Rep. Ron Paul
Texas Straight Talk
Mar 27, 2009

The distraction on Capitol Hill this week has to do with the jackpot bonuses that executives at AIG recently received. The argument is over a relative drop in the bucket. The total amount of bonuses given out was $165 million. The government has put $170 billion into AIG so far. Many now are demanding we get this money back. We ought to be spending our time and effort doing something more worthwhile, like figuring out how the Federal Reserve is handling the trillions of dollars they are creating and pumping into the economy, and how that is affecting the purchasing power of dollars in your pocket.

The big mistake was appropriating the TARP funds in the first place. A Johnny-come-lately bill of attainder won’t stop the spending epidemic. This whole situation is a perfect demonstration of why “doing nothing” and letting failing companies fail would have been much better than sinking valuable money and resources into them.

When a company makes a profit, it is a signal that it is taking resources and increasing their value while controlling costs. When a company operates at a loss, it is a signal that it is decreasing the value of its resources or letting out-of-control costs outstrip any value it has created. A company operating at a loss is therefore an engine of wealth destruction. Bankruptcies are a net positive for the economy because more productive competitors are rewarded by opportunities to buy up remaining assets at bargain prices to strengthen their operations. In an economy that allows this kind of growth and change, any jobs lost by bankruptcy are soon replaced by new ones as the most efficiently managed businesses gain access to more assets and expand.

Bankruptcy was the stimulus that we needed in the case of AIG. More bankruptcies would clean out malinvested resources and enable economic growth again.

AIG, by losing money and maneuvering their operations to the brink of bankruptcy, was telling us that they were inefficient. So what did we do? We forced the taxpayer to assume the losses, and now we are supposed to be shocked that it is not working out. Had AIG gone bankrupt, it would have been impossible to hand out these bonuses. The taxpayer would have been fleeced for $170 billion less last year. Had they gone bankrupt, the world would not have come to an end, it would just continue on with one less engine of wealth destruction.

We should have learned from Japan. The 1990’s is referred to as Japan’s “lost decade” because of the zombie banks kept on life support by the Japanese government. Any productivity was redirected through these engines of wealth destruction, resulting in long term stagnation. We should and can avoid this outcome if we come to our senses.

A recession should be a time of strengthening and regrouping for an economy. But as long as the government insists on maintaining the status quo by propping up failed institutions, we will continue to dig a bigger hole for ourselves.

Mar 23, 2009
Rep. Ron Paul

By: Peter Cooper, Arabian Money

History does not repeat but it does rhyme, said Mark Twain. For an excellent assessment of what a stock market crash can mean for the future we have only turn to The Great Crash 1929 by Professor JK Galbraith.

It is all there, a complete repeat of the run up to the stock market crash of last autumn, and its consequences - thus far. There was the Florida real estate crash as a prelude to the main act, and then a 50 per cent plunge in the Dow Jones in late 1929, just like the one in 2008.

March rally

March 1930 saw a huge rally in stock prices. March 2009 has just given us the biggest rally since 1974 (a previous market crash year). But hold on a minute, what does JK Galbraith tell us happened next?

In 1930 stocks weakened a little in April and then moved sideways into June when they plunged down again. Then they continued falling month after month for the next two years.

Our governments know this, and it does help explain the rush to push money into the economy by means fair and uncertain. The aim is clearly to break the cycle and avoid the down trend.

But will it be successful? Nobody really knows. Is it worth trying? Yes, but the evidence so far is that the Great Recession is tracking a course that is out-of-control, or rather following a pattern last seen in the 1930s.

Perhaps we should be more optimistic, and think that something more like the 1970s ‘lost decade’ is upon us. 1974 was a terrible year for global stock markets and was followed by stagflation - a mixture of low growth and high inflation.

Inflation

Indeed, inflation is the only way to bail out an economy consumed by debt. In the 1930s debt deflation was allowed to take its disastrous course with public spending cuts and trade barriers making an already deteriorating cycle considerably worse.

However, anybody who has just bought into the stock market rally should really think about selling and staying out for a while. This is a time to park money in gold and silver and even exit cash, although you might care to note that cash and precious metals were the best performing asset class of the 70s, while in the 30s gold was the real star.

The storm we have so long tried to help readers prepare for is upon us. We’ve been calling for crisis for years now, detailing our case for its imminence with increasing urgency over the last two years, urging people to “rig for stormy weather.” And now, as people around the world are so painfully aware, it’s here.

We’ve been sounding the alarm at least as far back as August of 2005, with our “Profit from the Collapse of Western Civilization” issue of the International Speculator. We wish more people had taken us seriously back then, and during subsequent warnings and financial calls to action.

As we watch the debacle unfold and people who should know better take huge losses, we are often beside ourselves with exasperation. Did people think we were kidding? Exaggerating? Well, maybe they did, or maybe they thought we might be on to something, but the magnitude of the problems we were predicting just seemed too great to take seriously. In all fairness, who would have believed back in 2005 that in 2008 the U.S. would see cascading bank failures and de facto nationalization of major financial institutions?

Well, we did. And those who listened then have profited. But even newcomers should remember that a genuine crisis won’t be easy for anyone, not even us. The bailout plans, for example, are worse than robbing Peter to pay Paul, they’re robbing Peter to pay Peter - with a hefty transaction fee for the service. Faced with such lose-lose propositions, you have to batten down the hatches, plug all the leaks, and hold on tight.

And holding on to - or backing up the truck on - gold and gold stocks is definitely the right thing to do at this time.

Homestake Mining Company (now part of mining giant Barrick Gold, NYSE.ABX) demonstrated this during the Great Depression. For more than 100 years, the company operated the Homestake mine in South Dakota (ever watch the “Deadwood” TV series?). In 1935, right in the middle of the Great Depression, Homestake recovered enough gold to make $11.39 million in net income, a record that stood for nearly 40 years - and that was at a time when the U.S. Government had set the price of gold at $35 per ounce.

Homestake shares showed some volatility, but weathered the great stock market crash of 1929, ending the year slightly up. From 1926 to the end of 1935, they went ten-to-one, soaring from $50 to $500. With fluctuations as you’d expect, they held on to those gains until taking off again during the 1970s bull market for gold. We have companies in our portfolio now that could do the same thing.

And remember, gold is the ultimate financial safe haven.

The dollar is being debased at a mind-boggling pace. The economic fallout is affecting the EU and could cause the euro to bust apart at the seams as well. At a time when serious market malaise has people fleeing to cash, cash has become a minefield. Even money market funds are “breaking the buck,” delivering losses on the one refuge seen by many investors as a “sure thing.” Anyone who thinks about it can see what that must mean for gold and gold stocks.

What to Do

The gold price has recovered considerably in the last few months, lighting a fire under our whole sector. We would not want to be caught short of any great stocks that are positioned to maximize returns during the Mania phase of this market - or interim bull rallies that can charge upward at any time.

Our essential stock recommendation:

• If your cash for speculative investments is fully committed, make sure you are in the best of the best companies, and then sit tight.
• If your cash for speculative investments is not fully committed, back up the truck for the spectacular deals still available right now.

We’d liquidate any mainstream investments that leave you exposed to the current financial crunch or that can be expected to do poorly in a weakening economy. It also wouldn’t hurt, and just might save you a great deal of discomfort, to keep enough cash at home (or some other safe place that’s not a bank) for you to cover your living expenses for a month or two.

And buy gold

We’re recommending that you rebalance your portfolio to 33.3% physical gold (or very solid proxy for larger amounts, like Perth Mint Certificates), 33.3% cash, and 33.3% gold-related stocks - from major gold producers, as featured in our BIG GOLD newsletter, to junior gold explorers, as recommended in International Speculator — undervalued energy stocks, select agricultural investments, inverse financials, and similar things that can reasonably be expected to do well through the crisis.

Neither we nor anyone else can tell you exactly when the dollar will go up in smoke, but anyone can see that it’s smoldering. The current crisis could take it a long way towards its intrinsic value (zero) in very short order. If you bought gold at $800 the last time we said this, you should be a happy camper, but don’t let that stop you from beefing up your gold position.

At over $900, gold is still relatively cheap - it’s only $338.50 in 1980 dollars (using the U.S. Government’s much understated CPI stats). It has a long way up to go, but that’s not the only reason to own it.

Gold is the one asset you can own that - no matter what else happens - won’t go to zero. The same is true to varying degrees for other metals and commodities, but especially true of gold. Anything else is paper, whether it’s dollars, futures, or even gold stocks - it’s still paper, and all paper can go to zero.

In times like these, the speculative upside of owning physical gold is spectacular - but the ability to sleep sounder at night knowing you own a significant chunk of something with intrinsic value is priceless.

What happens if other asset classes do drop close to zero? Why, we cash in and buy with both hands, of course. Blue chips for pennies on the dollar would get our attention, as would prime commercial real estate and many other investments that should be near bottom even as gold nears its top.

We’ve warned repeatedly for investors to hold on to their hats. We now think we’ve underestimated how very rough this ride is going to be. Never mind the hats; hold on for your financial life.

Yesterday after Treasury Secretary inadvertently waxed supportive of the idea that he was open to China’s suggestion of moving toward a currency system linked to the International Monetary Fund’s Strategic Drawing Rights. gold spiked and the dollar dove as markets reacted swiftly. Geithner soon thereafter came back to assure viewers that the U.S. Dollar was going to remain the reserve currency for “the foreseeable future”.

Special Drawing Rights are a basket of currencies comprised of the dollar, the yen and the euro. G20 leaders argued in favor of SDRs replacing the dollar as reserve currency initially at the G20 special meeting in New York and Washington last year.

The suddenness and violence of the market spasm (gold shot up $20 in less than a minute while the dollar lost one and a half cents) is evidence of what’s in store for gold and the dollar should the trend in U.S. economic news continue unfavorably in the macro view.

The recent strength in equities as a result of Obama’s anticipated budget and Geithner’s plans to pluck distressed assets from the balance sheets of troubled banks with the help of private equity appears to have petered out as the market decides that these developments are not so positive after all.

Compounding fears of central banks’ inability to continue to print money ad nauseum is news today of the failure of the UK bond auction for the first time since 2002.

U.K Bonds, known colloquially as ‘gilts’ slumped after slumped after the London-based Debt Management Office, which manages bond auctions on behalf of the Treasury, said investors bid for 1.63 billion pounds of the 40-year securities. The UK was planning to sell up to 146.6 billion pounds in debt this year, a proposition now in serious doubt.

To make matters even worse, The U.S. Treasury’s auction of $34-billion saw higher-than-forecast yields in five-year notes, which raised concerns about the U.S. government’s ability to lower interest rates.

These developments point to a broader trend where good news has a short-lived positive effect against the ongoing overwhelmingly negative news still emerging from most nations on the economic front. Despite the uncertainty in bond and currency markets, investors have yet to move decisively into gold. Forecasts however, do point to a rise by as much as 20% in demand for bullion, which would put sales at 52-53 million ounces for 2009.

So does this mean, as many journalist-analysts predict, that the bottom is in for equities and commodities, and a market recovery is underway?

Or is this the end of another sucker’s bear market rally that will see new lows in the Dow and S&P, in juxtaposition to new highs for gold and silver?

Some are firmly convinced that the tummy-rubbing feel-good speeches from Geithner, Bernanke and Obama have been about used up in terms of credibility, and the market is poised for the next leg down as all the rosy pictures painted by the team fail to materialize. Earnings announcements for Q109 are just around the corner, and the outlook is anything but positive.

J.P. Morgan analyst Steve Shepherd has joined the growing consensus that expects gold prices to remain strong for years to come.

“We expect increased investment demand to make up for any losses from traditional jewelry markets in India, China and the Middle East to underpin gold prices,” he wrote.

“ETF’s continue to attract record inflows of capital,” said James West, publisher of the Midas Letter. “With the bond markets weakening, increased skepticism over the U.S. ability to manage its cost o debt by buying Treasurys will accrue favorably to gold-denominated assets and other precious metals. Silver especially has some catching up to the gold price ahead of it,” he said.

When asked about gold mining stocks, Mr. West said, “The value and leverage to the gold price among junior gold mining companies with near term production assets are the greatest opportunity out there right now for risk tolerant portfolios. Everybody expected the Fed’s starting to finance its own debt with imaginary dollars would take gold to the moon over night. The market will take time to absorb this information, and as more treasury auctions in the U.S. and Gilt auctions in the U.K. fail, the writing will increasingly be on the wall.”

Gold prices were little changed on Thursday as the dollar recovered, with investors keeping their eyes peeled for signs of risk appetite as Asian shares hit their highest level in 11 weeks.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD, said its holdings remained at 1,124.99 tonnes on March 25, unchanged from the record hit the previous day. The previous record was 1,114.60 tonnes marked on March 20.

Eric Pratt is the Metals Editor at ResourcexInvestor.com. He can be reached at eric.pratt@resourcex.com

By Patrick J. Buchanan

As the U.S. financial crisis broadens and deepens, wiping out the wealth and savings of tens of millions, destroying hopes and dreams, it is hard not to see in all of this history’s verdict upon this generation.

We have been weighed in the balance and found wanting.

For how did this befall us, save through decisions that brushed aside lessons that history and experience had taught our fathers?

It all began with the corruption called sub-prime mortgages.

The motivation was not wicked. Democrats wanted to raise home ownership among African-Americans from 50 percent to the 75 percent of white folks. Rove Republicans wanted to do the same for Hispanics.

Banks were morally pressured by politicians into making home loans to folks who could not remotely qualify under standards set by decades of experience with mortgage defaults.

Made by the millions, these loans were sold in vast quantities to Fannie Mae and Freddie Mac. There they were packaged, converted into mortgage-backed securities and sold to the big banks. The banks put scores of billions of dollars worth on their books and sold the rest to foreign banks anxious to acquire Triple-A securities, backed by real estate in America’s ever-booming housing market.

Computer whizzes devised exotic instruments — derivatives, which could soar in value, making instant multimillionaires, but also plummet, based on rises and dips in the underlying value of the paper.

Came now young geniuses at AIG to insure the banks against catastrophic losses, should the U.S. housing market crash. As the risk was minuscule, premiums were tiny. Payouts, however, should it come to that, were beyond AIG’s capacity.

In AIG’s Financial Products division, based in Connecticut and London, brainiacs were creating other exotic instruments, such as credit default swaps to guarantee against losses and insure profits. To keep these wunderkinds at AIG, they were promised million-dollar retention bonuses.

Who kept the game going?

The Federal Reserve, by keeping interest rates low and money gushing into the economy, created the bubble that saw housing prices rise annually at 10, 15 and 20 percent.

As the economy grew, however, the Fed began to tighten, to raise interest rates. Mortgage terms became tougher. Housing prices stabilized. Homeowners with sub-prime mortgages now found they had to start paying down principal. People losing jobs began to walk away from their houses.

Belatedly, folks awoke to the reality that housing prices could go south as well as north, and all that paper spread all over the world was overvalued, and a good bit of it might be worthless.

And, so, the crash came and the panic ensued.

Who is to blame for the disaster that has befallen us?

Their name is legion.

There are the politicians who bullied banks into making loans the banks knew were bad to begin with and would never have made without threats or the promise of political favors.

There is that den of thieves at Fannie and Freddie who massaged the politicians with campaign contributions and walked away from the wreckage with tens of millions in salaries and bonuses.

There are the idiot bankers who bought up securities backed by sub-prime mortgages and were too indolent to inspect the rotten paper on their books. There are the ratings agencies, like Moody’s and Standard & Poor’s, who gazed at the paper and declared it to be Grade A prime.

In short, this generation of political and financial elites has proven itself unfit to govern a great nation. What we have is a system failure that is rooted in a societal failure. Behind our disaster lie the greed, stupidity and incompetence of the leadership of a generation.

Does Dr. Obama have the cure for the sickness that ails the republic?

He is going to borrow and spend trillions more to bring back the good old days, though it was the good old days that brought us to the edge of the abyss into which we have fallen. Then he is going to spend new trillions to give us benefits we do not now have, though the national debt is surging to 100 percent of the Gross National Product, and may reach there by 2011.

Is Obama willing to speak hard truths?

Is he willing to say that home ownership is for those with sound credit and solid jobs? Is he willing to say that credit, whether for auto loans, or student loans, or consumer purchases, should be restricted to those who have shown the maturity to manage debt — and no others need apply?

“Avarice, ambition,” warned John Adams, “would break the strongest cords of our Constitution as a whale goes through a net. Our Constitution is made only for a moral and religious people. It is wholly inadequate to the government of any other.”

In this deepening crisis, what is being tested is not simply the resilience of capitalism, but the character of a people.

“Gold and the Euro just hooked up together again. But for how long depends on central-bank policy…”

SO BEN BERNANKE SAYS the United States has plunged into a deflationary depression.

Really, that’s what Wednesday’s Fed announcement said, shouting it loud and shouting it proud.

Because Bernanke’s deflation-prevention policies have failed. So he’s gone to applying the cure instead.

“The US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost.”

So said the Maestro’s apprentice when still merely a governor, rather than chairman, November 2002, speaking to the National Economists Club in D.C.

You may recall that Consumer Price Inflation, on the official measures at least, had just sunk to a 38-year low, hiking the cost of living barely 1.0% per year. The asset-price deflation hitting tech stock investors, meantime, had just found its floor (not that anyone knew it) some four-fifths below the peak of 31 months before.

Looked at both preventing deflation (target inflation above zero, say from 1-3% per year; ensure financial stability, by lending freely to banks whenever trouble hits; act “preemptively and more aggressively in cutting rates when inflation is already low and the fundamentals of the economy suddenly deteriorate) as well as curing it.

“Deflation is always reversible under a fiat money system,” Bernanke announced, claiming that his conclusion “follows from basic economic reasoning.” To wit, “a little parable may prove useful:

“Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject’s oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days.

“What would happen to the price of gold?”

Fast forward six-and-a-half years, and it’s not gold which Ben Bernanke has produced in unlimited amounts at no cost, but US Dollars. But given his obsession with the Great Depression - and given that money was gold seven decades ago - you get the point.

“Presumably, the potentially unlimited supply…would cause the market price…to plummet. Indeed, if the market is to any degree efficient, the price would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce.”

Look at the chart, and you can see what the Fed chairman meant. It shows what he did for gold and the Euro with Wednesday’s $1.25 trillion devaluation of the greenback. Both shot higher on the news. Neither has given back too much of their jump yet.

But while the Euro had already been ticking higher, the Gold Price vs. the Dollar had been falling. Looking back over the last seven year, in fact, the nine weeks starting mid-Jan. were something of an aberration. The Euro and gold moved in opposite directions. Whereas, seeing how committed to dollar devaluation the Federal Reserve clearly remains - especially now deflation avoidance has failed - both should really move together.

“As I have stressed already,” Bernanke explained back in late 2002, “prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.”

Trouble is, if the Dollar falls then other currencies must rise. We’ve already had clear devaluations from the UK, US and Swiss authorities. The Japanese can’t be far behind; they sold their own currency all through mid-decade, desperate to apply Bernanke’s “deflation cure” vs. the Dollar.

Once the Bank of Japan fires up its “quantitative easing” again, that would leave only the Euro still to devalue.

Maybe gold and the single currency will soon diverge again.

Adrian Ash
BullionVault

By: Peter Schiff, Euro Pacific Capital, Inc.

There is an old adage on Wall Street that no one rings a bell at major market tops or bottoms. That may be true in normal times, but as many have noticed, we are now completely through the looking glass. In this parallel reality, Ben Bernanke has just rung the loudest bell ever heard in the foreign exchange and government debt markets. Investors who ignore the clanging do so at their own peril. The bell’s reverberations will be felt by everyday Americans, whose lives are about to change in ways few can imagine.

While nearly every facet of America’s economy has been devastated over the past six months, our national currency has thus far skipped through the carnage with nary a scratch. Ironically, the U.S dollar has been the beneficiary of the global economic crises which the United States set in motion. As a result, our economy has thus far been spared the full force of the storm.

This week the Federal Reserve finally made clear what should have been obvious for some time - the only weapon that the Fed is willing to use to fight the economic downturn is a continuing torrent of pure, undiluted, inflation. The announcement should be seen as a game changer that redirects the fury of the financial storm directly onto our shores.

In its statement, the Fed announced its intention to purchase an additional $1 trillion worth of U.S. treasury and agency debt. The purchases, of course, will be made with money created out of thin air through the Fed’s printing presses. Few can doubt that they will persist with these operations until the economy returns to its former health. Whether or not this can ever be accomplished with a printing press alone has never been seriously considered. Bernanke himself admits that we are in uncharted waters, with no map or compass, just simply a hope that more dollars are the answer.

Rather than solving our problems, more inflation will only add to the crisis. Falling asset prices, the credit crunch, declining consumer spending, bankruptcies, foreclosures, and layoffs are all part of the necessary rebalancing of our economy. These wrenching movements, however painful, are the market’s attempts to resolve the serious problems at the root of our bubble economy. Attempts to literally paper-over these problems will lead to disaster.

Now that the Fed has recklessly shown its hand, the mad dash to get out of Treasuries and dollars should not be far off. The more the Fed prints to buy bonds the less the dollar is worth. Holders of our debt (read China and Japan) understand this dynamic. We must expect that they will not only refuse to buy new bonds, but they will look to unload those bonds they already own.

Under normal circumstances, if creditors grew concerned that inflation was eating into their returns, the Fed would raise interest rates to entice them to buy. However, the Fed will avoid this course of action as it fears higher rates are too heavy a burden for our debt laden economy to bear. To maintain artificially low rates, the Fed will be forced to purchase trillions more debt then it expects as it becomes the only buyer in a seller’s market.

Just last week, Chinese premier Wen Jiabao voiced concern about his country’s massive investments in U.S. government debt. In the most unequivocal statement yet by the Chinese leadership on this issue, Wen made it plain that he was concerned with depreciation, not default. With his fears now officially confirmed by the Fed statement, we must wonder when the Chinese will finally change course.

There is a growing consensus that if China no longer wants to buy our bonds, we can simply print the money and buy them ourselves. This naïve view fails to consider the consequences implicit in such a change. When the Treasury sells bonds to China, no new dollars are printed. Instead, China prints yuan which it then uses to buy treasurers. This effectively allows America to export its inflation to China. However, now that we will be printing the money ourselves, the full inflationary impact will fall directly on us.

With such a policy in place, America has now become a banana republic. It won’t be too long before our living standards reflect our new status. Got Gold?

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read my newest book “The Little Book of Bull Moves in Bear Markets.” Click here to order your copy now.

For a look back at how I predicted our current problems read my 2007 bestseller “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

More importantly, don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com. Download my free Special Report, “Peter Schiff’s Five Favorite Investment Choices for the Next Five Years”, at http://www.europac.net/report/index_fivefavorites.asp. Subscribe to my free, on-line investment newsletter, “The Global Investor” at http://www.europac.net/newsletter/newsletter.asp. And now watch the latest episode of my new video blog, The Schiff Report, at http://www.europac.net/videoblog.asp.

- Peter Schiff C.E.O. and Chief Global Strategist

Euro Pacific Capital, Inc.
10 Corbin Drive, Suite B
Darien, Ct. 06840
800-727-7922
www.europac.net
schiff@europac.net

Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation’s leading newspapers, including The Wall Street Journal, Barron’s, Investor’s Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation’s financial newsletters and advisory services.

The problem was pronounced “contained,” by then-US Treasury Secretary Hank Paulson on April 7th, 2007.  And then, on July 20th, Fed chairman Ben Bernanke admitted that the crisis could bring losses up to $100 billion.

But there was no container large enough to hold the subprime losses.  Each time one was set out, it quickly overflowed.  The latest reports tell us that the bilge is now 500 times deeper than the Fed head forecast…and still rising.  And this comes after $11.7 trillion has been committed in the US alone to pumping it out.   Whether the plumbers are plain idiots or clever rogues, we can’t say, but it should be obvious after two years of watching them, their pumps don’t work.

It is not often that we are called upon to advise the world’s government.  In fact, we can’t remember a single time.  But we can’t resist a lost cause.  So, we offer the Daily Reckoning Plan to Save the World, or DRPtStW for short.

We begin with a brief rehearsal of what went wrong:  The economy as it was before the spring of 2007 was too wonderful for words; whenever you tried to describe it, it sounded ridiculous.  For example:  “The richest get richer and richer by borrowing from the poorest.”

“We think; they sweat,” said one analyst, explaining how Americans could live beyond their means year after year.  The West was just recycling the East’s “savings glut,” added Bernanke.  Meanwhile, derivatives - based on mortgage debt from people who couldn’t pay –  “helped to make the banking and overall financial system more resilient,” said the IMF in 2006.

Each sentence must have made the gods choke…groan…and then laugh.  But beginning in 2007, came a correction.  Suddenly, the big spenders saw their houses fall in value.  Lenders watched their collateral collapse.  The end was nigh.  Two years later, $50 trillion has been lost, according to an estimate from the Asian Development Bank.  After a slap in the face like that, you’d expect a little clarity.  Instead, the public seems to have acquired a taste for bamboozle; now they can’t get enough of it.

Just read the Financial Times.  This week it has a windy series on the “Future of Capitalism,” inviting readers to imagine how the decaying old creed might be reformed.  Alas, for capitalism, it’s out of the frying pan, into the toilet.  Larry Summers, Obama’s number one financial advisor, voiced the prevailing view:  “This notion that the economy is self-stabilizing is usually right, but it is wrong a few times a century.  And this is one of those times…there’s a need for extraordinary public action at those times.” Read More…