I haven't posted my thoughts lately as a variety of issues have precluded me from taking the time to share, but events are such these days that I feel compelled to speak out. I'm talking about the state of our Union and what it means for the average American citizen.
The simple fact of the matter is that the United States is bankrupt and, interestingly I think, it really doesn't matter who is responsible. After all if, for example, Bernard Madoff spends the rest of his life in jail, will that undo the disaster he wrought on his thousands of victims? So rather than waste time and energy talking about who is responsible for the mess we find ourselves in, consider this a time to reflect as it may be more profitable to ask why and how have we have come to this point in time.
Our founding fathers were keenly aware that the very nature of government was to expand and encroach upon every facet of the lives of its citizens so it limited the powers of the central government in the Constitution. They also knew that sound money, by definition, would protect the people by containing the central government.
Now consider this quote from Ludwig von Mises in his work: The Theory of Money and Credit.
Please read the entire article here.
Perhaps what we find most interesting is the display of outrage by Americans over the proposed $800 billion TARP I bailout during the Bush administration and even more outrage about the $180 million AIG bonuses. To be sure, this money doesn't exist and it will have to be borrowed by the Treasury and the obligation to pay it back with interest will fall on our children. And before this is all over, they will indeed be slaves. We have seen estimates of government spending and guarantees totaling over $13 Trillion dollars and that seems to have taken place somewhat under the radar. Does anyone recall any meetings of Congress to approve it? And let's not forget the $1 Trillion dollar shortfall of government guaranteed pensions. We don't think that's included anywhere.
And please note that this article is bipartisan. The Republicans and the Democrats are equally guilty of squandering the nations wealth and this has been going on for forty years.
It almost seems as though there is someone who decides when and where there will be outrage
But the bigger question is: where is the outrage about the un-funded liabilities of the US for Social Security and Medicare? That figure is $65-$70 Trillion dollars (see http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf)
The current spending pales in comparison when one considers what's coming at us. See the coming generational storm
And has anyone considered why the crisis hasn't been solved with all of the spending of money to which we have committed? Why is it that Henry Paulson, past Secretary of the Treasury and Timothy Geithner present Secretary of the Treasury seem so afraid, impotent, and inept? Perhaps Paulson was concerned about the $500(?) million dollars in options he had on Goldman Sachs that would go worthless and as Secretary of Treasury he had to escrow to avoid conflict of interest as former Goldman Sachs CEO if a bailout didn't happen.
Or, more to the point, perhaps it is simply that the money spent thus far on the banks doesn't even touch the real problem. Further, Paulson and Geithner don't even know for sure how bad the problem is. The reason for this is that the banks have invested heavily in derivatives of all kinds. This happened after the Securities and Exchange Commission under the Bush administration waved the reserve requirements for the big banks on Wall Street, which enabled them to extend their leverage from $10 for every $1 of capital to $40 for every $1 of capital. These derivatives are leveraged investment vehicles, for lack of a better term, gambling bets, "derived" from an underlying asset. If the asset is, say, a $100 Billion mortgage portfolio, that's a value of $4 Trillion dollars. And when that mortgage portfolio is sub-prime loans lent to people who had no chance to maintain them, the investment blows up.
But wait, there's more. Suppose said financial institution also bought CDSs (credit default swaps), which insures against default of a financial product (can you say AIG?). Now you have a total debt of $8 Trillion dollars all predicated on $100 Billion of bogus mortgages that should never have been made in the first place. And that's just one financial institution. And nobody really understands how far this has gone so they don't have any way of knowing the extent of the damage. Some estimates of the total derivatives in existence near $1,500 Trillion dollars. Truly insane. No wonder Geithner looks scared. So, in effect, he's simply buying time hoping that something will happen that prevents a financial Armageddon. And let's not forget, it was the Maestro, Allan Greenspan who sat before Congress advising them not to regulate derivatives, as they were a way to "spread risk"...Absolutely unbelievable.
But we digress. When looking at the how and why of our problems it should be intuitively obvious to even the casual observer that we would not be where we are if ours was a country that had stayed true to its Constitution. If our government had kept a policy of sound money, they would not have been able to commit to spend money they do not have and does not exist.
So this brings us to the question, how will we finance our spending? There are three ways, none of which are particularly attractive.
1. Increase taxes. Not likely as the American citizen is tapped out.
2. Borrow from foreign investors. The Treasury sells Treasury bonds to other nations. While this has been the way we paid for our deficits in the past, it's not likely to continue, primarily because the buyers of our Treasury bonds are starting to question their value and with good reason given that our spending has gone parabolic. In other words, they question our ability to repay with anything of value. Also, the rest of the world cannot, even if they wanted to, "finance" the insatiable debt demands now pouring out of the current Administration.
And 3. we just heard this announcement a couple weeks ago, the Federal Reserve will print the money to purchase the Treasury bonds that the rest of the world doesn't want to buy because they perceive them as worthless. This is called monetizing the debt. It's the beginning of the end as it leads into an inflationary spiral. If we have to "take up the slack" by buying our own Treasuries by printing money, that devalues our currency, the dollar. As a result, fewer buyers will show up for the next Treasury auction so the Federal Reserve will have to print more money to buy a greater share of the unsold bonds. Eventually, you have a Zimbabwe-like scenario where nobody is interested in our Treasury bonds and the US is printing the money to finance its spending entirely. That's called hyperinflation. Welcome to the banana republic of the USA.
In conclusion, we see our government leaders meeting for their G20 and their G8 meetings and, and one thing we can be sure of; they are united in a single resolve. With the loss of control over the issuance of money comes the loss of control over the political power they wield. Maybe that's not such a bad thing.
So you have to ask yourself, what are you going to do about all of this? Realistically, there is nothing any of us can do to change a government that, for the most part, is made up of evil people who care only about power and nothing about its citizens and are throwing us and our children into financial slavery. But there is something we can do to protect ourselves from our government. And I'm not talking about voting as, for the most part, the candidates are all of the same ilk.
From the link above...
And this quote is more timely than ever...
To Allan Greenspan's credit, he must have been intrigued by Ayn Rand's philosophy and most likely, she inspired him to write this.
Dear readers, the "day" has arrived. The bottom line is that while we may not be able to influence our government of "destroyers" that is hell-bent on the destruction of our currency and our nation, you can, in fact, defend yourself against the ravages of a government gone wrong. Buy gold and buy silver as your understanding permits.