A picture is worth a thousand words but the dollar is worth very little compared to the last two hundred years. Look what has happened to the dollar since the Federal Reserve was formed in 1913. The purchasing power of the dollar has lost 92% in less than a hundred years. With the Fed now printing money at a astronomical pace, the purchasing power of the dollar will decline even faster. Those who owned gold were protected from this theft of wealth and will be protected in the future.-Lou

Here is a chart of the U.S. Monetary Base, obviously going vertical. This chart should really scare you.

Ben Bernanke’s fear of a deflationary depression has compelled him to put ‘the pedal to the metal’ and flood the system with liquidity. As history has shown us many times, a country can not print it’s way to economic recovery. The price to pay for turning on the money spigots is inflation and then hyper-inflation. Hemingway put it so aptly: “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin.” Well we already have the war, inflation is sure to follow. Mike Hewitt has done a remarkable job researching inflation in countries going back to ancient Rome. Click through and read the entire list, it’s enlightening.-Lou

Inflation Around The Globe

by Mike Hewitt

Angola (1991-1999)
Angola went through the worst inflation from 1991 to 1995. In early 1991, the highest denomination was 50,000 kwanzas. By 1994, it was 500,000 kwanzas. In the 1995 currency reform, 1 kwanza reajustado was exchanged for 1,000 kwanzas. The highest denomination in 1995 was 5,000,000 kwanzas reajustados. In the 1999 currency reform, 1 new kwanza was exchanged for 1,000,000 kwanzas reajustados. The overall impact of hyperinflation: 1 new kwanza= 1,000,000,000 pre-1991 kwanzas.

Argentina (1975-1991)
Argentina went through steady inflation from 1975 to 1991. At the beginning of 1975, the highest denomination was 1,000 pesos. In late 1976, the highest denomination was 5,000 pesos. In early 1979, the highest denomination was 10,000 pesos. By the end of 1981, the highest denomination was 1,000,000 pesos. In the 1983 currency reform, 1 Peso Argentino was exchanged for 10,000 pesos. In the 1985 currency reform, 1 austral was exchanged for 1,000 pesos argentine.

Hyperinflation continued reaching a peak annualized rate of 4,923.3 percent in December 1989. At that time, government expenditure reached 35.6 percent of GDP and the fiscal deficit was 7.6 percent of GDP.

In 1990 the Argentine government announced a stabilization plan which included:

1. Comprehensive liberalization of foreign trade and capital movements
2. Privatization of public enterprises and the deregulation of the economy
3. Reduction in the size of the public sector and reconstruction of the tax system
4. Creation of a new monetary system, including the establishment of a Currency Board in April 1991.

Disinflation was gradual, with inflation falling from 1,344 percent in 1990, 84 percent in 1991. In the 1992 currency reform, 1 new peso was exchanged for 10,000 australes. The overall impact of hyperinflation: 1 new peso= 100,000,000,000 pre-1983 pesos. The inflation rate for 1992 was 17.5 percent, 7.4 percent in 1993, 3.9 percent in 1994 and 1.6 percent in 1995. By 1995, government expenditure represented 27 percent of Argentina’s GDP.

Austria (1921-1922)
Austria became a republic after World War I. It continued to use kronen as before in the Austria-Hungarian Empire but without the previous gold backing. The supply of paper kronen was increased dramatically from 12 to 30 billion in 1920, to about 147 billion kronen by the end of 1921. Inflation reached a peak of 134 percent between 1921 and 1922. In August 1922, consumer prices were 14,000 times greater than before the start of World War I eight years earlier. The highest value banknote for 500,000 kronen was issued in 1922.

In October 1922 Austria secured a loan of 650 million gold kronen (equivalent to 198 metric tonnes of gold) from the League of Nations, with a League of Nations Commissioner supervising the country’s finances. This had the effect of stabilizing the currency at a rate of 14,400 paper kronen to one gold Krone. On 2 January 1923 the Austrian National Bank (Österreichische Nationalbank) started operations, and took over control of the currency from the defunct Austro-Hungarian Bank.

In December 1923 the Austrian Parliament authorised the government to issue silver coins of 5,000, 10,000, and 20,000 kronen which were to be designated half-schilling, schilling, and double schilling. The schilling became the official Austrian currency on 20 December 1924, at a rate of 10 000 kronen to one schilling.

Belarus (1994-2002)
Belarus went through steady inflation from 1994 to 2002. In 1993, the highest denomination was 5,000 rublei. By 1999, it was 5,000,000 rublei. In the 2000 currency reform, the ruble was replaced by the new ruble at an exchange rate of 1 new ruble = 2,000 old rublei. The highest denomination in 2002 was 50,000 rublei, equal to 100,000,000 pre-2000 rublei.

Bolivia (1984-1986)
Before 1984, the highest denomination was 1,000 pesos bolivianos. By 1985, the highest denomination was 10 Million pesos bolivianos. In the 1987 currency reform, the peso boliviano was replaced by the boliviano which was pegged to US dollar.

Brazil (1986-1994)
For most of the early part of then 20th century, Brazil’s money was called Reis, meaning “kings”. By the 1930s the standard denomination was Mil Reis meaning a thousand kings. By 1942 the currency that devalued so much that the Vargas government instituted a monetary reform, changing the currency to cruzeiros (crosses) at a value of 1000 to 1. In 1967 the cruzeiro was renamed to cruzeiro novo(new cruzeiro), and three zeros were dropped from all denominations. In 1970 the cruzeiro novowas renamed, dropping the “novo” and once again being called simply the cruzeiro. During the 1970’s while the Brazilian economy was growing at 10% a year, inflation was running anywhere between 15 to 300%.

By the mid 1980s inflation was out of control reaching a peak of 2000 percent. In 1986 three zeros were dropped and the cruzeiro became the cruzado (crusade). In 1989, another three zeroes are dropped and the cruzado becomes the cruzado novo.

In order to avoid confusion and not associate the new currency with previous monetary policy, the cruzado novo is renamed the cruzeiro with no change in value in 1990. By 1993, three more zeros are dropped from the cruzeiro which becomes known as the cruzeiro real. In 1994 the cruzero real is replaced by the real (royal), worth 2.75 old cruzeiros reais.

A 1960s cruzeiro was, in 1994, worth less than one trillionth of a US cent, after adjusting for multiple devaluations and note changes. In 1994, the following measures were enacted:

1. A constitutional amendment in 1994 which empowered the Central Bank not to finance the budget deficit
2. The Central Bank made it illegal for regional banks to buy government-issued bonds
3. Wages were frozen and a new currency — the real — was introduced as part of measures to de-index the economy.

As a result of these measures, prices dropped dramatically from July 1994 onwards and by 1997, inflation had been reduced to standard international levels. The overall impact of hyperinflation: 1 (1994) real = 2,700,000,000,000,000,000 pre-1930 reis.

Bosnia-Herzegovina (1993)
Bosnia-Hezegovina went through its worst inflation in 1993. In 1992, the highest denomination was 1,000 dinara. By 1993, the highest denomination was 100,000,000 dinara. In the Republika Srpska, the highest denomination was 10,000 dinara in 1992 and 10,000,000,000 dinara in 1993. 50,000,000,000 dinara notes were also printed in 1993 but never issued.

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This article is right on the money. I suggest you click through and read the entire article. Seems like the author may be a regular listener of “The Financial Physician” radio program.-Lou

U.S. Decline, Sloth Look a Lot Like End of Rome: Mark Fisher

March 30 (Bloomberg) — Historians cite the late second century as the turning point of the Roman Empire, when the once- proud, feared society began its descent into infamy.

As the ruling class was undermined by civil wars and attacks by outsiders, the Romans’ respect for law and social institutions began to erode. In the end, a combination of political and economic mistakes led to the empire’s downfall.

The U.S. today is a mirror image of the Roman Empire as it tipped into chaos. Whether we blame our bloated government, a greedy elite or a lethargic population, the similarities between the two foreshadow a gruesome future.

The Roman economy grew fat from the plunder of conquered territories and the added productivity offered by new lands. The waning of expansionism didn’t bode well for the empire.

While the U.S. ascended quite differently, it also used its position as a superpower to fuel economic expansion. Because the country had the strongest military and economy in the post-World War II era, the U.S. dollar became the de facto global reserve currency, ensuring endless competitive advantages — which have vanished in the last decade.

Americans have become less productive while relying more on social safety-net programs such as Medicare, Medicaid and Social Security — and now expanded health-care insurance. Worse, like the ancient Romans, a sense of entitlement has replaced the drive and motivation we once championed. With easy access to abundant government handouts, it’s no wonder so many jobless people have stopped looking for work.

Bread and Circuses

In the fifth century, the Roman political elite began searching for ways to distract its population from the hopelessness at hand. Bread and circuses postponed the ultimate fall. The tactic stopped working when people realized their bread tasted stale and sensed the true scope of the impending disaster.

The U.S. government’s version of bread offerings proliferated throughout the fiscal crisis, in which collapse was averted only by a massive financial bailout and an endless supply of paper money, along with the rest of the seemingly endless sustenance being shoved down America’s throat.

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Sure Timmy, the commercial real estate loan collapse “can be managed”. Right, just like the sub-prime mortgage disaster was “managed”? If you look close you can actually see his nose growing. The collapse of commercial real estate will trigger the next, and more devastating, chapter in the financial crisis. It is believed that over 50% of commercial real estate loans are now underwater.-Lou

Geithner: Commercial Real Estate Loans Still Problematic

WASHINGTON (MARY GORDON — AP) — Mounting losses from commercial real estate loans will continue to be a problem for the U.S. and especially smaller banks, but it can be managed, Treasury Secretary Timothy Geithner said Monday.

“Commercial real estate’s still going to be a problem for the country,” Geithner said in an interview with CNBC. “But we can manage through this process.”

Geithner also said the Treasury Department’s announcement that it will begin selling the stake it owns in Citigroup Inc., which could net about $7.5 billion to the government, shows “how far we’ve come” in exiting from the financial bailout program.

The government received 7.7 billion shares of No. 3 U.S. bank Citigroup in exchange for $25 billion of the total $45 billion it gave the financial behemoth during the 2008 credit crisis. The Treasury Department said Monday it will sell the shares over the course of this year, depending on market conditions.

Like any investor, the government will likely hold on to its shares if prices fall steeply. However, Citi shares have been steadily rising with the broader market in recent months, which means the government is likely to pocket a hefty profit.

The government has been trying to unwind the investments it made in banks under the $700 billion Troubled Asset Relief Program, or TARP, that came in at the height of the financial crisis.

Geithner said in the interview the government doesn’t want to keep an ownership stake in the financial companies “a day longer than necessary.”

Story continues below

The government will use a “careful process” to balance two objectives, he said: ensuring maximum return on the taxpayers’ investment while also getting the U.S. out of the business of owning private companies.

On other subjects, Geithner:

–affirmed the Obama administration’s recent optimism that an agreement can be reached with Republicans on legislation to bring sweeping new regulations to the U.S. financial system, opening the way to enactment possibly within months. “We’re getting close,” he said.

–said the financial system “is in a much, much stronger position today” than it was three years ago in the run-up to the financial crisis and the U.S. economy has recovered from the crisis faster than those of other countries. Major U.S. financial institutions have far stronger capital positions than they did three years ago, though many of them still face daunting challenges, he said.

While losses on mortgage loans socked banks at the beginning of the 2008 financial crisis, it is commercial and development loans that have brought dramatic losses for banks in recent months.

Losses have mounted on loans for commercial projects like stores and office complexes, as buildings sit vacant and builders default. Many midsize and regional banks hold large concentrations of those loans.

U.S. banks face as much as $300 billion in losses on loans made for commercial property and development, according to the Congressional Oversight Panel, which monitors the government’s efforts to stabilize the financial system.

Sheila Bair, the head of the Federal Deposit Insurance Corp., has said that losses on commercial real estate loans are expected to be the primary cause of bank failures this year, which are likely to exceed the 140 collapses in 2009.

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I like reading Ambrose Evans-Pritchard of the Telegraph in the U.K. His articles tell it like it is, not like the ones you read in U.S. newspapers.-Lou

Sell-off in US Treasuries raises sovereign debt fears

Investors are braced for a further sell-off in US Treasuries after dramatic moves last week raised fears that the surfeit of US government debt is starting to saturate bond markets.

By Ambrose Evans-Pritchard
28 Mar 2010

The yield on 10-year Treasuries – the benchmark price of global capital – surged 30 basis points in just two days last week to over 3.9pc, the highest level since the Lehman crisis. Alan Greenspan, ex-head of the US Federal Reserve, said the abrupt move may be “the canary in the coal mine”, a warning to Washington that it can no longer borrow with impunity. He said there is a “huge overhang of federal debt, which we have never seen before”.

David Rosenberg at Gluskin Sheff said Treasury yields have ratcheted up 90 basis points since December in a “destabilising fashion”, for the wrong reasons. Growth has not been strong enough to revive fears of inflation. Commodity prices peaked in January and US home sales have fallen for the last three months, pointing to a double-dip in the housing market.

Mr Rosenberg said the yield spike recalls the move in the spring of 2007 just as the credit system started to unravel. “The question is how the equity market is going to handle this back-up in rates,” he said.

The trigger for last week’s sell-off was poor demand at Treasury auctions, linked to the passage of the Obama health care reform. Critics say it will add $1 trillion (£670bn) to America’s debt over the next decade, a claim disputed fiercely by Democrats.

It is unclear whether China is selling US Treasuries after cutting its holdings for three months in a row, or what its motive may be. There are concerns that Beijing may be sending a coded message before the US Treasury rules next month on whether China is a “currency manipulator”, though experts say China is clearly still buying dollar assets because it is holding down the yuan against the greenback. Some investors may be selling Treasuries as a precaution against a trade spat.

Looming over everything is the worry that markets will not be able to absorb the glut of US debt as the Fed winds down its policy of bond purchases, starting with an exit from mortgage-backed securities. It currently holds a quarter of the $5 trillion of the MBS market.

The rise in US bond yields has set off mayhem in the 10-year US swaps markets. Spreads turned negative last week, touching the lowest level in 20 years. The effect was to drive credit costs for high-grade companies such as Berkshire Hathaway below that of the US government. This may have been a technical aberration.

LINK

Only two week’s left until April 15th (time to get going tax procrastinators). Here is a helpful article from CBS MoneyWatch that explains the eight things not to do if you want to avoid an audit.-Lou

Audit Red Flags: 8 Things Not to Do

This stinks, you lose your home and you have to pay thousands in taxes on the mortgage debt forgiven. This year you do not have to pay federal taxes on the canceled debt.-Lou

Here is the link to my YouTube Channel.

Here you will find five short instructional videos, my News 12 NJ interview, my live radio show with Mark Victor Hansen (Chicken Soup for the Soul author), and the three minute trailer of my reality TV show pilot (watch entire show here)

Financial Physician YouTube Channel

Both the national XM show and the WOBM-AM shows are now available for download.

Listen Here

I stumbled upon this during my morning surf and was astonished that this has not been reported. To bury such an important policy in an “employment” bill without any public discussion is tyranny. Next it will be illegal to buy foreign currencies or gold.-Lou

From Zerohedge

Submitted by Tyler Durden on 03/28/2010

It’s Official – America Now Enforces Capital Controls

It couldn’t have happened to a nicer country. On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration’s millionaire cronies to abbreviate as HIRE. As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions – Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation’s domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It’s the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose – the law now says so. Capital Controls are now here and are now fully enforced by the law.

Let’s parse through the just passed law, which has been mentioned by exactly zero mainstream media outlets.

Here is the default new state of capital outflows:

(a) IN GENERAL.—The Internal Revenue Code of 1986 is amended by inserting after chapter 3 the following new chapter:

‘‘CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS
‘‘Sec. 1471. Withholdable payments to foreign financial institutions.
‘‘Sec. 1472. Withholdable payments to other foreign entities.
‘‘Sec. 1473. Definitions.
‘‘Sec. 1474. Special rules.
‘‘SEC. 1471. WITHHOLDABLE PAYMENTS TO FOREIGN FINANCIAL INSTITUTIONS.

‘‘(a) IN GENERAL.—In the case of any withholdable payment to a foreign financial institution which does not meet the requirements of subsection (b), the withholding agent with respect to such payment shall deduct and withhold from such payment a tax equal to 30 percent of the amount of such payment.

Clarifying who this law applies to:

‘‘(C) in the case of any United States account maintained by such institution, to report on an annual basis the information described in subsection (c) with respect to such account,
‘‘(D) to deduct and withhold a tax equal to 30 percent of—

‘‘(i) any passthru payment which is made by such institution to a recalcitrant account holder or another foreign financial institution which does not meet the requirements of this subsection, and

‘‘(ii) in the case of any passthru payment which is made by such institution to a foreign financial institution which has in effect an election under paragraph (3) with respect to such payment, so much of such payment as is allocable to accounts held by recalcitrant account holders or foreign financial institutions which do not meet the requirements of this subsection.

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