Wed, Nov 2, 2011|Sean Goldsmith

Food stamp nation...

Food stamp nation... More Treasurys coming... Fed holds steady... FBI looks into MF Global... Another government fool... Selling options is great...

August was an important month for the United States...

We hit an all-time record number of people on food stamps… 45.8 million. If, like Nancy Pelosi, you believe this type of government support is bullish for our economy, things are beautiful…

On July 1, Pelosi proclaimed in a weekly press briefing that the best way to stimulate the economy was to extend unemployment benefits – beyond the two-year limit. "It injects demand into the economy... It creates jobs faster than almost any other initiative you can name. – July 9, 2010, Digest

If you live in the real world, you realize how dire the situation is. Nearly one in seven people in America is on food stamps. Unemployment – at least the numbers the government reports – is above 9%. The federal government is broke. Our states and municipalities are broke. And the number of people relying on the government for survival is increasing every day. What happens when inflation renders food stamps and unemployment benefits useless? We'll see people starving and riots in the streets. Luckily, the government has the solution...

Today, the Treasury released its schedule for bond sales for the first and second quarters of the fiscal year – October 2011-December 2011 and January 2012-March 2012, respectively. And no surprise, it's larger than last year... much larger. The Treasury expects to issue $305 billion in the first quarter and $541 billion in the second quarter – a total of $846 billion of new debt in six months. That's up from $628 billion in the same period last year, a 35% increase.

On the topic, the Federal Reserve announced our economy is strengthening and consumers are spending more. As such, it's maintaining the current economic policy. The Fed will keep short-term rates near zero until mid-2013. And it will continue purchasing long-term Treasurys on the market to push down long-term rates (a move that's bad for mortgage REITs, like Annaly, which make the spread between short- and long-term rates).

The Fed acknowledged our economy still faces "significant downside risks" (including the ongoing debt issuance we mentioned above and the European crisis). And how will our central bank handle these risks? By leaving the possibility of further quantitative easing (QE) open. Erase the debt with still more debt...

I don't think anyone doubts the Fed will resume QE at some point. It's the government's only option (to inflate debts away rather than pay). No wonder gold is up 1.5% today.

A quick update on the MF Global fiasco... NBC reports federal prosecutors and the FBI are now looking into the "missing money" issue at MF Global. We repeat our call... Someone's going to jail.

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End of America Watch

Today's End of America Watch box is a little longer than usual. But our editor in chief, Brian Hunt, tipped us off to a great video that sums up the problem. We thought it was worth a little extra space...

Not many people caught it... But last night, one of Big Government's top mouthpieces made an ass out of himself on national television... while simultaneously revealing his – and those who support his beliefs – ignorance of achievement and "real world" economics.

The mouthpiece was Jared Bernstein, former chief economic to Vice President Joe Biden. The venue was Lawrence Kudlow's nationally televised Kudlow Report on CNBC. Bernstein took part in a panel discussion on the show, along with Cypress Semiconductor founder and CEO T.J. Rodgers and Art Laffer, inventor of the "Laffer Curve" – an economic concept that demonstrates the tremendous economic power of letting individuals and businesses enjoy the fruits of their labor.

The discussion centered on the idea of a "flat tax" in America... a concept that would be better labeled an "equal tax."

The idea behind a flat tax is that everyone would pay the same rate of taxation, regardless of income (extremely low incomes would be exempt, however). Under a flat tax, everyone makes what they make and pays a simple, "flat" rate of 10%... 15%... or 20%. We've proposed a 20% rate. The church has traditionally asked members to tithe 10% of their income. If God can survive on 10% of your income, certainly the government should be able to make do with twice that amount.

Of course, Bernstein – the advocate of "bigger and more complicated government is better" – is against the idea that everyone should be treated equally. He mouths the same "big government is good, successful people are bad" line that has become a daily ritual for President OBAMA!. According to these types, the "rich" only achieve wealth by screwing the little guy... So of course, anyone who makes a lot of money should be taxed to smithereens.

Cypress' Rodgers must not have the luxury of living Bernstein and OBAMA!'s taxpayer- and lobbyist-funded lifestyle. Rodgers supports the idea of a flat tax. He'd rather pay a flat rate than spend resources and time playing games with the IRS.

As a Silicon Valley man, Rodgers pointed out that bureaucrats can't create prosperity and lasting jobs... only hardworking innovators like Steve Jobs can create lasting wealth and employment. It's best for the government to reduce taxes and spending, get out of the "creating jobs" business, and let folks like Steve Jobs do their thing.

Bernstein acknowledged that Steve Jobs had created tremendous wealth and employment opportunities. But he then threatened that under a lower, equal-tax environment, government revenue would be reduced so much, government-sponsored schooling wouldn't be able to provide the next wave of success.

Cypress' CEO responded with the simple fact: "By the way, Steve Jobs dropped out of school."

We're sure this story won't make it into the mainstream press. It's too simple. It's too common sense. But the exchange was a clear demonstration of how people like Bernstein and OBAMA! are utterly clueless about success. They think a society can legislate, tax, and spend its way to success. It cannot. And hold your hate mail: We're all for education... But we know more spending on our current school system is not the answer to our problems.

Unfortunately, the government is full of people like Bernstein. They have no clue that people like Steve Jobs are the result of less and simpler government... not more, and more complicated government. But their idiocy does provide good entertainment from time to time.

You can watch the full video here. It's well-worth the seven minutes it takes to watch it.

To see the End of America video that started it all, click here...

Also, to read an exclusive interview with Porter Stansberry explaining how to protect yourself from the End of America, click here...

To sign up to receive the latest information about our Project to Restore America, click here.

New 52-week highs (as of 11/1/11): Fairfax Financial (FFH.TO).

If you're still not convinced selling options is one of the best ways to generate income, read today's mailbag. Have you done well selling options? Let us know here: feedback@stansberryresearch.com.

"Personally I like your Friday Digests. I have been a PSIA subscriber since the early days and an Alliance member for the last several years. Throughout the '90s and early 2000s my investing habits were eerily similar to the average investor you described in Friday's Digest. I understood investing but emotionally wasn't well suited for it, for precisely the reasons you described. I can honestly say that has changed – due in large part to you.

"Now I am much better at looking at the market and individual stocks with skepticism. I insist on value and I can now resist the urge to buy or sell based on emotion. However, the biggest change in my investing habits is in the use of options – thanks again to you. I have had a tremendous year trading options on both individual stocks (selling puts and call) as well as various indexes. I have bought and sold puts on the S&P at various times this year with great success. Your advice on buying individual bonds is next on my list – just having trouble finding value in bonds in this environment." – Paid-up subscriber Mike M.

Regards,

Sean Goldsmith

New York, New York

November 2, 2011