of truth: admit that they don’t have the power to bring the consumer back to life or redouble their efforts, consequences be damned.

The whole world awaits the decision, which could indicate a wild inflation, a major recession or the worst of both.

Should the Administration accept, or even be forced to accept, an ultimately healthy deleveraging, a deep recession would ensue. Entitlements would have to be dramatically reduced while taxes remain unreasonably high. Otherwise, the federal government could face outright default. Barring a popular revolt, this course would lead to a sustainable recovery.

On the other hand, if the government continues to run the printing presses, as seems far more likely, hyperinflation will become a distinct possibility. While this may create the appearance of recovery, with rising stocks and less short-term unemployment, average citizens will notice a sharp decline in their standard of living. It will get harder and harder to ‘make ends meet’ as wages increase less than the cost of everyday goods.

The hyperinflation scenario will likely buy the Administration a little more time, but would eventually give way to the worst of all possible worlds: hyperinflationary depression. Here, America would feel a deep recession concurrent with rising prices – similar to what we’re seeing right now with gold. This is truly a devastating outcome and should be avoided at all costs.

America is at a crossroads. It is important in these times to have leaders we can trust to make the right decisions, even if they are unpopular. Obama, Bernanke, Reid, Dodd, Pelosi, Frank… These are not names that are trusted to make wise choices over expedient ones. The markets know it; the voters know it; and, judging by the price of gold, the rest of the world knows it too.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter Schiff’s 2008 bestseller “The Little Book of Bull Moves in Bear Markets” and his newest release “Crash Proof 2.0: How to Profit from the Economic Collapse.” Click here to learn more.More importantly, don’t let the great deals pass you by. Get an inside view of Peter’s playbook with his new Special Report, “Peter Schiff’s Five Favorite Investment Choices for the Next Five Years.” Click here to download the report for free. You can find more free services for global investors, and learn about the Euro Pacific advantage, at www.europac.net.

This was an important step in the process, but the amendment is going to be tacked on to the larger regulatory reform bill being deliberated now.

Watch Ron Paul introduce the bill earlier today in the committee in the video below.

Please send Congress a letter using an anti-bribery argument to oppose the cancerous healthcare bill.

You can copy or borrow from my letter to Congress to write your own . . .

Please oppose the so-called healthcare reform bill. I especially object to the fact that my tax dollars are being used to bribe members of Congress to secure their votes, or to reward powerful Senators. For instance . . .

The Baucus bill has the federal government paying the entire cost for the mandated Medicaid expansion in the following states: Nevada, Oregon, Rhode Island and Michigan. This is an attempt to bribe or reward the Senators and Representatives from those states using my tax money.

Other states aren’t getting this sweet deal. Citizens in the other 46 states will have to pay higher taxes to fund this scheme.

I’m sure the so-called heathcare bill is stuffed with other sweetheart deals, designed to win key votes. You guys call this logrolling. I call it bribery. The only reason Congressional leaders get away with it is because they’re using my tax money to do the bribing, but that makes it worse, not better.

Frankly, I think any Congressional leader who offers a tax-funded benefit for a state or district in order to secure a vote, and any member of Congress who negotiates to gain such a benefit, should be brought up on charges and go to jail for violating the anti-bribery law.

The laws are supposed to treat all of us equally. Any law that treats citizens of some states differently is inherently unjust, and any law passed using tax-funded bribery is inherently unethical. I believe the so called healthcare bill is both things, unjust and unethical. VOTE AGAINST IT!

I’m paying close attention to what you do, and will take it into account as I discuss your re-election with other voters.

END OF SAMPLE LETTER

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Jim Babka, President
DownsizeDC.org, Inc.

Sources:

The Wall Street Journal writes about the sweetheart deal some Congresspersons have secured here: http://online.wsj.com/article/SB10001424052748703746604574461434007876034.html

D o w n s i z e r – D i s p a t c h
is the official email list of DownsizeDC.org, Inc. & Downsize DC Foundation

His appearance was so positive that they end up telling him that he should come on the show as a special guest (as they have from time to time) for the full 2 hours of the show. Paul makes a joke in response. Check it out below.

by John Browne – Senior Market Strategist, Euro Pacific Capital

Last week, the Fed extended its emergency economic powers, which include lending to the money center banks at zero interest. A few days later, the Fed’s plan was reinforced by similar announcements from the rest of the G-20. The road map the authorities are providing for the near-term global economy can’t be much clearer. There will be no cessation of the seemingly endless supply of cheap dollars being pumped into the financial system. With the world apparently in complete accord on the need for ever more liquidity, stock markets are staging an easy-money rally. The main line media is almost euphoric. But what should investors make of this seemingly good news?

This time last year, the world faced a meltdown of its financial systems and a potential depression. Fed Chairman Ben Bernanke, a renowned expert on the Great Depression, coordinated an international rescue of the toxic financial system. Although the bill for these operations has yet to come due, almost all agree it will prove costly to present and future generations. For now at least, the most significant impact of these policies has been the creation of a liquidity bubble in stocks and a surge in commodities.

However, any efforts to reduce these stimuli will result in an immediate correction toward our previous depressionary trajectory. Acceptance of this uncomfortable truth is a political third rail. Therefore, it is highly unlikely that any major government will change course. Rather, the change will be thrust upon them.

It could have been argued that some of the actions taken last year were worth the cost if they had corrected the dangerous deficiencies in the financial system. But after a year, what has changed? The same behemoth banks remain, but even larger and yet more demanding of federal salvation. That particular risk has been increased rather than reduced.

Indeed, the four largest banks have been given well over $1 trillion of TARP funds to trade. In addition, with a zero-cost of Fed funds and a positive yield-curve, the banks have been able to generate massive profits without having to incur the risks of lending to the private sector. With such a license to steal, their stock prices have risen dramatically, sending false signals to other market participants of a broader economic recovery. Soon, these burdens to the taxpayer will pay some $140 billion in year-end bonuses. Far from a disaster, it seems as global financial crisis has been a godsend to Wall Street.

The banks also have been allowed to continue manipulating accounting rules to hide their toxic assets, including their multi-trillion-dollar exposures to the murky derivatives market. In addition, the banks continue to face escalating loan, mortgage, and credit card defaults, and an impending crunch in the commercial real estate market.

Despite popular impressions, it is clear that the bailed-out banks still face trouble. Indeed, they face enough trouble to potentially threaten the whole system again.

Could this be the reason that, despite its cautious optimism on the economy, the Fed is intent on maintaining an open source of free money for the banks? If the Fed’s public optimism were to be believed, then why is there a need to continue the “emergency” TARP, bank subsidies, and economic stimulus? Could it be that the Fed is still fearful of a second financial panic? More importantly, will this fear lead to limitless liquidity – even at the cost of the value of the dollar?

The Fed’s laxity would be contained somewhat if the Washington had its fiscal house in order. Unfortunately, with an official projected national debt of $20 trillion by 2015, the Administration is in no position to push for a strong dollar. Nor has Mr. Obama shown any interest in reining in the debt, instead occupying himself with a generous new healthcare entitlement. If the debt cannot be brought under control, a higher interest rate will push the U.S. government toward outright default.

This toxic cocktail of fiscal and monetary constraints on the U.S. dollar may be what prompted India to buy some 200 metric tons of gold from the IMF, China to hoard a large part of its own massive gold production, and other government parties to the shady Central Bank Gold Agreement to lose enthusiasm for selling their gold.

In a recession, gold should be falling in price. But with a Fed Chairman who seems unwilling to hit the brakes even as we head for a cliff, and an Administration that doesn’t seem to care, creditor nations are jumping off the dollar train for a terra firma made of money metals. Wise investors should follow their lead.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter Schiff’s 2008 bestseller “The Little Book of Bull Moves in Bear Markets” and his newest release “Crash Proof 2.0: How to Profit from the Economic Collapse.” Click here to learn more.

More importantly, don’t let the great deals pass you by. Get an inside view of Peter’s playbook with his new Special Report, “Peter Schiff’s Five Favorite Investment Choices for the Next Five Years.” Click here to dowload the report for free. You can find more free services for global investors, and learn about the Euro Pacific advantage, at www.europac.net.

* Thank the 215 Representatives who voted against the cancerous health care bill
* Spank the 220 House members who voted for it
* Copy our Senators on these messages so they will be reminded of where we stand

Do this . . .

* Check here to see how your Rep. voted: http://clerk.house.gov/evs/2009/roll887.xml
* Use our Educate the Powerful System to send your “thank or spank” letter to Congress
* If you don’t recall who your Rep is, you can log in to our system and see their name listed below the letter space on the right side of the page

You can use what I wrote to my Representative as a model for a “spank” letter . . .

Ms. Giffords, I am very angry that you voted for HR 3962. I am copying my Senators on this message because I want them to take note of it, and oppose similar legislation in the Senate.

You failed in your responsibility to read this legislation before voting yes. You cannot possibly really know or understand what you passed, but I will be responsible for all 2,000 pages of it. I am extremely angry that, because of your irresponsibility, I may soon be forced to pay for and submit to a monstrous scheme I do not want!

Please be clear about this — legislation like this is based on force. I am threatened with violence by policemen, bureaucrats, and tax collectors if I refuse to pay for or comply with your grand designs for re-engineering my life.

This complex piece of legislation will entangle my health care in ever-expanding nets of government control, pave the way for a complete government take-over of my health care, bankrupt many businesses, foster unemployment, and increase my taxes, either directly or indirectly, despite promises that this would not happen.

I am further angered that you could have taken simple steps to improve health care that would not have involved 2,000 pages of unread legislation loaded with special interest deals and corporate welfare.

You could have allowed Americans to buy health insurance regulated by the state of their choice, and you could have expanded the contribution limits for Health Savings Accounts to balance the tax treatment of self-purchased health insurance with that provided through employers.

These two simple steps would have solved many of the problems with our current health care system — problems that were mostly caused by government policies in the first place. Instead of taking this simple, peaceful approach, you have decided to vote for complexity and coercion.

I want to remind you that the 10th Amendment to the Constitution prohibits Congress from passing this kind of legislation, but you did it anyway. You have just violated your oath of office.

If you really worked for me, instead of for special interests and the Congressional leadership, I would fire you immediately for gross incompetence. As it is I must wish you the worst of luck in the 2010 election.

Am I being too harsh? Please remember, you’re the one using the threat of force against me to control my money and my healthcare. I am merely protesting your love of coercion.

You can still redeem yourself by voting no when this scheme comes back to you for a final vote. I will be watching, and informing fellow constituents of your actions.

END OF LETTER

* You can check to see how your Rep. voted here: http://clerk.house.gov/evs/2009/roll887.xml
* Send your “thank or spank” letter here: https://secure.downsizedc.org/etp/campaigns/114

Please take additional steps to spread the word, recruit more DC Downsizers, and increase the heat on Congress:

* Ask other people to send a letter to Congress — forward them this message (be sure to clip off the Dispatch footer when you do)
* Digg this message on our Blog, located in the center column of the DownsizeDC.org home page.
* Start a monthly pledge so we can reach more people
* Make a one-time donation to further this work

Your support is our progress. Thank you for being a DC Downsizer,

Perry Willis
Communications Director
DownsizeDC.org, Inc.

D o w n s i z e r – D i s p a t c h
is the official email list of DownsizeDC.org, Inc. & Downsize DC Foundation

Originally published October 31, 2009 at http://towneforcongress.com/economy/jake-towne-on-foxs-freedom-watch-with-judge-napolitano-1

On Wednesday, October 28th, I traveled down to the Drexel University campus to appear on FOX New’s Freedom Watch with Judge Napolitano, Drexel’s Student Liberty Front, Pennsylvania State Representative Sam Rohrer, and Jacob Hornberger of the Future of Freedom Foundation.  I was a panel member for the first two sessions covering the concept of “just war” and also the current “financial fiasco” which can be seen below, or watched on this playlist link.

On the first session, my plank on the Iraq War can be read here, and the “War is a Racket” essay by USMC General Smedley Butler can be read here.  In the second session, my plank on the Federal Reserve is here, and I highly recommend “Fractional Reserve Banking in Pictures” to understand the current fraudulent monetary system.

I will discuss the Federal Reserve in more detail as a keynote speaker this November 22nd at the Constitution rEVOLution Tea Party in Philadelphia.  Locally, I will be given a few minutes to talk about constitutional money on Friday, November 6th at 7 PM in Palmer Township.  Details on both of these upcoming events are here.

This was my first time on a major news network and I must say that I was quite impressed with Judge Napolitano – he is quite the media professional.  As a professional chemical engineer, not a career politician, it is quite a bit different to have to immediately answer fastball questions than in person or even phone interviews.  However, practice makes perfect, and trial by fire is the best way to learn quickly.

Judge for yourself how I did, and please leave any comments or suggestions to improve below!  I was not part of the panel for the last two parts but the remainder of the show can be watched here.

If you don’t know what Freedom Watch is then please check out http://freedomwatchonfox.com/. It’s an online only show hosted by the Judge catering to freedom-loving people everywhere.

Check out the excellent discussions from the show today below.

by Peter Schiff, president of Euro Pacific Capital and author of Crash Proof 2.0: How to Profit from the Economic Collapse

Two dissatisfied customers comment about a restaurant. One says, “The food here is terrible.” The other replies, “I know, and such small portions!” In many ways, they could be describing our current employment picture. Not only are the portions shrinking, but the jobs themselves are steadily losing quality.

Today’s release of the October jobs report showed the loss of another 190,000 jobs had pushed the official unemployment rate to 10.2%, only the second time since the Great Depression that unemployment was quoted in double digits (factoring in workers who had given up job hunting altogether or have settled for part-time work would push that rate to 17.5%). That didn’t stop Wall Street pundits from trying to fashion a silk purse of this sow’s ear. The ‘green shoots’ crowd focused on the slowing pace of job losses, the nascent economic ‘recovery’ (even if it is jobless), and the projected improvement in 2010. No mention was even made of the quality of what few jobs were being created.

The analysts completely ignored the continued trend of replacing goods-producing jobs with those jobs that require production from other sources. For example, we lost 61,000 manufacturing jobs last month, but added 45,000 jobs in education and health services. In particular, the addition of health workers is nothing to celebrate. Just as a family’s economic position is not improved by higher medical bills, the country as a whole does not benefit from increased health-care spending. Until this trend reverses, our unbalanced economy will not regain its stability, a real recovery will never take hold, and the overall job outlook will get much bleaker.

By spending trillions of dollars of borrowed money, President Obama hopes to engineer a recovery and create jobs. However, he has only succeeded in digging America into an even deeper hole than the one he inherited from his predecessor. He believes that if we can simply push up spending to levels seen during the “good times,” then those favorable economic conditions will return. The reality, of course, was that those good years came with a heavy price-tag that we have barely begun to pay.

In a press conference today, the President claimed that the latest extension of unemployment benefits will not only help the unemployed, but the overall economy as recipients spend the money. If spending government-granted money really were a benefit to the economy, why not simply increase the amounts endlessly? Why limit the benefits to the unemployed? Let’s make this recovery a real barn burner: send out million-dollar checks to everyone! Of course, what Obama and his economic advisors do not understand is that money spent by recipients of unemployment benefits is money not spent or invested by taxpayers. It’s a transfer of wealth, not a creation on new wealth.

In addition, policymakers are also struggling with diminishing returns on ultra-low interest rates. No matter how much monetary alcohol the Fed tries to pour down consumers’ throats, the swill simply will not go down anymore. Consumers have already had enough and are trying to sober up – by refusing to spend irrationally. The excess liquidity simply weakens the dollar and spills over into other pools, such as goods prices, money metals, commodities, and investment assets.

During the boom, we spent money we did not have to buy things we did not produce and could not afford. As a result, we are now deeply in debt and must sharply reduce our spending to replenish our savings. By focusing solely on consumer spending, the Administration is neglecting the capital investments necessary to improve our infrastructure and productive capacity.

To generate legitimate economic growth and meaningful jobs, we must reverse the trends that brought us down. Consumers may have led us into this recession, but they can’t lead us out. The road to recovery is a one-way street, and it’s paved with savings, capital investment, and production. It’s not an easy road, but we must follow it to ensure our future prosperity.

As a first step, our politicians must stop pushing us backward. Rather than imposing more market-distorting regulations, we should repeal those most responsible for inefficient resource allocation. Rather than creating new moral hazards, we should withdraw guarantees for large financial institutions and irresponsible consumers. Rather than continuing the Greenspan policy of keeping interest rates too low, we should let them rise. Rather than trying to prop up asset prices, we should let them fall to market levels. Rather than increasing the burden of bureaucracy on the economy, we should look for ways to lighten the load. Rather than encouraging people to borrow and spend, we should reward those who save and produce.

Until we acknowledge these fundamental errors, more of our citizens will lose their jobs. As those that stay employed are funneled into unproductive industries like the federal bureaucracy, the country will sink further into stagnation. Worse still, everyone taking jobs in these sectors will be laid off in the next phase of the crisis – and will have lost this opportunity to build practical skills for the new economy.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter Schiff’s 2008 bestseller “The Little Book of Bull Moves in Bear Markets” and his newest release “Crash Proof 2.0: How to Profit from the Economic Collapse.” Click here to learn more.

More importantly, don’t let the great deals pass you by. Get an inside view of Peter’s playbook with his new Special Report, “Peter Schiff’s Five Favorite Investment Choices for the Next Five Years.” Click here to dowload the report for free. You can find more free services for global investors, and learn about the Euro Pacific advantage, at www.europac.net.

by John Browne – Senior Market Strategist, Euro Pacific Capital

Last week, to the delight of its media cheerleaders, the government announced that economic growth had returned and the recession had ended. But before we start celebrating one quarter of modest growth, we should realize the only force driving this apparent recovery is an enormous increase in government spending. To finance its largesse, the government is now borrowing at a rate that has ordinary citizens and the international community extremely concerned.

Leading into the first election season under Obama’s reign, this unprecedented government borrowing and spending is creating a false sense of security. The activity has allowed GDP to increase despite stagnation in corporate and consumer spending.

Small businesses – the most important creators of new jobs – are nervous. Due to uncertain economic conditions and a high degree of regulatory uncertainty, they are hoarding cash rather than investing. Indeed, their largest expenditures are often solely to replenish inventories.

Likewise, consumers are rationally hording their resources. Year over year, consumer spending – which constitutes 70 percent of GDP – is essentially flat. With such a large segment of the economy quiescent, the percentage increase in public sector spending has to be very large in order to push the GDP upward.

The new government spending spree has focused on major stimulus initiatives, including the new homebuyer tax credit and ‘cash for clunkers’.

Early results are showing that spending on autos dropped to recession-levels immediately after ‘cash for clunkers’ ended. Meanwhile, some reports are estimating that the program cost $24,000 for every additional vehicle it caused to be sold.

The multi-billion-dollar tax credit for first-time homebuyers juiced real estate sales and provided a strong boost to GDP in the third quarter. But the net result is that many responsible young people, who had chosen to rent and save in the face of a declining housing market, are now saddled with mortgages they cannot afford. These ‘homeowners’ will quickly join the ranks of the foreclosed.

Perhaps the most concerning aspect of GDP growth is that, even with a deeply progressive Administration spending our children’s children’s money, the best we can achieve is a modest, fleeting boost in growth. Even the government’s biggest apologists have a hard time explaining how these gains can last without continued stimulus. In short, this country is not just bankrupt today, but for generations to come. This is the real truth and should concern those with investments within the United States.

The unhappy situation in America, of which we have long warned, should be contrasted with the healthy growth experiences of other countries such as Australia, New Zealand, China and India.

The Australian central bank is now so confident in its growth potential that it has raised interest rates two months in a row. Though they have a center-left Government, the Aussies have managed to control stimulus spending and overall debt.

New Zealand is seeing an increase in real wages amid a strong Kiwi Dollar. Much more than GDP, this is a signal that economic growth is truly returning to this island nation.

China, a place where 9% annual GDP growth is considered a recession, is still developing its market economy while Obama cripples our own. Much fanfare was showered upon the launch of ChiNext, a stock exchange for privately-owned, small- and mid-cap Chinese companies. It surged in its first day of trading, showing the strength of that economy even outside the State-Owned Enterprise sector.

Finally, there is India. Though still far too closed to foreign investment, this country is making shrewd moves to protect its internal capital. In a deal announced today, India bolstered its gold reserves by 50% by trading $6.7 billion of its U.S. dollar reserve to the IMF. Not only is this a positive sign for India, it is a crushing verdict on our own lauded ‘GDP growth.’

A currency’s value reflects investors’ faith in a particular nation. Though commentators are seizing on this figure or that to make the bull case, the dollar index belies their claims.

Rather than dancing in the dollars falling from helicopters, we should be concerned about their worth when they hit the ground. Unfortunately, fiscal responsibility has moved abroad – and the smart money isn’t far behind.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter Schiff’s 2008 bestseller “The Little Book of Bull Moves in Bear Markets” and his newest release “Crash Proof 2.0: How to Profit from the Economic Collapse.” Click here to learn more.

More importantly, don’t let the great deals pass you by. Get an inside view of Peter’s playbook with his new Special Report, “Peter Schiff’s Five Favorite Investment Choices for the Next Five Years.” Click here to dowload the report for free. You can find more free services for global investors, and learn about the Euro Pacific advantage, at www.europac.net.