Contrary to popular opinion, economic analysis need not be difficult at all. While technical descriptions can be confusing and conflicting, the underlying fundamentals can be child-simple.
The above economics snapshot from the
Shiller Institute seems to indicate that the point-of-no-return hyperinflationary collapse is breached.
Most of us can feel the Weimar Republic returning in more ways than one, for example we all hear and see the rising police state, drums of war, high unpayable debts. And now we have the new Federal Reserve Chairman Bernanke, nicknamed "helicopter pilot" for his statement that money can always be printed and dropped onto the people by helicopter if necessary to pay debts. Does that spell inflation for our future or what? And then we have the sheeple of America, ever willing to remain unaware and blindly optimistic despite all of the crash indicators. And then there is that big unwinnable and highly profitable (to a very few powerful insiders) "war on terror" like the "war on communism". Just amazing number of mirroring pre-crash indicators between Germany then and the United States now.
But where are the alarm bells?
I would contend that alarm bells are all over the place, in virtually every science or art study.
Economical Analysis says - "crash is coming - hold gold and silver"
Political Analysis says - "crash is coming - prepare defensively for resource wars and terrorism (government instigated at times when it is politically expedient)."
Social Analysis says - "crash is coming - get back with your extended family, get away from hot zones if possible."
Ecological Analysis says - "crash is coming - grow your own food"
Spiritual Analysis says - "crash is coming - turn your heads from your wrong ways which caused this mess and get right with God's truth before the worst of the punnishment comes due."
To my personal amazement, all of these studies are actually cross-references to each other, each proving each other right. Yet, where is the public? Same as always throughout history, the public remains willingly distracted and largely doomed to live in reactionary mode post-crash.
The following is perhaps the best short history lesson I have ever read from a purely economics standpoint. I always learn a lot from every issue of "The Privateer". And the below story proves out my theory that every diligent analysis leads us all to the exact same place:
===============
Early February 2006
$this->bbcode_second_pass_quote('', 'T')HE US TREASURY IS IN TECHNICAL DEFAULT
On its website, the US Treasury has stated that as of January
24, 2006, it stood with funded debts "to the penny" of $US
8,185.3 Billion. On February 2, the debt was stated as being
$US 8,198.6 Billion.
The current US debt ceiling, legislated into place by Congress
on November 19, 2004, is $US 8,184 Billion. The US
government is now operating in technical default. "Technical"
here means that enacted law has been breached. Everybody
involved is politely supposed to ignore it.
The Bush government has openly stated that they expect to
borrow $US 188 Billion in the first quarter of 2006. The US
Treasury had itself said that it expected to hit the statutory debt
ceiling in mid-February. While the Treasury has not yet hit
their debt ceiling "subject to limit", they have hit the debt ceiling
"to the penny". To date, Congress has shown no sign of acting
on the Treasury's request to raise the ceiling.
SCREECH! - The Brakes Are On:
The latest figures from the US Commerce Department show
that US "growth" slowed to 1.1 percent in the fourth quarter of
2005 - a drastic descent from the 4.1 percent figure in the
previous quarter. Remove the US 1.5 percent in inventory
growth for goods and services and GDP actually FELL by 0.4
percent over the fourth quarter. This is a very fast slowdown
indeed, signalling a very big crisis ahead.
Spending on "durable" goods dropped by a hefty 17.5 percent
rate in the fourth quarter, one of the sharpest declines since the
first quarter of 1987.
The US annualised trade deficit widened to $US 650.3 Billion
from $US 617.5 Billion in the third quarter. US imports rose at
a 9.1 percent annual rate in the fourth quarter, exports grew 2.4
percent.
America's Hidden Economic Depression:
Americans spent $US 42 Billion more than they earned last
year. That turned the annual US savings ratio
negative, it fell to minus 0.5 per cent last year. This is the first
time the US savings ratio has gone negative for an entire year
since way back in 1932 and 1933 when the US was struggling
to cope with the Great Depression. In December 2005, US
consumer spending rose by a bigger-than-expected 0.9 percent
while incomes were up by just 0.4 percent. That forced the
savings rate down for the month to a negative 0.7 percent. The
US national savings rate has been negative in eight of the last
nine months. This shows that economically as well as
financially, Americans are back in the situation they were in the
"dirty thirties". Only the US welfare state, which didn't exist in
1932-33, disguises this fact. What also disguises it is the huge
increase in Treasury borrowing. They can't tax, to do so would
break the facade.
Straight From The Horse's Mouth:
From President's Bush's State of the Union Address: "By
2030, spending for Social Security, Medicare and Medicaid
alone will be almost 60 percent of the entire federal budget.
And that will present future Congresses with impossible
choices: staggering tax increases, immense deficits or deep
cuts in every category of spending." That's the US future - tax
increases, deficits, or deep spending cuts.
Option Four:
Politely enough, President Bush left out the fourth option. That
is the option where everybody actually gets all that they are
"entitled" to by the straightforward means of the Fed printing
out of thin air the US Dollars required. The political promises
are "kept" - with a worthless $US in terms of purchasing power.
Seventy-Four Million Older Americans With No Place To Go:
These are the Americans who are now approaching retirement.
Their first "cohort" (a demographic term) arrives this year. For
the next 25-30 years, they will keep arriving year by year. All
of them expect to be fed, to live in houses and to have the
medical care which their government has promised and that
they have paid for. What they don't know (or have chosen not
to think about) is that sequential governments, starting with
Presidents Kennedy and Johnson, have looted the social
security funds and already spent the money. This was done by
the simplest of means. The Presidents and the members of
Congress (with a very few honourable exceptions) agreed to
place "non-tradeable notes" in the Social Security funds and
then spend all the cash. That money went into all the usual
spending for important purposes such as getting re-elected. It is
ALL gone. Only the "non-tradeable" IOU's are left.
All Economic Fallacies Rebound - And Then Compound:
The father of the modern western welfare state was German
Chancellor von Bismarck. He wanted to pull Germans away
from Socialism and towards his own Royal Government and
State. He set up an old person's pension scheme. It was the
simplest of gimmicks. Every working German paid into it for all
their lives. When retirement came at the age Bismark chose
which was 65, only 10-15 percent of those Germans were left
alive (life expectancy was shorter then). The rest had departed
earlier for the natural reasons. In effect, 100 percent of
Germans paid the government for this future pension all their
lives. But only 10-15 percent eventually lived long enough to
see any pension at all. Bismark's government walked away
with the money the other 85-90 percent had paid but never
received. Germany spent it on arms.
But this welfare scheme had other economic consequences.
Germans nearly stopped saving. Why save when you are being
taxed for a future pension anyway? Why carry the double load?
Most stopped individual savings for their older years. There
was a pension ahead to look forward to. Since the tax for the
future pension was set purposely very low, Germans spent all
their "discretionary income" on current consumption. In effect,
as their personal savings went down and their spending went up,
their present living standards improved. All that and an assured
government pension too!
Bismark's idea caught on like wildfire before the year 1900!
The ability to tax 100 percent and later only pay out 10-15 had
irresistible appeal to governments. But it had other economic
and very real consequences as more and more western nations
switched to an old age pension scheme.
People not only stopped saving, they spent what should have
been their individual savings. Consumption in the western
world boomed from the early 1890s right up until just before
WW I. Businesses loved it.
It is no wonder that this epoch later became known as the
"gilded age" as millions of people consumed several economic
levels above their earnings level. The whole scheme began to
unravel shortly before WW I when these now absent individual
savings no longer showed up as new investments.
The Same Economic Fallacy Compounded:
Money is defined in classical economic terms as having one
primary function, it is a medium of exchange. But BECAUSE it
is a medium of exchange, it has work to do in the avenue of
investments. To actually save money essentially means to
consume less than one has produced. But to pile a stack of
money ever higher in the basement means that one can only
eventually use it to consume (at current prices) what one has
saved. The money has done no economic work at all. Money
placed in a "cash management" or "money" fund does some
work because it earns interest. But saved money placed in
REAL productive investment is not only the footpath but the
foundation stone for a ever higher future living standard.
With the greatest of economic simplicity, it follows that if any
government stacks the money it receives for its pension
promises in its basement, that money does absolutely nothing
economically to raise future living standards. So governments
invest this money. The question is: What do governments
invest in with the money? They "invest" in higher wages and
salaries for themselves, which increases the economic costs of
having a government. They also "invest" in higher current
consumption for the voters whose votes they need. And they
always swing whatever money they can get their hands on in
the direction of arms to compete with other governments doing
the same. All this happened in Europe between 1890 and 1914.
There was a huge continent-wide armaments race which blew
up in their faces in early August 1914 in the bloodiest of wars.
The United States Is Today In The Same Position:
The US was "late". It didn't create a welfare state until the
1930s, although it laid the foundations before and after 1900.
By the time Kennedy and Johnson arrived in the 1960s, the US
had a welfare state AND a full warfare state, both of which
were HUGELY expanded in the quagmire of the Vietnam war.
Inflation And Credit Is No Substitute For REAL Savings:
To "compensate" for the welfare/warfare quagmire of the
1960s, on August 15, 1971, the US disconnected its Dollar from
Gold. With Gold out of the way, there were no limits to either
monetary inflation and/or credit expansion. The monetary
expansion was done by means of increased IOUs issued by the
US Treasury and "bought" by the Fed. The credit expansion
was done by means of artificially lowering interest rates and
allowing commercial banks to "create" accounts for the
"consumers" and businesses which had been induced by the
lower rates to borrow heaps and spend or invest the money.
If such methods really "worked", world poverty would long
since have been eliminated. They don't work. Monetary
inflation simply increases the consumption of present real
economic goods, leaving a lower supply of such goods for the
future. That's the definition of becoming poorer. Another thing
that monetary inflation does is to guarantee a future lower
purchasing power of money. Depending on the rate of inflation,
an economic good costing $100 today will cost $120-150-200-
500-1000-etc. five years from now. This erosion of the
purchasing power of money affects all PAST monetary savings
which will both buy less and be less able to invest in REAL
productive economic goods in future.
A credit expansion has a two-fold effect. Artificially low
interest rates discourage savings - for obvious reasons. They
also increase borrowing and therefore debt - for equally obvious
reasons.
The only viable and correct definition of credit is simple:
PRESENT GOODS FOR FUTURE GOODS.
By that definition, the viability of all debt comes down to the
present and future REAL productive capacity of the borrower.
That borrower has to service the debt and eventually to repay it.
Ultimately, the only way to repay debt is to consume LESS
than one produces. In essence, a borrower has sold a given
amount (based on their debt) of their present and future
productive capacity to the lender. Most productive individuals
and ALL "consumers" would be better off never having
borrowed at all.
President Bush's "Choices": "Tax Increases, Deficits Or Deep Cuts":
To "cover" for UNFUNDED promises amounting to $US 51
TRILLION that close to 100 million Americans count on,
Congress could raise taxes in the US by that amount over the
next 25 years. That is additional taxes piled on top of all the
present ones. Were that to happen, it would condemn all younger
Americans to being serfs for their retiring elders. It is
only the productive who can pay taxes out of their current
production. The unproductive leave no present economic goods
to tax.
The alternative is piling these unfunded promises on top of what
the US Treasury already owes. Having the US Treasury borrow this
additional money will make the Federal Government crash under the
weight of its debts while leaving unsolved how even the interest
payable on this debt can be paid.
The last solution, deep cuts in government expenditures, is the
only real economic solution. But that will leave these nearly
100 million older Americans destitute. They will become
destitute because they have next to no individual private savings
accumulated over a lifetime with which to sustain themselves.
An enormous human crisis is on the horizon. The past generations
of politicians got away with it. They all retired before this crisis
arrived. It is the present day politicians who will have to face
the music. The crisis will arrive while they are in office and
there is no "magical" solution to the economic problem.
Individualism Versus Collectivism/Statism:
What lies ahead inside the USA has been observable for years
in a smaller way as more and more corporations, from
automakers to airlines, walk away in stages from their pension
obligations to those who worked for them. All these
corporations had in the past made themselves into miniature
welfare states. In effect, they had become miniature collectives.
Now they are being swept aside by companies that have no
such obligations, or very small ones, to the people who work for
them. The costs borne by these companies are much lower so
they can sell at lower prices than the US corporate welfare state
companies. They gain the market share while Ford and GM
close plants and lay off workers.
What Governments Can't Do:
A government cannot do what the corporate welfare state is
doing. That would amount to sending its own people outside
the borders of the nation, just as a company sends the workers
it can no longer afford outside the company's doors, leaving
them to try to earn their living there. In fact, as all recent past
economic history shows, what brought about the real collapse of
the former USSR and the entire East Bloc was the fact that
these overtly collectivist nations and their governments found
that they could not deliver the future economic goods promised.
From Poland to Siberia, the government ended up walking away
from their promises and left the many millions of individuals
there to fend for themselves.
When Collectives Collapse:
Millions were left in desperate and real poverty across the
former Communist zone of nations. It has taken from 1991
when the collapse began up until recent times before Russians
especially, have managed to work themselves out of this
poverty. During these times, the elderly were abandoned.
An Inadvertent Return To Individualism:
When governments and collectives do collapse, it amounts to a
default return to individualism by the political and/or economic
failures of statism and collectivism. It is by default because
such a return to individualism was never intended.
Individualism is the most vital force of all, but it only functions
fully in freedom and liberty where the living individual has full
title of property in their own life and, therefore, in their own
property. That is the definition of the original American
economic system - Capitalism - which between the Civil War
and 1900 created the largest stock of real wealth ever known in
history.
In Pursuit Of Life, Liberty And Property:
Prior to the American Civil War, and after it, any American
knew that they were on their own.
The paper money episode of the Civil War and Lincoln's
Greenback was ended by the Greenback being made
redeemable in Gold in 1879. Apart from the Civil War period,
Americans for the most part had sound money. Americans
were on their own, there was no "welfare state" at all. Since
they knew this, Americans took an acute interest in what money
was and had a deep, even a profound mistrust of paper money
and, for that matter, banks. From these attitudes came a
"strange" outcome - Americans saved.
Reputable banks and finance houses channelled millions of
small streams of individual savings into broad rivers of
investment for businesses. These businesses used the money to
expand their capital plant. As the new plant came on line, new
rivers of consumer goods flowed into the market at ever lower
prices.
Sound Money And A Positive Price Premium:
Economically, between the end of the Civil War and about
1900, there was a "premium" in place simply for holding cash.
This premium existed because if cash was held for a year, it
could buy more than was the case a year before, simply
because prices were FALLING. That fact had a profound and
real effect upon interest rates on commercial loans. Interest
rates also FELL. This happened for the simple reason that the
monetary risk component of the interest rate, the risk that
money would lose purchasing power - was entirely absent. The
opposite was the case. In today's world, it is the certain danger
that "money" will lose purchasing power over the period of the
loan that forces lenders to set interest rates higher.
Between 1865 and 1900, more REAL wealth - capital, plant
and equipment - was brought into existence than ever before in
history. It was a gargantuan episode, with falling prices for
commodities all around the commercial compass and with a
greater flow of lower-priced consumer goods than ever seen
before. Real wealth was exploding. And at the core stood
SOUND money and unhampered individualism.
Don't Wait For Your Neighbour To Make You Wealthy:
That is the REAL problem today. All modern western
governments have become so busy redistributing "incomes" that
all those earning today's higher incomes despair at actually
improving their own lives. At the same time, their partly or
wholly idle neighbours expect that the government will act to
ensure that they all get a part of the incomes of the more
productive. The world today runs on the old Communist tenet:
"From each according to his ability to each according to his
need."
What we have all around us today is actual Communism,
disguised in government propaganda as "free markets". Some
governments even refer to it as "Capitalism"!
Keeping Political Economy Simple:
If you own a business, you find an uninvited "guest" looking
over your shoulder each time you do your monthly "books".
That "guest" demands about 30 percent of your earnings. Your
"guest" is, of course, your government. In Australia, for
example, the corporate tax rate is 30 percent. As an individual,
you will find that you have an uninvited "boarder" who
demands 30-40 percent of your earnings. That is also your
government. That's the income tax. Not only has your
productive property been expropriated, but so have YOU! The
entire process is a blatant denial of YOUR RIGHT TO YOUR
OWN LIFE, LIBERTY AND PROPERTY.
There is an immense crisis over the horizon. It is rolling
towards us all, especially towards the USA. We are nearly at
the end of the line. The STATE is financially bankrupt and has
liabilities it can't cover. If you stand with some property held
free and clear of debt and with Gold and Silver coin - you'll
make it.
------------------------------
Copyright 2006 - The Privateer
http://www.the-privateer.comcapt@the-privateer.com(quoted with permission)
------------------------------
by KevO » Wed 18 Jan 2006, 05:28:56 
![[smilie=confused2.gif]](https://udev.peakoil.com/forums/images/smilies/confused2.gif "confused2")