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Max Keiser et Pierre Jovanovic – Paris

Financial Survival

Disaster and Emergency Survival

The financial system of the United States is in the early stages of a complete meltdown and the vast majority of Americans are completely unprepared for it. Have you come up with a plan for financial survival when TEOTWAWKI (“the end of the world as we know it”) arrives?

Perhaps you think such talk is alarmist. Well, before we discuss what you should do to prepare, let’s take a look at the state of our financial system.

On November 19, 2010 Regulators Closed Another Three Banks, Bringing the Number of Bank Failures in 2010 to 149. On Friday, Federal and State regulators seized three banks, in Florida, Pennsylvania and Wisconsin, as the total number of bank failures in 2010 rise to 149, surpassing 2009 which saw a total of 140 bank failures. This year has now seen the largest number of bank failures since 1992 when there were 181 bank failures. The three failed banks had assets totaling $969.4 milllion, and are estimated to cost the FDIC a total of $199.5 million. For November, there have been ten bank failures with assets totaling $2.88 billion and at an estimated cost to the FDIC of $658.4 million.

Only three banks failed in all of 2007.

So, I hope you can see that this is NOT a good trend.

But perhaps you may think this is just a temporary trend.

After all, the U.S. economy has certainly hit bumps in the road before and recovered well enough.

Well, unfortunately this is not just the downside of a business cycle. What we are facing is the complete unraveling of a financial system built on a mountain of debt.

The reality is that any major currency not backed by gold in the history of the world has eventually failed, and the actions currently being taken by the U.S government and the Federal Reserve are speeding up the day when the dollar will collapse as well.

monetary_baseSometimes words are not enough to describe a really bad situation. Hopefully the chart to the left will help all of you get an idea of what is happening to the dollar. This chart originally comes from the Federal Reserve itself. The chart shows the U.S. monetary base from 1960 until today. From 1960 until about 1980, the amount of currency in circulation was increasing, but it was fairly stable. From 1980 to the middle of this decade, the amount of currency in circulation just exploded, but the key to this chart is the end.

If you look at what is happening today, the amount of dollars in circulation is absolutely shooting through the roof. Now, a lot of this cash which the U.S. government and the Fed have injected into the economy has not gotten into the hands of the person on the street yet, so we are still experiencing the beginnings of a deflationary depression. But eventually all of the money they have injected will get out there into the general economy.

When that happens, there will be a whole lot more dollars in circulation than before but about the same number of goods and services. Do you know what happens when that situation exists?

Inflation. Big, frightening, hair-curling inflation.

The reality is that because of what the U.S. government and the Fed are doing to the dollar, we are going to be facing rip-roaring inflation of a kind that Americans have never known.

And it will effect everyone.

For example, maybe you make good money now, but how far will your paycheck stretch when a loaf of bread costs ten dollars?

Perhaps you have spent decades sticking money in a bank account. Well, inflation acts like a massive tax. When you wake up and your bank account only buys half of what it could buy the year before, how will you feel?

There is no other way for this current economic situation to play out.

The U.S. government and the Fed decided to spend their way out of the current economic crisis by cranking up the debt spiral one more time and by devaluing the dollar.

So we will see massive inflation – it is just a matter of how soon it will hit and how bad it will be.

So what should you do?

#1) Get out of debt – As long as you are in debt you are a slave to the banks. The interest they suck out of you will continue to dramatically diminish your ability to take care of your family. Those who are free of financial entanglements will be in the best position for the times ahead.

#2) Reduce your expenses as much as possible – Sit down and evaluate where your money goes every month. The truth is that almost everyone is spending money that they really don’t need to spend. If you can dramatically reduce your financial outflows each month, you will be able to weather a financial storm much more effectively.

#3) Get out of the stock market – Of course this would have done most of you a lot more good if you had gotten this advice last year. Many of you probably have lost a lot of money. Many of you may be hoping that the stock market will rebound. It may rally a bit for a while, but it could still crash even further at any time. Why gamble with what you still have left in such an unstable economic environment?

#4) Get out of 401Ks and other retirement plans – Besides the persistent rumors that the government is going to take over control of all retirement plans, the reality is that the vast majority of retirement plans are really bad investments right now. The stock market has already devastated most retirement plans, and even if your retirement plan is able to grow a bit in the future, the reality is that the returns will be far, far outpaced by the rate of inflation.

#5) Don’t rely on the banks – As we discussed in the beginning of the article, a lot of banks are failing. Of course for now the government is insuring most deposits. But will that continue if even more banks start to fail? The reality is that the FDIC is basically insolvent right now, and so while banks are probably more secure than the stock market, the reality is that ultimately you are not going to be able to even rely on the security of the banks. Always have a reserve of cash for emergencies.

#6) Gold and silver – These commodities will increase in value as the dollar collapses. However, there is a limit to their utility. When the economy really bottoms out, will people be willing to sell you the supplies that you desperately need even if you have gold and silver? Maybe.

#7) Stock up on the essentials that you will need – The truth is that the most valuable items in an economic collapse will be essential commodities like food, water and emergency supplies. If people are hungry, they aren’t going to sell you their remaining food for any amount of money. Make sure that you have stored up what you and your family will need for an extended period of time.

The truth is that you should buy what you are going to need during an emergency (food and supplies) right now while your dollars still have some value. Your dollars are never going to be more valuable than they are right now.

If you are trusting in a big bank account to be your security blanket in the future then you are going to be very disappointed as the dollar crumbles and your riches quickly fade.

A wise general once said that almost all battles are won ahead of time. When the economy completely crashes, it is those who have a plan and are prepared that will come through things smoothly.

Dusting Off An Old Tool

Dan McLaughlin

Constitutional republics, such as the United States, are built on several key attributes essential for freedom and rights of the people. These include the rule of law, limitation of authority, separation of powers, and competition between jurisdictions. High school students learn these important principles in civics class. It is evident that our government has long been overstepping its limits and living outside the law. The three federal branches, the legislative, the executive, and the judicial, have been working in tandem to expand the power and scope of the federal government, in spite of their important purpose of checking centralized power. They favor monopoly over of competition.

There is another way to limit the federal government and protect the people from legislative over-reach, one that most civics students don’t hear anything about. Historian Thomas Woods has recovered an old but powerful idea from the dustbin of history. In a recent book, Dr. Woods describes what were known as the “Principles of ’98’,” specifically the Virginia and Kentucky Resolutions of 1798 and 1799, written by Thomas Jefferson and James Madison, both of whom were intimately involved in the formation of the American republic.

While those resolutions were enacted by the respective states in protest of specific acts of congress, they provide a concise, powerful argument for the right and duty of the states, as parties to the Constitution of the United States, to check federal authority and protect their own people from abuse of centralized power. That right and responsibility was argued at various state ratifying conventions for the Constitution.

Nullification is the idea that all laws made by the federal government contrary to the Constitution are null and void and, therefore, are not law and are not binding upon the states or the people. Because they are null and void, the states can and should refuse to enforce them or have them enforced in their jurisdictions.

Dr. Woods has done a great service by shining light on this powerful tool for protecting the people and caging the beast that the federal government has become. Nullification has been forgotten by historians, but it has a long and honorable history and a powerful tradition in this country. It is based on the fundamental idea that the states and the people retain their rights, and surrender to the federal partnership only that very limited authority specifically enumerated in the founding document and the amendments.

While historians and national politicians may have discarded nullification, a term used by Jefferson himself, the people of the various states have not. Some states refused to enforce the fugitive slave laws of the 1800s, embargo acts, military conscription, and, in recent times, the Real ID act, federal drug laws, firearms laws, and a growing list of federal power grabs. The piling of one unconstitutional act upon another in a dizzying flurry has rightly gotten the attention of a once-complacent nation. That may be a very positive outcome of those laws. Students over the years have been taught an unquestioning reverence for national political power, and little thought has been given to its implications on the rights of individuals and the states. The growing awareness is an encouraging development and evidence that people may be ready for real change, the devolution of federal power to the states, as originally intended.

Many people cannot even conceive of that possibility, and widespread awareness of the process is important for enabling significant change. It is time for states to step up to the plate and act boldly in defense of their people. This book by Dr. Woods is targeted at a mass market and is easily readable, though thoroughly researched, with footnotes and references for those willing to dig deeper. He is also an engaging, delightful speaker. If you want to preserve your rights, you would do well by viewing his speeches and reading his various books, including his latest, “Nullification, How to Resists Federal Tyranny in the 21st Century. As the centralization of health care, transportation, education, science, welfare, and a laundry list of other initiatives rolls on, national leaders are trashing the constitution. The Feds themselves are not going to rescue it. It is up to you, up to us, up to the states.

Be informed, but more importantly, bind yourself as well as politicians to the chains of the constitution. Don’t empower them by asking for favors at the expense of others. Instead, empower state legislators to dust off this old tool and get to work.

Financial Problems – Thy Name is Debt!

Bill Bonner

Is our “Crash Alert” flag still flying?

It is?

Good. Just checking.

Don’t breathe too hard. Don’t touch anything. We’re on tiptoes… So many things could bring this stock market crashing down. We can go around the world and point at them. China. Ireland. America itself…

And, oh yes, North Korea is firing rockets at South Korea….

Yesterday, the Dow lost 142 points. Gold rose $19.

Over time, the tensions, contradictions and pressures build up. You try to fix one thing with a little central planning…but the thing doesn’t cooperate. So you try to fix something else. And then another thing goes phlooey and you have to fix that.

One day you’re trying to keep Ireland afloat in the North Atlantic. The next day you’re worrying about an explosion in the Middle Kingdom. And then, wouldn’t you know it, a problem flares up right at home.

Financial problems – thy name is debt!

What’s the matter in China? Too much debt in the LGFVs – Local Government Funding Vehicles. A municipality thinks it will be a better place if it had a new mall. So it makes a deal. It helps borrow the money. It helps with the plans. The pols feel like big shots. Money changes hands…some of it legit, a lot of it under the table.

What’s not to like?

Well, do that a few thousand times all over China and pretty soon you have a lot of debt based on projects that never really made any sense in the first place. And where is the debt? In the banks, probably. Who knows what’s in the banks? But they’re the same banks that are funding the most reckless, breakneck speed capital investment program of all time.

Americans consume. The Chinese build. They’re building roads, bridges, towns, railroads, rail links, railheads – everything you can think of. Of course, some of this is necessary. Some of it is productive. But how much? How many local governments are making wise, productive investment decisions?

The Chinese are now spending almost half of their GDP on fixed investments – you know, the kind of stuff that has concrete and steel in it. One out of every two dollars goes to building something more or less permanent.

But how many of those decisions are going to pay off? How much of that investment is going to pay for itself? How much of the debt is going bad?

Darned if we know. No one knows. But Dear Readers are advised to be somewhere else when all this blows up.

It will. We’re sure of it. You can’t make that many capital investment decisions without making a lot of bad ones. You can’t grow that fast without some pretty severe growing pains.

And that’s just China. What about the Emerald Isle? Their problem is debt too. But it’s not LGFV. It’s MBL – mortgage backed lending. Europe’s big banks lent to Irish banks so the Irish banks could lend to Irish homeowners. Trouble is, the Irish homes are now not worth what the Irish homeowners paid for them. So, the micks and paddies have a lot of debt that is never going to be repaid.

Who will take the losses? Normally, it’s a simple question with a simple answer: the people who made the bad investments. But not now.

The news yesterday was that it would take $114 billion to keep Ireland open for business. And Spanish bond yields were hitting new records – investors are afraid they might be the next to go.

European authorities – including the Irish themselves – are afraid that if they let the chips fall where they may…many of them will fall on their own heads. They’re afraid of “contagion” – that is, they’re afraid that if the Irish get sick, they might get sick too. If Irish debt is allowed to collapse, in other words, so will their own bad debt. And who knows where that will lead?

We don’t. But we want to find out. Because we don’t see any better way to get rid of it than just letting it collapse. And so what? A few banks go bust. A few large investors jump off bridges. Heck, there are plenty of bridges in Europe. What’s the trouble?