Ominous Data About Conditions in the U.S. and Europe Have Increased My Concerns
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Our nation awoke last Friday to news that unemployment rose to 8.2% ,with an anemic 69,000 jobs created. The U.S. bond market, the clearest indicator of economic strength or weakness, skyrocketed as yields on the ten year note dropped to an all-time record low of 1.45%. Revised GDP numbers lowered growth to a stall speed 1.9% in 2012 Q1, accompanied by significant drops in ISM and Consumer Confidence. We are, in my opinion, at the start of another summer like 2008, pre the Lehman Brothers collapse.
Clearly the Fed is using financial repression to cover government mismanagement.
The White House and Wall Street would have you believe that all is well, yet nothing could be further from the truth. Don't take my word for it. Just look at what the markets are saying:
·     Last Friday the DOW dropped 275 points after a horrific May and is now negative on the year.
·     Interest rates over the entire Eurozone are increasing, excluding Germany.
·     Gold prices increased $62/oz., the biggest one-day jump in 3 years. Back to well above $1,600 to settle at $1625.
Yet in America interest rates are dropping. Putting your money into the "safe" U.S. Dollar gets you a negative return. The official government inflation rate is 3.2%, outpacing the paltry 1.45% interest rates. You are guaranteed a loss. Are negative returns the price of staying "safe"?
 
It is all but official that the Fed, in coordination with other central banks, will be pressured into money creation - the likes of which we have never before seen. Q.E. 1 and Q.E. 2 did little to pull the economy back from the brink. More Q.E.s, perhaps as far as the eye can see. are on their way. If $2.5 Trillion conjured out of thin air didn't work, they next might try $3, $4, $5 or even $10 Trillion?
 
Smart money knows all this and is rapidly moving into gold for protection.
The move into Treasuries and gold confirm that we are going to see worldwide inflation created to prevent the dreaded deflationary cycle the Fed sees as the end of the world. It would not surprise me to see the Fed expand its balance sheet by another 100%.
A PIMCO executive told CNBC that this printing of money will be like a shot of morphine. It will make us feel better and support the stock market, but its hallucination of momentary well-being and resulting dependency will do nothing to heal the underlying sickness in the world economy.
I firmly believe we are on the edge of another Lehman-type meltdown in the financial industry. Nothing has fundamentally changed that brought on the 2008 crisis. J.P. Morgan announced a $2 billion loss from risky trading practices. Major banks, bigger than ever, are being forced to soak customers with massive fees in order to lend money to our bankrupt government.
In 1929, when we experienced a total loss of confidence, the markets and the economy appeared to repair themselves somewhat by 1932. Then in 1933, President Roosevelt declared a Banking holiday, shutting down the nation's banks to avoid bank runs. He then devalued our dollar. By 1938 America had a total collapse of the industrial base, and not until WWII did we recover.
2008 exposed serious problems in America's and the world's financial structure. Who could forget how we allegedly hung on the edge of a total meltdown of the world system. Four years have passed, yet nothing has been done to correct the deep problems in wasteful government spending or heads-we-win, tails-you-lose speculation on Wall Street. Dodd-Frank regulation is a joke. We have lost trust in the American Dream of home ownership as well as in stocks, banks, government and the U.S. Dollar itself, and with waning trust and the loss of sound money we have lost much of the optimistic animal spirits needed to revive genuine prosperity.
In my opinion we are clearly headed into a double-dip recession at best, or into a depression at worst. But unlike 1929, this next depression will be hyper-inflationary.
In 1929 U.S. citizens were producers and savers. Today we are borrowers and consumers. The government, therefore, through the central bank will print trillions attempting to inflate its way back to prosperity with paper money unsupported by real productivity.
Inflation rewards borrowers (government being the largest borrower of all) and punishes savers...you and every American by bleeding the purchasing power out of what we earn and save.
 
You may choose to just sit back and believe all is well, as the powers that be would like you to believe. However, I have learned that when Americans have all the facts, and not just Wall Street spin, they make better decisions.
Please don't allow your hard-earned money to be confiscated through inflation by a government that is hooked on borrowing money. The federal government now needs over $5 trillion beyond its tax revenue each year - just to stay afloat. That makes you, me and our money a target. Our government now borrows $58,000 per second, 24 hours every day, to finance deficit spending to buy votes. There is an election in 5 months. This borrowing, spending and debasing of our dollar will keep increasing.
 
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Thank you for your valuable time.
Craig R. Smith
Chairman, Swiss America Trading Corp.