(G. Edward Griffin)

On our next two radio programs (June 29th and July 6th), the guys and I will be joined by my pal, Ed Griffin.

We will be discussing topics from Ed’s longtime best-selling book, The Creature from Jekyll Island. 

By listening in, here is what you will learn:

• How money is created out of thin air.
• What the Federal Reserve System really is - Hint:  It’s not federal, there are no reserves, and it’s not a system.
• The true story behind the creation of the Fed and its hidden agenda of serving the political and monetary interests of America’s ruling elite. 
• Why inflation is the most unfair tax you pay.
• How to protect your personal wealth against the shenanigans of politicians and bankers controlling our monetary system.

Regardless of how well versed you are in current events, you will never fully understand real world financial safety until you’ve listened to Ed’s fascinating discussion. 

Tune in with an open mind on Sunday morning at 9AM Central on 1110 AM on your radio dial.  If you are outside the Omaha area, you can download the program from the Manarin Investment Counsel website.   

Related Post - What is the Job of the Federal Reserve? 

Recommended Viewing - America:  Freedom to Fascism

“There is no mystery behind the rise in oil prices.  They rose too high too fast because of booming demand for oil for petrochemical products, electric power and shipping from many emerging economies (particularly China, India and the Middle East).  Meanwhile, the supply of oil slipped in the US, Mexico, Venezuela, Nigeria, and Russia.

But now JPMorgan analysts estimate that oil will drop to $85 a barrel from 2009 to 2011.  Even Goldman Sachs analyst Arjun Murti, who recently guessed oil might reach $200, later told Barron’s that oil will likely drop to $75 or less in the long run.

The urge to blame speculators is as big a waste of time as blaming oil companies.  Americans want more oil and gas - not more hot air from politicians.”

From Scapegoating the Speculators by the CATO Institute’s Alan Reynolds.

Karl Rove had some interesting remarks in last Thursday’s WSJ about McCain and Obama’s economics.  Here are a few selected comments: 

• In Raleigh, N.C. last week, Sen. Obama promised, “I’ll make oil companies like Exxon pay a tax on their windfall profits, and we’ll use the money to help families pay for their skyrocketing energy costs and other bills.”
• Set aside for a minute that Jimmy Carter passed a “windfall profits tax” to devastating effect, putting American oil companies at a competitive disadvantage to foreign competitors, virtually ending domestic energy exploration, and making the U.S. more dependent on foreign sources of oil and gas.
• Sen. McCain doesn’t support the windfall profits tax, but he can be as hostile to profits as Mr. Obama.  “[W]e should look at any incentives that we are giving,” Mr. McCain said in May, even as he talked up a gas tax “holiday” that would give drivers incentives to burn more gasoline.
• This past Thursday, Mr. McCain came close to advocating a form of industrial policy, saying, “I’m very angry, frankly, at the oil companies not only because of the obscene profits they’ve made, but their failure to invest in alternate energy.”

Our Thoughts:  Free markets rule!  Washington needs to stay away from business.  Profit motive drives creativity and solutions for our future.  In 1986, Ronald Reagan said, “Government’s view of the economy could be summed up in a few short phrases:  If it moves, tax it.  It it keeps moving, regulate it.  And if it stops moving, subsidize it.”

Thanks to Aron Huddleston for this article.

Update:  Not sure where you stand on the political spectrum?  Then you might like The World’s Smallest Political Quiz. 

From KUSI in San Diego - You may want to give credit where credit is due to Al Gore and his global warming campaign the next time you fill your car with gasoline, because there is a direct connection between Global Warming and four dollar a gallon gas.  It is shocking, but true, to learn that the entire Global Warming frenzy is based on the environmentalist’s attack on fossil fuels, particularly gasoline.  All this big time science, international meetings, thick research papers, dire threats for the future; all of it, comes down to their claim that the carbon dioxide in the exhaust from your car and in the smoke stacks from our power plants is destroying the climate of planet Earth.  What an amazing fraud; what a scam.

Bottom Line:  I used to think the global warming paranoia would go away because the scientific evidence doesn’t hold up, but since the media, Hollywood, and the far left are pushing it, the public now accepts this new eco-theology.

Hopefully reason will prevail before more of this ideology makes its way into future government policy decisions that you will end up paying for.  

Update:  Can you pass the Global Warming Test? 

We once had a Democrat President who understood economics and the relationship between tax rates and tax revenue.  Can you imagine the liberal loons of today using similar rhetoric?

(HT: http://www.cato-at-liberty.org/) 

The Democratic National Committee recently ran an ad blasting John McCain for saying the country is “better off” than in 2000.  Yet, arguably, except as regards the Iraq war, Mr. McCain’s statement is true.  In turn, Mr. McCain is blasting Barack Obama for suggesting that international tensions are not as bad as they’ve been made to seem.  Yet, arguably, Mr. Obama is right.

Democratic attacks on Mr. McCain and Republican attacks on Mr. Obama both seek to punish impermissibly positive thoughts.  At a time when there exists a sense of crises over the economy, fuel prices and many other issues, this reinforces the odd, two realities of life in the United States today: The way we are, and the way we think we are.  The way we are could use some work, but overall, is pretty good.  The way we think we are is terrible, horrible, awful.  Possibly worse.

The case that things are basically pretty good?  Unemployment is 5.5%, low by historical standards; income is rising slightly ahead of inflation; housing prices are down, but the typical house is still worth a third more than in 2000; 94% of Americans do not have threatened mortgages, and of those who do, most will keep their homes. 

Inflation was up in 2007, but this stands out because the 16 previous years were close to inflation-free; living standards are the highest they have ever been, including living standards for the middle class and for the poor. 

All forms of pollution other than greenhouse gases are in decline; cancer, heart disease and stroke incidence are declining; crime is in a long-term cycle of significant decline; education levels are at all-time highs.

Sure, gas prices are up, the dollar is weak and credit is tight - but these are complaints at the margin of a mainly healthy society.

From Gregg Easterbrook’s Friday editorial in the Wall Street Journal. 

The infusion of what is called “loose money” is always a stimulating consequence for the economy in the short term.  The analogy I often use is pumping oxygenated blood into your body.

The downside is the Federal Reserve’s ability to create money without limit does create malinvestment of capital.

But the growth of the money supply is, in my opinion, very healthy for the economy.

Long-term, the creation of money out of nothing always causes inflation, which is a problem, especially for those investors whose portfolios are filled with dollar-based investments.  The reason we haven’t seen major waves of inflation despite mass creation of money is because the U.S. and global economy does not have a shortage of goods and services.  This is acting like a sponge soaking up the new money.

Remember the real definition of inflation:  It’s the increase in the supply of money which causes prices to rise when not enough goods and services are available to absorb the new money. 

The difference between today and the Jimmy Carter days of the 1970s was that back then there was a major structural problem with the economy.  Simply put, there weren’t enough factories to produce enough stuff to soak up the money being created. 

If you double the money supply without doubling the amount of goods and services, prices will eventually double.

In our current go-round, the Fed has doubled the money supply but the supply of goods and services has also doubled so it’s nearly a wash.

I say “nearly” because in reality, there is actually a lot more inflation than what the government-published statistics indicate.  In the long-term, inflation is like the tide coming in pushing up the prices of assets, including stock prices.

Investors who are concerned about the money supply growth creating inflation are certainly thinking correctly but they also have to take in to account what is happening with that money. 

A question I often get is, “What, in your opinion, is the biggest threat to the global financial markets?”

The mainstream media never touches on this but I believe that financial derivatives are the biggest threat.  These highly speculative instruments, most often used by big money center banks, are what I think would most likely trigger the collapse of the world’s debt structure.

Here’s the story.

A derivative is simply a man-made bet consisting of two parties.  Party A enters the bet in hopes of earning massive profits but in order to create the derivative, they need a counter party to wager against them.  This is where Party B comes in.  They enter the bet looking to hedge against some form of risk.

Say you are a derivative trader.  You can speculate (or hedge against) the movement of interest rates, commodity prices, exchange rates, or just about anything else you wish to gamble on.

Those who participate in this global casino are required to place only a fraction of their bet down thus enabling derivative traders to control an enormous amount of assets using a tiny amount of money.  This is where the danger comes in.

While traders can make big bucks being on the right side of the bet, there is also the risk of crushing losses.

This is what happened recently when a rogue trader for the second-largest bank in France made a bad bet totaling over $7 billion in losses, the largest in banking history. 

But despite instances like these, the monstrous growth of derivatives continues.

Over 20 years ago, with derivatives trading around $1 trillion on a daily basis, I upped the gold hedge position in our portfolios to offer additional safety.  That decision protected us during the huge stock market crash of 1987 brought on by derivatives.

Today, on the same daily basis, derivatives are trading at $500 trillion.  To put that number in perspective, the U.S. has an annual GDP of $14 trillion.  That means a 3 percent decline in the derivatives market would be greater than the total annual economic output of the world’s richest nation.  Scary stuff.

If the derivative dike ever breaks, a panic would sweep the financial world.  Bonds, money market accounts, bank CDs, cash, and all other dollar-based assets would plummet in value instantaneously.

History tells you that in these cases gold, common stock, and other tangible assets not linked to paper money become a source of value for investors.  Derivatives alone are reason enough to keep a small portion of your wealth in gold-related assets. 

For the remainder of your serious money, globally and geopolitically diversify it across ownership positions for maximum safety.

How large the derivative mess will grow to before the bottom falls out is anyone’s guess.

I predict we’ll continue muddling through just as we always have but just in case this house of cards one day comes crashing down, I know my investments will be safe when the dust settles. 

That’s what I call peace of mind - and real world financial safety.    

That’s not my rule; it’s THE rule!

As an investor, you understand that the market is like a yo-yo climbing a flight of stairs. With that, you accept the likelihood that you will lose money about 3 out of every 10 years.

Speculators think that they are so clever that they can time the market and know when to get in and out of it.

So let’s define the difference.

Investing is:

• Putting money to work that you don’t need to spend in the short term and leaving it alone without moving it around or chasing recent winners.
• Keeping your arms crossed and staying disciplined while the crowd is urging you to sell.
• Taking your profits when everybody else is eager to buy.
• Owning a diversified portfolio with exposure to assets offering real world financial safety — in other words, a place where your money is safe in any economic environment.

Speculating is:

• Betting you can outsmart and outperform the market over a long period of time.
• Basing investment decisions on forecasts, computer trading systems, or technical analysis.
• Following the alluring advice of hucksters and charlatans offering you the golden promise of prosperity . . . for a hefty fee, of course.

There is an old Wall Street adage that says, “Bulls make money, bears make money, but pigs get slaughtered.” Amazing how simple the truth can be, isn’t it? Then how come so many so-called investors (hopefully not you) continue gambling with their serious money?

Because it seems so easy. Just look at all the material you receive in your inbox about how you can get rich trading stocks in your spare time. Or last year’s winning mutual funds touted on TV and on the radio. It’s all nonsense.

For over three decades I’ve witnessed thousands of people successfully build wealth but I have to see any of it maintained when achieved through speculation. Sure, a few luckly souls manage to make it big in a short period of time but just as quickly as their wealth was created, in no time at all it is often lost.

Here’s the reality check: Nobody I know and nobody you know has built (and more importantly) maintained wealth through speculation.

I don’t have anything against speculation so long as you are doing it with your “play money” - which is the money you can afford to lose. But most of time here we are dealing with your serious money . . . the money you need for retirement . . . and that is money you CANNOT afford to lose through speculation.

Understanding the difference between investing and speculating is key to the long term outcome of your financial future. If you are an investor, I commend you for your discipline and hope you stick with the program.

If you are a speculator . . . well, good luck.

The sign in the middle of a shopping mall reads, ”Stock Market Returns With NO RISK.”  As I approached the kiosk, I knew I was looking at the latest ad for an “Equity Index Annuity” or EIA.  They’re often also referred to as a “Fixed Index Annuity.”  If you’re over 50, you’ve probably received numerous cryptic invitations to attend a “financial” seminar with a free dinner.  More than likely, you’re being solicited to buy an EIA. 

Typically, these annuities promise guarantees for your principal or even a modest return, while “allowing you to participate in the upside of the stock market.”  In other words, “you’ll receive the gain, without the pain.”  To understand this claim, which, in my view, is quite misleading, you need to know how these products work, what you actually own and exactly what “participate in the upside” really means.

From Tim Bastian’s op/ed on Forbes.com.