The Shrinking Middle Class

Grocery Stores Begin To Accept Silver!!! June 15, 2009

GET READY FOR INFLATION AND HIGHER INTEREST RATES June 11, 2009

The economic crisis, the ill-conceived government reactions, the ensuing economic downturn and the massive liabilities of government programs like Social Security and Medicare and Medicaid, all but guarantees higher interest rates, massive tax increases, and partial default on government promises, says Arthur B. Laffer, chairman of Laffer Associates and co-author of “The End of Prosperity: How Higher Taxes Will Doom the Economy — If We Let It Happen” (Threshold, 2008).  

As bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences.  We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s, says Laffer.

About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base — which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash — by a little less than $1 trillion.  The Fed controls the monetary base 100 percent and does so by purchasing and selling assets in the open market.  By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position, says Laffer:

• The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10; it is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless.
• The currency-in-circulation component of the monetary base — which prior to the expansion had comprised 95 percent of the monetary base — has risen by a little less than 10 percent, while bank reserves have increased almost 20-fold.
• Now the currency-in-circulation component of the monetary base is a smidgen less than 50 percent of the monetary base.

It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because we haven’t ever seen anything like this in the United States, says Laffer:

• To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5 percent and inflation peaked in the low double digits.
• Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges.

Stewart And Cramer Face Off (Why Jim Cramer & CNBC are a joke) June 10, 2009

A Thank You to Jon Stewart

Speaking of finance experts, I personally want to thank Jon Stewart of ‘The Daily Show’ for taking on Jim Cramer and CNBC. Jon Stewart did an incredible job of representing the millions of people all over the world who have lost their savings in the market. He was right in saying he thought it “disingenuous” to advise people to invest for the long term through their retirement plans while knowing full well that traders could steal Americans’ retirement money by trading in and out of the market. Most traders like Cramer realize that investing in mutual funds for the long term is financial suicide. Cramer should have spoken up, but we all know why CNBC won’t let him tell the truth. If he did, the station’s advertisers would leave.

While I applaud Cramer for going on ‘The Daily Show’ and facing the music, I’m afraid he was marginalized by Stewart — certainly outgunned — and he has lost his credibility. He may pay an even bigger price if the SEC decides to dig deeper.

Though I think Jim Cramer is a very smart man. I NEVER watch his show and I NEVER follow his advice.