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 (http://www.lewrockwell.com/orig3/hancock2.html), 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). http://www.chicagotribune.com/business/sns-ap-federal-reserve-mortgage-debt,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:
More and More Bailouts
Gold and Silver up
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....