Silver to go up in value based on demand

I just wanted to touch on something really quickly.  A lot of people are worried about investing in silver because the common thought is it is too high at $40 per ounce.  Many people think it has almost peaked.  I think those people are wrong, and here is why...

1. Historically, silver has had around a 16:1 ratio with gold - Right now it is about 46:1 ratio.  With those numbers, silver is undervalued in relation to gold.
2. On average, the world is only mining 6-7 times more silver then gold out of the earth.  On that basis alone, supply/demand market forces will even out the values over time.
3. The main reason silver is going to increase is DEMAND.  Silver and gold have been coined as legal tender since the ancient times.  While silver has always been used in manufacturing, it has never been used like it will be in the future.  Many don't know this, but silver is the "metal of choice" in manufacturing solar panels.  Silver is the best metallic conductor of electricity we have - better then copper.  It is just not as commonly used in wires because of how expensive it is.  

We are living in a perfect time for silver investing.  For one, it can be used as a hedge to the devaluation of the US Dollar.  And for two, with the increased demand in electrical efficiency, silver will be used more and more in electrical manufacturing, increasing its demand on the manufacturing platform.  

We live in a weird time.  Many think it is crazy that silver may close the gap between gold that greatly, but I really think it is going to happen.  Afterall, how many people ever thought gold would be worth more then platinum?  Last week gold eclipsed the value of platinum for a short period of time.  Now they are about even.  A couple years ago gold was about 25-30% the value of platinum.  For all you jewlrey fans, now would probably be the time to buy platinum jewlrey if you want it.....there has never been a time when you can get a platinum ring at the same price as a gold ring.  Just food for thought.

Til next time....

Another round of QE?

Yesterday Ben Bernanke testified before congress on the state of the United States economy.  Here is a video I think everyone should see.  It will give you an idea of what Bernanke thinks of the US dollar and show that he has no concept what he is doing with our countries monetary policy.





Those who know me know that I have been a big proponent of gold and silver for the past 18 months or so.  Peter Schiff likes to say, "if gold is soaring, Ben Bernanke is probably speaking somewhere".  Ironically, yesterday Bernanke testified before congress and gold went up $42/oz and at this moment still sits at $1588/oz.  That same day, silver was up $1.72/oz or 7%! 

There is a false sense of security in the stock markets.  Across our country people breathe a collective sigh of relief when Bernanke mentions another round of Quantitative easing.  Yesterday, for example the markets were up over 1%.  If you looked through the media, you would see headlines like, "Market surges on increased consumer confidence".  Read that article and you see that American citizens as a whole don't understand what is going on with the devaluation of the US Dollar.  While the markets were up over 1% on the day, the US Dollar lost 2% of it's value to a basket of major worldwide currencies.  Therefore, there was no gain.  If anything there was a loss.

Save America Part 1: Reforming the tax code

In the recent release of S&P’s statement that the United States credit rating may be reduced in the coming years, I have decided to look into some issues and compile some information that might be of use to the masses.  We are living in very tough times.  Until the past year I had never considered myself a very political person.  I guess I was just like most people in this country – I just didn’t care enough to do anything about it because I didn’t see how bad things were….nor did I want to.  It was much easier living in my little happy bubble where nothing was wrong.  Well, I have come to the realization that there is a lot wrong in this world right now – and most of it starts right here in the United States.

As I have watched the news and read the newspapers over the past couple of months, it has been interesting to watch the republicans and democrats ‘battle’ over what we are going to do with our runaway National Debt problem. As I am typing, the US National Debt stands at $14.31 trillion.  As it stands, we are on pace to have an estimated $1.65 trillion budget deficit this year alone.  The question is, what do we do about it?

Democrats and republicans have fundamental differences on how this problem should be tackled.  We are now in an extremely tough spot as a country because of our irresponsible spending over the past decade.  Congress has consistently kicked the proverbial can down the road and not addressed the spending issue for too long.  During that time, the problem has grown so rapidly and out of control, what would have once been manageable to control can only now be reigned in with drastic cuts.

The sad, unfortunate truth is someone is going to suffer.  The reality is all of us will suffer on some level because of the fiscal irresponsibility.  There is no pain free way out of our current situation.

Paul Ryan, a Republican congressman from Wisconsin has proposed a budget with $6.2 trillion in budget cuts over the next 10 years.  Included in this bill are drastic changes to Medicare, tax cuts and repealing the Obama Care program.  Democrats are outraged at this plan because they say it is irresponsible to take away all of those benefits and entitlements. 

I wanted to touch on a couple points that I find most people are not aware of and compare the Democratic vs. Republican views.  You tell me which perspective makes more sense to get us out of our current debt crisis given the facts.  I will also add a couple suggestions at the end of each issue based on the research I have done on that topic.

Taxes:  

Democrats believe we need to raise taxes on the rich to keep spending.  This includes raising the tax rates on all millionaires (anybody making $215k per year) who are already paying 50% while 47% of Americans pay no taxes at all once they receive their refunds every year.  Not to mention, in this current situation even if we rose the taxes every rich person pays by 50% we still have a $500 billion budget deficit.

Republicans believe in a more equal tax.  Yes, that means tax cuts for the rich.  However, the Republican perspective is if you don’t tax successful entrepreneurs and corporations to the max that will leave more money to promote job growth and production.  Let me give an example.  Lets say there is a company that profits $1 billion on the year.  If you tax them 50% of that the government makes $500 million in tax revenue.  However, if you eliminate corporate taxes altogether that allows that corporation to use the $500 million to hire 10,000 workers at $50,000 per year.  In addition, those 10,000 workers lead to higher production rates and more revenue across the board.

Here is the math on the republican tax cut scenario:

While the government loses $500 million in tax revenue by eliminating corporate taxes, the following happens

1.     Assuming a 25% tax is paid, they now earn $125 million in tax revenue from the 10,000 workers the corporation was able to use.

2.     10,000 unemployed people with college degrees now have jobs, so the unemployment rate goes down.  Right now you are able to receive unemployment benefits for up to 2 years.  People who qualify for these jobs receive $425 per week in unemployment benefits.  That is a savings of $221 million the government does not need to pay into unemployment benefits. 

Add those two points together and the government has already made up for $346 or 70% of the tax revenue lost by cutting the corporate tax.

My suggestions: 

I believe everyone should pay their fair share.  The system we use allows too many deductions and manipulation, which in turn adds an additional expense of increasing the size of the IRS employee base to audit and govern the tax payers necessary in the current code.  However, I think we need to consider a couple of things while discussing our current tax code and national budget:

a.     The median household income in the United States in 2009 was $50,221.    

b.     Total income earned in the US in 2007 (most recent figures available on wikipedia) was $7.723 trillion.

c.      US total budget is $3.82 trillion – almost 50% of what is earned by its total population.

d.     Even if you increased income taxes alone we still do not achieve a budget surplus which is where we need to be considering the national debt.

e.     When considering the national debt, consider the Federal Funds Rate is currently 0%.  When that number goes up to historical norms (3-5%) interest payments alone will cripple our country. 

f.      If S&P downgrades our AAA credit rating as a nation, interest rates will rise on everything.

While Obama says it is irresponsible to cut entitlement and benefit programs, I feel it is irresponsible to have the country live on a budget that is 50% of its gross income – especially considering the government is paying 0% interest on all its loans.  However, we are where we are and we need to deal with the situation at hand.  Here are some suggestions:

1.     Implement a flat tax based on tax bracket. 

a.     If your household income in less then $75k you pay 17%

                                               i.     72% of households in the US earn less then $75k

b.     If your household income is $75-150k you pay 25%.

                                               i.     20% of households in US earn $75-150k

c.      If your household income is $150-250k you pay 30%

                                               i.     6% of households in US earn $150k+

Implementing this sort of tax revenue system would create $1.52 trillion in tax revenue for the government. 

2.     Create a Federal Online Sales Tax:

a.     There was a total of $141 billion in online sales last year (http://www.census.gov/econ/estats/). 

b.     Creating a 5% tax on those sales would raise $7 billion in tax revenue

3.     Charge a 0.50% property tax on everyone in the country.

a.     Aggregate values of all residential real estate in the United States are $20 trillion

b.     Charging a 0.50% property tax would generate $100 billion in tax revenue

4.     Tax new car sales.

a.     On new car sales only, charge a 1% tax.

                                               i.     I can’t find the statistics for aggregate national auto sales, but I would venture to guess it is in the $50 billion range.

1.     Those estimates would generate $500 million in tax revenue

Total Tax Revenue Earned:

1.     Income Tax:  $1.52 Trillion

2.     Online Retail Sales Tax:  $7 Billion

3.     National Property Tax:  $100 Billion

4.     Auto Tax:  $500 Million

Total Tax revenue earned:  $1.625 Trillion which is where we are right now, but with a much more fair and economically balanced tax code.

Another option would be to simply add a 1% Federal Tax on anything that counts towards the GDP.   In 2009 our GDP was $14.119 Trillion, which would have raised $141 billion in tax revenue.  Add that to the $1.52 trillion in income tax revenue and you have total tax revenues of $1.661 trillion. 

The later of the 2 options makes the most sense.  After all, if everyone is so concerned what the dept to GDP ratio is, why don’t we have Federal taxes on all GDP expenses?  In addition, flat taxes are the only fair way to operate as a country.  A sliding flat tax code promotes an area where everyone is contributing to society.  However, adding in a tax on all expenditures taxes the rich more as they will inevitably purchase more goods, have higher energy bills on their homes, etc…  While you are not taxing the rich more with an income tax per se, you are creating more of a luxury tax, which would create an environment of fiscal soundness and savings so our country can get back to a strong economic foundation.   

The other part of the flat tax rate that I like is that it’s transparent.  You pay based on what you make.  No deductions, no working the system.  If we were to change to a flat tax system, the 47% of Americans that actually paid 0% in taxes last year, would actually contribute and help reach towards our national debt.  I think even in the short term to tackle our debt problem we could hike upper-income tax rates to the 50-60% tax rate to help tackle our debt as we slowly get our out of control governmental spending in order.  However, to do such would require a sliding scale system require fiscal responsibility, planning and discipline.  We all have to take this National Debt problem on together or the country as we know it will disappear.  The rich can’t take on the debt alone…there simply isn’t enough money.

Devaluing the dollar should equal death??? Sounds a little extreme...

This is going to be short and sweet. I was just doing some research online and stumbled upon something that is funny yet so scary at the same time.

According to the Coinage Act of 1792, a lot of people in control of the US Monetary policy should be sentenced to death.

Here is an excerpt from the US Coinage act passed on April, 2 1792.

From: United States Statutes at Large, 2nd Cong., Sess. I., p. 246-251
April 2, 1792:
"And be it further enacted, That if any of the gold or silver coins which shall be ... debased ... every such ... person who shall commit ... said offences, shall be deemed guilty of felony, and shall suffer death."

It sounds a little extreme, but think about it. What Bernanke, Obama and Geithner are doing is causing more damage to our country than any other crime in the history of our nation. I guess if you put it in those terms, it doesn't sound so extreme.

The question is, HOW are these politicians (both democrats and republicans) circumventing the constitution so easily and so regularly?

Maybe we should have a physical audit of Fort Knox for the first time since 1954 to see how much gold our country really has to back the currency. Anyways, that's it for now!

Quantitative Easing

So the Federal Reserve is looking to increase the rate of inflation. They are looking to up the annual rate of inflation from 2% to 4%. While that might not seem like a huge number, that's not the whole story. There is talk right now of policy makers accepting inflation rates climbing above that 4% target. (MarketWatch)

This is a slippery slope. Since we became a fiat currency in 1971, the Fed has had complete control of our money supply. While there have been issues in the past, the ground work has been set for much greater deception in the future.

There are several terms used by the government and economists that help explain reasons for inflation and our national debt. However, what they are not telling you is these numbers are not what they used to be. Let me give you some examples.

The CPI, or Consumer Price Index, is a way to track over all consumer prices. Have you ever noticed the costs of certain goods are getting dramatically more expensive (going up faster than the rate of inflation)? You ever wonder why the CPI stays in check with the inflation rates, even though the prior seems to be so obvious? Well, in 1993 a bill was passed allowing the use of hedonic's in the CPI.(www.bls.com) What are hedonic's? Well, in relation to the CPI, the government can use hedonic's to keep an items "cost" in relation to the CPI lower then it "should" be. Let me give you an example. Let's say the price of a new Chevy Truck was $30,000 last year. However, this year the same truck now cost $33,000. You would think the government would have to equate for the new number in the CPI, right? WRONG! All Chevy needs to do is "prove" the vehicle is 10% safer or 10% more energy efficient or 10% more something else (you pick it) and the CPI says it doesn't cost anymore than it did last year. They also have changed how they calculate the CPI - giving a lower weighting to consumer goods rising in price and a higher weighting to goods lowering in price (NIA.org). Why do they do this? The CPI is one of the biggest factors in determining the national rate of inflation. How can our national inflation rate be accurate with adjustments in the CPI like this?

The M3 money supply is something most people have not heard of. It is used to be part of the equation in figuring out inflation. However, in 2006 they passed a bill making it so the M3 money supply no longer had to be published or made public. They now use the M2 money supply to help account for inflation, which is a much smaller number as it does not account for large deposits or other long term deposits by the government (wikipedia). This is a HUGE deal. This is how they are covering up all the money they are printing for the stimulus, deposits made by national banks (to increase their reserve funds) and deposits held by the government for corporate bailouts.

So, if you take those two aspects of how inflation is calculated now compared to 20 years ago, it is not a true indicator of inflation. The bottom line is that somewhere down the road - unfortunately, not too far down the road - a correction is going to need to be made. Sure, we can continue on this way with the Fed printing money at need for bailouts and international debt, but it won't last for long. There has NEVER been a successful government in the history of the world that has economically successful using quantitative easing. Add this up with a lot of the facts from my past blog entries and you will see there are a lot of reason this is such a scary thought.

The United States' economic system is way out of whack. Interest rates need to begin rising slowly, yet immediately to help bring in some of the 120% additional money supply our government has printed to "ease" its short term pains. Yes, in the short run it will be tougher, but things will be much worse if they try to push through another $847 billion stimulus (or maybe more next time) or spend billions on corporate bailouts sure to be needed. The larger our excess debt becomes, the more money we simply print, the more devalued our dollar becomes - meaning the more inflation we deal with.

The more devalued our dollar becomes, the more expensive imports from places like China, India, Japan and Taiwan cost. We also stand to lose our place as the worlds reserve currency as other countries' national banks are reducing the amount of money has have in US Treasuries. Granted, most countries have not pulled out of our Treasuries too much yet, but the more money we print, the weaker it makes their investment in us. We might be able to keep on this trend for another short period of time, but policies in our economy need to change sooner than later.

Quantitative easing of our financial troubles as a government and as a nation is not the solution. Unfortunately, a bubble of over-spending on consumption has put us in a rough place. We need to take our lumps, correct the system, increase the interest rates and get back to a solid currency before it is too late and my children's generation grow up in a much more impoverished nation.

Credit: The Downfall of our Economy

I think the biggest issue we have as a nation is our perspective on what a healthy economy is. Our government has pounded it in our head that the health of our economy is judged by how much money we are spending, when reality is that couldn't be further from the truth. Everyone has heard of the dot-com bubble and the real estate bubble. What about the credit bubble?

For the past 40 years we have been going through a transition of being a nation of producers to a nation of consumers. In the 1970's we were the worlds largest industrial power and in turn, the worlds largest creditor. Now, just 30-40 years later, we are not the producers we once were and we are the worlds largest debtor.

Let me start with a little basic history:

Right now, in 2010, our national debt in relation to GDP is 94.1%. Put that along with the 120% increase to the U.S. cash supply we have flooded the world with over the past 2 years and you have a problem larger than we have ever known.

Anyone who has been following my posts knows about the inflation of the 1970's when the cash supply was increased by a mere 13% and how we needed to raise the interest rates to a record 20% to control the issue. I have also been hit with comments about the fact that after World War II, our national debt in relation to GDP was 125%. In actuality, the national debt to GDP was higher back then (debt was actually 121% to GDP), but the situation then was not nearly as grave as it is now.

Let's try to think of the United States as a business. Anyone with any business experience knows a certain amount of debt is required to grow. However, there are two basic types of debt - and the distinction between the two couldn't be more important. Capital debt and Consumer debt.

Capital debt is investment debt. Debt used to create growth. Capital debt would include any loans made to businesses to finance capital formation. An example of this would be an auto company using financing to build a new production factory. The earnings made from increased production enable it to pay both the interest off the debt and repay the principal. Anything left over is profit which the business will have earned for its success. This type of debt leads to improvements in standard of living and ultimately lead to greater cash flow and savings.

On the flip side, Consumer Debt, is money borrowed or lent to finance consumption. When money is borrowed to consume, there is no income-producing asset acquired. Therefore, the loans can only be repaid out of reduced future consumption. Society does not benefit from consumer debt. In fact, society suffers from consumer debt.

Granted, a certain amount of consumer in inevitable in any economy. Some might argue consumer debt is required. After all, how can the producers save if not for the consumers spending? "Amazingly, we managed to become the wealthiest industrial nation in the history of the world without a single credit card or home equity loan" (Peter Schiff).

Why is it spiraling out of control at this time? Well, the last two times we had such financial crisis' in this country were the two mentioned earlier - the end of the 1970's and after World War II. At those points, we were the strongest industrial power in the world. Much of our debt was owed to ourselves. The interest payments made stayed in the country as profits, which in turn equalled purchasing power. Now our debt spread out around the world. China owns 21.9% of all U.S. treasuries, Japan owns 19.8%, the UK owns 8.8% and Brazil and Russia own a combined 5.3% of U.S. treasuries. That is 55.8% of our U.S. treasuries owned by other countries. (wikipedia)

Why is this a problem? Well, for starters, it is the single greatest transfer of wealth this world has ever seen. When our debt to GDP hit high levels in the past, it wasn't nearly as big an issue as it is now because, in fact, a major percentage of that money was paid to ourselves. Now however, the interest paid (purchasing power) is going directly to China and other developing nations.

Another issue: From 1960 to 1980 consumer expenditures as a percent of GDP were anywhere from 61-64% of GDP. With the advance of the credit card in the late 1970's and early 80's, consumer debt as a percentage of GDP surged to 70% over the next two decades. However, that is not the only part of the equation. With more spending comes less savings. The personal savings rate of this country fell from 12% in 1980 to under 2% in 2007. (financialsense.com) Wealth is no longer judged by how much you save, but by what car you drive and what kind of clothes you wear.

Credit cards are not the only issue, however. Our debt as a nation is not due only to credit cards - they were just the kindling that started the fire. I think credit cards were just the beginning to the immediate gratification mindset most americans now live with. It is no coincidence that as our personal savings rate has dropped just over 10% since 1980, our household debt in relation to GDP has also risen from just over 60% to just over 130% of GDP in that same timeframe. Also no coincidence is the spike from 2000-2007 where it went from 90% of GDP to 130% of GDP as people spent more and more using their homes to get more money.

During the real estate boom, people used their houses like ATM machines, withdrawing $1.9 trillion in "equity" from 2005-2007 when homes were at their peak value. Of course, as we all know, many of those homes are now under foreclosure. By next year there are going to be an estimated 19 million foreclosed homes on the market. On a positive note, I think people are starting to feel the impact of the economy. Since 2007, personal savings rates have risen from just under 2% to around 5%. That is obviously a great sign. However, the savings rate would need to hit 14% before they are able to cover retirement. (financialsense.com)

I could go on and on with statistics that prove our dire situation. Let me just get down to the point. Our government and the mass population of our country have been building debt for the past 30 years. As housing prices drop through the floor (because of supply/demand issues and the fact interest rates NEED to rise), our debt to GDP ratio only worsens (as a result of home equity cash outs at the peak of the market). The worst part of this situation is we have no way to pay off the debt on either end of the spectrum. As a nation, we are over $13 trillion in debt. We have had a trade deficit of $34 billion or more per MONTH every month of 2010 (americaneconomicalert.org). With a national trade deficit that large, the debt only grows. In addition, all of the interest paid on our treasuries is no longer being paid mainly to the people of the United States. As I said earlier, over 50% of U.S. treasuries are owned by foreign entities. This means we are paying interest on dollars loaned by them. That interest paid goes directly to those foreign entities, thus upping our consumer expenditures while upping their savings rates. There is a mass shift going on in the world economy right now, and the United States is not on the positive side of the spectrum.

Lastly, I have mentioned to a couple people in person about the bond bubble to come. Many have said this is impossible. Let me simply let you know what Peter Schiff has to say about the issue and see what you think then.
"Rates on long-term Treasury bonds remained artificially low in the first months of 2009, meaning that bond prices (yields and prices being on the opposite ends of the seesaw) remain artificially high. The benchmark federal funds rate, in a target range of zero to 1/4 percent since December 2008, has failed to provide stimulus and the Fed has been making massive purchases of Treasuries in an effort to keep rates down. The 30-year yields held in a range of 3 to 4 percent from November 2008 thru May 2009, representing record lows. In fact, in mid-December 2008, the yield fell to an all-time record low of almost 2.5 percent.
Since no rational investor would buy 30-year bonds at such low rates with the intention of holding them to maturity, it is obvious that high bond prices are unsustainable. I believe leveraged hedge funds and other speculators are buying long-term Treasuries because they think their value will rise in the short term as the Fed proceeds with its announced programs to make purchases in the trillions of dollars. Foreign central banks are still buying, but are waking up to the fact that their risk is not default but reduced purchasing power.
When the dynamics reverse, these bond flippers, like the condo flippers in the real estate bubble, will go into sell mode. With a preponderance of sellers and few buyers, the bubble bursts. The greater problem comes as the Fed increases its purchases to pick up the slack. Since bonds merely represent future payments of dollars, as the Fed prints dollars to buy bonds it further lessens the value of those bonds left outstanding. This only chases more buyers away, necessitating even more Fed purchases and setting a vicious cycle into motion. Eventually the Fed remains the only buyer. However, given how fast the dollar loses purchasing power once this situation develops, the government must borrow even larger quantities to fund its rapidly rising expenditures. Once this dynamic sets in, hyperinflation is the result."
He went on to say, "So as this final bubble bursts, we are faced with a self-perpetuating spiral. The more bonds the Fed buys, the more inflation it creates and the less the dollar is worth, making our bonds less attractive to outside buyers. That makes the bonds being currently issued a harder sell, never mind the multiple trillions of dollars that will have to be raised to finance President Obama's recovery program. Not only are foreign investors going to be inclined to pass on that debt, but I would also expect that with all the buying the Fed is doing, foreign investors would have second thoughts about continuing to hold the bonds they already own. That's why I say the real collapse is still coming. We've really seen nothing yet. The fact that foreign governments have been willing to lend us money this long has permitted the bailouts and postponed the pain."

Our Reformed Healthcare Bill

I light of everything going on, my father in law gave me this, so I felt compelled to post it: Enjoy!

A retired Constitutional lawyer has read the entire proposed healthcare bill. Read his conclusions and pass this on as you wish. This is stunning!



The Truth About the Health Care Bills - Michael Connelly, Ret. Constitutional Attorney

Well, I have done it! I have read the entire text of proposed House Bill 3200: The Affordable Health Care Choices Act of 2009. I studied it with particular emphasis from my area of expertise, constitutional law. I was frankly concerned that parts of the proposed law that were being discussed might be unconstitutional. What I found was far worse than what I had heard or expected.

To begin with, much of what has been said about the law and its implications is in fact true, despite what the Democrats and the media are saying. The law does provide for rationing of health care, particularly where senior citizens and other classes of citizens are involved, free health care for illegal immigrants, free abortion services, and probably forced participation in abortions by members of the medical profession.

The Bill will also eventually force private insurance companies out of business, and put everyone into a government run system. All decisions about personal health care will ultimately be made by federal bureaucrats, and most of them will not be health care professionals. Hospital admissions, payments to physicians, and allocations of necessary medical devices will be strictly controlled by the government.

However, as scary as all of that is, it just scratches the surface. In fact, I have concluded that this legislation really has no intention of providing affordable health care choices. Instead it is a convenient cover for the most massive transfer of power to the Executive Branch of government that has ever occurred, or even been contemplated If this law or a similar one is adopted, major portions of the Constitution of the United States will effectively have been destroyed.

The first thing to go will be the masterfully crafted balance of power between the Executive, Legislative, and Judicial branches of the U.S. Government. The Congress will be transferring to the Obama Administration authority in a number of different areas over the lives of the American people, and the businesses they own.

The irony is that the Congress doesn't have any authority to legislate in most of those areas to begin with! I defy anyone to read the text of the U.S. Constitution and find any authority granted to the members of Congress to regulate health care.

This legislation also provides for access, by the appointees of the Obama administration, of all of your personal healthcare direct violation of the specific provisions of the 4th Amendment to the Constitution information, your personal financial information, and the information of your employer, physician, and hospital. All of this is a protecting against unreasonable searches and seizures. You can also forget about the right to privacy. That will have been legislated into oblivion regardless of what the 3rd and 4th Amendments may provide...

If you decide not to have healthcare insurance, or if you have private insurance that is not deemed acceptable to the Health Choices Administrator appointed by Obama, there will be a tax imposed on you. It is called a tax instead of a fine because of the intent to avoid application of the due process clause of the 5th Amendment. However, that doesn't work because since there is nothing in the law that allows you to contest or appeal the imposition of the tax, it is definitely depriving someone of property without the due process of law.

So, there are three of those pesky amendments that the far left hate so much, out the original ten in the Bill of Rights, that are effectively nullified by this law It doesn't stop there though.

The 9th Amendment that provides: The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people;

The 10th Amendment states: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are preserved to the States respectively, or to the people. Under the provisions of this piece of Congressional handiwork neither the people nor the states are going to have any rights or powers at all in many areas that once were theirs to control.

I could write many more pages about this legislation, but I think you get the idea. This is not about health care; it is about seizing power and limiting rights... Article 6 of the Constitution requires the members of both houses of Congress to "be bound by oath or affirmation to support the Constitution." If I was a member of Congress I would not be able to vote for this legislation or anything like it, without feeling I was violating that sacred oath or affirmation. If I voted for it anyway, I would hope the American people would hold me accountable.

For those who might doubt the nature of this threat, I suggest they consult the source, the US Constitution, and Bill of Rights. There you can see exactly what we are about to have taken from us.

Michael Connelly
Retired attorney,
Constitutional Law Instructor
Carrollton , Texas

The History of the Federal Reserve (our central bank):

Many might not know this, but the Federal reserve is not the only Central Bank this country has known. In fact, it is the third.

The First Bank was a bank chartered by the United States Congress on February 25, 1791. The charter was for 20 years. The Bank was created to handle the financial needs and requirements of the central government of the newly formed United States, which had previously been thirteen individual colonies with their own banks, currencies, financial institutions, and policies. The First Bank held its charter from 1791-1811 (wikipedia)

After much push to eliminate The First Bank from Thomas Jefferson during his presidency from 1801-1809, the bank lost its charter by 1 vote in the House of Representatives under President James Madison in 1811. Thomas Jefferson was quoted, saying, "The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."

The Second Bank (of the United States) was chartered by many of the same congressmen who in 1811 had refused to renew the charter of the original Bank of the United States. The predominant reason that the Second Bank of the United States was chartered was that in the War of 1812, the U.S. experienced severe inflation and had difficulty in financing military operations. Subsequently, the credit and borrowing status of the United States were at their lowest levels since its founding. (wikipedia) The Second Bank of the United States held its charter

In 1819 the Supreme Court ruled The Second Bank of the United States unconstitutional, limiting its powers on money production and taxation. While it was able to finish its charter term of 20 years, The Second Bank of the United States did not earn a second charter. In 1941, soon after John Tyler took over the Presidency, Congress passed a bill to reestablish The Second BUS (Bank of the Unites States). President Tyler vetoed the bill along with a second such bill, calling them unconstitutional and against states' rights. That led to the creation of a new banking system called the Independent Treasury System. On February 25, 1862, under President Abraham Lincoln, The Legal Tender act was passed allowing the secretary of the treasury to issue paper money (to be backed with gold and silver). This eliminated a long standing problem of having too many currencies circulating the US. This system lasted until 1913...until...

The Federal Reserve:
In the early 1900's, the people of the US were vary weary of the concept of a central banking system. J.D. Rockefeller, J.P. Morgan, Baron Rothschild, & Paul Warburg were the 4 businessmen that developed and wrote the plan for the Federal Reserve to be created. They were the leaders of the banking world during that era. They used their business influence at the time to manipulate the economy and spread rumors about insolvent banks to create the need of a new national bank.

J.P. Morgan was investigated for the Fraud of the rumors spread in 1907. The person in charge of the investigation was Senator Nelson Aldrich who had intimate ties to the banking community and later became part of the Rockefeller family through marriage. After his investigation of J.P. Morgans (false) rumors, his suggestion was that a central bank needed to be created to avoid a repeat of the panics of 1907.

President Woodrow Wilson ran for office with heavy backing from the bankers - promising ahead of time to sign the Federal Reserve Act in exchange for campaign support. Two days before Christmas in 1913, when most of congress was at home with their families, the Federal Reserve Act was voted in and President Wilson made it law.

However, in 1919 Woodrow Wilson was quoted in regret, “I am a most unhappy man, I have unwittingly ruined my country. A great industrial nation is now controlled by its system of credit. We are no longer a government by free opinion, no longer a government by conviction and the vote of majority, but a government by the opinion and duress of a small group of dominant men.”

Congressman Louis McFadden also stated in 1913 after the passing of the bill, “A world banking system was being set up here…a superstate controlled by the international bankers…acting together to enslave the world for their own pleasure. The Fed has usurped the government.”

The people of the US were told the Federal Reserve was an economic stabilizer and inflation and economic crisis' were a thing of the past. As we now know, nothing could be further from the truth.

From 1914-1919 the FED increased the money supply by nearly 100% using extensive loans to small banks and the public. In 1920, they called in a major of the outstanding money supply. This forced the small banks to call in their loans. Bank runs, bankruptcies and business collapses occurred at historical levels. Over 5400 independent small banks (outside the Federal Reserve system) went out of business, giving more power to the FED.

Noticing the atrocious crime by the FED, Charles Lindbergh stated in 1920, “Under the Federal Reserve act, panics are scientifically created. The present panic is the first scientifically created one, worked out as we figure a mathematical equation.”

Again, from 1921 to 1929 the FED increased the money supply in the country by 62% - sparking the economy with extensive loans to the banks and businessmen. They also helped create a new type of loan on Wall Street, called a margin loan. This allowed a person to put just 10% down on a stock with the other 90% loaned through the stock broker - giving 100% control of that stock. In other words, A person could own $1000 worth of stock by putting only $100 down! This was a major influence to the stock market boom of the 1920's. However, there was a catch to this "too good to be true" loan. A 24 hour margin call could occur at any time. If that happened, it had to be paid within 24 hours by whomever owned the stock.

Ironically, a couple of months before October in 1929 J.D. Rockefeller and his constituents exited the market. On October 24, 1929, the New York financiers who furnished the margin loans started calling them in in mass. This required selling off of margin loans in mass and in turn cause massive bank runs and bankruptcies, collapsing 16,000 more private banks. This allowed the conspiring international bankers to buy up rival banks and corporations at pennies on the dollar. Then, instead of expanding the money supply to deal with the economic collapse, the FED actually contracted the money fueling one of the largest depressions in history.

Congressman Louis McFadden had this to say about the collapse in 1929, “It was a carefully contrived occurrence. International bankers sought to bring about a condition of despair, so that they might emerge the rulers of us all.” Ironically, after 2 previous assassination attempts on the congressman's life, they finally succeeded and Louis McFadden was poisoned at a banquet before he could push for the impeachment of the FED.

To complete the execution of the financial independence of the United States citizens, the Federal Reserve bankers decided the gold standard should be removed. So, with executive order from President Franklin D. Roosevelt, under the pretense of "helping to end the depression", all people were required to turn in their gold coin, bullion and certificates with a penalty of 10 years imprisonment if they didn't turn it in by May 1, 1933. Basically, robing the public of what little wealth they had left...

With the FED now in control of printing "legal tender" without the backing of a gold standard, they had control of the countries money supply. The power to regulate the money supply is the power to regulate its value - which is also the power to bring an economy to its knees.

The Federal reserve is a PRIVATE corporation. They make their own policies and have very little regulation from the US Government. It is important for the people of this country to understand that the Federal Reserve is about as federal as Federal Express shipping. They exist to make money. All money they make is loaned to our government with interest attached. This is exactly the type of system that Thomas Jefferson and James Madison tried to avoid because they know what it would lead to.

Now let me get off track for a minute. In 1913, the Federal Reserve act was not the only act unconstitutionally pushed through. They also pushed through the Federal Income Tax bill. The reason our Federal Income tax is unconstitutional is because it is a direct unapportioned tax on our income.
Here is what the original constitution said in Section 2:
"Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union..."

However, in 1913, the 16th Amendment was pushed through!
Amendment 16 - Status of Income Tax Clarified. Ratified 2/3/1913.
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

While you would think the 16th Amendment changes the constitution and makes our Federal Income Tax legal, the 16th Amendment was actually never ratified by the required number of states to put it into law. This fact has been cited in modern court cases - "If you...examined (the 16th amendment) carefully, you would find that a sufficient number of states never ratified that amendment." - U.S. District Court Judge, James C. Fox, 2003

Why do I bring this up and tie the two together? Well, notice they Federal Reserve and and Federal Income Tax law were passed at the same time. On average 35% of peoples incomes are taken from this tax. That mean you work 4 months of the year to pay the government. You know where you money was designed to go? To pay the interest the Federal Reserve charges our government for loaning the money. It is the biggest fraudulent system EVER created and it is crippling our economy.

Now, this has been a slow slide down-hill for the FED. While they did recall all the gold in 1933 - eliminating the gold standard, they actually did remain fiscally responsible for a fairly long period of time keeping the cash supply in circulation proportionate to our gold reserves. Because of this the Bretton Woods act of 1944 made the US Currency the legal tender in all international matters - reinstating the gold standard in modified terms. However, in 1971, due to the expenses incurred in Vietnam, the United States was broke! And President Richard Nixon diverted from the economic policy that had been in place since the 1944 Bretton Woods act, using a great argument that it was in the best interest for our economy because of issues in the world at that time.



Where are we now?
Well, in summary, from 1914-1919 the FED increased the cash supply by nearly 100% only to recall much of the excess money causing a short depression and major business and economic chaos forcing 5400 private banks to collapse, gobbling up more monetary power in the process. However, that wasn't the end. From 1921-1929 the FED again increased the cash supply in the country by 62%. This time, Wall Street got involved and started making margin loans, making matters worse. The great depression, which I am convinced was set up by the major businessmen in the country at that time, set up a collapse of the final leg of the banking system (causing 16,000 banks to fail) as it used to be - giving the Federal Reserve absolute monetary power when they abolished the gold standard in 1933 to help "ease" the great depression they created.

In the past 2 years, the Federal Reserve has increased the money supply by 120%... What happens next? As you have probably read in past blog posts by me, the last time this happened was in the 1970's when the FED increased the cash supply by 13% during Jimmy Carter's administration. That led to record high interest rates to correct the problem. We now have increased the cash supply almost 10x more then they did in the 70's.

Many people say we have been here before and we will be fine... The problem to that argument is that times are different. When all of this happened in the teens and twenties of the 20th century, we were a lot more solid financially. We were a country of production and savings. Even in the late 70's we were much better off. Then it was only the beginning of the process. The U.S.' debt as a percentage to the GDP was only 33% at that time. Now our national debt as a percentage to GDP is over 90%. Not to mention the cash supply issue is FAR greater now than it was then. For too long now (40 years) we have been functioning as a bankrupt society - surviving only on the price fixing by the Federal Reserve (interest rate control) and the debt we have incurred in the process. The stakes are much higher now than they were back then. The people of the United States are in such cumulative debt that a needed correction to the dollar would cripple the economy, force millions (not just 5,400 or 16,000) of businesses and banks to fail and cause a far greater depression then the world has ever known. In my estimation from all of the research I have been doing, it is not a matter of if, it is a matter of when.

What can you do?
Well, I am still working on that one :-). From what I have gathered so far, precious metals like silver and gold. DON'T simply buy silver or gold certificates through brokerage houses. Companies like J.P. Morgan have had to make settlements in class action suits against them claiming J.P. Morgan was not actually warehousing the physical silver people owned with the silver certificates purchased through their firm. This actually means that the supply/demand ratio of silver is off balance and when all this comes to light I think silver is greatly undervalued. Not to mention, historically, gold and silver have had a 16:1 ratio. Right now they are operating at a 62:1 ratio. Something is off there. I have read a lot of information about invest in C.R.I.B. funds (China.Russia.India.Brazil), but I don't have much info on that at this time. However, I can tell you that I think gold and especially silver are where you want to invest and have on hand. If the U.S. economy does collapse, silver and gold will most likely be the basis on which a new currency is valued. After all, there has never been a currency in the HISTORY of the world that has survived without having gold or silver as it's backer.

The US Housing bubble: how did it happen? Where is it going?

Most of us have been taught that owning your own home is the only way to go. Someone who I respect very much recently gave me 4 reason for owning a home:
1. Appreciation
2. Depreciation (owning saves you on taxes)
3. Cash Flow (mortgage payments - assuming you don't have an ARM or something of that nature - are consistent while rent payments will fluctuate.
4. Principal reduction (as you pay off your mortgage).

In theory, those four reasons sound like a pretty solid argument for owning a home. However, markets change - they always have. I believe this market is changing. I have been doing A LOT of research on this topic as I believe it is a HUGE element in the downfall of the US Economy.

WHERE THE CHANGE BEGAN:
I think the change started not in the housing sector specifically, but in our society as a whole. Once upon a time, we were a nation of savers. At one point in time in the mid 1950's, the average US home saved 17% of their annual income. Now we are at less then 3% with 48% of Americans having less then $10,000 saved for retirement. At some point, we converted from a Nation of savers to a nation of Takers. Did you know that 42% of Americans are receiving some sort of Federal Assistance? 42%!!! Did you know the US spends more on its national education then ANY of the other 20 world powers - yet ranks 18th and 19th in math and writing. Did you also know that we spend more on Federal assistance for our citizens? We have become LAZY, but honestly, who in our position wouldn't? Our government has enabled our society as a whole to become complacent in the past 4 decades and because of that, the rest of the world is passing us by. Anyways, I don't want to get too far off track. I give you those stats so you can think about the psychology of things. The US housing bubble is a several part problem.

The psychological and sociological perspective of our country is the first place to look. Our government has taken all self accountability away from us. Unemployment used to be 180 days. However, people we struggling to find jobs so they upped it to a year. When the unemployment rate kept growing they upped unemployment benefits to 2 YEARS! People are able to live off the government for up to 2 years because they "can't find work". The bottom line is that we are a country of entitlement. People are turning jobs down because they don't feel they are up to their standard. History says that our system does not work. The Netherlands went through the same thing about a decade ago. When unemployment rates hit record highs, they kept extending the period in which people could obtain federal assistance for unemployment. You know what happened? The longer they extended the period, the higher the percentage of unemployment grew. Ironic the majority of people found jobs on average of 2-4 weeks before their unemployment benefits were about to end (whether it was a 1 or 4 years of compensation). I tell you this because I want to stress the fact that the easier you make it on people, the worse it makes the situation. These sorts of benefits are burying our country economically.

Most people feel like houses are supposed to appreciate. That is what we have been taught as a nation. When told that Appreciation was the #1 reason to buy a house, I thought about it. I guess in theory he is right. The problem is most people in the country don't take advantage of the appreciation of their house the way they should.

once upon a time (about a decade ago), the banking institution of our great nation required you to have 20% down-payment to buy a home. They also would only lend you about twice your annual income pre-tax (if you made $100,000 the most they would lend you is $200,000 on a home). Another rule of thumb was that the total mortgage payments, interest and taxes should not amount to no more than a third of pretax income. When the dot-com bubble burst at the beginning of the century we were heading for a major recession and major correction in the dollar. However, the government would not have that. What did they do? They lowered interest rates and created newer creative financing options for homebuyers. The result? Lending standards were dropped to a point so pretty much anyone could buy a home - creating a new bubble. Millions of people obtained ARM's, interest only mortgages and other creative financing that put people into homes they really could not afford. It used to be buying a house was a good idea because you would buy it, live in it, and pay it off so you could retire rent/mortgage-free (that is #4 on the list - principal reduction). However, owning a home became more of a speculative investment and people got burned for it.

Prior to the end of the Gold Standard by Richard Nixon in 1971 (more on that later), housing rates did not appreciate like they have in the past 40 years. Prior to the elimination of the Gold Standard, housing only appreciated by an average of 2.53% annually. Compare that with an average appreciation of 6.52% annually since the elimination of the Gold Standard and new economic policy. coincidence? I think not.

With the end of the dot-com bubble the US needed a new bubble to take its place to keep the economy "thriving". With the new creative financing programs in place for the people of the US to buy homes, the bubble was about to inflate. What if I told you you could buy a house for $500,000 without putting any money down. You can live in it paying only interest, and when it goes up in value 6-8 months later you can borrow (tax free) in a cash-out refinancing. So you have all the upside and no downside. If it doesn't work, you can just walk away...after all, you didn't put any of your own money into it! What do you have to lose? NOTHING! This is what an enormous amount of people were doing.

People have been refinancing their houses for ages. However, they used to refinance to make home improvements because common sense back in the day said that your house was not going to just appreciate because of time. Now people were living off the equity that grew in their home over a very short period of time. Millions of people refinanced their homes and lived off that money as income. The concept of owning a home was now flawed (and is to this day). Speculation played a huge roll in the inflation of the housing bubble. However, it was just speculation and people got way in over their heads as homes were overvalued and now 27% of all houses in the US have negative equity with another 24% having 5% equity or less. That means 51% of the homeowners in this country would lose money on their homes after real estate commissions and other fees if they were to sell their houses today.

It used to be you could only get a loan based on credit worthiness. However, after the dot-com bubble and 9/11 Uncle Sam wanted economic growth. By allowing Fannie Mae and Freddie Mac to relieve banks of credit risk they created an environment of moral hazard and conflict of interest.

Here is an excerpt from Peter Schiff's book, Crash Proof 2.0;
Securitization, when housing demand is abnormally high, creates a conflict of interest. On one side are the mortgage originators, the banks and mortgage brokers that represent 80 percent of them. They do the marketing and the paperwork and collect hefty commissions and fees. With no risk of default, they want mortgages. On the other side are mortgage-buying entities that take on the risk, package loans, and issue mortgage-backed securities. They want prime loans that won't default.
The result: collusion between originators and appraisers resulting in faulty documentation, phony appraisals, and lax credit screening practices that have gotten many people in over their heads, caused speculative home buying to be rampant, and discouraged the kind of saving that an economy needs to be productive and healthy.

So much of the appreciation obtained in the housing market was speculative to a fault and has yet to be corrected. People have been basically living off debt for the past decade, refinancing their home. However, the market is tapped out. Housing prices need to come down by some economists estimations as much as 70-80% to show true value. Remember, housing prices have been appreciating by about 4% annually higher then they should be in a free market. However, lowering the values of the housing market by even as much as 20% at this point would crush this country economically. Another reason housing values have been increasing is the federal interest rate. It has been at all time lows, getting lower and lower for pretty much the entire first decade of the 21st century. The interest rate has been artificially low for too long to prop up our unhealthy economy. Anytime there is a potential recession in site, what's the FED's answer? Lower the interest rates! Well, guess what, we have been at 0% since the end of 2008. We have nowhere to go. When interest payments rise, people with the ARM's and other creative financing are going to be way in over their heads increasing the amount of foreclosures on the market to as many as 19 million homes. In addition, when interest rates go up, we all know mortgage payments go up, so the total value of a home new "qualified" buyers will actually qualify for will be much much less - which will also force a correction in home values.

#3 on the list at the beginning was "cash flow". I don't know about you, but I would rather not have a 30 year fixed mortgage on a $250,000 house at 5% for $1,600 per month when the house drops to $100,000-125,00. Now you are stuck in that location with no options.

Where does that leave us now?

What have our leaders done? Well, we can't lower the interest rate anymore, so what should we do? Stimulate the economy! Ah yes, the $847 Billion dollar economic stimulus in 2009 was their answer. Let's "print" money and give it to people to spend so we can keep our economy going. The Obama administration has a national debt higher then all other administrations in the history of the US COMBINED!!! They have increased the national money supply by 120% in the past two years by simply printing monopoly money. You can't increase the cash supply by that amount and expect every dollar to be worth what it was before. Our economy is over inflated and needs a major correction. The US Government is not going to allow this to happen. They will keep printing money to prop us up until inevitably hyperinflation hits us and the US Currency is worth nothing in this world. Back in the 1970's there was a major inflation issue. A couple years after we first got off the Gold Standard, President Carter increased the Cash Supply by 13%. That 13% increase created such an inflation issue that the interest rate needed to be raised to an all-time high of 20% just to get the inflated money off the streets to avoid hyperinflation. What will the interest rates need to be to correct a 120% increase in the cash supply for our country? That doesn't include more potential money they will be printing in the near future...

The fact is, this country has been bankrupt since Richard Nixon got rid of the Gold Standard in 1971 - that's the reason he got rid of it in the first place! In 1944 the United States currency was made the world currency in accordance to the Bretton Woods act. We were the only country in the world with enough gold and silver reserves to back our currency. Therefore, all international disputes would be settled in US dollars. It is because of Bretton Woods that we have held our status as the dominant world power for 70 years. However, when Nixon axed the Gold Standard (an act which was unconstitutional on its own - Article I, section 10 of the US Constitution says, "No state shall make anything but gold and silver coin a tender in payment of debts.) it was the beginning of a drawn out end that has been taking its course over 40 years. The US has been a house of cards since that time, surviving off the manipulative monetary and political policies of the Federal Reserve and allowing inflation to eat us up in the process.

The world is going through a shift right now and at the end, the United States is going to get the boot from the throne. They may be able to save our so-called "to-big-to-fail" corporations by bailing them out with printed money, but in the process, it devalues everything it's countries citizens have worked their entire life for and will ultimately fail itself. The national banking system is essentially saving its peers at the expense of YOU. EVERY paper currency in the history of man-kind has eventually been worth nothing. Because of economic and political policy, along with assistance from the Federal Reserve (our central bank), our historic run of 40 years as a fiat currency has outlasted the longest run of 17 years of longevity any country has lasted with a fiat currency before a major correction had to be made.

Let me end with a quote from Thomas Jefferson (1743-1826):
"I believe that banking institutions are more dangerous than standing armies... If the American people ever allow private banks to control the issue of currency...the banks and corporations that will grow up around them will deprive the people of their property until their children wake up homeless on the continent their father conquered".

That quote was made as he eliminated equivalent of the Federal Reserve in 1817. Knowing that it was UNCONSTITUTIONAL to have such an organization.

I know this wasn't the most organized piece of literature, but my head is bouncing all over the place. I tried to stay on point as much as I could... It is virtually impossible to put all my thoughts in here as I wanted without writing a novel, so if you have any questions or feel I was unclear about something, please let me know!

What can you do now? Recommendations to come!!!

A Simple Explanation to Hyperinflation:

Let me sum this up - you can't increase the national money supply by 120% in 18 months and expect it to be worth the same as it was before. Zimbabwe, Germany (in the 1920's), and the USSR all failed because of doing EXACTLY what our government is doing right now! The sad part is Ben Bernanke is telling everyone we are in recovery and there really isn't an issue with the economy. Of course, his words don't really mean anything anymore. After all, he is the one who said the auto industry was recovering - only 6 months before the Federal Government decided it was their spot to step in and bail them out for billions of dollars - only to have the file bankruptcy anyways (even after getting the $$$) a few months later. Bernanke is also the one who said there was not going to be a housing bubble only a year before it burst. If you really want to be informed, we need to stop listening to the LIES of Obama, Bernanke and others trying to push a socialistic big government policy on the US.

Things NEED to change. There needs to be a correction with the US dollar. That is going to mean hard times on the US for a couple of years, but if we keep on with the current policy (just printing money to pay off international debt), we are inevitably going to have Hyperinflation which would most likely equal the end of the US Dollar as we know it. History doesn't lie. I am not talking 2012 end of the world stuff here, it is simple economics, and math doesn't lie...