How Will It All End?

Faber: Nations Will Print Money, Go Bust, Go to War…We Are Doomed

Posted By Andrew Mellon On May 23, 2010 @ 5:28 am In Financial Services

Today the leading Austrian economic think tank, the Ludwig von Mises Institute ^[1] held a conference at the University Club in Manhattan in which Marc Faber, famed contrarian investor and publisher of the “Gloom, Boom and Doom Report” gave his perspective on the financial crisis and his outlook for the future.

Below are his main points and entertaining quotes:

• Central banks will never tighten monetary policy again, merely print, print, print
• Bubbles used to be concentrated in 1 sector or region in the 19th century, but off of the gold standard this concentration has ended
• “The lifetime achievement of Greenspan and Bernanke is really that they created a bubble in everything…everywhere.”
• “Central banks love to see asset prices go up,” and their policy reflects their desperation to perpetuate this
• US housing bubble that Greenspan could not spot (even though he has recently spotted bubbles in Asia) stands in stark contrast to that of Hong Kong in 1997, where prices fell by 70%, yet none of the major developers went bankrupt; this was a result of a system not built on excessive debt like that of the US
• “You have to ask what they were smoking at the Federal Reserve,” during the housing bubble, as prices were increasing by 18% annually when interest rates started to steadily rise in 2004
• Over the last couple of years, when the gross increase in public debt has exceeded the gross decrease in private debt, markets have risen, whereas when private debt growth has outpaced public debt growth, markets have tanked
• The next 3-5 years will be highly volatile

• Americans must re-think what constitutes a safe asset; in a “traditional” period, one would generally rank from most to least safe assets: cash, Treasuries, corporate bonds, equities, commodities
• However, last year Economist Gregory Mankiw ^[2] articulated the position which according to Faber essentially echoes that of Fed #2 Janet Yellen and pervades much of the Fed generally, that “The problem is that people are saving money instead of spending, and we have to get the bastards spending to keep the economy going,” so the key is to inflate the money supply at something like 6% per annum
• Thus, Faber says “As far as I’m concerned, the Federal Reserve will keep interest rates at 0, precisely 0…in real terms”
• As such, cash and longterm bonds will be a bad place to hold one’s money; equities are an avenue to preserve wealth (but this is a risky proposition, given the effects of rampant currency depreciation); precious metals are a sound place for wealth preservation
• As for the US being the most important economy for the world, there is a sea change going on right now; recently car sales in emerging economies (such as Brazil, China) are outpacing those of the US, Europe and Japan; oil consumption in emerging markets is increasing, while in the developed world it is contracting; the whole world does not depend on American consumption anymore – 60% of total exports are now going to the emerging world when one includes E. Europe; the US is still a large economy but it is not growing, while the growth in the emerging world is and will continue to be strong
• “People still think of emerging market economies as poor cousins, but because 80% of the world’s people are here, in aggregate the consumption is huge.”; these are not saturated markets and they are growing rapidly
• “Everybody should have 50% of their money in the emerging world, outside the West.”; people should also keep the custody of their assets overseas
• Contrary to what the talking heads are saying, markets are not out of control, central banks are out of control printing money
• The drivers of growth in the emerging world will be the urbanization of India and China; stocks won’t necessarily rise in the short term, but there will be significant growth in Asia in the long run
• The shift in economic power from West to East has been remarkable in speed, largely due to the rapid industrialization of the emerging world and the speed at which information travels today
• There will be a massive increase in resource-intensive industries and new export markets, met with increased volatility and tension around the world
• The supply/demand characteristics of oil are great due to the need for oil in China, India, rest of Asia
• Oil is the top priority for China, as they are now a net importer
• US has a huge strategic advantage over China given that we have access to our own oil, and that of Mexico, Canada, the Middle East and off the western Coast of Africa, in addition to the ability to travel on the Atlantic or Pacific Ocean; meanwhile, China sources 95% of their oil from the Middle East, and while they are building pipelines throughout Eastern Europe for example, their oil supply points in terms of ports for example are limited, and the US has defense bases surrounding these areas; Chinese subs could sink our boats however; the Russians are also not happy about our forces being in the region, and tensions will grow as the need for natural resources in these nations grows
• Eventually, there will be war and one will want physical commodities “not paper from UBS or JP Morgan”
• In war, cities will not offer safety because one can get bombed, water may be poisoned, electricity shut off; instead, one should buy a house in the middle of nowhere/on the countryside
• The tremendous economic Sophism of the day is that a nation can print its way into prosperity; “If debt and money printing equaled prosperity then Zimbabwe would be the richest country.”
• “Mugabe is the economic mentor of Ben Bernanke.”
• Our fiscal situation is much more horrendous than it is made out to be; total debt (public and private) as a percentage of GDP counting unfunded liabilities is an astounding 800% of GDP, more than double that during 1929
• Sovereign credits in the Western world are all bankrupt, but before bankruptcy governments will print money; US government leaders will try to postpone the hour of truth, pushing the problems off till succeeding Presidents and Congressmen
• If deficits didn’t matter as many like Economist James Galbraith ^[3] argue today, why should citizens even pay taxes? It would make everyone happier if they didn’t
• Faber is sure that the economists in academia are intelligent and they study the textbooks hard, but they study the wrong textbooks and are totally inconsistent in their philosophy
• In an environment of money-printing and high volatility that exists in the US and that will be created by future policy, physical gold is the best thing to own
• Once currency depreciation does take place, stocks may become very cheap, as happened when the Mexican peso depreciated by 95% in the early 80s, as the fund managers invested in Mexican equities completely undervalued them after currency collapse
• In a nutshell Faber says he is essentially bearish on everything, though he favors commodities (especially physical precious metals and agriculture), owning a house in the countryside, equities in emerging markets tied to resources (especially necessities like water and oil) and healthcare, and most of Asia including especially Japanese stocks
• There is no means of avoiding a total collapse in the West; at the first train station in 2008, the financial system went bust but didn’t die, at the next station nations will go bust (though this could take 5-10 years or less), but first they will print money as this is the most politically tenable option, and ultimately the world will go to war
• All of us will be doomed

Bear in mind that Faber said all of this quite matter-of-factly.

Even if you disagree with his points on the trajectory of the West, it cannot hurt to understand and prepare for the worst case scenario while still hoping for the best.

America in FULL Retreat NOW !

The Fruits of Weakness

By Charles Krauthammer

WASHINGTON -- It is perfectly obvious that Iran's latest uranium maneuver, brokered byBrazil and Turkey, is a ruse. Iran retains more than enough enriched uranium to make a bomb. And it continues enriching at an accelerated pace and to a greater purity (20 percent). Which is why the French foreign ministry immediately declared that the trumpeted temporary shipping of some Iranian uranium to Turkey will do nothing to halt Iran's nuclear program.

It will, however, make meaningful sanctions more difficult. America's proposed Security Council resolution is already laughably weak -- no blacklisting of Iran's central bank, no sanctions against Iran's oil and gas industry, no nonconsensual inspections on the high seas. Yet Turkey and Brazil -- both current members of the Security Council -- are so opposed to sanctions that they will not even discuss the resolution. And China will now have a new excuse to weaken it further.

The real news is that already notorious photo: the president of Brazil, our largest ally in Latin America, and the prime minister of Turkey, for more than half a century the Muslim anchor of NATO, raising hands together with Mahmoud Ahmadinejad, the most virulently anti-American leader in the world.But the deeper meaning of the uranium-export stunt is the brazenness with which Brazil and Turkey gave cover to the mullahs' nuclear ambitions and deliberately undermined U.S. efforts to curb Iran's program.

That picture -- a defiant, triumphant take-that-Uncle-Sam -- is a crushing verdict on the Obama foreign policy. It demonstrates how rising powers, traditional American allies, having watched this administration in action, have decided that there's no cost in lining up with America's enemies and no profit in lining up with a U.S. president given to apologies and appeasement.

They've watched President Obama's humiliating attempts to appease Iran, as every rejected overture is met with abjectly renewed U.S. negotiating offers. American acquiescence reached such a point that the president was late, hesitant and flaccid in expressing even rhetorical support for democracy demonstrators who were being brutally suppressed and whose call for regime change offered the potential for the most significant U.S. strategic advance in the region in 30 years.

They've watched America acquiesce to Russia's re-exerting sway over Eastern Europe, overUkraine (pressured by Russia last month into extending for 25 years its lease of the Black Sea naval base at Sevastopol) and over Georgia (Russia's de facto annexation of Abkhazia and South Ossetia is no longer an issue under the Obama "reset" policy).

They've watched our appeasement of Syria, Iran's agent in the Arab Levant -- sending our ambassador back to Syria even as it tightens its grip on Lebanon, supplies Hezbollah with Scuds, and intensifies its role as the pivot of the Iran-Hezbollah-Hamas alliance. The price for this ostentatious flouting of the U.S. and its interests? Ever more eager U.S. "engagement."

They've observed the administration's gratuitous slap at Britain over the Falklands, its contemptuous treatment of Israel, its undercutting of the Czech Republic and Poland, and its indifference to Lebanon and Georgia. And in Latin America, they see not just U.S. passivity asVenezuela's Hugo Chavez organizes his anti-American "Bolivarian" coalition while deepening military and commercial ties with Iran and Russia. They saw active U.S. support in Hondurasfor a pro-Chavez would-be dictator seeking unconstitutional powers in defiance of the democratic institutions of that country.

This is not just an America in decline. This is an America in retreat -- accepting, ratifying and declaring its decline, and inviting rising powers to fill the vacuum.

Nor is this retreat by inadvertence. This is retreat by design and, indeed, on principle. It's the perfect fulfillment of Obama's adopted Third World narrative of American misdeeds, disrespect and domination from which he has come to redeem us and the world. Hence his foundational declaration at the U.N. General Assembly last September that "No one nation can or should try to dominate another nation" (guess who's been the dominant nation for the last two decades?) and his dismissal of any "world order that elevates one nation or group of people over another." (NATO? The West?)

Given Obama's policies and principles, Turkey and Brazil are acting rationally. Why not give cover to Ahmadinejad and his nuclear ambitions? As the U.S. retreats in the face of Iran, China, Russia and Venezuela, why not hedge your bets? There's nothing to fear from Obama, and everything to gain by ingratiating yourself with America's rising adversaries. After all, they actually believe in helping one's friends and punishing one's enemies.

Where Obama Gets His Marching Orders

Alinsky's Star Pupil Uses 'Rules' As A Manual For 'Social Surgery'

By PAUL SPERRY
Posted 05/14/2010 06:42 PM ET

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President Obama is fond of using ridicule to frustrate critics. He recently mocked Republicans for predicting "Armageddon" if health care reform passed. After signing the bill, he cracked that he looked around to "see if there were any asteroids falling," only to discover a nice day with "birds chirping."

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Obama has also used the tactic to dismiss charges that he's pushing a "socialist" agenda, arguing that critics will next accuse him of "being a secret communist because I shared my toys in kindergarten."

But the former community organizer also knows that ridiculing the opposition is an effective tactic taught by the father of community organizing, Saul D. Alinsky — a socialist agitator from Chicago whose influence on Obama is deeper than commonly known.

In fact, the tactic is ripped right from the pages of "Rules for Radicals" (Vintage Books, New York, 1971), a how-to manual Alinsky wrote for coat-and-tie revolutionaries.

"Ridicule is man's most potent weapon," reads Rule No. 5. "It is almost impossible to counterattack ridicule. Also it infuriates the opposition, who then react to your advantage."

It's just one of 13 rules Alinsky coached his acolytes to follow to "take power away from the Haves." The Haves, represented foremost by corporate America, are "the enemy." They must be identified, singled out and targeted for attack — and the more personal the better, Alinsky advised, putting a special bull's-eye on banks.

His 13th rule — "Pick the target, freeze it, personalize it and polarize it" — is not lost on Obama, who has targeted "fat cat" bankers, "predatory" lenders, "greedy" insurers and industrial "polluters" as enemies of the people.

"Obama learned his lesson well," said David Alinsky, son of the late socialist. "I am proud to see that my father's model for organizing is being applied successfully beyond local community organizing."

Obama first learned Alinsky's rules in the 1980s, when Alinskyite radicals with the Chicago-based Alinsky group Gamaliel Foundation recruited, hired, trained and paid him as a community organizer in South Side Chicago.

They also helped him get into Harvard Law School to "learn power's currency in all its intricacy and detail," as Obama put it in his memoir. A Gamaliel board member even wrote a letter of recommendation for him.

Obama took a break from his Harvard studies to travel to Los Angeles for eight days of intense training at Alinsky's Industrial Areas Foundation, a station of the cross for acolytes. In turn, he trained other community organizers in Alinsky agitation tactics. In 1988, he even wrote a chapter for the book "After Alinsky: Community Organizing in Illinois," in which he lamented organizers' "lack of power" in implementing change.

Decades later, power would no longer be an issue, as Obama infiltrated the highest echelons of the political establishment, thus fulfilling Alinsky's vision of a new "vanguard" of coat-and-tie radicals sneaking behind enemy lines. He preached that changing the system "means working in the system" — while not acting or looking radical. "Start them easy," he said in his book, "don't scare them off."

It worked like a charm for Obama. And during the presidential campaign, he hired one of his Gamaliel mentors, Mike Kruglik, to train young campaign workers in Alinsky tactics at "Camp Obama," a school set up at Obama headquarters in Chicago. The tactics helped Obama capture the youth vote like no other president before him.

After the election, his other Gamaliel mentor, Jerry Kellman (who actually hired him and whose identity Obama disguised in his memoir), helped the Obama administration establish Organizing for America, which mobilizes young supporters to agitate for Obama's legislative agenda using "Rules for Radicals" — which Alinsky dedicated to "Lucifer, the very first radical known to man who rebelled against the establishment and did it so effectively that he at least won his own kingdom."

In fact, the 1971 book, now selling well on Amazon, is required reading for students applying for the program.

"Rules" is more than a manual. It's a diary of Alinsky's worldview, a dark, anti-capitalist one made all the more disturbing knowing that his protege sits in the Oval Office, where he's systematically reorganizing our economy, one industry at a time.

A careful reading of Alinsky's 200-page book leaves you queasy. Even before you get to his rules, which start on Page 126, you realize he hates everything dear to Americans while respecting nothing sacred about America — even its founding. He ridicules our most basic morality. He mocks our founders, finding the worst even in Jefferson, a classical liberal.

Alinsky, who died of a heart attack at 63, valued democracy merely as a "means" toward achieving "economic justice." He laughed at "middle-class moral hygiene." He even rebuked activists burdened by decency and troubled by the ethics of his tactics, sneering that they would rather go home with their "ethical hymen intact" than win a battle at any cost.

Alinsky was more than a socialist. He was a moral anarchist. Listen to these perverse proverbs:

• "Ethical standards must be elastic."

• "In war the end justifies almost any means."

• "In a fight almost anything goes."

• "It is a world not of angels but of angles."

• "The real arena is corrupt."

• " 'Reconciliation' means that when one side gets the power and the other side gets reconciled to it, then we have reconciliation." (GOP lawmakers take note.)

• "All values are relative."

Bitterly contemptuous of American materialism and individualism, Alinsky was a big fan of Lenin, whom he called a "pragmatist." He claimed that his own philosophy was anchored in "hope" for a more just world.

But this privileged son was simply bored with the status quo and sought to smash it just to see it smashed, while masquerading his unprincipled pique as an altruistic crusade for the downtrodden.

"Agitate," he egged on fellow radicals, "create disenchantment and discontent with the current values," even if none exist.

His story is similar to that of unrepentant terrorist Bill Ayers, the rebellious son of a successful Chicago businessman. Alinsky's father owned his own business in the city and put his son through the University of Chicago studying archeology.

Alinsky comes across loud and clear in the narrative of "Rules for Radicals" as a bitter, vulgar Hobbesian cynic. He advocates "fart-ins" and "sh**-ins" to offend the establishment, explaining that the "one thing" that inner-city organizers want to do to whites is "sh** on them." Nothing is off limits. The only thing he truly romanticizes is "ego."

"The ego of the organizer is stronger and more monumental than the ego of the leader," he wrote. "The organizer is in a true sense reaching for the highest level for which man can reach ... to play God." He added: "Ego must be so all-pervading that the personality of the organizer is contagious."

Page 23 of "Rules" is chilling: The American individualist — the industrialist, the entrepreneur, the wealth creator — "is beginning to learn that he will either share part of his material wealth or lose all of it; that he will respect and learn to live with other political ideologies" — that is, neo-Marxism — "if he wants civilization to go on."

"If he does not share his bread, he dare not sleep, for his neighbor will kill him," Alinsky warned. In other words, sacrifice and pay your fair share for "social justice" (code for socialism) or face mass unrest and the anger of the mob. Anarchy. Chaos. Blood in the streets.

Alinsky describes "the Haves" of American society as having fallen "asleep" — ripe for slaughter. "It is as though the great law of change had prepared the anesthetization of the victim prior to the social surgery to come."

Is Obama acting as Alinsky's star social surgeon, the first to possess the necessary power to carve up the American economy for mass redistribution? If so, "Rules for Radicals" may be his operating manual. More of us should read it.

• Sperry, formerly IBD's Washington bureau chief, is a Hoover Institution media fellow and author.

Holder Is A Major Threat To This Country !

Holder's Got To Go

Posted 05/14/2010 07:12 PM ET

Attorney General Eric Holder, testifying Thursday before the House Judiciary Committee's oversight hearing on the Department of Justice, couldn't... View Enlarged Image

Competence: Stumbling from one gaffe to another and showing little appreciation for our Constitution, Attorney General Eric Holder has become a major embarrassment. Time to admit he's in over his head and let him go.

We were never big fans of the AG, but like many others, we had hoped our misgivings were wrong and that he'd be successful as the nation's top law enforcement officer. Sorry to say, he hasn't been.

Events in recent days and weeks show that Holder has little if any understanding of our nation's most precious asset, the Constitution, and seems oblivious to the actual requirements of his job.

An appearance before the House Judiciary Committee last week illustrates the problem. Holder told the panel that Justice Department decisions "are done in a political way." Thanks for the honesty, but that's not what the job requires.

This may explain why Holder could question whether Arizona's new law on illegal immigrants is "unconstitutional" and imply that those who drafted the bill were racist, and, in the next breath, admit that he hadn't even read the 17-page bill.

If he took the time to read it, he'd discover that Arizona's measure basically takes existing U.S. federal law and makes it state law too. Is the federal law unconstitutional as well?

By the way, the only reason Arizona felt the need for such a law was that the U.S. Justice Department — which Holder heads — refuses to enforce U.S. law as written. The state's porous border has become a major source of drug and human trafficking, kidnapping, murder and other crimes. In short, Arizona had no choice.

Of equal concern, Holder seems to treat the War on Terror (yes, we still use and capitalize the term) as a joke.

Fortunately, the airline underwear bomber and Faisal Shahzad, the would-be Times Square bomber, both failed. But we weren't so lucky when Malik Nadal Hasan, an Army-trained doctor who also happened to be a Muslim extremist, murdered 11 people and badly injured several others.

Fact is, the U.S. is being probed by radical Islamist terrorists, some homegrown, for a major attack. A big reason for that is they think we're weak. Someday they'll succeed.

Just this week, Steve Emerson's respected Investigative Project on Terrorism noted with concern that terrorist experts have detected a shift in terrorists' attention — from weak spots overseas to the U.S. homeland. It's only a matter of time.

Even so, there was Holder, in congressional testimony last week, virtually unable to make his mouth form the words "radical Islam" when queried if that was behind the recent upswing in terrorism. It is, of course, but the White House refuses to say so.

Anyone with a normal ration of common sense and intelligence can see that radical Islam is a serious problem. Why can't Holder?

Last November, Holder decided that 9/11 mastermind Khalid Sheikh Mohammed and al-Qaida terrorist suspects Ramzi Bin al-Shibh, Walid bin Attash, Mustafa Ahmed al-Hawsawi and Ali Abdul Aziz Ali should be tried not by the military but by a civilian court in New York — a move contrary to all logic, precedent, public opinion and decency.

At the time, under questioning by Sen. Lindsey Graham of South Carolina, Holder couldn't even say whether he'd seek a trial in a civilian court for Osama bin Laden if he were caught.

Historian Martin Sklar argued in January that holding civilian trials for KSM and other terrorist murderers of 2,973 people was essentially malfeasance, "a betrayal of the public trust and a violation of the constitutional oath of office." It's hard to disagree.

By his own admission, Holder's decision making is driven by politics — not by concerns for the Constitution or public safety. Rule of law depends on a nonpolitical attorney general. Holder must go.