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Don’t miss the Zero Hedge article “The Fed’s Bailout Of Europe Continues With Record $237 Billion Injected Into Foreign Banks In Past Month.”  That, in addition to $85 billion from QE3.  Sinclair is right – the Fed will create as much money as necessary for as long as necessary to keep the economy in Europe and America afloat.  This is scary inflation.  It will make itself known soon enough – by the summer of 2014, according to John Williams.  That’s when he expects the hyperinflation to hit our shores.  It will have a destructive affect on the US dollar, which Sinclair predicts will drop to .72 and then crash lower.  The Fed is throwing one Hell of a party but someone will have to pay the bill.  Holders of dollars will be stuck with the tab.

Last evening, Susan and I went to a cocktail party/lecture sponsored by the Prologue Society, at Northern Trust in downtown Miami.  The featured speaker was best-selling author, Pulitzer Prize-winning reporter and Emmy Award-winning producer, Hedrick Smith.  His books The Russians and The Power Game were critically acclaimed bestsellers and are widely used in college courses today.  As a reporter at The New York Times, Smith shared a Pulitzer for the Pentagon Papers series and won a Pulitzer for his international reporting from Russia in 1971-1974. He has also done prime time specials for PBS including one on Dave Brubeck.

Smith was there last night to discuss his latest book, Who Stole the American Dream (or the death of the middle class).  We attend these Prologue Society events once a month and Smith was easily the best speaker we have yet encountered.  We both looked forward to hearing what he had to say about the causes of the demise of the middle class.  I myself have written a bit on the subject.  What I was unaware of was that this has been going on for over 40 years.

Smith started off the evening reminiscing back to the 60s and 70s, when Susan and I were in college and ventured out as very young newly-weds for the first time into the job market.  Like so many of our era, we expected to work for the same company until we retired.  We felt safe and protected by the corporations that we worked for. We were paid well and received benefits.  For most Americans, it was the American Dream. He reminded us that in those days, everyone had the opportunity to be in the middle class, or the possibility to rise even higher.  Today, things are very different.  Most of the middle class jobs are gone or filled with qualified hires from out of the country (who will work for less).

In the 60s, the captains of industry were willing to allocate a fair share of the firm’s wealth to the workers.  They were very supportive of their workers and the community where their factories and businesses were located.  The discrepancy of income between the boss and the employees was a fraction of what it is today.  Profits were spread around fairly.  But everything changed in 1971. The change began with a private memo, in effect, a political call to arms, issued to the nation’s business leaders in 1971 by Lewis F. Powell Jr. I will talk more about this on Thursday.

In his discussion of the last four decades of the American economic experience, Smith described the long, relentless decline of the middle class, a decline that was not by accident, but by design.

After his hour-long speech, he opened the floor to questions.  Susan raised her hand, stood up and introduced herself.  She said that the people sitting in this room no longer had the drive and energy necessary to force a change.  She said when she was 30, she marched with women who burned their bras with a baby on each hip.  She considered marching in the Civil Rights movement.  But now, no one is marching to save the middle class.  There are no tent cities in Washington DC.  Without massive public participation in an organized effort to convince congress to change the laws that so favor the owners over the workers, nothing would change.

Smith replied that she was correct.  I raised my hand and said, I loved your presentation.  It was very impressive, but there was one area you didn’t mention.  (Smith had spent considerable time discussing and documenting the disparity of wealth which had left the middle class behind – in fact, he pointed out that the average male worker made the same amount of money today, adjusted for inflation, than he made in 1975, while the upper few percent saw their wealth increase multiple times.)  I asked him why he didn’t mention Greenspan and Bernanke whose policies let to the explosion in the money supply, which allowed for a massive creation of wealth that was not reallocated to the workers.  Most of it accumulated at the top?  He acknowledged that was a good question and said, I can’t cover all the topics in a 557-page book in an hour, but read chapter 14.  And so I shall.  In fact, in the future, I will discuss this book in my column.  It is a book I look forward to reading.

Smith said when he finished his book, his editor and his assistant editor, his wife, both told his it was too grim and he needed to give people some hope.  He then added two chapters devoted to things that could be done to change the future, for the better, for the middle class.  My feeling was that if he really felt that there were workable solutions, he would have put them in his book in the first place.  In essence, he felt that the only way to change things was for the people, in mass, to rise up and demand changes, like the changes that took place with marches on Washington (tent cities) and during the Civil Rights marches, which he covered as a reporter for the NY Times.  What I see out there are demands, by the “masses” for more welfare and handouts.  Where are the shouts of “We need jobs and we need high paying jobs?”

For those of you who believe the middle class was abandoned, and I am talking primarily about manufacturing jobs, which are the highest paying middle class jobs, because we can’t compete with the low wages emanating from China and the far east, let it be pointed out that Germany has a trade SURPLUS and exports their technology and automobiles around the globe with a highly skilled and very well paid middle class in their manufacturing sector.  It can be done, but here, in the US, the top corporations chose to cut costs and jobs in order to take a far larger share of the pie.  America is third on the list, behind only Chile and Mexico as a country with the greatest disparity between the people at the very top and the bottom of the economic totem pole.  I will write more on this soon.

Although I do believe in free enterprise and reaping the benefits of capitalism, there is a lot of pure unadulterated greed in the system now and Wall Street and the banks do in fact OWN Washington.  GE, for example, pays no taxes and actually got a refund.  Many US corporations have moved their operations offshore to avoid taxes.  This is too big a topic to discuss here, but I had to vent a little.  All of these things and more are covered in Smith’s book and I highly recommend it to all of our readers.  A great book, timely and profound.

Check out the article from Daily Wealth titled, “The Smartest Guys I Know Are Moving… Should You, Too?” Rising taxes, at the state level, are encouraging wealthy people to relocate to low or tax-free states.  I moved from Minnesota to Florida for the life style and weather – and for tax considerations.  Here in Miami, real estate prices for a nice location, high-quality property is on the rise.  My condo is up at least 20% in the last 12 months.  Wealthy people from Argentina and Venezuela are moving here to avoid the punitive taxes and inflation in their countries.  Half of all million dollar plus real estate sold in South Florida are to people from Brazil.  Our area has wealthy people from Russia, Israel, Latin America and New York.  The climate and tax-free benefits are a real draw down here. People with substantial assets from all over the country and all over the world are sick and tired of footing the bill in socialist countries and here in America in socialist states.

In my case, just for the privilege of living in Minnesota, my total tax bill, Federal, State, real estate, sales tax and a myriad of minor taxes, leaves me with less than $0.30 on the dollar.  I can up that to around $0.40 on the dollar by living in Florida.  What is fair?  Ask two different people and you may well get two different answers.  Those who don’t have enough money see it one way and those who have worked hard all of their lives to get ahead, and have accumulated some wealth and still have a strong salary, see it another.  Just about everyone is fed up with the super-rich on Wall Street who are just plain greedy.  Salaries and bonuses in the tens or hundreds of millions are obscene.  See, I am part of the problem too.  Even I think we should tax the rich more than we do, but my definition of “rich” is far, far about $250,000 a year.  How about $5 or $10 or $20 million a year as a starter?  People in that bracket would say no, we should tax the ones making $50 or $100 million a year.   The definition of who are the rich is whoever has more than we do.  We, as a country, are being pulled apart, not coming together.  Anyone with any answers out there?

Everyone wants to know, “What’s next for gold?”  My friend Jim told me that Ted Butler says gold is ready to explode and it could move up 200 points.  The bullion banks have squeezed as many “longs” out of the market as possible, so now it’s time to take their foot off the brake.  Jim Sinclair says the bottom will be in the rear view mirror long before his next birthday on March 29th.

Richard Russell has turned bullish too – here are his comments:

Below is GLD, my proxy for gold. A pennant has appeared and GLD has fallen out of the pennant to 159.50. Thus, we are in what I believe is the “clean out” correction for gold. This is the correction that will scare out all the in-and-out traders and the newcomers. It is here that those who hold gold in physical form will do best, since they won’t be tempted to sell.

My advice is to hold all gold positions and wait patiently for the correction to end. Just before the huge 1979-80 surge, we saw a big “clean out” correction in gold. I believe history is about repeat.

Examine the above chart.  The RSI (on the top) is nearing a bottom.  Look at where it bottomed the last two times this year.  We are close.  The MACD (on the bottom) seems to be trending up, from its “neutral” position over the last two weeks.  And the Pennant formation is ready for a breakout too, and my guess is that it will be up.  If it were my money, I would be a buyer now.  Sure, gold “could” drop another $80 but it could also rise another $200.  Any further drop will be short-lived.  I see no need to play games with the price at this level.  There is support for physical gold and silver at these levels.  Retail buyers, China and Russia backstop the price when it gets too cheap.  That’s where we are now.