Ed Mierzwinski, consumer program director at U.S. PIRG, a Washington-based consumer organization, said companies are telling consumers that “everything you have known for years is no longer true.”

The credit companies no longer guarantee customers will be considered low risk if they pay their bills on time and never exceed their credit limits especially if they don’t like where you shop - even for typical transactions, like Amazon or Starbucks.

“Now you have to watch where you shop, because if you shop where deadbeats shop or live where deadbeats live, we’re going to use that as a reason to lower your limits or increase your rates,” Mierzwinski said.

From The Atlanta Journal-Constitution
Sunday, December 21, 2008

Kevin D. Johnson returned from a dreamy Jamaican honeymoon in October eager to check out wedding photos and help his new wife open stacks of beautifully wrapped wedding gifts.

Before getting distracted by the fun stuff, the 29-year-old entrepreneur opened the mail. Johnson’s mood soured when he got to a letter from American Express, saying it had slashed the credit limit on his account.

Johnson was surprised, since he has a perfect payment history and a high credit score. And he was floored by one of the reasons American Express cited: It didn’t like where he shopped.

“Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express,” the letter said. Johnson complained to American Express by phone and letter.

“That doesn’t have anything to do with whether I’m a paying customer or not,” he said in an interview.

Johnson checked his charges to try to figure out what might have raised a red flag in the American Express data-mining model. He didn’t see anything but typical transactions, including purchases at Amazon, Ruby Tuesday, Wal-Mart, Starbucks and Federal Express.

“I understand the need for and the power of predictive analytics,” Johnson said, “But I think they have crossed the line.”

American Express declined to discuss Johnson’s account. But it confirmed that it examines spending patterns. It’s just one of many tactics that credit card companies are using to try to keep default rates from growing higher. Along with studying shopping habits, American Express considers which mortgage lender a customer uses and whether the customer owns a home in an area where housing prices are declining.

These factors are combined with a review of other details to decide whether to adjust a credit limit.

“We’re just doing this to manage risk,” said Lisa A. Gonzalez, an American Express spokeswoman. She declined to say which retailers or mortgage companies are associated with consumers with higher default rates. She said it makes sense to examine these factors because “customers who have loans outstanding with certain lenders or customers who make transactions with certain merchants tend to have a higher proportion of credit issues or a higher probability of default.”

“It’s not a fair practice,” said Travis Plunkett, legislative director at Consumer Federation of America, a consumer advocacy group. “I imagine this person feels this is guilt by association. It doesn’t work in the justice system, and it shouldn’t work when it comes to credit card charges.”

Full article: Credit Companies Adjusting Credit Limits - For Some, Lowering Based On Where They Shop

Always keep your eyes peeled when your credit statement arrives in the mail and carefully examine any paperwork that arrives with the bill. Those small pieces of paper we love to throw away may contain notification of changes to your credit limit, rate or any other adjustments to the original contract you signed with the credit company.

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It was fun to relish that second and roar in merriment last night

“5, 4, 3, 2, 1 …. 1…. Happy New Year!”

With financial scandals cascading through Wall Street and the economy, is 2009 destined to be just as wacky?

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One snowy afternoon (was I drunk?), I mustered up courage and decided to have at it. Into the guts I went, only it didn’t go as smooth as I envisioned. Oops, there goes my login.

I was missing files, they were stubbornly refusing to upload and the site was hosed.

I pleaded my case to the Wordpress Support Forum but they seemed just as puzzled. I then turned to my web hosting for answers.  After literally weeks of being locked out of my site and the Wordpress Admin panel, I can finally access everything again this morning thanks to Kacy C. of Dreamhost. (The culprit was file permission errors.) Broke-Ass Student is once again alive and kicking. Thanks Kacy!!

Lessons learned:

When Wordpress Support can’t offer a cure, try your web host. And upgrading is not as difficult as I feared, it just becomes really freaking tedious when not keeping on top of updates from one version to the next.

Happy New Years, everyone!

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A financial trend has emerged over the past few decades that always troubled me. Well-intentioned investors, such as you and I, may have entrusted their money to strangers or invested in things they simply didn’t understand. When pensions disappeared and were replaced with 401(k)s, it even became mandatory at some jobs for people to invest their retirement savings into certain financial instruments.

I’ve always preferred to personally handle my own finances, but I certainly understand that many people simply don’t feel comfortable doing so. However, this could turn into a recipe for disaster if a well-intentioned investor (who is trying to save and do the right thing) trusts an advisor or financial institution who decides to use that money for their own greedy purposes.

I’m infuriated with this bailout because many honest, hardworking Americans (and their children, grandchildren, and grandchildren’s children) are now being forced to suffer for what is quite simply the corruption, greed and carelessness of Wall Street. Predatory lending led to the subprime mortgage crisis and the blame can certainly be spread to both the consumer and the lender in this situation, but it’s this enormously dangerous Derivatives bubble exploding that is literally ungluing the entire financial sector at the seams right now.

Derivatives are, quite simply, gambling. Wall Street was gambling with insane amounts of money through Derivatives - so much, in fact, the gross domestic product of every country in the world combined wouldn’t be able to cover the full amount of poisonous Derivatives floating out there! So how is  such a grossly huge amount even possible?

Because people were gambling with money they didn’t even have.

I’m also wondering if we’re witnessing the unraveling of another global bubble - that of living underneath the largest debt-based global fiat currency experiment in the history of the planet for over sixty years. By nature, debt-based fiat currencies are unsustainable so the very foundation of our monetary system is in need of a severly radical overhaul.

Right now my plan is to continue focusing on paying down debt since my belief has always been “debtor is servant to the lender”. My other focus is on the simple things which fortunately cost little to no money. This includes family, friends, laughter, stress release, exercise, expanding my knowledge with books from the library, learning how to grow my own food, as well as mastering other useful skills.

Because when it comes down to the nitty gritty of it all -  even if the financial world disintegrates to oblivion and I’m left penniless and completely impoverished - in essence, these simple things will still remain the true riches in my life.

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Congratulations to Zack, a 23-year-old grad student in Information Technology, for winning the HP Laptop Grand Prize Package. Here’s all the amazing swag Zack just won (an astouding $1,700 value)!

• HP Pavilion dv7t series notebook
• HP xb4 Media Docking Station
• HP 500GB Pocket Media Drive
• HP Photosmart C6380 All-in-One Printer, Scanner, Copier
• HP Protect Messenger Bag

Four (4) Runner-up Readers have also been randomly selected to receive their very own Messenger Bag, courtesy of Hewlett Packard - (these seem to roughly run between $35-$50 in value).

1. Barbara Baker, a 34 year old mother of three from Texas
2. Sallie’s Niece, a 28 year old lawyer
3. Gregg Mendoza, a Call Center worker from California
4. Lisette, a freelance Web Designer from India

I’ve contacted all our winners by email and everyone must respond within one week to claim their prizes and sort appropriate shipping information. Congratulations, you guys!!

If you didn’t win anything tonight, here’s some good news. You still have many opportunities during October to win your own free laptop with the remainder of the “HP Freshman 15” websites participating in the Laptop Giveaway Promotion, so keep your eyes peeled on the following schedule:

Sep 26 - Oct 3: Poorer Than You
Sep 28 - Oct 5: Broke-Ass Student
Sep 30 - Oct 7: Broke Grad Student
Oct 2 - Oct 9: Study Hacks
Oct 4 - Oct 11: Cooking for Engineers
Oct 6 - Oct 13: College Being
Oct 8 - Oct 15: Paul Stamatiou
Oct 10 - Oct 17: DormDelicious
Oct 12 - Oct 19: Student Bloggers
Oct 14 - Oct 21: Jessica Mah Meets World
Oct 16 - Oct 23: UNEASYsilence
Oct 18 - Oct 25: Gomeler.com
Oct 20 - Oct 27: CampusGrotto
Oct 22 - Oct 29: Hack College
Oct 24 - Oct 31: The University Blog

Be sure to nip by each individual site for their own unique contest rules.

A big thanks goes out to both Hewlett Packard and Nick White for making this promotion possible and, of course, to everyone who participated. What a fun week this was! I’ll definitely work on promoting additional discussions and giveaways for the future since this was such a fantastic success.

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This Broke-Ass Prize Package includes;

• HP Pavilion dv7t series notebook
• HP xb4 Media Docking Station
• HP 500GB Pocket Media Drive
• HP Photosmart C6380 All-in-One Printer, Scanner, Copier
• HP Protect Messenger Bag

The entire package has an estimated value of $1,700 and this promotion is open to everyone, including those not in the United States.

How To Enter For Your Chance To Win

As you (may or may not) know, my main passions are writing and learning so I’ve decided to base my Laptop Giveaway contest off the spirit of these two pillars.

“To stop being a student means to stop living“

I find it very disheartening how little the Average American is aware of how our monetary policies work in the United States.  Many families are struggling under the burden of excruciating debt and grasping to keep their heads above water. This literally is financial suicide and only perpetuates a vicious cycle we become enslaved to. Financial literacy unfortunately is not taught well in our public schools, so let’s begin with examining how our financial system works here in the United States.

Here are some questions I’d like for you to examine. These are just rough guidelines and you can approach it however you wish. And you don’t need to tackle all of these, just introduce yourself and focus on one if possible.

1. Tell me a little bit about yourself and your finances. First just give me a brief synopsis to introduce yourself. How old  are you and what is your occupation? Do you have any savings or debt and do you find yourself struggling financially?

2. The Federal Reserve Central Bank. Who is the Federal Reserve, what is a central bank and what is their role in our monetary system? Who drafted the Federal Reserve Act? When was the Federal Reserve Act passed through Congress and under what circumstances?

3. Inflation. What causes inflation ; who benefits from inflation and who does it hurt?

4. Free Markets. What creates ‘booms’ and ‘busts’ of our business cycles, and is the United States a free market?

5. Fiat Currencies. What is a fiat currency, when did the United States abandon the gold standard, and why? Who benefits from a fiat currency and who does it hurt?

6. Fractional Reserve Banking. How is new money created in our banking system from credit? What would happen to our currency if everyone in the United States tried to pay off all their debt at the exact same time, and why?

[Edit - it seems people are copying and pasting for answers and some have expressed this is also waaay too much. If you can please introduce yourself and just tackle one subject area, but try in your own words. I want to promote open discussion so keep your eyes peeled on the comments as well because the conversation is also taking a course of its own. Even if you say, "Well, I don't really understand this.." or "my opinion of this is ..." As long as you're contributing to the comment conversation, you're entered in the drawing.]

Leave a comment at the end of this post with your opinions on what you nip up and feel free to share any resources you may have used. I’m hoping we can open a conversation and I’m going to let you guys decide where the discussion goes.

All comments must be submitted by 10:00 p.m. EST on October 5th and each unique comment will receive a number. I’ll randomly draw a number before midnight EST on October 5th and announce the lucky broke-ass winner of the HP Laptop Prize Package shortly thereafter.

Discuss.

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(because we do the thinking for you.)

Love,

Ben Bernanke, Federal Reserve Chairman of a Central Bank

Henry Paulson, US Treasury Secretary and former Chairman and Chief Executive of Goldman Sachs

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Hewlett Packard has generously donated fifteen Pavilion Laptops to different college websites to give away to one lucky reader, and Broke-Ass Student has been included in the giveaway. Keep your eyeballs glued to these fifteen sites over the next few weeks for your chance to win a shiny new laptop during this exciting promotional event.

The HP Freshman 15

Sep 26 - Oct 3: Poorer Than You
Sep 28 - Oct 5: Broke-Ass Student
Sep 30 - Oct 7: Broke Grad Student
Oct 2 - Oct 9: Study Hacks
Oct 4 - Oct 11: Cooking for Engineers
Oct 6 - Oct 13: College Being
Oct 8 - Oct 15: Paul Stamatiou
Oct 10 - Oct 17: DormDelicious
Oct 12 - Oct 19: Student Bloggers
Oct 14 - Oct 21: Jessica Mah Meets World
Oct 16 - Oct 23: UNEASYsilence
Oct 18 - Oct 25: Gomeler.com
Oct 20 - Oct 27: CampusGrotto
Oct 22 - Oct 29: Hack College
Oct 24 - Oct 31: The University Blog

The prize package I’ll be giving away to one broke-ass reader includes;

• HP Pavilion dv7t series notebook
• HP xb4 Media Docking Station
• HP 500GB Pocket Media Drive
• HP Photosmart C6380 All-in-One Printer, Scanner, Copier
• HP Protect Messenger Bag

The entire package has an estimated value of $1,700 and further details for winning the dv7t series (fully loaded) from Broke-Ass Student will be announced on September 28th. Each site may have different requirements to win so be sure to nip over to Poorer Than You as Stephanie kick starts her Laptop Giveaway this Friday, the 26th.

The promotion is open to everyone, including those not in the United States. I’m so excited for you guys! This event is simply awesome.

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Judge the future by the past. - Patrick Henry (1736-1799)

No generation has a right to contract debts greater than can be paid off during the course of its own existence. - George Washington to James Madison, 1789.

I place economy among the first and most important of republic virtues, and public debt as the greatest of the dangers to be feared. - Thomas Jefferson to William Plumer, 1816.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. - Thomas Jefferson, in a letter to the Secretary of the Treasury Albert Gallatin, 1802.

If Congress has the right under the Constitution to issue paper money, it was given to be used by themselves, not to be delegated to individuals or corporations. - Andrew Jackson

I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country. - Andrew Jackson

Democracy was the right of the people to choose their own tyrants. - James Madison

They that would give up essential liberty for a little temporary safety deserve neither liberty nor safety. - Benjamin Franklin

The only thing necessary for evil to triumph is for good men to do nothing. - Edmund Burke (1729-1797)

The price good men pay for indifference to public affairs is to be ruled by evil men. - Plato (429-347 B.C.)

I hope our wisdom will grow with our power, and teach us, that the less we use our power the greater it will be. - Thomas Jefferson, on foreign policy.

A small leak can sink a great ship. - Benjamin Franklin

He who tampers with the currency robs labor of its bread … A disordered currency is one of the greatest political evils. - Daniel Webster

But a Constitution of Government once changed from Freedom, can never be restored. Liberty, once lost, is lost forever. - John Adams, letter to Abigail Adams, July 17, 1775.

I have always been afraid of banks. - Andrew Jackson

You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out. - Andrew Jackson, to a delegation of bankers, 1832.

Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. - Andrew Jackson, who shut down the Central Bank before re-establishment of the Federal Reserve Central Bank in 1913.

Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money. - Daniel Webster

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard. - Alan Greenspan

The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. - John Maynard Keynes

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Volcker Says Finance System `Broken,’ Losses May Rise
The Bloomberg News
September 5, 2008

This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,” Volcker said today at a banking conference in Calgary. “Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.”

The former Fed chief projected “a lot” more losses from the collapse in the mortgage-backed debt market, after the more than $500 billion tallied so far, should the U.S., European and Japanese economies fail to pick up. He urged changes in financial regulations, echoing calls among sitting officials and legislators.

“It is the most complicated financial crisis I have ever experienced, and I have experienced a few,” said Volcker, who ran the Fed from 1979 to 1987, and engineered an increase in interest rates to 20 percent to quell inflation that exceeded 10 percent.

U.S. growth has averaged 2.3 percent so far this decade, down from 3.4 percent in the 1990s. The current growth rate is the weakest since at least the 1940s, when the government began compiling figures on quarterly gross domestic product.

Oh yes, and in other news. The U.S. Treasury announced a take-over of Freddie Mac and Fannie Mae this weekend - a historical federal rescue operation and bailout when these two mortgage giants collapsed into insolvency under the strain of billions of dollars of losses during a housing crisis that shows no signs of improving.

And taxpayers should be truly worried as they will be responsible for Freddie’s and Fannie’s considerable and expected losses. The Congressional Budget Office predicted in July that a bailout could cost between $25 billion and $100 billion, reports the Los Angeles Times. The two companies lost about $14 billion last year and such steeping numbers coupled with our current national deficit guarantees future generations to be shackled with enormous debt.

Few Stand to Gain on this Bailout, and Many Lose
The New York Times
September 7, 2008

But even after the government seized the mortgage finance companies on Sunday and dismissed their chief executives, the companies’ outgoing leaders could see big paydays — a prospect that angers many investors, particularly because ordinary stockholders could be virtually wiped out.

Under the terms of his employment contract, Daniel H. Mudd, the departing head of Fannie Mae, stands to collect $9.3 million in severance pay, retirement benefits and deferred compensation, provided his dismissal is deemed to be “without cause,” according to an analysis by the consulting firm James F. Reda & Associates. Mr. Mudd has already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004, according to an analysis by Equilar, an executive pay research firm.

Richard F. Syron, the departing chief executive of Freddie Mac, could receive an exit package of at least $14.1 million, largely because of a clause added to his employment contract in mid-July as his company’s troubles deepened. He has taken home $17.1 million in pay and stock option gains since becoming chief executive in 2003.

Fannie Mae and Freddie Mac have enriched their top executives for years. Mr. Mudd’s predecessor at Fannie Mae, Franklin D. Raines, took home more than $52 million while he was chief executive from 1999 to 2004, according to Equilar data.

“This is completely outrageous,” said Richard C. Ferlauto, the director of corporate governance and investment for the American Federation of State, County and Municipal Employees, a large pension fund. “It is really a slap in the face to shareholders and homeowners whose loans are at risk and taxpayers footing the bill for a bailout.”

I agree with Volcker, the financial system is hopelessly broken. And as I gaze into my baby niece’s expressively promising eyes, the moral impact of these maddening decisions overwhelms me.  This bailout will directly affect every American wallet sooner or later, while the departing heads of Fannie Mae and Freddy Mac are entitled to $9 million and $14 million in severance pay, respectively.

September 7, 2008 will be now historically be remembered as the day the U.S. government took over the mortgage market, a move that has no other precedent in history.

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Presque Isle is beautiful and has eleven beaches with lots of inexpensive activities to indulge in. We spent a lazy morning canoeing through a lagoon and rented bicycles for a few hours to explore the nature trails, marina and lighthouses. Then it was time to pack a picnic and head for the beach! This particular spot was a definite favorite with kite runners.

The next morning, Matty took an early run while I tidied up our room and prepared some coffee. The weather was gorgeous so I opened the door for fresh air, and who should wander in but this little bugger? She jumped on the bed for a quick snuggle and nap, and she was also very pregnant!

The trip was a pretty cheap and we had a lot of fun - exactly what I needed. Today we’re heading up to Niagara Falls to spend a relaxing evening hiking through some of the islands.

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Last year I would never have imagined making as much headway on my bills as I have this summer, and it’s been extremely encouraging. The challenging part is sacrificing in order to stash away as much of my paycheck as possible, instead of splurging on tempting little extras for myself. But it’s truly worth it every time I see the balance of my debt shrinking before my eyes.

Whenever I feel discouraged, it helps to remind myself how I didn’t get in this much trouble overnight and thus it’ll take time to claw my way back out of the black debt hole again.

If I remain focused and stay motivated for another few months, the bulk of this debt will be gone by next year. I can hardly believe it! That means all my student loans plus my 2007 Dodge Caliber will be paid off in less than three years. It will be sooo nice not to repeatedly have to make one monotonous payment after another every month, and what a relief when my money will finally be mine again.

I can’t wait to be debt-free!!

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Panelists Warren Buffett, CEO of Berkshire Hathaway; William Niskanen, chairman of the CATO Institute; Bill Novelli, CEO of AARP; Pete Peterson, senior chairman of The Blackstone Group and chairman of the Peter G. Peterson Foundation; and Dave Walker, president & CEO of the Peter G. Peterson Foundation and former U.S. Comptroller General engage in an informative panel discussion LIVE from Omaha, Nebraska this evening. The discussion will explore the growth of the U.S. national debt and what can be done to make our nation more fiscally sound.

Tonight I’ll be attending an 8:00 p.m. showing at a local IMAX theater and I’m really looking forward to seeing this documentary. Hah, now I know I’m officially a financial nerd!!

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Large U.S. Bank Collapse Ahead
Yahoo! News
August 19, 2008

The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world’s biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday.

“We have to see more consolidation in the financial sector before this is over,” he said, when asked for early signs of an end to the crisis.

“Probably Fannie Mae and Freddie Mac — despite what U.S. Treasury Secretary Hank Paulson said — these giant mortgage guarantee agencies are not going to exist in their present form in a few years.”

Rogoff said the U.S. Federal Reserve was wrong to cut interest rates as “dramatically” as it did. “Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States.”

Legendary Wall Street investor and commodities guru Jim Rogers is back on the prowl and seems to be in agreement with Rogoff’s stunning assessment, as seen during an exclusive interview with Money Morning this week.  I have to admit, every time I see Jim Rogers on television sporting his little bowtie during interviews, I just want to reach through the screen and give him a great big big. His direct, no nonsense and no holds barred way of speaking somehow reminds me of a crabby but wise grandfather.

Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling A Malaise That May Last For Years
Money Morning
August 19, 2008

Jim Rogers believes that “America had such a magnificent and gigantic position of dominance that deterioration will take time … it takes a lot of hard work by a lot of incompetent people to change the situation.”

The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.

Indeed, the U.S. financial debacle is now so ingrained – and a so-called “Super Crash” so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.

The end of this crisis “is a long way away,” Rogers said. “In fact, it may not be in our lifetimes.”

Some key points Rogers stated:

• U.S. Federal Reserve Chairman Ben S. Bernanke should “resign” for the bailout deals he’s handed out as he’s tried to battle this credit crisis.

• The U.S. national debt – the roughly $5 trillion held by the public– essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.

• U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.

• And that the average American has no idea just how bad this financial crisis is going to get.

The entire interview is worth reading through and here are a few snippets.

(Q):What would Chairman Bernanke have to do to “get it right?”

Rogers: Resign. (Hah! Love it.)

(Q): Is there anything else that you think he could do that would be correct other than let these things fail?

Rogers: Well, at this stage, it doesn’t seem like he can do it. He could raise interest rates – which he should do, anyway. Somebody should. The market’s going to do it whether he does it or not, eventually.

The problem is that he’s got all that garbage on his balance sheet now. He has $400 billion of questionable assets owing to the feds on his balance sheet. I mean, he could try to reverse that. He could raise interest rates. It would cause a shock to the system, but if we don’t have the shock now, the shock’s going to be much worse later on. Every shock, so far, has been worse than the last shock. Bear-Stearns [now part of JP Morgan Chase & Co. (JPM)] was one thing and then it’s Fannie Mae (FNM), you know, and now Freddie Mac (FRE).

The next shock’s going to be even bigger still. So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management. They’ve been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the “dot-com bubble” shock, so I guess Bernanke could try to start reversing some of this stuff.

(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn’t know anything’s wrong – that anything’s happening. Is that still the case?

Rogers: Yes.

(Q): What would you tell the “Average Joe” in no-nonsense terms?

Rogers: I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.

Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.

I don’t know why it doesn’t sink in. People have other things on their minds, or don’t want to be bothered.

(Q): What do you think [former Fed Chairman] Paul Volcker thinks about all this?

Rogers: Well, Volcker has said it’s certainly beyond the scope of central banking, as he understands central banking.

Volcker’s been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker. We’ve had couple in our history: Volcker and William McChesney Martin were two.

You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in. McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party’s out of control.

(Q): This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?

Rogers: Yes. We had two central banks that disappeared for whatever reason. This one’s going to disappear, too, I say.

[/end snippet]

With my limited broke-ass financial knowledge, I do believe we’re in a painful but necessary cleansing period of massive global deleveraging and (unfortunately) tremendous inflationary pressure. When the system is corrupt, it becomes prudent for people to embark on personal wealth preservation protection and with current shoddy interest rates, savers continue to suffer as we struggle to find creative ways to protect purchasing power.

My generation may experience a radical financial transformation from the insatiable consumerist lifestyle we’ve grown so accustomed to.

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