Are you listening Mr. President?

Jan 26, 2011

Baltimore, Maryland

Well, the president gave a bum speech. Full of empty phrases. Hollow words. It was deep space for real ideas; there was nothing there.

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And yet, he gave it so sincerely-you almost felt sorry for him. He would have made such a good college president or undertaker. Sad to see him waste his talents in politics.

We were disappointed; too, that he didn't use any of our ideas. Don't expect a balanced budget for this year. Or any year of this president's administration. Instead, he'll add 75% to the nation's official national debt - three times more than all the presidents who came before him put together.

Now, that's an achievement. Something to be proud of. Something he can put on his tombstone.

Here Lies Barack H. Obama. America's 44th president.
He bankrupted the US government.
And he could have achieved greatness. We had a dream about it. After the State of the Union address, we imagined a different speech:
"My fellow Americans, I know this is a go-along, get-along town. Everybody gets something. If you're well connected you get a lot. If you're not so well connected, you get less. Well, I'm not going along any more. Instead, I'm going to change the rules. So that everyone has a fair chance of getting along."

"I propose to get rid of the phony dollar and re-introduce the real dollar. The dollar will be henceforth exchangeable at the rate of $1,500 per ounce. No questions asked. You give us $1,500 dollars; we'll give you an ounce of gold.

"And the US government budget will be balanced. We'll spend what we collect in taxes. Not a penny more.

"Of course, if you gentlemen and ladies want to raise taxes, I'll let you explain why to the voters..."

Whoa! With those two reforms he could save America from bankruptcy...and put the whole world economy back on solid footing.

And if he wanted to make the US economy the world's top performing economy he could go even further:

"I'm also introducing a flat 10% rate. I don't care how you earned your money. I don't care if you're a citizen or an alien from outer space. If you live in the US, you send me a postcard. Tell us how much you earned last year, and send us 10% of it."
Can you imagine? There would be a renaissance...a boom...a you've never seen.

Not that there wouldn't be problems. Big problems, even. But at least there wouldn't be any problem with the dollar...or the US public finances.

But it was only a dream, wasn't it? And a waste of time. It's never going to happen. We'll explain why, below. Tonight, we're going back to dreaming about women. It's more fun.

Stocks were flat yesterday. Gold dropped $12.

Gold is dipping. How deep will the dip be? We don't know. But people who try to time the gold market almost never do well. They get out to avoid the dips. Then, gold shoots up again. The speculators are out of luck. They can't bring themselves to buy back in at a higher price. So they miss the explosive final stage of the bull market.

What to do about it? Don't speculate. Buy gold as a way to save money. Then, think of it as you would a collectible...or an heirloom. Don't worry about the price. Just hold on. By 2015, you'll probably be able to use a few ounces to buy a new house.

But remember this: there will also be a time when it makes sense to sell gold. When you can buy all the Dow stocks for a single ounce of's time to get out of gold and back into stocks. Right now, the Dow is a little under 12,000. And an ounce of gold is only $1, 335. Our guess is that the Dow will collapse to under 5,000...while the price of gold soars to over 4,000. Get ready!

When? Hey, you're asking too much from a free e-letter. Just stay tuned.

*** There are two legs to American household wealth - jobs and housing. Here's the latest on housing from the New York Times:
The long-predicted double-dip in housing has begun, with cities across the country falling to their lowest point in many years, data released Tuesday showed.

Prices in 20 major metropolitan areas fell 1 percent in November from October, according to the Standard & Poor's Case-Shiller Home Price Index. The index is only 3.3 percent above the low it reached in April 2009 and has fallen fell 1.6 percent from a year ago. Prices in Atlanta and Chicago fell more than 7 percent, exceeding even the drops in the perennially troubled Detroit and Las Vegas.
Housing is still going down. If you don't mind, we'll repeat what we said yesterday:
"House prices expected to decline for a fifth successive year," says the Financial Times.

Foreclosures are rising and will continue to rise until March of 2012, according to the projections in the FT, wiping out possibly trillions more in household wealth. Sales are at a 13-year low.

Houses are Americans' most important asset. And the average house is down about 25% since 2006. But that's in terms of dollars. In terms of gold, the loss is over 60%.
Okay...well, it looks like households are hopping on one leg. Now, let's look at the good leg, employment.

Whoa...what's this?
WASHINGTON (AP) - The unemployment rate rose in 20 states last month as employers in most states shed jobs.

The Labor Department says the unemployment rate rose in 20 states and fell in 15. It was unchanged in another 15 states. That's nearly the same as in November, when the rate rose in 21 states, fell in 15 and was the same in 14.

The report is evidence that the job market is barely improving even as the economy grows. Most economists expect hiring to pick up this year, although the unemployment rate will likely remain high.

Employers in most states didn't add any net new jobs last month. The number of jobs on employer payrolls fell in 35 states in December, the department said. Only 15 states reported gains. Layoffs have slowed dramatically in the past year, but hiring has yet to pick up.
This is not good news. Two gimpy legs. Household wealth is going to fall down.

But what do you expect? This is a Great Correction, isn't it?

If you listen to the financial media, the State of the Union, or the stock market you'll get a very different impression. Or just re-read the article above. It says "...the job market is barely improving." In fact, it's not improving at all. It's getting worse. The population is growing. If employers don't add new jobs, it means more people out of work.

Housing? Same story. It's not "barely improving." Houses are still losing value.

We could ask sarcastically: 'So, where's the recovery?'

But why bother? You know as well as we do that there is no recovery. And there's not going to be a recovery.

Instead, the economy has to move something new. If the financial and political authorities suddenly came to their senses, we could imagine that a couple of rough years of bankruptcies and losses would be followed by a long period of new growth.

But we weren't born yesterday. This is not a dream. It's reality. And if our new theory is correct, the authorities are not going to come to their senses. Because they're paid not to. Ben Bernanke has to believe his crackpot activism will pay off. Otherwise, he'd have to renounce the whole project...and admit that he's been a fool. He'd also be out of a job - because neither the bankers nor the politicians would allow the chips fall where they may. Hey - they own those chips!

But couldn't the feds all get a Ron Paul makeover and come to see that their interventions were actually making thing worse - by adding even more debt and delaying the necessary adjustments?

Nope. Not gonna happen. Remember, a government is the result of natural selection, not rational thought. Its primary objective is to survive. And it does so by protecting its niche - at all cost.

Peter Orzag, writing in the Financial Times:
"Most fundamentally it is difficult to see how the medium-term federal deficit can be reduced to sustainable levels without additional tax revenues from those earning less than $250,000 a year. And yet it is equally difficult to see the political system embracing that reality without being forced to do so by the bond market."
The feds cannot suddenly stop rigging the system for the benefit of their favored groups and supporters. A flesh-eating dinosaur can't suddenly become a vegetarian.

The elite, the privileged, the parasites and the zombies are the feds' base of power. Lose them and the government is out of business.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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