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Economic System a Legal Ponzi Scheme on the Verge of Collapse!

Editor — Fri, 06 Jan 2012 07:15:37 +0000

Countries around the world, particularly in the West, are hopelessly in the red, with debt rising every day. Even worse, politicians seem paralyzed, unable — or unwilling — to do anything about it. It is a global disaster that threatens the immediate future… [Let me explain.] Words: 1132

So says Alexander Jung (www.spiegel.de) in edited exerpts from his original* article.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Jung goes on to say, in part:

Ponzi Schemes - Then

When Carlo Ponzi, a dishwasher from Parma, Italy, immigrated to the United States in 1903, he had $2.50 in his pocket and a million-dollar dream in his head. He was able to fulfill that dream, at least temporarily, by promising people that he would multiply their money in a miraculous way: by 50 percent in six weeks. With his carefully parted hair and charming accent, Ponzi beguiled investors and fueled their avarice. The first investors raked in fantastic returns. What they didn’t know was that Ponzi was simply using the next investors’ money to pay them their profits. The scheme continued. Ten investors turned into 100, and 100 investors turned into 1,000, until the scam was discovered. Ponzi spent many years in prison, and he died a pauper in 1949 but his name remains important to every criminologist today — and every economist.

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Economists use the term “Ponzi scheme” to describe a disastrous mechanism in which someone pays off old debt by constantly taking on new debt. The repayment of the debt — the most recent loans, plus interest — is deferred into the distant future, fueling an eternal process of debt refinancing. It’s the classic pyramid, or snowball scheme, practiced by thousands of con artists after Ponzi. The most spectacular case was that of New York financier Bernard Madoff, who was responsible for losses of about $20 billion by 2008. Snowballs are set into motion, becoming bigger and bigger as they roll along. In the worst case, they end in an avalanche that takes everything else with it.

Ponzi Schemes - Now

Western economies have not acted much differently than the fraudster Madoff. In 2011, they were virtually inundated with bad news and old sins. Almost everyone — in Europe and in the United States — has been living beyond their means, from consumers to politicians to entire countries. Governments have become servants to the markets upon which they have become dependent.

On an almost weekly basis, the reports have become more worrisome and the sums of money involved more staggering. Many are now concerned that, as 2012 begins, the snowballs will only get bigger — and roll faster:

European banks will have to repay about €725 billion in combined debt in 2012, including €280 billion in the first quarter alone. With the private market largely off-limits to them, the banks have had to rely on the European Central Bank (ECB) to bail them out. The ECB is now lending them fresh money — as much as they want — at minimal interest rates.
Italy has about €160 billion in debt that will mature between January and April; the total for the entire year is about €300 billion. The government in Rome is already having trouble finding buyers for its bonds.
The ECB is creating billions essentially out of nothing. On an almost weekly basis, it is acquiring bonds that no one else would buy from Portugal, Spain and Italy and, in the process, it is turning into a reluctant financier of nations. This financial aid already amounts to €211 billion.
The European Commission…supports the use of so-called euro bonds…which would be issued jointly by the countries in the monetary union [and] would amount to an accumulation of collective debt on top of national debts.
There is the €440-billion euro bailout fund which the finance ministers have decided to “leverage”…because this amount is still not enough.
And then there is the United States which only remains solvent because the Congress in Washington keeps raising the debt ceiling. The American government already owes its creditors about $15 trillion. Stay tuned for the next installment.

In other words, there are plenty of snowballs that have started rolling and getting larger with each rotation. Some aspects of the economic system in the industrialized countries resemble a gigantic Ponzi scheme. The difference is that this version is completely legal.

Living on Credit

Old debts are paid with new ones, with borrowers giving not the slightest thought to repayment. This has been going on for a long time, far too long, in fact. It was only with the eruption of the financial crisis in 2007 and the outrageously expensive bailouts of banks and economies that many people realized that the entire world is living on credit.

“Debt is rising to points that are above anything we have seen, except during major wars,” economists at the Bank for International Settlements (BIS) concluded in a recent study. “The debt problems facing advanced economies are even worse than we thought”…

Ponzi Schemes Eventually Collapse

The fact that nations are continually spending more than they take in cannot turn out well in the long run. The word “credit” comes from the Latin “credere,” which means “to believe.” The system will only function as long as lenders believe in borrowers. Once the belief in the creditworthiness of borrowers is destroyed, hardly anyone will be willing to buy their securities. When that happens, the system is finished. This is precisely what happened with Carlo Ponzi’s scheme and now entire countries are suffering suspiciously similar fates. They are no longer being taken seriously.

Greece is effectively insolvent. Italy and Spain are forced to offer higher interest rates to find buyers for their government bonds and France threatens to lose its impeccable credit rating. The debt crisis has arrived in the heart of Europe.

Meanwhile, it is also flaring up in the United States once again, with Democrats and Republicans blaming each other for the nation’s debts. Instead of taking responsibility and consolidating the budget, President Barack Obama prefers to rail against the Europeans’ approach to crisis management. They, in turn, refuse to tolerate any interference, especially from the United States, which they blame for being the source of the financial crisis in the first place. In this fashion, the Old World and the New World are tossing the blame back and forth, while confidence in politics and its ability to avert collapse is dwindling on both sides of the Atlantic.

*www.spiegel.de/international/world/0,1518,806772,00.html

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1. 2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?

Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660

2. Why Negative Real Interest Rates + Stimulative Money Supply = $10,000/ozt. Gold

Question: What do you get when you mix negative real interest rates with stimulative money supply efforts by global central banks? Answer: An exceptionally potent formula for higher gold prices that could send gold to the unimaginable level of $10,000 an ounce. [Let me explain further.] Words: 1049

3. Egon von Greyerz Interview on Future QE, Hyperinflation and the Price of Gold

A final or total catastrophe of the currency system will occur as a result of unlimited money printing that will lead to hyperinflation. Stock markets will benefit temporarily from this QE [but we expect that the] markets will fall 90% against gold in the next few years. The correction in the precious metals [will] likely [soon] be over and we should see the metals going to new highs in 2012. Words: 450

4. Where Is This Unprecedented Global Financial Crisis Headed? A Retrospective from Alf Field

Everyone must be wondering where this “unprecedented global financial crisis”, (the World Bank’s words), is heading. What follows, for what they are worth, are my cogitations on this crisis. Words: 1641

5. The U.S. is Headed Toward a Complete and Utter Collapse of its Financial System

The U.S. is headed inexorably toward a systemic failure, a complete and utter collapse of the financial system. TARP and all the other machinations have not improved the underlying insolvency of the banking system. They have, however, deferred a collapse and ensured that it will ultimately be worse. [Let me explain.] Words: 1385

6. There Are 2 Ways Out of Global Economic Mess – Hope for One of Them & Prepare for the Other

It all comes down to this: We have to match growth to debt. If we can’t create miracles from growth, we have to consider inflation to reduce the value of our debt. [Those are the] only two ways out of our current global economic mess – innovation and inflation. As the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation). [Let me explain why that is the case.] Words: 1195

7. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 - devolution.] Words: 1520

8. New Boom-bust Cycle Risks Hyperinflationary Depression and Much Higher Gold Price – Here’s Why

It is my view that the world has entered a new boom-bust cycle driven by oil prices. Oscillating oil prices – as opposed to credit cycles – will repeatedly stimulate and crash the highly levered global economy. Governments have not recognized this new cycle, and as part of a fruitless effort to retain control over deteriorating real growth and rising unemployment central banks will print more and more money, risking a hyperinflationary depression (stagflation at best). [As such,] the only respite for many investors is gold. [Let me explain.] Words: 925

9. Why Negative Real Interest Rates + Stimulative Money Supply = $10,000/ozt. Gold

10. Niall Ferguson: U.S. Playing “Russian Roulette” Assuming Interest Rates Will Remain Low

Countering Krugman’s argument that today’s low interest rates show that no one is worried about lending money to us and, therefore, that we should borrow and spend our way to prosperity, Ferguson argues that today’s interest rates are irrelevant. When countries get into trouble, he says, they get into trouble quickly – the way Greece and…

11. Debt Bubble: We’re in a Dangerous New Phase – Here’s Why

The head of the International Monetary Fund, Christine Largarde, said Friday the world economy is entering a “dangerous new phase.” Lagarde is referring to a debt bubble, the likes of which the planet has never seen before, and the possibility that it could all unravel at any moment. Uncertainty over the debt crisis in Europe is what caused the Dow to crash more than 300 points at the end of last week. What is Lagarde going to do about the debt problem? Words: 1752

12. Brace for Impact: U.S. About to Go Off a Financial Cliff!

The kind of impact [our economy is] going to have will not be like flying into the side of a mountain. It will be the kind of crash that skids over land, clipping trees and buildings until the plane ends up wingless in a smoldering heap. I just hope the fuel tanks don’t ignite when the long rough ride is over. [Let me explain.] Words: 832

13. Another Economic Collapse and Great Depression are Coming! Here’s Why

It really is hard to find the words to describe the true horror of the national debt of the U.S. The U.S. government has been on the greatest debt binge in all of human history, and a day of reckoning is coming that is going to be so painful that it is going to shock America to the core. We have lived so far above our means for so long that none of us really has any concept of what “normal” is like anymore. The United States has enjoyed the greatest party in the history of the world, but now this decades-old party is ending and the bills are coming due. Our current system is headed for an inevitable collapse. There is no way of getting around it – a horrific economic collapse is coming [and] it is going to change the world. You better get ready. [Let me explain further.] Words: 1771

14. America’s Future: Growing Deficit, Shrinking Economy, Imploding Dollar and Exploding Inflation

The new [debt ceiling deal] legislation will add $2.4 trillion to the $14.3 trillion national debt in a little over a year – and we don’t even start saving money until after the debt reaches $16.7 trillion! This bill doesn’t even cut the deficit. It just slows the growth of government spending to around 8% a year! So, even if Congress cuts $2.1 trillion out of the budget over the next 10 years, we will still be running annual deficits of more than $1 trillion…[That means that in addition to a deficit that will continue to grow we can look forward to a shrinking economy, an imploding U.S. dollar and exploding inflation. Some future! Let me explain.] Words: 827

munKNEE.com’s Most Read “Best of the Best” Articles in 2011

Editor — Sun, 01 Jan 2012 07:05:53 +0000

This post initiates what I hope will become a multi-year tradition of listing what, according to munKNEE.com readers, were the most read articles from a longer term perspective which makes all of them still VERY relevent today. Interestingly, the 12 most popular articles as determined by you, the visitor, covered the full spectrum of what munKNEE.com covers, i.e. the Economy; the Financial Crisis; the U.S. Dollar and the future of Gold and Silver. Introductory paragraphs and links to each article are provided in descending order of popularity. Enjoy!

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) searches the internet on a daily basis and selects the absolute best (i.e., most informative and well written) articles which he then edits for the sake of clarity and brevity to ensure you, the reader, as fast and easy read and then posts them in an edited excerpted format on his site. Below are the best of the best as selected by one million plus visitors to the site over the past 12 months based on the total number of page views.

1. Will This Hypothetical Outlook and Imagined Resolution of America’s Financial Crisis Occur in 2012? Let’s Hope Not! (Will This Be The USA in 2012?)

As economic and political matters become more desperate in the U.S., so will what the government considers acceptable. If a debt default cannot be engineered via continuous inflation as the Fed’s current money-printing is attempting to do, it will occur via a direct repudiation of obligations or a quasi-surreptitious one such the hypothetical one I present in this article. Here is… a look (not a prediction) at a series of not improbable events that could develop [and which] would change our economic world overnight [ - and your financial well-being too]. Words: 1365

2. Get Ready for Financial Crisis 2.0 in 2012 – It’s Inevitable! Here’s Why

This analyst sees the perfect storm of converging criteria almost perfectly timed and aligned with the 2012 election cycle. When the moment arrives, the financial earthquake will rapidly demolish the existing highly precarious financial system. Government will stand by helpless, unable to shield itself, much less its vulnerable citizens or private financial institutions from the tsunami of debt and currency destruction. 2012 is shaping up to be the blockbuster main event of the ongoing financial crisis. Massive amounts of new debt, vast quantities of additional digital dollars and the spark of higher interest rates will set off version 2.0 of the credit-driven financial implosion. Let me explain. Words: 1443

3. Is Gold On Its Way to $3,000, $5,000, $10,000 or Even Higher? These Analysts Think So

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4. Gold: Will it Go to $12,500 – $24,000 – or $39,000/ozt. – by End of Decade? Here’s the Rationale for Each

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5. The U.S. Dollar Will Collapse Within 24 Months! Got Gold (or Silver)?

The consequences of decades of abuse to the system of credit in the United States are coming to a head and the gray clouds that loom over the skies of the dollar are growing bolder by the day and darker by the minute. The cold hard fact is I expect the U.S. dollar to ultimately collapse within 24 short months. Words: 682

6. A Catastrophic Global Economic Breakdown May Be Unavoidable!

The global economy is in crisis… it is unstable and unsustainable… and a catastrophic economic breakdown may be unavoidable. Government intervention on a multi-trillion dollar scale is the only thing preventing a worldwide collapse into a new great depression. [Let me explain.] Words: 1177

7. Get Ready: Economic Hell is Coming!

Tens of millions of American families are about to go through economic hell and most of them don’t even realize it…Most Americans realize that things seem “harder” these days, but most of them also have faith that things will eventually get better. Unfortunately, things aren’t going to get any better. The number of good jobs continues to decline, the number of Americans losing their homes continues to go up, people are having a much more difficult time paying their bills and our federal government is drowning in debt. Sadly, this is only just the beginning. [Let me explain.] Words: 1256

8. The Dollar is Toast! The Future is Silver

Psychologists tell us that there are five stages of grief over loss of whatever kind, usually death, or breaking up with a loved one, which are: denial, anger, bargaining, depression, acceptance. I’ve applied these to the loss of the dollar, as I see most people today are still stuck in denial, and here’s how to deal with that. Words: 1100

9. Holding Physical Gold Is Absolutely Critical To Your Financial Survival!

We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less and the world financial system is a house of cards where each instrument’s false value is artificially supported by another instrument’s false value. The fuse of the world financial market time bomb has been lit. There is no longer a question of IF it will happen but only WHEN and HOW. Words: 1650

10. Update: Why $300+ Silver is a Realistic Future Peak Price

With Gold at $10,000 Silver Could Reach $714! Silver escalated in price by 81.1% in the 12 months ending June 30th, 2011 compared to gold’s 19.3%. As such the gold:silver ratio fell from 67: 1 to 44: 1 over that period. This is still way out of whack with the long-term historical relationship between the two precious metals and begs the question: “Is now the perfect time to buy silver instead of the much more expensive gold metal?” Words: 1490

11. Commodity-Related Warrants Warrant Your Attention

With all the interest in physical gold, silver and other commodities these days, and the large/mid-cap companies who mine the metals and the juniors who are exploring for them, it begs the question: “Why has no one written about the 91% returns and the 60% leverage generated by the long-term warrants offered by a select few miners and royalty companies in 2010?” The information in this article and the links to a variety of resources will change all that and make you ready and able to reap the benefits from investing in this much misunderstood asset class. Words: 2585

12. What Do Gold Measurements “Troy” Ounce and “Karat” Really Mean?

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Get Ready for Financial Crisis 2.0 in 2012 – It’s Inevitable! Here’s Why

Editor — Fri, 30 Dec 2011 07:59:33 +0000

So says Arnold Bock (www.FinancialArticleSummariesToday.com). Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Bock goes on to say:

Why Was Financial Crisis 1.0 Only a First World Crisis?

The original 1.0 version had its origins in the collapse of the US subprime mortgage derivative deck of cards in 2007 before morphing into a broad-based financial crisis in the fall of 2008. It gradually spread to most other first-world advanced economies, but did not wreck havoc on emerging markets and second and third world nations. Most such economies were insulated from the folly of first-world finance – credit, borrowing, overwhelming debt and onerous interest payments – simply because they did not qualify for the intoxicating elixir of credit.

Can the US Government Prevent Another Financial Crisis?

A plethora of fact and opinion has been offered to explain what went wrong – Wall Street greed, crony capitalism, deficient and inadequately administered regulations, a credit and debt engorged consumer-driven economy, imprudent lending standards, negative real interest rates and nonexistent savings. Invariably, all reasons rest on the overwhelming availability and excessive abundance of cheap and easy credit and cash.

The meagre measures that have been designed and implemented since the onset of the Great Recession to mitigate financial risk, such as the Dodd Frank Financial Reform legislation, have merely institutionalized the shortcomings of the regulatory framework. Moreover, the ‘too big to fail’ private financial institutions which qualify for unlimited taxpayer bailouts are even fewer and larger today. Indeed, the supposed solutions to the problem exemplify what the problem really is – government!

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Deficits are exploding rapidly leading inexorably to massive debt at all levels of government from federal, to state and into local governments. US sovereign/federal debt is now over $14 Trillion and is expanding in the current fiscal year at over $1.65 Trillion – over three times greater than just three years ago. Currently 37 percent of all federal spending comes from borrowing, which means much more debt…and a veritable fairyland of more magic money created by the FED to service the ballooning beast.

To this cauldron of crud one must add all the unfunded and underfunded obligations of the social safety net represented by Social Security, Medicare and Medicaid, all conveniently excluded from the federal government’s annual operating budget. Depending on what assumptions are made for such factors as future inflation, eligibility criteria, program utilization and related issues, further unfunded liabilities of between $60 Trillion and $110 Trillion must be added to the US federal government’s debt tab.

State and local governments contribute a further $3.87 Trillion in unfunded liabilities attributable to their employee pensions and health insurance benefits. Recent state and municipal employee demonstrations militating for retention of the unsustainable status quo have profiled what clearly are bloated pension and health benefits.

Respected economists Carmen Reinhart and Kenneth Rogoff, in their recent book entitled “This Time is Different” outlined how a debt to GDP ratio of 90 percent is a nation’s tipping point. Their conclusions are based on an analysis several hundred years of economic history. The USA, United Kingdom, Japan and others are lined up to join Greece, Ireland, Portugal among others staring at the looming financial abyss.

Fundamentals are therefore in place for another financial collapse. This time governments will join private financial institutions heading toward the financial debt wall. Government won’t be able to perform its previous role of bailing out ailing financial giants since government itself is now in need of rescuing.

Indeed, the most challenging questions today are how and who will bail out our failing governments? European nations in the EU and those who share the Euro currency can’t help since many of them occupy an equally perilous perch on the financial precipice. It seems all advanced nations not supported by a strong natural resources sector (Canada, Australia) or high productivity manufacturing (Germany) are facing financial catastrophe.

What Will Trigger Financial Crisis 2.0?

Rising interest rates are all that is necessary to trigger the round two collapse of the ongoing financial crisis and as emphasized in an article entitled Niall Ferguson: U.S. Playing “Russian Roulette” Assuming Interest Rates Will Remain Low. It doesn’t take Mensa level intelligence to notice that current interest rates are lower than they have been since the early 1950’s. Real interest rates are also perilously close to being negative, if not already. With rapidly growing price inflation, interest rates will be forced northward.

Why America’s Political Process Virtually Guarantees Financial Crisis 2.0?

How can we be so certain that another and more serious financial crisis is on the horizon? Salient factors include:

the magnitude and momentum of expanding government deficits, debt and unfunded liabilities,
the monetization of Treasury debt by the Federal Reserve Board using manufactured money acquired through the somewhat mystical process labelled ‘Quantitative Easing’,
the strong prospect of higher interest rates necessitated by an inflating and devaluing currency followed inevitably by increasing price inflation.

The political process virtually guarantees that no tough, but essential, measures of consequence will be undertaken by political decision makers to stabilize the financial system. To suggest that strong leadership at this time of looming financial crisis is needed is to state the obvious. However, politicians are like most other people in that they are ambitious careerists who worked hard to secure the jobs they so treasure. Ditto for government bureaucrats who want to preserve their careers and the associated benefits, including the cushiness of defined benefit and inflation protected pensions as well as gilded health insurance. Preservation of the status quo is understandably their top priority.

Voters expect their elected representatives to be active and to ‘do something’ when a crisis strikes them between their eyes. However, there is absolutely no incentive to scan the horizon and to implement tough measures designed to head off a mounting crisis.

Politicians all across the partisan spectrum and range of ideologies have learned, indeed they have thoroughly inculcated, the reality that the voting public does not want to hear about emerging or imminent problems. They want reassurance, not anxiety, but when a crisis blindsides them, they want immediate action from their government.

Until the crisis arrives, politicians who assume leadership roles as educators and disseminators of serious policy options are frequently branded as bad news bears and messengers of mayhem for calling for belt tightening and sacrifice. Instead, voters reflexively point to government waste and to the ‘rich people’ for austerity and additional revenue.

Politicians of vision are invariably chastised by losing their jobs at the next election. Candidates who ignore the storm clouds and who promise good times ahead are most frequently rewarded with the endorsement of a vote. Political will wilts in this kind of hostile electoral environment. Is it any wonder the voting public hears what it wants and gets what it deserves?

Presidential election years are traditionally awash with positive investment environments. Politicians in power know that the public can be bribed with their own money…actually borrowed money. Voters enjoy their apparent prosperity and the general feeling of financial wellbeing. Incumbent Presidents, legislators all, do well in such circumstances.

We will see this scenario play out again in 2012…but only if the persons in power can engineer it yet again – but can they? Will record low interest rates continue? Will the dollar plummet with the excess of FED money printing? Will emerging price inflation in food and energy make for a grouchy voter? Can the government keep the lid on or will the financial pressure cooker explode?

Conclusion: 2012 Will Be the Year of the Perfect Financial Storm…

Buying time by creating ever more magic money, which inevitably results in price inflation, overheated stock and commodities markets and which devalues the currency – will work until it doesn’t.

If starting tomorrow morning our politicians were to act like adults, willing to lead in a pragmatic and focused fashion, free from the concerns of partisan advantage, rancour and rigid ideology, financial collapse could be delayed…perhaps avoided. Unfortunately the challenge seems insurmountable and the political will too feeble. Get ready for Financial Crisis 2.0 in 2012 – it’s inevitable!

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Related Articles:

1. Will This Hypothetical Outlook and Imagined Resolution of America’s Financial Crisis Occur in 2012? Let’s Hope Not!

As economic and political matters become more desperate in the U.S., so will what the government considers acceptable. If a debt default cannot be engineered via continuous inflation as the Fed’s current money-printing is attempting to do, it will occur via a direct repudiation of obligations or a quasi-surreptitious one such the hypothetical one I present in this article. Here is… a look (not a prediction) at a series of not improbable events that could develop [and which] would change our economic world overnight[ - and your financial well-being too]. Words: 1365

2. Where Is This Unprecedented Global Financial Crisis Headed? A Retrospective from Alf Field

3. The U.S. is Headed Toward a Complete and Utter Collapse of its Financial System

4. Goldman Sachs Privately Telling Clients to Bet on Upcoming Economic Collapse!

The debt crisis in the United States is unsustainable, and the debt crisis in Europe is unsustainable. As such, we are facing a global debt meltdown and are heading for an economic collapse. You aren’t going to hear that truth from the media or from our politicians, however, because keeping people calm is much more of a priority to them than is telling the truth – and right now we are in the calm before the storm. Nobody knows exactly when the storm is going to strike (i.e. when the collapse is going to happen) – but it is definitely on the way — and now even Goldman Sachs is admitting [that that is most likely the outcome of the present situation. Here is what they had to say recently in a "secret" document that has just now been made public.] Words: 1147

5. 2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?

6. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

7. Niall Ferguson: U.S. Playing “Russian Roulette” Assuming Interest Rates Will Remain Low

8. Brace for Impact: U.S. About to Go Off a Financial Cliff!

9. Another Economic Collapse and Great Depression are Coming! Here’s Why

Why Is Gold Falling? Should I Buy, Hold or Sell?

Editor — Sat, 19 Nov 2011 07:32:12 +0000

Gold falls when a financial crisis worsens for 2 basic reasons which make total sense when looked at objectively. Resultant government intervention then creates the environment for a future rise in the price of gold. This article explains the causes of the downs and ups in the price of gold and offers suggestions on how and when to act. Words: 868

So conveyed Plan B Economics (www.planbeconomics.com) in their original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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The article goes on to say, in part:

Why Does Gold Fall When a Financial Crisis Worsens?

Investors need to understand two things:

gold is priced in US dollars meaning that as the dollar rises the price of gold falls, all things being equal. The dollar is quickly rising because it is a safe haven (US Treasuries are a safe haven that must be purchased in US dollars) and because asset liquidations around the world are gaining speed causing a growing shortage of dollars.
gold…is a source of funding for margin calls made on declining assets. This means that gold is undergoing a degree of “forced selling.”

One only has to go back a couple years to see how gold reacts during a financial crisis. The chart below shows the price of gold during the financial crisis…in March 2008…During this time, gold prices fell by about 25% and subsequently recovered all losses. This was a scary ride for anyone holding gold at the time, but it’s an incomplete view of gold’s performance during the crisis.

The second chart below shows gold during the same period priced in US dollars, euros and Canadian dollars (indexed to 100 for comparison purposes). During the 2008/2009 crisis…the US dollar was rising while the euro and Canadian dollar were falling and this is reflected in the different gold prices. Gold priced in Euros and Canadian dollars fell less and recovered faster than gold priced in US dollars. This is precisely because the US dollar was so strong during that period. However, as the monetary response began to unfold (QE1 announced December 2008) and trillions of US dollars were unleashed to backstop the financial system, gold in all currencies began to rally dramatically.

[As I see it, worsening financial crises lead initially to lower gold prices which are followed by some form of government intervention to alleviate the crises and that action, in turn, eventually results in renewed appreciation in the price of gold. As the author of the article puts it] really, the basic steps are straightforward:

Economic/financial crisis leads to asset liquidation and dollar shortage
Dollar shortage leads to dollar appreciation and gold depreciation (in dollar terms)
One form of asset liquidation – forced gold selling – leads to gold depreciation (in all currencies)
Eventual monetary response creates surplus of dollars
Surplus of dollars causes dollar depreciation and gold appreciation

Should I Buy, Hold or Sell?

For US investors, in my opinion, a crisis in which a skyrocketing dollar sends gold plummeting in US dollar terms could create a big gold buying opportunity, like it did in 2008.

Editor’s Note: Why spend time surfing the internet looking for informative and well-written articles on the health of the economies of the U.S., Canada and Europe; the development and implications of the world’s financial crisis and the various investment opportunities that present themselves related to commodities (gold and silver in particular) and the stock market when we do it for you. We assess hundreds of articles every day, identify the best and then post edited excerpts of them to provide you with a fast and easy read.

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[The above] said, the basic steps outlined above could take months to fully materialize. The market is disappointed (read: impatient) with the Fed’s lackluster curve-flattening program (i.e. Operation Twist) because it delays the possibility of additional quantitative easing. However, as the economy continues to deteriorate, the probability of QE3 rises [and] this process could take a long time, and the Fed won’t act until it must act. The Fed simply no longer has the credibility and political support to act boldly and pre-emptively, so it must wait until there’s blood in the streets and politicians are begging for relief.

For non-US investors that own gold, pay attention to the price of gold in your domestic currency because, unless you have hedged, your exposure is relative to your home currency, not US dollars.

*http://www.planbeconomics.com/2011/09/23/how-gold-performs-during-a-financial-crisis/

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1. Gold Going to $1,300? “Three-Peaks and a Domed House” Pattern Suggests That’s Possible

The price of gold is still in the “Plunge” phase of the “Three-Peaks and a Domed House” pattern [and is projected to drop to the lowest price of the enitire pattern which is $1,300 per troy ounce. Yes, $1,300! Words: 868

2. Will Gold Drop as Low as $1,200 Before Spurting to $2,000?

In the long run developments in the financial markets and around the world seem to conspire to whip up a perfect storm for the gold price, taking it up towards $2,000 and further. That new upleg, however, could very well start from a much lower level than now. There are quite a few developments that could easily send the gold price lower in the coming months. Is $1,200 gold in the cards? Words: 739

3. Back Up the Truck: It’s Time to Buy Gold With Both Hands! Here’s Why

Since the fundamentals still point to gold’s long-term viability… why [are] investors responding by selling gold…? I was always told not to look a gift horse in the mouth… [so] take advantage of the dip. Words: 880

4. Relax! Gold, Silver and HUI Index to Bounce Back to Major Highs in Early 2012

With the present major correction in gold, silver and the mining sector it is important to look at the big picture and see what the charts are saying from a technical fractal relationship with what happened back in 1979 when the last truely major bull run occurred. To date the situation is, frankly, no different than it was back then unfolding just as it should. As a result we can expect MAJOR upward price action in physical gold and silver and in their mining (producers, developers, explorers and royalty streamers alike) in the next few months on their way to their respective parabolic peaks in the years ahead. Read on. Words: 1265

5. Do Recent Gold & Silver Correlation/Return Comparisons With S&P 500 Refute Their Safe Haven Status?

The past few years have seen the development of the notion that GLD and SLV represent uncorrelated plays on the market, making them safe haven bets for your portfolio. Looking at historical trends (aside from 2011), [however,] one would have to go back to 2007 to find a year where these two metals weren’t highly correlated to the S&P 500. For all of 2011, both ETFs have featured low correlation, but as recent trading weeks have shown, old habits die hard, as the two ETFs have fallen back into a highly correlated trend. Let’s take a look at the particulars.] Words: 672

6. Where Do Gold & Silver Rank in Vulnerability to a Recession Among Other Commodities?

A Barclays Capital research [report] notes that gold prices are vulnerable to a recession – more so than some of the other commodities. In the last recession of 2008, gold prices appreciated the least among precious metals. Below is a table that ranks 30 different commodities. Words: 571

7. Gold as a Safe Haven is Worthless!

If there is one thing we’ve learned about gold in recent years – and recent days – it is this: gold is not a haven investment… There are many theories about gold’s correction. [Let's take a look.] Words: 781

8. Ian Campbell’s Commentary: Gold – The Safest Haven?

Is physical gold the best available ‘safe-haven’ or is it the U.S. dollar – or perhaps even U.S. Treasuries? Words: 793

Is the Financial World On the Verge of a Nervous Breakdown? These Signs Suggest So

Editor — Mon, 19 Sep 2011 07:23:28 +0000

Will global financial markets reach a breaking point during the month of October? Right now there are all kinds of signs that the financial world is about to experience a nervous breakdown. Massive amounts of investor money is being pulled out of the stock market and mammoth bets are being made against the S&P 500 in October. The European debt crisis continues to grow even worse and weird financial moves are being made all over the globe. Does all of this unusual activity indicate that something big is about to happen? Let’s hope not – but historically, the biggest stock market crashes have tended to happen in the fall. So are we on the verge of a “Black October”? Words: 1200

So says Michael Snyder (www.theeconomiccollapseblog.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Snyder goes on to say, in part:

Below are 21 signs that something big is about to happen in the financial world and that global financial markets are on the verge of a nervous breakdown:

#1: We are seeing an amazing number of bets against the S&P 500 right now. According to CNN, the number of bets against the S&P 500 rose last month to the highest level in a year – but the number of bets against the S&P 500 for the month of October is absolutely astounding. Somebody is going to make a monstrous amount of money if there is a stock market crash next month.

#2: Investors are pulling a huge amount of money out of stocks right now. Do they know something that we don’t? The following is from a report in the Financial Post:

Investors have pulled more money from U.S. equity funds since the end of April than in the five months after the collapse of Lehman Brothers Holdings Inc., adding to the $2.1 trillion rout in American stocks.

About $75 billion was withdrawn from funds that focus on shares during the past four months, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group, and EPFR Global, a research firm in Cambridge, Massachusetts. Outflows totaled $72.8 billion from October 2008 through February 2009, following Lehman’s bankruptcy, the data show.

#3: Siemens has pulled more than half a billion euros out of two major French banks and has moved that money to the European Central Bank. Do they know something or are they just getting nervous?

#4: Standard & Poor’s cut Italy’s credit rating from A+ to A.

#5: The European Central Bank is purchasing even more Italian and Spanish bonds in an attempt to cool down the burgeoning financial crisis in Europe.

#6: The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank have announced that they are going to make available an “unlimited” amount of money to European commercial banks in October, November and December.

#7: So far this year, the largest bank in Italy has lost over half of its value and the second largest bank in Italy is down 44 percent.

#8: A recent poll found that an astounding 82 percent of all Germans believe that Angela Merkel’s coalition government is doing a bad job of handling the crisis in Greece. Right now, public opinion in Germany is very negative toward the bailouts, and that is really bad news for Greece.

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#9: Greece is experiencing a full-blown economic collapse at this point. Just consider the following statistics from a recent editorial in the Guardian:

Consider first the scale of the crisis. After contracting in 2009 and 2010, GDP fell by a further 7.3% in the second quarter of 2011. Unemployment is approaching 900,000 and is projected to exceed 1.2 million, in a population of 11 million. These are figures reminiscent of the Great Depression of the 1930s.

#10: In 2009, Greece had a debt to GDP ratio of about 115%. Today, Greece has a debt to GDP ratio of about 160%. All of the austerity that has been imposed upon them has done nothing to solve their long-term problems.

#11: The yield on 1 year Greek bonds is now over 129 percent. A year ago the yield on those bonds was under 10 percent.

#12: Greek Deputy Finance Minister Filippos Sachinidis says that Greece only has enough cash to continue operating until next month.

#13: Italy now has a debt to GDP ratio of about 120% and their economy is far, far larger than the economy of Greece.

#14: The yield on 2 year Portuguese bonds is now over 17 percent. A year ago the yield on those bonds was about 4 percent.

#15: China seems to be concerned about the stability of European banks. The following is from a recent Reuters report:

A big market-making state bank in China’s onshore foreign exchange market has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, two sources told Reuters on Tuesday.

#16: European central banks are now buying more gold than they are selling. This is the first time that has happened in more than 20 years.

#17: The chief economist at the IMF says that the global economy has entered a “dangerous new phase”.

#18: Israel has dumped 46 percent of its U.S. Treasuries and Russia has dumped 95 percent of its U.S. Treasuries. Do they know something that we don’t?

#19: World financial markets are expecting that the Federal Reserve will announce a new bond-buying plan this week that will be designed to push long-term interest rates lower.

#20: If some wealthy investors believe that the Obama tax plan has a chance of getting through Congress, they may start dumping stocks before the end of this year in order to avoid getting taxed at a much higher rate in 2012.

#21: According to a study that was recently released by Merrill Lynch, the U.S. economy has an 80% chance of going into another recession.

Conclusion

When financial markets get really jumpy like this, all it takes is one really big spark to set the dominoes in motion. Hopefully nothing really big will happen in October. Hopefully global financial markets will not experience a nervous breakdown but right now things look a little bit more like 2008 every single day. None of the problems that caused the financial crisis of 2008 have been fixed, and the world financial system is more vulnerable today than it ever has been since the end of World War II…

If we see another major financial crash in the coming months, the consequences would be absolutely devastating. We have been softened up and we are ready for the knockout blow. Let’s just hope that the financial world can keep it together, however. We don’t need more economic pain right now.

*http://theeconomiccollapseblog.com/archives/nervous-breakdown-21-signs-that-something-big-is-about-to-happen-in-the-financial-world

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1. Unbelievable! Geithner Admits That He Doesn’t Know What To Do

An Associated Press release has said that U.S. Treasury Secretary Timothy Geithner has told eurozone finance officials the U.S. is not trying to lecture them on their debt crisis saying that “we still have our challenges in the United States” and that “our politics are terrible… maybe worse than they are in many parts of Europe”. The U.S. finance chief said that given the challenges the U.S. faces, “we’re not in a particularly strong position to provide advice to all of you.” Why isn’t this breaking news? Words: 570

2. Goldman Sachs Privately Telling Clients to Bet on Upcoming Economic Collapse!

3. A Full-blown International Bond & Currency Crisis is Approaching – Fast! Here’s Why

Over the past two months stock markets have crashed around the world and gold prices have soared as global investors decided that the U.S. has lost its race against time. A new recession is upon us before we even half-closed the output gap left open from the last recession. It means even larger deficits and an even weaker dollar. The price of gold and Treasury bonds is telling us that a full-blown international bond and currency crisis is approaching. There is no international policy mechanism available to stop the panic short of re-opening the gold window that the U.S. closed unilaterally and “temporarily” in 1971. [Let me explain.] Words: 3025

4. Roubini, Schiff, Rosenberg and Whitney Agree: Another Recession Is At Hand! Here’s Why

Michael Spence, professor at New York University’s Stern School of Business and winner of the 2001 Nobel Prize in economics, believes there’s “probably a 50%” chance of the global economy slipping into recession. Noriel Roubini disagrees and says flatly that a recession is coming and that it is a mission impossible now to stop it. The Philadelphia Federal Reserve Bank places the odds at 85% of a recession. David Rosenberg, another very savvy economist, says that by 2012, the chance of a second recession is 99%. Peter Schiff, who with Roubini, correctly and accurately predicted the collapse on Wall Street and ensuing recession, thinks one is 100% certain. [Let's take a look at why they hold such views.] Words: 829

5. These 10 Signs Point to Another Recession

The following 10 reasons give a foundation for why I believe we may be approaching another recession. Words: 903

6. Why It’s Exit Time – For Your Gold, Your Wealth and Your FamilyThe United States and most of Europe…risk an eruption and collapse of the mountain of unsustainable sovereign debt built up over the last two decades. Frankly, the U.S. dollar and national debt situation is so dire – and our means to contain a sovereign debt crisis so limited by multiple wars and Washington’s debt and political incompetence at home – that anything could happen, almost overnight. [The best] America and most European governments and the central banking elites, which created the criminal sovereign debt fiasco, [appear able to do is] try to buy more time and delay the inevitable. This inaction means the threat of an immediate US debt and dollar collapse cannot be ruled out. Therefore, readers who have not protected themselves certainly have cause to worry because now could be too late. [Let me explain further.] Words: 1689

Nouriel Roubini: Bold and Aggressive Policy Actions Necessary to Prevent a Depression

Editor — Sun, 18 Sep 2011 07:48:28 +0000

The latest economic data suggests that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Brothers in 2008. The risks of an economic and financial crisis even worse than the previous one – now involving not just the private sector, but also near-insolvent sovereigns – are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a deeper depression and financial meltdown? [Below I recommend 8 bold and agressive policy actions that would accomplish just that.] Words: 1641

So says Nouriel Roubini (www.project-syndicate.org) in an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Roubini’s recommendations are outlined below:

1. Countries that are able to provide short-term stimulus (countries such as the United States, the United Kingdom, Germany, the core of the eurozone, and Japan) should do so and postpone their own austerity efforts if other countries in the eurozone’s periphery are forced to undertake fiscal austerity. Infrastructure banks that finance needed public infrastructure should be created as well.

2. The European Central Bank should reverse its mistaken decision to hike interest rates. More monetary and credit easing is also required for the US Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labor, real estate, and commodity markets feeds disinflationary pressures.

3. Eurozone banks and banking systems that are under-capitalized should be strengthened with public financing in a European Union-wide program to restore credit growth. To avoid an additional credit crunch as banks deleverage, banks should be given some short-term forbearance on capital and liquidity requirements. Also, since the U.S. and EU financial systems remain unlikely to provide credit to small and medium-size enterprises, direct government provision of credit to solvent but illiquid SMEs is essential.

4. Large-scale liquidity provision for solvent governments is necessary to avoid a spike in spreads and loss of market access that would turn illiquidity into insolvency. Even with policy changes, it takes time for governments to restore their credibility. Until then, markets will keep pressure on sovereign spreads, making a self-fulfilling crisis likely. Today, Spain and Italy are at risk of losing market access. Official resources need to be tripled – through a larger European Financial Stability Facility, Eurobonds, or massive ECB action – to avoid a disastrous run on these sovereigns.

5. Debt burdens that cannot be eased by growth, savings, or inflation must be rendered sustainable through orderly debt restructuring, debt reduction, and conversion of debt into equity. This needs to be carried out for insolvent governments, households, and financial institutions alike.

6. Economic growth will not resume until competitiveness is restored even if Greece and other peripheral eurozone countries are given significant debt relief and, without a rapid return to growth, more defaults – and social turmoil – cannot be avoided. There are three options for restoring competitiveness within the eurozone, all requiring a real depreciation – and none of which is viable:

A sharp weakening of the euro towards parity with the US dollar, which is unlikely, as the US is weak, too.

A rapid reduction in unit labor costs, via acceleration of structural reform and productivity growth relative to wage growth, is also unlikely, as that process took 15 years to restore competitiveness to Germany.

A five-year cumulative 30% deflation in prices and wages – in Greece, for example – which would mean five years of deepening and socially unacceptable depression; even if feasible, this amount of deflation would exacerbate insolvency, given a 30% increase in the real value of debt.

Because these options cannot work, the sole alternative is an exit from the eurozone by Greece and some other current members. Only a return to a national currency – and a sharp depreciation of that currency – can restore competitiveness and growth. Leaving the common currency would, of course, threaten collateral damage for the exiting country and raise the risk of contagion for other weak eurozone members. The balance-sheet effects on euro debts caused by the depreciation of the new national currency would thus have to be handled through an orderly and negotiated conversion of euro liabilities into the new national currencies. Appropriate use of official resources, including for recapitalization of eurozone banks, would be needed to limit collateral damage and contagion.

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7. The advanced economies need a medium-term plan to restore competitiveness and jobs via massive new investments in high-quality education, job training and human-capital improvements, infrastructure, and alternative/renewable energy. Only such a program can provide workers in advanced economies with the tools needed to compete globally.

8. Emerging-market economies should ease monetary and fiscal policy given that they have more policy tools left than advanced economies do. The International Monetary Fund and the World Bank can serve as lender of last resort to emerging markets at risk of losing market access, conditional on appropriate policy reforms and countries like China, that rely excessively on net exports for growth should accelerate reforms, including more rapid currency appreciation, in order to boost domestic demand and consumption.

Conclusion

The risks ahead are not just of a mild double-dip recession, but of a severe contraction that could turn into Great Depression II, especially if the eurozone crisis becomes disorderly and leads to a global financial meltdown.

Wrong-headed policies during the first Great Depression led to trade and currency wars, disorderly debt defaults, deflation, rising income and wealth inequality, poverty, desperation, and social and political instability that eventually led to the rise of authoritarian regimes and World War II.The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.

*http://www.project-syndicate.org/commentary/roubini42/English (Nouriel Roubini is Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics. Copyright: Project Syndicate, 2011.)

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2. A Full-blown International Bond & Currency Crisis is Approaching – Fast! Here’s Why

3. Roubini, Schiff, Rosenberg and Whitney Agree: Another Recession Is At Hand! Here’s Why

4. These 10 Signs Point to Another Recession

The following 10 reasons give a foundation for why I believe we may be approaching another recession. Words: 903

5. Why It’s Exit Time – For Your Gold, Your Wealth and Your FamilyThe United States and most of Europe…risk an eruption and collapse of the mountain of unsustainable sovereign debt built up over the last two decades. Frankly, the U.S. dollar and national debt situation is so dire – and our means to contain a sovereign debt crisis so limited by multiple wars and Washington’s debt and political incompetence at home – that anything could happen, almost overnight. [The best] America and most European governments and the central banking elites, which created the criminal sovereign debt fiasco, [appear able to do is] try to buy more time and delay the inevitable. This inaction means the threat of an immediate US debt and dollar collapse cannot be ruled out. Therefore, readers who have not protected themselves certainly have cause to worry because now could be too late. [Let me explain further.] Words: 1689

Massive Financial Crisis Could Result in a New “United States of Europe”

Editor — Fri, 09 Sep 2011 07:03:42 +0000

Are we about to see a huge push for a “United States of Europe”? As the sovereign debt crisis in Europe continues to spiral out of control, suddenly this term is popping up in the New York Times and in major newspapers all over Europe. Is this by accident? Surely not. The truth is that there is an overwhelming consensus among the political and financial elite of Europe that a “United States of Europe” is what would be best for the eurozone. However, they are likely going to need a massive financial crisis in order to reach their goal. [Let me explain.] Words: 1639

So says Michael Snyder (www.endoftheamericandream.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Snyder goes on to say, in part:

Right now, the citizens of the countries that make up the eurozone are overwhelmingly against deeper European integration. Without experiencing a massive amount of financial pain, they are unlikely to change their minds any time soon. So who is going to win in the end? Unfortunately, the clock is ticking because Greece is on the verge of defaulting on their debts and several other countries are not that far behind. If Europe does not decide on a course of action soon, the euro is going to collapse and financial institutions all over Europe are going to come crashing down.

Up until now, EU leaders have been handling this crisis by putting out one fire after another. This has been going on for a couple of years, but these bailouts cannot go on indefinitely. Instead of fixing things, “kicking the can down the road” has only delayed the pain and made things even worse.

The EU, as it is currently structured, simply does not work. The political will for more bailouts is rapidly drying up and politicians in Europe are only going to be able to “extend and pretend” for a little while longer.

[Below is what a number of key individuals are now saying about the current financial situation and what they think should be done to remedy the situation.]

Mario Draghi

Something needs to be done but instead of admitting that the euro was a massive mistake and returning to national currencies, most of the top politicians in Europe believe that “more Europe” is the answer. Mario Draghi, the incoming head of the European Central Bank, is totally convinced that Europe needs to integrate much more deeply….

“To cope with this, we must have a treaty change. The aim of this effort should be a quantum leap up in European economic and political integration.”

Do you notice that he is not just advocating small changes in the way that Europe works. What Draghi wants is “a quantum leap” in European integration.

Jean-Claude Trichet

Draghi’s predecessor feels the same way. Jean-Claude Trichet, the departing head of the European Central Bank, is also very much in favor of much deeper European integration….

“The crisis has clearly revealed the need for strong economic governance in a zone with a single currency”

Herman van Rompuy

Of course one of the biggest proponents of a “United States of Europe” has been Herman van Rompuy. In a recent article, the Telegraph made the following eye-catching statement….

Herman van Rompuy is ready to run for a second term as EU president, at the head of a “United States of Europe”

Of course he would not be doing it for “personal glory”. In the same article, he is quoted as saying he wants another term because “the work is not finished” and that he needs new powers in order to get it done….

Mr Van Rompuy has announced he is willing to take on the “unfinished” euro zone debt crisis with new powers setting an “economic government” in Brussels.

UK Prime Minister David Cameron

Top politicians in the UK are even promoting the idea of much deeper European integration. Even though he insists that Britain will not join the euro, UK Prime Minister David Cameron is now publicly endorsing the idea that the eurozone form a “United States of Europe” in order to save the euro according to a recent article in the Daily Mail….

David Cameron was branded an EU ‘enthusiast’ by Tory Eurosceptics last night as he said Britain must let eurozone countries move towards a United States of Europe with a common economic policy.

The Prime Minister admitted he was not sure whether Germany and other countries had the political will to prevent a break-up of the single currency, but insisted they must be allowed to try – even if that meant closer integration.

It is funny how whenever there is a crisis in Europe, the answer that we are always given is that “more Europe” is the answer.

Antonio Borges

For example, Antonio Borges, director of the International Monetary Fund’s European unit, recently stated the following….

“To put the crisis behind us, we need more Europe, not less. And we need it now.”

In the past, European leaders were always very hesitant to use the words “United States of Europe” but now it seems like that term is flying around all over the place. It is almost as if they want to start getting us conditioned to the idea.

German Chancellor Gerhard Schroeder

Just check out what former German Chancellor Gerhard Schroeder said recently. He has been one of the biggest cheerleaders for a United States of Europe….

“From the European Commission, we should make a government which would be supervised by the European Parliament. And that means the United States of Europe.“

Obstacles in the Way of a U.S.E.

So if all of these top politicians want this, why can’t they just do it? Well, there are some problems.

1. The EU treaties don’t really allow for a “United States of Europe”, and the recent decision by the German Constitutional Court has put up some huge roadblocks. For example, the German Constitutional Court seemed to kill off the possibility for any kind of “fiscal federalism” in the near future when they made this statement in their recent decision….

“The Bundestag’s budget responsibilities may not be transferred through open-ended appropriations to other actors. In particular, no financial mechanisms can lead to meaningful fiscal burdens without prior approval”

Not only that, but the court also clearly rejected the notion of “Eurobonds”….

“No permanent treaty mechanisms shall be established that leads to liability for the decisions of other states, especially if they entail incalculable consequences”

By using this kind of language, the German Constitutional Court has put up some massive roadblocks in the way of a “United States of Europe”. It is probably going to take a new treaty in order to get it done.

2. The citizens of Europe don’t want anything to do with a new treaty would allow for a “United States of Europe”. If such a treaty was put up for ratification at this point, it would be soundly defeated. For example, a recent poll found that 76% of the German people are opposed to any further German financial aid for Greece. In addition, another recent poll found that German voters are against the introduction of “Eurobonds” by about a 5 to 1 margin.

German Chancellor Angela Merkel is having a hard enough time just keeping support for the current Greek bailout together. According to reports, there are 25 members of her own coalition that plan to vote against the revamped EFSF. At this point it is unclear whether it will pass or not.

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As noted above, the political will for more bailouts is dying but without more bailouts, Greece will default and several other eurozone nations will follow. It could also mean the potential for at least a partial collapse of the euro but if there is a massive financial crisis in Europe, it may start changing the minds of the voters about much deeper European integration…Once people start feeling severe pain, often they will start considering things that they would not have considered before.

3. A “united States of Europe” would mean a major loss of national sovereignty. Let us hope that European voters never change their minds, [however, because] deeper European integration may stop the current financial crisis, but it would also mean a tremendous loss of national sovereignty.

A Daily Mail article entitled “Rise of the Fourth Reich, how Germany is using the financial crisis to conquer Europe” contained the following sobering assessment of what deeper economic integration for Europe would mean….

This would entail a loss of sovereignty not seen in those countries since many were under the jackboot of the Third Reich 70 years ago.

For be in no doubt what fiscal union means: it is one economic policy, one taxation system, one social security system, one debt, one economy, one finance minister. And all of the above would be German.

Conclusion

Right now, the EU is a terribly undemocratic institution. Individual voters have next to no power over the control freaks that run things in Brussels. Every single day, the EU becomes a little bit more like the former USSR.

The last thing that the people of Europe need to do is to give the EU more power but that is exactly what the elite of Europe want. They want a “United States of Europe” and they may just be willing to allow a massive financial crisis to happen in order to get it.

*http://endoftheamericandream.com/archives/they-want-a-united-states-of-europe-but-they-are-going-to-need-a-massive-financial-crisis-in-order-to-get-it

Global Systemic Crisis Coming THIS Summer!

Editor — Fri, 10 Jun 2011 07:56:04 +0000

This summer will confirm that the US Federal Reserve has lost its bet: the U.S. economy has, in fact, never left the “Very Great Depression” …despite the trillions of dollars injected… Unable to launch a QE3, the Fed will helplessly watch interest rates rise, US government deficit costs explode, the world dive into an intensified economic recession, stock exchanges collapse and the U.S. dollar show erratic behavior… before suddenly losing 30% of its value. Words: 1157

So says an article* by www.leap2020.eu which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. The article goes on to say:

All the conditions have now been met for the second half of 2011 to be the stage for the explosive fusion of two fundamental trends underlying the global systemic crisis:

world geopolitical dislocation and
the global economic and financial crisis on the other.

[Indeed,] the almost unbroken succession of geopolitical, economic and financial shocks the world has experienced over the last several months constitute the warning signs [that the] major traumatic event that we analyze in this issue [is unfolding]. The international system has now passed the stage of structural weakening to enter a phase of complete decay where old alliances are breaking down, whilst new communities of interest are emerging very quickly. Any hope for significant and lasting global economic recovery has now evaporated whilst the Western pillar’s indebtedness, especially [that of] the U.S., has reached a critical level unparalleled in modern history.

The catalyst for this explosive fusion will obviously be the international monetary system – the international monetary chaos – which has been further exacerbated since the disaster that struck Japan last March and in front of the inability of the United States to face the requirement for an immediate and significant reduction of its huge deficits.

The end of QE2, the symbol of, and factor in, the explosive fusion now underway represents the end of an era where the U.S. Dollar was the currency of the United States and the rest of the world’s problem [and is now] becoming the main threat weighing on the rest of the world and [on] the United States [in particular].

[With the U.S.] unable to launch a QE3 the Fed will helplessly watch interest rates rise, US government deficit costs explode, the world dive into an intensified economic recession, stock exchanges collapse and the U.S. dollar show erratic behavior before suddenly losing 30% of its value. At the same time Euroland, the BRICS and commodity producers will rapidly strengthen their cooperation while launching a final attempt to salvage the international institutions created by Bretton Woods and the world dominated by the US /UK duo.

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The world is preparing for a new economic, social and geopolitical shock with barriers, security, export embargos, diversification of reserves, frenzy over commodities and widespread rising inflation:

China has just announced that it is halting all diesel exports to try and stop a rise in fuel prices that recently caused a series of strikes by road hauliers.
Russia has also stopped exporting certain oil products to limit domestic shortages and price increases, having halted the export of certain cereals several months ago.
Across the Arab world, instability continues to prevail against the backdrop of the rising cost of basic food commodities whilst questions over the extent of Saudi Arabia’s oil reserves and production capacity have resurfaced.
In the United States, any weather event out of the ordinary immediately causes the risk of shortages due to the lack of a security “buffer” in the U.S. distribution system, except to call upon strategic stockpiles. Meanwhile, the population reduces its spending on food in order to fill the tanks of their cars at more than 4 dollars a gallon.
In Europe, the decline in social security and extreme austerity measures implemented in the United Kingdom, Greece, Portugal, Spain and Ireland, … will cause an explosion in the number of poor.
The EU has more or less surreptitiously just reinforced its customs arsenal to withstand Asian imports in particular. First, it has reviewed its whole paraphernalia of preferential tariffs to eliminate all emerging nations, China, India and Brazil first of all. Second, at the end of 2010, it discreetly passed legislation to facilitate the implementation of anti-dumping and safeguard measures, because now a simple majority is sufficient to pass such a proposal with the Commission, whilst previously a qualified majority was needed, often difficult to marshal.
Meanwhile, central banks continue to buy gold to diversify their reserves whilst, [at the same time,] taking the increasingly inconsistent and dangerous steps of increasing interest rates to counter inflation in a context of economies that are weak or in recession to counter the influx of liquidity generated by the US Federal Reserve’s policies.

The U.S. is completely in dreamland. Whilst it has reached unsustainable levels of debt, the leaders in Washington have made this topic an election issue, as illustrated by the question of the Federal debt ceiling… Comparisons abound in the U.S. and international financial press with the Clinton years where a similar problem had arisen without major consequences. Obviously a sizeable part of the U.S. elite and financiers haven’t yet taken on board the fact that, unlike the 90s, the United States today is seen as the “sick man of the world” in which any sign of weakness or serious inconsistency can trigger uncontrolled panic.

Crazy central bankers, world leaders without a roadmap, economies at risk, inflation rising, currencies in trouble, frenzied commodities, uncontrolled Western debt, unemployment at its highest, stressed societies …

There’s no doubt that the explosive fusion of all the above events will really be the memorable event of the second half of 2011!

Related Articles:

U.S. Debt Default Risk is Up Dramatically YTD http://www.munknee.com/2011/05/sovereign-debt-default-risk-has-risen-dramatically-in-u-s/
These Signs Suggest Global Economy at a ‘Tipping Point’! http://www.munknee.com/2011/06/these-signs-suggest-global-economy-at-a-tipping-point/
Are You Properly Positioned for the Global Slowdown Ahead? http://www.munknee.com/2011/06/are-you-properly-positioned-for-the-global-slowdown-ahead/
Inflation to Surpass 4% in 1 Year; 6% Within 3 Years – Here’s Why http://www.munknee.com/2011/06/inflation-to-surpass-4-in-1-year-6-within-3-years-heres-why/
The U.S. is Headed Towards Self-inflicted Disaster: Here’s Why http://www.munknee.com/2011/04/the-u-s-is-headed-towards-self-inflicted-disaster-heres-why/
America’s Political Process Guarantees Another Financial Crisis! http://www.munknee.com/2011/03/america%e2%80%99s-political-process-virtually-guarantees-financial-crisis-2-0/
Be Forewarned: Worldwide Systemic Financial Risk is Rising Rapidly – Again http://www.munknee.com/2011/05/be-forewarned-worldwide-systemic-financial-risk-is-rising-rapidly-again/
Stephen Roach: Chances of World Sliding Back into Recession a Distinct Possibility http://www.munknee.com/2011/05/stephen-roach-chances-of-world-sliding-back-into-recession-a-distinct-possibility/
Martin Armstrong: The Next Wave Begins June 13th, 2011 http://www.munknee.com/2011/05/martin-armstrong-the-next-wave-begins-june-13th-2011/

*http://www.leap2020.eu/GEAB-N-55-is-available-Global-systemic-crisis-Confirmation-of-a-Major-Alert-for-the-second-half-of-2011-Explosive_a6520.html

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

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Economy

These Indicators Say Inflation to Go to 4% Soon – and 6% by 2014

Editor — Fri, 03 Jun 2011 07:14:28 +0000

In response to the financial crisis of 2008, the Fed injected unprecedented levels of liquidity into the banking system. While inflation has been modest to date, an analysis of similar periods in history shows that it typically takes more than two years for the impact on consumer prices to be seen. Consequently, we are now at a pivotal point in the current cycle as Fed stimulus began more than two years ago. [Let me explain further.] Words: 2755

So says Marvin Bolt (www.alphaplus-advisors.com/) in an article* which Lorimer Wilson, editor of www.munKNEE.com , has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Bolt goes on to say:

[On the basis]…that financial markets are useful forecasting tools our analysis identified a variety of unique indicators with a statistically significant history of signaling future inflation based on a 1-3 year outlook. Considering the performance of:

small-company stocks vs. large-company stocks;
gold;
treasury-indexed bonds;
energy stocks; and
consumer staples vs. consumer cyclical stocks,

we conclude that inflation should surpass 4% in the next 12 months and 6% within three years.

As the forecast is derived from market-based indicators, it is only a snapshot in time. Daily changes in the indicators will naturally lead to changes in the outlook. We therefore summarize in detail the inputs to the forecasting models, so the reader can monitor and update the indicators as needed.

INTRODUCTION

…Governments are a necessary component of the global financial ecosystem, standing ready to intervene on an infrequent but recurring basis,…[and] in the recent crisis central banks around the world took unprecedented actions to stabilize the global financial system [as the graph below shows].

ANALYSIS

As shown in Figure 1, the financial crisis of 2008 caused the Federal Reserve to inject enormous amounts of liquidity into the financial system leading to a surge in the monetary base. Excess reserves held by commercial banks, plus currency in circulation, are the most liquid forms of money and make up the monetary base. Bank lending combined with consumer & business spending are the mechanisms that circulate this base money – sometimes referred to as “high powered” money – throughout the economy. In a normal economic environment, growth in the monetary base eventually stimulates the economy. If high-powered money is the juice, then the banks are the straw that stirs the drink. The Fed has the ability to directly control excess reserves in the banking system, which presently accounts for approximately 60% of the monetary base, and therefore has the ability to stimulate growth in base money…

In the examples shown in Figure 1, a rapid rise in base money led to inflation over 5% within 2-6 years. The current round of stimulus started in the middle of 2008, almost 3 years ago, so if there is to be an inflationary impact from the Fed’s activities, it should arrive soon. What does the future hold? Let’s search for some clues.

3 Market-Based Inflation Indicators

The approach of this study was to survey a wide range of market statistics in search of correlations between market-based indicators and future inflation. The idea is that markets themselves are often the best leading indicators. For example, do rising gold prices really forecast future inflation, as many investors believe? If so, by how far in advance? We considered many statistics including each sector of the S&P 500 Index, such as financial, energy or technology stocks. We considered a variety of fixed income products, such as corporate and high-yield bonds. We also tested various commodities, including gold, for correlations with future inflation. Our search resulted in an inflation forecast for three different timeframes using five distinct indicators:

Small-cap Outperformance: The relative outperformance of small capitalization stocks versus large capitalization stocks is used to forecast inflation 13 quarters in the future.
Gold: Gold price performance is used to forecast inflation 5 quarters hence; and
Energy and consumer stocks, and Treasury Inflation Protected Securities (TIPS) performance is used to forecast inflation with an 8-month outlook.

1 a) Small-cap Outperformance vs. Future Inflation

The shares of small companies tend to fare better than large company stocks during periods of above-average inflation [because,]when all prices are rising, it is easier for everyone to pass along price increases.

An explanation [of the above] might be found in the profile of a typical small company versus its larger counterpart. On average, a small company could be expected to have less ability to differentiate its products or services. It would typically be domestic, with modest profit margins, and little negotiating leverage in its business model. For example, a small company might be a supplier to a large multinational corporation. A period of rising prices could help ease the pressure on small-company profit margins by helping to nullify its poor negotiating position with suppliers and customers. [On the other hand, while] a large company will often have a strong competitive position in its industry which is how it grew to be large in the first place, rising input costs from raw materials or labor can hurt profit margins. In general, a period of rising prices would help neutralize the disadvantages of being small, while reducing the benefits that come from economies-of-scale or proprietary products found at large companies.

[As seen in Table 1 below,] data since 1955 show that outperformance of small-cap stocks is a leading indicator of inflation and shows the strongest correlation exists when m=13 quarters.

*Table 1: Pearson’s Product-Moment Correlation Coefficient (r) measures the strength of the relationship between two variables. +1 indicates the strongest possible direct relationship. -1 indicates the strongest possible inverse relationship. r is based on the correlation between the indicator at time=0 and inflation at time=m periods in the future.

In other words:

History shows that the relationship is strongest between small-cap outperformance in the current quarter and inflation 13 quarters into the future with a p-value of 0.03 which indicates that the relationship is statistically significant with 97% confidence [i.e.] there is only a 3% chance that the relationship is due to pure coincidence.

In Figure 2 [ab0ve] we see that small-cap outperformance above 5% has indeed led to rising inflation. Such a comparison helps identify and contrast the relative peaks and pivotal turning points in both data sets, however it does not clearly show the relationship for other data not at the extreme readings. For this purpose, consider the series of charts shown in Figure 3.

*Figure.3: Quarterly data through March 2011. Annualized inflation from GDP implicit price deflator. Small- and large-company stock indexes from Ibbotson. Small-company index measures the returns of stocks in bottom quintile of all equities traded on Nasdaq, AMEX and NYSE ranked by market capitalization. Small-company index average market capitalization is approximately $500 million. Ibbotson large-company index similar to OEX 100 Index, which represents the largest 100 US stocks ranked by market capitalization.

By overlaying each data set, re-sorting the data from lowest to highest inflation, and focusing on the four clusters of small cap outperformance as indicated in Figure 3d, we have a better understanding of the relationship. Specifically: a positive correlation exists across the entire range of inflation, but is strongest for the extreme inflation readings between 6% and 11%.

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As shown in Figure 3e, the critical level for small cap outperformance that forecasts the highest future inflation is approximately 5%. Historically, readings above 5% have most often led to inflation between 6- 11%. However, Figure 2 shows that the prevailing level at the time should also be considered in making a forecast. The generally high levels of inflation during the ‘70s and ‘80s naturally led to the highest peak readings. At the same time, the low inflation environment since 2000 led to lower peak readings for inflation. Looking at the data from all angles helps refine the forecast. Figure 2 shows that the current measure of small cap outperformance has risen to just under the critical 5% dividing line. We conclude from this indicator that:

If small cap outperformance surpasses 5%, then inflation 3 years later will most likely be closer to 6%, and not the 11% extreme.

1 b) Large-cap Performance vs. Rising Inflation

In contrast to the unique and little-known relationship between rising inflation and small-cap stocks, consider another relationship: inflation vs. large company stock performance [as illustrated in Figure 4 below].

Figure 4 illustrates the well-known history that inflation is bad for the stock market. Based on data since 1955, this analysis demonstrates that rising inflation typically leads to a steady deterioration of large-cap equity performance, albeit with weak statistical significance (p=0.23). Furthermore, when inflation surpasses 5%, the average quarterly returns of large company stocks is near zero, as shown in Figure 4. The addition of this data set to our overall analysis suggests a curious cycle:

When small cap outperformance grows large enough to forecast inflation above 5% after 3 years, it also is a sign that the returns from large company stocks will deteriorate to nil within 3 years.

2. Gold Performance vs. Rising Inflation

Table 2 [above] shows that the strongest correlation between the year-over-year performance of gold and future inflation exists after 5 quarters… [and that] there is less than a 1% chance that it is due to coincidence. An overlay of the raw data, sorted from low to high inflation, is shown in Figure 5. Notice the relationship is substantially stronger for rapidly rising gold prices and the corresponding highest levels of inflation.

A comparison of the two data series, as shown in Figure 6 [below], provides more insight. Here, we see the critical value for gold performance is approximately 30%.

In other words:

If gold price appreciation exceeds 30% versus year-ago levels, then a forecast for above-average inflation is appropriate. Interestingly, the current reading is also just below the critical level — similar to the current signal from the small cap outperformance indicator. Our conclusion is that any further acceleration in the gold rally will signal inflation above 4% after 5 quarters.

3. Energy/Consumer Stocks and TIPS (Multifactors) vs. Future Inflation

Our third approach bases the outlook for inflation on the performance of three different market statistics:

S&P Energy Services Sector: This sector (symbol: XLE) reflects the impact of changes in energy prices, primarily crude oil. Higher oil prices benefit the companies in this sector, which drives the index higher. At the same time, energy prices feed into inflation by increasing the cost of fuel for consumers and businesses, as well as raw material and other inputs costs for manufacturers and transportation companies. Hence, it is easy to understand how the returns of energy stocks could be a signal of future inflation.
Treasury Inflation Protected Securities: TIPS are inflation-indexed bonds which were first offered in the 1990s to provide investors in government fixed-income securities with a hedge against inflation. TIPS pay a variable coupon that rises and falls with the Consumer Price Index (CPI). Investors buy TIPS instead of traditional government securities when they believe inflation will rise.
Spread between S&P Consumer Durables and S&P Consumer Cyclical Stocks (XLP-XLY): Companies in the consumer durables sector are the least sensitive to fluctuations in the economy. Consumer durables can be thought of as “soups, soap & cereal stocks” as these are typical products that consumers continue to buy during a slowing economy. In contrast, companies in the consumer cyclical space are the most economically sensitive. Examples might include retail department stores, car manufacturers, or makers of other big-ticket items where consumers can delay the purchase during a difficult economy. Investors will tend to favor stocks in the consumer durables sector over cyclicals when they anticipate an environment that is less favorable to the economy and stock market, such as periods of rising inflation.

In order to develop a more robust composite indicator, a multifactor model was created by multiplying the market-based indicators with a fixed weighting and adding all three together. Each indicators was selected independently for its ability to forecast future inflation. Table 3 [below] shows the correlation histories. A forecast period (m) of 8 months is where the largest average correlation exists for all three indicators.

The weightings were optimized to provide the best fit to the past data, resulting in the following model: Inflation indicator = 3 x TIPS + 2 x XLE + 1 x (XLP – XLY)

Figure 7 [below] shows the history of each statistic compared with inflation since 2000. A few observations: Energy stocks and TIPS each show the ability to anticipate inflation, while the input based on consumer stocks appears to be more of a coincident indicator. In addition, the magnitude of the changes in the consumer stocks indicator appears to balance the other two in a way such that the composite model (Figure 7d) is useful from two perspectives:

peaks and troughs have consistently led fluctuations in inflation by about 8 months, and
the magnitude of model’s readings have been roughly in proportion to the levels of inflation.

As shown in Figure 7d [below], the composite model is presently near the high end of its range since 2000, which translates into:

an inflation forecast of approximately 4% within 8 months.

* Figure 7: Monthly data through March 2011. Annualized inflation from Consumer Price Index (CPI). TIPS performance based on average total return of PIMCO Real Return Instl mutual fund (PRRIX) and Vanguard Inflation Protected Secs Inv mutual fund (VIPSX).

Investment Opportunities

1. TIPS: As seen in Figure 7c, TIPS have historically shown a strong correlation with future inflation (p=0.01 with 8 months lead time). However, the recent performance of TIPS has been modest, which suggest a possible investment opportunity. If, in the future, other indicators discussed herein (smallcap outperformance, gold, and the multifactor model) give strong signals of future inflation, while TIPS still lags in performance, then treasury-indexed bonds could represent an attractive investment.

2. Consumer stocks: Strong signs of future inflation will suggest that investors should be prepared to buy consumer staples and, at the same time, sell short consumer cyclicals. The timing of the trade should be just prior to the anticipated arrival of inflation based on the various indicators profiled in this study.

Figure 8 [above] shows the readings for the multifactor model vs inflation 8 months later for all months since 1987. We see that the correlation between the model’s signals and future inflation is consistent across the entire spectrum. When the model’s readings are at or below zero, inflation has been low, while the higher readings correlate with stronger inflation. Furthermore, the relationship is highly significant with a p-value of 0.004.

CONCLUSIONS

Table 4 [below] provides a recap of each specific indicator used in the entire analysis. Our attempt has been to describe the approach with as much clarity and description as possible, so the reader can recreate the analysis if desired. A more practical suggestion is to simply monitor each indicator on a regular basis, while focusing on the background descriptions provided herein. For example:

are the TIPS mutual funds shown in Table 3 (symbols: PRRIX and VIPSX) rising in price? They have the largest weighting in the model for the 8-month inflation outlook.
Is the spread between DFSCX and OEX increasing, which would be a sign of rising inflation within 3 years? This casual approach is less precise, but we believe will still be useful for those seeking early warnings of rising inflation.

Be aware, however, that it is important to monitor an indicator’s performance including reinvested dividends. Stockcharts.com is free website that shows the total return for an index, including dividends, using its chart type called PerfChart. Many other services will show the price performance of a fund or index, but often without including dividends.

Considering all inputs as of the end of March, 2011, our overall outlook is for inflation to rise to 4% within one year, and 6% within three years.

We note, however, that the indicators will fluctuate on a daily basis as they are derived from trading activity in financial markets. As a result, this forecast only reflects a snapshot in time. The reader is encouraged to monitor the indicators in real-time for an up-to-date outlook.

*http://seekingalpha.com/article/272190-5-market-based-indicators-point-to-1-to-3-year-inflation-outlook

Links to other related articles:

What Inflation? Take a Look At All the Deflation Around You! http://www.munknee.com/2011/05/what-inflation-take-a-look-at-all-the-deflation-around-you/
Inflation Coming? Treasury Market Says Otherwise! http://www.munknee.com/2011/05/inflation-coming-treasury-market-says-otherwise/
Official and ShadowStats Monthly Inflation Rates: 1872 to Present http://www.munknee.com/2011/03/official-and-shadowstats-monthly-inflation-rates-1872-to-present/
Understanding Inflation: It’s Here – and It’s Going to Get Worse, Much Worse! http://www.munknee.com/2011/03/understanding-inflation-its-here-and-its-going-to-get-worse-much-worse/

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Sign up to receive every article posted via Twitter, Facebook, RSS Feed or our FREE Weekly Newsletter.

Inflation

Relax! Defaulting on Debt Is Not an “End of the World” Scenario

Editor — Fri, 01 Apr 2011 07:52:25 +0000

Countries Can Default and Subsequently Recover and Prosper

While there can be little doubt that a default on the U.S. debt would lead to a financial crisis and would likely permanently reduce the role of the U.S. financial industry in world markets, it is also likely the case that the United States would rebound and possible rebound quickly from a default. [It most certainly is not] an end of the world scenario. [Let me explain.] Words: 478

So says Dean Baker (www.cepr.net) in an article* which Lorimer Wilson, editor of www.munKNEE.com, has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Baker goes on to say:

The Argentine Example

Argentina was in default on its debt at the end of 2001. Its economy fell sharply in the first quarter of 2002 but had stabilized by the summer and was growing strongly by the end of the year. By the end of 2003 it had recovered its lost output. Its economy continued to grow strongly until the world recession in 2009 brought it to a near standstill.

Source: IMF.

While there can be no guarantee that the U.S. economy would bounce back from the financial crisis following a default as quickly as did Argentina, it’s unlikely that U.S. policymakers are too much less competent than those in Argentina. Readers should be made aware of the fact that countries do sometimes default and they can subsequently recover and prosper.

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Debt Default May Be Preferable Way to Go

[In fact,] many people may consider the short-term pain stemming from a debt default to be preferable to the long-term costs that might come from policies adopted to prevent default. If Congress were to approve a Medicare plan along the lines proposed by House Budget Committee Chairman Paul Ryan, tens of millions of middle class retirees would be subjected to a retirement without adequate health care insurance and potentially devastating medical bills. Plans being put forward to cut Social Security could have similar consequences.

Compared to the above outcomes debt default and the subsequent slump that would follow might seem like a relatively small price to pay. [As I said in the opening paragraph, it most certainly would not be] an end of the world scenario.

*http://www.cepr.net/index.php/blogs/beat-the-press/defaulting-on-the-debt-is-not-the-end-of-the-world

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Sign up to receive every article posted via Twitter, Facebook, RSS Feed or our FREE Weekly Newsletter.

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