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How to Keep Your Head Above Deflation and Economic Depression
Protect your finances and future during the downward spiral
By Bob Stokes
Fri, 13 Jul 2012 15:45:00 ET
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Most people are not aware of the perilous path the economy is headed down.
 
The deflationary trend is young but will rapidly mature.
 
The Federal Reserve's buying spree of debt  -- what people call "printing money" -- will not prevent deflation. It's too much debt to repay.
 
As argued in Conquer the Crash, it ultimately does not matter what the authorities do; they can't stop deflation. This prediction is being borne out. Since 2007, the Fed has monetized $2-trillion worth of debt; the federal government has borrowed another $7-trillion; and it has pumped out $1-trillion of student loan credit. Yet real estate and commodities slumped 40% anyway.
The Elliott Wave Theorist, July 2012
 
A July 5 Reuters article said:
 
The Fed can introduce all of the liquidity into the economy it likes, but it cannot force banks to lend or people to borrow. The central bank has tripled the monetary base since 2008, but the speed at which money circulates through the economy has slowed, a sure sign that higher doses of the same medicine won't be fully effective.
 
As the velocity of money slows, a man known for having plenty of it has just changed his long held upbeat economic tune.
 
On July 12, billionaire Warren Buffet told CNBC:
 
I've got a little different story this time. For a couple of years, I've been telling you that everything, except residential housing, was improving at a moderate rate...The last two months has been just the opposite. The general economy of the United States has been more or less flat, so the growth has tempered down.
 
In the same interview, Erskine Bowles, who served on the commission created to address the nation's fiscal future, said this:
 
"We are going over the fiscal cliff."
 
"Fiscal cliff" is the metaphor for spending cuts and tax increases due to take effect by 2013, if Congress doesn't cut the deficit. Inaction could mean $500 to $720 billion in losses to the economy.
 
Bowles does not believe Congress has the will to make tough choices.
 
Meanwhile the evidence for deflation piles high.
 
  • San Bernardino became the third California city to file for bankruptcy in the past few weeks. -- CNNMoney (7/12)
  • Peugeot will slash 8,000 jobs and close one of France's biggest car factories. -- WSJ (7/12)
  • Banks Tell More Homeowners They Face Foreclosures -- Bloomberg (7/12)
  • Cummins' Slashed Sales Outlook Reflects Worries About Global Slowdown -- Forbes (7/11)
  • Scranton, Pa. cuts worker pay to minimum wage -- CBS News (7/11)
  • Weak Sales Deflate Business Owners’ Optimism -- CNBC (7/10)
  • Detroit to lay off 164 firefighters -- USA Today (6/25)
  • Financially strapped Nevada city declared disaster -- Fox News (6/22)
  • Earnings Forecast Deflating Fast Amid Slowing Growth -- Reuters (6/3)
  • Europe’s Fade Becomes Drag on Sales for U.S. Companies -- New York Times (6/5) 
The financial sector is not immune from the deflationary trend.
 
Wall Street has good reason to be rattled by the news that Goldman Sachs laid off senior personnel, including managing directors, last week. It is likely the beginning of a new kind of deleveraging that will occur at every major Wall Street firm. [emphasis added]
CNBC, June 5
 
It's the beginning of the end for scores of financial firms.
 
The 2007-2009 financial crisis was supposed to mark a new chapter in financial transparency. However, you cannot count on government to protect you.
 
  • Breaking News: Fed was aware of Libor accuracy problems in fall 2007, reported to Treasury in April 2008. Barclays told Fed it was under-reporting on stigma fears, and that other banks were under-reporting, too. -- WSJ (7/13)
  • J.P. Morgan's 'Whale' Loss: $5.8 Billion -- WSJ (7/13)
  • Futures brokerage Peregrine Financial Group has moved to liquidate the firm, after its founder attempted suicide and amid allegations of fraud. -- CNNMoney (7/11)
  • Serious Fraud Office To Investigate Barclays Libor Fixing -- Huffington Post (6/7)
  • Judges Rule Galleon Chief Must Go to Prison -- New York Times (12/1/11)
  • Bankrupt MF Global terminates entire workforce. -- CBS News, (12/14/11) 
By the time the deflationary trend has run its course, stories about financial firms going under will be too common to make headline news.
 
Do not count on your brokerage firm or even your bank to survive the coming economic collapse.
 
The New York Times bestseller Conquer the Crash forecast today's developing deflationary trend a decade ago. This excerpt is from page 279 of the second edition:
 
Many -- perhaps even most -- banks and brokerage firms will fail before the crash and depression are over.
 
What can you do?
 
It may be too late to get out at the top, but there's still time to learn how to sidestep the worst part of the crunch.
The Elliott Wave Theorist, July 2012
 
You can learn how to keep your head above water during a deflationary depression. But you must plan now. 

Tags: conquer the crash, debt crisis, deficit, deflation, economic depression, Elliott wave, European debt crisis, housing prices, liquidity, M3 money supply, soverign debt crisis, U.S. Federal Reserve (the Fed)
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