bob chapman on the economy & the world

The Secrets of LiquidityPosted: June 26 2010

Result of the end of fed pumping up the economy,Markets torn by zero interest rates, The finances of many states now dire, greater risks for recession and depression, the folly of bond yields, Baltic Dry Index drying up, more COLA for the folks, contracting out an entire city, Hardest Hit fund, Goldman Sachs was not alone, destroying markets

Many investors wonder how are markets able to propel themselves back and forth as they do. How do corrections turn into rallies? The secret is liquidity and the question is where does it come from?

As you know the Fed up until 14 months ago increased what once was called M3 by 15% annually. Foreign major central banks did the same cutting back a couple of months sooner than the Fed. The Fed increased M3 for 5-1/2 years and the other central banks for about four years. Starting four years ago all currencies started falling versus gold. The US dollar started about ten years ago.

Contrary to what government officially has to say about inflation for the past 18 months the sources of liquidity, fiscal money creation by the debt route by the current administration has been $2.2 trillion. The Fed has added $1.2 trillion over that period, but we do not believe their figures for a moment. We believe the number is closer to $1.8 trillion. That is only for the purchase of MBS/CDOs from banks, Wall Street, insurance companies and other corporations. Then we have at least $500 billion in swap arrangements. Those funds were supposedly re-exchanged five months ago. Since then there has been another swap, but we cannot find out what the numbers are. Then there are zero interest rates, which force investors to seek more speculative returns. As an example, funds in money market funds have fallen about $1 trillion over the last 18 months. That is why bonds are at highs and the market can rally. Then there is the adding of liquidity by the Fed via the repo market. Finally, there has been the re-leveraging of banks, or at least the maintaining of 40 to one leverage, and the re-leveraging of corporate balance sheets, sovereign wealth funds and hedge funds, although the numbers are tame versus two years ago. There you have it. The foregoing on a net basis is larger than what existed at the beginning of the credit crisis almost three years ago. New liquidity has been created to replace that which was lost. As a result gold and silver have appreciated in a big way over that period. We see no proclivity to end this massive onslaught. In spite of official figures real inflation is some 7% and that is why currencies keep losing value against gold, which is the only barometer to measure the real devaluation of currencies as a result of monetary and fiscal profligacy.

Markets are torn by near zero interest rates and risk aversion. A trillion have left money market funds over the past 16 months. Some have gone into bonds, junk bonds and into the market. You cannot have it both ways. Bonds cannot go higher and the market is very dangerous, especially with three quarters coming up with passable to bad results. Then there is the possibility of tax increases next year to accompany 19 new taxes in the Medical Reform package. There is also the possible passage of Cap & Trade, which would double gas prices, illegal alien amnesty and government taxing or taking over your retirement plans. These issues are why it is so important to replace almost all the incumbents in November. Not to be treated lightly is the problems of sovereign debt. Not only for those 20 countries on the edge of insolvency, but for those who are owed the debt. There is an excellent chance 5 to 7 countries may leave the euro. The euro may then fade and the other 10 euro zone members may go back to their original currencies. It is any wonder gold is hitting new highs and silver is soon to follow. Gold is not rising to inflation and anticipated inflation, but because of unserviceable deteriorating debt worldwide. You cannot wait for the next crisis – you have to anticipate it. You have to be ahead of the curve and the crowd. Does anyone really believe bailouts and future bailouts and stimulus will solve anything? They haven’t up to now and they won’t in the future. They only make matters worse. What kind of insanity is it to have the Fed buy $1.2 trillion, that they admit too, of toxic MBS and 80% of Treasury issuance, with money created out of thin air? Small and medium-sized business cannot expand and hire new people. They supply 70% of all jobs. Government should be cutting taxes, not expanding them. They should be cutting costs and employees by 30% for starters.

Zero interest rates may fatten the profits of major manufacturers and transnational conglomerates, but it does little for anyone else, except Wall Street and banking. Interest rates on credit cards have risen, not fallen as banks fatten their bottom lines at the expense of the populace. That is why retail sales have fallen over the past two months and probably will continue to do so. A battle wages over M3. Some say it is negative, some say it is in double digits. We will certainly find out shortly. The housing stimulus and credit is now over and prices are falling. Unemployment is rising and risk taking is falling. Now that the dollar has had a large appreciation there is ample reason to believe it could well have a sharp correction. Those in the carry trades know that sovereign debt has a much greater degree of risk than in the past. That means more caution and less liquidity.

On the state level the financial situation is dire. Illinois sold $300 billion in Build America Bonds at a yield 40% higher than Treasuries. Worldwide credit is being bought judiciously. Greece and the other PIIGS have intractable problems, but so do the lenders who bought the toxic waste. As a result the cost of credit default swaps have risen substantially. States and countries in the euro zone cannot print money as the Fed and the ECB can. The market is nervous and it should be. We see major unavoidable trouble ahead, so watch out below.

As we predicted the risk of a double-dip recession /depression have risen substantially over the past two months. Retail, housing and employment are fading and fading fast. It points out that the US economy cannot function positively without massive stimulus. Bank credit is falling as well as individuals pay down debt. In addition exports are starting to fall in the face of a strong dollar, which gives the euro zone participants a 15% price advantage. This is a big price to pay to enrich Wall Street and take down the euro as the dollar’s competitor. We do not believe the dollar can maintain current levels, but damage will continue for another 6 to 12 months. Can you imagine the fallout with the euro at parity? Not only does Europe and the US have trouble, so does China that has to unravel bad bank debt domestically, a market fall that already is off some 25%, but worse they have to deflate a property bubble that will be very painful. De-leveraging for the US, Europe, China and Japan has really just begun and this is why a year or two from now there will be another meeting like the Smithsonian in the early 1970s, the Plaza Accord of 1985 and the Lourve Accord of 1987, where everyone will devalue, revalue, and default. An Illuminist jubilee. That could be triggered by a bond market collapse. A market that has been in a bull market for 29 years. Timing of events is very difficult. We could be off by one to five years. The point is bad – things are on the way, so prepare yourself.

The economy is beset with slowing retail sales, a plunging housing sector and falling credit usage. You might call this individual austerity. Consumer sentiment is consistent with recession. Job creation is negative as are loans to small and medium-sized businesses that create 70% of the jobs. The dollar’s strength is wreaking havoc for US exports, which had been improving.

Greece and Spain are in the soup prominently followed closely in the euro zone by Portugal, Ireland and Italy. China has seen a 9-month 25% fall in their stock market and they are facing a collapse in credit and in real estate.

We no longer consider the oil spill a major factor. It can be solved and turned off any time the Illuminists want to do so.

Politically, Israel has finally gone a step too far and Turkey finally realizes that the EU is never going to accept them due to religious reasons. Turkey is now in the Muslim block. That will be a problem for some of the pro-US-UK Muslim states in the Gulf in the future. Geopolitical risks abound and they are worsening along with sovereign debt problems.

Those who have been reaching for bond yields will eventually pay a very high price. The bond market is no longer a safe place to be, whether it is sovereign foreign bonds, corporates or US paper. The US still has 7% to 8% inflation that isn’t going to go away soon, and in all probability that inflation will soon worsen. Those 10% to 20% returns cannot continue indefinitely, as the US government manipulates the US bond markets. Who would want to buy Treasuries yielding from zero to 3.2% with real inflation of 7%, when you can own gold and silver coins and shares that are appreciating? We know most of the funds entering mutual funds are in bonds. These “boomers” who are the big buyers are looking for safety and will continue to do so. As you can see not as much money will be going into the stock market. In spite of losing money on bond holdings those in their 50s and upward are staying away from new market commitments. They want safety, or at least perceived safety, not capital appreciation, but capital preservation. The market on a net basis has been even for 11 years and that includes a bear market rally and a real estate boom. Incidentally during that period the gold and silver shares have done well. AEM from $5.00 to $83.50 presently $62.70 is a perfect example. The price of gold went from $252.00 to $1,265.00. This was one of our recommendations, but then again what do we know. We are not, and never will be on CNBC, because they cannot handle the truth, and they do not want the public to know the truth. Mind you, during those 11 years, the US government relentlessly suppressed the prices of gold, silver and the shares. They cannot do it indefinitely. Just last week equity funds saw an outflow of over $2.9 billion and bond funds saw an inflow of almost $5 billion.

New orders for long-lasting US manufactured goods fell for the first time in May in six months, off 1.1%, the sharpest drop since 8/09.

Weekly jobless claims were 457,000, off 19,000 from the previous week.

Issuance of commercial paper rose $15.4 billion to $1.099 trillion.

The Baltic Dry Index, a key indicator of future international trade activity, closed at 4,209 on May 26. In less than a month it collapsed to 2515, a 40% loss. This thing was the same as in the late spring of 2008, shortly before world equity and commodities markets collapsed. This is a big red flag.

The Census Bureau fired 243,000 people in June. When reported the total number is the one to watch. The contraction in June payrolls should be 250,000, a loss of 70,000 in June versus a gain of 431,000 in May. This could mean a 10% U3 in June.

July and August will see 330,737 job losses of census hires.

For months, both initial and continuing jobless claims have been revised higher for the previously reported week. This occurred again on Thursday when initial claims were revised up to 476,000 from 472k. This allowed the media and intractabulls to exaggerate the decline in this week’s claims (457k vs. 463k exp) – even though the odds tell us that they will probably be revised higher next week.

Continuing Claims are 4.548m, 4.550m exp; but the previous week is revised to 4.593m from 4.571m. Numerous pundits extolled the 2k decline in continuing claims while ignoring the 22k upward revision.

Senate Democrats abandoned on Thursday efforts to provide fresh aid to cash-strapped state governments and extend emergency unemployment benefits for millions of jobless workers, leaving in limbo President Obama’s push for more spending to bolster the economy.

Emergency jobless benefits, which provide up to 99 weeks of income support, expired June 2. Since then, more than 1.2 million people have had their checks cut off, according to estimates by the Labor Department. That number is expected to rise to more than 2 million people by the time Congress returns from its weeklong break. Unless Congress acts, the program would phase out entirely by the end of October.

Since we’re stuck in a monetary system that allows a tiny private sector clique to control everything (business, government, military, non-profits, schools, families, etc) by putting everyone else in debt, we’ve been living in financial dictatorship for a long time.  It has been a soft PR dictatorship of Hickey-Freeman suits and Sax 5th Avenue ties, Harvard pedigrees and fratboy schmarm.  But hard dictatorship has been coming out of hiding for several years, especially since 2001.  Not only can the money powers steal trillions from the masses to hand over to themselves, but they can suck the military into conquering poor countries that aren’t subject to their usury vortex system, build Homeland to spy on Americans.

The Richmond Fed manufacturing activity skid down in June. The reading showed a 3 points decline from 26 last May against the present 23 value.
Sales revenues in the service sector performed the worst, with the index falling in May (from 8 to 5). June data showed retail sales revenues dropping to -1 from 0 in May.

The Housing Price Index released by the Office of Federal Reserve Housing Enterprise Oversight showed US home prices surged by 0.8% in April compared to a revised 0.1% in March, instead of the previously noted 0.3%.

Despite Government tax credit programs favored the increase on prices, it is a positive factor to see the housing market picking up, which acts as a reliable indicator of the US economic situation.

US ABC/Washington Post Consumer Confidence up to -43 from -45 in the week of June 20.

For the first time in history, Congress will not allow an increase in the social security COLA (cost of living adjustment).

In fact, the Henry J. Kaiser Family Foundation predicts there may not be any COLA for the next three years. However, the per person monthly Medicare Insurance premium will be increased from the 2009 premium of $96.40 to $104.20 in 2010 and to $ 120.20 for the year 2011.

Let’s send this to all seniors that you know–remind them not to vote for ANY incumbent senators and congressmen in the 2010 and the 2012 elections.

And don’t forget – CONGRESS GAVE THEMSELVES A HEFTY PAY RAISE THIS YEAR. So who is watching out for you?  Not Congress.  Not Washington.
The city of Maywood will lay off all city employees and begin contracting police services with the Los Angeles County Sheriff’s Department effective July 1, officials said.

In addition to contracting with the Sheriff’s Department, the Maywood City Council voted unanimously Monday night to lay off an estimated 100 employees and contract with neighboring Bell, which will handle other city services such as finance, records management, parks and recreation, street maintenance and others. Maywood will be billed about $50,833 monthly, which officials said will save $164,375 annually.

“We will become 100% a contracted city,” said Angela Spaccia, Maywood’s interim city manager.

Deputies from the East Los Angeles Sheriff’s Station will begin patrolling the 1.2-square-mile city by the end of the month, said Capt. Bruce Fogarty of the Sheriff’s Contract Law Enforcement Bureau. The annual cost of providing those services for the small city is estimated at $3.6 million, Fogarty said.

At a council meeting Monday night, city leaders said they were forced to dismantle the Police Department and lay off city workers because they lost insurance coverage as a result of excessive police claims filed against the department. They also blamed years of financial abuse and corruption from the previous council. “We’re limited on our choices and limited on what we can do,” Councilman Felipe Aguirre told the standing- room-only crowd.

We will have an overview on the financial reform package in the next issue. We do know banks will continue to handle foreign exchange, interest rate, and gold and silver swaps and to hedge their own risks. Cleared and uncleard commodities, agricultural, energy and equities swaps and credit would have to move to an affiliate within two years. Why were silver and gold exempted? We know why, so that the market manipulation could be continued. Congress is telling us they completely know the scam and are paying off the bankers and Wall Street. This they hope will continue the charade of fiat money and it won’t work.

The final on first quarter GDP was up 2.7%, of which 1.7% came from stimulus. That puts the second quarter at even to minus; third quarter at minus 1% to 2% and the fourth quarter minus 2% or more. Some recovery!

The ECRI leading indictor has collapsed to a 45 week low of minus 5.7. The most precipitous slide in 50 years.

The Fed’s next step over the next 2-1/2 years is to run and gun money and credit, as inflation becomes hyperinflation.

The former stimulus and the Fed’s purchase of $1.8 trillion in toxic assets and $200 billion in treasuries shows a net combined increase in money and credit of $2.8 trillion last year. During this year and the next two years there will be lots more. Weimar here we come. More unemployment, less income, less buying power from a falling dollar and rising gold and silver will follow.

For all the focus on the historic federal rescue of the banking industry, it is the government’s decision to seize Fannie Mae and Freddie Mac in September 2008 that reportedly is likely to cost taxpayers the most money. So far the tab stands at $145.9 billion and rising, the New York Times reports. The Congressional Budget Office has predicted that the final bill could reach $389 billion. Some analysts even estimate the total may reach $1 trillion, which Sean Egan, president of Egan-Jones Ratings, recently told Bloomberg is “a reasonable worst-case scenario.” Egan told Bloomberg that the final tally could hit $1 trillion assuming a 20 percent loss on the companies’ more than $5 trillion in loans and guarantees, similar to what other big mortgage companies, like Countrywide Financial, suffered. The two government-sponsored enterprises (GSEs) now own more houses than there are in Seattle and are foreclosing on homeowners whose mortgages they guaranteed, the Times said.

Fannie and Freddie maintain the houses for a while, then resell them at a huge loss. In many cases, they also underwrite the new mortgage for the new buyer, generating even more bank fees taxpayers must ultimately absorb. On average, they recoup less than 60 percent of the amount borrowers failed to pay. Costs for selling a house generally are usually about $10,000. Fannie and Freddie hire people to clean up the foreclosed homes inside and out, replace missing appliances and maintain the properties until they are sold. The grass-mowing bill alone is more than $10 million per month; All told, the GSEs spent more than $1 billion on upkeep last year. “We may be behind many loans on the same street, so we believe that it’s in everyone’s best interest to aggressively do property maintenance,” said Chris Bowden, the Freddie Mac executive in charge of foreclosure sales. Short sales are a growing alternative to foreclosure. In the past, a short sale was an unusual alternative, one real estate agents rarely presented to sellers, realtor Erek Gass told the York Daily Report. “Now, they are common because of the devaluation of the housing market,” Gass says.

The Treasury Department awarded $1.5 billion to aid homeowners in California, Florida, and three other states with high foreclosure rates.

Under a program known as the Hardest-Hit Fund, Arizona, Michigan, and Nevada also will receive money, which will be distributed to state housing finance agencies, the Treasury said yesterday in a statement.

“These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure,’’ Herbert M. Allison Jr., the Treasury’s assistant secretary, said in the statement.

The program is estimated to help 90,000 people having difficulty paying their mortgages or living in homes that are worth less than the loans they secure.

Seventy-five percent of such homes are in the five states awarded aid, said Phyllis Caldwell, chief of the Treasury’s Homeownership Preservation Office. Half are in California, and Florida, Caldwell told reporters.

The hardest-hit fund is part of a mosaic of programs from the Obama administration to stop the spread of foreclosures, which are expected to climb to 4.5 million this year from 2.8 million in 2009, according to RealtyTrac Inc., an Irvine, Calif.,-based research firm.

The effort, which is funded from the $700 billion Troubled Asset Relief Program, aims to curb foreclosures and stabilize housing prices in communities with high concentrations of delinquent borrowers and states where much of the population lives in regions with 12 percent or higher unemployment.

The Census Bureau released the weekly payroll data for the week ending June 12th this morning (ht Bob_in_MA). If we subtract the number of temporary 2010 Census workers in the week containing the 12th of the month, from the same week for the previous month – this provides a close estimate for the impact of the Census hiring on payroll employment. The Census Bureau releases the actual number with the employment report.
he number of Census workers paid each week. The red labels are the weeks of the BLS payroll survey. The Census payroll decreased from 573,779 for the week ending May 15th to 330,737 for the week ending June 12th. So my estimate for the impact of the Census on June payroll employment is minus 243 thousand (this will be close). The employment report will be released on July 2nd, and the headline number for June – including Census numbers – will almost certainly be negative. But a key number will be the hiring ex-Census (so we will add back the Census workers this month).

Goldman Sachs wasn’t alone either in its astute “foreknowledge” of the collapse of BP’s stock value due to the Gulf disaster as BP’s own chief executive, Tony Hayward, sold about one-third of his shares weeks before this catastrophe began unfolding too.

But according to this FSB report the largest seller of BP stock in the weeks before this disaster occurred was the American investment company known as Vanguard who through two of their financial arms (Vanguard Windsor II Investor and Vanguard Windsor Investor) unloaded over 1.5 million shares of BP stock saving their investors hundreds of millions of dollars, chief among them President Obama.

For though little known by the American people, their President Obama holds all of his wealth in just two Vanguard funds, Vanguard 500 Index Fund where he has 3 accounts and the Vanguard FTSE Social Index Fund where he holds another 3 accounts, all six of which the FSB estimates will earn Obama nearly $8.5 million a year and which over 10 years will equal the staggering sum of $85 million.

The FSB further estimates in this report that through Obama’s 3 accounts in the Vanguard 500 Index Fund he stands to make another $100 million over the next 10 years as their largest stock holding is in the energy giant Exxon Mobil they believe will eventually acquire BP and all of their assets for what will be essentially a “rock bottom” price and which very predictably BP has hired Goldman Sachs to advise them on.

Important to note is that none of this wealth Obama, Goldman Sachs, and other American elites is acquiring would be possible without this disaster, all of whom, as the evidence shows, “somehow” knew what was going to happen before it actually did, including the US energy giant Halliburton who 2 weeks prior to this disaster just happened to purchase the World’s largest oil disaster service company Boots & Coots”.

How HFT Quote Stuffing Caused The Market Crash Of May 6, And Threatens To Destroy The Entire Market At Any Moment

On the subject of HFT systems, we were shocked to find cases where one exchange was sending an extremely high number of quotes for one stock in a single second — as high as 5,000 quotes in 1 second! During May 6, there were hundreds of times that a single stock had over 1,000 quotes from one exchange in a single second. Even more disturbing, there doesn’t seem to be any economic justification for this. In many of the cases, the bid/offer is well outside the National Best Bid/Offer (NBBO). We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was even more bizarre and can only be evidence of either faulty programming, a virus or a manipulative device aimed at overloading the quotation system.

Peter Schiff: U.S. Is in a Depression

Peter Schiff: U.S. Is in a Depression

Alix Steel

06/26/10 – 09:24 AM EDT

NEW YORK (TheStreet ) — Peter Schiff, president of Euro Pacific Capital, Senate contender and author of How an Economy Grows and Why It Crashes, is sticking with his doom and gloom theme.

Schiff made his reputation in 2005 when he warned against the impending subprime mortgage crisis at a time when most investors were heavily invested in mortgage backed securities. Despite some improving economic data out of the U.S. and a stronger U.S. dollar, Schiff is no less pessimistic. Schiff has recently said that the U.S. is the next Greece and that we are in a depression.

I sat down with him recently to see just how bad he thinks the U.S. economy will get, what’s in store for other countries and how he’s making money.

Peter, let’s start with the headline of the day then. China letting the yuan appreciate, is this good or bad?

Tech Keeps Ticking After Yuan Move

Schiff : Well, it’s good for China. For the U.S. it’s going to lead to a rude awakening. For now, it’s going to be a slow appreciation so it will take a little while before the impact of a stronger RMB affects the U.S.

But it will affect us in the short run in a very negative way … because if the Chinese are going to allow their currency to rise, they don’t have to buy as many [U.S.] dollars, they don’t have to buy as many Treasuries. They don’t have to export as much to us because their own consumers have the purchasing power to purchase their own products.

So what that means over here in America is that American consumers are going to have to pay higher prices to buy Chinese goods and … the Treasury [will] have to pay more money if they want to go out and borrow. [This will lead to] higher interest rates so that’s going to ultimately disrupt the phony recovery that people think we have going here.

Schiff: Stronger Yuan Is Bad For U.S.

Are you going to try and invest in China at this point?

Schiff: Well I’ve been investing there for many, many years and I will continue to do so. In fact, a strengthening RMB is part of my thesis. They’re one of the reasons I’m in China. And my whole focus on my Chinese investments is domestic demand. I want to benefit from the increased purchasing power of the Chinese middle class, and that is exactly what a strengthening RMB is going to lead to.

Cramer: How To Buy China

How are you investing?

Schiff: Mostly Chinese companies that are growing market share in China. I also play the Chinese market by buying some of the resource companies around the world [in] Australia, Norway, Canada, that supply raw materials to Chinese industry … but my main focus is [on] Chinese companies and also companies that are on [the] periphery, you know in Singapore, other companies in southeast Asia, of course Hong Kong, which is now part of China. There are a lot of companies there that are very well positioned to benefit from a growing Chinese economy. That doesn’t mean that there aren’t any U.S. companies that can benefit as well. I just think that you get more bang for your buck investing in Chinese stocks.

So what does a stronger yuan mean for gold prices ?

Schiff: Well, I think ultimately it’s bullish for gold. Because as the RMB is appreciating, what that does is that it brings down the RMB price of gold. It makes gold cheaper for Chinese investors and savers to buy it. It creates a dip that they can buy into.

There’s still an inflation problem in China because the Chinese government is still artificially suppressing their currency even if they allow it to increase, it’s still artificially low … the Chinese want to protect themselves from inflation and they’re going to do so by buying gold, and stronger RMB simply makes that gold cheaper for them, so they will buy more of it.

So gold hitting a new high around 1,266. Where do we go from here? Is this the top now or are we going much much higher?

Schiff: I think we go much higher, certainly in terms of dollars … I think we’re still going to several thousand per ounce and ultimately maybe a lot higher if we refuse to do the right thing.

How would you recommend an investor to invest in gold ?

Schiff: Well, there are a lot of ways you can invest in gold. You can own the actual physical precious metal. I have been buying the physical precious metals for my clients at my brokerage firm Euro Pacific Capital since I think 2001, 2002. We’ve been buying it through a program in Perth … where we actually store the bullion for you in Australia free of charge.

Jim Rogers Loves Gold, Buys Silver

You want to avoid [collectibles]. Unfortunately there are a lot of gold dealers out there and a lot of these companies advertise very frequently on television … [people] who want to buy gold bullion should stay away from these coins because the mark-ups are horrific. In many cases you need the price of gold to double just to break even on the spreads. If you want gold, buy gold, don’t buy a coin that has a little bit of gold in it. Buy the real thing.

Also, I own a lot of mining stocks, personally, gold mining companies around the world. There are some in the United States, but more often than not they’re in Canada, Australia; they’re in Asia, South America, South Africa. There are a lot of companies that are going to benefit … because as gold prices go up, if the price of gold is rising faster than the cost of mining it, their profits really increase. And so you gain some leverage to a rising gold price.

Is four-digit gold telling us we’re going to see a gold standard? Is it telling us that the currency land as we know is going to be completely different?

Most Recent Quotes from

Schiff: I hope that we go back to a gold standard because it works. It’s constitutional. It’s sound money. It’s what gives you better economic growth and holds government spending in check and keeps inflation under control.

But I think what rising gold prices are telling us is that there is a lot of inflation in our future … As the world stops lending us money, my fear is that rather than making the necessary cuts, the way Europe is trying to do now … we try to avoid the pain by simply monetizing the deficits; that we just print money; that the Federal Reserve just buys more debt so that the government doesn’t have to make the hard choices.

If we don’t have the guts to level with voters, and instead we try to print money to avoid that, that’s when we have runaway inflation. I think that’s what gold is saying. Gold is telling you our politicians are most likely to act in their own interests rather than national interest. As you know, I am running for U.S. Senate myself in Connecticut; I want change that dynamic. I want to start making decisions that benefit the country, not that benefit the people who are leading the country.

Where do you stand then on the metals like silver, palladium and platinum that are very much tied to the global economic recovery vs. gold, which is just an investment?

Most Recent Quotes from

Schiff: I don’t think we’re headed for a global depression. I think we’re headed for a depression in the U.S. It’s going to be an inflationary depression, so you have to understand the difference. But I believe that other parts of the world, particularly in the emerging markets; they’re going to be very strong.

If you remember the 1990s, Japan had been the fastest-growing part of the economy during the ’80s. And [when we] removed Japan from the equation … the world continued to prosper despite the lost decade in Japan. I think you’re going to see something similar with the U.S. We’re going to be contracting, dealing with all the debt that we’ve created and the unproductive nature of our economy.

But as the rest of the world, or particularly China and the countries who have been loaning us money and supplying us with merchandise, stops using their resources to prop up our economy and instead use their resources to grow their own economies, then they’re going to grow even faster. I’ve often said people think America is the engine to the global economy. I think we’re the caboose. And I think when you sever the caboose, the rest of the trains will move along the tracks even faster.

Does that mean that you are bullish on other precious metals?

Schiff : Well, I’m bullish on precious metals silver [and] platinum. But I’m also bullish on industrial metals, bullish on commodities in general. I’m very bullish on oil. Not only because of the demand that’s going to come out of China, but because of what’s happened in the U.S. following the accident of BP(BP).

How To Buy BP

Not only are we losing that production [from BP] but we’re having a moratorium now on off-shore drilling. That’s going to take production away. Also, [there is the] cost of insurance … It’s going to cost a lot more to [drill off shore], so production is going to decline. So you’ve got lower supply, you’ve got increasing demand. Prices can only go up.

Do you think we’re going to see alternative energy? Wind, solar or natural gas?

Schiff: Oh sure there’s alternative energy already. I’m investing heavily in alternative energy myself. I’ve got investments all around the world in alternative energy, but I understand right now the best alternative is fossil fuels, oil and gas, because that’s the most economical today. It’s not going to be the most economical forever, and so I’m investing in some of these [alternative] technologies myself.

What I don’t want is to see Washington try to micromanage which alternative energies get investment by tax code. I don’t want them subsidizing or penalizing one form of energy over another because then you don’t get an efficient result. You get a politically motivated result that undermines our energy independence.

Do you have a favorite alternative energy that you’d be pushing?

Schiff: I’m investing in biodiesel. I’m investing in wind power. I’m investing in coal. I don’t know what’s going to win.

All right, let’s move to Europe, then. What’s your best prediction for the EU and the health of the euro?

Schiff: I think they handled the situation incorrectly with respect to Greece. The eurozone should have made it clear that Greece was on its own and Greece should have been allowed to restructure its debt. I mean, the Greeks borrowed too much money, and I think the best thing is the restructuring of that debt. Not that they walk away from their obligations completely, but that the creditors who loan them money … take a haircut, along with Greek citizens. Everybody needs to sacrifice. Everybody needs to take a reduction.

Unfortunately, they decided to bail out Greece, and I think that has very negative long-term repercussions for the euro. However, in the short run, they’re trying to repair the damage. What I do see that is favorable right now is that a lot of the European nations are starting to make cuts in government spending. They’re ignoring our advice, doing the opposite, and they are shrinking their governments and cutting back on spending. And in the short run, I think that’s going to be bullish for the euro.

I think that you have a lot of negativity now, a lot of negative sentiment built into the euro. I think that’s going to create the basis for a pretty big rally in the euro. I think the real problem is when the sovereign debt crisis moves here, moves to the U.S.

We are the country that is in the most trouble. We have debts that are enormous in comparison to Greece … You could say that Greek debt to GDP was larger than ours [but] not if you count all the off budget items, not if you count all the contingency items. Greece is tiny. The amount of money that they owe is tiny. We owe a fortune. And it’s a much, much bigger problem. And, of course, Greece wasn’t a problem a year or two ago … The reason it wasn’t a problem is because interest rates were still low. It wasn’t until rates started back up that Greece could no longer service the debt.

We’re in the same situation. We’ve borrowed $13 trillion to $14 trillion with T-bills. The reason we could afford the interest payments is because the rates are still low. But just like the subprime mortgage borrowers found out when their teaser rates reset, when the world starts to question our ability to repay and the risk premiums rise and rates start to rise, that’s when we [will be] exactly in the same situation as Greece.

So would you be buying the euro here and selling the dollar, if you had to choose?

Schiff: Between those two currencies, if they were my only choices, I would choose the lesser of the evils and take the euro. Fortunately, the world is bigger than just euros and dollars, and you have other currencies that you can own, which I do own. I own some euros, but I am very underweight the euro relative to other currencies. And of course, you don’t have to own currency at all. You can own gold. And the reason that gold is so strong is because investors around the world are expressing a preference for real money as opposed to just substitutes, which are fiat currencies.

What other currencies do you own?

Schiff: In Europe, I own the Swiss franc, the Norwegian kroner. We also own the Singapore dollar, Hong Kong dollar, Chinese RMB, Japanese yen, Australian dollar, New Zealand dollar, Canadian dollar.

tom woods

The Return of Nullification

by Thomas E. Woods, Jr.
by Thomas E. Woods, Jr.
Recently by Thomas E. Woods, Jr.: America’s Judge


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Today is the official release date for my new book, Nullification: How to Resist Federal Tyranny in the 21st Century. Nullification, as many readers of this site already know, refers to the power of a state to refuse to enforce an unconstitutional federal law. Most Americans have never heard of the idea, or know of it only in caricature – which is pretty much the way the New York Times likes it.

When he memorably laid out the case for nullification in the Kentucky Resolutions of 1798, Thomas Jefferson argued that if the federal government were allowed to hold a monopoly on determining what its powers were, we would have no right to be surprised when it kept discovering new ones. I’ve elaborated on all this in previous articles.

This important – if routinely distorted or even forgotten – history takes on unexpected relevance today, with a resurgence of interest in nullification growing all over the country, and no shortage of unconstitutional laws to which to apply it. The Tenth Amendment Center’s Legislative Tracking Page gives you some idea of the extent of a movement that is only just getting started. The purpose of my book Nullification is to make the strongest, most solidly referenced case I can in support of one of the healthiest developments in American political life in decades, and to serve as a kind of handbook for those who are serious about pursuing it.

Part II of the book contains eleven important documents hardly any American has read, but which lend additional support to the case for nullification. One of these documents has not appeared in print anywhere since 1835, yet it makes some of the strongest arguments for nullification, and against critics, I have ever read.

You can imagine what the response of critics will be to a book like this. Let me put that more strongly: you can script the critical replies down to the last syllable. If the book’s arguments are addressed at all, they will be treated at a strictly second-grade level. (Official Left and Right agree on more than they care to admit, an unswerving commitment to nationalism being one of those things.) The rest of the so-called reply will run like this: Nullification is a secret plot to restore the southern Confederacy, and Woods himself is a sinister person with wicked intentions, before which all his fancy moral and constitutional arguments are nothing but a devious smokescreen.

Anyone who actually reads the book, on the other hand, will discover, among many other things, that the Principles of ’98 – as these decentralist ideas came to be known – were in fact resorted to more often by northern states than by southern, and from 1798 through the second half of the nineteenth century were used in support of free speech and free trade, and against the fugitive-slave laws, unconstitutional searches and seizures, and the prospect of military conscription, among other examples. Nullification was employed not in support of slavery but against it.

Today, political decentralization is gathering steam in all parts of the country, for all sorts of reasons. I fail to see the usefulness of the term “neo-Confederate” – whatever this Orwellian neologism is supposed to mean – in describing a movement that includes California’s proposal to decriminalize marijuana, two dozen states’ refusal to abide by the REAL ID Act, and a growing laundry list of resistance movements to federal government intrusion. As states north and south, east and west, blue and red, large and small discuss the prospects for political decentralization, the zombies can intone scary-sounding propaganda words, instead of engaging in rational argument, all they like. The grownups, meanwhile, have important matters to discuss.

Who’s the book’s intended audience? Well, anyone and everyone, of course, as any author will tell you. But it may have particular appeal to those who actually want to roll back government power, who are prepared to embrace a new approach (given that all previous efforts against Washington’s expansion have been abject failures), and who aren’t altogether convinced that a vote for Mitt Romney in 2012 means the republic is restored. The book can also help state legislators who are unaware of or on the fence about nullification, by reassuring them that in taking this seemingly radical step they will be on eminently solid historical and constitutional ground – and that lots of state legislatures are already doing it. It also takes aim at the various objections that have been raised against nullification, from the merely uncomprehending (doesn’t this violate the Supremacy Clause?), to the more practical (wouldn’t nullification be chaotic?), to the historical (isn’t this all about slavery and oppression?).

The various categories of bad guy – e.g., law professors, Chris Matthews, the New York Times – have responded to the return of nullification about as you’d expect them to. Why, the stupid rubes think they can resist their overlords! Smear! Destroy! Crush! To the extent that such critics make any arguments at all, as opposed to mere character assassination, they either beg the question entirely or reveal a lack of acquaintance with the primary source material that would be embarrassing if such people were capable of embarrassment.

As I noted above, I’ve actually included a good portion of that source material in Part II of Nullification. Including these documents (1) makes it marginally more difficult for critics to pretend such documents do not exist, (2) helps supply advocates of nullification with additional supporting material, and (3) arms high school and college students with material they can use to drive their teachers and professors crazy, since almost none of them will be familiar with it.

As I promote the book I’ll surely be posting about my exploits on the blog, as well as on my Facebook page, my Twitter account, and my YouTube channel. It’s hard to say whether a book like this will get much media exposure, so I’d be grateful for anything supportive readers might do to help get the word out about it.

I’ll also be doing some traveling. Over the next few months I’ll be in Las Vegas, Nashville, Austin, Philadelphia (King of Prussia), Orlando, Eau Claire (Wisconsin), Dallas, Colorado Springs, Bloomington (Indiana University), Houston, Auburn (Alabama), and Phoenix; at most of these events I’ll be discussing the book, and at all of them I’ll have copies. Here’s my full schedule.

Never did I imagine that an issue I assumed would (unfortunately) remain a historical curiosity might actually be resuscitated. To my amazement, it’s being proposed all over the country, in the service of all sorts of good causes. I hope my book encourages more of it, provides supporters with useful intellectual ammunition, and explodes the idea that all we can do in the face of this regime is sit back and take it.

June 28, 2010

Thomas E. Woods, Jr. [send him mail] holds a bachelor’s degree in history from Harvard and his master’s, M.Phil., and Ph.D. from Columbia University. He is the author of ten books, including the just-released Nullification: How to Resist Federal Tyranny in the 21st Century, and the New York Times bestsellers Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse, and The Politically Incorrect Guide to American History. Visit his website and blog, follow him on Twitter and Facebook, and subscribe to his YouTube Channel.

food can save you.

(NaturalNews) An obese doctor comes home to his wife at dinner time carrying yet another bag full of drive-through junk food from a local restaurant.

Worried about his health, his wife asks, “Don’t you realize all that junk food you keep eating is destroying your entire body?”

“That’s not my concern,” the doctor replies. “I’m only an ear, nose and throat specialist.”

This joke illustrates an important point: That even the most brilliant scientists, doctors and researchers can seem downright clueless when it comes to their own health. And this joke isn’t really a joke at all: It’s a sad but true commentary about the blind spots in the knowledge of those who are among society’s most intelligent thinkers.

I’ve known many brilliant people. Even a few geniuses. But rarely do I meet anyone whose knowledge of food and nutrition rises very far above outright ignorance. Perhaps one in a hundred people in the western world today have taken it upon themselves to actually learn about foods and health — the rest simply wing it, going along with the mainstream. (And the mainstream is diseased…)

Brilliance in one field doesn’t always translate into nutrition

But here’s the really interesting part: The more intelligent a person is in their own field of specialty, the more informed they think they are about foods and nutrition (even if they aren’t). A typical rocket scientist, for example, is so used to being right that when it comes to his dietary decisions and food shopping habits, he thinks he is right by the mere fact that he is the one making his food consumption decisions. Because he’s always right, then whatever decision he makes — whether it deals with food, finances or relationships — must also be the right decision.

Making matters even worse, really smart people are especially susceptible to strategies of non-conscious persuasion — such as those used by food advertisers. Food companies don’t appeal to logic and reason when advertising their junk foods because there really isn’t much logic or reason behind consuming their products at all. Instead, they use emotional anchoring to unconsciously attach feelings to brands. That way, when you’re in the store shopping, you unconsciously experience a preference for a particular product or brand without knowing why.

This gets the smart people every time, it seems. They may have superior logic and intellect compared to the rest of the world, but when you examine their grocery store receipts, they’re buying all the same junk as the guy with an IQ of 70 who lives next door.

Having brains, it seems, doesn’t necessarily translate into making good decisions about food and health. And yet these people should know better.

Food and consequences

Most scientists, doctors and high-IQ people believe in The Law of Cause and Effect. Every action (a cause) results in some reaction (an effect). Every input has an output.

Most people acknowledge this universal truth, and yet when it comes to foods and health, there’s a bizarre disconnect about this. People have been trained by the big food companies — and even government regulators to a large extent — that what they choose to eat has almost no bearing on their health outcomes. The establishment would rather have you believe that your genes control your health while glossing over the far more important point that it is your diet that controls the expression of your genes.

They would rather ignore the truthful fact that vitamin D prevents infectious disease 500% better than a vaccine because this allows them to promote vaccines rather than teach nutritional responsibility. Even mainstream dieticians from the American Dietetic Association are taught that there is no difference between dead foods and living foods. A calorie is a calorie, they’re taught, no matter where it comes from or whether it’s in a plant from Mother Nature or a sugar factory made by Man.

The nutritional ignorance in our culture is astounding, and as long as such ignorance remains so widespread, we will never achieve a health care system that’s both effective and affordable. As long as our doctors remain nutritionally illiterate, we will never have a health care system that values educating patients about what they put in their mouths.

Ignorance is the enemy of lasting health, and sadly our own government institutions such as the FDA maintain policies of enforced ignorance that outlaw companies selling natural products from linking to scientific studies that discuss the health benefits of their products. Everything from cherries, green tea and walnuts have been under relentless attacks by the FDA, which threatens company founders with arrest and prosecution unless they remove their website links that point to scientific studies published in peer-reviewed science journals. (

One important victory over FDA censorship has just been achieved in the courts (…), but the FDA’s campaign of enforced ignorance continues.

Even our public schools reinforce nutritional illiteracy among our children. While nearly everyone agrees it’s important to teach our children how to read, write and understand math and science, there is no real effort to teach children how to feed themselves in a healthy manner. Health class is a nutritional joke, and school lunch programs actually teach students precisely the wrong message by serving up dead, processed “institutional” foods that promote diabetes, cancer, heart disease and behavioral disorders. (You can also find McDonald’s restaurants in many U.S. hospitals, by the way, but that’s another story…)

Nutritional ignorance may be fantastic for generating obscene profits for the drug companies, but it’s a terrible policy for public health. Americans will only achieve true lasting health when they are granted open access to truthful information about the healing capabilities of natural foods, superfoods, nutritonal supplements and herbal remedies.

Until that day comes, we will remain a nation locked in a cycle of ignorance and disease that will ultimately bankrupt us at every level. Nutrition can help us break that cycle, but only if we can get past the ignorance and unleash a new era of nutritional literacy for our people.

Read my related report, “Nutrition Can Save America!” for more details on how this might work:…

And keep reading to stay informed. We’ll keep bringing you more news about natural remedies, nutritional cures, and the dangers of synthetic chemicals.

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