Download  8 page Chapter Overview of Paper Money Collapse here:

The Paper Money Fallacy Chapter Outline

Here is a 48 minute video of Detlev Schlichter presenting the main themes in his book.

Why is it important to you?

Knowing how money is created out of thin air and how government, central banks and commercial and investment banks collude to expand credit to grow the economy can help you protect your retirement money to some extent. If the whole thing blows up all bets are off. But what may happen is a creeping death on the monetary system which will gradually deplete your retirement funds. And there may be more financial crisis that take the stock market down only to be rebuilt by more cheap printed paper money by governments to support the massive debts in the system.

In both situations your retirement nest egg is at risk through stock losses, devaluation of paper money, inflation, taxes, fees and charges to name just a few.

Knowing the business cycle can help you plan when to be in or out of equities. When you should keep your money safe (relatively speaking in bank accounts, gold or other lower risk asset.

Understanding the fractional reserve banking system and how banks can make themselves rich very quickly especially when given tax-payer money is essential for your survival. Follow the FED is no empty phrase. It is a vitally important to your financial well-being. The US FED really dictates how the rest of the world will behave financially.

No matter what governments do to fight the financial problems they will eventually fail and unless you can find a way to protect your retirement nest egg you may well lose much of it.

The World Bank, the IMF and the ECB are all players too, with the IMF making a quick run to become the World Bank with a slush fund of $1Tn which they call a firewall. This is rubbish. It is a bailout fund for countries that cannot pay their debts. The real issue is are European countries prepared to sacrifice their sovereignty for some IMF money. This is what will happen as a condition of any IMF loan.

Greece has overspent by 10% according to recent report and it has been suggested the European Parliament put in European financial managers. This is in fact an invasion of a sovereign country by any other name. I wonder what the Greeks will make of that despite their collective financial irresponsibility as a nation?

Anyway take a look at the video and it should give you a good grounding in our current monetary system and why we are in such a financial state. Understadning where paper money comes from may help you see where this financial crisis will end up. Don’t be one of the masses of people who put their trust in government to “do the right thing”, beleive that things are not that bad. Assume and pan for the worst situation especially if you have retired and cannot rebuild your retirement nest egg if it takes another big hit.

For Baby Boomers this is yet another blow to your long-term plans. If he is successful in passing the Stimulus or even a watered down form of it through Congress it will just exacerbate the economic crisis. The 22 wise men from history will explain why Stimulus Package 2011 is yet again the wrong thing to do.

Henry Hazlitt on Stimulus Package 2011

It is more on wrong-headed Keynesian deficit spending no matter how it is dressed up. Mr Henry Hazlitt spent much of his life refuting Keynes and his economic theory. But politicians took to it like ducks to water. Roosevelt failed to solve the unemployment problems after three years on Keynesian ism with massive deficit spending programs. When it failed, supporters just said the deficit spending did not go far enough. Where have we heard that before? History is repeating itself yet again.

“It  is  significant  to  recall  that  the  first  definite  and  conscious
application  of  the  theory  was made by the  New  Deal;  and  when
in  the  third  year  Mr.  Roosevelt  began  to  say  that  the  govern-

22 Economists Tell Us Why President Obama's Stimulus Package 2011 Will Fail

ment’s  deficit  spending  must  be  regarded  as  an  investment   in
the  country’s  future,  he  was  taking  the  word  directly  from  the
Keynes theory.  The  promised results did not follow;  unemploy-
ment  was  not  cured.   This  disappointment,  say  the  believers,
was owing  to  no  fault  of  the  theory  but  simply  and  only  to  the
fact  that  the  deficit  spending  did  not  go  far  enough.  The  defi-
cits should  have been courageously  greater.”

So if $700Bn didn’t work the first time what chance is $450Bn or so going to have. One Congress woman is calling for $1 Trillion stimulus.

Mr Hazlitt’s opinion on Keynes General Theory is worth mentioning too:

“But  perhaps  it  is best  to begin  with  a statement  of  what
can  not  be  found  in  the  General  Theory.   In  spite  of  the
incredible  reputation  of  the  book,  I  could  not  find  in  it  a
single  important  doctrine  that  was  both  true  and  original.
What  is original  in  the book is not  true;  and what  is true  is
not  original.  In  fact,  even  most  of  the  major  errors  in  the
book  are  not  original,  but  can  be  found  in  a  score  of  pre-
vious  writers.”

How is it possible that most economists in the world today do not question Keynesian economics in the face of all the evidence of its absolute failure. We know the answer to that. Politicians love it as they can fool most of the people and buy their votes with well timed deficit spending.

Jean Baptiste Say on Stimulus Package 2011

“The encouragement of mere consumption is no benefit to commerce. It is the aim of good government to stimulate production, of bad government to encourage consumption.”

Since the 1930′s we have had economics based on consumer spending, and discouraged savings. Savings can be used for long term investment in production. The exchange of produced goods for produced goods using money is what is required and should be encouraged. Not produced goods for money provided by government handouts, either through deficits or taxes.

John Stuart Mills on Stimulus Package 2011

“The  usual  effect  of  the  attempts  of  government
to  encourage  consumption,  is  merely  to  prevent  saving;  that
is,  to  promote  unproductive  consumption   at  the  expense  of
reproductive,  and  diminish   the  national  wealth  by  the  very
means  which  were  intended  to  increase  it.

What  a  country  wants  to  make  it  richer,  is  never  consump-
tion,  but  production.”

He goes on to state that governments need not concern themselves with consumption. They must work to allow producers to produce and find ways to give opportunities to those that are not producing, to get to work producing. This is nothing to do with government handouts though.

There  will  always
be  consumption  for  everything  which  can  be  produced,   until
the  wants  of  all  who  possess  the  means  of  producing  are  com-
pletely  satisfied,   and   then  production   will  not   increase   any
farther.   The  legislator  has  to  look  solely  to  two  points:  that  no
obstacle  shall  exist  to  prevent  those  who  have  the  means  of
producing,  from  employing  those  means  as  they  find  most  for
their  interest;  and  that  those who have not  at present  the  means
of  producing,  to  the  extent  of  their  desire  to  consume,  shall
have  every  facility  afforded  to  their  acquiring  the  means,  that,
becoming  producers,  they  may  be  enabled  to  consume.

You can read the rest of the critics of Keynesianism for yourself in the eBook entitled, “The Critics of Keynesian Economics.By reading history you can begin to see why the whole economic system we have is wrong and needs radically fixing.

After reading it you should be able to see why we are on the wrong path with the Stimulus Package 2011 and why it is yet another blow to your retirement nest egg.

Baby Boomer Pension may run out

A new video with Mr Forbes interviewing Olivia Mitchell, Head of the Pension Research Council is worth watching for what the experts think about the longevity of baby boomer pension. The tag line is “Will we be even able to retire, or will we just “work ’til we drop?” There is some great information in the video that you should find of value.

Protect Your Baby Boomer Pension

• If you have not saved enough for your retirement, risking it all in the stock market is gambling and futile right now. You will need to find other sources of income until the debt crisis is faced and resolved.
• If you have an employer supported baby boomer pension you need to get control of it yourself, as you have no way of knowing if the retirement money will be there when you need it. at the very least organise regular meetings with the employer and the fund manager to get financial statements of the fund.
• If you are in a State with a large state government with defined benefits for its employees you are going to be taxed much higher to pay for those defined benefits and this will be taken out of your pension. You need to move to a State more fiscally responsible and with much lower public worker retirement benefits if you can.
• If you do get control of your own retirement money there is nothing wrong with keeping it in cash right now until the world financial markets and governments finally realise they have to resolve their debt problems and live within their means. This may mean deflation but that will make your cash buy more not less.
• Because of the possibility of deflation get out of debt as soon as you can and get cashed up for what may be the opportunity of a life time.
• Have some silver or gold stored where you can use it if you have to if civil unrest breaks out as those who do not prepare try to take from those who do.
• Trust no one because right now. Whilst financial advisers may be sincere, most of them have been taught Keynesian economic views and believe debt is good and savings are bad,  and risking your money on companies and countries with large debts is okay.

There is only one person who should be held accountable for a baby boomer pension and that person is you. Allowing your eyes to cloud over at the mere mention of your retirement fund is an abdication of your responsibility. Don’t leave it to others as, even with the best of intentions they might destroy it. Always remember most people in the financial markets have been trained to believe you can fix a debt problem by taking on more debt, especially if you have a money printing press (like Bernanke) under your control and the law on your side.

The question on most of the elite classes is how to get Obama re-elected. If they don’t and Perry gets the Presidency the financial house of cards is going fall. This assume Perry’s statements about treason and Bernanke are carried through.

The pendulum has swung as far as it can to the left and the debt binge is coming to an end. Bernanke it is now known has printed over $1 Trillion more dollars than was known and handing out to bankers all over the world. Helicopter Ben has been true to his word on the pretext of staving off deflation. The result is more and more debt that will need to be resolved.

How Banking Works Today?

Banking works today on the basis of collusion not competition between banks. The collusion is between banks and between banks and their central banks and between banks, central banks and governments. They are all feeding at the trough of public money to keep them living to the level to which they have become accustomed.

Why Bernanke is the Covert Obama Cheer-Leader

Bernanke needs Obama if he is to remain as head of the FED. President Perry or indeed some of the other potential Presidents will almost certainly replace him. The replacement will likely be someone who is not a Keynesian. Many in Congress led by Ryan  and including Ron Paul will be up in arms if Congress approves another Keynesian deficit spending economist to head the FED.

If Bernanke is replaced the food at the financial trough where the financial world comes to feed will be stopped. Then the elite know-alls will find they can no longer fool the people and their power will be lost. Other anti-Keynesian’s will be swept into power as the USA takes responsible action on its debt.

Bernanke has already started to assist Obama in his bid for a second term. The first thing was to tell everyone the interest rates would be on hold for 2 years. This takes it well past the November 2012 Presidential Elections and so Obama does not have to fight potentially rising interest rates affecting voters.

The next thing is to hold off as long as he can printing more money to prime the economy again after QEII has faltered. He may use other subterfuge to achieve his ends as QEIII may be unpalatable. But it will have the same effect of giving the impression the economy is growing. The trick is to do it in the run up to the election. It is all about timing.

Getting Rid of Keynesian Economics

Any new President of either persuasion will need to purge Washington of all Keynesians in high government places. If not then nothing they try to do will have any hope of working as it will be sabotaged using propaganda, good sounding arguments and down-right skulduggery.

The extreme Left will pull out all the stops to discredit any move towards reducing the debt and balancing the budget.

One thing the new President could do as soon as they get into office is get the tax system changed so all Americans pay tax, even welfare recipients and large companies. All Americans need to have a stake in the cost of running the country.

The Real Problem is not Bernanke in the Long Term

Bernanke is head of the FED and as such he wields power enough to move financial markets. This is just crazy. Putting so much power into the hands of one man who is not elected by the people or accountable to the Congress has lead to our present predicament. The same applies to the European Central Bank.

We need to broaden the decision making base not co-ordinate it, as the new head of the IMF is advocating. It is far better many people make smaller economic and financial decisions than having just one person do it, no matter how much they consult. Keynesian’s work at the macro level and want control and use flawed averages and good sounding indicators. Their only solutions are to ask for more control when their failed deficit spending does not work. They lament the stimulus wasn’t large enough or they need to create a world bank to achieve their ends.

There is redistribution of risk in many smaller decisions. Money is no different from any other commodity and should be subject to the market price.

If one nation messes up its economy then it should suffer the consequences and not be bailed out by financially responsible countries. Germany’s economy is going to be destroyed by the rest of the European Union if they do not watch out. Unfortunately like when they were blackmailed by the French into killing their currency, and taking the the Euro, in it’s place in the full knowledge that most of the countries did not meet the “strict” financial requirements, to become members of the European Union. The Euro was a political currency union not an economic one.

Why should Germans hand over their hard earned money to Greeks some of whom get paid by their government to go on holiday. Where is the sense of logic or fairness in that? And how will it change the Greek government or those Greek people who do indulge in this graft and corruption?

So whilst Bernanke is what is “Seen” about Keynesian Economics, all the debt and the refinancing of the debt and the bond sales forced on private banks and then guaranteed by central banks is “Unseen” by most of the people. Many people only look to their next government handout and the Elite know what is going on and are getting a piece of the action so they are happy.

It’s you and me, the hard working people who take responsibility for our lives and our retirement that will continue paying for the Elite and for the Welfare recipients until Bernanke and his ilk are thrown out. It’s the financial genocide of the middle classes.

You need to realise you can do everything right in your life but one single action by a FED Chairman steeped in the mysteries of Keynesian Economic Non-Theory can destroy it. If you are retired you have no hope of replenmishing your retirement nest egg if your government destroys the value of your money.

How Does Bernanke and the FED Destroy your Wealth?

There are several ways this is done and you should be aware of them:

1. Continuing to support fraudulent Fractional Reserve Banking and encouraging banks to leverage up and loan until the bubble bursts.
2. Having the right to print money regardless of any controls which eventually results in inflation which takes your wealth by stealth over time.
3. Being part of the Presidents Financial Committee supposedly to help manage the economy when in fact it is an opportunity to collude and hide the financial truth from the people.
4. Having to never account for their financial activities or produce a financial end-of-year report telling us what the FED has done with our money. And indeed how much they have printed that is directly responsible for inflation.
5. Not supporting a Gold Standard which ties the Dollar to some measure of value and prevents printing money for political reasons.
6. Have an agreed inflation target to actually reduce the value of your money each year by government decree.

Have you ever wondered why we have inflation targets?

The FED is charged with keeping inflation in check not eliminating it. In about 1930 some economist who’s name I can’t recall said that the FED should try to keep inflation between 2-3% to prevent deflation. You see, in a debt-driven economy that began around that time debt is the most dangerous thing you can have if deflation strikes. Ask those who have a mortgage worth more than their house. So this 2-3% target became a rule to abide by.

What it means is the government and the FED are sanctioning reducing the value of your savings by 2-3% every year if they manage to keep it in that range. In order to keep inflation going they print money. They can never know how much money to print to achieve their 2-3% target so it is a constant struggle and they have to come up with Nostradamus type quatrains to confuse us so we don’t know they are stealing our wealth. The second benefit is that your government can pay for itself with cheaper dollars and this results in a tax revenue windfall for the government.

Triple the Money Supply and No Inflation – Why?

In order for inflation to take effect money has to flow from the FED to the Banks, then Industry and finally to the people as wages and salaries. As that new money is absorbed into the economy if no new products are produced fast enough to absorb it, shortages will occur and prices will rise.

With triple the money now printed inflation has not occurred because the money is not flowing to the people. It is being cycled between the banks, chosen industries and the FED. The FED is paying interest to the banks to keep the Cash at the FED they should be lending out. This has never been done before. Okay, Oil prices are up and that is fueling (no pun intended) some inflation because those price rises due to speculation and a falling dollar are fed into the economy. But if the money in the economy has tripled between the Financial Crisis and now then surely if the economy has not grown the inflation should be sitting at 300% – simple maths

Much of the growth in GDP has been due to Obama’s massive deficit spending to create jobs and stimulate the economy. It has not been done by the private sector to any real degree.

So you can see why Bernanke has said no interest rate rise for at least two years. He knows if the economy ever turns around on his watch he is going to face the most massive inflation the US has ever known. The only tool he can use to really combat that is to raise interest rates despite what that might do the a growing economy. And he cannot do that in a Presidential election year.

Failure to do that could result in a major dollar crisis due to hyperinflation. Hyperinflation occurs when the people decide en-mass that they have no confidence in the currency. As soon as they get paid they will go and buy things, anything that might preserve its value and can be traded for something else they might want. When that happens Bernanke will be able to do nothing to stop it. Just asked 19th Century France and 20th Century Germany what that is like.

So it seems to me pretty obvious that Bernank’e future is very dependent on him helping to keep Obama in office. To that end the Jackson Hole meeting is the first meeting designed to get all the World Bankers working towards that end too. Remember Bernanke bailed them all out.

If they win and Obama gets a secnd term, your retirement nest egg will be in even more danger.

For Baby Boomers the US Debt Crisis is a cause for major concern unless you can figure out how to protect your retirement nest egg. If the gang of 12 don’t come up with a serious plan to reduce the debt and Congress fiddles, the world will burn. The world really doesn’t concern you on a day to day basis, but your retirement nest egg does. The Standard & Poors US Credit downgrade made barely a ripple in the bond rate and in fact it went down over the last two weeks. The US debt crisis has given us all a new understanding of American credit as money seeks a safe haven in US bonds despite the downgrade.  It defied gravity so it would seem. Some of the scared money was running from the Euro. Other money might just be financial institutions repatriating money to the USA – just in case the world falls apart.

But it Could Work to Benefit US Baby Boomers Retirement Nest Eggs

Here is my theory. I strongly believe that if the world financial system fails, the Euro will be the first to go as the European Union breaks up under the strain for the euro being pulled and pushing between the well-off and the basket case countries.

This can only benefit the US dollar. It is and always will be seen as a safe haven even if it is now the currency of last resort for many governments. The “people” around the world will flock to it as they did in the soviet socialist block.

If the US dollar gains ground your nest egg will recover some of its losses. If it rises significantly you may recover all or most of your nest egg. Not through stock market returns, but through currency appreciation.

Why do I believe this? Because the USA still has free speech and freedoms no other country has. Unless Obama can rip up the Constitution the USA is still the light on the hill for Freedom. Europe is one big socialist block and what’s more most of the people there think the government should fix everything. So they will sit idly by waiting for the government to do something. On the other hand in USA the people are finally “getting it” and many Americans still have enough free thoughts not tainted by government propaganda to make things happen for themselves.

Things change when the great mass of people move in one direction. We’ve seen it in the Arab Spring, the Libyan Revolution and elsewhere. Bernanke will not stop the rise of the US dollar when everyone wants to horde it.

Cash will be King as it is Now

However it is likely that world trade will suffer and so the stock markets will fall sharply. In such a case it is best to be in cash. As always if the world falls into chaos all bets are off and gold or silver is your only saviour. But if social order and the rule of law is maintained then confidence in paper money is likely to favour the US dollar above all other currencies.

Bernanke has tripled the amount of US dollars in the world in his forlorn attempts to stop the natural corrective force of a bust following a boom. Always remember central banks inflate the economy and are responsible for the bubble. Then they lower interest rates to try and keep it going, often for political ends, when a short sharp recession might have got rid of the excesses and those taking unnecessary risk.

The great thing is there will be plenty of dollars for everyone, but because of the rate of the currency exchange into US dollars their value will increase dramatically despite Bernanke’s zero interest rate policy. He will have to peg the US dollar to the Yuan to stop it rising too much, something he is unlikely to achieve.

Markets are perverse. They tend to move in the direction your think they should and then something almost completely unconnected with them will result in them changing direction. They will whipsaw and catch many people unaware.

The best way to catch the dollar wave is to be in cash and have that money in several banks. That way if any bank fails in the turmoil,  it is not a total loss for you. Remember even in the Great Depression 75% of the workforce was working.

The Debt Ceiling is the USA’s Credit Card Limit and should be imposed

It is amazing to me that so many economists dismiss the debt ceiling. It was imposed originally to stop the Congress, Senate and President spending more money than they took in. With fiat (paper) money no longer backed by gold, politicians can spend as much as they like it appears. If they need more money the “independent” Reserve Bank is happy to oblige as well as other world governments who are doing the same thing. If you lend me your money, I will lend you mine.

Here is what I read about the debt ceiling that really makes my blood boil.

“Debt ceiling has really been unnecessary since 1974, when Congress started passing detailed budgets.  Debt ceiling is used to hold the President to ransom, both for reasons of tax policy and party politics.”

Whoever believes that believes in the tooth fairy and Santa Claus.

Politicians have a duty of care to manage the taxes of the people and to spend them wisely. But since the introduction of Keynesian Economics in the 1930′s, deficit spending has been the holy grail for governments all around the world. Borrow and spend to keep a bubble going under the pretext of full employment and to hide what they are doing from the people. Borrowing through issuing bonds has no immediate effect on the taxpayers, it is unseen by most. It is only when the money is spent and the accumulative debts have to be re-financed that things can get out of hand and that is seen by the people through unemployment, inflation, austerity measures and high taxes. Greece just found that out with 18% interest on their bonds – Ouch!

The Fallacy of Government Budgets

It always amazes me that governments present budgets (except Obama) but never seem to present how they went against that budget the following year, BEFORE they present the next year’s budget. If business did the same thing the CEOs would be in jail for non-disclosure of the state of the accounts. But governments can do what they want. Apparently Government  spending is the highest it has been in 60 years.

The US Debt Ceiling was currently set at $14.294 trillion. Why Standards and Poor did not downgrade the US credit rating at $1 Trillion is beyond me. Why wait until it gets to $14 trillion? Small debts are the easiest to resolve. I actually know why. They are all Keynesian’s too, believing that more debt is a good thing to tide you over until the good times come again, when you can pay that debt back. But when the good times come you have a mountain of debt to pay back BEFORE you can begin to use any newly created wealth to invest in growing the economy again. And what happens if there is a second dip whilst you are paying off the last lot of debts, and a third and a fourth? Who’s to say that they all won’t happen, a Bernanke? I think not.

It’s a bit of an oxymoron really. Keynesian’s believe you can smooth out the booms and busts by borrowing and spending during a bust in order to maintain the boom. But if they manage to maintain the boom – bubble, there is no bust as such and the good times have to be better that the good times were before to maintain the bubble. Isn’t that right?

So far the result has been to borrow and spend during a bust and then not pay it back during the boom times. Instead they just spend the extra taxes.

The President is Wrong and Krugmann is Wrong

The President has done almost everything wrong economically to please his political masters.   He has done a terrible job managing the eco0nomy because he wants to achieve political outcomes rather than economic ones. That is the problem with progressive policies and a good reason governments should not be allowed to manage the economy. You have to appease your political supporters rather than govern the country for all the people. It never works. He is a partisan president when once in office he should have become President of all the people and above the fray!

Krugmann (of inventing an artificial war fame) said the reason we are still in this mess is because we didn’t make the original $700Bn stimulus big enough in the first place. Pray tell me does he know the exact amount? That’s why you don’t do it. You keep your power dry and use it when you need to.

I recommend you keep your power dry and by that I mean keep your money in cash and as close to you as is safe. A bricks and mortar bank that pays real interest no matter how small right now is good. In fact several banks are better if you have a reasonable retirement nest egg.

The great thing is, the President has done us all a great service by taking the USA so far to the left, there is so much outrage the  pendulum is about to swing back the other way. When it does, get ready to invest again for real returns. The US Debt Crisis will be a thing of the past.

There is no doubt in my mind that the US stock market particularly the DOW has been subjected to the greatest manipulation ever by large financial institutions using high frequency trading and other highly dubious methods to introduce high volatility into the DOW so they can make a killing. If they can send just 30 stocks into massive gyrations they know the rest of the world will follow.

The thing to note however is that it is all legal. The Financial Institutions are doing what they are paid to do, make money for their organizations. But now the power to trade vast numbers of stocks with huge quantities of money is in their control and they can move markets.

The DOW is used to manipulate the world stock market system for the benefit of a few large financial institutions protected by central banks, the ECB, IMF and the World Bank. Whilst ever politicians control the country’s money, the financial institutions know they are on a winner, whatever they do.

It’s All About Computer Power, Bandwidth and Large Money Pools

Since the Financial Crash these firms have spent billions (of taxpayers money) on ramping up their computer power and in cahoots with the trading floors been able to install their servers right next to the trading servers. This cuts down the time it takes for millions of high frequency trades to be executed – or not. They have purchased favoured status with their servers and can purchase a few milli-seconds of “look-ahead” time to see what trades are coming in.

Then like a great flock of birds these high frequency trades can be executed or not, all in a millionth of a second.

That coupled with the concentration of wealth including your retirement money into the hands of a few very large institutions adds to the power to move markets.

You ask why the markets went down and up twice over four days. It is because it can. There is so much computer power and bandwidth available today it is almost parallel processing trading. Millions of transactions can be executed in a fraction of a fraction of second.

By the time you call your broker to sell your 1,000 shares in a DOW stock, fortunes can have been won or lost, maybe even yours – it’s that fast.

Expect Bonuses to be through the Stratosphere

Can you imagine the bonuses the traders will get at the end of the quarter with several hundred points moves down and up over four days? I haven’t heard any cries of doom from these financial institutions yet so I assume they all made pots of money.

Well may you say how come I am so smart? I’m not. But if I was a financial guy in a big institution and the DOW was going sideways, I’d be looking for a way to make it move – up or down – I don’t care. I don’t make money in a flat market, I need volatility. That’s my job – to make money.

I’d be looking for a catalyst that my algorithmic trading system will jump on. To really move the markets the trading systems have to act together and they do as they are all basically the same and are checking each others trades as they go. It is not insider trading as no human has to say anything. The computers do the talking and they are much more efficient at it too.

Standard & Poors provided the excuse they needed,  with their down-grade of the US credit rating. The dithering at the European Central Bank was a great help too for the four greatest trades of the century.

US Bonds still the safest despite the S&P Downgrade

The fact that the US Bonds are still, and always will be whilst there is the vestige of Freedom in America, the safest place for your paper money, even at near zero interest rates. This was proven by the increased demand for US Treasury Bonds during the market volatility last week. My prediction is if Europe melts down over its debt the US dollar will “necessarily skyrocket” to use Obama’s words. Or are you going to put your money in the Chinese Yuan?

The quickest way to make money is to find a way to send the market down. The old adage of the markets going up on a slow escalator and down in a fast lift applies.The algorithmic computers spy on each other and wham send in several million shorts on the 30 DOW stocks almost in unison. The tsunami of sell orders send all the other stock markets crashing down too, all without human intervention. There is no time for a human to even type in a sell order.

But then you say why did it rebound so quickly? How could they know to do that. Easy – too big to fail and maybe a few re-assuring phone calls between the FED, the White House and the To Big to Fail Club. The so-called Plunge Protection Team comprising the FED, the Treasury and others were probably at lunch or just a few milli-second late taking action.

Just think about it. As a trader while you are out to lunch your friendly high frequency trading system decided to sell all the stocks in the DOW. On your return from lunch you check your screen and see you have just made several million dollars commission on a 600 point fall on the DOW. So you go out and celebrate and when you come back the next morning your faithful trading system has delivered you a 500 point rise in the DOW and another few million dollars into your personal bank account.

Not only that your faithful high frequency trading system did it twice!

Statistics, Manipulation and Damn Manipulation!

The last time I looked statistically a 3% move up or down on the DOW has a 1 in 10 to about 67th power or something – I can’t locate the page in Google. So we have 4 such moves virtually twice that in 4 days and you believe there is no manipulation going on?

Where there is blind faith in high frequency trading systems that few humans understand and even less can control, if it makes money what the hell….

You know your insurance is the implicit backing by the FED to bail out any failing financial institution for the good of the country -  you know this to be true! It is already estimated that something like $20 Trillion has been back-doored from the FED printing presses to banks all over the world. Doesn’t it make you angry? It should.

When Perry mentions the FED and Treason in the same sentence he was right on the money – no pun intended. A return to the Gold Standard is the only way to prise our currency away from the politicians but that is for another time.

Your government’s first responsibility is to protect your borders and that included protecting the value of your currency. Failure to do so is fraud and maybe even theft. Most countries governments are guilty of debasing their currency for their own political ends.

Anyway suffice to say as a trader in a large financial institution I am a protected species. So why not bet the house when I get the chance. It’s my job to make money for my employer. I now believe that one of the greatest wastes of human resources is the large financial institutions trading systems employing thousand of gifted people who’s sole purpose in life is to game the market and make a profit trading stocks, currencies or derivative for no productive value.

As there was a tax on Windows in 16th Century England, maybe we need a tax on Computer power in large financial institutions.

You see we pay people based on their productivity. But people fail to understand that apart from learning their job the main productivity increase comes from technology they are provided with by owners, shareholders and investors.

Right now the large Financial Institutions have paid out billions of shareholders dollars to build massive lightening speed computers to perform algorithmic trading. Where once a trader placed an order for several thousand shares that can now place millions in less time and can move the market.

Now all is quiet again on the DOW front. The trading systems are silent for a little while. The billions of dollars made are safely tucked up at the FED where they are kept warm and safe and earn 3% for doing nothing for the economy. There they will sit until the next market volatility hits the financial markets.

Lament your Poor Retirement Nest Egg for the third time in 12 years

The problem is your money was in the stocks that got destroyed and it is likely your investment was not protected against a downside move. Then your fund manager may have traded out because there was a rule written down somewhere, but he did it just as the market turned around and went roaring up. Too late you missed it and probably got in at the top of the rebound. Never mind your fund manager got a second change the next day as the market dived again. Oops! never expected that and he wasn’t ready. You got hit again from buying the previous day’s high. There is no way the market will come back again after that so your fund manage sits this one out. Oh dear wrong again and you lose even more of your nest egg.

Don’t you worry though. The fund manger is not going anywhere. They’ll just take a small percentage of what retirement money you have left and try to do better next time. Remember you are in for the long term so don;t you worry about a thing.

If you have any money in stocks you have to think very seriously about that.

It is economists and the prevailing economic theory espoused by Keynes that is responsible for the massive debts that are crippling western economies. Early Economists managed to sell their ideas to politicians in the early 1900’s to some degree.But it was Keynes who sold the idea of deficit spending to governments so they could try to smooth out the business cycle and maintain a permanent boom.

Protect Your Nest Egg from Keynesian Economics

If you don’t understand how our governments got into this mess you will see your retirement nest egg take yet another hit. Isn’t three major hits in 11 years enough!  Until governments turn their back on keynesian economics and trying to mange every aspect of the economy you should consider putting your money where someonelese has to take the risk and pay you for your money. You may not see 20% returns but at the end of a simple term deposit they are obliged by law to pay you the interest agreed to. That is not paper profits like you get in the post, that is a real transfer of money into your deposit account, don’t forget that. And as long as the people have faith in paper money  and inflation doesn’t take hold, your money should be relatively safe.

Keynesian Economist with Simple Indicators infiltrate into Government

Until the early 1900′s there was no real attempt to manage the economy by governments. Economists were beginning to emerge and trying to get a foothold for their ideas based on maths and science using what is now macroeconomic theory where classical or Austrian economics based on microeconomics prevailed until then.

Economists were viewed with suspicion by politicians for some time but the boom and bust cycles caused so much pain to politicians that they were looking for a way to break the nexus or keep the masses happy as more and more people could vote them out of office.

Banking appears to be the first foothold for economists. The FED was formed by private agreement initially, more to help keep the banks stay liquid and to prevent bank failures during economic downturns. It must have been a small step from manipulating the banking system to protect the bankers, to manipulating the economy to protect the politicians.

Although Congress was responsible for the economy they eventually handed control of the money supply and hence the economy to the FED, a body unaccountable to voters even to this day. How can it be that one man Bernanke can decide the value of money through interest rate manipulation? A visiting alien from another planet would say we are crazy to invest so much power into one man. Handing over that responsibility though great way to get politicians out from under if things went wrong and it has worked for a hundred years.

Keynes Gave Politicians a Golden Goose with Deficit Spending

Economists didn’t get any real power and influence in government though until Maynard Keynes popped up and convinced governments they could use deficit spending to replace private sector spending during economic downturns and keep the economy going until the private sector took over once again. The real selling point was governments could borrow the money rather than tax the people. So on the surface voters only saw the immediate benefits and not the long term consequences of increasing government debt.

Keynes was the “Great Persuader” and was able to convince governments to embrace his flawed economic theories using simple macroeconomic indicators. Taking a complex thing like an economy and reducing it to a series of economic indicators was a master stroke for keynesian economics to become the de facto economic theory. Once the politicians realised they could use simple charts to sell government deficit spending to protect their positions, they employed economist in droves to produce even more charts and economic models.

How can any economy work when the indicators are constantly changing? How can business have confidence to invest?

As with all things political expediency and economists wanting more power in government, found a way to manipulate economic indicators to suit the political ends of their political masters in a very short time. Who still believes the Inflation Index when economists are known to manipulate it with such things as not including volatile products like petrol. Or substitute hamburger meat for steak when the price of beef skyrockets for some reason. And who can believe unemployment figures that don’t take into account those unemployed who give up searching for work or don’t include those people working less than a few hours a week.

GDP – The Great Hoax

And since when did GDP include spending through a government stimulus. If GDP is 2% in real terms if you accept the flawed and grossly manipulate calculations, governments will claim a growth of 3% of they borrow and spend an amount equivalent to 1% of GDP. Do they think we are we really that stupid?

Keynesian Economics uses macroeconomics to create all these impresive looking indicators – full of sound and fury signifying nothing! Thank you Shakespeare. It’s all about aggregates and averages. Let me give you an example.

In Australia we have a mining boom in the west and retail bust in the east, partly due to the government’s failure to maintain the currency relative to all the other countries manipulating theirs. If the GDP of the mining sector is 6% (Boom)  and the GDP of the Retail sector is -1% (Bust) then our government is claiming all is well because Australia’s GDP is 3.5%, even though people are losing their jobs in the east and shops are closing. This is the problem with governments managing the economy using macroeconomics. It is impossible to do it. They call it a two-speed economy. yet another simplistic explanation for the voters. All economies have infinite speeds. A factory sets up and employs people here, elsewhere another closes and makes their workers redundant. This can be happening at a thousand locations at once even in Australia.

Australian Carbon Tax will Promote Economic Growth

In Australia we are about to introduce a carbon tax which will take several billion dollars out of the economy and hand it to public servants to redistribute to their favourite green projects. Government handout by any other name. Our Treasury department has “modelled” the effect of this carbon tax and produced a paper for our political masters that tells us the economy will grow under such a tax. This will be the first tax in the history of the world to increase economic prosperity and employement (real jobs not government created ones) if it works.

How any economy can grow taking capital out of the economy and redistributing it is beyond me. They claim they want to create a market for a green economy. Markets evolve, you cannot establish them by government decree or because treasury modelling says it can be done. There are far too many unknowns. In any case up to 95% of businesses fail in the first 5 years. Are we to spend several billion of tax-payers money on trying to create a green jobs industry in the face of such incredible odds of success?

In private industry business would die if they cannot attract new investors who need to see a likely profit, and their assets purchased and used by the next entrepreneur. When governments are involved the bureaucrats are not there for profit but for their career. If their political masters want to continue supporting a lost cause green project, they will just pump in more money until told to stop. They are just doing their job and trying to get ahead but the concequences are unseen (See Bastiat below). Just look at our submarine industry to see the billions wasted as proof of that.

It seems great in theory but as Bastiat says in What is Seen and What is Not Seen,

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

The immediate effect of a debt-finance stimulus is to appear to create new wealth and move the economy along and this is seen. Everyone is happy. There is a special case where this may well fix the problem if the boom-bust cycle is a small one. But no-one knows and that is the problem. This time around it is not the case. Many people, mostly Keynesians like Nobel Prize winner Krugmann believe the stimulus was not large enough in the first place, despite “Helicopter Ben” Bernanke at the FED supporting it with quantitative easing (printing money).

Stimulus money is spent by government (they call it investing which is fraud) and that money therefore is not invested by business. It is true that some debt is good debt such as debt used to build a bridge. But much of the debt is used to finance welfare programs and unemployment benefits that do not produce a return on investment.

US Government Was Not Designed to Manage the Economy

In the US from my reading the Government was never set up to manage the economy. In the UK and Australia we have a two party system where there is an opposition and a government and they are better designed to handle the economy although they have still screwed it up. The Government gets the right to manage the country whilst in office, and the opposition’s job is to try and keep the bastards honest. In the US it seems Congress is full of independent legislators who are supposed to represent their states first as in a Republic. Unfortunately party politics has taken over to create a democracy instead and so in effect there is an opposition party to the party in power. Americans talk of wanting consensus and being above party politics. That is as it should be. But if you truly believe in small government, low taxes, self-responsibility then why should you compromise? The US government is not designed to manage the economy in my view. It’s role was designed to maintain secure borders and internal order and have minimal involvement in the day to day activities of its citizens so individuals could go about their business in private.

Now both private citizen and businessman have to watch the stock market, the FED and Congress, the EPA and a host of government agencies to see what they have to protect themselves from next. Each of these entities have an army of economists all trained in Keynesian economics ready to control yet another part of the lives of the citizens. At what point will it stop. Maybe the Tea party will bring some sanity into the mix.

We need to get the Government out of the Economy. It has to get back to protecting the lives and rights of the citizens to conduct business and sell their labour, products or services in an open and fair market. We need to make economists in government an endangered species. We need to teach people to save for that rainy day when a boom moves to a bust cycle and have them prepared for it. Then we will see business confidence return and the economy will grow like crazy.

Before you approach any new form of investing think about securing your present financial situation by putting aside three to six months gross salary. This financial nest egg is a great way of securing you and possibly your family should unforeseen unemployment or worse occur. There is also the secondary benefit of freeing you from the idea that you are gambling with money that you cannot afford to lose.

Now be honest with yourself about your present situation and investing goals. Maybe you are just out of college or perhaps at the peak of your earning potential or even in you pre-retirement years. These are important factors to consider when looking at investing as each style has its own risk associated with it and a time line as to when the investment may or may not bear fruit.

The Saver is the most risk-adverse style of investing. Typically money is laid away in a savings account that can be linked to financial vehicles such as mortgage interest rates. If those rates increase then so does the interest paid to your account, and if those rates decrease so does the interest paid to you account. In ninety nine percent of savings account the capital is guaranteed.

The Investor will buy assets for the long term. These assets can be anything from stocks to real estate to precious metals. The investor will look to invest wisely when the markets are low and sell when the markets are high. These assets can take many years to mature.

The Trader is looking to make money over the short term and is perhaps the riskiest of investing strategies. The term “day trader” become synonymous with easy internet access and the dot com boom and bust if the late 1990s. Traders look to invest in stocks, spread bet, and trade in foreign exchange markets. Not for the feint hearted.

Finally the Speculator, although often confused with the Trader, looks to buy and sell assets over the period of a few months. Typically speculators invest in futures and options although company stocks are popular too.

Understanding your nature is key to mapping yourself to a particular investment style and strategy is key to success. Indeed a mix of styles can often work where a percentage of your investments are exposed to risk and the greater percentage secured in something like a savings account. If you are unsure it is always prudent to discuss you situation with an independent financial advisor.

Most people I know have no idea what is really happening to their Retirement Nest Egg. They have even less idea of where their money is. It could be investing in things they would never approve of. It could be used by their fund managers to trade and game the stock market so they can enrich themselves at your expense. It could be invested wisely too by those few financial advisors who really do look after their clients’ money.

My experience with my daughter’s superannuation retirement fund is a study in subterfuge, obfuscation and a general reluctance to provide any detailed information.

She has a retirement nest egg of about $40K in a fund selected by her previous employer based on what benefited the employer rather than her.

Once a year she would get what was basically a half-page report telling her the fund value. There was no breakdown of what funds the money was invested with, what their performances were. The other items was the fee deducted by the fund for managing her portfolio. The fee was not broken down at all. That was basically it.

When she left her employer the fund took her out of the employer fund and made her a single contributor. When that happened the fees were dramatically increased. I am not aware of her being informed of this.

I discovered all this when I suggested she consolidate her superannuation with her new employer. It took several emails and phone calls to her funds “Help Desk” to get the current status of the fund.

Unfortunately as with many other peoples’ superannuation’s the funds have not recovered as well as the fund managers pay packets, and so she would have to take a significant loss to move her money to her current fund manager.

So she is stuck with paying high fees as a single contributor until her fund managers recreate the wealth they so easily lost in the financial crash.

It strike me that all managed (mutual) funds should be freely listed and traded and if you have a portfolio with a superannuation manager it should be easily packaged up and transported to another superannuation manager without forcing the sale of assets in heavy loss situations.

Help Desk a Wedge between You and Your Retirement Nest Egg

But that might mean these funds would have to work really hard to retain their clients and have a “Help Desk” designed to help them instead of putting up a barrier between my daughter and her retirement funds.

In the end my daughter has no real control over her retirement nest egg funds. She does not know what they are being invested in nor where much of the time. It is easy to say people should take more of an interest in their superannuation but you are paying these people to invest wisely for you and take steps to protect and grow your money.

By the same token it would seem you need to take an interest in brain surgery should you need an operation on your brain. This is shear nonsense.

People are so busy trying to live and create a life for themselves they are an easy mark for financial wizards with massive computer power being able to do all manner of things to hid the investments, the process, the fees and the charges.

The Financial Industry’s mantra is that you should only invest in things you understand. On that basis most people should not invest at all but keep their money in the bank. They can understand the interest being paid in at the end of the month. That is real money too.

Governments Don’t Protect Your Retirement Nest Egg either

If it wasn’t for governments meddling to prop up economies we’d probably be out of this financial crisis right now and making real economic growth including growing your retirement nest egg. Interest rates would be reasonable and inflation down. So bank term deposits would come into their own again for all those people who do not understand the investments they are currently in and that includes most of us.

Remember you control your bank deposits and once the term is up you can take your money to another bank along with any interest without fees, charges or penalties. It’s those fund manager fees and charges that destroy your retirement nest egg over the long term, if taxes and inflation do not do it first.

The problem in the US is there is no interest by design. Keynes hated savings and Bernanke is a Keynes disciple so he thinks nothing of destroying people’s savings in order to try and keep the economic bubble going. The first loss is the best loss despite the pain of it. If people knew there was no such thing as a bailout they would take some steps to protect themselves with savings to use during a downturn. Such a downturn might be sharp but it would be short-lived and bad debts and poorly run business would be liquidated and money begin flowing to the stronger businesses and new enterprises.

If you don’t take steps to control your retirement nest egg, someone else will and you will lose out.

There is no doubt that the preservation of your Retirement Nest Egg is not the first priority of your government or your financial advisers. The destruction of your retirement nest egg will be the most likely result.

If it were the government would not be so keen to change its fiscal policy by increase it’s taxes, borrowing and spending beyond the tax it takes in, redistributing your taxes to the winners in industry or pro-government pressure group.

If it were the financial industry would not be so keen to churn your money trading in the stock markets, or finding new fees and charges, some hidden which all result in them taking more and more of your retirement nest egg over time.

10 Ways they destroy your Retirement Nest Egg over time

• Fractional Reserve Banking where Banks can leverage themselves and loan out 10 times the money they have. This is the primary cause of the boom and bust cycle and they can do it because they are too big to fail and will be bailed out at your expense.
• The FED and it’s power to drop interest rates to nothing on the whim of the FED Chairman regardless of the damage it does to your savings and the currency which they should be maintaining.
• The Revolving Door between the Bankers, the FED, the SEC, CTFC and the White House which is nothing short of incestuous regarding people moving between the Big Banks and Government Jobs. This is the “Big Boys Club” and is Keynesian based economics – the fallacy of spend your way out of debt.
• The fact the FED is unaccountable to anyone and does not have to publish its accounts for public scrutiny.
• Going off the Gold Standard to no standard except a government promise using paper money. This has allowed governments to devalue the currency at will and without any accountability.
• An unending believe that an Inflation target of typically 3% is a good thing when in fact it means your savings are worth half their value within about 25 years and half again by the time you want to retire.
• Debt is rewarded and Savings are taxed. Then when the crash happens the biggest companies are bailed out using your taxes.
• Shareholders have no control over the salaries of the Board and CEOs of the companies of the shares they own. So many of these CEOs are paid 300 times more than their lowest paid workers.
• Governments are not required by law to balance their budgets and present those budgets to the people, and can decide what is in or out of their budget.
• That the FED can print money without approval of the legislature.

There are probably many more but underlying most of them is inflation which is the ultimate destroyer of your retirement nest egg.

Let it never be forgotten that inflation is caused by the FED printing money and flooding the economy with it. At this time inflation is in check because this printed money is circulating between the banks and the FED with some government spending as well.

But if the bulk of this printed money gets into the general economy and the public start spending it, inflation will skyrocket.

Money is creating in a well run economy with a stable currency and interest rates by businesses creating products of value and from the sale of those products making genuine profits. Some of these profits are then deposited with banks for future investment and that surplus money is then available for loans to other businesses. Let’s call this “Greenback” Money – or good money.

Redbacks and Your Retirement Nest Egg Protection

The way it happens now the FED changes the fractional  reserve rules or deposits printed money with the banks and they are supposed to lend it out. Let’s call this “Redback” Money – or bad money. A very appropriate name based on a highly toxic Australian Spider,  “Redbacks are considered one of the most dangerous spiders in Australia.^[1] The Redback spider has a neurotoxic venom which is toxic to humans with bites causing severe pain. There is an antivenom for Redback bites which is commercially available.”

If we could just demand the FED print Redback dollar bills when they have the printing presses going, we could easily see when inflation will hit just by the colour of the money.

Most people are infected with the printed money neurotoxin and do not see the danger of the FED Redback printed money. It looks identical to money from wealth creation.

If there is too many Redbacks in your wallet you would know your retirement nest egg is in danger. If it is virtually full of Greenbacks you can believe that the economy is running well using good money created in the economy and not bad money printed by the FED.

Using such a system the FED and your government could not trick you. Your Retirement Nest Egg would have some chance of actually being there when you retire.