Our Debt Money System and an introduction to Bill Still

Bill Still, a writer/director and monetary reformist, produced a film in 1995 called "The Money Masters" in which he explains the history of banking and the problems we face today. More recently, Bill directed a film called "The Secret of OZ", which uncovers the secret hidden monetary message in L. Frank Baum's original work "The Wizard of OZ". If asked about who controls the quantity of money in our economy today, the vast majority of people would say the government, or that the Federal Reserve controls it but is a government agency. The reality of the situation is that the Federal Reserve is neither Federal nor a Reserve, is NOT part of the government but rather privately owned by member banks, and is a complete deception altogether. When the Federal Reserve act was passed in December of 1913, Congress was not in its normal session but rather on break for the holidays. Immeditately after it was passed the President of the United States admitted it was a mistake, and yet, nearly 100 years later, it is still here, manipulating our economy and fooling the public into thinking it is promoting economic growth. Every Dollar in circulation today, under the current system, is created as an interest-bearing debt. One of the many problems with this debt money system, and perhaps the most important one,  is that the interest can never be paid off. Every time a Dollar is created as bank credit, it is comes with interest that must be repaid with the principle. Let's call the Principle "P", and the principle plus interest "P+ I". Each time a deposit enters the banking system, banks are able, under the current fractional reserve lending system, to loan out many times that amount in bank credit, which is money created by banks out of thin air simply by entering key strokes on a computer.  A great illustration of this process can be found by watching "Money as Debt", which can be found in full on Google Video Here. The banks expect to be paid back P+I, but the problem is that only the "P" was created in the first place. In order to pay back the interest, new principle must be created. However that also comes with interest, so it becomes a vicious never ending cycle of debt creation. If this process of creating new to satisfy the old sounds familiar to you, it is because our monetary system today is very similar in nature to what Mr. Bernard Madoff committed, a Ponzi Scheme. The only differences being, this one is legal and on just a "little" bigger scale. For an introduction to Bill Still, please watch the video below:




Here is his latest movie The Secret of OZ:



and Here is his original film, "The Money Masters" (highly recommended)



In April 2011, I hosted Bill Still at my School to give a presentation to interested students and faculty. Here is the introductory speech I gave:

Hello everyone. First I would like to thank you all of you for coming this evening. My name is Chris Wallace and I am currently a junior at Bryant studying Finance. I first came across Bill Still’s work when a friend suggested I watch “The money masters”. Bill Still directed the money masters back in 1995. In it, he explains in detail the history of the United States monetary system. He illustrates how the banking cartel and the Federal Reserve helped private bankers regain control over our money supply and set the stage for the fraudulent monetary system we have today. Mr. Still predicted the economic crisis that continues to unfold before us. He described why this debt money system was doomed to plunge the country into an economic crisis that would not end until we addressed the fundamental issue at hand: Not what backs our money, but who controls its quantity. He explains that the only way out of this situation is to restore monetary power back to the people through their elected representatives in congress. Now let’s fast-forward to today. The world economy is suffering from the deepest economic downturn since the great depression. Many are talking about the “recovery” that began in June 2009. But what has changed? All that has happened is the authorities have thrown more money at the problem to try to sustain our unsustainable debt ponzi scheme. We are in a depression, and it’s not going to get any better until we address the fundamental problem at hand. The good news is, with enough help and support; we can do something about it.  I have invited Bill Still here today because I have hope that people will latch on to these essential principles of sovereignty to explain what needs to be fought for and the ways in which we as a sovereign nation can do it. With enough support, we can fight to put an end to this debt money system and finally free ourselves from the debt shackles that currently enslave us and put authority to create money back in the hands of the sovereign nation; by the people and for the people. Ladies and Gentlemen, Please help me in welcoming Bill Still.

Shortage of Commodities? er...ummmm....shortage of U.S. Dollars? MAJOR U.S. Dollar Bull Market setting up

Many people are talking about a shortage of commodities and peak oil and how that will send commodity prices to the moon. These same people are also talking about all the "Money Printing" that is going on, causing an abundance of U.S. Dollars (and other fiat currencies) and how that will also send prices skyrocketing. In my view, the situation is EXACTLY the opposite. There is actually a massive shortage of U.S. Dollars, due to the fact that there is large sea of unpayable debt in the global monetary system. This debt is denominated in fiat currencies, but there is more U.S. Dollar denominated debt than any other currency in the world. Creditors want to be paid in U.S. Dollars, not Gold or Silver or other commodities. So essentially there is not enough money in the world, and too much debt. Debt satisfaction creates a demand for the currency it is denomninated in, while at the same time all the contracting debt is diminishing the supply of U.S. Dollars. So there are two forces at work here

1. An increase in demand for Dollars to satisfy debt payments

2. A MASSIVE reduction in the supply of available Dollars due to debt contraction that can collapse much faster than the Fed can counter it.


This money dynamic is extremely Bullish for the U.S. Dollar going forward. As  the world's debt money system collapses, deflation will take hold and send the value of the U.S. Dollar skyrocketing, and the value of U.S. Dollar denominated assets to virtually ZERO. This does sounds extreme, but what has already occurred since the inception of the Federal Reserve since 1913 is the real extreme that most people don't even take notice to. It is the Massive inflation of our money supply through Credit Inflation. the crash will correct this extreme.  In addition, Since most all of our money is debt (with the exception of coins, which make up about 5% of the money supply), for the Federal Government to "Pay off the debt" would be to contract the money supply and cause a depression. Since an ultimate default by the U.S. Government is virtually inevitable (unless they decide to print their way out of it, which they are not likely to do until after the collapse happens, using 1929-1932 as an historical precedent), a massive contraction in our money supply is also inevitable. This has already begun in 2008, and is the first contraction in the money supply since the 1930's. The difference this time is, the bubble leading up to the 2007 top is much bigger than the one leading up to the 1929-1932 crash. This means we should expect a decline greater than 1929-1932. DOW 570 would equate to a 96% decline, greater than the 89% decline of 1929-1932. While all this happens, the U.S. Dollar will be in a Super Bull Market as credit contracts and the few dollars that are left in the system will be scrambled for by debtors. The U.S. Dollar does not appear to be finished with its bear market, however, contrary to what I previously thought. While it could just take off from here, it is likely to get down to the mid-to upper 60's on the U.S. Dollar index, fool everyone into this Dollar Collapse Scam, and then take off in a Super Bull Market. This should last until the debt collapse is over, most likely 2020-2023, although the chances are high for a final low in the stock market in 2016 or 2017.

Market Update

As it turns out, the stock market did move on to new highs, but only in three waves, not five. That could have marked a weak end to the bear market rally, or the other option is that the market has been corrective mode for most of 2011. It is possible that the market is in an expanded flat correction from the 1344 high in Feburary 2011. Under this scenario, the market should ideally retest the SPX 1249 low, although it is not required in this type of correction. If this is the case, then the bear market rally will continue after this correction is over, and likely top in early to mid 2012.

As Bob Prechter points out, the only thing holding up the market is the 7.25-year cycle and the Federal Reserve's accommodation to speculators by adding reserves to the banking system  through the purchasing of treasury bills that has allowed banks to speculate in markets rather than lend the money out. This has been the driving force behind the recent rise in commodities and other inflationary assets (including stocks). However, in my view, when this cycle tops out, and investor psychology turns negative again, the Fed will not be able to stop the decline in what I belive is the worst portion of the bear market yet to come. They will pull all sorts of tricks out of the hat, but the coming collapse in credit will be too fast and too strong for them to handle. The FDIC may even have a hard time honoring all the claims from patrons of failing banks. Whether or not this bear market rally is over, it is still a bear market rally, and it is very important that people understand the risks inherent in this market and stay CLEAR of all traditional investments and get positioned in the safest possible cash equivalents. This includes Short-term t-bills (anywhere from 1-month to1 year), swiss money market claims, as well as physical cash. I believe the U.S. Dollar is at the very end of its bear market that has lasted so long, and will go through a massive short-squeeze where debtors are being forced to liquidiate assets to pay off their debt. As the U.S. Dollar gets stronger, it will be harder and harder for debtors to maintain their position, and will either have to pay their debt off, default or restructure. The size of the credit bubble that is bursting is the biggest in human history. This financial debacle we are in is one for the record books and has highly deflationary implications. As I have stated int the past, my target for the final low of this bear market is below 800 on the DOW, and most likely below 570, the 1974 low. The Social implications of this are extremely negative as well, and since this is a much bigger bear market than the one that ended in 1974, the social unrest should be that much worse. We are already seeing this manifest around the world, especially in the middle eastern countries (such as Bahrain and Libya), and Greece, where leaders are being overthrown because Social Mood is decidedly negative. This is all implied by Robert Prechter's Socionomic Theory of Finance. The Following is a great presentation done by Prechter on Socionomics. The link includes parts one and two. To view parts 3 and 4, you will need to register for free using the link at the bottom of the page.
http://www.socionomics.net/socionomics-a-new-perspective-on-social-causality-parts-1-and-2/

Major dollar rally setting up

The Dollar has had a nice move up from November 2010 when all the media was talking about was hyperinflation. Well, it seems that psychology has not changed. People are still ultra-bullish on stocks at their highest levels since June of 2008, commodities at their highest levels since the beginning of October 2008, while  calling death to the U.S. Dollar and bonds. It is in this type of extreme sentiment environment that markets reverse. The Dollar may need a little more downside to wash out the few bulls that remain in that market, but I suspect the Dollar is set to commence on a major rally. This would be supportive of a decline in all of these liquidity driven markets for at least a period of time, and possibly something more serious. Also of note, Emerging Market fund outflows are at their highest levels since 2008. Before the crash of 2008, emerging markets topped a few months after U.S. stocks did. It is possible, under the bearish scenario I laid out in my last post, "Market Update", that this time emerging markets are leading the way down. Under the bullish scenario, this would just be a 15-20% correction in Emerging markets. Nevertheless, all of these markets are being driven by liquidity right now, in what Elliott Wave International calls "All the Same Market". When liquidity is expanding, stocks, commodities and other inflationary assets are pushed up, and when liquidity contracts, markets all go down together, as we saw in the second half of 2008. I strongly maintain that the bear market is NOT over, and probably has about 6 years to go. Again, the action over the next few months should provide clarification as to whether this bear market rally is going to continue for a while, or whether it is ending now. We'll let the market decide that. Below is a longer term analysis of the U.S. Dollar. the same dynamics of liquidity apply to the U.S. Dollar, except in reverse. As liquidity expands, people become more optimistic and selling dollars to buy inflationary assets, and as liquidity contracts, people become more fearful and liquidate inflationary assets to raise cash.

Longer term, the U.S. Dollar is forming a large triangle on a weekly chart. Triangles are consolidation patterns, and in this case I believe a basing pattern for a new Bull Market in the U.S. Dollar. This next uptrend in the U.S. Dollar will be key. If the uptrend breaks strongly through the upper trend line, it would suggest the Dollar has been basing since March 2008 and has already started its Bull Market. If the uptrend is corrective and weak, that would suggest the Dollar will make one more minor new low below its March 2008 low of 70.70. In my last post, regarding the stock market, I also mentioned that this next downtrend in the stock market will be key as well. The nature and extent of the next rally in the Dollar and bonds and decline in the stock market (which should all occur simultaneously) should provide clarification to the next major move for stocks commodities and other inflation assets. My expectation of a coming significant intermediate term dollar rally  is consistent with my expectation with AT LEAST a correction in all of these liquidity driven markets.

Market Update

On March 6, 2009, The S&P 500 stood at a 12-year low at 666.79, with only 2% of traders bullish on the stock market. That means 98% of traders thought the market was going lower. Yet, amidst the worst recession since the great depression, with no positive fundamentals, the market started a rally that has progressed over 94% from the low to yesterday's high of 1,296.06. Now there are over 90% of traders bullish on the S&P, with an positive fundamentals, and improving economy, and, needless to say, optimism. While the stock market has risen over 90%, and most are convinced a new secular bull market started at the March 2009 low, it is still only a bear market rally within a much longer term secular bear market. The aim of bear market rallies is to convince everybody that the bear market is over. Once that happens, and enough people are convinced that a new secular bull market has started, the market reverses and the bear market resumes. There are a number of reasons I am convinced this is only a bear market rally. One is valuation measures. Whether you look at dividends, P/E ratios, or the percentage of mutual fund cash (currently at an all time record low) the market is historically over valued. In early March 2009, the P/E on the market was 23.77. This is not a reading that has coincided with previous bear market lows. In the 1932, the P/E ratio got down to 10. In 1974, the P/E ratio was 7.24, and in 1982, even with a higher low in the market, the P/E was an even better 6.9. The current P/E ratio, according to http://www.multpl.com, is 23.47. When the market makes its final low for this bear market, I expect the P/E ratio to be within the range of normal bear market lows, and possibly even lower. In other words, I think there is a great buying opportunity coming up this decade, however I do not see that time as now. Another reason I think the bear market is not over is secular cycles. The stock market moves in waves of optimism and pessimism. When the market is moving in a long-term uptrend, and optimism is building, we call that a bull market, and when the market is moving in a long-term downtrend, and pessimism is building, we call that a bear market. There are two types of bull and bear markets: Cyclical and Secular. Cyclical bull and bear markets are usually multi-month or multi-year uptrends or downtrends, however they are within the context of secular bull and bear markets, and usually fool the public into thinking the long term trend has changed. For example, the crash of 1987 was a cyclical bear market, but it was in the context of the secular bull market that started in 1982. That secular bull market ended in 2000, and lasted about 18 years, although the nominal Dow did not top out in Primary Wave V (the last wave of a bull market) until 2007. Even though the stock market made a new high in 2007, it did not in real terms, as I have shown in previous posts. So while a cyclical bull market unfolded between 2002-2007, the secular bear market actually began in 2000. Before that bull market started, we were in a secular bear market from 1966-1982, 16 years, before that a secular bull market from 1949-1966, 16 years. See a pattern? Based upon various time cycles and historical bull/bear market relationships, I am expecting the stock market to make its bear market low on or close to 2016. The year 2016 would mark 16 years since the bear market began in 2000. Within the secular bear market that lasted from 1966 until 1982, there were cyclical bull markets, but they were all in the context of a long term secular bear market until the market made its final low in 1974 at Dow 570. That brings us to today, Wednesday, January 19, 2011. The market has risen from March 2009 in a bear market rally (cyclical bull market). The sentiment on Wall Street right now, in my opinion, is the complete reverse of early March 2009. This market is in for AT LEAST a correction, if not an end to the entire bear market rally. Tom Demark, a well-respected market technician on Wall Street, issued a sell signal tonight, one that has not been issued since July of 2007, saying

" U.S. stocks are within a week of “a significant market top” that is likely to precede a drop of at least 11 percent in the Standard & Poor’s 500 Index. “I’m pretty confident that in one to two weeks, the market will be in a descent,” said DeMark, founder and chief executive officer of Market Studies LLC. “It could be pretty sharp.” His words of warning are certainly justified, as the market is completing 5 waves up from July 2010, and is close to starting a new downtrend. Below are some charts I have put together. In Elliott Wave, whenever you complete five waves up, you have a 3 wave correction, as shown below. The chart below is the bullish scenario, that this is just a pullback within the ongoing bear market rally, and Wave C up will subdivide into 5 waves, with the move from July 2010 being wave one. After this we would get an A-B-C pullback in a wave 2, then waves 3, 4 and 5 to complete wave C and in turn the bear market rally.

The following chart implies that the entire bear market rally is ending now, completing a 3 wave move (A up into April 2010, B down into July 2010, and C up terminating now) from March 2009. 3-wave moves are corrective, while 5-wave moves are impulsive. Even under the bullish case, where this wave C subdivides into 5 waves, We would be entering into a wave 2 down very shortly.

(please note, the drawings on these charts are not to scale, Wave C down could go much, much lower than the terminus of the line I have drawn on this chart)

The nature and extent of the next downtrend will tell us whether this is just a pullback within the bear market rally that started in March 2009, or the resumption of the larger bear market. I will post an update in a couple of months with, hopefully, an answer to that question. I wish all reading this blog a happy and prosperous 2011.





    

The U.S. Dollar- Déjà vu?

In late November 2009, there were only 2% bulls in the U.S. Dollar. Only 2% of traders thought the U.S. Dollar was going higher. Yet, with all the pessimism towards the Dollar and optimism towards the Euro, the Dollar took off to the upside and the Euro collapsed to new 14-year lows against the Dollar. Then on June 7, 2010, the whole picture changed. There were  98% bulls on the Dollar and 2% on the Euro. Well, here we are again. The U.S. Dollar is down to 3% bulls and the Euro is up to 97% bulls. In November 2009, everybody was talking about hyperinflation, then they "forgot" about hyperinflation in June 2010, and now they are talking about it again. These are natural investor psychology cycles that occur in markets. Everybody loves a market at a top, and everybody hates it at a bottom. The Euro is very overextended, and may be getting ready for another leg down. Meanwhile, its death talk for the U.S. Dollar again,and with Gold at all time highs, Silver at 30-year highs, many commodities soaring due to fears of diminished supply, and the U.S. Dollar at its lowest level against the Yen since 1995, fears of "QE 2" by the Fed and hyperinflation are surfacing. People are talking about how now, both good and bad news is good for stocks. They justify that thought by saying if the news is good and the economy is getting better, the stock market will do well. If the news is bad and the economy is declining, the Fed will initiate more Quantitative Easing ("QE 2") and "fix" the economy and that will be bullish for stocks. This kind of thinking is typical at a market top.  Also of late many of these markets have started all moving together in what EWI calls "All the Same Market". Gold, Silver, the Stock Market, and commodities. this also happened in 2008 when Oil had a blowoff top and collapsed 78% in 5 months. Silver looks like it could be blowing off similiar to the way Oil did. We could be at a major turn here. The rest of 2010 should be interesting, to say the least.

The Case for a Bear Market of Historic Proportion and a Deflationary Depression

There have been many signs lately that the economy is slowing at a rapid pace. The financial media is debating whether or not we will have a "double dip" recession or whether this is just a slowdown. Since the global economy has come back from the abyss, there has been a debate about what type of recovery we would have in the U.S. economy. There is talk of a "V" shaped recovery, which would be the most optimistic assessment, the Nouriel Roubini "U" shaped recovery, whereby we would see anemic growth for a number of quarters, or even a "W" shaped recovery, which would imply a "double dip" recession before the U.S. economy got back on its feet. However, I see it differently. I do not think the recovery will take any shape currently being discussed by economists, financial commentators and analysts. Rather, I believe the U.S. economy is headed for a very large bear market and a deflationary depression. I also believe that we have been in a developing depression since 2000. Most people are looking at the start of the recession as December 2007. This might make sense given that the Stock Market topped out in October 2007. However, as I have illustrated in previous posts, that was only in nominal terms. The "Real Dow", which is the Dow in terms of Gold, peaked in 1999 at 43 ounces of Gold. By the time nominal stock prices topped out in 2007, the Dow/Gold ratio had already fallen significantly from its 1999 peak, and as of today, Friday, August 6, 2010, the Dow in terms of Gold is sitting at 8.84 down 80% from its 1999 peak, as illustrated below:

In my opinion, we have been in a bear market since 2000 because the western world has completed at least a 70-year economic expansion, and in the work of Robert Prechter, a 200-year econoimc expansion dating back to the 1720's following the bursting of the South Sea Bubble in england. In Elliott Wave terms, we have completed a supercyle bull market that started at the 1932 low, and we are now set up for a deflationary collapse, as illustrated in the following Chart of  of the Dow  Jones Industrial Average dating back to the 1920's. One of the guidelines of Elliott Wave principle is that a 5-wave uptrend is complete, prices retrace back down to the previous fourth wave low, which in this case is 777 on the Dow. So, my target for a bear market low is below 800 on the Dow Jones Industrial Average. Often times mania's are completely retraced and then some, as was the case in England in the 1700's with the South Sea Bubble. That is, the bear market following a mania retraces back down to below the starting point of the mania. In my opinion the global credit bubble is no exception, and if anything it is even more severe than anything we have seen before. Therefore, using the logic the Dow should bottom below 777, the 1982 low, or even 572, which was the 1974 low. If this is a Grand Supercycle Bear Market and we undo all of the inflation since the creation of the Federal Reserve in 1913, the Dow should bottom closer to Elliott Wave International's target, below 400. a few specific support levels that Robert Prechter cites in his book At The Crest of the Tidal Wave (1995)  are  95, 161, 195 and 295 on the Dow, These targets sound extreme to most, but so did Robert Prechter's call for Dow 3,000 in the 1980's. The Dow rose more than 4 times that high!

The primary case for deflation, where Dollars gain in value, stems from the fact that the U.S. economy is a credit based system, whereby 95% of outstanding credit has been created by banks using the fractional reserve lending system. A good video to illustrate this is called "Money as Debt" and can be found on Youtube. When the U.S. Dollar was backed by Gold, a Dollar represented a promise for physical gold. However, since the U.S. has been off the Gold standard, the U.S. Dollar has simply been a promise for more promises, or dollars. Many inflationists talk of "devaluing the dollar", but the problem with that argument is that it is not valued against anything, so there is nothing to devalue. The inflation camp also makes the argument that the Fed can just monetize all the debt that is imploding, and it will cause high inflation or even hyperinflation. I make the case that the amount of outstanding credit (hundreds of trillions of Dollars including unfunded liabilities) is far greater than anything the fed would be willing to monetize, so the result is net deflation. The inflationist camp will point to Argentina or Zimbabwe to point out the mistakes the Federal Reserve is making. Rather, I think our current situation can be modeled by that of Japan in the 1990's, where Japan's central bank made monetary policy mistakes that most thought would be inflationary, yet interest rates are at historical lows and their currency is rising in a deflationary environment. This is similar to what the U.S. is going through, where short-term interest rates are at historically low levels. I make the case that the amount of outstanding credit (hundreds of trillions of Dollars including unfunded liabilities) is far greater than anything the fed would be willing to monetize, so the result is net deflation as credit is vanishing from the system at a much faster pace than the amount of new Dollars entering the system. Bank credit is also near historical lows, because banks are  hoarding cash and not willing to lend and consumers are not willing to borrow, both wanting cash (saving in the case of the consumer) more than anything else. I believe interest rates will remain low until creditors start demanding higher rates of return due to a perceived increase in default risk. At this point, as I have illustrated in a previous post  on March 25, 2010 showing monthly charts of the 10-year yield, interest rates should start rising as the bond bubble bursts. Credit should collapse even faster as higher yields force people to default on their debt. This will not be inflationary as most people associate with rising interest rates, because of the reason interest rates will be rising (default risk, not inflation risk). In fact, it will be highly deflationary. I will post monthly interest rate charts when the long-term downtrend line on interest rates is broken, whenever that may be. Deflation appears to be winning the battle, and should until the markets (stocks, commodities) make their final low and there is virtually no credit left. At that point, as Robert Prechter mentions, anything is possible, even hyperinflation if the government decides to start-up a printing press. In the meantime it is best to keep money in the safest possible cash equivalents such as short term treasury bills. The return won't be there now, but at the final bottom investors who keep their money safe now will be able to take advantage of what should be the best buying opportunity in history.