Some time ago I posted about an article that was put out by the Federal Reserve System telling us what our financial future is likely to become. I'm sure that a few of my readers might remember that article. In it the Fed was discussing the future of the U.S. economy and what is in store for us. They referred to the Japanese economy which tanked about 10 years or so ago and apparently is still in deep economic recession with little or no relief in sight. And it tanked when interest rates went through zero percent and into the negative interest rate area.
America built the Japanese economy after the war by buying their transistor radios and their TV's and all the rest of the electronic miracles and automobiles and the steel they produced in gargantuan quantities. And we did it on deficit spending and fiat money. On false promises we could never hope to fulfill in any sustainable manner. And then we abandoned them to move first of all to Mexico and the Latin America's whom we have also abandoned for China and the Asian Rim countries because of labor and environmental concerns. And when we passed NAFTA, we also tanked the Japanese economy. Of course, there were other reasons such as corporate mismanagement, bank scandals and other Enronic scenarios, so it wasn't really all our fault. The Japenese themselves were not entirely faultless either.
The point to be made here is that once the interest rates went negative the Japanese money supply dwindled to a mere trickle due to the fact that nobody would loan out money at such rates even though they could and would charge interest on any money loaned to the private sector, it still had to be loaned out at very low profit levels, hardly enough to make loaning money worthwhile.
And that is basically what happened during the great American depression. The banks became frightened and simply would not loan money and the money supply contracted to the point where very little was to be had anywhere and so the stock market crashed. What money was available suddenly became so valuable that we could buy eggs for a nickel a dozen and a loaf of bread for a dime. Wages were at about 15 to 20 cents an hour and nobody could find any work to earn even that. All because the money supply was shut off by the banks. And when Roosevelt took over the reins of power he immediately set up legislation to prevent that from happening again and it was known as the Federal Reserve System. Roosevelt's reasoning was that if the money supply were in the hands of the government rather than private bankers the money supply could not ever be shut down like that again and America would never suffer another great depresssion again. Simply could not happen, he claimed. And the land was healed because everybody believed him.
And now we are faced with just exactly that which could never happen again, thanks to Nafta and Gatt and the various other trade treaties. And now things are made so cheaply that nobody will borrow money to set up new factories to build new businesses or search for new energy sources or much of anything else except the private sector who will borrow incessantly beyond their means at the slightest excuse all made easy by plastic money.
So what is the Fed to do about the interest rates. They can't raise rates because if they do the economy will tank even faster. They can sit tight for a while and do nothing at all about lowering the interest rates even though economic honesty demands that they act to continue to chase the inevitable downward spiral.
They can also start charging interest on money held in savings accounts and other trust instruments, but that isn't feasable at this time because there is no way to track the actual path of each banknote. They would all have to have the RFID tags in the money and they would have to be incredibly smarter than RFID tags are today or are ever likely to be and the support system to monitor the money would be virtually impossible even with the modern technology we currently have. So even though it is feasable it is not a practical solution.
Another thing the Feds said earlier that they could do would be to buy huge quantities of foreign currency such as the eurodollar and the yen and whatever thereby distributing the downward pressure more evenly among the other nations but doing so might be illegal and even if illegal the other nations would soon put an end to that. So the Fed said that was also not a viable option.
So about the only thing left that would be both legal and feasable would be to use surplus cash to buy government debt instruments. Doing so would be about the only viable option the Fed said in that earlier article. And in that article the Fed said that is probably exactly the course of action they would pursue.
And early this morning I opened an email from somewhere discussing a mysterious and curious phenomena which had been observed by Matt Drudge of the Drudge report who could not understand why it was that over the last two months our money supply had been dwindling at the alarming rate of 11 billion dollars a day over the last two months. I think we have the answer. The fed obviously seems to be doing exactly what it duscussed in it's mid summer report which is to buy government securities with it's vast storehouse of liquid cash in a last ditch effort to keep the interest rates from being forced into negatiivity and the economy from crashing. But even they admitted that the problems with the American economy are so deep that serious doubts exist in the minds of the Fed economists about the eventual workability of such action since they too are eventually and inexorably heading for the proverbial brick wall bearing the words "ALL WEALTH HAS IT'S LIMITS"
The burning bush question then becomes one of how on earth can the Fed legally use worthless fiat instruments of debt to buy equally worthless instruments of debt but of a different stripe and expect to get away with it?
"But" wait, you say, "How can it be that I am predicting all this doom and gloom when the latest economic indicators show that the economy has grown by 8% this last quarter? Surely that proves that Bill Bauer is full of it as he is so often accused of being. "
To those who believe that nonsense I ask, "Don't you imagine that the Fed releasing 11 Billion a day into the money markets buying CDs and other worthless instruments of debt is going to cause a nice rise in the stock and money markets as we have recently been seeing and would that not show up as an increase in the economy thereby artifically presenting a nice rosy picture for the populace who will later be incredulous as they wonder how such a robust economy could possibly have tanked? The markets may indeed be rising but I am confident that we will soon see the end of that and a deafening crash in the equity markets and our entire economic system.
Maybe Matt Drudge can't figure out the mystery but to me it is about as plain as the nose on one's face. And while Matt and the rest of the pundits are trying their best to figure out this mystery I have other better advice and that is to get your money out of the markets while they are rising and invest it in more useful things such as gun powder which you had best store in a nice safe dry place because I seriously doubt that the day is far off when you will be needing it desperately.
And to those not so lucky as to have stocks and bonds and such I say that you had best invest all the money you can lay your hands on in food, alternative energy systems and staples as well as guns and ammo because the day may not be far off when you decide to go to the store and your fiat money would not buy anything even if they had it in the stores to sell you. You need to understand that if all incoming supplies to the grocery stores were suddenly cut off there would not be enough stock in their back rooms to last even one day. A few hours at most.
We can hope against hope and we can decry such as I as being fear mongers or what you will. I sincerely hope you are right and I am wrong, but the handwriting is most definitly on the wall and the Fed has already foretold the probable future a few months back.
And there is absolutely not one thing in our economic future that could possibly pull us out of it. Our farms can no longer be our economic base nor have we any factories capable of fulfilling that role either. All have gone South or to the Asian Rim countries.
Our military is much weaker than it used to be and is apparently in no small amount of trouble in Iraq and other places.
It will be we the people who will most likely have to eventually defend our homes and our nation and if we are disarmed we will be totally unable to do so.
Let us not be fooled. We need to start understanding the processes at work here and what the future protends. We need to take precautions against the probability of a bleak future. Those who are debt free and have liquid items to sell or barter for food and other staples are the ones who will come out winners in the near future.
That is why it is so important to eliminate whatever debt we cannot hope to pay in the short term and pay down to almost nothing that which we can pay down, but we must do so in ways that do not blemish our credit.
Those who heed the above advice will be in good shape no matter what happens and those who do not will surely wish they had sooner or later.
Reprinted from Magna Carta News Oklahoma City, Ok
