Tuesday, December 21, 2010

Federal and State governments insolvent

**For those readers that are my regular readers, I apologize for not posting regularly. I've been working long and hard on this current article. Please spread the word**



If you watched 60 minutes this weekend, you've been informed of what's going on. There's a bigger story here which leads to politicians, corruption, and banks. All of these different entities have played a big part in our impending collapse. If the States are bailed out next year when they collapse, then I would expect by the end of 2012 we'll have a complete financial collapse of the whole US which includes debt, currency, and the economy.


Politicians


Our political leaders only job is to get re elected. After August 1971 President Nixon put a stop to the mass liquidation of our gold by telling the nations of the world that they could accept the dollar in exchange for paying our debt. This took the US fully off of the gold standard, which was what FDR wanted during the Great Depression, and also put us as the global exchange currency. I think Nixon did this with good intentions, but the very entities that were supposed to keep watch over our currency were corrupted along with the politicians.


Have you ever noticed that politicians, when trying to be elected, make all these campaign promises. These promises are made so that they can get votes. They end up making deals with Unions and promise gold standard pensions. Unions weren't the only ones, the corporations bought the politicians as well so they could have influence the create legislation to stamp out their competition. After the Campaign finance reform, this allowed special interest groups, which tend to be to one extreme or another, to buy politicians as well.


Glenn Beck asked a great question before the November elections. He asked how long does a politician campaign. He was told that they start campaigning 2 years in advance. The next question he asked was how much money do these politicians have to raise and how many people do they owe favors to by the time they get elected. Those were two great questions, this gives us the complete insight into why we have so much corruption inside Washington D.C.


Currency


All this talk about currency collapsing, what exactly are they talking about? Think of things based upon supply and demand. If the supply is up, the demand is down which gives it less value, if supply is down then it's more expensive. The US used to be on the gold standard, this means that every ounce of gold represented 1 dollar, you could take your dollar to the Treasury Department and exchange it for 1 ounce of gold. Based upon the diversity of metals that the Treasury department has allowed that specific amount of paper money to be printed. This put limits on the amount of money that can be printed. This is also what made our currency so strong and so stable.


After Nixon took us completely off of the gold standard, this took the ceiling off of the amount of currency being able to be printed. This is actually where inflation comes from. The more money that is printed, the less your dollar can buy, this is where prices actually rise and they call it inflation. During President Reagan's campaigning he made a big deal about having a 1 trillion dollar deficit, but by the end of his presidency he had allowed it to increase 3.4 trillion dollars. Before G. W. Bush left office his biggest deficit was 587 billion dollars, now we're running a starting year deficit of 1 trillion dollars. Remember, every time we run a deficit the Federal Reserve prints money in exchange for Treasury bonds of different denominations.


Banks


In my opinion, this is where history will lay the blame. Banking was invented early in history, but really took off when capitalism was implemented here in the US. There was nothing wrong with the banks until the implementation of the Federal Reserve in 1913. The Federal Reserve loaned our currency to us at an interest rate and also created the fractional reserve system. During the Great Depression some people thought that the Federal Reserve didn't print enough money to help bail everyone out, this is why FDR wanted to get away from the gold standard. After getting away from the gold standard in 1971, this opened the flood gates to put us on the path we're on now.


As much as I want to blame the banks, this also has a lot to do with how corrupt our system has become. Remember, politicians owe favors, some favors are deals with the devil. With Wall Street being based off of profitability and growth, banks wanted to make even more money. With credit being given away so readily, this padded the banks books. Eventually so much credit would be given away that there came a point when no one could get any more credit and the banks became insolvent which was part of the credit bubble that crashed starting in 2007.

Don't forget the creation of Fannie and Freddie really took off in the 1980's. Fannie was originally a New Deal program created by the government to promise loans to people with little to no credit or just bad credit. The federal government let Fannie go private in 1968 and then created Freddie to counter balance Fannie. This allowed a private company to put loans together for those who couldn't get a loan, but the government backed these mortgages. This is what lead to the housing bubble that crashed starting in 2007.

Once these banks became insolvent because of government regulation, the government bailed them out. Remember what I said earlier about currency, the more you have, the less it's worth. The Bush and Obama administration both authorized and signed the bailout bills. The bailouts were a 3 phase operation. Phase 1, give banks money to cover their bad debt, phase 2 and 3, the Federal Reserve drove down interest rates to keep people in their homes along with buying government bonds to artificially create a demand and drive bond rates extremely low.


Economy


For years since the Great Depression our countries economy has been built on spending and manufacturing. After 1971 with the US being the global exchange currency, the US exports and manufacturing declined with the last trade surplus being in 1976. From that period on, we've been building upon debt with more debt because we don't make anything. Once the housing and credit bubbles burst in 2007, our economy made a change, but the politicians didn't figure it out. Have you ever noticed how our politicians are telling you to go out and spend so you can start the economy with their different forms of stimulus? How can you spend when you're so broke paying minimum payments and you can't get credit.


I believe the economy is going to shrink, this might lead to mass starvation and even mass exodus to other countries. If you're economy is strictly based upon offering services, there's only so many people you can employ. We have two choices at this point, either reduce wages to bring manufacturing jobs back or devalue our currency so that its is not only no longer the reserve currency, but so that it's cheaper to do business here than anywhere else. What made America the industrial might it used to be was because of the cost of doing business, resources, and manufacturing. Now that we don't do this, we either need to get back to that, or realize that there's only so much room we can maneuver inside a non export economy because our only export, the US dollar, is about to cease to exist.


The Ultimate Collapse


We have so many factors playing into our current economic situation. There are also so many organizations pulling at every free spot of fabric of our nation, there's no way that we can keep the gravy train going. There are many extreme organizations inside of the US that want to pull us in their direction, there are different countries that we've made enemies out of, and there are those who are so bent on power that they'll sell a whole country down the river just to have it.


The biggest threat to our way of life would be a tie between debt and politicians, but they go hand in hand. Our politicians for so long have been telling us that they will give us this and that and expand services for the majority of voters in their area, but my question is, did anyone stop to think about how we're going to pay for that? The thing I was told growing up, especially during the 90's, is that America is rich, so we can afford it. If you have a million dollars, would you ever stop to think about paying a thousand dollars for something you want, the answer would probably be no for a poor person and yes for a rich person. I think that the farther we got away from the Great Depression, the easier it was to forget what hard times were and how to be responsible.


According to 60 minutes between 50-100 states and cities will be bankrupt and are currently unable to pay their basic bills because previous politicians made sweetheart deals with special interest groups and unions that they knew they wouldn't be responsible for. One of two things will happen, either the Fed will bail out the States and stave off destruction for one more year(After a year of bailouts by the IMF the Euro is expected to be dead by the end of 2011) or they will let the States declare bankruptcy and this will cause a domino effect and the US will collapse by the end of 2011.

The Future


Although I can't predict the future, I can look at recent events and get an idea. In Europe a country that represented 2% of the Euro economy, Greece, was bailed out because they thought that it would cause a domino effect and collapse the whole European Union. Once Greece fell other countries such as Ireland fell and Spain and Portugal are expected to be next. In exchange for these countries being bailed out, pretty much the banks not the government, the IMF came in and offered to bail these countries out, but they had to do Austerity programs. This caused the civil unrest we've seen on the news coming from Greece.


If you compare the EU to the US, you'll the same similarities between states and a centralized power. So, if the States go bankrupt as expected next year, the Fed will take the place of the IMF and bail them out. In exchange for bailing them out though, I'm willing to bet that they'll merge the states into one super state or something similar. The thing is though, unlike the EU where everyone's currency fails, the US Dollar will collapse and the IMF will come in with the same Austerity programs for the whole country, if we haven't had a civil war.


This is probably the scariest part, I believe the IMF is acting as the instigator for the new world order. With everyone being bailed out by the IMF, you get a new currency, a world currency. In order to have a world currency, you'll need a world government. Think UN with actual power to govern. I think this is most suitable under Obama because if there is enough civil unrest, he can suspend elections or even appoint who he wants as Reps. and Senators. Considering he's a one worlder, he's going to want to merge the US into this global government. This will ultimately be the end of the US as we know it and if anyone resists, they'll be squashed because at this point the US will be outnumbered. This will be like the movie Serenity where the country no longer exists, so the resisters will be labeled as rebels and allow the State to eradicate them.
 
Sources:
 
http://www.youtube.com/watch?v=KsdUpzSjaEA
http://www.reuters.com/article/idUSTRE66I05U20100719
http://news.bbc.co.uk/2/hi/2817995.stm
http://www.youtube.com/watch?v=nBNm3AWF_qE
http://www.chinatranslated.com/?p=993
http://www.cardeapartners.com/aoi/fincad-derivatives-market-could-be-worth-700-trillion-by-year-end/
http://hubpages.com/hub/Survive-Total-Economic-Collapse
http://www.ehow.com/how_4546748_survive-sudden-economic-collapse.html
http://www.marketoracle.co.uk/Article7171.html
http://www.youtube.com/watch?v=KAT__cgdoPs
http://www.benzinga.com/10/08/443492/faber-and-schiff-the-american-bond-bubble
http://www.youtube.com/watch?v=ktEiN2zXZbo
http://beforeitsnews.com/story/314/416/Buying_Gold:_Why_Are_The_Chinese_Gobbling_Up_Gold_Like_There_Is_No_Tomorrow.html
http://bobchapman.blogspot.com/
http://beforeitsnews.com/story/314/416/Buying_Gold:_Why_Are_The_Chinese_Gobbling_Up_Gold_Like_There_Is_No_Tomorrow.html
http://www.trutv.com/video/conspiracy-theory/full-episodes/wall-street.html
http://www.stansberryresearch.com/pro/1011PSIENDVD/MPSILC22/PR?o=230927&s=233550&u=51973801&l=197794&g=156&r=Milo
http://business.financialpost.com/2010/07/26/michigan-residents-turn-to-alternative-currency/
http://libertymaven.com/2010/07/19/competing-currency-being-accepted-across-mid-michigan/10234/
http://www.sandiego6.com/news/local/story/Tijuana-Airport-to-Stop-Accepting-U-S-Dollars/3KGwK6NUaEyuA52yquO91g.cspx
http://www.washingtonpost.com/wp-dyn/content/article/2010/12/19/AR2010121903022.html?wpisrc=nl_pmopinions
http://bobchapman.blogspot.com/2010/12/bank-bailout-boondoggle-of-billions.html
http://online.wsj.com/article/SB10001424052748703886904576031401310024990.html?mod=WSJ_Bonds_LEFTTopNews
http://peterschiffblog.blogspot.com/2010/12/three-investment-themes-for-2011.html
http://jimrogers-investments.blogspot.com/2010/12/things-are-happening-with-dollar-that.html
http://bobchapman.blogspot.com/2010/12/bob-chapman-hyperinflation-end-of.html
http://en.wikipedia.org/wiki/History_of_banking
http://en.wikipedia.org/wiki/Fannie_Mae
http://projects.washingtonpost.com/top-secret-america/articles/monitoring-america/1/

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