Election Day 2010

Thu, November 4, 2010 7:05:30 PM

Between Tuesday's elections and Wednesday's announcement by the Federal Reserve that it will print more than half a trillion dollars, the Fed announcement is by far the most important. 

The new Congress will be able to do little to reverse the damage done to our way of life by the social democrats and progressives to destroy the middle class -- although if the Republicans play their cards right, they might be able to shine the light of day on corruption at the highest levels and Democrat attempts to unravel the American Revolution.  If successful, they could set the stage for regime change in 2012.  It remains to be seen.  The establishment in both parties see the Republican victory as a reflection of the state of the economy.  Neither see it, really, as a demand from the people for less government, lower taxes and more personal responsibility -- the message of the Tea Party.  Fundamental alteration of the trend in the other direction will not happen.

The Fed announced Wednesday that it will print $600 Billion (ephemistically termed "Quantitative Easing" -- "QE-2")  in new money on top of the $300 billion+ ("QE-1") the central bank printed last year in a vain attempt to boost the economy.  While that will make the dollar worth less and might suppress interest rates for a while, the actions will simply postpone the day of reckoning and impose a stealth tax on the little old ladies on fixed incomes and transfer hard-earned savings to the big banks so they can pay obscene bonuses to their thieves for thievery.  As you consider the actions of the Fed, remember that the Federal Reserve is a creature chartered by the banks, for the banks. Those with a thirst for detail should read The Creature from Jekyll Island. 

The Fed's attempt to print us out of a recession and inflate the value of housing back to bubble levels is extraordinarily risky.  Debasing the currency to fund the government has been tried repeatedly for thousands of years and, without exception, has been unsuccessful -- repeat: without exception it has been unsuccessful throughout history.  The result always is either hyperinflation as more money is printed to chase the elusive goal, or a depression resulting from a contraction in the money supply when the monetary authorities realize that the money supply needs to be reigned-in.  In either event, it will not end well although a depression is preferable because hyperinflation is much more destructive.  See Inflation, Deflation and Chaos.  Many sound thinkers are aghast at the Fed's continued money-printing in an effort to inflate assets and the stock market.  Consider the following:

Must Watch: David Stockman Says The Fed Is Injecting High Grade Monetary Heroin Into The Financial System

Inflationary Thursday - Benny Drops the Big One!

QE2 - The Day After: Entire World Blasts Deranged Madman's Uncheckable Insanity

A Minskian Explanation of the Causes of the Current Crisis

Hyperinflation is not a monetary phenomenon.  It is a political phenomenon that occurs when a population loses faith in its currency -- and flees the currency. The change happens suddenly and in a panic as those who had been in denial realize that the game is over. When inflation occurs, one experiences a rise in prices and sees a deterioration in business performance as companies struggle to make a profit in that environment.  In an inflationary environment, commodities provide the most opportunity for gain -- stocks and bonds, less so.  But when hyperinflation begins, there is a rush to the exits, the so-called "fire in the disco" phenomenon, as everyone immediately tries to exchange the currency for something intrinsically valuable such as ounces of gold, real estate, diamonds or shares in a viable company. Stocks do well but the economic chaos makes most of them risky and regular folks have nowhere to turn but the historically proven assets: one's own home (pay off the mortgage with debased dollars) or precious metals -- silver, gold and platinum.  In the short term, survival strategies (water, food shelter, energy and personal protection)  become important.  In the longer term, how to survive and benefit from the chaos is the most important issue that should preoccupy cool heads.

Be prepared enough not to be subject to or panicked by huge market downdrafts or currency events.  But be alert for them and understand why and how they happen.  If you see them happening, quickly implement the plan you have devised to respond to these events -- for they surely will occur -- two years hence, three years, five or ten.  They will happen as surely as night follows the day.

I would be remiss if I did not discuss the injustice of the official theft that inflation represents.

In the Second Legal Tender cases Justice Bradley explained in salutary terms how printing money works as an "imperceptible tax" to finance war by invisibly spreading the financial pain:

In this country, the habit had prevailed from the commencement of the eighteenth century, of issuing bills of credit [paper money]; and the revolution of independence had just been achieved, in great degree, by the means of similar bills issued by the Continental Congress. These bills were generally made a legal tender for the payment of all debts public and private, until, by the influence of English merchants at home, Parliament prohibited the issue of bills with that quality. This prohibition was first exercised in 1751, against the New England colonies; and subsequently, in 1763, against all the colonies. It was one of the causes of discontent which finally culminated in the Revolution. Dr. Franklin endeavored to obtain a repeal of the prohibitory acts, but only succeeded in obtaining from Parliament, in 1773, an act authorizing the colonies to make their bills receivable for taxes and debts due to the colony that issued them. At the breaking out of the war, the Continental Congress commenced the issue of bills of credit, and the war was carried on without other resources for three or four years. It may be said with truth, that we owe our national independence to the use of this fiscal agency. Dr. Franklin, in a letter to a friend, dated from Paris, in April, 1779, after deploring the depreciation which the Continental currency had undergone, said: 'The only consolation under the evil is, that the public debt is proportionately diminished by the depreciation; and this by a kind of imperceptible tax, every one having paid a part of it in the fall of value that took place between the receiving and paying such sums as passed through his hands.' He adds: 'This effect of paper currency is not understood this side the water [i.e., Europe]. And indeed the whole is a mystery even to the politicians, how we have been able to continue a war four years without money, and how we could pay with paper, that had no previously fixed fund appropriated specially to redeem it. This currency, as we manage it, is a wonderful machine. It performs its office when we issue it; it pays and clothes troops, and provides victuals and ammunition.' In a subsequent letter, of 9th October, 1780, he says: 'They [the Congress] issued an immense quantity of paper bills, to pay, clothe, arm, and feed their troops, and fit out ships; and with this paper, without taxes for the first three years, they fought and battled one of the most powerful nations of Europe.' The Continental bills were not made legal tenders at first, but in January, 1777, the Congress passed resolutions declaring that they ought to pass current in all payments, and be deemed in value equal to the same nominal sums in Spanish dollars, and that any one refusing so to receive them ought to be deemed an enemy to the liberties of the United States; and recommending to the legislatures of the several States to pass laws to that effect." 79 U.S. 457, 558. [Footnotes omitted.]

Justice Clifford, acknowledging the above in his dissent, pointed out that the "wonderful machine" described by Dr. Franklin had a dark side:

. . . these measures of violence and terror [i.e., making those refusing to take the Continental dollar enemies to the liberty of the United States], so far from aiding the circulation of the paper, led on to still further depreciation. New emissions followed and new measures were adopted to give the paper credit by pledging the public faith for its redemption. Effort followed effort in that direction until the idea of redemption at par was abandoned. Forty for one was offered and the States were required to report the bills under that regulation, but few of the old bills were ever reported, and of course few only of the contemplated new notes were issued, and the bills in a brief period ceased to circulate, and in the course of that year quietly died in the hands of their possessors. [Footnotes omitted.]

James Madison, the chief architect of our Constitution, understood what inflation means to ordinary people.  He discussed it in The Federalist, No. 44 in discussing the Constitutional provision denying the states the power to emit bills of credit (paper money):

The extension of the prohibition to bills of credit [to the States] must give pleasure to every citizen in proportion to his love of justice, and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace, from the pestilent effects of paper money, on the necessary confidence between man and man; on the necessary confidence in the public councils; on the industry and morals of the people, and on the character of Republican Government, constitutes an enormous debt against the States chargeable with this unadvised measure, which must long remain unsatisfied; or rather an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice, of the power which has been the instrument of it. In addition to these persuasive considerations, it may be observed that the same reasons which shew the necessity of denying to the States the power of regulating coin, prove with equal force that they ought not to be at liberty to substitute a paper medium in the place of coin.  . . . The power to make any thing but gold and silver a tender in payment of debts, is withdrawn from the States, on the same principle with that of striking of paper currency.

The mainstream media does not spend enough time exposing the inflation that impacts most of us.  It is a cruel hoax on retired people who contributed for decades to Social Security to be told that the cost of living on which their retirement payments are indexed exclude food and energy.  The pretext is that these two items are too volatile.  But the facts are that inflation overall, especially in these two areas, is  increasing. See http://www.zerohedge.com/article/quick-glance-real-world-inflation.

Understand what is going on, folks.  Protect yourselves and your own.  Be alert, be nimble and be quick.  You are amongst predators from every imaginable direction.