Archive for November, 2010

Oh how Americans love Europe. The history, the culture, it takes our breath away doesn’t it. When it comes to money, most Americans don’t really concern themselves with the current state of affairs within the countries that make up Europe. Hey if we don’t have to pay for their problems, than who cares, right? Let Europe take care of their own financial struggles. What most Americans aren’t realizing, is that our very own tax dollars have contributed, and continue to contribute to the bailouts in Europe. How did that happen, you ask? It seems apparent that it is difficult for the average taxpayer to even know where their money is going these days. I believe our government feels that we just aren’t qualified to make decisions with our own money, so we shouldn’t be bothered with the details. Well let’s talk details, and you decide if this use of our money is wise.

Does anyone remember Greece in early 2010. This was a place of mass riots, financial turmoil, and chaos. Their financial system melted before their very eyes. In May, the “Eurozone” decided it was time to talk about bailing out Greece. The magic number that was thrown out there was 110 billion Euro ($140 billion dollars). $40 billion of this would come from the IMF (International Monetary Fund), while the remainder would come from other member countries of the EU. Regardless of the bail out, the IMF estimated back in May that Greece’s debt load would grow from 133% of GDP in 2010, to 149% in 2013. So before they left the gates, these bail outs didn’t even make sense as the country will remain in a situation where debt is spiraling out of control.

What Americans don’t realize, is that the USA supplies 20% of the IMF’s money supply. In essence, the U.S. taxpayer contributed $8 billion towards the bail out of Greece this year. So here again, Americans have given a failing country $8 billion without even really knowing it. The funny thing is, in reports this past week, Austria which was one of the contributing countries to the Greece bailouts, informed the EU that they will not be contributing their share of relief funds, as Greece hasn’t shown signs that their financial situation has improved. Finally- at least someone is using their head in government over in Europe. This comes as Greece has requested an extension for the repayment of the bail out funds. They were originally due by 2015, but granting the extension request would push the due date to 2024. Those Greeks sure are turning things around aren’t they.

So what is happening with this money? Over the next couple of years, the ‘not so smart’ banks that loaned Greece millions, will get paid/bailed out. This existing debt is senior (takes priority over) our bailout money, so it get’s paid first. Then as Greece runs out of money to pay these banks, guess who is left holding the empty sac. You guessed it, you and I, the taxpayers. This is more of the same, bailing out banks that made irresponsible loans, while leaving honest taxpayers high and dry. It is the same thing that happened with AIG, Goldman Sachs, and all of the other 938 U.S. banks that accepted bail out funds. Don’t you know it- we are out to save the world, even though we can’t even balance a budget at home?  Now the bankrupt are bailing out the bankrupt.

The reason I’m blogging about this today, Ireland is now asking for a bail out that will make the Greece bail out look like chump change when compared to GDP. On top of that news, the US Treasury has already chimed in to offer support for the Ireland rescue. We are looking at another $130 billion U.S. dollars to bail out Ireland alone.  The amount contributed by the IMF (you and me) remains to be seen on this deal. With news like this, along with the fact that America is just throwing away money overseas that we don’t have- is highly discouraging.   The recent news of Obama suspending federal pay increases for 2 years, saving Americans $2 billion next year- really doesn’t mean a whole lot in the grand scheme of things. Waste $8 billion, save $2 billion. Mark my words, it won’t stop with Ireland. According to a recent Bloomberg article, Portugal is next on the list that would seek approximately 100 billion Euros. Spain could be after that costing 632 billion Euros, and Italy- the second-most indebted nation after Greece- would cost 912 billion Euros.

Whenever you hear the IMF is contributing to a bail out, please know and understand that our hard earned taxpayer dollars will be used to bail out foreign countries and their banks, while we are overextended at home as it is. So tell me America- does a fifth grader know that if he has $20 in his piggy bank- that he only has $20 to spend?  Maybe our fifth graders can teach our legislators a lesson or two.  We the people are far more intelligent than our government gives us credit for. When our government fails to be transparent, do everyone a favor, and educate those around you. That’s all I have for today.

-John F. Haettich- 11/30/2010

 

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Our Real Currency Situation- John F. Haettich- 11/29/2010  

I hope everyone had a great holiday. Today, I wanted to comment on our currency situation as it will become more and more of an issue over the next year. We as a nation are currently sitting on a money bomb. Its days are numbered, and the clock is winding down. It is interesting when I speak to different individuals to get a wide array of viewpoints on our dollar situation. I’d say for the most part, people are very apathetic towards the current news that our own US Dollar is in jeopardy. Some are completely uneducated when it comes to the state of our economy and currency, and continue to put money into their 401K’s, just as they have been taught from grade school on. Only a small percentage of people that I have met, are truly aware and prepared to deal with our coming economic situation.

We as citizens must understand that the rules are changing. We are going to have to think outside of the box, unlike the thinking that we were programmed with while obtaining our public education. It was Black Friday just a few days ago, and many in the news like to say that this is a great indicator that our economy is “back on track”. Really? It seems to me that our citizens haven’t learned to save, but rather continue to spend whether they can afford it or not. The fact that people spent money on Friday isn’t an indicator that our economy is back on track, but rather gives a boost to the countries whose products we purchased as most of these products were produced overseas. How long before the credit card comes due, and you can’t afford the payments. We are looking at major currency problems right around the corner, yet most of America is still asleep.

To give you the reality of our currency situation, let’s look at a couple of graphs. This first graph comes from the board of governors of the Federal Reserve System. It gives a graph showing the total (US Dollar) currency in circulation. This is basically the currency that is available to you and me in paper form, and is held by people for trade in the market. This is money that you use in the grocery store, or on vacation. As you can see, we have been on a pretty radical upward path since 1987 as money has been printed non-stop. Only 15 years ago in 1995, we had $320 Billion in circulation compared to our present $880 billion that is in circulation.

Currency in Circulation

Currency in Circulation

Now let’s take a look at another graph, also from the board of governors of the Federal Reserve System. This graph reflects our Monetary Base. Monetary Base basically includes all currency in circulation, and the money that is being held in a country’s central bank reserve- The Federal Reserve in our case. As you can see from the full picture, the situation is much worse. Just in the past year, there is a jump from approximately $830 billion, to $1.7 trillion. These numbers are astronomical, and the ramifications of this kind of quantitative easing is disastrous. Keep in mind, that this doesn’t even include the additional $600 billion for QE2 which throws us well over $2 trillion.

Monetary Base

Monetary Base

The recent moves by the Federal Reserve, and our government are negligent at best. We are facing a situation like no other in the world. One of hyperinflation and dollar debasement. It may be difficult to see the future right now, but we can learn from the past. There was one Harvard Law professor- Friedrich Kessler, who was an eye witness to the hyperinflation that occurred in the Weimar Republic in Germany (1921). He is quoted as saying “It was horrible. Horrible! Like lightning it struck. No one was prepared…The shelves in the grocery store were empty. You could buy nothing with your paper money.” Just as is the case today, the Weimar Republic experienced a huge influx of printed capital prior to the lightning strike of hyperinflation.

We have had warnings over the past couple of years also from noted economists worldwide. Steve Hanke- a Johns Hopkins professor and prominent economist noted back in 2009 that “the Fed’s balance sheet has more than doubled in size since August…Unless the Fed shrinks its balance sheet, inflation will roar back with a vengeance.” Right now we are in a waiting game. It could be in 5 years, could be next year, it could even be next week.

For those that say this could never happen, tell that to those who lived in Greece- October 1944 where they experienced inflation at 13,800%. Or you could speak to someone from Germany between 1921-1923 where they experienced inflation at 29,500%. If that isn’t enough for you, look to Taiwan 1949 (2,178% Inflation), Yugoslavia 1994 (313,000,000% Inflation), Zimbabwe 2008 (79,600,000,000% Inflation), or Hungary 1946 (41,900,000,000,000,000% Inflation). I encourage you to be awake and aware of our currency situation and its potential fate. Approach the holidays wisely, and be prepared as we have been placed in an undesirable and vulnerable position. That’s all I have for today!

-John F. Haettich- 11/29/2010

It’s Official- The US Dollar is on Borrowed Time- John F. Haettich- 11/24/2010

Over the past few months, there has been speculation on the world stage as to what the future of trade currency will look like. Today we have a clearer look at the direction the world is going. It was only a year ago that secret meetings were held by the finance ministers and central bank governors of Russia, China, Japan and Brazil to work on a scheme with a goal that oil will no longer be priced in dollars. Countries are talking, and the talk is- “how can we jump ship from this dollar problem?”

The international community is concerned, and as a whole are considering a move away from the dollar to protect their own economies. Iran even announced in September of 2009 that its foreign currency reserves will be held in Euros rather than dollars. The last Middle Eastern country to sell oil in Euros rather than dollars was Iraq under Saddam Hussein. After Sadam announced his intentions, it was only a few months before Iraq was invaded by the US and England. I wonder if we can expect an invasion of Iran in the coming months- should history repeat itself.

Today, it is official. China and Russia have said officially that they will renounce the US dollar and use their domestic currencies in bilateral trade. They are saying that “the move is not aimed at challenging the dollar, but to protect their economies.” What impact does that have on us. To give you an idea, bilateral trade between Russia and China just within the next month will reach $50 billion, a major chunk of which is normally transacted in US dollars. Don’t be surprised over the next few months, to see other countries following suit and stepping away from the US Dollar. In a recent article entitled “The Demise of the Dollar” by Robert Fisk, it is mentioned that according to Chinese banking sources, “the transitional currency in the move away from dollars, may well be gold”. Over the past year, there has been a major move by these countries to dump dollars and purchase gold and other commodities. The result for our good ole’ currency…..a steady and sure devaluation followed by a probable collapse.

I do have one major question though- why isn’t this in the news? I looked at CNN this morning, no report. I looked at CNN Money, and still no report on this development. Then I check FOX, no report. I looked at FOX World News for Asia, and not even a report there? MSNBC, still no luck. This is some of the biggest news in the world right now, especially effecting our own currency and economy, and not even a mention? I had to look to the International Business Times, the Asian Times, and other World News Agencies to get details of the agreement. In my opinion, there is a reason for this- I believe the wool is being drawn, and it is being drawn thick over the eyes of the average American. My advice, if you haven’t already, move away from dollar based assets. You see other countries doing it, be assured- they aren’t stupid. Take your personal savings and diversify with commodities until the dust settles. Those that hold their savings in US Dollars are taking on major risk.

On the unemployment front- there was a report in CNN Money that “Initial Unemployment Claims Lowest since July 2008”. The number for the week of 11/20/2010 was 407,000 new unemployment claims. That is down form 441,000 new unemployment claims from the week before. John Silvia, Wells Fargo chief economist in this CNN article is even quoted as saying “For the 80% of America that is participating in this recovery, it’s time to take out the champagne and have a very nice holiday, because things are improving.”

Let me start by saying, I don’t think I’d ever invest in Wells Fargo, if their chief economist is reflective of their logic. We are still losing over 400,000 jobs a week, and the last job creation report for the entire month of October, was 151,000 jobs created. Based on a 4 week month and using the latest numbers, we are creating approximately 150,000 jobs every month, and losing over 1,600,000 jobs monthly. That is a net loss of 1,450,000 jobs a month. But let’s bust open that champagne guys! Also, my point in previous blogs about the unemployment rate being falsified- How possibly can our unemployment rate remain the same, when we are losing a net 1.4 million jobs a month? Please someone, anyone- explain this to me. This is just another case where, the numbers don’t add up. That’s all I have for today- Enjoy your Holiday and have a Happy Thanksgiving! I’ll blog again next week.

John F. Haettich- 11/24/2010

 

General Motors- Great Investment or Disaster in the Making?- John F. Haettich 11/22/2010

There have been a number of positive reports recently about General Motors’ ahead of schedule Initial Public Offering. Sounds like great news, and the general media consensus is that we, the taxpayers are going to get paid- finally. Well doesn’t that take a load off of your mind? I was interested in the details of the deal, and the actual numbers involved with GM, so I began to ask around. I spoke to individuals in many different professions to find out what they know about the GM deal. I asked, and asked, and asked- only to find that the only bit of information anyone had for me is the great news that we are getting paid back finally by GM. Not a single person had a clue as to what the actual numbers surrounding the deal were. Let’s take a look.

To give you some history on the deal, the US taxpayers initially bailed out GM with $20 billion prior to them even filing Chapter 11 bankruptcy. After bankruptcy, the US contributed an additional $50 billion to the failing auto maker. These contributions came from both Bush and Obama. Besides the debt, the US holds $2.1 billion in preferred stock and holds a 61% stake in the company. To simplify, we are looking at approximately $70 billion invested in this failing company. Allow me to mention that you and I had no say in this decision to spend such a large amount of our hard earned cash. Now let’s look at repayment:

I read an article from April of 2010 by David Kiley, entitled “GM Pays Back Portion Of Taxpayer Money”. In the article, he outlines that GM had repaid the remaining $5.8 billion of the $8.1 billion owed in government loans. He also states that GM still owed the US Government an additional $45.3 billion that will be paid when GM makes a public stock offering. In the article, it is made clear, that the first $20 billion that we paid to GM prior to bankruptcy, is not expected to be repaid. What!? Did you know this because I sure didn’t? Hey here’s $20 billion, don’t worry about it. Are you kidding me? To summarize, we invested approximately $70 billion in General Motors, and to this point as of April 2010, GM owed the taxpayer $45.3 billion, and this does not include the $20 billion that was “donated” to GM prior to their bankruptcy filing. The remainder of the debt is to be paid with funds raised from the IPO.

So we had the IPO last week. It was earlier than expected, and the magic number- the amount raised by GM in the IPO was $20.1 billion. The market is basically saying that GM is worth $20.1 billion at this point. What can I say, but….whoop-dee-doo! Why, you ask- GM owes you and me $45.3 billion, and we are another $20 billion in the whole on top of the $45.3 billion that they aren’t even “expected” to pay- and they are re-paying you and me $20.1 billion from the IPO. I’m no mathematical genius, but after doing the math, it looks like we are out approximately $45.2 billion dollars. That to me isn’t amazing news, as portrayed by our media. The IPO would have had to raise $70 billion for the taxpayer just to break even. And now in an uncertain economy, GM is supposed to grow to a point where we will see the remainder of our investment plus interest (minus our generous $20 billion “gift” to GM). All I have to say is- great job President Obama, and President Bush! Way to wheel and deal! I’m glad you are both on our side.

If you ask me, the IPO raising $20.1 billion is a huge disappointment. It tells me that either it will be a long time before we will get paid….if we get paid at all. I truly believe that our government is grasping at straws for good news somewhere, anywhere. I think it is safe to say, that all that we as taxpayers want and expect is an honest report on the state of affairs surrounding our economy, the debt, and deficit spending- along with sound action based on the reality of our situation. The failure of our government to be real with the public, and the failure to confront reality is quickly leading to the destruction of our systems and our liberty. America asked for hope and change- now I think all America craves is a little bit of honesty. That is all I have for today.

John F. Haettich- 11/22/2010

 

The USA In the Eyes of Asia & Europe- John F. Haettich – 11/18/2010

You may or may not be wondering or even caring about what the rest of the world thinks of the USA right now. Occasionally, I take a look at the Asian Times, and European newspapers just to have some insight into how we are being viewed on the world stage. After all, public opinion in these countries is of course formed by what these people see in the media, and what they read in publication. Over the past months, there has been a sentiment of caution when speaking about America in these foreign countries. That is changing slowly, as the US is taking on much harsher criticism overseas.

Let’s take a look at the Asian Times first. There are some interesting titles rotating through Asia, like “Obama delivers only Hot Air”. This was an entire article devoted to President Obama’s visit to the Asian region. They are almost making fun of him as a credible political leader. There was frustration with the fact that Obama offered a “Blizzard” of words that piled up for several days, with no progress. They categorize Obama’s trip as a series of lost major battles throughout the whole trip. They even go as far to mention how Teddy Roosevelt created the common saying, “speak softly but carry a big stick”, and that Obama has taken the saying completely backwards as he has nothing to back up his words. Clearly, President Obama is losing credibility in the region, especially due to his disastrous economic policies.

Even at the G-20 Summit, little to nothing was accomplished as America refuses to change its economic policies which are proving harmful to all nations. QE2 was also up for discussion at the G-20, where world leaders condemned the action as extremely harmful to world economic recovery. Obama was also unsuccessful in retaining a trade agreement with South Korea, one of his key goals of the trip. Lee Chang-choon, a former Korean ambassador commented that “Obama has been losing clout”, and laughed at the thought of this G-20 Summit as being a great event in modern Korean history.

Another article in the Asian Times entitled “Bernanke’s Easter Island Moment” compares the Federal Reserve’s QE2 to some of the worst economic policy decisions in the history of civilization. They conclude that “it seems likely that it (QE2) will eventually rank among history’s classic bungles, at least on the economic front”. The insinuation is also made that this decision made by Bernanke is probably worse than the policy decisions made that bore much of the responsibility for the Great Depression. They finally compare QE2 with what they feel it most resembles, Easter Island in the 17th Century.

This was a high civilization in a then-well-forested island. They held religious rituals of carving large Moai statues out of tree trunks that they had cut down. When forestation began to decline, they decided the solution was to erect more Moai devastating the rest of the forest to do so. For the next 200 years, the islanders starved and barely survived until 1868 when the Europeans arrived and there were only a few of them left. They say that Bernanke’s Moai, are the failing big banks that he is continuing to prop up. They conclude that presently, Bernanke’s QE2 decision takes the lead in the history of foolish economic decisions.

So now that we know that the Asians love us and think we are wicked smart, let’s talk about Europe. I read an analysis in Newsweek recently entitled “Post Anti-Americanism” by Howard Fineman. Here he writes “When you read about America in European Newspapers, what you are likely to find is a tone bordering on pity. The U.S. is depicted as a fraying empire of obesity, ignorance, debt, gridlock, stagnation, and mindless war. Sure, the iPad is cool, but it is evidence of what America was, not what it will be again. The stories are not angry, accusatory, or even ideological. It’s worse: they are condescendingly elegiac.” What a rave review from Europe don’t you think?

Now some Americans may say, “Well I don’t care what these other countries think”- which is fine….if the allegations aren’t true. I don’t know about you, but I want a reputation of being informed and strategic, not ignorant and mindless. This is the same America that was built on ingenuity? We have reached a point where our people don’t even rise up to defend our rights or even our dignity. I read an article yesterday by Keith Johnson entitled “American Idle”. There he outlines how we as Americans have lost our common sense, and our motivation to act sensibly.

He documents how our country has been conditioned not to act out in cases of injustice. He documents the Rodney King case 20 years ago, where the decision was made to allow four police officers to go uncharged for the beating of a black man in LA. The public response was massive riots for days- fires, overturned vehicles, and crazed mobs. You may say that is over the top, but the result was that the US Department of Justice was forced to bring federal charges against the four officers for civil rights violations. Yes the riots were excessive, but at the same time the government got the point.

Johnson lists recent cases of police brutality far worse than the Rodney King case that were recorded on tape. None of them received air time, and the officers involved have not been charged to date in all cases. There have been some peaceful protests, receiving little to no media attention, and having no effect. It is like our government and media proactively hide issues where they may be confronted with outrage. Now I’m not telling anyone to riot, damage property, hurt others etc as I don’t believe in that. The point I’m making is, say something. When you see our liberty becoming less and less, say something. When you see damaging policies being enacted by our government, say something. When you see one man suffering an injustice imposed by government that doesn’t make sense, say something. Be informed and aware of the actions your local cities, states, and even the federal government.

One last case that was mentioned in this article was of Gene Cranick of Obion County Tennessee. He watched his home burn to the ground, burning all of his belongings, and 3 pets as firefighters from neighboring South Fulton stood by without doing anything to put the blaze out. The problem was that Mr. Cranick forgot to pay an annual $75 fee for fire services to residents that live outside city limits. Instead of being outraged, Cranick’s wife didn’t blame the firefighters saying- “They’re doing what they are told to do. It’s not their fault”. This is the attitude of most Americans today. Instead of having common sense and holding someone accountable for a foolish policy, they put up with insane policies sometimes at a high price as in this case. Wake up Mrs. Cranick!

If we as Americans no longer use common sense even when it comes to our own homes, we are doomed when it comes to our police departments, local governments, schools, state and federal governments. I encourage you to look at the issues on the table in your own communities, and ask yourself-“does this make sense?” If it doesn’t, use your voice and say something. If you have to say it loud, than say it loud. Let’s change how the world views us today. That’s all I have for now.

John F. Haettich – 11/18/2010

Price Controls & China- Commentary – John F. Haettich 11/17/2010

Yesterday reports came out that China will institute price controls in order to battle the inflation caused by quantitative easing. According to Geoff Dyer at FT.com, they are considering “a package of price controls and other measures to contain inflation which rose sharply last month and has become the principal risk to the economy”. China is in a situation where inflation rose to 4.4% in October alone, while they usually target a 3% inflation rate. They were seeing food price increases of 62% year over year for vegetables, 95% for garlic, 89% for ginger, and the list goes on and on. China’s effort to print money in order to keep up with the US in the currency war has taken its toll. At least China is being honest about inflation, you have to give that to em.

Some are saying that China may be doing this as a “psychological effort” towards food producers to keep their prices in check, and that they will probably do little to actually enforce harsh price controls. Ok, so who really knows what they will or won’t do. Just the gossip is enough to make everyone uneasy. What are price controls anyway?

A price control is a governmental imposition on the price charged for goods and services in a market intended to maintain the affordability of food or goods during shortages/inflation, or to insure an income for providers of certain goods. In essence, the government ignores the actual price that the market has dictated, and enforces its own price constraint. The two forms of price controls are “price ceiling” giving a maximum price that can be charged, and a “price floor” giving a minimum price that can be charged. The concept of price controls dates all the way back to the Old Testament of the Bible in the Roman Empire. There are some problems with price controls however. By keeping prices artificially low- demand will usually increase to the point where supply can’t meet it, resulting in huge shortages of food, or goods.

This happened in the 70’s with gasoline. Price controls were put in place by the US Cost of Living Council setting a lower than market price for gasoline, and long lines of cars had to wait at gas retailers as the price controls were met with high demand and shortages. In one sense, I’m glad to see China addressing the inflation problem. Hopefully this will lead them to allow their currency, the Yuan, to rise above the dollar rather than engaging in quantitative easing along with the US. But what about the US- why hasn’t our government even addressed the inflation problem. Oh that’s right, they’ll just play with the numbers to make it seem our inflation rate is just great! The truth be told, our inflation rate is above China’s rate. Widespread knowledge of this would cause an uprising of the people with a quickness.

So you may say, why doesn’t the US government institute price controls. You see the food prices rising, and your pocket book shrinking while you think, enough is enough. Come on government, do something! Well, the fact is that if the government would enforce price controls on our food market, it may not be so good. Let’s say tomorrow, the government comes clean and says the real inflation rate is going to hit 12%, and we are going to need to institute price controls on all food, or specific food items. What are you going to do?

Take coffee for example (for all you coffee drinkers out there)- let’s say coffee doubles in market price due to inflation, and the government said, ok we are instituting price controls on coffee to bring the price back to close to where it was. If you are a coffee drinker, I guarantee you will be the first one out the door running to the grocery store to get it while it’s cheap. You know that the market price is soaring, so if you can get a deal through price controls, I guarantee that store will be packed with people trying to buy coffee. My guess is that coffee will last an hour, if that, before the shelf is completely empty. Then – no coffee. Sounds great doesn’t it. Unfortunately, demand would be so high that if you weren’t lucky enough to get coffee in that first hour, you aren’t going to be drinking coffee for a while. Now imagine if all food items came under government price controls. Get the point?

Our only hope to curb inflation is to stop the printing presses, and cut government spending by huge margins. Trust me, we don’t want to see price controls in the US, but if we reach a hyperinflation situation, this is exactly what will happen. Let’s hope we can avoid this, but be prepared should it come into being. You should have an adequate supply of food and goods stored, especially given the economic climate we are experiencing. At this point, the US is vulnerable to a price controls situation, and you will probably see price controls within the next 2-3 years if not sooner.

As you saw yesterday, this affected the commodities market and the market as a whole, bringing the worst day for the stock market in months. This is due to a ton of uncertainty from China’s announcement, and Europe is showing signs of financial problems and debt at crisis levels again. This morning, I read a very interesting article in MSNBC entitled “Why food bills are heading higher”. I encourage you to take a read.

Also, the National Inflation Association (NIA) published an article yesterday entitled “Hyperinflation is Guaranteed if U.S. Stays on Current Path”. This is an outstanding article detailing why we are headed in this direction. When will it end? Stay informed, keep on top of the facts, and be prepared. Share this information with those you know and love. Informing those around you may be the most important thing you do this year. That’s all I have for today.

See Hyperlinks:

Why Food Bills are heading Higher- MSNBC

Hyperinflation is Guaranteed if U.S. Stays on Current Path- NIA 

 
 

SPECIAL EDITION:  Greatest Depression Coming?  You Decide – John F. Haettich 11/16/2010

 

Today, in social circles all over the US, people are talking about our economy.  Most think that there is no way we are headed for a depression, especially not at the level of the Great Depression (GD).  Many raise their noses at the thought of a depression while they continue sipping their tea.  Clearly, we as Americans don’t want to worry ourselves without probable cause.  Today let’s take a closer look at the Great Depression, and make a comparison to what is happening around us today.  After all, study brings about knowledge, and knowledge is power, wouldn’t you agree?

GREAT DEPRESSION FACTS:

In the 1920’s leading up to the depression, certain things were happening.  Firstly, there was a market correction taking place due to World War I, because federal spending was 3 times larger than tax receipts.  It was in the 1920’s that the government decided it was time to balance the budget again.  Because there was so much manufacturing left over from the war, certain specialized sectors of the economy were good, while most others weren’t.  A severe recession resulted.  Approximately 600 banks were failing each year during this decade.  Also, approximately 1,200 mergers swallowed up more than 6,000 previously independent companies leaving only 200 corporations with control over half of all American Industry. 

By 1929, the richest 1% owned 40% of the nation’s wealth.  Also in 1929, the annual per capita income was $750 dollars, and more than half of all Americans were living below a minimum subsistence level.  To kick off the Great Depression, came the stock market crash beginning October 24, 1929 and culminating on Black Thursday, October 29, 1929.  Losses for the month were $16 billion, this was a ton of money back in the 20’s. 

After the crash, in 1930, the Federal Reserve cut the prime interest rate from 6% to 4%.  The Treasury Secretary at the time declared that they will stand by as the market “works itself out”.  Within five years, home prices fell by 25.9%.  Also in 1930 – GDP and unemployment started taking a dive.  Keep in mind, unemployment in the 1920’s and 30’s included discouraged workers and PT workers looking for FT jobs- unlike our unemployment rate today.  See Chart Below:

1929-       GDP- $103.6B                     Unemployment- 3.2%

1930-       GDP- $91.2B                       Unemployment- 8.9%

1931-       GDP- $76.5B                       Unemployment- 16.3%

1932-       GDP- $58.7B                       Unemployment- 24.1%

1933-       GDP- $56.4B                       Unemployment- 24.9%

During this time, there was no money printing (quantitative easing) so inflation wasn’t a huge problem.  The problem was more so that people didn’t have jobs, or their jobs were very low paying and they couldn’t afford what they needed.  From 1929 to 1932, 40% (10,000) of the banks had failed.  International trade had also fallen by two-thirds since 1929, and the top tax rate was raised from 25% to 63%.  In 1933 a third banking panic occurred and Roosevelt declared a “Bank Holiday” closing financial institutions to stop a run on banks.  A run on banks is basically when a huge amount of people out of fear attempt to get their money out of the bank at the same time. 

It was not until 1934 after much legislation, and even the warding off of an attempted military coup by a group of millionaire businessmen led by the Du Pont and J.P. Morgan empires, that the economy was able to start the road to recovery.  Deficits during the great depression only came to about 5% of GDP and government debt at its highest was at 45% of GDP.  That is the Great Depression in a nutshell.  Now let’s look at today. 

 

PRESENT DAY FACTS:

 

Let’s start by looking at the Stock Market crash of October 2008. In October of 2008, during the course of eight trading days, the Dow Jones Industrial Average dropped a total of 2,399.47 points or 22.11%. Let’s back track a bit to identify items leading up to this crash. Firstly, the credit market collapse which was brought on through poor lending practices during a period where home prices were rising daily. The credit market’s problems began when housing prices began to fall in 2007. This led to massive foreclosures and people simply abandoning their homes to avoid paying off their debts.

Bear Stearns was the first of the investment banks to fall victim to the fear that borrowers could no longer repay their loans. They filed for bankruptcy, and two days later agreed to merge with JP Morgan Chase in a deal that destroyed 90% of their market value. Next to fall were Fannie Mae and Freddie Mac, as they either owned or guaranteed around $6 trillion in mortgage loans. The FHA jumped in to help, and the US Treasury department began supplying funds to stabilize these companies (this was the first bail out of $151 billion), raising the national debt ceiling by $800 billion.

Next it was Bank of America acquiring Merrill Lynch for $50 billion, and then Lehman Brothers filed for Chapter 11 Bankruptcy. In September of 2008, AIG’s shares lost 95% of their value and the company reported a $13.2 billion loss in just a few months. As you know, the government stepped in to save AIG as they were “too big to fail”. Finally the market crashed in October of 2008, because of massive sell-offs, investor fear, market losses, and massive stop loss orders.

The US government took action in what was called the “Tarp Bail-Outs”, and bailed out 938 different companies including banks, insurers and automakers as a part of a $546 billion bail out plan. Then in 2009, came the American Recovery & Reinvestment Act, signed into law as the first stimulus package to “grow” the economy. This is where our Federal Reserve lit up the printing presses to flood an additional $787 Billion into the market through tax benefits, contracts, grants, loans, and entitlements. To date, this act by government hasn’t succeeded in stimulating the economy.

With unemployment remaining high, the Federal Reserve has now decided to flood an additional $600 billion into the market through quantitative easing in order to stimulate the economy. They are using this batch of cash to purchase US Treasuries and bonds, basically government debt. Most economists agree that QE2 will do nothing to revive our economy. And here we sit today, with a devalued US Dollar that is slipping in price almost daily, and out of control commodity prices along with imminent massive inflation, and an inability to manipulate interest rates. Keep in mind, all of this is happening while we are engaged in a costly war over in Afghanistan, and we really have been at war since 2002-unlike the time of the Great Depression.

We are seeing that our government is far more overextended than it was during the time of the Great Depression. Our current national debt to GDP ratio as of November 7, 2010, is 95%, as compared to 45% at its worst during the GD time period. Our deficit to GDP ratio is over 10% as compared to a high of 5% during the GD. In addition to this, you will find the real unemployment rate (see prior blog) of 21-23%, is approaching GD levels that topped out at 24.9%. We have not yet even turned the corner with unemployment, as we are racking up new job losses every week.

Present day home prices have fallen by 25% according to reports last week. This is almost equivalent to GD home market losses of 25.9% at peak. Many are saying that home prices will continue to fall, as we are still not at the end of the credit and foreclosure crises- we are only 3 years in. It took 5 years during the GD to hit 25.9%.

Today, I read a story in Fox News entitled “US hunger remains at highest levels in 15 years”. People are out of work, and right now reports indicate that 45 Million homes are considered “hungry”.  In other news, I read about China enacting some form of price controls to battle high inflation that was prompted by quantitative easing.  This sent the markets scrambling as now no one knows what to expect.  We are living in a world of uncertainty, especially about the future of the US economy.  What can we conclude from all of this?

 

CONCLUSION:

 

#1- Our current monetary system is far more dangerous than the system that was in place during the GD. We are in danger of massive inflation and even hyperinflation due to our monetary policies. The middle class will continue to decline into a lower class as the value of the dollar continues to be attacked by the US Government and the Federal Reserve. The potential is present for a much worse poverty situation than that of the GD within the next decade.

#2- The condition of our national debt and deficits at this point is much worse than it was during the time of the GD. As the government continues to spend money that we don’t have, we are at risk of an economic and monetary collapse.

#3- The fact that we currently are unable to manipulate interest rates, puts us in a very dangerous situation unlike the GD where they were able to manipulate interest rates for a positive result.

#4- If our government continues to intervene in the market place through stimulus and bail out’s, we are looking at a very long period of decline or even collapse. The Great Depression lasted approximately 3-5 years with far less government intervention than present day. The more government gets involved, the longer and more intense the pain.

You can look at the facts, add up the numbers, and formulate your own opinions. One fact we cannot ignore- the great depression is over, but our economic crisis is just beginning. It is my belief that because of inflation, a devalued US Dollar, soaring debt, high unemployment, and lack of productivity through a huge trade deficit- we have a long ugly road ahead.

Some argue that without government intervention, we would have dipped straight into a depression. If you ask me, I think I would have rather taken a depression and allowed companies to fail, than to see the US Dollar potentially becoming worthless. Markets by nature need to correct themselves. It is like taking a quarterback with an injured throwing elbow, and giving him an injection to numb the pain so he can go back into the game. He may be able to play for a little while, but eventually he’s going to injure his arm far worse, maybe even so bad that he won’t ever play again. I hope that you will stay true to the facts, and please don’t be controlled by emotions. Begin to hold your state and local governments accountable, and don’t be swayed by the rosy rehearsed answers that most elected officials have been bred to manipulate. Take care of each other, and stay true to the Christian principles that our country was founded upon. That’s all I have for this special edition.

 

John F. Haettich- 11/16/2010

 
 

The Truth About GDP & Today’s News Commentary- John F. Haettich 11/12/2010

 

Many of you are probably wondering why it is taking so long to pull out of the current recession we are in. I’ve heard people comment on how today is just like the 80’s and we will be turning it around soon. Really? Let’s look at history. At a meeting in the first quarter of 2010, I along with other business leaders met with Marty Regalia Ph.D., Chief Economist for the US Chamber of Commerce in Washington DC. There he gave us an education on the history of US recessions. According to the history of our own USA, every recession recorded- we were able to reabsorb the lost jobs back into the marketplace within 2 years, and that was at 5-6% GDP.

This situation is very different. We have over 20 Million people out of work, we’ve created only a few hundred thousand jobs in the mean time, and we are sitting at a third quarter 2010 GDP of 1.7% according to the US Bureau of Economic Analysis. The problem is, our economy isn’t growing big enough, fast enough. We are looking at many years- before we will be able to re-employ everyone that is now unemployed. Couple that with record unsustainable debts and deficits, a huge trade deficit where our imports are much larger than our exports, impending record inflation from money-printing, and our financial markets still hovering in no man’s land with everyone on edge waiting to see what’s next. We are in unchartered territory, a situation like no other in our history. It is time to accept reality.

What is GDP? The textbook definition of GDP is- the measure of an economy adopted by the US in 1991; the total market values of goods and services produced by workers and capital within a nation’s borders during a given period (usually 1 year). There are 3 ways to calculate GDP- 1. The Product or Output Approach, 2. The Income Approach, and 3. The Expenditure Approach. In theory, all of these approaches will get you to approximately the same place.

What most people don’t know, however, is that our government has manipulated GDP for years now using a method called “Hedonics”. What if I told you, that our tiny 1.7% GDP for the third quarter of 2010, is an inflated number. How could it be, it is so low? Well let’s first address the question, what is Hedonics? The idea behind hedonic price index calculation, is to manipulate the price of products by incorporating quality changes into prices. Take a product, like stove for instance- In they eyes of the Bureau of Labor Statistics, a stove is not just a stove. Rather than recognize the fact that a stove is sold at 1 market price, they see a stove as a combination of parts and pieces. They will look at each part to see if there has been improvements made on the part from prior years, and the Bureau maintains that they are in a position to determine if the parts are actually improved, or not. The overall product receives a new price from the Bureau of Labor Statistics that is different from the market price of the product. That is a lot of power we are giving to the BLS don’t you think? So I sell a stove for $600, but the BLS can say it’s price is $400, or $800, or whatever they deem correct? Why don’t we just roll a dice and see where it lands to determine product prices.

Do you now better understand how the government manipulates our GDP? Through the use of hedonics, the government is able to produce fairy tale results in any economic situation. According to Austrian Economist Antony P. Mueller, hedonics can provide “a lower inflation rate with generally rising prices, a higher growth rate although the economy may be weaker, and a higher productivity number, although productivity would have been declining without the hedonic imputations.” I implore you to further investigate hedonics, as it get’s very technical and takes some study to fully understand. This is a tool used by the government and the Bureau of Labor Statistics to make the numbers sound much more “warm and fuzzy” than their reality. Several economic studies have shown that real GDP has been in the negative for most of the last 3 years, with the exception of 3 quarters. The truth about GDP, is that our economy is not growing right now, or growth is minimal at best. I hope that this helps in your search to explain how GDP manipulation takes place.

As for the news yesterday, CNN posted an article “World Underdogs Take the Lead” referring to China and Russia at the G20 Summit. You know what that means right? We are becoming the new underdogs, due to our economic and monetary policies. I would be embarrassed if I were the President going to a meeting with national leaders from countries with the world’s largest economies, knowing that my country is in economic turmoil and ruin. To fix this will take leadership, and hard unpopular decisions. CNN also had a report showing the economic numbers from the countries attending the meeting. Let’s compare the US and China:

 
 

USA:

 

GDP Growth- 2.64% (Inflated as discussed above)

Gross Debt- 92.72% of GDP

Unemployment- 9.73% (manipulated)

Trade Gap- -$416B

Inflation- 1.42% (manipulated)

 

 
 

China:

 

GDP Growth- 10.46%

Gross Debt- 19.148% of GDP

Unemployment- 4.1%

Trade Gap- +$270B

Inflation- 3.524%

Can you tell who might be declining, and who might be rising? Please also note, it is widely a accepted economic fact, that once any country reaches a gross debt of 90% or more, they begin transferring their wealth to other nations. As you can see, the US gross debt is at 92.72% and rapidly growing. Not a good sign for America. In other news, you saw the stock market take a hit yesterday, and home sales fell 25%. Quantitative Easing will only take the stock market so far, and believe me, we aren’t going to see a trickle down effect into the economy. It didn’t work before, and it won’t work now. Expect to see commodities continue their rise in the coming weeks, while the dollar continues its decline. That’s all I have for now, have a great weekend, and I’ll blog sometime next week.

John F. Haettich- 11/12/2010

 

 

 

 Commentary- Deficit Cuts & Obama/Fed “Mandate”-John F. Haettich 11/11/2010

 

After reading the news yesterday, it is very clear to me that the media makes a habit of using whatever numbers are convenient, rather than sticking to the real numbers surrounding our economy. I have even seen charts presented by mainstream media that are completely inaccurate and extremely misleading. Let’s talk real numbers today.

Yesterday, CNN came out with a report- “4 Trillion in Deficit Cuts Proposed”. As I started to read the article, I find that it is actually 4 Trillion in Deficit Cuts Proposed…over the next decade. President Obama’s Fiscal Commission released a preliminary report on items to prevent the growth of the US Debt. As I looked through these items, I wasn’t all that impressed. Here is why.

The report gave 2 points of focus that I want to address.

The first point entitled- “Set targets for revenue and spending”– Proposes recommendation to cap taxes at 21% of GDP, and cap federal spending at 22%, eventually bringing it down to 21%. Ok, so let me get this straight, GDP for the year 2010 is $14.625 Trillion approximately. Taking 2010 for example- that means that their goal will be for tax revenues to be capped around $3.071 Trillion, and federal spending would be capped around $3.217 Trillion. That leaves some problems. The current 2010 tax receipts number is sitting around $2.381 Trillion, and the current 2010 Federal Budget is sitting at $3.55 Trillion. Basically under this first goal, the taxpayers, you and me in a 2010 scenario would pony up an additional $690 Billion in taxes, while the Federal government cuts their budget by $333 Billion. Seem fair? It doesn’t even make sense. The government would need to cut far more than $333 Billion in order to pay off our soaring debt, and that would be on top of hitting the taxpayers up for more cash, in a down economy. At first glance this may sound rosy, but come on guys- we aren’t even going to put a dent in our debt with this thinking, much less grow our economy. We need real talk about cutting real departments and slashing department budgets drastically. Let’s get back to reality. Why is it that our government fails to be specific on most budget and policy issues?

The second point entitled- “Rein In Spending”– Proposes a $200 Billion cut in domestic and defense spending…..in 2015. Ok, let me get this straight. Our current national debt is around $14 Trillion expected to rise to $20 Trillion over the next few years, and you are going to cut $200 Billion in 2015? This is ludicrous. We don’t need to cut in 2015, we need to cut now. Failure to cut now makes me question if we will even see a 2015. The Federal Government’s total 2010 expenditures was around $3.552 Trillion- this measly $200 Billion is a drop in the bucket compared to that. If I were President Obama, after seeing this I would adjourn the commission and tell everyone not to come back until they were serious about fixing our budget problems in Washington. Come on fella’s- the clock is ticking.

They went on to address Social Security looking for reform there. This is a great item to discuss that needs reform, I’m glad someone is finally taking a look at this seriously. I don’t know how successful they will be, especially seeing that the plan is to continue raising the retirement age. That may not bode well with our seniors as seen in France a few weeks ago. Another proposal was to get rid of the mortgage tax credit. I have to tell you, if the government’s idea of solving our budget problems and improving the economy is, tax the middle class more and more until they are no longer the middle class, than we are doomed from the start. This is definitely a tax aimed directly at the middle class of America. We need better ideas in Washington, and we need business men who understand how to balance a check book.

My Proposal- Drastic cuts in every department, along with the complete closing of some departments. I would cut the Department of Education, the Environmental Protection Agency, Corps of Engineers, Corporation for National and Community Service, National Infrastructure Bank, the Department of Energy, the Department of Agriculture, and the Department of State and Other International Programs. I would impose severe budget cuts on the remaining departments, and work to fix Social Security, Medicare and Medicaid, our three big ticket and mandatory items. Along with the budget cuts to all departments, would be bonus incentives for department leaders and managers who are able to come in under their budgets. I would put an end to the governments “use it or lose it” mentality.

Next I would stop the wars. It is clear to most Americans that our purpose over in the Middle East at this point is oil. The wars need to stop as they are unconstitutional, and the defense department needs huge budget cuts. I would start to utilize our own resources for oil and energy. After that, I would work to abolish NAFTA and CAFTA, to bring manufacturing back to the United States, the only solution to fix our economy. Some may agree, some disagree- but at the end of the day if we keep spending on our current course, all Americans will reap the consequences of a collapsed government and a collapsed economic system. There are no grown ups left in Washington to say no to the Credit Card.

Lets look at the past three years in real numbers:

2008- George Bush

Total Tax Revenue- $2.7 Trillion

Total Expenditures- $2.9 Trillion

Deficit- $239 Billion

Debt- $9.985 Trillion

 

2009- George Bush

Total Tax Revenue- $2.7 Trillion

Total Expenditures- $3.107 Trillion

Deficit- $407 Billion

Debt- $12.867455 Trillion

 

2010- Barack Obama

Total Tax Revenue- $2.381 Trillion

Total Expenditures- $3.552 Trillion

Deficit- $1.171 Trillion

Debt- $14.078 Trillion

As you can see, the trend is unnerving. Our debt is on a quick spiral out of control and is already at unsustainable levels. If you have a checking account with $1,000, and you try to spend $3,000, what will happen? Of course, your bank will deny you the funds, possibly charge you fees, maybe think you are a little nuts, they would definitely think you are clueless. Our government does this all the time. With our government- by saying nothing, we are saying, “its ok, just use the credit card on whatever we can’t afford, and you can go ahead and print some more money too if you would like. I don’t care that my money is worth less and less every day.” Wake up America!

Another item I wanted to comment on, is President Obama’s speech from Asia where he mentioned that it is His, and the Federal Reserve’s mandate to grow the economy. Well that’s not true at all. The Federal Reserve has no mandate of the sort. Peter Schiff, Economist and President of EuroPacific Capital, commented yesterday on this saying “The Federal Reserve’s only mandate is price stability, and maximum employment- not growth of the economy”. In reality, the President and the Federal Reserve are now working in concert together, as the Fed simply monetizes all of the new debt coming out of Washington. For this reason, I don’t think you will ever see President Obama criticize the Fed, regardless of harsh criticism this week from Ron Paul, Sarah Palin, Russia, China, and Germany. Bernanke is keeping Obama and his government afloat- they are husband and wife. I’ll leave it up to you to guess which is which. Enough for today, that’s all I have.

 
 
 

~John F. Haettich – 11/11/2010

 

 

 

Inflation- The True Story & Commentary on Today’s Unemployment News ~ John F. Haettich-11/10/2010

 

 

Most Americans are wondering today why their budgets seem to be getting tighter and tighter. Just yesterday, someone complained to me that they went to the grocery store and spent $100, but only walked out with two bags of groceries. Someone else said to me recently, “well the inflation rate is only 1.1% for September, we have nothing to worry about”. If that were true, we wouldn’t be experiencing tighter budgets these days. Sad to say-government has changed and morphed the way it calculates inflation over the past 20 years. Our US government has been engaged in data/statistics manipulation for many years now. Recent economic studies have shown that the government has fudged numbers on Unemployment, Inflation (CPI-Consumer Price Index), and GDP.

 

The Bureau of Labor Statistics has consistently said that our inflation rate remains within the 2-3% range or lower. Most independent economists and analysts see it differently. Ask Kevin Phillips, a political commentator and former Republican advisor. He recently wrote a book entitled, “Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism”. Back in 2008, he outlined that Inflation was not at the 2-3% that the government had proposed, but rather 7-10%. He traces the manipulation of statistics all the way back to soon after John F. Kennedy took office in 1961. JFK formed a committee to brainstorm on changes to the measurement of unemployment. It wasn’t long before the “discouraged workers” category was created. Every President ever since is guilty of statistics manipulation in multiple areas.

 

Why fudge the inflation rate? Simple- the higher the inflation rate, the higher the pay increases for all workers in the USA. Companies would have to make adjustments for inflation, and you would see more money in your paycheck. Also, they are trying to avoid an uprising of the people. After looking at the CPI for September 2010 as posted by the Department of Labor Statistics, most could deduce that all of the numbers are false. For instance, Food in general is showing a 1.1%increase over the prior month according to the report. Let’s look at the real numbers on food and other commodities over the last year.

 

Year-Over-Year Change (October 2010)

-Wheat- +74%

-Corn- +14%

-Oats- +68%

-Canola- +36%

-Heating Oil- +29%

-Gasoline- +25%

-Beef- +18%

-Pork- +60%

-Coffee- +27%

-Sugar- +44%

-Cotton- +66%

-Gold- +31%

-Silver- +36%

 

All of these commodities are up considerably over last year, yet the CPI is up 1.1%? The report from the Bureau is a complete joke. The problem is, most Americans just look at the final number, take it at face value, and continue on with their lives wondering why they can’t seem to budget enough for the goods that they need. To give you some indication to the severity of our current situation, in the 70’s, Nixon created price controls and wage freezes because of high inflation. It was a national emergency as inflation was out of control. Funny thing is, inflation in 1971 was only at 4.7%. Many economists are presently arguing that actual inflation is more in the 12-15% range today and growing. I believe the average American has no clue what is coming, completely underestimating the inhibiting power of the impending inflation.

 

Please understand, every time our Federal Reserve prints money, it causes inflation. Inflation is taxation without representation. They in effect take money and purchasing power out of your wallet, and your savings in order to fund an over-extended government with failing policies. With the coming inflation, everything will change. Businesses will have to change the way they do business. Money will not go as far, and businesses will have to adjust. Using your savings will no longer work for you as your purchasing power will be less and less. My advice to businesses- pay close attention, and be flexible. The old tricks won’t work any more, and new strategies will have to be implemented.

 

In the history of mankind, those that succeed, are those that pay attention and strategize. Right now is a time to do just that. See what is happening in the market place, and make some adjustments. Move your money into non dollar based assets, and wait. See what the market does next. I encourage comments and debate on this issue, as I think it will be probably the most important issue of the next 5 years.

 

I also wanted to comment on the reports this morning in CNN Money and CNN Fortune. They came out with some “great” unemployment news, excuse the sarcasm. The number of initial unemployment filings “tumbled” as they put it, for the week ending November 6th from 459,000 the week before, to 435,000. Really? This isn’t great news. Come on folks, that’s like saying, “Hey Mom, I brought my F minus up to an F!”. This isn’t a “tumbling” in unemployment filings. What is CNN trying to do here? Who are they working for- the people?

 

At the same time there was another positive report in CNN Fortune that “The Big Corps are Still Hiring!”. They chose 30 firms that currently have the most job openings listed in the US. Starting with Ernst & Young having 10,000 job openings. Sounds great doesn’t it! Well, lets look closer. If you add up all of the job openings from all of these firms combined- you have 50,355 jobs. Lets put this into perspective- the week of November 6 alone, we had 435,000 people in the US file for unemployment for the first time, and CNN is making a big deal about 50,355 jobs. We are losing close to 2 million Jobs a month. At this point, the US can’t even keep up with employing new citizens coming into the country. Come on CNN, when will you turn the heat on and hold our government accountable? Give the American people some credit, and start writing some news that doesn’t insult our intelligence. It is definitely time to get real with Americans, time for some serious accountability. That’s all I have for now.

 

John F. Haettich- 11/10/2010