As the editor of the Silver Bear Cafe, I spend most of my time researching current events. I explore the markets, the economic war that is being waged on the middle class, precious metals, the Federal Reserve, energy, and how to go about surviving financially. In this weekly column I will attempt to condense the week's events and examine how the news might affect your pocketbook. JSB

Financial Markets

The more things change, the more they stay the same. For those of us who have developed the bad habit of prognostication, the more they stay the same.

I have come to the conclusion, after having attempted to absorb the thoughts and prognostications of many highly intelligent people, that there are basically four groups that are involved in determining the future of the US Economy. Some of that determination is a result of either pushing or pulling, although most of it is a result of doing nothing, which is the collective contribution of the largest group. The largest group is made up of the sheeple, with the occasional good and bad clown popping up every now and then.

The next biggest group is made up of politicians and bureaucrats, as well as a mish-mash of all other government employees including alphabet soup agencies, some of which have deemed themselves special agencies which allow them to provide us with special agents. This overall group also has its fair share of good and bad clowns. It also has an inordinate number of evil ones.

The third largest group is made up of financiers; bankers, corporate management, muggers, thugs and thieves (an obscure reference to the banks of the River Charles). Consequently, here again, the group includes a number of good clowns but also bad clowns, and regretfully, a rather large contingent of evil clowns.

The fourth and smallest group is made up of us! The conspiracy theorist, libertarian, constitutional backing, patriot freedom fighter, tin foil hat bunch who also have our share of clowns, but, for the most part, we call them bloggers.

The way that these four groups interact has an all determining effect on the economy. The sheeple mindlessly provide the politicians with an unserved constituency so that they, the politicians, can covertly serve their donors while pretending to be dutifully serving the people. All this, they do, while clumsily providing their moronic best to keep the party going. Consequently, the party has become a big problem. Keeping the party going any longer will proove to be extremely detrimental to the short term well being of the whole country.

An explanation of how the groups interact in a perverse concert is the something I have chosen to explore. Please stay tuned for another epic rant based on the theme: Clowns: the good, the bad, and the evil - All the King's horses and all the King's men...Meanwhile, Michael Snyder schools us again on the warning signs of collapse.

From Michael Snyder:

There is one vitally important number that everyone needs to be watching right now, and it doesn't have anything to do with unemployment, inflation or housing.  If this number gets too high, it will collapse the entire U.S. financial system.  The number that I am talking about is the yield on 10 year U.S. Treasuries.  When that number goes up, long-term interest rates all across the financial system start increasing.

When long-term interest rates rise, it becomes more expensive for the federal government to borrow money, it becomes more expensive for state and local governments to borrow money, existing bonds lose value and bond investors lose a lot of money, mortgage rates go up and monthly payments on new mortgages rise, and interest rates throughout the entire economy go up and this causes economic activity to slow down. 

On top of everything else, there are more than 440 trillion dollars worth of interest rate derivatives sitting out there, and rapidly rising interest rates could cause that gigantic time bomb to go off and implode our entire financial system.  We are living in the midst of the greatest debt bubble in the history of the world, and the only way that the game can continue is for interest rates to stay super low.  Unfortunately, the yield on 10 year U.S. Treasuries has started to rise, and many experts are projecting that it is going to continue to rise.

On the Economic War Front

What do you think the general working class population will do when they are deprived of their pensions?

Of the 308 companies in the Standard and Poor's 500 Index that have pension plans, 94% are underfunded.

The government projects that as many as 150 private pension plans are underfunded to the extent that they face insolvency.

Meanwhile, the Pension Benefit Guaranty Corporation (PBGC), the independent government agency that takes over private pension plans that become insolvent, isn't all that healthy itself.

The PBGC already has a deficit of $34 billion. Its own estimates indicate the agency has a 91% chance of becoming insolvent itself by 2032. The PBGC estimates pension insolvencies could double over the next decade, forcing it to take on as much as $295 billion in underfunded pension plan liabilities.

Perhaps the sheeple have been sufficiently dumbed down and placated to take this lying down. After all they will have social security (or some semblance of it) to fall back on. So what, if rather than receiving the $5000 per month they were promised, they only receive $2500. Spam instead of steak. Diet soda instead of wine. What if the pension shortfall is a result of slimey politics rather than simply fiscal stupidity?

From Paul Craig Roberts:

It should be obvious to economists, but apparently is not, that Walmart-type jobs of the "New Economy" do not pay sufficiently to support a consumer-dependent economy. As Obamacare is phased in, consumer purchasing power will suffer another blow. Even the subsidized premiums are expensive, and the cost of using the policies in terms of deductions and co-pays will be prohibitive for most. As employer-provided benefits and Medicare are cut back, the health care crisis will worsen in the midst of an economic crisis.

The scary part of the pending economic crisis occurs when the federal budget deficit widens as the economy contracts and the Fed finds itself in a situation where it cannot print yet more dollars without causing a loss in confidence in the dollar and US Treasury bonds. What does a desperate government do in such a situation? It confiscates what remains of private pensions, piles on taxes, and drives the people and the economy deeper into the ground.

This is the path that US economic policy is on. What is the solution?

Capitalism could be allowed to work and the banks to fail. It is cheaper to bail out depositors than to bail out the banks.

Corporations could be taxed on the basis of the geographical location at which value is added to their product. If corporations create the goods abroad that they market to Americans, they would have a high tax rate. If they create value domestically with US labor, they would have a low tax rate. The tax difference could be used to offset the labor cost advantage of offshored production.

It would take time, but jobs would come back to the US. Cities, states, and the federal government would slowly see their tax bases rebuilt. Consumer incomes would again rise with productivity, and the economy could be put back together.

Precious Metals

In the realm of alternative media, there resides a group of prophets, poets, pundants, and prognosticators that expend varying degrees of energy on a daily/weekly basis attempting to communicate their take on the state of the world. This usually differs greatly from the main stream media's observations. Hence, the tag: "alternative".

Most of these folks, that I am aware of, lean heavily on recommending the possession of precious metals as a blanket panacea. Holding a commodity that the Central Bankers can't invent will help protect us from the vile and inherent evil of greed which comes from a lust for power.

There is much to fear from the Darkside. Through the disassemblage of the fabric of society they are effectively dismantling, not just the country, but the entire world. As a result, safe havens are becoming scarce. It is hard to get away from a world wide scourge.

There is, however, an inherent flaw in their plan, and it may prove to be their undoing. That flaw, I suspect, may lie in the unrealized risk of the massive amount of leverage that has been employed in the creation of $800 trillion in derivatives.

FromDavid Schectman:

So the point I am trying to make is that hedging commodities, and in this case gold and silver, is just another form of derivative, and the risk is every bit as real as in 2008.  Perhaps the big banks have for once learned their lesson.  They know that this time Congress will not lay it off again on the taxpayer to bail them out.  (Maybe the Fed will just print it and give it to them – they are sort of doing that right now, to the tune of $45 billion a month in QE).

Isn't that exactly what Jim Sinclair has been saying?   He refers to it as a continuation of the 2008 derivative implosion, which is still out there, and was never eliminated.  (One quadrillion dollars worth) In fact, as I understand it, the banks are back at it again, ADDING to their derivatives, not reducing them.  Makes you wonder, didn't they learn anything?  Well, it will work until it doesn't and we are just one black swan even away from Hell.

And remember, "hedging" is just another form of a derivative.

I say, run, don't walk to the phone and order your gold and silver now.  Without the ability to hedge in the US, it is only a matter of time before the entire PM industry will no longer be able to lock in a price until your funds have cleared.  And the pricing mechanism will cease to work.  Are you paying attention?  This, to me, is a game changer.

Energy

There is an ever increasing group of realists that, apparently, believes that the quantity of carbon base fossil fuels, recently discovered in the Dakotas, South Texas and Colorado, has been greatly over estimated and over stated. To hear so much positive MSM spin, one is led to believe that the United States' reliance on foreign oil and natural gas has been, essentially, alleviated.

The politicians, forever in bed with big oil and gas, refuses to heed the tell-tale signs of depletion and would, rather, maintain a delusional hope that all is well. The politicians are not, in all cases, guilty of the perpetration of fraud, but are just as ignorant of the facts as the sheeple. After all, they were all sheeple once. They are, in some cases, more dumbed down than the constituents they pretend to represent.

From Richard Heinberg:

The rapid spread of hydraulic fracturing ("fracking") has temporarily boosted US natural gas and oil production... and sparked a massive environmental backlash in communities across the country. The fossil fuel industry is trying to sell fracking as the biggest energy development of the century, with slick promises of American energy independence and benefits to local economies.

SNAKE OIL casts a critical eye on the oil-industry hype that has hijacked America's energy conversation. This is the first book to look at fracking from both economic and environmental perspectives, informed by the most thorough analysis of shale gas and oil drilling data ever undertaken.

Is fracking the miracle cure-all to our energy ills, or a costly distraction from the necessary work of reducing our fossil fuel dependence?

Many long-time observers of the world energy scene have been wondering whether claims being made for US shale gas and tight oil are "too good to be true." Here is hard evidence that they are indeed. America will achieve real, long-term energy independence and security only by doing two things: reducing energy demand and developing distributed renewable energy sources.

The Fed

How many people have you encountered that strive to make you think that they know more about something than they really do? I, personally, go through period where folks of that ilk line up to impress me.

It's one thing to not know what you're talking about. I like to pose the question, how much of this do you not know. Having a clue about how much you don't know is an incredibly important step that we must all make on the road to enlightenment.

Ben Shalom Bernanke, apparently hasn't got a clue when it comes to defining what he doesn't know. When it comes to economics, what he doesn't know makes up, at least, 99% of the subject. He is a sycophant, kissing the asses of his Bilderburger masters. His biggest, and therefore most dangerous shortcoming is the fact that, along with not even beginning to comprehend what it is that he doesn't know, he believes his own bullshit. As Mark Twain so famously quipped, its not what you don't know that will screw you up, it's what you think you know that is wrong. He is beginning to realize that his actions, mandated by his puppet masters, have created the biggest and most dangerous threat to truth, justice and the American way that has ever come down the pike.

From Michael Kosares, an inkling of the most likely outcome of the chairman's misguided ignorance...

From Michael J. Kosares:

The Federal Reserve on Wednesday slightly downgraded its economic outlook but gave no hint about its plans for its $85 billion-a-month asset purchase program. The statement released after a meeting of the Fed's policy making committee said that the economy was expanding at a "modest" pace, a change from the "moderate" pace seen in June. The Fed also noted that the rise in mortgage rates was a concern. It also said that persistently low inflation was a risk. There was only one dissent, by Kansas City Fed President Esther George.

This short report from MarketWatch captures the essence of the Fed's announcement this afternoon, and it would be difficult to conjure how it could have been more dovish. A few weeks ago, after Fed chairman Ben Bernanke raised the spectrum of QE tapering and sent the ten year yield on a tear, I wrote an article titled "Bernanke's Conundrum" in which I outlined the problem of market-induced rising interest rates, an end result precisely opposite Federal Reserve policy.

Today we get "Bernanke's Gift" — a colorfully wrapped package for Wall Street from the soon to be departing Fed chairman complete with a big red bow, lots of loud horns and the Federal Reserve board singing in chorus (with the notable exception of Esther "Party Pooper" George). The Fed's "concern" about rising mortgage rates coupled with the perception of low inflation as a "risk" amount to a back door assurance on the ten year rate and continued quantitative easing. In my view, Bernanke and company did not wish to leave any room whatsoever for ambiguity or having something lost in the translation — a message clearly intended to temper the markets' recent taper tantrum.

Financial Survival

What are we going to do? Where are we going to go? In spite of what your neighbor thinks, you're beginning to get a little antsy. Well okay, a lot antsy.

All I can say is "make like a boy scout and be prepared" Step out of the collective. Be the individual God meant for you to be and start assuming the responsibility that comes with the tenets of liberty and freedom.

Most of what your neighbor thinks is a result of a massive misinformation campaign. Friends of mine who have gone through the "waking up process" compare it to becoming "born again". Waking up usually results in the gradual development of healthy defense mechanisms.

I believe that, as a result of the misinformation campaign, members of our society are devolving and becoming less capable of defending themselves. It is our societal responsibility to both health and home to wake up.

James Howard Kunstler, a perennial favorite of mine, is capable of such eloquence, it is hard not to understand what he is talking about.

From James Howard Kunstler:

The idea that techno-industrial society is headed toward a collapse has become very unpopular the last couple of years. Thoughts (and fears) about it have been replaced by a kind of grand redemption fantasy that bears the same relation to economics that masturbation has to pornography. One way to sum up the current psychological state of the nation is that an awful lot of people who ought to know better don't know their ass from a hole in the ground anymore. We're witnessing the implosion of the American hive mind.

This is what comes of divorcing truth from reality, and that process is exactly what you get in the effort to replace authentic economic activity with accounting fraud and propaganda. For five years, the Federal Reserve has been trying to offset a permanent and necessary contraction of techno-industrialism by lobbing mortar rounds of so-called "money" into its crony "primary dealer" banks in order to fuel interest rate carry trades that produce an echo in the stock markets. An echo, let us be clear, is the ghost of something, not the thing itself — in this case: value.

The permanent contraction of techno-industrialism is necessary because the main fuel for running it has become scarcer and rather expensive, too expensive really to run the infrastructure of the United States. That infrastructure cannot be replaced now without a great deal of capital sacrifice. Paul Krugman — whom other observers unironically call Dr. Paul Krugman, conferring shamanic powers on him — wrote a supremely stupid op-ed in The New York Times today ("Stranded by Sprawl"), as though he had only noticed over the past week that the favored development pattern of our country has had adverse economic consequences. Gosh, ya think?

 

You must first realize that there are, present in our lives, enemies. You must then know who those enemies are and act accordingly.

Eliminate as much debt as possible, especially “variable rate” debt, such as credit cards and lines of credit. Interest rates will be rising, so the elimination of debt offers a “real return” of escaping rising rates by creditors.

Get some control over some fresh water.

If you are depending on Social Security, stop.

Follow the course opposite to custom and you will almost always do well...

Its not what you don't know that will screw you up, it's what you think you know that is wrong. The spin you hear from the mainstream media is intended to mislead you. Open your eyes and face the future. If you leave your head in the sand and ignore it, you are only leaving your butt exposed for the world to kick. This all may sound like gloom and doom, but when you get a handle on what is going to happen, you will have a future filled with opportunity. Fortune favors the Informed.

More next week...

May the Great Spirit be with you always,

Johnny Silver Bear
Chief cook and bottle washer, The Silver Bear Cafe

Disclaimer

All statements and expressions are the sole opinions of the editor and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. The staff of Silver Bear Cafe are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, editor, staff, or anyone associated with, or associated to the Silver Bear Cafe may own securities mentioned in this newsletter and may buy or sell securities without notice.