Our guest contributor today needs no introduction, but I'll give him one anyway. John Williams, founder of Shadow Government Statistics (often referred to as "ShadowStats"), has been debunking federal government statistics for years. John adjusts government economic data to be more honest and realistic, and publishes the results on his website. Among other statistics, John has developed his own inflation, unemployment, and GDP measurements that aim to more accurately describe reality than the government's own numbers.

In some cases, the government has made his job easy—John simply uses the government's own calculations from many years ago, before they were massaged, revised, and "improved" to the point that they're hardly recognizable. For others, he strips out distortions and adjusts the statistics to more truthfully describe the real world. For instance, I'd bet that your grocery bill would agree that ShadowStats' inflation rate of 9% is much closer to reality than the government's own calculation of 1.4%.

To whet your appetite, I grabbed two more of the more stunning stats from John's piece below:

• The government reports its 2012 deficit as $1.1 trillion. If you calculate the deficit using generally accepted accounting principles, as publicly traded companies in the US are required to, the deficit would be $6.6 trillion.
• So far in 2013, the Federal Reserve purchased 90.5% of the US government's net issuance of debt.

The below article is equal parts eye opening and sobering.

Market Shocks Ahead Should be Positive for Gold, Negative for the US Dollar
By John Williams, Founder, ShadowStats.com

Nothing is normal: not the economy, not the financial system, not the financial markets and not the political system. The financial system still remains in the throes and aftershocks of the 2008 panic. A number of underlying problems of that time, tied to the risks of a near-systemic collapse and the related, extreme economic downturn, were pushed into the future—not resolved—by the extraordinary liquidity and systemic-intervention actions taken by the Federal Reserve and federal government. Further panic is possible, and severe US dollar debasement and inflation remain inevitable.

Nonetheless, several major misperceptions appear to have developed in the last month or two concerning an end to the Federal Reserve's quantitative easing, the level of crisis posed by US fiscal imbalances, and an unfolding recovery in the US economy.

Contrary to currently hyped expectations in the popular financial media, chances are negligible for any serious, near-term reduction in the Federal Reserve's purchases of US Treasury securities. The Fed has locked itself into ongoing quantitative easing, with fair prospects of expanded, not reduced accommodation in the year ahead. Separately, the long-term solvency issues of the United States should return to the center of attention for the global financial markets by early September 2013. At present, prospects of the US government meaningfully addressing its extreme fiscal imbalances are nonexistent.

Exacerbating financial-system solvency concerns for the Fed and intensifying US fiscal instabilities, the US economy never recovered from its 2008 plunge, and now it is slowing anew. Increasing recognition of these factors, complicated by the potential of a domestic political scandal taking on Watergate-style status, promise difficult times ahead for the US dollar, with resulting domestic inflation problems and significant upside pressure on the prices of gold and silver.

Federal Reserve's Primary Function Is to Preserve Banking-System Solvency
Despite a Congressional mandate that the Federal Reserve pursue policies to foster sustainable US economic growth in an environment of contained inflation, those issues are secondary to the Federal Reserve's primary mission, which is to preserve the stability of the banking system. While Fed Chairman Ben Bernanke has acknowledged that there is little the Fed can do at present to boost economic activity, the weak economy remains the foil for banking-system difficulties, serving as justification for more easing by the Fed.

Accordingly, since the breaking of 2008 crisis, the Fed's accommodation, liquidity actions, and direct systemic interventions have been aimed at maintaining the stability and liquidity of the banking and financial-market systems. As bank bailouts became politically unpopular, the Fed increasingly used the weakness in the economy as political cover for its systemic-liquidity actions.

In response to critics of excessive accommodation, the US central bank recently put forth several rounds of jawboning on exiting quantitative easing, in an effort to quell inflation fears. Those efforts have been a factor in recent gold selling.

Comments from the June 19 Federal Open Market Committee meeting and Mr. Bernanke's subsequent press conference were clear but largely ignored by the markets. The shutdown of quantitative easing—specifically the bond buying of QE3—would not happen until such time as the economy had recovered in line with the relatively rosy economic projections of the Fed. As the stock market began to sell off in response to the Fed chairman's initial press-conference comments, he sputtered something along the lines of, "No, you don't understand me. If the economy is weaker, we'll have to increase the easing." The economy is going to be weaker; banking problems will persist, and the Fed will continue to ease.

Nonetheless, the consensus perception appears to be that QE3 will be gone by the middle of 2014, despite the stated economic preconditions. As will be discussed, though, intensifying economic deterioration should become obvious to the markets in the next several months, and that should help to shift perceptions. The harsh reality remains that the Fed is locked into its extraordinary easing by ongoing solvency issues in the banking system (only hinted at in Bernanke's post-FOMC press conference), and by the political cover provided by a weakening economy.

In the latest version of quantitative easing (QE3), the Fed has been buying US Treasury securities at a pace that is suggestive of fears that the US government otherwise might have some trouble in selling its debt. Through July 3, 2013 and since the expansion of QE3 at the beginning of 2013, the Fed's net purchases of Treasury securities has absorbed 90.5% of the coincident net issuance of gross federal debt. That circumstance is exacerbated somewhat by gross federal debt currently being contained at its official debt ceiling.

Still, in the pre-crisis environment of 2008, the St. Louis Fed's measure of the monetary base (bank reserves plus cash in circulation) was holding around $850 billion, with roughly $40 billion in bank reserves. As a result of intervening Fed actions, today's monetary base is around $3.2 trillion, with more than $2.0 trillion in bank reserves (primarily excess reserves). Under normal conditions, the money supply would expand based on the increase in bank reserves, but banks have not been lending normally into the regular flow of commerce, due largely to their impaired balance sheets.

While there has been no significant flow-through to the broad money supply from the expanded monetary base, there still appears to have been impact. As shown in the accompanying graph, there is some correlation between annual growth in the St. Louis Fed's monetary base estimate and annual growth in M3, as measured by the ShadowStats-Ongoing M3 Estimate. The correlations between the growth rates are 58.1% for M3, 39.9% for M2, and 36.7% for M1, all on a coincident basis versus growth in the monetary base. The June 2013 annual growth estimates are based on four weeks of data.

The ShadowStats contention, again, remains that the Fed's easing activity has been aimed primarily at supporting banking-system solvency and liquidity, not at propping the economy. When the Fed boosts its easing but money growth slows, as seen at present, there is a suggestion of mounting financial stress within the banking system.

Further, underlying US economic reality is weak enough to challenge domestic banking stress tests. In this environment, the Fed most likely will have to continue to provide banking-system liquidity, while again, still taking political cover for its accommodation activity from the weakening economy.

Renewed Fiscal Crisis by Early September
At present, the US Treasury is playing daily accounting games in order keep its borrowings—subject to the debt ceiling—from exceding the ceiling. The July 3, 2013 Daily Treasury Statement showed those borrowings to be just $25 million shy of the roughly $16,999.421 billion ceiling. The US Treasury estimates that the ability to play games will end, and the debt limit will have to be raised, sometime early in September 2013.

The long-postponed and unresolved budget-deficit conflicts within the Congress and with the White House are likely to surface anew at that time. What is being played out here is still part of the fiscal-crisis confrontation of July and August 2011, which almost collapsed the US dollar and brought about a downgrade in the sovereign credit rating of the United States. The issues never were resolved. They were put off until after the 2012 election, and other than for minimal sequestration, they remain in play, going into a post-Labor Day 2013 showdown.

The global markets, which broke into brief but extreme turmoil with the unresolved crisis in 2011, await a resolution. The markets have been patient with the US dollar through the ensuing sequestration, and continued postponements of serious negotiations that have accompanied successive displays of the political inability of the US government to address its long-range solvency issues. Further efforts at delay and/or obfuscation not only should invite an intensifying crisis of global confidence in the US dollar, but also will invite a further downgrade to the sovereign credit rating of the United States.

The crux of the dollar-debasement and ultimate, severe-inflation/hyperinflation issues indeed is this political inability of the United States to cover its long-range obligations, other than by printing the money it needs. Based on the US Treasury's financial accounting of the federal government using generally accepted accounting principles (GAAP), the GAAP-based federal budget deficit was $6.6 trillion in fiscal-year 2012 (year ended September 30). Well beyond the simple cash-based deficit of $1.1 trillion in fiscal 2012, the GAAP-based annual deficits have been in the range of $4 to $5 trillion for the six years leading up to 2012. The largest difference here is that the GAAP numbers include annual deterioration in the net present value of unfunded liabilities for programs such as Social Security and Medicare.

Those GAAP levels are not sustainable or containable. Beyond the likelihood that the economy is at the tipping point on taxes, where higher taxes actually would increase the deficit due to resulting slower economic growth, the government cannot raise taxes enough to cover the actual deficit in any given year. The annual shortfalls also are so large that every penny of government spending (including defense) could be cut to zero except for the social programs, and the fiscal circumstance still would be in deficit.

The options open to those running the government are limited in terms of new taxes and have to include significant spending cuts and restructurings of Social Security, Medicare, etc., so that those programs are solvent over the long haul. Such actions are a political impossibility at the moment. Given continued political contentiousness and the use of overly optimistic economic assumptions to help ten-year budget projections along, little but gimmicked numbers and further smoke and mirrors are likely to come out of pending negotiations or confrontations.

Economic Plunge and Recovery versus Plunge and Stagnation
The official version of recent economy activity is that a deep recession began in December 2007, hit bottom in June 2009, and that business activity has been in recovery since. That pattern is reflected in the accompany graph of headline, real (inflation-adjusted) gross domestic product (GDP). The economy regained its pre-recession high in fourth-quarter 2011 and has been expanding ever since. Unfortunately, no other major economic series has shown the full and expanded recovery suggested by GDP reporting. Those "errant" series include payroll employment, industrial production, consumer confidence, and housing starts, among others.

Other Factors Impacting the US Dollar, Inflation, and Precious Metals
Highlighted here have been several issues where recent shifts in market sentiment have neutralized or reversed the impact or otherwise had been significant, negative elements for the outlook of the US dollar, and supportive elements of the outlook for domestic inflation and the prices of gold and silver. Market sentiments should shift again, both as the economy shows an intensifying downturn and as the clock runs out on fiscal-crisis delaying tactics.

A new factor—not yet widely anticipated in the markets—is that still-developing political scandals tied to the Obama administration could threaten global perceptions of political stability in the United States, placing significant downside pressure on the value of the US currency. The popular press generally has been highly sympathetic to the political needs of the administration, so increasingly negative press in these areas suggests that recognition of the "scandals" has gained some momentum.

In the event that a Watergate-type circumstance evolves from the current hubbub of touted misdeeds, it could become a seriously negative factor for the US dollar. After Nixon floated the US dollar in March 1973, the Watergate scandal began to break open with Congressional hearings. Despite other turmoil of the time, including an Arab-Israeli war and an Arab oil embargo, the day-to-day developments in the Watergate scandal dominated day-to-day trading in the US currency.

When the US dollar again comes under heavy selling pressure, oil prices will spike anew, separate from the effects of political crises in the Middle East. The inflation, so driven, should reflect dollar weakness from Federal Reserve policies that Mr. Bernanke will find he cannot escape, and from dollar weakness reflecting the inability of the US government to address its long-term sovereign-solvency issues. Ongoing economic weakness will exacerbate the dollar-negative circumstances, intensifying the problems with Fed easing and US fiscal deterioration. The inflation will be driven by US dollar weakness, not by strong domestic demand for goods and services.

As fundamental dollar selling kicks in, full-fledged dollar dumping along with heavy sales of dollar-denominated paper assets are likely to unfold. Preceding, or coincident with that, the global reserve status of the US dollar should be challenged. As the rest of the world moves out of the dollar, domestic confidence in the US currency will falter as well, eventually fueling severe domestic inflation, and setting the early base of a likely hyperinflation. Such an environment is one for which physical gold and silver would serve as primary hedges against the ultimate debasement of, and loss of purchasing power in the US dollar.

Economist Walter J. "John" Williams publishes www.shadowstats.com. ShadowStats specializes in assessing the reliability of government economic data and in looking at alternative economic measures from the standpoint of common experience, net of heavily politicized methodological changes of recent decades (inflation, unemployment and GDP). Other analyses include estimates of ongoing money supply M3, which the Fed ceased publication in 2006, or less-commonly followed series such as the federal government's GAAP-based financial statements. Articles related to the accompanying comments on the understatement of official inflation and federal-deficit reality, and an article outlining risks of a US hyperinflation, are available to the public in the upper right-hand column of the ShadowStats home page.

I recently went on to Linkedin to see if there were any topics of interest I should participate in.  One of my groups that I joined discusses trade and private placement platforms, bank guarantees, high yield investments, etc.  I am always looking for new potential opportunities for investment particularly when it comes to a high yield investment like a trading platform.  It certainly makes my job easier when it comes to producing stellar results. Unfortunately, stellar results from a trading platform are very difficult to come by.

With all the negative press that these so called "private placement" groups attract, I'm surprised that a lot of people who are not wealthy or even sophisticated investors are even discussing the subject.  Everyone seems to know a guy or have a friend that participated in one of these fly-by-night investment pools and made a ton of money.  Seldom, do people have any specific or meaningful information about the particulars or some proof of performance. 

Occasionally, there is mention of a point guy. This guy is usually not an investment professional and is certainly not a wealthy man but somehow this private placement group has him pegged as their rep/unlicensed broker soliciting on their behalf. If you were to ask this point guy any questions, he could not give you any answers other than to tell you to fill out a customer information sheet (CIS) and he will submit it to the program principle(s) and at their discretion may contact you and provide details about the investment program. 

The CIS packet that you will fill out contains information about you and possibly your family members, business profile, passport #, Drivers license #, etc.  All the juicy stuff any identiy theif would appreciate you providing. You then submit this packet to the mysterious dark robed point guy who you know nothing about. He in turn will submit the packet to his overlord masters who may get in touch with you if they decide to select you from the millions of applicants begging to invest in such an elite and very selective program. Uh, yeah...bringing me to the subject at hand - Daryl.

I gave Daryl the link to this page so I hope you are reading this my friend.  Daryl posted his ad on Linkedin.
_____________________________________________________________________________________________________________________

$250K Min PPP $250K Min PPP
CIS/KYC; Tearsheet (Most Banks are Aceepted); Passport copy; PPA
I do intake and will send to my associate who is a Platform Principal in a Big Trade.
He will place file wherever client will earn the most money in the shortest time.
Compliance takes 48-72 Hours and Principal Client will be contacted directly by Platform.
Admin Hold. Funds DO NOT Move
_____________________________________________________________________________________________________________________

Despite the spelling error(s), you click on the post and you can contact him and he will send out a CIS package.  So I requested that Daryl provide more specifics about the programs he was a representing/brokering and asked for proof of performance.  The chronological e-mails are below.

Daryl Crabtree <[email protected]>:

Hello,
These private placement platforms are just what the name says
"private". They do not solicit or "proof up". I am an independent consultant. I
only do intake. I need CIS/KYC (attached); Tearsheet from bank; Passport
copy and PPA (attached) to submit to my associate who is a 100M Platform
Principal who will place file in whatever trade will earn client the
most money in the shortest time. If you are monetizing a Financial
Instrument such as a BG, include docs. Monetization can take 3-5 days after
Compliance and is 75%-80%. Compliance takes 48-72 Hours. Then Principal
Client will be contacted by the Platform to discuss particulars.I can tell you that
historical returns for the "Smaller" trades can be 60% monthly and for
Larger platforms historically can return 100% weekly. That is a
estimation and the Platform and the Principal Client will discuss profits and
details after Compliance. Thank you.

<dmahoney> wrote:

Daryl,
Thank you for the quick response. Yes, I realize what they are. I have
invested in them and currently do invest in them. I am not filling out
a compliance package at this point. You as a broker should have trade
desk proof about what you're pushing. There are a lot of snakes and I tend
to encounter many of them. I run a small hedge fund that invests 10% of our
funds under management in platforms but I like very distinct programs
and I want to see as much proof of performance as I can. I cannot fill out
the CIS without this.

This is private info in the hands of strangers. No telling what could
happen. Surely you can understand that. I am always looking for good
solid programs that have complete transparency. There should not be any
hesitation in the program manager to provide info. I will be more than
happy to sign a confidentiality and non-disclosure agreement if
necessary.

If you on the other hand know individuals who want to reduce their
capital exposure or can't afford the minimum investment, I would be
willing to pool funds together. Let's make something happen here.
Enjoy the holiday.

Daryl Crabtree <[email protected]>:

I am not a broker and am not pushing anything. The platform will not
provide proof at this point. There is no risk to the funds as they do
not move. The client must make the first move otherwise they would be
soliciting. This is done by submission of complete package. Unless a
submission is made first the platform cannot contact the client.
The word from the platform principal is Get the packages together.

<dmahoney> wrote:

Darly,
You are a broker if you do the soliciting on their behalf. Dude, cut
your losses now. Don't mess with any organization that isn't
transparent. They aren't real and if they are they would gladly
provide info for you. There are a lot of claims of non-depletion
accounts, etc. but I have found only ONE where that was the case.
That's why I always use an insurance wrap. I know how these work and
have been in arbitrage for years. I actually cover this specific
subject on my blog. Check it out...

http://www.millionairemakeradvisory.com/my-ppp-experiences.html

Do not fall for this crap or solicit something you know very little
about. You can be named in a lawsuit if something went wrong. There
are a lot of guys out there that weren't licensed investment
professionals that are hanging upside down from the rafters just look
at Joe Tufo's case. He pushed an unscrupulous organization. The
investors got ripped off and who did the investors have... Joe.  He
didn't do anything other than exactly what you are doing and the SEC
broke this guy in half.  He was a millionaire at one time and lost
EVERYTHING in his late 50's.

Daryl Crabtree <[email protected]>:

My name is Daryl not Darly. I am not meaning to solicit you. I am not a
broker. I have lost nothing.

<dmahoney> wrote:

Sorry about the typing error. You have a message on Linkedin. If that
isn't a form of soliciting then why did I contact you?  Good luck with that
and you may want to shop for an attorney just incase one of your
non-solicitations results in an investor getting ripped. Whose head do you
think they will have on the chopping block?

Daryl Crabtree <[email protected]>:
I do not know why you contacted me.
_____________________________________________________________________________________________________________________
OK, clearly Daryl is in over his head when it comes to this particular subject. I'm sure he is a nice guy trying to make a buck brokering these types of programs. There are a ton of people out there trying to broker anything just to make a few bucks. They don't know if it is a scam or not but as long as they can get a possible commission out of it, they're happy. To hell with their client if they get ripped-off.  These "brokers" don't seem to share a sense of responsibility for their clients. I just think that is bad business and for that, I think Daryl is being a schmuck to himself and his potential clients. They seem to not understand that there is a level of accountability that exists.

I can hear brokers rallying to hang me while screaming, "It's not our responsibility to protect the clients"!
Although, it is impossible to protect them from unknown factors but it is the obligation of the broker to empower the investor with as much knowledge of the investment so that they can make an educated decision. Unfortunately, I have found that a lot of folks don't share that view. That's why I ask questions. Maybe I will miss out on the investment opportunity of the century but at the end of the day I didn't lose anything. 

Guys like Daryl are being used by groups that prefer to remain in the shadows.  He thinks he's doing nothing wrong like our friend Joe Tufo mentioned earlier. Joe is a good man who actually believes that a man's word and a handshake are binding. He was destroyed and crucified across the internet. I researched his particular dilemma and realized that Joe was too trusting and allowed himself to be a tool.

TRUST IN NOTHING BUT GOD! (Will all atheists and agnostics please sit down!) Trusting in man leaves too much to be desired.  I have an uber-rich friend that cringes when I mention trade platforms.  I asked if he wanted to go in on a deal together to curb the investment risk and he went bananas stating that he lost $30 million dollars on that crap.  I think to myself...$30 million? Who invests that much money on a deal that he obviously didn't control. My friend is very smart and a self-made super rich guy. He got caught up in the hype of it all, so he fell for the okey-doke.

Do your research everyone.  If there is no transparency about the organization, forget about it!  If these organizations are so private and selective, why is it that they are often represented by guys who can't afford the program and have never invested in a platform.  How selective is that dynamic? 

There is no doubt that there are very selective and coveted investment opportunities that exist solely for the  rich.  I am aware of a few but you can best believe Joe Schmo isn't representing them.  Please be careful and don't fall for the hype and promises.