The victory by Barack Obama on election night has resulted in a huge wave of firings and layoffs all over America.  A large number of businesses seem to have suddenly Read more…

Michael Snyder: Election day 2012 showed once again that America is moving steadily to the left.  Yes, Barack Obama defeated Mitt Romney, but the underlying dynamics run much deeper than that – especially when you take a look at social issues.  Older voters are more Read more…

Michael Snyder: On social media websites such as Twitter and Facebook, thousands of threats of violence were posted by supporters of Barack Obama on the evening prior to the election.  If you doubt this, just go on Twitter and do a search for keywords such as “Romney riot”, Read more…

Nadeem Walayat: The opinion polls continue to paint a picture of a close race between Obama and Romney going into the final two days of campaigning ahead of Tuesdays election. Read more…

Mac Slavo: We’re days out from a Presidential election whose outcome will determine the future of the United States – or will it? Read more…

Could this be the first presidential election in U.S. history to be decided by hackers?  In recent years, hackers all over the globe have become increasingly sophisticated.  Meanwhile, our computer-based voting systems have repeatedly been shown to be extremely vulnerable.  Read more…

The election is still more than two weeks away, and already a tremendous amount of evidence has emerged that operatives from both major political parties have been committing election fraud.  There have been reports of dead people being registered to vote, of voter registration Read more…

Will cities all over America erupt in violence if Mitt Romney wins the election?  Right now we are probably witnessing the most divisive campaign in modern U.S. history, and both sides Read more…

Will the most divisive campaign in modern American history culminate in massive riots in our major cities?  Right now, supporters of Barack Obama and supporters of Mitt Romney are both pinning all of their hopes on a victory on November 6th.  The race for the presidency is extremely tight, Read more…

Did you watch the presidential debate on Wednesday night?  It is absolutely amazing how they can have an hour and a half debate about the economy and say so little.  It seemed like both candidates were falling all over each other wanting to talk about how much they value education Read more…

In the past 100 years, a clear pattern has been in place. The stock market has tended to trade in a similar fashion in each of the four years of a presidential cycle — that is to say, first-year results are similar from term to term, and so on. The logic behind such rational price action is quite simple: Presidential economic policies tend to follow predictable patterns that boost the chances a President (or his party) will stand a better chance of re-election.

For example, the first-year of a new term is characterized by policies that represent a break from a predecessor's policies, usually based on populist-oriented policies that were made during the campaign season. This “feel good” environment has, on average, generated an 8.8% gain in the first year of a new presidential cycle, according to veteran Wall Street strategist Mark Hulbert.

But once in office, presidents realize they will eventually need to rein in any policies that may lead to economic problems down the road. So by their second year in office, they are often looking to raise taxes, close loopholes, veto pork-barrel spending and enact other tough love measures. Think of Ronald Reagan's second term, when he agreed to a series of tax hikes in 1986. He would never have done so if his party had been faced with an imminent presidential election. That's why markets have historically been flat in the second year of a presidential term.

By year three, the President realizes voters will soon be thinking of the next election. In the ensuing months, the opposition party will step up its critical rhetoric and the field of potential candidates will start to come into focus. In response, the President will offer up a set of stimulative measures that will hopefully have the economy on a solid growth path a year later when the primaries and the election actually takes place. That helps explain why the stock market rises a whopping 15.5%, on average, in year three of the election cycle.

By the final year of a presidential term, the market tends to rise a respectable, though slightly subpar, 4.1%. The implications of why that is the case is unclear to me. It's important to note that these cycles are calculated from September 30 to September 30, as that is the date generally regarded as the point when who the next president will be has been largely decided. It also coincides with the government's fiscal year, when various policies take effect.

How exactly does one unwind a Ponzi Scheme? People like Bernie Madoff have done a fine job showing investors, and eventually the American public, how to build one up. Essentially, you use the contributions from incoming investors to pay “profits” out to departing investors. And you repeat this process for as long as the incoming checks are larger than the outgoing checks. When the inevitable tipping point finally arrives – and there isn’t enough new money to pay off all the old money – you skip the border and leave your clients waiting for their next share of the profits…and waiting…and waiting.

To describe American Social Security as such a scheme wouldn’t be much of a stretch. For a system with so many complicated facets, advanced accounting and half-truths, there is one absolute fact: Social Security is not taking in enough money to write all the retirement checks it is obligated to write over the next couple of decades.

So last week, President Obama’s Bipartisan Deficit Commission set out to begin unwinding the scheme. Their proposal, like most things from Washington, was ambiguous at times and difficult to understand. Some suggestions included “creating a new bendpoint,” “reducing replacement factors,” and “phasing into a higher taxable maximum.” But stripped down to the essentials, the plan has some merit. Here are the basics:

• The retirement age will go up to 68 by 2050 and 69 by 2075

• The government will make “hardship exemptions” for people 62 or over who are physically unable to work

• There will also be a minimum SS benefit for those making very little income

• The rich will likely be eligible for fewer benefits while having to contribute slightly higher FICA taxes.

• Cost of living adjustments will be gradually reduced by using a different measure of inflation (Chained CPI)

How does a government back its way out of an accidental Ponzi? Well, something like this proposal. In abstract terms, the Social Security system either has to pay out less, take in more, or both. That means lower benefit payments and/or higher taxes.

And to the credit of the Commission, this proposal would work just fine. Everything about it is built to please both Democrats and Republicans – or rather, to displease both Democrats and Republicans. For starters, the commission is co-chaired by a member of each party, lest the whole thing be billed as a scheme to usurp power by the “liberal elite,” the “radical right” or some other political affiliation that actually makes most people nauseous.

Then there’s the mechanics of the proposal. To appeal to the left, there are several provisions aimed at the underprivileged and disadvantaged. In essence, no one who REALLY needs a retirement insurance plan will be hung out to dry. Those dastardly “top earners,” on the other hand, will have to pay more. And the left’s precious “middle class America” will be just Goldilocks…tucked in that warm sweetspot of relatively few benefit cuts and minimal tax increases.

For the right, the whole plan should appeal to the true blue Republicans (are there any?) that value fiscal responsibility above all. Allegedly, for every $1 of higher taxes in this plan, there’s $3 in spending cuts. Of course, hiking taxes sounds like nails on a chalkboard to that crowd, especially during a recession. But the plan also proposes to cut individual tax rates to a maximum 23%, which would counteract the higher FICA taxes that would help pull Social Security out of the red.

So, what we’ve got here is a fair, bipartisan proposal. It’s flawed, of course, like any other first attempt. But is it that insufferable? Apparently so:

• “This proposal is simply unacceptable,” lame duck Speaker Nancy Pelosi said flatly, and in the same breath insisted we “do what is right for our children and grandchildren’s economic security.”

• “We’re not talking about cuts in Social Security,” blackballed Jim DeMint, supposedly one of the biggest Republican debt and deficit hawks. He promised to somehow fix this mess “without cutting any benefits to seniors or veterans.”

• “Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare,” said AFL-CIO President Richard Trumka. “The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.”

• “Deficit Reduction Plan Draws Scorn From Left and Right” headlines the liberal New York Times, noting that “Republicans face intense pressure from their conservative base and the Tea Party movement to reject any deal that includes tax increases.”

• “Commission Offers Controversial Solutions to Axe Deficit” reports conservatives at FOXNews

• Even the Independents hate it! The Commission’s proposal is “extremely disappointing and something that should be vigorously opposed by the American people,” said Vermont’s Bernie Sanders, the House’s only official Independent.

Dear reader, bad-mouthing the Commission’s proposal on fixing Social Security might be the most bipartisan effort in the history of Washington DC. Alan Simpson, the Republican Co-Chair of the Commission, half joked on Thursday, “We’re entering the witness protection program.”

Simpson and his Commission colleagues forgot they were in the business of politics. And politics, of course, is the business of being re-elected. It doesn’t matter if none of the changes proposed would be felt for years, and that not a single current Social Security beneficiary would be affected. What does matter is that Nancy Pelosi, Jim DeMint, Bernie Sanders and all their brood can hear the 2012 campaign ads already… “Pelosi voted to CUT your Social Security benefits”… “Jim DeMint abandoned his Republican roots and voted to RAISE your Social Security taxes,” and on and on.

By even hinting at messing with Social Security, no matter Republican or Democrat, any politician is ruffling the feathers of the greatest golden goose of them all: seniors. Is there any demographic as coveted and important to election results as the grey hairs? No, there isn’t. Seniors, much thanks to the entitlement programs their generation built, have plenty of time and wherewithal to shuffle over to the polls and vote down any candidate with the political fortitude to cut benefits…whether the threat to their actual retirement is real or just perceived.

Thus, the Deficit Commission’s proposal is dead on arrival, shot down by the most bipartisan hunting party assembled in years – all of whom are acting on behalf of a constituency that claims it cares for future generations, but has historically voted to save its own skin. Entitlement reform? It’ll have to wait.

“Democrat or Republican, Elephant or Donkey, nothing much ever seems to change,” famous bond investor Bill Gross wrote in his monthly letter to investors earlier this month. “Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it, or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath.”

With that in mind, nuts to you Republicrats, and you too, Bernie Sanders… and to anyone else who wants to reduce the deficit without making a single sacrifice. Interestingly, one of the only Washingtonians making sense last week was President Obama. “If we are concerned about debt and deficits,” he said, “then we’re going to have to take actions that are difficult and we’re going to have to tell the truth to the American people.’’

Well, you know the truth. Ready to take action?

Good luck,

Ian Mathias
for The Daily Reckoning

Fixing Social Security… Some Other Day originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Fixing Social Security… Some Other Day

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

How exactly does one unwind a Ponzi Scheme? People like Bernie Madoff have done a fine job showing investors, and eventually the American public, how to build one up. Essentially, you use the contributions from incoming investors to pay “profits” out to departing investors. And you repeat this process for as long as the incoming checks are larger than the outgoing checks. When the inevitable tipping point finally arrives – and there isn’t enough new money to pay off all the old money – you skip the border and leave your clients waiting for their next share of the profits…and waiting…and waiting.

To describe American Social Security as such a scheme wouldn’t be much of a stretch. For a system with so many complicated facets, advanced accounting and half-truths, there is one absolute fact: Social Security is not taking in enough money to write all the retirement checks it is obligated to write over the next couple of decades.

So last week, President Obama’s Bipartisan Deficit Commission set out to begin unwinding the scheme. Their proposal, like most things from Washington, was ambiguous at times and difficult to understand. Some suggestions included “creating a new bendpoint,” “reducing replacement factors,” and “phasing into a higher taxable maximum.” But stripped down to the essentials, the plan has some merit. Here are the basics:

• The retirement age will go up to 68 by 2050 and 69 by 2075

• The government will make “hardship exemptions” for people 62 or over who are physically unable to work

• There will also be a minimum SS benefit for those making very little income

• The rich will likely be eligible for fewer benefits while having to contribute slightly higher FICA taxes.

• Cost of living adjustments will be gradually reduced by using a different measure of inflation (Chained CPI)

How does a government back its way out of an accidental Ponzi? Well, something like this proposal. In abstract terms, the Social Security system either has to pay out less, take in more, or both. That means lower benefit payments and/or higher taxes.

And to the credit of the Commission, this proposal would work just fine. Everything about it is built to please both Democrats and Republicans – or rather, to displease both Democrats and Republicans. For starters, the commission is co-chaired by a member of each party, lest the whole thing be billed as a scheme to usurp power by the “liberal elite,” the “radical right” or some other political affiliation that actually makes most people nauseous.

Then there’s the mechanics of the proposal. To appeal to the left, there are several provisions aimed at the underprivileged and disadvantaged. In essence, no one who REALLY needs a retirement insurance plan will be hung out to dry. Those dastardly “top earners,” on the other hand, will have to pay more. And the left’s precious “middle class America” will be just Goldilocks…tucked in that warm sweetspot of relatively few benefit cuts and minimal tax increases.

For the right, the whole plan should appeal to the true blue Republicans (are there any?) that value fiscal responsibility above all. Allegedly, for every $1 of higher taxes in this plan, there’s $3 in spending cuts. Of course, hiking taxes sounds like nails on a chalkboard to that crowd, especially during a recession. But the plan also proposes to cut individual tax rates to a maximum 23%, which would counteract the higher FICA taxes that would help pull Social Security out of the red.

So, what we’ve got here is a fair, bipartisan proposal. It’s flawed, of course, like any other first attempt. But is it that insufferable? Apparently so:

• “This proposal is simply unacceptable,” lame duck Speaker Nancy Pelosi said flatly, and in the same breath insisted we “do what is right for our children and grandchildren’s economic security.”

• “We’re not talking about cuts in Social Security,” blackballed Jim DeMint, supposedly one of the biggest Republican debt and deficit hawks. He promised to somehow fix this mess “without cutting any benefits to seniors or veterans.”

• “Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare,” said AFL-CIO President Richard Trumka. “The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.”

• “Deficit Reduction Plan Draws Scorn From Left and Right” headlines the liberal New York Times, noting that “Republicans face intense pressure from their conservative base and the Tea Party movement to reject any deal that includes tax increases.”

• “Commission Offers Controversial Solutions to Axe Deficit” reports conservatives at FOXNews

• Even the Independents hate it! The Commission’s proposal is “extremely disappointing and something that should be vigorously opposed by the American people,” said Vermont’s Bernie Sanders, the House’s only official Independent.

Dear reader, bad-mouthing the Commission’s proposal on fixing Social Security might be the most bipartisan effort in the history of Washington DC. Alan Simpson, the Republican Co-Chair of the Commission, half joked on Thursday, “We’re entering the witness protection program.”

Simpson and his Commission colleagues forgot they were in the business of politics. And politics, of course, is the business of being re-elected. It doesn’t matter if none of the changes proposed would be felt for years, and that not a single current Social Security beneficiary would be affected. What does matter is that Nancy Pelosi, Jim DeMint, Bernie Sanders and all their brood can hear the 2012 campaign ads already… “Pelosi voted to CUT your Social Security benefits”… “Jim DeMint abandoned his Republican roots and voted to RAISE your Social Security taxes,” and on and on.

By even hinting at messing with Social Security, no matter Republican or Democrat, any politician is ruffling the feathers of the greatest golden goose of them all: seniors. Is there any demographic as coveted and important to election results as the grey hairs? No, there isn’t. Seniors, much thanks to the entitlement programs their generation built, have plenty of time and wherewithal to shuffle over to the polls and vote down any candidate with the political fortitude to cut benefits…whether the threat to their actual retirement is real or just perceived.

Thus, the Deficit Commission’s proposal is dead on arrival, shot down by the most bipartisan hunting party assembled in years – all of whom are acting on behalf of a constituency that claims it cares for future generations, but has historically voted to save its own skin. Entitlement reform? It’ll have to wait.

“Democrat or Republican, Elephant or Donkey, nothing much ever seems to change,” famous bond investor Bill Gross wrote in his monthly letter to investors earlier this month. “Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it, or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath.”

With that in mind, nuts to you Republicrats, and you too, Bernie Sanders… and to anyone else who wants to reduce the deficit without making a single sacrifice. Interestingly, one of the only Washingtonians making sense last week was President Obama. “If we are concerned about debt and deficits,” he said, “then we’re going to have to take actions that are difficult and we’re going to have to tell the truth to the American people.’’

Well, you know the truth. Ready to take action?

Good luck,

Ian Mathias
for The Daily Reckoning

Fixing Social Security… Some Other Day originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Fixing Social Security… Some Other Day

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

So… It seems that most of this selling of the currencies and precious metals happened yesterday, while I was out observing Veteran’s Day… It was like a scene from September 2008, with all the risk assets of stocks, currencies, and commodities all being thrown into the same barrel and shot full of holes! With the US banks closed, the volume was limited here in the US and I think that played into the nastiness of the sell-off of the risk assets.

Even gold, which when I signed off yesterday was up $14, lost a ton! Gold sold off $21, but the real sell-off was $35, given it WAS up $14 at one time! I received a request from an interviewer to answer a question yesterday about gold… The question was whether gold is in a bubble… I fired off an answer, well, as fast as my fingers can tap out a message on my phone! Basically, I said this… No… I do not feel gold is in a bubble… Here’s the test I use… I was in a restaurant with a buddy… I said that I could stand up and ask who in the restaurant owned gold, and I bet there would be no one, or maybe a smattering of hands in the air… Until that changes, I don’t see gold in a bubble…

So, a $21 or $35 sell-off provides cheaper levels to buy this morning, now doesn’t it? It certainly does, Ollie!

I was asked on a panel I participated with last week in Cabo, what could bring gold down?

My friend and colleague at the Sovereign Society, Eric Roseman, answered first, and said interest rates… But not the first or second or even the third 25 basis point rate hike that the Fed is likely to do… Real interest rate spreads over other countries…

I then took the microphone, and talked for the next 10 minutes it seemed like… I’m sure it wasn’t, or else the moderator, Mr. Van Simmons, would have cut me off! But what I said was that yes, big interest rates could cut off gold, but I wouldn’t be so quick with that, as in 1981 when gold was climbing to near $900, interest rates in the US were around 18%… But, that was a different time…

What I think could cut gold off at the knees is another financial meltdown… Or… the opposite… In other words, it could very well be that we go in a straight line to the moon from here, and our unemployment problem reverses, no more QE, deficit spending stops, and so on…

So… Basically… I don’t see any of those three happening for some time, and that should be a good thing for gold, eh?

The G-20 meeting concluded without any major agreements to do much of anything… G-20, Schmee 20! Just a big boondoggle! Here’s what the final communiqué said… The G20 agreed “to move toward more market-determined exchange rates and shun competitive devaluation”, but at the same time endorsed “macro prudential steps to fight capital inflows by emerging market economies with overvalued FX rates”.

In G-20 parlance, that last statement simply means that the G-20 would endorse Capital Controls, which, in my feeble gray matter tells me that the two thoughts are contrasting… But what else would be new for these guys at G-20?

The US proposal to limit or set targets for Current Account levels got watered down, big time to no more than a line to, “develop indicative guidelines to spot big current account imbalances”…

While in Seoul, our President took a swing at the Chinese once again, and accused them of “intentionally undervaluing the yuan” (CNY)… Hmmm, let’s look at the scorecard, should we? The Chinese renminbi has gained 28% verus the dollar since dropping the peg in July of 2005… The dollar index has dropped 14% since that same time… So, in reality, the renminbi has done more to correct imbalances than the dollar has!

But that doesn’t play well with the administration or lawmakers here… For it’s far easier to point blame at someone else than to own up to your problems and tackle them… So… we continue to point at China, when in reality we should be sending them fruit baskets every month, for buying as much of our debt as they do! Sure, it was an such easy game to play, now they need a place to hide away, they sell us their low cost things, and then take the money and buy Treasuries… But… That’s all changing right before our eyes, folks… The US recession saw to that!

So… We have all that going for us this morning… NOT!

The Irish bond problems continue to weigh heavily on the euro (EUR) this morning as spreads have really widened… Let’s use Ireland as an example as what will happen here eventually… Ireland runs their deficit spending up to levels that begin to scare the bejeebers out of bond buyers, and the bond buyers balk at buying any more Irish bonds (debt)… So what does Ireland do? Well, they have to widen the spread versus German and US bonds… This makes the Irish bonds more attractive… But you know me… I’ve said this for years. You can put lipstick on a pig, but you’ve still got a pig!

There was a back room deal at the G-20 meeting between France, Germany, Italy, Spain and the UK (and others) on the Irish debt problem… Afterward, a joint statement was issued that pledged support for Ireland… This statement immediately brought Irish bond spreads in by 40 basis points! WOW!

When I turned on the screens this morning, the euro was trading 1.3685, and as I was typing my fat fingers to the bone, I watched the euro rise to 1.3725, and I thought to myself… We could have a “healing Friday” for the currencies… But, then just as quickly as the single unite moved to 1.3725, it fell right back to 1.3685! So much for that healing Friday, eh?

There’s only one piece of data in the data cupboard this morning, and it’s the U. of Michigan Consumer Confidence for the first two weeks of November… The index is expected to jump 2 figures to 69… Hmmm, I’ve got a thought on that… I guess the election results last week probably played into this jump to 69… But I guess the trumped up gains in jobs probably will carry the ball here…

I saw yesterday that China had printed their latest report on Consumer Inflation, which showed a rise of more than 4%… Now, there are reports that maybe adjustments are being made to hide the true rate of inflation. A think tank, the Chinese Academy of Social Sciences, published an article saying that for the past five years the inflation rate had been understated by more than 7%…

See… I told you China was becoming more like a capitalist country! They are now hiding their true inflation rate, just like we do here in the US! It’s all about making people “feel good”… Here, there and everywhere!

Well… The news from Wednesday about Mexico allowing (maybe) their pension plans to buy commodities only lasted about 24 hours, as the commodities were sold off big time all day and all night… And that means the commodity currencies also got sold off! Both the Aussie dollar (AUD) and Canadian loonie (CAD) lost the parity handle respectively, and don’t look very strong going into the last trading day of the week. (Of course, when I say they don’t look very strong, it’s all relative, right? I mean, if I told you 6 months ago that both the Aussie dollar and loonie were going to be trading at 99-cents on November 12, 2010, you would have been fitting me for a white suit!)

German growth slowed in the third quarter, after posting record growth in the second quarter… Exports cooled in the third quarter… Guess what? Well, in the third quarter, the euro went from 1.18 to 1.40… I guess that would have a lot to do with exports cooling down, eh? I have further thoughts on this in the “Then there was this…” portion of the letter in a bit…

I see the President was telling people in Seoul that “deflation is a huge danger to the US”… I shake my head in disgust, as our officials keep harping about deflation, when we have food prices and commodities going higher and higher! And… This love affair our central bank has with growing inflation… Folks, two years ago I told you all to start a journal to record all the historic things that were happening, so that one day, you could sit down with your grandkids, and tell them exactly what happened, and why it is that they now have tax burdens, less freedoms, and no purchasing power… And this deflation talk is another entry to your journal… Sure we saw deflationary asset prices, but except for housing, those asset prices have recovered… If the government would go back to pre-1990 methodology for calculating consumer inflation, they wouldn’t be talking about deflation!

OK… I’ve got to stop right there with that discussion, as I could feel my blood pressure rising…

Then there was this…

German Chancellor Angela Merkel said a US proposal for the Group of 20 nations to limit national trade surpluses has been rejected. Major exporting nations, including Germany and China, opposed the measure, which was backed by US President Barack Obama. “The competitiveness of individual market players should not be undermined by political limitations,” Merkel said.

Limit trade surpluses? What kind of nonsense is that? Once our republic was the largest creditor nation in the world, and that was all from trade surpluses! (That, and the fact that our government was limited!) I’m a trade surplus junkie, and so should this country be!

To recap… The risk assets traded September 2008 style yesterday and overnight with all three, currencies, commodities and stocks getting sold like funnel cakes at a state fair. Ireland’s bond/debt problems are weighing heavily on the euro, although a pledge to support Ireland from some G-20 members have removed some of the weight. German third quarter growth weakened from the second quarter’s record pace. The commodity currencies also got sold with both the Aussie dollar and loonie losing a full cent…

Chuck Butler
for The Daily Reckoning

Veteran’s Day Sell-Off originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Veteran’s Day Sell-Off

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

This week, the world caught a glimpse of what Henry Hazlitt might have called the “seen” – the primary, most conspicuous consequence of a preposterous economic policy. Of course, it is the “unseen,” what comes next, that we ought to be worried about.

We are referring here to the dawning of the QE2 era. In the shadow of the midterm elections, Federal Reserve Chairman Ben “full steam ahead” Bernanke announced the second round of quantitative easing, or, for us non econo-scholars, “money printing.”

In a nutshell, Bernanke committed the Fed to purchase $600 billion in Treasuries over the next 8 months. In addition, those nasty mortgage securities the Fed gobbled up during operation QE1 will continue to be rolled over into Treasuries. All in, the total price tag comes to $875 billion brand spankin’ new dollars…with the option to open the spigots further should inflation (the CPI version) come in under what the Fed deems as “healthy.”

Markets rejoiced over the news, sending the major indexes up 2…3…4%. Gold rallied to within $3 of the $1,400 per ounce mark yesterday. Silver leapt out of the gates too…as did just about everything else priced in dollars. Oil made a charge towards $90 per barrel and the “ags,” already on a blistering run this year, continued to soar.

Behind the scenes, the dollar took it firmly on the chin. Our mates over at The 5 provided the following chart, showing the once-mighty greenback’s response to Bernanke’s systematic currency debasement:

The dollar is now more or less at parity with the Canadian loonie (CAD), the Aussie dollar (AUD) and the Swiss franc (CHF).

But not everyone was pleased with the Fed’s magic monetary potion.

Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the US economy is creating “risks for everyone.” The Chinese, who hold an uncomfortably large quantity of ever-depreciating dollars, were equally miffed. Vice Foreign Minister Cui Tiankai said, “many countries are worried about the impact of the policy on their economies.” Tiankai went on to say that the US “owes us some explanation on their decision on quantitative easing.”

Bernanke defended his position to a group of college students in Jacksonville, Florida, on Friday. “Our first objective, the first goal that we have, is to meet our mandate to get price stability and maximum employment in the United States,” he said. “A strong US economy, a recovering economy, is critical not just for Americans but it’s also critical for the global recovery.”

Has Bernanke stumbled upon the ultimate formula for wealth everlasting? Has the man who once said he would drop money from helicopters if the need arose cracked the code to eternal, effortless prosperity? Just print money and be happy?

“If this were true,” ventured Bill Bonner earlier this week in his essay “Plumbers Crack”, “it was a giant step forward for humanity, at least equal to discovering fire, creating Facebook or blowing up Nagasaki. Jesus Christ multiplied loaves and fishes. But He had something to work with. The Federal Reserve multiplies zeros…creating money – out of nothing at all. If it can really do the trick, we are saved. The legislature can go home. It no longer needs to worry about raising taxes or allocating public resources. Government can now buy all the loaves and fishes it wants.  And give every voter a quart of whiskey on Election Day.”

Readers may feel a healthy welling of skepticism here. To be sure, a strong economy, a recovering economy, is important…but debasing the nation’s currency won’t get you there. If a country could grow rich and prosperous by simply allocating printed money to troubled sectors of its economy, Zimbabwe would be the jewel of the African continent and there would be a statue of Gideon Gono, her former central banker, in Harare’s town square. If the Weimar Republic had been able to make WWI reparations in 50 billion mark notes, the world may have avoided the unmitigated catastrophe of WWII. And, to belabor the point, if the Romans were allowed to finance their foreign escapades by simply handing out I.O.U.s, Edward Gibbon’s classic, The Decline and Fall of the Roman Empire, might seem a little odd on the bookshelf of history.

For the moment, the markets have awarded Bernanke’s stimulus plans a vote of confidence. That is the immediate, seen, effect. Like an athlete on steroids, they are looking to break records, to rewrite their own history books. The Fed has them off to a flying start, but pretty soon the effect of the drug will wear off. Reality will kick in. It is then that the “unseen” effects of trying to cheat the system will come into plane view. The global economy, built on the back of a strong, stable world currency, will once again come to realize that history makes no excuses and does no man any favors.

Regards,

Joel Bowman
for The Daily Reckoning

Economic Recovery: The View From Bernanke’s Helicopter originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

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Economic Recovery: The View From Bernanke’s Helicopter

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.