Wallet Relief Blog

Scams to come… by Larry Edelson

I’m going to discuss a few things that hardly anyone is warning you about.

Yet, they’re so important, they simply cannot be overlooked. To do so would be foolhardy.

But first, a quick update on what I’m seeing in the markets …

A. The broad stock markets are now within an important timing window for a major low. The month of March should mark the low for stocks for the year.

I can’t tell you exactly where the low will come in on the Dow, but I do know that it will bottom this month and then begin a multi-month powerful rally.

B. Oil has bottomed. It will likely hit $50 next, then the $75 to $80 level. What will drive oil higher? The fundamental explanations from the media will come after the fact. Keep in mind oil, like gold, tends to lead the economy, not lag it.

C. Gold is consolidating and likely preparing for a move to new record highs. It must hold the $891 level to do so. As long as it does, gold should move to as high as $1,250 an ounce on its next leg up.

D. The dollar is firm on a short-term basis, but remains in a long-term bear market. I expect a top in the dollar this month, then the beginning of a protracted decline in the greenback as the Fed’s flooding of the economy and monetization of debt begins to inflate asset prices and deflate the dollar.

E. Long-term bond markets are a disaster in the making. Especially long-term U.S. treasury bonds. Continue to steer clear of them. There is simply no way they are going to hold their value in the face of at least $2 TRILLION in debt auctions this year from the Treasury. Even if the Fed buys those bonds to try and support the market.

If you’ve been following my column, and especially my Real Wealth Report, you’re positioned nicely for the markets and for what’s going to unfold over the rest of this year.

Targets of Vulnerability

Now, let’s take a look at something I find terribly troublesome … that very few are talking about … yet is critically important …

Most people think the era of scams in the markets and investments is over. Kaput.

After all, from the tech bubble to Enron and WorldCom … from the real estate and mortgage train wreck, to Madoff’s $50 billion Ponzi scheme … we’ve seen every kind of scam possible, right?

Wrong! Fact is, beneath the surface of every bear market lies new scams being hatched … scores more dishonest operators and flimflam con artists …

… and sadly, tens of millions of vulnerable investors ready willing and able to try and grab any opportunity to make back even just a fraction of what they’ve lost in the markets. Or keep their job. Or supplement their income.

Madoff may be the biggest scam revealed so far, but there are tens of thousands of smaller scams going on now that involve billions more.
“Hope” is a wonderfully positive emotion. But it can also be deadly to your finances, especially when you’re vulnerable.

All told, I count at least 124 new scams lurking out there right now — along with many old scams with new twists — that you need to be acutely aware of.

Even the economic stimulus package, which was only signed last month, is already spawning numerous scams trying to entice people with promises of free government cash.

Chief amongst the victims …

• Homeowners having trouble paying their mortgages or in default. This group is especially vulnerable to newly-hatched scams that promise to forestall foreclosures, help with mortgage payments, refinancing, and more.

• Investors who have suffered enormous losses, which is just about everyone today.

• The unemployed, desperate to find new jobs. Even those gainfully employed, but worried about their jobs, and those seeking second incomes from part-time jobs and even home-biz opportunities.

• Senior citizens, who are especially vulnerable to scams today because they largely rely on fixed incomes … where interest rates are now effectively zero.

• Small and medium-sized businesses looking for short-term credit lines and financing needs.

• Students, many of whom are having a tougher time financing their educations and recent grads looking for jobs.

Beware of These Major Scams

Sadly, the above groups comprise just about everyone under the sun. So this issue, in my opinion, couldn’t be timelier.

The scams unfolding today? Here are some of the most prevalent ones that I think you need to be aware of and some that are just getting started — all of which are rapidly on the rise …

** Foreclosure scams: Here are 3 most common:

Phony Counseling or “Phantom Help”: The “counselor” tells the homeowner that he can negotiate a deal with their lender to save their home.

In exchange for an exorbitant fee, the scam artist claims he will handle all the details. But once the fee is paid, the phony counselor disappears with the homeowner’s money as well as with their personal financial information.

The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back.

Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the “rescuer” walks off with most or all of the equity.

The bait-and-switch: Homeowners are duped into signing documents for what they think is a new loan to bring their mortgage current. But what they are really signing are forged documents ceding the title of their house to the scammer. Homeowners usually don’t know they’ve been scammed until they get an eviction notice.

Foreclosure scams are rampant in today’s depressed housing market.

Also included, a new rash of home improvement scams, where operators try to prove to you that by spending a few bucks on improving your home, with convincing pitches that you’ll be able to sell it more quickly and at a much higher price.

While in many cases home improvements do help, don’t make any improvements unless A) you can afford it, B) you’re not borrowing money to do it, and C) you thoroughly check out who you’re dealing with.

Examples: I recently read of operators on the East coast preying on homeowners telling them if they don’t change their outside cable and telephone lines to comply with the requirements of the upcoming change to digital TV, their homes will lose value and be more difficult to sell.

I’ve also read of HVAC trades people preying on homeowners to get them to replace their older air conditioning unit and compressors over to Puron, a more environmentally friendly refrigerant than Freon. The pitch: The investment offers tax credits and also makes a home more marketable.

How to protect yourself: Do your homework. Check references. Be sure any company you work with is appropriately licensed (and insured) to do business. Check for complaints against the company.

** Debt elimination/reduction scams. These are all over the place now, and unfortunately, wrought with illegitimate operators who claim they can reduce or even eliminate credit card or other debt, but charge excessively high fees, fail to pay creditors as promised, or do other shady things that put you in a worse financial position.

If you need help with debt problems, take time to seek out a legitimate credit counseling organization.

** High-return investment and savings pitches: Preying on investors’ desire to earn back losses or get higher returns on savings. The pitches can run the gamut from “risk-free” investments in the stock market … to Certificates of Deposit yielding 6 percent … 7 percent … 9 percent or even more.

If you’re offered, say, a savings interest rate that’s more than 3 percent or 4 percent above market rates, it’s probably a scam — or at best, a legitimate investment that carries some hidden large risk, either spelled out in very-hard-to-find-or-understand fine print.

Or by locking your money up much longer than you ever thought or are being told, and likely in a weak, vulnerable financial institution.

Your best defense: Use common sense — if an investment sounds too good to be true, it probably is.

** Job, unemployment, and income-related scams: Running the gamut now to include everything from offering “job insurance,” which allegedly covers you if you’re laid off … to filing unemployment claims for you (by charging you unnecessary fees) … to “guaranteeing” they’ll find you a job … to promises of riches from part-time home-biz opportunities.

Facts: Don’t pay anyone a red cent to file unemployment claims on your behalf or to anyone promising you they’ll find you a job. As for home biz-opportunities, many are terrific and legitimate.

Many are not. The best way to tell: If a home-biz opportunity requires you to pay significant money upfront to start the business, or to buy loads of inventory to keep in stock, chances are, it’s not a legit business. Be sure to check out the company with your state’s Attorney General’s office or the local BBB.

** Tax scams: On the rise, organizations promising you — for a fee — tax rebates … access to bogus government programs … past due tax settlements, and more. And not just on the Federal level, but also on the state and local levels. Beware.

** New fangled insurance products and related annuity pitches: The insurance industry is in the dumps, but there’s no shortage of new products coming out of this industry, ranging from job insurance to annuity products for your savings that promise high rates of return.

Many of these products are being offered by legitimate companies. Many are not.

My best advice here: Steer clear of all of them, including legitimate offers.

Primary reason: As I just noted, the insurance industry is in the dumps, and some of the biggest names in the industry, like AIG, are failing.

So other than homeowner’s insurance and life insurance and medical coverage needs, I would just simply steer clear of all insurance offers and annuity policies offered by insurance companies.

Be wary of offers that promise relief for debt, investment, tax or insurance problems.

** Reverse mortgages: One of the most worrying of all to me, reverse mortgages, which allow older homeowners over 62 years of age to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

In a “reverse” mortgage, you receive tax-free money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence.

Reverse mortgages can be a great way for older homeowners who are house-rich but cash-poor to stay in their homes, but boost their financial liquidity.

The catches …

A) Reverse mortgages have very high up-front fees, as much as 8 percent of the home’s value, plus monthly service fees.

So if you’re an older homeowner and you own your home outright, you might be better off taking out a home equity loan.

Even though you’ll have to make monthly payments to repay a home equity loan, in many cases, it can turn out to be less expensive than a reverse mortgage.

B) With a reverse mortgage (and also a home equity loan), you’re tapping the equity in your home and taking on debt.

So if you have any plans of leaving your home in your estate to your children or grandchildren, just keep in mind you might be jeopardizing that, or, leaving your heirs an encumbered property.

Many senior citizens are jumping at the opportunity to cash out some equity in their homes. For many, it’s a big help. But for many others, it’s nothing more than going deeply into debt and hocking your home.

So, think this decision through carefully before you entertain a reverse mortgage, comparing its costs to that of just getting a plain old home equity line instead.

Also be aware of …

** Mystery shopping scams. Classified ads or unsolicited emails where the scammer claims they are sending you a check but instructing you to make purchases and then, after deducting a “commission,” to wire the remaining funds back.

The check is fake, but the victim has withdrawn real money and sent it to the scammer. Fake checks are now showing up in lottery scams, internet auction scams, and rental scams. These checks look real, but they are just a way to steal your money.

Prize and sweepstakes scams. Also on the rise now, the victim is told he or she has won something and just has to send a check to cover the taxes. Or the victim is sent a fake check for $5,000 and told to deposit the check and send back $2,000 to cover the taxes.

By the time the victim figures out the check is bogus it’s too late.

In addition to the above, please be acutely aware that identity theft — already growing rapidly before this financial crisis hit — is exploding exponentially higher. In fact, it was the top consumer scam complaint in 2008.

One reason is plain, old-fashioned greed. But another reason is the confusion in the market place caused by the increase in bank and credit card mergers.

For instance, WaMu credit cards were just merged with Chase. I have a WaMu card and have received at least eight notices from WaMu urging me to go to a Chase website via a link provided in the email to verify my card. All of the notices I received were scams, so-called “phishing” attacks to try and get my credit card and other personal information.

How could I tell? First, every single one of the emails I received contained either multiple spelling errors or multiple formatting errors, none of which a legitimate company would most likely ever make.

Second, legitimate institutions or companies will never ask for your personal information via email or request you click a link to provide such information.

Bottom line: Email and online scammers are now taking advantage of the huge uncertainty and rash of mergers in the banking and financial industries to prey on innocent victims.

Indeed, according to a recent study by fraud-tracking firm Javelin Research, identity theft soared 22 percent from 2007 to 2008 … while spyware attacks from November 2008 through January 2009 soared 169 percent according to analysts at the internet security firm Lavasoft.

How to Play It Safe

I’ve been doing all of my banking and bill paying online for over nine years now, and have never had a problem. The safety measures I take …

1. I NEVER respond to any emails I receive regarding any of my accounts.

2. When I get any email notifications of any kind from one of my financial institutions, I NEVER click through the email. Instead, I go directly to the institutions website to check the bill, the message, whatever the subject of the email is.

3. Whenever I go to any of my financial institutions’ websites, or make a purchase online, I always check to be sure the beginning of the URL has a “https” prefix, the “s” meaning it’s a secure website.

4. I follow all prudent online safety measures, such as using different usernames and passwords (which I keep track of in a spreadsheet) … never divulging them to anyone … frequently changing them … and more, including always having up-to-date virus and spyware software.

For virus software, I use Norton Anti-virus. Their 2009 edition is excellent and does not slow your computer down.

For anti-spyware, I use Spybot, shareware that’s available with updates at http://www.safer-networking.org/en/home/index.html.

Now is the time to be more vigilantly protecting your money than ever before!

Be safe and best wishes,

Larry

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This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

Why Mortgage Rates Are Rising Despite Government Efforts!
by Mike Larson

The government is throwing everything … and I do mean EVERYTHING … at the credit and mortgage markets.

It has taken over Fannie Mae and Freddie Mac.

It has agreed to buy Mortgage Backed Securities (MBS) in the open market.

It has pledged to take hundreds of billions of dollars in crummy assets from the nation’s major financial firms.

And it has promised to infuse the banking system with as much as $250 billion in capital.

The primary goal of all these bailout efforts: To lower the financing costs associated with home purchases.

But the result of all these efforts is that mortgage rates are going up.

Yes, I said UP. Let me explain …

Bond Investors Are Asking: “What Price, Bailouts?”

The 30-year fixed mortgage is America’s bread and butter loan. Long before the industry thought up new and creative ways for borrowers to bury themselves in horrid loans, it’s what home buyers typically used to purchase a home. And it’s what I believe both borrowers and lenders are returning to because of the safety and stability that a long-term, fixed rate mortgage provides.

But rates on 30-year fixed loans aren’t going down. They’re going up.

The average 30-year rate jumped to 6.47% in the week of October 10, according to the Mortgage Bankers Association. That was up from 5.98% a week earlier and just shy of the August high (6.58%), itself the highest in more than a year.

How can rates be going up when the economy is tanking and the government is throwing everything it can at the banking sector and credit markets?

Because bond investors are dumping the heck out of bonds - and when bond PRICES fall, bond YIELDS (interest rates) rise.

Why are investors selling bonds? Well, we just learned that the budget deficit soared to $454.8 billion in fiscal 2008, which ended September 30, 2008. That was more than double the $161.5 billion deficit in 2007 and the highest in the history of the country.

Thanks to all the fresh bailout programs, the deficit will likely surge by a few hundred billion MORE dollars in fiscal 2009 - and it could easily top $1 TRILLION.

But no one in Washington has shown any willingness to raise taxes to pay for all of these bailout programs. And it’s not like there’s a pile of money just sitting around in the U.S. Treasury to fund them, either.

We’re a net debtor nation, and we’re going to have to borrow hundreds of billions of dollars to make good on all of our promises.

That means a flood of Treasury debt the likes of which we’ve never seen is going to wash over the market in the coming year or two.

Bond traders know that will overwhelm bond demand. So they’re not sticking around. They’re selling the heck out of bonds NOW, driving prices down and rates up.

Long bond futures plunged from an intraday high of 124 23/32 in mid-September to around 114 now - a decline of more than ten points in price.

Since bond yields move in the opposite direction of prices, they’re going up. The benchmark 10-year Treasury Note now yields about 4%, up from the 3.4% area in September.

Look, politicians and policymakers would like you to think they can just wave a magic wand, drive mortgage rates down, save the banking sector, and return us to the happy-go-lucky, reckless lending days of 2003 to 2007.

But they can’t. The bond market is pushing back and saying loud and clear: “There is no such thing as a free lunch.”

My bottom line message hasn’t changed, either. I continue to expect any recovery in the housing and credit markets to take a long time. And I continue to believe that while all of these government bailout programs can treat some of the downturn’s symptoms, they can’t cure the underlying disease. The only real cures are time and price changes.

Until next time,

Mike Larson

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

Why Financial Collapses Are Unavoidable And Government Actions May Be Backfiring
by Martin D. Weiss, Ph.D. 10-13-08

Open Letter to:
Dominique Strauss-Kahn, Managing Director of The International Monetary Fund (IMF)

From:
Martin D. Weiss, Ph.D., Chairman, Sound Dollar Committee

Dear IMF Managing Director Strauss-Kahn:

This past Saturday, October 11, 2008 at a joint press conference by world economic leaders, you said:

“Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.”

Further, in an attempt to prevent that potentially traumatic outcome, some of the world’s largest nations have proposed a series of new steps, including massive direct injections of taxpayer capital into private-sector banks.

This brings us to a crossroads that can determine the fate of six billion people for decades to come, a dire reality that motivates me to write you today.

I am president of Weiss Research, Inc., an independent research corporation, and Chairman of the Sound Dollar Committee, a nonprofit, nonpartisan organization founded by my father in 1959.

The Sound Dollar Committee was instrumental in helping President Dwight D. Eisenhower achieve one of the only truly balanced budgets of the past half century. And in keeping with that tradition, we continue to promote fiscal responsibility, sound business practices, and prudent investing.

Over the years, we have learned how elusive these goals can be. And by the same token, I recognize the unusual difficulty of the current challenges you face.

However, it is undeniable that the new rescue proposals being made today go beyond the already-extreme efforts announced or undertaken previously, such as the $700 billion bailout package signed into law by President Bush ten days ago, the unprecedented $1 trillion in central bank liquidity injections during the prior week, and additional extreme measures by the U.K., Germany and other leading nations.

It is also undeniable that those efforts have not yet been effective, leading us to wonder if new efforts will be any different. Before implementing them, therefore, I believe it behooves us to consider some ominous trends:

1. Government interventions are backfiring.

Since the credit crisis burst onto the global scene approximately 14 months ago, each new government countermeasure seems to have backfired.

Rather than encouraging investors to make the rational choice of shifting assets to stronger hands, governments have inadvertently done precisely the opposite. They have promoted irrational complacency. They have encouraged imprudent inaction. They may have also prompted investors to shift some assets back to weaker hands.

Repeatedly, the authorities pursued a policy that made individual and institutional investors more confident than the circumstances warranted. This policy, in turn, prompted investors to buy more common shares in insolvent banks, more junk bonds in over-rated corporations, and more derivatives contracts based on unrealistic models - all despite abundant evidence that the banks’ balance sheets were continuing to deteriorate.

Earlier, various government measures seeking to reduce the panic - such as coordinated central bank intervention - did buy some time by temporarily reducing investor fears. And during those quieter interludes, policymakers were able to artificially drive down the premiums charged by lenders for higher risk loans.

But this was accomplished despite the deterioration in balance sheets.

In other words, each time governments intervened, the cost charged for risk came down, but the level of risk continued to rise. Instead of bringing stability to the marketplace, the authorities created a dangerous discrepancy between the two - between price and reality.

Result: As soon as the immediate effects of the interventions dissipated, and as soon as symptoms of the true risk levels resurfaced, there were sudden, explosive market adjustments.

Investors seeking to avoid devastating losses dumped their high-risk assets. Other investors, who otherwise might have not been unduly impacted by the turmoil, suffered parallel losses. And the general public, previously less cognizant of the financial turmoil, suffered surging anxiety.

The authorities may have exacerbated the very panic they were seeking to avoid. And now, as the public begins to connect the dots between government actions and market reactions, the quiet time bought with each new intervention has diminished or even vanished.

2. Government actions are too little, too late to stem the debt crisis.

Kindly refer to our white paper submitted to the U.S. Congress on September 25, 2008, titled “Proposed $700 Billion Bailout Is Too Little, Too Late to End the Debt Crisis; Too Much, Too Soon for the U.S. Bond Market.”

In it, we detail why the U.S. debt crisis alone was far larger than previously believed. As of the first quarter, it encompassed or affected

• 1,479 banks and 158 thrifts at risk of failure with $3.2 trillion in assets, or 41 times the bank assets estimated at risk by the FDIC.

• $14.8 trillion in residential and commercial mortgages, $20.4 trillion in consumer and corporate debt, plus $2.7 trillion in municipal debts outstanding.

• $180.3 trillion in notional value derivatives, of which one single institution - JPMorgan Chase - held $90 trillion, or 49.9% of the total U.S. market share.

• $465 billion in credit exposure to derivatives, up 159% from one year earlier.

Today, less than three weeks later, it appears that many of these debts and bets are falling like a house of cards. Moreover, in retrospect, it appears that many of the efforts to support or sustain them may have been futile, wasteful, or both.

3. Government actions are too much, too soon for the debt markets.

In its Fiscal Year 2009 Mid-Session Review, Budget of the U.S. Government, the Office of Management and Budget (OMB) projected the 2009 U.S. federal deficit will rise to $482 billion, a major burden on U.S. debt markets. However, that OMB projection was made before the recent bailout commitments were known or even imagined.

Since then, the expenditures and liabilities announced or proposed by the U.S. government have easily exceeded $1 trillion.

However, for the world’s debt markets - the primary source of federal government deficit financing - the expectation of exploding federal deficits is damaging confidence. It may even be one of the factors responsible for the global paralysis of short-term credit markets. And it may also be one of the reasons why, this past Friday, October 10, we witnessed the worst-ever collapse of high-yield corporate bonds.

4. Government bailouts could endanger government credit and credibility.

The credit market contagion has spread in phases:

• In the mortgage sector, it was initially confined to subprime mortgages. Then it reached the mid-level Alt-A mortgages. And now it has affected prime mortgages.

• In short-term credit markets, it was first restricted to commercial paper issued by weak financial institutions. Next, it spread to the short-term paper of stronger financial institutions. And now it has hurt nonfinancial paper as well.

• In bonds, it began with the most speculative junk bonds, then reached middle-tier bonds, and now has impacted most corporate bonds of all stripes.

Each time, frightened investors sought the safety of government paper. And each time, this fear factor drove up government bond prices while driving down their interest rates.

This may be giving U.S. Treasury officials the false impression that they enjoy strong investor demand for government securities and easy access to funds for more handouts to near-bankrupt corporations. But this influx of money may also be obscuring a frightening prospect:

Governments could be the next victims.

To the degree that the authorities pursue the purchase of bad bank assets, or to the extent that they go forward with the injection of government capital into a collapsing banking system, they may become subject to the same contagion of mistrust.

I implore you: Please do everything in your power to help prevent that from happening. If the governments’ heretofore stellar credit is sucked into this crisis, it could

• make it much more expensive for governments to roll over their maturing debts;

• make it difficult to raise the cash needed to maintain government operations; and

• ironically, deprive authorities of the last weapon they have to help bring about a subsequent recovery: The credit and credibility of the world’s leading governments.

5. Government actions could aggravate, or even cause, the systemic meltdown they are seeking to prevent.

Reason should dictate that governments should do everything possible to liquidate insolvent institutions, quarantine the weakest institutions, fortify the strongest, and insulate the government’s own credit from the scourge. Instead, it seems that U.S. and European authorities are doing precisely the opposite. They are engineering

• shotgun mergers that sweep bad assets under the carpet of otherwise stronger institutions;

• bailouts that create zombie banks and corporations, weakening the system as a whole; and

• new, bigger and unaffordable FDIC-type guarantees of bank deposits that further obscure the difference between worthy and unworthy banks.

The long-term, fundamental affect of these actions is widely known: They are corrosive. They cause far more losses and pain in the end.

What’s not so widely recognized is that the short-term consequences could be equally catastrophic:
By

• combining bad assets with good assets,

• merging weak banks with strong banks, and

• confusing risk with safety,

the authorities are merely making it more difficult for millions of savers and investors to discriminate between each of the above.

The result: Instead of shifting from riskier banks to safer banks, many people are exiting the banking system entirely.

Inadvertently, the authorities could be transforming what should have been a shift within the system to a run on the system.

Instead of a harsh, but ultimately manageable, collapse of the weakest institutions, they could be leading us toward the systemic meltdown you warned about this weekend.

6. Governments are squandering scarce capital that will be needed for a true recovery after any collapse.

No one wants a collapse.

We all abhor the tremendous hardship it will inevitably cause - not just for the few who have the most to lose, but also for the many who have lost hope of anything to gain.

But a financial collapse, no matter how dramatic, is not the end of the world. We have endured many such collapses before and we survived. We can survive this one as well.

Today, it seems the relevant debate is no longer whether or not a financial collapse is preventable. The collapse is already here.

Rather, the main topics worthy of discussion are how big the collapse will be, how long it will last, and what we can do today to maximize the chances of a healthy recovery in the future. Below, I provide my view on each of these topics separately:

The size of the collapse is not within our power to control. We cannot repeal the law of gravity; we cannot stop investors from selling. Nor can we turn back the clock to reverse the financial sins already committed. One way or another, the bad debts have to be expunged. And the events of recent weeks are telling us that a deflationary debt collapse may be the mechanism.

The duration of the decline depends on its speed. To the degree that we let the debt liquidation process happen naturally and manage it wisely, it should be short, fast and behind us soon; to the degree that we stop it from happening and sweep the debts under the rug, it could be long, slow and more tortuous.

It’s in the nature of the subsequent recovery that I feel you can have the greatest influence today. If you protect the credit of the financially sound institutions, they can be powerful resources to help bring about a recovery. However, if you prematurely squander our precious resources now, then any subsequent recovery is bound to be weakened and delayed.

I have four recommendations, as follows:

First, cut back the bailout and rescue efforts.

Second, protect the credit and credibility of sovereign government debts.

Third, preserve public resources for (a) emergency assistance to those that are rendered ill or destitute during a secular economic decline, and (b) carefully planned economic stimulus after a secular decline.

Fourth, foster an environment of public trust by guiding consumers to research that can help them better distinguish between low- and high-risk banks, insurance companies, and other financial institutions.

I know it will be very difficult. I realize millions of people must make great sacrifices. But with the right guidance and leadership, I am sure we’ll be ready to step up to the challenge.

Sincerely,

Martin D. Weiss, Ph.D.

This financial news report is available courtesy of Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.