Shenandoah

By John Galt

Dichloro-Diphenyl-Trichloroethane, the wonderful chemical banned by the EPA in 1972, about the same time the gold standard was, is NOT what this editorial is about, more like this warning. You see I could easily go on a rant with my tinfoil beanie on too tight and try to point out that the same time we surrendered the “War on Inflation” by running from the gold standard, we surrendered to malaria and tried to say a little inflation won’t hurt you like a little mosquito bite won’t. So much for both theories and the West Nile virus some 30 plus years later. The DDT I’m referring to is the most insidious poison every introduced by our government and the banksters in their desperate attempts to maintain a bankrupt system and collapse our nation’s independence. This DDT though is a byproduct of the monetary poison of the Greenspan era from our wonderful central bank which has spread throughout the economy.

Inflation to the Rescue

If you look at this chart below, you can see that inflation, the magic panacea that was thought to cure the monetary ills of the time much like malaria was the cure to over population, started a rather nasty climb back in the 1970’s ultimately climbing into nightmare levels in the late 1970’s and creating the stagflationary economic joy called the “Carter years” which many of us remember for the great editions of “Saturday Night Live” and of course “The Misery Index”.

While this chart is just a snippet, I closed it off on good old Economagic at 1987 as that was the year we witnessed a breaking point, or change in our equity markets, much like what I foresee this year and again after 2009. But back to the problems and explanation of the DDT subject at hand. As you can see in this chart, we experienced a nightmare in the 1970’s with stagflation plus an inflationary recession which followed. The difference between now and then? The banksters claim to have learned the lessons of the 1930’s Great Depression and the Paul Volker cure which solved the problem. Unfortunately the academic minded folks we have in charge of the Fed now appear to only honor history and have not learned from it. The moves they are about to undertake to salvage prehistoric relics from the multinational banking system will fire off a wave of inflationary pressures as has been signaled by the unrestrained (and surprisingly) uncorrected screaming flight of gold from $700 to $900 in just a four month time period.

While many view gold as an emergency reserve or “insurance policy” as I do, I also take a historical view on the metal as a warning that many nations are viewing the cure to our systemic banking problems as a monetization of the debt and they are rushing to spend their dollars on insurance against a foolish decision by our central banksters. Unfortunately the declaration that indeed we would inflate our way out of a crisis was published in a speech from Dr. Bernanke in 2002 titled “Deflation: Making sure it Doesn’t Happen Here” (http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm). The portion of the speech which struck me as the most striking was the conclusion:

“For this reason, as I have emphasized, prevention of deflation is preferable to cure. Nevertheless, I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit its zero bound.”

This statement indicates that despite the need for a recession to flush the system of asset excesses, our Federal Reserve in concert with the political concerns of Congress and the Treasury Department are more than willing to risk a Japanese style implosion to prevent the necessary flushing and strengthening of our system by allowing the weak hands to go bankrupt and what’s left of their assets to be redistributed or liquidated as a true capitalist system would allow. This interference is why I see gold as a flashing, screaming siren. The commodities markets, be it metals, food or energy are all trying to warn the Fed that the excess dollars being held around the world will be rapidly returning home if the United States continues to dilute it’s currency in a absurd effort to stave off a recession to benefit the political elite during an election year. Sadly, this appears to be the policy to be undertaken in the months ahead.

So Just what Kind of DDT are We Going to Apply?

The DDT I’m referring to is reflected in this chart from John William’s excellent site, www.shadowstats.com, which should be required reading for all statistical and market junkies as the data releases pour forth in the months to come. The chart simply reflects the measure of inflation comparing the original methodology (SGS alternate) vs. the BLS newly revised CPI-U measure.

If you notice the 1980 time portion where both were married to the same statistical rule of thumb, the tweaking started in the mid-1980’s until full blown hedonic revisionism kicked into full gear recently. This has distorted real inflation and the impact is obvious to any average soul who actually purchases their own food or pumps their own gas. The DDT that I am referring to is displayed in the following charts and should be crystal clear to those that remember:

That’s right, DDT is DOUBLE DIGIT TREASURIES and I can foresee the consequences of Bernanke’s folly as DDT’s in 2009-2010. That will be the burst which he has spoken about avoiding as the rates are imposed by the open market and the lack of desire to acquire more debt from a bankrupt government will cause our yields to soar beyond those charts that I’ve displayed above. This is not a prediction but if gold does reach an inflation adjusted level above $2000 as many goldbugs and advocates say it should or will, the 10 and 30 year bonds can easily top yields of 25 percent or more. The result of such an inflationary scenario, which I can see coming true, will be an imposition of such stringent restrictions on spending by the markets that our central banksters will have to monetize the debt or default and either will result in the next Great Depression. As we raise our level of monetary growth to pay the interest on our old debt the viability doing business in America will become impossible for all but those who choose alternate currencies within these borders to do so.

Thus a return to the gold standard will be impossible, although desirable, and the implementation of an alternate electronic based currency will be the only answer for this nation of fast food and lazy voters. We are going to witness an implosion of our system as a result both economically and politically, and the choices made will determine the fate of our history and survival of our Republic as a result.