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Could This Really Happen Here?

September 23, 2011

A vast majority of Americans believe that this country will just keep on churning along with few problems.  We have been in recessions before and always came out just fine.  We survived the Carter years and now we are dealing with another Bozo who should have never been elected.  While it’s easy to point fingers at the left wingers or the right wingers, it really comes down to the fact that our government is totally corrupt and have bankrupted our country.   The idiots in D.C. seem intent on collapsing our entire economy and turning the dollar into worthless paper.  All of this at our expense of course.  If the predictions I will present come true, every politician in D.C. should be hanged in public, starting at the top. 

A few years back, I was told that our economy was in big trouble.  After some investigating, I decided that the warning could have serious merit, so I have prepared for that event.  There was nothing on the internet to support this theory back then.  Now, it is everywhere.   I follow a company called Weiss Research.  Here is the warning that they are claiming could happen is just around the corner:

America’s Financial Doomsday

An historic, world-changing event is about to crush the U.S. economy and stock market.

It will destroy the income, savings, investments and retirements of millions of Americans.

It will plunge vast numbers of families into the nightmare of poverty … hunger … and homelessness.

Only a minority of investors will survive intact. And some will actually build their wealth in the process.

I’m Martin Weiss, founder of Weiss Research.

You may know that name because every day, more than 500,000 people get our financial publications.

And hundreds of thousands more have used our Weiss Ratings on banks, insurance companies and stocks to help make prudent financial decisions.

You may also know us because we’ve been on TV and in the newspapers a lot lately:

We were the first rating agency in the word to tell the truth, the whole truth and nothing BUT the truth about the financial mess the United States government has gotten itself into.

Unlike Moody’s, Fitch and even S&P which still give the U.S. a stellar rating despite its financial troubles, we gave Uncle Sam a credit rating that places him where he really belongs — just above nations that are already on the brink of bankruptcy.

And boy, did the media ever have a field day with that story!

The Wall Street Journal and Barron’s reported that the Weiss Rating on Uncle Sam is a mere two notches above “junk” — the category assigned to near-bankrupt nations.

And Fortune expressed shock that we ranked America’s finances below several smaller countries.

You may also know me because, in the 40 years since I founded this company, so many of our prior warnings made the news.

Months in advance, we warned about the S&L crisis of the 1980s, the giant insurance company failures of the 1990s, plus the great “Tech Wreck” of the early 2000s.

More recently, ours was the only firm in the world to warn of the financial crisis of 2008 more than a year in advance. While also issuing low ratings — and specifically naming — nearly every major company that collapsed.

We gave advance warnings about the failure of Bear Stearns, Lehman Brothers, General Motors, Fannie Mae, Wachovia, Citigroup, Bank of America, and many others.

These kinds of on-target warnings prompted Worth magazine to say, “Weiss’s record is so good compared with that of his competitors … consumers need look no further.”

And the New York Times to say, “Weiss was the first to see the dangers and say so unambiguously.”

Barron’s wrote, “Weiss is the leader in identifying vulnerable companies.”

And NEWSMAX said, “Weiss’s prediction of the current economic crisis is uncanny.”

More importantly, our forecasts allowed investors to avoid big losses and even make money as the crisis unfolded. On average, the 15 investments we gave the highest ratings to rose 467% DESPITE the worst debt crises in recent years. And we also recommended investments that are designed to make you money BECAUSE of the crisis.

I expect they’ll do even better in the months ahead. Because now, a far more dangerous phase of this crisis is beginning. Barring a miracle in Washington …

An historic, world-changing event
is about to permanently alter your life.

This monumental event will plunge vast numbers of families into the nightmare of poverty, homelessness and hunger. In the worst case scenario, you will see soaring crime, the confiscation of property, the suspension of civil rights, and even martial law enforcement by the U.S. military …

But while the vast majority of Americans will suffer, a select handful will use this crisis to build substantial wealth. If you act on the simple recommendations I’ll give you in this presentation, you could be one of them.

This unhedged warning
will NOT make me any friends
in Washington OR on Wall Street!

I’m well aware that these forecasts will be controversial even among my closest friends. But in our time together today, I’ll present powerful evidence of their accuracy.

I’ll describe exactly what to expect as America’s great debt crisis continues to unfold — how it’s likely to impact you, your family and your finances. I’ll NAME the giant banks that are most vulnerable.

And, I’ll give you my strategies for protecting and improving your finances as this crisis unfolds.

If you take the simple steps I’ll recommend in a moment, I can guarantee you’ll be a lot better off than people who haven’t prepared.

Even if I’m wrong about how massive this crisis will be, you should still do very well.

And if I’m right, you could make more than enough money to get your loved ones through in safety and comfort.

I personally lived through
the kind of disaster
the U.S. is facing now.

I went to high school in a large foreign country, one of the largest in the world. And when their leaders made the same mistakes Washington is making now, all hell broke loose.

First, the cost of living exploded. Suddenly, everything we needed to buy cost ten times more. In some cases, the crisis became deadly: Prices rose so quickly that construction companies began using lower-quality concrete.

Developers added more floors to buildings in an attempt to recoup rapidly rising costs.

So when one of these skyscrapers collapsed, a teacher who lived next door found his home crushed under the rubble, his wife still inside.

Later, in sheer desperation, the government begged the people to donate their gold jewelry and coins to help save the economy.

One woman even pulled the wedding ring off her finger to give it to the government. Local officials shook her hand but the politicians pocketed the gold.

Later, the government got so desperate; it summarily froze everyone’s bank accounts. It confiscated their money and replaced it with a new, far-less valuable currency. And that was only the beginning of the people’s suffering.

In the end, they were doomed to decades of intense financial pain, shame and lost personal liberties. I can assure you these stories are true — because I witnessed them personally:

The teacher who nearly lost his wife when the skyscraper collapsed was my teacher.

The patriotic woman who donated her gold wedding band was my best friend’s mother.

These things happened when I was a young man living in the third largest country in the capitalist word at that time — Brazil.

But my story
is definitely NOT unique …

More recently, this kind of crisis has also struck a very powerful European nation.

After its leaders made the same mistake ours are making now, the country’s bonds collapsed in value, interest rates exploded to over 200%. In just six months, its stock market plunged 75%.

The common people suffered tremendously: A staggering 60% of the workforce was paid only partially and received their paychecks months after they were due.

As the economy collapsed, millions of average citizens fell victim to crime and corruption. The police demanded bribes for traffic violations — both real and imagined.

Organized crime syndicates divvied up the country into their own private fiefdoms, profiting from protection rackets, prostitution, smuggling, narcotics-peddling and even murder for hire.

The government itself admitted that the criminals owned or controlled about half of the country’s private businesses.

A friend of mine said:

“Many banks, including some of the largest in the country, shut down. They closed their doors forever. Our savings were wiped out.

“All people could do about it was to go to their banks and hammer on locked doors.

“Other people demonstrated on the streets. They carried their devalued money in miniature coffins and marched past our central bank.”

All this happened in the 1990s — in Russia, formerly one of the most powerful nations on the face of the Earth.

Of course, the U.S. is not Russia; we have far stronger democratic institutions. And our economy is far larger than Brazil’s, but when a nation’s larders make the same mistakes Brazil and Russia made, the consequences are invariably going to be similar.

The people of Brazil and Russia paid dearly for their leaders’ blunders. Barring a miracle, the American people are also about to pay a very big price.

Europe is suffering through
this same kind of crisis
RIGHT NOW!

Just look at the catastrophe taking place in Western Europe right now. In Greece, a friend of mine reports: “Here in Athens, we’ve seen riots, the firebombing of banks and blood in the streets.

“Everywhere in Greece, home values are plunging. Unemployment is soaring. One in four Greeks, including over 450,000 children, live in poverty. Crime is exploding.

“Athens is beginning to look like a ghost town. Everywhere you look, shop windows are boarded up. Of those that are still open, most are running going-out-of-business sales.”

Greece is not alone!

Just a few years ago, for example, Ireland was booming.

Then, the bubble burst. Real estate values crashed. Mortgage defaults and bank foreclosures soared. Suddenly, the banks had lost billions of euros and were in danger of failure.

So, just as in the U.S., the Irish government stepped in and bailed out the banks. And soon, it was the government itself — not just the banks — that was in danger of going under.

Now, the Irish people are living under crushing austerity measures. Countless jobs have been wiped out; the official unemployment rate is 50% higher than it is here in the United States.

Salaries have been cut to the bone; pensions and health benefits have been slashed.

Meanwhile, in Spain, similar stories are being told in Madrid, Barcelona and 50 other cities across the country.

Tens of thousands of workers have taken to the streets to protest a problem they thought they’d NEVER see again in their lifetime:

Not just 10% official unemployment like we’ve recently seen in the U.S. — but 21% official unemployment!

A friend of mine in Madrid says:

“You wouldn’t believe what I’m seeing here on the streets of Madrid. Beggars outnumber tourists and protesters outnumber beggars.

“In front of Parliament, riot police stand watch to protect lawmakers from angry mobs. All over the country, in Viscaya, Cataluña, Andalucía, we see the same thing.”

Italy is on the chopping block right now!

Worse, the crisis is clearly spreading like wildfire — to bigger and bigger countries, such as Italy.

Italy’s interest rates are surging, and UniCredit, one of the country’s largest banks — is on the brink of failing. It’s likely to be the first of many.

You see, Europe’s largest have made enormous loans to the very countries that are now going bankrupt. That means the people of Europe are only beginning to pay the price for their leaders’ greed and stupidity.

Europe’s troubles have just begun.

If history proves anything, it’s that when the other shoe drops in Athens, Dublin, Lisbon, Madrid, Rome, and other struggling capitals, the pain they have felt so far will pale by comparison.

As in Russia and Brazil, these nations will also be sentenced to years, perhaps decades, of deepening poverty and lost personal liberties. And the story is eerily similar right here, right now, in the United States of America.

Now, you may be thinking, “But we’re different! Nothing like that could ever happen here.”

I assure you: The people of Brazil, Russia, Greece, Italy and Spain never dreamed it could happen there, either!

The truth is our own leaders have made the same financial blunders that their leaders made.

As my Greek friend says:

“You can’t save a nation that’s drowning in debt by throwing more debt at it any more than you could save a drowning man by throwing more water on him.”

Look, in every one of these countries, the pattern is clear:

First, the government spends everything it has.

Next, the government borrows all it can from its people.

Then, it borrows still more from foreign countries and banks.

Finally

The debts become so onerous and horrendous that panicky political leaders turn on their own people. They confiscate their wealth and destroy their freedoms.

Yes, America is still the richest country in the world. But that fact has enabled our leaders to take the greatest and most dangerous risks in the world.

As a result …

In some key aspects
the U.S. is now in WORSE shape
than Brazil, Russia, Greece or Spain have ever been

Consider the high-risk gambles that super-investor Warren Buffett calls “financial weapons of mass destruction.”

I’m talking about special kinds of investments called “derivatives.” They were a major cause of the real estate and debt crisis that nearly wiped out all of our largest banks in 2008 — along with the entire U.S. economy.

Russia’s banks never exposed themselves to large amounts of these financial time bombs.

Neither did Brazil’s banks. And you’d think that, after the 2008 meltdown, U.S. banks would have learned their lesson. But you’d be wrong.

According to the Comptroller of the Currency, a division of the U.S. Treasury Department — U.S. banks held $176 trillion in derivatives at the height of the debt crisis in 2008. Today, U.S. banks hold $244 trillion in derivatives — nearly 40% more.

That fact alone places the U.S. in greater danger than many other countries, past or present.

U.S. debt and obligations
are now OVER $120 TRILLION!

America is also in great danger for another big reason. Washington is now sitting on the largest pile of debt in the history of civilization: About $14.5 trillion and counting.

 

Hard to visualize what that much money looks like? Maybe this will help …

If you asked your bank to give you a stack of $100 bills worth one million dollars, it would look like this — a neat little pile of money …

One billion dollars looks a LOT more impressive.

But here’s what one trillion hundred-dollar bills would look like.

And this is our current national debt: $14.5 trillion.

It’s a positively staggering amount of money.

And it doesn’t even begin to include the debts Washington inherited from Freddie Mac and Fannie Mae or all the money Washington owes to seniors for Social security and Medicare, or to veterans and government pensioners.

Add that in, and Washington’s total obligations are over $120 trillion.

But it’s not just the sheer size of our nation’s debt that’s so frightening. It’s the fact that it’s mushrooming so rapidly — at a speed that’s far greater than anything we’ve ever seen:

Washington is now growing the debt by AT LEAST $1 trillion each and every year.

Now, at this point, you’re probably thinking: “But surely — our leaders will ultimately do the right thing and STOP bankrupting us — right?”

But the reality is that Washington has consistently made the opposite choice.

The die was cast in 2008, when the housing bubble burst and giant banks were going bust.

At the time, the U.S. government could have simply allowed those who had made the big gambles to suffer the natural consequences of their actions.

Instead, Washington bailed out the banks, absorbed those bad debts, and spent trillions of dollars to fight the recession.

Washington lies,
the economy dies.

At the time, some people thought that was a god idea. But look what happened.

In just 12 months between 2007 and 2008, Washington TRIPLED the federal deficit from $161 billion to $459 billion. Of course, our leaders swore on a stack of Bibles that this was a one-time-only event, needed to fight the recession.

They lied. Washington tripled the deficit AGAIN … to $1.4 trillion in 2009.

Then, again, they solemnly promised that this, too, was temporary — for emergency purposes only.

But that was a lie, too. The 2010 deficit was $1.3 trillion.

Plus, the deficit for 2011 is the biggest of all: More than $1.5 trillion. And even the White House admits that the 2012 deficit will be at least $1.1 trillion.

Think of it: In the 218 years BEFORE the Great Recession of 2008 began …

Despite massive borrowing to fight the War of 1812, the Spanish-American War, the Civil War, World War I, the Great Flu Pandemic of 1918, the Great Depression, World War II, Korea, Vietnam, plus Iraq and Afghanistan …

Through all this, the government only borrowed a grand total of $4.6 trillion.

But in the five short years AFTER the Great Recession began, it will have borrowed $5.6 trillion — $1 trillion more!

We’ve sold our American birthright
for a mess of porridge.

Consider this: In the past, Washington always borrowed nearly all the money it needed from its own citizens. But in recent years, it has borrowed most of the money from foreigners, especially China, and now it owes foreigners over $4 trillion dollars.

That’s over four times MORE than it owed foreigners when the U.S. plunged into recession in the early 2000s.

But it still hasn’t been enough. The White House and Congress wanted to spend even more money than Americans and foreign investors would loan us — combined.

The Fed declared WAR
on the value of your money!

So the Federal Reserve printed hundreds of billions of paper dollars and loaned most of that money to the Treasury, too.

How many hundreds of billions of dollars? Let me put it into perspective for you.

Remember 1999, when everyone was worried that the Y2K bug would crush our economy? Well, to avert a collapse, the Fed printed $73 billion to keep the banks from collapsing.

That’s the first blip on this chart.

Now let’s go to 9/11, when the terrorist attacks in New York and Washington paralyzed the economy, the Fed printed another $40 billion. That’s the second blip on the chart.

Every time, the Fed cranked up the printing presses, financial experts went ballistic. They said the amounts were so huge; they might diminish the dollar’s value. And sure enough, the value of the dollar did plunge.

But that was only a drop in the ocean compared to what the Fed has been doing lately.

Since the big debt disaster of 2008 — when the giant Lehman Brothers failed. The Fed has printed more than $1.6 TRILLION dollars.

That’s twenty-two times MORE money than the Fed created during Y2K.

And it’s FORTY-ONE times more than it printed after 9/11!

That’s why the buying power of your money is cratering.

That’s why your cost of living is soaring.

That’s why butter has jumped 22%, gasoline has soared 35%, and coffee has skyrocketed a mind-boggling 42% — all in a single year!

SHOCKER:
You’re only HALF as rich
as you think you are!

Look at silver! Since the Federal Reserve began its latest money-printing binge at the height of the debt crisis, the price of silver more than quadrupled.

And look at gold; it has more than doubled in price!

But all this is only the beginning.

In Brazil, Russia, Greece and Ireland what happened next was that revenues and tax collections began to fall.

It became impossible for those governments to repay its debts.

And here again, the United States is following a similar pattern: Despite the massive amounts of money Washington has thrown at it, the U.S. economy is sinking — and government revenues are falling — AGAIN!

The U.S. Bureau of Labor Statistics reports that long-term unemployment in the United States is now at catastrophic levels.

More than 14 million Americans are now out of a job — and every week, hundreds of thousands more get their pink slips. And once someone loses a job, it takes an average of more than 25 weeks — nearly half a year — to find a new one.

That’s not just “a little bit” worse than during prior recessions. It’s more than 2.5 times worse than during the big recession in the mid-1970s. And it’s also far worse than during the financial crisis of 2008-2009.

Plus, the housing crisis that triggered this great recession in the first place is now growing more severe.

Consider the conclusions of Case-Shiller, the real estate industry’s most trusted source of home price information:

They report that the median price of a home is down more than 31% and is still plunging.

That’s right. The price of existing homes in America has fallen BELOW the lowest level it reached in depths of the Great Recession of 2008-2009!

In short, despite the trillions Washington has blown on stimulus and bailouts, we are now staring down the barrel of a huge double-dip recession.

That’s especially scary this time around. Because this time, the government isn’t putting money into the economy with more stimulus.

The government has no choice but to take money OUT of the economy with budget cuts! And as the economy falls, instead of collecting more from taxes, it collects LESS.

The money Washington so desperately needs to pay the interest on its debt simply vanishes.

Look, throughout history, we’ve learned that when a nation becomes this deeply indebted and in this much economic trouble, the next step is always the same:

In every case, the next step is the monumental event, the far greater calamity that I promised to tell you about.

COMING NEXT:
The moment when all hell breaks loose …

So what is the ultimate catastrophe that doomed the people of Russia and Brazil to decades of poverty and dependence?

What is the next bombshell that’s beginning to explode in Europe, destroying the people’s wealth and threatening to rob them of their personal freedoms?

What is the historic, life-changing, world-changing event that is also about to vaporize massive amounts of wealth and potentially threaten our liberties right here in the United States of America?

It’s the singular moment in time when the last investor willing to loan money to the government calls it quits.

It’s when the government can no longer borrow and simply runs out of money.

That’s the moment when all hell breaks loose.

No, I’m not talking about what would happen if Congress simply failed to raise the debt limit like it almost did in August of 2011. That was a just a sneak preview of the true big event still dead ahead.

I’m talking about, a sudden rejection of U.S. debt by the world’s investors — a creditors’ revolt that suddenly leaves Washington with no choice but to live within its means.

Think about that: What would happen right now if our federal government was no longer able to find more willing lenders, no longer able to borrow money?

Before you answer though, remember this: Washington has to borrow nearly half of every dollar it spends today.

It has to borrow nearly half of every dollar it spends on national defense, homeland security and nearly half of every dollar it sends to other countries as foreign aid.

It has to borrow nearly half of every dollar is pays in Social Security, Medicare benefits, and unemployment benefits, plus half of what it gives to U.S. veterans, government pensioners, the poor and the disabled.

It borrows half of every dollar it blows on corporate welfare, bridges to nowhere, treadmills for shrimp and other senseless pork barrel projects that Congressmen love so much.

And it has to borrow half of every dollar it spends to repay money it borrowed five years ago … ten years ago … even 30 years ago.

What will happen when global investors deny our application for yet another loan? When the Chinese and other foreign lenders say “No more!” to losing their shirts as Washington guts the value of the dollars they earn?

When they simply say:

“Sorry — but America’s line of credit is CANCELLED. Washington’s loan application is DENIED!”

This is not far off. The warning signs are already here …

Warning sign #1: China’s first rating agency — Dagong Global Rating — has already issued warnings about the dollar and has rated the U.S. much lower than Moody’s or S&P have.

Warning sign #2: According to Beijing officials, China, the world’s largest buyer and holder of U.S. government securities, has suffered a loss of $271.1 billion between 2003 and 2010 as a result of the dollar’s steady depreciation.

Warning sign #3: In June of 2011, China’s National Development and Reform Commission announced it could lose another $578.6 billion if it continues to hold these huge loans to the U.S.

Will they continue to suffer these losses passively?

The answer is …

Warning sign #4: Two high officials — Zhou Xiaochuan, the head of China’s central bank and Xia Bin, a member of the monetary policy committee of the central bank — are ready to bolt.

Both recently made it clear that they could easily get away with a huge reduction in the amount of U.S. treasuries they own.

I repeat:
This is already beginning to happen!

Other nations are also shifting their reserves from U.S. Treasuries to gold and silver, plus oil, coal, and other tangible assets.

Mexico, Russia and Thailand have recently bought well over 100 tons of gold instead of U.S. treasuries.

Even Tanzania is planning to shun the dollar and shift its reserves into gold!

Gains of 245% … 369% …
and more are possible!

Put simply, that fateful day — when Washington is no longer able to borrow the money it desperately needs is speeding toward us like a runaway freight train.

This is why Congressman Ron Paul recently issued this somber warning:

“At the present time the Chinese have backed off from what they’re loaning us, interest rates are starting to go up, inflation factors are coming up.

“Believe me, that next step is a currency crisis because there will be a rejection of the dollar. The rejection of the dollar is a big, big event.”

Congressman Paul is correct.

The worst-case scenario …

When Washington can no longer borrow money, it will have no choice but to immediately slash spending.

And since nearly half of every dollar it spends is borrowed, our leaders will have no choice but to radically reduce, delay or even cancel payments to seniors, veterans, the poor, the disabled and to pensioners.

Millions who count on government checks will suddenly find themselves on the ropes, struggling to survive.

Therefore, with government programs slashed or cancelled …

With consumers paralyzed in fear …

With the U.S. economy in intensive care …

With tax revenues plunging, and …

With global investors refusing to lend more money to Uncle Sam …

Here is the worst-case scenario — the scenario I fear the most …

Hunger and homelessness explode to pandemic levels from coast to coast.

The victims take to the streets. Rallies turn into demonstrations … then, into protests … and finally, into riots.

With law enforcement severely crippled by the spending cuts, crime skyrockets.

With fire departments running at austerity levels, cities burn.

With emergency services and hospitals out of money, people die.

As we saw in Brazil and Russia, Washington has no choice but to restore order by taking away your personal freedoms.

And never forget this final, devastating fact: The last phase of this great debt crisis ended because Washington bailed out the largest failing companies. This time around, there are two reasons why there can be no giant bailouts:

First, because the recently elected fiscal conservatives in Congress are sworn to oppose them. And second because:

No bank … no government … no group of nations … is rich enough to save America.

Members of Congress:
“Armageddon”
“A Fiscal Titanic”
“A Death Spiral”

Still finding all this hard to believe? Then consider these ten former heads of the Council of Economic Advisors.

They are the men and women who directly advised presidents of both major parties, including President Obama, and all of them have since departed from their office. They recently wrote that that the next debt crisis could, and I quote “Dwarf 2008!”

That’s an absolutely shocking assertion: In 2008, Wall Street came within a hair of a massive, devastating meltdown. Virtually ALL of our largest banks were pushed to the brink of failure. The entire country was only a few hours away from a fatal collapse.

Now, these ten former White House advisors are warning that this next debt crisis could dwarf the last one. Why? What could cause that?

They say it’s precisely the monumental event I just told you about: The fact that one day foreigners may simply stop lending more of their money to the United States.

And these ten former presidential advisers are not the only ones ringing the alarm bells.

Senator Mark Warner says, “We’re approaching financial Armageddon.”

Senator Joe Manchin calls this crisis “A fiscal Titanic.”

Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff, is warning that this crisis is “the biggest threat to our national security.”

Economist Robert Samuelson warns that this crisis has the power to trigger “An economic and political death spiral.”

Democrat Erskine Bowles, who headed up the president’s deficit commission, warns that this crisis is “like a cancer; it’s truly going to destroy the country from within.”

Senator Mike Crapo says it is “a threat to not just our way of life, but to our national survival.” It has the power to “ … guarantee that this nation becomes a second-rate power with less opportunity and less freedom.”

And David Walker — the former U.S. Comptroller General and director of the Government Accountability Office says:

“The bottom line is: We’re not Greece. But we could end up with the same problems!”

And mind you, these men are not extremists. They have nothing to gain by trying to scare you. They are merely following the facts to their logical conclusion.

That’s what I’ve done in this report. The warnings I’ve given you are based on nothing more — and nothing less — than economic reality and historical fact.

My research team and I have simply crunched the numbers and let the chips fall where they may — just like we did when we issued “D” ratings on nearly every big bank and savings and loans that subsequently failed.

Just like we did when we gave a “C” rating to the United States.

We have no political axe to grind. We are not beholden to Republicans, Democrats, or any other political party. Nor do we owe allegiance to Wall Street or any of the thousands of banks, companies and countries that we rate.

In fact, most of them would probably prefer that we just kept our mouths shut. One giant company even threatened my life by saying “Weiss had better shut up or get a body guard.”

But to quote Harry Truman, “I never give them hell. I just tell the truth and they think it’s hell.”

Our loyalty is with the people — consumers, savers, investors and everyday citizens — who rely on us to tell them the truth about what we see in the future, and about the companies or governments they entrust their money to, invest in, or do business with.

The good, the bad and the ugly.

This is how my company has become the last line of defense for the average Joe against greedy and power-mad CEOs, politicians and bureaucrats.

Believe it or not,
THIS is the calm before the storm!

Nevertheless, if the crisis I’ve just described is hard for you to imagine, I certainly understand.

We’ve never seen anything like this happen before in America.

We always believed we were somehow insulated from these kinds of catastrophes.

Besides: Things still seem so “normal” for most of us today — so routine. It’s hard to imagine that such terrible things could happen to us — and that it could all happen so quickly, in the twinkling of an eye.

But isn’t that always the case? Isn’t there always a calm before the storm? Aren’t people always caught by surprise when historic crises strike?

After all — nobody believed the Soviet Union would collapse virtually overnight — and when it did, it caught everybody by surprise. Even our own C.I.A. failed to see that one coming!

And remember, for years, Islamic extremists made no secret of their determination to knock down the World Trade Center. They actually tried to do it in 1993.

 

AMAZINGLY ACCURATE!


“Integrity and dedication to his subscribers is outstanding and his accuracy in forecasting economic events and to build your wealth is superior.

“He calls it right, and early.”
— Tom A., Petersburg, Virginia

But among the thousands who streamed into the twin towers on September 11, 2001, how many — if any — believed they had anything to worry about?

Many, including my cousin’s daughter and some friends, just kept going to work as they always had — and thousands paid the ultimate price.

In Japan, even though they had been repeatedly warned, nobody — including my own son, who lives in Tokyo — believed the nuclear power plants would suffer multiple meltdowns.

Once again, their denial was costly in the extreme.

Even in my own 40-year career as a ratings analyst, I’ve seen denial exact a hefty price over and over again.

In the late 1990s, almost nobody believed us when we warned that the tech bubble was about to burst in the stock market.

A few years ago, only a handful of people believed our senior analyst Mike Larson when he repeatedly warned that the real estate bubble was about to burst.

And of course, very few listened when we warned that Lehman would go belly up and that even the almighty Bank of America would come within an inch of its life.

So I’m under no delusions here. I know that the vast majority of Americans will fail to heed this warning and fail to get ready for this crisis.

I sincerely hope — for your family’s sake — that you are not one of them.

Because the precautions required to weather the coming tempest are not difficult.

And even if the storm turns out to be less severe than I fear it may be, the worst that’ll happen is that you’ll sleep better at night and you could make some money in the process.

Take these six steps immediately
to protect and grow your wealth

So WHEN should you expect to see this cataclysmic event — the moment when Washington runs out of money? Soon. VERY soon.

The U.S. Treasury holds a 30-year bond auction about every two weeks — and it auctions shorter-term notes and bonds even more frequently. So it could happen at virtually any moment.

STEP #1 is to prepare your defenses: If you count on the government for anything, you’ll need to plan to live without it.

As we’ve seen, all levels of government — federal, state and local — will have no choice but to cut spending as this crisis unfolds.

That means you’ll need a plan for getting by on your own — without help from Social Security, Medicare, or other government programs.

Also keep this in mind. Washington may no longer be able to bail out your bank or guarantee your deposits when skyrocketing loan defaults push it to the edge of the precipice.

If the government owes you money — tax refunds, for instance — be aware that the payments could be delayed.

It would also be a good idea to make preparations to personally ensure your family’s safety. Because police, fire and emergency services will probably be hard to come by in many communities.

If you live in a city, have a plan and a place to go if things become uncomfortable for you.

STEP #2 is to make sure your bank is the safest one you can find.

Here, there’s even more I can do to help. Our Weiss Ratings is the nation’s leading provider of independent ratings on 16,000 banks and credit unions.

Since 1990, we have issued grades on a total of 1,533 banks that subsequently failed.

On 90% of those banks, we issued a clear warning to consumers ONE FULL YEAR ahead of time. And on nearly all of the rest, we issued a warning or a caution flag at least a few months before the failure. Now, the problems in the banking industry have gotten a lot worse.

Not only do we have more bank failures, we also have more BIG bank failures.

STEP #3 is to build an impenetrable wall of privacy around your finances: Make no mistake — the United States government will NOT be your friend as this crisis unfolds. Neither will your state, county or local governments.

If history proves anything its’ that there’s virtually nothing as dangerous as a big government that’s being threatened with extinction.

If the worst-case scenario, if a politician or bureaucrat comes to the conclusion that your rights and property stand in the way of saving the government … you can kiss them good-bye.

You’re also going to have to think about others who will be desperate enough to seize your wealth — especially if you live in a city or even the suburbs of a large metropolitan area.

Privacy — keeping a low profile for yourself and your assets — will be among your best defenses.

STEP #4 is to own mankind’s greatest crisis hedge — GOLD: Since we first began recommending them in 1999, gold bullion coins and bars have risen by 450%. An initial $10,000 investment is worth $55,000 today.

STEP #5 is to hedge against financial losses — with investments designed to spin off substantial profits when the economy implodes.

STEP #6 is to go for truly huge gains as this crisis unfolds: At a time like this, a powerful offense is your best defense.

Building up substantial cash reserves is the best way to ensure your family’s safety and comfort.

So I ask all of you to look very hard in the mirror and ask yourself one question:  If this happens, am I ready to deal with it?  If you say no you still have time, get on with it.  Being stupid will not feed you or your family.  being in denial is even worse, you will fail to act fast enough to achieve safety.  It’s your choice folks.  I hope you do the right thing!

Live Free!

G!

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15 Comments leave one →
  1. September 23, 2011 2:38 pm

    Why the advertisement?

    Anyone with any sense would know that the United States economy and the economies of the rest of the world are in deep trouble.

    The question is who is going to save them?

    Definitely not a politician or economist.

    No one seems to be coming up with any answers. But why should they, no one seems to care. Everybody just keeps on doing what they do. They whine and rant. They want to oppress others, instead of helping themselves.

    • gmanfortruth permalink*
      September 23, 2011 3:01 pm

      The answer is one that will never happen because the sheeple are to afraid. While a second revolution may not save the economy, at least freedom will be preserved.

  2. September 23, 2011 3:27 pm

    Though some of the things this group says is true, some of the things they say is not correct.

    When analyzing these things as presented by groups like this, one must take items one at a time, work through the problem carefully while taking into account reality and not wishful or doomsday thinking.

    For example, if a proclamation requires some bizarre behavior of people – behavior that is not normally exhibited by people right now – the question that needs asking will be: “Why do people suddenly do something that weird?”

    So, right out of the gate, let’s dissect this:

    It will destroy the income, savings, investments and retirements of millions of Americans.

    What event is capable of destroying income?

    The United States is the largest industrial nation on Earth. It is larger than the next 4 combined.

    The United States is the most productive economy on Earth. The US produces more goods and services then the rest of the world combined.

    So what event will suddenly stop this?

    I don’t know, I cannot imagine anything short of a nuclear/biological war. But I do not think Weiss is suggesting this at all.

    So we must tread carefully through the rest of the proclamations that may be dependent on these assumptions he has made.

    It will plunge vast numbers of families into the nightmare of poverty … hunger … and homelessness.

    These conditions already exist, have always existed, and will always exist in the future.
    This is a scare tactic of rhetoric and is worthless.

    Only a minority of investors will survive intact. And some will actually build their wealth in the process

    Again, this is the current condition – most people have no clue how to invest and lose money at it. The vast most people’s investments do not accumulate wealth after factoring in taxes and inflation.

    But a few do win.

    So what is his point here other than more then a scare tactic of rhetoric and is worthless.

    In the worst case scenario, you will see soaring crime, the confiscation of property, the suspension of civil rights, and even martial law enforcement by the U.S. military …

    It is NOT prudent to plan your daily affairs under the worst case scenario as such a scenario has an extremely low probability of occurring.

    Further, this is far from the worse case – the worse case is the collapse of the division of labor – which will result in the eventual death of ten’s of millions of people in the US alone.

    And again, the conditions he presents are/have been/will be societal constants.

    Go back into any decade and read the news. The topics will be:
    – crime
    – poverty
    – war

    These are unsolvable human problems.
    There is NO solution to human suffering, the Universe does not provide such.

    There will always be criminals.
    There will always be poverty.
    There will always be violence and war.

    a select handful will use this crisis to build substantial wealth. If you act on the simple recommendations I’ll give you in this presentation, you could be one of them.

    So he stirs the pot with worse case scenario, and then believes his strategy will save a few from the disaster.

    But what Mises said is the truth.

    When society is spinning into the abyss, no man is immune from the disaster – the destruction of society will affect EVERYONE, and there is no escape.

    This is why Mises urged the intellectual debate and action – to engage NOW the minds and effort of good men to prepare, prevent and mitigate the disaster.

    But do not believe that the troubles of the nation will pass over those that heed good advice.

    It will not. Everyone will suffer – some more, some less – but everyone will suffer.

    It’s the singular moment in time when the last investor willing to loan money to the government calls it quits.

    It’s when the government can no longer borrow and simply runs out of money.

    This is a long way off – one merely needs to review this week’s gyrations.

    T-bill purchases – that is , US debt – exploded as the economy of the world is threatened.

    Yes, that is right.
    When the economy is under threat, investors flock to the reserve currency – the “money” that is accepted anywhere in the world – the US dollar.

    Investors do not hold cash – they invest cash or protect their cash – and they use the US$ they got from selling commodities and stocks, and bought US debt denominated in US$.

    To basis an investment strategy whose assumptions are based on the collapse of the very instrument the whole world uses for investments is an incoherent strategy.

    Also, government never runs out of money – as he demonstrated, it merely prints more of it (or taxes it).

    Do not base a strategy on a government “running out of money”. Buffet, Bernanke, and the FED is correct – the US will not default on its debts – it will “monetize” it. You will be repaid in US$ …. what those dollars buy may be debatable, however.

    When Washington can no longer borrow money, it will have no choice but to immediately slash spending.

    Half true.
    Well before Washington can no longer borrow, it will begin selective default. It will begin to renege on payments to certain groups, but will pay other groups.

    The political battle will change – a battle of which group suffers to benefit another.

    There is very little likelihood of a “immediate” slash of spending -though this is the best solution to the problem.

    And since nearly half of every dollar it spends is borrowed, our leaders will have no choice but to radically reduce, delay or even cancel payments to seniors, veterans, the poor, the disabled and to pensioners.

    I agree with this.
    Seniors and the retired will be stiffed.

    The choice will be to save your Congress-crittes pension plan, mansion, ex-trophy wife alimony, current trophy wife jewels and trinkets, and the limo, jet, junkets, etc., he will either:
    – piss off the young, tax paying people by raising taxes and seizing more assets
    or
    – piss of the old, tax eating people who are competing for the same “stolen” government loot as he wants for himself.

    Millions who count on government checks will suddenly find themselves on the ropes, struggling to survive.

    They will be your mother and father and your wife’s mother and father.
    Here, being prepared is important. Time to build a house extension and extra rooms.

    With consumers paralyzed in fear …

    Why?

    With global investors refusing to lend more money to Uncle Sam …

    Who will they lend to?
    If they do not lend, what will they do instead?

    Hunger and homelessness explode to pandemic levels from coast to coast.

    Nothing new here.

    The victims take to the streets. Rallies turn into demonstrations … then, into protests … and finally, into riots.

    Some disavowed tax eaters will most certainly do this, but it will be to no avail.

    With law enforcement severely crippled by the spending cuts, crime skyrockets.

    Nonsense.
    You cannot both proclaim a future of martial law AND a future of no police.

    With fire departments running at austerity levels, cities burn.

    There is not enough fire depts – ever – to stop the riot burnings, it will be not due to “budget cuts”

    With emergency services and hospitals out of money, people die.

    People die anyway.
    Hospitals have always offered care regardless of money.

    As we saw in Brazil and Russia,

    The US is not Brazil or Russia, so be careful in attributing equivalences.

    Washington has no choice but to restore order by taking away your personal freedoms.

    Incoherent.
    So we have no police, but martial law, and the ability to increase violent enforcement? How is that?

    No, Washington will be POWERLESS, and toothless. People will need to consider where the power will be held to enforce local law and order – it will NOT be out of Washington or any State capital.

    And never forget this final, devastating fact: The last phase of this great debt crisis ended because Washington bailed out the largest failing companies. This time around, there are two reasons why there can be no giant bailouts:

    First, because the recently elected fiscal conservatives in Congress are sworn to oppose them.

    Hahahahhahaah…..
    So “….But this time, Lucy will hold the Football for Charlie Brown to kick…”

    Any one who believes this is utterly naive.

    And second because:

    No bank … no government … no group of nations … is rich enough to save America.

    No, they will have long ago looked to the US to save them.

    STEP #1 is to prepare your defenses: If you count on the government for anything, you’ll need to plan to live without it.

    Correct.

    Review not only the impact personally but everyone around. Pensions of your parents will not be sufficient to support them – and remember, people are living longer – and outliving their planned saved capital.

    As we’ve seen, all levels of government — federal, state and local — will have no choice but to cut spending as this crisis unfolds.

    Correct.
    But there are core differences between these government levels that makes the response to this dynamic be very, very different.

    Also keep this in mind. Washington may no longer be able to bail out your bank or guarantee your deposits when skyrocketing loan defaults push it to the edge of the precipice.

    This will NOT ever, ever occur so don’t worry about it.

    Your deposits will be guaranteed – the government will monetize the deposits and you will get US$…. what this buys is a different question.

    If the government owes you money — tax refunds, for instance — be aware that the payments could be delayed.

    This makes no difference. The money is “gone” and most people treat tax refunds as a “windfall”

    It would also be a good idea to make preparations to personally ensure your family’s safety. Because police, fire and emergency services will probably be hard to come by in many communities.

    Sorta.
    It will be hard in major cities – the police will be pulled to protect only a few, key, areas of the city (the rich and political) and abandon the rest to their own means.

    But in smaller communities and towns, this will not be necessary.
    Hint: move to smaller communities and towns and out of cities.

    If you live in a city, have a plan and a place to go if things become uncomfortable for you.

    Correct.

    STEP #2 is to make sure your bank is the safest one you can find.

    …which means not a small bank.
    But again, the odds that you will “lose” your deposit is nearly zero.

    The concern will be “what can I buy with my deposit money?”

    STEP #3 is to build an impenetrable wall of privacy around your finances: Make no mistake — the United States government will NOT be your friend as this crisis unfolds. Neither will your state, county or local governments.

    How are you going to hide your money and spend it at the same time?

    STEP #4 is to own mankind’s greatest crisis hedge — GOLD: Since we first began recommending them in 1999, gold bullion coins and bars have risen by 450%. An initial $10,000 investment is worth $55,000 today.

    Gold should be a part of any financial portfolio, but remember its proper place and use.

    STEP #5 is to hedge against financial losses — with investments designed to spin off substantial profits when the economy implodes.

    I am very skeptical of anyone claiming they know the future for investments. The economic situation is wholly chaotic – there is no predictability or confidence on what sector may be affected, let alone any businesses in the sectors.

    STEP #6 is to go for truly huge gains as this crisis unfolds: At a time like this, a powerful offense is your best defense.

    Building up substantial cash reserves is the best way to ensure your family’s safety and comfort.

    Cash is king, unless it is devalued … then “things” are king.

    • gmanfortruth permalink*
      September 23, 2011 3:44 pm

      In short, a lot of people will suffer.

  3. prepster411 permalink
    September 23, 2011 5:12 pm

    There’s too much debt in the system -too many claims without the productive capacity to service those claims. Deflation, therefore, will be the fundamental mover in the markets, but money printing will be the ultimate political response, because the banks will demand it. I just hope it all unwinds slowly so more people can get ready. It could be a pretty bumpy ride.

  4. September 23, 2011 7:50 pm

    Prepster,

    Why do you believe deflation will be the fundamental mover in the marketplace?

    • gmanfortruth permalink*
      September 23, 2011 10:03 pm

      Flagster,

      I see inflation as a primary problem in the future. Not sure if we will see hyperinflation, but we could be on the brink at some point in time. Do you have any ideas how it can be stopped, or is this mess inevitable?

      • September 25, 2011 4:48 pm

        Gman,

        Yes – stop manufacturing money.
        The FED will do this eventually.

        Yes – there is no political will in stopping the manufacture of money. Congress will never stop demanding more and more money

    • prepster411 permalink
      September 24, 2011 1:34 am

      Black flag, The banks are on the hook for 100s of trillions of derivatives contracts. The US, if you add in the unfunded liablities is on the hook for 100s of trillions more. This is a giant credit bubble -the biggest in history. This is why deflation will be the fundamental trend. The derivatives and debts are just too big. The housing bust is just the beginning.

      There is no way to grow out of this as the liabilities are many times world GDP. If you add in peak oil (won’t start that debate here, but it’s a piece of the puzzle) and general resource depletion, there’s no possible way to “grow” out of this. For example, if we had a 10% growth rate, we could maybe pay off these debts, but that would mean DOUBLING world GDP in under 7 years. I really don’t see that happening. You been to Baltimore, or Cleveland, or Detroit lately? We’re shrinking, not growing.

      Jamie Dimon and the rest of the Rubinites are playing John Law. They’re blowing up a huge bubble for gain, just like the Mississippi Company, the rest of the economy and working class be damned. When the banks start falling like dominoes, that’s when the money printing will really take off. The bankers, cronies, and multinationals will get the fresh money 1st, when it’s still useful for buying real stuff. By the time the printed FRNs get in to our hands, they’ll be worth…well, less.

      Hopefully this will go down over years, and give us all time to prepare and for the sheeple to wake up.

      • September 25, 2011 5:01 pm

        Prep

        Black flag, The banks are on the hook for 100s of trillions of derivatives contracts.

        Perhaps true.

        The US, if you add in the unfunded liablities is on the hook for 100s of trillions more. This is a giant credit bubble -the biggest in history.

        Perhaps ture.

        This is why deflation will be the fundamental trend. The derivatives and debts are just too big. The housing bust is just the beginning.

        So your argument stands as this:
        Inflation is defined as a increase in the money supply.
        Deflation is defined as a decrease in the money supply

        You argue that there is ungoldly trillions of dollars in the market place then ever before in history, therefore deflation will happen….. though this is exactly opposite the definitions …

        Think about this – an example of “derivative” is a T-bill.

        If you take your T-bill on its due date to the Treasury, what will you get back?
        Where did that thing you got back come from?
        Is there a limit to that thing?

        There is no way to grow out of this as the liabilities are many times world GDP.

        Debt is money in this economy.

        You go to the bank to borrow money to buy your house.
        Where did this borrowed money come from?

        If your house goes to a value of zero, does this subtract the money out of the economy? Answer: No.

        You borrow $100,000 and buy the house.
        The seller deposits the cash in a bank.
        Your house is worthless.
        The seller still has the cash in a bank.

        The loss of the value of any asset does not create deflation.
        The only way deflation can occur is if the money supply goes down.

        The money supply is going up.

        If you add in peak oil

        Peak oil does not exist. The world is awash in oil. It rains oil on moons of Saturn. Oil is one of the most abundant molecules in the galaxy. It is functionally impossible for little mankind to use it up here on Earth

        We have an access to oil problem – primarily due to politics, but oil itself – humanly limitless.

        For example, if we had a 10% growth rate, we could maybe pay off these debts, but that would mean DOUBLING world GDP in under 7 years. I really don’t see that happening. You been to Baltimore, or Cleveland, or Detroit lately? We’re shrinking, not growing.

        Paying of debt is deflationary, not the inability to pay off debt.

        You have $100,000 in the bank, and you take that out of the bank to pay off your mortgage.

        The bank gets $100,000 and must reverse its fractional reserve assets (your deposit), shrinking the money supply.

        When the banks start falling like dominoes, that’s when the money printing will really take off.

        Yes, the FED will bail out the big banks as it was designed to do.

        This is INFLATIONARY, not deflationary – an increase in the money supply.

        The bankers, cronies, and multinationals will get the fresh money 1st, when it’s still useful for buying real stuff. By the time the printed FRNs get in to our hands, they’ll be worth…well, less.

        Correct. This is a symptom of inflation.

        Deflation is the opposite – money becomes more valuable in terms of the goods it buys – that is, a dollar buys more.

        • prepster411 permalink
          September 29, 2011 11:58 am

          I’ve been thinking about your response Black Flag. I thought I might try to clarify my point a little bit.

          There’s cash inflation and deflation, along with credit inflation and deflation. I sometimes get caught up in the inflation/deflation semantics, but basic dynamic here is credit bubbles due to excessive leverage. If Jamie Dimon’s derivative market goes bust, he will either go broke or get bailed out. The expansion of the derivative market is inflationary – more credit, more leverage, more interest, etc. When it pops, yes, that’s deflationary. My essential argument is that the Fed will print cash (cash inflation) to save the banks from their fraud and excessive leverage (credit deflation). Money will become less valuable, because they will try to save the banks from their excesses. They will continue to privatize their gain and socialize their losses on the backs of savers and taxpayers.

          Anyway, hope that makes some sense. I appreciate the dialogue we’ve had. I’m not a dogmatic person. If I don’t understand something or realize that I’m in error, I can adjust and move on. Thanks for making the points you have.

  5. September 29, 2011 1:22 pm

    Prep,

    I appreciate your comments.

    As Gman will confirm, I seem to have taken on the task of improving people’s economic understanding – I have found that the economic education given to society is terrible, and what is given is almost all wrong, and since economics is the study of human action – this terrible failure has serious implications on the actions of those humans in society!

    So forgive my zeal on this matter at times.

    The basic premise I hold (which is rooted in Austrian Economic Theory) is that the laws of economics are immutable, and apply to all economic goods equally, fully, and with no exceptions or exemptions.

    So in the matter of inflation/deflation, all of it is always and only a consequence of an increase or decrease in the money supply.

    Money is an economic good just like any other economic good, and follows the same laws of economics like any other economic good.

    Because Money is merely the economic good that is most desired in an economy, People tend to price other economic goods with its reference.

    So when the effects of an increase in the supply of an economic good, the price of it falls – and equally the decrease in the supply of an economic good, the price rises.

    But when this effect happens to money, it appears confusing, because we use money to price things (that is “measure economic value”) so how do you measure the measuring stick?

    Supply and Demand:
    So the effect of an increase of the supply of an economic good is that the price falls – you are able to get more of it for the same amount of other goods or the other way around, you need more of it to get the same amount of other goods.

    An apple is $1 and an orange is $1 – you can trade one apple for one orange.
    Increase the supply of apples, its price drops, to say, 50c.

    Now you need to sell two apples (2x50c) to get one ($1) orange. You need more apples to buy oranges.

    So we can see that effect on money since it is more difficult to “price” money with money!

    When the supply of money increases its “price” falls, which means you need more of it to trade to get other goods.

    A dollar bought one orange.
    Now, you need two dollars to buy one orange.

    Therefore you know the supply of money has gone up, and the price of the money has gone down

    This is inflation.

    Deflation is the other way around – the supply of an economic good is reduced, there is less of it – thus, its price rises.

    There are less supply of apples, so its price goes up – say $2 – so now one apple buys two oranges! You sell one apple ($2) and now can buy two oranges (2x$1) OR still buy only 1 orange and save one apple for a future purchase (I make this note for a future dialogue on why deflation is necessary for an economy to recover its productivity)

    So, when the supply of money is decreased, the value of money increases.

    So in we see this effect in deflation, the same money buys more goods. A dollar bought 1 orange yesterday, but today can buy two.

    Thus, whenever a dialogue of inflation/deflation begins, remember this is really a dialogue on the increase or decrease of the supply of money

    Credit:
    In a fractional reserve system, credit will increase the money supply.

    A depositor puts $100 in a bank.
    The bank treats this as an asset, and the FED (or central bank) requires 10% to be held at the FED, and the bank lends $90 of it out.
    A borrower takes the $90, and spends it.
    The seller takes $90 to the bank and deposits it.
    The bank treats this as an asset, and is allowed to lend 90% of it, $81.
    …and so on.

    So for the first $100, the bank ends up creating nearly $900 of new money into the economy.

    So, as you noted, a credit expansion creates inflation.
    Equally, paying off a debt must create deflation.

    But note, default of a debt does not create deflation

    To pay off a debt, you must earn.
    Your earn is paid by money. Your employer must withdraw money out of a bank and give it to you – the bank must take this out of its assets, which means it must also recall 90x this value off its loans to maintain its reserve requirements with the FED.

    If your $100 deposit, made $900 of new money, the withdraw of the $100 must evaporate $900.

    You take this money and pay back the bank. But you only repay 1x the loan – the bank needs to find 89 others to repay their loans

    It begins to call loans – requiring people to raise capital to repay. Money supply is going down, making money more valuable …. prices fall.

    But this effect does not occur when you default on a loan because there is no withdrawal of deposits out of a bank.

    You default $100 loan.
    ……where is the money exchange?

    Unlike your earn, where the employer had to withdraw $100 from his bank acct. to pay you your default has caused no such withdrawal. You have merely said “No money transaction will occur“, thus, no change in the money supply.

    If I borrow a $million, means I either take that money and put it a bank acct. somewhere or I spend it, and the seller puts it in a bank acct. somewhere.

    But no one borrows so to deposit (save). Borrowers borrow so to spend. So the borrowed money is used to buy a good, and the seller of that good has the money. The seller deposits the money in a bank acct.

    Now I default … there is still a $million in some bank acct somewhere.

    The seller of the good I bought with borrowed money does not return his cash just because I defaulted!

    Now default on debts creates other consequences in an economy, but deflation is not necessarily one of them

    basic dynamic here is credit bubbles due to excessive leverage.

    I agree

    The expansion of the derivative market is inflationary – more credit, more leverage, more interest, etc.

    Yes, but the expansion is not the cause of inflation, it is a consequence of inflation.

    When the government needs money, it can tax or it can borrow. Taxation is not inflationary.

    When it borrows, government creates a government IOU – a Treasury bill.
    The FED buys it by giving the government money for that IOU.
    The government spends that money.
    The seller deposits that money in a bank.
    The bank needs to lend that money, so it needs a borrower. To attract a borrower, it prices the cost of money low (low interest).
    Goldman Sachs likes low interest loans so to invest in high return (high risk) investments, such as derivatives.

    It is the mechanics behind the increase in the money supply which causes the existence of money in bank accts, which causes the banks to dump the excess supply of money back out into the economy by lowering the price of money as cheap loans, which makes borrowing attractive for projects that are more and more marginal.

    When it pops, yes, that’s deflationary.

    No.
    When it pops, it is recessionary – which is independent of inflation or deflation.

    “Stagflation” of the 70’s/80’s is such an example of a inflationary recession.

    My essential argument is that the Fed will print cash (cash inflation) to save the banks from their fraud and excessive leverage (credit deflation).

    I understand your terminology.
    You are using an increase or decrease in any economic good as inflation or deflation of that economic good

    …in other words your are using the consequence of supply/demand as “inflation/deflation”.

    However, let me reinforce that the terms of inflation/deflation only properly apply to the increase/decrease in the supply of money, and nothing else.

    Money will become less valuable, because they will try to save the banks from their excesses. They will continue to privatize their gain and socialize their losses on the backs of savers and taxpayers.

    Totally agree.

  6. September 29, 2011 1:28 pm

    Opps, sorry.

    Midstream, I changed the fractional require from 10% to 1%, so the math I used in debt reduction is a bit off – though the point is the same and unchanged.

    The withdrawal of cash of your employer to pay you $100 requires the bank to call $900 in loans.
    You using that $100 to pay off your loan, leaves eight other loans that the bank needs to recall (not 89).

    • gmanfortruth permalink*
      September 29, 2011 4:19 pm

      I can attest to the economic prowess of Black Flag. He has certainly helped many people over the last few years that I have been aquainted with him, and his knowledge is appreciated. What he told me 3 years aog or so, has been spot on so far, long before his info became popular.

  7. prepster411 permalink
    September 29, 2011 5:29 pm

    Black Flag,

    I think were on the same page for the most part. Thanks for taking the time to respond.

    Likely, we would both agree with Mises on this: “”There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

    I don’t think the banks will opt for voluntary abandonment. It’ll be the latter option.

    As an aside, in a previous comment you dismissed “peak oil” as a non-issue. If you’ve addressed the before somewhere else I’d like to read what you have to say about it. Could you provide me with a link or give me a thumbnail response below.

    You may be right about the abundance of oil, but it takes energy to get it out of the ground. As we exploit progressively more marginal sources, the energy required to mine or drill it goes up. If the net energy is zero, then even though there may be billions of barrels left in the earth’s crust, it wouldn’t really matter if there’s no “net” energy out.

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