~ Robert Kiyosaki ~
“Is the crisis over?” is a question I am often asked. “Is the economy coming back?”
My reply is, “I don’t think so. I would prepare for the worst.”
Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.
The stock market has been going up since March 9, 2009. Talk of “green shoots” fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:
1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.
Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking… and I don’t blame them. A global panic would be ugly and dangerous.
2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.
Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.
In the 1980s, our government’s hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.
While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, “Sometimes the cure is worse than the disease.” I say the government stimulus cure is killing us frogs.
3. Old frogs don’t hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years — their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.
The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.
4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it’s my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare…Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.
5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they’re concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.
The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.
The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker’s money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares ¬– and pay their pound of flesh.
Demographics show that we are entering a battle between young and old. I call it the “Age War.” The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.
This war is not coming…it is upon us now. This is one of many reasons why I remain cautious and say, “The worst is yet to come.”
See the original post here:
Preparing for the Worst
By: Curtis Ophoven
Changing your spending habits may not be enough. It will take convincing your neighbors, extended family, employers and the government to slow down on the spending and save more money.
The total US obligated debt is around 70 trillion dollars when added together,
- 1.1 trillion in personal credit card debt
- 9.1 trillion in federal debt
- 41 trillion in entitlement debt (social security, Medicare)
- 10 trillion in home equity debt
- 9 trillion in corporate debt
The US GDP in 2007 was as 13.5 trillion, which means our debt is 5 times our annual income. No other nation has ever owed as much money to as many people in the history of the world.
The Federal government will soon be forced to raise interest rates to compete with global investors to continue to buy US dollar based equities. If global investors stop buying US bonds, the long term interest rates will rise as investors seek higher yielding opportunities abroad. Higher interest rates will compound the declining housing market.
Increase Savings
An increase in US savings will help offset the millions around the world that are moving their savings to other currencies and other foreign equity markets. The world is facing a currency crisis as the value of the dollar continues to fall against the major currencies of the world.
It’s true, being stringy will push the economy into a recession because the economy is 75% consumer driven, but because we don’t manufacture products anymore, the money we are spending is leaving the country as fast as it leaves our hand. With a $60 billion per month trade deficit, we need to increase our saving rate to support the value of the dollar and reduce the impact of the global selloff of dollars.
The Politicians Are Wrong
The politicians continue to tell us to spend more money in order to keep the US economy out of a recession, but spending more money is only pushing the US farther into debt. Here are a few reasons why this misguided information is being feed to the public. First of all politicians are primarily motivated to get elected and in their pursuit, they are not focused on the long term prosperity of the US economy. Second, they believe that because the US government does not have an end date, we can continue to borrow indefinitely. And third, because of the historical leadership of the economists like Allan Greenspan, they trust the economic leadership to keep the US economy afloat.
The Global Economy Has Changed Things
The economic leaders like Allan Greenspan were successful in the past because they were supported by the high value of the dollar around the world. This high value of the dollar which is recognized by the world as the reserve currency by institutions like the World Bank and International Monetary Foundation (IMF), has allowed the US to borrow money for nearly 40 years.Â
But, the interlacing of the major financial institutions of the world, brought about by the last decade of globalization, has exposed the real value of the dollar. Two-thirds of the dollars in print are used outside of the US. If the dollars’ value continues to drop against major currencies, these dollars will be sold back to the US – which will create a lot of inflation. The cost of imported products could increase by three times what they are today.
The Federal Reserve is losing its ability to control the economy. They used to maintain economic growth by manipulation of the Federal interest rates. But, with the dollar weakening, they are losing control. They used to be able to lower the interest rate and force the world banks to follow their actions, because the dollar is the reserve currency of the world. More and more nations like those that are part of OPEC, are one-by-one refusing to follow the US Federal Reserve and instead shifting to other currencies like the Euro to buy/sell international products.
As the major financial institutions turn from the dollar as the world reserve currency, the Federal Reserve is losing influence and power – and will soon be unable to prop up the US economy.
Global Value Equalization
These are 146 major currencies in the world today and the values against each other are in constant fluctuation. The free trade trend of the past decade, where products are sold for the same price on a common market, is forcing currencies to find their rightful value. What is happening is the global market is forcing the value of the dollar into its actual value – which the US Federal Reserve cannot control.
The US dollar is overvalued against the world currencies and the adjustment is not going to be fun for anyone, because the entire world is full of dollars.
Increasing the savings rate in America will help save the country from the potential economic meltdown. Be patriot, be stingy.
Read the original here:
Be Patriotic, Be Stingy
To most Americans today, Federal Reserve is just a name on the dollar bill. They have no idea of what the central bank does to the economy, or to their own economic lives; of how and why it was founded and operates; or of the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates.
Dedicated to Murray N. Rothbard, steeped in American history and Austrian economics, and featuring Ron Paul, Joseph Salerno, Hans Hoppe, and Lew Rockwell, this extraordinary 42 mins film is the clearest, most compelling explanation ever offered of the Fed, and why curbing it must be our first priority.
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Credit:
Money, Banking and the Federal Reserves
