Wednesday, August 25, 2010

Headlines Sound the Alarm about Deeper Economic Problems

by Paul Mladjenovic
August 25, 2010
Copyright 2010. Paul Mladjenovic. All rights reserved.

The following three headlines are alarming symptoms of the economic insanity unfolding before our eyes:

1. “Philly requiring bloggers to pay $300 for a business license”

2. “LA unveils $578-Million school, costliest in the nation”

3. “Record Number Of Americans Using Retirement Funds As Source Of Immediate Cash”

Yes, those are actual headlines. They may seem like random and disjointed stories but really they are connected to the same economic and financial crisis that is here now and threatens to get much worse.

Philadelphia is forcing bloggers that make little or no money cough up $300 for what is annoyingly labeled a “Business Priviledge Tax”. The struggling city is searching for new revenue to pay for their over-spending. This silly tax may yield some modest revenue for the city but the unintended consequence will be to chase away budding entrepreneurs. In other words, they will get much less revenue than they think. This is at a time when they desperately need to attract and encourage entrepreneurs.

Many politicians and pundits forget that “demand and supply” is a reference to “consumption and production”. Our country is awash with people that consume and “demand”. However, those that supply us with goods and services (production…meaning ”entrepreneurs and businesses”) are struggling. We need to encourage production as much as possible since this is THE major path to greater economic strength and stability.
History tells us that skyrocketing demand (especially by the public sector) and stagnating or shrinking supply (a private sector that keeps diminishing) is a recipe for economic disaster. That disaster is unfolding right now. Anyway, let me continue…

The second headline is also galling. The Los Angeles school district is spending eye-popping amounts of taxpayer money while the school district and the city itself is drowning in a severe fiscal crisis. To add insult to injury, this particular school system is among the worst performing in the country in terms of student performance and drop-out rates. The politicians and bureaucrats in that once-great city just don’t get it.

The third headline tells us that a record number of folks are strapped for cash and dipping into their 401K retirement accounts. This tells us that the private sector is indeed hurting. I am sure that they realize that taking money out will possibly mean tax penalties in the short-term and a smaller nest egg longer-term. I am sure that they are not doing it because it is a good idea; they are doing it because they need the money.

There are many, many more stories like these across the country. The forecasts that many of you have read from my prior essays months and even years ago are now reality. Very sad! These stories and reports are symptomatic of the deep economic crisis that we have in our midst today. They are also blaring reminders that government is oblivious not only to its own excesses but also to the pain that is being felt by those that support it.

Hundreds of local and state governments are spending lavishly and irresponsibly billions. The federal government is lavishly and irresponsibly spending trillions. Why not? It’s not their money…it is (was!) the money of hard-working and struggling taxpayers. The same taxpayers that tightening their belts…and removing money from accounts that were meant for the future. That future is now looking more uncertain.

Unfortunately for all of us, these are not short-term developments. Many states and municipal governments are pushing themselves (and their tax-paying citizens) toward economic crisis. Many of those collectively responsible for this massive and painful nonsense will only realize “the error of their ways” when it is too late.

To my readers, I say that we may not be able to save the world or change the future but we can do what it takes to protect ourselves and our loved ones. Some points to keep in mind:

Keep striving toward financial safety and economic self-sufficiency. If you are dependent on a third-party (a company or government agency), it would serve you well to…

• Keep accruing cash & precious metals like gold and silver

• Generally avoid municipal bonds or (at the very least) consider only AAA-rated municipal bonds.

• Find new ways to generate income in your spare time.

• Review your investments with those that are familiar with today’s economic problems.

Build your “Financial Firewall” as soon as possible because coming events will be unkind to the unprepared.
Paul Mladjenovic is the author of “Financial Firewall: How to Protect your Money and Investments in the Age of Financial Chaos” and his website is He is the author of “Precious Metals Investing for Dummies” and he edits the free financial ezine, Prosperity Alert.

Friday, August 13, 2010

Inflationary Depression Forecast Revisited…We are Half-Way There

Going back a few years ago, I made a forecast that America would be heading toward an inflationary depression. I made that forecast during 2007 and early 2008 when the federal government’s policies were very bad.

Today in 2010, the federal government has replaced the bad policies of a few years ago with much, much worse policies today. It is mind-boggling how bad these policies are and it is astonishing that most politicians and many economists don’t see the obvious dangers.

A forecast of an inflationary depression is actually two forecasts since a “depression” and “inflation” are technically two separate events. Therefore, I have to make clear that we are talking about two separate forecasts.

It is an old saying that the “road to hell is paved with good intentions”. Well, in recent years, that road has been changed to a super-highway! America was put on that super-highway a few years ago and right now we are traveling at break-neck speed toward the financial abyss.


I believe that my forecast of a “depression” is accomplished. If you think that our experience of 2008-2009 was a garden-variety recession, I would ask you to re-consider that. The trillion-dollar spending policies enacted during the late Bush yeas and now the Obama years are extraordinarily dangerous. The federal government (and the state & local governments, too) are spending beyond our means as well as theirs. Bankruptcies, foreclosures, business contraction and unemployment are certainly at depression-level. Talk of a recovery is wishful thinking since the effects of still more bad policies are on the horizon. Look at what we have right now:

1. Unemployment is at 17%. I am not talking about the much reported yet highly inaccurate “official unemployment rate” which is a sham; I am talking about what is called the “U-6” employment rate that the Bureau of Labor Statistics compiles. It is a much less reported yet more accurate measure of unemployment. This statistic includes those counted in the “official unemployment rate” and adds in those that dropped out of the job search; the so-called “discouraged” unemployed. U-6 also includes those that are “under-employed” which means those that want full employment but have had to settle for part-time employment.
2. Foreclosures are at all-time highs.
3. Bankruptcies are at all-time highs.
4. Personal debt is still at record levels.
5. Government debt is at a mind-boggling all-time high and still soaring.

Then couple the above list with what is coming:

1. The tax-cuts enacted in the past decade are set to expire by January 2011. If this goes as planned, the effect is a tax increase that would deliver a body-blow to an already weak economy. A tax increase is nothing more than money taken by force by the government from the private economy. Basically that would mean less income and less invest-able capital for the private sector as the government forcibly siphons these resources and redirects it to a bureaucracy that is already the biggest in American history.
2. Congress and the president’s economic team have made noise about a “Value-Added-Tax” which is dumb during good economic times and quite stupid during bad economic times. Even the name is idiotic since taxes don’t add “value”…it merely increases the price or cost of that particular product or service.
3. The same folks are still considering pushing through what is called “Cap-and-Trade” legislation that would raise energy costs greatly since the legislation is nothing more than a huge hidden tax on energy usage. This legislation would do little (nothing?) for the environment but it would do much harm to our economy.

Therefore, consider the depression here and now. If taxes, regulations and other burdens and risks are not decreased immediately and substantially, then this depression will continue.


Some readers have asked about the prospects for inflation. I am on record that I think that inflation is not an “if” but a “when”. As the federal reserve keeps creating trillions of dollars out of thin air, there will be consequences. Technically, they are indulging in “monetary inflation” but of course most people think of inflation by its symptom which is “price inflation”. Since many observers don’t see price inflation, they assume that deflation is winning the day and will be here for the foreseeable future. This is wrong.

If you have read my prior essays on inflation, I point out that inflation will become evident when two conditions occur:

1. The excessive creation of money (again, this is “monetary inflation”)
2. …When this money circulates through the economy (also referred to as “velocity”)

If the government creates trillions of dollars and these dollars do not circulate, then velocity will not occur. But just keep in mind that “velocity” occurs where there is DEMAND. This is a key reason why I am a long-term bull on commodities in general and “human need” commodities in particular. I believe that this is such an important consideration for investors that I even did a national seminar on commodities investing.

There are many areas where there is simply no substantial demand (such as housing and autos). Money will not flow there in this economic environment. However, money does flow to areas of “human need”.

For example, a recent report has shown that the price of wheat has gone up 71% during the past 12 months. I think that similar price movements (or higher!) are in store for many essentials. Commodities tied to “human need” will definitely see their prices continue to zig-zag upward.

I also believe that gold and other precious metals such as silver will continue their bull market. Why?

I consider gold and silver to be “human need” essentials in today’s economic environment. As inflation unfolds among essential commodities, people will need a “store of value” as the world’s major currencies keep on being over-produced. When people start to see that the dollars they hold (or other currency) start to lose value as the government over-produces it, they will then see that having cash is not a “safe harbor”; inflation will erode its value.

They will then seek to replace currencies that are “depreciating” or losing value and shifting their resources to that which holds value…gold and silver.

In fact, as people world-wide see the problems with fiat currencies (dollar, euro, etc.) and with paper assets (stocks, bonds, etc.), they will migrate into those things that will hold value or appreciate over time. The flight will be from “paper” to “stuff”. “Stuff” like precious metals, food, water and other essentials.


The corollary to that (and this goes back to my forecast) is this…


We have a huge world population and their needs will be addressed. When you couple this demand with expanding money supplies across the globe, rising prices will be the result.

The stage is being set for historic price inflation…in those commodities that are “essential”. Investors need to prepare.

Investors can learn about investing in human need from Paul Mladjenovic’s audio seminar “Cash in on the Commodities Super Bull Market”. He is the author of Stock Investing for Dummies and you can get his free financial newsletter, the Prosperity Alert at