Monday, April 4, 2011
Thank you Ben Bernanke for all the money printing. Thanks to a massive injection of cash into the financial system by the Federal Reserve and other central banks, the price of almost every major commodity has skyrocketed over the past six months. Now those price increases are starting to filter down to the retail level. During a recent meeting with USA TODAY's editorial board, Wal-Mart CEO Bill Simon said that rising inflation in the United States is "going to be serious" and that Wal-Mart is "seeing cost increases starting to come through at a pretty rapid rate." For many years Wal-Mart has been famous for their "low prices", so for the head of Wal-Mart to publicly warn that much higher prices are coming is more than a little alarming. There are millions of American families that are already drowning in debt, that can barely pay their mortgages and that are struggling to put food on the table for their families. So what is going to happen to the U.S. economy when prices start rising substantially at places such as Wal-Mart?
But Wal-Mart is not the only major corporation that says that inflation is coming. Hershey has just announced price increases of about 10 percenton their entire line of products.
So if you like chocolate you better start stocking up now.
Cocoa production is being seriously threatened by the political unrest in Africa right now. The recent chaos in the Ivory Coast is certainly not good news for Hershey, but the truth is that all of the long-term trends indicate that prices for commodities such as cocoa, coffee and sugar are going to move up anyway.
In fact, Aaron Smith, the managing director of Superfund Financial, believes that coffee, sugar and cocoa will all be five to ten times more expensiveby 2014 than they are today.
So if you are addicted to coffee or to sugar you might want to start making your plans accordingly.
But the truth is that inflation is not limited to just a few commodities. Virtually every major agricultural commodity has soared in price over the past 6 months to a year.
So what is causing all of this?
Well, there are several factors which are major contributors.
First of all, overall global demand continues to increase. The population of the world continues to grow, and as the economies of nations such as China and India develop, millions more people want to enjoy luxury items such as chocolate and coffee just like Americans do.
Secondly, all over the world central banks have been recklessly printing money in an attempt to stimulate their economies, but this is also going to end up causing tremendous inflation.
So how does that work?
Well, it is actually very simple.
For example, in the United States when there are more dollars chasing the same number of goods and services, what is going to happen?
Prices are going to rise of course.
And we are seeing this happen all over the world right now.
Thirdly, as the price of oil continues to rise, it is going to increase the cost of everything else. The era of massive amounts of cheap food being transported around the world using massive quantities of cheap oil is rapidly coming to an end.
The following chart if from the Federal Reserve. It shows that the price of oil is rapidly moving back to the level it was at prior to the financial crisis of 2008. In fact, this chart is slightly out of date. At last check, the price of oil was over $107 a barrel. So what is it going to mean for our economy if we soon surpass the record that was set back in 2008?....
Fourthly, global instability is also going to cause prices to continue to rise. Over the past year we have had really bizarre weather all over the globe, we have seen revolutions erupt all over Africa and the Middle East and the third largest economy in the world (Japan) just experienced the worst disaster that they have been through since World War 2 ended.
When things are unstable, economies don't work as efficiently. That means that less goods and services are produced.
But when there are less goods and services being chased by an increasing amount of money that tends to push prices up.
The truth is that inflation is here, and if the CEO of Wal-Mart is right, it is not going to go away any time soon.
In fact, many believe that the world is on the verge of another major economic crisis.
If you stop and think about it, every major region of the world is dealing with very serious problems right now.
Right now, the European debt crisis is worse than it ever has been before. Did you notice that Standard & Poor's just downgraded Portugal's debt for the second time in a week? Now Portuguese debt is rated BBB-, which is only one level above junk status.
That is a very alarming sign.
Asia is dealing with the Japanese crisis, nearly all of the countries in the Middle East are dealing with protests or full-blown revolutions, Africa is dealing with the war in Libya and quite a few revolutions of their own, and the U.S. is still deeply struggling with a whole host of economic problems.
Most Americans don't realize just how precarious things are at the moment for the global economy. The financial crash of 2008 did a lot of lasting damage, and the next wave of the financial crisis could potentially be even worse. Unfortunately, the global financial system is more vulnerable than ever right now.
So what are the Federal Reserve and other central banks going to do the next time a major financial crisis happens?
They are going to print even larger quantities of money and they are going to give even larger bailouts to their friends of course.
The dollars that you have today are never going to be more valuable than they are right now. Don't wait too long to use them. If you have a huge pile of dollars sitting in the bank your wealth is slowly but surely rotting away.
Very hard economic times are coming. The inflation that the CEO of Wal-Mart is warning about is only the beginning. Eventually we are going to see inflation in this country that is going to be absolutely mind blowing.
But don't wait until the storm hits to start preparing. We all have time now to prepare, so let us be wise and make the most of it.
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1) The Federal Reserve is Buying 70% of U.S. Treasuries. The Federal Reserve has been buying 70% of all new U.S. treasury debt. Up until this year, the U.S. has been successful at exporting most of its inflation to the rest of the world, which is hoarding huge amounts of U.S. dollar reserves due to the U.S. dollar's status as the world's reserve currency. In recent months, foreign central bank purchases of U.S. treasuries have declined from 50% down to 30%, and Federal Reserve purchases have increased from 10% up to 70%. This means U.S. government deficit spending is now directly leading to U.S. inflation that will destroy the standard of living for all Americans.
2) The Private Sector Has Stopped Purchasing U.S. Treasuries. The U.S. private sector was previously a buyer of 30% of U.S. government bonds sold. Today, the U.S. private sector has stopped buying U.S. treasuries and is dumping government debt. The Pimco Total Return Fund was recently the single largest private sector owner of U.S. government bonds, but has just reduced its U.S. treasury holdings down to zero. Although during the financial panic of 2008, investors purchased government bonds as a safe haven, during all future panics we believe precious metals will be the new safe haven.
3) China Moving Away from U.S. Dollar as Reserve Currency. The U.S. dollar became the world's reserve currency because it was backed by gold and the U.S. had the world's largest manufacturing base. Today, the U.S. dollar is no longer backed by gold and China has the world's largest manufacturing base. There is no reason for the world to continue to transact products and commodities in U.S. dollars, when most of everything the world consumes is now produced in China. China has been taking steps to position the yuan to be the world's new reserve currency.
The People's Bank of China stated earlier this month, in a story that went largely unreported by the mainstream media, that it would respond to overseas demand for the yuan to be used as a reserve currency and allow the yuan to flow back into China more easily. China hopes to allow all exporters and importers to settle their cross border transactions in yuan by the end of 2011, as part of their plan to increase the yuan's international role. NIA believes if China really wants to become the world's next superpower and see to it that the U.S. simultaneously becomes the world's next Zimbabwe, all China needs to do is use their $1.15 trillion in U.S. dollar reserves to accumulate gold and use that gold to back the yuan.
4) Japan to Begin Dumping U.S. Treasuries. Japan is the second largest holder of U.S. treasury securities with $885.9 billion in U.S. dollar reserves. Although China has reduced their U.S. treasury holdings for three straight months, Japan has increased their U.S. treasury holdings seven months in a row. Japan is the country that has been the most consistent at buying our debt for the past year, but that is about the change. Japan is likely going to have to spend $300 billion over the next year to rebuild parts of their country that were destroyed by the recent earthquake, tsunami, and nuclear disaster, and NIA believes their U.S. dollar reserves will be the most likely source of this funding. This will come at the worst possible time for the U.S., which needs Japan to increase their purchases of U.S. treasuries in order to fund our record budget deficits.
5) The Fed Funds Rate Remains Near Zero. The Federal Reserve has held the Fed Funds Rate at 0.00-0.25% since December 16th, 2008, a period of over 27 months. This is unprecedented and NIA believes the world is now flooded with excess liquidity of U.S. dollars.
When the nuclear reactors in Japan began overheating two weeks ago after their cooling systems failed due to a lack of electricity, TEPCO was forced to open relief valves to release radioactive steam into the air in order to avoid an explosion. The U.S. stock market is currently acting as a relief valve for all of the excess liquidity of U.S. dollars. The U.S. economy for all intents and purposes should currently be in a massive and extremely steep recession, but because of the Fed's money printing, stock prices are rising because people don't know what else to do with their dollars.
NIA believes gold, and especially silver, are much better hedges against inflation than U.S. equities, which is why for the past couple of years we have been predicting large declines in both the Dow/Gold and Gold/Silver ratios. These two ratios have been in free fall exactly like NIA projected.
The Dow/Gold ratio is the single most important chart all investors need to closely follow, but way too few actually do. The Dow Jones Industrial Average (DJIA) itself is meaningless because it averages together the dollar based movements of 30 U.S. stocks. With just the DJIA, it is impossible to determine whether stocks are rising due to improving fundamentals and real growing investor demand, or if prices are rising simply because the money supply is expanding.
The Dow/Gold ratio illustrates the cyclical nature of the battle between paper assets like stocks and real hard assets like gold. The Dow/Gold ratio trends upward when an economy sees real economic growth and begins to trend downward when the growth phase ends and everybody becomes concerned about preserving wealth. With interest rates at 0%, the U.S. economy is on life support and wealth preservation is the focus of most investors. NIA believes the Dow/Gold ratio will decline to 1 before the hyperinflationary crisis is over and until the Dow/Gold ratio does decline to 1, investors should keep buying precious metals.
6) Year-Over-Year CPI Growth Has Increased 92% in Three Months. In November of 2010, the Bureau of Labor and Statistics (BLS)'s consumer price index (CPI) grew by 1.1% over November of 2009. In February of 2011, the BLS's CPI grew by 2.11% over February of 2010, above the Fed's informal inflation target of 1.5% to 2%. An increase in year-over-year CPI growth from 1.1% in November of last year to 2.11% in February of this year means that the CPI's growth rate increased by approximately 92% over a period of just three months. Imagine if the year-over-year CPI growth rate continues to increase by 92% every three months. In 9 to 12 months from now we could be looking at a price inflation rate of over 15%. Even if the BLS manages to artificially hold the CPI down around 5% or 6%, NIA believes the real rate of price inflation will still rise into the double-digits within the next year.
7) Mainstream Media Denying Fed's Target Passed. You would think that year-over-year CPI growth rising from 1.1% to 2.11% over a period of three months for an increase of 92% would generate a lot of media attention, especially considering that it has now surpassed the Fed's informal inflation target of 1.5% to 2%. Instead of acknowledging that inflation is beginning to spiral out of control and encouraging Americans to prepare for hyperinflation like NIA has been doing for years, the media decided to conveniently change the way it defines the Fed's informal target.
The media is now claiming that the Fed's informal inflation target of 1.5% to 2% is based off of year-over-year changes in the BLS's core-CPI figures. Core-CPI, as most of you already know, is a meaningless number that excludes food and energy prices. Its sole purpose is to be used to mislead the public in situations like this. We guarantee that if core-CPI had just surpassed 2% and the normal CPI was still below 2%, the media would be focusing on the normal CPI number, claiming that it remains below the Fed's target and therefore inflation is low and not a problem.
The fact of the matter is, food and energy are the two most important things Americans need to live and survive. If the BLS was going to exclude something from the CPI, you would think they would exclude goods that Americans don't consume on a daily basis. The BLS claims food and energy prices are excluded because they are most volatile. However, by excluding food and energy, core-CPI numbers are primarily driven by rents. Considering that we just came out of the largest Real Estate bubble in world history, there is a glut of homes available to rent on the market. NIA has been saying for years that being a landlord will be the worst business to be in during hyperinflation, because it will be impossible for landlords to increase rents at the same rate as overall price inflation. Food and energy prices will always increase at a much faster rate than rents.
8) Record U.S. Budget Deficit in February of $222.5 Billion. The U.S. government just reported a record budget deficit for the month of February of $222.5 billion. February's budget deficit was more than the entire fiscal year of 2007. In fact, February's deficit on an annualized basis was $2.67 trillion. NIA believes this is just a preview of future annual budget deficits, and we will see annual budget deficits surpass $2.67 trillion within the next several years.
9) High Budget Deficit as Percentage of Expenditures. The projected U.S. budget deficit for fiscal year 2011 of $1.645 trillion is 43% of total projected government expenditures in 2011 of $3.819 trillion. That is almost exactly the same level of Brazil's budget deficit as a percentage of expenditures right before they experienced hyperinflation in 1993 and it is higher than Bolivia's budget deficit as a percentage of expenditures right before they experienced hyperinflation in 1985. The only way a country can survive with such a large deficit as a percentage of expenditures and not have hyperinflation, is if foreigners are lending enough money to pay for the bulk of their deficit spending. Hyperinflation broke out in Brazil and Bolivia when foreigners stopped lending and central banks began monetizing the bulk of their deficit spending, and that is exactly what is taking place today in the U.S.
10) Obama Lies About Foreign Policy. President Obama campaigned as an anti-war President who would get our troops out of Iraq. NIA believes that many Libertarian voters actually voted for Obama in 2008 over John McCain because they felt Obama was more likely to end our wars that are adding greatly to our budget deficits and making the U.S. a lot less safe as a result. Obama may have reduced troop levels in Iraq, but he increased troops levels in Afghanistan, and is now sending troops into Libya for no reason.
The U.S. is now beginning to occupy Libya, when Libya didn't do anything to the U.S. and they are no threat to the U.S. Obama has increased our overall overseas troop levels since becoming President and the U.S. is now spending $1 trillion annually on military expenses, which includes the costs to maintain over 700 military bases in 135 countries around the world. There is no way that we can continue on with our overseas military presence without seeing hyperinflation.
11) Obama Changes Definition of Balanced Budget. In the White House's budget projections for the next 10 years, they don't project that the U.S. will ever come close to achieving a real balanced budget. In fact, after projecting declining budget deficits up until the year 2015 (NIA believes we are unlikely to see any major dip in our budget deficits due to rising interest payments on our national debt), the White House projects our budget deficits to begin increasing again up until the year 2021. Obama recently signed an executive order to create the "National Commission on Fiscal Responsibility and Reform", with a mission to "propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015". Obama is redefining a balanced budget to exclude interest payments on our national debt, because he knows interest payments are about to explode and it will be impossible to truly balance the budget.
12) U.S. Faces Largest Ever Interest Payment Increases. With U.S. inflation beginning to spiral out of control, NIA believes it is 100% guaranteed that we will soon see a large spike in long-term bond yields. Not only that, but within the next couple of years, NIA believes the Federal Reserve will be forced to raise the Fed Funds Rate in a last-ditch effort to prevent hyperinflation. When both short and long-term interest rates start to rise, so will the interest payments on our national debt. With the public portion of our national debt now exceeding $10 trillion, we could see interest payments on our debt reach $500 billion within the next year or two, and over $1 trillion somewhere around mid-decade. When interest payments reach $1 trillion, they will likely be around 30% to 40% of government tax receipts, up from interest payments being only 9% of tax receipts today. No country has ever seen interest payments on their debt reach 40% of tax receipts without hyperinflation occurring in the years to come.
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A Colorado Springs “birther,” retired Air Force Col. Gregory Hollister, has Internet blogs abuzz with what may be an illegal foray into an online Social Security data base and how he obtained a copy of President Barack Obama’s draft registration from 1980.
“Col. Greg Hollister, USAF (Ret.) contacted the Selective Service, falsely impersonated President Obama, improperly registered his own address as President Obama’s address, and by this false impersonation and identity theft he managed to obtain a duplicate registration acknowledgement card with President Obama’s Selective Service information on it,” a blogger posted on gratewire.com last week. “This may violate several federal criminal statutes, and apparently caused the federal record of President Obama’s address with the Selective Service to be altered to show that he lives in Colorado Springs, CO.”
Hollister said Tuesday a private investigator, Susan Daniels of Ohio, gave him what is purported to be the president’s Social Security number. He then accessed the Social Security Number Verification Service to find out to whom it was issued and to access Selective Service documents.
The site allows registered users to verify names and Social Security numbers for employment purposes and warns that using it under false pretenses is a violation of federal law.
“According to the Social Security Administration, that number was never issued,” said Hollister, who challenged whether the president is an American citizen in a lawsuit the U.S. Supreme Court refused to hear Jan. 18 without requiring a response from the White House.
However, that’s the Social Security number that appears on the Selective Service documents Hollister obtained.
Hollister and others in the birther movement claim Obama was born in either Kenya or Indonesia and that his birth certificate showing he was born in Honolulu in 1961 is a forgery.
Being born outside the U.S. makes him ineligible to be president, they claim, because the Constitution requires the president to be a natural born citizen.
Hollister said the Social Security number on what he says is Obama’s draft registration begins with the numbers 042, which would be issued to someone born in Connecticut, not Hawaii.
Last week, California attorney Orly Taitz, who has led the legal challenges to Obama’s citizenship, filed an amended complaint in her latest lawsuit demanding Obama’s Social Security records, attaching as an exhibit the draft registration mailed to an address in Colorado Springs, according to the Reality Check Radio Blog.
It is unknown if the U.S. Attorney’s Office in Denver is investigating Hollister’s use of the data bases and obtaining Obama’s draft records.
Hollister denied breaking any laws.
“I was very meticulous and made sure everything I did was compliant with the law,” Hollister said, noting that he sent Obama an 1099 tax form.
A 1099 is an IRS income reporting form for independent contractors and free-lancers. Hollister did not explain how sending that to Obama complies with federal laws on the use of Social Security data.
Daniels said her doubts about Obama’s citizenship have only been reinforced by what Hollister found out.
Hollister said he started questioning Obama’s citizenship because as a retired Air Force officer he is subject to recall to active duty until he dies and he needs to be sure that Obama has the authority to give those orders.Gazatte
Read more: http://www.gazette.com/articles/springs-115381-colorado-obama.html#ixzz1IE9lhEBB
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