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Source link: http://archive.mises.org/16614/charting-the-course-to-7-gas/

Charting the Course to $7 Gas

April 25, 2011 by

Unless Congress cuts spending dramatically (which I doubt will happen), the Fed will continue to buy Treasuries to fund our deficit with money that is created out of nothing. FULL ARTICLE by J. Kevin Meaders


Steve Reed April 25, 2011 at 12:41 pm

What’s the point, then, in any long-range planning? Spend your money now, while it’s still worth something. Give up. Nothing will survive the financial Holocaust to come.

The Mises Institute tends to offer, in articles like this, implied arguments for an orgy of self-indulgence before committing suicide — economic, literal, or both. Yes, what is said in the article is true. It also is expressed in a manner so as to increase one’s sense of utter hopelessness.

I guess I can’t handle the truth, can I? Likewise, there’s no point in a donation, is there? {/rant}

… And, of course, I’m being semi-facetious. Nonetheless, despite the non-politicking tax mandate, I’d appreciate some suggestions about what can actually be done to protect oneself. Especially if one doesn’t quite rise to the level of having “investments.”

ET April 25, 2011 at 12:56 pm

My son, who lives paycheck to paycheck asked me what he can do to survive the coming monetary collapse. Since he holds no dollars and his worldly possessions include 1 motorcycle and 1 truck, all he needs to do is keep sharpening his skills. He’ll be like the body surfer who dives under the coming big wave. His skills will demand real pay, in real value, such as gold. He just needs to know how to get his boss to keep paying him in real wealth, not dollars.

Now me, I have to scamper around moving my investments into “stuff” so I won’t get wiped out by holding dollars. Other than that, what other advice do you think anyone can give you?

victor April 28, 2011 at 5:05 pm

The surfing analogy is appropriate. They don’t call them the Great Wave Cycles for nothing. The economy is a series of booms and busts. At this point, trying to take off in the impact zone is futile. If one finds themselve in the personal “washing machine” or a “two set hold down”– just take gulps when one can, paddle for the exit. The U.S. economy is for the most part going to have to endure a prolonged lull/flat, blownout conditions, …but education (informal), observation, and an openness to finding new places here and abroad will help one to find life’s new place to ride. And never, repeat, never turn your back on the waves.

SavageNation December 13, 2011 at 8:38 am

The TSA and Homeland security will DEFINITELY need Surfers to protect us from the whales!

Stan Warford April 25, 2011 at 5:02 pm

Here is the suggestion: Buy gold and silver from your local coin dealer. In spite of the recent precious-metal price increases, it is not too late to buy bullion coins given the coming economic collapse. Do not buy rare “numismatic” collectable coins. Stick to bullion coins whose value is due strictly to the weight of the metal in the coin.

Daniel April 26, 2011 at 12:38 pm

Also, try silver, which is currently priced ~1:50 to gold, but which is historically priced to ~1:20, so increase in its demand as a currency could seriously raise its price

ET April 25, 2011 at 12:44 pm

conclusion 2: “A stronger economy is trying to get off the ground but can’t because all the newly created money is being retained by the banks in reserve.”

This seems counter-Austrian. If this new money begins to fund projects, they will eventually fail when tightening occurs. It’s as though the Bernak actually understands the damage waiting to happen and is trying to have his cake and eat it too. He needed to create the money (for political reasons) but is trying to cancel out its harm by essentially bribing the banks into not lending it.

The economy is on hold not because they can’t get the freshly printed dollars, but because there’s too many roadblocks to new production, mostly from regulations. In addition, the needed liqudations of failed businesses hasn’t been allowed to happen. So, we’re now building $41,000 electric cars that nobody will buy without $10-20,000 worth of government subsidies. More wasted resources.

It would have been far better if the Fed hadn’t actually printed the new money at all, and as long as the banks are holding onto it, it’s like they were burying it in the ground. Now if the Fed could figure out a way to withdraw all that excess money they should never have created in the first place, before it makes it to the streets, maybe that would cancel out the damage waiting to happen. Never happen of course!

Vincent Cook April 25, 2011 at 2:04 pm

Another important point to pay attention to is that over the past four months, there has been another huge surge in bank reserves (about $400 billion dollars so far, bringing the total to about $1.5 trillion). By digging through the various statistical releases at the Federal Reserve website, it is possible to get clearer picture of what is going on.

It turns out that most of this latest surge is mostly due to foreign banks paying off loans to their American subsidiaries (probably after obtaining dollars in foreign currency transactions from other foreigners who are dumping dollar-denominated assets), and those subsidiaries in turn are depositing their hoard of repatriated dollars into their reserve accounts at the Fed. The Fed has been using that money, plus the proceeds of sales of mortgage-backed securities, to buy Treasury securities. The question is, how long will foreign commercial banks want to sit on dollar balances at the Fed just to earn 25 basis points in interest, while their own currencies rapidly appreciate relative to the dollar?

Walt D. April 25, 2011 at 2:37 pm

It is not that gas prices are going up, rather , the value of the dollar is going down. One ounce of gold at $1500 still buys 13 barrels of oil – well within the long term historic range.
Actually, Obama has reduced the national debt more than any other president – every time the dollar drops the actual value of the debt (in terms of ounces of gold or barrels of oil) drops! :-)

Felix April 25, 2011 at 6:06 pm

It’s a nice way to think. Just because the 0% interest rate. Thanks to triple A (for how long?). I am not sure if he wants to pay this debt anyway.

Gerry Flaychy April 25, 2011 at 8:23 pm

The way I understand it, is that boom and bust means monetary expansion followed by monetary contraction during which many borrowers do not pay back their loans to the bank while many depositors withdraw their money from those banks. If those banks do not have enough reserves to reimburse those depositors, then they have to go bankrupt and close their doors.

Right now there is a little less than 1 trillon $ in checking accounts while there is a little more than 1,5 trillion $ in reserves in the banks, as a whole, thus enough to not go bankrupt if things go worst. So I don’t think that the banks will be in a hurry to loan this money for a while.

Thus, the general rise in prices that seems to emerge actually will not be so great as many people are predicting.




ET April 25, 2011 at 9:44 pm

First thing I noticed is that all your links are from the fed. Why would you believe what they say?

The banks don’t go out of business. At worst, they get bought up by other banks and the taxpayer pays any depositors that would have lost money. In addition, most of the loans they made they sold to Fanny and Freddie, and again any losses are paid by the taxpayer. All they really did was work the loan documents and got the points. Any loans they kept on their books, they likely had pretty good collateral. The Fed, it would appear, bought most of the toxic debt. So, we all will pay, unless we dump our dollars before the fit hits the shan.

If you want to see what’s going to happen to prices, 1) Listen to the CEO of Wal Mart, who warned that by summer, prices in his stores will rise sharply because his costs have risen. As the largest retailer, he should know. Even the Bernank admitted that wal mart had better data than the FED. 2) Look at the price of many commodities, not just gold and silver and oil. Check out cotton prices. Go shopping for food.

Obama, in a recent speech, said he was going full bore to root out the cause of the higher gasoline prices. He’s gonna target all price gougers and speculators. The people listening all cheered this remark. We’re in trouble because Americans are basically government schooled dummies that seem able to be fooled all the time.

Daniel April 26, 2011 at 12:47 pm

He’s gonna target all price gougers and speculators.

And that’ll just bring about shortages and even worse price shocks. Yay!

nate-m April 27, 2011 at 3:34 pm

And what is worse is that the oil shortages are 100% political in nature.

We have plenty of oil in the ground. More oil is available to us now then there ever was in history. For every 100% raise in oil consumption we find 200% more oil. No joke.

The only thing standing between oil and end users are governments. And, no, not just OPEC… they are no longer a monopoly. In the 1970′s they produced/controlled 70% of the market… now due to their attempts to monopolize the market and control prices they now only control 30% of it.

Inquisitor April 28, 2011 at 9:39 am

I think OPEC recently stated that the price increases are largely based on delusion. What they didn’t state is that, from the supply side, constraints are also largely a political illusion. Far be it from OPEC to go a step further, though, and trace the route of where speculators obtain all the finance with which to drive up prices.

Gerry Flaychy April 26, 2011 at 2:27 pm

“First thing I noticed is that all your links are from the fed. Why would you believe what they say? “_ET

What about this one ?

Shadow Government Statistics
Analysis Behind and Beyond Government Economic Reporting


Ralph Fucetola JD April 25, 2011 at 9:31 pm

There is one glimmer of hope… forlorn though it may seem.
The House GOP majority, often whining that they are just one half of one third of the Fed Govt, have within their majority control the ability to say NO! to any increase in the Federal Debt Limit. The Senate, the current White House occupant, and the Fed Reserve can do nothing about that decision.
Will the GOP stand firm on defending the limit or will the (once again) enable the Fed Govt’s borrowing addiction?
If the Debt Limit holds, the central bank will have a tougher time finding assets to monetize; Congress will have finally demonstrated that we can step back from the brink.
How to accomplish this? Inundate Congress with daily reminders, as Judge Napolitano says, “Not one penny more!”
You can use our Educate Decision Makers system here: http://tinyurl.com/NoDebtIncrease

Eric April 25, 2011 at 9:48 pm

If you believe they’ll do that, then I’ve got a bridge for sale.

Walt D. April 25, 2011 at 9:58 pm

“Grow a spine or resign! ”
Trivia: How did Spiro Agnew get his name?

Bennet Cecil April 25, 2011 at 10:47 pm

Bernanke is converting American savings into bank profits. He works for the bankers not for the American people.

Prices will at least triple in the next few years. The dollar lost half of its purchasing power between 1974 and 1983. This time will be much worse. The market will eventually push up long term rates. The good news is we could rid of Obama and Bernanke because of economic misery.

Patricia Watkins April 26, 2011 at 6:00 pm

These idiots need to get it through their heads that not all of us can afford these vehicles being made & not only that, they’re not worth our HARD EARNED money! I wasn’t born with a silver spoon up my a** & certainly never had anything handed to me! I work very hard for my living & these f***ers have NO RIGHT to feed us this CRAP! It’s an insult & its ridiculous, the problem is more Americans like Glen Beck or anyone with a brain for that matter, need to speak up more & use their voices as well. We can’t change ANYTHING if are heads are up our a**es & listening & believing all this BULL**** the government tells us. My credit union now thinks they have the right to hold my PAYROLL checks for an UNREASONABLE amount of time & tell me what to do & how much of my money I can spend & when! WTF?! Excuse me Obama, are you paying my bills? Are you feeding my kids? No, I didn’t think so, but unfortunately, people like MYSELF & the rest of AMERICA, are paying yours & feeding yours! Who do you think you are?! These obominations need a reality check & FAST, they should be LOSING homes & vehicles, etc.. & ALOT of SLEEP the same as everyone else! Being the President of the United States Of AMERICA is a PRIVILEGE given BY THE AMERICANS & they’ve forgotten US, but we all know they didn’t forget themselves did they? I live in Boston, Massachusetts, enough said really, BUT, do you know our Government, City & State workers feel they have the right to give themselves “bonuses” & do whatever they want & to boot, these mother…. have the NERVE! The NERVE! To spend OUR TAX DOLLARS on exspensive luxuries, dinners, lunches, & get this, “BAR TABS”! All they all do is TALK TALK TALK thats all I HEAR, I’m tired of HEARING, I want to SEE! Don’t tell me & sell me some crap, DO! SHOW ME! America should be in Jerry Maguire mode saying “SHOW US THE MONEY!!!” It’s all in their pockets who the hell do they think they’re fooling. I’ll tell you, the MAJORITY of AMERICA thats WHO & for the life of ME I can NOT understand HOW or WHY???? I Don’t understand where such ignorance & stupidity came from & HOW it took over? I’m BEYOND tired of our AMERICAN GOVERNMENT, as far as I’m concerned I went from being a proud american to an ashamed american, in all honesty, this is ridiculous, pathetic & UNNESSESSARY! Do you know how many people & or countries are laughing at us? I don’t know, but I’m sure its a lot. America is crumbling & WEAKENING! AND, if you’re an AMERICAN you GET NOTHING! Take it however you want to, everyones intitled to an opinion & I just put mine out there, read between those lines! AMERICAN MONEY, is going to government & foreign pockets; everywhere except where it SHOULD BE going! I don’t mean to offend anyone, but REALLY, enough is ENOUGH, I’m TIRED & don’t have the time or the money to have the courtesy ANYMORE to be worried about foreigners or taking care of their families or countries when I’m trying to take care of MINE more than MYSELF by working, working, working, for nothing to show except getting by & knowing my children have everything they NEED -NOT- EXTRA or LUXURIES!! This may be a SHOCK, but not all of us can splurge & be consumed with ourselves! YES, I know someone who was lucky enough to win the lottery & DID NOT spend a DIME of it! She took it to HER country & bought herself a HOUSE & never moved back, she quit her job, etc… WTF??? AMERICA is CONFUSED, LOST, STUPID & soon to be the same as all other countries; BROKE, DESPARATE & DICTATED. Why doesn’t America stick it to them and show them WHO is in CHARGE & WHY? Seriously, what is the problem? Why are so many people afraid of these crooks & cowards? I’m deffinately NOT afraid! I’m ALONE in my rampages is the problem! Nobody has the B**** to stand with me & speak! They are PEOPLE just like YOU, NO DIFFERENT! Who do they think they are & why has America forgotten who WE ARE? I SWEAR, if Obama gets voted back in for another term, I’m snapping! And I hope to see others snap with me! I’m to the point where I’d rather close out all my bank accounts & KEEP my hard earned money & valuables in hiding & cash my checks at a check cashing place & NONE of them will see a DIME of my HARD EARNED MONEY except the taxes that I HAVE to PAY & yet, I can’t drive ANYWHERE in Boston without damaging my car!! In some of our schools, our computers & other things have been taken from our children with the excuse of there is no money, yet they continue to waste tax dollars building new schools that are NOT needed & OVER BUDGET to boot! I’m not talking poor neighborhoods either, I came from NOTHING & worked my way up to NOTHING; but I live in what is considered a fairly wealthy area, people with money, people that own their own homes, vehicles, etc… So where is all the money then? Whats good for the goose is good for the gander! AMERICA needs to put their foot not DOWN but up alot of a**es & be sure the point is CLEAR! ENOUGH IS ENOUGH! I love you Glen Beck you’re awsome & a great American! But this is why I can no longer watch the news, its sickening & all it does is make me furious! LoL
A REAL Outraged American!

Kevin Meaders April 27, 2011 at 3:10 pm

The 300% increase is not correct; Technically its a 200% increase.

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