On Chris Martenson’s blog (free registration required), Chris picks apart the Joint Statement by the Treasury, Federal Reserve and FDIC published today. He manages to cut through the blah blah blah and point out the Orwellian events taking place: further maniplation of interest rates, and changes in regulation that expand the FDIC and further distort the marketplace:
This is another gross marketplace distortion of the highest order. It means that sharp investors will now scramble for the highest yielding junk debt of the most troubled institutions so as to grab all that extra free yield. Suffice it to say that moral hazard has just been kicked up a notch. Instead of poorly performing banks being shunned, as they should be, they are now advanced to the front of the pack by virtue of offering a higher “risk free” yield than their more cautious competitors.
But the real kicker was that tag line of “and their holding companies”. *Gulp*. Unless there’s some hidden details saying otherwise, this means that the senior debt of any holding company of an insured bank is now covered by the FDIC. Look for crappy banks to suddenly be highly desirable acquisition targets of non-related companies seeking a government subsidy for their own senior debt offerings.
As mentioned previously, Chris Martenson’s Crash Course is an excellent way to get a much deeper understand of how our monetary system works in about three hours. Broken up into twenty short videos, Martenson explains things in easy-to-understand terms. We cannot recommend it enough.
If you want to protect yourself from the inevitable dollar collapse then gold and silver should be on your investment shopping list. Well, it seems that way. Don’t try to look at gold as a short term trade to make a few quick bucks, but rather an emergency rip cord to utilize as the overall economy freefalls to the ground.
Some suggest that we are in a deflationary period and gold is going to head down towards $600/oz. Others suggest that gold is an extreme buy at current levels with hyperinflation on the near horizon, suggesting it could go as high as $2500/oz. I’m no expert (far from it), but doesn’t it make sense to just own a percentage of gold right now in any investment portfolio?
Think of it like this. If you have $100,000. You put 25% into gold. You hold 50% in cash and 25% in other investment vehicles. If your dollars become worthless that means 75% of your portfolio becomes worthless. However, if gold does go to $2500/oz which could happen in such an environment you’d have over $60,000 worth of gold. Sure, your overall portfolio drops by 40%, but you’d still have your $60K soft landing.
Don’t wait for the government to bail you out. Bail yourself out with gold. For a very good list of 5 ways to own gold check out the Daily Reckoning’s white paper, “The 5 Best Ways to invest in gold“. Please keep in mind, this is a simplistic view and I’m no financial expert so take this with a grain of salt. It just seems it is what should be common sense during times like these.
A plea to readers on the passing of the Paulson Plan, Ron Paul’s Congressional statement today, my recommended actions to take, and in support of BJ Lawson for Congress. BONUS: Contains link to and discussion on the 442-page bailout’s pork!
As you may be aware at 2 PM yesterday the US House of Representatives passed the Paulson Plan. By 3 PM, President Bush signed this bill into law, and the central banks and investment bankers everywhere can take a sigh of relief for 1-2 months (in my estimation). It will be academically interesting to see if the banks do start offering credit again; I actually doubt it. I wrote why I opposed this bill here “SENATE PASSES BAILOUT! And What to Do, NOW! (New Update from Vern McKinley)“. The names of the economic morons who passed this bill in the House today are listed here.
As a reminder, the House had voted down the 110-page HR 3997 bill on Monday, September 29, but the Senate speedily amended HR 1424, which was ironically initally named “Paul Gladston Mental Health and Addiction Equity Act of 2007.” As I wrote the Senate and McBama added in some pork intended to sway the Republicans who had killed HR 3997. What is amazingly is the amount of pork. The Senate added 332 pages! Don’t believe me? Read it here.
I like to say that Harry Browne made me a libertarian and Ron Paul made me an economist. Ron Paul lead me to Peter Schiff’s doomy and gloomy words of truth, but now I’ve found a new true professor of economics. He can take complicated economics topics and make them simple to understand. His name is Chris Martenson and if you truly want to understand the inner workings of the U.S. economy his “Crash Course” is indispensable.
Martenson’s “Crash Course” is a series of freely available short (longest is around 17 minutes) online videos walking you through the daunting task of where we’ve been, where we are now, and where we are headed as it relates to America’s economy. He clearly explains how money is created, how inflation is a necessary function of our flawed system, and how the government’s numbers are more than fuzzy. They are downright hairy.
To put it bluntly, if you are reading this article right now stop what you are doing, go over to ChrisMartenson.com and start learning. You will thank us later.
A very timely article at the The Ludwig von Mises Institute discusses the ridiculous collective insanity happening on Wall Street in these uncertain times.
Things like nationalizing the finance industry of the United States, which is, effectively speaking, the consequence of Federal Reserve and Treasury actions of the last two days.
The humor factor in the rally of last week has been far higher than the vertigo factor, however, as Wall Street bizarrely applauds the nationalization of the finance industry. I like to be less anxious, but not at the expense of socialism — or more likely fascism, the latter of which (when you listen carefully to the drumbeat for war with target of the month, Pakistan) is the clear direction of US policy.
Maybe former Treasury Secretary Paul O’Neil was right about those guys in front of the green trading screens on Wall Street being trained monkeys, because the actions and announcements emanating from the federal government have been anything but good for the wealth-creation mechanisms of capitalism, or for the future of liberty for that matter.
In disbelief that with all the financial fallout last week there were no bank failures? Believe again, on Friday a FDIC team closed Ameribank, a small bank in West Virginia. The Associated Press reported “Ameribank ran into trouble because of “excessive growth” in the construction loans for property rehabilitation, mainly in low- and moderate-income housing markets, according to the federal Office of Thrift Supervision.” The bank had been “critically undercapitalized” for the past year.
This bank failure will cost the FDIC $42 million, just 0.1% of the FDIC’s remaining funds of somewhere in the mid-40 billions. However, $42 million is $42 million.
Be on the lookout for further failures. Is the day when YOUR bank goes under and the FDIC posts a page like this on its webpage? Washington Mutual in particular has notable recent issues with its share price and capital, but Citigroup, Wachovia, Wells Fargo, Bank of America and many others are also not doing well.
The Suppression of the Gold Market Goes Mainstream, Thanks to Citigroup. And a few interesting back-of-envelope calculations about where the price of gold could go.
I want to share some information on gold and a few calculations with you all. First my simple premise in case you have missed it in prior articles.
Fiat currency is a scheme perpetrated by central banks and the tacit (or is it helpless?) permission from their governments. Fiat currency is almost completely worthless and has no intrinsic value. Ultimately (no predictions as to when) electronic and paper fiat money will be worthless. All of the world’s fiat money is actually a form of debt, and it results in never-ending currency debasement, of which one way is expanding the money supply, aka “printing more money,” aka inflation. To make their scheme work, they intervene in the precious metal markets to manipulate the prices of silver and especially gold. By keeping the prices of real honest money suppressed, they try to make their fiat currency look stronger.
It gets quite a bit more complicated with derivatives (especially!), fractional reserve banking, central banking, currency exchange rates, low-cost exploitation of resource-rich regions, politics, and governmental and nongovernmental stock market manipulations but the above is the heart of it.
They aren’t even hiding it anymore. I’m speaking of course about our government’s propensity to cover up the darkness and paint everything as if the light was coming from the sun itself rather than a horrid blinky fluorescent tube. The latest bailout proposes to allow the federal government to spend up to $700 billion for purchasing bad debt from “mortgage-related assets from any financial institution having its headquarters in the United States.”
They have already modified the “having its headquarters in the United States” rule, saying that foreign companies with a presence in the United States are eligible for the bailouts as well. Well that should make those of us worried about U.S. sovereignty a bit uneasy. Of course that is now the least of our worries.
Also, the wording of the bailout proposal should make anyone concerned about federal government overreach quake in their boots. This bailout has been described as the Patriot Act for the financial sector. How can such a claim have merit? Well, let’s look at the proposal in more detail.
Ron Paul is at it again. He appeared on Glenn Beck’s TV show last night and discussed the financial crisis in the U.S. He was a bit more philosophical in this appearance. He even mentioned Austrian economics by name again. Keep on spreading the word Dr. Paul. When it comes to the economy we are all behind you. Interview is in two parts.
So, it is the work week of September 15th through the 19th, 2008. Some of the largest financial institutions of the United States are failing, crumbling, selling for pennies on the dollar… or even being “bought and sold” by our very own, out of control government, assisted by the infinite counterfeiting and money-laundering by the Federal Reserve. Although I haven’t yet heard the term Black Monday applied, many economists have compared this past Monday, the 15th, to 1929. Sure, the market had a good day today. But did anyone really think that it wouldn’t? I mean, even back in 1987, there was a huge rebound. But it doesn’t change the fact that many lost their life savings, and many families never recovered.
And, as always, when there is any kind of disaster, the finger-pointing begins. And has it ever begun in this case! Cyberspace, the radio waves, and the talking boxes all scream for a scapegoat. Whose fault is it? Is it Bush’s fault? What could he have done differently? Did he have the foresight or the ability to do everything differently? What can he do now? Was it Congress’s fault? Will John McCain and Sarah Palin “fix” those evil CEO’s who ruined these companies? Will Obama’s change result in anything BUT loose change in the pockets of the Middle Class? Can Obama be our savior?
Liberty Maven
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