Tag Archives: Gold Standard

Pull Back on the Joystick – We’re going to Crash!

Take the threat seriously!

Although economists have been warning us for decades about an inevitable crash in the value of the US dollar, the threat has been voiced for so long that most Americans have stopped taking it seriously.  After all, the Federal Reserve has always bailed us out of every single recession.  Why shouldn’t they be able to just continue to do what they have always done?   But what caused the downturns in the first place? Not enough Americans understand that the real problem is actually that which claims to be our savior, the Federal Reserve itself.

Until the late 70s, the U.S. economic plane had already been on a long and gradual descent. That was when the descent turned into a nosedive. The American people are the passengers, and are assured by the Captain, the Federal Reserve, that everything is just fine.  The Captain keeps pulling back on the stick, but nothing he can do is pulling the plane out of its downward spiral.  Meanwhile as the Captain continues to wrestle with the stick, he announces over the PA system “Ladies and Gentlemen, we’re preparing for a comfortable landing, so just sit back and enjoy the flight!”   

It’s the Federal Reserve driving the crash!

The Federal Reserve is best known for printing currency, but it also carries out the very manipulations which its printing of currency is designed to correct.  Its theoretical job is to control the cash supply and to keep the economy in balance.  Among many other tricks, it manipulates the economy by controlling interest rates, printing and circulating cash, and by selling bonds, which in plain language translates to borrowing money. The sale of government bonds is the primary driver of our out of control national debt.

The truth is that our economy is so far from being balanced, and that returning to a state of solvency is now simply no longer possible.  We are in fact in the midst of the beginning stages of a major collapse.

Selling Bonds:  A friendly phrase that means borrowing money

Why is the federal government $17 trillion in debt? For 100 years they have been overselling bonds.   A bond is a loan to the government from an investor.  It’s a vehicle used to inject cash back into circulation by simply borrowing it.  When individuals get into a pinch, they go to the bank and get a loan. An individual can be either turned down, or granted a loan, depending on their credit score.

That’s exactly what the federal government does, but it doesn’t have to get any approval to get funded.  They just go to the Federal Reserve, who either prints the money out of thin air, and/or  borrows currency by selling bonds to investors.  The result is that the government always gets its funding, the dollar continually loses more value, and the national debt grows even bigger, and our government increasingly operates on pure borrowed capital, much of it coming from economies which are currently stronger than our own, such as China.

Doesn’t the Government have a savings account to fall back on?

The federal “reserve” is the government’s savings account.  It currently has a balance of around $56 billion in it.  That sounds like a nice amount to have in a nation’s savings account doesn’t it?  It is nothing at all when the entire balance sheet is taken into account.  We have $56 billion in the bank, but we owe $17trillion in debt, and have unfunded obligations in the hundreds of millions of dollars on top of the debt.  Those unfunded obligations include Social Security, Medicare, Medicaid and a host of other programs.  Where are they going to get the money to pay these obligations?  They can ether print it out of thin air or go and borrow even more.

Think of that on an individual basis.  Let’s divide the numbers by a million to put them into the perspective of amounts of cash that real people commonly hold.  Imagine you had $56,000 in your savings account, but you lived in a house with an unpaid mortgage of $17 million! Would there be any realistic expectation that you could pay off your $17 million dollar mortgage on the salary from which you managed to save your $56,000?  But if you were like the Federal Reserve, you could solve the problem by going to your garage and printing some counterfeit money, and/or by going to the bank and getting an easy approval to keep borrowing more so you could pay all your bills.  Wouldn’t that be convenient?

What is happening to the federal government’s credit rating?

Why is the government developing a bad credit rating, and why do they even need a credit rating? Our government has accumulated so much debt from the sale of bonds that it’s no longer possible for them to even pay back only the interest.  We recently actually reached that point.  That makes for a bad credit rating because for the government because potential bond purchasers are losing confidence to buy more bonds.  They know that the US is no longer capable of paying their obligations.  Bad credit disables the government’s ability to borrow more money just to pay interest.

Given an inability to borrow anymore, an insignificant sum in the federal  reserve savings account, and an insufficient sum of incoming federal revenue to pay the bills, the only remaining solution would be to print more (counterfeit) currency.

The national debt continues to grow out of control because the federal government continues to turn to the Fed to get unlimited supplies of cash, no questions asked.   Real people learn to adapt their lifestyle to their income level.  The federal government has no such restraints, but it does have the Federal Reserve Bank to pull money out of thin air to keep this county operating.

That’s why you really need to take this warning seriously. Jim Rickards, author of Currency Wars and The Death of Money is a great resource for more information.


Hyperinflation in America: When a Loaf of Bread is $3 Billion

Too few understand just how disruptive hyperinflation in America would be.

Truth is, it would be a nightmare.

In an episode of hyperinflation, money loses value so rapidly that people spend it as quickly as possible, which only feeds the cycle of pushing prices higher and higher at a faster and faster rate.

Imagine prices at the food store and gas pump not just going up a few cents at a time, but doubling in a matter of months, weeks, or even days.

This is exactly the scenario that played out in Germany and many other countries with fiat currency.

In 1922, a loaf of bread cost 163 marks. 

By September 1923, this figure had reached 1,500,000 marks and at the peak of hyperinflation, November 1923, a loaf of bread cost 200,000,000,000 marks.

The impact of hyperinflation was huge :

People were paid by the hour and rushed to pass money to loved ones so that it could be spent before its value meant it was worthless. People had to shop with wheel barrows full of money. 

And now some economists and market experts think many of the ingredients for hyperinflation are brewing in America.

That’s because years of profligate U.S. government borrowing and spending have created trillions of dollars that lurk in the reserves of foreign countries and major financial institutions. The situation escalated after the 2008 financial crisis, with the U.S. Federal Reserve‘s policies of “quantitative easing” creating even more money.

“The U.S. government and the Federal Reserve have committed the system to its ultimate insolvency, through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency,” said John Williams of Shadow Government Statistics in his annual report on hyperinflation.

Historically, governments that have suffered bouts of hyperinflation – most notoriously Weimar Germany from 1922-1923 – have set the table by printing too much money during a time of economic contraction.

The trouble is, once it starts it’s impossible to stop. Hyperinflation in America isn’t here yet, but we’re edging dangerously close to the point of no return.

“We’re certainly at a flashing yellow alert,” Art Cashin, Director of Floor Operations at UBS Financial Services, told King World News last week. “You have in place a variety of things that could begin to react somewhat domino-like.”

Cashin drew attention last week when he sent out a report detailing the Weimar hyperinflationary disaster, concluding that the episode was why “many express concern about unintended consequences of each new wave of quantitative easing.”

Hyperinflation in America: Where Is It?

fiat currency and hyperinflation Some may point to the moderate inflation in the U.S. now – between 2% and 3% — and reason that hyperinflation in America is a distant possibility, if it could happen at all.

But the seeds of hyperinflation tend to be sown long before the signs of hyperinflation become apparent.

So it could be a while before any evidence of hyperinflation shows up, despite QE1, QE2 andQE3.

“Even when they [Weimar Germany] were actually printing money, literally printing, the inflationary spiral didn’t happen instantly,” Cashin told King World News. “It was delayed a couple of years. But once it started, it could not be taken back.”

The key is that no matter how much of a currency exists, if large amounts of it remain out of circulation, inflation – and hyperinflation in particular – can’t happen.

“The analogy I use is if the Fed flew over your house and dropped a million dollars in brand new bills, and you were so worried you put them in your garage, that’s not inflationary,” Cashin said. “It’s only inflationary when you lend it or spend it.”

For the U.S., the “garage full of money” is the trillions in U.S. Treasurys squirreled away in places like Japan and China, as well as hedge funds and major U.S. and European banks.

Should some sort of financial crisis cause a run on the dollar – a sudden meltdown of the long-simmering Eurozone debt crisis, or if no one blinks in Washington’s game of chicken over budget and debt issues – the situation could unravel quickly.

“The Fed’s initial moves to debase the U.S. dollar worked, impairing the U.S. currency’s exchange rate value and triggering commodity inflation fueled by the weak-dollar policy,” said Williams in his report.

“This also has helped to set the stage for a global dumping of the dollar and dollar-denominated paper assets, a rapid influx of unwanted dollars from abroad that either would collapse the financial markets or would force the Fed to flood the system with the incoming liquidity, monetizing dumped U.S. Treasury securities among other assets.”

RELATED: Four ways to survive the coming market collapse

Warning Signs of Hyperinflation

Cashin noted that hyperinflation can sneak up in that it often appears at first to be only higher-than-normal conventional inflation.

Going back to his Weimar example, Cashin used the price of a loaf of bread to illustrate this.


In 1914, before World War I, a loaf of bread in Germany cost the equivalent of 13 cents. Two years later it was 19 cents, and by 1919, after the war, that same loaf was 26 cents – doubling the prewar price in five years. 

Bad, yes — but not alarming. But one year later a German loaf of bread cost $1.20. By mid-1922, it was $3.50. Just six months later, a loaf cost $700, and by the spring of 1923 it was $1,200. As of September, it cost $2 million to buy a loaf of bread. One month later, it cost $670 million, and the month after that $3 billion.

Within weeks it was $100 billion, at which point the German mark completely collapsed.The whole time the German government kept printing more money, so much so that people burned it in their fireplaces because it was cheaper than wood.Why didn’t they just stop and try to stabilize the currency?

“When things began to disintegrate, no one dared to take away the punchbowl,” Cashin wrote in his report. “They feared shutting off the monetary heroin would lead to riots, civil war, and, worst of all, communism. So, realizing that what they were doing was destructive, they kept doing it out of fear that stopping would be even more destructive.”

Cashin advises Americans to keep an eye on M2, a measure of the nation’s money supply, particularly how much money is in circulation. The government reports this number every week. A sudden spike could signal the start of hyperinflation in America.

And once people decide they’d rather spend their money as fast as possible, the so-called “velocity of money” – how quickly money changes hands – takes off. The faster it goes, the higher the rate of inflation.

Preparing for Hyperinflation in America

hyperinflation and fiat dollarNo one can predict precisely when, or even if, an episode of hyperinflation might strike. But because the consequences would be so devastating, it bears watching no matter how slim the possibility.

Hyperinflation in America would create havoc in the markets. Bonds would become toxic and stocks would plummet. But precious metals like gold and silver would soar, as would commodities like oil, copper and corn. Foreign currencies would also skyrocket against the dollar.

“If you begin to see not just the first signs of inflation, but acceleration – it will come very fast – then you have to think about how you are protected,” Cashin said, advising people to make sure they’re invested in hard assets like commodities or real estate.

But most of all, Cashin urges that Americans stay vigilant.

“If [M2] begins to grow rapidly, then the money that the Fed has created will be seen as moving through the system and that will create the high risk of accelerated inflation and, God forbid, runaway inflation,” Cashin told King World News. And if that happens, he said, “get very cautious.”


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