The Beginning of a U.S. economic collapse and hyper-inflation? (part 2)

Continued from: (part1) The only way our economy can truly recover from this recession is for the government to dramatically slash spending across the board and eliminate unneeded departments.

The average American has a mindset of wanting to get paid and live well while doing as little work as possible. Why have a job in America if you can sit home and get paid to do nothing? Let the Chinese produce goods for us to consume for free.

Many American employers are being to realize not only is it cheaper to outsource work to China and India, and not only are the workers there motivated to do a better job, but there are less liabilities when outsourcing work overseas.

The recently passed “patient protection and affordable care act” mandates that all businesses with 50 or more employees give new mothers a reasonable break time to breast feed their babies or use a breast pump, and to provide them a secluded place other than restrooms where they may perform maternal duties. Almost all employers in the U.S. would have the common sense and decency to do this on their own, but now American businesses are being needlessly burdened in order to comply with another new unnecessary regulation.

Employers in the U.S. are penalized when they create jobs in this country. Minimum wage laws alone have destroyed millions of entry level jobs we could have had in the U.S. Chicken of the Sea recently had to close its plant in American Samoa and lay off over 2,000 individuals who packed tuna because of the 50 cent increase in the American minimum wage.

The simple act of lowering government worker wages would go a long way in helping re-balance Americas unstable economy.

Unfortunately, what’s going in Washington right now is a charade. If the Republicans were in power they would have supported the recently passed health-care bill. There is absolutely no difference between republicans and democrats. Neither of the parties are for limited government and protecting the constitution. The very existence of the federal reserve and the printing of fiat currency is unconstitutional. Yet there is still no widespread outrage about it. Americans are distracted by the daily debates in Washington and about whether to raise or lower taxes. But considering that federal tax receipts have remained relatively constant as a percentage of GDP over many decades proves that taxes are a  issue. Americans are already taxed to the hilt and any additional taxes will bring in less tax revenues.

There is no chance of our country ever paying off its national debt and unfunded liabilities through taxation. Americans will ultimately feel the pain for all of the governments waist-full spending through inflation.

Inflation is currently the last thought on the average Americans mind, but soon it will be their primary concern.

The U.S. is currently in a brief period of euphoria where the federal reserves monetary inflation has created the appearance of an economic recovery without the devastating side effects of massive price inflation. Although it is possible for the stimulus produced to last for another year or two without hyper-inflation, it will without a doubt end in an economic holocaust that completely wipes out the savings and income of the middle class.

The federal reserve created the real estate bubble when it tried to keep the dot com bubble artificially inflated by lowering interest rates in 2003 down to 1%. The recession that we needed to have in 2003 to re-balance the economy simply never happened. In a last ditch effort to correct our economic imbalances caused by the federal reserve, the free market made a desperate attempt to enter the U.S. in to a depression in late 2008.

The federal reserve lowered interest rates to 0% and a depression never occurred. They simply pushed the problem down the road.

Heroin addicts need to go through withdrawal in order to get healthy. They cant simply shoot larger doses of heroin and stay high forever. Federal reserve chairman Ben Bernanke is just like a heroin addict, only his drug is quantitative easing.

If Bernanke doesn’t raise interest rates immediately and raise them dramatically, we could see the DOW at 15,000 then 20,000 then 50,000. But DOW 50,000 wont mean anything if gold is 50,000$ a oz and silver is 5,000$ oz and a loaf of bread costs a 100$. The last thing Americans need to worry about today is the stock market crashing nominally. If the stock market saw a nominal decline again, we will likely see Ben Bernanke shoot up his largest ever dose of quantitative easing which could turn the current situation into hyper-inflation.

Hyper-inflation can only be prevented if we see the federal reserve raise interest rates to a level that is higher than the rate of  inflation. The official U.S. inflation rate is currently around 2.5% However, over the years the government has made revisions in an effort to understate inflation due to the fact that social security and other programs adjust to the rate of CPI and they want to keep payment increases for these programs as low as possible.

Through the addition of geometric waiting, the CPI today gives a lower waiting to goods that are rising in price and a higher waiting to goods that are falling in price. They justify this by saying that if the price of steak rises, Americans are more likely to eat something that is falling in price like hamburgers.

The government also uses hedonics to understate inflation. Hedonics account for the increased pleasure of using goods. If an oven increased 25% in price, but the oven is 25% more energy efficient, or if a car increased 10% in price but is now 10% safer, the CPI wont account for any price increases.

We conservatively believe the real rate of inflation to be 3-4% higher than what is indicated by the CPI. Therefore, if we want to prevent hyper-inflation, we need the federal reserve to raise the federal funds rate immediately from 0% to at least 5.3%-6.3%.

Historically, one of the best performing periods for precious metals has been when the federal reserve begins to raise artificially low interest rates.

To be continued in: (part 3)

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