QE4 Could Start Sooner Than We Think

With the recent plunge in crude oil prices and the Russian Ruble, along with the decline in the US stock market, I wonder if the Fed regrets its decision to temporarily stop Quantitative Easing. It was the right decision in the long-term because the federal government and investment markets have become addicted to easy money, just like a chronic alcoholic or drug addict.

However, I don't think this will be the end of QE because so many individuals, companies and governments depend upon high asset prices and low interest rates. The federal, many state governments and big corporations need low interest rates to keep borrowing as cheaply as possible. Based on the most recent "Cromnibus" bill, it's obvious the federal government won't cut back on spending anytime soon.

Many publicly traded companies such as IBM sold bonds to raise cash and buy back stock so their earnings would look better. Even a slight increase in interest rates would be bad for the bottom line of many firms who did this "financial engineering."

The federal government wants to keep consumers spending as much as possible, which is based to a large extent on easy credit. Low mortgage rates have fueled the Echo Boom in residential real estate, and now sub-prime auto loans up to 84 months are available for car buyers.

The Federal Reserve is being diplomatic and coy about if (or when) it will raise interest rates. I don't think the Fed can or will raise rates unless they're absolutely forced to - just like Russia's central bank was forced this week into an emergency rate hike to 17%. The FedHeads have painted (or more like printed) themselves into a corner with all this easy money and low rates.

Jim Rickards has said he thinks we'll see QE4 in 2016. That would give the economy a pre-election boost and increase Hillary Clinton's chances to win the Presidency. However, I don't think the Fed or FedGov can wait that long if the stock market goes significantly lower. The ultimate collateral backing financial paper assets is the investing public's confidence in those assets.

That confidence is somewhat fragile right now, and the Fed will do everything it can to maintain that confidence in US financial markets. I don't think it can afford to wait too long to intervene if things go south. That's why we I believe we could see QE4 a lot sooner than the experts think.

Why China (Still) Has A Big Financial Edge On The United States

A common theme you hear in financial and mainstream media is how China's economy is slowing down. I believe this theme is being promoted to make American investors feel better about our struggling economy.

That's why reality TV is popular nowadays. When you watch the adventures of Honey Boo-Boo, Mama June or other reality stars - and see how messed up their lives are - you don't feel so bad about your life, even if things aren't going well.

We hear that China is overbought, overbuilt and has lent too much money to commercial borrowers. Given certain media reports, these premises are probably true.

You may have seen the 60 Minutes report on China's "ghost cities," where large developments were built that didn't have any commercial or residential tenants. Obviously, these kind of projects were designed to provide jobs for workers and stimulate economic activity. Not to provide returns for investors.

Even with this and other internal challenges that China faces, it still has a big advantage over the United States in one key area: Debt. There's a Bible verse that says, "The borrower is servant to the lender." To refresh your memory, China is the lender and the United States is the borrower of about $1 trillion in Treasury debt (officially).

While China may have a lot of internal debt that companies and individuals owe lenders, it's the largest holder of external debt of any nation on earth. The U.S. owes the most external debt to foreign investors of any country in the world.

While the Federal Reserve used this borrowing to stimulate the US economy, and consumers bought a lot of Chinese-made electronic and other goods... the Chinese did something much wiser with their money: They bought assets - and a lot of them. All around the world, but especially in the US. And there seems to be no end in sight for these Chinese asset purchases.

In September of 2013 a Chinese company bought Smithfield Foods, the largest pork producer in the United States, for a reported $4.7 billion. The following month another Chinese company bought one of the best commercial buildings in New York City - One Chase Manhattan Plaza - for $725 million.

Chinese are also one of the biggest foreign buyers of real estate in Los Angeles, New York City, and even Detroit.

But the largest and most noticeable asset the Chinese have bought is physical gold. According to Jim Rickards' recent Twitter post, Russia is buying hundreds of tons of gold... the Chinese are buying thousands of tons of the barbarous relic.... while most Americans could care less. Rickards adds, "Someone's right, someone's wrong."

In case you haven't figured it out, boobus Americanus who buys high-priced real estate, big screen TVs and smart-phones isn't right. These manipulated, depressed prices for physical gold and silver won't last forever. Go to your local coin or metals dealer, Amagi Metals or Colorado Gold and get as much gold and silver bullion as you can reasonably afford.

We're starting to see a shift in demand from financial paper assets to the tangible variety. It's only going to accelerate in the months and years to come. Don't get left behind, position at least part of your finances wisely and take action today.

Is It Time To Leave The Stock Market?

I wanted to write this post earlier this summer, but had a health incident and surgery last month. I'm doing well and finally getting back in the swing of things.

I realize a good number of folks have already asked this question and answered it in the affirmative. They saw two major crashes in 2000 and 2008... hated to look at their 401(k) statements month after month with no hope of improvement... and just couldn't stomach the volatility and uncertainty of the Wall Street Casino. There are still some stock market true believers who are staying in the game; probably from their loyalty to a brokerage firm, or believing the old myth that "nothing beats the market in the long run."

Long term buy-and-hold investing has been debunked since 2000. Nimble swing traders can still scalp short-term profits, but it's getting more difficult for amateurs to win on Wall Street. That's because a majority of the daily trading volume comes from computers - not from individual traders or fund managers. This High-Frequency Trading (mainly from the large investment banks and brokerage firms) has made stock trading the equivalent of a rigged carnival game, and not a free, fair or honest market.

The recent increase in stock market and real estate values was fueled by ultra-low interest rates, "Helicopter Ben" Bernanke debasing the currency even more, and probably intervention by the Federal Reserve, the federal government and/or the big investment banks. It's given unsuspecting Americans the illusion that the economy is coming back, and happy days are here again. But nothing could be further from the truth.

Government bailouts of the big banks never solved the causes of our financial problems, which were (and still are) excessive money-printing and credit creation - mixed with a lot of good stories and short-term speculation. This financial leverage kept the economic good times going, and helped avoid normal economic downturns. But just like an alcoholic who keeps drinking to avoid the hangover, eventually he will have to deal with it - just like the United States will have to deal with the biggest financial "hangover" in the history of the world.

And this hangover will affect US citizens and markets for many years to come. Hoping and waiting for the economy to "get better" so your stocks or mutual funds will come back is a bad investment strategy. If you haven't done so, sell your stocks, ETFs and mutual funds and convert a good portion of your cash into physical gold, silver, food and commodities you can barter with.

If you (or someone you know) can profitably and safely trade stocks, futures or other markets on a short-term basis, that's fine. As I said before, long-term "buy and hold" investing isn't a wise strategy. Economies, markets and currencies are more volatile than ever before - and I don't see that trend changing any time soon. Because of these reasons, it's time for average Americans to get their money out of the stock market.

Time to Bail On Gold & Silver? Not So Fast...

Friday and Monday were one of the worst trading days for gold and silver in many years. You've probably heard and read from mainstream financial media that gold's best days are behind it. I don't quite agree with that notion, even though major technical damage has been done.

As I've said before, I don't claim to be a great short-term trader. However... I've called long-term trends months (and even years) before they came to pass. In early 2008 I bought put options on Fannie Mae and Freddie Mac, because I didn't see any financial statements for the past three quarters. My options expired worthless in February and April, but my long-term hunch was proven correct when both entities went into federal receivership (bankruptcy) in September 2008.

I also wrote a Guest Commentary for PrudentBear.com in 2004 calling the residential real estate bust 3-4 years early. I'm not saying this to brag or pat myself on the back - only as proof that I know what I'm talking about.

Why do I believe that gold and silver still have a bright future? The fundamentals that carried both metals higher the past 12 years are still in play - and have deteriorated further in that time frame. The Eurozone is proven to be an economic disaster with several member nations effectively bankrupt. The United States government is also bankrupt, but the Federal Reserve has kicked the printing presses into overdrive to try to keep the economic party going.

Throughout history, all government-sponsored fiat currencies have failed - while gold has remained a store of value for thousands of years. All currencies around the world are the fiat variety, and China has accumulated several thousand TONS of the "barbarous relic" (while selling out of its dollar holdings) to make the Yuan at least partially gold-backed - and have it be the world's future reserve currency in the future.

The Chinese (and most Asians) are long-term thinkers, and they want to make sure the Yuan remains the world's new reserve currency for as long as possible. Shanghai and Dubai have gold exchanges, and China encourages their citizens to buy as much gold as possible. Russia has also bought thousands of tons of gold for its reserves.

I don't know how long it'll take gold and silver to reach their 2011 highs, and frankly I don't care. They're tangible assets that will always have some value in both inflationary and deflationary times. They're an insurance policy against government and central bank stupidity. I trust the metals more than I trust bankers, bureaucrats or Wall Street stock jockeys pimping annuities, stocks or mutual funds.

Will The Economy Improve If Romney Gets Elected?

That's the implied promise from the Romney campaign (and supporters) - or at least the hope - if the Mittster gets elected on November 6. However... hope can be a dangerous thing. Just look back four years, as Obama promised Americans "Hope and Change" if he was elected.

He got the "change" part right - federal debt, deficits and unemployment all changed for the worse. Ditto for individual liberties and freedoms. And there's no doubt that this administration is one of (if not the most) power-hungry and corrupt in American history. However... what is America being offered as the alternative?

A big-government, Rockefeller Republican who seems to be in almost perfect agreement with President Obama on a majority of issues - including the economic ones. He was in favor of TARP, the President's stimulus package... thinks Ben Bernanke is doing a great job as Fed Chairman... and doesn't think we should cut that much in defense or other spending.

If this is the case, then I don't think we have much "hope" of a better economy if Romney is elected. The problem with our economy is too much borrowing, spending and money creation by the Fed. The solution (albeit a painful one) will be to balance the budget as quickly as possible... stop expanding the money supply... and stop creating excess credit.

The 1000-pound elephant in the room that neither party wants to acknowledge is this: We can't continue borrowing and spending in excess like the "good old days" of decades past.

There will be short-term economic pain before we can see honest and sustainable economic growth again. Even if Romney gets elected and stays true (as much as a flip-flopper from Massachsetts can) to his principles of the past, I don't believe a Romney administration will make the tough economic choices - until we hit one or more "crisis walls" in America.

Does a 2nd Obama term concern me? Absolutely. Especially when it comes to individual liberties and freedoms - not to mention the economy. However... I'm not sold that the Republican alternative will be much better.

Watch what Alan Keyes says in just four minutes about Obama and Mitt Romney. He acknowledges the danger of Obama... but also of the possibility of Romney being elected, and implementing the very same policies as Obama - but getting a free pass from conservative Republicans because he's "our guy."

Or read Chuck Baldwin's column on Insanity - lot of good food for thought as well.

And to all the Romney supporters out there: Yes, for the 4,373,672 nd time - I know that Obama is a Socialist/Marxist and his Administration has been a disaster. However, I'm not sold that Mitt Romney is a true "limited-government" alternative. I'm not asking for an ideological purity test or the "perfect" candidate. I realize that in the world of politics, compromises have to be made and you won't get everything you want.

Having said that, the GOP Establishment didn't listen to the limited-government grass roots at all... and instead of a nominee that believes in less government, we got the corporatist, Rockefeller nominee - whether the grass roots liked it or not. It was the same story in 2008 with John McCain, even though the Republican nominee had a snowball's chance in hell of winning right after a real estate and stock market crash.

To answer the question I posed in my title: No, I don't believe the US economy will significantly improve if Romney is elected.

Based upon the massive amount of debt and money supply - and if our leaders do the right thing and balance the federal budget (which is highly unlikely) - it would still be at least several years in a best-case scenario before we would see a healthier economy.

Bureaucrats and politicians have promoted this myth that the Fed and government can "manage" the economy like a mechanic manages a car. Pull this lever... push that button... jigger that switch, and voila! These adjustments will have Ol' Betsy running as good as new. Unfortunately, economies are more like living organisms - not machines.

You can't keep giving them big doses of economic steroids without consequences. It's great in the short-term, but there are major longer-term "side effects." Namely - devaluation of your nation's currency, with a loss of purchasing power and wealth for its citizens. It's impossible to always have economic growth in any country or economy - no matter how "exceptional" it's been sold to be (i.e., America).

The laws of economics and finance still apply to the good ol' US of A. The consequences of decades of bad economic policies are showing up - and will continue to show up - in the economy, regardless of who is elected President on November 6.

German Court Kicks The Euro-Can Down The Road

Germany's Constitutional Court ruled in favor of the Eurozone bailout fund today, further delaying the inevitable demise of the Euro currency. It gives EU central bankers more time to extend the day of reckoning, when there isn't any more money to finance the staggering debts of southern European countries.

German citizens (who still remember hyperinflationary holocaust 90 years ago in the Weimar Republic) are probably pissed off - and rightfully so. The average German knows that printing more of your country's currency doesn't do a damn thing to improve your economy, and it destroy's your wealthy and purchasing power.

More Americans are waking up to the damage that Ben Bernanke and the Federal Reserve hase done, are doing and will continue to do to the value of the US Dollar. But not to the extent of our German cousins, who are a lot more economically literate than Boobus Americanus (aka the average American).

I also wonder how much pressure the US government and the Obama Administration put on the EU and the Germans behind the scenes. Having an EU currency - and global financial system - meltdown less than two months before your election would pretty much tank Obama's chances for four more years. Remember John McCain's campaign back in 2008 when Lehman went out of business and the stock market crashed?

I don't know how much longer Europe will be able to use financial, economic and political duct tape and baling wire to maintain what little confidence there is in the Euro. My short-term trading and prediction record isn't that great... but my longer-term fundamental picks are pretty darn good. I don't know if it'll take several more weeks, months or years for this utopian fantasy to come crashing down... but inevitably it will.

Don't invest in European-related securities unless you really know what you're doing, and you're trading for quick, short-term profits. Get in, get your profits, and get the hell out before one or more of these European markets come crashing down - with the US stock market not far behind.

Un-Real Estate

Realtors and sellers are ecstatic at the recent 'mini-boom' in the Denver real estate market. Mortgage brokers are, too. I met a mortgage guy at a networking event, and he said he's never been busier.

Inventories are down... home values are up... and homes don't stay on the market very long. From talking with a local realtor, many listings have multiple offers. So... are happy days here again to stay... or is it one last boom before the extended bust?

I've always been good at calling longer-term trends, but not so good at predicting events in the short-term. While I'm doubtful that this 'mini-boom' trend has long-term "legs," we could see this trend sustained for longer than I think. I've been amazed at the ability of the Federal Reserve, banks and other lenders to keep the credit party going as long as they did (through about 2007-8).

The realtor I talked to was excited that mortgage rates were going to stay low through 2014. While that's good for people who want to buy a home, that's not-so-good for Americans in general. That's because Benny and the Feds have been printing money out of thin air to buy the longer-term bonds (which mortgage rates are based on), which keeps the rates low.


If the bond market depended upon individual, institutional and government buyers of American debt, I think we'd easily see high single-digit to lower double-digit interest rates in no time. The Chinese are now net sellers of American debt, and almost all governments and bond buyers around the world realize that the US Economic Emperor has no clothes... is highly indebted... and will never pay this massive amount of debt back in full.


They see that the Federal Reserve is monetizing our debt in order to keep the credit party going. The Fed is doing exactly what the EU is doing: Trying to "paper over" and solve the problem of too much debt... by creating even more debt. Brilliant!

I don't know how long this 'mini-boom' in real estate will last. I do know that with the current fundamentals, it's not sustainable in the long run. Prices don't go up forever, and trees don't grow to the sky.

Now, I'm not trying to rain on anyone's parade. However, my long-term economic predictions and hunches are pretty accurate most of the time. I call it like I see it, and I can't ignore the glaring fundamentals in front of my face (i.e., a massive amount of debt in the US - and around the world - that will have to be cleared out before we can see true, sustainable economic growth again).

This won't be a quick or easy process. I believe it will take at least 5-10 years (depending on how much the government intervenes in the marketplace) for this to occur. If the government takes a hands-off approach, it'll be quicker. But we know that government can't leave well enough alone, and they'll keep trying to "fix" things and bring Happy Days back to the economy. So it'll probably take closer to a decade - and maybe longer -to work through all the bad debt and see something that resembles a recovery.

However, this time it's different. The US isn't the only economic superpower in the world. Although their economy has been overinflated because of speculation and easy money, China is the world's largest net creditor. That means more countries and institutions owe them more money than anyone on the planet. The United State is the biggest debtor nation - we owe more folks more money than anyone on the planet.

That's why I have a bearish financial outlook going forward. The US has been able to whistle past the proverbial graveyard - and get away with this insane borrowing and spending spree - because the US Dollar was (and still is, at least for now) the world's reserve currency. I don't believe it will stay the world's reserve currency for much longer. When that happens, Americans will feel a lot of pain from reduced purchasing power, real estate and stock values.

In summary, enjoy the real estate party while it lasts. I could be wrong, but I don't believe we'll see another 'mini-boom' in housing for a long time. 

Great Buying Opportunity in the Metals

No two ways about it - gold and silver got smoked today, along with the SLV calls I bought this morning. The barbarous relic was down about $100, silver lost over 6% in today's trading. I still believe the longer-term trend is up - way up. That's because the Federal Reserve and federal government (not the same entities) have told us with interest rates near zero until mid-2013, their only solution is to try and inflate their way out of the debt mess we're in.

It's possible we could see a further correction in silver and gold, but today gives investors a great opportunity to buy the physical metal at a discount... and maybe an entry point for gold and silver stocks/ETFs. Tray tables and seats in the locked and upright position, folks; this is gonna be a really bumpy ride for the foreseeable future.

Diary of a Monetary Madman

That's what I would call "Helicopter Ben" Bernanke's latest ramblings from this week's Federal Reserve meeting. The 2nd round of Quantitative Easing (or money-printing on steroids) is supposed to kick start the economy back to health.

The only problem is that excessive money creation and debt is what caused our current recession/depression. Both Republicans and Democrats around the country seem to be debt junkies who don't want to go "cold turkey," and start the process of the long financial hangover - which will be the start of a true economic recovery.

Many Americans still believe that the Fed and the federal government have the power to bring the economy back to health. In reality, the best thing they can do is quit trying to "help," and get the heck out of the way so the real recovery can begin.

The Future of Gold and the "China Put"

Lot of people have takes on the short-term price action in gold and silver. Some say it'll go up, some say it'll correct back down - good arguments are made on both sides.

My focus is on the longer-term fundamentals and trends, and I've been good at predicting them the past several years. Here's the economic scenario America faces:

We're heavily indebted and won't be able to grow our economy enough to pay off our national debt and unfunded liabilities, like Social Security and Medicaid. So the federal government and Federal Reserve (which really isn't federal) have decided to crank up the printing presses and try and inflate our way out of this mess.

The problem is that it devalues the purchasing power of US Dollars, and the wealth of Americans who save and invest in US Dollars. Foreign companies and governments holding large quantities of dollar-denominated debt (like U.S. Treasuries) want to get out of this type of debt so their wealth doesn't decline either.

China is the world's largest holder of US Treasuries, and is now a net seller of Treasuries instead of a net buyer. And last September, the Chinese government recommended to its one billion citizens to invest in gold and silver.

With this kind of strong demand for gold and silver, this makes me even more bullish on the longer-term prospects of precious metals. That's on top of my bullishness because of absolutely insane monetary policy from our Federal Reserve. Put options allow you the right to sell a stock or product at a given price, on or before an agreed-upon time. This eliminates the downside risk if the stock or commodity you've purchased goes down in value.

When a country with the population and increasing wealth of China is focused on buying gold and silver, that's the biggest put option on the planet today with the least downside risk. Now - can the price of gold go down in the short-term? Absolutely.

We could see another round of deleveraging like we did in the fall of 2008 - where investors were hit with margin calls, and needed to sell everything possible to raise cash for short-term obligations. Eventually, investors in America and around the world will turn away from financial paper assets, and look to invest more in tangible assets such as gold and silver.

It's not a guarantee that they will "always" go up in value. However, tangible assets always hold some value - and have never gone down to zero throughout the history of the world. And with the kind of demand that China has for precious metals, I believe that these so-called "barbarous relics" are among the safest places you can invest your wealth in the turbulent times we live in.

Peter Schiff Was Right, Ben Bernanke Was Wrong

This should be obvious by now, but this video and this video on YouTube proves the point beyond a shadow of a doubt. Now, Schiff hasn't been perfect on the timing of some of his investment recs; however, on the fundamentals he's been rock solid.

In contrast, "Helicopter Commander" Ben Bernanke has looked like a total shill and a fool. He studied the Great Depression in detail while he was at Princeton, and unfortunately, he got the cause and effect totally wrong. The Federal Reserve helped cause the 20th Century's greatest economic downturn - and it didn't help the economy recover. Expanding the money supply by printing more dollars doesn't increase prosperity, it increases inflation - and acts as a hidden tax on an individual's wealth.

Our country desperately needs to have our currency backed by gold, instead of the "full faith and credit" of the federal government - which is rapidly declining around the world. Until that time, you should avoid most financial paper assets (stocks, bonds, mutual funds, etc.) - UNLESS you understand the companies and trends well, and know how to swing trade stocks in the short-term. And save your money in gold or silver bullion.

More Stupid Government Tricks

Mike Shedlock hits it on the head - again. The latest call from FDIC chair Sheila Bair to prevent more foreclosures from occuring is just more of the same government intervention that got us into this mess.

If the Fed and Alan Greenspan hadn't lowered interest rates to rock-bottom lows, juiced the money supply, and encouraged everyone with a job and a pulse to get a mortgage and buy a house, we wouldn't have this gross misallocation of resources, and this mess in the first place.

Ron Paul took Bernanke to school (again) about the dangers of government intervention in the financial markets, and loss of civil liberties during the Fed Chair's latest testimony to Congress. This unholy association of business and government isn't just the wrong prescription for America's economic woes, but is an increase of the Fed's power - which is virtually unchecked by our Constitution.

The Declaration of Independence says Americans have the right to 'life, liberty and the pursuit of happiness,' not a guarantee for 'price stability and maximum employment,' which is what the Federal Reserve is supposed to do. But that's not the role of government as defined by our Founders. Government can't (and shouldn't) try to promote an 'Ownership Society' or any other guarantee of financial or other security. Whatever the government can give, the government can also take away - too many Americans have forgotten this important point.

When you listen to what Congressman Paul says about our economy, monetary policy and the role of government today, he makes more sense than any other politician in Washington today. It's an absolute travesty that the so-called 'conservative' Republican party tried to ignore, mock and railroad his candidacy for President. The GOP is like a headless chicken running around in circles, and the Democratic party isn't much better.

As John Loeffler from Steel on Steel says, it's Socialist Party (D) and Socialist Party (R), with very little difference between them. Ronald Reagan said it best: "Government is the problem, not the solution." Americans need to remember that the government that caused our financial and economic mess isn't the best entity to try and solve it.

Only time, the free market, and getting government out of the mix are the best solutions for our economic and financial woes.

Financials in a Funk

If you've followed the markets even in passing the last few months, this is already given data. Even with the Fed's $200 Billion "Booster Shot" today, Bear Stearns, Citigroup, Lehman Brothers and Merrill Lynch have all taken battleship-sized hits to their respective stock price over the past year.

That's because they listened to the Wall Street Whiz Kids, and invested in exotic (and stupid) bundled sub-prime and Alt-A mortgages. The only problem was enough of the toxic loans were mixed in with the good ones; and not even the sharpest accountant could tell what the true value of these bundled investments were (or are today).

Consequently, the financial firms have lost a lot of money on these toxic investments, and had to borrow from Sovereign Wealth Funds to shore up their cash positions. To folks on CNBC and Fox Business, it may not be a big deal. But to a former accountant like me, it's a VERY big deal.

When your company has to borrow billions of dollars from foreign investors, that's not a good thing. Firms have gotten away with it over the past few decades because the US Dollar was the world's reserve currency, credit was easy, and life was good. But today the USD has declined over 40% in world currency markets the past 7 years; lending standards across the board have tightened up considerably; and we're in danger of having these SWFs taking over some of our country's biggest banks and brokerage houses.

This isn't a good situation for our country. While government officials seem to be more concerned about Islamofascists halfway across the world, we're in an economic struggle here at home that's not going well. The Fed and Bush Administration look like the Keystone Cops grasping at straws to try to 'make things better.'

And like I've said before, what the government should do is what they won't do. And what they should do is to raise interest rates to defend the dollar on world markets; and forget implementing these stupid stumulus packages, which will have little to no effect on the economy... except maybe prolonging the financial agony even further.

I'll give 'em credit in this regard - the prolonged 'echo boom' in real estate and credit lasted longer than I thought it would. I was concerned during the 2004 and 2006 elections that we'd see a downturn then. But we can't avoid it in 2008. The government's stats say that technically we're not in a recession, and inflation is "contained," but John Williams of ShadowStats.com says different.

The Fed stopped reporting M3 money supply back in March 2006. That's important because M3 is the broadest (and most accurate measure) of monetary inflation. The Federal Reserve doesn't fight or 'maintain' inflation, it creates it through increasing the money supply. You have more dollars available to buy the same amount of goods; that's why you're seeing higher prices for food, energy and just about everything.

Not to mention tightening supplies of wheat and corn from America's ethanol insanity. All these factors come together for a toxic economic mix that won't bode well for the US in the next several years. These formerly 'blue-chip' financial firms look pretty tarnished right now. The only way I'd invest in them is to buy put options, sell them short (but only if you're an experienced trader and know what you're doing), or just sell the stock.

These financial companies (and our country's) financial statements look pretty bad. The only fix for them will be time, a commodity-based currency, and increased savings and investment. No more credit binges, excess borrowing or spending. It's tough medicine, but will have to be taken by Americans - and our government - sooner or later.

Ben Bernanke is the Fall Guy

Growing up in the 1970s, I watched a TV show that starred Lee Majors - and Heather Thomas - called the Fall Guy. It was about a Hollywood stuntman who moonlighted as a bounty hunter. Stuntmen are called 'fall guys' because they take the punishment so the star of the show doesn't have to.

Why am I talking about a 70s TV show on a financial blog? I think about the current situation with Ben Bernanke at the helm of the Federal Reserve. Financial commentators on TV, radio and the Internet are criticizing Bernanke for not 'doing enough' to make the sub-prime mortgage/real estate bubble go away. The problem is that Bernanke isn't the one who caused this problem, but he's supposed to fix it.

The "Maestro" himself (aka Bubbles and Mr. Magoo), Alan Greenspan, was the one who caused this money creation and easy credit bubble - first in stocks, then in real estate - during his term as Federal Reserve chair. Ben Bernanke is now the 2000s version of the Fall Guy to blame for when these problems hit the proverbial fan.

I don't think "Helicopter Ben" is the best guy for the job because he's an Ivy League academic (who usually have the least amount of common or financial sense), and because he's hell-bent on avoiding another deep recession or repeat of the Great Depression. His solution is to crank up the printing presses, and flood the system with fiat currency. The only problem is that this will cause a hyper-inflationary (then deflationary) recession/depression, because the purchasing power of the currency will have been deeply eroded.

While it may prop the financial markets up in the short term, there's nothing the Fed can do to avoid a recession in the long-term. As Paul Farrell of CBS Marketwatch says, "Recessions are natural, positive, healthy... and inevitable." Because politicians have a low tolerance for seeing a recession on their watch (to preserve their incumbancy and legacy), the Fed has done the bidding of incumbents to ward off a recession at all possible costs.

The recent Bush/Paulson mortgage bailout is a prime example. This will only delay the inevitable correction in over-valued real estate prices, and the needed correction in the economy. I've noticed a lot of stupidity in the real estate and financial planning business, maybe a good recession is what's needed to re-inject a much-needed dose of common sense back into our markets and society.