America’s Economic Recovery: Smoke and Mirrors

The mainstream news outlets are still proclaiming an ongoing “recovery”. Headlines in the Washington Post warn that the “recovery may be slowing.” Meanwhile The Economist calls the American economy “The Comeback Kid.” The stock and bond promoters at Parker Financial had the temerity to begin their latest cheery report (dated July 9th) with: “The economic recovery that began in June 2009…” The BBC, quoting International Monetary Fund officials, more realistically describes it as a “tepid recovery.” In my estimation all of these pronouncements are nothing but hyperbole. Any movement in economic indicators has not been a result of any genuine or truly fundamental recovery. To contrast the mainstream media’s cheerleading, SurvivalBlog reader “Wallstreeter X.” sent us some news about the ugly side of Quantitative Easing (QE, also known as monetization), that came from CNBC: Market Savior? Stocks Might Be 50% Lower Without Fed.

Wallstreeter X. had these comments: “This is a well known fact on “The Street” and has been for years, especially since 2008.  I’ve worked in the New York financial district all my adult life and the corruption here between Government/Fed and the Banks is legendary.  After the 2008 crash the Fed made the deal with the big banks that the Fed would do the QEs, and the banks would “support” the stock market, with the Fed supplying “free” money to the banks (partly through the Treasury bond sales/purchases, negative interest rates, “bailout” funds/free loans, et cetera.) The Fed would thereby “finance” the banks.)  That’s Bernanke’s foolish solution to the “economic crisis” from his studies of the Great Depression. He really believes that if the stock market doesn’t collapse, then the economy will rebound.  He’s not a stupid man, but he is terribly naive.  Wall Street et al is now based on corruption. While there are a few of us that actually work honestly and try to “do the right thing” here, we are vastly outnumbered by the crooks. If the Fed ever stops pumping money then the stock market will be at 6000 or lower very quickly.  Unfortunately precious metals prices may collapse at the same time, because they are pumped up mainly by speculators in funds and ETFs, who will have to liquidate their precious metals “paper” holdings, as well as speculative crude oil and agricultural holdings (futures and OTC swaps) at the same time (due to margin calls).  I actually deal in OTC option derivatives now and I agree with you completely James that it is the derivatives that are the 900 pound Gorilla in the room no one wants to talk about.  If the collapse happens it will be terribly scary.  I only say ‘if’ not because I doubt its all a house of cards, its just that I am so amazed at how long they have been able to keep the shell game going.” 

I concur with his observations. Creating trillions of Dollars out of thin air and artificially holding interest rates of absurdly low levels (ZIRP) has created only the illusion of recovery.

Boom and bust cycles are hardly something new. Attempting to avoid or arrest the bust phases through monetization is just a clever parlor trick.

Despite changes of policy with successive presidential administrations, the law of compounding interest is inescapable. In recent memory, only the Clinton Administration has made any headway toward stopping further accumulation of Federal debt. (And Clinton was the beneficiary of his predecessor’s tax policies.) The real demon here is not left/right politics. Continuing Federal spending beyond our annual revenue is inevitably suicidal, regardless of what political party holds office. The debt clock keeps ticking.

Mark my words: Quantitative Easing and ZIRP cannot go on forever. Budget deficits cannot go on forever. At some point interest rates will rise, and the game will be over. Servicing the national debt will become impossible. Derivatives will implode, spectacularly. The United States will become a pariah nation like Greece, only on a grand scale. The inevitable result of the coming chaos will be the destruction of the U.S. Dollar as a currency unit. In the short term we are looking at deflation, but in the long term, mass inflation is inevitable. The turnabout will come when interest rates spike.

When the government reaches the point where it debt service becomes painful, I predict that they will redirect their gaze on the $4 trillion that U.S. Citizens have saved in 401(k)s and the $8 trillion they have in in IRAs and pension funds. They are just too tempting for politicians to ignore. They will find some excuse to grab these funds. Be prepared. Anyone that is over 55 should convert their IRAs and 401(k)s in to Silver Eagle IRAs. (Available though Swiss America and other firms.) Anyone that is under 55 should consider taking the penalty and simply cashing out. Whatever you do, give it some concerted study and prayer, first. Don’t rush headlong into a major change in your retirement planning.

Regardless of whether or not you have a formal retirement savings program, I recommend that you shuttle some of your net worth out of Dollar denominated investments and into productive farm land. Ideally this will be a farm that is well away from major cities and well off the beaten track that can serve as a safe haven for your family. Once you’ve bought your retreat and squared it away with the proverbial “Beans Bullets and Band-Aids”, then think about sheltering what you have left in precious metals. Silver is my top pick, and pre-1965 circulated 90% silver U.S. dimes and quarters coins are the ideal vehicle. Those silver coins should be in tangible form (not amorphous ETFs), and kept well-hidden at home. Be ready to hunker down, folks. Instead of “continued recovery” there is now a high likelihood of collapse. When? That all depends on how long Ben Bernanke’s game of smoke and mirrors can continue.