Skip O'Neill – Liberty for All

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Archive for March 2012

American’s are Debt Slaves, see the how large the problem is

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 Debt Slaves
  • Student loan debt in the U.S. is nearing 1 trillion dollars
  • With government support, colleges can raise tuition to whatever they want, and they have. The only thing rising faster than college tuition is our government health care system.
  • Two-thirds of all college students graduate with student loan debt
  • Borrowing for college students is up 100% in the past 10 years
  • Today, 46% of all Americans carry a credit card balance month to month
  • Americans have 600 million active credit cards in the U.S.
  • Consumer debt has increased over 1,700% since we dropped the gold standard and went 100% fiat
  • 45% of cars are now being financed for 6 years
  • 70% of ALL car purchases in the U.S. involve an auto loan
  • 45% of auto loans are subprime
  • Right now 8 million Americans are at least one mortgage payment behind
  • Mortgage debt as a percentage of GDP has more than tripled since 1955

Inflation and smoking, what they have in common.

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Smoking is a human action. People smoke because it feels good to them. But in the long term, smokers start coughing, feeling bad, and even dying from lung cancer. The good consequences appear immediately. The bad consequences may take years to manifest.

If a smoker tries to stop, some bad consequences called withdrawal symptoms appear immediately. It may take two to three months for the good consequences to become noticeable.

This is why it is so difficult to stop smoking. Simplistically speaking it is easy to say, “the cure for smoking is to stop smoking.” In practice it is not that easy.

So too, with inflation. When the additional currency is pumped into the system, the fortunate recipients of the new currency go on a spending spree, the stock market goes up, new economic activity is stimulated, people become more enthusiastic, and new jobs are created. The good consequences appear immediately. But two years later prices go up, consumers complain, and politicians talk about “fighting inflation.” The bad consequences appear much later the Fed tightens the screws, and the economy becomes “depressed.”

It is easy to say, “the cure for inflation is to stop inflating.” But if currency inflation is stopped, the stock market immediately tumbles, interest rates go up, “money” becomes tight, companies go bankrupt, people lose their jobs, and the economy becomes “depressed.”

We are addicted to inflation like the compulsive smoker to nicotine and the alcoholic to alcohol.

Inflation or Deflation, What’s Next?

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When the Fed creates money, also known as monetization or quantitative easing, they exchange newly created dollars for assets, typically US bonds. It is the necessity of having to exchange the new money for assets that is key. There are already trillions of dollars of bonds in existence. The current owners of all those bonds may sell them en masse if they believe the Federal Reserve is determined to inflate at any cost. This would create a situation which could quickly lead to total and utter destruction of the currency through an uncontrollable hyperinflation as everything dollar denominated gets sold. It is this unacceptable situation which would lead to the demise of not only the dollar, but also the Fed itself that the deflationists contend will handcuff their money creation.

The Federal Reserve realizes this predicament so it creates a situation where it can monetize bonds without the negative repercussions. To do this it needs a deflation scare. After the dot com bubble burst and again after the housing bubble burst, the spinmeisters set out to work. The Fed can create new money during times where people are fearful of deflation as it is precisely this fear that prevents the snowballing hyperinflationary scenario described above.

There is another alternative to a deflation scare that will also allow massive quantitative easing, at least the first or second time around. That is a crashing stock market. Bonds typically rally sharply during stock crashes so the risk of a bond rout are slim.  It is a fine line indeed that the Federal Reserve must walk. Create too much money in the absence of a deflation scare or crashing stock market and risk hyperinflation. Do nothing and we actually have deflation as the bad debts are written off. This scenario is unacceptable to the Fed because all their banker friends who took unwise risks will be taken down as well.

Written by opinionoregon

March 6, 2012 at 3:28 pm

What recovery?

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Experts are expecting average gas prices to rise to $5 dollars per gallon across the country. With  tension rising in the Middle East and China’s demand for energy  growing, the possibility that Americans will soon pay $5 a gallon for  gas is steadily becoming reality, experts said. The national average  Wednesday was $3.73 a gallon, according to AAA’s Daily Fuel Gauge  Report. For some readers, $5 dollars per gallon doesn’t seem that far off considering the average price in California’s average is $4.32. Common sense reasoning would predict a collapse in demand as gas rises past $5 dollars per gallon effectively crushing the cost of oil per barrel. It’s inflation that will  keep the prices high.
Even in the positive light, the Fed continues to shine on the forecasts that are coming out, Bernanke even conceded that gas prices rising are likely to slow the growth potential of the economy, which most likely means depression if he’s willing to call it a slowdown.
This week the European Central Bank will throw a lot more money at the  very painful problem of the eurozone’s debt and banking crisis. The ECB on Wednesday has offered banks, for the second time, an unlimited volume of cheap three-year loans. This will likely offer some form of stability for the short-term, but will probably buy less time than anyone would have hoped.

Written by opinionoregon

March 2, 2012 at 7:09 pm

Prepping for Doomsday -Interesting new TV Show

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There is a new TV is a new show on National Geographic called “Doomsday Preppers.” If you haven’t see it, it is “on-demand” and pretty interesting. If you think back a few year, this type of show would have been some show on a obscure youtube channel put on by a guy in a tin foil hat as far as the view from the greater portion of the population. Just the fact that this show is on prime time on a popular channel and the possibilities are being discussed, gives us hope that people are waking up and that real change will be demanded from those who can make a difference. If we are going to have a mobocracy, we might as well have it work for the greater good of America. Be prepared