September 29, 2008 by david.pennington.

by Michael M. Pennington 

The Federal Reserve was created in the US in 1913 in secret meetings and since that time they have slowly turned the United States into the greatest debtor nation the world has ever seen. History is littered with the graveyards of fiat currencies, i.e. money backed only by the worthless promises of someone else willingness to assume their debt. Every dollar ever created has a corresponding liability. The only exception is gold. It is the only asset that has no liability. The government’s answer to all economic problems, is to inflate, inflate, inflate until the problem goes away, or is replaced with a bigger one. I have had several people ask me about my references to the Weimar Republic of Germany following WWI. It is a classic example of hyperinflation and the terrible consequences it has on the effected society. The chart below gives you an illustration of what it was like during these times in Germany and what could be ahead for all of us.

July 1914            4.2 marks to the dollar
January 1919      8.9
July 1919            14.0
January 1920      64.8
July 1920             39.5
January 1921       64.9
July 1921              76.7
January 1922       1,919.8
July 1922              493.2
January 1923        17,972
July 1923               353,412
August 1923          4,620,455
September 1923    98,860,000
October 1923         25,260,208,000
November 1923     4,200,000,000,000 (yes, trillion. )

[Source: Gordon Craig, “Germany 1866-1945″]

By late 1923, the German government required 1,783 printing presses, running around the clock, to print money. Germans wheeled shopping carts filled with literally trillions of marks to pay for a single loaf of bread. Employees asked to be paid their wages each morning so that they could shop at noon before merchants could post higher prices.In 1919 they were tipping the bellboys with a gold piece and in 1923 the same gold piece would have bought the hotel.Today in the US we see Crude oil is $132. Corn is $6.The cost of everything is rising. Inflation is worsening, and it’s not hard to understand why. M3, the total quantity of dollars, is now growing by 17% per annum. Weimar inflation has arrived in America.The Federal Reserve is following the footsteps of the central bank in Weimar Germany. It is the same path taken by many central banks that have issued countless fiat currencies based on nothing but government promises. It is the path to the fiat currency graveyard, and the once almighty US dollar – which long ago used to be “as good as gold”, just like the Reichsmark once held that same exalted title – is knocking at the graveyard’s gate.

For those who scoff at the notion that this type of hyperinflation occurred many years ago and couldn’t happen today, you only have to look at what is happening right now in Zimbabwe. Weary Zimbabweans each day face a new wave of price increases that many basic goods and services out of their reach. A loaf of bread now costs what 12 new cars did a decade ago. Monthly inflation recently rose to 1,063,572 % according to a Reuters report. Economic analysts say unless the rate of inflation is slowed annual inflation will likely reach 5,000,000% by October.

Throughout history, it’s been proven that the basic laws of economics can be violated by governments for a short time, but in the long run, intervention and manipulation does not work in a free society.more stories like this According to FED records, they have loaned banks $188,000,000,000.00 per day over the past 3 weeks. This is nothing compared to the $1,000,000,000,000.00 that Paulson is now asking for. But there are many other “checks” being written as the printing presses work overtime, including:

* Treasury buying mortgage-related assets: $700,000,000,000.00*

Potential supplementary stimulus package favored by Democrats: $100,000,000,000.00*

 Insuring money market funds: $72,500,000,000.00*

Treasury fortifying the Fed’s balance sheet: $100,000,000,000.00*

Expansion of temporary swap lines with central banks: $180,000,000,000.00.*

 Loan to AIG: $85,000,000,000.00*

Fed purchase of agency discount notes and ABCP: amount not specified.*

Fed loans through the Primary Dealer Credit Facility: $20,000,000,000.00 through Sept. 17.*

Fed’s discount window: $33,000,000,000.00 balance.*

Treasury purchase of GSE MBS this month: $10,000,000,000.00*

Potential cost of Fannie/Freddie bailout: $500,000,000,000.00.*

Treasury Secretary Paulson’s Bailout Plan  700,000,000,000.00

Financing the current account deficit: priceless.

Investment implications: Sell the U.S. dollar.

“The fiscal cost to the US is likely to be enormous. Speculation will intensify on a possible US government paper downgrade. US policy-making and credibility have been put into question. The safety of US assets has been put into question. We remain concerned with the repercussions that this crisis will have on the financial flows into the United States against the context of a still large current account deficit

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September 22, 2008 by david.pennington.

by Michael M. Pennington 

If you want warm and cozy thoughts on how the government saved Americans from a Great Depression, all you need to do is to listen to the media. But if you want a “what-really-happened” report from a goldbug’s perspective, then read on. The old Resolution Trust Corp that was created in 1990 to deal with the Savings & Loan crisis was resurrected once again. Originally, it cost every taxpayer about $4,000. Today’s new RTC will require $1,000,000,000,000 or more and was approved by a handful of politicians with little planning, no debate and no real understanding of the consequences. In all my years of experience, no one makes really good decisions when under short term duress. How soon we forget. The S&L crisis was followed by politicians calling for more regulation and oversight so such corruption will never happen again. Bad lending practices, cooked books etc. have happened all over again in less than twenty years now with the banking crisis. As the new RTC is established, all the “bad paper” in commercial banks, investment banks, insurance companies, mutual funds, money market funds and S&L companies once again will be transferred into the new “Trust”. Under the old RTC, there actually existed assets, which were the mortgages on the properties assumed. Today, the new RTC will own zero. The paper being assumed is worth zero. This is why the financial institutions were going under. Therefore, the real truth here is that the taxpayer is “gifting” all of this bad paper and they are gifting it to the very criminals responsible for the problem in the first place. Another way of saying this is that the American taxpayer was not asked, but was assigned by the government, the task of bailing out private corporations who were going bankrupt due to gross mismanagement and internal criminal activity. Since most of those responsible are friends of Greenspan, Paulson and many others, they were in fact “pardoned” for their criminal activity. We will hear in the days ahead about all the steps taken to assure this happens never again, but as long as the criminals are rewarded with abundant riches and then pardoned for their crimes, I suggest they will do it all over again. Why not?

CONSEQUENCES OF THE NEW RESCUE PLAN AND ITS AFFECT ON GOLD AND SILVER

While most people were celebrating the huge rally in stocks, mostly unnoticed was the significant increase in commodity prices.  Normally, when the stock market moves up, commodity prices move down, especially energy and gold/silver prices. Not today. Today’s reported potential infinite bailout of all and any financial losses is the largest increase in dollars outstanding since Noah’s Ark.It closely models actions undertaken during the production of currency liquidity as seen in the “Weimar Republic.”   More than $150 Billion was flooded into the system this past week by the FED to increase liquidity. Then $85 Billion went for the Lehman bailout and another $100 Billion is set aside for the AGI bailout. The new RTC Rescue will create at least $1 Trillion dollars and we’re nowhere near the end in sight yet. Can anyone spell  I N F L A T I O N. The only conclusion is that when the smoke clears and the advertised actions have been adopted, nothing more dollar negative than this has ever occurred in the US due to the potential expansion of T bills and therefore dollar supply explosion.  Silver and Gold are the only protection. After today, I see Gold increasing to over $2,000 oz and Silver increasing to over $100 per oz.2. Everyone on Wall Street admits to the government intervention in the stock market this week. This raises the question of how anyone can trust in the future the prices quoted on what used to be a free market.3. It was reported that home prices in the future will remain over market-clearing levels which will closely assimilate government price controls. This eventually will discourage new home buyers as price appreciation in the future will be hard to come by.4. For sure the Options and Futures exchanges will be dysfunctional for some time. Short sellers are required to balance positions.5. Knowing that any future bailout will wipeout common shareholders, the overall value of the stock will be lower to account for this additional risk.WASHINGTON MUTUALIn spite of everything, Washington Mutual has not been able to find a buyer. At least maybe now, customers will stop withdrawing their funds. Their black hole may be the deepest one out there yet. Perhaps they will end up putting the company for sale on Ebay!It will take awhile to digest the unbelievable occurrences of this week. Seven days ago, venerable US companies like Lehman Bros and Merrill Lynch were proud self-standing firms, AIG, who was the largest insurer in the USA, was not a ward of the state, and Money Market Funds were still trusted. One month ago, Freddie Mac and Fannie Mae were in operation and owned by most mutual funds and banks. Six months ago, Bear Stearns was still independent. That was then, Now is Now. It takes awhile to recognize that your country has been conquered. It’s a new world we are living in and every American needs to admit that our new bosses are not the same as our old bosses. 

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September 16, 2008 by david.pennington.

by Michael M. Pennington 

THE STOCK MARKET

In the last 24 hours, the financial markets have witnessed epic events , none of which are good for the average citizen. The Dow was down about 500 points today and it’s very likely that more severe declines will be forthcoming this week. Mutual Funds have declined significantly as most stock funds carried AIG, Merrill, Lehman or all three in their portfolios. We could see a day or two of higher stocks if the FED reduces interest rates, but any rally will be met with fierce selling.  I advised all of my family members to sell shares early today. The downside risk here is considerable. Later, after Bernanke and the FED drop money from helicopters the US will enter a period of hyperinflation. At that time you shift back into stocks. In the meantime, capital preservation is all important. Already tonight, the Japanese market is at the lows for the year. There is much more bloodletting left.

GOLD & SILVER STOCKS

It defies logic that Gold was up $23 today and Silver was up $.32, and yet the HUI Gold/Silver Index fell by 5%. Some might say they were caught in the overall downdraft, but I say that these stocks are still being shorted massively by naked short sellers. Why? For the same reason the COMEX spot price has been hammered the past three weeks. The Government does not want all these dollars being liquidated to be attracted to the Precious Metals sector. This is one of the reasons why I buy physical metal instead of the shares. The shares are even more easily manipulated down through naked short selling. Anything made of paper and that can burn I recommend staying away from. If the regulators don’t ban naked short selling, technically the markets could fall to zero. There is a law now banning this trading, but the regulators look the other way because they and their friends  are making too much money because of it.

TEN BANKS CREATE A $70 BILLION POOL TO HELP TROUBLED INSTITUTIONS.

This announcement was intentioned to help quiet the market fears, as ten banks contributed $10 billion each to a pooled fund to help those institutions in trouble. What isn’t said is that this clever device is a fractional reserve pool allowing each of the ten banks to use 33.33% of the total, or $23.3 billion as a capital infusion on their own balance sheets. Thus they have “magically” created  $163 billion of “good” capital for their joint balance sheets. This is very bad however for the dollar, for investor confidence and for the integrity of the banks’ balance sheets and capital reserve.

PAULSON’S NEWS CONFERENCE

I got sick to my stomach today listening to this crap. The very people responsible for all of this happening are the very ones who created the environment that allowed it to happen. Yesterday it was Greenspan, today Paulson. Events such as we have witnessed of late just don’t happen overnight. I have been writing for months and even years that these days will arrive. Those behind the curtains who created this mess knew full well what the eventual outcome would be, Poole, Summers, Lindsey, Levitz, Rubin, Corzine, Kissinger, Brezhinski etc. They have had many months to put their plans into action and how it would be handled when the crisis comes public. You can also bet that these guys have positioned themselves to take full advantage of the current situation which is destroying many investor lives. They herd a willing media out in front of the cameras to assure the worried public that all is well. Not one CEO complicit in this scam has been investigated less much prosecuted. The fired CEO of Fannie Mae left his job with a $159,000 guaranteed monthly payment for life. You can bet that all of those who made huge sums shorting the gold stocks during this downdraft are re-positioning themselves right now to make huge sums when they allow the stocks to rise. What a deal, they go play the derivative game with their customer’s money. I get tired hearing them say they’re just playing the hand they were dealt. This is how all government crooks operate. Pass a law, ignore for a few years and then claim that their hands are tied by it after the crooks who passed it are collecting massive pensions on some beach. I can just imagine in the year 2014 where someone asks a  The Director of Homeland Security, “Why are you shooting all those people? The answer is “Well our options are restricted by the Patriot Act passed way back in 2003.”

WHAT THE FALL OF AIG WOULD MEANWade C. Smith
> 3329 S. Hwy 89
> Perry, Utah 84302

Mr. Greenberg was another of the corporate crooks who ruined a great company. He turned them from an insurance company into the largest global derivates player.  On Friday, they said they needed $10 billion in capital to stay solvent. The FED refused to help them thus far. Now they say they need

$75,000,000,000. The truth is they probably need more than that. No one has come forward to “merge” or “buyout” AIG. So late today, The New York Governor stated the State of New York will provide state taxpayer funds to help over the short term. There’s another loss for the citizens of New York. The problem here is that AIG’s derivatives will bring down the large commercial real estate division, and as result this could create a domino effect in the commercial real estate market that has been unscathed thus far.

Be prepared for more bad news in the financial sector. Like a cancer, these defaults will spreads. There are still trillions of dollars in derivatives that need defaulting. Two weeks ago the government warned about the critical nature of 179 banks. Today, they indicated as many as 1,000 could adversely be affected.

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