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Preparing Kids for the Unknown

Lisa Belkin

There are many reasons not to start the push toward college before your child is even in preschool. You know most of them, but here’s one you might not have thought of: There is no point in pushing children, because by the time today’s toddlers turn 18, college – along with the book-based world for which college prepares you – will be an obsolete relic.

That’s the argument put forth by Tracy Mayor in the most recent issue of Brain, Child magazine, in an article titled “Armageddon Mama: Parenting Toward the Apocalypse. Are We Raising Our Kids to Cope With a Radically Revised Future?” Mayor (who, more better known as a humor writer) notes:

The recent past has been a tough decade for parenting, anxiety-wise. Y2K set the mood, 9/11 shook us to the core, and suddenly in between changing diapers and taking pregnancy tests, we were worrying about anthrax in the mail and terrorists on every street corner. The first decade of the new millennium brought us two wars, two recessions, a flu pandemic, an autism epidemic, a childhood-obesity epidemic, a housing crisis, a health care crisis, a crisis in public education and toys made with phthalates, BPA and lead paint from China. Whew.

With that as prologue, she wonders why we are still preparing our children for a life where book-learning insures the future. What if “a fully wired, completely interconnected, always-on global marketplace of ideas and innovation” isn’t actually what the future will look like, she asks. “What if we’re raising our kids to succeed in a George Jetson kind of world, but they wind up living more like Fred Flintstone?”

Last week, at Babble.com, the columnist Jane Roper quoted Mayor’s article and wondered how the possibility of “the Apocalypse” might change the way she raises her own twin daughters:

Our world, particularly America, is in the midst of huge economic, environmental and technological changes. We could be living in a very different society 20, 25 years from now. Who is to say that the key to success (or even survival) in that world will be having a degree from a top college? It could be that the kids who grew up less programmed are, in fact, more prepared to thrive. Maybe instead of getting them SAT tutors and signing them up for tuba lessons we should be taking them camping and teaching them how to grow their own food.

Mayor agrees. She cites writers like Bill McKibben (whose new book is “Eaarth: Making a Life on a Tough New Planet”) and Sean Broderick (author of “The Ultimate Suburban Survivalist Guide”) who both warn, with varying degrees of urgency and specificity, that tomorrow’s adults may well need survival skills that their own parents (that would be us) do not have and are not taught in schools.

As McKibben tells her:

“When education started in this country, the goal was to round off people who were already practically skilled,” McKibben says. “Most people grew up knowing how to do things like raise their own food and an astonishing number of tasks that we no longer know how to do. You went to school to read the classics and get some polish.

“We’re now kind of in the opposite situation, where kids spend 100 percent of their time in a mediated environment. We learn about the world through one school or another. So we might need to be thinking more about using school to introduce us to those practical things that we don’t know how to do anymore.”

Broderick, in turn, lists a handful of skill sets that might still provide a living in the event of an economic collapse, things like “bike mechanic, toolmaker, cobbler, acoustic musician, or beermaker.” He tells Mayor:

“I’m not saying you should run out and apprentice your kid to a tailor. Just pick a skill that can be done in the absence of electricity, something they can do with their hands where they can pitch in.” His own son takes archery, for example; his daughter rides horses (which counts, I suppose, as an alternative source of transportation). Brodrick himself makes beer, for the fun of it now, he says, but also because, as he writes in his book, “Everybody is going to be stressed after a collapse. You might be able to make a good living thinking outside the box on how you can relieve [that] stress.”

Beyond the homemade brewskis, he makes sure that his kids are learning more than one language, that they can do basic calculations in their heads, not just on a calculator, and that they learn how to haggle, a skill he believes will become invaluable when resources run scarce.

Neither Mayor or Roper are scooping up their families and moving to a wilderness survival camp. And neither has stopped trying to save for college. But they have already made small adjustments in their views of their children’s future. Mayor, somewhat comforted by McKibben’s prediction of a “powered down” society, where acquisition is not the endgame, and where neighbors look out for one another, has decided that her job is to raise her teen and pre-teen “to be in some way part of a solution. Not just recyclers or composters or occasional car-campers, but innovators, problem-solvers, team players, good citizens of the world.” Also, she plans to teach them how to brew beer.

Roper, in turn, feels uncertainty gives her license to reject the amped up parenting she sees around her (“chapter books … in kindergarten and signing them up for 10,000 extracurricular activities.”) As she writes:

We want them to be kind, thoughtful and conscientious people. We want them to challenge themselves. We want them to be economically self-sufficient. We want them to find fulfillment in their work – either the wage earning kind and/or the not-so-profitable, pursuing your passion kind (writing, anyone?). And, yes, we want them to have choices in life, which a college education will most likely help provide. But we’re not going to drive ourselves or our children crazy trying to make sure they get into ivy league schools, unless that’s what they decide they want to do. (And in that case, they’d better get some hefty scholarships and/or be prepared to take on some debt!)

And you? What do you think will best prepare you children for the future? How much of it is under your control?

No Exit

James G. Rickards

November 5 (King World News) – Disasters sometimes sneak up in small steps, each of which appears unthreatening at the time but which cumulatively spell collapse.” The Fed is leading the United States to ruin in ways that are claimed to be well intentioned and benign viewed in isolation but which take us finally into a locked room reminiscent of the Sartre play “No Exit.”

The Fed has finally embarked on QE2, the best publicized journey since the flight of Balloon Boy to which quantitative easing might well be compared.” Of course, quantitative easing, or QE, is just a euphemism for what is really going on.” We’ll skip the Orwellian Newspeak of QE and stick to the Oldspeak – printing money.

How does the Fed print money? It’s easy; they simply buy bonds from the market and credit the seller’s bank account with electronic cash that comes out of thin air.” When they want to reduce the money supply, they do the opposite; that is, they sell bonds and the buyer’s bank account is reduced by the sale price and that money disappears.” So, printing money is just a massive program of bond purchases.” The Fed intends to concentrate the current bond buying program in the intermediate sector of 5 to 10-year maturities.

As a result, the Fed is coming to resemble a highly leveraged hedge fund with an inverted pyramid of risky, volatile and junk debt balanced on a slim layer of capital.” Recall the Fed owns the Maiden Lane portfolio of junk from Bear Stearns and $1.4 trillion of mortgages whose value is in serious doubt because of strategic defaults, lost notes and halted foreclosures.” Treasury notes may be of good credit quality if you don’t mind getting paid back in debased dollars but even Treasury notes have market risk.” If interest rates go up, the value of Treasury notes goes down; it’s that simple.” The Fed is taking both credit risk and market risk on its balance sheet in unprecedented amounts.

Right now the Fed’s balance sheet shows about $57 billion in total capital.” Current assets are about $2.3 trillion.” The current money-printing plan will take total assets above $3 trillion.” At that level, it only takes a 2% decline in asset values to wipe out the Fed’s capital.” Put differently, it only takes a 2% drop in the average value of assets on the Fed’s balance sheet for the Fed to go bankrupt.” And this is in an environment where various markets frequently go up and down 3% in a single day.

How risky is the Fed’s program of bond purchases? Very.” For those who are not bond traders, here are a few quick pointers.” First off, intermediate term securities are more volatile than short-term securities.” The Fed traditionally purchases Treasury bills of one-year or less in maturity.” Those bills are not volatile at all and don’t move much in price when interest rates change.” So, mark-to-market losses are never that great.” But 10-year notes are highly volatile and losses can be huge in response to even modest increases in interest rates.” Secondly, with the Fed composing such a large part of the Treasury market, liquidity will decrease as fewer participants buy and sell each day due to the Fed’s dominant role.” This means bid/offer spreads will widen making it very costly for the Fed to unload their position if they want to.” If the Fed is selling, who on earth wants to buy? Finally, there is a concept called “DVO1” which is market jargon for the “dollar value of 1 basis point”.” This is a measure of how much a bond goes down in price in response to a 1 basis point increase in interest rates.” It happens that DVO1 is greater as interest rates are lower.” In other words, the decline in price of a bond in response to a 1 basis point increase in rates is greater when rates are at 1% than if they are at 5%.” This element of volatility is independent of the fact that longer maturities are more volatile, so having longer maturities and a low-rate environment is like soaking C4 plastic explosives in nitroglycerine.

When critics raise the issue of mark-to market losses, the Fed has a simple answer, which is that they will hold to maturity.” The Fed does not have to mark to market; they can simply hold the assets to maturity and collect the full proceeds from the Treasury or other issuers.” Just ignore for the moment the fact that some of the junkier assets and mortgages will not pay off, ever.” That’s years away; for now, let’s just give the Fed the benefit of the doubt and say that mark-to-market losses don’t matter because they don’t have to sell.

Critics also raise the issue that this much money printing will result in inflation at best and maybe hyperinflation if velocity takes off due to behavioral shifts.” The Fed is also very reassuring on this point.” They say not to worry because at the first signs of sustained and rising inflation they will reverse course and reduce the money supply by selling bonds and nip inflation in the bud.” But also note that the world in which the Fed wants to sell the bonds is also a world of rising inflation and therefore rising interest rates.” This is the world of huge mark to market losses on the bonds themselves.

The Fed is saying don’t worry about mark to market losses because we will hold the bonds.” The Fed is saying don’t worry about inflation because we will sell the bonds.” Both of those statements cannot be true at the same time.” You can hold bonds and you can sell bonds but you can’t do both at once.” You will want to sell when rates are going up but that’s when losses will be the greatest.”” So the time when you most want to sell is the time when you will most want to hold. The Fed may say they can finesse this by selling shorter maturities only to reduce money supply and holding onto longer maturities.” But that just further degrades the quality of the Fed’s balance sheet and turns it into a one-way roach motel for highly volatile and junk assets.

So, here’s the bottom line on money printing, or QE if you prefer.” If nothing happens, the whole thing was a waste of time.” If inflation takes off, the Fed will have to choose between holding bonds and letting inflation get worse or selling bonds and going bankrupt in the process.” Since no entity goes down without a fight, the Fed will naturally hold the bonds and let inflation take off.” Do not ask about the exit strategy from QE; there is no exit.”

Follow Jim Rickards on Twitter at twitter.com/JamesGRickards

Be sure to return tomorrow for the in-depth audio interview with Jim Rickards which covers gold, silver, QE, the Fed, short squeezes in the market and more.

Eric King

The Fed has Used the Fractional Banking System to Steal the Wealth of the Middle Class

Bob Chapman

The UK, Europe, the US and Canada are different degrees of welfare states. By way of regulation, government controls via taxation. The states and their inhabitants send taxes to Washington, which takes its cut and sends funds back to the states with strings attached. You either do what we want you to do, or we cut off your funds. The states and the people are subject to extortion with government using their funds to do so. By using regulations, welfare and extortion, the federal government creates dependency.

Another phenomenon that has developed is a second dependency. People in society, not just in the US, but also in many countries, are dependent on their grandparents and parents and as years progress that situation will worsen. Earning power to maintain a previous lifestyle is no longer available with the staggering tax burden. Including income and VAT taxes in Europe, taxation averages 70%. The ability and opportunity to become successful and wealthy is more limited in today’s societies. Even the college degree has been demeaned. Almost anyone who can hold a pencil today is college material, when 60% of attendees shouldn’t even be there. Adding insult, the jobs once available to college attendees are no longer available, because more often then not illegal aliens hold them. As a result, it is far more difficult to work your way through college and as a result one graduates with a loan for $60,000 that will be paid back in many cases over a lifetime. In most cases that means most won’t be able to afford to buy a house until they are in the 30s or 40, if ever.

Since 1913 the basis for growth in America has been creation of debt out of thin air, a product of the privately owned Federal Reserve and a fractional banking system. It is considered prudent under such a system to lend nine times your underlying assets. Several years ago the figure was 70 and today it is still 40 times. Government and citizens purchase economic goods on credit. Government issues bonds and individuals borrow money.
Today money is only a method of exchange; it is not longer a store of value, especially in an environment of zero interest rates. An important characteristic of money to retain its soundness is gold backing. Today only one currency has any gold backing and that is the euro, which has about 5% gold backing. Ten years ago that backing was 15%, but gold was sold off to suppress the price of gold in conjunction with the US government and many other central banks. As a result we have a world of essentially worthless fiat currencies. The world is left with no sound money and as a result gold has again taken its place as the world’s reserve currency. If for no other reason is that it owes no one anything. Occasionally silver fulfills this role as well – both have for the last six centuries.
Financial operations conducted by government and a privately owned Federal Reserve leads to the extended creation of money and credit exceeding revenues. That leads to inflation, perhaps hyperinflation, and some times eventually deflationary depression. This is especially true when currency is not backed by gold. Having a Federal Reserve makes sound money even more difficult, because it can create endless amounts of money and credit as we have witnessed since August 15, 1971. What the banks and the Federal Reserve have done is use the fractional banking system to steal and expropriate the wealth of dollar owners. Such a system by its very nature is unsound. There is no such thing as full faith and credit, because it is not worth the paper it is written on, whether it is issued by a Federal Reserve or by a government, especially if it’s fiat or unbacked by something such as gold. This money leads to servitude because as it carries less value perpetually and the discovery leads to war and totalitarian government.

A recent manifestation of this profligacy is the urging by government for consumers to consume more with their steadily depreciating currency and to stop paying off debt. At the same time interest rates are lowered to zero to encourage consumption. Needless to say, savers are penalized with poor returns. That is for the most part the elderly. Such policy forces savers to become speculators, unless, of course, they have discovered gold and silver related investments. This process reduces the savings base and forces central banks to create more and more aggregates. It also enrages savers. The entire game has been changed and for the most part few have learned how to protect themselves.

The foregoing allows the Dow to sell at higher levels than previously because a part of those savings go into the stock market and bonds. If you haven’t noticed the bond market is in a bubble created by the Fed. You would think there was some kind of safety in stocks and bonds. Then again, desperate people do desperate things. If you want to see what safety in bonds is, just look at Britain’s bond markets since WWII. This is the sort of result you can expect when you marry corporations and government, and you end up with corporatist fascism.

By the time you read this the US congressional elections will be over and the Democrats will have lost about 50 House seats and probably 9 Senate seats. The American people are outraged over what has been done to them by the last three administrations.

As a result gold has been rising strongly, as the dollar remains under pressure. This in part is due to QE2, as well as the systemic problems facing the US economy. Spending the economy into strength again is not working. The only party increasing spending is the government. They also reflect most of the job growth. Private construction was the weakest in a dozen years.

This is reflected as well in government debt up $1.65 trillion to $13.5 trillion. The government is so deep in debt it cannot sell more debt fast enough to keep up with increases and old debt. The Fed has to purchase 80% of that debt, which cannot continue indefinitely. The result of all this is that the US lurches from one crisis to another.
As always bankers have been borrowing short to lend long, a sure recipe for disaster. That leads us to one of the greatest frauds of the century, the collapse of the real estate market and securitized mortgages. In order to survive banks are borrowing from the Fed at zero rates and lending back to them at 2-1/2%. No one says anything because no one wants the banks to fail. No matter what you call it the result is extending the debt timeline hoping something good will happen

Over the past few weeks we have seen the beginnings of trade war, which in reality had been going on for years. The statements by Chairman of the Fed, Bernanke, and statements as well by Treasury Secretary Geithner, started the ball rolling. The discussion of a possible QE2 set off wild currency volatility with the dollar falling the most and the yen, euro and Aussie dollars being the strongest. The Swiss franc shared leadership with the yen. While this transpired Mr. Geithner told the world the government wanted a strong dollar and that its lower level was just about right.

The significance of currency war is that inevitably leads to trade war. You might call it a backdoor entry. The string of competitive devaluations over the years were overlooked and tolerated by the US because cheap foreign goods held down US inflation and the dollars purchased to subdue domestic currency value were used to buy US Treasuries and Agencies. That benefit was now of limited benefit as nations bought less Treasuries and the Fed had to monetize US Treasury debt. This has and will continue to bottle up inflation to a larger degree in the US, as less hot US dollar flow goes into foreign countries. Countries such as Brazil have already implemented a tax on dollar flows into their country. We can expect more countries to follow and that will be followed by US trade taxes on goods and services. We have already started to see this in goods sold in China and the US. The US wants to increase exports and a weaker dollar makes that happen.

The Fed via stealth has been engaged in QE2 since early June via the bond and repo markets and Wall Street is well aware of that. The easing is talked to in terms of $500 billion over the short term in order to keep the economy level to slightly higher. Some $2.5 trillion will be needed over the next year and another 42.5 trillion the following year. If not forthcoming deflation will rear its ugly head and devour the US and then the world economy. In the meantime the secretive Fed has been surreptitiously lending more funds to Europe to Greece, Ireland, Spain, Portugal and Italy.

The deliberately cheapened Chinese yuan has caused a $260 billion trade deficit with China, or a 20% plus increase. That is a doubling in 10 years from 20% to 40% of its trade deficit. China says it is willing to raise the value of the yuan incrementally over the next several years, but that simply isn’t good enough. We believe trade barriers will become a major issue in the coming session of Congress. The transnational conglomerates know such a move is inevitable. The US has to find a way to solve growing unemployment, which in the real world now stands at 22-3/4%. You cannot have a recovery as long as that many people are unemployed. In addition, those numbers are headed higher, soon to reach 1930’s depression levels. This is something that should have been done long ago, but the elitist forces fought it off as long as possible. The end of free trade and globalization, as we have known it, over the past 20 years will be one of the bigger issues in congress over the next two years. When the yuan is 40% undervalued it becomes a major issue.

The flip side of the immediate problem of QE2 and a lower dollar is higher gold, silver and commodity prices, and an increase in inflation. Mr. Bernanke says we need inflation. Not a lot just a little. Official CPI figures are up 1.6%, whereas real inflation has risen 7% and is headed higher. It’s tough being between the rock and the hard place and that is where the Fed sits. It’s expanded money and credit for banking and Wall Street so no one will be too big to fail.

Just as big news will be how much QE2 will be admitted to by the Fed and besides Treasuries and Agencies, how much and what other bonds will the Fed purchase? After we find out how money will be injected into the system we then have to discern how much inflation it will foster.

The truth of the current Keynesian economic system has been taken for granted and it is in the processes of failure. That event demands that the system be purged of its excesses. As we projected back in May, the Fed and the administration will pour $5 trillion into the economy over the next two years just to keep the economy going sideways. This is a staggering amount of money and credit created out of thin air to be monetized, which will certainly depreciate the dollar. We have just seen food and other prices double again. What will happen when all this liquidity hits the economy? You guessed it, more inflation. For some reason the masters of the universe on Wall Street seem to think that somehow inflation and hyperinflation will not appear. They believe in a destructive theory that everything they believe is true. It is part of their misreading of life and its real meaning.

The US would be spending a whopping $200 million per day on President Barack Obama’s visit to the city.
“The huge amount of around $200 million would be spent on security, stay and other aspects of the Presidential visit,” a top official of the Maharashtra Government privy to the arrangements for the high-profile visit said.
About 3,000 people including Secret Service agents, US government officials and journalists would accompany the President. Several officials from the White House and US security agencies are already here for the past one week with helicopters, a ship and high-end security instruments.

“Except for personnel providing immediate security to the President, the US officials may not be allowed to carry weapons. The state police is competent to take care of the security measures and they would be piloting the Presidential convoy,” the official said on condition of anonymity.

The Looting Of America