"All frauds, if allowed to continue will first destroy the entity’s reputation and then destroy the entity."-
Shaun Larocque
What the heck is kiting? Or chaining for that matter? And what exactly is a government IOU? For those in the financial and legal sectors, you know all too well about the type of people that perpetrate frauds like kiting, the transactional fraud of usually small amounts of money, but are you familiar with the lesser known term of chaining and how it compares to the current state of the economy or should I say, the current economy of the states.
Chaining was a method developed by the senior management at E.F.Hutton in the early 1980’s to perform a very large kiting scam using different bank branches or the chain of branches. It enabled these corporate scammers to use $250 million in funds without ever having to pay a penny in interest. The discovery of the chaining fraud eventually destroyed the company and they ceased to exist in 1987.
According to Bob Chapman and his International Forecaster, “more than 40 states are struggling to balance their budgets. Most will, some will not and they'll default on the interest payment on their bonds and probably have to pay vendors with IOU's.” Chapman is drawing on recent history for his evidence. On July 2, 2009, California issued $3.36 billion in promissory notes instead of giving tax refunds in order to allow the state to continue spending tax dollars elsewhere.
If Chapman is right, and there is no reason to think it won’t happen in large numbers this time, then many state governments will be playing the kiting game with state based vendors and taxpayers. The sad part of this is that we all know this is fraudulent. We know inherently that the United States and many of its member states no longer have the ability to pay, but we continue to do business with them anyway. Where is the organization in charge of frauds perpetrated by governments?
The government IOU scam means that all those tax dollars that the government stole from its constituents over the course of the year simply wasn’t enough. They need to raise taxes on real wage earners because they fear cutting back on all the people on the dole will hurt them at the polling booths come the next election. But real wage earners are declining in numbers because government taxes and regulations are killing jobs by destroying the reward side of starting and maintaining businesses. And it’s cyclical. It’s a storm of ever growing magnitude that will kill every decent job in its path until the fraud comes to an end.
Falling Real Wages
The job killing tornado can persist for a very long time. In the mean time, the IOU’s will continue to mount and the government will have to print more paper dollars to pay back the taxpayers. This monetary inflation will NOT be accompanied by higher and higher wages like we’ve seen in the past because employers simply have no room to pay higher wages because they are paying most of their margin to the government in the form of taxation. If wages did rise, then these businesses would fail and the storm would continue. The only logical conclusion is that inflation will grow, not necessarily out of control, but certainly high enough to allow state and federal governments to start climbing out of their debt mess without having to cut back on spending. This implies that the standard of living will be declining across the United States for a very long time to come.
Finding Shelter
The only way to find shelter from the coming decline in the standard of living is to use a natural hedge against inflation – precious metals. As Peter Schiff continues to remind us, buy PMs from reputable dealers and don’t buy collectibles. Stick to purchasing minted coins with gold, silver and even platinum and only pay SPOT PRICE PLUS A SMALL PREMIUM to the dealer, or buy older circulated coins at or near the spot price of the intrinsic metal value. For current prices of older circulated coins, both for the U.S. and Canada use http://www.coinflation.com/ and you will quickly see which coins to hoard and which ones to get rid of. There isn’t a better visual display of Gresham’s law than coinflation.
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