first majestic silver

It’s Either Them Or Us

October 6, 2013

Currently, the Federal government is in “shut-down” mode as House Republicans refuse (at least so far) to provide funding Obamacare.  You can be sure that any part of the government that is important to the politicians is unaffected in the current shutdown.  I expect employees for the IRS and NSA are getting all the overtime they’re asking for.  I’m glad the Republicans are making a last ditch effort to do something about Obamacare, if nothing else but to force the Democrats to once again vote for something they would rather forget: they voted for Obamacare once before.

President Obama (a lauded graduate from Harvard Law School) treats his health care law as if it was his own thing to do what he wills with it.  If you have influence, like members of Congress or big business interests that deliver large sums of money to the Democratic Party, he’ll grant a waiver for your Obama-problems.  The law doesn’t grant him this option, but like I said he is a lauded graduate from Harvard Law School so he knows how to make this stuff up as he goes along.  This is not the situation for the common taxpayer.  They can discuss their additional financial burdens from Obamacare with a representative of the Internal Revenue Service around tax time.  But it may not be necessary.  The Obamacare law granted the IRS the power to take your healthcare payments directly from your banking account.  

I expect most of my readers are aware of the problems Obamacare is creating in employment.   Companies in the private sector are shifting their labor forces into part-time jobs and dropping their current employee healthcare programs to lessen the burdens of this law during a time of economic recession.  In the fullness of time, expect Obama’s signature legislation success to turn into a multi-trillion dollar turkey that may just break the buck.

If the struggle to fund Obamacare isn’t a big enough problem, President Obama, and his minions in Congress, will soon demand an increase in the US debt limit.  Obama has never made it a secret that he is no admirer of the American constitutional government, or that he likes spending the tax payer’s money.  Passing around vast sums of legislated funds always keeps everyone who matters in Washington happy.  Obama is also on record stating that the big problem with the American Constitution is that it’s a check on what politicians, like the president, can do using government.  That’s true, as taught in high school civics classes a long time ago.   However I suspect this check on government is no longer emphasized as a positive feature in the constitution by many current members of teacher unions, if today they teach the constitution at all.  Obama obviously believes any constitutional check on his presidential prerogatives is intolerable, that his power is bound only by the popular will of the dispossessed masses.  He should be allowed to do what he damn well pleases!   This is the story line pushed by the main-stream media’s news coverage of political events in Washington, and the media sees any opposition to the President’s will as just evil.

One of the constitutional checks on the president that is so bothersome is how the House of Representatives has control over all federal government spending.  Each revenue bill by law must originate from the House’s Ways and Means committee.  Since FDR became president in 1933 the house’s desire to spend money and drive the nation into debt, no matter which political party has controlled the house, has matched that of the White House’s.  But I must say that seeing the House-Republicans finally attempting something to check rising government expenditures with Obamacare is refreshing, but I don’t know if they will oppose increasing the debt limit – they should though. 

Washington has swarms of economists on the payroll who will remind House Republicans that government spending is now the only significant source of “growth” in the economy, and limiting growth in the national debt may start a second Great Depression.  I don’t doubt this one bit, but if unrestrained growth of government supervised by socialist-party officials and economists sounds like the same situation that brought down the old Soviet Union in the late 1980s, it’s because it is. 

The Republicans are not stupid; they know the left-leaning mainstream media and the quack academics they select to interview will blame the Republicans’ refusal to allow the national debt to increase to ever more obscene levels as the cause for an economic collapse.  But the sad truth is that when anyone, including Washington’s elite, has consumed more of other people’s money than they can ever hope to payback, bad things and hard times are always the result.  That this simple fact of life is generally not understood in society is an indictment of the failure of the American tax funded educational system.  How can people from the age of 25 to 85 with a high school or college education support a political party proposing yet another increase in the national debt?

Here is a chart for the US national debt going back to 1938.  The debt’s growth during the Obama administration is highlighted in the red box; it has expanded by over six trillion dollars (up 58%) in the 4.5 years Obama has been in office.  A similar expansion of Treasury debt in the next four years will increase the US National debt to $26.3 trillion dollars.  President Obama has no problem with that, but I don’t believe the global financial system will support such reckless spending of borrowed funds by the American political system.  Think of this, the US Treasury is still rolling over President Roosevelt’s debts from the depression era’s New Deal legislation. 

As demand for Treasury Debt declines, as it has, the Federal Reserve’s quantitative easing programs will monetize an ever increasing percentage of the national debt for as long as the dollar can take the strain, and then some.  As we see below, currently the Federal Reserve has monetized 20.73% of the national debt.  But I suspect it is slightly more than that.  Since last March, the value of the official national debt has been $16.7 trillion dollars, and I don’t believe that!  As soon as the politicians once again increase the debt limit, we’ll see a one week jump in the US national debt to include the increases in debt that’s been ignored since last March, and the Federal Reserve’s percentage of its holdings of Treasury debt will see a one week decrease from this adjustment.  But then what do I know?  I know that the Federal Reserve will continue monetizing an ever larger percentage of the US national debt.  At what percentage does the US dollar cease to function as an economic asset is something we will all have to wait to see.

Below is the chart plotting the Federal Reserve’s balance sheet.  Inflationary bubbles and deflationary crashes as far as the eye can see; courtesy of the big brains from Ivy League Universities that dominate the Federal Reserve’s administration.  How anyone can look at all this data and not understand the potential gains awaiting gold and silver investors is beyond me.  Well, this market manipulation nonsense by Washington and Wall Street has been going on for well over a decade, so I do understand why investors are losing hope in the gold and silver bull market.  The last 2.5 years have been hard on the precious metal bulls.  But that doesn’t change the fact that the US dollar is only a plaything of powerful people who seem intent on destroying it, and as a consequence wealth will flee US dollar denominated assets.  How gold and silver bullion and yes mining shares would not benefit from the US dollar’s demise is inconceivable to me.

Taking all of this in, where will the new “limit” on US Treasury debt be placed; twenty trillion dollars?  How long will it take America’s politicians to spend that; and then what?  You do realize that for reasons of selfish political self-interest only, only an economic collapse that destroys the US dollar as a financial asset will stop this obscene expansion of Treasury debt.  The other option is for Washington to actually default on the national debt, which historically is a viable option for emperors, kings and popes.  For dreamers, there is the third option of paying off the national debt, but neither Washington nor I will waste any time thinking about that as the voters wouldn’t stand for it. 

As this can’t continue forever, prudent people will recognize this fact and take what actions they can. 

"The prudent sees danger and hides himself, but the simple go on and suffer for it."

Proverbs 27:12 (ESV)

Under these circumstances, exchanging some Federal Reserve notes for gold and silver bullion while you still can seems a prudent thing to do, and their current low prices a buying opportunity.

Even at present levels of the national debt, when bond yields for T-debt begin to rise in earnest, as they will, bond yields will continue rising to levels that eventually will result in an unsupportable debt burden for the US Treasury.  The day is coming when existing US Treasury debt matures and comes due; the Treasury will have to refinance its old debt at much higher rates of interest when they roll over Washington’s unpaid bills.  Eventually, higher bond yields on twenty, or even seventeen trillion in debt, will consume all of the tax revenue collected by the IRS.  Even Obamacare’s non-participation penalties the Democrats plan on using for paying for healthcare for the poor will be diverted for debt service of the US national debt.  When this situation becomes a reality, Washington’s political class will find some way to separate their fortunes from the dead horse call the US national debt. 

Massive growth in debt is not restricted to just the Federal Government, as we see below.  In the drive for “education” promoted by politicians and the media, government-guaranteed loans have been used to finance “higher education.”  The colleges on the receiving end of this generous-political largess have become diploma mills for students who have no business attending college.   That may sound harsh, but the growing list of degrees and graduates available from colleges outstrips the private sector’s available positions for higher education.  Decades ago, management jobs that today require a college education were once routinely filled by ambitious high-school graduates who were discovered and developed from within the company.  Not a bad plan, but one that no college would ever promote.  Not when the Federal Reserve is so generous in extending credit for “higher education.” 

I think this chart is old data.  I’ve seen articles stating that “higher education” has directly benefitted by over a trillion dollars in student loans.  Servicing this debt is a huge burden for college graduates; debt that wouldn’t exist except for Washington’s School Loan Program.  And it's all unnecessary; universities and colleges existed and prospered in North American before the United States was founded.  “Higher Education”, like the Federal Government today, could not exist without the Federal Reserve providing its students cheap credit via school loans to fund its operations.  Without it, many colleges and even universities would face ruin, but then monetary inflation, exactly like drug addiction, ends badly, and these institutions were actually responsible for providing the justification for the creation of the Federal Reserve one hundred years ago, and have continued to do so ever since.  I’d cut them off cold turkey from their drug of choice; credit used to fund student loans.  The only thing this credit creation has accomplished is to finally ensure that a typical union plumber now makes a better living than a typical college graduate, and not so long ago this was not so.

During my lifetime I’ve seen a growing cultural bias to have children of average intelligence (for sure no handicap in life) receive a college education.  There used to be advertisements on television informing young people and their parents of the difference in life-time earnings a college graduate received with those of someone with only a high-school education.  The income differences were significant.  In the last twenty years, this thoughtless promotion of nonspecific college degrees (any college education – just get a degree!) over a practical trade-school education for the bulk of the population has become a destructive force in the lives of many young people

Without a doubt, there are middle-class students who really could better themselves financially by attending college.  Any young person with the aptitude and desire for a career in a mathematically intense field in engineering, physics, or to become a doctor or dentist, should have the opportunity to attend college. It’s good for the country.  But encouraging kids to assume huge debts for earning a degree in a critical-ethnic studies, or sociological program, will never enable their students to pay off the debts incurred.  In to many cases, a college education an act of immoral predation by the college facility that makes the offer.  There really isn’t a good reason for encouraging young people to attend college when a career in skilled labor would serve them in life so much better.  Without a doubt many college graduates burdened with massive school loans have received an excellent education on the abuses of government-loan guarantees and price inflation via central-bank credit creation if nothing else.

Washington is currently promoting “economic growth” via expansion of its already bloated national debt.  The United States has never had so many deeply indebted college educated people walking the streets looking for work.  Economically speaking, what difference has all this debt in government and education made?  None, as the “means-of-production” is being stymied by the massive levels of debt it must now carry.

Here are the payroll numbers going back to 1993.  Once there were more private sector jobs in manufacturing (Blue Plot) than government (Red Plot), but not anymore.  Note how private sector jobs were shed from the economy during the “tech-wreck” bear market (2000-03).  From 2003-07, during the mortgage bubble, the stock market once again took off with the Dow Jones topping in October 2007 at 14,164; far above its high-tech market bubble high of January 2000 (11,722).  Without a doubt, the Dow Jones’ impressive gains during the housing bubble were the result of the Federal Reserve’s stimulative policies.  However, after the 2002 tech-wreck bear market’s bottom, economic stimulation by the Federal Reserve did little to revive lost jobs in the private sector.  Still economic commentators found an “economic recovery” as housing and stock prices increased from 2003-07.

The same story can be told to describe the private sector’s job losses after the Dow Jones’ real-estate bubble top of October 2007 (14,164).  After the credit-crisis market bottom of March 2009, massive inflationary “stimulation” via Doctor Bernanke’s QE programs have once again levitated share prices.  The Dow Jones made a new all-time high (15,676) on September 18, just two weeks ago.   With rising share prices market “experts” frequently state that the economy is in “recovery” mode.  But looking at the blue plot above, it’s evident that since 2000 the Federal Reserve’s “economic stimulation” is more successful in inflating financial assets prices to bubble valuations than creating actual job opportunities for the middle classes.

I placed President Obama’s picture in the chart above as he continues blaming George Bush for his economic problems stemming from the housing bubble’s collapse.  I’m sick of his whining about George Bush because during Obama’s “community organizing” days in Chicago, he was once the celebrated lawyer who in 1995 took Citibank to court, and succeeded in forcing the bank to provide mortgages for Chicago’s inner-city poor.  Chicago is a large city, and I suspect this case set a legal precedent for other banks in other cities that facilitated inflating housing prices during the mortgage bubble.  President Obama is no victim of the housing bubble, but a significant principal in the mortgage tragedy that the country still suffers from to this day.   But no one in the main-stream media calls him out for his contribution to the continuing disaster in the mortgage market that in no small way has devastated our current employment situation.  In the next phase in the deflationary collapse in market valuations, expect further declines in private sector jobs, and much of the blame belongs to President Obama.

Electrical-Power consumption (EP) tells much the same story as the employment chart above.  During the 2000-02 (tech wreck), the Dow Jones declined 38%.  That was a big bear market, resulting in a 2.1% decline in the economy’s demands for electrical power.  But the decline was of short duration, with demand for EP soon seeing new all-time highs (BEV Zeros) in the chart, unlike the credit crisis EP decline which has continued for the past five years. 

As we see below, such a significant decline in EP of such a long duration has not been seen since the Great Depression.  This is a good chart to compare past EP declines since the depressing 1930, and from the looks of our current decline, something really different is happening in the economy, something that’s not good.

Well you know what I think about the current strange action in EP of the past five years.  We are seeing our economy struggling under the insupportable burdens of debt placed on it by politicians, bankers and academics that for the past five years have refused to allow Mr Bear to do his duty of purging the financial system of its unviable debts and inflated asset valuations.  In response to Mr Bear’s 2008-09 attempts to purge the market, the Obama Treasury Department has taken on an additional six trillion dollars in debt, while the Democratic Party instituted a huge healthcare program to increase government spending.  The student loan program has now transferred over a trillion dollars to a university system whose economic professors can’t seem to see the problems people in the middle-class are complaining about, or so it seems when the media interviews their chosen economists.   And the darling of the financial media, JP Morgan, is in one market scandal after another.   The Youtube video is only sixteen minutes long, and as informative as it is humorous.

The United States and the rest of the world on the US dollar standard have big problems that are far from being resolved.  And the people in control of the economy and financial system really don’t want to fix it, because one of the things that have to happen to correct our economic problems is that the people at the top, and their big spending government ways, and their beloved Federal Reserve system has to go.  They know this, but as long as they can retain their power and positions, they don’t really care.


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