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Tag Archives: inflation
As news on the Great Cyprus Bank Robbery keep getting worse, the latest being the country’s corrupt finance minister Michael Sarris saying that as much as 80% of “large” bank deposits can be confiscated, Americans should be on the alert to copycat moves by our feral government and bankers. All the more because the American Left are applauding the theft of Cypriots’ bank savings.
Tyler Durden of ZeroHedge warns us that when bankrupt insolvent governments “run out of fingers to plug the dikes,” history shows that they fall back on a very limited playbook.
Simon Black of Sovereign Man blog has enumerated 8 steps in the playbook of bankrupt governments:
1. Direct confiscation: As Cyprus showed us, bankrupt governments are quite happy to plunder people’s bank accounts, especially if it’s a wealthy minority. Aside from bank levies, though, this also includes things like seizing retirement accounts (Argentina), increases in civil asset forfeiture (United States), and gold criminalization.
2. Taxes: Just another form of confiscation, taxation plunders the hard work and talent of the citizenry. But thanks to decades of brainwashing, it’s more socially acceptable. We’ve come to regard taxes as a ‘necessary evil,’ not realizing that the country existed for decades, even centuries, without an income tax. Yet when bankrupt governments get desperate enough, they begin imposing new taxes… primarily WEALTH taxes (Argentina) or windfall profits taxes (United States in the 1970s).
3. Inflation: This is indirect confiscation– the slow, gradual plundering of people’s savings. Again, governments have been quite successful at inculcating a belief that inflation is also a necessary evil. They’re also adept at fooling people with phony inflation statistics.
4. Capital Controls: Governments can, do, and will restrict the free-flow of capital across borders. They’ll prevent you from moving your own money to a safer jurisdiction, forcing you to keep your hard earned savings at home where it can be plundered and devalued. We’re seeing this everywhere in the developed world… from withdrawal limits in Europe to cash-sniffing dogs at border checkpoints. And it certainly doesn’t help when everyone from the IMF to Nobel laureate Paul Krugman argue in favor of Capital Controls.
5. Wage and Price controls: When even the lowest common denominator in society realizes that prices are getting higher, governments step in and ‘fix’ things by imposing price controls. Occasionally this also includes wage controls… though wage increases tend to be vastly outpaced by price increases. Of course, as any basic economics textbook can illustrate, price controls never work and typically lead to shortages and massive misallocations.
6. Wage and Price controls– on STEROIDS: When the first round of price controls don’t work, the next step is to impose severe penalties for not abiding by the terms. In the days of Diocletian’s Edict on Prices in the 4th century AD, any Roman caught violating the price controls was put to death. In post-revolutionary France, shopkeepers who violated the “Law of Maximum” were fleeced of their private property… and a national spy system was put into place to enforce the measures.
7. Increased regulation: Despite being completely broke, governments will dramatically expand their ranks in a last desperate gasp to envelop the problem in sheer size. In the early 1920s, for example, the number of bureaucratic officials in the German Weimar Republic increased 242%, even though the country was flat broke from its World War I reparation payments and hyperinflation episode. The increase in both regulations and government officials criminalizes and/or controls almost every aspect of our existence… from what we can/cannot put in our bodies to how we are allowed to raise our own children.
8. War and National Emergency: When all else fails, just invade another country. Pick a fight. Keep people distracted by working them into a frenzy over men in caves… or some completely irrelevant island.
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Even before the ink dried on America Conservative 2 Conservative’s sundancecracker’s “10 Guarantees,” one of the guarantees (No. 9) already is fulfilled.
Here are the Ten Guarantees, brought to us by the 59,971,178 Amerikans who voted the POS to a second term of destroying Amerika:
1. Obamacare will be 100% implemented.
- “Card Check” will be passed by fiat.
3. Amnesty for illegal aliens will be done by executive order.
4. Two leftist Supreme Court Justices will be appointed → Gay marriage will be affirmed into law.
5. Taxes will increase ON EVERYONE who pays them, i.e., the 50.5% of Americans who actually pay federal income taxes.
6. The National Debt will increase beyond $20 Trillion.
7. The Dollar will further devalue.
8. Gold prices will skyrocket.
9. Stock Market will tumble beginning tomorrow.
- Inflation will hit everyone directly; energy costs and food costs will massively jump.
The above 10 Guarantees are just the beginning. You and I both can think of other horrors to come.
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At the House Financial Services Committee hearing yesterday, Feb. 29, Ron Paul socked it to Federal Reserve Chairman Ben Bernanke.
At around the 3:50 mark, Paul asks Bernanke if he does his own shopping, if he is aware of what true inflation is, and if he knows that Americans don’t trust the government because they are being lied to about inflation. Then Paul delivers this zinger: “The Fed will self-destruct anyway when the money is gone.”
See my post “Steep rise in food and gas prices under Obama” and Sagebrush’s “The Truth About the Federal Reserve.”
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Robert Wiedemer is an economist and bestselling author who prophetically predicted both the real estate and stock market collapse in his book, America’s Bubble Economy (2006).
He’s written a follow-up book, Aftershock, which immediately topped Amazon’s bestseller list. Dow Jones said Wiedemer’s work “is your bible, read it, get into action, and be a winner.” Standard and Poor’s says his “track record demands our attention.”
In this video, Wiedemer sounds the warning that we’re heading toward even worse times, but the pols in Washington DC are ignoring and not telling us about the true scope of the problem(s). The federal government is doing and will continue to try everything it can to stave off the collapse of the dollar, by buying back U.S. debt. (Don’t ask me to explain that because I sure don’t understand how our government can buy back its own debt.)
Here’s my summary of his main points:
- Government will raise taxes, no matter who’s in the White House in 2013, beginning with the rich — which Obama just announced — then the middle class. But this won’t solve the debt crisis.
- By end of 2012, we’ll see 10% inflation, which means a 10-year treasury bond would lose half its value. We could see 100% annual inflation for three consecutive years after.
- This means many people’s savings will become drastically lower. Some life insurance plans will have big losses. Pensions will become unstable.
- Two more bubbles will burst probably by 2013– of the dollar and of government debt.
- By 2016, there’ll be a mass exit of foreign investments from America because of the dollar collapse.
- The housing market will continue to be depressed. Homeowners may lose 8% of home value in 2012. Home prices can fall more than 20% in the next 5 years, once the inevitable interest rate hike comes in.
- Retirement age will increase to 73. Many will have no choice but to keep working until dead.
- The worst case scenario is a 90% drop in the stock market and 50% rate of unemployment. But this won’t last forever. America will recover.
What to do to protect yourselves:
- Stay away from real estate because it hasn’t hit bottom. Sell your home and rent instead. If you stay in your home, refinance at a fixed rate mortgage, then just pay the monthly minimum, i.e., don’t pay at faster rate.
- Save as much as you can for a rainy day.
- Pay off your car loan.
- Credit cards are really adjustable rate loans, so pay off your credit card loans as fast as possible.
- Once inflation hits 10%, life insurance will be hit with big losses. Take a lump sum payoff now.
- Safest careers will be in healthcare, education, utilities, basic food, government.
- Stay away from long-term investments like 10-year bonds. When inflation really hits, put your money in short-term vehicles like CDs.
- Gold will continue to be a favorite safe haven. Right now, only 10% of the world’s gold has been bought by U.S. The gold run will last at least another decade before the gold bubble bursts. Gold investments can be purchasing physical gold, gold depository, or gold mining stocks.
- Other precious metals are also good over the long run.
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Friends, this is what we’ve been dreading. The killer punch is dealt to the U.S. economy. China — the country that purchased most of America’s debt in the form of U.S. Treasury notes and bonds — has divested 97% of its holdings.
The U.S. government has been operating by borrowing and borrowing and borrowing. Now it is faced with two stark choices:
- Either raise the artificially low interest rates on those Treasuries so as to entice buyers, which means certain inflation, if not hyperinflation; or
- Continue to keep interest rates depressed, which will result in even more dumping of those Treasuries by big holders such as China. With no one buying those Treasuries, the U.S. government can no longer function as before.
Some of the implications for ordinary Americans, not the very rich, are:
- If you’ve been frugal and are a saver, you’ll probably be O.K. because as the prices of goods increase, so will the interest rates on your savings — that is, assuming you’ve invested in conservative (vs. speculative and, therefore, unpredictable) financial instruments.
- If you have credit card and other debts, the interest rates on your debts will rise, along with inflation. So, please, pay off those debts ASAP!
- If you are on fixed income, you’ll have less unless you get cost-of-living adjustments commensurate with the rate of inflation.
Why this isn’t headline news in every newspaper and TV channel is beyond my comprehension.
UPDATE (6/5/11): The headline “China Divests 97% of Holdings in US Treasury Bills..." finally made it onto Drudge Report today.
Terence P. Jeffrey of CNSNews.com reports today, June 3, 2011:
China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.
Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.
Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.
Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.
Since October, however, China has also started to divest from longer-term U.S. Treasury securities. Thus, as reported by the Treasury Department, China’s ownership of the U.S. national debt has decreased in each of the last five months on record, including November, December, January, February and March. […]
As of March 2011, overall Chinese holdings of U.S. debt had decreased to 1.1449 trillion.
Most of the U.S. national debt is made up of publicly marketable securities sold by the Treasury Department and I.O.U.s called “intragovernmental” bonds that the Treasury has given to so-called government trust funds—such as the Social Security trust funds—when it has spent the trust funds’ money on other government expenses.
The publicly marketable segment of the national debt includes Treasury bills, which (as defined by the Treasury) mature in terms of one-year or less; Treasury notes, which mature in terms of 2 to 10 years; Treasury Inflation-Protected Securities (TIPS), which mature in terms of 5, 10 and 30 years; and Treasury bonds, which mature in terms of 30 years.
At the end of August 2008, before the financial bailout and the stimulus, the publicly marketable segment of the U.S. national debt was 4.88 trillion. Of that, $2.56 trillion was in the intermediate-term Treasury notes, $1.22 trillion was in short-term Treasury bills, $582.8 billion was in long-term Treasury bonds, and $521.3 billion was in TIPS.
At the end of March 2011, by which time the Chinese had dropped their Treasury bill holdings 97 percent from their peak, the publicly marketable segment of the U.S. national debt had almost doubled from August 2008, hitting $9.11 trillion. Of that $9.11 trillion, $5.8 trillion was in intermediate-term Treasury notes, $1.7 trillion was in short-term Treasury bills; $931.5 billion was in long-term Treasury bonds, and $640.7 billion was in TIPS.
Before the end of March 2012, the Treasury must redeem all of the $1.7 trillion in Treasury bills that were extant as of March 2011 and find new or old buyers who will continue to invest in U.S. debt. But, for now, the Chinese at least do not appear to be bullish customers of short-term U.S. debt.
Treasury bills carry lower interest rates than longer-term Treasury notes and bonds, but the longer term notes and bonds are exposed to a greater risk of losing their value to inflation. To the degree that the $1.7 trillion in short-term U.S. Treasury bills extant as of March must be converted into longer-term U.S. Treasury securities, the U.S. government will be forced to pay a higher annual interest rate on the national debt.
As of the close of business on Thursday, the total U.S. debt was $14.34 trillion, according to the Daily Treasury Statement. Of that, approximately $9.74 trillion was debt held by the public and approximately $4.61 trillion was “intragovernmental” debt.
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The overnight news from Egypt is that, despite President Hosni Mubarak’s concession to the
rioters revolutionaries that he would step down, the unrest and violence are worsening. It appears pro-Mubarak people have been unleashed against the revolt and they are targeting western media. CNN’s Anderson Cooper was punched in the head yesterday and ABC’s Christiane Amanpour was surrounded by an angry mob who screamed “We hate Americans!”
The Egyptian unrest itself was inspired by what happened a week earlier in Tunisia where huge mobs, enraged by their political leaders’ corrupt lavish lifestyle, succeeded in overthrowing the regime.
Both Egypt and Tunisia share the same trigger factors of social media (Facebook, Twitter, etc.), rising food prices, and high unemployment, especially among the college educated. In political science literature, the latter is a classic feature of Third World revolutions.
Wall Street Cheatsheet has identified 11 countries that have the same trigger factors as Egypt and may be the next dominoes to fall.
H/t beloved Fellowship co-founder Steve.
From “Your Cheat Sheet to the 11 Countries Which Could Follow Egypt’s Lead,” by Business Insider, Wall Street Cheatsheet, Feb 1, 2011:
- Style of government: Constitutional Monarchy
- Inflation: 2.6% year-over-year in December
- Unemployment: Among graduates, 25%, Total rate at 9.1%
- Social media: Very much a serious part of youth culture
- Conclusion: Morocco’s government has already undergone democratic reforms, so any political pressure would likely be responded to in a similar manner, with more reforms. Those very reforms have been suggested by a government commission, so Morocco seems pretty safe at the moment, prepared to adjust if things get out of hand.
- Style of government: Constitutional monarchy, incorporating limited democracy
- Inflation: Jordanian inflation up 6.1% year-over-year in December, 1.2% month-over-month
- Unemployment: Around 14%
- Social media: 38-39% of Jordanians have internet access
- Conclusion: Jordan is already experiencing protests related to these factors. The government is responding by providing food and fuel subsidies. King Abdullah just sacked his government and appointed a new one with reforms priority number one. Whether the government moves fast enough to implement these reforms will be the deciding factor in the future size of protests and threat to the regime.
- Style of government: Single party authoritarian, President Bashar al-Assad
- Inflation: Government intends to take action to lower prices
- Unemployment: 8.1% in 2009
- Social media: Facebook still openly used by the public, searches for Egypt on computers, however, crash them.
- Conclusion: The economic situation is not as dire in Syria as in other countries. The regime is, arguably, more ruthless than its Egyptian counterpart. The President believes his partnership with Iran and support for the Palestinian cause will keep him safe, and he’s already pushing for reforms. Syria’s state may be too powerful for the little protest movement developing to flourish.
4. SAUDI ARABIA:
- Style of government: Absolute Monarchy
- Inflation: Inflation at 5.4% in December, down from November
- Unemployment: 10% in 2010
- Social media: 3 million Saudi Arabians are on Facebook, with Twitter usage increasing quickly
- Conclusion: Saudi Arabia has seen some small protests, but over the government response to flooding, not rising costs and unemployment. There are concerns on the streets that the country doesn’t have proper infrastructure and is recklessly spending its oil riches. The repressive regime is unlikely to fall under these smaller concerns, but its youth unemployment problem (42%) and religious minority (Shia) could eventually exert real pressure.
- Style of government: Islamic Republic, with democratically elected representatives. Less than certain how “democratic” elections truly are. Ruled by Supreme Leader, who is a both religious and political leader.
- Inflation: Inflation at 13.5% in early 2010, may be more than double that level
- Unemployment: 14.6% as of August
- Social media: Significant penetration of both Twitter and Facebook. Government showed willingness to crackdown on use during previous protest movement.
- Conclusion: Iran crushed its most recent protest movement. If inflation continues to rise, the sentiment may become more popular, and Egypt’s revolution could inspire Iranians back to the streets.
- Style of government: Authoritarian, led by Muammar al-Gaddafi
- Inflation: CPI up 2.654% in 2009
- Unemployment: Highest unemployment rate in North Africa
- Social media: The Muslim Brotherhood has a Facebook page. Unknown levels of internet penetration.
- Conclusion: Libya would seem a good bet. It’s stuck between revolutionary Tunisia and Egypt. Its leader is regarded as an international eccentric. He wants his son to take over, and the public’s not pleased. Financial squalor is probably worse than estimated. Whether or not social media could assist is unknown, but Libya is a likely future front in the spillover.
- Style of government: Presidential democracy, elections not entirely free
- Inflation: No data of note, though likely higher that the 5.4% projection
- Unemployment: 40%
- Social media: 2.2 million internet users, population 23.4 million
- Conclusion: Yemen has the deepest unemployment problem in the region, and likely a serious inflation problem too. There’s a large terrorist group in the country, as it is a headquarters for Al Qaeda in the Arabian Peninsula. Protests are already significant. There is a sincere liklihood of change here, or, and this might be worse, further radicalisation of the population.
- Style of government: Democratic republic
- Inflation: Over 15%
- Unemployment: 14% in 2010 (estimate)
- Social media: Heavy use, government has banned use over the depiction of Mohamed before.
- Conclusion: Pakistan has a serious economic crisis, a weakness of state shown in recent flooding, confused positions over the U.S. and Taliban, as well as large anti-government, pro-Muslim fundamentalist forces. The potential for change is there. The biggest power source remains the military, however, and another coup, similar to the one that brought Musharaf to power, could occur.
- Style of government: Authoritarian capitalism
- Inflation: High inflation, including rising food costs
- Unemployment: 6.5%
- Social media: Blogs, Facebook, and other social media venues are prevalent
- Conclusion: In Asia, Vietnam looks a likely candidate for protests, particularly if the economy slows down and unemployment increases. The economic trigger for a downturn would need to be pulled, however, before any change would take place.
- Style of government: Authoritarian republic
- Inflation: 27.2% in 2010
- Unemployment: 8.1% in the first 10 months of 2010
- Social media: It exists, and Chavez has a Twitter account.
- Conclusion: The economic numbers scream change, but there’s no way to know whether or not Chavez has outstayed his welcome. The country hasn’t had the same, long-term oppressive experience as a country like Egypt. And its leadership still appeals to the anti-American sentiment held by the populace.
- Style of government: Authoritarian
- Inflation: China has a serious inflation problem, with food prices at the forefront.
- Unemployment: 4.2% [official figure; real unofficial unemployment is much higher. -Eowyn]
- Social media: Significant penetration, but government aggressively censors
- Conclusion: China has all the ingredients except the big one: unemployment. Now, there’s no guarantee rural China won’t see an uprising related to soaring prices and high unemployment there, but it’s unlikely to be passed on to the country’s cities. It would take a massive economic downturn, like one created by a liquidity crisis leading to a banking crisis leading to a recession, to trigger an unemployment surge that would threaten the regime.
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Early this month, your eyes probably glazed over at news that America’s central bank — the Federal Reserve — undertook a “Quantitative Easing (QE)” to jump start the
sluggish non-existent economic recovery. Since this is the Feds’ second attempt at monetary stimulus (the first one failed miserably), it’s called QE2.
Quantitative Easing is a monetary policy used by some central banks to increase the supply of money by increasing the excess reserves of the banking system, generally through buying of the central government’s own bonds to stabilize or raise their prices and thereby lower long-term interest rates. This policy is usually invoked when the normal methods to control the money supply have failed, e.g. the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.
Did you understand that? Me neither! LOL
What I do know is that, having taught a college course on the politics and economy of Japan, Quantitative Easing was used unsuccessfully by the
Bank of Japan Japanese government to fight domestic deflation after the country’s “bubble economy” bursted at the end of the giddy 1990s. Today, Japan’s economy, sadly, remains in the doldrums.
Here’s a great video that explains what the euphemistic “Quantitative Easing” means. It’s a hoot. Highly recommend!
H/t beloved fellow Dave from Atlanta.
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