Economic Depression – Precisely Why and Approximately When

Points to ponder:

The "anti-counterfeiting" bills released starting in 1996 and 2003 (and planned each 7 years from now on) co-existed with previous issues in the money system. 1995 (and earlier) bills are still in circulation. Based on this, in 1996, the cash supply doubled. Since these bills were introduced to foil counterfeiting, and the plan was to gather up previous issues on a one-to-one basis, it becomes a given that no bonds were sold to back them. In effect, they represented 100% inflation, In 2003, the second series was introduced, and judging from the number of pre 1996 bills still in circulation, it can be said that the money supply then was quadrupled.

Inflation was reported to be around 2.5%, while interest rates were around 1%. Some said that money in the bank was actually "deflating" during this period.

Inflation is a "hidden tax", giving the appearance of rising prices, due to lessened buying power. In other words, inflation means the dollar looses value.

Has anyone looked at the Dollar against the Euro lately? How about the fluctuations in the silver, gold and platinum markets. The Euro is hovering around figures that represent an all-time high, and gold is at, or near 16 year highs.

The Federal Reserve, by way of the FOMC meetings held every 6 weeks, set the overnight bank lending rate. This is the rate that banks can make use of on Thursday nights to make sure they have the required 3% of your deposited money on-hand to meet the required weekly margin call (and for the obligatory"other purposes").

The purpose of this rate manipulation is to balance inflation against unemployment. These are the criteria that Greenspan uses. However, in recent years, Greenspan has had to abandon the distinction between M1 and M2 in the aggregate. Due to relaxed credit regulation and excess cash in the money stream, historical data hasn't been returning predictable results. Greenspan is lucky to have his age converge with the end of his tenure. Dire Straits will most likely come after the new Fed Chairman is sworn in.

This is not something that either a Presidential Candidate, President or Political Party can control.

Keeping the masses at odds with each other over which party is at fault allows this kind of fiscal manipulation to continually fly under radar.

We are facing a real problem in the coming retirement of the Baby Boomers. No only has manufacturing and housing suffered as their demands are reaching final fulfillment, also the job market numbers will see some previously undocumented spikes as both the numbers needed in the national job market shrink. This will also create greater disparity of wages as they start retiring enmasse, at top pay, being sporadically replaced with jobs at entry level pay.

We are soon to experience the largest generation ever produced in the U.S. leaving the workforce. The great sucking sound that will announce their departure will be the demands on Pension Plans, both private and Federal in nature. Is it any wonder that the borders are being left unguarded in an attempt to fill this void?

This isn't a Republican or Democrat matter. It started around 1910 with the failed Aldrich Act, which passed as the Owens-Glass Act in 1913. By 1917, it had uncloaked as the Federal Reserve Act at the same time that the Federal Income Tax was born.

It is no coincidence the the Bush Administration is currently looking at reworking both Social Security and The IRS Tax Code. These 2 go hand in hand. Every successful prostitution ring needs 3 things Supply of customers (Federal Reserve), Prostitutes (Social Security) and Pimps (IRS). These three players are integrated into the current monetary policy we are operating under. At least Bush is actually going to try to tackle the problem. When he said he had Political Capital and he was going to start spending it, this had to be one of the main things on his mind. No other president was willing to admit the depth of the problem, and he already has (by proxy) by choosing to simultaneously tackle both SSI and the IRS.

I am the author and have enjoyed reading most of the comments....!

I believe the “Austrians” (Austrian Economic theory believers) would:
· …not buy more house than they can afford
· …lock in a fixed-rate loan
· …sell your big house now, if you plan to retire in the next 4-6 years and move into a smaller or lower maintenance house. You will get premium $’s today relative to its future value in the early stages of depression. I fully expect a bond and commensurate real estate crash.
· …get prepared psychologically for a valuation hit. The house market value may become less than the loan, but if you have a very low interest fixed-rate loan, its value to you will trump the temporary valuation depression.
· …longer term (5-10) years, I expect hyperinflation. If you can keep a job, it will be relatively easy to pay off a house in devalued currency.

It seems many have missed the primary point of my article. Is it possible to create a bubble in all major asset categories on a large scale via an internationally coordinated policy of “easy money”? The answer is YES…. We’ve done it…!

The next question is: What happens when a critical mass of investors discovers the potential asset buying power of their “future stream of goods and services” is not near the scale they are projecting? They tend to “cash in” the assets quickly for fear of their devaluation.

Remember, you can easily have inflation (money supply expansion; not CPI) without a bubble. If the bond market “vigilantes” are keeping watch, the resulting +higher yields will reflect anticipated inflation. Thus, higher interest rates will contain bubble bond and real estate valuations. However, if the bond “vigilantes” are suppressed by foreign central bank intervention (purchasing our Treasuries), then the yields will remain artificially suppressed enabling ripe conditions for bubble formations.

Extreme bubbles are economic disasters waiting to happen. This one is so large it will be impossible to diffuse via the normal inflationary means. When the foreign central banks and citizens in their respective countries realize they will not receive what they expect from their “investment” in dollar based financial assets, they will be very upset and run away from the dollar. That will either precipitate or exacerbate a collapse.

Good luck….!

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