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
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
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'.
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....