Tuesday, October 14, 2008

What is Happening In Our International Political Economy?

We are living through some very interesting days, particularly when it comes to the rapidly changing landscape of the international political economy.

For some pretty cool picks on what is happening in the International Political Economy, check out this link:


posted by Ruel Haymond of Project Liberty

Read more!

Monday, October 6, 2008

Are We Headed for another Great Depression?

Posted by Dean Morgan of Project Liberty

Some say we are, so at the end of this message I will discuss what you can do to prepare for it.

But first, what I am about to tell you may shock you. In short:

1. Government intervention made the Great Depression worse, not better. Depending on who’s elected President, the same could happen again.

2. Too much government intervention, not a lack of regulation, caused our crisis.

3. The government is to blame, not irresponsible borrowers or greedy executives.

4. California is next in line for a government bail out.

5. Things will get much worse because of a game of financial chicken.

While we aren’t anywhere near another Depression (25% unemployment then vs. 6% now), some experts say a Depression is actually possible, especially if government makes the same mistakes it made trying to fix the Great Depression which started in 1929. As a result, the stock market didn’t recover to it’s pre-Depression level until 1954!

***Government Regulation Made the Depression Worse, Not Better***

Contrary to the popular belief that President Roosevelt’s big government programs caused a recovery, the Depression actually lasted much longer than it should have because President Roosevelt raised taxes and many businesses had to shut down leading to more unemployment.

***Too Much Government Intervention CAUSED our Current Crisis!!***

Will the Government save us this time? Don’t count on it. You simply cannot legislate a recovery. In fact, while many are calling for more regulations, if history is any indication, government intervention is likely to make matters WORSE.

And more to the point, the current financial crisis was actually caused by TOO MUCH REGUATION, not a lack thereof like most people assume. Here’s why:

Most of you know that lots of bad mortgages owned by Freddie Mac and Fannie May and other banks and brokerage firms is why we have a credit crisis. But exactly WHO is to blame?

DON’T BLAME THE BORROWERS: Sure, people shouldn’t borrow beyond their means, but let’s be real. When someone hands people free money for a house, car and anything and everything else, people will simply take it! It’s human nature.

DON’T BLAME GREEDY WALL STREET EXECS: Yeah, sure they ARE greedy, but greed is an unavoidable in a capitalist society. Fear and greed drive free markets, and always will. The FBI is investigating some firms, and they might find a few instances of fraud, but the fact remains that if you allow people to make easy money without breaking the law, they will!

DO BLAME THE GOVERNMENT!!: Not only was what the wall street companies doing legal, but the government encouraged it! Even worse, some in congress prevented attempts by those who saw the writing on the wall to pull the reigns.

Yes, blame the Government, because well-intentioned politicians, starting with Bill Clinton who enacted some low income lending policies, FORCED Fannie & Freddie to increase their portfolios of sub prime debt to unprecedented levels so that poor people could own homes.

And to ensure banks were loaning to people who couldn’t afford to repay the loans, a liberal group called ACORN, funded by Congressional Democrats, went around suing banks that refused to make what they called “financially irresponsible” loans.

In 2004 the Bush administration sounded the alarm and proposed legislative changes to reel in Freddie and Fannie that were voted down strictly along party lines in the Congress. In 2005 Josh McCain made another attempt, but the reform never made it out of the Democratic controlled committee to the Senate floor for a vote.

To ensure these bills would never pass, Fannie and Freddie spent hundreds of millions of dollars on lobbyists to ensure they could keep loaning to everyone and anyone. Senator Chris Dodd (D) Chairman of the Senate Finance Committee received the most campaign contributions of anyone in Congress throughout his many years. Barak Obama is #2 on the donation list after only 3 years in the Senate.

Here you can watch a bunch of politicians in one party saying Fannie & Freddie are just fine, while others try to sound the alarm unsuccessfully: http://tinyurl.com/3nkrp7

So, in the name of “fairness”, bad loans were made to people who couldn’t afford them, and the institutions doing the lending “kicked back” money to the politicians who protected them.

You see, it wasn’t a lack of regulation, but government interference in the private market FORCING banks to make bad business decisions that caused this mess.

***California may be Next in the Government Bailout***

Because of the current credit crisis, the State can’t get the loans it needs until tax time. The Governor has sent a letter to US Treasury Secretary Paulson stating that if things don’t improve by the end of the month, the State will need $7 Billion. 15 other states are in the same situation!

***Chicken or Egg? A Nasty Game of Chicken***

Banks are simply unwilling to lend until home prices start to rise. But it’s the availability of credit and loans that cause home prices to rise and fall! So banks and the housing market are playing a nasty game of chicken. And there’s a lot more properties in foreclosure that will get dumped on the market adding to the current supply, with few who can get loans to buy them, even if they qualify.

Unfortunately, the “bail out” bill won’t spark a recovery. It’s simply a plug in a leaking dyke. Even worse, some experts say 1 in 8 jobs are related to housing. Plus people aren’t spending, either because they won’t or they can’t. A new report says 1 in 5 car dealerships are about to fail.

***Prepare Yourself***

So what can you do? First, ensure you have reliable sources of income. Since anyone who has a job is susceptible to a layoff, ensure you have other methods for making money. In a down economy most people get hosed. Only a few prosper.

If you want to prosper too, determine who they are and do what they do!

In that regard, SOCALCIA has scheduled 2 of the most successful money makers in SoCal to speak: Jeff Adams and Bruce Norris. Jeff Adams will be our keynote speaker at this Thursday Oct 9, and Bruce Norris is coming November 20. Learn more at www.socalcia.com

Any other comments related to preparing yourself? Read more!

Wednesday, October 1, 2008

Should Investors Use Gold as Hedge During Times of Financial Uncertainty?

“It is well that the people of the Nation do not understand our banking and monetary system, for it they did, I believe there would be a revolution before tomorrow morning.” –Henry Ford

Yesterday when the House of Representatives voted down the financial bailout package,
the Dow Industrial experienced its biggest one-day drop in the Index's 102-year history falling 777.68 points.

And there still is no financial plan in place to help revive the economy.

Historically during times of financial uncertainty, investors have turned to Gold as a hedge. This is because gold is the type of investment that is always an asset. (not simultaneously someone else’s liability).

"Investors are leaning toward it as a hedge against what could happen next,” says Carlos Sanchez, a precious-metals analyst with CPM Group.

But, according to the author of an article I found at www.InflationData.com , Gold is actually a “crisis hedge’ not an “inflation hedge.”

During times of crisis, governments tend to lose control over the price of Gold. However, during more peaceful times, governments are able to keep a ceiling on the price of Gold. This causes Gold to move up in a “stair step” manner.

The author of this article at inflationdata.com also says that gold as an inflation hedge has “a very spotty record.”

But is Gold is a bad investment now? Of course not. However, I do tend to agree with the author’s notion about why the price of gold has not done well over the last twenty years. (See image: price of gold over last 20 years).

The author infers that Governments have historically been known to buy and sell Gold on a whim to create an a sort of “illusion of stability.” The low volume of the gold market compared with say the stock market also lends to it being seemingly easily manipulated by governments.

Most investors in my circle don’t know that, up until about five years ago, it was illegal to invest in gold in China. When that market opened up, obviously there was an increase in worldwide demand for gold when China was free to buy Gold. (See image: price of gold over last 8 years) By 2006, the Shanghai Gold Exchange had become the world’s largest trading exchange for gold bullion with its trading volume well ahead of London, New York, and Hong Kong! Now that’s an incredible fact to ponder on when looking at the price of gold.

But if not Gold as an effective inflation hedge then what are some other inflation hedges?

Commodities ?

Price Inflation is defined as the increase in the costs of various commodities. (Although it is also caused by an increase in the money supply). The idea is that, by investing in various commodities, you should be able to at least break even. What commodities have historically done well in times of inflation? Oil. And oil is also a primary component of the increase in the consumer price index. Also, think about the fact that China is also increasing the global demand for oil along with gold. China will also increase demand for other precious metals. And what about world demand for food and what that will do to its prices? Yippee.

 *Inflation indexed bonds ?

Yes, there is such a thing .These bonds have an inflation adjustment characteristic. But they are not adjusted according to the “actual” inflation rate of course.

Any other suggestions for inflation hedges besides the ones I’ve mentioned in this post? Or any thoughts on utilizing gold as an inflation hedge? Read more!


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