Dear Friends,

Freedom of the individual has been quashed in the West, replaced by large moneyed structures.

In the west, the mass media is owned, funded by and operated largely by pro-war interests, as John Pilger eloquently illustrates in the below speech:
http://video.google.com/videoplay?docid=-4258131083758254736&hl=en

In the west, our fraudulent counterfeit fiat-based, privately-owned, untaxed and unaudited money system is on it's last legs. The unraveling is designed to leave power in the hands of the people who set this unravelling into motion. They can be easily identified by watching who is giving themselves the most money from the treasury and then blaming relatively small AIG CEOs for being greedy with drop in the bucket bonuses.

Backing up and seeing the big picture, all 4,000 fiat currencies in the history of the world have always gone to zero and will always go to zero because that is how the system works. Printers print while the earners and savers lose value over time. Especially now that is obvious.

There is only one direction from here to zero and that is hyper-inflation. We can't expect the mass media to warn anybody about that fact but it is indeed an undebatable fact and we are probably going to witness it happen in relatively short order.

Synthetic graphic of US collective sentiment (in blue: sense
of impending doom; in green:
purchasing power sentiment; in pink: job
concerns) - Source : Chart of Doom, 02/2009

My friends, this is more than a "soft patch" as Greenspan called it, more than a "recession" as the mass media calls it, and more than even the "Greatest Depression" as Celente calls it.

A notable example of what is happening here --> Man goes from 750,000/year hedge fund manager to minimum wage pizza delivery guy... yes, this is the sign of our times unfolding now with increasing momentum! And yes, it was predictable because all of the primary indicators told us that this would be greater than the Great Depression.

A few notable examples of the unprecedented-ness of our situation

1. Debt-to-GDP ratio is now two times greater than the Great Depression
2. USA was the world's #1 creditor nation / is now the worlds' #1 debtor nation
3. Last 50-years of economic growth was on the back of continuously increasing petroleum output. Now we are peaked, and totally petroleum-dependent for all that we have, eat and do. Recently we were jolted to 150/barrel just prior to this (temporary) deflationary collapse... Petroleum prices will return again with higher highs soon and I predict global inflation will be the only possible answer that our current system can provide.
4. Ecological catastrophes are evident in unprecedented species dieoffs. I don't personally believe that carbon dioxide has much to do with this, but habitat destruction, pollution, gender-bending plastics, over-harvesting, depletion of soils, monocropping, clearcutting, carpet bombing whole civilizations... these are set to increase as petroleum fails to feed us. Like AIG bonuses compared to the Banker Takeover Bill, likewise, the global carbon tax is a distraction against little people to the real issues of ecological degradation by big corporations and privatized militaries.
5. Over the last 100-years, the world's currencies went from a mostly gold and silver asset base to no gold asset base. Now that everything under the sun is denominated in fiat paper, what will prevent the owners of these private central banks from printing to pay debts? Nothing of course. Hyper-inflation is guaranteed.

All of these trends and many more all pointing us into a direction of a massive shift unlike any other in human history... and it is happening right now. Exciting isn't it? Yet all is not doom and gloom. There are a few opportunities here.

What opportunities?

In a nutshell, as I have said many times in the past, the great opportunity here is...

• Shift devaluing paper into booming precious metals
• Move from big-city suburbia to small community farmland (hopefully with water, arable land, long growing season, etc...)
• Get back together with extended family, (as we all were for millions of years prior to this temporary experiment gone wrong)
• Postion into a lifestyle close to nature, family, producing of some fun commodity (my choices might include either wine, beer, vodka)
• There are other better solutions out there, I'm sure. And you can find your own soul-ution that suits you.

Upside down economics doesn't have to be all doom and gloom!

The point is that doom news doesn't have to equate with a gloom life. Rather doom facts can be your personal boom if you act differently than the herds of sheeple around you. (They will need you later.) Dire facts can inspire us to act and our actions now at this unique fulcrum will affect generations down the road.

And with that, we shift our focus to the Privateer, one of the best alternative geopolitical and geoeconomic newsletters out there.

Cheers, Tate

(First part of Privateer below... subscription info at the bottom)

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GLOBAL REPORT
THE GREATEST "HOIST" IN HISTORY
The Obama administration will soon be trying one of history's biggest efforts, the aim being to re-liquify its own financial system and with that, the global financial system. Its method will be a new tidal wave of US Dollars. This is a desperate attempt to stop the US and global deflation in its tracks and turn it around.

The US Reflation Design:
The Treasury will supply $US 1 TRILLION to remove toxic mortgage assets from the balance sheets of American banks. The Fed will start the first phase of its $US 1 TRILLION program to revive the markets for securities backed by consumer and business loans. Add to these two initiatives the $US 787 Billion fiscal stimulus and the size of US monetary and fiscal actions becomes clear. Congress approved a $787 Billion bank bailout package back in October. This week, President Obama's administration suggested that it may need an additional $US 750 Billion.

Money - Versus - Wealth:
Wealth is unconsumed economic goods. Money, as such, acts as an intermediary between economic goods of all different kinds, expressing their relative value to each other in terms of the different money prices.

The Other Side Of The Economic Fulcrum:
One can, in simple terms, look upon an economy as a seesaw with money at one end, with all other real economic goods at the other and with a fulcrum somewhere in the middle. What the Obama administration is now trying to do is to pile money at one end in the hope that if the pile gets big enough, it will lift the other end by increasing valuations and prices.

Borrow - Print - Spend - So We'll All Get Rich Again:
What is haunting the US and the global economy is the enormous fall in valuations across the world. Falls in the value of financial assets worldwide might now have reached more than $US 50,000 Billion, equivalent to a year's global economic output, the Asian Development Bank warned on March 9.

Official figures from the US record that American households got poorer by an average of 18 percent last year in the housing crash while falling stock prices wiped $US 11.2 TRILLION off their net worth. This is what the Obama administration is trying to overcome with its attempt at a massive reflation. A key measure of net foreign capital investment in the US, the "TIC flows", came in at a record MINUS $US 148.9 Billion in January. That was after an inflow of $US 86.2 Billion in December.

The Enormous Scale Of Present World Events:
One of the hardest things to do these days is to describe in any detail the gigantic scale of current events. As already stated, the Asian Development Bank (ADB) makes a very good effort here by identifying the financial losses in the great global deflation as having already reached the enormous sum of $US 50,000 Billion, or $US 50 TRILLION. The Privateer, in recent past issues, has added the equally huge losses in global real estate valuations, taking total losses close to $US 100 TRILLION.

Understanding Valuations - Markets - And Prices:
An often inadvertently overlooked factor in all economic and market situations is that not ALL economic goods in existence are on offer in the market all the time. In fact, most economic goods rarely enter the market at all. They stand on the sidelines. Consider the marketplace where things are bought and sold as if it were an expanding or contracting circle. To participate, the economic goods in question have to be brought inside and then offered for sale. All the other economic goods of similar kind stand outside the market circle not participating. But, though these similar economic goods might not be "on the market" that day, they are affected by the events in the marketplace that day. What happens is that their valuations change as a consequence of the price changes in the market. If prices go up, valuations will follow. That can often have effects which surprise a lot of people unfamiliar with the real market.

Often, after prices have climbed perhaps only 10-15 percent, the climbing prices stop rising and might even fall back. What has happened here is that the holders of the similar economic goods, seeing the prices rise, have brought their economic goods inside the market circle. This expands the circle while also causing the volume of supply of such economic goods to increase. Once the new supply of these economic goods has been exhausted, the price of the economic goods restarts its ascent again. When the price exceeds the preceding high, other players inside the market really start to pay attention. People outside the market circle who own similar economic goods, watching this, have two choices. They can swing their economic goods inside the market circle, offer them for sale and leave with a financial gain, having sold at prices higher than they originally paid. Or they can stay outside and play with valuation.

Playing The Valuation Game:
Playing the valuation game means standing outside the market circle but using the climbing economic value as collateral for loans. These loans are then used for other purposes while the valuation players still own the economic good in question. If interest rates are low, or VERY low, then loans are easy to carry, especially with the climbing value of the collateral underpinning them. But when the market circle stops expanding because all those who wanted to sell have done so, those still wanting to buy are looking blankly at record high prices inside the market which dissuades them from buying. As this potential demand dwindles, prices break downwards inside the market circle which contracts at increasing speed as a lot of the players inside the market step outside the contracting circle. Valuations follow market prices down with a time lag. Eventually, somebody somewhere gets an ugly letter in the mail to the effect that the collateral value underpinning their loan has fallen below the lender's criteria for safe loans. If it is not too much trouble, could they either pay down a large part of their loan or put up more collateral?

When The Collateral Foundation Crashes:
If prices keep falling, the economic good put up as collateral for the loan is taken over by the lender and the borrower's credit rating is torn to shreds. Credit card companies cut their credit limits back drastically, often below the amount already borrowed on the card, rendering them useless. Suddenly, many people are all thrown back upon their weekly or monthly earnings. Monetary savings are minimal, amounting to some loose coins on a counter and some more in a jar in the kitchen. Then, the borrower loses their job and a mortgage is foreclosed. The cars have already been repossessed. Finally, a stunned family is living in a tent and surviving on "food stamps". They played the valuation game - and lost.

The Valuation Game From The Lenders' Side:
One of the intellectually astounding aspects of the US mortgage debacle was the fact that while the US real estate bubble was being blown up, there were next to no comments which pointed out that the more the US lenders lent for real estate purchases, the better their collateral underpinnings became under all the loans previously made. Trouble was clearly on the horizon when millions of Americans discovered that they could use the climbing values of their houses for other loans from other lenders so they started to use their houses as if they were ATMs. The collateral was eaten up from behind by these loans. When the bubble burst, the falling prices in the US real estate market and the falling valuations of the houses not offered for sale fell right through the collateral, leaving $US Billions of loans with no support.

The Great Write-down:
$US 11.2 TRILLION was wiped off the net worth of Americans last year. Even worse, in the fourth quarter of last year, total US household assets dropped a record $US 5.419 TRILLION, that's a 31 percent annualised rate. This data comes from the US "flow of funds" report. This massive historic fall in the net worth of Americans is panicking the powers that be in Washington and New York since that same net worth is the real underpinnings of the loans which have been made by the US banking and financial system. Now, there is insufficient collateral inside the US to support all these loans. As a consequence, almost the entire US banking and financial system is insolvent. This is the situation which is on the other end of the "seesaw" which has already been discussed. The US banking and financial system has not one- tenth of the capital necessary to meet this huge shortfall in collateral under their loans.

That is why the Obama administration and the Fed are shovelling TRILLIONS of new US Dollars at the monetary end of the seesaw. They hope that if they place enough TRILLIONS there, they will lift all prices as well as valuations, in the process rebuilding the collateral foundation under the financial system.

When The US Seesaw Breaks:
The growing danger here is that instead of levering US valuations and prices upwards again, the US Treasury will break its own international credit standing and the US Fed will break the US Dollar.

If that happens, and the danger is VERY real, the seesaw breaks at the fulcrum. The monetary end crashes and ends up in the same predicament as the collateral foundation of the US real economy. With both of the ends of the US economic seesaw on the ground, the financial and monetary system crashes.

The Intensifying Danger Signal - US Credit Default Swaps:
The spreads on credit default swaps for US Treasury debt hit 97 basis points last week. That means that it takes $US 97,000 to buy insurance on $US 10 million of Treasury debt . That is seven times higher than the level of a year ago and 60 percent higher than at the end of 2008. This is a HUGE danger signal.

Tic - TIC - T-I-C Goes The US Foreign Debt Bomb:
A key measure of the net foreign capital outflows that are arriving in the US is the monthly "TIC flows".

"TIC" stands for Treasury International Capital. As already mentioned, this Treasury data showed an OUTFLOW of $US 148.9 Billion in January after an inflow of $US 86.2 Billion in December. For all of 2008, the rest of the world's holdings of US financial assets increased by $US 857 Billion.

That sounds like a lot, but in 2007 the inflow was $US 2.081 TRILLION. In 2008, that flow decreased by almost 59 percent. The US needs an ongoing inflow of foreign money to fund its combined trade and current account deficits. The US Treasury needs it so that it can fund its budget deficits.

Demonstrable US Absurdity In Action:
This one is even too far fetched for Ripley's "Believe It Or Not". Last month, Bloomberg put the total cost of the many US bailouts so far at $US 9.7 TRILLION. That's enough to hand each US household a check for around $US 92,000, or to pay off 90 percent of home mortgages in the country! Since then, the tally of US bailouts has climbed to $US 11.9 TRILLION! This is complete fiscal and monetary madness.

The Global THREE "D"s:
The first one is DE-flation. This one is enormous. It has no precedent in history in either scale or dimension. And it is still going on. Worldwide, the combined losses on shares and real estate now come close to $US 100 TRILLION. Prices and valuations have to follow downwards to re-start industries, production and trade. The ongoing attempts to hold prices up or to stimulate the world's economies with bailouts, exploding budget deficits, rampant credit creation or waves of paper money printing will simply prolong the agony and ensure a prolonged global depression.

The second of the global "D"s is - DE-leveraging. This one still going on too, at very high speed. It has however now gained a steady rhythm as businesses, families and individuals across the world begin to repay the debts they owe. That gives the deflation another push because a commercial bank loan repaid contracts the total volume of bank loans outstanding. Deleveraging is in this sense feeding deflation.

The third of the global "D's is - DE-globalisation. This can clearly be observed by noting the fantastic fall in ocean traffic which has been reported in several recent Privateers. The global result of that is that fewer foreign economic goods are arriving on foreign shores and the flow will contract further in the months and years ahead. This will cause more national, regional and even localised economies to spring up as people try to supply themselves - and to produce and sell closer to where they presently live. These more "local" zones will be the new hubs of production, enterprise, business and trade as were the Renaissance cities. Back then, in northern Italy, these cities appeared to the Italians to have sprung right out of the ground. Make a very special note of this historical economic fact. When the merchants of Genoa began to issue a coin with a fixed content of Gold, it became the economic powerhouse of the early Renaissance and kept the advantage until all the other Italian City states issued their own Gold coin.

A New World Is Dawning - A Global Re-Localisation:
From here on, as the old system of credit and fiat money tears itself apart, think forward to the new Renaissance which can happen almost anywhere. Keep it clearly in mind that the early Renaissance was one of the most creative periods in history in the sciences, in the arts, in painting, in sculpture and in architecture. To this day, people in their many millions fly to northern Italy simply to see the wonders of that time and to sometimes wonder why we don't have the like in our time.

The answer to that question is two-fold. Modern nations have become too big and have come under the control of huge centralised bureaucracies. They did not have that problem in northern Italy during the early Renaissance because the reach of any small city government barely extended for fifty miles. That meant that if one small local government went off the rails, people in their hundreds simply left for a local government close by where political or economic circumstances were better. Seven small Republics on the mudflats around the estuary of the Rhine formed themselves into a form of Confederacy which later became known as Holland. Inside less than a hundred years, they made themselves into one of history's greatest mercantile powers. They too had a flowering of sciences and the arts which millions of people come from all over the world to see. And they too went for a hard Gold coinage.

Then the Renaissance and its ideas travelled to England which had its Elizabethan Renaissance. To this day, the works of Shakespeare form the English-speaking mind. John Locke followed with his Second Treatise, as did Blackstone with his Commentaries and Adam Smith with his Wealth Of Nations.

More On Global Re-Localisation:
The English-speaking world spread itself far and wide. On the east coast of North America were Englishmen brought up in these ideas. Not having representation in the British Parliament in London, they saw themselves as being taxed without representation. On July 4, 1776, Jefferson's immortal "Declaration Of Independence" was endorsed by men who pledged their "Lives, Liberty and Sacred Honour". Liberty had a new place to stand. These new small Republics too had a hard money, originally Silver earned from the Spanish and also minted by themselves to the same weight and content. Later, the new United States joined the then global Classical Gold Standard after the end of the Civil War and the US surged ahead to such an extent that its own output equalled Europe's around the year 1900.

The Descent of the US:
After the end of the First World War, which the US entered in April 1917, the US, together with Britain emerged as the victors in the monetary design to establish the post war world. In 1922, at a conference which took place at Genoa in Italy, all the other participants had to accept a "Gold Exchange Standard". This new standard made the US Dollar and the British Pound both "as good as Gold" because they could be exchanged for real Gold should any other nation so desire. This "standard" was a fraud, and was known to be so. In practice, it meant that the US and Great Britain could place their own national debts into the hands of other nations and have it counted as if it was Gold which had arrived. Then, in 1931, Britain went off the Gold Standard. Two years later, President Roosevelt made it illegal for Americans to own Gold. The road was open to unlimited expropriation of the economic goods of private people in both nations. The "money" was printed paper which people had to accept because it was also legal tender.

The US - The Western Colossus:
At Bretton Woods in 1944, the West's post war monetary order was established with the US Dollar at the centre. All other Western nations had their national currencies anchored to the US Dollar at fixed rates. US Dollars could still be exchanged for Gold at the rate of $US 35.00 per ounce but only by governments and their central banks. The US had made itself a printing press which printed paper as Gold.

The temptation was too much. As the "creator" of the West's sole reserve currency, the US could acquire all the economic goods in the world by the simple means of printing more US paper Dollars. It printed too many. The US defaulted on its international Gold obligations on August 15, 1971. After spending the greatest hoard of Gold in history - 21,775 tons between 1949 and 1971 - the US had 7,000-8,000 tons of Gold left and owed over 38,000 tons to other nations. The "solution" was to repudiate Gold.

The Final Word - By Ludwig Von Mises:
Ludwig von Mises - The Theory of Money and Credit - originally published in German in 1912:

"It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which, through the experience of the American continental currency, the paper money of the French Revolution and the British restriction period, had learned what a government can do to a nation's currency system."

Americans and the world are now to experience what happens when a government tries to "hoist" itself and the nation's economy back up by new massive borrowing and money printing.

Permission to quote short exerpts is given, proficed that full attribution is
included - as follows: ©2009 - The Privateer http://www.the-privateer.com
capt@the-privateer.com (reproduced with permission)

My friends,

Bill Buckler says that we have far, FAR more to go to reach bottom. And he doesn't even know the half of it!

My friends, I was watching this particular crash from about 9 years ago. At the time, nobody wanted to listen. Not media, not friends, not family, not clients... nobody except about 3 people from a thousand. By my personal experience, 95% did not care to see evidence of total collapse even if it was reduced to one simple graph with historic benchmark reference. "Total Debt to Total GDP". That was the chart that I showed to everyone I knew. 5% cared enough to respond and most of them forgot about it within 2-days.

My friends, I am not a genius. I am not a prophet. I am not anything special. So why is it that a simpleton like me can bring up a totally accurate forecast that 99.9% of the people ignore? I saw this coming and it is not near bottom. I am telling you now as a friend, this is just the beginning.

There is a lesson here. I don't know what the lesson is for certain but it doesn't seem to show us as particularly wise human beings if we can't predict debt-crash amidst unprecedented debt loads globally. Come on... this is kindergarden stuff. Please be aware. We had all these lessons in 1929 and now we are witnessing an exacerbation of the very same lessons at multiples beyond what they were at that time! Total debt to total gdp... simple graph. predictable results. Right here -->> http://www.chrismartenson.com/system/files/u4/Debt_to_GDP_with_light_blue_arrow.jpg

It is easy to get discouraged in our age if you see some part of truth unfolding very clearly and you try to explain to people how they can benefit from your deductions wildly and save themselves great pain.

Some consolation -

I know of a few people out there that did get into silver at 4+ dollars. That feels good, knowing that silver will bounce above 50 easily in the coming years! I know also that some people are buying arable land, getting back to their families, preparing for deficit and I am glad about these efforts that I am privileged to know about.

Hey, my friend, did you see this VIDEO? Please watch it. It is the best of its kind among hundreds of others. Very clear explanation of a complex problem related to our economic crash.

Enjoy the Privateer. Comments welcome.

I will have a family newspaper out soon if all goes according to plan. We have solutions and soul-utions for people... and so we wish to make them available.

Cheers, Tate

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GLOBAL REPORT
ZERO INTEREST - INFINITE DEBT
The economically imploding world is entering into the land of the surreal.
Central banks worldwide have reached (or are nearing) zero target rates of official interest. There is next to no room left to manoeuvre to try to reignite any new credit expansion. The alternative now sought by governments of all descriptions is to replace the borrowing the public is not doing with their own. Budget deficits are exploding all over the world.

A Mindless Spectre Is Stalking The World:

It is a spectre launched by Lord Keynes in 1936 when he warned that if the public lowered their consumption and increased their saving, there would be "insufficient demand". According to Keynes, such a serious situation had to be promptly addressed by deficit spending and lower interest rates to increase demand through credit expansion. What he never understood was the role of savings as the real economic means with which to increase the capital tools of production and therefore, later consumption.

In all his writings, Keynes stated that savings could be replaced by credit expansion and government budget deficits as the means with which to keep demand up, factories humming and consumption at a height that ensured "full employment". What Keynes never understood is the fact that any given structure of capital tools and infrastructure has a requirement for an ongoing stream of savings simply to maintain it. Such a structure requires an even greater stream of savings to improve and/or to expand it.

Today, with lowering interest rates no longer an option, governments are making a desperate play for the second Keynesian alternative - deficit spending. But deficit spending only consumes the capital!

Global Advance Warning - Another Downturn Straight Ahead:

Stock markets act to discount future economic conditions into present-day prices. Stock markets around the world are now flashing red. The MSCI World Index had three consecutive weeks of decline to the end of February. As of the end of February, the benchmark had fallen 22 percent since the year began. In 2008, the index fell 43 percent! The global deflationary effects of these huge falls are enormous and are spilling into the world's real economies with startling speed. Corporations everywhere are cutting their dividends, wanting to hold on to the cash themselves. As a consequence, insurance companies, pension plans etc. can now look forward to a cut in their incomes from dividends. When the ownership of capital - which is what owning shares means - no longer pays a useful dividend, then the capital is worthless.

If the ownership of monetary savings no longer pays a useful rate of interest, then the money is worthless.

The World's Factories Are Falling Silent:

Former US Fed Chairman Paul Volcker has called attention to the unprecedented slowdown in the world's factories. He stated that the present slowdown in world factory production was happening faster than in 1930! The Privateer has called attention to this situation over several past issues. Factory output is collapsing at the fastest pace ever. Here is the global roundup. The annualised figures for February are as follows: Taiwan - 43 percent, Ukraine - 34 percent, Japan - 30 percent, Singapore - 29 percent, Hungary - 23 percent, Sweden - 20 percent, Korea - 19 percent, Turkey - 18 percent, Russia - 16 percent, Spain - 15 percent, Poland - 15 percent, Brazil - 15 percent, Italy - 14 percent, China - 12 percent, Germany - 12 percent, France - 11 percent, US - 10 percent and Britain - 9 percent. This is a catastrophe.

When "Just In Time" Runs Out Of Time:

Prior to the Japanese inventing "just in time" manufacturing in the mid-1950s, most factories held much larger in-house inventories of the necessary components for what they made. These inventories made it possible for factories to keep working in the event of a temporary disruption in their supplies. This is not so today, for the good economic reason that holding large inventories costs money. In today's world, most factories only hold an inventory of between three to five days of production - or even less.

This leads directly to the danger that the massive global slowdown in manufacturing will have the effect of ripping the links in the global production chain apart. A shutdown in one place can disable many other factories all around the world. If the main producer of one simple item common to many production processes suddenly closes its doors, the remaining producers do not have the capacity to fill the output gap. Real physical factory shutdowns follow as a matter of course in many other places until the item can be produced elsewhere. This is a real physical situation - and an unavoidable one.

Commercial Finance Too Has Gone "Just In Time":
Again back in the mid 1950s, most businesses held sufficient money in liquid or near cash form to meet all their expected payments for between forty to one hundred days into the future. That gave them an immense inherent financial resilience if some of their customers were late in making payments. Today, the "just in time" theory has taken over here too. Most businesses only hold in house what amounts to "cash in the till". Most borrow VERY short term, weekly or even daily. Most modern businesses are reliant on payment from customers to make their loan payments, even their short- term loan payments.

This is why the global credit crunch is so dangerous for business. It has progressed from a credit slowdown - to a credit contraction - to a global credit money deflation. This process has hit business HARD. Around the world today, there are numberless businesses which can no longer gain access to previously easily available "just in time" financing. Holding little if any cash with which to meet normal payments, most of these businesses have a forward time horizon of a week. Deprive them of short-term commercial credit and they have no other choice than to close their doors when all those who have supplied them with goods cannot wait any longer for payment. This has broken the "supply chain" just as the inventory situation has, but this time for financial reasons. Today, both of these two economic events are hitting home over the world. One affects physically real goods. The other event is financial but just as real in economic terms. Combined, these two features explain the crash in global output.

Before June This Year - There Will Be REAL Scarcity:

You can't get any if there ain't none! The global factory slowdown already reported here will have real and physical consequences - soon. There will suddenly be gaps on the shelves of stores which were normally filled with retail goods of certain kinds. When the store manager is asked why this has happened, he will likely answer that the supplier suddenly went out of business. Don't be surprised if that store has closed its doors when you come by the next time. The great deflation is hitting the ground.

The US Budget - Deficits With A Vengeance:

The proposed Obama federal budget is so extreme in its financial structure as to defy description. The Privateer is used to that, though. Revenues for 2009 are projected at $US 2.19 TRILLION, down 13 percent from a year ago due to the recession. With the bank bailouts and the $US 787 Billion economic recovery program, 2009 expenditures are estimated at $US 3.94 TRILLION - up 33 percent over 2008.
Note that the Bush bailouts contribute to the huge $US 3.94 TRILLION spending estimate.

US Budget Deficits As Far As The Eye Can See:

Revenues $US 2.19 TRILLION - expenditures $US 3.94 TRILLION. That leaves a gap or budget deficit of $US 1.75 TRILLION! And THAT leaves a US federal budget in which 44 percent of its expenditures must be borrowed. That is a 32 percent expenditure increase over the 2008 level, one of the biggest year to year increases in the past 50 years! It represents 27.7 percent of GDP, a serious hike from the 21 percent level reached in 2008. Borrowings are projected to be 79.9 percent higher than federal revenues, a situation well known to banana republics. Any fiscal sanity has gone completely out of the window.

Obama's First Budget:

The 2010 proposal that President Obama has sent to Congress is for a $US 3.55 TRILLION budget for the fiscal year which begins October 1 this year. The projected deficit for this 2010 budget is $US 1.17 TRILLION! With the current fiscal year now half over, the US is planning to borrow and spend $US 3.52 TRILLION over the next year and a half! President Obama's first full year budget also seeks standby authority for $US 750 Billion for bailing out US financial firms while planning for a health care system overhaul and almost $US 1 TRILLION in higher taxes from 2.6 million of the richest Americans.

It is worthwhile to understand here who are deemed to be the "rich" inside the United States. In Obama's case, it is any single person earning $US 200,000 in a year and any family earning $US 250,000!

In The Background - The Spectre Of SAVINGS:

The American public has turned its back on more debt. The personal savings rate has risen to 5 percent, the highest since March 1995. At an annual rate, US personal savings rose to a record $US 545.5 Billion. A year ago, the US personal savings rate was 0.1 percent. This is a massive turn by the American public.

US consumer spending dropped at a 4.3 percent annual rate last quarter, the most since 1980, after falling at a 3.8 percent pace over the previous three months. That marks the first time that consumer purchases have dropped by more than 3 percent in consecutive quarters since record keeping began in 1947. US GDP shrank at a 6.2 percent annual pace from October through December, the most since 1982, the Commerce Department reported. These are the reasons why the Obama Administration has increased its expenditures from 21 percent of GDP to 27.7 percent. If the American public refuses to borrow more (even at today's interest rates) to reignite a US credit expansion, then Obama will certainly try to do it for them, even if he has to borrow the US Treasury past the edge of oblivion. In the process of borrowing and spending these immense sums of money, Obama will increase over- consumption in the US economy. That will become obvious in time. But the worst economic mistake he is making is to increase taxes right in the middle of a deepening US recession while at the same time borrowing in order to increase consumption of the real economic goods which the US economy needs to rebuild itself.

The fiction that increased expenditures leading to increased consumption will make new factories and plants spring out of the ground as if by magic is fatally wrong. What must increase is SAVINGS, which leave unconsumed goods out in the economy. These are the economic means necessary to build factories and tools on factory floors. While Americans try to save, Obama cancels it with taxes and consumption.
Who Really Believes This?:

The US government has, on behalf of American taxpayers, pledged more than $US 11.6 TRILLION over the past 19 months to bail out banks and stimulate economic growth according to data compiled by Bloomberg. The blindingly obvious question is: Where is the money going to come from? The clue is in the fact that all this is being done by the government on behalf of the American taxpayer. That being so, the American taxpayer will have to pay for it all. The only problem is that nobody has asked a taxpayer.

Specific Signs Of Deflation:

Citigroup, which had a market value of $US 277 Billion at the end of 2006, has tumbled 97 percent since then, leaving it valued at $US 8.34 Billion. That is $US 269 Billion in purchasing power which has gone up in smoke and which all those still holding Citigroup shares will no longer be able to exercise.

General Motors Corp posted a loss of nearly $US 30.9 Billion for 2008. Ford lost $US 14.6 Billion and Chrysler lost $US 8 Billion. The US banks lost $US 26.2 Billion in the last three months of 2008. AIG, American International Group Inc, posted a record $US 61.7 Billion quarterly loss on March 2 and got a new government bailout of $US 30 Billion. For all of 2008, AIG lost $US 99.29 Billion. AIG shares have been as low as 42 cents! The shares have lost 99 percent of their value over the past year.

Fannie Mae asked the US Treasury for $US 15.2 Billion in capital and raised the possibility of requesting more aid after a sixth consecutive quarterly loss drove its net worth below zero! Below zero - it is broke! Fannie and Freddie's combined books of business during December stood at $US 5.319 TRILLION.

Don't Bank On It:

Two hundred and fifty-two US commercial banks and savings institutions with total assets of $US 159 Billion were termed problem banks at the end of last year by the Federal Deposit Insurance Corp. The FDIC insurance fund has fallen to $US 19 Billion from $US 52 Billion at the end of 2007. It too is broke.

US Capital Investment Collapses:

US business purchases of new equipment have plunged at a 29 percent pace, the most since 1958! This shows that the US stock of capital is not being renewed. This is de-industrialisation at an enormous rate.

Don't Make Them - We Don't Buy Them:

Orders for US durable goods fell for a record sixth consecutive month in January, signalling that companies are cutting back on spending as customers retrench. The 5.2 percent drop was more than twice the projected amount and followed a 4.6 percent decrease in the prior month, the Commerce Department said in Washington. Total US durable goods orders have plunged at an annual rate of 43 per cent over the last three months! Production of consumer durable goods including vehicles, furniture and electronics fell 10.5 percent in January, the biggest monthly drop since November 1959! The Privateer could go on and on. All this data is a look inside the US economy and what it shows is that there is a savage contraction in real, physical output taking place. When durable goods orders crash by 43 percent in three months and actual real production by 10.5 percent in a single month (December), one is looking at an economy which has been driven off a cliff and is now in free fall.
In the face of this, no amount of media skills and or skills in reading a teleprompter will suffice. Expanding the size and spending of government is the very last thing needed economically. What IS needed is a US marketplace free of regulatory interference where clearing prices which move goods can be found. What is also needed is an enormous and drastic sequence of cuts in federal, state and local government expenditures with mass layoffs if required - so that costs can be lowered for producers.

The Approaching GLOBAL Crescendo:

All over the world, governments worldwide have their backs to the wall. Their economic legitimacy is being tested before the eyes of their citizens and they have to be seen to be doing - "something". The problem is that they have done "something" for decades, they have been politically intervening in their own economies. That is the process which has placed their economies in their current predicament.

WHO Decides?:

Now, in a fast climbing crescendo, governments across the world are engaged in multi-pronged attempts to "fix" all the accumulated problems in their economies in an orgy of further interventions. This attempt is certain to fail, leaving the world to face a fundamental choice. Either governments decide what is to be produced and in what quantity and quality or that decision is made by private people in the civil economy simply by choosing what to buy and what not to buy. If the second choice is made, it will be the buyers in the private civil economy who decide what shall be produced and in what quantity and quality. Businesses which meet the requirements of these private buyers, or come close, will be rewarded by climbing sales and higher earnings. This will enable them to expand. Those which do not meet the buyers' requirements will have falling sales and then losses.

The private individual in his or her capacity as a producer will, under the division of labour in the free market, be able to see clearly where the best jobs are. These will be the businesses where wages and salaries are climbing and also have the best working conditions. It is the price mechanism which puts this information in full public view. And, living in freedom, people are free to change their jobs at will.
This economic combination, and no other, accounted for the vitality of the free market economies and the road they travelled towards ever higher living standards.

Then - governments intervened.

When Governments Decide - Anti-Market Economies Are The Result:

If governments decide (directly or through rules and regulations) what shall be produced and in what quantity and quality, the nations so governed will end up with a welfare state. Inexorably, that will be followed by socialism, where all the productive tools have become public property solely owned by the government. At the end of that road is communism, where all human beings become public property, the slaves of government. The parallel track, to the same end destination, is the one in which government leaves the facade of a free market in place and in full public view. Meanwhile, by means of massive bureaucracies and a tidal wave of regulations, taxes, fiat money and credit money, subsidies, bailouts etc., the government decides what shall be produced and in what quantity and quality. This economic system was named "Corporatism". Its matching political system is called "Fascism". Both of these systems were once perfectly well understood. That is not the case today.
Mussolini, who instituted "Corporatism" in Italy, was quite clear. In a 1923 pamphlet titled "The Doctrine of Fascism" he wrote, "If classical liberalism spells individualism, Fascism spells government. Fascism should more appropriately be called Corporatism because it is a merger of State and corporate power." Mussolini's politics were also clear: "All for the state, nothing outside the state, nothing against the state." This is Totalitarianism, the goal being to make the individual subject to government.

Today, it is not the free market which has failed, but Interventionism. There has not been a genuinely free market in any western economy for generations. It is only the areas where a partial market was allowed to function for a period of time which have been responsible for the economic progress which has been made since the end of WWII. But today, even a partial market freedom is close to extinction.

Recognising a free market is easy. THERE IS NO INCOME TAX. Gold (and/or Silver) coin circulates as money. Private property and contracts are sacrosanct, as is the total separation of state and economics.