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Future Prediction for the US Economy (originally published Jan 1st 2009)

Written by Subject: Future Predictions
Future Prediction for the US Economy
by Ernest Hancock
The reason libertarian philosophy is such a good predictor of the future is that logic and reason dominate over wishful thinking. Basic principles of human behavior, that are easily understood by a 5th grader, are under constant assault with complicated and circular arguments developed to confuse minds that have been subjected to years of government education and propaganda. Simple concepts like; 'You get more of what you reward and less of what you punish' is certain to produce a lengthy formula supporting collectivist intervention to manipulate a single statistic without even the mention of the unintended consequences that devastate societies.
I'll do my best to make my points quickly and clearly so that they can be reviewed at the end of 2009 (or possibly much much sooner) to see how I did. It might take longer but I doubt it. When I predicted the Housing Bubble and its inevitable result in an article December 31st 2002 (, I didn't anticipate the additional price increases that would be the result of creative financial instruments and policies that would make the situation even worse than I had anticipated. My prediction of hyper-inflation will likely follow a similar course. As pessimistic as I am about government it seems my imagination is often exceeded.
The time for 1923 Germany and 2008 Zimbabwe hyperinflation is coming to America. Hyperinflation is defined by many as a 100% devaluation over a year or when any single month exceeds 50%.
Trying to rationalize a scenario where hyper-inflation isn't the certain result of current, planned and desired policies and actions of governments in America and around the world requires lots of creative word smithing and the ignoring of simple math. The tracking of a new trick developed by the economic geniuses that got us this far down the path to ruin will make my point all by itself.
The admission that “Money is Debt” explains how rapidly increased government borrowing of money into existence (to be ratcheted up with fractional reserve banking) has devalued the US dollar. But there is a very new game in town that isn't understood by most.
Spending time with friends that have been very successful navigating through the smoke covered minefield of the world's stock markets I was introduced to an understanding of something new I'd like to share with the readers of FreedomsPhoenix.
An investor that actually reads the Federal Reserve's website page that tracks the creation of new money and the amount in circulation, noticed a new line on the Fed's balance sheet. “Purchased Government Agencies”. This is where you'll see the dollars created by the Fed's purchase of 'Mortgage Securities'.
Fractional reserve banking has progressively shed limits on its ability to create dollars to the point that now it no longer even needs the seemingly unlimited desire of the US Government to borrow as much money into existence as it possibly can. Now the Fed has truly turned on the printing press to run at warp speed.
The mortgages (good and bad) purchased by Freddie and Fannie were purchased with the money raised with the selling of securities that used the mortgages and their revenue stream as collateral for the loans. With the mortgages failing and the country heading for the Greatest Depression, Freddie Mac and Fannie Mae were taken over by the US Government in September 2008 and had $13.8 billion given to Freddie. Financial institutions may have been reassured that the Mortgage Securities they held were a little safer with the additional assurance that the Federal Government would back Freddie and Fannie losses, but it was clear that the banks would much rather have the cash now. These securities still represent a very large risk because there is no “guarantee”, no matter how much one is 'insinuated'.
Now here comes the Federal Reserve to the rescue with a plan to buy these securities with $500 billion of money from their printing press (out of thin air).,0,1154827.story
Also, last month the Federal Reserve announced a plan to purchase the securities backed by consumer debt (Credit Cards, Cars, Student Loans etc.). With the Fed extending this type of “bailout” to mortgage backed securities, until at least the end of the second quarter in 2009,... where will it end? Once this type of cash infusion starts there will be NO END to it.
Very soon (certainly before the end of the first quarter) we'll see a 'plan' of the Federal Reserve that will announce the purchase of municipal debts (State and Local) that is backed by the full faith in the ability of government to extract the payments from the taxpayers. So the local public transportation/school/flood/road/etc. debt that your local government obligated you to, will be transferred to the Federal Reserve with its IRS collection arm.
But this is just the 'method' used. The result is that the Federal Reserve will accomplish this with the MASSIVE creation of new dollars that will rapidly multiply in the fractional reserve banking system.
Speculation on the effects of a hyper-inflated currency is for another article. But by focusing on the newly created ability for the Fed to purchase risky debt by simply turning on the printing press is a guarantee that bad debt won't be punished, more bad debt will result, government spending will accelerate and the Fed & IRS will combine efforts to become the most abusive and tyrannical bill collectors ever imagined.
The 'amping up' of the Social & Economic Engineering we'll experience will result in:
Surveillance State
Increased Taxes
More and More Bailouts
Gold and Silver up
Unemployment up
Weaker Economy
Rapid Militarization of Police
US long bonds down as other country's Central banks abandon them (but watch out for last minute 'rule' changes on shorting these bonds).
Talk of State by State secession and even revolution.
Transfer of accumulated debt instruments in the hands of the Federal Reserve to....

5 Comments in Response to

Comment by David McElroy
Entered on:

 Right on, Ernie!

 Any reasonably well-educated person with a rational mind and a heartfelt conscience will become a libertarian eventually. Those lacking conscience, like psychopaths, become predators like Democrats, Republicans, and other sorts of fascists like Lenin, Hitler, Stalin, Mao, and David ben Gurion, Castro, etc.

 The jig is up in America. The conmen have played their game to the end and swindled the whole country in a world-class embezzlement that has us reeling. They have cooked the books so far into cyberspace that they can no longer paper over the reality of their crimes in ruining us.  It was all part of the plan Lenin spelled out so long ago, saying that establishing a central bank to destroy currency and extract wealth was 90% of the socialist agenda.

 We are dead on paper in this evil system Bernanke chairs. But we still have beating hearts, thinking minds, and moving muscles!  Many yet trust the God of Creation, Truth, Justice, and Liberty for All, and guns! Will we ever find the backbone to overthrow the moneychangers' tables like Christ? Will we confront the monstrous amoral Mammon worship that has led us by the nose to slaughter and destroyed the future of our children?  Live free or die.... that is your choice. The battle is joined. Time will tell where you stand, or fall.

Comment by Ernest Hancock
Entered on:
I'm certain a "Deal" (cooperation) has already been accomplished (Bad guys to Bad Guys,... if it holds. Big bad ass armies help) )

The population of the planet is only given the "illusion of choice". Voting, working, 'owning' property seems to 'feed the beast' with the one thing it desires most of all,... credibility.

The Game is played on a much larger board than most realize. The advocacy of principled behavior that rewards all (non-initiation of force) isn't very appealing to Bad Guys that believe that they benefit from betraying their neighbors. But life has its own justice. History is full of examples.

The weak are consumed by mind induced physiological ailments for taking advantage of another's good nature. The less remorseful betrayers eventually produce bullets, ropes and guillotines with their names on them.

What goes around comes around,... that why it's called REVOLUTION.

Comment by Chris Kaiser
Entered on:
You are pouring my heart out! I've been trying to explain to people in my area that every bailout and new obligation puts inflationary pressure on the dollar that will be paid back in the inflation tax. How high that 'tax' becomes depends on when our printing press shenanigans finally become too much for our foreign creditors to take. When they begin to dump dollars en masse, the jig is up.

As a side note, I've been trying to equate how our foreign debt situation is a twist on the 'Prisoner's Dilema'. (See:'s_dilemma)

Our foreign creditors hold significant amount of U.S. dollars. When they see us inflate our money, they shake their heads but - they can't begin to dump their holdings because to do so would cause the value of the dollar to plummet. So they stand pat and hope we don't screw things up too badly. They also continue to loan us more when our short term debt comes due - because again, to refuse to loan us more would cause the dollar to plummet and cause their U.S. dollar holdings to plummet in value.

The game theory comes into play when you realize that each of the major holders of U.S. dollars is in the same position (U.K., Japan, China, OPEC nations cheifly.) Whoever can dump their dollars first, and with little fanfare, gets to cash out before the price plummets. If they wait until one of the other nations unloads, it will be too late. For each of them, it is in their own best interest to dump their holdings first.

As the global recession worsens, look for one of them (OPEC I suspect, due to falling oil prices) to begin the process of dumping dollars, and the other nations to follow quickly. That will be the signal that hyperinflation has begun.

Comment by Powell Gammill
Entered on:
Ahhhh Dave, you are soooo inspirational. I remembered a story about bank robberies on the rise. And that led me to the best bank robber of them all:

The Legendary Willie Sutton

Which also led me to this, The Willie Sutton Financial Disclosure Statement (for political office holders and applicants).

Comment by Dave Hodges
Entered on:

I never thought I would see the day when so many, including myself, would be predicting the collapse of our economy and resulting revolution. The sell off of our public assets is well underway (eg the Trans Texas Corridor and King Juan), but this is just the tip of the iceberg. I totally agree that the empire is finished and the rest of us are merely positioning ourselves to get the gangster banksters' leftovers

Dave Hodges