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Where Do WE Go From Here?
The current stock market rally has striking similarities to the one which occurred after the 1929 stock market crash. After the initial crash, there was a powerful rally. Then, the bottom fell out from under the market. Those who held onto their shares wound up losing almost 90% of their money before the decline was over. The charts of the 1929 crash and the 2008 crash (with subsequent rallies) are DEAD RINGERS! I think that we are going to see another leg down when the current rally ends. History is going to rhyme. I fully expect to see the markets rise for a while longer. Dow 10,000 would not shock me. S&P 1,100 would not shock me. After that, I am concerned that we will have trouble. Market analysts have traditionally argued that the stock markets are "forward-looking." The fact that they are rallying quite nicely is therefore construed to be an indication of good things to come. However, if the stock markets are truly "forward-looking," and if they are pointing toward a recovery, a reasonable person will want to ask the following question:
How about the retail sector? Nope. people are cutting back. The consumer is retrenching. Restaurants? Nope. In decline for 22 consecutive months, and still counting. Housing? Nope. Still headed down. Commercial Real Estate? Nope. We have only begun to see the carnage. Manufacturing? Nope. Factory orders are down. Exactly what do we make in the U.S. anymore? Automobiles? Nope. We're headed toward the worst domestic sales since 1967. New jobs? Nope. Real unemployment is over 20% and headed higher. Mass layoffs continue. Worldwide trade? Nope. The Baltic Dry Index is crashing again. It's a leading indicator. State and local government? Nope. They don't create real jobs, anyway. The private sector does. California is only the first state to crash. In Arizona, they're even talking about SELLING their Senate and House buildings. Tax revenues are down in all but a couple of states. The Federal Government? Nope. The American people have elected a criminal class to rule them for at least the past 20 years, and probably a lot longer than that. The current crop of crooks is trying to enact the most fiscally irresponsible programs in American history. In the midst of a depression, they want to raise taxes to confiscatory levels, thus eliminating the incentives for the entrepreneurial class to take risks, start new businesses, and create REAL jobs. Some tax experts are saying that people in the highest tax brackets will ultimately be paying between 65% and 85% of their earnings in federal, state, and local taxes. Even Keynes knew better than to do that to the best and brightest of a society! Atlas is going to shrug, and soon! At the same time, the Federal government proposes to "borrow us back to prosperity." The United States is broke. The only reasons why we haven't had a total collapse are: 1) because we have the world's reserve currency and have thus far been able to create it in infinite quantities out of thin air; and, 2) foreigners have been willing to lend us money. As for #1, we can certainly continue to create more money out of thin air. Expanding the money supply=inflation. As for #2, as evidenced by the rapidly changing attitudes of our major creditors, that situation is in the process of changing. The Federal Reserve? Nope. The Fed is a banking cartel. It is a private organization, not a government agency. It does not exist to help the American people. It exists to help its owners, the big banks. That is why most of the "bailout" money our criminal politicians have authorized has gone to the banks. Since the Fed came into existence in 1913, the dollar has lost more than 95% of its purchasing power. Before the Fed existed, the dollar actually GAINED strength for more than 100 years. The Fed is actually a means by which the banks can siphon off the wealth of the American people. The Fed is fighting tooth and nail against attempts to allow the American people to audit it. Why do you think that it does not want to be audited? What does the Fed want to hide? The Fed is not here to help you. Congress? Nope. Most of the politicians had not read the Federal Reserve Act when they passed it with a minimal voting quorum just before the Christmas recess in 1913. Nothing has changed. Modern Congress critters still do not read the legislation for which they vote. And they vote the way their masters, the bankers, tell them to vote. Look at what the House of Representatives did when it voted for the recent Cap & Trade (Cap & Tax) bill. They did not even read the bill. How could they? There was only one copy on the House floor! Goldman Sachs will be one of the biggest beneficiaries if the bill passes the Senate and becomes law. Goldman has positioned itself to make billions trading "carbon credits." With only a few lonely exceptions, Congress has been bought and paid for. China? Nope. They view us as a temporary trade partner and a means by which they can fulfill their destiny to become the next "lone superpower." China does not intend for us to be the "lone superpower." However, China also has problems of its own, including a banking bubble, rising unemployment, and increasing social unrest. China cannot jump-start the U.S. economy. The Cure: The way for the United States to jump-start its economy would be for it to LOWER taxes and CUT government spending. The United States would also need to reduce the level of government intrusion into its citizens' lives. Even though tariffs are generally anathema to those who believe in free markets, some reasonable tariffs should be considered, if only so that we can protect what remains of our industrial base. Under current conditions, the United States cannot compete with nations which use slave labor and have no compunction about enacting tariffs to protect their own domestic industries. The way for the United States to jump-start its economy would be to go back to honest commodity-backed money. Gold would have to be revalued to an higher price, but it could be done. Fractional reserve banking would also have to be eliminated. Banks would have to be restricted to fee-based lending, as opposed to the current system which allows them to loan out about 9 times the amount of money they actually have on reserve. Banks must be prohibited from loaning out money they do not have, thus putting the borrowers into debt servitude. Do I think that any of these things will happen? Nope! The current politicians will not do it. They believe that government needs to be bigger, not smaller. The banking interests will fight against true reform. They will buy off the politicians. They have already bought them off! Sadly, most Americans are clueless about why the current depression has occurred and who is responsible. Therefore, we can be absolutely certain that the current leaders of United States will NOT take the steps which could restore it to economic health. You and I are on our own. No one else is going to come and rescue us. That is why owning gold and silver is so important. Gold and silver are no one else's liability. Gold is still the only asset class which has risen in price every year since 2001. The people who have still not bought any gold will never do so until gold sells for much more than it does now. At that point, gold for less than $1,000 per ounce will seem to have been a bargain. In fact, it is a bargain for gold to be selling for less than $1,000 per ounce! Will our economy recover at some point? Of course, it will. Credit booms and busts are cyclical. In 2007, it was time for the current credit bubble to burst. If the free market had been left to repair itself, we would already be on the road to real recovery. However, we are instead following in the steps of FDR and of Japan in the 1990s. The Great Depression lasted until the end of World War II. Japan has now lived through TWO LOST DECADES! The common denominator is socialistic government intervention. That is the "remedy" our current leaders have chosen. The result is very predictable, except for them. They will be the last to understand. We must act accordingly. Those who protect themselves by saving, getting out of debt, and by buying precious metals will survive the coming years better than those who do not. Wisdom for the Ages:
(This article is just a small portion of what is in the August, 2009, issue of The Richter Report. There's a lot more for paid subscribers. Please feel free to visit the website and look around!) |
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We are currently seeing a stock market rally, and many in the media are proclaiming that happy days are here again. Lost in the celebration is the fact that the current stock market rally has absolutely nothing to do with the fundamentals behind our economy. It has everything to do with mass psychology. Simply put, it was time for the market to rally after it had crashed to its low point in March, 2009. 