Urgent re Economy - Don't Be a Naive American

From Christine Harvey, WomenForWealth.com
Urgent re Economy - Don't Be a Naive American

Don’t be a naïve American like I was before I moved to England. When Tom and I moved there, we wanted to open a bank account. What we discovered shocked us – and it will shock you if you’ve not heard of ‘exchange control.’

I’m telling you this because this could happen here, and you won’t like it. The British government of that time had a policy that said that no English citizen could remove money from their bank account to go abroad, or to exchange into any other currency, over an amount equal to $100. If they wanted more money than that to take for a vacation just across the channel in France or Germany for example, they would need to apply months ahead – a very bureaucratic process involving discouraging paperwork, uncertainty and delays.

To us at the time, it felt very undemocratic – and it still does. I don’t want to be in a position where the government tells me what I can and can’t do with my money.

But here’s how it comes about and here’s why I say it could happen here. The British government did not want the value of their money to fall. By preventing citizens from changing it to other currencies, they were preventing the sale of it and preventing its downward spiral.

Whenever a government has a crisis with their currency – they think of control tactics. For example in America, during the depression, the US government prevented US citizens from buying gold.

If our government then had such control tactics, we need to realize that our governments of the future could bring in similar controls to stop the free fall of the US dollar.

An interesting trend is starting to occur which could put this kind of pressure on the government. In days gone by, the US dollar was held in high esteem by all citizens of every nation. In nations where currencies were weak, many citizens would exchange their local currencies into dollars and hoard them in a safe place or open a US dollar account IF it was allowed by their governments. Over the last year however, in many of those countries including Ecuador and Peru for example, citizens have been going back to their own currencies and selling off their US dollar hoards. In other words, there is a flight from the US dollar as a secure currency.

That background is simply to tell you this – DON’T BE NAÏVE – don’t think that the future will look like the recent past – the past of your memory in America. Look at the whole world. Look at what governments do when they want to achieve a goal such as holding the value of their currency. Look at what implications that has for you as a citizen. Do you want to own gold? Will this be prohibited in the future as it was in the past in the US? Do you want to hold as many Swiss Francs or Euros as you want? Will this be prohibited here someday as it was in England when Tom and I lived there? And if so, what do you want to do to protect your future now? THAT IS THE MILLION DOLLAR QUESTION.

Last August I started writing to you about the value of the dollar and other currencies such as the Swiss Franc. Let me tell you why this is important to you. Have you ever wanted to go on a vacation to Europe? Or maybe you have and you want to go again. When I wrote to you in August, guess how many dollars you would need to exchange to buy a cup of coffee in Brussels - the European headquarters – in the local pub near where we used to live. In August it cost $5 US dollars. (In the year 2000, it would ‘only’ have cost you $4.) Today, due to the fall of the dollar, you would need to exchange $6.50 US dollars to buy that cup of coffee. That is daunting. Dinner for two in Italy which used to cost $60, now cost $75 some 7 months later. What will a trip to Europe cost you in another 6 months!!!

Perhaps more import is the question of inflation. Let’s say you are never going to go abroad – so you don’t care. Well, the government is printing money and that will affect us too. You’ll need to decide if your money is safer in the bank (or other cash position) or safer in a commodity such as real estate. If the government were to print twice as much money, for example, then prices will double and your money in the bank will then have only half the buying power. Theoretically then, if you had $100,000 in the bank, and the government doubled the number of dollars in circulation, your dollars in the bank would have only $50,000 buying power, but your dollars invested in real estate would be worth double, or $200,000, providing the demand was there for housing. While that’s an oversimplification, it allows you to see the importance of your investment decisions in the days ahead. Would you rather have your $100,000 be worth $50,000 or $200,000?

Tom is keeping us updated through the EconomyGuy.com, and I’ve enclosed the last two issues here for you. If you want to get on the free email list, and start getting these every day, go to EconomyGuy.com and register. Then you can start exchanging your ideas too and everyone can be in the loop during these critical times. Be sure to include your friends in this too.

All best,
Christine Harvey
ChristineHarvey@WomenForWealth.com
PS MORE ABOUT THE ECONOMY BELOW...
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From Tom Harvey, EconomyGuy.com, Issue 3-14-08: Flight to Safety

The Bear Sterns announcement today knocked the stuffing out of the stock market and it fell 195 points.  See news story below.
Bonds became the “flight to safety” point for all that money, and the 10 year treasury fell 0.11%, a mighty fall.

As promised yesterday, currencies were poised to make new highs, and the Bear Sterns news gave them the excuse they needed.  The Euro, Yen, Swiss Franc hit new highs.
Gold closed above $1000 for the first time, and hit $1007 during the day – a new high.

In the news today....

Bear Sterns, that mighty giant of an investment bank, basically is illiquid (or bankrupt if you think about it that way).  They had to be bailed out to keep from closing their doors for good.  The FED and JP Morgan came to the rescue.  JP Morgan will probably purchase Bear Sterns as part of this bail out.  How low the mighty have fallen.

How did Bear Sterns become so illiquid – when the FED had just announced its $200B bailout of investment banks???  They had way too many securitized mortgages; couldn’t value them; couldn’t sell them; couldn’t borrow from anyone; and ran out of money (this is the true meaning of illiquidity).  The FED’s $200B bail out plan was just TOO LATE.  (Now there’s a comment on the FED.)

The question for you today is “How many other financial institutions are on the brink of closing their doors????”

How did the FED conjure up saving Bear Sterns.  The FED had to resort to tactics not used since THE GREAT DEPRESSION of the 1930s.  Using statues from that time stating the FED can inject funds into a non-depository institution (Bear Sterns is a non-depository institution) in “unusual and exigent circumstances.”  WELCOME to UNUSUAL and EXIGENT CIRCUMSTANCES.  The FED funding will flow thru JP Morgan into Bear Sterns.

Let this be a big lesson that the FED is here to save the big financial institutions of the US (and abroad?).  In my 2nd Dinner Discussion from yesterday, I bemoaned the fact that the economic situation of the US and the world is truly grave, and the FED doesn’t have many tools left to act.  Today, the very next day, the bottom fell out of one of the US’s big investment banks, and the FED had to reach into its bag of tricks to save that bank.

More news today....

When the FED meets next week, how much will they lower the Fed Funds Rate?  The bond market today is pricing in a 50/50 chance of a full percentage point drop – from 3% to 2%.  The market is betting the minimum reduction will be 0.75%.

How about that CPI (consumer price index)?  It didn’t change in February!!!!!!!  Okay, let’s get real.  The official US statistical situation is the inflation did NOT move last month.  Did anyone other than me see inflation actually move last month????  The CPI is a joke, and continues to swindle the average US citizen, or at least it totally misleads the average US citizen.

Dinner Conversation for Tonight

In the international economic community the US is perceived at devaluing its way to prosperity.  That’s the statement for you to debate with your friends, strangers and lovers.

My Two Cents is that this is a great (and possibly only) tactic left to the US to work its way out of the hole it has dug for itself.  A massively devalued Dollar would encourage massive exports – and might even balance the trade deficit, or heaven forbid, pay the deficit back.  A massively devalued Dollar implies a massively inflated Dollar – so hold onto your wallets as the FED and government sticks their hand into it (stealthily – that’s the way of inflation.)

Here are today's Numbers:
Dow Jones 30 Industrial – 11,951 (Down 195 points)
10 Year Treasury Bond - 3.42% (Down 0.11%)
Euro - $1.5676 - a NEW HIGH – The Yen hit 98.9/$, and the SFr is now worth more than $1.  ALL NEW HIGHS
Gold - $1000 (Up $6) - Gold reach a NEW HIGH OF $1007 interday today.
Oil - $110.21 (Down $0.12)
Gasoline - $2.69 (Up $0.01)

Feel free to forward this newsletter to others who might be interested.  Or better yet, have them subscribe themselves at http://EconomyGuy.com  
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From Tom Harvey, EconomyGuy.com, Issue 3-13-08: Interesting Times Indeed  
  
Stock dropped dramatically at the opening of the market today, and swept upward throughout the day to end up 35 points.  Why? You ask?   Well, S&P came out today and said that all those financial institutions are near the end of their liquidity write downs.  Do you believe that?  Well, the market did.  I don't.  Carlyle Capital is rumored to be about to be taken over by the banks that lent it a bundle of money - as Carlyle lost a bundle on the sub-prime meltdown mess, and the banks want their money back.  This shook the market at the beginning as it is proof that the FED moves are NOT working.  I think this is closer to the truth.  (Oh, by the way and in the spirit of full disclosure, today I sold the overwhelming majority of the stocks that I own; much to the chagrin ("but, you won't be owning any stocks!!!") of my stock broker.  I did this based on the confirmation of the bear market a couple of days ago.)

Bonds are amazing.  If you remember yesterday I said that bonds were having excessive volatility??  Today they swung from 3.40% to 3.55%, ending at 3.54%.  That 0.15% swing is EXCESSIVE in classic bond markets.  We live in interesting times.

Yesterday I predicted that the Euro was poised to break through $1.56, and it did it today, ending at $1.5621, and hitting a new high of $1.5625 along the way.  The currency traders are now looking at $1.60 as the next barrier for the Euro to rise to.  If this happens quickly, the Dollar would be classified as being in a rout.  From a purely technical viewpoint, the Dollar is still losing value "in an orderly fashion".  By "orderly" I mean that there is no "gapping" in the price history.  Gapping is when the value of anything closes at one number, and opens at an entirely different number - and there has been no trading in between those numbers. (For example, the Euro closed today at $1.5621 - and IF it opened tomorrow at $1.57, and kept going up - that would be a gap.)  If a gap ever occurs in Dollar trading, the currency market will be no longer "orderly", but will be in chaos - as will the future of the US Dollar.  I'm telling you this, so you can look for it yourself.

Gold hit a new high today of $1001, and closed at $994.  Gold is in, and the Dollar is out.

In the news today....

Retail sales were down 0.6% in February, and this was worse than predicted by the world's greatest economists.  Retail sales represent how much money private individuals are spending in the US Economy, and it represents at least 2/3 of the total economy.  In a related move, "most economists say that a RECESSION is here."

Where were these great minds four months ago when I told you the same thing?  All they have to do is read the EconomyGuy.  The readers of the EconomyGuy can be content in knowing that you are months ahead of the thinking of the greatest economics minds in the US.

Import prices rose 0.2% in February - not so bad, I hear you say???  Well, that follows a 1.6% rise in January, and a year over year rise of 13.6%.  Now 13.6% is a BIG NUMBER in anyone's book.  But, they are only imports - you say???  Yes, only imports, and a big chunk of that rise is in our imported oil prices.  However, all other imports are rising too.  Even those from China - though not as fast as the rest of the world.  What does this mean to you and me???  It means that INFLATION is here, and we're definitely seeing it in the import sector.  Soon you will be seeing it in the domestic sector too - even through the exceptionally misleading CPI.

Secretary of the Treasury Paulson said today that the US needs "tougher oversight on mortgage originators by the credit rating agencies."  Basically, Paulson is saying we can't let the sub-prime mortgage mess ever happen again.  Where was he when it happened the last time around??  He was the head of Goldman Sachs, an investment banking financial institution - just like the ones who thought up this mess.  So, he's blaming the mortgage originators!!!!!  And, he's blaming the credit rating agencies!!!!!  Well, they both have a lot to answer for; that's for sure.  But, so do the financial institutions that greased the skids by pouring money into the mortgage originators, and then selling all that "securitized sub-prime mortgage paper."  Also, I will end by saying that having the credit rating agencies have oversight of the mortgage originators is like letting the cat in the chicken coop.  (Paulson is saying that "business as usual" is great - don't create a big NEW bureaucratic organization to oversee this business - just hold the "already failed" business construct more accountable???)

Dinner Conversation for Tonight

Chrysler announced today that it will be shutting its doors for 2 weeks during the summer - so all the employees can have a great vacation.  Think about this announcement.  If business were brisk, would Chrysler be doing this??  No!!!!!!   This is just another sign of our "recession."  I wonder if anyone will start using the word "depression" soon?  Will you??

Second Dinner Conversation for Tonight

I have been excessively lengthy in writing the EconomyGuy today.  Here's why.  I sense a shift in the nervousness of ALL the markets.  That's why I report on all the markets.  All the markets are moving much faster and further than they have in the recent past.  I am concerned at this trend, and I sincerely hope I am wrong in being nervous.  However, if this increased volatility and ever increasing "NEW HIGH's" that I report (below every day) continues, we could be in for some big surprises as the FED and the US Government doesn't have a lot of tools left to handle the situation.  The FED has shown panic in my opinion by its actions over the past 3 months.  What else could happen??  That's for you to discuss among yourselves.


Here are today's Numbers:
Dow Jones 30 Industrial - 12,146 (Up 36 points)
10 Year Treasury Bond - 3.54% (Up 0.05%)
Euro - $1.5621 - a NEW HIGH
Gold - $994 (Up $13) - Gold reach a NEW HIGH OF $1001 interday today.
Oil - $110.33 (Up $0.44)
Gasoline - $2.68 (Down $0.05)

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