Wednesday, September 28, 2011

Steal our freedom via disaster? They would never do that, would they?

They've already done it on a small scale, and it works.

On the 4th of July, I wrote a blog post (see "Our next Monetary System and the End of Freedom") that pointed out a way for unscrupulous and power-hungry leaders to use a couple of natural or man-made disasters to take away our freedom and make us veritable slaves of the government. Believe it or not, hundreds, perhaps thousands of U.S. citizens have already had a taste of this, right here in the good old U.S. of A.

I am personally acquainted with a corrections officer at the Utah State prison. This officer told me of a fascinating conversation he had with an inmate there. In 2005, before becoming a convict, this man was living in Louisiana, working at an oil refinery there. When hurricane Katrina struck, the refinery was shut down, and he and his wife and two children were evacuated to a school gymnasium along with 2,000 other refugees. He said that the bathroom facilities were far from adequate and the sanitary conditions were deplorable, and he described how there was never enough food or water for everyone. Whenever the government brought in pallets of food and water, mobs of refugees grabbed as much as they could carry away and hoarded it.

Ultimately, the government relocated the refugees to a tent city, like this one that the federal government constructed in Biloxi, Mississippi, in the wake of Katrina.

The corrections officer asked this man if the refugees could come and go as they pleased from the tent city. He said no, they were prisoners there. The place was basically a concentration camp. He said that if someone came from the outside and promised to take care of you and keep you out of trouble, only then were you allowed to leave the camp.

In this situation, if the federal government had ordered these people to work on government projects in order to receive aid, they would have done it. If the federal government had ordered these people to get ID chips implanted in their bodies, they would have done it. (FYI, the VeriChip has been approved by the FDA for implanting in humans. The company that owns the technology is touting some compelling benefits for people who are implanted with the VeriChip. See here, here, here, here, and here.)

Ultimately, the experiment ended before these people completely forfeited their individual liberty. Some officials from government showed up at the camp and started arranging for the refugees to leave the tent city by giving them a few bucks and assigning them each a place to relocate throughout the country. They give this man and his family $1500 and "suggested" that Salt Lake City would be a good place for them to move.

As ordered, this man used the money to move his family to Salt Lake. The only job he could find was a minimum wage job at a dog food factory in Ogden. He couldn't support his family on that, so he started forging checks. He was arrested, tried, and convicted, and is now serving his sentence in the Utah State prison. I asked, but the corrections officer did not know what has happened to this man's family.

Now imagine a couple of disasters that could affect you personally -- maybe a biological terrorist attack that spreads throughout the country and the world. Now imagine in the year following the pandemic that there is a spate of severe weather. We could see winter weather that lingers into spring, severe hailstorms, droughts, etc. After the combination of these two disasters, it would be very difficult for the spring crops to get planted.

People would get desperate for food. We are just nine meals away from chaos. Without the essentials for people to survive, there would be chaos in the streets, like what happened in New Orleans after Hurricane Katrina.

Now consider another potential disaster. What happens when people lose their faith in the U.S. dollar? Imagine the widespread chaos that will ensue. Everyone will need food because all commerce will grind to a halt. Everyone will need medical care. Everyone will need clothing. In short, everyone will lack the resources necessary for life, and the only way for them to get the things they need to stay alive will be to move into a camp where government aid is being distributed.

Would it be possible for unscrupulous and power-hungry leaders to seize power in this way? Well, if a layman like me can see that our current monetary system is destined to collapse, powerful and evil people can no doubt see that as well. They have to know that the U.S. dollar is doomed, so they no doubt have plans in place to capitalize on the collapse of our monetary system and this singular opportunity to seize a great deal of power.

Preserving your own freedom means never allowing a catastrophe or a chain of catastrophes to put you in a position where you are dependent on the government for your life and well-being.

We are all survivalists now.

A Pause Before They Destroy the Dollar

There are two ways that the dollar can be devalued: through monetary policy or through fiscal policy. Many people, including me, expected the Federal Reserve (which is in charge of monetary policy) to announce on September 21 that they would inject 100s of billions of new dollars into the economy via a third round of "quantitative easing" (QE3). Ultimately, injecting vast quantities of new dollars into the economy will reduce the value of each dollar. Surprisingly, the Fed is hesitating to do QE3.

According to this CNBC article, "Bernanke is not the mad inflationista [the Republicans] seem to think he is." Apparently, pausing at the edge before you toss the dollar into the abyss can get you some positive press. Perhaps he is not a mad inflationista, and maybe the Fed actually understands that destroying the dollar will not help the economy. This CNBC article, "Economy in Congress’s Hands As Fed Runs Out of Bullets", posits that the Fed has done all it reasonably can, and "it’s Congress that is on the hot seat now". Hmm. Maybe. Or maybe Ben Bernanke desperately wants to pull a Krugman and flood the planet with dollars, but he just can't get the other members of the FOMC to go along. In any case, the hesitancy of the Fed to obliterate the dollar using monetary policy brings us to fiscal policy.

Fiscal policy is another story all together -- there is no reluctance to wreck the dollar there. The federal debt is now around $14 trillion, which is roughly the same size as the entire U.S. economy. But various estimates put the federal government's off-the-balance-sheet obligations, such as Social Security, Medicare, Fannie Mae, Freddie Mac, etc, at around $100 trillion -- that's 100 thousand billion dollars. The government is going to have to find those dollars somewhere, and will probably have to print them. As Alan Greenspan so eloquently put it in this article, "The United States can pay any debt it has because we can always print money to do that". Printing $100 trillion will make each dollar worth relatively less, and this will ultimately devalue and destroy the U.S. dollar.

So, even though I am puzzled by the Fed's sudden lack of reckless abandon in pausing before they destroy the U.S. dollar using monetary policy, we sadly can have every confidence that the U.S. congress will follow through and eliminate the value of the dollar using fiscal policy.

Monday, July 4, 2011

Our next Monetary System and the End of Freedom

Our current monetary system is destined to collapse, and the citizens of the United States won't get to choose what their next monetary system will look like. This new monetary system, which will be imposed on the people of the U.S., is likely to be a totalitarian system that results from acute shortages of essential resources. There are a couple of unconventional things that we as citizens can and must do to keep ourselves free from the entanglements of this new monetary system.

First of all, the arithmetic behind the collapse of our current monetary system is simple. $14 trillion in on-balance-sheet federal government debt, coupled with over $70 trillion in off-balance-sheet federal government liabilities and obligations, with nothing on the asset side of the government balance sheet other than a paper currency that has no tangible assets behind it and which is nothing more than an empty promise of future payment. There is no way for the federal government to come up with the full value of the $84 trillion that it will need to meet its financial obligations. It is as simple as that. The federal government will be forced to default -- explicitly or through the hyperinflation of its currency -- and either way leads to the destruction of the U.S. dollar and the collapse of our existing monetary system.

What will replace the U.S. dollar? Perhaps another paper U.S. dollar? After the U.S. government has defaulted on the U.S. dollar, why would anyone be willing to accept another paper U.S. dollar? The answer is that they won't be. The government is going to have to come up with something else. The new monetary system will be born in a desperate environment of extreme scarcity and will be implemented using new technology -- technology which preserves the power of government but which robs freedom from the American people. This technology is based on the simple and seemingly innocuous idea of unique identifiers.

Unique identifiers are quite useful for keeping track of things. For example, a unique identifier (in the form of a tracking number) enables shipping companies to track a package from its origin to its destination. Vehicle identification numbers and license numbers enable individual cars to be identified and tracked through every transaction, accident, and repair. And each airplane has a unique tail number by which it is identified and tracked in the air and on the ground as well.

Unique identifiers allow living things to be identified and tracked too. We had a pet ID microchip implanted in our dog so that if she ever gets lost, she can be identified. There is even an ID microchip for humans now. It is called the VeriChip.

The VeriChip has been approved by the FDA for implanting in humans. The company that owns the technology is touting some compelling benefits for people who are implanted with the VeriChip. See here, here, here, here, and here. But IMHO, having a microchip implanted in your body is a colossally bad idea, because by so doing, you will be granting institutions the ability to track and identify you, and exercise a great deal of power over you as an individual.

To preserve the freedom of individuals, governmental powers must be dispersed, so that broad powers over large groups of people are not contained within a single package that can be seized by unscrupulous, power-hungry leaders. That is why in the U.S., there are checks and balances between the three branches of government (judicial, legislative, and executive) and a separation of powers between the federal government and state governments.

Microchips implanted in people, used in combination with modern point-of-sale systems, with back-end databases and the connectivity of the Internet, could enable a single institution to control all commerce. Think about that for a second. If people could be electronically identified, modern technology could enable a single institution to control all buying and selling throughout the world. That is a concentration of enormous, unprecedented power, and if that power were seized by the wrong people, well, we are talking Book of Revelation-type stuff, as in, "And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name." (Revelation 13:17)

Sure, under normal circumstances, most people would balk at the idea of having microchips embedded in their bodies. Unfortunately, it is easy to imagine a set of circumstances in which having microchips implanted in us would be a suggestion that is hard to resist.

Imagine if there were a biological terrorist attack (false flag or not). A virus could be released at a few U.S. airports. People would walk through the airport, get infected, board their planes, infect everyone else on their flights, the infected people would board connecting flights, etc., and then 24 hours later, people all over the country and all over the world start dying horrible deaths. To stop the pandemic, everyone across the country would have to hunker down inside their homes for perhaps 90 days or longer.

During that 90 days, no oil gets refined, no electricity gets generated, no sewage gets treated, no drinking water gets pumped, and many of the technicians who know how to do those things might die from the virus. IOW, the lights would go off and might not come back on for a long, long time. (For a good illustration of such a pandemic's likely impact on our modern society, see this documentary from the History Channel.)

Now imagine in the year following the pandemic that there is a spate of severe weather. We could see winter weather that lingers into spring, severe hailstorms, droughts, etc. There is good precedent for this type of weather event -- it has occurred before and seems to follow a cycle that repeats every 180 years, so we are due for it to happen again.

As a result of these two calamities, cars and trucks wouldn't have fuel, crops wouldn't get planted, and grocery store shelves would be emptied quickly. People would get desperate for food. Law and order stays in force only as long as people have access to essential resources. Without the essentials for people to survive, there would be chaos in the streets, like what happened in New Orleans after Hurricane Katrina. (As another illustration, you've probably seen video of people knocking each other over just to get cheap goods at stores on Black Friday -- imagine how people will react when there is not enough food for them on store shelves.)

Shortly, I will explain how calamities such as these (biological terrorist attack and severe weather) could lead people to want to have ID microchips implanted in their bodies, and how that could lead to our next monetary system. But these two calamities are not the only potential triggers that could get us there. Natural disasters, such as earthquakes and volcanoes could do it as well.

Imagine that the entire U.S. or some region of the U.S. has been devastated by a terrorist attack or natural disaster. The people lack essential resources, and are looting and rioting in the streets. The government shows up to restore order and distribute aid. They set up camps to provide shelter and food, like this one in Biloxi, Mississippi after Hurricane Katrina.

The government is likely to find that the people in these camps are unruly -- they are taking more than their share of government food, leaving camp and looting the surrounding area, committing crimes, etc. So, the government says, "Let us implant this ID microchip in your arm. That way we can make sure that you are getting the food that you need, we can give you the medical care you need, and we can generally take better care of you if you have this microchip." If you are starving, and if getting a microchip implanted in your body is the only way for you to get food and medical care, it would be easy to think that getting that microchip is a good idea. That decision would be a no-brainer for lots of sheeple.

Even with the microchip, people might still come and go from the camp to loot and commit crimes. In an effort to restore order in the surrounding area, the government might start logging people's comings and goings from the camp, to help identify suspects of crimes committed in the area. The government would probably institute a curfew for the camp, and they might "temporarily" detain people in the camp while the authorities work to restore order in the region. Running camps such as these would be a huge expense, so the government might insist that the people in the camps put in some labor on government work projects. The camps would basically devolve into concentration camps, and people's desperation would give the government complete control over their lives.

If things get desperate enough across the country, the population of the U.S. could be easily "motivated" to get ID microchips implanted in return for government food and medical care. Through calamity, the government could not only preserve its power, but could expand governmental power to a terrifying degree. As soon as the U.S. population has been chipped, an unprecedented degree of power will be concentrated in one neat package that could give a single institution the power to control all commerce. Once that power is in the hands of the wrong people, citizens can say goodbye to freedom and liberty. And all that would be needed to bring this about is a few disasters.

Is there a widespread disaster that could be facilitated or be allowed to happen in order to get this ball rolling? Yes, tragically, there is. What happens when the federal government defaults on its financial obligations and everyone loses faith in the U.S. dollar? Imagine the widespread chaos that will ensue. Everyone will need food because all commerce will grind to a halt. Everyone will need medical care. Everyone will need clothing. In short, everyone will lack the resources necessary for life, and the only way for them to get the things they need to stay alive will be to move into a camp where government aid is being distributed and ID microchips are being embedded in people.

Is it possible that in an office somewhere, someone is designing a new monetary system that will be based on human-embedded ID microchips and on governmental or institutional control of all the production, distribution, and consumption of scarce and essential resources? I think it is quite possible, even likely. If a layman like me can see that our current monetary system is destined to collapse, powerful and evil people can no doubt see that as well. They have to know that the U.S. dollar is doomed, so they no doubt have plans in place to capitalize on the collapse of our monetary system and this singular opportunity to seize power over vast populations.

But what about gold and silver? Won't citizens owning tangible assets that can be used as money bring about a new, sound money-based monetary system? Unfortunately, a non-totalitarian monetary system would function only if the citizenry has ready access (outside of institutional control) to the resources necessary to sustain their lives. IOW, if there is not enough food for everyone, and if those people and organizations under government power are the only ones who can get any food, then I am afraid that gold and silver alone won't save the freedom of the U.S. people. Totalitarian institutions are likely to gain control of whatever limited food and resources are available, and will distribute aid only to those people who submit to the edicts that the institution in power dictates.

So, a big secret to preserving your personal freedom is to have your own supply of food and other essentials. If you have a supply of food for your family for a full year or two, then in the face of disasters and calamities, when the government comes along and offers you aid in return for having a microchip implanted in your arm, you can tell them, "No thanks." Of course, if you are in debt with a government-backed mortgage on your home, then they might be able to take away your shelter. But if in addition to food you also have some gold or silver, you might be able to use a few ounces of your precious metal stash to pay off your mortgage debt in devalued U.S. dollars.

Here's our situation in a nutshell. The U.S. dollar is doomed. Its collapse will likely be hastened by natural and man-made disasters. Once our existing monetary system collapses, there will be profound and prolonged scarcity of food and other resources essential to sustain people's lives. Resource scarcity will of necessity result in a new monetary system and power structure that is based on a command and control economy. Having ID microchips implanted in people will make a lot of sense to sheeple everywhere. The resulting ability to assert control over all commerce will offer an unprecedented chance for evil institutions to exercise totalitarian power over vast populations. There are things that we can do to preserve our individual freedoms, but those things are rather unconventional (food storage, gardening, precious metals). In closing, let me provide some links to ideas along those lines.

The ability to pay off dollar-based debt is important. Pay off your debts today if you can. If you can't, at least get your retirement funds out of dollar-denominated assets and into tangible assets such as precious metals. I have found APMEX to be a reliable place to buy precious metals.

Food storage is vital -- one year of food for your family is essential, but two or more years of food would be better. Emergency Essentials is one source of food stuffs, but you might be able to find less expensive sources if you look, such as Costco.

The fact is that you won't be able to go it alone. You will need to find communities of like-minded people with whom you can share resources and expertise. If you are willing to consider advice from the Mormon church, their Provident Living web site can be quite helpful, and includes information on home storage and gardening.

People who are active in the Mormon faith should find the risks and the scenario that I describe in this blog post quite easy to believe, because of various passages from their canon of scripture. For example, this passage speaks of a desolating plague that will sweep the land at some point, perhaps in the near future. Here is a document from the church about how to survive a pandemic. This scripture passage warns of severe weather events that will destroy the world's crops, perhaps in the near future. And this passage warns of conspiracies by evil and designing men. This address given by one of the leaders of church over 30 years ago advises the storage of essential resources. And this one warns of the dangers that will befall the U.S. constitution and offers some hope for the survival of free principles and liberty.

May God grant that those among us who love freedom will be blessed to preserve it through the trying times that lie ahead. God bless America.

Thursday, June 2, 2011

Laying the Groundwork for QE3?

Gauti Eggertsson of the NY Fed has a piece on their blog titled “Commodity Prices and the Mistake of 1937: Would Modern Economists Make the Same Mistake?” Its bottom line is "that it is unlikely that a modern economist transported back in time to 1937 would have preemptively tightened policy on the scale that policymakers did at the time."

The idea behind the article is that tightening by the Fed and the administration choked off the nascent recovery in 1937 and caused the the economy to turn down in 1937-38. The article speaks in glowing terms of "core CPI", which ignores food and energy prices. By using core CPI and ignoring food and energy prices, the article says that economists today are not misled by "temporary" price spikes into premature tightening of monetary policy. According to the article, ignoring food and energy prices is good, and maintaining a loose monetary policy in today's circumstance is good too.

So, while the Fed has not yet given any clear indication of QE3, in this piece they seem to me to be saying that they definitely won't be implementing any contractionary policies. Based on this piece, I conclude that the Fed won't tighten monetary policy, will keep the current easy monetary policy in place, and is perhaps laying the groundwork for further easing. In an article that appeared on Business Insider and on Seeking Alpha, Cullen Roche refers to this as a "very good piece". If the intent is to get people thinking about easy monetary policy in positive terms, it seems to be succeeding.

QE3 anyone?

Wednesday, June 1, 2011

A Brief but Terrifying Description of Credit Default Swaps

Mountain climbers frequently rope themselves together, so that if one slips, the other members of the group can arrest their fall.

The idea is to transfer risk from one individual who is momentarily slipping to a group of stable climbers. This strategy often works well. But what happens if another person in the party does not have a sure footing at the moment that one member slips? Then we see tragic headlines such as this: Roped-Together Climbers Die in Fall On Mount McKinley in Denali National Park

This is not unlike a credit default swap (CDS), in which the risk of credit default is transferred from an individual creditor to a group of stable creditors. The danger, however, is that a default might occur when the rest of group does not have a sure footing. If that happens, the entire group goes down.

With CDSs, the debtor does not need to default in order for the group to go down. It could be something as simple as one member of the group going bankrupt for some unrelated reason. The risk that that member of the group had been shouldering is now transferred to the remaining members of the group. Another member of the group might not be in a position to take on that added risk, and that might pull them over the brink, which would transfer even more risk to the group's remaining members. With that, the entire group could go down.

(With this in mind, I am still trying to figure out how CDSs are supposed to make markets more stable, like the financial geniuses and their followers have been telling us.)

The Invisible Bubbles of Mass Destruction
CDSs are traded over-the-counter (OTC), in the absence of clearing houses. So CDS "market" has no regulation or visibility. As Ron Hera points out in this article for Seeking Alpha:

In OTC markets, counterparty default risk generates a network of interdependencies among market actors and promotes risk volatility. The resulting emergent property of the financial system is systemic risk, which became apparent in 2008 when Lehman Brothers Holdings, Inc. (LEHMQ.PK) failed.

It is not that derivatives caused Lehman's collapse, but they sure made a mess afterwards for those firms who were tied to Lehman. That is why we see headlines like this from Business Week: Lehman: One Big Derivatives Mess

No wonder that the boring, old finger wagger from Omaha called derivatives "weapons of mass destruction".

In order for a financial bubble to form, you need three things:
  1. Financial innovation -- such as the creation of mortgage-backed securities, for example
  2. Widespread adoption of that innovation -- the innovation goes "mainstream"
  3. Leverage -- purchase multiples of these innovations on margin
It is difficult for bubbles to form in the physical precious metals market, because when you are buying physical metal, there are no financial innovations (gold is just a barbarous relic, after all), and thus there is no widespread adoption of financial innovation. You can use margin when buying physical metal (that is what the Hunt Brothers did), but if you want to use some real leverage, you need to be buying paper, not metal. In fact, for some real adventures in leverage, try buying paper on top of paper and then transfer portions of the risk amongst a group. Now we are talking bubbles on a planetary scale.

Credit Event Horizon
The emergent danger of CDSs explains why the International Monetary Fund and the European Central Bank are so insistent that Greece must not default. They are desperately trying to avoid a credit default swap trigger. The default of a relatively small member of the European Union has the potential to pull banks and nations over the brink with it.

The solution that the financial elite proffer, of course, is to have the IMF and the central banks rush in with loads of money that they conjure out of thin air and loan to any financial institution or nation that is teetering. This costs nothing (because the principal was created out of nothing) and enables the financial elite to enslave the institution or nation under mountains of new debt. Kinda makes the protests in Ireland, Spain, and Greece take on new meaning, doesn't it?

Tuesday, May 31, 2011

The Federal Reserve and Mission Creep

Here is a video of Ben Bernake talking about the Fed's impact on the stock market.

Here is a video interview between James Turk and Jim Grant that discusses, among other things, the mission creep by the US Federal Reserve, in which the Fed has taken upon itself the additional mandate of levitating the price of equities in the US stock market.

Thanks for propping up stock prices Ben , but we the people never asked you to do that. You have now managed, to some degree, to decouple the stock market from the health of the underlying economy.

High stock prices, like inflation, are symptoms of a healthy economy -- stock prices and inflation are not causes of a healthy economy. When you use quantitative easing to levitate stock prices and to try to induce, as you said on 60 Minutes, a 2% inflation rate, you will not get a healthy economy. Instead, you will get artificially high stock prices, more inflation than you bargained for (a year or two later), anemic GDP growth, persistent unemployment, and a growing number of people on food stamps. Which is precisely the situation we find ourselves in today.

Monday, May 30, 2011

Stop asking questions, and just let me handle it.

Can you imagine Captain Edward John Smith's reaction the day before the Titanic hit the iceberg if a steerage passenger had asked him, "Um Capt'n, I have to wonder if steaming past these icebergs at flank speed is a good idea"? At best, the Captain would have been dismissive of the passenger's question.

Can you imagine if you could speak face to face with Fed Chairman Ben Bernanke, and were to ask him, "Is devaluing an unbacked paper currency really a good idea"? Based on how dismissive Mr. Bernanke is of U.S. Congressmen's questions, I think we can assume he would likewise dismiss anything you and I might ask him.

I have asked several experts in the financial field, "Aren't we going to face another financial crisis because we haven’t solved any of the things that caused the previous crisis"? They have been quite dismissive of my question.

I find that strange, especially when people inside their own industry are talking about another financial crisis as a real possibility. For instance, according to Bloomberg, "Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved."

The people in charge of the financial system apparently don't see any risk on the horizon that they can't handle. Their unabashed confidence has me worried.