How could the economy do anything EXCEPT fall into major inflation, as unheard of amounts of government spending take place?  President George W. Bush was heavily mocked for his last submitted budget while in office – of $3 TRILLION.  He deserved every single one of those critiques.  But things are strangely silent now that the budget is going to be increased by another 27%!  Have they lost their marbles?  Do they have a deep desire to see the US dollar get obliterated?

Guess what?  They don’t have a choice!  Not if the federal government wants to maintain its slave plantation on the backs of you, your children, your grandchildren, etc., etc., etc.

Let me ask the one question that NOBODY is asking.  It will help to shine a laser light right through the government propaganda.  Here it goes….Ready?......Why does President Obama’s 2010 budget have a large INCREASE in military spending?  Why does his military budget outdo ANYTHING that George Bush ever proposed?  Remember, this is the former US Senator that wanted to bring our troops home right now – today!

Here’s the answer. A war is the easiest way to spend LOTS AND LOTS of money, with the complete backing of a majority of American citizens.

The Federal government is in a deflationary spiral that absolutely nobody wants to talk about.  Deflation occurs when US dollars decrease as the amount of goods/services for sale stay approximately the same.  This causes companies to either decrease their prices and/or decrease their fixed costs – such as employees, benefits, inventory, etc.

International banks have purposefully crashed the credit markets in nations all over the developed world.  “Credit” is “debt”.  “Credit” is also “money”.  When credit gets destroyed then money also gets destroyed.  When money gets destroyed then countries enter into deflation – unless they create new money at a faster pace than the credit is being destroyed.

The Federal government is frantically trying to create more spending in an effort to counteract the destruction of credit.  So far, they are doing a fairly good job at pretending like everything’s fine.  Our nation’s GDP only decreased by 2.6% in 2009 (preliminary numbers), the greatest drop in GDP since 1946.  It would have been much, much worse if the Federal government didn’t charge its enormous credit card to the hilt – taking the place of consumer and  business spending.

All of this is the reason why virtually every state in our union is getting economically destroyed.  States can’t have their bonds be used as a backing for Fed-created US dollars – like the Federal government can.  States can only tax and sell bonds to investors in order to raise revenue.  They can also beg for money from the Federal government – at the cost of being made into a marionette puppet.  States will continue to get worse as things go along.  The Federal government is busy protecting their power structure.  They’re not concerned about the states.  “Last man standing” is the new game.

Let me give you further proof of the game the Federal government is playing.  Have you noticed how President Obama is constantly talking about new “tax credits”, but never about reducing the “tax rates”?  Wouldn’t they both accomplish the same thing?  No!  Again, the media is silent on this.

Reducing the various “tax rates” would have the direct effect of giving businesses and individuals, instead of the government, the full decision of whether they wanted to spend the money they saved from lower taxes.  The Federal government can’t afford to do this in a deflationary spiral, since they need every drop of tax revenue that they can get.

Instead, the government is offering “tax credits”.  Notice how most all of these tax credits are based upon the recipient of the credit being “encouraged” to increase their spending in an amount greater than the tax credit.  For instance, “Cash for Clunkers” encouraged people to trade in their old cars for a tax credit, while taking out new auto loans to buy a new car.  People ended up in more debt than when they started the process.  The “First-time Homebuyer Tax Credit” encourages people to take out a long-term mortgage loan in order to receive their $8,000 tax credit.  Again, they end up owing more debt.

Tax credits are a means the Federal government is using to encourage Americans to go into more debt – thereby increasing the money supply, since money = debt.  This helps to combat the intentional credit destruction that the international bankers have brought upon our heads.

So what does all of this mean for the price of commodities, such as gold and oil?  We saw both of them go up substantially today, as investors bet heavily on future inflation pressure.

If my economic theory is correct then gold and oil will be going down in price – not up.  Deflation is the rule of the day – not inflation.  The US dollar will continue to go up as deflation keeps rearing its head.  The US dollar will not get “destroyed”, instead it will strengthen.  Again, what happens when total money in an economy decreases, while goods and services stay at approximately the same level?  Each dollar will tend to have greater buying power.

In conclusion, our Federal government is not being honest with us.  People look at the Federal government’s massive spending proposals and automatically scream “INFLATION!!!”.  But they’re not looking at the international banker side of the equation where credit is still locked up and getting destroyed at a historic rate.

Pretend that you’re the Federal government, and you have a big plastic credit card that you can use to buy whatever you want.  Furthermore, we’ll assume that the credit card has a current balance of $1,000.  Does the fact that you buy a bunch of new clothes and appliances for $5,000 mean that you’re in better financial shape?  What if you throw a new car purchase into the mix?  Are you better off now?  How about buying yourself a McMansion on credit?  Surely you’re better off now!

There’s no difference between you and the Federal government in this scenario – except for the fact that the Federal government doesn’t promise its future labor to pay off its debts.  Instead, it promises our labor.

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Watch for these indexes to drop:

Chinese Shanghai Composite Index: 2,941.36 (change of 9.97% from July 20, 2009 base value of 3,266.92)
Shenzhen Stock Exchange Component Stock Index (SSE): 11,989.11 (change of 10.40% from July 20, 2009 base value of 13,381.22)
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Here are today’s numbers for the economic indicator:

1) Gold = $1,105.60
2) Silver = $16.67
3) Dollar Index = 79.19
4) Oil = $74.88
5) S&P 500 Index = 1,089.18
6) 3-month Treasury Bill yield = 0.08
7) 3-month OIS = 0.15

HEI = 32.91

(A value of under 100 indicates deflation, while over 100 indicates inflation – as referenced to Sept. 12, 2008…the day before Lehman Brothers collapsed)



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Here are the numbers for the day:

Dollar Index adjusted indexes:
Dow = (10,185.53) x (0.7919) = 8,065.92
S&P 500 = (1,089.18) x (0. 7919) = 862.52
Nasdaq = (2,171.20) x (0. 7919) = 1,719.37

3-month Treasury: 0.08

2-year Treasury: 0.86

10-year Treasury: 3.66

30-year Treasury: 4.57

2-yr vs. 10-yr Spread (Target > 273): 280 basis points – (Danger Zone)

2-yr vs. 30-yr Spread (Target > 369): 371 basis points – (Danger Zone)

3-month LIBOR: 0.25

3-month EURIBOR: 0.66

3-month OIS: 0.15

TED Spread: 17 basis points

LIBOR/OIS Spread: 10 basis points

Dollar Index: 79.19

Volatility Index: 22.59

JPY-EUR Exchange Rate (Target < 115): 126.2992

JPY-GBP Exchange Rate (Target < 145): 144.6961 – (Danger Zone)

JPY-USD Exchange Rate (Target < 90): 90.71

USD-EUR Exchange Rate (Target < 1.25): 1.3923

USD-CNY Exchange Rate (Target > 7.0): 6.8275

Warmly,

Brad

Comments or questions?  brhamill@hamill.com

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