Chicago Gold and Silver Investing Fan Blog

Our Government Hates Savers

Our government in cohoots with the Federal Reserve have manipulated interest rtes to near zero. So, anyone who has any kind of dollars in the banks is receing nearly zero dollars. The bank then goes ahead and uses those dollars to profit. A few years ago interest rates were near 5%. Now that they are near zero, what the government has done is basically robbed savers of interest rates that they should have gotten had interest rates been determined by the market.

Interest rates are also artificially low in North America and in Europe. Canada has interest rates about 1%, the UK about 0.5%, Switzerland it's about 0.25%. Asia is another story. China is about 6%, Phillippines is about 3.5%, and India is about 8%.

There's been new recently about the Cyprian government getting  levy on it's citizen bank holdings and stealing their money. Well in America it is nothing new. The difference is that in Cyprus the stealing is overt. In America it is covert. The American government steals your money through denying interest rates that should have benn given to you by having manipulated near zero interest rates. Plus, they devalue the dollar by printing money.

 

 

Davaluation is the Same as Stealing

They are devaluing the dollar and as a result people's savings are being stolen from them more than the 10% taken from Cyprus bank holders.

‘Would I rather have a bank deposit or would I rather have gold in my own possession?’ That is what people in Cyprus are thinking right now. Many new people throughout the rest of the world are now beginning to think the same thing.

Cyprus Could Be the Snow Flake That Starts The Avalanche

All it takes is one snowflake in a tenuous mountainside to trigger an avalanche.

Cyprus could be the snowflake that starts a world wide run on banks and collapse the current fragile financial system.

Some people will blame Cyprus for agreeing to the crazy IMF terms. Some people will blame Germany for putting Cyprus against the wall and force them to make their decision. Some people will blame the Russians for using Cyprus as a tax haven.

It's not any of them. It is the powder keg that was created over the years.

As I right this, no one in mainstream America is even aware of the grave danger they are in. See, the United States is in an even bigger financial mess than Cyprus. One day - maybe much much sooner than anyone even thinks it could all blow up over here. One day Americans could wake up and see that their own governments have nationalized all banks and have confiscated- better yet stolen some of their wealth.

The United States government is already taking- no stealing - its citizens wealth. Maybe not as direct as the Cyprus government is doing. But they do it much more stealthily through currency devaluation, through interest rate manipulation, through various capital controls, through inflation, and more. The average American is not even remotely aware of the scam being perpetrated on them. The smart money is aware. The average middle class and average rich person has no clue.

One day a Cyprean type of event will happen here. When that happens there will be a scape goat. They could blame the conservatives, the Tea Party, the Republicans, the Democrats, the liberals, the Chinese, God, Wall Street greed, the Fed, George Soros, the banks, and/or a mutitude of other scape goats. But they cannot blame them, Americans must only look at themeselves, for only they are to blame because this is a situation that could have been prevented a long time ago. With courage, with strength, with conviction of doing the right thing.

Those who are smart, will take action before their money is confiscated and before their world collapses. The rest will have their money stolen and see their world collapse before their eyes and try to blame someone. Too late. A smart Cyprinian could have seen it all coming and got their money out of Euros and into something else of value. Now it is too late. Their money is gone and it won't be given back to them. The Russians will be very mad. They will not forget this. They will take corrective action and when they do some people will be even angrier.

 

The New Political Economy

" A politically-controlled economy, where there is a gradual impoverishment of both investors and entitlement beneficiaries, that is mainly achieved through deceptive measures that will never be understood by the average voter, and where the rules are quite deliberately changed over time to take ever more wealth from the private sector for redistribution. "

- Daniel Amerman

I'm not sure if Danier Amerman invented the phrase, but he was the first person I have ever heard of who has described this world as the politically controlled economy. The world prior to the financial meltdown of 2008 was the regualr reality where wealth grew as a a fairly regular and somewhat predictable rate. After 2008, with super low interest rates, the threat of hyperinflation, and overall global concern of financial systems, some have predicted a total collapse of the global economic system followed by a collapse of fiat currency and hyper inflation or at least high inflation.

Amerman brings up a third alternative to the world today and in the near future. He calls it the new political economy. A world where governments get eleected by overpromising entitlement and other public spending.  To pay for this spending they confiscate wealth from its citizens through purposely deceptive meaures that the investor will never understand or even try to comprehend.

Debunking the Deflationary Death Cycle Myth

The Fed feels that delation is the worst thing on the planet.

The article,  Some Questions About Deflation, is one of the better articles I're red refuting this claim.

Velocity of Money Shrinking

 

 

 

The velocity of money accordong to Robert Fitzwilson is "the value of goods and services recorded in a time period divided by the money in the system."

Putting it in mathmatical terms:

Velocity of Money = (Value of Goods and Services)/(Money Supply, M2)

Mainstream economists- mostly Keynesians - point to the above chart to demonstrate that we are in no danger of inflation or hyper inflation. The thinking is that there is much less money out there compared to the actual value of goods and services. So they add, we need to add more liquidity (another way of saying we need to print more money) in the system so people can start spending.

thus their justification for printing money continues. They will not stop printing. They will continue to print until they self destruct. The shrew investor will by that point have already gotten out of the fiat currency and into real assets.

 

 

Inflation and Bonds

Bonds are a weird animal. Auctions, government bonds, corporate bonds, interest rates, are all terms associated with bonds and all quite an enigma to most people. Yet bonds due to the amount of volume and money associated with it play a huge role in the lives of all of us.

So when the Fed recently announced that they were going to do inflation targeting, I at first took it as a yawn. However, further analysis has opened up my eyes. See, the Fed has targeted a 2% inflation rate per year. The actual amount will probably be much higher. This means that the Fed is saying there will be inflation every year. There will be currency devaluation.

Inflation affects bonds. The purpose of this post will be to analyze how inflation affects bonds. To see how, you have to know what a bond is.

A bond generally pays a fixed amount of interest every year. Then, when the bond matures the face amount is paid off.  So in really simple terms if a bond payss off 3% interest very year and then pays the principle at maturity, the interest earned is not worth as much due to inflation. Yes, you get the interest payment, but the interest payment stays the same and yet the value of the interest payment gets reduced to inflation. Also, the holder of the bond gets the principal payment at bond maturity. But, the principal amount they get back is worth less than what it was when they originally got it.

Inflation also affects interest rates. Since investors know that inflation will happen, they expect a higher interest rate on their investment.

 

Eurozone financial situation getting worse

Unemployment getting worse. Unemployment in Eurozone countries are now at 11.3%. That is the highest unemployment rate for Eurozone countries since the Eurozone started in 1999.

Government Debt getting worse.  As unemployment gets worse, people and businesses have less money to spend. As a result more people rely on government services. So government spending and government debt increases. Government debt to GDP is increasing for the Eurozone as a whole. In Greece, the ration is over 140%. In France it is at an unsustainable close to 120%.

So what will the ECB do to try to tackle this problem? Instead of focusing on growing the economy and collecting more tax revenue via a growing economy, the ECB will try to inflate their way out. They will print more money and thus further erode the confidence in the Euro.  Already, inflation is hitting the Eurozone. In 2009, the inflation rate was -0.7%. Now it is up to 2.2% annually.

Wages Plunging When Measured in Gold

(Wealth Cycles Chart)

Do not fall into the wages in dollars trap. A wage earner who earned $100,000 a year in 2006 and now earns $120,000 at the start of 2013 may feel richer. Yes, it is true that his income in terms of dollars increased by 20% or $20,000, but is he really richer?

Not when is meaured in real money gold. Consider that in 2006, the average annual private sector wage was able to purchase 66 ounces of gold. Today, it can only purchase 28 ounces. That is a 57% drop in the person's salary in terms of gold in the course of 7 years.

Tax Revenue Not GDP

GDP or Gross Domestic Product is often use to measure the goods and services produced by a country in a given time period. GDP has faults because it includes government spending. Instead of GDP, I like to use tax revenue collected by governments.