Catastrophic Consequences of Obamanomics Begin to Register With Markets

Time is not generally kind to us mortals. But it has one indisputable upside: Truth tends to surface after enough of it has passed. And truth is often revealed through harsh consequences.

Take Obamanomics – which is less a "change" than a mindless quadrupling-down of the very worst big-government policies of the Bush and Clinton years. The truth of what Independent Living pegged over a year ago as the "steroid-driven" phony recovery is being revealed for more and more to see.

In a moment, I intend to make a prediction that some may find a bit shocking. But first, let me lay some groundwork...

1. "It's pretty clear that economic gravity is setting in," noted Talley Leger of Barclay's Capital.
2. Meanwhile, a very talented writer-analyst named Eric Fry recently observed in The Daily Reckoning: "Two years ago, most investors cheered the staggeringly-expensive bailout schemes of the then-Treasury Secretary, Henry Paulson. Hank simply reached into his bag of tricks, pulled out a few trillion dollars of bailouts and guarantees and scattered them like Pixie dust over lower Manhattan... Paulson spent trillions to buy a feeble one-year rebound..."

And today, viola! Even the most hard-headed optimists are starting to concede our country has dismal economic fundamentals. Just as we have been telling you in Independent Living – in the face of scorn by so many who touted what is now being exposed as a false recovery.

The Fed Signals It Will Create the Money
Necessary to Bail Out Congressional Spenders

The Dow may once again fall to a
1:1 ratio with the gold price.

This month the Federal Reserve Board surprised many observers  when it publicly downgraded its expectations of economic growth and signaled its intent to ramp up money creation if necessary to stop the economy's tail-spin. If?

Consider these belated confirming-of-the-truth developments:

On the August 10 Kudlow Report on CNBC, relentless Wall Street hypster Larry Kudlow cited (in what I am pretty sure was his first time) one of my favorite investment yardsticks, the valuation of the stock market in gold ounces.

In addition to admitting the Dow index has traded sideways in nominal terms for over ten years (specifically it crisscrossed the 10,000 mark 63+ times), Kudlow observed that when valued in gold, the Dow and its investors have taken staggering losses. (Specifically, an 80%+ drop in value compared to gold – an astonishing admission by a TV personality who frequently shills U.S. equities for the network's advertisers!)

Reality is Set to Spank Misguided Deflationists

Those who've been betting on "deflation" seem poised to get a harsh lesson in political realities too.

Of course, they are right that deflation is exactly what should be allowed to happen. And while a severe corrective deflation could theoretically come, the far greater risk is that the political and monetary response to deflation fears will spark inflation, and potentially hyperinflation.

Here's why: Washington big-spenders would rather risk destroying the dollar by creating or printing trillions or even quadrillions of greenbacks rather than admit they are broke and powerless to fix the economy they wrecked. To allow the markets to function naturally – i.e. allowing a massive deflation to correct a 20+ year credit bubble – would be to end their ability to buy votes, and with it their power.

It is Easier for the Feds to Risk Inflation Than Endure Deflation

When it comes to fighting deflation, all the Federal Reserve needs to do is add more zeros to the ocean of credit and money they are creating. They can do this all day and all night.

As Independent Living said a month before the Fed formally telegraphed its intentions to print whatever money it takes to "save" the economy: "Many deflationists seriously misjudge the integrity of politicians and central bankers, naively believing that when their backs are against the wall they will ultimately do the right thing by cutting government spending while resisting the temptation to run the printing press to paper over undeliverable promises."

An back in October 2009, even as overpaid CNBC chuckleheads reveled in the Dow's seeming "upswing," I pointed out in Independent Living:

"The hard reality is we have a political class that is... going to avoid all the hard choices such as letting the market correct itself. Theirs will be a continued path of least resistance: print money, prop up failed businesses, and shovel out stimulus giveaways. "

We are in a once-in-a-lifetime magnitude event: the steady breakdown of America finances. What's also a truly a once-in-a-lifetime situation is the high profit potential of owning precious metals, asIndependent Living has been suggesting since the bull market's infancy.

I Didn't Forget – I Promised a MEGA-Prediction!

In light of Independent Living's accurate past predictions, I hope you'll pay careful attention to what I'm about to share with you. It's one of my boldest predictions to date.

So here goes: I believe a federal and state funding crisis will soon grip the dollar. This event, when it fully unfolds, will be on the magnitude of a Soviet-level financial collapse. Meaning that our central government itself is becoming the ultimate mega-bubble that is destined to pop. And when that happens, it will be a major historical pivot point.

Tyranny vs. Renewed Liberties:
A Major Historic "Pivot Point" is Coming

Federal Reserve Building in Washington, DC

The exponentially-expanding mega-government bubble is unsustainable. And our political system has become too weak and too corrupt to repeal or reform it. Therefore, a true Soviet-level funding collapse here in America is inevitable. As Dr. Chris Martenson, scientist and economic analyst, warns, "The economic chaos and turbulence that we are now experiencing are merely the opening salvos in what will prove to be a long, disruptive period of adjustment."

My take is that an historic pivot point between tyranny and a restoration of freedom is coming. The collapse of federal finances could result in utter tyranny (maybe even war), or it could be an historic opportunity to reverse a steady march to statism which has grown in tempo and steam since the Federal Reserve System's creation in 1913.

Personally, I am betting on Americans re-learning their core values through depression-level hardship and ultimately, the restoration of the Constitution. But there are no historic precedents similar enough to allow for more than educated guesses as to the ultimate outcome.

So let's you and I keep working to strengthen our personal and financial defenses together!

Yours in Preparation and Prosperity,