View from the Ivory Tower

Real estate seems to be the only asset that defies the conventional laws of depreciation.  The very second after buying a car you can’t sell it as brand new.  It’s considered used even before it leaves the parking lot of the dealership you just purchased it from.  Buy a PC and in a few months a better model can be had for the same amount of money you spent.  But if you buy a house it magically appreciates in value even though the wood starts to rot, the nails start to rust and the roof starts to fall apart.

The illusion being propagated is that the constant price increase of real estate is laregely due to the principles of supply and demand.  The illusion is that supply can never keep up with the demand and the media is laregely responsible for perpetuating the web of illusion that there are throngs of people snatching up every available home the moment it comes up for sale.

The following article that I will be quoting in part wil show you the reasons behind the fairly recent (starting 2000-2001) boom in real estate in the US, the slump and deflation of the housing bubble and possible acceleration into a crash of the housing market that is occuring as I type, and what it means for the US citizen, resident or even for the denizens of other countries.

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(from http://www.informationclearinghouse.info/article15689.htm)

Housing Bubble Smack-down

By Mike Whitney

11/20/06 "Information Clearing House" — - Give me 5 minutes and I’ll convince you that you should sell your house immediately and invest your life-savings in gold or a Swiss bank-account.

Okay?

For some time now we’ve been hearing about the so-called housing bubble and what effect it could have on your net worth and future. Well, the numbers are finally in and you can decide for yourself whether its time to sell now or try to ride out the storm.

In 2000 the total value of homes in the US was $11.4 trillion. Today that number has shot up to $20.3 trillion; nearly double.

At the same time, mortgage-debt in 2000 was a trifling $4.8 trillion (about half) while in 2006 it skyrocketed to a whopping $9.3 trillion.

So, how do we explain these enormous increases in value? After all, wasn’t the housing boom just the natural outcome of “supply and demand”?

No it wasn’t. That’s an unfortunate myth that should be interred with the withered remains of Milton “free-market” Friedman.

If we really want to know what’s going on, we need to look back at the machinations at the Federal Reserve in 2001, that’s when Greenspan lowered interest rates to 1.5% to soften the blow from the stock market meltdown. Rather than tighten interest rates and let the country to go through a period of recession, Greenspan lowered rates and ramped up the printing presses to “full-throttle”.

Voila; the housing bubble! Or what the conservative “Economist” magazine calls “the largest equity bubble” in history.

The housing bubble has nothing to do with supply and demand or with the fictional increase in workers salaries. (which have actually gone down since Bush took office) Rather, it is the predictable result of dramatically increasing the money supply while expanding personal debt via home-mortgages.

Remember, the central banks are not in the mortgage business; they are in the “money-pedaling” business. And the way you sell more money is by making it as cheap as possible. The Fed intentionally inflated the bubble with cheap money so they could keep the printing presses whirring-along. They worked in concert with the banks to lower the requirements for mortgages so they could attract an endless swarm of “unqualified” customers who wanted to join the feeding-frenzy.

Isn’t that what happened?

And, didn’t that make it possible for every Tom, Dick and Harry to borrow hundreds of thousands of dollars on “no-down payment”, “interest only”, ARMs or other equally risky mortgage-packages?

Of course it did.

There are some who will argue that the Federal Reserve just made an honest mistake and were merely trying to steer the country away from impending recession.

That may be true, but let’s consider the facts before we draw any hasty conclusions.

Did the Federal Reserve double the money supply in the last 7 years?

Yes.

Did they know what they were doing?

Yes.

Did they know that printing more money creates inflationary pressures and reduces the value of money already in circulation?

Yes.

Did they realize that the money was going directly into the real estate market where it was creating an “unsustainable” equity bubble that would eventually crash and destroy the lives’ of hundreds of thousands of Americans whose greatest asset is their home?

Of course, because it’s the Federal Reserve which produces all the relevant facts and figures, charts and graphs, about increases (and trends) in the housing market. How could they NOT know?!?

In other words, they doubled the money supply and then sat back and watched while $4.5 trillion went directly into the real estate market via mortgage loans to people who were “under-qualified”.(knowing that these same people would eventually fail to meet their payments and adversely effect the entire market)

The Federal Reserve knew all of this. In fact, they knew where every dime was going, but decided to persist in their swindle to the bitter end.

Have the real effects of this monster-bubble been softened by the huge trade deficit?

Yes, because America currently borrows $800 billion a year from China, Japan etc. which keeps the economy sputtering along while our manufacturing sector continues to be ransacked.

The $800 billion account deficit is like a sedative which lulls us to sleep while the country is looted right in front of our eyes. For example, in the last 12 years, foreign ownership of US assets has soared from $3 trillion to over $12 trillion.(400%) At the same time, over 13,000 major US companies have been sold to foreign corporations since 1980. Nevertheless, Americans are only-too-happy to ignore these unpleasant facts as long as they can totter off to Wal-Mart to buy little Johnny his new video-game. It’s only a matter of time before the scattered, bleached bones of American industry appear everywhere across the American heartland.

And, does the Fed realize that Americans borrowed another $825 billion from their home equity in the last 12 months (to spend on house repairs, shopping, boats etc) and that without that consumer spending the nation’s growth rate (GDP) will shrivel to nothing?

Yes, because they provide all that data, too.

So, what does this mean for the homeowner whose future depends on the steady increase in his home equity? What can he expect?

Well, first of all, you can ignore all the gibberish you hear on the business channel about “soft landings” and a “temporary downturn”.

There’ll be no soft landings. This is the Big One; Real Estate Armageddon followed by a plague of locusts.

JUST LOOK AT THE NUMBERS! There’s a $10 trillion difference between the aggregate in 2000 and 2006! $4.5 trillion of that is new mortgage-debt! That’s more than a little “froth” as Greenspan likes to say. In an economy that’s currently growing at a feeble 1.6%, a plummeting housing market could pave the way for another (dare I say it) Great Depression.

$10 trillion!?! Some things are worth repeating.

First of all, (if we compare our situation to what happened in Japan during the 1990s) we can expect that prices will continue to fall for years to come, perhaps, a decade or more. Many of the slower markets are already showing a decline of 10% to 20%. This is a trend that is likely to speed up dramatically in 2007 when $1 trillion in ARMs reset. That’s when we’ll begin to see a truly new phenomenon in the US, that is, people who’ve always been solid members of the middle class sliding downwards into the ranks of the working poor.

By 2008, if the present trend-lines persist, housing prices will probably drop to 25% to 30% of their 2005 value; diminishing equity value by approximately 45% to 50% for most homeowners.

If you own your home outright; you can sweat it out, but if you got into the market late; you’re toast. You’ll be joining the throng of mortgage-slaves who are shackled to loans that are significantly higher than the current value of their house.

Imagine paying off a loan for $400,000 when your house has been reassessed at $250,000 or $300,000; that’ll be the reality for an estimated 30 million Americans. Meanwhile, inventory will continue to grow (already at an 8 month backlog) the economy will continue to contract, and the dollar will continue to weaken. (Many of the major home builders; Centex, Beazer and Toll Bros, are reporting that profits are down by nearly 65%.)

At the same time the Fed just issued another $10 billion in Treasury Bonds last week raising the national debt to a mind-boggling $8.6 trillion. This loosey-goosey approach to printing fiat money and creating debt explains the recent surge in the markets. As “The Daily Reckoning’s” Richard Daughty says, the “bull market is manufactured from rampant government deficit-spending and financed by the Federal Reserve creating the money.”

Amen. Its all fluff and there’s nothing to it. It’s just loose money finding a temporary perch before the approaching squall. Don’t trust the smoke and mirrors. Behind the merriment and gusto, Wall Street analysts are expecting a collapse…and soon.

How soon, you ask?

Well, Daughty also notes that “revolving credit like credit card loans grew by $2.85 billion, or at an annual rate of 4.00%, to $857 billion.”

So, credit card debt is going up, which is an indication that the people who were siphoning money from their home equity have switched over to plastic. That’s sure sign the writhing consumer-beast is in its last throes. The end is near.

Why should I care about Net Long-term Capital Inflows?

In another bit of disheartening news the net long-term capital inflows fell short of what the US needs to cover the current account deficit. The inflows were only $65 billion when we need $70 billion to make ends meet. This is another way of saying that foreigners are no longer mopping up our red ink. Interestingly, foreign central banks are buying considerably fewer Treasurys; $9 billion in US securities and a paltry $8 billion in Treasury bonds.

What does it mean? It means that no is dim-witted enough to buy our debt anymore because we’re no longer a good risk.

That’s a very bad sign. Under different stewardship the "full faith and credit" of the US Treasury meant something. That’s no longer true.

Also, according to Marketwatch, “US residents purchased a net $22.9 billion in foreign securities, up from $2.7 billion in August. Foreign holdings of dollar-denominated short-term securities, including Treasury bills, fell by $10.8 billion.”

Foreign investments are up $20 billion in one month?!? Are you kidding me?

So, the smart money is getting out of Dodge pronto; leaving the rest of us behind in a leaky canoe.

Thanks, Greenspan.

Some of you may have seen Alexander Cockburn’s shocking article “Lame Duck” last week on Counterpunch. Cockburn refers to a report published by the Financial Services Authority (FSA) “a body set up under the purview of the British Treasury to monitor financial markets and protect the public interest by raising the alarm about shady practices and any dangerous slides towards instability.”

The report “Private Equity: A Discussion of Risk and Regulatory Engagement” states clearly:

“Excessive leverage: The amount of credit that lenders are willing to extend on private equity transactions has risen substantially. This lending may not, in some circumstances, be entirely prudent. Given current levels and recent developments in the economic/credit cycle, the default of a large private equity backed company or a cluster of smaller private equity backed companies seems inevitable. This has negative implications for lenders, purchasers of the debt, orderly markets and conceivably, in extreme circumstances, financial stability and elements of the UK economy.”

The problem is even greater in the US where unregulated fractional lending has allowed banks to loan unlimited amounts of money on measly reserves. Hence, “the default of a large private equity company is inevitable”. The whole deregulated banking scam has turned the system into a Vegas-style “crap shoot” with no guarantees that you’ll ever see your money again. The same is true with the new-fangled investment “instruments” like hedge funds which contain few tangible assets and more and more “collateralized debt”. That means that they depend heavily on the “worker bees” at the bottom of the economic Totem Pole, who are expected to continue making their payments even while the economy begins to swoon.

The present system is fraught with peril and likely to come crashing down in a heap. As Cockburn sagely notes, “The world’s credit system is a vast recycling bin of untraceable transactions of wildly inflated value.”

“Market transparency” has gone the way of the Dodo. The new “deregulated” markets are intentionally opaque so the medicine men and hucksters who designed them could fleece the public from the comfort of their Wall Street enclaves. No one should be too surprised that the whole rickety contraption is tilting towards the dumpster.

Happy Days in the Weimar Republic

So, what was the “Grand Plan” the Fed had in mind when they decided to anesthetize the American public with low interest rates and flood the planet with worthless green scrip?

Did they think that Bush would corner the oil market and, thus, force the rest of the world to take our anemic greenbacks? Or were they just planning to steal every last farthing from the American people before they loaded the boats and fled to more promising markets in Asia?

Or perhaps they were delusional enough to believe that really wonderful things would happen if they just kept tossing banknotes into the Jet-stream like New Year’s confetti?

Whatever the madcap rationale might have been, the country is now facing an agonizing wake-up call as the full-effects of Greenspan’s tenure materialize and the stronghold of global consumerism deteriorates into Weimar USA.

In the long run, Greenspan’s treachery will loom larger then that of his “would-be” understudy, Bin Laden. He put the country on the fast-track to disaster.

Just watch as the “For Sale” signs go up on lawns across America in Dear Alan’s honor.

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News from the fringe by economists and independent researchers are usually ahead of the curve by a couple of months to a couple of years.  The pundits have been predicting the bursting of the housing bubble many years back and the mainstream media (MSM) is only now catching up to the what’s really happening in the real estate market (although terms like "soft landing" and "temporary downturn" will continue to be used by the MSM to stave off the eventual panic that will be felt by the masses when the reality of the situation can no longer be ignored or covered up).

The internet has a "mother lode" of information if you know where to look.  This page (http://www.homepricebubble.com/) has a large collection of links to (US) nationwide real estate news which you probably won’t encounter in your MSM paper or television news.  The page is not attractive aesthetically but the information is there if you want to read it.  Another staple of mine is the 4Rs archives at financialsense.com here (http://financialsense.com/editorials/reality/main.html) and here (http://financialsense.com/editorials/reality/4Rarchive.html).

The real estate bubble is a very complex topic that has more facets to it than what is covered in this post.  Check back next time when I find the time to post about them or you can research them yourself if you have the time and patience to follow the money (e.g. Banks are mostly risk-free from the eventual real estate crash.  "Why?" you may ask.  Don’t they carry the loans issued to the people who borrowed money for purchasing a home?  Nope.  The US banks have found a way to eliminate that risk and the suckers who foot the bill are the people/foreign corporations/banks that buy up stocks in the form of high yield hedge funds.

It’s been a week after my birthday.  Thanks to everyone who greeted me!  For everyone else, you all can just go burn in hell. 

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I’ve been quiet for over a month.  Been mulling over this and that.  I think I think too much.  Oops, there I go again.

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A month later and the state of the US economy looks much worse.  At least according to the reports from economists who keep track of these things.  The US is running an $8.5 trillion dollar deficit, China on the other hand has just passed the $1 trillion dollar mark in surplus (i.e. savings), the dollar is being propped up by foreign buying of dollars to the amount of more than $2 billion dollars a day.  $2 billion a day!  The 9-5 man on the street probably can’t begin to comprehend how to spend $2 billion dollars a day.  Kinda reminds me of the movie "Brewster’s Millions" only with 3 more zeroes more to spend.

The economists are taking sides; one camp says the world will be headed for a deflation and the other camp says inflation.  This article (http://financialsense.com/fsu/editorials/sutton/2006/1117.html) makes a nice case for arguing an inflationary trend.  Since the US government controls the US dollar money supply, it would benefit them much much more to inflate the US dollar to the ends of the universe (by printing more and more dollars) because the trillion dollar deficit that they have racked up at present would effectively "decrease in value" (because dollars would be "worth-less" because there would be so much more Us dollars in circulation in the world).
But then if the US continues to print more dollars at the same pace, or even accelerate the printing of money, it would only translate to making the deficit baloon so much more.  Some economists have taken the analogy of an alcoholic hooked on booze or a drug user hooked on narcotics; to avoid the hangover or withdrawal symptom, you need another hit, an even bigger hit.  Sooner or later the junkie’s body can’t take it anymore and his body will just crash from all the abuse and won’t get up anymore.

Arguing for the other camp, putting the US economy through a deflationary phase may just be the responsible thing to do but that would mean the US government would be mature enough to own up to its mistakes and really start fixing things.  It would mean turning on the lights, turning off the music, telling the people that the party is over and start to clean up the mess.  Fat chance of that happening.

Well an analogy can go only so far in describing any situation.  Things are usually much more complicated than the simple words I write in this blog to try to explain what I’ve learned.  This post doesn’t do justice to everything that’s been written (or at least everything that I’ve managed to read) about the present economic situation of the US and what it means for the rest of us.
So I have to give props to Michael Hodges who’s made that effort of collecting various sources into one website and to try to explain the situation we’re in to the common man on the street.  If I haven’t lost you yet, you should go check out the Grandfather Economic Report (http://mwhodges.home.att.net/).

All the information is free.  You don’t have to sign up for anything or pay for anything.  All you have to do is learn what there is to learn and then find a way to apply your new knowledge.  Knowledge is power.  But knowledge is power only if applied (you can lead a horse to water…).

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I wouldn’t want to dance my "I told you so" dance.  I don’t relish that life, as how we now know it and have gotten used to it, may not be the same in the couple of years to come.  Nobody likes their "creature comforts" taken away from them.  But it’s one thing to be prepared for the worst and not not have it happen than not be prepared at all when it does.

For today, I’d like to re-post a web article from someone who shares my views on the state of the US economy and, from the impression I got from the article, sounds just as frustrated as I am how this news isn’t spreading as fast as it should be or why people just don’t seem to care.

(from http://www.newswithviews.com/Devvy/kidd218.htm)

THE DOW’S PHONY NEW HIGH

By: Devvy Kidd
October 6, 2006

© 2006 - NewsWithViews.com

"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world." –Thomas Jefferson to A. L. C. Destutt de Tracy, 1820. FE 10:175

The Dow’s Phony New High is the caption of a very important column which appeared a few days ago. I consider this column by Michael Nystrom to be a must read because he does an excellent job in bringing this sometimes complicated issue to a level that even people like me can understand the deceit. I hope you can take the time to read this important information about how the American people are being manipulated into buying this grand "new high" on Wall Street, believing it to be an indicator of how good the economy is doing, when in fact, this economy is heading for a hellish dive. One only need look at the dead housing market to feel the massive sucking sound just over the horizon.

Harvey Gordin, who owns El Dorado Gold, also sent me this link with the comment, "In my opinion, it is the single most important, story I have read this year. It explains the PPT, or Plunge Protection Team, and it’s direct effect on the price movement of the gold and silver markets. It explains why 60% of all trading on the NYSE is controlled, and why we have a controlled stock market. Our government tells us how important free markets are to the U.S., while they are trying to micro-manage all of our equity markets. The system is broken! When the bubble pops, which is inevitable, investors that think they are investing in a "free market economy," will incur horrific stock market losses while the metals markets will rise in value to unthinkable heights." You can read this important information here which show how this incestuous relationship between bankers and the federal government is putting everything you’ve ever worked for at risk.

So many Americans contact me asking for guidance on what do regarding their retirement nest eggs. Folks are very worried about what’s going on and with 77 million baby boomers getting ready to retire beginning in 2008, the financial picture has long passed gloom and doom. The numbers don’t lie and they get worse by the day with a Congress unconstitutionally stealing from we the people every day, kissed and blessed by Bush to fund nonsense, unconstitutional wars and unconstitutional nation "rebuilding." No president of these united States of America has the authority to simply steal from the public treasury and yet every president for the past 60+ years has done just that with the approval of one rotten, corrupt Congress after another.

Here’s one for you: Today you will work to rebuild Lebanon. You remember Lebanon? It’s the bombed out city Israel destroyed a scant 2 1/2 months ago. As soon as Israel was finished with their murderous rampage, Bush proclaimed, as if he were a King and not subject to the law of the land:

"Today, I’m announcing that America will send more aid to support humanitarian and reconstruction work in Lebanon, for a total of more than $230 million. These funds will help the Lebanese people rebuild their homes and return to their towns and communities. … America is making a long-term commitment to help the people of Lebanon because we believe every person deserves to live in a free, open society that respects the rights of all."

What hubris. There isn’t a scintilla of constitutional authority for Bush to simply rob the treasury and stealing your children’s future to rebuild any city or country. This is just another one of Bush’s grotesque violations of the supreme law of the land while Americans chew their nails about the new episode of crap like Survivor or fill their gut with beer at the local sporting event. Congress should have immediately stepped in and said, no, "Mr. President. Neither you nor this body has any authority to loot the people’s treasury for your political games." Instead, both parties went on vacation and did nothing. The U.S. Treasury is over $8 TRILLION dollars in debt. There is no money in the treasury. That $230 million, which will eventually turn into ten times that amount, has to be borrowed from the thieves called the central bank (FED), further putting you, your children and grand children into financial slavery for all your natural lives. So, have a great time at work today knowing that the sweat off your back is being stolen to fund the "ordering of the new world."

And don’t fall for the PR smoking mirrors released by the White House in mid-June: ‘Tax Revenue Reaches Highest One Day Total Ever’. This deceptive splash sucked up by cable and mainstream media without ever questioning the figures proclaimed the Treasury Department had collected $61 billion dollars in one day. Most Americans probably thought to themselves, "That’s great, now the government can fund more money for education!!!" Wrong. If you don’t know the money trail and how the deception works, please read this column I wrote. If you don’t have time to read it, you can order it (Vol I, Disk II) on my CDs and listen to it while driving or at home on your CD player; see here, scroll to the bottom.

I cannot give anyone financial advice on how to manage what they have left, but I can provide you with as much credible research as I can through my columns. One thing I will say: The legacy of the U.S. Congress for the past 60+ years is consigning you to poverty for your golden years. Between the massive rape to fund these unconstitutional wars to the illegals invading this country bleeding us dry, anyone who isn’t extremely concerned over all of this is in a state of denial. I asked Harvey to give me a short overview of the situation:

"The US account deficit is at $829 billion dollars for the past year and rising. This means that each day the US must borrow $2.27 billion dollars to pay its bills. In the past it has been foreign nations that wanted to invest their excess capital in the US. As of June 2005, these investments have come to a halt. Russia, China and Japan have stopped buying our debt. In fact they have been liquidating dollars. What is it that they know that we as US citizens don’t know? The answer is that the empire of the US is bankrupt and our dollar is doing to depreciate in epic proportions. So they are saying why invest in the US when they know they will lose money?

"Well, then, how do we then pay our daily $2.27 billion debt? Since June of 2005, the consortium of Caribbean Banks stepped up to the plate and purchased our debt month by month. They pick up the slack and purchase our debt allowing us to continue our spending into further debt and entering into the biggest bankruptcy of the history of mankind. Just who are these benevolent Caribbean Banks? They’re the same folks who allow investors to shelter their money through trusts and other entities so as to lessen the taxes of the US citizens. These banks are the same people who bring us money laundering. So then how do they get their money? If the truth be known and it rarely is, our government with the assistance of the Federal Reserve, creates money out of nothing and gives that creation to the Caribbean Banks who in turn invest in US debt instruments thereby keeping us financially alive. That is called "monetizing the debt." Why don’t you personally try to duplicate this concept? Answer? "I don’t want to go to jail."

"The last time a nation did what we are doing was Germany 1919-1923. They were printing money out of thin air. When that bubble broke it cost 87 trillion marks to buy one ounce of gold. By the way, the US has a balance sheet called the off line budget. This budget contains Medicare, social security, the post office and debts for the Iraq war and all of the previous wars not yet paid for. That budget deficit is over $70 TRILLION - is it any wonder why the government doesn’t make mention of this balance sheet? Fellow Americans spend more money than they earn. Where do they get the money to pay their bills? They have been borrowing from what was their only increasing asset, their home. The price of your main asset is rapidly dropping in value. In fact, individuals who bought homes in the past two years on an interest only basis are now upside down and are finding it difficult to obtain conventional 30 year loans. This is 20% of the housing market. Another 20% of the market consists of homes paid for by ARMS. The end of this year and in 2007 their monthly payments will be adjusted upward dramatically. One big problem is that the majority of these home loans have a pre penalty payment of $10-$15 thousand dollars. That’s a big problem if you have little or zero equity.

"How will it end? We are witnessing the end of the middle class. The death of what makes our nation great. If you are reading this brief overview then you’re one step ahead of the average hard working American who doesn’t have a clue as what’s about to happen to his hard earned assets. Straight talk: all debts have one thing in common, they all eventually come due. It is impossible for us for us to ever, ever, ever repay our national debt. We are only being kept alive because the central bank owns the printing presses.

"One day soon one special event will occur. It may be an unexpected bankruptcy of a major corporation, i.e., Fannie Mae, a major bank or a highly leveraged hedge fund. It could also be a terrorist attack on a major US city. When that event occurs it will be too late to protect your assets. We will be in a liquidating crisis. That’s when you call your broker up to sell and his response is "To who"? Like the Boy Scott motto says, we must be prepared. The only things that will grow in value are hard assets. It took 27 years for the Dow Jones to reach its previous high reached in 1929. During that time the only investments that increased in value were gold and silver. That’s why I tell you to own physical gold. Gold has to move higher. It’s the only commodity that can bring sanity and stability to the fiat currencies of the world. That’s why the people that used to buy our US debt are buying and adding to their supply of gold and silver. It’s the only thing I know that can preserve your hard earned assets."

It boggles the mind that the American people just don’t seem to care about the flushing of all they have worked for during their life time. How can you be "too busy" to safeguard that which you have toiled 30, 40 years to obtain? For those who do care, I respectfully recommend you do some homework and consider getting your hard earned assets out of the stock market (rigged to protect the money changers) and diversify some into gold at the very least. It’s no fun writing these columns, no one wants to be the bearer of bad news. One woman commented to me in Denver two weeks ago, "I don’t watch the news because I’m tired of bad news. I just want to hear good things happening." Well, that’s ever so nice, but, ignoring a problem won’t make it go away and the best in the business are cringing as they watch Americans bury themselves in debt while trusting mother government to safeguard their retirement. Very foolish, indeed.

© 2006 - NewsWithViews.com - All Rights Reserved

Devvy Kidd authored the booklets, Why A Bankrupt America and Blind Loyalty, which sold close to 2,000,000 copies. Devvy appears on radio shows all over the country, ran for Congress and is a highly sought after public speaker. Your complimentary copy of the 32-page report may be obtained from El Dorado Gold. Devvy is a contributing writer for www.NewsWithViews.com.

Devvy’s website: www.devvy.com

E-mail is: devvyk@earthlink.net

This is the fourth installment of a series about money that I started almost three weeks ago.  The series starts from Economics 101.  If you want to get up to speed before continuing with this post, you can start from there.

But before I dive in and try to give you some ideas about how you can preserve the purchasing power of your money, I’d like to start off with a disclaimer.  The suggestions I am about to give do not constitute financial advice.  It is your legal responsibility to due your own research and reach your own conclusions on how to best ‘invest’ your money.

With that out of the way, lets get down to business.

I the previous posts, it was mentioned that the value of one Philippine peso, compared to the price of gold, has lost 99.998% compared to its value during the 1903 to 1949 period.  I don’t have the numbers to back it up and all the reference I have is the wikipedia entry about the Philippine peso.

Did you get that?  Were you paying attention?  I’ll repeat it again, this time with emphasis.  The value of one Philippine peso, compared to the price of gold, has
lost 99.998% compared to its value during the 1903 to 1949 period.  Even if the banks back in 1903 didn’t close or go bankrupt, the money that was saved up in them would still have lost a huge amount of purchasing power, even with the year-on-year interest.  So if your lolos and lolas kept their pesos in the form of gold, they’d have kept the purchasing power of their hard earned money up to this date. 

So that’s one hint.  But I’d like to point out some things about gold before moving on to other "investment strategies".

1) Learn about your country’s laws regarding ownership, exportation and importation of gold, other precious metals or other precious commodities (like diamonds, other currency, etc).
For the Philippines, this is a bit hard since information about ownership, importation and exportation of gold is not widely publicised or available.  But thanks to the age of information and the internet, a Google search is all that is needed most of the time.
From www.allfreight.co.uk/documents/regulations/regulations005.pdf (got the link by Googling "philippines customs gold bullion") it explicitly says that gold/silver and precious metal bullion are prohibited from entering the Philippines.  I don’t advocate doing anything illegal like smuggling your bullion inside fluffy teddy bears or something similar.  It’ll just cause you undue stress and/or large financial losses and jail-time when caught.
The crafty importer can always import their gold/silver and other precious metals in forms other than buillion.  Gold can be in the form of jewelry or art pieces, though there might still be hefty taxes to deal with going through customs if you’re decked out in bling.

2) Buying metal in the form of jewelry costs 10 times or more than the cost of the raw metal.  If you ever shopped for gold rings or wedding bands, you know that the cost can sometimes match or even beat the price of one troy ounce of gold.  The reasons given for the markup in jewelry are cost of labor, marketing, branding, etc.  There are also cases of fraud when the jewelry makers stamp a higher grade of gold on the jewelry than the actual metal content.  This has been quite a problem in India where gold is a large part of their monetary culture but it would not be such a huge leap of imagination to think that other jewelers may also be mis-representing their wares.
The best option to keep your gold and other precious metals in the form of jewelry would be to buy your own bullion and make your own jewelry.  You’ll keep your costs down and learn a trade in the process.

3) Gold, silver and other precious metals are not for everyone.  Your milage may vary depending on your locale, the culture of the region and the awareness of the people regarding the value of precious metals.  If coin shops or other places for buying and selling precious metal are not popular where you are residing most of the time, you should consider investing in other tangible goods.  What do you need to consider in determining which tangible good to purchase?

• The tangible good you’ll be stocking up on must have a long "shelf life".  A cup of freshly cooked white rice, though very valueable during a depression, would not last until the depression does come and money has lost its value.  Not all canned or bottled goods are created equal; some foods still spoil faster than others.  A rule of thumb is that the drier the good, the longer it will last.  Stuff in oil also usually lasts longer than stuff with water.  Water "goes stale" after some time and if the usual water sources aren’t available, a bottle of water purifying tablets is almost as precious as gold.
• Needs change depending on the situation at hand.  During a relatively stable period, electricity, food and water are cheap.  When a storm blows through your part of the country, batteries, food and water tend to disappear from the supermarket shelves pretty quick.  Some vendors also take advantage of situations and hike up prices to make a quick buck; enterpreneurs know how to take advantage of changes in supply and demand.
• Renewability is a good feature to have in a tangible good.  Batteries are good and can keep for a long time, re-chargeable batteries are much better since you can use them again and again but how about when the lights go off?  Investing in a solar-powered battery recharger is not so bad an idea in those cases, or even if the lights are on.  Cooking food without electricity?  Try Googling "solar oven" and see what you can do with the power of the sun.
• Books are always a good idea.  You just need light to be able to read them, they’ll most probably survive after you’ve kicked the bucket, chances are you can trade your book to someone who hasn’t read it yet and as a last resort, you can burn it to keep a fire going. 

4) Although it is possible to tough it out alone, being a part of a group or community goes a long way, especially if you don’t have that much cash to buy everything you need to prepare for hard times.  Having people who you can lean on and trust makes for better chances of not just surviving, but surviving comfortably in any situation.  I know, "community" is really a tangible thing that can be invested in but picking the right place with the right community should by considered well, just like any tangible investment.

Now if you’ve been paying attention you’d have noticed that I have been steering the ideas towards a rather "bleak" future; a time where the electricity might go out or access to food and water may be severly limited.  Well the countries that went through the periods of hyper-inflation
were marked by a scarcity of these resources (i.e. energy, food and water) and those who were caught unprepared suffered the most. 

But that’s the idea behind saving, right?  Preparing for unexpected events.  Expecting the unexpected.  Everyone remembers the classic childrens’ story about the ant and the grasshopper and how the ants stored up food to prepare for a (bleak) winter and how the grasshopper was caught unprepared and suffered the most between the two.

As much as we’d like to turn a blind eye to unsavory outcomes, it’s time to look straight in the eyes of histories of nations that suffered hyper-inflations and see that the possibilities are becoming more probable by the year.

Before anyone brands me a looney and thinks that I’ve probably gone off the deep end, I’m not discouraging anyone to have that occasional Starbucks coffee.  I still do indulge in luxuries from time to time but only because I can afford to.  Just like the little ants, my wife and I have "stocked up" and are more or less prepared and "well invested" to weather any bleak winter or simply preserve our purchasing power for the years (of inflation) to come.

With that, I bid my readers, "happy preparations"!

In retrospect, I think I may have set myself up to ‘bite off more than I can chew’ when I said I would follow-up with a post on what my readers could do to keep more of the purchasing power of their money.  The articles I post regarding economics, it’s history and myths and urband legends, though informative, are mostly geared towards people with a hefty sum of money to invest.
I have no traditional investments of my own.  I am not rolling around in cash.  So why do I read up on this stuff and blog about it?  Although trillions of dollars change hands between governments around the world as I type this, although it may seem that it will not affect the person you meet comparing jars of peanut butter in one of the aisles of the grocery store, global economics does affect everyone.  And it comes as a surprise only for those who aren’t aware of how the economy works.

Most people are only dimly aware of the direction that their economy is headed towards through the prices of goods they buy everyday, the price of gas at the pump, the number on their paycheck they receive roughly twice a month.  Although this may be enough effort to financially live their lives day to day, I think that just like planning your career path and your family’s future, one has to look at the big picture and try to eliminate surprises down the road.

Most of us take our lessons from our parents.  They are the people who we personally know who’ve ‘been there’ and ‘done that’.  Most of their lessons are also ‘timeless’ and imho are very good rules of thumb to live by.

"Don’t live beyond your means."
"Don’t be in debt."
"If you are in debt, try to get out of debt."
"Save up for a rainy day."

Before the credit card was created, people worked, got paid, and then spent their hard earned cash.  Sometimes people in a tight spot needed cash right away and took an advance from their employer or took out a loan.  They would then work to repay the money owed.  However before the credit card became popular, the idea of owing money had some kind of cultural stigma attached to it.  Back in out parent’s days, having to get an advance or a loan, if not for setting up a business, was looked upon unfavorably; a person who didn’t have enough cash at hand for day-to-day living was branded ‘financially irresponsible’.

Nowadays, credit, specifically credit card debt is viewed as almost the same as cash.  Of course ‘your milage may vary’ depending on the country/city you are located in.  Most people carry around ‘plastic’ instead of ‘paper’.  Buy a new mp3 player, charge it to the card.  Buy a shirt, charge it to the card.  Buy a ticket to the movies, charge it to the card.  Buy a cup of coffee, charge it to the card.
The selling point for using a credit card imho would be the convenience of it.  I think this is the same reason for the switch from bartering goats and bushels of apples to exchanging coins.  The same reason can be imagined for the conception and popular adoption of paper money.  Convenience.

I’m not advocating cutting up your credit cards and lug around a goat wherever you go because you’d sooner die of hunger than get someone to trade you your goat for some food.  Convenience isn’t bad.  It’s the temptation of being financially ‘lazy’ that is what I am harping about.

"Out of sight, out of mind," so the saying goes.  Unless you constantly keep tabs on your spending it is very, very easy to spend beyond your means.  This is what the banks that issue the credit cards are ‘betting on’; that you’d forget how much you’ve been spending and not be able to pay off your balance when the time comes to pay your bills.  For some people, the once a month billing statement is enough of a reminder.  For others, well, once a month isn’t enough.

I could go on and on and bore my reader to death but I think you already get the idea.  Be careful with that card, and have a plan and stick to it if you want to use the currency of debt.

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Let’s say you’re past that and are debt free.  Well life has lots of surprises and sometimes throws things your way and during those times, living debt free isn’t enough.  Sometimes you have to have some extra cash for those unexpected expenses.  Illness sometimes accompanies medical bills, death and unemployment cuts off the flow of cash but the bills will keep on coming.

Saving up for a rainy day definitely has its merits.  It’s like the safety net the flying trapese artists use to catch them in case something goes wrong.

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If you’re still reading this, you’ve either weathered out the boring parent speech about money and being financially responsible and have come to the good stuff.  Either that or you cheated and skimmed the first part of this post.  Probably the latter but no biggie.

Ok, so now you’re debt free or at least have a plan to manage your debt and not live beyond your means.  You’ve also managed to build up a nice safety net and probably enough to call a ‘nest egg’.  That doesn’t mean your out of the woods.  In fact you’re probably still smack dab in the center of it.

So what dangers are lurking behind the trees or inside the bushes, ready to pounce on you and devour you the moment you turn your back to unzip your fly and take a pee?

I mentioned ‘inflation’ in previous posts and how it affects you and me by diluting the purchasing power of our money.  The ‘beast-in-the-forest’ is related to ‘inflation’ but is a sneakier and nastier fella.  Its name is ‘hyper-inflation‘.  ("Dun-dun-dun-duuuun!" with lightning flashing in the background).  Shh!  Don’t say it out so loud.  It might hear us.

***********
Hyper-inflation is basically inflation on steroids.  Or inflation out of control.  The most famous historical account of hyper-inflation goes to the Weimar Republic of 1923-1924.  Google it if you don’t believe me.

From the wikipedia entry on hyper-inflation:
(http://en.wikipedia.org/wiki/Hyperinflation#Hyperinflation_around_the_world)

Germany
    Germany went through the worst inflation in 1923-24. In 1922, the highest denomination was 50,000 mark. By 1923, the highest denomination was 100,000,000,000,000 mark. During the worst times, one U.S. dollar was equal to 80 billion mark.

Famous stories from that period include a woman stuffing her furnace with marks because the amount of paper provided enough fuel than could be bought with the face value of the currency.  Another one is about a woman buying a loaf of bread by bringing a wheelbarrow full of money to the bakery but she was robbed on the way and the robber dumped the cash on the street and made out with the wheelbarrow because it had more value than the paper it carried.  Another one is dining in a restaurant and when the bill came, the price of the meal went up ‘while you were eating’.
Fantastic stories.  Alas, I am unable to find credible sources to back them up but it does give you food for thought.
(You can still find the stories on the net by Googling "Weimar Republic Hyperinflation".)

1923 seems like a lifetime ago but then again 83 years is about a lifetime ago.  The first world war just ended and another one was brewing over the horizon.  Hindsight is 20-20 and upon closer examination, if the signs were read right, most people would have been able to weather the hyper-inflation of the time.

However, Germany isn’t alone in terms of going through a hyper-inflationary period.  Lots of nations have also been visited by this abominable beast and many of them in very recent history.

From the same wikipedia link:
(http://en.wikipedia.org/wiki/Hyperinflation#Hyperinflation_around_the_world)

Argentina
    Argentina went through steady inflation from 1975 to 1991. At the beginning of 1975, the highest denomination was 1,000 pesos. In late 1976, the highest denomination was 5,000 pesos. In early 1979, the highest denomination was 10,000 pesos. By the end of 1981, the highest denomination was 1,000,000 pesos. In the 1983 currency reform, 1 Peso Argentino was exchanged for 10,000 pesos. In the 1985 currency reform, 1 austral was exchanged for 1,000 pesos argentino. In the 1992 currency reform, 1 new peso was exchanged for 10,000 australes. The overall impact of hyperinflation: 1 new peso = 100,000,000,000 pre-1983 pesos.

Angola
    Angola went through the worst inflation from 1991 to 1995. In early 1991, the highest denomination was 50,000 kwanzas. By 1994, it was 500,000 kwanzas. In the 1995 currency reform, 1 kwanza reajustado was exchanged for 1,000 kwanzas. The highest denomination in 1995 was 5,000,000 kwanzas reajustados. In the 1999 currency reform, 1 new kwanza was exchanged for 1,000,000 kwanzas reajustados. The overall impact of hyperinflation: 1 new kwanza = 1,000,000,000 pre 1991 kwanzas.

Belarus
    Belarus went through steady inflation from 1994 to 2002. In 1993, the highest denomination was 5,000 rublei. By 1999, it was 5,000,000 rublei. In the 2000 currency reform, the ruble was replaced by the new ruble at an exchange rate of 1 new ruble = 2,000 old rublei. The highest denomination in 2002 was 50,000 rublei, equal to 100,000,000 pre-2000 rublei.

Turkey
    Throughout the 1990s Turkey dealt with severe inflation rates that finally crippled the economy into a recession in 2001. The highest denomination in 1995 was 1,000,000 lira. By 2000 it was 20,000,000 lira. Recently Turkey has achieved single digit inflation for the first time in decades, and in the 2005 currency reform, introduced the New Turkish Lira; 1 was exchanged for 1,000,000 old lira.

Zimbabwe

Zimbabwean inflation rates since Independence
Date     Rate     Date     Rate     Date     Rate     Date     Rate     Date     Rate     Date     Rate
1980     7%     1981     14%     1982     15%     1983     19%     1984     10%     1985     10%
1986     15%     1987     10%     1988     8%     1989     14%     1990     17%     1991     48%
1992     40%     1993     20%     1994     25%     1995     28%     1996     16%     1997     20%
1998     48%     1999     58%     2000     56%     2001     132%     2002     139%     2003     385%
2004     624%     2005     586%     2006     1205%

    At Independence, in 1980, the Zimbabwe dollar was worth about $1.50 US. Since then, rampant inflation and the collapse of the economy have severely devalued the currency, with many organisations using the US dollar instead.

    Early in the 21st century Zimbabwe started to experience hyperinflation. Inflation reached 624% in early 2004, then fell back to low triple digits before surging to a new high of 1,193.5% in May 2006.

    On 16 February 2006, the governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, announced that the government had printed ZWD 21 trillion in order to buy foreign currency to pay off IMF arrears.

    In early May 2006, Zimbabwe’s government began rolling the printing presses (once again) to produce about 60 trillion Zimbabwean dollars. The additional currency was required to finance the recent 300% increase in salaries for soldiers and policemen and 200% for other civil servants. The money was not budgeted for the current fiscal year, and the government did not say where it would come from.

    In August, 2006, the Zimbabwean government issued new currency and asked citizens to turn in old notes; the new currency (issued by the central bank of Zimbabwe) had three zeroes slashed from it. Most financial analysts remained skeptical and said that the new money would not provide relief from record inflation.

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Nasty, eh?  The list goes on.  I only picked from the list of countries with relatively consecutive time periods to show the constancy of the phenomenon and our ignorance of it.
Though I have not researched the time periods of those countries, I would venture to guess that there may have been signs that the people may have noticed but dismissed or ignored and went about their daily lives.
It’s a shuddering thought, sleeping with a bank account that has moderate savings and waking up the next day to find out that the currency has been diluted so much that you could only purchase half of what you could have bought just yesterday.  Or finding out that you have almost nothing in the bank a year later.
Reading through a blog by a Zimbabwean in Zimbabwe, in his January 2006 archives (http://www.sokwanele.com/thisiszimbabwe/archives/date/2006/01/), he writes about how the government tries to cover up the real exchange rate and short changes the people when they convert foreign currency for Zimbabwean currency.

If the economy is going to go kaput, don’t expect to hear it on the t.v. or read it in the daily paper or have your government tell you the truth.  They’ll say that they cover up these things to protect the populace by preventing panic.  Yeah right.

Readers will think to themselves, "It won’t happen here," or, "It doesn’t affect me."  But guess what?  All those people in all those countries that went through those periods of hyper-inflation all thought the same thing.  "It can’t happen to me."  But it did.  And those who were caught unprepared suffered the most.

Even as I put the finish touches on this post, there are many articles and t.v. appearances of "experts" finally acknowledging that there is no more "boom" in the U.S. housing industry and there are signs of a slump.  Then "damage control" kicks in and they say that the slowing down shows signs of slowing down, that the slump has reached the bottom (http://financialsense.com/fsu/editorials/schiff/2006/0928.html).
The reality of it is, the deflation of the housing bubble has only just begun and there are many signs that because of the "domino effects" of the many accounting frauds it is accelerating towards a crash.  But I’ll go into detail on the U.S. housing industry next time.

***********
After reading through so many articles on past, present and projected future of world economics, I still have barely scratched the surface.  Economics is really more complex than it seems.  And to think that back in college I looked down on the course and ranked it beside Humanities and English Literature!  (Now I know better of course.)

I also only have a hint of an idea that the US has a similar fate in store for it.  The signs are plenty but the difference between now and a lifetime ago, the information is easily available for those who seek it.

I still haven’t gone into how to keep the purchasing power of your money but I’ll leave this post as is for now.  It will take some time to get over the shock and digest the history and its implications for us now.  I’ll continue in another post how some people went through recessions and depressions and how some, myself included, plan to weather the storm and deal with hyper-inflation when (not if, but when) hyper-inflation rears it’s ugly head.

Well, until the next post, get out of debt, stay out of debt, and save up!

Septemer 19, 2006 is "Talk-like-a-Pirate" Day
http://www.talklikeapirateday.com

Yo ho ho and a bottle o rum.  I should have worn my "pirates are way cooler than ninjas" t-shirt to work today.

***********

Instead of scouring the seas in search for a booty-laden vessel to loot and pillage, the pirates of this day and age have wisened up and adapted quite well.  Their pirate forefathers would be so proud of them, stealing from the populace without the latter knowing about it.

(If you haven’t read my last post on how your money gets stolen through ‘inflation’, I suggest you read it before proceeding any further.)

Here is an article that quotes a news bit that is slanted against an ‘alternative currency’ that seems to be ‘competing’ with the US dollar.
(from http://www.financialsense.com/fsu/editorials/kirby/2006/0918.html)
*********** (start quote)

As reported in USA TODAY this past week, the U.S. Government took steps to reign in the activities of upstart NORFED  and their fledgling alternative “specie backed” currency program – The American Liberty Dollar.

Feds Lower Boom on Alternative Money
Updated 9/15/2006 3:01 AM ET

WASHINGTON — The government Thursday warned consumers and businesses that it is illegal to use alternative money known as "Liberty Dollar" coins, which organizers promote as a competitor to the almighty dollar.

"We don’t want consumers to be fooled," U.S. Mint spokeswoman Becky Bailey says, noting U.S. Attorneys offices across the USA have noticed a marked increase in inquiries about the coins.

The coins’ producers vowed to fight the government’s decision.

Evansville, Ind.-based National Organization for the Repeal of the Federal Reserve Act and the Internal Revenue Code, otherwise known as NORFED, has been making the Liberty Dollar coins for eight years and claims $20 million is in circulation. The group says the money, unlike official U.S. cash, has a hedge against inflation because it is made almost entirely of silver and is backed by stocks of silver and gold in a vault in Idaho.

The coins are then spent by the group’s 2,500 Liberty Associates in stores run by fellow supporters or are accepted unknowingly by clerks who are unaware they are not receiving real money…

What strikes me as being odd about the government’s claims is their assertion that a currency backed by something tangible – precious metal – is “illegal” and, in fact, not “real money.” After all, it is written right into Article 1, Section 10 of the Constitution For The United States of America, that,

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

A Conundrum Worthy of Consideration

With the above being fact, does it not seem more likely that, in fact, it is the existence of Federal Reserve Notes [fiat money] that are in contravention of The Constitution and hence, ILLEGAL – and not the other way around?

You see folks, according to the Constitution For The United States of America – gold and silver ARE money! It would also appear that elected representatives of the U.S.A. might want to reconsider this position and review the document they are sworn to uphold and defend.

*********** (end quote)

The following is a wikipedia entry about the Philippine Peso.  Scrolling down to the section on "Peso Weakness" we find the following:
(from http://en.wikipedia.org/wiki/Philippine_peso)
*********** (start quote)

Compared to the price of gold, the Philippine peso has now lost 99.998% of its original 1903-1949 value. The amount of an old gold one peso coin would be (per definition 12.9 grains of pure gold), would now cost P876 on the international commodities markets.

*********** (end quote)

From the same wiki link, in the previous section, there is also this interesting bit to note:
*********** (start quote)

While it could be argued that independence resulted in the delegislation of the American-sponsored 1903 Philippine Coinage Act, the now-independent Republic refused to legally define the new peso in the Philippine Civil Code. Today, the Philippine peso can cynically be said to be "whatever the government says it is".

By 1964, the bullion value of the old silver pesos was worth almost twelve times their face value and were being hoarded by Filipinos rather than being surrendered to the government at face value. In desperation, then-President Diosdado Macapagal demonitised the old silver coins and floated the currency. The peso has been a floating currency ever since, which means that the currency is a physical representation of the domestic debt and whose value directly tied to people’s perception of the stability of the current regime and its ability to repay the debt.

*********** (end quote)

How much more ambiguous can you get?  Value tied to the people’s perception?  Hogwash!  But that’s the reality of it though.  If you still can’t get a grip on how ‘worthless’ the Philippine currency has become, here is a quote from some fairly recent news that should drive my point home:
(from http://www.manilastandardtoday.com/ContentLoader?page=news06_july11_2006)
*********** (start quote)

Coin shortage getting serious

By Eileen A. Mencias

THE government is blaming rising metal prices for the rampant smuggling of Philippine coins abroad and the growing shortage of coins—in particular one-peso and 25-centavo coins—in the country.

Based on the latest prices, the people who had attempted but failed to take out three million pieces of one-peso coins from Customs would have gained $108,000 or P5.6 million from the coins’ copper and nickel content, Bangko Sentral Gov. Amando Tetangco Jr. told reporters yesterday.

“Commodity prices have gone up, and that has made [the smuggling of coins out of the country] quite attractive,” he said on the sidelines of a new campaign to encourage jeepney drivers to recirculate coins.

One-peso coins are 75-percent copper and 25-percent nickel. Twenty-five-centavo coins are 65-percent copper and 35-percent zinc.

Police confiscated 400,000 pieces of one-peso coins in May and another 971,000 pieces in February. And in April last year, authorities seized 25-centavo coins that were about to be smuggled to Taiwan and China.

Tetangco said the confiscated coins would be turned over to the Bureau of the Treasury, and the people caught with them to the courts.

Philippine laws allow no one to take out P10,000 worth of Philippine currency without declaring them to Customs.

Central bank officials said the one-peso coins confiscated recently could yield more than 13 tons or 13,725 kilos of copper and over four tons or 4,575 kilos of nickel.

World copper prices are almost at $8,000 a ton, while nickel prices are $23,000 a ton.

On Friday, copper prices surged by more than 6 percent, to $7,890 a ton, as more hedge funds, banks, and other investors put more of their money in commodities and helped drive metal prices up.

Nickel prices are at their highest level since 1987.

*********** (end quote)

Lets do a little math.  3 million one-peso coins would have a face value of, well, 3 million pesos.  The metal content of that amount of coinage would have, according to the article, a monetary value of 5.6 million pesos.  That means, 1 one-peso coin would has 1.87 pesos of value if you sold the coin for ’scrap’; i.e. its base metals copper and zinc.

See how worthless the peso is now?  Our generation doesn’t know any better because we were born into the conditions we are currently living in.  We never knew a currency that was backed by anything tangible.  And our schools don’t teach the history of money either.
But thanks to the internet and easily accessible information, this generation has a better chance of learning the truth.

Get the word out.  Spread the news.

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No pirate is going to take my hard earned booty!  Arr!
So now that you’ve learned that the money in your pocket is worth-less than what you thought all this time, that it’s worth can be lowered at the governments whim, what can you do about it?
Tune in for the next blog on some more history (boo!) and what you can do to protect your wealth (yay!).

"What does money represent?"
"How is money created?"
"Is money backed by anything?"

These are the questions that most young impressionable minds would ask.  However finding the answers to these questions requires some research and a study of history.

I myself asked these same questions to myself.  I don’t remember if I asked them directly to my Economics 101 professor but I certainly didn’t get any hint of an answer until I researched it myself more than a decade later.

While conversing with my soon-to-be wife about a year or so ago, we came up with some ideas to these questions.  We thought that before the idea of ‘money’ was created, barter was the economic vehicle of the day.

"I’ll trade you 7 bushels of apples for that sheep."
"I’ll whip up a feast for you with those ingredients if you’ll let me share your meal."
"What do you have for lunch?  I’ve got pb&j.  Wanna trade?"
"I promise to be your slave for a week if you just do this one favor for me.  Pretty please?"

Then we tried to connect the dots; money must represent either something tangible, or in the absence of something tangible, some amount of work.
So instead of walking her sheep wherever she goes, little Bo-Peep can instead easily carry an equivalent amount of currency in her purse.  "What a brilliant invention money is!", must be what crossed her mind the instant she was free from always walking her smelly sheep.

So far so good.  With the first question answered, the second questions pops into our heads.  How exactly is money created?  Without much effort, the first thing that comes to mind is a printing press printing sheets of money, not unlike how newpapers are printed.
Who prints the money?  The government.  More accurately, the government’s central bank.

It is around this time that the stock knowledge, conjecture and theories start to fall apart.
Is money printed to represent all the products that are produced?  Or to represent all the work that has been rendered?  How does the government determine how much money will be printed?  How does inflation come into the picture?  Currency exchange rates?  If nations borrow money from the World Bank/International Monetary Fund (IMF), where does the IMF ultimately get the money that it lends out?

Why am I still working my ass of and not seemingly getting anywhere?

It took some time and a lot of reading before I was able to find the answers to the questions that kept lurking in the back of my head.  I have yet to find answers to some other ‘economic’ questions but I think I’ve found a fragment of the ‘Economics 101′ handbook, if ever there was one.

Lo and behold, an excerpt from the ‘Economics 101′ handbook:

Creating old-fashioned money

In olden times gold (or silver) was used as money. Goods and services were priced in terms of a weight of money. Buyers could pay this weight of gold in any form they liked. Eg. A horse would be for sale at a price of "10 ounces" and a buyer could pay for a "10 ounce" horse in gold coin, gold bar, gold flecks, or gold nuggets.

This is similar to how nowadays a car might cost 1000 dollars and a buyer can pay for a "1000 dollar" car in dollar notes, dollar coins, or a cheque or credit account denominated in dollars.

The most convenient form of gold was a solid chunk with the weight honestly marked on it. This saved the effort of each person having to weigh the gold at each transaction. The crime of counterfeiting involved making a gold block with a false weight marked on it. eg a gold block with lead-centre could be passed-off as pure gold.

It was no crime for any person to make their own money coins out of gold. A citizen could go out and mine 1-ounce of gold, purify and pour it into a 1-ounce coin and stamp "1-ounce of gold" onto it. Such a coin was a 1-ounce gold coin, contained 1-ounce of gold and would exchange for 1-ounce of gold money in any form, and hence was worth the same as every other 1-ounce gold money coin (Rare collectors coins excepted).

Gold is gold, silver is silver and paper is paper. Whenever someone holds money they possess the raw material the money is made of. They also possess, as money, a vague promise of future purchasing power. The money promises that the person can later buy what they actually want with the money. This promise is always vague and never certain. If no person can be found to "honour" the money, then the holder is left with the basic raw material that the money is made of.

Gold money is worth whatever someone will give for it, but tends to be worth its difficulty of mining. In olden times it may have taken on average one month of mining labour to dig up 1-ounce of gold. Therefore 1-ounce of gold tended to be "worth" one month of (semi-skilled) labour. The reason is simple to understand. If for any reason the exchange value of gold money fell below one month of labour, then it no longer made sense to mine gold for use as money. Better to put the labour into something else. Gold mines would close, and money would become scarcer, until the exchange value of gold and labour coincided again. Likewise, if for any reason the exchange value of gold rose above one month of labour, then the smartest use of labour was to mine gold into money. Labour would pour into gold mining creating a shortage of labour for other things and an eventual abundance of money thereby restoring the parity.

The creation of old-fashioned gold money was performed freely and legally by citizens mining. It was the difficulty of creation by mining that set the value of the money. Old-fashioned counterfeiting was an attempt to trick people by passing-off a lesser metal that did not involve such difficulty of mining.

Gold derived its monetary use from woman’s desire for jewellery and man’s struggle to mine enough of it. Some would scoff that this makes gold a fickle or crude money, its value pinned to the fashions of vain women and the shortcomings of the working men who mine it. Fair comment, but paper money is even worse. Its alternative use is all the more crude, and its value is pinned to the failings of the politicians who issue it.

Creating new-fashioned money

In modern times we work under a fiat money system, using paper notes, coins and bank accounts as money. The gold system was a peoples’ choice and the number stamped on each coin was a truthful weight of gold. Now we use govts’ choice of money and the number printed on it, in truth, doesn’t mean very much at all.

Some gold-bugs claim that "gold is money" whereas the dollar is a "broken promise to pay gold" or an "IOU nothing". These claims are amusing and thought-provoking, but I prefer to differentiate gold and fiat by their source. Fiat money, like gold, is a vague promise of future purchasing power. But whereas gold was mined with effort by citizens to suit citizens, now fiat money is created with no effort by govt to suit govt.

With gold, by granting citizens freedom to create money, govt passively ensured that the value of gold money would keep parity with production costs (eg mining labour). By contrast, in order to function as money, paper money must have a value far higher than the production costs of the paper and ink that it is so easily made with. Now govt must actively prevent citizens from turning paper and ink into money, and must force citizens to use this paper in transactions.

Govt has done this by a combination of force and lies. Citizens are now forced to earn dollars to give to govt in the form of taxes, fees, levies, charges and fines. Govt used lies in the 1930’s to blame gold for the Great Depression, banned gold, and replaced it with paper money. By doing these things, modern govt was able to convert people to using govt fiat money instead of the gold money previously preferred.

This use of paper fiat money is not necessarily bad for people. Anything can be used as money. But the use of force and lies should surely ring alarm bells in the mind of a thinking citizen and voter (rare though they be).

Counterfeiting causes inflation

Nowadays govt must maintain a monopoly on the creation of money. Govt defines the crime of counterfeiting to be when citizens print their own money.

Most people do not need to be told why it is a crime to counterfeit paper money. The concepts behind it are so simple that most people can figure it out for themselves. While it is possible for any one person to counterfeit money and become rich without working, it is clearly not possible for all people to live this way simultaneously. Clearly if few people worked and most people merely printed money, there would be a massive increase in the amount of money in circulation and there would be massive price rises as the large amount of money sought to buy things from the few people left working. Widespread counterfeiting would destroy the value of the paper money.

Because the harm of counterfeiting is so widely understood, every govt on earth makes counterfeiting a crime. Govt does not want to allow an ordinary citizen to live without work at the expense of others. Govt reserves this privilege for itself and its cronies. Therefore ordinary citizens must be stopped from creating new paper money.

Something for nothing - the inflation tax

The creation of money, and the inflation scenario, is a typical something-for-nothing scheme that has identifiable winners and losers.

A simple explanation is that money obtains its value from how hard it is to get. When nobody can easily create new money, the only way to get money is to do some work, or trade something of real value for the money. An absence of new money is an absence of something-for-nothing. If money is always hard to get, and no one gets something-for-nothing, then this basically safeguards the future purchasing power of money (as much as the future can be safeguarded).

Gold money meets this test because it has always been hard to find and recover from the ground. However, when new counterfeit or new genuine fiat money comes into being, the test is not met. There is a case of a winner who gets something-for nothing, and hence logically there must be a countervailing loser who gets nothing-for-something in some shape or form. In the case of new fiat money, the purchasing power of the winners will be exactly matched by a loss of purchasing power of the losers.

When money is illegally created by counterfeiters, counterfeiters gain purchasing power at the expense of other citizens who lose purchasing power. Similarly when money is legally created by govt, govt gains purchasing power at the expense of citizens who lose purchasing power. Govt may do more good with the proceeds than counterfeiters, but the gross loss to citizens is identical.

Whenever citizens lose some of their purchasing power to govt it is essentially no different to what happens when govt seizes greater control of a citizen’s life, or when govt takes money from a citizen in any guise. Unfortunately people confuse the whole issue by using many different words to describe what is essentially the same thing:

    * When govt seizes control from a citizen, they call it regulation, protection, control, imprisonment, or justice.
    * When govt seizes money from citizens, they call it a tax, or a duty, charge, levy, fine, fee, etc.
    * When govt seizes purchasing power of money from citizens, it is called inflation and citizens are largely ignorant of the cause. Citizens should realise that the obvious main cause of the inflation they suffer is the excessive money creation by their own govt.

All three of these govt seizures are essentially the same thing. These are ways that govt takes more control over citizens. Citizens must recognise these things and withhold their vote when govt goes too far on any of them.

Yes, inflation is a tax, it is regulation, control, and a loss of freedom. Citizens should realise the similarity between these things. When govt does any of them, citizens lose some control over their lives. Citizens should also realise the similarity between govt money creation and money creation by counterfeiters. If unlimited counterfeiting by private hands will destroy a currency and social order, then at a minimum, fiat money creation must be kept in public hands and strictly limited.

As a minimum, I’d like citizens to recognise inflation as a tax, and demand their govt treat it like all other taxes. Govt should be forced to act openly, keep the inflation tax rate as low as possible and ensure the proceeds are wisely spent.

Better still, I’d like citizens to realise that inflation is the worst kind of tax, most unfair, and highly corrupting and demand their govt stop inflation by installing an inflation-resistant monetary scheme, such as a gold-based or market-determined money.

It is a good read and many people would do well to read through the whole article to understand some of the ‘rules’ of this monopoly game we’ve been playing with the player in charge of ‘the bank’ who always seems to never run out of money.

I also recognize that this is a hard (red) pill to swallow.  Most people would find it very hard to let go of their ideas of what money is or how the whole economic system works, let alone accepting the possibility that the government has been cheating everyone else for so long.

Finding it hard to accept this idea has something to do with "why doesn’t anybody else know this?" and "this probably isn’t true because how could the billions and billions of people around the world be ignorant or be fooled by such a scam?"  I think it’s an ego thing, the self not wanting to look like a fool or appear to be ignorant.  But that’s another subject for another day in another blog.

The rabbit hole goes much, much deeper.  But that’s enough for today.  I’ll pick up where I left off in another blog entry.  Class dismissed!

"You have nothing to fear except fear itself." — Franklin D. Roosevelt

                  

                  

                     

                  

                  

                     

The Bogeyman Industry

Butler Shaffer Lew Rockwell September 12th 2006

"For as children tremble and fear everything in the blind darkness, so we in the light sometimes fear what is no more to be feared than the things children in the dark hold in terror and imagine will come true." ~ Lucretius When I was a small child, I delighted in scaring my two younger sisters with specters dreamed up by me with the help of radio broadcasts. My mind was a bottomless well of monsters, hobgoblins, and - scariest of all - those amorphous demons whose lack of clarity in shape made them all the more terrifying. I was a Ziegfeld of theatrical production, with sound effects produced by my ghostly vocalizing, the pounding on walls, or the scratching of my fingernails on a door; while my special effects took the form of crawling beneath their beds at night and kicking the bedsprings. The script was nothing special, it being sufficient that the acting would generate the desired screams. I have been out of the fear-mongering business for many decades now, the field having been taken over by well-financed professionals with whom I am unable and unwilling to compete. The stage props and special effects have become so massive and expensive as to leave little room for a small-time operator to succeed with nothing more than voice-over screeches. For the enterprise to be worthwhile today, economies-of-scale demand that the intended audience be expanded beyond one’s immediate family. The bogeyman has become a multinational operation, leaving a budding young entrepreneur to content himself with annoying the neighbors with a garage band. Fear-peddling is very much in danger of becoming monopolized by the state, which long ago realized that keeping people perennially frightened was the most effective method of maintaining them in a huddled and obedient mass. From the primitive tribal chief who was able to convince his neighbors of the threats posed by the "Nine Bows" across the river, to today’s political shakedown artists with their terrorist phantoms, fear has been the essential organizing principle of politics. As my sisters and I learned at an early age, fear objects are most terrifying when their identities are vague and formless. Lions and tigers and bears are dangerous, but never as frightening as shadowy creatures who haunt darkened streets or hallways. I recall the stark terror I experienced in listening to Lionel Barrymore’s radio presentation of Dickens’ "A Christmas Carol," and imagining the ghost of Jacob Marley clanking his way up a lonely staircase. I also recall the disappointment I felt in seeing my first movie version of the story: I had, after all, dreamed up a far scarier specter than Hollywood was able to accomplish with special effects photography. Like small children, we are now living in a society that the institutional order - particularly the state - tries vainly to hold together through fear. While pointing to "others" as threats to our well-being - one of the clearest symptoms of psychological projection - the state unwittingly acknowledges its terrorist foundations. We must be kept in constant terror of faceless and formless men - or women - who might attack us in some unexpected manner; we must learn to fear unattended packages, or breast-feeding mothers on airliners, or dark-skinned people who speak in languages we do not understand. We have even been warned to feel unsafe at petting zoos and roller-skating rinks, as government officials warn us to be constantly alert to dangers from "suspicious" others. Lest we not accord world events their "proper" potential for threats to our lives, we have been provided with one of the most idiotic of political gimmicks: a color-coded chart identifying the level of fear we should feel. Like Pavlovian dogs, our operant conditioning is apparently deigned to elicit from each of us an expected rush of adrenalin as the colors move upwards from yellow to orange to red. It is rational for men and women to have an awareness of potential dangers in their environments, and to make an appropriate response when needed. Some very dangerous and ill-motivated people did murder nearly three thousand people on 9/11. It is important that the identities and purposes of those involved be revealed, even if doing so requires us to look in directions we are uncomfortable considering. On the other hand, it is quite irrational - to the point of being pathological - to embrace the doctrine of a malevolent universe; to live in constant fear of everything and everybody at all times. I was in college, in the early 1950s, when the shadowy hobgoblin of the "communist infiltrator" became a useful tool to mobilize fear on behalf of expanded governmental power. I recall one study in which people were asked whether they suspected any of their neighbors of being communists. Many did, offering such "evidence" as a man having National Geographic maps pinned to his walls, or a couple who were accustomed to entertaining people at their home late at night. I also recall a legislator in our state who was convinced of the presence of a communist "conspiracy" within the faculty of the state university. When informed that there was no evidence to support such a charge, the solon responded that the lack of evidence only confirmed the effectiveness of the conspiracy! Again, fear-objects are rendered more terrifying when we imagine them operating in shadows, where our imaginations must be employed to fill in the details. Today’s "terrorist" or "jihadist" would doubtless be defined in the same murky fashion. Of course, "jihad" is a word very few people understand, it only being sufficient that everyone fear it. Our fears of such persons are hastened because we do not understand the causal explanations for their actions. Nor are most of us desirous of learning such causes because, to do so, would give rise to an even greater fear: that of discovering the nature of the political games being played at our expense. It is far better that we simply accept the bogeyman du jour as our fear object, and recite all the appropriate mantras on behalf of our attachment to patriotic causes that only lead to our destruction. We are told, on a daily basis, that our lives are under constant threat of attack from terrorists. But if this is so, where are these supposed terrorists? President Bush and his defenders have been bleating that their expanded police and surveillance powers are keeping terrorists out of the country, a proposition that is rendered laughable by the daily influx of immigrants from Central America! If it has been so easy for millions of people to enter this country in spite of determined government efforts to prevent it, what efficacious mechanisms has the Bush administration put in place to keep out terrorists? Nor does the government’s performance in New Orleans suggest to any thoughtful person that it is capable of making an effective response to any alleged danger. The so-called "war on terror" is just another of the many state-run rackets designed to benefit governmental, media, and various business interests, all of whom profit from state-induced fears of others. Greater power and more tax dollars flow to political systems; the media enjoys an increase in viewers and readers; while untold numbers of government contractors, along with suppliers of goods and services for a market of frightened people, profit from this protection racket. In threatening to expand the war to other countries, the state increases hostilities from its targeted enemies, thus engendering more fears from Americans who demand "protection." If physicians could figure out ways to inject people with deadly viruses that they could then treat with expensive tests, drugs, and medical advice, their profession would precisely correlate with the methods of the state! President Bush and other politicians - along with the agents of disinformation in the media - spent many hours exploiting the fifth anniversary of the 9/11 attacks. Mr. Bush went to the World Trade Center site ostensibly to honor the victims of that atrocity, but in fact his purpose was to take advantage of that event in order to reinforce the mindset of fear upon which the state depends for the continuing expansion of its power over our lives. Fear is a condition the state cannot allow to enervate; it must be constantly revitalized. Like a morsel of food to Pavlov’s dogs, Mr. Bush’s memorial wreath served - like Memorial Day ceremonies - to reinforce the conditioning that is the state’s power source. On the same day that Mr. Bush gave his performance in New York City, Faux News had a feature asking: "Is Iraq war a ’sideshow’ in the war on terror?" Intelligent minds would do better to ask: is the war on terror a sideshow in the war on the American people? Butler Shaffer [send him e-mail] teaches at the Southwestern University School of Law. He is the author of Calculated Chaos: Institutional Threats to Peace and Human Survival

"You can fool some of the people
all of the time and all of the people some of the time, but not all of the people all of the time." — Abraham Lincoln

It’s been some time since I’ve posted on my blog again.  Not because of laziness.  Well, not _only_ because of laziness.  My malaise stems from some philosophical issues I’ve been struggling with.

What happens, happens for a reason.  A society, a way of living learns from it’s struggles.  Just like a the native American Indians learned the hard way that a sword’s blade cuts and added greed and deceit to it’s vocabulary when the white man arrived to "cleanse the unwashed masses of their filth and ignorance".  The white man brought taught the natives their definition of freedom, democracy and religion.

The many objective history books have written about this and have gone though great lengths to dissect and debate and to encourage independent critical thought on this civilization’s fairly recent past.

But it seems we still haven’t learned our lessons well because it’s still happening again and again.  Right now, as I write, the Middle Eastern ‘crisis’ is still going on.  People are dying as I am finding the right words to weave into this post.

What’s happening now is not so much a ‘crisis’ as World War 2 was with the Nazi juggernaut was set loose upon the world and the rest of the world turned a blind eye unless the war spread far enough to reach their nation’s shores.

And so this dilemma I have been struggling for some time now.  Does this ‘potential’ World War 3 have to come to fruition for everyone to learn the lesson again the hard way?  Is there some quota for the number of people that have to die before people start paying attention?  I mean paying real attention to the real events that are happening, not some spinned propaganda churned out by the mass media that has been clearly subverted by the governments that want this war to happen.

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I’ve posted it before but it seems appropriate to include it in my post again because it is part of the reason for starting my blog again:

First they came… by Pastor Martin Niemöller (1892-1984)

When the Nazis came for the communists,
I remained silent;
I was not a communist.

When they locked up the social democrats,
I remained silent;
I was not a social democrat.

When they came for the trade unionists,
I did not speak out;
I was not a trade unionist.

When they came for the Jews,
I did not speak out;
I was not a Jew.

When they came for me,
there was no one left to speak out.

This post is for all the Palestinians and the Lebanese who want to let the whole world (at least those who want to listen) their story.

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Nobel Peace Prize winner Betty Williams hit the nail right on the head when she said, "There can be no sustainable peace while military spending takes precendence over human development."

There are few people out there who can sift through all the garbage that passes for news and objective information and come out with the truth of the events that have transpired and are still transpiring.  Fewer still are the ones who can pull it all together and connect the dots and show the picture that is hidden from view.  This editorial piece is a fine example of what I’m talking about.

Did you know?

Gabriele Zamparini Tuesday, July 25, 2006

"I, Tsilli Goldenberg, Israeli citizen Accuse you - Ehud Olmert, Prime Minister of Israel, Amir Peretz, Minister of Defense, Dan Halutz Head of Staff Chief Commander of the Israeli Army, of committing this bestial barbaric slaughter in Lebanon. I accuse you of committing Crimes against Humanity towards the Palestinian People. I accuse you of deserting our soldiers, when their lives could be saved by negotiations, and I accuse you of starting an unjustified war in my name." - Tsilli Goldenberg, Masarik 11, Jerusalem 93106 Israel Did you know that "the daughter of Israel’s newly elected prime minister added her voice to those of the anti-Israel [sic] forces around the world when she actively participated in a demonstration outside the home of IDF Chief of Staff Dan Halutz, calling him a ‘murderer’"? Why not? Did you know that "45% of those killed in Lebanon are children and of the 500,000 people who have fled to safety, some 200,000 are children"? Why not? Did you know that Israel bombed "the nation’s biggest private network, the Lebanese Broadcasting Corporation"? Why not? Did you know that a "big milk factory in the Bekaa region called ‘Liban Lait’ was completely burned and destroyed by direct attacks from the Israeli Air Force."? And that a "food storehouse called ‘TransMed’ in Choueifate, in Beirut’s southern suburbs, was totally destroyed"? Why not? Did you know that "Lebanon’s president accused Israel on Monday of using phosphorous bombs in its 13-day offensive and urged the United Nations to demand an immediate ceasefire"? Why not? Did you know that "the bodies of 13 Lebanese fighters were taken from Maroun al-Ras and buried in Israel to use in future negotiations over the release of Israeli prisoners"? Why not? Did you know that "Israeli military has said it will destroy 10 buildings in predominantly Shia south Beirut for every rocket fired at the Israeli port of Haifa, army radio said Monday"? Why not? Did you know that "The delivery of at least 100 GBU 28 bunker busters bombs containing depleted uranium warheads by the United States to Israel for use against targets in Lebanon will result in additional radioactive and chemical toxic contamination with consequent adverse health and environmental effects throughout the middle east."? Why not? Did you know that what’s going on is "subject to review by Israel’s chief military censor, who has - in her own words - ‘extraordinary power’. She can silence a broadcaster, block information and put journalists in jail"? Why not? Did you know that "[a]ccording to the Lebanese police force, the two [Israeli] soldiers were captured in Lebanese territory"? Why not? Did you know how the "cross-border" myth originated? Why not? From the beginning of this new chapter of the old madness, many people have been following on the internet this shame. We are a peaceful army of world citizens, working for free and moved by solidarity, compassion and an inner drive for justice. Not anger! But even among the elites of the anti-war movement and the so-called "left", too many have never been listening to us. Let alone important journalists working for the "pro-Israeli" mainstream media who still believe that the "internet is a new thing, and it’s also unreliable." More than sixty years ago George Orwell wrote in The Freedom of the Press, a Preface to his political novel, Animal Farm: "But at least let us have no more nonsense about defending liberty against Fascism. If liberty means anything at all it means the right to tell people what they do not want to hear. The common people still vaguely subscribe to that doctrine and act on it… it is the liberals who fear liberty and the intellectuals who want to do dirt on the intellect…" This Preface was censored when the book came out in 1945 and it was only published in The Times Literary Supplement on 15 September 1972. Twenty seven years after Animal Farm was first published.

Aside from the telephone calls from listeners, I wonder how a radio station knows if there is anyone tuning in to their programs?  If they don’t get their income from paid advertising and are just doing it for the heck of it, they’ll probably simply broadcast as long as they can afford to and as long as they still enjoy coming up with the programs they’re broadcasting I guess.

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If you’re tuning in and listening, here’s the latest economic scoop from the Ivory Tower.

All signs are pointing toward a big downturn in the American economy, sooner rather than later.  (’Downturn’ is a very tame way to put it.  ‘Recession’ or ‘depression’ might be a more appropriate term from what I’ve gathered)

Well, it’s not really new news if you’ve been keeping yourself up to date with what’s happening in the US and in the countries that the US has ‘trade’ relations with.

Let’s see what the cards are on the table:

- a housing bubble that’s already begun deflating in the ‘hot’ areas

- a very big, ballooning trade deficit, hand-in-hand with a titanic public debt

- a very costly ongoing war with Iraq

- lots of news about an impending war with Iran (using the ‘nuclear weapons’ card, which by the way is a ridiculous excuse to use again since it’s been proven that Iraq didn’t have ‘nuclear weapons’ the last time that card was used, plus you don’t see the US harassing other nations that do have nuclear weapons like North Korea or Israel.  Go figure. I guess they think that they got away with it the first time, they can fool the US public and the world again the second time around.)

- stopping the publication of M3 (i.e. other nation’s US dollar holdings) at the time that the proposed Iranian oil bourse (i.e. Iranian oil to be sold in Euros instead of US dollars) is set to start (follow the links to understand the economic ‘mumbo-jumbo’ and what it portends).

- the recent approval of increasing the US government’s debt limit by $2.8 trillion to a total of just below $9 trillion so that they can spend like there is no tomorrow.

- unemployment rate climbing due to massive layoffs (i.e. ‘re-structuring’) in different sectors (IT, manufacturing) and constant hemorraging of jobs due to job outsourcing.

- multiple bankruptcy filings by airline and automobile parts manufacturing companies (and it seems that GM would soon follow suit, even with attempts to bail themselves out at the expense of the people who made the company prosper in the past).

- the Fed just recently announced an interest rate hike which may not mean much for most people but which serves as another signal for things to come.

The list goes on and on with a whole lot of literature to read through and digest to connect the dots and come to a conclusion.

To put it in simpler terms, it all boils down to the US dollar losing its value.  Fast.  Proabably faster than reading about it in the news the next morning (the economic term, by the way, is hyperinflation).

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Ron Paul, a congressman of Texas, puts the picture together coherently and convincingly in his speech before the US House of Representatives just last February.  He voiced the same concerns of other experts that have also come to the same conclusions and fear the worst.

But I guess all of this flies above our heads.  With the paltry sums of money that we call our wealth, how will all of this affect us when it all plays out?  The reality probably is far from our imaginings until the times comes when we start stuffing our fireplaces with 1,000,000 US dollar ‘fiat money’ notes because the value printed on it isn’t even enough to buy a same sized piece of scrap paper.

So what can anyone do now to prepare for just such an eventuality?  Dmitry Orlov, a Russian who lived through the economic depression that hit Russia, describes what life was like back then and draws parallels and points out differences between then and what is happening now in the US (part1, part2, part3).

Aside from ’stockpiling’ commomdities that would turn out to be valuable in such a dire economic situation, a lot of people have also turned to the timeless store of monetary value, the ‘barbaric relics’ silver and gold.

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The signs are there for everyone to see, if only they have their eyes open.  Though writing this post took some considerable time and effort in digging up the relevant links, it was time better spent than learning the ‘I told you so’ dance.

This is the Ivory Tower, signing off.  I’m taking a break from blogging but I’ll be back in a month.  Until then keep your eyes open and have a wonderful life.  (playing soundclip "Pay Me in Silver and Gold" playing in the background)