Goodbye, America

America, as we know it, ended late Friday night, February 13, 2009. When the Senate passed the American Recovery and Reinvestment Act of 2009, it plunged the knife up to the hilt into the heart of American capitalism. For all intents and purposes, our financial system and economy have been nationalized.

When President Barack Obama signs this so-called stimulus package into law on Tuesday in Denver, America will become officially a socialist or, more accurately, a fascist nation. Even if businesses remain in private ownership, the federal government will control their operations. In many cases, the government itself will take over majority ownership.

Of course, it is no surprise. Socialists and communists have mentored Obama since his teens. Nor can he bear total blame for this end of American capitalism and financial freedom. We have been on this road for a long time, since President Lyndon Johnson’s War on Poverty and President Franklin Roosevelt’s New Deal. Republicans, too, share blame. Never in my wildest dreams [or nightmares] would I have believed that a Republican President, George W. Bush, would nationalize the banks like he did by signing the first “stimulus” package that was rushed through Congress last Fall.

All sides acknowledge, now, that package did not work. Did Congress learn from that hasty mistake? Obviously, it did not. Most Democrats and a few Republicans stubbornly believe, despite all historical evidence to the contrary, that it is possible to spend our way out of recession. They often cite the example of FDR’s New Deal, forgetting that World War II, not the New Deal, lifted this country out of the Great Depression.

Analysis of this legislation has just begun. The Act, which spends $787 billion, is 1,071 pages long. Legislators had only fifteen hours to digest it before the vote. It is safe to say not one single Congressman or Senator read this bill before voting on it. They would have to have read 71 pages per hour or just over one page per minute, without any breaks during those fifteen hours. Previously, Speaker Nancy Pelosi had promised they would have at least 48 hours between release of the bill’s text and the vote being taken. And, it was only released in printed form. Normally, bills are published digitally, which allows Congressional staffers to do computer keyword searches to evaluate the worthiness of any piece of legislation.

The devil will be in the details. Supporters claim this act will create 3.5 million new jobs. Most economists put the number lower, at 2.5 million. But, let’s give the Democrats the benefit of the doubt and go with the 3.5 million number. That means it will cost $224,857 in government spending for each one of those jobs. Let me say that again so its truth can sink in: every single new job created by this stimulus act will cost taxpayers $224,857!

The press, both left and right, is finding all kinds of funky features buried in this bill. Some are silly, like the millions to save some endangered mouse in Speaker Pelosi’s district. Although maddening, voters should not let themselves be diverted by these trifles. This bill is too dangerous at the macro-level for us to be consumed by such micro-details.

The most alarming fact about this stimulus act is how much it raises the statutory limit on the national debt. It allows the national debt to increase from its current limit of $789 billion to $12.1 trillion. Think about it. We have never had a national debt over $1 trillion, yet the Democrats and three “Republicrats”voted for our nation’s credit line to go to a mind-boggling $12.1 trillion.

So far, the media has barely noticed this all-important detail. Yet, it is perhaps the most dangerous provision. What does it mean to allow such an increase in our national debt limit? It tells us just how much spending the Democrats are planning to do. This $787 billion must be just a down payment.

If the Democrats under Obama pass the kind of spending a $12.1 trillion national debt limit allows, it means hyperinflation. Even the U.S. with its sterling international credit rating cannot borrow that kind of money. There simply is not that much investment money in the entire world to support that kind of spending. And, some international bankers are expected to lower our nation’s bond ratings. That means higher interest rates on what we are able to borrow. If we cannot borrow the money to support our spending at reasonable rates, the government has one other option and that is to print money. It monetarizes the debt, lowering the value of the dollar so that high value dollars borrowed are repaid with lower value dollars.

This is what President Carter did in the early eighties when we had the worst recession since the Great Depression. We had double-digit inflation in a stagnant economy. If we come even close to a $12.1 trillion debt, we will have triple-digit inflation. We will be like the Germans during the Weimar Republic before Hitler. Then, it took a wheelbarrow of cash to buy a loaf of bread. That is what Americans will soon face unless the Democrats are held in check, and I am not at all optimistic that we can or will do that.

President James Madison warned, "If our nation is ever taken over, it will be taken over from within." The Socialists have taken possession of the land. Goodbye, America.

2009 Fearless Forecasts

Another year, another set of fearless forecasts designed to prove psychics are no more reliable predictors of the future than anybody else. Here are my 2009 predictions. Please join in the fun and make your own. If you are having a New Year’s Eve party, get your guests involved. Write all their forecasts down and save the list to reveal the results at next year’s party.

· The economic downturn will be much worse by year-end. Some economists will say we are in a depression as predicted by the Elliott Wave Theory.
· Deflation will be a problem. Housing prices, in particular, will be in free fall again or still.
· The Dow will drop to 5,500 or lower, then rebound to around 8,000. Gold will go to above 1,000.
· Unemployment will be 9.9% or higher by year-end.
· The bailouts of the financial system will not work, and large banks, brokerage firms, etc. will fail because the Federal Reserve Bank cannot lend at less than 0% interest.
· Thousands of retail stores and restaurants, including national chains, will be forced into bankruptcy or will close to stop losses.
· Shortly after Barack Obama’s inauguration, he and/or his staff will be implicated in Chicago or Illinois political corruption. By year’s end, the media will have turned on Obama with vicious attacks.
· The Midwest will have flooding problems again this year due to higher than normal snowfall.
· A Montana earthquake will surprise people. It will cause little damage and no loss of life.
· We will be mired in an Afghan war where we will be unsure who our enemies and friends are. It will be compared to what the Russians experienced or Vietnam.
· Suicide bombers will come to North America, either in Canada or the U.S. If here, they will target Las Vegas.
· Jacksonville will continue to dodge hurricanes despite a very active hurricane season.
· Israel will attack Iran if we do not, and this will cause an explosive counter-reaction among Arabs. Russia, not the U.S., will intervene. Most of Europe, especially Germany, will side with Russia against Israel.
· Despite saber rattling, Pakistan and India will not go to war.
· U.S. troops will make repeated incursions into Pakistan’s northern areas to flush out Al-Qaeda.
· Mexican drug lord terrorists will continue cross-border intrusions into the U.S. The tragic death of an innocent child will galvanize public opinion and force a reluctant administration to crack down and counter-attack.

Here’s one much longer-term prediction: If Obama fulfills his campaign promise to raise taxes on the wealthy, it will guarantee a depression, and he will become the 21st century’s Herbert Hoover. It will also assure the return of Republican control of the House in 2010 and his defeat in 2012.

What's Next?

A League of the South friend sent me a link to an article by Gerald Celente entitled "Food Riots, Tax Rebellions By 2012...Trend forecaster, renowned for being accurate in the past, says." Celente is a well-respected and often accurate prognosticator of future trends. In this article, he predicts that the United States will be in the depths of a severe depression that will result in food riots, tax rebellions, and middle class revolution by 2012. My friend asked for my response to the article, which is posted below. (Go to http://www.liveleak.com/view?i=1ad_1226630673 to read it.)

If Barack Obama succeeds in raising taxes as he plans, then he will be the 21st century's Herbert Hoover and a depression will be unstoppable. Even without tax increases, it may be too late to stop the slide. The major difference between now and 1929 is that, back then, most people were able to grow their own food. We were less urbanized, so many people either had or knew relatives who had farms. Most men knew how to hunt and fish. They might be poor but they had sources of food. Even people who lived in towns and cities usually had vegetable gardens that sustained them. Women knew how to can or preserve food and bake bread. Today, hardly anyone knows how to grow or preserve food. So, Celente is on the mark that food riots and desperation will be more likely in a depression today.

Also, the whole moral fabric of society has broken down. In 1929, almost everyone went to church and had a strong belief in Christian values. The whole extended family structure was stronger and closer. Neighbors helping neighbors was the norm, not the exception. So, despite their poverty, crime actually decreased during the Great Depression. That won't be the case today.

Will we have a revolution or a new civil war? I don't know, although Celente isn't the first to expect one. Frankly, I think Celente is being optimistic in thinking we'll have until 2012 before it happens. The likely response with Obama and his Marxist ideology will be martial law and severe repression by the federal government. Current laws and executive orders allow the federal and state governments to confiscate private holdings in declared emergencies. Read them and weep.

My best recommendation for people is to become as debt-free as possible, keep as little as possible in the bank, and buy junk silver coins. I say silver because it is more liquid and less likely to be confiscated or made illegal again than gold.

I'm already doing what my grandfather did before the Crash of '29. It was preceded by a credit crunch like today. All of a sudden, his business's vendors started asking for immediate payments, and he noticed that, if he wrote their salesman a check, they cashed it immediately at his local bank. Since he and his father had done business with these firms for years and he knew it wasn't because he was a poor credit risk, he deduced something bad was coming. So, he started doing the same thing with his customers. (He was a John Deere farm implement dealer.) If he received a check, he cashed it the same day at their bank. He also withdrew almost all his money from his bank accounts, keeping in them only the minimum needed to operate his business or pay personal bills. He sold the few stocks and bonds he owned. He did this several months before the banks collapsed and the stock market crashed. As a result, he was relatively well off during the Depression and was able to help friends and neighbors during it. I now withdraw most of my disability income the same day I receive it. I keep in the bank only what I need to pay rent, phone, cable, etc. I am being very frugal in anticipation that those checks might suddenly stop coming, and I am reviewing my own survival plans and options.

I also recommend people who have any land at all to learn to grow vegetables and plant fruit bushes and trees. Even those who have only a small yard or patio can grow food through intensive farming techniques. Fruit bushes and trees can replace nonproductive landscaping and still look attractive. Buying a small plot (half an acres or more) of sunny, well drained rural land with a water source would be a good idea, too. It could give a refuge from urban riots and a place to grow food. If I have to camp in a tent, I sure don't want it to be in an urban tent city.

Of course, keeping emergency food and household supplies is always recommended. The Mormons set an example in this regard; they advise their followers to keep a two-year supply of all household and food necessities in storage. Getting off the electric grid, having a water well, saving rain water, and composting are all things one can do to become more self-sufficient. All will help you save money today, be good for the environment, and help you survive a crisis.

If you don't have firearms, get them now along with sufficient supplies of ammunition. Obama and the Democrats in Congress will go against our gun rights very quickly. He has long advocated "confiscatory" tax rates on ammunition sales, so stock up. Besides self-defense weapons (handguns), hunting rifles and shotguns provide food, if needed. Training in hunting, shooting, and other outdoor survival skills are essential. Firearms do no good if the owner doesn't know how to use them safely. One of the best books to have is How to Survive in the Woods. Army survival manuals are good to have in your library, also.

Finally, if you don't already have a passport, get one. Worst case, you may want to leave. It takes 6-8 weeks minimum to get one. It costs $100 for a new one if you have never had one or it has been over 15 years since you had one. There is also a new $45 passport card but it is valid only for land or sea travel (no air) to Canada, Mexico, the Caribbean and Bermuda. You can apply for a passport at most post offices. Go to http://travel.state.gov/passport/get/first/first_830.html for complete instructions. Personally, I'm applying for mine before January 20th because history tells me repressive governments put travel restrictions in place very quickly.

Thanks for sending this article. Now is the time to prepare. Each family should assess their situation, determine what they need to learn and have in order to be more self-sufficient, and begin executing their plan so they aren't in panic when trouble comes. Nothing beats being prepared for the worst while praying and hoping for the best. Deo Vindice.

Email Letter to Sen. John McCain

Dear Sen. McCain:

God bless you for putting country first before your political campaign. You are demonstrating the kind of courage we so desperately need. I do not know if the $700 million bailout can forestall an economic collapse into deflationary depression. I suspect it would only delay it, at best. Nonetheless, I trust that you will do your very best to protect the taxpayers of our country. I know you do not like the idea of government bailouts.

As far as all the silly talk about tomorrow night's debate, here's my suggestion if this vote cannot be accomplished by tomorrow. Sen. Barack Obama still does not seem to understand that when there is a crisis as serious as this one, routine has to be interrupted.

If Sen. Obama will not cancel the debate, then you should send Gov. Palin in your place. That's what a vice president does; she steps in for the president and represents him as requested.

Although everyone's expectation would be that she couldn't possibly stand up to Sen. Obama, I'll bet our "pitbull with lipstick" would clean his clock. Sending her to Ole Miss would shake up the Obama campaign like nothing else I can think of. If he refused to debate her, he would be accused of being too afraid to take her on. And, if he did, I am absolutely confident she could hold her own against him.

Looking forward to voting for you,

Forgotten Wisdom: "Neither a Borrower Nor a Lender Be"

Will the proposed $700 billion bailout of the banking industry work? Or, is an economic collapse into a deflationary depression unavoidable? Maybe, maybe not. What I do know is that our economy is a house of cards, as I have warned for years.

Ever since going off the gold standard, the economy has been based on worthless paper or, more accurately, paper that is worth only what the market pretends it is worth. It has no intrinsic value. Banks are holding piles and piles of mortgage papers that the market has now decided are worth zero. The banks have run out of fools to buy these "toxic" loans, so they are stuck with them. Thus, they are unable to borrow more funds from the Federal Reserve to continue lending additional monies to new or existing customers. These banks are at their lending limits under funds' reserve rules that require them to have a certain percentage of their total funds as "cash" on hand. This has frozen the credit markets.

Now, let me make clear I am not an expert on investment or mortgage banking; my expertise and experience is in consumer lending. But, I have been a student of banking and credit issues for many years, and I worked in credit card operations for one of the largest banks in the world. I have railed against many of the changes in our banking system for years.

How did we get into this crisis? First and foremost, we foolishly went off the gold standard. That was the first step down this road to economic oblivion. If we ever hope to have a truly stable economy again, we must return to a monetary system based on gold, a commodity with intrinsic value. We cannot do that suddenly or immediately. If we did, our economy would completely collapse. However, returning to the gold standard should be our ultimate goal. We must recognize that the transition will be painful but necessary for long-term stability.

The next most disastrous change made in the banking system was deregulation that allowed federal banks to go into the mortgage, securities, and insurance businesses. This is the direct result of a mass amnesia regarding our economic history, specifically the Crash of 1929. I do not know if it is a failure of history education or a certain innocence that causes us to think such a disaster could not happen again to us. Whatever it was, we as a nation collectively forgot the lessons of the Great Depression.

Before that catastrophe, banks were heavily involved and leveraged in mortgages, security investment schemes, and insurance or risk management. After the crash, regulations in the the Glass-Steagall Act of 1933 were put in place that strictly separated banking from mortgages, securities, and insurance. Mortgages were offered by Savings & Loans. Securities were handled by stock brokers, and insurance was sold only by insurance agencies. Commercial (consumer) banks could not engage in investment banking. "Never the twain would meet" was the rule to keep these different financial businesses separate.

These regulations kept the financial markets relatively stable for over sixty years until 1999. Then, the Gramm-Leach-Bliley Act, passed by the Republican Congress and signed into law by the Democratic President Bill Clinton, discarded these stabilizing rules. "Universal banking" became the standard, launching a feeding frenzy of larger national and international banks gobbling up local and regional banks. Banks, stock brokerages, and insurance companies cannibalized each other. The lines between commercial and investment banking blurred. Financial institutions ballooned in size and diversity of products offered.

Although the process is too complicated to explain in this essay, the end result of banking deregulation of U.S. banking was the transformation of our economy from one based on industrial capitalism to financial capitalism. For an excellent analysis of this process, go to http://www.atimes.com/atimes/Global_Economy/II06Dj01.html . There, Henry C. K. Liu, chairman of a New York-based private investment group, explains, "Finance capitalism is a system in which capital is only a notional value upon which to build a gigantic mountain of hidden debt." In such a system, financial instruments, including stocks, are traded with valuations not based on physical assets. Instead, their value becomes "conceptual," something that exists only in the ether of financial computer systems or cyberspace. Critics' concerns about institutional and economic risk exposure have been dismissed as silly and old-fashioned in a post-modern financial world without borders.

Liu wrote for Asia Times in 2007:

"As an economist, Ben Bernanke [U.S. Federal Reserve Chairman] no doubt understands that the credit market through debt securitization has in recent years escaped from the funding monopoly of the banking system into the non-bank financial system...The Fed can only intervene in the money market through the shrinking intermediary role of the banking system, which has been left merely as a market participant in the overblown credit market. Thus the Fed is forced to fight a raging forest fire with a garden hose." [Henry C.K. Liu, "CREDIT BUST BYPASSES BANKS Part 1: The rise of the non-bank financial system," Asia Times Online, September 6, 2007 http://www.atimes.com/atimes/Global_Economy/II06Dj02.html]

Liu understood that "the liquidity crunch is a symptom, not the disease. The disease is a decade of permissive tolerance for credit abuse in which the banks, regulators and rating agencies were willing accomplices." [Ibid.] The SEC is suppose to be the watchdog of these markets and an advocate or protector for investors. Liu said in 2007that there has been massive withholding of information from investors on the actual condition of many firms' books. He accuses, "The aim of this charade has not been to enhance the return on the public's investment, but to exploit the public trust to shore up a declining market and postpone the inevitable demise of wayward institutions." [Ibid.]

Liu warned in 2002 that unregulated markets always collapse. He went on to say,

"Such a decline can happen in a period of days in this age of program trading and socialized risk, even with circuit breakers and trading curbs. When that happens, structured finance will be a sea of dead and wounded in counterparty casualties, regardless of who won and who lost." [op.cit.]

He was spot-on as proven by the headlines of this past weekend.

Ultimately, our current financial crisis can be laid at the feet of our national foolishness in creating the Federal Reserve Bank. Our most esteemed founding fathers warned against ever establishing a central bank. Thomas Jefferson wrote, "If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless." James Madison, father of the Constitution, understood the danger of tyranny if a central bank controlled the currency. He advised, "History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance."

We did not listen, and we created a monster that was intended to protect free markets but is now about to devour our free market economy. As Liu states in his most recent essay,

"The lender of last resort has become a predator of last resort, nationalizing all dying enterprises. But it seems to be racing headlong onto the road of nationalization not so much as to help the common people as to keep dying financial dinosaurs alive." [Henry C K Liu, "Too big to fail versus moral hazard," Asia Times Online, September 23, 2008 http://www.atimes.com/atimes/Global_Economy/JI23Dj13.html]

This is exactly where we find ourselves today. We failed to learn the hard lessons of history. Treasury Secretary Paulson, along with the Federal Reserve Chairman and the SEC Chairman, are trying to persuade Congress and the American people that it is absolutely necessary to bail out the banks to the tune of $800 billion. The arguments of necessity can take away liberties as surely as conquering armies, as Thomas Jefferson warned.

Let us be very clear. If Congress approves this bailout, then we will cease being a capitalistic society. We will have slipped into national socialism if we nationalize our financial markets. We will no longer have a free market economy. Do we even remember who the last great advocate of National Socialism was? It was Adolf Hitler.