By Eldon Mast, on November 16th, 2009
Even though markets were sliding rapidly last year at this time, the stock market indexes have now recovered to the point that year over year gains are quite substantial.
For the Dow Jones industrial average, the one year gain is now 1,773 points, up 21% from a year ago at this time:
The S&P500 Index is up 220 points or 25% since it’s pre-Thanksgiving 2008 level:
And the technology laden Nasdaq has had the best year of the three, rising 651 points, up an impressive 43% from a year ago at this time:
And you might remember that back in early March we speculated that these charts would look very similar to the charts for 1975. And indeed they do.
By Rok Spruk, on November 16th, 2009
The Economist published an excellent analysis on the future of reserve currencies in the world (link).
By Claus Vistesen, on November 16th, 2009
As I am preparing for a tournament this weekend in Sweden I only have time for some random shots, but then again; taking random shots seem to be exactly what the markets are all about at the moment. The first such random shot came from today’s release of the GDP figures from Europe which showed, with much fanfare, how the Eurzone (and Europe) is now effectively out of recession.
(quote Bloomberg)
The euro-area economy emerged from its worst recession since World War II in the third quarter as exports from Germany and France helped compensate for households’ reluctance to increase spending Gross domestic product in the economy of the 16 nations using the euro rose 0.4 percent from the second quarter, when it fell 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast the economy to grow 0.5 percent, according to the median of 34 estimates in a Bloomberg survey.
Europe’s economy is gathering strength after governments stepped up stimulus measures and the European Central Bank injected billions of euros into markets to encourage lending. While confidence in the economic outlook is at a 13-month high, rising unemployment, the expiration of stimulus plans and a surging euro are threatening to undermine a recovery. “The euro-zone economy has officially turned the corner and that is cause for relief, but not celebration,” said Martin van Vliet, a senior economist at ING Bank in Amsterdam. “The economy remains in a fragile state and is recovering mainly because of government stimulus and temporary inventory effects.”
Now, before we get ahead of ourselves, the comments by Mr. van Vliet should, as I would assume the comments from any other proper economist, alert us to the fact the current impressive figure, while not a figment of imagination, is indeed driven by decidedly imaginative factors in so far as goes the idea of a sustained recovery. In this way, one off government spending which, by nature, cannot be sustained indefinitely as well as a less severe bout of inventory reduction by part of companies (which may of course be a forward looking indicator) do not in themselves make a recovery.
Add to this that behind the headline figure for EU16 and EU27 of 0.4% and 0.2% GDP growth qoq respectively lies a decidedly murkier picture. Consequently, Greece and the UK continued to spend the third quarter in recession (-0.3 and -0.4 qoq respectively) and then we have poor Spain of course where the horror show of a recession continues without showing any signs (-0.3 qoq), whatsoever, of abating. It is noteworhty in this respect to consider the stark contrast between the European economies in the context of the latest aggregate confidence reading conducted by Bloomberg;
Bloomberg users in Spain remained the most pessimistic in Europe as that nation stayed mired in recession, with unemployment soaring toward 20 percent and the economy struggling to recover from a construction-industry collapse. The Spain confidence index was 17.7 this month from 10 in October.
So, the divergences are growing inside Europe and already they must be hard at work in Frankfurt to try to knit to together a strategy to suit all the individual economies of the Eurozone. The point is of course that they can’t and it will indeed be interesting to see how they manage this particular challenge in the future. Before we get to that though and, one would assume, any talk of lifting nominal interest rates from their current low levels we need to get over the hurdle of when and how to pull back “extraordinary measures” of monetary policy.
And here, this is not only about the ECB.
Consequently, and with the small exception of the BOE where Mervyn King recently left it an open question of whether the BOE would buy additional gilts, the three major central banks have all upped their discourse on the winding down of asset purchases in the context of the Fed and BOJ and “enhanced credit support” in relation to the ECB.
In Frankfurt and elsewhere, the outlook on these exit strategies remain opaque except to say that with the continuing emphasis by part of central banks most market commentators expect these measures to be withdrawn some time in Q1-Q2 2010 with the notable exception that the ECB seems to have indicated that the liquidity offering (12 month) coming in December will be the last.
Without going too much into detail [1] it appears to me that central bankers may end up in trouble on account of those exit strategies and how to instigate them into a 2010 “post stimulus” slowdown. This is not so much because I cannot see the impetus to exit in itself, but rather because if now is not the time to exit, how can you argue in the first half of 2010 that it is?
Surely, on this account I would give them an A+ in so far as goes the attempt to prepare markets, but I am more uncertain as to which they will also be able to actually deliver the exit strategy to the tune of the same grade. We will see I guess; for now, I hope that they are not taking, what will turn out to be, random shots at volatile asset prices and premature signs of non-materialising recoveries.
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[1] This will have to wait for another time.
By Trace Mayer, on November 16th, 2009
The vampire squids of Wall Street and Washington DC are parasitic organisms and you are locked in mortal combat with them. They desire to suck all the value they can from you and then toss your carcass aside. As with most parasites they prefer subtle tactics that do not attract attention.
But now the spotlight is being directed towards them and individual humans are becoming increasingly aware of their status as human livestock to be feasted upon and slaughtered by these parasitic vampire squids. Increasing numbers are declaring their independence from these nefarious parasites. There are a few simple things you can do to defend yourselves from these repulsive psychopathic parasitic vampire squids and assert your sovereignty.
IMPROVE YOUR INFORMATION DIET
If an individual sustains life by eating low quality junk food then they are more susceptible to disease, cancer, obesity, diabetes, heart disease, inflammation and a host of other health problems. A few small changes in one’s physical diet can have a tremendous effect on one’s health and general feeling wellbeing.
So likewise your time and attention is extremely valuable. Most Americans watch 5-10 hours of television per week. A significant problem with television and corporate media is the degree of misinformation and subliminal programming.
A subliminal message is a signal or message embedded in another medium, designed to pass below the normal limits of the human mind’s perception. These messages are unrecognizable by the conscious mind, but in certain situations can affect the subconscious mind and can negatively or positively influence subsequent later thoughts, behaviors, actions, attitudes, belief systems and value systems.
Because of the consensual nature of watching television you let your intellectual guard down and are more susceptible to the lies, misinformation and subtle tactics of programming that are engaged in by the archaic media. In most cases, their corporate profits are in a direct conflict of interest to your happiness. A blatant example would be the tobacco industry.
By removing TV and corporate media from your daily information diet you can reallocate a large amount of your time to more productive uses, start a new hobby, develop additional skills or a host of other things. By purifying your information diet and purging the toxic and harmful influences the probability for having a happier and more fulfilled life increases. As many people have been doing this the newspapers have been evaporating at rapid speeds.
CEASE RELATIONSHIPS WITH CORRUPT PEOPLE AND INSTITUTIONS
Banks, brokerages, insurance companies, cable operators, credit card issuers, etc. are almost completely corrupt. You cannot afford to have contact or business relationships with this infestation of parasitic vampire squids. You cannot afford to allow these liars, thieves and murders to handle your money and data.
Whenever you do business or transact with a corporation who has access to your data then your privacy is greatly diminished or removed through the use of transactional databases. Because of the highly invasive nature of these tools I think it is extremely important that you think seriously about who you reveal data to and who you will allow to access your data.
Dr. Colin Ross, a psychologist with CCHR International, a mental health watchdog, reveals findings from 15,000+ pages of documents disclosed under the Freedom Of Information Act in his book Military Mind Control about inhumane treatment by psychologists employed by the CIA and major pharmaceutical companies such as Eli Lilly which first manufactured LSD under government contract.
Although there are some laws in place regarding privacy we see how well the traitorous vampire squids of Washington DC behave when executing their oath to ‘preserve, protect and defend the Constitution’. So assume there is no privacy and work actively to protect it and learn how to vanish.
IMPECCABLE COMPLIANCE WITH COSTUMED CRIMINAL GANGS
The traitorous vampire squids strut around in their costumes extorting your hard earned wealth while they regularly flaunt the law and like Tim ‘tax cheat’ Geithner they willingly evade the taxes levied on themselves. Of course, there is a massive industry that derives revenue from involuntary incarceration. Your freedom is in conflict with their profits. This is a reason why America has the highest documented incarceration rate in the world with over 7.2 million adults on probation, parole or in either jail or prison.
While Americans like to sing that they are the ‘land of the free’ it is really the home of the incarcerated. To avoid being engulfed by this massive police state you should be properly trained on how to interact with the psychologically damaged and intellectually retarded criminal gangs that masquerade in costumes as peace officers.
For example, in 1999 in Jordan v. City of New London Robert Jordan of Waterford, CT, a corrections officer, received worldwide attention when his application to the New London, CT Police Department was rejected on the grounds that candidates scoring too high on intelligence tests become bored with police work and often quit. Jordan scored a 33 on the Wonderlic intelligence test, a feat equivalent to having an Intelligence Quotient (IQ) of 125. New London’s policy is limited to interviewing candidates with scores between 20 and 27.
Consequently, it is extremely wise when one is unjustifiably subject to these presidents, kings, rulers or magistrates to be impeccably compliant with their extortions and threats. This compliance is recommended not because of some faux moral duty like Hitler’s perverted interpretation of Romans 13 but instead because if a robber sticks a loaded gun to your head and says ‘Your wallet or your life.’ then it is usually a better outcome to lose only your wallet.
But make no mistake; the robber’s demand is immoral and therefore you are under no moral duty to obey and under most state’s self-defense statutes you would be justified in using lethal force against the aggressor. America is the largest police state in the history of the world with highly complex rules and very little privacy protection. Therefore it is wise to never violate the various gang rules.
REPOSITION ASSETS
We live in economic warfare and as with any game there is a goal: equity and control.
Most people underinvest in their health and knowledge with poor physical and information diets. With malnourished human intellectual capital it is very difficult to be successful. To reposition your assets you will need your health, knowledge, intelligence and the ability to think and act.
We currently live in an illusory economy but because The Great Credit Contraction has begun we are transitioning to a real economy where individuals want hard assets. The Chinese are on hunting trips for real assets. They are exchanging their illusory Federal Reserve Note for farmland, oil, gas, water, etc. So it is wise to shift out of financial assets and into tangible assets or securities that have solid economics behind them.
LONG TERM TRENDS
The trend is your friend. The vampire squids of Wall Street, with shills like Jim Cramer, attempt to goad you into playing follow the vampire squid. This results in a lot of people being so busy trading they are unable to fundamentally analyze what they own. The more fractionalized your mind is from rabid trading the easier it is for the vampire squids to harvest you.
Precious metals are in a long-term secular bull market and fiat currencies are in a long-term secular bear market. Certificates of confiscation will evaporate your wealth. High quality farmland, food and clean water are becoming increasingly scarce and important. Jim Rogers analyzes and discusses the reasons in Hot Commodities. The old saying is, ‘The trend is your friend’.
REVOLUTION
Sure, you can buy gold hoping to make a profit or even protect your purchasing power. There are plenty of objective reasons for doing so. For example, those who followed the advice on RunToGold would have significantly more purchasing power given platinum has risen from $1,118 to $1,375. So likewise the analysis has been provided with silver’s slight backwardation and the fundatmentals for buying platinum.
But there are more important reasons for buying the precious metals. When you own the monetary metals you own sovereign wealth. In effect, you have declared independence and are fighting all the central banks and vampire squids in the world.
There are two ways to fight a revolution and assert your sovereignty against immoral criminal gangs costumed in government regalia: guns and currency. The use of fiat currency allows for confiscation through inflation which is a form of taxation without representation and without due process of law.
Are you upset about Congress passing the health car bill? Does the cash for clunkers program of destroying working vehicles annoy you? What about privatizing the gains and socializing the losses to the tune of trillions of dollars that is used to bailout the vampire squids of Wall Street? Does the closed-source software and the murky voting process cause you to doubt the veracity of the political system?
One method of peaceful protest is buying gold or some other commodity currency such as silver or platinum. Doing so is a vote of no confidence in the current system.
As a peacemaker I hate to observe the other method which involves violence and will only result in undesirable consequences and darker days. There is a big difference between starving parasitic vampire squids and terminating them. We all know the golden rule : He who has the gold makes the rules. One of the reasons the vampire squids are able to harvest the American people so efficiently is because the American people have no gold.
As Mark Dice found out they would not even buy a 1 ounce gold coin for $50! Perhaps that is the most bullish aspect of this secular bull market in the precious metals.
CONCLUSION
Parasitic vampire squids are swarming around trying to harvest both the wealth you produce and you. To protect yourself take control of your information diet, cease relationships with corrupt people and institutions, maintain impeccable compliance with the arbitrary rules and regulations of the costumed criminal gangs, understand the long-term trends, reposition your assets, implement provident living principles in your ordinary daily activities, and establish your independence from these parasitic vampire squids. Declare your independence!
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By Russ Nelson, on November 13th, 2009
You will, from time to time, see people ask for more regulation of markets. I don’t really need to cite any examples, do I? They’re all over today’s newspapers, claiming that unregulated or deregulated or free markets are responsible for the collapse of various businesses.
There is no such thing as an unregulated market, however. The term “free market” is a bit of misnomer. Participants in a free market are not free to do anything they want. If you fail to make a product that people choose to buy, that is a freedom you will find unavailable in a free market.
Let us be clear: there are markets which are regulated by politicians, and there are markets which are regulated by customers. There are no unregulated markets. There are no free markets. There are only markets in which customers are free to reward or punish businesses, and markets in which customers are prevented from rewarding or punishing businesses.
Which kind of that market do you want? One where you are free to buy or not buy? Or one where you are hampered?
John Kay makes a similar point.
By Rok Spruk, on November 13th, 2009
On Wednesday, it had been 20 years since the fall of the Berlin wall and the eventual collapse of communist political and economic system in Central and Eastern Europe. However, there is still discussion about economic costs and benefits of German reunification (Wiedervereinigung). I’ve been motivated to open this debate by professor Becker’s analysis (link) on the size of countries and by the recent article in Financial Times by the contributing German economist (link).
Economists in Germany and the rest of the world have long warned against the consequences of the unification of East and West Germany. After the unification, German central bank set the exchange rate at 1:1. Because East German workers’ relative productivity level lagged far behind the West German level, East German workers migrated to West Germany in search of higher wages. When wage rates between West and East Germany were equalized in the absence of productivity catch-up in East Germany, the excess labor supply in the East led to high unemployment and slow changes in the economic structure. As the exchange rate was equalized and wages prevented from the natural adjustment to productivity growth, the unemployment soared as East German manufacturing sector couldn’t employ labor anymore. The unemployed received massive transfer payments which, even more than a decade after the reunification, still present about 4 percent of total German income.
Today, the figures suggest that East German GDP per capita is roughly 70 percent of the Western German level and the unemployment rate exceeds 12 percent – more than twice the Western level. Low population density and high share of rural population are the main structural obstacle to higher productivity growth in the East. The majority of models in economic geography and urban economics suggests that agglomeration economies occur where population density is high. The latter yields significant advantages in terms of spillovers, search cost, factor mobility, know-how and economies of scale. Low population density is a major obstacle in attracting investment mostly because firms are not eager to locate at the periphery in the presence of high search costs and in the absence of high-skilled labor, agglomeration and linkages to economies of scale. In the U.S, for instance, Pittsburgh’s industrial restructuring from resource-based steel industry into knowledge-intensive information technology, biotechnology and software development required agglomeration which combined high-skilled labor, human capital, access to regional and international markets as well as high population density.
In Germany, for example, Hamburg generated the highest GDP per capita (€51,000) among cities and Bavaria (Bayern) generated the highest GDP per capita (€36,000) among German states. Hamburg and Munich, as well as the linking cities located in their vicinity are among the most densely populated areas which enabled them to develop core industries, spillovers, know-how and dynamic knowledge externalities. There is an overwhelming evidence that differences in population density are a good source of growth difference between east and west Germany.
After the unification, German fiscal policymakers favored an expansive fiscal policy which directed federal expenditures into poorer regions of the East to boost the development of infrastructure. However, at an exchange rate 1:1, West German firms were reluctant to invest in East Germany mainly because of higher relative price of labor. As East German workers moved to the Western part of the country, west German firms hired eastern workers. As brain drain became widespread, the convergence of east German income per capita slowed.
East Germany were far better off, if the country remained independent. The reunification of Germany would yield significant economic benefits, if the unification itself were based on close economic integration with the establishment of free trade area and free movement of capital, goods and labor. If East Germany remained independent and retained its own currency without the uncovered exchange rate realignment to to West German exchange rate parity, the relative price of East German labor wouldn’t increase and thus the unemployment rate would be significantly lower than it has been ever since the reunification. Thus, West German firms would easily find attractive investments in East Germany. The process would dramatically reduce disparities in population density compared to the West. Under such scenario, East Germany’s macroeconomic stabilization and institutional reforms would be a lot easier and the overall economic and political transition much less painful.
By Trace Mayer, on November 13th, 2009
Back in June of 2008 after the Cambridge House Investment Conference I wrote about how Vietnam had limited gold imports but with all the updates to RunToGold it appears the article was lost to the Internet ether. The last time I was in Vietnam to visit a few factories, including one of Nike’s, I found the people so nice and gracious, learned about the mangosteen for the first time and had the best ice cream in the whole world. And the chocolate pancakes were amazing. The extremely low prices would amaze you.
Bloomberg reported on 12 November 2009 that ‘Vietnam will resume gold imports for the first time since June 2008 … Five or six companies will be allowed to bring in unlimited amounts of gold’ [emphasis added].
The Vietnamese, like most in the East such as China, India, etc. have a severe case of gold bugitis. Vietnam, a tiny country of about 86 million people with an average per capita GDP of $1,042, is the largest gold retail investment country ahead of India. Of course, this is somewhat misleading because the GFMS distinguishes between jewelry and investment demand.
GOLD TRADING AT ABOUT $1,300 PER OUNCE
Bloomberg also reported:
The price of gold in Vietnam was 27.5 million dong ($1,539) per tael today, according to a telephone directory information service run by Vietnam Posts & Telecommunications. It earlier reached a record high of more than 29 million per tael, online newswire Dan Tri reported, citing local jewelers. One tael is about 1.2 oz of gold.
Some simple math reveals that $1,539/1.2=$1,282.50 or 29/27.5*$1,539/1.2=$1,352.45.
VIETNAM DONG EVAPORATES
The Vietnam Dong has been rapidly evaporating and losing their purchasing power. Many contracts, such as real estate sales, are being made using gold. Gold is money and is reasserting itself as currency in Vietnam. After 18 months of failed policies the helpless government has retreated from the import restrictions because the market is more powerful than governments.
CONCLUSION
Gold buyers in Vietnam have been buying gold at about $1,300 per ounce of physical gold in the spot market. The restriction on gold import restrictions by the Vietnamese government will lower the cost of gold in the Vietnamese spot market. We can assume, everything else being equal, that gold demand will increase because of the lower price.
This is almost entirely real physical gold demand and not phantom paper products like the problematic GLD ETF or other tools of the gold cartel engaged in the central bank gold price suppression scheme.
If the Vietnamese are willing to trade their paper illusions at such a discount then what happens when holders of the larger currencies that are lower in the liquidity pyramid decide to do the same? Oh wait, India already did and the gold price quickly jumped 5%. The Great Credit Contraction has just begun and the fiat currencies are hastening their evaporation.
DISCLOSURES: Long physical gold, silver and platinum no position in the problematic SLV or GLD ETFs.
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By Rok Spruk, on November 12th, 2009
The latest macroeconomic data from major world economies suggested that the recessionary contraction is likely to be ended in the light of positive news on GDP growth and midterm macroeconomic outlook. However, the road of the economic recovery remains uncertain. The policymakers responded to the great contraction of 2008 by decreasing interest rates close to zero rate. Massive injections of monetary stimulus boosted liquidity and attempted to accelerate credit expansion. However, monetary stimulus such as TARP in the U.S encouraged excess reserves. Thus, the banking sector published significant quarterly results as the stimulus package covered the overall losses from the credit crunch and subprime mortgage crisis of the previous year. In this brief article, I outline the economic recovery in the U.S in the ongoing year.
In Q3, the U.S economy grew by 2.4 percent despite the negative unemployment figures. While the U.S productivity grew by 6.8 percent in Q2:09 and by 9.8 percent in Q3:09, the unemployment rate is expected to reach 10.5 percent in December. The $787 billion stimulus from Obama administration to the ailing industries did little to prevent the fallout of demand and the financial difficulties of many firms. In fact, most of the stimulus has not already been spent. In spite of enormous fiscal emergency aid, the Obama administration effectively nationalized the auto industry as Detroit’s auto industry declared bankruptcy. The auto industry is likely to recover gradually. Eventually, the fall of Detroit’s giants was more likely a consequence of auto industry’s inability to cope with high labor cost and fringe health and pension benefits.
The underlying economic theory and evidence teach that massive government intervention in the economy is inefficient as if government bailout hadn’t occured. In Q3:09, financial industry posted significant quarterly earnings. Monetary stimulus inflated another asset bubble which translated into highly prospective annual data and higher volatility. Morgan Stanley’s annual stock return currently stands at 133.4 percent (link). On the other hand, stock markets rallied in the light of significant quarterly earnings of the banking and financial sector. In one year, Dow Jones Industrial Average grew by 18.27 percent (link), S&P 500 increased by 22.16 percent (link) while Nasdaq Composite’s annual growth rate stands at 36.91 percent (link). Stock markets rallied in the light of favorable earnings projections and cost reductions.
On the macroeconomic level, the U.S economy is likely to face a long L-shaped recovery. The underlying conditions are extremely low interest rate, high unemployment rate and high quarterly productivity growth rate. Much of the confidence in fiscal stimulus and expansionary fiscal policy was based on the initial assumption that spending multipliers will exceed 1 and boost short-term output and investment to reduce the negative output gap. Nevertheless, fiscal policy outlook remains sluggish and the prevailing evidence suggests that spending multipliers are hardly positive, except for when the unemployment rate exceeds 12 percent, causing a major fallout of capacity utilization. Robert Barro and Charles Redlick recently estimated the cost of fiscal stimulus. The Obama administration has already expressed commitment to raising the marginal tax rates. Tax increases are the unfortunate midterm alternative because excessive borrowing and the estimated 9.9 percent of the GDP fiscal deficit in 2009 (link) has already downgraded sovereign U.S debt outlook. Redlick and Barro showed that one-period lagged increase in the average marginal tax rate reduces, GDP growth by 0.56 percentage point. The overall effect on consumption purchases is -0.29 and the overall effect on investment is -0.35, both statistically significant at 99 percent.
The U.S dollar further depreciated against the euro (link), increasing the U.S inflation rate above the expected target, partly as a result of the increase in short-term yield on Treasury bonds. Purchases of Treasury bonds effectively increased demand for U.S dollars and triggered short-term depreciation trend. An effective reduction of fiscal deficit in the coming years is a necessary condition for mitigating the negative effects of U.S current account deficit. As fiscal deficit raises demand for imports in the U.S, real depreciation of the real effective exchange rate raises relative prices in the tradable sector compared to non-tradable sector. The main highlights of U.S economy recovery will be focused on restrictive fiscal policy and policy interest rates. Zero interest ground is a real disadvantage in economic recovery, mainly because the negative output gap and the Fed is likely to face hard time trading-off between higher inflation if interest rates remains at historic lows while the real sector’s credit demand could surge and potential output contraction in the coming quarterly periods if the Fed will raised targeted federal funds rates. In the latter scenario, the U.S economy could repeat the Japanese disease from the 1990s, being faced with long, sluggish and slow economic recovery that could last for several years.
By Eldon Mast, on November 12th, 2009
In October the number of U.S. properties for which a foreclosure filing was received declined for the third month sequentially according to a RealtyTrac report released on Wednesday. The report is a further indication that foreclosures are beginning to subside and that the housing sector is stabilizing.
According to the report, total foreclosure filings in October dropped 3.3% from September.
Several foreclosure-laden states are seeing glimmers of hope in the October data. Nevada — one of the hardest hit states in terms of foreclosures in the past year — saw filings actually fall 4% from a year ago, the first ever year-over-year decline in the state since RealtyTrac began recording their foreclosure statistics in 2006. Florida also saw a 4% drop — also the first year-over-year decline in that state since July 2006.
Wednesday’s positive foreclosure news is yet one more result of the improving housing sector.
By Dan McLaughlin, on November 12th, 2009
What’s A Trillion Dollars?
Economists are anticipating that the federal budget deficits will be in the trillions of dollars for a number of years. There are estimates that, with all federal efforts combined, the bailout and stimulus packages will be upwards of $7 trillion. I wonder if politicians who are so cavalier about using taxpayer money actually know how much a trillion dollars really is.
According to the Bureau of Engraving, a dollar bill is .0043 inches thick. That means that a stack of 100 new dollar bills would be .43 inches tall. A thousand is 4.3 inches. A million is a thousand thousands, so a million dollars is 4,300 inches. Converted to feet, that is about 358 feet high. A trillion is a million millions, so a trillion dollars would be a stack of money 358 million feet tall. If you convert that to miles, the dollar stack would stand 67,866 MILES high! It would wrap around the equator more than two times.
For another perspective, I saw an ad in the paper just this morning, offering bread for $1.99 per loaf. A loaf is 4 inches tall, so one dollar will buy a 2 inch tall loaf of bread. If, instead of using .0043 inches, the thickness of a dollar bill, we substitute 2 inches, the thickness of a loaf of bread that 1 dollar will buy, we get a much more dramatic view. A stack of bread that $1 trillion can buy would reach up more than 31 million miles. Given the price of $2 per loaf, that would be 500 billion loaves of bread.
Considering that there are roughly 300 million people in the United States, that is enough bread to give about1600 loaves to every man, woman and child in America. It is enough to give each of the 6.5 billion people in the world 77 loaves apiece. Our politicians certainly don’t buy loaves of bread with the money. So where does it go? Where does it come from?
The answer to the second question is that it comes from out of thin air. Modern money is the creation of the monetary authorities, in the case of America, the Federal Reserve and fractional reserve inflationary credit. Money is only as valuable as the goods it can be used to buy. Wealth and prosperity only come from production and never, under any circumstances, from money created by a central bank. When more money is made from nothing, with no increase in production, the primary effect is to increase prices. More dollars in the system changes the ratio of dollars to goods, and prices have to rise.
Prices should be decreasing significantly at this point in the downturn, lowering the cost of living for everyone, making everything easier to buy. They are, however, being propped up by your government. They are also establishing the next big wave of the cycle, and the choice in the near future will be runaway inflation or excruciatingly high interest rates.
Not too many years ago, the outrage was over politicians’ callousness when dealing in terms of billions. Billions lead to trillions, which lead to tens of trillions, then hundreds of trillions. Zimbabwe has put it in high gear with an inflation rate of over 1 million percent per year. Their government destroyed their monetary system and economy by making lots of money out of thin air.
We may never get to the point where we have a million percent inflation rate, but if we don’t start holding our elected officials accountable, they will destroy our economy, even more so than they have so far. From the ridiculous and irresponsible things that they keep doing, that destruction actually seems to be their goal.
The first question above, where does all the money go, is a very good one. It’s all a deep, dark secret. In spite of the rhetoric about transparency, you won’t really see where most of it goes. I’m sure that bailout millionaires will be grateful for your contribution to their investment fund.
A trillion dollars is an incredible sum of money. Incredible sums invite incredible abuse. Maybe something good will come of this whole mess. Just maybe, the people of this country will finally see through the scam that both Republicans and Democrats in congress have been perpetrating for decades. Maybe we will start to see some real change in the next few years when hundreds of crooked Washington politicians are kicked out.
Hey, anything’s possible when people use their heads, isn’t it?
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