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It Will Happen Suddenly (economic collapse)

Interesting article...

"Should there be a currency crash, as is expected in many countries, promises made by governments will be abandoned suddenly, as though they had never existed."

http://www.internationalman.com/articles/it-will-happen-sudd...



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"promises made by governments will be abandoned suddenly,

as though they had never existed."

lol that only happens on days that end in "Y"

Another doom and gloom

Another doom and gloom article about how the United States economy is all of the sudden just going to stop working based on ?.

I don't think such a thing will ever happen. People have been talking about, 'economic collapse,' in America for a very long time now.

In historical terms, people have been saying that America is going to suffer financial ruin for over the past 230 years.

All fiat currencies failed in the past because computers didn't exist.

Digital fiat money is the new form of money, be it credit cards, Bitcoin, or even a check.

People pay bills online without exchanging anything physical, their payments are made via digital transactions.

The majority of Americans would rather take a $100 bill vs. a 1 ounce gold coin worth almost 13 times the FRN printed out of thin air.

That is amazing in itself, and proves how powerful the dollar really is.

Give the average American a gold coin worth more than $1,200 and what will they say?

"Can I buy a cheeseburger at Mcy D's with this coin?"

No. You can't. Go through a drive through window and try to pay for your burger and fries with a gold coin.

Go to Macy's and try to buy a nice new outfit with a 1 oz. gold coin.

Go to Wally World and try to pay for your groceries with your Silver Eagle coins.

I think the only way this economy collapses is if a majority of people start shopping with gold and silver coins and demand cash for change.

There wouldn't be enough cash.

The United States of America is the most powerful nation in the world, and I'm not ashamed of that fact.

We should be the most powerful nation on the planet based on our history.

America invented the Middle Class. America invented the car for the average person. America invented the I-phone, telephone, home television, professional sports leagues, advertising, newspapers, journalism, skyscrapers, the camera, movies, dishwashers...and even the toilet bowl.

WE ARE AMAZING! America is still beautiful, and green dollar bills are still the most popular currency on earth.

Name me one single alternative currency that could ever possibly challenge that Mona Lisa smile on George Washington's face?

There isn't one, and that's a good thing.

Never be afraid to ask simple questions.

Cyril's picture

The only expectable pattern

When/if an obnoxious, sudden event happens, I expect energy prices to go up first.

Food will follow.

Most people will be pissed off, not understanding why exactly that happens almost all at once, "out of the blue".

Lay offs third. Services first, manufacture (or whatever is left of it) second.

Losing their jobs and seeing their bills inflate steadily, people will be more than pissed and will start putting the blame on whomever/whatever they'll be conditioned to.

Government policies will be the last thing they'll think to blame. Blaming themselves, the second to last. Or maybe the other way round, case by case.

Anyhow, they'll also start losing intetest in the latest iPhones or whatever recreation they used to waste time with, and will be desperate to find any new source of income - whether it implies work or not.

They will look up to dear government and demand it to intervene without delay, but hell, no! not challenge anything of benefits or subsides they already get from it.

The greatest hardship for us will be a mental one: to refrain from punching in the face the pissed off beggars who will call for more government intervention and denial of our property rights.

It should be crystal clear AFAICT, that's the only pattern we will be condemned to see unfolding again.

Best wishes to all for keeping your cool and yourself safe when that happens.

"Bear."

"Cyril" pronounced "see real". I code stuff.

http://Laissez-Faire.Me/Liberty

"To study and not think is a waste. To think and not study is dangerous." -- Confucius

Economic Collapse

I agree whole hearty with Ira. I am also a saver for many years. Always lived below my means and saved up for my retirement. That is the responsible thing to do. Was pretty successful in running a printing and mailing business for over 30 years and now I have to worry about loosing everything because of all the tax feeders.

SteveMT's picture

Devaluation first, then collapse, both suddenly.

"There is a classic moment in 'The Sun Also Rises' by Ernest Hemingway when someone asks Mike Campbell how he went bankrupt, and all he can say in response is, 'Gradually and then suddenly.'

Sudden? Then why this paragraph?

"When an empire collapses, it dies slowly. Unless it comes to an end through conquest, it deteriorates in a series of sudden jolts. Its leaders grasp at anything that might cause a delay, even if this means a worse outcome in the end. The process may take years and even decades."

'Cause there's a monster on the loose

Any currency crash will be preceded by

Any currency crash will be preceded by banking problems. The IMF (with primarily U.S. taxpayer funding) is already stretched thin to step in and help multiple countries all at once. This leaves the Fed as the only real option for intervention, whether public or secret. They have already stepped in and propped up Europe and will be there for any other country that needs them. But they can't stop a still out of control banking situation in Europe that will surface later this year when Draghi's loans expire. The ECB is trying to force banks to loan the money freely given to them but banks are still dealing with troubled assets. Same is going on in U.S. With banks hoarding Fed money, and not loaning (which is why money velocity is at a standstill.

Banks are the issue here, whether it be Europe, China or U.S. (but U.S. banks with their free Fed money, are better off. Watch the problems unfold elsewhere, but eventually spread here because of the inter-connectivity of the banking system.

Currencies are the side show. Remember, our last banking crisis was dollar bullish. Any banking issues that appear internationally will be viewed at first glance as dollar bullish. Eventually the cracks get too big and the system could implode. But as bad as things are here in the U.S., just look at the 10 year treasury to see what is perceived by big money to be the safe haven. Unfortunately the Fed's balance sheet isn't what it was in 2008 and they can't take on all of Europe and China and Japan and the IMF, Argentina, etc. etc.

"The game is afoot."

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

It won't be dollar bullish

It won't be dollar bullish when Russia and China dump their holdings. Then the panic starts to other nations with dollar reserves.

What if...but hasn't happened

Hi Sierra,

The dumping of treasuries that everyone talks about hasn't occurred in mass and I don't think China will bite that hand that feeds them. They can wait a century before doing anything. Besides, treasuries have been strong for the last 6 years or so.

"The victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory." Sun Tzu

The Fed is fighting and China is waiting. They technically don't need to do anything but work on themselves will undercutting everyone else.

The Fed will eventually fail, but perception is still they are relevant and if I am right about Europe and Japan cracking first, this is dollar bullish. China has its own issues and you don't see Congress going around anymore claiming currency manipulation. We owe them too much.

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

The Fed does not want that money loaned

The bank reserve balances at the FED increased over $90 billion last month. The total is $2.6 trillion and continuing to grow. The reason the cash is parked there is the FED is paying interest on the deposits. If the FED wanted the banks to lend it, they would either not pay interest on it, or they would charge the banks a storage fee.
The FED may not be able to force the banks to loan to the public, but it could force the banks to withdraw it. Since that isn't happening, it appears the huge reserve balances is what the FED wants.

[F]orce can only settle questions of power, not of right. - Clyde N. Wilson

The Fed's intent

Weirami,

Some good food for thought. I don't think the Fed's intent was to have the banks sit on money handed to them or loan it back to them for various reasons. It is the banks decision to prop up their own balance sheets because there were no strings attached to the money given them. I would have done the same thing if my bank was in trouble(just like the money handed to them via TARP).

But beyond that, now that U.S. banks for the most part are doing well, if you own a bank, do you want to lock in a low rate when you know we are at historic lows and rates will have the propensity to move higher? Maybe for a year or two, but not much beyond that.

The second issue is the fact that demand for credit isn't there. If you own a business, is now the time to expand when there is so much uncertainty? They are clearly saying no, it's not, even with historical low interest rates.

The fact the Fed is handing this money out is the first problem as they are trying to artificially do what led to the housing bubble (keep rates low to stimulate borrowing for homes and jump start the real estate market again) and not let the free market dictate, and secondly finance government spending.

Banks are content pocketing the spread they get by loaning to the Fed at a higher rate.

Can I get a loan from the Fed at zero percent interest and charge them interest on it and pocket the difference please? I'll take $10 million to start. Where do I sign up?

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

US banks are "hoarding Fed

US banks are "hoarding Fed money?"

Remember, banking doesn't work like that. Banks can create money out of thin air; they don't need ANY money to do so. Logic and empirical evidence shows that banks will create credit whenever they find a credit-worthy customer. The only time they need "fed money" is to fulfill government regulations (pathetic ones) and to honor transfer payments.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Dr. NO...

Dr. NO,

Fractional reserve lending is a separate issue and not what I was addressing. All of the QE the Fed has been implementing ends up as "excess reserves" as represented by this chart: http://research.stlouisfed.org/fred2/series/EXCRESNS?cid=123

The banks are not lending, fractional reserve capabilities or not.

Money velocity is at a stand still. http://research.stlouisfed.org/fred2/series/M2V

And the Fed can't do anything to force the banks to lend to businesses to stimulate the economy (get GDP growing).
http://online.wsj.com/news/articles/SB1000142405270230402680...

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

So, yes, that is true. The

So, yes, that is true. The Fed has very little real power.

But it does look like lending is up since 2012. There has been moderate credit expansion. GDP has certainly been up the past few years, though not as much as it could/should have.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

The Fed has plenty of power still in my opinion, but waning

Dr. NO,

IMO, The Fed has plenty of power still, but it is waning, agreed. The tapering they have done recently is simply to save face. If interest rates shoot past 3% on the 10 year, they will have no choice but to implement more QE. That's what I keep an eye on.

Regarding lending, I was addressing business lending which according to the Fed has been in a steady decline since the recession (creditworthyess and banks not lending the reason): https://www.clevelandfed.org/research/commentary/2013/2013-1...
There has been an uptick of late, so I agree with you there to.

Real GDP has been in a decline for many years (emphasis on "real"). http://www.multpl.com/us-real-gdp-growth-rate Although there has been an uptick of late, again agree, it is mostly from the trillions of money thrown at it through the annual budget deficits ala Japan's increase in Debt to GDP to keep things progressing.

The problem lies in following Keynes economic philosophy is knowing when to say when and let the economy act upon its own (free market). Our leaders follow the Keynes philosophy of government spending, but even Keynes said the spending has to stop. Our leaders, whether Republican or Democrat, can't stop. Like any addiction, it's a hard habit to kick, and if they are enriching themselves, why stop?

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

"IMO, The Fed has plenty of

"IMO, The Fed has plenty of power still, but it is waning, agreed. The tapering they have done recently is simply to save face. If interest rates shoot past 3% on the 10 year, they will have no choice but to implement more QE. That's what I keep an eye on."

IMO, most of the Fed's power is conceptual/imagined. People believe the FED has power, so it has power. The Fed cannot regulate, cannot legislate, cannot impose fines or anything. All the Fed can do is manipulate the short-term interest rate, by modifying the federal funds rate.

This is why QE hasn't done much. All its done is taken interest-bearing assets from the banks and replaced them with more liquid, non-interest bearing assets. It has just changed their account composition, but not increased the total net worth of their accounts. The increased liquidity is nice, but can only do a little.

"Real GDP has been in a decline for many years (emphasis on "real"). http://www.multpl.com/us-real-gdp-growth-rate Although there has been an uptick of late, again agree, it is mostly from the trillions of money thrown at it through the annual budget deficits ala Japan's increase in Debt to GDP to keep things progressing."

So the graph you shows is the change in US GDP growth rate, not the US GDP growth. Since 2010, real GDP growth has been positive...it might be less positive in some years, but it is still positive. Basically, it may be growing less quickly, but it is still growing!

"The problem lies in following Keynes economic philosophy is knowing when to say when and let the economy act upon its own (free market). Our leaders follow the Keynes philosophy of government spending, but even Keynes said the spending has to stop. Our leaders, whether Republican or Democrat, can't stop. Like any addiction, it's a hard habit to kick, and if they are enriching themselves, why stop?"

I think the main problem doesn't lie in any of that. I think the main problem lies in people who are so invested in their economic theories, whether it is Ron Paul and Austrian Economics, the Republican Party and neo-classical economics, the handful of monetarists, or the Democrats and Keynesian economics, that they ignore empirical data and facts.

Case in point, the Federal Reserve. Both Ron Paul and Barack Obama the Federal Reserve has this tremendous real power (Ron Paul to only do bad, Obama to only do good). And in a way, because they believe it has power, so do others, and the Fed gains tremendous influence. But actually, it doesn't. It has very limited power. It has one basic tool; that is it!

Primarily, I think the current government believes way too much in this idea that the central bank can save all their ills.

Secondly, I think that the current government is way, way too friendly with corporate America, specifically the banks. Prompted by this neo-classical ideology, aided by guys like Geitner, the government is trying to bow to the banks instead of slapping them in the face for their criminal activity over the past couple of years.

The current government has noticed the issues with too much credit, with risky trading, risky betting, fake promises, outright lies, not doing proper checks, etc. etc. They have responded by giving incentives to the banks so that they will not do those things. What they should be doing, is slapping the banks in the face and telling them to stop.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

The Fed

Dr. NO,

The Fed's power may be "conceptual/imagined" for some, but all of Wall Street seems to follow their every move. I don't view it the same way.

QE hasn't done anything because banks hoard it. Money velocity is at a stand still and thus no growth from any of the Fed's intended goals of stimulating the economy.

Any GDP growth is primarily from government spending (G) and as a result of bailing out the financial industry ($2.8 trillion). This is hardly a recovery, and if anything, is a recovery for the rich as they are the primary beneficiaries of the $10 trillion of added wealth from 2013. Ironically, Per capita U.S. Real Gross Domestic Product (GDP) is highest in Washington D.C. Again, this is not a "real" recovery. Lastly, the GDP numbers are recalculated to look better using the new formula.http://www.moneynews.com/Advani/GDP-CPI-growth-investment/2013/08/07/id/519128

I don't think politicians give a hoot about the data or facts.

As far as the Fed's perceived power, versus what they can accomplish without the tool you believe is their only weapon, follow Jamie Dimon to the Whitehouse. The Fed and the government will never slap the banks in the face, only the American People.

Good discussion, but I think we'll agree to view things a bit differently.

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

Again, banks do not "hoard"

Again, banks do not "hoard" cash. Fractional Reserve Banking is not the REALITY of how the banking system works. The banks simply create credit out of thin air. They don't really need any funds to do anymore lending.

This is why QE hasn't worked. Because the banks do not "loan out" money. They can't. Federal Reserve Notes can only leave the system via printed cash, and payments to government.

I think it would be interesting to look at the sectoral balances within the banking system itself, to see how the trillions in wealth that has been added since 2010 has been allocated (not sure where the 10 trillion number you cite is from).

Look, I know the whole bit about Dimon and the White House. But even besides that, there is a problem where politicians and so-called "experts" dig their heels on philosophy and forget the facts.

Clear example of this, even from some honest politicians (maybe not Rand, but I digress). Ron Paul and Rand Paul both released budget proposal's at one time. Don't quote me on it, but I remember Ron Paul had 750ish billion in deficit reduction, about 100 billion in trade deficit reduction, and the overall claim that he would increase real personal savings by 1 trillion/year (the same claim as Mitt Romney). Rand Paul had a 500 billionish cut with the same promise. Giving some leeway as to what they meant (when using the term "real personal savings", there is the economic term and the other uses of the word), those plans are mathematically false. You literally cannot have all three of those things come true. Anyone with a basic understanding of sectoral balances and math would know this.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Dr. NO

I never brought up Fractional Reserve lending, you did. That wasn't the issue I was addressing with my original comment. I did address that in my first book and will be in my current book.

That said, it IS how the banking system works. At least part of it. I know you realize this.

We agree on why QE hasn't worked. We may disagree from there. The banks aren't loaning out what the Fed is giving them. I already addressed this. To say they can't loan this money out is incorrect. They can loan it to other banks if they paid a higher rate than the Fed or they can loan it to individuals and businesses (what the Fed wants). But they "can't" or "don't" because demand isn't there or why should the bank owner lock in a lower rate long term? Can they make money doing that? No. They will lose money, guaranteed. We're not Japan.

Ron Paul would have crashed the economy, weeded out the bad and the majority of us, including the middle class, would be on our way to prosperity. Instead we have the exact opposite.

We can agree to disagree, but please don't belittle the conversation with "again" and "look" comments. I understand where you are coming from and we are just having a discussion. Worse that can happen is we learn from each other a tiny bit and move on to better things. Thanks.

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

SO I brought up FRB because

SO I brought up FRB because the idea that bank "loan out funds" is a common fallacy of that idea.

Banks can loan out the QE money to other banks, this is true. But they cannot loan it out to individuals and businesses.

When banks give out loans, they simply create money from thin air. Poof. They will only give out loans to credit-worthy customers.

Reserves, like the money that is added in QE, can be used by the banks to maintain regulatory and liquidity requirements. Historically, the banks have expanded credit at an incredibly rapid pace, with only a few billion in reserves.

Basically, banks weren't not giving out loans because they didn't have the money, they weren't giving out loans because

1) Their balance sheets were in a mess
and
2) They couldn't find (enough) credit-worthy customers.

Now, it is true, that as the $$$ of credit is increased, banks will need more reserves. Why? Because as their obligations grow, they will need a little more in reserves to meet demand payments. However, as we can see empirically, large increases in overall credit only marginally increase the liquidity needs of banks, causing a very small increase in reserve levels.

QE didn't work because QE did not solve those base problems. The Federal Reserve took assets from the banks, and replaced them with another type of asset. The first asset paid interest; the replacement assay did not. The overall +/- of the balance sheets did not change; just the composition.

I didn't mean to come off as hostile :)....

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

I see where you are coming from now

Dr. No, I see where you are coming from now. Good explanation and I think we are on the same page.

This quote might sum up the issue;

"The fact that the Fed is suppressing lending and inflation at a time when it says it is trying to encourage both shows that the Fed is saying one thing and doing something else entirely."

and

"Historically, the Fed paid banks nothing on required reserves. This was like a tax equivalent to the interest rate banks could have earned if they had been allowed to lend such funds. But in 2006, the Fed requested permission to pay interest on reserves because it believes that it would help control the money supply should inflation reappear.

. . . [M]any economists believe that the Fed has unwittingly encouraged banks to sit on their cash and not lend it by paying interest on reserves."

http://www.thefiscaltimes.com/Columns/2010/07/23/What-Can-th...

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

So my view is that the

So my view is that the "fiscal times" is incorrect.

Banks "sitting on cash" and "not lending" has almost no correlation.

Even if that were the case, the banks are forsaking 2-6% in annual profit for .25%?

The main reasons, and practically only reasons, banks are not lending right now, is because their balance sheets are in a mess (getting better) and the credit-worth customers are few and far between (again, getting better).

Both those issues are not something the FED can help. Get the economy working, get people back to work, increase personal savings, and you will see more credit-worthy customers. Using those customers, and enforcing tight regulations on the banks, they should be able to further improve the assets on their balance sheets.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Excess Reserves

Dr. NO,

Found a good explanation of what we have been discussing.

Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves

http://www.standardandpoors.com/spf/upload/Ratings_US/Repeat...

Appreciate the conversation. I'm actually working on the banking section of my next book and the Federal Reserve analysis is next. I am putting the pieces of this puzzle together and I'll show you a chart I think you'll enjoy as to just how much of a mess we were in, and why the Fed is doing what they are doing today in repairing banks balance sheets, but at the expense of their own which the unwinding of should be quite volatile in the years ahead.

These are the folks who didn't see 2008 coming after all.

http://bit.ly/1iyT7yi

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

Good link, but I feel as if

Good link, but I feel as if your points throughout this discussion have been coming from the basis that the money multiplier/FRB/loanable funds is true.

I guess you could say that as much as the Federal Reserve has been giving the banks reserves in exchange for toxic assets, its been helping the bank balance sheets. But a lot of the purchases have been of things like US government T-bills, or bonds that are resulting in decent return for the Federal Reserve. Basically, it is the Fed swapping out a long-term, interest-bearing asset for a short-term, non-interest-bearing asset. Portfolio re-balancing.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Right, but...

the Fed still has that long term asset on their books, correct? They still have to unwind it at some point in the future, more than likely at a loss (especially if we get a bump up in interest rates).

And I don't think the banks are out of the woods yet either as a couple of them have serious amounts of sub-investment grade derivatives on the books with no real counterparty to them but the Fed.

Regarding the excess reserves, I had read they were loanable, and assumed it was for anyone, but it turns out they only loan those reserves to each other, but choose not to as the Fed offers a better deal. Sorry for the misunderstanding.

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

So what the Fed probably

So what the Fed probably intends to do with those long-term assets, is let them mature, and then destroy them.

The vast, vast majority of the assets are US treasury bonds, or mortgage-backed securities. Last I recall, the vast majority of the MBSs and all of the treasury bonds are making all the bond-payments on time. So while if the Federal Reserve tried to sell them on the market now, they'd have to take a hit, the Federal Reserve can easily wait the 30 years the MBSs have as the expiration date, collecting the yield and then just letting the bond expire.

For example, let us say I own your mortgage. You are making payments on time. But I need the mortgage principle RIGHT AWAY. I can sell it on the open market, but because it is a 30-year mortgage, people get worried and only offer me 30% or something of the value. The Federal Reserve, which can easily afford to wait 30 years to collect the payments, pays me 95 to 100% of the principal on the mortgage, and then takes over. As long as you make payments on time, the Fed doesn't lose out.

Yes, the balance sheets are not in good position, but they are in a BETTER position, much better, than they were 5+ years ago.

So banks generally loan funds to each other. Usually, it isn't the "Fed" that offers a better deal, but the US government in the form of treasury bills (this is administered by the FED of course). They offer a 3% return (usually higher), and the banks would rather put the funds there than keep it sitting around as a hedge against having to pay the Federal Funds rate.

With QE, the Fed is specifically NOT allowing the banks to purchase Treasury Securities. So because they cannot buy treasury securities, all they can do is leave the reserves sitting around. The Fed pays a little on excess reserves, just to demonstrate that even with excess reserves, they can sill set a lower-floor on interest rates.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Fed angle

Dr. NO,

I have heard the preferred choice by the Fed will to simply let these assets mature and not take the hit if/when interest rates shoot higher. Of course they may mature and the Fed gets back 95% to 100% of the investment, but how many insurance companies are buying these assets today in preparation for the next 30 years? (not arguing with you, but pointing something out which you probably agree with)...

The Fed holding onto these assets to maturity, if they were a regulated company like insurers, or held to the scrutiny of stock holders (which I do realize the owners of the Fed aren't ignorant), couldn't possibly do so. But since they are the Fed, they can get away with just about anything they want, even if in secret or out in the open (printing, creating, buying or implementing (QE, Operation Twist).

In Feb. of 2008 I wrote an article about how the Fed is still relevant and they shouldn't be discounted. http://bit.ly/1gjsZWa I think most in the Austrian camp have been disappointed that the dollar hasn't crashed and the Fed hasn't failed. Today, they still are relevant and gold (I sell it for a living) has pulled back considerably and I think has more room to fall (I am sure I am alone on this of those who sell gold). I'm actually dollar bullish, but more because I see things unraveling in Europe and Japan along with China before it hits here. One cannot simply discount the Fed's power.

But the Fed today is not the Fed of old. Their balance sheet will become weaker over time. The toxic assets still exist in the trillions. I believe the deflationary credit contraction is still what they are fighting and they will eventually be forced to do more QE, especially if interest rates creep higher. While our economy might be rebounding, we can't count on future growth built on a foundation of this much debt and the Fed isn't in the best position to keep people's faith intact although even with fear coming from black swan event elsewhere, treasuries will be the place investors run, as well as gold. But this time, I do think it really will be different.

Thanks for the conversation.

Author of Buy Gold and Silver Safely
Next book: Illusions of Wealth - due out soon
Also writing book We the Serfs!

To you personally maybe

Everyday hundreds, if not thousands of people meet, face, and learn to survive economic collapse. Losing a job when behind on bills and rent, needing to move with no money, individuals face economic collapse differently depending on their age.

I worked at a soup kitchen for years and fed about 100 people who were going through economic collapse. Some seemed to have made a profession out of it.. I guess they pray on the people who have just hit bottom and are disoreintated, don't know where to go get help, or how to get the help they need. Geeze, I just thought about detroit, far from alone when it comes to evidense of an economic collapse.

What I don't want to see happen to America is what I see happened or is happening in Argentina, Syria, Egypt, Libya, Sudan, Nigeria, and I don't believe we will see that in America, but that the cycle of collapse will morph around states like a flu virus affecting individuals, not the masses.. until it hits the detroit level.

If Rand is elected prez......

.....then I bet they'll crash it purposely to cause an angry backlash.

In fact, they may help Rand get elected just for that reason. I mean, if it's going to collapse anyway.

However,I would rather have Rand Paul in the presidency in such an inevitable event than any other person in Washington. He could at least dismantle the police state

It would be easy to counter

It would be easy to counter act. Abolish the IRS, Abolish the income and capital gains tax. Bring all the military home. cut government by 80%. with in a year this nation would be booming.