One of the biggest problems the average working American Citizen has these days is Information Glut. We are constantly bombarded with information be it on the TV, on our phones, on the side of a bus, and sometimes on a nice clear day at the beach, in the Sky! Unfortunately, and in fact, few Americans; even prior to the Information Age, paid much attention to the happenings in Washington DC. Even fewer have the education level needed to truly understand the Who/What/Why/How(s) of what (and whom) they are voting for and how a single person’s (or group’s) policies can ripple-effect through the very fabric of our existence living in this country. We live in a litigious society that is slanted towards entitlement, and has very little understanding of the consequences it will face tomorrow for actions taken today; particularly when it comes to the insanity of our monetary & fiscal policies. As the old saying goes, “Those who do not learn from history are doomed to repeat it”.
To better establish my case and point, I will establish the timeline of the irresponsible fiscal & monetary policy our current regime is moving ahead with at full steam:
In 2006, conveniently ahead of the implosion of our economy and near economic collapse of the nation (and the resulting money printing bonanza), the Federal Reserve ceased publishing M3 which includes the total of M1, M2 and Long Term Time Deposits. Tim McMahon wrote an excellent article on this back in 2006 that strongly questions why the Federal Reserve would do this as well as portrays a logical, cogent theory (in short, they are cooking the books!) as to why they did this:
What is the Government Hiding? by Tim McMahon, March 16th 2006
Hindsight being 20/20, it is my view that they saw the inevitable, bursting of the real estate bubble and shifted further towards a policy of less transparency so they could continue the masquerade and postpone the pain, suffering and related consequences of irresponsible fiscal & monetary policy.
Also in 2006, Peter Schiff predicted the forthcoming 2008/2009 economic collapse in extreme detail, but he had also published a book predicting what the Federal Reserve would do as a result of this collapse. Unfortunately, the Federal Reserve has done EXACTLY what Peter was afraid they would do (read his book! Crash Proof: How to Profit From the Coming Economic Collapse).
See his TV debate: from 2006 versus Art Laffer.
How many of you called him, or people like him “crazy” or “conspiracy theorist” at the time? How many of you saw the implosion of 2007-2009 coming? I know I did; and I can prove it (I was trading my 401K at the time, shifting money between funds, and as a result, I was flat the first half of 2008, by the end of 2008 had lost 16% because I was actively buying the decline, shifting money from bonds – which had gone up a bit as “people ran towards the blast” – Peter Schiff, but then I saw 40+% and 30+% gains in 2009 and 2010 as a result of my trading/re-weighting of the portfolio. I continue to retain these records).
However, it was not just the fundamentals & technicals in the market that tipped me off the most (I use a method of market evaluation called Rational Analysis, ie: where Fundamental & Technical Analysis overlap, which I learned from studying the work of John Bollinger); it was the fact that, for years, I had been attending several monthly social affairs, and came to the realization (in 2006) that when I first began going to these functions (2001/2002), one person was a Doctor, another a Lawyer, another a Dentist, still another a Police Officer etc…now, in 2006, I was the only person at the affair who was NOT a mortgage broker or a real estate agent. Historically speaking, scenarios like this favor the Contrarian.
In 2008, Peter Schiff was featured on Fast Money and told the Fast Money Team to fade (sell) the Dollar:
For those chartists out there, you will note that Peter correctly predicted the fall of the Dollar index (Symbol: DXY) which fell from 90 to 75 over the next 12 months. Since then, there was another rally into the high 80s, a revisiting of the lows, the setting of a new low, and in the last 2 years a feeble climb back into the 80s, which is showing a lot of technical weakness with a recent “double top” this past year. However, his prediction was not for a short term trade; he still holds the position that the dollar will eventually take a, possibly permanent, dive well below the most recent support of circa 73. From a technical perspective, a move below that support level could see the DXY plummet to circa 68, which for the average American, would be very damaging in terms of their purchasing power. Still worse, a move below the 68 level would be catastrophic to the nation’s, and possibly the global, economy.
For those who are not savvy traders or chartists, consider this: The US Currency is NOT backed by anything. The value of the USD (and any fiat currency) is completely based on trust & faith. Like any other asset (like a stock or commodity), the more of it that is available, the less value it will have. For example, if we had the ability to make every grain of sand on the beach turn into gold, what would gold be worth? If gold were as easy to produce as the asphalt you drive your car on, or as common as the beach sand you walk on, it would be worth nothing. Therein lies much of the danger in the US’s “Printing Press Mentality”; and it is the continuous printing of money that pressures the Dollar Index (DXY) lower. As it moves lower, the American Dollar has less purchasing power.
One of the best analogies to the most recent bubble was also given by Peter Schiff in 2009 where he goes into significant (and hilarious) detail about the Internet Bubble. The very same reasons/causes of the Internet Bubble were re-implemented by the Federal Reserve to create the Real Estate Bubble. Furthermore, the very same reasons/causes for the recent Real Estate Bubble and Economic Collapse are still continuing, unabated, via all the Quantitative Easing the Federal Reserve has been doing. The United States Dollar continues to enjoy Reserve Currency status, however, there are limits. The Liberals (Democrats/Socialists/Idiots…all synonyms in my opinion) argue that it is “Different this time”. These are the most dangerous words that can ever be uttered in the financial world, and if you are a person working as a trader, broker or other person who works in a financial institution and is responsible for handling money, these words could get you fired instantly. Here is our Vice President arguing that we need to print more money (ie borrow more) to get out of debt:
Here Peter demonstrates that It is NOT different this time, and it won’t be any different next time, especially if the current economic crisis becomes a currency crisis (as serious as the subject is, I like Peter because he is able to take what is typically dry material and make it quite humorous…this is a long video, but worth the watch and the laugh):
In 2010, Representative Alan Grayson questioned the Inspector General of the Federal Reserve (Elizabeth Coleman) regarding 9 TRILLION Dollars in Off Balance Sheet Accounting (isn’t this the sort of shananigans that bankrupted/imploded Enron and MCI Worldcom nearly a decade prior??) and several other subjects related to the Federal Reserve’s balance sheet growth etc. More than 2 years after TARP was passed, this lady still had not even began a single investigation (and admittedly only just started a “high level review” of Fed Board activities) and could not answer one question. In fact, she denied certain functions were her/their responsibility, only to be corrected by Rep. Grayson, that such investigation(s) are indeed her responsibility.
To boot, here are Ron Paul‘s comments regarding the printing of more dollars to not only bail out our own banks, but foreign banks as well! Pay very close attention to what Ron says, as you will hear several common themes that will continue to play out throughout this article.
In 2011, Ron Paul summarizes the conception of the Federal Reserve, and the real and present dangers of the abuses of the Federal Reserve and the current fiat currency system:
It amazes me how complacent we as a nation have become. The entitlement mentality in this nation has clouded our reasoning and sensibilities to the point where the average person will argue that “oh, that can’t happen here.”, but not be able to make an educated, rational, sensible, cogent argument as to why not. Currency crises have happened many times over the past century; and have typically been caused by moves towards Liberal/Socialist agendas. It happened with the Pound Sterling, Argentina, and is arguably happening right now with the Euro. To think it cannot happen here is absurd, especially considering that our monthly trade deficit exceeds the GDP of most nations!
Finally, a full 7 years since the beginning of this article, I conclude with three additional videos. The first, is another Peter Schiff video. It is a 20 minute video recording of his presentation at the 2013 Las Vegas Money Show. The second, is an interview with Jim Rogers, famous investor and billionaire; who is singing the same song/truth Peter Schiff has been professing. The third video is a dramatized, What If? / Worst Case scenario of the US Dollar was to lose it’s Reserve Currency Status. Keep in mind, most people will tell you “That cannot happen here”; what they do not know is that it has happened many times, in other countries, over the past century; and in fact it has happened to previous “Reserve Currencies”.
I found this very funny, and if you understand economics, I think you will too; he begins “It is 2013, but if feels like 2006…”
Interview with Jim Rogers:
Dramatized What If the US Dollar Collapses?
In a nutshell the problem can be summarized as this: In the 90s the Federal Reserve lowered rates and created vast sums of cheap money which fueled the Internet Bubble. Then, we had a big bust; but instead of actually have a real recession and allowing Capitalism take over and cleanse the system; there were multiple bailouts, an expansion of government and interest rates were lowered even further. This fueled another bubble; the Real Estate Bubble. Once again, government grew massively, there were even more bailouts than before (and bigger than ever before) and interest rates were lowered to zero/near-zero; once again, circumventing the process of Capitalism. So here we are in 2013, with a Federal Reserve printing tremendous amounts of cash and a government that has decided to try and grow its way out of debt through deficit spending. We are not only repeating the insanity, we are doing it BIGGER than ever before! How is more of the same supposed to help our economy grow and thrive? That is like getting yourself into credit card debt and thinking that by borrowing and spending more you will get your family out of debt. Millions of Americans tried this already over the past 10 years, and I do not know of anyone who that strategy has worked out for. So how will the US Government able to do it on such a massive and complex scale? Simply put, they cannot. We ran up debts in the early half of the 20th century, but that money was put into building factories, infrastructure etc. Today, we are borrowing massive amounts of currency but we are spending it on consumption. So the government is using its “credit card” to fund consumption, and not investments. One produces nothing (Buy a meal, it feeds you for a day), the other produces a going concern that services & employs people (Buy/build the restaurant, it feeds you, and others, for a lifetime).
So how does this all relate to real estate? What if the currency doesn’t collapse? What if it does? These are all questions I will touch on in my next article where I will discuss what I perceive to be the state of the real estate market. Stay tuned!