Repost: The Federal Reserve's Plan To Destroy the Dollar--Mission Accomplished

This is a re-post of an article I wrote on 7/28/2010 when gold was at $1150. Back then, I said gold was likely to hit $1500 because of the Federal Reserve's money printing operations. Remember, back then everyone was debating whether money printing actually led to inflation (LMAO!). We were told by the experts that inflation was a non issue and that deflation was the real threat. Well, now with oil over $105 and all other commodities surging, the debate is over. All of those criminal fraudsters did their job: they lied to you about inflation. The endgame has always been to inflate the money supply. The government and its associates have to lie to keep the sheep from converting their dollars to real assets like gold and silver.
Repost 7/28/2010

   From time to time I visit the various Federal Reserve Bank websites to see what the Fed and their staff are up to. Well, today I went to the St. Louis Fed's website where there appeared a notice that they had published their monthly Monetary Trends report. The only reason I was intrigued was because the title was "Quantitative Easing: This wasn't the first time." In the report, the Fed outlines how they successfully debased the purchasing power of the US dollar between 1932-1936 courtesy of money printing and more importantly by gold revaluation. The reason I think this is important is because this is no doubt the Fed's current strategy to "save the economy." They rationalize their actions by arguing that the only way to solve America's debt crisis (real estate, consumer debt, and government debt) is to debase the dollar and cause inflation. Below are a few key excepts from the report.

During 1932, with congressional support, the Fed purchased approximately $1 billion in Treasury securities (half, however, was offset by a decrease in Treasury bills discounted at the Reserve banks). At the end of 1932, short-term market rates hovered 50 basis points or less. Quantitative easing continued during 1933-36.
During the summer of 1933, as excess reserves reached $500 million, Fed officials’ reluctance increased. Nevertheless, as Meltzer (2003) reports, President Roosevelt wished purchases
to continue. On October 10, 1933, hoping to avoid a political confrontation, Fed officials decided to continue purchases. Yet, on October 12, these officials unanimously approved a
statement to the president noting that (i) the System’s holdings of government securities exceeded $2 billion, (ii) bank reserves had reached a record high, and (iii) short-term money rates had dipped to record lows. They halted purchases in November 1933. Quantitative easing did not end there, however: It instead shifted to the Treasury and the White House through gold purchases.

   You will notice that during the period of quantitative easing (money printing), bond rates stayed low even though money printing eventually leads to inflation. This situation is eerily similar to today's market with the two-year Treasury note at 0.64% and the 10 year at 2.99%. Furthermore, the chart below shows how bank reserves have skyrocketed to new records. It seems the Fed is in the same place as it was back in November, 1933. Their money printing operation failed, and the economy remained weak. This was because the banks were not lending and the money supply was still contracting.

  Due to the Fed's hesitancy to go along with more money printing, FDR took it upon himself (illegally) to find another way of debasing the purchasing power of the dollar: 
The Fed’s reluctance could be overcome with gold. President Roosevelt controlled both the nation’s gold stock and monetary policy, so long as the Federal Reserve remained inactive. The president’s most effective tool was the Gold Reserve Act, passed January 30, 1934, which raised the value of gold from $20.67 to $35 per ounce. The mechanism by which the Treasury gained control was elegantly simple.
In August 1933, Roosevelt called all outstanding domestic gold into the Federal Reserve banks; on January 30, ownership was transferred, before revaluation, to the Treasury from the Federal Reserve Banks in exchange for (paper) gold certificates. When gold’s price increased to $35 per ounce from $20.67, the Treasury realized a windfall profit of more than $2 billion. The Treasury, Meltzer (2003) reports, began purchasing gold “immediately” via the issuance of additional gold certificates—bank reserves and the monetary base expanded when the gold certificates later were received by the Federal Reserve. During 1934-36, the Treasury purchased $4 billion in gold in international markets, sharply increasing bank reserves and the monetary base.
   So the solution was to debase the value of the dollar against gold (real money). It was, of course, criminal to steal gold from the American people (through confiscation) and pay them $20.67 per ounce right before the Government planned to revalue gold up (dollar down) to $35, but then again, that never stopped FDR. Anyway, this currency devaluation has been credited by economists as an important catalyst for the US economy recovering from the Great Depression. To me this is a specious argument, but more importantly this is what our current Chairman of the Federal Reserve believes. In one of his speeches on the depression, Bernanke notes:
The finding that leaving the gold standard was the key to recovery from the Great Depression was certainly confirmed by the U.S. experience. One of the first actions of President Roosevelt was to eliminate the constraint on U.S. monetary policy created by the gold standard, first by allowing the dollar to float and then by resetting its value at a significantly lower level.
With the gold standard constraint removed and the banking system stabilized, the money supply and the price level began to rise. Between Roosevelt's coming to power in 1933 and the recession of 1937-38, the economy grew strongly.
   We can see from statements like this that the Fed believes that currency debasement was the key to solving the Great Depression. It was the one tool available that quickly forced prices up (inflation) and relieved over indebted banking institutions. This is exactly what the Fed plans to do this time with the price of gold acting as a measurement of dollar debasement. For the dollar devaluation to be similar to the 70% in 1933, the price of gold would have to go to roughly $1570 (using $925 as the price of gold on the day the Fed announced QE--March 18, 2009). This will be the ultimate signal to Bernanke that he was successfully reflated the economy. So far the Fed is only half way there, that is where QE 2 comes in.

   One last issue has to be resolved before I end this article. The more curious reader may wonder why the American people would ever tolerate dollar debasement and a severe loss of purchasing power (in effect the Federal government was stealing from them). The best way to explain this is for you to watch the video below. The video shows clips of government propaganda in 1933 which told people that inflation was a "good thing" because it would create jobs and spur industrial production. As is usually the case, desperate people are easily influenced and the people put up no resistance to FDR's plans.

Black Swan Insights


This Just In: Congress Betrays The American People---AGAIN

Well its official--Congress and Barry the Wannabe Conqueror have reached a deal to prevent a government shutdown. Naturally, both sides are trying to take credit for the "historic budget cuts" implemented to keep our bloated government running. To anyone with a shred of independent thought, this whole saga has been nothing more than a kind of artificial hype-porn on the part of the mainstream media and the ruling elite. They tried----and succeeded in creating a sense of fear that the government was actually going to shutdown. Widows were not going to get their Social Security checks, military families were going to starve, and the IRS would not be able to audit honest Americans.  The media even had the countdown clock which was a blatant attempt to create some sort of drama regarding the event. Why was the purpose of the hype? To fool the dumbed-down and mentally challenged American public, of course.

The mainstream media narrative is surprisingly simple. The White House and Congress worked together to cut spending and save the government from a shutdown. This action saved the economy and restored the country to fiscal health. This is a flagrant lie, pure and simple. Last night's deal, which cut $39 billion from the budget will do nothing to save the country from its financial problems. A few facts to make my point. The US debt is $14.271 TRILLION, and this year's budget deficit is estimated at $1.5 TRILLION. The idea that $39 billion in sufficient is truly laughable. Pardon me if I do not laugh since the fate of the country is at stake!

The real disappointment lies with the Republicans led by House Speaker John "Cry Baby" Boehner. Not that this is any real surprise considering his past actions (he supported the Medicare Prescription plan, huge deficit spending under President George "The Fool" Bush, government takeover of education, and the illegal war in Iraq). Boehner showed his eagerness to sell out the American public by abandoning his pledge to cut $100 billion from the budget, which in itself is a minuscule amount compared to a $3 trillion budget. After this betrayal, Boehner needs to be forced to resign in disgrace. Pieces of filth like this have no place in Congress. I hope someone tries to run against him in the Republican primary in 2012.

So how is the US going to keep running $1.5 trillion deficits? It is simple: "We" will print money. This is the way both Republicans and Democrats are going to steal your wealth and reduce your standard of living. And best of all, it do not even require a vote. All it takes is for the Federal Reserve to (electronically) print US dollars and purchase US debt. Then, the Fed refunds all profits from interest payments back to the Treasury ($78 billion in 2010). The government makes money while it is destroying the value of the dollar. The best thing about this plan is that the American sheep do not understand what is occurring. When oil is at $125 and they are paying $4 a gallon for gas, the mainstream media will tell you it is due to "Middle East tension" and "speculators." Wash.Rinse.Repeat. The foolish American public will buy this argument every time, without the slightest suspicion that it is because the government is printing money and debasing the dollar. In fact, if you tell people that the reason energy and food prices are rising because of the government printing money--they will call you a nut! As the old saying goes "Talk sense to a fool and he calls you foolish." Well, right now the American public are the fools, and there is little point in talking sense to them. After all, American Idol is on at 8pm!

Black Swan Insights



As Inflation Soars, Take the Gold Pill

Congrats, fellow gold bugs--our precious metal has finally broken its trading range! This despite all the fear mongering of an ECB rate increase that would end an easy monetary policy. Previously, gold had been capped between 1440-1450, but with today's move, we have officially broken out. The break higher in gold signals that inflation shows no sign of stopping, thanks to Banana Ben and his criminal accomplices on the FOMC. This, of course, means disaster for the American public as the cost of living surges yet higher while their wages stagnate. It is all part of the Fed's PLAN to inflate the money supply and force asset prices higher. In many respects, it is nothing more than class warfare being waged against the middle and lower classes. The rich, for example, watch as their assets rise in value, while their cost of living edges up slightly.

To more clearly elucidate the point, let's take two people: Warren Buffet representing the American oligarchs and John Doe as the American public. Warren Buffet, according to Forbes. has a fortune of around $50 billion. John Doe has almost nothing in savings or investment. Doe lives paycheck to paycheck and makes 50K a year. Let's further assume inflation of 7% a year (this more likely the real inflation rate). Who benefits from this situation? Warren Buffet does incredibly well. His fortune (almost all in stocks and other financial assets) goes up about 7% to keep pace with inflation. His fortune increases by $3.5 billion. While no one knows exactly what Buffett spends annually on his lifestyle, let's just say that he spends $5 million a year to live comfortably. Because of inflation, this number increases to 5.3 million. So due to inflation, Warren Buffet makes $3.499 billion from the Fed's plan to inflate the currency.

 Now let's take a look at how John Doe, the average American, does compared to the financial robber barons. John Doe has few to no investments, so he does not profit from a rising stock market. Unfortunately for John Doe, his cost of living surges while his wages stay the same or decline adjusted for inflation. His 50K salary no longer buys the same amount of food, gas, etc. Thanks to inflation, John now needs $53,500 of income to maintain his current lifestyle. John has two choices: he can either lower his standard of living by eating synthetic meat like Krab and Spam, or John can borrow money on his credit card at 24% interest. Either way, John Doe loses as the Federal Reserve transfers his wealth directly to the financial robber baron class. The really sad part is that John Doe does not quite understand the mechanics surrounding inflation. He is told by the Ministry of Truth (mass media) that there is no inflation, and that, after all, a little inflation is good for the economy anyway. We must have perpetual inflation, or we will have a depression. So what is left for John Doe and the millions of Americans just like him? A lifestyle resembling that of a third world country, where the middle class is trapped in debt and poverty that they can never repay.

Warren Buffet said it best when he remarked "There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Good old Warren. He at least has the honesty of telling you that he is robbing you blind. And if you don't like it, Warren refers you to his partner, Charlie Munger's statement regarding the unjustness of bank bailouts by saying "Suck it up and cope!"

About the only thing average Americans can do at this point is to protect themselves from inflation through gold and other hard assets. This is very hard for people living on fixed incomes or from paycheck to paycheck. And don't expect Congress to help you. Both parties are owned and paid for by the same globalist banks destroying this country. That is why no bank CEO is in prison for the 2008-2009 financial crisis. The oligarchs are above the law while average citizens get the book thrown at them for the slightest offence. But don't worry Barry Obama  or the generic Republican candidate will save you. After all, they will again promise you more change, and the American public will sheepishly vote for them again.   Alexis de Tocqueville once said "In a Democracy, the people get the government they deserve."

Forget taking the blue pill or the red pill a la The Matrix. The American public needs to take the gold pill to restore the Republic and save themselves.  

Black Swan Insights



Marc Faber's April Outlook: Rally to Continue--But Get Out Before May Sell-Off

The always insightful Marc Faber is out with his latest issue of the Gloom, Boom, Doom report. Here are a few highlights:

1. Stocks--World markets are likely to continue their recent rallies, due in large part to non-stop liquidity from central banks. Furthermore, April is seasonally a good time for stocks, which provides a favorable background for rising stock prices. However, Faber is looking for a correction in May/June and advises investors to sell their winners in anticipation of lower prices. He would not be adding to positions at this point. If the market does fall, as Faber expects, then prepare for QE 3,4,5,etc. by the Fed to support asset prices.

2. Gold and Gold Stocks--Continue to accumulate gold. The best way is to dollar cost average every month. Gold may decline in the short-term, but the long term trend is up. Faber also mentions that gold remains undervalued compared to the egregious amount of fiat money which has been printed by central banks worldwide. If the US ever needed to back the dollar with gold, it would take a price of $7500 per ounce of gold to accomplish this. Thus, gold remains an attractive asset. Furthermore, gold is still under owned by individuals and institutional investors. Regarding gold stocks, Faber is buying Newmont and Barrick.

3. Japan post earthquake/tsunami---Faber has been getting more bullish on Japan over the last few months, citing attractive valuations after a 20-year bear market. Even after the Japanese earthquake, Faber likes Japanese equities, but he thinks they will fall in the short-term. This will represent a good buying opportunity for investors. He still hates the Yen and believes recent BOJ money printing will lead to a lower Yen longer-term (bullish for Japanese equities).

4. Commodities--Faber is still bullish on energy shares like CHK,BTU, XOM, CVX etc. However, he would only add to these positions on weakness as he is cautious on the general market.

5. Model Portfolio--Faber mentioned that his ideal portfolio right now would be: 20-30% gold and gold equities, 30-40% equities, 20-30% real estate (including REITS) mainly in Asia, and 20-30% cash and corporate bonds. Faber cautions that while US blue chips look relatively cheap, he would prefer emerging market stocks because they represent better growth opportunities and have good dividend yields.

6. America's Long Decline--Faber devotes a large amount of time discussing the dire outlook facing the US. The country is bankrupt and, meanwhile, the ruling elite is busy looting the last drops from the American Empire. Americans can get used to perpetual war, more terrorism, and a continuous decline in general living standards. The elite directs scholars to produce reports and arguments to justify whatever actions are taken by the oligarchs. This is the sorry state of America today. Is there any hope to rescue America from its troubles? Faber is not optimistic.

Black Swan Insights