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How the Looming “Debt

Bomb” Will Crush the Dollar
The U.S. dollar has staged a short term rally against other currencies.
But the U.S. is already gripped by hidden inflation and must
refinance a mountain of short-term debt in just months.

Here’s how to protect – and grow – your money, even as the debt
bomb explodes…
By William Patalon, Executive Editor, Money Morning

You may have heard the talking heads on CNBC spouting

off about the recent 3% rally in the dollar. In fact, some Wall Table of Contents:
Street legends like Jim Rogers and Byron Wien, have recently • Inflation’s Already Raging
been buying dollars in anticipation of a near-term rebound…
• Americans Have Doubled Down
But they aren’t holding dollars for the long term. In fact, on Debt
they’re ready to drop the dollar the instant the rest of the
market decides to get in.
• When Will Creditors Unload
Treasuries?
Don’t be one of them.
• One Stock to Buy Now
These traders know that the U.S. Treasury is sitting on a
ticking time bomb: Over $2 trillion in short-term debt needs
to be refinanced in the next 12 months.

And there’s only one way they can do that… by printing even more money.

Read on to find out how to grow your wealth… even as the dollar is driven into the ground.

Inflation’s Already Raging

Inflation is already here. It returned to positive territory in November, according to a report
from the U.S. Bureau of Labor Statistics. The consumer price index (CPI) increased 1.8% from a
year ago, the first positive reading since February 2009. Prices increased 0.4% on a month to month
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basis, and 4.8% on an annualized basis.

But this is just “core inflation,” which excludes food and energy.

I don’t know about you, but I have to buy food and gas every week… so my wallet takes a major
hit every time these prices go up. But, the U.S. government conveniently leaves these out… painting an
inflation picture that is far removed from reality.

Fact is, real inflation is rapidly approaching

10% and will only get worse. Inflation devalues
the dollar by reducing purchasing power and
driving prices up.
Annual Consumer Inflation – CPI vs. SGS Alternate
Through November 2009
Concerned about rising inflation, former U.S. Federal Reserve Chairman Alan
Greenspan in the 1990s eliminated food and energy costs from the consumer price
index (CPI), artificially reducing inflation and reducing the budget deficit by
cutting of cost-of-living adjustments for Social Security payments. The SGS Alter-

At some point, even if the economy is nate CPI shows the same measures with energy and food inflation included.

slowing, the Fed will have to step in and raise 15

SGS ALTERNATE CPI CPI-U

interest rates. This will cause the trade deficit

Year-to-Year Change (%)

to explode. 10

Then, hold on to your hat as rising inflation

5
prompts employees to demand higher wages to
keep up with consumer prices, adding fuel to 0
the fire. It’s a vicious circle that can turn the
economy into a race to unload dollars for -5
tangible goods. 1980 1984 1988 1992 1996 2000 2004 2008

Sources: ShadowStats.com, U.S. Bureau of Labor Statistics, Money Morning staff research

Americans Have Doubled

Down on Debt
Americans will be in for a rude awakening in coming months when they discover the true scope of
the massive national debt racked up by the U.S. government.

The government’s debt has almost doubled in the last two years alone. At the same time,
Americans' personal wealth sank - along with housing prices.

But the U.S. debt bomb has only just begun to tick.

Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt.
And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion
this year alone.

So looking only at short-term debt, we know the Treasury will have to finance at least $3.5 trillion
worth of maturing debt in the next 12 months, an amount equal to nearly 30% of our entire GDP.

Currency speculators have a rule: in order to avoid a default, countries should maintain hard
currency reserves equal to at least 100% of their short-term foreign debt maturities.

The U.S. holds 8,133.5 metric tons of gold worth around $300 billion. The U.S. has strategic
petroleum reserves of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of

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oil. And according to the IMF, the U.S. has $136 billion in
foreign currency reserves. So altogether... that’s around
$500 billion of reserves.
Total domestic savings in the U.S. are only around $600
billion annually. Even if we all put every penny of our
savings into U.S. Treasury debt, we're still going to come
up nearly $3 trillion short.
So the question is: How in the world can the Treasury
get $3.5 trillion in only one year?
The answer is obvious: the printing press. The Fed will
take up the slack by printing money out of thin air and
exchanging it for IOU’s from the Treasury, further
devaluing our currency and government bonds.
When Will Creditors Unload Treasuries?
Around the planet, concerns are already mounting
about the U.S. debt bomb.
Now You Can Get Richer:
• Each time Congress goes on a billion-
dollar spending spree…
• Each time hedge funds and Wall Street
pile into gold to hedge their equity
positions…
• Each time countries like China move out
of the US dollar and buy (even more)
massive quantities of gold…
Each of these things has caused the yellow
metal to soar recently, and it’s not going to
stop anytime soon. One of the easiest ways
to take advantage of it is this one thing
you can do with as little as $10 and 10
minutes – from your own computer.
Discover it here.

The cost to insure Treasury debt with credit default swaps (CDS) on the over-the-counter market
rose by a whopping 66% in the fourth quarter, according to an index compiled by CMA Datavision.
The index is a benchmark for the cost of protecting bonds against default -- an increase indicates a
deterioration in perceptions of credit quality.

Only the U.K. and Greece had worse performing CDS’.

The biggest question is how long will it take for our creditors (mainly China) to wake up and
wonder how they’re actually going to get repaid. If you can't pay off all of your foreign debts in the
next 12 months with hard reserves, you're a terrible credit risk.

Before long, speculators will start targeting our bonds and currency, making it impossible to
refinance our debts. And that's when the trouble starts. Interest rates go up dramatically. Funding
costs soar. The party’s over.

As an alternative to U.S. debt China has already begun the process of diversifying its reserve
holdings away from the dollar. And China isn’t alone – other emerging markets are going the same
route.

The Indian and Russian central banks have stopped buying Treasury bills and begun to buy
enormous amounts of gold. The Indians bought 200 metric tons in November. Sources in Russia say
the central bank there will double its gold reserves.

Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the
value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.

All of this will lead to a severe devaluation of the U.S. dollar, or even a default. Based on our need
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to refinance over $3 billion in debt in the next year, expect it to happen within 18 months.

One Stock to Buy Now

When the dollar takes a nosedive and its prospects for a turnaround dim, investors will flee the
currency and take refuge in hard assets – most notably oil and gold. But don’t just buy gold bars or
bullion… look for a company that leverages the price of gold for real gains.

That company is Yamana Gold Inc. (NYSE: AUY).

Yamana Gold is a growing gold producer with a $6.8 billion market capitalization that made an
unexpectedly good profit in the fourth quarter of 2008. What’s more, its gold production is expected to
double to 2.2 million ounces per year by 2012, primarily from its Brazil and Argentina mines.

Yamana is also expanding both production and reserves (currently 19.4 million ounces) with
operations in Canada and Latin America. That’s because Yamana Gold went on a spending spree in
the past two years, buying up junior mines around the world to lock in reserves.

Even better, because Yamana is a gold producer it benefits from leverage on the price of gold.
Here’s how: If gold trades at $1000 and it costs the miner $500 to produce, they pocket $500 in profits.
If gold moves up to $1200, but production costs remain at $500, profits move up to $700 – without
having to mine any more gold! That’s $200 higher than before, or a 40% increase from $500 profits.
The miner’s shares are then likely to appreciate by some 40% as well, while gold only appreciated by
20%. Pretty good deal.

That means that Yamana Gold has a huge potential benefit from the coming increase in gold
prices. Invest now and watch your portfolio grow.
Editor’s Note: Of course, there is one other way to protect your portfolio from inflation. Gold Dollars. Using a secure
transaction from your own computer that takes just minutes, you can convert your dying dollars into U.S. Treasury-
approved “gold dollars.” Use them as you would regular cash – except as the price of gold goes up, you’ll be able to buy
more with 1 “gold dollar” than you could with an old George Washington! It’s so simple; we’ll tell you how to do it for free.
Just go here.

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